CEOs are lucky, tall men

A new working paper [PDF] from three Harvard Business School researchers builds on the work of Texas A&M professor Markus Fitza, whose paper in last month's Strategic Management Journal showed that nearly everything about a CEO's performance can be attributed to chance.

The HBS paper measures the abilities of CEOs against the rest of the population and against the managers who report to them and finds that CEOs are not exceptionally intelligent or skilled (though they are taller than average), and that "luck is the biggest factor" in their achievements. What's more, corporate governance rewards good luck much more severely than it punishes bad luck.

It's safe to say that CEOs are, overall, a talented bunch, but that's not what separates them from other professionals, nor is it the main reason their firms succeed or fail. Certainly it doesn't come close to explaining why they're so well paid. Put another way, CEOs matter, just less than many people think. Instead, luck, and yes, bias, play a far larger role in determining who ends up leading companies, and whether they are fired or end up industry leaders.

There's perhaps no better proof of this point than the third factor the researchers looked at in the study of male CEOs in Sweden. In addition to the interview and the cognitive tests, the researchers considered height. Taller men, they found, were more likely to become CEO, though the effect wasn't as strong as for the other two factors. Even though CEOs weren't at the very top of the spectrum in intelligence, when the researchers combined cognitive ability, interview results, and height into one score, they found that CEOs of large Swedish firms were in fact in the top 5%. Becoming CEO doesn't necessarily hinge on being the best and brightest, though that helps. It's also important that society thinks you look the part.

Are Successful CEOs Just Lucky?
[Walter Frick/Harvard Business Review]

(via Naked Capitalism)