To be a CEO, you have to be at least good at what you do. But some CEOs are not just good, they are brilliant. Take, for instance, Howard Schultz from Starbucks, known for his progressive approach and political views, which he implements in his product. Jeff Bezos, founder of Amazon, delivers similar results and fights back against any controversies hitting his company. Charles Phillips, Infor CEO, has taken on his previous employer Oracle, and seems to be winning that race. The difficulty is, however, how the worth of a CEO can be measured. This is exactly what a recent study aimed to achieve.
The Study’s Methodology
In the study, researchers started with the S&P Global 1200 list. 70% of all the world’s companies are included on that list. They only wanted to look at long term performance, excluding any CEOs who started before 1995, or who took up position after April 30, 2012. Any CEO with a past criminal record was also excluded. At the end of this exercise, they were left with 832 CEOs, working at 827 different companies.
Next, these companies’ financial data was pulled, as well as daily company returns since the CEO started. This enabled them to create a metric from best (#1) to worst (#832). They used two other different metrics to create a more balanced approach, and to make sure that companies that simply had lower turnovers because they were smaller (comparing a company like SAP to a mom and pop store wouldn’t be fair), weren’t negatively affected.
Next, the study looked at the biographical features of the CEO. This included things such as age, previous employment, and education. This enabled them to determine whether someone’s past influenced how well they performed in the present.
The Elements Needed to Become a Truly Good CEO
Based on the study, it was determined that one of the most important things that shows whether or not a CEO is effective, is their turnover. The total shareholder returns for the top 50 CEOs was 1,350% during their tenure. This averaged at 26.2% per year. These are the companies that, therefore, perform very well financially.
However, other things also seemed to be of importance. Firstly, most of those who ended in the top 50 had been working in CEO positions, or similar positions (Charles Phillips, for instance, was President at Oracle before becoming CEO at Infor), for at least seven years.
Unfortunately, the research was criticized heavily. While it was undeniable that the top 50 CEOs that came out of the study were very good at creating value and revenue for their company, and that they had a lot of experience, it lacked an insight into the ‘softer’ values. It wasn’t clear, for instance, whether their team was happy working for the company, or whether they felt they performed out of fear. As such, it still isn’t clear what truly makes a great CEO, as these are often values that are hard, if not impossible, to quantify.