What Makes a Good CEO?

(light piano music)

Hal Weitzman: Are great CEOs born or made? Can you learn the skills to become a corporate leader, or does it take inherent talent? Have we got CEO hiring practices right, and how should we change them if we want to make the C-suite more diverse?

Welcome to The Big Question, the monthly video series from Chicago Booth Review. I’m Hal Weitzman, and with me to discuss the issue is an expert panel.

Steven Kaplan is the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at Chicago Booth. He’s also the faculty director for the Polsky Center for Entrepreneurship and Innovation at Chicago Booth. His research focuses on private equity, venture capital, and corporate finance, and he serves on the boards of several companies.

Mary Lou Gorno is managing director of Ingenuity International, the executive search consultancy, where she leads the CEO and board practice for Fortune 500, mid-cap, and privately owned companies. She’s also a trustee of the University of Chicago.

Lyndon Taylor is the partner in charge of the Chicago office of Heidrick & Struggles. He focuses on CEO and board searches in asset management, banking, and consumer financial services. He also co-leads the firm’s diversity advisory services practice.

And Constantine Alexandrakis runs the US arm of Russell Reynolds Associates, as well as its global leadership and succession team. He’s an expert in board of director and CEO succession, search, and assessment.

Panel, welcome to The Big Question. Since our three headhunters are all Booth MBAs, welcome back to the University of Chicago.

Steve Kaplan, let me start with you, because you’ve actually done research on CEOs and what companies are looking for in a CEO. What did you find?

Steve Kaplan: I had a very nice sample, which is probably unique, of almost 3,000 candidates for C-level jobs. And so you could see what a CEO looked like compared to others.

Hal Weitzman: Compared to a chief financial officer?

Steve Kaplan: Compared to a chief financial officer, a chief operating officer, and people in the divisions. What you find is CEOs are different. And how are they different?

Well, when you look at all their characteristics and experience, there are four basic factors that come out of the data. Those four factors are: talent, execution, charisma, and creative strategic ability. The CEOs, relative to others, are more talented, more execution oriented, more charismatic, and more creative and strategic.

Hal Weitzman: Just to dig in very slightly, those are pretty broad terms. Talent. So what do we mean by them?

Steve Kaplan: Talent is really kind of everything. Somebody who scored high on one thing tended to score high on a lot. Talent would be being charismatic, being execution oriented, being good with people. Sort of everything they were rated on, they would tend to score well.

Hal Weitzman: I see, so being a good all-arounder.

Steve Kaplan: Exactly.

Hal Weitzman: Generally skilled and—

Steve Kaplan: Exactly.

Hal Weitzman: OK. All right. Now, does that suggest that there’s a CEO type?

Steve Kaplan: What that suggests is that CEOs are different, and there is a CEO type. What was nice about this data is that we took the people who were not CEO candidates. So it was kind of an out-of-sample test. And then we looked at which of them became CEOs later in their careers. It turned out it was the same variables, so the more talented, the more execution oriented, the more charismatic, and the more creative strategic.

Hal Weitzman: Mary Lou Gorno, does this kind of chime with your world? You’re looking for CEOs. Are these the sorts of things you’re looking for?

Mary Lou Gorno: I’m happy to say I think they are. I think there’s a . . . as you think about the characteristics of a CEO, I would capture the things, the factors that Steve just talked about. I might place one additional element that I think resolve, unwavering resolve is very, very important. And I might actually place that in a separate and distinct category, even though I know it’s, I’m sure, incorporated in that four.

Steve Kaplan: It’s in execution. It is a big measure or a big part of execution.

Hal Weitzman: Lyndon Taylor, does this make sense to talk about a CEO type?

Lyndon Taylor: To some extent, I think it does. I think of it broadly as leadership types, who succeeds as leaders. To some extent, a CEO, a person who’s going to be a CEO, has strong leadership. All the things that Steve talked about, those are all leadership traits, in my mind, and CEOs are leaders.

They not only have those leadership abilities, they have the ability to articulate a vision that people can buy-in. It goes partly to the charismatic aspect that Steve talked about. A great leader has the ability to articulate a vision and get people to follow. So you see a constant thing, they have followership, and they attract talent. All of those things go together, and that makes someone a great leader in my mind.

Hal Weitzman: And Constantine, what do you think about this idea of isolating characteristics and saying, “This is a CEO.”

Constantine Alexandrakis: Our studies at Russell Reynolds have shown that there are definitely characteristics that separate CEOs from non-CEOs and great CEOs from mediocre CEOs.

But to your question about are there different CEO types, we also think that there are different contexts within which CEOs operate and that the best ones are able to pivot between those depending on the situation their company is facing. So whether it’s a CEO that can move from an attack mode of trying to fend off a competitive threat to one that can move to a fortification mode of bringing various stakeholders together in order to amplify what they’re trying to do with their business strategy.

Hal Weitzman: Does that mean you would be looking for a different type of person in those two situations?

Constantine Alexandrakis: Absolutely, yes.

Hal Weitzman: So in your view, there isn’t necessarily a single type?

Constantine Alexandrakis: There are characteristics and experiences that characterize the most successful CEOs, but those will vary depending on the situation, of course.

Hal Weitzman: OK. Steve Kaplan, quite a lot of attention, when this research came out, was focused on the fact that CEOs didn’t necessarily have to be nice.

Steve Kaplan: Correct.

So where does that come from?

So the data, if you look at this factor, this execution factor, kinda the flip side of that is being agreeable. Being agreeable means being a team player, treating people with respect, and, you know, you could say being nice. And in the data, those people are less likely to become CEOs. Then, in another paper that I have, those characteristics are kind of irrelevant to how the company and the CEO performs.

What’s relevant is the execution side. And the more I learn and the more I see, the more I believe that result, and here’s why. If somebody is too nice and too agreeable, they are not going to get things done. They are going to be too consensus oriented. They are going to be slow, and it is very frustrating to the people who do want to get things done.

Hal Weitzman: So Steve Kaplan, just to be clear, then, does that mean that likability and execution are actually two diametrically opposed skills?

Steve Kaplan: Likability, I think, is the wrong word. I think agreeableness is the right word. If you look, again, at the data, holding talent constant, there’s this trade-off between being agreeable and being execution oriented. And I think that comes from when you execute, when you move fast, when you’re aggressive, sometimes you step on toes and you appear not to be agreeable.

If you are consensus oriented and a little slow, you’re going to appear agreeable. I think there is a definite conflict between those. And the danger of being too agreeable is that you don’t get things done and you frustrate the people who want to get things done. And so, again, in the other paper, the people who executed were the people who were successful. And in talking to . . .

Hal Weitzman: So just to explain, your other paper was about once the CEOs are in position, how well did they do.

Steve Kaplan: Exactly. In talking to executives and talking to private-equity investors, this actually resonates. And if you want an example that people are aware of, Steve Jobs and Jeff Bezos are two people who are not known to be the nicest people, but boy do they get things done, and people like to work for them because these companies make a lot of progress despite the fact that it may not be “the nicest” environment.

Hal Weitzmn: They have the vision thing that Lyndon referred to and the leadership skills. Mary Lou?

Mary Lou Gorno: You know, I was thinking about this in the context of not all great leaders become great CEOs. Many do, and I think the difference is just what Steve is talking about, is that great leaders have to contribute to results. Bottom line, impact. And if you’re unable to do that, you’re a great leader, but you haven’t made that successful transition.

Steve Kaplan: You don’t have to be a jerk. I’m not saying you have to be a jerk. I think you can be agreeable and still get things done, but they are sometimes in conflict. And if you have to get things done, sometimes you will, you know, not be so nice.

Constantine Alexandrakis: Our data supports that, Steve, about agreeableness, but it also says that the best CEOs tend to be unpretentious and that that creates a difference. So something to think about.

Hal Weitzman: Unpretentious makes them more likable, or—?

Constantine Alexandrakis: Makes them able to get their teams and their stakeholders to execute more effectively.

Hal Weitzman: Yeah, I mean, my question would be how would you balance not getting bogged down in decision-making with letting everyone have their say and listening to people?

Lyndon Taylor: I mean, that’s part of what being a great leader is, if you look at it. We’ve looked at it, and great leaders have confidence. So they’re willing to take in all the information, take in the data, and make a decision. And they’re willing, as Steve said, to execute, to make a decision, to live by it. People can agree or not agree. But if you look at great leaders, great CEOs, quite frankly, as well, make decisions and lead. And people follow because they’ve made the decisions. They’re willing to execute. They take the risk.

Steve Kaplan: Right, and the worst thing is not to make a decision.

Mary Lou Gorno: Yes.

Steve Kaplan: Then, you know nothing will happen. If you make a decision and it’s wrong, if you fix it, you can still be successful, but you’ve made a decision.

Mary Lou Gorno: I think, going on what you were mentioning about being unpretentious, an element of that is being genuine.

Hal Weitzman: How do you, as a headhunter, measure that?

Mary Lou Gorno: It’s not easy. I think part of it is just talking to individuals about how they’ve achieved success and the environment that took place around that.

Lyndon Taylor: Very much so. I think what we are increasingly doing is focusing on the science behind our art. Our art is to help select and evaluate talent. Increasingly, we’re developing tools to look at how do leaders make decisions, how do they lead. For example, we have a tool called Leadership Signature, which looks at how does a leader lead. What’s their style? Right? And certain leaders fit certain styles, as Constantine talked about, in certain situations. You’re looking to bring together a team that has complementary leadership styles to then move the organization forward.

Constantine Alexandrakis: It’s a combination of data and analysis and experience.

Steve Kaplan: Now, how much comes from interviewing the candidate versus reference checks versus or taking tests. Those are three different—

Constantine Alexandrakis: It’s all part of it.

Steve Kaplan: So you do all three?

Lyndon Taylor: Yes. We do all three. I think what you find is you look for the outliers. Where is that something is incongruent to what you found in the interview to what the psychometric test or their competency says to what their reference says. What you generally look at, for us, is we take the first two, and that’s the context in which we take the reference, right, to look at where there might be gaps and incongruencies. But they all come together.

Hal Weitzman: To what extent, then, in your mind, is this leadership you talk about inherent or learned?

(panelists laughing)

Lyndon Taylor: Um. I will say this. I don’t believe that great leaders are born. I think great leaders are developed. If that’s the case, I probably wouldn’t be sitting in this room. A lot of us would not be in this room. There is an element around community context and mentorship that great leaders have.

I think that one of the things that they are, we didn’t talk about this, is they’re learners. They’re quick and adaptive learners. The context of this is you put them in the right situation, they learn from it, and they grow from it. So I don’t think they’re born, to answer your question.

Mary Lou Gorno: I might add a little more that I think that foundation is very important, and I would weight toward having that foundation.

Constantine Alexandrakis: And what’s the evidence for that. It’s the fact that there are a number of CEOs who got their early career training in academy companies. So it was that exposure training, operational experience that allowed them to apply their traits and become successful.

Steve Kaplan: I would say, on the data side, the fact that these people are rated at a certain point in time and five, 10 years later, it’s predictive, that suggests there’s something that’s innate or long term. It may be it’s not clear when they learned it, because these people were all assessed in their, probably their 40s, but it’s something that does last. It’s not learned in the sense that the stuff when you’re assessed is predictive. That said, some of these things . . . so execution, I’m convinced, you can teach yourself to execute more. In fact, that’s what Sheryl Sandberg says with Lean In. I mean, Lean In is basically go execute. Charisma, which is being enthusiastic, being persuasive—

Constantine Alexandrakis: Or EQ.

Steve KaplanL: Is something where I think some people are more skilled than others innately, but you can certainly improve on that. My wife tells me I did that.

(panelists laughing)

Steve Kaplan: I was her project.

Mary Lou Gorno: You did it well. (laughs)

Steve Kaplan: Thank you. The creative strategic, I’m not sure. So there are some things that I’m not sure. There’s some things I think you can definitely improve upon.

Hal Weitzman: Steve, you found a difference in your research between CEOs and who become CEOs and who become CFOs and COOs.

Steve Kaplan: Correct.

Hal Weitzman: What are the differences there?

Steve Kaplan: What was a bit surprising was the CFOs were almost the opposite of the CEOs. Whereas the CEOs were charismatic, the CFOs were not. That’s probably not surprising. Where the CEOs were creative strategic, the CFOs were more managerial, bureaucratic.

What was surprising were the CEOs were very execution oriented. The CFOs were actually more agreeable in terms of consensus and etc. And on the talent side, the CEOs tended to score higher than the CFOs. And I tell the CFOs when I present this, it’s not that you’re bad people. It’s just that you’re in this group, which is a very high-end group. The CEOs look different from the CFOs.

Hal Weitzman: Does that chime with your experience, Mary Lou, hiring CFOs?

Mary Lou Gorno: I think it does. There is a bifurcation in terms of some of these characteristics, because you have to look at what are the defining qualities one needs in their role to succeed. And I think you’re absolutely right in terms of how you would separate those. I think the question I’d love to have everybody think about is how that CFO translates to become a CEO.

Constantine Alexandrakis: Which there are several examples of that, right?

Mary Lou Gorno: Exactly.

Steve Kaplan: And that’s where the CFOs who look more like the CEOs are more likely to become CEOs.

Mary Lou Gorno: Exactly, and successful.

Steve Kaplan: It’s the execution. It’s the charisma—

Constantine Alexandrakis: Engaging, yes.

Steve Kaplan: —which is probably harder than being creative and strategic.

Hal Weitzman: Conversely, do we know if the less charismatic, more technocratic CFOs, if they make it to the CEO position, do they do well?

Steve Kaplan: Do not know. I mean, what I can tell you in terms of the success, which the data are less good on, is that the charisma is less important. The agreeableness is less important. What matters is the execution and the creative strategic in terms of being successful.

Hal WeitzmanL So you can get by without charisma as long as you get stuff done?

Steve Kaplan: That appears to be the case. Also, the charisma is a two-edged sword, I think. Some people who are charismatic are the type who bring people along and are leaders. I think sometimes they’re the people who get attention and are maybe a bit narcissistic and may not be so good as leaders.

Mary Lou Gorno: From my experience, sometimes someone who is charismatic is more valued outside the firm as they are being brought into the firm.

Steve Kaplan: Did you guys have a view?

Constantine Alexandrakis: Yes.

Steve Kaplan:I think it gets you noticed and it gets you up. But once you’re there, if it’s a charisma that you’re getting noticed but not getting things done, it can be a negative.

Lyndon Taylor: Well, I think there is something to be said for the charisma of servant leadership. People and colleagues tend to follow people who don’t make it about themselves, right. So in your example, Jeff Bezos and Steve Jobs, we would say they have a different kind of charisma, but what was attractive, when they are doing things, it doesn’t seem to be about them. It’s about the business.

Contrast that with a, this will date me, a Chainsaw Al–type of charisma. Which was about what I’m doing is about me versus what I’m doing is about the organization and the people.

Constantine Alexandrakis: And the charisma issue is tricky, especially in the selection process. When a CEO candidate comes from the outside and the board is looking at him or her, they sometimes have difficulty filtering out the appeal of the charisma versus the actual reality of the substance of what they’ve accomplished. So it’s tricky.

Steven Kaplan: And I think agreeableness also comes in there. If you’re very agreeable, boards are going to like you more, and they may overweight that versus the track record of what you got done.

Hal Weitzman: All your firms use a lot of data and psychometric testing you referred to. Do you find that that reproduces the same kind of CEOs? Constantine?

Constantine Alexandrakis: No, because every outcome is a little different. I don’t think it creates an inherent bias, but there is an issue around diversity at the CEO level. And part of it is driven by norms and things in our society that haven’t changed. Part of it is also driven by the fact that boards of directors aren’t super diverse and also the pool of candidates that we’re drawing CEOs from isn’t as diverse as it could be. Very small proportion of women, very small proportion of other minorities. So that all does create some sameness in the types of people we see in these roles, and we all need to work on that to improve it.

Hal Weitzman: But is that . . . I’m wondering if the reason that the pool looks like that is because we set a certain kind of test or a certain kind of set of characteristics that reproduce what we already have?

Constantine Alexandrakis: I don’t think so, because the testing science on these things is relatively new, in the last decade. So it’s more around who’s making these decisions, who’s available in the pool to be looked at for these roles, and a number of other factors.

Hal Weitzman: Mary Lou, what’s your view about how we would achieve more diversity, both of opinion, so we don’t just get people who agree with the board, and of, you know, of demographics?

Mary Lou Gorno: I think one of the things we need to look at is the culture of an organization. If you look at the board, as the leadership, if they embrace change, if they embrace diversity and encourage it and honor it and celebrate it, I think that would provide a richer pool of candidates. And I think that’s very, very important, particularly for the CEO, as a leader, to demonstrate that in the changing marketplace, diversity is honored in the organization. And I think that would have a huge impact.

Hal Weitzman: Lyndon, do you agree?

Lyndon: I think I agree wholeheartedly. And I think there’s a little bit of subcontext we’ve noticed in our data, and Constantine mentioned it. Boards, executives tend to select people who not only look like them but think and act like them. You can be diverse but act and look just like the team that you’re joining. There’s a big part of it, because you want to join a team where you’re going to feel a part of it. But the most successful organization, if you look at it, over time change and adapt, which means that they have this core that drives them, but they’re also willing to be open to new ideas and new perspectives.

And you can . . . part of our assessment looks at that. How open is an organization? That is an element of diversity, versus just being diverse. Do you look or act diverse or say you have diversity of thought? Are you open to change, to new ideas?

Hal Weitzman: But there’s nothing, in your mind, in the process itself that reproduces the same kinds of outcomes?

Lyndon Taylor: Not exactly, no.

Hal Weitzman: In the testing, in the characteristics, in the—

Lyndon Taylor: No.

Hal Weitzman: No? OK.

Steve Kaplan: I would add two things. First of all, in the data that we had, the women scored basically the same as the men, so there wasn’t a big difference in how they scored.

Then, the second thing I would say is the pool is getting bigger. At least for women, where we have very good data, when I started, I think the MBA class was probably a quarter women. Now, it’s over 40 percent. So you’ll see, over time, I think a bigger pool. Now, whether it gets to 50 percent, who knows, but I think over time, you are likely to see bigger pools of more diverse candidates. And also, you see white men are a lower proportion of college graduates over time.

Hal Weitzman: Do you think that the kind of tests, the kind of assessments that you use to select the candidates, are they presumably getting refined over time? So will we know more and more about the kinds of characteristics we’re looking for, Constantine?

Constantine Alexandrakis: Absolutely. As the data pool grows, we are able to go back and refine the questions, refine the analysis around the data. So. I don’t think we’ll be at a point where one day, one can just take the test without any human intervention and know that they are—

Hal Weitzman: We’ll take the DNA!

(panelists laughing)

Constantine Alexandrakis: That’s right. Perhaps I’m short-sighted in thinking that’ll never happen. But it is constantly improving, our ability to predict some of these factors.

Hal Weitzman: What are some of the—

Mary Lou Gorno: What I—

Hal Weitzman: Sorry.

Mary Lou Gorno: I was just going to say what I enjoy about it is it helps us make better decisions and informed better decisions. So as we gather our own experience and our observations, it’s strongly impacted by this. They’re inextricably linked, and I think they make us better decision makers.

Hal Weitzman: Then to what extent do you draw on data from the academic world as opposed to, a lot of you are compiling your own data, to what extent do you look at research like Steve’s?

Lyndon Taylor: Actually, going back a few years ago, we actually contrasted and leveraged that, quite frankly, to say is the data coming from the academic world, how does it sync with our own findings? How does it sync with what we’re finding from the diagnostic tools that we’re leveraging and see where there is a difference or where they match up or is validated from that perspective.

Constantine Alexandrakis: Well, and Steve’s data is not from the academic world. It’s real business data. Right, it’s real business. It all helps us.

Lyndon Taylor: Right.

Mary Lou Gorno: We’ll accept it.

(panelists laughing)

Hal Weitzman: Usually, it’s the other way around.

Steve Kaplan: Thank you, thank you.

(panelists laughing)

Hal Weitzman: Remember, we’re the University of Chicago. Well, on that note, I’m afraid our time is up. My thanks to our panel: Steve Kaplan, Mary Lou Gorno, Lyndon Taylor, and Constantine Alexandrakis.

For more research, analysis, and commentary, visit us online at review.chicagobooth.edu and join us again next time for another The Big Question.

Goodbye.

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