What Makes A Successful CEO?

I have often wondered what type of characteristics a typical CEO might have. The typical person thinks of the CEO as some all around person, who is charismatic, attractive, and socially outgoing. I would say that some of these characteristics are what some CEOs have, however they are not necessarily the characteristics of CEOs. For instance managers who promote people could look around the company and see what type of characteristics people in upper management have and try to find those same skills in other people they are trying to promote. Also usually people with many advanced degrees are not the best CEOs. People might think, "Well this person has a PhD" so therefore they should know how to run a company. There are all different kinds of intelligence. I would say there are exceptions to this Lee Raymond of ExxonMobil and Jack Welch who both have PhDs in chemical engineering.

Luckily, Steven Kaplan of the University of Chicago has done some research on this topic and should have a forthcoming article published in the Journal of Finance. Kaplan did an interesting study based off 4 hours interview with people interviewing for CEO positions in private equity and venture capital firms. Kaplan’s main argument is not to hire someone because they have very good people skills. The better test of a CEO is their track record of getting things done. Moreover, Kaplan states that a CEOs talent, skills, and abilities are important characteristics in figuring out who to hire as a CEO. CEOs in general have to get the job done or they are fired. Building off Kaplan’s research on executive compensation CEOs today face a higher turnover rate than decades ago. The important thing for any organization is to make progress. This means constantly making things better and improving. People that create results generally are people that get the job done and progress not only themselves but the company as well. Three traits that Kaplan mentions that what board members should look at in their hiring decision is someone what is: persistent, efficient, and proactive.

I do think that most good CEOs are also effective communicators. These people tend to be articulate and are pretty good speakers. However, I don’t think this should determine whether or not a CEO gets hired. The most important thing is a CEO has to understand the business they are in and the possible risks and how to mitigate them. Any CEO can look like a genius when the market or their industry is doing very well. However, the true test of a CEO is managing a company when things are bad. Many companies take on too much debt, create products that people don’t buy, or invest in projects that will never see a dime. Good CEOs know how to try to mitigate risk. Also another characteristic I would say that is important for a CEO is delegation. CEOs of any Fortune 500 company get hundreds of emails a day. These people have to understand what is important and what isn’t. Good CEOs know who knows what, and how to use that for the company’s benefit. I really don’t think people understand what it takes to be a CEO.

I am always intrigued when they say this CEO makes X times the average worker. No one ever stops to think that usually the CEO is also X times more productive than the average worker. Not only that the average worker does not have the skills needed to become a CEO or else CEO compensation would decline dramatically. Also being a CEO is not a 9-5 job. I would be willing to bet that no CEO in the Fortune 500 works less than 40 per week. Anyone who simply thinks they can walk into a major company and take over and not create a catastrophe is mistaken