CEOs Matter More than 10%

July 15, 2006

CEOs Matter More than 10%

I was reading a recent Harvard Business School Working Knowledge by James Heskett that reminded me of Jeffrey Pfeffer and Robert Sutton’s conclusions on CEO importance. Sutton wrote:

“First, in just about every study I’ve ever seen from the laboratory to the press, the amount of control a leader has over a company is exaggerated. Start reading Fortune or the Wall Street Journal, which many of you do. They will talk as if the CEO is steering the direction of the company, that every little move he or she makes has a huge effect on the business. In fact, if you started looking across numerous studies and tried to guess how much impact CEOs have, you’ll see they have maybe a 7% to 10% impact over performance. In young, small companies—and this conference more is about young, small companies—CEOs do have the biggest impact. You look at a Fortune 500 company, where you have superstar CEOs who are paid a fortune, they have the least impact.”

There are definitely people who would argue that 10% accounts for alot and those who would say CEO leadership accounts for even more. I think that CEOs matter a great deal in shaping a company’s destiny.

It’s particularly interesting how the CEO pendulum swings both ways. First, CEOs are celebritized and celebrated. Next they are scorned and ridiculed. Now CEOs are earning back some of their trust they lost five years ago. They still have a ways to go as issues surrounding CEO compensation remain in the headlines. As I see it, we are back in the middle of the pendulum swing and luckily no longer at the extremes.

One indicator that CEOs continue to matter is the hefty increase in coverage. If they mattered so little, why would media spend as much time covering their comings and goings? The coverage on Nissan/Renault’s CEO Carlos Ghosn and GM’s Rick Wagoner is over the top. Today’s New York Times features Bill Ford and his plan to revitalize the company. Fortune has Jack Welch on the cover and dismisses his lessons on how to run a business. Business Week gave Jack Welch and his wife Suzy Wetlaufer an ongoing column on leadership. New Radio Shack CEO Julian Day was big news last week as he was pulled in to turn around the ailing retailer.

CEO Capital yields sizeable dividends such as attracting the best talent, giving companies the benefit of the doubt when times are tough and motivating employees to do their best. The right CEOs make a measurable impact and I wager to say, more than 10%. Amen.

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Leslie Gaines-Ross
Leslie Gaines-Ross

As Weber Shandwick’s Chief Reputation Strategist, I focus on the ever changing world of reputation. For the past 25 years, I have relentlessly observed, researched and commented on the rise and fall of corporate and CEO reputations.

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