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What Makes a CEO Effective? Inside the Mind of the CEO

For 15 years, Tuck professor Morten Sørensen has been analyzing a unique dataset on top executives, uncovering the traits that make them effective and different from others.

For nearly 40 years, psychologists have used the Five Factor Model to describe the main dimensions of personality—the traits that influence how we think and behave.

According to this model, everyone exists on a spectrum of openness, conscientiousness, extraversion, agreeableness, and neuroticism. Seeking to understand the combinations of these traits that lead to success in organizations, academics have mostly been limited to areas such as the military, education, and health care, where large sample sizes facilitate robust statistical analysis. While there are many other groups of workers psychologists would love to study in a systematic way, the one at the top of their list is probably CEOs and other top executives. After all, C-suite executives play a major role in the success or failure of billion-dollar companies, and it would be nice to know the traits that make these people effective. And yet, CEOs are hard to research: they are extremely busy and don’t tend to make time for researchers’ personality tests.

About 15 years ago, Tuck associate professor Morten Sørensen found an exception to this rule. Working on research in the private equity industry with Steven N. Kaplan of University of Chicago Booth School of Business, they discovered a young HR consulting company called ghSMART. Private equity and venture capital firms hire ghSMART to assess the top executives and managers of companies they are considering purchasing or investing in. ghSMART has developed a structured interview process that assesses these individuals on a number of characteristics, ultimately producing a personality score and a 20–40-page report that their clients use as part of their due diligence process. “ghSMART decided to share these assessments with us so we could see if we could use them for our research,” Sørensen says. “We immediately recognized how valuable and unique the dataset is, because it’s really personality tests for CEOs and other top managers that they have taken seriously, and which are fairly detailed.”

CEO candidates are at one extreme. They have significantly higher general ability, they lean more towards execution than interpersonal skills, they are more charismatic than analytical, and they are more strategic than paying attention to details.

At first, the dataset was rather small, consisting of assessments of 316 CEOs. Sørensen and Kaplan analyzed that data using a statistical approach called factor analysis, which extracts the main factors that vary across individuals. The first paper to emerge from this data was their 2012 article published in The Journal of Finance: “Which CEO Characteristics and Abilities Matter?” In it, they describe two factors they were able to glean from the data: one that captures general ability and another that contrasts communication and interpersonal skills with execution skills. They found that performance after the assessments was positively correlated with high scores in general ability and execution skills.

Morten Sørensen

Associate Professor Morten Sørensen teaches Entrepreneurial Finance at Tuck. His current research explores risk and return of private equity investments, optimal portfolio allocations to alternative investments, and the management of private equity-owned companies.

Every four or five years, Sørensen and Kaplan have updated the dataset from ghSMART, and as time has passed the data has grown exponentially. For their second paper using the ghSMART dataset, they analyzed 2,600 assessments and were able to extract two more factors: charismatic versus analytical, and strategic versus attention to detail. As they explain in their 2021 paper “Are CEOs Different?”, which was also published in The Journal of Finance, they used their four-factor classification to conduct three analyses that contrast the types of candidates that are considered for CEO, CFO, and COO positions. “The differences are striking but intuitive,” they write. “CEO candidates are at one extreme. They have significantly higher general ability, they lean more towards execution than interpersonal skills, they are more charismatic than analytical, and they are more strategic than paying attention to details.” CFOs tend to exist at the opposite end of the spectrum, with lower general ability, and more interpersonal skills, analytical acumen, and attention to detail. COO candidates are in the middle, except they pay even more attention to details.

Their second main finding in this paper is that candidates’ factor scores are predictive of subsequent career progression. “We have assessments that go back 20 years,” Sørensen says, “so we can see these people when they were originally assessed and follow their careers and see which of them became CEOs. Our analysis shows that, even if you’re not a CEO today, if your personality looks like a CEO’s, then the chances you will become a CEO are much higher.”

Our analysis shows that, even if you’re not a CEO today, if your personality looks like a CEO’s, then the chances you will become a CEO are much higher.

Their third finding hints at a flaw in the process whereby boards of directors hire CEOs. Sørensen and Kaplan find that candidates with greater general ability and interpersonal skills are more likely to be hired, even though their previous paper showed that general ability and execution skills were predictive of CEO success. This indicates that boards tend to overweight interpersonal skills when hiring CEOs. “They should look beyond that and assess whether these candidates can get things done even if they are not as pleasant to interact with,” Sørensen says.

As the dataset grows larger, the work in this vein continues for Sørensen and Kaplan. Their next paper, forthcoming in The Journal of Financial Economics, examines CEO overconfidence. Aside from the managerial implications of their work—relating to hiring and developing talent for the right roles—the co-authors are proud to be contributing to academic literature that gets at an important question: Do CEOs matter? “We can speak to this question because we can analyze how CEOs with different personalities do different things to the companies they run, and it matters for the way companies mature,” Sørensen says.