Time is a chief executive’s most valuable asset. In fact, if you take the median FTSE 100 CEO remuneration of £3.6m and do some beermat calculations, an hour of their time is worth somewhere between £1,100 and £1,500.
How they spend this time is influenced both by the needs of the business and their personal preferences, but how that relates directly to a firm’s performance is less understood, largely because it’s been hard for researchers to know what exactly CEOs do every day.
Until now. A new study collected diary data from 1,114 CEOs in the UK, France, Brazil, Germany, India and the USA, analysed the activity types and used machine learning to identify two distinct CEO styles.
‘Leaders’ spend the majority of their time in high-level meetings with multiple, cross-functional participants from both inside and outside the organisation.
‘Managers’ take a more hands-on approach, and are more often found in one-to-one meetings focused on core functions (for example plant visits). Most chief execs fall on a spectrum between the two archetypes, which is represented by a score on an index.
By comparing these behaviour types with data derived from company balance sheets, the researchers revealed that firms with ‘leader’ CEOs were likely to be more profitable and productive.
This wasn’t mere correlation: the study found that performance improved after hiring a CEO whose leadership style was closely aligned to the organisation’s mission and values. Sometimes significantly - a standard deviation increase on the index towards the most appropriate CEO style for a given organisation was associated with a 7 per cent increase in sales.
The researchers stop short of saying that all firms should have a ‘leader CEO’.
Some in fact are better suited with a ‘manager’ type in charge, but they do say that as many as 17 per cent of chief executives are ultimately not suited to the firm they run - largely because there are more ‘manager’ CEOs than are required, and not enough ‘leaders’.
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