Ten Traits That Make a Great CEO (Backed by Research)

Ten Traits That Make a Great CEO (Backed by Research)

Most of us have an idea about what we think makes a great CEO.

It could be the genius tech founder, a visionary who combines drive with creativity to power their company to new heights. Alternatively, it could be the wise old head who steadily worked their way up the ranks of a company before gaining the top job; or the firefighter, brought in to perform miracles at a previously struggling company.

Either way, as well as our own ideas, plenty of studies have attempted to show what makes a great CEO. In this article, we’ll take a look at some of these reports to see what the research says.

CEO Genome Project

The CEO Genome Project was a ten-year study that sought to identify the behaviours that make a great CEO. It included assessments of 17,000 C-level executives of which 2,000 were CEOs. The study discovered a lot about what does and does not make a great CEO, including four specific behaviours that were most common.

Of these behaviours, not all great CEOs were outstanding in each category. However, over half of top CEOs were distinguished in at least one of the behaviours. On the other hand, only 5% of weaker candidates were. The first four points in this list come from this research.

1. Top CEOs are Decisive

The first takeaway from the research is that top CEOs make decisions faster and with greater conviction than lower-performing ones. While this may not be that surprising, what is surprising is that the quality of the decision is often less important than the fact that a decision is made.

The study points to several reasons why this is the case. First, CEOs that take time to make a decision often act as bottlenecks for their teams and can slow down progress. Decisions provide teams with direction and, even if the decision is wrong, most mistakes are not lethal to a CEO’s position.

What is essential is that CEOs know when to make a decision. The study quotes CEOs as saying they frequently make decisions when they are only 65% certain of the answer. Meanwhile, they weigh up the importance of the decision by considering what will happen if it is ultimately wrong. Top CEOs can evaluate which choices they should put off until they have more data.

• Top CEOs are Good at Getting People On Board

The second behaviour the CEO Genome project discovered is that top CEOs are good at getting the support of those in the company. Again, while this alone isn’t especially groundbreaking, the report does show that CEOs do this in a particular way.

First, new hires spend time getting to know the needs and motivations of stakeholders. This is so they can focus their strategy on achieving these results. Those who engaged stakeholders effectively were 75% more successful than those that didn’t.

The study uses the example of a CEO who actively creates lists of the people they need to get on board and attempts to come up with strategies for each person.

As well as those at the top, successful CEOs are good at bringing their team along with them. According to the report, they do this by giving the team confidence that the plan they have created will succeed.

• Top CEOs Proactively Adapt to New Situations

The next point from the CEO Genome project is that successful CEOs are good at adapting. Key to this is that they have a long-term view of the company and the industry. This helps them spot trends or potential future problems early on, allowing them to change at speed. The report found that successful CEOs spend 50% of their time focusing on the long-term, while average ones only spend around 30% of their time thinking like this.

Adaptable executives were also found to react better to setbacks. While weaker CEOs consider setbacks to be failures, stronger ones learned from these experiences and suggested remedies about how to do better in future.

• Top CEOs Consistently Follow Through on their Commitments

The final behaviour pointed out by the report — that top CEOs are more reliable — was also the most powerful.

Reliable CEOs were found to be 15 times more likely to succeed in their role at the company. Boards recognise the value of this behaviour; the numbers show that when hiring, candidates considered reliable were twice as likely to be picked for a role in the first place.

The report also provided insight into how CEOs can become more consistent. It found that top CEOs first set realistic expectations based on weeks of planning and analysis at the start of their tenure. Once they have their own set of realistic expectations, they then begin to work to bring other’s expectations in line.

Beyond this, consistent CEOs put in place systems that help regulate how the business works, as well as ensuring they are surrounded by a strong team.

McKinsey: What Makes a CEO Exceptional?

McKinsey also produced a report that studied what makes a CEO exceptional. The report focused on the top 5% of CEOs amongst a sample of 600 based on those who had increased returns to shareholders by more than 500%. Here are its findings:

• Objectivity Seems to Matter: Top CEOs are Often Hired Externally

The first finding from the study was that the best CEOs are twice as likely to have been hired externally than average ones, perhaps because those from outside can look at the company more objectively or use their point of view as an outsider to challenge convention.

However, that doesn’t mean internal hires do badly. 55% of the best CEOs were hired from within the company.

• Top Performing CEOs are More Likely to Conduct a Strategic Review Early in Their Tenure

The McKinsey study highlighted the importance of strategy. In fact, it found that exceptional CEOs were around 60% more likely to perform a strategic review within their first two years in the position.

Perhaps powered by the information discovered in the review, the management consultancy firm found that top CEOs also make far more strategic moves early in their tenure, with cost-reducing programmes being particularly favoured.

• Top Performing CEOs are Less Likely to Change Organisational Structure Early On

Linked to the above point is the finding that high-performing CEOs are less likely to perform organisational redesign or management reshuffles within their first two years.

McKinsey suggested that this could be because these CEOs are working at high-performing companies with a strong organisational design already in place. Or, it could be because they prioritise strategic decisions over structural ones early in their tenures.

Other Studies

There are plenty of other studies out there about what a makes a great CEO. The final three points on our list come from a variety of reports.

• Alignment with Public Sentiment: A CEO’s Reputation Can Boost the Reputation of a Company

For the past two years, the Reputation Institute has published a list of the world’s most reputable CEOs. It considers this to be an essential factor in the success of a CEO due to its findings that a CEOs reputability is directly linked to a company’s reputation. It suggests that as the reputation of the person in charge increases, so does the reputation of the company.

According to the report, when it comes to the general public CEOs are not judged on metrics such as company growth and profitability, rather they are judged on their ethics and how willing they are to take a stand on issues deemed important to the public.

This is seen in the way 2018’s most reputable CEO Sundar Pichai dealt with issues at Google about workplace diversity and how 2019’s most reputable CEO Ben van Beurden is helping Royal Dutch Shell and the energy industry tackle issues relating to climate change.

• Top CEOs are “Unbelievably Detail-Oriented”

Stanford Economics Professor Nicholas Bloom suggests that one of the biggest factors in a CEO’s success is that they are “unbelievably detail-oriented.” In an interview with Freakonomics Radio, Bloom said that top CEOs ensure nothing gets overlooked and they do this through the collection and analyses of data as well as through performance reviews.

Bloom’s insight was gained from a study in which he, alongside professors from Harvard and MIT, studied 12,000 companies to see what makes some of them better than others. The study found that management practices ultimately make a significant difference to the success of companies.

1. Top CEOs Surround Themselves With Talent

Glassdoor Economic Research research suggests that the best CEOs are those that surround themselves with a great leadership team. This information is based on CEO approval data from Glassdoor.com. The report looked at data from the US, UK, Germany, Canada, and France to predict the workplace factors that matter most to CEO approval.

In all five countries, the overall reputation of the senior leadership was the strongest indicator of CEO approval as a company’s employees judge a CEO based on the quality of the executives they hire and grow.

As well as the senior leadership, Glassdoor also found that CEOs embody the culture and values of the organisation and those that are optimistic about where the company is headed are likely to be rated highly.

What Doesn’t Make a Good CEO?

What is almost as interesting as the information about what makes a good CEO is the data on what doesn’t.

The studies found that CEOs come from all kinds of educational backgrounds. The CEO Genome Project, for example, showed there were a similar number of top CEOs who didn’t graduate from university or took an unusually long-time to graduate, as there were CEOs with an Ivy League education.

Likewise, most of those studied didn’t set out to become CEOs, and many suffered significant setbacks early in their careers. Even personality type didn’t seem to be hugely important, with both introverted and extroverted executives being good at their jobs.

At Reparo, we always consider a company’s management team when assessing whether or not to provide them with a loan. A business with a quality management team can help convince us that a company has what it takes to gain value from a loan and ultimately pay it back successfully.

To find out more about Reparo and discuss a loan for either your company or a client, get in touch with one of the team on sales@reparofinance.co.uk  or 0161 451 5714.