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CEOs are overrated (and maybe overpaid)

They influence the good work of a company, but not as much as it is believed

  • Key4Communications
06/11/2013

CEOs do not have as much influence as many articles in newspapers and business magazines can make us believe. In fact, from a statistical point of view and according to Nobel laureate Daniel Kahneman, the work of a good CEO is not particularly significant.

Kahneman explains in his book Thinking, Fast and Slow, a research about how a CEO could contribute to the success of a company. This paper analyzed the strategy of a number of companies before and after appointing a new director. If the influence of these managers was fundamental, 100% of the successful companies would be run by quality CEOs. If everything depended on chance, the percentage would drop to 50 %. The actual figure is 60%, ten points above mere luck, a significant data, but “hardly grist for the hero worship of CEOs we so often witness”. And this is a generous estimate, according to the author.

The cult of the CEO comes from the so-called halo effect, in which the perception of a particular trait is influenced by others. It is the reason why if you look at a positive characteristic of a person (eg, physical attractiveness) you tend to believe that all the other features of this person are better, without any objective reason for such a belief (in fact, we consider that attractive people are also more altruistic, reliable, friendly and successful, according to several studies).

And this is also why if a company is innovative and flexible, we tend to think that its CEO is too. In contrast, when the firm stagnates and repeats itself, we believe that its leader is a rigid and uncreative director. Even if it's the same company and the same person, with only a few years apart.

Does that mean that Steve Jobs did not mean that much for Apple? Maybe, but anyway we must remember that the study speaks of statistical averages, not individual cases. In any case, these data allow us to remember that nobody is indispensable and that companies are made by teams of people. And surely the fact that in America a CEO makes, on average, 354 times the wages of an employee is an exaggeration.

Also and being optimistic, at least it looks like a useless CEO ignored by a hundred competent employees won’t do much harm.

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