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VOL. 122 | NO. 221 | Tuesday, November 20, 2007

Study: Tough CEOs Often Most Successful

By GEORGE ANDERS | The Wall Street Journal

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What are the traits that chief executives of successful companies share? A new study suggests that hard-nosed personal virtues such as persistence and efficiency count for more than "softer" strengths like teamwork or flexibility.

The findings are sure to intensify debate about how much toughness is appropriate in a CEO. Some famously hard-charging bosses of big companies have retired or been shunted aside in recent years. Successors at companies such as General Electric Co., International Business Machines Corp. and Hewlett-Packard Co. are seen as quieter, less strident team-builders.

But the new study, by three University of Chicago business-school professors, draws on detailed personal assessments of 313 CEO candidates to present a starker view of good leadership's ingredients. Of these candidates, 225 were hired. Their subsequent performance fuels most of the study's conclusions.

"We found that 'hard' skills, which are all about getting things done, were paramount," said lead author Steven Kaplan, a professor of finance and entrepreneurship. "Soft skills centering on teamwork weren't as pivotal. That was a bit of a surprise to us."

Kaplan and colleagues Mark Klebanov and Morten Sorensen didn't size up the CEOs themselves. Instead, they tapped into a consultant's database long coveted by academic researchers. It contains assessments of individuals' strengths and weaknesses compiled by ghSmart Inc. The Chicago management-assessment company evaluates CEO candidates on behalf of corporate clients.

Officials at ghSmart let the academics see the results of its four-hour assessment interviews, in which candidates are quizzed about their careers in detail. The consulting firm then takes apart those narratives, looking for glimpses of the candidate's leadership style in areas ranging from interpersonal skills to intellect and motivation. Ultimately, candidates are scored on dozens of traits ranging from enthusiasm to their willingness to oust underperformers.

The method runs a risk of candidates tailoring their responses to what they think are the "right" answers. But Geoffrey Smart, chairman and CEO of ghSmart, thinks the risk is small because independent reference checks make sure the CEOs' accounts hold true.

Much of ghSmart's work is done for about two dozen private-equity investors, including Blackstone Group and Bain Capital. After Kaplan and his colleagues logged in the ghSmart data, they approached these clients and asked them to rate the performance of candidates ultimately hired as CEOs as successful, unsuccessful or mixed. The ratings were largely tied to the financial performance of the company or its owners' ability to sell the business profitably.

The University of Chicago researchers then checked to see what traits from the ghSmart assessments matched most closely with subsequent success on the job. That's when they found the tough-minded traits ringing up the highest scores, while gentler ones didn't correlate as clearly with success.

Among the high-scoring traits: following through on commitments, hiring Grade A players, analytical skills and setting high standards. Traits with less correlation included enthusiasm, treating people with respect, creativity, persuasion and listening skills.

One open question is whether the ghSmart data, which look primarily at buyout-company CEOs, apply to bosses at public companies as well. It may be that buyouts, with their high debt loads and frequent need to improve operating results in a hurry, attract especially tough-minded CEOs.

Mark Gallogly, a co-founder of Centerbridge Partners, a New York private-equity firm, said the academics' findings match many of his beliefs about what's important in a CEO. He puts a premium on bosses who can hire well, excel at efficiency and execution, and can be aggressive but respectful. By contrast, public-company CEOs may need more soft skills to manage relations with wide shareholder bases and other diverse constituencies.

Both Kaplan and ghSmart executives cautioned against dismissing the low-scoring traits entirely. On enthusiasm, for example, the study found that ultra-enthusiastic managers didn't fare meaningfully better than ones who were just moderately enthusiastic. But some level of enthusiasm is bound to be of value, said Randall Street, a ghSmart principal - and most finalists in a CEO search will exhibit enthusiasm. The same would apply to other soft traits, such as listening skills or treating people with respect.

"We don't see the bottom half of managers," Street observed.

Still, Street and Smart said it may be that some of the "soft" traits are best in moderation, while the value of "hard" traits increases nonstop. A certain amount of flexibility makes for a better CEO, for example, but too much can shade into indecisiveness. By contrast, any extra persistence might be a boon.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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