MIT Professor Emeritus Edgar Schein (1985) said that “the only thing of real importance that leaders do is to create and manage culture.” There is one stated and one unstated assumption behind Professor Schein’s statement. The stated assumption is that CEO personality “creates and manages” corporate culture. In other words, there is a cause-effect relationship. The unstated assumption is that the issue is important because corporate culture impacts financial performance.
These two assumptions are the core beliefs of psychologists who work in areas of leadership and organization development.
Charles A. O’Reilly and associates (2012) set out to test these two assumptions by surveying 1,000 employees from 32 high tech companies from the United States and Ireland.
To derive CEO personality, the employees were asked to evaluate their CEO’s personality using a personality inventory based on the Big Five Personality Factors. These Factors are described at the end of this article.
The employees were asked to rate their corporate culture. Finally, firm performance was evaluated using revenue and net income for the two years after the data was collected.
In High Tech, CEO Adaptability Makes a Big Difference:
CEOs perceived as extraverted (gregarious, assertive, active) had cultures that were more results oriented. CEOs perceived as agreeable were associated with cultures that were less results oriented. CEOs who were rated high on Openness were associated with corporate cultures high on adaptability.
In high tech, adaptability makes a big difference.
Companies with CEOs who were high on Openness had highly adaptable cultures. And these cultures were most highly associated with revenue growth for the years studied and with net income growth.
Firms whose cultures were rated high in adaptability and customer focus had the highest comparable stock market valuations.
The study statistically proves a link between perceived CEO personality, organization culture, and financial performance. Because these are correlations, we can say there is a link. We cannot state that one variable “caused” the other. For example, it could well be that highly adaptive corporate cultures tend to be biased towards selecting CEOs whose personalities are open. And it could also be that CEOs with Open personalities tend to create highly adaptive cultures. There is, however, proof of a link between the two.
This research has implications for Boards, job candidates, and CEOs.
Implications for Boards of Directors:
When writing job descriptions, Selection Committees or recruiters seldom bother to be precise in discussing CEO personality factors. And very few Committees insist on personality assessment as part of the recruitment process.
Most job descriptions tend to be both bland and hard to measure. For example below is a recent job description for a high tech CEO opportunity that appeared online:
- Should be a goal-oriented generalist who would enjoy creating something big out of a promising technology startup.
- Experienced writing proposals, coordinating projects, budgeting, and interacting with customers.
- Can quickly convert broad goals to action - making things happen in a highly-detailed manner. Can delegate effectively but also happy to handle details as needed in a small company.
Excellent communication and presentation skills
- Succinct writing style. Able to write business proposals.
Have you ever read a job description that does NOT require someone who has “Excellent Communications Skills?” At the CEO level, this description is not very helpful. Most finalists for CEO positions will have had years of experience in managing job interviews, so they ought to perform well in such situations. And it is easy to ask candidates for copies of memos, Power Points, etc. Is "Excellent Communication Skills" really going to differentiate between finalists?
Board of Directors Selection Committees can be more thoughtful in using research like the one cited in this article to articulate and to measure meaningful personality characteristics using the Big Five as a framework.
Once the Big Five Factors are used in job descriptions, recruiters can ask more precise questions during reference checks. For example, if the personality factor is “Openness to New Experiences,” then a recruiter might ask a reference, “Give me a story to illustrate the candidate’s openness to new ideas.”
Implications for Job Candidates:
Using Linkedin.com, find people you know who know the CEO. Ask this question: “what adjectives would you use to describe the CEO?” An adjective is a word or phrase naming an attribute. “Fred is a humble man” would be an example, with “humble” being the adjective. Keep asking the same question and see if the same or similar words appear several times. One person’s comments should be treated with skepticism. But a pattern of common perceptions is a strong signal of what lies ahead in terms of corporate culture. This issue is going to be particularly useful as you move towards smaller companies and family-dominated organizations.
Implications for CEOs:
There is evidence that the accuracy of observers’ ratings of personality is higher than self-assessments. (Funder, 2012). In other words, the higher up you are on the organizational pyramid, the more likely it is that subordinates provide bosses with the distorted information bosses want to hear versus the valid information they need to know.
360 Surveys are a proven and useful tool to get valid information about your real personality versus your belief about yourself. It is a common tool used by coaches. At the CEO level, we recommend against the use of online 360 surveys. Face-to-face or telephone interviews yield much richer information than checking boxes.
An implication of this study is that CEO’s commitment to continuous self-improvement can be a necessary first step to create a culture of continuous self-improvement. In other words, if you are not the role model for continuous self-improvement, then who will be?
Big Five Personality Factors:
Extraversion: sociability, assertiveness, energy, and optimism.
Agreeableness: trusting, cooperative, caring, and kind.
Conscientiousness: self-disciplined, well-organized, and hard-working.
Neuroticism: poor emotional adjustment, anxiety, insecurity, and hostility.
Openness to Experience: imaginative, nonconventional, and insightful.
Personality inventories can also provide an objective measure of candidates when the inventories are interpreted by qualified licensed psychologists. This article has only discussed CEO Personality and the Big Five Factors would need to be crafted on a job-specific basis. For example, Openness for CEOs in high technology sectors is a good thing. But Openness as a personality for CEOs in Credit Unions might be a bad idea. Credit Unions are highly regulated and provide little in the way of strategic discretion for CEOs. Someone who works as a Clerk in Accounts Payables in a high tech company might be better off being relatively closed to new experiences. Much of this job is routine. A person in this job ought to find routine a great comfort.
Funder, David C. (2012). Accurate personality judgment. Current Directions in Psychological Science, 21:177-182.
O’Reilly III, C.A., Caldwell, D.F., Chatman, J.A., Doerr, B. (2012).The Promise and Problems of Organizational Culture: CEO Personality, Culture, and Firm Performance. Working Paper.
Schein , Edgar, A. (1985). Organizational Culture and Leadership. San Francisco, CA: Jossey-Bass.