According to David Brooks, boards of directors are selecting the wrong kinds of CEOs:
Steven Kaplan, Mark Klebanov and Morten Sorensen recently completed a study called “Which C.E.O. Characteristics and Abilities Matter?”
They relied on detailed personality assessments of 316 C.E.O.’s and measured their companies’ performances. They found that strong people skills correlate loosely or not at all with being a good C.E.O. Traits like being a good listener, a good team builder, an enthusiastic colleague, a great communicator do not seem to be very important when it comes to leading successful companies.
What mattered, it turned out, were execution and organizational skills. The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours.
I have to start out by warning my readers not to always believe David Brooks when he presents psychology and sociology research, because he has been fantastically wrong on issues like genius and IQ and the black-white achievement gap, and that's just during the current month! But there doesn’t seem to be a political correctness angle here, so maybe the current article is truthful enough.
Right-wing economists and bloggers claim that CEOs make such a huge amount of money because boards are selecting the absolute best candidates for the job, and being the best is worth a lot of money when companies have billions of dollars in revenues. But we see the truth is that boards have no idea how to select the best CEO, and it’s likely that the traits needed to become a CEO aren’t what’s needed to be the best CEO.
The correct explanation for CEO pay is that it’s structural. The way corporations are set up, the guy who’s the CEO is able to transfer huge sums of money from other stakeholders to himself, regardless of whether he’s doing an especially good job as a CEO.
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In a comment, “athelas” writes:
Where in the article does it actually say that "boards have no idea how to select the best CEO"? Brooks presents his argument as counterintuitive to the average reader but that does not mean that boards are not looking for organizational talent.
Of course! Members of the boards of directors are geniuses with god-like understanding of business and economics. Too bad we can’t get these people to run the government. Things would get better.
But wait, they are running the government! Michelle Obama was a director of TreeHouse Foods, a public company traded on the New York Stock Exchange. How happy we should all be to know that the country is in good hands, as long as Barack listens to his wife.
She was paid $51,200 a year for her services. How do I get a cushy job like that?