Study finds top performers are not necessarily the well-known ‘celebrity CEOs’
Fontainebleau, France, Singapore and Abu Dhabi, 18 December 2009 – With the focus on short-term corporate thinking under fire, a new ranking of the world’s best-performing CEOs by professors at INSEAD reveals that a surprising number of star CEOs do not live up to their reputations. The study also overturns a number of common assumptions about what constitutes effective long-term leadership. While many chief executives are highly respected and admired, it points to an interesting question – does the business community place a higher emphasis on reputation over performance?
To address this question, INSEAD professors Morten Hansen, Herminia Ibarra and Urs Peyer created a benchmark to measure how CEOs have built value over the long-term. The new global study ranks CEO performance at the world’s largest public companies over their entire time in office.
‘The real test of a CEO’s leadership should be how the company performs over his or her tenure,’ said Morten Hansen, Professor of Entrepreneurship and Management at INSEAD. ‘As the current economic crisis has taught us, it’s no longer enough to look at short-term gains in regards to executive performance. It is essential to examine the bigger picture.’
The authors compiled a list of nearly 2,000 CEOs worldwide to measure performance based on hard metrics — shareholder returns (country and industry adjusted TSR) and changes in market value. The overall list ranked 200 CEOs from 48 nationalities and 33 countries.
Key insights from the study include:
- The leaders delivered spectacular results. On average, the top 50 performing CEOs delivered a total shareholder return of 997 percent, with the top-spot CEO delivering a total 3,226 percent return (30 percent annually).
- Hidden gems vs. superstars. The list of the top 200 performing CEOs reveals a surprising number of relatively unknown and ‘unsung’ CEOs-- while a number of high-profile, ‘celebrity CEOs’ did not make the list.
- No country or industry has a lock on performance. U.S. CEOs comprise only 38 percent of the top 50 performing CEOs list, which is not surprising, given that 42 percent of the CEOs in the study were from the U.S. The list of the top 50 performing CEOs includes companies based in the U.K.; Russia; India; Germany; China; the U.S.; South Korea; Canada; Brazil; Japan; Finland; France; Spain; Italy; Netherlands; and Switzerland.
- Insiders have the edge. The study reveals that insiders -- those who ascend to CEO through the ranks -- tend to perform better than outsiders who are recruited. On average, insiders ranked 57 places higher than outsiders.
- A runway for performance. The researchers found that inheriting a strong performing company from a stellar predecessor does not provide a better platform for success. Instead, they identified a ‘runway effect’-- that taking over from a lower base—a mediocre or even struggling company--presented a better opportunity for stellar performance.
- Having an MBA. CEOs with an MBA degree ranked, on average, 40 places better than the CEOs without an MBA. This finding suggests that MBA CEOs have not destroyed value, as some critics would have it.
The information is based on 1,109 CEOs from companies based in Germany, Britain, France, and the United States, where reliable information on degrees is available.
‘The results of the study have important implications for how shareholders assess CEO performance, CEO pay and succession planning,’ said Urs Peyer, Associate Professor of Finance at INSEAD. ‘On average, the top 50 performing CEOs increased the wealth of their companies’ shareholders by $48.2 billion. Many celebrity CEOs are not among the top performers according to the total shareholder return they have delivered during their tenure.’
Herminia Ibarra, Cora Chaired Professor of Leadership and Learning and Professor of Organisational Behaviour at INSEAD, added: ‘This ranking reveals a number of successful ‘quiet CEOs,’ which makes a persuasive argument for re-evaluating CEO success and gaining a better understanding of the qualities that truly define a global business leader.’
The study and a list of the top 50 performing CEOs will appear in the January 2010 issue of Harvard Business Review and are available online at http://hbr.org/2010/01/the-best-performing-ceos-in-the-world/ar/1
For the full list of the top 200 performing CEOs in the world, please visit INSEAD Knowledge at: http://knowledge.insead.edu/top-ceos.cfm
About the Authors
Morten T. Hansen is Professor of Entrepreneurship and Management at INSEAD and also at the University of California, Berkeley. Professor Hansen is the author of a recently published book on management titled ‘Collaboration: How Leaders Avoid
the Traps, Create Unity, and Reap Big Results.’ His research on collaboration, innovation, corporate transformation and building great companies has been published in leading international journals, academic reviews and business publications. He is the winner of the 2005 Sloan Management Review/Pricewaterhouse Coopers Award for the management article that has contributed most significantly to the enhancement of management practice.
Herminia Ibarra is the Cora Chaired Professor of Leadership and Learning, Professor of Organisational Behaviour, Faculty Director of the INSEAD Leadership Initiative and a member of the INSEAD Board. Professor Ibarra is an expert on professional and leadership development. Her book, ‘Working Identity: Unconventional Strategies for Reinventing Your Career,’ (Harvard Business School Press, 2003) documents how people reinvent themselves at work. Her numerous articles on innovation, networking, career development, women's careers and professional identity have been published in leading academic journals and leading global business publications.
Urs Peyer is an Associate Professor of Finance at INSEAD. His research interests include empirical corporate finance, corporate governance, executive compensation, internal capital markets and firm diversification and share repurchases. His recent articles on leveraging capital markets, understanding privately negotiated stock repurchases and executives acclimating to board seats have published in the Journal of Financial Economics and the Journal of Finance
About INSEAD, The Business School for the World
As one of the world’s leading and largest graduate business schools, INSEAD brings together people, cultures and ideas from around the world to change lives and transform organisations. This worldly perspective and cultural diversity are reflected in all aspects of INSEAD’s research and teaching.
With three campuses in Europe (France), Asia (Singapore) and the Middle East (Abu Dhabi), a research centre in Israel and an office in New York, INSEAD extends the reach of its business education and research across three continents. 145 renowned faculty members from 36 countries inspire more than 1,000 degree participants in the MBA, Executive MBA and PhD programmes. In addition, more than 9,500 executives participate in INSEAD’s executive education programmes. With the INSEAD-Wharton Alliance, MBA and co-branded executive education programmes are delivered on Wharton's U.S. campuses in Philadelphia and San Francisco, as well as INSEAD’s campuses in Asia and Europe.
This academic year is an important milestone for INSEAD as it celebrates half a century of success. Fifty years ago, INSEAD pioneered the concept of international business education – and is still innovating across all of the programmes, in addition to the cutting-edge research. The world and INSEAD have developed dramatically in the course of the last fifty years, but the core values on which INSEAD were founded have remained constant. These principles have enabled INSEAD’s entrepreneurial spirit to evolve and the school has grown into a truly global force.
Today’s organisations need leaders with the knowledge and sensitivity to operate anywhere in the world. This is why business turns to INSEAD – to develop the next generation of transcultural leaders.
More information about INSEAD can be found at www.insead.edu.
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