However, is all that attention and expectation warranted? Do CEOs really have that big an impact on an organization’s bottom line? According to new research, they do.
A new study by the University of Georgia’s Terry College of Business suggests that CEOs have, in fact, and “outsized” impact on performance. The study attempted to track high-level decisions – which could only be made by the CEO – and their impact on organizational success.
The study found that the best CEOs are responsible on average for about 25 per cent of an organization’s overall profit. The study’s author, Tim Quigley, said this is what he calls “the CEO effect.”
Quigley theorized that CEOs today make more impactful decisions than ever before. As a result, their impact on profit and success are greater than ever before. CEOs are incented to make the big decisions, Quigley continued, because the rewards (pay, bonuses, benefits) are greater today than they have ever been.
It’s important to note, however, that Quigley is focusing on the impact of the best CEOs. The study conceded that roughly half of the CEOs studied performed below average. In other words, despite being responsible for more impactful decisions, they are not driving success.
This is not a new observation. In fact, I wrote about another study released in 2013 that found nearly 40 per cent of CEOs receiving the largest pay and bonuses were either terminated, or led firms that either collapsed or had to be bailed out in the recent recession.
Combining the two studies, we are left with a horrible but inescapable conclusion: CEOs are more important than ever before; and far too many CEOs are underperforming.
How did we get into a situation like this?
I personally think too much attention is focused on the top job in any organization. Yes, CEOs are important and they should rightly have the biggest impact on success of any leader in an organization. But organizations do not have only one leader.
In fact, in my experience great CEOs make sure there is strong leadership at every level. That ability to distribute leadership capacity throughout an organization will do more to ensure success than hiring a great CEO.
In a world of more distributed leadership, it’s important for all of us as leaders, regardless of level, to think about our own impact and consider our own CEO effective.
Are you making decisions that directly drive company performance and success in a sustainable manner? Or is your impact minimal or negative and thereby undermining your company’s success? Are you developing and growing other strong leaders around you?
This week’s Gut Check question: are you an impactful leader?
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About the Author
Vince Molinaro is the Global Managing Director of Strategic Solutions at Lee Hecht Harrison. He is also the author of The Leadership Contract – a New York Times and USA Today bestseller. Vince has spent more than 20 years as an adviser to boards and senior executives looking to improve leadership in their organizations.Follow on Twitter More Content by Vince Molinaro