Think twice before hiring a candidate with a top-college degree as your CEO.
New research shows chief executive officers with degrees from the most prestigious schools are no better at improving firms’ long-term performance than other CEOs.
“These findings suggest that both boards and researchers should use caution in placing too much emphasis on an individual’s education when trying to assess their ability to lead the company and maximize shareholder value,” wrote study co-author Brian Bolton, an assistant professor of finance at the Whittemore School of Business and Economics at the University of New Hampshire.
Bolton and other researchers analyzed the relationship between CEO education, CEO turnover and business performance to discover whether education influences a firm’s decision to replace its current CEO and select a new one and whether academics significantly affect performance.
The researchers concluded that while businesses do place significant importance on education when hiring CEOs, an impressive education does not keep companies from replacing poorly performing CEO.
“Even though CEO education does not lead to superior performance by firms, firms may rely on CEO education in hiring decisions because they have few other identifiable and measurable criteria to use,” Bolton said. “All else being equal, they rely on what they believe to be the observable pedigrees of the executive” such as work experience, track record and education.
“Interpersonal skills, leadership ability and strategic vision are among the traits that CEOs should possess,” Bolton said, but “these can be difficult to identify and even more difficult to measure.”
Researchers used about 15,000 years of CEO experience data and more than 2,600 cases of CEO turnover from 1992 to 2007 to conduct their research.