No relationship between CEO charisma, firm's performance, study

0 Comments | Deseret News (Salt Lake City), May 8, 2006 | by Daniel Lovering Associated Press

PITTSBURGH -- A winning personality may help a chief executive command vast sums in compensation, but it does not necessarily reflect the fortunes of the company he runs, according to a recently published study.

The University of Pittsburgh study of 128 CEOs contradicts a once- popular belief, heralded on 1990s magazine covers, that charismatic leadership is a key to corporate success, said Brad Agle, a business professor who led the research.

"It's very clear that in the long term there's no relationship between charisma and performance," he said, describing the survey as the largest-ever of its kind.

The study started with a survey Agle conducted as a doctoral student in the early 1990s. Researchers later tracked the performance of the firms through 1999 or until their CEOs left, whichever came first.

Researchers surveyed senior managers at 128 companies with an average of $6.5 billion in assets and 16,000 employees. The managers were asked to rate their CEOs according to their dynamic leadership, exemplary leadership, concern and respect for others, high expectations and willingness to take personal risks.

A total of 770 senior managers, or about six per company, responded to the survey.

Among the current and former corporate leaders included in the study were Tony O'Reilly of H.J. Heinz Co., Paul Allaire of Xerox Corp., Wayne Huizenga of Blockbuster Inc., Christie Hefner of Playboy Enterprises Inc. and Robert Johnson of Black Entertainment Television.

The study, co-authored by Agle and several other professors, appears in the current issue of the Academy of Management Journal.

"There's a ton of research that shows charismatic leaders are more effective," Agle said, citing past studies that have focused on everyone from U.S. presidents to military leaders to fishing boat captains.

"I fully expected I would find the same results," Agle said. "The result we got was somewhat surprising."

Rakesh Khurana, an author and associate professor at Harvard Business School, said he was not surprised by the findings.

"The factors for performance are very complicated," he said. "The relationship between the CEO and performance is a statistically nebulous one."

Yet people have "an almost primitive need to believe that one person can exert that much control," Khurana said. "It's sort of reducing everything to simplistic causes. That's a very unhealthy thing."

Agle suggests that the old premise is backward.

"If we're successful, people tend to attribute charisma to us," he said, pointing to a correlation between corporate success and perceived charisma.

Agle said other research has linked CEO charisma to compensation, but that the best indication of a company's future performance is its recent record.

"If a company is doing well, the likelihood is that it will continue to do well, whether the CEO is charismatic or not," he said.