The CEO effect

Do leaders actually matter? It's a question posed by many.

The answer is a resounding yes. Leadership matters and dramatically steers the fate of organizations. Let's look at data from what's called the "CEO Effect" to flesh out this point. It essentially describes how the ramifications of a CEO on firm performance -- controlling for other factors – is substantial. The best evidence for this comes from a 2014 controlled study by Donald C. Hambrick & Timothy J. Quigley. This found leadership alone had the following consequences on their companies:

  • 38.5 percent for ROA (Return on Assets)
  • 35.5 percent for ROS (Return on Sales)
  • 46.4 percent for MTB (Market-To-Book Value)

This effect is much stronger in countries with substantial executive discretion (e.g., U.S.) than those with substantially less (e.g., Japan). The evidence clearly illustrates the immense influence leaders have and how critical solid leadership is to any organization's stability and future.

Here's an interesting question to consider – do you think American CEOs have too much discretion? What's your view?

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Disclaimer

Here at Lead Read Today, we endeavor to take an objective (rational, scientific) approach to analyzing leaders and leadership. All opinion pieces will be reviewed for appropriateness, and the opinions shared are solely of the author and not representative of The Ohio State University or any of its affiliates.