Leadership Matters: When, How Much, and How?
CEOs have a measurable and context-dependent effect on shareholder returns, and understanding when and how that effect arises can guide CEO selection and priorities.
Summary
Analyzing 7,000 CEO tenures (1985-2018, $50M+ revenue firms), Hansell finds top-quintile CEOs outperform their sector by 9 points of TSR per year versus an 11-point shortfall for bottom-quintile CEOs -- a 20-point spread compounding to more than a full starting market cap over a median six-year tenure. The effect is highly context-dependent: dynamic sectors show 23-point spreads versus 14-17 in regulated ones, and smaller firms see more CEO-driven upside variance than downside.
Editor's opinion
Useful ammunition for CEO-selection debates: the CEO effect is real and large, but it's concentrated in dynamic sectors and smaller firms -- a boring incumbent may need it less.
Key concepts
CEO effect on TSR · Context dependence of leadership · Top-performing CEO traits