The Harvard Business Review has for the past three years evaluated chief executives from around the globe and ranked them. The main objective is to assess the CEOs’ long-term performance, i.e. their entire tenure in office covering the period 1995-2010. The HBR considered 3,143 CEOs from 1,862 companies representing 37 different countries. The results of this exercise are very interesting and were published last month. Maltese companies should take note.
How many of our local CEOs have an MBA?
In order to contextualise the prestige of the list, the top 100 CEOs delivered a total shareholder return of 1,385 per cent and increased their firms’ market value by $40.2 billion. No mean feat.
The top global CEO is no other than Steve Jobs of Apple. He achieved average annual compounded growth of 35 per cent during his 17-year tenure. The second best global CEO is Amazon’s Jeff Bezos. The nationality of the top 10 includes six American companies, two South Korean, one Brazilian and one Indian. There is also only one woman in the top 10, a certain Margaret C. Whitman (CEO of eBay).
What I found interesting and revealing is that only four out of the top 10 CEOs held an MBA or seven out of the top 20 CEOs. This undermines a popular, long held myth that to succeed at top management level you need to have an MBA. You clearly do not, especially if aspiring to be one of the world’s top CEOs at one of the best global companies. This is not to say that an MBA is not valuable but to point out that you don’t need an MBA to become a successful CEO. This having been said, the business research does confirm that the average MBA ranked 40 places higher than the average non-MBA. My educated guess is that the successful CEOs, which ranked well, might very well not have an MBA but they certainly surround themselves with MBAs.
Another revealing scoop is that eight out of the top 10 CEOs are insiders – they were promoted from internally available talent rather than recruited externally. We are obviously touching on a hotly debated business management topic but when appointing a new chief executive, do you go for an experienced outsider who brings a fresh perspective but may lack in-depth knowledge of the company’s culture and history, or do you promote from within? It depends on the company, the context and people involved.
Yet according to this study the successful companies are all run by CEOs who are insiders and this, I think, is very telling. Out of 3,143 CEOs considered, a staggering 73 per cent were insiders. The insiders’ average rank was 154 places higher than that of the outsiders. As a side point: there is the concept of ‘insider-outsiders’ (for more information read The CEO Within: Why Inside Outsiders Are the Key to Succession Planning by Joseph L. Bower) which may be relevant to this observation.
Equally interesting facts are that only three CEOs from Chinese companies made the top 100 although 17 per cent of all executives considered were from China. I would have thought that an economic giant such as China would have had a much bigger share of the world’s top CEOs and while American CEOs fared excellently at the very top (six out of 10 top CEOs) their average rank was 215 places lower than Latin America CEOs, 140 places lower than Indian CEOs and 137 places lower than British CEOs. This is interesting since American academics and business consultants seem to dominate business management thinking.
It would also be interesting if a similar study were to be held locally. How many of our local CEOs have an MBA? Or how many of our CEOs are insiders? What shareholder returns do the top 20 CEOs deliver? What is the average tenure of a local CEO?
My guess is that we tend to promote from within rather than recruit externally, that CEOs tend to have some sort of a business management qualification, that very few Maltese businesses measure shareholder return.
This HBR study is highly valuable and revealing given the size of the sample and rigorousness of the research. There are some valuable lessons, which we can all take home, namely: You don’t necessarily need to have an MBA, you should always strive to promote insiders and that the Americans don’t necessarily know it all.
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Kevin-James Fenech is director-consultant, Fenci Consulting Ltd.