Does the CEO Make a Difference to Performance?

A recent article in the Wall Street Journal makes a provocative argument that changing CEOs makes little or no difference to the performance of an organization. According to the article, a number of studies over three decades have shown a consistent finding: Changes in leadership account for only 10% of the variance in corporate profitability on average.

My first reaction reading this was shock… almost disbelief. After all, I’ve spent most of my career as a communicator providing counsel and support to senior leaders under the premise what they did and said would have a deep and lasting impact on their organization. Were all those speeches and brown bags all for nothing?

But upon reflection the article makes plenty of sense, and confirms that driving change is difficult… as much a result of external factors and chance as planning and personality. The author’s argument is more nuanced than first appears, and he acknowledges the pervasive impact of legendary leaders like Steve Jobs at Apple or Jamie Dimon at JP Morgan Chase. So management is important… but other factors have an even bigger impact – notably the economic context and sheer luck: “Most researchers agree that a company’s results are determined less by its CEO than by its industry and the economy—which, in turn, are shaped by a host of factors that most CEOs can’t control, like the price of raw materials, the value of the dollar, interest rates and inflation, bursts of technological innovation and so on. In short, good management can’t solve all problems, while some problems can get solved even without good management.”

I would argue there’s another reason for the tempered impact of senior leadership: Culture. Too often, leaders (and the communicators helping them) ignore the huge challenges of shifting a workplace culture. New leaders come in with a blaze of messages and activities – including a purge of recalcitrant executives – but without a concerted effort cutting across cultural drivers they often fail to get traction for their agenda. I’ve witnessed situations where leaders try to impose their new business plan in organizations with cultural DNA that is anathema to the vision, or cases where CEOs don’t clearly articulate or support their new business strategy — which provides the operational blueprint and recipe for improved returns.

There’s a long list of companies who have tried and failed to reinvent themselves or boost their performance with leadership changes…and if you do an autopsy you’re likely to find a reliance on quick, superficial solutions and grandstanding rather than making the tough choices to drive real change. The result is employees who are either uncertain or unwilling to alter their routine, with many “waiting out” the new CEO. Perhaps the ultimate lesson here is not just “it’s the economy, stupid”… but also that nothing changes without the understanding and support of employees.

Photo Thanks To: tiarescott

This post was brought to you via the incredible Bernie Charland (from his blog Public Relations Rogue), a Look-Solutions contributor and founder of ThinkTwice Communications.