Owners’ preferences for CEOs characteristics: did the world change after the global financial crisis?

• Date: 01 February 2016
• Pages: 116-134
• Published date: 01 February 2016
• DOI: https://doi.org/10.1108/CG-07-2015-0092
• Author: Chiara Mio,Marco Fasan,Antonio Ros
• Subject Matter: Strategy,Corporate governance

Owners’ preferences for CEOs

characteristics: did the world change

after the global financial crisis?

Chiara Mio, Marco Fasan and Antonio Ros

Chiara Mio and

Marco Fasan are both

based at the Department

of Management, Ca’

Foscari University of

Venice, Venice, Italy.

Antonio Ros is

Independent Researcher.

Abstract

Purpose –The purpose of this paper is to study whether and how owners’ preferences for CEO

characteristics changed due to the 2008-2009 global financial crisis. The authors identify three

fundamental success factors needed for companies to compete in the after-crisis environment, and the

authors connect five CEO characteristics to such factors.

Design/methodology/approach –The authors rely on a hand-collected database to build a panel data

of European CEOs for the 2010-2012 period.

Findings –The empirical results indicate that after 2009, CEOs of companies that were more severely

hit by the crisis are significantly different compared to those of other companies. More specifically, they

have a background in science or engineering; they have international experience; and they are

remunerated to a higher extent through stock options. The results of this paper also indicate that only

international experience had a positive and significant impact on financial performance.

Originality/value –The paper contributes to the stream of literature on CEO characteristics and

owners’ identity, tackling the research theme from a dynamic rather than from a static perspective.

Keywords Corporate governance, Board of directors, Chief executives

Paper type Research paper

1. Introduction

The 2008-2009 global financial crisis had major consequences not only on the economic

environment but also on the corporate governance of firms, especially in terms of top

executives turnover. Richard Kovacevich left Wells Fargo as Chairman in December 2009;

John Mack left Morgan Stanley (MS) in January 2010; and Ronald Logue left State Street

Bank in March 2010 (see CNN, 2012). This anecdotal evidence is consistent with the

prediction by Jenter and Kanaan (2006): in periods of crisis, the likelihood for CEOs of

being fired is significantly higher as compared to more stable period.

This paper studies such changes in governance, analyzing whether and how the global

financial crisis shaped owners’ preferences toward the characteristics of their CEOs. More

specifically, this work has two main objectives. First, understanding the direction of these

changes in governance and identifying which CEO characteristics owners believed being

more important for the future performance of their companies in the post-crisis

environment. Second, testing the impact of these CEO characteristics on the financial

performance of firms after the crisis, thus identifying which CEO characteristics have been

actually beneficial in terms of financial performance.

Our work belongs to the CEO characteristics literature, and it combines two different

theories: the owner identity theory and the upper echelons theory.

The owner identity theory predicts that different types of owners will determine different top

management and board characteristics (Thomsen and Pedersen, 1997,2000;Pedersen

and Thomsen, 2003).

Received 6 July 2015

Revised 28 October 2015

Accepted 2 November 2015

PAGE 116 CORPORATE GOVERNANCE VOL. 16 NO. 1 2016, pp. 116-134, © Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-07-2015-0092

According to the upper echelons theory, organizational outcomes (strategic choices and

organizational outcomes) are partially predicted by managerial background

characteristics. Such theory has been subsequently extended by other studies such as the

study conducted by Bolton et al. (2008), which developed a theory of leadership that

contrasts managerial resoluteness against communication and listening skills. Numerous

empirical studies tried to understand how CEO characteristics shaped company strategy

and performance. According to March and Simon (1958),Hambrick and Snow (1977) and

Hambrick and Mason (1984), personality and professional features determine the

effectiveness and efficiency of the CEO in the performance of his/her duties. The general

construct of CEO characteristics includes both the personality of the subject (personality

features) and other features that are more related to the working life of the CEO

(professional features).

Hambrick and Mason (1984) identified a number of observable characteristics of the CEO,

such as age, functional orientation, experiences, formal education, culture, socio-economic

features and the degree of heterogeneity of the group management. Many authors have

subsequently developed and integrated this list with additional specifications and new

features. One may conclude that the most important CEO characteristics are age (Child,

1974), gender (Jalbert et al., 2013), personality (Kaplan et al., 2008), type and level of

education (Martelli and Abels, 2010;Lewis et al., 2014), marital status (Roussanov and

Savor, 2012), propensity to adopt innovations (Thong and Yap, 1995), problem-solving

methodology (Jung, 1970), functional orientation and diversity (Hambrick and Mason,

1984;Buyl et al., 2011), leadership style (Halal, 1974), power (Adams et al., 2005), being

the founder of the company, tenure (Rajagopalan and Datta, 1996), international

experience (Roth, 1995) and compensation (Murphy, 1998).

With specific regard to the relationship being tested, Boyd (1995) examined the

relationship between CEO duality and firm performance. Rajagopalan and Datta (1996)

have investigated the association between certain characteristics of the CEO, such as the

length of tenure, level of education and functional orientation, and the peculiarities of the

sector in which the company operates, trying to understand which entities are best suited

to manage a company in a particular sector. Given the central role played by agency theory

in the analysis of the relationship under study, Carpenter and Sanders (2002) dealt with the

analysis of the remuneration of the CEO (and top management) and corporate

performance. CEOs are ultimately responsible for managing an important variable, which

is the level of investments in CSR. Huang (2013) focused on the impact of CEO

characteristics on corporate sustainable development, finding that CSR is associated with

their CEOs’ educational specializations, tenure and gender. With specific regard to

corporate governance, Lin et al. (2014) examined the relationship between CEO

characteristics and internal control quality. The study by Yunlu and Murphy (2012) shares

some features with ours, because it focuses on the recession period. The authors found

that during recession, CEOs with a shorter career horizon decreased R&D, spending more

dramatically than CEOs with a longer career horizon during recession. Saeed et al. (2015)

found that CEO tenure and CEOs with financial expertise are reported to be associated with

timely audit reports, while Zhou and Yonghai (2014) found that CEO characteristics affect

corporate risk-taking. Finally, Matolcsy and Wright (2011) have attempted to define the

characteristics of a remuneration structure that brings positive results to the performance

of the company.

This analysis of the previous literature shows that none of the studies above tackled the

research theme from a dynamic perspective, thus looking at the changes in CEO

characteristics over time which were due to specific events.

To frame our hypotheses, we argue that the global financial crisis highlighted three critical

success factors that companies are expected to possess to successfully compete in the

post-crisis environment:

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