Leadership Matters: When, How Much, and How?

How much impact do CEOs have on their firms? And what differentiates top-performing CEOs? We studied the tenures of 7,000 CEOs worldwide to identify how much and how they affected their companies’ performance trajectories, after adjusting for other factors.
When analyzing by these distinct value patterns, a similar pattern emerges. CEOs have the largest impact when they take on the leadership of companies in high-growth, technologically-intensive contexts. CEOs inheriting firms with Healthy High Growth and Asset-Light Services value patterns have the largest spread in CEO impact (23–25pp). In contrast, CEOs tend to have less impact when inheriting High Value Brands, which are characterized by generating stable returns from established brand assets, and Discovery firms, which are characterized by long cycle, bottom-up innovation.

Another factor that affects the CEO impact is the size of an organization. Among the largest companies in our sample, those with $50B+ annual inflation-adjusted revenue, the spread between top- and bottom-quintile CEO effects is 15pp, whereas companies with $5–50B revenue have a spread of 17pp, and the smallest companies have an even greater spread. This is driven by higher upside for top-quintile CEOs in smaller companies; the downside of underperforming CEOs is similar across size groups. This reflects the fact that extraordinary returns are more likely to be generated from a smaller base, as well as the fact that sustainable reinvention becomes harder as companies age and grow.