October 6 2010 - CEOs with top college degrees do no better at improving their organization's long-term performance than
average and are as liable to be blamed for poor results according to research led by the Whittemore School of Business and Economics at the
University of New Hampshire.
Lead researcher Brian Bolton, assistant professor of finance said:
"These findings suggest that both boards and researchers should use caution in placing too much emphasis on an individual's
education when trying to assess their ability to lead the company and maximize shareholder value."
The study reviewed data covering nearly 15 000 years of CEO experience and more than 2600 turnovers between 1992 and 2007.
Researchers analysed the role educational attainment played in decisions to remove a current CEO, selection of a replacement, and organizational
performance. Six main measures were used: whether or not the individual had attended a top 20 undergraduate school; had an MBA, law or master's
degree; and whether or not the higher degree was from a top 20 program.
The study found that poor performance is the most significant factor in a decision to replace a CEO, regardless of education.
However, researchers found a significant positive correlation between the education levels of new CEOs and those they replace. For example, a
board will seek to replace a poorly performing CEO with an MBA degree with someone similarly qualified.
Researchers found that hiring new CEOs with MBA degrees tends to produce short-term improvements in operating performance that
may not be maintained. They conclude that CEO education does not necessarily equate with talent and ability.
Briam Bolton commented:
"Even though CEO education does not lead to superior performance by firms, firms may rely on CEO education in hiring decisions
because they have few other identifiable and measurable criteria to use. All else being equal, they rely on what they believe to be the observable
pedigrees of the executive. Of course, all else is rarely equal, especially when dealing with something as nebulous and potentially unobservable as
managerial talent. Interpersonal skills, leadership ability and strategic vision are among the traits that CEOs should possess; these can be difficult
to identify and even more difficult to measure. As a result, boards rely on those characteristics which they may be able to observe: work experience,
track record, and education."