What makes a CEO effective? The question has been studied extensively. Yet we still know fairly little about how CEOs behave day-to-day and how their behavior relates to the success or failure of the companies they run. 

In new research, four leading Professors use survey data from over 1,000 CEOs across six countries and the financial performance of their companies to explore these questions. And our evidence suggests that hands-on managerial CEOs are, on average, less effective than leaders who stay more high-level.

The researchers include Oriana Bandiera who is the Sir Anthony Atkinson Professor of Economics and the Director of the Suntory and Toyota Centre for Economics and Related Disciplines (STICERD) at the London School of Economics. Stephen Hansen is Associate Professor in the Economics Department at the University of Oxford (Oxford, UK). Andrea Prat is the Richard Paul Richman Professor of Business and Professor of Economics at Columbia University. Finally, Raffaella Sadun is the Thomas S. Murphy Associate Professor of Business Administration at Harvard Business School, where she studies the economics of productivity, organization, management practices, and information technology.

What Do CEOs Do All Day?

On average, about one-quarter of CEOs’ days are spent alone, including sending emails. Another 10 percent is spent on personal matters, and 8 percent is spent traveling. The remainder (56 percent) is spent with at least one other person, which mostly involves meetings, most of which are planned ahead of time. About one-third of the time CEOs spend with others is one-on-one; two-thirds is with more than one other person. (This data includes a CEO’s entire workday, not just time in the office.)

The most common departments for CEOs to meet with are production (35 percent of time spent with others), marketing (22 percent), and finance (17 percent). The most common meetings with outside functions are clients (10 per cent) and suppliers (7 per cent).

Which CEO Type Is Better for Companies?

When they analysed CEO type and companies’ financial performance, accounting for other variables including industry, country, and firm size, we found that CEOs who tilt more toward “leader” than “manager” run more-productive and more-profitable companies. And, to our surprise, these previously ignored behavioral differences across CEOs have quite a large association with firm productivity, about one-fifth as big as the impact of a firm’s capital inputs (machinery, equipment, buildings, and so on). Do leader CEOs just happen to work at better companies? “We looked at before and after data for firms where a new CEO was appointed, and we found that the appointment of a leader CEO was followed by higher productivity. The effect showed up three years later, which suggests that leaders are doing the hard work of changing companies.”

Is One CEO Type Always Better?

So far, you might conclude that the best CEOs don’t get too bogged down in the details of day-to-day management, and instead focus on higher-level leadership tasks, such as convening the heads of the different functions and communicating strategy and vision.

But the picture painted by the data is actually different from this one-size-fits-all approach. Leaders tend to be more prevalent in larger firms and in industries that are, on average, more skill-intensive and complex, while managers tend to run smaller and, to some extent, simpler organizations (i.e., industries characterized by a greater intensity of routine tasks). And plenty of manager CEOs in our dataset do run successful firms.

Leaders who set the vision, convene key functions, and communicate effectively can, overall, have a meaningful impact on firm performance, when the setting requires these skills. But just as important is understanding and finding the right fit between the CEO’s leadership style and what the company actually needs.

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