How important is it for the CEO to embrace the corporate culture? You won’t find many people who say it’s anything less than critical, but now there's a study that shows that it goes beyond buy-in.
The personality of a CEO actually determines the culture of a company, which, in turn, has a direct impact on company performance. It’s time to start paying attention to the link between these three things.
The study, conducted by Charles A. O’Reilly III, Graduate School of Business, Stanford University, and his colleagues, surveyed 1,000 people from 32 large, high-tech firms in the US and Ireland.
The employees were asked to evaluate their CEO’s personality based on the Big Five Personality Factors, the same factors that McQuaig’s behavior assessments are based on, and then to rate their culture using a 54-question survey.
The results showed a clear link between CEO personality and organizational culture. Specifically, the report authors write: “CEOs with a personality that is more open to experience have cultures that emphasize adaptability; CEOs who are more extroverted but less agreeable and more neurotic have more results-oriented cultures; and CEOs who are more conscientious have more detail-oriented cultures.”
The study stopped short of drawing a cause-and-effect link between CEO personality and organizational culture because they couldn’t say for certain whether a CEO created a culture or a culture attracted a certain type of CEO, but it did draw a definite connection.
The impact on company performance
Another aspect of the study was the link between culture and company performance. Here, the study’s authors looked at changes in financial performance, stock market value, Glassdoor ratings, and Fortune Magazine’s “Most Admired” ranking. In this aspect, the study found that certain cultural elements did have an impact on performance.
For example, firms with higher financial performance have cultures that place more emphasis on adaptability, results-oriented, detail-oriented, customers, and transparency. When those types of firms are presided over by a CEO who is adaptable and conscientious they are even more likely to see revenue growth. Likely, the authors assert, because they possess the traits to help them act on new opportunities and the quality control to implement them.
The study also found that company’s “whose cultures were more adaptable, more open, and more focused on customers garnered higher stock market valuations.”
The study showed that culture has an impact on a company’s performance. It also showed a link between the perceived personality of a CEO and the culture of a company. Together, this provides a powerful link between the personality of a CEO and how well his or her company will perform.
What it means for companies and boards
Due to the importance of aligning culture with strategy, boards need to be considering fit between personality and strategic needs when recruiting for a CEO. They should be including these elements in job descriptions and utilizing assessments to get an accurate read on a candidate’s behavioral make-up.
What it means for CEOs
CEOs need to be aware of the connection between perceptions of their personality and their organization’s culture. Senior leaders should consider cultivating behavioral traits that most closely align with the most useful culture for their company. To do this, they need to understand their core personality. Self-assessments are key here as 360 Degree Reviews tend to be less useful at this level owing to distortion caused by the tendency to tell leaders what they want to hear.
What is your CEO’s impact on culture?
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