What Makes a High-Performing CEO? Insights from Both Sides of the Atlantic
Investors in private equity are constantly seeking to understand the elusive qualities that distinguish a high-performing CEO from the rest. Identifying these characteristics early can significantly impact investment outcomes. This post explores two distinct, yet potentially complementary, bodies of research: Professor Steven Kaplan's work on the "cheetah" versus "lamb" CEO, primarily focusing on larger US buy-out investments, and Catalysis' analysis of CEO (and FD) performance within the UK mid-market, leveraging psychometric and other data.
Kaplan's research, drawing on detailed assessments of over 300 CEO candidates in private equity-backed firms, distinguishes between CEOs who are more execution-oriented ("cheetahs" - persistent, efficient, proactive) and those who might lean more towards team-oriented, "softer" skills ("lambs" - good listeners, team players). His findings suggest that "harder attributes" like efficiency, proactivity, and persistence are more strongly correlated with success, particularly in larger buy-out scenarios. Kaplan even implies that PE firms should aim to hire "Jack Welch" types (characterised by drive and results-orientation) over those prioritising softer skills like listening.
In contrast, Catalysis' research delves into the profiles of 163 CEOs and 80 Financial Directors (FDs) in the UK mid-market, using Saville Assessment’s Wave psychometric tool which assesses 108 distinct personality dimensions or 'facets'. This research correlates these self-assessed facets with subsequent performance ratings provided by investors, categorised from 'Very high' to 'Very low' effectiveness in their role.
Looking at the average scores, it's interesting to note some trends. For example, under the 'Meticulous' category, high-rated CEOs tend to score slightly higher on 'Attentive to detail' (5.05) compared to low-rated CEOs (4.55). However, in 'Activity Oriented', high-rated CEOs have a lower average score for 'Fast pace' (5.57) than low-rated CEOs (5.73). While these differences in average scores across the 108 facets offer a granular view of the self-perceived profiles, Catalysis also highlights specific areas where the divergence between high and low-performing CEOs is most significant, suggesting stronger predictive power.
In the table below, we see the facets where high-rated CEOs score significantly higher than low-rated CEOs:
Strategic: Develops strategies (Low: 5.3, High: 6.3)
Rational: Numerical data (Low: 5.2, High: 6.1)
Activity Oriented: Multi-tasking (Low: 4.4, High: 5.2)
Empowering: Motivating people (Low: 5.2, High: 6.0)
Composed: Likes working under pressure (Low: 5.4, High: 6.1)
Empowering: Encouraging (Low: 4.7, High: 5.4)
Analytical: Analysing information (Low: 4.9, High: 5.5)
Strategic: Clear vision for future (Low: 5.7, High: 6.4)
Insightful: Finds ways to improve things (Low: 5.1, High: 5.8)
Self-assured: Sense of self-worth (Low: 4.6, High: 5.2)
Interactive: Talks a lot (Low: 5.4, High: 6.0)
Analytical: Probing questions (Low: 5.1, High: 5.7)
Conversely, lower-rated CEOs are more likely to score themselves highly on:
Principled: Maintains confidentiality (Low: 6.6, High: 4.4)
Principled: Honours commitments (Low: 6.7, High: 5.8)
Positive: Recovers from setbacks (Low: 6.7, High: 5.7)
Positive: Takes optimistic view (Low: 6.8, High: 6.0)
Accepting: Tolerant (Low: 5.3, High: 4.5)
Dynamic: Impatient (Low: 7.1, High: 6.5)
These divergences offer a nuanced perspective compared to Kaplan's broader "cheetah" versus "lamb" dichotomy. While some of Kaplan's "harder" attributes like proactivity and efficiency might correlate with the Catalysis findings (for instance, 'Finds ways to improve things' and 'Multi-tasking'), the Catalysis data also highlights the importance of strategic thinking ('Develops strategies', 'Clear vision'), analytical skills ('Analysing information', 'Numerical data', 'Probing questions'), and certain interpersonal aspects ('Motivating people', 'Encouraging', 'Talks a lot', 'Sense of self-worth', 'Likes working under pressure') for high-performing CEOs in the UK mid-market.
The fact that Kaplan's data comes from larger buy-out investments in the US, while Catalysis focuses on the UK mid-market, could explain some of these differences. The demands and context of leading a larger, potentially more established company might place a greater premium on certain "hard" execution skills, whereas the dynamics within the UK mid-market might necessitate a slightly different blend of strategic thinking, analytical prowess, and specific interpersonal capabilities.
Catalysis also found educational attainment (being a graduate) to be a striking correlate with performance for both CEOs and FDs. This is a more directly observable characteristic than the psychometric facets and adds another layer to the discussion beyond the "hard" versus "soft" skills debate.
Conclusion
While both Kaplan's work and Catalysis' research aim to understand the drivers of CEO performance, they utilise different methodologies and focus on distinct segments of the private equity landscape. Kaplan's "cheetah" CEO, characterised by strong execution skills, appears particularly relevant for larger US buy-outs. Catalysis' more granular psychometric analysis of the UK mid-market suggests a more complex picture, highlighting the importance of strategic and analytical capabilities alongside specific interpersonal facets and educational background in predicting CEO effectiveness.
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