How much do CEOs really matter? Reaffirming that the CEO effect is mostly due to chance

Abstract

How much of the variance in firm performance can be attributed to CEOs? This question has been the focus of a long debate in management research. In a recent study, I showed that a large portion of the performance differences that are often attributed to CEOs might in fact be due to chance. In a recent article, Quigley and Graffin argue that my conclusions can be avoided if more advanced methodological approaches are applied. Here I show that this is not the case, in fact if more realistic assumptions of how chance can affect firm performance are made, the effect of CEO leadership is almost indistinguishable from the effect of chance, independent of the estimation methodology.

The role of talent management in strategic renewal

“…In addition, phenomena such as global outsourcing, healthcare management, bribery, corruption, political risks and poverty add to the challenges faced by organizations (Morris et al, 2016). Finally, competitors that possess fresh ideas and market-penetrating techniques make the sustainable competitive advantage of organizations a remote possibility, intensify the role of chance and luck as its likely explanation (Fitza, 2017). To survive in current times and in the future, organizations are required to strategically renew themselves (Ocasio et al, 2018;Pratap and Saha, 2018;Riviere et al, 2018).…”

Strategic Leadership and Organizational Performance: A Critical Review of Literature

“…Thus, it is critical for scholars to pinpoint essential strategic leadership behaviours or practices that will lead to high levels of performance (Mutia 2015; Jansen et al, 2009; Jouste & Fourie 2009). Unfortunately, due to inertial forces in the form of organizational and other environmental constraints, some studies have demonstrated that on average, strategic leadership has limited leverage on performance (Fitza, 2017;Hambrick & Quigley, 2014). A possible explanation for these empirical gaps could be how strategic leadership and performance have been conceptualized and measured and the probable intermediate effects of the moderating and mediating variables.…”

“…Empirical studies have demonstrated that strategic leadership is an important determinant of organizational performance (Witts, 2016; Lord, et al, 2016). However, other studies assert that strategic leadership is an inconsequential determinant of performance because of various constraints they face or due to some randomness or chance effects (Fitza, 2017;Quigley & Hambrick, 2015;Day & Lord, 1988). A further explanation of these empirical gaps could be how the constructs of strategic leadership is operationalized and measured and the difficulty in identifying a way of integrating the complex and multi dimensionality nature of performance.…”

“…Empirical and conceptual studies have shown that strategic leadership actions significantly influence performance (Quigley & Graffin, 2017;Ireland & Hitt, 1999). Unfortunately, other studies conclude that their actions are impeded by situational constraints, inertia or random effects, such that they don't have much leeway over performance (Fitza, 2017;Haveman, 1992). These divergent findings indicate either a lack of evidence in establishing a direct association between strategic leadership and performance or of the many confounding variables that make it difficult to demonstrate a clear cause and effect (Knies et al, 2016).…”

“…Various scholars have argued that methodological and statistical limitations, unavailability of relevant control variables and contexts have systematically undermined the effect of strategic leadership on performance (Fitza, 2017;Hambrick & Quigley, 2014;Blettner et al, 2012;Thomas, 1998). Boal & Hooijberg (2001) observe that studies on strategic leadership are limited since many have used demographic variables as substitutes for moderating or mediating variables.…”