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Print Edition StoriesMonday, October 18, 2010
Study: CEOs with top-tier MBAs no better than other CEOs
By Lynette F. Cornell
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Whether a company chooses a CEO with an MBA degree from a prestigious school or not has no affect on the company’s long-term performance, according to a recent study by the University of New Hampshire. The study also concluded that having a degree from a top school doesn’t afford any greater job security for a CEO than an average degree does.
The study, titled “CEO Education, CEO Turnover, and Firm Performance,” analyzed data from the largest 1,500 U.S. firms and used U.S. News & World Report’s 2008 rankings of national universities to determine the top-20 tier of schools when comparing the education data of CEOs.
Brian Bolton, assistant professor of finance at the University of New Hampshire’s Whittemore School of Business and Economics, conducted the research using data from the years 1993 through 2007. Bolton found that CEO education played a significant role in the hiring process of a new CEO, even though he observed no strong correlation between the quality of a CEO’s MBA education and the company’s long-term performance. He said that those companies performed no better than companies led by a CEO with any other type of education, MBA or not. He noted that an MBA degree may give a slight advantage early on. According to the report, companies may initially experience some growth following the hire of a CEO with an MBA, both top-tier and average, after firing the previous CEO but those improvements in operating performance were generally short-lived and the correlation does not apply to all firms in general.
Bolton said he isn’t certain what causes the initial improvements, but he theorized that the new hire with an MBA may be more bottom-line focused and may make some decisions early on that contribute to quick growth. Long-term, however, the growth advantage disappears, showing no significant advantage for MBA holders.
“A lot has happened between their graduation and becoming a CEO,” he said. In those years, he said, all CEOs have had a chance to gain experience and develop their skill sets, making the quality of their education less influential. The resulting puzzle, said Bolton, was the preference given to candidates with degrees from high level schools despite a lack of evidence indicating these candidates led to better company performance than their average degree-holding counterparts. In explaining why companies would place such emphasis on degree quality, Bolton suggested in the report that it was due to a lack of other identifiable and measurable criteria.
“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,” he said in the report.
The role that educational quality plays in choosing a candidate can come down to reputation, according to Ralph Protsik, managing director of Boston-based executive search firm BSG Team Ventures LLC. “There’s going to be a halo effect of where you went to school,” he said. ”You see a degree from a certain place, you’re going to take it more seriously than a degree from another place.”
The alumni network can prove extremely beneficial in giving a top-tier candidate an advantage over the competition, said Protsik. Top-tier schools like Harvard, he said, are going to provide a much stronger network for getting in the door than a smaller, lesser known institution.
Even if having the better education provided an advantage in the hiring process, Bolton’s study found that it offered no increased protection from termination. Following poor performance, companies tended to fire CEOs, regardless of the quality of their degrees, but tended to replace the CEO with someone with the same type of education background. One possible explanation for this, said Bolton, is that either the firms believe they need a certain type of leader. Another theory Bolton has is that the hiring board doesn’t want to take responsibility for making a poor hiring choice and is choosing another candidate with the same level of education to prove their initial hiring criteria was correct.
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