Leadership

The Wrong Way to Choose a Senior Executive

New research finds that headhunters discount past performance in choosing CEOs because it's often the result of chance

Written by Alexandra Bosanac

When headhunters evaluate candidates for a CEO post, one thing they don’t put too much stock in is their past performance. In fact, it plays a “surprisingly minor role,” according to new research from the London School of Economics.

The study, which surveyed senior individuals at 10 major London-based national and international executive search firms, found that recruiters relied on “more observable factors” like the quality of their references, the progression of their career path and their personality. The recruiters confessed that while they employed various metrics in their evaluations—psychometric testing, for example—by necessity, headhunting isn’t an objective process.

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So why doesn’t past performance factor more into the equation? The recruiters said it’s nearly impossible to separate an individual’s performance from the organization itself.

A growing body of research backs up this claim. Take a paper released last fall by researchers at Texas A&M University that suggests that most of the performance factors attributed to an individual CEO “could actually be due to chance”—factors outside of their control.

For example, a scandal at a major competitor can help a firm, while an accident at an important supplier can have negative consequences. If one of those two events play out at the beginning of a CEO’s term, which on average last about four years, it can leave an indelible mark on the way that leader is perceived. “If a lucky event early in a CEO’s tenure is not balanced by an unlucky one is such a short time period, then that CEO could be wrongfully credited for high performance that would have happened no matter who was leading the company,” according to the study.

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Markus Fitza, a professor of management at Texas A&M and the person who led the study, found that over 70% of the CEO effect measured by past studies could be due to chance. People “wrongfully attribute the effect of random fluctuations to CEOs,” suggesting it is difficult to differentiate between the effect of chance and real leadership skills.

In the LSE study, the headhunters also told researchers that they felt that luck had a much larger hand in the executive selection process than many will admit. They said that many people who ended up getting passed over for executive positions could have done it equally well. They recognized that luck played a role in who was selected—including the luck involved in being on an executive search firm’s database of potential candidates in the first place.

“This is not to say that headhunters do not play a valuable role,” said Max Steuer, reader emeritus at the LSE Centre for Philosophy and one of the authors of the paper. In conclusion, “they bring more objectivity to a process that has, in the past, been dominated by €˜old boy networks.’ They also bring discretion to candidates and firms, and support to boards that are making extremely important CEO appointment decisions for their companies.”

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Do you agree with the research findings? Is the relationship between management and performance different for entrepreneur-led companies? Let us know by commenting below.

Originally appeared on PROFITguide.com