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Wednesday, January 6, 2016

CEO Traits Influence Short and Long-Term Company Performance

Successful CEO's have some common traits that help them improve the organizations they lead. CEOs are subject to their stable personality traits influence how they see the world and overcome challenges. Strategic actions are based in CEO personality and impacts the financial performance of the firm. Knowing which traits to look for can have an impact on the long-term performance of the firm.

It wasn't long ago that gruff, emotionally unattached and perceptually powerful CEOs were desirable. They demanded short-term results which could be seen immediately in stock price their benchmarks which leads to increasing compensation. Lifespan at any particular organization was between two and four years leaving the long-term consequences for the next leader to handle.

Research supports the idea that the CEO's personality influences a firm's financial performance and its longevity. A study conducted at Stanford University discovered that CEO's personality impacted culture that in turn influenced performance (O'Reilly, et. al., 2014).  CEO focus and approach to the workplace created lasting contributions (or detractors) to the way in which other people think creating tangible outcomes.

The central personality of the CEO impacts how they see, interpret, and use information. Those who sense situations seek to analyze and defend positions while those who are more intuitive attempt to analyze and prospect new opportunities (Gallen, 2010). As an organizational leader, their decisions will weigh heavily on how they use their past knowledge to solve current problems.

CEO's leaning toward defend strategies will naturally seek to consolidate holdings and streamline operations toward market depth. They may invest heavily in existing marketing to increase cash flow and layoff employees to influence financial metrics that have an impact on short-term stock prices.

Entrepreneurial CEO's may use these defend strategies to get over an immediate crisis but ultimately seek to expand their holdings. This could mean developing new products, expanding services, retraining employees, and reinvestment that influences long-term income and stock performance. As long-term decisions are made to support business fundamentals the more capacity the business builds.

 Where one consolidates the other seeks to expand as a long term-strategy. Because personality has such a big influence on business outcomes it is beneficial to consider the following traits:

Short and Long-Term Planner: CEO's should be able to think short and long-term. They should be concerned about how today's decisions will impact the organization 5 or so years down the road. If they cannot create a logical chain on how immediate decisions create new opportunities for future decisions, then they should seek alternative solutions.

Empathetic Communicators: Before one can truly lead a company they should have people skills that include the ability to formulate strong communication patterns among employees. Their discussions should be inclusive and seek to inspire and support in a way that creates better performance outcomes. They should be able to use empathy so they can understand others and create win-win situations that enhance human capital.

Analytic Entrepreneurs:  CEO's should be willing to take calculated risks and should have intuitive prospecting mindset that consistently seeks out new opportunities. These opportunities might be new product lines or enhancing existing lines. Any reasonable opportunity should be investigated, analyzed and when beneficial, implemented. They should be "ideas" people that leave companies in a stronger position.

Motivated Builders: The deep internal need to build bigger things should be present. This drive is apparent in the way in which the person seeks out new challenges that test themselves to create something lasting. They should be driven to achieve and develop bigger and more powerful companies. Their goal should be to leave a legacy.

Creative Problem Solvers: Business is a sequence of problems that must continually be bested and overcome. As the company overcomes these problems they naturally will become stronger. Innovative companies that solve problems in creative ways make market breakthroughs that lead to competitive advantages. Ensuring that your CEO has the very same skills needed to bring the company to new heights is important.

Life-Long Learner: CEOs that seek to learn and develop their whole life are worth much more than those who are narrow-minded and fail to update their knowledge. The life-long learner is capable of weighing and balancing new information to keep their practices relevant and make sound decisions as situations emerge. They are at their best so they can run the organization at its best.

Gallen, T. (2010). Personality and Strategy. Acta Wasaensia No. 221. University Wasaensis.

O' Reilly, C. et. al. (2014). The Promise and Problems of Organizational Culture CEO Personality, Culture, and Firm Performance. Group Organization Management, 39 (6). 595-625. Retrieved http://gom.sagepub.com/content/39/6/595.abstract






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