Senior Director of Research, Korn Ferry Institute
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Stacking the CEO Odds
A CEO is one of the most influential and impactful individuals in an organization, shaping strategy, culture, and performance. But selecting a CEO is often a risky and uncertain process, with many hires failing to meet expectations or deliver results. This begs the question: how can organizations improve their chances of finding a CEO who can drive superior financial outcomes?
A new Korn Ferry report, analyzing data from 111 publicly traded companies and 550 combined years of CEO tenure, shows that using a rigorous, scientific assessment process can help predict a CEO’s financial performance in the years after their appointment. Chief executives who scored high on Korn Ferry assessments more than doubled annualized market capitalization growth over four years generating 109% more than those who scored low, according to the report, and consistently outperformed their peers in the same industries. They saw 20% higher annual revenue growth and a 26% higher EBITDA margin. “Our research on a CEO’s fiscal impact offers a look inside the different elements at play to find the most suitable candidate to lead the business into the future,” says Guangrong Dai, Senior Director of Research at the Korn Ferry Institute, Korn Ferry’s research arm.
Among those elements are eight key competencies linked to each of the financial outcomes. The competencies identified in the report have the most impact on organizational performance and correspond to the four capability areas of an Enterprise Leader:
“Boards and organizations tend to focus on a candidate’s track record or previous leadership experience. While these still are important considerations, the odds for success can be significantly improved with scientific assessments of their enterprise leadership attributes,” says Jane Stevenson, Vice Chair of Board and CEO Services at Korn Ferry.
Korn Ferry recommends that companies improve their chances of hiring a CEO who can deliver strong financial results by using a more holistic and scientific evaluation process. This process should look at a range of the leader's capabilities—and pressure test the leader’s potential and readiness to deliver against the organization’s future business priorities. “Leadership mindsets are the amplifiers that either widen a CEO’s aperture for success or narrow it,” says Stu Crandell, Global Head of CEO Assessment at Korn Ferry. “Evaluating these can help boards distinguish which CEO candidates are likely to bring outsized financial returns.” Furthermore, experts say organizations should offer continuous support to the CEOs, especially as they adjust to their new roles.
In the world today, a CEO appointment remains an important, rigorous process. It has the power to define an organization for months and years to come—making it a critical and difficult decision to embark on. “Boards tend to assume that certain CEO attributes universally lead to success,” says Evelyn Orr, Head of Korn Ferry’s CEO and Executive Assessment practice in North America. “These attributes might include charisma, decisiveness, or industry expertise. In reality, what works for one organization may not work for another. Context matters. It is important to assess how CEO candidates can adapt their leadership style to the new unique challenges and culture of the new organization.”
But, experts say, companies can stack the odds and select a CEO who can steer the business to greater financial success. “In today’s volatile business environment, agility is paramount. Boards must leverage leading leadership indicators when choosing their next CEO,” Stephen Lams, Senior Vice President of Data and Analytics at the Korn Ferry Institute says.