Why atypical CEOs have an edge

23 March 2021

By Christian Stadler

When civil unrest erupted in Thailand, Jen-Hsun Huang and his brother were sent to the US. The nine year-old ended up in a school for “difficult” children. His main chore: cleaning the toilets in his dorm.

Today Huang is the CEO of NVIDIA, a company producing AI-focused chips for autonomous vehicles, robots and other high-tech tools.

Huang is clearly an outlier among CEOs. All but four of those running America’s 50 largest companies are white and only four are female. While Huang has an engineering degree, the majority studied business or economics, usually at a top school.

Huang might be atypical, but he also was the world’s best performing CEO in 2019. Two more members of a minority were among America’s five top performers.

Companies face new and unprecedented challenges today. The Black Lives Matter protests in 2020 and the Friday for Futures movement in 2019 brought new topics on to the corporate agenda.

COVID-19 upended 'business as usual' and technologies such as AI and 3D printing are disrupting a growing number of industries. CEOs can craft their strategy in a more experimental and open way to avoid being stuck in the past, but having an unusual background increases the likelihood that they have the ability to think differently. A more diverse set of leaders are in a better position to guide organisations in this new era than a homogeneous group of middle-aged white men.

Elon Musk is known to be a bit of an eccentric. Challenging the dominance of Toyota and Volkswagen with an unproven business model focused on e-vehicles and autonomous driving is testament to this. So is the idea to commercialise space travel.

As it turns out, Musk is not the only person with an unusual name who opts for a distinct strategy. In a new article Yungu Kang and David H. Zhu, of the University of Arizona, together with Yan Anthea Zhang, of Rice University, use 19 years of data from 1,172 companies to show that those run by CEOs with unusual first names have more distinct strategies.

Names matter as they are an important anchor point of our identity. Research in psychology has long argued that uncommonness of a name influences an individual’s self-perception and behaviour. An uncommon name can have an impact on self-esteem when others struggle to spell and pronounce it. In the long-run this effect wears off while studies have shown that an association with creativity persists.

Appointing a Phaneesh or Nwamaka instead of a Bob turns out to be more than a play with semantics.  

Female and minority CEOs

There are more CEOs named Peter running a FTSE 100 company than there are women. The number of female CEOs is so small that it is hard to predict their impact on performance. But looking at executive committees, a new report notes that London-listed companies with a third of its members being women have net profit margins of 15.2 per cent compared to 1.5 per cent for those without.

Ethnic diversity might matter even more. In a study of venture capitalists, Harvard University’s Paul Gompers and Silpa Kovvali show that an investment’s comparative success rate was 26.4 to 32.2 per cent lower when partners shared the same ethnicity. Hitting the same note, a McKinsey study of 366 public companies finds that “the top quartile for racial and ethnic diversity are 35 per cent more likely to have financial returns above their respective national industry medians”. In both cases gender diversity also matters, but less so.

Diversity has also been associated with higher corporate social responsibility performance and lower risk.

As it turns out, Huang is probably not the only ethnic minority CEO to claim the title of world’s best performing.

Immigrants are natural entrepreneurs. They are a self-selected group prepared to leave their home country in search of new opportunities. They also have an eye for unnoticed market opportunities.

Take Kurdish businessman Hamdi Ulukaya, who founded Chobani in 2005. Not impressed by the yogurt available in US supermarkets, he started to produce his own Greek-style version in upstate New York. It only took him five years to dominate the market with sales of more than $1 billion.

Some 40 per cent of Fortune 500 companies were founded by immigrants or their children. When companies need fresh perspectives, picking a leader with an immigrant background is not a bad idea.

Look at Microsoft CEO Satya Nadella, who first came to the US as a student. In 2014 he inherited a company at the brink of stagnation. Moving away from the cut-throat approach of the Steve Ballmer-era he emphasised a growth mindset. Making big bets in cloud computing and AI he transformed the Window-centric Microsoft into a hot stock again.

CEOs with atypical career paths

While an unusual name, ethnicity, gender and immigration status are the most obvious markers of atypicality, a CEO's career path also offers opportunities to be different.

A linear progression in finance or the firm’s core business might be the most obvious path to the top but analysing 250 million emails from employees in a large company, Adam Kleinbaum, of Tuck Business School, found that people with atypical career paths create connections that help them to move beyond silo-thinking.

New research I am undertaking with Florence Karaba suggests that CEOs with cross-functional experience are better able to balance the need to run the existing business and develop new ideas.

It’s also worth looking for CEOs that had unusual work experiences outside the company. While 46 of those leading America’s 50 largest companies have spent most of their career in the same industry, some have picked up experience elsewhere.

A particularly intriguing background is the military. The military appeals to candidates who value discipline, serving others before themselves, and obedience to rules. Analysing 1,265 CEOs, Irmela Koch-Bayram, of the University of Mannheim, and Georg Wernicke, of HEC Paris, were able to show that those who served in the military were less likely to be involved in financial misconduct.

While atypical CEOs are in a strong position to guide companies into this new era of uncertainty, the likelihood to climb the greasy pole of success is much higher with an MBA from Harvard and a stint at McKinsey. But who said that this will remain the same in future years? Companies are likely to realise the power of diversity.

Read the original article at Forbes.

 

Christian Stadler is Professor of Strategic Management and teaches Strategic Advantage on the Distance Learning MBA and Executive MBA.

Follow Christian Stadler on Twitter @EnduringSuccess.

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