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How Hard Times Affect a CEO’s Career

Starting out in a recession scales down the scope of success.

Title: Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Style

Author: Antoinette Schoar and Luo Zuo (both MIT Sloan School of Management)

Publisher: National Bureau of Economic Research Working Paper No. 17590

Date Published: November 2011

CEOs who enter the workforce during a recession tend to have a different career path and management style than those who start when the economy is humming, this paper finds. Those who begin in harder times, and thus can be seen as more recession-minded, reach the top more quickly, and are more likely to rise through the ranks at a single firm than to move across companies and industries.

But they tend to lead smaller firms and receive lower compensation than their peers who started during brighter economic times. The findings point to the uncomfortable reality that the careers of recession-minded CEOs are not as successful as CEOs who begin in boom times.

“The economic conditions at the beginning of a manager’s career...have lasting effects on the career path and the ultimate outcome as a CEO,” the authors write. “If their achievements are less visible to outsiders,” they added, referring to recession-minded CEOs, “they might receive fewer opportunities to switch jobs and firms. This in turn might give them less bargaining power within their existing firm.” (A 2010 study was similarly downbeat for employees in general, finding a long-term negative impact on the wages of college graduates who enter the workforce in a bad economy. See “When It Pays to Stay in School,” by Matt Palmquist, s+b, Autumn 2010.)

Starting a career in a recession also affects a CEO’s approach to management, the researchers say. Such CEOs tend to run things in a more conservative way, investing less in capital expenditures and in research and development, for example.

The researchers began their study with the CEOs in the ExecuComp database, which covers current and former firms in the S&P 1500, between the database’s introduction in 1992 and 2010. They added career history and biographical information on the CEOs from the Biography in Context database, Bloomberg, Forbes, and the companies’ proxy filings. From these sources, the authors compiled information on more than 5,700 CEOs, or about 85 percent of those in the ExecuComp database. In the first step of their analysis, the researchers sought to explore how economic conditions at the outset of a CEO’s career affected his or her trajectory, so they focused on the 2,058 CEOs who had a relatively full and continuous career profile in the data.

In the study sample, 21 percent of the CEOs began their career in a recession, as defined by the National Bureau of Economic Research. On average, the managers in the sample took 22 years to become CEO, reaching that level at age 47, having worked in two industries and been employed by three previous companies. They held an average of six positions before being named CEO, with roughly three-year tenures in each of the prior jobs.

One concern for the researchers was that well-informed future CEOs could realize the downside of starting a career during a recession and thus delay their entry into the labor market, meaning more “average” employees would apply for jobs during bad economic times. To control for this, the researchers assumed the start of a person’s career at their birth date plus 24 years, as this was the average age of those in the sample when they got their first job. To account for any long-running trends in the economy and the way CEO careers evolved, the researchers limited their comparisons of recessionary and boom-time CEOs to the same decade.

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