The CEO Effect: What’s the Value of Who’s in Charge?

A blonde white woman CEO wearing glasses and a gray plaid blazer sits at a conference table working on a laptop. A large window with a foggy city skyline is behind her.

Reading the business news makes it obvious that CEOs have a huge impact on organizational success. When corporations succeed, their CEOs are usually credited for company performance.1 When corporations fail, sometimes in colossal fashion, their CEOs are blamed and unceremoniously removed. At Hogan, we are no strangers to this conversation, frequently emphasizing the critical role of leadership in organizational success and failure. But just how important is it for organizations to get the right person in charge? What is the value of an effective CEO?

Several management scholars have investigated this question with a variety of data sets and methods. Here, we review the major papers on this topic and draw conclusions based on their findings. To start, we know that CEO personality characteristics often drive business successes and failures. Leader personality characteristics predict both who emerges as a leader and who is effective at leading.2 Bright-side CEO characteristics (e.g., interpersonal sensitivity) influence management team cohesion and can have a positive effect on overall firm performance.3 Conversely, dark-side characteristics (e.g., narcissism) negatively influence leader decision-making, which can lead to organizational failure.4 Finally, CEO bright- and dark-side personality traits predict ethical misconduct, fraud, and sexual misconduct that often put the organization at risk with long-term implications to the company’s reputation.5

But is there a measurable impact when it comes to the company’s bottom line? In the 1980s, researchers found that CEOs could influence changes to a company’s stock price, controlling for company size.6 In the early 2000s, researchers started reporting the effect of CEOs on profitability and return on assets (ROA), with estimates ranging from 15% of the total variance in profitability to 29% of the variance in ROA.7,8 Shifting to a different metric, researchers are now focusing on firm value (using Tobin’s Q) and estimate that CEOs are responsible for at least 25% of a company’s market value, after controlling for industry effects.8 As the management field continues to refine its methodologies and factor in context, these performance estimates may, in fact, be higher (38% of ROA variance explained) than what has been reported to date.9 Of course, the amount of managerial discretion also plays a role in that CEOs can only affect their company’s performance when given enough latitude to steer the ship around obstacles and chart new strategic direction.10

Fortunately, we are in a great position to help companies navigate this uncertainty. Even with a conservative estimate of 10% to 20%, this is a significant impact CEOs have on their company’s financial returns. Selecting the right leader can leap a company forward — and choosing poorly will set the organization back several steps.

Hogan has decades’ worth of research and thousands of archival studies showing how our personality tests deliver ROI in making the right hiring and development decisions for your company. Holding on to your talented employees, developing them, and finding a great CEO is the cornerstone of best practices that lead to long-term company success.7 We built a C-suite personality benchmark tied to company financial performance that is unmatched in the industry. We are leveraging this data into new research articles that link CEO personality to firm performance. Our findings confirm how critical it is to have a CEO with the right set of personality characteristics. In fact, CEO agreeableness, or the ability to build quality relationships across all levels of the organization, helps with team cohesion, engagement, and eventual company financial growth.

Look for these findings and more in the coming months as we continue to help companies find leaders who add value and improve their financial results:

Blake, A., Petrenko, O., Aime, F., Waldron, T., Lemming, M. R., & Sherman, R. (2021). Keeping nice in check: The dynamic between CEO agreeableness and firm performance. Manuscript submitted to Administrative Science Quarterly.

*This post was authored by Hogan’s Matthew R. Lemming and Ryne A. Sherman.


  1. Hanson, M. T., Ibarra, H., & Peyer, U. (2010). The Best-Performing CEOs in the World. Harvard Business Review.
  2. Judge, T. A., Bono, J. E., Ilies, R., & Gerhardt, M. W. (2002). Personality and Leadership: A Qualitative and Quantitative Review. Journal of Applied Psychology, 87(4), 765–780.
  3. Peterson, R. S., Smith, D. B., Martorana, P. V., & Owens, P. D. (2003). The Impact of Chief Executive Officer Personality on Top Management Team Dynamics: One Mechanism by Which Leadership Affects Organizational Performance. The Journal of Applied Psychology88(5), 795–808.
  4. Chatterjee, A., & Hambrick, D. C. (2007). It’s All About Me: Narcissistic Chief Executive Officers and Their Effects on Company Strategy and Performance. Administrative Science Quarterly52(3), 351–386.
  5. Van Scotter, J. R., & Roglio, K. D. (2020). CEO Bright and Dark Personality: Effects on Ethical Misconduct. Journal of Business Ethics164,451–475.
  6. Weiner, N., & Mahoney, T. A. (2017). A Model of Corporate Performance as a Function of Environmental, Organizational, and Leadership Influences. Academy of Management Journal, 24(3).
  7. Nohria, N., Joyce, W., & Roberson, B. (2003). What Really Works. Harvard Business Review.
  8. Mackey, A. (2008). The Effects of CEOs on Firm Performance. Strategic Management Journal, 29(12), 1357–1367.
  9. Hambrick, D. C., & Quigley, T. J. (2013). Toward More Accurate Contextualization of the CEO Effect on Firm Performance. Strategic Management Journal, 35(4), 473–491.
  10. Crossland, C., & Hambrick, D. C. (2010). Differences in Managerial Discretion Across Countries: How Nation-level Institutions Affect the Degree to Which CEOs Matter. Strategic Management Journal, 32(8), 797–819.