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Comment by crazygringo | Hacker News Reader

I'm not sure this proves anything at all.

To play devil's advocate: what if top CEO's (whether by school or by track record) look for harder challenges?

Someone once said Dara Khosrowshahi took the CEO job of Uber not to make money, but because anyone willing to take that job is somehow who wants to play the CEO game on "hard mode".

If everyone's taking a job where there's a 50% chance of failure for their personal skill level -- which means the more skilled CEO's are taking the harder jobs, and the less skilled CEO's are taking the "safer" harder-to-mess-up jobs -- then statistics will look like CEO skills don't make a difference... even though they do.

And since employment markets (in general) tend to funnel higher performers to harder jobs (because that's economically efficient), this doesn't seem implausible.

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>Over the past year, we set out to answer these questions. We created a database of approximately 8,500 CEOs and their characteristics, each individually mapped to their respective companies for the duration of their tenure, and pulled company fundamentals from Compustat, stock returns from the University of Chicago's Center for Research in Security Prices (CRSP), CEO tenure and education from BoardEx, and long-form CEO biographies from Capital IQ. We then ran a battery of tests on the new data set, looking for correlation, persistence, and predictive power.

...Nevermind that, I heard that some guy took the job because he liked challenges.

Maybe Dara was already wealthy and the marginal utility of the money at Uber wasn't a factor? Maybe this would lead him to beleive that his own decision making an knowledge would be superior and he wouldnt listen to his peers. Soooo many variables.

It never ceases to amaze me we can dismiss data driven ideas in a blink of an eye because it doesn't fit a narrative we've developed through anecdotes.

You’re absolutely correct, some of the time.

On the other hand, at other times, academic researchers can conjure up an armada of buzz words and hot air balloons to support a position that even very limited real-world experience and common sense proves laughable misguided.

"common sense" and "real-world experience" are frequently euphemisms for "everyone knows that's how it works".

Yes it was very obvious that spontaneous generatuon was the correct answer, that Pasteur guy was a moron.

you just did exactly what I was talking about.

> It never ceases to amaze me we can dismiss data driven ideas in a blink of an eye because it doesn't fit a narrative we've developed through anecdotes.

This is perhaps because most people develop a paradigm of certain things and they're usually unwilling to accept a different one, even if the data is shouting at them to do so. And the more fundamental reason may be that people just don't like change.

I have been proximal to the CEO search process at a few different large companies, and at a minimum have anecdotal insight into what drives selection.

CEOs are hired to fix perceived fundamental problems with the business, even at externally successful companies, and are evaluated for fit based on their history solving similar problems at other companies. Many times the business problem driving selection is invisible to casual observers, particularly those external to the company because it involves internal board/investor topics. The CEO's primary job when hired is fixing whatever it is the board deems it necessary to fix, not posting good numbers per se.

Fixing a company is exponentially more difficult the larger the company. The ability of most people to effectively reshape a company in some key way scales very poorly with company size. There is definitely a Peter Principle at work and most successful CEOs fail to be effective at some scale. To make matters worse, most boards have ambitions to grow the scale of the business, so they tend to want to hire CEOs with experience that exceeds the current scale of the business, which creates an intrinsic shortage of candidates with proven experience to reshape organizations at the desired scale. Supply and demand.

It is ironic that this site often has horror stories of working at startups -- tiny organizations -- with disastrous CEOs, but in the same breath people assert that anyone could be an effective CEO of a 10,000-person organization because the job entails no meaningful skill. Most people are demonstrably ineffective as CEOs in a 25-person organization, there is no reason to believe they would suddenly become effective if the organization was a hundred times as large.

> but in the same breath people assert that anyone could be an effective CEO of a 10,000-person organization because the job entails no meaningful skill

That is not the assertion being made. The assertion is that most CEO's cannot make demonstrable contributions to the growth of a fairly mature company.

Sounds like an unnecessarily complicated explanation for the observation the authors made.

There are two competing hypotheses: first, CEOs' CVs and track records impact their future success, but a market mechanism ensures they get promoted into jobs in just such a way that their impact is offset by the difficulty of the job. Second, CEOs skills are not measurable and their prior success does not predict their future success.

Occam's razor sort of suggests that the latter hypothesis is preferable.

I'm reminded of a recent 'paper' where the authors took the idea of meritocratic advancement out for a serious shellacking. Their point the winnowing effect doesn't move the needle vs competence that much.

Yep. Also this is all based on stock price data, so it could be that businesses typically hire the person that the market "expects"...which would predict zero alpha even if counterfactually hiring a bad CEO would've tanked the stock price.

As already mentioned by another commenter, freakonomics had a good series on CEOs, including an episode on the glass cliff: http://freakonomics.com/podcast/glass-cliff/

The hypothesis being: female/minority CEOs are more likely to be hired as CEOs at failing firms (perhaps) because male candidates are less likely to apply/accept. Which, if true, would contradict your hypothesis.

Couldn't we just broaden the definition - a good CEO takes a job that is difficult but achievable, a bad CEO takes a job that he's not competent enough to identify as impossible. I think a good example of this is Intel. Intel just spent a year trying to find a new CEO, but failed because no one qualified to do the job was incompetent enough to accept the job. All the candidates were competent enough to realise that job is going to be a blood bath.

> To play devil's advocate: what if top CEO's (whether by school or by track record) look for harder challenges?

That literally means that CEO's do not know how to do their jobs. Even if they do it knowing it.

> Someone once said Dara Khosrowshahi took the CEO job of Uber not to make money, but because anyone willing to take that job is somehow who wants to play the CEO game on "hard mode".

And there is families that depend on that companies salary. Drivers around the world will be affected by Uber's CEO decisions. That is a job that will not be a game for most people. But, maybe it is for anyone that want that kind of job. They are just playing while others are the ones that are affected by it.

I definitely think you are right. But then again, there are so many confounding factors at play that this all becomes so difficult to detangle.

I posted this in a separate comment too: Freakonomics Radio had a series called "The Secret Life of a CEO" that covered CEO performance and many other topics. I highly recommend it!

http://freakonomics.com/ceos/

Not really. I would put it this way. What would you do when you have build a reputation over years. Would you simply forego it for an adventure. I don't think so and I have not seen example to prove your hypotheses.

Even when these guys have taken impossible jobs, they negotiated for themselves first and ensured getting paid even when they didn't succeed.

That does also suggest that rewarding with stock is not reasonable: if CEOs were actually motivated by money, they would go for easy mode instead.

He took the job of Uber CEO because he'll make 100x more money than doing anything else.

Taking over Uber was not 'hard mode' it's 'easy mode'.

'Hard' is building a business that scales and that's making money. That's extremely hard.

Uber has utterly fantastic fundamentals - they are growing rapidly and have a very powerful brand (despite their CEO shenanigans, riders don't really care, they'll take Uber if it's convenient).

As the previous CEO self destructed with some bad bits of PR, the 'new CEO's job is to come in and be the new face of the company as he prepares for the IPO.

The new CEO can blame the old CEO for all of the cultural problems, which are frankly not that hard to fix - after all it's mostly cosmetic. Fire a few really bad apples or those who can't be tolerated, launch a new social program, make it public etc.. The vast majority of Uber staff are just regular people.

Some restructuring would be required, such as axing some of the more aggressive secondary plays, which allows the nice unit-fundamentals to shine through.

And then do one of the biggest IPO's in history.

Taking over for a CEO who mostly has a 'perception problem' of a company that's growing like gangbusters and about to go IPO is most CEO's dream come true.

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