What Do CEOs Do All Day?
A study of 354 CEOs of manufacturing firms in India paints a picture of how top executives allocate their time. On average, the CEOs spent 80 percent of their workday in business interactions; 13 percent working alone; and seven percent in informal interactions. Researchers identified two management styles. Style 1 CEOs were more likely to engage in activities that were planned in advance, had multi-participant and cross-functional components, and were directed at their own employees. Style 2 CEOs spent relatively more time in unplanned activities, met fewer people in any given interaction, and were more likely to interact with outsiders rather than their firm’s employees. Firms led by Style 1 CEOs were on average 34 percent more productive than those led by Style 2 leaders. Further, family CEOs had a 13 percent lower probability of adopting Style 1 than professional CEOs, said Raffaella Sadun, assistant professor of business administration at Harvard Business School. Sadun reported the study’s findings at a Queen’s School of Business Economics of Entrepreneurship and Innovation Conference.
In business, it is often said that time is money. If that’s true, then surely for chief executive officers attention is gold. After all, how CEOs focus their precious attention can reflect strategic priorities and determine the success or failure of firms.
Surprisingly, though, there has been scant research into what CEOs actually do during business hours. Henry Mintzburg, of McGill University, conducted a landmark study in 1973 that followed, in granular detail, the activities of five CEOs over the course of one week.
Inspired by Mintzburg’s work, a team of researchers recently conducted an exhaustive study of how 354 CEOs of manufacturing firms in India spent their business days, and then linked the executives’ use of time with how well their businesses performed. The results: CEOs focusing on planned activities involving a relatively greater number of people, particularly staff, go to the head of the class. On the other hand, CEOs of family-run companies won’t win any awards for overachieving.
“We collected detailed information for one week on what CEOs actually do,” said Raffaella Sadun, assistant professor of business administration at Harvard Business School. “We first asked for a list of all the activities in their agenda lasting longer than 15 minutes. We then asked a lot of detail for each activity during our daily calls with the CEOs or their personal assistants.”
Sadun presented the team’s findings at the Queen’s School of Business Economics of Entrepreneurship and Innovation Conference in June 2013.
The Impact of Management Styles
Sadun and her colleagues Oriana Bandiera (London School of Economics) and Andrea Prat (Columbia University) were struck by the variance in the number of hours CEOs worked and how they allocated their time among different activities. In their study, the typical CEO was 50 years old and had served in that position for 13 years.
- On average, the CEOs in the study worked 46 hours a week, with 43.4 hours spent on activities lasting longer than 15 minutes; 10 percent of these activities were classified as “personal.”
- Executives in the bottom quartile worked up to six hours a day while those in the top quartile worked more than eight hours a day.
- CEOs spent 80 percent of their time in business interactions (face-to-face meetings, phone calls, shop floor visits); 13 percent working alone; and seven percent in informal interactions.
- The average CEO spent one of every three hours involved in activities that were not planned in advance.
Looking deeper at their data, the researchers identified two management styles based on how the CEOs allocated their time. Style 1 CEOs were more likely to engage in activities that were planned in advance, had a multi-participant and cross-functional components, were directed at their own employes, and involved exclusively their direct reports. In their study, 37 percent of CEOs adopted this style.
Style 2 CEOs spent relatively more time in unplanned activities, met fewer people in any given interaction, and were more likely to interact with outsiders rather than their firm’s employees.
A one percent increase in the weekly hours worked by CEOs was associated with a 0.89 percent increase in firm productivity
Which management style delivered better business results? Firms led by Style 1 CEOs were on average 34 percent more productive than those led by Style 2 leaders. For both styles, though, more hours on the job had an outsized effect: a one percent increase in the weekly hours worked by the CEO was associated with a 0.89 percent increase in firm productivity.
The researchers mined for clues to why one style was used over another. “The external environment explains little,” Sadun said. “In fact, most of the variation in the data was within states and industries rather than between them.”
What did matter, they found, was firm ownership: family CEOs (second generation, affiliated with the family) in the study had a 13 percent lower probability of adopting Style 1 than professional CEOs. They planned less, attended fewer meetings, were more likely to interact with outsiders, and were more likely to engage in one-on-one meetings. Family CEOs also worked seven percent fewer hours than CEOs of professionally-run firms.
For Family CEOs, Competition is the Key
What explains the difference? It could be a response to a unique division of duties, such as other family members helping, or the lack of concern about being dismissed. The researchers sensed they identified part of the answer when they discovered that family CEOs work fewer hours than executives in other firms in cases where foreign or domestic competition was low. It turns out that family CEOs in highly competitive industries behave just like professional CEOs.
In the final part of their study, the researchers developed a novel way to determine whether family and professional executives put different weight on firm performance. Given that 70 percent of their study in India was conducted during monsoon season, the researchers were able to measure how both types of CEOs adjusted their time in reaction to extreme rainfall, when local transportation in urban areas is snarled. They found that family CEOs dropped the hours they worked by 10 percent while other CEOs maintained their work load.
“The relation we find,” Sadun says, “suggests a possible explanation for the well-documented underperformance of family-run firms.”
An open question is whether or not these results hold in non-manufacturing contexts and in other economies. The study of Indian CEOs is part of a larger study encompassing seven countries, so an answer to that question may come in the months ahead.
— Alan Morantz