According to new research, a select number of companies are considered the best at creating CEOs, and the market has accepted them as de facto “factories” that excel at manufacturing corporate leaders.
The most prominent CEO factories include General Electric, IBM, Proctor & Gamble, according to research published this month by academics at the University of Indiana and Santa Clara University.
“Anecdotal accounts on CEO appointments recognize that a small number of firms have produced a disproportionately large number of CEOs in the U.S.,” the paper states. “For example, General Electric, often praised for its impressive ability of nurturing and developing managerial human capital, provided 49 CEOs and many more top executives for the S&P 1500 firms during the period of 1992 to 2010.”
Out of 2,365 new CEO appointments made within the Standard & Poor’s 1500 firms between 1992 to 2010, over 20 percent (484) worked at one or more of the 36 CEO factories, according to the research. In addition, a typical CEO factory supplies 14.3 CEOs to the U.S. economy, while the average number of CEOs originating from non-CEO factories is only 1.6.
The paper states that there are “various reasons why” executives who have worked at CEO factories may become successful, including that some “are born with innate traits of great leaders such as visions, abilities to motivate people, and resoluteness in achieving goals” that CEO factories exceed their peers in identifying and enhancing.
“CEO factories may be good at developing CEO human capital by giving executives greater responsibilities early on and by putting executives into stretch assignments in various environments, both domestic and abroad,” the paper adds. “Executives may also acquire valuable connections and networks with other future corporate leaders through leadership training programs at those CEO factories. Surely, CEO factories may be good at both identifying and developing managerial talents. “
Factory-made CEOs also boost financial performance, according to the paper, which states that hiring a factory CEO is associated with a 0.746 percentage point share price bump in the three-day returns around the hiring announcement. It’s also a financial boon in the longer term, equalling an increase of 0.9 percentage point in the operating performance of a company in the first three years after the hire is made.