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How Important is a CEO’s Education to Company Performance?

Not very, according to a recent academic study that looks at whether a CEO’s educational background has a significant affect on a company’s long-term performance (as measured by indicators like return on assets and stock returns) and finds “… virtually no evidence of a systematic relationship between CEO education and long-term firm performance”.

The study also takes a look at the relationship between educational background and a company’s decision to replace its CEO–finding that companies replace poorly performing CEOs regardless of education–and at the role education plays in choosing a successor.  In sum, the authors conclude:

CEO education is not significantly related to firm performance … results suggest that education is a poor proxy for CEO ability. Nevertheless education does play an important role in CEO hiring decisions; boards still use educational qualifications as criteria in evaluating potential CEOs.

If there’s no correlation between a CEO’s education and a company’s performance, then why rely on educational background in the CEO selection process at all?  The study’s authors suggest that perhaps the difficulty of evaluating qualities like leadership ability and interpersonal skills lead a board to rely on more discernible measures, like the ranking of a school attended or the level of education attained.  This seems entirely functional; candidates have to be sorted by some means and educational background often serves that role.  Still, those involved in the selection process need to be mindful of the weight assigned to a potential CEO’s educational background and of how early in the process they apply the educational filter to narrow their pool of potential candidates.

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