CEO Behavior: Are Family CEOs Different?

...family CEOs devote 8 percent fewer hours than professional managers to their corporate responsibilities.

Young firms with substantial family ownership often wrestle with the choice between having a member of the family serve as CEO and recruiting an outsider, a professional manager, as the CEO. Are there differences in behavior between the two groups? In Managing the Family Firm: Evidence from CEOs at Work (NBER Working Paper No. 19722), Oriana Bandiera, Andrea Prat, and Raffaella Sadun suggest that on average, professional managers generate greater growth, productivity, and profits for the firm.

The authors study the work habits of 356 CEOs in the Indian manufacturing sector, where family ownership is common and productivity among firms varies markedly. They find that family CEOs devote 8 percent fewer hours than professional managers to their corporate responsibilities. Moreover, the researchers find that longer hours are associated with more successful firms and with higher levels of CEO pay.

To measure time use, the researchers reconstruct the CEOs' time diary via daily phone interviews with their personal assistants over the course of one week. They ask respondents to use their diaries to list sequentially all activities longer than 15 minutes, such as meetings, phone calls, and other tasks, the type and number of people involved, the location, and the duration of the activity. This allows the researchers to estimate how much time CEOs allocate to their duties and how they divide their time among different tasks. To gauge whether the findings are specific to the Indian context, they apply the same methodology to collect time use data in a range of other countries, including the United States, and they find similar differences between family CEOs and professional managers.

The study reveals that the average CEO in the sample spends 9 hours per day at work, with CEOs in the bottom quartile working an average of 6.9 hours per day and those in the top quartile working on average 10.7 hours per day. There is a strong positive correlation between the number of hours worked by the CEO, firm performance, and CEO remuneration.

To understand why some CEOs spend more hours at work than others do, the researchers develop measures of the "marginal cost of effort" using instances of extreme monsoon rainfall and the broadcasting of popular sporting events, in particular international Premier League cricket games, across days of the sample week. They find that the difference in hours worked between family CEOs and professional managers is significantly larger on days when torrential rains or cricket matches - which generate traffic and slow commuting times - increase the marginal cost of reaching the office and make the prospect of staying at home more attractive. The authors note that on average, family CEOs are wealthier and have more job security than their professional manager counterparts; this may explain their greater propensity to stay home on days with challenging commutes.

The authors conclude that it is difficult to draw any causal inference from the positive correlation between CEO hours and firm performance. However, they note that the correlation between these two variables translates into a 5.8 percent productivity difference between family and professional CEOs. They write that the evidence further "highlights the importance of how corporate leaders allocate their limited managerial attention... Attention is a scarce resource and particularly so at the top of the organization. The allocation of time reflects the allocation of attention, which in turn depends on the strategic priorities of the CEO."

--Matt Nesvisky