MADISON, Wis.-A new study from the Filene Research Institute has found a credit union CEO's personality matters even more than his or her other abilities and education when it comes to successful leadership.
The study said the two traits that are the best indicators of both employee engagement and credit union success are the CEO's conscientiousness and emotional stability.
The research was performed by Murray Barrick, the Paul M. & Rosalie Robertson Chair in Business and Executive Director of the Center for Human Resource Management at the Mays Business School at Texas A&M University. Among the conclusions of the research, titled, "Leading for Credit Union Success: The Roles of Personality and Practices in CEOs": CEO personality matters even more than ability; CEOs can change abilities and temper personality; it is important to engage employees-but more critical to have a good CEO; and high-performance work practices are not as important as thought to be.
Barrick surveyed a cross section of employees-ranging from entry level to C-suite -at 84 credit unions across the United States and Canada. Each survey participant evaluated the CEO's personality, critical executive competencies, leadership behaviors and performance. The non-CEO participants also were asked to rate their level of work engagement at their credit union.
Beginning With A 'Blank Slate'
Ben Rogers, research director for Filene, said the think tank went into this project with a "blank slate."
"We used the tool Professor Barrick used internally, and then decided to use it on CEO performance," Rogers explained. "The major finding was although ability certainly matters, personality matters more, which was surprising. It is important to be smart, to be intelligent, but when it comes to driving performance across the organization, it also is important for the CEO to work well with people."
The study confirmed the hypothesis that when it comes to employee engagement and organizational performance, CEO personality is more important than CEO ability. Personality accounts for 47% of the variance in engagement versus 9% for abilities, and for 49% of the variance in firm performance versus 32% for abilities.
Barrick said it was important to note the ratings of personality and skills came from those other than the CEO-executives, middle managers and employees rather than self-reporting, as is typical in CEO performance research. He said his eyes were opened by two studies completed in 2010 that found observer ratings are more accurate in predicting performance.
"When people view the CEO as highly conscientious, they become more engaged in their work," he said. "Conscientiousness still matters for performance, but emotional stability matters, too. That means how anxious the CEO is, or how distracted they are around work. This is a good predictor of organizational performance."
Another important research note pertained to the size of the credit unions examined. Barrick said the CUs in the study primarily had fewer than 200 employees, which increases the importance of the face of the organization being familiar. "These credit unions are small enough that everyone knows the CEO, so reputation does matter," he said.
If Barrick could give advice as to the "best" way to hire a CEO, he said being calm in a crisis is good, as is someone who is calm, steady and remains focused on work.
"Boards probably rated the competencies more than personality traits," he said. "I expected competencies to matter more."
Because of self-reporting bias, Barrick said he would gather information on a potential CEO's personality traits via an in-depth interview with a reference to get observer ratings. To test how a candidate's competencies work in tune with his/her personality, he suggested bringing in five candidates and give them a leaderless task.
"Structure a setting to be able to observe skills directly," he said. "It is hard for an observer to measure how much someone knows, so an observer rating of competencies might not be as accurate as those of personality traits. Get the candidates into assessment centers, which are sets of tests over a full day, including role playing and task solving. See who initiates structure."
High-Performance Work Practices
According to the study, although high-performance work practices are the most critical predictor in the area of employee engagement (explaining 33% of variance in this area and narrowly edging out second-place CEO conscientiousness at 32%), they "barely register" when it comes to predicting organizational performance. Work practices account for just 1% of the variances in this area, while all factors relating to the individual CEO account for 81% of the variance.
Barrick said the interpretation in these areas does not include member service or member satisfaction, which he cautioned also should be considered.
Work performance was measured by accounting-based standards, such as the financial performance of the credit union, Barrick explained. He said credit unions that had high-performance work practices typically were good at developing subordinates by communicating frequently and well.
As for pay practices, Barrick said CUs need to react to the market in a "fair and sensible" manner, including ranking the pay of different positions in a fair way.
With all that said, he noted, "It did not affect the financial performance of the credit union as much as I thought it would. For credit unions that are known to be great at providing service, high-performance work practices would have been bigger."
The takeaway, he continued, is in all small companies, the CEO "really matters."
"I tend to think of employee motivation as critical to companies, so leadership development is important to the success of the company in the long haul," he said. "It is vital to hire the right people, because it is difficult to change personality traits."
CEO Connects, Staff Follows
The study examined three key CEO abilities: strategic change competence, the ability to accomplish tasks, and the capacity to build and nurture relationships. These are listed in order of expected importance, and, again, Barrick noted, actual results did not match up with the hypothesis.
Although strategic change competence is the best way to predict a CEO's ability to be a transformative leader (22% variance vs. 17% for relationship building and 16% for task competency), relationship competence is a better indicator of organizational performance (with relationship competency accounting for 18% in variance vs. 5% for the ability to implement strategic change).
"While all three competencies predicted transformational leadership behavior, these ratings did not predict as well," Barrick said. "The consistent theme from looking at reputational rankings is the best predictors are people skills-emotional stability and relationship skills. When people connect with the CEO, they follow."
Difficult to Change Personality
Filene's Rogers said one important finding, supported by other research, is the difficulty in changing one's personality.
"If personality matters and someone does not have the best personality, what to do? If someone is not naturally gregarious or outgoing, he or she can hire around that," Rogers said. "It becomes more important to hire well to compensate for personality."
The report should not be read that personality "trumps all," Rogers cautioned.
"Even though the headline is personality matters more, it is not an indictment of ability-people still need to have ability, it is just that personality matters more than you think."
