Executives who are promoted to chief executive often share a similar trait: they demonstrate a willingness to communicate and collaborate with colleagues on quarterly earnings calls, a recent study found.
Researchers analysed transcripts from about 78,500 earnings calls over a 10-year period, from 2010 to 2020. During those calls, about 10,864 executives from almost 2500 public companies answered questions from analysts and investors. The researchers found that the executives who invited colleagues to jump in and provide perspective or more detail to an answer were perceived by board members and shareholders as being more co-operative and, on average, were more likely to eventually become the company’s chief executive.
Across the sample, only about 6.7% of the executives who spoke on the calls were promoted to chief executive. But among executives who regularly invited other colleagues to speak on calls, the promotion rate was about twice as high at 13%.
A good signal
“It’s not about being nice or inclusive,” says Wei Cai, an associate professor at Columbia Business School and one of the study’s authors. It’s that “inviting a colleague to speak could signal to analysts, investors and boards of directors that the executive is good at coordinating and communicating across the organisation, all of which could reveal meaningful leadership traits,” says Cai, adding that executives were even more likely to be promoted if they interacted with a range of colleagues on calls rather than just one or two.
The researchers found that co-operative executives were equally likely to invite colleagues to speak on earnings calls whether the company performed well or poorly, or if the question posed by the analyst or investor was difficult or easy to answer. That indicates these leaders aren’t trying to deflect poor performance on to others, says Cai.
In fact, the researchers determined that executives who ask colleagues to weigh in only in response to negative questions are less likely to be promoted than those willing to share the spotlight all of the time.
The researchers controlled for alternative factors that could explain their results, such as education, extroversion and gender. They also found that co-operation was associated with traits like seniority and age, meaning older, more experienced executives tended to ask colleagues to participate more often than others.
Stock bump
Finally, the researchers studied shareholder reaction to the promotion of a co-operative CEO. They found that when a company promoted a CEO who was more co-operative than the previous one, the stock price experienced a 0.6% bump, on average, compared with its expected return in the three days around the promotion announcement. The researchers calculated the expected return using three different commonly used financial models.
A co-operative CEO likely influences firm performance because he or she “can mobilize expertise and navigate complex organizations,” says Cai.