Why Atypical CEOs Have An Edge

Jen-Hsun Huang was not your typical child. At the age of 9 he was sent to a school for “difficult” children where his main chore was cleaning the toilets in his dorm.

Today, Huang is not a typical CEO of a US corporation either. Most of them are white and male. As this represents the status quo rather than the future, the Harvard Business Review decided to discontinue it's annual list of best performing CEOs in 2019.

That last list, however, was topped by Huang, an immigrant who was sent to the US together with his brother when civil unrest erupted in Thailand. Two more members of a minority were among the world's five top performers.

Companies face new and unprecedented challenges today. Inflation, energy crisis, and the great resignation have come on top of Covid-19 and digital disruption. This calls for a new bread of leaders. Atypical leaders have an edge as their biography enhances their ability to think differently.

CEOs with unusual names

Elon Musk is known to be a bit of an eccentric. Challenging the dominance of Toyota and Volkswagen with an unproven business model focused on e-vehicles and autonomous driving is testament to this. So is the idea to commercialize space travel. As it turns out, Musk is not the only person with an unusual name who opts for a distinct strategy. In a recent article Yungu Kang and David H. Zhu from the University of Arizona together with Yan Anthea Zhang from Rice University use 19 years of data from 1,172 companies to show that those run by CEOs with unusual first names have more distinct strategies.

Names matter as they are an important anchor point of our identity. Research in psychology has long argued that uncommonness of a name influences an individual’s self-perception and behavior. An uncommon name can have an impact on self-esteem when others struggle to spell and pronounce your name. In the long-run this effect wears off while studies have shown that an association with creativity persists.

Appointing a Phaneesh or Nwamaka instead of a Bob turns out to be more than a play with semantics. ?

Female and minority CEOs

There are more CEOs named Peter running a FTSE 100 company than there are women. The number of female CEOs is so small that it is hard to predict their impact on performance. But looking at executive committees, a new report notes that London-listed companies with a third of its members being women have net profit margins of 15.2 percent compared to 1.5 percent for those without.

Ethnic diversity might matter even more. In a study of venture capitalists, Harvard’s Paul Gompers and Silpa Kovvali show that an investment’s comparative success rate was 26.4 to 32.2 percent lower when partners shared the same ethnicity. Hitting the same note, a McKinsey study of 366 public companies finds that “the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians.”?In both cases gender diversity also matters, but less so.

As it turns out, Huang is probably not the last ethnic minority CEO to claim the title of world’s best performing.

Immigrant CEOs

Immigrants are natural entrepreneurs. They are a self-selected group prepared to leave their home country in search for new opportunities. They also have an eye for unspotted market opportunities. Take Kurdish businessman Hamdi Ulukaya who founded Chobani in 2005. Not impressed by the yogurt available in US supermarkets, he started to produce his own Greek-style yogurt in upstate New York. It only took him 5 years to dominate the market with sales of over $1 billion.

Some 40 percent of Fortune 500 companies were founded by immigrants or their children. When companies need fresh perspectives, picking a leader with an immigrant background is not a bad idea. Look at Microsoft CEO Satya Nadella who first came to the US as a student. In 2014 he inherited a company at the brink of stagnation. Moving away from the cut-throat approach of the Steve Ballmer era he emphasized a growth mindset. Making big bets in cloud computing and AI he transformed the Window-centric Microsoft into a hot stock again.

CEOs with atypical career paths

While an unusual name, ethnicity, gender, and immigration status are the most obvious markers of atypicality, a CEO's career path also offers opportunities to be different. A linear progression in finance or the firm’s core business might be the most obvious path to the top but analyzing 250 million emails from employees in a large company, Adam Kleinbaum from Tuck Business School at Dartmouth found that people with atypical career paths create connections that help them to move beyond silo-thinking. New research I am undertaking with Florence Karaba suggests that CEOs with cross-functional experience are better able to balance the need to run the existing business and develop new ideas.

It’s also worth looking for CEOs that had unusual work experiences outside the company. While 46 of those leading America’s 50 largest companies have spent most of their career in the same industry, some have picked up experience elsewhere. A particularly intriguing background is the military. The military appeals to candidates who value discipline, serving others before self, and obedience to rules. Analysing 1,265 CEOs, Irmela F. Koch‐Bayram from the University of Mannheim and Georg Wernicke from HEC Paris are able to show that those who served in the military are less likely to be involved in financial misconduct.

It’s not easy to become an atypical CEO

While atypical CEOs are in a strong position to guide companies into this new era of uncertainty, the likelihood to climb the greasy pole of success is much higher with an MBA from Harvard and a stint at McKinsey. But who said that this will remain the same in future years? Companies are likely to realize the power of diversity.

An earlier version of this article was published in Forbes.