CEOs Who Graduated During Recessions Tend to Make More Ethical Leaders, Study Shows

Studies have shown that executives hired during bust times are more likely to be conscientious managers who stick around for longer. After all, navigating a company through a recession heaps more pressure on managers to operate efficiently and innovate to survive.

But how much could coming of age during a boom or bust period influence the likelihood that a leader will behave unethically?

Significantly, according to a new study that shows the state of the economy when managers are young adults—just like popular books and music—can have a profound influence on their attitudes and tastes later in life.

The results of the research, just published in the Harvard Business Review, could be useful for boards and CEOs when considering succession planning, or simply could prompt those leaders who graduated during prosperous times to pause for some reflection.

“Their experience navigating tough circumstances equips bust-year hires with much-needed skill sets to manage the inherently volatile and complex nature of the industry.”

To test their hypothesis, Emory University and London Business School assistant professors Emily Bianchi and Aharon Mohliver examined stock option back-dating done by 2,012 American CEOs over a 10-year period.

Back-dating is an unethical, and often illegal, practice where a CEO fudges the date on when they received a stock option to when the stock price was lower, allowing them to realize a larger financial gain when they sell the stock.

The researchers also analyzed the subjects’ education histories and how the economy was performing when they earned their highest degrees. Back-dating frequency, which is hard to prove, was determined by drawing on previous identification methods that involved considering stocks that were received on the most favorable days.

They found that CEOs who graduated during the best economic times where about 30% more likely to falsify the dates of their stock option grants, even after adjusting for company size, industry and the number of options granted.

As previously reported by Chief Executive, an analysis of mining company executives by recruitment firm Egon Zehnder found bust-time leaders had an average tenure of 4.6 years, longer than the 3.8 year tenure of boom-time leaders.

“Their experience navigating tough circumstances equips bust year hires with much-needed skill sets to manage the inherently volatile and complex nature of the industry,” the report’s authors, Edilson Camara and Sameera Sandhu, said.

Bianchi and Mohliver, meanwhile, said other studies have shown that bust-time graduates are more satisfied workers and less narcissistic, which figures, given they didn’t have everything offered to them on a plate.

“Our work suggests that they may be more ethical, too.”

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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