Friday, October 03, 2014

Chief Executives: brainpower, personality, and height

This paper uses Swedish conscript data to examine characteristics of CEOs of large and medium sized companies. Also discussed on Marginal Revolution. Thanks to Carl Shulman for the link.

It looks like large company CEOs are roughly +1, +1.5 and +0.5 SD on cognitive ability, non-cognitive ability (see below) and height, respectively. Apparently Swedish medical doctors are also only about +1 SD in cognitive ability (see article).

Horizontal axes are on a stanine (STAndard NINE) scale. On this scale a normal distribution is divided into nine intervals, each of which has a width of 0.5 standard deviations excluding the first and last.
Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs

Abstract: This paper analyzes the role three personal traits — cognitive and non-cognitive ability, and height — play in the market for CEOs. We merge data on the traits of more than one million Swedish males, measured at age 18 in a mandatory military enlistment test, with comprehensive data on their income, education, profession, and service as a CEO of any Swedish company. We find that the traits of large-company CEOs are at par or higher than those of other high-caliber professions. For example, large-company CEOs have about the same cognitive ability, and about one-half of a standard deviation higher non-cognitive ability and height than medical doctors. Their traits compare even more favorably with those of lawyers. The traits contribute to pay in two ways. First, higher-caliber CEOs are assigned to larger companies, which tend to pay more. Second, the traits contribute to pay over and above that driven by firm size. We estimate that 27-58% of the effect of traits on pay comes from CEO’s assignment to larger companies. Our results are consistent with models where the labor market allocates higher-caliber CEOs to more productive positions.

... The cognitive-ability test consists of four subtests designed to measure inductive reasoning (Instruction test), verbal comprehension (Synonym test), spatial ability (Metal folding test), and technical comprehension (Technical comprehension test).

[Non-cognitive ability:] Psychologists use test results and family characteristics in combination with one-on-one semi-structured interviews to assess conscripts’ psychological fitness for the military. Psychologists evaluate each conscript’s social maturity, intensity, psychological energy, and emotional stability and assign a final aptitude score following the stanine scale. Conscripts obtain a higher score in the interview when they demonstrate that they have the willingness to assume responsibility, are independent, have an outgoing character, demonstrate persistence and emotional stability, and display initiative. Importantly, a strong desire for doing military service is not considered a positive attribute for military aptitude (and may even lead to a negative assessment), which means that the aptitude score can be considered a more general measure of non-cognitive ability.
See related post Creators and Rulers:
I went to Harvard Business School, a self-styled pantheon for the business elite.

The average person was:
- top decile intellect (though probably not higher)
- top decile emotional intelligence (broadly construed - socially aware, self-aware, persuasion skills, etc.)
- highly conscientious / motivated

Few were truly brilliant intellectually. Few were academically distinguished (plenty of good ivy league degrees, but very few brilliant mathematical minds, etc.).

A good number will be at Davos in 20 years time.

Performance beyond a certain level in the vast majority of fields (and business is certainly one of them) is principally a function of having no cognitive and personal qualities which fall below a (high, but not insanely high) hygene threshold -- and then multiplied by determination, of course.

Conscientiousness, in fact, is the best single stable predictor of job success for complex jobs (well established in personality psychometrics).

Very high intelligence actually negatively correlates with career success (Kotter), probably because smart people enjoy solving problems, rather than making money selling things -- which outside of quant trading, show business and sport is really the only way of being really successful.

There are some extremely intelligent people in business (by which I mean high IQ, not just wise or experienced), but you tend to find them in the corners of the business landscape with the richest intellectual pastures: some areas of law, venture capital, some cutting edge technology fields.
See also Human capital mongering: M-V-S profiles. Note deviation scores (SDs) here are relative to the average among the gifted kids in the sample, not relative to the general population. The people in this sample are probably above average in the general population on each of M-V-S.
The figure below displays the math, verbal and spatial scores of gifted children tested at age 12, and their eventual college majors and career choices. This group is cohort 2 of the SMPY/SVPY study: each child scored better than 99.5 percentile on at least one of the M-V sections of the SAT.

Scores are normalized in units of SDs. The vertical axis is V, the horizontal axis is M, and the length of the arrow reflects spatial ability: pointing to the right means above the group average, to the left means below average; note the arrow for business majors should be twice as long as indicated but there was not enough space on the diagram. The spatial score is obviously correlated with the M score.

Upper right = high V, high M (e.g., physical science)
Upper left = high V, lower M (e.g., humanities, social science)
Lower left = lower V, lower M (e.g., business, law)
Lower right = lower V, high M (e.g., math, engineering, CS)


JayMan said...

Great info to have, to be sure.

Though I always wonder what the profile of business people would look like if they used the HEXACO instead of the Big Five. Or, at the very least, a measure of the Dark Triad/Tetrad + the Big Five, since the former appears to be supremely relevant to success in the business world. That and peer-rated data, so we can get honest data.

Butch said...

Fascinating information, excellent post.
I suppose versatility is the name of the game in business; this likely is the difference between me and my brother. My brother is on track for over 8A* grades including an A*-A at additional maths free standing qualification(FSMQ) at GCSE's (the average medical student at Cambridge has 7A* at GCSE's). I achieved an A* in physics, A in chemistry and 6 B's. I am now on track for A*AA at A-levels in Biology, maths and chemistry. These are grades that are generally achieved by those who get about 6-8 A*'s GCSE grades(they generally get A*A*A*) grades yet here I am. I tested my IQ with ravens progressive matrices at age 15 and achieved a score of 118(SD 15) but now it measures 133(SD15) with my brother consistently achieving 145 despite being two years younger.

Richard Seiter said...

They gave averages for each group on page 10:

The average member of the population has a cognitive ability score of 5.2., a non-cognitive ability score of 5.1, and is 179.1 cm tall.

Small-company CEOs thus have about one half of a standard deviation higher cognitive and non-cognitive ability, and about one-fifth of a standard deviation higher height than the population on average. Numerically: 6.0, 6.1, and 180.2 cm, respectively.

Large company CEOS averaged 7.2, 7.3, 183.2 cm (so cognitive and non-cognitive ability on average more similar at ~1.1SD than the histograms look, odd... perhaps related to the left skew in large company CEO non-cognitive ability? look at the 4 bar compared to cognitive ability). Table 1 on page 37 has descriptive statistics. Part of the discrepancy is round-off error: 7.16 vs 7.34, still more similar than the histograms appear IMHO.

On page 11 there are breakdowns for percentage of each group with the top score. They note that the stanine distribution assigns the highest score to the top 4% of test takers.

Cornelius said...

Seems a little low but the relative cognitive, non-cognitive and height relationships are about what I'd expect. There's some ceiling effect - 16.1% of large company CEOs hit the ceiling. If we use the standard deviations from pg. 39 then we can back out a mean large company CEO cognitive ability of 1.3 SDs from the mean (assuming normality).

"The largest deviation from linearity applies for cognitive ability: in the bottom range of pay, the relationship between pay and cognitive ability is negative, not positive. We can only speculate what drives this result. One possibility is that the low-pay segment of the sample includes many small boutique-type firms (such as advisory services) whose success hinges on the expertise of their CEOs. Alternatively, it may consist of many start-up firms with excellent growth prospects but severe financial constraints on pay. Both types of firms would be expected to attract CEOs with high cognitive ability."

This is not surprising at all. C-level management at start-ups (often founders) are clearly very intelligent and almost certainly more intelligent than the CEOs who end up taking over once these companies IPO and hire new management.

If this study were replicated in the US, I would expect somewhat higher averages on all 3 traits. It would be very interesting to see a similar study for venture capital and private equity guys. CEOs share much in common with politicians, so we certainly don't expect them to reach the heights of intellect for most industries. Intelligence is far more important in PE and especially in VC. In terms of intellect, I'd rank the smartest CEO I've ever met at about the level of an average VC.

John said...

Steve, I'm curious which areas of law you regard as rich intellectual pastures?

steve hsu said...

Note I didn't write that excerpt -- I'm not an HBS grad!

But I imagine he may have had IP/patent law in mind. said...

In the U.S. medical doctors average about IQ 125 and my analysis of Fortune 500 CEOS suggests the same:

Both doctors and CEOS are thus probably 10 IQ points smarter in the U.S. and that's probably because IQ and success is more positively correlated in more capitalist economies (the "free market" being a metaphor for the Darwinian survival of the fittest that caused our ancestors' brain size to triple in just 4 million years)

John said...

Ah, thanks. I should've realized it was probably an excerpt from someone else because I was thinking "funny that Steve often gives anecdotes about Caltech but this is the first I've seen him mention going to HBS."

steve hsu said...

I did attend Merton's class on continuous time finance (option pricing theory) and I also once dated an HBS girl. I could see their campus across the Charles from the window of my Dunster House apartment. said...

Performance beyond a certain level in the vast majority of fields (and business is certainly one of them) is principally a function of having no cognitive and personal qualities which fall below a (high, but not insanely high) hygene threshold -- and then multiplied by determination, of course.

This person is probably confusing a low correlation with a threshold effect. The reason we don't see many ultra-high IQ CEOs is the same reason we don't see many ultra-high IQ politicians. The importance of IQ in those fields is dwarfed by the importance of other traits (including height) but that doesn't magically start happening above some mysterious threshold as anyone who has ever looked at a scatter-plot can tell you. You also don't see many 6'8" CEOs but that doesn't mean height only matters up to a certain threshold, it means the importance of being tall is negated by the rarity of ultra-tall people, causing most CEOs to be tall but not exceptionally so.

Very high intelligence actually negatively correlates with career success (Kotter), probably because smart people enjoy solving problems, rather than making money selling things -- which outside of quant trading, show business and sport is really the only way of being really successful.

What he probably meant to say is that smart people enjoy abstract reasoning, because making money really is a problem that actually needs to be solved, unlike a math equation which is usually only a problem in the trivial sense of the word. And Fortune 500 CEOs are not even close to being the richest people (very few make Forbes list of the 400 richest Americans). There is no threshold beyond which more money stops predicting more IQ, as Steve Hsu brilliantly pointed out here:

Indeed, I've consistently found that average IQ increases by 8 points for every tenfold increase in financial success:

Three figure income earners (the homeless): Average IQ 84

Four figure income earners (part-time minimum wage): Average IQ 92

Five figure income earners (middle class): Average IQ 100

Six figure income earners (future millionaires): Average IQ 108

Self-made deca-millionaires: Average IQ 116

Self-made centi-millionaires: Average IQ 124

Self-made billionaires: Average IQ 132

Self-made deca-billionaires: Average IQ 140

And if you made you're money in STEM, add about 10 points to your expected IQ. So the average high-tech self-made deca-billionaire would have an IQ around 150 (similar to a Nobel Prize winning scientist)

5371 said...

Since you've made up all your data, I'm not very surprised that it fits a convenient formula.

5371 said...

Have you interested yourself in the question whether the brain size of every species triples every 4 million years?

Endre Bakken Stovner said...

I doubt that capitalism has got much to do with it.

In Scandinavia, you get into med-school straight from high-school, based on HS grades. HS grades here are on a five/six point scale where the ceiling is low. Furthermore, there is a great difference between HS schools in what it takes to get a good grade. So getting into med school here is probably a question of being very conscientious and having at least a tepid IQ (or higher), while in the US you need to do well on standardized tests.

This has probably to do with standardized tests being used (or not, as here), not the economic system (i.e. _my_ hobby-horse is the explanation, not yours ;) ). Comparing against China or some similar country could probably confirm or disconfirm this.

Endre Bakken Stovner said...

The "This" in the last sentence refers to differences in intelligence between doctors in the US and Scandinavia (dunno why Disqus won't let me emend my post). said...

My model is admittedly speculative, and could be wrong, but I did not make up my data. I obtained the mean IQ of the homeless from a study which tested a sample of them on an abbreviated version of the Wechsler intelligence scale and reported:

Within this section we attempted to test our first hypothesis that current memory and IQ would be lower in the homeless sample than the standardised population mean. We found that the mean WMS-III Total Memory score of the whole sample was 85.1( SD 16.2) and the mean WASI full-scale IQ score of the groupwas 84.3 ( SD 15.7).

Since the homeless score 16 IQ points lower than the average American, and make two figures less a year, that was my starting point for arguing that IQ varies by 8 points for every ten-fold increase in financial success. This model would predict billionaires have IQ's of 132 and interestingly, scholar Jonathan Wai did a study estimating that 45% of billionaires have IQ's in the top 1% (IQ 135) applying that the average is indeed around 132:

My model further predicts that decabillionaires should have IQ's around 140 and this excellent post by Steve Hsu argued that of the three richest men, all have IQ's above 135.

When even the bottom third of a distribution have IQ's of 135+, a mean IQ of 140 is arguabley implied.

AG said...

Lower left = lower V, lower M (e.g., business, law)

LOL. New respect for people in bussiness and law. However, people with low V and low M are running the world from CEO, Politician (most with law degrees). What a sad world?

AG said...

Higher standard for US physicians reflect higher quality of US medical system. Over 90% US medical graduates pass USMLE while foreign medical graduates pass less than 50% of the same test.

AG said...

Try to rationalize this finding.
Business and politics are about manipulation of mind of average people to buy into their ideas and products. It take one to know one. Dump people understand dump people better since they often reach the same conclusion about many things in the world. So Lower mental ability actually is advantage in the world of business and poltics since their words make sence for most average IQ people.

5371 said...

Although your spelling is vulnerable to criticism, I think your essential point is valid.

aseuss said...

The USMLE is a joke--American medical students have to pass the first two (most important) parts before they graduate, but then have at least 4 years of residency to actually learn how to practice medicine. It's understood that the important and relevant exams are those for board certification. The lower pass rate for foreign graduates has as much to do with poor language ability as it _may_ have to do with education in home countries. Those with less than perfect English skills are seriously handicapped on an exam where one must read a computer-screen-length medical case and answer the question correctly in little over a minute.

aseuss said...

Agree--it's not so much about capitalism, but about having a meritocratic system. China had a vast and extensive system of examinations that selected for the brightest, or at least the most knowledgeable (who, everything else being equal, might tend to be smarter than those who lack knowledge and skills--the poor often had the means to obtain education in ancient China). And no one would say ancient China was capitalist. In fact, Ron Unz proposed that this system might have helped select for intelligence over many centuries.

Paradigmo Incognito said...

There is strong consensus that the structured interview business people
score best at is airy fairy nonsense. Dark Triads are good at playing
along, saying the right buzz words etc. But only 115 in IQ - that's
gotta hurt.

Endre Bakken Stovner said...

Thanks for correcting me; it seems that (at most) 1/3 of Swedes get into med-school based on a test now (dunno what it looks like). The rest based on grades or other more nebulous criteria (a fraction are even admitted based on relevant work experience at some unis). Seems like there is some affirmative action for foreigners too, even Norwegians.

My source was the association for Norwegian students studying abroad.

Patrik1988 said...

I see. My knowledge is based on MDs that have studied in Sweden, Denmark or Poland. Sorry to hear that the Norwegian has started to discriminate consciously.

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