Why Human Capital Could Make Generalists Better CEOs Than Specialists

Boards, managers and all other stakeholders should be aware of the links between a CEO’s human … [+]

How did the respective backgrounds, expertise and skills of CEOs John Akers and Louis Gerstner impact their roles as CEOs of IBM? In their successive reigns between 1985 and 2002, both governed the fortunes of one of the world’s biggest companies in starkly different ways. As a specialist with narrow but deep knowledge of his sector, Askers devoted his entire life to the technology firm. Yet, under his presidency, the company lost control of the PC business, and made the biggest annual loss in its history. Meanwhile, Askers’ successor, the generalist CEO Gerstner, saddled his broader set of managerial skills and long experiences at American Express, RJR Nabisco and McKinsey to transform IBM. Gerstner focused on IT services and abandoned the desktop PC market resulting in a highly successful turnaround.

In such contrasting experiences of leadership, what role does human capital play? These divergent profiles – generalist versus specialist CEOs – have fascinated researchers and economists for decades. Since the seminal work by Hambrick and Mason back in 1984, there has been a surge of studies examining the impact of CEO characteristics on organizational choices and outcomes. Some postulate, for example, that companies run by generalist CEOs invest more in R&D than those headed by specialist CEOs.

Is The Key Broader Human Capital?

Yet, so much remains to be explored on the experience, expertise and abilities that make up a CEO’s human capital and how (s)he operates when running a major company. Hence our exhaustive research, bringing together the expertise of academics from four top faculties in France and Singapore. Boards, managers and all other stakeholders should be aware of the links between a CEO’s human capital and his/her strategies for the company, allowing them to anticipate the strategic preferences of their leader.


To this end, we gathered details on all 1,723 M&A deals over $1 million, carried out by the American S&P companies over a ten-year period (7,782 firm-year observations). The aim was to understand how the nature of CEOs’ human capital relates to their firms’ strategic behavior when it comes to acquisition. We also analyzed the performance of these acquisitions, what’s called cumulative abnormal return.

We observed that generalist CEOs follow a different acquisition strategy than specialist CEOs: they are likely to pursue both more deals and diversify their acquisitions more than specialist CEOs do. Going further, we find that the stock market reacts more positively to acquisitions where the fit between CEO human capital and opportunities is clearer. As such, generalist CEOs achieve a higher acquisition performance when they acquire from outside their firm primary industry and specialist CEOs when they target deals in the same industry. Our empirical results back these tendencies: relative to specialist CEOs, generalist CEOs make an additional acquisition every four years and are 60% more likely to make an unrelated acquisition.

Superior Acquisitions At Several Levels

Such studies are important in furthering research on strategic leadership. Experience has shown that the type or nature of human capital affects performance. However, as we discovered earlier, there is surprisingly little known about how the fit between the human capital of managers and their strategic behavior shapes firm performance.

Yet, this information can better explain the heterogeneity in firm behavior and its results in terms of, for example, acquisition. Our research suggests that generalist CEOs perform better at making unrelated acquisitions, targeting industries outside of the firm’s sector (in terms of products, markets or technology), for the following reasons:

– They are more adept at finding suitable acquisition opportunities when turning outside the firm’s sector.

– Their general managerial skills and know-how allow them to better judge the right time to diversify through acquisitions.

– They have experience with cross-sector negotiation and possess deal structuring skills that allow them a better position in executing transactions.

– Their wider networks enable them to secure financing and obtain greater backing from stakeholders when pursuing diversifying growth.

However, specialist CEOs’ in-depth knowledge of the industry and its complexities allow them to have the upper hand in terms of choosing, planning, and executing alternative paths of corporate growth within that industry. Specialist CEOs make value creation acquisitions by deploying their knowledge towards identifying non-diversifying targets and creating operational synergies with the acquired firms.

“Boards Of A Feather”

But what type of firms nurture the talent of generalist CEOs? And what type of firms do generalist CEOs feel attracted to? To probe these questions further, we innovated by using a two-sided matching model which allowed us to understand what type of firms value generalist CEOs – and vice versa. Our initial conjecture was that companies which were either larger, diversified or with a tendency to acquire, would prefer generalist CEOs. But, after a battery of tests, a fourth tendency stood out: the broader the experiences and profiles of the board members themselves, the more likely they are to choose a generalist CEO and support a generalist-style approach to acquisition. Clearly, the board human capital is the defining factor when it comes to prefering generalist over specialist CEOs.

Hardly surprising, really: generalist boards tend to hire generalist CEOs because of social preference and homophily effects (a tendency which some academics coin “boards of a feather”).

Our research underlines the link between CEO characteristics, company profile and performance. Our groundbreaking use of a two-sided matching model revealed that CEOs tend to engage in strategic behavior that matches the nature of their human capital. We find that when this happens, there is more value being created for the company.

An open question remains: do executives actively seek deals that allow them to leverage the particular nature of their human capital? Or do they dare not venture outside their “comfort zone” and the risks associated with unfamiliar strategies? These questions invite further research on CEOs’ human capital and its impact on the companies these leaders work for.

Denisa Mindruta is Professor in the Strategy and Business Policy Department at HEC Paris. Daniel Brown is Chief Editor in the HEC Paris Communications Department.

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