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Are CEOs More Effective as "Mr. Inside" or "Mr. Outside"

As a Silicon Valley business reporter for many years, I sometimes interviewed CEOs who described their role as Mr. Outside. This was the idea that he would spend most of his time in the field, talking with customers and potential customers, investors, financial analysts, and journalists, while the second in command -- Mr. Inside -- would handle the day-to-day activities of the company.

I suspected at the time that this division of duties was too fuzzy to work well. Who, for example, was responsible for guiding strategy development? Was it the CEO, while visiting a manufacturing plant in Ireland? Or was it the COO, while untangling a nasty kink in the supply chain? It turns out my suspicions were correct.

Using time diaries, a research team followed the activities of 94 CEOs in Italy over a week's time. They wanted to see not only how executives spent their time -- a precious commodity, after all -- but also to determine when they were most effective.

Here are some highlights from the paper, What Do CEOs Do, written by Raffaella Sadun of Harvard Business School, Luigi Guiso of the European University Institute, and Oriana Bandiera and Andrea Prat of the London School of Economics.

  • The more hours that the CEO worked with at least one insider, the more productive he was.
  • The stronger the company's governance, the likelier it was that the CEO spent more time with insiders.
  • Time spent with insiders correlated with profits while time spent with outsiders did not.
In sum, the team learned that CEOs who spent more time with employees inside the company were more successful than those who met with customers and other stakeholders outside the company.

As to why this should be so the researchers are not yet ready to offer their definitive take. But they lay out a plausible theory.

"The patterns we observe are consistent with the hypothesis that time spent with outsiders is on average less beneficial to the firm and more beneficial to the CEO and that the CEO spends more time with outsiders when governance is poor."

Want to contribute more to your company's success, dear leader? Be there.

Do you have a Mr. Outside CEO? Is he effective?

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(Photo by Flickr user JoF, CC 2.0)
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