A study of 1600 CEOs and their companies reveals that CEOs from lower socio-economic backgrounds are less concerned with employee welfare than CEOs from more affluent upbringings.
CEOs and corporate leaders come from diverse backgrounds, with a broad range of childhood experiences. While some CEOs were raised in affluent families, with all the privileges and opportunities that such an upbringing offers, other CEOs had difficult childhoods marked by poverty and challenging family situations.
A team of researchers studying the impact of different backgrounds on CEO management styles discovered that companies led by CEOs from difficult backgrounds were less likely to implement employee-friendly policies than CEOs from more privileged backgrounds. Examples of employee-friendly policies include better compensation, more generous benefits related to family leave and vacation time, more training and career advancement opportunities, and greater attention to workplace safety.
The reason CEOs from lower socio-economic background fail to support employee-friendly policies, according to the study, relates to their exposure to the working conditions of their parents. Because their parents worked in low-class occupations with challenging, non-employee-friendly working conditions, these future CEOs acquired in their formative years the attitude that challenging working conditions are the norm.
For their study, the researchers collected biographical information from a variety of sources on the childhood socio-economic status of more than 1600 CEOs. They then used three measures to determine the level of employee-friendly policies in the companies led by the CEOs: 1) lawsuits against the company related to labour and employee policies; 2) the number and severity of OSHA violations; 3) company ratings posted on Glassdoor, the leading platform for anonymous employee ratings of companies.
The data showed consistently that companies led by CEOs who came from lower socio-economic backgrounds had higher rates of labour-related lawsuits filed against their companies, higher rates of OSHA violations, and lower Glassdoor ratings on work/life balance, culture, values, and management quality than companies led by CEOs from more affluent backgrounds.
The researchers confirmed through further analyses that the results were not affected by other factors such as industry characteristics or CEO characteristics unrelated to childhood socio-economic status. They also confirmed that the CEOs actively influenced the firm policies that reflected low concern for employee welfare.
Understanding differences in management styles is critical in decisions related to the selection of new CEOs. Given the tendency of CEOs with working class backgrounds to be less driven by concern for employee welfare, new CEOs may fit better in
1) Less labour-intensive firms,
2) Firms without considerable workplace safety demands, and
3) Firms not relying on employees with a scarce skill set.
Likewise, differences in CEO-driven management styles can lead to culture clash difficulties between companies in mergers or joint ventures—as is the case with the acquisition of Whole Foods, founded by the affluent-born John Mackey, by Amazon, founded by Jeff Bezos, whose background was more challenging.
Awareness of the childhood backgrounds of CEOs of companies about to merger or engage in a joint venture can at least warn of potential incompatibility issues to be addressed.
Working Class CEOs: Formation of Occupational Norms and Corporate Labour Policies. Henrik Cronqvist, Irena Hutton and Danling Jiang. University of Miami Business School Research Paper No. 3501928 (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3501928 or http://dx.doi.org/10.2139/ssrn.3501928
Further Relevant Resources:
Henrik Cronqvist’s profile at University of Miami
https://people.miami.edu/profile/hmc58@miami.edu
Irena Hutton’s profile at Florida State University
https://business.fsu.edu/person/irena-hutton
Danling Jiang’s profile at Stony Brook University
https://www.stonybrook.edu/commcms/business/about/_faculty/profile/DanJiang
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