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Our research of S&P 500 execs shows how a CEO’s financial behavior impacts the entire organization…and which traits can dramatically affect the bottom line!
As the highest-ranking executive in a company, the CEO naturally wields a tremendous amount of influence. We performed an in-depth analysis of the financial behaviors of S&P 500 executives that proved that connection. As it turns out, no matter how far away from the masses the CEO may sit, they impress their values upon the organization through the strategic decisions they make. That, in turn, influences the company’s growth, efficiency, employee behavior, and culture. The data also made it clear that having a strong Financial Goal Drive and Innovation Focus were excellent predictors of long-term success!
Taking Authority Bias Into Consideration
The CEO sets the standard for the organization, but there’s another reason why his or her mindset becomes so pervasive. CEOs are ultimately responsible for reporting on company performance to the board of directors. And, in about 36% of the S&P 500 companies, the chairman of the board is also the CEO, giving even more weight to their authority. So, as you can imagine, the influence of their financial behavior is even stronger when Authority Bias comes into play.
Authority Bias: The tendency to attribute greater accuracy to or be more easily persuaded by the opinions of "authoritative" figures.
How Are CEOs Naturally Wired?
Since the mindset of the CEOs will guide the entire organization, let’s look at two key leadership financial behaviors we found in S&P 500 executives. These behaviors can have a huge impact on financial value creation.
- Financial Goal Drive – The inclination to set and relentlessly pursue competitive financial goals for business growth.
- Innovation Focus – The propensity to be resourceful in product and process development and take the risk in supporting its commercialization.
As you can see in the chart below, the CEOs in our study scored above average in both Financial Goal Drive and Innovation Focus. The key executives scored even higher in these areas. But, with the entire leadership team leaning in the same direction, it makes a huge statement about the company’s priorities and ability to create value. The rest of the organization will likely take their cue from these decision-makers.
Ultimately, each leader's specific financial behavior competencies need to be understood and harnessed for the good of the business. If they aren’t balanced within an individual, they can be balanced by the diversity of the team. Otherwise, if the Innovation Focus is high, but the Financial Goal Drive isn’t strong enough, the company may get financially choked which can limit or halt growth. On the other hand, if Financial Goal Drive is high but Innovation Focus is low, then there may not be enough new products and services to increase revenue.
Financial Behaviors That Increase Profits
One of the most interesting things we learned from our research is how certain leadership competencies are directly related to profits. So, if the CEO and the top-level executives are to steer the company in the right direction, they are going to need to be strong in those financial behaviors.
In the chart below, you can see that for each 4% increase in the Financial Goal Drive of the S&P 500 leadership team, there was a 21.51% increase in profits! So, while we know that this goal-driven behavior is needed at the top of the organization, we now have proof that the stronger this trait is, the greater the likelihood that it will have a positive impact on the bottom line.
Why GenAI Innovation Matters
Besides the obvious need to have a strong drive to reach financial goals, we also have to consider how to balance an organization. In our previous post, Top Execs Reveal the People-Profit Balance, we explored the roles of Results Drive and Relationship Engagement in terms of creating financial value. Now, we’d like you to consider the importance of striking a balance between Financial Goal Drive and Innovation Focus for the same purpose.
45% of CEOs do not believe their business will be viable in 10 years without some sort of reinvention.
PwC Annual Global CEO Survey
Top companies today are in a state of continuous reinvention. It takes leaders who are focused on innovation to embrace advancing technologies and adjust the business model as new trends emerge. We expect progressive leaders will soon be adding a Chief of AI to the C-Suite if they haven’t already! When you couple the Innovation Focus with Financial Goal Drive, you have the right ingredients for a winning organization. So, why limit yourself by taking only one into account when building your team?
Industries Expected to Gain the Most by GenAI Adoption
If your business has not yet put GenAI to use, consider this. Research presented by PwC in February of 2024 showed a striking difference between industries that build with GenAI versus those that use it to streamline business processes. Those in the information technology sector have a projected net profit margin increase of 19% from GenAI adoption, while others who just use the tech internally aren’t expected to see a huge difference. Keep in mind, however, that streamlining processes and improving operational efficiency keep you in the game even if profits only marginally increase!
The graph below shows which industries can expect the most impact from adopting GenAI. Those identified as GenAI Business Transformers and GenAI Business Enhancers both stand to gain in one way or another if they embrace new technology, while those doing “business as usual” are at a greater risk of falling off the chart!
- "GenAI Business Transformers" – Those who are expected to be higher financial value creators through building disruptive products capable of easy adoption
- "GenAI Business Enhancers" - Industries where Gen AI will be adopted for streamlining the business and, as a result, not dramatically impacting incremental net profit gains
Setting Up Your Leadership Team for Success
Since profits are tied to both Financial Goal Drive and Innovation Focus, it’s important to know who on your team has those innate capabilities and can therefore lead transformation efforts. For some companies, the right people with the right mix of talents and financial behaviors could already be inside the business. Once identified, the CEO and key executives can lead not only by the influence of their authority but also by nurturing those individuals and aligning their roles accordingly.