Want to be a CEO? A Recession Is Your Friend

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NEW YORK (MainStreet) — Here’s a bit of good news: It takes less time for an employee to reach CEO status during a recession, according to a report from the National Bureau of Economic Research.

But here’s the rub: These new CEOs tend to head smaller firms and get lower compensation than more established CEOs, and are more likely to rise through the ranks within a given company rather than moving across firms and industries.

The report, which looks at how early career experiences affect the path and promotion of managers, attributes the difference in upward mobility to the fact that external hires have a hard time proving the quality of their work during poor market conditions.

“People who start in worse economic times might find it more difficult to communicate their quality to the outside market since the firm is not growing,” the report says. “However, managers who start in boom times will have positive results even if they did not personally contribute a lot to the success of the firm.”

The findings are based on an analysis of data from the Compustat’s Executive Compensation database between 1992 and 2010, which covers the S&P 1500 as well as companies that were once part of the S&P 1500. Biographical information on CEOs was also obtained from Biography in Context, Bloomberg, Forbes and the proxy filings of the company itself.

Researchers also found that recession CEOs have more conservative management styles than their non-recession counterparts. Specifically, they spend less on capital expenditures and research and development, have lower leverage, are more diversified across segments and show more concerns about cost effectiveness.

The researchers said the conservatism can either be a result of the recession itself influencing management styles, since employees are trained to learn cost-cutting techniques and deal with financial constraints, or a result of the change in the hiring criteria as companies look to hire managers who know how to preserve a firm during times of economic downturn.

—Jeanine Skowronski is staff reporter for MainStreet. You can reach her by email at Skowronski.jeanine@thestreet.com, or follow her on Twitter at @JeanineSko.

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