Although more generalist CEOs command a significant pay premium and are known for initiating a variety of strategic changes, whether their sought-after experience is associated with higher firm performance remains unexplored. Drawing on instrumental leadership and domain expertise frameworks, we propose a negative association between more generalist CEO experience (across different industries or firms) and firm performance, but one that is alleviated by longer tenure. Based on a sample of 16,158 CEO-firm-year observations from 2243 firms, we find support for a negative association between more generalist CEO experience and firm performance, which is alleviated with longer CEO tenure. These preliminary results have implications for the increasingly common practice of seeking to hire more generalist CEOs in an effort to improve firm performance.

Introduction

The human capital of a CEO influences a variety of firm-related strategic actions and outcomes (Harris & Helfat, 1997; Miller, Xu, & Mehrotra, 2015). A CEO’s human capital can be classified as general human capital (that is, skills that are transferable across firms and industries) or firm-specific human capital (that is, skills that are more valuable at the current firm) (Becker, 1962). Based on Becker’s (1962) definition of general human capital and the broader discourse in strategic management on executive work experiences (Finkelstein, Hambrick, & Cannella, 2009), we define the general experience of a CEO as the number of different industries, and the number of different firms, within which a CEO has worked. A continuum comparing less and more generalist experience refers to the number of different industries or firms in which a CEO has experience prior to their employment at the current firm (Custódio et al., 2013). The conceptualization of CEO generalist experience differs from the intra-functional diversity of a top management team (TMT) member or an executive’s experiences in different functional areas (Bunderson, 2003) and from past experiences at various hierarchical levels in the current firm (Nielsen, 2009). To improve organizational outcomes in the face of increasingly turbulent environments, CEOs with diverse work experiences are in increasingly high demand. Frederiksen and Kato (2017) found “a significant and positive relationship between the number of roles an individual has experienced in the labour market and his/her odds of career success measured as an appointment to a top management position” (page 23). The preference for generalists is rooted in the logic that corporate leaders must solve a wide range of problems that require diverse career experiences (Lazear, 2012). These sought-after executives are expected to draw on their varied experiences to manage uncertainty and complexity. Murphy and Zabojnik (2007) found that in CEO hiring and compensation decisions, “‘general managerial ability’ (managerial skills critical in leading a complex modern corporation but not specific to any organization) [is preferred over] ‘firm-specific managerial capital’ reflecting skills, knowledge, contacts, and experience valuable only within the organization” (page 2)3 (Schmidt & Hunter, 2004; Schmidt, Oh, & Shaffer, 2016). Although CEOs with diverse career experiences initiate a wide range of strategic actions (Crossland, Zyung, Hiller, & Hambrick, 2014; Custódio, Ferreira, & Matos, 2017) and command a significant pay premium (Custódio et al., 2013), theoretically, it is not clear whether more generalist CEO experience is positively or negatively correlated with firm performance.