Flying CEOs

Study Shows Profits Can Be Higher With a Pilot at the Controls

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The photo of the first fatal aviation accident shows a graceful crane of a machine reduced to an Icarus tale, all torn canvas and broken struts. The crash occurred on Sept. 17, 1908, in Fort Myer, Va., and left its famous pilot—Orville Wright—gravely injured and his passenger, 26-year-old U.S. Army Lt. Thomas E. Selfridge, dead.

Even the pre-crash photo of the aircraft, known as the Wright Flyer, makes you wonder: Who would ever be crazy enough to launch themselves toward the heavens in so flimsy a chariot?

Well, pilots, to state the obvious. They have personalities that tend to exhibit a high level of sensation-seeking behavior. Despite the well-reported dangers of general aviation—the odds that private pilots will die in a crash are 30 times greater than driving, and 300 times greater than traveling by commercial airline—it's actually the risk of flying that makes the activity worthwhile for some.

And it's that kind of risk-seeking behavior that may also make executives with pilot's licenses effective corporate leaders, according to a new study co-authored by finance professors Matthew Cain of Notre Dame and Stephen McKeon from the University of Oregon's Lundquist College of Business.

Merging finance and psychology research to explore the role that genetics plays in CEO behavior, the researchers document a persistent relationship between personality characteristics of CEOs and the types of corporate policies adopted by the CEOs' firms in their study, "Cleared for Take-Off? CEO Personal Risk-Taking and Corporate Policies."

Cain and McKeon identified 179 CEO pilots of small aircraft and more than 2,900 CEO non-pilots by searching the databases of the Federal Aviation Administration and Compustat Executive Compensation, which primarily covers firms in the S&P 1500 index. They found substantial differences in policies between those organizations led by CEO pilots and ones led by non-pilots.

At the median, firms led by pilot CEOs have about 15 percent higher leverage and are 1.34 times more likely to acquire other companies than those firms led by non-pilot CEOs.

So how well do these firms perform?

"On average, these CEOs tend to complete acquisitions that are more successful than those completed by non-sensation-seeking CEOs," Cain says. "Their creativity and novelty-seeking characteristics lead them into deals that improve the growth prospects of their firms. Even though private pilots take on substantial risks when flying, they tend to do so in a calculated and methodical manner. To the extent that CEOs handle risks appropriately, this can be, on net, beneficial to shareholders."

The basis of the research was the Sensation Seeking Scale, originally developed by psychologist Marvin Zuckerman in the 1970s to measure the types of behaviors exhibited by sensation-seekers, including habitual drug use, sexual activity and risk-taking. One component of the scale, Thrill and Adventure Seeking, indicates preferences for activities such as flying airplanes, skydiving, scuba diving, mountain climbing and driving motorcycles.

Cain and McKeon note that one important implication of the study is that the personality trait of sensation seeking is observable before the CEO gets hired. And although flying airplanes is relatively rare, nearly all CEOs have a driving record. A board of directors might want to take a peek at that record to develop a sense of a candidate's level of risk-taking in his or her private life.

They found substantial differences in policies between those organizations led by CEO pilots and ones led by non-pilots.

At the median, firms led by pilot CEOs have about 15 percent higher leverage and are 1.34 times more likely to acquire other companies than those firms led by non-pilot CEOs.

So how well do these firms perform?

“On average, these CEOs tend to complete acquisitions that are more successful than those completed by non-sensation-seeking CEOs,” Cain says. “Their creativity and novelty-seeking characteristics lead them into deals that improve the growth prospects of their firms. Even though private pilots take on substantial risks when flying, they tend to do so in a calculated and methodical manner. To the extent that CEOs handle risks appropriately, this can be, on net, beneficial to shareholders.”

The basis of the research was the Sensation Seeking Scale, originally developed by psychologist Marvin Zuckerman in the 1970s to measure the types of behaviors exhibited by sensation-seekers, including habitual drug use, sexual activity and risk-taking. One component of the scale, Thrill and Adventure Seeking, indicates preferences for activities such as flying airplanes, skydiving, scuba diving, mountain climbing and driving motorcycles.

Cain and McKeon note that one important implication of the study is that the personality trait of sensation seeking is observable before the CEO gets hired. And although flying airplanes is relatively rare, nearly all CEOs have a driving record. A board of directors might want to take a peek at that record to develop a sense of a candidate’s level of risk-taking in his or her private life.