A culturally diverse company may perform better than one that doesn’t have workers with various backgrounds. CEOs whose parents or grandparents were immigrants are likely to be superior performers in their professions, according to a study by the Harvard Business Review.
While CEOs with immigrant parents and grandparents may have similar legal, social and institutional influences as other CEOs, it’s likely they have a distinct cultural heritage.
Researchers set out to determine whether a person’s cultural heritage affected their decision making. They concluded: “Following shocks to industry competition, firms led by CEOs who are second- or third-generation immigrants are associated with a 6.2% higher profitability compared with the average firm. This effect weakens over successive immigrant generations and cannot be detected for top executives apart from the CEO.”
The researchers emphasized that their findings do not portray certain cultures as being superior to others. However, they found that the culture of a CEO’s ancestors can influence his or her decision-making, policy choices, and performance.
Duc Duy Nguyen, a lecturer in Banking and Finance at the University of St. Andrews, Jens Hagendorff, a professor of finance at The University of Edinburgh, and Arman Eshraghi, an associate professor of finance and accounting at the University of Edinburgh, examined 610 U.S. bank CEOs who were born in America. The CEOs were split into three groups: those whose grandparents immigrated to the United States, those whose parents were immigrants, and those whose parents and grandparents were born in the United States.
Researchers traced the CEOs’ ancestry back six generations. To determine if heritage had an effect on their decisions and performance (rather than skills and other characteristics), the team opted for an industry that experienced an “unexpected competitive shock” that forced leaders to make “complex, non-routine, and unstructured decisions.” In the 1990s, the banking industry experienced this type of upheaval with the Interstate Banking and Branching Efficiency Act (IBBEA) of 1994.
The team determined that banks led by CEOs whose parents or grandparents were immigrants were, on average, better performers in relation to return on assets. CEOs who were the second generation had the most superior performance.
The immigrant effect was not linked to other senior executives, such as chief financial officers. And the effect varied with the country of origin. CEOs with ancestors from Germany, Italy, Poland, and Russia, for example, performed better under competitive pressure while those with British and Irish ancestors performed the same. Ninety percent of foreign immigrants to America in the researcher’s sample came from Europe since most of the immigrants in the 19th century came from there.
The study incorporated research by psychologists Geert Hofstede and Shalom Schwartz, the GLOBE Project, and the World Values Survey. They found CEOs whose parents and grandparents came from Germany, Italy, Poland and Russia are associated with values such as “restraint, long-term orientation, uncertainty avoidance, and harmony.”
CEOs who had a weaker performance following the shock had ancestors from countries with self-oriented cultures instead of group-oriented ones. CEOs with immigrant parents or grandparents from group-oriented cultures tended to engage in fewer acquisitions, experienced higher acquisition announcement returns, displayed lower bank risk, and were more cost-efficient.