Seeking Their Fortune: The Career Path for Top Executives in Big Companies

Executives in the highest ranks of management have become increasingly diverse in recent years, and the number of lifelong employees has continued to decline. At the same time, the recession has “reversed two key trends, increasing both average age and length of tenure.

Those are some of the conclusions drawn from a new study by Wharton management professor Peter Cappelli, IE Business School professor Monika Hamori and Rocio Bonet, also at IE. The study, titled “Who’s Got Those Top Jobs?” looks at the career paths and qualifications of the top 10 leaders in each of the Fortune 100 companies.

Another way to summarize their findings, Cappelli suggests, is to paraphrase a well-known saying: The future is more like the past, only more so. Indeed, the study shows an executive profile that continues to evolve. In 2005, Cappelli and Hamori looked at similar data from 2001 and compared it to data from 1980. This latest research extends the analysis to 2011. And while some of the team’s findings were heavily influenced by the 2008 recession, especially in the area of job mobility, “our strong feeling is that the trends we saw beginning in 1980 are going to continue to play out,” Cappelli says.

The researchers looked at four areas within the Fortune 100’s senior ranks: Career trajectory, education, diversity and hierarchy.

Among the key findings:

Careers: Interchangeable Executives

The “relatively steep” decline of lifelong employees is evident despite increases in executive development and succession planning. According to the study, less than one third of the executives in 2011 had started their careers with their current employers, down from 45% in 2001 and more than 50% in 1980. At the same time, the executives’ length of tenure has increased – i.e., they are tending to stay longer at the firm than they did in 2001, a finding that reflects the impact of two recessions on the reluctance of employees at all levels to leave the security of their current jobs.

The recession and prolonged recovery have had other noticeable repercussions on the Fortune 100s’ elite group, Cappelli notes. On average, it took the 2011 executives a year longer than their counterparts in the 2001 group to get to the top due to slower advancement throughout their careers. In addition, outside studies suggest that turnover among chief executives has dropped since 2001; moreover, since 2008, large companies have been more inclined than they were in 2001 to fill vacancies from within.

The researchers provided some recession-related specifics throughout the study. For example, because the 2008 recession affected the financial services industry more than others – requiring them, in some cases, to restructure to avoid bankruptcy – long-established entities like AIG, Bank of America and Freddie Mac “are bringing in more outsiders to fill higher-level executive jobs than they did a decade ago. By contrast, companies whose businesses are more stable — including Caterpillar, Procter & Gamble and UPS – have tended to promote leaders from within.

“All that said,” notes Cappelli, “we have no reason to think that these recession-related developments will continue as the economy improves.” Indeed, the trend that began 15 to 20 years ago – in which executives (and other employees) are seen as more interchangeable than they were in the past – will continue, despite some backing away from it since 2008. In other words, expect a return to less internal mobility and more job hopping.

The researchers also note dramatic differences in these numbers depending on the individual company. Leaders “shot to the top fastest at Google,” where it took only 14 years to rise from an entry level position to the executive suite, while it took 32 years at Hewlett-Packard and ConocoPhillips. Age is a factor as well. Members of HP’s 2011 executive team were over 58, on average, while at Google, they were 46.

“Differences in tenure by company are even more dramatic than differences in time to the top,” the researchers write. Sears executives in 2011 had been there three years, on average, while Chevron executives were there 33 years.

Under the category of “lifers,” the researchers also found significant variance. Ford and Caterpillar, for example, have more lifers at the top now than in 1980, while at Honeywell, the proportion of lifers fell by 80 percentage points. Thirteen of the Fortune 100 companies, including PepsiCo and Bank of America, “had no top executives in 2011 who had begun their careers there.”

Given the results of their latest study, what advice would Cappelli offer people who are interested in a career with a Fortune 100 company? “Sometimes it is useful to be where others are not,” he says. “A company that is in a declining industry can be very attractive to a younger person, because management might turn over more quickly, especially if the executive team’s average age is 58 rather than 38.”

Cappelli also notes that “the influence corporate executives can have has been underplayed by young people…. If you are an executive in a Fortune 100 company, you can affect the lives of thousands of people, from employees to customers to vendors. If you are running a hedge fund, you might become very wealthy, but no one is going to show up for your retirement party unless you are paying them.”

One trend that will most likely continue, regardless of the strength of the economy, is the relative lack of control that executives in large companies have over their careers. In past decades, Cappelli says, “if you were in one of the big companies, you could be sure, provided you were doing a good job, that you would rise steadily toward the top. What we see now are more ‘herky-jerky’ careers.” People stay in jobs during the recession a little longer than usual, and then when they move, they don’t necessarily move in predictable ways. They might leapfrog over others who have spent considerable time on the executive track; or people could be brought in from the outside and put ahead of lifers whose own career track then becomes more questionable, perhaps causing them to move as well. In other words, careers are more in flux and less predictable than they were 20 years ago, Cappelli says, adding that careers also vary a lot more across companies than they did in the past.

Where employees do have some control, Cappelli adds, is in deciding to change companies, and then taking the time to look at different opportunities. “Employees who take charge of their own career paths are able to say: ‘This is where some great opportunities exist.’”

Education: A League of Their Own

The study documents an “upsurge in education” over the last 30 years, with about 65% of the leaders in 2011 holding graduate degrees compared to 62% in 2001 and 46% in 1980. Those companies that had the most MBAs among their executives included Sears (75%), Sunoco (70%) and the Walt Disney Co. (63%).

As for college degrees, the proportion of the Fortune 100 executives with an Ivy League bachelor’s degree dropped from 14% in 1980 to 10% in 2001, but then held steady. Those with bachelor’s degrees from private non-Ivies lost “considerable ground” to graduates of public universities, although, as the researchers point out, most of the 2011 executives attended college in the 1970s “when the resources and status of state schools were near their peak.”

At the graduate level, the Ivy League roared back. Almost a quarter of the executives holding MBAs graduated from business schools at Columbia, Cornell, Dartmouth, Harvard, the University of Pennsylvania (Wharton) or Yale.

“One of the things we know at the undergraduate level is that it’s probably easier now for a really poor student to go to the University of Pennsylvania rather than to Penn State because of financial aid,” says Cappelli. ”It’s probably still true that there are big advantages to being at elite institutions,” he adds. “The difference now is that it used to be all about your undergrad education; these days it’s about your MBA education as well. If you didn’t go to the elite school at the first cut, you can get it at the MBA level.”

Diversity: Riding ‘a Different Elevator’

Leaders were much more likely to be women “and [individuals] born and educated outside the U.S. than leaders in previous years, “although both groups are still far from achieving parity with U.S. men,” the researchers found. For example, 17 of the Fortune 100 companies still have no women in their top 10 jobs.

Those women in the 2011 group who had secured executive positions “had not all ended up in the bottom tier of senior management,” the researchers write. “But few of them rose to the very top, as was true for the 2001 group. Only 5% of the women had made it to the highest-level positions compared with 17% of the men.”

Women executives in the 2011 group reached their top-tier positions slightly faster, on average, than men – 28 years versus 29 years – while “women in middle-tier positions had taken 23 years to get there compared with 26 years for men. They had been promoted sooner in each previous job – after an average of four years, compared with five years for men.” This was also true in 2001.

A possible explanation behind these numbers is that “women ascended faster because they were riding a different elevator,” the researchers conclude. Middle-tier women executives, for example, had held “primarily function-specific roles, such as chief legal officer, general counsel or senior vice president of human resources.” Their male colleagues had more of the general management positions that “typically feed the very top executive jobs.”

As for foreign executives, their presence in the top ranks of the Fortune 100 companies rose from 2% in 1980 to 11% in 2011, and they tended to work in larger, more established companies within that universe. That’s not surprising given that these companies tend to have “more extensive multi-national operations” and thus a bigger pipeline of international managers, Cappelli notes.

Well-rounded, Well-schooled

In short, leaders at the very top are five times as likely as those at the bottom of the executive suite to have earned an Ivy League undergraduate degree, and three time as likely to have earned an Ivy League MBA. Those with these Ivy League credentials are likelier to be hired from the outside rather than promoted from within. As the researchers note, if the Ivy League confers “gold collar” status, it appears to do so mainly through outside hiring.

Nor is it surprising that the executives at the very top of their companies “have taken considerably longer to ‘arrive’ than those in the lower tiers,” the researchers write. “They have held more jobs along the way, which has given them the exposure and ‘grooming’ needed for general management roles, plus more familiarity with ‘operating authority.’” Executives in the middle or bottom tiers more likely worked in “functional silos” on their way up.

Given their extensive review of the characteristics that define the top positions in the Fortune 100 companies, how can firms do a better job of insuring that they find the right people for the most important positions? “They should take hiring more seriously than they do,” suggests Cappelli. In the previous generation, executives were hired and tried out over a period of time in several different functions to see which hires rose to the top. But that is no longer the case. “I think there is an attitude in the executive suite that we will throw some people in, and if they don’t show fast results, we will quickly kick them out and throw someone else in. That’s a really expensive mistake, not just in turnover, but in the costs of getting someone up to speed and then having him or her fail.”

If the researchers were to publish this study again five years out, looking at data from 2016, what does Cappelli think they would find? “Again, it is the idea that the future will look like the past,” he says. “We are going to see average time in a job come down significantly. Right now, the biggest change in our data is that the average amount of time people stay in a job is higher in 2011 than in 2001. But that is almost entirely recession-driven. What we will see as the economy recovers is a lot more job hopping, and a lot more employers complaining about it. One result will be that the average age in these jobs will go down as well.”

In reviewing the characteristics of the most elite jobs, Cappelli offers an interesting side observation on increasing turnover: that the top tier jobs in the study are “actually not all that much fun because the executives have to work incredibly hard and face incredible pressure on the way up. The pay continues to increase, but at some point, these executives will want to get out. Those who leave their companies near the top really don’t want to go work for another company. They are done” with that environment.

Cappelli also suggests that the nature of the specific industry may not matter that much in terms of career track. “It used to be that there were certain things about being in an oil company, or being in a manufacturing company, that shaped who got into those jobs, who stayed, who got promoted and so forth. I think that is less important now. Companies are a little more open to hiring people from outside their industry.”

For their study, the researchers examined the biographies of the top 10 leaders in each Fortune 100 company. They chose 1980 as their baseline because it came just before a major recession. “We wanted to test the conventional wisdom that executive careers have undergone a significant change since the early 1980s,” they write. “And we concluded that they have.”

Knowledge@Wharton