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What do CEOs do?
Prof. Rafaella Sadun, Professor of Strategy, Harvard Business School, along with Profs. Oriana Bandiera, Andrea Prat of London School of Economics & Prof. Luigi Guiso of European University Institute, write on how CEOs spend their time at work in a research-driven HBS Working Knowledge Paper
Issue Date - 30/04/2012
Finally, as a more direct (and arguably exogenous) measure of governance quality and restraints on the managers we use the country-level indicator of private benefits of control computed by Dyck and Zingales (2004) on the basis of block control transactions in 39 countries. We attach this measure of quality of governance to multinational firms in our sample on the basis of their country of origin and rely on within variation among multinational firms. The correlations between time use and the five independent governance proxies paint a consistent picture: CEOs who work for firms with better governance devote more time to insiders and less time to meeting outsiders alone.

In the final part of our empirical analysis, we proved that the insider/outsider allocation is correlated with firm performance. Time spent with insiders is positively correlated with several measures of firm performance, while time spent with out siders only is not. For example, a 1% increase in hours dedicated to insiders is correlated with a productivity increase of 1.22%, whereas a 1% increase in hours dedicated to outsiders is correlated with a productivity increase of 0.22%, and both effects are significantly different from zero at conventional levels.

Taken together, our findings are consistent with the idea that differences in time allocation reflect differences in governance and that, compared to time spent with outsiders alone, time spent with insiders is more beneficial to the firm.

Our analysis is also related to the vast literature that focuses on agency problems for CEOs (see the survey by Stein, 2003). Our paper studies one particular form of moral hazard, that relates to the diversion of CEOs time allocation, and hence it is quite far from other types of misbehavior studied in the literature.

Table 1 describes our sample firms and CEOs. Panel 1A shows that manufacturing is the most common sector () followed by Finance, Insurance and Real Estate (15%). The median firm in our sample has 1,244 employees and its productivity (sales per employee) is $600,000 per year. Just under 40% of the sample firms are widely held, 22% belong to families, and the remainder is split between private individuals, private equity, government and cooperatives.

The average CEO in our sample works 47.7 hours over a 5 day-week. The figure provides a lower bound on the working hours of the CEOs. Of these, 36.9 – just under 80% – are spent in activities that last 15 minutes or longer. The rest of the analysis will focus on these activities that comprise the bulk of the CEO’s time.

Table 2 (top panel) and Figure 1 show that, as expected, CEOs spend most of their time (85%) with other people. Meetings take up 60% of the working hours, and the remaining 25% is comprised of phone-calls, conference calls and public events. Our sample CEOs spend on average 15% of their time working alone. We note that this might be subject to measurement error, as the CEO might be in his office but not necessarily working. This is of little consequence for our analysis, which focusses on the time the CEO spends with other people.

We illustrate how the CEOs allocate their time across different categories of people, and focus especially on the distinction between people who belong to the firm (insiders) and those who don’t (outsiders). The diaries reveal three interesting patterns. First, while insiders are present most of the time, CEOs also spend a considerable amount of time with outsiders alone (Figure 1B). On average, CEOs spend 42% of their time with insiders only, 25% with both insiders and outsiders and 16% with outsiders alone. Second, time spent with insiders is evenly spread across different operational areas (Table 2B). Among the top five categories of insiders -ranked by total time spent, the ratio between the highest (finance: 8.6 hours) and the lowest (HR: 5.5 hours) is 1.4. In contrast, consultants dominate among outsiders. Looking again at the top five categories by time spent, the ratio between the highest (consultants: 4.7 hours) and lowest (suppliers: 1.3 hours) is 3.9. Third, most of the variation between insiders is on the intensive margin: at least 70% of our sample CEOs spend at least 15 minutes per week with each of the top five categories of insiders. In contrast, time spent with different categories of outsiders exhibit considerable variation on the extensive margin. Figure 2 shows the histograms of total diary-recorded hours, and hours spent with insiders and outsiders. There is considerable variation in hours worked: the CEO at the 90th percentile works 20 hours longer than the CEO at the 10th percentile (47 vs 27). The differences in hours spent are even starker. The CEO at the 90th percentile devotes 35 weekly hours to activities where there’s at least one insider, whereas the corresponding figure is 14 hours for the CEO at the 10th percentile. The CEO at the 90th percentile devotes 11 weekly hours meeting alone with outsiders, whereas the CEO at the 10th percentile spends no time at all with outsiders alone. Guided by the theoretical framework we now explore the correlation between the time use of the CEO and three sets of variables: (i) CEOs’ effort, (ii) firm governance and (iii) firm performance.

Time use & hrs. worked
The descriptive evidence in Figure 2 indicates that CEOs differ considerably both in the amount of time they work and in how they allocate this across different categories of people. Our first test aims at assessing whether hours worked and time use are correlated. Throughout we focus on the distinction between time spent with at least one insider – with or without outsiders – and time spent with outsiders alone. Our findings reveal that there is a significant correlation between the total time the CEO spends at work and how he allocates this between different categories. In particular, hours devoted to insiders increase one to one with hours worked, while hours spent with outsiders alone are negatively correlated with total hours worked.

We find that there is a negative correlation between hours worked and hours spent with outsiders alone, and is driven exclusively by the fact that CEOs who work longer hours devote fewer hours to one-to-one meetings with outsiders alone. CEOs who work longer hours spend fewer hours in meetings alone with one type of outsiders only. The correlation with hours spent with more than one category of outsiders is positive but significantly less than one. The correlation between hours worked and time spent with insiders does not depend on the number of insiders present. CEOs who work longer hours spend fewer hours in meetings with one or two outsiders and nobody else.


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