Friday, September 16, 2016

Economics: Good Choice of Major For Future CEOs

Summary:

This journal article uses a trend analysis of undergraduate, graduate, and gender based backgrounds for potential Chief Executive Officers (CEOs) of Standard and Poor (S&P) 500 companies. The objective of the study was to identify and compare economic majors to 13 other majors and how they rank to the others. The researchers also sought to see what the projections were for the future of economic majors becoming CEOs in S&P 500 companies.

1. The methodological framework used in this study is a trend analysis to evaluate current and potential CEOs of S&P 500 companies and their majors. For the 2004 observations, the researchers had a sample size of 502 CEOs, which had 3 Major Topics for majors including Science and Engineering, Liberal Arts, and Business. Science and Engineering had 28.1% of the 2004 CEOs, Liberal Arts had 34.3% of the CEOs, and Business had 28.5% of the CEOs listed amongst the observables.

2. The researchers then went into the subsets of each major topic set and listed the top three for the most popular majors of CEOs, including business administration (20.7% CEOs), engineering (20.5% CEOs), and economics (9.2% CEOs). While for graduate degrees the most common among the S&P 500 CEOs was a Masters in Business Administration (38.3% of the S&P 500 CEOs). After the listings of percentages, the researches moved into a trend analysis of economic undergrad majors from 1960 to 2006. From 1960 to 2006, the researchers found that economic majors tripled to a final count of 23,807 graduating with a degree in economics. While in the early 1970s and 1991 to 1997 had decreases in the majors for economic undergraduates graduating.

3.  The last stage of trend analysis incorporated the gender variable of females studying economics, and likely becoming CEOs. The researchers found the trend that women peaked from 1960 to 1985 in economics, earning 34.5% from the original of 9.0% of degrees. Yet in 2006 it found that women only accounted for 31.1% of the economic degrees earned. Therefore showing a decrease of women seeking economic degrees. Yet the study also showed a potential for women in becoming CEOs of S&P 500 companies due to 2% of the 502 CEOs in the 2004 observables being female CEOs.

4.  Concluding it all the researchers in their “Empirical Methods and Results,” developed “ratios of relevant majors to determine the probabilities of being a CEO” (Flynn & Quinn 2010 pg. 67). Through this ratio, they found that the likelihood of someone receiving an undergraduate degree in economics and becoming a CEO of an S&P 500 had the highest probability, with business coming in second at 39%.

In the conclusion, it was found that economics majors were by far the most likely to become CEOs and particularly CEOs of S&P 500 companies. Stating in the summary the researchers acknowledged that three fourths (73.9%) of the 2004 CEOs with undergraduate degrees in economics also had advanced degrees. These advanced degrees were mostly in MBAs at a percentage of 54.4% of those that had studied economics in their undergraduate years. While also the researchers found and emphasized a focus on recruiting females into economics as a high probability due to its usefulness in climbing corporate ladders.

Critique:

The usage of trend analysis in regards to economics as a source of undergraduate study towards increasing one’s status up the corporate ladder to CEO has never been done. It was a spoken rumor in business that economics majors are likely to become CEOs, yet no study had proven it. That is why the incorporation of this trend analysis study is so critical for it shows in percentages with likely factors why economics majors are likely to become CEOs, particularly for S&P 500 companies. The one addition I think the researchers left out is the result ratio percentage in point 4 listed above. They showed the business percentage of likelihood at 39%, but no number to show how much greater economics was likely to have over the business subgroup making it the number one undergraduate study to make it toward a CEO position.

Sources

ECONOMICS: GOOD CHOICE OF MAJOR FOR FUTURE CEOs

Flynn, P. M., & Quinn, M. A. (2010). Economics: Good choice of major for future CEOs. The     American Economist, 55(1), 58-72. <http://aex.sagepub.com/content/55/1/58.full.pdf>.