In Search of Excellent Management

Despite important advances in recent years, no general agreement exists concerning what constitutes management excellence. Specific knowledge of how managerial behavior is perceived and evaluated by others will help to resolve unsettled questions about what is meant by management excellence and improve the actual decisions of managers. This article examines the determinants of managerial excellence as perceived by corporate CEOs, directors, and financial analysts in Fortune magazine's annual survey of the best-managed American firms in 33 industries. While the firms perceived to be best managed are more profitable, less risky, grow faster and reward their stockholders more than less well-managed firms, these variables explain only about 30 per cent of the variance in management ratings. The firms perceived to be best managed have more involvement in international markets and research and development, while large firm size and firm diversification reflect negatively upon perceived managerial quality. The relative inability of conventional financial measures of firm performance to explain perceptions of managerial excellence underlines the complex nature both of these perceptions and strategic behavior. The results support the argument that excellent management depends upon a diverse set of competencies and values, as well as the contention that the most important characteristic of firm performance is management's ability to transform the firm and adapt to a rapidly changing environment. By contrast, little support is found for the maximization of stockholder wealth criterion.