CEO selection mechanism

Economy and management of the enterprise

The key objective of any business owner, which largely determines the future of the company, is to hire an efficient executive who asset management can be trusted with. The aim of this research was to find answers to the following questions: How do the qualities of a hired top-manager influence his future performance? How to identify the best top-manager among several candidates? And how to describe the mechanisms of such an influence at model level?  To solve this problem, the ordinal method of research is used, as it is actively applied in handling similar economic problems. The article presents model tools which allow evaluating applicants for executive positions and comply with the following findings. The potential effectiveness of executives is represented as the utility function of the agent for the principal, which depends on the two key qualities: qualification level and loyalty. The higher, ceteris paribus, is the qualification and loyalty of a hired top-manager, the greater value he will bring to his employer (his company).  So, a wide range of suitable candidates for executive positions can be represented as a system of employee groups distinguished by their utility. The consumer utility of such groups can be interpreted at  the indicated coordinates as the indifference curve of managers’ utility (isocurve). At its every point the utility will be the same, with different combinations of the indicated qualities (merits). Also, the paper describes   a selection algorithm to choose candidates for the top-manager position and an example of how it operates. The developed set of tools can be used to select and hire executives, to gain a better understanding of the relevant mechanisms and to enhance their efficiency.