Education for weak CEOs.

Author:Gutierrez, Santiago
Position::LT: BOARD OF ECONOMISTS
 
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The quality of managers affects the ability of companies to innovate and be more productive.

Recommendations from three top economists.

There is a growing trend toward recognizing that administrative practices and the quality of company managers have an important effect on innovation, productivity and ultimately on a country's economic growth.

Professors Andres Velasco from Columbia University and Esteban Rossi-Hansberg from Princeton agree that administrative practices have a crucial effect.

"Management abilities are a scarce resource," Velasco told Latin Trade. There are regions and cities where there is lots of management ability, but in general Latin America does not have the best administrators, he said.

Rossi-Hansberg thinks it is essential for companies to apply good administrative practices and to have the ability to reorganize when they are faced with external shocks from the market or from export rules. "There is already a body of research that has clearly shown this."

The bad news is that the World Management Survey, an academic project that seeks to measure the quality of management, demonstrated several years ago that the quality of administration in Latin America does not compare well with that of developed countries.

MIT Professor Roberto Rigobon said that the lack of good management practices can sometimes be replaced by public institutions to make up the difference. Where is the starting point for improving the situation? Improving the practices of the CEOs or changing the institutions? Taking into account all of the foregoing, the three economists agreed that education is the fundamental starting point.

BE CAREFUL WITH FAMILIES

CEOs are not the only ones responsible for the failure to implement structured administration practices; the problem goes all the way up to the owners of family businesses.

"When the company grows beyond a certain size it is better if the owner family leaves the administration to professionals," said Velasco. Nevertheless, there are many problems involved in making this work, he added.

Putting cousins in charge of management or asking CEOs from outside the family to put a higher value on loyalty than on efficiency brings in another devastating problem. The best-qualified administrators are not the best-accepted ones in family businesses. "It's not that there is a shortage of ability in our countries, but rather the lack of demand for this ability," said Rossi-Hansberg. "There is a good possibility...

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