Impact of CEO's managerial and engineering background on global automotive companies' performance

Considering the engineering background, it affects how the manager deals with different pieces of information. How he/she filters the information and which meaning does he/she attributes to it. Tyler and Steensma (1998) found out that top-managers with technical education focus more on the pieces of information which can help them to increase their resource base, meaning how valuable is technological part in overall company strategy)than did managers without that kind of background. Although it should be mentioned that technically educated executives did not pay less attention to the information related to threats.

With another part of the background such as work experience there were found no such relationships: “The fact that a technical education, but not technical work experience, moderated the use of information used by top executives is notable” (Tyler and Steensma, 1998). Here we can differentiate that even within engineering background as the whole there are also possibilities to divide the parts which affect the work of a manager differently.

Going deeper with the types of engineering background within we can pay attention to a belief aspect of a manager. Perceiving that as a part of a mindset managers who believe their firms are technologically oriented, focus more on the pieces of information that are related to relational risk, in other words how favorable would be a future technological alliance partner, that managers who have no of this belief (Tyler and Steensma, 1998). And the managers who had success with their previous technological alliance partners pay less attention to the information which is related to relational risk (i.e., number of potential partners) than executives who did not have this perception (Tyler and Steensma, 1998).

Risk-seeking managers in the technological sphere in the research of Tyler and Steensma (1998) showed that they are more sensitive to the performance risks included in the technological development. They paid attention to how to patent the technology in the design process and will the substituting technologies be able to correspond the market demand.

According to the study, executives with technological training pay more attention to the technological part of the company strategy than managers without similar training. However, it doesn't mean that CEO or TMT of technological company should be technically trained, but suggests that executives with the corresponding background should be present in the process of decision-making on technical development agenda (Tyler and Steensma, 1998).

Some of the authors suggest that engineering or scientific background is crucial and affects financial indicators of the company directly. Furthermore, after crisis of 2008-2009 shareholders even switch to that kind of people.

Others describe the influence of CEOs engineering background as indirect but important and noticeable. That point of view stands in between of “yes” and “no” to the question whether there is an impact of CEO's background.

And also there are studies which manifest the role of background of CEO as insignificant in the longitude study.

First analysis show that after the financial crisis of 2008-2009 the preferences of the shareholders changed. They tend to make CEO from people with scientific and engineering background. Furthermore, according the research it has a significant positive impact on the company's financial health (Chiara Mio, Marco Fasan and Antonio Ros, 2016) .

Owners of companies that were hit by the crisis badly choose new CEOs from those who have engineering or scientific background. In addition to background they tend to pick people with international experience and tie their bonuses to the stock option as a reward.

The choices of shareholders are enhanced with the results of that study. Analysis of the companies from 2010-2012 shows that CEOs with background from law, business or arts negatively impact on the financial performance.

It should be said that the analysis included 112 companies: 81 from UK, 20 from France and 11 from Germany. All of them were chosen randomly and are listed, which makes the analysis easier when the share price can be seen.

This position does not take into account several things. Firstly, the geographical area of the study is limited by the most developed countries in Europe. Secondly, being chosen randomly it pays no attention to the specifics of areas of the companies. If there were more technological or IT companies in the list, could we say that we should hire CEOs with more engineering or scientific background to all the types of companies? Probably it would be not very accurate.

However, if the owners tend to hire engineering background executives in order to restore companies after crisis, we can research it and suggest following hypothesis:

Hypothesis 3 - firms with CEO with engineering background would earn more profit before interest and tax than firms with CEO with managerial background.

The other approach of studying the issue of relevance of engineering background was used in analysis of 87 small and medium-sized Korean companies from IT industry (Chang-Ho Moon, 2017). “Analysis of a sample of 87 small and medium-sized enterprises (SMEs) in the Korean IT industry revealed that technological innovation orientation fully and positively mediated the relationship between the firm's technological innovation performance and a CEO's technically oriented functional background and cross-functional coordination, respectively. Both a CEO's technically oriented functional background and cross-functional coordination did not have significant direct effects on the firm's technological innovation performance when technological innovation orientation was controlled in the model.”

The functional background of manager is significant factor that influences on skills, type of knowledge and the direction that executive would steer the company in (Rajagoplan and Datta, 1996). From that we can assume that the specific background such as engineering would be an important variable to pick the CEO of an automotive firm.

CEO with functional background from technological sphere could be more successful in finding new trends and possibilities in the firm's field into the successful end product (Nadkarni and Chen, 2014). If we connect the successful finding of new trends and possibilities we can propose the following hypothesis:

Hypothesis 4 - firms with CEO with engineering background would sell more cars than firms with CEO with managerial background.

It may sound logical that CEO has an influence on company's performance but it is not accepted by all the researchers. Especially some of the empirical studies suggest that the CEO by itself has fewer influence that it may seem. Furthermore, the factor that is important are the external environment and internal forces of a company. The leadership skills and personal characteristics of an executive are not directly influencing the technological and innovation abilities of the company (Chang-Ho Moon, 2017). However, researches do not neglect the power of a CEO but the influence is rather indirect compared to the external and internal forces of the company.

The role of the technological background of the CEO is important but it cannot drive the company towards the technological and innovative future alone by itself. There should be a harmony not only within the TMT, but the whole company should act united in order to deliver. In that case the engineering experience of the CEO will empower the process, it will not be the only locomotive of changes and technological innovations.

For some of the executives that are already operate it is useful study that shows how to increase the orientation to better technical development.

The creation of capabilities in new ventures study researched the influence of CEO and came to the conclusion of no effect (Kazanjian and Rao, 1999).

However, in the beginning of the article the hypothesis is contrary. There was supposed to be an effect of CEO's engineering background on creating the capabilities in technologies for companies. And the capabilities of that are one of the most important for such science- and technological-intensive companies as automotive.

For the analysis were chosen 225 venture computer-hardware companies that are independent, not tied with already existing giants. The research was conducted by 2 phases with 18-months brake. By the end of this, after analysis, the background of the CEO showed little effect in creating technological capabilities. Engineering background of CEO doesn't affect the engineering capabilities in future.

Engineering capabilities as we see are tied with R&D processes. For that, it was discovered that younger CEOs who have a career experience in marketing and/or engineering/R&D and advanced science-related degrees tend to spend more on R&D processes (Datta, Rajagopalan, Zhang, 2003).

That corresponds the upper echelon theory proposition, that the output-function experience top-managers would emphasize in their activities the product innovation, diversification of the product range, advertising and integration.

But what was found to have positive influence on the issue is an existence and operating of the functional manager for engineering and technologies. In other words, a person for a specific function which is not directly performed by CEO in strategy or daily activity makes the difference. From that we can suppose that CEO with no engineering background could successfully lead science- and technological-intensive companies from automotive industry by creating strong TMT with the empowerment of special executive for science and technologies.

From that conclusion we can suppose that CEO background could have shown insignificant influence because of the strong presence of functional manager. He or she would deal with the battle for money and time recourses of the company providing the budget or time to live for the departments.

In such science- and technological-intensive companies as computer hardware it was found the more strict rules of budgeting and decision-making the better it is for creating the technological capabilities of the company.

Looking back in 1999 when the study was conducted we could see that the technological capabilities for computer related companies were crucial as the “Dot-com” bubble burst.

Analyzing the approaches for the influence of CEO's engineering background on the performance of the company, we could understand what to study. As it would be hard to measure the impact of such a background on the company in the sense of creating engineering capabilities or innovation index for the automotive companies we would focus of the primary thing for every commercial company - profit.

If we consider the human capital approach and remember Lepak and Snell (1995), we would remind the mode of internal development. It engages when the human capital is valuable and unique. As high competitive field automotive industry requires specific skills and competences. Possessing unique and valuable skills employees are the core which creates the competitive advantage of the firm. Considering the analysis above there are still no clear answer if the CEO engineering background should exceed the managerial one. Maybe the answer is in the middle.

Going deeper into the approach of human capital and the type of employment, we could use the approach of creating and employing of people from human capital alliances (Lepak & Snell, 1999). For example from the engineering alliances or we could take a look on consulting firms as an example of managers alliances of some sort. Anyway, in the way of outsourcing the engineering competences there is not issue with the employment of non-engineering CEO. If automotive company would transfer its center of competences from R&D and production to coordination, project management and sales - the question of CEO background (engineering or management) would be solved.

As everything changes with the time, Barney (1995:51) notes “Although a firm resources and capabilities have added value in the past, changes in customer tastes, industry structure, or technology can render them less valuable in the future”. Considering this approach it would be interesting to brought up that Uber (taxi company so to speak) owns no cars, but it is largest taxi operator. Airbnb which is largest company of delivering such services as renting an apartment owns no property. From that point of view, maybe the automotive industry of the future is the industry with no own production lines, outsourcing of design and research and independent dealerships? From that perspective the engineering background of CEO would have no significant effect.

Coming to a conclusion with the human capital approach it is important to note that employees are critical in crating the competitive advantage but not every one of them equally unique and contributing to the core capabilities and not equally valuable (Lepak & Snell, 1999).

From that perspective the role of the engineering background of CEO is very important as it contributes directly to the company's core activity. Of course, it doesn't mean that CEO should be only with engineering background. But from the point of view of human capitalists at least he/she should have the background in the form of education and/or work experience in engineering field.



2. Case study of the global automotive producers

2.1 Study of company's CEO with managerial background

In the case study analysis we will describe and compare performance of two global car manufacturing companies from Top-10 car manufacturers by sales of 2018. As not all of the companies presented their annual reports and the final official results for a financial activity, we will compare data for 2017 annual reports.

In order to pick the companies, we looked at the Top-10 companies CEO's background and found that only in American and Asian clusters of global automotive producers CEO's with different types of background are presented, meaning the executives with prevailing education/experience in engineering or management field.

We would like to analyze the companies, where the domestic market is the same, to exclude that as an influencing factor.

Asian companies, as we suppose, would fit the case study, because of the big gap between companies sales in terms of cars. For example, the cases that would fit, such as Toyota Motor Corp. with their purely managerial background CEO and Honda Motor Corp. with CEO with prevailing engineering background and education have 2 times difference in terms of cars sold. We can analyze the tendencies and to compare companies with CEOs with different background.

With that, we exclude the American companies such as Ford and General Motors. Even though both companies have same domestic market and comparable level of cars sold, Ford changed its CEO in the middle of 2017 with strategy update in October of 2017. With that, we cannot fully estimate the influence of Jim Hackett on the situation with Ford Motor company, as the company didn't publish their annual report for 2018 which would be the fires full year if Jim Hackett with his new strategy.

Along with the information about CEO's background, we would collect and analyze the following data:

· Cars sold by the company;

· Person employed by the end of the fiscal year;

· EBIT (operating profit) in USD in FY;

· Cars sold per person employed;

· EBIT (operating profit) in USD per person employed;

· EBIT (operating profit) in USD per car sold.

It might raise a question, why we chose EBIT or operational profit. We suggest it because this indicator can show how much money company earns despite the tax regimes, shareholders appetites, the amount of amortization and depreciation, and the payments for the financial instruments.

Also, we suppose that such indicators as employees that we used in ratios can show the administrative efficiency in terms of quantity output and money output per employee.

EBIT per car sold will show how efficient is the key product. Of course, it can be argued that not all the companies have premium brands, which usually are more profitable per car that the mass models. However, this is the executive decision and we want to analyze how those decisions affect the company. We suppose that not having a premium brand is the decision of top-management team.

To research the influence of managerial background CEO we start with Toyota Motors, even though the highest-level executive is named a President.

Current president of Toyota is Akio Toyoda, grandson of the founder of Toyota, Kiichiro Toyoda. Akio Toyoda was appointed the president of Toyota Motor Corporation in 2009. Considering the background, “Mr. Akio Toyoda has been the Chief Executive Officer of Toyota Motor Corporation (TMC) since June 23, 2009, President since 2009 and is its Chief Branding Officer. Mr. Toyoda is Chairman and CEO of Toyota Motor North America, Inc. He served as Chief Officer of the Electric Vehicle (EV) Business Planning Department at Toyota Motor Corporation since December 1, 2016 until July 28, 2017. He serves as a Senior Adviser of Toyota Media Service Corporation. He has been the President of Hitachi Ltd and Honda Motor Co. since March 2009. He serves as an Auditor of Toyota Boshoku Corporation. served as the Chief Executive Officer and President of Toyota South Africa Motors (Pty) Ltd until April 1, 2016. He served as an Executive Vice President at Toyota Motor Corporation from January 21, 2005 to June 2009, Senior Managing Director and Chief of Asia & China Operations Officer since 2003 and also served as its Division General Manager of Taiwan & China Offices. He joined TMC in 1984 and was its Managing Director since 2002. He served as Vice President of New United Motor Manufacturing Inc. He served as an Auditor of Shiroki Corporation. He served as a Corporate Auditor at JTEKT Corporation. He is Chairman of TOWA REAL ESTATE Co., Ltd., Nagoya Grampus Eight Inc. and Toyota Alvark Tokyo Corporation. He served as the Chairman of Japan Automobile Manufacturers Association Inc., since March 15, 2012. He served as the Chairman of Guangqi Toyota Engine Ltd. since April 1, 2004. He serves as a Vice Chairman of Gamagori Marine Development Co., Ltd. He has been a Representative Director at Toyota Motor Corporation since June 2000. He served as a Director of Toyota Media Service Corporation and Japan Automobile Manufacturers Association Inc. He served as a Director of Guangqi Toyota Engine Ltd. since April 1, 2004. He served as a Director at Aisin AW Co., Ltd. Mr. Toyoda holds a Master's degree in Business Administration from Babson College in the U.S. Mr. Toyoda is also a beneficial owner at SPARX Group Co., Ltd.” (Bloomberg). According to Bloomberg, Akio Toyoda is connected to 38 board across 10 different industries.

Analyzing his background we can start form education. Mr. Toyoda has Master's degree in Business Administration (MBA). Going through his long list of previous experience, we can see that it is actually mostly connected with the automotive industry. However, he is not raised within one market and has international experience, serving Toyota's interests one of the key markets - North America.

In order to study Akio Toyoda's influence on the company's performance we would look at the company's performance indicators for the recent 5 years available and we will look how it compares with Top-10 car companies by sales in 2018 and their average amounts for the 5 years available. The results for comparison are presented in Table 1.

Table 1 Designed by authors based on Toyota Motor Corporation and other companies annual reports for 2013-2018. - Comparison of Toyota Motor performance indicators and industry's average.

Starting with Cars sold, we can see, that this indicator more or less stable, even though there is almost 2% difference between best FY 2013 and last FY2017.

However, here we can see that Toyota under Akio Toyoda's management is more than 30% ahead in terms of the cars sold indicator than other Top-10 market players for the last 5 years.

Furthermore, operating profit for FY 2017 is more than 2 times better than the industry's average. From year to year it varies, and after the drastic decrease in FY2017 it is going up again.

In terms of person employed we can see that Toyota is almost 43% bigger in terms of employees that the average in industry. However, in terms of efficiency, Toyota is closed to the industry's average in part of cars sold per person employed. The gap is less than 14%.

Despite that, if we measure efficiency not by output capacity, but financially, we will notice that Toyota under Akio Toyoda's management on FY 2017 is more effective than the industry average indicator operating profit/person employed by more than 53%.

In terms of EBIT or operating profit per car sold, we can notice that Toyota is more than 77% more successful in that indicator than the industry in average, meaning the managerial background CEO can supposedly provide the better performance than the industry in average.

In comparison with existing theory, we can suggest that parts of upper echelon theory is not right that case in terms of person from within an industry and the company. Researchers suggested that people from outside of the company will bring with them a performance that will noticeably vary from industry's average. In that case we can see that even a person from within a company and within an industry, even though he is connected across different sectors of economy, can provide the company with positively variable form industry's average company's performance.

From the perspective of human capital theory, the internal employment includes stability, person can be predictable, having skills and capabilities for the job, he/she would need less time to socialize if it's within the firm and it is has less transactional costs (Lepak & Snell, 1999).

Proceeding with upper echelon theory it was suggested that the formal managerial education (especially MBA) is directed to the achieving of short term results and not building the innovation competences. However, by that example we can see that the formal managerial education and MBA degree are not an obstacle in terms of achieving long-term results.

If we remember international experience aspect and compare the background of Akio Toyoda, we can suggest that according to theory manager's international experience also positively influences the broad factor of strategic actions Wang, Holmes, Oh and Zhu, 2016).

Meaning that strategic actions of a person with international experience allow him to steer the company strategically so it would positively vary from the industry's average.

For better understanding of the results of that case we need to research the case of engineering-background CEO.

2.2 Study of company's CEO with engineering background

To exclude the difference of the regions and domestic markets, for studying the influence of engineering background of CEO on firm performance the choice was Honda Motor Corporation.

Honda Motor corporation is managed by its CEO Takahiro Hachigo since June 2015.

“Mr. Takahiro Hachigo has been Chief Executive Officer and President of Honda Motor Company Japan since June 2015. Mr. Hachigo has been the Chief Executive Officer and President of Honda Motor Co., Ltd., holding company of Honda del Peru S.A. since June 2015 and served as its Managing Officer from April 1, 2014 to June 2015.

Since April 2014, he has been Managing Officer of Honda Motor. He served as an Operating Officer of Honda Motor Co., Ltd. from June 2008 to April 2014 and served as its and General Manager of Suzuka Factory of Production Operations since April 2014 and General Manager of Automobile Purchasing Division 2 in Purchasing Operations since April 2008. Mr. Hachigo served as Executive Vice President of Honda Motor Europe Ltd. He joined Honda in 1982 and began his career in its automobile research and development operations, principally as an engineer in the area of chassis design.

He was in charge of developing the first-generation of U.S.-built Odyssey minivan, which was launched in 1999 primarily for the U.S. market. He went on to assume responsibilities as the person-in-charge of developing the second generation CR-V, Honda's highly successful compact sport-utility vehicle for the worldwide markets, in 2001.

From April 2004 to March 2006, he was stationed in the U.S. as Senior Vice President of Honda R&D Americas, Inc., where he became actively involved in the local development of Honda and Acura automobiles. In April 2006, he became Operating Officer of Honda R&D Co., Ltd. (Honda R&D) and subsequently gaining promotion to Managing Officer in April 2007. Mr. Hachigo then assumed a role in the area of manufacturing as General Manager of Honda's Suzuka Factory in April 2011.

He served as Vice President of Honda Motor Europe Ltd. from April 2012 to March 2013 and also as President of Honda R&D Europe (U.K.) Ltd., from September 2012 to March 2013. In 2013, His responsibilities shifted to China, becoming Vice President of Honda Motor (China) Investment Co., Ltd. in April, simultaneously becoming Representative of Development, Purchasing and Production (China), Honda Motor and Vice President of Honda Motor Technology (China) Co., Ltd. He has been a Representative Director of Honda Motor Co., Ltd. holding company of Honda del Peru S.A. since June 2015 and Honda Motor Company Japan since June 2015. He served as Director of Honda Motor Europe Ltd. from April 2012 to March 2013 and Honda R&D Europe (U.K.) Ltd., from September 2012 to March 2013” (Bloomberg).

As we can cee from Honda's CEO biography, he started his career as an chassis designer, developing car models and becoming chief of R&D. We can characterize that as engineering background with output-function experience.

However, we might notice extensive managerial experience along with international one. To take a closer look let's analyze 3 years of executive tenure of Mr. Takahiro Hachigo in Table 2.

Table 2 - Comparison of Honda Motor performance indicators and industry's average Designed by authors based on Honda Motor Corporation and other companies annual reports for 2013-2018.

Honda Motor Corp	2015	2016	2017
Cars sold	4 367 000	4 743 000	5 028 000
Industry average 5 years	6869127,268
Operating profit (blns $)	4 575 454 545	7 005 833 333	7 717 592 593
Industry average 5 years	10469761352
Perosns employed	208 399	211 915	215 638
Industry average 5 years	258236,3354
Cars sold/person	20,95	22,38	23,32
Industry average 5 years	28,36579819
Operting profit/person	21955,26	33059,64	35789,58
Industry average 5 years	39219,37
Operting profit/car	1047,73	1477,09	1534,92
Industry average 5 years	1398,21

Taking closer look on cars sold by year, we can conclude that Honda under the management of Takahiro Hachigo falls short of industry average indicator by 26,8% based on the official data from annual report of the company. However, if we calculate the growth comparing the year he started and the last FY2017, we can see that Honda grew sales by 15% which is suggested a lot on the highly competitive and concentrated close to oligopoly global automotive market.

Proceeding with operational profit, Honda has 26,3% gap between industry average and their last reported year. But as in previous case we notice that operating profit grows significantly from year to year, growing by 68,7%. Combined with the previous observation we can suppose that company grow organically improving its sales and reduces cost of goods manufactured and administrative costs.

In terms of person employed, Honda is 16,5% smaller by employees than average company in the industry. To tell if its good we can compare industry car sold per person ratio. From that we can conclude that Honda in terms of people is not yet that efficient as industry in average, lack of 17,8% of that indicator. But already since Takahiro Hachigo became CEO company improved this indicator by 11% from year to year.

Going further with the efficiency per person, we take a look how much operating profit brings each employee to the company. Still, Honda is not on the level of average performance judging by this indicator with the gap of 8,7%. However we can notice that the company improves from year to year in that matter improving that indicator by 63% since 2015.

In the conclusion about the comparison of Honda's own performance under the management of engineering background CEO Takahiro Hachigo we can see that company is performing better than the industry average in terms of profit/car sold by almost 10% judging by the last available annual report. Furthermore, as Takahiro Hachigo became CEO, in that particular indicator company became 46% better performing.

If we remember the upper echelon theory, Hambric and Mason suggested the same that person from within the company tends less to make so changes, mare stable and conservative. In the model of Lepak and Snell that would correspond internal development of human capital. That is also the case with Takahiro Hachigo, who was raised within the company and industry.

The acquired human capital would correspond for hiring outside which is by Hambrick and Mason is more risk oriented and changes-seeking direction for the firm. However in that case of Takahiro Hachigo we can notice rapid changes in company's performance even though the person is from inside the company and the industry.

Talking about human capital, such researchers as Quinn and Venkatesan suggested that employment decisions should be based on the degree to which skills contribute to the core capabilities of the firm (Lepak & Snell, 1999).

And as an CEO appointment, Takahiro Hachigo corresponds the theory. He has engineering education and experience which in case of an automotive company is the contributing to the core competence of the firm.

Talking about core capabilities, Wright, Smart and McMahan (1995) suggested that the core employee skills should be developed and maintained internally, whereas those of limited or peripheral value can be outsourced (Lepak & Snell, 1999).

Going further with human capital, Becker (1976) suggested that firms will invest significantly into the development of unique firm-specific skills through extensive training, career development and mentoring programs in order to build specific kind of knowledge which is more valuable to the firm than to its competitors.

2.3 Comparison of their performance with analysis for correlation.

To visualize the comparison of managerial and engineering background CEO and industries average, we made comparable table 3.

Table 3 - Comparison of Honda Motor and Toyota Motor performances indicators and industry's average Designed by authors based on Honda Motor Corporation, Toyota Motor Corporation and other companies annual reports for 2013-2018

Comparison	2015	2016	2017
Cars sold (Toyota)	8681000	8971000	8964000
Cars sold (Honda)	4367000	4743000	5028000
Industry average 5 years	6869127,27
Operating profit (Toyota)	25944545455	16619166667	22220370370
Operating profit (Honda)	4575454545	7005833333	7717592593
Industry average 5 years	10469761352
Perosns employed (Toyota)	348877	364445	369124
Perosns employed (Honda)	208399	211915	215638
Industry average 5 years	258236,34
Cars sold/person (Toyota)	24,88	24,62	24,28
Cars sold/person (Honda)	20,95	22,38	23,32
Industry average 5 years	28,37
Operting profit/person (Toyota)	74365,88	45601,30	60197,58
Operting profit/person (Honda)	21955,26	33059,64	35789,58
Industry average 5 years	39219,37
Operting profit/car (Toyota)	2988,66	1852,54	2478,85
Operting profit/car (Honda)	1047,73	1477,09	1534,92
Industry average 5 years	1398,21

Looking at the table we can see the following. Toyota, under the management of Aki Toyoda with mostly managerial background sales 78% cars more than Honda in the last fiscal year published, being managed by CEO with mostly engineering background.

Total number of employees will help us only if we look at the ratio of cars sold per employee. Looking at that, both companies perform worse than the industry in average. However, we can notice that Toyota is stable with this indicator, looking at the 2015 and 2017 values, and Honda in the meantime gained 11% on that point. Comparing the 8 years tenure of Akio Toyoda and less than 3 years tenure of Takahiro Hachigo, we can suppose that Honda under his management can improve such indicator if it would be tied with decisive changes inside. Akio Toyoda, on the other hand also, according to the theory, can improve such indicator because inside-industry and company people tend to make less changes focusing on the efficiency (Hambric and Mason, 1984). The same could be said about operating profit per person employed, ad Honda improved this indicator by 63% relative to its own performance in 2015. And its closing gap with the industry average. Toyota, on the other hand, stays ahead of the average by 53%. On the other hand they lost 19% of this performance indicator.

Going to the indicator of profit per car sold, we can notice big difference between Toyota's and Honda's performances, as companies are managed by different CEOs with different background. First of all, Toyota lost 17% of that indicator since FY2015. At the same time Honda gained more than 46% of that performance measure. The tendencies are easy to notice. However, talking about absolutes, Toyota is still 61,5% ahead of the Honda judging by the last year available.

Now, let's remind the hypothesis we suggested in the theoretical research part and see how they relate to our case study.

Hypothesis 1 - firms with CEO with managerial background would be more effective administratively than firms with CEO with engineering background, producing more cars and bringing more profit in terms of ratios per employee .

In terms of two cases studied, Toyota, which is company run by managerial background CEO, is more effective administratively selling more cars per person and earning more profit per each employee, if we compare those indicators with the company with the same domestic market and relatively close by size and cars sold. However, if we look at the industry in average, the performance is slightly worse in both Honda and Toyota in terms of car sold/employee, but Toyota's management system makes more profit on each employee.

Hypothesis 2 - firms with CEO with engineering background would be more effective than firms with CEO with managerial background in terms of profit per car sold.

That hypothesis is not supported by the case study, as Toyota, with managerial background CEO is ahead of the company with engineering background CEO and ahead of the industry.

Hypothesis 3 - firms with CEO with engineering background would earn more profit before interest and tax than firms with CEO with managerial background.

Honda's case didn't support this hypothesis at all. At the same time, Toyota is times ahead by this indicator than the Honda and the industry.

Hypothesis 4 - firms with CEO with engineering background would sell more cars than firms with CEO with managerial background.

Honda's case didn't support this hypothesis either. At the same time, Toyota is ahead by this indicator than the Honda and the industry.

Based on the results of a case study, we that some hypothesis are not supported at all and one that supported is supported only if we compare two companies. That's why we need more observations and proper analysis for correlation.

Collection method. To build a model we collected data on Top-10 automotive car producers by sales in 2018. As not every company published their official numbers in annual reports and not all the data is available at the moment, we chose to use focus2move.com rank.

Picked the companies, we decided that we will only look at the official information in the annual reports of companies. That's why we used latest available reports for each company. The reason for that time lag can be that in Japan, for example, fiscal year ends on the 31^st of march, so the FY2018 will end officially in the 31^st of March 2019.

After making a decision that we will collect information only from annual reports, we determined that we would need 50 observations, making 5 observation for each company. We picked 5 year periods for annual reports analysis from 2013-2017 inclusively for those who didn't publish the report for 2018 and 2014-2018 for those companies that provide their recent data.

The following indicators we were looking for in the reports:

· Cars sold by the company;

· Person employed by the end of the fiscal year;

· EBIT (operating profit) in USD in FY;

· Cars sold per person employed;

· EBIT (operating profit) in USD per person employed;

· EBIT (operating profit) in USD per car sold.

Collected the data available, we needed to bring everything to a single model.

For that we found the average year closing exchange rate for such currency pairs as EURO/USD, Yen/USD, KRW/USD.

After that, we needed to close the gap on employee numbers, as not all the companies publish that information in their reports. That's why we chose to use other sources for that data if they will correspond. Some of the gaps for certain years stayed blank so we decided that we will use a mean number for the next and the previous year information on employees available.

Finished with annual reports we needed to find information on CEO's and evaluate their background. That we did with Bloomberg profile of executive and CEO's CVs if they were available in LinkedIn.

The following information we used in our model:

· Gender;

· Age on each year;

· Evaluation of managerial background;

· Evaluation of engineering background.

In table 4 we proposed the scale for evaluation of engineering and managerial background.

Table 4 - scale for evaluation of the types of background of CEOs Designed by authors

Engineering background	Managerial background
0- No engineering background	0 - No managerial work
1 - Engineering work	1 - Managerial work
2 - Barchelor's degree	2 - Barchelor's degree
3 - Master's degree	3 - Master's / MBA
4 - PhD/head of R&D	4- PhD
5 - Dr. of science	5 - Dr. of science



For an engineering background we determined such areas of knowledge as math, physics, chemistry and technical education. Also, we suppose that such a department as R&D is the essence of engineering background.

For a managerial background we picked economics, law, finance and management education. It can be argued that it is not clear which career path did the manager had and the amount of experience and the task specifics/content cannot be determined.

That's why we used only the criteria we suppose we can evaluate more or less precisely.

If there was a case, that CEO was changed during a year, we looked when it happened and determine who had the longer part of the year under the management and mention as a CEO for that year as we need to measure company's performance.

After the evaluation and filling of the model, we conducted the analysis for correlation. Its results are presented in the correlation matrix in table 5

Managerial background has no correlation that is significant with any of the indicators we chose.

Engineering background has no correlation that is significant with any of the indicators, except there was found weak inverse correlation on EBIT/employee, meaning the more engineering background the less is this indicator.

Multiple R for regression analysis of engineering background and profit per person employed = 0,32.

Multiple R for regression analysis of managerial background and profit per person employed = 0,07.

Multiple R for regression analysis of engineering background and profit per car sold = 0,21.

Multiple R for regression analysis of managerial background and profit per car sold = 0,01.

Multiple R for regression analysis of engineering background and PBIT= 0,24.

Multiple R for regression analysis of managerial background and PBIT = 0,1.

Multiple R for regression analysis of engineering background and cars sold = 0,11.

Multiple R for regression analysis of managerial background and cars sold = 0,18.

Table 5 - Correlation matrix of company's performance and CEO's background Designed by authors

Correlation Matrix	Cars sold	Person employed	Operating profit (EBIT)	Cars sold/ person	Profit ($)/ person employed	Profit per car	Managerial background	Engineering background	Age	Gender
Cars sold	1,00
Person employed	0,75	1,00
Operating profit (EBIT)	0,76	0,68	1,00
Car sold/person	-0,10	-0,59	-0,22	1,00
Profit ($)/ person employed	0,13	-0,24	0,43	0,65	1,00
Profit per car	0,37	0,37	0,85	-0,17	0,61	1,00
Managerial background	-0,18	-0,14	-0,10	-0,14	-0,07	0,01	1,00
Engineering background	-0,11	0,18	-0,24	-0,15	-0,32	-0,21	-0,35	1,00
Age	0,03	-0,15	-0,12	0,42	0,21	-0,13	-0,12	-0,01	1,00
Gender	-0,05	0,10	-0,04	-0,10	-0,20	-0,09	-0,27	0,01	0,34	1,00

Considering these results, we take a look at or hypothesis again.

Hypothesis 1 - firms with CEO with managerial background would be more effective administratively than firms with CEO with engineering background, producing more cars and bringing more profit in terms of ratios per employee .

In the analysis for correlation is not supported.

Hypothesis 2 - firms with CEO with engineering background would be more effective than firms with CEO with managerial background in terms of profit per car sold.

In the analysis for correlation is not supported.

Hypothesis 3 - firms with CEO with engineering background would earn more profit before interest and tax than firms with CEO with managerial background.

In the analysis for correlation is not supported

Hypothesis 4 - firms with CEO with engineering background would sell more cars than firms with CEO with managerial background.

In the analysis for correlation is not supported.

We also can take a look on the Spearmen's correlation, as managerial and engineering backgrounds were rank-ordered variables. There is a weak inverse correlation between the types of the background, so the more is one background, the less is another, but not very often.

Probably, we also have to take a look at the top management of global automotive companies not as they are individuals, but as a group. We analyzed 16 different CEO's and only three of them don't have engineering background which is 19%. However, if we try and deduct “family relations” as the CEO of Toyota, Akio Toyoda, is the grandson of the founder, we will see that only 12,5% of all top level executives in the global automotive industry don't have any kind of engineering background.

That raises the question, whether it is almost obligatory to have engineering background and education to get to the top of global automotive producer.



3. Findings and recommendations

Theory findings. After the overview of the literature, we picked the Upper Echelon theory as the guideline and an instrument of the analysis of CEO's background.

First of all, the idea that the background of the person influences the performance is based on the concept of bounded rationality. The essence of this is that all the information that goes through a person is being filtered and interpreted through the values, field of vision (outlook) and his/her cognitive base. Going through all that, the information gets to the point, where the person should act on the basis of this information, in the case of the company - CEO would be making strategic choices.

Usually, to study how the background of CEO influences the performance of the company, we would use observable characteristics, such as:

· Age;

· Functional track;

· Career experience;

· Education (type and amount);

· Tenure;

· Socio-economic roots;

· Financial status;

· Insider/outsider (of company or/and the industry);

· Financial status.

Psychological characteristics such as cognitive base and values are not accessible that's why it is hard to use them for research.

Observable characteristics could help us to find links between them and strategic choices and performance of the company, such as innovations, acquisitions, administrative complexity, long-/short- term performance and etc.

All of this and bounded concept lead us to the finding that the wider is the knowledge of a person, its experience, the more options and solutions are available for a person.

When the information enters the field of the CEO it could be influenced by the noticing or sensemaking. Both of the processes are tied with the field of vision of a person, how his/her perception is bounded by the type of background he/she had.

We started from analysis of age factor. Even though in upper echelon theory it was suggested that the older the CEO the older he/she is conservative. The researches did not support this. The older CEOs are ready to undertake the strategic changes. However, age factor influences the innovation and risk-taking, the more aged is the CEO, the less he/she wants to intensively invest into innovation or risky opportunities.

Functional track as a part of CEO background also influences the performance of the company. Companies that are oriented on internal growth, were focused on general administration, HR and R&D, others, the ones that focus on the external growth favor also the general administration, finance and marketing. The last ones, who were focused on being safe chose marketing and finance. So, the strategy of the company influences the favorable divisions for pick of a CEO and, thus, his functional background influences the choice according to the strategy.

The background of the CEO is not only the perception of a manager, but also is the social factor. It affects not only the way executive deals with the problems but can be a representation of the balances of powers in the company.

The amount of power that CEO has can limit the influence of the background and create boundaries for performance. It was discovered that if the CEO is against the board if directors somehow, he/she has less effect on the performance of the company. Also, the possibility for change can be limited by the possibility for actual change in the industry and by the approval of the board. There are findings that the more power is centralized in the hands of the CEO the more results of the companies vary from the average both positively and negatively.

Furthermore, there are researches that strengths the Upper Echelon theory in the functional track part. For example, it was observed that there is positive relationship between throughput-function experience managers and strategies that are oriented on efficiency.

Functional path is crucial if we use concept of bounded rationality, because it determines the scope of vision of CEO which he/she uses to deal with the problem. Also, the more difference there is in the functional background of top management team and of the CEO the more internationalization diversification is presented in the company's strategy. The different functional track helps TMT and CEO treat strategy broader and helps them to go beyond the domestic market. International experience of the executives of company positively influences strategic actions of the firm. It was discovered that more heterogeneous groups, in terms of background, are more creative and make better decisions.

Interesting observation is that the companies headed by finance or administrative background CEO have higher offending probability than firms with different background CEO.

The relevant background could also influence not only actual company performance, but also how third party perceive company on the market. It was discovered that the more CEO has relevant background to the company the more rich investors are ready to put their money into the young firms going through IPO.

The background of an executive is being treated as the signal of credibility of a company, when CEO files reports, as he/she is a highest representation of a company. Also, the age was positively influencing the credibility of certification of statement of finance. Presumable, investors treat age factor as a representation of knowledge, experience and connections.

The background of a CEO, in the part of place of his education, also plays a role. The investors react more positively when there are CEO's education-state acquisitions. Supposedly, CEOs have knowledge and people connections in the place when he/she educated.

Tenure, as a factor of longevity of operations, influences not only from the side of the single CEO but also from the whole company side. Firms with longer tenure are more oriented on stability and efficiency, with shorter - on innovation and diversification. The same was proposed in Upper Echelon theory about the managers. The ones that have longer tenure tend less for the big changes. By researchers, age and longer tenure was positively associated with future performance of the company.

Education plays and important role as a part of background of CEO. It was discovered that MBA-educated managers positively influence the performance of the company, but they are less willing to risk and innovations. However, in some of the parts of the world, it was found that the better academic qualification doesn't mean better company performance. Despite that, firms where CEO has little formal education perform not as an industry average firms with formal managerial education CEO.

Considering the outsiders factor, it was suggested that background from different companies and industries creates connections and expose people to new information and perceptions. More than 1/5 of the companies decide to appoint the outsider CEO. However, the industry factor is tricky, because the nature of the industry, meaning monopolistic or oligopolistic will also form CEO and high competitiveness of a market probably could not be suitable for CEO with managerial background in monopoly.