Rare Wisdom or Hot Air: Do Consultants Make Good Managers?

This study explores whether firms benefit from hiring former consultants as managers, a phenomenon frequently observed among top managers across industries but hardly addressed in existing management theory. Despite anecdotal evidence about executives with consulting backgrounds in successful firms, concerns persist regarding the transferability of consultants' skills to specific firm contexts. Leveraging unique population-level data from 99,927 manufacturing and service firms in Sweden, we employ a multi-step empirical strategy to better understand the conditions and effects of hiring managers with consulting experience. Applying fixed effects regressions and a Heckman-type selection model with a dynamic panel estimator, our methodology allows for a comprehensive evaluation of the value of former consultants as managers. First, we analyze the hiring stage, revealing that former consultants are recruited to counter declining firm growth. Second, we explore whether former consultants drive changes within hiring firms and find that the number of reorganizations increases after hiring them. Finally, we assess whether such changes are valuable and find that reorganizations induced by the hiring of former consultants yield superior firm performance. Given that the same is not true for managers with traditional career backgrounds, our findings have important implications for theory linking managerial qualities to performance effects.