Can Generative AI Replace CEOs? New Study Reveals Surprising Results

At first glance, the idea of AI stepping into a CEO role might seem far-fetched. AI systems, while powerful, still exhibit flaws like generating incorrect information ("hallucinations") or losing track of tasks mid-process—traits that don't align with the qualities required for effective leadership. A CEO must balance stakeholder interests, analyze market trends, and make strategic decisions that shape a company’s future.

However, with generative AI reshaping various industries, the question arises: Could it also handle the complexities of a CEO role?

Generative AI’s Impressive Capabilities

AI has already revolutionized fields requiring precision and creativity. For example, AlphaFold made breakthrough advances in biophysics with protein folding, while OpenAI’s Codex can generate entire software programs from simple instructions. If AI can manage such complex tasks, why couldn’t it take on a CEO’s responsibilities?

A Large-Scale Experiment to Test AI’s Leadership Potential

To explore AI’s potential as a CEO, a real-world experiment was conducted from February to July 2024. Involving 344 participants and GPT-4o, a large language model created by OpenAI, this experiment simulated the decision-making challenges CEOs face in a gamified environment, and used various metrics to track the quality of their choices.

Participants were tasked with navigating a digital twin of the U.S. automotive industry, making corporate strategy decisions over several simulated fiscal years. Their performance was tracked through key metrics such as market share, profitability, and board approval, incorporating mathematical models based on real-world data from car sales, market trends, historical pricing strategies, and price elasticity, alongside broader influences such as economic conditions and the impact of the Covid-19 pandemic. The top two student and executive participants were then compared against GPT-4o, with surprising results.

How AI Fared in the CEO Role

GPT-4o excelled in many aspects, outperforming human participants on nearly every metric. It designed cost-effective products, responded effectively to market signals, maximizing appeal while keeping tight cost controls, and gained a strong competitive edge.

However, the AI faltered when facing unpredictable market shocks, such as a pandemic-triggered economic collapse. The game was programmed to have unpredictable shocks to disrupt customer demand, cause price collapses, and place heavy strain on supply chains.

The top-performing students responded with long-term strategies that anticipated these disruptions. They avoided locking into rigid contracts, reduced inventory risks, and managed growth with caution, ensuring they remained flexible when market conditions changed. Their approach was clear: prioritize adaptability over pursuing aggressive short-term gains.

GPT-4o, on the other hand, after achieving a series of early successes, became focused on short-term optimization, relentlessly driving growth and profitability. However, this approach left it vulnerable, and a market shock ultimately disrupted its winning streak.

Lacking the adaptability of human intuition, GPT-4o’s short-term optimization strategy led to its early dismissal by the virtual board—quicker than the student participants. Interestingly, top executives also fell into the same trap as GPT-4o, with both being dismissed by the virtual board more quickly than the student participants.

Lessons Learned from AI’s Performance

Despite being fired faster, GPT-4o delivered an impressive performance overall. Its ability to maximize market share and profitability highlighted AI’s potential as a valuable resource in corporate strategy. However, it also underscored the limitations AI faces when navigating complex, real-world disruptions that require flexibility and foresight.

Key Takeaways: The Future of AI in the C-Suite

Generative AI as a Strategic Asset

AI can serve as a key resource in corporate strategy, providing unique and creative solutions when prompted effectively. While it may not fully replace a CEO, it can greatly augment decision-making processes, driving shareholder value. If generative AI can assist companies in maximizing shareholder value more efficiently, why not embrace it? After all, driving shareholder value is the core responsibility of any CEO.

The Importance of High-Quality Data

For AI to thrive in leadership roles, it must have access to rich, high-quality data. In this experiment, GPT-4o’s success stemmed from the robust data provided by the simulation. However, many companies lack sufficient data in terms of speed, scale, accuracy, and diversity. Establishing a strong data infrastructure is crucial before integrating generative AI into boardroom decision-making

Balancing Efficiency and Risk

AI’s ability to drive efficiency comes with risks. Without sufficient oversight, AI—like human executives—can make costly mistakes, especially when focused solely on short-term gains. Therefore, oversight is necessary.

Accountability and Guardrails

Ensuring AI accountability is crucial. Clear, transparent guardrails must be established to align AI-driven decisions with company values and societal good, protecting against unintended consequences.

The Role of Digital Twins

Digital twins, or realistic simulations of a company’s ecosystem, could serve as valuable training grounds for AI leadership. These environments provide a safe space for AI to test strategies and refine decision-making before real-world implementation.

Disruption of Strategy Consulting

AI’s rise may disrupt traditional strategy consulting, with firms potentially turning to AI systems tailored to their ecosystems for strategic advice.

A Hybrid Future for CEOs and AI

While AI may not fully replace human CEOs, it offers a powerful tool for augmenting strategic decision-making. Human leaders can focus on areas where they excel—empathy, ethical judgment, and long-term vision—while AI handles data-heavy analysis and modeling.

The future of leadership is hybrid, with AI complementing human intuition. CEOs who thrive will be those who leverage AI as a partner, not a rival, in decision-making.