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How much CEOs matter to firm performance:
"Do CEOs matter?" has been a perennial question in management discourse. But "the CEO effect" has been notoriously difficult to isolate -- a moving target caught in the slipstream of dynamic forces that shape firm performance.
So Morten Bennedsen, INSEAD Professor of Economics and the André and Rosalie Hoffmann Chaired Professor of Family Enterprise, along with colleagues Francisco Perez-Gonzalez (ITAM and NBER) and Daniel Wolfenzon (Columbia University and NBER) decided to find out how much CEOs matter by measuring the impact on firm performance when a CEO is absent, specifically, hospitalised.
They find, in a forthcoming paper, "Do CEOs Matter? Evidence from Hospitalization Events", soon to be published in the Journal of Finance, that the financial ramifications of CEO hospitalisation are significant.
Based on data of nearly 13,000 Danish SMEs between 1996 and 2012, Bennedsen and his co-authors find that five-to-seven day hospitalisations sent firm profitability tumbling by 7% in the year of illness. Longer hospital stays of 10 days or more wreaked even deeper damage, lowering operating return on assets (OROA) by a full percentage point.
Journal Reference
Morten Bennedsen, Francisco Pérez-Gonzalez, Daniel Wolfenzon. Do CEOs Matter? Evidence from Hospitalization Events, The Journal of Finance[$] (DOI: 10.1111/jofi.12897)
See also: Phys.org
[Source]: INSEAD research
(Score: 5, Insightful) by Anonymous Coward on Tuesday April 07 2020, @02:06AM (14 children)
Over a period of 5-7 days, there would be no effect from the CEO being gone. They should be looking an absolute minimum of 1 quarter out in terms of planning and strategy, so being gone for a week, should result in the other execs continuing to execute on previous plans.
The fact that the stock market disagrees is utter bullshit.
(Score: 2) by The Mighty Buzzard on Tuesday April 07 2020, @02:58AM (7 children)
Or they should just look at corporations that make idiotic business decisions over a CEO's term vs. ones that make good business decisions. Bankruptcy and every job at the company going poof or kicking fiscal ass is the difference.
My rights don't end where your fear begins.
(Score: 3, Insightful) by JoeMerchant on Tuesday April 07 2020, @12:44PM (1 child)
There's the old risk vs. reward problem here, big risks lead to big payoffs - or disaster. As CEO, when you a big risk and get a moderate payoff (say, betting the whole company on 19 in roulette (37:1 odds), but only getting a 10:1 payoff) you can still spin it as an astronomical win for the press. Do that two or three times in a row and people think you walk on water, when in reality you're just putting people's livlihoods at risk for bad return on the odds.
🌻🌻 [google.com]
(Score: 2) by The Mighty Buzzard on Wednesday April 08 2020, @02:39PM
Yup, the ones you really want to hire are the ones who've no interest in a microphone and can see where the market is going and what to do about it with halfway decent accuracy. Rockstars can make you a lot quickly but they can lose you everything as well.
My rights don't end where your fear begins.
(Score: 3, Insightful) by JoeMerchant on Tuesday April 07 2020, @12:46PM (4 children)
FWIW, the essential nature of liquor stores is due to the nature of our population - take away "rights" like booze and they will riot.
As for college, my dad is still remote-teaching the same classes today that he was remote-teaching before the whole mess started. His "in person" colleagues are now learning to do what he's been doing for years.
🌻🌻 [google.com]
(Score: 2) by cmdrklarg on Tuesday April 07 2020, @03:05PM (2 children)
Yep. When some states first enacted shelter at home, liquor stores were not considered essential at first.
Predictably, people freaked out and there were big crowds trying to get their booze before the lockdowns. They are considered essential here in MN.
So glad I'm a social drinker. And I'm not very social.
The world is full of kings and queens who blind your eyes and steal your dreams.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @10:35PM (1 child)
I've started to re-think booze since the lockdown. I enjoyed it for the "fuck you" it says to everyone else - a self-indulgence basically. But after 2 weeks of it my body is trashed and I feel like shit. How pathetic is that? I'm limping around with self-inflicted wounds wanting sympathy for being a wreck? Yuck. So now I'm 3 days sober ;)
Ha ha wears my medal?
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @02:17AM
Congratulations, you figured out in 2 weeks what it took Joe Walsh 20 years to realize: even though you _can_ drink all the time, that doesn't mean that you actually _want_ to drink all the time.
🌻🌻 [google.com]
(Score: 2) by hendrikboom on Tuesday April 07 2020, @10:48PM
When alcohol is unavailable, alcoholics turn to other drinks that are far, far more dangerous. That's what makes alcohol essential.
(Score: 4, Touché) by Common Joe on Tuesday April 07 2020, @05:19AM (5 children)
This highlights the American dystopia. They expect a CEO being gone for 5-7 days would impact anything? Doesn't he go on vacations and have sick leave?
(Score: 1, Insightful) by Anonymous Coward on Tuesday April 07 2020, @01:48PM
True. And it points out the severe flaws in this study. This study doesn't mean that CEOs matter. It means that companies, boards, investors, etc. respond with significant concern when there is uncertainty with governance of their company. And rightly so.
This study doesn't say anything about the CEO mattering. The thing in charge could be a Magic 8 Ball randomly throwing out suggestions for company decisions. If the Magic 8 Ball was suddenly broken for 5-7 days, and there was uncertainty about who/what was in-charge or who/what would make the decision without the Great, Magnificent Magic 8 Ball, I'd bet you'd see similar effects to what's seen in this study.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @04:29PM (1 child)
The biggest impact that most CEOs being gone for a week would be to the caddy's tip balance at the local golf course.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @10:39PM
If I got to choose where to have meetings it would probably be on the golf course, and I don't even play golf. Just get me out of the chair doing something than all the he-said she-said bullshit.
(Score: 1) by khallow on Tuesday April 07 2020, @05:25PM
I doubt it. Keep in mind how this works in the real world. A CEO going on sick leave and the media hearing about it could mean anything from a few days of recovery from some minor but noxious infectious disease like norovirus to the CEO getting fired because the auditors just found the cooked books, and/or dead or dying with power struggles imminent. You can't take a company's word at face value on these things. It's the uncertainty not the certainty that impacts stock prices.
This is a great example of modern Kremlinology [wikipedia.org], sifting through indirect clues to try to figure out why some large bureaucracy chose to announce what should be a relatively minor event. It could be because the CEO was about to do something important in public view (like wrap up negotiations on a buyout) and their absence needed to be explained. Or it could be something much worse with the company coming up with a short term excuse while their PR/legal people figure out how to spin the awful news.
(Score: 2) by The Mighty Buzzard on Wednesday April 08 2020, @02:41PM
I thought it highlighted the complete lack of understanding by most of the people spouting off about CEOs.
My rights don't end where your fear begins.