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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: 1, Interesting) by Anonymous Coward on Tuesday April 07 2020, @02:43AM (5 children)
No one wants to make their own decisions, instead of looking to everyone else. For big decisions, they tend to get punted up the ladder to a CEO or a similar position in other organizations. Even so, a lot of top executives seem to look at what others are doing rather than making decisions for themselves. If a CEO is gone, as another comment noted, other managers may stall on decisions until the CEO returns because they don't want to be accountable. Another possibility is that the CEO is a micromanager and insists on making the decisions. I suspect a lot of upper management duties could be automated without many adverse impacts. They're just not that useful.
I work in academia and university administrators function in the same way. A very large portion of universities moved their classes online for the spring semester within about a week. Prior to that week, university leadership was generally quiet about the coronavirus situation, sending a couple of emails, but not really doing much beyond quarantining students who traveled and closing some study abroad programs. In the university I work at, we were initially told that classes would probably be moved online for a period of 2-3 weeks and that the university's response was consistent with other universities, indicating that the leadership at this university was actually just following what others were doing. Within a couple of days of other universities moving their classes online for the rest of the semester, the university I'm at made the same decision. It doesn't seem like any of this was actually based on original thinking within the university leadership. Instead, they were following the lead of others, which seems to be common in upper management.
I think there are a few CEOs who may be more influential because they are strongly associated with a particular brand. For better or worse, those CEOs may have a significant impact on corporate culture and the success or failure of the company. It's a pretty short list, with people like Steve Jobs, Bill Gates, Elon Musk, and perhaps a few others. I know that Gates hasn't been the CEO for a long time, but he's still recognizable as being associated with Microsoft. John Legere was fairly recognizable when he was the CEO of T-Mobile, and seemed to be a bit more independent in making decisions. He brought back unlimited plans and then the other major wireless carriers quickly followed along. The other situation where a CEO has a big impact is on a small business, where the CEO has a much larger role in the day-to-day operations.
(Score: 3, Insightful) by Runaway1956 on Tuesday April 07 2020, @10:11AM (2 children)
You have part of the answer there. However, I've watched people make decisions for years, then when management changes, suddenly those decision makers are deemed to be incompetent. New decision makers replace the old, things slide downhill, and those decision makers are replaced, and soon you have a corps of psycophants trying to anticipate what the Big Boss wants, but too afraid to actually decide anything at all.
Top management does not want competent people around, who might steal their thunder, or cast a shadow on top management's own "genius".
(Score: 2) by hendrikboom on Tuesday April 07 2020, @10:52PM (1 child)
psycophants
Was that a pun or a spelling error? I can't figure it out.
(Score: 2) by Runaway1956 on Tuesday April 07 2020, @11:43PM
LOL, I didn't see what I did there until you pointed it out. I'm not going to try to figure it out.
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @04:33PM
Hence the phrase "best practices". Which basically translates to "let's do what everyone else is doing so we can't be blamed for anything later".
(Score: 0) by Anonymous Coward on Tuesday April 07 2020, @11:31PM
At my university it's the exact same thing. Fwd: fwd: fwd: through 6 layers of management, sorry it's called Leadership, to get the same message that the Governor just said on TV the day before. All these people get paid healthy Healthy HEALTHY motherfucking salaries. It's become the failing up destination for no-longer-competent researchers.