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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: 3, Insightful) by Anonymous Coward on Tuesday April 07 2020, @03:26AM (2 children)
How many CEOs actually understand the workings of their multi-billion dollar market cap company? Being a really good CEO of a company of that size is legitimately very difficult. But there also aren't that many good CEOs. In many cases, the CEO is someone hired to serve the interests of the board of directors, perhaps heavily influenced by activist investors. Do the CEOs actually understand their companies' people, processes, and products? I suspect that far too many CEOs of large companies don't understand those things and end up making really mediocre decisions as a result. While I agree that understanding principles of business, accounting, and finance are essential to be a CEO, they are altogether insufficient to be a good CEO.
There are some very good CEOs out there who actually make a difference. For that matter, CEOs of small businesses also have a big impact on their businesses. It isn't easy to run a successful business, which is why so many small businesses fail quickly. A good CEO makes a big difference for a business of any size, but there just aren't that many good CEOs. There are a lot of mediocre CEOs and mediocre upper managers, which is what these comments are criticizing. A CEO is just like a head coach in sports. There are some really good coaches who have a big impact, but there are also a lot of really mediocre coaches who move from team to team and aren't particularly successful.
(Score: 2) by Dr Spin on Tuesday April 07 2020, @09:52AM
In many cases, the CEO is someone hired to serve the interests of the board of directors,
Serving the interests of the board of directors is indeed the Job Spec. WTF are the other ones doing there?
Warning: Opening your mouth may invalidate your brain!
(Score: 2) by The Mighty Buzzard on Wednesday April 08 2020, @02:28PM
Which is exactly why they're paid so well. Now if we could just get board members who could tell the difference and would reliably pick a good candidate.
My rights don't end where your fear begins.