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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) by khallow on Wednesday April 08 2020, @12:20AM (14 children)
The biggest reason of all is that you can take away the money, and then the power goes away.
That's generally how it works in the business world.
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @02:04AM (13 children)
This would be the same business world that has deified the top of the pyramid to the point that you need a CEO who's in the stratosphere club just so they can relate to the other CEOs that the company has to do business with.
I accept your premise that CEOs are, generally, only kept around as long as they're productive, but giving them hundreds of millions, sometimes billions, in compensation while they are there lets them leave with unwarranted investor power in the marketplace - and, almost following the Peter principle - they stay in the game accumulating this cash hoard until they are no longer useful actually running a company, then you have to humor their senile ass to get their investment money.
Actually reminds me of the old retired CEO I met from Naples, guy was 90+ and chasing skirts at the bar - not senile, but definitely retired and unable to run day-to-day operations anymore. We wined and dined him and got his stamp of approval on a partnership we proposed with his company, he took us around to meet everyone and tell them what a good idea the partnership was - and out of respect all his old employees did the deal, signed on the bottom line, and then proceeded to ignore the fuck out of his intent the minute he was out of sight.
Bottom line - we're all just people, and for every smart, capable person who could run a 100K employee organization with a little exposure and experience, there are less than 0.01 of those positions available. The giant piles of cash that float around in those circles distort the picture to where you get people who aren't so smart or capable running things, just because they're connected with the cash and those connections are sometimes perceived as more valuable than actually being able to make good decisions.
🌻🌻 [google.com]
(Score: 1) by khallow on Wednesday April 08 2020, @05:12AM (12 children)
And it's unwarranted why? I looked and there's actually one CEO, Elon Musk with a genuine $2.6 billion over ten years [theverge.com] performance-based compensation package. That's about high as it gets. And if Elon can actually turn Tesla into a major auto company (or for another end state, get it bought out at a premium by an existing auto company), then it'll be worth it.
So what? All we know here is that the sums of money in question go past your threshold for "warranted". That's not saying much.
These threads end up the same way. A bunch of people without a clue telling us that companies could be getting those CEOs cheaper.
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @12:49PM (3 children)
A major auto company is "worth" $2.6B to the world why?
I'll grant that Musk is an outlier among CEOs, and it's great that he's coming close to doing some great things, it has been too long since that sort of thing has happened in the world. Meanwhile, the rest of the Fortune 1200 averages $10M per year in CEO compensation, 200 to 500x what their rank-and-file employees are compensated, and generally that compensation is given in exchange for nothing particularly special or outstanding.
Also, your published lists of contractually agreed compensation fail to accurately value things like option plans - another all too common mechanism whereby huge risk taking is rewarded in exchange for a quarterly bump in value as perceived by an under-informed marketplace.
The problem isn't even that "the CEOs could be cheaper" CEO compensation is just numbers on a page, just like all money is imaginary numbers made up and loosely tied to the shaping of human behavior.
The problem is the relative valuing and de-valuing of human beings, and in the current pointy pyramid system, we're putting some human contribution at over 200x the value of other humans who are just as capable, and many times just as valuable to the organization and the world, and the ratios continue to increase. High wealth disparity was the hallmark of medieval kingdoms, slave societies like the ancient Egyptians, and today's third world whether you're looking at gun-thugs ruling in Africa or drug lords in South America (nevermind how those drug lords came to be in the first place...) The biggest problem is that we've been moving, relatively quickly, in the bad direction toward more inequality, and we are continuing down that path at an increasing pace.
If we want to continue to be a strong society, we need to value the whole pyramid, not just the points at the tip.
🌻🌻 [google.com]
(Score: 1) by khallow on Wednesday April 08 2020, @07:14PM (2 children)
Actually, it's worth greatly more than a few billion dollars these days.
The cognitive dissonance is interesting here. In one breath, you're complaining that CEOs are overpaid and overvalued to society. In the next, you claim the compensation is imaginary. Why should we care that CEOs are getting hundreds of times more than workers, if the pay is imaginary?
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @11:13PM (1 child)
It's not dissonance, it's your inability to perceive multiple aspects of the same issue.
Money is vastly more important to people who don't have it and yet we continue to shovel ever greater quantities of it in the direction of the people who need it least.
🌻🌻 [google.com]
(Score: 1) by khallow on Thursday April 09 2020, @01:33AM
Then why are you arguing so fiercely for something that you termed imaginary?
So imaginary money is actually really important to poor people? Ok, I'll just give everyone a zillion Joe Merch Bux. Just did it. Now everyone has a vast amount of imaginary money. You can thank me for solving global poverty later after some sense has had a chance to creep into your head.
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @01:34PM (7 children)
Put more simply: the monkeys are organized and all food flows through the kitchen.
The hundred monkeys with control of the kitchen have decided to keep all the grapes for themselves, they only pass out cucumbers to the million monkeys outside.
It's what was wrong with the USSR - we're not at those levels of popular demotivation yet, but we're heading in that direction. Demotivate any farther than the USSR and you need to resort to threat of violence or starvation to motivate the workers. We don't need many workers to feed the people anymore, but handing out cucumber while keeping all the grape doesn't work out in the end - and even if it does, do we as a society want to take 99.9% cucumber?
It has been ~40 years since The Clash wrote this, it's a shame that we have made so much technological progress and so little societal progress since then:
🌻🌻 [google.com]
(Score: 1) by khallow on Wednesday April 08 2020, @07:16PM (6 children)
Yes, it's only the best improvement [soylentnews.org] in the human condition ever. Nothing to see here.
(Score: 2) by JoeMerchant on Wednesday April 08 2020, @11:09PM (5 children)
Evidence gathered and presented by your favorite delusionist - colour me unsurprised.
There is some truth to the fact that the peasantry is only now starting to complain because they are somewhat at liberty as compared with centuries gone by - the old maxim of idle hands being the devil's workshop is quite true, if you represent the establishment. It was the idle rich of the Renaissance who had the means and opportunity to upset that applecart of societal control systems.
It's all rather academic to us, assuming mortality continues to claim us within ~100 years of our birth, and if that ceases to be true in the next 40-50 years, the wheels are going to fly right off the applecart.
🌻🌻 [google.com]
(Score: 1) by khallow on Thursday April 09 2020, @01:38AM (4 children)
Unless, of course, they don't. Reality just isn't following the narrative after all. My take is that if suddenly everyone lives a lot longer, they'll finally get around to looking at and solving the problems that take longer than a present day human lifespan to develop - whatever those end up being.
(Score: 2) by JoeMerchant on Thursday April 09 2020, @03:06AM (3 children)
My take is that if suddenly everyone lives a lot longer instead of adding 75 million per year to the population total, we will shoot straight up to 125 million per year - and if functional reproductive health is also pushed into higher aged people the birth rate will climb even higher.
🌻🌻 [google.com]
(Score: 1) by khallow on Thursday April 09 2020, @03:20AM (2 children)
A problem that can be solved by having a lot less kids. Note that the developed world already has this solved.
(Score: 2) by JoeMerchant on Thursday April 09 2020, @07:16PM (1 child)
I note that the developed world currently is in a population expansion pause - predictions about the future are notoriously inaccurate.
🌻🌻 [google.com]
(Score: 1) by khallow on Thursday April 09 2020, @08:20PM
Arguments from ignorance fallacies typically are too.