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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: 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.