New research concludes that, on average, CEOs perform worse once they win awards and become famous.
Given that fame also allows them to command higher pay, if this research is true then their value to companies would fall substantially once they become larger-than-life.
MITPress: We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the awards, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak corporate governance. Our results suggest that the ex post consequences of media-induced superstar status for shareholders are negative.
Still, the value of a star CEO probably depends on the type and size of business. For smaller companies, high profile CEOs can bring substantial credibility and sales to an otherwise unknown entity. Yet for very large organisations, likely studied in this research, this might not be the case. Thus if this research is valid, it would suggest that CEO’s should be removed once they become too famous and replaced with a no-name, yet capable, manager. Unless there is a very compelling reason why they might be an exception to the rule.
(Via Infectious Greed)