Does the CEO Star System Work?

My last sentence in my post on CEOs here last Friday was "I wish the Pennsylvania study had found that companies led by "narcissistic" CEOs performed poorer than average; but it doesn’t."  So today on pmarca Marc Andreessen highlights a UCLA study showing that high profile CEOs do in fact underperform the rest of the market. And the contrast between the two studies makes me nervous.

Marc Andreessen quotes the UCLA study as follows:

"We find that the firms of CEOs who achieve "superstar" status via prestigious nationwide awards from the business press subsequently underperform beyond mere mean reversion…"

He doesn’t draw conclusions. It’s an interesting topic, he’s posted on it recently and so have a lot of other people, including me.

However, even when research confirms my bias, I still mistrust the easy conclusions. The authors of this latest study measure performance using stock prices and return on assets to measure performance. I said in my June 22 piece in Huffington Post (about Steve Jobs and iPhone) that stock prices are sometimes a bad measure of strategic success.

So I admit it. The UCLA study cited on pmarca concludes about exactly what I wrote I’d like to see when I was commenting Friday on the Penn State study, but it still makes me nervous. Is it possible that high profile CEOs have the luxury of making long-term strategy without pulling one way or the other for short-term stock prices? Frankly, I doubt that, but I do like to see both sides of issues, and once again, interpreting research isn’t that easy.

— Tim

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