Superstar CEOs don’t always live up to their hype. In fact, they can be a detriment to their companies, according to a study recently published in The Quarterly Journal of Economics.
University of California assistant professors Ulrike Malmendier and Geoffrey Tate (based at Berkeley and UCLA campuses, respectively), analyzed the performance of CEOs who have received a prestigious award from major news publications such as Time or companies such as Ernst & Young. Their study revealed that in the three years following CEOs’ achieving distinguished status, their companies’ shares underperform their peers by 15% to 26%. Other financial measures, such as return on assets, also suffer.
The reason superstar CEOs underperform, Malmendier and Tate suggest, is that they’re focusing less on a company’s business. The authors point out that award-winning CEOs write more books and sit on a great number of outside boards. These execs also tend to have lower golf handicaps, suggesting increased time spent on leisure activities.
Celebrity CEOs don’t hinder the performance of all companies to the same extent. Businesses with strong corporate governance are hurt less. That has led the researchers to recommend businesses keep close tabs on their superstar CEOs after they achieve fame.