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I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A compari

I can't help but feel that CEO's are over-valued and it's fundamentally an attribution problem as it's hard to know how much value they actually add. A comparison would be to fund managers and how the rise of index funds showed they actually added very little value in many cases, and weren't worth their fees.

kaczordon 5y ago
There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Our results provide strong empirical support for the idea that CEOs are extremely important to firm performance.” So I’d say they add significant value. https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3177/valueceos.pdf https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfile...
- ForHackernews 5y ago
  Technically, doesn't this study only demonstrate that a distracted CEO is a risk to firm performance? Sounds like all the more reason to replace them with robots that don't have families.
  - skystarman 5y ago
    My Amazon Alexa has like a 60% success rate when I ask it basic questions that take me 10 seconds to google on my phone. Something tells me AI isn't quite there yet to run multi-billion dollar firms and won't be for a while.
- makapuf 5y ago
  To be honest, this shows that a dysfunctional CEO (for completely understandable reasons) leads to a nonprofitable firm, not that value is added. You could say that people with no or defective keyboard have a hard time programming, but the best keyboard does not add significant value to a developer.
  - rybosworld 5y ago
    Agreed. If anything, this study makes the case that one person with sweeping decision power is at best a liability.
    - koonsolo 5y ago
      In that case, take away the CEO and see what happens. It can't be that hard. You don't know any companies without CEO's? Exactly!
      - rybosworld 5y ago
        A famous one is DPR Construction: https://www.dpr.com/media/blog/wsj-ceo https://www.dpr.com/media/blog/wsj-ceo They have 3 people (the co-founders) sharing the role/responsibilities of CEO.
        koonsolo 5y ago
        Strange reasoning: "Show me a person without a car". "Here you go, this person has 3". So 3 founders are running the company, nothing special about that. Please show me a company without a CEO.
        gtyras2mrs 5y ago
        Doesn't seem like 'strange reasoning' at all. Since the comment was like 'having only 1 driver is likely to be a liability', to which you responded 'show me a vehicle with no drivers' and you got a response saying 'this vehicle has 3 drivers' The strange reasoning is taking the the statement that said "just one driver could be a liability" and asking for vehicles with no drivers.
        rybosworld 5y ago
        Not to mention the person you are replying to edited their comment after the fact (possibly as I was replying). It originally said something to the effect of "show me a company without a CEO". Which I think is significant, as I took "A" to mean "singular".
- majormajor 5y ago
  That demonstrates that a CEO can definitely affect results, but what's the baseline? Would the "null CEO" script robot produce the same value as the non-grieving CEO, or the same value as the grieving one?
  - Invictus0 5y ago
    If Amazon didn't have Jeff Bezos, it would probably still be a bookstore today.
- nrmitchi 5y ago
  It sounds like that only shows that they have the ability to cause a negative impact, not that they add significant value the rest of the time.
- rightbyte 5y ago
  There is probably a bias in that study for small companies, where the CEO do grunt work.
- dfxm12 5y ago
  This more likely shows poor planning (by the CEO). If your firm is so reliant on one person, even if it is the CEO, it is poorly run. I believe it is a function of a CEO to enact that type of strategy, whether it be succession planning, proper delegation, identifying backups, instilling self reliance, etc. This probably shows some perverse incentives. A CEO can clearly prove their worth by otherwise sabotaging the firm when they're out.
- anigbrowl 5y ago
  Conversely, you could infer that board members are largely decorative, and of course any effect would be a) inversely proportional to the # of board members, b) proportional to the small time commitments that directorships typically involve, and c) mitigated by the fact that board members are/have somewhat supportive peers whereas the CEO does not. It's an interesting data point but the conclusion seems overbroad. One might equally draw on this conclusion to say that families of regular people probably need proportional levels of economic support following the death of a family member.
pcurve 5y ago
CEOs play important roles, but I agree they are very much overpaid. It's inefficiency in the specialized labor market being exploited by a small group of people. Equity based compensation is a big factor. They shouldn't be rewarded for riding the sector-specific or broader market rally. I feel there are ways to be more targeted in calculating contributions. I also feel the hiring process for CEO and executives are inefficient.
CPLX 5y ago
The issue with CEO pay, as well as pay for fund managers, is basically the same. It's clearly understood as a principal/agent problem, to use economics jargon.[0] Here's how it works: 1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money. 2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO. 3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that. Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things. But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it. Because they want to, and because the system lets them. [0] https://en.wikipedia.org/wiki/Principal–agent_problem https://en.wikipedia.org/wiki/Principal–agent_problem
- visarga 5y ago
  > at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it I bet you think business is a zero sum game.
  - CRConrad 5y ago
    Hopefully they do, because it is. I bet you think the economy is the same as "a business".
skystarman 5y ago
There are CEOs that are truly world class and transform companies and provide tons of value and are worth many more times what their comp is. They are the exception not the rule though. It's almost impossible to know if you've found the next Bob Iger, Nadella or a John Sculley when you hire them. Of course with hindsight you can point to certain things but it's hard in the moment. And for the most part boards pay people based on their belief that they've found the next Iger, not pay them like s/he could nearly destroy the company like Sculley almost did with Apple.
indymike 5y ago
The truth is that some CEOs are over-valued, and some are under-valued. And the same CEO one year may be overpaid, and perhaps dramatically underpaid in other years. It's complicated.

kaczordon 5y ago

There was a Danish study that showed that a death in the family of a Danish CEO led, on average, to a 9 percent decline in the profitability of the corporation. If it was the death of a spouse, the decline was 15 percent and, if it was a child who died, 21 percent. From the study: “Interestingly, similar deaths experienced by individual members of the board of directors do not significantly affect firms’ outcomes. Our results provide strong empirical support for the idea that CEOs are extremely important to firm performance.” So I’d say they add significant value. https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3177/valueceos.pdf https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfile...

ForHackernews 5y ago
Technically, doesn't this study only demonstrate that a distracted CEO is a risk to firm performance? Sounds like all the more reason to replace them with robots that don't have families.
- skystarman 5y ago
  My Amazon Alexa has like a 60% success rate when I ask it basic questions that take me 10 seconds to google on my phone. Something tells me AI isn't quite there yet to run multi-billion dollar firms and won't be for a while.
makapuf 5y ago
To be honest, this shows that a dysfunctional CEO (for completely understandable reasons) leads to a nonprofitable firm, not that value is added. You could say that people with no or defective keyboard have a hard time programming, but the best keyboard does not add significant value to a developer.
- rybosworld 5y ago
  Agreed. If anything, this study makes the case that one person with sweeping decision power is at best a liability.
  - koonsolo 5y ago
    In that case, take away the CEO and see what happens. It can't be that hard. You don't know any companies without CEO's? Exactly!
    - rybosworld 5y ago
      A famous one is DPR Construction: https://www.dpr.com/media/blog/wsj-ceo https://www.dpr.com/media/blog/wsj-ceo They have 3 people (the co-founders) sharing the role/responsibilities of CEO.
      - koonsolo 5y ago
        Strange reasoning: "Show me a person without a car". "Here you go, this person has 3". So 3 founders are running the company, nothing special about that. Please show me a company without a CEO.
        gtyras2mrs 5y ago
        Doesn't seem like 'strange reasoning' at all. Since the comment was like 'having only 1 driver is likely to be a liability', to which you responded 'show me a vehicle with no drivers' and you got a response saying 'this vehicle has 3 drivers' The strange reasoning is taking the the statement that said "just one driver could be a liability" and asking for vehicles with no drivers.
        rybosworld 5y ago
        Not to mention the person you are replying to edited their comment after the fact (possibly as I was replying). It originally said something to the effect of "show me a company without a CEO". Which I think is significant, as I took "A" to mean "singular".
majormajor 5y ago
That demonstrates that a CEO can definitely affect results, but what's the baseline? Would the "null CEO" script robot produce the same value as the non-grieving CEO, or the same value as the grieving one?
- Invictus0 5y ago
  If Amazon didn't have Jeff Bezos, it would probably still be a bookstore today.
nrmitchi 5y ago
It sounds like that only shows that they have the ability to cause a negative impact, not that they add significant value the rest of the time.
rightbyte 5y ago
There is probably a bias in that study for small companies, where the CEO do grunt work.
dfxm12 5y ago
This more likely shows poor planning (by the CEO). If your firm is so reliant on one person, even if it is the CEO, it is poorly run. I believe it is a function of a CEO to enact that type of strategy, whether it be succession planning, proper delegation, identifying backups, instilling self reliance, etc. This probably shows some perverse incentives. A CEO can clearly prove their worth by otherwise sabotaging the firm when they're out.
anigbrowl 5y ago
Conversely, you could infer that board members are largely decorative, and of course any effect would be a) inversely proportional to the # of board members, b) proportional to the small time commitments that directorships typically involve, and c) mitigated by the fact that board members are/have somewhat supportive peers whereas the CEO does not. It's an interesting data point but the conclusion seems overbroad. One might equally draw on this conclusion to say that families of regular people probably need proportional levels of economic support following the death of a family member.

pcurve 5y ago

CEOs play important roles, but I agree they are very much overpaid. It's inefficiency in the specialized labor market being exploited by a small group of people. Equity based compensation is a big factor. They shouldn't be rewarded for riding the sector-specific or broader market rally. I feel there are ways to be more targeted in calculating contributions. I also feel the hiring process for CEO and executives are inefficient.

CPLX 5y ago

The issue with CEO pay, as well as pay for fund managers, is basically the same. It's clearly understood as a principal/agent problem, to use economics jargon.[0] Here's how it works: 1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified and the decisions are made by people responsible for managing money. 2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management led by the CEO. 3) What actually happens is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that. Everyone involved will concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations campaigns and fund business schools and business publications to rationalize and create a sheen of reasonableness about why this is all the natural order of things. But, at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it. Because they want to, and because the system lets them. [0] https://en.wikipedia.org/wiki/Principal–agent_problem https://en.wikipedia.org/wiki/Principal–agent_problem

visarga 5y ago
> at the end of the day what is happening is that the people who are responsible for distributing resources to a common enterprise are taking more and more of it and keeping it I bet you think business is a zero sum game.
- CRConrad 5y ago
  Hopefully they do, because it is. I bet you think the economy is the same as "a business".

skystarman 5y ago

There are CEOs that are truly world class and transform companies and provide tons of value and are worth many more times what their comp is. They are the exception not the rule though. It's almost impossible to know if you've found the next Bob Iger, Nadella or a John Sculley when you hire them. Of course with hindsight you can point to certain things but it's hard in the moment. And for the most part boards pay people based on their belief that they've found the next Iger, not pay them like s/he could nearly destroy the company like Sculley almost did with Apple.

indymike 5y ago

The truth is that some CEOs are over-valued, and some are under-valued. And the same CEO one year may be overpaid, and perhaps dramatically underpaid in other years. It's complicated.