A compilation of research produced by America's Best Business Schools
Warning: Charm Doesn't Pay
CEOs matter. Ask them, and they'll tell you. Their magnetism alone--the deal-sealing charm, the stiff upper lip in the face of Wall Street--makes them worth their soaring salaries. Or does it? A group of professors from the University of Pittsburgh's Katz Graduate School of Business and the Yale School of Management isn't so sure. For the study Does CEO Charisma Matter? the professors surveyed the top management teams at 128 large companies--averaging $6.5 billion in assets and 16,000 employees--and gauged their financial performance before and after the arrival of the CEO. To their surprise, CEO charisma had no effect on stock performance, sales growth, or return on equity. The authors concede that perception can be reality when it comes to leadership. But they conclude that investors' misguided faith in the next Jack Welch may stem from "halo effects."
Giving Women Little Credit
Do investors really care whether the CEO is a man or a woman? Maybe so. In Skirting the Issues: A "Green Ceiling" for Entrepreneurs? two researchers from the Olin School of Business at Washington University in St. Louis asked 222 M.B.A. students--44 of them women--to analyze an imaginary company that was about to go public. Students examined financial information and a biography of the CEO. The catch: All the information was the same--except half saw bios of male CEOs, and half saw bios of women. That made quite a difference. Female CEOs were perceived as less experienced, less competent, less able to resolve disputes, less able to handle a crisis, and as less favorable representatives of the company--even though their biographies were identical to those of their male counterparts. Investors were willing to put 50 percent of their funds into a company with a male CEO, while giving only 18 percent to a firm headed by a woman. "Studies have been done on a glass-ceiling effect," says Judi McLean Parks, one of the study's coauthors, "but this shows there might be a green ceiling, too, in the ability to get money."
Uncorking the Grapes of Wrath
Most economists don't think consumer boycotts have much of an effect on companies' financial performance. Too many customers just don't mix consumption and politics. But in Consumer Boycotts: The Impact of the Iraq War on French Wine Sales in the U.S., two researchers at the Stanford Graduate School of Business have demonstrated that one recent boycott--the American snubbing of French wine during the invasion of Iraq--has had a very real financial effect. Using scanner data from supermarkets--not stock prices, which have been used in previous studies--the authors find the toxic atmosphere that turned "french fries" into "freedom fries" poisoned Gallic wine sales as well. During the boycott's peak in 2003, French wine revenue in the United States dropped 26 percent, with total losses over a six-month period climbing to about $112 million. The lesson? Consumer boycotts, which almost half of Fortune 50 companies are subject to at any given time, may be a more effective weapon than most execs realize.
This story appears in the May 15, 2006 print edition of U.S. News & World Report.