Capitolism

Independent in All Things, Neutral in Nothing

Does the CEO Matter?

leave a comment »

Jason Zweig wrote a provocative piece in the Wall Street Journal, Why Changing the CEO May Not Change the Company. Let me offer three thoughts.

First, in my experience, the CEO has a massive impact on nearly every part of the organization. Morale, coaching, strategic direction, communications, operational effectiveness, customer service: the CEO of each organization I have worked in impacted all of these. All suffered under poor CEOs and all improved – dramatically – under good ones.

Second, Zweig quotes a study suggesting that the CEO accounts for about 10% of the variance in profitability. That 10% represent huge numbers; in many industries, that is exactly the difference between great companies and average companies. And, compound that 10% over time, and the dollar profitability impact can be significant.

Finally, if CEOs do have limited impact, why do companies pay them so much money? Do not mistake my question here; I do not argue that because CEOs make big money, therefore they must have a big impact. If CEOs really do have such limited impact, why do they command such high salaries and total compensation?  Can’t companies get pretty comparable results for much less, and save the money?

Just questions to ponder. By the way, Steven Landsburg has an interesting discussion of executive compensation in his excellent book, The Armchair Economist.

Advertisements

Written by Russell S.

December 8, 2009 at 2:26 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: