Celebrity CEO’s - Under Performers or Over Expectations?

Yet another study has been completed that illustrates that hiring and or retaining celebrity CEO’s are often bad for
the performance of a business. 

The report by two professors from the University of California system - Ulrike Malmendier, associate professor of
economics at UC Berkeley and Geoffrey Tate, assistant professor of finance at UCLA's Anderson School of
Management, studied the performances of celebrity CEOs.

The study theorizes that many CEOs fail to live up to the hype they generate and they tend to under perform once
they reach the top spot.  Intriguing as it may seem at a first glance, a second look might give a better perspective.
Maybe the expectations are too high from the people within the organization, its shareholders and Wall Street types.

According to Malmendier and Tate, the reason they fail to live up to the hype is an example of the mean reversion
model. The model suggests that any award winner performs extraordinarily to win a prize, but cannot maintain
that level of performance year after year.

In the book, Flexible Leadership: Creating Value by Balancing Multiple Challenges and Choices by Richard
Lepsinger, president of OnPoint Consulting and co-author Dr. Gary Yukl, they identify five problems associated
with celebrity leaders.

• Over reliance on the leader to solve all the company's problems
• Exaggerated expectations lead to exaggerated disappointments
• A single CEO misstep can have a catastrophic effect on profits
• Celebrity CEOs are too sheltered to be fast on their feet 
• Employees don't want to be led by a figure on a white horse.

Again fascinating, but even a celebrity CEO knows well enough that in today’s market you cannot afford to
be a flash in the pan. Today’s celebrity CEO hires publicists and advisors that identify opportunities for them,
not just in terms of their role as a CEO but also for their own best interest which means they are looking not
only at their own personal future, but how the company they also lead will catapult them to greater celebrity
status. They recognize that they need to address the mundane tasks of running a business, but their advisors
also identify ways for them to remain within the public eye, for example by leading community and social based
activities that not only give a stage for the celebrity CEO but also places a personable if not a warm side to them
and the often cold view of corporations, specifically the one they lead enhancing it further through their value
added activities.

Malmendier and Tate suggest that increased publicity causes distractions that account for underwhelming
performance. Again, while on the surface it maybe easy for one to agree with this statement, it is hard to fathom
that the celebrity CEO falls to such a level given they possess characteristics of achieving the prize, specifically
if they have signed a performance based contract.  And maybe that is the problem; the organization was so star
struck, it did not sign a performance based contract. So, who is to blame for the failure?

Lepsinger and Yukl believe that companies need to realize that effective leadership is not about glitz, glamour,
and charisma; it's about results. "Real world" CEOs must have the flexibility to respond to continually changing
conditions, he perspective to find an appropriate balance among competing demands, and the commitment to
drive coordinated action by leaders across levels and subunits.

"CEOs must be concerned with organizational performance, with doing all the things it takes to close the gap
between strategy and execution," he says. "And here's the thing: these are skills that don't necessarily make
sexy media stories and garner lots of camera time. They're behavioral. They are learned, not inborn. There are
no easy answers, just a lot of focused thinking and hard work-and realizing that is the first step out of the
star-struck land of the celebrity CEO and into the real world."

“There is nothing to be said against winning the award," said Malmendier, "but to keep that success going,
make sure the CEO's doing his job.” 

As stated above, isn’t that the responsibility of the company?


Tim Johnson
www.CaliforniaBusinesssMinute.com