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Celebrity and hubris


Everyone knows about the Sports Illustrated cover jinx. Like the time Ted Williams made a 1996 cover, only to trip over his dog and break his hip. Does the same misfortune happen to executives who become celebrities? Anecdotally, to be sure.

...Now, two economists--Ulrike Malmendier of Stanford Business School and Geoffrey Tate of Wharton--have gone beyond anecdotes. As specialists in "behavioral corporate finance," they studied the performance of 566 chief executives from 1975 to 2002. Half appeared prominently in magazines or got major business awards. The other half didn't have such high profiles, but had past company performances remarkably similar to the ones who did.

Guess what? Celebrity leads to hubris--and lower returns for shareholders. Malmendier and Tate will release the results of their study in Philadelphia tomorrow at the annual meeting of the American Economic Association. They don't name names, but here's some of what they've found:

--Return on assets at companies with "celebrity" executives deteriorated steadily for at least three years after a big award, while those with lower profiles did consistently better than the superstars.

--Award winners write more books than non-winners--autobiographies, collections of self-help advice and homespun philosophy. Ghost-written or not, they're distractions from the bottom line.

--The more awards a chief executive wins, the more boards he joins, leaving less time for his own directors.

--Superstars get bigger pay increases. Total compensation, including stock and options, rose an average 39% the year after the award, compared with an average 18% gain for the media-ignored.

It would be anecdotal, but I could give you a name or two (Fiorina and Lay), having owned the shares and watched the celebrity phenomenon take place. Not long thereafter, the stocks went into the tank.

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