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Star Status – Blessing or Curse?

Dean Doug Guthrie introduced NYU Professor Joe Porac at the Dean’s Distinguished Lecture Series.

As part of the Dean’s Distinguished Lecture series, Joe Porac, the George Daly professor of business leadership at NYU’s Stern School of Business, focused on CEO celebrity status and how it affects the companies they work for.

“If you are singled out as a star CEO, you get paid more but your firm ultimately does worse,” said Porac.

In his lecture, “Positive and Negative Returns to Status Among Corporate and Political Elite,” Porac noted that, beginning in the 1990s, CEOs like General Electric Co.’s Jack Welch began to draw increased media attention and recognition, such as being ranked among business leaders in leading business and financial publications.

“The ’90s were a period when CEOs were portrayed as larger than life,” said Porac.

From 1990-2000, the number of articles written about CEOs in the Wall Street Journal mushroomed from 77 to 498 annually, he said, referring to a 2004 study. Most of those articles in the WSJ and three other publications (New York Times, USA Today and the Houston Chronicle) were “moderately positive,” he said.

At the same time, other CEOs gained notoriety as a result of financial scandals and wrongdoing, including Bernie Ebbers of WorldCom, who is serving a 25-year-sentence for his role in an $11 billion corporate case, and Kenneth Lay of Enron, who was found guilty of fraud and conspiracy in 2006 and died before sentencing, explained Porac.

Those CEOs who accrued good publicity— and metaphorical “performance medals” — were typically paid more on average than other business leaders. But the increase in pay was more a reflection of their celebrity than of their underlying quality or actual job performance, Porac said. Those CEOs who became superstars, like the late Steve Jobs of Apple, saw even greater gains.

“Stars get paid more, and the more of a star they are, the more they get paid,” he said.

Over time, high profiles can take their toll. Because they are famous and highly paid, star CEOs face higher expectations and are less likely to get honest feedback from peers, Porac said. They may take greater risks and become distracted from the work of steering their companies.

Companies led by luminaries also tend to do poorly relative to peer firms, in terms of stock market valuation, over the long-term, he said. Overall, these factors make star CEOs more likely to “fall from grace” than others.

Of 50 leading CEOs profiled in a 1999 book, about 26 percent had lost their jobs a decade later, Porac said. The involuntary termination rate for average CEOs was 8 percent from 1993-04, compared with 14 percent for those who’d won 3-4 medals, and 28 percent for those who’d won 5 or more.

Posted by gwsb on November 22, 2011 | Filed under: Dean,GWSB News.

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