{"id":405,"date":"2018-10-23T07:08:57","date_gmt":"2018-10-23T07:08:57","guid":{"rendered":"https:\/\/tenttis.shh.fi\/drupmigr\/index.php\/2018\/10\/23\/appointing-a-ceo-with-marketing-expertise-increases-the-companys-profitability-and-market-value\/"},"modified":"2018-10-23T07:08:57","modified_gmt":"2018-10-23T07:08:57","slug":"appointing-a-ceo-with-marketing-expertise-increases-the-companys-profitability-and-market-value","status":"publish","type":"post","link":"https:\/\/blogs.hanken.fi\/cers\/2018\/10\/23\/appointing-a-ceo-with-marketing-expertise-increases-the-companys-profitability-and-market-value\/","title":{"rendered":"Appointing a CEO with marketing expertise increases the company\u2019s profitability and market value"},"content":{"rendered":"
\n
\n
\n
\n

Boards of Directors at large companies ponder more and more often, whether to hire a CEO with marketing background. Companies\u2019 owners and Nomination Committees, in turn, are considering whether to appoint more Board Members with marketing expertise.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

A recently published study on U.S. stock exchange listed companies (S&P 500) provides interesting answers and insights to both questions. The study was conducted by Kimberly Whitler, Ryan Krause, and Donald Lehmann (WKL), from University of Virginia, Texas Christian University, and Columbia University, <\/i>respectively.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

<\/p>\n

\"american-colleagues-digital-device-1437540.jpg\"<\/p>\n

\u00a0<\/p>\n

Question by company Boards: Does it pay off to hire a CEO with marketing background?<\/span><\/span><\/span><\/b><\/span><\/span><\/span><\/p>\n

Somewhat against the conventional wisdom that CEOs with marketing background would help the company grow, WKL\u2019s study finds that appointing such a CEO does not <\/i>necessarily accelerate the company\u2019s topline revenue growth. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

However, WKL\u2019s results indicate an even more crucial reason for companies\u2019 Boards to consider hiring a CEO with marketing background. Namely: such a hire enhances the company\u2019s Return on Assets (ROA) as well as its market value, relative to book value (Tobin\u2019s q).<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Statistically, WKL find that appointing a CEO with marketing background increases the company\u2019s market value relative to book value by 15 percentage points as well as ROA by 1.6 percentage points. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

As an explanation to this finding, appointing a CEO with marketing background helps the company utilize and leverage its existing resources and assets (e.g., brands, customer knowledge, technological competence). In practice, this may occur by, e.g., developing products and services of higher margins and strengthening the brands\u2019 pricing power.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Although appointing a CEO with marketing background does not seem to accelerate topline revenue growth, its positive effect on ROA and market value give a good reason for Boards to consider hiring CEOs with marketing background more often than today. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u00a0<\/p>\n

Question by Shareholders and Nomination Committees: Does it pay off to appoint Board Members with marketing background?\u00a0 <\/span><\/span><\/span><\/b><\/span><\/span><\/span><\/p>\n

In contrast to appointing CEOs with marketing background, appointing Board Members with marketing background enhances, according to WKL\u2019s results, first and foremost the company\u2019s topline revenue growth. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Statistically, adding one Board Member with marketing background was found to enhance the company\u2019s topline revenue growth by 8 percentage points \u2013 from an average of 5% to 13%. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Why does adding Board Members with marketing background then enhance revenue growth, in particular? WKL\u2019s explanation is that the education and career of persons who have a background in marketing, has prepared them for identifying growth opportunities for the company, as well as for prioritizing growth objectives to other objectives. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

On the contrary, Board Members representing so called throughput functions \u2013 like production, accounting, finance, law, or administration \u2013 typically prioritize and primarily strive for enhancing the organization\u2019s efficiency, and cost cutting, instead of growth. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Yet, the influence that Board Members with marketing background have on topline revenue growth naturally depends on the degree to which they can affect the decisions of the Board, along with other Board Members, as well as on the degree to which the Board can influence the growth targets of the company\u2019s executive top management team. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Correspondingly, WKL\u2019s results show that Board Members with marketing background are especially beneficial for the company\u2019s growth when the industry\u2019s growth rate is low and when the company\u2019s own market share development has been weak. The reason is that in conditions of low industry growth rate as well as weak market share development, the added value of marketing expertise on the Board is greater \u2013 because the industry growth or market share development trend do not help or support the company\u2019s revenue growth \u201cautomatically\u201d.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Appointing Board Members with marketing background also benefits the company\u2019s revenue growth to a greater extent when the Board has fewer members with finance background \u2013 as well as when the CEO and the Chairman are the same person. The latter solution can, however, be questioned with regard to good governance practices.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u00a0<\/p>\n

As a summary, it is worthwhile for Boards of Directors at stock exchange listed companies to consider appointing CEOs with marketing background more often, since this improves, according to WKL\u2019s results, the company\u2019s Return on Assets as well as market value relative to book value. For companies\u2019 owners and Nomination Committees, in turn, it is worthwhile to consider appointing more Board Members with marketing background, in particular when the company has a topline growth problem \u2013 and even more particularly, if the industry\u2019s growth rate is low or the company\u2019s previous market share development weak. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

To conclude, still, it must be emphasized that in WKL\u2019s study, marketing background and expertise do not <\/i>primarily refer to the persons\u2019 expertise in advertising, marketing communication, and PR. Instead of mere marketing communications and PR, marketing compentence is considered to refer primarily to the person\u2019s general ability to understand customer behaviors, and to help companies therefore create such products, services, and customer experiences that have the ability to favorably change customer behavior.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u00a0<\/p>\n

Jaakko Aspara and Anne Korkiakoski<\/span><\/span><\/i><\/span><\/span><\/span><\/span><\/p>\n

\u00a0<\/p>\n

Reference:<\/span><\/span><\/b> Whitler, Kimberly A., Ryan Krause, & Donald R. Lehmann (2018), \u201cWhen and How Board Members with Marketing Experience Facilitate Firm Growth\u201d. Journal of Marketing, <\/i>82 (September) 86-105.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Photo by rawpixel.com from Pexels<\/p>\n

\u00a0<\/p>\n

About the authors <\/span><\/span><\/b><\/span><\/span><\/span><\/span><\/p>\n

Jaakko Aspara<\/a> is Vice-Rector, Dean of Research, at Hanken School of Economics, as well as C. Gr\u00f6nroos Professor and Head of Department at the Department of Marketing. <\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Anne Korkiakoski is a Board Member of several large companies as well as SMEs; she was formerly the CMO of the world\u2019s top 4 elevator and escalator company, Kone Corporation.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Boards of Directors at large companies ponder more and more often, whether to hire a CEO with marketing background. Companies\u2019 owners and Nomination Committees, in turn, are considering whether to appoint more Board Members with marketing expertise. A recently published study on U.S. stock exchange listed companies (S&P 500) provides interesting answers and insights to …<\/a><\/p>\n","protected":false},"author":12,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-405","post","type-post","status-publish","format-standard","hentry","category-cers-blog"],"_links":{"self":[{"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/posts\/405","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/comments?post=405"}],"version-history":[{"count":0,"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/posts\/405\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/media?parent=405"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/categories?post=405"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.hanken.fi\/cers\/wp-json\/wp\/v2\/tags?post=405"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}