If your stock portfolio hasn’t been performing well recently, there could be one simple reason: Too many CEOs are playing too much golf.
A new study, “FORE! An Analysis of CEO Shirking,” published on the Social Science Research Network, found that CEOs of U.S. public companies who choose leisure over hard work aren’t maximizing shareholder value. As a result they are failing their company and their investors.
“CEOs that golf frequently are associated with firms that have lower operating performance and firm values,” the study concluded in analyzing the golfing habits of a subset of the Standard & Poor’s 1500 index.
“In years where the CEO played 22 or more rounds, which corresponds to the top quartile of observations, the mean return on assets is more than 100 basis points lower than the return on assets (ROA) of firms where the CEO played less frequently.”
Led by Lee Biggerstaff of the department of finance at Miami University of Ohio, the study also found strong evidence that CEOs play fewer rounds of golf when they have higher stock ownership and when their own personal wealth is tied more closely to firm performance.
While boards are more likely to replace the chief executives who “shirk,” CEOs with air-tight contracts and weak boards are less likely to hang up their clubs.
“A significant fraction of public company CEOs do not work as hard as they could to maximize returns to shareholders, and the costs of their leisure consumption to shareholders is substantial,” the study concluded.
So what should a board of directors do? A slap on the wrist won’t hurt much, especially if the CEO is wearing a Titleist Players Golf Glove. Maybe boards of directors should add a tee time-limit clause in the next CEO’s contract. Then hope that she doesn’t take up tennis!
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