CEO Reputation: A Key Factor in Shareholder Value
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Volume 3 Number 4
CEO Reputation: A Key Factor in Shareholder Value Leslie Gaines-Ross Burson-Marsteller
INTRODUCTION You need not look further than the morning newspaper or evening news to observe the tremendous influence of CEO reputations on shareholder value. Whether it is through a stock transaction, a response to a crisis, or the creation of a best-in-the-industry talent pool, a CEO’s reputation plays a significant role in determining how both internal and external audiences evaluate — and ultimately respond to — a company. This article will discuss the greater impact of CEO reputation, in light of the increased expectations of stakeholders, the proliferation of communication channels, and the demand for a broader content of messages that CEOs are delivering to their constituencies. Combined, these factors are expanding the role of today’s CEO as we know it, making CEO reputation an even more critical ingredient to a company’s success.
Corporate Reputation Review, Vol. 3, No. 4, 2000, pp. 366–370 Henry Stewart Publications, 1363– 3589
Page 366
THE POWER OF REPUTATION The powerful effect of CEO reputation on the perception of a company and its bottom-line is exemplified by ‘Maximizing CEO Reputation’, a Burson-Marsteller study revealing that CEO image continues to be a significant determinant of shareholder value. According to David Larcker, professor of accounting at the Wharton School of the University of Pennsylvania and an author of the Value Creation Index with the Ernst & Young Center for Business Innovation (Forbes ASAP, April 3, 2000), a 10 per cent change in CEO reputa-
tion in the Burson-Marsteller study results in an estimated 24 per cent change in a company’s market capitalization. Paying attention to CEO reputation pays off. Burson-Marsteller surveyed approximately 1,400 influential business people from five key stakeholder categories, including CEOs, other senior executives, financial analysts, government officials, and journalists. Comparing this survey to the first CEO reputation study BursonMarsteller published in 1997, the results reveal that the importance of CEO reputation has increased by as much as 14 per cent. Other new findings the survey revealed include: — CEO reputation can represent a staggering 45 per cent of a company’s reputation — Companies whose CEOs were rated ‘most admired’ by respondents achieved a 13 per cent annual shareholder return, while companies whose CEOs were rated less favorably delivered a negative 28 per cent annual shareholder return — 95 per cent of financial and industry analysts surveyed said they would purchase stock based upon a CEO’s reputation — an 11 per cent increase from 1997 — and 94 per cent said they would recommend a company’s stock based on the CEO’s reputation — 81 per cent of respondents said the CEO’s reputation would influence their opinion of a company under media scrutiny
Gaines-Ross
— 80 per cent of respondents said the CEO’s reputation would influence whether or not they would recommend a company as a good place to work. A marked
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