THIS weekend, I shared a research paper showing that excessive golfing affects the performance of chief executives, (CEOs).
The reaction from some CEOs and other executives was anger. First, let me clarify that I did not do the research myself but shared a research finding from a peer-reviewed journal. What I found interesting was the reactions, and I will share my views first before I go into the research that caused such uproar.
My view of those who are angry about the post is that they must be open-minded when they receive information that does not conform to their own opinions or way of thinking.
I find it unprofessional for someone to get angry because of a research paper done by some university professors in America simply because it does not support their views.
Some came through my direct message (DM) and accused me of peddling a lie.
They said they had so much respect for me (before this post), but now that I had peddled a lie, they were withdrawing that respect. I told them to keep their respect if it is premised on me agreeing or supporting their views.
I will not do that. I will continue to share research to enable those who are open-minded to reflect and challenge the research in a way that brings better learning for everyone.
All research findings have limitations largely emanating from whether they are generalisable or not. There are other issues around research findings that readers must take note of, such as mistaking correlation with causality and issues of samples, etc.
All these do not invalidate the research. They provoke those with curious minds to dig deeper into similar or new research to get a better view of the findings. That is what I expected those who read the research paper to have done instead of being angry.
On a more practical note, how credible is a CEO who gets angry simply because a research finding does not conform to their belief and thinking? How will such a CEO be able to get contrary views from their team and allow dissenting voices?
I doubt such a CEO has that capacity. Luckily, in the post I shared on social media, I did not put my views. I just summarised the findings.
As the debate raged on, I also noticed that the same research findings were covered by top news channels such as CNBC, Business Insider, Yahoo News, Harvard Business Review, Yahoo Finance, the Washington Post, and many others. Below, I share the research and key findings.
A study by Biggerstaff, Cicero, and Puckett (2014) has uncovered a surprising link between CEOs golfing habits and their companies' performance. The research, which analysed data from 363 S P 1500 CEOs, found that CEOs, who golf frequently, tend to lead companies with lower operating performance and firm values.
The study used data from the United States Golf Association's (USGA) database, which tracks golfers' rounds and handicaps.
The researchers found that CEOs in the top quartile of golf play (22 rounds or more per year) were associated with firms that had a return on assets (ROA) more than 100 basis points lower than firms with less frequent golfing CEOs. This difference is significant, considering the sample mean ROA was just over 5,3%.
Furthermore, the study found that companies with CEOs in the top quartile of golf play
had Tobin's Q values nearly 10% lower than similar firms. Tobin's Q is a measure of a company's market value relative to its assets' replacement cost, and a lower value suggests that investors view the company as less valuable.
Additionally, the study found that CEOs tend to play more golf as their tenure increases, potentially indicating increased shirking behaviour by entrenched CEOs. However, the study also found that CEOs are more likely to be replaced when they consume more leisure, especially in firms with more independent boards or when the CEO has a shorter tenure.
This suggests that boards may be more willing to discipline CEOs who prioritise leisure over work. The study also found a high persistence in frequent golfing by CEOs, particularly those with longer tenures and in firms with less independent boards, highlighting the potential for persistent shirking behaviour in such cases.
The study also found that CEOs' golfing habits were related to their equity-based incentives. CEOs with lower equity stakes in their companies tended to golf more frequently.
This finding suggests that aligning CEOs' financial interests with those of shareholders could help to reduce shirking behaviour.
Implications for boards
The study's findings have important implications for both CEOs and board members.
For CEOs, the research serves as a reminder that their actions and behaviours are under scrutiny, and excessive leisure activities could negatively impact their companies' performance and value.
CEOs should strive to maintain a healthy work-life balance, but they must also prioritise their responsibilities to their companies and shareholders.
For board members, the study highlights the importance of monitoring CEO behaviour and ensuring that CEOs are appropriately incentivised to prioritise the company's interests.
Boards should consider setting clear expectations for CEO behaviour and performance, and they should be prepared to take action if CEOs are not meeting those expectations.
Why does golfing matter?
The researchers argue that time spent on the golf course is a reasonable proxy for leisure consumption.
They point out that golf is a time-consuming activity, often taking more than four hours per round, not including travel and practice time.
Additionally, many CEOs list golf as their preferred leisure activity.
The study's findings raise concerns about the potential for CEOs to shirk their responsibilities when they prioritise leisure over work.
While some golf rounds may serve a legitimate business purpose, the researchers argue that the excessive golf play by some CEOs is unlikely to be entirely justified by business needs.
Conclusion
The research by Biggerstaff, Cicero, and Puckett (2014) provides valuable insights into the relationship between CEO behaviour, incentives, and firm performance.
While the study focuses on golfing as a measure of leisure, its findings have broader implications for understanding how CEOs' personal choices can impact their companies. By understanding these dynamics, boards and CEOs can work together to create a corporate culture that prioritises both performance and well-being.
Once again, if you disagree with the research findings, that is perfectly fine.
- Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. — https://www.thehumancapitalhub.com or e-mail: mnguwi@ipcconsultants.com.
