Does your company’s top executive brag about being a scratch golfer? Are they as consumed with their putting as they are with profits? If they’re obsessed with their short game, they may drive their company into the rough by not being focused enough on the long game aspects of their business.
Harbert College finance professor David Cicero and colleagues at Miami University and the University of Tennessee found a strong correlation between underperforming companies and CEOs who spend a lot of time on the golf course. Their 2016 study, which appeared in Management Science as well as Harvard Business Review, examined the golfing habits of more than 350 CEOs of S&P 1500 companies between 2008 and 2012 who maintained a handicap with the United States Golf Association.
On average, they found that CEOs play 16 rounds of golf each year. The bottom quartile may play no more than one round per year, while the top quartile averages more than 40. The latter number may get the attention of shareholders of publicly traded companies because the CEOs who played the most golf were commonly associated with lower average returns on assets and lower market capitalization.
“… CEOs that play golf frequently are associated with firms that have lower operating performance and firm value,” the co-authors wrote. In the case of “shirking” CEOs, they found that “the firms with CEOs who play the most golf are less profitable.”
Their findings earned media mentions from the Washington Post, Chicago Tribune, San Jose Mercury News and other outlets. While several media outlets cited the study in stories tracking presidential golfing habits, the co-authors suggested that attempts to make links between what happens between executive boardrooms and the Oval Office are, speaking as a golfer, bound to land in the rough. The federal government doesn’t worry about market capitalization, for one. Secondly, presidents don’t receive bonuses or other incentives for exemplary job performance.
CEOs are less likely to play golf if their pay is more closely connected to performance incentives.
Cicero and his co-authors used the story of Bear Stearns to reinforce the significance of their findings. In July 2007, while two of the firm’s hedge funds were failing, CEO James Cayne spent 10 working days on the golf course or at a card table playing bridge. The attention he devoted to his backswing, according to the researchers may have been “extreme” but “was not as anomalous as one might have hoped.”