Value Starts at the Top

My colleague Robert Reiss studies CEOs — especially their successes and failures — in order that others might benefit from them.  His Internet show The CEO Show produces interviews from these CEOs on leadership, and how they make their organizations ‘tick’.  His book (with Jeffrey J. Fox) The Transformative CEO (McGraw-Hill, 2012) gathers some of their stories, principles, and accomplishments.CEO Show

Robert characterizes the CEO’s primary job as getting the organization from here to there.  Whatever resources are required to do that, it’s his or her job to make sure they’re in place — fully resourced, focused, and firing on all cylinders.

Robert sensed intuitively that the CEOs he interviewed on his show were adding substantial value to their organizations.   But was what seemed subjectively true also objectively verifiable?  When Robert wanted an independent test of his hypothesis, he turned to The Knowledge Agency®.

The TKA test

TKA devised a test using a widely-accepted benchmark — the change in the stock price during their respective tenures as CEO.  But market conditions were very different over the differing time frames we tested — even staying flat in a down market like that of 2008-09 would be judged superior. To adjust for such variations, we gauged the results against the return from the overall market, as measured by the return on the S&P 500.

So our benchmark metric was stock price return in excess of the return from the S&P 500.  We tested the eleven of Robert’s ‘transformative’ public companies having market capitalizations over $1 billion.

The envelope, please

The results were astonishing.   As shown in the table, the median gain was 44 percent over the benchmark, with the range from a slight loss against the benchmark to an excess gain of more than 5400 percentage points.  These results were for periods of time ranging from 5-23 years.

CEO chart shadows

Only one company (Xerox) did not beat the market over the CEO’s tenure — and on further examination we found that in fact it did for most of that CEO’s tenure, until the sharp recession of 2008-09.

Click here to download a short article from The CEO Forum magazine based on TKA’s Transformative CEO study.

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    COMPETING IN THE KNOWLEDGE ECONOMY is written by Timothy Powell, an independent researcher and consultant in knowledge strategy. Tim is president of The Knowledge Agency® (TKA) and serves on the faculty of Columbia University's Information and Knowledge Strategy (IKNS) graduate program.

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