The best way to judge a CEO’s worth is to watch what happens when they suddenly drop dead

For whom the bell tolls.
For whom the bell tolls.
Image: Reuters/Phil Noble
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Craig Crossland, a professor at Notre Dame’s business school, has been working with a unique—and uniquely macabre—dataset. Between 1950 and 2009, he and his counterparts at the University of Georgia have identified 240 CEOs at US public companies who suddenly dropped dead.

Grim, yes, but also an incredibly useful way to measure the influence that company bosses have on their firms’ performance. It is, as described in Crossland and his colleagues’ forthcoming paper in the Strategic Management Journal, “the cleanest possible test” of a CEO’s significance—here one day, gone the next. (CEOs with known illnesses or other health issues were excluded from the sample.)

Crossland describes himself as “healthily skeptical” of the notion of the “super leader,” which seems to be gripping the markets, media, and general public. (For proof, search the web for “Elon Musk.”) “We don’t tend to give enough credence to randomness,” Crossland says.

The data confirm his suspicions.

Over time, moves in the average company’s share price in the days following its CEO’s death have grown larger in absolute terms, after stripping out other market factors. This, in a way, proves that shareholders think CEOs have become more important for the fortunes of their firms.

As you would expect, a company’s stock generally falls on news of the CEO’s unexpected death. But sometimes it also goes up, and here’s where it gets really morbid: positive reactions to a boss’s demise tend to be bigger than negative ones. That is, investors are happier about the death of a bad CEO than they are sad about the passing of a good one.

“When you have a dud, the market is more worried than it used to be,” Crossland says. This follows from the finding that CEOs seem to exert more influence on company performance than ever. Crossland reckons that outsized pay packages laden with stock options could be a factor. “We’ve seen a linear increase in how important CEOs are and an exponential increase in their compensation,” he says.

CEOs seeking big payouts are incentivized to make aggressive moves, reaping the rewards if they pay off but suffering little downside if they don’t. Since it’s easier to destroy value than create it, a bad CEO acting recklessly is more dangerous than a smart CEO acting strategically is advantageous. Also, part of being a good CEO is nurturing the talent around you, which makes for smoother successions, whether planned or not.