When do Chief Marketing Officers Affect Firm Value? A Customer Power Explanation

Abstract

Recent discussions in academic literature and the business press often paint an unflattering picture of the contributions of chief marketing officers (CMOs) to the financial value of their firms. Some even suggest that CMOs, despite being the marketing leaders in firms, have little or no effect on firm performance. However, formal empirical research on the impact of CMOs on financial performance is scarce. This article presents conceptual arguments and empirical evidence about this controversial issue. The authors suggest that CMOs are far from irrelevant to the financial performance of firms. However, the impact of CMOs on financial performance is highly contingent on the managerial discretion available to them. Focusing on the role of customer power in limiting the managerial discretion available to CMOs, this study identifies individual and firm-specific conditions in which CMOs contribute more or less to firm value. Analyses of abnormal stock returns associated with the appointment of CMOs provide support for the hypothesized effects of customer power and managerial discretion.

The copycat CMO: firms’ imitative behavior as an explanation for CMO presence

“…The second, larger group of studies uses CMO-related constructs to explain firm outcome variables. Some of these studies examine the relationship between CMO presence and various measures of firm performance (Boyd et al 2010;Germann et al 2015;Nath and Mahajan 2008;Nath and Mahajan 2011), while others link CMO characteristics (e.g., education) to firm-related outcomes (Homburg et al 2014;Wang et al 2015;Wang et al 2016), examine how CMO compensation is related to firm performance (Bansal et al 2016;Kim et al 2016), or consider the influence of CMO presence on marketingrelated decisions (Boyd and Brown 2012;Mintz and Currim 2013). In the small third group of CMO-related studies in the marketing literature, which examines the CMO's situation, Nath and Mahajan (2011) find that several contingencies impact the CMO's influence in the TMT, Engelen et al (2013) identify social capital as one of the drivers of CMO influence, and Nath and Mahajan (2017) identify drivers of CMO turnover.…”

“…The literature links the CMO position to several favorable firm characteristics, including the firm's market orientation and marketing capabilities (Feng et al 2015;Frösén et al 2016). The CMO position has also been related to the firm's management of external stakeholders like customers and alliance partners (Boyd et al 2010;Krush et al 2015) and to strategic orientations that depend on identifying and exploiting market opportunities, clearly positioning the firm in its environment. As for herding models, they posit that firms react to information asymmetry by following the Bherd^in adopting a practice (Abrahamson and Rosenkopf 1997).…”

“…We propose that the presence of a CMO on the TMT can be the result of herding. Although the CMO's direct performance impact has long been subject to discussion (Boyd et al 2010;Germann et al 2015), certain firm characteristics that the CMO represents, such as increased marketing capabilities and market orientation, are likely to be valueenhancing (Feng et al 2017;Frösén et al 2016;Morgan et al 2009). Empirical research provides evidence of this effect for both herding models (Basdeo et al 2006;Delios et al 2008;Head et al 2002).…”

“…contributions claiming that the CMO's strength on the TMT should be high and others sharply criticizing the CMO position (Kerin 2005;McGovern and Quelch 2004). The academic literature has not been clear either, which Boyd et al (2010) illustrate by referring to the CMO as an Benigmatic creature^(p. 1147). Only recently do Germann et al (2015) find that CMO presence robustly and positively impacts firm performance.…”

Impact of corporate social responsibility intensity on corporate reputation and financial performance of Indian firms

“…Yau et al (2007) opined that a company should be in a position to predict, understand and possibly control customer needs and tastes. Managers acknowledge that major customers are the driving force behind numerous activities performed by firms (Boyd et al 2010). Customer needs should therefore be properly responded to, for better performance.…”