The Economic Relevance Of Chief Marketing Officers In Firms Top Management Teams

John Abernathy,Adi Masli,Tom Kubick

doi:10.19030/jber.v11i12.8263

John Abernathy, Adi Masli + Show 1 more

Open Access

https://doi.org/10.19030/jber.v11i12.8263

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Abstract

Management theory suggests that the presence of the Chief Marketing Officer in the Top Management Team reflects a corporate emphasis on marketing and customer relations. Finance theory suggests that this emphasis should translate into additional shareholder wealth. However, prior research has failed to document such a relationship. Using performance attribution analysis, the authors construct a long-short portfolio that buys (sells) stocks of firms with (without) a Chief Marketing Officer in the Top Management Team and find this investment strategy would have earned risk-adjusted excess returns of approximately 3%. Additional analyses suggest the value of having a Chief Marketing Officer in the Top Management Team manifests primarily among firms with high operating margin, low asset turnover, high profitability, high R&D intensity and high advertising expenses. The authors conclude that having a Chief Marketing Officer in the Top Management Team has a positive impact on shareholder wealth.

Highlights

T he Chief Marketing Officer’s (CMO’s) roles include understanding and delivering value to customers, developing and pricing products, and measuring marketing’s contribution to the business in relevant and quantifiable terms (Nath and Mahajan, 2008; 2011; Boyd, Chandy, and Cunha, 2010; IBM, 2011)
When we partition the portfolio further to investigate the specific roles played by the CMO, we find the statistically positive alpha manifests among firms with high operating margin, low asset turnover, high profitability, high research and development (R&D) expense, and high advertising expense, all channels through which prior research suggests the CMO exercises considerable influence.[1]
The purpose of this study is to examine whether having a CMO in the top management team (TMT) contributes to firm value

Summary

Introduction

T he Chief Marketing Officer’s (CMO’s) roles include understanding and delivering value to customers, developing and pricing products, and measuring marketing’s contribution to the business in relevant and quantifiable terms (Nath and Mahajan, 2008; 2011; Boyd, Chandy, and Cunha, 2010; IBM, 2011). In a recent survey by Fournaise Marketing Group (2011), 73% of CEOs believe that marketers lack business credibility, are not effective enough in generating incremental customer demand, and are not business growth generators. In this sense, a majority of CEOs doubt whether CMOs are able to demonstrate how the marketing strategies and campaigns they deploy grow their organizations’ top line in terms of customer demand, sales, prospects, conversions or market share. CMO Importance within the Organization “Today’s customers can shop around the globe, find out more than ever before about the organizations they’re dealing with, and share their views with hundreds of thousands, if not millions, of fellow customers Their expectations — be they consumers, citizens or business customers — are soaring. Financial theory supports the value relevance of marketing because marketing impacts the shape of the probability distribution of future sales revenues (Rao and Bharadwaj, 2008; Kumar and Shah, 2009)

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