Benefits and Costs of CEO Celebrity^[1]

“Fame is other people’s perception of who you are,” said Oprah Winfrey. “In order to remain true to who you are, you have to be aware of it, but you can’t buy into it.”

The word celebrity quickly brings to mind actors, sports stars, and musicians. Some CEOs, such as Bill Gates, Oprah Winfrey, Martha Stewart, and Donald Trump, also achieve celebrity status. Celebrity CEOs are not a new phenomenon. In the early 20th century, industrial barons such as Henry Ford, John D. Rockefeller, and Cornelius Vanderbilt were household names. However, in the current era of mass and instant media, celebrity CEOs have become more prevalent and visible. Ryerson University and McGill University were named after benefactors (Egerton Ryerson and James McGill) who established those schools which now serve as their legacies.

Both benefits and costs are associated with CEO celebrity. CEO celebrity can serve as an intangible asset for the CEO’s firm and may increase opportunities available to the firm. Hiring or developing a celebrity CEO may increase stock price, enhance a firm’s image, and improve the morale of employees and other stakeholders. However, employing a celebrity CEO also entails risks for an organization. Increased attention to the firm via the celebrity CEO means any gaps between actual and expected firm performance are magnified. Further, if a celebrity CEO acts in an unethical, inappropriate or illegal manner, chances are that the CEO’s firm will receive much more media attention than will other firms with similar problems.

There are also personal benefits and risks associated with celebrity for the CEO. Celebrity CEOs tend to receive higher compensation and job perks than their colleagues. Celebrity CEOs are likely to enjoy increased prestige power, which facilitates invitations to serve on the boards of directors of other firms and creates opportunities to network with other “managerial elites.” Celebrity also can provide CEOs with a “benefit of the doubt” effect that protects against quick sanctions for downturns in firm performance and stock price. However, celebrity also creates potential costs for individuals. Celebrity CEOs face larger and more lasting reputation erosion if their job performance and behaviour is inconsistent with their celebrity image. Celebrity CEOs face increased personal media scrutiny, and their friends and family must often endure increased attention into their personal and public lives. Accordingly, wise CEOs will attempt to understand and manage their celebrity status.

Types of CEOs

Icons are CEOs possessing both fame and strong reputations. The icon CEO combines style and substance in the execution of their job responsibilities. Mary Kay Ash, Richard Branson, Bill Gates, and Warren Buffett are good examples of icons. The late Mary Kay Ash founded Mary Kay Cosmetics Corporation. The firm’s great success and Ash’s unconventional motivational methods, such as rewarding sales representatives with pink Cadillacs, made her famous. Partly because she emphasized helping other women succeed and ethical business practices, Mary Kay Ash also had a very positive reputation.

Similarly, Richard Branson has created an empire with more than 400 companies, including Virgin Atlantic Airways and Virgin Records. Branson’s celebrity status led him to star in his own reality-based show. He has also appeared on television series such as Baywatch and Friends, in addition to several cameo appearances in major motion pictures. Bill Gates, founder and former CEO of Microsoft, also has fame and a largely positive reputation. Gates is a proverbial “household name” in the tradition of Ford, Rockefeller, and Vanderbilt. He also is routinely listed among Time magazine’s “100 Most Influential People” and has received “rock star” receptions in India and Vietnam in recent years.

Warren Buffett is perhaps the best-known executive in the United States. As CEO of Berkshire Hathaway, he has accumulated wealth estimated at $62 billion and was the richest person in the world as of March 2008. Buffett’s business insights command a level of respect that is perhaps unrivaled. Many in the investment and policymaking communities pay careful attention to his investment choices and his commentary on economic conditions. Despite Buffett’s immense wealth and success, his reputation centers on humility and generosity. Buffett avoids the glitz of Wall Street and has lived for fifty years in a house he bought in Omaha, Nebraska, for $31,000. Meanwhile, his 2006 donation of approximately $30 billion to the Bill and Melinda Gates Foundation was the largest charitable gift in history.

Galen Weston is perhaps the best-known executive in Canada.  As Executive Chairman of George Weston Limited, a leading food processing and distribution company. W. Galen Weston and family, with an estimated net worth of US$8.9 billion, are listed as the second wealthiest in Canada and 147th in the world by Forbes magazine (Forbes, 2014). Galen Weston, Jr. the current executive chairman of the Loblaw Companies Limited has been featured in a series of television and radio ads for Loblaw’s, which focus on the company’s recent push toward the use of environmentally friendly products and packaging (Celebrity Net Worth, 2104).

Scoundrels

CEOs who display high levels of relative fame but low levels of reputation are in the group called scoundrels. These CEOs are well known but vilified. The late Leona Helmsley was a prototypical scoundrel. Leona Helmsley’s life was a classic rags-to-riches story. Born to immigrant parents, Helmsley became a billionaire through her work as the head of an extensive hotel and real estate empire. While certainly famous, her reputation was anything but positive, as reflected by her nickname: the Queen of Mean. During Helmsley’s trial for tax fraud, her housekeeper quoted her as proclaiming, “We don’t pay taxes. Only the little people pay taxes.” Following twenty-one months in jail, Helmsley was required to perform 750 hours of community service. One hundred fifty hours were added to this sentence after it was discovered that employees had performed some of her service hours. Helmsley’s apparent arrogance, combined with her cruelty to employees and her reputation as the ultimate workplace bully, cemented her position as a scoundrel.

The corporate governance scandals of the early 2000s revealed several CEOs as scoundrels. Perhaps the best known were Kenneth Lay and Dennis Kozlowski. Both men rose to prominence as their firms’ success and stock prices soared but were undone by dubious activities. Lay was once revered as the son of a poor minister who founded Enron and built it into a giant in the energy business. In 2001, however, he became the face of corporate abuses in the United States after Enron’s collapse led to scenes, captured on television, of employees left jobless and with retirement accounts full of worthless Enron stock. Lay was convicted of fraud in 2006 but died before sentencing. Helmsley died in 2007 and turned her back on relatives to bequeath the bulk of her estate, $12 million, to her dog. (James, 2011)

Bre-X was a group of companies in Canada that came to fame in the 1990s. A major part of the group, Bre-X Minerals Ltd. based in Calgary, was involved in a major gold mining scandal when it reported it was sitting on an enormous gold deposit at Busang, Indonesia (on Borneo). Bre-X bought the Busang site in March 1993 and in October 1995 announced significant amounts of gold had been discovered, sending its stock price soaring. Originally a penny stock, its stock price reached a peak at C$286.50 (split adjusted) in May 1996 on the Toronto Stock Exchange (TSE), with a total capitalization of over C$6 billion. Bre-X Minerals collapsed in 1997 after the gold samples were found to be a fraud (Wikipedia, 2014).

Hidden Gems

Hidden gems are CEOs who lack fame but possess positive reputations. These CEOs toil in relative obscurity while leading their firms to success. Their skill as executives is known mainly by those in their own firm and by their competitors. In many cases, the firm has some renown due to its success, but the CEO stays unknown. For example, consider the case of Anne Mulcahy. Mulcahy, CEO of Xerox, started her career at Xerox as a copier salesperson. Despite building an excellent reputation by rescuing Xerox from near bankruptcy, Mulcahy eschews fame and publicity. While being known for successfully leading Xerox by example and being willing to fly anywhere to meet a customer, she avoids stock analysts and reporters.

Silent Killers

Silent killers  are the fourth and final group of CEOs. These CEOs are overlooked and ignored sources of harm to their firms. While scoundrels are closely monitored and scrutinized by the media, it may be too late before the poor ethics or incompetence of the silent killers is detected. In this sense, silent killers are sometimes worse than scoundrels. One example of silent killers is illustrated by the Nortel scandal of the late 2000s. The global telecom giant Nortel Networks Corp. was once Canada’s most valuable company, with 90,000 employees, and stock that was trading —at its peak — at more than $124.50 a share. The firm was worth nearly $300 billion at its height, and it accounted for as much as one-third of the value of the S&P/TSX composite index at its peak.

Former chief executive Frank Dunn, former CFO Douglas Beatty, and former controller Michael Gollogly were accused of defrauding the company and its investors. The company eventually collapsed under the weight of the accounting scandal and the bursting of the technology bubble.

In 2009, Nortel began bankruptcy proceedings. In the ensuing years, the company’s assets have been sold off piecemeal, raising almost $8 billion to pay back creditors.

The judge said the Crown did not meet the burden of proof required to find the three men guilty, and they were acquitted in 2013 (CBC, 2013). Shareholders and Nortel pensioners lost billions in the process.

Strategy at the Movies

Iron Man

Has Tony Stark gone crazy? This was the question that many stakeholders of Stark Industries were asking themselves in the 2008 blockbuster Iron Man. Tony Stark, CEO of Stark Industries, stunned his shareholders, employees, and the world when he announced that he was changing Stark Industries’ mission from being one of the world’s leading weapons manufacturers to being a socially responsible, clean energy producer.

Following his announcement, Stark faced fierce opposition from his board of directors, employees, the media, and clients such as the U.S. military. The changes at Stark Industries attracted tremendous attention in part because of the glamorous Stark’s status as a celebrity CEO. Initially, Stark is seen by the public as a scoundrel that pays little attention to the social impact his company makes. After shifting the direction of Stark Industries, however, Stark is viewed as an icon that is just as attentive to the social performance of the company as he is to its financial performance. Iron Man illustrates that while changing elements such as firm mission and CEO status is difficult, it is not impossible.

Celebrity Rehabilitation

For celebrity CEOs, anything they say or do can and often will show  up on the front page of a national daily newspaper or nightly news. Thus, they need to be much more conscious about the implications of everything that they say or do in all situations.

Achieving the level of success that brings about celebrity status is seldom a completely smooth process. Even well-regarded celebrity CEOs seldom have totally untarnished reputations. Bill Gates has been  on U.S. national TV, speaking out and defending himself against some of Steve Jobs’ most biting digs, including that Gates wasn’t creative or innovative. Among the quotes in the biography Steve Jobs, author Walter Isaacson quotes Jobs saying of Gates: “Bill is basically unimaginative and has never invented anything, which is why I think he’s more comfortable now in philanthropy than technology. He just shamelessly ripped off other people’s ideas.” Gates tactfully rebutted the scathing comments (Kerns, 2011).

Similarly, the public and personal life of Rob Ford, Mayor of Toronto, has been splashed across national and international media.

What should a CEO do when their reputation takes a hit? As the old saying goes, honesty is the best policy. Stephen Harper stood in the House of Commons in 2008 to say sorry to former students of native residential schools — in the first formal apology from a Canadian prime minister over the federally financed program.

“Mr. Speaker, I stand before you today to offer an apology to former students of Indian residential schools,” Harper said in Ottawa, surrounded by a small group of Aboriginal leaders and former students, some of whom wept as he spoke.

“The treatment of children in Indian residential schools is a sad chapter in our history.

“Today, we recognize that this policy of assimilation was wrong, has caused great harm, and has no place in our country,” he said to applause.

“The government now recognizes that the consequences of the Indian residential schools policy were profoundly negative and that this policy has had a lasting and damaging impact on Aboriginal culture, heritage and language,” Harper said.

The government formalized a $1.9-billion compensation plan for victims. The government has also established a truth and reconciliation commission to examine the legacy of the residential schools.

Former Liberal Prime Minister Jean Chrétien offered a statement of reconciliation on behalf of the government in 1998, although it was largely rejected by members of the Aboriginal community as lip service (CBC, 2008).

References

CBC News.  (2011, June 8). PM cites ‘sad chapter’ in apology for residential schools.  Retrieved from http://www.cbc.ca/news/canada/pm-cites-sad-chapter-in-apology-for-residential-schools-1.699389

CBC News.  (2013, January 14). 3 former Nortel executives acquitted in fraud trial.  Retrieved from http://www.cbc.ca/news/business/3-former-nortel-executives-acquitted-in-fraud-trial-1.829361

Celebrity Net Worth.  (2014). Galen Weston Jr. Net Worth.  Retrieved from Celebrity Net Worth website  http://www.celebritynetworth.com/richest-businessmen/ceos/galen-weston-jr-net-worth/

James, S. D. (2011, June 10).  Leona Helmsley’s Little Rich Dog Trouble Dies in Luxury. ABC News. Retrieved from http://abcnews.go.com/US/leona-helmsleys-dog-trouble-richest-world-dies-12/story?id=13810168

Forbes Magazine. (2014). The World’s Billionaires.  Retrieved from http://www.forbes.com/billionaires/list/#tab:overall[

Kerns, J.  (2011, November 1). Bill Gates defends himself against Steve Jobs insults.  Bonneville International. Retrieved from http://mynorthwest.com/108/570532/Bill-Gates-defends-himself-against-Steve-Jobs-insults

Ketchen, D., Adams, G., & Shook, C. 2008. Understanding and managing CEO celebrity. Business Horizons, 51(6), 529–534.

Pace, R.  (2013, August 11). Oprah on Dealing with Fame. Retrieved from Etonline website  http://www.etonline.com/news/137107_Oprah_on_Dealing_with_Fame/

Wikipedia Foundation. (2014). Bre-X. Retrieved from http://en.wikipedia.org/wiki/Bre-X