Old CEOs Kill Shareholder Value
Daniel Drew, 1/14/2015
"Young people are just smarter." - Mark Zuckerberg, at age 22.
What makes a great CEO? Is it the vision, ambition, and risk-taking of the younger generation? Or is it the wisdom, strategy, and risk management of the veterans? It's a little of both actually.
The CEO path goes like this:
1. Inspire loyalty, and then betray those who have given it to you for personal gain.
Now we have research that shows stockholders are most rewarded if they stay close to the CEOs when they are in their arrogant primes. I can't help but wonder if there is a survivorship bias issue in these results, but I can't argue against this data. Matthew Serfling, doctoral candidate at Eller College of Management, has crunched the numbers for us, and the young guns have a clear edge:
"I find that a trading strategy that goes long in a portfolio of stocks consisting of firms managed by younger CEOs and short in a portfolio of stocks comprised of firms led by older CEOs would generate positive risk-adjusted returns."
According to Serfling's numbers, an investor gains 43.8 basis points of alpha per month with this strategy. He says older CEOs invest less in research and development, make more diversifying acquisitions, and maintain lower operating leverage. To summarize, they don't care about shooting the lights out because they want to make sure the company has enough cash on hand to pay them their severance package.
If you want confirmation of Serfling's conclusions, look no further. Randy Adams, a verified old person, wanted to be a tech boss in Silicon Valley. He spammed out his resume like a desperate 99 percenter only to be rejected by the labor-law-violating punks in hooded sweatshirts and blue jeans. Not used to this kind of failure, Adams shaved off his gray hair and wore Converse shoes. He got the job.