When CMOs become CEOS

CMOs’ status within the corporate hierarchy is a contested subject at the moment.

In a report published in September, The Marketing Directors argued that the influence of marketing within companies has grown over the past thirty years because, among other things, their data showed 70% of FTSE100 firms now have meaningful marketing expertise at board or senior-management level.

Meanwhile, Mark Ritson used a different data point from the same report — that no FTSE100 company has a conventional marketing director on its board — to make the opposite point. It is precisely because marketing has ceded control of things like pricing and product design to other departments, wrote Ritson, that companies are adding words like ‘growth’ and ‘commercial’ to senior marketers’ titles to give them gravitas. Marketing by itself is no longer enough to earn the respect of the board, he concluded.

Possibly both are right and they’re just at odds over slightly different things. Knowledge of certain aspects of marketing — mostly the stuff that demonstrates an immediate return — could have become more important to executive teams even as the role of CMO itself loses some of its former prestige.

But it is ambiguously the case that boards are more likely to promote COOs, CFOs and other division leaders to CEO, and they have been for a long time. Not necessarily because boards don’t respect marketing but because it is considered a functional role, not an operational one. The difference is one of perspective. Marketers are trained to look at what’s going on with customers and bring that knowledge into the company to improve its performance. Operational leaders, on the other hand, focus on marshalling the resources that already exist within a company to make the greatest impact on the marketplace, and boards seem to prefer that CEOs come to the job with this inside-out mindset.

Which is why new research being published in the Journal of Marketing is so interesting — because it demonstrates that marketers’ outside-in style of thinking can have its advantages, too.

The headline estimate from the study is that CEOs who spent 40% of their careers in marketing jobs delivered annual shareholder returns 6.1% higher, on average, than those who spent just 10% of their time in customer-focused roles.

By itself, this finding doesn’t tell you much. Without comparable data on the influence of other disciplines, it could just mean that a little marketing knowledge is a dangerous thing. Fortunately, the authors have a lot of other things to say about the value of marketing experience in company leaders.

Specifically, the researchers looked at how marketer-CEOs improve shareholder returns by creating a distinct and differentiated portfolio of market offerings. Differentiation was judged by comparing the product descriptions in companies’ SEC filings with those of competitors, so it was a measure of positioning rather than customer perception. They then ascertained the effect of marketer-CEOs on differentiation by looking at what happened at companies when the incumbent leader had died or become too sick to work. It sounds a bit callous, even ghoulish, but focusing on leadership changes due to exogenous shocks gets you closer to randomness and helps establish causality. An analysis of the performance of 1,774 US firms between 2000–2019 showed that differentiation was associated with a small-but-significant increase in shareholder returns — a 0.134% rise for every 1% increase in differentiation.

Just to be thorough, the researchers looked at factors that could aid or impede the performance of a marketer-CEO, too. The findings were, somewhat predictably, that marketer-CEOs are better able to increase differentiation within companies that are more customer oriented, and there were signs that they are less able to do so within companies bogged down by debt. The researchers also found that the size of a CEO’s network was positively correlated with portfolio differentiation, while overconfidence was negatively correlated, presumably because arrogance doesn’t take advice.

There are, of course, lots of other characteristics beyond functional experience that influence how someone will perform as a CEO, so the results should be treated as directional rather than definitive. The proxies that the researchers used to establish differentiation, customer orientation and overconfidence aren’t perfect indicators, either. Still, the study provides a useful corrective to commonly held notions about the suitability of marketers to do the top job, and may even provide guidance about the kinds of companies that would benefit most from such a CEO.

A bigger question, though, is whether the outside-in, customer-oriented thinking exhibited by marketer-CEOs here will be equally present in future generations if they are trained to prioritise channel optimisation over other elements of the job.

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