The Economic Relevance of Chief Marketing Officers in Firms' Top Management Teams Page: 556
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CMOs are the voice of the customer or consumer, and the champion and guardian of the company's brands. They
align their organizations around a clear and compelling brand positioning and promise and ensure consistency of
messaging and experience at every single consumer and customer touch point. (Smith, 2012)
Further, David Roman, CMO of Lenovo, affirms that having a strong CMO with a real point of view and a
commitment to rigorously and relentlessly delivering breakthrough work from marketing is of great importance
Court (2007) suggests that the CMO's role actually needs to be broader to keep pace with changing
consumer buying behavior, evolving distribution models, and a more diverse and global consumer base. Similarly,
Dee Dutta, former CMO of Sony Ericsson, states that the CMO should be put in the position to work with other top
executives and members of the board of directors (Roberts, 2012). Andrew Hayes, an executive of CMO and CEO
recruitment firm Russell Reynolds Associates, suggests that firms should include the CMO among the highest paid
CMOs have a very direct impact on shaping business strategy, driving growth and fueling commercial success. They
are the architects that shape the company's brand and the conductor that ensures all functions and employees are
aligned around the delivery of a consistent and differentiated brand experience. The companies that figure this out
and value the CMOs role accordingly will attract and retain the stars. The rest will get what's left. (Smith, 2013)
In this study, we contribute to the debate by examining whether the presence of a CMO in the top
management team (TMT) provides value to shareholders. We define a CMO to be a member of the TMT if he or she
is one of the top five highest paid executives of the firm, in line with prior research that links compensation to
influence within the organization (e.g., Finkelstein, 1992; Finkelstein and Hambrick, 1996; Carpenter and Sanders,
2002; Bertrand and Schoar, 2003; Boyd et al., 2010). Members of the top five executives are most likely to be
responsible for firm strategy, spending and resource allocation decisions, and product and capital-market outcomes
(Currim, Lim, and Kim 2012). Accordingly, a CMO that is among the top five executives is more likely to have
stature and gain access to the CEO (and other key top executives), which offers him or her the opportunity to
influence significant corporate decisions and strategies as they are formulated and implemented. Thus, the presence
of the CMO in the TMT is an indicator of both the status of marketing and the corporate adoption of the marketing
concept (Hise, 1965; Piercy, 1986; Webster, Malter, and Ganesan, 2003, Boyd et al., 2010).
Despite theory suggesting that CMO influence will impact firm value, extant academic research has not
documented such an association. For example, in a sample of 88 new CMO appointment announcements, Boyd et al.
(2010) find no association between the appointments of the CMO to one of the top five highest paid officers and
short-run abnormal stock returns. Nath and Mahajan (2008) find that the presence of a CMO in the TMT of a firm
had no significant effect on Tobin's q or sales growth, common proxies for investment opportunities. Similarly,
Nath and Mahajan (2011) find that CMO power has no significant effect on firm performance as measured by return
on sales and sales growth.
Unlike previous studies on CMO influence, our study adopts a long-horizon approach to examine the
economic relevance of having a CMO in the TMT for a large sample of firms. Prior studies examine various
financial performance measures which often fail to capture the intangible nature of marketing activity. That is, there
may not be a direct link between marketing activity and financial performance measures. In addition, it is difficult
for stock market participants to assess the true quality of marketing activity. In this paper, we argue that the presence
of the CMO in the TMT acts as a signal to shareholders about the quality and commitment of the firm to its
marketing activities. Our long-horizon approach allows the market to revise expectations that may not be fully
incorporated in a short window surrounding the promotion announcement or may not be directly reflected in
financial performance measures.
We construct a value-weighted, long-short portfolio that buys stocks of firms that report a CMO among the
top five highest paid executives and sells stocks of firms that do not. We then estimate a monthly time-series
regression throughout our sample period, controlling for standard risk factors (Fama and French, 1993; Carhart,
1997). The long-run value attributable to this portfolio strategy is captured by the intercept (or "alpha") in our
regression model. The intuition behind this methodology is that, in equilibrium, forming a long-short portfolio on a
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2013 The Clute Institute
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Abernathy, John L.; Kubick, Tom & Masli, Adi. The Economic Relevance of Chief Marketing Officers in Firms' Top Management Teams, article, December 2013; Littleton, Colorado. (digital.library.unt.edu/ark:/67531/metadc1020952/m1/2/: accessed January 18, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT College of Business.