How Celebrity CEOs Affect Company Stock
One enduring mystery of Wall Street -- aside from where on Earth the wall went to -- is how a place that should put profits over personalities often gyrates in the opposite direction. Yet the "why" is so simple, you can sum it up in three letters: CEO.
Certain CEOs, whether they capitalize on it or not, function as celebrities who draw attention to the companies they helm and the brands they represent. Just in case you think that's a given, rack your brain for the last time you surfed the web for Craig Menear, Ginni Rometty and Mike Wirth. They're the chief executive officers of Home Depot (ticker: HD), IBM ( IBM) and Chevron Corp. ( CVX) respectively, not exactly small potatoes on the stock market.
Now, compare those no-name big names with the likes of Warren Buffett, Elon Musk, Mark Zuckerberg and Jamie Dimon. Even if you don't know stock from livestock, they'll be familiar as the heads of Berkshire Hathaway ( BRK.A, BRK.B), Tesla ( TSLA), Facebook ( FB) and JPMorgan Chase & Co. ( JPM). And on many an occasion, reading headlines about the company and the CEO are one and the same.
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"A celebrity CEO will garner a following and thus the market for their stocks will remain efficient," says Kenneth Orr -- who also happens to be a CEO himself, at KORR Acquisitions Group. "In addition, celebrity CEOs will always garner a higher multiple than unknown CEOs because their stewardship gives investors more peace of mind."
Yes, but, is that fair? What if the CEO is more a master of sizzle than steak? As certain investors go, Orr says this: Whether the CEO's leadership and stewardship is "perceived or fact-based makes no difference."
That especially applies to a figure such as Musk, who ranks about as polarizing as celeb CEOs get. To be certain, Musk has produced cars as sleek and frisky as environmentally friendly. This may explain, as often noted over the years, why so many Tesla owners became Tesla shareholders.
But Musk has often pitched unmet production projections and hyped Tesla as an investment, even when the financials weren't there to back it up. Over a seven-month stretch -- from December 2016 to July 2018 -- Tesla stock more than doubled, and reached a record high of $383 per share. It now trades at about $320.
Still, Tesla over its entire history has only reported four profitable quarters. And in 2019, it hit the $1 billion loss mark in the second quarter, even as chief technology officer J.B. Straubel stepped down after 15 years with the automaker. But in the end (at least for this year), Musk's indomitable hand at the wheel may calm Tesla investors again, as he's pushing news that Tesla set a delivery record for the third quarter: about 97,000 vehicles worldwide.
Much like a roadside fender bender, "It's hard to look away" from Musk, says Erika Rasure, assistant professor in the online MBA in financial services program at Maryville University.
"His celebrity is derived in part from his various and widely criticized displays where his disruptive genius takes center-stage alongside his willingness to be candid and authentic," Rasure says.
Yes, she says, he's thin-skinned and a lightning rod for criticism.
"Are they the traditional qualities we've been told to value in corporate leadership and governance? No, but it works for Musk and there's some value in that to all of us," she adds.
Speaking of which, consider how Buffett's investment career translates to value on many levels. For one, he's the unquestioned king of value investing and that alone would prove enough to enshrine him in the hearts of grateful minions who apply his moves to their own portfolios.
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Yet Buffett also knows the value of shunning billionaire braggadocio -- inspiring the same affection in investors that folks normally reserve for Joe the Plumber types. He drives a 2014 Cadillac XTS. He lives in the same Omaha house he bought in 1958 for $31,500. He loved Dairy Queen ice cream so much, he bought the company. He plays ukulele and sings at shareholder meetings. All this and record profits, too.
"Warren Buffett's plainspoken modesty is perfectly suited to engender trust," says James R. Bailey, professor of leadership at the George Washington University School of Business. "Goodness knows how much money he has made people: not just the elite, but the bread-and-butter, salt-of-the-earth folks. He's perfect."
Far from perfect -- often reviled, in fact -- is Zuckerberg. The Russian hackers who infiltrated Facebook impacted the 2016 presidential election: able to worm their way in because of a vulnerable news-feed feature Zuckerberg instituted to beat down Twitter. In testimony before Congress, Zuckerberg was mocked for his ill-fitting tie and criticized for flippant responses. Still not having presented satisfactory evidence that Facebook had fixed its data cracks, he pushed ahead with Libra, a proposed cryptocurrency, which is struggling even before getting off the ground.
Now, Facebook is facing scrutiny as a monopoly that gobbles up its competitors, especially from Democratic presidential candidate Elizabeth Warren. Earlier this month, leaked audio of a two-hour company meeting exposed Zuckerberg as caustic and defiant in his views of the U.S. government, Warren, competitors and critics. No one, it seems, is pressing the like button; Facebook stock has been relatively flat since April, recently trading at about $189 per share.
Bailey puts Zuckerberg and Musk in the same camp: "They have about worn out their welcome. Early on, no one cared about their personal flaws -- be they awkwardness or mercurial attitude. But Facebook and Tesla have graduated from college. It's time for these two CEOs to move on."
Yet another CEO who may soon move has risen to a new level of respectability. Dimon, now nearing 20 years at the helm of Chase, defies the cash-grabbing banker stereotype. At a time when "greed is good" has actually become the unofficial slogan of many banks, he's gone in the opposite direction -- and stated as much publicly.
Dimon is the CEO of CEOs, so to speak: head of the Business Roundtable, a group of more than 180 heavyweight company heads. And in a statement of purpose, Dimon and his peers declared in August that corporate America is responsible for providing economic benefits to all, not just its investors.
He's also smart enough to know that those things aren't mutually exclusive. People like Dimon, and they like his financial services company: Chase stock is up close to 25% this year.
"Dimon is my current favorite CEO," Bailey says. "He's globally present -- especially in compliance and regulation realms -- opinionated and aggressive, yet not self-aggrandizing."
You might want to take the George Washington University professor's word for it. "The way some people are bird or whale watchers," he says, "I'm a professional CEO watcher."
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