A managerial capital perspective on chief marketing officer succession

Abstract

Recognizing the importance of the person who occupies the chief marketing officer (CMO) position, we posit that a CMO's managerial capital, as signaled by his or her education, origin, and experience, indicates what a new CMO can bring to the table. We theorize that the value of CMO managerial capital is contingent on organizational demographics (firm age and size) and industry environment (dynamism and growth). Results from multi-source data collected on 303 CMO successions between 1996 and 2009 and an event study approach with corrections for unobserved heterogeneity and endogeneity reveals a positive influence of CMO's education and outsider status on abnormal returns associated with CMO succession and a U-shaped relationship between CMO experience and firm value. In terms of the moderation effects, we find that the value of CMO experience increases as the firm size increases; value of CMO external origin decreases whereas that of CMO experience increases with firm age; value of CMO education increases whereas that of outsider status and experience decreases with industry dynamism; and value of CMO education and experience increases as industry growth increases.

Introduction

The presence of chief marketing officers (CMOs) in the C-suite signals that top management teams want to hear the proverbial voice of the customer (e.g., Boyd et al., 2010, Nath and Mahajan, 2008).¹ As firms look for profitable paths to growth, creative leadership in the marketing function can help differentiate and strengthen brands, clarify and satisfy customers' needs, encourage development of quality products, and build long-term channel relationships (Koleszar & Bernhardt, 2000). Despite the importance of CMOs in shaping marketing strategy, which directly influences the customers, the CMO position is in great peril (Boyd et al., 2010). Marketing managers are constantly being challenged to justify their existence (Wheaton, 2007), making it the “riskiest job in the American C-suite” (McGirt, 2007, p. 33). A report by the executive recruiting firm Spencer Stuart notes that on average the top 100 branded firms change their CMOs every 23 months — less than half the tenure of chief executive officers in the same firms (Welch, 2004). A CMO succession is a significant event that signals potential changes in the firm's strategic marketing emphases, including shifts in product development, pricing, channel management, marketing communications, selling, market information management, marketing planning, and marketing implementation (e.g., Koleszar & Bernhardt, 2000).

Academic research on CMOs and their successions accordingly is expanding; for example, Nath and Mahajan (2011) examine the drivers and outcomes of CMO power to clarify CMOs' position in organizations, and Boyd et al. (2010) propose a firm-level customer power variable to explain their impact.² This research stream on CMO builds on the broader literature on the value of marketing function within the firm (Homburg, Workman, & Krohmer, 1999). For example, Verhoef and colleagues (Verhoef et al., 2011, Verhoef and Leeflang, 2009) investigate the determinants and consequences of influence of marketing function, while Moorman and Rust (1999) examine what the role and value of the marketing function in firms with strong market orientation (e.g., Verhoef & Leeflang, 2009). Yet research investigating the value of the individual occupying the CMO position remains relatively scant (see Table 1 for a summary of extant research on the influence of CMOs on firm value), especially compared with studies on the succession of other members of the C-suite, including chief executive officer (CEOs), making it difficult to quantify the value of CMO position, an area that we seek to contribute through this research.

We build on CEO succession literature, and integrate it with emerging research on CMO succession, to discern the importance of individual-level CMO factors. Research shows that CEO succession depends on industry-level (e.g., Osborn, Jauch, Martin, & Glueck, 1981), firm-level (e.g., Kesner & Sebora, 1994), and individual CEO-level (e.g., Zhang & Rajagopalan, 2010) factors. Accordingly, we propose the CMOs' managerial capital perspective to assess CMOs' ability to build, integrate, and reconfigure organizational resources and competences that enable firms to develop sustainable competitive advantages (Adner & Helfat, 2003). We theorize that managerial capital is signaled by the CMO's education, origin, and experience; in turn, managerial capital variables signal expected outcomes and behaviors by a new CMO (Zhang & Wiersema, 2009) and thus should determine the value that the new CMOs create. Consistent with contingency theory (e.g., Ruekert, 1985), we propose that the influence of CMO managerial capital variables depends on organizational (firm age and size) and environmental (industry dynamism and growth) factors.

To test our assertions, we collected multiple-source data pertaining to 303 CMO succession events during 1996–2009. To delineate the value created by CMO succession, consistent with Boyd et al. (2010), we use an event study methodology that allows us to isolate the value created by CMO succession (McWilliams & Siegel, 1997). Furthermore, our empirical model addresses both heterogeneity and endogeneity in our data. First, we recognize that hiring a new CMO depends on multiple factors (e.g., organizational resources, firm's strategic emphasis) that likely go unobserved by researchers; thus, we explicitly model unobserved heterogeneity by incorporating latent classes in the intercept term in a linear regression specification (Chintagunta, 2001, Heckman and Singer, 1984). Second, we recognize that when firms make CMO succession decisions, they may make selections according to CMO managerial capital variables to enhance firm value, such that the managerial succession variables are endogenous. We thus use a control function approach (Garen, 1984, Petrin and Train, 2010) to correct for multiple, endogenous CMO managerial capital variables.

Considering our limited understanding of marketing leadership and the lamentable “scarcity of systematic research about CMOs” (Boyd et al., 2010, p. 31), our study adds substantively to emerging literature on CMOs. Theoretically, we suggest an additional and overlooked explanation for value created during CMO succession, namely, managerial capital. Whereas extant studies on CMOs emphasize the role of the CMO position (e.g., Nath and Mahajan, 2008, Nath and Mahajan, 2011) or use firm-level variables to explain their impact (Boyd et al., 2010), we also show that the characteristics of individuals occupying CMO positions are also important.

We organize the remainder of this article as follows: We begin by presenting our theoretical framework and hypotheses. Then we present our methodology, including details about our research design and data collection and analysis procedures. Finally, we offer our results and conclude with a discussion of our findings and their implications.