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Good-looking CEOs boost share performance - study

Since being headhunted from Google in July 2012, Yahoo [NAS:YHOO] chief executive Marissa Mayer has refocussed the company. She delivered a 276% boost in net income last year.

Some would attribute Yahoo's stellar stock rise over the past 12 months to its new CEO's aggressive restructure and aquisition strategy.

But two US academics have an alternative theory to explain the company's recent financial and sharemarket success: Ms Mayer's blonde good looks.

Attractive chief executives receive higher total compensation, better returns on their first days on the job and boost stock performance when they appear on television, according to the preliminary findings of a new study by Joseph Halford and Hung-Chia Hsu, two economists at the University of Wisconsin.

For a paper called "Beauty is wealth: CEO appearance and shareholder value," the pair used "facial geometry" to rate the attractiveness of 677 CEOs from S&P 500 companies.

Halford and Hsu say Ms Mayer was a good example.

"She scored 8.45 (out of 10) in our facial attractiveness index and is among the top 5 percent (best-looking) in our sample," they wrote. "Yahoo has been doing well since she became the CEO (about 158 percent increase in stock price).

"Of course, we don't mean that all the increase in stock price is from her appearance. We just find that there might be some positive correlation between the two."

The economists analyised 1,830 merger and acquisition deals between 1985 and 2012. They say the discovered that: "The evidence...suggests that more attractive CEOs receive more surpluses for their firms from M&A transactions, a finding consistent with the hypothesis that more attractive CEOs improve shareholder value through superior negotiating prowess."

They also studied TV appearances on CNBC.com between 2008 and 2012, and found shareholders responded positively to viewing more attractive CEOs on television.

Xero was easily the hottest NZ stock of 2013, with a 317% run-up. But is its chief executive Rod Drury also hot? NBR contacted Messrs Halford and Hsu, seeking to estabish how Mr Drury's mug rates on their Facial Attractiveness Index (FAI). There was no immediate response, but stay tuned. As Xero takes advice on a possible Nasdaq listing, who knows - the superficial rating could take on deep importance.

So should boards seek out more attractive CEOs?

"Our results do not suggest that, when searching for CEOs, firms should only look at appearance without considering other abilities," Halford and Hsu wrote. "On the other hand, for firms that rely more on the negotiation and visibility aspects, maybe they should place more weight on appearance when searching for CEOs."

Comments and questions
5

If I had brought Xero early I am sure I'd find Mr Drury sexy.

Just shows how shallow and lacking in substance the valuations in the stock market are these days.

Might be better investing in bitcoins people ;)

The research is a perfect example of reducto-ad-absurdum, literally; a reduction to absurdity. Your publication of the results, vitiates your publication.

I disagree, I think it's well known that good looking people score higher on a whole range of social and economic metrics from earnings power, career advancement, social engagement, likeability scores. The finding that better looking CEOs increase stock prices is just a continuation of that phenomenon. And while this may be, and is unfair, it has a strong biological basis underpinning it which is why it's never going to go away any time soon. Humans, both men and women, are always going to have half their brain firmly fixed below the navel. As a species that must reproduce, they have no choice.

However, it's the awareness and self-awareness of doing this that then becomes important, as this then acts as a trigger point to make sure that the person been hired, for example, is indeed the most talented for the job.

Using Air-NZ as an example, because its previous CEO was judged to better than average in looks. Your proposition is; that when the share price dropped to an inter-week low of 84 cents (June 1st 2012) it was because the CEO was bad looking, then when it rose to an inter-week high of $1.32, it was because he was now good-looking!!

I reiterate my first comment; the research is a reducto-ad-absurdum, literally; a reduction to absurdity.