Personal appearance, from height to attractive facial features, has been shown to positively influence the financial and career success of individuals. New research links CEO attractiveness to shareholder value, demonstrating that the first impression advantage of an attractive physical appearance can have group as well as individual benefits.
The relation of appearance to success is no longer questioned. Various studies have shown that taller (for men) and more attractive (for both men and women) people reach higher levels of leadership, make more money, and are more respected by their peers than less attractive people. These and other measures of success, however, focus on personal, individual success. Does the attractiveness of a person influence success at the group level — in terms of shareholder value, for example?
Two researchers from the University of Wisconsin, Milwaukee, professors Joseph Halford and Hung-Chia Hsu, studied the relationship between attractiveness, as measured by the Facial Attractiveness Index (FAI) developed by Anaface.com, and shareholder value, as measured by the change in stock price that followed the announcement of a new CEO.
Specifically, Halford and Hsu compared the FAI scores of a sample of 485 S&P 500 CEOs to the stock price fluctuation in the days following the announcement of their hiring. They found that a 10% increase in a CEO’s Facial Attractiveness Index related to a 1.17% increase in abnormal returns the 10 days surrounding a job announcement date (from 5 days before to 5 days after). The relation between FAI and abnormal returns was even stronger in a longer time frame. In a 65-day time frame, from 5 days before to 60 days after the announcement, a 10% increase in FAI related to a 1.94% increase in abnormal returns.
The researchers then drilled down into two factors that could explain why attractiveness might matter for shareholder value: negotiation and visibility.
Studies have shown that attractive people are treated better in negotiations and are more effective negotiators. Focusing on M&A activity, which requires intense negotiations and successful interpersonal communications, Halford and Hsu found a positive connection between stock return figures following the announcement of a merger and the attractiveness of the CEO involved in the negotiation of that merger (the data was based on 591 M&As that occurred between 1985 and 2012). Specifically, the results show that for every 10% increase in FAI score, stock returns increased by 1.17% and 1.69% for the 10-day and 65-day windows respectively.
To test the visibility component, the researchers looked at the stock price impact of news events in which the CEO was featured. The study covered two different types of events.
First, using CNBC coverage between 2008 and 2012, they compared the shareholder value impact of television news events in which the face of the CEO was shown to the impact of television news events in which the face of the CEO was not shown. Second, they looked at the impact of earnings announcements on shareholder price, comparing earnings announcements in which the CEO’s face was shown (122 announcements between 2000 and 2013) to earnings announcements in which the CEO’s face was not shown. Each of the studies rigorously controlled for any factors that might influence shareholder value (the researchers factored in the content of the earnings announcements, for example).
In both sets of circumstances, the results were the same. When images of the CEOs were shown, the attractiveness of the CEO influenced shareholder price reaction to the televised news events or the earnings announcement. When images of the CEOs were not used, the attractiveness of the CEO had no influence on subsequent shareholder price.
In some ways, the results of this study confirm an unfortunate bias in which traits wholly unrelated to competence nevertheless influence the perception of competence. Thus, because of the power of our psychological response to first impressions, CEOs with a confident attitude will generate greater trust in their abilities than CEOs who do not appear confident.
The link between physical appearance and competence is even less logical. However, we must live in the world we live in. While past studies revealed that whether or not a CEO is attractive changed people’s perception of that CEO, this study goes further, showing a relationship between attractiveness and shareholder value that cannot be ignored.
Of course, the physical attributes of a CEO’s face are not the only appearance-related factors that can influence the psychological response to that CEO. A CEO’s energy or propensity to smile will also colour the effectiveness of a television interview, for example.
Nevertheless, corporate communication managers should not ignore the attractiveness of a CEO or corporate executive, and, instead, should factor that attractiveness into their communication strategies. After all, if a few extra pictures of the smiling face of your attractive CEO in news announcements and earnings reports can impact shareholder value, why not include them?
Eventually, of course, substance rules. No matter how attractive the CEO, the ultimate results of the firm will depend on superior competitive strategies and the implementation of those strategies. For that, the CEO will need much more than a pretty or handsome face.
Beauty Is Wealth: CEO Appearance and Shareholder Value. Joseph T. Halford & Hung-Chia Hsu. SSRN Working Paper (December 2014).
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