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How a CEO’s Social Life Impacts Company Performance

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The conversation starts to pick up on the cart ride between the 8th and 9th holes. The CEO of a small but growing business casually mentions that he’s thinking about expanding the company’s operations, investing in new facilities, and hiring a larger staff. His golf partner, a board member at another firm, asks questions and offers advice based on his own experience.

A productive discussion ensues and, by the end of the back nine, the two part ways feeling more informed about their anticipated investments.

This common scenario represents more than just a chance networking opportunity. It could also yield measurable benefits for each company’s economic performance.

Executives’ influence on company performance extends well beyond the corporate boardroom. When they’re not at the office, they serve on boards at nonprofit organizations and social clubs. They play golf with former colleagues and get drinks with old classmates. Often these associates are other executives who are knowledgeable about the current business climate; when the small talk winds down, the shop talk begins.

Just as someone would recommend a restaurant or movie to the rest of his or her group of friends, executives who share social circles tend to give each other advice: whether it’s a good time to make corporate investments, open a new plant, or hire employees. In most cases there is nothing underhanded about these conversations, provided no inside financial information is being exchanged.

Cesare Fracassi, an assistant professor who studies executives’ social networks, says these interactions can equip corporate leaders to make more educated decisions and improve their companies’ financial performance.

“Social networks help to create more informed decisions,” Fracassi says. “When I have more friends, I can decide what restaurant I want to eat at, what movie I want to watch, and how to invest.”

Go with the Flow

In a recent study, Fracassi traced the social ties between 30,860 executives at 2,059 companies over the course of nine years, identifying connections between those who overlapped at school, held management positions in the same company, or had memberships in common social clubs or nonprofit organizations. Next he looked at company decisions, especially investment patterns.

Fracassi observed that companies led by socially connected directors increased their investments at similar rates, while companies with less-connected executives tended to follow more distinct strategies. This occurs because when one member of a social circle decides to ramp up his or her investments, the CEOs and directors of other firms in the group are inclined to follow suit, Fracassi says.

“The more social connections two companies share with each other, the more similar their investment policies are,” the study reports. “In addition, two connected companies change their investment policies over time more similarly than two companies that are less socially connected.”

This tendency is known as informational cascade. And Fracassi says it’s often a good thing.

It Pays to be Social

Being in the loop gives a firm access to a large volume of information to guide financial decisions—but does all that insight translate into good decisions? Fracassi found evidence that when a group of knowledgeable executives starts talking, it pays to be part of the conversation.

“There is evidence that suggests that where the CEO and directors are more socially involved, the company is more profitable,” Fracassi says. “The information they receive helps the company to make the right decisions.”

Specifically, companies that are positioned more centrally in the web of social networks tend to have better economic results—including greater firm value and a higher return on assets—than those on the social fringes, the study reports. That bump could result in a jump in performance of 5 to 15 percent.

Because the word-of-mouth information passed through social networks flows freely and at a low cost, it’s advantageous for companies to collect as much of it as possible.

“A strategic position in the network gives a player a competitive informational advantage relative to other players that are less connected,” Fracassi writes.

Keep Your Friends Close … But Not Too Close

While the research indicates that staying connected to outside social networks can benefit a company’s financial performance, Fracassi says the opposite may be true for close social relationships among directors within the same company—specifically between the CEO and the board of directors.

In a 2012 paper, Fracassi and co-author Geoffrey Tate of the University of North Carolina detailed the risks associated with that type of scenario.

At most companies, board members are charged with monitoring the CEO and holding him or her accountable for poor investment decisions. But if the CEO and directors are connected through outside social ties—say, they worked together in the past, went to the same school, or are members of the same non-profit organization or club—the monitoring tends to be weaker.

In this scenario, the board tends to be more lenient toward the CEO, even if he or she starts growing the company too rapidly by making unwise acquisitions or unproductive investments. This, in turn, can lead to a dip in the company’s share price, especially for firms that have weaker shareholder rights.

The study also indicates that firms with powerful CEOs are the most likely to add new directors who have pre-existing connections to the executive, strengthening those social bonds.

Fracassi says this outcome isn’t always the result of a conscious distortion by directors who want to cut a friend some slack. Rather, it’s that people are naturally more trusting of someone they know.

“But this trust leads to CEOs making decisions that harm shareholders’ value” in the form of unwise merger deals, he says.

Some argue that close ties can help improve the exchange of information between executives at the same firm. But overall, Fracassi’s research suggests that on balance, the negative effects from these internal social ties often outweigh the potential advantages.

“A well-functioning board of directors provides both valuable advice to management and a check on its policies,” the study’s authors write. “An effective director should not just ‘rubber stamp’ management’s actions, but should take a contrarian opinion when management’s proposals are not in the interest of the firm’s shareholders.”

A series of legislative measures, including the Sarbanes–Oxley Act of 2002, have taken aim at boardroom corruption, but Fracassi and Tate have found little evidence that those policies have significantly discouraged the practice of stocking boards with familiar faces. The researchers identify internal networks of CEOs and board members as “an effective target for future governance reform.”

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About the Author

This article was written by Rob Hendrick of Texas Enterprise, a business blog that shares the business and public policy knowledge created at The University of Texas with the world. Rob was born and raised in Austin, writer Rob Heidrick has spent several years as a contributor and editor at local magazines and community newspapers. He earned an English degree from Davidson College in 2006 and a Master’s in Journalism from the Medill School of Journalism at Northwestern University in 2008. Before joining the Texas Enterprise staff in November 2010, he was a senior editor at Community Impact Newspaper, overseeing three publications in Williamson County. see more.

Callum Connects

Malcolm Tan, Founder of Gravitas Holdings

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Malcolm Tan is an ICO/ITO and Cryptocurrency advisor. He sees this new era as similar to when the internet launched.

What’s your story?
I’m a lawyer entrepreneur who owns multiple businesses, and who is now stepping into the Initial Coin Offering/Initial Token Offering/Cryptocurrency space to be a thought leader, writer (How to ICO/ITO in Singapore – A Regulatory and Compliance Viewpoint on Initial Coin Offering and Initial Token Offering in Singapore), and advisor through Gravitas Holdings – an ICO Advisory company. We are also running our own ICO campaign called AEXON, and advising 2 other ICO’s on their projects.

What excites you most about your industry?
It is the start of a whole new paradigm, and it is like being at the start of the internet era all over again. We have a chance to influence and shape the industry over the next decade and beyond and lead the paradigm shift.

What’s your connection to Asia?
I’m Singaporean and most of my business revolves around the ASEAN region. Our new ICO advisory company specialises in Singaporean ICO’s and we are now building partnerships around the region as well. One of the core business offerings of our AEXON ICO/ITO is to open up co-working spaces around the region, with a target to open 25 outlets, and perhaps more thereafter.

Favourite city in Asia for business and why?
Singapore, since it is my hometown and most of my business contacts originate from or are located in Singapore. It is also a very open and easy place to do business.

What’s the best piece of advice you ever received?
Be careful of your clients – sometimes they can be your worst enemies. This is very true and you have to always be careful about whom you deal with. The closest people are the ones that you trust and sometimes they have other agendas or simply don’t tell you the truth or whole story and that can easily put one in a very disadvantageous position.

Who inspires you?
Leonardo Da Vinci as a polymath and genius and leader in many fields, and in today’s world, Elon Musk for being a polymath and risk taker and energetic business leader.

What have you just learnt recently that blew you away?
Early stage bitcoin investors would have made 1,000,000 times profit if they had held onto their bitcoins from the start to today – in the short space of 7 years.

If you had your time again, what would you do differently?
Seek out good partnerships and networks from day one, and use the power of the group to grow and do things together, instead of being bogged down by operations and going it alone from start.

How do you unwind?
I hardly have any time for relaxation right now. I used to have very intense hobbies, chess when I was younger, bridge, bowling, some online real time strategy games and poker. All mentally stimulating games and requiring focus – I did all these at competitive levels and participated in national and international tournaments, winning multiple trophies, medals and awards in most of these fields.

Favourite Asian destination for relaxation? Why?
Phuket – nature, resort life, beaches, good food and a vibrant crowd.

Everyone in business should read this book:
Rich Dad Poor Dad by Richard Kiyosaki

Shameless plug for your business:
Gravitas Holdings (Pte) Limited is the premier ICO Advisory company and we can do a full service for entrepreneurs, including legal and compliance, smart contracts and token creation, marketing and PR, and business advisory and white paper writing/planning.

How can people connect with you?
Write emails to [email protected], or [email protected]

Twitter handle?
@malcolmABM

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Women on Top in Tech – Pam Weber, Chief Marketing Officer at 99Designs

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Pam Webber is Chief Marketing Officer at 99designs, where she heads up the global marketing team responsible for acquisition, through growth marketing and traditional marketing levers, and increasing lifetime value of customers. She is passionate about using data to derive customer insights and finding “aha moments” that impact strategic direction. Pam brings a host of first-hand startup marketing experiences as an e-commerce entrepreneur herself and as the first marketing leader for many fast-growing startups. Prior to joining 99designs, she founded weeDECOR, an e-commerce company selling custom wall decals for kids’ rooms. She also worked as an executive marketing consultant at notable startups including True&Co, an e-commerce startup specializing in women’s lingerie. Earlier in her career, Pam served in various business and marketing positions with eBay and its subsidiary, PayPal, Inc. A resident of San Francisco, Pam received her BA from the University of Pennsylvania and MBA from Harvard Business School. Pam is a notable guest speaker for Venture Beat, The Next Web, Lean Startup, and Growth Hacking Forum, as well as an industry expert regularly quoted in Inc., CIO, Business News Daily, CMSwire, Smart Hustle, DIY Marketer, and various podcast and radio shows. You can follow her on Twitter at @pamwebber_sf.

What makes you do what you do?
My dad always told me make sure you choose a job you like because you’ll be doing it for a long time. I took that advice to heart and as I explored various roles over my career, I always stopped to check whether I was happy going to work every day – or at least most days :). That has guided me to the career I have in marketing today. I’m genuinely excited to go to work every day. I get to create, to analyze, to see the impact of my work. It’s very fulfilling.

How did you rise in the industry you are in?
I had a penchant for numbers and it helped me stand out in my field. This penchant became even more powerful when the Internet and digital marketing started to explode. There was a great need for marketers whose skills could span both the creative and the analytic aspects of marketing. I capitalized on that growth by bringing unique insight to the companies I worked with, well-supported with thoughtful analysis.

Why did you take on this role/start this startup?
I’m not sure this is relevant to my situation as I had been a marketing leader in various start-ups and companies. I took on the role at 99designs because I was excited by the global reach of the brand and the opportunity the company had to own the online design space. I especially liked the team as I felt they were good at heart.

The challenge I’ve faced in my time at 99designs is how do I evolve the team quickly and nimbly to address new challenges. The work we do now, is very different than the work we did a year ago and even the year before that. There is a fine line between staying focused on the goal ahead and being able to move quickly should that goal shift.

Do you have a mentor that you look up to in your industry or did you look for one or how did that work?
There is no one I’ve sought out or worked with over my entire career as my “mentee” needs have changed so much over the years. There are many people who have helped me along the way. For example, one of my peers at eBay, who was quite experienced and skilled in marketing strategy and creative execution, taught me what was in a marketing plan and how to evaluate marketing assets. As I have risen to leadership positions over the years, I often reach out to similarly experienced colleagues for advice on how they handle situations.

How did you make a match if you and how did you end up being mentored by him?
I learned early in my career that it rarely hurts to ask for advice. So that is what I have done. Additionally, there are people that are known to be quite helpful and build a reputation for giving back to others in advisory work. Michael Dearing, of Harrison Metal and ex-eBay, is one of those people. I, as well as countless others, have asked him for advice and guidance through the years and he does his best to oblige. Finding mentorship is about intuiting who in your universe might be willing and whether you are up for asking for help.

That being said, generally, I have found, if you are eager to learn and be guided, people will respond to the outreach.

Now as a leader how do you spot, develop, keep, grow and support your talent?
I generally look for a good attitude and inherent “smarts”. A good attitude can encompass anything from being willing to take on many different types of challenges to working well amongst differing personalities and perspectives. Smarts can be seen through how well someone’s done in their “passion areas” (i.e. areas where they have a keen interest in pursuing).

I try to hire those types of people because in smaller, fast-growing companies like many of the ones I’ve worked in, it’s more often than not about hiring flexible people as things move and change fast.

Once those people are on my team, I try to keep them challenged and engaged by making sure they have varying responsibilities. If I can’t give them growth in their current job or in the current company, I encourage them to seek growth opportunities elsewhere. I’d rather have one of my stars leave for a better growth opportunity than keep them in a role where they might grow stale.

Do you consciously or unconsciously support diversity and why?
I consciously support diversity. When I am hiring, I am constantly thinking about how to balance the team with as broad a range as possible of skill sets, perspectives, etc. to ensure we can take on whatever is thrown at us, or whatever we want to go after.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
I’m going to assume a great leader in my industry to mean a marketing leader in a technology company. I think a great leader in this industry is not afraid to learn new tricks no matter their age – it’s the growth mindset you may have heard about. I have a friend who inspires me to do this – she purchased the Apple Watch as soon as it was available, and was one of the first people I knew to use the Nest heating/cooling system. She’s not an early adopter by most definitions, but she adopts the growth mindset. This is the mindset I, too, have sought to adopt. In my field of marketing, it most recently has meant learning about Growth Marketing and how to apply this methodology to enhance growth. Independent of your industry, I think a growth mindset serves you well.

Advice for others?
I have been at 99designs for 3.5 years. During that time we’ve invested in elevating the skills and quality of our designer community, we’ve rebranded to reflect this higher level of quality, and have improved the satisfaction of our customers. Our next phase of growth will come from better matching clients to the right designer and expanding the ability to work with a designer one-on-one. We have the best platform to find, collaborate, and pay professional designers who deliver high quality design at an affordable price, and it’s only going to get better. I’m excited to deliver on that vision.

Pam Webber
Chief Marketing Officer of 99designs
Twitter: @pamwebber_sf

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