As more companies insist on employees returning to the office full-time, a different trend has emerged: the rise of CEOs who live far from headquarters and commute for a few days each week. However, recent research shows that this arrangement typically leads to underperformance. CEOs who live long distances from their companies tend to do worse on average, with even worse performance if they own a boat or live near a golf course.
One notable example is Brian Niccol, who became Starbucks’ CEO after leaving Chipotle. He commutes between his home in Newport Beach, California, and Starbucks’ headquarters in Seattle, a distance of about 1,000 miles each way. Despite the increasing prevalence of long-distance CEOs, research indicates that their performance suffers compared to local CEOs.
A study by professors at Boston College and Arizona State University found that the number of long-distance CEOs more than doubled from 2000 to 2019. However, upon taking on the role, these CEOs experienced a significant decline in the company’s performance. The research suggests that the distance between the CEO’s home and the company may be a key factor in this underperformance.
Boards of directors often choose long-distance CEOs due to their impressive credentials, such as Ivy League education, CEO experience, and extensive networks. However, the research shows that these factors do not compensate for the negative impact of a long-distance arrangement on firm performance. Boards may feel compelled to hire these CEOs to secure top talent, but the data indicates that this decision may ultimately be detrimental.
The reasons behind the underperformance of long-distance CEOs are not entirely clear, but distractions at home and a lack of connection to the company’s location may play a role. For example, CEOs who own recreational boats or reside in beachfront homes tend to see a greater decline in the company’s operating performance. Additionally, CEOs living near top golf courses experience a stronger decline in firm performance.
While hiring a long-distance CEO may initially seem like a win for a company, the data shows that these arrangements often end poorly. On average, fly-in CEOs have shorter tenures and are more likely to be terminated than their local counterparts. The departure of a long-distance CEO typically results in a stock price increase, indicating that investors may view their exit positively.
Overall, the research highlights the challenges associated with long-distance CEOs and the potential impact on company performance. Boards should carefully consider the implications of hiring a CEO who is unwilling to live near headquarters, as the odds of success may be stacked against them.