Too much golf handicaps chief executive officer performance. You may have heard that a lot of business is done on golf courses, but apparently not enough.  A new study finds that CEOs who spend more time golfing deliver lower corporate operating performance, while CEOs with skin in the game in the form of equity-linked incentives are less likely to spend their time on the links.

The researchers conclude that CEO “shirking” causes the lower operating performance, and that one of the strongest governance levers that boards can use to motivate CEOs is the incentive plan.  “They need to be cognizant of the effort the CEOs provide and incentivize them to provide the proper level of effort,” said Lee Biggerstaff, associate professor of finance at Miami University’s Farmer School of Business and an author of the paper, in an interview with Risk & Compliance Journal. It may seem intuitively obvious that CEOs who depend on the stock doing well for a big chunk of their compensation would put more effort into improving corporate performance, and that harder-working CEOs should create more value than slackers. However, proving that has been tough because of the difficulty measuring how much effort CEOs were putting into their jobs. As a result, said Professor Biggerstaff, “There is some debate about whether CEOs are important to the performance of the firm.” This research could help settle that debate.

Instead of trying to measure directly how much effort CEOs were putting in, the researchers decided to invert the question and focus on how much time CEOs spent at leisure. They found a way to measure this in a database of the United States Golfing Association, where they analyzed the records of 363 CEOs of S&P 1500 firms.  Professor Biggerstaff said that he is now in the early stages of extending the analysis to chief financial officers; early indications suggest similar effects on CFO performance and the quality of financial reporting.  For the politically attentive, meanwhile, the obvious question is whether the conclusion could apply even to the amount of time spent golfing by a head of state. “In my mind, it is generalizable,” said Professor Biggerstaff.

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