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How Board-level Marketing Experience Improves Firm Value

Marketers’ focus on topline growth performance, their ability to understand consumer preferences, and their acumen in generating market insights suggest they would be valuable members of boards of directors. Yet marketing’s presence at the top of firms is still nominal today. This may be changing, however, in light of new research that shows that having marketers on boards positively affects total shareholder return.

In “When and How Does Board-Level Marketing Experience Impact Firm Performance?” Kimberly Whitler of University of Virginia, Ryan Krause of Texas Christian University, and Donald Lehmann of Columbia University demonstrate that having marketing experience on a board contributes to overall firm performance by driving revenue growth. They found that boards of directors have “a significant opportunity to strengthen their contribution to a firm’s success by including marketing expertise.”

In describing their study, the authors note that other researchers have extensively examined the effect on firm performance of board member knowledge and proficiency in areas such as economics, sociology, finance, accounting, strategic management, organizational behavior, and international business⎯but that no research investigating marketing at the board level has been done to date.

They also point out that several studies have shown a positive connection between firm-level marketing capability and firm revenue growth, suggesting that marketing-specific “human capital” benefits firms. “It seems logical,” Whitler observes, “given a board’s role in advising, guiding, and occasionally correcting top manager strategic decisions, that such capital at the board level should add value to a company.”

Only 2.6% with marketing expertise

To test this assertion, the researchers developed a conceptual model describing six hypothesized effects of board-level marketing experience on firm performance and then tested their hypotheses using 64,086 board member biographies and publicly available data from S&P 1500 firms.

One of the first findings from their analysis was that only 2.6% of board members in the sample had marketing experience. This discovery coincides with previous research showing that less than 0.5% of board members of Fortune 1000 firms had managerial-level marketing experience and knowledge and that only 4% of corporate directors view marketing as an important type of experience for a board member.

A board with one marketing-experienced director is associated with a three-percentage point increase in total shareholder return.

Krause comments, “One would think that marketers would make substantial contributions as board members. Our results suggest that directors have not made this connection yet.”

The authors’ findings revealed just how important that connection could be. Specifically, Whitler, Krause, and Lehmann’s analysis showed that having marketing-experienced board members increases total shareholder return in general. “For example, a board with one marketing-experienced director is associated with a three-percentage point increase in total shareholder return over a board with no marketing-experienced directors,” says Krause. Marketing creates value by accumulating environmental (external) information related to competitors, consumers, and the broader market, he explains. A board member with marketing expertise can help the board and firm convert this knowledge into successful strategies and plans.

Gains even greater for firms losing share

The positive effects were even stronger for firms experiencing declining market share. As Whitler notes, “We found that when a firm’s market share has fallen 1.5 percentage points, the presence of a marketing-experienced director is associated with an increase of more than 6 percentage points in total shareholder return.” It makes sense, she continues, “that a firm losing market share would gain to a greater extent from having a person on its board experienced in assessing, understanding, and managing market share.”

“Managerial-level marketing experience is largely missing from boards today,” Whitler observes. “Our findings, however, indicate that marketing experience at the board level is considerably more valuable than the number of marketers on boards suggests.” Krause adds that this finding may help recruiters better understand when to recommend marketers for board positions and provide insight to board members and CEOs who may influence and/or approve board member choice.

"Given that marketing-related issues are among the biggest challenges facing boards,” Lehmann concludes, “we encourage board-level decisionmakers to review our results and consider the gains they might realize from adding individuals with strong marketing experience to their ranks.” 

By Kim Pederson

From
When and How Does Board-Level Marketing Experience Impact Firm Performance?
Kimberly A. Whitler, Ryan Krause, and Donald R. Lehmann (2015) [Report]

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