Barry L. Ritholtz
Duffers Need Not Apply


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Ritholtz Remarks


Duffers Need Not Apply
A Response to Adam Bryant's New York Times article, “Duffers Need Not Apply.”


“Given the strong correlation between golf handicaps and performance, executive wannabes can glean an obvious career-advancement tip: Spend more time on the links.”
So stated Adam Bryant, in his New York Times article, “Duffers Need Not Apply.” (May 31, 1998, NYT, Section 3, page 1).

If Mr. Bryant is correct, a CEO applicant’s handicap is much more important than his resume. Why, then, should corporations even bother recruiting from business schools? The true stars are coming off the links. The heck with Wharton, Stanford and Harvard; corporate recruiters should be swarming Cypress Point, Wingfoot and Shinnecock Hills.

So Mr. Bryant’s thesis would have you believe. Rather, I think its time to send the author to a refresher course in Logical Reasoning 101.

His reasoning fails on a number of accounts. His faulty yet amusing underlying thesis--that good golfers make the best CEOs, at least as measured by their company’s stock appreciation--has numerous significant flaws.

The last is the classic logical error made by freshman undergraduates everywhere: Assuming a causal relationship where none exists. The statistical correlation between CEO’s golf handicaps and their company’s stock performance alone does not allow the conclusion that one (good CEO golf handicaps) causes the other (good stock performance).

Another way to examine this would be to compare the executives of firms whose stock price is doing well with those which are not. As anyone who as ever spent a frustrating morning hacking their way out of the rough can tell you, golf is a challenge. It requires dedication, effort and practice--lots and lots of practice. A decent handicap requires a lot more practice than the CEO of company whose stock price is stuck in a sand trap can really afford. Spend too much time on the links, and your shareholders and directors might decide to replace you with a bigger wood. Then you’ll have plenty of time to work on your handicap.

On the other hand, successful CEOs are rewarded handsomely. Perks include more than just salary and options. A top notch and efficient staff can free a CEO to enjoy his corporate country club membership, junkets to golfing locales, business retreats. Schmooze time on the greens with other executives, media mavens and politicos don’t hurt the handicap either.

The third flaw is the integrity of the data. How accurate or reliable are self reported golf handicaps? Amateur golfers are notorious for underreporting their actual scores--at least when discussing them among their peers. I know more than a few golfers who make fishermen and politicians look comparably honest.

The exception appears to be Bill Steere of Pfizer; He deserves special mention--not just for the billion-dollar-selling impotence drug Viagra, but for actually having the courage to report the worst handicap of the entire Golf Digest group. Double digit sales growth, a cure for impotency, and integrity to boot--this guy must be some kind of superhero. Shareholders admire that in a CEO.

I wonder what sort of handicaps we would see if these admittedly competitive Chief Executives had to state their golf scores under the same rigorous standards the SEC requires for corporate financial disclosures? Taken to the logical extremes, Mr Bryant’s article leads to the conclusion that CEO handicaps are now crucial information for shareholders.

So now--in addition to 10K (Annual) and 10Q (Quarterly) filings--we need 10Gs. These quarterly SEC golf filings would be supervised and audited by a joint panel from the Amateur Golfing Association and a Big 5 Accounting firm.

I have a sneaking suspicion that some of the reported handicaps might slip a bit under these circumstances.

Lastly, consider the issue of "omitted data." The Golf Digest article excludes a notable who’s who of the biggest winners in the stock market for the past ten years: AOL, Amazon.com, Apple, Cisco, Dell, EMC, Exxon, Intel, Merrill Lynch, Oracle, Lucent, Schwab, Yahoo. What are we to conclude from this? Is it that these companys’ CEOs don’t play golf, or were they too embarassed of their scores? That correlative failure taints the conclusion; at best, it suggests there is insufficient data to allow a reliable conclusion to be drawn.

Finally, we must consider the time period the article observes. First, it takes in a brief time range - an obvious statistical failure. But to make matters really worse, that time period encompasses an out and out raging bull market. Does the theory work for bear markets? How about during the seventies (1972 - 84) Bear?

The thesis is too tenuous for me to waste time crunching the numbers. But by all means, have Mr. Bryant do it. It could even be the final project for his Logic class.

So here is the news flash for those of you ready to run out to take golf lessons in the hopes of landing that corner office: This present bull market--with a few small hiccups--has been running since 1984. Stock prices have risen terrifically. Successful CEOs have the time to improve their scores. Less successful ones are terrified to even be seen on a course.

-Barry Ritholtz
June, 1998




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