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The Superpower Every Chief Marketer Needs


How can CMOs deal with a chief executive who is intent on cutting the marketing budget?

The Superpower Every Chief Marketer Needs

When you were a child, what superpower did you want to have? Flying? Telekinesis? Invisibility? And what about now? One of the most desired superpowers among adults is mind reading. And it makes sense — not least in a business context. 

A marketing director, for example, would probably use this superpower to find out their CEO’s plans for the marketing budget. Do they have to be prepared to defend it? Is the CEO planning a cut in the marketing budget that might harm the company’s long-term performance? 

Unfortunately, it is unlikely that any of us will ever be able to read minds. The good news according to research by Tuck S. Chung of ESSEC Business School Asia-Pacific in Singapore is that mind reading isn’t necessary. Using confidence as a marker to identify CEOs who are more inclined to support erroneous marketing cuts, Chung and his fellow researchers sought to find out how chief marketing officers (CMOs) can protect their budgets with a — this time — real-life superpower: Their own confidence. 

Short-term gains 

Marketing spending is naturally a high-wire act. If spending is too high, it increases costs and decreases current profits. If it is too low, costs are low and profits are higher in the short term. But low spending also harms long-term prospects and thus long-term profitability.

Looking at organizational structures, it is mostly the CEO who has the decision-making ability to determine the marketing budget. However, external pressures from the stock market, financial analysts or short-term-oriented investors make CEOs highly susceptible to “borrow from the future”. When faced with a potential earnings shortfall under their term of management, chief executives are likely to cut investments in discretionary expenses (i.e., the marketing budget) to show a rosier picture in the profit and loss statement and to appease stakeholders. 

In the long term, however, cutting the marketing budget in such a way will also reduce earnings, as a company’s product is no longer effectively marketed to the consumer. So, how can short-term-oriented marketing management be prevented? 

A first step is to understand the motivations and characteristics of CEOs, the board of directors they interact with and their CMOs, whose work is directly affected by the marketing budget. 

So, what would make a CEO disregard possible long-term consequences of cutting the marketing budget? The research by Chung and his colleagues used confidence as the key characteristic that influences such decision-making. Moreover, confidence is often seen as a valuable trait in CEOs. 

Paradoxically, having a confident CEO comes with some shortfalls. Confident CEOs tend to believe that the stock market has undervalued their firm. And to prove the market wrong, they tend to accumulate internal cash flows. Moreover, they also tend to overestimate the payoff in risky projects, which in turn causes them to adopt riskier strategies. And finally, they are tempted to give more optimistic earnings forecasts, their earnings management is more accrual-based, and they are less responsive to feedback and expert advice. 

Using data sets, Chung and his fellow researchers looked at previously identified traits of confident CEOs and how their confidence could affect market management decisions. They also explored how CMOs could use their position — albeit only with persuasive power — to mitigate such decision-making. And they considered the role of the independent board of directors and how that might affect the myopic marketing tendencies of confident CEOs. 

Pressure on the CEO 

The researchers indeed found that highly confident CEOs are more prone to cut the marketing budget for short-term profitability. However, it is the board of directors that exacerbates these tendencies. CEOs have to report their performance — good and bad — to the board. And coincidentally, it is the board of directors that also determines the CEO’s compensation. 

Moreover, while the board of directors is independent, it must answer to shareholders. Shareholders in turn are interested in maximizing their earnings (i.e., the dividend payout). As dividends are dependent on profit, shareholders tend to be more interested in short-term, rather than long-term, performance. As mentioned earlier, this means that the board of directors, representing the interests of the shareholders, puts a lot of pressure on CEOs, leading them to be more inclined to engage in myopic marketing management.

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Under these conditions, who can defend the marketing budget? The most likely answer is the CMO. And while CMOs do not have the power, in the traditional sense, to veto the CEO’s decision concerning the marketing budget, they do have a persuasive role. Even more so, a highly confident CMO can act as a checks-and-balances entity. 

While confident CEOs are usually unresponsive towards advice, they are more inclined to listen to highly confident CMOs who demonstrate a conviction in their own abilities and knowledge of the market. This confidence gives CMOs the ability to influence the firm’s marketing decisions. 

Saving the marketing budget 

So, what can CMOs do to win this battle of confidence? First of all, it is important to recognize the signs of a short-sighted marketing budget cut. These turn out to be a highly confident CEO paired with a potential earnings shortfall. Catching these indicators on time allows the CMO to act. Moreover, CMOs should use their own confidence to advise their CEOs, as well as use it to persuade the board of directors not to go forward with the marketing budget cuts. 

As it is the CEO’s job to guarantee the long-term performance of the firm, chief executives too would be wise to take steps to prevent themselves from making any short-sighted decisions. Starting on a more personal level, CEOs could take the time and check their own confidence levels. Additionally, while potentially counterintuitive, CEOs could opt to strengthen the CMO’s position and seek their advice. For even greater impact, the researchers recommend that CEOs actively recruit CMOs with high confidence levels to help them prevent making short-sighted decisions. 

Lastly, Chung and his fellow researchers encourage boards of directors to include marketing metrics in a firm’s reports and evaluate the marketing performance to ensure the firm’s long-term profitability. In general, it would be important to educate board members as to the importance of marketing. Moreover, to gain a deeper understanding of the firm, board members should be encouraged to have regular exchanges with the chief officers of other departments. 

Chung’s research shows us that we do not need superpowers in the workplace. However, both CEOs and CMOs need to be confident and have a long-term vision for the future. After all, confidence can prevent mistakes with negative long-term consequences. 

A version of this article was first published by the Council on Business & Society of which Smith School of Business is a member.