With Power Comes Responsibility: How Powerful Marketing Departments Can Help Prevent Myopic Management

Abstract

Firms sometimes engage in myopic management (e.g., cutting marketing spending, providing lenient credit to customers to improve short-term results). Although marketing is at the center of such myopic management, there are few insights on whether a marketing department could prevent it. To address this gap, the authors examine the role of powerful marketing departments in preventing myopic marketing spending and revenue management. They hypothesize that there are internal and external enablers of marketing department power (i.e., a chief executive officer with marketing experience, the firm’s power over its customers, analyst coverage, and institutional stock ownership) that help a powerful marketing department prevent myopic management. They test the hypotheses using a panel of 781 publicly listed U.S. firms between 2000 and 2015. As hypothesized, when the firm has (1) a chief executive officer with a marketing background and (2) power over its customers, increasing marketing department power decreases the likelihood of both myopic marketing spending and myopic revenue management; increasing marketing department power and analyst coverage decreases the likelihood of myopic marketing spending. The findings highlight powerful marketing leadership as a hitherto overlooked way to prevent myopic management and improve firm performance.