Are Companies at Risk when the CEO is in the Cockpit?
Dave Fehling / StateImpact Texas
Houston has the third highest number of CEOs with pilot licenses according to a study assessing risk-taking among executives
It’s a sign of success: having your own plane and being your own pilot. In fact, Houston ranks third in the nation for the number of corporate chief executives who have pilot licenses. Dallas ranks sixth. But as highlighted by a tragedy earlier this spring in West Texas, there may be an added risk. But is that bad for the company’s bottom line?
On a Wednesday afternoon this past June, a turboprop plane took off from Aspen Colorado.
Destination: Brenham Texas, northwest of Houston.
As the plane headed southeast, crossing over the Texas panhandle, it encountered a big line of thunderstorms. The on-line tracking service FlightAware shows the plane turned sharply to the south. It was sometime later that afternoon that a rancher would find the crumpled wreckage in an open field just west of Lubbock.
The pilot had run a drilling company and had been a past chairman of an industry group. If you Google “oil executive dies in plane crash” you’ll find that over the last few decades, there have been a number of tragedies often involving small planes and often piloted by an executive. Those sorts of accidents – like the one near Lubbock —- caught the attention of a researcher many miles from Texas.
“It’s of course always a sad news story,” said Steve McKeon. He’s not an aviation expert. He’s a professor of finance at the University of Oregon.
Are Pilots Thrill-seekers?
“It is without a doubt a risky activity as many things are,” said McKeon of company executives who fly their own planes. “These are people who are not professionals; they’re flying for a hobby or to visit customers.”
Courtesy Stephen McKeon
Stephen McKeon co-authored study of CEO pilots
McKeon co-authored a study of risk-taking by chief executives. He wanted to find out if CEOs with thrill-seeking personalities helped or hurt the performance of their companies. And being an amateur pilot seemed a good indicator of a risk-taking mentality because previous studies found that wanting to fly a plane was a leading sign of thrill-seeking.
What’s more, McKeon found that life insurance companies singled out business executives who were pilots as especially high risk. So he cross-referenced a list of people with pilot licenses with lists of CEOs.
The resulting data showed that Houston and Dallas are among the top six cities in the nation with the most CEOs who are also pilots (though it was unclear whether this had anything to do with the volatile but lucrative oil & gas industry that dominates the Texas economy). So, did having a pilot CEO help or hurt the companies?
“I want to be clear we did not find any evidence that any of this was negative in terms of performance. In fact, we found a little bit of evidence to the contrary,” McKeon told StateImpact Texas in a phone interview.
McKeon says CEOs who were pilots led companies that did more mergers and acquisitions that often generated more income for the companies. While that may be all well and good, what if the CEO dies piloting a plane, isn’t that bad for a company?
Should CEOs Be Made to Fly Coach?
It’s been a debate in recent years: should a company’s board actually prohibit highly-paid CEOs from pursuing dangerous hobbies? If flying is their choice, one executive said, risk? What risk?
“I can tell you from a risk standpoint, I’d much rather be flying any airplane than driving a car on a congested highway,” said Steven Brown, a pilot and COO of the National Business Aviation Association.
Brown said their data on private pilot deaths show it’s about the same risk as flying on a commercial airliner. Whatever the risk, Professor McKeon, who did the study, said being a thrill-seeking amateur pilot isn’t a negative for a company.
“Frankly, taking risks is part of capitalism, it’s something that has to be done. The important thing is not to take excessive risks. Or foolish risks. We didn’t find any evidence of that. “