Particularly as applied to market reactions to the change of CEO:
Stumbling and Mumbling: What do bosses do?: How much difference do chief executives really make to a business? ‘A lot,’ say shareholders in Prudential. They raised the price of the company by £580 million yesterday when they learned that Jonathan Bloomer was to be replaced as CEO by Mark Tucker. If this judgment right, there's something very wrong about the market for chief executives; either Mr Bloomer was massively overpaid or Mr Tucker is grossly underpaid. But is it right? Of course, the Pru’s price fell sharply under Mr Bloomer’s watch. But how much of this is really his fault?...
If I were to say that CEOs made no difference to a company, and that the belief to the contrary were just an application of the fundamental attribution error or managerialist ideology, what hard evidence could you present to the contrary, except for pointing to a handful of extreme cases, such as Enron?
There’s one more problem here, though. Let’s say CEOs can make a difference. It doesn’t follow that investors can spot the bosses who are good enough to turn a company around.
Two cases will show my point. When Simon Wolfson took over at Next, many shareholders were sceptical. They thought he was too inexperienced for the job, and was the beneficiary of nepotism. Next’s price rose sharply in the following months. By contrast, when Rick Haythornthwaite took over at Invensys, shareholders welcomed his appointment. He’d done a good job, they thought, at Blue Circle. Invensys' share price has since collapsed.
As Warren Buffett once said: 'when a chief executive with a good reputation takes over a company with a bad one, it is the company that keeps its reputation.'