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Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs
Corporate CEOs are headline news. Stock prices rise and fall at word of their hiring and firing. Business media debate their merits and defects as if individual leaders determined the health of the economy. Yet we know surprisingly little about how CEOs are selected and dismissed or about their true power. This is the first book to take us into the often secretive world of the CEO selection process. Rakesh Khurana's findings are surprising and disturbing. In recent years, he shows, corporations have increasingly sought CEOs who are above all else charismatic, whose fame and force of personality impress analysts and the business media, but whose experience and abilities are not necessarily right for companies' specific needs. The labor market for CEOs, Khurana concludes, is far less rational than we might think.
Khurana's findings are based on a study of the hiring and firing of CEOs at over 850 of America's largest companies and on extensive interviews with CEOs, corporate board members, and consultants at executive search firms. Written with exceptional clarity and verve, the book explains the basic mechanics of the selection process and how hiring priorities have changed with the rise of shareholder activism. Khurana argues that the market for CEOs, which we often assume runs on cool calculation and the impersonal forces of supply and demand, is culturally determined and too frequently inefficient. Its emphasis on charisma artificially limits the number of candidates considered, giving them extraordinary leverage to demand high salaries and power. It also raises expectations and increases the chance that a CEO will be fired for failing to meet shareholders' hopes. The result is corporate instability and too little attention to long-term strategy.
The book is a major contribution to our understanding of corporate culture and the nature of markets and leadership in general.
Khurana's findings are based on a study of the hiring and firing of CEOs at over 850 of America's largest companies and on extensive interviews with CEOs, corporate board members, and consultants at executive search firms. Written with exceptional clarity and verve, the book explains the basic mechanics of the selection process and how hiring priorities have changed with the rise of shareholder activism. Khurana argues that the market for CEOs, which we often assume runs on cool calculation and the impersonal forces of supply and demand, is culturally determined and too frequently inefficient. Its emphasis on charisma artificially limits the number of candidates considered, giving them extraordinary leverage to demand high salaries and power. It also raises expectations and increases the chance that a CEO will be fired for failing to meet shareholders' hopes. The result is corporate instability and too little attention to long-term strategy.
The book is a major contribution to our understanding of corporate culture and the nature of markets and leadership in general.
320 pages, Paperback
First published January 1, 2002
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September 30, 2013
BY PERMISSION FROM www.paper-trails.ca
Original post: http://paper-trails.ca/2012/07/19/alw...
Semester's end, I've got some down time having finally wrapped up a long-brewing research paper for my Human Resources course. I looked at the problem – common to public and private sectors – of executive selection. The reality is that formal succession planning is rare so the choice often has attributes of a crisis, and especially for a dysfunctional organisation attempting a turnaround, the dilemma is a timeless one: insider or outsider? Since the first-ever civilian Commissioner of the RCMP – a quintessential radical outsider pick – resigned under fire last year, Canada's federal police seem a prime candidate. The force is certainly a turnaround: the 1970s Quebec break-ins the prompted creation of CSIS (1981); the Air India bombing (1985); the bungled Airbus investigation (1995); the bungled APEC operation (1997); the Arrar torture fiasco (2002); the deadly Dziekański taser-panick (2007), Commission Zachardeli's extraordinary (and decisive) intervention in the 2006 election, and the pension mess throughout the period that finally took him down. Despite the Mounties' enduring reputation for boy-scout stoicism, they've posted a consistent record of operational fiasco and scandal over my entire lifetime; I personally have no memory of real-world performance that looks anything like the mythology. Of course, that's part of the problem, because mythology scares off politicians, and makes any organisation very tough to change.
I'll spare you the case material, readily familiar to informed Canadian readers. Still, my 'Theory Note' portion is short and sharp enough of a read to be blog. Mostly it hangs on a keystone secondary source, a really excellent book I'd recommend to anyone: Ramesh's look at why boards are Searching for a Corporate Saviour. Picking up from where my previous thoughts on the Joint Strike Fighter accounting donnybrook wandered, wondering if the fad for 'leadership' studies is a concession that actual management has been surrendered to the CFOs in our contemporary Audit Society, with cost and value accounting increasingly seizing Bagehot's 'efficient' function, leaving the Jobs/Branson types responsible for a pseudo-monarchial 'Dignified' function. Or at best… vision on ultimate mission, and ultimate purpose? Which is rather theological indeed: Ramesh charts out whether our obsession with soft skills skews boards' realism about what any CEO can actually personally accomplish with the skills of a human being.
I haven't posted the footnotes, just my thoughts…
Theory Note
As an HR policy, the selection criteria for executive leadership forms one of the most determinative characteristics of any public institution, and policing is not necessarily unique for the challenges inherent to successful policy. All bureaucratic institutions arguably face the same fundamental dilemma in executive recruitment: either to promote specialist, knowledgeable insiders or instead generalist, objective outsiders. In both business and government a rational, dispassionate, objective executive selection process can be compromised by the psychological factors that engender subjective, ad hoc decisions by officials who are themselves the directly interested stakeholders – or even candidates. Some common patterns are identifiable to such institutional politics, including:
These four of self-evident challenges are prone to be aggravated in cases of an institution facing a performance crisis – just the situation that most requires methodical planning. Effective executive succession requires not only an advanced contingency plan to structure the executive hiring process, but to be situated within a comprehensive HR strategy informed by reliable criteria for executive potential to remediate these forms of bias throughout HRM.
Informed by Max Weber’s contrast of bureaucratic with charismatic authority, Ramesh (2002) documents how the rise of institutional shareholders (such as pension or mutual funds) has greatly intensified demand for external CEO accountability for firm performance, with the observed corollary of broad preference for ‘motivational’ charisma over subject-matter expertise. The trend clearly correlates with post-‘New Public Management’ trends in the state sector of English speaking countries; the weakening separation of ownership and control in post-war ‘managerial capitalism’ has been paralleled by the decline of civil-service autonomy.
The institutional culture of a firm or sector can shape in detail the particular personality qualities of charismatic authority; in police forces for example, separation of rank from appointment signifies ‘paying for the person’ per Macky (2003), i.e. all a worker’s attributes retained on an opened-ended basis for potentially variable work. This contrasts with the overwhelming portion of civilian models that ‘pay for the work’ – or even for performance – with status deriving as a function of present job fit. As King (2005) outlines, police or military services feature a variety of other coinciding parallel hierarchies, including raw seniority (e.g. possibly exhibited in a sequential badge number), and operation tally (e.g. as exhibited in service decorations worn). Civilian notions of ‘command-and-control’ as linear obedience can thus be deceiving: a rote directive proclaimed from above on a linear office or rank basis can stall amid such a dynamic complex of interlaced multi-linear deferences, effectively egalitarian, that girds the self-regulating, autonomous character that epitomizes “professionalism” as Wilson (1989) defines it.
Requirement: Competencies
The foremost challenge to executive selection is the futility of job analysis: a general oversight role where ‘The buck stops here’ encompasses potentially infinite HR ‘competencies’. These include both indirect, ultimate responsibility to achieve competencies defined across the institution, but also unlimited responsibility for articulating unanticipated requirements that arise. Executive candidate requirements are tautological, in that they include deciding institutional requirements. Furthermore:
Different CEOs may achieve equal results from a variety of different behaviors: there is a sever information asymmetry (Britton et al 2006). In this regard, Chief Executive leadership signifies what (Wilson, 1989) describes as ‘coping’ discipline, in that neither the methods nor results of executive work are clearly observable – at least not in isolation from institutional operations and performance as a whole. While some estimate of optimal priority leadership qualities may be sought, especially to fit an entrenched institutional culture, the marginal contribution of executive performance can rarely be valued precisely enough to support objective comparisons with alternate performances, past or potential. Hiring a Chief Executive is effectively a ‘shot in the dark’ at best – wherever from.
Internal Selection
Traditionally across a variety of cultures, communities have looked to their obvious secondary leadership tier for heirs-apparent, and tended to weigh continuity heavily. In part, this is obviously a legacy of the family as a universal model for human social organisation, and for derived hereditary authority patterns such as in feudalism or Confucianism. Since family-based ownership persists in much of global business, the feudal estate can be a very direct model for their executive succession: i.e. 'nepotism'. Such pre-modern patterns tend to construe subordination as apprenticeship, inherently. Since a generic deputy faces redundancy – e.g. as in the U.S. Vice-Presidency – their authority is often substantiated by a geographic sub-division such as for Britain's Prince of Wales or Spain's Prince of Asturias. Yet public institutions' modern obligations to equal treatment and firm's incentive to economies of scale both implore standardization, so that even where executive delegation on regional lines has endured – e.g. France’s managerial generalist prefect for each département – it is weakened. Police are a model case, whereby the intense public demand for procedural consistency minimizes regional police commanders' discretion in casework beyond procedural compliance-enforcement. Modernity brings ever easier transport, and overloading information. Since at least Adam Smith (1776), theory has recognised that modern administrative organisations are less challenged by geographic division as by the need for functional specialisation: division of labour. As geographic hierarchies of public officials appointed from above (i.e. feudalism) came to be elected from below (i.e. federalism), or dissolved entirely into a unitary nation-state such as in New Zealand, the lines of delegation left available to public authority are basically those of professional function or economic sector. It is this spread of cabinet government and the business corporation since the 18th Century – by dissolving local generalist leadership into specializations – that often fatally impoverishes lines of succession.
Today's specialist secondary executives (Chief Financial Officer, Chief Info-technology Officer, Chief Legal Officer, etc.) usually lack the breadth of knowledge and general decision-making experience needed as CEO: in lieu of definitive competencies, internal candidates too must be evaluated by less technical, and more a subjective 'leadership' record. Their cultivation of stakeholders and social networks may be decisive, which encourages patronage and implicit alliance-forming politics that not only skews executive team’s deliberations and performance, but spurs CEOs to discourage the development of plausible – i.e. rival – internal heirs-apparent, unless they position themselves as a mentor and controlling sponsor (Cannella & Lubatkin,1993). That is undesirable if the CEO leaves amid a performance crisis. Crucially, a reverse ‘availability bias’ may also disadvantage internal executive candidates – especially amid a crisis that may have discredited the entire executive team – wherein internal candidates’ blame for past failures is more readily apparent. “The belief in the superiority of the outsider has become so ingrained that it was fashionable to portray the legendary Jack Welch – a consummate insider who had spent the entire career at career at GE before being named the company's CEO – as a de facto outsider.” (Ramesh, 2002, pg. 61) Ironically though, such insider ‘baggage’ is not necessarily anything more than a stigma to the external stakeholders Ramesh (2003) laments as increasingly fickle; incumbent deputies are more likely to have learned more from a CEO’s past mistakes. Precisely those most loyal to the team will find credit for their better judgment obscured by their discretion – and even if a deputy did endorse most of a discredited strategy, dissent on subtleties a may be the making of a wise CEO. As Porter (1996) classically illustrated, operational efficiency may be linear and quantifiable but strategy is not: its nature is that subtle qualitative details have global effects.
External Selection
Unfortunately, there is no evidence to link generic leadership or charisma to performance, and pressure to prove bona fides may foster bias for excessive organisational change and restructuring’; Max Weber observed that charismatic leaders tend to arise in the middle of acute social disruptions (Ramesh 2002). Deference to charisma exacerbates the failure of administrative doctrine to progress rationally, by scientific empiricism. As Hood & Jackson (1994) identify in fashion-like trends over the centuries, it can be shown to rely overwhelmingly on such heuristics as the six techniques of classical rhetoric:
All six of these can be seen in an analogous case-study, the contentious hiring of former NZ Post CEO John Allen as New Zealand’s first Chief Executive at the Ministry of Foreign Affairs and Trade to be appointed from outside diplomatic corps. As media summarize the populist argument:
Yet diplomacy is a classic example of what Wilson’s (1989) model describes as a craft organization: while end-goals of peace and export growth may be easy enough to observe, its outputs are inherently intangible.
If Ramesh (2002) is correct that external accountability popularises CEOs who personify charismatic archetypes, then in addition to these tools, charisma, bias selection must bias to the prestige of incumbency at Chief Executive status. Over insiders from comparatively banal specialist roles, outsiders appear more attractive for promotion from the head of smaller firms. Noting that a third of CEO’s are outsiders, Ramesh (2002) states “(The CEO labor market) is not really a market. A genuine market means many people transacting anonymously and efficiently, with the guiding factor that no single actor has enough power to set the terms of the exchange.” However, as financier George Soros (2012) has outline, serious investors acting with methodical empiricism do not even believe markets to be efficient. Real markets lack ‘perfect information’ and are therefore highly reflexive, with the logarithmic momentum of tautological feed-back loops amplifying events into cultural and political ‘bubbles’ of momentum for particular attributes, companies of origin (e.g. the oft-poached General Electric V.P bench), or the raw celebrity of individuals name-brands (e.g. Donald Trump).
Nevertheless, recruitment of an outsider ‘parachute’ executive is an intuitively appealing option for firms or agencies in distress. A perception of making a ‘fresh start’ under a new leader untainted by recent failure may be cathartic for employees and stakeholders, especially if fragmentation of an executive team has contributed to difficulties – yet an outsider may be less interested in defending the legacy of faulty past decisions and conversely, but conversely may feel less pressure for rash changes merely to demarcate their tenure. The stunning success of Louis Gertner, Jr, (a formerly of AMEX and CEO at RJR Nabisco) in reviving IBM after 1993 its consumer market-share collapsed illustrates this potential: his outsider-credibility enable him to re-commit to a strategy around IBM’s oldest, least original product line: mainframe computers. Thus these two claims cancel-out in abstract. The details of an enterprise and the strategic plan on the table will dictate the implications charismatic factors relative to the severe drawbacks of limited local knowledge, and need for a longer transitional period.
Original post: http://paper-trails.ca/2012/07/19/alw...
Semester's end, I've got some down time having finally wrapped up a long-brewing research paper for my Human Resources course. I looked at the problem – common to public and private sectors – of executive selection. The reality is that formal succession planning is rare so the choice often has attributes of a crisis, and especially for a dysfunctional organisation attempting a turnaround, the dilemma is a timeless one: insider or outsider? Since the first-ever civilian Commissioner of the RCMP – a quintessential radical outsider pick – resigned under fire last year, Canada's federal police seem a prime candidate. The force is certainly a turnaround: the 1970s Quebec break-ins the prompted creation of CSIS (1981); the Air India bombing (1985); the bungled Airbus investigation (1995); the bungled APEC operation (1997); the Arrar torture fiasco (2002); the deadly Dziekański taser-panick (2007), Commission Zachardeli's extraordinary (and decisive) intervention in the 2006 election, and the pension mess throughout the period that finally took him down. Despite the Mounties' enduring reputation for boy-scout stoicism, they've posted a consistent record of operational fiasco and scandal over my entire lifetime; I personally have no memory of real-world performance that looks anything like the mythology. Of course, that's part of the problem, because mythology scares off politicians, and makes any organisation very tough to change.
I'll spare you the case material, readily familiar to informed Canadian readers. Still, my 'Theory Note' portion is short and sharp enough of a read to be blog. Mostly it hangs on a keystone secondary source, a really excellent book I'd recommend to anyone: Ramesh's look at why boards are Searching for a Corporate Saviour. Picking up from where my previous thoughts on the Joint Strike Fighter accounting donnybrook wandered, wondering if the fad for 'leadership' studies is a concession that actual management has been surrendered to the CFOs in our contemporary Audit Society, with cost and value accounting increasingly seizing Bagehot's 'efficient' function, leaving the Jobs/Branson types responsible for a pseudo-monarchial 'Dignified' function. Or at best… vision on ultimate mission, and ultimate purpose? Which is rather theological indeed: Ramesh charts out whether our obsession with soft skills skews boards' realism about what any CEO can actually personally accomplish with the skills of a human being.
I haven't posted the footnotes, just my thoughts…
Theory Note
As an HR policy, the selection criteria for executive leadership forms one of the most determinative characteristics of any public institution, and policing is not necessarily unique for the challenges inherent to successful policy. All bureaucratic institutions arguably face the same fundamental dilemma in executive recruitment: either to promote specialist, knowledgeable insiders or instead generalist, objective outsiders. In both business and government a rational, dispassionate, objective executive selection process can be compromised by the psychological factors that engender subjective, ad hoc decisions by officials who are themselves the directly interested stakeholders – or even candidates. Some common patterns are identifiable to such institutional politics, including:
- incumbents’ personal incentive to present themselves as irreplaceable;
- impulsive hiring authority (i.e. corporate board or cabinet), weakened by dissent among membership,
- unfamiliarity with the role in necessary detail, or limited mandate to pre-plan;
- denial about succession as a perennial and inevitable HRM function, assuming it an exceptional and thus ad hoc process, so that little institutional memory links iterations;
- secretiveness and poor transparency – often from oversensitivity to losing candidates and dissenting observers leading to – with even less institutional memory linking iterations.
These four of self-evident challenges are prone to be aggravated in cases of an institution facing a performance crisis – just the situation that most requires methodical planning. Effective executive succession requires not only an advanced contingency plan to structure the executive hiring process, but to be situated within a comprehensive HR strategy informed by reliable criteria for executive potential to remediate these forms of bias throughout HRM.
Informed by Max Weber’s contrast of bureaucratic with charismatic authority, Ramesh (2002) documents how the rise of institutional shareholders (such as pension or mutual funds) has greatly intensified demand for external CEO accountability for firm performance, with the observed corollary of broad preference for ‘motivational’ charisma over subject-matter expertise. The trend clearly correlates with post-‘New Public Management’ trends in the state sector of English speaking countries; the weakening separation of ownership and control in post-war ‘managerial capitalism’ has been paralleled by the decline of civil-service autonomy.
The institutional culture of a firm or sector can shape in detail the particular personality qualities of charismatic authority; in police forces for example, separation of rank from appointment signifies ‘paying for the person’ per Macky (2003), i.e. all a worker’s attributes retained on an opened-ended basis for potentially variable work. This contrasts with the overwhelming portion of civilian models that ‘pay for the work’ – or even for performance – with status deriving as a function of present job fit. As King (2005) outlines, police or military services feature a variety of other coinciding parallel hierarchies, including raw seniority (e.g. possibly exhibited in a sequential badge number), and operation tally (e.g. as exhibited in service decorations worn). Civilian notions of ‘command-and-control’ as linear obedience can thus be deceiving: a rote directive proclaimed from above on a linear office or rank basis can stall amid such a dynamic complex of interlaced multi-linear deferences, effectively egalitarian, that girds the self-regulating, autonomous character that epitomizes “professionalism” as Wilson (1989) defines it.
Requirement: Competencies
The foremost challenge to executive selection is the futility of job analysis: a general oversight role where ‘The buck stops here’ encompasses potentially infinite HR ‘competencies’. These include both indirect, ultimate responsibility to achieve competencies defined across the institution, but also unlimited responsibility for articulating unanticipated requirements that arise. Executive candidate requirements are tautological, in that they include deciding institutional requirements. Furthermore:
Why doesn’t starting with behavioral competencies work in selecting executives? …First, as we move up the hierarchy, we go from jobs in which behavior and results are tightly coupled to jobs where there is a very loose coupling between behavior and results. In lower level jobs, there often is a ‘‘right way’’ to do the job… At the top, however, and in complex organizations, we cannot ‘‘specify how to effectively enact that role.” (Hollenbeck, 2009)
Different CEOs may achieve equal results from a variety of different behaviors: there is a sever information asymmetry (Britton et al 2006). In this regard, Chief Executive leadership signifies what (Wilson, 1989) describes as ‘coping’ discipline, in that neither the methods nor results of executive work are clearly observable – at least not in isolation from institutional operations and performance as a whole. While some estimate of optimal priority leadership qualities may be sought, especially to fit an entrenched institutional culture, the marginal contribution of executive performance can rarely be valued precisely enough to support objective comparisons with alternate performances, past or potential. Hiring a Chief Executive is effectively a ‘shot in the dark’ at best – wherever from.
Internal Selection
Traditionally across a variety of cultures, communities have looked to their obvious secondary leadership tier for heirs-apparent, and tended to weigh continuity heavily. In part, this is obviously a legacy of the family as a universal model for human social organisation, and for derived hereditary authority patterns such as in feudalism or Confucianism. Since family-based ownership persists in much of global business, the feudal estate can be a very direct model for their executive succession: i.e. 'nepotism'. Such pre-modern patterns tend to construe subordination as apprenticeship, inherently. Since a generic deputy faces redundancy – e.g. as in the U.S. Vice-Presidency – their authority is often substantiated by a geographic sub-division such as for Britain's Prince of Wales or Spain's Prince of Asturias. Yet public institutions' modern obligations to equal treatment and firm's incentive to economies of scale both implore standardization, so that even where executive delegation on regional lines has endured – e.g. France’s managerial generalist prefect for each département – it is weakened. Police are a model case, whereby the intense public demand for procedural consistency minimizes regional police commanders' discretion in casework beyond procedural compliance-enforcement. Modernity brings ever easier transport, and overloading information. Since at least Adam Smith (1776), theory has recognised that modern administrative organisations are less challenged by geographic division as by the need for functional specialisation: division of labour. As geographic hierarchies of public officials appointed from above (i.e. feudalism) came to be elected from below (i.e. federalism), or dissolved entirely into a unitary nation-state such as in New Zealand, the lines of delegation left available to public authority are basically those of professional function or economic sector. It is this spread of cabinet government and the business corporation since the 18th Century – by dissolving local generalist leadership into specializations – that often fatally impoverishes lines of succession.
Today's specialist secondary executives (Chief Financial Officer, Chief Info-technology Officer, Chief Legal Officer, etc.) usually lack the breadth of knowledge and general decision-making experience needed as CEO: in lieu of definitive competencies, internal candidates too must be evaluated by less technical, and more a subjective 'leadership' record. Their cultivation of stakeholders and social networks may be decisive, which encourages patronage and implicit alliance-forming politics that not only skews executive team’s deliberations and performance, but spurs CEOs to discourage the development of plausible – i.e. rival – internal heirs-apparent, unless they position themselves as a mentor and controlling sponsor (Cannella & Lubatkin,1993). That is undesirable if the CEO leaves amid a performance crisis. Crucially, a reverse ‘availability bias’ may also disadvantage internal executive candidates – especially amid a crisis that may have discredited the entire executive team – wherein internal candidates’ blame for past failures is more readily apparent. “The belief in the superiority of the outsider has become so ingrained that it was fashionable to portray the legendary Jack Welch – a consummate insider who had spent the entire career at career at GE before being named the company's CEO – as a de facto outsider.” (Ramesh, 2002, pg. 61) Ironically though, such insider ‘baggage’ is not necessarily anything more than a stigma to the external stakeholders Ramesh (2003) laments as increasingly fickle; incumbent deputies are more likely to have learned more from a CEO’s past mistakes. Precisely those most loyal to the team will find credit for their better judgment obscured by their discretion – and even if a deputy did endorse most of a discredited strategy, dissent on subtleties a may be the making of a wise CEO. As Porter (1996) classically illustrated, operational efficiency may be linear and quantifiable but strategy is not: its nature is that subtle qualitative details have global effects.
External Selection
Unfortunately, there is no evidence to link generic leadership or charisma to performance, and pressure to prove bona fides may foster bias for excessive organisational change and restructuring’; Max Weber observed that charismatic leaders tend to arise in the middle of acute social disruptions (Ramesh 2002). Deference to charisma exacerbates the failure of administrative doctrine to progress rationally, by scientific empiricism. As Hood & Jackson (1994) identify in fashion-like trends over the centuries, it can be shown to rely overwhelmingly on such heuristics as the six techniques of classical rhetoric:
Symmetry – solutions seem to fit the problems;
Metaphor – it sounds right;
Ambiguity – something in it for everyone;
Suspensions of disbelief – appeals to a higher cause
Selectivity – consider the favourable examples
Private interest presented as public good;
All six of these can be seen in an analogous case-study, the contentious hiring of former NZ Post CEO John Allen as New Zealand’s first Chief Executive at the Ministry of Foreign Affairs and Trade to be appointed from outside diplomatic corps. As media summarize the populist argument:
“(T)he appointment indicates that the Government wants a more tangible result from the millions it spends annually on the ministry and its international posts… In Mr. Allen, according to one insider, the SSC has found a unique individual for a unique position, a man who instinctively understands that trade policy succeeds only when it and a country's political leadership are aligned.” (Dominion Post, 2009)
Yet diplomacy is a classic example of what Wilson’s (1989) model describes as a craft organization: while end-goals of peace and export growth may be easy enough to observe, its outputs are inherently intangible.
If Ramesh (2002) is correct that external accountability popularises CEOs who personify charismatic archetypes, then in addition to these tools, charisma, bias selection must bias to the prestige of incumbency at Chief Executive status. Over insiders from comparatively banal specialist roles, outsiders appear more attractive for promotion from the head of smaller firms. Noting that a third of CEO’s are outsiders, Ramesh (2002) states “(The CEO labor market) is not really a market. A genuine market means many people transacting anonymously and efficiently, with the guiding factor that no single actor has enough power to set the terms of the exchange.” However, as financier George Soros (2012) has outline, serious investors acting with methodical empiricism do not even believe markets to be efficient. Real markets lack ‘perfect information’ and are therefore highly reflexive, with the logarithmic momentum of tautological feed-back loops amplifying events into cultural and political ‘bubbles’ of momentum for particular attributes, companies of origin (e.g. the oft-poached General Electric V.P bench), or the raw celebrity of individuals name-brands (e.g. Donald Trump).
Nevertheless, recruitment of an outsider ‘parachute’ executive is an intuitively appealing option for firms or agencies in distress. A perception of making a ‘fresh start’ under a new leader untainted by recent failure may be cathartic for employees and stakeholders, especially if fragmentation of an executive team has contributed to difficulties – yet an outsider may be less interested in defending the legacy of faulty past decisions and conversely, but conversely may feel less pressure for rash changes merely to demarcate their tenure. The stunning success of Louis Gertner, Jr, (a formerly of AMEX and CEO at RJR Nabisco) in reviving IBM after 1993 its consumer market-share collapsed illustrates this potential: his outsider-credibility enable him to re-commit to a strategy around IBM’s oldest, least original product line: mainframe computers. Thus these two claims cancel-out in abstract. The details of an enterprise and the strategic plan on the table will dictate the implications charismatic factors relative to the severe drawbacks of limited local knowledge, and need for a longer transitional period.
November 9, 2017
If you replace terms like charismatic with narcissistic, you start to connect the dots Khurana charted in 2002 with the state of those companies today and their role in the financial crises of 2008.
October 2, 2016
An interesting book about how to think about CEO searches and pay. It does appear that the criteria are a little non-specific and investor driven. I do think that this book in the discourse of other trends in business is very interesting as relates to what exactly the system of economics is warping into.
What I think is unfortunate is that he chose Jamie Dimon as his example of a "not as good" CEO. I think what this author may be slightly guilty is similar to what many investors are guilty of. That is the increasing rapidity to show results. Dimon in his first two years perhaps had - perhaps more obstacles - than he first thought he would have. There were significant cultural differences (as Khurana points out). Furthermore, Bank One had a lot of problems that were under the surface and came to larger fruition post the tech bubble. However, his sale of ONE to JPM was brilliant and he's been a fantastic CEO of that organization, particularly in navigating the current crisis. Hence, bad choice.
In other words, the speed of turnover of CEO may be less a function of poor attributes of a CEO selection, and the state of affairs in a world were companies report quarterly and people are short term oriented. Khurana gives some credence to that, but seems not to find that adequate. Perhaps regressing CEO pay to some change that relates to market dynamic change might better neutralize this point.
What I think is unfortunate is that he chose Jamie Dimon as his example of a "not as good" CEO. I think what this author may be slightly guilty is similar to what many investors are guilty of. That is the increasing rapidity to show results. Dimon in his first two years perhaps had - perhaps more obstacles - than he first thought he would have. There were significant cultural differences (as Khurana points out). Furthermore, Bank One had a lot of problems that were under the surface and came to larger fruition post the tech bubble. However, his sale of ONE to JPM was brilliant and he's been a fantastic CEO of that organization, particularly in navigating the current crisis. Hence, bad choice.
In other words, the speed of turnover of CEO may be less a function of poor attributes of a CEO selection, and the state of affairs in a world were companies report quarterly and people are short term oriented. Khurana gives some credence to that, but seems not to find that adequate. Perhaps regressing CEO pay to some change that relates to market dynamic change might better neutralize this point.
July 31, 2007
I read this book for a project I was going to do at my newspaper on CEO pay, but later shelved indefinitely. I suppose you would need a strong interest in the subject, but if you have it, this is a very good book with provocative and compelling arguments that the latter-day tendency of American corporations to search for celebrity CEOs has had a negative effect on corporate life by restricting the pool of executive talent and boosting the ever escalating pay of CEOs through intense competition for this smaller star pool. Khurna, a Harvard business professor, does not buy the argument that only a relative handful of CEOs have the ability to lead today's large corporations, and he makes a strong case for going back to more promotion of insiders.
July 11, 2008
A must read for those who are responsible for hiring executives
September 28, 2011
Recommended by Professor Timothy Vogus
Displaying 1 - 6 of 6 reviews