Sunday, October 16, 2011

How Corporate Boards Choose Charismatic Leaders

Often the board of directors is not an effective auditor for recruiting and monitoring the actions of charismatic leaders. Greve (2004) pointed to Khurana’s (2002) work on the irrational search for charismatic CEOs. Board of directors of major corporations believe strongly in the ability of a CEO to rescue a troubled firm. This irrational enthusiasm stems from: 1. Directors taking cues from securities analysts and business journals prompting directors to believe that a celebrity CEO can turn around a company’s low performance, 2. Directors evaluating CEOs based on past performance and viewing social traits characterized as charisma as a panacea, and 3. Directors and analysts being complicit in choosing a CEO based on these preconceived notions of CEO value. Invariably, there is no voice of reason between directors and analysts in auditing and objectively searching for a CEO with the best overall fit within a company’s corporate culture. Once a board sets its sights on a specific CEO, analysts follow suit. Greve’s reported that this favoritism toward charismatic CEOs has impact on organizational development. First, by choosing a CEO based on past performance or celebrity status before searching inside the company for qualified candidates causes low morale within the company. Second, directors operate from a position of weakness in contractual negotiations with a highly sought-after CEO. Inflated expectations of the new CEO is a recipe for failure when expectations do not materialize based on high expectations, risky strategic decisions, and the exorbitant power of the new CEO. Corporate challenges may be more complex than originally defined or take longer to solve than anticipated.

References

Greve, H. (2004 May). Searching for a corporate savior: The irrational quest for charismatic ceos reviewed work(s). American Journal of Sociology, 109(6), 1542-1544.

Khurana, R. (2002). Searching for a corporate savior: The irrational quest for charismatic ceos. Princeton, N.J.: Princeton University Press.

For more information, visit: http://charismaticleadership.coreedgecharisma.com/

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