Star CEOs
Exercise
Discuss (a) the causes, and (b) the consequences of these ‘stars’ and (c) the research commented on in the following press clip:
“Today many corporate executive officers have a star status. They appear on the cover of business magazines, engage in stunts and like to be known by their nicknames such as “chain saw Al”, “slasher Bill” or “neutron Bob”. These professional managers have become household names such as Disney’s Michael Eisner getting a pop-star welcome wherever he goes, Chrysler’s former president Lee Iacocca publishing his modestly titled “Iacocca” in 1985, or Virgin’s Richard Branson appearing naked in several magazines but for a strategically placed copy of his recent book. At the same time, research has found that 85% of financial analysts claim to buy shares because of the chief executive’s “reputation”. In addition, this research found that companies run by the 10 most-admired bosses recovered almost four times faster from the recent market correction than those run by the 10 least-admired ones” (The Economist, November 28th, 1998).
The research was done by Burson Marsteller, a public relations firm.
Analysis
Causes. Three possible arguments: (a) Efficiency argument: developing a good image benefits the organization. Coherent with the research described in the clip. (b) Expropriation argument: These managers are using corporate resources to develop their human capital. (c) Selection argument: good CEO’s happen to be people that crave this kind of attention as well.
Consequences: Concentration of power, with positive and negative consequences: (a) Positive. Power in organizations: the star-status provides the CEO with the power to quickly implement decisions, jump on opportunities and recover faster from market corrections or recessions. This might be especially valuable in crisis (e.g., the Chrysler case confirms this). (b) Negative. They will hold too much power. Thus, they will waste resources and tend to build empires. The last years of Iacocca also confirm this.
Research. The research might be confusing correlation and causation: perhaps bigger firms (or any other variable) recover faster and they also have more stars. Also possible bad definitions in the research: why most admired? For their ability to run a firm? This would be in line with the selection argument. More important: as a public relations firm it may have an interest in promoting that “claim” as a “fact”; this firm is a producer of reputation. It might be simply advertising its product.
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