Go big or go home
Exploring the impact of dominant CEOs
By Jennifer Kelly
Dominant corporate leaders deliver extreme results, good and bad, found a study by a researcher in the Faculty of Business Administration.
In a study entitled Dominant CEO, Deviant Strategy, and Extreme Performance: The Moderating Role of a Powerful Board, Dr. Jianyun Tang explored the impact of dominant CEOs, specifically, whether dominant CEOs are good or bad for firm performance.
Based on a sample of 51 publicly traded, single-business firms from the U.S. computer industry for the period 1997–2003, the study revealed that dominant CEOs tend to bring deviant strategy to their firms (a strategy deviant from the industry central tendency) and thus extreme performance – either big wins or big losses.
Dominant CEOs are defined as those chief executives who are much more powerful relative to other executives in their top management teams.
"What we found is it's not really that they are bad or good but that they tend to have extreme performance," explains Dr. Tang.
The study cites Bill Gates of Microsoft and Jack Welch of GE as examples of dominant CEOs who have achieved spectacular success, and Kenneth Lay of Enron and Bill Agee of Morrison Knudsen as examples of dominant CEOs who have resulted in disastrous failure.
What can help balance the power of a dominant CEO? A strong board. Dr. Tang's study suggests that a strong board of directors can help balance the power of dominant CEOs and more importantly, control the downside risk of a dominant CEO. A strong board can act as a watchdog that further scrutinizes the CEO's strategy proposals and help weed out bad strategic deviance.
In this sense, coupling dominant CEOs with powerful boards could be an ideal governance arrangement. However, Dr. Tang cautions that such a combination is "uncommon in practice, as in most cases CEOs have significant control over their boards and it is difficult to expect someone to set up a mechanism to oversee themselves." Although the situation has improved somewhat in recent years, for example, through independent nomination committees, Dr. Tang says CEOs still have significant influence.
This study has sparked interest on an international scale. When the study was made available for early view on the Journal of Management Studies website, the publisher ran an article-level promotion campaign using Dr. Tang's article as an illustration of the quality of work the journal publishes.
The campaign received 47 publicity hits from such media as Human Resource Executive Online and Forbes.com.
Dr. Tang also received requests for interviews from the Globe and Mail and the Human Resource Executive magazine.
The study (co-authored with Drs. Mary Crossan and Glenn Rowe of the Richard Ivey School of Business) is forthcoming in the Journal of Management Studies.
Dr. Tang is currently working on a SSHRC-funded project (extended from the above study) entitled Dominant CEOs: Under What Conditions Do They Bring to Their Firm's Success Rather than Failure? and a project regarding top executives' external ties.