Business Exposed106
Does this perhaps remind you of your high-school days. . . ?
Water in your locker, a “kick me” sign on your back, your
school books thrown in the bin, your clothes vanished when
you returned from the gymnasium shower? That’s the faith and
reality of a deviant board member, who went against the wishes
of the elite.
And, guess what, it worked. Jim, in his statistical analysis, also
examined the subsequent voting behavior of the directors who
had been subject to such treatment. Whenever, in the ensuing
years, there was another vote on one of the four aforementioned
measures, the directors would cave in, and vote against it. He
didn’t dare do it again.
Board-cloning – a rewarding habit
Who do CEOs think should succeed them? Well, someone like them of
course.
But then, who do their boards think should succeed the CEO? Well,
someone who is much more like the members of the board, of course.
Then, what does the CEO think the next board member should ideally
look like? Well, someone quite like him of course.
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Liaisons and intrigues
Does the current board agree with this? No, usually not; they think the
new board member should be much more like them.
This sums up the research that Professors James Westphal and Ed
Zajac (at the time both at Northwestern University) did in the
mid-1990s on CEO successors and the background characteristics
of newly appointed board members. Surprising it is not – we all
like people who are like us, and think that they are so much more
competent than the next guy – but I still nd it striking (if not
shocking) how Jim and Ed could so easily uncover evidence of
these tendencies using a few simple statistics.
They measured some straightforward background characteristics
of all of these guys (sorry . . . yes, usually guys), such as their age,
their functional background, education, etc., in 413 Fortune 500
companies. Using these measures, they computed how dissimilar
newly appointed CEOs and board members were from the prior
CEO and from existing board members.
If the incumbent CEO was in a powerful position (because he
was both CEO and chairman of the board, had long tenure,
the rm had been performing relatively well, and because there
were few outside directors on the board, who owned little stock),
incoming CEOs and board members would be much more like
the previous CEO – obviously this guy used his powerful position
to make sure someone was selected who could be mistaken for
his clone. Yet, the reverse was true too; if the board members had
more power, they would select someone quite unlike the CEO
and much more similar to themselves.
The tricky thing is of course when the CEO succeeds in selecting
more and more board members who are just like him. Then the
process escalates because board members and the CEO start liking
the same people! Eventually, everyone in the rm starts to look
alike, talk alike, has the same background, education, taste in
cars, dress, entertainment, and so on and so on. Sounds familiar?
Know any companies like that? Perhaps you’re employed by
a rm just like that (and there’s a good chance that you t in
nicely), or perhaps it reminds you of the phenomenon of “the
success trap”, or perhaps – and even worse – both!
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