CHAPTER 6

CROWNING NAPOLEON: THE MAKING

OF THE CHARISMATIC CANDIDATE

IN 1999 AND 2000, respectively, Lew Platt of Hewlett-Packard and Michael Hawley of Gillette joined the ranks of CEOs from Fortune 500 companies forced out of their positions. They were only the newest additions to a nearly decade-old club whose founding members included John Akers of IBM, Paul Lego of Westinghouse, Robert Stempel of General Motors, and Kay Whitmore of Kodak. Hawley and Platt, like many of the other CEOs who had been forced out since the early 1990s, would subsequently be replaced by outsider successors. Like their counterparts on so many other Fortune 500 boards in the era of investor capitalism, the directors of Gillette and H-P turned to outsider CEOs in hopes of restoring firm performance and regaining the confidence of investors, Wall Street analysts, and the business media—each of which had unceasingly criticized their respective companies.

Hawley and Platt, despite their positions at the top of two of America’s most celebrated companies, were hardly well known. This is not surprising, because neither was a media figure. They were never on TV flogging their companies’ products in the way that some CEOs now do. They did not hire ghostwriters to produce self-congratulatory autobiographies. Their pictures did not appear on many magazine covers. More than a few employees in their companies didn’t recognize them when they saw them. Yet they were loyal company men. Both—like their predecessors—had spent almost their entire professional careers with the companies they would lead. Both were flagged early in their careers by their companies’ human resources departments as individuals with executive potential. Their supervisors were able to observe them in a variety of situations, and on the basis of these observations, they were promoted to positions of ever-increasing responsibility and scope. They were trustworthy subordinates. They waited for their time to come, and when it did, they were promoted to the CEO position. In short, Hawley and Platt both epitomized the post–World War II career executive—which proved to be their downfall when changing times appeared to demand a different kind of corporate chieftain.

In the cases of both Gillette and H-P, the boards of directors believed that what was needed to improve firm performance was not Hawley or Platt’s tested and proven managerial skills, but something else. What this “something else” was is not easily defined. The head of H-P’s search committee said that the board was looking for someone with “tremendous leadership ability” and “the power to bring urgency to an organization.” A director at Gillette remarked that he and his colleagues were looking for someone to “revitalize the organization” and “restore confidence and order.”

When directors, search consultants, and influential outsiders (such as analysts and business journalists) try to describe the elusive quality that more and more large corporations now seek in a CEO, they often use the word charisma. In its ordinary usage, by scholars as well as by participants in the CEO search process, the term has become a synonym for a variety of other traits now associated with corporate leadership. Today, it has become common to speak of the qualifications for the CEO position in relation not to any specific managerial tasks but rather to the ability of certain individuals to rouse others. What is now considered the all-important quality of “leadership” is all about being able to energize people who are lethargic or skeptical. It is about increasing the self-confidence of employees when the company is collectively anxious. It is about unifying an organization’s constituencies when self-interest and political alignments divide them from one another. The corporate leader’s job is thought to consist, above all, in helping the organization face up to a crisis situation and then taking it into the future with a guiding and motivating vision. To be able to carry out this defining task, it is now almost universally believed, a CEO must have “charisma.”

While the concept of charisma has proven seductive for business school professors, consultants, and the business press, it is, in its ordinary usage today, an elusive and imprecise way of discussing leadership. Although biographers and journalists have devoted many a page to measuring the “charisma” of figures such as Jack Welch, Steve Jobs, and Lee Iacocca, the word, as generally used, is as difficult to define as “love” or “art,” and few who use it succeed in conveying what they mean by it. Corporate directors and search consultants, for their part, use their own kind of shorthand to describe a candidate’s charisma. The words they employ again and again include “chemistry,” “executive presence,” “articulation,” “stature,” and “change agent.” Like the specification sheets examined in chapter 4, these overworked terms underscore how difficult directors find it to think in anything but the most conventional terms, even while supposedly seeking a CEO who will overthrow convention. Directors elevate the individuals with whom they associate these charismatic qualities, however vague they may be, and discount those who do not possess them, often citing the lack of one or more of these characteristics as their reason for rejecting a candidate. They also tend to believe that the charisma that they seek in candidates is something that comes through inheritance and early formative experiences and cannot be learned or acquired later in life.

To see these perceptions and judgments in action, consider the situation at a large insurance company in which the CEO search had been narrowed to three candidates, two insiders and one outsider. One director described the criteria he had used to evaluate the candidates by saying, “[I] would look at how they verbalized their thoughts, conceptual abilities, ability to express themselves clearly, talk about other people, how they rationalize their actions, their posture, mannerisms, and way of dress.” The search consultant leading the search explained his preference for one candidate in similar terms, while also citing breeding and sex appeal as key factors:

I liked the subtleties of his presence, his inflections, and how he talked to others. I also liked how he was raised. He had good parents, tremendous genetics. All the right things were present: responsibility at early ages . . . commitment to community. . . . I also noticed how secretaries blushed and seemed so genuinely glad to see this person, unlike the other . . . candidates.

When I asked another director at the same firm why the runner-up candidate was not selected, he stated:

A top executive must have stature and poise. Someone needs to move with focus, crisply and gracefully. They need to make the first move to shake hands (two strong shakes). I know if they are listening if they lean forward when they sit. They should be able to lead with small talk, but quickly get into the heart of the matter. They can’t appear to be easily flustered. . . . I have to have the impression that someone else—a secretary or assistant—is handling the details of their life. . . . [David] did not display any of this, so he was off my list.

Given their own individual personalities and tastes, members of the same board do differ from one another, of course, when describing which attribute or attributes of a particular candidate they find charismatic. Considering the existence of these individual differences, we might also expect that different board members would exhibit preferences for different candidates. It may therefore seem surprising that directors involved in a given search show a strong tendency to zero in on the same candidate. Yet this tendency toward consensus contains an important clue to the true nature of charisma. For it suggests that the charismatic power that directors attribute to a particular candidate is derived only in part from the individual responses of directors, and to a much greater extent is a social product—that is, a creation of the social expectations vested in the candidate (although not consciously) by the directors acting as a group.

It is common in many human activities for some individuals to command more attention than others, even at the same apparent level of competence. Historians, journalists, and other observers often write about personal traits that distinguish such persons from others in a given field, but their accounts can be unconvincing. The celebrity of many movie stars and pop musicians, for example, is attributable not to their dramatic or musical skills or accomplishments but rather to the fact that audiences are excited when they appear on the stage.¹ Similarly, in the CEO labor market, stories, gossip, and legends about some executives travel farther than those about others, irrespective of various individuals’ abilities or accomplishments.

Indeed, in the case of CEOs, it would sometimes be difficult to maintain the charisma of the leader if the focus were on his or her actions on the job. Whereas, in the past, charisma was attributed to a particular individual because of his or her deeds, this becomes problematic when those deeds include, say, firing tens of thousands of people while reaping multi-million-dollar bonuses. In today’s corporate folklore (which mirrors the psychologizing of public language in American society generally), charisma is often found to be rooted not so much in specific actions and accomplishments as in an individual’s ability to overcome some personal handicap. Thus, for example, Jack Welch’s biographers prominently note that their subject had to overcome a stutter as a young boy, an achievement that supposedly gave him what it takes to run a giant corporation.² John Chambers’s biographers observe that this future CEO had to conquer dyslexia and claim that his ability to do so is, in part, what enabled him to build Cisco Systems.³

Of course in a society in which any celebrity worthy of the name eventually wants the public to know about some previously unsuspected personal adversity, trauma, weakness, or vice, such tales reveal much more about the audiences that are swayed by them than they do about their protagonists. Charisma, in short, is almost completely in the eyes of the beholders, who fasten on certain leaders out of deeply felt, socially shared needs. Just as the roles of directors and executive search firms in the external CEO search turn out to be comprehensible only when these actors are viewed in relation to the social structures and systems of belief within which they operate, so too with the charismatic candidates who become (or are already) society’s charismatic CEOs. To understand the way that the role of CEO candidates is socially constructed, we need to look more closely at the loosely interpreted, often misunderstood concept of charisma.

The Social and Cultural Dimensions of “Charisma”

The economist John Maynard Keynes once wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”⁴ Keynes’s statement is applicable to the concept of charisma, which over the course of a century has gradually found its way from the works of thinkers such as Max Weber and Sigmund Freud into our common lexicon. As noted in chapter 3, Weber transferred the term—whose root meaning is “the gift of grace”—from its religious context into politics. He described charisma as the ability of some individuals to evoke in others feelings of devotion, confidence, illumination, and heroism. He also contrasted charismatic leadership with leadership based on custom and tradition, or on competence related to “rationally created” rules of law. The charismatic leader is thus one whose right to rule is legitimated by neither tradition nor rules but rather by his apparent endowment with superior powers for solving particular problems.⁵

Weber argued that the charismatic leader, in his purest form, is viewed uncritically by his followers, being regarded as all powerful, all wise, and morally perfect. Yet this ideal type is unlikely to be found in actual situations. Weber also argued that traditional societies were most vulnerable to episodes of charismatic authority. In a liberal democracy such as the United States, society is believed to exist for the sake of the individual, not the other way around. Over time, democratic individualism drives the members of such societies toward ever more radical declarations of independence, thus reducing their susceptibility to charismatic authority. Weber did suggest, however, that in rare historical circumstances even advanced democratic societies could be subject to eruptions of charismatic authority. (He might have been surprised at his own extrapolative powers, had he lived only a few years longer and seen the rise of Hitler in his native Germany.) In the context of business organizations, then, the question is how this type of leadership could have appeared in the contemporary corporation. To begin answering this question, we must first briefly discuss Weber’s insights into the nature of control and legitimacy as they apply to organizations.

One of Weber’s basic arguments was that all organizations are dependent on some type of controlling authority. Ultimately, any controlling authority must be seen as legitimate to keep itself intact. In the organizational context, traditional authority is exemplified by nineteenth-century business organizations, in which it was not uncommon for the heir of the founding entrepreneur to take over the company on the latter’s death or retirement.⁶ Charismatic authority in business organizations originally manifested itself in the person of the founders of entrepreneurial firms: whereas Weber offered prophets, visionaries, saints, and revolutionary leaders as examples of charismatic leaders, Henry Ford or Andrew Carnegie would be the earliest examples of such charismatics in a business setting. Legal or rational authority—which rests on the appeal of the propriety and efficiency of formally enacted rules and statutes—is in turn exemplified in a business context by CEOs in the era of managerial capitalism. For our purposes, the contemporary shift from rational authority to charismatic authority in business is of particular interest.

While “charisma,” in everyday usage, has come to be viewed as a characteristic inherent in certain types of individuals, to seize on this particular aspect of Weber’s definition of it is to miss his most important insights. After all, Weber’s distinction among traditional, charismatic, and rational authority suggests that each is a product of a very particular set of social and political circumstances. Indeed, Weber recognized that charisma was mostly defined by its social context, that it was, at its roots, a social phenomenon.⁷ He argued, to be more precise, that much of society’s faith in a charismatic leader is derived not from any personal characteristics of the individual, but rather from a particular set of social relations and the cultural context within which those relations are embedded.

One key fact about the social relations supporting charismatic leadership is that, although a leader’s claim to obedience from his or her followers is formally described as a duty, it is always subject to validation by those followers.⁸ In other words, Weber argued, a leader could not be said to be charismatic unless others recognized the claim to authority. Moreover, the leader’s charismatic claims are in need of constant reaffirmation by his followers. If charismatic leaders do not bring benefits to their followers, or if their special abilities appear to desert them, their charismatic claims and legitimacy disappear. Once the leader’s “magic” is assumed to be gone, power over the followers ceases to exist.⁹

A second essential aspect of charisma is that it is dependent on the cultural context. Elaborating on Weber’s basic idea that charisma is partially grounded in the cultural context, literary scholar Leo Braudy has noted that, in the centuries of ecclesiastical and aristocratic power, charisma was often a byproduct of status or of some overt demonstration that one was in the service either of God or of some higher purpose. As society became more secularized and free from aristocratic pretensions, however, charisma came to be regarded as an individual property.¹⁰

The changes in the social and political environment to which Braudy refers obviously had important consequences for the unique brand of capitalism that would develop in the United States. One of the tenets of the new economic individualism that came to flourish in America was that success was a product of individual effort. As Weber noted in his masterpiece The Protestant Ethic and the Spirit of Capitalism, this popular philosophy was rooted in a maxim from Poor Richard’s Almanac: “God helps those who help themselves.”¹¹ With the rise of charismatic empire-builders such as Carnegie and Rockefeller, the personal virtue supposedly evidenced by the accumulation of wealth was elevated as a sign of charisma in the sense of “the gift of grace.” Paeans to the industry, determination, and other such qualities of the self-made man became a staple of business biographies and autobiographies. These same books, however, offered few specifics when it came to business advice: success was spiritual, not achieved through such crass means as building monopolies or breaking unions.¹²

The aura of the charismatic business leader began to fade somewhat during the Great Depression, a process that continued through the end of the Second World War. Cracks had first begun to appear in the myths of Rockefeller and Carnegie during the recessions of the 1890s and the Progressive Era of the early twentieth century, when it became clear that their fortunes were rooted as much in their ruthless competitive behavior as in their exemplification of Protestant virtue.¹³ Moreover, as the swashbuckling, founder-led enterprises of Carnegie and Rockefeller began to give way to the more faceless, professionally managed corporations that followed in their wake, it was harder to find such prominent examples of self-help and individual motivation as the surest way to success. By the end of World War II, as Europe and America surveyed the devastation wrought by charismatic personalities such as Hitler and Mussolini, most Western nations had become wary of the charismatic leader. Meanwhile, more and more critical scholarly work in history and sociology was finding that the myth of the self-made individual was more of a social-control mechanism than an inspiring reality—a way to keep hope alive as opportunities increasingly closed to those lacking educational or other such credentials.¹⁴

Although the myth of the self-made man survives in American business culture (even if most of the heroic entrepreneurs of the Information Age—e.g., Bill Gates, a Harvard dropout and the son of a successful lawyer—have not exactly risen from humble backgrounds), the arrival of the era of investor capitalism in the 1980s, as we saw in chapter 3, gave rise to a new species of charismatic business leader: the outsider CEO hired by a beleaguered board of directors to save a troubled company. We have also seen how, even as important transformations in the ownership and control of large American corporations have put an ever greater focus on the CEO, a new definition of the effective CEO has emerged in conjunction with a new ideology of business itself, as corporations have begun trying to create ties of identification, commitment, and loyalty on the part of employees in ways that have made business increasingly resemble a secularized religion. This new ideology has created the need for CEOs who can advance the contemporary corporation’s attempt to impart to work relations a type of pseudo-community, one whose informal structure can be contrasted with the sharp distinctions in formal authority and fine-grained division of labor found in organizations during the era of managerial capitalism.¹⁵

Yet despite the importance of cultural influences and how they interact with the mutually dependent social relationship between leaders and followers to bolster the authority of the charismatic CEO, consideration of such phenomena can take us only so far in understanding why and how charismatic authority has arisen to replace rational authority in America’s great corporations. To gain a fuller understanding of this in many ways baffling change, we need to shift our focus from society and culture to the level of the firm itself, where Weber’s theory of charismatic authority also proves instructive.

The Structural Antecedents to Charismatic Succession

Besides discussing the social relations and cultural context that underpin charismatic authority, Weber emphasized the structural conditions under which a society or organization is more likely to adopt a charismatic orientation in selecting its leaders. Weber understood that the orientation toward charismatic authority, while part of the human condition, was especially prone to emerge under what he called “extraordinary” social circumstances. In particular, Weber noted that charismatic leaders tend to arise in the midst of acute social disruptions. However, given his sweeping theoretical concerns, Weber’s discussion of the particular mechanism through which changes in structural context give rise to charismatic authority remains very general. This generality, in part, has resulted in the misappropriation of the concept of charisma to explain the success or failure of leaders with little regard to the conditions that brought them to power in the first place.

The political anthropologists Doug Madsen and Peter Snow present one of the most compelling discussions in the scholarly literature to date of how disruptions to a social institution can give rise to charismatic authority. They write:

The collapse of a great social enterprise, such as a polity or an economy, brings with it for many (but not all) of those involved a collapse of their own personal worlds. Expectations are dashed and hopes ruined. Fundamental assumptions are undermined. Social arrangements and economic structures disintegrate. Often “understanding” is lost and with it, the sense of being able to cope.

Under such stressful conditions, Madsen and Snow point out, people not only want to affiliate with others but also prefer to be members of groups with strong leaders.¹⁶ Although the collapse of a polity or an economy may offer an extreme example of social disruption, the same principle can be seen at work in the corporate world when we consider the structural factors leading to charismatic succession.

The adoption of a charismatic succession process—by which I mean one in which candidates are evaluated on their personal characteristics, rather than on a set of predefined skills or other attributes aligned with the strategic requirements of the position and capable of being objectively assessed—represents a radical departure from CEO succession as it has historically been conducted. That charismatic succession can be found in large, complex organizations is even more surprising, because scholars would predict that it would be precisely in such institutions that charismatic succession would be least likely to take place. Since the 1920s, many scholars and practitioners alike have regarded charisma as an obstacle to rational organizational processes. To the extent that charismatic leaders existed in business, they were believed to be associated only with entrepreneurial enterprises.¹⁷ In his work documenting the rise of the large business firm, Alfred Chandler viewed the shift away from charismatic succession and toward a more rational process as one of the most significant consequences of the managerial revolution that had led to the modern business organization.¹⁸

In contrast to the traditional and charismatic succession practices that had preceded it, the emergence of the large corporation brought with it a revolutionary concept. Individuals would now be hired and promoted on the basis of their training and abilities, not simply because they had founded the organization or had been sired by the founder. Executive careers would therefore begin not at the top, but at an entry-level position. The CEOs of large corporations all had similar career paths that usually started with being hired as management trainees. These new hires would then work their way up the job ladder as the consequence of internal promotions. External hiring would be rare and limited to a small number of specific entry points.¹⁹ Salaries would also be determined via an administrative process, such as job evaluation, in which the relative importance of particular positions to the objectives of the enterprise was ascertained through technical analysis. The path to the top of the organization would entail the accumulation of both seniority and administrative expertise obtained through lateral and vertical promotions.

Today, most scholars continue to believe that CEO succession has been rationalized and depersonalized in America’s large corporations. How and why, then, has charismatic succession reemerged there? Two factors in particular seem to have been catalysts in moving directors away from the rational succession process. The first is that, for any given organization, the external search represents a break from tradition or routine, just as it has been for organizations generally. Second, an external CEO search often takes place in the context of poor organizational performance.

EXTERNAL SUCCESSION AS BREAK FROM ROUTINE

While CEO succession has always had the potential to disrupt the activities of an organization, over the last century large companies had taken concrete steps to mitigate this disruption. In particular, these firms adopted explicit and implicit rules to ensure a more orderly succession process than had once prevailed. Many of these rules were intended to depersonalize the succession process. Exceptions to such policies were rare and, typically, required the approval of a firm’s board and shareholders. Boards saw these rules and routines governing CEO selection and succession as providing order and predictability in succession decisions. Walter Salmon, a director of several Fortune 500 firms, describes the orderly succession process that obtained at Quaker Oats in the 1970s and ’80s:

We had a rigorous process of management development. The field for selection was broad so that we had at least two or three good choices for successor CEO. Moreover, the board had gotten to know these individuals over the years and the needs of the company and the strengths of the individuals being considered were identified. . . . The board had experience with the . . . insider. They go from a process of being an unofficial successor, then officially identified as a successor and then, finally anointed. This gives us [the board] time to get to know the person from board presentations as well as validating the CEO’s recommendation. The sitting CEO takes the primary role or leadership role in this process. He educates the board over a period of time on his selection.

The process at Quaker Oats was typical of that of most large companies in the post–World War II years.²⁰ These companies invested heavily in their human resource departments and management development programs to ensure a steady supply of executive talent for the various organizational positions. This reliance on internal labor markets for CEO succession has been, historically, a central defining characteristic of large U.S. corporations. In one company I examined, for example, the board of directors has created what it calls “depth charts” of its major executives. These depth charts have the names of three or more potential CEO successors whose performance the board reviews each December. The charts summarize a manager’s strengths, weaknesses, and corporate experience. People on the depth chart know who they are, and their supervisors work with them to build their capabilities.

The adoption of fixed CEO succession rules for recruiting from the internal market provided a set of prepackaged solutions to what historically had been a difficult transition for firms, the transfer of formal leadership from one individual to another. The emergence of stable rules to guide CEO succession signaled to organizational constituents that an organization’s activities would continue uninterrupted during a leadership transition. The legitimacy of the new CEO’s power depended on the belief that the appropriate rules and procedures had been followed when making the decision.

When firms decide to search for a CEO from outside their own ranks, however, the rules and procedures that previously guided CEO successions are not very useful. Consider the case of American Express in the early 1990s, a situation that while unique in its particulars, illustrates the general point of how disruptive CEO search becomes when it departs from a company’s institutionalized process. In the late 1980s and early 1990s, problems in American Express’s core travel-card operation and its Shearson Lehman brokerage had begun to cut significantly into earnings. Yet CEO James Robinson III, nicknamed by the press the “Teflon executive,” had deftly avoided blame for the firm’s poor performance and strategic missteps throughout the 1980s, always managing to hang on despite challenges to his leadership over the years.²¹ (As further evidence for how closed the CEO labor market is, consider that Robinson’s two biggest challengers for the position were Sandy Weill and Lou Gerstner). Yet as the company’s dismal performance continued into the early 1990s, the press and the company’s shareholders began to subject Robinson’s monarch-like control over American Express to increased scrutiny. In the fall of 1992, after much cajoling from investors, a small group of board members finally called for Robinson to step down and for the board to initiate a search for an outsider CEO. Robinson acquiesced, announcing that he would step down within a few weeks. In what was taken as a sign of good faith, he also took the responsibility for leading the search for American Express’s next CEO.

Because of the chaos that had erupted after dissident directors had called for Robinson’s exit, the American Express board was “largely paralyzed,” according to one knowledgeable insider. “The American Express board had never searched for an outsider CEO before,” says this observer.

It was your standard showcase board and read like a who’s who of celebrity CEOs and former political dignitaries—Henry Kissinger, George Fisher of Motorola, et cetera. . . . They collected their fees, rode on the corporate jets, had access to numerous clubs and corporate apartments. . . . They had always relied on the process of the old CEO retiring and appointing his successor. There was never much else to do.

When Robinson took charge of the search, he did his best to ensure that this tradition would continue. One source intimately familiar with the details reported that anytime the board interviewed a viable candidate for the position, Robinson’s wife—a top New York public relations executive—leaked the name to the press. Since the most acceptable candidates were already actively employed, the result was that the most sought-after candidates publicly declared that they were not interested in being considered for the position. According to another source familiar with the search, “Had Robinson not interfered with the search process, the board would have surely appointed an outsider. Given the scrutiny they were under, it was the best way to restore credibility.”

Meanwhile, over the course of two months in which the external search was supposedly going on, Robinson convinced a majority of the board to vote to keep him on as chairman of American Express. The board also finally approved his handpicked successor, insider Harvey Golub, as chief executive. During this period, moreover, Robinson managed to force the resignation of the three directors who had been most active in calling for his resignation, as well as to demote the son of one of the dissident directors. Only amid newly reported losses at Shearson, which provoked fury from the largest shareholders and most influential business media, did the American Express board take action and ask for Robinson’s full resignation.

The break from routine that finding a successor for Robinson came to be for American Express was captured in a Harvard Business School case:

On September 20 [1992], the meeting of outside directors began when Robinson [the existing CEO] stepped outside the room. [Former Mobil Corp. CEO and American Express director Rawleigh] Warner rose and asked for permission to address the group. . . . He then proceeded to deliver an extensive catalogue of Robinson’s mistakes. . . . After finishing his presentation [sic] the board asked what Warner would propose they should do; Warner replied that the board should ask Robinson to step down immediately and should replace him with a board member as acting CEO. . . . As the board began to discuss the proposal, it became clear that board sentiment ran strongly against Warner’s plan. A number of directors reportedly vociferously objecting [sic] to simply deposing Robinson in such a manner, and the proposal was rejected, with only a few directors supporting it.

The board did agree, however, that more active succession talks should get underway. Robinson was asked to come up with a plan to be discussed at the board meeting the next day. . . . [A search committee was formed with Robinson as the head of the committee. This was unusual since Robinson would be identifying the successor that would result in his forced dismissal.]

In December, the news that Robinson was leaving was revealed for the first time in a Fortune article. The article suggested that a “coup” had taken place, with Warner leading the charge, an assertion which brought prompt denials from Robinson and Warner. . . . Robinson and Warner were never able to convince skeptical journalists and commentators that a coup had not taken place. Indeed, several publications seemed to delight in [Robinson’s] downfall, with such story titles as “The Toppling of King James III” and “A Quiet Coup at American Express.”

The [Fortune] article and the attendant scrutiny of the firm put additional pressure on the succession committee to work quickly. . . . Robinson also began to defend his record, to both the media and to his directors. In phone calls to directors, he argued his side of the story. . . .

The company’s stock arose $1.40 the day after the announcement that Robinson would leave his position and Robinson endorsed [Harvey] Golub, but some directors harbored doubts about Golub. These doubts, exposed in a series of press leaks . . . belied an increasing division of the board between those who supported Robinson and his choice of a successor, and those who opposed Robinson and wanted outside candidates to be considered more seriously. [Some board members objected] to Golub’s brusque style. Some board members were concerned that he did not fit into the genteel American Express culture. Finally, a few board members were allegedly opposed to Golub merely because he was Robinson’s candidate. Drew Lewis, a Robinson loyalist, made the following statement: “Take Howard Clark Sr., and Rawleigh Warner. They’re out to get Harvey as an extension of Jim. They’re out to scalp him.” . . .

The press speculation concerning the CEO was becoming quite unbearable and morale at American Express was reportedly dropping as uncertainty about the company’s future surfaced. Also, it was clear that the board was sharply divided on the question of who should lead American Express. . . . ²²

The break from routine succession, with all of its potential for such disruption, and the orientation toward charismatic succession are closely linked. Under the kinds of circumstances that cause a board to consider breaking from its routine succession process, the board is usually under pressure to announce a successor quickly. If the board does not act quickly enough, one director told me, it will be perceived either that no single insider has the full backing of the board or that the company is having difficulty attracting a good CEO because of the depth of its problems. This pressure moves boards away from an objective, measured process geared to evaluating the needs of the firm and the strengths and weaknesses of the candidates. Instead, the search becomes more particularistic, overtly political, improvisational, and undisciplined. Because few firms have a set of established policies and procedures guiding external succession, directors are more likely to look for someone who can restore order to the firm. One search committee chair leading a search for a factionalized board described his and his colleagues’ thinking thus:

We were divided on the board. The company had two distinct cultures that needed to be brought together. We needed someone who could bring us back together. Someone whose force of personality could take a chaotic situation and make us a unified whole. . . . The disruption from [X’s] departure and the resulting chaos and disorientation pushed us to find that strong personality, that strong person, who could bring us together and restore stability to the situation.

The disposition to charismatic succession is intimately related to this need for order. Candidates who are already CEOs, who come from high-performing firms, or who are associated with companies and individuals that are representative of the directors’ ideals for their own firm—in other words, those who meet the criteria behind the social matching process described in chapter 4—have a distinct advantage in these situations because, appearing to the directors to be known quantities, they quell directors’ own anxieties about an external search in a way that makes them seem to possess charismatic qualities.

THE EFFECTS OF POOR PERFORMANCE

Whether a firm is performing well or poorly affects whether the board is more oriented toward rational or charismatic succession. When the firm is performing well and the organization’s environment is stable, boards will follow the traditional process of allowing the outgoing CEO to choose a successor. By contrast, when the firm’s performance is poor, directors are more apt to look for a charismatic outsider to improve it.

A number of comparative studies of charismatic leaders that have sought to quantify factors favoring the emergence of charisma have confirmed the high correlation between crisis and the turn toward charismatic leadership.²³ Organizational crisis can, of course, take a number of different forms, but the most prevalent is poor performance and the discontent that accompanies it. Performance crises in organizations create a level of frustration and impose a set of demands that are different from those in normal situations. They also induce feelings of insecurity and anxiety among board members.

The usual interpretation of the connection between charisma and organizational crisis is that charismatic leaders gain a following by articulating a vision that is perceived as addressing the organization’s problems, then motivating people to act on the vision. Alternatively, through their articulation of an organizational mission, they may draw attention to critical situations of which their subsequent followers were only dimly aware. Of course the mission that the charismatic leader articulates may turn out to be disastrously wrong, as in the case of a retailing CEO who came from a high-end department store chain, moved to a middle-market one, and tried to carry out his vision of the organization becoming an upscale, high-margin retailer. After nearly bankrupting the company, he was replaced by another high-profile outsider who thought that the organization needed to “return to its roots as a middle-income retailer.” Such failures only point to why large corporations once eschewed charismatic leadership in favor of rational authority.

More than the “vision” that they sometimes provide, however, charismatic outsiders offer organizations in crisis the hope that they engender by their very status as outsiders. Although it can arise under other circumstances, belief in the salvific capacities of the charismatic outsider becomes particularly potent when coupled with a sustained period of declining performance caused by structural changes in an industry. Polaroid, for example, has for some time been dying a slow death, as instant film has been replaced by the digital camera. Meanwhile, AT&T—with the majority of its revenue and almost all of its profits coming from long-distance service—has foreseen its impending demise as an analog company in a digital world and has tried to change its business models, albeit with little success to date.²⁴ The problem in both cases is not managerial but structural. In such circumstances, the research in organizational strategy and ecology suggests that the best thing to do would be either to scale back expectations and return the profits of the organization to shareholders, or to shut the enterprise down altogether. Yet in business, such courses of action, however rational they might be, are seldom considered viable options. One is supposed to find a heroic solution to every problem. And what solution could be simpler than to hire some omnipotent outsider, a can-do executive with charismatic qualities? He may (like John Walter, the president, COO, and CEO-designate of AT&T for less than nine months before the board changed its mind about making him CEO—only to turn around and hire another outsider, C. Michael Armstrong) have no relevant industry experience. Yet the outsider or “stranger,” as Georg Simmel notes, offers hope and promise.²⁵ His presence, at least temporarily, creates the illusion of possibility, far more than would the promotion of an inside executive. Insiders are associated with the losing team. They are, as one director puts it, “too pessimistic about the future.” The outsider who knows little about the firm’s particular problems naturally finds it much easier to be optimistic.

This particular link between poor performance and the turn to charismatic succession is confirmed by a comparison of statistics for forced and natural turnovers, which reveals that poorly performing firms are most likely to fire their CEOs (see table 4.2, pp. 88–89). Correspondingly, these same firms are likely to see an individual as the solution to their performance problems. To the extent that directors also believe that firm performance cannot be restored by relying on past approaches, they are apt to believe that the organization must be transformed by an omnipotent outsider. Disruptions in technology, changes in regulation, or other situations that make old processes and rules less useful, create conditions in which companies tend to turn to charismatic succession. Evan Lindsay, an executive recruiter specializing in search in the insurance industry, makes explicit this link between environmentally induced poor performance and the search for charismatic leadership when he discusses the widespread problem of stagnant insiders in the ranks of insurance executives:

The insurance industry, almost since its birth, did not require anyone good. There was no need for anyone with leadership qualities or people who had vision, strategy, and the ability to enact change. The primary determinants of who would be CEO prior to the late 1980s was [sic] “age and service.” The biggest problem, given the dramatic regulatory changes in the financial services industry, is the need to make the transition from manager to general manager. Most insurance executives could not make this dramatic change. As boards . . . began to look for successors they were unhappy with their internal labor markets.

Performance crises so heighten the apparent need for change that even poor performance that cannot be attributed to the CEO often induces boards to seek a new leader—even though such action may be mostly symbolic and the range of plausible actions that a new CEO can take constrained.²⁶ Performance crises often discredit past decisions and past authorities in the organization. They also seem to call for strong leaders. Some of the literature on small groups finds that a crisis in confidence among problem-solving groups has the effect of concentrating influence in fewer hands.²⁷ In the case of CEO succession, when directors feel that they have lost their way and are looking for a solution to their problems, group structure changes to favor the selection of strong leaders. In other words, it creates conditions for the abdication of responsibility and transfer of control to others.

Under conditions of poor performance, moreover, the imagined solutions to complex problems often wear the reduced features of iconic individuals. Evan Lindsay describes exactly such a situation at a large insurance company in the South that had experienced a severe performance decline. Although many of the problems of the company arose from a complicated set of changes in the regulatory environment, the board felt that although “the company was in a deep hole, [it] could be saved with the right guy, like a Jack Welch or Lou Gerstner of insurance.” In describing potential CEO candidates to directors, executive search consultants sometimes say, “He is a lot like Lou Gerstner” or “He has had experiences similar to Jack Welch’s.” The names of these individuals easily convey an image to directors: Lou Gerstner stands for turning around corporations. Jack Welch emblematizes trimming corporate fat and constantly reinventing the most valued corporation in the world. Yet when directors find themselves, in the latter stages of the external search process, looking not at Jack Welch or Lou Gerstner but rather at three or four somewhat less godlike candidates who, at least on the surface, appear quite similar to one another, what do they do? How is one of these candidates designated the charismatic leader? It is time to look more closely at the candidates in the external CEO search process, and at how and why particular candidates are chosen for the role of charismatic CEO.

The Construction of Executive Charisma

We noted earlier in this chapter that directors on a given board show a strong propensity for zeroing in on the same candidate among the three or four who end up as finalists in the typical CEO search, and that this tendency can be explained by the fact that charisma is much more of a social product than an attribute possessed by individuals. Earlier sociological analysis of charisma has emphasized the contextual conditions that increase the susceptibility of individuals, groups, and even societies to charismatic authority—conditions such as break from routine and poor performance, which we have just seen as key elements in the turn to charismatic CEO succession. While contextual conditions are important, my own conception of charismatic attribution differs from that of previous scholars in suggesting that individuals’ evaluations of someone else’s charisma are in large part generated by the social characteristics—and, to some extent, by the socially valued individual attributes—of the individuals being evaluated. For example, nothing predisposes directors to belief in the charisma of a particular candidate so much as the admiration that flows from that candidate’s association with a firm of high repute.

As an example of this tendency, consider the 1996–97 CEO search at Stanley Works, a tool manufacturer in Connecticut. The firm had been performing poorly for several years, while Wall Street analysts and directors alike had described it as lacking a clear strategy for improving performance. Many directors felt that the lack of a clear strategy resulted from the CEO’s lack of vision and failure to define the organization’s purpose. In my interviews with Stanley’s directors, there was almost no discussion of the fact that the firm was in an industry that had experienced little growth over the past decade. Nor was there discussion about how mega-retailers, such as Wal-Mart and Home Depot, had been demanding lower prices from Stanley than did the traditional mom-and-pop hardware stores that were fast being driven out of business by this new competition. Little reference was made to increased global competition, in the face of which low-cost, high-quality tools from Asia had gained significant market share in the United States. Stanley’s directors simply felt, according to two different board members, that if they hired the right CEO, “he would introduce and formulate the right strategy” for the firm.

After conducting an extensive search, the Stanley Works board hired John Trani, the former president of GE Medical Systems. When I asked different Stanley directors to explain their reasons for hiring Trani, the most often-discussed factor was that he had come from General Electric and worked for Jack Welch. Directors discussed GE’s track record in developing executives. All of them pointed out that there were other former GE executives who were now leading U.S. companies and had improved their performance. None of these directors, however, made any explicit link between Trani’s specific experiences at GE and the problems facing Stanley. Nor did directors entertain the possibility that the reason Trani was willing to change jobs was because he knew it was unlikely that he would ever be promoted to CEO at GE, a firm of much higher status than Stanley.²⁸

GE’s performance also influenced the Stanley Works directors’ evaluation of Trani. One Stanley director described the board’s logic:

Although I believed [sic] there were three or four candidates that we had identified that could do this job, the other committee members were set on this individual. John Trani was seen as superior by an order of magnitude. The personal chemistry that the board had with him was remarkable and he had, after all, come from GE, which by any measure has performed remarkably well during Jack Welch’s tenure. I can’t think of a company of comparable size that has created more value than GE during Welch’s tenure.

Comments from analysts following the Stanley Works search only reinforced this faulty logic: for example, Nick Heymann, an analyst with NatWest securities, said, “[Trani] was one of the top ten executives at GE, which means he’s probably one of the top ten executives in the world. [Stanley Works investors] have good reason to be optimistic.”²⁹ As of this writing, both the board’s and the analysts’ initial optimism about Trani has proven costly, as John Trani’s vision of transforming Stanley into the “Coca-Cola of hardware” has seemed to be more of a hallucination than a sound strategy, and the firm has continued to flounder.³⁰

The remarks by Stanley’s board members suggest that a board’s perceptions of a candidate’s charisma depend, at least in part, on the status of the prior employer, the performance of the prior employer, and whatever affiliation a candidate might have with another executive of high repute. (These external attributes should be considered illustrative rather than as an exhaustive list of external criteria that create perceptions of charisma.) The attribution of charisma to a particular individual by means of such criteria has obvious parallels to the social matching process that is used to sort candidates into the categories of eligible and ineligible. Like social matching, the process by which charisma is attributed to one particular candidate is inherently social at its root. However, one subtle but key difference separates the social matching process used at an earlier stage of a CEO search from the attribution of charisma to one of a handful of final candidates. This difference can be explained using the sociological concept of the “other-directed.” Social matching, at its root, is an “other-directed” process. In social actions that are “other-directed,” actors pay close attention to the expectations and evaluations of others in determining their own actions. The evaluations and expectations of these others, in fact, become the standards of what is considered legitimate and appropriate.

In the context of external CEO succession, directors’ efforts to produce a set of candidates that outsiders will consider legitimate causes them to adhere to a set of widely held expectations about what characteristics a qualified CEO candidate should display. Over time, the widespread adoption of and adherence to these criteria by large numbers of organizations has given them a “taken for granted” or “rule like” status that seems to require little or no justification. One benefit to boards of relying on the social matching process is that it produces outcomes that are easily defended. (Recall the old adage “Nobody ever got fired for buying IBM.”) In the external CEO labor market, the primary reason that the social matching process is adhered to is uncertainty about how the chosen candidate will perform once hired. Because the performance of any CEO candidate cannot be known in advance, social matching produces a set of defensible candidates who, even if they fail, will obviate criticism to the effect that the board did not choose a candidate with the appropriate characteristics. Social matching helps explain why most outsider CEO candidates appear virtually indistinguishable from one another across many observable criteria.

In contrast to the social matching process that produces a final list of candidates, however, the attribution of charisma to a particular candidate is driven not by mere defensiveness but by admiration on the part of directors for the affiliations that candidates possess or—to take a somewhat more complex case—for qualities that directors have been socially conditioned to admire. At the simplest level, charismatic attribution seems to be a response to an individual per se; when directors speak of an individual’s leadership capabilities, they seem to be saying that the commanding presence of a particular individual evokes in them a desire to follow (and indeed a hope that the leader will solve the company’s problems himself, thereby relieving his followers of responsibility for making decisions). For example, when asked why Jamie Dimon was selected as CEO of Bank One over the internal candidate, Verne Istock (who, at least on the surface, had more experience in commercial banking than did Dimon, and who had been running day-to-day operations at the bank since the departure of John McCoy), one Bank One director replied:

We selected Jamie Dimon because he was clearly the real leader among the candidates. Jamie came in as such a strong leader. He was quick on his feet, very logical, and very persuasive. . . . He would not waste time getting stability and consensus, but instead do what it took to make us the number one bank. . . . Istock, on the other hand, was more consensus-oriented. He felt that the bank needed to be stabilized and the executives needed a rest from the turmoil that had resulted from the merger and McCoy’s departure.

In most cases, of course, people do not try to understand why they find some individuals more charismatic than others; they feel the need only to ascertain their reactions to these individuals. As we saw in chapter 3, however, definitions of what corporate CEOs should be like, and the characteristics that are valued in them, are historically dependent and have been transformed over time. Thus the Bank One director’s response to Dimon’s apparent charisma was not merely individual or subjective, but was in fact generated by, and acquired through, a social process that teaches directors to value or respect people who are “quick,” “logical,” and “persuasive,” and to discount those who are perceived to be oriented toward “stability” and “consensus.”

Directors’ attempts to evaluate candidates’ leadership abilities through their personal reactions to individuals become even more problematic when one considers the highly suspect context of the typical interview. Many directors describe themselves as being able to discern a person’s leadership qualities in the course of a very brief encounter; in my interviews with them, several directors commented to me about their ability to discern the true leadership ability of an individual within a few minutes of meeting him or her. Yet although directors believe themselves to be good judges of the character of individuals based on observable personal characteristics, in truth they are often making snap judgments about candidates in a very narrow context. Their view of personality as a clue to an individual’s likely subsequent behavior is simplistic and misleading. Instead of behaving in a way that is consistent with a single situation, such as an interview, all of us reveal different parts of ourselves to different people in different contexts. We speak differently with people who are perceived to be of higher or lower status than us. We act differently with our intimates than we do with our acquaintances. And in all of these situations, we engage in what Erving Goffman calls “impression management.” Impression management is a process in which people seek to control the image that others have of them through their behavioral projection of information about themselves; it includes factors ranging from emphasis and tone to actual disclosures and omissions in what is said. People frequently employ impression management behaviors to achieve objectives and goals. Engaging in impression management does not necessarily involve false pretenses or deception, but rather packaging ourselves so that those with whom we interact will draw the conclusions about us that we prefer.³¹

In view of the elementary fact that human beings engage in impression management, the idea that a candidate’s leadership abilities can be determined in the course of a single, brief encounter appears as one more highly irrational aspect of the external CEO search process. Yet a single, brief encounter is, in fact, the only one that board members who do not already know a candidate will get in the course of the search. In the external search process, moreover, the interview on the basis of which the final decision is made is designed not to test the mettle of a candidate and learn more about his or her qualifications for the CEO position, but rather to meet a whole other set of in some sense extraneous requirements dictated by the peculiar nature of the external CEO labor market. Given this fact, it is difficult to ascertain how directors can make sound judgments about candidates’ integrity, maturity, interpersonal acumen, motivation, and in-depth understanding of a company on the basis of what they are able to observe in a CEO interview. Yet this no-win situation arises inexorably from the tortuous logic of the external CEO selection process.

At every point in the external search process up till now, we have seen behaviors that seem surprising and even irrational if one assumes that the process is geared to considering the widest possible range of candidates and evaluating them on a set of objective measures defined by the strategic situation of the firm, the specific managerial tasks that the CEO is called upon to perform, and so forth. We have seen, for example, how directors themselves perform the roles usually assumed to be performed by executive search firms—that is, drawing up a list of candidates and obtaining vital information about them—while neglecting to consider the needs of the firm in identifying and evaluating the candidate pool. We have seen how the role of the executive search firm is not to expand the candidate pool or to provide information about the candidates, but rather to act as an intermediary between directors and candidates in a market where small numbers of buyers and sellers, risk to both, and concerns about legitimacy impose a unique set of constraints on the behavior of both parties to the transaction. In focusing more closely on the role played by candidates in the external CEO succession process, we find ourselves observing yet another apparent anomaly, one in which the final stage of the search becomes not so much a critical evaluation of the candidates as a conferring of power on them—even before one of the candidates is officially elevated to the position of CEO. It is to this climactic ritual of the external CEO search that we must now turn our attention.

THE DEFERENTIAL INTERVIEW

In the traditional CEO succession process, the firm’s board, which included its outgoing CEO, exerted great power over the candidates. This power—apparent in Reginald Jones’s description (quoted in chapter 3) of the CEO succession process at General Electric that resulted in the selection of Jack Welch—was a function of the fact that the board was making the hiring decision and could choose from a variety of internal candidates, all of whom were actively competing for the position.

The power dynamics of the internal succession process stand in stark contrast to the power relationship between the board and the candidates when a charismatic succession process is adopted. The most fundamental difference can be seen in directors’ deferential behavior toward the candidates in charismatic succession. Because the charismatic model of the CEO position casts candidates in the role of hoped-for saviors, directors feel extremely dependent on them. To ensure that the firm does not lose a candidate, directors and their search consultants try, by various means, to minimize the likelihood of misunderstanding and to lessen the negative consequences of any miscommunication that might occur. One way in which they do this is to limit the amount and intensiveness of direct contact between directors and candidates.

We have already discussed the role of the executive search firm as a buffer between candidates and searching firms. Another means by which the necessary buffering is achieved is the common practice—quite surprising in light of the broad responsibilities of the CEO position and the costs of a poor match—of firms’ interviewing candidates only once before making a decision. Moreover, even within the already severe limits on contact between candidates and directors imposed by this practice, directors create yet another layer of buffering by the manner in which they conduct the interview. Because the face-to-face interview is a particularly intense exchange, fraught with potential problems that could result in a candidate withdrawing his candidacy, directors’ behavior in the interview process is characterized by guarded politeness and extensive impression management. Informality, which can be easily misconstrued, is, for that reason, carefully avoided. Directors also exhibit such universally recognized signs of deference as excessive self-consciousness and downright obsequious behavior. As one bank director observes, “When we are down in the final process, I don’t want to be seen as the person who ‘lost the candidate.’ The last thing we need to do when the process has gone this far is to lose the candidate and have to start again because of a squabble the candidate had with me.” Thus directors not only eschew such obviously dangerous behaviors as aggressive or threatening tones of voice but even go so far as to limit the number of questions they ask. As one candidate recalls a CEO interview:

This was not like a medical school interview. There was not a lot of asking questions. Instead, they spent most of the time selling the company to me. They pointed out all the good things going on in the company and how this is a great opportunity.

Indeed, directors generally go into the interview with little, if any, preparation, training, or strategy for questioning candidates. The questions that they do ask, moreover, are often timid, hypothetical, and oriented to the future rather than designed to explore the candidate’s handling of actual jobs and situations in his or her past. This too is surprising, since it is precisely this kind of information that is lacking in an outsider search. The potential consequences of this failure to probe CEO candidates about their past work experiences in a way that is routine in interviews for other positions in American corporations are dramatically illustrated by the case of “Chainsaw” Al Dunlap, the now-disgraced former CEO of both Sunbeam and Scott Paper. By 1996, when Sunbeam hired him for its top job, Dunlap had become a celebrity CEO on the strength of his “turnaround” of Scott Paper (where he served from April 1994 to December 1995) and the ruthless cost-cutting (including the firing of eleven thousand workers) with which he had partially accomplished that feat. (Dunlap had also published an autobiography, Mean Business, in which he bragged that he “deserved” the $100 million he had walked away with after engineering the sale of Scott Paper to Kimberly-Clark.) One former Sunbeam director now admits that the board was so enamored of Dunlap and desirous of the immediate boost that his hiring would bring to the company’s stock price that it discounted previous criticism of his “mean business” management style as exaggerations by disgruntled former employees. Yet if the board had been willing to probe Dunlap’s reputation for unseemly, unprofessional behavior, it might well have uncovered that his abrasive dealings with others had gotten him fired, twenty years before, from a company that later accused him of having overseen much the same kind of accounting fraud that would lead Sunbeam to fire him in 1998.³²

The avoidance of challenging, potentially discomfiting questions in a CEO interview not only protects candidates and directors from embarrassment but also serves as a symbolic means of conveying the directors’ appreciation to a candidate for considering the position. This message has already been communicated by other means at an earlier point in the search process, for by the time a candidate is presented to the board, the search consultant has made specific attestations to this individual concerning how well he or she is regarded by the directors. Steve Scroggins of Russell Reynolds describes the process as a “careful pre-sell to the candidate about the opportunity and why it is right for them [sic] in terms of a next career move.” Meanwhile, in an effort to elevate the stature of a particular candidate in the board’s eyes, the search consultants will also have let the client know how “hard they worked to convince the candidate to agree to the interview” and how “lucky they [the directors] are that this particular candidate agreed to be interviewed.” This advance work—coupled with the directors’ awareness that, because the candidate is already employed, they will have to make the job considerably more attractive than his or her current position—typically ensures a smooth interview process. As one search committee chairman comments:

We want the candidates to be attracted to the firm. We need them to seriously consider the job, so we go out of the way to make sure they see the firm in the best light. . . . As board members, we will be working with them in the future, so they have to like the people they are going to be working with. We are all on our best behaviors. You are not going to insult someone you are trying to attract.

DEFERENCE TO CANDIDATES AS A FUNCTION OF THE MARKET

The attitude of deference that directors show toward CEO candidates is not simply ritualized behavior with only symbolic implications but in fact has substantive consequences for the candidate’s role in the external CEO search. Specifically, the deferential treatment that candidates receive increases their bargaining power in the transaction (and, as we shall see momentarily, increases the power of the new CEO vis-à-vis the board). When it comes to the candidate whom the board will ultimately select as its new CEO, it is during the deferential interview that control is actually transferred from the followers to the charismatic leader. The selection of the new CEO then turns out to resemble nothing so much as Napoleon’s coronation as Emperor of France, when the new ruler—usurping what was supposed to be the Pope’s role—placed the crown on his own head.

If this process sounds irrational, it nevertheless makes sense when we consider that what charismatic succession represents to all organizational constituents is the promise of a better future. In such cases, the hiring of a celebrity CEO is the ultimate asset. In this frantic age of short attention spans, fame has become short-term fortune. The selection of a CEO can, and sometimes does, affect the market value of a firm by billions of dollars in the course of a single day—and businesses have increasingly banked on their ability to boost their stock prices by means of the right choice. The promise may or may not be fulfilled, but even false hope has value, especially to the candidate—for candidates recognize that the directors’ deference is readily convertible to more material advantages. As one outsider CEO candidate describes his experience with a company at which he eventually accepted a job:

They recognized that they were in front of a huge sea change in their business. Half the company was in the traditional [x] business and this business was going digital. They wanted somebody who could handle both the financial and marketing parts of the business and the technological change. I had gotten a good reputation in [y] business and . . . they thought I was the person who could transform a company to where they needed to go. . . . I also knew that they did not have many other alternatives.

Directors generally do not have “many other alternatives” because, as we have seen, the social matching process that boards use introduces an artificial scarcity of sellers into the external CEO market. Because the directors are using a charismatic succession process, moreover, they are comparing candidates not against a particular skill set but rather against one another. With CEO candidates already perceived as in short supply, directors narrow the candidate pool further by focusing on the charisma of the final candidates. Thus the board ends up looking not for someone with the skills of Lou Gerstner but rather for a stand-in for Lou Gerstner himself. By focusing on the individual, directors end up actually restricting their choice to a single candidate, thereby further closing the market. By focusing their attention on a single individual, needless to say, directors significantly reduce their bargaining power.

The charismatic candidate’s superior bargaining position is rooted not just in the small number of sellers in the external CEO market, and the further narrowing of the candidate field effected by the directors’ focus on individuals, but also in the market’s other two defining features: risk to participants and concerns about legitimacy. The element of risk to directors comes into play because the candidates, being already employed, feel much less dependent on the outcome of the process than do the directors. As previously noted, moreover, if it becomes known that the directors failed to get their first-choice candidate, this will not bode well for the firm, as any subsequent CEO selected will be seen as the second choice and will therefore have to overcome questions about the appropriateness of his choice and the legitimacy of his succession.

Besides leading to imbalances in power between the directors and the candidates, the deferential treatment of candidates can result in poor matches. This is because excessive deference to candidates on the part of directors further exacerbates the problem of poor information for both sides. From the candidates’ perspective, this problem is attested to by the CEO candidate, quoted above, who describes how the board of directors at the firm at which he interviewed attempted to sell the position as a “great opportunity.” “I didn’t know if it was a good opportunity, however,” the candidate recalls. “It is not like this is a completely candid exchange. We are both trying to impress and sell each other. They are putting their best face forward; I am too.”

Even in the best of circumstances, the kind of knowledge the directors and candidates are seeking about one another cannot really be gained in an interview. True knowledge of another person is the culmination of a slow process of mutual revelation. It requires the gradual setting aside of interview etiquette and the incremental building of trust, leading to the exchange of personal disclosures. It cannot be rushed. Choosing CEOs from inside the firm used to enable directors to get to know the candidates in this way. Internal labor markets created space as well as time for such a process. They were sanctuaries from the pressure of external observers such as analysts and the business media. Yet when the internal succession process is rejected, the increased pressure to choose a CEO reduces the amount of time available and results in charismatic succession. In this situation, directors rely on the exaggerated reputations of certain individuals without putting these reputations into a more specific context. Consider the case of one diversified consumer products firm that hired a CEO from the much larger Johnson & Johnson and found the decision costly. As one director relates:

Johnson & Johnson was seen as one of the great ponds for getting managers. It had a reputation in the consumer products field, much like that of GE. However, in our case, it turned out to be the wrong fish. When [Steve] moved to our company, we didn’t have nearly the resources that J&J had. It was not until one year into [Steve’s] tenure at a board meeting that I understood the problem. . . . He complained at a board meeting that the reason the firm’s performance hadn’t improved was that he didn’t have an executive team with nearly the same intellectual and analytical power that he had with his colleagues at J&J. They didn’t share the same instincts. It was then it dawned on me that part of the reason that [Steve] had been so successful at J&J had less to do with him and more to do with the J&J system and J&J culture, something we could never duplicate or even wanted to create in our own firm. I knew then that [Steve] wasn’t likely to work out.

This kind of reliance by directors on the outsized reputations of firms or candidates, as well as the excessive deference toward candidates that it helps to breed, are all the more ironic and needlessly self-defeating in view of the fact that candidates themselves—at least until it becomes clear that they are the board’s choice to be the new CEO—do not necessarily feel nearly as powerful as they are in the directors’ eyes. Even the most sought-after candidates, after all, are human beings with their own wants and insecurities needing to be assuaged.

For example, CEO candidates may be coming from companies where—perhaps because of the charismatic figure already occupying the CEO suite—the path to promotion to the top job is blocked. Whereas economists often consider individuals in organizations to be unconstrained in their mobility, in the internal promotion process in organizations they are anything but. In organizations where the CEO position is occupied, it cannot be occupied by another individual until the incumbent vacates the position. Because of such constraints, there are numerous instances in which the next-in-line executive is willing to move to another organization. (The two primary reasons leading CEO hopefuls to conclude that the path to promotion is blocked for them are proximity in age to the incumbent and the possession of either direct or indirect information to the effect that he or she is unlikely ever to be appointed CEO.)

Whatever an individual’s prospects at his or her current firm, the decision to move to another firm by a candidate who is not currently a CEO is almost always motivated, at least in part, by the desire to receive the dramatically higher monetary rewards associated with the position. Such candidates, however, also have more complex reasons for wanting to go to another firm. For most executives, being named to the CEO position is an affirmation of one’s individual skills. As one CEO candidate said to me, “For most of my career I have been working under a larger-than-life figure. I have done most of the work and very rarely received the credit. I wanted to show everyone that I could do it on my own.” To the extent that a CEO believes that the judges who put him in the position are wise critics, he can believe, if just for a moment, in his own excellence. The awarding of the position is no ordinary transaction, for it is done with a public announcement singing the praises of the new CEO. “It [is] all very heady,” relays another CEO. “At the moment you are on top of the world, and all the sacrifices you made to get there seem worthwhile.”

For candidates who are already CEOs, the opportunity to move to a new firm may represent a chance to enhance one’s personal prestige by moving to a higher-status organization. This type of reflected institutional charisma is no different from that associated with having joined a prestigious club or graduated from an elite university. CEOs compete with their peers for admiration, just like everybody else. Two important ways in which they do so are by becoming well regarded and being sought after by other firms. Even if they are already successful in a firm of respectable status, CEOs are continually concerned with the evaluations of others. They are aware of the prestige rankings of their own firms, of other CEOs, and of themselves. As social beings who have all their material wants satisfied, CEOs can and do channel their cravings into the hunt for status, admiration, and sometimes even the envy of their peers. One of the most important consequences of this status system is the flow of CEOs from one firm to another. This process is determined, in part, by the decisions CEOs make about whether moving from one firm to another will enhance, stabilize, or diminish their status. Reputation, in other words, is one of the main currencies in the external CEO market.

Candidates’ concern with status, in turn, increases the apprehension with which they approach the prospect of joining a new firm as an outsider CEO. This apprehension then motivates candidates to make full use of the extraordinary bargaining power that the charismatic succession process hands them vis-à-vis the board. Candidates understand that their hiring represents an attempt by the directors to change the fortunes of the organization, and particularly to restore the status it has lost by performing poorly. Candidates are also aware, however, that while their hiring can temporarily affect the status of the organization, changing it permanently is a slow process that requires continually proving oneself. In this respect, candidates are more realistic than either directors or the external constituents, such as the business media and analysts, who expect them to get fast results. Moreover, because candidates recognize that they will be sacrificing their current status, they often demand recompense in the form of prestige, power, and money. As one candidate reveals, “The reality is that when you get far enough along in the process, you can ask for pretty much anything you want. The nightmare scenario for the board at this point is having to restart the process. So you ask. And you get.” In some such circumstances, the demands extend beyond pay and severance packages. Several CEO candidates ask for power and authority. In many cases, the candidates demand that they be given both the CEO and chairman positions as well as the right to make some decisions regarding the composition of the board. (Such was the case with Jamie Dimon, who had negotiated with the Bank One board to be able to reduce its size by six members, and then appointed two directors whom he knew well. Dimon’s desire to control the Bank One board was understandable given his experience under Sandy Weill at Citibank. A governance expert might suggest, however, that the consequence of such a bargain is weaker monitoring of the CEO by the board.)

In any event, even the opportunity to join a more high-status company does not allay all the anxieties that a new CEO experiences. The initial gain in status may be temporary; if the organization is in very dire straits, this moment of glory may prove to be only a brief prelude to a later failure. Consequently, even the most confident and optimistic CEO must consider the implications of the decision to change firms. At the same time, candidates are hampered in their ability to understand these implications owing to the information problem that affects sellers as well as buyers in the external CEO market. In contrast to the ideal situation (often assumed as reality by economists) in which participants in a market have the relevant data to make informed transactions, CEO candidates, in choosing to move from one firm to another, cannot reliably predict what the costs of such a move will be over time. It is also difficult for them to calculate the potential payoff.³³

Thus CEO candidates—despite the Napoleonic or even godlike stature that they have in the eyes of directors and others who both influence and are influenced by directors’ choices in an external CEO search—turn out in some respects to be ordinary mortals subject to forces beyond their complete control. As Jamie Dimon has remarked to me, “Everybody has a book—a story.” And as Dimon and his charismatic cohorts also understand, to be part of a story, even one’s own, is to be to some degree at the mercy of the storytellers. Yet for the most part, CEOs and CEO candidates have benefited—often enormously—from the tales that have been told for the last two decades about “leadership,” “talent,” and “the market.” And in the age of the charismatic CEO, it needs to be stressed, both those directly involved in the succession process and others who stand on the outside looking in, are involved in the telling and retelling of these stories. Discerning whose interests are harmed in the process, even as the interests of a small coterie of insiders are advanced, is the final, most critical step in understanding external CEO succession. It may also be the first step in learning what can be done to make the CEO selection process better serve the legitimate interests of both corporate constituents and society in general.