Charismatic CEOs are often famous, and they make good copy; in 1997, business magazines featured photographs of C. Michael Armstrong, the incoming CEO of AT&T, astride his Harley, riding to the company’s rescue. The appointment of such figures can inspire upticks in stock prices. But they also tend to be less knowledgeable, and more expensive, than internal candidates. Many underperform and are quickly fired; they are then replaced by other rock-star CEOs. The system perpetuates itself because of leadership nostalgia.
CEO searches are often undertaken during moments of perceived crisis, and investors dream of a tribal chief who can subdue, through strength of personality, the vast forces shaping corporate fate. They pressure corporate boards to select candidates who “instill confidence.” This approach vastly overestimates not just the importance of a CEO’s personality but the importance of
CEOs in general. Khurana points out, deflatingly, that there is little evidence for the “CEO effect.” The most powerful factor determining a company’s performance is the condition of the market in which it operates.
Excerpted from “Shut Up and Sit Down: Why the Leadership Industry Rules” by Joshua Rothman; published in The New Yorker, Feb. 29, 2016 issue.
