Last week in The Economist, “Schumpeter” cited a paper by Cazier and McInnis presented at the annual conference of the American Accounting Association in August wherein the authors studied 192 CEOs who had been externally recruited to their new company between 1993 and 2005. They found that past performance was usually good and that a premium was usually paid to recruit. They then analysed the performance in the new role and found that the pay premium to recruit was negatively correlated with performance. The “better” the recruit, the “worse” the performance! Schumpeter goes on to conclude that corporate culture is the key since these “superstar” CEOs usually assume credit for their successes in their old companies when in fact, many others were involved in that success. Accordingly, the superstars tend to have an inflated opinion of their own abilities and they tend to think that in their new companies they can change corporate cultures single-handed when usually they cannot.
So where do these superstars come from and are they only to be found in the C suite? Is it just a case of superlative performance or are there other factors at play which mean that a leader can “snowball” up to a superstar status? This reminded me of the book: The Halo Effect ... and the Eight Other Business Delusions That Deceive Managers, by Phil Rosenzweig (2007, Knowledge@Wharton). Whilst the focus is on the corporate entity in a competitive landscape, the theories are equally applicable to the leadership of the company itself.
Here’s a summary followed by my culturally biased critique (“et alors”).
The Halo Effect… and the Eight Other Business Delusions That Deceive Managers
The eight “delusions” include: 1) difficulties with data: garbage in equals garbage out; 2) finding the real causal link to correlations; 3) singling out the key influencing “success” factor amongst many connected variables; 4) success is reviewed in isolation and not relatively compared to the “unsuccessful”; 5) success is seen as sustainable but is invariably short-term; 6) performance is relative, not absolute; 7) measuring success is not scientific; and 8) success might come from focused strategies but focused strategies do not always lead to success.
His key point linking all the other “delusions” is the “halo effect” which is described as: the tendency to make attributions about a company’s culture, leadership, values, etc. based simply on the overall performance of the company. This builds on the origin of the “halo effect”: in 1920, Edward Thorndike found that when army officers were asked to rate their charges in terms of intelligence, physique, leadership and character, there was a high cross-correlation. In other words, when we consider someone good (or bad) in one category, we are likely to make a similar evaluation in other categories. Rosenzweig concludes with advice:
1. Chance plays a greater role in success than managers may want to admit; and
2. Bad outcomes do not always mean that managers made mistakes. Likewise, favourable outcomes do not necessarily mean that the managers made brilliant decisions.
Et alors?
Superstar leader status appears to be born with the halo effect. The starting point can often be what is heard said in big corporations, namely: “she’s really intelligent – she’ll do well!” The myth of intelligence is often that firstly, it is nice at the top to think that the people who will replace you are those who are seen as being intelligent; secondly, either from the top or elsewhere, it can be an easy diagnostic of failure – evidently she was not clever enough: if she was really intelligent she would have worked it out. Finally, throughout the organisation, it there is a conceit amongst those who “know” that the business is complicated and challenging and can only therefore be “mastered” by “genius”, then the myth of intelligence can easily become self-perpetuating.
In most corporations, intelligence is required to enter the “leadership tournament”, but is neither a guarantee of success nor any guarantee of extra value-added to the company since everyone in the “tournament” is already of a certain higher-than-average intelligence. It should not matter but with intelligence as the starting point, the halo effect is that the superstar is then more likely to be described positively in other categories. If this is actually combined with good performance then you go from beyond halo effect to “can-do-no-wrong” and so the superstar snowball is set in motion.
How many leaders will actually admit that a positive outcome was in full or in part due to chance? If however the outcome is negative, then it goes without saying that it was bad luck! For the fledgling superstar, once status is confirmed, chance can work in their favour since if it does not happen to go the right way then not only will everyone understand that it was bad luck but people will start to appreciate this leader as a “risk taker”…
Once a superstar is not only born but is being carried along by chance, then despite the stretch targets and special projects, performance has to be seen to be good. This too will not be a problem since, with the benefit of the halo effect, the superstar will by now exemplify the corporate culture. Whatever the values of the company are, the superstar will be seen to have them and good performance will be assured when measured against the “values” of that corporate culture.
To be a leader, it helps to be slightly more intelligent than average. To be a superstar leader, you have to perfectly “fit in” to the corporate culture. If that corporate culture is one which perpetuates the myth of intelligence and the leader is not only intelligent, but is seen to be intelligent (and preferably has the very best diploma to certify it), then with some help from the halo effect, a superstar is born! My point is not whether superstar leadership is good or bad, but that from the perspective of developing leadership in a particular corporate culture, the “superstar” status should be treated with at least some scepticism...
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