The Curse of the Superstar CEO

Former Enron CEO Jeff Skilling radiated so much charisma that he induced blind obedience in his followers. Even Enron’s board bent to Skilling’s will—suspending its ethics code for top executives, who destroyed the firm.

Yet Enron’s choice of Skilling as CEO was typical. Most companies seek charisma in their leaders—even at the expense of strategic thinking and industry knowledge. Unfortunately, their choice often spawns disappointment, even disaster.

A belief in the power of charismatic leaders is understandable. Superstar CEOs do imbue troubled companies with excitement, awe, and hope. But, surprisingly, they have little positive impact on firms’ performance. It’s up to a company’s directors to dismiss the dazzle and pick the right leader—or risk seeing their firm’s energy sucked dry.

The Idea in Practice

The Pull of Charisma

Before 1980, most CEOs were “organization men,” working their way up the ranks in relative obscurity. But when corporate profits plummeted during the ‘80s, investors suddenly wanted CEOs who could “shake things up.” Hence the hunger for charisma.

Simultaneously, a quasi-religious conception of business emerged (characterized by words like mission and vision). And ordinary Americans’ increasing participation in the stock market whetted the public’s appetite for easy-to-understand news stories about business personalities.

Result? A new breed of corporate leader, who was expected to 1) offer a radical new vision of the future; 2) motivate followers to reach this “promised land”; 3) bewitch investors, analysts, and the business press; and, finally, 4) perform miracles by resurrecting dying firms and vanquishing powerful foes.

The Dangers

Desire for a charismatic leader can spell danger for several reasons:

• CEOs’ influence on corporate performance is greatly exaggerated. What determines organizational performance? A complex interplay of social, economic, and other forces far beyond one person’s power to influence. By linking performance to individual leadership, boards oversimplify reality in hopes of finding easy answers.

• Crises are often the worst times to seek charismatic saviors. When corporate performance falters, boards frequently misdiagnose the problems, fire incumbents, and search for charismatic successors—often with disappointing results.

Example: 

When Kodak faltered in the early 1990s, its directors fired CEO Kay Whitmore and, amid great fanfare, appointed then-Motorola president George Fisher. But Kodak’s problems stemmed from difficulties adapting to new technology—not ineffective leadership. The “savior” proved impotent, and Kodak remains a “horse-and-buggy” operation in a digital-photography world.

• Directors use too narrow criteria to select CEOs. Boards of embattled companies seek dynamic leaders, especially outsiders. But because crises induce insecurity and anxiety, directors also play it safe. They narrow candidate pools to those who’ve already helmed outstanding companies—even if their experience has little relevance to their firm.

Example: 

Tool and hardware manufacturer Stanley Works chose CEO John Trani primarily because he’d worked at GE for Jack Welch. The company never asked whether Trani’s experience was relevant to its problems.

• Charismatic leaders destabilize organizations. By opposing tradition and removing roadblocks to their envisioned future, they catalyze much-needed change. But the resulting destabilization can also leave a troubled legacy—as discovered by GE post Welch and Ford after Nasser.