The HBO hit series “Succession” has taught us that even the most powerful individuals do not work alone. In a new article published in Strategic Management Journal, the authors argue that the success of someone like Tom in his new CEO role depends more on his alliances than his business acumen.
Entitled “Can powerful allies protect the CEO against performance declines? The role of the CEO’s subgroup power in CEO dismissal,” the article by Jihae You, Taekjin Shin, and Yunhyung Chung explores why some companies fire their CEOs despite good performance, while others retain their CEOs despite poor performance.
The answer lies in the composition of the company’s board of directors. Boards often have subgroups, where members share characteristics and feel distant from other subgroups. The influence of a subgroup on the entire board depends on its power. Subgroups with power can change the attitudes and behaviors of other board members, including decisions regarding CEO retention or dismissal.
One particular subgroup that plays a significant role is the “CEO subgroup,” which consists of directors who share social identities with the CEO, such as gender, race, age, beliefs, values, or backgrounds. If the CEO subgroup is large and its members are powerful, they can reduce the risk of CEO dismissal, especially when the company’s performance declines.
But why would a board retain a CEO when the company is not performing well? The researchers explain that when a CEO comes under attack, the members of the CEO subgroup feel insecure. They fear losing the resources and benefits they receive from their relationship with the CEO. As a result, the CEO subgroup becomes even more cohesive and uses its power to protect the CEO and their shared interests.
The researchers analyzed 20 years of data from S&P 500 boards and found that the existence of a CEO subgroup alone does not significantly impact board decisions. It is the power of the subgroup that matters.
Professor Jihae You emphasizes the importance of studying power dynamics at the subgroup level, as the influence of individuals can be shaped by their peers who are close to them. By understanding and leveraging CEO subgroup power, companies can better understand how power dynamics between subgroups affect board decisions.
As for Tom Wambsgans from “Succession,” his success in his new company, Waystar-Royco-GoJo, will depend on his ability to build alliances and navigate the power dynamics within the organization. Building a coalition of powerful allies will be crucial for his survival and success.
More information: Jihae You et al, Can powerful allies protect the CEO against performance declines? The role of the CEO’s subgroup power in CEO dismissal, Strategic Management Journal (2023). DOI: 10.1002/smj.3526
Provided by Strategic Management Society
Citation: Powerful board allies are a CEO’s best weapon, say researchers (2023, June 22) retrieved 22 June 2023 from https://phys.org/news/2023-06-powerful-board-allies-ceo-weapon.html
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Jessica Irvine is a tech enthusiast specializing in gadgets. From smart home devices to cutting-edge electronics, Jessica explores the world of consumer tech, offering readers comprehensive reviews, hands-on experiences, and expert insights into the coolest and most innovative gadgets on the market.
