curse of leadership ceo

When companies look for new

leaders, the one quality they seek

above all others is charisma. The

result, more often than not, is

disappointment-or even disaster.

T H E SECRET to being a suc-cessful CEO today, it's almostuniversally assumed, is leader-ship. Such qualities as strategicthinking, industry knowledge,and political persuasiveness,though desirable, no longerseem essential. Particularlywhen a company is struggling,directors in the market for anew CEO-as well as the in-vestors, analysts, and businessjournalists who are watching their every move-will notbe satisfied with an executive who is merely talented andexperienced. Companies now want leaders.

But what makes a successful leader? When people de-scribe the qualities that enable a CEO to lead, the wordthey use most often is "charisma." Biographers and jour-nalists have spilled much ink trying to deconstruct thecharisma of superstar CEOs such as Lee lacocca, JackWelch, and Steve jobs. Nevertheless, charisma remains asdifficult to define as art or love. Few who advocate it areable to convey what they mean by the term. Fewer stillare aware that the concept is borrowed from Christianity.In a passage from the New Testament, the apostle Paul

60

TheCurseof theSuperstar

CEOby Rakesh Khurana

lists the various charisms, orgifts of the Holy Spirit, thatChristians may possess. Ac-cording to Paul, those giftedwith charisma in this sense in-clude"good leaders."They alsoinclude church members withextraordinary endowments,such as the power to speak intongues or work miracles.

Of course, the meaning ofcharisma has changed since

Saint Paul's time, but there is a lingering sense of admira-tion-even worship-for the few who are thought to pos-sess uncommon inspirational powers. We now think ofcharisma as a set of personal qualities that inspire aweand submission in others. Jeffrey Garten, dean of the YaleSchool of Management, vividly captured the aura of thecharismatic leader in his book The Mind of the CEO. De-scribing his first meeting with C. Michael Armstrong, nowthe CEO of AT&T, Garten effused that Armstrong "radi-ated the confidence, enthusiasm, and energy of a sea-soned politician.. .You had the sense that if you were mak-ing a movie and said, 'Get me a CEO,' to the castingdirector, he'd give you Michael Armstrong."

HARVARD BUSINESS REVIEW

SEPTEMBER 2002 61

The Curse of the Superstar CEO

In researching CEO successions in large U.S. compa-nies over the last half dozen years, I have found that suchrapt responses play a surprisingly significant role in de-termining who is considered qualified to lead America'sgreat corporations. And I have concluded that the wide-spread quasi-religious belief in the powers of charismaticleaders is problematic for a number of reasons. First, faithexaggerates the impact that CEOs have on companies.Second, the idea that CEOs must have charisma leadscompanies to overlook many promising candidates andto consider others who are unsuited for the job. Finally,charismatic leaders can destabilize organizations in dan-gerous ways. Before taking a closer look at each of thesedangers, let's untangle the paradox of just how charis-matic leadership has come to be the ideal for Americanbusiness in an era we like to celebrate as being rationaland enlightened.

The Pull of CharismaCharisma wasn't always as important in business as it istoday. For the three decades following World War Il-inwhat has been called the era of managerial capitaUsm-the typical CEO was an "organization man" who workedhis way up the ranks and was no better known to the gen-eral public than his secretary or his dentist. All thatstarted to change in the 1980s, when a long-standing de-cline in corporate profits ushered in today's era of investorcapitalism. Senior managers -once viewed as enlightenedcorporate statesmen - began to be portrayed by disgrun-tled investors as an insulated, self-interested elite, ill pre-pared to face the challenges of global competition andrapid technological change. Investors were suddenly look-ing for CEOs who could shake things up and put an endto business as usual.

This important change coincided with two other shifts.The first was the emergence of an almost religious con-ception of business, exemplified by the appearance ofwords such as "mission,""vision," and "values" in the cor-porate lexicon. The second shift was the rise of so-calledpopulist capitalism, whereby ordinary Americans madeinvesting the country's most popular participatory sport.To serve the public's growing appetite for business news,the mass media greatly expanded coverage of corporatedoings, focusing-as always-on personalities and easilycomprehensible narratives.

In this environment, a new breed of corporate leader-today's charismatic CEO-began to appear. Lee iacocca,who was elected chairman and CEO of Chrysler in 1979,

Rakesh Khurana is an assistant professor of organizationalbehavior at Harvard Business School in Boston. He is the au-thor of Searching for a Corporate Savior: The IrrationalQuest for Charismatic CEOs, to be published in October byPrinceton University Press.

will probably go down in history as the first modernexample of a charismatic business leader. Soon afterIacocca's turnaround of Chrysler made him a celeb-rity and even a national hero, Steve Jobs, the New Agewunderkind of Apple Computer, gave a more contempo-rary spin to Iacocca's brand of inspirational leadership.Revered for his success in introducing people to the per-sonal computer-which he dubbed the Star Wars-like"force" that could guarantee our "freedom"-Jobs createda corporate culture that has become widespread. In thisnew organization, employees were supposed to workceaselessly, uncomplainingly, and even for relatively lowpay not just to produce and sell a product but to realizethe vision of the messianic leader.

What made these chief executives different from theirpredecessors, apart from their celebrity status and exag-gerated self-importance? For a start, the charismatic CEOwas typically-though not invariably-either an entrepre-neurial founder or someone who had been brought intothe company from the outside. Far from being a pre-dictable organization man, he was expected to offer a vi-sion of a radically different future and to attract andmotivate followers for a journey to the new promisedland. In keeping with the religious conception of theCEO's role, the charismatic leader was also supposed tohave the "gift of tongues," with which he could inspireemployees to work harder and gain the confidence ofinvestors, analysts, and the ever skeptical business press.Finally, in all too many cases, the charismatic leader wassupposed to have the power to perform miracles-tobring a dying company back to life, for instance, or to van-quish much larger, more powerful foes.

It can, of course, be quite exhilarating for an organi-zation when such a leader appears. Whatever else theymay be, charismatic CEOs are not dull. But as manycompanies have found, there's a downside to superstarCEOs. Like its close relative, romantic love, charisma canbe blinding. And the consequences of that blindnesscan be severe.

The White Knight TrapOur fervent and often irrational faith in the power ofcharismatic leaders seems to be a part of our human na-ture. The charismatic illusion is fostered by tales of whiteknights, lone rangers, and other heroic figures who rescueus from danger. Major events are easier to understandwhen we can attribute them to the actions of prominentindividuals rather than having to consider the interplayof social, economic, and other impersonal forces thatshape and constrain even the most heroic individual ef-forts. Sociologists and social psychologists refer to thiscommon tendency to overestimate the impact of individ-uals as the "fundamental attribution error," and Americansociety, with its mythology of frontier heroes, pioneering

62 HARVARD BUSINESS REVIEW


inventors, and other "rugged individu-a]s" has always heen beleaguered by it.

Consider George Washington, Amer-ica's first charismatic political leader. Hehad to suppress a movement to name himking-as if he had won the Revolutionsingle-handedly. More recently, RonaldReagan has been credited with winningthe Cold War, and many people believethat Alan Greenspan controls the U.S.economy. Tracing the performance ofvast business organizations to the qual-ity and actions of CEOs is yet anotherexample ofthe magical thinlting evidentin the fundamental attribution error.

What makes today's profound faithin the charismatic CEO so troubling isthe lack of any conclusive evidence link-ing leadership to organizational perfor-mance. In fact, most academic research that has sought tomeasure the impact of CEOs confirms Warren Buffett'sobservation that when you bring good management intoa bad business, it's the reputation of the business thatstays intact. Studies show that various internal and ex-ternal constraints inhibit an executive's ability to affecta company's performance. Most estimates, for example,attribute anywhere from 30% to 45% of performance toindustry effects and io% to 20% to year-to-year economicchanges. Thus, the best anyone can say about the effectof a CEO on a company's performance is that it dependsgreatly on circumstances.

The misguided assumption that CEOs are all-powerfulis the main reason that the tenure of business leaders hasgrown ever briefer in recent years. If a CEO is responsiblefor a company's successes, affer all, he must also be re-sponsible for its failures. My research clearly shows thatdirectors automatically blame the incumbent CEO whena company performs poorly. Scapegoating is as old ashuman nature, of course, but my interviews strongly sug-gest that when corporate performance falters, directorscome under enormous pressure to fire the CEO and hirea savior. This finding is consistent with the larger his-torical truth that while charismatic leaders (whether inreligion, politics, or elsewhere) may appear at any time,they most offen emerge-or are called into existence-during a crisis.

For an example of how a struggling company can mis-diagnose its problems by attributing them all to the CEO-and then pin its hopes on a charismatic successor-con-sider the case of Kodak over the last decade. In the early1990S, Kodak's then CEO, Kay Whitmore, was intenselycriticized for failing to improve the company's perfor-mance. Institutional investors, such as Robert Monks'sLens Investment Management, hiamed Whitmore for thecompany's decline, and Wall Street analysts and the media

SEPTEMBER 2002

The charismatic leader

was supposed to haye

the power to perform

miracles-to bring a

dying company back to

life,for instance, or to

vanquish much larger,

more powerful foes.

jumped on the bandwagon to demandthat Kodak's board depose Whitmore. InAugust 1993> the company's directorsdelivered the beleaguered CEO's headin a highly publicized firing. TVvo monthslater, the board announced the appoint-ment ofthe first outsider chief executivein Kodak's history, George Fisher, whowas then CEO of high-fiying Motorola.

Kodak's new CEO was greeted withmuch fanfare and high hopes. After all.Fisher was widely credited with Mo-torola's strong performance during histenure. But how much of Motorola's suc-cess can truly be attributed to him? Inlight ofthe company's problems today,it is apparent that much of its earliersuccess was due to telecommunicationsderegulation: Increased competition in

local cellular markets and lower retail prices led to a morerapid adoption of Motorola's phones and related tech-nology. And if Motorola's successes were largely the resultof broad trends, so were Kodak's failings. The analysts andinvestors counting on Fisher failed to recognize thatKodak's fundamental problems-most notably, missingthe shift from chemical to digital photography - had littleto do with the company's executive leadership. Indeed, inthe decade before Fisher was brought in, Kodak had beendescribed as having one of the most effective executiveteams in the United States.

Nevertheless, when Fisher was signed on, he washailed as a savior. On the day his hiring was announced,Kodak's stock rose $4.87, to $63.62. But after several yearsof acquisitions and divestitures, significant investmentsin Internet technologies and digital photography, anda wholesale turnover of executives, the Kodak of todaylooks much like the Kodak of 1994: a business that derivesmost of its profits from chemical film manufacturing andprocessing, a horse-and-buggy operation in the world ofdigital photography.

Meanwhile, the company's stock has declined by two-thirds since Fisher was brought in. According to analysts,the reason for the company's continued decline is thatFisher and his recent successor, Daniel Carp, have bungledtheir opportunities. Certainly, they have made some mis-takes - as all chief executives do. Yet Kodak's CEO, or eventhe rest ofthe company's senior management, is not themain problem. For all the excitement and optimism thatare generated by superstar CEOs, the truth remains thatthe factors affecting corporate performance are varied,highly nuanced, almost frighteningly complex, and cer-tainly beyond the power of even the most charismaticleader to influence single-handedly. To pretend otherwiseis to grossly oversimplify reality in the hope of findingeasy answers.

63


Look Bold, but Play It SafeKodak's story is a familiar one in business today: Whenperformance fails, directors feel compelled to oust theCEO and bring in a corporate savior, even if the company'spoor performance cannot be attributed to the incum-bent. In their search for a new chief executive, directorsbrush up against a stubborn paradox. On the one hand,they need (or believe they need) to find a dynamic leaderwho will shatter precedent and take the company in a dar-ing new direction. On the other hand, given the elusive,ultimately undefinabte nature of charisma - not to men-tion the possibility that they may make an unwisechoice - they also feel a powerful urge to play it safe.

I have found that when directors narrow the initial poolof candidates (which already consists principally of top ex-ecutives they already know), they try to resolve their con-flicting requirements by focusing on candidates whomoutsiders will consider acceptable. As a result, candidateswho make it to the final round generally have alreadyachieved the rank of CEO or president and come fr̂ om high-performing, high-status companies.

To appreciate the conservative-even irrational-natureof this selection process, consider how the board of tooland hardware manufacturer StanleyWorks chose its current CEO, JohnTrani. When I asked various Stanleydirectors to explain their reasons forhiring Trani, the factor I heard mostoften was that he had come fromGeneral Electric and had worked forJack Welch. Several directors dis-cussed GE's track record in develop-ing executives. All of them pointedto other former GE executives whowere now leading U.S. companiesthat had improved their perfor-mance. The almost sublime illogic oftheir arguments is captured perfectlyin one director's comment: "I can'tthink of a company of comparablesize that has created more valuethan GE during Welch's tenure." Notone of the directors made any ex-plicit connection between Trani'sexperiences at GE and the problemsfacing Stanley. In their eyes, Tranihad been imbued with charismasimply through his association withGE and Welch.

There's an important point here:Charisma is commonly assumed tobe inherent, not borrowed fromother people or conferred by the so-cial miUeu. But the reality is very dif-

ferent. Whether in religious, governmental, or businesscontexts, charisma is much more a social product than anindividual trait In primitive societies, leaders often worespecial clothing, masks, and ornaments that conferred onthem a larger-than-life appearance that helped createperceptions of their charisma. In monarchies, kings andqueens assume charisma through their family heritage,buttressing it with such potent symbols as palaces, robes,and crowns. Large offices, private planes, expensive suits,and other trappings of corporate power perform the samefunction for CEOs.

In addition to relying on such external markers, char-ismatic CEOs acquire their hold over others by meetingcertain socially constructed criteria about what consti-tutes a great leader. One of the most powerful of theseconstructs is the idea that outsiders are particularly wellqualified to lead. One director I interviewed made thispoint in bluntly stating the rationale for recruiting an out-sider CEO: "The person coming from the outside has aclear mandate, particularly if he is coming into a trou-bled situation. He is not beholden to anyone. There areso many constraints on the internally promoted individ-ual. There is so much baggage. Organizational boxes, thepeople in the boxes, probably half the businesses that


were bought now should be chucked....[As an insider], you are part ofthe pro-cess. .. .You turn to an outsider and thenyou can watch the blood spray. You don'tsee many examples of internal candi-dates getting to the top of the systemand then laying waste to the existingculture."

The belief in the superiority of outsid-ers further constrains corporate boardsin hiring CEOs. Consider the search thatled to the March 2000 appointment ofJamie Dimon as CEO of Bank One. In1999, Bank One was stumbling in thewake of its recent acquisition of FirstChicago NBD. Many of Bank One's prob-lems stemmed directly from the diffi-culty of melding the operations and cul-tures of the two banks. As performancedeclined, a revolt led by board members from the formerFirst Chicago ended with the firing of John McCoy, BankOne's illustrious CEO. Although the former First Chicagodirectors favored appointing Verne Istock, who had beenCEO of First Chicago, other board members wanted some-one with greater presence to impress Wall Street. Theywanted a superstar. Not surprisingly, the search focusedon external candidates, and on one in particular: formerCitigroup president Jamie Dimon.

Dimon was already a legendary figure on Wall Streetby virtue of his long association with - and dramatic firingby-Sandy Weill, with whom he had built the Citigroupempire. Having spent virtually his entire career as a dealmaker on the investment banking side of financial ser-vices, Dimon had all the mental quickness and chutzpahessential to success in that world. But those were not thetraits traditionally valued in commercial and retail bank-ing, indeed, in many ways Dimon was a strange choice foran organization such as Bank One. He didn't have muchexperience with retail banking or credit card operations,two of Bank One's largest businesses-the latter the sourceof many of the bank's operational problems. Known forhis hot temper, Dimon also seemed ill suited to bridge thedifferences between Bank One's freewheeling, entrepre-neurial culture and the far more traditional banking cul-ture of First Chicago.

Despite Dimon's apparent drawbacks, he dazzled BankOne's directors. Following a two-hour presentation hemade to the board's search committee, outside directorand committee chair John Hall summarized his col-leagues' reaction: "Everyone knew he was brilliant, butthe presentation showed just how brilliant he was."Another member of the search committee enthused thatDimon was the kind of leader who "would not wastetime getting stability and consensus, but instead would dowhat it took to make us the number one bank...Istock,

SEPTEMBER 2002


While charismatic

leaders (whether in

religion, politics, or

elsewhere) may appear

at any time, they most

often emerge-or are

called intoexistence-

during a crisis.

" ' •" ' on the other hand, was more consensus-oriented. He felt that Bank One neededto be stabilized and that its executivesneeded a rest from the turmoil that hadresulted ffom the merger and McCoy'sdeparture."

Clearly, the committee's standards didnot refiect a half-century's worth of wis-dom about achieving organizational ef-ficiency through rational management.(By what measure, one is tempted toask, is seeking stability and consensusa waste of time?) Rather, the values atwork here stem from a mistaken beliefthat complex organizational problemscan be solved by a charismatic outsider.In the case of Jamie Dimon, the jury isstill out. He may succeed; he may not.But one thing is clear: Bank One's per-

ceived need to usher in change while playing it safenarrowed its sights in the search for a new CEO. Theboard in effect cheated shareholders by rushing tochoose the usual suspect-the bold outsider-even if itmeant ignoring better candidates.

The Destructive ImpulseThe cult of the outsider is so strong that even when in-siders are appointed to the CEO post, they are often peo-ple who have assumed the traits of outsiders. GE's JackWelch and Ford's Jacques Nasser, for example, were bothcareer employees of their respective companies who be-came known for their willingness to "lay waste" to partsof their organizations. Enron's Jeff Skilling was anotherlongtime insider who claimed the mantle of a charismaticleader. He succeeded in doing so by advancing his auda-cious vision of transforming Enron fi-om an owner andoperator of natural gas pipelines to an "asset-light" neweconomy company and by converting people to his cause.

The common thread in the stories of these three CEOs -and in the stories of most charismatic leaders, whetherthey are insiders or outsiders-is that they deliberatelydestabilize their organizations. In some cases, as with GE,the de stabilization can bring much-needed changes andresult in a more vibrant company. In other cases, as withFord, it can do more harm than good. In still other cases,as with Enron, it can be disastrous. In all instances, how-ever, destabilization carries great dangers.

First, consider the problem of CEO succession. Indeed,one ofthe biggest challenges facing Welch's heir, JeffreyImmelt, is avoiding constant comparison with his larger-than-life predecessor, even as he is forced to deal withthe disappearance of the "Welch effect," which pushedup the company's stock price during Welch's tenure.Even at GE, which is famous for having a formal intemal-

65


succession process (although the newCEO is still, in the end, selected by theoutgoing one), passing the torch fromone leader to the next is fraught with dif-ficulties. Because no chief executive staysin the post forever, any system of author-ity based on the power of an individualwill ultimately be unstable. Organiza-tions that depend on a succession of char-ismatic leaders are essentially relyingon luck.

Jacques Nasser illustrates another dan-ger of charismatic CEOs. On being ap-pointed CEO of Ford in 1999, Nasser washailed by BusinessWeek as a "restless,Lebanese-bom outsider," who "early onshowed the impatience with Ford's bureaucratic fiefdomsthat still fuels him today." The charismatic leader ofNasser's type stands in opposition to the past and in op-position to tradition. This kind of leader proclaims thecompany's destiny - usually in the form of a seductive vi-sion-and demands that all roadblocks be removed.Today, in the troubled wake of Nasser's two-and-a-half-year reign. Ford is struggling to return to its roots as ahigh-quality manufacturer and a good employer. Its or-ganization has been damaged not only by the mishan-dling of the Ford Explorer-Firestone disaster but also byNasser's countercultural focus on things like a forced-curve performance system for employees.

Lastly, the destructive impact of a charismatic leadercan be seen in Jeff Skilling's ill-fated career at Enron.In this case, the demands of the leader induced blindobedience in his followers. As we now know, Skilling'sabilities as a new economy strategist were considerablyoverrated. What he clearly excelled at, however, wasmotivating subordinates to take risks, to "think outsidethe box" - in short, to do whatever pleased him. One for-mer Enron executive has described the upper managerialranks of the company as a"yes-man culture." CFO AndrewFastow-the alleged designer of the off-the-books part-nerships that proved central to Enron's downfall-was soenamored of Skilling that he reportedly named one of hischildren after him and hired the architect who designedthe CEO's Houston mansion to design his house.

Enron's board of directors also bent to the will of itscharismatic leader when it agreed to suspend its codeof ethics to allow top executives to participate in the off-balance-sheet partnerships. Yet almost to the bitter end,Skilling wowed investors and analysts at gatherings thatone analyst likened to revival meetings. As Skilling'sexample illustrates, charismatic leaders reject limits totheir scope and authority. They rebel against all checkson their power and dismiss the rules and norms thatapply to others. As a result, they can exploit the irrationaldesires of their followers. That's because following a char-

Today's extraordinary

trust in the power of

the charismatic CEO

resembles less a

mature faith than it

does a belief in magic.

ismatic leader involves more than merelyacknowledging his skills-it requires fullsurrender.

Enron may seem like an extreme ex-ample, but the list of organizations badlycrippled by charismatic CEOs includessome of the most respected names inAmerican business. Xerox under theleadership of Rick Thoman-a top IBMexecutive whom the Xerox board hopedhad caught some of Lou Gerstner'smagic-provides a particularly sad ex-ample. Michael Armstrong's perfor-mance at the helm of AT&T thus far hasnot been much more inspiring. Timeand again over the past 20 years, corpo-

rate boards have seen the superstars they had hopedwould be saviors tum into black holes that sucked theenergy and purpose out of their organizations.

A New Era?The decades that saw the rise and apotheosis of the charis-matic CEO were not notable for skepticism. In the 1980s,Ronald Reagan convinced Americans that they couldhave lower taxes, increased govemment spending, andbalanced budgets, thus leading the way to the biggestdeficits in the nation's history. In the 1990s, a parade ofpundits and gurus told us that the Intemet was changingall the mies. Venture capitalists poured billions into wing-and-a-prayer enterprises with no serious plans for makingmoney, while ordinary investors drove the Dow Jones andthe Nasdaq to unsustainable heights at the behest of an-alysts who claimed to see a pot of gold at the end of everyrainbow. It was, in many respects, an age of faith-a faiththat was also expressed in the extravagant hopes andexpectations invested in charismatic CEOs.

Faith is an invaluable, even indispensable gift in humanaffairs. In the realm of religion, it is said to move moun-tains - scarcely an exaggeration when we consider itspower to make people believe in and work for the tri-umph of good in a world of guilt and sorrow. In the sphereof business, the faith of entrepreneurs, leaders, and ordi-nary employees in a company, a product, or an idea canunleash tremendous amounts of innovation and produc-tivity. Yet today's extraordinary tmst in the power of thecharismatic CEO resembles less a mature faith than itdoes a belief in magic. If, however, we are willing to beginrethinking our ideas about leadership, the age of faithcan be followed by an era of faith and reason. 9

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