Dominant CEOs can either build or destroy a company: Study

Thursday, January 27, 2011

WASHINGTON - A new study has revealed that dominant CEOs, who are powerful figures in an organization as compared to other members of the top management team, can evoke extreme results for the company.

It found that the performance of a firm under a powerful CEO could either be much better than other companies or much worse.

However, a company with a strong board of directors can nullify the effect of a dominant CEO and take the company to new heights.

The authors observed that companies under strong CEOs like Bill Gates of the Microsoft and Jack Welch of the General Electric, have performed extremely well.

On the other hand, a dominant CEO might prove disastrous for the employees as well as the shareholders, as in the case of Kenneth Lay of Enron.

This makes that a dominant CEO may lead a firm to a deviant strategy. This strategic deviance can yield a strong position for a firm in its markets, or it can drive it to big losses.

To control the negative effects of strategic deviance and balance the power of such CEOs, it is imperative to have an equally strong board of directors, said the authors.

They act like watchdogs and provide valuable second opinions. This control by the board can stop any kind of strategy proposed by a strong CEO that might lead to the company’s failure.

Although a strong board of directors does not completely eliminate the possibility of the company’s downfall, it can counter the negative effects of a dominant CEO.

The authors said that coupling dominant CEOs with powerful boards represents an ideal governance arrangement for any company’s success.

The study is published in the Journal of Management Studies. (ANI)

Filed under: Business

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