FOR RELEASE: June 4, 1998
Contact: Margo Hittleman
Office: (607) 255-6417
E-Mail: [email protected]
Compuserve: Bill Steele, 72650,565
http://www.news.cornell.edu
ITHACA, N.Y. -- Effective senior management teams play a greater role in company success than charismatic CEOs, according to a new study by Randall S. Peterson of the Johnson Graduate School of Management at Cornell University. This combination -- a strong CEO and senior management team -- is an essential contributor to both a company's return on investment and its growth in income. When other factors are controlled for, strong management teams accounted for about 40 percent of their firm's superior return on investment and 35 percent of its income growth.
Contrary to popular perceptions and much business reporting, strong CEO personality traits alone have little connection to strong financial returns for the company. Even strong CEOs can have their efforts undone by dysfunctional senior management teams. In successful companies, the study found, the CEO fosters healthy group dynamics among his immediate subordinates, allowing them to mobilize the energies and talents throughout the organization to overcome key problems and create new opportunities for growth. In particular, successful top management teams had both a "directive" leader and greater openness to new information.
"Disney's Michael Eisner and Coke's Roberto Goizueta had strong, consistent and clear visions for their companies," Peterson observed, "but they were also open to criticism and made successful adjustments when advised their case had altered. For example, Goizueta has said, 'My job is not to be right, it is to produce results.' This kind of attitude leads to strong management teams, ones who know that their ideas will be heard, weighed and acted upon by their CEO.
"Lee Iacocca, on the other hand, rallied Chrysler with both a vision and a willingness to listen, but when success made him a celebrity, he stopped listening to his management team, and the company found itself in trouble again," he said.
There is a tendency, Peterson said, either to overstate the role of the CEO as the star or to say that the CEO hardly matters -- that each company's culture must produce a specific kind of leadership. "Our findings suggest a synthesis of these factors, that the CEO's personality plays an important role when it is able to mesh with or foster similar strong values among his core group of lieutenants -- the senior management group who reports directly to him. In today's steadily less hierarchical and more flattened organization, having personality traits that enable you to manage and operate in teams will be essential for executives in profitable and growing companies."
The study reviewed nine leading companies that had gone through both good times and bad from the late 1970s to the early 1990s, including Disney, Chrysler, General Motors, Coca-Cola, CBS News, IBM, Kodak, Xerox and KKR/RJR Nabisco.
Successful companies have healthy group dynamics. In addition to "directiveness" and openness to new information, the study also found that successful top management teams had a sense of control, optimism about the future, group cohesiveness, a willingness to take risks, strong ethics and decentralized decision-making.
Group dynamics veered toward the pathological in weak organizations, freezing when faced with problems, postponing difficult decisions and failing to delegate authority. With executives primarily interested in themselves and determined not to become the next to fall out of favor, loyalty to the company was minimal.
Peterson, a social psychologist, is an assistant professor of organizational behavior at Cornell's Johnson Graduate School of Management, specializing in the influences on the quality of decisions made by groups. This paper, "Organizational Performance and CEO Personality: Explaining More of the Variance Through Top Management Team Group Dynamics," was written with Pamela Owens and Paul V. Martorana of the Department of Psychology at the University of California at Berkeley. The paper was selected as a "best paper" (top 5 percent) by the Academy of Management, and it will be presented at its conference, Aug. 10 to 12, 1998.
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EDITORS: To obtain a copy of the full study, contact Margo Hittleman, director of communications, Johnson Graduate School of Management, at (607) 255-6417.
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