Kamau led a widely respected manufacturing firm in the industrial area of Nairobi for six years. He steered his firm through supply chain shocks, currency exchange fluctuations impacting the price of inputs, and a difficult expansion into East Africa. All the while, his board of directors praised both his discipline and his calm temperament.
Unfortunately, trouble quietly started the same year that two of his rival chief executives at competing firms in the same industry began appearing in glossy business magazines, winning prestigious leadership awards by Kenyan and East African associations, and getting public applause at corporate events and conferences.
Kamau noticed that his board’s whole tone shifted even though the numbers in his own company had not collapsed at all. But each board meeting started off with uncomfortable comparisons of chief executives in the industry.
Even though margins and the bottom line continued to improve steadily, board members who had once rightfully focused on internal company metrics later started to hound Kamau about why rival firms seemed more visible, celebrated, and admired.
He sadly learned that external flattery of the company or him as the CEO made board members feel better about bragging to their friends about sitting on the board or just making them solid in their convictions because of senseless external validation.
CEO’s survival
In many firms, such a subtle shift can prove dangerous to a CEO’s survival and good relations with his or her board because boards do not merely judge how a company performs. They also judge how that performance looks relative to peers, and board members often do not have the time or the will to adequately go through actual figures about a company’s true internal performance.
A new just published study by Jingyu Li, Steven Boivie, and Yi Yang examines the shocking process of board distraction, incompetence, and misdirection. The research shows that boards of directors do not rely only on raw financial and operation results when deciding whether to keep or dismiss a particular chief executive officer.
Instead, boards also absorb external comparison signals from the wider industry and professional environment no matter how frivolous. Surprisingly, one especially powerful signal comes when competing CEOs receive prestigious awards from visible institutions, industry associations, or publications. Such recognition from newspaper headlines and awards dinners quietly subconsciously reshapes how boards of directors interpret the performance of their own CEO.
The above occurs even when times are good at the company. But what can make matters worse is that if a firm’s performance is already weak or shaky, a competitor CEO winning an award can just turn into a negativity spiral in the minds of different directors on the board and they then judge their own firm’s underperformance far more harshly than is justified.
Humans as a social species hold a bias whereby accolades, whether earned, paid for, justified or not, creates a living mental image of a benchmark of what strong leadership supposedly should look like in the same competitive environment.
Directors start asking themselves a painful internal question not knowing it originates from bias or misdirection in that if other CEOs can earn public validation under similar market conditions, then why can our own CEO not do the same. They wrongly feel that their CEO might have managerial inadequacy.
Psychological expectations
Further, the research shows that higher paid CEOs also carry higher psychological expectations from the board. Also, board members who are more dissimilar to the CEO in terms of age, background, ethnicity and career, will end up judging the executive more harshly due to simple similarity and dissimilarity bias with regards to how their brains unknowingly process empathy.
In summary, boards do not dismiss chief executives based on financial and operational success or failure alone. The lenses through which boards view success are biased by the stories, comparisons, reputations, and public signals that they hear.
Once we understand this reality, we better understand why some leaders seem to survive difficult corporate situations better than others even though public relations can be bought, undeserved, or gotten through family contacts of a cousin who is an editor. Still, boards absorb it and believe it.
So, one of the most critical CEO personal survivor strategies can be to recruit and retain a highly competent head of communications as well as a public relations firm. While benefits to the firm might be only marginal depending on the industry, the reality is that you need the support in order to keep positive attention from your board of directors.
Have a management or leadership issue, question, or challenge? Reach out to Dr. Scott through @ScottProfessor on Twitter or on email [email protected].
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