The Irrational Quest for Charismatic CEOs

Here’s part of an interview with Harvard professor, Rakesh Khurana, on his book Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs:

Lagace: CEOs are suddenly very much in the spotlight, but you have been studying the dynamics of CEO successions for a number of years. What drove you to examine this topic in such depth? What surprised you most in your research?
Khurana: I guess one could have accused me of being opportunistic in writing this book, but the fact is the book was finished last year and is only now getting published. I actually wrote my dissertation in 1998 on this topic.
The common thread that got me started on studying CEOs is evident in my body of work in exploring the forces that govern the process of CEO change. I have conducted research in four interrelated areas: factors that lead to vacancies in the CEO position; factors that affect the choice of successors; the role of market intermediaries such as executive search firms in the CEO search; and the consequences of CEO succession and selection decisions for subsequent firm performance and strategic choices.
What surprised me most was that the CEO labor market is not a market in any traditional sense of the term. Rather, it resembled more of a closed ecosystem in which selection decisions were based on highly stylized criteria that often had little to do with the problems a firm was confronting.
Although I did not at first believe the results, the evidence was overwhelming and not pretty. The rise in the power of institutional investors has led to the creation of an “external” market for CEOs that is wracked with irrational decision making. Increasingly, the emphasis was more on bringing in a ruthless outsider to boost the performance of an under-performing company than on grooming leadership within the company. A famous CEO was preferred over a low-profile CEO, as the former was seen as a boost to public and investor confidence—and share prices—fast.

Posted by on February 8th, 2007 at 11:25 am


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