Governor Mitt Romney was still riding high on April 3 from his primary wins in Wisconsin, the District of Columbia, and Maryland when he took aim at the man he expected to decimate in November. President Obama, Romney said, had become “a little out of touch” after “years of flying around on Air Force One, surrounded by an adoring staff of true believers telling you that you’re great and you’re doing a great job.”
It is a scenario that Kellogg’s Ithai Stern finds compelling, even if it does not exactly apply to President Obama. Stern, an assistant professor of management and organizations, has been studying flattery and ingratiation for a decade. Indeed, “Set up for a Fall: The Insidious Effects of Flattery and Opinion Conformity toward Corporate Leaders” is the title of his fourth in a series of academic articles about the pros, and more importantly, the cons, of corporate ingratiation. This latest article adds to the previous reports by specifically examining the target of corporate ingratiation—the CEO—rather than the flatterers—managers and directors.
“Our theory suggests how high levels of flattery and opinion conformity can increase CEOs’ overconfidence in their strategic judgment and leadership capability, which results in biased strategic decision making,” Stern writes in the study, co-authored by Sun Hyun Park, a graduate student at the University of Michigan, and James D. Westphal, a professor at the University of Michigan. “What we are saying,” Stern explains, “is that with CEO status, the greater the status, the more flattery and opinion conformity will be directed towards the CEO. And the more flattery and opinion conformity directed at the CEO, the greater the CEO’s self-enhancement.
“Now, we are not saying that self-enhancement itself decreases firm performance,” Stern clarifies. “We are saying that when there is low firm performance, the greater the self-enhancement of the CEO, the less likely the CEO is to be initiating changes in firm strategy.” Those are exactly the CEOs you would expect to be doing the opposite, to change strategies.
A Tough Call
Certainly that finding is significant. It draws a line between managers and directors bent on flattery and the exit door for CEOs so blinded by yes-men (and women) that they fail to make choices that would keep a company’s stock price on track and its strategic mistakes off the business page.
Of course, gauging “correct choice” is not always easy. Consider the choice made by IBM’s new CEO, Virginia Rometty, not to speak out about the tech giant’s controversial sponsorship of the Masters Tournament last April. August National Golf Club, which hosts the Masters, had never allowed women as members, which put Rometty in a tough position. Should she jeopardize IBM’s position as sponsor of golf’s highest-rated event? Or should she drag the Masters into the 21st century vis-à-vis women’s rights? One can imagine the inner turmoil of subordinates with strong negative feelings on the subject, wondering how to support the boss.
That is a key point: what goes on inside corporations, even public ones, is typically hush-hush. So it is remarkable that Stern and his colleagues were able to get inside 1,350 public U.S. companies. They asked the firms’ leaders questions like, “How would you assess your strategic judgment compared to other CEOs of large companies?” In the surveys, the questions relevant to ingratiation were not so much camouflaged as nestled in among irrelevant questions about corporate governance. Responses to those questions were saved for unrelated future studies, Stern says.
Stern credits his colleague James Westphal, whose expertise and hard work secured an impressive 42 percent response rate (572 CEOs) from the 1,350 approached. These corporate leaders came from the service and industrial sectors and from companies with sales of $100 million or more. Even a number of Fortune 500 companies were included, Stern says.
Initially, Stern and his colleagues conducted in-depth interviews with 23 managers and directors to fine-tune their surveys, which were administered between 2001 and 2007. “These preliminary interviews provided clear examples of flattering remarks by managers and directors about a CEO’s strategic judgment,” the researchers write in their paper. One such example was from a manager who said, “I just flat out told him [a CEO], ‘You’ve got great judgment when it comes to strategy.’ I could tell he appreciated it.”
Stern and his colleagues filtered out CEOs with less than one year in their current position at the time of the survey. They also eliminated those who left within three years of the survey. That left 451 CEOs and gave the researchers the opportunity to check the firms’ market/book value of equity, stock returns, and return on assets to measure performance.
A separate group of potential flatterers came from among 3,135 outside directors and inside top managers responding to a second survey sent to 7,600 people. Participants were asked questions like, “Over the past 12 months, how often have you complimented the CEO in a way that slightly exaggerates his/her insights on a significant issue?”
Stern and his colleagues then correlated those responses to firms’ performance in the years after the survey. The results showed that CEOs subject to flattery were more likely to believe themselves to be better leaders and more adept at strategy. Firm performance data, however, did not bear that out. Firms with flattered CEOs were less likely to change strategy when company performance dipped.
The “Icarus Paradox”
Stern and his colleagues call this the “Icarus Paradox.” “The high levels of flattery and opinion conformity that high-status CEOs receive can foster self-enhancing cognitions that lead them to become over-confident in their strategic decisions and in their ability to correct performance problems with the current strategy,” the authors write.
Managers and directors can help prevent the downward spiral. “If I’m giving advice to the CEO who is being ingratiated, my advice would be to remember that the higher you are, the more likely you are to be ingratiated,” Stern says, “and therefore you should make sure you get advice from people who do not depend on you.”
Stern allows that a little bit of ingratiation will always be part of the corporate game. But, he adds with a laugh, “It’s a little bit scary for me to say this from inside Kellogg, because I’ve received questions from reporters asking, tongue in cheek, ‘So, is Kellogg going to develop a course on ingratiating?’ Just thinking about that scares me.”
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