Executive strategic thinking may be premised on a serious flaw. Michael Porter (1980) convinced academia and management alike that the most important criterion for success of a business in the global marketplace was getting and staying ahead of its competitors. Market share was logically expected to correlate with profitability. This placed the emphasis of strategic leadership on beating the competition. Beliefs remain strong that a firm should do better than its competition. Just doing the best it can is not enough (Armstrong & Collopy, 1996). But empirical evidence suggests otherwise. Armstrong and Collopy (1996) showed that 40% of 1,016 participants in a laboratory experiment were willing to sacrifice profits in their pricing decisions in order to beat or harm their competition. Additionally, in a field study, they found that firms with competition-oriented strategy of enlarging market share were less profitable than those that were directly oriented to profits. Again, using the results of 48 studies and 276 effects, Szymanski, Bharadwaj, and Varadarajan (1993) completed a meta-analysis of the relationship between market share and lagged return on investment (ROI). They discovered that the relationship disappeared when other variables were controlled. Armstrong and Green (2005) reported that over five successive seven-year periods between 1938 and 1983, for 20 of the largest U.S. corporations, correlations between competitive orientation and ROI ranged from .37 to .54. Pursuing market share for its own sake was actually harmful to ROI! A replication with additional criteria of profitability from 1955 to 1997 of real return on equity and percentage of after-tax returns on sales again revealed that all correlations were negative, ranging from −.28 to −.73. Furthermore, the objectives of strategic thinking of leaders in for-profit firms must encompass more than profitability alone. The leaders of nonprofit organizations and government agencies must also look at the benefits generated by their expenditures.
Increasingly referred to as upper-level management theory, strategies are a product of the interaction of the individual leader and the organization’s internal and external environment. Systems thinking is required that aims to produce the synergies that are more than the sum of the individual parts of the organization. Complexity is the rule rather than the exception. The complexity is illustrated by two organizations jointly supporting basic research but competing in the same market.
This theory builds on the delegation by the sponsors, owners, and shareholders of for-profit organizations to managers as agents of authority and responsibility. It assumes that corporate owners and their agents are individualistic, self-serving, and opportunistic and that chief and senior executives, as agents of the owners and shareholders, are motivated primarily to increase their own rewards and secondarily to please the owners, shareholders, and boards of directors. For profit-making organizations, financial success is the criterion of organizational success (Jensen & Meckling, 1976). For Porter (2001), it is the single goal for business strategizing. Satisfaction of employees, customers, and other constituents is relegated to being the means to the objective of financial success. Clearly, to stay in business, firms have to make money or be continually subsidized by parent companies or government. Inside the organization, Williamson (1975) conceived the business organization as a marketplace for resources and rewards among competing departments, managers, and employees. But for those concerned with the human side of enterprise, along with achieving financial goals, chief and senior executives need to balance the needs and interests of their various stakeholders in the corporation—the owners, shareholders, managers, employees, customers, and community. This has to occur in the framework of local, state, national, and international agency regulations, as well as be reflected in the satisfactory treatment of the corporation’s physical and social environment (Bass, 1952; Davis, Schoorman, & Donaldson, 1997). As Simon (1979) argued, to improve the performance of organizations, optimal decision making requires considering both economic and better utilization of human resources (Franke & Miller 2005).
Eddie Rickenbacker was president of Eastern Airlines from 1934 to 1959 and then CEO until 1963. His strategy and leadership style, which made Eastern the largest and most profitable U.S. airline, also led to its bankruptcy. A World War I hero, he was personally adventurous, but when it came to business, he was extremely cost-conscious and was last to invest in new models of planes and equipment. He let other airlines learn how to deal with the problems of the new aircraft. Maintenance costs were kept low. Before 1978, the federal government highly regulated the airline industry and allowed no competition on Eastern’s lucrative New York–Miami route. Eastern had a monopoly on flights from the Northeast to Florida and promoted summer vacations in Florida to provide year-round business. But then the external environment changed in three ways: (1) Instead of carriers being limited to one for each route, another one or more were added to Eastern’s routes; (2) Piston engine planes with propellers were replaced by jets; (3) The federal regulators did not allow Eastern to fly to the Pacific coast as all of its competitors did. Rickenbacker’s strategies subsequently resulted in his continuing to purchase propeller planes such as the Lockheed Electra while his competitors purchased jets. In 1955, he ordered 26 jets but cut back orders to 16, foreseeing an oversupply of jet seats. This allowed Delta to obtain a competitive advantage by purchasing the planes. To minimizing costs with tight scheduling, Rickenbacker approved heavy use of his fleet, the arrangement of first-class seats five to a row (instead of four), overbooking, and reduced attention to passenger services—and lost many customers. When he tried to attract more passengers by scheduling more flights on the same routes, the result was a lot of empty seats. Eastern never recovered its preeminence in the industry and finally went bankrupt.
Personally, “Captain Eddie” dominated the company. He was a stickler for detail. When he found problems or inconsistencies, he was immediately on the phone to the offending unit head. He challenged, heckled, and threatened his managers and executives when they presented performance appraisals of their units to him. But instead of hurting morale, his actions built a sense of camaraderie. Though he was feared, he was also respected. He knew all his pilots by name. He was a benevolent autocrat in that he saw that employees who originated good ideas were rewarded, and he gave many managers a lot of responsibility. Eastern employees felt like members of one big family with a patriarch at its head. Unfortunately for Eastern, Captain Eddie couldn’t change his ways (Spencer & Carte, 1991).
Since Eastern folded, other airlines such as Pan Am have also terminated or changed. In spite of mismatched airline fleets, problems with pilots’ seniority, and unions, as of April 2008 Delta Airlines and Northwest Airlines were moving toward a merger to create the world’s largest airline. Only short-term benefits are expected for stockholders and executives; smaller airports may suffer and more efficient management may not materialize. Information about the merger has appeared in major newspapers.
Keiser (2004) found, among 70 CEOs from 247 firms, systematic increases in the criteria of professionalization for some but not all between 1960 and 1990. By 2000, most organizations had adopted the title CEO; none had used it in 1960. During the same period, the CEOs’ intellectual capital increased. In the early 1960s, about 40% had graduate degrees; by the late 1980s, the same was true for 80%. MBAs increased from 7% in 1960–1964 to 34% in 1985–1989. Only 3% were selected from the outside in 1960–1964; 28% were outsiders in 1985–1989. Many more entered the firm at higher echelons in 1985–1990 than in prior years. But they lacked other aspects of professionals that physicians, lawyers, engineers, and accountants had, such as licensing and a code of ethics. When CEOs subscribe to agency theory and attempt to maximize satisfaction of their own interests, they are unlike professionals, who are more likely to have a service orientation.
The senior executives in the upper echelons of an organization may be a loose collection, each running a different unit and seldom meeting or working with their counterparts. They lack the behavioral integration of a team. The members of a top-management team (TMT) synthesize their knowledge and expertise. They interact to discuss and make decisions and recommendations based on their varying expertise and knowledge (Ham-brick, 1994). Thirty-eight top-management Australian teams were more likely to share tacit knowledge when they felt they had supportive leadership (Rowe, Christie, & Martin, 2003). Mooney (2003) studied 42 groups of senior executives and found that whether or not they formed real teams depended on the size of the firm, its strategy, the amount of organizational slack, and the executives’ homogeneity. According to Quinn (1996), TMTs need to overcome the divisiveness of individual self-interest, insecurity, distrust, and political posturing. High-level cooperation and enthusiasm can come about only among competent people with clearly defined roles who work cohesively in trusting relationships, exercise personal discipline, and are willing to work for the good of the team.
Long-tenured top-management teams’ strategic decisions about investing in R & D are tempered by the oversight of the board of directors and individual investors. This is especially so when the outside directors are prominent members of the board and the senior executives are long-tenured and diverse in their functions in the organization (Kor, 2002). The tenure of senior executive teams in 100 chemical, computer, and natural gas distribution firms affected their strategies and performance, according to a study by Finkelstein and Hambrick (1990). If they long had had tenure, they followed more persistent strategies and conformed closer to the average in their industry in strategy and performance. The more discretion they had, the more successful their strategies were.
Diversity within TMTs. Results on the effects of diversity of backgrounds of TMT members on outcomes have been mixed. Fishman (2003) reported that pharmaceutical patent citations and technological boundary spanning of TMT members in 52 firms were predicted by heterogeneity in their functional backgrounds. Roure and Keeley (1990) found that functional heterogeneity of the backgrounds of TMT members had positive effects on financial performance of their firms, but West and Schwenk (1996) did not. Barsade, Ward, Turner, et al. (2000) obtained evidence that if the 36 TMTs of profit and nonprofit organizations, named by their CEOs as members of the CEO’s TMT, were diverse in their functional backgrounds, the organizations exhibited significantly greater market-adjusted returns on investment for the years the TMTs worked together. However, diversity of affect of the team members failed to significantly relate to TMT performance.
Knight, Pearce, Smith, Smith, Olian, et al. (1999) found that educational diversity contributed to financial success, but diversity of experience did the reverse. Certo, Lester, Daily, et al. (2003) presented a meta-analysis of the financial performance of firms and their TMTs’ demographic characteristics. The functional heterogeneity of the TMT members accounted for 16.5% of the variance in sales growth and 7.5% of the rate of return on investment. Sales growth was also significantly greater when TMTs were larger (R2 5 .079). But diversity of organizational tenure, executive tenure, and education had little or no effect. The functional heterogeneity of a 20% survey sample of 450 hospital TMTs by Michie, Dooley, and Fryxell (2003) found that greater functional heterogeneity contributed to greater cooperation and greater decision quality mainly when there was greater consensus about goals. Where goals consensus was low, functional heterogeneity was contraindicated. But for the effect to occur, the diversity of backgrounds had to be related to the tasks that needed to be done (Simons, Pelled, & Smith, 1999).
Consistent with the above findings about the impact of TMTs’ diversity on organizational strategic effectiveness, the same results appeared for diversity of power and for cognitive conflict in attitudes, beliefs, and opinions in interaction about strategy. For example, greater distribution of power among the most important members of their TMTs contributed to the effective performance of 51 hospitals. Power was defined for the peer raters as the ability to influence strategic agendas (A. Smith, Pitcher, Houghton, et al. 2003). Similar results were obtained in computer firms by Haleblian and Finkelstein (1993). Again, Ensley and Pearce (2001) used structural equation modeling to predict the performance of 158 new venture firms in 1994 and 1995. The path coefficient between diversity of opinions—cognitive conflict—and new venture growth in 1994 was .32. In 1995, the path coefficients of cognitive conflict were −.63 with new venture revenues and 0.77 with new venture profit. In both years, emotional conflict was negatively related to profit and revenues (−.34, −.38).
Variety of Executives’ Roles. The roles of CEOs and senior organizational leaders vary to some extent depending on the nature of the organization. Providing strategic leadership is an important role for the CEO and may be the most important role for many (Farkus & De Backer, 1996; Korn-Ferry, 1988). However, CEOs and senior executives are likely to spend more time on implementing strategies than formulating them. But over time, successive organizational leaders play an important role in strategy formulation (Leavey, 1996).
The knowledge requirements of an ad agency business director, for example, differ from those of the head of an automobile manufacturing business. But they also have much in common (Levinson, 1981; Jaques & Clement, 1991). They need to understand balance sheets, the health of their markets, the products and services that can serve those markets advantageously, and the availability of capital. They need to know how to optimize the interests of the organization’s various constituencies, how to manage change in good times and bad times, how to use authority and accountability, and how to assemble an effective management team of diverse competencies and interests (Ball, 1999). Not to be ignored is the less visible role of supporting or failing to support an organizational project. For instance, an organizational development project was run for two years without the cooperation or interest of the CEO of a hospital. The CEO was pressured into accepting the project. A new CEO in the next two years was enthusiastic about the project. Interviews with 150 employees and questionnaires with 650 employees found negative results for the project conducted for the first two years with the uncooperative CEO and positive results during the second two years with the cooperative CEO (Boss & Golembiewski, 1995).
Roles Differ from Those of Lower-Level Managers. Zaccaro (1996) distinguished executives from lower-level leaders in their (1) planning and creating policy within a larger time horizon; (2) interacting more frequently with external organizational constituencies; (3) engaging in more network development and consensus building; (4) developing a more comprehensive cognitive map of the organization and its environment. Executives contribute to organizational effectiveness by their long-term planning, boundary-spanning activities, network development, consensus building, and high-quality cognitive map of the organization and its environment. Although the myth continues that executives spend most of their time in formulating strategies, the facts are otherwise: they spend much more of their time in implementing strategies. Executives are action-oriented rather than reflective (Zaccaro, 1996). According to a job analysis by Baehr (1992) involving 1,358 managers, executives concentrate on setting objectives, making decisions, developing the workforce, and dealing with outside contacts and the community. Previous successful financial performance of the CEO’s firm increases the CEO’s power to influence the board of directors, the shareholders, and the employees. In turn, powerful CEOs induce better financial performance in the future (Daily & Johnson, 1997).
Relationship of the CEO to the Board of Directors. Rational economic models such as agency theory assume that the CEO will try to maximize his or her own preferences at the expense of the shareholders. Board governance should protect the shareholders against the self-aggrandizement of the CEO. Shareholders prefer to make CEO compensation dependent on corporate performance. The effective performance of 504 Fortune 500 firms related more highly to specific, guaranteed CEO salaries than to uncertain stock options whose value depended on stock performance. Sanders (1995, p. 268) concluded that “Agency theory has little explanatory power regarding the structure of CEO compensation.” More helpful in explaining results were behavioral models, as with whom the CEO was being compared and the distribution of power. A behavioral model assumes that ideal CEOs are selected and rewarded by boards as stewards who have satisfied the interests of diverse stakeholders. A political model assumes that the selection and evaluation of the CEO by the board may depend on whether family members, friends, insiders, social acquaintances or prominent politicians are on the board. Xie, O’Neill, and Cardinal (2003) looked at how the composition of 41 boards affected the R & D performance of their respective firms. The intensity of R & D was lower if the board contained more directors from outside who were more diverse in functional backgrounds. Also, R & D performance was lower if the board members had more outside commitments.
The application of the board’s controls will diminish as the CEO learns the role, increases in decision-making competence, learns how to work with the board and top management, and learns who are the most important stakeholders (Shen, 2003). CEOs can exert influence on boards when selecting new members and serving as outside board members of other organizations. They can help or hinder work in the boardroom (Rankin & Golden, 2002). Until recently, boards have been reluctant to exert their power to force the resignation of the chief executive, but increasingly they have ousted CEOs for the poor performance of their organizations, for failure to meet expectations, for scandalous behavior, for causing too much internal friction by being too autocratic, or for failure to keep up with the competition. In one month alone in 2005, a record number of company heads (103) were changed (Barrionuevo, 2005).
Relationship of the CEO to Stakeholders and Shareholders. Ackermann and Eden (2003) noted the importance of the CEO and top management to identifying the most powerful stakeholders inside and outside their organization, particularly how they notice and react to intended strategies and whether or not they are supportive. During times of change there is an increase in communications, usually letters, from the CEO to the shareholders to supplement quarterly reports and annual meetings. Between 1980 and 1999, General Electric sent out letters to try to reassure shareholders of the value of its radical reorganization and to reduce their uncertainties about its effects. The letters were more supportive than operational. They included warnings, actions, explanations, achievements, and predictions (Palmer & King, 2003).
CEOs differ in the priorities they set for paying attention to the different stakeholders. Agle, Mitchell, and Sonnenfeld (1999) examined, for 80 CEOs, how important to them were the various stakeholders of their corporation and the extent to which the various stakeholders had power, legitimacy, urgency, and salience for the CEOs, and high priority from top management. According to regression analyses, the percentage of the combined covariance of stakeholder power plus legitimacy plus urgency plus salience in the eyes of the 80 CEOs was 52% for customers, 48% for community, 30% for shareholders, 23% for government, and 17% for employees. When top management had values more oriented to others than to self, it gave higher priority to employees, government, and community. Top management also paid more attention to ethical and corporate social responsibility and was attentive to all the stakeholders. But according to Cannella and Monroe (1997), the economic and social models are limited. A more realistic view of how top managers strategize needs to include technology, markets, personality, transformational leadership, and executive envisioning. For instance, high-technology companies need to rapidly develop and implement strategies for short product life cycles that make it possible to integrate technology with market opportunity (Hughes, 1990).
Requisites for Executive Effectiveness. By 1840, the need of the emerging railroad industry to deal with organizing personnel and equipment over a broad geographic area sparked the growth of traditional rational organizational theory (Fox, 1994). Many theories of organization became prominent in the years that followed in the industrialized world, like those of Taylor (1911), Fayol (1916), Diemer (1925), and Cornell (1928). R. C. Davis (1951) built his functions of the executive around planning, direction, and control, a strategy that today is regarded as the traditional approach to executive management. But according to Fox (1994), Davis also took into account behavioral considerations, such as the motivating value of goals and their multiplicity and modification over time. Also included by Davis was the importance of coordination, status, evaluation apprehension, the utility of participation, pattern recognition, and feedback.
A corporation’s reputational capital is another intangible value that contributes to its effectiveness and gives it greater competitive advantage. Reputation is enhanced by executive leadership, oversight, a reputational audit, and publicized awards and rankings for excellence (Petrick, Scherer, Brodzinski, et al., 1999).
In systems theory, the functions of executives are divided into exploratory functions and decisions about inputs of personnel, equipment, materials, accounting, and information; throughputs of production and processing; and outputs such as sales, marketing, growth opportunities, and again information (Hambrick & Mason, 1984). Rather than maintaining a compartmentalized silo mentality, executives need to draw their expertise from a wide range of experiences to contribute to innovative decision making (Hoffman & Hegarty, 1993). Zaccaro (1996) listed traits that were likely to assist executives in carrying out their functions. Some of them included career experience, relevant education, and functional background. Effective executives are able to deal with cognitive complexity, ready to take risks, and self-efficacious, and want to achieve. From a study of 27 government executives, Markessini, Lucas, Chandler, et al. (1994) added that effective executives required envisioning, multinational knowledge, consensus building, and an understanding of their whole organizational system. From a review of studies, Zaccaro (1996) concluded that organizations were more effective when their executives engaged in long-range planning and boundary spanning along with consensus building and network development. Javidan (1992) described a survey of the effectiveness of more than 500 middle, upper-middle, and senior executives by their immediate subordinates. Effective senior executives were viewed as dedicated and tenacious visionaries who could mobilize their subordinates. They were concerned coaches and remained in touch with their employees. They recognized accomplishments and served as good representatives outside the organization. According to Kennedy (1995), they avoided making political mistakes when newly promoted into senior management. They took care to understand top management’s agenda and did not try to micromanage the successors to their previous positions.
Agency theory accounts for the behavior of self-interested CEOs. They are agents of the owners and shareholders. As their compensation often tends to depend more on the size rather than their organization’s profitability, they need to have bonuses and other incentives to share their stockholders’ interests in returns on investments (Jensen & Meckling, 1976). However, a more effective, mature, transformational CEO goes beyond self-interest and balances the competing demands of the marketplace with the demands of the organization’s managers, employees, and other stakeholders. The opposing demands on senior executives are for flexibility versus stability, process versus outcome, and focus inside versus outside the organization (Hart & Quinn, 1993). The effective executive can deal with these competing requirements (Quinn, 1988). The less self-oriented, narcissistic CEO becomes a steward or custodian of the organization and its constituencies and takes satisfaction from building and maintaining a healthy organization. The steward may actually generate better returns on investment. Such a CEO may gain more support from the organization’s stakeholders and enhance their motivation to excel.
Executive Effectiveness in the Nonprofit Organization. From a review of the literature, Mary S. Hall (1994) extracted 70 requirements for executive effectiveness in nonprofit organizations. Many requirements that she found were the same for executives in the nonprofit sector as for those in for-profit organizations. But particularly essential for the nonprofit executive are: (1) a deep commitment to the organization and projection of devotion to achieving its goals; (2) understanding and communicating the unique tradition and role of the nonprofit sector; (3) commitment to the common good and practicing what is preached; (4) knowing what and how to make quantitative and qualitative evaluations of the organization’s performance; (5) building an organization that cares about the people and the clients it serves; (6) understanding clients’ needs and serving as an advocate for them; (7) building the knowledge, commitment, and skills of the board; (8) recruiting, managing, and developing dedicated volunteers with recognition and rewards; (9) understanding public policy-making processes; (10) building community relations to facilitate cooperation with other public and private organizations; (11) mastering the use of media and practicing good public relations; (12) knowing the fund-raising process and negotiating effectively with funding sources.
Military Executive Effectiveness. U.S. Army lieutenant generals and full four-star generals are the equivalent of civilian CEOs in terms of the size of the organizations they lead and their level in the hierarchy. The brigadiers, major generals, and colonels below them also have executive functions. Leadership is seen as an important function of military service. Four-star generals report more boundary spanning and longer time spans of work than do lieutenant generals (Harris & Lucas, 1991). Both ranks of top generals engage in development of networks and more spanning of boundaries than do major and brigadier generals, but the lower-level generals need to know more details about the Army system (Lucas & Markessini, 1993). Colonels are more involved in setting goals and policies planning, and other executive functions than are officers below them (Steinberg & Leaman, 1990).
Zaccaro (1996) summarized studies that had compared the abilities of executives with those of lower-level managers and supervisors. Executives exceeded those lower in the organization in intelligence, creative potential, creative thinking, intuition, intuitive thinking, problem-management skills, toleration of ambiguity, and dealing with anxiety. Hurley and Sonnenfeld (1995) compared 683 top managers with a matched sample of middle managers, finding that the breadth, length, and nature of experience were significantly higher in the top-management sample. Jacobs and Jaques (1987) pointed out that executives develop a framework of understanding that provides meaning for organizational members’ efforts toward collective action. According to Zaccaro (1996) conceptual capacity is required in executives as they deal with issues of cognitive complexity, that is, novel, unstructured, and ill-defined problems (Davidson, Deuser, & Sternberg, 1994). Executives must be able to display behavioral complexity—the ability to enact different and sometimes opposing roles. They must attend to social complexities when proposing actions. Senior executives are likely to be boundary spanners and need to deal with subordinates from different cooperating and competing groups, managers, employees, and functions (Zaccaro, 1996). In-depth interviews with 18 business leaders by Tait (1996) revealed that requisite qualities for their success included the ability to make sense of complicated patterns of events and extract clear goals for the organization. They also needed to be able to take independent and unpopular courses of action when necessary. As strategic leaders, CEOs and senior executives must know how to harness the brainpower within their organizations, according to Percy Barnevik of ABB. In a similar vein, Jack Welch at General Electric would ask GE managers what their ideas were, with whom they had shared; and who had adopted them (Bennis, 1999). A high level of conceptual development is needed by senior executives. Their cognitive capacity should enable them to construct a perspective on a broad, complex understanding of events both inside and outside the organization and to handle highly complex managerial work (Lewis & Jacobs, 1992). They must deal with cognitive complexity (Hunt, 1991). Sash-kin (1990) added to the need for cognitive capacity, self-efficacy, and the power motive as personal requirements for competence in strategic leadership.
Foresight. Farkas and De Backer (1996) also noted that entrepreneurial leaders should be as intuitive about what customers want next as the next maneuver of a competitor. Nevertheless, cognitive capacity is involved in the goal of adding value to the organization, with systematic and structured analysis of the state of the organization now and in the future. Strategically oriented CEOs focus on what comes next and try to make it happen. In 1995, Coca-Cola’s senior management concentrated on reinventing the brand to make it new and relevant. Dell Computer CEO Michael Dell aimed to position the Dell personal computer for the future. Bob Galvin of Motorola (1991) argued that organizational leaders must be better anticipators and committers. Tom Sternberg, the CEO of Staples, carefully studied purchasing patterns and competitors. He questioned customers about what his chain of stores could do better. Jack Welch reinvented General Electric by selling the companies that were not profitable and keeping only those that dominated their markets and fit with a strategy to move into high technology and services.
Social Skills and Self-Monitoring. Connelly, Gilbert, and Zaccaro (2000) found that executives’ social skills and knowledge contributed to quality solutions and achievement. For Mumford, Zaccaro, Harding, et al. (2000), executives’ effectiveness depended on their ability to solve the complex social problems of organizations. K. L. Scott (2003) argued that self-monitoring would affect CEOs’ strategic leadership practices. She hypothesized that high self-monitoring CEOs would be more effective at exploiting and maintaining the organization’s core competencies, developing human capital, sustaining the organizational culture, and balancing organizational controls. Low self-monitors would be more effective at emphasizing ethical practices and communicating visions and plans. For new product ventures, S. M. Jensen (2003) proposed that entrepreneurs must have sufficient influence and confidence, involving self-efficacy, optimism, resiliency, and hope, to exert leadership in order to collaborate with others.
Korn/Ferry International (1988) and Columbia University conducted a survey in 1988 and then again in 2000 of 1,500 chief executives in the United States, Western Europe, Latin America, and Japan about the requirements of their positions. Strategy formulation was ranked first among the 10 most important areas of competence required both times by 75% to 80% of the respondents. There was general agreement about the importance of the required expertise, although strategic formulation was rated slightly lower in Latin America. Seen as important by 45% to 50%, competence in marketing and sales ranked second in 1988 and third in 2000. Human resource management changed places with marketing and sales, ranking third in 1988 and second in 2000, with the percentage of endorsement ranging from 40% to 50% (with western Europe lower than the other regions). Negotiation and conflict resolution ranked fourth and accounting and finance fifth in both years, with lower percentages of endorsement (under 30% with Japan being much lower than the other regions). Lower still in ranking were media skills, international economics and politics, production and operations, science, technology, and R & D. In 2000, computer literacy replaced foreign languages in tenth place. Implementation of strategies was probably included in strategic formulation or left to subordinate senior executives to do.
Charismatic Leaders. Charismatic leaders are expected to increase the effectiveness of those they lead both closely and at a distance (Waldman & Yammarino, 1999). They earn premium compensation for their charismatic personalities. Nevertheless, sometimes they may do more harm than good for their organizations (Vara, 2002). Khurana (2002) discovered that charisma was one of the criteria used by boards of directors in their search for and selection of 40 CEOs. For 59 very large firms, CEOs’ charisma contributed to shareholder returns only during perceived uncertainties in the firms’ markets. In these same firms, charismatic CEOs were paid a premium when there was high uncertainty or crisis in the market, such as instability in countries where business was conducted. However, their salaries and bonuses were lower than average when there was perceived high political uncertainty, such as unpredictability of government agencies (Tosi, Misangyi, Fanelli, et al. 2004).
Agle (1993) factor-analyzed a survey of 1,540 members of 258 top management teams who rated the charismatic leadership of their 250 CEOs using scales adapted from Podsakoff, Mackenzie, Moorman, et al. (1990). In the best regression model, five factors emerged. Three correlated significantly with CEO accomplishment, organizational effectiveness, and better stock performance. The correlations were as follows: (1) dynamic leadership (−.39, −.33, −.29), (2) exemplary leadership (−.52, −.36, −.19), (3) leader high performance expectations (−.21, −.23, −.04). For an analysis reported by Wolfe, Lucius, and Sonnenfeld (1998), 66 of these top-management teams also reported that their influence over their organizations was greater and the teams experienced less conflict if they and their own CEO served as trusted examples and exhibited personal dynamism.
When CEOs and Senior Executives Fail. The turnover of CEOs increased by 53% between 1995 and 2001. Average tenure declined from 9.5 to 7.3 years and has continued to decline since then. Poor financial performance of the firms led by a CEO increased 130% and was the reason for the CEOs’ discharge or resignation (Pasternak, 2002). Based on a survey of 91 chief executives and seven interviews, Judge (1999) concluded that executives failed for several reasons: they did not provide a vision of the needed strategic path, did not understand the different interests of their important constituencies, did not prioritize goals, and failed to exemplify trust and integrity for their organization. Charan, Rosen, and Abarbanel (1991) described cases where the easier-to-do top management’s strategic formulation failed in the harder-to-do strategic implementation. One CEO discovered that top-management team members delayed high-priority strategic divestitures with which they disagreed. A critical computer system conversion had not started when its expected time for implementation was already half over. Internal pricing disagreements were holding back sales efforts and reaching strategic goals.
Levinson (1988) argued that many executives fail because they have focused on short-term results and are insensitive to the feelings of employees and customers. They run a tight, highly controlled organization that is inflexible and unadaptive when faced with the need to change. Nutt (1999, 2002) pointed out that the self-interest that causes executives to fail can take many forms: they keep secret their plans of action for fear that openness will reduce the success of the plan; they pursue a plan and want to keep secret their self-interest in the plan; they make quick decisions without considering alternatives; they ignore ethical considerations and carry out deceptions to protect themselves; they skip or limit search; they make premature commitments and misuse resources; they blunder by making poor decisions, premature commitments, and misusing resources. Examples include the decisions by Quaker Oats’ executives to acquire Snapple and Disney’s executives to open Euro Disney.
Executives fail when they become too involved in their personal interests and not enough in their constituent’s and organization’s interests. Senior executives fail when their strategic vision of the future direction blocks out important opportunities, distorts market realities; fails to recognize a changed environment (Conger, 1990). Executives fail when they stretch the organization’s resources beyond limits (Ulmer, 1998). They fail when they confuse a good, well-communicated strategy to their organizational implementation of the strategy. They fail when their strategy for change is “narrow, unsystematic, and programmatic [and] does not address root causes” (Beer & Eisenstat, 2000). They fail when they allow narcissism to dominate strategic thinking. They fail when they create illogical organizational structures and compensation plans (Levinson, 1994). Like Levinson, Kets De Vries (1989) attributes executives’ failure to internal personal considerations. Executives who isolate themselves from reality self-destruct by becoming divorced from it, as do those who fear success. According to Hitt, Hoskisson, and Harrison (1991), misdirected attention and effort cause executives’ failure; they put too much emphasis on mergers and acquisitions, diversify too much, and ignore their human capital. They fail because of lack of attention to productivity, quality, innovation, and the need for a global strategy. Bennis (1999) attributes the failure of chief executives of public institutions to institutional and societal forces: (1) public institutions and agencies are easily politicized, (2) Politicized institutions are pulled in many directions at the same time and lose sight of their reason for existing, (3) Society overloads the institution with problems.
Executive Derailment. Lombardo and Eichinger (1989) followed up McCall and Lombardo’s (1983) analysis of managerial derailment with an examination of why senior executives are derailed. Derailed executives are those who have been plateaued, demoted or fired, accepted early retirement, or have seen their responsibilities reduced. In comparison to those who made it to the top, those who were derailed treated others poorly due to overambition, overindependence, isolation, abrasiveness, lack of caring, and/or volatility under pressure. They had difficulty in building a team due to poor selection, and/or they were dictatorial, overcontrolling, unable to resolve conflicts, and delegated poorly. They were unable to deal with complexity and ambiguity and collapsed under the pressure of a new situation. They were disorganized and attended to detail poorly. They failed to follow through and/or were untrustworthy. Or they were overly dependent on one strength, relied on others to shield their weaknesses, and/or were sheltered too long under the same boss or mentor. They had poor relations with senior management, in their inability to persuade or adapt to a boss with a different style. They had disagreements about strategy and/or were unable to influence across functions. They were insensitive to others, were arrogant, and ignored advice. Although such insensitivity was tolerated at lower levels of management, particularly if the managers were technical experts, it was the most common reason for derailment (Lombardo & Eichinger, 1989). The pattern of derailment was somewhat different in Britain. Compared on the 16 PF personality questionnaire with employed managers, 204 redundant executives were more socially bold, forthright, uninhibited, imaginative, and unconventional but less self-critical and politically skilled (Tyson et al., 1986). Again in Britain, 676 managers who had been derailed were extroverted, innovative, change-oriented, and independent. These traits might have resulted in more success in the United States. However, like derailed executives in the United States, the British managers, were less warm (Brindle, 1992).
Van Velsor and Leslie (1995) extracted four themes in a review of research reports between 1983 and 1994 of derailed executives and managers: (1) problems with interpersonal relationships, (2) failure to meet business objectives, (3) inability to build and lead a team, and (4) inability to develop and adapt. They also found increasing sources of failure in lack of business experience, preparation for promotion, and broad functional orientation. Of less importance was overdependency on an advocate or mentor. Sometimes the competent CEO was dismissed as a scapegoat for trusting the wrong people on the board or in the organization or for similar reasons (Boeker, 1992). This may be one of the reasons that for 400 firms in 21 industries between 1987 and 1996, CEOs who had chief operating officers (COO) under them as second-in-command generated $10 million less in returns on assets (1%) than did those without such subordinates (Hambrick, 1989).
Brockman, Hoffman, and Fornaciari (2003) analyzed 194 large organizations that had filed for Chapter 11 bankruptcy protection from their creditors. If their CEOs had more formal power, the businesses were more likely to survive and return to normality in a shorter time than those with less formally powerful CEOs. Recovery took longer and survival was more problematic for organizations led by CEOs with more informal power or prestige.
Examples of CEOs Who Failed. Don Burr founded PEOPLExpress in the early 1980s with an emphasis on good working relationships among the employees. Leadership was shared, and employees had multiple job assignments For instance, pilots might help at the ticket counter. The commitment, cohesion, satisfaction, and motivation of employees were high. The airline grew rapidly by offering no-frills, low-cost service that competed favorably with the industry giants like United, American, and TWA. High-performing teams were developed. But Burr failed to pay attention to what his competitors were doing. They were modernizing their information, scheduling, ticketing, and pricing systems in the newly deregulated airline industry. With much better financial and information resources, they could immediately undercut PEOPLExpress’s prices. Scanning for competitive threats was missing, as was keeping up with available technology.
In comparison, Braniff Airways self-destructed rather than succumbed to more aggressive competition. Its management failed to train and reward its employees in order to compete effectively. It developed a reputation for disgruntled employees, delays, and poor relationships with passengers, particularly in Dallas, its home airport. Shortsighted and uninformed top management had poor relations with the federal agencies, creating angry regulators. CEO Harding Lawrence, among other Braniff senior executives, was seen as pushy, arrogant, and domineering. When Braniff got into financial trouble, the regulators went out of their way to aggravate conditions for the airline. Safety and maintenance problems were usually handled quietly by the Federal Aviation Agency. News about Braniff was spread to the metropolitan media and resulted in a major loss of customers. In dealing with its financial difficulties, top management got its employees to accept a 10% pay cut, but the news made travel agents wary about using Braniff for future bookings. Reducing unprofitable routes to reduce costs resulted in continuous schedule changes, which confused travel agents, the airline’s own reservation agents, and travelers, particularly business travelers. The self-destruction was further mismanaged by poor communications. The last CEO, Howard Putnam, further exacerbated the loss of travelers by guaranteeing only one day at a time that Braniff would stay in business (Nance, 1984).
Dale Sundby, founder of PowerAgent was a good salesman but an ineffective CEO. He sold his investors on his business plan to revolutionize online advertising. Customers were to register online to receive ads in exchange for points to discount the cost of purchases. The highly persuasive CEO organized a board of directors, backers for the necessary capital, and 60 employees. But he was highly self-oriented and could not see beyond his own vision, which dominated his thinking, and his expectation that everyone would agree with him. He ignored market research. He spent lavishly on himself and associates. Without a product or production staff, he budgeted over half his capital on advertising. He expected to outsource software coding. This delayed the Internet process. He invested heavily in a marketing management team. He didn’t listen when told that many prospects were being lost because registration was too long. Also, prospects wanted daily tips, not daily ads. Because he did not tell anyone else in the organization what was happening, morale and support disappeared. The board split on his spending and business plan. Refinancing that he expected because of his persuasiveness did not materialize. In 20 months, he burned through $20 million and 60 employees (New Business, 1998).
Barkema and Gomez-Mejia (1998) presented a general framework for variables that determined executive compensation; these variables included market, organization size, executives’ roles, and peers’ compensation. Compensation was also determined by the governance structure, such as ownership, and the board of directors, and by contigencies such as strategy, national culture, and tax system. Effects on compensation depended on whether compensation was linked to performance, short-or long-term. A meta-analysis by Tosi, Werner, Katz et al. (2000) of 187 CEO compensation studies found that firm size in assets, market value, and revenues accounted for half the variance in CEOs’ compensation. Khan, Dharwadkar, Brandes, et al. showed that CEOs’ salaries alone correlated negatively with the rate of return on investment (ROI) of 106 firms in 71 industries but positively in 45 with the number of institutional owners of the firms (banks, insurance companies, investment advisors, and investment companies). Although 570 CEOs’ contracts in the largest corporations called for incentive plans to compensate CEOs for increasing the value of the firm, the plans tended to be ignored and were more symbolic than substantive, especially in firms with poor prior performance and strong CEOs (Westphal & Zajac, 1994). The relationship between stock returns and CEO tenure weakened, according to analyses by Hill and Phan (1991), as the longer-tenured CEO increased influence over the board. However, compensation based on performance correlated positively when the CEO faced moderate risks and had greater control of performance outcomes (Miller, Wiseman, & Gomez-Mejia, 2002). In the same way, pay contingent on performance was more likely in firms that were owner-controlled (an owner or institution owned more than 5% of the shares of the firm) than where the managers were in control. In the latter firms, size was more important (Tosi & Werner, 1995). Salaries tended to be linked to sales in highly regulated industries such as railroads and banks and tended to be linked to total profits in less regulated industries, according to a survey of 1,200 corporations by Kokkelenberg (1988).
CEOs’ compensation increased by 600% between 1990 and 1999, far more than increases in inflation and employee wages (Reingold & Jesperson, 2000). CEOs may exit a firm with 20% or more of the recent annual profit of a firm, leaving 80% or less for all the other shareholders. After 18 months of service, a recent Disney CEO departed legally with a termination package of $140 million! Halock (2004) compared for-profit firms with nonprofits in the same deciles of their respective distributions of CEO compensation. For managing the same relative level of assets, the for-profit executives earned more than as much annually as the nonprofit executives. Only under conditions of uncertainty was there a correlation between executive compensation and financial effectiveness in 48 Fortune 500 firms (Waldman, Ramirez, House, et al., 2001). Compensation was higher in times of crisis but lower in times of political uncertainty (Tosi, Misangyi, Fanelli, et al., 2004). However, under conditions of uncertainty, a correlation was found with financial effectiveness in 48 Fortune 500 firms (Waldman, Ramirez, House, et al., 2001). For a sample of 848 Fortune 1000 firms, CEOs’ compensation was more accurately predicted by comparisons with CEOs in other firms by institutional and social comparison theory than by agency theory (Gilley, Coombs, Parayitam, et al., 2003). CEOs’ compensation in 112 of Fortune 1000 firms was also found to be contingent on the percentage of outsiders on the board of directors (Olson, 2003). But in 90 high-technology firms agency theory did help account for the relationships between short-term compensation of CEOs and innovations as assessed by the number of patents obtained and the amount spent on R & D (Balkin, Markin, & Gomez-Mejia, 2000). The form of compensation—stock or stock options—had different motivating effects on the executives’ tendencies to make acquisitions or divestitures. The form of compensation also influenced whether CEOs preferred taking risks with options or avoiding risks with stock (Sanders, 2001). Jaques (2001) noted that the compensation at the highest level of the managerial hierarchy (responsible for a time span of 20 years of control) was felt to be fair by the job occupant at 51 times the lowest management level (responsible for a time span of one day). Felt-fair compensation correlated .86 with time span of control. The same average ratios for these levels and all those in between have been universally endorsed for the past 50 years. However, there is much variation in CEOs’ compensation among firms skewed to overpayment from the mean. The compensation and severance packages in excess of industry norms that CEOs and key executives, supported by their boards, have been awarded have raise questions about whether they are justified. While 50 years ago CEOs averaged 40 times the annual compensation of the average worker, by 2005 the figure had increased to more than 400 times. Combs and Skill (2003) found that for 77 firms whose founders had just died, the successors’ compensation was higher than expected when the support of the executive, the board, and the nominating committee for a successor was stronger. Other variables, such as firm size, were controlled. Executives’ performance was less important than their executive entrenchment.
Executives’ Accountability. To link executives’ accountability and discretion to their compensation, Grossman and Hoskisson (1998) suggested a need to identify the organization’s strategies and what can provide it with competitive advantages. If cash flow and operating efficiency are keys to corporate success, accounting measures should be used to link executives’ competence to their compensation. If innovation is a key factor, compensation should be tied to measures of marketing success. If short-term success is emphasized, annual bonuses can be awarded. If long-term success is more important, restricted shares, stock options, or other forms of delayed compensation should be linked to performance.
The strategy of voluntary disclosures in 28 different firms appeared dependent on whether their CEOs were compensated by long-term incentives, owned a smaller percentage of shares in the company, and were in later stages of their careers (Natarajan & Rasheed, 2003). For Streufort and Swezey (1986), executives of firms in stable environments needed to be ready, willing, and able to engage in long-term planning. Conversely, Miller and Friesen (1980) suggested that CEOs in office for a long time are resistant to change and this rigidity is often a cause for strategic failure (see also Kets de Vries & Miller, 1984.) In 97 randomly selected small, mainly Franco-phone firms in a variety of industries in Quebec, Miller and Toulouse (1986) found that the CEOs’ years in office correlated −.33 with return on investment (ROI). On the other hand, net income growth correlated .36 with the strategy to spend on R & D and commercialization of products. Net income growth correlated .47 with a strategy of delegating authority.
Masoud Ardekani–Yasai (in press) obtained evidence from 101 small manufacturing firms that the firms exhibited superior performance when their management’s functional experience was congruent with the requirements of their strategies. CEOs and top management set policies and strategies for acquiring and integrating resources for the organization. Among their goals are to reduce uncertainty, increase stability, increase resources, and reduce competition. They strive to create favorable public images and opinions of the organization and its products and services. They oversee conformance with government policies, regulations, taxes, and trade. Indirectly, they influence government through personal influence, support of lobbyists, trade associations, and political campaigns. Ideally, top-level business leaders choose markets based on strategic planning and location of their facilities. They manage the management, production, and services systems. Their evaluations, coordination, and policies influence the organization’s subsystems of finance, capital, and personnel (Day & Lord, 1988). James Webb, long-term director of the National Aeronautics and Space Administration, exemplified the effective chief administrator of a federal agency. According to Sayles (1979), NASA was superbly managed. In less than 10 years, the agency went from no knowledge of man in space to an operational space program. It was a tremendous accomplishment in organizational leadership. The required strategic thinking and implementation occurred in the face of many risks, uncertainties, and unknowns.
There is an interplay between the corporate strategy formulated by CEOs and what is required of the organization. If a CEO pursues a human assets strategy for the organization instead of one based on a bureaucratic box of rules, management will need to be ready to be more participative, consultative, and considerate in its leadership. Interpersonal skills will be seen as the sine qua non of the effective top executive (Sessa, 1999). The more the strategy is to take account of uncertainty and ambiguity in the organizational environment, the more top management will need to be adaptable, flexible, and open (Zaccaro, Gilbert, Thor, et al., 1991). They will need to determine strategic inflection points when major changes take place in their business, such as the introduction of a new technology, a change in the regulatory environment, or a change in what their customers want. The inflection point is a sudden drastic change from a steady state or gradual expansion or contraction of supplies, demands, or organizational performance. At such a point, a fundamental change in business strategy is called for (Grove, 1999).
For Toney (1996), a firm’s profitability depends on the CEO’s actions. CEOs whose firms are consistently profitable maintain their focus on the bottom line. They pursue a corporate strategy and structure with profitability as a goal, as do their subordinates. Accounting and finance are stressed in an analysis of their daily decisions. It is unclear whether this approach is optimal for the various stakeholders and the long-term health of the organization. The successful implementation of strategies formulated by the CEO and top management will depend on their leadership and the qualities of their relations with managers and employees (Cannella & Monroe, 1997).
Finkelstein (1992) completed several studies of the powers of the CEO and the dominant coalition of senior executives. Four factors were extracted and validated from a survey of 1,763 executives. The highest-loaded item on each factor was (1) structural power (compensation, .86); (2) ownership power (family shares, .86); (3) expert power (critical functional experience, .85); and (4) prestige power (membership on nonprofit boards, .75). Evidence was found that diversification strategies and acquisitions in 102 firms were influenced in particular by the financial backgrounds and powers of their dominant coalitions of executives. Finkelstein concluded that to understand the strategic decision making in an organization, one must include the distribution of power in the dominant coalition of senior executives as well as the CEO’s power and functional background. Song (1982) also found that firms tended to diversify by acquisitions if their senior executives had backgrounds in law, accounting, and finance rather than production or marketing. Acquisitions could be beneficial to the degree that, as Bergh (2001) argued, the acquiring firm attempted to hold on to the managers from the acquisition who had the highest rank and longest longevity in that firm. Bergh examined the success of 104 acquisitions retained or resold in five years. He reasoned that long-tenured top executives possess specific knowledge about the firm and demonstrate long-term commitment to the firm and its stakeholders. They are a source of continuity during the turmoil that follows an acquisition.
The challenges of globalization have been accompanied by climate change, nanotechnology, Internet piracy, new societal norms, terrorist disruptions, the aging population, alternative measures of performance, and man-made environmental degradation (Grant, 2005). At the personal level, newly installed CEOs and top managers may miss the close peers and counsel they had before. Along with the oft-cited “loneliness at the top” syndrome, there is tension between attention to the present and attention to the future: “If you do not satisfy the present, there will be no future” (Bruce, 1986, p. 19). A survey of executives reported by Hughes (1998) suggested that the most important challenges facing their organizations were dealing with change; thinking strategically; dealing with business issues; and achieving focus, consensus, and vision. Well known is the extent to which domestic firms increasingly face competitive challenges from abroad. Many products and services first produced in the advanced industrial countries are now produced in China, India, and the developing countries. A huge annual trade deficit has been created in the United States even though its consumers benefit from lower prices. But higher-paying manufacturing employment in the United States is being replaced by lower-paying employment in services industries. Competing firms are a challenge in the United States, connected to a number of strategic factors that senior executives may be able to control. But as foreign competitiveness increases for various reasons, such as lower labor costs, the challenge may be met with increased innovation and productivity, greater investment in capital, and more attention to human resources, quality, productivity, and innovation. Also needed is a better long-term global strategy. Better use of capital investment and human resources can contribute more to corporate profitability and economic growth than increased capital investment alone, according to empirical analyses by Franke and Miller (2005).
How many people should be employed by an organization is a question that cannot be answered by expanding immediately when the demand for the organization’s products or services increases, and contracting immediately when they decrease. Strategically planned right-sizing is needed, taking into account the costs of cutting the labor force, laying off employees, and early retirements. With downsizing, there is a loss of teamwork, long-term corporate identity, and core competencies. The better employees may retire early. There may be a costly lowering of morale, negative effects on families and community, and the need to rebuild the staff when there is a turnaround. The alternative strategy is right-sizing; restructuring; transferring and retraining redundant employees; sharing jobs; cutting average working hours; providing temporary reassignments; and protecting teamwork and core competencies (Cascio, 1995; Hitt, Keats, Harback, et al., 1994).
History judges a CEO on the strategic conceptualizations that contribute to future success, not on a maintenance of the present situation. But the present imposes strong demands on the CEO’s time, with its numerous review committees, preparations for board meetings and annual meetings, critical regulatory responses to governmental requests, and exorbitantly time-consuming internal and external ceremonial duties. Top corporate managers have to free themselves from these day-to-day operations and short-term goal orientations to focus more attention on long-term threats and opportunities and to provide long-term leadership on strategic issues and their analysis, the formulation of implementation, interpretation, and evaluation (Wortman, 1982). The strategies reflect the CEO’s inclination and leadership (Staw & Sutton, 1993). Large organizations establish a chief of organizational operations (COO) to relieve the CEO of day-to-day burdens. According to Hambrick (1991), in general, the CEO’s tenure in office may undergo five phases that determine the CEO’s attention, behavior, and organizational performance: (1) response to the mandate to lead, (2) experimentation, (3) selection of an enduring theme, (4) convergence, and (5) dysfunction. Larger strategic changes are made earlier in the chief executive’s time in office (Gabarro, 1987). As might be expected, CEOs remain in office longer in stable rather than turbulent industries (Norburn & Burley, 1988).
Hambrick, Finklestein, and Mooney (2005) have proposed as hypotheses that executives challenged by greater demands of their jobs, compared to their less challenged counterparts, will tend to (1) imitate the strategic actions of other firms and (2) display more extreme strategic behavior and vacillation. Different organizational strategies are needed to meet the different challenges to a firm and its management, depending on the rate of technological change in their industry and the maturity of the firm. For instance, in a growing company in a fast-changing industry, a pioneering strategy is needed for development of new products, licensing of larger firms, fast innovations, movement into markets, and speed of expansion. In a mature firm in a slowly changing industry, a consolidation strategy is needed, with wide product lines for broad markets, long-term supplier relations, and standardized products (Lei & Slocum, 2005).
Dual CEOs. Occasionally when two giant corporations, such as Citicorp and Travelers Group, merge, instead of a single CEO taking charge, co-CEOs are appointed to work as partners. The strategy is based on it being impossible for one CEO to oversee the challenging diversity and geographic spread. Other examples of organizations whose size led to a strategy of dual CEOs include ABC, Capital Cities, Unilever, and Goldman Sachs (Troiano, 1999).
Strategic Change. To make strategic changes, the organization needs to rethink its current values and reorient itself (Fitzgerald, 1988). Struckman and Yammarino (2003, p. 234) noted that a key difficulty in handling strategic change is “keeping an organization focused on delivering quality and timely products and services while dealing with various change initiatives. … Everywhere managers turn, another change activity kicks off.” Furthermore, if leaders want to carry out a long-term strategic change, they will need to be inspirational so that the concurrence of constituent stakeholders is internalized. To obtain quicker support for a short-term strategic change, executives will find that transactional leadership may work as well.
For O’Toole (1995), effective strategic leaders promote organizational alignment and adaptability, which are “powerful predictors of long-term organizational excellence” (p. 82). “Alignment is observable when everyone down the line in the organization knows and understands corporate objectives, is motivated to pursue them, and knows what they must do to contribute to meeting overall corporate goals. … Adaptability … allows the organization to innovate, avoid threats, and seize new opportunities” (pp. 92, 94). Perceived awareness of the alignment of the strategy with its conception and what is being realized begins to fall off rapidly at the second level of managers from the top and declines further with movement down the line. There is a need to remind the organization about the actual strategy that has been formulated, its connection to behavior (Hambrick, 1981), and how the organization is going to become distinctive and continue to improve on its ability to deliver to its stake-holders. Continuity of strategy as well as continual improvement needs to be maintained. Continuity and change support each other. The more explicit the strategy and goals, the more new opportunities can be recognized. Choice, trade-off, and fit are required for strategic change (Porter, 2001). Strategic change is more likely to occur when a new CEO is brought into the firm with a mandate for change from the board of directors based on tentative agreements between the CEO and the board. If the mandate is for continuing the old policies, little change can be expected. According to a study of 40 cases by Tishman, Newman, and Romanelli (1986), less change in strategy may be expected with a long-tenured CEO or if the CEO retires and is replaced by an insider without the board’s mandate for change (Hambrick & Fukutomi, 1991). When first appointed, CEOs, even before they move into their offices, may visit plants and shops, ask questions of personnel at various levels, talk with key people, and examine reports and other information sources to develop an understanding of operations and needed improvements. Initial changes are usually made in functional areas in which the CEO has had previous experience to demonstrate and evaluate success early on (Gabarro, 1985). If the CEO is hired during a crisis, the change will be for immediate relief in the short term to find time for longer-term solutions. Over time, commitment to a chosen strategy will increase, barring new alternatives. The relatively brief tenure of CEOs, currently averaging five years or less, may be due to the tasks becoming more routine, the CEOs’ increasing power, and CEOs becoming less responsive to associates and the rapidly changing business environment. Dramatic leadership successions, particularly of new CEOs from the outside, can bring on a change in a familiar corporate name to reflect the new leadership, new strategies, and reorganizations (Glynn & Slepian, 1992).
Janson (undated) suggested an eight-step strategy for a new CEO wanting to make an organizationwide change: (1) Ask the most powerful people in the organization what they regard as the organization’s strengths and weaknesses and what they would change if they had the opportunity; (2) Complete a diagnosis with the help of many others on what needs changing and the receptivity and obstacles to the changes, and identify people who can lead the change efforts; (3) Envision the changed organization; (4) Identify the gaps between the current organization and the envisioned organization; (5) Encourage total involvement of significant others in the change effort; (6) Tailor the change effort to the nature of the organization; (7) Enlist the relevant department heads and a transition manager to provide needed network communication and recognition of project coordinators and team leaders about what has been happening; (8) Measure how well objectives of the change efforts have been met. The survival of Sears for well over a century may be attributed to the strategic changes initiated by its new incoming chairmen that fit Sears’ changing internal and external environment. Julius Rosenwald, as new CEO, overhauled Sears’ cost and control mail-order systems to achieve greater efficiency. As retail stores gradually supported and replaced the mail-order business, Robert Wood came along as CEO to radically alter the business to fit the changing environment, from rural to urban marketplace (Stryker, 1961). It’s still too early to tell how Sears’ institutionalized values of customer service and product quality will be affected by its merger with Kmart, which has focused on competing with lower prices.
The financial services industry has gone through two strategic transitions guided by strategic considerations. At first, in the typical insurance office, a few people handled the business. The same person might sell, underwrite, and process claims, Jobs were whole, customer service was personalized, the organization was flat, there was little overhead, and costs were acceptable. As business expanded, the industrial office was created, adapting the then-prominent rules for the factory of “scientific management.” Work was fragmented, direct contact with customers was abandoned, production lines were created, and people were organized to fit the system. Costly tangential jobs and multiple levels of management were created, and errors increased. Growth and work simplification were accompanied by a loss of service orientation and eventually diminishing effectiveness. The successful service organization pursues a new strategy for quality service, including: (1) a vision of customer service that focuses the organization’s values, beliefs, and norms on customer service; (2) a structure that is designed around some aspect of the customer, such as market segment or geographical location, rather than around the work process; (3) assigning responsibility for satisfying a particular set of clients; (4) moving accountability and decision making to the lowest possible level in the organization; (5) creating systems of customer feedback; (6) using computer technology to provide instant access by the service employee to the complete customer file (Janson, 1989).
Strategic Leadership. The founder’s personality has an impact on the culture of the organization and its subsequent strategies. If the founder is autocratic and controlling, like Harold Geneen of ITT, the organization will pursue a top-down strategy of leadership. If the founder is, like Bill Gore, team-oriented and participative, the strategy of leadership will reflect these values, as happened at Gore-Tex (Nahavandi & Malekzadeh, 1993). Top management’s leadership is required if a total quality program is to succeed. For instance, Choi and Behling (1997) noted that the attitudes and commitment of top executives were critical to the success or failure of total quality management (TQM) programs. During the 1990s, many were tried and abandoned. Success, continuation of TQM programs, and annual introduction of new TQM practices were much more likely when top management had a developmental orientation than when they had a defensive orientation—preoccupation with past problems, customers being seen as threatening, and unrealistic expectations. Management’s commitment to programs is critical. A meta-analysis of 18 studies of the impact on organizations of management by objectives (MBO) found that the gain in job satisfaction from the installation of MBO occurred only in organizations with highly committed top management. There was little gain in employees’ job satisfaction in firms where top management was less committed to implementing the MBO program (Rodgers, Hunter, & Rogers, 1993).
A new CEO is often chosen to match the organigzation’s current strategy. (Nahavandi & Malekzadeh, 1993), resulting in better implementation of the strategy (Michel & Hambrick, 1992). Strategic requirements provide the CEO with a cognitive map of the organization and its environment (Calori, Johnson, & Sarnin, 1994). However, the typical strategically oriented leader looks forward to setting directions for the organization (Arnott, 1995). The executive’s power is increased when the critical sectors of the environment can be scanned and scoped (Hambrick, 1981). Strategic leaders make and communicate decisions for their organization’s future (Zaccaro, 1996). They: (1) formulate or modify the organization’s goals and strategies; (2) develop structures, processes, controls, and core competencies for the organization; (3) manage multiple constituencies; (4) choose key executives; (5) groom the next generation of executives and personnel; (6) provide direction with respect to organizational policies; (7) maintain an effective organizational culture; (8) sustain a system of ethical values; (9) serve as the representative of the organization to government and other organizations and constituencies as well as negotiate with them. Such strategic leadership must be able to deal with ambiguity, complexity, and information overload. Adaptability and a sense of timing are required (House & Aditya, 1997; Boal & Hooijberg, 2001).
The organization’s strategy reflects its top management and its internal and external environments. According to Nutt (1986), managers with different styles of leadership are likely to see a different amount of risk in a situation and to choose different strategies. Those who are more judgmental will choose strategies oriented toward action and capital expansion. Those who are more systematic will choose strategies that avoid taking immediate action. Innovations are most likely to be pursued by managements classified according to their strategies as prospectors rather than as defenders of the status quo; analyzers, who try to maximize profits by minimizing risks; or reactors, who are inconsistent in dealing with their environment (Miles & Snow, 1978). Prospectors look to discover and work with innovative products even though risks are high. Their firms are flexible in administration and technology. Their organizations invest in human resources and favor decentralization, organicity, and decentralization (Heller, 1994). The top managements of prospectors are most likely to be former outsiders (Chaganti & Sambhara, 1987). They prospect for strategies that others have already proved successful and therefore enter second into a market. This appears more advantageous to them than pioneering an innovation and entering the market first (Schnaars, 1994).
Strategic leadership requires creating meaning and purpose for the organization, with a powerful vision and mission that create a future for the organization (Ireland & Hitt, 1999). Sosik, Jung, Berson, et al. (2001, 2004) agree and call envisioning the heart of strategic leadership. In many organizations, the CEO and top management formulate and implement their strategies. Inputs from lower levels of management and employee networks contribute in a collaborative effort (Senge, 1997), particularly in the implementation of strategies (Cogliser, 2002). Strategic maneuvering is required when a firm is challenged by hypercompetitiveness in price, service, and quality, timing and knowledge, and strongly held markets and products. Hypercompetitiveness is illustrated by the airline-pricing fare wars. By the beginning of 2005, two discount airlines, Southwest and JetBlue, with lower costs, simpler fare structures, and lower prices than the main carriers, had captured 30% of the U.S. market. A major carrier, Delta Air Lines, cut its prices and fare rules drastically to match those of Southwest and JetBlue. Then other main carriers, American Airlines, Northwest, and US Airways followed suit, even though they could not afford the potential loss of revenues, in their effort to meet the competition. US Airways did not have the necessary “deep pockets,” it was already bankrupt, as was another main carrier, United Airlines.
A firm’s seizing the initiative with hypercompetitiveness disrupts the status quo and may create a series of temporary competitive advantages with speed, surprise, and accurate forecasting (D’ Aveni, 1994). Structural equation modeling for 76 executives and 528 colleagues who rated them showed that positive interpersonal relations and confident speech were antecedents of strategic leadership. In turn, the executives’ strategic leadership contributed to their rated effectiveness, potential, and the performance of the unit they supervised (Gist & Gerson, c. 1998?) As might be expected, in a survey of more than 100 small and medium-sized businesses in Britain, transformational leaders engaged in significantly more strategic planning than did transactional leaders to achieve financial results, avoid problem areas, innovate, and improve short-and long-term organizational performance (O’Regan & Ghobadian, 2003).
Strategic Decisions. Like most organizational decisions, strategic decisions should proceed in an orderly fashion, beginning with anticipation and scanning for information (Bass, 1982). Both U.S. and Indian entrepreneurs and managers increase their scanning when they perceive increases in environmental changes and the importance and accessibility of information (Stewart, May, & Arvind, 2003). Ordinarily, this leads to the discovery of problems; diagnosis; a search for solutions; innovation; evaluation of and choice among alternative solutions; authorization; and implementation. Each phase may call for a return to an earlier one before going forward. Some phases are ignored more than others for rational or emotional reasons. For instance, a favorite alternative is seized on without considering other possibilities. Most of the phases may be implicit when the decision is based on intuition (Bass, 1982).
Such decisions coordinate diverse divisions in the organization, analyze contradictory and ambiguous information, and interpret events. Sometimes they need a long-term perspective (as much as 20 years ahead in the military or government and industries), requiring heavy capital investments. Weiner and Mahoney (1981) sampled the performance of 193 manufacturing corporations. They concluded that what the top leadership decided to do had a strong influence on the corporations’ profitability. Niehoff, Enz, and Grover (1990) reached similar conclusions about the effects on the commitment and satisfaction of 862 employees if their top management teams encouraged innovation, supported employees’ efforts, and shared a vision and participation in decisions. But Crosby (1990) argued that creating the vision and the organization’s direction was to be accomplished by the chief executive and implemented by his subordinates.
Farkas and De Backer (1998) formulated five approaches that CEOs headquartered in the United States, western Europe, and Japan say they pursue. They can all be considered as based on different strategic decisions about the best way to manage: (1) strategic, envisioning the future and planning how to get there (e.g., Coca-Cola, Newmont Mining, Staples, and Deutsche Bank); (2) human assets: managing people, policies, programs, and principles (e.g., Southwest Airlines, PepsiCo, Philips, and Massachusetts General Hospital; (3) expertise: championing specific proprietary expertise and using it to focus the organization (e.g., AngloAmerican, Ogilvy & Mather, Motorola, and Saint-Gobain); (4) box: creating, rules, systems, procedures, and values to control behavior and outcomes within well-defined boundaries (e.g., British Airways, HSBC, and Nintendo); (5) change agent: CEO acts as an agent of radical change from bureaucracies to new and different organizations (e.g., Goldman Sachs, Tenneco, and Mitsui). Each of the approaches may fail. For instance, at ITT the box approach was too rigid; Digital Equipment focused on its expertise approach, when actually it needed to change. All the interviewees saw the strategic approach as one of their roles, but only 20% saw it as their defining role.
Use of Intuition. Sadler-Smith and Sheffy (2004) suggested that rational and intuitive decision making should be seen as reinforcing rather than opposing each other, since much cognition occurs automatically and is intuitive. Intuition is the interplay of knowing based on expertise and sensing based on feeling. Understanding can be gained directly from intuition without rational thought or logical inference. Executives make considerable use of intuition. It increases with seniority, since it depends on experience. It is likely to develop from implicit, incidental, and unplanned learning experience and feedback. Also important are emotional memories and a “library of expertise” built up over the years. Intuitive understanding is gained from gut feeling and by attending to experiences that seemed to work even when they were contraindicated (Simon, 1987). According to Miller (2002) and Miller and Ireland (2005), much prior learning has been stored in memory with less than complete awareness and rationale. Intuition is conceived of as automated expertise or as a holistic hunch. Automated expertise is brought to the surface of awareness. Years of experience and learning are packed together into an instantaneous insight. A holistic hunch is a subconscious synthesis of diverse experiences, novel combinations of information, and strong feelings of “being right.” The error rate of decisions based on automated expertise and hunches is high and unpredictable compared to the slower decision-making process of scanning, generation, and consideration of alternatives. Nevertheless, sometimes going ahead on a hunch cautiously with scrutiny, checking, and the use of explicit decision tools may pay off.
For David Myers, intuition may involve subliminal priming, implicit memory, emotional processing, and nonverbal communication. He pointed out that, actually, rapid cognition is the basis for many frequent small decisions we make without much awareness. We need accurate feedback when we make good decisions. To avoid bad intuitive decisions, we need to recognize when our reactions are being controlled by our rapid cognitions and subconscious biases. Intuition, for Seymour Epstein, is what we have learned without realizing it. It can be useful or maladaptive (Hogarth, 2001; Winerman, 2003). Greer (2003) noted that intuition helps us to make connections between events. But sometimes the connections don’t exist. Intuition may interfere with sound decision making.
Strategic Formulation. Based on interviews of 75 executives, Sosik, Jung, Berson, et al. (2004) conceived strategy formulation as a weaving by leaders of inputs from people, technology, ideas, and opportunities into a system of social, technological, and intellectual resources, to produce organizational success. From an empirical analysis of 27 business cases, Shevastava and Nachman (1989) developed a fourfold taxonomy of how and by whom business strategies are formulated. Strategies were formulated by: (1) a confident, dominant, aggressive, strong-willed, knowledgeable entrepreneurial type of executive with direct control and influence. The executive makes roles for others and controls their efforts; (2) a bureaucracy bounded by rules and structure that is guided by standard operating rules, procedures, and policies in shaping the strategy. Members take preassigned roles. The bureaucracy specifies the kind of information analysis, the criteria for choosing alternatives, and the procedures for ratification and authorization in the decision making; (3) a dominant coalition of executives, each with authority over an area. They shape strategy through negotiations; and decisions reflect their differing interests; (4) a professional individual or small group of professionals with control over information. The professionals are open, expert, autonomous, committed, and collegial. New rules are devised when needed.
In the 1988 and 2000 Korn/Ferry International surveys of 1,500 interviews with executives in the United States, Latin America, western Europe, and Japan, almost all agreed that in strategy formulation, it was very important for the CEO to convey a vision of the organization’s future and to link compensation to performance. Almost all the North and Latin American and at least 75% of the European and Japanese chief executives agreed that ethics, frequent communications from the CEO to the employees, and promoting training and development were very important. Still seen by a majority of respondents as very important for the CEO to do in implementing formulation were frequent visits by the CEO to plants and offices and participation in community affairs. Pluralities varying from one region to another saw it as very important for the CEO to reward loyalty and tenure and to use outside consultants. Few, except in Japan (where the leader announces a decision after full consultation), required the CEO to make all the decisions.
Management Awareness and Contributions to Strategy. As the organization’s strategy is formulated from the top down, perceived awareness of the alignment of the strategy with its realized strategy and the chief executive’s conception begins to fall off rapidly at the second level of executives from the top and declines further with movement down the line. The CEO needs to be consulted to define the actual strategy that was formulated to connect strategy and organizational behavior. Executives and managers need to be queried (Hambrick, 1981).
Corporations are made up of many business units. Watson and Wooldridge (2001) surveyed, by mail, 82 business unit managers and executives in Britain below the CEO; they indicated that there was also an upward influence in the formulation of their corporations’ strategies. Upward influence was relatively greatest from those managers and executives (1) who reported directly to the CEO; (2) from each corporation’s largest business units; (3) from business units related to each corporation’s core business; (4) from the most effective business units in each corporation, measured objectively.
Top management sets the strategic purpose and direction of the firm by articulating and communicating a desired vision of the organization’s future. Effective strategy is needed for an organization to achieve optimum performance or comparative advantage. It is also needed to keep up with competition in changes in technology and markets (Rowe, 2001). According to Beer and Eisenstat (2000), required for formulating and implementing an effective strategy are: (1) top-down direction that accepts upward influence; (2) clear strategies and priorities; (3) an effective top-management team with a general management orientation; (4) open vertical communication; (5) effective coordination; (6) allocation of clear accountability and authority to middle management. According to Ireland and Hitt (1999), effective strategic leadership practices also include: (1) focusing attention on outcomes and processes; (2) seeking to acquire and leverage knowledge; (3) fostering learning and creativity; (4) improving work flows by attention to relationships; (5) anticipating internal and external environmental changes; (6) maintaining a global mind-set; (7) meeting the diversity of the interests of the multiple stakeholders; (8) building for the long term while meeting short-term needs; (9) developing human capital. These and other effective practices can give the organization advantages in a competitive environment (Ireland & Hitt, 1999). Competitive advantages in a global economy can also be gained from a strategy that depends on the leaders’ global leadership skills as well as the reputation of the organization (Petrick, 1999). Raising the cognitive limits of the CEO and top management can result in strategic decisions such as restructuring, becoming larger by making acquisitions, and entering new markets (Mowday & Sutton, 1993).
The involvement of executive management in strategic planning is furthered by the presence in the organization of a salient strategic vision, according to a sample of 226 upper level executives in a Fortune 100 corporation undertaking a major strategic change (Oswald, Moss-holder, & Harris, 1997). Additionally, CEOs and top management need to be able to channel and support the champions of innovation and adaptation and the incubation of new ideas in a safe space without higher-ups who prematurely criticize new, undeveloped ideas. Controls need to be minimized and innovators need to feel free to speculate (Nutt, 1999).
Personal Predilections. In their strategizing, executives are faced with many alternatives, conflicting demands by constituencies, and information overload. Their decisions depend on their values, experiences, knowledge, and preferences (Finkelstein & Hambrick, 1996; Hambrick & Mason, 1984) and sometimes on whimsy. W. R. Grace stopped for breakfast at Coco’s, a coffee shop, and liked it so much, he bought the company that owned the chain. In the same way, Victor Kiam liked the Remington razor so much that as the ads said; he acquired the company (Hall, 1984). IBM President Thomas Watson, Jr., chose a small prairie town, Rochester, Minnesota, as a site for a new plant because of a World War II army air force buddy who came from there.
Elenkov and Judge (2002) collected MLQ—Form 6S questionnaires from 490 presidents, CEOs, managing directors, and 371 other top-management team members in the United States, United Kingdom, Germany, Austria, Russia, and Ukraine. These executives were all involved in strategic decisions. Their transformational leadership scores accounted for 52% of the variance in product market innovations and 55% of their administrative innovations.
Effective Strategic Decision Making. Effective strategies depend on effective decision making. While snap judgments based on intuition may sometimes work out well, effective decisions ordinarily require an order in the process. Opportunities, threats, variance from expectations, or disturbances are observed. The problem is diagnosed, usually calling for more information and a search for solutions; development of innovations occurs, evaluation and choice among alternatives takes place, and the selected alternative is authorized and implemented. Whenever a phase cannot be completed successfully, there is a return to an earlier phase (Bass, 1983). Murnighan and Mowen (2002) add more in the process to the importance of feeling and intuition. The search phase is for detecting signals of threats and opportunities, followed by finding the causes. Blind spots need to be eliminated. The risks and rewards of alternative solutions are estimated, with choice based on avoiding a missed opportunity or a needless blunder. Whether or not to implement the choice should be based on a calculation of the risk ratio, the maximum estimated risk, compared with the probability estimate—the probability of success. This rational approach must be balanced with intuition (wisdom based on many reinforced experiences), particularly at top-management levels, even though rationality outperforms intuition in experimental studies (Nutt, 2002).
Ineffective Strategies. Cognitive shortcomings explain poor strategic decisions, such as paying too much for an unneeded acquisition. This seems to occur more often than not. Irrational and overconfident bidders do not know they are bidding against other bidders who are similarly overconfident (Zajac & Bazerman, 1991). Overall, as a consequence of the self-confidence and hubris of its CEO, a premium is paid by an acquiring firm beyond the worth of the acquisition. Firms that acquire other firms tend to decline in long-term profitability (Valle, 1998). A number of critics agree that CEOs take self-serving positions in their strategic thinking. They attribute good performance to their organization and poor performance to the external environment (Mowday & Sutton, 1993). However, D’Aveni and MacMillen (1990) found evidence to the contrary. They compared the letters written by the leaders of 57 banks that declared bankruptcy with a matched sample of letters by solvent bank leaders. The letters were written during the five years before the declaration of bankruptcy. The strategies of the future bankrupt firms tended to ignore or deny their external environment, such as the lack of demand for their products and services. They focused internally on their debt, their creditors’ demands, and changing their organization.
Greenwald (1985) pointed to three cognitive biases in strategic decision making: (1) Strategists look at events primarily in relation to themselves, (2) They see themselves as responsible for desired but not undesired outcomes, (3) They stick to their initial and favorite alternatives even when the supporting evidence is disconfirming. Other cognitive sources of error are that attention is directed away from goal direction by frequent disruptions, erroneous causal attributions are made; and people hold implicit, readily available, and strong but erroneous beliefs (Peterson & Sorenson, 1990). To avoid failure, strategic leaders need to avoid being enticed by the reputed and popular strategies for success in the new economy. Greco, Caggiano, and Ballon (1999) provide examples of how false assumptions and failure to qualify good ideas result in pursuing strategies that die or fail to grow.
Middle Management’s Role in Organizational Strategies. Often, middle managers are responsible for implementing strategic decisions made by senior executives. Separating planning from implementation creates special problems (Bass, 1970a). As noted by Floyd and Wool-ridge (1992), senior executives complain that middle managers fail to take the necessary steps to implement strategies. The commitment to and understanding of what needs to be done may be poor. Middle managers don’t articulate the same goals as do senior executives. If middle managers disagree with the strategic initiatives, they frequently work against implementation. To promote commitment, rewards systems and structures need to be aligned to fit the intended strategy. Middle management and supervisors’ understanding of the strategy will be fostered by increased discussions with senior managers about the strategy and their criteria for success. Consensus is needed on how to implement the strategy. Strategically useful ideas can come from anywhere in the organization.
Supervisors’ Role in Organizational Strategies. At the lowest leadership levels of the organization are department heads, supervisors, and team leaders. They may make suggestions upward that have implications for company strategy but generally are responsible for maintaining the work flow, morale, equipment, and safety of their subordinates. Sales supervisors and salespersons can bring home to the organization important ideas about competing products and organizational practices. They can serve as early warning signals. Production supervisors and their employees can contribute significant ideas about needed changes in internal organizational processes.
The Scottish philosopher David Hume (1741–1742) presented the first modern concept of political leadership. Political leaders share the values of the people and in a democracy formulate policies that a majority favor. Successful leaders are responsible for appointing judges, passing legislation, and providing political stability. Leaders with less support from the electorate form a loyal opposition. But this is no guarantee that the leader chosen will be effective. In a stable a democratic system, leadership takes place in an environment of political trust, social tolerance, recognition of political liberties, and popular support for equality of the sexes. This is in contrast to the pseudodemocratic system common to many developing countries, where political and civil rights are ignored, emotionality trumps rationality, and religious zealotry is pervasive.
Even in true democracies, voters are highly biased in favor of one candidate over another for irrational reasons. They attribute favorable personality traits to leaders who share their political beliefs. For example, right-wing Israeli voters evaluate right-wing leaders as more friendly and task-oriented than left-wing leaders. Left-wing voters attribute friendliness and task orientation more to left-wing leaders than right-wing leaders. Both groups see the leaders on their side of political issues as closer to their ideal leader (Ellis, Nadler, & Rabin, 1996). Shamir (1994) found that the perceived charisma of candidates combined with Israeli voters’ ideological positions to predict their voting preferences.
“Political leadership is one of the most widely noted and reported and least understood phenomena in modern politics.” This was a comment in the 1976 presidential address by James MacGregor Burns to the American Political Science Association. He argued that lacking a general theory of political leadership, of necessity research fell back on a more specific study of the numerous political leaders. For Adel Safty (2000), political leadership is needed globally to promote peace, democracy, and human development within and between states. World War II was a consequence of the collective failure of the League of Nations and its political leadership.
There is much revisionism in what may be written about a political figure after 50 years. When seeking and retaining office, the politician must usually face pluralistic pressures. “The actions that endear the leader to one constituency may anger another … the leader must show different faces to different constituencies or one enigmatic face to all.” (Leaders have to consider the needs of their constituencies, the demands of powerful lobbies, and hopefully use their own best judgment.) “But all too often their judgment, befuddled by conflicting pressures, or their character, eroded by sell-outs, fails the test” (Gardner, 1993, p. 151).
Mikhail Gorbachev was unusual as a world-class leader in an authoritarian society. He openly called attention to what he did not know and invited help. He was crucial in changing the Soviet system (Khoubesserian, 1987). Was his career a success or a failure? Although he proceeded with caution to try to modernize the system, he was ousted from power and the Soviet Union crumbled as Ukraine and other Soviet republics seceded from the USSR. Innovation is difficult for political leaders who attempt to democratize an authoritarian regime. The new way must be initiated, legitimated, and sustained (Edinger, 1993). The political innovators Mahatma Gandhi and Jawaharlal Nehru captured, sustained, and adapted the British structure of government for India (Sheffer, 1993). In 1986, the CIA was perplexed by photos of Mikhail Gorbachev’s facial expressions during conversation, which mirrored the facial features of the other leader, Ronald Reagan, with whom he was talking. Was this a sign of intense concentration? Empathy?
Burns (1978) introduced his theory of transformational and transactional leadership, to be presented in the next chapter, which advances the understanding of political leaders. The importance of charisma to political leaders was discussed in Chapter 22. In his address, Burns pointed out that political leaders are expected to inspire and elevate the public and to show moral leadership. In a democracy, political leaders are expected to focus on the public’s authentic needs. They turn threats into opportunities. In 1940, France was completely defeated by the German blitzkrieg. Charles de Gaulle took on the role of hero, seized the opportunity to mobilize Free French forces outside France, and did not succumb to irrational fears. In 1945, at the end of World War II, when Winston Churchill was asked by a woman, “During this terrible war, what was your darkest hour?,” he replied, “Frankly my dear, I enjoyed every minute of it!”
The influence of public leaders is felt when they bring together important figures from industry, government, education, health care, and community activist organizations to collaborate on issues of mutual interest. They provide visions, initiate structure, and clarify what needs to be done (Berger, 1997). The credibility of public managers is critical when they try to introduce reforms in public agencies for their improvement (Gabris & Ihrke, 2003).
Avant (1994) regards most politicians as inauthentic. They are self-interested strategists. They try to ensure that they remain in power. They pursue goals based on whether they will help them stay in power. They try to control the bureaucracy to maintain their political advantage.
The American presidents since George Washington’s two terms in office have formed an important field of leadership study for political scientists, historians, biographers, psychologists, psychoanalysts, and sociologists. Each president redefines his role as national leader, chief executive of the government, and commander in chief of the military. The president has a “bully pulpit” from which he can exert strong influence on the public and Congress. His rhetoric is important in articulating the concerns and aspirations as he sees them. He tries to form a sense of national purpose and identification (Fields, 1994). This is especially true if his rhetoric is image-based rather than concept-based. Image-based words include sweat, hand, root, heart, explore, rock, grow, path, journey, sweet, dream, listen, and see. Concept words include work, help, source, commitment, inquire, dependable, produce, endeavor, limit, alternative, request, moderate, idea, think, consider, and understand (Martindale, 1975). Emrich, Brower, Feldman, et al. (2001) calculated the relative frequencies compared to the total length of image-based and concept-based words in presidential inaugural addresses from George Washington to Jimmy Carter. A correlation of .50 was found of image-based indices with Murray and Blessing’s (1983) list of the charisma of the 32 presidents. The correlation with charisma for concept-based rhetoric was −.27. There were no significant comparable correlations of concept-based indices with the list of greatness.
If members of the president’s own party in Congress who supported his election found themselves opposed to one of his proposals, they would often change to supporting it. Nonetheless, Zeidentstein (1983) could find no consistent pattern of the relationship between presidents’ popularity, from Dwight Eisenhower to Jimmy Carter, and their legislative success, although it appeared that Reagan’s popularity helped his success in passing legislation through Congress. Some found that most important for a president’s popularity was his perceived effect on the national economy or the economic well-being of voters (Kinder, 1981). Barber (1977) found that a president’s success depended on how active the president was and whether or not he enjoyed power. The speeches of some presidents, like John Kennedy’s, tended to be positive rather than disapproving, like Richard Nixon’s. Two-term president George W. Bush’s addresses were simplified solutions to problems in black or white. He was not a complexifyer like Jimmy Carter—defeated for reelection—for whom possible alternatives had various shades of gray (Mazlich & Diamond, 1979). A relatively inactive one-term president, William Howard Taft, sandwiched between the active Theodore Roosevelt and active Woodrow Wilson, served as a transition between them in the regulation of corporations. Unlike Roosevelt, who viewed the president as a steward of the country and its constituencies, Taft was a constitutional literalist who emphasized the separation of powers of president, Congress, and the courts. He was concerned with controlling radical majorities (Anderson, 1982).
With the tyranny of the British King George III in mind, the framers of the U.S. Constitution were wary of placing much power in the executive branch. Yet they also saw the ineffectiveness of the Articles of Confederation, which lacked a strong executive. But they assumed that the first president would be George Washington, who had the unreserved trust of the people and had to be persuaded to take the office by Alexander Hamilton. The powers of the president have been expanded ever since by strong presidents such as Jefferson, Jackson, Polk, Lincoln, Wilson, and the two Roosevelts (McDonald, 1994). Between 2001 and 2006, George W. Bush wielded extraordinary powers by decree in the war against terrorism, through executive orders. Additionally, he wrote signing statements on whether or not his administration would enforce new legislation enacted by Congress. This presidential behavior was never envisioned by the framers of the Constitution. Bush’s popularity dropped from 90% to 30%.
Presidents differ in their management styles. Franklin D. Roosevelt kept his subordinates in competition with one another over decisions. He did not give them sufficient authority to act on their own, so he could maintain his power over decisions. He could be tricky and tough, but his objective was the emancipation of humanity. John F. Kennedy and Bill Clinton also kept their subordinates guessing about decisions. This was a way of keeping administrators in charge of large bureaucracies from tying up actions that the presidents wanted to see implemented. The three also had trusted informal advisers: Eleanor Roosevelt and Harry Hopkins for FDR, Robert Kennedy for JFK, Hillary Clinton for Bill Clinton, and Karl Rove for George W. Bush. Dwight Eisenhower, Gerald Ford, Ronald Reagan, and George H. W. Bush took a very different tack: they pursued an orderly process in which decisions were delegated to their subordinates in charge of the agencies and departments of the federal government. Jimmy Carter was known for his inability to delegate and impose orderliness to stop the feuds among federal agencies. Richard Nixon was highly controlling and secretive and kept information close to his vest. Lyndon Johnson worked closely and directly with Congress (Haass, 1995). Kennedy was open to communication, took responsibility for his administration’s mistakes, and arranged to be the center of a network that included his subordinates, advisers, and consultants. Modern presidents have differed in their regard for public opinion polls. Some, like Truman, disliked and ignored them; some, like Clinton, consulted them almost daily. Nonetheless, there was a strong association between the presidents’ annual positive approval ratings in Gallup Polls for each year in office of Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, and Reagan, and their legislative success on issues where the president took a position Rockman (1984, p. 118). These presidents’ leadership and management styles were classified by Rockman as drivers or coasters. Drivers, like Johnson and Nixon, were entrepreneurial chief operating officers; coasters, like Eisenhower and Ford, were chief executive officers. Drivers pushed expansive policies; coasters were more incremental. Drivers were centrists and interventionist, using informal channels and uncertain jurisdictions; coasters favored decentralization and used formal channels and jurisdictions. Drivers were hierarchical and delegative. Critics branded Johnson as a micromanager and Nixon as ruthless and isolated. Some critics branded Eisenhower as an inefficient manager but, in reality, in his two terms in office, he gave the government a sense of direction and purpose with the support of public opinion (McInerney, 1981).
Ronald Reagan (1986) and his recruiters put a lot of effort into choosing his political appointees so he could delegate authority to them with the expectation that his policies would be pursued without his involvement in details. He insisted on mutual loyalty, which resulted in a relatively large number of scandals. Most of his carefully vetted aides were self-made millionaires and shared his probusiness attitudes (Nathan, 1983). It was easy for him to encourage free and open discussion among his aides because of their shared attitudes. When conflicts arose, he would reduce tension with a joke from his extensive repertoire of jokes. He had a high tolerance for listening to hotly contested issues. His agenda and priorities were simple and clear. The most memorable lines in his speeches were his own when he rewrote his speechwriters’ efforts. He focused on big issues and avoided spending time on less important ones. He enabled the introduction into his administration of many private business practices, such as like new systems of credit management and cash management and the use of private collection agencies. He changed the federal budgeting process; instead of agencies submitting proposals to meet their anticipated needs, which then would be reviewed and sent to Congress for approval, Reagan introduced a top down budgetary process to reflect his plans to cut taxes and shift priorities. The White House set goals and priorities and the agencies had to fit their requests to the president’s plan. He organized committees of cabinet members to propose ways he should deal with suggested policies; they could work out the differences among their various agencies. When they could reach consensus, he accepted their decisions as if they were a board of directors (Fishel, 1985). When they could not agree, he made a decision and stuck to it, even when it was likely to be unpopular with the public. Reagan handled disasters such as the terrorist bombing of a Marine barracks in Lebanon by going public quickly with a full account, taking the blame as if he were at fault, and defusing the crisis (Dowd, 1986). He could be highly directive, as in the case where he declared that it was illegal for aircraft controllers, as federal employees, to strike and ordered the FAA to fire and replace them.
Winter (1987) used previous findings to form a composite of presidents’ performance: consensus of greatness, avoidance of war, entry into war, and great decisions. The composite measure of greatness was correlated with the extent to which the presidents’ inaugural addresses projected the needs for power, achievement, and affiliation. Need for affiliation was negatively related to greatness; presidents who were overly concerned with close relations with their friends, advisors, and subordinates correlated .53 with scandals in their administrations (Winter & Stewart, 1977). House, Spangler, and Woyke (1991) showed that performance based on Simonton’s (1987, 1988) list of 31 presidents from Washington to Carter was related positively, according to path analysis, to a need for power (.52) and negatively to a need for affiliation (−.37). For 39 presidents ranked by Simonton (from Washington to Reagan) on their tendency to take direct action, ranking is related significantly to a need for power (.62), and a need for affiliation (−.21). A need for power correlated .36 with international relations performance, .19 with economic performance, and .51 with social performance. Other significant path coefficients were negative between the performance measures need for achievement and need for affiliation. The power motive was stronger than the achievement motive in F. D. Roosevelt, Truman, Kennedy, and Reagan. These presidents found ways to deal with subordinates whom they had not appointed but could not fully trust or get rid of. Roosevelt assigned the same task to several different such appointees and let them compete for his favoring of one decision over the others. The achievement motive was higher than the power motive in Presidents Wilson, Hoover, L. B. Johnson, Nixon, and Carter. (Need for achievement correlated .51 with idealism.) These presidents were unable to fully implement their idealistic goals (Winter, 2002).
Rubenzer, Fashingbauer, and Ones (2000) arranged for up to 13 students to score 41 presidents on the five-factor personality questionnaire NEO-PI-R. The presidents’ mean factor scores were more extroverted, less open to experience, and less agreeable than American norms. They had high average facet scores on achievement striving, assertiveness, and openness to feelings; they had low average facet scores on openness to values, straightforwardness, and modesty. As an example, Washington showed an unusually high factor score for conscientiousness, but his scores were lower than the present American norms on openness, extraversion, and agreeableness. His facet scores were high in achievement striving, competence, assertiveness, discipline, and deliberation. Other facet scores compared to current American norms revealed him to be low in vulnerability (he was able to tolerate adversity and stress), low in openness to values (he was traditional in morality), and low in tender-mindedness (he was less concerned about the unfortunate). Conscientiousness correlated .17 with presidential characters listed by Ridings and McIver (1997). Lower in conscientiousness than other presidents were Andrew Jackson, Kennedy, and FDR. T. Roosevelt was high in the facet of achievement striving, setting ambitious goals, and trying to meet them. (achievement striving correlated .32 to .39 with presidential greatness). Grant and Harding were not high in achievement striving. The facet of assertiveness correlated with greatness from .34 to .44. T. Roosevelt, Jackson, and Harding were highest in assertiveness, and Harding and Coolidge were lowest. Competence correlated with greatness (r = .30, .39).
Lyndon Johnson grew up in the hardscrabble country of Texas with a knowledge of the history of the political careers of his forebears and father. Early on, he developed a strong need to dominate his peers whatever the cost. He conducted a single-minded pursuit of power, which he achieved by striking alliances with Texas moneyed interests and powerful congressmen such as Sam Rayburn, speaker of the House of Representatives (Caro, 1987).
Bill Clinton, highly intelligent, well educated, ambitious, and interpersonally competent, overcame his childhood in a troubled family from a small town, but effects on his personality remained. He compartmentalized his public and private lives. He could deny reality at times, block out problems, try to overcome almost any obstacle, and feel a continuing need for affirmation. He could remain optimistic in the face of serious problems and readily recover from setbacks. (Optimists do not ignore adverse information but use it to change their strategy.) Like many powerful leaders and presidents before him, such as JFK and Lyndon Johnson, he had a strong need for sex. Clinton was easily tempted by women attracted to powerful figures (Maraniss, 1998). He was regularly condemned for inconsistency and indecisiveness. Sometimes this stood him in good stead, such as when he announced that he had no further options but a military invasion of Haiti and then, the next day, sent peace negotiators (Sonnenfeld, 1994). In the 1996 presidential election, voters who rated Bill Clinton as charismatic-transformational and identified with the Democratic Party voted for Clinton; Republican voters did the same for Bob Dole (Pillai & Williams, 1998). Elsewhere, diagnostic profiles (Millon, 1990) of Clinton suggested that he was highly assertive/self-promoting, outgoing/gregarious and charismatic/extraverted, while Dole was highly controlling/dominant, conforming/dutiful, and deliberative/conscientious but low on interpersonality/agreeableness (Immelman, 1998).
Avolio (1999) extracted from Simonton’s (1988) list the best and worst twentieth-century presidents in selected leadership styles. Ford scored highest in interpersonal style, which contributed to his success with Congress. Wilson and Nixon were lowest. A weakness in all these findings is that politicians, in particular, have different public and private personae. Truman’s public image of irascibility and feistiness, for instance, was very different from his behavior with his staff and friends (McCullough, 1992). Consistent with what we noted earlier, Franklin Delano Roosevelt was highest in charisma and Coolidge lowest. McKinley and Kennedy were most deliberative, Truman least so. The two Roosevelts were most creative, Taft least so. Lyndon Johnson scored highest in neuroticism and Ronald Reagan lowest. Caprera and Zimbardo (2004) found a great deal of empirical support for the hypothesis that people vote for presidential candidates whose personality traits fit with the ideology of their preferred political party. Voters tend to elect presidents whose publicly expressed traits and values are congruent with voters’ self-reported traits and values. Thus George W. Bush remains in favor with rightwing fundamentalist Christians despite the many failings of his administration.
George Washington, because of his highly principled conduct as a military leader, was a great moral symbol in the new republic. The populace was suspicious of all forms of power. For it, virtue was the cure for corruption. His refusal to accept the role of monarch or dictator made him the opposite of a personalized charismatic but a hero with socialized charisma and tremendous idealized influence. He was worshiped by his individualistic, republican countrymen. Writing on the death of the charismatic president Franklin D. Roosevelt, Walter Lippmann (1945) noted that the final test of such a leader is the conviction and will left behind for others to carry on. FDR’s New Deal left a lasting legacy of liberal reforms. House (1985) content-analyzed the inaugural addresses, speeches, and writings of 10 charismatic and nine noncharismatic U.S. presidents along with four charismatic Canadian prime ministers. Judgments of charisma were based on how much the content referred: (1) values and moral justifications rather than tangible outcomes; (2) the collective identity rather than individual self-interests; (3) distant rather than close goals; (4) history; (5) positive worth and efficacy of followers; (6) high expectations of followers; (7) self-confidence. Charismatic presidents were more likely to be seen as effective by their cabinets (House, Woyke, & Fodor, 1988). Charisma was correlated with the overall performance, both economic and social, of 39 presidents (House, Spangler, and Woyke, 1989, 1991). According to content analyses of the writings of cabinet members, the judgments of presidential charisma for 31 presidents had path analysis coefficients of .51 with presidential direct action, .56 with personal use of power, .46 with domestic economic performance, and .46 with domestic social performance (House, Howell, Shamir, et al. 1994). John F. Kennedy was a highly charismatic president. His inaugural address set the tone for his administration: “The torch has been passed to a new generation.” He emphasized contributions to the public good rather than private gain: “Ask not what your country can do for you, ask what you can do for your country.” Kennedy’s addresses were direct, factual, specific, and spellbinding with his visions of the future, such as putting a man on the moon in nine years to provide assurance that the Soviets would not remain ahead in the space race. Although in office less than three years before he was assassinated, he made many effective crucial decisions, except for the Bay of Pigs fiasco, which the previous administration had planned but for which he took responsibility. He was well prepared in advance to force the steel companies to rescind a 30% price hike after government mediation resulted in removing the need for large wage concessions to labor. Although he endorsed and sympathized with the Civil Rights movement, he introduced little legislation on the subject but paved the way for his successor, Lyndon Johnson, to do so in 1965. In 1962, he avoided a possible nuclear war with the Soviets after learning that the Soviets had installed a base in Cuba that could launch missiles to most parts of the United States. After thorough deliberation, based on photointelligence as evidence, he warned Nikita Khrushchev that he would embargo Soviet ships bringing missiles to Cuba and told the American public and the Soviets what Soviet actions would and would not be permitted. U.S. missiles in Turkey, on the Soviet Union’s southern border, were subsequently withdrawn (Manchester, 1967). The crisis ended with a peaceful settlement. In 1963, Kennedy was planning to reverse the course of the U.S. commitment in Vietnam and American intervention, which eventually ended in 1975 in failure and the loss of 55,000 American and an estimated million Vietnamese lives (Sorensen, 1965). He was a strong supporter of the arts, sciences, and literature, and the White House, metaphorically, became “Camelot.” His weaknesses were glossed over by the public in the reality and myth of his greatness (Lasky, 1966).
Among the 39 presidents through Reagan, Deluga (2001) found that charismatic presidents were also Machiavellian, according to prepared profiles of their behavior, which were then rated by 117 undergraduates. The presidents could and would engage in political expediency and duplicity. Highly Machiavellian presidents, as measured on the Mach Scale (Christie & Geis, 1970), were high in their levels of expressive activity, self-confidence, emotional regulation, and desire to be influential. For them, the ends justified the means. They could be deceptive. They exhibited both personalized and socialized charisma. They were opportunists. They built favorable images of themselves. Their public pronouncements were often at odds with their private opinions. When President Kennedy was told that black African ambassadors to the United Nation and the United States got into trouble driving though segregated Maryland to reach Washington, D.C., his response was “Tell them to fly.” In the struggle for civil rights, both blacks and whites thought he was supporting their opposing sides. President Eisenhower was personally opposed to the 1954 Brown v. Board of Education of Topeka Supreme Court decision, which declared school segregation unconstitutional, but publicly he did not voice his opinion (Reeves, 1995).
According to Rubenzer, Faschingbauer, and Ones (2000), great presidents earned lower scores on the facet of Straighforwardness on the NEO Personality Inventory, according to judgments of their biographies. When necessary, both Lyndon Johnson and Franklin Roosevelt tricked, cajoled, bullied, or lied. The correlation between Machiavellianism and charisma was .32. (Deluga, 2001). After the terrorist attacks of September 11, 2001, George W. Bush became more charismatic, according to content analyses of his speeches before and after the attack (Bligh, Kohles, & Meindl, 2004). Like many charismatic leaders, he was both loved and hated. In 2000, he lost the popular vote by more than 500,000 votes but won the disputed electoral count by four electors: The Supreme Court had stopped the Florida recount when Bush was ahead of Al Gore by 300 votes. As his father, President George H. W. Bush, had done, George W. Bush surrounded himself with top management team members who, except for his secretary of state, Colin Powell, thought alike. Long before the war with Iraq began in 2003, he ordered military planning for it in 2002, despite his public pronouncements that he had been reluctant to begin it (Woodward, 1994). George W. Bush lost many opportunities to improve the domestic economy because his chief of staff felt nothing needed to be done, his OMB director blocked ideas not his own, and his advisors kept telling him that more studies of the issues were needed. His vice president, Richard Cheney, was the secretive “power behind the throne.” Adding to the lack of action were the stifling of debate within the team and the atmosphere of purposelessness in the presidential office (Kolb, 1993).
Twelve presidents were included in a student survey of biographies of world-class leaders by Bass, Avolio, and Goodheim (1987). After reading one or more biographies, students completed the Multifactor Leadership Questionnaire on one of the 12 presidents. On the transformational scales, of the 12 presidents, Kennedy, Theodore Roosevelt, Franklin D. Roosevelt, and Ronald Reagan were rated highest in charismatic leadership. Truman, Theodore Roosevelt, and Eisenhower were rated most individually considerate. Kennedy, Theodore Roosevelt, John Adams, Eisenhower, and Reagan were rated the most intellectually stimulating. On the transactional scales, John Adams and Theodore Roosevelt most practiced contingent reward; Gerald Ford most practiced management by exception. A more rigorous and extensive study of all 39 presidents was completed by Simonton (1986, 1988). Descriptive profiles were prepared from abstracts of standard biographical sources and presidential fact books. Individual biographies were omitted as sources of abstracts due to possible author biases. Seven students independently assessed each presidential profile using the Gough Adjective Check List (1985). Five factors were extracted: interpersonal, deliberative, neurotic, charismatic, and creative. Simonton’s list correlated highly with previous lists and was used as the basis of other studies of greatness and effectiveness.
House (1985) asked eight historians to classify U.S. presidents and Canadian prime ministers as charismatic or noncharismatic. Seven of the eight historians were in complete agreement. The historians identified Thomas Jefferson, Andrew Jackson, Abraham Lincoln, Theodore Roosevelt, Franklin Delano Roosevelt, and John F. Kennedy as charismatic presidents and Calvin Coolidge, Warren Harding, Chester A. Arthur, James Buchanan, Franklin Pierce, and John Tyler as noncharismatic presidents. They also listed the following charismatic Canadian prime ministers: Ramsey MacDonald, Sir Wilfred Laurier, John George Diefenbaker, and Pierre Elliott Trudeau. Biographies of these presidents, prime ministers, and their cabinet members were content-analyzed to compare the effects of the charismatics and the noncharismatics on the cabinet members. To measure the presidents’ behavior, House coded passages that indicated the leaders’ display of self-confidence and their expression of expected high performance by their followers, confidence in their followers’ ability and performance, strong ideological goals, and individualized consideration for their followers. The presidents’ inaugural addresses were similarly content-analyzed to assess the presidents’ achievement, power, and affiliation motives. The cabinet members of charismatic presidents and prime ministers attributed more positive affect to them than did the cabinet members of noncharismatic presidents. The need for achievement and the need for power were higher among the charismatics than among the noncharismatics. The charismatic leaders were more likely than the noncharismatics to be seen as great and as effective (House, Woycke, & Fodor, 1988). In another analysis, charisma, combined with power and other needs, accounted for 37% of the variance in the overall performance of 39 presidents, 41% of the economic performance of their administrations, and 45% of their domestic social performance (House, Spangler, & Woycke, 1989).
Pillai, Williams, Lowe et al. (2003) replicated Pillai and Williams’ (1998) study of what prompted 342 matched preelection and postelection choices of candidates in the 1996 presidential election. Again, the investigators found that attributions of charisma and transformational leadership were associated with their choices beyond party affiliation. Trust was an important mediating variable.
Franke and New (1984) showed that presidents’ effectiveness from William McKinley to Ronald Reagan, as measured by policies that led to more efficient use of resources and increased employment and capacity utilization, was correlated with active presidents like T. Roosevelt rather than passive presidents like Calvin “Silent Cal” Coolidge. People were frustrated when they tried to get Coolidge to talk. He was elected vice president and assumed the presidency on Harding’s death. He was elected for another term, having made neither enemies nor friends. He seldom solicited advice but showed concern for the workingman even though he was conservative. He practiced a laissez-faire style, intervening only when absolutely necessary. He believed that the chief business of America was business and government should not interfere with it (McCoy, 1967). He was neither aggressive nor self-confident and did not anticipate any future but the continued prosperity of the “Roaring Twenties” (Fuess, 1940).
Pritchard (1983) measured each president’s effectiveness by the extent to which the senators and representatives of both parties voted for his proposals. Hargrove (1987) indicated that presidents’ effectiveness depended on their manipulative skills in: (1) creating bargaining coalitions, (2) establishing authority over subordinates, (3) keeping prospective opponents off balance, (4) maintaining alternate sources of information and advice, (5) using power to leverage available institutional forces to influence other powerful figures, (6) remaining sensitive to the politics of policy making. Equally important for effectiveness were the abilities to (1) define the policy questions of consequence to the nation in terms of their historical emergence and felt necessities of the time; (2) suggest solutions and a policy agenda; (3) gain widespread support for the solutions. Timing was crucial. According to Adam Yarmolinsky, Lyndon Johnson never decided where he wanted to go until he could figure out how to get there. Jimmy Carter was seen as unsuccessful because he mostly ignored playing politics and tried to know and do what was right. He waited for his staff to provide information and failed to mobilize the political strength needed to take action. He failed to win a second term in office. While the average for the success of presidents from Wilson to Nixon in fulfilling their campaign promises was 75%, Carter was successful in fulfilling only 60% of his promises (Krukones, 1985).
Tourigny (2002) obtained the effectiveness ratings on the American Presidential Management Inventory by surveying 98 scholars in political science and American history. Each rated one president. She uncovered six higher-order factors that accounted for the variance in presidential effectiveness: (1) principle-guided actions (wisdom, judgment, impartiality) (44.8%), (2) vision (inclusive, responsive to constituents, and individually considerate of congressmen’s needs and interests) (10.5%), (3) acknowledgement of differences (recognized ideologies, minorities, and protection of constitutional rights), (4) consultative and participative style (fostered collaboration between cabinet and Congress and collaborative decision making with subordinates) (5.2%), (5) moving Congress forward (clear guidance and monitoring of subordinates’ efforts) (4.4%), (6) nondeceptive means to achieve objectives (did not bypass the cabinet or use subordinates for personal benefit) (3.9%).
Franklin Delano Roosevelt is high on every presidential ranking for effectiveness. He led the United States into war when the country was isolationist. The country did not see the need to become involved in what was regarded as a war that the western hemisphere could stay out of. Roosevelt saw that if totalitarian forces prevailed in Europe and Asia, the United States would inevitably suffer the same fate. Using political credit, deception, manipulation, cajolery, coercion, haranguing, and enticing, he led Congress to pass needed legislation to help Britain against Germany, such as the Lend-Lease Act of 1940, which transferred 50 aged destroyers to Britain in exchange for granting bases in British possessions to the United States. He said, with tongue in cheek, “We’ll take the ships back after the war.” Gradually he increased support for Britain and its empire, which in mid-1940 were fighting almost alone against Germany and Italy. In 1941, he embargoed shipments of American oil to Japan and got the Dutch in the Dutch East Indies to do the same. Without oil, the Japanese economy and military machine would have collapsed. Japan’s response was the attack on Pearl Harbor and the invasion of the Dutch East Indies. He provoked Adolf Hitler with taunts that led Hitler and subsequently Benito Mussolini to declare war on the United States, ensuring the demise of totalitarianism in Italy in 1943 and in Japan and Germany by 1945. Roosevelt allowed the different ideologies, identified problems, and solutions of his staff to compete with one another until a practical solution appeared. He said a leader should not get too far ahead of his followers; otherwise, when he looked around, nobody would be there.
Bill Clinton lacked discipline in his daily routine. He procrastinated after lengthy meetings and would return to the same question again at the next meeting with his advisors. He might delay necessary decisions for months, which drove his advisors to despair. He was knowledgeable and highly educated and conceived many alternative answers to a question. His public speaking made members of big audiences feel as though they were being addressed personally. He was a political centrist, sought conciliation and consensus, and employed military force sparingly despite many international provocations. He was hated by a large right-wing minority and was close to being impeached and convicted for lying about his sexual peccadilloes. Nevertheless, his policies made him an effective president. His 1993 spending cuts and tax increases set into motion economic prosperity to the end of the century. His welfare reform legislation in 1996, counter to the philosophy of his political allies, was effective in moving many welfare recipients to seek training and work. His military and diplomatic interventions in Bosnia, Kosovo, and Serbia brought peace to the Balkans after 10 years and war criminals to trial (Harris, 2005).
Ronald Reagan was a highly popular president and an extremely effective communicator. He had an informal style of delivery that made him attractive and successful at winning elections and getting most of the legislation his administration endorsed accepted by Congress. He cut inflation, taxes, and regulations but greatly increased the deficit and the national debt. Critics accused him of playing the role of president, during his two terms in office, from outlines prepared for him (Slansky, 1989). Liberal evaluators questioned whether his administration’s probusiness, antienvironmental, and military goals were in the best interests of the country. He hired many business friends and delegated too much. He was unable to discharge people. He was controlled too much by his staff, wife, and friends. He was easily influenced when he was unconcerned about an issue yet stubbornly held to his position on issues about which he lacked knowledge but felt strongly (G. Winter, 1987). He was outspoken and made many gaffes in expressing himself, both in his words and in his behavior (Gates, 1989). He failed to control his subordinates adequately and was too impulsive. He committed faux pas ranging from confusing events in movies with real events to falling asleep in an audience with the pope. One of many Reaganisms referred to the Nicaraguan contras, whom he illegally tried to support against the Sandinista government, as “the moral equal of our Founding Fathers.” Nevertheless, he was labeled “the Teflon president,” as none of these mistakes in policy and speech stuck to him. His popularity remained high during his two terms in office.
Given the negative impact of laissez-faire leadership detailed in Chapter 25, how does one explain the effects of President Ronald Reagan’s generally laissez-faire leadership style, which was based on his stated belief that he was properly delegating when he sat back and let his subordinates proceed as they thought best? Reagan was able to leave office in 1988 with one of the highest popularity ratings (64% to 68%) of any U.S. president in a public opinion poll. One explanation may be his choice of subordinates. With subordinates, such as David Stockman, who were highly competent, great achievements were possible. With sleazy or incompetent subordinates, like Edwin Meese, the results were disastrous. The disaster was compounded when a subordinate cabinet officer, such as Samuel Pierce of the Department of Housing and Urban Development, was an extremely laissez-faire executive himself (Waldman, Cohn, & Thomas, 1989). The astute management of the news by his staff helped make it possible to credit Reagan with the successes of his subordinates and to distance him from their failures. He remained the “Teflon president,” immune to the many scandals that marred his administration. Furthermore, although Reagan exemplified the laissez-faire leader in much of his behavior, he was also a mass of contradictions in his orientation and style. He did a lot of homework after hours; nevertheless, he was described as the “least informed of the presidents I have known,” by former Speaker of the House Tip O’Neill. He remained highly charismatic. He derided the plight of the disadvantaged as a group yet often exhibited compassion for an unfortunate individual.
Although it is obviously impossible to evaluate Reagan’s overall success and effectiveness as a president at the time of this writing, from this vantage point, his presidency appears to have been a highly mixed bag. The end of the cold war and the Soviet Union was attributed partly to Reagan’s policies and speeches. Popular tax reform was matched with a mounting gap in the distribution of income between the rich and the poor. Diplomatic victories were matched by the transformation of the United States from the world’s largest creditor nation to its largest debtor nation. The perceptions of Reagan’s building of U.S. military strength and power were matched by the country’s relative economic decline related to Japan and western Europe. Although Reagan’s administration exerted leadership in developing improved relations with and solutions to problems in Canada, Angola, and the Middle East, it followed, rather than led, the way to improved outcomes in the Philippines, Latin America, and the Soviet Union, for which the administration was quick to take credit. The subsequent breakup of the Soviet Union was credited to his policies, leaving the United States without a rival world superpower. An archproponent of a balanced budget, Reagan nevertheless instituted policies that resulted in a budget deficit that was larger than the deficits created by all his predecessors combined. The good feelings the American majority had for him when he left office were coupled with the worsening problems of land despoilation, drugs, child care, care of the elderly, homelessness, health costs and insurance, education, acid rain, of savings and loan bankruptcies, and nuclear waste. Many of these problems were left to be addressed seriously by his successors. To conclude, Ronald Reagan’s laissez-faire style did not seem to hurt his overall popularity, but it no doubt resulted in considerable ineffectiveness, especially when he had to depend on irresponsible, incompetent, or laissez-faire subordinates and when he made statements or deals without consulting with more knowledgeable colleagues.
Arthur Schlesinger, Sr. (1948), asked 55 experts, mostly historians, to use their own criteria to judge the greatness of the presidents from Washington to F. D. Roosevelt. He repeated the effort in 1962 using an additional 20 experts, mainly political scientists. In both polls, the top five presidents in greatness were Abraham Lincoln, George Washington, Franklin D. Roosevelt, Woodrow Wilson, and Thomas Jefferson. At the bottom of the list were Ulyssess. Grant and Warren Harding. Thomas Bailey, in 1962, created 43 tests of greatness to apply to each president. His list of presidents was close to Schlesinger’s: Lincoln, Washington, and Roosevelt came out as greatest. A similar consensus of greatness was obtained by Maranell (1970) and the American Historical Society in 1977. The society asked 100 history department heads to name the ten greatest presidents. Lincoln, Washington, and Roosevelt topped the list. In 1982, the Chicago Tribune asked 49 leading historians and political scientists the same thing. The same three presidents were at the top (Neal, 1982). With similar findings, D. Porter (1981, unpublished) also asked 41 American historians for the presidents with the lowest ratings. Those named were Nixon, Buchanan, and Harding. Murray and Blessing (1983) provided some of the preceding information and also conducted a poll of their own. They sent 1,997 questionnaires to PhDs in history with the rank of assistant professor or higher. They received 953 completed returns. From the mean ratings, four presidents were considered by the investigators to be great: Lincoln, F. D. Roosevelt, Washington, and Jefferson. Considered near great were Theodore Roosevelt, Wilson, Jackson, and Truman. Above average were John Adams, Lyndon Johnson, Eisenhower, Polk, Kennedy, Madison, Monroe, John Quincy Adams, and Cleveland. At the bottom of the list were Andrew Johnson, Buchanan, Nixon, Grant, and Harding.
Often it takes years following a president’s time in office to judge the effectiveness of his policies while in office. President Eisenhower was regarded as mediocre during his time in office, with an image of caring more for playing golf than leading the country. Although he delegated much work to his subordinates, he was actually active and successful and set a high standard for integrity and trust in domestic politics. He reached a truce with North Korea in 1953 that has lasted more than half a century and in 1955 began the Interstate Highway System, which revolutionized suburbia and intercity travel. He had the foresight to warn against the military-industrial complex. Judgments of his effectiveness have been revised upward considerably (Hoxie, 1983). Among presidents from Truman to Reagan, Eisenhower was rated highest (and Nixon lowest) in 2000, in effective servant leadership decision making by a sample of Canadian and American scholars (Tourigny, 2000). As a former military commander, Eisenhower understood the limits of power in international affairs and considered the use of overt military force as a last resort (Saunders, 1985). The same was true of Harry Truman, who, when he took office in 1945 after the death of FDR, was seen as a failed haberdasher. Without experience and without knowledge of FDR’s plans and commitments, Truman was seen as totally unprepared for the office. A strict party man, he was perceived as beholden to big-city political bosses. His popularity plunged further when he dismissed Douglas MacArthur as commanding general of U.N. forces in the Korean War for failing to bring peace. Nevertheless, although his responsiveness to public concerns decreased (K. Smith, 1983), Truman’s reputation was revised upward by his performance as a statesman and for the many tough decisions he made, such as using the atom bomb on Hiroshima and Nagasaki in 1945 to bring World War II to a speedy end, avoiding a predicted million American casualties from invading Japan. He was behind the Marshall Plan, which set a prostrate Western Europe back on its feet. He promulgated the Truman Doctrine in 1948 to halt the Communist takeover in Greece. This was an early example of support for containing Soviet expansion, which was U.S. foreign policy until the breakup of the Soviet Union in 1991 (Coffey, 1985). He racially integrated the military forces in 1948, a time when segregation was in force in the South and de facto in much of the rest of the country. He also took decisive action to deal with a national coal strike that threatened a large percentage of industrial operations and home heating. He was equally forceful in avoiding long, injurious national steel and railroad strikes (Gardner, 1987; McCullough, 1992). Also, among presidents from Truman to Reagan, he was almost the highest in his relations with Congress as a servant leader in principle-guided action, moral empowerment, and universal, constitutional, and humanitarian values, according to a sample of Canadian and American scholars (Tourigny, 2000).
While in office, Gerald Ford was seen as a nice guy, a plodder, whose public speaking style was unanimated, who stumbled when walking downstairs, who was appointed, not elected, and who pardoned Richard Nixon after he had resigned, to avoid Nixon’s impeachment over the Watergate scandal. But Ford was the right man to take over the office, as required by the Constitution, for the 30 months he served. His pardon of Nixon, the amnesty program for 50,000 Vietnam War draft evaders, and healing some of the other wounds of the Vietnam War moved public attention away from these virulent media issues and redirected public attention to the future. Ford picked qualified people for his cabinet and as advisers. For instance, he chose Edward Levi, dean of the Law School at the University of Chicago, to be his attorney general, and Henry Kissinger to head the State Department. He was a manager without much vision, but he got his cabinet to work by encouraging expressions of differing views and vigorous debate. He defined realistic objectives, established principles to reach the objectives, determined the path to the goals, and as the former speaker of the House was flexible in his negotiations with Congress. He inherited and turned around an economy that was suffering rampant double-digit inflation when he came into office. To some degree, he went beyond political expediency (Hersey, 1975; Casserly, 1977; Nessen, 1978; Hartmann, 1980).
Many of the presidents’ failures could be attributed to their tendency to ignore warnings from their many sources of information. The federal government had a large early warning system to watch the oil industry but the Nixon administration failed to take early action that could have mitigated the 40-fold increase in prices engineered by OPEC. Instead, Nixon and Secretary of State Kissinger suggested that the shah of Iran, a member of OPEC, should raise oil prices to pay for armaments to be used to defend the oil-rich Persian Gulf region. Continued warnings of the public unrest in Iran went unnoticed. Carter did not pay attention to his State Department Iranian experts, who warned him in advance of the Iranian attack on the U.S. Embassy in Tehran, after which Americans were held hostage for 444 days. The CIA issued five advance warnings that Fidel Castro was planning to ship Cuban criminals and mental patients to Florida from Cuba, which Carter could have prevented. Carter was taken by surprise by the Soviet invasion of Afghanistan. He had made the mistake of believing Leonid Brezhnev, who lied to him. With intelligence reports about the plans of Argentine generals, Reagan might have prevented the Argentinian invasion of the Falklands by disabusing the generals of their impression that the United States supported their invasion. Reagan wanted policy memos and alternative proposals reduced to a single page. Top advisors showed their loyalty by telling him what they thought he wanted to hear. He took the wrong steps in dealing with the civil war in Lebanon. In the Iran-contra scandal, cash was obtained by Reagan administration staff by secretly and illegally providing Iran with missiles. Then the money was used illegally to support the Nicaraguan contras fighting the Sandinista government forces. Reagan apologized, admitted failure and took personal responsibility. He acknowleged that that mistakes had been made and appealed for America to move on (J. Anderson, 1983).
Reagan favored reducing federal regulations and relying more on free markets to allocate resources, giving freer rein to business. He cut the budget for environmental protection and weakened enforcement. States and localities were to be more responsible for the environment. Ideology and loyalty determined his appointments. Policy planning was centralized in the White House (Kraft & Vig, 1984).
Ulysses S. Grant was a victim of pressures from Republican Party bosses to avoid taking a stand against robber barons’ raids on railroad property. William Howard Taft had been T. Roosevelt’s efficient assistant. He was the charismatic Roosevelt’s successor as president in 1908, and Roosevelt expected him to carry on with his plans and policies, which he did not do. Taft came in a distant third when seeking reelection in 1912. Roosevelt formed the Bull Moose Party to run against him, allowing Woodrow Wilson, a Democrat, to win the election. Taft would not engage in political bargaining and scheming. He would not play party politics but remained concerned for the public good. He was honest and friendly but unfortunately surrounded himself with Roosevelt’s enemies. He did succeed in enacting legislation that was highly beneficial to the country (Cotton, 1932).
Warren Harding is at the bottom of most lists of presidential accomplishment, prestige, activity, and strength of action. His failings included his loyalty to corrupt friends (Trani & Wilson, 1977), his poor cabinet appointments, his lack of education, and his political ineptness (Murray, 1969). Herbert Hoover had the misfortune to take office 10 months before the stock market crash of 1929 and the onset of the Great Depression. The unemployment rate was 25% when the time came for him to seek reelection. As a conservative Republican, his attitude toward government intervention was that the economy would recover by itself. But the economy kept getting worse during his administration. Hoover failed because he was extremely introverted, sensitive, and proud of his integrity, which led him to try to work for the best interests of the country as he saw it. He lacked the kind of persona to speak out with confidence that FDR, his successful successor in 1932, demonstrated extremely well. Hoover blamed his Quaker background for his desire for privacy, which led him to prefer to work as much as possible behind the scenes of administration, which he did very well. He was a mining engineer who gained his fame by effectively organizing and administering Belgian war relief. He raised the necessary funds and arranged for the transportation of millions of tons of concentrated food for four years at the end of World War I. He preferred to credit his subordinates and newspapers for the success rather than himself (Burner, 1979; Hoff, 1975). But he did little to ameliorate the Great Depression or its effects, which began soon after he took office. He was opposed to government intervention and believed the business cycle would take care of itself.
Richard Nixon’s Quaker background had a different effect. Like Hoover, he distanced himself interpersonally. Although Nixon had won reelection in 1972, was highly intelligent like Hoover, and was the statesman who established relations with China, at the time of his resignation, Nixon was the least loved modern president. It was a relief when he resigned in 1974. He was seen as a self-aggrandizing exploiter without principle. He was secretive, manipulative, self-righteous, hypocritical, insecure, untrusting, and self-righteous. He used innuendo, trickery, fraud, and ruthless single-mindedness in winning elections. He was determined to succeed at all costs. But he was unable to make close friends. He was uncomfortable making social conversation and being onstage. He often supported both sides of an issue (Ambrose, 1987). He was in constant conflict emotionally between his extreme ambition and what he felt he needed to do socially as a politician (Abramsen, 1977). He never seemed able to run a clean election campaign. The Watergate break-in was not the only Nixon scandal. Incidents of sabotage, extortion, forgery, and slander were reported in his earlier campaigns for Congress. In office, he was autocratic and controlling (Mankiewicz, 1973).
Jimmy Carter was a puzzle as president. He attempted to be a transformational leader, with lofty ideals and principles of ethics and the common good that were not understood by transactional politicians, for whom trading favors was more important. He avoided the dramatic, rhetorical style of his predecessors, played down his own importance, and did not show up on television as a powerful leader (Meyrowitz, 1980). He was seen by his critics as indecisive, rigid, and unable to be practical and accept compromise in order to take necessary actions (Mollen-hoff, 1980). According to interviews by Mazlich and Diamond (1979) with those close to Carter, he was tied down by self-imposed constraints, such as a concern for human rights. From his mother came a strong social consciousness. From his father came a strong competitiveness. After success in business, he turned to politics, where he could satisfy both drives. Coming late to a political career, he was always an outsider in Washington. He was close only to his family. He was emotionally conflicted between his southern heritage and his moral and rational support for African Americans’ civil rights. He was a populist who believed that people were inherently good; they would know and do what was right without his needing to explain his intentions to them. But Congress was another matter. He read all the details of every legislative bill that came to his office before signing or vetoing it. Believed to have a photographic memory, he stored a lot of data in his head. As a former nuclear engineer and naval officer, he used systematic problem solving, weighing the alternatives, to choose the best solution to a problem. However, he saw each problem in isolation from other issues. He was modest about his abilities but was expected to find the answers to the nation’s problems. Despite his highly orderly, disciplined, and hardworking character, and despite his empathy for the less fortunate, he lost the confidence of the public by making forceful speeches about matters he could do little about. Like George W. Bush, another “born-again” Christian, he tried to appeal to moral and religious values, but, unlike Bush, he failed to be reelected (Mazlich & Diamond, 1979). Although Carter espoused democracy in the abstract, he was actually a highly directive leader. His failures to consult with his staff and Congress led to many mistakes. His model for leadership was the highly directive and controlling perfectionist Admiral Hyman Rickover, who was known for not providing subordinates with feedback unless it was negative (Glad, 1980). Carter was seen by his subordinates as the sole decision maker. He was a demanding boss and retained tight control. When he had to delegate minor projects, his delegation was done poorly because he failed to provide sufficient information about what was needed (Jordan, 1982) Critics saw this as evidence of administrative disorganization despite Carter’s retaining tight control. According to a survey of 212 career civil service executives in his administration, he lacked the political and personal skills to convince them of his legitimacy as a manager (Benze, 1981). Carter used his advisors to teach and facilitate, but not to provide answers. Despite his failure in office, he became one of America’s best ex-presidents. He began this next career while he was still president by mediating a peace agreement between Israel and Egypt that has lasted since 1977. Since then he has served as a successful mediator of many international conflicts in other countries, such as that between Indonesia and East Timor.
George H. W. Bush neglected domestic economics and in the 1992 campaign for reelection failed to judge the public mood. One of George W. Bush’s failings was his unwillingness to admit mistakes. Genovese (1996) suggested that presidents’ failure could be avoided if the traits of many presidents could be combined in one person: Kennedy’s vision, Johnson’s political skill, Nixon’s in-sights, Ford’s integrity, Carter’s trustworthiness, Reagan’s personality, G. H. W. Bush’s experience, and Clinton’s interpersonal skills. Aside from Clinton’s private mis-steps, which cost him dearly, Clinton tried to maintain moderation in his decisions and policies but failed to arouse legislative support from his strong stands on positions (Burns & Sorenson, 2000). Always wanting to be liked, he responded almost daily to public opinion polls in determining his actions. George W. Bush sunk to the lowest public approval ratings of 30% for a president since Nixon, he even lost the confidence of many among his Republican congressional majority. Despite the continued optimistic spin on his many domestic and foreign policy failures, the realities of mishandling, incompetence, and arrogance of his administration set in. But conservative commentators disagree about whether he continues to be successful or is starting to fail (Kakutani, 2006).
Several dilemmas face prime ministers in parliamentary forms of government. How should they maintain control over policy while other members of their cabinet are delegated authority? How much can they shape the policy agenda when problems and opportunities can be posed by other members of the government? (Karbo & Hermann, 1998). They may pursue a leadership style of relating to constituents and other leaders and management strategies that is reinforced by their first and subsequent political successes (Barber, 1977). They may consult with their cabinet as a whole, a smaller committee of cabinet members, or individual members. They may impose or advocate a position, bargain, or be participative. A hundred press conferences and parliamentary question period news reports were content-analyzed by Karbo and Hermann (1998) for British Prime Ministers Margaret Thatcher and John Major and again for German Chancellors Konrad Adenauer and Helmut Kohl. The leaders’ responses were scored for responsiveness to political constraints, openness to information, motivational orientation, and expansionist or opportunistic political orientation. Thatcher and Adenauer challenged political constraints; Major and Kohl respected them. John Major was more open to information than were the other three leaders. Thatcher and Adenauer were more concerned about tasks and problems; Major and Kohl were more oriented to relationships. Thatcher and Adenauer had an expansionist political orientation. They wanted to increase their control over people and resources. Major was most opportunistic, and Kohl was most politically oriented toward being influential. Tony Blair stands out as a prime minister who was truly transformational. Neither extremely conservative nor extremely liberal, he was able to take a middle position that transformed the Labor Party and enabled his domination of politics in Britain for 12 years as prime minister. Seen as the giant of his age in Britain, he has appeared as extremely earnest and ambitious rather than cynical. He willingly took on unpopular causes such as the war in Iraq. He advanced a morally idealistic, communitarian vision with the family as the most important institution in society. His political style was to reconcile opposites: fiscal discipline with social spending, tough anticrime and antiterrorism policies with compassionate welfare assistance, free-market policies with government activism.
Providing strategic leadership is an important role for CEOs and senior executives. They are challenged by the need to honor the past and present while considering the future of the organization and its environment. They need to support both continuity and change. By scanning their organizations and the surrounding environment, strategic leaders formulate the goals and directions of the organization and communicate them. Using consultation, intuition, and a long-term perspective, they make strategic decisions that affect corporate profitability and the success of nonprofit organizations. Strategies can follow a variety of approaches ranging from purely economic considerations to emphasis on good human and customer relations. Modern strategies will need to fit the environment and organizations to which the leaders belong.