Few CEOs’ names would even register with my wife, let alone cause her to sigh upon reading of his death—on her iPhone. We rage against out-of-control CEO pay, demand stricter corporate governance, and yet we love the dominant leader who cuts through the noise, gives us something we didn’t know we wanted and creates the most valuable company in the world in an industry—consumer electronics and entertainment—that commands just two or three per cent of household budgets and GDP.
Steve Jobs was our generation’s archetype of the dominant CEO, the philosopher king who surpasses the performance of more democratic corporate leadership. Shareholders allow such characters to exist because they tend to generate extreme performance with their deviant strategies that would not survive the layers of management in more democratic companies, according to Jianyun Tang, a professor at Memorial University.
Together with Mary Crossan and Glenn Rowe of the Ivey School of Business, Tang recently published a paper entitled “Dominant CEO, Deviant Strategy, and Extreme Performance: The Moderating Role of a Powerful Board” in the Journal of Management Studies. They examined 51 computer companies with outsized CEOs in the period from 1997 to 2003 and found some commonalities: they tended to be at the top or the bottom of the pack in terms of revenue growth, profits and other metrics.
So dominant CEOs (as measured by things like shareholdings, pay relative to other executives and whether they were the founder) can be either very good for shareholders or, in a case like Enron’s Ken Lay, very bad. And it’s probably because of the good ones that we end up giving the bad ones free rein. It’s impossible to spot the tyrants from the philosopher kings in real time.
Tang et al. argue that the answer to this challenge is a strong board to vet the CEO’s deviant strategy and put the kibosh on the doomed ones. Of course, this can backfire. A strong board fired Steve Jobs in the 1980s, and the company almost folded in the succeeding decade. But Tang says that’s the exception; generally a qualified, attentive board will recognize the good deviant strategies and approve them. Its net effect is positive. As the researchers put it, “powerful boards weaken the tendency of dominant CEOs towards extremeness and, more important, improve the likelihood of dominant CEOs having big wins versus big losses.”
Besides, who knows whether Jobs or Apple would have been as successful had he not had his time in the wilderness, toying with Pixar and NeXT. It just adds to the myth of the philosopher king.