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Case study report
The case study presents a situation which is extremely common with avast majority of organizations. More often than not, organizationshave leading Chief executive officers or chairmen, who are extremelypowerful and are viewed as the final decision makers of theorganizational issues. The case study presents arguments for andagainst the need for having a powerful CEO in an organization.Numerous cases have been reported, where powerful CEOs have usedtheir positions to influence the organization for their personalgains. On the other hand, powerful CEOs have been argued as to havebeen extremely influential in the achievement of organizational goals(Jost and Mahzarin 65). Powerful CEOs are said to offer guidance anddirection towards the achievement of organizational goals. In thisregard, it is clearly evident that there is debate over theeffectiveness or the shortcomings of having a powerful CEO in anorganization. There are contrasting arguments for and against theneed of a powerful CEO in equal measure.
Whereas powerful leaders are said to be a great admiration in theUnited States, research has proved that the extent to which leadersuse their power affects an organizations performance. More often thannot, powerful CEOs will use their power to advance their personalgains. For instance, powerful CEOs are said to have influence on theperson to be hired as heir successor (Larcker and Tayan 2). This canbe extremely detrimental to the organization, since the CEO appointsthe successor, not based on experience and expertise, but based onpersonal interests and gains. Research has indicated thatorganizations with powerful leaders have been rife with managementstaff turnover. This is an indication that the powerful CEO does notwork well with his subordinates. Powerful leaders tend to haveenormous confidence, which may lead them to taking extremely riskysteps that might have detrimental effects on the organizations.
The presence of a powerful CEO in an organization has also beencited as having influence on the compensation of the executives.Research has supported the assertion that organizations with powerfulleaders have great variance in pay packages. The executive receivesheavy packages, whereas the other members of staff receive minimumpay. As this is not enough, powerful CEOs are said to be using theirsubordinates as a means to accessing the power (Nickels et al. 33).Due to the power that they hold, powerful CEOs tend to be insensitiveto others. This is mainly evident when there is a situation thatrequires decision making. The decision made must reflect the wishesof the powerful leader. This is an unfortunate situation for anorganization, which has selected a board of directors to oversee thedecision making process. Although power within a leader or a CEO canmanifest in various forms such as structural, expert, ownership andprestige power, research has indicated all these forms have their ownshortcomings.
Furthermore, powerful CEOs discount the need for a succession plan.Researchers have indicated in this case study that a vast majority ofthe organizations with powerful CEOs have no proper establishedsuccession plans. This is necessitated by the fact the leader hasimmense influence on the selection or appointment of his or hersuccessor (Nickels et al. 58). The search for a successor of anentrenched CEO therefore becomes extremely difficult for the boarderof directors, since there are no clear set procedures forreplacements of CEOs.
Whereas there are numerous negative aspects associated with CEOpower, researchers in the case study have indicated that there arevarious positive contributions that a powerful CEO can have on theorganization. Powerful CEOs have been said to exist in some of themost successful organizations, as well some of the poorest performingorganizations. However, research has confirmed that organizationswith powerful CEOs have recorded a variance in performance. Thisvariance in organizational performance is associated with theprofessional networks that the powerful CEO might be having withother stakeholders. These relationships are vital in providing marketinformation to the organization, as well as providing variousprofessional contacts.
In addition, powerful CEOs tend to have great influence, bothinternally and externally. They can influence the implementation ofdecisions that he or she arrives at. More often than not, when suchdecisions are good, they tend to immensely benefit the organization.However, it is imperative to note that in situations where thedecision made by the CEO is bad, the entire organization will suffer.Researchers have also pointed out that CEO power in an organizationprovides quality leadership, which translates to organizationalsuccess. Powerful leaders are said to be taking an approach aspect intheir leadership style, which ensures that they translate their plansinto actions. Due to the lack of extensive consultations on decisionmaking and implementation of various plans, powerful CEO are able totake action promptly in regard to various organizational matters,hence leading to success (Nickels et al. 85).
Although powerful CEO are said to be taking their interests toconsideration first, researchers in the case study have argued thatthe efforts to achieve individual interests translates to corporatesuccess. The main objective of any organization is to make profitsand provide shareholders with a reward for their investment (Larckerand Tayan 3). The powerful CEO must ensure that he or she providesthe shareholders with results for his job. CEOs with considerablepower are also said to have the ability to command numerousresources, be it financial or non-financial. Although the powerfulCEOs are said to using such powers and abilities to influenceoutcomes that favor them, it is evident that the organization maybenefit from such achievements.
According to the findings of researchers in the case study, amajority of people prefer working in situations where there is ahierarchal order. These are situations where power and authority isclearly defined. Such hierarchical orders are said to be effectiveand productive as opposed to non-hierarchical settings. In thisregard, powerful CEOs are believed to be commanding productivityamongst the employees within an organization (Larcker and Tayan 3).This indicates that there powerful CEOs in an organization have bothadvantages and disadvantages. However, the biggest question is theextent power that a CEO should have in order to ensure organizationalsuccess, as well shareholders’ satisfaction.
A majority of organizations adopt a corporate governance structuresin a bid to protect the shareholders from the self-interests of themanagement teams especially the executives. A powerful CEO has thepotential of using his powers and authority to advance his or herpersonal gains. It is evident that numerous organizations are facedwith the problem of assessing the amount of power that a CEO shouldhave in an organization. Whereas some may advocate for immense powerto be given to the CEO, others will argue against this principle.This is for the sole reason that there as many benefits of a powerfulCEO, as there are for the lack of it. A number of solutions can beadopted in a bid to eliminate the negative effects that a powerfulCEO might have on corporate effectiveness and performance.
To start with, it is critical for the board of directors to ensurethat the powerful CEO has limited powers. For instance, the CEO mustnot be given the powers to make decisions. In instances where thereneeds to be voting, every member of the executive must have one vote.Additionally, the powerful CEO must be denied the opportunity toinfluence the selection or the appointment of his or her successor(Rhodewalt and Davidson 104). There should also be measures to ensurethat the CEO does not abuse his or her powers. The decisions made inthe organization must be approved by the entire executive members andthey must be satisfactory to all the shareholders. Therefore, thisalternative of having a powerful CEO with limited powers can beeffective and successful, if the powers of the CEO are extremelyreduced and measures put in place to ensure that organizationalsuccess is achieved.
Although Americans are said to prefer powerful leaders and ahierarchical form of governance, there needs to be considerations ofeliminating the position of an extremely powerful CEO. This positionwould rather be occupied by the entire executive committee, who willbe overseeing the decision making process, as well as ensuringorganizational success. This will ensure that all the decisions madeand actions taken are translating to organizational success and laterto profits. Although this is a second alternative to the problem ofCEO power, it is apparently clear that it is not the best. Anorganization requires a head just as a country does. A CEO is theface of the organization.
In this regard, it is therefore recommended that the organizationshould have a position of a CEO, who should act as the face of theorganization. However, there needs to be structures in place toensure that the CEO does not benefit personally from the positionthat he or she holds. This will ensure that the subordinates willhave a person to look up to and seek guidance and direction. Thereshould be clear succession plans in place to ensure that the CEO doesnot have any influence on the selection of the successor. It isevidently clear from the case study that the presence of a powerfulCEO has tremendous impact on the performance of the organization as awhole. The professional contacts and the attention the CEO has willtranslate to tremendous growth and performance of an organization andtherefore increase the profits.
Whereas this case study has presented a real everyday problem,researchers have clearly taken sides. However, the benefits accruedfrom the presence of a CEO seem to outweigh the disadvantages. Apowerful CEO acts as the face of the organization and offersdirection and guidance to the other employees (Clarke and Douglas128). Since powerful CEOs have been said to an approach aspecttowards implementation of various board decisions, it is evident thatthe organization will be successful. The use of power by CEOs forpersonal gains adversely affects the performance of organizations.The role of a powerful CEO varies from one organization to the other.This is confirmed by the research that indicates that there are asmany failed organizations with powerful CEOs as there are successfulones.
Clarke, Thomas, and Douglas Branson. The Sage Handbook ofCorporate Governance. London: SAGE, 2008. Print.
Jost, John and Mahzarin, Banaji. “The Role of Stereotyping inSystem-Justification and Production of False Consciousness,”British Journal of Social Psychology. 1994. Print
Larcker, David and Tayan, Brian. Is a Powerful CEO Good or Bad forShareholders? Stanford closer look series. 2012. Pdf.
Nickels, William G, James M. McHugh, and Susan M. McHugh.Understanding Business. New York: McGraw-Hill Irwin, 2012.Print.
Rhodewalt, Frederick and Davidson, James. “Self-Handicapping andSubsequent Performance: Role of Outcome Valence and AttributionalCertainty,” Basic and Applied Social Psychology. 1986. Print