Keeping CEOs In Check

Friday, April 1, 2011
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A company with a strong CEO at the helm shouldn't underestimate the importance of having a strong board of directors to help counterbalance that leader.

So suggests a recent study, "Dominant CEO, Deviant Strategy and Extreme Performance: The Moderating Role of a Powerful Board," published in the Journal of Management Studies.

In an analysis of 51 publicly traded businesses in the U.S. computer industry, researchers at the Memorial University of Newfoundland and the University of Western Ontario find that powerful CEOs typically drive either extreme levels of positive or negative performance in their organizations.

The study defines dominant CEOS as "very powerful relative to the other executives in their top management teams."

But the researchers also find "a positive effect on firm performance when [dominant CEOs were] coupled with powerful boards, than when coupled with less-powerful boards."

Moreover, they conclude, powerful boards weaken the extreme tendencies of dominant CEOs.

"Powerful boards are more apt to restrain unsound than sound strategic deviance ... and [therefore] curb many harmful tendencies of CEOs," the researchers write.

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Good boards are always challenging their CEOs to make sure they're aligned with the business' goals, says Mary E. Kier, CEO in charge of executive search at Cook Associates in Chicago.

Kevin Cashman, a senior partner in the leadership and talent consulting practice of Korn/Ferry International in Los Angeles, agrees that boards of directors provide an important counterbalance to CEOs.

Cashman notes, however, that organizations also need "a strong management team -- one that ensures real conversations are happening around tough topics -- [and one that] can also fill in many of the gaps of a CEO." 

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