Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs (Paperback)

In the decade following McCoy's appointment as CEO, Chicago's Bank One Corporation acquired over 100 banks, moved from 37th largest bank to fourth, and stock increased 500%. In 1999 Bank One began to falter, the stock fell, integrating First Chicago was more difficult than expected, the conservative style clashed with the entrepreneurial culture and McCoy's management style, which was included in the Harvard Business School's required general management course, was seen to be a liability rather than an asset. A revolt gathered steam and a generous separation agreement was negotiated. Stock jumped 11% on the announcement but became volatile with media coverage of the high-profile search for the best person in the US to lead Bank One back to the top with the leadership as the overriding principle guiding the search. Dimon was top of the short list. "In late February, Dimon flew into Chicago to deliver a two-hour presentation to the Bank One search committee. By this time, he had decided he wanted the job. Dimon's presentation seemed to leave his audience breathless. He talked about his philosophy of management, covering such topics as his leadership style and the importance of clearly articulating to people their roles and responsibilities. He also spoke about the importance of instituting a more extensive stock-option plan to better align the incentives of the executives with those of the shareholders. Dimon's bluntness and self-confidence impressed the committee." He wasn't afraid to lead, he said all the right things, he had a plan, he was prepared to make the tough decisions that others wouldn't make. In one brief appearance that Dimon himself largely orchestrated he met Bank One's high standards of leadership. Dimon was appointed over insider Istock and stock soared 30%.

Bank One's CEO succession process followed a familiar script with little emphasis on the company's strategic position and whether the candidate's background was appropriate. If the new CEO is unable to deliver quickly, the wisdom of the selection is questioned. This is the first thread of irrational behavior in what should be a carefully considered process. The leadership school believes that CEOs play a critical role in a firm's performance, while the constraint school believes that internal and external constraints limit the CEO's ability to affect performance. A third school suggests that the pertinent question to answer is 'When does leadership matter?' rather than 'Does leadership matter?' as the leader's impact is highly case-sensitive. "As the Bank One story illustrates, however, it is not only the criteria directors use in choosing a new CEO that calls into question the efficiency and overall rationality of the external CEO market. So do many other features of the search itself." Not only was the initial boost to the stock price short lived, but the board was questioned on its control over the CEO after five directors, including the internal candidate for CEO, "volunteered" to retire from the board after five months. Whether the benefits would be worth the price agreed by the board would remain an open question for an unforeseeable length of time.

"How are we to account for these remarkable, ultimately disquieting features of the external CEO search: the overestimation of the CEO's role and the fixation on charisma; the somewhat Byzantine nature of the search process itself, simultaneously closed to many presumably qualified candidates and open to the influence of many external actors; and the questionable outcomes that this process often produces? This book is an attempt to answer this very question." Boards seriously underestimate the damage that outside succession entails and if the firm is already in trouble, hiring an outside CEO might threaten the survival of the organization itself. A remarkable feature of the Bank One search was that the board passed up an experienced, highly qualified executive who knew the company and its business well. The airplane interview technique in which the incumbent CEO conducts a surprise interview with successor candidates individually and asks who should lead the company assuming both are killed provides very interesting information about the chemistry of the group. Repeating the process three months later when candidates are better prepared but only the incumbent CEO is killed, provides further valuable information. All information is shared with those involved in the final decision. If the process is initiated early enough, the shortlisted candidates can be moved into testing situations that may help the final decision.

Kurana, Assistant Professor of Organizational Behavior at the Harvard Business School wrote this book based on a study of hiring and firing of CEOs at over 850 of America's largest companies. Anyone who is involved in the selection process of a CEO would be wise to study his findings.