The Curse of the Superstar CEO (2023)

The secret to being a successful CEO today, almost universally believed, is leadership. Qualities such as strategic thinking, industry knowledge and political persuasion seem desirable, but no longer essential. Especially when a company is struggling, the directors looking for a new CEO -- as well as the investors, analysts, and business journalists watching their every move -- will not settle for just one talented and experienced executive. Companies want leaders now.

But what makes a successful leader? When people describe the qualities that enable a CEO to lead, the word “charisma” is the word they use most often. Biographers and journalists have shed much ink trying to deconstruct the charisma of superstar CEOs like Lee Iacocca, Jack Welch, and Steve Jobs. Yet charisma remains as difficult to define as art or love. Few who advocate it can convey what they mean by the term. Even fewer know that the concept is borrowed from Christianity. In a passage from the New Testament, the apostle Paul lists the variousCharisma,or gifts of the Holy Spirit that Christians can possess. According to Paul, those gifted with charisma in this sense make “good leaders.” This includes Church members with extraordinary gifts, such as the power to speak in tongues or to work miracles.

Of course, the meaning of charism has changed since the time of St. Paul, but there is an enduring sense of admiration—even adoration—for the few thought to possess unusual inspirational powers. We now think of charisma as a set of personal qualities that inspires awe and submission in others. Jeffrey Garten, dean of the Yale School of Management, vividly captured the aura of the charismatic leader in his bookThe mind of the CEO. Describing his first meeting with C. Michael Armstrong, now AT&T's CEO, Garten gushed that Armstrong "exuded the confidence, enthusiasm, and energy of a seasoned politician... It felt like when you were making a movie and said, 'Get me a CEO', to the casting director, he'd give you Michael Armstrong.

In researching CEO succession at large US corporations over the past half-dozen years, I have found that such enthusiastic responses play a surprisingly important role in determining who is considered qualified to lead America's large corporations. And I have come to the conclusion that the widespread quasi-religious belief in the power of charismatic leaders is problematic for several reasons. First, belief exaggerates the impact CEOs have on companies. Second, the idea that CEOs must have charisma causes companies to overlook many promising candidates and consider others who are unsuitable for the job. Finally, charismatic leaders can dangerously destabilize organizations. Before we delve deeper into each of these dangers, let's unravel the paradox of how charismatic leadership has become the ideal for American business in an era we like to celebrate as rational and enlightened.

The pull of charisma

Charisma wasn't always as important in business as it is today. In the three decades following World War II—the so-called era of managerial capitalism—the typical CEO was an "organizer" who worked his way up the ranks and was no better known to the general public than his or her secretary, a dentist. All of that began to change in the 1980s, when a long-standing decline in corporate earnings ushered in today's era of investor capitalism. Senior managers - once seen as enlightened statesmen - were increasingly portrayed by disgruntled investors as isolated, self-serving elites ill-prepared to meet the challenges of global competition and rapid technological change. Investors were suddenly looking for CEOs who could shake things up and put an end to business as usual.

This important change coincided with two other shifts. The first was the emergence of an almost religious view of business, exemplified by the appearance of words like 'mission', 'vision' and 'values' in the corporate lexicon. The second shift was the rise of so-called populist capitalism, with ordinary Americans making investing the country's most popular participatory sport. To cater to the public's growing appetite for business news, the mainstream media has greatly expanded coverage of corporate activities, focusing – as always – on personalities and easy-to-understand narratives.

In this environment, a new generation of business leaders emerged – today's charismatic CEOs. Lee Iacocca, who was elected Chairman and CEO of Chrysler in 1979, will probably go down in history as the first modern example of a charismatic business leader. Shortly after Iacocca's turn from Chrysler had made him a celebrity and even a national hero, Apple Computer's New Age prodigy Steve Jobs put a more contemporary spin on Iacocca's brand of inspirational leadership. Adored for his success in launching personal computers - which he dubbed Star Wars - as a "violence" that could guarantee our "freedom" - Jobs created a corporate culture that is widely embraced. In this new organization the workers would work incessantly, uncomplainingly, and even for relatively low wages, not just to manufacture and sell a product, but to realize the vision of the Messianic leader.

Aside from their celebrity status and over-the-top complacency, what made these CEOs different from their predecessors? First, the charismatic CEO was typically—though not always—either an entrepreneurial founder or someone brought in from outside. Far from being a predictable organizer, he was expected to offer a vision of a radically different future, attracting and motivating followers for a journey to the new promised land. In keeping with the CEO's religious role, the charismatic leader should also possess the "gift of tongues" that could spur employees to perform better and earn the trust of investors, analysts, and the always-skeptical business press. After all, in all too many cases, the charismatic leader should have the power to perform miracles - such as bringing a dying corporation back to life or defeating much larger, more powerful enemies.

Of course, it can be very exciting for an organization when such a leader emerges. Whatever they are, charismatic CEOs are not boring. But as many companies have discovered, superstar CEOs have a downside. Like its close relative, romantic love, charisma can be blind. And the consequences of that blindness can be severe.

The White Knight's Trap

Our ardent and often irrational belief in the power of charismatic leaders seems to be part of our human nature. The charismatic illusion is furthered by tales of white knights, lone rangers and other heroic figures rescuing us from danger. Major events are easier to understand when we can attribute them to the actions of prominent people, rather than having to consider the interplay of social, economic, and other impersonal forces that shape and constrain even the most heroic individual endeavors. Sociologists and social psychologists call this common tendency to overestimate the influence of individuals a "fundamental attribution error," and American society, with its mythology of frontier heroes, pioneering inventors, and other "rugged individuals," has always been affected by it.

Think of George Washington, America's first charismatic political leader. He had to quell a movement to make him king - as if he had won the revolution single-handedly. More recently, Ronald Reagan has been credited with winning the Cold War, and many people believe that Alan Greenspan controls the US economy. Attributing the performance of huge corporate organizations to the quality and actions of CEOs is another example of the magical thinking manifested in the fundamental attribution error.

What makes today's deep reliance on the charismatic CEO so troubling is the lack of conclusive evidence linking leadership to organizational performance. In fact, most academic research that has attempted to measure CEO influence supports Warren Buffett's observation that putting good management in a bad company keeps the company's reputation intact. Studies show that various internal and external constraints limit a leader's ability to influence an organization's performance. For example, most estimates are around 30%bis 45%the performance to industrial effects and 10%bis 20%to the economic changes from year to year. So, the best that can be said about a CEO's impact on a company's performance is that it is highly circumstantial.

The misconception that CEOs are omnipotent is the main reason business leaders have seen their tenures shrink in recent years. Ultimately, if a CEO is responsible for a company's successes, they must also be responsible for its failures. My research clearly shows that when a company performs poorly, directors automatically blame the acting CEO. Of course, scapegoating is as old as human nature, but my interviews strongly suggest that directors come under intense pressure to fire the CEO and hire a savior when company performance falters. This finding is consistent with the larger historical truth that while charismatic leaders (whether in religion, politics, or elsewhere) can emerge at any time, they most often emerge—or are born—during a crisis.

For an example of how a troubled company can misdiagnose its problems by blaming them all on the CEO—and then pinning its hopes on a charismatic successor—consider the case of Kodak over the past decade. In the early 1990s, then-Kodak CEO Kay Whitmore was heavily criticized for failing to improve the company's performance. Institutional investors like Robert Monks' Lens Investment Management blamed Whitmore for the company's demise, and Wall Street analysts and the media jumped on the bandwagon and demanded that Kodak's board of directors oust Whitmore. In August 1993, the company's directors handed over the ailing CEO's head in a high-profile dismissal. Two months later, the board announced the appointment of Kodak's first outside chief executive, George Fisher, who was then CEO of the high-flying Motorola.

Kodak's new CEO was greeted with much fanfare and high hopes. After all, Fisher was widely credited for Motorola's strong performance during his tenure. But how much of Motorola's success can he really be credited with? Given the company's problems today, it's obvious that much of its earlier success was due to telecom deregulation: increased competition in local wireless markets and lower retail prices led to faster adoption of Motorola's phones and related technology. And if Motorola's successes were largely the result of general trends, so were Kodak's failures. The analysts and investors who backed Fisher failed to realize that Kodak's fundamental problems -- particularly its failure to transition from chemical to digital photography -- had little to do with corporate governance. In fact, in the decade before Fisher was brought on board, Kodak had been described as one of the most effective leadership teams in the United States.

However, when Fisher was signed, he was hailed as a savior. On the day his hiring was announced, Kodak's stock soared$4.87, too$63.62. But after several years of acquisitions and divestitures, significant investments in Internet technologies and digital photography, and a large turnover of executives, today's Kodak looks very much like the Kodak of 1994: a company that made most of its profits from making chemical films achieves Processing, a horse-drawn carriage operation in the world of digital photography.

Meanwhile, the company's stock is down two-thirds since Fisher got on board. According to analysts, the reason for the company's continued decline is that Fisher and his recent successor, Daniel Carp, missed their chances. Certainly they made some mistakes - like all CEOs. But Kodak's CEO, or even the rest of the company's senior management, isn't the main problem. For all the excitement and optimism generated by superstar CEOs, the truth remains that the factors affecting company performance are diverse, highly nuanced, almost frighteningly complex, and certainly beyond the power of the most charismatic leader to single-handedly address them influence. To pretend otherwise is to oversimplify reality in hopes of finding simple answers.

Look bold but play it safe

Kodak's story is well known in today's business world: when performance fails, directors feel compelled to fire the CEO and bring in a company savior, even if the company's poor performance cannot be attributed to the incumbent. In the search for a new CEO, the directors encounter a persistent paradox. On the one hand, they need (or believe they need to) find a dynamic leader who will shatter precedents and lead the company in a daring new direction. On the other hand, given the elusive, ultimately undefinable nature of charisma—not to mention the possibility of making an unwise decision—they also feel a strong urge to play it safe.

I've found that when narrowing down the initial candidate pool (which already consists mostly of top executives they already know) directors try to resolve their conflicting requirements by focusing on candidates that outsiders find acceptable. As a result, candidates who make it to the finals have typically already achieved the rank of CEO or President and come from high-performing, high-status companies.

To understand the conservative — even irrational — nature of this selection process, consider how the board of directors at tool and hardware maker Stanley Works selected its current CEO, John Trani. When I asked various Stanley directors to explain their reasons for hiring Trani, the one I heard most often was that he came from General Electric and worked for Jack Welch. Several directors discussed GE's track record of leadership development. All referred to other former GE executives who now ran US companies and had improved their performance. The almost sublime illogicality of their arguments is perfectly captured in one director's comment: "I can't think of a company of comparable size that has created more value than GE during Welch's tenure." Neither director provided an explicit connection between Trani's experiences GE and the problems from Stanley. In her eyes, Trani was imbued with charisma simply from his association with GE and Welch.

Here is an important point: charisma is generally assumed to be innate, not borrowed from other people or conferred by the social milieu. But the reality is very different. Whether in religious, governmental, or business contexts, charisma is much more a social product than an individual trait. In primitive societies, leaders often wore special clothing, masks, and ornaments that gave them a larger-than-life appearance that helped create perceptions of their charisma. In monarchies, kings and queens embrace charisma through their family heritage and reinforce it with such powerful symbols as palaces, robes, and crowns. Large offices, private planes, expensive suits, and other insignia of corporate power serve the same function for CEOs.

Charismatic CEOs not only rely on such external markers, but also gain influence over others by meeting certain socially constructed criteria that determine what makes a great leader. One of the most powerful of these constructs is the notion that outsiders are particularly well qualified to lead. One director I interviewed made this point when he was blunt about the reasons for hiring an outside CEO: “The person who comes in from the outside has a clear mandate, especially when they find themselves in a difficult situation. He is under no obligation to anyone. There are so many restrictions on the internally promoted person. There's so much baggage. Organization boxes, the people in the boxes, probably half of the companies bought should be thrown out now... [As an insider] you're part of the process... You approach an outsider and then you can watch the blood splatter. You don't see many examples of internal candidates getting to the top of the system and then wreaking havoc on the existing culture.”

The belief in the superiority of outsiders further limits corporate boards when hiring CEOs. Think of the search that led to the appointment of Jamie Dimon as CEO of Bank One in March 2000. In 1999, Bank One stumbled upon its recent acquisition of First Chicago NBD. Many of Bank One's problems arose directly from the difficulty of merging the operations and cultures of the two banks. As performance slowed, a revolt led by board members of the former First Chicago ended with the firing of John McCoy, Bank One's famed CEO. Although the former First Chicago directors preferred to appoint Verne Istock, who had been First Chicago's CEO, other board members wanted someone with a bigger presence to impress Wall Street. They wanted a superstar. Unsurprisingly, the search focused on outside candidates, and one in particular: former Citigroup President Jamie Dimon.

Dimon was already a legendary figure on Wall Street due to his long association with - and his dramatic dismissal by - Sandy Weill, with whom he had built the Citigroup empire. Having spent virtually his entire career as a dealmaker in financial services investment banking, Dimon possessed all the mental quickness and chutzpah needed to succeed in this world. But those weren't the qualities that are traditionally valued in the business and consumer markets. Indeed, in many ways, Dimon was an odd choice for an organization like Bank One. He didn't have much experience with retail banking or credit card operations, two of Bank One's largest businesses - the latter being the source of many of the bank's operational problems. Known for his hot temper, Dimon also didn't seem suited to bridging the gap between Bank One's outspoken, entrepreneurial culture and First Chicago's far more traditional banking culture.

Despite Dimon's obvious disadvantages, he blinded the directors of Bank One. After a two-hour presentation to the board's selection committee, outside director and committee chair John Hall summed up his peers' reaction: "Everyone knew he was brilliant, but the presentation showed how brilliant he was." Another member of the selection committee raved about it that Dimon was the kind of leader who "wouldn't waste time trying to gain stability and consensus, but instead would do whatever it takes to make us the number one bank...Istock, on the other hand, was more consensus-oriented." He felt that Bank One needed to be stabilized and that its executives needed a break from the turmoil that had resulted from the merger and McCoy's departure."

The committee's standards clearly did not reflect half a century's wisdom in achieving organizational efficiency through rational management. (One is tempted to ask to what extent the pursuit of stability and consensus is a waste of time?) Rather, the values ​​at work here stem from the delusion that complex organizational problems can be solved by a charismatic outsider. In the case of Jamie Dimon, the jury is still out. He can succeed; he must not. But one thing is clear: Bank One's perceived need to initiate change while playing it safe has narrowed their perspective when looking for a new CEO. The board has effectively cheated shareholders by rushing to select the usual suspect -- the brave underdog -- even if it meant ignoring better candidates.

The destructive impulse

The cult of outsiders is so strong that even when insiders are appointed to the CEO post, they are often people who have taken on the traits of outsiders. GE's Jack Welch and Ford's Jacques Nasser, for example, were both career contributors to their respective companies who became known for their willingness to "ravage" parts of their organizations. Enron's Jeff Skilling was another longtime insider who claimed the mantle of a charismatic leader. He did this by advancing his bold vision to transform Enron from a natural gas pipeline owner-operator into an asset-light new economy company and attracting people to his cause.

The common thread running through the stories of these three CEOs—and the stories of most charismatic leaders, insiders and outsiders alike—is that they deliberately destabilize their organizations. In some cases, like GE, destabilization can bring much-needed change and result in a more dynamic company. In other cases, like Ford, it can do more harm than good. In still other cases, like Enron, it can be catastrophic. In all cases, however, destabilization harbors great dangers.

First, let's look at the problem of CEO succession. In fact, one of the biggest challenges for Welch's heir, Jeffrey Immelt, is avoiding constant comparison to his larger-than-life predecessor, even as he's forced to grapple with the disappearance of the "Welch Effect" that propelled the company's stock has Price during Welch's tenure. Even at GE, which is notorious for having a formal internal succession process (although the new CEO is still ultimately chosen by the outgoing CEO), passing the torch from one executive to the next presents difficulties. Since no CEO stays in office forever, any system of authority based on the power of an individual will ultimately be unstable. Organizations that depend on a set of charismatic leaders essentially rely on luck.

Jacques Nasser illustrates another danger of charismatic CEOs. Nasser was celebrated when he was named CEO of Ford in 1999work weekas a "troubled Lebanese-born outsider" who "expressed an early impatience with Ford's bureaucratic fiefdom that drives him to this day." The charismatic Nasser-type leader is at odds with the past and at odds with tradition. This type of leader proclaims the fate of the company—usually in the form of a seductive vision—and demands that all obstacles be removed. Today, after Nasser's two-and-a-half-year tenure, Ford is struggling to return to its roots as a quality manufacturer and good place to work. His organization was marred not only by the mishandling of the Ford Explorer-Firestone disaster, but also by Nasser's countercultural focus on things like an enforced employee benefits system.

Finally, the destructive power of a charismatic leader is evident in Jeff Skilling's ill-fated career at Enron. In this case, the leader's demands led to blind obedience from his followers. As we now know, Skilling's abilities as a New Economy strategist were vastly overestimated. However, his outstanding achievement was in motivating subordinates to take risks, to "think outside the box" - in short, to do what pleased him. A former Enron executive has described the company's senior management as having a "yes-man culture." CFO Andrew Fastow — the alleged designer of the off-the-books partnerships that turned out to be central to Enron's downfall — was so enamored with Skilling that he reportedly named one of his children after him and the architect who designed the Houston mansion the CEO had commissioned to design his house.

Enron's board of directors also bowed to the will of its charismatic leader when it agreed to suspend its code of ethics to allow top executives to participate in off-balance sheet partnerships. But almost to the bitter end, Skilling wowed investors and analysts at gatherings that one analyst likened to revival meetings. As Skilling's example shows, charismatic leaders reject limits to their reach and authority. They rebel against all controls of their power and reject the rules and norms that apply to others. As a result, they can take advantage of their followers' irrational desires. That's because there's more to following a charismatic leader than just acknowledging their abilities—it requires total dedication.

Enron may seem like an extreme example, but the list of organizations severely crippled by charismatic CEOs includes some of the most respected names in American business. Xerox, led by Rick Thoman - a senior IBM executive who the Xerox board of directors hoped had caught a glimpse of Lou Gerstner's magic - is a particularly sad example. Michael Armstrong's performance at the helm of AT&T hasn't been more inspiring. Over the past 20 years, corporate leaders have seen the superstars they hoped would be saviors turn into black holes, sucking the energy and purpose out of their organizations.

A new era?

The charismatic CEO's decades of rise and apotheosis have not been marked by skepticism. In the 1980s, Ronald Reagan convinced Americans they could have lower taxes, higher government spending, and balanced budgets, leading to the largest deficits in the nation's history. In the 1990s, a parade of pundits and gurus told us that the internet would change all the rules. Venture capitalists poured billions into wings-and-a-prayer companies with no serious plans to make money, while ordinary investors took the Dow Jones and Nasdaq to unsustainable highs at the behest of analysts who claimed they saw a pot of gold at the end drifted from every rainbow. It was in many ways an age of faith - a faith that was also expressed in the lofty hopes and expectations of charismatic CEOs.• • •

Faith is an invaluable, even indispensable, gift in human affairs. In the realm of religion, he is said to move mountains—hardly an exaggeration when we consider that he leads people to believe and work for the triumph of good in a world of guilt and suffering. In business, the faith of entrepreneurs, executives, and humble employees in a company, product, or idea can unleash tremendous amounts of innovation and productivity. But today's extraordinary faith in the power of the charismatic CEO resembles less a mature belief than a belief in magic. However, if we are willing to reconsider our ideas of leadership, the age of faith can be followed by an age of faith and reason.

A version of this article appeared inSeptember 2002problem ofHarvard Business Review.