If you're a CEO, don't believe your own press because it may be hazardous to your company's health, according to a University of Colorado at Boulder researcher.
That advice may sound easy to follow, but the media's insatiable appetite for celebrities and many CEOs' propensity to swallow positive press hook, line and sinker can make it hard not to be influenced, according to Mathew Hayward an assistant professor in CU-Boulder's Leeds School of Business.
How do CEOs become celebrities in the first place? Hayward says it's journalists who create them by attributing firms' positive performances solely to their CEOs' strategic actions. And the trouble begins when they believe the hype.
"What you have is journalists affecting the outcome of how businesses are run by affecting the CEO," Hayward said. "Once CEO celebrities are created, they tend to believe the hype and see themselves as invincible. I think this has greatly contributed to the CEO excesses we have seen over the past few years."
Hayward and co-authors Violina Rindova and Timothy Pollock of the R. H. Smith School of Business at the University of Maryland at College Park describe how CEOs become celebrities and what that means for their companies in the paper "Believing One's Own Press: The Causes and Consequences of CEO Celebrity," published in the July issue of Strategic Management Journal.
America is fascinated by celebrities -- everybody from sports stars to fabric designers -- and some would argue that the media is just giving the public what it wants, more celebrities.
While that might be true to an extent, Hayward says there's more to it. In their role as purveyors of news, journalists have to explain companies' actions and performances in a short, simple fashion for their readers. To do this, he says, they often over-attribute a firm's operations to the CEO, and in the process they create celebrities.
"The public wants to believe that individuals are in control, so they happily accept these accounts as being true," Hayward said.
Obviously not all CEOs are celebrities, so what determines whether they become one? Hayward says that over-attribution generally occurs when a CEO takes similar strategic actions with firms in different industries.
For example, "Chainsaw" Al Dunlap implemented cost cutting, including massive staff layoffs, in industry settings that ranged from packaging to household appliances in order to improve earnings performance, Hayward said.
"When CEOs display idiosyncratic personal behavior in public, it becomes easier for journalists to provide accounts that bolster attributions of the firm's action to its CEO," Hayward said. For example, Richard Branson of the Virgin Group wore a bridal gown for the launch of Virgin's bridal products and dressed as a chauffeur driving in a limousine to kick off Virgin's new ultra-luxurious class of transatlantic service, he said.
And if a CEO does catch this "celebrity fever," they are more likely to become overconfident about their ability and the accuracy of their judgment and more committed to the strategic actions that created the celebrity status, he says. As a result, the firm may over-rely on the strategic actions that brought celebrity and thus become less adaptable to new competitive demands.
"By and large this is very dysfunctional for the company, because when CEOs buy into their own celebrity, they will tend to want to have the company revolve around them," Hayward said. "Most notably they will want to continue the behavior and actions that got them on the magazine cover, which isn't necessarily good for the company."
Hayward is an assistant professor of management in CU-Boulder's Leeds School of Business.