Newswise — If there's one valuable lesson we can gather from HBO's immensely popular series, Succession, during its four-year run, it is this: as highlighted by the authors of a recent article in the Strategic Management Journal, no matter how influential or mighty someone may be, they never operate in isolation. With that in mind, whether (SPOILER ALERT!) Tom triumphs in his newfound position hinges less on his business expertise and more on the alliances he forms with the new CEO.
In the forthcoming publication titled "Examining the Influence of CEO's Subgroup Power on CEO Dismissal: Can Strong Alliances Shield Against Performance Declines?", Jihae You, Taekjin Shin, and Yunhyung Chung delve into the factors that contribute to the dismissal of CEOs in different organizations. The authors investigate scenarios where a company's board terminates the CEO despite the company's favorable performance, while another company retains its CEO despite underwhelming results.
The key lies in the composition of the board of directors within the organization. Boards typically consist of various subgroups, where directors form smaller clusters based on shared individual characteristics and a sense of identification with one another. Simultaneously, these subgroups may feel a sense of detachment from other subgroups. It is not uncommon for a board to have two, three, or even four distinct subgroups within its structure.
The impact of a subgroup on the overall board dynamics relies on the extent of its power. Subgroups with significant influence possess the ability to shape the attitudes and behaviors of other board members, including their perspectives on CEO retention or dismissal. Frequently, there exists a subgroup of directors who share common "social identities" with the CEO, such as gender, race, age, beliefs, values, or backgrounds. This particular subgroup, referred to as the "CEO subgroup" by You, Shin, and Chung, can play a crucial role in mitigating the risk of CEO dismissal if it is sizable and composed of influential individuals. This effect becomes even more pronounced when the company's performance experiences a decline.
At first glance, it may seem counterintuitive that a board would choose to retain a CEO despite a decline in firm performance. However, the underlying dynamics of the CEO subgroup shed light on this phenomenon, providing an explanation.
When a CEO faces criticism or challenges, the members of the CEO subgroup experience a sense of insecurity. They become apprehensive about the potential loss of their ally, along with any exclusive resources or privileges derived from their association with the CEO. In response, the CEO subgroup develops a strong "us" versus "them" mentality, further strengthening their cohesion. Leveraging their power, they actively work to shield the CEO and, by extension, safeguard the coalition they have formed.
By incorporating faultline theory and expanding on social identity theory, the authors conducted a comprehensive analysis using a dataset spanning 20 years (1998 to 2018) from S&P 500 boards. Their findings emphasized the crucial aspect that the CEO subgroup must possess substantial power; the mere presence of such a subgroup does not exert a significant influence on board decisions.
"Examining power dynamics at the subgroup level is of utmost importance, as the power and influence of individuals can be molded and influenced by the power dynamics of their close peers," explains Professor You. "Through the lens of CEO subgroup power, our research delves into the intricate dynamics between the subgroup that aligns with the CEO and the other subgroups present within the board. This perspective enables us to investigate how power dynamics among subgroups affect board decisions, surpassing the focus solely on the individual power of the CEO or other directors."
The implications of these findings for Tom Wambsgans and his new venture at Waystar-Royco-GoJo in Succession are yet to be determined. However, as avid viewers who have witnessed all 39 episodes of the show know, Tom didn't ascend from a small-town outsider to a prominent figure by mere luck. He has demonstrated a keen understanding of the significance of relationships (evidenced by his marriage to Shiv) and has strategically aligned himself with sources of power throughout the series. It is safe to assume that he began assembling his coalition (cue cousin Greg!) from the very moment Matsson called his name.
The Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for research in strategic management.
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