Newswise — A new study from the University of California, Irvine finds that when it comes to dismissing CEOs, corporate board evaluations of tarnished CEOs are murky. Personal perceptions and media attention may factor into board decisions and a CEO’s fate.
Through their research, co-authors Libby Weber, associate professor, and Margarethe Wiersema, Dean’s Professor, both from the strategy department of the UCI Paul Merage School of Business, explain what influences board decisions and why some CEOs avoid dismissal, while others are very publicly fired.
The study, published in the California Management Review special issue on behavioral strategy and titled, “Dismissing a Tarnished CEO? Psychological Mechanism and Unconscious Biases in the Board’s Evaluation,” points to the increasing importance and influence of conventional and social media on boardroom decision-making.
“The media can put a board in the unaccustomed position of being the focus of intense public scrutiny,” said Wiersema. “However, boards in the limelight are subject to various cognitive biases, rather than objective rationality, that can easily cloud their judgement.”
The authors suggest that boards need to be much more sensitive to the role of contextual factors, such as market and economic conditions, as well as stakeholders’ opinions and public perceptions that influence how they evaluate corporate misconduct and poor performance.
“By modeling the psychological processes that shape how corporate misconduct or poor performance is perceived and evaluated by the board, our study provides a more complete understanding of why some CEOs are dismissed while others are not, even when very similar infractions occur. It also identifies decision factors boards should consider, which will serve to help streamline the dismissal process and more fairly balance the outcomes.”
Being a CEO is clearly an arduous task and one that has become even more difficult in our highly scrutinized times of corporate conduct and performance. C-suite dismissals now account for 24 percent of succession events within the S&P 500. This increase has effectively driven the average tenure down from 14 years to nine for a CEO in the United States.
“By exposing the factors that influence the decision process, corporate boards can recognize and remove biases from their deliberations, allowing them to make the most beneficial decisions for the company,” said Wiersema.
About The Paul Merage School of Business at UC Irvine
The Paul Merage School of Business at UC Irvine offers four dynamic MBA programs – plus PhD, specialty masters and undergraduate business degrees – that prepare business leaders for our digitally driven world. Through our programs, students acquire the exceptional ability to grow their organizations through strategic innovation, analytical decision-making, digital information technology and collaborative execution. While the Merage School is relatively young, it has quickly grown to rank consistently among the top five percent of all business programs worldwide through exceptional student recruitment, world-class faculty, a strong alumni network and close relationships with both individual business executives and global corporations. Additional information is available at merage.uci.edu.
**Full study available on request.