The Perils of Hiring a CEO for Culture Fit
by Rob Kaiser, President, Kaiser Leadership Solutions, Member, Division 13
It is taken as an article of faith in the search business that a strong CEO candidate needs to mesh with the prevailing culture. It sure sounds like common sense: who would doubt that a new CEO needs to share the company’s core values and get along with other senior managers?
Except, this conventional wisdom usually leads to lower corporate performance according to recent research published in the June edition of the Journal of Applied Psychology. In a study of 114 CEOs in the high tech industry, a global team of researchers led by Chad Hartnell found that it is actually the CEOs whose styles are different from the existing company culture who get better results (as measured by Return on Assets; ROA).
The researchers considered two broad themes commonly used to describe both leadership and culture: a task-orientation focused on goals, accountability, and results and a relationship-orientation focused on people, collaboration, and team work. They measured CEO leadership style and company culture with ratings from members of each firms’ Executive Teams and correlated them with ROA figures nine months later.
Much to the researchers’ surprise, the firms led by highly task-oriented leaders posted better performance results only when the culture was less task-oriented. The same was true concerning the soft side: firms led by more relational leaders performed better when the culture was less relationship-oriented. In fact, when the culture was strong in either of these areas, firm performance tended to decrease when the CEO was also strong in that same area.
These results suggest that the performance value of CEO leadership is in compensating for something missing in the culture. Since both leadership and culture signal to employees what actions and attitudes are valued, CEO behavior that is unique from the company culture sends a distinct message about where and how to focus effort and energy. For instance, when Microsoft brought in Satya Nadella two years ago, the new CEO vowed to “visibly change our culture” with a newfound emphasis on performance in a culture that had lost its way. Since taking the helm, the company’s stock has improved about three-times more than the S&P500.
When the culture is already strong in a particular area, however, CEOs with a similar style can actually be detrimental to performance. It’s a case of too much of a good thing, according to study co-author, Angelo Kinicki, who said, “CEO leadership that reinforces the current organizational culture may generate abundant resources of unnecessary guidance that fail to enhance firm performance.”
The major take home for selection committees and those who advise them is a cautionary tale: be aware of what the culture does and does not provide and supplement where possible. And be wary of the urge to find a harmonious fit, which could inadvertently turn a strength into a weakness.
Hartnell, C. A., Kinicki, A. J., Lambert, L. S., Fugate, M., & Doyle Corner, P. (2016). Do similarities or differences between CEO leadership and organizational culture have a more positive effect on firm performance? A test of competing predictions. Journal of Applied Psychology, 101, 846-861.