CEO self-discipline in power use: A key moderator for the effect of CEO power

Abstract

The effect of CEO power depends ultimately on how it is used (i.e., a CEO’s approach to power use), which may vary from one CEO to another. Notwithstanding extensive research on the effect of CEO power on organizational outcomes, researchers have thus far paid very limited attention to how the effect depends on individual differences. In this study I propose a new construct of CEO self-discipline in power use—defined as a CEO’s appeared conformance to the prescribed leadership norms (in particular, norms regarding how leaders should use their power)—and examine how it moderates the effect of CEO power. With a longitudinal dataset from the U.S. computer hardware and software industries, I found that CEO self-discipline in power use weakened the positive effect of CEO power on performance extremeness and improved the effect of CEO power on firm performance.

Introduction

Power is an essential part of organizational life, especially in the upper echelons (Finkelstein, Hambrick, & Cannella, 2009; Pettigrew & McNulty, 1995; Pfeffer, 1992). Prior research has extensively examined how CEO power affects strategic decisions and organizational outcomes (Cirillo, Romano, & Pennacchio, 2015; Eisenhardt & Bourgeois, 1988; Haleblian & Finkelstein, 1993) and considered various contingency factors such as external power-balancing forces (e.g., the board of directors) (Tang, Crossan, & Rowe, 2011) and organizational situations (Tang & Crossan, 2017; Whitney, 1987). However, very limited attention has thus far been paid to a CEO’s individual differences, especially a CEO’s approach to power use, as potential contingency factors.

This lack of research attention may have significantly limited our understanding of CEO power, because the effect of CEO power depends ultimately on how it is used and CEOs’ power use is affected by not only their power but also individual characteristics such as personality (Chatterjee & Hambrick, 2007) and political skills (Mintzberg, 1983; Pfeffer, 1992). Even with similar power, CEOs might differ significantly in their approach to power use. Note that while senior executives may as a group depart significantly from average individuals (e.g., being more narcissistic and politically skillful) (Finkelstein, 1992; Norburn, 1989), there are still substantial variations among senior executives (Brass & Burkhardt, 1993; Wowak & Hambrick, 2010). For example, while many CEOs of major corporations may be quite narcissistic, business writer Jim Collins found that the level 5 leaders identified in his research seemed very humble and modest (Collins, 2001). For another example, though in a non-business context, as vividly illustrated by Robert Caro (a notable biographer of Lyndon Johnson), even among the U.S. senators—arguably a group of highly skilled politicians—some had much better political skills than others (Caro, 2002).

Thus, to gain a fuller understanding of the effect of CEO power, it is imperative to examine a CEO’s individual differences as related to power use. Unfortunately, however, it is often challenging to do so. In particular, given the difficulty in accessing senior executives and the sensitive nature of power use (Chatterjee & Hambrick, 2007; Pettigrew, 1992), it is challenging to measure their individual differences on a large-sample basis through such methods as survey—probably part of the reasons for the lack of such studies. That said, for individual differences along certain dimensions it is possible to find reasonable proxies based on archival sources. For example, researchers have developed quite ingenious proxies based on archival sources to capture such constructs as executive power (Finkelstein, 1992), CEO hubris (Hayward & Hambrick, 1997), and CEO narcissism (Chatterjee & Hambrick, 2007).

In this study I take an initial step in this research direction. Specifically, I propose a new construct of CEO self-discipline in power use—which I define as a CEO’s appeared conformance to the prescribed leadership norms (in particular, norms regarding how leaders should use their power)—and examine how it moderates the effect of CEO power on organizational outcomes. I focus on this construct because it arguably captures the influence of many other individual characteristics—for example, CEO character (Crossan, Mazutis, Seijts, & Gandz, 2013), hubris (Hiller & Hambrick, 2005), narcissism (Chatterjee & Hambrick, 2007), conscientiousness (Bogg & Roberts, 2004), self-discipline (in general as a psychological construct, Duckworth & Seligman, 2005), greed (Wang & Murnighan, 2011), and political skills (Mintzberg, 1983; Pfeffer, 1992)—on a CEO’s power use; differently put, it is a mechanism through which these other individual characteristics affect a CEO’s power use. In addition, it is, to a significant degree, amenable to the CEO’s will and control. I hypothesize that CEO self-discipline in power use weakens the positive effect of CEO power on performance extremeness and improves the effect of CEO power on firm performance (i.e., makes it more positive or less negative). With a longitudinal dataset from the U.S. computer hardware and software industries, I found considerable empirical support for my hypotheses.

This study makes several important contributions. First, it proposes a new construct of CEO self-discipline in power use, which helps enhance our understanding of the effect of CEO power and also highlight the essential role of social norms in strategic leadership research and practice. Second, it highlights the importance of power use and, by extension, individual differences, in our understanding of the effect of CEO power, thereby pointing to an important future research direction. Third, it suggests an archive-based measure of CEO power that is less confounded by power use and, relatedly, an archive-based measure of CEO self-discipline in power use, which may provide a good basis for empirically distinguishing between power and power use in future research. In addition, it has important practical implications, suggesting, especially, that powerful CEOs are well advised to develop and exercise high self-discipline in power use.