A Study about Destructive Corporate Leadership and Board Loyalty Bias
Introduction: In this paper we argue that the widely-held public corporation, characterised by “strong managers and weak owners” (Roe, 1994) is exposed to what Padilla, et al (2007) identify as “destructive leadership” risks which, due to board loyalty biases, current corporate governance codes appear to do little to mitigate. As Padilla et al argue for destructive leadership to take hold and to generate extreme negative outcomes there typically needs to be a “toxic triangle” consisting of “destructive leaders, susceptible followers and conducive environments”. All three of these elements are present in the widely-held corporation and hence it ought not to be too surprising therefore to regularly observe negative corporate outcomes such as value destroying takeovers, financial fraud and delusional business strategies initiated and driven by over-mighty and hubristic CEOs. We illustrate these issues via an examination of Michael Eisner´s long tenure as Disney Corporation´s CEO.
In contrast, we believe that the Disney case, whilst not involving any explicitly fraudulent behaviour, does illustrate the potential for massive destruction of shareholder value stemming from behaviour that is far more common and widespread amongst corporate elites and board members. The position of CEO in a widely-held firm bestows on the holder immense authority, control over resources and over the careers of his/her subordinates; in short, the CEO has immense power. Unfortunately, power corrupts; that is, it produces psychological and behavioural changes that greatly reinforce the high degree of managerial entrenchment characteristic of many widely held firms. These features encourage narcissistic and charismatic CEOs to turn into “destructive leaders” through their ability to subvert and corrupt subordinates and to override other organisational and external safeguards. We argue that such individuals frequently abuse their incumbency to cultivate susceptible followers and to create the necessary conducive environment via their exploitation of a pronounced and inappropriate “loyalty bias”. Keep reading…
