390 Part 3: Strategic Actions: Strategy Implementation
earlier comments, we highlight here the value of transformational leadership to strategic
change as the CEO helps the firm match environmental opportunities with its strengths,
as indicated by its capabilities and core competencies, as a foundation for selecting and/
or implementing new strategies.^43The CEO and Top Management Team Power
We noted in Chapter 10 that the board of directors is an important governance mechanism
for monitoring a firm’s strategic direction and for representing stakeholders’ interests,
especially shareholders. In fact, higher performance normally is achieved when the board
of directors is more directly involved in helping to shape the firm’s strategic direction.^44
Boards of directors, however, may find it difficult to direct the decisions and resulting
actions of powerful CEOs and top management teams.^45 Often, a powerful CEO appoints a
number of sympathetic outside members to the board or may have inside board members
who are also on the top management team and report to her or him.^46 In either case, the CEO
may significantly influence actions such as appointments to the board. Thus, the amount of
discretion a CEO has in making decisions is related to the board of directors and the decision
latitude it provides to the CEO and the remainder of the top management team.^47
CEOs and top management team members can also achieve power in other ways.
For example, a CEO who also holds the position of chair of the board usually has more
power than the CEO who does not.^48 Some analysts and corporate “watchdogs” criticize
the practice of CEO duality (when the positions of CEO and the chair of the board are
held by the same person) because it can lead to poor performance and slow responses to
change, partly because the board often reduces its efforts to monitor the CEO and other
top management team members when CEO duality exists.^49
Although it varies across industries, CEO duality occurs most commonly in larger
firms. Increased shareholder activism has brought CEO duality under scrutiny and
attack in both U.S. and European firms. In this regard, we noted in Chapter 10 that
a number of analysts, regulators, and corporate directors believe that an independent
board leadership structure without CEO duality has a net positive effect on the board’s
efforts to monitor top-level managers’ decisions and actions, particularly with respect to
financial performance. However, CEO duality’s actual effects on firm performance (and
particularly financial performance) remain inconclusive.^50 Moreover, recent evidence
suggests that, at least in a sample of firms in European countries, CEO duality can have
a positive effect on performance when a firm encounters a crisis.^51 Yet, recent evidence
suggests that some firms have begun to separate the CEO and board chair positions.
Some of the separations occur because of poor performance but not all. In other cases,
the separation is created to allow an experienced board chair to mentor a new CEO (new
CEO serves as an apprentice for a period of time).^52 Thus, it seems that nuances or situ-
ational conditions must be considered when analyzing the outcomes of CEO duality on
firm performance. For example, power differentials can occur among top management
team members when a family holds an important ownership position even in large pub-
lic firms. Typically, top managers who are also members of the family may have a special
form of power which can cause conflict unless the power can be balanced across the top
management team.^53
Top management team members and CEOs who have long tenure—on the team
and in the organization—have a greater influence on board decisions. In general, long
tenure may constrain the breadth of an executive’s knowledge base. Some evidence
suggests that with the limited perspectives associated with a restricted knowledge base,
long-tenured top executives typically develop fewer alternatives to evaluate when mak-
ing strategic decisions.^54 However, long-tenured managers also may be able to exer-
cise more effective strategic control, thereby obviating the need for board members’