"At the end of the day, the buck stops with the chief executive."
That’s one of the opening lines from Steve Tappin, host of BBC’s CEO Guru , in a video about the challenges CEOs face in making decisions from the top that impact everyone down the corporate chain. Of course, the ultimate responsibility for a decision–and the consequences of a bad one–may not be enough to really hold chiefs accountable (more on that later).
How CEOs make decisions varies. Harriet Green, chief executive at travel firm Thomas Cook, explains to Tappin that CEOs can’t get carried away by the power at their disposal.
"If the only tool in your toolkit is a hammer, every problem you see will look like a nail," Green said. It can be important to be tough and decisive, but as a chief, it’s nearly as critical to get people on board with your ideas and direction. "I think CEOs who are autocratic will get hounded out of a business eventually because everyone reacts so badly to them," Aberdeen Asset Management’s Martin Gilbert told Tappin.
In the video and accompanying story, Tappin explores four types of CEO decision-making styles:
Autocratic – can lead to speedy decision-making, but also greater staff absenteeism and turnover.
Laissez faire – usually only works when staff are skilled, loyal and experienced.
Democratic – workers can feel motivated and it encourages creativity but is time-consuming.
Bureaucratic – everybody has to adhere to organizational rules and policies.
Of course, it isn’t just chief executives who make decisions in these ways. Managers at every level likely fall into one of these categories, although the decisions being made at lower levels may not impact as many people (unless, perhaps, they blow up or succeed wildly).
Chief executives, like lower-level managers, who decide poorly run the risk of losing their jobs. "When disaster strikes CEOs often do tend to pay with their jobs," wrote Dartmouth professor and expert in why executive fail in a column, The executive accountability myth. "For example, Bob Diamond, the CEO who took the fall for Barclay’s Libor scandal, and Dick Fuld, the long-time CEO of Lehman who not only lost his job, but the company, at the peak of the financial crisis in 2008."
But, he writes, many chiefs are still rewarded handsomely, even when they make bad decisions or lead a company down an unsuccessful path. "When they lose their jobs, they usually walk away with huge severance payouts. For example, after Carly Fiorina’s ineffectual tenure at the top of computer company Hewlett Packard came to an end, the news broke of her $23 million “separation package”. If that’s accountability, I suspect lots of people would sign up in a heartbeat," Finkelstein wrote.
It’s an interesting issue. At lower levels of management, the rewards are smaller and the consequences of failure, arguably, much greater in comparison. A vice president or division manager is on a less lucrative bonus scheme and if fired for poor results or bad decisions, that manager might walk away with nothing in the way of severance.
Of course, the responsibility of the CEO is bigger–answering to the board of directors and shareholders large and small.
Even so, I wonder whether Finkelstein’s theory on the absence of accountability–as measured in dollars and cents–could be curbed with, well, severe financial penalties for getting it wrong. That is, minimal severance, loss of stock options, etc. Granted, some might say that a CEO needs room to fail in order to take a company to a better place. But, if some kinds of failure came with less reward, would CEOs make their decisions differently?
What do you think? What kind of CEO-decision-maker is most effective? Would a different kind of accountability change the way CEOs make decisions?
(Photo: Thinkstock)
Featured on:Leadership & Management
Posted by:Jennifer Merritt
