Why CEOs Shouldn’t Take All the Credit

As a CEO, it’s natural to want to take credit for unexpected positive results, especially if your compensation is tied to self-reported updates on company performance. But in a recent study, the authors find a hidden cost to taking credit for success. Their analysis of 23,000 news articles on more than 350 CEOs showed that when CEOs attribute unexpected positive benefits to their strategic decisions, they are more likely to be blamed for negative outcomes in the future (and more likely to be dismissed accordingly). Conversely, when leaders are humble and take less credit for positive outcomes, they are less likely to be blamed or removed from office when revenues decline. In light of these findings, the authors argue that CEOs should take a long-term approach to impression management by erring on the side of humility when times are good, so they are less likely to be blamed if and when the tides inevitably turn. .

There are countless factors that can cause CEOs to be blamed for poor business performance, many of which are beyond their control. Our recent research, however, suggests that how leaders present themselves matters.

Through an analysis of 23,000 news articles on more than 350 CEOs, we found that when CEOs attribute unexpected positive benefits to their strategic decisions, they are more likely to be blamed for negative outcomes in the future ( and more likely to be fired as a result). Conversely, when leaders are humble and take less credit for positive outcomes, they are less likely to be blamed or removed from office when revenues decline.

This effect is mainly due to a psychological phenomenon known as grounding. When a CEO insists that his strategic choices, rather than external factors, are responsible for his company’s positive performance, analysts and board members are more likely to assume that the subsequent negative performance is also the result of the CEO’s strategic choices – that is, their assumptions about who is responsible for the negative performance are anchored in their initial attribution of credit. These biased judgments can have an outsized influence on media and general public opinions, and once a CEO’s perception has deteriorated, boards are much more likely to bow to public pressure to remove the CEO than to base their decisions on a fair and complete review of the CEO’s entire tenure. The hard-hitting CEO who is seen as single-handedly saving the company may, years later, be seen as solely responsible for its failure, regardless of the extenuating circumstances.

So, to avoid setting themselves up for failure, our research suggests leaders should take a long-term approach to impression management. Taking the lion’s share of your company’s success can be tempting in the moment (especially if your compensation is largely tied to self-reported updates), but this strategy can quickly backfire when the tides turn against you. you. Additionally, previous research suggests that more humble CEOs enjoy better market performance and more positive relationships with fellow executives and middle managers — so there’s more than one reason to err on the side of humility.

In addition, our research also highlights that analysts and directors tend to rely heavily on what CEOs say to build their own narratives, and their first impressions often materialize into lasting beliefs that can influence their judgments for years to come. come. Of course, in an ideal world, analysts and boards would evaluate CEOs carefully and holistically, balancing past and present performance and recognizing the impact of external factors rather than falling prey to biased perceptions or media stacks. Unfortunately, Wall Street’s tendency to prioritize short-term performance has fostered a culture prone to cognitive shortcuts — and in which boards quickly fire a CEO as soon as public opinion turns.

Moreover, these issues are often compounded by other biases that can interfere with people’s ability to fairly assess CEO performance. Research has shown, for example, that women and minority CEOs face greater media scrutiny and criticism than white male CEOs.

It is up to boards, analysts and the media to recognize these biases and work to reduce their impact on how CEOs are evaluated. But at the same time, CEOs looking to achieve long-term success would be wise to get ahead of cognitive biases that may influence how they are perceived — especially ones, like anchoring bias, that are at least somewhat in control them. While it’s natural to want to take credit when things are going well, our research suggests that a little humility up front will pay off if and when things start to get worse.

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