Academic journal article Administrative Science Quarterly

New CEOs and Corporate Strategic Refocusing: How Experience as Heir Apparent Influences the Use of Power

Academic journal article Administrative Science Quarterly

New CEOs and Corporate Strategic Refocusing: How Experience as Heir Apparent Influences the Use of Power

Article excerpt

Chief executive officers (CEOs) have long been recognized as the principal architects of corporate strategy and major catalysts of organizational change (Andrews, 1971; Child, 1972), and the extent to which CEOs can effect change in corporate strategy is thought to be determined largely by the power they possess and how they decide to wield it (Child, 1972). Despite the apparent centrality of CEOs' power to the phenomenon of firm-level strategic change, however, research on this relationship is severely limited (Hardy, 1996), and an empirical association between these two constructs has yet to be established. This is surprising, given that the research on CEOs' power is extensive, having identified a wide variety of important organization-related outcomes on which powerful CEOs may have a significant influence, such as the structure of their own compensation packages (Westphal and Zajac, 1994, 1998, 2001), their firms' board composition (Westphal and Zajac, 1995) and financial performance (Haleblian and Finkelstein, 1993; Daily and Johnson, 1997), their successors' characteristics (Zajac and Westphal, 1996a), and their own job security (Boeker, 1992).

The dearth of research on the relationship between CEOs' power and corporate strategic change may be a reflection of how studies of CEOs' power have typically been conducted. By and large, these investigations have modeled and tested direct associations between power and the outcomes of interest, but power represents simply the ability to bring about a preferred or intended effect (Weber, 1947; Dahl, 1957; Russell, 1957). Consequently, the theoretical linkage between CEOs' power and its consequences requires an understanding of CEOs' preferences and intentions (i.e., cognitive orientation). Furthermore, hypothesizing direct connections necessitates that cognitive orientations be uniform and motivating across CEOs. For example, Zajac and Westphal (Westphal and Zajac, 1994, 1995; Zajac and Westphal, 1995, 1996a, 1996b) have examined how powerful CEOs may influence a number of board-level decisions. In these studies, CEOs' cognitive orientations played a critical role in establishing the direction of the hypothesized associations between power constructs and outcomes, but the CEOs' cognitive orientations were not assessed. Instead, convincing theoretical arguments or plausible assumptions were made for CEOs' likely preferences. For instance, Zajac and Westphal drew on psychological, social psychological, and organization science literatures to argue that CEOs ordinarily prefer successors (Zajac and Westphal, 1996a) and new board members (Westphal and Zajac, 1995) who are demographically similar to them. Likewise, they made the plausible assumption that CEOs prefer director candidates with prior experience on passive rather than active boards, because they are primarily interested in controlling their own boards (Zajac and Westphal, 1996b). Their empirical findings generally supported their hypotheses.

In contrast to the preferences and intentions associated with the power outcomes previously studied, CEOs' cognitive orientations toward corporate strategy appear to be highly variable. For example, some senior managers are apparently much more committed to the strategic status quo than others (Hambrick, Geletkanycz, and Fredrickson, 1993). How a CEO decides to use his or her power to influence a firm's strategic direction is likely to be affected by his or her cognitive strategic orientation, such that power and cognitive orientation interact to influence firm-level strategy. Therefore, predictions about how CEOs may use their power to influence corporate strategy require a means of modeling and explicitly assessing not only CEOs' power but also their cognitive orientations.

In this study, we examine how newly appointed CEOs' power and cognitive orientations interact to influence a challenging type of strategic change, referred to as corporate strategic refocusing. …

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