The Effects of Chief Executive Officers' Leadership on Primary Stakeholder Interests: A Review

By Shaari, Zullina H.; Areni, Charles et al. | Global Business and Management Research: An International Journal, July 2014 | Go to article overview

The Effects of Chief Executive Officers' Leadership on Primary Stakeholder Interests: A Review


Shaari, Zullina H., Areni, Charles, Grant, David, Miller, Rohan, Global Business and Management Research: An International Journal


Paper Type: Literature Review

Introduction

Chief Executive Officers (CEOs) represents leadership "of' an organization (Boal and Hooijiberg, 2001; Hunt, 2004). Research works investigating their leadership fall into the scope of strategic leadership (Finkelstein et al; 2009). Strategic leadership theory "contends that top managers' values, cognitions, and personalities affect their field of vision, their selective perception of information and their interpretation of information" (Cannella and Monroe, 1997, p. 230). This leadership "connotes management of overall enterprise ... and implies substantive decision making responsibilities, beyond the interpersonal and relational aspects usually associated with leadership (in organizations)" (Finkelstein et al., 2009, p. 4) and is characterized as "a person's ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a viable future for the organization" (Ireland an Hitt, 2005, p. 63). This notion of leadership has six components: determining a firm's purpose or vision, exploiting and maintaining core competencies, developing human capital, sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organizational control (Ireland and Hitt, 2005).

Numerous studies have linked CEO leadership to organizational performance (see Finkelstein et al., 2009; Finkelstein and Hambrick, 1996). The findings implicitly suggest that CEO leadership influence organizational performance. CEOs are perceived as having profound direct and indirect effects on three dimensions of organizational performance: current profitability, organizational growth and future positioning, and nonfinancial aspects of performance (see Hart and Quinn, 1993). These three dimensions often represent the interests of investors/shareholders, organizational members and customers, who are considered as the primary stakeholders of an organization.

In leadership studies, CEO leadership is often associated with charismatic/transformational leadership. This paper reviews the studies on the effects of CEO leadership on these three groups of stakeholders. The following sections will elaborate the review method and findings on the impact of CEO leadership on them.

Review Method

The review samples scholarly publications from 1982 until 2009 using two keywords: chief executive officers and organizational performance. The publications includes the Leadership Quarterly, Academy of Management Journal, European Journal of Work and Organizational Psychology, Strategic Management Journal, Journal of Advertising Research, Journal of Advertising, International Journal of Service Industry, Journal of Marketing, European Journal of Marketing, Leadership and Organizational Development, and Management Communication Quarterly

Review Findings

The following subsections will highlight the findings on the impact of CEO leadership on the interests of investors/shareholders, organizational members and customers as summarized in Table 1.

Effects on Investors/Shareholders' Interests

From shareholders' point of view, "CEOs are primarily evaluated on financial performance" (Epstein and Roy, 2005, p. 75). In this case, CEO effectiveness should be reflected through a company's profitability (e.g. share prices, return on assets, return on investments). Since CEO image has a spill-over effect on organizational image (McGrath, 1995a, 1995b; Power et al. 2008) and a positive firm brand image had higher market value of equity, superior financial performance, and less risky (Smith et al., 2010), CEO effective leadership (charismatic/transformational leadership) may influence how investors and shareholders perceive future organizational success. However, research examining the relationships between leadership and hard financial measures has been equivocal (see Table I). …

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