I will start this post with an old story. CEO of Sunbeam Corp., Albert Dunlap, known as an expert in turning around troubled firms and selling them for a profit, was sued by the SEC in 2001 for accounting fraud. He was eventually barred from serving as an officer or director in any company, plus ordered to pay investors defrauded money in a class-action lawsuit. Albert Dunlap was clearly someone in need of flattery, not just money, as he had the classical flattery-sickness symptom of a book written to celebrate his successes. How he managed things internally in each firm he led is disputed, but much was said about his intimidation of other managers, who probably would conclude that a lot of flattery and ingratiation might help their career. Of course, managers still did better than employees, because his signature move in turning firms around was mass layoffs.
An interesting detail of his downfall was that managers around him were quick to release information that helped the investigation, which is distinct from the many firms with management teams that do all they can to deter and obstruct investigators. Is there a systematic reason for this difference? Possibly. A recent article in Administrative Science Quarterly by Gareth Keeves, James Westphal, and Michael McDonald looks at what happens when managers ingratiate their CEO through flattery and other tools. Their findings are interesting. First, managers who flatter lose their liking of the CEO. Somehow when people artificially put others on a pedestal they also start looking down on them.
Second, managers who flatter may go on to undermine the CEO. The light-handed version of this is to undermine the CEO’s messages to journalists, as this research showed. The heavy-handed version is what happened to Albert Dunlap. Among other events, his comptroller reported that he had been pushing for accounting practices that crossed the legal boundary, and sales people were quick to report “channel stuffing.” Channel stuffing is to sell too many goods and selling them too early, which is not illegal in itself (the sales channel can return unsold goods, so it is safe for them), but it is illegal when the sales are accounted as if they were final. Those were practices that the SEC (and some investors) suspected, and that meant that what looked like a turnaround in sales and profits was actually a fraudulent scheme.
Seeking flattery is never thought of as a good thing. What we now know is that it also triggers undermining, and for those who have real weaknesses – like a CEO engaged in fraud – that undermining can be very consequential.
Keeves, G. D., Westphal, J. D., & McDonald, M. L. 2017. Those Closest Wield the Sharpest Knife: How Ingratiation Leads to Resentment and Undermining of the CEO. Administrative Science Quarterly, forthcoming.
This blog is devoted to discussions of how events in the news illustrate organizational research and can be explained by organizational theory. It is only updated when I have time to spare.