There are two important trends in the world of business today. The first is that traditional large corporations are gradually becoming less important, as new technologies, improved markets, and better financing allow smaller firms to be founded and operate more easily. My predecessor as editor of the journal Administrative Science Quarterly, Jerry Davis, has written a book on that. There is also another trend that seems to indicate that the opposite is happening. There is a small set of extremely large corporations in services, industry, and finance that are amassing exceptional power. Added up, these trends mean that the number of somewhat-large, but not the largest, corporations is declining.
One result of these trends is that researchers are now looking more closely at CEO personality, because in both the smallest and the largest firms any departure from rational decision making is very consequential. It can destroy a small firm, and it can wreak havoc on the world around a large firm. A paper in Administrative Science Quarterly by Malhotra, Reus, Zhu, and Roelofsen has now examined the extraversion of CEOs and how that influences mergers and acquisitions done by their firms. Extraversion is a personality trait and is one that we understand well and like a lot, at least at parties. Extraverts liven up the world around them because they are sociable, active, and very likable. This is a good thing, but also something that is hard to connect to management.
The connection lies in the less well known side of that personality trait. Extraverts are also agentic – it is very important for them to take care of their own interest and to get ahead of others. Sociability and likability are parts of that trait, because extraversion means that they get to dominate their surroundings. And outside of parties, the same agentic traits can be reflected in them having clear goals to benefit themselves as much as possible, possibly at the expense of others, and of being skilled at persuading others that their initiatives are good. Does the extravert sound less appealing now, but also more consequential as a manager?
Acquisitions are a great way to test the consequences of extraversion because they eliminate the acquired firm and usually harm the acquiring firm, because on average, acquiring firms lose money by over-paying for the acquisition. As a result, a CEO with the firm’s best interest at heart will be very selective about when to acquire another firm and will typically focus on smaller acquisitions that help the firm acquire important technology, market access, and other missing pieces, while being relatively inexpensive because small firms are often overlooked, or even not listed in the stock market. But small firms are also boring, and not something an extravert wants to acquire in order to grow the firm fast and look good doing it.
So what did the authors find? Indeed extravert CEOs acquire more often, and they acquire larger targets. They are especially likely to do so when they have freer hands, such as when they are in less competitive industries or when they are powerful relative to the board of directors. Turn extravert CEOs loose, and you will see firms around them get eaten up. Of course, all of this would be OK if the acquisitions turned out to be a good thing. Do we know if they did? Well, extraverts got a more positive immediate reaction from the stock market than others, but let’s not believe that this means a lot. First, keep in mind that investors are just another set of people to impress, and extravert CEOs are good at that. Second, better reaction to one acquisition than others does not say much because most acquisitions are not welcome. Third, immediate reaction is very different from the long-term benefit of an acquisition.
So we know that extravert CEOs benefit themselves by getting attention from acquisitions, and by growing the firm so that they in turn can get paid more – a larger firm means better pay. We don’t know whether that helps the firm. And somehow, I can’t help but wonder whether our not knowing is something that the extravert CEO likes a lot.
Malhotra, Shavin, Taco H. Reus, PengCheng Zhu, and Erik M. Roelofsen. 2017. "The Acquisitive Nature of Extraverted CEOs." Administrative Science Quarterly: 0001839217712240.
I understand that the title of this blog post is confusing and borderline annoying, so I will come straight to the point: There is new research evidence that women’s career opportunities can be made more equal to men’s if their male bosses think they should be. Not if their female bosses do. I think this is surprising and worrying enough that I should explain what is going on.
This concern is based on research evidence from a paper in Administrative Science Quarterly by Seth Carnahan and Brad Greenwood, and it is based on law firm careers. You might think that lawyers have specialized careers, and you would be right. They are specialized in ways that are useful for testing the theory, however, because the top-class law firms in the sample recruit very similar people, so there is little of the variation among employees that could be used to explain any differences between men and women. Also, heavy-handed discrimination is not possible here because lawyers know how to, you know, file lawsuits. As you can imagine, finding any discrimination at all between men and women in this context would be surprising and interesting. It gets especially interesting because we can use politics to find out what managers want, assuming that liberal lawyers have liberal views including gender equality and that conservative lawyers don’t. Donations to the Democratic and Republican parties are good measures of ideology.
So we know whether the managers (partners) are liberal or conservative, and we know the gender of the employees (associates), and that’s all we need. Carnahan and Greenwood went ahead and analyzed the data, finding that conservative offices hired fewer female associates. Liberals practiced equality in hiring, and the difference reached levels that can be measured even for these elite lawyers. Same story for assignments to task forces and for promotions: women are better off working for liberals.
But then the surprise comes: distinguishing between male and female managers, they found that the helping of women could be shown for only liberal male partners, not liberal female partners. So women’s equality in law firms seems to be for men only to decide. How is that possible? It seems unlikely that women partners care less, especially if they are also liberal. But how much change people make depends on how much they try and how much power they have. That’s where the men have the edge. There are more of them and they are in more senior positions, so ultimately what counts is how men view women’s careers.
Earlier I wrote one blog post on the book Lean In criticizing its depiction of women’s career opportunities and another on research correcting this depiction. Lean In is too optimistic about women’s opportunities to make changes for themselves. This research presents one more problem for the Lean In idea because it suggests that what women think of themselves or of other women is less consequential because they have less power. Real-life careers are not about leaning in, but pulling up.
Carnahan, Seth, and Brad N. Greenwood. 2017. "Managers’ Political Beliefs and Gender Inequality among Subordinates: Does His Ideology Matter More Than Hers?" Administrative Science Quarterly:0001839217708780.
Administrative Science Quarterly is a research journal that for the last few years has published roughly 20 articles per year, which is slightly more than what some other journals will publish in 1.5 months. ASQ is very selective, yet we have found a way to be even more selective by also recognizing excellence in the articles we publish. Every year an award is given to one article for its scholarly contribution over the previous 5 years. These articles are available here, and I will give one example in this blog. It is about grass-fed beef.
Those who are into gourmet or health food dining will recognize grass-fed beef as specially produced to the cleanest, most environmental, and most original standards, and as being a premium product that can be obtained in the best restaurants and stores. They are unlikely to know that grass-fed beef used to be sold at a discount because it lacked the fat marbling and tenderness of beef from cattle produced the standard way, with a finishing period where the cattle were eating corn and grain in feedlots. How did the discounted product of the past become today’s premium product?
The answer is given in an ASQ article by Klaus Weber, Kathryn Heinze, and Michaela DeSouzey. It involves a social movement that helped drive forward activists and entrepreneurs who coalesced around the ideas of authenticity in farming, sustainable nature management, and using only natural materials and processes. All of these principles were in opposition to normal farming methods, which the activists saw as industrial, non-sustainable, and relying on artificial materials and approaches. These activists were a social movement, but they did not have a company, a set of customers, a way to market what was special about grass-fed beef, or even a clear way to earn a living. Instead, they produced a language, a social grouping, and a belief system that a set of entrepreneurs could organize around.
The next steps were creation of the new market for the now-premium product of grass-fed beef. Farms switched to grass-fed methods, often helped by other farms or by publications devoted to these methods. The entrepreneurs and other parts of the industry, including the social movement, created informal standards for how to conduct grass-fed farming. They sought out customers for the growing set of producers and volume of (now-premium) beef. Throughout this process, a social movement organized around ideas of protecting nature, preventing cruelty to animals, and promoting human health rallied resources in ways that created a new niche of an industry, and an opportunity for entrepreneurs.
The key insight from this research is the sequence of events: entrepreneurs with new ideas and products can in principle build markets through individual efforts, but it is difficult to accomplish. Once a social movement has made a cultural foundation, entrepreneurial effort is much easier, so it is accelerated and more likely to succeed. The sequence leading to the grass-fed beef you may be eating soon started with an idea and a language to use in making it a reality.
Weber, Klaus, Kathryn L. Heinze, and Michaela DeSoucey. 2008. "Forage for Thought: Mobilizing Codes in the Movement for Grass-fed Meat and Dairy Products." Administrative Science Quarterly 53(3):529-67.
So let us start with a person we all know from work – the networking one, who not only knows all the coworkers who are natural to know, but also knows people far away in the organization. We often refer to people like that as brokers, because their position means that they can deliver useful information for work across the organization, in addition to gossip, of course. There are at least a few of them in any given workplace, and they can be a nuisance because of the suspicion that the networking they do helps them just as much as their work does – that they get ahead by talking, not working. Of course that suspicion is correct; researchers have known it for decades.
But there is more to the story, and there is new evidence from a paper in Administrative Science Quarterly by Julien Clement, Andrew Shipilov, and Charles Galunic. They looked at how the brokers who connect to and also work in different communities affect the productivity of other workers in creative organizations – specifically, TV game show production. Now, creativity is one activity we know benefits from access to information elsewhere and from being a broker – again something we learned a decade ago, but only that the broker benefited, not whether the coworkers did. A study like this could show that the broker may seem like a nuisance but actually is a help because of the information brought in from afar.
That is almost true, but not quite. It turns out that brokers who also have commitments in the communities to which they connect help their nearby coworkers who are involved in creative tasks but not their other coworkers who need their contribution to production tasks. Most workers in any given organization are not creative workers; they do work that helps the operations of the organization. They make goods and services happen. Brokers are unlikely to be helpful for them, because they already know what they need to know, and the broker going around asking questions and sharing gossip is really not useful in any way. But maybe the broker is doing no harm, so their productivity is the same whether or not they have a broker nearby? Sorry, no such luck. It turns out the broker actually hurts the productivity of coworkers doing non-creative tasks.
Brokerage is an organizational task that helps the person doing it, helps creative people who are in touch with that person, and hurts the rest. The broker not only seems like a nuisance but is one too. This is a dilemma, of course, because organizations need ideas and action. Ultimately it is a familiar dilemma in all things organization: anything we can do to help one set of activities is likely to hurt different activities. Sounds like organizations need managers.
Clement, J., Shipilov, A., & Galunic, D. C. 2017. Brokerage as a Public Good: The Externalities of Network Hubs for Different Formal Roles in Creative Organizations. 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.