A Paradigm Shift in Understanding Executive Leadership
A new study published in the Journal of Management Studies offers a pioneering view on CEOs by examining how external factors—specifically, firm performance and tenure—shape the mindset and motivations of these top executives. Conducted by an international team of researchers from TU Dortmund University, McMaster University, Pepperdine University, and the University of Passau, the study challenges the traditional perspective that sees CEOs as largely unshaken by the environments they operate within. This research reframes the discussion by exploring how CEOs’ perceptions of job demands evolve based on these external influences, offering invaluable insights for executives and board members alike.
Firm Performance and CEO Promotion Focus: Less Pressure, More Aspiration
The study’s findings suggest that strong firm performance relative to competitors allows CEOs to adopt what is termed a “promotion focus.” This mindset is characterised by an emphasis on growth, aspirations, and achievements over loss avoidance. Lorenz Graf-Vlachy, a professor at TU Dortmund University and a co-author of the study, explains, “The better a firm performs relative to its peers, the less CEOs worry about being dismissed, which reduces the pressure they feel. This mental space allows them to adopt a more promotion-focused mindset.” When CEOs experience reduced concerns about job security, they naturally lean toward advancing growth initiatives, pursuing long-term goals, and strengthening strategic decision-making rather than focusing solely on stability.
This psychological shift can significantly impact a firm’s trajectory. CEOs in promotion-focused states are likely to pursue ambitious objectives, invest in innovative practices, and proactively enhance stakeholder value. For companies consistently outperforming competitors, this mindset could foster a culture of sustained growth and forward-thinking leadership.
The Tenure Factor: A Diminished Response to Firm Performance Over Time
The study’s second major finding is the effect of tenure on CEO responsiveness to firm performance. As CEOs spend more years in their roles, the self-imposed job demands they experience tend to decrease, leading to less sensitivity to changes in firm performance. “As CEOs spend more time in office, their mindsets become less affected by their firms’ performance,” says Graf-Vlachy. According to the study, these executives perceive fewer job-related pressures because they impose fewer demands on themselves, contributing to a more stable but less performance-reactive outlook.
For boards and stakeholders, this insight highlights the nuanced impact of CEO tenure. While experienced CEOs can bring stability and a depth of understanding to an organisation, they may also exhibit decreased responsiveness to fluctuating market conditions or company performance. This can be advantageous during stable periods but may also limit adaptability in more dynamic phases of a company’s lifecycle.
The Data Behind the Findings: A Decade-Long Analysis of U.S. CEOs
Researchers analysed the psychology and behaviours of 594 CEOs from 377 publicly traded U.S. companies over a 10-year period, offering a comprehensive view of how executive mindsets evolve. This longitudinal data sheds light on the adaptability and transformation in the psyche of top leaders, challenging the stereotypical image of CEOs as immutable figures within their organisations. By focusing on regulatory focus theory—the degree to which individuals are motivated by achieving gains (promotion focus) versus avoiding losses (prevention focus)—the study provides a framework for understanding the motivational underpinnings that drive CEOs’ decision-making.
Implications for Boards and Executives: A New Lens on CEO Decision-Making
These insights carry substantial implications for corporate governance. For boards, understanding how tenure and firm performance shape a CEO’s focus can be instrumental in aligning leadership styles with organisational needs. Boards may consider these dynamics when evaluating the tenure of their CEOs, balancing the benefits of stability with the potential need for adaptive leadership in response to market changes.
Executives, too, can benefit from this knowledge. By recognising how these external factors influence their mindset, CEOs can adopt strategies to counteract potential limitations, such as actively seeking feedback or setting periodic personal benchmarks to maintain a promotion-focused mindset. This self-awareness may empower CEOs to adjust their approach to goal pursuit and decision-making, ensuring they stay attuned to evolving organisational and market needs.
Research Excellence and Scholarly Contribution
Published in the prestigious Journal of Management Studies, this research marks a notable contribution to the field of executive leadership. The journal, recognised in the Chartered Association of Business Schools’ Academic Journal Guide and the Financial Times 50 list of top business journals, upholds rigorous standards that underscore the quality of this study. The collaboration among institutions across Germany, Canada, and the United States further underscores the international relevance of the findings.