What should boards do about power-hungry leaders?
As part of their study, Holden and Dessein developed a framework that models answers to a number of important questions for organizations, such as:
- What is the optimal number of layers in an organizational hierarchy?
- When do middle managers destroy value?
- What is the optimal scope of a firm?
While the answers to the above questions will differ for each organization, Holden said the implications for boards, and the actions they should take around power-hungry leaders, are more consistent. “This is a job for the board,” said Holden, who explained the first and most important consideration is to be careful who they choose as CEO.
“Is the candidate they have in mind a ‘power-hungry decision-rights hoarder’? That could be bad news for the organization. When it comes to making decisions, are they a hoarder or not? Are they a good delegator or not? And since there’s an underappreciated downside or drawback to having a hoarder in charge, you may want to think carefully about that dimension of who you’re choosing.”
Another solution for boards to power-hungry leaders providing direct rewards or incentives for delegation. These rewards might come in different forms, including benefits that come from structuring the organization in a certain way.
“At the board level, they need to be quite explicit about the kind of formal authority that is delegated to say, divisional managers, or the amount of authority that is delegated below the CEO. Obviously, the CEO has to be in charge, and you can’t undercut their authority. But there are ways that you can think about financial delegations, for example, in that they can be decisions that can be made at the board level,” said Holden.
These might be decisions about limits on capital expenditures, acquisitions, or divestitures, for example, which place formal thresholds on certain kinds of decisions and the potential impact they could have on an organization. “So those are the things that boards can do, and it’s really a challenge for board directors to take up,” Holden concluded.