Understanding the human side of openness: the fit between open innovation modes and CEO characteristics

In small- and medium-sized enterprises (SMEs), where typically the decision-making process is highly centralised, important decisions, such as open innovation (OI) adoption, will be strongly influenced by the characteristics of their Chief Executive Officers (CEOs). Pointing the attention to the strategic leadership and human elements, this paper sheds light on the micro-foundation of OI by emphasising the role that the personal traits of key individuals in innovation. OI adoption could result in the enactment of several OI modes – each representing an opportunity of potential change (of market, of technology or/and of the organisation) – and this paper attempts to examine the relationships between the CEO characteristics and each of the OI modes. Our analysis, using Korean SME data, shows that CEOs’ positive attitude, entrepreneurial orientation (EO), patience and education can play important roles in facilitating OI in SMEs. However, this paper also observed that the effects of CEO characteristics on OI adoption were differently configured according to the nature of each OI mode, for example, CEOs’ patience and EO had different impacts depending on the degree of uncertainty in the OI mode. This suggest that OI must be understood as a wide innovation spectrum, and, to increase opportunities for successful OI adoption, CEOs have to attempt to compensate for characteristics they may lack by recruiting appropriate complementary top managements. The research has practical implications for CEOs and policy makers who are interested in enhancing competitiveness of SMEs.     

Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies

Research summary : We provide evidence that founder chief executive officers (CEOs) of large S&P 1500 companies are more overconfident than their nonfounder counterparts (“professional CEOs”). We measure overconfidence via tone of CEO tweets, tone of CEO statements during earnings conference calls, management earnings forecasts, and CEO option‐exercise behavior. Compared with professional CEOs, founder CEOs use more optimistic language on Twitter and during earnings conference calls. In addition, founder CEOs are more likely to issue earnings forecasts that are too high; they are also more likely to perceive their firms to be undervalued, as implied by their option‐exercise behavior. We provide evidence that, to date, investors appear unaware of this “overconfidence bias” among founders. Managerial summary : This article helps to explain why firms managed by founder chief executive officers (CEOs) behave differently from those managed by professional CEOs. We study a sample of S&P 1500 firms and find strong evidence that founder CEOs are more overconfident than professional CEOs. To date, investors appear unaware of this overconfidence bias among founders. Our study should help firm stakeholders, including investors, employees, suppliers, and customers, put the statements and actions of founder CEOs in perspective. Our study should also help members of corporate boards make more informed decisions about whether to retain (or bring back) founder CEOs or hire professional CEOs. Copyright © 2016 John Wiley & Sons, Ltd.     

CEO transformational leadership and firm performance: A moderated mediation model of TMT trust climate and environmental dynamism

This study examines the role of top management team (TMT) trust climate in the relationship between CEO transformational leadership (TFL) and firm performance under dynamic environments. The research results based on a sample collected from firms in Vietnam show that TMT trust climate is a key mediator which can convert CEO TFL into better performance outcomes. Moderated-mediation analyses further reveal that the mediating effect of TMT trust climate is more significant in less dynamic environments. Our study contributes to the TFL theory by identifying a critical mechanism that intervenes in the relationship between CEO-level TFL and firm performance. We reveal how CEOs exert leadership influence on subsequent TMT dynamics and performance outcomes by navigating external environments. Moreover, our study offers insights with regard to the trust theory by uncovering TMT-level intragroup trust as a mediator, and thus complements most of prior examinations that focus on the moderating role of trust in workplace team contexts.     

Narcissism,director selection,and risk‐taking spending

We explain why CEOs favor new directors who are similar in narcissistic tendency or have prior experience with other similarly narcissistic CEOs. Because powerful CEOs are more able to select such individuals onto their boards, CEO power is predicted to be positively associated with the above characteristics of new directors. These associations are expected to be stronger when a new director is more different from the CEO in salient demographic characteristics. Moreover, we explain why new directors favored by CEOs are more supportive of their decision making, strengthening the positive relationship between CEO narcissism and risk‐taking spending. Our findings provide considerable support for our theory. This study introduces personality theories to corporate governance research on director selection and to research on how triads influence dyadic relations. Copyright © 2014 John Wiley & Sons, Ltd.     

CEO–CFO team optimism: Commercial real estate transactions and REIT performance

The managerial optimism literature concentrates on CEOs neglecting other executive team members. We evaluate the interplay of the optimism levels of the CEOs and CFOs of real estate investment trusts, and study their commercial real estate transactions. We find that firms led by optimistic CEO/CFO teams pay 3% more than their peers for their asset acquisitions if cash ratio increases by one percentage point. Our findings also exhibit inferior stock performance by optimistic teams following a transaction. Conversely, diversity in terms of CEO/CFO optimism prevents firms from overpaying, serving as a soft governance mechanism with salience to firm performance.     

CEO incentives,innovation, and performance in technology‐intensive firms: a reconciliation of outcome and behavior‐based incentive schemes

Building on the agency view of corporate governance, we propose that technology‐intensive firms use both outcome and behavior‐based performance criteria for rewarding CEOs. Using a sample of 206 firms from 12 U.S. manufacturing industries, we find that as technological intensity increases CEO bonuses are more closely linked to financial results and that total CEO incentives are associated with two indicators of desirable innovation behaviors: invention resonance and science harvesting. Invention resonance refers to the impact a firm's inventions have on other firms' inventions, while science harvesting reflects a firm's commitment to scientific research. As technological intensity increases, aligning bonus with financial results, total incentives with invention resonance, and total incentives with science harvesting predict firm market performance. Copyright © 2006 John Wiley & Sons, Ltd.     

Reassessing board member allegiance: CEO replacement following financial misconduct

Research summary: We examine how board members' reactions following financial misconduct differ from those following other adverse organizational events, such as poor performance. We hypothesize that inside directors and directors appointed by the CEO may be particularly concerned about their reputation following deceptive financial practices. We demonstrate that directors more closely affiliated with the CEO are more likely to reduce their support for the CEO following financial misconduct, increasing the likelihood of CEO replacement. Enactment of the Sarbanes‐Oxley Act similarly alters governance dynamics by creating a greater expectation for sound corporate governance. We demonstrate our findings in U.S. public firms that restated their financial earnings during a 12‐year period before and after the passage of Sarbanes‐Oxley. Managerial summary: Given past concerns about lack of oversight by boards of directors leading to firm financial misconduct, we examine how the relationship between directors and CEOs may be altered in the face of such misconduct. We argue that directors most closely tied to the CEO (inside board members and board members appointed by the CEO), typically the most supportive of the CEO, may become most concerned about their own reputation following financial misconduct. We find that CEOs receive less support from these directors, a finding in contrast to past studies demonstrating that such board members tend to shield CEOs following poor performance. These findings are accentuated following the passage of the Sarbanes‐Oxley Act, which places greater responsibility on the CEO for the accuracy of financial reports. Copyright © 2015 John Wiley & Sons, Ltd.     

CEO Overconfidence,REIT Investment Activity and Performance

This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investments and divestments can be identified with precision. We look at the effect of CEO overconfidence on investment activity and separately investigate property acquisitions and dispositions. We find that REITs with overconfident CEOs tend to invest more; these REITs acquire more assets and are less likely to sell assets than their counterparts if they have enough discretionary cash. Valuable private information is not the main driver for CEOs to be net buyers of company shares: the shares of their companies perform relatively weakly. In addition, we find that overconfident managers have lower property investment performance measured by net operating income and gain on sale of real estate.     

Being the CEO's boss: An examination of board chair orientations

Research summary: Scholars have traditionally conceptualized board leadership as a dichotomous construct. A combined CEO and board chair position is interpreted as reflecting a more collaborative approach to corporate governance, whereas separate positions are interpreted as ensuring greater board control. I challenge this conceptualization and posit that a separate board chair can be oriented toward collaboration as well as—or in place of—control. I analyze newly available data from corporate proxy statements to identify these two board chair orientations and test competing perspectives on how they impact profitability growth in a sample of S&P 500 firms. The results indicate that board leadership is a more nuanced phenomenon than the extant literature would suggest . Managerial summary: What is the role of the board chair when not the CEO ? Corporate governance experts assert the board chair's role is to monitor and control the CEO . Yet, board chairs often play another, more collaborative role. Board chairs frequently provide advice and guidance to CEOs and relieve CEOs of board leadership burdens, enabling the CEOs to focus on their primary responsibilities. In this study, I examine the effect of board chair orientations on financial performance and find that, as with separating or joining the CEO and board chair positions, the profitability implications of the selected orientation are far from universal. Board chairs must consider their firm's performance context in order to get the most out of a particular approach to being the CEO 's boss . Copyright © 2016 John Wiley & Sons, Ltd.     

Home Alone: The Effects of Lone‐Insider Boards on CEO Pay,Financial Misconduct,and Firm Performance

Research summary: Corporate scandals of the previous decade have heightened attention on board independence. Indeed, boards at many large firms are now so independent that the CEO is “home alone” as the lone inside member. We build upon “pro‐insider” research within agency theory to explain how the growing trend toward lone‐insider boards affects key outcomes and how external governance forces constrain their impact. We find evidence among S&P 1500 firms that having a lone‐insider board is associated with (a) excess CEO pay and a larger CEO‐top management team pay gap, (b) increased likelihood of financial misconduct, and (c) decreased firm performance, but that stock analysts and institutional investors reduce these negative effects. The findings raise important questions about the efficacy of leaving the CEO “home alone.” Managerial summary: Following concerns that insider‐dominated boards failed to protect shareholders, there has been a push for greater board independence. This push has been so successful that the CEO is now the only insider on the boards of more than half of S&P 1500 firms. We examine whether lone‐insider boards do in fact offer strong governance or whether they enable CEOs to benefit personally. We find that lone‐insider boards pay CEOs excessively, pay CEOs a disproportionately large amount relative to other top managers, have more instances of financial misconduct, and have lower performance than boards with more than one insider. Thus, it appears that lone‐insider boards do not function as intended and firms should reconsider whether the push towards lone‐insider boards is actually in shareholders' best interests. Copyright © 2017 John Wiley & Sons, Ltd.     

Cheap talk? Strategy presentations as a form of chief executive officer impression management

Research summary: We develop and test a set of hypotheses on investors' reactions to a specific form of impression management, public presentations of overall strategy by Chief Executive Officers (CEOs). Contrary to expectations from a “cheap talk” perspective, we suggest that such strategy presentations convey valuable information to investors, especially in conditions of heightened information asymmetry associated with varying types of new CEOs. Broad empirical support for our theoretical arguments is shown in a sample of strategy presentations carried out by NYSE and NASDAQ listed organizations over 10 years. Our research contributes to literature on new CEOs and impression management. We draw out implications both for management and for further research. Managerial summary: We examine the impact of public presentations on company strategy by Chief Executive Officers (CEOs) on company stock prices. Adjusting for market movements in general, on average stock prices rose by 1.6 percent following these strategy presentations. Strategy presentations received larger reactions the more the CEO was unfamiliar to investors. Thus, stock price gains for new CEOs in general were 5.3 percent; for external, within‐industry new CEOs, they were 9.3 percent; and for external, outside‐of‐industry new CEOs, they were 12.4 percent. Given that only 40 percent of new CEOs present on strategy in their first 200 days post‐appointment, we suggest that new CEOs pay more attention to this potential means of communicating, especially if they are unfamiliar to investors. Copyright © 2015 John Wiley & Sons, Ltd.     

The role of social proximity in professional CEO appointments: Evidence from caste/religion‐based hiring of CEOs in India

Research Summary: The role of homophily in CEO appointments at the largest corporations is an important subject in corporate governance. This subject is particularly important in a country like India where a multitude of religions, castes, and communities form its social fabric. We test for the role of homophily in professional CEO appointments in India by empirically examining the preference for same caste/religion CEOs by the largest firms. Using a unique dataset, assembled by detailed identification of castes/religions from family names and counterfactuals obtained through the Coarsened Exact Matching technique, we find that caste/religion plays a crucial role in CEO selection as a source of information (positive discrimination). The evidence is not consistent with its use to pursue taste‐based preferences (negative discrimination). Managerial Summary: We test for the role of homophily in the appointments of CEOs in India by empirically examining the preference for same caste/religion CEOs by the largest firms. We find that caste/religion plays an important role in CEO selection, i.e., as a form of information or “positive discrimination.” The evidence is not consistent with its use to pursue taste‐based preferences or “negative discrimination.”     

What Makes a Family Firm Innovative? CEO Risk‐Taking Propensity and the Organizational Context of Family Firms

Investigating the new product portfolio innovativeness of family firms connects two important topics that have recently received considerable attention in innovation and family firm research. First, new product portfolio innovativeness has been identified as a critical determinant of firm performance. Second, research on family firms has focused on the questions of if and why family firms are more or less innovative than other organizational forms. Research investigating the innovativeness of family firms has often applied a risk‐oriented perspective by identifying socioemotional wealth (SEW) as the main reference that determines firm behavior. Thus, prior research has mainly focused on the organizational context to predict innovation‐related family firm behavior and neglected the impact of preferences and the behavior of the chief executive officer (CEO), which have both been shown to affect firm outcomes. Hence, this study aims to extend the previous research by introducing the CEO's disposition to organizational context variables to explain the new product portfolio innovativeness of small and medium‐sized family firms. Specifically, this study explores how the organizational context (i.e., ownership by top management team [TMT] family members and generation in charge of the family firm) of family firms interacts with CEO risk‐taking propensity to affect new product portfolio innovativeness. Using a sample of 114 German CEOs of small and medium‐sized family firms operating in manufacturing industries, the results show that CEO risk‐taking propensity has a positive effect on new product portfolio innovativeness. Moreover, the analyses show that the organizational context of family firms impacts the relationship between CEO risk‐taking propensity and new product portfolio innovativeness. Specifically, the relationship between CEO risk‐taking propensity and new product portfolio innovativeness is weaker if levels of ownership by TMT family members are high (high SEW). Additionally, the effect of CEO risk‐taking propensity on new product portfolio innovativeness is stronger in family firms at earlier generational stages (high SEW). This result suggests that if SEW is a strong reference, family firm‐specific characteristics can affect individual dispositions and, in turn, the behaviors of executives. Therefore, this study helps extend the knowledge on the determinants of new product portfolio innovativeness of family firms by considering an individual CEO preference and the organizational context variables of family firms simultaneously.     

Labor market evaluation versus legacy conservation: What factors determine retiring CEOs' decisions about long‐term investment?

Do CEOs nearing retirement attempt to boost short‐term firm performance or do they care more about what type of legacy they will leave behind? The two opposing predictions about the behavior of CEOs upon retirement suggest that retiring CEOs' decisions about certain long‐term investment items may be more complex than suggested in the literature. In search of an answer to this question, we examine the relationship between CEO retirement and the level of firm commitment to corporate social responsibility (CSR). The results show that CEO retirement has a negative effect on firm commitment to CSR. However, we found that the negative effect becomes weaker when CEOs retire at relatively older ages or are retained on the board of directors of their own firms. Our finding suggests that CEOs who face weaker pressure from the labor market for corporate directors may pay more attention to preserving their legacy. Copyright © 2014 John Wiley & Sons, Ltd.     

CEO research orientation,organizational context,and innovation in the pharmaceutical industry

This study develops and tests a comprehensive framework that explains what, when, and how CEO characteristics influence firms’ innovation outcomes in R&D-intensive industries. Empirical evidence from 109 CEOs from 87 U.S.-based pharmaceutical firms over the period 2001–2013 reveals that research-oriented CEOs – those with ability and motivation for science and technology – increase their firms’ innovation outcomes. The results indicate that the CEO–innovation relationship strongly depends on the extent of CEOs’ managerial discretion, which is shaped by the organizational context. We contribute to a more comprehensive understanding of the role of CEOs in firms´ innovation performance differentials.     

Outside CEOs and innovation

Research Summary: Innovation is the principle driver of firm and economic growth. Thus, one disturbing trend that may explain stagnant growth is a 65% decline in firms’ R&D productivity. We propose that the rise of outside Chief Executive Officers (CEOs) may be partially responsible for the decline because those CEOs are more likely to lack technological domain expertise necessary to manage R&D effectively. While this proposition was motivated by interviews with Chief Technology Officers (CTOs), we test it at large scale. We find that firm R&D productivity decays during the tenure of outside CEOs relative to that of inside CEOs. We further find this effect is more pronounced for firms with high R&D intensity and for firms employing outside CEOs with more remote experience, lending circumstantial support for the underlying assumption regarding lack of expertise. Note that this is not a call for boards to avoid outside CEOs, rather it is recommendation to consider the implications for innovation. Managerial Summary: While outside CEOs offer advantages over internal candidates, we argue one unintended consequence is weaker innovation. This argument was prompted by two coincident trends: a 65% decline in companies’ R&D productivity and a doubling of outside Chief Executive Officers (CEOs). The argument was reinforced by interviews with Chief Technology Officers (CTOs), who recounted shifts in orientation from R&D as an investment to R&D as an expense that occurred shortly in response to a new CEO. We felt this shift was more likely with outside CEOs because they may lack technological domain expertise necessary to effectively manage R&D. Our results are consistent with the argument—company R&D productivity decreases under outside CEOs. Note, however, that we don’t advocate avoiding outside CEOs, rather we recommend R&D firms consider technological domain expertise during CEO hiring.     

The differing effects of agent and founder CEOs on the firm's market expansion

This paper builds and tests the thesis that CEO influence evolves differently for founders and agents. We theorize that at the beginning of their tenures, founder CEOs can pursue market expansion more aggressively than agent CEOs, because they take office with the combination of motivation, power, and requisite knowledge that agent CEOs build over time. Subsequently, however, founder CEOs have less access to the administrative infrastructure necessary to sustain a growing firm, making them less able than agent CEOs to continue market expansion mid‐tenure and more severely constrained by market complexity. A longitudinal study of cable television operators confirms that the firm's market expansion follows an inverted U‐shape for agents and a downward slope for founders, while market complexity reduces market expansion, especially for founders. Copyright © 2011 John Wiley & Sons, Ltd.     

When is human capital a valuable resource? The performance effects of Ivy league selection among celebrated CEOs

We investigate whether and when highly trained human capital constitutes a rent‐sustaining resource. Our study of 444 CEOs celebrated on the covers of major U.S. business magazines found an advantage accruing to graduates of selective universities. Such CEOs led firms with higher and more sustained market valuations. The advantage was strongest for undergraduate programs as these related to the kinds of talent demanded of a CEO. The advantage also was greatest in smaller firms where CEO discretion might be highest and for younger CEOs who may benefit most from college and are less able to appropriate rents. Finally, the advantage accrued to graduates of more recent years, when selective schools had become less socially elitist and increasingly meritocratic, thus favoring human versus social capital. Copyright © 2014 John Wiley & Sons, Ltd.     

Board control and ceo compensation

The board of directors has been identified as a key internal control mechanism for setting CEO compensation. Theory suggests that CEOs will attempt to circumvent board control in an effort to maximize salary. This hypothesis was tested using a sample of 193 firms in a cross-section of industries. Corporate governance literature was reviewed to develop a multiple indicator measure of board control. Although, as hypothesized, CEO salaries were greater in firms with lower levels of control, CEO compensation was not significantly related to firm size or profitability.     

BS in the boardroom: Benevolent sexism and board chair orientations

Research Summary: Though research has focused on the ascent and acceptance of female CEOs, the post‐promotion circumstances female CEOs face remain unclear. In this study, we focus on a critical post‐promotion circumstance: the board chair–CEO relationship. Drawing on the gender stereotype literature, agency theory, and stewardship theory, we posit that firms appointing a female CEO are more likely to adopt a collaboration board chair orientation and less likely to adopt a control orientation. We further predict this effect is attenuated by female board representation. Using a sample of new S&P 1500 CEOs, we find support for our predictions regarding the collaboration orientation but not the control orientation. This research provides some evidence of benevolent sexism in the boardroom, with female directors acting as a countervailing influence. Managerial Summary: Whereas the notion that females encounter a glass ceiling on their path toward CEO is well documented, the conditions female CEOs encounter after promotion are less understood. The relationship between the board chair and the CEO is one important post‐promotion condition. Board chairs can focus on monitoring and/or working together with the CEO. We suggest board chairs are more likely to work in close collaboration with female CEOs than with male CEOs. We attribute this to benevolent sexism, which explains that board chairs are more likely to collaborate with female CEOs because they view females as more conducive to, and in need of, this type of relationship. We also suggest this benevolent sexism is less prevalent when there are more females on the board.