If you want to clean up the mess, an outsider is best

2009

There have been may examples recently of CEOs leaving organisations following poor decisions, only to be replaced by an insider who is deemed to be familiar with the problem and original choices. In other words, a safe pair of hands.

But is someone with personal connections to the old boss such a safe choice after all? According to new research from the Kellogg School of Management and London Business School, the answer is no. In fact, organisations would be much better off binging in an outsider with no connection to the old regime.

The problem, say Adam Galinsky and Brian Gunia of the Kellogg School of Management at Northwestern University and Niro Sivanathan of the London Business School, is that when new decision makers share a psychological connection with the initial decision maker, they tend to invest further in the failing programs of their predecessor - even when doing so can further undermine the organisation.

They have termed this psychological connection "vicarious entrapment" after they discovered that if a decision-maker is even subtly connected to their predecessor – sharing something in common like the same birthday – they will tend to give more credence to the original decision maker's commitments and make further investments in that person's decisions – even if those decisions were wrong.

"We know humans are social beings driven to find attachments and connections to others, " explained Adam Galinsky, who is Professor of Ethics and Decision in Management at the Kellogg School.

"Research has shown that once a psychological connection forms between two individuals, they are more likely to cooperate and favour each other financially. The current research suggests that they are also more likely to escalate on each others' failing decisions."

So when General Motors CEO Rick Wagoner was replaced by his protégé Fritz Henderson, the research implies that their pre-existing relationship could undermine Henderson's effectiveness. GM might be better served following Ford's lead and appointing an outsider (in Ford's case, Alan Mulally) to turn around the company.

To prove this, the researchers carried out experiments in three contexts: financial investments, personnel decisions and auctions.

Even when participants faced a direct financial cost to themselves – and even among economics students trained in the irrationality of honouring sunk costs – the delegated decision maker followed the original decisions once a psychological connection was made with the original decision maker.

For example, participants awarded a larger pay raise to an underperforming candidate originally "hired" by another decision-maker, but only when they had taken the perspective of and empathized with the first decision-maker.

Likewise, participants who shared the same birthday with an original auction bidder made many more bids and lost significantly more money than those who took over for a bidder with a different birthday.

Brian Gunia said that the message of the research is that organisations trying to put themselves back on track after their leaders made bad decisions should consider bringing in a true outsider to clean up the mess. "Although outsiders may take longer to understand the problem, their psychological disconnection with the past may enable them to act more decisively once they do. Our research suggests that an individual who shares even the most subtle connections with predecessors may act less independently," he said.

Older Comments

Interesting article. Look at what's happening with ITV's much derided search for a new CEO. The board and shareholders know they want an outsider. But now that successive prospective CEOs have declined to take the position, they've decided to appoint an insider as interim CEO. They're missing a trick here in my view. What they should be looking at is the value a dispassionate, external interim ceo could bring, while the protracted search for a permanent candidate continues. What happens in those intervening months will be crucial. Why give such an important job to someone who's already said they intend to leave the business as soon as they are able?

Nick Diprose Executive Director BIE Interim Executive Ltd www.bieinterim.co.uk

Nick Diprose London