STUDY MATERIAL – COURSE LITERATURE
Bonus lecture
Change is extremely difficult and it is difficult to not become pessimistic. People think in systems-
change, where it is oftentimes more complex. Resolving these obstacles and issues involved with
change are actually part of your job. This is change management.
Lecture 2 – Boardroom Dynamics
Ernst studied boardroom dynamics at Ten Have.
Board Structures. The Rijnlandmodel (Germany – Netherlands) have two-tier boards (supervisory
board in charge of decision control and management board in charge of decision management). The
Anglo-Saxonmodel (UK) has a one-tier board of directors in charge of decision management and
control. Most of the literature on boardroom dynamics focuses on the Anglo-Saxon model, which has
all kinds of implications of course.
Agency Theory. Agency theory is used to understand the relationships between an agent (e.g.,
corporate manager) and a principal (e.g., shareholder). An information-asymmetry between the two
leads to principle-agent problem.
Accountability > monitoring and compliance. Accountability is about creating a healthy balance
between trust and distrust, and creating open dialogue. Such accountability is in practice achieved
through a wide variety of behaviours, such as challenging, questioning, probing, discussing, testing,
informing, debating, exploring and encouraging.
Stewardship Theory. Stewardship theory is a theory that managers, left on their own, will act as
responsible stewards of the assets they control. Stewardship theorists assume that given a choice
between self-serving behavior and pro-organizational behavior, a steward will place higher value on
cooperation than defection.
Upper echelons theory. Bounded rationality is a concept proposed by Herbert Simon that challenges
the notion of human rationality as implied by the concept of homo economicus. Rationality is
bounded because there are limits to our thinking capacity, available information, and time (Simon,
1982). “If we want to understand why organizations do the things they do, or why they perform the
way they do, we must consider the biases and dispositions of their most powerful actors — their top
executives.” (Hambrick, 2007, p. 334)
Homo economicus
• Acts consistently rational
• Motivated by self-interested opportunism (challenged by stewardship theory)
• Takes all sources of information (limitless) into consideration before making a decision
(challenged by upper echelons theory)
,Main critiques of upper echelon theory:
Glorifies corporate elites
Input-output studies
Reverse causality
Input-output studies do not attend to boardroom dynamics, but infer on dynamics based on
quantifiable parameters. They look at the input of the boardroom, such as size and characteristics,
and the output of the boardroom, such as firm performance. But no closer look is given on the
dynamics that cause the output. They are black box studies. How strong is the predictive model of
such studies?
As for the criticism that upper echelons theory somehow glorifies elites, nothing could be farther from
the truth. The upper echelons perspective is entirely based on the premise that executives are
humanly finite—susceptible to fatigue, boredom, jealousy, cognitive biases, social preening, and
selfishness—just like the rest of us. In fact, upper echelons theory pokes holes in the myth, prevalent
among many management scholars (especially those in strategic management), that executives are
capable of, and committed to, technoeconomic optimization. Let me put it this way: when I speak to
executive audiences about upper echelons studies on such topics as experience traps, seasons of a
CEO’s tenure, hubris, impression management, or narcissism—well, they don’t react as though
they’ve been glorified. (Hambrick, 2007, p. 341)
Resource dependence theory. Organizations depend on external resources and strive to gain access
to and control over critical resources. Resources mean power and therefore organizations need to
pay attention to how critical a resource is for the firm’s survival.
Four benefits directors can bring to firms:
• Advice and counsel;
• Channels of information flow;
• Preferential access to resources;
• and legitimacy.
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Input-output studies do not attend to boardroom dynamics, but infer on dynamics based on
quantifiable parameters. How strong is the predictive model of such studies? The “usual suspects” of
input-output studies are:
• Insider/outsider ratio;
• Board size;
• Director’s shareholding;
• CEO duality;
• CEO incentives;
• And so on.
CEO duality occurs when the same person holds both the CEO and board chairperson positions in a
corporation (Rechner & Dalton, 1991).
,Lecture 3 – Executive Hubris
Hubris (arrogance) -infected top executives are more vulnerable to fall prey to the winner’s curse.
The winner's curse is a tendency for the winning bid in an auction to exceed the intrinsic value or
true worth of an item. The gap in auctioned versus intrinsic value can typically be attributed to
incomplete information, emotions, or a variety of other subjective factors that may influence
bidders.
“Hubris syndrome is more than just an extreme case of other pathologies such as narcissism.
It is an acquired condition, as it is triggered by accession to a position of power and the
resulting lack of constraints on the individual’s behavior.” (Petit & Bollaert, 2012, p. 268)
The vice of hubris stands in direct oppositions to the virtue of reference, which is the capacity to feel
respect in the right way toward the right people and to feel awe towards an object that transcends
particular human interests.
"Power tends to corrupt, and
absolute power corrupts absolutely.
Great men are almost always bad
men.“ (Dalberg-Acton, 1887)
Three assumptions underlying the notion of top executive hubris:
It exists only in the context of power;
The CEO wields the most power in an organization;
A leader who displays unethical behavior is no leader, but is to be qualified as a tyrant.
Top executive hubris covers three dimensions:
A. The hubristic CEO has a grandiose sense of self;
B. The hubristic CEO considers him or herself to be above the community of humans;
C. The hubristic CEO does not feel constrained by normal rules and laws, considering him or
herself to be above them.
Moral identity is the extent to which an individual holds morality
as part of his or her self-concept (Aquino & Reed, 2002).
Moral awareness is the recognition by an individual of a
situation’s moral content (Reynolds, 2006).
, Galinsky (2008) hypothesizes that individuals with power are less influenced and constrained by
salient information in the environment and as a result, intrapsychic processes matter more than the
situation in determining the attitudinal expression of the powerful.
The eight criteria for thought reform:
1. Milieu control
This involves the control of information and communication both within the
environment and, ultimately, within the individual, resulting in a significant degree of
isolation from society at large.
2. Mystical Manipulation
The manipulation of experiences that appears spontaneous but is, in fact, planned
and orchestrated by the group or its leaders to demonstrate divine authority,
spiritual advancement, or some exceptional talent or insight that sets the leader
and/or group apart from humanity, and that allows a reinterpretation of historical
events, scripture, and other experiences. Coincidences and happenstance oddities
are interpreted as omens or prophecies.
3. Demand for purity
The world is viewed as black and white and the members are constantly exhorted to
conform to the ideology of the group and strive for perfection. The induction of guilt
and/or shame is a powerful control device used here.
4. Confession
Sins, as defined by the group, are to be confessed either to a personal monitor or
publicly to the group. There is no confidentiality; members' "sins," "attitudes," and
"faults" are discussed and exploited by the leaders.
5. Sacred science
The group's doctrine or ideology is considered to be the ultimate Truth, beyond all
questioning or dispute. Truth is not to be found outside the group. The leader, as the
spokesperson for God or all humanity, is likewise above criticism.
6. Loading the language
The group interprets or uses words and phrases in new ways so that often the
outside world does not understand. This jargon consists of thought-terminating
clichés, which serve to alter members' thought processes to conform to the group's
way of thinking.
7. Doctrine over person
Members' personal experiences are subordinated to the sacred science and any
contrary experiences must be denied or reinterpreted to fit the ideology of the
group.
8. Dispensing of existence
The group has the prerogative to decide who has the right to exist and who does not.
This is usually not literal but means that those in the outside world are not saved,
unenlightened, unconscious, and must be converted to the group's ideology. If they
do not join the group or are critical of the group, then they must be rejected by the
members. Thus, the outside world loses all credibility. In conjunction, should any
member leave the group, he or she must be rejected also.
“On the level of social process, I saw many parallels between what the Chinese Communists were
doing and what we do every day in families, in schools, in prisons, and in private and public
organizations under the concepts of training, development, and socialization. The goals are different,
but the methods are remarkably similar. When we disapprove, we call it a cult and deplore it; when
we approve, we call it an effective indoctrination program, such as a boot camp or academy.” (p. 234)
