Do You Believe In Magic?

Today’s extraordinary trust in the power of the charismatic CEO resembles less a mature faith than it does a belief in magic. — Rakesh Khurana

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Donald Trump

Robert Schiller, Nobel laureate in economics, equates Trump’s election to the tendency in business to seek out ‘charismatic, outsider’ CEOs, who have a less than stellar track record:

Robert Schiller, Trump, and Great Business Ideas for American

Mr. Trump’s background evidently appealed to voters, but he should be careful not to be overconfident. His election may be a culmination of a trend in society of lionizing business stars and expecting too much of them.

We’ve seen this phenomenon in the outlandish salaries paid to top chief executives and in the public enthusiasm for them. Rakesh Khurana, dean of Harvard College, described the trend eloquently in his book “Searching for a Corporate Savior: The Irrational Quest for Charismatic C.E.O.s” (Princeton, 2002). He discerned a long trend in American business toward choosing chief executives from outside a company and paying them handsomely for some presumed business flair despite their ignorance of the long-term internal issues facing a company.

Professor Khurana warned that expecting these people to perform acts of genius was asking for trouble. The charismatic outsider tends to become authoritarian, alienating others in the company. The executive’s desperate efforts to live up to their promise may sometimes result in wild gambles. There are grounds for concern that President Trump could be this kind of outsider chief executive.

Khurana also wrote The Curse of the Superstar CEO, the article behind the book, in which he states that two societal shifts position charismatic outsider CEOs to shake things up in the ’80s when a decline in corporate profits annoyed investors:

The first was the emergence of an almost religious conception of business, exemplified by the appearance of words such as “mission,” “vision,” and “values” in the corporate lexicon. The second shift was the rise of so-called populist capitalism, whereby ordinary Americans made investing the country’s most popular participatory sport. To serve the public’s growing appetite for business news, the mass media greatly expanded coverage of corporate doings, focusing — as always — on personalities and easily comprehensible narratives.

The volatile mix between workism — the cultish obsession with work-as-the-center-of-the-universe — and populist capitalism have led to the perfect breeding ground for charismatic sociopaths in business. As Khurana puts it,

[…] the charismatic CEO was typically — though not invariably — either an entrepreneurial founder or someone who had been brought into the company from the outside. Far from being a predictable organization man, he was expected to offer a vision of a radically different future and to attract and motivate followers for a journey to the new promised land. In keeping with the religious conception of the CEO’s role, the charismatic leader was also supposed to have the “gift of tongues,” with which he could inspire employees to work harder and gain the confidence of investors, analysts, and the ever skeptical business press. Finally, in all too many cases, the charismatic leader was supposed to have the power to perform miracles — to bring a dying company back to life, for instance, or to vanquish much larger, more powerful foes.

But the downside can be devastating, because charisma can only do so much, and some of what it does is creating a ‘reality distortion field’. The real problem, though, is that there is simply no correlation between leadership and corporate success, but leaders are increasingly fired quickly in any downturn. Again, Khurana:

Studies show that various internal and external constraints inhibit an executive’s ability to affect a company’s performance. Most estimates, for example, attribute anywhere from 30% to 45% of performance to industry effects and 10% to 20% to year-to-year economic changes. Thus, the best anyone can say about the effect of a CEO on a company’s performance is that it depends greatly on circumstances.

The misguided assumption that CEOs are all-powerful is the main reason that the tenure of business leaders has grown ever briefer in recent years. If a CEO is responsible for a company’s successes, after all, he must also be responsible for its failures. My research clearly shows that directors automatically blame the incumbent CEO when a company performs poorly. Scapegoating is as old as human nature, of course, but my interviews strongly suggest that when corporate performance falters, directors come under enormous pressure to fire the CEO and hire a savior. This finding is consistent with the larger historical truth that while charismatic leaders (whether in religion, politics, or elsewhere) may appear at any time, they most often emerge — or are called into existence — during a crisis.

Khurana goes on to discuss the history of Kodak, where Kay Whitmore was pushed out in the early ’90s, and replaced with George Fisher, who was then CEO of Motorola. However, by 2002, Kodak was still the ‘horse-and-buggy-whip’ company in the era, held back by intransigent middle management and slow-to-change policies. We know the rest: Kodak filed for Chapter 11 protection in 2012, and has continued to limp along, at best.

Pulling this discussion back to Schiller’s piece on Trump, Khurana’s exploration of the mystique of the outsider comes down to this:

Whether in religious, governmental, or business contexts, charisma is much more a social product than an individual trait. In primitive societies, leaders often wore special clothing, masks, and ornaments that conferred on them a larger-than-life appearance that helped create perceptions of their charisma. In monarchies, kings and queens assume charisma through their family heritage, buttressing it with such potent symbols as palaces, robes, and crowns. Large offices, private planes, expensive suits, and other trappings of corporate power perform the same function for CEOs.

In addition to relying on such external markers, charismatic CEOs acquire their hold over others by meeting certain socially constructed criteria about what constitutes a great leader. One of the most powerful of these constructs is the idea that outsiders are particularly well qualified to lead.

And what distinguishes them from insiders? Their willingness to ‘lay waste’ to their own organizations, to destabilize them. This may begin in the pursuit of much needed changes, and can lead to a corporate rebound, but in Khurana’s research, at Jacques Nasser’s Ford this led to rather more downside that upside, and at Jeff Skilling’s Enron it was catastrophic.

We can hope that Trump turns out to be a Jobsian figure, a visionary that can turn around a crisis, and become a savior in a very difficult time. But, as Khurana notes,

Today’s extraordinary trust in the power of the charismatic CEO resembles less a mature faith than it does a belief in magic.

And that, I believe, best summarizes the wild optimism of those who voted for Trump, and the investors that are driving the stock market to an all-time high. Trump, the hand-waving, fast-talking tycoon in the ten thousand dollar suit, living in the penthouse with gold bathroom fixtures, and the trophy wife and private jet, appeals to his followers at a visceral, mystical, hypnotic level. They’ve been mesmerized by his vision of a simpler, whiter, old-timey America, and the acceptance, if not eagerness, that such a change may require partial destruction to bring it into existence. And finally, that he’s just the outsider — with a torch and a flail — to do it.

America apparently believes in magic and folklore, and by electing Trump we are rejecting science and rational examination of the past as a starting point for moving forward, and — most dangerously — ignoring the track record of self-appointed outsider saviors.

Originally published at

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