The actions of high-profile CEOs and board chairmen can create share volatility and investor uneasiness, and the troubles of Tesla CEO Elon Musk provide a perfect example. Controversial statements and actions by Musk have sent Tesla’s stock price on a wild roller-coaster ride.
This got me to thinking about the risks associated with high-profile company leaders. When a CEO’s brand becomes one and the same with the organization, his or her actions are more likely to be magnified, scrutinized, glorified, or vilified. And that poses a new level of risk that many organizations may not be prepared to handle.
In Musk’s case, a single tweet stating he was considering taking Tesla private at $420 a share — “funding secured” — sent the electric-car company’s stock skyrocketing to nearly $380 a share. It subsequently plummeted when the prospective financier — the Saudi Sovereign Wealth fund — announced there was no deal in place.
The fallout continued when the U.S. Securities and Exchange Commission filed a securities fraud charge against Musk for failing to have in place required disclosure controls and procedures relating to his decidedly “unofficial” communication. To his credit, Musk quickly settled the charge by agreeing to step down as chairman of Tesla’s board and paying a hefty fine. That settlement boosted Tesla stock to its best trading day since May 2013, further reflecting how Musk’s actions can significantly impact Tesla’s value.
I’m not picking on Musk. There are plenty of other examples. The ongoing legal battles between Papa John’s and its founder John Schnatter, the firing of GE CEO John Flannery, and Travis Kalanick’s struggles at Uber each have arguably impacted their respective companies’ value.
This raises the question: Is the CEO’s brand a blessing or a curse?
There are pros and cons to bringing in a personality big enough to be viewed as the face of an organization. While some highly successful companies are built around the individual — Oprah Winfrey — others impose their brand on organizations when they join or return to them.
Michael Eisner, who made his name as CEO of Paramount Pictures, transformed The Walt Disney Co. by growing its brand in global theme parks, movies, TV, retail products, and a cruise line. Steve Jobs’ return to Apple certainly sparked a return to greatness for a company that some believed was on the brink of failure. It is safe to assume that Jobs and Eisner were hired because of their proven skills as strategic risk takers accustomed to acting boldly and aggressively. But boards seeking to hire charismatic leaders should consider how the leaders’ brands could impact the organization’s risk appetite and culture.
There are potential downsides to consider. For example, some charismatic CEOs are known to have narcissistic personalities, and research suggests such leaders are more likely to cost the organization money. The authors of See You in Court: How CEO Narcissism Increases Firms’ Vulnerability to Lawsuits argue that “narcissistic CEOs subject their organizations to undue legal risk because they are overconfident about their ability to win and less sensitive to the costs to their organizations of such litigation.” Their research, published by The Leadership Quarterly,cites a growing body of evidence that suggests, “organizations led by narcissistic CEOs experience considerable downsides, including evidence of increased risk taking, overpaying for acquisitions, manipulating accounting data, and even fraud.”
Leadership style and its potential impact on the organization’s risk appetite and culture should always be on internal audit’s radar. Organizations that have charismatic risk takers at their helms should incorporate this into their risk analyses. This should include audits of crisis management plans and candid discussions with the audit committee or board about risk scenarios involving the CEO.
Clearly, all CEOs impose their wills on organizations with varying degrees of guidance and oversight from their boards. The likelihood of their actions creating crises or significant reputational risks are typically pretty low. But just as no two organizations have identical risks appetites, not all CEOs create the same level of risk.
I’m interested in hearing about your experiences in dealing with CEO brands.