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Leadership

Why boards need to take action on power-hungry leaders

Published 24 August 2022 in Leadership • 5 min read

Leaders who consolidate power through retaining decision-making rights are willing to sacrifice their organization’s expected earnings in order to retain control.

 

From Enron and Tyco through to WorldCom and Lehman Brothers, the world’s biggest corporate collapses usually have one thing in common: a centralized organizational structure that concentrated power into the hands of executives who stifled the free flow of information and retained the right to make critical business decisions. In such cases, there was often a whistleblower at a local level who knew something was going horribly wrong – but when they raised the alarm, they were ignored or overruled, and effectively silenced, by those higher up in the organizational food chain.

This kind of behavior on the part of executives can manifest itself in a not inconsiderable number of problems for organizations and their boards. In particular, executives’ desire to maintain control and hoard the “rights” to make decisions can have potentially significant and far-reaching consequences, according to a new research paper, Organizations with Power-Hungry Agents, co-authored by Richard Holden, Professor in the School of Economics at UNSW Business School, and Wouter Dessein, Eli Ginzberg Professor of Finance and Economics at Columbia Business School.

“I’ve seen plenty of folks hoard decision rights,” states Holden, who puts this kind of behavior down to a variety of factors. “Part of it can be put down to more or less nefarious explanations. There’s one group of people who might have some kind of narcissistic personality disorder, and we can all probably think of examples of that. And there are other people who have ‘rules of thumb’ that got them where they are, to be successful. Some people just don’t trust others and like to do things themselves. There’s nothing necessarily or profoundly psychologically problematic about that – it’s just the way some people are,” he explained.

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