ACEO AdviserModelofStrategicDecisionMaking

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10.1177/0149206305279054ARTICLEJournalofManagement/October2005Arendtetal./ CEO-AdviserModel

A CEO-Adviser Model

of Strategic Decision Making†

Lucy A. Arendt*Professional Programs in Business, University of Wisconsin–Green Bay,

2420 Nicolet Drive, WH 460, Green Bay, WI 54311

Richard L. PriemSchool of Business Administration, Management & Organizations Area,

University of Wisconsin–Milwaukee, P.O. Box 742, Milwaukee, WI 53201

Hermann Achidi Ndofor Belk College of Business Administration, University of North Carolina at Charlotte,

9201 University City Blvd., Charlotte, NC 28223

Upper echelons research hasemphasized decision making either by individual CEOsor by teams

of top managers. The authorsintroducethe CEO-Adviser model as an intermediatemodel of stra-

tegic decision making. The CEO-Adviser model leads to new propositions that have not been

explored through the individual CEO or top management team models concerning how context

affects the use of formal versus informal advisory systems and how advisers are selected.

Keywords: CEO-Adviser model; CEO; top management team; strategic decision making

Two models have dominated research on top-level organizational decision making. The

first model takes as its unit of analysis the CEO, construed as the firm’s primary leader and

principal decision maker. This CEO model is seen in the literatures on CEO environmental

†We thank Allen Amason, David Berg, Tom Dalziel, Mark Mone,Paul Nystrom, Abdul Rasheed, and participants in

the University of Wisconsin–Milwaukee strategyseminar for helpful comments on earlier versions of this article. An

earlier version of this work was presented at the 2003 Academy of Management meetings in Seattle, Washington.

*Corresponding author. Tel.: 920-465-2817; fax: 920-465-2660.

E-mail address: [email protected]

Journal of Management, Vol. 31 No. 5, October 2005 680-699

DOI: 10.1177/0149206305279054

© 2005 Southern Management Association. All rights reserved.

680


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scanning, CEO cognition, and CEO pay, among others (e.g., Daft, Sormunen, & Parks, 1988;

Priem & Rosenstein, 2000; Westphal & Zajac, 1994). The second model takes as its unit of

analysis thefirm’s topmanagement team (TMT),construedas a dominant coalitionthat shares

responsibility for decision making (e.g., Hambrick& Mason, 1984). This TMT model is seen

in the literatures on TMT conflict, TMT consensus, strategic decision aids, and TMT demo-

graphics, among others (e.g., Dooley & Fryxell, 1999; Homburg, Krohmer, & Workman,

1999; Schweiger, Sandberg, & Ragan, 1986). Each model has expanded our knowledge of

strategic decision making.

Serious questions abound, however, about the representativeness of these two models,

especially when they are construed as anchor points on a strategic decision-making contin-

uum. To the extent that the CEO model focuses on CEOs as lone decision makers, perhaps by

examining theactions of theCEO alone when considering a strategicdecision, theCEO model

is an “atomized, undersocialized conception of human action” (Granovetter, 1985: 483) that

neglects the CEO’s social context. Such “lone ranger” CEOs would wield their power and

make unilateral decisions, despite being boundedly rational and despite needing to addressmultiple, conflicting goals and evaluate myriad options (Cyert & March, 1963). These quali-

ties, along with the ambiguous nature of strategic decisions, likely limit the extent to which

many CEOs will choose to be “lone rangers” and make strategic decisions single-handedly

(Garten, 2001).

Similarly, to the extent that it implies collective decision making, the TMT model likely

applies to a relatively small percentage of firms. As described, themodel is an “oversocialized

conception” (Granovetter, 1985: 485) that does not recognize that TMTs tend to be hierarchi-

cal decision-making bodies (Hollenbeck et al., 1995) in which involvement is not equal but,

rather, is driven by the influence of advisory systems within and outside the firm. The distrib-

uted expertise of TMT members (Hollenbeck et al., 1995), control of resources (Finkelstein,

1992), intrafirm coalitions (Eisenhardt & Bourgeois, 1988), and information asymmetries

(Edmondson, Roberto, & Watkins, 2003), for example, may hinder equal decision participa-

tion by a firm’s topmanagers or maypresage adverse decisionswhen a firm’s topmanagers doparticipate equally.

These factors have raised questions about whether many TMTs should be studied as

“teams” at all (see, e.g., Hambrick, 1994, 1995; Pettigrew, 1992) and whether strategic deci-

sions for many firms are made following the team structures and processes implied by an

oversocialized TMT model. Many scholars (e.g., Carpenter, Geletkanycz, & Sanders, 2004;

Hambrick, 1994, 1998; Roberto, 2003) have questioned the notion of a stable TMT that col-

lectively makes a range of strategic decisions and have proposed alternatives to the collective

TMTmodel. Hambrick (1994,1998), forexample, suggestedthat TMTs maybe characterized

by their behavioral integration, defined as the “degree to which the senior management group

engages in mutual and collective interaction” (Hambrick, 1998: 127). Shifting away from

behavioral descriptionsof a stableTMT, Roberto (2003)proposed a fluid form of TMT, one in

which differentexecutives come together towork on different issues. In addition to suggesting

that strategic decision making tends to involve both a “stable core and dynamic periphery” of top-level executives, Roberto also noted the involvement of “individuals from multiple orga-

nizational levels” (2003: 127). Consistent with these observations, Pettigrew (1992) recom-

mended that thenatureof the research question influences thechosen unit of analysis (e.g., all

Arendt et al. / CEO-Adviser Model 681


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top-level executives vs. those involved in a given decision). Likewise, Carpenter and his col-

leagues haveargued that “whileuse of a team-based approach (toempirical study) is appropri-

ate to some questions . . . , team aggregation is not universally advisable” (2004: 769).

Although thestrategicdecision-makingprocess for some decisions in some firmsmay con-

form to either the CEO or the TMT model, we suggest that many strategic decisions in many

firmsare made neither by a unilateral CEOnorby a TMT. Research into thesocialnetworksof

TMTs (e.g., Collins & Clark, 2003) and into the varying composition of strategic decision-

making groups (e.g., Roberto, 2003) suggests theneed for a third structural model of strategic

decision making. Thus, we propose the CEO-Adviser model, which blends individual and

group decision making. TheCEO-Adviser model recognizes that individuals involvedin stra-

tegic decision making may come from anywhere in the firm’s hierarchy and may not be con-

sulted on all decisions, in line with Roberto’s (2003) “stable core and dynamic periphery.”

Furthermore, those involved in strategic decision making may include individuals from out-

side the firm, such as members of the CEO’s personal social network. In adding this third

model, we agree with Carpenter and his colleagues (2004: 769), who recommended “moreflexible”approaches to thequestion, “Who at theapex of the firm impacts organizational out-

comes?” and who observed that “researchers’ focus should not be exclusively internal to firm

management.” Such an approach does not negate the valueof research conducted using either

the CEO or TMT models but posits instead a third approach that might prove more authentic

for a wide range of firms. For example, whereas TMT-based research by Michel and

Hambrick (1992) demonstrates the links between TMT characteristics and firms’ diversifica-

tion posture, the same research from a CEO-Adviser perspective might produce a more

precise model of diversification decision making.

In thenextsection, we briefly review some of theimportant contributions andlimitations of

the CEOand TMT models. Then, we detailthe CEO-Adviser model and compare it to the oth-

ers. Next, we develop a series of propositions to illustrate broadly how theory may benefit

from explicit inclusion of the CEO-Adviser model in the list of strategic decision-making

models. Throughout, we argue that this model accurately describes decision making in manyfirms.Finally, we discuss someimplicationsfor future researchon strategic decisionmaking.

Three Models of Strategic Decision Making

Strategicdecisions are thosehighly important organizational choices that involve strategic

positioning, affect firm performance, involve multiple functions, are highly complex and

ambiguous, and represent a substantial commitment of resources (Eisenhardt, 1989). Figure1

provides diagrams of the three strategic decision-making models discussed in this article: the

CEO model, the TMT model, and the CEO-Adviser model. We now discuss each in turn.

The CEO Model

The CEO is the strategic decision maker in this model. As depicted by the CEO model in

Figure 1, the CEO gathers and processes information, develops a strategy, and then directs

implementation throughout the firm. Taken to an extreme, theCEO model maybe considered

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“execucentric,” in that itsessence is what Swiercz andRoss labeled “anorientation that seems

unaware of the presence and legitimacy of organizational perspectives other than that of the

executive” (2003: 420). This model aligns with Vroom and Yetton’s (1973) two “autocratic”


Panel a. CEO Model (M = Manager)

Gathering information Processing & interpreting

information

Making the decision

Panel b. CEO-Adviser Model (A = Adviser)


information Recommending the

decision

Making the

decision

Panel c. TMT Model (T = TMT member)


information

Recommending & making the decision

CEO CEOM

M

M

CEO

T

T

T

CEO

T

T

T

CEO

T

T

T

CEO

CEO

A

CEO

A

A A

CEO

A

A

A

A

A

Figure 1

Models of Involvement in the Strategic Decision-Making Process


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decision-making styles. “Celebrity” CEOs who helm familiar firms might be expected to use

this decision style. Still, visibility and celebrity are not the distinguishing facets of the CEO

model. Instead, this model is set apart by its focus on dominant individual decision makers at

the apex of firms. Thus, the individualistic style of strategic decision making (see, e.g., Hay-

ward & Westphal, 2002) likely occurs at lesser known firms as well, especially those led by

owner-managers.

Do some CEOs really have this much influence? Probably. Power and accountability are

not equally distributed among top managers (Finkelstein, 1992); often, the CEO retains the

largest share of both (Hambrick & Mason, 1984). Power differences are manifest in several

ways. Although compensation differentials are pronounced between CEOs and their direct

reports (Finkelstein& Hambrick,1996),many CEOsare “a breed apart”in other ways as well.

Norburn (1989), for example, found CEOs to be distinguished by their diverse experiences

and by their preparation to assume responsibility for complex and demanding operations. As

one might expect, research has shown that CEOs’ activities, such as environmental scanning

and strategic decision making, do affect firm outcomes like structure and performance (Daftet al., 1988; Priem, 1994). Thus, there is empirical support for the descriptive accuracy of the

CEO model.

The ability of many CEOs to make effective strategic decisions single-handedly, however,

is hampered by CEOs’ bounded rationality (Cyert & March, 1963) and by the ambiguous

natureof strategicdecisions (Hambrick& Mason, 1984). Shifting to theother end of thedeci-

sion-making continuum, the next section describes the TMT model, an accepted approach for

helping boundedly rational CEOs make strategic decisions.

The TMT Model

The firm’s top managers are the strategic decision maker in the TMT model (Figure 1).

When viewed as a collective decision-making body, TMT members bring key information to

thegroup, together develop andevaluatealternatives, resolve disagreements to reach consensus,

and jointly participate in implementing strategy. This version of the TMT model aligns with

themost“democratic”decision-making styledescribedby Vroomand Yetton (1973). Leaders

using the “GII” style share problems with their followers as a group and solicit agreement.

Much upper echelons research appears to assume, explicitly or not, that this collective

TMT model either accurately describes firms’current strategic decision-making processes or

describes what such processes should be for maximum effectiveness. This assertion is based

on the many studies that rely equally on data from all members of the TMT, however defined

(e.g., Michel & Hambrick, 1992). Thus, and perhaps for reasons of empirical necessity, the

image suggested by some scholars is one of collective effort, actual or idealized. Executive

groups that do not observe team-oriented decision-making processes often are described as

“fragmented” (Hambrick, 1995) or as engaged in dysfunctional conflict (Eisenhardt,

Kahwajy, & Bourgeois, 1997), which may indeed be the case.Not generally discussed is the possibility that, for some firms at least, the collective TMT

modelof strategicdecisionmaking is neither descriptivenordesired.To bea “team,” a group is

expected to have a relatively stable composition of individuals whose skills and abilities are



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linkedto the team’s purposes andperformance challenges. Many executivegroups maynotbe

teams in this sense (Hambrick, 1994); they do not have a purpose distinct from the firm’s, and

they may not hold their members mutually accountable for group outcomes (Cohen & Bailey,

1997). Many TMTs seem to do little collective work (Katzenbach, 1998). Although a “stable

subset of the top team” (Roberto, 2003: 120) tends to be involved in making various strategic

decisions, additional individuals from throughout thefirm also are involved, dependingon the

nature of the strategic decision and its attendant information and implementation needs

(Roberto, 2003). This lack of stability in form calls into question whether most TMTs—espe-

cially thosesubjected to typical empirical inquiry—satisfy the fundamental criteria for teams.

This view is supported by many senior executives, whose responses, when asked about the

TMTs of which they are members, are similar to that of this executive vice president of

marketing for a large firm:

When I think of a team, I think of interaction, a lot of give-and-take, and shared purpose. In our

company, we’re a collection of strong players, but hardly a “team.” We rarely meet as a team—

rarely see each other, in fact. We don’t particularly share the same views. I wouldn’t say we actu-

ally work at cross-purposes, but a lot of self-centered behavior occurs. Where’s the “team” in all

this? (Hambrick, 1994: 172).

If many TMTs do notoperate as unified collectiveswhen makingstrategicdecisions, if true

topmanagement “teams”areuncommon(Katzenbach, 1998), and if boundedly rationalCEOs

cannot effectively make strategic decisions alone (Garten, 2001), then how do strategic deci-

sions get made? In the next section, we describe a third model that develops the “middle

ground” between the CEO and TMT strategic decision–making models. Like the CEO and

TMT models, the proposed CEO-Adviser model attempts to describe who is involved with

strategic decision making and how such decision making occurs.

The CEO-Adviser Model

This proposed model of strategic decision making is based on the Judge-Advisor model

developed in theorganizationalbehavior literature (Sniezek, 1999; Sniezek & Buckley, 1995;

Sniezek & Van Swol, 2001). Represented by theCEO-Adviser model in Figure1, themodel’s

characteristics include the CEO as the principal decision maker, both internal and external

advisers, CEO selection of advisers, and dyadic communication between the CEO and advis-

ers. This model is similar to the “consultative” decision-making styles described by Vroom

andYetton (1973). Both theCI andCIIdecision-making stylesinvolve leaders listeningto fol-

lowers’ideas andthen makingdecisions alone.Likewise, in theCEO-Adviser model, theCEO

solicits information yet “holds ultimate authority for the final decision, and is made account-

able for it” (Sniezek, 1999: 1). The CEO-Adviser model also involves a complex social infor-

mation search to identify strategic advisers and considerable CEO-Adviser trust and collabo-

ration. Thus, theCEO-Advisermodelis an intermediatemodelof strategicdecisionmaking.

Foundations of the CEO-Adviser model. TheJudge-Advisor model wasdeveloped to “pro-

vide more ecologically valid representations of the decision process as it occurs in the natural



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environments of decision makers” (Sniezek, 1999: 1). According to Sniezek and Buckley

(1995), decisionmakingcannotbe understood adequately using extant research on eitherindi-

viduals or groups because decision making often involves multiple people whose participa-

tion is differentiated, rather than coequal. Thus, there is a need fora model in which individual

decision makersconsult with, andreceive information from, others (individually or in groups)

when faced with important decisions under uncertainty (Sniezek & Van Swol, 2001).

We have changed the model’s name to CEO-Adviser decision making for two reasons.

First, the “Judge” label might cause unintended confusion with a courtlike setting. Although

CEO-Adviser decision making can involve advocacy and interadviser conflict, neither is

essential to the model. Second, the CEO-Adviser model is constrained to addressing strategic

decision making. In general, the characteristics of CEO-Adviser participants (e.g., their areas

of expertise) vary from those of the broader population. For example, CEOs tend to be better

prepared to assume responsibility for complex operations than do other managers (Norburn,

1989). Thus, despite its roots in the Judge-Advisor model, we expect the uniqueness of the

decision makers, advisers, and the decisions themselves to result in a unique CEO-Advisermodel. Beyond Sniezek’s (1999) work, the foundation for the CEO-Adviser model rests in

four assertions central to the management literature.

First, CEOs are ultimately responsible for their firm’s strategic decision making and are

accountable for itsoutcomes(Finkelstein & Hambrick,1996).As themost powerful individu-

als in their firms, CEOs influence learning (Vera & Crossan, 2004), strategic and symbolic

activities within the firm (Hambrick & Pettigrew, 2001), member commitment to implement-

ing strategic decisions (Goodwin, Wofford, & Whittington, 2001), and firm performance

(Waldman, Javidan, & Varella, 2004). Research has shown that in addition to CEOs having

power over strategic decision making, their leadership style (e.g., transactional vs.

transformational) significantly affects the implementation of strategic decisions and their

outcomes (e.g., Howell & Avolio, 1993).

Second, strategic decision making is characterized by ambiguity and complexity (Carpen-

ter & Fredrickson, 2001; Finkelstein & Hambrick, 1996; Kotter, 1982). Decision makers arecompelled to use incomplete information to make key decisions that affect the firm’s future

and that involve substantial resources (Mintzberg, Raisinghani, & Theoret, 1976). In addition,

many firms may be described as “organized anarchies” (Cohen, March, & Olsen, 1972) in

which decision makingis plagued by shifting preferences, unclear technology, andfluid partici-

pation.These attributes can render optimizingdecisionmaking problematic, if not impossible.

Third, there is high potentialfor information overload(Cyert& March,1963; Kotter, 1982)

or overreliance on extant mental maps. The amount and type of information processed from a

firm’s environment (e.g., from suppliers and competitors) is likely too great for any one per-

son, especially as information technology makes more information available more quickly.

Such information overload compels the involvement in decision making of many individuals,

each of whom processesdifferent sources of information. If involvement were restricted to the

firm’s top executives, one could expect reliance on a dominant logic that may not serve the

firm well as its environment shifts (Prahalad & Bettis, 1986). At the level of strategic deci-sions, then, decision-making involvementcomes in theform of adviceand consultationbetween

the CEO and advisers, who may or may not be members of the TMT (Roberto, 2003) or of

the firm.



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Fourth, there is evidence that topmanagersrely onadvicefrom socialnetworksthat include

friends, suppliers, customers, financial institutions, alliance partners, trade associations, and

others (Collins & Clark, 2003; Gabarro, 1987). Some research suggests that CEOs may rely

more on advicegained from personal connections than from formal advisory systems (Brown

& Eisenhardt, 1995; Elenkov, 1997; McDonald & Westphal, 2003). Moreover, Eisenhardt

(1989) has found evidence of CEOs seeking the advice of “wise counselors” over a range of

strategic decisions, and Roberto (2003) has reported that CEOs often rely on a core group for

making decisions. Likewise, the business press has reported instances of CEOs seeking guid-

ance from outsiders, such as General Electric CEO Jeff Immelt soliciting advice from Warren

Buffett (Serwer, 2003). As suggested by Kets de Vries, “Frank feedback from outsiders such

as external directors, bankers, and consultants” can help leaders stay “in touch with reality”

(1989: 15). Together, these four factors provide a foundation for the CEO-Adviser model

based in the strategic management literature.

Factors Influencing the Use of the CEO-Adviser Model

In this section, we build on our four-factor foundation and develop several propositions

intendedto illustrate thepotentialof theCEO-Advisermodel. Thesepropositions are intended

to be representative, rather than exhaustive, of how the CEO-Adviser model might contribute

to our understanding of strategic decision making. The propositions are arranged to reflect an

“outside-in, macro-to-micro” approach to understanding CEO-Adviser strategic decision

making. Thus, we start by considering the impact of theenvironment (outside) and then move

insidethe firm to consider theimpact of thefirm’s strategy (macro), followedby thecharacter-

istics of the CEO and his or her selection of advisers (micro). In taking this approach, our

intent is to identify some key situational factors expected to affect the prevalence of the CEO-

Adviser model.

Environmental Dynamism

The external environment is an important contingency factor for strategic decision making

(e.g., Dess & Beard,1984; Eisenhardt, 1989). CEOsneed to acquire and interpretinformation

from their environment to make and implement strategic decisions. As environments change,

firms have to adapt to these changes. Dynamic external environments are characterized by a

high rate of change, absence of pattern, and unpredictability (Priem, Rasheed, & Kotulic,

1995). The more dynamic the environment, the greater the uncertainty and the greater the

information-processing and decision-making demands placed on a firm’s strategic decision

makers (Kotter, 1982).

Scanning of theexternal environment, however, represents only thefirst link in theseries of

activities needed to acquire the information needed for strategic decision making in dynamic

environments (Daft et al., 1988). CEOs need to interpret the information and understand itsimplications. This entails having richer and more detailed information about the changes in

the environment, their implications, and feasible alternatives (Kraatz, 1998).



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Similarly, although CEOs useboth internal andexternal sources of information in strategic

decision making, as the dynamism of the environment increases, CEOs will tend to prefer

externalsources (i.e., thosecomprising the informal advisorysystem). Obtainingdatadirectly

from the environment ensures that it is undiluted with no loss of meaning (Daft et al., 1988).

Indeed, seeking unvarnished counsel from individualswithin theformaladvisory systemmay

be complicated by the fact that some viable, or even necessary, strategic alternatives may

require sacrifices from those individuals and their subordinates, a potential precursor to low

goal congruence (Yukl & Fu, 1999). In addition, information from within the firm tends to be

biased, distorted, and slow as it progresses up the organizational hierarchy (Daft & Lengel,

1986).

In contrast, more stable external environments create less uncertainty and thus require less

information search and less interaction with knowledgeable outsiders (Haleblian &

Finkelstein, 1993; Kotter, 1982). Information-processing requirements for decision making

are low in stable environments. Stable environments promote more internally focused behav-

iorand increase the likelihood that competent firm insiders who comprise theformaladvisorysystem will have the opportunity to give advice (Yukl & Fu, 1999). With stability comes the

promise of continued individual and departmental support from the firm, so there may be less

reason for the leader to question the motives and consequent objectivity of internal

information sources. Thus,

Proposition 1: As environmental dynamism increases, CEOs will be more likely to rely on informal

advisory systems for information and advice in making strategic decisions.

Organizational Strategy

CEOs’ more fine-grained patterns of social information search also may be quite different

for firms pursuing different business-level strategies. Porter (1980) asserted, for example, that

firm success requires attention to distinctive competencies and that these competencies differfor the business-level strategies of cost leadership and differentiation.

Firms pursuing cost leadership require close attention to cost controls, detailed control

reports, structured responsibilities, and incentives basedon quantitative targets (Porter,1980).

Similarly, Miles and Snow’s defenders engage in minimal new market or product develop-

ment, want topreserve their marketshare, andseek stability(Miles& Snow, 1978). Inessence,

firms pursuing either cost leadership or defender strategies tend to emphasize firm efficiency

(Miller, 1987). Therefore, most of the strategic decision maker’s attention in firms pursuing

cost leadership or defender strategies will focus on internal operations. Such efficiency-

focused strategies aremostsuccessful when implemented through mechanistic structures with

formal controls (Kotha & Orne, 1989; Priem & Rosenstein, 2000). Specifically, the formal

advisory systems within these firms are expected to obtain information from the environment

(e.g., from thepolitical/legal sector) andto provide counsel to theCEO on strategicdecisions.

Firms pursuing differentiation, in contrast, need coordination among functions, subjective

measurement and incentives,and amenities to attract highly skilled employees (Porter, 1980).

Likewise, prospectors aggressively seek new market opportunities and take risks (Miles &



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Snow, 1978). These firms survive by virtue of ongoing communication with the external

world. Because their competitive advantage arises largely from new products and services,

their CEOs are likely to focus on relationships with the environment, especially the customer

and technologysectors. Empirical research linking managers’functional experience and busi-

ness-level strategy(e.g.,Govindarajan,1989)and empiricalresearchlinking businessstrategy

to the areas emphasized in CEO scanning (Garg, Walters, & Priem, 2003) argue that CEOs

will seek information from individuals whose knowledge most closely reflects the sources of

core competence for their firm.

Miles and Snow’s prospectors and Porter’s differentiators emphasize innovation (Miller,

1987). Miller (1987) described these firms as complex innovators that strive to capitalize on

novel opportunities in the marketplace, supported by their use of organic structures. These

structures include informaland continuousscanning of theenvironmentand multiplexity(i.e.,

use of diverse viewpoints in decision making). CEOs of firms emphasizing innovation use

their informal advisory network to get real-time and diverse information on the environment.

Doing so helps to minimize the potentially negative effects of, and possibly alters, the extantdominant logicof theTMT that might otherwisehinder innovation (Prahalad& Bettis, 1986).

Thesearguments areconsistent with contingency theory(e.g., Kotha& Orne, 1989), which

proposes higher performance for firms that align their strategy and structure. Thus,

Proposition 2a: CEOs of organizations pursuing cost leadership and defender strategies will tend to

rely more on their organizations’formal advisory systems for information and advice in making

strategic decisions.

Proposition 2b: CEOsof organizations pursuingdifferentiationandprospector strategies willtend to

rely more on an informal advisory system for information and advice in making strategic

decisions.

CEO Leadership Style

Beyond influencing their firms through their judgment in strategicdecisions (Hambrick &

Mason, 1984), CEOs also influence their firms“through their ability to organize, or their cha-

risma, or their skill in delegation” (Priem, 1994: 421). Finkelstein and Hambrick (1996)

argued that leadership styles influence strategicdecisions by affecting CEOs’fields of vision,

perceptions,andinterpretationsof information.To theextent that theleadership styleof CEOs

affects implementation of strategic decisions (Finkelstein & Hambrick, 1996), we would

expect strategic decision-making preference to be related to leadership style. The two main

leadership styles are transformational and transactional (Bass, 1985).

Transformational leadership creates “a dynamic organizational vision that often necessi-

tates a metamorphosis in cultural values to reflect greater innovation” (Pawar & Eastman,

1997: 83). We expect transformational CEOs to rely more on their informal advisory system

for two reasons. First, the contextual factors that create the need for transformational leader-

ship also increase theneed for informal advisers.Relevant firm-based factors include theneedfor adaptation, dominance of boundary-spanning units, a simple and adhocratic structure,and

clan mode of governance (Pawar& Eastman, 1997).Such firms need real-time information on



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the environment. Transformational leaders are more likely to find success in firms experienc-

ing a need to break away from the status quo insearch of a new direction (Bass, 1985), render-

ing obsolete many internal processes. Together, these factors will lead a CEO to rely on

informal networks outside the firm.

Second, the personality characteristics of transformational CEOs likely cause them to be

more attracted to informal advisory systems. Judge and Bono (2000) found agreeableness,

extraversion, and openness to experience to be personality traits of transformational leaders.

These leaders dominate socially through dialogue and social interaction. They are charis-

matic, inspirational, intellectually stimulating (Bass, 1985) and seek new opportunities

(Lowe, Kroeck, & Sivasubramaniam, 1996). They are neither rigid nor prone to use formal

structures; rather, they are unconventional innovators (Conger & Kanungo, 1988). These

characteristics will lead a CEO to rely more on informal networks outside the firm when

making strategic decisions.

Conversely, the context that accommodates transactional leadership, combined with the

personality traits of transactional leaders, make these leaders more prone to use their firm’sformal advisory system. Transactional leaders are likely to emerge in firms with an emphasis

on efficiency, dominance of a technocratic core, a professional bureaucracy, and bureaucratic

modes of governance (Pawar & Eastman, 1997). Transactional leaders use contingent reward

systems within established systems to reinforce existing structures, strategies, and culture

(Waldman, Ramirez, House,& Puranam, 2001).As such, transactional leaders aremore likely

to emerge in mechanistic organizations (Bass, 1985) that have a high need for efficiency and

internal information to maintain controls. Such firms use bureaucracy to substitute personal

influence with formal policies and procedures (House, Spangler, & Woycke, 1991). As a

result, CEOs will have less discretion andwill rely on thefirm’s formaladvisorysystem.Thus,

Proposition 3a: The more transformational the CEO’s leadership style, the more likely the CEO will

rely on an informal advisory system for information and advice in making strategic decisions.

Proposition 3b: Themore transactional theCEO’s leadership style, the more likelythe CEOwillrelyon a formal advisory system for information and advice in making strategic decisions.

CEO Tenure

Strategic decision making entails making consequential decisions, and taking responsibil-

ity, while relying on information and advice from others. CEOs’ knowledge of their informal

advisers and of the individuals within their firms’ formal advisory systems would seem to

influencetheirrelative relianceon information and advice fromthesesources. This introduces

issues of trust and confidence in adviser expertise and knowledge (Sniezek & Van Swol,

2001). We suggest that a CEO’s tenure in theposition influences his or her knowledge of, and

trust in, both informal and formal advisory systems.

When CEOs are new to their positions, they may not know about or trust the knowledge,

motives, or expertise of many individuals within the firm’s formal advisory system. This will

be especially true for newcomers to both the firm and position. In fact, the preference of a

board for an outsider as the new CEOlikely suggests to the newcomer a possible lackof confi-



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dence in the firm’s existing upper echelons. In addition, because other top executives might

feel slighted by not having been promoted to the “top job,” they may not be committed to the

success of thenew CEO.This latter situationmayoccur even in thecase of insider succession.

Short-tenured CEOs, therefore, need time to build understanding of their firms (Gabarro,

1987). While newcomers to both the firm and position will need time to build an understand-

ing “from the ground up,” those promoted from within will need time to build an understand-

ing of the firm’s altered power and information structure (Kets de Vries, 1989). As such, new

CEOs (regardless of origin) will likely rely on fewer individuals in the firm’s formal advisory

system when they first “take charge” (e.g., within the initial 6 months to about 2 years) com-

pared to when they are more established (Eisenhardt, 1989; Gabarro, 1987; Hambrick &

Fukutomi, 1991; Kotter, 1982).

During theperiod in which new CEOs develop trust in their organizations’formaladvisory

systems, they rely more on their informal advisory system for information and expertise

(Aguilar, 1967). For short-tenured CEOs, the process of testing the formal advisory system

likely includes aggressive gathering and assessing information by asking questions on a con-tinuous basis (Gabarro, 1987; Kotter, 1982). Building an in-group of internal advisers takes

time, as individuals are tested and found knowledgeable, credible, and loyal (Graen & Uhl-

Bien, 1995). This will be the case no matter the CEO’s origin, inside or outside. In addition,

CEOs will have the opportunity over time to hire trusted and informal advisers into their new

organization—perhaps as senior executives or as members of the board. It is not surprising,

therefore, that the appointment of a new outsider CEO is usually followed shortly by the exo-

dus and replacement of some of the incumbent top executives of the firm (Pitcher, Chreim, &

Kisfalvi, 2000).

Conversely, longer tenured CEOs have had the opportunity to evaluate and form opinions

about the trustworthiness and expertise of individuals within their firm’s formal advisory sys-

tem. They have had theopportunity to replace those found incompetent or untrustworthy with

individuals (usually from their informal advisory system) they trust. As a result, longer ten-

ured CEOs canbe expectedto rely more on thefirm’s formaladvisorysystem(Aguilar, 1967).Thus,

Proposition4: The longera CEO’s tenurein theposition,the more a CEO will tend torelyonthe orga-

nization’s formal advisory system for information and advice in making strategic decisions.

Adviser Selection

Thus far,we have discussedseveral factors expected to influencea CEO’s tendency toward

relying on an informal advisory system or the organization’s formal advisory system. Not yet

discussed are any factors that might be expected to influence which individuals within these

systems might be relied on as advisers for strategic decision making. Although a variety of

factors might be considered, in this article, we focus on the nature of the interactions between

CEOs and their advisers. Dyadic communication provides a medium for social information

search and CEO-Adviser collaboration and interaction. Unlike the more formal and pre-

scribed interactions between CEOs and theirsubordinates (includingtop managers), the inter-



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actions between CEOs and their advisers are often informal and based on their interpersonal

relationships. Thus, communication and collaboration between a CEOand each adviser relies

primarilyon thebilateralor dyadicnetwork ties existingbetween the two. The sourceof these

bilateral network ties is the social network of a CEO, defined as the system of relationships

with actorsboth insideandoutside thefirm whoprovide theCEO with information andadvice

and who may be in a position to influence the CEO with respect to strategic decision making

(Collins & Clark, 2003).

The importance of dyadic interaction in theCEO-Adviser model raisesquestions about the

type of network ties that are optimal for strategic decision making: weak versus strong. First,

the weak-ties argument (Granovetter, 1983) suggests that distant and infrequent communica-

tion between disconnected individuals provides new and useful information and is more effi-

cient for knowledge sharing. Furthermore, having ties with demographically heterogeneous

individuals generates a widervariety of ideas (Granovetter, 1983), thereby enhancing creative

action(Bantel & Jackson, 1989). Thus, CEOs having advisers with whom they haveheteroge-

neous and weak ties benefit by gaining access to novel information sets, insights, and ideas(Kraatz, 1998).

The alternative argument asserts the importance of strong ties in facilitatingnetwork com-

munication. Strongor cohesive ties promote trust andcooperation (Coleman,1988). Such ties

are characterized by frequent interaction, an extended history, and “mutual confiding” between

the focal individuals (Granovetter, 1983). Individuals belonging to a leader’s in-group likely

share cohesive ties with their leader (Graen & Uhl-Bien, 1995). Tight coupling between indi-

viduals leads them to identify more with each other, enhancing collaboration and promoting

efficient knowledge sharing (Hansen, 1999). Hence, CEOs having advisers connected by

strong ties should have in-depth communication and information exchange (Kraatz, 1998).

These arguments each provide explanations for thevaluederived from the respective types

of network ties. Forthe CEO-Adviser model,we believe that CEOs aremore likelyto be influ-

enced by, and to seek advice from, individuals with whom they share strong ties. First, when

making strategic decisions, CEOs need more than the novel ideas provided by those withwhom they have weak ties. Strategicdecision makingentails theuse of detailed andrich infor-

mation about alternatives, implications, desirability, and feasibility (Kraatz, 1998). The depth

of communication and level of interaction needed to provide such information and to test the

veracityand utility of such information aremore likelyassociated with individualswith whom

the CEO has strong ties. Frequent dyadic interaction between CEOs and individuals with

whom they have strong ties facilitates the transfer and evaluation of sensitive and complex

information. Such tight coupling creates more efficient knowledge sharing (Hansen, 1999).

Second, compounding the ambiguityand complexity inherent in strategicdecision making

(Carpenter & Fredrickson,2001) is the“social uncertainty”present when a CEOhas to rely on

information providedby another individual. Social uncertainty refers to the inabilityto predict

accurately another person’s behavior or the underlying motivations (Sniezek & Van Swol,

2001). By definition, a CEO who needs the counsel of an adviser either does not have all the

information to make a decision or lacks the expertise to analyze adequately that information.Thus, there is some information asymmetry between CEOs and advisers, and even with

detailed explanation, theCEO cannot eliminatealluncertainty that theadviser is giving either

accurate information or the best possible advice (Sniezek & Van Swol, 2001). Hence,



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Proposition 5: In choosing advisers from their socialnetworks, CEOs aremore likelyto rely on indi-

vidualswithwhom they have strong tiesrather thanon individualswith whom they have weak ties

for information and advice in making strategic decisions.

Discussion

Our propositions have focused on identifying factors that contribute to relatively more or

less use by CEOs of informal versus formal advisory systems and the type of ties CEOs are

likely to have with their advisers. Yet, clearly there are many other issues raised by the CEO-

Adviser model that we havenotdiscussed. These include questionsof information asymmetry

between CEOs and theiradvisers, communicationwithadvisers individuallyversus in groups,

the size of the adviser network, and how some advisers become especially relied on. Addi-

tional questions include how advisers are selected and evaluated by CEOs, how the type of

decision affects the CEO’s selection of advisers, how CEOs might be led astray by advisers,

and finally, howfactors such as these are related to thequality of strategicdecisions. Next, wediscuss some specific directions for future research.

First, research that explicitly examines the CEO-Adviser model in combination with the

CEOmodel or theTMT model maylead to enhanced scholarlyunderstanding of theprocesses

of strategicdecision making. For example,what are thecontingency factors (or theconfigura-

tions of factors) that lead each model—CEO, CEO-Adviser, andTMT—to yieldbetterorgani-

zational performance? In addition, what contingencies (if any) lead to more effective imple-

mentation of strategic decisions made by the various models within the organization?

Furthermore, by formally developing a model to examine the “middle ground” between the

CEO and TMT models, future research can reopen questions previously explored using the

CEO or TMT models, such as the influence of CEO and TMT characteristics (e.g., tenure,

functional background) on strategic decision-making dynamics and outcomes (e.g.,Michel &

Hambrick, 1992). Ultimately, such reexaminations should yield increasingly accurate

descriptions of the strategicdecision-making process and outcomes in organizations. As stra-tegic decision processes continue to be unbundled and the contents of the “black box” (Law-

rence, 1997) are revealed, researchers will be better positioned to address questions aimed at

improving strategic decision making.

In addition, the CEO-Adviser model may facilitate finer-grained investigations into top

managers’ strategic decision-making processes by addressing questions such as, Who is

involved in various strategic decisions? How is their involvement determined? What are the

consequences of their participation on decision quality? By what process does a CEO select

advisers? When do advisers “select” CEOs? How does a CEO probe advisers and determine

the value of their inputs? How does a CEO determine whether an adviser’s agenda is consis-

tent with the CEO’s agenda and with desired organizational outcomes? and How does a CEO

interpret and combine advisers’ inputs to reach a strategic decision? The answers to these and

many other decision process questions should expand our understanding of the strategic deci-

sion-making process and enhance our ability to recommend improvements to firms’ existing

decision processes. Questions such as these have clear normative implications for practitio-

ners wanting to choose the most advantageous decision-making approach given different task

and environmental conditions.



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There is also potential for integrating and extending currently disparate areas of research

under the CEO-Adviser model. Mintzberg (1973) has noted, for example, that CEOs prefer

face-to-face contact when they gather information. This likely applies also to their use of dif -

ferent communication methods with different advisers in the CEO-Adviser model. This pro-

vides an opportunity to extend strategic decision-making research to include information

gathering such as CEO scanning. For example, what types of advisers are likely to be chosen

andrelied on forinformationandadvicein whichenvironmental sectors, givendifferent levels

of uncertainty and the severe limitations on a CEO’s time (e.g., Daft et al., 1988)?

Finally, further extensions of the CEO-Adviser model may be possible with additional

insights from other theories. Leader-Member Exchange (LMX) theory (Graen & Uhl-Bien,

1995), forexample,couldhelp us tounderstand thedyadic relationships between theCEO and

each adviser, plus how these relationships might affect the relationships among all of the

firm’s senior executives. Similarly, the extensive research on feedback-seeking behavior

could provide guidance for building further understanding of when, and from whom, CEOs

solicit advice. Ashford, Blatt,andVandeWalle noted that “little attentionhasbeen given to thefeedback-seeking dynamics of those at the top of an organization or unit” (2003: 788). They

argued that those occupying the highest levels in a hierarchy likely receive less spontaneous

feedback from othersand, thus, havea greater instrumentalneed to seek feedback proactively.

Moreover, high contextual uncertainty—almost universal for CEOs—also increases the

instrumental motive for feedback seeking (Ashford & Cummings, 1985; Gupta,

Govindarajan, & Malhotra, 1999). Thus, proactive feedback seeking from trusted advisers

could help CEOs validatetheirorganizational visionand strategicgoals (Ashford et al., 2003).

In sum, the CEO-Adviser model offers a framework for examining not only the goal-oriented

feedback-seeking behaviors of CEOs but also their decision-related information gathering

and exchange efforts.

Although the CEO-Adviser model could enhance our understanding of strategic decision

making, it still fallsprey to the problems that have plagued researchers wishing to test empiri-

cally theories pertaining to top executives. Limited access to CEOs and other top executives,for example, has restricted researchers’ ability to investigate top management issues. This

problem is accentuated for the CEO-Adviser model, which focuses on the process of execu-

tive decision making. This process cannot be observed easily outside the executive suite. In

fact, many of the concepts central to the CEO-Adviser model—such as the choice of advisers

and CEO interaction with these advisers—can only be investigated with the active participa-

tion of the CEO and his or her advisers. This is unlike the CEO and TMT models, in which

some of the proposed relationships can be tested using demographic proxies.

This does not imply, however, that the CEO-Adviser model cannot be empirically tested.

Intensive qualitative research, such as the case-based method proposed by Eisenhardt (1989),

may be used to develop further theCEO-Adviser model. Researchers can focus on a single or

small sample of firms and intensivelyand activelyobserve thedecision-making process. From

this initial set of intensive studies, constructs and hypotheses may be developed that can then

be empirically tested on larger samples. Initial case-based studies will be able to operationalizesome of the key concepts of the CEO-Adviser model such that it may be measured with more

readily available data.



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Beyond prying open the “black box” (Lawrence, 1997) of strategic decision making as it

occurs in most firms, the CEO-Adviser model also has some practical implications. It high-

lights the fact that notall models are equally applicable toall firms andthat the decision-making

process differs across firms. The CEO model, for example, might most appropriately be

adopted by researchers when the firms to be studied are (a) relatively small in terms of either

size or product/market scope, wherein even strategic decisions might be made based on one

person’s perspective, and/or (b) relatively young, wherein an entrepreneurial CEO or owner-

manager has yet to establisheither a formal advisory system or an external network of trusted

associates (Greiner, 1998; Nelson& Winter, 1982). Furthermore, to theextent that a relatively

large power differential exists between the CEO and other managers (Finkelstein, 1992) in

such relatively small and immature organizations,we expect theCEO model to be particularly

informative.

The TMT model, on the other hand, might most appropriately be adopted by researchers

when the firms to be studied are (a) relatively large in terms of size and product/market scope,

wherein structural complexity compels decision making that depends on the diverse perspec-tives of multiple organizational members, and/or (b) relatively mature, where decentralized

operations reflect on theoverall organization’s reputation (Greiner, 1998). To theextent that a

relatively small power differential exists between a CEO and the “coalition of top managers”

representing the “range of managerial orientations” (Finkelstein, 1992:505) in such relatively

large and mature organizations, we expect the TMT model to be particularly informative.

Anecdotal evidence and scholarly reports, however, indicate that another decision-making

model, which we have labeled CEO-Adviser decision making, is widespread at strategic lev-

els in firms. Thus, the CEO-Adviser model is descriptively accurate in many—although not

all—strategic decision situations. The CEO-Adviser model might most appropriately be

adopted by researchers when the firms to be studied are (a) not so small that their strategic

direction and operations can be established solely by an owner-manager and yet not so large

that those reporting to the CEO see themselves as leading their own independent companies

within the firm, (b) producing multiple products or services in multiple geographic markets,and(c)matureenough to have survived andexpandedbeyond the initial birth or entrepreneur-

ialstageof their development (Greiner, 1998).To theextent that a moderate powerdifferential

exists between theCEO andthefirm’s topmanagersin thesehybridfirms, where theoverarch-

ing organizational goal—growth—depends on accurately listening to internal and external

stakeholders, we expect the CEO-Adviser model to be particularly informative (Greiner,

1998).

TheCEO andTMTmodels will continue to generate productive research on strategicdeci-

sion making. We hope that theCEO-Adviser model will augment andcomplement these foun-

dations. We have describedCEO-Adviserdecision making as a constructiveaddition to strate-

gic decision-making research. Our proposed research agenda considers the context of adviser

selection and the advising process. Again, the propositions we offer are far from exhaustive,

andimportant theorymaybe builtin other areas using theCEO-Adviser model.Moreover, we

have suggested areas where other literatures could be integrated into and extend the CEO-Adviser model. We hope that this article stimulates scholarly activity that further articulates

and tests our propositions, and develops new ones, under the CEO-Adviser model.



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Yukl, G. A., & Fu, P. P. 1999. Determinants of delegation and consultation by managers. Journal of Organizational

Behavior , 20: 219-232.

Biographical Notes

LucyA. Arendt is a lecturerof managementin theProfessionalProgramsof Businessat theUniversityof Wisconsin–

Green Bay. She is a doctoral candidate in organizations and strategic management at the University of Wisconsin–

Milwaukee. Her research interests include top management sense making and judgment, and the effects of leader

behaviors on follower efficacy and creative performance.

Richard L. Priem is theRobertL. andSally S. ManegoldProfessor ofManagementand StrategicPlanningat theUni-

versity of Wisconsin–Milwaukee. He earned his Ph.D. in strategic management at the University of Texas at

Arlington.He wasa Fulbright scholar at theUniversityCollegeof Belize andhas visitedat theHong KongPolytechnic

University, Hong Kong University of Science and Technology, and Groupe ESCEM in Tours, France. His research

interests include top management decision making and processes.

Hermann AchidiNdoforis an assistantprofessor ofmanagementat theUniversityof NorthCarolina at Charlotte.He

received his Ph.D. fromthe University of Wisconsin–Milwaukee School of Business. His research interests focus on

how firms use resources to gain competitive advantage, competitive dynamics, and entrepreneurship.


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