Seeking counsel from others is a vital part of decision making, but a new paper suggests there is a link between the type of advice sought by CEOs and the performance of the firm.
The paper, co-authored by Dr Shenghui Ma of the Fudan University School of Management, Cambridge Judge Business School’s Professor Yasemin Kor and Professor David Seidl from University of Zurich, reviewed 65 “high-impact studies” of CEO decision making to find out whom bosses turn to when seeking advice.
The researchers define advice seeking as “any interaction of the CEO with another person or group ostensibly directed at accessing knowledge deemed helpful for dealing with a problem.”
It found that CEOs tend to be more open to advice when their firm is struggling financially. However in this situation, they’re more likely to prefer internal advice from company directors who tend to confirm their existing ideas and are less likely to offer new insight. If they do consult externally, it’s usually from trusted or close confidants, who share a similar background.
In contrast, CEOs pursuing innovation-based strategies, or looking to define themselves differently from sector rivals, are more likely to rely on external insights, while CEOs chasing efficiency-based strategies prefer consulting internally.
The logic behind why CEOs might seek insular advice in hard times is clear. People who have been there and done it, understand the idiosyncrasies of the company and are experts in their field will have a more detailed grasp on the situation and offer viable solutions; as human beings we’re also hardwired to seek views that confirm our own.
But the management implications of this are clear. CEOs who consult too narrowly risk missing out on vital new perspectives and innovative ideas, which can prove decisive.
As the study says, however, if leaders have not already built a wide and diverse advice network, it may be too late to do so when the hard times hit.
The study also notes that firms with CEOs who consult widely pursue change at a higher rate.
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