Follow the leader (or not): The influence of peer CEOs’ characteristics on interorganizational imitation

• Published date: 01 May 2018
• Date: 01 May 2018
• DOI: http://doi.org/10.1002/smj.2765

RESEARCH ARTICLE

Follow the leader (or not): The influence of peer

CEOs’characteristics on interorganizational

imitation

Abhinav Gupta

1†

| Vilmos F. Misangyi

2†

1

Department of Management and Organization,

Foster School of Business, The University of

Washington, Seattle, Washington

2

Department of Management and Organization,

Smeal College of Business, The Pennsylvania

State University, University Park, Pennsylvania

Correspondence

Abhinav Gupta, Management & Organization,

University of Washington, Seattle, WA.

Email: abhinavg@uw.edu

Funding information

Smeal College of Business

Research Summary: We argue that because charisma

and narcissism represent widely held prototypes of effec-

tive and ineffective forms of leadership, respectively, the

likelihood that a focal firm will imitate the practices of its

peer firms is affected by these peer firms’CEO character-

istics. We theorize that peer firm CEO charisma enhances

the focal firm’s imitation of peer firms’behaviors, while

peer firm CEO narcissism diminishes it. We further posit

that the uncertainty of the context affects these imitation

processes: industry dynamism and prior experience in a

given strategic domain, respectively, strengthens and

dampens focal firms’susceptibility to these peer CEOs’

attributes. We test and find support for these ideas using

a longitudinal sample of Fortune 500 firms in two distinct

domains, corporate strategy and corporate social

responsibility.

Managerial Summary: When companies are uncertain

about the costs and benefits of strategic actions this may

lead them to imitate the actions of peer companies. But

given the uncertainty, the challenge for executives is:

which companies to emulate and which to ignore? In a

sample of Fortune 500 companies, we find that the cha-

risma or narcissism of a peer company’s CEO positively

or negatively influences, respectively, the degree to which

the peer company’s strategic actions are imitated. We rea-

son that this is because these particular CEO attributes

are widely believed to drive leadership effectiveness or

ineffectiveness, respectively. We also find that the effects

of these CEO characteristics on imitation are stronger in

dynamic industry environments and weaker for compa-

nies that already have experience with the given strategy.

†

Both authors contributed equally.

Received: 28 October 2016 Revised: 6 November 2017 Accepted: 12 November 2017 Published on: 16 March 2018

DOI: 10.1002/smj.2765

Strat Mgmt J. 2018;39:1437–1472. wileyonlinelibrary.com/journal/smj Copyright © 2018 John Wiley & Sons, Ltd. 1437

KEYWORDS

interorganizational imitation, practice diffusion, upper

echelons

1|INTRODUCTION

Organizational researchers have had a longstanding interest in understanding how and when firms imi-

tate each other’s actions. Studies have documented the presence of interorganizational imitation pro-

cesses for a multitude of behaviors, such as executive compensation plans (Davis & Greve, 1997),

corporate strategies (Haunschild, 1993; Westphal, Seidel, & Stewart, 2001; Zhu & Chen, 2015), and

social responsibility practices (Briscoe & Safford, 2008). This imitation process operates through man-

agerial sensemaking and social comparison: when uncertainty about an action’s risks and benefits

exists, organizational decision makers look to the behaviors of their peers for cues about the technical

and social merits of the action (Cyert & March, 1963; Shropshire, 2010; Westphal & Zajac, 1997). A

central question in this literature is: which firms are more likely to be emulated by others? Prior

research suggests that certain social-structural attributes (large size; high status) and outcomes (high

performance) of referent firms can make their actions more emulation-worthy to observing firms

(e.g., Dutton & Freedman, 1985; Haunschild & Miner, 1997; Strang & Still, 2004).

What has yet to be considered is the possibility that attributes of the leaders of peer firms play a

role in how their firms’actions are viewed by observing firms. Yet, this issue is an important one

given that firms’strategies and actions reflect the decisions of top executives, most notably the CEO

(Hambrick & Mason, 1984; Mintzberg, 1973). Indeed, research has shown that external stakeholders

frequently view and interpret firms’actions in light of their understanding of who the CEOs are,

and what the leaders’attributes imply about the volition of those actions and of their performance

potential (Briscoe, Chin, & Hambrick, 2014; Chen & Meindl, 1991; Fanelli, Misangyi, & Tosi,

2009). Moreover, the business press tends to evaluate the actions of firms as though their leaders are

the driving forces behind those decisions (Groth, 2011; Luckerson, 2014). Given the salience of

CEOs to the outside world, how peer firms’CEOs’personal attributes can influence the imitation

behavior of observing firms remains an intriguing but unexamined topic.

In this study, we integrate research on interorganizational imitation with insights from research

on leadership categorizations to examine how the characteristics of the decision makers of peer

firms—that is, the peer firms’CEOs—affect focal firms’imitation. Specifically, we build upon the

literature on uncertainty-based imitation processes and integrate it with theory and evidence on the

socio-cognitive effects of leadership characteristics (i.e., leader categorizations; e.g., Lord & Maher,

1991; Fanelli et al., 2009) to posit that the likelihood that focal firms will emulate the practices of

peer firms is affected by the charisma or narcissism of the peer firms’CEOs. We argue that both of

these CEO characteristics will influence the contagiousness of peer firms’strategic actions due to

the leadership categorizations they evoke—as we discuss below, a focal firm’s decision to imitate is

subject to an automatic socio-cognitive influence process that is triggered when these particular

CEO characteristics are observed. Yet, the selective contagion influence that these two leadership

attributes have on the leadership of observing firms will be different: charisma has a positive effect

on imitation—given that it is universally recognized as a prototypical form of effective leadership—

1438 GUPTA AND MISANGYI

while narcissism has a negative effect as it embodies all of the characteristics that have been found

to be universally perceived as detrimental to effective leadership (Den Hartog, House, Hanges,

Ruiz-Quintanilla, & Dorfman, 1999; Offermann, Kennedy, & Wirtz, 1994). Uncertainty both under-

lies the interorganizational imitation process (e.g., Lieberman & Asaba, 2006) as well as heightens

categorization processes (e.g., Hogg & Terry, 2000), and we therefore also examine the moderating

effect of contextual uncertainty in two ways: whether the hypothesized effects of these two peer

CEO traits on the imitation process are stronger in contexts involving high uncertainty—that is, in

highly dynamic industries—and weaker when there is less uncertainty—that is, when the focal firm

has prior experience in the strategic domain.

We expect these theorized leadership effects to occur in any domains that involve means-end uncer-

tainty and thus developed general hypotheses. We then tested our hypotheses in different strategic

domains in which decision makers lack ex-ante knowledge about the performance benefits of the actions.

In particular, we examined strategic actions aimed at corporate social responsibility (CSR) as well as cor-

porate strategy, the latter with respect to product market diversification and international diversification.

After decades of research, the relationship between CSR and firm performance is decidedly equivocal

(e.g., Di Giuli & Kostovetsky, 2014; McWilliams & Siegel, 2000; Orlitzky, Schmidt, & Rynes, 2003).

The performance implications of product market and international diversification are also not clear

(Hill & Hoskisson, 1987; Hitt, Hoskisson, & Kim, 1997; Hitt, Tihanyi, Miller, & Connelly, 2006;

Palich, Cardinal, & Miller, 2000; Tihanyi, Griffith, & Russell, 2005). At the same time, these strategic

behaviors are quite salient. The costly nature of CSR practices, and thus the controversy that surrounds

them, draws attention to these practices (e.g., Hiatt, Grandy, & Lee, 2015). Diversification is a high-

profile strategic decision fraught with complexities and uncertainty as firms struggle with integrating

new businesses into their existing corporate structures and with the cultural, political, and legal chal-

lenges of maintaining operations in other countries (Hitt et al., 2006; Tihanyi et al., 2005). Furthermore,

these practices are especially relevant to our current inquiry given that previous research has considered

how focal firm CEOs’charisma (Wowak, Mannor, Arrfelt, & McNamara, 2016) or narcissism

(Petrenko, Aime, Ridge, & Hill, 2016; Zhu & Chen, 2015) affect the implementation of these practices.

The primary aim of this study is to contribute to research on interorganizational imitation, which

has thus far emphasized that social-structural attributes of firms affect the perceived emulation-

worthiness of their decisions, by examining whether leaders also play a crucial role in affecting the

imitation process. Our study and its findings advance this research stream by showing that peer firm

leadership characteristics—in particular, CEO charisma and narcissism—do indeed influence the

degree to which firms’strategic behaviors are emulated by other firms in the peer group. In suggest-

ing that firm strategies can be influenced by the attributes of CEOs leading other firms through

socio-cognitive processes, our study also advances research on upper echelons, which has until now

focused on how CEOs’attributes affect the strategies of their own focal firms. Thus, the socio-

cognitive approach to leadership advanced here opens up a whole new avenue for future upper eche-

lons research, as well as strategic leadership, more generally.

2|THEORETICAL BACKGROUND

Prior research has documented the prevalence of interorganizational imitation in many organiza-

tional fields, including corporations (Davis, 1991), universities (Briscoe, Gupta, & Anner, 2015),

and hospitals (Westphal, Gulati, & Shortell, 1997). Interorganizational imitation occurs as an

information-based contagion that operates through social comparison processes as a means of reduc-

ing uncertainty (see, Greve, 1995; Lieberman & Asaba, 2006). While scholars have applied diverse

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