Making the manager great again

Kevin Lewis

January 02, 2018

Promotions and the Peter Principle
Alan Benson, Danielle Li & Kelly Shue
MIT Working Paper, October 2017

The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the Peter Principle: when making promotion decisions, firms prioritize current job performance at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of managerial mismatch are substantial, suggesting that firms make inefficient promotion decisions or that the incentive benefits of promoting based on current performance are also high.

Facial width-to-height ratio differs by social rank across organizations, countries, and value systems
Tim Hahn et al.
PLoS ONE, November 2017

Facial Width-to-Height Ratio (fWHR) has been linked with dominant and aggressive behavior in human males. We show here that on portrait photographs published online, chief executive officers (CEOs) of companies listed in the Dow Jones stock market index and the Deutscher Aktienindex have a higher-than-normal fWHR, which also correlates positively with their company's donations to charitable causes and environmental awareness. Furthermore, we show that leaders of the world's most influential non-governmental organizations and even the leaders of the Roman Catholic Church, the popes, have higher fWHR compared to controls on public portraits, suggesting that the relationship between displayed fWHR and leadership is not limited to profit-seeking organizations. The data speak against the simplistic view that wider-faced men achieve higher social status through antisocial tendencies and overt aggression, or the mere signaling of such dispositions. Instead they suggest that high fWHR is linked with high social rank in a more subtle fashion in both competitive as well as prosocially oriented settings.

When Corporate Social Responsibility Backfires: Theory and Evidence from a Natural Field Experiment
John List & Fatemeh Momeni
NBER Working Paper, December 2017

Corporate Social Responsibility (CSR) has become a cornerstone of modern business practice, developing from a "why" in the 1960s to a "must" today. Early empirical evidence on both the demand and supply sides has largely confirmed CSR's efficacy. This paper combines theory with a large-scale natural field experiment to connect CSR to an important but often neglected behavior: employee misconduct and shirking. Through employing more than 3000 workers, we find that our usage of CSR increases employee misbehavior -- 20% more employees act detrimentally toward our firm by shirking on their primary job duty when we introduce CSR. Complementary treatments suggest that "moral licensing" is at work, in that the "doing good" nature of CSR induces workers to misbehave on another dimension that hurts the firm. In this way, our data highlight a potential dark cloud of CSR, and serve to forewarn that such business practices should not be blindly applied.

How Can Leaders Overcome the Blurry Vision Bias? Identifying an Antidote to the Paradox of Vision Communication
Andrew Carton & Brian Lucas
Academy of Management Journal, forthcoming

Evidence suggests that organizational leaders can inspire employees by communicating a vision of the future with image-based rhetoric - words and phrases that are readily envisioned in the mind's eye (e.g., "our vision is to make moviegoers laugh"). Yet research has demonstrated that most leaders do not craft visions with image-based rhetoric, instead favoring abstract language that cannot easily be visualized. We integrate theory on leadership and dual cognitive processing to argue that this problem is exacerbated when leaders focus on word selection when crafting visions because they overemphasize the meaning-based cognitive system (in which they consider the abstract meaning of words) and underemphasize the experience-based cognitive system (in which they can generate vivid mental images of what the future could look like). We introduce a novel tactic involving "mental time travel" to help leaders activate the experience-based system and, in turn, generate and communicate more impactful visions. We also investigate boundary conditions. We tested our predictions with three experiments featuring three distinct samples, including one with senior corporate executives and one in which members of the British government crafted visions on the day Britain voted to exit the European Union ("Brexit").

Does Economic Insecurity Affect Employee Innovation?
Shai Bernstein, Timothy McQuade & Richard Townsend
NBER Working Paper, November 2017

Do household wealth shocks affect employee productivity? We examine this question through the lens of technological innovation, by comparing employees that worked at the same firm and lived in the same metropolitan area, but experienced different housing wealth declines during the 2008 crisis. Following a housing wealth shock, employees are less likely to successfully pursue innovative projects, particularly ones that are high impact, complex, or exploratory in nature. Consistent with employee concerns about financial distress, the effects are more pronounced among those who had little equity in their house before the crisis and among those with fewer outside labor market opportunities. Moreover, run-ups in housing prices before the crisis did not affect employee innovation. The results highlight a "bottom-up" view of innovation, in which individual employees influence the quantity and nature of innovation produced within firms.

Taking a Hit to Save the World? Employee Participation in a Corporate Social Initiative
Christiane Bode & Jasjit Singh
Strategic Management Journal, forthcoming

Companies often justify their corporate social initiatives by citing talent management benefits. We examine the extent of, and the reasons for, employee interest in such an initiative in a global management consulting firm. We find a large fraction of employees to be interested in participation in the initiative even when participation requires a personal sacrifice in the form of a salary cut. However, this interest is driven not just by prosocial motivation: expectations regarding private benefits, such as improved career prospects from new skills acquired, also play a role. Considerations of social impact and private benefits are equally salient when no salary cut is required, but private considerations become more prominent when participating employees are asked to accept a salary cut.

Dismantling Knowledge Boundaries at NASA: The Critical Role of Professional Identity in Open Innovation
Hila Lifshitz-Assaf
Administrative Science Quarterly, forthcoming

Using a longitudinal in-depth field study at NASA, I investigate how the open, or peer-production, innovation model affects R&D professionals, their work, and the locus of innovation. R&D professionals are known for keeping their knowledge work within clearly defined boundaries, protecting it from individuals outside those boundaries, and rejecting meritorious innovation that is created outside disciplinary boundaries. The open innovation model challenges these boundaries and opens the knowledge work to be conducted by anyone who chooses to contribute. At NASA, the open model led to a scientific breakthrough at unprecedented speed using unusually limited resources; yet it challenged not only the knowledge-work boundaries but also the professional identity of the R&D professionals. This led to divergent reactions from R&D professionals, as adopting the open model required them to go through a multifaceted transformation. Only R&D professionals who underwent identity refocusing work dismantled their boundaries, truly adopting the knowledge from outside and sharing their internal knowledge. Others who did not go through that identity work failed to incorporate the solutions the open model produced. Adopting open innovation without a change in R&D professionals' identity resulted in no real change in the R&D process. This paper reveals how such processes unfold and illustrates the critical role of professional identity work in changing knowledge-work boundaries and shifting the locus of innovation.

Not Too Tired to be Proactive: Daily Empowering Leadership Spurs Next-Morning Employee Proactivity as Moderated by Nightly Sleep Quality
Pauline Schilpzand, Lawrence Houston & Jeewon Cho
Academy of Management Journal, forthcoming

Building on the Model of Proactive Motivation (Parker, Bindl, & Strauss, 2010), we hypothesize that a leader's daily empowering leadership behaviors function as a motivator for employees to display a greater amount of proactive goal striving behavior, by means of enhanced daily proactive goal setting. Expanding the Model of Proactive Motivation, we incorporate the largely neglected self-regulatory resource perspective and hypothesize that employee sleep quality operates as a qualifying influence on employees' ability to set and strive for proactive goals that allow employees to take advantage of empowerment opportunities. Using a time-lagged experience sampling methodology, our hypotheses were tested in a sample of 98 professionals who completed twice-daily surveys over a two-week period. Study results confirm our hypotheses that experiencing daily empowering leadership enhances employees' next morning proactive behaviors of risk taking and voice behavior due to more proactive goal setting at the start of the workday. Finally, employee next day goal setting and goal striving behavior is especially enhanced for those employees who experienced higher levels of sleep quality. Theoretical and practical implications derived from our research are discussed.

Impact of Labour Controls on Tipping Point Dynamics in Large Complex Projects
Ying Li et al.
Systems Research and Behavioral Science, forthcoming

Large, complex development projects are subject to unique risks, including rework and scope increases that can push a project from progressing towards completion past a tipping point to falling farther and farther behind. Previous research demonstrated the potential of rework-induced tipping point dynamics to cause large, complex projects to fail. The impacts of project labour control policies on performance have also been investigated. However, the impacts of project labour controls on tipping point dynamics have not been fully investigated. The current work uses a simulation model to investigate the ability of project labour control actions to respond to tipping point dynamics. A contribution of the current work to the body of knowledge is to develop an improved understanding of the impacts of project labour controls on project tipping point robustness. The work demonstrates the counter-intuitive result that well-intended, reasonable project labour control actions can push a project over a tipping point to failure. Results of project robustness analysis with sensitivity analysis are used to design effective responses to tipping point dynamics. Implications for practice and future research opportunities are discussed.

Smart or Diverse Start-up Teams? Evidence from a Field Experiment
Sander Hoogendoorn, Simon Parker & Mirjam van Praag
Organization Science, November-December 2017, Pages 1010-1028

This paper explores the relationship between cognitive abilities and team performance in a start-up setting. We argue that performance in this setting hinges on three tasks: opportunity recognition, problem solving, and implementation. We theorize that cognitive ability at the individual level has a positive effect on opportunity recognition and problem solving but no clear effect on implementation. Within teams, a combination of higher and lower cognitive ability levels may be productive insofar as some individuals can be assigned to mundane tasks (that are often involved in implementation), while others can be assigned to tasks that impose a greater cognitive load (problem solving or opportunity recognition). We present the results of a field experiment in which 573 students in 49 teams started up and managed real companies. We ensured exogenous variation in - otherwise random - team composition by assigning students to teams based on their measured cognitive abilities. Each team performed a variety of tasks, often involving complex decision making. The key result of the experiment is that the performance of start-up teams first increases and then decreases with ability dispersion. Strikingly, average team ability is not related to team performance.

Rude color glasses: The contaminating effects of witnessed morning rudeness on perceptions and behaviors throughout the workday
Andrew Woolum et al.
Journal of Applied Psychology, December 2017, Pages 1658-1672

Using an experimental experience sampling design, we investigate how witnessing morning rudeness influences workers' subsequent perceptions and behaviors throughout the workday. We posit that a single exposure to rudeness in the morning can contaminate employees' perceptions of subsequent social interactions leading them to perceive greater workplace rudeness throughout their workday. We expect that these contaminated perceptions will have important ramifications for employees' work behaviors. In a 10-day study of 81 professional and managerial employees, we find that witnessed morning rudeness leads to greater perceptions of workplace rudeness throughout the workday and that those perceptions, in turn, predict lower task performance and goal progress and greater interaction avoidance and psychological withdrawal. We also find that the contaminating effect of morning rudeness depends on core self-evaluations (CSE)-employees high (vs. low) in CSE are affected less by exposure to morning rudeness. We discuss implications for practice and theory.

Founder Replacement and Startup Performance
Michael Ewens & Matt Marx
Review of Financial Studies, forthcoming

We provide causal evidence that venture capitalists (VCs) improve the performance of their portfolio companies by replacing founders. Using a database of venture capital financings augmented with hand-collected founder turnover events, we exploit shocks to the supply of outside executives via 14 states' changes to non-compete laws from 1995 to 2016. Naive regressions of startup performance on replacement suggest a negative correlation that may reflect negative selection. Indeed, instrumented regressions reverse the sign of this effect, suggesting that founder replacement instead improves performance. The evidence points to the replacement of founders as a specific mechanism by which VCs add value.

The option to quit: The effect of employee stock options on turnover
Serdar Aldatmaz, Paige Ouimet & Edward Van Wesep
Journal of Financial Economics, January 2018, Pages 136-151

We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. A large fraction of the reduction in turnover appears to be temporary with turnover increasing in the third year following the year of the adoption of the BBSO plan. The increase three years post-grant is equal in magnitude to the cumulative decrease in turnover over the three prior years, suggesting that long-vesting BBSO plans delay, instead of prevent, turnover.

Towards a Behavioral Theory of Real Options: Noisy Signals, Bias, and Learning
Hart Posen, Michael Leiblein & John Chen
Strategic Management Journal, forthcoming

We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback learning theory that considers uncertain current asset values (contemporaneous uncertainty). This enables us to incorporate behavioral bias in the feedback learning process underlying the option execution/termination decision. The resulting computational model suggests that firms that inappropriately account for contemporaneous uncertainty and are subject to learning biases may experience substantial downside risk in undertaking real options. Moreover, contrary to the standard option result, greater uncertainty may decrease option value, making commitment to an investment path more effective than remaining flexible.

Doing Well by Making Well: The Impact of Corporate Wellness Programs on Employee Productivity
Timothy Gubler, Ian Larkin & Lamar Pierce
Management Science, forthcoming

This paper investigates the impact of a corporate wellness program on worker productivity using a panel of objective health and productivity data from 111 workers in five laundry plants. Although almost 90% of companies use wellness programs, existing research has focused on cost savings from insurance and absenteeism. We find productivity improvements based both on program participation and postprogram health changes. Sick and healthy individuals who improved their health increased productivity by about 10%, with surveys indicating sources in improved diet and exercise. Although the small worker sample limits both estimate precision and our ability to isolate mechanisms behind this increase, we argue that our results are consistent with improved worker motivation and capability. The study suggests that firms can increase operational productivity through socially responsible health policies that improve both workers' wellness and economic value, and provides a template for future large-scale studies of health and productivity.

Are Workers Willing to Pay to Join a Better Team?
Thomas Zimmerfaust
Economic Inquiry, forthcoming

Using data from the Major League Baseball free-agent market, this study is the first to show that the productivity expected of the team a worker will join produces a significant, negative compensating wage differential. The younger workers in the sample drive this result, trading 25% of their wages to join teams with an expected productivity one standard deviation higher. This investment can be recouped if a reasonable increase in human capital occurs. These results are robust to contract length-wage simultaneity and indicate that investment in human capital motivates the observed tradeoff, suggesting a new pathway through which human capital accumulation can affect wages. Reliable measures of workers' own past productivity and the productivity expected of a worker's future team provide key advantages to identifying these effects.

There's No Team in I: How Observers Perceive Individual Creativity in a Team Setting
Min Kay, Devon Proudfoot & Richard Larrick
Journal of Applied Psychology, forthcoming

Creativity is highly valued in organizations as an important source of innovation. As most creative projects require the efforts of groups of individuals working together, it is important to understand how creativity is perceived for team products, including how observers attribute creative ability to focal actors who worked as part of a creative team. Evidence from three experiments suggests that observers commit the fundamental attribution error - systematically discounting the contribution of the group when assessing the creative ability of a single group representative, particularly when the group itself is not visually salient. In a pilot study, we found that, in the context of the design team at Apple, a target group member visually depicted alone is perceived to have greater personal creative ability than when he is visually depicted with his team. In Study 1, using a sample of managers, we conceptually replicated this finding and further observed that, when shown alone, a target member of a group that produced a creative product is perceived to be as creative as an individual described as working alone on the same output. In Study 2, we replicated the findings of Study 1 and also observed that a target group member depicted alone, rather than with his team, is also attributed less creative ability for uncreative group output. Findings are discussed in light of how overattribution of individual creative ability can harm organizations in the long run.

Attribution Bias, Blame, and Strategic Confusion in Punishment Decisions
Andy Brownback & Michael Kuhn
University of Arkansas Working Paper, October 2017

Disentangling the roles of intentional effort and luck is critical when evaluating decisions made by others under uncertainty. Previous research shows that this can be a very difficult task. In a principal-agent experiment where an agent's effort is always perfectly observable, we find an undue influence of luck on punishment decisions made by principals. Our experiment identifies attribution bias as a mechanism behind this behavior - lucky agents are perceived to exert more effort than unlucky ones. We test the sophistication of both the principals and agents about this bias. Agents show positive willingness to pay for control over the principal's access to information about luck but principals show no demand to eliminate news about the agent's luck from their information set. We replicate these findings with third parties tasked with punishing agents and consider policy implications for what information should be available to principals.

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