Dysfunctional executive behavior: What can organizations do?

Business Horizons (2010) 53, 581—590

www.elsevier.com/locate/bushor

Dysfunctional executive behavior: What can organizations do? James K. Summers a,*, Timothy P. Munyon b, Alexa A. Perryman c, Gerald R. Ferris d a

Foster College of Business Administration, Bradley University, 1501 West Bradley Avenue, Peoria, IL 61625, U.S.A. b College of Business Administration, University of Central Florida, Orlando, FL 32816-1991, U.S.A. c Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, U.S.A. d College of Business, Florida State University, Tallahassee, FL 32306-1110, U.S.A.

KEYWORDS CEO dysfunctional behavior; Work design; Job design; Accountability; Discretion; Work relationships; Executive governance

Abstract Much has been made of dysfunctional executive behavior in recent years. As such, the purpose of this article is to assist organizations in the design of executive work. To better construct a work environment that diminishes self-serving and unethical behavior, we propose that organizations structure an executive’s work around three factors: the accountability environment, managerial discretion, and relationship composition. These factors are used to describe how organizations can better design executives’ work so as to promote more desirable executive behavior. We describe how these factors should be calibrated, as well as how they affect each other. # 2010 Kelley School of Business, Indiana University. All rights reserved.

1. Bad executive! Bad executive! A cursory review of the local, national, and international news tends to highlight the now commonplace occurrence of corporate scandal,‘ dealing with what may be euphemistically termed dysfunctional’ executive behavior. When reviewing the actions of former corporate leaders such as Skilling, Lay,

* Corresponding author. E-mail addresses: [email protected] (J.K. Summers), [email protected] (T.P. Munyon), [email protected] (A.A. Perryman), [email protected] (G.R. Ferris).

Anderson, Kozlowski, Thain, and Madoff, questions arise concerning how these individuals came to power, and how they were able to exploit and corrupt their organizations. Indeed, given the prevalence of corporate scandals, it would be easy–—albeit admittedly cynical–—to view dysfunctional executive behavior as the norm. Nevertheless, dysfunctional executive behavior is neither universal nor inevitable, but the broad-ranging implications of such behavior suggest that corporations should seek viable solutions and preventive measures to promote functional and ethical behavior among their top executives. Corporations already operate under external governance mechanisms, with the most notable being

0007-6813/$ — see front matter # 2010 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2010.06.005

582 oversight by the board of directors (BOD). External steps also have been taken to encourage transparency and disclosure by corporations (e.g., SarbanesOxley; Compensation Discussion and Analysis provisions). However, these actions do little to improve the work environment and incentive structure that may predict dysfunctional executive behavior in the first place. Consequently, we suggest that organizations reexamine the role of work design as a potential means of promoting functional and ethical executive behavior. Work design broadly refers to management of the process, content, output, and context of jobs. Work design has been used for decades by organizations to manage employee work to achieve greater efficiency, effectiveness, and commitment to organizational goals. Until recently, however, the application of work design has been limited to more technical and structured jobs located at the lower levels of the organization (for an exception, see Munyon, Summers, Buckley, Ranft, & Ferris, 2010). As a result, we suggest ways that organizations can help curb executive misconduct by utilizing three dimensions of work important for executives: the accountability environment, managerial discretion, and relationship composition. Consequently, this article’s purpose is to illustrate how work design can help mitigate dysfunctional executive behavior, or actions taken by executives that are self-serving and unethical. By utilizing the ideas developed by Munyon and his colleagues (2010), we propose that organizations structure an executive’s work in order to minimize the probability of dysfunctional executive behavior. The three executive work dimensions of accountability environment, managerial discretion, and relationship composition are used to describe the means by which organizations can better design executive work to promote more‘ desirable executive behaviors. When describing executive’ work, we refer both to a firm’s top executive–—the Chief Executive Officer (CEO)–—and the top managers who often are tasked with similar responsibilities.

2. Job design background Job and work design applications have an extensive history, dating back to 1776 when Adam Smith described his division of labor concept. The premise of work design is that all jobs contain tasks and activities, and these tasks and activities (i.e., work characteristics) may be structured to enable desirable employee behavior and attitudes, or constrain undesirable employee behavior and attitudes (Morgeson & Humphrey, 2008). Certain tasks are necessary for

J.K. Summers et al. successful job performance, as is the match of the right employee to the task. Thus, successful employee performance requires both the calibration of work characteristics and the correct fit of employees with that work. Dominant job and work design applications have sought to increase worker motivation, satisfaction, engagement, and productivity as outcomes of interest; although, ergonomic approaches also have been proposed with the goal of improving employee health and reducing work-related injury. For example, one innovative company, Fahrenheit 212, has embraced ‘the notion of work design through development of 100-day plans’ for employees. As the name suggests, every 100 days, a company-wide strategy session takes place whereby the next 100 days are planned out. At these meetings, employees work directly with managers to design personalized plans, as well as grade themselves on the success of their last plan, which is used as a tool for determining bonuses and future compensation. Thus far, this 100-day approach has been credited with enabling employees to effectively self-manage, increasing managerial accountability to employees, and building relationships between young employees and senior managers. Fahrenheit 212’s application of work design also highlights an important point of implementation. In particular, work may be structured by employees, by their managers, or by collaboration between the two. This process of work structuring has received relatively little attention from scholars, but its fundamental assumption is that work can be understood and classified in such a manner to enable its control. Thus, the jobs most conducive to design and control are historically those that are simplest (e.g., manufacturing). However, the irony of work design is that complex jobs often would benefit the most from design, for a number of reasons. First, work design can help alleviate the negative impact of job demands and, particularly, the ambiguity in complex jobs. Second, the simplification of non-essential tasks for these employees may enable greater focus on tasks that produce value for the organization. Third, work design has the potential to improve executive decision making by simplifying and structuring the process of executive decision making. Surprisingly, job and work design has not–—until recently–—been seriously considered as a tool to reign in dysfunctional behavior; perhaps because work design was applied at lower levels of the organization, where the consequences of unethical behavior are less impactful on the firm. Nevertheless, Munyon and his associates (2010) reviewed the literature on executive work design, proposing a

Dysfunctional executive behavior: What can organizations do? model to heighten performance and executive wellbeing. Their arguments rely on BODs to take an active approach in formulating and designing work for executives, since they are charged with promoting the welfare of shareholders and the interests of their respective firms. BODs also generally possess authority over executives necessary for the functional implementation of work design. Executive work design shares similarities with other applications of behavioral and attitudinal modification at the executive level. For example, executive compensation is frequently used as a method of promoting positive executive performance. The fundamental premise of this line of inquiry is that employees, including executives, are motivated by financial rewards. Thus, organizations may link employee reward systems to the accomplishment of organizational objectives–—similar to the behaviorism approach of psychology, which relies on incentives and punishments to modify behavior. Unfortunately, the difficulties inherent in incentivizing functional behavior have been discussed for decades.

3. Why compensation isn’t enough Despite its prevalence as a governance mechanism, executive compensation is inadequate alone to promote functional and ethical executive behavior. First, executives may lack the expertise to accomplish a given task, and the expectations placed on them may be excessive relative to their talent level. More than any other organizational role, executives are likely to lack an outlet to gain necessary assistance, due to lack of socialization and training indicative of most other organizational roles. Thus, they are most likely to suffer if deficient in ability relative to the expectations put on them. Next, executive compensation rules may artificially influence an executive’s risk propensity and discourage failure. This is somewhat counterintuitive to prevailing logic, but research suggests that failure can be a tremendous learning tool (Hodgkinson & Wright, 2002). Yet, short executive tenure lengths suggest organizational tolerance for failure is minimal at best. For example, in 2008, after only 3 years at the helm, Starbucks fired Jim Donald and rehired its former CEO and Chairman, founder Howard Schultz. Starbucks cited declining sales, changing environmental conditions, and unsuccessful ideas (i.e., healthy food options and a focus on movies and music) as reasons for the dismissal. In 2009, GM’s CEO Fritz Henderson was asked to step down after only 8 months. Although Henderson did manage to

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stabilize market share and reduce losses at GM, it wasn’t enough to convince the BOD that he was worth keeping around for the radical turnabout the company needed before having to file bankruptcy later that year. Time also may negatively influence the viability of compensation as a tool to encourage functional and ethical executive behavior. In particular, finite options and other conditional incentives may encourage dysfunctional behavior that enables shortterm financial performance at the cost of long-term viability. Thus, we believe executive compensation is a useful tool, but is, by itself, inadequate to guide executive behavior. By focusing on executive work design, we move from a singular focus on outcomes, to managing the process of executive work itself. Although executives typically design and structure their own work, executive work design modifies the content and process of work by incorporating formal expectations of executives. This is congruent with scholars who suggest that organizations require increased formalization as they grow in size (e.g., Perrow, 1977). Yet, executive work often remains ambiguous, perhaps contributing toward the proliferation of unethical and dysfunctional behavior. Conversely, our approach promotes functional and ethical executive behavior by formalizing the roles between the BOD and the firm’s executives. In particular, following Munyon and his associates (2010), we identified three critical dimensions of executive work that may be used to channel and catalyze functional behavior.

4. Dimensions of executive work design Because employees informally adapt aspects of work to meet their personal preferences (Grant & Ashford, 2008), many advantages of such informal adaptation arise, so executives may tailor their work to meet their own unique circumstances and competencies over time. However, with any situation where latitude is afforded, executives can take advantage of the latitude given and craft their job in a self-serving manner. Thus, an organization’s BOD acts like a check and balance against executives taking liberties of this latitude. Executive work is designed based on a negotiated process between the executive and organizational stakeholders represented by a BOD (Munyon et al., 2010). As such, executive work design is founded on three fundamental work characteristics: the accountability environment, managerial discretion, and relationship composition (see Table 1).

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Table 1.

Calibrating executive work dimensions to improve executive behavior Proper Levels

Improper Levels

Accountability

* Provides more optimal BOD / Executive interactions * Enhanced firm adaptation

* Opportunities for self-serving behavior and politicking * Risk taking increases * Ambiguity concerning role * Increased BOD stress and strain * Increased executive stress and strain * Forgone firm opportunities * Decreased self efficacy * Increased risk of withdrawal

Discretion

* Executive and BOD work cooperatively to determine strategic direction * Enhanced cooperative decision making

* * * * * * *

Relationship Composition (Balanced)

* Executive may experience role overload regarding work demands * Executive reputation may suffer * Enhanced employee—organizational relationships * Quick response to environmental contingencies in the external market

* Focus can be on other organizations * Increased likelihood of growth, including diversification into new industries * Fewer networking opportunities * Fewer strategic alliances * Reduced risk of executive and employee turnover * Lost opportunities and slower response to external threats

4.1. The accountability environment Accountability is being answerable for one’s actions (Hall, Bowen, Ferris, Royle, & Fitzgibbons, 2007). As a work characteristic (Morgeson & Humphrey, 2008), accountability is a critical feature guiding executive behavior and attitudes in social systems, including organizations. Accountability is based upon personal experience, meaning executives differ in their perceptions of accountability, even under the same environmental or contextual conditions (Breaux, Munyon, Hochwarter, & Ferris, 2009). Consequently, organizations use aspects of the work environment to influence the subjective interpretation and experience of accountability for executives. This distinction is important, as organizations need to model their executives’ work environment in order to make them feel accountable–—not just to make executive accountability appear legitimate. Indeed, the accountability environment perceived by individuals can be calibrated in ways to affect the focus, source, intensity, and salience of the issues for which one is held accountable (Hall et al., 2007). Accountability may also reflect behavior not typically associated with the job. For example, one of the more unusual cases of accountability occurred in

BOD controls strategic direction Increased time horizons for decision making Decreased risk of executive opportunism Executive controls strategic direction Executive celebrity may arise Executive may attempt to limit accountability Executive may act opportunistically

2006, when it was found that Raytheon CEO William Swanson’s unpublished Unwritten Rules of Management was actually plagiarized, word for word, from W. J. King’s 1944 book, The Unwritten Rules for Engineering. Instead of firing Swanson or asking him to step down, the BOD froze his salary at the prior year’s rate and reduced his restricted stock for the coming year by 20%. Although largely symbolic rather than a true financial penalty, Swanson still took home compensation of around $7 million that year–— in comparison to the $12 million he had averaged previously–—demonstrating that Raytheon’s BOD attempted to take a small public stand on dysfunctional CEO behavior by imposing a limited financial penalty. Furthermore, despite their considerable influence and formal power, executives are held accountable to multiple constituents in an organization (Munyon et al., 2010). Informal accountability often is exerted by employees, suppliers, former executives, and mentors. For example, Guckenheimer Enterprises, a corporate dining service provider, strives not only to provide meals; but also balanced, healthy, high-end casual options that are driven from market trends, as well as customer and employee feedback. Similarly, according to CEO John Mackey, Whole Foods is

Dysfunctional executive behavior: What can organizations do? returning to its health-food roots and pulling away from food as an indulgence. These measures are in line with trends promoting a healthier lifestyle. To create value in this environment, Whole Foods is starting with its employees, and recently launched a program giving bigger store discounts to employees based on health metrics such as low cholesterol and blood pressure. In turn, formal accountability derives from regulatory agencies, banks and credit agencies, trade affiliations, alliances, and the BOD. In fact, this formal accountability is referred to as board monitoring, with the BOD–—as the shareholders’ agent–—representing the most important source of accountability to executives (Finkelstein, Cannella, & Hambrick, 2009).

4.2. Managerial discretion Managerial discretion refers to the notion that managers make choices to direct resources in certain domains and toward their own desired ends. Discretion suggests the freedom and control to take actions on one’s own, and the organization’s, behalf. The amount of latitude and discretion an executive has can be viewed as a measure of the strength of BOD accountability enforcement, which the BOD has the ability to adjust. Additionally, whether they have little to no latitude or extreme amounts of latitude, all executives must be held accountable for their actions to some degree. Moreover, the degree of discretion does not occur by accident, nor do organizations explicitly define how much discretion executives have. Managerial discretion is a negotiated process by which executives and stakeholders collaboratively work to set and define acceptable levels, as executives typically do not know exactly what actions are deemed acceptable by powerful stakeholders. As such, executives test the boundaries of their managerial discretion from time to time–—possibly overstepping their boundaries–—then are likely sanctioned by governing or powerful stakeholders (Finkelstein et al., 2009). For example, Carly Fiorina, former CEO of Hewlett-Packard (HP), recounts the difficulty in managing change without discretion, or latitude, from the board. In her book Tough Choices, Fiorina notes that the HP board and employees were reluctant to embrace a new direction after the departure of the company’s founders. As an outsider, she cited the lack of managerial discretion as one of the major factors that ultimately led to her dismissal as CEO. Despite the trouble experienced by Fiorina, research suggests that executives may influence the level of discretion they are extended. For example, Wrzesniewski and Dutton (2001) noted that individ-

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uals may craft, or modify, aspects of their jobs to realize individual preferences. Because executives are well-positioned to craft their own perceived level of discretion, they likely prefer different levels of discretion based on their personal strengths and weaknesses (Finkelstein et al., 2009). Meeting these discretion preferences likely has a substantial impact on executive behavior and outcomes, especially considering the demands of an executive work environment.

4.3. Executive relationships Relationships, or patterns of interaction between two or more people, are critical characteristics of executive work, and exert a significant influence on organizational learning and value creation (Munyon et al., 2010). First, relationships enable executives to collect and process information necessary for formulating and implementing strategies throughout the firm. Second, relationships facilitate resource access through inter-organizational alliances, the supply chain, and socio-political processes. Last, relationships create value by embedding customers in a firm’s network, increasing the probability of profitable customer exchanges in the future. Despite the favorable contribution of work relationships to firms, Munyon and colleagues (2010) suggest that a potential tension exists between firms and executives regarding the focus of executive relationships. Relationship focus refers to the relative balance between executive external relationships (i.e., those outside of the firm) and internal relationships (i.e., those inside the firm). Specifically, executives are likely to develop social networks that are personally advantageous, with a higher composition of external relationships relative to internal relationships (Munyon et al., 2010). The development and maintenance of executive external relationships (e.g., additional directorships for other firms and not-for-profits or the management of political interests) provides heightened prestige and reputation to executives. External relationships also enable executives to gather information on possible personal opportunities and career mobility. Finally, external relationships afford executives an opportunity to gather unique information that can accentuate their value to firms by brokering structural holes (Burt, 1997). Firms also may benefit from external relationships through a more visible reputation and enhanced access to information on changing environmental contingencies, such as impending regulation, competitor moves, or changes in resources or demand. However, a firm’s success is dependent upon the successful bundling of this information to create value for

586 customers (Sirmon, Hitt, & Ireland, 2007), and this process of value creation necessitates the management of internal relationships. Internal relationships, such as those with a firm’s managers, may provide less prestige, reputational capital, and access to opportunity for executives. Yet, internal relationships are critical for the receipt and dissemination of information, particularly in dynamic or highly competitive industries where conditions necessitate quick organizational responses. Internal relationships provide additional feedback concerning the organization’s competencies through upward communication, which may help remove internal impediments to best practices. Thus, executive policy and strategy is largely dependent upon internal relationships with division and other functional managers, who implement strategy through a system of interdependent subgoals and processes (Thompson, 1967). For example, internal relationships–—and, in turn, relationships with customers–—are a well-publicized emphasis at Zappos, where culture is the firm’s strength; in order to build culture and foster internal relationships, after hiring, everyone–—regardless of department or title–—goes through the same training as the Customer Loyalty Team.

5. Executive work design as a mechanism for curbing dysfunctional executive behavior Now that we have introduced the three work dimensions expected to affect an executive’s behavior, we move on to describe how these three work dimensions can independently curb dysfunctional executive behavior. As the executive work design process is negotiated between the executive and the organization’s BOD, these work characteristics collectively guide functionally appropriate behavior. Work design process begins with the accountability environment, and then flows to managerial discretion and relationship composition. There are several reasons why boards are critical and unique with regard to executive accountability. First, BODs possess the means to directly reward and sanction executives. Accordingly, executive compensation and tenure are thought to relate to BOD accountability and performance evaluation. Second, boards naturally interact with executives as a function of corporate charters. Accordingly, boards are in a position to exercise legitimate influence over executive affairs and the strategic direction of the firm. No other body of individuals has such authority to engage executives regarding the

J.K. Summers et al. firm’s direction. Finally, independent, outside directors offer specialized perspectives and insights. Thus, BODs are uniquely positioned to more accurately hold executives accountable because they understand executive work.

5.1. Using accountability to mitigate dysfunctional executive behavior Several aspects of the work context may be used by the BOD to influence executive accountability. The first–—and simplest–—considers the potential for, or likelihood of, evaluation. In general, CEOs meet at scheduled intervals with the board to assess performance of the executive and firm. With regard to accountability, research suggests that increasing board-executive interactions helps create more personal accountability for the executive (Vafeas, 1999). However, increased board-executive interactions is only one step toward calibrating executive accountability. Boards also may try to influence firm strategy formulation and implementation. For example, executives who have positive relationships with their boards are more likely to seek advice, which results in improved firm performance (Westphal, 1999). Also, executive incentives may be used to complement the formal monitoring conditions imposed by the government. In sum, these results provide evidence toward the positive performance impact of BOD-executive accountability. Traditional logic would dictate that more independent oversight of management is better than less (Fama & Jensen, 1983). To this end, very little accountability can result in executive behavior that is extremely self-serving. Without checks and balances designed by the BOD, executives have the ability to pursue their own interests, which could put the organization at risk. However, because research on the relationship between accountability and firm performance commonly has reported mixed results, ‘it might be the case that traditional assumptions of more is better’ need to be reconsidered. Organizations should allow for an alternative mode of thinking. Control is functional to a point, but too much control can produce negative outcomes (Ranft, Ferris, & Perryman, 2007). Holding an executive accountable by increasing monitoring and tying reward structures to answerability may, in fact, bring about the wrong type of behavior. Hambrick, Finkelstein, and Mooney (2005) argued that counterproductive behaviors may result from the stress that comes from continued increases in accountability. For example, executives frequently feel they must justify their highly visible

Dysfunctional executive behavior: What can organizations do? jobs, and consequently may pursue a risky course of action despite the success of a status quo strategy (for further discussion, see Ranft et al., 2007). Interestingly, it seems that Hollywood has decided CEOs could use a lesson in accountability by stepping into the role of a typical rank-and-file employee. The Orwellian reality show, Undercover Boss, details CEOs–—from firms such as 7-Eleven, White Castle, Churchill Downs, and Waste Management–—doing just that. Many participants have deemed the experience an eye-opener regarding how their businesses are actually run, and the true effects of corporate initiatives on day-to-day operations and lower level employees.

5.2. Using managerial discretion to mitigate dysfunctional executive behavior Hambrick and Finkelstein (1987) suggested that levels of discretion vary considerably among executives across organizations. Discretion suggests that executives have the freedom and the control to take actions not only on their own, but also on the organization’s, behalf. Discretion significantly impacts an organization’s ability to limit potential dysfunctional behavior by executives. This is especially important as most CEOs seek to maximize their discretion (Ranft et al., 2007). Thus, to curb illegal and unethical behavior, organizations will aim to design executive work where the amount of discretion is restricted. Because discretion has an optimal level that will be associated with positive outcomes, we need to examine the proper calibration of managerial discretion in executive positions in order to maximize positive–—and minimize negative–—outcomes. Too much discretion can be detrimental to organizational effectiveness because there are limited checks and balances on behavior (Finkelstein et al., 2009). High levels of discretion may not be a problem if the executive always behaves in an organizationally appropriate manner. But if not, there are no limits imposed on the behavior that may be detrimental to the organization. ‘‘ Indeed, as Fama and Jensen (1983, p. 314) noted, the board is not an effective device for decision control unless it limits the decision discretion of individual top managers.’’ General Electric (GE) has a culture that promotes both discretion and accountability. The highpressure, multi-faceted environment in which it functions requires flexibility to achieve high performance, but not at the expense of integrity. The firm’s CEO, Jeff Immelt, is famous for beginning and ending all officer and senior management meetings by stating the company’s integrity principals. Executives still meet their financial goals in whatever ways they

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deem fit, but they must never cut corners regarding ethics. There is evidence that managerial discretion is increasing, and this could be one explanation for the widely variable levels of performance across firms (Finkelstein et al., 2009). Increasing managerial discretion also provides a signal of increasing executive status. As noted by Hayward, Rindova, and Pollock (2004), CEO celebrity can arise because of a tendency to over-attribute a firm’s fortunes to its executive. Thus, it seems that celebrity CEOs may possess more power, and be held to lower accountability standards, than other executives for their performance and that of the organization (Ranft & O’Neill, 2001). Accordingly, the design of executive work requires careful consideration of CEO status and expectations. In addition, firms’ extending high levels of managerial discretion must consider the potentially negative inflation of CEO status.

5.3. Using executive relationships to mitigate dysfunctional executive behavior Organizations may channel the relative focus of executive relationships in order to meet their unique needs. In particular, Munyon and colleagues (2010) proposed that executives use relationships to gain power and influence, and that this process has important ramifications for the organizations they lead. First, information is a source of power, and executives who occupy a central position in a given social network (i.e., network of relationships) gain both power and influence because they have greater access and control over information (Freeman, 1978). However, executives operate under conditions of limited personal resources–—such as time and energy–—which may impede the development of relationships. Accordingly, executives generally may be expected to invest relationally in such a manner that increases their power and influence. This suggests that executives are incented to act opportunistically regarding relationships, and seek to invest in those relationships that maximize their self interests. A number of contingencies shape the unique composition of each executive’s relational focus; these contingencies include executive tenure, organization size, and industry competition. However, it is important to describe how executives’ relationship focus affects their tendency to behave dysfunctionally. Such an evaluation enables organizations to guide the relational focus of their executives for firm benefit while also understanding how that focus impacts on the individual executive. For example, relationships enable social support (Zellars & Perrewe ´, 2001) and helping mechanisms (Grant, 2007) needed by executives for healthy psychological functioning. Yet,

588 relationships that benefit the firm may not necessarily benefit the executive, requiring a calibration of these potentially divergent interests. Munyon et al. (2010) proposed that executives naturally gravitate toward relationships outside of the organization (i.e., external social capital) rather than relationships inside the organization (i.e., internal social capital), because of the personal benefits inherent in external relationships (e.g., reputational capital). For example, external relationships may provide executives with visibility; social support; peripheral employment, such as service on other corporate boards; or opportunities concerning their own primary employment in other firms–—all of which contribute toward development of one’s power and influence. Nonetheless, this external focus may be inappropriate for the organization, and result in dysfunctional and unethical behavior. This effect occurs because organizations require relationships, as well as a source of information regarding value-producing processes, competitive actions, and other environmental contingencies. Dysfunction results from at least two sources regarding executive relationships. First, executives may invest in relationships that do not offer value to the firm. To the extent that these relationships require finite amounts of personal resources, the firm suffers. Second, executives may invest in relationships that do not match the needs of the firm. ‘ This is most likely to occur when the firm is in an exploitative’ mode (March, 1991), which would require the executive to invest in relationships within the firm to maximize value. These firms would potentially benefit from an executive who inspires, works to improve quality and value incrementally, and instills a sense of value and belonging among employees. That said, functional internal relationships would be a logical prerequisite for the effective exploitation of firm capabilities. To combat dysfunctional behaviors, the latest push in developing executives entails encouraging socially responsible activities. At Natura Cosme ´ticos–—a Brazilian company that manufactures, distributes, and commercializes cosmetic products–—executive bonuses are based on environmental and social performance, as well as traditional economic performance. In a similar vein, General Mills’ CEO and all senior leaders serve on nonprofit boards and are actively engaged in their community. For its part, IBM’s Corporate Service Corp is modeled on the Peace Corps plan, which helps build not only leadership skills but also corporate goodwill. The selectively-chosen 500 program participants (annually) find the experience invaluable in terms

J.K. Summers et al. of knowledge and building corporate loyalty. For these and other organizations, charity begins at work, but the benefits help all involved. Work design for firms, then, seeks first to identify the focus (i.e., internal or external) of executive relationships, and the extent to which an executive invests in relationships that benefit the firm. Next, BODs can encourage relationship development that benefits the firm by facilitating exchanges between the executive and valued constituents. As needed, the board may act to limit executive engagements that do not provide value to the firm. Nevertheless, the needs of the firm must be balanced against the needs of the executive regarding relationships, and firms must consider the types of social support required by executives for normal functioning. ‘‘ Social support describes the degree to which a job provides opportunities for advice and assistance from others’’ (Morgeson & Humphrey, 2006, p. 1324). Social support improves work adjustment, reduces work strain, and enhances employee engagement (Zellars & Perrewe ´, 2001). Social support also helps employees buffer negative environmental stressors (Halbesleben, 2006). Executives naturally will gravitate toward a personally-satisfying level of social support. However, modifications to the relationship focus of executives have the potential to change the nature of social support. Thus, successful work design requires the firm to consider its own needs for information and status provided by relationships, and also the social support needed by executives to function appropriately in a given role.

6. Bringing the executive work dimensions together Now that we have described, individually, how these dimensions are expected to affect executive behavior, we need to discuss how these work dimensions affect each other; it would be naı¨ve to think they operate in isolation. Thus, the next step is to understand how accountability, managerial discretion, and relationships affect one another. Perhaps the most obvious connection between work dimensions is that of accountability and managerial discretion. Because discretion is not absolute and stems from contextual forces (Finkelstein et al., 2009), we suggest that managerial discretion is affected by the executive’s accountability environment. The amount of discretion an executive has can be viewed as a measure of the strength of BOD accountability enforcement, which the BOD has the ability to adjust. Further, whether they have little to no discretion or vast amounts of discretion, all

Dysfunctional executive behavior: What can organizations do? executives must be held accountable for their actions to some degree. At face value, it appears as though managerial discretion and accountability run at odds with one another. Ideally, most executives would enjoy a great deal of discretion without being held accountable for their actions. This is not necessarily the case, as discretion and accountability accomplish different ends in a related–—though not necessarily oppositional–—fashion. For example, an executive may work under conditions of great managerial discretion and simultaneously high levels of accountability, or evaluation from third parties (most notably a BOD). Conversely, an executive can operate under very little discretion, with a corresponding level of accountability (e.g., an executive who is more of a figurehead). Research suggests that executives are largely able to influence the level of discretion they are extended. For example, Wrzesniewski and Dutton (2001) note that individuals may craft or modify aspects of their jobs to realize individual preferences. Executives are well positioned to craft their own perceived level of discretion, and likely prefer different levels based on their personal strengths and weaknesses (Finkelstein et al., 2009). Extending this line of reasoning to external relationships, executives can exercise their discretion to build relationships that suit their personal style and ambition. Because organizations–—and BODs–—foresee this as a potential issue, they often limit the number of external boards on which their executives can sit. Conceivably, increasing an executive’s external relationships, which likely increases the accountability to those firms, simultaneously could lessen the executive’s felt accountability to his or her employer.

7. Caveat emptor Work design affords organizations a viable tool to guide executive behavior toward functional and ethical outcomes (Munyon et al., 2010). Nevertheless, there are risks inherent to the adoption of executive design or redesign, and these risks should be considered in lieu of each organization’s unique context and situation. The first risk of work design derives from formalization of executive roles. Work design implicitly or explicitly structures an executive’s job, providing insight regarding behavioral expectations from the board to the executive. These expectations help reduce ambiguity and provide specific means and metrics to guide behavior. At the same time, increased structure can reduce the flexibility of

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executives in unexpected or highly dynamic environments. For example, executives may feel pressured to perform to meet the expectations of a board, rather than address threats or environmental contingencies that threaten the position of a given firm. Executives also may be resistant to measures which help the organization, but hinder individual achievement of executive goals, potentially exacerbating agency concerns between the executive and firm. Thus, work design has the potential to reduce executive flexibility and adaptation, and may catalyze resistance to change by the executive. Increased structure in one position may also inadvertently influence others. There is a tradeoff between autonomy for one employee and a loss in authority by other employees, citing the potentially dysfunctional and typically unexpected consequences that can follow. Thus, for executives, it is important to evaluate the extent to which the executive is interdependent with others. This knowledge will enable more effective work design via understanding potential tradeoffs among other employees whose roles are not explicitly being designed or redesigned. Work design also requires successful implementation and follow-through to reflect the complexity and dynamic nature of executive work. Munyon et al. (2010) suggested a collaborative effort between executives and BODs to optimize executive performance. In a similar manner, a collaborative effort is likely to facilitate more effective work designs by exposing critical information–—such as resources and individual competencies–—which may otherwise be tacitly held in the relationship between a board and an executive. Nevertheless, these responsibilities are likely to constitute an additional burden on BODs, in the form of collaboration while developing and adapting executive work. Finally, BODs may lack the necessary expertise to effectively manage executive work, contributing toward ineffective designs. Executive work design may also limit the available pool of executive applicants for given roles. In particular, firms that use work design as a punitive tool of, rather than a collaborative tool for, executive control may signal a disparity in power and trust to potential executives. This could serve as a warning beacon, especially to highly desirable executives who are being courted by multiple firms. Thus, it is important to balance the needs and competencies of executives against the needs of the firm. A lack of attention to these factors could be deleterious to the viability of work design in firms, and may expose executives or firms to negative tradeoffs. Identifying and tracking executive talent, and turning executives into successful leaders, is not a

590 short-term assignment for the faint of heart. Research and practice in succession planning has suggested that one of the most important tasks of the BOD is selecting the person to run the firm (e.g., Perryman, Butler, Martin, & Ferris, 2010). IBM’s BOD spends an entire day focused on talent identification and leadership development. In fact, the company spends almost $700 million a year focusing on executive talent; the catch here is that talent is mobile and the payback may take years to come to fruition. For instance, early in his career at GE, Jeff Immelt was put in charge of managing the largest appliance recall to date: 1 million refrigerators with faulty compressors. At the time, Immelt had no experience with appliances or recalls, but then-CEO Jack Welch and other GE executives believed in him, and felt it was an opportunity to have Immelt stretch himself to become a leader.

8. Concluding remarks Although executive behavior has been front-andcenter in research and the media over the past decade, there remains a wide-open and ongoing discussion regarding how organizations can limit unethical and deleterious behavior. Herein, we have delineated aspects of an executive’s work environment whereby organizations–—and BODs, specifically–—have influence. By describing how BODs can shape an executive’s accountability environment, their managerial discretion, and their relationship structure, we propose the means by which BODs can hopefully limit unethical and potentially harmful executive behaviors.

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