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Thursday, June 09, 2011

Would Amy Chua make a good CEO?

I was thinking this during a panel I attended at the Law and Society Association's annual meeting last week. The panel, which was organized as part of the New Corporate Governance group (big shout-out to Joan Heminway for organizing it), addressed several issues relating to corporate officer accountability and executive compensation. One of the themes that emerged was that unreasonable or excessive demands on performance could create negative outcomes in and among corporate firms. (Lynne Dallas' criticism of demands for short term performance is already up on SSRN).  The demand for performance strikes me as potentially problematic, but perhaps not as much as some of the presenters felt it was.  

Performance and wrongdoing are substitutes;  requests for performance can be met with actual performance, or with fake performance posing as actual performance.  That doesn't mean you give up the demands for performance, but it probably does mean you have to take adequate measures to make sure that performance is reasonable and that you have good structures in place to prevent and catch cheating.  So, for example, law schools demand performance from our students in the form of end-of-term exams.  Students who do well will receive any number of good things (from scholarships to placement on law reviews, good jobs, clerkships etc), and those who do poorly will unfortunately experience negative consequences.   

Despite the demands for student performance, cheating is not rampant at law schools.  Yes, I have heard of the occasional scandal here and there, but for the most part, I think most students do their own work.  You can attribute this to social norms (which was largely the basis of Lynn Stout's presentation on the aforementioned Law and Society panel, which was drawn in part from her new book), but I assume some of it has to do with the costs and the likelihood of getting caught.  I might add, from what I can tell, far fewer professors give take-home exams than was the case when  I attended law school (early to mid nineties).  I assume that has something to do with the ease by which students would be able to cheat in today's very wired world.

Okay, so here's why I thought of Amy Chua.  As you all know by now, Chua is famous for her recent book on parenting.   Many critics argued that Chua was unnecessarily tough on her kids.  Chua's defense (I saw her say this during one of her many television appearances defending the book) was that she was simply trying to get her children to perform at the level that matched their capability.  That is, she truly and genuinely believed her children could perform at a very high level and for that reason, she pushed them (very very hard) to reach what seemed like unreasonable performance goals. 

Although Chua's children seem happy and successful, critics have forecasted some dire consequences as a result of Chua's parenting style.  Some have argued, for example, that Chua's offspring are bound to lack creativity or social skills.   Quite interestingly, no-one has brought up the possibility that the kids might substitute false performance for the real thing.  As someone who studies corporate crime and compliance, I find this very interesting.  When shareholders demand performance, we worry that corporate officers will cheat.  When Amy Chua demands performance from her kids, we worry that they will become deficient in social skills.  Why aren't we worrying about cheating too?

I imagine cheating is less of a problem for Chua because Chua closely monitored her children's progress (which she can do while they are living under her roof).  She didn't just tell her kids "learn music."  She spent every waking moment with them making sure they practiced their chosen instrument.  And she was skilled enough to know when they played their instrument incorrectly.  Notice that this model would not work outside of a relatively small family.  Nor would it work very well once her children took up activities in which their mother was not an expert. She could delegate monitoring to a really tough coach or she could teach herself the skill, but she still would be at a relative disadvantage.  

So the not surprising conclusion is: No, a CEO who made demands similar to Amy Chua would likely fail as a CEO, and his or her firm would likely experience dysfunction and cheating.   The CEO would lack the ability to back up her performance demands with credible threats of monitoring.  As a result, cheating -- and defection -- would almost certainly occur.  The demanding CEO either would have to adjust his or her goals, or at the very least, input monitoring devices that would mimic the 24/7 oversight that Chua provided as a parent.

Notice that the analysis ought to carry over to CEO's who are used to governing small, tightly knit firms and who then move into jobs in which they have to govern more decentralized, multi-tasked firms.  Without adequate safeguards against cheating, unreasonable performance demands will create negative consequences. 

So to return to the subject that set me off on this path: the problem in corporate life is not, as some contend, with demands for performance.  It is that we demand performance unreasonably and without credible mechanisms to catch and deter cheating.  Performance isn't the problem.  Cheating is.  

Posted by Miriam Baer on June 9, 2011 at 04:02 PM | Permalink


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