Celebrating the “Essential:” The Impact of Performance on the Functional Favoritism of CEOs in Two Contexts

Abstract

This paper argues that an organization’s performance can influence the extent to which CEOs favor the importance and competence of one functional department above all others. Specifically, financial success induces such favoritism in CEOs, not in stable but in uncertain environments where there is a good deal of scope and motivation for attributional opportunism and superstitious learning. Financial weakness also induces functional favoritism on the part of CEOs, not in uncertain but in stable environments where conditions are right for escalation of commitment and threat-rigidity responses. These findings were confirmed using subgroup regressions, moderated regressions and two-group LISREL analyses.