and experience as crucial for success in office. (The presidency is no place for amateurs.) Political skills and experience, however, though necessary to success in the presidency, are not sufficient. Both Nixon and Johnson were highly experienced in elective office and possessed formidable political skills, yet their sense of power led both of them to support policies that ultimately dissipated their power and impaired their effectiveness.

In 2010, Neustadt’s book was 50 years old and outlived its author, who died in 2003. Nev-

ertheless, it remained the sixth most assigned book in college courses on the U.S. presidency in American colleges and universities. In an essay on the book’s influence for the Chronicle of Higher Education, Michael Nelson notes that the crises plaguing American presidents since 1990, including the wars in Iraq and Afghanistan, along with the financial crisis of 2008 and the recession that followed it, have shown how the decision-making issues raised in Presidential Power are still appropriate today and are likely to remain so for the foreseeable future.

Although power may be useful in getting things done, it can also be dysfunctional if it helps the wrong programs to be accomplished—that is, if it is used to circumvent the checks and balances that are necessary to evaluate the market feasibility and cost effectiveness of any effort. An example of this occurred with the development of the 1957 Mercury. Called the “Turnpike Cruiser” by Ford managers and a “steel cartoon” by its critics, the model was introduced to great fanfare but failed to make good on its high costs and lofty sales projections. Overall, Ford lost an estimated $369 on every 1957 Mercury it sold, and the car proved a harbinger of even greater problems that came with the now-infamous Edsel. In his group history of the careers of the “Whiz Kids” at Ford, John Byrne provides an example of the functions and dysfunctions of power in the career of the Whiz Kid responsible for the new Mercury, Francis “Jack” Reith.

Reith had a number of power bases from which to push the development of the new Mercury. First, he was a dynamic and almost charismatic leader, who drove his subordinates but inspired considerable admiration in the process. He was also highly intelligent and effective at persuading others to follow his direction. Reith had accumulated a considerable track record since he joined Ford in 1946. Most recently, he had received credit for the successful turnaround and sale of Ford’s subsidiary in France. On the basis of this success, Reith enjoyed the support of his superiors, Lewis Crusoe and Henry Ford II. He also gained standing from his association with the Whiz Kids, who had nearly all distinguished themselves at Ford and who were clearly recognized as a group as well as individually. Finally, Reith had position power, in that he was promoted to the head of the Mercury division once his 1957 plan had been approved.

Reith saw the 1957 Mercury as part of a larger plan by which Ford could contend with General Motors for leadership in automobiles through a major expansion of an existing make

(Mercury) and the introduction of an entirely new one (the Edsel). Reith’s boss, Lewis Crusoe, promised him his support (and the top job) at Mercury, if the plan could be approved by the board of directors. In preparing for that board meeting, Reith used all of his bases of power effectively.

Reith was perhaps too effective. There were doubts about the initiative in several quarters. The plan promised too much (a 54 percent sales increase). It required a larger expansion of the dealer network than Ford had ever anticipated. The projected expenses of the project were staggering and, in effect, required a large increase in market share to justify the project. As one executive remembered, “the numbers were totally unrealistic. They had to be. It was the only way to justify the plan” (Byrne, p. 225). The estimated price for the project was equal to the company’s total profit before taxes the previous year ($485 million).

These doubts were not raised, however, because Reith’s colleagues, whose job it was to ask difficult questions about projects, failed to do so in this case out of deference to their friend. When questions were raised, Reith and Crusoe jointly overpowered the opposition. Much of this persuasion was based on fear, intimidation, and concern for the career consequences of resistance. The norm for rational project analysis that the Whiz Kids had introduced to Ford was forgotten in the process of securing project approval. The failure of the car, which ended Reith’s career at Ford, was due in part to the flawed decision processes described above that allowed Reith to push through his initiative at the expense of critical analysis. Reith and his managers, however, also failed to pay attention to market research, which indicated increased consumer interest in safety and decreased interest in the stylistic flourishes that characterized the car. Instead, the 1957 Mercury was based on managerial intuitions about consumer preferences for stylish cars rather than on data. The car also

suffered from numerous quality and safety problems. In making this error, however, Reith was not alone. The year 1957 was a strong one for the Volkswagen, a small, simple car that focused on economy. It was also the first year in

which consumers’ interest in automobile safety and quality increased. Many managers in Detroit missed this shift in the market, which would lead to further problems for the industry in the 1960s and 1970s and beyond.

According to the Economist magazine, CEO pay in the United States has risen more than ten times as fast as average worker wages since the 1970s. Many observers have wondered whether this increase in pay was justified by changes in the labor market for CEOs, or whether pay increases stem from some other, less benign cause.

Graef Crystal, a onetime compensation consultant turned pay critic, argues for the latter. His book, In Search of Excess, asserts that CEOs control the pay-setting process through their control of compensation consultants. Consultants, ostensibly hired by the board to give directors some sense of “appropriate” pay levels for the CEO, artificially boost these figures in order to please the CEO and increase his pay. Consultants do this, Crystal claims, because it is the CEO, not the board, who determines whether that consultant is hired again by the firm in the following year. And why do directors allow the CEO to get away with this? Crystal argues it occurs because of the vital role that CEOs play in selecting the board members in the first place.20

Kevin Hallock offers evidence that board “interlocks” do seem to affect CEO pay.21 If an employee of firm A sits on firm B’s board, and vice versa, then the boards of the two firms are said to be interlocked. Board interlocks are associated with higher-than-normal CEO pay. One possible explanation for this result is that a quid pro quo exists. Acting in his role as firm B director, the firm A CEO allows the firm B CEO to be overpaid, and the firm B CEO responds in kind. Given the possibility for such collusive behavior, though, one wonders why CEOs are allowed so much influence in determining the composition of their boards. A director’s role,

after all, is to monitor the CEO—wouldn’t shareholders prefer independent monitors?

Benjamin Hermalin and Michael Weisbach suggest a potential answer that centers on managerial power.22 Power, in their context, comes from scarcity. Consider a CEO with a track record of great success. Given the CEO’s record, it is unlikely that the firm’s best alternative CEO is nearly as good. That is, the CEO the firm would hire if the current CEO were to leave probably would not be able to run the firm as well as the current CEO. Examples of powerful CEOs—in the sense that the alternative CEO is unlikely to be as good—might include Steve Jobs of Apple (before his death in 2011) and Warren Buffett of Berkshire Hathaway. Powerful CEOs can use the threat of departure to bargain with the board over what they want. And what might they want? Higher pay, of course, but also control over the board of directors.

Hermalin and Weisbach’s power-based analysis fits with a number of key facts about CEOs and boards. First, “independent” direc- tors—those with no ties to the CEO—are more likely to be added to boards if the firm’s performance has recently been poor. Second, board independence tends to decline the longer a CEO has held the position. Third, the probability that a CEO will be fired after poor performance is greater when there are more independent directors. Their insights also suggest that Hallock’s findings—that board interlocks are associated with higher pay—might not reflect a causal relationship. That is, it might not be the case that interlocks cause high pay; instead, both high pay and interlocks might just be symptoms of managerial power.