Second Chances After a Fall from Power

When lifestyle guru and entrepreneur Martha Stewart was convicted in March 2004 of lying to investigators, her namesake company’s share price dropped amidst speculation that her media empire was ending. But Stewart proactively opted to serve her prison sentence while appealing the conviction.

This, in addition to an intensive public relations campaign, led her to a standing ovation from employees upon return in 2005 to her company. She went on to rejoin the board of directors and reclaim her position as chairwoman. 

Though an extreme example, Stewart’s story “illustrates that in some cases, stakeholders in the organization continue to believe in the prominent person’s legitimacy even after they have lost status,” says Maryland Smith’s Jennifer Carson Marr, co-author of “After the Fall: How Perceived Self-Control Protects the Legitimacy of Higher-ranking Individuals After Status Loss” with Nathan C. Pettit (NYU Stern) and Stefan Thau (INSEAD).

Marr and her co-authors conducted two experiments and a critical incident field study. They concluded that “status loss of high-ranking individuals prompts internal stakeholders to scrutinize them and re-evaluate whether they were truly deserving of their high rank. If such leaders subsequently are perceived as displaying high self-control – like persisting at difficult tasks, staying focused, regulating emotions and being professional -- they protect their legitimacy.” 

An example is a chef whose restaurant falls off a featured top 10 list but still carries on with planning the menu, ordering supplies and coordinating the work of the kitchen and staff.

Conversely, displaying low self-control after status loss will lead internal stakeholders to challenge that leader’s authority, which can make the leader ineffective in the short-term, and ultimately undermine the leader’s ability to retain their position in the long-term.

A broad spectrum of reasons can lead to status loss. In their critical incident study Marr and her co-authors found the most common factors to be interpersonal (e.g., showing favoritism; 30.7%), task-related (e.g., decision-making error; 27.1%), unknown (25.3%), or ethical (e.g., dishonesty; 23.5%). A smaller number resulted from organizational changes (e.g., organizational restructuring; 12.1%).

However, in their experiments, Marr and her colleagues examined examples of status loss where the reason is unknown to the internal stakeholder. “We deemed this assumption realistic as internal stakeholders may not always be privy to the underlying circumstances and reasons for why a higher-ranking individual failed on a particular dimension (e.g., whether the lawyer lost the client for performance, interpersonal or ethical reasons),” she says.

Read more: "After the Fall: How Perceived Self-Control Protects the Legitimacy of Higher-ranking Individuals After Status Loss" is featured in Organization Science.