Narcissistic CEOs Produce More Volatile Performance

This Penn State study, reported at PhysOrg.com, ascertained that narcissistic CEOs gravitate towards bold moves, like big acquisitions or marked changes in strategy, which leads to more variable (although no worse on average) performance.

The interesting thing about this finding is the disconnect between Wall Street pressures and boardroom hiring practices. At least according to the raft of leadership books on the market, and the propensity for boards to hire CEOs that look like they came from central casting, bold leadership is perennially in fashion, and CEOs like Jeff Immeldt of General Electric (who refuses to pay himself too much out of concern that it would demotivate his top team) are the exception that proves the rule. But swashbuckling leadership is a close cousin to narcissism, which per the study, produces the sort of uncertain outcomes that Wall Street hates.

A question unexamined by this study is whether narcissistic CEOs have a greater propensity for criminal behavior when they can’t get their way by legitimate means (one of the hallmarks of narcissism is lack of empathy, and the tendency to see others as objects to be used). While I am no therapist, Conrad Black, Jeff Skilling, Dennis Kozlowski, and Richard Scrushy seem classic examples of the type.

From PhysOrg.com:

Companies led by more narcissistic chief executives tend to make more frequent strategy changes, undertake larger and more frequent acquisitions, and have more extreme and irregular fluctuations in performance, according to new research from Penn State’s Smeal College of Business.
Arijit Chatterjee, graduate lecturer, and Donald Hambrick, Smeal chaired professor of management, gauged the level of narcissism exhibited by 111 CEOs of computer software and hardware companies and compared it to the subsequent strategies and performance of their companies.

“Highly narcissistic CEOs — defined as those who have very inflated self-views, and who are preoccupied with having those self-views continuously reinforced — can be expected to engage in behaviors and make decisions that have major consequences not only for the individuals who interact directly with them, but also for broader sets of stakeholders,” the researchers wrote.

They used five indicators to measure CEO narcissism: the prominence of the CEO’s photograph in the company’s annual report, the frequency of the CEO’s name appearing in company news releases, the use of first person singular pronouns (I, me, mine, my and myself) by the CEO in interviews, and the CEO’s cash and non-cash pay compared to the company’s second-highest executive.

Using these measurements, Chatterjee and Hambrick developed an index, ranking the CEOs according to their levels of narcissism.

They then compared the CEOs’ narcissism levels to their companies’ strategic dynamism, acquisitions, and performance extremeness and fluctuation. Their results show that CEO narcissism is related to all four measures.

The data show that narcissistic CEOs tend to lead companies through more changes in strategic resource allocation and their companies experience higher highs and lower lows in organizational performance.

“While less narcissistic CEOs may be inclined to pursue incrementalist strategies that entail refining and elaborating on the status quo, more narcissistic CEOs gravitate to bold and highly visible choices,” they wrote. “Thus, narcissism may be thought of as an ingredient that stimulates distinctive, extreme managerial actions.”

Their research indicates no relation between executive narcissism and how well a company performs. “Although narcissists tend to generate more extreme and irregular performance than non-narcissists, they do not generate systematically a better or worse performance,” they found.

“It’s All About Me: Narcissistic CEOs and Their Effects on Company Strategy and Performance” is forthcoming in Administrative Science Quarterly.

Source: Penn State