Leadership

CEOs Do Impact Performance, but Not the Way You Think

CEO narcissism impacts company strategy and performance. Donald Hambrick and Arijit Chatterlee, in a 2007 study, demonstrated that CEO narcissism influenced the degree of strategic dynamism, strategic grandiosity, extreme operating results and highly fluctuating results.

Narcissism consists of the four traits: 1) superiority/arrogance; 2) exploitation/entitlement; 3) self-absorption/self-admiration; 4) leadership/authority. (Emmons 1987 in Chatterjee & Hambrick 2007).

The study found that the more narcissistic the CEO, the more likely they were to rapidly change strategy (strategic dynamism) and to choose highly visible, risky strategies. The authors suggested that this was because a narcissist needs ongoing attention and congratulations for their actions.  These visible, bold, even risky strategies are more likely to result in either highly successful ventures or great failures because of their audacity. These ventures are “grandiose” in their vision. The authors measured the number, sized and relatedness of acquisitions as a measure of grandiosity.

The most interesting aspect of this study was the method used to measure narcissism. Authors selected 105 companies in the technology software and hardware industries from 1992 – 2004. They then analyzed annual reports for the number, size and composition of photos of the CEO. Additionally they considered the CEO’s visibility in company press releases, and CEO’s use of the pronouns “I and me” in press interviews. Finally they considered CEO cash and non-cash compensation as compared to the next highest paid individual in the firm.

Their study showed that even moderate increases in CEO narcissism are linked to more extremes and more fluctuating performance.  However, on average, narcissistic CEOs performed no better or worse than non-narcissistic CEOs, at least in terms of total share holder return.

The authors also controlled for organizational culture, finding that the CEOs in the sample who had changed companies maintained similar degrees of narcissism, while there appeared to be wide variation of CEO narcissism between successive CEOs at the within firms. This led the researchers to believe that it was the CEO and not the firm that was narcissistic.

As an investor, if you are looking for stable, reliable returns, you might want to consider the results of this study. While investing in a company managed by a narcissist may result in outrageously successful results, it may also result in stunning failures. Investors looking for stable consistent results may find this type of firm unattractive. It’s important to note that this study looked at a single industry. It may be possible that results might be different when looking at different industries.

In addition to extreme, risky and fluctuating performance, narcissistic CEOs can have a toxic impact on the culture of an organization, resulting in the loss of talented employees and the demoralization of those remaining. It’s worthwhile to consider the personality of the CEO when buying stock or considering employment at any company. It will tell you a lot.

Chatterjee, A. & Hambrick. D. (2007). It’s all About Me: Narcissistic Chief Executive Officers and Their Effect on Company Strategy and Performance. Administrative Sciences Quarterly. 52: 351-386.

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Categories: Leadership, Strategy

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1 reply »

  1. Great post, Colleen. One aspect of narcissistic CEO’s is that they tend to surround themselves with “yes” people by plan or default. So, reasonable objections to ideas don’t surface until the problems become much more expensive to fix.

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