When do narcissistic chief executives make good decisions?

Most boards do not want narcissistic leaders and would avoid hiring a chief executive with such traits. But Philipp Richter’s review of the research suggests that might not always be the right decision. Narcissistic chief executives are as good as their peers, but less consistent. And the conditions that decide their success are defined by the boards themselves. Two chief executives make the same bold, risky bet. History remembers one as a visionary and the other as a cautionary tale. At the moment they decide to act, almost nothing separates them. Ask a board what it fears in a chief executive, and narcissism comes up fast. Boards treat the trait as a defect and try to filter it out before they appoint. Two decades of research complicate that instinct. Narcissistic chief executives match their peers on average results. But they widen the range around that average, which poses a different problem and demands a different response. The conditions that decide where their bet lands sit not always with them, but in the environment in which they are making the decision. Bolder bets, in both directions Arijit Chatterjee and Donald Hambrick studied 111 chief executives in the computer hardware and software industries. Chief executives do not sit personality questionnaires, so the authors read indirect traces: the prominence of the CEO’s photograph in the annual report, the use of the first-person singular and the gap between the their pay and the next executive’s. Firms whose chief executives scored high for narcissism made more acquisitions and larger ones. But their performance was inconsistent, swinging further in both directions while their average results held level. They delivered fewer middling years and more extraordinary ones, good and bad. That finding unsettles a board. But a board that screens the trait out also screens out the upside it carries. Deaf to results, alert to applause The same authors then asked what moves these executives. Their second study followed risky outlays and acquisition premiums across the 1990s and 2000s. Poor results barely moved the narcissistic CEOs. Media praise and awards moved them sharply. That gap matters more than it first looks. Praise and company value are different currencies, and the trait sets the exchange rate. A leader who buys visibility with shareholders’ money will overpay, and ordinary feedback arrives too late to correct the purchase. Attention moves these leaders, so attention works as a lever. What that attention falls on decides a great deal. When there is an audience Wolf-Christian Gerstner and colleagues traced how large pharmaceutical firms answered the rise of biotechnology between 1980 and 2008. Firms with more narcissistic CEOs invested more aggressively in the new technology and high public attention to the break strengthened that pattern. The same hunger for an audience that distorts judgment elsewhere here tracked an earlier commitment to a shift that mattered. The scope stays narrow: one industry, one transition and a design that watches firms from the outside. It does show that the audience around a decision tracks which way the trait cuts. When someone is watching the risk Governance supplies a second condition, and it works differently. Tine Buyl, Christophe Boone and James Wade studied 92 American commercial banks around the financial collapse of September 2008. Before the shock, banks whose bosses scored higher on narcissism pursued riskier policies. Stock options amplified that pattern. But boards with outside directors who knew the business dampened it. After the shock, those banks climbed back more slowly – the lag being partly explained by their pre-crisis risk. Informed boards held the risk down. They did not convert it into an advantage. The pharmaceutical study shows narcissism reaching a better outcome under the right conditions. This one shows a board containing the damage. Where the trait pays W. Keith Campbell and Stacy Campbell explain why the two conditions differ. Narcissism pays in what they call the emerging zone: first encounters, new situations and short horizons. Any setting where a bold claim meets an audience that has not yet watched the follow-through. It costs in the enduring zone: established relationships, long horizons and the grind of delivering what the claim promised. Map the studies onto those zones and they stop contradicting each other. A pharmaceutical firm choosing whether to enter biotechnology sits in an emerging zone. A bank hauling itself back to pre-crisis performance over years sits in an enduring one. The two zones give the trait its double character. While the disposition behind both stays the same, in one it becomes a personality risk and in the other a personality opportunity. The opportunity exists because caution carries its own bias: a manager who fears the personal cost of failure passes up changes the company needs. The model carries a warning too. Narcissistic leaders return to the emerging zone by choice, because that zone rewards them. A chief executive who keeps launching, acquiring and pivoting manufactures fresh emerging zones. And that pattern deserves a question before it earns applause. So when do narcissistic chief executives make good decisions? The question has an answer in three parts. These chief executives do their best work when a decision is new, when an audience watches it and when directors who understand the business watch the risk. The first two conditions open the upside. The third limits what the downside costs. That answer reframes the board’s job. Nobody designs a personality. But boards do design the conditions around a decision. And they can read which zone they are entering long before they know how the bet turns out. Boards still spend heavily on detecting narcissism in candidates, using instruments built for other purposes. The sharper questions arrive after the appointment. Which zone does this decision sit in, who watches it and does the pay package reward the swing or the result? The four field studies here watch firms from the outside. None of them run an experiment and each reaches the trait through indirect traces. For that reason Priscilla Kraft’s meta-analysis of 68 studies calls CEO narcissism a double-edged sword. Narcissism is neither an asset nor a defect. It is a risk and an opportunity with a single cause – and context decides which one a board gets. This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: Nicoleta Ionescu provided by Shutterstock.