In a new study published in the Strategic Management Journal, researchers have unearthed a critical dynamic in the corporate world: narcissistic CEOs, particularly those who also hold the position of board chair, have an uncanny ability to shape board discussions to favor risk-taking. The study sheds light on the subtle yet powerful influence that these CEOs wield, offering insights into how personality traits can significantly affect corporate decision-making and strategy.
Previous research has established a connection between CEO narcissism and increased risk-taking, but the mechanisms through which this happens have remained largely unexplored. The researchers aimed to fill this gap by examining how narcissistic CEOs might manipulate board discussions to serve their interests, especially when they also serve as board chair. This understanding is particularly vital in light of past regulatory reforms that have struggled to curb excessive corporate risk-taking.
The research team ā led by Christopher S. Tuggle of the University of Central Arkansas ā collected and analyzed board meeting transcripts from 88 publicly traded U.S. firms over a span of more than two decades, from 1994 to 2015.
These firms were selected from a larger pool of over 1,900 companies, and the final sample included 197 CEOs. The selection process focused on firms with sufficient data to examine the interactions between CEOs and their boards in depth.
To measure CEO narcissism, the researchers used a well-established method that considers multiple indicators: the prominence of the CEOās photograph in the companyās annual report, the frequency of the CEOās name in press releases relative to other top executives, and the CEOās compensation compared to other members of the top management team. This multifaceted approach ensured a comprehensive assessment of each CEOās narcissistic traits.
The researchers then turned their attention to the tone of board discussions, particularly those concerning risk-taking. They utilized text analysis software to evaluate whether these discussions were framed in a positive or negative light. The aim was to determine if narcissistic CEOs were able to steer these conversations in a way that highlighted the potential benefits of risk-taking, thereby influencing the boardās decision-making process.
Narcissistic CEOs were indeed more likely to drive board discussions about risk-taking toward a positive tone. This influence was particularly strong when the CEO also held the role of board chair, a condition known as CEO duality. The dual role allowed these CEOs to control the agenda, manage who spoke during meetings, and even influence the setting and context of the discussions. As a result, firms led by narcissistic CEOs, especially those with CEO duality, were more inclined to allocate significant resources toward risky ventures.
The study also found that this positive framing of risk-taking discussions led to increased spending on these ventures. Boards that engaged in more positively toned discussions about risk-taking, driven by their narcissistic CEOs, were more likely to approve and fund riskier strategies. This finding underscores the powerful influence that CEO personality traits can have on corporate decision-making, particularly when the CEO holds significant structural power within the organization.
The study offers several practical takeaways for boards of directors. One of the most significant is the need for caution when combining the roles of CEO and board chair, especially when the CEO exhibits narcissistic traits. While some degree of risk-taking is necessary for innovation and growth, excessive risk driven by a single individual’s agenda can be detrimental to the firm and its shareholders.
Boards might consider implementing stronger internal governance mechanisms, such as enhanced oversight by independent directors or more rigorous checks and balances on the CEO’s power. Additionally, providing directors with training on personality dynamics and their impact on decision-making could help them better navigate their interactions with narcissistic CEOs.
As Borgholthaus pointed out, “Boards need to be careful of when and when they donāt have duality; when they do and donāt give CEOs the title of board chair. It can be a good thing, but at the same time a lot of government reforms were done to put more responsibility on the board to ensure they wouldnāt be manipulated.”
While the study provides valuable insights, it also has limitations. For instance, the researchers focused exclusively on publicly traded firms in the United States, potentially limiting the generalizability of the findings to other contexts, such as private companies or firms in different countries. Moreover, while the study used comprehensive measures to assess CEO narcissism and the tone of board discussions, it could not fully capture the quality or depth of these conversations.
Future research could expand on these findings by exploring how narcissistic CEOs might influence other types of strategic decisions beyond risk-taking, such as corporate social responsibility or geographic expansion. Additionally, investigating how these dynamics play out in different cultural or regulatory environments could provide a more nuanced understanding of the role of narcissism in corporate governance.
The study, “Setting the tone to get their way: An attention-based approach to how narcissistic CEOs influence the board of directors to take more risk,” was authored by Christopher S. Tuggle, Cameron J. Borgholthaus, Peter D. Harms, and Jonathan P. O’Brien.
