Narcissistic CEOs Effectively Influence Board Discussions, Leading to Increased Risk-TakingNarcissistic CEOs Effectively Influence Board Discussions, Leading to Increased Risk-Taking A new study published in the _Strategic Management Journal_ sheds light on how narcissistic CEOs, who also hold the position of chairman of the board, can manipulate boardroom discussions to promote risk-taking strategies. Research Methodology The research team analyzed transcripts from 88 publicly traded companies over 20 years, measuring CEO narcissism through various indicators such as photo prominence in reports and frequency of press mentions. They employed textual analysis to identify the emotionality of board conversations around risk appetite. Key Findings The researchers found that narcissistic CEO chairs positively influenced board discussions about risk appetite. They employed various tactics to achieve this, including: * Stacking the deck with favorable directors who supported their risk-taking agenda. * Using positive emotionality to communicate their ideas with confidence and enthusiasm, winning over board members. * Exerting control over board meetings as chairman (e.g., selecting speakers, determining meeting venue) to shape the narrative in their favor. Implications for Boards The study underscores the importance of understanding CEO behavior in shaping risk management strategies. It suggests that boards need to be wary of duality, where CEOs hold both CEO and chairman positions, as this can give them excessive influence. Suggestions for Boards To mitigate the potential consequences of narcissistic CEO influence, boards are advised to: * Avoid giving CEOs the title of chairman. * Focus on developing directors who can provide independent oversight. * Implement personality training programs to help directors recognize and respond to manipulative behaviors in CEOs. Conclusion This research provides valuable insights into how CEO narcissism can lead to increased risk-taking in organizations. By understanding these dynamics, boards can take steps to mitigate the potential negative consequences and ensure that risk management strategies align with the best interests of the company.
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Narcissistic CEOs who also serve as chairmen of the board are adept at controlling how their boards focus their attention, giving the CEO the opportunity to get his way. A new study published in the Strategic Management Journal found that narcissistic CEOs can allocate more resources to risk strategies by positively influencing board discussions about risk appetite. The findings deepen our understanding of how CEO behavior and personality types can shape risk management strategies.
The research team – Christopher S. Tuggle of the University of Central Arkansas, Cameron J. Borgholthaus of the University of Wyoming, Peter D. Harms of the University of Alabama, and Jonathan P. O’Brien of the University of Nebraska–Lincoln – set out to examine how CEO narcissism relates to corporate risk-taking, specifically through the tone of board discussions around the topic of risk-taking during board meetings.
They contacted companies – in the name of research – to request transcripts of board meetings for analysis. Their unique dataset included transcripts from 88 publicly traded companies and 197 CEOs over 20 years. They performed textual analysis to identify the emotionality of the board conversations. They also measured CEO narcissism, for example, how prominent the CEO’s photo was in reports, how well the CEO was paid compared to others in the company, and how often the CEO was mentioned in press releases, compared to others.
The researchers looked at a few ways that CEOs could use positive emotion or positive affect in discussions about risk taking. They found that CEOs could stack the deck by selecting their favorite directors over time, meaning that the board would favor the CEO and be willing to follow the executive’s lead in taking more risks. Or the CEO could use emotionality: They would communicate their ideas with great enthusiasm and confidence, with people embracing their confidence and enthusiasm for an idea.
The researchers also explored the concept of duality and how an individual who is both CEO and chair can exert control over the board: They decide who speaks, perhaps choosing board members or outsiders to speak positively about a risky idea. And as chair, the CEO can even determine where a board meeting is held, which can affect how receptive board members are to the risky concepts presented.
The team was able to illustrate how narcissistic CEOs wield considerable influence in shaping board discussions to reflect their own pro-risk biases. Simply put, narcissistic CEO chairs are positively associated with positive board discussions about risk appetite, an insight that helps illuminate the importance of understanding CEO behavior in guiding risk management strategies.
According to Borgholthaus, one of the most important aspects of the research was helping boards recognize that CEOs are capable of manipulation and how to change their approach to such situations through personality training or insight into how to deal with or support CEOs who have this particular trait.
“Boards have to be careful about whether they have duality; whether they give CEOs the title of chairman and not,” he says. “That can be a good thing, but at the same time, there have been a lot of government reforms to put more responsibility on the board to make sure they’re not being manipulated.”
More information:
Christopher S. Tuggle et al, Setting the Tone to Get Their Way: An Attention-Based Approach to How Narcissistic CEOs Influence Boards to Take More Risk, Strategic Management Journal (2024). DOI: 10.1002/smj.3610
Provided by Strategic Management Society
Quote: Study shows how narcissistic CEOs influence boards to take more risks (2024, July 15) Retrieved July 15, 2024 from https://phys.org/news/2024-07-narcissistic-ceos-boards-directors.html
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