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THE BRIGHT SIDE OF NARCISSISTIC CEO

By Wolf-Christian Gerstner, Andreas König, IMD Professor Albrecht Enders, Donald Hambrick - December 2011

Gerstner_Konig_Enders_Hambrick

What words might best be used to describe seminal business figures such as Thomas Middelhoff or Jean-Marie Messier? Quite a few, you might think – and not all of them necessarily complimentary.

If we confine ourselves strictly to their triumphs then the chances are that “courageous,” “transformational” and, above all, “visionary” would prove popular choices. But in the end these are merely illusory attributes, even for men as starred and celebrated as these.

It may be more instructive to ignore hagiographic intangibles and focus instead on a relevant personality construct that has been rigorously developed by psychologists and arguably springs just as easily to mind when considering the likes of Middelhoff and Messier and the qualities that have helped mould their careers. That construct, that attribute, is narcissism.

A new research project conducted by IMD in collaboration with the Smeal College of Business at Pennsylvania State University and the University of Nuremberg adopts precisely that focus. Our team looked beyond the non-empirical theorizing of consultants and business gurus to provide real evidence of how a CEO’s personality – specifically, the narcissistic element – can affect a company’s decisions.

Representing one of the first attempts to demonstrate how firms’ responses to radical change can be traced not just to environmental and organizational factors but to the attributes of executives, it reveals self-centered CEOs who crave acclaim are more likely to keep their companies at the forefront of technological innovation. Middelhoff and Messier would surely approve.

The study examined how 78 CEOs at 33 major US pharmaceutical firms reacted to the emergence of biotechnology during the period from 1980 to 2008. Biotechnology’s rise was split into chronological phases – “experimentation”, “excitement” and “acceptance” – to develop a richer picture of decisions over time.

To determine the degree of narcissism we considered the prominence of a CEO’s photo in his firm’s annual report, the extent of his appearances in press releases and his reward levels – including salary, bonuses, deferred income and stock options – relative to the company’s second-highest-paid executive. We tested the validity of these calculations by asking a panel of security analysts specializing in the pharmaceutical industry and familiar with the CEOs in question to offer their own assessments.

According to our findings, the more narcissistic the CEO, the more heavily and the earlier a firm invests in new technology considered novel and unproved. This is especially true during the “excitement” phase, when the narcissist believes a respected audience will note and applaud daring behavior.

Narcissists, after all, are characterized by a sense of superiority, a desire to dominate their environments, restlessness, a lack of empathy and a strong need for attention. This is why they tend to attach a high probability of success to anything they do and why they are particularly drawn to actions and strategies that will earn acclaim for their audacity and bravado. They take risks that their more timid and less confident counterparts would shun. Narcissistic CEOs possess a near-unshakeable belief that their company, under their leadership, can make new technology work.

Of course, it doesn’t require a quantum leap to view our findings through the prism of Middelhoff and Bertelsmann or Messier and Vivendi. Without wishing to descend into amateur psychology, it’s fair to suggest they tick many – if not all – of the boxes in terms of narcissistic behavior. We can at the very least say without equivocation that Middelhoff and Messier at their most meteoric dominated their environments and were restless.

Moreover, like Apple’s Steve Jobs, they believed in the basic tenet held by every Silicon Valley fledgling: that a few innovative people have the power to change the world. And they made the dream a reality by going against the grain – not just during their firms’ formative years but when their companies boasted thousands of employees.

This is the “bright side” of the narcissist executive: a spur to risk-taking and innovation, an ability to act on unmatched confidence when others are wary and disinclined. Narcissists may be self-promoting, self-absorbed and even downright annoying, but they may also be the best bet when bold and unconventional actions are needed to save or enhance an organization in times of radical environmental changes. It is during those times when their supreme confidence and willingness to go beyond the incremental changes, are most likely to pay off.

That said, just as they aren’t inherently evil, narcissists aren’t innately smart or lucky. Their conduct tends to lead to extreme outcomes – sometimes beneficial, sometimes catastrophic. The sector scrutinized in our research ultimately proved to have enormous merit, and the narcissist CEOs who vigorously pursued biotechnology can be regarded with hindsight as salutary trailblazers; but it’s just as easy to envisage narcissist CEOs who aggressively invest in new technologies that fail to pan out so well and who severely harm their firms as a result.

In some ways our work has only scratched the surface. It would be interesting to look beyond a company’s investment in discontinuous technology and examine the ultimate degree of success with a view to investigating whether CEO narcissism aids corporate adaptation and survival. What happens if a new technology flops or is quickly superseded? Would narcissistic CEOs invest so intensively and rapidly in less attention-grabbing revolutions? We may have broken important new ground, but many related issues remain to be addressed.

Albrecht Enders is a Professor of Strategy and Innovation at the International Institute for Management Development in Lausanne, Switzerland. He teaches on the Advanced Strategic Management (ASM) and Building on Talent (BOT) programs. His major research interest lies in the reaction of companies to radical changes in their environment.

He co-authored the study discussed here, CEO Narcissism and Incumbent Response to Technological Discontinuities, with Wolf-Christian Gerstner and Andreas König (both IMD and University of Erlangen-Nuremberg) and Donald Hambrick (Smeal College of Business, Pennsylvania State University). The study recently won the 2011 Glueck Best Paper Award of the Business Policy and Strategy Division of the Academy of Management.



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