SOURCE: IMD

IMD

November 15, 2011 15:29 ET

Research Reveals Upside of CEO Narcissism

LAUSANNE, SWITZERLAND--(Marketwire - Nov 15, 2011) - A new study shows self-centered CEOs who "crave acclaim and applause" are more likely to keep their companies at the forefront of technological innovation. Additionally, the desire for attention from self-absorbed CEOs fuels the willingness to make daring decisions that less confident counterparts might shy away from, especially during a period of radical change.

Conducted by professors at IMD, a top-ranked business school based in Switzerland, Pennsylvania State and Erlangen-Nuremberg Universities, the study's findings indicate that narcissism in the boardroom helps overcome the inertia that often prevails in large, established organizations.

The study, which is one of the first to show firms' responses to radical change, can be traced to not only environmental and organizational factors but executives' attributes. It won the Academy of Management's 2011 Glueck Best Paper Award, which recognizes the top 1% of research submissions to the Academy's Business Policy and Strategy division.

"We have uncovered the bright side of narcissism. It can serve as a catalyst for risk-taking and innovation. Self-important CEOs demonstrate an ability to act on their supreme confidence when others are timid," said IMD Professor Albrecht Enders. "Narcissists might be annoying and even downright selfish, but they may be the best bet when bold and unconventional actions are needed to save an organization."

The study examined how 78 CEOs at 33 major US pharmaceutical firms reacted to the emergence of biotechnology from 1980 to 2008. The intensity and speed of undertaking strategic initiatives in biotechnology (e.g. alliances, acquisitions, launch of R&D projects) were calculated during each year of a CEO's tenure.

To calculate the degree of CEO narcissism researchers considered four factors:

  • Prominence of the CEO's photo in annual reports
  • Number of CEO appearances/mentions in company press releases
  • Cash compensation (salary and bonus of the CEO) relative to the firm's second-highest-paid executive
  • Non-cash compensation (deferred income, stock grants and stock options) relative to the firm's second-highest-paid executive

"Biotechnology ultimately proved to have great merit," Enders said of the study. "The narcissist CEOs who vigorously pursued the technology can be seen in hindsight as salutary."

The validity of the narcissism calculations for the CEOs was tested by asking a panel of security analysts specializing in the pharmaceutical industry and familiar with the CEOs in question to offer their own assessments. The degree of agreement was considerable.

In comparing 'narcissistic' CEOs with company performance, the following recaps the conclusions:

  • Narcissistic CEOs are more likely to keep their companies at the forefront of technological innovation

  • A desire for attention fuels the willingness to make daring decisions that less confident counterparts might shy away from

  • CEO narcissism helps overcome the inertia that often prevails in established organizations

  • The more narcissistic the CEO, the more heavily and the earlier a firm invests in new technology -- particularly during its emergence

  • Firms' responses to radical change can be traced to not just environmental and organizational factors but to executives' attributes

  • Narcissistic CEOs do not guarantee success. Their daring and risk-taking tend to lead to extreme outcomes -- some beneficial, some catastrophic

Despite these findings highlighting the 'bright side' of narcissistic CEOs, Professor Enders warns that it doesn't guarantee success.

"Narcissists see the potential for acclaim where others see excessive risk, but it's by no means always the case that in the end they get to hear the applause they crave," he said. "It's just as easy to picture narcissist CEOs who aggressively invest in new technologies that don't pan out so well and who severely harm their firms as a result."

About IMD
Based in Switzerland, IMD is consistently top-ranked among business schools worldwide. With more than 60 years' experience, IMD takes a real world, real learning approach to executive education. IMD offers pioneering and collaborative solutions to address clients' challenges. Our perspective is international -- we understand the complexity of the global environment. Real-impact executive learning and leadership development at IMD enables participants to learn more, deliver more and be more. (www.imd.org).

Albrecht Enders is a Professor of Strategy and Innovation at IMD. His major research interest lies in the reaction of companies to radical changes in their environment. He co-authored the study discussed here with Wolfgang-Christian Gerstner (University of Erlangen-Nuremberg), Andreas König (IMD) and Donald Hambrick (Smeal College of Business, Pennsylvania State University).