How Accurate is the Idea of the Narcissist CEO?
A recent study from a management professor at Penn State explores the “Narcissistic CEO,” claiming that qualities like investing heavily in advertising and R&D or conducting lots of acquisitions (and paying high premiums for those acquisitions) indicates that a CEO is narcissistic and may run a company into the ground. Sure, too much ego isn’t a good thing, but is this study taking things too far?
January 17 2012 by JP Donlon
Citing an academic study, the media (Forbes and IT World) are eagerly broadcasting details of a newly-identified class of rogue CEO: the “Narcissistic CEO.” The writers fairly lament the destructive nature of such people on their organizations and identify their behavior as sociopathic. But one must be extremely cautious about the metrics used to sort the Narcissists from the rest. The Penn State professors who developed the “CEO Narcissim Index” use highly questionable indicators.
First, any CEO who hasn’t a bouyant ego should not be on the job. Skeptics and pessimists are alright in academe. You don’t ever wish to be led by one. A CEO who isn’t a glass-half-full kind of person is in the wrong profession. Business life is tough. One needs to see the possibilities often where others don’t. People who can’t should get out of the way.
Second, counting the times a CEOs name appears in a company press release is a highly inexact measure of narcissism. Often, as writer Nerney himself admits, the practice indicates mere boot licking by the PR underling. Press releases often insert the CEO’s name to draw attention to the announcement in question because a quote from someone further down the food chain is unlikely to draw attention. It’s often no more sinister than that. Can’t blame this entirely on the CEO’s ego.
Spending more on advertising and R&D is said to be another indicator of CEO narcissism. Huh? Isn’t that what leaders are supposed to do–market their products and services vigorously and ensure their pipelines are filled? A CEO that was underspending in these areas is someone who maybe isn’t doing his job properly. All other things being equal this would be a clear short signal if such activity persists.
Conducting more aquisitions and paying higher premiums for them is said to be another big “N” giveaway. There are no doubt many egotistical CEOs who indulge in this activity. Just think of the time successor CEOs sold off some acquisition that he predecessor indulged in. But this hiving off happens with good companies as bad. Back in the early part of the decade McDonalds bought a lot of food restaurants they thought at the time made perfect sense. Then when Jim Skinner assumed the CEO job he and his team realized they made a mistake. It caused a distraction from their main fast-food restaurant business. So out went Chipotle where it found a better home. This stuff happens all the time. It’s called human error. What looks like a good idea in theory often doesn’t work well in practice. Also, times change. A company and its managerial expertise change to address competitive change. McDonalds really had to up its game in the 2000 because competitors like Burger King and Yum Brands were–shall we say–eating its lunch. Having seen McDonalds team in action, I can tell you there is little room for narcissism. It would stick out like an overcooked french fry.
On the other hand, guys like Chainsaw Al at Scott Paper, Richard Scrushy at Health South, and Dennis Kozlowski at Tyco conformed to type in buying and overpaying for everything in sight. But the difference is in the degree. Most companies overpay for acquisitions. That what investment bankers are for, to flatter the CEO and his team with inflated visions and prices that match. What the two Penn State academics don’t measure is the number of times companies walk away from a deal because it’s too much. It happens all the time. Very often they come back when market conditions knock down the price.
Critics are on firmer ground when calling attention to a CEO’s response to social praise. Like everyone else, CEOs are human and when they spend a great deal of time in the rarified bubble of authority and social position they can be just as susceptible as a movie actor or a rock star who doesn’t realize he or she is past his sell-by date. Remember Gloria Swanson in “Sunset Boulevard” or any recent (Sir) Paul McCartney concert. And no one is immune. I remember sitting in the back of a limo talking with the late Walter Wriston who said of Jack Welch, whose GE board the former Citibank CEO had once served, saying, “It’s too bad but he (Welch) is beginning to believe his own press releases.” After 21 years at the helm of the world’s most powerful company, Welch would have been strange indeed, if he had totally resisted the blandishments of his position.
Narcissism among leaders is a problem, but there are correctives. Unless one leads a privately held company where the boss holds a majority ownership, the market tends to topple the worst offenders. There’s nothing like a hefty decline in TSR to wake up the board. For the rest, we should consider a practice used by the ancient Romans when allowing a succesful general a triumphal procession through the streets of the city. A slave stood in the chariot behind the general holding a wreath over the victor’s head while whispering in his ear, “All fame is fleeting.”