Chatterjee, A., & Hambrick, D. C. (2007). It’s all about me: Narcissistic chief executive officers and their effects on company strategy and performance. Administrative science quarterly, 52(3), 351-386.
Summary
In today’s competitive business landscape, the personality traits of top executives can have far-reaching consequences on a company’s strategic direction and overall performance. Chatterjee and Hambrick’s (2007) article delves into the specific role of CEO narcissism—a personality trait characterized by an inflated self-view, a continuous need for admiration, and a propensity for grandiosity—and examines how this trait influences strategic decisions and performance outcomes in organizations.
Defining CEO Narcissism
Narcissism, long discussed in psychological literature, is not only a clinical disorder but also a measurable personality dimension. In this study, the authors define narcissistic CEOs as those who exhibit a strong sense of self-importance and a persistent desire for external validation. These traits are believed to manifest in various ways, such as an overemphasis on personal prominence, an inflated belief in one’s own abilities, and a tendency to make bold decisions in order to capture attention. Unlike other personality factors, narcissism combines both cognitive aspects (overconfidence and exaggerated self-worth) and motivational components (an insatiable need for applause and admiration).
Measuring Narcissism Unobtrusively
Recognizing the challenges in directly surveying high-level executives on sensitive traits like narcissism, the authors employ a series of unobtrusive indicators. Rather than relying on self-reports, which can be distorted by social desirability bias, the study measures narcissism through observable traces such as:
- Prominence of the CEO’s photograph in annual reports: A larger or more prominently displayed photo signals a desire to be seen as the central figure.
- CEO’s presence in company press releases: Frequent mentions by name indicate a wish to assert leadership and attract public attention.
- Use of first-person singular pronouns in interviews: A high percentage of “I” versus “we” suggests self-absorption and a focus on personal achievements.
- Relative compensation measures: Comparing the CEO’s cash and non-cash pay to that of the second-highest executive provides an indirect gauge of the CEO’s perceived self-importance.
These indicators, taken together, form a robust index of narcissistic tendencies among CEOs, which the study applies to a sample of 111 CEOs from the computer hardware and software industries between 1992 and 2004.
Impact on Strategy: Bold and Dynamic Moves
One of the central arguments in the article is that narcissistic CEOs tend to steer their companies toward bold, high-visibility strategic initiatives. Driven by the need for constant attention and validation, these leaders are more likely to adopt a dynamic approach rather than sticking with incremental changes. Two primary strategic behaviors emerge from their analysis:
- Strategic Dynamism: Narcissistic CEOs are more inclined to shake up their companies’ resource allocation—whether that be ramping up spending on research and development, advertising, or reorganizing the business portfolio. Such bold moves are designed not only to capture market share but also to keep the CEO constantly “in the spotlight” with innovative changes that signal a break from the status quo.
- Aggressive Acquisitions: The study finds that these CEOs also favor large-scale acquisitions. Acquisitions serve as dramatic and highly visible actions that fit well with the narcissist’s need to demonstrate bold leadership. By expanding the company rapidly through acquisitions, the CEO not only grows the business but also creates an image of decisive and daring action. However, these moves are double-edged; while they may lead to significant gains, they also carry substantial risks.
Effects on Company Performance
A key insight from the article is that the strategic choices driven by narcissistic tendencies lead to performance outcomes that are extreme in nature. In other words, companies led by narcissistic CEOs tend to experience a “roller coaster” of results:
- Extreme Outcomes: The very bold moves—whether innovative strategic shifts or significant acquisitions—can lead to either spectacular wins or major losses. The high-risk, high-reward approach of narcissistic leaders creates a situation where performance swings are more pronounced.
- Fluctuating Performance: Instead of maintaining consistent performance levels over time, firms under narcissistic leadership may witness significant fluctuations. This volatility reflects the underlying strategic dynamism: bold initiatives might pay off brilliantly in one period, only to backfire in another if the anticipated external validation or market conditions change.
Interestingly, while the strategic dynamism associated with narcissistic CEOs is clearly visible, the study does not show that their companies consistently outperform those led by less narcissistic CEOs. In fact, when averaged out, overall performance may not be significantly different. Rather, what distinguishes narcissistic leadership is the variability—companies experience periods of dramatic success interspersed with equally dramatic setbacks.
Theoretical and Practical Implications
From a theoretical standpoint, this research reinforces the idea that the personal traits of top executives can shape organizational outcomes. It extends the conversation beyond generic leadership or management styles to focus on specific personality dimensions that have measurable impacts. In practice, the findings offer several key lessons:
- Risk versus Reward: While bold strategic moves can yield high rewards, they also come with higher risks. Firms must be aware that the aggressive strategies of narcissistic CEOs might lead to volatile performance.
- Board Oversight: For boards of directors and compensation committees, understanding the personality traits of a CEO is critical. The traits that drive a CEO’s strategic choices can affect not only current performance but also long-term stability.
- Context Matters: The effects of CEO narcissism are particularly pronounced in industries where there is a high degree of strategic discretion—such as the technology sector. In more regulated or stable industries, the opportunities for bold moves may be limited, potentially dampening the impact of narcissistic leadership.
Conclusion
In summary, Chatterjee and Hambrick’s (2007) article illustrates that CEO narcissism is a significant factor in shaping company strategy and performance. Narcissistic CEOs are drawn to bold, attention-grabbing initiatives—such as aggressive acquisitions and dramatic strategic shifts—that produce extreme and often fluctuating performance outcomes. While these leaders can drive innovation and rapid change, their approach also increases the risk of significant losses. For practitioners, this study underscores the importance of balancing the benefits of bold leadership with the need for stability and careful oversight.
10 Practical Insights for Business Owners and Managers
• Bold Moves Come with Volatility: CEOs with high narcissistic tendencies often make daring strategic decisions that can result in big wins—or significant losses.
• Watch the Signal of Self-Promotion: Elements such as prominent CEO photos in annual reports or frequent mentions in press releases can indicate a leader’s narcissistic style.
• Expect Strategic Dynamism: Narcissistic leaders tend to frequently shift strategies and reallocate resources, keeping the company in constant change.
• Aggressive Acquisitions: These CEOs are more likely to pursue large-scale acquisitions to demonstrate boldness, which may rapidly expand the company but also raise risk.
• Performance Fluctuations: Companies led by narcissistic CEOs often experience extreme performance swings; steady growth might be sacrificed for moments of dramatic change.
• Leadership Oversight Is Key: Boards and investors should consider the personality traits of CEOs, as these can significantly influence risk profiles and strategic outcomes.
• Risk-Reward Trade-Offs: While bold, attention-grabbing actions can drive market visibility and first-mover advantages, they also carry the risk of instability.
• Industry Context Matters: In high-discretion industries like technology, narcissistic leadership can have a more pronounced impact on strategy and performance.
• Evaluate Long-Term Impact: Don’t be misled by short-term successes; the volatile nature of these strategic moves calls for a careful, long-term evaluation of performance.
• Balance Boldness with Stability: It’s important to harness the positive aspects of bold leadership while instituting checks and balances to mitigate potential downsides.
By understanding these insights, business leaders and managers can better evaluate the trade-offs associated with bold, personality-driven strategies. Whether you are selecting a new CEO or assessing your own leadership style, the study reminds us that personal traits matter—and that balancing visionary boldness with prudent oversight is essential for sustained success.