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Narcissism and downsizing

Narcissism can help liberal-leaning CEOs in pushing corporate social responsibility, but it doesn’t help conservative CEOs translate their ideology into downsizing, says a new study co-authored at Cambridge Judge Business School.

Clouded view at the top.

Narcissism (as in arrogance and entitlement) and extraversion (as in talkativeness and assertiveness) are traits frequently associated with many chief executive officers – particularly the types who tend to become well known to the public.

But how do those traits correspond to the ability of CEOs to push for their political ideologies toward two politically very different corporate outcomes – a liberal result of greater corporate social responsibility (CSR), and a conservative result of downsizing to maximise profit and efficiency?

A study just published in the journal Administrative Science Quarterly finds that extraversion enhances liberal leaning CEOs’ ability to achieve CSR goals and conservative-oriented CEOs’ ability to proactively downsize. However, the same is not true for narcissism. Narcissism only helps liberal-leaning CEOs to foster CSR – but does not help conservative CEOs to push for their downsizing agenda.

“Whereas CEO extraversion strengthened the effects of both liberal and conservative ideologies on the value-congruent strategies of CSR and downsizing respectively, CEO narcissism moderated the CEO liberalism-CSR association but not the CEO conservatism-downsizing linkage,” says the study, which is based in part on detailed video analysis of 302 Fortune 500 CEOs.

The authors advance some explanations for why narcissism doesn’t help conservative CEOs in downsizing their companies. The “self-aggrandisement” associated with narcissism can undermine relationships within a company and provoke negative social sanctions – an effect that may be muted for CSR activities (because they are generally received positively), but can provoke antagonism and criticism within a company in connection to the “emotionally charged” issue of downsizing. Narcissistic CEOs also may refrain from acting on their conservative beliefs in order to preserve an externally positive image.

Professor Sucheta Nadkarni

Professor Sucheta Nadkarni

“On a broad level, the study shows the need to move away from purely contextual factors such as company culture or the competitive landscape – and to focus also on how a CEO’s innate personality or disposition affect his or her managerial discretion and ability to deliver on strategic goals,” said study co-author Sucheta Nadkarni, Sinyi Professor of Chinese Management and Head of the Strategy & International Business subject group at Cambridge Judge Business School.

“We find that CEO personality can really influence their freedom in carrying out key strategic options, so these personality traits are something that stakeholders including boards of directors should take into account in choosing and working with CEOs,” says Nadkarni.

The study – entitled “Dispositional sources of managerial discretion: CEO ideology, CEO personality, and firm strategies” – was co-authored by Abhinav Gupta and Misha Mariam of the Foster School of Business at the University of Washington, and Sucheta Nadkarni of University of Cambridge Judge Business School.

In examining the role of personality in managerial discretion, the authors specifically chose CSR and downsizing as the key areas of focus because they frequently entail substantial conflict and are the types of strategic choices that most public companies periodically face and respond to.

The study looked at Fortune 500 companies between 2001 and 2008, and after accounting for various factors ended up with a final sample of 302 CEOs and 1,282 firm-year observations.

The research identified relevant data on five key elements related to CSR (community relations, employee relations, diversity, product quality and the natural environment) to come up with a composite score for each company. For downsizing, the study computed percentage difference in the number of employees between two successive years for each company, adjusted for various factors.

Using publicly available internet sources and archival sources of news agencies, the study then analysed videos of CEOs – with a panel of trained and impartial judges rating each CEO on narcissism and extraversion based on standard psychological measurements such as the Narcissistic Personality Inventory. A score is then computed for each factor being studied.