Narcissistic CEOs can be a threat to any company. They engage in risky mergers and acquisitions, capital investment, and research and development which can end up being too dangerous. All CEOs seek a friendly reception for future proposals and decisions. That is why they try to choose directors who somehow have characteristics similar to themselves. Of course, they pick similar personality types, not just people of the same race or similar age. It is not easy to evaluate personality, but it matters, found U.S. researchers in the paper Narcissism, Director Selection, and Risk-Taking Spending.
Picking top managers matters
Research shows that people can spot and recognize a narcissist while watching the person interacting with others. Narcissistic people are especially adept at spotting their own kind. Professional CVs also suggest whether a potential director has had any work experience with a narcissist CEO. If yes, the person could be accustomed to their ways or share their tendencies. Board configuration also plays a role in the failure to anticipate and prevent risky decisions. In some companies, the CEO greatly influences the director selection.
The management-issues.com website found that the more influence a narcissistic CEO has on the board, it is more probable that a new director will be of a similar personality. Researchers used established indices to measure narcissism, for example, the prominence of their photo in annual reports or how frequently their name appears in press releases. The compensation the CEO receives compared to the second-highest-paid executive in the company was also used to estimate the level of narcissism.
Narcissism brings more risk
When there is a narcissistic consensus on the board, there is a potential problem. Why? Narcissists tend to engage in risk-taking behaviors. Since directors shape strategic planning, they can stop or promote the CEO’s risk-taking decisions. Therefore, when directors are more likely to cheer risk-taking behavior, possible negative consequences can be overlooked or rejected. These directors can also try to persuade more skeptical directors that the risky course is the best one.
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