Zhu & Chen (2015). CEO Narcissism and the Impact of Prior Board Experience on Corporate Strategy

Authors:
David H. Zhu – Arizona State University
Guoli Chen – INSEAD, Singapore

Interviewers:
Gareth Keeves – University of Michigan
Guy Shani – University of Michigan

Article link: http://asq.sagepub.com/content/early/2014/10/06/0001839214554989

Question 1. This paper investigates how a CEO’s narcissistic tendencies influence the likelihood that they will implement practices that they have witnessed on the boards on which they serve. Specifically your first finding suggests that the more narcissistic a CEO, the more likely that they are to imitate the international expansion and acquisitions strategies of the firms they are tied to. This finding builds on prior literature which suggests that narcissistic CEO’s have a tendency to favor visible ‘bold actions’ which attract external attention (Chatterjee & Hambrick, 2007), such as international expansion and acquisitions. To what extent do you think that your theory and findings would generalize to the imitation of practices which are less likely to be seen as ‘bold’, or do not induce attention for outsiders, such as the imitation of internal operating practices, or de-diversification.

Our theory can potentially explain the imitation of all major strategies that are complex and uncertain, including de-diversification and internal operating practices. The theory suggests that more narcissistic CEOs are more likely than less narcissistic CEOs to imitate the strategies that they witnessed on other boards and to resist imitating the strategies that other directors witnessed on other boards. Our focus is not on how CEO narcissism may be directly manifested in major decisions, but instead on how CEO narcissism may affect the CEO’s learning from prior experience and processing of information from fellow directors. For instance, when a CEO witnessed a low degree of international diversification on other boards, our theory would predict that the focal firm’s tendency to imitate such a strategy is stronger when the CEO is more narcissistic. We explain that narcissistic CEOs tend to very positively interpret their own prior experience (e.g., with a low degree of international diversification) in order to maintain a high level of self-esteem; they also feel confident that they have learned greatly from their own prior experience with a given type of strategy such that they can better succeed by using a similar strategy. Moreover, narcissistic CEOs also tend to de-value other directors’ prior experience, reducing the influence of directors’ prior experience on the focal firm’s strategy. The direct effects of CEO narcissism on the strategies that we examined were simply controlled for in our analysis.

Question 2. Your paper highlights structural characteristics, including power and status of the tied to firm, which moderates the CEO’s tendency to rely on their own experience rather than that of others. Could you elaborate on possible ways in which your theory could be expended to account for relational characteristics between the CEO and the directors, for instance whether the director is someone that the CEO has developed a strong social relationship with over time?

That’s a very interesting opportunity for future research. Keith Campbell’s research on narcissism suggests that narcissistic people tend to dominate their relationships with others and exploit them, including their intimate partners. So, it’s possible that narcissistic CEOs would still resist the influence of other directors despite their close social relations with directors. Yet, a strong social relationship between the CEO and directors could help a narcissistic CEO better consider directors’ prior experience in imitation decisions—narcissistic people might care about their friends a bit more than they care about others. These are clearly my speculations—it would be great to find out. Another possibility is to examine how fellow directors’ ingratiation towards a narcissistic CEO may lead the CEO to be more receptive to directors’ influence. To a degree, ingratiation could feed a narcissistic CEO’s need for admiration and applause, potentially reducing the narcissist’s tendency to further devalue directors’ related experience in order to satisfy the same need. In general, I think it’s a promising direction to integrate theories about CEO narcissism with theories about the CEO-board relation.

Question 3. While this paper does not postulate as to the performance implications of a narcissistic CEO being more inclined to imitate the practices of firms to which he/she is tied, and likewise less likely to initiate the practices of firms to which other directors are tied, could you suggest your thoughts on how this may affect decision making and ultimately performance. For example, what are your thoughts on how the imitation tendencies of a narcissistic CEO may influence the speed at which decision are made, and the innovativeness of such strategic moves?

That’s a fantastic question. There seems to be a very good opportunity to integrate the narcissism literature with research on competitive dynamics. Narcissistic CEOs’ tendency to devalue others’ input in the decision-making process might allow them to make decisions with a greater speed, and their confidence about their decisions might lead to a greater magnitude of response to competitors’ strategic moves. Research on competitive dynamics can provide further guidance on the conditions under which a greater decision-making speed and a greater magnitude of response would improve firm performance. It’s a bit unclear how narcissism may influence the innovativeness of CEOs’ strategic moves. It might make sense to compare the prior experience of the CEO with that of other directors—if other directors’ prior experience would suggest a more innovative move, then a narcissistic CEO’s tendency to devalue directors’ input might reduce the innovativeness of the firm’s move.

Question 4. One of the key contributions of this paper is that you theorize and show why narcissism, a fundamental personality characteristic, is likely to influence the firm’s tendency to imitate the practices of the other firms. To what extent do you consider that a deeper consideration of personality can contribute to the imitation, and broader diffusion literatures. What other dimensions of personality do you think could influence the tendencies of managers to imitate practices that they have witnessed?

Personality psychology as a major branch of psychology has provided rich evidence on how personality may influence the way people process information and make decisions under uncertainty. Research on inter-organizational imitation and network diffusion has not considered the role of top executives’ personalities in influencing their imitation/adoption decisions. This is surprising because top executives play such a key role in imitation and adoption decisions. While our study took a first step in explaining how top executives’ personality may influence their imitation decisions, it seems very promising to further consider other personality dimensions in explaining interorganizational imitation and network diffusion. It’s quite possible that the “Big Five” personality dimensions can influence top executives’ processing of information about other firms’ practices. Extroversion and openness to experience are likely to make a top executive more prone to the influence of other firms’ practices. In addition, core self-evaluation may also have significant influence over top executives’ imitation decisions. More broadly speaking, there seems to be a surge on how top executives’ personalities may influence major organization decisions in recent years—our very top journals have accepted more than ten articles on this topic in the past year alone. We believe integrating personality psychology and research on top executives and major organization decisions is a very promising direction for future research.

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