Monday, November 26, 2007

I Love Me! Now Buy My Stock.....

It's All about Me: Narcissistic Chief Executive Officers and Their Effects
on Company Strategy and Performance

Arijit Chatterjee & Donald Hambrick, Administrative Science Quarterly, September 2007, p351-386 (not yet published!)

This study uses unobtrusive measures of the narcissism of chief executive
officers (CEOs)--the prominence of the CEO's photograph in annual reports,
the CEO's prominence in press releases, the CEO's use of first-person
singular pronouns in interviews, and compensation relative to the
second-highest-paid firm executive--to examine the effect of CEO narcissism
on a firm's strategy and performance. Results of an empirical study of 111
CEOs in the computer hardware and software industries in 1992-2004 show that
narcissism in CEOs is positively related to strategic dynamism and
grandiosity, as well as the number and size of acquisitions, and it
engenders extreme and fluctuating organizational performance. The results
suggest that narcissistic CEOs favor bold actions that attract attention,
resulting in big wins or big losses, but that, in these industries, their
firms' performance is generally no better or worse than firms with
non-narcissistic CEOs.

Sometimes, studies come up with EXACTLY what you would expect. Having an ubermensch as a CEO, or maybe just someone who perceives himself as THE ubermensch, couldn't have a net positive effect on mean earnings. If it did, firms would hire ubermenschen until, at the margin, the net bump was competed away by idiotic ubermenschen who weren't CEO material, but were well suited to be university chancellors.

But, since you can't tell which ubermenschen actually have some talent, or maybe which ones are going to get lucky by taking high-risk strategies, the variance of returns should be higher. And they are.

Still, should a firm hire an ubermensch? Sure, the entertainment value, and the new entries for DILBERT cartoons, make it worthwhile. At least, it's worthwhile for people who don't own stock in that firm. The amusement value is a public good.