Narcissism is a personality trait typically associated with an inflated sense of self and low levels of empathy for others, often characterized by behaviors that maintain grandiose self-views.[3] A recent hot topic in academic research explores the role that narcissism plays in leadership. This article summarizes recent findings on how narcissistic CEOs impact the business world, exploring the different creative ways in which academic researchers have measured and associated narcissistic leadership with real-world outcomes.
The study of narcissism in leadership presents a challenge for stakeholders in the business world. Past research has shown that the prevalence of narcissism in business majors and organizational leaders are higher than the average population.[4] [5] The fact is that narcissists are leading many corporations, and the fiduciary responsibility of corporate governance requires intentionality in hiring and oversight.
In the following sections of this article, we explore how recent findings in academic research translate to practice, focusing on how various stakeholders can identify and respond to the risks and opportunities associated with narcissistic leadership in organizations. We also propose research moving forward that would equip firms for the highest quality executive leadership.
Trends in Measuring and Identifying Narcissism
Academic researchers in the social and behavioral sciences view narcissism as a personality trait linked to either positive or negative behaviors, depending on the situation. While distinct, narcissism is part of the “dark triad” along with corporate psychopathy and Machiavellianism.[6]
The Narcissistic Personality Inventory (NPI)
Perhaps the most widely used survey to measure narcissism, the NPI is a 16 or 40 question survey asking responders to choose statements that best match their personality.[7] [8] The 40 question NPI assesses seven traits: authoritativeness, exhibitionism, vanity, exploitativeness, superiority, entitlement, and self-sufficiency.[9] A total score is then calculated based on these responses. Individuals may score higher in some dimensions, and lower in others. However, narcissism according to the NPI is assessed on a scale, so there is no clear line marking when someone is a narcissist. In practice, a trained professional should implement the NPI to prevent misuse, similar to trainings for other personality inventories such as the MBTI.
Figure 1: Narcissistic Traits
Peer Evaluations
Peer evaluations have been used to assess individuals’ perceptions of others’ narcissistic traits. Peers are those who have regularly interacted with the individual in some way, such as coworkers, friends, or family members.[10] However, the success of this method depends on the level of interaction with the person being evaluated. Interacting more often with a narcissistic leader increases the chance that the coworker will observe narcissistic traits (i.e. overly controlling and self-centered actions), leading to more useful assessments of narcissism.[11]
“Unobtrusive” Measures
Academic research also attempts to measure narcissism without surveys using public information, often referred to as “unobtrusive” measures.[12] For example, researchers have identified narcissistic CEOs by examining the size of CEO’s photograph in public materials, use of “I” statements in interviews and speeches, relative compensation compared to the second highest-paid firm employee, and the size of the CEO’s signature.[13] [14] These measures may be more practically useful for external stakeholders, such as investors and regulators, to identify narcissistic CEOs.
Limitations and Opportunities for Future Research
There are several limitations with existing measurements of narcissism. First, CEOs are reluctant to respond to surveys. This creates issues with research results, such that those who did not respond to the survey are different compared to those who did respond. CEOs may also intentionally choose the most socially-acceptable answers to the NPI to falsely skew the results.[15] Peer evaluations may also be problematic, with issues based on the level of interaction with the CEO and fear of retaliation. In addition, the “unobtrusive” measures of CEO narcissism are at risk of being off the mark and measuring something different, such as skill-level, decisions made by marketing departments, and ability to negotiate.[16] However, new innovative measures are continuing to emerge in this topic area, which is ripe for future research opportunities.
Benefits and Drawbacks of Narcissistic Leadership
Although opinions on the matter are certainly mixed, there appears to be both benefits and drawbacks to having a narcissistic CEO in practice. This section explores academic research findings that help us to identify when CEO narcissism may enhance shareholder value and when it is likely to destroy value.
Benefits of Narcissism: The Rise of the Celebrity CEO
Individuals with narcissistic traits are more likely to emerge as leaders due to their extroverted tendencies.[17] Some argue that managerial roles are well-suited for narcissistic traits, such as risk-taking, charisma, and confidence. Indeed, some boards of organizations appear to be attracted to leaders with narcissistic tendencies, leading in part to the rise of the celebrity CEO.[18] However, as seen with Nissan’s troubled ex-CEO Carlos Ghosn, who fled Japan while facing a litany of charges involving alleged financial crimes, this increased spotlight does not always work to the benefit of the company, and can go terribly wrong when more unfavorable narcissistic traits emerge.[19]
In contrast, some suggest that an optimal level of narcissism is associated with leader effectiveness.[20] That is, that narcissism is neither strictly good nor bad, and that leader effectiveness is highest at some point along the NPI scale. Others suggest that it is more about fit, such that narcissistic CEOs are good for some situations and terrible for others. For example, narcissistic traits are particularly valuable to followers during times of uncertainty and dynamic market conditions. The confidence and assertiveness of a narcissistic CEO can facilitate a strong sense of vision and courage to lead organizations in new directions.[21] [22]
Narcissistic Leadership in a Crisis: It’s all in the Timing
While some risk-taking is beneficial, other kinds of risk taking can be harmful, and narcissistic leaders may engage in self-interested behaviors that threaten organizational success. In crisis situations, combining extreme risk-taking with overconfidence can destroy a company. One famous example of this is CEO Dick Fuld and the collapse of Lehman Brothers in 2007. High risk investment decisions made by Lehman Brothers leadership have been linked to this collapse. Some speculate that Fuld’s hubris and overestimation of the value of the company created barriers to the potential sale of Lehman Brothers, and alienated those who could have helped rescue the company.[23] [24] The same risk-taking traits that were previously associated with strong growth became the downfall of the company during a recession period.
This trend has been observed in research. Several studies link CEO narcissism before and during a recession period with a slower recovery of ROA following the collapse of U.S. banks in 2008.[25] In contrast, some research indicates narcissistic CEOs can be excellent at creating and pursuing a bold recovery strategy in a post-recession period. Specifically, narcissistic CEOs tend to be motivated by achieving positive outcomes, and less motivated to avoid negative outcomes.[26] Therefore, the timing of the narcissistic CEO’s term of employment is crucial, such that their behavior may create greater losses before and during a recession, but contribute to a strong vision of growth after.
Acquisitions: Mixed Results
Narcissistic CEOs involved in acquisitions initiate deals for takeovers, and negotiate faster, resulting in more costly acquisition prices.[27] However, if both CEOs score high on narcissism, there is a lower probability that they will complete the deal at all. Since target companies typically receive an acquisition premium on their stock, this suggests that narcissism on the part of the target CEO can be harmful to their shareholders. For acquirers, there is evidence of both harmful and beneficial acquisitions for shareholders.[28] Therefore, whether CEO narcissism will be a benefit or detriment in an acquisition scenario depends on the context.
Litigation Risk and Deception
In addition to overinvestment in M&A and R&D,[29] aggressiveness and high-risk taking behavior can increase the likelihood of litigation.[30] For example, narcissistic CEOs’ overconfidence about their ability to win, and lack of sensitivity of the costs to their organizations, increases the likelihood and duration of lawsuits.[31]
Another notable potential negative impact of CEO narcissism is the increased likelihood of releasing misleading financial disclosures.[32] [33] A recent study published in the Journal of Business Ethics argues that narcissistic CEO engagement in earnings management is deliberate, noting that they are often acting out of self-interest when it comes to reporting financial results to the public.[34] For example, Elon Musk was recently fined by the SEC and removed as chairman of the board of Tesla for three years for issuing a misleading tweet that caused a large swing in the stock price. Musk later had to settle with the SEC for another misleading tweet.[35]
Infographic 1 below provides a summary of the issues explored in the sections above, noting the pros and cons of narcissism in an organization:
Infographic 1: Pros and Cons of Narcissistic Leaders
What Does This Mean for Investors and Owners? An Industry Analysis
While there are many potential problems associated with CEO narcissism, under certain circumstances, CEO narcissism may be beneficial to the firm’s owners. In this section, we further analyze these findings and discuss specific implications for investors and owners in specific industries.
Industries Ill-Suited for Narcissistic CEOs
The lack of empathy, extreme sensitivity, and interpersonal problems associated with narcissism make certain industries unsuitable for affected CEOs. For example, some industries require the CEO to maintain good relationships with important stakeholders such as:
- “Star” employees with difficult to replace skills or customer relationships (e.g. law firms, the entertainment industry, or finance)
- Employee reps in highly-unionized industries (e.g. automotive manufacturing or the airline industry);
- Important suppliers, regulators, or joint venture partners (e.g. power generation and telecommunications).
We also propose that industries with a greater need to protect trade secrets and reduce externally reported information may be more susceptible to exploitation by narcissistic CEOs. This issue may be particularly prevalent in industries with significant investments in intellectual property. The reduction in public accountability could lead to challenges, due to narcissistic CEOs’ deceptive tendencies and poor ability to realistically judge their own performance.
Industries Better Suited to Narcissistic CEOs
Narcissistic traits may be less damaging in other industries where cooperative relationships are not necessary and deals are one-off transactions (e.g. real estate development). Furthermore, troubled firms may sometimes need to conduct layoffs and break long-standing relationships with suppliers or customers. In such cases, a lack of empathy may make such unpleasant actions more likely. Future research is needed to investigate this scenario.
In addition, for some industries, such as tech, investors may desire rapid growth through acquisitions, even if this involves paying high premiums for smaller rivals. Narcissistic CEOs would be useful in this context, as they are more likely to initiate and quickly complete takeovers. However, investors looking to sell their firm would do better to not have a narcissistic CEO, as this could reduce the probability of a sale to a rival narcissistic CEO.[36]
Organizational Strategies for Mitigating and Avoiding Negative Aspects of CEO Narcissism
There is hope that organizations can proactively address weaknesses associated with narcissism in their leaders. Several scholars propose actions that organizations can take to curtail negative outcomes. This section explores potential solutions to address the risks of narcissistic leadership.
Optimizing Organizational Identification
One factor that could curb narcissistic leaders from devolving into risky behaviors is when the CEO’s identity is closely tied to their organization. This concept is referred to as “organizational identification,” and is common among narcissistic CEOs.[37] Ideally, having a CEO working on behalf of the organization would be the ultimate goal. However, there is a risk that the CEO will believe that their self-serving behaviors are actually for the benefit of the organization, or that the organization exists to benefit the CEO.
There are several proposed recommendations for addressing the risks that accompany CEOs with high organizational identification. A well-designed compensation plan with publicly available performance measures can better align narcissistic CEOs’ self-perceived interests with those of the shareholders. A strong, independent board of directors can closely monitor leaders for deceptive and self-interested behavior, and be given the power to quickly remove a troublesome CEO. Finally, top management teams within the company can collaborate closely with the CEO to regulate negative behaviors.[38]
Best Practices for Selecting Leaders
Another alternative is to expand the criteria for the selection and promotion of leaders, or limit the input of a narcissistic CEO in the hiring and promotions process. This could decrease the presence of narcissism among CEOs. Men and individuals from higher socioeconomic classes are more likely to be selected as leaders of businesses. However, past research finds that leaders from wealthier backgrounds self-report higher levels of narcissism, and men are 40 percent more likely to be narcissists.[39] Therefore, carefully considering the optimal level of CEO narcissism for a company, and evaluating the potential level of narcissism in individual applicants may decrease the emergence of narcissistic leaders.[40]
Increasing Awareness of Narcissistic Traits
Research also indicates narcissistic leaders may appear to be excellent from afar, but increased familiarity changes this perception.[41] These findings suggest that organizations can encourage leaders to engage with their followers more regularly prior to leading them. Getting to know one another without the power imbalance may enable employees to recognize narcissistic tendencies in their employees.[42] This awareness could signal narcissistic tendencies early on, and possibly lead to proposed interventions that could manage the negative aspects of narcissism, such as executive coaching and placement in non-relational roles.
Practical Tips and Concluding Comments
To summarize, we offer the following practical tips for internal and external stakeholders in Infographic 2 below:
Infographic 2: Practical Tips for Internal and External Stakeholders
According to the analysis above it is possible to not only identify characteristics linked to narcissism, but intentionally evaluate the risks and rewards. It is also possible to identify when this type of leadership would create desired organizational outcomes and provide effective oversight for narcissistic CEOs. As this area continues to evolve, additional research will equip corporate board members and executive teams with tools for ensuring the best possible corporate outcomes. Future research is suggested to explore how narcissism fits into the broader practical framework of CEO searches to develop a best practices guide that integrates several key aspects of research on CEO search and selection.
