Outsized Influence

Narcissism and extraversion can magnify a CEO’s ideological influence over an organization.

That’s the conclusion of new research by Abhinav Gupta, an assistant professor of strategic management and Michael G. Foster Endowed Fellow at the University of Washington Foster School of Business.

Gupta finds that firms led by narcissistic or extraverted CEOs whose politics lean liberal are more likely to exhibit strategic behaviors associated with liberal values, such as corporate social responsibility (CSR).

On the other side of the aisle, firms led by extraverted CEOs who lean politically conservative tend to exhibit more strategic behaviors associated with conservatism, such as downsizing.

“In general,” Gupta says, “we find that CEOs who hold exaggerated perceptions of their influence (narcissists) or are able to effectively sell their choices to others (extraverts) enjoy greater latitude in infusing firm strategies with their preferences than CEOs who lack those qualities.”

Curiously, the conservatism of narcissists appears to have no heightened effect on conservative behaviors at the firms they lead.

Extraverts and narcissists

How much do CEOs influence the strategic actions of the firms they lead? It’s a titanic question whose answer surely contains multiple contributing factors.

Past studies have examined the many external determinants, including market forces, corporate governance, organizational ideology, culture and resources.

But none had considered the internal forces of a leader’s personality and ideology until Gupta teamed up with co-authors Sucheta Nadkami, a professor at the University of Cambridge Judge Business School, and Misha Mariam, a doctoral student at the Foster School.

The researchers conducted a longitudinal study of more than 300 CEOs and the Fortune 500 firms they lead. For each chief executive, they identified political ideology by measuring personal contributions to political candidates and parties. They also established his or her tendency to embody the characteristics of narcissists or extraverts by asking trained raters to watch publicly available interviews of each CEO and assess them on those traits using pre-validated survey instruments..

“These two personality attributes are highly relevant to a CEO’s influence,” Gupta says. “We find that narcissism relates strongly to individuals’ inflated perception of their discretion, whereas extraversion relates to individuals’ ability to sell ideas inside and outside the organization.”

To measure that influence, Gupta and his colleagues observed key strategic behaviors of the firms these CEOs lead: CSR as a liberal strategy and downsizing as a conservative strategy. What they found was a clear relationship between CEO personality and ideology, and the strategies their firms pursued.

Extraversion strengthened the effect of CEO ideologies on both CSR and downsizing. Narcissism strengthened the effect of CEO liberalism on responsible corporate behaviors—but did not significantly moderate the effect of CEO conservatism on downsizing.

Outsized influence

Gupta says there are many possible explanations for why conservative narcissists would resist downsizing their firms. He speculates that it may be because narcissists think of themselves and everything associated with them as superior, and that downsizing would suggest otherwise—even if there are rational reasons for it.

In any case, the general theme of the study holds. Extraverts are naturally good at selling their views to others. Narcissists believe they know best. And when CEOs possess one or both of these traits, their ability to infuse personal ideology into the strategies of the organizations they lead is magnified.

“We empirically demonstrate that personality is a crucial determinant of a CEO’s ‘degrees of freedom’ in influencing preferred strategic options,” Gupta adds. “Specifically, two personality attributes that are highly relevant to a CEO’s ability to exercise influence: narcissism and extraversion.”

“Dispositional sources of Managerial Discretion: CEO ideology, CEO personality, and firm strategies” is forthcoming in Administrative Science Quarterly.