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Rice research reveals that narcissistic CEOs sabotage their firms

Research from a former Rice University professor linked the size of CEO signatures to ego. CEOs with big egos entered into more risky, unreliable deals. Pexels

You've just been named CEO of a Fortune 500 company. Your ego fills the room. The laws of gravity don't apply to you.

And naturally, you want to make an impact. So you pour money into mergers and acquisitions, and when you're not trying to acquire another firm, you guide company resources into research and development. You're a genius, and the world will soon be clinging to your every new product.

The only problem: your company will likely underperform. Research by former Rice Business visiting professor Sean Wang (now at Cox School of Business as SMU), along with Nicholas Seybert of the University of Maryland and Charles Ham of Washington University at St. Louis, reveals the high costs of an out of control CEO ego.

The researchers' first challenge was establishing who could legitimately be called a narcissist. What does the term mean, exactly? While there are varying definitions, Wang's team focused on narcissism as a basic personality trait rather than a mental illness. As a personality trait, narcissism is associated with entitlement, vanity, authority, and a sense of superiority.

To spot narcissists, the team took a novel approach: they examined their research subjects' signatures. Signature size turns out to be a handy measure for egos, because it doesn't require participants to answer direct questions about their personalities — and because participants are unlikely to know that ego can affect something as simple as a signature.

Just having a big ego, though, does not a narcissist make. To validate a link between a person's signature and narcissism, the researchers asked 53 graduate business students to provide their signatures by signing a document, and then to take a personality survey that measured narcissism. The findings documented that indeed there was a strong correlation between signature size and narcissism.

Next, the researchers obtained data from prior psychology research on employee perceptions of 32 technology-firm CEOs. Of the 24 CEOS for whom the researchers also had signature samples, they found a significant correlation between narcissism and signature size.

Armed with these findings, Wang and his colleagues were able to extrapolate the narcissistic traits of thousands of CEOs whose signatures were readily available on proxy statements and other corporate documents. The researchers ultimately studied 741 CEOs from 411 firms during the period between 1992 and 2015, corresponding to 6,361 firm-year observations with a median of eight fiscal years per CEO.

They found a pronounced behavior pattern. Firms led by narcissistic CEOs invested more in high-exposure areas such as research and development and mergers and acquisitions, but shied away from routine capital expenditures for day-to-day productivity. This trend was even more pronounced during periods of financial slack, suggesting that narcissistic CEOs prefer an aggressive management style whenever possible. Financial productivity delivered by these narcissistic CEOs in terms of profitability was lower than their less egotistic counterparts.

The research has multiple implications. Narcissistic leaders, past research shows, are prone to make bad decisions — in part because they are bad listeners. As a result, they often dominate the decision process without incorporating feedback or ideas from others. Ironically, they mistakenly perceive this behavior as a signal of competence and strong leadership.

To counter these bad habits, the researchers say, during periods of financial sluggishness investors and corporate boards should combat excessive narcissist-led investment by pushing for higher dividend payouts. Given that narcissistic CEOs overinvest in R&D, investors also need to closely monitor whether such investments represent real innovation or just vanity. Finally, boards of directors should be aware that narcissistic leaders tend to command higher salaries — and consider whether their CEO falls into this category, and is essentially getting higher pay for inferior performance.

In short, to really be as boss as they see themselves, narcissistic corporate leaders need to recognize their tendencies and rigorously check their egos. Boards, meanwhile, should closely monitor their CEO's priorities in directing firm resources. It could be the writing on the wall.

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This article originally ran on Rice Business Wisdom.

Sean Wang is a former visiting assistant professor of accounting at Jones Graduate School of Business at Rice University. He is now an assistant professor at Cox School of Business at SMU.

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Auburn University's SwiftSku took first place in this year's virtually held Rice Business Plan Competition, but it was the second place company that went home with over half a million in cash and investment prizes. Photo via rice.edu

In its 21st year, the Rice Business Plan Competition hosted 54 student-founded startups from all over the world — its largest batch of companies to date — and doled out over $1.4 million in cash and investment prizes at the week-long virtual competition.

RBPC, which is put on by the Rice Alliance for Technology and Entrepreneurship, took place Tuesday, April 6, to Friday, April 9 this year. Just like 2020, RBPC was virtually held. The competition announced the 54 participating startups last month, and coordinated the annual elevator pitches, a semi-finals round, wildcard round and live final pitches. The contestants also received virtual networking and mentoring.

Earlier this week, Rice Alliance announced the seven student-led startups that then competed in the finals. From this pack, the judges awarded the top prizes. Here's how the finalists placed and what won:

  • SwiftSku from Auburn University, point of sales technology for convenience stores that allows for real time analytics, won first place and claimed the $350,000 grand prize from Goose Capital. The company also won the $50,000 Business Angel Minority Association Prize, the $500 Best Digital Elevator Pitch Prize from Mercury Fund, and the $500 Third Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $401,000. The company also won the CFO Consulting Prize, a $25,000 in-kind award.
  • AgZen from the Massachusetts Institute of Technology, a pesticide alternative spray and formulation technology company, won the second place $100,000 investment prize (awarded by Finger Interests, Anderson Family Fund, Greg Novak, and Tracy Druce). The startup also won a $300,000 Owl Investment Prize, the $100,000 Houston Angel Network Prize, the $500 Best Energy Elevator Pitch Prize from Mercury Fund, and the $1,500 Third Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $502,000. The company also won the $30,000 in-kind Polsinelli Energy Prize.
  • FibreCoat GmbH from RWTH Aachen University, a startup with patented spinning technology for the production of inexpensive high-performance composite fibers, won the third place $50,000 investment prize (also awarded by Finger Interests, Anderson Family Fund, Greg Novak, and Tracy Druce). The company also won the $100,000 TiE Houston Angels Prize and the $500 Best Hard Tech Elevator Pitch Prize from Mercury Fund, bringing the company's grand total in cash and investment prizes to $150,500.
  • Candelytics from Harvard University, a startup building the digital infrastructure for 3-D data, won the fourth place $5,000 prize.
  • OYA FEMTECH Apparel from UCLA, an athletic wear company that designs feminine health-focused clothing, won the fifth place $5,000 prize. The company also won the $5,000 Eagle Investors Prize, the $25,000 Urban Capital Network Prize, and the $1,000 Second Place Anbarci Family People's Choice prize, bringing the company's grand total in cash and investment prizes to $36,000.
  • LFAnt Medical from McGill University , an innovative and tech-backed STI testing company, won the sixth place $5,000 prize and the $20,000 Johnson and Johnson Innovation Prize, bringing the company's grand total in cash and investment prizes to $25,000.
  • SimpL from the University of Pittsburgh, an AI-backed fitness software company, won the seventh place $5,000 prize. The company also won the $25,000 Spirit of Entrepreneurship Prize from the Pearland Economic Development Corp., bringing the company's grand total in cash and investment prizes to $30,000.

Some of the competition's participating startups outside of the seven finalists won monetary and in-kind prizes. Here's a list of those.

  • Mercury Fund's Elevator Pitch Prizes also included:
    • Best Life Science $500 Prize to Blue Comet Medical Solutions from Northwestern University
    • Best Consumer $500 Prize to EasyFlo from the University of New Mexico
    • Best Overall $1,000 prize to Anthro Energy from Stanford University
  • The Palo Alto Software Outstanding LivePlan Pitch $3,000 Prize went to LiRA Inc. from the University of North Carolina at Chapel Hill
  • The OFW Law FDA Regulatory Strategy Prize, a $20,000 in-kind award went to Paldara Inc. from Oklahoma State University.
  • The Silver Fox Mentoring Prize, which included $20,000 in kind prizes to three winners selected Ai-Ris from Texas A&M University, BruxAway from the University of Texas, and Karkinex from Rice University as recipients.
  • The first, second, and third place winners also each received the legal service prize from Baker Botts for a total of $20,000 in-kind award.
  • The Courageous Women Entrepreneurship Prize from nCourage — a $50,000 investment prize — went to Shelly Xu Design from Harvard University.
  • The SWPDC Pediatric Device Prize — usually a $50,000 investment divided its prize to two winners to receive $25,000 each
    • Blue Comet Medical Solutions from Northwestern University
    • Neurava from Purdue University
  • TMC Innovation Healthcare Prize awarded a $100,000 investment prize and admission into its accelerator to ArchGuard from Duke University
  • The Artemis Fund awarded its $100,000 investment prize to Kit Switch from Stanford University
The awards program concluded with a plan to host the 22nd annual awards in 2022 in person.

If you missed the virtual programming, each event was hosted live on YouTube and the videos are now available on the Rice Alliance's page.

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