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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.

How do people make sense of the epiphanies when they experience them? Pexels

It might be just the right word from your boss. It might be a phone call with a trusted friend. Or it might be waking up one morning and just knowing. There's no way to predict what will spark an epiphany that changes the way you see the world. But their power can be so far-reaching, they often leave us wondering where on earth that brilliant idea came from — and how we can find more.

Studying the mental processes behind epiphanies is especially hard because these flashes of insight are usually linked with unconscious mental processing and incubation, often during time periods when one may not seem to be thinking about a problem at all. In this way, epiphanies seem to arrive effortlessly.

So how do people make sense of the epiphanies when they experience them? In a set of unprecedented studies, Rice Business professor Erik Dane set out to find answers, first examining people who'd experienced general epiphanies, then analyzing a set of accounts of work- and career-related epiphanies themselves.

The research

In his first study, Dane surveyed more than 500 randomly selected people to ask them about their experiences with epiphanies, which he defined as a sudden and abrupt insight and/or change in perspective that transforms the individual.

Subjects who said they'd experienced epiphanies reported what they'd been doing beforehand, the feelings and insight associated with the epiphany and how they thought they'd changed afterward. Interestingly, though this survey wasn't limited to career- or work-related epiphanies, 20 percent of the responses related directly to these topics.

In the second study, Dane interviewed 22 professionals, asking them about distinct work- or career-related epiphanies, most of which resolved a nagging problem. After analyzing the transcripts of these interviews, Dane developed a set of theoretical categories describing the varieties of reactions an epiphany might spark.

People generally perceive and analyze their epiphanies in similar ways, Dane found. He categorized these into four dimensions: a person's emotional reaction to the experience of the epiphany, the question of how the epiphany arose, the circumstances that preceded the insight and a person's observations about how ready they were to experience change through an epiphany.

The findings

The typical first reaction to an epiphany, Dane says, is a sudden and emotionally charged release from a problem or tension. We've all been there: a stressful work situation that seems to offer no way out, followed by a dazzling solution that appears from the clouds. It's that suddenness that leads to the second typical reaction: a sense of astonishment due to the nonconscious nature of the insight's arrival. Feeling dumbfounded for a prolonged time isn't useful, though, so we usually start examining the factors surrounding the epiphany, including our own readiness to change.

What does this imply for workplace? After all, not every problem can or even ought to be solved by epiphany. At the same time, Dane notes, epiphanies can provide critical impetus to move forward.

Interestingly, his findings hint that one can increase the chances of having an epiphany. Though further research is required, Dane concludes that epiphanies most commonly arrive when people are open to the prospect of experiencing a major change. When something is mentally constraining us, on the other hand, eureka moments keep their distance.

The conclusion

As a worker, Dane suggests, you can open space for epiphanies by being actively aware of your surroundings. Look closely at your workplace, your constellation of coworkers and your place within the system. Perceived mindfully, these details may set the stage for problem-solving in a less focused moment.

If you're a mentor or a supervisor hoping to spark epiphanies in your work team, try applying this principle at work: Rather than laying out specific targets and attacking them head-on, aim for an environment that allows for mindful engagement, one that includes the problems that feature in your long-term goals and resonate with your workers' concerns and interests. Cultivating this environment and granting workers time and space to wander through it may lead, like a divining rod, to fresh sources of wisdom.

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This article originally appeared on Rice Business Wisdom.

Erik Dane is a distinguished associate professor of management (organizational behavior) at Jones Graduate School of Business at Rice University.