BEWARE OF THE NARCISSISTIC LEADER

BEWARE OF THE NARCISSISTIC LEADER

I’ve been reviewing a study of the top 25 instances of corporate fraud between 1998 and 2005, and there are some fascinating lessons that still apply today.  The research, by Kees Cools, a professor at Groningen University in the Netherlands affiliated to the Boston Consulting Group, accounted for $25 billion of corporate malfeasance.  Some of the headlines:

  • 21 of the 25 companies involved were American
  • They were all large publicly traded corporations, including Enron, WorldCom, Ahold, and Parmalat
  • One surprise was that the cause of the problem was not poor corporate governance, as the companies concerned scored the same on that as a control group
  • Instead, the issue was “the dilemma of the successful CEO”
  • The CEOs concerned had eight times the annual pay of their peers – an average of $1.2 billion, compared to $150 million in similar sized firms
  • The problem was that, having attained great success, the CEOs set increasingly high – and ultimately unrealistic – targets for profit growth. They came to believe their own propaganda – they were able to walk on water.  To protect their huge pay, they eventually found illegal ways to boost earnings
  • Most or all of the CEOs showed narcissistic tendencies. They developed “a little bit of a God syndrome”, and surrounded themselves with yes-men.  “Ambition can be very close to hubris, and there is a thin line separating self-confidence from narcissism.”

Having read many case-studies of successful leaders who develop over-sized egos, and observed several at first hand over four decades, I can add a few points.  Narcissism does not necessary lead to fraud – most of the big-headed leaders I’ve tracked stayed on the right side of the law.  But they nearly all exhibited some clear danger signals:

  • They spend a lot of time – and sometimes their firms’ money – in cultivating a reputation for being astute or charismatic leaders. They give interviews in the press, they feature prominently on their company’s website, they go on television, and they cultivate other influential or prominent people, especially in politics and the media.  Some of them even write books or induce journalists to write hagiographies of their exploits.
  • They may not exclusively surround themselves with yes-people, but they have pet managers – at all levels in the firm – who are cheerleaders for the boss, and who are promoted and over-promoted because of their loyalty. They have privileged access to the leader, so that he or she gets a false impression of how important and wise they themselves are.
  • They are usually extremely articulate and good with words. They are personally persuasive.  They can out-argue almost any of their subordinates.  They are extraverts.   They walk around the firm as if they owned it.
  • They have a high-powered Personal Assistant, who guards access to the top dog jealously.
  • They spend a lot of time “communicating” with the troops, though the communication is rather one-way. They love to use a microphone and can talk for hours.
  • They spend a lot of money and time on corporate PR, strongly featuring the leader.
  • They ensure that there is nobody really independent sitting on their board of directors.
  • They believe that bigger is better and once they have run out of genuine organic growth they often go for large acquisitions or mergers, which usually turn out badly.

Narcissistic leaders are not always bad news, but the risks are usually high.  Sooner or later, they run out of luck and out of road.  And, of course, narcissists are not confined to business.

Action Implications

  1. Watch out for the warning signals. Avoid narcissistic leaders – do not work for them, do not promote them, do not invest in their companies, and avoid any kind of business with them.
  1. If you are a successful CEO, watch out for the temptation to become over-confident or narcissistic. Do not believe that you can carry on winning for ever.  When your career in one company is at a peak, and you doubt that earnings can go on rising forever, cash in your reputation and move to another company at an earlier stage in its growth cycle.
  1. If you sit on a Compensation or Remuneration Committee, do not over-pay your CEO just because the value of the firm has shot up. It may only encourage him or her to do something illegal or imprudent.  Do not be afraid to lose the leader over the issue of pay.
  1. Beware of narcissists outside of business too. Sooner or later they will self-destruct; do not become part of the collateral damage.

Acknowledgement – the research quoted in the first half of this post comes from “The Dilemma of the Successful CEO” by Kees Cools in “Perspectives from The Boston Consulting Group 2005”.

Image credit – Pixabay

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5 Responses to “BEWARE OF THE NARCISSISTIC LEADER”

  1. Great Blog, thanks for sharing

  2. Stéphane TESTARD says:

    Hi
    One question concerning your audiobook 80/20 principle.
    You list the loe value activities,

    And amog those
    THINGS THAT HAVE A REPEATABLE CYCLE
    What s that?
    Cpuld you givr examples ?

  3. Gabriel Bradly says:

    Great summary. The book ‘Give and Take’ by Adam Grant cites a similar study where they found that there was a strong correlation between the size of the CEOs picture in the annual report and the propensity for fraud.

  4. Hi Richard,

    Very interesting, I am wondering how you reconcile this thinking with your star principle and the importance of setting unrealistic goals in a star venue.

  5. Investment in managerial ego according to Peter Drucker.

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