“The difference between God and Larry Ellison: God doesn’t think he’s Larry Ellison.”
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A study of “Narcissistic CEOs and executive compensation” conducted by researchers from Stanford University, University of California at Berkeley, and Santa Clara University, discovered that the majority of the world’s business leaders are self centered, self aggrandizing asshats.
Well, we all knew that, but now we have the facts to back us up.
According to the study, published in The Leadership Quarterly, Narcissism is characterized by traits such as dominance, self-confidence, a sense of entitlement, grandiosity, and low empathy. There is growing evidence that individuals with these characteristics often emerge as leaders, and that narcissistic CEOs may make more impulsive and risky decisions.
In reviewing the paper for Forbes, Susan Adams reminded her readers of M. Wilson, an executive at enterprise software maker Oracle, who once said of his CEO Larry Ellison, “The difference between God and Larry Ellison: God doesn’t think he’s Larry Ellison.”
The authors, Charles A. O’Reilly III, Bernadette Doerr, David F. Caldwell and Jennifer A. Chatman, suggest that these tendencies also affect how compensation is allocated among top management teams.
Using employee ratings of personality for the CEOs of 32 prominent high-technology firms, the study investigated whether more narcissistic CEOs have compensation packages that are systematically different from their less narcissistic peers, and specifically whether these differences increase the longer the CEO stays with the firm.
As predicted, the study found that more narcissistic CEOs who have been with their firm longer receive more total direct compensation (salary, bonus, and stock options), have more money in their total shareholdings, and have larger discrepancies between their own (higher) compensation and the other members of their team.
According to the paper, boards of large companies will support a charismatic CEO pay contracts even when he is not performing better than others in similar positions. “From the board member’s perspective you’ve got this person who is quite charming, charismatic, self-confident, visionary, action-oriented, able to make hard decisions (which means the person doesn’t have a lot of empathy) and the board says, ‘This is a great leader, ’” notes the study.
And it turns out that the CEO is often the one who hires the compensation consultant who sets his pay. Did anyone say conflict of interest?
Narcissists present a puzzle to students of leadership, the study concludes, suggesting that many of the characteristics that make people in leadership positions problematic (self-confidence, grandiosity, exploitativeness, and persistence) can, under the right circumstances, also make them successful. When their grand schemes are proven correct, they are hailed as visionaries, and they are featured on the covers of business magazines. When these same characteristics cause them to fail, however, narcissists can destroy entire companies. And countries, if they climb high enough.
Although the mechanisms for how narcissistic leaders affect performance are not fully understood, the study contributes to our understanding of this paradox, by showing how a CEO’s narcissistic tendencies are related to an important set of policies that can influence the organization.