Extrovert CEOs make way less money

Discussion in 'Business & Economics' started by Plazma Inferno!, Aug 15, 2016.

  1. Plazma Inferno! Ding Ding Ding Ding Administrator

    One would expect the extroverts to be obvious titans of business. Unless, according to some new and tantalizing research, companies want to actually make money.
    That’s according to a new working paper from the National Bureau of Economic Research about how CEO personality links up with firm performance. The research team from Harvard Business School took the transcripts from more than 70,329 quarterly-earnings conferences calls to estimate the Big Five personality traits for 4,591 CEOs. (The Big Five is the leading model for describing human personality.) Beyond extro- and introversion, the other traits are agreeableness, or how eager you are to help strangers; conscientiousness, or how rigorously responsible you are; neuroticism, or how much time you spend ruminating about possible threats; and openness to experience, or how much you crave new experiences. The researchers found that companies helmed by CEOs with high openness to experience spent more on research and development — after all, R&D is a corporate form of learning. Companies led by highly conscientious CEOs had lower growth, since, the authors reasoned, conscientious people are dutiful and respectful of convention, making them effective in government or military, but less so in innovation-oriented private companies. For the extroverts, the news is not good: researchers found “a robust negative association” between the extroverted, talkative CEO and “return on assets and cash flow” for the firm.
    While the researchers note that their paper is “meant to be descriptive” and isn’t a search for causality, they offer up a couple explanations for the link between extroversion and lack of cash flow. It might be that extroverts enjoy dominating others, which depends on their obedience and submissiveness (not a great look in business). Even worse, the “short-lived enthusiasm of extreme extroverts can result in aggressive strategies that tend to be prematurely terminated,” the authors write. This leads to a fascinating tension: While extroverts have a tendency to rise to the top of social groups, it may not be a great personality trait for running a company.


    Paper: http://www.nber.org/papers/w22435

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