The challenge of the narcissistic CEO -- Providence Journal

WHY DOES THE PAY of American chief executive officers surge year after year, no matter how well their companies are doing? Maybe it’s just plain old narcissism — pathologically self-important executives who can never get enough external validation, and so they have to keep paying themselves more and more as a salve for their wobbly egos. Of course, they do this with the acceptance of the boards of directors they so assiduously cultivate.

If so, do companies that keep indulging their CEOs in their Sisyphean pay-raise chases only make their narcissism worse? And if they do, what are the consequences? Don’t narcissists become more psychologically unstable over time, taking more ever more extreme and ill-advised actions in pursuit of some elusive psychological self-justification? And can that really be a good thing for the economy?

In psychiatric parlance, one is said to have “narcissistic personality disorder” (NPD) when he/she makes exaggerated claims about talents and abilities, needs constant admiration from others and has a hard time feeling empathy for others.

Not surprisingly, those who score high on the Narcissistic Personality Inventory (NPI) test do things we generally frown on as a society. They cheat, they take more than their share and hoard it, they value material goods excessively, and they spend way too much time looking at themselves in the mirror. They also tend to gravitate to high-profile, high-paying positions of leadership — such as corporate executive.

In upcoming issue of Administrative Science Quarterly, two professors from Pennsylvania State University’s Smeal College of business, Arijit Chatterjee and Donald Hambrick, examine the impacts of CEO narcissism on company performance. Their study, intriguingly titled “It’s All About Me: Narcissistic CEOs and Their Effects on Company Strategy and Performance,” suggests that the more narcissistic the CEO, the more the company tends to pursue big, high-risk strategies. More acquisitions, more frequent big changes in direction, more fluctuations in just about everything. But “although narcissists tend to generate more extreme and volatile performance than non-narcissists, they do not generate systematically better or worse performance.” (The study is based on 111 CEOs in the computer and software industry; the researchers measured narcissism by seeing how much the CEOs got paid relative to others in the company, how much they spoke about their company in the first-person singular, and how prominently they were featured in company materials.)

Other research, however, does suggest that overly narcissistic leaders are actually quite destructive in the long-term. For example, Roy Lubit’s work (“The Long-Term Organizational Impact of Destructively Narcissistic Managers”) makes a convincing case that, over time, narcissism leads to recklessness, and eventually, big trouble. It also alienates and drives away the most talented people in the company. Or, as management guru Peter Drucker once wrote, “The leaders who work most effectively, it seems to me, never say ‘I.’ And that’s not because they have trained themselves not to say ‘I.’ They don’t think ‘I.’ They think ‘we’; they think ‘team.’”

Psychologists have no real cure for narcissism, though it can be dampened through humbling life experience. Conversely, the more one is allowed to indulge in narcissism, the worse all the symptoms generally get — the never-ceasing quest for self-importance and approval that leads to more outrageous and unreasonable attempts to reach the slippery heights of feeling okay with yourself. So maybe paying CEOs more and more with each passing year is only fueling their narcissism, which leads them to pursue grander but more outrageous moves, until one day — Wham! Bam! Crash!

Sure money motivates. And sure a little bit of narcissism is probably a condition for the risk-taking that our economy thrives on. But eventually, the money itself becomes meaningless. It is merely status, and there will always be somebody with more. Likewise, beyond a certain level, risk-taking just becomes idiotic thrill-seeking for its own sake. And worse, it’s reckless thrill-seeking with thousands of employees and investors along for the ride.

It’s hard to say exactly where healthy incentive turns into harmful addiction, where productive drive turns into damaging disorder. But with each passing year, as CEO pay reaches ever higher stratospheres while average worker pay stagnates (the ratio is now on the order of 400-to-1 — truly remarkable since all other industrialized nations have kept the ratio around 20-to-1), it seems more and more like a line is being crossed. And as a general rule, it’s probably not good policy to indulge and encourage the potentially destructive psychological disorders of those who have the power. It can only lead to no good eventually.

Lee Drutman, a frequent contributor, is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy ( ldrutman@gmail.com).