Highly extroverted CEOs are bad for business

There's a relationship between a leader's personality type and their firm's financial performance.

by Management Today
Last Updated: 31 Jan 2020

Can a chief executive’s personality predict a firm’s performance? Those who have been following the fall from grace of WeWork, with its pot-smoking, private jet-loving CEO Adam Neumann, might think the idea has legs. The successes of emotionally intelligent CEOs such as Microsoft’s Satya Nadella or General Motors’ Mary Barra also give credence to the idea. 

Academics from Texas Christian, Texas A&M, Utah State and Georgia universities have found a correlation between CEOs who displayed certain personality traits and a firm’s financial performance. The authors analysed the Q&A portion of 200 CEOs’ quarterly earnings calls with analysts, and gave the bosses scores for three of the big personality traits: conscientiousness, neuroticism and extroversion. They then applied their findings to the analyst calls of 3,000 CEOs over 22 years, to give them a healthy sample size.

In a recent Harvard Business Review article, the authors conclude: “Firms of more conscientious CEOs tended to have lower levels of stock volatility, but were able to generate higher stock returns at increasing levels of risk. In contrast, firms of more neurotic and extroverted CEOs tended to experience higher levels of stock volatility, but were less able to translate this high risk into higher shareholder returns. In fact, for the firms of highly extroverted CEOs, there was a negative relationship between stock risk and shareholder returns.”

The authors of the paper conclude that boards should be aware of personality as a factor that may influence an executive’s potential effectiveness “as the face of the company”. They should especially be wary of extroverts, who tend to get promoted more readily than introverts, but could project a damaging image.

It’s not only established firms whose success is influenced by their chief executive’s personality. Research by NESTA, a UK innovation foundation, investigated the ‘scale-up mindset’ of entrepreneurs who managed to make a success of their businesses, finding that the ones who made it displayed four characteristics: impact-orientation, innovativeness, dominance and value creation.

Most interestingly, perhaps, they argue that these are not innate qualities, but can be taught. “Through business schools, accelerators and support programmes, much progress has been made to teach the tools of business and entrepreneurship. Now it’s time to teach the mindsets,” says NESTA. Although it’s early days, research published in the journal Science, for instance, found that mindset training gave small businesses in West Africa a much larger increase in profits than standard business training. 

Image credit: Michael Kovac/Getty Images for WeWork

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