Risky Business: The Cost of Hubris

Entrepreneurs aren’t hard to spot. They’re the ones out there on a limb, balancing on one toe and pirouetting while spinning a stack of china plates on a stick—fifty feet above a shark tank. Many successful companies wouldn’t exist if their founders hadn’t taken bold chances, but an appetite for risk is yet another entrepreneurial character trait that can backfire in a big way. The chance that a risk taker will bring a company he helped build up straight down is especially high in the case of mean men who think nobody can top them or stop them.

Don Hambrick and Arijit Chatterjee have spent years studying narcissistic CEOs. Their article “It’s All about Me: Narcissistic Chief Executive Officers and Their Effects on Company Performance” is based on research they conducted on 105 technology companies. They analyzed the following:

• Annual report: How often was the CEO’s photo plastered in its pages?
• Media strategy: How often did the CEO put himself front and center in the media, and how often did he use pronouns such as I and me in press interviews?
• Paycheck and bonuses: What was the CEO’s compensation as compared to the next-highest-paid individual in the firm?

Taking into account the above factors, Hambrick and Chatterjee then compared these observed levels of CEO narcissism with the decisions those CEOs made and the performance of their companies.

Hambrick and Chatterjee found that rather than creating a strategy focused on generating long-term sustained growth and meeting the needs of various stakeholders, malignant narcissist CEOs tend to choose options with the greatest potential for garnering applause, favoring grandiosity over stability. Malignant narcissists make larger and more frequent acquisitions than their non-narcissistic counterparts do, and they prefer the big, attention-getting, often-risky deals.

These CEOs may be cocky and mean, but they are crying out, “Look at me! Love me! Revere me!” They want the attention, regardless of the risks.

Risky behavior can place companies in the crosshairs of government regulators, generate devastating press, or both. All it takes to destroy a brand these days is one tweet that goes viral: just look at poor Justine Sacco.

Because of their hubris, mean men are more likely to break laws and expose their firms to legal liabilities. Even companies and CEOs that seem untouchable get caught. In 2010 Apple found itself under public scrutiny as revelations surfaced that the company—under Steve Jobs’s leadership—had conspired with other Silicon Valley firms to forge an agreement not to poach one another’s employees. This move not only kept wages down but also was in violation of antitrust laws.

Herbert Hovenkamp, a professor at the University of Iowa College of Law, called Jobs “a walking antitrust violation.”

This was case in addition to Apple being found guilty of “facilitating and executing” a conspiracy to fix e-book prices for its own gain. Hovenkamp noted that Jobs’s behavior in both cases was “bold,” saying, “You see this kind of behavior sometimes in small, private, or family-run companies, but almost never in large public companies like Apple.”

Clearly, Jobs was a risk taker. Some of the risks he took resulted in the creation of the leading innovations of our time, but others, such as deciding to backdate stock options at Apple and Pixar in order to increase their value, resulted in jail time for executives at both companies. Jobs was never charged.

As is typical of mean men, Jobs didn’t think that rules meant for ordinary people applied to him. New York Times columnist James B. Stewart wrote: “Mr. Jobs’s conduct is a reminder that the difference between genius and potentially criminal behavior can be a fine line.” As Jobs once infamously said, “I’d rather be a pirate than join the navy.”

Research correlating risk taking with narcissism offers further insight into ousted American Apparel CEO Dov Charney. It’s hard enough to trust a CEO who, amongst many other reported vulgarities, once said, “I frequently drop my pants to show people my new product,” but it was Charney’s lies to the SEC and use of undocumented workers that produced the biggest liabilities for the company, which prided itself on its labor force.

The entrepreneurs and mean men out there on those tree limbs may be dashing risk takers, but they can also be self-confident to the point of being dangerous.

As I’ve observed time and time again, mean men exhibit a higher degree of need than most of us in many areas of their lives—it’s part of what drives them. Mean men take risks, in part to get attention, and in part because they believe they cannot fail. Some of the risks they take pay off well, but many have damaging results that ripple across the lives of employees, stockholders, friends, and loved ones.