Narcissistic individuals have always found their way into corporate leadership positions, such as chief executive officers (CEOs). We can find CEOs with narcissistic tendencies, such as grandiosity, supreme confidence, and strong will, in some of the most renowned and innovative companies. Elon Musk of Tesla and SpaceX, Steve Jobs of Apple, and Mark Zuckerberg of Facebook are a few prominent examples. They have led their companies towards radical innovations that transformed their respective industries. Can these extreme cases be generalized, though? Does narcissism in CEOs positively affect their firms’ propensity to introduce radical innovation?

Existing research provides some evidence for a positive association between CEO narcissism (i.e., a personality trait with an excessive need for praise and attention) and radical innovation, such as investing aggressively in discontinuous technologies. However, it is unclear whether we can generalize that CEO narcissism leads to more radical innovation. To develop accurate insights into the relationship between CEO narcissism and innovation, we investigated the relationship between CEO narcissism and two corporate learning orientations which affect innovation, namely exploitation, the refinement of existing competencies, and exploration, a search for new competencies.

In contrast to the common notion, we find that narcissistic CEOs focus more on exploitation-focused activities than exploration-focused ones compared to their less narcissistic colleagues. We explain this counter-intuitive finding by stressing that explorative activities such as R&D investments in distant and radical technologies or new product developments tend to be cost-intensive long-term investments. Their benefits can take several years to materialize—perhaps well after the average seven-year tenure of CEOs. With a strong desire to always be in the spotlight, narcissistic CEOs may not fulfill their need for constant attention by focusing on these long-term investments but prefer short-term productivity gains resulting from the pursuit of exploitative activities. The myopia of narcissistic CEOs can lead them to be more focused on incremental innovation relative to radical innovation. Our research, thus, stresses that ignoring the trade-off between exploration and exploitation can lead to wrong conclusions about narcissistic CEOs positively influencing the innovation performance of the firm.

Diving deeper, we further paid attention to how narcissistic CEOs rely on performance comparisons with their firms’ industry peers to direct their firms’ efforts to exploration vs. exploitation. We find that when firms with narcissistic CEOs perform better than industry peers on accounting measures, which are informative of the success of exploitation orientation, they will continue to emphasize exploitation over exploration. However, when they perform better on market-based measures, which are informative of the success of exploration orientation, they reconsider the focus on exploitation, resulting in a shift to exploration. In short, narcissistic CEOs emphasize those strategies in which their firms already overperform, as this best serves their need for attention and praise.

We suggest that boards of directors consider these findings for their staffing decisions and when designing compensation packages for their CEOs. It’s important not to be deluded by a few radical flagship projects driven by the CEO but to carefully consider how narcissistic CEOs may affect the firm’s overall strategic orientation towards exploration versus exploitation. We recommend that the boards of directors be wary of narcissistic CEOs’ bias toward exploitation, especially when the firm already performs well on retrospective accounting-based measures relative to their industry peers.

Author: Sarosh Asad -   s.asad rug.nl

Author: Philip Steinberg -  p.j.steinberg rug.nl

References:

Steinberg, Philip J., Sarosh Asad, and George Lijzenga. 2022. “Narcissistic CEOs’ Dilemma: The Trade-Off between Exploration and Exploitation and the Moderating Role of Performance Feedback.” Journal of Product Innovation Management 1–24. https://doi.org/10.1111/jpim.12644