CEO Hubris as a “Sell” Signal for Investors

(Last Updated On: December 19, 2013)

Skyscraper MC900432115Science Fact:  CEO hubris may predict bumpy times ahead for your favorite company stock. Executive or CEO hubris — pride, conceit, egotism, self-importance, narcissism — is the subject of two new scientific studies, and the Financial Times has jumped on them.

A neurology professor in London and his colleagues analyzed the speech patterns of three British Prime Ministers for signs of hubris. To ensure that the words were those of the individual and reasonably unscripted, Dr. Peter Garrard studied their answers when being questioned in Parliament. A computerized analysis looked at words such as “I”, “me” and “sure”, and the ratio of “we” to “I”.

In parallel, two researchers at University College Dublin analyzed letters to shareholders from the CEO of a European bank that over-expanded during the banking boom and then suffered immense losses. They looked at use of the “royal we”, and who got the credit for good news (usually, the CEO) and for bad news (always, external factors).

What’s fascinating is the idea that we could automatically analyze the speech patterns of corporate and government leaders and measure whether they have stepped over the edge of narcissism and lost touch with the realities of their business. We need a good history of relatively unrehearsed answers; we might get those from analyst Q and A sessions, or questions at a Congressional hearing, by removing phrases that sound like carefully constructed boilerplate.

Recent literature has settled on 14 markers of CEO hubris, which are roughly:
– Using power for self-gratification
– Taking actions likely to cast oneself in a good light
– Disproportionate concern with image and presentation
– Displaying messianic zeal and exaltation
– Equating self with the organization
– Using third person or “royal we” in conversation
– Displaying excessive self-confidence
– Showing contempt for others
– Accepting accountability only to the “higher court” of History or God
– Maintaining an unshakeable belief in being right
– Losing contact with reality
– Acting restlessly, recklessly and impulsively
– Placing moral rectitude ahead of cost, practicality, or outcome
– Displaying incompetence in relation to the “nuts and bolts” of policy making

Owen and Davidson link these 14 factors to recognized psychiatric diagnoses: Narcissistic Personality Disorder, Anti-Social Personality Disorder and Histrionic Personality Disorder. In other words, CEO hubris is the road to the loony bin.

Science Speculation:  Hubris is a fashionable word these days.  It has a fusty academic ring to it — maybe because of the sharp outtake of breath on the first syllable, as if you’re about to say “WHO (pronounced “hyoo”) do you think you are, Mr. CEO?”

Of course, “pride goeth before…a fall” dates pretty far back!  And there are plenty of indicators that the CEO has lost touch with the common folks, whether they be employees or other stakeholders. A comment by “John Bloom” at the bottom of the FT article lists these markers:
– rebranding every 2 years or less
– a flag pole in the car park
– a Rolls Royce in the car park
– an atrium with a fountain
– a CEO who grows a moustache / shaves off a pre-existing moustache
– a CEO who buys a motorcycle / marries his mistress
Another blogger quotes Give and Take discussing a study:
– the size and number of CEO photos in annual reports

Bigger and better, consider this FT article: Architecture: Designs on Immortality, which notes the fabulously expensive new corporate headquarters of Apple, Facebook, Google, Amazon and Bloomberg, relating them to CEO hubris that might be a “sell” signal. Another article calls this “monumentalism”, crediting Dr. Laurence Peter of The Peter Principle.

Alas, CEO hubris is not the only hazard: there are plenty of ways for a company to mis-step into disaster. For example, see the study Roads to Ruin.

On the other hand: Maybe CEO hubris is an inescapable by-product of the initiative and drive that can make a business a success. If we blithely look at computer analysis, we may throw out some very attractive babies with the bathwater. One might ponder such business personalities as Steve Jobs, Jack Welch and Donald Trump.

The best caution I heard is from Warren Buffet in 1981, quoted in a New York Times article:
“Many managements apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess,” Mr. Buffett wrote. “Consequently, they are certain their managerial kiss will do wonders for the profitability” of the companies they intend to acquire. But, Mr. Buffett added: “We’ve observed many kisses but very few miracles. Nevertheless, many managerial princesses remain serenely confident about the future potency of their kisses – even after their corporate backyards are knee-deep in unresponsive toads.”

How good is CEO hubris as a “sell” signal for a company’s stock? How do we tell when inspiring leadership crosses the line to self-gratification?

Comments

CEO Hubris as a “Sell” Signal for Investors — 2 Comments

  1. This clearly does not apply to our elected officials, because we couldn’t find any pristine candidates.

    George