Narcissistic leaders, mirrors in the boardroom and firms’ risk-taking behaviour

Consider the actions taken by Jean-Marie Messier, who converted a Paris-based company, Compagnie Generale des Eaux (CGE), with core businesses in water, electrical and waste utilities, into a media and entertainment conglomerate with a new name Vivendi.

We have to ask what are the strategic reasons behind this. Were the core businesses declining, did the company have existing capabilities to manage the new businesses, was it chic to enter unrelated business areas, or did Messier have rich experience in the media industry?

There was no clear “yes” for any of the above questions when he embarked upon a large-scale business diversification during his tenure as chief executive. Some attribute this to the fact that Messier was trying to change the company to suit his own self-image, by upping stakes in media-related businesses to enter this glitzy world. Such big and bold actions could be due to Messier’s highly narcissistic personality, after all he was a person who sometimes signed his emails “J6M”, which stood for Jean-Marie Messier Moi-Meme, Maitre du Monde (Jean-Marie Messier Myself, Master of the World).

Narcissists not only believe in their superior qualities but also carry an intense need to have their superiority reaffirmed. They embrace applause, praise and adulation from others to maintain their inflated self-view. Their insatiable need for public glorification is reflected in bold, attention-grabbing actions whose outcomes normally skew to the extreme ends of the performance scale. This often makes their companies exciting for outsiders to watch, like dramas, but stakeholders may not similarly appreciate the suspense. Those with skin in the game are apt to want some mechanisms to mitigate the downside risk that narcissistic chief executives can cause. In theory, that is supposed to come from the board.

However, there is a paradox at work in 21st century boardrooms. If best practices are to be believed, the gradually increasing diversity and independence of corporate boards should have improved their ability to restrain managerial excesses. But research suggests otherwise.

In the paper “Narcissism, Director Selection, and Risk-Taking Spending” (co-authored with David Zhu of Arizona State University), recently published in Strategic Management Journal, we found that, when narcissistic chief executives interact with the board, they often meet not a moment of reckoning but their favourite thing: a mirror.