Marc Kowalzick, post-doctoral researcher at the University of Mannheim’s Business School, and Moritz Appels, who earned his doctorate from the University of Mannheim and is now Assistant Professor at Rotterdam School of Management, Erasmus University, address a central question in our understanding of CEO hubris: Are hubristic CEOs particularly inclined to change or not to change their firms’ trajectories?
To explore this question, the researchers used a panel data set of around 1200 CEOs of the largest publicly traded companies of the United States and measured their levels of hubris. They also assessed well-established indicators of strategic change: change in resource diversification, business segment change, corporate restructuring, and changes to the composition of the top management team (TMT).
The researchers used the CEOs’ behavior when it comes to exercising stock options to measure the level of hubris. They assumed that highly hubristic CEOs tend to refrain from exercising stock options because they think that their company is undervalued. Less hubristic CEOs with a more realistic view of their company rather tend to exercise stock options.
Kowalzick and Appels found that CEO hubris leads to less strategic change and TMT membership change within the organization. Considering previous research which suggests that more hubristic CEOs are attracted to challenging strategic activities, the new findings indicate that they strive for continuity in their organization, despite their risk affinity.
“Higher levels of hubris in CEOs might lead them to see little reason for scrutinizing and adapting existing organizational trajectories under their leadership. They consider themselves capable of mastering the established ways of doing things”, says Kowalzick.