Friday, January 11, 2019

How to Improve Firm Performance Through Understanding CEO Personality

A company's success depends on the business leader's personality. Each decision becomes an extension and projection of one's inner core experiences. Whether we are discussing global policy or the internal dynamics of the business the CEO and their personality will percolate throughout the entire economic system. Helping business leaders and investors understand the powerful influences of CEO personalities on business decisions and their potential outcome.

Personality Influences Innovation and Business Management Outcomes

For example, we may want to look at small and medium size businesses and their leaders to determine if personality somehow impacts firms success. Based on the personality traits of CEOs they found that certain traits like conscientiousness, openness, agreeableness, and willingness to learn influenced company outcomes (Man-pil, Bong-ihn,& Joon-ho, 2017). More specifically, conscientiousness and openness to experience lent itself to innovation while agreeableness positively influenced business management outcomes.

Those at the very top of the organization influenced the rest of the organization with their personalities and choices. They provide signals to others on how to make decisions that will please their boss and so on and so forth. Such dispositions make their way throughout the organization to influence others who complete the tasks that make the "vision" possible. For example, it becomes increasingly difficult to run an innovative business with executive personalities that are adverse to risk and force managers to justify all numbers instead of take risks.

Personality Predicts Firm Policies:

What if we could predict firm performance through the personalities of their executives? Based on the Big Five personality traits agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience the executive personalities influence firm policies (Tgow, Kaplan, Larkcker & Zakolyukina, 2016).

How we view the world, and how we solve problems, becomes written in paper for others to follow in the form of a policy. These policies are direct extensions of personality. If we have fear of the world we may write policies that restrict information while people more open to experience are likely to write more policies open to information sharing.

Where Do Policies Truly Form?

The root of our policy decisions are made decades before people walk into the board room. Personalities are developed from our childhood experiences and how we formulate an understanding of the world around us. Cox and Cooper found that ambition, ability to learn from adversity, internal locus of control, and a high dedication to the job impacted firm success (1989). These personality traits were formed throughout childhood and impact every part of our decision making.

How Does Personality Impact Our Economic Choices?

Personality determines how we view the world and therefore impacts just about everything we think about. Research has helped highlight that even the concept of protectionism is driven by our inner most construction of our world view (Johnson, 2013). Whether one is more prone to open or closed markets is based in early formations of our understandings of life.

The Importance of Helping Executives Understand their Personality:

Helping executives understand the influence of personality, backgrounds, and how decisions improves upon their decision making. If one executive is prone to making rash decisions, he/she can learn to understand how their personality's influence on such decisions and how those decision impact the company. The development of self-awareness is an important process of development.

One must think before they act and evaluate all of the alternatives versus relying on automatic responses learned in childhood. Critical thought and depth of analysis helps to create higher levels of performance outcomes as actions are aligned better to desired outcomes. The stronger one's reflective control, the more likely they will be able to make choices that lead to the highest outcomes.

How can You Improve your own Decision Making?

1.) Self-reflect on behavior and choices.

2. Find patterns in your decision making and pay attention to what you do and think before making these decisions.

3. Consult with others and exports to determine the best approaches.

4. Take stock of your resources and potential outcome.

5. Check back with your business and personal goals before making a decision.

6. Make those decisions that provide the most options.

Cox, C. & Cooper, C. (1989). The making of the British CEO: childhood, work experience, personality and management style. Academy of Management Executive, 3 (3).

Gow, I., Kaplan, S., Larcker, D. & Zakolyukina, A. (July, 2016). CEO personality and firm policies. Stanford Graduate School of Business-Working Papers.

Johnston, C. (2013). Dispositional sources of economic protectionism. Public Opinion Quarterly, 77 (3).

Man-pil, H., Bong-ihn, S. & Jooon-ho, K. (2017). Effects of six personality factors of ceo's at small and medium sized enterprises on performance in business management: focusing on learning and growth. Asian Academy of Management Journal, 22 (2).

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