#Asia Companies with humble CEOs perform better, says research

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Photo credit: Pedro Ribeiro Simões

Photo credit: Pedro Ribeiro Simões

In Silicon Valley, arrogance and ruthlessness are often seen as traits of successful CEOs. They’re trade-offs packaged with the positive qualities necessary for their startup’s success, like two sides of the same coin. Apple’s Steve Jobs is a prime example.

But a study analyzing data from 105 small and medium enterprises in the US hardware and software industry has found that the opposite could be true. Humble CEOs often create better financial returns for their companies.

Conducted by researchers from the National University of Singapore (NUS) and Arizona State University, the study will be published in the peer-reviewed Journal of Management.

The researchers defined humility as people’s orientation toward accurately appraising their own strengths and weaknesses, which causes them to self-improve and appreciate the strengths and contributions of others.

They then posit that humble CEOs tend to encourage others to participate in decision-making and eliminate destructive self-interest and politics, all in favor of attaining a shared goal.

This causes the top management team in the company to become more collaborative. The gap in power between humble CEOs and the top management is therefore reduced due to “a more balanced division of executive labor.”

Rewards allocation is more egalitarian too, with a lower pay disparity between the humble CEO and top management, which keeps the latter more motivated.

As a result, companies with a more cooperative atmosphere tend to execute well in the present and plan judiciously for the future. Firms mired in bitter infighting often make irrational decisions as everyone would be concerned about protecting their viewpoint while filtering out contradictory information.

Better decision making often leads to better financial performance for the company, which was tracked in terms of improvements in “return on assets” – a measure of how efficiently firms deploy assets to generate income – over a period of time.

“Our study suggests that humility should not be overlooked in executive selection and training, particularly for firms operating in highly dynamic industries,” the researchers wrote. “Firms that face uncertainty or crises often turn to celebrity or superstar CEOs, thus forgetting that those CEOs are sometimes part of the problem.”

Drawbacks to humility?

The paper pointed out some limitations to the study. Only data from a brief span of time was used, which may not be enough to prove causality, in other words, that humility causes better teamwork and financial performance, not the other way around.

Next, the study was only conducted with privately-held small and medium enterprises of under US$5 million in revenue and less than 500 employees, and not large or public-listed firms.

So it’s possible that larger companies may not be as ideal for humble CEOs, since maintaining a low profile and not taking credit for success might harm career progression. The researchers recommended replicating this study in these contexts to find out if this is true.

Also, the study analyzed the positive outcomes of humility but didn’t dwell on the drawbacks.

“It is unclear whether humility might result in slower or less bold decision making that could hinder the firm’s responses to rapid environmental changes. It is also possible that humble CEOs may not impress some external stakeholders and, thus, their firms could find it more difficult to obtain external resources,” they wrote.

Finally, the conclusions of the study might not apply to tech startups, defined by entrepreneur and author Eric Ries as “a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” It’s a subset of SMEs, but runs differently from say, a software consultancy firm.

As such, in their search for a viable business with a limited financial lifeline from angel investors or venture capitalists, startups typically operate in an environment that’s more frenetic than your average SME.

Startups often pursue rapid growth at the expense of profitability, especially early in their lifecycle. Such an environment might be ideal for founders that are more brash and autocratic.

What about humility in startups?

Steve Jobs, Apple founder

Steve Jobs, Apple founder

Amy Ou, one of the researchers, tells Tech in Asia that her study cannot answer the question of whether humility works as well in fast-paced tech firms like Uber or Facebook, especially in their early days.

“But I have seen studies showing that narcissistic CEOs did not fare well either in the early days even though many think that they are passionate risk-takers and good at impression management,” said Amy.

“My study implies that humble CEOs probably can create highly integrative teams to work together, and they are able to oversee the startups to avoid falling into the trap of taking too much risk or growing too fast. Humble CEOs may not create the best first impression on the venture capitalists though, and maybe they can team up with partners who can impress others.”

In any case, there may come a time when a startup grows up and might benefit from a more humble CEO. After all, self-awareness is frequently cited as a necessary leadership quality, first in this essay by the psychologist who coined the term “emotional intelligence,” and then subsequently in this study by McKinsey.

And should there be a need to bring in more humility into the core leadership, Amy’s paper emphasized that while the trait is somewhat stable in a person, it can gradually change through experience or a systematic training program.

Ultimately, leaders can be both charismatic and humble at the same time. “Leaders who display a sense of purpose and vision can simultaneously show humility by accepting feedback and criticism, as well as by realizing that in addition to themselves, others can help to build vision,” the researchers wrote.

Would you make a good leader? Take this quiz to find out:

This post Companies with humble CEOs perform better, says research appeared first on Tech in Asia.

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