714
n
Gods and villains
than their more humble counterparts (in between periods of
staring at their own reection, I guess).
And guess what, they found that the more narcissistic types
changed their rm’s strategy more often than the humble blokes.
Moreover, they also tended to undertake a lot more – and a lot
bigger – acquisitions. The performance of their corporations
(perhaps partly as a consequence) uctuated quite heavily, in
comparison with the humble types.
But what about the level of their rms’ performance: it may have
uctuated more but did the narcissistic guys on average achieve
higher or lower performance? Neither. They didn’t do better, and
they didn’t do worse (both in terms of return on assets and total
stock-market performance).
Arijit and Don concluded “that narcissistic CEOs favor bold
actions that attract attention, resulting in big wins or big losses,
but that their rms’ performance is generally no better or worse
than rms with non-narcissistic CEOs”.
However, I’d say they’re worse; you’re better off without them. It
is not only money that matters; these types are plain annoying. If
they don’t bring in more dosh than their more pleasant counter-
parts, you’re better off with humble bloke.
Are overconfident CEOs born or made?
But where does narcissism come from? One good context to
assess this question is M&A: one rm buying the next.
But let me rst remind you: most acquisitions fail. That’s not
even a point of debate or opinion anymore; the evidence
from ample, solid academic research is quite
overwhelming: about 70 percent of acquisi-
tions destroy value, and this has been the
case for many, many decades.
The question is what causes managers to
undertake them in spite of their dismal track
‘‘
But let me
first remind you:
most acquisitions
fail.
’’
Business Exposed72
record? One prominent explanation, as discussed in previous
chapters, is that the average CEO suffers from “hubris” or
“overcondence”. They think they will be able to create more
value through the acquired company than the silly people who
are currently running the show, because they’re much better and
smarter than the sorry souls who are currently messing about in
that block of bricks they call a rm.
Therefore they’re willing to pay an acquisition premium. Yet,
it’s apparent that usually they are overestimating their abilities,
because the average CEO/acquisition does not create any surplus
value – quite the contrary. Fact is (assuming that managers are
well-intended and do expect to create value through their acqui-
sitions; though some people even disagree with this assumption),
on the whole, one can only conclude that most of them are
overcondent because in 70 percent of the cases they don’t
manage to pull it off.
But, to get back to the matter in hand, where does their overcon-
dence come from? Does the average CEO suffer from hubris
because that’s the type of person who makes it to the top? That’s
one possibility. The other one is that, over the course of their
tenure, top managers often gradually become overcondent,
rather than suffering from hubris from the get-go.
Professors Matthew Billett and Yiming Qian
from the University of Iowa examined
this exact issue, using a sample of 2,487
American CEOs undertaking a combined
3,795 deals over the period 1980–2002, and
they found some very compelling evidence
that overcondent CEOs are made and not
born that way.
They initially uncovered four things.
1 They discovered that CEOs’ rst deals, on average, did not
destroy value: their effect on a company’s market value was
pretty much zero.
2 Those CEOs who had experienced a negative stock-market
‘‘
overconfident
CEOs are made
and not born that
way
’’
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