Extrovert CEOs Make Way Less Money

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Photo: Stuart McClymont

While it doesn’t say everything about a person, extroversion is a factor of personality that speaks to how dateable people think you are, whether you get energized by meeting people, and if you yearn to be in the limelight. These hard-charging, highly social people would be obvious titans of business, would-be Jack Donaghys that Harvard Business School mints by the thousand. Unless, according to some new and tantalizing research, companies want to actually make money.

That’s according to a new working paper from the National Bureau of Economic Research about how CEO personality links up with firm performance. The research team, lead by Harvard Business School assistant professor Ian Gow, took the transcripts from more than 70,329 quarterly-earnings conferences calls to estimate the Big Five personality traits for 4,591 CEOs. (The Big Five is the leading model for describing human personality.) Beyond extro- and introversion, the other traits are agreeableness, or how eager you are to help strangers; conscientiousness, or how rigorously responsible you are; neuroticism, or how much time you spend ruminating about possible threats; and openness to experience, or how much you crave new experiences. The researchers found that companies helmed by CEOs with high openness to experience spent more on research and development — after all, R&D is a corporate form of learning. Companies led by highly conscientious CEOs had lower growth, since, the authors reasoned, conscientious people are dutiful and respectful of convention, making them effective in government or military, but less so in innovation-oriented private companies. For the extroverts, the news is not good: Gow and his colleagues found “a robust negative association” between the extroverted, talkative CEO and “return on assets and cash flow” for the firm.

While the researchers note that their paper is “meant to be descriptive” and isn’t a search for causality, they offer up a couple explanations for the link between extroversion and lack of cash flow. It might be that extroverts enjoy dominating others, which depends on their obedience and submissiveness (not a great look in business). Even worse, the “short-lived enthusiasm of extreme extroverts can result in aggressive strategies that tend to be prematurely terminated,” the authors write. This leads to a fascinating tension: While extroverts have a tendency to rise to the top of social groups, it may not be a great personality trait for running a company.

From a nerd perspective, the methodology is super clever. The calls grant access to many members of a hard-to-reach group: Getting thousands of chief executives to agree to doing in-person personality assessments sounds like quite the ask. And while the quarterly-earnings call might be one of the least personable settings humans have yet invented, that heavily professionalized context could mean that any deviations from standard corporate-speak are more indicative of personality than a more off-the-cuff setting would be. Also, speech and text are pretty reliable ways to predict personality, down to the words you type into Facebook Messenger. For this paper, the researchers tracked 33 “linguistic features” to the personalities of these executives, from words associated with positive emotion (like” “fantastic,” or “nice”), signals of hesitation (like, “you know”), and how big the words they used were. In this sample, the extroverts used more adverbs (signaling a less formal speaking style) and fewer quantifiers (due to less concern with precision) than introverts. All of which speaks to why their companies make less money.