These narcissistic CEOs may be outliers, but their high-profile scandals demonstrate just how important an executive’s individual characteristics and values are. O’Reilly, along with Xubo Cao, a Ph.D. student in organizational behavior at Stanford GSB, and Donald Sull, a senior lecturer at the MIT Sloan School of Management, explores this idea in a new paper that seeks to understand how the personality of a corporation’s leader influences its culture and performance.
Whether a company capitalizes on the link between its culture and strategy can mean the difference between survival and collapse. In a companion paper, Cao, O’Reilly, and Sull observe meaningful relationships between CEO personality and innovation, finding that openness has the most significant, positive association with an innovation-oriented culture—an important feature of companies that can adapt in the face of change.
Cao cites his own experience with his academic mentor as an example. “He solves problems in a very creative way. I try to emulate that,” he says. However, this can come with trade-offs: “Sometimes I get caught up in a novel, creative idea and forget to pay much attention to detail.”
Managing corporate culture
O’Reilly cites Blockbuster and Borders as two companies that failed because they lacked cultures of innovation. “If they had leaders that could adjust, they could have survived,” he says, referring to their inability to respond to changes in how people consume media. “Think about Walmart. Walmart is in healthcare now. They’re running healthcare through their stores. They have leaders who are able to play two games at the same time—to be good at selling lots of stuff in big stores while also experimenting.”
Previous studies have applied the Big Five to executives, but O’Reilly’s study uses a large, cross-organizational sample to look more deeply at how exactly a CEO imbues their personality into an entire company’s culture. The mechanism is relatively simple, O’Reilly explains: Essentially, executives model certain behaviors and encourage their employees to follow suit. He puts it this way: “If that’s what successful people do, then that’s what you’ll have to do if you want to be successful.”
This concept is consistent with the study’s findings, which showed distinct personality profiles across industries. CEOs in the finance and insurance sector tend to be less agreeable, altruistic, and compromising, while those in healthcare are the opposite. Manufacturing CEOs demonstrate higher levels of conscientiousness; tech execs have lower levels.
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First published Aug. 1, 2023, in Insights/Stanford Graduate School of Business.
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Specifically, the paper looks at CEO personality through the lens of the Big Five model, which measures the essential traits of openness, agreeableness, conscientiousness, extraversion, and neuroticism. It found a correlation between each Big Five trait and nine dimensions of organizational culture (as determined by Sull and colleagues in 2019). Extraverted or sociable CEOs were associated with agility, collaboration, and execution, while agreeable or trusting CEOs were associated with flexibility and internal focus. Highly conscientious or detail-oriented CEOs typically led companies whose cultures placed less value on agility, innovation, and—interestingly—execution and results.
“What we’re suggesting in this article is that skill sets and experience are important, but that it’s also probably worthwhile thinking about what the personality of the individual is,” O’Reilly says. “The intuition is that culture and strategy need to fit, and therefore personality needs to fit as well.”
‘A personality of a leader that might work in one situation might be exactly the wrong personality in another situation.’