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Would it be useful to study Psychopaths at the Stock Exchange?


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| 23 November, 2015 | 0 Comments

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Psychopaths at the Stock Exchange!

Well maybe, given the chaos in the financial services sector since 2008, Lehman Brothers, Royal Bank of Scotland and many more.
The size of the damage done is incalculable and the financial tab picked up by governments unprecedented, so is there a case for corporate business and state financial murder? Well we know that there is a case that had auditors and regulators done their job properly many CEO’s and Chairmen from this sector would now be in prison.
 
Let’s say you are the Chairman of one of the largest financial institutes in the world with assets of $638 billion and you need to employ a new Chief Executive. Your number one candidate seems to have all the requisite skills, is charming, smart and has all of the right answers to your questions, problem solved – right? Hang on though wouldn’t you want to know if you were about to employ a Psychopath. Well there are many examples out there of this having happened and is still happening.
 
We would like to believe that if we met someone who was completely without conscience and someone who was capable of doing anything in order to serve their purpose or to get them what they wanted, you could spot it.

 

Right?

No not necessarily.

In popular imagery of the psychopath we think of the likes of Hannibal Lecter or the Moors Murderers but in reality many psychopaths just want money, power, fame or a nice car.
 

Where do these psychopaths go – often into the Corporate World?

If you are interested in Corporate Psychopaths I can recommend the book “Snakes in Suits – WHEN PSYCOPATHS GO TO WORK” the authors Paul Babiak, Ph.D. and Robert D. Hare, Ph.D. are both researchers who have studied psychopaths. Hare, the author of Without Conscience is a world renowned expert on psychopathy and Babiak is an industrial – organisational psychologist. Recently the two came together to study how psychopaths operate in corporations, and the results were surprising. They found it was exactly the modern, flexible, open corporate world, in which high risks can be equal to high profits, that attracts psychopaths. They may enter as rising stars or corporate heroes and saviours, but all too soon they are abusing the trust of colleagues, manipulating supervisors and leaving the workplace in a shambles.
 

The Egomaniac!

Egomania is a term we are all familiar with but Narcistic Personality Disorder (NPD) maybe less well known. Everyone has an ego and a successful healthy ego is the hallmark of a healthy individual, but what happens when an ego goes too far? When can someone really be called an egomaniac?
 
  1. Has a grandiose sense of self-importance.
  2. Is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love.
  3. Believes that he or she is “special” and unique and can only be understood by, or should associate with, other special or high-status people (or institutions).
  4. Requires excessive admiration [regularly fishes for compliments, and is highly susceptible to flattery].
  5. Has a sense of entitlement.
  6. Is interpersonally exploitative.
  7. Lacks empathy: is unwilling [or, I would add, unable] to recognize or identify with the feelings and needs of others.
  8. Is often envious of others or believes that others are envious of him or her.
  9. Shows arrogant, haughty [rude and abusive] behaviour attitudes.
 
Often Egomania is synonymous with psychopathy and where better to stretch your wings and test out your power as a psychopath than in the corporate world.
 
We all require some Narcism it’s the element of our personality that provides drive and success, but what is normal and what is excessive. There are nine characteristics associated with NPD and in-order to be classified as having a personality disorder you need five or more from the above list.
 
Pathological narcissism is a life-long pattern of traits and behaviours which signify infatuation and obsession with one’s self to the exclusion of all others and the egotistic and ruthless pursuit of one’s gratification, dominance and ambition.
 

In a study of 111 top CEO’s in the computer and software industries they found:

  • Highly narcissistic CEOs are much less responsive to recent objective measures of their performance than less narcissistic CEOs. They found the narcissists would continue to make lots of acquisitions as high premiums, even when their company hadn’t been doing well, whereas the less narcissistic CEOs would get more conservative in the face of bad recent results.
  • Most interesting though, they found that highly narcissistic CEOs were very responsive to social praise (measured as media praise and media awards) and this would spur them on to increase their pace of acquisitions and premiums paid (which, over time, tended to destroy shareholder value). Less narcissistic CEOs were much less responsive to social praise. In other words, that praise didn’t cause them to feel confident enough to go out on a buying spree for companies.
  • The study showed that more narcissistic CEOs spent more on advertising as a percentage of their sales, spent more on R&D as a percentage of their sales, ran up costs more (measured as SG&A as percentage of sales), and took on more debt
  • More narcissistic CEOs also tended to do more acquisitions and pay much higher premiums for the companies they bought
  • More narcissistic CEOs led companies that had more extreme performance results — sometimes they’d do well and other times they’d do terribly
  • They also found more narcissistic CEOs were linked to big performance fluctuations for the companies — for a few years they would do really well but this would usually be followed by several years where they did very poorly
 

Researchers created four measures to index CEO narcissism:

  • The prominence (size) of the CEO’s photo in the annual report
  • CEO prominence (number of mentions) in company press releases
  • CEO’s use of first person singular pronouns in transcripts of public comments to shareholders
  • The gap between the CEO pay (salary, bonus, deferred income, stock grants, and stock options) and the pay of the 2nd highest paid executive
 

Some notes on rationalising normal and abnormal behaviour:

  • Optimism is healthy. Arrogance is not
  • Self-confidence is healthy. Megalomania is not
  • Believing that you can do a great job as CEO is healthy. Thinking that you know better than others is not
  • You need confidence and conviction to succeed as a CEO or in life, but what studies clearly show is that – taken to extremes – narcissism kills companies and kills CEO careers
We can all understand why many CEOs go too far in their self-confidence. Throughout their whole careers, they’ve been rewarded for taking risks and showing self-confidence. It’s like they keep betting on red and winning 11 times in a row. What are you going to do on the 12th time? Bet red and be more confident than ever. But it’s the CEOs who can keep their heads and a sense of perspective who – in the long-run and over thousands of cases and not just one or two special cases — tend to be most successful.

Finally a second book worthy of considered reading:

At its zenith, the Royal Bank of Scotland was the world’s biggest bank. It had assets of $3 trillion, employed over 200,000 people, had branches on every high street and was admired and trusted by millions of borrowers and investors. Now the mere mention of its name causes anger and resentment, and its former CEO, Fred Goodwin, is reviled as one of the architects of the worst financial crisis since 1929.

In Shredded, Ian Fraser lifts the lid on the catastrophic mistakes that led the bank to the brink of collapse, scrutinizing the role played by RBS’s directors who failed to check Goodwin’s hubris, the colleagues who were overawed by his despotic leadership style, the politicians who created a regulatory free-for-all in which banks went virtually unsupervised, and the investors who egged Goodwin on.

As more and more toxic details emerge about the bank’s pre- and post-bailout misconduct, which stretches from the ruination of numerous small businesses in the UK and Ireland to the criminal fiddling of Yen Libor, and from the alleged manipulation of global foreign-exchange markets to the wholesale ‘mis-selling’ of US mortgage bonds, Ian Fraser examines what the future holds for RBS and whether it can ever regain the public’s trust.

In short, keep your feet on the ground while you keep reaching for the stars.

220px-Narcissus-Caravaggio_(1594-96)_edited

 

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