Firms tend to imitate competitors led by charismatic—not narcissistic—CEOs

Corporate strategy is rife with imitation, a keeping-up-with-the-Joneses mentality, writ large.

But new research from the University of Washington Foster School of Business suggests that high-level organizational imitation can have more to do with personality than it does with rationality.

Specifically, firms are more likely to emulate competitors led by charismatic CEOs and less likely to emulate competitors led by narcissists, according to the study co-authored by Abhinav Gupta, an assistant professor of strategic management at Foster.

This bias toward or against a chief executive’s personality type, Gupta says, can influence strategic decision-making above and beyond the hard data on competitor performance or market opportunity.

“Management fashions and fads come about as the result of a great deal of benchmarking. And while you might expect that performance would matter most, the research tells us that people often act on their assumptions about psychological characteristics,” says Gupta, a Michael G. Foster Endowed Faculty Fellow. “Our own study finds that organizational decision makers tend to be biased about peer firm CEOs—regardless of whether their internal analysis tells them differently.”

These biases, he adds, are even more powerful when strategic leaders lack experience with a strategy or lead firms in volatile and uncertain industries.

The imitation game

It’s easy to spot a corporate imitation at the macro level. Apple introduces its digital virtual assistant, Siri, and soon Amazon follows suit with Alexa, Microsoft unveils Cortana, and Google launches Google Assistant.

“A lot of strategic choices are shots in the dark,” Gupta says. “So many firms engage in strategy benchmarking. It is the underlying process of social influence or ‘mimicry’ among organizations.”

And copycatting goes both ways. “Any given company can be an imitator and a referent at the same time,” he adds.

But beyond the easily observable, Gupta wanted to zoom in on the psychological factors that drive strategic imitations. Sure, the performance or stature of referent firms must play a role. But what about the people who lead those firms?

Enthralling or egoistic?

Gupta collaborated with Vilmos Misangyi, of Penn State University, to find out whether the perceived personality of one firm’s CEO can influence the decisions of peer firms to imitate or not.

They examined roughly half the firms in the Fortune 500 during the period from 2001 to 2012, focusing on strategic initiatives in the areas of international diversification, product market diversification and corporate social responsibility.

After establishing instances of strategic imitation, the researchers looked at two major leadership types—charismatic and narcissistic—to discern whether personality biases had any influence over a firm’s strategic choices to imitate.

Gupta says that popular perception paints charisma as a universally positive leadership trait that is associated with inspiring high performance in an organization. Narcissism, on the other hand, is widely viewed a negative leadership trait that may hinder performance. These stereotypes, he adds, are not informed by solid evidence, but rather reflective of cognitive biases.

But how to identify the personality types of 300 blue-chip CEOs?

The researchers asked study participants to watch publicly available interviews of each leader and rate them on the extent to which they exhibit charismatic and narcissistic qualities (as identified by prior research). The raters were trained to look for the behaviors associated with the two traits to ensure that their independent ratings converged to agree upon which CEOs were charismatic and which were narcissistic.

Personality trumps performance

To isolate the effect of personality biases, Gupta and Misangyi carefully controlled for an exhaustive list of other factors: firm prestige, CEO likeability, firm size, return on assets, external environmental factors such as changes in regulations, even coincidental copycatting—anything that might motivate one firm to imitate another or cause two firms to make the same strategic decisions independently.

In this analysis of myriad potential factors driving imitation, the most influential was found to be personality. Companies tended to copy strategic decisions made by charismatic CEOs, and stay away from decisions made by narcissistic CEOs.

“Leadership, in this case, is recognized from the characteristics of the leader rather than inferred from event outcomes,” Gupta says.

He also notes that the charisma or narcissism of a referent-firm’s CEO appears to have a greater impact on firms in highly dynamic industries where ambiguous, uncertain and volatile market conditions make it difficult for executives to discern which actions by competitors should be considered effective, important and worthy of their attention and emulation.

Firms whose leaders lack prior experience with a type of strategic decision also tend to rely more on competitor CEO personality as a proxy for performance when benchmarking.

Bigger picture

Gupta says that the larger message of this study is that the influence of leaders extends well beyond their direct followers.

When considering imitating another firm’s strategic initiatives, he advises key decision makers to take stock of their assumptions—and avoid making decisions based on the personality of another firm’s CEO.

“Executives should guard against their own personal biases,” Gupta says. “They should avoid casting an overly positive light on a rival’s strategy just because its CEO is charming. And they should avoid disregarding a strategy just because it is championed by a self-loving CEO.

“In every case, they should try to evaluate any strategy on its own merit. It’s always better to look at the numbers.”

“Follow the Leader (or Not): How Peer CEOs’ Characteristics Influence Inter-Organizational Imitation” was published in the May 2018 Strategic Management Journal.