While we often seem to portray CEOs as superheroes capable of doing it all, the reality is that they will inevitably have strengths and weaknesses. This is underlined by recent research from Kennesaw State University, which shows that bosses with high integrity are less likely to be creative as they tend to adopt a more risk-averse approach.
Prior studies have indicated that companies with leaders who lack integrity may experience reduced competitiveness and profitability. Historically, possessing a significant amount of integrity has been viewed as a crucial characteristic of a business leader. Research has demonstrated that a CEO’s integrity plays a pivotal role in maintaining employee loyalty and preventing issues such as fraud.
Risk-averse approach
The researchers analyzed financial data from over 200 companies that were included in the Forbes 500 list between 2014 and 2017. They only analyzed companies where the CEO was hired between 2011 and 2013, and who had also stayed in post until at least 2018.
The study found that individuals who frequently use “causation words” such as “because,” “hence,” and “therefore” are more likely to rationalize ethically questionable actions and, therefore, have lower levels of integrity.
To measure a CEO’s level of integrity, researchers assigned higher scores to those who used fewer causation words in their letters. The study validated the integrity measurement by comparing it with companies ranked as the most ethical by independent observers like Forbes and found a high correlation between the two.
In addition to measuring integrity, the researchers also analyzed shareholder letters for keywords that are highly correlated with innovation, proactiveness, and risk-taking. The study found that CEOs with higher integrity scores tended to score lower on these traits, which are often associated with entrepreneurial behavior.
The correlation between integrity and these traits was stronger for CEOs who held positions as board chairs, giving them more power over the company, or were determined to be overconfident. The correlation was weaker for CEOs of consumer-oriented companies and CEOs who received more compensation in the form of company stock, which typically rewards higher performance.
Innovation matters
Businesses helmed by risk-taking, proactive, and innovative CEOs generally outperform their competitors financially, as they are more adept at identifying and capitalizing on fresh market opportunities, thereby bolstering the company’s competitive standing. Additionally, such companies typically exhibit stronger marketing capabilities, further contributing to their success.
The researchers have not recommended that companies steer clear of recruiting CEOs with a strong sense of integrity. On the contrary, previous studies have established that integrity is an essential quality for effective leadership and for cultivating loyalty and commitment among employees.
Nevertheless, the primary responsibility of corporate boards is to appoint chief executives who can enhance shareholder value. Therefore, they should take into account the potential drawbacks of leaders with high levels of integrity, such as a lack of risk-taking and proactivity, and provide support to counterbalance these effects. This could include offering more incentive-based compensation and implementing processes and structures to encourage innovation.
