Companies with humble CEOs perform better, says research

Photo credit: Pedro Ribeiro Simões

In Silicon Valley, arrogance and ruthlessness are often seen as traits of successful CEOs. They’re trade-offs packaged with the positive qualities necessary for their startup’s success, like two sides of the same coin. Apple’s Steve Jobs is a prime example.

But a study analyzing data from 105 small and medium enterprises in the US hardware and software industry has found that the opposite could be true. Humble CEOs often create better financial returns for their companies.

Conducted by researchers from the National University of Singapore (NUS) and Arizona State University, the study will be published in the peer-reviewed Journal of Management.

The researchers defined humility as people’s orientation toward accurately appraising their own strengths and weaknesses, which causes them to self-improve and appreciate the strengths and contributions of others.

They then posit that humble CEOs tend to encourage others to participate in decision-making and eliminate destructive self-interest and politics, all in favor of attaining a shared goal.

This causes the top management team in the company to become more collaborative. The gap in power between humble CEOs and the top management is therefore reduced due to “a more balanced division of executive labor.”

Rewards allocation is more egalitarian too, with a lower pay disparity between the humble CEO and top management, which keeps the latter more motivated.

As a result, companies with a more cooperative atmosphere tend to execute well in the present and plan judiciously for the future. Firms mired in bitter infighting often make irrational decisions as everyone would be concerned about protecting their viewpoint while filtering out contradictory information.

Better decision making often leads to better financial performance for the company, which was tracked in terms of improvements in “return on assets” – a measure of how efficiently firms deploy assets to generate income – over a period of time.

“Our study suggests that humility should not be overlooked in executive selection and training, particularly for firms operating in highly dynamic industries,” the researchers wrote. “Firms that face uncertainty or crises often turn to celebrity or superstar CEOs, thus forgetting that those CEOs are sometimes part of the problem.”

Drawbacks to humility?

The paper pointed out some limitations to the study. Only data from a brief span of time was used, which may not be enough to prove causality, in other words, that humility causes better teamwork and financial performance, not the other way around.

Next, the study was only conducted with privately-held small and medium enterprises of under US$5 million in revenue and less than 500 employees, and not large or public-listed firms.

So it’s possible that larger companies may not be as ideal for humble CEOs, since maintaining a low profile and not taking credit for success might harm career progression. The researchers recommended replicating this study in these contexts to find out if this is true.

What about humility in startups?