Causes of hubris
The degree to which the circumstances seem precarious
In some circumstances, directors are especially inclined to choose a CEO who demonstrate hubris or undue confidence. Specifically, on some occasions, the position of an organisation is precarious. For example
- the financial performance of this organisation, such as return on assets or shareholder returns, may have declined,
- the level of sales in the industry may be low or variable over time,
- the previous CEO may have been dismissed.
According to Hill et al. (2023), during these precarious times, directors become more likely to hire a CEO who exhibits hubris. That is, during these periods,
- the directors want to believe the organisation is salvageable and thus feels uplifted when a CEO expresses unmitigated confidence rather than doubt,
- indeed, to overcome the challenges, directors may even prefer a CEO who is willing to embrace risks and pursue ambitious goals—tendencies that often coincide with hubris.
Hill et al. (2023) collected data that verify this premise. That is, the researchers
- collected videos of 125 CEOs in S&P 500 firms,
- invited three trained judges to evaluate the degree to which these CEOs exhibit three features of hubris: a grandiose sense of self, overestimates his or her abilities, and considers himself or herself unique and eternally qualified to manage the firm,
- collected data about whether the organisation was precarious at the time this person was recruited, such as decreases in return on assets, variable sales in the industry, and dismissal of the previous CEO.
After controlling several other characteristics, such as demographics about the previous and current CEO, the findings reveal that CEOs who exhibit hubris were more likely to be chosen during precarious times. That is, organisations were more likely to choose hubristic CEOs when return on assets or shareholder returns had recently declined, when sales in the industry had diminished or fluctuated significantly, and when the previous CEO had been dismissed.
