A new study published in the Strategic Management Journal shows that companies enjoy more cost benefits when they are headed by chief executives with Machiavellian attributes.
CEO
Researchers estimated that these CEOs produced a net income savings of more than 6.6 percent for their organizations. This finding somewhat counters the popular belief that devious traits can pose significant risks to companies.
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Machiavellianism is a personality trait that is associated with cunningness, scheming, and non-adherence to a moral code. It belongs to the same group as narcissism and psychopathy, traits that are common among CEOs.
“Highly Machiavellian personalities consistently excel in situations that are stressful, uncertain, unstructured and have a high degree of face-to-face interaction – all of which are commiserate with the CEO position and high-level negotiations,” said Federico Aime, a study author and a management professor at Oklahoma State University.
Researchers say the prevalence of people with this personality trait on corporate boards is almost three times that of the general population. This seems to suggest that anti-social behavior may aid business management to an extent.
Reducing company costs
Aime and his colleagues set out to measure how CEOs that are high up on the Machiavellian scale (high Machs) fared. This is in relation to driving down production costs and reaching better acquisition premiums and debt financing.
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The team collected public videos of 198 chief executives at S&P 500 firms during the period 2000 to 2011 to ascertain high Machs. Psychology experts reviewed these videos with the aid of a standard Machiavellian scale.
The research team performed multilevel corporate and financial data modeling and found that CEOs have a 32.3 percent effect on production costs. There was also a 22.3 percent CEO effect on financing costs.
Across the Machiavellian scale, the researchers analyzed how CEOs performed in 186 acquisitions done in 1,354 firm years. They found that high Machiavellian company heads paid 12.11 percent lesser acquisition premiums. In dollar terms, that was roughly $157 million saving – equal to 3.6 percent of the average acquisition deal.
CEOs higher on the Machiavellian scale also expended $101.19 million less on goods sold while paying $35.8 million less interest on debts. In total, the research team estimated that high Mach CEOs helped to make more than 6.6 percent saving on the average net income.
“It should be no surprise that CEOs with a Machiavellian focus on bargaining pay less on acquisition premiums,” said co-author Aaron Hill. “Machiavellianism can drive CEOs to gather more bargaining information because [of] their inherent distrust, to leverage social interactions and coalitions, and to manipulate others to allow them to win.”
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The researchers noted that even in situations where chief executives are not directly involved in bargaining they build culture and priorities to guide managers in doing things their way. In other words, they set the pace for how things are to be done.
According to this research team, the cost-saving benefits of high Mach CEOs do not override the risks associated with their personality trait.
The study, however, may help explain why people with the trait are prevalent on corporate boards. Companies are more interested in driving down costs and increasing profits after all.
References
Bargaining your way to success: The effect of Machiavellian chief executive officers on firm costs
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