Do You Want For The CEO

An executive’s character traits are linked to certain patterns in a firm’s investments, strategy decisions, and overall performance, a new study finds.

CEOs have wide-ranging influence over their firms. They are charged with plotting a company’s strategic course, helping set the workplace culture, and attracting new talent to the executive suite. Plenty of research exists on how factors such as CEOs’ management styles, experiences, and industry expertise inform their attitudes and behaviors when they are at the helm, which in turn helps determine a firm’s performance. But very little analysis has been conducted on the relationship between a company’s fortunes and another fundamental aspect of a CEO: personality.

It’s easy to see why the underlying character traits of a CEO, although undoubtedly important, have mostly been ignored. For one thing, how do you measure a person’s disposition? Assessing and codifying dimensions of personality is a costly, time-consuming process, requiring detailed interviews of a large number of hard-to-access top executives. It’s simply too impractical, expensive, and unwieldly for the scope of most researchers.

However, the authors of a new study found a way around this problem and, in doing so, uncovered some significant links between CEOs’ personalities and their companies’ investments, strategic choices, and financial performance. Rather than chasing down face-to-face interviews with busy CEOs, the authors analyzed the language they used during earnings conference calls.

Psychologists have established that the way people speak — including their word choice, tone, and reference points — is highly predictive of their personality and remains stable over time.

By scrutinizing the language used on calls, the authors were able to explore the links between CEO personality and firm performance on a large scale. They analyzed more than 72,000 transcripts of the question-and-answer portion of conference calls with investors and analysts that took place from 2001 through early 2013, involving more than 4,700 individual CEOs. The authors focused specifically on the Q&A sections because CEOs presumably speak more freely when fielding questions than when delivering prepared remarks.

In line with previous linguistic research, the authors analyzed the transcripts to isolate 33 different linguistic features that, taken together, indicate what kind of personality someone has. These features include certain keywords or markers that indicate emotion, hesitation, or contemplation on the part of the speaker, as well as self-references and the use of terms or phrases associated with a range of feelings, including positivity, negativity, and certainty.

Next, the authors used each CEO’s linguistic evaluation to categorize him or her into one of the so-called big five personality traits. The big five framework, (pdf) which became a cornerstone of psychological research during the early 1990s, suggests that people primarily display one of five personality traits: agreeableness, conscientiousness, extroversion (versus introversion), neuroticism (versus emotional stability), and openness to experience. These essential traits represent the “patterns of thoughts, feelings, and behaviors that reflect the tendency to respond in certain ways in certain circumstances,” as one researcher who studies the framework put it.