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Hail the humble CEO

Researchers find that about 5 per cent of a firm's ROA can be linked to CEO humility

Companies with humble chief executive officers (CEOs) enjoy higher return on assets (ROA), according to a joint study by the National University of Singapore (NUS) and Arizona State University.


COMPANIES with humble chief executive officers (CEOs) enjoy higher return on assets (ROA), according to a joint study by the National University of Singapore (NUS) and Arizona State University.

In the study published in the Journal of Management examining the relationship between CEO humility and company profits, researchers found that about 5 per cent of a firm's ROA is linked to CEOs rated as "humble" by their chief financial officers (CFOs).

"We find that humble CEOs indeed contribute indirectly to the pursuit of ambidextrous strategies and to firm performance, and they manage to do so through top management team integration and pay equality," Amy Ou, assistant professor of management and organisation at NUS, said.

According to the research, which was also contributed by David Waldman and Suzanne Peterson from Arizona State University, when a more humble CEO leads a firm, its top management team is more likely to collaborate, share information, jointly make decisions and possess a shared vision.

Humble CEOs transcend self-interests and empower capable employees at all levels.

"Accordingly, destructive internal competition is reduced, while mutual trust is facilitated, resulting in team-oriented behaviours, such as collaboration, information sharing, joint decision making, and the development of a shared vision," the researchers said.

The firm will also tend to have lower pay disparity between the CEO and the top management team, which will be associated with stronger firm performance.

The study examined 105 small-to-medium-sized firms in the computer software and hardware industry in the United States, with CFOs reporting on their CEOs' humility through a nine-item survey.

The research sample came mainly from privately held small and medium enterprises (SMEs). It remains to be seen whether the findings can be extended to public or large firms, which may less likely have humble CEOs because they may have more competitive executive selection and succession processes.

The researchers noted that in large corporates, humble managers may be less likely to rise to the top when they maintain low profiles and avoid taking credit for success. In addition, communication with other top management team members may be more formalised and political, and less frequent, compared with communication patterns in SMEs, so that humble CEOs will have less personal influence on top management team members.

Nevertheless, given the correlation between a company's profit and its CEO's humility, the researchers maintained that "boards of directors pay more attention to humility as a criterion of executive selection, and that human resource managers target humility in executive coaching".

"The implications of our findings are significant. It is typically assumed that the humble person is not assertive, lacks confidence, and the ability to motivate others. At worst, humility has been equated with being weak. Our study challenges that belief, showing that humble CEOs are more than just nice to work with and they are able to deliver extraordinary firm performance," said Dr Ou.

In another study on leadership, employees are found to be fully engaged and motivated when they first join an organisation. However, the levels of engagement and enthusiasm drop by an average of 20 per cent after the first six months. The primary reason for the decline is ineffective and disengaging leadership, according to the "Engaging Leader Report" by Hogan Assessments and Sirota.

"There are three basic needs that people seek in the workplace: achievement, camaraderie and equity," Nicholas Starritt, managing director of Sirota, said. "When these three needs are met, people tend to be highly engaged and, the more engaged employees are, the more attentive they are to their organisation."

"Effective leadership is fundamental because it transforms a collection of talented individuals into a high-performing team," Tomas Chamorro-Premuzic, CEO of Hogan, added.

"And, since the secret to performance is engagement, it takes an engaging leader to make that happen."