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Humble CEO generates higher return on assets: study
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," Dr 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.
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 researchers noted that their sample came mainly from privately held small and medium enterprises (SMEs). It remains to be seen whether the findings are generalisable 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 also 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 maintain 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.