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Are Overconfident CEOs More Successful?

In most instances, overconfidence is considered a liability. Take, for example, a friend who habitually talks about themselves or a colleague who assumes they are performing better than everyone else. We all know someone who speaks rather highly of themselves, at work or otherwise.

Unfortunately, such people, succcessful as they may sometimes be, are usually disliked or made fun of by others. Whether they care for public opinion is a topic for another day. But by and large, most of us would find them narcissistic or out of sync with reality.

Interstingly, such is not the case when it comes to CEOs. Of course, nobody wants to work with, let alone look up to, one who routinely puts their subordinates down or makes harmful business decisions, potentially running the firm into the ground. But studies have shown that overconfident bosses can actually bring about positive results, even if their teammates hate them for it.

Why, you ask? Well, there is a science to it. And a whole lot of research. For instance, a 2010 study conducted by Professor David Hirshleifer at the University of California Irvine suggested that overconfident CEOs are actually twice as likely to lead their firms to innovation. This is simply because their overconfidence encourges them to take on riskier projects, even if the odds are stacked against them. Such projects, due to their difficult nature, carry greater rewards. In this way, the CEO brings in larger investments in innovation and R&D than a relatively risk-averse boss might have.

Hirshleifer came to this conclusion by studying the effects of those who run businesses with the force of their egos and knowledge, along with corporate investment in innovation between 1993 and 2003. It was found that assertive CEOs were more likely to see success and therefore, score successful patents. The bottom line is, overconfident CEOs are better innovators, if nothing else, as they will be ready to try something new without fear of failure.

However, does the same hold true in other aspects of work? Broadly speaking, yes. Leadership, as they say, has many dimensions. In the financial world, it is the ability of an individual to motivate greater effort from stakeholders.

Now, most CEOs are very self-assured people. And to make it to the top of any organization, irrespective of the industry, one has to have more than an affinity for numbers and figures. They must also be independent-thinkers, commanding and open in their appraoch. A timid or skeptical CEO is unlikely to inspire an entire workforce to believe in them and their values, no matter how hardworking they may be.

Overconfident CEOs enjoy greater employee committments, evident in the lower rates of employee turnover and general workplace satisfaction that are common to their firms. In fact, according to a study conducted at Harvard University in 2018, employees at companies led by overconfident CEOs were given a greater fraction of assets in their retirement benefits.

But it isn't just the employees that matter here. Subsequent studies have provided further evidence that the leadership of an overconfident CEO is more beneficial for stakeholderss in that it motivates them to take action and contribute to the company's vision.

Perhaps a good example of this would be late Apple CEO Steve Jobs, who approached AT&T with an offer to create what was then unheard of: a touchscreen phone. At this point, Apple had virtually no existence in the cellphone market and yet, somehow, Jobs managed to rake them in. In fact, the senior management at AT&T was so impressed, they bypassed their internal processes to seal the deal. As former CEO Randall Stephenson once said, "I told people you weren’t betting on a device. You were betting on Steve Jobs.”

This goes to show that CEOs who display a strong belief in themselves and the future prospects of their firms are able to secure greater supplier committments, encouraging long-term partnerships and ultimately, greater growth and investments.

In order to promote confidence in themselves, many modern day CEOs like Tesla’s Elon Musk put their personal gains at stake. While many considered it an extreme measure, his "All or Nothing Compensation Plan" only highlights how invested he is in his company's performance and how far he will go to satisfy those who work for him.

Perhaps the "reality distortion field' Jobs had become known for is real? Overconfidence in one's ideas may be exactly what makes them tick. In the corporate world at least, there definitely seems to be an upside to believing in oneself, even if to the point of disillusion.


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