Is Your CEO A Psychopath?

“She was interviewing a psychopath.  She showed him a picture of a frightened face and asked him to identify the emotions.  He said he didn’t know what the emotion was but it was the face people pulled just before he killed them.”

(The Psychopath Test, Jon Ronson)

A Boardroom Blitz

Psychopaths lack empathy, are pathological liars, have an enormous sense of self-worth, are impulsive, irresponsible and won’t accept responsibility for their own actions.  They make up 1% of the total population, 25% of the criminal population and, by some accounts, 4% of corporate boardrooms.

Of course, someone who believes that the only role of business is to maximise profits, regardless of the human cost, is only following the mantra of standard economic theory.  On the other hand, an academic discipline that provides covert justification for a behavior pattern that would get you locked up outside corporate HQs may just have reached the end of its natural lifespan.

Hare Brained

The absolute standard of psychopathic tests is that invented by Bob Hare, a Canadian who’s made it his life’s work to figure out how to identify the conniving devils.  He first realized that they were wired differently from other people when he started giving prisoners electric shocks.  He warned them first, and discovered that psychopaths displayed no fear at all at the impending pain.  Even more remarkably when he did this again they still weren’t bothered – unlike their terrified non-psychopathic fellow inmates.

Perhaps the bottom line is that psychopaths don’t have a conscience.  For anyone who does this is almost as puzzling as the alternative is to a psychopath.  But put this in context – imagine you’re dealing with a person who is superficially normal but actually has no fellow feeling whatsoever.  Remove all of those trust mechanisms that you rely on and consider only that you’re dealing with someone who simply doesn’t care. Basic economic transactions rely on common standards of trust, remove those and you have an imbalance that's dangerous for all normal people.

Of course the intrinsic traits of a psychopath are much like those of the modern corporation.  We touched on this in Frankenstein’s Corporations, the idea that if you test the modern firm for psychopathic tendencies they score very highly.  Which means, ultimately, that the people running these companies must behave in a similar fashion.

Directors in Disguise

Now this doesn’t automatically imply that everyone running a company is a psychopath.  The economic pressures to behave in a way that meets the needs of the corporation in the brutal dog-eat-dog world of modern business are enormous – consider this neat study by Eric Gilbert that shows that phrasing in emails at Enron can predict the status of an employee.  We conform to the roles expected of us.

So, placed in a position of corporate responsibility, many of us will be forced at times to behave a bit like psychopaths.  Can you imagine a better place to hide if you’re a real psychopath?  As Jarolaw Groth puts it:

“Their behavior is often regarded as evidence of traits which are sought-after in employment, in particular in senior positions, which have a broad scope of action and less clearly-defined duties, as well as helping them keep their jobs and climb the career ladder.”

This is a nasty dilemma, because if a corporate psychopath has exactly the kind of attributes necessary to be successful in a corporate environment then you’d tend to expect more of this ilk to succeed in attaining the highest positions in our major corporations.  However, there’s an important caveat to this as Clive Boddy points out: 

“At first view the existence of Corporate Psychopaths would appear to provide evidence for the bounded rationality of managers. However because they are ruthless and largely unaffected by the emotional consequences of what they do, they may actually operate as almost perfectly rational beings, with the important caveat that in making rational decisions they will put their own interests before those of the corporation they work for”.

Parasitic Managers

As this presentation from the UK’s Institute of Risk Management suggests there are a range of possible problems with psychopaths in the boardroom.  These include risky decision making, unethical behavior and a lack of loyalty to the company and stakeholders: does this sound familiar?  One of the problems with these people is they’re very good at managing upwards – they charm superiors, manipulate peers and abuse subordinates.  Once they get in senior positions it’s easy to see how problems could escalate.

  

To say that this is an ugly situation is to put it mildly.  If we can’t actually tell the difference between a corporation behaving in its own self-interest and a psychopathic CEO operating in their own self-interest then it suggests that there’s a serious problem with the way that our corporate institutions are functioning.  And maybe an even more serious problem with the economic fundamentals that lie behind them, because a system that can’t tell when it’s being parasitized is going to die.

Destabilized

Which is exactly what some people are suggesting: that the recent failures of major corporations, accompanied by leaders departing with huge bonuses and no signs of regret or remorse are an indication of exactly how deep this particular malaise goes.   As Boddy has related in The Corporate Psychopaths Theory of the Global Financial Crisis there’s a credible analysis that argues that the rise of psychopathic managers has been aided and abetted by a economic system that makes firms fundamentally unstable places to work: 

“Prior to the last third of the twentieth century large corporations were relatively stable, slow to change and the idea of a job for life was evident, with employees gradually rising through the corporate ranks until a position was reached beyond which they were not qualified by education, intellect or ability to go. In such a stable, slowly changing environment employees would get to know each other very well and Corporate Psychopaths would be noticeable and identifiable as undesirable managers because of their selfish egotistical personalities and other ethical defects.”

 So the argument is that the rise of the mantra of value maximisation, increased corporate instability and the ever increasing turnover of staff has allowed corporate psychopaths to flourish.  Eventually they manipulated their way to the top of corporations and have promptly done to them what they’ve always done to their colleagues whenever they’ve had the chance – screwed them royally.

Skinned Alive

If correct this is a wonderful example of how economists should never be allowed near anything to do with the real economy. The ruthless pursuit of profit, without moral considerations, was a view expounded by Milton Friedman (see: Moral Corporations: An Oxymoron?) and was converted into a theory of value maximisation through incentivisation of managers, supposedly to align their interests with those of shareholders (see: When Incentives Go Bad). 

However, to every action there is an equal and opposite reaction and the net result of all of this amoral profit maximisation has been to destabilise the psychological foundations of the corporations the world’s economy relies on.  Most CEO’s aren’t psychopaths, but an economic system that ensures we can’t tell the ones are from the ones that aren’t is rotten to the core.

The economists were wrong because they were operating on a flawed assumption of human rationality and an inadequate model of economic behavior.  Trust needs to be earned and shouldn't simply be offered to the highest bid or fiercest cost-cutter. What you get when you have a human who is perfectly rational and utterly self-interested isn’t a ideal economic specimen of the species.  No, it’s Hannibal Lecter in a business suit.

Related articles:

• Moral Corporations: An Oxymoron?
• When Incentives Go Bad
• Frankenstein’s Corporations