Narcissistic leaders are bad for share value, unless they are seen to stimulate innovation and growth at companies suffering from corporate inertia, according to research which analysed how CEO narcissism affects stock recommendations from securities analysts.

The study by Nottingham Business School, Middle Tennessee State University, and the University of Leeds is the first to explore the relationship between CEOs who are linked to excessive risk taking and their value to a company.

Securities analysts provide investors with performance forecasts and recommendations on the attractiveness of investing in company stock. Existing research has shown that these recommendations can affect a company’s market performance by influencing the price people are willing to pay for the company’s shares.

The study analysed data from the Standard & Poor (S&P) 100 index and covered 75 CEOs from 66 S&P 100 firms over a ten-year period. Researchers adopted widely used unobtrusive methods to measure narcissistic tendencies, including those that are under the CEO’s control along with aspects of narcissistic personalities such as arrogance, entitlement, and self-absorption.

This included exploring the use of photos in annual reports, first-person singular pronouns in shareholder letters, and cash and non-cash compensation compared to the second-highest paid executives.

The research also looked at whether firm age, size and reputation were mitigating factors against the impact of CEO narcissism, as well as considering variables which may affect securities analyst recommendations, including CEO age and tenure, and return on assets, shareholder returns, R&D intensity and institutional ownership of stock.

Narcissistic CEOs were shown to have a negative impact on recommendations, with analysts issuing weaker stock recommendations. This was especially so for larger firms where narcissistic leadership could clash with bureaucracy.

However, the findings also revealed that securities analysts will announce less pessimistic stock recommendations when the firm has an established reputation and appears to be prone to corporate inertia, signalling that they believe a brash leadership style and inclination towards risk-taking could improve its performance by stimulating change and innovation.

Dr Feray Adıgüzel, senior lecturer in Marketing at Nottingham Business School, part of Nottingham Trent University, said: “Previous research has focused on the firm level consequences of narcissistic leaders. Our study is one a few that considers their impact on external parties – in this case securities analysts, whose expectations and predictions can have an adverse effect on the legitimacy of a company in financial markets.

“While there are some mitigating circumstances, overall securities analysts do not consider CEO narcissism to be of value to a company and this can have an impact on its strategy and performance.

“This reinforces the view that narcissism as a CEO personality trait has downsides and underlines the importance of being mindful when boards appoint, monitor, and reward a CEO – as many leaders with this trait may lack self-awareness and do not have the necessary oversight to protect the company from its harmful consequences.

“This task seems especially urgent now, at a time of great expectations regarding the role well-led companies and institutions can play in tackling the grand challenges society currently faces.”

The paper Chief executive officer narcissism, corporate inertia, and securities analysts’ stock recommendations has been published in the journal Strategic Organisation.

Business confidence in the East Midlands rose four points during January to 38%, according to the latest Business Barometer from Lloyds Bank Commercial Banking.

While firms in the region reported lower confidence in their own trading prospects month-on-month, down 12 points to 39% in January, their optimism in the wider economy climbed 20 points to 37%. Taken together, this gives a headline confidence reading of 38%.

East Midlands businesses identified their top target areas for growth in the next six months as evolving their products and services (42%), investing in their team (39%), and introducing new technology (27%).

A net balance of 26% of businesses in the region also expect to increase staff levels over the next year, down 14 points on last month.

The Business Barometer, which surveys 1,200 businesses monthly, provides early signals about UK economic trends both regionally and nationwide.

National picture

Overall, UK business confidence rose nine points in January to 44% – its highest level since February 2022 and its strongest start to a year since 2016. Firms’ outlook on the overall UK economy rose ten points from 27% to 37%, while businesses’ optimism in their own trading prospects also climbed three points month-on-month to 51%.

Companies’ hiring intentions increased marginally, with 33% of firms intending to increase staff levels over the next 12 months, up four points on the month before.

London and the North East were the joint most confident parts of the UK in January – each posting a headline confidence of 62% – followed by the West Midlands (56%) and Yorkshire & the Humber (44%).

The East of England (38% in January vs. 45% December) and Northern Ireland (29% vs. 36%) were the only two regions to reporting declining levels of confidence. The majority of the data was collected before the December ONS inflation data was announced on January 17th.

Sector insights

Three of the four sectors tracked in the Barometer reported rises in confidence. The most significant increase was in services which accelerated 15 points to 45%, up from December’s 16 point drop. Manufacturing confidence also increased to 49%, while construction rose eight points to a 10-month high of 45%.

There was a more mixed picture in retail however, dipping three points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period.

Dave Atkinson, regional director for the East Midlands at Lloyds Bank Commercial Banking, said: “It’s encouraging to see East Midlands business start the year on a confident footing after a challenging 12 months for businesses in the region and across the UK.

“While hiring intentions have dipped, more than third of businesses are planning to invest in their teams over the next six months. By putting short-term plans in place like this, they are setting themselves up for long-term success as economic conditions improve.

“We know we’re not out of the woods in terms of wider geopolitical challenges, but by playing close attending to areas like working capital, firms can bolster their resilience against future headwinds. We’ll continue to be by the side of firms as we help them move forward in the strongest position possible.”

Hann-Ju Ho, senior economist, Lloyds Bank Commercial Banking, said: “Businesses are feeling more confident following the cautious end to 2023, with this being the strongest start to a year since January 2016. The reduction in inflation, albeit with the recent uptick, and the belief that interest rates may have peaked is likely driving the rise in confidence among firms.

“With ongoing geopolitical issues and a general election on the horizon, businesses will have factored these into their risk radars and will be working to prepare for any potential impacts on their trading prospects.

“Also, half of all companies say they’re planning to increase headcount in the coming year. Despite that and the changes to minimum wage that will come into force in April, expectations for staff pay fell back following last month’s increase.”