Big Boys, Big Egos and Strategic Intelligence

Joseph H.A.M. Rodenberg
Antoinette Rijsenbilt, PhD

Delft 2015

ISBN 978-90-5972-987-2 (hardcover)

ISBN 978-90-5972-988-9 (paperback)

ISBN 978-90-5972-989-6 (e-book)

Eburon Academic Publishers, P.O. Box 2867, 2601 CW Delft, The Netherlands

www.eburon.nl / www.eburonbusiness.nl

Cover design: Studio Hermkens, Amsterdam

Graphic design: Textcetera, The Hague

© 2015. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission in writing from the proprietor.

TABLE OF CONTENTS

Our basic idea …

Preface

I.1Introduction to Narcissism

The narcissism concept

Measurement of narcissism

Narcissism as a requisite for effective leadership

Productive and destructive narcissism

CEO narcissism

I.2The influences of executives

Bounded rationality

Biases

System-1 and System-2

CEO personality and leadership

Case Study: Belgian-Dutch Fortis Bank

I.3The causes and consequences of CEO narcissism

The Sun King

Case study: Qwest

Findings CEO narcissism

I.4The development of a CEO narcissism score

Determinant I: Media exposure

Publications in major newspapers and business magazines

Awards

Number of lines in the Who’s Who entry

Photograph(s) in the Annual Report

Determinant II: Compensation

Cash compensation

Total compensation

Ratio of CEO cash compensation

Ratio of CEO’s total compensation versus second-best-paid

Rank of the CEO’s compensation

Dodd-Frank Act

Completely lost

Case study: AkzoNobel

Case study: Home Depot

Case study: Abercrombie & Fitch

Determinant III: Power

CEO duality

Governance index

Number of formal titles

Case study: Vivendi

Determinant IV: Growth

Number of acquisitions

Value of acquisitions

Acquisitions in general

Blue sky thinking

Toxic M&A Cases of Dutch companies

Case study: Cisco

Determinant V: Perquisites

Case study: Philips and corporate jets

Scandals in corporate Sweden

Business case: Abuse of corporate jets

Private use of the corporate jet

Case study: Greenpeace

Trophy wives and toy boys

The CEO Lifecycle

Data analysis for developing a CEO narcissism score

Case study: Ebay

Case study: Hewlett Packard

I.5CEO narcissism and financial performance

Positive or negative influence of CEO narcissism on financial performance

Impact of narcissistic CEOs on financial performance

Productive versus destructive narcissism

Relationship between CEO narcissism and financial performance

I.6CEO narcissism and countervailing power

The power balance between the board and the CEO

CEO versus Board Power

Towards the statutory type

CEO narcissism and countervailing power

Board size

Board composition

Board interdependency

Board of directors are not independent

Results for high- and low- level narcissistic CEOs

Case study: Royal Imtech

Case study: Hewlett Packard

I.7CEO narcissism and fraud propensity

Unethical behavior

Fraud

Case study: Delphi

Earnings management

Case study: Raytheon Company

FCPA

Case Study: Apple

Case study: Royal Ahold

Fraud proxies

Restatements

Internal controls

The AAER as a proxy of fraud

Fraud frequency

Fraud bias

Relation between CEO narcissism and fraud propensity

Results

Case study: Econcern

Case study: Rabo Bank

Libor-gate

Swaps of SMEs

Case study: Estro

Case study: Tesco

I.8Corporate governance systems and control mechanism

Case study: Tyco

SEC’s Whistleblower Program

Case study: Social Housing Corporation sector in the Netherlands

Former CEOs of Aegon and Unilever

I.9The findings and practical implications

Practical implications of the findings

I.10Strategic intelligence continuum

Case study: strategic intelligence

II.11Strategic Intelligence Perspectives

Top management only seems to be in control

Case study: MH17

Alternate Reality: Delivering Countervailing Power to the Board of Management at KLM

Do organizations need monitoring?

The answer to create countervailing power is strategic intelligence

Why do companies lose momentum?

Case study: Intel

From number-crunching to cost-cutting

Case study: SBM Offshore

Banks

Members of boards of directors

The inside and the outside

Case study: CSM The Netherlands

Case study: Robert McNamara and the evolution of modern management

Looking at data when we are wrong. We don’t if we perform well.

Case study: Port of Rotterdam

The ability to read and act on signals of change

The challenge is to become adaptive

Case Study: Fugro

Dutch KPN

Delisted

Financial sector cuts the number of members of board of directors

How Dutch Ahold created its own competitor

II.12The Strategic Management Process Diagnosing Tool

Case study: Philips

Case study: Unilever

The best opportunities are visible but not seen

Eastman Kodak: From $200 billion market value in 1999 to near-bankruptcy in 2012

II.13The perils of good strategy

Case study: IBM

Strategic leaders are omniscient

II.14Strategic intelligence gives countervailing power

Case study: Aalberts Industries

Business blindness

How can we organize the countervailing power within organizations?

The Seven Guiding Principles of competitive intelligence at Shell

Current situation of intelligence in organizations

Reporting versus the Analysis School

Business needs versus intelligence needs

Case study: Amazon

Red Flag Alerts

Intelligence back-in-time

Ford Motor Company

Cisco

Case study: Dutch Police Force

Case study: The multidisciplinary mind of one man can change the way we do Strategic Intelligence today

The US President’s daily briefing versus the CEO’s daily briefing

II.15Analytical confidence in analysis – nine considerations

Case study: Swedish Vattenfall

II.16Getting inside the head of competitors

Underestimating competition: Boeing versus Airbus

Case study: Dutch Telecom

II.17The financial crisis as an intelligence failure

Did nobody foresee the financial crisis coming?

The oil crisis in the 1970s

The fault of regulation

The fault of the financial institutions

Case study: ING Bank

The poor performance by corporate management

The poor performance of the administration

The optimism bias

Similarities between national intelligence and intelligent companies

Conclusions

The role of the credit rating agencies

Buying a car from a banker

Bonuses are the wrong incentives

II.18Has anything changed in the financial sector in 2015?

When will the next crisis come?

II.19Barriers to strategic intelligence

France and Italy: driven by social cohesion

Case study: Technogym

Zombies are the living dead

Threat rigidity

The last hurdle to be taken

Epilogue

References

OUR BASIC IDEA …

There have been many publications about management topics. Why do we think we can add some new valuable insights? Simply because there are always progressive insights, publications, new research, new expertise and new experiences.

Antoinette studied business economics and psychology and she has conducted extensive research on the phenomenon of narcissism related to top management amongst nearly 1000 CEOs of US companies over the period 1992-2008. Based on this PhD research and beyond, she earned her PhD at Erasmus University in Rotterdam in June 2011.

Joseph is recognized in Europe as one of the leading experts in strategic competitive intelligence. He consistently offers insights and foresights about the phenomenon called strategic intelligence. This topic is neglected by top management in the business world, yet it is what can make the difference between success and failure.

Both topics are closely related, which is why Antoinette and Joseph join forces to publish this new book on big boys, big egos and strategic intelligence. Strategic intelligence can provide countervailing power within organizations in order to mitigate the negative aspects of a CEO’s narcissism.

We would like to thank Alain Wille, partner at Rodenberg Tillman & Associates in the UK, for his contribution to our book regarding the implementation of corporate radar rooms in organizations across Europe. Also our thanks go out to Joseph’s colleague in Israel, Avner Barnea, for his contribution regarding the intelligence failure around the financial crisis.

I would like to thank the clients of Rodenberg Tillman & Associates for their faith and trust in me ever since I started my own consultancy firm in 1985. It has been so much fun to cooperate with so many people on so many strategic intelligence assignments across the world. In addition, it has been a honor to have so many professionals from around the globe in our international master classes. This book is my fifth, and it’s a special one because of the collaboration with my co-author Antoinette Rijsenbilt. Thanks a lot, Antoinette.

-- Joseph H.A.M. Rodenberg

Many people have helped us. My warmest thanks go out to my family, friends and (former) colleagues who supported me during the PhD process and the subsequent writing of this book. Above all, we enjoyed working together. The time we spent talking about this book was a voyage of discovery and a happy time.

-- Antoinette Rijsenbilt, PhD

The Netherlands, August 2015

PREFACE

Executive directors are responsible for setting out the strategy of their organizations, which is indirectly related to the overall organizational performance. Existing empirical research provides evidence that the Chief Executive Officer (CEO) plays a central role within the top executive team. CEOs can have disproportionate and sometimes dominating influences. The personal characteristics of CEOs help to determine the extent of the CEO’s influence within the top executive team. The narcissistic personality dimension is an important characteristic of CEOs because of its inherent tendency to exercise power and to manipulate others. There are a wide variety of interpretations among CEOs concerning their narcissistic tendencies. Narcissism is a necessary requirement for effective leadership and has productive influences, but also forms a potential threat.

During the period of 2009 to 2011, Antoinette Rijsenbilt conducted extensive research amongst nearly 1000 CEOs of listed companies in the US to gain insights into the narcissism of top management. It has been the basis of her research study for two years, resulting in her PhD at the Erasmus University of Economics in Rotterdam in June 2011. This is the basis of our new book Big Boys, Big Egos. Narcissism is related to leadership positions, but does not predict leadership effectiveness, and an excessive level could lead to destruction of the company.

Countervailing power in the board of directors is a mechanism to get a grip on and to control the CEO’s narcissism. How does a firm create countervailing power? One of the means is via “strategic intelligence”, as we will explain in this book.

We also analyzed whether the US research results could be proportionally applied to the European market. This is feasible only to a certain extent. Europe lags behind the US in respect to the laws, regulations, transparency and responsibilities that listed US companies have to comply with; they are monitored and controlled by the mighty institute of the Security and Exchange Commission (SEC). Where possible, we have translated the US results to the European situation and culture. Not all US results could be translated because of the inaccessibility of specific data in Europe. However, we have gained overall similar insights into Dutch-based multinationals listed on the Amsterdam Stock Exchange. They include Royal Dutch Shell, Unilever, Philips, DSM, ASML, AkzoNobel, ING Bank, Air France KLM and others. In this book, we give numerous examples of case studies. We are not in the position to judge specific executives. To our understanding it is the absence of countervailing power that enables a particular individual to develop a narcissistic personality. We must consider that the environment largely determines the individual’s personality. When we explicitly write about a particular individual, the reader must understand that the environment has created the opportunity to develop a certain personality that exhibits certain behaviors.

Part I of our book describes insights into narcissism, using numerous cases where narcissism had a crucial impact on the performance of companies. This first part is based on the PhD research of Antoinette Rijsenbilt. Further details about this PhD research and the statistical analyses can be found in “CEO narcissism; measurement and impact” (Rijsenbilt, 2011).

Narcissism is one of the elements of effective leadership. What are other key elements to improve the overall performance of organizations? In this day and age, companies have in place all kind of tools and committees to control the organization: Corporate governance methodologies, Balance Score Cards, Performance Management, Key Performance Indicators, Risk Management, Business Intelligence Dashboards, the Internal Audit Committees, Investment Committees, the external accountant – and of course, the Supervisory Boards or Boards of Directors. So many control mechanisms, and yet they seem still not to be sufficient.

A lot has gone wrong since 2008. We experienced the global financial crisis, followed by the economic crisis and the euro crisis. Surely, there is more to come. What has been missing and what is still missing in almost every business organization around the globe? Around 60 percent of all changes comes from the dynamics in the external business environment as well as outside any sector of a given industry. This points to the necessity of incorporating strategic intelligence as a mechanism to foresee what’s coming and act appropriately.

In Part II of our book, we will explain how important strategic intelligence is for every function of a company, and how strategic intelligence should be fully connected with strategy. It’s a pre-condition to long-term survival for every organization.

The vast majority of companies do not utilize strategic intelligence to create countervailing power for the management and the board of directors. If the most important decisions are made outside of our companies, then why don’t we have a monitor or corporate radar in place to identify timely changes in the dynamics of our external business environment? The military has always had such a monitor. They call this VUCA: Volatility, Uncertainty, Complexity and Ambiguity. It’s the capability to tackle situations marked by both changes and challenges. We will describe the five elements of strategic intelligence introduced by Maccoby. These five elements may prevent destructive narcissism. Leaders who are able to incorporate the five elements – foresight, visioning, motivating, partnering and systems thinking – understand the importance of strategic decision-making, readiness planning, risk management and situational problem-solving.

We will describe the drivers and elements of strategic intelligence and how it influences every company function, whether it’s marketing, sales, strategy, purchasing, R&D, technology and beyond. In addition, we will provide numerous business cases, including examples of Ford Motor Company and Cisco, which have war rooms in place.

For many years we have seen that establishing a strategic intelligence capability can be a threat to senior management, because the intelligence professionals are seen as the critical watchdogs of senior management. The watchdogs support senior management in making the best decisions also tell which decisions might hurt the company.

We see strategic intelligence as the most important driver of strategy. Strategy is the biggest challenge in business today, because at its core it means making choices differently from your rivals.

Strategic intelligence forces senior management to get out of their comfort zones and is driven by strategic thinking: Beliefs about customers, about the evolution of the industry, about competition, about your company’s capabilities and about the future competitive landscape. It is an avenue of action for achieving the company objectives.

Strategic intelligence is not part of any other company function. It must be positioned “on par” with other functions that report directly to the management and the board of directors. It enables revealing the facts.

“We are moving from a world of problems that require speed, analysis and elimination of uncertainties to solve, toward a world of dilemmas that demand patience, sense-making and the engagement of uncertainties.”

I.1INTRODUCTION TO NARCISSISM

“Narcissism is a necessary element for effective leadership – but also an addictive drug with the potential danger of a destructive overdose.”

THE NARCISSISM CONCEPT

The term “narcissism” is widely used. In the 19th century, the term was first used by Havelock Ellis to describe a clinical condition of perverse self-love. The concept had a profound influence on the work of Freud, who identified various specifications of narcissism. These specifications include self-admiration and a tendency to see others as an extension of one’s self. Freud argued that some narcissism is an essential part of all of us from birth.

The etymological origin of the word comes from the Greek myth of the beautiful, proud and unfeeling Narcissus, who refused the love of a nymph. Aphrodite, the goddess of love, punishes Narcissus with self-love. Narcissus falls in love with a reflection in a pool, not realizing it is his own reflection. He reaches out for the beautiful reflection, further and further, and drowns in his own image.

The Diagnostic and Statistical Manual of Mental Disorders (DSM) is the document that is used in the United States and many other countries to classify mental illnesses. It has been more than 50 years since the American Psychiatric Association originally published DSM-I in 1952. Narcissism can be classified according to DSM-IV (the fourth edition) as:

“A pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and a lack of empathy, beginning by early adulthood and present in a variety of contexts.”

Narcissistic individuals are preoccupied with fantasies of unlimited success. They believe they are special and unique, have a sense of entitlement, are interpersonally exploitive, lack empathy and are arrogant and haughty. Narcissists hold exaggerated beliefs about themselves and show a greater tendency toward self-enhancement bias.

Narcissism includes a set of character traits such as vanity, hubris, selfishness, self-esteem, self-confidence, egoism, dominance, ambition and lack of empathy. Self-esteem and self-confidence are only outward appearances, because the opposite occurs within. Narcissistic individuals usually lack self-esteem and self-confidence and try to compensate for these shortcomings by presenting themselves as being more important than others; they are constantly looking for affirmation. This is called the narcissistic paradox. In order to protect themselves from being criticized by others, narcissistic people tend to ignore the feelings, sayings and behaviors of others and therefore cultivate underdeveloped empathy.

MEASUREMENT OF NARCISSISM

Narcissism can be measured on a dimensional or a categorical scale. The categorical approach implies that individuals are assigned in the categories of normal and abnormal, assuming a difference exists between normality and abnormality. The dimensional scale connects the two categories as polar positions along a line, locating individuals along this dimension.

Narcissism was viewed as a clinical disorder (the categorical approach) by clinicians and by early research up to the end of the 1980s. More recently, researchers have shown that narcissism can be seen as a personality dimension on which individuals can score from low to high. This confirms Freud’s argument that narcissism exists within all humans to some extent part. The American Psychiatric Association (APA) published the Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-V) in May 2014. In this new version, the dimensional approach is proposed for personality disorders.

High levels of narcissism can be dysfunctional and are labeled as Narcissistic Personality Disorder. Approximately 0.7% to 1% of human beings score high on the narcissistic personality disorder as described by DSM IV. Taking the DSM as a base, Raskin & Hall developed in 1979 the Narcissistic Personality Inventory (NPI), a 54-item forced-choice scale based on 220 DSM items. Emmons further reduced the 54-item NPI, using factor analysis, into four components with evidence for construct validity and internal consistency:

–Authority/Leadership – I like to be the center of attention

–Superiority/Arrogance – I am better than others

–Self-admiration – I am preoccupied with how extraordinary and special I am

–Entitlement – I insist upon getting the respect that is due to me

NARCISSISM AS A REQUISITE FOR EFFECTIVE LEADERSHIP

Narcissism is an important personal characteristic in terms of leadership because of its inherent capabilities to exercise power, to manipulate others and to attain power and prestige. Throughout history there have been many narcissistic business leaders, like Steve Jobs of Apple, Michael Eisner of the Walt Disney Co., David Geffen of Geffen Records, Jack Welch of GE, Ingvar Kamprad of IKEA and Henry Ford of Ford Motor Company. These leaders were able to drive their organizations toward a magnificent future because they had bold visions and were able to attract followers.

PRODUCTIVE AND DESTRUCTIVE NARCISSISM

The presence of narcissistic CEOs – and their subsequent decline – suggests that there must be both positive and negative aspects of narcissism. Much literature exists regarding these positive and negative elements of narcissism.

Maccoby (2003) lists effective characteristics of narcissistic leaders. In essence, they are great visionaries with charisma and they can inspire a great number of followers. Exaggerated beliefs about their own capabilities and achievements, supreme self-confidence and dominance are needed in a certain context to inspire a group of followers. Leaders are selected in part due to their narcissistic personality traits, because their upside potential is enormous. According to this productive school of thought, narcissistic CEOs will achieve positive organizational outcomes. Maccoby (2001, 2003) draws a distinction between positive/productive and negative/destructive narcissism and argues that strategic intelligence makes the difference between productive narcissism and its pathological destructive counterpart. Strategic intelligence includes five elements: foresight, visioning, motivating, partnering and systems thinking. If the narcissistic leader lacks strategic intelligence, the results will be disastrous. Destructive narcissists experience low inner self-esteem and will try to compensate by developing a grandiose self-image, by devaluing others and by presenting themselves as being important. A lack of empathy and exploitative behavior will result. This destructive narcissism can result in destructive behavior.

“Strategic intelligence is executed by a small, connected team on par with the board; the team has a company radar room at its disposal.”

Strategic intelligence’s long-term goals contradict the increasing focus of most CEOs and companies on short-term quarterly financial results. McK-insey called this “the evil of quarterly capitalism”. Interviews of CEOs by McKinsey at the end of 2013 provided following results about the evil of quarterly capitalism:

–63% admit that the pressure has increased to realize the highest profits short term;

–79% gave priority to the highest possible profits in the next two years or less;

–50% have a strategy for maximum of three years;

–75% admit that a strategy for the longer term is necessary;

–86% admit that a longer-term strategy is important to strengthen competitive power and innovation.

According to McKinsey, senior managers receive strong pressure from investors, i.e., banks, pension funds, insurance companies and investment funds.

However, these investors all have a short-term focus on financial results. This is shocking, because it means less economic growth – these institutional investors own 73 percent of the share capital of the 1000 largest companies in the US. This percentage was 47 percent in 1973.

Kets de Vries distinguishes constructive narcissism from reactive narcissism. Constructive narcissists are able to use their narcissism effectively; they are well-balanced and are capable of introspection and empathetic feelings. Reactive narcissists do not have these capabilities. Reactive narcissists are constantly trying to patch up their sense of self-esteem, preoccupying themselves with negative emotions like jealousy, triumph and revenge. Reactive narcissists treat human beings as objects and are totally self-centered, which forms the most important indicator for defective leadership. This is not limited to CEOs; it is also applicable to many managers and politicians.

It’s also closely related to leadership. Leadership is not power – it’s the capability to guide other people down a difficult and insecure road. Notable leaders include former US presidents Truman, Eisenhower, Roosevelt and Kennedy; Konrad Adenhauer and Ludwig Erhard of Germany; de Gaulle in France and Churchill and Thatcher in the UK. Most European leaders after WWII in Europe are so-called “super public servants”. This kind of leadership is also seen in organizations, multinationals and institutes: swarms of bees looking at each other, copying each other’s strategy, lacking creativity and imagination and worse: a lack of courage to do things differently.

CEO NARCISSISM

CEOs are treated as special people because of the highest position they hold within the organization. A response to overvaluation is likely to occur. Like all other individuals, CEOs are fallible human beings scoring higher or lower on the narcissistic dimension. Appraisals for the long run are not sufficient for the narcissistic leader, according to Buss & Chiodo (1991). In order to obtain frequent appraisal, the CEO must undertake challenging and bold actions that the audience can easily observe.

There is scant empirical research about narcissistic business leaders. The few existing articles document the importance of CEO narcissism for organizational outcomes.

Chatterjee and Hambrick (2008) sum up three reasons why narcissism is excluded in research. First, narcissism has traditionally been regarded as a personality disorder instead of a personality dimension. Second, the occurrence of narcissism has been seen as incidental. Third, massive data collection of CEO narcissism is problematic. The first two reasons have become obsolete, as evidenced by recent psychological literature. The last barrier can be overcome by measuring narcissism with objective variables. Surveys are a common method for obtaining data on personality traits. This method is inappropriate, however, because individuals are reluctant to engage in a survey containing personally sensitive questions; thus the method yields low response rates. In the next chapters, we will describe how to measure CEO narcissism. This measurement with objective variables is based on the PhD research.

I.2THE INFLUENCES OF EXECUTIVES

“Success is not to be measured by the position someone has reached in life, but by the obstacles he or she has overcome while trying to succeed.”

Executive directors are responsible for the overall organizational strategy of their organizations or companies, which is directly related to the performance. The CEO plays a central role within the top executive team, and his or her personality defines the extent to which the CEO is capable of exerting influence.

The influence of the personal characteristics of executives on the organizational strategy and performance is grounded in the upper echelon theory of Hambrick and Mason (1984). The upper echelon theory postulates that the perceptions, cognitions and values of executives manifest themselves in the decision-making process. The executives in the upper echelon theory make their decisions based on the personal interpretations of the situations they face. The personal interpretations are based on the executives’ experiences, values and personalities. The characteristics of executives filter and distort information in three subsequent ways. The first way is the field of vision: executives look and listen in a certain direction. The second way is the selective perception: what executives actually see and hear. The third way is the interpretation: the way in which executives attach a meaning to what they say and hear.

Central position of the CEO as projected by Upper Echelon Theory

Upper Echelon Theory (Hambrick and Mason, 1984), amended

BOUNDED RATIONALITY

The upper echelon theory is based on the premise of bounded rationality, introduced by Simon (1955). Bounded rationality implies that decision-makers are faced with too much complexity to act completely rational. The decision-makers therefore decide on the basis of the available information and time and within the boundaries of their limited cognitive minds. The upper echelon theory assumes that executives are fallible human beings, susceptible to cognitive biases, selfishness, boredom and fatigue.

BIASES

When firms go astray, you may wonder why they didn’t see it. The Council of the Delaware Court of Chancery lists five biases:

1.Anchoring: Making estimates based on an accepted start value

2.Framing: Presenting and discussing the positive aspects and not the alternatives or negatives

3.Confirmation: Looking for information that confirms the existing vision

4.Group think: Trying to keep consensus

5.Misplaced loyalty: Following the leader no matter what

The aim of strategic intelligence is to take out the biases, solicit different opinions-views-visions-arguments and to find objective information and facts.

The attribution bias is another one of our everyday behaviors. When we perform well, we take the credit. This is called intrinsic attribution. However, when something goes wrong, we attribute it externally and blame something or someone else. When a company’s performance is successful, CEOs and executives claim that it is because of their own efforts. If you ask these CEOs why their competitors also perform well, they tell you that it is because of some positive external circumstances. The focus on external attribution in negative circumstances and on internal attribution in positive circumstances is called the fundamental attribution error.

Striving for a high self-esteem is an inherent human desire. This desire can lead to positive illusions. This is the positive belief that we have control over various outcomes, whether personal or organizational. Sometimes we hear people argue that positive illusions can contribute to mental health. Positive illusions might indeed boost the self-esteem, but are in the meantime incompatible with the acknowledgement of failure. The positive illusions might therefore inhibit learning. Negative outcomes on the other hand can considered as a unique challenge to learn from.

“Before you make that big decision” was the title of an interesting article in HBR in June 2011. A study by McKinsey of more than 1,000 business investments showed that when organizations worked at reducing the effect of bias in key decision-making processes, they achieved returns up to seven points higher. So reducing biases makes a difference; how strategic intelligence can contribute to this will be explained later. Executives can’t do much about their own biases, but given the proper tools, they can recognize and neutralize those of their teams.

SYSTEM-1 AND SYSTEM-2

Nobel Prize winner Daniel Kahneman, the author of the best-selling book Thinking, Fast and Slow. It’s about making the same mistakes in decision-making of important investments, expensive product launches or the huge value destruction of mergers & acquisitions.

System-1 thinking is fast and intuitive thinking based on experience and pattern recognition. System-2 thinking requires much more effort and will only be applicable if we do not make it with System-1 thinking. System-1 thinking overestimates tremendously and is almost fully based on biases and on the most recent, randomly available information.

This is not the area of strategic intelligence. Strategic intelligence is System-2 thinking.

Yet, human beings tend to limit themselves to System-1 thinking and don’t take the effort to process information through System-2 thinking, because it takes more time and analysis.

“Leaders are often more neurotic and especially narcissistic. They often surround themselves with the wrong people and are sensitive to group thinking. In addition, they are often driven by greed and have lost ground with reality.”

-- Manfred Kets de Vries (Elsevier, January 2014)

CEO PERSONALITY AND LEADERSHIP

Various researchers have stated that the CEO has a unique position in the company, as “the corporate leader” who will impact organizational performance, or as the top manager of the company and the most powerful and influential member. Other researchers consider the CEO as the architect of the top executive team. The distribution of power in the top management team is crucial – in some teams, the power may be dispersed; in other teams, the power may reside within one key individual, i.e., the CEO. The position, the remuneration and the titles of CEOs vary from other executives, which reflect the power difference.

For an autocratic or intolerant CEO, only the opinions and perspectives of one person matter, i.e. the CEO himself. In this case, the CEO’s psychological profile, preferences and biases provide stronger predictions about strategic decision-making as compared to a team level analysis. Leaders with a dark side of personality are more inclined to perform dysfunctional, with consequent adverse impact on followers and the organization, according to Benson & Campbell in 2007.

There are different definitions of leadership, but leadership is generally defined as a process of social influences in which one person can enlist another to accomplish certain tasks. Leaders can motivate followers to set aside their individual pursuits and work for the group’s interests, according to Hogan & Kaiser (2005), and are able to exert influence over others by motivating, by being an example, by inspiring or merely by exercising status and power.

Power is defined as “the capacity of individual actors to exert their will