Pro-social CEOs increase employee engagement and loyalty, but research shows they are not always the best CEOs for every situation. When economic pressures require downsizing, less pro-social CEOs are less hesitant to make the required downsizing decisions.
Do nice guys finish last? In exploring why CEOs might be fired and who might be selected to replace them, two Columbia Business School researchers studied the impact of CEO pro-social behavior—defined as caring for others above one’s self-interest on board hiring and firing decision-making.
Previous research has shown the benefits of pro-social CEOs in increasing employee motivation and productivity.
The Columbia study reveals, however, that prosocial characteristics in CEOs do not always match the needs of a company. The study compares what the researchers call “peace-time CEOs”, that is, CEOs operating during times of low competitive or economic pressure, and “war-time CEOs” who must lead their companies in periods of economic downturns or increased competition. In the latter challenging context, the study shows that pro-social CEOs, because they feel responsible for the welfare of the company’s workforce, are hesitant to fire employees and take other measures required by the changing environment. Although successful as peace-time CEOs, their pro-social attributes contribute to their ineffectiveness as war-time CEOs.
As a result, according to the data in the study, pro-social CEOs were more likely to be fired during competitively challenging periods, and replaced by less pro-social CEOs. (Having controlled in their analysis for other psychological or personal characteristics, the researchers confirmed that boards in their sample made a highly targeted effort to hire less pro-social CEOs.)
Reviewing compensation figures, the researchers also found that if pro-social CEOs were indeed retained during economic downturns or in periods of increased competition, their compensation was increased to increase, according to the study, their motivation to make the difficult downsizing decisions.
The study’s sample of companies consisted of all US public manufacturing firms in the Compustat Execucomp database, which yielded information such as turnover and compensation. For information on competitive pressure from Chinese imports, the researchers analyzed data collected by previous researchers for the years 1990-2010, which covers a period in which Chinese companies first started to impact the global economy (the 1990s), China joined the World Trade Organization (2001), and the U.S. became saturated (by 2010).
The researchers identified pro-social CEOs through several proxies, including charity engagement (based on information in the BoardEx database) and whether the CEOs were promoted internally or externally internally-promoted CEOs, previous research has shown, are more pro-social as they feel a greater attachment to employees. They also analyzed the CEO language in company reports and communications, looking for markers such as semantic distance between the words “employee” and “fair” and the use of “we” vs. “they”.
In a unique reappraisal of the old maxim that “one size fits all”, this study shows that despite the consensus among many leadership consultants and commentators about the benefits of pro-social leaders, in real-world competitive situations, pro-social attributes may not always fit the needs of a company. Therefore, reforming HR policies to reward pro-social candidates must be tempered by a recognition of the competitive context in which a company is operating. This context may call for a less generous and supportive leader, one who is willing to make difficult decisions. In some cases, this may mean turning to an external candidate with no connection to employees.
It should also be noted that HR reforms that promote pro-social leadership may hurt employees in the long term since the company may be less positioned to respond to an economic downturn or competitive pressure.
As with all situations, the choice must be made carefully. Less pro-social does not mean anti-social: even in the most difficult times, selecting a candidate who creates a toxic, fear-driven culture will undermine the success of the company.
Daniel Keum’s website
Nandil Bhatia’s profile at Columbia Business School
https://academics.gsb.columbia.edu/node/1574
Do Nice Guys Finish Last? Prosociality and the Psychological Model of CEO-Firm Matching. Daniel Keum and Nandil Bhatia. SSRN (May 1, 2024).
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