Companies led by extroverted CEOs tend to produce lower shareholder returns

Charismatic corporate leaders are not a new phenomenon. But their elevation to celebrity status among the laity is, and comes with a host of personal benefits such as higher pay, increased board director requests, expansive and often positive media coverage, and a financial cushion in the event of dismissal. 

The reverse is true for the firms they spearhead, however. In fact, a 2019 study published in the Harvard Business Review found that companies led by CEOs who are viewed as extroverted tend to have higher stock volatility and see lower shareholder returns.

Researchers from Texas Christian University, Utah State University, Texas A&M University, and the University of Georgia analyzed 3,000 CEOs of S&P 1500 firms from 1993 to 2015, focusing on three personality traits: extroverted, a tendency to engage socially with others; neurotic, a tendency to have drastic and emotional reactions; and conscientious, a tendency to be dependable and thorough.

Of the three personality traits, companies led by extroverted CEOs experienced 2.4% higher stock risk on average, which reduced returns by 3.3% as a result. Firms with introverted leaders at the helm, on the other hand, saw returns increase by 5.43% on average. CEOs who were perceived as conscientious saw the most value add to shareholders with their firms experiencing a 2.59% lower stock risk on average, resulting in a 3.38% increase in returns. 

The findings suggest that more extroverted CEOs can negatively influence investors’ perceptions of their company and, consequently, its value. In certain industries like finance, which skews more conservative, external perceptions may carry more weight in how the market reacts. 

Steve Boivie, coauthor of the study and interim head of the department of management at Texas A&M University, speculates that external CEO perception is more likely to sway investors in sectors like banking owing to the intangible nature of its services, which center on human interaction and customer interface. Conversely, for a product-based firm, a lot of risk can be attributed to the company’s products and the marketplace reaction to them, regardless of CEO traits. 

“It would not be surprising to me if the CEO’s personality has a larger effect on firms where so much of what the firm does is produce financial intermediation or interact directly with customers,” Boivie says.

Consider Goldman Sachs’ David Solomon, or DJ D-Sol as he’s known behind the turntables, and Bank of America’s Brian Moynihan. The former’s tenure has been marked by efforts to diversify Goldman’s revenue streams, moving to new areas like wealth and asset management, and his emphatic reproach of hybrid and remote work.

The unassuming, nondescript Moynihan, however, has wooed investors charmed by his financial prudence and discipline, and has spent the past decade bringing the second-largest bank in the U.S. From the brink of collapse to record profits.

But Joseph Harrison, an assistant professor of strategy at Texas Christian University and coauthor of the study, points out that executive fit plays a key role in a firm’s success. One type of CEO is not necessarily better than the other, he says, and it comes down to how a CEO would approach factors like volatility and market reactions. “To some extent, I think these two do a good job of showing that as an illustration,” Harrison says.

Solomon has turned heads recently for his personal interests and for making bold decisions for the firm he’s led since 2018. He’s been a vocal proponent of a full return to the office at least five days a week, and will perform at music festival Lollapalooza in Chicago this July. Solomon believes his extracurricular activities only add to the authenticity that younger workers crave from employers.

“Leaders are much more visible. And if you’re going to be visible, they don’t want to just see you as a hardnose decision-maker,” he told Time last month.

Harrison says Solomon’s bold and aggressive approach has been necessary for Goldman. “He is definitely willing to take on more of those risks. And there’s the classic risk-reward relationship where there’s a lot of upside to it, potentially. But I think there’s obviously also going to be a little bit more potential pushback and volatility that comes with that,” Harrison says of Solomon’s management style. Goldman’s Q4 profit fell 13% from a year earlier to $3.94 billion in 2021, though its revenue jumped 8% to $12.64 billion in the same period, helped by record dealmaking in investment banking.

Moynihan, who’s helmed Bank of America since 2010, presents an interesting juxtaposition to Solomon. Known for his reserved approach, Moynihan steered the bank from near collapse in the wake of the 2008 financial crisis and has earned praise from industry peers for avoiding excessive risk-taking.

“He’s kind of that stable face of the company,” Harrison says. “I think his staying power is a testament to [being] a good fit for that company, and has allowed them to make some changes from 2010 to gain some stability.”

But as Bank of America ventures further away from the crisis that prompted Moynihan’s appointment, some have criticized his cautious approach, which they say has led the bank to stagnation. Bank of America’s profits jumped 28% to $7 billion in 2021’s fourth quarter, up from $5.47 billion a year earlier. Its revenue of $22.1 billion was 10% higher than in the fourth quarter of 2020.

Although Harrison notes that there’s no right way to lead a company, he can understand why investors would lean toward Bank of America. “I’m an introvert too. I would prefer stability in a company, and I kind of like Brian Moynihan’s approach,” Harrison says.

In times of crisis, a quiet and conscientious leader may be what a company needs to build trust and circumvent challenges. But when looking to innovate and take risks, hiring a CEO-slash-DJ may be the right move.