Faculty | Response Magazine

The overconfident CEO

Illustration by Iker Ayestaran

If you want something done, ask a busy person, the saying goes. And if you’re looking for someone to serve on your company’s board of directors, an already busy and brash CEO might not be a bad choice.

Counterintuitive? Yes, but overconfident CEOs (as defined by their risk-taking investment strategies) are usually effective board members and are instrumental in hiring well-qualified candidates, especially other CEOs, according to the findings of a recent study, “Director Overconfidence,” published in Financial Management (USA) by Randy Beavers, assistant professor of finance at SPU and Shawn Mobbs, associate professor of finance at the University of Alabama.

It is so important to look at behaviors and think about ‘Is this the direction I want to take the company?’
– Randy Beavers

Beavers’ work usually focuses on executive compensation and long-term incentive pay, but this study led Beavers to these conclusions: “You should pay attention to who you’re nominating to a board,” Beavers said. “If they have CEO experience, ask ‘What have they done in running their own company? What were their behaviors with their stock options?’ It is so important to look at behaviors and think about ‘Is this the direction I want to take the company?’ Do you want a board member to change the company’s direction, or do you want someone to fit within the current culture?”

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