01/02/2014 09:06 am ET | Updated Mar 04, 2014

The Dark Side of Executive Narcissism: How CEOs Destroy Companies' Reputation and Employee Morale

We often think of CEOs as the new rock stars. It's understandable. There is no shortage of examples for the megalomaniac habits of corporate bosses. For instance, John Thain spent $1.2 million redesigning his Merrill Lynch office during the 2008 financial meltdown. Richard Fuld was living in a 6,000-square-foot Park Avenue apartment while driving Lehman Brothers into bankruptcy. And Lloyd Blankfein is still the best-paid banker in the world despite Goldman's public admission -- in fact, to U.S. Senate -- of deliberately selling "shitty" bonds to its clients.

And if you think that these shameless extravaganzas are exclusive to Wall Street, think again. Silicon Valley and the tech industry, once famous for promoting frugality, altruism and modesty, are putting greedy bankers to shame. Google's Eric Schmidt splashed $72 million on a 195-feet yacht. Amazon's Jeff Bezos "invested" $42 million in a perpetual clock. Oracle's Larry Ellison spent $200 million (a whopping two years of his salary) on beach houses alone. Moreover, Apple, Facebook, and Google may be the dominant players of the digital revolution, but they are still under investigation for tax evasion. If bankers are the new rocks stars, Silicon Valley entrepreneurs are the new gangster rappers.

No, the above aren't isolated examples. CEO compensation has risen by 725 percent in the past three decades -- that's 127 times more than worker pay. In 1978, the average CEO earned 26 times more than the average worker -- it's now 210 times more. CEOs of S&P index companies make 354 times more than the average employee. Furthermore, two recent scientific studies confirm what we have always known: Narcissistic CEOs ruin companies by demoralizing and alienating employees -- effectively repelling talent -- and by committing corporate fraud.

In the first study, Antoinette Rijsenbilt and Harry Commandeur assessed the narcissism levels of 953 CEOs from a wide range of industries, as well as examining objective performance indicators of their companies during their tenure. Unsurprisingly, organizations led by arrogant, self-centered, and entitled CEOs tended to perform worse, and their CEOs were significantly more likely to be convicted for corporate fraud (e.g., fake financial reports, rigged accounts, insider trading, etc.). Interestingly, the detrimental effects of narcissism appear to be exacerbated when CEOs are charismatic, which is consistent with the idea that charisma is toxic because it increases employees' blind trust and irrational confidence in the leader. If you hire a charismatic leader, be prepared to put up with a narcissist.

In the second study, Bradley Owens and colleagues examined the effects of leader humility on employee morale and turnover. Their results showed that "in contrast to rousing employees through charismatic, energetic, and idealistic leadership approaches (...) a 'quieter' leadership approach, with listening, being transparent about limitations, and appreciating follower strengths and contributions [is the most] effective way to engage employees." This suggests that narcissistic CEOs may be good at attracting talent, but they are probably better at repelling it. Prospective job candidates, especially high potentials, should therefore think twice before being seduced by the meteoric career opportunities outlined by charismatic executives. Greed is not only contagious, but competitive and jealous, too...

If we can educate organizations, in particular board members, on the virtues of humility and the destructive consequences of narcissistic and charismatic leadership, we may see a smaller proportion of entitled, arrogant, and fraudulent CEOs -- to everyone's benefit. Instead of worshiping and celebrating the flamboyant habits of corporate bosses, let us revisit the wise words of Peter Drucker, who knew a thing or two about management:

The leaders who work most effectively, it seems to me, never say 'I'. And that's not because they have trained themselves not to say 'I'. They don't think 'I'. They think 'we'; they think 'team'. They understand their job to be to make the team function. They accept responsibility and don't sidestep it, but 'we' gets the credit.