Overconfident CEOs: ‘Heads I win, tails it’s chance’

In the corporate world, the best person doesn’t always get the top job. A new paper, The Life Cycle of a CEO, says overconfident people are more likely to be appointed CEO.

Why? Well, companies focus on a candidate’s track record and how successful they were in previous roles. Overconfident managers are more likely to choose high-risk projects and to generate more extreme payoffs; thus, “biased candidates are more likely to be appointed as CEO than unbiased candidates” who eschew risky moves.

Once appointed, overconfident chief executives are less likely to learn on the job. It’s human for people to “attribute successes to their own actions but failures to external circumstances” – a mentality of “Heads I win, tails it’s chance”.

Finally, poor CEOs may keep their jobs when they should be fired because board members themselves are also biased. For example, companies where at least 40 per cent of board members are female are 1.5 times more likely to fire underperforming CEOs than all-male boards.