The Case for Executive Humility

3/4/16

Humility, Modesty, and CEOs may seem like terms that don’t usually go together, but recent research suggests that they should. In one recently published study researchers asked the Chief Financial Officer to rate the humility of the Chief Executive Officer and found a number of positive outcomes. First, humble CEO’s seemed to build teams that were more likely to help one another. Second, the more humble the CEO, the greater the strategic flexibility of the executive team, as there were more able to engage in both knowledge exploitation and exploration. Finally, humble CEOs had lower pay disparity between themselves and the rest of the executive team, and this helped to build those positive aspects of the executive team.

In a second study, researchers looked at the transcripts from over 5000 earnings calls across 453 firms. These calls included both CEOs and CFOs among other members of the executive team. The researchers measured the number of times the executives praised others during the call, the number of times they referred to themselves using terms like “I” and “we” and built a measure of modesty in the call. Interestingly, they found that modesty tended to be similar across the top management team, indicating that these teams had a culture of modesty. Second, they found that the more modest the calls, the higher the increase in stock price on the two days following the calls, and the higher the Return on Assets the following quarter.

So, humility and modesty result in executive teams that help one another and can be more strategically flexible, and can also positively impact both stock price and financial performance. These results suggest that Chief HR Officers might do well to encourage more humility and modesty among their executive teams…at least that’s my humble opinion.