Monday, November 27, 2006

Narcissism in Business

Narcissus was a beautiful youth in Greek mythology. He fell in love with his own reflection and then pined away while seeking it, not realizing that the image was illusory. Subsequently, narcissism became associated with a destructive pattern of behavior that results from an unrealistic and dangerous sense of one's importance and power, and the American Psychiatric Association classifies narcissism as a personality disorder.

Understanding narcissism may also provide some insight into the recent spate of executive scandals. While greed and ego may also play a role, recent events seem to venture into previously uncharted areas.


Almost on a daily basis, many of us ask, "What was in their minds?" Depending on the day, the "their" in question might involve one or more of a variety of corporate and financial services leaders:

• How could the Rigas family of the telecommunications firm Adelphia think they could use the public company they operated as a piggy bank for personal projects?

• How could Dennis Kozlowski of Tyco think he could avoid taxes on $13 million of art purchases?

• Had Samuel Waskal of ImClone Systems and Martha Stewart never heard of insider trading laws?

• How could analysts like Jack Grubman of Salomon Smith Barney continue to tout WorldCom stock as the negative news piled up?

• How could Andrew Fastow, CFO of Enron, believe that the investor marketplace would accept his Rube Goldberg-like financial structures? How could the bankers from Citi, JP Morgan Chase, Merrill, and many others believe that that the investor appetite was endless and unquestioning for these transactions?

All of the above-mentioned people are smart and well accomplished; they also managed to destroy their reputations and futures.

The NEW YORK TIMES reports that these people, as well as many others, may have become "lost in a narcissistic fog in which they imagined that they were above the law-that the rules no longer applied to people as grand as themselves."

It cannot be surprising that this personality type permeates both corporate management and investment banking. The author of a recent book on this topic states, "The narcissist lacks empathy-the ability to put himself in other people's shoes.[He] regards himself as one would an expensive present: he is a gift to is company, to his family, to his neighbors, to his colleagues, to his country." This sense of entitlement "makes him feel immune to mortal laws and somehow divinely protected and insulated from the inevitable consequences of his deeds and misdeeds." And, of course, until recently we all seemed to be living in an age of entitlement, one that would encourage narcissism.


Employees with narcissistic traits are dangerous to both themselves and their employers. Narcissism goes beyond mere ego in that it results in actions that can cause real and measurable harm:

• Merrill Lynch just paid a $100 million fine to settle a New York Attorney General lawsuit stemming from its security researchers' activities

• A number of narcissistic leaders built and then destroyed billions of dollars of shareholder value

• Sometimes they even end up in prison (remember who said, "Only the little people pay taxes"?)

On the personal side, we have seen executives destroy their families as a result of narcissistic actions. We once worked for a consulting firm at which one of the top executives constantly harassed female employees. When confronted with very strong evidence of his actions, he simply denied, denied, denied. And, for many years, the employer, not wanting to lose this employee's revenue producing power and intellect, simply closed its eyes to the problem. Ultimately, the employee left, after harming internal morale and eroding respect for those to whom he reported.


Traditionally, banks have been consensus driven organizations in which employees have "to play nice together." That is not always the case with, for example, finance companies and investment banks. And, one factor in the failure of some investment bank acquisitions to work within a bank culture may relate to the ability of a narcissistic culture to mesh with one that is more collegial.

Jack Welch often categorized employees as fitting into one of four

1. The good performer who fit into the company's culture
2. The good performer who did not fit into the company's culture
3. The OK performer who fit into the company's culture
4. The OK performer who did not fit into the company's culture

He felt it was easy to deal with numbers one (praise and retain) and four (exit). The focus with number three is to determine if you can make that person a good/great performer. Number two is the most difficult person to deal with. He is the excellent producer, but, may also be culturally abrasive and see himself as beyond the rules that others have to follow.

As banks change their hiring mix to bring in more aggressive sales people, traders, and bankers, senior management has to become more aware of the potential downside of some producers. Recognition and counseling can allow banks to take advantage of the substantial strengths of these high achievers while avoiding the land mines they may be carrying with them.