Friday, September 20, 2019

Does Birth Order Affect a Leader's Propensity to Take Risks?

Source: Psychology Today
In our own families, we probably have all talked anecdotally about the differences in behavior and personality among our children and perhaps attributed some of those differences to birth order.  Researchers, of course, have been studying birth order effects for some time.   This year, Robert Campbell, Seung-Hwan Jeong, and Scott Graffin have published a study on CEO birth order.  They examined whether birth order affected a CEO's propensity to take risk.   Campbell and his co-authors write: 

We theorize that CEO birth order is positively associated with strategic risk taking; that is, earlier-born CEOs will take less risk than later-born CEOs. As evolutionary theory proposes that birth order effects are driven by sibling rivalry, we also argue that this relationship is moderated by three factors related to sibling rivalry: age gap between a CEO and the closest born sibling, CEO age, and the presence of a sibling CEO. Our results provide support for our theorizing and suggest that birth order may have important implications for organizations.

I found this result quite interesting and somewhat intuitive.  However, I then ran across a different study that reviewed many studies of different types that looked at birth order's impact on adult risk taking generally (not exclusive to CEOs or business).  Tom├ís Lejarraga, Renato Frey, Daniel D. Schnitzlein, and Ralph Hertwig published this analysis in the Proceedings of the National Academy of Sciences in March 2019.   Here is what they conclude: 

Does birth order shape people’s propensity to take risks? For decades, personality psychologists have believed that birth order influences personality, but recent evidence has accumulated to indicate that this is not the case. The effect of birth order on risk taking is less clear. We searched for evidence in survey, experimental, and real-world data, analyzing self-reports, incentivized risky decisions, and consequential life choices. The findings point unanimously in the same direction: We found no birth-order effects on risk taking in adulthood.

What do I make of these conflicting results?   Honestly, I'm not quite sure.   Are CEOs somehow different than typical adults?  (Surely they are!) Does sibling rivalry play a major role in CEO's lives, perhaps more so than in other's lives?  That's plausible.  More study needs to be done on this matter, as we clearly don't have a full picture.  

I do think it's interesting to try to understand what might shape an executive's propensity to take risk though. For instance, Matthew Cain and Stephen B. McKeon looked at chief executives who had pilot licenses. Flying small planes is viewed as thrill-seeking behavior. Professors Cain and McKeon found that chief executives with pilot licenses were more prone to engage in acquisitions, with the theory that takeovers are risky, yet exciting ventures.   Should Boards think about a person's propensity for taking risks when hiring a chief executive?  Certainly.   They have to recognize when a person might be incredibly risk averse or risk-seeking, and how their attitudes may or may not fit the needs and circumstances of the organization at that time.  They also need to understand the type of questions that they should be asking about risky choices, and the type of monitoring and control in which they should engage.  

Sunday, September 08, 2019

How CFOs Can Help Foster Innovation & Creativity In Their Enterprises

Source:  Pixabay
Deloitte recently featured my work in their CFO Insights newsletter. The article is titled, "Unlocking creativity: How CFOs can help cultivate a creative mindset."   CFO Insights draws upon my book, Unlocking Creativity, to examine what Chief Financial Officers can do to help break down the barriers to innovation and creativity in organizations.  Why should CFOs focus on the task of breaking down these barriers?   Deloitte argues:

The case for creativity seems more apparent than ever. One reason may be the current growth shortfalls at some companies. A recent analysis of Fortune 500 companies found that more than one-third (38 percent) experienced a decline of revenue between 2014 and 2016. Another driver may be the looming prospect of an economic downturn, which may force CFOs to look for original ways to boost efficiencies at their already-lean organizations. In Deloitte’s North American CFO Signals™ survey for the second quarter of 2019, nearly all 159 respondents said they anticipated an economic slowdown by the end of 2020. However, a prospective downturn may also be an opportune time to invest in innovation, calculating tradeoffs that need to be made to emerge from any decline—which 80 percent of CFOs expect to be mild, according to the Q2 2019 CFO Signals survey—with a competitive edge over their creativity-challenged peers.

Check out this edition of Deloitte's CFO Insights to learn more about this topic.  In addition, take a look at the tips provided in the article for how to improve competitive benchmarking practices in your organization.