There’s a fine line between an entrepreneurial risk taking CEO, and a corporate psychopath who could wreck your firm. Stuart Fagg reports on the latest personality profiling being applied in HR
Rodney Adler, Ray Williams, Bernie Ebbers. These men have much in common. For a start they were once all hailed as successful businessmen and players of acumen, and secondly they are all now behind bars for their roles in the collapse of their companies. Of course they are not the only ones paying for their misdemeanours – there are plenty of share and policy holders who will attest to that.
They also have one final thing in common – they all exhibit the behaviours of corporate psychopaths. According to Dr Robert Hogan, a US expert in personality profiling, however, it would seem that the likes of Adler are aberrations in the business world. But corporate psychopaths are far from unusual in the corporate world.
By Hogan’s reckoning, the result of decades of research, incompetent and potentially damaging management accounts for some 60-70 per cent of the total pool in the US. When he brought these views to bear initially in the early 1990s, they were not popular and were dismissed by many that refused to believe that there were that many potential corporate psychopaths in US business.
However, these days, and particularly having seen the damage wreaked by individuals after the scandals at Enron, WorldCom, OneTel and HIH, boards of directors and the share market are demanding more ethical executives. With the potential for increased liability under the Corporations Act, this trend may continue going forward.
All well and good, but what is the impact of these corporate psychopaths? After all, some of the qualities that define such people also define some of the most successful people in business. “Researchers looked at Fortune 1000 companies that had 15 years of performance right at the average of their industry, and then a change and 15 subsequent years of sustained performance significantly above the average for the industry. Out of 1,000 companies they found 11,” Hogan said. “They investigated the 11 companies and found that the constant was the CEO. All 11 CEOs were understated and humble and that’s a stake in the heart for the theory of the celebrity CEO or charismatic leader.”
While background checks and screening are gaining popularity in Australian business, and in some cases being applied at higher executive levels, personality profiling remains a relatively unexplored concept in Australia. However, that may change. The Australian Prudential Regulation Authority, for example, is set to publish proposals for standards governing the fitness and propriety of responsible persons in financial institutions.
The proposed standards are designed to weed out executives who have been declared bankrupt, failed to manage personal debts or held responsibility in a failed institution. Additionally anyone with a civil or criminal conviction related to dishonesty in dealings with financial institutions will also be barred.
“The proposals are designed to reflect community expectations about persons who fill positions of responsibility in these industries and will set minimum benchmarks for people in, or wishing to enter, these industries at director, senior management or advisory level,” said Dr John Laker, APRA chairman.
Traditionally, APRA has always focussed on the institution it is regulating, rather than the individuals running the institution. But, recent events in Australia and internationally have highlighted the importance of enuring that people in positions of power at companies are subject to the same scrutiny as the company itself.
With regulated entities being required to develop their own policies, personality assessment may become more commonplace in sectors such as the insurance industry.
But there is something of a grey area in the assessments. For example, financial markets traders must display some of the more undesirable qualities –ruthlessness, overt smartness and a tendency to gamble – for senior management to succeed in their positions. “We have a lot of data on traders and as a group they are real smart and really crazy,” said Hogan. “But don’t let them into management positions. People like that – Bill Clinton is a great example – tend to self nominate into leadership roles. They think they’re so hot they want to be in charge.”
Background checks and screening may not, however, detect these characteristics and head off the appointment of a potentially damaging executive.
“The really bad guys will sail through a background check and will do really well in interviews. They do really well in assessment centres. The really dangerous ones are really smart, really charming and really fast on their feet and people love them.”
This is where personality assessment earns its stripes, according to Hogan. Through developing his assessment system, Hogan has amassed an impressive data repository from the 3 million tests that have been carried out using his methodology. This data accurately tracks personality trends in business, and once companies see the data, said Hogan, it’s a relatively easy sell.
But what happens if the CEO of the company is the corporate psychopath? “That’s our worst nightmare,” he told Human Resources. “When you assess the management team and see all these problems come from them, how can you fix that? But if you can find a company that’s willing to pay attention to data it’s an easy deal for us.”
