Dispositional Sources of Managerial Discretion: CEO Ideology, CEO Personality, and Firm Strategies

Abstract

We investigate the dispositional sources of managerial discretion by theorizing that CEOs’ personality traits affect the extent to which their firms’ strategies reflect their preferences. In a longitudinal study of Fortune 500 firms, we examine the moderating influence of two personality traits—narcissism and extraversion—on the relationship between CEOs’ liberal- or conservative-leaning political ideologies and two firm strategies: corporate social responsibility (CSR) and workforce downsizing. We anticipate and confirm that liberal-leaning CEOs are more likely than others to enact CSR practices, and conservative-leaning CEOs are more likely than others to engage in downsizing. We find that extraversion strengthens these effects: it increases liberal CEOs’ use of CSR and conservative CEOs’ use of downsizing. Narcissism likewise strengthens the effect of CEO liberalism on CSR, but it does not significantly moderate the effect of CEO conservatism on downsizing. In a supplementary study using primary data from working professionals, we further explore the distinct mechanisms associated with these two personality traits. We find that narcissism relates strongly to individuals’ inflated perception of their discretion, whereas extraversion relates to their ability to sell an issue to others. Our study furthers research on managerial discretion by providing nuanced theory and evidence on innate sources of CEOs’ influence, and it enhances research on CEOs’ political ideology by spotlighting the dispositional boundary conditions of its effects on firms’ strategies.