The case for humble expectations: CEO humility and market performance

• Author: Federico Aime,Tessa Recendes,Jeffrey A. Chandler,Oleg V. Petrenko
• Date: 01 December 2019
• Published date: 01 December 2019
• DOI: http://doi.org/10.1002/smj.3071

RESEARCH ARTICLE

The case for humble expectations: CEO humility

and market performance

Oleg V. Petrenko

1

| Federico Aime

2

| Tessa Recendes

3

|

Jeffrey A. Chandler

4

1

Area of Management, Texas Tech

University, Rawls College of Business,

Lubbock, Texas

2

Department of Management, Spears

School of Business, Oklahoma State

University, Stillwater, Oklahoma

3

Management and Organization

Department, Pennsylvania State University,

Smeal College of Business, State College,

Pennsylvania

4

Department of Management, Western

Kentucky University, Gordon Ford College

of Business, Bowling Green, Kentucky

Correspondence

Federico Aime, Department of

Management, Spears School of Business,

Oklahoma State University, 205 Business

Building, Stillwater, Oklahoma.

Email: aime@okstate.edu

Abstract

Research Summary:In this study, we investigate the

effect of chief executive officer (CEO) humility on firm's

market performance. We argue and find that firms with

more humble CEOs will have better market performance

but not because they actually perform better but, rather,

because they benefit from an expectation discount in the

market. Specifically, we show that, all else equal, financial

analysts announce lower earnings per share expectations

for firms with more humble CEOs. This expectation dis-

count sets the stage for those firms to meet or beat ana-

lysts' expectations resulting in improved market

performance for firms with humble CEOs. We find sup-

port for our ideas with a sample of Standard & Poor's

(S&P) 500 CEOs, operationalizing CEO humility with a

videometric technique.

Managerial Summary:In this study, we investigate the

effect of CEO humility on firm's market performance. We

show that firms with more humble CEOs will outperform

other firms in the market because financial analysts tend

to set lower market expectations for firms with more hum-

ble CEOs increasing the probability that they will out-

perform those expectations. Rather counterintuitively,

these firms do not have better market performance because

they perform better but because they face lower expecta-

tions. Ultimately, the study demonstrates the importance

of CEO characteristics for external evaluations and

Received: 22 August 2017 Revised: 23 April 2019 Accepted: 4 May 2019 Published on: 23 August 2019

DOI: 10.1002/smj.3071

1938 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2019;40:1938–1964.wileyonlinelibrary.com/journal/smj

perceptions about the firm with significant effects on

investment performance.

KEYWORDS

analyst expectations, CEO, firm performance, humility

1|THE CASE FOR HUMBLE EXPECTATIONS: CEO

HUMILITY AND MARKET PERFORMANCE

A paradigm shift is unfolding before us. Humble chief executive officers (CEOs) are trending in both

media and academic research as a preferable alternative to the arrogant, overconfident, hubristic, and

narcissist types that made up the core population of dominant figureheads in US organizations lead-

ing up to the last economic crisis (Chatterjee & Hambrick, 2007, Chatterjee & Hambrick, 2011;

Haleblian & Finkelstein, 1993; Hayward & Hambrick, 1997; Hiller & Hambrick, 2005; Li & Tang,

2010). In 2015 alone, media mentions of humble CEOs more than doubled their average mentions

per year of the previous decade with titles such as Huffington Post's “Google's new ‘Low Key’CEO

is so on trend”(Peck, 2015), Wall Street Journal's “The case for Humble executives”(Lublin, 2015)

or Forbes' “Humble CEOs are best for business…” (Adams, 2014), and Google search mentions have

risen more than 70% (Gaines-Ross, 2015). Leaders' humility has also been a fast-growing topic in

management and psychology research (Ou et al., 2014; Weiss & Knight, 1980). Researchers have

found that humble leaders empower top and middle managers leading to more collaborative top man-

agement teams (TMTs) and increased information sharing in the organization (Ou et al., 2014; Sim-

sek, Veiga, Lubatkin, & Dino, 2005), provide clearer career perspectives to organizational members

(Vera & Rodriguez–Lopez A., 2004), promote a strong sense of professional will that is not attached

to personal success (Collins, 2001a, 2001b), and are models of participative leadership (Aime, Hum-

phrey, DeRue, & Paul, 2014; Hackett & Wang, 2012; Morris, Brotheridge, & Urbanski, 2005).

While previous research has generated significant insights about how humble leaders, and more

specifically humble CEOs, affect the social and informational interactions inside their organiza tions,

it has little to offer to those concerned with how humble CEOs contribute to stock market success.

Current theory focuses almost exclusively on the ways in which humble CEOs affect interactions in

the organization, but humble CEOs can also be expected to color stock market expectations of orga-

nizational effectiveness because such expectations by market players (e.g., analysts, investors) are

influenced by the implicit or explicit characteristics of CEOs (e.g., their humility) (Fanelli, Mis-

angyi, & Tosi, 2009) with significant impact on trading behavior and the stock market valuations of

firms (Stickel, 1995; Washburn & Bromiley, 2014; Womack, 1996). We can see three main reasons

for the paucity of research on the relationship between humble organizational leaders and organiza-

tional market performance. First, current work about humble leaders assumes that the effectiveness

resulting from team and individual performance gains inside organizations run by humble CEOs will

translate to organizational market performance and therefore neglects the role of CEOs as representa-

tives of the organization to the investment community among other external stakeholders, even when

evidence shows that valuations are only loosely coupled with internal indicators of effectiveness

(Meyer & Gupta, 1994; Scott, 1998).

Second, most recent work about the effects of CEOs on organizations is built around the upper-

echelons perspective which focuses, for CEOs, on how CEO characteristics affect their decisions and

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