Big Egos Can Be Green: A Study of CEO Hubris and Environmental Innovation

DOIhttp://doi.org/10.1111/1467-8551.12250
AuthorGiovanna Michelon,Grzegorz Trojanowski,Claudia Arena
Published date01 April 2018
Date01 April 2018
British Journal of Management, Vol. 29, 316–336 (2018)
DOI: 10.1111/1467-8551.12250
Big Egos Can Be Green: A Study of CEO
Hubris and Environmental Innovation
Claudia Arena, Giovanna Michelon1and Grzegorz Trojanowski2
University of Naples Federico II, Department of Economics, Management, Institution, Via Cinthia, 4 Monte
Sant’Angelo, 80126 Naples, Italy, 1University of Exeter Business School, Department of Accounting, Streatham
Court, Rennes Drive, Exeter EX4 4PU, UK, and 2Universityof Exeter Business School, Xfi Centre for Finance
and Investment, Rennes Drive, Exeter EX4 4ST, UK
Corresponding author email: claudia.arena@unina.it
This paper examines whether and to what extent CEO personal traits(hubris, in partic-
ular) aect firm environmental innovation. Using the overarching theoretical framework
of upper-echelons theory, the paper builds on the insights from the corporate strategy,
innovation, and corporate social responsibilityliteratures. We also examine the moderat-
ing role of firm-specific features (e.g. organizational slack) and the external environment
(e.g. market uncertainty) in this context. Based on a sample of UK companies operating
in sensitive industries, we find that CEO hubris facilitates the engagement in green inno-
vative projects.We also find that CEO hubris does not have a uniform eect: its eect on
environmental innovation increases with the organizational slack, but weakens with the
extent of environmental uncertainty. Our findings suggest that availability of resources
per se is not enough to produce environmental innovation.Instead, it requires a stable ex-
ternal environment that enables the CEO with a hubristic personality to make a correct
use of them.
Introduction
‘Being an entrepreneur requires you to have a
large ego, and either a vision, or a hallucination
(...) This hubris combined with vision and
passion is what makes start-ups create some-
thing out of nothing’ (Blank, 2011). Hubris is a
prominent personality trait of corporate leaders
in a position of authority and power that man-
ifests itself in an exaggerated belief about their
own judgement, which may deviate from objec-
tive standards (Hayward and Hambrick, 1997;
Hayward, Shepherd and Grin, 2006; Hiller and
Hambrick, 2005). Hubristic CEOs are usually
impulsive and restless individuals aected by
hyper-levels of self-evaluation, self-confidence and
self-worthiness which lead them to overestimation
We are thankful to three anonymous reviewers and As-
sociate Editor Stephen Brammer for their insightful com-
ments and suggestions.We are also grateful to WenxinLiu
for his research assistance.
of their actual ability, performance, levelof control
or chance of success (Hribar and Yang, 2016; Li
and Tang, 2010). They are also characterized by
a disproportionate concern about image and need
for admiration typical of a narcissistic personality
(Owen and Davidson, 2009). The importance of
considering this personality trait is underscored
by the predominance of ruthless, aggressive but
successful individuals (e.g. Marissa Mayer, Rupert
Murdoch etc.) whose unconventional actions have
been attributed to hubris (Park et al., 2015).
The aim of the paper is to analyse whether
and how CEO hubris aects the level of envi-
ronmental innovation. Prior research has high-
lighted the consequences of CEO hubris for corpo-
rate acquisitions (Hayward and Hambrick, 1997;
Malmendier and Tate, 2008); innovation and risk-
taking strategies (Hirshleifer, Low and Teoh,2012;
Lawrence, Pazzaglia and Sonpar, 2011; Li and
Tang, 2010; Tang, Li and Yang, 2015); report-
ing choices (Cormier,Lapointe-Antunes, Magnan,
2016); financial performance (Park et al., 2015)
© 2017 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
CEO Hubris and Environmental Innovation 317
and corporate social responsibility (CSR) (Tang
et al., 2015).1Although a large body of research
documents the eects of hubris-influenced deci-
sions, the topic still deserves attention for at least
two reasons.
First, innovativestrategies in the context of CSR
havebeen under-investigated despite the high soci-
etal and regulatory pressures on CSR actions and
their relevance for CEO agendas. Furthermore, re-
cent evidence suggests that CEOs face several bar-
riers to the adoption of innovativestrategies aimed
at reducing the environmentalimpact of corporate
activities because innovation and CSR are substi-
tutes rather than strategic complements (Mithani,
2016). Compared to general innovation, invest-
ments in environmental innovation are less prof-
itable and their returns materialize over a longer
period of time (Oh, Chang, and Cheng, 2016;
Oltra, 2008). Given the uncertainty associatedwith
environmentalinnovation and the level of manage-
rial discretion involved in such decisions, we argue
that CEO hubris is a critical cognitive trait that
helps tolerate such risks.
Second, existing research has documented ei-
ther value-destroying (Hayward and Hambrick,
1997; Lawrence, Pazzaglia and Sonpar, 2011;
Malmendier and Tate, 2005, 2008; Tang et al.,
2015) or value-enhancing eects (Hirshleifer, Low
and Teoh, 2012; Tang, Li and Yang, 2015) of
hubris-driven decisions. In an attemptto reconcile
these opposite views, we examine contextual con-
ditions that explain the dierential eect of CEO
hubris on innovation. Specifically, we focuson two
contextual factors that shape the level of manage-
rial discretion, i.e. organizational slack and envi-
ronmental uncertainty (Wasserman, Nohria and
Anand, 2001).
Theoretically, we adopt the overarching frame-
work of the upper-echelons (UE) perspective.
The UE perspective is based on the assumption
that complex strategic decisions are largely the
outcome of behavioural factors and emphasizes
personality traits, among them CEO hubris,
as main predictors of organizational outcomes
1Although our focus on the environmental dimension
may also be related to corporate sustainability, we rely
on a normative approach to corporatesocial responsibil-
ity that includes the environment among the range of so-
cial issues that management must address(Carroll, 1991).
Bansal and Song (2017) thoroughly discuss the con-
structs of corporate social responsibility and corporate
sustainability.
(Hambrick and Mason, 1984). Within this the-
oretical framework, we argue that the CEO
perception of the complex and risky nature of
environmental innovation combined with
her/his hyper self-evaluation provides the basis
for engaging in innovative strategies aimed at
reducing environmental risk, pollution and other
negative environmental impacts. Empirically,
we analyse a sample of UK companies (338
firm-years) operating in sensitive industries (e.g.
oil and gas, alcohol, beverage, tobacco, paper,
biotech firms and other industries involved with
emerging environmental and social issues), over
the period 20102012, for which we hand-collect
data on demographic and psychological traits of
CEOs. This is an interesting setting to explore our
research questions, as some studies suggest that
firms operating in these industries engage in CSR
to reduce risk, while others question the possibility
for these firms to act in responsible ways, due to
the high environmental impact, the sometimes
unethical character of their business and the
sceptical behaviour of their executives (Cai, Jo and
Pan, 2012; Du and Vieira, 2012; Jo and Na, 2012).
Our main finding is that CEO hubris positively
aects the level of environmental innovation.
However, in line with the managerial discre-
tion view, we also document that CEO hubris
does not have a uniform, systematic eect: its
eect increases with the organizational slack
and weakens with the degree of environmental
uncertainty.
Our study contributes to the UE research ex-
amining the influence of executives’ traits on cor-
porate strategic decisions (Delgado-Garc´
ıa, La
Fuente-Sabat´
e and Manuel, 2010; Oh, Chang and
Cheng, 2016; Piaskowska and Trojanowski, 2014)
and on innovation in particular (Damanpour and
Schneider, 2006; Kraiczy, Hack and Kellermanns,
2015; Musteen, Barker and Baeten, 2010). We
extend this literature by examining the condi-
tions under which CEO hubris supports green
innovative strategies.
Second, our research is closely related to
studies examining the eect of organizational
(Bowen, 2002; Park et al., 2015) and environ-
mental (Datta, Rajagopalan and Zhang, 2003;
Rueda-Manzanares, Arag´
on-Correa and Sharma,
2008) factors on strategic outcomes. We provide
empirical evidence that these factors matter for
hubris-influenced decisions concerning corporate
innovation.
© 2017 British Academy of Management.

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