Response to Whether “CEOs are Inherently Sociopathic”

Jason wrote an interesting post about whether the denizens of Slashdot were correct in claiming that CEOs are inherenly sociopathic. While it is tempting to label CEOs sociopaths because the nature of their job supposedly rewards lacking empathy and nobody likes the wealthy and powerful, they are not and here is why. A corporate executive has a fiduciary duty to the corporation’s shareholders. That means they need to think about growing the company and creating a profit so that shareholders make money. It also means they have to exercise due care and diligence, amongst other things, in their handling of corporate affairs and to refrain from committing any legal or ethical violations. To condemn CEOs for doing their jobs is to condemn the entire corporate system, which is held together by the trust that various people must place in others within the entity. This mutlifaceted trust is encapsulated by and embodied through the fiduciary relationship, which imbues all forms of legal agency. Keep this fiduciary duty in mind while looking at the DSM-IV factors for Antisocial Personality Disorder (which is grouped with general sociopathy in the DSM). Critically analyzing the nature of the executive position vis-a-vis these factors reveals that the fiduciary duty, the very defining duty of an executive, actually inhibits sociopathic behavior, rather than encouraging it or even tolerating it. Here are the seven factors: (1) Failure to conform to social norms with respect to lawful behaviors as indicated by repeatedly performing acts that are grounds for arrest. Lawful behavior for a CEO would be to conform to the various specific duties imposed by the general fiduciary duty he or she owes to the shareholders. (2) Deceitfulness, as indicated by repeated lying, use of aliases, or conning others for personal profit or pleasure. Deceitfulness and lying for personal profit would be clear violation of the fiduciary duty (and violations of many other laws). (3) Impulsivity or failure to plan ahead. This would be a potential violation of the fiduciary duty of dilligence and care, although not in all cases. But even when the actions are ambiguous enough that it is uncertain if there is a violation, they would still be actions that harm, rather than benefit, the company. CEOs are generally not interested in harming their own company and if they were, the shareholders, acting through the board of directors, would remove the offending CEO. (4) Irritability and aggressiveness, as indicated by repeated physical fights or assaults. I don’t find that this is often a concern with CEOs. I am sure many CEOs are annoying to be around, but they don't normally commit assaults or get into fights (paper-based white collar crimes are more their style). (5) Reckless disregard for safety of self or others. See the response to factor 4. (6) Consistent irresponsibility, as indicated by repeated failure to sustain consistent work behavior or honor financial obligations. Not honoring financial obligations is a violation of the fiduciary duty and mroe importantly is what leads companies to ruin and offers them up to hostile raiders or voracious creditors. (7) Lack of remorse, as indicated by being indifferent to or rationalizing having hurt, mistreated, or stolen from another. This is the only factor that has legs. While I cannot attest personally to the level of remorse the average CEO has, it is easily within the realm of reasonability that they are more likely to lack remorse. Ultimately, only one factor would be met by the “ideal� CEO who obeys the laws governing his or her office, hardly enough to posit that many CEOs are sociopaths. In fact, the fiduciary duty directs CEOs to avoid the behaviors listed above. The very nature of being a CEO is not sociopathic. If a CEO consistently violates that duty and his actions mesh with the factors above, then it may be appropriate to label him a sociopath, but that would constitute a deviation from what is considered to be appropriate and legal. Politicians on the other hand, they are inherently evil.

  1. So Todd…are you schtupping a CEO these days?

    Way to go, dude!

    September 11th, 2006 at 11:42 am
  2. How dare you talk about sex on September 11.

    September 11th, 2006 at 11:55 am
  3. Why do you hate Jewish people?

    September 11th, 2006 at 5:05 pm
  4. Huh?

    September 11th, 2006 at 6:03 pm
  5. You’re right that the CEO position comes with obligations of increasing shareholder value. I would watch out on #2 and #3, though, if you define value in terms of P/E or market cap. For example, if a CEO has the opportunity to lie or make a misrepresentation in order to avoid a financial loss, should he or she do it?

    As for #3, I would argue this is where executives have the most freedom of action. Strategy is the main concern of the executive. It is a perfectly valid strategy, inline with their fiduciary duty, to persue quarter-to-quarter profit growth by cutting out R&D, laying off workers, and persuing questionable (but perhaps not illegal) accounting practices. Stock prices may go up for a time, but these methods can only go so far before nothing is left. This is exactly a failure to plan ahead, but with a golden parachute and opportunities for seats on other boards, few CEOs need to worry about the consequences.

    September 11th, 2006 at 7:12 pm
  6. For the first question about the conflict between making a misrepresentation to avoid financial loss, the executive’s duty is clear: don’t make a misrepresentation. In practice, of course, the mentality of increasing profit would potentially outweight the ethical duty to not lie. And mispresentations don’t always result in financial gain, as the Enron debacle makes clear. In a climate of increased attention on corporate wrongdoing, where the DOJ and the SEC have made corporate fraud a priority, it is even more dangerous.

    As to your second point, I think you hit on the number one critque of the shareholder system and the weakest link the the body of fiduciary duty. The law is severely lacking in that area and the incentives of executives do not guard against those problems. Hayekians and other assorted free market warriors have all sorts of rebuttals to the increased regulation needed to encourage long-term growth, but most of them fall flat with me. The entire “raider” mentality of the 80s, embodied in the film Wall Street, is still around, looking for companies to take over and break apart in order to unlock “shareholder value.” It is difficult to figure out a solution besides having creative and loyal executives who actually care about the company and its product or service. The Rheinian or black box approach of many European countries, like Germany, where large bank conglomerates are the primary voting shareholders, seems like an even worse idea to me. In the end, utopian Marxism, ignited by the Hegelian clash of the classes, is probably the only solution.

    September 11th, 2006 at 8:09 pm

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