Narcissistic Executives - A pre-emptive approach for dealing with them

The following article is longer than my usual briefings because it's a complex subject. I wrote it at the request of a leading Silicon Valley Venture Capitalist after I helped his firm deal with an extremely difficult CEO/founder of a start-up they had funded. CEOs/Founders of this type, all too frequently end up running companies because they are, like many narcissists, very smart, extremely good at selling themselves and are relentless. The approaches I've outlined below will help you deal with narcissists more effectively and avoid hiring them.

The late night phone calls between board members had reached a feverish pace. Calls were flying on a Saturday night between New York at midnight to Silicon Valley and Seattle. As the performance of this high-tech startup began to falter, the reports about the behavior of their CEO became more disturbing. The tenor of the conversations was the same; “What’s going on with this guy?” “I’ve never dealt with anyone like this before. He’s driving me crazy.” “The VP of Marketing just quit…he’s had enough of working with that jerk.” “What happened…he was so smooth in the interviews.” “How come we didn’t pick this up in the references?” “What do we do with him?” “We’ve got to do something before he crashes the whole company.”

What those board members were experiencing is the destructive repercussions associated with the psychological land mine know as a narcissistic personality disorder. Michael Maccoby, in another Harvard Business Review article titled, The Narcissistic Leaders, The Incredible Pros, The Inevitable Cons, talked about how many of our most successful executives have strong narcissistic tendencies and it is the positive side of that narcissism that enables them to dream big, chase seemingly impossible dreams, take extreme risks, convince skeptical investors to handover millions of venture capital dollars, and overcome obstacles that most people wouldn’t even attempt. However, it’s the shadow side of the more extreme form of narcissism, or narcissistic personality disorder, that causes havoc, alienates employees and investors and can tank a company. And, what is especially insidious about these extreme cases is that investors are often blind to it or gloss over some of the early warning signs because these executives often have charismatic personas, can sell like crazy and achieve outstanding results. They begin to crash, however, when they can no longer pull the magic rabbit out of the hat. When their charisma and natural sales ability collides with an economic downturn, repeated rejections for additional venture capital funding, questioning or demanding investors, intelligent employees, or encounters with other obstacles that demand substance over flash. They then will resort to anger, outrage, browbeating and other behaviors that alienate top employees and investors who will jump ship rather than work for or fund a jerk. And, if the narcissistic executive is able to stay employed as the leader, employees who remain tend to be those most afraid to leave, who are often the most passive and least creative…not a recipe for continued success.

How do these individuals get into positions of power undetected? The answer is not too complicated…they are usually charismatic. They literally can sell just about anything to anybody and investors fall for them more frequently than they will ever admit. Narcissistic executives often ride an investment wave and move from one company to another catching companies on their upward trajectory and take credit for the company’s growth when they really were often just in the right place at the right time. They then move on to the next company who lures them away with a higher salary and increased visibility (meaning stardom). Investors mistakenly attribute leadership acumen to these executives when they have simply been adept at inspiring people and then move from one winning company to another, riding on the good work of other more talented executives, until one day…they hit some major obstacles, and all hell breaks lose.

The harder question is how can we proactively detect them so that we don’t hire them in the first place? And,…because they will get through our best efforts to screen them out, what do we do if one gets through the screening process, gets hired and begins to wreck havoc?

First, let’s get a better understanding of the personality of these “problematic executives,” and then we will look at how to deal with them. The “problematic executive” is usually:

Inexperienced or has reached their managerial peak in running a rapidly changing or fast growing company and is unable to own up to it and unwilling to make appropriate changes. Many of these individuals have (more than we care to acknowledge), under their smooth often well-polished exterior, a psychological structure that is insecure and fragile. Unfortunately, however, they cover up their insecurity by acting competent and being resistant or even belligerent to accepting others’ advice or help. This is typical of the narcissistic personality “style.” They cover up because if they accept any advice (help) it implies (to them) that they are weak, incompetent or inadequate and they unconsciously fear experiencing a devastating amount of shame attached to feeling inadequate. This core shame about their inadequacies makes it so very difficult for them to admit most weaknesses. They don’t even know they are avoiding feeling shame…it’s automatic and unconscious.
And/or, the individual may have an underlying “personality disorder” that is chronic and exacerbates the situation in the above paragraph. Yes, the above can get worse. This is usually an individual farther out on the narcissistic continuum who does more than ignore or discount advice and input from others, but who will “act out” in a number of ways. For example, they often will scream, walk out of meetings, send inflammatory emails and telephone calls, make disparaging comments to others behind everyone’s back, and other disruptive behaviors. This type of behavior is what causes venture capitalists to pull their hair out and keeps them awake at nights. Comments made to me from Venture Capitalists include: “In my 20 years in this business I’ve never seen anyone quite like this.” Or, “I simply do not know what to do with him/her.”

What can be done? I will outline eight steps below:

1. The first and most important opportunity begins at the first meeting between the investors and the key individuals representing the prospective company or when a board is considering hiring a new CEO. It must be remembered that at this phase, everyone is on best behavior . In fact, executives who fit the description of a “narcissistic personality disorder," are often exceptionally capable of being gracious, humorous, empathic and slyly manipulative when it suits their own purposes. We can come away from a meeting with a narcissist feeling pumped up, excited, entertained and, of course, feeling in our bones that this person has what it takes to make this terrific idea work. Detecting this type of closet problem individual will be very difficult for most people because it goes against those pumped up good feelings about them. “How could someone we feel so good about be a terrible leader?” Therefore, they can and do fool most people because they are usually not as blatantly arrogant as a “Donald Trump” (someone most people would easily classify as a narcissist).

Furthermore, many entrepreneurs fit, a more general, albeit less obnoxious, narcissistic style profile than would a random sampling of the general public because it would be hard for entrepreneurs to endure the trials of starting a business without a certain degree of self-centered single mindedness. Therefore, I am only talking about “unhealthy narcissism.” Detecting (diagnosing) an individual that could be classified as a “personality disorder” is the specialty of trained diagnosticians (e.g. consulting or clinical psychologists) who also have experience with entrepreneurs and other business professionals in high stakes, pressure filled circumstances. As a skilled finance officer would see problems in financial statements that most people would not, so can a psychologist detect psychological subtleties by observing and interacting with individuals in group or one-on-one situations. Psychologists are trained to see behind the façade. Based on an accurate assessment it is possible to fairly well predict typical behaviors and problems that may develop over time. A few, insightful Venture Capitalists consider this assessment/diagnostic phase an essential part of the investment decision making process

2. Agree to and set clear parameters about board involvement before signing any agreements. Make it known to what extent you as a board member will be involved in decision making or interfering with decisions made by key management people. In the case of venture backed companies for example, it is important to remember that no matter what most entrepreneurs say, they often don’t believe they are selling their company to others when they accept venture capital. The overly narcissistic entrepreneur (more than others) has the fantasy that you are giving them money with no strings attached other than you will profit by the investment. Therefore, it is best to make your involvement expectations known up front, clearly and in writing. This gives an entrepreneur an opportunity to back out or, hopefully, agree. Truth in advertising is a prerequisite.

Being able to diagnose and detect a problematic individual before you decide to invest in their businesses or to hire them to run your company is a very good way to make a “pre-emptive strike.” Choosing not to invest in a company may be the best decision one ever makes. And, if you decide to invest anyway, with an accurate profile, you should be able to anticipate future inevitable problems and plan accordingly (as follows).

3. Prepare and implement a parallel strategic process for dealing with this type of individual. This means that simultaneously, the board must develop a strategy to constructively attempt to help/coach the problematic executive while preparing for the worst-case outcome of having to find a replacement. From the moment you first detect you are dealing with a very problematic individual, begin the parallel process of protection. Begin to prepare a contingency plan for replacing the individual if his/her behavior becomes disruptive. This type of individual, if unchecked, will continue a destructive course and the future of the start up is at stake. There is too little room for setbacks when trying to succeed in this stage of the business.

4. If you choose to replace them, be forewarned and prepared. You must be determined and unequivocal about your decision before taking any action. Also, it is essential to prepare a face saving exit strategy for the individual before you make any public announcements. In its extreme forms an individual with a narcissistic personality disorder will harbor fantasies of revenge and may act on them to sooth his/her broken ego (e.g., announce publicly that the board is incompetent and the company is doomed).

The helping/coaching process follows:

5. Engage the executive in a dialogue about what the board believes are areas for "development" (vs. problem behaviors). Elicit feedback from the individual as to his/her perception and interpretations. It is important to do this with an open mind, without a predetermined position regarding the situation. Because individuals with extreme narcissistic characteristics are basically insecure you must be careful how you deliver information that they will perceive as criticism. This is easier said than done. You may think that your input is not harsh or out of line, but it is not your feelings or reactions that you will be dealing with if you are not judicious. They, however, often will react with contempt and anger because they feel the covert or overt criticism and must protect their fragile self-esteem. They also may feel entitled to special treatment, which usually means they think they should not have to explain to you their rational for decisions. Therefore, the best way to deliver advice is with a neutral voice stating the facts as your perception and interpretation of things, not as a truth. This gives the individual wiggle room; room for face saving. If this give and take process goes well, it may, if still appropriate, be possible to induce them to seek out a mentor, “coach” to help them improve their management knowledge and skills. Or they might be encouraged to work with a psychotherapist who could help them reduce the frequency and intensity of their interactions.

6. It’s important to remember that the executive may actually have good, if not even more accurate or better insights and solutions to problems than you may have. In fact, you might be wrong about the situation and have actually made the problem worse by inappropriately applying previous useful knowledge about other companies to this unique company. As an aside, and continuing this line of reasoning, it may be useful to remember that to become a Venture Capitalist requires a degree of (dare I say) narcissism to take the risks that a VC does. Therefore, there is always the chance that some of the problems that come up between the board and the founder/key executive may be a function of “dueling narcissists.” Most venture-backed boards consist of people with very strong opinions about what is the “right way” to run a company. Being more humble may be a key watch phrase for everyone.

7. Keep in mind that arguing or trying to “out reason” will only protract and exacerbate most disagreements. Arguing and out reasoning may feel effective but is usually futile. If the individual “acts out” (screams, pounds tables or hurls insults) simply announce that you will not conduct business this way and will only continue the discussion when the individual can do so calmly. Then, you must follow through by leaving the room if the individual continues. Your response will make it clear that acting out is not acceptable. Your reaction to any acting out could help steer the discussion back on course.

8. Because of the volatility of the narcissistic individual’s reactions, it may be necessary to hire an independent and objective professional to facilitate difficult discussions. A “facilitator” could help contain the reactions of the parties involved and train this group of strong-willed individuals how to work better together.

Trained facilitators should customize their interventions to fit the situation. As much as we might wish there were a few effective intervention templates to use with these types of individuals they and each situation are unique and too complex. Consulting psychologists, for example, can draw from a bigger tool bag than can be described in this of length of paper. The psychological literature on Narcissistic Personality Disorders alone fills shelves and new volumes are being published frequently.

If, after trying the above, the interactions with this type of individual continue to be disruptive, it will be necessary to replace them quickly as explained above.

Investing in a company run by extremely narcissistic executives is a very risky proposition. The pressure to succeed in a very short period of time (inception to IPO) does not allow for major delays and setbacks. Research in the psychological literature on individuals with personality disorders, especially narcissistic types, shows that the prognosis for improvement is not good. In some cases, rapid and effective intervention using coaching, mentoring and/or psychotherapeutic help may turn the situation around. Unfortunately however, helping a very narcissistic individual is a tedious, immensely frustrating that usually requires intensive, long-term psychotherapy. Therefore, when one encounters a founder/executive who is problematic and fits the diagnostic profile for a narcissistic personality disorder, the odds are not on the side of quick improvement needed for this critical phase of the development of a business. Thus, the best offense, “pre-emptive strike,” may be to effectively screen for this type of individual and, if they fit the diagnostic criteria for personality disorders, pass the investment opportunity by or insist on different management before funding.