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JULY 19, 2016

ARTICLE
DECISION MAKING
How Anxiety Affects
CEO Decision Making
by Mike Mannor, Adam Wowak, Viva Ona Bartkus and
Luis R. Gomez-Mejia

This article is licensed to you, Shamel Janbek of Hewlett Packard, for your personal use through 2018-10-31. Further posting, copying or distribution is not permitted. Copyright 2016-07-19
Harvard Business Publishing. All rights reserved.
 DECISION MAKING

How Anxiety Affects CEO

Decision Making
by Mike Mannor, Adam Wowak, Viva Ona Bartkus and Luis R. Gomez-Mejia
JULY 19, 2016

While top executives tend to be thought of as a confident bunch, they are no less susceptible to
anxiety than the rest of us. After all, they routinely have to make important decisions, often under
conditions of uncertainty, that affect countless people, organizations, and industries.

It is less clear, though, what this anxiety means for how they do their jobs. Psychology research has
shown that anxiety influences decision making—for example, job anxiety can cause people to fixate
on potential threats, thus missing big opportunities. This made us wonder whether boards or
employees should be worried about anxiety influencing their CEO’s strategic decision making in ways
that might hold back their firm.

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 We interviewed 84 CEOs and other top executives of major corporations to find out. They described
some of the toughest decisions they had faced in their roles. Overall we collected data on 174 big
decisions, such as those relating to acquisitions, major product launches, new foreign market entries,
and complex corporate restructurings. We analyzed transcripts to assess whether executives’
language focused on opportunities or threats. Then we surveyed the people who knew them best –
their spouses (mostly wives, but a few husbands), close friends and family, and their chief
lieutenants (COOs, general counsels, etc.) – to get more information about their personal lives and
how they handled tough decisions. We combined this with archival data about their businesses,
competitors, and industries. Finally, we conducted a follow-up survey of employees at the lower
levels of these organizations to see how their anxiety levels compared to top executives.

We found that more-anxious leaders (those that were described as experiencing job anxiety “to some
extent,” “to a considerable extent,” or “to a great extent”) took fewer strategic risks than their less
anxious peers in order to avoid potential losses. Job anxiety reduced the attractiveness of big
strategic bets for the company, despite their potential to drive large gains.

This isn’t necessarily a bad thing, as excessive risks can lead companies into ruin (Exhibit A: the
subprime mortgage crisis). But smart risks are often key to driving corporate growth, and our results
suggest that anxious executives may, in their overriding desire to avoid threats, miss out on high-
upside strategic opportunities and thus limit growth.

However, context matters. Researchers have shown that executives facing loss contexts (e.g., when
the company has recently underperformed relative to peers) are more inclined to make big strategic
bets that, if successful, can undo the loss. Conversely, executives facing gain contexts (e.g., when the
company has recently performed better than its peers) eschew risky bets in favor of safer alternatives
that offer more predictable, albeit lower upside, returns.

This suggests that while anxiety may lead executives to avoid risky strategic initiatives, such
tendencies may be counteracted when the executive is facing a loss context that calls for bold action.
We found that job anxiety exerts a weaker effect on risk-taking in loss contexts, while gain contexts
exacerbate anxious executives’ risk-reducing tendencies.

For example, consider the case of a tech CEO in our sample who was described as experiencing “a
considerable extent” of job anxiety by his close friends and family. This CEO was facing an important
strategic decision for his firm regarding future growth, and made the decision to sell the firm to a
larger rival rather than pursue the potentially much higher upside of independent growth as a
standalone business.

Already naturally inclined to play it safe, anxious executives are especially careful not to upset the
apple cart when things are going well. While a conservative bias might sound reasonable, or even
admirable, markets might very well see this as a serious threat to shareholder interests if it causes a
firm to miss out on promising opportunities that would propel growth.

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 Our results also showed that anxiety drives some executives to stack the deck. Prior research has
shown that one of the ways anxious individuals deal with their worries is to lean on trusted others for
support and protection, a phenomenon known as “social buffering.” Similarly, we found that anxious
executives are more likely to staff their teams with loyal subordinates whom they know and trust.
This is especially true in loss contexts, where threats loom large. Anxious executives are particularly
driven to close ranks within their teams and stack their inner decision-making circle with loyalists.
This effect disappears in gain contexts where anxious executives are presumably less compelled to
create a protective shield against perceived threats.

The main takeaway is that top executives are influenced by job anxiety just like the rest of us, but
because the impact of their biases can have serious downstream consequences for thousands of
employees, shareholders, and stakeholders, leaders should ask:

Maybe the paranoid are more likely to survive, but at what cost? Intel CEO Andy Grove famously
noted that paranoia can be a good thing for executives when it compels them to keep a close eye on
their environment. Our results suggest, however, that overly anxious (and perhaps paranoid)
executives may be less willing to make the big strategic bets that could catapult the company to long-
term success. Serious consideration of both potential upside and downside outcomes is necessary for
forming a clear-eyed assessment of firm strategy, but anxiety may cause executives to become
myopic to such balanced views.

Who is asking the tough questions? One can hardly fault anxious executives for relying upon
subordinates that they trust. But this could come with drawbacks if a sense of loyalty prevents
subordinates from asking difficult questions or otherwise engaging in healthy debate with leaders.
Executives are well-advised to put together teams that are nevertheless unafraid to challenge them
when the situation calls for it.

What can boards do? Boards may not have an easy way to assess anxiety in executives, but they
should realize that anxiousness plays a meaningful role in the fortunes of their firms. For instance, an
anxious executive’s risk-averse outlook may run counter to the board’s (or shareholder’s) vision for
bold strategies.

Although a CEO is unlikely to report to their board that they are feeling anxious about their job,
boards can be proactive in looking for signs of stress that may bias executive decision-making,
perhaps through informal conversations with executives’ close colleagues. They can also offer social
support and encouragement to help mute some of the more dysfunctional effects of executive job
anxiety. And to avoid anxious leaders surrounding themselves with loyalists, board members can
protect the firm by requiring CEOs to present multiple strategic options before making big decisions,
or by asking individuals other than the CEO to present opposing options.

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This article is licensed to you, Shamel Janbek of Hewlett Packard, for your personal use through 2018-10-31. Further posting, copying or distribution is not permitted. Copyright 2016-07-19
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 Mike Mannor is the John F. O’Shaughnessy Associate Professor of Family Enterprise at the University of Notre Dame. His
research focuses on the powerful influences of CEO personality, values, and biases on organizational strategy and
decision-making. Follow him on Twitter @mikemannor.

Adam Wowak is an assistant professor of management in the Mendoza College of Business at the University of Notre
Dame. He holds a PhD from The Pennsylvania State University. His research focuses on strategic leadership and
corporate governance, with an emphasis on top executives and their effects on firm strategy.

Viva Ona Bartkus is an associate professor of management in the Mendoza College of Business at the University of Notre
Dame. She completed her PhD at Oxford University as a Rhodes Scholar, and then spent 10 years serving clients with
McKinsey and company, include several years as partner.

Luis R. Gomez-Mejia is a professor of management at the WP Carey School of Business, Arizona State University. Before
that he held endowed chair positions at University of Notre Dame, Texas A & M, and Arizona State University. He has
received numerous awards for his research including a “Top 1 percent” recognition from Thompson Reuters, induction
into the Hall of Fame of Academy of Management, and “best paper” awards from the top journals in his field.

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This article is licensed to you, Shamel Janbek of Hewlett Packard, for your personal use through 2018-10-31. Further posting, copying or distribution is not permitted. Copyright 2016-07-19
Harvard Business Publishing. All rights reserved.