Decision-Making & Analytics
The many factors that shape risk make it a complex issue. Boards responsible for choosing leaders must understand this complexity to make sure the CEO’s attitudes match the company’s goals. Because while CEOs often rely on their executive teams for guidance, the influence of their spouses, though less visible, can be equally profound. As Systrom and Ellison illustrate, spouses can contribute ideas that change, or inform, business strategies. And our research findings confirm this. Using data from S&P 500 bosses and their spouses, we studied how cultural differences in risk preferences affect corporate decisions. We traced the country of origin for each CEO and their spouse based on their personal biographies from various sources (Census records, Marquis Who’s Who biographies, Ancestry.com, etc). With these biographies, we pinned down the cultural origins of CEOs and their spouses. Then, we assigned each CEO and each spouse a risk-attitude measure that reflects their cultural origins based on Hofstede’s country-level Uncertainty Avoidance Index (UAI), which was developed to gauge how comfortable a culture is with ambiguity. Using this measure, we found a link between the difference in UAI scores and corporate risk-taking. A relatively more risk-averse spouse led to safer business decisions, reflected in reduced fluctuations in a company’s return on assets. To ensure the robustness of these results, we controlled for various factors, including CEO traits, company characteristics, and broader industry trends. We also addressed potential concerns about biases, such as the possibility that CEOs might choose spouses with similar risk preferences.
The data revealed a low correlation between the risk preferences of CEOs and their spouses, confirming that the spousal influence is distinct. We then ran extra tests to confirm the results weren’t caused by specific company traits or the sequence of events. For instance, we examined whether companies hired CEOs with risk attitudes that matched their needs, and found no link between prior corporate risk-taking and CEO selection.
personal and professional worlds are closely connected. The implications are clear. Boards may already consider the cultural origins of a CEO when making hiring decisions. But our findings suggest that they could deepen this understanding by also examining the cultural background of the CEO’s spouse, providing a fuller picture of the leader’s risk profile. Our research contributes to a growing body of literature on how personal life intersects with corporate decision-making. Prior studies have shown that factors like having daughters or cultural heritage shape CEO behaviour. Our findings also align with broader research on how culture influences financial decisions, from mergers and innovation to stock market participation. Cultural norms, we argue, can be transmitted between spouses, subtly shaping attitudes towards risk that ripple out into the corporate sphere. The implications extend beyond the boardroom. Risk-taking drives innovation and economic growth, but it also carries potential downsides, such as volatility and overreach. A deeper understanding of what shapes risk attitudes can help companies strike the right balance. Ultimately, our research invites a re-evaluation of how people think about leadership and decision-making. CEOs are not isolated figures making choices in a vacuum. Their attitudes towards risk are shaped by a constellation of factors, including their most intimate relationships.
TO THE CORE
1. CEOs with a risk-averse spouse tend to take fewer corporate risks. This challenges the traditional view of leadership as an isolated endeavour. 2. While CEOs often rely on their executive team for guidance, their personal relationships can have a less visible but equally profound influence that informs business strategy. 3. Boards should not directly probe into a CEO’s personal life, but they should recognise that their attitudes to risk are influenced by a web of environmental factors. This can help them to choose a leaders whose attitudes align with the company’s goals.
of home improvement retailer Lowe’s, values his wife’s input on business decisions ranging from store layouts to customer service improvements. These anecdotes highlight a simple yet profound truth – the personal dynamics of leaders continue to ripple far beyond the home. My research, published in the Journal of Corporate Finance and co-authored by Carina Cuculiza, Alok Kumar, and Lizhengbo Yang, uncovers a surprising insight into these dynamics. CEOs with more risk-averse spouses tend to lead companies that take fewer risks. What’s more, the effect is big. When a spouse is markedly more risk-averse, corporate risk-taking drops by about eight per cent. This challenges traditional notions of leadership as an isolated endeavour. It suggests that, in order to understand a CEO’s risk profile, companies need to look beyond the individual to the relationships and cultural influences that shape them. The implications for boards and corporate governance are clear. Boards should not, in my view, directly probe into a CEO’s personal life. However, they should recognise that risk preferences are
shaped by a web of environmental factors that are often overlooked by traditional assessments. After all, risk attitudes are a fundamental driver of decision- making. They influence how CEOs invest resources, manage projects, and pursue innovation. “While CEOs often rely on their executive teams for guidance, the influence of their spouses, though less visible, can be equally profound” For businesses, these choices affect growth, shareholder returns, and long-term value creation. But risk preferences are not static traits. While genetics play a part, the risk preferences of corporate bosses are also shaped by culture, surroundings, and close relationships. This includes the influence of spouses.
T here has been this impacts their approach to leadership, innovation, decision- making, and risk. Far less attention is paid to a quieter influence that often operates behind the scenes: their spouses. Consider two well-known examples. Instagram co-founder Kevin Systrom credited his wife, Nicole, for suggesting the iconic filters that improved the app’s user experience. While on vacation, Nicole remarked that she might not use Instagram because her photos didn’t look as polished as those of Systrom and his friends, who enhanced their images with filters. This simple observation sparked the creation of Instagram’s first filter, X-Pro II. That feature became pivotal to the app’s success. Similarly, Marvin Ellison, CEO extensive research into the individual characteristics of CEOs and how
There were several other factors that affected the degree to which a CEO was influenced by their spouse’s attitude to risk. CEOs from cultures that value group connections over individualism were more affected by their spouses, highlighting the role of collective decision-making. The length of a marriage also mattered – spousal influence was stronger in newer marriages where preferences differ, but this effect faded as couples’ attitudes aligned over time. Shared responsibilities, like raising children or managing a mortgage, brought spouses’ risk preferences closer together, which further impacted corporate decisions. This shows how the
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