Great leadership can come from people with all different types of personalities, but people usually tend to see a little bit of extroversion as a positive. After all, you need to go out and connect with people to find the right partners, employees, investors and suppliers. A study published in the Academy of Management Journal, however, shows that being seen as an extrovert actually can decrease the value of your business.

More extroversion, less value.

The study, summarized by the authors in Harvard Business Review, looked at how the market reacts to the personalities of CEOs. More specifically, the study focused on three of the "Big Five" personality traits (conscientiousness, neuroticism and extroversion). It also used a machine learning algorithm to predict personality for more than 3,000 S&P CEOs between 1993 and 2015.

The researchers, led by Joseph S. Harrison, found that CEO personality traits have an influence on how people perceive the company, which can influence both how volatile its stock is and how likely it is that increasing risk will result in higher returns to shareholders. Some of the major findings are as follows:

  • Companies with more conscientious CEOs generally had lower levels of stock volatility but generated higher stock returns at increasing levels of risk.
  • Companies with more neurotic and extroverted CEOs generally had higher stock volatility but had a harder time turning higher risk into bigger shareholder payouts--for extroverted CEOs, the relationship between stock risk and shareholder returns even was negative.
  • Conscientious CEOs experienced a decrease in stock risk of 2.59 percent, with increasing risk yielding a 3.83 percent increase in returns. With less conscientious CEOs, risk decreased returns by 1.7 percent.
  • Neurotic CEOs experienced a 2.04 percent higher stock risk and no returns for increasing risk. Comparatively, more stable CEOs found that increasing risk increased returns by 2.68 percent.
  • Extroverted CEOs experienced a 2.4 percent higher stock risk, with a 3.3 percent decrease in returns when risk increased. Introverted CEOs, however, saw a 5.43 percent increase in returns when risk went up.

Key Takeaways

Harrison and his team note that, based on the findings, it's worth it to manage how the public sees a CEO. Boards also need to be aware of personality traits when they decide who's going to be at the helm--an extroverted person might get promoted quickly, but they might not be the best option if you want to manage risk and create value.

But it's also worth pointing out that the leadership at different companies might want very different things from their CEOs, depending on what the company is trying to achieve and the industry it's set in.

For instance, in a PR or marketing firm, which depends on more aggressive social connection, more extroversion could be perceived as being more in line with the nature, objectives and comprehension of the business, thereby benefitting value. Conversely, in areas such as graphic design or software engineering, which tend to allow for more independent work, more introversion might have a similar influence.

In the same way, while CEOs might have a broad image they get across, different demographics might view the same CEO in varying ways. For instance, if you're in the millennial generation or younger, you might not see Elon Musk's unpredictable, pot-smoking antics as too consequential. If you're closer to retirement and have spent most of your career operating under a more shirt-and-tie, straight-and-narrow mentality, though, Musk could be a serious worry to you.

So boards have to consider the specific demographic they're aiming to reach when they decide who's going to lead, too.

As a final consideration, even if a CEO has a more extroverted personality, if there is significant additional leadership at the top that is more introverted, the public may see this essentially as offering a check or stabilizing force on the CEO.

Ultimately, companies need to see personality as important, as this study demonstrates. But personality is still only one component of overall effectiveness. The ability to deliver specific skills and the right level of experience matters just as much. If you're looking for a CEO, don't overly focus on one facet of the candidate, and if you're up for the job, make sure the business knows what you can do as thoroughly as they know who you are.