The Most Daring CEOs Were Forged in Fire (and Flood, and Earthquake)

Here’s a tip for helicopter parents grooming their offspring to be swashbuckling corporate executives: Buy a house on a fault line.

Childhood exposure to natural disasters affects risk tolerance later in life, according to a working paper by three business school professors. According to the research, chief executives who lived through catastrophes with high death tolls turned into cautious captains of industry. CEOs who experienced milder disasters, on the other hand, became desensitized to the negative effects of risk.

The study (currently titled “What doesn’t kill you will only make you more risk-loving: Early-life disasters and CEO behavior”) fits into a growing genre of academic research that plumbs CEOs’ life experiences for insights into their management styles. Past reports have argued that CEOs who grew up in the Great Depression are averse to debt, and that executives who fly small aircraft are inclined toward risky behavior.

The authors of the disaster study—Gennaro Bernile, Vineet Bhagwat, and P. Raghavendra Rau—started with two data sets: One includes the birth dates and birthplaces of 1,700 chief executives who led companies in the S&P 1500 between 1992 and 2012. (The researchers disqualified about 250 CEOs born outside the U.S. and nearly 5,000 for whom they couldn’t find reliable biographical information.) The other data set aggregates historical records of tornadoes, mudslides, and other catastrophes sorted by U.S. county.

From there, researchers looked at fatalities and economic damage caused by disasters in each CEO’s birth county when the executive was between the ages of 5 and 15. Companies led by executives with moderate exposure to disasters had higher debt ratios and smaller cash holdings and were more likely to acquire other companies—all measures of riskiness, according to the study.

What you may perceive in those statistical gymnastics is that the authors didn’t actually talk to the executives and have no way of knowing how the disasters affected their subjects. (The authors say they took pains to make sure the CEOs still lived in the places they were born when the disasters occurred.) That should nip in the bud the voyeuristic tendency to picture, say, a pig-tailed Mary Barra marching home through an ice storm. Helicopter parents can probably just move to the seaside—and stop short of sending their kids to play in a hurricane.

Investors and corporate boards, meanwhile, can use the findings to help predict how executives will perform. The bigger point, says co-author Rau, a professor at the University of Cambridge’s Judge Business School, is that there are gradations in how life experiences affect executive behavior. “If you’re a Vanderbilt, you’re less exposed to the Depression than if you’re on the soup line,” he says.

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