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Does Upbringing Impact CEO Risk Taking?

Does Upbringing Impact CEO Risk Taking?
Credit: Africa Studio/Shutterstock

A new study in the Academy of Management Journal discovered that social class origins have a lasting influence on executive decision-making. Specifically, socioeconomic backgrounds affect how willing corporate leaders are to taking strategic risks.

"Social class origins of top executives help to explain their risk-taking preferences at the firm level years later, such that CEOs of lower and upper social class origins take greater strategic risk than their middle class counterparts," the study's authors wrote.

For the study, researchers surveyed 265 CEOs on which of five categories – upper, upper-middle, middle, lower-middle and lower – best described their family while they were growing up. They then analyzed how social class, and its interaction with education and functional career diversity, related to strategic risk-taking, as gauged by three measures for each year of the CEO's tenure: company spending on research and development, capital expenditures, and value of long-term debt.

The study's authors found that in general, CEOs raised in the two top and two bottom family categories surpassed those in the middle in terms of strategic risk-taking, with the executives from upper- and upper-middle class backgrounds the biggest risk-takers of all. [In Business, Risk-Taking Doesn't Always Start at the Top ]

"Having grown up with an abundance of resources, individuals from the upper social classes have experienced the benefit of a substantial safety net [so that they] tend to perceive the world as safe, welcoming, and full of opportunity," the researchers wrote.

The study's authors believe the risk-taking of CEOs from the bottom two steps of the socioeconomic ladder can be attributed to them having less to lose and their possible willingness to accept the potential downside of a risky decision.

"The middle class safety net is smaller and less secure," the study's authors wrote. "Such that those from the middle classes are especially motivated to maintain their current position and minimize the likelihood of status loss."

The research did discover that attending an elite college did lower the levels of risk- taking that CEOs from the bottom social class levels were willing to take.

"Rather than having nothing to lose, individuals of lower class origins who have graduated from an elite institution now have a 'positive balance,'" the study's authors wrote. "As one CEO from a lower social class background communicated to us, 'You don't need to throw another Hail Mary pass if you're ahead by 20 points.'" 

On the flip side, attending a top college had little effect on the risk-taking of CEOs with upper- or upper-middle-class roots. The researchers attribute this to a belief that getting an elite education is not unexpected, so they likely don't identify any increases in their economic or social capital.

Joanna Tochman Campbell, one of the study's authors and an assistant professor at the University of Cincinnati, said the research doesn't mean organizations should base their executive hiring process on how candidates were raised.

“No one ought to hire a CEO based on social class, but, hopefully, the insights of this paper and other research it prompts will add a layer of understanding to interactions that occur every day in executive suites and more broadly in corporate life," Campbell said in a statement.

The study was co-authored by Jennifer Kish-Gephart, an assistant professor at the University of Arkansas

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.