Social class and childhood upbringing can have a significant impact on an individual’s ambitions, perspectives, and decisions. In a study of 265 chief executive officers (CEOs) from various S&P 1500 firms, researchers Jennifer Kish-Gephart and Joanna Campbell initiate one of the first research studies of the correlation between social class and strategic risk decision-making. You Don’t Forget Your Roots: The Influence of CEO Social Class Background on Strategic Risk Taking investigates how social class origins, education and work experience can shape how decisions are made and risks are taken as a CEO.

Impact of Social Class Origins

For the purposes of this research study, social class is defined as “a person’s perceived place in the economic hierarchy.”  These social classes are often categorized within three levels of class- higher, middle, and lower. The decisions, behaviors and perceptions of individuals in each of these classes can vary from one class to the next. While a person can evolve from their social class, conceding to the notion of “rags to riches,” it is argued that these origins have a lasting impact on risk-taking preferences.

For example, those of the higher social class are generally associated with economic and psychological security; individuals of this class are secure because they have a safety net of resources to rely upon if situations go awry. Thus, in the workplace, the higher class sees risk as opportunities, and in fact, welcome chances to take risks. Moreover, according to the research, these CEOs tend to be more optimistic, self-assured, and possess more self-control in the normal course of business.

On the other hand, those of a lower social class were more risk averse; this is attributable to their upbringing of having fewer resources when negative events occur. Any sort of error or deviation from a plan can have large consequences for this class, developing a heightened attentiveness to threats to the organization amongst CEOs. 

The executives from social middle class origins showed tendencies of having resources for basic necessities and limited additions (such as education and vacations). Within this class, people had a “fear of falling” into a lower class position due to a risky decision made and an unfavorable outcome to that decision. Interestingly, despite having more resources than the lower class, the middle class tends to be the most risk averse because of this “fear of falling.” CEOs of a lower class felt as if they had less to lose, and as a result, in comparison to the middle class, the lower class took more risks. As a CEO and someone from an origin of the middle class, calculated and cautious steps should be taken to ensure just the right amount of acceptable risk is taken.

Influence of Education and Experience

Decision making in the workplace is also shaped by a person’s educational and prior work-related experiences. More often than not, those of the upper social class attend elite universities, which improves their access to resources and valuable connections made with peers at the university. The upper class, having had experience and familiarity in navigating social situations with confidence and self-assurance, are able to capitalize on all of the resources that an elite university has to offer. However, the executives from lower classes who attended the same elite universities did not become more risk seeking in the workplace. This notion can be attributed to how an individual of a lower class may carry a stigmatized identity, causing them to feel uncomfortable or out of place in an elitist social situation; thus, these individuals do not take advantage of broadened resources or connections provided by the university due to avoidance of unfamiliar social interactions or threats.

Ultimately, the elite education influence allowed the upper class to continue the risk-seeking mindset, which did not detract or contribute to their prior behaviors. Simultaneously, the lower class executives continued to remain risk-averse in the workplace, even after having attended an elite university.

Continuously, prior work experience also has an impact on how decisions are made and risks are taken as a CEO. For example, amongst those surveyed, the CEOs with a wide breadth of experience in various functional areas are shown to be more risk seeking or more accepting of risks as opportunities. This is most closely related to the fact that more experience in knowing how a risk can affect the different functional areas will allow someone to become more comfortable with making a decision that will affect the whole organization. Conversely, the individuals with a more narrow tenure within a single functional area tend to adopt a risk-averse perspective because of a lack of knowledge of other functional areas needed to allow the CEO to feel tolerant of a particular risk.

Implications for Organizations

Organizations can utilize this correlation between a CEO’s background and the approach to risk taking in the course of business. Social imprints have a lasting effect on CEOs, which can determine how likely a choice or kind of action will become preferred or normative. They key takeaway from the research is that childhood social class or status matters throughout an executives’ professional and personal career. Even after many years of being removed from childhood, the lessons learned and the impact made is powerful enough to determine how a CEO will run the course of an organization. This insight provides explanations as to why executives vary in leadership style and strategic risk taking as a whole. 

Link: You Don’t Forget Your Roots: The Influence of CEO Social Class Background on Strategic Risk Taking

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ERM Enterprise Risk Management Initiative 2016-04-18