Do Nice People Finish Last?

Are Founders with more agreeable characteristics better or worse than those with ‘dark triad’ and more disagreeable traits?

“Walker Cooper, Mize, Marshall, Kerr, Gordon, Thomson. Take a look at them. All nice guys. They’ll finish last. Nice guys. Finish last.”

“Do you know a nicer guy in the world than Mel Ott? He’s a nice guy. In last place. Where am I? In first place. I’m in first place. The nice guys are over there in last place, not in this dugout.”

These were the words used by the late Leo Durocher, a Major League Baseball Hall of Famer renowned for instilling a ‘win at all costs’ ethos into his 1938 Brooklyn Dodgers side. During his tenure, Durocher placed heavy emphasis on physically and psychologically intimidating oppositions, commonly using cunning tactics such as sharp spikes, beanballs, and umpire-baiting to gain the upper hand so we think it is fair to argue that he was not the ‘nicest of guys’.

This Seed of Wisdom looks to investigate whether investment managers with prosocial, agreeable personality characteristics are better or worse managers than those with ‘dark triad’ and more anti-social, disagreeable traits.

The Five-Factor Model is a common framework adopted by Robert McCrae and Paul Costa to measure the Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism of an individual. These factors are measured on a continuum and used to determine an individual’s personality traits such as being friendly, outgoing, considerate, and likeable amongst their peers. These traits are then used to infer whether an individual tends to pro-social behavior or leans towards having ‘dark triad’ traits including deceitfulness, ruthlessness, as well narcissism that involves further unrealistic feelings of grandiosity as well as psychopathic features such as dishonesty, egocentricity, and recklessness. One would assume that socially agreeable behaviors would contribute to the success of an investment firm, yet there are studies examining some of the personality traits that make up the Five-Factor Model that have shown a strong inverse relationship between pro-social behaviors and investment success.

“Not all psychopaths are in prison – some are in the board room,” Robert Hare famously said during his aptly titled work, The Predators Among Us.

Research has suggested several explanations for the financial detriment of ‘nice’ people. One possibility is that being agreeable can have a negative impact on negotiating styles since prosocial people are less confrontational than their competitive peers and therefore more likely to make concessions. Another argument is that individuals with more disagreeable traits are far more distrusting when dealing with counterparties during investment decisions and therefore less likely to be taken advantage of. A third reason involves the risk appetite of such personalities. An individual with a lower level of agreeableness might have less difficulty when making a decision whilst being typically less risk-averse and more aggressive as framed in terms of their expected utility theory.

Data published by Bortoli and Goulart further supports this, revealing a significant negative correlation between openness to experience and risk aversion. Similarly, a study by Nicholson and Soane found that aggressive risk taking was linked with high sensation seeking extraversion and low levels of conscientiousness. In essence, managers with high conscientiousness will pursue returns through hard work whereas people with low conscientiousness can often be seen as attempting to “get rich quick” and generate returns by taking chances rather than by employing a sustained and disciplined work ethic.

While it may appear that possessing specific negative personality traits benefit an investment manager, there are numerous conflicting areas of research arguing that managers with psychopathic tendencies generate lower absolute returns for their clients.

From a private markets perspective, a study published in June 2020 by Cooper Limon, DWS and MJ Hudson with the Warwick Business School and the British PE Venture Capital Association conducted research across 400 LPs, GPs and CEOs to understand the how emotional intelligence and the associated pro-social traits affected PE investment decisions as well as long-term industry relationships and ultimate success. The study found that 86% agreed the importance of ‘interpersonal chemistry’ both internally within an investment firm as well as externally with management teams and investors. ‘Relationships are critical in PE: GP with management teams; GP with LPs; LPs with other LPs.’ with the ‘greatest sources of disappointment and dis-satisfaction in regards to returns related to greed, dishonesty and lost trust’.

These findings were further confirmed by Max Suchanek’s study ‘The dark triad and investment behavior’ in the Journal of Behavioural and Experimental Finance where the influence of dark personality traits on a data set of 298 individuals led to significant overconfidence, herd mentality and detrimental returns.

From a more public markets perspective, published in the ‘Personality and Social Psychology Bulletin’ Dacher Keltner at the University of Berkeley analyzed videos of semi-structured interviews with 101 investment managers each managing between $40 million and $1 trillion in assets. By examining the association of certain personality traits with the managers’ financial performance over 10 diverse years of economic volatility, Keltner surmised that individuals with greater psychopathic tendencies actually produced lower absolute returns than their less psychopathic peers, and those with greater narcissistic traits produced even lower risk-adjusted returns. Managers displaying psychopathic tendencies one standard deviation above the mean earned 15% less on an investment of $1 million, compared with a manager who ranked average for psychopathy.

Along with lower absolute returns, numerous studies have linked the incidence of lower emotional intelligence and negative personality traits in managers to a reduction in business stability with high staff turnover, increased incidences of bullying and reduced productivity. Furthermore, individuals with low levels of agreeableness scores are less altruistic and willing to cooperate with others and instead are motivated to pursue personal ambitions rather than those of their team. This may not be especially important for a manager with very short-term goals, but for an individual seeking to build a successful investment firm and its culture, this trait is detrimental in a team environment. Even if a manager’s abilities were able to generate stellar returns, their disagreeable personality inherently inhibits their long-term success both from an investment point of view and in terms of attracting external capital with investors discouraged by limited team continuity.

In addition, in an industry where investor relationships are important, positive personality traits including the reputation and honesty of an individual is crucial. Investor networks are well connected and burning a bridge with one LP risks burning bridges with an entire community. How one defines a great person in life is arguably the same as investing in great people professionally. Merriam-Webster defines a great person as a person who is “trustworthy, kind, and thoughtful”, and although studies have found that perceived trustworthiness are not correlated with underlying fundamentals, such as the managers’ ability to generate returns – Founders judged by allocators as more trustworthy are more likely to survive when compared Founders who are rated as less.

In every Stable Partnership, we look to work with talented next generation Founders to build the investment managers of tomorrow. The presence of Machiavellianism within a manager has often proven to have negative implications for both performance, business stability and investor relationships and so we seek to filter this characteristic out through thorough analysis of a manager’s personality and background. Our investments are long term – we partner with Founders for +7+ years as we help them build their firms. We therefore take a long time to carefully evaluate the self-awareness, empathy, emotional intelligence and leadership ability of each potential Founder through background analysis, personality questionnaires, cognitive testing, unstructured social time as well as creative references. We like to speak to current and ex-colleagues, old friends, family, life partners, and even old teachers to give us a holistic insight into their personality and abilities.

In summary, whilst dark-side tendencies in a Founder can lead to a form of short-term investment success, these gains often come at the expense of the stability of the business which generated them and are unlikely to last as long-term investment propositions. As partners in the firms we back, our performance relies on performing consistently over long periods of time, and building enterprise value which is monetized at the end of our partnerships. For this reason, short-term performance over a couple of years will never rival the returns generated by building a solid business over a longer time horizon that can be monetized. The success of any Founder is arguably heavily influenced by the performance of their wider team, along with their reputation amongst the industry to attract and retain employees and investors. At Stable, we look to invest in the very best emerging talent that possess passion, grit, ambition and a high level of emotional intelligence – qualities inherent to create long term value. Not only is life too short to be surrounded by dark personalities – but building businesses is a long-term game. Short term profit might be achievable with aggressive tactics, but long-term stable value creation requires building trust and relationships that one can rely on for many years. Being a nicer person is not only a more enjoyable approach, but also a surer way to become a successful Founder.

• “The Five-Factor Model, Five-Factor Theory, and Interpersonal Psychology” – Paul Cost, 2012
• “Do Nice Guys Really Finish Last?” – Romeo Vitelli, 2018
• “Personality Traits and Investor Profile Analysis: A Behavioural Finance Study” – Bortoli & Goulart, 2019
• “Personality and Domain-Specific Risk Taking” – Nicholson & Soane, 2005
• “Hedge Fund Managers With Psychopathic Tendencies Make for Worse Investors” – Leanne ten Brinke, Aimee Kish & Dacher Keltner, 2017
• The dark triad and investment behavior – Max Suchanek, 2021
• “Deconstructing the psychopath: A critical discursive analysis” – Federman, C., Holmes, D., & Jacob, J. D, 2009
• “How ‘Being Nice’ Helps Start-Up Founders Secure Relationships with Investors” – Dacher Keltner, 2020
• “Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments” – Ankur Pree & Roy Zuckerman, 2013
• “Corporate psychopaths, conflict, employee affective well-being and counterproductive work behaviour” – Boddy, C. R, 2013
• “Narcissism and leadership: An object relations perspective” – K de Vries, 1985