How Childhood Social Class Influences CEO Risk Taking

The American Dream symbolizes the opportunity for individuals from any social class or background to achieve occupational success via a “rags to riches” transformation. In fact, some of the most successful CEOs were born into very humble beginnings, including Howard Schultz (Starbucks), Ursula Burns (Xerox), and Lloyd Blankfein (Goldman Sachs).

The CEOs listed above are prime examples of people who have achieved upward mobility, or the movement from a lower social class to a higher social class. However, the change in social class does not mean that these individuals have forgotten their roots. On the contrary, the social class in which a person is raised contributes to his or her attitudes, values, and expectations. These experiences are not easily ignored, even when an individual achieves upward mobility. As a result, a CEO’s social class background can influence his or her decision making well into adulthood.

THE IMPORTANCE OF SOCIAL CLASS ORIGINS

Preferences, dispositions, and behaviors are partially shaped by the social class in which people were raised. For example, higher social classes are generally associated with economic security, abundant material resources, and a financial safety net. However, for individuals from lower class backgrounds, life experiences generally involve scarce resources, uncertainty, and lack of control.

As a result of these differences, individuals from higher social classes have more flexibility to engage in risk-taking because the consequences of failure are not as severe as for those from lower classes. These perceptions about risk taking extend into the workplace. Thus, a CEO’s social class origin can continue to influence the extent to which he or she engages in business-related risk-taking, an assertion recently tested in a study of S&P 1500 CEOs (Kish-Gephart & Campbell, 2015).

STUDY DESIGN AND RESULTS

Data for the study were collected from CEO surveys and publicly available organization information. In total, 276 CEOs from S&P 1500 companies completed the survey, which included a measure of their social class background. Strategic risk taking was measured by three organizational outcomes: research and development spending, capital expenditures, and long-term organizational debt.

The results showed that CEOs who grew up in higher social classes were more likely to engage in strategic risk taking than those from the middle class. In addition, CEOs from lower social classes were also more likely to engage in strategic risk taking than those from the middle class. Those from higher social classes engaged in more strategic risk taking than those from lower social classes. As a result, it appears that childhood economic status can foster values and behavior that persists even when people achieve upward mobility.

THE IMPACT OF EDUCATION AND EXPERIENCE

Although social class affects the extent of CEO risk-taking, the relationship between social class origin and risk-taking is also influenced by the college institution the CEO attended, as well as his or her breadth of work experience. In the current study, CEOs from lower class backgrounds who attended an elite college institution were less likely to engage in strategic risk taking than those who did not attend an elite college. Alternately, an elite education did not influence the decision-making of CEOs from high social class origins.

The authors suggest that CEOs from lower class origins who attend elite colleges may be less likely to experience the benefits of increased resources and social networks that are often associated with the elite college experience. Thus, obtaining a degree from an elite institution does not seem to grant CEOs from lower social classes the freedom to engage in risk-taking behavior.

In addition, a CEO’s breadth of experience affects strategic risk-taking. CEOs who have accumulated experience in a variety of functional business areas (e.g., marketing, accounting, engineering), are likely to have broader knowledge, wider social networks, and more ideas. As a result of the increased experience, CEOs have more “tools in their toolbox” to rely upon, thereby increasing their strategic risk taking.

Taken together, the study results reveal that higher social class origins (as compared to middle or lower class) are associated with greater CEO strategic risk taking later in life. Further, a CEO’s education and work background influence the extent to which he or she engages in strategic risk taking.

PRACTICAL IMPLICATIONS FOR ORGANIZATIONS

This study is one of the first to consider how social class origins influence employees’ workplace behavior, even after upward mobility has been achieved. Although social class is a major contributor to one’s values, beliefs, and preferences, it has received little attention in organizational research. Thus, it is important for organizations to consider how employees’ social class backgrounds foster a foundation upon which future decision making occurs.