From the cradle to the office, life experiences in the decisions of bosses

What is your weakness? Why do you love this job? Were you exposed to toxic chemicals in the womb? Some questions in job interviews are very common. Some questions are never asked, writes The Economist.

Early experiences, from the fetus to the first job, can influence how people behave at work decades later.

In a study published in 2023, Raghavendra Rau and co-authors at Cambridge University analyzed the effect of being born in highly polluted parts of America on company executives' willingness to take risks.

The researchers found that bosses who were born in areas later identified as highly polluted, infested with dangerous chemicals, took more risks than their peers, and these risks were usually not rewarded.

The authors believe that pollution has affected the brain development of these leaders.

Mr. Rau and Gennaro Bernile at the University of Miami and Vineet Bhagwat at George Washington University have also examined the effect of early exposure to natural disasters.

In a 2014 study, academics compared data on the incidence of tornadoes, earthquakes, and similar events with the biographical data of American-born executives to understand the connection between natural disasters experienced between the ages of 5 and 15 and the nature of business decision-making.

 

Bosses who had experienced a natural disaster in childhood that had claimed many lives tended to be more cautious in business and kept more cash aside than executives who had not experienced a major natural disaster.

But if the natural disaster had caused only a few deaths, the experience had led bosses to take greater risks in business. The study authors suggest that if the risks do not have extreme consequences, they may seem worth the risk.

Early life experiences don't just influence risk-taking. Corporate leaders in America who have experienced an extreme natural disaster also run companies with lower carbon emissions.

In China, regional politicians who moved to the countryside at a young age during the Cultural Revolution are more likely than their counterparts to pursue policies that benefit the rural poor.

Even the family environments where people grow up over the decades influence decisions about capital allocation.

Researchers found that bosses who grew up in homes where the father was the sole breadwinner and more educated than the mother continue to give male managers more generous budgets than female managers.

Economic background also influences job decisions. In 2017, Antoinette Schoar of the Massachusetts Institute of Technology and Luo Zuo of the National University of Singapore analyzed the career histories of over 2,000 U.S. company executives to see if they started their careers during a recession.

They found that bosses who had started work during a recession were more conservative and frugal managers, compared to those who had taken over during a booming economy.

This shift stems in part from the effect that economic downturns have on the workplace. Managers who started their careers during recessions are more likely to have started their careers in smaller or privately held firms, and working in these companies influences their leadership style.

The early state of the economy also has an impact on professional investors. A recent study by Jie Chen and co-authors at the University of Leeds found that fund managers who started their careers during a recession had better returns than others.

You might ask why these things matter. After all, it's no surprise that people are shaped by their experiences. Just as demographics aren't just luck, neither are disasters, economic downturns, or development problems.

Individuals can go against the tide or follow it. No one should be selecting job candidates based on their formative early years as people. And if we were concerned about the effects of natural disasters on victims, company executives wouldn't be at the top of the list.

But there are three good reasons to pay attention to studies of this kind. First, they show us that leaders are shaped by events and environments that were beyond their control. Luck plays a significant role in career success and talent.

Second, these studies can serve as an argument for the need for diverse experiences in organizations. And third, they show that events leave behind large, lasting traces.

At a time when America risks sliding into a self-inflicted recession, the consequences for managers and workers would be longer than a business cycle./MONITOR