How to deal with narcissistic, toxic leaders

Every organization has them: toxic leaders who sacrifice others for their selfish needs. At the very least, these managers can make our jobs difficult or derail our investigations and, at worst, commit fraud. Here’s how to deal with them.

As fraud examiners, it’s inevitable that we’ll encounter many types of difficult people over the course of our careers — not only those whom we’re investigating but also our co-workers and bosses. This can be especially challenging when we’re dealing with toxic individuals who demonstrate undesirable personality traits such as narcissism and even psychopathy. Many of these people become leaders. To be successful, we need to be able to deal with those who have these unusual inclinations.

Tomas Chamorro-Premuzic writes in his 2019 book, “Why Do So Many Incompetent Men Become Leaders (And How to Fix It),” that people who are “… self-centered, entitled, and narcissistic … tend to emerge as leaders and take control of resources and power in a group. …” These traits occur more in men than in women (hence his book’s provocative title).

Such toxic leaders are “… overconfident … and very much in awe of themselves, particularly in light of their actual talents. … Yet these flaws seldom hamper their career prospects,” Chamorro-Premuzic writes.

Toxic leaders portray a high degree of overconfidence and self-belief that others favorably perceive as competence. As a result, these leaders likely have risen to senior positions. As Chamorro-Premuzic writes, “Competence is how good you are at something. Confidence is how good you think you are at something. Competence is an ability; confidence is the belief in that ability. … Another reason for the pervasiveness and persistence of overconfidence is that it is an effective mechanism for deceiving others.”

Although these traits can have self-fulfilling effects (i.e., fake it until you make it), they can also cause significant damage to organizations. As Chamorro-Premuzic writes, “When confident people lack competence, their best bet is to hide it from others.” Paraphrasing Chamorro-Premuzic, because of this, toxic leaders actively manage their reputations to ensure they’re perceived as being exceptional when they’re actually less competent than they’d have you believe.

It’s often harder for us to objectively judge competence at the higher echelons of organizations because goals and targets are broader, less defined and take time to measure. Chamorro-Premuzic writes, “… Organizations often assume that a leader’s career success reflects his or her performance — the more senior a leader, the more talented the person must be. … Often, we can only see the data clearly after the leaders have left their … footprint on their teams and organizations."

Despite their demonstrated confidence (or overconfidence), toxic leaders may be incompetent and place organizations at significant risk through their decisions, actions and behaviors. Although most leaders in business do not demonstrate these behaviors and are in positions of authority because they’re good leaders, toxic leaders may actually be more prevalent in organizations than we previously thought. And people with these traits may be more likely to occupy positions at higher rungs on corporate ladders. Toxic leaders can demonstrate both narcissistic and psychopathic tendencies, which according to Chamorro-Premuzic, are “dark-side” traits that together with Machiavellianism are collectively referred to as the “dark triad” and can “present problems for society in general and for the corporate world in particular.”

In the October 2004 Harvard Business Review article, “Executive Psychopaths,” author Gardiner Morse writes that, according to Robert D. Hare, Ph.D., “… Psychopaths are increasingly common in business because they’re attracted to the pace and volatility of today’s hypercompetitive workplaces.”

According to Hare and Paul Babiak, Ph.D., in their 2006 book, “Snakes in Suits,” about 1% of the population can be identified as psychopaths, with another 10% falling into the gray area where they have enough characteristics to be of concern to others. In the corporate world, however, they estimate that psychopathic individuals make up even more than 1% of managers and executives. Based on a study they conducted, they found that about 3.5% of high potential executives fit the profile of a psychopath.

Babiak and Hare also write in “Snakes in Suits” that companies can mistakenly attribute a psychopath’s behavior to desirable leadership skills such as “… the ability to make hard decisions, to keep their emotions in check, and to remain cool under fire.” Often, such persons are also charismatic. Babiak and Hare write, “… it is easy for someone — anyone — to confuse behavior that is psychopathically motivated with expressions of genuine leadership talent.” While toxic leaders can possess a degree of competence and talent, at least some of them aren’t opposed to cheating to amplify their abilities to a higher level, which was arguably the case with cyclist Lance Armstrong, for example. (See “Lance Armstrong: Narcissism and What Lies Behind It,” by Joseph Burgo, Ph.D., Psychology Today, Jan. 18, 2013.)

Patrons, pawns, patsies

Toxic leaders with these traits or tendencies get what they want by fostering three types of relationships with other members of organizations characterized by Babiak and Hare as patrons, pawns and patsies. Toxic leaders manipulate the position power of patrons (i.e., power derived from a high or influential position in an organization) by cultivating positive impressions of their work and personality so patrons will endorse them to others and help toxic leaders advance their careers.

Pawns have assets that toxic leaders want to exploit such as technical abilities (expert power), access to information (knowledge power) or the ability to make use of staff, money or other assets, such as expertise (resource power). And toxic leaders can abandon pawns and patrons once they no longer need their influence or resources, turning them into patsies who may not even realize they’ve been exploited or victimized.

Empathy switched off

Simon Baron-Cohen writes in his 2012 book, “The Science of Evil: On Empathy and Origins of Cruelty,” that empathy can be defined as the “… ability to identify what someone else is thinking or feeling, and to respond to their thoughts and feelings with an appropriate emotion.” He states that this process involves at least two stages: recognition and response.

Baron-Cohen writes that toxic leaders’ “… attention has a single focus [on a] current interest, goal, wish or plan … with no reference to another person’s thoughts or feelings.” Their empathy response is switched off, and they end up treating other people as objects in the selfish pursuit of their own goals, ultimately making many of these people patrons, pawns and patsies.

We can have difficulty in identifying toxic leaders who display these traits. In the “Executive Psychopaths” article noted above, Gardiner Morse writes that psychopaths are hard to spot because they are chameleons with a “… cunning ability to act perfectly normally and indeed be utterly charming, as they wreak havoc on the lives of the people around them and the companies they inhabit.”

Toxic leaders abound in case histories, such as the oft-studied frauds of Bernie Madoff and Elizabeth Holmes, for example. Madoff, who recently died, was a New York financier for history’s largest Ponzi scheme. He defrauded thousands of investors out of tens of billions of dollars until his scheme was uncovered, and he was sentenced to 150 years in prison. (See “Madoff’s legacy,” by Dick Carozza, CFE, Fraud Magazine, July/August 2021.)

At one point, Holmes was the world’s youngest female self-made billionaire. She was the founder and CEO of Theranos, a company that claimed to have developed blood analysis technology. This claim was later proven to be false, and Holmes was ultimately charged with fraud and other felonies.

Her trial began in early September 2021. Her legal team reportedly considered asserting that Holmes was unable to distinguish between right and wrong due to a mental defect. (See “Elizabeth Holmes may say she committed fraud because of ‘mental disease,’” by Eric Lutz, Vanity Fair, Sept. 11, 2020, .)

Looking back over the decades of my career, I can recognize that I’ve likely encountered many persons on numerous occasions who demonstrated toxic-leader behaviors. These included colleagues (yes, fraud examiners aren’t immune from becoming toxic leaders), direct reports, executives, clients and investigation subjects.

But keep in mind that you should always avoid labeling someone as a psychopath (as repeatedly stressed by Babiak and Hare).

Toxic leaders can take advantage of our competence, weaknesses

Those who truly demonstrate competence and expertise can threaten overconfident and potentially incompetent toxic leaders, who are focused on maintaining their reputations and status. Toxic leaders can target CFEs who take pride in developing and demonstrating these very qualities to the highest level of ethics and professionalism.

Paradoxically, as Chamorro-Premuzic writes, “… the most competent people will exhibit much self-criticism and self-doubt, especially relative to their expertise.” In fact, “… top performers consistently [underestimate] just how much better they [are] than their peers” and “… the more you know, the more aware you are of what you know and what you don’t. Expertise increases self-knowledge, which includes awareness of one’s limitations.” Toxic leaders can take advantage of the self-criticism and self-doubt of the most competent people to call their credibility and reputation into question (including CFEs).

How can we identify and deal with toxic leaders? It’s not easy but drawing from guidance from Babiak and Hare, I’d suggest these steps: First, and most importantly, we need to ensure that we’re aware of our personal faults, weaknesses and vulnerabilities, and use tactics to prevent toxic leaders from exploiting them. We can do this via honest self-reflection, candid conversations with trusted friends or perhaps by seeking guidance from professional psychological counselors.

Second, we need to be wary of first impressions and regularly apply some critical thinking and common sense to social interactions. Again, toxic leaders can be charming and will devote an inordinate amount of time, effort and attention to managing their reputations. We need to try not to be deceived by either their charm or the surrounding hype. It’s worthwhile to cross-check your impressions with other people who’ve had significant interactions with someone you think may be a toxic leader. Keep in mind, however, that this isn’t foolproof because these sources may be patrons, pawns or patsies who are unaware and unwilling to accept how toxic leaders have manipulated them.

Third, once you know you’re dealing with a toxic leader, seek out someone inside or outside of your organization whom you trust and who’s more experienced than you. Then, candidly discuss the situation with them and obtain their advice. Also, again, seek external advice from a professional counselor.

Wisely tagging toxic leaders

We need to know how to identify toxic leaders in our organizations so they don’t hinder our responsibilities and cases. We also need to rigorously follow professional guidance and best practices of our profession to ensure that we collect sufficient valid evidence to confirm observations and conclusions when we’re conducting investigations. And, as always, we need to work with management to ensure that adequate controls, checks and balances are in place to curb improper and potentially fraudulent behaviors and actions of everyone in the organization, including toxic leaders.

Murray D. Wolfe, CFE, CPA, CA, is the chief audit executive of a large agricultural cooperative in western Canada. Contact him at murraywolfe96@gmail.com.