In leadership circles, confidence is often praised as a prerequisite for decisive action, bold vision, and organizational momentum, yet it becomes far more controversial when it tips into overconfidence. Many organizations have lived through the consequences of leaders who believed too strongly in their own judgment, pushed initiatives too aggressively, or dismissed warning signs that later proved costly. At the same time, history repeatedly shows that transformative innovations rarely emerge from cautious, consensus-driven leadership alone, especially in technology-driven industries where uncertainty, long timelines, and high failure rates are the norm. This tension creates a real strategic puzzle for firms that want to innovate meaningfully without gambling recklessly with resources, reputation, and long-term viability.
What complicates this puzzle further is that overconfidence is not an occasional behavior but often a stable cognitive trait, particularly among top executives who have risen through repeated success and reinforcement. Organizations cannot simply switch it off when it becomes inconvenient, nor can they realistically hope to replace every leader who exhibits it. Instead, the more practical question becomes whether firms can design governance environments that harness the upside of overconfidence while containing its most damaging tendencies. A recent research article directly addresses this challenge by examining when, and under what conditions, overconfident CEOs actually help firms produce the kind of technological breakthroughs that shape industries rather than merely sustain them.
The Research Behind the Question
The article When Do Firms Benefit from Overconfident CEOs? The Role of Board Expertise and Power for Technological Breakthrough Innovation, authored by Priscilla S. Kraft, Teresa A. Dickler, and Michael C. Withers and published in the Strategic Management Journal, tackles a long-standing inconsistency in executive leadership research. Prior studies have shown that overconfident CEOs are more likely to invest in innovation, yet the outcomes of those investments have been mixed, ranging from exceptional success to highly visible failure. Rather than attributing these mixed results solely to executive psychology, the authors turn attention to the corporate board as a critical but underexamined part of the equation.
The study’s core objective is to understand how boards can shape the consequences of CEO overconfidence, particularly in the context of technological breakthrough innovation, which the authors define as the most valuable and influential class of innovations. These are not incremental improvements or efficiency gains, but inventions that establish new technological paradigms and create long-term competitive advantage. By focusing on this high-stakes outcome, the research speaks directly to strategic leaders who are less concerned with routine innovation metrics and more focused on transformative growth. The article positions the board not as a passive overseer, but as an active governance mechanism capable of amplifying or suppressing the effects of executive confidence.
The Practitioner’s Dilemma in Plain Terms
For boards and senior leaders, the dilemma explored in the study is immediately recognizable. Overconfident CEOs tend to see opportunities where others see risk, move faster than their peers, and commit resources boldly to uncertain initiatives. These traits can be precisely what is needed to pursue breakthrough innovation, where hesitation often means missing the window of opportunity altogether. Yet the same traits also increase the likelihood of misjudging complexity, underestimating resource requirements, and ignoring dissenting views that could improve decision quality.
From a governance perspective, this creates a clarifying but uncomfortable reality. Trying to neutralize overconfidence entirely may eliminate the very drive that fuels ambitious innovation, while allowing it to operate unchecked invites strategic overreach. Boards therefore face a subtle but critical responsibility: they must neither rubber-stamp bold ideas nor reflexively constrain them. Instead, they must find ways to guide, challenge, and discipline overconfident leadership without extinguishing its creative force, a balance that most governance frameworks discuss in theory but rarely examine empirically.
How the Study Was Conducted
To move beyond conceptual debate, the authors analyzed longitudinal data from U.S. publicly listed firms operating in high-technology industries, where breakthrough innovation is especially consequential. CEO overconfidence was measured using a widely accepted behavioral proxy based on stock option exercise patterns, capturing executives who repeatedly delay exercising deeply in-the-money options because they believe firm performance will continue to exceed rational expectations. This approach avoids subjective judgments and anchors the construct in observable executive behavior.
Breakthrough innovation was measured using patent citation data, focusing on the top one percent of most highly cited patents, which prior research has shown to correlate strongly with technological importance and long-term value creation. Board expertise was operationalized by examining whether directors had prior experience overseeing breakthrough innovations in other firms and industries, while board power was captured through a composite index reflecting independence, tenure, ownership, and structural authority relative to the CEO. By combining multiple high-quality data sources over more than a decade, the study provides a robust empirical foundation for examining how leadership psychology and governance interact over time.
The Findings That Matter Most
One of the study’s most important findings is that CEO overconfidence, by itself, does not reliably lead to more breakthrough innovation. This directly challenges the popular narrative that bold, self-assured leaders are inherently better innovators at the highest level. Instead, the research shows that overconfidence becomes beneficial only under specific governance conditions, particularly when boards possess both relevant expertise and sufficient power to influence executive decision-making.
Firms led by overconfident CEOs and governed by boards that combined deep innovation expertise with real authority produced substantially more breakthrough innovations than the average firm. In contrast, firms where boards had power but lacked relevant expertise performed significantly worse, even compared to firms with weaker boards overall. This counterintuitive result highlights that authority without understanding can be more damaging than limited oversight, especially when leaders are predisposed toward risky, ambitious initiatives.
Making Sense of the Results
Interpreted more broadly, the findings suggest that overconfidence functions as an amplifier rather than a standalone driver of outcomes. When paired with expert boards, an overconfident CEO’s tendency to pursue bold ideas is refined through informed questioning, better prioritization, and more disciplined resource allocation. The board’s expertise allows it to recognize which risks are inherent and acceptable in breakthrough innovation, and which reflect preventable misjudgments.
However, when boards possess power without expertise, they are more likely to suppress or misdirect innovation efforts, either by blocking promising initiatives out of fear or by intervening in ways that lack strategic nuance. In such cases, overconfident CEOs may either be constrained into safer but less impactful strategies or pushed into poorly guided compromises that dilute innovation potential. The study therefore reframes board effectiveness as a function of alignment between authority and competence, rather than the presence of either attribute alone.
What This Looks Like Inside Organizations
In real organizations, these dynamics surface in how boards engage with innovation proposals, capital allocation decisions, and long-term strategy discussions. Boards with relevant experience tend to challenge assumptions constructively, ask better follow-up questions, and understand that early failures are often part of the breakthrough innovation process rather than evidence of incompetence. Overconfident CEOs facing such boards are more likely to refine their thinking, adjust timelines, and allocate resources more realistically without abandoning ambition.
By contrast, boards that rely primarily on formal authority often default to blunt controls, financial short-termism, or risk aversion, particularly when they lack firsthand experience with innovation-driven growth. In these environments, overconfident CEOs either disengage from board input or become increasingly defensive, reducing the quality of strategic dialogue. The study’s findings suggest that these patterns are not merely cultural but have measurable consequences for innovation outcomes over time.
Implications for Leaders and Boards
For organizations serious about generating breakthrough innovation, the study offers a clear but demanding message. Appointing directors with genuine experience in innovation-intensive environments is not a symbolic gesture but a strategic necessity, especially when leading executives exhibit strong confidence and ambition. At the same time, boards must be structured to retain real influence, ensuring that expertise can shape decisions rather than remain advisory in name only.
Equally important, firms should be cautious about governance reforms that increase board power without addressing board capability. The research shows that this combination is particularly harmful when paired with overconfident leadership, as it suppresses innovation without improving decision quality. Ultimately, effective governance does not eliminate executive bias but absorbs and redirects it, transforming personal traits into organizational assets through informed oversight and credible challenge.
In returning to the original question, the study makes clear that overconfidence is neither a flaw to be eradicated nor a virtue to be celebrated unconditionally. Its value depends on the governance environment in which it operates, particularly the board’s ability to combine expertise with authority. When this balance is achieved, confidence becomes a strategic engine rather than a liability, enabling firms to pursue the kinds of breakthroughs that redefine industries rather than merely follow them.
