By: George Avalos, Contra Costa Times

September 19, 2006, Contra Costa Times (Walnut Creek, Calif.)

Sep. 19--The captains of Corporate America don't have to be Tom Cruise to engage in risky business. Just being powerful is enough.

Powerful people tend to have a very optimistic outlook, according to UC Berkeley researchers in a recently published study. They often view life through rose-colored glasses. They believe things will turn out well even when taking part in risky, even unethical, behavior, the study determined.

"There seems to be this link between rising to an incredibly powerful position and engaging in incredibly risky behavior," said Cameron Anderson, an associate professor with the university's Haas School of Business.

The study comes amid a string of corporate scandals, some of which had their roots in the free-wheeling, go-go 1990s and some -- such as this month's scandal at Hewlett-Packard Co. -- with much more recent origins.

"We looked to a psychological theory that when people possess power, a lot of power, sometimes unmitigated power, they become blinded to the kind of risk involved in certain behaviors," Anderson said. "They become more focused on the potential upside. They become optimistic that the risk can pay off."

The Haas analysis, conducted in cooperation with researchers at Northwestern University, consisted of five experiments, all using college students. They found that subjects who were manipulated into believing they were in positions of power for the purpose of the experiment acted much differently from those who believed they had little or no power. The powerful people also had different views about their personal lives and even how the world works.

"Even a small amount of power can have a profound effect on their decision-making," Anderson said.

The corporate scandals of recent years, including the current furor over the HP management probe into media leaks at the company, as well as the ongoing controversy over back-dating stock options, could be tied to the bureaucratic cocoon that can insulate chief executives or other top company leaders.

"You have the possibility with a lot of these scandals that people engaging in these schemes or fraud were in a power bubble," Anderson said. "The top company people were given carte blanche over their situations. They were surrounded by yes men. That further inflated their sense of power."

In many cases, it takes a lot of character for CEOs to avoid the many opportunities to wield power presented to them, said Andrew Williams, co-director of the Moraga-based Center for Fiduciary Responsibility at St. Mary's College.

"A CEO is an extremely powerful animal," Williams said. "It is very easy for powerful people to think they can walk on water. It is a short step from that to believing they should be richly rewarded for their special traits and skills."

Yet the explanation for the risky and sometimes disastrous behavior displayed by CEOs may go beyond psychological traits. The lure of financial gain also is a key.

"My take is the real explanation is partly behavioral, partly economics," said David Larcker, director of the Corporate Governance Research Program at Stanford University. "This (Haas) study sounds intriguing. We're all kind of struggling to find an explanation for these kinds of things."

The Haas study, titled "Power, Optimism, and Risk-Taking," found that the powerful people in the experiments were more optimistic about personal future events, including that they would enjoy their post-graduation job and be able to avoid gum disease. They also believed they were more likely to avoid airplane turbulence. Others in power viewed the outside world as less dangerous. They believed floods, fires and heart disease were less of a problem than those who thought they had less power.

Attitudes about sex also came into play. Individuals with a high sense of power were more willing to engage in sexual intercourse without any protection.

Yet there is a positive side to the mind-set that can trigger risky behavior. Larcker pointed out that the Bay Area tech industry was built on people willing to take risks.

"In Silicon Valley, people pride themselves on being entrepreneurial and innovative," Larcker said. "People want to tackle risky sorts of projects. Even if you fail, you are seen as somebody who was willing to push the ball forward."

One venture capitalist, Peter Solvik with the San Ramon office of Sigma Partners, pointed out that Bill Gates and Michael Dell both dropped out of college to work on their fledgling companies full time. Jeff Bezos abandoned a successful job on Wall Street to launch Amazon.com.

"Look at the most successful entrepreneurs in history," Solvik said. "Passionate, successful entrepreneurs might embrace risk in order to achieve the Holy Grail."