There has been a recent surge in scholarship on the issue of concentration of power in the CEO, and the subsequent consequences for shareholder wealth maximization and board primacy. There is a general consensus among scholars that, in general, more powerful CEOs (relative to the board as representative of the corporate shareholders) can exacerbate agency conflict, resulting in suboptimal corporate strategies that are detrimental to corporate performance, and as a result, damaging to shareholder interests as well. The basic cause of this excessive power with CEOs lies in the outside board members being dependent on the CEO for their selection, continuation, and remuneration. More problematic is the fact that if a board is populated with a large number of firm executives (inside directors) directly reporting to the CEO, the board power is further compromised. These inside directors, as executives reporting to the CEO, automatically become deferential to the CEO in the hierarchical corporate structure. The proposed solution is to have more outside directors who are not firm employees subordinate to the CEO, and hence, independent of the influence of the CEO.
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