Featured Research

from universities, journals, and other organizations

Wealth and greed: How independent boards, managerial discretion, CEO tenure affect shareholder wealth

Date:
June 20, 2014
Source:
University of Delaware
Summary:
The pursuit of extreme wealth by top managers can lead to lower performance and loss of shareholder value, a new study finds. But, a powerful board or long CEO tenure can moderate the impact.

Yes, Virginia, there is greed. Greedy managers. Corporate greed. Greedy behavior. In fact, a web database search shows you can find such phrases in the business press over 18,000 times, confirming the subject's popularity in everyday media. But you need not fear greed, Virginia, because believe it or not, you can moderate it.

In a forthcoming article in the top-ranked Journal of Management, new research by University of Delaware assistant professor Katalin Takacs Haynes examines the effects of greed on shareholder wealth and looks at whether various contextual factors, like a strong board of directors, CEO tenure and discretion make the situation better or worse.

The findings? Although the pursuit of extreme wealth by top managers can lead to lower performance and loss of shareholder value, a powerful board or long CEO tenure can moderate the relationship between greed and shareholder return.

To come to this conclusion, Haynes worked with co-authors Joanna Tochman Campbell of the University of Cincinnati and Michael A. Hitt of Texas A&M University to conduct an analysis of over 300 publicly traded firms from multiple industries, examining stock market returns and dividends and conducting interviews with a set of top executives and an independent panel of experts -- including academic scholars and senior business executives -- from a variety of disciplines.

They also examined CEO cash compensation to that of the next most highly paid executive in the firm, as well as CEO "overpayment," or the portion of the CEO's total pay that exceeds what could be explained by factors like a firm size, prior performance and firm risk.

"Self-interest is OK but eventually it reaches a tipping point," said Haynes. "When it is taken to the extreme -- when it becomes greed -- it is detrimental to firm value."

Haynes added, though, that a key piece of the puzzle is to understand that managers are not uniformly greedy as the popular media can sometimes suggest, rather they differ in their pursuit of material wealth.

"Some CEOs appear to direct more of the firm's resources toward themselves than others and this can occur more when managers have a lot of discretion or have a short tenure, or if the board is weak," said Haynes. "Interestingly, we found that the negative effects of executive greed on shareholder wealth decrease as CEOs experience more time in their role."

Arriving at a definition of greed was also important to Haynes and her coauthors because in the academic world -- the world where future generations of executives are taught business ethical and managerial behavior -- the term remains largely undefined.

"It's not that greed has never been discussed -- there are studies about wealth and selfishness, hubris and power, some even related to the excesses that led to the recent economic crisis," said Haynes. "But many rationalize the writings of Adam Smith, the father of capitalism, to mean that the unbridled self-interest of individuals creates value, from which society benefits universally. Yet Adam Smith was also a moral philosopher who differentiated between greed and self-interest, and warned against excess in his writing."

"Further," said Haynes, "the popular business press, while often invoking greed, fails to circumscribe or define it." The result is a blurred line between self-interest and greed, and Haynes and her team wanted to find a way to measure that.

After two rounds of external validation from interviews with senior business executives and analysts from a variety of industries, the researches arrived at a definition of greed as the desire for and pursuit of extraordinary wealth.

"There was a unanimous opinion of our interviewees that wealth didn't need to be realized for greed to exist, and that high level of wealth was not the same as greed," said Haynes. "It's the desire for and active pursuit of extraordinary wealth that is associated with greed."

It should be pointed out, added Haynes, that while employees at all organizational levels may have the desire for extraordinary wealth, they may not be in a position to pursue it, while top-level executives are more likely in a position to pursue and even realize wealth.


Story Source:

The above story is based on materials provided by University of Delaware. The original article was written by Kathryn Meier. Note: Materials may be edited for content and length.


Journal Reference:

  1. K. Takacs Haynes, J. T. Campbell, M. A. Hitt. When More Is Not Enough: Executive Greed and Its Influence on Shareholder Wealth. Journal of Management, 2014; DOI: 10.1177/0149206314535444

Cite This Page:

University of Delaware. "Wealth and greed: How independent boards, managerial discretion, CEO tenure affect shareholder wealth." ScienceDaily. ScienceDaily, 20 June 2014. <www.sciencedaily.com/releases/2014/06/140620143922.htm>.
University of Delaware. (2014, June 20). Wealth and greed: How independent boards, managerial discretion, CEO tenure affect shareholder wealth. ScienceDaily. Retrieved July 23, 2014 from www.sciencedaily.com/releases/2014/06/140620143922.htm
University of Delaware. "Wealth and greed: How independent boards, managerial discretion, CEO tenure affect shareholder wealth." ScienceDaily. www.sciencedaily.com/releases/2014/06/140620143922.htm (accessed July 23, 2014).

Share This




More Science & Society News

Wednesday, July 23, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Courts Conflicted Over Healthcare Law

Courts Conflicted Over Healthcare Law

AP (July 22, 2014) Two federal appeals courts issued conflicting rulings Tuesday on the legality of the federally-run healthcare exchange that operates in 36 states. (July 22) Video provided by AP
Powered by NewsLook.com
What Self-Made Women Need to Know Financially Before Getting Hitched

What Self-Made Women Need to Know Financially Before Getting Hitched

TheStreet (July 21, 2014) Halle Berry was recently ordered to pay her ex-boyfriend Gabriel Aubry $16,000 a month in child support by a California judge for their daughter Nahla. As women make strides in the workforce, they are increasingly left holding the bag when relationships end regardless of marital status. 'What Monied Women Need to Know Before Getting Married or Cohabitating' discusses information such as debt incurred during the marriage is both spouse's responsibility at divorce, whether after ten years of marriage spouses are entitled to half of everything and why property acquired within the marriage is fair game without a pre-nup. Video provided by TheStreet
Powered by NewsLook.com
$23.6 Billion Awarded To Widow In Smoking Lawsuit

$23.6 Billion Awarded To Widow In Smoking Lawsuit

Newsy (July 20, 2014) Cynthia Robinson claims R.J. Reynolds Tobacco Company hid the health and addiction risks of its products, leading to the death of her husband in 1996. Video provided by Newsy
Powered by NewsLook.com
Clock Ticks Down on Internet Speed Debate

Clock Ticks Down on Internet Speed Debate

Reuters - US Online Video (July 18, 2014) The FCC received more than 800,000 comments on whether and how internet speeds should be regulated, even crashing its system. Lily Jamali reports. Video provided by Reuters
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins