Although insiders tend to have more detailed information about firm
operations, they are likely to be reluctant to confront a CEO in a boardroom
situation. ’ Several authors have suggested that CEO’s may use their leadership
position on the board to dictate the agenda of the board meetings and minimize
dissent. ‘Traditional agency and legal perspectives on corporate boards
generally do not address how top managers respond to the threat of greater board
monitoring and control over their decision making. But losing structural sources
of power as a result of greater structural board independence from management
may prompt CEOs to initiate specific interpersonal influence attempts, such as
ingratiating and persuasion toward board members. CEOs may be especially prone
to such behavior because of their high intrinsic power motivation. In addition,
the ambiguity and uncertainty inherent in CEOs performance provides ample
opportunities for interpersonal influence. These factors may reinforce a more
basic, psychological response to the threat of losing control.’ Frequently
CEO/chairman duality reduces the ability or willingness of outside directors to
challenge the CEO. Comparatively, when CEOs are deprived of official
administration over affairs as the chairman, they lose their command over the
agenda of the board . IV Qualifying factors affecting CEO Duality Special
factors affecting CEO duality include informal CEO power, and board vigilance. A
CEOs source of informal power does not necessarily depend upon his position.
Informal power can be acquired through reputation, prestigious contacts or
affiliations with other companies . CEO duality can often reflect informal CEO
power. ‘Pfeffer(1978) argued that centralized structures such as CEO duality is
more likely to arise when informal power is concentrated in a CEO.’
Board vigilance depicts a powerful board that has a strong influence on the
company. There exist two types of powerful boards, they either share leadership
with or command power over the CEO. Board vigilance combines those two
categories into one characterized by high board power irrespective of the
relationship with the CEO . CEOs often consider powerful boards to be supportive
and encouraging of their efforts. A powerful board will, however, step in when
the firm's strategy falters. Powerful boards have greater expertise, more
awareness of their responsibilities, and more efficient internal processes than
do weak boards (Pearce & Zahra, 1991). V Conclusion In conclusion, Vigilant
boards seem to favor CEO duality because it promotes a totality of command at
the top of a corporation that safeguards the existence of strong leadership.
‘The agency problem theory implies that firm’s do so to reduce the agency costs
associated with the separation of ownership and control. The normal succession
theory suggests that firms adopt a dual leadership structure as part of the
normal process used to replace a retiring chair/CEO. The evidence in this study
supports both theories. Specifically, firms most likely to use the dual
leadership structure to control agency problems experience statistically
significant improvements in performance over the three-year period following the
leadership structure change. Further, the firms in this subsample that also
replace one or both senior managers experience greater performance improvements
than those firms that only change leadership structure. These findings are
consistent with the agency problem theory. Firms that are most likely to use the
leadership structure change as part of a normal succession process show no signs
of performance improvement after the leadership structure change. This finding
is consistent with the implications of the normal succession theory’.
Conceptualizing CEO duality as a double-edge sword, researchers have
drawn two conclusions: 1) Research on corporate governance may benefit when
potentially contradictory theories on organizations and agency relations are
considered simultaneously . 2) It is especially important that researchers
investigating corporate governance recognize that CEOs and boards do not always
have different interests . Therefore, it is not possible to draw a positive
conclusion in addressing this issue. There are apparently numerous factors
involved, and so many conditions that apply, it seems that a firm would have to
base their decision on the dynamic existing among executive management and the
board members.
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