A UK-based on-line news and discussion format, Management-Issues, has posted two items in the past couple of days that are of interest here. Both are related to the behavior of management and its relationship to, or effect on, company interests and the bottom line.
The first reports a study by two university professors comparing the home-purchases of CEOs with their companies’ stock prices. At first glance, this might appear to be yet another warning that we have too many PhDs out there clambering to find a way to break into the limelight. But this particular result may actually be more insightful than amusing.
The findings are that when a CEO’s home is larger than a threshold size, or when a new one is purchased which is substantially larger than the CEO’s current home, the company’s share price deteriorates over the following year. This, compared with an average increase in share value of 6% for companies whose CEOs content themselves with more modest accommodations.
The item suggests that CEOs who splurge on their homes may either feel unduly safe in their positions, or they sense that something may be going wrong at work, so they sell some shares while the selling is good, and use part of the proceeds to finance their dream home.
Another possibility, however, may be that this is yet another symptom of the imperial CEO syndrome, and that the self-aggrandizement of the CEO combined with the decline in share value are just the to-be-expected consequences of self-referential arrogant detachment.
The other item reports the results of a study of corporate fraud in Europe, the Middle East, and Africa. It revealed that nearly 9 out of 10 of the perpetrators are managers, and that fully two-thirds are members of senior management.
This is yet more evidence, should we need any, that managers’ interests and those of their companies’ owners do not naturally coincide. We need to reverse the tendency to associate a company’s identity with its managers. A company should be identified with its board of directors - whether an informal coalition of founders, a more formal grouping of direct investors, or a board of directors of a public company.
Such a board should be wholly independent (we’ll discuss what that means in the near future), focused actively on the strategic identity and direction of the company, and meaningfully engaged in ensuring that those are effectively executed by hired management. The company’s identity should derive, after all, from its strategic purposes - not from the self-aggrandizement of its managers which; it must be noted, has its source in inattentive boards.
Indeed, such a board would serve to release and discipline the formidable and essential power of professional management to accomplish its strategic and operational potential. As Peter Drucker cautioned, managers need strong boards.
—
Why not take a moment to subscribe to these posts, now? We’ll be glad to have you aboard!
Technorati Tags: corporate fraud, Peter Drucker, Management-Issues, Boards, CEOs, Corporate Crime, Corporate Governance, Ethics
Similar Posts:
- Pay for performance now
- CEOs join the unemployment line
- Boards, Bosses, and Bookies: Who’s in charge?
- Hitting the deck running
- Leadership from within
One Comment
Jim,
Isn’t the inverse relationship of threshold size and stock price fascinating? Yet, I confess, I wasn’t really surprised. And that bothers me.
Having spent exactly half my life working at organization effectiveness in one form or another, apparently my inner passion is becoming jaundiced by the increasing narcissism and self interest of many executives.
The idea of independent boards vs. celebrity CEOs is something I’ve been touting for a while. I’m eager to see your follow up post.
Keep up the discerning writing…
Post a Comment