Is a Powerful CEO Good or Bad for Shareholders?

5 Pages Posted: 13 Nov 2012 Last revised: 3 Sep 2013

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: November 13, 2012

Abstract

Americans tend to admire powerful leaders. Powerful leaders are seen as exerting influence over their organizations and shaping outcomes around them. CEO power can be exercised across a wide spectrum of decisions, including those regarding corporate strategy, operations, acquisitions, organizational design, culture, and governance.

However, it is not clear the extent to which having a powerful CEO is beneficial to an organization. CEO power can be positive or negative, depending how it is manifested and how it is exercised.

We examine this topic in greater detail, and ask: Are shareholders better or worse off with a powerful CEO? Where should the board draw the line between giving its CEO discretion and providing appropriate oversight? How much power is too much power?

Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.

Keywords: corporate governance. chief executive officer, power dynamics, leadership

JEL Classification: G3, G30, L2, M1, M12

Suggested Citation

Larcker, David F. and Tayan, Brian, Is a Powerful CEO Good or Bad for Shareholders? (November 13, 2012). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance and Leadership No. CGRP- 28. Available at SSRN: https://ssrn.com/abstract=2175191 or http://dx.doi.org/10.2139/ssrn.2175191

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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