The New Managerialism and Diversity on Corporate Boards of Directors

Abstract

The tender offer phenomenon of the 1980s, the increasing power of institutional investors, and the greater mobility of capital in a global market place have focused the corporate governance system more than ever before on shareholder value. While benefits attend attention to shareholder interests, the shift in focus has introduced a new era of what I call the "new managerialism." What distinguishes the new managerialism from the old managerialism is greater short-term attention to stock prices. Opportunities exist for executive officers in the guise of the shareholder-value rhetoric and in second guessing stock market reactions to pursue their self interest. This focus on stock value permits ever-increasing compensation packages for executives which are justified by the use of stock price as the normative reference point for executive compensation. Moreover, the increasing disparity between the compensation of executives and lower-level employees becomes normatively irrelevant in an environment of corporate downsizing and shareholder value in which the legitimate and admired business behaviors are characterized by the marginalization of lower-level employees and the social and psychological distancing of executive officers from the persons they employ. Additional manifestations of this new managerialism are what is referred to as "earnings management" where accounting numbers are manipulated to influence artificially stock prices, unbridled growth, and short-term corporate cost cutting that leaves the corporation ill prepared for the future. At the end of the day this new managerialism, as with the old managerialism, neither serves the interests of shareholders nor other corporate stakeholders.

This article is about the new managerialism, its evolution and manifestations. It is also about a substantial grass roots movement for diversity in terms of gender, race and ethnicity on corporate boards of directors of public corporations. This "new" corporate social responsibility movement arguably has the potential to counter the negative consequences of a corporate governance system so myopically oriented to stock value. According to its proponents, diversity on corporate boards will serve to keep boards focused on the importance of the interests of non-shareholder stakeholders, such as employees and consumers, to the corporation's success. This article takes a socio-economic approach by examining the organizational behavior literature on the advantages and disadvantages of diverse boards in terms of process and outcome concerns. It ultimately concludes that the shareholder-centered structure of the U.S. corporation and the shareholder stock-price rhetoric that heavily surrounds the discussion of the diversity movement may ultimately defeat its purpose.

JEL Classification: K20