Total Control: Corporate Governance, Firm Performance, and Possible Solutions for Reducing Downside Risk in Technology Companies with Dominant CEOs
31 Pages Posted: 12 Nov 2021
Date Written: May 01, 2020
Creative destruction and the popularity of dual class stock structures have led to a recent increase in chief executives who either control a majority of voting power within the company or exercise de facto control through their considerable influence. Public corporations with such powerful CEOs perform differently from traditional companies in statistically significant and often negative ways. Interestingly, studies show that companies with powerful CEOs in turbulent industries, like the technology sector, experience negative firm performance at higher rates than those in more controlled environments. Additionally, these dominant tech CEOs present a corporate governance challenge, one that has not been properly addressed by lax independence requirements for directors, who are often hand-picked by the dominant CEO and have little incentive to advocate aggressively for shareholder value. Traditional governance safeguards championed by activists and shareholder rights groups are also insufficient because of the dominant CEO’s control over the nominating and voting processes. As a result, activists, stock exchanges, regulators, and courts must get involved to minimize the negative aspects of CEO dominance that cannot be properly monitored by the board of directors.
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