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

See all articles by Matthew Strand

Matthew Strand

University of Iowa, College of Law

Date Written: May 01, 2020

Abstract

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.

Suggested Citation

Strand, Matthew, Total Control: Corporate Governance, Firm Performance, and Possible Solutions for Reducing Downside Risk in Technology Companies with Dominant CEOs (May 01, 2020). Iowa Law Review, Vol. 105, No. 1899, 2020, Available at SSRN: https://ssrn.com/abstract=3927283

Matthew Strand (Contact Author)

University of Iowa, College of Law ( email )

Iowa City, IA
United States

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