Factoring the Motivations of Managerial Personnel in Modelling a Firm

Abstract

We all want to be promoted to a higher position for reasons of more power, higher pay, more duties, but seldom to handle more responsibilities. At least, the above are the prevailing norms in many economies and firms around the world. But, in that case, how could modern firms, especially multi-national companies be relatively well managed and making good profits? Given that there is an apparent correlation between management skills and amount of profits at firms, there must be elements in modern corporate governance that guards against selecting selfish and incompetent people for managerial positions except in cases where there is systemic low-level corruption in the economic system. For example, promotion to a managerial role typically requires virtues of honesty, diligence, and being a team player who is able to work and share knowledge with others. These character traits are usually discerned through interviews and annual performance reviews reports. Hence, in most firms, there is a hard-wired corporate governance structure that guards against promoting self-serving people. However, there is another important but more nuanced aspect of motivation to run a firm at the executive level. Such positions carry enormous responsibilities, and personnel are personally responsible to the country’s legal system for serious managerial misdeeds. Take, for example, the decision to expand operations by investing in a new chemical plant in an emerging economy. Various factors guide and promote this decision with some bordering on sinister motives. While an honest executive may remain honest at the top level, there may be instances of small infringement that could ultimately set the stage for a sudden collapse of the company many years down the road. It is with this in mind that we need to come up with measurable parameters to factor in the motivations of managerial personnel in a firm. Possible ways include quantifying the level of efficiency and robustness built into the firm. An example would be the level of spare cash reserves of the firm as well as the leverage ratio and debt positions of the company. Poorly run companies teetering on the brink of collapse may borrow heavily to fund speculative short-term investments in commodities or stocks that are irrelevant to its core business. Overall, we as global citizens need a more refined understanding of the motivations of managerial personnels in global companies that may be supplied by quantifying, as a start, the spare cash reserves, leverage ratio, and debt ratio of the firm. Further research may yield more insights and measurable parameters for the task.

Keywords: motivations, managerial personnel, global companies, leverage ratio, debt position, size of spare cash reserves,