SGS Brownbag - Markus Menz, University of Geneva
The Kingdom Within: Performance Effects of the Power Gap between the CEO and Divisional Head (Co-authored by Fabian Barnbeck and Markus Menz)
Wednesday 5 December 2018 (12h00 - 13h00) - Extranef - 126
In contemporary corporations, the relationship between the corporate CEO and the divisional heads is potentially contested and characterized by political conflicts, because of differing interests and views. We argue that the more powerful the divisional head relative to the CEO the more likely are power contests, which may harm the overall firm. An analysis of 827 CEO-divisional head pairs in S&P 500 firms from 2004 to 2013 reveals that the power of the divisional head relative to the CEO’s – measured as differences in tenure, compensation, ownership, and board membership – is negatively related to firm performance. The results also show that this effect is contingent upon the division’s subunit power, which is represented by its business weight relative to the overall firm, as well as its attractiveness for the firm’s portfolio. Overall, our study suggests that the CEO should be aware of too powerful divisional heads, because they may influence the corporate agenda and performance.