POWER AND CORPORATE CONTROL:
CEO SUCCESSION IN OWNER AND MANAGER CONTROLLED FIRMS
KEVIN C. BANNING
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
This research is dedicated to my children, Robert and Sarah Banning. May you
always possess a sense of wonder about the world.
Any endeavor such as a dissertation features a sizable supporting cast who make
the work possible. My thanks go to Henry Tosi, my committee chair, who showed me
that producing excellent writing is a craft which, though often laborious, is worth the
effort. I owe special thanks to John Hall who always gave sound advice. I am grateful
to Tim Taylor and Judy Scully for their time and patience in serving on my committee.
I also wish to thank Bob Thomas for his attention to my questions.
I extend my gratitude to my wife Allison, who served as a sounding board for my
concerns as well as being my most steadfast supporter. I am also grateful to my many
colleagues, both past and present, whose assistance was indispensable.
TABLE OF CONTENTS
ACKNOWLEDGMENTS .................................... iii
. .. . . .. vi
CHAPTER 1 INTRODUCTION AND LITERATURE REV
Theoretical Bases .. ..................
Managerial Capitalism and Agency Theory .
Power in Organizations .............
Sources of organizational power ....
Power in use .................
CEO Succession ..................
The Theoretical Model ...................
Corporate Control and the Board of Directors
CEO Power and the Board of Directors ....
Limitations of CEO Power ...........
Strategic Decisions .................
CEO Power and Strategic Decisions .......
Corporate Control and Strategy . .
Performance Implications ............
Summ ary .......................
CHAPTER 2 RESEARCH DESIGN ................
Sample and Data Collection ...............
Analytical Methods ......................
Variable Descriptions and Operationalization ......
Independent Variables ...............
Ownership concentration .........
Firm Size ..................
Firm performance measures .......
O rigin ...... ... ..... .......
Dependent Variables ...............
Board of director effects ........
Strategy effects ...............
Performance effects ......................... .53
Summary .............................. 54
CHAPTER 3 RESULTS .
Board Structure .
CHAPTER 4 DISCUSSION .......................
Implications for CEO Succession ................
Implications for CEO Power ...................
CEO Power and the Board of Directors .......
Implications for managerial capitalism .....
Implications for managerial power .......
CEO Power and Strategy .................
Implications for managerial capitalism .... .
Implications for managerial power .......
CEO Power and Firm Performance ...........
Implications for managerial capitalism .... .
Implications for managerial power .......
Suggestions for Future Research ..................
Sum m ary ...............................
REFERENCES ....................................... 84
APPENDIX A LISTING OF FIRMS AND INDUSTRY CODES .......... 92
APPENDIX B MEANS, STANDARD DEVIATIONS, CORRELATIONS .... 97
BIOGRAPHICAL SKETCH ................................. 98
Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
POWER AND CORPORATE CONTROL:
CEO SUCCESSION IN OWNER AND MANAGER CONTROLLED FIRMS
Kevin C. Banning
Chairperson: Henry L. Tosi, Jr.
Major Department: Management
Power and control, particularly the power of the chief executive, have inspired
significant research attention. One way to study CEO power is to isolate the
consequences of the appointment of a new chief executive because the period following
CEO succession involves significant adjustment for both the firm and the new chief
executive. During this time the new CEO will consolidate his or her control over the
firm's activities and resource allocations. Agency theory and managerial capitalism
suggest that the interests pursued by the firm's managers diverge from those of the firm's
owners. As a result the CEO may acquire and use power, vis a vis the board of
directors, in order to implement self-serving strategies or increase the level of
This research examines the acquisition and use of power by incoming CEOs
within the context of agency theory and managerial capitalism, which predict that the
ability of CEOs to acquire and use power would differ based on whether the firm is
controlled by its owners or its managers. The study extends existing work in these
theories and contributes to the knowledge surrounding the consequences of CEO
The results support the principal hypothesis that a firm's strategy, and ultimately
its performance, will differ with respect to whether the firm is owner or manager
controlled. At the corporate level of strategy, as defined by product diversification,
manager controlled firms were found to engage in less related diversification. These
firms also performed less well than did the owner controlled firms experiencing CEO
succession. CEO compensation risk was also smaller in firms controlled by managers.
The pattern of the results suggests that CEO power differs based on whether
owners or managers control the firm. The results also suggest that in addition to firms
controlled by managers, new CEOs have greater power when they are also chair the
board of directors, originate from outside the firm, or when following a predecessor
CEO who was dismissed from office. Overall, CEO power influenced the composition
of the board of directors and the strategies employed by the firm, and resulted in
differing levels of performance.
INTRODUCTION AND LITERATURE REVIEW
The acquisition, exercise, and maintenance of power have long fascinated
organization researchers because power is critical to understanding the decisions made
by social actors within organizations (Pfeffer, 1981). Power may be defined as the force
necessary to change another actor's behavior (Dahl, 1957) or the ability to bring about
desired outcomes (Salancik & Pfeffer, 1977). Power may also be understood as
managerial discretion, which is the latitude of managerial action within organizational
domains (Hambrick & Finkelstein, 1987). In this study, power and discretion are treated
The explicit study of power and power relations in organizations is important
because of the recognition that organizational decisions may be based on the self-interest
of political actors (Mintzberg, 1983; Pfeffer, 1981) rather than driven by purely rational
economic criteria (Child, 1972). These decisions therefore may have significant
operational consequences with respect to resource allocations (Pfeffer & Salancik, 1978).
The examination of power in business firms is an important research area. The reason
is that managers with power may further their own interests, rather than those of the
equity holders of the firm.
The exercise of power in the firm may alter organizational equilibrium, or the
balance of inducements to and contributions by individuals involved in the operations of
the firm (March & Simon, 1958). The firm provides inducements to its constituents,
including employees and stockholders, in return for their contributions of labor and
capital. By shifting resources, the exercise of power may disturb the balance of
inducements and contributions and therefore disturb the flows of labor and capital.
Further, changes in the organizational equilibrium stemming from different levels of
power may have economic consequences for firms. Indeed, Pfeffer (1981, p. 231)
argues that "power has consequences in organizations for resource allocations,
administrative succession, structures, and strategic choices." Ultimately, these
organizational decisions will affect financial performance and shareholder value, which
are important measures of organizational effectiveness.
The power literature has identified sources of organizational power, such as
control of key contingencies or resources (Hickson, Hinings, Lee, Schneck, & Pennings,
1971; Wernerfelt, 1984). Essentially Hickson et al. argued that control of information
or other resources constitutes a source of power for a firm's managers. Other research
has examined the consequences of power.in use for such organizational issues as resource
allocations (Allen, 1981; Pfeffer, 1981). In addition, organizational researchers have
explored the psychological bases of power experienced by individuals (McClelland,
1975). These bodies of research conclude that power is important but they leave several
issues, such as how power is acquired and maintained in organizations, relatively
In most instances, research focuses on the role of a chief executive officer. Chief
Executive Officer (CEO) power is an important variable in the study of organizations
because powerful executives (i.e., those with greater discretion) are more likely to
initiate consequential organizational change through their influence on the firm's decision
processes (Pfeffer, 1992) and, other than the board of directors, no individual or group
is thought to exert as much influence on the structure and conduct of the firm as does the
CEO (Mintzberg, 1983).
This seems to be especially relevant following the placement of a new chief
executive. This is because a new chief executive comes with the potential for dramatic
strategic shifts. Theoretical expositions by Pfeffer (1981) and Pfeffer and Salancik
(1978) posit that succession events, in which a CEO is replaced because of death,
resignation, or dismissal, often bring about significant organizational change. The
empirical support for these propositions is strong (Greiner & Bhambri, 1989; Grinyer &
Spender, 1979; Smith & White, 1987; Virany & Tushman, 1986). Thus, during the
period following executive turnover, firms may change strategies or internal structure
through the power and influence of a new CEO.
Although the executive succession and executive power research streams have
much in common, power is rarely explicitly modeled in succession research, except as
an antecedent of succession (Harrison, Torres, & Kukalis, 1988; Ocasio, 1994; Pfeffer,
1981). In addition, with the exception of broadly construed organizational change or
performance, little is known about the processes that lead to organizational change and
other specific organizational consequences of executive succession. Thus, the modeling
of succession consequences would benefit from the consideration of changes in power
following succession. Further, these changes may not be the same if there are
constraints on managerial power. One such constraint could be the power of equity
holders. That is, when there are some equity holders who have relatively large blocks
of stock, their influence on the board, and subsequently on the CEO, may limit his or
her discretion (Berle & Means, 1932; Marris, 1964).
This study examines these issues, i.e., post-succession outcomes of managerial
power processes in firms with differing levels of ownership influence. Through the
comparison of changes in the governance, strategies, and performance of firms
experiencing succession, and the introduction of ownership characteristics, this research
will provide insight into the acquisition and exercise of power in U.S. businesses.
The principal theoretical framework for this examination of power is derived from
a structural theory of intraorganizational power developed by Hickson et al. (1971).
They argue that power within the organization derives from the control of key resources
or decisions. As a result, power is less a function of a particular individual than of the
position within the organization. There are several structural determinants of
organizational power, which are discussed in the following section, that explain how
particular sub-units are able to acquire power and exercise influence within the
organization. The theoretical basis of power in organizations, as well as the literature
relevant to how power is acquired and used, is discussed in three parts: (1) managerial
capitalism and agency theory (2) power in organizations, including sources and uses of
executive power, (3) executive succession.
Managerial Capitalism and Agency Theory
A critical factor in the success of American business in general, and the publicly held
corporation in particular, is the need to attract huge pools of equity capital, which results
in the separation of ownership from control (Berle & Means, 1932; Lamer, 1966). The
separation introduces the possibility of divergent interests with respect to owners
(shareholders) and managers, a phenomenon first described by Berle and Means (1932),
and later called managerial capitalism by Marris (1964).
Managerial capitalism has led to important theoretical notions about the
relationship between the owners of a firm and those who exercise effective control.
Agency theory, a separate but related theoretical approach which posits the firm as a
nexus of contracts among principals and agents, has established a valuable method for
studying the information asymmetry problems associated with the principal-agent
relationship (Jensen & Meckling, 1976). Managerial capitalism and agency problems are
linked by McEachern (1975) as two tiers of the same fundamental issue. At the macro
level, managerial capitalism describes the effects of ownership and control separation on
firm activities, while at the micro level, agency theory details the effects of greater
information possessed by the agent or manager on the firm's activities.
Managerial capitalism predicts that when ownership is dispersed and managers
control the firm, managers will attempt to increase firm size and diversity because
managers of larger and more diverse firms can demand higher pay. Agency theory
explains how managers, in the absence of effective monitoring by owners and in the
possession of direct information about the firm and its performance, may effectively
control the corporation. Although both theoretical approaches greatly enrich knowledge
of organizations and the processes which underlie their performance, scholars have linked
agency theory and managerial capitalism to the various levels of strategy in an attempt
to understand the factors that motivate strategic choice and ultimately drive financial
The separation of ownership from control, stemming from the dispersion of
corporate equity to many owners, permits independent risk bearing and management
functions which may provide modem corporations with a specialization advantage (Fama
& Jensen, 1983). However, because the risk bearing and managerial functions are
separated, which is in contrast to the classical view of the firm in which these functions
are united in the entrepreneur, managers may be motivated to guide the firm in ways that
protect managerial interests, rather than those of the owners (Fama, 1980; Fama &
Jensen, 1983). The manager in a firm with dispersed ownership may draw excessive
compensation or take non-pecuniary perquisites because these costs are borne by the
firm's owners and not by the manager (Jensen & Meckling, 1976). More important,
because the ownership is dispersed among several owners, individual owners have
reduced incentive to monitor managerial decisions that might result in excessive
compensation or other outcomes which benefit managers (Fama & Jensen, 1983).
There is an active empirical literature that explores the firm-level behavioral
issues associated with the dispersion of corporate ownership (Allen, 1981; Amihud &
Lev, 1981; McEachern, 1975; Hill & Snell, 1989; Hunt, 1986; Walsh & Seward, 1990).
The behavior differences that researchers have observed between owner controlled firms
(where ownership is concentrated) and manager controlled firms (where ownership is
dispersed) are related to the propensity of managers, in the absence of effective control,
to maximize personal wealth, security, and utility functions (Amihud & Lev, 1981;
The implication for the firm's owners is that inappropriate strategies may be
pursued and inferior economic performance may result. For instance, managers might
focus on sales growth or product-market diversification strategies, rather than seeking to
maximize profitability, because a manager's employment risk is typically lower in a
larger firm while pay is higher. Consistent with this logic, Amihud and Lev (1981)
found that managers in firms with dispersed ownership were more likely to pursue
strategies involving unrelated diversification, which increases firm size. Hill and Snell
(1988, 1989) found similar effects and more important, they reported that unrelated
diversification was associated with lower firm performance. Other empirical research
shows that firms with concentrated ownership outperform firms with dispersed ownership
(Hunt, 1986; McEachern, 1975; Tosi & Gomez-Mejia, 1994; Ware, 1975).
Managerial capitalism and agency theory provide a theoretical frame for exploring
the power of CEOs with respect to the board of directors. Because managerial capitalism
and agency focus on control of the firm, these theories have formed the basis for inquiry
into variations among firms in corporate governance and strategy. By assuming that in
the absence of effective monitoring, managers will act more in their own interests than
in the interest of shareholders, the theories of agency and managerial capitalism provide
a link between a firm's governance structure and the strategic decisions made by
When the board of directors fails to act in the shareholders interest, managerial
goals like employment security and personal wealth maximization may dominate over
shareholder wealth maximization. Similarly, without some form of monitoring or
incentive alignment mechanism, managers will pursue goals that maximize managerial
interests rather than shareholder value (Jensen & Meckling, 1976). For example, Kerr
and Kren (1992) and Tosi and Gomez-Mejia (1989) found that monitoring the CEO's
decisions, which acts to reduce the chief executive's power, resulted in a stronger link
between CEO pay and firm performance. In addition, Tosi and Gomez-Mejia (1994)
reported that CEO compensation monitoring was associated with increased firm
Other studies show that managers, and the CEO in particular, are more likely to
make decisions that are based on personal interests, rather than those of the firm, when
the influence of external owners is low or nonexistent (Hunt, 1986). These decisions
include corporate growth (Amihud & Lev, 1981; Hill & Snell, 1988), executive pay
(McEachern, 1975; Gomez-Mejia, Tosi & Hinkin, 1987; Tosi & Gomez-Mejia, 1994),
and technology strategy (Hill & Snell, 1989; Baysinger, Kosnik & Turk, 1991).
CEO power may also stem from the ability to influence the board of directors
through social influence or director appointments. For example, O'Reilly et al. (1988)
reported that the level of external compensation received by the board of directors was
positively associated with the CEO's own level of pay. As a result, they concluded that
powerful CEOs exercised their influence on the board of directors through outside
director appointments. A CEO's power with respect to the board may also be exercised
through social influence processes. For example, Tosi and Gomez-Mejia (1989) found
that CEOs in management-controlled firms, where discretion is high, exerted more direct
influence over their own compensation packages than did CEOs in owner controlled
firms. Similarly, Wade, O'Reilly, and Chandratat (1990) found that powerful CEOs
were more likely to receive golden parachutes in the event of a takeover.
Typically the board of directors serves as the mechanism through which outside
owners monitor the decisions made by managers. However, the board is subject to
manipulation by the CEO, who may also have greater decision control through the
board's structure (e.g., if the CEO is also the board chair) or composition (e.g., if the
board is composed of outside members, particularly those nominated by the CEO).
The chief executive's relative power with respect to the board of directors stems
from control of resources, financial or human, and the form and strength of managerial
decision monitoring by the board. The implication of these arguments for CEO power
is straightforward: under conditions when ownership influence is low and CEO power
is high, the chief executive will likely exert greater control over the strategies and
decision processes in the firm; and because the goals of managers and shareholders are
thought to diverge, shareholder value may suffer. The section that follows will discuss
organizational power in a more general sense and continue to develop the theoretical
consequences of CEO power and discretion.
Power in Organizations
Conceptualizing power as the ability to bring about desired outcomes raises
the question about how the power of the chief executive is acquired, maintained, and
used in organizations. Hickson et al. (1971) argued that operating departments,
divisions, or sub units have power if they control strategic contingencies, which are
activities on which other sub units depend. In addition, sub unit power depends on how
effectively the subunit copes with uncertainty, how central the unit's activities are to the
workflow (centrality), and how easily the activities could be substituted substitutabilityy).
A similar logic can be applied to the power of the chief executive. A CEO who controls
key resources or information gains power relative to other managers or the board of
directors. However, due to the strategic and non-programmable nature of the chief
executive's work, the substitutability and centrality dimensions of power are less
important for the purposes of this examination of chief executive power. The control of
key contingencies and effectiveness of coping are critical aspects of the chief executive's
position because these are roles often taken by the chief executive. More important, the
control of strategic contingencies and coping with uncertainty contribute to CEO power
and influence. The two sections that follow will identify and discuss sources and
consequences of CEO power.
Sources of organizational power
To understand how power is maintained in organizations it is necessary to
understand its underlying sources. Chief executives may acquire and maintain power
through structural arrangements, like those involving the board of directors and its formal
relationship to the CEO, or through the exercise of personal influence. Pfeffer (1981)
argues, following Hickson et al. (1971), that power stems from the control of resources
or skills in the five dimensions of the organization; provision of resources, coping with
uncertainty, irreplacability, decision influence, and political influence. (These sources
and uses of executive power are also modeled in Figure 1.1.)
Provision of resources. The provision of resources involves the allocation of
financial, human, and information resources to the various activities of the firm and it
is the dependence of others on these resources that creates power for the chief executive.
The chief executive influences resource allocation by acting as organization strategist.
Because the CEO appropriately serves as chief strategist (Barnard, 1938), and this role
involves the allocation of organization resources, the CEO may control fiscal or
informational resources on which other organizational members depend.
Coping with uncertainty. Because all organizations operate in environments that
feature less than perfect certainty, managers of all firms must select coping strategies in
order to operate. Members of the organization, including employees, other executives,
and outside (non-employee) board members, require that uncertainty be managed or
absorbed (March & Simon, 1958). The chief executive may gain power through his of
her ability to cope with and/or interpret environmental uncertainty. Firms face external
environments that contain ambiguous cues and the chief executive may be permitted wide
latitude in interpreting the environment.
Substitutability. A third organizational dimension that can create power for the
CEO is irreplacability. This involves the possession of unique skills or abilities, or the
1~ 0 C
4) .~ 0-
control of other resources, for which there are believed to be no reasonable substitute.
To the extent that others in the organization believe that the CEO has unique and
valuable abilities, the CEO gains power in that organization.
This effect of substitutability appears to be strongest in firms where the CEO has
the greatest power. Research has shown, for example, that CEOs in firms where the
managers maintain effective control of the firm, are less likely to be replaced than those
CEOs in firms controlled by owners (McEachern, 1975; Pfeffer, 1981). The implication
for CEO power is that it is easier for a CEO to maintain the perception of irreplacability
in firms where he or she already exercises significant power.
Decision influence. The ability to affect the decision process in an organization,
such as through the board or committee chair positions, represents a source of power
stemming from decision influence. If the CEO can control decision premises, limit the
alternatives that are considered, or control information about the alternatives, then his
or her power is enhanced because these activities reduce the CEO's dependence on the
board of directors, and consequently the powerful CEO is less dependent on influential
Political influence. Similarly, the exercise of influence on others inside and
outside of the organization creates power for a chief executive. The successful exercise
of political skills, through the selection of directors or executive managers for example,
represents the fifth source of power in an organization because the CEO may reduce his
or her dependence on the firm's owners. In summary, each of the five dimensions
creates power for the CEO, vis a vis the firm's owners or the owners' representatives
(the board of directors), either because of a resource dependence or political influence
process. The consequences of the power obtained by the CEO are discussed in the
Power in use
A central focus of this study is how power is used within the organization. Once
an individual acquires power, that person is likely to attempt to maintain that power
through its institutionalization (Pfeffer, 1981; Mintzberg, 1983). This involves the
creation and preservation of structural and personal means of influence. Structurally,
power could be institutionalized through a particular organization design or division of
executive responsibilities that concentrates decision-making authority in a particular
position. Power stemming from personal influence could be maintained by attracting and
retaining, in key organizational posts, individuals who are sympathetic to the focal
executive's agenda. Hence, when studying power, it may be useful for organizational
researchers to seek evidence that the power structure, particularly the power of the chief
executive, has become institutionalized (Salancik & Pfeffer, 1977). In addition,
examination of other changes, beneficial to those in power, in those organizational
dimensions thought to be influenced- by power in organizations would benefit
An initial step in identifying areas where chief executives may institutionalize
their influence is to assess how a CEO impacts resource allocations and the politics of
organizational structure (Pfeffer, 1981). There is evidence to support the notion that
some CEOs allocate resources, acquire authority, and create organizational structures in
such a way as to maintain control vis a vis the shareholders (Fizel & Louie, 1990;
Furtado & Karan, 1990).
Longer organizational tenure appears to be one characteristic of CEOs who are
more able to influence resource allocations and organizational structures within the firm.
Hill and Phan (1991) found that increased CEO tenure led to increased executive
compensation. They also reported that tenure was positively associated with CEO
influence over the board of directors. Similarly, Mallette and Fowler (1992) reported
that increased tenure and the dual appointment as chief executive officer and board chair
increased the resistance to takeovers. Increased CEO tenure also results in reduced
research and development expenditures, a strategy that is associated with inferior long-
term returns to investors (Baysinger et al., 1991). Similarly, Finkelstein and Hambrick
(1990) found that the level of commitment to strategies providing financial returns near
the industry average, rather than strategies with higher payoffs but more variability,
increased as executive tenure increased.
Although returns near an industry's average are not generally beneficial to
stockholders, who can achieve average returns through a diversified portfolio, such levels
of profitability can improve a CEO's job.security. If a firm's returns are below average
in a given period, the CEO faces an increased likelihood of dismissal (Jensen &
Meckling, 1976). For this reason, firms in which the CEO exercises effective control
over the board would more likely pursue strategies that yield only average returns while
firms in which the board is relatively more powerful would be expected to pursue
strategies that would provide superior long run returns. Thus, it appears that tenure may
provide the CEO with greater discretion over activities and decisions in the firm.
Conversely, when the board is more influential than the CEO with respect to the
firm's strategic choices, the result is that resource allocations are likely to be more
beneficial to the firm's owners. For example, under conditions of decision monitoring
by the board, research has found that the CEO's performance is more tightly linked to
pay and is, on average, lower in total than those CEOs in firms where there is little
decision monitoring (Kerr & Kren, 1992; Tosi & Gomez-Mejia, 1989). In addition,
Allen (1981) reported that the level of CEO pay was smaller, controlling for firm size
and financial performance, in firms where at least one owner held a significant block of
equity. Thus, the empirical tests of low levels of decision monitoring, which result in
increased CEO discretion and power vis a vis the board of directors, are consistent with
other measures of CEO power.
Westphal and Zajac (1995b) confirmed the relative power argument developed in
this research. They tested the impact of CEO power (relative to the board of directors)
on how long-term incentive plans were announced by firms. They found that when the
chief executive was also the board chair and had longer organizational tenure, proxies
for higher relative CEO power, the firm's explanation for long-term incentive pay
centered on executive ability and power. When the board chair and chief executive
positions were separate and CEO tenure was shorter, the firm's explanation for long-term
incentive pay centered on the board's control of management. They concluded that CEO
power affected both the symbolic and substantive realms of CEO compensation.
In another approach to measuring CEO power, Pearce and Zahra (1991) studied
CEO power in Fortune 500 firms using a questionnaire to CEOs and other senior
executives that assessed CEO power, board power, and board conduct. They concluded
that firm performance declined as CEO power increased.
Powerful CEOs may also build and maintain power through other structural
measures, such as appointing boards of directors that are more likely sympathetic to the
executive's agenda. O'Reilly et al. (1988) showed, for example, that as the level of
outside compensation for external board members increases, so does the level of CEO
pay. They speculated that by virtue of appointing highly compensated outside directors
to the board, CEOs may boost their own pay levels. Indeed, this relative power
explanation for the level of chief executive pay was supported by Westphal and Zajac
(1995a), who found that higher levels of CEO power relative to the board resulted in
higher levels of board similarity and executive pay. These increases in measures of
board and CEO similarity as well as in the ratio of outside board members are associated
with increased CEO pay without a corresponding increase in firm performance (O'Reilly
et al., 1988; Westphal & Zajac, 1995a). In addition, CEO pay is higher in firms which
have a larger proportion of outside directors (Fizel & Louie, 1990; Westphal & Zajac,
1995b), despite the notion that directors from outside the firm would more likely limit
the power of the CEO.
As a whole, this body of research suggests that CEO power with respect to the
board of directors has important consequences for several firm level outcomes. It
appears that significant resource allocation decisions (e.g., executive compensation,
research and development intensity) as well as the corporate governance structure, are
affected by CEO power with respect to the board of directors. One conclusion that may
be drawn from this body of evidence is that executive discretion is a function of
characteristics such as longer tenure, the appointment to both the CEO and board chair
positions (Rechner & Dalton, 1991), and the lack of external ownership influence.
Although very few of these studies explicitly assessed CEO power, all utilized measures
that are theoretically consistent with decision latitude and organizational power.
In addition to the traditional sources of executive power (e.g., holding both the
CEO and board chair positions, longer tenure), CEO power may be enhanced simply by
virtue of ascension to the position. CEO succession can result in strategic changes and
shifts in corporate governance structures.
Many of these issues, including succession antecedents, strategic consequences,
and shareholder wealth effects, have been explored in previous executive succession
research (Kesner & Sebora, 1994; Furtado & Karan, 1990). In general, CEO succession
increases the likelihood of change in the organization. Although the direction of these
changes are rarely explored (see Ocasio  for an exception), they may have
important consequences for who controls the firm and its ultimate performance.
Succession events, in which a CEO is replaced because of death, resignation, or
dismissal, permit researchers to examine the antecedents or consequences of corporate
power and influence processes. By virtue of the replacement of one chief executive with
another, it is possible to examine the influence processes in firms under conditions of low
institutionalization, in which the patterns of chief executive discretion have yet to be
Most of the previous executive succession literature explores the determinants of
CEO turnover using characteristics of the firm's board of directors or its ownership, the
nature of the industry's economic environment, or firm performance, to predict CEO
turnover. For example, Fizel and Louie (1990) reported that outside directors were less
likely than inside (manager) directors to dismiss an incumbent CEO. Similarly,
McEachern (1975) and Salancik and Pfeffer (1977) reported that CEO succession was
less likely to occur in firms where ownership was highly dispersed. Thus, CEOs in
those firms with boards dominated by outsider directors or in which the owners are more
removed from management (by virtue of having only very small ownership stakes),
appear to enjoy greater freedom of action and a lower probability of dismissal.
Succession research has also linked the economic environment to executive
turnover. For example, Wiersema and Bantel (1993) reported that instability in the
economic environment was related to higher rates of CEO succession. In addition,
Walsh (1988) found that takeovers, which create uncertainty for the acquired firm,
significantly increased the likelihood of executive turnover in the acquired firms. Other
authors have reported that poor financial performance (Dalton & Kesner, 1987; Datta &
Guthrie, 1994) is a determinant of CEO turnover.
In addition to predicting the turnover event, poor financial performance also
affects the origin of the chosen successor to the chief executive post. For example,
Boeker and Goodstein (1993) found that poor performance led to selection of an outsider
CEO, though this effect was weaker as the number of insider board members increased.
They concluded that when the firm has performed poorly, the board chooses an outsider
in order to effect a turnaround in performance. The effects of poor performance as an
antecedent to CEO turnover are so well documented that Furtado and Karan (1990) have
called the association of inferior economic performance and executive succession a
"consensus finding" (p. 61).
In addition to the rational economic bases for CEO succession, some research has
demonstrated that there is a political power component involved. Canella and Lubatkin
(1993), for example, reported that the selection of a successor from outside the firm was
less likely when the previous CEO remained on the board. They concluded that the
power of the outgoing CEO affected the selection decision and that this discretion may
have other post-succession consequences. Similarly, Welsh and Dehler (1988) found that
political activity during succession, as measured by an influence-strategies scale
constructed by the authors, interacted with resource conditions such that when resources
were scarce, political activity led to more organizational change. Under conditions of
resource abundance, however, increased political activity had little effect on
organizational redefinition. Their results, like those of Canella and Lubatkin (1993),
suggest that both the antecedents and consequences of succession may be influenced by
the power of the incumbent chief executive.
A parallel but less well developed body of succession literature involves the firm-
level consequences of CEO succession, particularly the impact of new CEOs on a firm's
long-term financial performance (Brown, 1982; Carroll, 1984; Friedman & Singh, 1989)
and short-term stock market performance (Beatty & Zajac, 1987; Davidson, Worrell, &
Cheng, 1990; Lubatkin, Chung, Rogers, & Owers, 1989; Reinganum, 1985; Worrell,
Davidson & Glascock, 1993). These studies show a positive relationship between
succession and financial performance, particularly when the new CEO is from outside
the firm. For example, Lubatkin et al. (1989) found that CEO succession created
positive wealth effects only when the successor originated outside the firm. In addition,
Reinganum (1985) and Beatty and Zajac (1987) reported positive stock-market
announcement effects only for outside successors. Other studies have found positive
wealth effects for all succession events (Davidson et al., 1990; Worrell et al., 1993) but
these authors also reported that the wealth effects of succession were stronger when the
successor was an outsider.
One reason that equity markets react favorably to CEO succession, and especially
outside succession, is the expectation that the new chief executive will effect positive
change in the organization. This is because outside successors will presumably be less
constrained by the conventions and decision patterns of the predecessor.
Regardless of their insider or outsider status, a new CEO will have significant
decision latitude largely because the expectations for positive change which accompany
a succession event. As a result, new chief executives will likely initiate more change
than those who have held the CEO position for some time. Consistent with this logic,
succession researchers have concluded that succession is associated with organization-
level change and that external successors are more likely than internal appointees to
induce organizational change (Greiner & Bhambri, 1989; Helmich & Brown, 1972;
Other research shows that CEO succession brings about changes in the nature of
organizational power. Goodstein and Boeker (1991) found, for example, that strategic
change was greater after CEO succession than prior to succession. In addition, Greiner
and Bhambri (1989) reported that new CEOs who were granted more discretion were
better able to implement structural and strategic change in their firms. These results are
consistent with Pfeffer's (1981) argument that organizational structures and strategies are
the result of self-interested parties in a political process rather than purely rational
Succession studies have shown that succession increased organizational mortality
(Carroll, 1984; Haveman, 1993), increased organizational growth (Helmich, 1974), and
made strategic change more likely (Grinyer & Spender, 1979; Smith & White, 1987;
Wiersema, 1992). For example, Wiersema (1992) found that corporate diversification
strategy changed more in firms experiencing succession than in those firms in the non-
succession sample. Further, she also reported that the origin of the successor moderated
this relationship such that when an outside successor was appointed as CEO, the level
of change in diversification strategy was significantly greater than the change for insider
The increased level of change found after the succession event indicates that the
new chief executive has significant power to exercise strategic decisions. However, the
power and influence processes through which change is effected, including the effect of
executive succession on the firm's board of directors, remain unexplored. Because the
board of directors is the single most important mechanism in corporate governance,
investors and researchers have a compelling interest in the impact that a powerful CEO
has on the corporate board. Based on Pfeffer's (1981) observation that executive
succession may have important consequences for organization governance and decision
making, this study will compare the influence of new CEOs on the board of directors,
on the strategies formed by the collaboration of the board and the chief executive, and
ultimately the impact of CEO power on firm performance.
The Theoretical Model
The period following succession is likely to permit a new CEO significant
discretion. Once placed as a firm's chief executive, the new CEO will begin
consolidating his or her control over corporate activities (Pfeffer, 1981). The chief
executive's consolidation of control results from decision latitude or discretion and this
power has consequences for two classes of outcomes, board structure and firm strategies.
Thus, the theoretical model involves the effect of CEO power on two separate classes of
outcomes. These classes, board structure and firm strategies, are explored in the
discussion that follows. Board structure is important because the board is the mechanism
through which shareholders may exercise control of the firm while the strategies
employed by the CEO are also important to the ultimate performance of the firm.
One way that CEOs may exercise power is through cooperative board members
who can be controlled. Once a new CEO assumes control of the firm, he or she may
have the ability to appoint friendly board members or in some other way change the
board's size or composition to protect his or her interest. The ability to appoint directors
is important because larger and more diverse boards are thought to increase the power
of the CEO. Similarly, a board with more outside directors, who rely on the CEO for
information about the firm, may enhance CEO power.
In addition, certain strategies at the corporate and functional levels of the firm are
more beneficial to the CEO. Strategies that reduce risk or enhance firm size, for
example, provide employment stability for the CEO but may yield no advantage to
shareholders. (These forces are shown in Figure 1.2.)
Corporate Control and the Board of Directors
One potential limitation of managerial power is ownership control (McEachern,
1975). Ownership control may be achieved by holding a significant portion of a firm's
outstanding common equity. In firms where no shareholder controls a sizable percentage
of stock, managers are presumed to exercise effective control. Such firms will be
referred to as manager controlled. Other firms feature at least one individual or
institution with a sizable equity stake and these owners will have sufficient incentive to
monitor the board and corporate management. Such firms will be referred to as owner
controlled because the owners are presumed to exercise effective control. These
differences in control of the firm lead to behavioral differences among corporations,
whether board structure or strategic choices, and appear to be a function of the relative
power of the CEO vis a vis the shareholders (Hunt, 1986). Indeed, Pfeffer (1981) argues
that, based on McEachern's (1975) work describing the effects of separate ownership and
control, the ownership structure of the firm may promote the institutionalization of
power, especially the power of the chief executive. For these reasons, chief executives
in manager controlled firms would likely create boards that permit them greater decision
CEO Power and the Board of Directors
Because modem corporate ownership is widely dispersed, individual shareholders
have neither the motivation nor the ability to adequately monitor managerial decisions,
thereby ceding effective control of corporations to the board of directors. As the legal
representative for the owners of corporate entities, the board of directors exercises
governance over the firm's activities as well as those of the CEO. Because the board of
directors determines the top executives compensation package and approves a firm's
strategic choices, the new CEO may try to minimize the control exercised by the board.
A view of board composition, stemming from managerial capitalism, posits that
the structure of the board may be manipulated by executive management to consolidate
power through board of director appointments. Main, O'Reilly and Wade (1995) suggest
that through reciprocity norms, which involve a board member's psychological
connection to a CEO, directors appointed after the CEO takes office will tend to act in
the executive's interest. Although no researchers have reported direct tests of this
notion, studies of age and demographic similarity (Main et al., 1995; Westphal & Zajac,
1995b) reported that CEO compensation was higher when the CEO was more similar to
the board members socially and in age. Regardless of the psychological mechanism
involved, however, a CEO who exercises effective control over the board of directors,
whether through social similarity or reciprocity, may gain increased discretion as well
as increased compensation.
Another board influence tactic employed by executives is appointing outside
directors (board members who are not also managers in the firm). Outside directors
must rely on the firm's managers (especially the CEO) for information about the firm's
performance, and as a result these directors may be subject to manipulation by the CEO
(Baysinger & Hoskisson, 1990; Hoskisson & Turk, 1990). Indeed, empirical evidence
suggests that outside board members are more sympathetic to the agendas of CEOs in
that executive pay is higher in firms with a greater proportion of outside board members
and this relationship holds when controlling for firm size and performance (O'Reilly et
al., 1988; Main, et al. 1995; Westphal & Zajac, 1995b).
In addition to replacing inside directors with outsiders, and incumbent outsiders
with outsiders who are known to the chief executive, CEOs may also actively encourage
insider directors to leave the board (thereby replacing them with more sympathetic
insiders or outsiders) at a faster rate than their outsider counterparts. Whether a board
member leaves voluntarily or at the request of the top executive, CEOs would be
expected to nominate outsiders as replacement directors.
Thus, the new CEO may stack the board with outside directors over whom the
chief executive may have more influence, limiting the influence of existing internal and
external board members. Although this argument runs counter to classical theoretical
expositions of agency theory (e.g., Fama & Jensen, 1983; Walsh & Seward, 1990),
inside directors may have more to gain by ousting an incumbent CEO. The reason is
that as senior managers inside directors may actively compete for the chief executive's
position, a concept referred to as tournament theory (Lazear & Rosen, 1981) or
circulation of power (Ocasio, 1994), which has received recent empirical attention
(Ocasio, 1994; O'Reilly et al., 1988).
Inside directors, then, rather than outsiders, are expected to be the more intense
monitors of CEO performance. Indeed, Ocasio (1994) found that when the CEO
performed poorly, greater concentrations of inside directors were more likely to result
in the chief executive's dismissal. In addition, Main et al. (1995) reported that outside
directors were more subject to influence by the CEO and that this added influence
resulted in higher pay for the chief executive than would be predicted by firm
performance. Similarly, Fizel and Louie (1990) and Baysinger et al. (1991) found that
greater concentrations of outside directors resulted in lower CEO accountability. Thus,
although outside directors have the ostensible purpose of limiting CEO power, it appears
that these board members may augment the chief executive's influence with respect to
activities, including composition of the board, within the firm. These arguments lead to
the following hypotheses.
H 1: The post-succession ratio of outside directors will increase to a greater extent
in manager controlled firms than in owner controlled firms.
H2: The post-succession turnover of directors will increase to a greater extent in
manager controlled firms than in owner controlled firms.
In addition to influencing board composition and turnover, new CEOs would be
expected to increase board size, all other things being equal, because larger boards are
typically less effective monitors of CEO activity (Goodstein, Gautam, & Boeker, 1994;
Judge & Zeithaml, 1992). By creating a larger board of directors, the CEO ensures that
consensus will be more difficult to reach and that his or her policies are less likely to be
challenged. In addition, like the outsiders that a CEO nominates to the board, any
additional new board members are more likely to be loyal to the CEO that appointed
them. This argument leads to the following hypothesis.
H3: Post-succession board size will increase to a greater extent in manager
controlled firms than in owner controlled firms.
Appointing outsiders and increasing the size of the board represent two direct
means of consolidating and institutionalizing CEO power. The relative compensation of
outside directors presents a third influence mechanism through which the CEO may
pursue personal interests. If a board member's outside compensation is high, norms of
reciprocity suggest that these directors would more likely approve of high levels of
compensation for the focal CEO. Indeed, empirical evidence (O'Reilly et al., 1988;
Wade et al., 1995) indicates that CEOs who appoint outside directors that are highly
compensated gain in their own levels of pay. Similarly, Kosnik (1990) found that
increased outside director pay resulted in higher executive pay, irrespective of firm size
or financial performance. Hence, not only would powerful CEOs attempt to stack their
boards with outsiders, all other things equal, but they would search for highly paid
outsiders. This argument leads to the following hypothesis.
H4: The level of external compensation received by outside directors, post-
succession, will increase to a greater extent in manager controlled firms than in
owner controlled firms.
Limitations of CEO Power
Other potential determinants of chief executive influence have been suggested by
previous empirical work. Friedman and Singh (1989) found that the origin of the new
CEO (insider or outsider), whether the board or the CEO initiated the turnover, and
whether the previous CEO remained associated with the firm has a significant effect on
successor power. Outside successors to the CEO position appeared more able to bring
about changes in strategy than did inside successors. Board initiated turnover also
appeared to give the new chief executive greater influence than turnover initiated by the
outgoing CEO. They also showed that the influence of the successor was constrained
when the predecessor remained associated with the firm as a board member. Similar
results were reported by Boeker (1992), Furtado and Karan (1990), and Wiersema
Firm size and previous financial performance may also affect the relative power
exercised by the new CEO. In larger firms, for example, the board of directors may be
larger and therefore more manipulable. These boards could also be more powerful due
to the status involved in serving as a director for a larger firm. Similarly, when a firm
has performed well, the new CEO may be subject to less scrutiny than would be the case
if the firm's previous performance were poor. Conversely, when a firm's previous
performance has been low, the successor CEO may have greater decision latitude in
order to effect a turnaround. In either case, ownership concentration, firm size, and
previous financial performance are potential limitations of the power exercised by new
If, as speculated above, the CEO has the ability to manipulate the board of
directors either through direct influence or the selection of new directors, he or she
should be able to manipulate strategic resource allocations. The discussion that follows
will explore the implications of CEO power for strategic decisions and ultimately for the
financial performance of the firm. Strategic decisions affect those activities of the firm
that involve significant resource commitments (Ansoff, 1965) and strategy represents the
fundamental pattern of resource deployments (Hofer & Schendel, 1978). In what
Schendel and Hofer (1979) called the strategic management paradigm, informed choices
by managers about three hierarchical but interdependent levels of strategy (Andrews,
1971), corporate, business level, and functional, are primarily responsible for a firm's
Corporate strategy involves the scope of businesses in which the firm participates.
It includes a firm's decisions about diversity of product line, extent of geographic
presence, the choice of core industries, and the degree of the organization's growth,
particularly that achieved through acquisition.
Corporate diversification may include product markets that are related to the
primary line of business or markets that are entirely unrelated to the core business, where
the core business is defined as the single product market from which the firm derives
most of its revenue (Rumelt, 1982; Wood, 1971). The rationale for related
diversification is based on the sharing of core competencies such that the value chains
of each product market are related and thereby create scale economies and other
advantages (Porter, 1985). Related diversification also may permit some sharing of
financial resources within a single firm. Unrelated diversification affords some element
of risk reduction and financial resource sharing, but is not associated with the operating
synergies available to related diversifiers (Bettis, 1981; Datta, Rajagopalan & Rasheed,
1991; Ramanujam & Varadarajan, 1989). However, unrelated diversification increases
firm size (Amihud & Lev, 1981).
Business level strategies are those choices about how to produce and market the
products or services created by their core businesses. They involve a firm's decisions
about customers, methods of production, and ultimately the extent of sales growth.
Business level strategies integrate the various functional activities of the firm into a
cohesive whole in order to obtain a competitive advantage.
Functional level strategies are those that administer the functional activities of the
firm. They involve the pattern of resource allocations to operational activities and
include pay decisions, relative investment in research and development, and utilization
of technology. Functional strategies, like corporate and business level strategies, are
important determinants of a firm's competitive position and resulting financial
performance. Some of the functional level strategies thought to be related to
performance and managerial power are executive compensation strategy, including both
the level as well as the composition of CEO pay, and technology strategy. The nature
of these relationships, and their consequences for firm performance, are explored in the
CEO Power and Strategic Decisions
Because corporate and functional strategies are ordinarily formulated by some
interaction between the CEO and corporate board, the inclusion of several strategy
measures yields a more comprehensive test of the influence exercised by new executives.
Because CEOs are presumed to be risk averse self-maximizers, those who face less
effective board or shareholder monitoring are more likely to implement corporate,
business level, and functional strategies that reduce employment risk and maximize
personal gains (Jensen & Meckling, 1983). The following section will discuss the
ownership concentration determinants of CEO discretion in the context of how CEO
power affects the firm's strategic choices.
Corporate Control and Strategy
At the corporate level, strategies involving sales growth or unrelated
diversification are associated with reduced variance of returns--a firm's risk measure--and
therefore reduced employment risk for managers (Amihud & Lev, 1981; Hill & Snell,
1988; 1989). Diversification also involves expansion of the firm and this increased size
serves the interest of the CEO because CEO pay is higher in larger and more diversified
firms (Ciscel & Carroll, 1980; Finkelstein & Hambrick, 1989) and the chief executive's
employment risk is reduced to the extent that sales growth is high. Diversification,
particularly when unrelated to the firm's core businesses, tends to reduce profit
variability and may also reduce average returns to shareholders. Empirical research has
established that unrelated diversification leads to lower performance, whether in
comparison to single business firms or related diversifiers (Bettis, 1981; Dubofsky &
Varadarajan, 1987; Rumelt, 1982). However, because larger firms are less likely to fail,
and unrelated diversification increases firm size, the chief executive's employment risk
is reduced to the extent that unrelated diversification is high. In addition, because firm
size (sales volume) is the single most significant determinant of the level of executive pay
(Ciscel & Carroll, 1980; Gomez-Mejia et al., 1987), a firm's level of unrelated
diversification and CEO compensation are closely related. Thus, to the extent possible,
powerful CEOs would be expected to embark on growth and diversification strategies
because these activities serve their personal interests.
Chief executives of firms where decision monitoring is low because owners are
not in control (i.e., manager controlled firms) will have greater discretion to undertake
corporate strategies that reduce compensation risk and increase firm size. Because
decision monitoring is lower in manager controlled firms (Tosi & Gomez-Mejia, 1989),
CEOs in these firms would engage in relatively more unrelated diversification. Indeed,
previous empirical research indicates that manager controlled firms engage in
significantly more unrelated diversification than their owner controlled counterparts
(Amihud & Lev, 1981; Baysinger et al., 1991; Hill & Snell, 1988; 1989). As discussed
previously, unrelated diversification reduces the CEO's employment risk and increases
firm size, both of which benefit the CEO. This argument leads to the following
H5: Post-succession levels of unrelated product-market diversification will
increase to a greater degree in manager controlled firms than in owner controlled
Substitution of unrelated diversification for growth in related businesses represents
a low risk strategy that is likely to bring financial reward (Amihud & Lev, 1981; Hill
& Snell, 1988). Chief executives in manager controlled firms would have the
opportunity to allocate the firm's resources to increasing sales revenues through unrelated
diversification. The increased revenues (firm size) are associated with increased levels
of CEO pay and reduced levels of failure risk, and as a result chief executives in
manager controlled firms would likely attempt to acquire unrelated business rather than
create or acquire related business units. Because the firm's total resource base is limited,
however, increases is unrelated diversification would be associated with a decline in
related diversification. This argument leads to the following hypothesis.
H6: Post-succession levels of related diversification will decrease to a greater
extent in manager controlled firms than in owner controlled firms.
Despite the clear implications of separated ownership and control for the corporate
level of strategy, empirical work is lacking for strategies at the business level. Although
theoretically the argument could be made that business level strategies that involve less
risk or more sales growth would be preferred by powerful CEOs, risk rankings and
performance implications of the various business strategies (e.g., Miles & Snow, 1978;
Porter, 1980) have yet to be established.
Like the corporate level, functional level strategies employed by powerful CEOs
will be more self-serving than those employed by less powerful CEOs. Functional level
strategies, such as the firm's position with respect to executive compensation, liquidity,
and technology (research and development), are tools that may serve the interests of
managers or shareholders. A powerful chief executive, who may be permitted great
discretion in the period immediately following succession, would likely pursue functional
strategies that reduce his or her risk and that assure maximum remuneration. Thus,
powerful CEOs would be expected to reduce their pay risk while increasing total
compensation. In addition, they would be expected to invest relatively little in strategies
with long-term gains, such as research and development, in favor of strategies with short-
term gains, such as acquisition.
Despite the intuitively appealing idea that self-serving strategies would harm the
chief executive's reputational capital and limit future employment opportunities (Fama,
1980), this perspective has not received empirical support (Hill & Snell, 1989). Indeed,
empirical evidence suggests that functional strategies vary under different power
structures and that these differences are consistent with the argument that powerful CEOs
select strategies that are more self serving than those strategies selected by less powerful
chief executives. Compensation researchers, for example, have found that executives of
manager controlled firms are paid based on firm size rather than performance (Gomez-
Mejia et al., 1987; Tosi & Gomez-Mejia, 1994). Hence, to the extent that powerful
CEOs increase firm size or otherwise influence compensation decisions, their absolute
level of pay should be higher than CEOs who have less influence on pay decisions.
Indeed, empirical evidence indicates that executive pay is larger in manager controlled
firms, even when controlling for firm size and financial performance (Allen, 1981).
CEO compensation risk is also lower in manager controlled firms than in owner
controlled firms, suggesting that CEOs in manager controlled companies have less
effective monitoring (Tosi & Gomez-Mejia, 1989). These arguments lead to the
H7: The level of post-succession CEO compensation will be greater in manager
controlled firms than in owner controlled firms.
H8: The CEO's post-succession compensation risk will be smaller in manager
controlled firms than in owner controlled firms.
In addition, empirical evidence indicates that when managers control the firm,
research and development (R&D) expenditures are less than in owner controlled firms
and although commitment to technology is associated with superior financial
performance, it also involves increased risk (Baysinger, et al., 1991; Hill & Snell, 1988;
1989). Thus, CEOs would prefer to invest in projects with more certain (but possibly
smaller) returns in order to reduce their employment risk. This argument leads to the
H9: Manager controlled firms will have less investment in technology than will
owner controlled firms following succession.
Through the functional strategies explored in the preceding discussion, powerful
chief executives may increase their relative share of organizational resource allocations
and reduce the risk of these allocations. Similarly, business-level strategies that increase
sales growth may also permit the CEO to increase his or her control over organizational
resources and rewards. Finally, corporate level diversification, which enhances firm
size, may also allow the CEO to increase control over organizational resource allocations
and simultaneously reduce the risk in obtaining them. Although the exercise of executive
power may have significant ramifications for board size and structure as well as firm
strategies, ultimately it is the impact of these decisions on firm performance that matters
to shareholders. Because the firm's rational economic objective is maximization of
shareholder value, any deviation from shareholder wealth maximization that has origin
in executive power is of interest to shareholders. Thus, the section that follows will
develop performance implications from the preceding discussion of strategy and board
Of all the possible consequences of CEO power, the most important from the
organizational strategy perspective is the effect on financial performance of the firm.
The previous sections argue that executive power has significant consequences for board
governance and firm strategy. Moreover, weaker governance structures are associated
with reduced shareholder value (Baysinger et al., 1991; Kosnik, 1990; Mallette &
Fowler, 1992) and these reductions in shareholder value likely result from low levels of
monitoring or weak incentive alignment.
Researchers have reported that some of the various strategies described in the
previous sections are associated with inferior financial performance and therefore reduced
shareholder wealth. Specifically, Rumelt (1982) found that firms with many unrelated
business units (e.g., conglomerates) exhibit inferior financial performance in comparison
to single-business or firms whose business units are related, either through a core
technology, product market, or distribution competency. The association of increased
unrelated diversification to decreased financial performance has also been supported in
several other empirical studies (Amit & Livnat, 1988; Baysinger & Hoskisson, 1989;
Berger & Ofek, 1995; Hill & Snell, 1988).
Some researchers have also discovered that another strategic shift, the decoupling
of CEO pay from firm performance, leads to decreased firm financial performance (Tosi
& Gomez-Mejia, 1994). One other strategy explored in this research, technology
strategy, has an empirically established link to firm performance. A significant body of
empirical research has shown that reduced investment in technology is associated with
decreases in financial performance, particularly over the long-term investment horizon
(Baysinger & Hoskisson, 1989; Hill & Snell, 1988; 1989). Other research has found that
the level of commitment to technology moderates the relationship of related
diversification to performance such that increasing levels of commitment to technology
lead to increased financial returns for related diversifiers (Bettis, 1981).
This logic can also be applied to the control of the firm as described previously.
Specifically, because new CEOs in manager controlled firms are better able to implement
changes to the board of directors and firm strategies, financial performance should suffer
in these firms. This argument leads to the following hypothesis.
H10: Post-succession levels of financial performance will be higher in owner
controlled firms than in manager controlled firms.
Through the analysis of executive discretion and its relative impact on the boards
of directors and strategies of firms, this study will further the understanding of CEO
power and the mechanisms that serve to limit this power. The succession event provides
a clear foundation from which research into the exercise of power may begin. Once a
new CEO is appointed, the CEO will act in his or her own interest to the extent possible.
Managerial capitalism, through lack of owner control, also provides a mechanism to
increase the power of the CEO relative to the owners or board of directors.
This study proposes a theoretical model featuring two kinds of power
consequences: board structure and firm strategy, as well as their ultimate impact on firm
performance, that examines the relative influence of new CEOs and of those in firms
with differing ownership concentrations, economic size, and financial performance
characteristics. All of the principal testable hypotheses implied by the model expect that
powerful (high discretion) CEOs will attempt to consolidate their power within the
organization, either through changing the board structure, altering the firm's strategies,
The hypotheses predict that CEO power will differ with respect to ownership
structure. Specifically, with respect to the board of directors, high discretion CEOs
would increase the board's size and outsider representation, and appoint highly
compensated outside members. In addition, in the strategic decision domain, high
discretion CEOs would be expected to engage in diversification and sales growth
strategies at the corporate and business levels. At the functional level, high discretion
CEOs would attempt to increase both the absolute level and fixed component of their
compensation packages. Because these changes in the board of directors and firm
strategies may have negative consequences for corporate financial performance, corporate
ownership structure and succession are important issues in corporate performance.
This chapter consists of three sections. The first section describes the sample and
data collection process and the second section explains the analytical methods employed.
Finally, the third section relates how the conceptual variables were operationalized in this
Sample and Data Collection
Data for this research were collected from archival sources including the
Compustat and Compact Disclosure electronic data bases, the Wall Street Journal, Dun
and Bradstreet's Reference Book of Corporate Managements, and proxy statements from
each of the firms.
A sample of 227 publicly held firms was identified that experienced at least one
change in the CEO position during the event period (1988 to 1991). Twenty-four firms
with multiple succession events during the event period were eliminated in order to limit
the study to the effects of a single change in the chief executive officer. Fifty-nine firms
experiencing CEO succession in the four years immediately preceding the event period,
or in the three years following the event period, were also eliminated from the sample
in order to limit the study to the effects of a single change in CEO. The study period
was chosen such that the sample size yielded sufficient power to detect moderate to small
effects. The succession event period also contained a relatively few years (four) to
ensure that the inferences discussed in the first chapter would be appropriate. (The
sample firms and industry codes are listed in Appendix A.) Although equity
concentration is likely to remain stable over time, in some cases a firm's equity may
become significantly more or less dispersed over time. As a result, one firm was
eliminated from the sample because the level of the equity concentration variable changed
over the 1985 to 1994 study period. The final sample contained 143 firms with a single
After the final sample was constructed, the data were divided into two panels.
The first panel included the four years from 1985 to 1987 and will be referred to as the
pre-succession panel. The second panel included the years from 1992 to 1994 and will
be referred to as the post-succession panel. The continuous variables within each panel
are arithmetic averages of the component years and are, where necessary, scaled to 1988
dollars through the use of the GDP deflator.
A multiple-regression method was used to test the research hypotheses. Beginning
with the power determinants and control variables (e.g., firm size), the board
composition variables were regressed on the power variables
Y = a + j31Size + 02Prior Performance + 33Manager Control +
04Duality + WsTenure
where Y represents each of the board structure variables: outsider ratio, director
turnover, outside director pay, and board size. Next, the strategy variables were
regressed on the power, board composition, and control variables
Y = a + (3Size + 32Prior Performance + 03Manager Control +
34Duality + 35Tenure + 3Outsider Ratio + 87Director Turnover +
(gDirector Pay + 39Board Size
where Y represents each of the strategy variables: unrelated diversification, related
diversification, CEO pay, pay risk, and technology emphasis. Finally, in the full model,
the firm performance index was regressed on the power, board composition, strategy,
and control variables. These regressions take the following general form
Y = a + O3iSize + 32Prior Performance + 33Manager Control +
34Duality + (35Tenure + 06Outsider Ratio + 07Director Turnover +
08Director Pay + g39Board Size + 3 1oUnrelated Diversification +
i1,Related Diversification + 12CEO Pay + I13Pay Risk + 14Technology
where Y represents the performance index and the independent variables are described
in the third section of this chapter.
Variable Descriptions and Operationalization
The independent variables involve sources of CEO power in the organization or
forces that may independently affect the dependent variables. The general model
includes three classes of dependent variables. The first class involves the size and
structure of the board of directors, the second type involves the firm's strategies, and the
third class of dependent variable consists of financial performance measures which are
accounting and market based.
As discussed in the theoretical development, corporate shareholders can
influence the firm, thereby limiting the power of corporate executives, through
concentrated equity holdings. Individuals or groups with significant shareholdings are
more likely to exercise influence over the firm (Marris, 1964; McEachern, 1975).
Indeed, a significant body of empirical work suggests that if at least one equity holder
maintains at least five percent of the shares outstanding, he or she exercises sufficient
influence to restrain self-seeking behavior on the part of non-owner managers
(Gomez-Mejia, et al., 1987; Hunt, 1986; McEachern, 1975; Tosi & Gomez-Mejia,
1989). Thus, firms where at least one non-manager holds a five percent or greater
equity stake are classified owner controlled (N=76). Firms that feature a manager
with at least a five percent stake are owner managed, and these firms are expected to
behave like owner controlled firms (N=6). Finally, if no single individual,
institution, or group holds at least five percent of the outstanding shares, the firm is
classified as manager controlled (N=61). Manager controlled firms were coded as
one and owner controlled firms, which included the six owner-managed firms, were
coded as zero.
The executive succession literature suggests that firm size and previous
financial performance affect the power exercised by CEOs (Dalton & Kesner, 1987;
Datta & Guthrie, 1994; Fizel & Louie, 1990; Harrison, et al., 1988). Firm size may
be operationalized in several ways, including assets, annual revenues, and number of
employees, or an index of these measures, and each of these approaches has been
used in previous research (Ciscel & Carroll, 1980; Gomez-Mejia et al., 1987;
O'Reilly et al., 1988; Tosi & Gomez-Mejia, 1989). In this study, the measure of
organizational size is a composite index constructed from the standardized number of
employees, assets, and sales, where assets and sales are scaled in constant 1988
dollars and subjected to a principal components factor analysis. Such an index
represents a reliable method of capturing a firm's magnitude from multiple
perspectives (Gomez-Mejia et al., 1987; Tosi & Gomez-Mejia, 1989; Werner & Tosi,
1995). The factor accounted for 80 percent of the variance in the three variables.
The factor loadings of assets, sales, and number of employees were .89, .94, and .84,
Firm performance measures
Several measures of corporate financial performance are available but all are
generally regarded as either accounting-based or market-based indicators. This
research involves multiple measures of performance, including return on equity,
return on assets, return on investment, and the market to book ratio.
Return on equity. Return on Equity is an accounting-based measure of
performance that is computed by dividing net accounting profit by the average market
value of outstanding common equity. ROE captures part of the yield to shareholders
on their direct investment in the firm. The remainder of the yield is captured by the
change in market value of equity.
Return on assets. Return on Assets is an accounting-based performance
measure that captures the productive yield of the firm's asset base. ROA is calculated
by dividing earnings before interest but after taxes by the average net book value of
the firm's assets.
Return on investment. Like ROA, a firm's Return on Investment is an
accounting-based performance measure that captures the quality of the unsealed profit
figures. ROI is computed by dividing the net accounting profit by the cost of capital
investment made by the firm during the year.
Market to book value. The market to book value ratio for a firm is a market-
based performance measure that is calculated by dividing the year end market value of
outstanding equity by the book value of equity. The difference between these two
equity values indicates the market's estimation of the potential for the firm. As this
difference increases, so does the ratio of market to book value, and hence the value
accrued to shareholders.
A factor analysis of the four performance measures was performed so that a
determination could be made as to the convergence of the individual performance
measures (Tosi & Gomez-Mejia, 1994). A principal components factor analysis of
the standardized values of the four measures revealed that a single factor, representing
firm performance, was appropriate. This factor accounted for 71 percent of the
variance in the four variables and the factor loadings for ROA, ROE, ROI, and
market to book value were .92, .80, .89, and .71, respectively.
After constructing the performance index, an additional step was taken to
prepare these data for analysis. First, the index described in the previous paragraph
was created from industry population averages (as reported in Compustat) of each of
the 90 industries represented in the sample. An annual firm-from-industry deviation
score was then computed using the difference of the firm-specific and industry
average performance indices. As a result, a score was obtained which represented
each sample firm's performance compared to its own industry average. A single
value of the performance deviation score was computed for each of the two panels, by
averaging the values over each year in the panel, and these average deviation scores
were used in the analysis to control for industry effects (Hoskisson, Johnson, &
This study utilized the performance index for the pre- and post-succession
periods described in the first section of this chapter. The pre-succession performance
index is based on the average of the industry deviation scores for the firm in during
the pre-succession panel, 1984-1987, and the post-succession performance index
consists of the average of the industry deviation scores for the firm in the post-
succession panel, 1992-1994.
In each case, the pre-event panel includes the four consecutive years
immediately preceding the succession event period (1988-1991). All dollar scaled
financial measures were adjusted to 1988 through the GDP Deflator to ensure
comparability across the time panels.
Duality indicates that the CEO also holds the board chair position (Dalton and
Kesner, 1987). As a dichotomous variable, duality was coded as one for the new
CEO if within 12 months of taking the chief executive post he or she was also made
board chair. If the CEO did not hold the board chair position in addition to the chief
executive post, duality was coded as zero.
The chief executive's origin was another control variable. It is defined by the
last job held prior to becoming the CEO at the focal firm (Dalton & Kesner, 1985;
Friedman & Singh, 1989; Wiersema, 1992). If that position was outside the focal
firm, successor origin was coded as one and that individual would be referred to as an
outside successor. If the successor CEO was promoted from within the firm,
successor origin was coded as zero and that individual would be an inside successor.
Predecessor disposition refers to the circumstances under which the previous
CEO left that position. Greiner and Bhambri (1989) suggest that a successor CEO is
likely to experience greater post succession discretion if the previous CEO was forced
from office. Thus, if it could be determined from text sources (the proxy statements
or the Wall Street Journal) that the predecessor had retired, died, or had voluntarily
taken another position, this dichotomous variable was coded as zero. For example,
when Robert Schoellhorn retired from Abbot Laboratories his departure was
announced in the Wall Street Journal as a "planned retirement". If the text sources
suggested that the predecessor was forced to resign or retire, as in the case of
William Agee at Morrison-Knudsen whose departure was reported in the Wall Street
Journal as "essentially a firing," this variable is coded as one. If no determination
could be made about the predecessor's disposition, this variable was coded as zero
Board of director effects
The dependent variables over which the CEO exercises influence fall into two
classes. The first class of outcomes involves the structure of the board of directors.
These variables, like the other endogenous variables, were examined both at their
absolute post-succession levels and as change scores and their operationalization is
discussed in more detail below.
Outsider ratio. The outsider ratio represents the number of non-manager
(outside) directors on the firm's board divided by the total number of board members.
This variable was tracked prior to and after the succession event panel. The outsider
ratio for the pre-succession panel is the average of this ratio over the four year panel,
1984 to 1987, while the outsider ratio for the post-succession panel is the average of
this ratio over the three year panel, 1992 to 1994. A change score was also computed
for this variable. It is the percentage change from the pre-succession panel average to
the post-succession panel average. Hence, in any year t, outsider ratio (OR) is
Oi = number outside directors
total number of directors.
Director turnover. Board of director turnover consisted of two variables. The
first was outsider turnover, which was the average number of outside directors
leaving the board each year during the two periods, before and after the succession
event period. Thus, pre-succession outsider turnover consisted of the average number
of outside directors who were replaced in the four year panel from 1984 to 1987.
Post-succession outsider turnover was measured in the same manner except that it was
computed based on outsider director exits in the post succession panel from 1992 to
1994. Insider turnover, in both the pre- and post-succession periods, was computed
in the same way except that it was the average of employee-director exits in the panel
years. A change score was also computed for total director turnover. It was the
percentage change in director turnover from the pre-succession panel to the post-
succession panel. Hence, director turnover (DT) in year t, of either inside or outside
DTt,= number of board members leaving
total number of board members.
Director compensation. O'Reilly et al. (1988) observed that many outside
directors of publicly held firms are executives of other publicly held firms. In
addition, they found that as the level of pay of outsider directors (from their own
firms) increased, executive compensation at the focal firm also increased. As a
result, this research includes the cash pay received by outside directors in their
positions as executives at their own firms. Outside director pay was the average of
cash pay received by outside directors in each panel year. Because it was not always
possible to compare the same cohort of outside directors, the average in any given
year may comprise the pay of different individual directors. Furthermore, in 21 cases
there was no external pay data available for any outside director, and director pay was
excluded for these cases.
The second class of dependent variables involves strategic choice, which
includes corporate level and functional level strategies of the firm.
Corporate strategy. Corporate level of strategy was operationalized by the
absolute level of product-market diversification. For this variable, an unweighted
product count measure of diversification (Lubatkin, Merchant, & Srinivasan, 1993;
Wood, 1971) was employed. Diversification strategy was measured with two
independent continuous variables in a procedure developed by Wood (1971) and
validated in separate studies by Lubatkin et al. (1993) and Hoskisson et al. (1993).
The measures, which assess related and unrelated diversification, were calculated with
an unweighted count of SIC codes as reported in Compustat. The number of product
markets, as indicated by SIC code, which matched the third and fourth digits of the
firm's primary business code were counted as related business units. Hence, the
value of the related diversification variable was simply the number of these units.
Similarly, the number of product markets which did not match the first two digits of
the code for the firm's primary line of business were counted as unrelated business
This method of assessing diversification created two continuous variables
which capture the scope of a firm's diversification. Measuring both related and
unrelated diversification in this manner provides two advantages. First, the measure
is fairly easy to obtain and calculation is straightforward. Second, measurement of
both related and unrelated diversification as independent constructs is more consistent
with the original theoretical conceptualization of diversification (Hill & Snell, 1989;
Rumelt, 1982; Wrigley, 1971).
Functional/business level strategy. Two functional strategies were involved in
this research. The first functional strategy focuses on CEO compensation, both the
level and risk of compensation to the chief executive officer. The absolute level of
CEO cash pay was determined from proxy statements for each of the years in the pre-
and post-succession panels. These values were then averaged over the four years of
the pre-succession panel (1984-1987) and the three years of the post-succession panel
(1992-1994). Previous research has noted that total cash remuneration of the CEO is
an excellent proxy of total compensation (Gomez-Mejia et al., 1987; O'Reilly et al.,
1988; Werner & Tosi, 1995), which often includes deferred pay as well as stock
options and grants.
Compensation strategy also included a measure of the compensation risk that
captures the relative value of the fixed versus variable components of CEO pay, with
a larger variable component (usually a bonus) indicating greater compensation risk.
Pay risk was calculated in the two panels by computing the proportion of total cash
pay that was contingent on performance (i.e., a bonus). This information was derived
form the proxy statements for the sample firms and has been shown to be an adequate
measure of pay risk (Werner & Tosi, 1995). Hence, pay risk (PR) in year t was
PR = variable portion of total pay
total cash pay.
The second the functional strategy assessed is the firm's investment in
technology and innovation. Technology strategy is operationalized by the intensity of
research and development expenditure (Hill & Snell, 1988). This is calculated by
dividing the firm's annual research and development expenditures by total annual net
sales, and then subtracting the average of this ratio for the industry. The resulting
ratio captures the extent to which the firm invests in long-term technological
innovation in proportion to its size and industry (Hill & Snell, 1989; Hoskisson et al.,
1994; Zahra & Covin, 1993). Hence, research and development intensity (RD) in
year t was
RD =_ research and development expenditure
annual sales volume.
Post succession performance was calculated with the same industry-deviation
score index as was pre-succession performance only in the three years, 1992-1994,
after the event period. Like the pre-succession panel, the average value of this index
represents the firm's industry-adjusted performance in the post-succession period. A
change score was also computed for the performance deviation score. This change
score was calculated by assessing the percentage change in the performance deviation
score between the pre- and post-succession periods.
This chapter described the sample and regression equations used to test the
hypotheses about the post-succession consequences of CEO power. The variables
were also presented and their operationalization was discussed. The results obtained
from the research design described in this chapter are presented in the chapter that
Each of the hypotheses developed in Chapter 1 was tested and the results of
these tests are presented in this chapter. In addition, the means, standard deviations,
and the simple correlations of the variables are reported in Appendix B.
Ordinary least squares regression was used to test the relationship between the
independent power variables and each of the dependent board-structure, strategy, and
firm-performance variables. The test for each hypothesis will be discussed beginning
with the examination of CEO power and board structure. In addition, as an attempt
to understand why power differs with respect to ownership influences, this chapter
will report the analyses of power within the sub-samples of manager controlled and
owner controlled firms. The first section reports the effects of the power measures on
board structure, the second section reports the effects of the power measures and
board structure variables on strategic choices, and finally section three reports the
effects of the power measures, the board structure variables, and the strategy
variables on firm financial performance. All beta coefficients reported in the text and
tables are standardized for comparability.
The results of the tests of CEO power and board structure on the ratio of
outside directors are reported in Table 3.1. Hypothesis one, which predicted that the
ratio of outside directors would increase to a greater extent in manager controlled
Regressions on Outsider Ratio
Total Sample Manager Control Owner Control
Std. B Std. Er. Std. B Std. Er. Std. B Std. Er.
Control .032 .0430
Origin .147 .0385 .169 .0517 -.107 .0520
Duality .279* .0339 .388* .0321 .244* .0273
Disposition -.149 .0482 -.084 .0012 .136 .0380
Firm Size .253* .0002 -.120 .0001 -.166 .0003
R square .15 .20 .11
Adj. R square .09 .13 .07
F 2.76 2.79 2.95
P value .02 .02 .02
firms than in owner controlled firms, was not supported (B=.032, n.s.), though the
regression of outsider ratio on the CEO power indicators was significant. This result
suggests that power variables other than ownership influence may be associated with
differences in the outsider ratio. Indeed, CEO duality was associated with greater
increases in the outsider ratio (B=.279, p 5.05).
The power effects were also tested in the sub-samples of manager controlled and
owner controlled firms. As indicated, duality was related to the outsider ratio (B=.388,
p ; .05) in manager controlled firms. It appears that dual chief executives are better able
to influence the composition of the board of directors. Though the effect was smaller
in owner controlled firms (B=.244, p 5.05), dual CEOs were able to exercise power
through increases in the ratio of outside directors.
Two additional tests of the outside ratio regressions in manager controlled and
owner controlled firms were conducted. Significant differences between the parameters
in the two regressions on outside ratio were detected (F. 133,=3.78, p: .01) based on an
F test of the equivalence of regression parameters (Chow, 1960). As a result, a
likelihood ratio test of the two duality parameters was conducted (Greene, 1993). This
test showed that duality had a significantly larger effect in manager controlled firms
(X2(4)=12.62, pf .05). It appears that although dual CEOs in both manager controlled
and owner controlled firms affect the composition of the board of directors, this effect
is stronger when managers control the firm.
The results of the tests of CEO power on the rate of director turnover are
reported in Table 3.2. Hypothesis two, which predicted that director turnover would
increase to a greater extent in manager controlled firms than in owner controlled firms,
was not supported (B=.052, n.s.), though the data fit the board turnover model
reasonably well. This result suggests that power variables other than ownership influence
may be associated with differences in the rate of director turnover. Indeed, outside
origin of the successor CEO was associated with greater increases in director turnover
(B=.265, p5 .05).
Regressions on Director Turnover
Total Sample Manager Control Owner Control
Std. B Std. Er. Std. B Std. Er. Std. B Std. Er.
Control .052 .1176
Origin .265* .1051 .273 .0019 -.102 .0520
Duality .042 .0925 .318* .0525 .145 .0273
Disposition .108 .1317 .114 .0670 .007 .0380
Firm Size -.001 .0001 .300 .0002 .124 .0003
R square .09 .18 .06
Adj. R square .05 .08 .02
F 2.51 2.63 1.56
P value .03 .03 .19
When tested in the sub-samples of manager controlled and owner controlled firms,
duality was found to increase director turnover (B= .318, p <.05) in manager controlled
firms. No such effects were found for owner controlled firms. It does, however, appear
that origin affects the rate of director turnover, overall.
The results of the tests of CEO power on board size and outside director
compensation are reported in Tables 3.3 and 3.4 respectively. Hypothesis three, which
predicted that board size would increase to a greater extent in manager controlled firms
than in owner controlled firms, was not supported (B= .073, n.s.). Similarly, hypothesis
four, which predicted greater increases in the level of external pay for outside directors
in manager controlled firms versus outside directors in owner controlled firms, was not
supported (B=-. 168, n.s.).
Regressions on Board Size
Adj. R square
Regressions on External Director Compensation
Std. B Std. Er.
Control -.168 .7165
Origin -.158 .5788
Duality .043 .6485
Disposition -.097 .7254
Firm Size -.127 .0001
R square .10
Adj. R square .00
P value .72
Std. B Std. Er.
The exercise of CEO power was expected to affect the firm's strategies differently
depending on whether the firm was owner or manager controlled. The effects of
managerial control in firms experiencing succession were assessed on the two corporate-
strategy variables. The results of the regressions on unrelated diversification are reported
in Table 3.5. Hypothesis five, which predicted that unrelated diversification would
increase to a greater extent in manager controlled firms than in owner controlled firms
was not supported (B= .060, n.s.). The effects of power on the unrelated diversification
Regressions on Unrelated Diversification
Adj. R square
Std. B Std. Er.
Std. B Std. Er.
Std. B Std. Er.
form of corporate strategy were also tested in the sub-samples of manager controlled and
owner controlled firms. However, these regressions also yielded insignificant results.
The results of the regressions on the related diversification form of corporate
strategy are reported in Table 3.6. The prediction that related diversification would
decrease in manager controlled firms (Hypothesis 6) was supported (B=-.217, p: .05).
Another power indicator, CEO succession from outside the firm, was also associated with
decreased levels of related diversification (B=-. 192, p< .05).
Regressions on Related Diversification
Adj. R square
(*p 5.05, **p5.01)
Std. B Std. Er.
Within the owner and manager controlled sub-samples, only CEO duality
contributed to changes in corporate strategy in manager controlled firms (B=-.501,
p5.05). This result is consistent with the reduced levels of related diversification
associated with dual CEOs that was observed in the total sample. In owner controlled
firms, however, none of the power or board structure variables were found to predict
strategic shifts at the corporate level. It therefore appears that these effects are isolated
to manager controlled firms.
Regressions on CEO Compensation
Adj. R square
Std. B Std. Er.
Std. B Std. Er.
This research also examined differences in three functional level strategies among firms
experiencing succession. The results of the regressions on CEO compensation are
reported in Table 3.7. Hypothesis seven, which predicted that the level of CEO pay
would be higher in firms controlled by managers was not supported (B=. 134, n.s.).
Although CEO pay did not vary with managerial control of the firm, the level of CEO
compensation did increase when the predecessor was forced from office (B= .318,
p< .01) and when the ratio of outside directors was larger (B=.268, p< .01). However,
no effects for CEO pay were found in the owner and manager controlled sub-samples.
Regressions on CEO Compensation Risk
Adj. R square
Std. B Std. Er.
Std. B Std. Er.
The results of the regressions on compensation risk are reported in Table 3.8.
Hypothesis eight, which predicted that the level of CEO compensation risk would be
lower in manager controlled firms, was supported (B=-.341, p .01). In addition, pay
risk decreased when the successor CEO also assumed the board chair position (B=-.268,
p < .05). Conversely, pay risk was higher when the predecessor CEO was forced out of
the firm (B=.215, p. .05). Compensation risk effects were also examined in the sub-
samples of manager controlled and owner controlled firms. Within the sub-sample of
manager controlled firms, CEOs with dual appointments had lower levels of
compensation risk (B=-.315, p<.05).
The final strategic choice on which the effects of managerial control was assessed
involves the firms technology strategy and the results of these regressions are reported
in Table 3.9. Hypothesis nine, which predicted that manager controlled firms would
have less investment in technology than would owner controlled firms, was not supported
(B=-.021, n.s.). However, one of the board influence measures, director turnover, was
associated with a strategy of reducing the firm's investment in technology and research
(b=-.432, p<.01). The regressions on technology strategy did not detect any other
predictors of functional strategy in manager controlled firms nor were any functional
strategy effects found in the owner controlled sub-sample.
Ultimately the structure of the board of directors, the firm's strategies, and the
power of the chief executive vis a vis the board of directors, are of interest because they
are expected to affect the firm's financial performance. The results of the tests of
performance effects are presented below.
Regressions on Technology Strategy
Adj. R square
Std. B Std. Er.
Std. B Std. Er.
Std. B Std. Er.
The results of the test of the power and performance hypothesis are reported in
Table 3.10. Hypothesis ten, which predicted that manager controlled firms would
experience lower levels of performance, was supported (B=-.361, p .05) and the data
fit the model well, explaining fifty-five percent of the variance. Thus, post-succession
performance is lower in manager controlled firms. The financial performance of the
firms also suffered when the successor CEO originated from outside the firm (B=-.368,
p .05) or when the predecessor CEO had been removed from office (B=-.709, p < .01).
Conversely, firm financial performance was better as the level of related diversification
increased (B=.337, p<.01).
Regressions on Firm Performance
Total Sample Mgr. Control Owner Control
Std. B Std. E Std. B Std. E Std. B Std. E
Control -.361* .925
Origin -.368* .607 -.393 .374 .031 1.344
Duality .155 .749 -.315 2.690 -.037 .935
Disposition -.709" .779 -.162 .095 .030 .073
Firm Size .032 .001 .168 .001 .093 .001
Outsider Ratio -.301 1.027 -.189 .153 .147 .392
Board Turnover .173 1.311 -.046 9.037 .162 2.021
Board Size .003 .248 .013 .356 .093 .001
Director Comp .213 .204 .222 .263 .150 .198
Unrelated Div. -.066 .779 -.083 1.530 -.015 .885
Related Div. .337* 4.870 .014 3.082 .160 .428
CEO Comp .227 1.901 .107 1.576 .276 2.819
CEO Comp Risk .125 4.901 .213 4.320 .119 3.72
Technology .060 1.377 .084 1.739 .069 .649
R square .66 .30 .10
Adj. R square .55 .05 .00
F 5.80 1.12 .72
P value .001 .38 .67
These relationships were also examined in the manager controlled and owner
controlled sub-samples. These equations failed to achieve significance and are therefore
not discussed further.
This chapter presented the regression results for the tests of the power hypotheses.
Although the results were mixed, a clear pattern of power differences emerged which
suggests that CEO power is greater in manager controlled firms, and in cases of a dual
appointment or origination from outside the firm. The implications of these results for
theories of managerial power are discussed in the chapter that follows.
This study investigated the consequences of CEO power across several contexts
which are thought to permit varying levels of power. The results presented in the
previous chapter suggest that CEO power has important consequences for the board of
directors, the firm's strategies, and ultimately for the firm's financial performance.
These consequences and their implications for theories of managerial power will be
discussed in this chapter. In addition, the implications for management research will be
explored in the chapter.
On the whole, the power results are consistent with previous research which
suggests that chief executives may acquire and use power in different ways (Pfeffer,
1981; 1992). In addition, these results extend previous power research in a number of
important ways. The results suggest, for example, that the theory of managerial
capitalism can be meaningfully integrated into the executive succession and managerial
power literatures. The results also suggest that CEO power has significant consequences
for firms undergoing succession. The implications of these results for theories of
managerial succession are discussed in the following section and the succeeding sections
will explore the implications of the results for the theory of managerial capitalism as well
as the executive power literature.
Implications for CEO Succession
Executive succession is an important event in the life of any business organization
and this study has important implications for the understanding of this event. The key
finding of this work is that the power dynamics following a succession event differ in
firms with different ownership structures.
Consistent with previous work in executive succession, this study found that the
origin of the successor CEO, as well as the disposition of the predecessor, are important
to post succession strategies employed by the firm (Friedman & Singh, 1989; Kesner &
Sebora, 1994). CEOs who originate from outside the firm were associated with
increased director turnover which suggests that outsiders, more so than inside successors,
have greater ability to shape the board of directors to their liking. Outside successors
also were associated with changes in corporate strategy.
Successor CEOs who followed a dismissal engaged in more self-serving corporate
strategies. In addition, their pay was higher than CEOs who followed a voluntary
disposition of the predecessor. These results are consistent with the exercise of CEO
power as described in this research.
It was more likely that the level of related diversification would decrease when
the successor CEO came from the outside. Because related diversification provides
benefits for the firm's shareholders but only to a lesser degree to the CEO, powerful
chief executives may reduce the level of related diversification in favor of strategies like
unrelated diversification or near-term sales growth. Both unrelated diversification and
sales growth would increase firm size, which tends to benefit the CEO because firm size
is positively associated with the level of CEO pay. However, unlike related
diversification, unrelated diversification does not utilize significant resource sharing and,
as a result, tends to benefit shareholders to a lesser degree than managers. Indeed,
outside successors were associated with inferior post-succession financial performance
as anticipated by the preceding discussion of corporate strategy.
These results are especially interesting in light of the positive stock market
announcement effects reported for outside successors (Beatty & Zajac, 1987; Reinganum,
1985). While the evidence shows that equity markets expect more from an outside
successor, a notion that is consistent with outside successors having more discretion, the
results shown here suggest that longer-term post-succession performance is worse, rather
than better, under an outside successor. Thus, outside successors appear to have greater
power and either they utilize it in ways that are less beneficial to the firm or the systemic
effects that reinforce the lower performance are not easily overcome. Of course this
study represents a single sample from a limited span of time and, as a result, should be
interpreted with caution.
Like the successor's origin, the predecessor's disposition also has important
consequences for post succession firm strategy and performance. In the case of the
deposed predecessor, the successor CEO received a higher level of total compensation,
but faced increased compensation risk. The higher pay and higher pay risk may
represent a rational response for the firm that has found it necessary to dismiss its chief
executive because by increasing the pay level for the new CEO, the firm may make the
job more attractive to prospective executives. The increased pay risk shifts more of the
firm's future performance risk to the CEO and as such acts as an incentive alignment
device. To the extent that this arrangement aligns the interests of the new CEO and the
firm, it may be a rational response to poor firm performance and CEO dismissal.
Implications for CEO Power
The acquisition and exercise of CEO power in organizations has a number of
important consequences for the board of directors. Because the board of directors is the
principal mechanism for shareholders to exert control over the firm, manipulation of the
board by the CEO may result in outcomes that would benefit the CEO more than the
shareholders. The pattern of results suggests that when CEO discretion is high, the
board is subject to greater manipulation by the chief executive. One way that powerful
CEOs manipulate or control the board of directors is by increasing the number of
outsiders on the board. Increasing the ratio of outsiders results in increased CEO power
(Ocasio, 1994) and executive compensation (Westphal & Zajac, 1995a). Further,
powerful CEOs will select unrelated diversification because this strategy enhances firm
size which is itself associated with higher levels of CEO pay.
CEO Power and the Board of Directors
The control of key contingencies presents the successor CEO with one way to
acquire and use power within the firm. Another perspective on managerial control, that
advanced by managerial capitalism, is also addressed by this research. In the section that
follows, the implications for the theory of managerial capitalism of the results detailed
in the previous chapter are discussed.
Implications for managerial capitalism
In manager controlled firms, dual CEOs increase the outsider ratio and the rate
of director turnover. As a result, they are better able to reduce their employment risk
as well as increase their level of total compensation. In contrast to dual CEOs in owner
controlled firms, dual CEOs in owner controlled firms are not associated with director
turnover. Their dual appointment counterparts in owner controlled firms tend to increase
the proportion of outsiders but are evidently restrained from consolidating power in the
same ways as dual CEOs in manager controlled firms. Thus, the influence of outside
owners appears to effectively limit CEO power in owner controlled firms while CEOs
in manager controlled firms have greater discretion to alter the board of directors in ways
that consolidate their control. This result is important in that the higher level of CEO
power in manager controlled firms could explain the lower performance of firms
controlled by managers that was found in this study. These results are also consistent
with previous research which found that CEOs in manager controlled firms have more
influence over their pay levels and pay risk (Tosi & Gomez-Mejia, 1989) and that this
influence over pay decisions is also associated with performance decrements (Tosi &
Implications for managerial power
Dual CEOs in manager controlled firms were able to manipulate the board by
replacing directors and appointing a greater proportion of outside directors. The
consequences associated with larger outsider ratios, as discussed previously, suggest that
inside directors are more effective in terms of limiting the power of the CEO. Because
this result is contrary to the classical agency theory argument to the effect that outside
directors are more likely to act in the interest of owners (Walsh & Seward, 1990), it
suggests that outside directors are more dependent on the CEO (Baysinger & Hoskisson,
1990; O'Reilly et al., 1988).
Successor CEOs from outside the firm and those with dual appointments appear
to have the most power. The results suggest that outside successors are better able to
acquire and exercise power by creating dependency relations and increasing the rate of
director turnover. Specifically, when the incoming CEO is from outside the firm, post-
succession board turnover is increased. By replacing directors who may oppose him or
her, whether insiders or outsiders, the new CEO establishes control over the board. This
result suggests that, consistent with the sources of organizational power discussed in the
first chapter, the new CEO acquires and exercises power through political influence and
by creating dependencies. Uncertainty coping is one kind of dependency that a new CEO
may create by replacing existing board members because new directors, particularly those
who are not executives of the firm, are more dependent on the CEO for information and
Increased director turnover is associated with reductions in the firm's commitment
to technology. Reducing the firm's commitment to technology is associated with reduced
levels of financial performance (Baysinger & Hoskisson, 1989). Although a firm's
commitment to technology is associated with higher long-term profitability, these longer-
term payoffs provide the CEO very small immediate gains and therefore new chief
executives (who have the opportunity) will select strategies that reduce the commitment
to technology and instead increase short-term firm size and scope.
It therefore appears that outside successors have more decision latitude to make
director appointments as well as to force opposing directors from the board. It also
appears that the shifts in the board of directors can result in strategic changes for the
firm. To the extent that new CEOs can shape the board of directors as desired, the chief
executive will have a greater ability to implement self-serving strategies than CEOs with
Similarly, CEOs with dual appointments tend to increase the proportion of
outsider directors on the board. Like replacing existing directors, placing outsider
directors increases the board's dependence on the CEO and as a result, CEO power is
increased. Increases in the outsider ratio, in turn, are associated with increases in the
level of CEO pay. Because outside directors must rely, to a great extent, on the CEO
for information about the firm's performance, these directors are more likely to grant
higher pay or to otherwise act as the CEO requests. Both the increases in director
turnover and outsider ratio suggest that the incoming CEO has exercised power within
the firm. As a result of the power and control of the CEO vis a vis the board of
directors, strategies and firm performance also differ among firms.
CEO Power and Strategy
Implications for managerial capitalism
CEO power also appears to be stronger in firms effectively controlled by
managers because the level of performance enhancing related diversification is lower in
manager controlled firms. This result is consistent with empirical research that addresses
the question of diversification and control of the firm (Amihud & Lev, 1981; Hill &
Snell, 1988; 1989). Because related diversification has few short-term benefits for the
CEO, it is unlikely to be favored by powerful CEOs who prefer the more immediate size
gains from unrelated acquisitions. In particular, dual CEOs in manager controlled firms
reduce the firm's level of related diversification and increase the level of unrelated
diversification. As previously discussed, these are relatively self-serving strategies on
the part of the CEO which appear to be more easily accomplished in manager controlled
CEOs in manager controlled firms also experience lower compensation risk which
is consistent with the empirical work examining the pay of existing chief executives
(Gomez-Mejia et al., 1987; Tosi & Gomez-Mejia, 1989; 1994). It appears that when
managers control the firm, the CEO may influence compensation policy such that his or
her pay risk is reduced. Such activity weakens the link between CEO pay and firm
performance. Like the corporate strategy issue discussed previously, dual CEOs in
manager controlled firms also experience lower pay risk which is indicative of their
relative power vis a vis the board of directors. Thus, in manager controlled firms, the
successor CEO will likely receive a greater fixed pay component (i.e., have
compensation risk), particularly when the successor CEO also holds the board chair
Implications for managerial power
The effects of CEO power are not limited to the composition of the board of
directors and to corporate-level strategies. These results suggest that powerful CEOs
engage in corporate-level strategies that provide little benefit for shareholders but that
increase the size of the firm. When firm size is increased, particularly through unrelated
diversification, the chief executive tends to receive an increased level of compensation
(Finkelstein & Hambrick, 1989; Kerr & Kren, 1992). Specifically, when the predecessor
CEO was removed from office involuntarily, the successor CEO, who should have
greater discretion due to the expectations associated with the predecessor's dismissal,
increased the levels of unrelated diversification and reduced the levels of related
diversification. Thus, successor CEOs following the dismissal of their predecessor
exercise power to a greater extent than do their counterparts whose predecessors leave
voluntarily. Similarly, successor CEOs from outside the firm were found to reduce the
level of related diversification to a greater extent than inside successors. This implies
that resources were shifted to strategies that may not improve firm performance. These
results are consistent with the argument that successor CEOs from outside the firm, and
those who take over after their predecessor was forced to leave, have more power. In
addition, these results support the notion that this power is, in turn, used by the CEO to
alter the strategic direction of the firm in ways that are more favorable to the CEO and
the firm's managers than for the shareholders. As a result, the performance of firms
with new CEOs from outside the firm or those that dismissed the predecessor CEO is
worse than those with insider successors or that experience a voluntary succession.
The changes to the board of directors discussed in the previous sections,
especially increases in the ratio of outside directors, are associated with higher levels of
CEO pay, irrespective of whether the CEO had the dual appointment or came from
outside the firm. Of course, this study found that dual CEOs are better able to appoint
directors of their choice and as a result may be expected to have higher pay. However,
these results suggest that by appointing more outside directors to the board, a new chief
executive can increase the level of his or her pay without the dual appointment or by
coming from outside the firm. As a result, even in firms where CEO power is relatively
low, raising the proportion of outside directors would appear to benefit the CEO.
Indeed, these results are consistent with previous research which shows that higher
proportions of outside directors are associated with higher levels of CEO compensation
(O'Reilly et al., 1988; Westphal & Zajac, 1995a; 1995b).
In addition to their influence over the outsider ratio and corporate strategy, CEOs
with dual appointments have lower levels of pay risk. Like their ability to influence the
composition of the board, it appears that the dual appointment provides the chief
executive with a means to influence pay decisions independently of the board's
composition. It is possible, as suggested by the theory of human capital (Becker, 1964;
Finkelstein & Hambrick, 1989), that the reduced level of pay risk represents legitimate
recompense for the additional skills required to effectively discharge the duties of the
CEO and board chair positions. However, in the context of the other results of this
study which indicate that dual CEOs engage in strategies that are less than optimal for
shareholders, it would appear that the reductions in pay risk for dual CEOs are not based
on skills or abilities but on power vis a vis the board of directors.
CEO Power and Firm Performance
Implications for managerial capitalism
Beyond the implications of CEO power for board structure and firm strategy, this
study examined the effects of CEO power on firm financial performance. In their
entirety, these results suggest that CEOs are better able to acquire and exercise power
under conditions of high managerial control. High managerial control permits the new
CEO to fully exercise his or her power and as a result manager controlled firms under-
perform owner controlled firms, post succession. This result is consistent with empirical
evidence to the effect that owner controlled firms outperform manager controlled firms
in most contexts (Hunt, 1986; McEachern, 1975; Ware, 1975). It appears, therefore,
that CEOs in manager controlled firms have greater relative power and that these power
differentials of CEOs in owner controlled and manager controlled firms could account
for the performance differences observed between firms controlled by owners and
Nevertheless, because this study examined only firms experiencing succession,
these power differentials may be less important when the chief executive position is
stable. However, empirical work examining CEO power in firms not experiencing
succession have reported the same kinds of outcomes, associated with CEO power, for
the board of directors and executive compensation that were discovered for succession
firms in this research (Finkelstein & Hambrick ,1989; Westphal & Zajac, 1995a; 1995b).
As a result, it is reasonable to conclude that CEOs in manager controlled firms have
relatively more power than their owner controlled counterparts, whether or not he or she
has recently ascended to the position. In addition, it seems reasonable to conclude that
the power differences between CEOs in owner and manager controlled firms have
significant consequences for firm performance.
Implications for managerial power
Outside successors, who tend to reduce related diversification, are associated with
a lower firm performance. Successor CEOs who follow a predecessor who was
dismissed reduce related diversification while increasing the firm's unrelated business
component. These successor CEOs are also associated with lower financial performance.
Indeed, the magnitude of the effect on performance of a successor following a dismissed
predecessor is, in fact, nearly twice a strong as the effect of an outside successor. The
results suggest, then, that successor CEOs who follow a dismissal are indeed very
powerful but not, perhaps, powerful enough to alter the course of the firm's
performance, at least in the years represented in the post-succession panel.
One important issue bears mention here, however. Empirical evidence indicates
that poor financial performance often occurs prior to a CEO's dismissal (Dalton &
Kesner, 1987; Datta & Guthrie, 1994; Furtado & Karan, 1990). It is entirely possible
that the poor financial performance and strategic shifts associated with a successor CEO
following a dismissal are the result of the successor's efforts to reverse the failed course
of his or her predecessor and not the successor's self-maximizing acquisition of power.
Given the relatively brief time-frame for the post-succession results in this research (four
years), it is possible that the new CEO has not yet reversed the fortunes of the firm. As
a result, these results should be interpreted with caution. One other result supports this
alternative interpretation of the predecessor disposition issue. When the successor CEO
follows a dismissal, their level of pay is higher than in a voluntary succession event.
Moreover, their level of compensation-risk is higher than for CEOs who follow a
voluntary event. Thus it appears that firms that dismiss the predecessor CEO adopt a
rational approach to compensating the successor CEO in that they pay relatively more
in an absolute sense but they also put more of that CEO's pay at risk. Ultimately these
results suggest that although successor power is high when the predecessor was
dismissed, on the average firms in these circumstances adopt a rational response to
remunerating the successor CEO.
Suggestions for Future Research
The implications of CEO power exercised after stepping into the position provide
a rich foundation for future research. One area for future study, successor CEO origin,
was discussed previously in this chapter. This research found that outside successors
were associated with worse, rather than better, financial performance that were inside
successors. Because this result is contrary to previous research, further study is needed.
It should be noted, however, that most of the evidence supporting the positive impact of
outside successors is derived from the event-study methodology, which examines stock
market reaction to particular information. Because the event window is necessarily
restricted to market reaction near the release of the key information, it may fail to
capture the longer-term impact of a CEO succession event. In addition, the stock market
reaction is an aggregate anticipation of future firm performance and may not reflect a
firm's actual financial performance after the succession event.
Another future research possibility that is highlighted by this study is the question
of differential prediction of CEO succession in firms controlled by owners or managers.
In firms controlled by owners, for example, CEO succession may be better predicted by
firm performance because of the tighter link between firm performance and the fortunes
of the CEO in these firms (Tosi & Gomez-Mejia, 1994). Conversely, in firms controlled
by managers, tournament theory concerns, such as the pay differential among top
executives (Ocasio, 1994), may better predict CEO turnover because the opposing
political behavior of top managers would be more relevant in these firms.
The question of how shareholder interests are best protected is a third possibility
for future research. Although agency theory suggests that outside directors are better
advocates of the ownership position (Walsh & Seward, 1990), the evidence is to the
contrary here and elsewhere (O'Reilly et al., 1988; Westphal & Zajac, 1995a; 1995b).
Some future research is needed to reconcile the theoretical position and the empirical
The research model and results of this study contributed to the examination of
firm-level consequences of different levels of CEO power and will improve the
understanding of differences among firms in board composition and structure, as well as
strategy and performance. However, this research also suggests CEO power, and
therefore board composition, strategy and performance, will differ in firms which have
not experienced a recent succession event. Indeed, this work serves as an initial link
between the literature on executive power (e.g., Boeker, 1992; Westphal & Zajac,
1995a; 1995b) and that examining executive succession (e.g., Brown, 1982; Fizel &
Louie, 1990; Kesner & Sebora, 1994). Future research that integrates the CEO power
and executive succession literatures would greatly increase the knowledge generated in
these separate but related literatures.
Yet another area of future research that is suggested by this study is the nature
of the influence processes between the new CEO and the board of directors. Although
this research found differences in board composition and firm strategies that were
attributed to CEO power vis a vis the board of directors, these conclusions are inferences
based on available evidence. Further research examining the personal processes of
power acquisition and use would add significantly to the understanding of how chief
executives create, use and maintain power dependencies.
This research examined the post-succession consequences of CEO power in firms
with different ownership-control structures. On the whole, the findings were consistent
with the predictions of managerial capitalism and agency theory in that new CEOs in
manager controlled firms had relatively more power and were more likely to exercise
their discretion in ways that were beneficial to them. CEO power was found to stem
from holding a dual appointment as CEO and board chair, originating from outside the
firm, following a dismissal rather than a voluntary succession event, working in a
manager controlled firm, and by manipulating the board of directors. CEO power
resulted in changes to the composition of the board of directors and to the strategic
direction of the firm. More important, the power differences described in this research
were associated with performance differences such that in firms where CEO power was
greater, firm performance was reduced. This research, therefore, shows the importance
of CEO power and represents a step in integrating the executive succession and
managerial capitalism literatures.
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LISTING OF FIRMS AND INDUSTRY CODES
ABBOT LABORATORIES 2834
ABRAMS INDUSTRIES INC 1540
ACTION INDUSTRIES INC 5020
ALLEGHENY LUDLUM STEEL 3312
AMCAST INDUSTRIES 3441
AMERICA WEST AIRLINES 4512
AMERICAN BRANDS 2111
AMERICAN HOME PRDS 2834
ANDREW CO 3661
ANDREWS CORP 2721
ANR PIPELINE 4923
ANTHEM ELECTRONICS 3674
APS HOLDING CO 5013
AVERY DENNISON 2672
BALL CORP 3411
BARNETT BANKS 6021
BELO (AH) CORP 2711
CASE INDUSTRIES 3523
CHUBB GROUP 6331
COLGATE PALMOLIVE 2844
CONSOLIDATED FREIGHT 4213
CONTINENTAL AIRLINES 4512
COOPER TIRE 3011
CORESTATES FINANCIAL 6021
CPC INTERNATIONAL 2046
CROWN CORK & SEAL 3411
CSX CORP 4011
CTS CORP 3676
DATA GENERAL 3571
DELTA AIRLINES 4512
DIAMOND SHAMROCK 2911
DIGITAL EQUIPMENT CORP 3571
DOW CHEMICAL 2821
E SYSTEMS 3812
EXCEL RESOURCES 4922
FIRST ALABAMA BANK 6712
FISHER SCIENTIFIC 5049
GENERAL REINSURANCE 6331
GOODYEAR TIRE 3011
HADCO INDUSTRIES 3672
HOME HOLDINGS 6331
HOUGHTON MIFFLIN 2731
HUGHES RESOURCES 2411
INGERSOLL RAND CO 3562
INTEL CORP 3674
JOHNSON & JOHNSON 2844
JP MORGAN 6022
KATY INDUSTRIES 3559
KMART CORP 5311
KNIGHT RIDDER 2711
LOUISIANA LAND 2911
MAGNA INTERNATIONAL 3714
MICRON TECHNOLOGIES 3674