Academic journal article International Management Review

Deep Structures in CEO Duality-Firm Performance Linkage

Academic journal article International Management Review

Deep Structures in CEO Duality-Firm Performance Linkage

Article excerpt

[Abstract] Prior empirical research on CEO duality board structure has paid little attention to deep structures (tacit forces that govern the process, such as managerial task environment and social process) that modify the CEO duality-performance linkage. An empirical examination of 290 Fortune 1000 companies shows that CEO duality is related to superior firm performance when the firm's task environment is characterized by extensive business diversification, which highlights the structural benefit of organizational flexibility derived from CEO duality. However, counter-balancing tacit forces relative to CEO duality, such as institutional ownership concentration, board tenure, and board tenure heterogeneity, have negative moderating impacts on the relationship between CEO duality and firm performance. Implications of the results are discussed for future research.

[Keywords] CEO duality; deep structure; corporate diversification; institutional ownership concentration; board tenure; board tenure heterogeneity

(ProQuest: ... denotes formulae omitted.)

Corporate governance research aims to achieve an effective governance system that ensures proper checks and balances at the corporate top, while facilitating efficient firm adaptation to a fast-changing business environment. Corporations operating in a complex and rapidly changing business environment adopt a CEO duality board structure (i.e., the CEO chairs the board of directors in the firm) primarily to promote organizational flexibility and adaptability while securing accountability in corporate leadership. In academic circles, more than two decades of research on the CEO duality-performance linkage has led to divergent and somewhat contradictory suggestions regarding the choice between CEO duality versus nonduality (Iyengar & Zampelli, 2009; Dalton & Dalton, 2011). For example, scholars focusing on the agency theoretic paradigm have emphasized that the CEO duality structure could potentially undermine the monitoring and control functions of the board of directors in a firm, having negative implications for firm performance (e.g., Rechner & Dalton, 1991; Jensen, 1993; Daily & Dalton, 1994; Davidson et al., 2004). On the other hand, management scholars focusing on organizational structure and managerial stewardship behavior have suggested the benefits of the CEO duality board structure, such as a unity of command, accountability in corporate leadership, and a trust-based CEO relationship (Donaldson & Davis, 1991; Brickley et al., 1997; Bhagat & Black, 2001; Faleye, 2007). Empirical resolution of these contrasting perspectives has proved to be problematic because of the conflicting research evidence of the performance implications of CEO duality (Dalton & Dalton, 2011).

The research endeavors centering on the CEO duality-performance linkage have been rhetorically so powerful and pervasive that researchers paid little attention to the deep structures (i.e., tacit forces governing the process) that co-exist with the formal, superficial structure of CEO duality. CEO duality as a social actor is embedded in the social process formed by governance constituents in the firm. CEO duality defines the structural form, but the "structure itself cannot structure some other aspects of social existence," such as politics and social formations (Sewell, 1992, p. 2). Social processes are not programmed by a structure itself (Blau, 1977; Carter & Lorsch, 2004). It could be argued that the existing ambiguity and controversy on the performance implications of CEO duality is derived from rigid, causal determinism based on the illusion on structure. The process would actually be formed by intangible, tacit forces in the relational dynamics among governance constituents. Tacit forces, such as managerial task environment and social process in the firm, should exert substantial influence on the boundaries and efficacy of CEO duality leadership. That is, a visible formal structure and latent processes produce an enactment of CEO duality and subsequent firm performance. …

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