Owners, managers, and boards of directors: The role of control of the corporation.

The study addresses recent concerns about the nature and consequences of control of the large corporation. The effectiveness of the board of directors in ensuring that the preferences of owners and those of the larger society are maintained, in the face of powerful influences to the contrary, was investigated by examining the moderating influence of corporate control on the relationship between indicators of performance (accounting performance, market performance, firm size, corporate misconduct, and technological competitiveness) and chief executive compensation and turnover. Corporate control was defined in terms of three theoretical perspectives: intercorporate alliances (network control), managerialism (direct control), and agency theory (market evaluations). The results of structural equations modeling and path analyses of the direct and interactive effects of control indicated that although the market's evaluation of the firm's performance was consistently significant in the determination of CEO compensation and turnover, both network and direct control significantly distinguished among firms with respect to the effectiveness of the board of directors in ensuring that owners' interests are maintained in the employment of firm performance criteria for CEO compensation and turnover decisions. Specifically, the results indicated that firms characterized by a high degree of managerial control generally demonstrated little or no concern with the employment of market performance in CEO compensation and turnover, compensated their chief executives higher than did other firms, had significantly higher associations with accounting performance, and negatively associated technological competitiveness with chief executive compensation. Although firms characterized by a high degree of network control generally concerned themselves with the market's evaluations of their performance, they also compensated their chief executives higher than did other firms, positively associated corporate misconduct with changes in compensation, and negatively associated technological competitiveness with the CEO compensation. These results point to the need for the design of differential corporate and social policies that account for the behaviors of firms according as their loci and mechanisms of control vary.PhDBusiness AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/104793/1/9116127.pdfDescription of 9116127.pdf : Restricted to UM users only