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Corporate Executives, Directors, and Boards
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This chapter assesses the behavior of corporate managers and boards of directors within the framework of agency theory, stewardship theory, and psychological biases. In agency theory, a chief executive officer (CEO) is motivated to act in his or her own best interests rather than those of shareholders. Stewardship theory posits that a CEO is a self-actualizing individual seeking to grow and reach a higher level of achievement through leading an organization. A CEO exhibits self-interested behavior in managing the firm. The CEO also exhibits optimism, overconfidence, and risk-aversion behaviors that are not optimal for the company. In the context of agency theory, the board of directors should enact incentive structures and monitoring to control these behaviors. However, directors also suffer from self-interests and cognitive biases. Specifically, boards may suffer from group-dynamic problems such as social loafing, poor information sharing, and groupthink.
Title: Corporate Executives, Directors, and Boards
Description:
This chapter assesses the behavior of corporate managers and boards of directors within the framework of agency theory, stewardship theory, and psychological biases.
In agency theory, a chief executive officer (CEO) is motivated to act in his or her own best interests rather than those of shareholders.
Stewardship theory posits that a CEO is a self-actualizing individual seeking to grow and reach a higher level of achievement through leading an organization.
A CEO exhibits self-interested behavior in managing the firm.
The CEO also exhibits optimism, overconfidence, and risk-aversion behaviors that are not optimal for the company.
In the context of agency theory, the board of directors should enact incentive structures and monitoring to control these behaviors.
However, directors also suffer from self-interests and cognitive biases.
Specifically, boards may suffer from group-dynamic problems such as social loafing, poor information sharing, and groupthink.
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