Book contents
- Frontmatter
- Contents
- List of Figures
- List of Tables
- Foreword
- Acknowledgments
- Introduction
- Part I Changes in the identity of ownership and management
- Part II Changes in the form of ownership and organization
- Part III Changes in strategy
- 5 Corporate and business strategies
- 6 Despite failure, no change in ownership, management, or strategy
- 7 Because of success, reinforcement of ownership, management, and strategy
- Concluding remarks
- Part IV Implications for corporate governance
- Notes
- Index
7 - Because of success, reinforcement of ownership, management, and strategy
from Part III - Changes in strategy
Published online by Cambridge University Press: 05 December 2013
- Frontmatter
- Contents
- List of Figures
- List of Tables
- Foreword
- Acknowledgments
- Introduction
- Part I Changes in the identity of ownership and management
- Part II Changes in the form of ownership and organization
- Part III Changes in strategy
- 5 Corporate and business strategies
- 6 Despite failure, no change in ownership, management, or strategy
- 7 Because of success, reinforcement of ownership, management, and strategy
- Concluding remarks
- Part IV Implications for corporate governance
- Notes
- Index
Summary
Questions about ownership, management, and strategy tend to arise in the context of subpar performance or major change in the operating environment of the firm. When the firm is successful, especially if success has been durable, ownership, management, and strategy are much less likely to come under scrutiny. In fact, not a few observers seem to think that corporate governance, as a practical concern, only arises in the event of failure or wrongdoing. Throughout this book, we have advocated a proactive approach to identifying and resolving issues that can significantly affect the well-being of the firm: not post hoc but ex ante. It is in this spirit that we now turn our attention to addressing the dangers of success. Just as the underlying causes of failure can go unnoticed or unacknowledged for a long time (as described in Chapter 6), the potential negative implications of success can also escape decision-makers for many years, until the erstwhile guarantors of success have turned into the sources of failure.
Success has well-known risks, usually associated with the cognitive limitations of decision-makers and the inflexibility of organizations: overconfidence, failure to see the early signs of decline (myopia), and inertia. From the point of view of the questions raised in this book, success is particularly interesting in cases where it prevents necessary and timely changes in ownership, management, and strategy, what we will term the governance rigidity of success. In our research, we identify two distinct sources of the governance rigidity of success: a particular person, either a manager or an owner; or a particular strategic formula for success. In the first case, success becomes identified with one person (or, less commonly, a small group of people), and no counterweight can emerge to challenge the vision articulated by that person. In the second case, people in the firm equate success with a particular strategic formula and are unable to respond to changes in the environment that can eventually invalidate that formula. In the most extreme cases of the governance rigidity of success, the person stands for the formula, and the formula is identified with the person. In the following, however, we will treat the two types separately.
- Type
- Chapter
- Information
- Strong Managers, Strong OwnersCorporate Governance and Strategy, pp. 146 - 152Publisher: Cambridge University PressPrint publication year: 2013