Corporate Elites

Corporate Elites: “Sets of individuals in positions of authority over major social organizations’ .” (Whitely et al 1975)“Those who occupy formal positions of authority, those at the head of, or who could be said to be in strategic positions in private and public organizations.” (Pettigrew, 1992) examples of these include CEO’s. Does the environment and conections of a corporate elite influence the strategy they chose?Upper Echelons theory: “executives with similar functional background experiences tend to converge on similar understandings of business problems and appreciate similar solutions to these problems.” (Jensen et al. 2004)The central premise of  CEOs have tampered views. upper echelons theory is that top executives view their situations - opportunities, threats, alternatives and likelihoods of various outcomes - through their own highly personalized lenses. These individualized understandings of strategic situations arise because of executives’ experiences, values, personalities and other human factors. Thus, according to the theory, organizations become reflections of their top executives (Hambrick, 2014). Song (1982) found finance CEOs(thought to typically view the firm as a bundle of financial assets) tend to prefer to diversify through acquisitions, but production CEOs (thought to emphasize more organic growth) tend to prefer diversification through internal development.Stats:(35% of French Business elite educated in 10 schools Paris, 29% UK business elite educated at Oxbridge was 50% 1970s Maclean, 2006) (from a survey of 34 UK CEO 60%banking CEOs studied arts at Oxbridge, 50%banking CEO went to a Claredon school Chapman, 1986) Agency theory: occurs when the agent is able to make decisions on behalf of, another person the principle. The dilemma exists because sometimes the agent is motivated to act in his own best interests rather than those of the principal. Jensen 2004 and Zajac Does the position of a corporate elite influence their strategy? Agency theorists argue that the specialisation of management and risk functions between executives and shareholders creates different strategy interests between executive and non-executive directorsExecutives prefer a higher level of firm diversification than shareholders. This is because shareholders can use the stock market to diversify their portfolios and hedge against risks of failure. But executives often have much of their wealth; tied to the corporation they work for. Finance CEOs are more likely to favour diversification and acquisition in comparison to non-finance CEOs. This is down to the visibility of CEOs and the public attention as well as the possibility of gaining titles that influence CEO acquisition behaviour. CEOs are influenced by the public attention they receive and then do more acquisitions. Differences in governance positions imply differences in strategy preferences. RBS example: 1992 new CEO comes in Sir George Mathewson. He replaces the board with his own people, including Fred Goodwin (uprEchelon theory). The strategy of the bank changes to aggressive expansion sales/ acquisition driven cost cutting. Fred becomes CEO 2001 RBS acquired NatWest in 2000, bought ABN Amro in 2007. Fred Goodwin: Exercised reckless trading on Financial Market for purchasing ABN Amro despite early signs of US mortgage crisis. Was his poor strategy of sales derived from his background of accounting? Or due to his position of CEO he had been knighted and received large bonuses in last 5 years which may have encouraged an acquisition based theory. GFC: Peak RBS Share under fred£6.07, RBS share price jan 2009 £0.11 Gov now owns 70% of RBS Fred receives £342,500/ year pension. 9 directors and non-exec directors who did not protect shareholder value (BBC, 2009).