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CEOs May Serve Themselves First

The fact that M&A deals continued despite mounting evidence that they may not have been in the best interests of corporate stakeholders at first seems counter-intuitive. But executives in larger organizations generally earn more than executives in smaller organizations.14 Consequently, they may have economic incentive to acquire other firms and grow their own organization. Coinciding with the incentives of the acquiring executive, new research suggests that executives from the acquired firms also may have economic incentive to acquiesce to new ownership. In a study examining 40 large "mergers of equals," including companies such as Traveler's Group and Citicorp, AOL and Time Warner, Viacom and CBS, Daimler-Benz and Chrysler, Dean Witter and Morgan Stanley, and Bell and GTE, Wharton Professor J. Wulf suggested that CEOs from acquired firms may "trade away a better price for their shareholders in exchange for more job security for themselves." Thus, CEOs from both sides of the transaction might have economic incentive to complete a transaction.15 Furthermore, much of the SEC fines issued during 2002 and 2003 (discussed earlier) address the strong conflict of interests that members of the financial community have regarding the completion of deals and dissemination of that information to the public.

Given the potential for a conflict of interest, a CEO of a large, public company needs to be careful about responsibilities to the shareholders and recognize that growth in revenues does not necessarily translate into greater shareholder return. Senior managers can lead the firm to new heights or drive it off a cliff. Obviously, any major decision is subject to board and shareholder approval, but top managers can dictate the direction of the organization. Given their unique opportunity to shepherd resources, acquire other companies, or radically change the fabric of the entire organization, this group has power. Big power. But if they are to take advantage of their unique power they will need to move fast. Their stay at the top lasts for only a short while. Nowadays, most executives leading large, publicly held companies survive, on average, 3-4 years before they move on. In many respects, their career at the top approximates the life of a National Football League running back.16 If they are to make significant change within the organization, or hope to make a big score in compensation, they will only have a short window of opportunity in which to accomplish it.

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