As businesses grow, many organizations consider the concept of CEO duality. This is the practice of having two people share the title of Chief Executive Officer and dividing the duties of the role between them. While the concept of CEO duality can help to provide organizations with two sets of insights, it can also lead to complex decision-making and potential conflicts of interest. It is important to understand the pros and cons of CEO duality before making the decision to implement it within your organization. In this blog post, we will define CEO duality and explore its advantages and disadvantages to help you determine if it is the right choice for your business.
CEO DUALITY
Cons of CEO duality
Some of the most typical drawbacks of CEO duality are listed below:
Greater company long-term value
The board of directors’ role is to direct the CEO and other management personnel to concentrate on projects and investments that promote long-term success. They also support these people in communicating strategies to increase the value of the company and understand stakeholder objectives. A CEO who also chairs the board of directors has a unique understanding of the duties and objectives of both positions. In order to help the organization create long-term value for corporate internal operations and to move toward a more competitive position in the consumer market, they can streamline their processes.
Corporate governance abuse
A board of directors’ main function is to oversee business operations and make sure the CEO and other executive leadership team members are working in the best interests of the company and its shareholders. The management position with the greatest responsibility for maintaining and expanding these operations is the CEO. Due to the CEO’s self-monitoring nature in CEO duality, there is a risk that they will abuse their authority. This person might take advantage of their position to gain unfair advantages for themselves or engage in profiteering
ORIGINAL RESEARCH article Front. Psychol., 30 December 2021 Sec. Organizational Psychology
This study focuses on investigating the connection between CEO duality and business performance. We concentrate on the moderating effects of firm size and corporate social responsibility (CSR) on this relationship. There are two sizes of business organizations: small firms and large firms. Datasets of listed Chinese business firms from the China Stock Market and Accounting Research database were used in this study. Through the use of double mediation effects, it applies a generalized method of Moment’s technique to investigate the relationship between CEO duality and the performance of Chinese business firms. Our empirical study revealed a significant inverse relationship between CEO duality and firm performance. We also investigated how the relationship between CEO duality and improved Chinese firm performance was influenced by firm size (small and large) and CSR practices. The relationship between CEO duality and firm performance was significantly and favorably moderated by the presence of large companies and CSR practices. On the other hand, small firms demonstrated a negative moderating influence on firm performance when there was CEO duality. Through the moderating effects of CSR practices and firm size for improved business performance, this inclusive model offers insightful information about how the dual role of a firm’s CEO affected the performance of Chinese firms. The research makes theoretical and empirical contributions to the field of corporate governance. Researchers could design strong strategies to assess the effects on firm performance with the aid of this research framework. Researchers may gain helpful insights using this methodology.
Be aware that both small and large firm size has a significant impact on organizational management and firm performance. According to studies (Rajan and Zingales, 1995; George and Hall, 2004), the size of the firm has an impact on the debt and CEO managerial product structures. According to one study, executive benefits rise with firm size (Jensen and Murphy, 1990). Additionally, firm size may restrict or facilitate a company’s operations, specifically its decision-making and innovation processes (Youn et al. , 2015). For instance, larger companies with more sophisticated and organized structures are better able to adapt to market changes and deliver the desired results. Another study (Moeller et al.) noted that the activities of CEOs may differ by firm size because larger firms have a greater market reputation and more resources. , 2004). A study (Singh et al. , 2018) showed that smaller companies could produce more abnormal earnings. Additionally, larger businesses have more skilled employees who can create new products and accomplish objectives. The primary goal of this investigation is to determine how Chinese firm performance and CEO duality are related. In order to achieve better performance, it examines how firm size and CSR moderate this relationship. CSR is yet another important element influencing how business managers make decisions and how well their organizations perform (Freeman, 2010). Through their respective stakeholders, including governments, consumers, employees, and shareholders, business organizations can contribute to social responsibility and social good. According to studies, investors and other stakeholders must have a favorable perception of CSR firms. In order to address issues of agency between shareholders and managers, CEOs use CSR (Javeed and Lefen, 2019).
By strengthening CSR practices and forging strong bonds with shareholders, business managers can significantly improve the performance of their organizations (Torugsa et al. , 2012). A CEO can also address the concerns of shareholders by involving them in CSR initiatives, increasing their wealth, and boosting business firm profits (Blacconiere and Patten, 1994). CSR policies assist managers in enhancing company values and gaining competitive advantages (Youn et al. , 2015). According to studies in the literature, CEO duality can enhance company performance and CSR (Brown and Forster, 2013). Accordingly, CSR is viewed as a way to increase firm value and the foundation of firms’ competitive advantages (Popescu, 2019). No study has yet examined the combined effects of CSR activities and firm size (small and large) on the relationship between CEO duality and the performance of Chinese firms. This study focuses on exploring firm size (small/large) and CSR practices as moderating effects on the relationship between CEO duality and the performance of Chinese firms. Through the moderating effects of CSR practices and firm size, this research study seeks to examine the function of the CEO duality in the performance of Chinese firms.
This study’s empirical analysis has shown a significant inverse relationship between Chinese firm performance and CEO duality. The relationship between CEO duality and the performance of Chinese firms has been observed to be moderated by firm size (small and large) and CSR practices. Therefore, the relationship between CEO duality and the performance of Chinese firms is significantly and positively moderated by large business companies/firms and CSR. Small businesses, on the other hand, show that the CEO duality has a negative moderating effect on the performance of firms. This inclusive model provides insightful information about the dual role of the CEO of a Chinese company in enhancing corporate social responsibility (CSR) efforts and firm performance. The research makes theoretical and empirical contributions to the field of corporate governance. Our findings demonstrate that companies can benefit from implementing CEO duality to improve business performance. With a cutting-edge framework in the context of an emerging economy, this research model has filled any gaps in the literature that might have existed. The primary organizational structure elements, such as firm size (small and large) and CSR, have been covered in this study.
This research model theoretically and empirically contributes to studies examining the impact of CEO duality on the effectiveness of Chinese firms in the following ways: first, we examine the context of developing economies because their organizational structure is different from that of developed world economies. Second, no research has yet looked into how CSR initiatives and firm size (both small and large) influence the link between CEO duality and improved firm performance. As a result, this study is the first to identify this gap in the literature and helps to close it in the context of a developing economy. Third, in the context of the developing Chinese economy, our research model examines the moderating effects of CSR and firm size on the relationship between Chinese firm CEO duality and better business performance. Fourth, by developing internal organizational systems, this study examines the relationships between shareholders of Chinese companies. This study presents a thorough empirical analysis of how firm performance can be improved by the dual role of a company CEO due to the moderating effects of firm size (small and large) and CSR practices.
There are numerous reasons to select China for this study. First, China has the largest developing market and the second-largest economy in the world, which contrasts with developed nations. Second, the organizational structure of emerging countries differs from that of developed ones due to the inefficiency of financial markets, heavy government involvement, and weak legal institutions (Saeed and Athreye, 2014). The impact of different forms of corporate governance on company performance in developing countries may be influenced by CEO duality. Third, according to recent research, this investigation focused on this connection in the context of a developing nation with top-notch corporate governance (Naseem et al. , 2019). China is therefore the most notable and significant emerging economy with a sophisticated governance system. Additionally, it offers a stimulating setting for modifying and testing previous organizational theories (Peng et al. , 2010). Chinese corporate governance is established and evaluated by market participants and the government. According to Li and Chen (2018), the China Securities Regulatory Commission (CSRC) made improvements to the governance structure a top priority. In response to market expansion, Chinese business organizations have consistently implemented corporate governance frameworks that include numerous measures for determining the authority of CEOs, boards of directors, and executives (Conyon and He, 2011). These initiatives have contributed to the improvement of Chinese business organizations’ governance structures. These actions helped Chinese firms in implementing corporate governance reforms. Similar to this, the literature has shown a significant increase in the dual roles of CEOs. In addition to strengthening corporate governance, China has concentrated on fostering a business culture that will benefit other developing nations. These actions have prompted companies to engage in competition in the business sector (Su et al. , 2013). In emerging countries, however, this link is still somewhat restricted. China is a desirable economy for this research due to its sizable economy and extensive work on corporate governance.
This study provides an empirical analysis of the role that a CEO’s dual personality plays in a Chinese company’s success. The study is organized as follows: section “Introduction” presents the Introduction, following the study pattern. The framework, a literature review, and the study hypotheses are presented in the section titled “Literature Review and Hypotheses.” Section “Research Methodology” presents the study sample and research methodology. The study’s results are presented in section “Results,” and its limitations and next steps are discussed in section “Discussion.”
Chief Executive Officer Duality and Performance of Chinese Business Firms
Researchers and academics have disagreed on the link between improved firm performance and CEO duality. According to the agency and stewardship theories, two theoretical perspectives primarily present how the dual roles of a CEO of a company affect business performance. The dual role of a CEO has a positive impact on improved firm performance, according to stewardship theorists (Freeman and Hasnaoui, 2011; Abbas et al. , 2019b). According to stewardship theory proponents, maximizing shareholder interests through CEO duality could increase business firm productivity. The dual function of a CEO fosters organizational effectiveness, enhances communication, and offers a flexible management arrangement, protecting a firm’s interests through a better business structure (Desai et al. , 2003). Business firms with entrepreneurial networks (Abbas et al. , 2019c) social media usage, innovation, and knowledge sharing (Abbas et al. , 2019a) can achieve better sales and profitability. These can aid businesses in enhancing their operational efficiency (Hussain et al. , 2019, 2021).
The managers of top business firms “have desired to become outstanding agents of their business resources,” according to stewardship theorists (Donaldson and Davis, 1991). By holding dual positions within a business organization and reducing agency costs, senior executives attempt to increase the profit of their companies (Beasley, 1996). Through the CEOs of companies’ awareness of strategic procedures and challenges, senior management can improve executives’ expertise and the value of shareholders in addition to business governance perception (Jensen and Heckling, 1995; Bhagat and Black, 2001; Iyengar and Zampelli, 2009). As a result, proponents of this theory support the idea that firm CEO duality has a positive impact on business performance. In contrast, agency theorists emphasize the negative effects of CEO dualities on business performance because the dual role of a CEO may cause them to prioritize personal gain over the success of their company (Fama and Jensen, 1983). Thus, it makes sense that CEO duality could result in problems with agency between stockholders and business managers. Additionally, CEO directives allow them to use their dual role in a frail structure to give close associates executive positions. According to these results, CEOs’ dual roles may deteriorate the business monitoring structure and result in a variety of firm performance (Krause, 2017).
H1: CEO duality affects Chinese companies’ performance negatively.
In order to protect the interests of shareholders, a corporation must continue to have an independent, involved, and inquisitive board. This is true whether the Chairman and CEO roles are combined or kept separate.
Individual corporations will have different needs depending on their stage of development. Some businesses may need a strong, unified executive who can combine the roles and provide the organization with dynamic leadership. On the other hand, shareholders may feel it is necessary to separate the roles and establish two complementary power centers because they are wary of consolidating power in one person.
As with many questions, the correct response is not predetermined by a clear-cut rule. This is consistent with other concerns about corporate governance, like the rule of business judgment. Although the answer “it depends” may not be satisfactory, the growing importance of this issue should compel corporations to at the very least review the roles within their organizations and choose the best course of action for both them and their shareholders.
Following the financial crisis, there have been numerous calls for corporations to divide the roles of chairman of the board and chief executive officer. Recent challenges to his dual role from public employee unions and the New York City Comptroller were defeated by Jamie Dimon of JPMorgan Chase. Analysts cited the Walt Disney Company’s declining profits in the years following the roles’ separation as a driving force behind the JPMorgan Chase shareholders’ resounding vote to keep the unified structure.
When considering a corporation’s daily operations, the benefits of a unified position are just as clear as the benefits of an independent CEO and chairman of the board.
FAQ
What are the advantages and disadvantages of CEO duality?
Segregation of Duty: While having two CEOs is beneficial because it allows for the creation of a single leader with a clear direction, it also has drawbacks. This is due to the fact that segregation of duties will result if a person in a company has a lot of power.
What are the advantages of CEO chairperson duality?
- Faster decision-making. …
- Stronger and more unified leadership. …
- Access to an assisting lead director. …
- Improved industry adaptability. …
- Greater company long-term value. …
- Executive compensation conflicts. …
- Corporate governance abuse. …
- Audit committee conflicts of interest.
What is CEO duality?
For more than 20 years, CEO duality—the practice of having one person serve as both the CEO and the board chair—has drawn interest from academics. Boards’ use of CEO duality has changed since then, and the phenomenon is now conceptualized more intricately in academic literature.
What is CEO duality and why is it a problem in corporate governance?
CEO duality is a practice in which the Chief Executive Officer (CEO) serves as both the company’s president and the board of directors chairman. The available literature demonstrates both the favorable and unfavorable effects on organizational performance when this occurs.
