CEO Duality Impacts on Firm Performance †MyAssignmenthelp.com

Question: Discuss about the CEO Duality Impacts on Firm Performance. Answer: Rational The title of the chief executive officer (CEO) and the chairman of the board is one of the most highlighted issues of corporate governance in recent years. There are so many companies in America that have a long tradition of combining the titles (dual leadership for brevity). It has been evaluated that in 1990, more than 60% off forms have dual leadership.CEO duality defines the situation where the CEO handles the position of the chairman of the particular company. However, the duality of CEO stood at a much-preferred position in the actual situation (Gangloff, Connelly Shook, 2016). It has been found by using risk metric board data that only 54% of SP1500 firms have dual leadership in 2010. This research will focus on various aspects related to the duality of CEO which may influence the performance of the firm. It will describe the various ideas in the context of better performance by having a CEO duality. Along with that, the clarification will be given to finding prove that sodal ity may influence firm in a good way rather than a bad way. It has been analyzed that CEO duality it has become general in businesses, the practice of CEO duality has come under heavy criticism. It is considered as an essential matter in corporate governance due to the position of CEO and chairman may have an impact on firm performance. There are various arguments will be made in favor of CEO duality which will refer the positive impact on the firm performance due to CEO duality (Schepker, et. al., 2017). Likewise, there will be various arguments against CEO duality asserting that it has negative impact on performance. It has been evaluated that there are various firms that transformed from dual CEO leadership structure to non-dual structure in the recent past years. There is a small number of firms has transformed in the opposite direction. The main aim of this research is to figure out the consequences of CEO duality on company presentation (Carpenter, Sanders Gregersen, 2001). M ethodology will represent the method of collected data and demonstrates various approaches to gather the data in an adequate manner. Aim of the research The main aim of this research is to discover the relationship between CEO duality and the performance of the firm. With the help of various theories, the next section reflects the literature review which mainly demonstrates on other authors' argument about the chosen topic. There are two major theories underpinning this section which are agency theory and stewardship theory. To investigate the roles and responsibility of the CEO and the Chairman of the organization. To critically analyze the main factors causing issues within an organization due to CEO duality of the firms performance. To evaluate the motivational drivers to increase the performance of the organization. To show the beneficiary point by unscrambling the functions of Chairman and The CEO of the company. Question of the research What are the theories to define relationship between CEO duality and firm performance? Is CEO duality only variable that influences firm performance? What are the roles and responsibility of the CEO and the Chairman of the organization? Literature review Corporate governance is a component of the firm that continuously receives attention and their leadership structure can be alienated into combined leadership structure and separated leadership structure. Effectiveness in monitoringmanagement could be amplified by CEO- Chairman Duality, where a single person gets position of chairman and CEO concurrently due to less contracting is required (Rashid and Lodh, 2008). The liability of a CEO in the organization is to begin the strategic plans of the company in an appropriate manner. On the other hand, the board of directors of the company is liable for running activities of the company in a way that would benefit from firmly shareholders for a long term (Krause, Semadeni Cannella, 2014). It has been evaluated that duality has been blamed for bad performance and steadily response to a change in firms. The Argument has been made CEO duality is that there will be extra cost when the profile of CEO and chairman are separated because it will be generated the monitoring cost. It has been analyzed that the advantages of monitoring can be bigger in comparison to cost in many cases. However, it is required to maintain awareness that the CEO of the company is being monitored in a sufficient Manner to make the desired incentives (Yang Zhao, 2014). Along with that, chairman defines that there will be a different cost that is Information sharing cost (when th e profile of an individual is the CEO as well as the chairman, there is no requirement to be shared compared to when the CEO and chairman are two different persons) between the Chairman and the CEO. There is an Association of incentive cost as well with a sequence maner in which CEOs are promised for the title of chairman (Lin, 2005). For instance, when the compensation of CEO is related to the wealth of firm this may be the reason for avoiding risk and in some cases, this can be a cost. The duality of CEO can also be benefited from the performance of firm due to a leader can provide a obvious direction and can be more responsible for making changes within an organization to enhance the productivity of the employees in an appropriate manner. When one person has responsibilities of the two most important position of the company, will have more extensive knowledge about the organization. Likewise, Hashim Devi, (2008), argue that the implementation of a strategic decision can be more effectively only when leaders have greater discretion. It will be helpful to overcome inertia of organization and greater discretion can be attained by CEO duality because it is able to provide a wider power base and locus of control. There are so many authors that claim that CEO utility has a unconstructive impact on firm performance. It has been stated by Kim, et. al., (2009), that the turnover of CEO to firm performance is considered inferior in the term of CEO duality. It is difficult for the board to remove the CEO that is also the chairmen of the company. In light of these drawbacks, arguments can be made in the term of separating the chairman and CEO. The function of the chairman is entirely different from the function of the CEO. The chairman is liable to make decisions regarding firing, hiring and compensation for the SEO. In case if CEO has the responsibility of the chairman, it would be very difficult to that person to ignore his or her personal interests. Kholeif, (2008), argues that the board of the company will be more efficient and effective with an independent chairman. Petrenko, et.al., (2016), also conclude that the separation of CEO and chairman is more effective. Their study suggests that, afte r having control over the various variables like firm size, costs and return on assets are higher when the position of the CEO and chairman are separated. Abdullah, (2004), emphasize that the disjointing of CEO and chairman will be the good reason to reduce the cost of the operation of the company. There result define that, the stakeholders of the company will be more protective when two functions and responsibilities of the most important profile of the company are separated. At the last, there are also researches that have been done that demonstrated that there is no important association between the status of CEO duality and performance of the firm (Krause Semadeni, 2014). There are two major theories underpinning this topic will be researched, which are the agency theory and the stewardship theory. The board of director of the organization is considered as the main monitoring device to prevent the interest of shareholder in an efficient manner. The main aim of the board is to evaluate and control the top management team and the CEO. It has been evaluated that there are so many researchers who think that boards cannot always be effective to govern the CEO in an appropriate manner when the chairman and the CEO are the same individual (Dalton Dalton, 2011). The agency theory is considered as the supposition that defines a relationship between agent and principal in an organization along with that it is liable to resolve the issues that can exist in agency relationship because of undefined objectives of the company. As per the agency theory, the partners and directors of the company are different individuals. In agency theory, directors and the sharehold ers of the company desire to prevent themselves against over Cost. The unnecessary cost that will rise out of the potential divergence of interest between the shareholders and the managers of the company are called agency cost. The main focus of agency theory is on reducing the conflict of interest between directors and representatives and enhancing the revenue of shareholders. It has been argued by Duru, Iyengar Zampelli, (2016), that the separation between the function of CEO and the chairman is integral in order to defend the interest of the shareholders. Agency theory also articulates that CEO duality is negatively connected to firm performance (Peng, et., al, 2007). It has been analyzed that the CEO duality is not able to separate the decision management and the decision control; therefore the board of the company cannot monitor and control the function of the CEO in an effective manner. Yan Kam, (2008), argue that if the CEO is also taking care of the position of the chairma n of the board, the control over the Firm by the CEO would not be very effective. The shareholders are the owners of the organization, on the other hand, the managers are considered as an agent that acts as the delegates on the behalf of the shareholders. It defines that shareholders of the company do not have direct control of the organization. It may lead the organization in the phenomenon of agency loss, which occur the situation when the management of the firm directly controls the organization unable to keep the interest of the shareholders in an appropriate manner. It is a responsibility of the CEO of the firm to implement strategic decisions and it is a responsibility of the board to rectify and monitor the decision of the CEO. Separation of the chairman is the vital aspect of the agency theory because this separation can enhance the productivity of the employee and get better the presentation of the firm (Elsayed, 2007). Stewardship theory is an substitute view of agency theory in which managers are presumed to act in their own self interests at the expense of shareholders. Stewardship theory defines that the manager of the company would act as per the purpose of the due to strong relationships between the purpose and Expectations of the company (Tang, 2017). It holds an positive view of human all managerial behavior and argues that the employee of the company are not compulsory motivated by the goal of an individual, rather than to work in the interest of their principal company. Stewardship theory suggests that the role of CEO would be more effective if the role of the CEO and chair of the board is combined (Abdullah, 2004). Therefore, stewardship theory defines the attractive and positive relationship between quality and firm performance. It is just opposite to the agency theory and support to the positive relations between CEO duality and firms performance. Stewardship theory proposes that CEO du ality has an attractive leadership structure which is able to influence the entire activity of the organization in an efficient manner. With this kind of leadership structure, the decision could be taken by an organization in a quick manner and, in consequence, lead to a best performance than those who have the different responsibilities of the two positions. This theory also supports by defining that the unity of command of CEO duality advantages for shareholders and can amplify the returns of the shareholder (Yang Zhao, 2014). The relation of duality and company performance has been studied by Baptista et al. (2011), using data of the Year 2008 in Brazil. As per the outcome of experiential study, the relation has been found in a positive way between reality and ROE (Return on Equities), which can be considered important indicator of company performance. There are the other indicators of company performance which also has been found in a positive way that is ROA (return on asset), ROC (Return on Capital), MTBV (Market to Book Value) and firm's performance. It has been stated by Gill and Mathur (2011), that the result of corporate governance on firm performance is positive which companies running there service sector in Canada. But as per the result of empirical study, there is a negative relation has been searched between the size of board of directors and the importance of the firm but there was a favorable relation between reality and value of the company. It has been found that the empirical research has also generated conflicting results on the duality performance relationship. There are so many firms in all over the world that reported a negative correlation of duality with ROE and ROI. It has been studied by Y?ld?z and Do?an (2012), that the effect of CEO duality on the performance of mutual fund companies has the positive impact. This literature reflects that due to have the information benefits over the headquarters, the firm got decentralized. It has been analyzed that the companies under US are under deep force to eliminate the CEO duality within the firm. In early 1990s, there were so many firms of U.S. that have the dual leadership structure. The ratio of CEO duality is just over 50%. With the help of exogenous shock that amplified competition, it has been found that duality firms do better than non-duality firms by more than 3% when competition exaggerates. In the case of higher information costs in the firm, the effect of dual leadership has positive effect. Conforming t o a vast literature that rivalry promotes productivity, it has been found that there are many firms which are under tariff protection before 1989, considerably decrease slack and enhance the efficient after the trade liberalization (Tin Shu, 2008). Research methods Research Methodology is significant aspects of the entire research study which explains the methods, techniques, and processes taken for the accomplishment of the research successfully. There are various designs has been take to accomplish this research. Descriptive research, exploratory research, and explanatory research are involved in this design. These designs fulfill the different purposes. The role of descriptive research is to facilitate in discussing the theoretical data which is the topic of the research. The exploratory design facilitates in linking the cause and effect of the research topic. On the other hand, explanatory research design is effective to explain the topic in effective manner by taking help of its factors. The research is based on exploratory research in which various factors related to CEO duality impacts on firm performance have been discussed which are responsible to increase the cost of the operation within the firm. Research approaches There are number of research approaches to carry out the research. These research approaches can be distinguished into qualitative research and quantitative research. It is the research which has been conducted by taking help of mixed research method both qualitative and qualitative approach so that the conclusion of the research topic can be derived from the evaluation of the subjective along with the quantitative data (Peng, et. al., 2016). Quantitative approach is effective because it encompasses statistical calculations which can be done to draw the conclusions. On the other hand, the qualitative approach is more effective because it is able to attain the understanding on the underlying reasons, opinions, and motivations. Collection of data Data collection is vital components of the research. The gathered data facilitates in accomplishing the research with confirmation and offer a suitable conclusion. The resources of primary and secondary are being used in this research. The main consideration towards gather the data is secondary sources and to collect the information secondary approach has been opted. Secondary sources provide the data which is already utilized for another purpose. It can be collected from magazines, reviews, research paper, journals articles, newspaper etc. The main focus of this research is on the used articles of different authors which are facilitated to provide efficient knowledge about the chosen topic. Along with that the primary sources of data provide the fresh and first handed information which is used for first time. It encompasses statistical data, eye witness, speeches and documents which are taken in use for very first time. Primary data can be gathered from questionnaire, surveys, inter views and observations (Duru, Iyengar Zampelli, 2016). Sampling size and technique The collected data is huge so it is difficult to manage the entire data in an efficient manner within time frame. A random sampling technique has been chosen for analyzing the data in an appropriate manner because it is able to facilitate provide the solution within time frame. The random sampling method is being opted in which the group of employees has been selected for conducting the survey randomly from the whole population of the employees who are experiencing the issue of CEO duality. Research strategy It is vital for the research to be completed within time frame so that the effectiveness of this research will maintain. The research should be conducted in adequate manner for attaining the goal. A systematic approach has been chosen for executing the research in a systematic manner. It is appropriate approach which helps to gather the data in systematic way so that confusion can be away from solution. This has resulted into covering every essential aspect regarding this research without skipping out any vital activity. An action plan has been made to know the details of the various activities in systematic way. Target market Target market is the zone where information regarding to the research topic is to be gathered. It is facilitated to identify the various sources from where information has to be gathered. A mixed strategy such as combination of primary and secondary sources has been opted for this research. The information is accumulated by primary source with the help of questionnaire in which some certain questions regarding CEO dualitys impact on firm performance are formulated. It will be presented in front of employees who are facing these issues within the company. Secondary sources have been collected from the journal articles, social media, newspaper, review and other source are taken in use which is published after 2008. Choice There are various alternatives are available which can be taken in use for accomplish the task within time frame. The selection has been made after evaluating the requirement of the research program. Ethical consideration Ethical values and principles have been considered while executing the research. It is considered as an important activity to accomplish the task. Ethical values and principles have been done for ensuring the conduct of the research program within the ethical framework. The main focus of this research is to conduct this research in fair manner. Confidentiality is considered as essential way so that the important information cannot get revealed while researching. Research limitations During the execution of the research program, few issues have been found which influenced the execution process of the research program. These limitations are described below: The time limit is too short that is why random sampling technique has been chosen to implicate the research in an adequate manner by involving number of employees. There is a lack of resources which being the reason of limitation. Various resources are needed for the execution of a research program and due to lack of availability of resources influence the quality of the research. Anticipated conclusion It has been concluded that CEO dualitys impact on firm performance can be negative as well as positive terms. The main aim of this study is to measure the effect of CEO duality on the performance of the firm. For these two theories such as agency theory and stewardship theory has been taken so that the relations between CEO duality and firm performance can be analyzed in adequate manner. It has been analyzed that the negative relationship has been determined between duality and company performance. It defines that the CEO is also a member of board of director which may influence in negative manner both accounting based performance indicators such as ROE and ROA. The result of CEO duality can be benefitted if the size of firm is smaller. It has been analyzed that there will be extra cost when the profile of CEO and chairman are alienated because it will produce the monitoring cost. It has been analyzed that the advantages of monitoring can be bigger in comparison to cost in many cases . It would be possible for the organization to lead the market in efficient manner if CEO of the organization has an attractive leadership structure to attract the whole activity of the organization adequate manner. For instance, the tendency of CEO duality can boost the performance of firm in dynamic environments in the comparison of less dynamic environments. The division of the profile of CEO and the Chairman of the organization can help to monitor and control the board, but at the sacrifice of leadership and decision speed. It has been anticipated that the CEO duality can put impact in positive manner as well if the person who holds both position is responsible towards his duty. Personal interest is only cause which may lead an honest person in unethical way. That is why it is necessary to do job in perfect manner by being unbiased. 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