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Thursday, November 19, 2009

What comes first for Indian CEOs - company or self?

Thursday,19 November 2009

Bangalore: As per a study CEOs are less likely to pursue actions that advance their interests at the expense of the organization and its stakeholders. However, in the Indian context how far does it hold true?

Ramalinga Raju, the Founder and Chairman of Satyam Computer Services, an alumnus of the Harvard Business School as well as the winner of several awards and global accolades cannot be forgotten in this context. His involvement in the biggest corporate scam has no parallel in Indian corporate history. He created a $2 billion company in a short period of time, only to leave it penniless, all due to personal interests.

Sanjay Kumar, a former CEO of Computer Associates who is of Indian origin, was found guilty in 2007 in an accounting fraud, for which he was asked to pay about $52 million over two years to the victims. So how many Indian CEO's actually put their company before self is a big question.

On the other hand, ask the CEOs of the biggest U.S. companies whether they identify with the firms they head, and a plurality say they do. In research presented at the annual meeting of the Academy of Management, in Chicago, August 9-11, about 40 percent of approximately 800 CEOs who were surveyed affirmed (about one third of them strongly) that the company was a major part of who they were. Another 30 percent denied that was the case, and the remaining 30 percent were somewhere in between.

"One might expect that a CEO who identifies strongly with his or her firm will see nothing wrong with using the company resources for personal use, but our findings suggest the opposite to be the case," comments James Westphal of the University of Michigan, a Co-Author of the study with Steven Boivie of the University of Arizona, Donald A. Lange of Arizona State University, and Michael McDonald of the University of Central Florida. "What we found instead," he adds, "is that such executives tend to shun lavish perquisites that shareholders and the public resent, perks which, in fact, have been shown to be associated with significant under-performance of company stock."

CEOs with strong company identification also tend to avoid corporate strategies that are likely to be at odds with the interest of shareholders. For example, they are less than half as likely as CEOs with weak company identification to increase their companies' level of unrelated diversification, a strategy that the study characterizes as 'a form of corporate empire-building, associated with lower financial performance, lower stock prices, and greater institutional pressure to divest.

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