How Owners Influence Strategy—A Comparison of Owner-Controlled and Manager-Controlled Firms

Abstract

Is there a difference in how firms compete if owners take an active role in setting strategy versus when managers make all the decisions? The recent management literature is full of cases where managers choose strategies that ultimately diminish shareholder wealth. Would their decisions be different if owners of the company were involved in those strategic decisions? In this article we examine the effect that owners have on the strategy and performance of companies publicly-owned and traded on U.S. stock exchanges. Prior research has indicated that as ownership in firms becomes widely held, the strategic choices made by owners and managers increasingly differ. Our study specifically examines the impact of company owners on the selection of strategies and performance of the company. Our results indicate that patterns of strategies vary depending on whether strategy-makers have an ownership interest in the firm. The results suggest that owners and managers perceive risks impacting the firm differently and thus make strategy-setting decisions affecting the performance of the firm based on their potential for personal gain. We offer suggestions for the design of top manager incentives and enhanced oversight role of the board. © 1998 Elsevier Science Ltd. All rights reserved