The Pacification of institutional investors
By: WESTPHAL, James D
.
Contributor(s): BEDNAR, Michael K.
Material type: 
ArticlePublisher: Ithaca, NY : Cornell Johnson Graduate Scholl of Management, March 2008Administrative Science Quarterly 53, 1, p. 29-72Abstract: A large-scale survey of U.S. top managers and fund managers is used to examine how managers may use interpersonal influence behavior to prevent powerful institutional investors from using their coercive power to force changes in corporate governance and strategy. We theorize that high levels of institutional ownership may prompt CEOs to engage in interpersonal influence behavior in the form of ingratiation and persuasion directed at institutional fund managers, which deters the latter from using their ownership power to coerce changes that could benefit shareholders at the expense of management. The results support our theory, indicating that CEOs' ingratiation and persuasion tactics toward institutional fund managers reduce the effect of institutional ownership on specific changes in board structure and composition, CEO compensation, and corporate strategy that are believed to compromise management's interests. Our theory and findings suggest the importance of considering how interpersonal influence processes can provide an alternative source of influence relationships between corporate leaders and external constituents
A large-scale survey of U.S. top managers and fund managers is used to examine how managers may use interpersonal influence behavior to prevent powerful institutional investors from using their coercive power to force changes in corporate governance and strategy. We theorize that high levels of institutional ownership may prompt CEOs to engage in interpersonal influence behavior in the form of ingratiation and persuasion directed at institutional fund managers, which deters the latter from using their ownership power to coerce changes that could benefit shareholders at the expense of management. The results support our theory, indicating that CEOs' ingratiation and persuasion tactics toward institutional fund managers reduce the effect of institutional ownership on specific changes in board structure and composition, CEO compensation, and corporate strategy that are believed to compromise management's interests. Our theory and findings suggest the importance of considering how interpersonal influence processes can provide an alternative source of influence relationships between corporate leaders and external constituents
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