“Are Fragmented Corporate Elites More Myopic?”
Abstract: The idea that shareholder value norms encourage managerial myopia mas become a durable criticism of American corporate governance and the shareholder value movement. One prominent line of research argues that shareholder pressures encourage corporations to adopt myopic approaches to strategy and investment, harming their long-term competitiveness in order to meet quarterly earnings expectations and please short-term oriented investors. This paper joins theories about the structural antecedents of collective action with the socio-political theory of the firm to examine how corporate myopia reflects the dissolution of corporate elite cohesion. In particular, we argue that the corporate board interlock network traditionally served
as an important collective resource that helped corporate elites preserve their autonomy and control, thereby mitigating myopic pressures from shareholders. In recent years, changing board appointment practices have increasingly fractured the board network, undermining its usefulness as a platform for collective action and
increasingly exposing corporate leaders to myopic pressures investors. We develop and apply a cohesion metric for network managerialism derived from theory and evidence in social network scholarship. We argue for a structural basis of managerial myopia that links external network based resources to managers’ decisions using seven indicators for managerial short-termism that capture myopia in investment, value extraction, and earnings management. The results present evidence of the benefits of the corporate elite network and also illustrate unforeseen consequences of the network’s dissolution.