When in Rome look like Cesar? Investigating the link between demand-side cultural power distance and CEO power

R. Krause, Igor Filatotchev

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung


Agency theory-grounded research on boards of directors and firm legitimacy has historically viewed CEO power as de-legitimating, often taking this fact for granted in theorizing about external assessors’ evaluations of a firm. With few exceptions, this literature has focused exclusively on capital market participants (e.g., investors, securities analysts) as the arbiters of a firm’s legitimacy and has accordingly assumed that legitimate governance arrangements are those derived from the shareholder-oriented prescriptions of agency theory. We extend this line of research in new ways by arguing that customers also externally assess firm legitimacy, and that firms potentially adjust their governance characteristics to meet customers’ norms and expectations. We argue that the cultural-cognitive institutions prevalent in customers’ home countries influence their judgments regarding a firm’s legitimacy, such that firms competing heavily in high-power distance cultures are more likely to have powerful CEOs, with CEO power a source of legitimacy—rather than illegitimacy—among customers. We also argue that the more dependent a firm is on its customers and the more salient cultural power distance is as a demand-side institutional norm, the greater this relationship will be. Data from 151 U.S. semiconductor and pharmaceutical firms over a 10-year period generally support our predictions.
Seiten (von - bis)1361 - 1384
FachzeitschriftAcademy of Management Journal
PublikationsstatusVeröffentlicht - 2016