Gordon Gekko, the fictional entrepreneur of the movie Wall Street, is wrong after all. Greed isn’t good.
The latest research shows that a greed of the arrogant, dark and self-interested type can be bad for business.
Recent studies in the Journal of Management, the Journal of Management Studies and the Journal of Leadership and Organisational Studies show that companies suffer under greedy CEOs.
“We tried to look at what we think greed is more objectively,” says University of Delaware researcher Katalin Takacs Haynes.
Some leaders are insatiable when it comes to compensation. How much is too much? And how much is raw greed?
“It’s not for us to judge what too much is for anybody else,” says Haynes. “But we can see when the outcome of somebody’s work is the greater good, and when it is not just greed that is operating in them.”
Haynes found the range of pay within companies an intriguing question.
“Why is it that in some companies there is a huge difference between the pay of the top executive and the average worker or the lowest-paid employee and in other companies the pay is a lot closer?” she says.
But if the CEO makes more than anyone else does that mean greedy?
“It’s possible that high pay is perfectly deserved because of high contributions, high skill sets,” Haynes says. “And just because somebody doesn’t have high pay doesn’t mean they aren’t greedy.”
Risk aversion can harm a company. But risk for short-term gain without thought of the company’s future is a sign of greed.
“Some CEOs take risks and it will pay off,” she says. “They will have reliable performance and we can forecast that. We know their track record. Others take foolish risks not based on their previous performance.”
Generally, the researchers found that greed is worse among short term leaders with weak boards of directors.
The good news is that strong corporate governance can rein in CEO greed and keep both self-interest and altruism in proper balance.
“Overall, we conclude that measured self-interest keeps managers focused on the firm’s goals and measured altruism helps the firm to build and maintain strong human and social capital,” researchers write.