Top Management and Political Skill
E_BA_TMPS
VU Amsterdam
Content and Order
1. Lectures
a. * Lecture 2 is interwoven with the articles we needed to read that week because it
was almost a complete repetition. Things that where not in the articles but where in
the lectures have been added to those article summaries separately.
b. Lecture week 6 was not exam material and only about the game we needed to do.
c. All chapters of the book “Getting to a yes” are also in these lecture summaries
(clearly indicated) except chapter 7. This is added separately at the end.
2. Articles relevant for lectures
3. Articles from tutorials
,Lecture 1: Board Room Dynamics
All theories to explain board room dynamics:
1. Board structures
2. Agency theory
3. Stewardship theory
4. Upper-echelons theory
5. Resource Dependence Theory
These theories come in a logical consecutive order.
1. Board structures: agents need to be checked and controlled.
2. Agency theory: homo economous, rational, self-interested
3. Stewardship: agency is too narrow, and people are not always self-interested.
4. Accountability is the balance between the two ( Roberts article)
5. Upper echelons: look at the person, at the most powerful actors.
6. Understand the context not just the people at the top → RDT
Board Structures
One-tier board model: the central board of directors in charge of decision management.
UK, USA (anglo saxon)
Two-tier board model: non and executives are separated, they are not on the same board.
Rijn Landen
1. Supervisory board in charge of decision-making (raad van toezicht)
2. Management board for monitoring (raad van bestuur)
*The supervisory board represents principles and allows them to control and monitor the agents.
*Both underlie agency theory.
Separate or together?
- Separate value → remove the influence of being on the same board making it easier to be
independent and neutral in monitoring
- Joint value → Principals are more involved and informed about the organization and can
enact their role as monitors better.
Agency theory: agents (managers) agent act on behalf of the principles.
- Agents = managers
- Principles = shareholders and non-executives
- Agency theory = agents + principles
Agents are not always acting like the principles want.
At the root of the board structures.
,Assumptions of Agency Theory:
- Acts are consistently rational
- Motivated by self-interested opportunism
- All individuals are egoist → act in their self-interest
- Challenged by stewardship theory
- Agents are in a position of power (access to information and position to make decisions)
- Taking all sources of information (limitless) into consideration before making a decision
- Challenged by upper-echelons theory
Roberts, McNulty & Stiles (2005) Beyond Agency Conceptions
Accountability is more than just monitoring and compliance
- Accountability is about creating a healthy balance between trust and distrust, done through
open dialogue.
- Through challenging, questioning, probing, discussing, testing, informing, debating.
Board and governance reform: ivory tower boards, actually talk to the board and interview them.
Found neither agency or stewardship theory was 100% accurate. We need a reform of theory.
Stewardship theory (davis, schoorman and donaldson, 1997)
The theory that managers, left on their own, will act as responsible stewards of the assets they
control. Stewardship theorists assume that given a choice between self-serving behavior and
pro-organizational behavior, a steward will place higher value on cooperation.
Upper echelons theory Hambrick (2007)
We are bound rationally, and cannot have all the information and thinking capacity, available
information and time, so we rely on personal dispositions, attitudes and experiences. This influences
decision-making and strategic choices
Predicts strategic decision-making which affects business profit and success.
If we want to understand why organizations do the things they do, or why they perform
the way they do, we must consider the biases and dispositions of their most powerful
actors — their top executives.
,Added two moderators to his theory:
1. Managerial Discretion: The level of “freedom” the manager has. The influence of top
executives on organizational outcomes depends on the level of managerial discretion.
a. A greater level of discretion means their characteristics significantly impact strategy
and performance outcomes.
i. More discretion makes upper echelons theory a more appropriate
framework and better predictor.
b. Lower discretion means executive characteristics have less influence.
2. Executive Job Demands: suggests that the demands placed on executives significantly shape
their decision-making.
a. Executives with heavier job demands rely more on their dispositions, increasing the
predictable power of upper echelons theory.
b. Executives with lighter demands can afford more comprehensive analysis, which
improves decision-making and makes their disposition matter less reducing the
predictable power of upper echelons theory.
Critiques
- Glorifies elites: makes them inherently more important since you focus on them.
- Response: it doesn't glorify executives but emphasizes their human fallibility. The
theory recognizes that executives, like anyone else, make both smart and foolish
decisions that affect organizations and individuals.
- Input-output studies (consistent critique): looking just at input and output variables, but lacks
information about actual dynamics. “Black box” of actual board behavior → only found
through qualitative study.
- Reverse Causality: you cannot infer causality, it can also be the other way around. Should
control for other variables, the author recognizes this. Outcomes might determine
characteristics (dispositions, CEO, TMT).
,Resource Dependence Theory
Benefits directors (non-executives) can bring to firms:
- Advice and counsel
- Channels of information flow
- Preferential access to resources
- Legitimacy
Organizations depend on external resources, and stove to gain access and control over critical
resources.
- Organizations need to may attention to critical and scarce resources.
- Decrease dependence
- Increase
Every 10 years we open up the black box of actual board behavior
- The movement away from Ivory Tower studies.
- Usual suspects of input-output studies
- insider/outsides
- Board size
- CEO duality
- CEO incentives
- Directors shareholder
,Lecture 3: Distributive Negotiations
Negotiation: A process of combining conflicting positions into a common position, under a decision
rule of unanimity. An interpersonal decision-making process necessary whenever we cannot achieve
our objectives single-handedly.
- First: Game theory → homoerectus (all people are rational)
- Later: Behavioral/sociological perspective → we are not fully rational.
Best when both are experts, it is not about outsmarting the other.
Many do not live up to their potential → imporve your self efficacy
Scope:
- One-on-one / Multistakeholder
- Few dollars / Billions of dollars
- Minutes / Years
- Single issue / Multiple issues
- Single encouter / Long-term relationship
Power in negotiations is defined by your alternatives NOT by: Wealth, Political connections, Physical
strength, Friends, Military might
Distributive negotiation: value claiming and dividing scarce resources among negotiators. Win -
Loose. Competition. Wanting the biggest piece of the fixed pie.
Smaller bargaining zone =
more difficult → need skilled
negotiators.
Negative bargaining zone =
no deal.
- Before you start negotiating, you should determine reservation point
- Consider the consequences of failing to reach an agreement, and know your alternatives
- Determine your BATNA: Best Alternative To a Negotiated Agreement
, BATNA: Best Alternative to a Negotiated Agreement (CHAPTER 6)
The reason you negotiate is to produce something better than the results you can obtain without
negotiating → That is your BATNA.
Protection from: accepting terms that you should reject OR rejecting terms you should accept →
standard against which any proposed agreement should be measured.
Better BATNA→ Greater power → Bigger slice of pie.
How to develop your BATNA:
1. Draw up a list of actions you might take if no agreement is reached.
2. Improve on the more promising ones, convert them to practical alternatives.
3. Tentatively select the one that seems the best.
Think about your BATNA before negotiating
- To know your bottom line/upper limit
- To temper the influence of counterparty
- Try to improve your BATNA before negotiation
Communicating the BATNA:
- If your BATNA is extremely attractive it is good to let the other side know.
- If your BATNA is worse for you than they think then disclosing it will weaken your position
and don’t share.
- If negotiating time is up and you are about to walk away (assume bargaining zone is small or
negative) it is good t communicate BATNA.
- If both sides have attractive BATNAs then the best outcome for both parties may be to not
reach agreement.
Formulate a 'trip-wire’: early-warning system, providing a margin in reserve.
