CEO Power and Organizational Slack: An Examination of What Influences Company Performance through the Lens of Diversity and the Business Environment

Abstract

Business leaders have a fiduciary responsibility to act in the best interests of the organization and its shareholders. The decisions made by these leaders impact organizational performance. The power held by a CEO is not absolute because the board of directors has oversight responsibility. Depending on the level of governance, this creates a tension between the board and management. Beyond these two parties, there are a broad range of stakeholders who also exhibit influence and are increasingly socially conscious. This focus has made leaders more pressed to consider the need for initiatives related to corporate social responsibility (CSR), especially community engagement and diversity. As this study focused on CEO power and diversity, the research found support for the positive relationship between CEO power and select types of firm performance and the positive association between diversity and profitability. The second study continued to focus on organizations but focused on politics, organizational slack, and financial indicators. The research explored how political representation at the federal level is connected to the setting of organizational slack, which comes in various categories such as human, potential, and available. The slack resources are defined as excess capacity located within or outside of the firm and accessible immediately or in the future. The study aimed to determine if there was a connection between slack and financial outcomes, specifically returns on equity and assets, and credit risk ratings. An interaction effect of CEO power was also investigated on the relationship between slack and profitability. This research identified support for the positive relationship between politics and human slack and that of potential slack and profitability indicators with a moderation effect.