CEO Dismissal and the CEO’s Symbolic Use of Shareholder-value Language

• In Event: 388 - Section on Organizations, Occupations and Work Paper Session. Organizational Culture and Institutional Logics

Abstract

Drawing on the literature about symbolic management in corporate governance, we argue that the CEO’s use of language in public documents can affect the directors’ perception about the CEO and the board’s decision about CEO dismissal. Specifically, we examine the effect of language that signals the CEO’s espousal of a governance model that is prevalent in the contemporary United States: the shareholder value principle. We argue that the CEO’s use of language that signals conformity to the shareholder value principle creates an appearance of legitimacy and favorably affects the directors’ evaluation of the CEO, thereby reducing the risk of CEO dismissal. To test this argument, we analyze data from 446 CEOs who led 270 largest U.S.-based firms for a ten-year period of 1998-2007. We examine CEOs’ letters to shareholders published in corporate annual reports and counted the frequency of expressions that refer to the shareholder value principle. Using event history analysis, we find that the CEO’s use of shareholder-value language is negatively related to the risk of CEO dismissal. We also show that the effect of shareholder-value language becomes stronger when the firm performance is lower.

Authors

• Taekjin Shin, University of Illinois at Urbana-Champaign

• Jihae You, University of Illinois at Urbana-Champaign