Power to the CEO? Sources of CEO Power and Its Influences on Strategic Choices and Firm Performance

Abstract

Power relations in the upper echelon have been a focal point in strategic management literature. However, the dynamic environment requires rapid decision making, raising the question of whether to centralize power in the CEO. In that respect, this thesis aims to identify the sources of CEO power and its impact on strategic choices and firm performance. A total of 22 empirical and conceptual papers are categorized into a review framework based on Finkelstein’s (1992: 507-510) power dimensions to compare earlier studies and disclose differences in operationalization and research approaches. Additionally, this paper introduces a new dimension of CEO power by incorporating principles of leadership psychology into the corporategovernance-power literature. Considering the power composition, this thesis analyzes three strategic decisions and the resulting firm performance by explaining findings from an agency- and stewardship perspective. The results demonstrate that CEO power is multifaceted, and variations in operationalization impair comparability of literature. Furthermore, powerful CEOs exhibiting stewardship behavior should be granted autonomy to drive firm performance while those acting as agents require close monitoring and balance from an equally influential board.

Keywords: CEO power; Power dimensions; Review framework; Corporate governance; Strategic choice.