The changing relation between CEOs and shareholders: A case study on Royal Philips NV, 1971-2001
Abstract
Purpose
This paper aims to present case study evidence on the changes in the relations between chief executive officers (CEOs) of large firms and shareholders in the past three decades of the twentieth century. In line with insights from agency theory, the CEOs have experienced increased scrutiny from their principals, the shareholders. This development has affected financial communication and investor relations as well as stock market prices.
Design/methodology/approach
The Dutch electronics firm Royal Philips NV in the transition period of 1971-2001 has been studied using publicly available disclosures and stock market prices. A descriptive case study approach is combined with event study methodology.
Findings
It was observed that the increased emphasis on shareholder interests has affected the interactions between Philips’ respective CEOs and the shareholders’ reactions to strategic decisions as measured by stock price changes. Around the beginning of the twenty-first century, clarity and openness in CEO communication was the norm and deviations were punished with volatile stock prices.
Research limitations/implications
The study relies on publicly available data.
Originality/value
The case study of Philips can be extrapolated to other exchange-listed firms in the late twentieth century, which faced changed expectations about the role of the CEO, investor relations and the CEO’s accountability toward shareholders. This transition is relevant not only as a historical observation, but also as a background to studies in finance and management about top management and financial markets.
Keywords
Acknowledgements
This paper has benefited from comments from Brad Bowden (the editor), two anonymous reveiwers, Lisa Evans, Marc Deloof and Lars Norden and seminar participants at Utrecht University and the Corporate Finance Day (Antwerp). We are grateful to Bob Out, Managing Director of Investablish for making available the Investablish (formerly Rematch) data used for this paper and to Teus Jan van Ekeren for research assistance. Part of this research was conducted when Abe de Jong was visiting Monash University.
Citation
de Jong, A., van der Poel, M. and Wolfswinkel, M. (2017), "The changing relation between CEOs and shareholders: A case study on Royal Philips NV, 1971-2001", Journal of Management History, Vol. 23 No. 4, pp. 375-400. https://doi.org/10.1108/JMH-04-2017-0021
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited