Governance Practices and CEO Hubris

Abstract

This chapter analyzes the connection between CEO hubris and corporate governance contingencies, including a case study of an Italian bank for which the state of financial distress shall be linkable also to bad governance. The main objective is to verify whether, in presence of hubristic CEO, the internal control mechanisms, set to ensure the board vigilance and limit the overconfidence of the leader, are implemented, and if so, whether such mechanisms, even when formally respected, may be not so appropriate to guarantee a good governance. Particularly, the existence of a CEO hubris could neutralize their positive expected balancing effects on the power dynamics between CEO and board, such as to give prevalence to substance over form. Therefore, it may occur that some governance mechanisms (e.g., independence, non-duality), even if formally implemented, are unable to stem the managerial entrenchment of the CEO, who succeeds in enhancing immoderately his substantial power in the decision-making process.