GREED, HUBRIS AND BOARD POWER: EFFECTS ON FIRM OUTCOMES KATALIN TAKACS HAYNES Mays Business School, Department of Management TAMU 4221 Texas A&M University 77843-4221 e-mail: khaynes@mays.tamu.edu JOANNA TOCHMAN CAMPBELL Texas A&M University MICHAEL A. HITT Texas A&M University INTRODUCTION “All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind." - Adam Smith, Wealth of Nations (1937, Book 3, Chapter 4: 448) “…an infectious greed seemed to grip much of our business community.”- Alan Greenspan, 2002 Scholars of strategic management and organizational theory have long accepted the notion that top managers’ traits, behaviors, experiences, and values affect strategic outcomes (e.g., Cyert & March, 1963; March & Simon, 1958; Hambrick & Mason, 1984; Zajac & Westphal, 1996; Finkelstein & Boyd, 1998; Finkelstein, Cannella & Hambrick, 2008). Yet, in spite of the wealth of evidence linking managerial characteristics to organizational outcomes, the management literature offers no insight into one of the oldest, most commonly invoked social constructs, greed (Money & Graham, 1999). The concept of greed has been universally present in the popular press and as the subject of numerous literary, philosophical, and theological works for thousands of years. It has received scholarly attention in some social science disciplines, such as economics, behavioral finance, law, political science, and neuroscience. However, greed has only recent and cursory attention in the management literature. One mention in the strategic management literature links greed and power to hubris (Hayward & Hambrick, 1997), suggesting the possibility that the three concepts may be related. Significant events in the first decade of the 21 st century suggest that greed and hubris have become common enough in the executive suites of major corporations (i.e., Panzer, 2009) that they require scholarly attention. This study opens a new line of inquiry in the strategic management field, introducing the concept of managerial greed. We develop the greed construct, including its measurement, and refine the measures of hubris in an effort to identify the boundaries and complementarities of the two constructs of managerial greed and hubris. We explore the effects of managerial greed on shareholder wealth, providing empirical evidence on a fundamental tenet of agency theory, managerial opportunism. We also examine the effects of managerial hubris on firm risk. Finally, we examine how a powerful board can effectively govern a CEO who is exhibiting greed and hubris.