Entrenched managers are those in leadership positions who have gained enough influence, power, or reputation in their position to which they are then able to place their own interests above that of the company (Moffatt, 2019). The paper did a thorough job of researching 4 years of how the financial equities of companies aligned with those in power. Their finding that organizations with "either high managerial share ownership or high block holder share ownership experience lower announcement returns", which proves the self-fulfilling desire (Lundstrum, 2008).
We have learned in previous courses in this program that leadership must place shareholder interest above all else. I want to give two examples of perceived entrenched management:
Facebook - Zuckerberg and his core team hold incredible power over Facebook. Zuckerberg recently said that if he did not have the complete control he currently has over Facebook, then he and his team would be fired (Clifford, 2019). While I do not THINK Zuckerberg is trying to put his interest over that of the organization, I do feel like a change in management may have been positive for Facebook in the long-run.
Blackrock - This is a great example of entrenched management. The governing board was sued by Boaz Weinstein, alleging they were fulfilling their own collective governing self-interests over that of investors and other shareholders (Morgenson, 2019).
It is not appropriate when entrenched managers look to benefit themselves over the interests of the company. It is a core principle to look after shareholders first and foremost. That is why a governing body must be created within the organization to ensure all actions by executives in decision-making positions are acting in accordance with the company policies.
Resources
Clifford, C. (2019, October 3). Mark Zuckerberg: If I didn't have complete control of Facebook, I would have been fired. Retrieved from https://www.cnbc.com/2019/10/03/zuckerberg-if-i-didnt-have-control-of-facebook-i-wouldve-been-fired.html.Lundstrum, L. L. (2008).
Entrenched management, capital structure changes and firm value. Retrieved from
Moffatt, M. (2019, July 30). What Is Managerial Entrenchment? Retrieved from https://www.thoughtco.com/definition-of-entrenchment-1148004.
Morgenson, G. (2019, June 5). Boaz Weinstein Sues BlackRock Alleging Corporate-Governance Failings. Retrieved from https://www.wsj.com/articles/boaz-weinstein-sues-blackrock-
alleging-corporate-governance-failings-11559746961.