The Dynamics of Managerial Entrenchment: The Corporate Governance Failure in Anglo-Irish Bank

Abstract

What are the dynamics through which corporate boards led by dominant CEOs fail? We address this question by examining the case of Anglo Irish Bank. We focus on the dynamics in and around Anglo’s board of directors in the 3-year period leading to its collapse in 2008. Using documentary analysis and 21 interviews with Anglo’s senior managers and other key actors, we identify two interrelated sets of dynamics: a dominant CEO who used his influence to populate the board with affiliated individuals, leading to a low-skilled board and increasing further his dominance; and the establishment of norms whereby stock ownership signified loyalty rather than commitment to performance. We suggest these dynamics reflect a broader organisational change where new meanings were assigned to existing corporate practices, leading to poor scrutiny of executive decisions and subversion of intended incentives. Our findings contribute to the literature on managerial entrenchment by shedding light on how undesirable consequences of stock ownership are likely to emerge. More generally, we contribute to the management and corporate governance literatures by showing the dynamic and interdependent nature of factors that contribute to the emergence of organisational vulnerabilities and ultimately to corporate failures.