Managerial opportunism is the seeking of self-interest with guile (cunning or deceit). Opportunism is both an attitude (an inclination) and a set of behaviors (specific acts of self-interest). Company managers enjoy a high degree of knowledge about the business activities they supervise. This creates a conflict of interest, with self-serving managers making decisions that benefit them rather than the company owners or shareholders. When managers use employer information for personal gain, the event is considered a case of managerial opportunism.
In “The Ethics of Executive Compensation,” Robert W. Kolb presents a study that explains one of the reasons managerial opportunism occurs. Boston College and South Korea’s Hanyang University researchers found that managers who are rewarded according to how the companies they run perform are more inclined to manipulate financial statements to increase their personal earnings.
Too Many Stakeholders
The book “Stakeholder Theory: The State of the Art” defines stakeholders as everyone who benefits from a given company’s financial activities. This includes customers, creditors, suppliers, staff, and owners — or shareholders. According to the authors, some believe that the multiple groups of stakeholders make it easy for company managers to engage in activities that benefit their bank accounts. They hide the self-interest behind how challenging it is to provide gains to all the different categories of stakeholders.
Managers of accounts such as mutual funds are responsible for selecting stocks and bonds for clients to invest their money in. These types of managers engage in managerial opportunism when they limit the offerings to investment products they are familiar with — real estate stocks, for instance. The lack of diversification benefits the funds’ managers by creating opportunities for them to do well in their roles without much effort, since they never venture outside of financial territory that is well-known to them.
Initial Public Offering
In a display of managerial opportunism, managers may sell company shares for the first time publicly when the stocks’ value is inflated beyond their worth, say researchers from the University of Oregon College of Business. John Chalmers and colleagues tested this theory by looking at directors’ and officers’ liability insurance data. If managers know they are selling overpriced shares, it is natural for them to predict a future drop in value.