Understanding the Process of Managerial Entrenchment: The Role of Managerial Social Capital in Corporate Governance of a Post-Socialist Economy

The aim of our qualitative study of managers in private and state owned companies is to understand how managers use their social capital to entrench themselves, taking into consideration different ownership structures of the companies they govern. We hold that the phenomenon of managerial entrenchment should be observed through social capital theory lens, looking into the type and nature of the relationship between the manager and the entity holding corporate. We identified mechanisms that influence the creation and mobilization of managers' social capital with regard to the specific context of the Croatian transition economy and the large stake of state-owned companies present in the Croatian business sector. The primary cause why managers dominantly entrench themselves through their social ties is the fact that Croatian economy is characterized with concentrated ownership and, thus, they have an easier time to create relationships with the shareholders. Secondly, because of the strong bond between the manager and the owner(s), managers strongly identify themselves with the company. We argue that, in the context of Croatian economy, managers don't necessarily work towards entrenching themselves as a strategic and conscious entrenchment act. That claim is in contrast with the majority of research on managerial entrenchment which implies the agency problem between managers and the entity holding corporate control, which makes our research results unorthodox, but pertinent to contemporary corporate governance literature.