Why would CEOs and presidents of organizations seek to diversify beyond the point where the diversification benefits the organization? What is the main protection for the organization from this overdiversification?

Question

What will be an ideal response?

Answer 1

Top managers of organizations are tempted to overdiversify by the fact that the larger the firm, the more executives are paid. In addition, the more diversified the firm, the less likely all the divisions will fail simultaneously. This gives the executives more job security, because at least portions of the organization will survive. The main control on executive temptation to overdiversify is the organization's board of directors.