Thursday Jun 04, 2026
Thursday Jun 04, 2026
Wednesday, 3 June 2026 00:20 - - {{hitsCtrl.values.hits}}
While listening to Joe South’s Grammy-winning song,” Games People Play,” which speaks against hatred, hypocrisy, inhumanity, intolerance, and irresponsibility of society, I realised that with a few tweaks and a slightly amended title, it will aptly describe the challenges boards face because of “The Games CEOs Play”.
At the core of the modern corporation lies a fundamental structural separation: the division between ownership and control. In corporate governance, this framework is defined by the principal- agent relationship. The shareholders, the principals, provide capital, and, through a Board of Directors, they delegate the day-to-day management of the enterprise to the executive management team, led by the Chief Executive Officer (CEO), the agent. Utopianically, the agent is expected to act as a flawless fiduciary, executing strategies that maximise shareholder wealth, managing risks prudently, and upholding corporate longevity. However, human nature and institutional realities rarely conform to idealised expectations. This structural separation inherently breeds the Agency Problem, characterised by asymmetric information, divergent risk appetites, and conflicting self-interests. While shareholders typically seek sustainable, long-term value creation and transparent risk mitigation, CEOs, in contrast, are frequently driven by shorter time horizons, career preservation, personal financial enrichment, prestige, and the consolidation of unchecked executive power.
Safeguarding shareholder interests
Against this backdrop, how can a Board of Directors effectively safeguard shareholder interests when the agent holds the trump cards? Can traditional board oversight mechanisms truly penetrate the smoke and mirrors of CEO gaming? Do board members have the sharp, hyper-vigilant wisdom to fulfil their obligations to shareholders? They must look past curated slide decks and ask, “Are we genuinely steering the ship, or are we being steered?” Unmasking these subtle, self-serving corporate illusions requires more than routine compliance. It demands an aggressive, analytical scepticism that transforms passive observers into active, discerning guardians of enterprise value. The boardroom is often less of a sanctuary for strategising and oversight and more of an arena for high-stakes psychological warfare. When asymmetric information mixes with executive ambition, chief executives frequently orchestrate sophisticated “CEO Games,” calculated manoeuvres designed to manipulate the narrative, obscure operational realities, and entrench their positions. They employ a sophisticated taxonomy of behavioural, financial, and structural moves that exploit governance vulnerabilities while maintaining the illusion of compliance. To bridge this chasm, Boards of Directors deploy complex governance architectures that rely on internal controls, independent audits, risk matrices, and performance-tied remuneration. Yet, ambitious, self-serving, or ethically compromised CEOs view these mechanisms not as protective boundaries, but as operational hurdles to be overcome.
During his tenure as CEO of Tyco International, Dennis Kozlowski masterfully exploited corporate governance gaps to fund an incredibly opulent lifestyle. By exploiting weak internal controls and manipulating a passive board, Kozlowski treated the company treasury as his personal piggy bank, securing over $135 million in corporate funds for personal use. Kozlowski’s primary tactic relied on exploiting the booming stock market of the late 1990s. As he engineered a massive, friendly acquisition drive that rapidly grew Tyco’s revenues, his spectacular financial results blinded the board to his escalating self-dealing. He effectively bypassed traditional oversight committees to obtain over $81 million in unauthorised bonuses and millions more in secretly forgiven corporate loans. Mark Swartz, the CFO, was his partner in crime. This shenanigan epitomised America’s corporate greed during that period. With this unmonitored capital, Kozlowski indulged in lavish extravagance and a lavish lifestyle. He used company cash to cover a $19 million Florida estate and half of a $2 million birthday party for his wife in Sardinia, and Tyco financed his $30 million Manhattan apartment. This unchecked environment persisted until his 2005 conviction for grand larceny exposed severe breakdowns in the board’s fiduciary duties. The board failed to exercise basic oversight, completely ignoring clear warning signs of executive compensation abuse because Kozlowski’s aggressive charm and material generosity had desensitised them.
Are there ‘Kozlowski’ type CEOs in corporate Sri Lanka who are enjoying a lavish personal lifestyle at shareholder expense? The temptation to convert the corporate treasury into a vehicle for personal opulence must be irresistible for them. Such CEOs act more like feudal monarchs than effective stewards. Their art of exploitation is rarely a clumsy or overt heist. Instead, it is a sophisticated, calculated series of behavioural and structural games designed to bypass oversight, neutralise board resistance, and institutionalise corporate excesses.
The information asymmetry game of “Smoke and Mirrors"
The most foundational weapon an agent possesses over a principal is Asymmetric Information. The CEO operates inside the organisational machinery every day. The board and shareholders observe it primarily through periodic, aggregated reports. When CEOs seek to pursue strategies that serve their own interests, through value-destroying acquisitions, hidden liabilities, or inflated performance metrics, they engage in intentional information cloaking. Their modus operandi is to overwhelm the Board with a pile of granular, low-value operational data that effectively buries critical risk indicators or strategic red flags. At times, they use highly technical, labyrinthine corporate structures, offshore vehicles, or esoteric financial instruments that board directors lack the specialised expertise to unravel. Most importantly, they suppress dissenting internal voices, controlling the flow of information from executive committees to the board, and ensuring that only highly sanitised, overwhelmingly optimistic narratives reach the directors.
The collapse of the Golden Key Credit Card Company, an unquoted subsidiary of the massive Ceylinco Group, serves as a stark demonstration of information cloaking. Under the dominant leadership of Group Chairman Dr. Lalith Kotelawala and executive directors, Golden Key operated a massive, opaque deposit-taking scheme disguised as a standard credit card operation. The executive management kept the true nature of the company’s balance sheet concealed from regulatory bodies and the public, offering interest rates well above average market rates. The funds were systematically diverted into an unmapped maze of over 300 connected subsidiaries and private accounts. The structural opacity and ‘engineered’ accounting ensured that neither the parent board nor external oversight bodies could comprehend the true scale of the systemic liability of approximately LKR 26 billion until the entire house of cards collapsed, triggering a domino effect across the domestic financial sector.
The Boardroom Capture Game: “The Cult of Personality and Tokenism”
The primary vehicle designed to resolve the principal-agent dilemma is the Board of Directors, particularly independent non-executive directors (NEDs). The CEOs’ objective in this game is to neutralise this counterweight by enamouring the board and turning a constitutional watchdog into a compliant rubber-stamp committee. This they do by ‘chumming’ the Board. They recommend and cause the appointment of non-executive directors based on personal friendships, social prestige, ostensible expertise, or political connections rather than independent competence or governance fortitude. They craftily create a board culture where “intellectual dissent” is treated as time-wasting or excessive pessimism, systematically sidelining or replacing directors who ask difficult questions. ‘Chumming’ CEOs dummy the governance codes and cultivate deep, individualised relationships with specific influential directors through consulting retainers, philanthropic donations to their preferred charities et cetera to compromise their collective objectivity.
The structural failure of Pramuka Bank, the first licensed bank in Sri Lanka to be liquidated, is a classic domestic study in board capture. Founded and led by Rohan Perera, a highly experienced and charismatic banker, the institution’s governance architecture was fundamentally compromised from its inception because Perera populated the board primarily with handpicked business associates who lacked the banking knowledge and experience to challenge him.
The Performance Manipulation Game: “Earnings Management and Short-Termism”
To align the CEO’s incentives with shareholders, boards frequently tie executive compensation to performance milestones, such as growth in Earnings Per Share (EPS), share price appreciation, Return on Equity (ROE), et cetera. This structure may, at times, create a powerful perverse incentive. Instead of working to improve real economic performance, CEOs focus their efforts on manipulating the financial metrics that trigger their personal bonuses and create the optical illusion of leadership brilliance. They do this by understating budgets and/or by adopting aggressive accounting choices, such as shifting current expenses into future periods or pulling future revenues into the current period. They also cripple the future by cutting essential long-term value drivers such as research and development, employee training, strategic branding and marketing, and preventive asset maintenance to artificially maximise immediate profits that anchor short-term incentives. There are occasions where CEOs utilise corporate cash reserves to execute massive share buybacks that artificially inflate EPS and boost the short-term stock price, allowing them to cash out personal stock options right before structural impacts decline.
When the dot-com boom collapsed and demand for telecommunications data capacity plummeted, WorldCom CEO Bernie Ebbers faced an existential crisis. His vast personal fortune was largely tied up in WorldCom stock, which had been pledged as collateral for hundreds of millions of dollars in personal bank loans. To keep the stock price artificially elevated, Ebbers and his CFO, Scott Sullivan, engaged in one of the largest accounting frauds in history. They systematically misclassified billions of dollars of ordinary “line costs”, being interconnection fees paid to other telecom networks, as capital assets on the balance sheet. By spreading these operational expenses across multi-decade depreciation schedules, they transformed massive net losses into billions of dollars of artificial net income. This simple accounting deception protected Ebbers’ stock-tied incentives until an internal audit team, led by Cynthia Cooper, unmasked the deception.
The Regulatory Arbitrage and Compliance-on-Paper Game: “Tick-the-Box”
CEOs who play this game realise that public markets and institutional investors monitor governance using standardised disclosure checklists. Rather than instilling a genuine corporate culture of risk management and transparency, the culprit CEOs create illusions of compliance via superficial actions that satisfy the checklists. They give prominence to ‘form’ over ‘substance’ by drafting mind-capturing, cleverly designed corporate risk policies, codes of conduct, and ESG/DEI-enhancing frameworks for the annual report, while systematically defunding or ignoring the internal compliance functions tasked with enforcing them. They do the minimum necessary to stay “optically compliant” while engaging in deeply unethical, systemic destruction.
Sri Lanka’s corporate governance policies are being increasingly challenged by tightly held enterprises and family-controlled conglomerates where ownership is concentrated and obscure. The controlling shareholder frequently occupies the dual role of Chairman and CEO or installs a handpicked executive proxy to serve in that role. On paper, these entities comply with the Colombo Stock Exchange (CSE) listing rules and the Code of Best Practice on Corporate Governance. They maintain the required quota of independent directors, form audit committees, and publish elaborate corporate social responsibility statements. However, in day-to-day operations, true decision-making power bypasses these formal governance structures completely. Strategic decisions, high-value related-party transactions, and capital allocations are frequently decided at family councils or private executive sessions before being brought to the formal board for an automated, unquestioned approval. The independent directors are reduced to decorative figures, fulfilling compliance metrics while remaining completely decoupled from actual corporate oversight.
The Empire-Building Game: “Hubris and Unchecked Capital Allocation”
The principal-agent dynamic dictates that capital must only be invested or reinvested if it generates a return that exceeds the company’s cost of capital. Otherwise, surplus cash should be returned to shareholders via dividends. However, a CEO’s social prestige, industry influence, and financial compensation are often tied directly to the company’s sheer physical size and revenue scale, rather than to its capital efficiency. This asymmetry fuels the Empire-Building Game. Whilst most CEOs believe that equity is free, ‘Empire’ CEOs often engage in massive, high-profile corporate acquisitions that add minimal strategic value, paying astronomical control premiums justified by highly unrealistic, inflated “synergy projections.” They allocate capital into unfamiliar industries where the executive management team possesses no distinct competencies, nor does the company have any distinctive competitive advantage. Using the ‘sunk-cost’ terminology, they pour massive amounts of follow-on shareholder capital into failing, ego-driven megaprojects to avoid admitting a strategic mistake, hoping that time or market shifts will vindicate their original decision.
The roots of Volkswagen’s infamous emissions scandal lie deep within an autocratically driven empire-building strategy orchestrated by former CEO Martin Winterkorn and Chairman Ferdinand Piëch. Management established an aggressive, uncompromising corporate mandate: “Overtake Toyota to become the world’s largest automaker by volume by the year 2018”. Winterkorn maintained an authoritarian, hyper-centralised management style where targets were non-negotiable, and failure was met with immediate dismissal. When engineers realised they could not meet both the strict US environmental emissions standards and the aggressive cost and performance targets dictated by the C-suite, a fear culture led them to install illegal “defeat devices” in millions of diesel vehicles. The CEO’s egoistic, single-minded pursuit of global scale over practicality cost shareholders over $35 billion in fines, settlements, and massive reputational damage.
For a corporate ecosystem to thrive, the principal-agent relationship must be brought back into balance. Reaching this equilibrium requires recognising that structural checklists and “paper compliance” are entirely inadequate if the leadership team lacks core character. Defeating the sophisticated games played by self-serving CEOs demands an active, multi-layered approach to corporate governance. Boards must move past polite, comfortable consensus. Non-executive directors need to bring real, street-smart competence and a willingness to ask challenging questions. A healthy corporate board treats intellectual dissent not as a sign of friction, but as a critical governance asset. It serves as the primary defense against groupthink, identifying hidden operational blind spots and exposing executive overreach before it jeopardises the company.
Audit committees, external auditors and internal auditors must look past basic compliance ticks. They need to proactively deploy advanced forensic auditing techniques, conduct unannounced operational deep dives, and establish direct, unmonitored communication lines with mid-level managers and whistleblowers. This breaks the CEO’s monopoly on information and brings operational realities to light. Remuneration frameworks must be crafted to reward performance and recognise a balance between short-term and long-term results. This means designing compensation structures with extended executive stock lock-up periods, implementing multi-year clawback provisions for financial restatements, and linking incentives to concrete metrics around capital efficiency, debt management, and corporate longevity.
Ultimately, structural rules and governance frameworks are only as strong as the leaders executing them. Sustainable leadership cannot be manufactured through compliance checklists. It must be grounded on an earned credibility rooted in five non-negotiable pillars of character, they being,
When boards combine rigorous, independent structural oversight with executives who embody these core pillars of character, the destructive games played by self-serving CEOs lose their sting. Only by aligning robust structural governance with authentic personal values can enterprises protect stakeholder capital, earn true market trust, and drive sustainable economic progress.
(The author is, currently, a Leadership Coach, Mentor and Consultant and boasts over 50+ years of experience in very senior positions in the Corporate World – local and overseas. www.ronniepeiris.com)
