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All Tied Up

When does owning too much of your own company get to be a conflict of interest?

This story appears in the October 2001 issue of Entrepreneur. Subscribe »

You know that cliché about putting all your eggs in one basket? Entrepreneurs should take it to heart when it comes to stock ownership, says John E. Core and David F. Larcker, two Wharton School of Business accounting professors. Based on their study of executive compensation in 1999 and 2000, Core and Larcker suggest that CEOs who own too much stock are less likely to take the risks necessary for growing their companies. Though their study focused on publicly traded companies, they believe levels of stock ownership can influence privately held businesses as well.

How much stock is too much? According to the latest research from Watson Wyatt, a human-capital consulting firm in Washington, DC, the optimal amount of stock options an individual should own ranges from 6 to 25 percent, depending on the industry. Anything over that amount could negatively affect the company.

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