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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 onebasket? Entrepreneurs should take it to heart when it comes tostock ownership, says John E. Core and David F. Larcker, twoWharton School of Business accounting professors. Based on theirstudy of executive compensation in 1999 and 2000, Core and Larckersuggest that CEOs who own too much stock are less likely to takethe risks necessary for growing their companies. Though their studyfocused on publicly traded companies, they believe levels of stockownership can influence privately held businesses as well.

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

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