What Is Empire Building?

Empire building is the act of attempting to increase the size and scope of an individual or organization's power and influence. In the corporate world, this is seen at the intra-company level when managers or executives are more concerned with expanding their business units, their staffing levels and the dollar value of assets under their control than they are with developing and implementing ways to benefit shareholders.

Empire building can also occur in the larger public arena when corporations take steps to acquire competitors or other firms that might offer downstream or upstream integration or other synergies. A corporation might attempt to control a larger market share or form a conglomerate to branch into other industries in an attempt to grow the corporation's influence, assets under control, and influence.

This term should not be confused with the landmark, the Empire State Building.

How Empire Building Works

Empire building is typically seen as unhealthy for a corporation, as managers will often become more concerned with acquiring greater resource control than with optimally allocating resources. Corporate controls imposed by a company's board and upper-level management are supposed to prevent empire building within a corporation's ranks.

On a larger scale, it may lead to acquisitions or other decisions that do not ultimately benefit shareholders, increase the corporation's financial health, or bolster the company's long-term viability. Economists refer to this potential conflict of interests between management and shareholders as an agency cost.

The failure to screen out empire builders can lead to corporate actions that do not necessarily provide the best growth opportunities for a corporation and its shareholders, such as acquisitions made to boost the control of the company's executives.

Key Takeaways

  • Empire building is the pursuit to enlarge the size, scope, and influence of an individual or organization's power.
  • Increasing market share, buying power, or deal-making influence are all elements to empire building.
  • Empire building can be considered as a negative for a corporation because management can become fixated on controlling resources and influence than with optimally allocating resources and maximizing profits.

Example of Empire Building

For example, if Bob is a middle manager at XYZ Company and begins to hire large amounts of personnel and launch projects that increase his influence over other departments at XYZ Company, Bob could be seen as an intra-company empire builder.

The added expense of additional employee salaries and spending required to launch the projects may hurt Company XYZ in the name of Bob increasing his own personal influence and profile within the company. This desire creates a principal-agent problem that can ultimately undermine the success of the company.