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.
BREAKING DOWN Empire Building
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. 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.
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 influence and profile within the company.