As the global economy vacillates between signs of recovery and omens of collapse, businesses and governments are clamping down. But the world doesn't . customers will have to pay more, the assumption. PHO. TOGRAPHY: STEVE WEBSTER. musicmarkup.info January–February Harvard Business Review year, and only 4% achieved a net income growth of at least 5% in each of the ve years. musicmarkup.info January–February Harvard Business Review
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The January/February issue contains a Spotlight section entitled "The Happiness Factor." This issue features the following articles: "Gilt. Balanced Scorecard Report, January-February , Vol. 14, No. 1. HBR'S EMOTIONAL INTELLIGENCE COLLECTION · How to Be Human. Harvard Business Review, November Harvard Business Review, November magazine issue. Harvard Business Review.
I can only make them think. This is the third I have reviewed so far and all three have been practical and interesting. It is no surprise that this article comes over as a good balance between the conceptual and the practical because one of its authors is that annoying example of academic and publishing success; Harvard Professor Robert Kaplan of Activity Based Costing and Balanced Scorecard fame. Why annoying to me? Mainly because of jealously that such simple but powerful concepts can be put over in such an engaging way, with such a high level of success!
Since the s, finance scholars have been documenting its remarkable ability to sniff out and assess information about companies. Also, while public stock markets are often assailed for short-termism and impatience, there is ample statistical evidence that stock prices—especially for companies in the early stages of growth—factor in potential earnings decades down the road.
If they were, rational investors and speculators would have no incentive to expend resources and intelligence trying to dig up information and outsmart the market. So how well do stock market prices reflect underlying corporate fundamentals? Citrin found that companies whose stock prices dropped sharply upon the naming of a new CEO subsequently outperformed—by a lot—those whose prices rose sharply when a new CEO was named.
Also, comparative stock price movements how Coca-Cola performs relative to Pepsi, for example are usually more informative than absolute price movements, for which macroeconomic factors and market psychology tend to rule the day. Financial markets, the late economist Paul Samuelson said, are microefficient and macroinefficient. When shareholders are widely dispersed, how can they keep managers in check? Only by selling shares or casting votes. This helps explain why executives complain about the short-term focus of the stock market even as finance scholars find evidence that markets still look deep into the future.
Human nature dictates that we give more attention to simple recent signals than to complex long-run trends—especially when we are paid to give attention to them, as most top executives have been over the past two decades.
Suggested Reading Lucian A. They can also just talk to them.
In many instances well-informed investors—from venture capitalists with a start-up to Warren Buffett with the Washington Post Company—have offered crucial information, analysis, and advice to management. But such behavior is not really encouraged in the current market environment.
Regulation Fair Disclosure, adopted by the SEC in , requires that all substantive corporate disclosures be released immediately to the public. The goal was to level the informational playing field for investors, which seems admirable enough. But some of the results have been troubling. One study, by Armando R. Gomes, Gary B. By forcing all communications into the public sphere, Reg FD may have made it harder to communicate nuance and complexity.
The rule says nothing about communications from shareholders to managers, but by making managers warier of such meetings and reducing the incentives for shareholders to participate in them, it has most likely impeded that information stream as well. Communication between corporate managers and the investor community now takes place mostly during the conference calls that follow the release of quarterly earnings.
The participants in these calls are a mix of actual investors and analysts from brokerages and independent research firms. In our experience, analysts ask most of the questions, and they tend toward the superficial and the short term. Bringing back the old days in which some analysts and investors had special access to corporate information is probably a nonstarter.
Short of a change in the rules, more informal communication between long-term shareholders and managers is a good idea.
Such interactions bring useful market information to executives and allow them to build relationships with shareholders that can lead to less adversarial, more-effective governance. Communication between board members and shareholders is also helpful, but it seldom happens now.
Many top executives seem to think that board members cannot be trusted with such interactions. Yet if directors cannot be trusted to meet with and listen to shareholders, how can they be expected to competently govern a corporation? In meetings between shareholders and board members that one of us Lorsch has observed, the result has been greater trust and stronger relationships that can be drawn on in future crises.
This has come to form the central quandary of corporate governance: How can we get managers to do their jobs well—and what exactly does doing well mean? The modern understanding of this difficulty has been defined to a large extent by an academic article written in by Michael C. Jensen and William H. If an agent owned the business, Jensen and Meckling argued, there was no conflict.
But as the ownership percentage went down, agents inevitably faced the temptation to do things that benefited themselves rather than the principals. The main challenge of corporate governance was keeping agents from taking advantage of principals. Why, exactly, were shareholders as opposed to employees, customers, or citizens of the community where a company was based the only principals worth worrying about? But shareholders and debt holders often have different interests and priorities, so shareholder value became the shorthand goal that executives, investors, academics, and others latched on to.
It is difficult to overstate the power of this idea. It is elegant. It is intuitive.
Who the Shareholders Are Institutional investors—mutual funds, pension funds, insurance companies—have become the chief owners of the shares of U. They have only two major tools at their disposal—selling shares or casting votes. Both are problematic. That leaves the vote, which has its own weaknesses.
Matos found that companies with a large percentage of high-turnover shareholders sold themselves in mergers at a discount, overpaid for acquisitions, and generally underperformed the market. Owning shares in hundreds or even thousands of companies makes it difficult to focus on the governance and performance of any of them. As a result, most professional money managers have come to rely heavily on intermediaries—the market leader is Institutional Shareholder Services—to tell them how to vote.
ISS focuses on a handful of governance practices disclosed in public documents, and the evidence that these factors correlate with more-effective governance or corporate success is so far lacking. Some investors do go beyond the check-the-box approach.
It then communicates privately and publicly with the boards and management of those companies to encourage changes in their boardrooms and strategies. Does this work? Even more activist are the few hedge funds that take large positions in a single company they believe is undershooting its potential and then agitate for changes in strategic direction or the management team.
Still, even if you believe that the threat of takeovers and hedge fund activism can have a healthy disciplinary effect on managers, the cost of these efforts is so high that they will always be rare. Most institutional investors simply lack the motivation and the time to effectively discipline or otherwise oversee management. Top corporate executives, meanwhile, are highly paid, highly motivated, and highly skilled full-time professionals who—except in times of great corporate distress—will find it easy to outmaneuver or outlast disgruntled investors.
It may even make things worse, by spurring a culture of conflict between shareholders and managers and incentivizing the latter to become ever more mercenary and self-interested. In the U. Dodd-Frank financial reform legislation that requires companies to put their executive pay practices to a nonbinding shareholder vote at least once every three years. Supreme Court, and prospects for the proposal are currently unclear.
Most institutional investors lack the motivation and the time to discipline or otherwise oversee management. All this has transpired in the name of giving more power to the owners of corporations. And although some shareholders behave much like owners, most of them are effectively renters—often ultra-short-term renters.
Why annoying to me? Mainly because of jealously that such simple but powerful concepts can be put over in such an engaging way, with such a high level of success! This article does not contain such a major breakthrough in thinking as ABC or BS but it is an interesting take on a topic that most companies struggle to master and that those who teach the subject find hard to conceptualise.
The traditional matrix of risk impact and likelihood is widely used by companies but does not provide enough guidance on how risks can be better managed; it is an analytical tool rather than a management blueprint.
The start of the article is brilliantly conceived though perhaps a little unfair to Tony Hayward of BP.
It quotes his pre-disaster approach to risk management as writing emails to staff about texting while driving and using lids on coffee cups, while no proper plans were being made for the risks of the Deepwater oil exploration. In particular they adopt a compliance approach to all three when this is only applicable to the first category. The authors then move on to link risk management to that other key concept that we are covering in increasing frequency on our courses, that of BIAS.
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