Governance →
- 02 Nov 2006
- Working Paper Summaries
Resolving Information Asymmetries in Markets: The Role of Certified Management Programs
Hundreds of thousands of firms rely on voluntary management programs to signal superior management practices to interested buyers, regulators, and local communities. Such programs typically address difficult-to-observe management attributes such as quality practices, environmental management, and human rights issues. The absence of performance standards and, in most cases, verification requirements has led critics to dismiss voluntary management programs as marketing gimmicks or "greenwash." Toffel examines whether a voluntary environmental management program with a robust verification mechanism attracts participants with superior environmental performance, and whether the program elicits improved environmental performance. His study focuses on the ISO 14001 Environmental Management System Standard, but the results have implications for voluntary management programs that govern many other difficult-to-observe management issues. Key concepts include: A voluntary management program with robust verification, such as independent certification, can distinguish organizations based on their difficult-to-observe management practices. Third-party certification may be a critical element to ensure that voluntary management programs legitimately distinguish participants. This finding is in sharp contrast with prior studies that found no evidence that superior performers disproportionately adopted voluntary management programs with weak or no verification mechanisms. For firms, the evidence that ISO 14001 distinguishes adopters as less pollution-intensive many encourage firms to use ISO 14001 to screen suppliers. Regulators should seriously consider using ISO 14001 as an indicator of superior performance. The results of the study should encourage those who have designed or adopted other voluntary management programs that lack robust verification mechanisms to consider whether adding such a mechanism would substantially bolster the credibility of the program. Closed for comment; 0 Comments.
- 31 Oct 2006
- HBS Case
Governing Sumida Corporation
In a new Harvard Business School case, Professor Lynn Paine and her colleagues explore the nature of corporate governance systems by studying Japanese electronics components maker Sumida Corp. CEO Shigeyuki Yawata looks to create a governance structure that would be transparent to investors and stakeholders worldwide. Closed for comment; 0 Comments.
- 13 Oct 2006
- Working Paper Summaries
Coerced Confessions: Self-Policing in the Shadow of the Regulator
Are regulators necessary? In industry, self-regulation and self-policing have been touted as a new paradigm of regulation that trades outmoded "command-and-control" strategies for industry-directed, market-based solutions. Short and Toffel's work, one of the first empirical studies to address self-policing behavior, examined a rich data set of companies' voluntary disclosures of regulatory violations under the U.S. Environmental Protection Agency's Audit Policy. The goal: to learn how violators behave when offered the option of voluntarily self-disclosing. The results show that even as corporations are given an expanding role in their own governance, the success of "voluntary" self-policing depends on the continued involvement of regulators with coercive powers. Key concepts include: Despite the rhetoric of cooperation surrounding self-policing programs, self-disclosures of violations are motivated by coercive regulatory enforcement activities. Facilities in the study were more likely to self-disclose violations if they were recently inspected, subjected to an enforcement action, or narrowly targeted for heightened scrutiny by a compliance incentive program. There was some evidence that facilities were more likely to "turn themselves in" in states where statutory immunity shielded their self-disclosed violations from prosecution. There was no evidence that facilities protected by state-level audit privilege were more likely to self-disclose. This research counsels caution regarding the extent to which government should cede regulatory monitoring to companies themselves, and suggests that self-policing can complement, but not substitute for, government regulatory inspections. Closed for comment; 0 Comments.
- 13 Sep 2006
- Op-Ed
Rising CEO Pay: What Directors Should Do
Compensation committees are under pressure to keep CEO pay high, even as shareholders and the media agitate for moderation. The solution? Boards of directors need better competitive information and an ear to what shareholders are saying, says Jay Lorsch. Key concepts include: CEO compensation in the U.S. continues to soar—American CEOs make twice what their European counterparts earn. Shareholders want to moderate pay hikes for top execs, but board members often give more weight to internal organizational pressures. Boards must be more critical of consultant reports, listen to shareholders, and align CEO pay with what is earned by other top management in the company. Closed for comment; 0 Comments.
- 30 Aug 2006
- Op-Ed
The Compensation Game
Do CEOs deserve "star" compensation? The idea that CEO pay is driven by the invisible hand of market forces is a myth from which chief executives have long benefited, say Harvard professors Lucian Bebchuk and Rakesh Khurana. Key concepts include: It is wrong to use sports stars' salaries to justify high CEO compensation. When setting CEO pay, board members can be influenced by economic incentives that are reinforced by social and psychological factors. Directors must be given strong incentives to focus on shareholder interests. Closed for comment; 0 Comments.
- 21 Jul 2006
- Op-Ed
Enron Jury Sent the Right Message
Although the actions of Enron's executives were in many areas neither clearly legal nor illegal, jurors sent an unambiguous message that all executives should heed: Truth telling and ethical discipline are the cornerstone values in corporate governance. Key concepts include: Executives can be convicted in a court of law for a pattern of deception, even when it is not illegal. Firms that focus on exploiting the rules rather than building a sound business often lose their way. Closed for comment; 0 Comments.
- 05 Jul 2006
- Op-Ed
Corporate Governance Activists are Headed in the Wrong Direction
Corporate governance reformers are pushing the idea of majority voting for directors. But that solution, as Joseph Hinsey sees it, won't produce the desired outcome. The answer? Keep CEOs and board chairs separate. Key concepts include: Majority voting for directors is a flawed concept that neither enhances shareholder democracy nor improves corporate governance. Corporate accountability is best served by separating the CEO and board chair responsibilities. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Improving Corporate Governance with the Balanced Scorecard
The authors review the key roles of corporate boards and recommend a Balanced Scorecard approach to help boards work smarter, not harder. Kaplan and Nagel recommend a three-part Balanced Scorecard program: Part 1: An Enterprise Scorecard that includes enterprise-wide strategic objectives, performance measures, targets, and initiatives; Part 2: A Board Scorecard that defines and clarifies the strategic contributions and requirements of the board, and provides a tool to manage the board's performance; Part 3: Executive Scorecards, which define strategic contributions of top management and are used to select, evaluate, and reward senior executives. Key concepts include: Reforms such as Sarbanes-Oxley have increased the amount of work that boards need to do. A Balanced Scorecard approach can help boards use their limited time effectively. An enterprise strategy map and enterprise Balanced Scorecard should be the primary documents distributed to the board in advance of meetings. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Governance and CEO Turnover: Do Something or Do the Right Thing?
CEOs who become "entrenched" by the board of directors can gain an extra buffer between themselves and angry shareholders. Entrenchment has potential costs (a poorly performing CEO hangs on to the job) but also benefits (the board can deflect shareholder cries for dismissal of a CEO who was merely unlucky). The authors hope to shift the emphasis of the debate on entrenchment to a consideration of these tradeoffs and to shift the focus of the entrenchment-performance discussion toward the decisions, such as CEO dismissal, that are directly tied to the actions of the board. Key concepts include: By caving in to shareholder demands, boards may act against the long-time interests of the company and those same shareholders. Governance is a very important mediating factor in the relationship between performance and firing. At the time of founding a forward-looking investor may wish to put in place governance mechanisms that address these issues. Closed for comment; 0 Comments.
- 01 May 2006
- Research & Ideas
What Companies Lose from Forced Disclosure
Increased corporate financial reporting may benefit many parties, but not necessarily the companies themselves. New research from Harvard Business School professor Romana Autrey and coauthors looks at the relationship between executive performance and public disclosure. Closed for comment; 0 Comments.
- 06 Feb 2006
- What Do You Think?
Should CEOs of Public Companies Offer Earnings Guidance?
A small but growing chorus of public company CEOs is deciding not to provide quarterly earnings guidance. Is this a good or bad development for shareholders, investors, analysts, the marketplace, and the company’s short- and long-term health? Closed for comment; 0 Comments.
- 24 Oct 2005
- Research & Ideas
Building an IT Governance Committee
Boards need to take more accountability for IT, argue professors Richard Nolan and Warren McFarlan. In this excerpt from their recent Harvard Business Review article, the authors detail what an IT governance committee should look like. Closed for comment; 0 Comments.
- 30 Aug 2004
- Research & Ideas
Mapping Your Board’s Effectiveness
To be effective, board members must understand their company’s strategy. Professor Robert S. Kaplan offers methods for using the Balanced Scorecard and strategy maps to increase board power. From Strategy & Innovation. Closed for comment; 0 Comments.
- 02 Aug 2004
- What Do You Think?
For Greater Transparency, Is Section 404 an Effective Response?
Section 404 of the Sarbanes-Oxley Act requires that managers certify the integrity of their internal controls for financial reporting. In the end, are shareholders getting their money’s worth? Are more costly amendments to come? Closed for comment; 0 Comments.
- 12 Jul 2004
- Research & Ideas
Michael Porter’s Prescription For the High Cost of Health Care
The troubled U.S. health care system needs a brave, new kind of competition, say HBS professor Michael E. Porter and the University of Virginia’s Elizabeth Olmsted Teisberg. A Harvard Business Review excerpt. Closed for comment; 0 Comments.
- 12 Jul 2004
- Research & Ideas
Enron’s Lessons for Managers
Like the Challenger space shuttle disaster was a learning experience for engineers, so too is the Enron crash for managers, says Harvard Business School professor Malcolm S. Salter. Yet what have we learned? Closed for comment; 0 Comments.
- 22 Dec 2003
- Research & Ideas
How to Build a Better Board
Boards need to work smarter and with a design in mind, says professor Jay Lorsch. Lorsch discusses his new book Back to the Drawing Board, co-written with Colin B. Carter. Closed for comment; 0 Comments.
- 24 Nov 2003
- Research & Ideas
Boards and Corporate Governance: A Balanced Scorecard Approach
HBS professors Robert S. Kaplan and Krishna G. Palepu discuss a Balanced Scorecard approach to how companies can create shareholder value through more effective governance. Closed for comment; 0 Comments.
- 01 Sep 2003
- What Do You Think?
To Whom Should Boards be Accountable?
A well-respected and influential newspaper was forced into a public auction by a hostile buy-out offer. Let's say you were on the board. How would you have reacted? Closed for comment; 0 Comments.
CEO Succession: The Case at Ford
When Ford Motor Company looked to replace Bill Ford as CEO, it turned not to another auto industry insider but instead to Boeing's Alan Mulally. We talk with Harvard Business School professor Joseph L. Bower to better understand Ford's move and the larger issues of CEO succession. Key concepts include: New CEOs are often plucked from outside the company—about a third of the time for S&P 500 companies. Industry knowledge isn't a specific determinant of a new CEO's success, but knowledge of the business is crucial—see Lou Gerstner at IBM. Companies need to plan CEO succession ten years in advance—not react to an immediate situation. Closed for comment; 0 Comments.