Capitalism at Risk: Rethinking the Role of Business
|Authors:||Joseph Bower, Herman B. Leonard, and Lynn S. Paine|
|Publication:||Harvard Business Review Press, 2011|
The spread of capitalism worldwide has made people wealthier than ever before. But capitalism's future is far from assured. The global financial meltdown of 2008 nearly triggered another Great Depression, economies in Europe are still teetering, and powerful forces-income inequality, resource depletion, and mass migrations from poor to rich countries, to name just a few-pose serious threats to continued prosperity. How can the future of capitalism be secured? And who should spearhead the effort? Many observers point to government. But in Capitalism at Risk, the authors argue otherwise. While they agree that governments must play a role, they maintain that businesses should lead the way. Indeed, for enterprising companies, the current threats to market capitalism present vital opportunities. Drawing on discussions with business leaders around the world, the authors argue that companies must stop seeing themselves as bystanders and instead develop innovative business strategies that address the disruptors, produce profitable growth, and strengthen institutions at the community, national, and international levels.
Translating Empire: Emulation and the Origins of Political Economy
|Author:||Sophus A. Reinert|
|Publication:||Harvard University Press, 2011|
An abstract is unavailable at this time.
Publisher's Link: http://www.hup.harvard.edu/catalog.php?recid=31289
The Return Experience of Hedge Fund Investors
|Authors:||Ilia D. Dichev and Gwen Yu|
|Publication:||The World Financial Review (September-October 2011)|
An abstract is unavailable at this time.
Dynamically Integrating Knowledge in Teams: A Resource-based View of Team Performance
|Authors:||H.K. Gardner, F. Gino, and B. Staats|
|Publication:||Academy of Management Journal (forthcoming)|
In knowledge-based environments, teams must develop a systematic approach to integrating knowledge resources throughout the course of projects in order to perform effectively. Yet, many teams fail to do so. Drawing on the resource-based view of the firm, we examine how teams can develop a knowledge-integration capability to dynamically integrate members' resources into higher performance. We distinguish among three sets of resources: relational, experiential, and structural and propose that they differentially influence a team's knowledge-integration capability. We test our theoretical framework using data on knowledge workers in professional services and discuss implications for research and practice.
Manage the Culture Cycle
|Author:||James L. Heskett|
|Publication:||The World Financial Review (September-October 2011)|
Organizational culture-the shared assumptions, values, and behaviors that determine "how we do things around here"-can be measured and shaped. In organizations with large numbers of customer-facing employees, it can account for up to half of the difference in operating income between two organizations in similar businesses. It can be measured by the "Four Rs" of referrals and retention of employees, returns to labor, and relationships with customers that foster customer referrals and retention. An organization relying primarily on financial measures to signal the need for change puts itself at a distinct disadvantage to one that tracks the Four Rs along with indicators of learning and innovation.
The Rise and Consequences of Corporate Sustainability Reporting
|Authors:||Ioannis Ioannou and George Serafeim|
|Publication:||European Business Review (September-October 2011)|
For many decades the cornerstone of corporate reporting has been financial information that is presented in a company's annual, semi-annual, and quarterly reports. These comprehensive financial reports-required by law for public companies in most countries worldwide-have provided shareholders as well as other interested stakeholders with rather elaborate information on the company's operations and strategic activities during the preceding fiscal year. However, in the last two decades and in addition to these financial reports, a growing number of companies across sectors and geographies are communicating to their stakeholders their initiatives and performance within the environmental, social, and governance (ESG) domains. Disclosure of non-financial reports has generated heated debates about whether such information is useful for stakeholders, whether disclosure along ESG dimensions should be mandated by regulation, and if yes, what form such regulation should take. The underlying debate, of course, relates to the broader issue of the role of the business organization within civil society and whether it may contribute toward the world's acute problems via some form of corporate social responsibility (CSR) through a sustainable business model that also generates superior financial performance.
Read the paper: http://www.europeanbusinessreview.com/?p=4538
An Exploration of Optimal Stabilization Policy
|Authors:||N. Gregory Mankiw and Matthew C. Weinzierl|
|Publication:||Brookings Papers on Economic Activity (spring 2011)|
This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short-run and flexible in the long-run. Policy is evaluated by how well it raises the welfare of the representative household. While the model has Keynesian features, its policy prescriptions differ significantly from textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.
Behavioral Corporate Finance: An Updated Survey
|Authors:||Malcolm Baker and Jeffrey Wurgler|
We survey the theory and evidence of behavioral corporate finance, which generally takes one of two approaches. The market timing and catering approach views managerial financing and investment decisions as rational managerial responses to securities mispricing. The managerial biases approach studies the direct effects of managers' biases and nonstandard preferences on their decisions. We review relevant psychology, economic theory and predictions, empirical challenges, empirical evidence, new directions such as behavioral signaling, and open questions.
Download the paper: http://papers.nber.org/papers/w17333
Payout Taxes and the Allocation of Investment
|Authors:||Bo Becker, Marcus Jacob, and Martin Jacob|
When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). High taxes will favor firms that can finance internally. If there are no perfect substitutes for equity finance, payout taxes may thus change the investment behavior of firms. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is "locked in" in profitable firms when payout is heavily taxed. Thus, apart from any aggregate effects, payout taxes change the allocation of capital.
Download the paper: http://www.hbs.edu/research/pdf/11-040.pdf
Private Equity and Employment
|Authors:||Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda|
Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3% over two years post buyout and 6% over five years. The job losses are concentrated among public-to-private buyouts and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1% of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13% of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.
Download the paper: http://papers.nber.org/papers/w17399
Free to Punish? The American Dream and the Harsh Treatment of Criminals
|Authors:||Rafael Di Tella and Juan Dubra|
We describe the evolution of selective aspects of punishment in the U.S. over the period 1980-2004. We note that imprisonment increased around 1980, a period that coincides with the "Reagan revolution" in economic matters. We build an economic model where beliefs about economic opportunities and beliefs about punishment are correlated. We present three pieces of evidence (across countries, within the U.S., and an experimental exercise) that are consistent with the model.
Download the paper: http://papers.nber.org/papers/w17309
Pricing and Efficiency in the Market for IP Addresses
|Authors:||Benjamin Edelman and Michael Schwarz|
We consider market rules for the transfer of IP addresses, numeric identifiers required by all computers connected to the Internet. Excessive fragmentation of IP address blocks causes growth in the Internet's routing table, which is socially costly, so an IP address market should discourage subdividing IP address blocks more than necessary. Yet IP address transfer rules also need to facilitate purchase by the networks that need the addresses most from the networks that value them least. We propose a market rule that avoids excessive fragmentation while almost achieving social efficiency, and we argue that implementation of this rule is feasible despite the limited powers of central authorities. We also offer a framework for the price trajectory of IPv4 addresses. In a world without uncertainty, the unit price of IPv4 is constant before the first time when all blocks of IPv4 addresses are in use and decreasing after that time. With uncertainty, the price before that time is a martingale, and the price trajectory afterwards is a supermartingale.
Download the paper: http://www.hbs.edu/research/pdf/12-020.pdf
A Framework for Research on Corporate Accountability Reporting
In January 2013, Harvard Business School, in collaboration with the Journal of Accounting & Economics, will host a conference on research in corporate accountability reporting to address the "growing number of for-profit corporations across the world [that] have started voluntarily augmenting their annual financial reports with reports on 'corporate sustainability', 'corporate social responsibility', and 'corporate environmental performance'..." This paper provides some conceptual framing on the phenomenon of corporate accountability reporting. In particular, such reporting is seen as arising from a delegator's (e.g., a citizenry) demand to hold a delegate (e.g., shareholders) to account. When effective, corporate accountability reporting can internalize certain externalities into resource allocation decisions by management, shareholders, and other stakeholders. However, doing so will not always serve shareholders' interests. I leverage the positive accounting literature's current understanding of properties of financial reports to develop some basic hypotheses on corporate accountability reporting. I argue that an accountability reporting system is likely to be more useful if it (1) accommodates for a delegate's information advantage over her delegator, (2) produces periodic performance and position reports, and (3) has a mutually agreeable due process to match across periods the actions of delegates and the outcomes of those actions. Further refinement and tests of these hypotheses are likely to help us better understand some of the fundamental questions in corporate accountability reporting.
Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1934322
Cases & Course Materials
Ray A. Goldberg and Jose Miguel Porraz
Harvard Business School Supplement 907-415
Supplements the (A) case.
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U.S. Universities and Technology Transfer
Richard G. Hamermesh, Josh Lerner, and Phillip Andrews
Harvard Business School Note 812-016
Technology transfer from U.S. universities to industry has increased dramatically in the last 25 years. The case reviews the history of technology transfer with particular emphasis on the Bayh-Dole Act of 1980. It then examines how universities responded to Bayh-Dole, the growth of technology transfer offices, and compares how three different universities (MIT, Stanford, and Harvard) approach technology transfer. Provides an overview of the technology transfer process and issues around current practices.
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CEO Compensation at GE: A Decade with Jeff Immelt
V.G. Narayanan and Lisa Brem
Harvard Business School Case 112-003
When ISS, a large shareholder advisory group, recommended a "no" vote on Jeff Immelt's award of 2 million stock options in April 2011, GE's compensation committee had to decide whether to rescind or amend the award or ignore the ISS recommendation. Was Immelt's 2010 pay in line with his performance? How would shareholders vote on the advisory "say on pay" ballot question at GE's annual meeting in April?
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Tough Choices for the Illinois Pension System
Robert C. Pozen and Brij Khurana
Harvard Business School Case 311-139
This case describes the precarious fiscal situation of the Illinois public pension system in the spring of 2009 and the accounting of pension plans by non-federal municipalities more generally. In February 2009, in the midst of a recession, recently appointed Governor Quinn had to lay out his budget for the coming fiscal year and tackle the state's underfunded public pension, its largest liability. Immediately, the governor needed to raise funds to make the state's annual contribution to the pension plan; at the same time, he needed to come up with a plan for pension reform to prevent the future insolvency of the state. Governor Quinn had a number of levers he could employ including changing the asset allocation of the pension funds, directly tackling entitlements through a Defined Benefit or Defined Contribution plan, or through a package of pension bonds, taxes, and employee contributions. Through this case, students should more fully understand pension accounting and understand the hard choices that many states will face because of their outstanding pension liabilities.
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Two Key Decisions for China's Sovereign Fund
Robert C. Pozen and Xiaoyu Gu
Harvard Business School Case 311-137
The China Investment Corporation (CIC) was China's sovereign wealth fund (SWF), established with $200 billion of registered capital in September 2007 to diversify China's foreign exchange holdings and increase risk-adjusted returns on those assets. CIC was unusual in that it had a strictly commercial orientation and market-driven investment mandate to invest in foreign assets but also served as the parent company of a 100%-owned subsidiary, Huijin, which invested solely in key state-owned financial institutions in China. Moreover, the fact that CIC was a SWF presented broader political challenges for it, its shareholder the Chinese government, its direct investments and their governments, and the world economy generally. This case involved two decisions CIC faced in early 2011. The first was how to best and accurately articulate the relationship between CIC, Huijin, and Industrial and Commercial Bank of China (ICBC) to the Federal Reserve Board (the Fed) so that ICBC could expand its business in the United States while exempting CIC and Huijin from certain types of Fed oversight. The second was whether to appoint a board director to Morgan Stanley, a company in which CIC had directly invested close to $6 billion and held 9.9% ownership. Additionally, the case discussed SWFs generally and their rights and responsibilities to the global community.
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Building Watson: It's Not so Elementary My Dear!
Harvard Business School Case 612-017
This case is set inside IBM Research's efforts to build a computer that can successfully take on human challengers playing the game show Jeopardy! It opens with the machine named Watson offering the incorrect answer "Toronto" to a seemingly simple question during the championship match. Was the answer a reflection of a strategic weakness, or was it actually consistent with design principles established by the development team? The case seeks to expand students' view of the product development process. Traditional software development projects begin with the gathering of requirements and analysis of the problem, and the writing of a detailed specification. The Jeopardy! problem is different-it requires a probabilistic approach where there is no closed form solution. Instead, statistical patterns in the data are important, and there is no obvious mapping to the way queries are expressed. Such problems are increasingly common in data mining, optimization problems, or Internet applications where the goal is to find an acceptably good solution in a short amount of time, when a deterministic approach might be less fruitful or impractical. We aspire for students to recognize that product development can take many forms, and that these are enabled by creativity and the right organizational flexibility and mindset. The case highlights the key role of performance metrics in building a flexible system that could be refined through experimentation and testing, steadily improving performance with the incorporation of new algorithmic ideas and new data sources. The case then delves extensively into the analysis of the "Toronto" failure and why the answer that Watson produced was a rational product of a sound strategy. This leaves students to judge the generality of the strategy and its applicability to important business problems.
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Digital Microscopy Is Making Me Crazy!
Harvard Business School Case 612-002
For Carl Zeiss Microimaging, modular hardware and software enabled customers to tailor Zeiss's broad range of microscopy systems hardware and software to meet a wide range of needs from basic scientific research in the biological and medical sciences to clinical applications, materials science, and industrial sectors. Modularity also provided Carl Zeiss engineers the benefit of decoupling the development schedules of individual components and subsystems. Yet the well codified interfaces at many module boundaries also opened the system up to outside providers of components, mainly software. This served research scientists who were doing cutting-edge research extremely well, as they wanted to be able to apply the latest techniques and analysis tools. At the other extreme, clinical and QA/QC applications by their nature had a much higher need for automation because of the repetitive nature of tasks. Simple, integrated solutions seemed to make more sense in these circumstances, and many applications did not demand the ultraprecision of Carl Zeiss's hardware platforms. Rather there was a call for simplicity and robustness, especially in production environments. The case exposes some of the strategic issues and opportunities facing the microscopy business.
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Industrial Metrology: Getting In-Line?
Harvard Business School Case 612-004
Metrology plays a key role in the manufacture of mechanical components. Traditionally it is used extensively in a preprocess stage where a manufacturer does process planning, design, and ramp-up, and in post-process off-line inspection to establish proof of quality. The area that is seeing a lot of growth is the in-process stage of volume manufacturing, where feedback control can help ensure that parts are made to specification. The Industrial Metrology Group at Carl Zeiss AG had its traditional strength in high precision coordinate measuring machines, a universal measuring tool that had been widely used since its introduction in the mid-1970s. The market faced a complex diversification of competition as metrology manufacturers introduced new sensor and measurement technologies, and as some of their customers moved toward a different style of measurement mandating speed and integration with production systems. The case discusses the threat of new in-line metrology systems to the core business as well as the arising new opportunities.
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