Happy Money: The Science of Smarter Spending
|Authors:||Elizabeth Dunn and Michael Norton|
|Publication:||Simon & Schuster, forthcoming|
If you think money can't buy happiness, you're not spending it right. Two rising stars in behavioral science explain how money can buy happiness-if you follow five core principles of smarter spending.
The Role of Organizational Scope and Governance in Strengthening Private Monitoring
|Authors:||Lamar Pierce and Michael W. Toffel|
|Publication:||Organization Science (forthcoming)|
Governments and other organizations often outsource activities to achieve cost savings from market competition. Yet such benefits are often accompanied by poor quality resulting from moral hazard, which can be particularly onerous when outsourcing the monitoring and enforcement of government regulation. In this paper, we argue that the considerable moral hazard associated with private regulatory monitoring can be mitigated by understanding conflicts of interest in the monitoring organizations' product/service portfolios and by the effects of their private governance mechanisms. These organizational characteristics affect the stringency of monitoring through reputation, customer loyalty, differential impacts of government sanctions, and the standardization and internal monitoring of operations. We test our theory in the context of vehicle emissions testing in a state in which the government has outsourced these inspections to the private sector. Analyzing millions of emissions tests, we find empirical support for our hypotheses that particular product portfolios and forms of governance can mitigate moral hazard. Our results have broad implications for regulation, financial auditing, and private credit- and quality-rating agencies in financial markets.
Read the paper: http://ssrn.com/abstract=1640638
The International Politics of IFRS Harmonization
|Publication:||Accounting, Economics & Law (forthcoming)|
The globalization of accounting standards as seen through the proliferation of IFRS worldwide is one of the most important developments in corporate governance over the last decade. I offer an analysis of some international political dynamics of countries' IFRS harmonization decisions. The analysis is based on field studies in three jurisdictions: Canada, China, and India. Across these jurisdictions, I first describe unique elements of domestic political economies that are shaping IFRS policies. Then, I inductively isolate two principal dimensions that can be used to characterize the jurisdictions' IFRS responses: proximity to existing political powers at the IASB and own potential political power at the IASB. Based on how countries are classified along these dimensions, I offer predictions, ceteris paribus, on countries' IFRS harmonization strategies. The analysis and framework in this paper can help broaden the understanding of accounting's globalization.
Read the paper: http://ssrn.com/abstract=1875682
The Preference for Potential
|Authors:||Zakary L. Tormala, Jayson Jia, and Michael I. Norton|
|Publication:||Journal of Personality and Social Psychology 103, no. 4 (2012)|
When people seek to impress others, they often do so by highlighting individual achievements. Despite the intuitive appeal of this strategy, we demonstrate that people often prefer potential rather than achievement when evaluating others. Indeed, compared with references to achievement (e.g., "this person has won an award for his work"), references to potential (e.g., "this person could win an award for his work") appear to stimulate greater interest and processing, which can translate into more favorable reactions. This tendency creates a phenomenon whereby the potential to be good at something can be preferred over actually being good at that very same thing. We document this preference for potential in laboratory and field experiments, using targets ranging from athletes to comedians to graduate school applicants and measures ranging from salary allocations to online ad clicks to admission decisions.
Securities Litigation Risk for Foreign Companies Listed in the U.S.
|Authors:||Beiting Cheng, Suraj Srinivasan, and Gwen Yu|
We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit-triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S.
Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2163864
Cases & Course Materials
"Growing Pains at Stroz Friedberg (Abridged)
Garvin and Michael Norris
Harvard Business School Case 313-023
In late spring 2009, Stroz Friedberg co-presidents Edward Stroz and Eric Friedberg had to set growth targets for 2010. The leading global consulting firm they had built specialized in managing digital risk and uncovering digital evidence and had grown very rapidly. With the firm's CFO, they believed that the firm could grow from $58 million to $72 million, a growth rate of 27% over the preceding year. However, the firm's 11 offices had submitted first draft FY 2010 plans that together added up to firm-wide revenues of only $53 million, a growth rate of negative 10.2%. The preceding years of rapid growth had been successful but challenging, and a thorough review of the firm's culture, systems, structure, and processes in late 2008 had resulted in a significant set of changes to which the organization was still adjusting. Stroz and Friedberg wondered whether to push for continued, aggressive growth.
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Congruence Model Note
Shon R. Hiatt and James Weber
Harvard Business School Note 413-037
This note describes the Congruence Model, a method by which an organization can assess whether its building blocks (critical tasks, formal organizational arrangements, people, and culture) are aligned (congruent) with its strategy. The model postulates that misalignments are at the root of performance gaps within the organization.
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Ringier—Building a Digital-Age Media Company
Harvard Business School Case 713-423
Overview of the strategic re-orientation and diversification of Ringier, a Swiss media company, as it confronts the challenges of staying competitive and profitable in the new and increasingly digital media landscape.
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Reconfiguring Stroke Care in North Central London
Michael E. Porter, James Mountford, Kamalini Ramdas, and Samuel Takvorian
Harvard Business School Case 712-496
In 2006, surgeon Ara Darzi identified several key areas, including acute stroke care, for improving health care across London. In response to his seminal call to action, stroke care was reorganized around eight hyper-acute stroke units covering London's five sectors, replacing the more than thirty units that had previously delivered acute stroke care. This case profiles the rollout of the new care delivery model in North Central London, where acute stroke care had previously been fragmented among five acute hospital trusts with varying care resources, capacity, and protocols. In the new model, stroke care would be delivered across facilities in an integrated fashion, with a single hyper-acute facility designed for the care of the most acute and severe cases.
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Michael J. Roberts and Jim Sharpe
Harvard Business School Case 813-045
Eric Weston is struggling to keep his garden supply business alive. Revenues are up slightly from last year, but profits are down in a poor economy as he attempts to integrate an expensive recent acquisition. The deal he struck with the old owner restricts a number of his options, and the banker has turned the loan over to the workout division. He feels that his suppliers are willing to work with him, and his employees depend on him for their livelihood. At the bank's request, an outside consultant has been brought in to make recommendations. He has made personal guarantees to the bank, loan payments to the old owner are about to come due, and Weston is faced with some unanticipated expenses. The company's cash situation is very tight, and he is forced to evaluate the liquidation value of the company as he considers the actions to take to avoid failing in his dream to have his own business. The case is a rewritten version of a previous case 899-212, updating the dates and financial data to 2012 timeframe.
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Paul Thomson: Walker Insurance
Michael Roberts, Jim Sharpe, and Sonia Nagala Chang
Harvard Business School Case 813-057
After a year of searching, Paul Thomson has attained his goal of owning his own business. Walker, the prior owner, has facilitated transition but remains involved in the company, and employees are looking to Paul for leadership. He takes immediate steps to build morale, replace poor performers in the "producer" sales force, and cut wages and expenses. During a post-closing audit, Thomson discovers a $600k problem that wipes out his contingency funds. He is concerned about having to go back to his investors to fund a buildup of reserves this early in his tenure. If he plans to live off cash flow, his growth goals will be delayed, and he may lose some recently hired revenue "producers." He has also been approached about selling the company for $4 million, which could yield a good return for investors and for him personally. Having just acquired Walker Insurance, Paul Thomson finds himself short of funds to support his original growth plan. He can request additional funding from his investor group, hunker down and grow at a slower rate, or consider a proposal to buy his business. The transition from the old owner is complete, and he has taken steps to re-virtualize the company under his leadership.
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Howard H. Stevenson, Michael J. Roberts, and Jim Sharpe
Harvard Business School Case 813-046
Peter Jepsen, a newly minted MBA, has bought a furniture hardware manufacturing business utilizing debt and investors equity that in a very short time is about to trigger bank covenants due to poor financial performance. The prior owner continues to be involved in the business, handling key customers and expecting a healthy earn-out and some favorable transaction closing adjustments, and Jepsen considers the wisdom of having him involved. Further, he has discovered an illegal practice to avoid customs duties that has been going on for years and condoned by the owner. He has taken steps to bring on new hires and outsource to reduce costs, but the faltering economy is lowering his revenues. He has to decide how to manage his banking relationships, the caliber of staff he needs, and react to the declining revenue while maintaining the confidence of his board. About to break bank covenants, Peter Jepsen has to deal with a contentious prior owner, improve profitability and staff appropriately all while maintaining credibility with his investors in the furniture hardware company he has owned for less than a year.
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Michael W. Toffel, Kira Fabrizio, and Stephanie van Sice
Harvard Business School Case 613-036
EnerNOC is an energy company with an innovative business model: it serves as an intermediary between electric utilities and electricity users. It contracts with electricity users willing to reduce demand during periods of peak energy demand and sells this as excess capacity to electric utilities. The company is facing an upheaval in the energy markets due to the dramatic growth in natural gas fracking and the resulting increase in natural gas supply. The case enables students to evaluate the EnerNOC's business model-including its environmental implications-and the potential impact of fracking on its business. The case is accessible to non-specialists, as it provides background on the electric utility industry and the debate about fracking for natural gas. Given the substantial environmental impact of the energy and electricity industries, the case is particularly relevant for courses that focus on energy, the natural environment, and environmental sustainability.
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HTC Corp. in 2012
David B. Yoffie, Juan Alcácer, and Renee Kim
Harvard Business School Case 712-423
After 15 years of remarkable achievements, Taiwan-based HTC Corp. faced difficult times by 2012. CEO Peter Chou, who drove HTC's transformation from an unknown manufacturer of PDAs for other companies to a well-known global player in smartphones, faced an uncertain and complex environment. Apple's lead in the smartphone and tablet markets, the acquisition of Motorola by Google, the Microsoft-Nokia alliance, the rise of Samsung, and the extensive patent wars-each raised questions about how HTC could continue its upward trajectory. In a rapidly evolving and increasingly competitive market, what would a sustainable differentiation strategy look like for HTC? How could HTC, a historically innovative company, compete in the tablet market? And how could it weather-and mitigate-the patent wars?
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