First Look

December 24, 2013

Managing The Family Firm

It stands to reason that CEOs who have a family affiliation with their firm might have more job security than other CEOs. But does that affect their job performance? It certainly seems that way, according to recent research by Oriana Bandiera, Andrea Prat, and Raffaella Sadun. In "Managing the Firm: Evidence from CEOs at Work," the authors report that family CEOs record 8 percent fewer working hours, on average, than do professional CEOs.

Growing Trader Joe's

They say that imitation is the sincerest form of flattery, but it may not feel that way when industry giants start encroaching on your business model. In the case "Trader Joe's," David L. Ager and Michael A. Roberto look at how the popular grocery chain orchestrated a growth plan, even while the likes of Wal-Mart and Tesco were opening smaller-format stores that mimicked the Trader Joe's approach.

Transitioning To A Market Economy

A new working paper looks at what happens to labor demand when a nation transitions from a socialist economy to a market economy, focusing on the nascent private sector in urban China. "Using the staggered timing of the Chinese urban housing reform, we show that untying housing benefits from state-sector employment accounts for 30 percent of the increase in private-sector employment in Chinese cities during 1986-2005," the authors report. Read "Economic Transition and Private-Sector Labor Demand: Evidence from Urban China" by Lakshmi Iyer, Xin Meng, Nancy Qian, and Xiaoxue Zhao.

— Carmen Nobel

Working Papers

Managing the Family Firm: Evidence from CEOs at Work

By: Bandiera, Oriana, Andrea Prat, and Raffaella Sadun

Abstract—CEOs affect the performance of the firms they manage, and family CEOs seem to weaken it. Yet little is known about what top executives actually do, and whether it differs by firm ownership. We study CEOs in the Indian manufacturing sector, where family ownership is widespread and the productivity dispersion across firms is substantial. Time use analysis of 356 CEOs of listed firms yields three sets of findings. First, there is substantial variation in the number of hours CEOs devote to work activities, and longer working hours are associated with higher firm productivity, growth, profitability, and CEO pay. Second, family CEOs record 8% fewer working hours relative to professional CEOs. The difference in hours worked is more pronounced in low-competition environments and does not seem to be explained by measurement error. Third, difference in differences estimates with respect to the cost of effort, due to weather shocks and popular sport events, reveal that the observed difference between family and professional CEOs is consistent with heterogeneous preferences for work versus leisure. Evidence from six other countries reveals similar findings in economies at different stages of development.

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Economic Transition and Private-Sector Labor Demand: Evidence from Urban China

By: Iyer, Lakshmi, Xin Meng, Nancy Qian, and Xiaoxue Zhao

Abstract—This paper studies the policy determinants of economic transition and estimates the demand for labor in the infant private sector in urban China. We show that a reform that untied access to housing in urban areas from working for the state sector accounts for more than a quarter of the overall increase in labor supply to the private sector during 1986-2005. Using the reform to instrument for private-sector labor supply, we find that private-sector labor demand is very elastic. We provide suggestive evidence that the reform equalized wages across sectors and reduced private-sector rents.

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Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing

By: Marquis, Christopher, and Michael W. Toffel

Abstract—Under increased pressure to report environmental impacts, some firms selectively disclose relatively benign impacts, creating an impression of transparency while masking their true performance. What deters selective disclosure and leads firms to instead make disclosures more representative of their environmental performance? We identify key company- and country-level factors that, by intensifying scrutiny on firms and diffusing global norms to their headquarters countries, limit firms' use of selective disclosure. We test our hypotheses using a novel panel dataset of 4,750 public companies across many industries and headquartered in 45 countries during 2004-2007, when the practice of environmental disclosure increased among many global corporations. Our results show that firms that are more environmentally damaging, particularly those in countries where they are more exposed to scrutiny and global norms, are less likely to engage in selective disclosure. We contribute to institutional theory by identifying selective disclosure as a corporate symbolic strategy and by revealing how scrutiny and norms limit this symbolic behavior.

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Abstract—I examine the processes and mechanisms whereby market demand for a "dying" technology re-emerges at a later date. In 1983, fourteen years after the introduction of the first quartz watch, mechanical watches, along with the Swiss Jura community of watchmakers who built them, were thought to be "dead" (Landes, 1983). Unexpectedly, however, by 2008 the Swiss mechanical watchmaking industry had re-emerged as the world's leading exporter (in monetary value) of watches. Using qualitative and quantitative analysis, which I apply to a wealth of data, I show how changes in product, organizational, and community identities associated with a legacy technology can be reconstituted to reconfigure a field. My findings highlight that three mechanisms-identity claims, leadership, and framing (i.e., temporal, linguistic, value)-are core to explaining field re-emergence. Although new or discontinuous technologies tend to displace older ones, legacy technologies that are seemingly "dead" can re-emerge, thrive, and even co-exist with newer technologies. Building on these results, I draw out theoretical and empirical implications that focus on the interface between technological shifts and identity change at multiple levels.

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Cases & Course Materials

  • Harvard Business School Case 714-419

Trader Joe's

Based on a variety of metrics, Trader Joe's ranked as one of the most successful grocers in the United States in 2013. Experts estimated that the company had the highest sales per square foot of any major grocery chain, even significantly high than top performer Whole Foods. In 2013, Trader Joe's faced several threats as larger chains such as Wal-Mart and Tesco had begun to open small-format stores that mimicked the Trader Joe's approach. In addition some analysts had begun to question whether Trader Joe's was losing its authenticity and "quirky cool" as the firm had continued to grow and expand across the country. What should Trader Joe's do to ensure continued growth?

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  • Harvard Business School Case 313-083


In late 2012, recent Harvard Business School graduate Hannah Lopez is given the opportunity to lead entry into a new market for Plámo, a company that created startup companies in Europe and emerging markets based upon existing successful business models. She had only been with the company a few months, and while excited by the opportunity, she was beginning to have some doubts about the company. In the brief time she had been with the company, she had had a few experiences that made her question the company's approach to management and the sustainability of its business. Accepting the assignment could give her a unique entrepreneurial opportunity, but she wondered what level of support she could expect to receive and, if the startup did fail, what impact would that have on her career and reputation? Lopez was also starting to worry about the ethical implications of Plámo's style of entrepreneurship. She worried that by agreeing to serve as a manager of the new operations, she would be tacitly supporting elements of Plámo's strategy and practices that she was concerned about. Was she comfortable taking other companies' ideas and simply copying them? Was this true entrepreneurship?

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  • Harvard Business School Case 214-028

The Case of the Unidentified Industries-2013

This case helps students to understand how the characteristics of a business are reflected in its financial statements. This case consists of an exercise in which students are given balance sheet data in percentage form and other selected financial data for companies in 14 industries. The specific task assigned to the student is to use the balance sheet data along with their basic knowledge of the operating conditions and characteristics of these 14 industries to match each industry to the correct data.

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  • Harvard Business School Case 713-515

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  • Harvard Business School Case 214-047

Note on the Leveraged Loan Market

This note provides an introduction to the process of loan syndication and the evolution of the leveraged loan market. The note emphasizes the role of banks as loan originators and the evolution of the institutional investors' entry into the leveraged loan market. In particular, the note discusses the role and incentives of collateralized loan obligations (CLOs).

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  • Harvard Business School Case 214-035

Oaktree and the Restructuring of CIT Group (A)

CIT's prepackaged bankruptcy marked the first time a major financial institution was able to successfully restructure and emerge from Chapter 11 bankruptcy, challenging conventional views that a financial firm could not survive bankruptcy proceedings as a going concern. A diverse group of private investors that had accumulated a large position in CIT in the period leading up to the restructuring played a central role in the success of this restructuring. The case protagonist is Rajath Shourie, Managing Director at Oaktree Capital Management. Shourie evaluates the opportunity to extend a $3 billion rescue credit facility to CIT, together with five other large creditors of the struggling bank. The decision takes place just one day after CIT was denied access to the Temporary Liquidity Guarantee Program (TLGP). This case provides a platform for discussing what constitutes a good attractive distressed target. (In parallel, students can gain in-depth insight into alternative financing models of corporate lenders, including banks and finance companies.) The second major component of the case concerns distressed debt investment strategies and provides an illustration of turning an investment in public debt into a position of control over CIT's management and the restructuring process.

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  • Harvard Business School Case 713-467

CarMax: Disrupting the Used Car Market

In 2012, CarMax was the leading retailer of secondhand cars in the United States and a fast-growing competitor in the used car auction market. After its founding in 1993 by Circuit City's management, CarMax had grown rapidly. The company had been profitable since 2000 and independent from its parent company since 2002. While Circuit City went bankrupt in 2009 under pressure from Best Buy and challenging economic conditions, CarMax flourished and expanded through the economic crisis. Fiscal 2012 revenue reached $10.5 billion and net income, a record $413 million. However, CarMax still only accounted for less than 3% of the fragmented secondhand car market. Additionally, it was keen to avoid the fate of its parent and to stay ahead of copycat competitors. What should CarMax do to grow its market position and continue its success in used car retailing and auctioning?

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