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    First Look: February 18

    First Look

    18 Feb 2015

    Do Non-expert Board Members Add Or Detract Firm Value?

    A new study finds that board members who lack expertise can shrink the value of their firms. "Are Incentives Without Expertise Sufficient? Evidence from Fortune 500 Firms," published in Strategic Management Journal, finds that "firm value rises after such directors depart from boards, with the greatest increases occurring when many of these directors leave." The study was authored by Emilie R. Feldman and Cynthia A. Montgomery.

    The Human Rights Obligations Of Business

    In a forthcoming article in the Journal of Human Rights, Nien-hê Hsieh explores the increasing calls for businesses and managers to take on human rights obligations. Is this the same as corporate responsibility? What about the state's role in protecting the rights of its citizens? The author argues that "avoiding complicity should be the appropriate focus of managerial responsibility."

    Making Strategic Decisions In Africa And India

    Professor Michael E. Porter co-authors a trio of new case studies that consider Yara International's bid to create shared value with multiple agricultural organizations in Africa; Novartis' deliberations on whether to deepen investment in its Arogya Parivar program in rural India; and growth opportunities being weighed by insurer Discovery Limited in South Africa.

    —Sean Silverthorne
    LinkedIn
    Email
     

    Publications

    • February 2015
    • Little, Brown and Company

    Presence: Bringing Your Boldest Self to Your Biggest Challenges

    By: Cuddy, Amy

    Abstract—We often meet life's challenges with fear and anxiety. We fail to be our best and end up feeling regretful and powerless. In Presence, Amy Cuddy presents a scientifically grounded way to align our speech and nonverbal behavior with our beliefs, abilities, and values to produce a synchronized inner state that resonates and connects with others. In this way, we can capture the inner strength we need to successfully navigate life's most difficult situations. Filled with stories of people facing a range of challenges, from going on job interviews to asking someone out; scientific research on how our bodies change our minds; and revolutionary strategies like "power posing," Presence is a must-read for anyone yearning to project their true power.

    Publisher's link: http://www.hachettebookgroup.com/titles/amy-cuddy/presence/9780316256575/

    • February 2015
    • Prentice Hall

    Managerial Accounting: Making Decisions and Evaluating Performance

    By: Datar, Srikant M., and Madhav V. Rajan

    Abstract—Managerial Accounting: Making Decisions and Motivating Performance enables future managers and business owners to attain the core skills they need to become integral members of their company's decision-making teams. This new program from established authors Srikant M. Datar and Madhav Rajan emphasizes decision making and the implications of decisions. While many texts teach the theories and frameworks of management education, Managerial Accounting goes further by covering the capabilities and techniques necessary for effective management practice, as well as fostering attitudes that typify integrity, honesty, and fairness. A high-level business case in each chapter illustrates key concepts and helps students place the material in the context of real-world practice. And deep integration with MyAccountingLab provides students numerous opportunities to review and hone their understanding throughout the learning experience.

    Publisher's link: http://www.pearsonhighered.com/educator/product/Managerial-Accounting-Decision-Making-and-Motivating-Performance/9780137024872.page

    • February 2015
    • Rajiv Lal

    Retail Revolution: Will Your Brick & Mortar Store Survive?

    By: Lal, Rajiv, Jose B. Alvarez, and Dan Greenberg

    Abstract—In Retail Revolution, the authors go beyond the common belief of retail as a monolithic industry and provide a framework that any brick-and-mortar retailer can use to respond to the eCommerce threat. Through six examples, this book demonstrates how this framework works in practice.

    Publisher's link: http://www.amazon.com/gp/product/0986298603/ref=olp_product_details?ie=UTF8&me=

    • February 2015
    • Strategic Management Journal

    Modularity and Intellectual Property Protection

    By: Baldwin, Carliss Y., and Joachim Henkel

    Abstract—Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.

    Publisher's link: http://onlinelibrary.wiley.com.ezp-prod1.hul.harvard.edu/doi/10.1002/smj.2303/full

    • February 2015
    • Research Policy

    Hidden Structure: Using Network Methods to Map System Architecture

    By: Baldwin, Carliss Y., Alan MacCormack, and John Rusnak

    Abstract—In this paper, we describe an operational methodology for characterizing the architecture of complex technical systems and demonstrate its application to a large sample of software releases. Our methodology is based upon directed network graphs, which allows us to identify all of the direct and indirect linkages between the components in a system. We use this approach to define three fundamental architectural patterns, which we label Core-periphery, multi-core, and hierarchical. Applying our methodology to a sample of 1,286 software releases from 17 applications, we find that the majority of releases possess a "core-periphery" structure. This architecture is characterized by a single dominant cyclic group of components (the "Core") that is large relative to the system as a whole as well as to other cyclic groups in the system. We show that the size of the Core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development-open, distributed organizations develop systems with smaller Cores, while closed, co-located organizations develop systems with larger Cores. Our findings establish some "stylized facts" about the fine-grained structure of large, real-world technical systems, serving as a point of departure for future empirical work.

    Publisher's link: http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1016/j.respol.2014.05.004

    • February 2015
    • Psychological Science

    Review and Summary of Research on the Embodied Effects of Expansive (vs. Contractive) Nonverbal Displays

    By: Carney, Dana R., Amy Cuddy, and Andy J. Yap

    Abstract—In this comment we list the 33 published experiments based on 2,521 participants demonstrating the embodied effects of expansive versus contractive nonverbal postures. We discuss a new addition to this list that found an embodied effect of nonverbal expansiveness on self-reported feelings of power but found no effect on risk-taking, cortisol, or testosterone. Taken together, all but one conceptual replication has demonstrated support for the embodied effects of expansive nonverbal postures. However, multiple experiments have found that the postural effects appear to be bounded by social context, culture, and participants' awareness of the hypothesis. Fruitful avenues for future research are suggested.

    • February 2015
    • Journal of Management Accounting Research

    Testing Strategy with Multiple Performance Measures: Evidence from a Balanced Scorecard at Store24

    By: Datar, Srikant M., Dennis Campbell, Susan L. Kulp, and V.G. Narayanan

    Abstract—We analyze balanced scorecard data from a convenience store chain, Store24, during the implementation of an innovative, but ultimately unsuccessful, strategy. Quarterly strategic reviews, based in part on the firm's balanced scorecard, led executives at Store24 to identify problems with, and eventually abandon, this strategy over a two-year period. We find that formal statistical tests of the hypotheses underlying the firm's balanced scorecard and strategy map reveal problems with the strategy on a timelier basis. We also test alternative hypotheses to those underlying the firm's formal strategy map and scorecard that are consistent with concerns expressed by some of Store24's top executives during the initial stages of implementing the new strategy. Our analysis demonstrates that this firm's balanced scorecard contained useful and timely information for distinguishing between these alternatives. These results provide some of the first field-based evidence on the potential for a firm's balanced scorecard to provide useful information for detecting problems in its strategy.

    • February 2015
    • Strategic Management Journal

    Are Incentives Without Expertise Sufficient? Evidence from Fortune 500 Firms

    By: Feldman, Emilie R., and Cynthia A. Montgomery

    Abstract—Agency theory predicts that incentives will align agents' interests with those of principals. However, the resource-based view suggests that to be effective, the incentive to deliver must be paired with the ability to deliver. Using Fortune 500 boards as an empirical context, this study shows that the presence of directors who lack top-level experience but own large shareholdings is negatively associated with firm value, an effect that increases in the number of such directors. Firm value rises after such directors depart from boards, with the greatest increases occurring when many of these directors leave. While agency theory highlights the importance of the right incentives being in place, this research suggests that this can be ineffective if the right resources are not in place.

    Publisher's link: http://onlinelibrary.wiley.com.ezp-prod1.hul.harvard.edu/doi/10.1002/smj.2211/pdf

    • February 2015
    • Journal of Human Rights

    Should Business Have Human Rights Obligations?

    By: Hsieh, Nien-hê

    Abstract—Businesses and their managers are increasingly called upon to take on human rights obligations. Focusing on the case of multinational enterprises (MNEs), the paper argues we have reason to reject assigning human rights obligations to business enterprises and their managers. The paper begins by distinguishing business and human rights from the more general topic of corporate responsibility. Following Buchanan (2013), the paper takes the ideal of status egalitarianism to be central to human rights. Status egalitarianism holds that all members of society stand as moral equals in relation to one another and that the state has a duty to recognize and protect that equal standing both in its dealings with citizens and in their dealings with one another. To assign human rights obligations to MNEs and their managers risks undermining this ideal. The paper situates this argument in relation to the United Nations "Protect, Respect and Remedy" Framework by discussing the way in which MNEs can be complicit in state failures to protect citizens. The paper argues that avoiding complicity should be the appropriate focus of managerial responsibility.

    • February 2015
    • Management Science

    When to Sell Your Idea: Theory and Evidence from the Movie Industry

    By: Luo, Hong

    Abstract—I study a model of investment and sale of ideas and test its empirical implications using a novel data set from the market for original movie ideas. Consistent with the theoretical results, I find that buyers are reluctant to meet unproven sellers for early-stage ideas, which restricts sellers to either developing the ideas fully (to sell them later) or abandoning them. In contrast, experienced sellers can attract buyers at any stage and they sell worse ideas sooner and better ideas later. These results have important managerial implications for buyers and sellers and show that, in such contexts, policy interventions that discourage buyer participation-such as stronger intellectual-property protection-may diminish the market for ideas and hurt inexperienced sellers.

    Publisher's link: http://pubsonline.informs.org.ezp-prod1.hul.harvard.edu/doi/pdf/10.1287/mnsc.2014.1983

    • February 2015
    • Journal of Bone & Joint Surgery: American

    Teaming: An Approach to the Growing Complexities in Health Care: AOA Critical Issues

    By: Nwaz, H., A. Edmondson, T.H. Tzeng, J.K. Saleh, K.J. Bozic, and K.J. Saleh

    Abstract—Confronted with rising costs and patients who often have multiple comorbidities, the orthopaedic surgeon needs to face the challenge of providing high-quality health care. One solution is to increase and improve coordination, communication, and teamwork. The orthopaedic surgeon also needs to work effectively and efficiently to manage a fluid and shifting mix of health-care personnel partners from other disciplines and specialties to deliver high-quality patient care. The orthopaedic surgeon must collaborate in a new way with fellow health-care professionals, providing care by following teaming protocols.

    Publisher's link: http://jbjs.org.ezp-prod1.hul.harvard.edu/content/96/21/e184

    • February 2015
    • American Economic Review

    No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax

    By: Pomeranz, Dina

    Abstract—Claims that the VAT facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread VAT adoption worldwide, but there is surprisingly little evidence. This paper analyzes the role of third-party information for VAT enforcement through two randomized experiments among over 400,000 Chilean firms. Announcing additional monitoring has less impact on transactions that are subject to a paper trail, indicating the paper trail's preventive deterrence effect. This leads to strong enforcement spillovers up the VAT chain. These findings confirm that when taking evasion into account, significant differences emerge between otherwise equivalent forms of taxation.

    • February 2015
    • Harvard Business Law Review

    The Effect of Delaware Doctrine on Freezeout Structure and Outcomes: Evidence on the Unified Approach

    By: Subramanian, Guhan, and Fernan Restrepo

    Abstract—Historically, Delaware corporate law provided different standards of judicial review for buyouts by controlling shareholders (also known as "freezeouts") based on what transactional form was used: deferential business judgment review for freezeouts executed as tender offers, and stringent "entire fairness" review for transactions structured as mergers. Subramanian (2005), Subramanian (2007), and Restrepo (2013) provide doctrinal and empirical evidence that transactional planners responded to these differences in standards of judicial review; that these differences in judicial scrutiny created differences in outcomes for the minority shareholders; and that differences in outcomes created a social welfare loss, not just a wealth transfer from minority shareholders to the controlling shareholder. Over the past decade, in a series of important decisions, Delaware law has migrated toward a "unified approach" to freezeouts regardless of transactional form. In this paper we present empirical evidence on all freezeouts of Delaware targets during this period of doctrinal evolution. In general, we find that deal outcomes have converged in the eight years since the Delaware Chancery Court's decision in Cox Communications, but approximately half of merger freezeouts in the post-Cox era still did not follow the procedural template provided by the unified approach. Our findings suggest that (1) transactional planners seem to respond to even probabilistic changes in the Delaware case law; (2) the social welfare loss identified in Subramanian (2005) seems to no longer be present; but (3) the Delaware Supreme Court may nevertheless wish to "finish the job" by endorsing the unified approach, in order to ensure adequate procedural protections to minority shareholders.

    • February 2015
    • Research in Organizational Behavior

    Morality Rebooted: Exploring Simple Fixes to Our Moral Bugs

    By: Zhang, Ting, F. Gino, and Max Bazerman

    Abstract—Ethics research developed partly in response to calls from organizations to understand and solve unethical behavior. We examine two approaches to mitigating unethical behavior: (1) values-oriented approaches that broadly appeal to individuals' preferences to be more moral and (2) structure-oriented approaches that redesign specific incentives, tasks, and decisions to reduce temptations to cheat in the environment. This paper explores how these approaches can change behavior. We argue that integrating both approaches while avoiding incompatible strategies can reduce the risk of adverse effects that arise from taking a single approach and leverage the strengths of both approaches.

    Publisher's link: http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1016/j.riob.2014.10.002

     

    Cases & Course Materials

    • Harvard Business School Case 515-017

    Gentera: Beyond Microcredit

    Gentera, whose largest subsidiary is Compartamos Banco, has been a fantastically successful endeavor since it started in the 1990s. But in 2014, Gentera faces challenges in expanding beyond group-lending and micro-credit into microfinance and beyond in order to fulfill its mission of financial inclusion.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/515017-PDF-ENG

    • Harvard Business School Case 715-402

    Yara International: Africa Strategy

    Leading fertilizer producer Yara International demonstrates the concept of creating shared value through the Southern Agricultural Corridor of Tanzania (SAGCOT) initiative, which brought together multiple organizations to enhance agricultural development in rural regions.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715402-PDF-ENG

    • Harvard Business School Case 715-411

    Social Business at Novartis: Arogya Parivar

    Late in 2013, Novartis CEO Joseph Jimenez was considering whether or how to deepen the company's investment in Arogya Parivar, its profitable program that sold Novartis medicines in rural India while expanding access to medicine and health information to millions of Indian villagers.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715411-PDF-ENG

    • Harvard Business School Case 715-423

    Discovery Limited

    Discovery Limited is a South-African based insurance company. Started in the early 1990s, Discovery used behavioral economics and data collection to innovate in the health care insurance industry. Its founder, Adrian Gore, believed that the company's products needed to not only make money but also have a positive impact on society. Using its Vitality Wellness program as its strategic lynchpin, Discovery expanded into other insurance areas and financial services products and also entered new markets abroad. In late 2014, Gore and his team had to decide how to further develop the company and prioritize among many growth opportunities.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/715423-PDF-ENG

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