First Look

May 28, 2013

Getting To The Unvarnished Truth

According to Michael Beer, the Cahners-Rabb Professor of Business Administration, Emeritus at Harvard Business School, organizations often underperform and even fail when their leaders are not aware of the "unvarnished truth" lurking in their organizations. Beer offers the Strategic Fitness Process as a way "to enable leaders to overcome organizational silence about the misalignment with the environment and chosen strategy." The process is described in Journal of Organization Design 2.

When (and Why) Board Members Dissent In China

Like many things in China, the dynamics of board behavior is partly governed by social ties between board members. A recent working paper, Independent Directors' Dissent on Boards: Evidence from Listed Companies in China, explores why, how, and when board members dissent, finding that the board chairperson plays a crucial role in the dynamic. The research was performed by Juan Ma and Tarun Khanna.

Selling Short In The Mortgage Crisis

Practices that led to the subprime loan crisis and subsequent recession continue to fuel new cases at HBS. In "NovaStar Financial: A Short Seller's Battle," readers are put into the shoes of short seller Marc Cohodes of hedge fund Rocker Partners as he tries to expose what he believes is widespread fraud in mortgage lender NovaStar Financial. The case was written by Suraj Srinivasan and Amy Kaser.

— Sean Silverthorne


  • 2006
  • Journal of Organization Design

The Strategic Fitness Process: A Collaborative Action Research Method for Developing Organizational Prototypes and Dynamic Capabilities

By: Beer, Michael

Abstract—Organizations underperform and sometimes fail because their leaders are unable to learn the unvarnished truth from relevant stakeholders about how the design and behavior of the organization is misaligned with its goals and strategy. The Strategic Fitness Process (SFP) was designed to enable leaders to overcome organizational silence about the misalignment with the environment and chosen strategy. By enabling an honest, organization-wide, and public conversation, senior management teams, working collaboratively with scholar-consultants and organizational members, have access to valid data (the unvarnished truth), can conduct a valid diagnosis and can develop a valid plan to change the structure, processes, and behavior of an organization while at the same time developing commitment that ensures execution. SFP is also a research method. By applying SFP iteratively to new and challenging situations, scholar-consultants can invent new organizational prototypes as well as learn if a standardized and institutionalized organizational learning process like SFP can enhance dynamic capabilities. The SFP model is illustrated with an application to Hewlett-Packard's Santa Rosa Systems Division.

  • 2006
  • Journal of Experimental Social Psychology

Status Boundary Enforcement and the Categorization of Black-White Biracials

By: Ho, Arnold K., Jim Sidanius, Amy J.C. Cuddy, and Mahzarin R. Banaji

Abstract—Individuals who qualify equally for membership in more than one racial group are not judged as belonging equally to both of their parent groups but instead are seen as belonging more to their lower status parent group. Why? The present paper begins to establish the role of individual differences and social context in hypodescent, the process of assigning multiracials the status of their relatively disadvantaged parent group. Specifically, in two experiments, we found that individual differences in social dominance orientation-a preference for group-based hierarchy and inequality-interacts with perceptions of socioeconomic threat to influence the use of hypodescent in categorizing half-Black, half-White biracial targets. Importantly, this paper begins to establish hypodescent as a "hierarchy-enhancing" social categorization.

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  • 2006
  • Cambridge Journal of Regions, Economy and Society

Recent Research on Competitiveness and Clusters: What Are the Implications for Regional Policy?

By: Ketels, Christian

Abstract—This paper reviews implications of recent research on competitiveness and clusters for regions and regional policy. A new framing of competitiveness clarifies the role of regions. Its empirical findings align well with the literature on drivers of regional performance, but there are opportunities for mutual learning. A step-change in the availability of data on clusters and cluster policies has enabled new research approaches. Clusters are shown to have a close association with regional economic performance and evolution. Cluster policies are largely focused on strengthening existing agglomerations, not creating new ones. The paper discusses several practical insights for regional policy makers.

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  • 2006
  • Psychological Science

The Ergonomics of Dishonesty: The Effect of Incidental Posture on Stealing, Cheating, and Traffic Violations

By: Yap, Andy J., Abbie S. Wazlawek, Brian J. Lucas, Amy Cuddy, and Dana R. Carney

Abstract—Can the structure of our everyday environment lead us to behave dishonestly? Four studies found that expansive postures incidentally imposed by our ordinary living environment lead to increases in dishonest behavior. The first three experiments found that individuals who engaged in expansive postures were more likely to steal money, cheat on a test, and commit traffic violations in a driving simulation. We also demonstrated that participants' sense of power mediated this effect. The final study found that automobiles with more expansive drivers' seats were more likely to be illegally parked on New York City streets. These findings are consistent with research showing that (a) postural expansiveness leads to a psychological and physiological state of power and (b) power leads to corrupt behavior.


Working Papers

Abstract—Carry-trade activity and foreign participation in local-currency-bond markets in emerging countries have increased dramatically over the past decade. In light of these trends, we revisit the question of the optimal exchange-rate regime when developing countries can borrow internationally with local-currency-denominated debt. We find, as local-currency-bond markets develop, a "pseudo-flexible regime," whereby a country accumulates reserves in conjunction with debt, to be the best policy alternative under real external shocks for emerging nations.

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Abstract—The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings―separated by several weeks and going in opposite directions―that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by documenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.

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Abstract—In this paper, we examine the circumstances under which so-called "independent" directors voice their independent views on public boards in a sample of Chinese firms. First, we ask why independent directors dissent, i.e., how they justify such dissent to public investors. We find that when independent directors dissent, they tend to offer mild, subjective justifications. Overt criticism of the management team is rare. Next, we ask when an independent director is more likely to dissent and who is more likely to dissent. Controlling for firm and board characteristics, we find that independent directors' dissent is associated with breakdown of social ties between the independent director and the board chairperson, who is at the center of the board bureaucracy in China. Dissent is more likely to occur when the chairperson who appointed the independent director has left the board. Dissent also tends to occur at the end of board "games," defined as a 60-day window prior to departure of the board chairperson or departure of the independent director herself. The endgame effect is particularly strong, seeing 27% of the dissent issued at board "endgames," which represents only 4% of independent directors' average tenure. While directors with foreign experience are more likely to dissent, we do not find that academics, accountants, and lawyers are significantly more active in dissenting. Lastly, we show that dissent is consequential to the director and the firm. For directors, we show that dissent is significantly associated with the likelihood of exiting the director labor market. For firms, we document an economically and statistically significant cumulative abnormal return of -0.97% around announcement of dissent. Although the literature has suggested that dissent might be reflective of diverse viewpoints, and perhaps beneficial in and of itself through reduction of firm variability, we do not find this offsetting beneficial effect to be strong.

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Cases & Course Materials

  • Harvard Business School Case 413-065

Omar Ishrak: Building Medtronic Globally

Omar Ishrak, Medtronic's first non-American CEO, aims to reinvigorate the medical device maker's growth by focusing on emerging markets, therapy innovation, and creative business models. In 2012, budget constraints in mature economies, the lack of new medical therapies coming to market, and the decline in growth of Medtronic's core businesses has reduced the company's once dynamic growth close to zero. As the newly appointed CEO, Ishrak faces the formidable challenge of restoring the company's growth. In his first 18 months as CEO, he has laid the groundwork for future growth by ramping up R&D investment in breakthrough therapy innovations. To bolster Medtronic's near-term prospects, he has supported creative product and business model innovations aimed at overcoming adoption barriers in emerging economies. Ishrak restructured his executive team and their responsibilities: the heads of Medtronic's global operating regions and major countries, who previously reported to the head of international, now report directly to the CEO, putting seven non-Americans on the executive committee. In another important milestone, Medtronic acquired a Chinese orthopedics company, which became its first fully integrated business unit outside the U.S. Ishrak is trying to decide whether these steps are sufficient to transform Medtronic from a multinational into a truly global company and restore its growth.

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  • Harvard Business School Case 713-436

Brightcove, Inc. (B)

Supplements case 712-424.

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  • Harvard Business School Case 113-084

Apartheid in South Africa

A short history of Apartheid in South Africa.

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This note focuses on organizational "competencies" or "capabilities" as a potential source of sustained competitive advantage. Research in this area hypothesizes that some firms outperform their competition because they can do things that their rivals cannot.

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Supplements case 313-105.

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  • Harvard Business School Case 113-006

Equitas Microfinance (C): Advent of Regulation

Supplements case 510-104.

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  • Harvard Business School Case 813-157

Brazos Partners and the Tri-Northern Exit

Randall Fojtasek, a partner at the Dallas-based Brazos Private Equity Partners, must decide whether now is the time to sell his firm's investment in Tri-Northern Distribution. Brazos, a middle-market leveraged buyout group, created the company two years earlier through the acquisition of two electronic security distribution companies: Tri-Ed Distribution and Northern Video Systems. Twenty-four months after successfully integrating the two companies, Brazos has received two attractive offers for the combined distributor. With the company's management projecting double-digit growth for 2012, however, it is far from clear that now is the optimal time to exit from the firm's third fund.

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  • Harvard Business School Case 113-120

NovaStar Financial: A Short Seller's Battle

The NovaStar case describes the challenges faced by short seller Marc Cohodes of hedge fund Rocker Partners as he tried to expose what he thought was widespread fraud in mortgage lender NovaStar Financial. The case is set in the time period from 2001 to 2007 and tracks the growth of the subprime industry and its collapse leading to the financial crisis. The case describes the business model of NovaStar, a leading subprime mortgage lending company, and its accounting practices with a focus on the key risks and opportunities facing the company. The case requires students to put themselves in the shoes of Marc Cohodes to understand the business model and accounting numbers and to identify if the financial performance is a good representation of the true economic performance. In particular, students learn accounting concepts related to securitization, gain on sale accounting, valuation of available for sale securities, and analyzing the statement of cash flows. The case also allows students to understand the role and incentives of various capital market participants like sell-side analysts, the media, auditors, and the Securities and Exchange Commission (SEC).

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