First Look

October 16, 2007

A new research paper available for download explores the question of whether third-party environmental ratings help persuade a company to improve its environmental performance. The paper, by HBS professor Michael W. Toffel and Aaron K. Chatterji of Duke's Fuqua School of Business, concludes that firms are particularly likely to respond to such ratings when the ratings threaten their legitimacy and when they face relatively low-cost improvement opportunities. Thus the paper's title, "Shamed and Able: How Firms Respond to Information Disclosure." Also this week, a note, available for purchase, by HBS professor John A. Davis on issues surrounding compensation issues in the family business, and a case study about the high-stakes world of book publishing that explores "new-product acquisition, development, and launch strategies."
— Sean Silverthorne

Working Papers

Shamed and Able: How Firms Respond to Information Disclosure


We apply institutional theory to explain how firms respond to information disclosure. Considering the impact of institutional and technical forces, we hypothesize that information disclosure is particularly likely to spur responses from firms whose legitimacy is threatened (and thus are shamed) and face lower-cost opportunities to respond (and thus are particularly able). Testing this by examining how firms respond when their environmental performance is disclosed by a social rating agency, we find empirical evidence that supports our hypotheses. We present implications for theory and public policy.

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Cases & Course Materials

Compensating Family Employees in a Family Business

Harvard Business School Note 808-021

Explores the core issues involved in compensating family employees in a family business. Explains family interests and other factors that shape family employee compensation practices. Distinguishes between achieving effective compensation practices, which help to achieve the business's key success factors and other important interests, and strictly adhering to "professional" compensation principles, which are useful standards to try to follow but they may not meet important personal and family interests or be politically feasible. Concludes with several recommendations to guide family employee compensation practices.

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Grand Central Publishing (A)

Harvard Business School Case 508-036

In April 2007, Grand Central's publisher Jamie Raab and editor Karen Kosztolnyik were involved in a frantic bidding war for a proposed book on the life of cat Dewey, billed as the feline answer to the best-selling "Marley & Me: Life and Love with the World's Worst Dog." Literary agent Peter McGuigan, who represented the author and ghost writer, had just notified them that a second publisher seeking to close the deal was "shadowing" Grand Central's every move and a preemptive offer of well over a million dollars would be required to secure the acquisition—an exceedingly high amount for a book by a first-time author. Should Grand Central continue to bid for Dewey, wait for the scheduled auction with several interested publishers, or pull out of the race? Allows for an in-depth examination of new-product acquisition, development, and launch strategies in the context of the book publishing industry. Provides rich insights into how media and entertainment firms aim to replicate success, and how they find, foster, and sell potential blockbuster products. Also illustrates how similar efforts by competitors increase each firm's dependence on a handful of hits. Contains detailed unique economic data that illustrate the high level of concentration in the distribution of sales and profits across products. By enabling an analysis of the book acquisition, development, and marketing process from the perspective of the publisher, author, and agent, serves as a vehicle for contrasting different approaches to the new product development process.

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Michael Fernandes at Nicholas Piramal

Harvard Business School Case 408-001

Michael Fernandes, the Director of Custom Manufacturing Operations at the pharmaceutical company Nicholas Piramal India Limited (NPIL), schedules a meeting with three of his reports, whose interpersonal conflicts with one another are causing his business development function to falter. He struggles to know how to handle these conflicts and bring the three into a productive working collaboration. Fernandes is in charge of incorporating NPIL's new acquisitions in Canada and the United Kingdom to market NPIL globally. His three direct reports are each involved in different aspects of NPIL—the Canadian operations, the British operations, and the global business development—and the case explores the team dynamics among them. Unless Fernandes can resolve the conflicts, the integration of the acquisitions is in jeopardy.

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Unilever as a "Multi-local Multinational" 1945-1979

Harvard Business School Case 808-025

Explores the opportunities and threats to Unilever's global business in 1978 based on the commercial and political challenges faced by three of its subsidiaries, Lever Brothers in the United States, Hindustan Lever in India, and United Africa Company in West Africa. Management faced several problems: criticism of multinational companies, anti-trust legislation, expropriations, and rising competition from international and local rivals. Focuses on developing a new global strategy for a company that placed a premium on a consensual management style and local autonomy.

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Related Lending and Economic Performance: Evidence from Mexico


Related lending, a widespread practice in LDCs, is widely held to encourage bankers to loot their banks at the expense of minority shareholders and depositors. We argue that neither looting nor credit misallocation are necessary outcomes of related lending. On the contrary, related lending often exists as a response to high information and contract enforcement costs. Whether it encourages looting depends on other institutions, particularly those that create incentives to monitor directors. We examine Mexico's banking system, 1888-1913, in which there was widespread related lending. We find little evidence of credit misallocation despite a financial crisis and government-organized rescue.

The Accidental Entrepreneur: The Emergent and Collective Process of User Entrepreneurship


We develop a process model of how users, an understudied source of entrepreneurship, create, evaluate, share, and commercialize their ideas. We compare and contrast our model to the classic model of the entrepreneurial process, highlighting the emergent and collective nature of the user's entrepreneurial process. Users are often "accidental" entrepreneurs who happen upon an idea through their own use and then share it with others; more specifically, the development of an idea and subsequent experimentation, adaptation, and preliminary adoption often occur before that idea is formally evaluated as the basis of a commercial venture. Users also tend to engage in collective creative activity prior to firm formation—often within the social context provided by user communities—that results in the improvement of ideas. Finally, we provide detailed data on the prevalence of user entrepreneurship in the juvenile products industry.