The Chicago Teachers Union hasn't gone on strike in a very long time, and the same goes for most teachers unions - and they are more strike-prone, it seems, than most public employee unions. We don't have a lot of strikes in the United States, and when they, or lock-outs, happen, as with athletes or harbor pilots, or what have you, it often looks like a negotiating tactic en route to a pretty quick resolution, rather than the right-to-exist gotterdammerungs of the British labor unions in the 1980s.
But many public employees can't strike, not legally anyway, and the rest almost never do. In that sense, the Chicago strike is interesting because it goes against the implicit "we'll work it out" position that most public employee unions take. And it's not so surprising that the Times thinks the conflict has been driven by the confrontational personalities involved.
I'm no expert on unions, though I find strikes to be fascinating. But there are plenty of people at Wharton who think about unions a lot - you can get a sense of some of the views around here from this.
- According to Wooldrige, the Church trains its members to "make the world a more ordered place." The emhasis on order "pervades Mormon theology." For example, the creation account in Mormon theology, in the words of the Encyclopedia of Mormonism, "recogniz[es] creation as organization of preexisting materials, and not as an ex nihilo event (creation from nothing)." (Wooldrige attributes this teaching to the Book of Mormon, but the better reference is the Book of Abraham.) Also, the Church is very hierarchical and young men are brought up in the hierarchy, drilling the need for order deep into their world view.
- The Church expects its young members, particularly the men, to serve missions. Guest describes the mission as a "crash course in leadership, self-restraint, languages, and salesmanship." He sees two important features of the mission: being forced to learn a foreign language, which forces one to "think globally and understand foreign countries," and being forced to "practice salesmanship ... selling a product that nobody wants." While not all missionaries learn a foreign language, many do (including Mitt Romney, Kim Clark, Clayton Christensen ... and me!), and that is certainly a transformative experience for most of us. As for "selling a product that nobody wants," that's a very European perspective -- the Church is, in fact, quite in demand in many countries -- but for those of us who served missions in Europe, the long-term effect of being repeatedly rejected is hard to overestimate. This caused me to discover and embrace my core commitments, which continue to animate almost all of my decisions.
CNN did a story on this topic leading up to the last presidential election. In addition to the reasons mentioned here, the story cited several other factors: the payment of tithing, the emphasis on family and Church service as the highest priorities, and the keeping of the Sabbath.
Is there anything to this? I love being a Mormon, but I am skeptical about the purported links between our theology or praxis and success at the highest levels of business.
If Mormons are disproportionately successful in business, my hypothesis is that Mormons have a chip on their shoulder from being an outgroup. How does one respond in that circumstance? One option is to grin and bear it. Or, like Harold Abrahams, the Jewish runner in Chariots of Fire who feels the anti-Semitism of England, we can "take them on, all of them, one by one, and run them off their feet."
One of the things I love about the Crocker Fellows course is that we have faculty from five different departments in the room simultaneously (Business, Engineering, Computer Science, Life Sciences, and, of course, Law). Each of the disciplines represented in the room has its own canonical ideas, and listening to those ideas play out is educational for all of us.
For example, today a faculty member invoked the Five Whys (of Toyota fame) in trying to help one of the teams understand the root cause of a problem. Here is the idea, in a nutshell, as stated by Kenichi Ohmae: "If instead of accepting the first answer, one … persists in asking 'Why?' four or five times in succession, one will certainly get to the guts of the issue, where fundamental bottlenecks and problems lie."
A couple of years back, Eric Ries wrote a nice blog post on "The Five Whys for Start-Ups" at HBR, and Jeff Lipshaw noticed the affinity of the Five Whys with the Socratic method. Want a lean startup? Hire a law professor as a manager!
Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.
But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?
In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.
Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others).
She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:
“Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:
(1) instructions from authority
(2) beliefs about others’ prosocial behavior; and
(3) the magnitude of the benefits to others.
Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”
While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.
Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”
In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.
She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.
Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.
Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.
Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.
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Last week, I was on a panel at Law & Society with other scholars talking about executive compensation. I was probably the only speaker who was arguing that compensation reforms like "say on pay" have no relation to systemic risk or to the financial crisis. (Paper Regulating Compensation is here.)
Sunday, Gretchen Morgenson had an article in the NYT equating this "say on pay" season as "Investor Spring." This phrase alludes to the "Arab Spring," so I assume Morgenson is comparing shareholders to oppressed citizens of violent or corrupt or inept governments, who are the corporations. Nice. I'm not sure who should be more offended, U.S. corporations or rebels and protestors risking their lives to change their countries.
Anyway, the article highlights shareholders at Celgene Corporation who have found each other on the Internet and are trying to gather enough folks together to vote down the executive compensation pay package at the upcoming annual meeting. (Their website is here.) The article brings up some very interesting points about the new Say on Pay rule (pursuant to Section 951 of the Dodd-Frank Act) and on shareholder activism.
1. The shareholders seem more unhappy about the stock price than anything. Yes, the stock price is flat. But, it seems to follow the U.S. market as a whole, as I compare the two on Morningstar. The price has gone from the $40s to $75, and is now about $60.
2. This leads them to balk that executive compensation pay is rising, but they are happy with management. According to the article, the leader of the movement says that "in spite of executional excellence" the stock is flat and that Celgene is a "well-managed company." Yet, he is concerned that pay packages have gone up this year, after being flat for two years. So, if you're happy with management, then why are you against giving them a raise after three years of no raise?
3. The pay increases are de minimus to the shareholders. Celgene has 461 million shares outstanding. The top four executives received $24.6 million, up from maybe $19 million. So, if shareholders had that $5 million back, that would be one penny per share.
4. This mobilization effort is working well. So far, with just a few days to go, the shareholder activitsts have 79 shareholders holding 2.7 million shares.
5. This isn't about the $5 million. The shareholders are upset that the company has a poison pill. The shareholders hold shares with a flat stock price, and the economy is opening up for M&A. Maybe the shareholders aren't selling because they want Celgene to be acquired. But, there's this poison pill. But the shareholders have no way to get rid of the poison pill.
6. Say on Pay could be used as an appropriations tool. Shareholders may be able to stall pay packages to get the attention of managers to do something else. 14a-11, the new proxy access rule isn't going to work very often. As I heard Jill Fisch say last week when presenting her fantastic new proxy access paper, only 30% of U.S. companies even have shareholders who meet the 3%/3 rule. But, maybe shareholders can get management's attention by not voting on their pay packages, just like Congress can affect agency behavior through the appropriations tool.
Justice Scalia and four others on the Supreme Court recently upheld the FCC's attempts to clamp down on the "foul-mouthed glitteratae from Hollywood," but that case was about "fleeting expletives," not this:
A couple of years ago, we learned (supposedly) that using "taboo words" at work can reduce stress. So now that Timothy Geithner is all relaxed, I wonder about the people he was trying to influence. Does swearing work as a leadership strategy? Are Mary Schapiro and Sheila Bair now going to fall in line behind Geithner and Ben Bernanke?
I suppose that the message of swearing is not intended to be, "I have lost control of myself," but that's the way it often comes across to me, especially when someone who doesn't normally swear let's out an "expletive-laced" tirade. Fleeting expletives I can understand, but talking like a comedian? The fact that this was a W$J story suggests to me that Geithner is not in the habit of speaking to other agency heads in this manner, so when I read about his "repeated use of obscenities," I conjure an image of a man on the edge. I don't know about you, but I tend not to take advice from people who are emotionally overwrought.
Then again, people who routinely use expletive-laced tirades don't fare any better with me. They seem like little children throwing tantrums. For example, I officed near a law partner who seemed unable to control his potty-mouth, and when people stopped reacting to his language, he started breaking pencils and throwing things. At that point, we usually walked away to avoid getting hurt. Not an effective leadership style, I would suggest.
I assume that Geithner was going for something like, "I am really passionate about this." We have plenty of non-expletives in the English language for conveying this message, and non-verbal cues are helpful, too. If Geithner is unable to convey the message without repeated use of obscenities -- a tactic obviously designed to intimidate rather than persuade -- then I wonder not only about his temperament, but about his intellectual capacity. Does he lack the vocabulary to adequately express his outrage?
Or is he just losing it?
UPDATE: Below are the results of a poll that was attached to the WSJ story.(Click to expand.)
The W$J does a nice story on the eight-year transition of power from Bill Gates to Steve Ballmer, which will culminate this summer in Gates vacating the premises to focus on philanthropy. For my taste, the most interesting tidbit from the story:
One concern for Mr. Ballmer was how to preserve Mr. Gates's role of technology visionary inside the company. Looking for guidance, Mr. Ballmer says he cracked open a book from his college years by Max Weber, the German sociologist, on how organizations handle the disappearance of "charismatic leaders."
On March 28, 2006, Mr. Ballmer described the book to Microsoft's board at a retreat in the San Juan Islands near Seattle, Microsoft executives say. One way for a firm to retain the charisma of a departing leader, Mr. Weber wrote some 100 years ago, is for the leader to name his own replacement.
Mr. Gates did just that. In June 2006, he named his own two successors as tech czars: Craig Mundie, one of Mr. Gates's chief technical advisers, and [Ray] Ozzie, the [founder of Groove Networks Inc.]
According to the story, Bill Gates has "stayed largely on the sidelines" in the Yahoo negotiations. If Yahoo's founders had followed his example, I suspect they wouldn't find themselves in such a mess right now.
Liz Glazer has a great post on a self-help gambit - the sort of thing that is always popular in January - and inquires: is there anything in it for us? I'm new to "Getting Things Done," but I've been consuming some of the businessey "you can do it - but only if you move that cheese!" literature, and I have to say, the life of an academic is nothing like the life I remember as a government lawyer, where I could thrill to the satisfaction of knocking out two motions (for extensions of time, probably) and three nasty letters in the course of a day. Now my projects have months-long timelines, but lots of discrete pieces. Am I supposed to approach this sort of work in the tortured genius novelist mode and, I don't know, stop bathing or remove myself to an unheated cabin in the Berkshires or something? Or should I be GTD, lifehacking, and practicing inbox-zero at a seven footnotes a day clip?
I'll look forward from hearing from you when you've solved your own productivity dilemmas. But in the meantime, read the Glazer.
- Andy Stern, President, Service Employees International Union
- Douglas Lowenstein, President, Private Equity Council
- Robert H. Frank, Professor, Johnson Graduate School of Management, Cornell University
- Jon L. Luther, Chairman and CEO, Dunkin’ Brands Inc.
On the agenda:
1. Given the typically high degrees of leverage in many of these transactions are the restructured firms able to make the investments in technology, capital equipment, and research essential to long run productivity growth?
2. Do workers – either through layoffs and/or pay and benefit cuts – find themselves disadvantaged through financial – or other – restructuring?
3. What are the implications of the very high degrees of profitability in many of these transactions on the growth of income inequality?
I'm not sure about question 1 (long term R&D); my best guess is that managerial slack in public companies is a bigger problem for the economy than inadequate R&D funding.
As for Question 2 - many workers are worse off, especially in the short run. I suspect the way to handle this is some sort of private or public wage insurance rather than discouraging buyouts.
As for Question 3 - I don't think income inequality is necessarily bad in and of itself. But if there are distributional concerns, I'd rather see them dealt with through the tax system than through corporate or banking law. Corporate law has never struck me as a good method of redistributing income.
Should be an interesting hearing.
The much anticipated day is here. Contracts as Organizations -- my paper with Brayden King -- is now available on SSRN. We have submitted the paper to law reviews, but we welcome further comments. Here is the abstract:
Empirical studies of contracts have become more common over the past decade, but the range of questions addressed by these studies is narrow, inspired primarily by economic theories that focus on the role of contracts in mitigating ex post opportunism. We contend that these economic theories do not adequately explain many commonly observed features of contracts, and we offer four organizational theories to supplement – and in some instances, perhaps, challenge – the dominant economic accounts. The purpose of this Article is threefold: first, to describe how theoretical perspectives on contracting have motivated empirical work on contracts; second, to highlight the dominant role of economic theories in framing empirical work on contracts; and third, to enrich the empirical study of contracts through application of four organizational theories: resource theory, learning theory, identity theory, and institutional theory.
Outside the economics literature, empirical studies of contracts are rare. Even management scholars and sociologists, who generated the four organizational theories just mentioned, largely ignore contracts, both in theoretical and empirical analysis. Nevertheless, we assert that these organizational theories provide new lenses through which to view contracts. While economic theories of contracting focus primarily on one purpose of contracts – mitigating ex post opportunism – the four organizational theories help us understand the multiple purposes of contracts.
. . . ain't the hazard it used to be, at least not if you want to run Coca-Cola. Coke just appointed Muhtar Kent as its president and COO, making him the No. 2 behind CEO Neville Isdell, as well as Isdell's likely successor. Almost ten years have passed since Kent was fired from a senior position with Coca-Cola Amatil--a regional bottler based in Sydney--for shorting 100,000 of his own company's shares just hours before the company issued a serious profit warning that caused a drop of $2.5BB in the company's market cap, almost a 30% loss. Kent had been managing director of the bottler's European division. He apparently made about $324,000 from the sale. After an investigation by the Austrialian Securities Commission, Kent coughed up the profits and another $30,000 to cover the costs of the investigation.
This past October, Kent denied prior knowledge of the impending profit warning, calling it all a "bad coincidence." The current official story from Coke is of the "dog ate my homework" variety:
Mr Kent was advised by his financial adviser to diversify his financial portfolio, which at the time consisted solely of KO stock and CCA stock options. . . . He accepted the proposal and left it to the financial adviser to execute. In doing so, he did not fully understand that it would involve a short sale or the elements of a short sale. As a result, he also did not know the specific timing of the transaction.
So he didn't know about the impending profit warning. And he didn't know about the impending short. Hmmm . . . Sorta sounds like Martha Stewart's oral stop loss order. I'm also not sure how short-selling diversifies his portfolio. And why was he shorting his own company anyway?? When Kent was made president of Coca-Cola international in January, less than a year after rejoining Coca-Cola, it made Colin Barr's The Five Dumbest Things on Wall Street This Week at TheStreet.com. Or you can watch the video.
In any event, CEO Isdell (declining to be interviewed) recently
issued a written statement: "Without doubt, Muhtar is a man of the
highest integrity and deepest skills."
When Coke sneezes, Emory catches a cold. So we tend to follow our local benefactor quite closely.
Why are executives so enamored of quoting Chinese proverbs? Daniel Gross over at Slate has the answer. In a nutshell:
[E]xecutives quote Sun Tzu and Lao Tzu for the same reason they started exchanging their bespoke suits for business-casual khakis: They have to show that they're with it. China represents the future and is the locus of immense growth. Casually tossing Chinese proverbs into conversation shows that you're down with the latest trends, even if you haven't (yet) relocated your manufacturing capacity to Shenzhen.
Read the full story for some amusing uses and misuses.
This month's management reading from the Economist includes blurbs on managers' escalation bias and Gary Becker's latest views on organ markets (the live kind). Escalation bias refers to the social psychological phenomenon whereby a decision maker, once committed to an idea or course of action, will persist with it even in the face of information that tends to call into question the wisdom of the prior decision. Check it out.
I just found this interesting resource in the Economist: a regular feature called "What's in the Journals." It's a monthly summary of articles in business journals, sort of a quick fix on management and business articles. Among the snippets for April: the growing popularity of business podcasting; a summary of an academic paper entititled "Does CEO Charisma Matter?"; and a blurb on a McKinsey paper applying behavioral economics (specifically overoptimism) to strategic decisionmaking in business. A quote from this latter: "Almost all of us believe ourselves to be in the top 20% of the population when it comes to driving, pleasing a partner, or managing a business." Uh, you mean, I'm not . . .?