Showing papers on "Corporate governance published in 1990"

Performance pay and top-management incentives

Abstract: Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of their firms' stock, and ownership levels have declined over the past 50 years. We hypothesize that public and private political forces impose constraints that reduce the payperformance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis.

The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy

Abstract: Boards of directors of large corporations provide a governance safeguard to both equity capital and managerial employment contracts. Thus, the board is a potentially important instrument of internal control. This article develops theory and propositions concerning (a) the relation among ownership, managerial control, and the composition of the boards of directors; (b) the relation between the composition of the boards and control strategies (strategic versus financial controls); and (c) the relation among choice of control, corporate strategy, and strategic choice.

Administrative Reform in Public Management: Paradigms, Principles, Paradoxes and Pendulums

Abstract: The universal administrative reform movement in public management of the past two decades, as illustrated in the three articles on administrative reform in Britain, Australia and New Zealand which follow this article, has obviously been driven in large part by the requirement that governments respond to the fiscal stresses brought about by changes in the international economic system on the one hand and by the unrelenting demands for government services and regulations in national political systems on the other. These stresses have led to the paramountcy of policy responses aimed at budgetary restraint and at downsizing the public services of governments, as well as - various measures to privatize government operations and to deregulate private economic enterprises. Within the context of these developments, two major sets of ideas have come to influence the design of governance and management therein. They are not unrelated to the policy responses which have come to be characterized as ”neo-conservative,” but they have a separate identity. The first set of ideas, emanating from the school of thought known as public choice theory, focuses on the need to reestablish the primacy of representative government over bureaucracy. The second set of ideas, now generally referred to as the “managerialist” school of thought, focuses on the need to reestablish the primacy of managerial principles over bureaucracy. Taken together, they have had a profound impact on the ways in which governments are structured for the purposes of administering public affairs. Although the changes which have been introduced or proposed as a result of these two sets of ideas might be regarded as a ”return to the basics” of representative government and public administration, there is an important sense in which the fundamental prescriptions of the two proceed from quite different premises about what constitutes public management. The coupling of the two thus must inevitably give rise to tensions, if not outright contradictions, in the implementation of these ideas. At the same time it is clear that these tensions and contradictions are inherent in the governance of modern administrative states (Waldo 1984). It is not illogical, therefore, that governments should attempt to pursue the

Forms of Interorganizational Governance for Multinational Alliances

Abstract: This study drew upon complementary work in transaction cost economics, organization theory, and international corporate strategy studies to examine governance forms for multinational alliances. An ...

Efficiency and Organizational Structure: A Study of Reverse LBOs

Abstract: This paper is a report on 72 firms which went public since 1983 but previously underwent a full or divisional LBO. Accounting measures of performance reveal significant improvements in profitability which resulted mainly from these firms' ability to reduce costs. Firms experience dramatic increases in leverage at the LBO, but the leverage ratios are gradually reduced. The evidence is consistent with the hypothesis that the change in the governance structure of these firms towards more concentrated residual claims created a new organizational structure which is more efficient than its predecessor. GOING-PRIVATE TRANSACTIONS, OR leveraged buyouts (LBOs), have become an important method of corporate restructuring. In a typical going-private transaction, incumbent management acquires all outstanding publicly-traded shares of a corporation and merges the assets of the firm with a newly organized, privatelyheld shell corporation that it controls. Outside equity participants or buyout specialists often share equity ownership in the new private entity with management and help arrange financing for the buyout with lending institutions (DeAngelo, DeAngelo, and Rice (1984)). A variation on the going-private transaction is the divisional management buyout. In a divisional buyout, a division or subsidiary of a public corporation is acquired from the parent company by divisional executives and/or parent company managers (Hite and Vetsuypens

Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions

Abstract: We test the proposition that corporate control considerations motivate the means of investment financing-cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control. Our empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership. Do FIRMS HAVE SYSTEMATIC preferences for the means of financing investments? In Modigliani and Miller's (1958) (M&M's) perfect market, no-tax world, the means by which investments are financed are irrelevant for the total value of the firm. Miller (1977) extended this irrelevance proposition to a case where taxes exist. However, casual observation suggests that firms are not indifferent to the means of financing. For example, many firms prefer to finance investments from internal sources or by debt rather than by issuing new equity. An explanation for such systematic financing preferences and the consequent capital structure of firms is, therefore, called for. Indeed, a number of such explanations have been advanced. For example, DeAngelo and Masulis (1980) showed that in Miller's (1977) framework the means of financing is not irrelevant if firms have different expected marginal effective tax rates due to differences in fixed charges. It has also been argued that financing preferences may result from agency costs associated with debt (e.g., Barnea, Haugen, and Senbet (1981) or from asymmetry of information between managers and outside investors (Myers and Majluf (1984)). Recently, Harris and Raviv (1988) and Stulz (1988) advanced a new argument for the existence of financing preferences that centers around managers' incentive to maintain control over the corporation. Specifically, by increasing debt and using the proceeds to retire equity held by the public, owners-managers increase the probability of maintaining control and reaping the benefits associated with it, since the substitution of debt for outsiders' equity decreases the fraction of

Restructuring Schools: The Next Generation of Educational Reform

Abstract: 1. Introduction: On Changing the Structure of Public Schools(Richard F. Elmore) Part One: Approaches to Restructuring Schools 2. Applying Conceptions of Teaching to Organizational Reform(Brian Rowan) 3. Fostering Teacher Professionalism in Schools(Gary Sykes) 4. Organizing Schools to Encourage Teacher Inquiry(HAndrik D. Gideonse) 5. Redesigning Teachers' Work(Susan Moore Johnson) 6. Rethinking School Governance(Mary Anne Raywid) Part Two: New Roles and Responsibilities for the District and State 7. Restructuring in Progress: Lessons from Pioneering Districts(Jane L. David) 8. Key Issues Confronting State Policymakers(Michael Cohen) 9. Conclusion: Toward a Transformation of Public Schooling(Richard F. Elmore).

Corporate Restructuring: Governance and Control Limits of the Internal Capital Market

Abstract: Corporate restructuring that is sparked by the threat of a takeover provides evidence that corporate governance limits of large diversified (M-form) firms may exist. This paper proposes that poor corporate monitoring, which is due to atomistic ownership patterns and inadequate board of director governance, an emphasis on incentive compensation, and free cash flows, may lead to higher levels of diversification. If diversification results in loss of strategic control and poor performance, the threat of a takeover is likely to be related to the incidence of corporate restructuring. Corporate restructuring, in turn, is likely to (a) result in the correction of inadequate governance patterns, (b) create a more focused diversification strategy, (c) increase strategic control, (d) reduce reliance on bureaucratic control through reduced corporate staff, and (e) increase the performance of the firm and shareholder wealth.

Mergers, restructuring, and corporate control

Abstract: This book presents recent literature on corporate mergers, acquisitions, takeovers, restructuring, and corporate governance as well as discussions of valuation, cost of capital, and strategic financial planning.This book discusses how MA Boeing-McDonnell Douglas; Ciba-Geigy-Sandoz, Disney-Cap Cities-ABC, and Time Warner-Turner.

Beyond Privatization: The Tools of Government Action

Abstract: Each tool the public sector uses to carry out its objectives has its own characteristics and consequences for program operations. Many problems attributed to poor management are really a consequence of the tool used. This book is must reading for those who seek to understand how public programs should be designed.

A causal model of faculty turnover intentions

Abstract: A causal model is proposed and estimated to assess the relative influence of individual attributes, institutional characteristics, contextual-work environment variables, and multiple measures of job satisfaction on the intentions of faculty to leave their current institutions. Special attention is given to similarities and differences among variables in the model for tenured and untenured faculty. Regardless of tenure status, younger faculty, those at institutions that have experienced decline and that have more autocratic forms of governance, and those that have lower levels of organizational and career satisfaction are more likely to leave their institutions. Being a male, spending more time on research, and having a stronger record of scholarly productivity are positive influences on the intentions of tenured faculty to leave their institution, while salary satisfaction is an influential variable only for nontenured faculty. The research and policy implications of these findings are discussed.

Democracy and Economic Crisis: The Latin American Experience

Abstract: The debt crisis has raised serious concerns about the future of democratic governance in Latin America. The prevailing assumption is not merely that economic decline undercuts prospects for democratic consolidation; because of their vulnerability to popular political pressures, democracies—particularly new democracies—have been seen as incapable of mounting effective policy responses to critical economic challenges. A comparative study of policy outcomes in Latin America since the outbreak of the debt crisis challenges this assumption. If we control for the magnitude of the debt burden at the outbreak of the crisis, no statistically significant differences emerge between democratic and authoritarian regimes, or between new democracies and more established regimes. The findings suggest that the conventional wisdom about democracy and economic crisis exaggerates the relationship between political regime characteristics and policy choice, and fundamentally misconstrues the strengths and weaknesses of liberal democratic forms of governance.

The Structure and Governance of Venture-Capital Organizations

Abstract: Provides an in-depth examination of venture capital firms, including their structures and contractual relationships, using data from such sources as the Venture Capital Journal and field research. These firms use the money of their investors to invest at reasonably well-defined stages in high risk firms that offer the potential of high returns. Although the impact of venture capital firms in overall business formation is limited, there have been many success stories. Approximately two-thirds of venture capital firms are organized as limited partnerships, with the venture capitalists serving as general partners and the investors as limited partners. These firms tend to specialize either by industry or by stage of investment. Several factors help to ensure that the venture capitalists will not take advantage of the investors who are the limited partners. Included are the limited length of the firm, the structure of the compensation package for the venture capitalists, and the mandatory distribution policy. Review of the governance structure helps investors distinguish good venture capitalists from the poor ones. There are many important considerations in identifying ventures in which to invest. These investments are governed by the stock-purchase agreement. Descriptions of the various parts of this agreement are provided, including the amount and timing of the investment, registration rights, option pool, information rights, and board structure. Venture capitalists enlist several techniques to address the times when they disagree with the entrepreneurs with whom they invest. Comparisons are made between venture capital firms and both corporations and leveraged buyout funds. (SRD)

Boards that make a difference : a new design for leadership in nonprofit and public organizations

Abstract: This book provides board members with a new understanding of their leadership role, enabling them to get down to their real business of governance, making policy, articulating the mission of the organization, and sustaining its vision It helps boards to concentrate their energies on the overall purpose of their organization and guides them in working with managers to accomplish that purpose It also sets forth procedures for evaluating the executive staff, delegating authority to management, making decisions as a board, and establishing bylaws for the board's governance of itself This book advocates principles that boards of organizations of all sizes can apply to keep them on course toward their long-term goals

The staying power of the public corporation.

Abstract: Has the publicly held corporation out-lived its usefulness? In HBR's September-October 1989 issue, Michael C. Jensen of the Harvard Business School said "yes." The institutional shortcomings of the public corporation are so grave, he argued, that it must be considered fatally flawed. He described the emergence of a new form of enterprise-the LBO Association-that releases much of the untapped value and corrects many of the inefficiencies of large public companies. Alfred Rappaport, a professor and consultant who advises large public companies, joins the debate with a rebuttal to Jensen. Rappaport shares many of Jensen's criticisms of current strategic and financial practices among public companies. But he does not believe leveraged buyouts and other going-private transactions can replace the public corporation. This is so, he asserts, for two reasons: LBOs have a limited demand and a limited life. Rappaport argues that the publicly held corporation is worth saving. It is inherently flexible and self-renewing-properties that are fundamental to stability and progress in a market-driven economy and that transitory organizations like LBOs cannot replicate. Rappaport advances a four-point program to overhaul strategic planning, compensation, and governance to maximize shareholder value in public companies: 1. Find the highest valued use for all assets. 2. Limit investment to opportunities with credible potential to create value. 3. Return cash to shareholders when such value-creating investments are not available. 4. Establish incentives for managers and employees to focus on the critical business drivers that create value.

Corporate Entrepreneurship (Guest Editors' Introduction)

Abstract: Provides the introduction to the special issue of this journal focused on corporate entrepreneurship including the state of theory, methods, and findings. The goal of this special issue was to facilitate progress in theory development on corporate entrepreneurship. This introduction presents a map of corporate entrepreneurship research, and links it to strategic management research. Five areas of inquiry for further research are identified: how corporate entrepreneurship is influenced by (a) environment, (b) strategic leaders, (c) organizational form and conduct, and (d) firm performance; and lastly, how corporate entrepreneurship influences firm performance. (SRD)

Corporate Strategy and Corporate Culture: The View from the Checkout

Abstract: Strategy and culture in British supermarkets are dealt with in a second article, this time from the viewpoint of the checkout. Attempts to create a customer care ethos include instilling a corporate philosophy. For checkout staff this means smiling and meaning it. The staff see it differently; compliance may mean just “putting on an act”. Their response is discussed within the broader context of internal resistance to change and market factors beyond company control.

Lessons for successful nonprofit governance

Abstract: Boards of nonprofit organizations malfunction as often as they function effectively. As the best-managed nonprofit organizations demonstrate, both the board and the executive are essential to the proper functioning of a nonprofit organization. These administrative organs must work as equal members of a team rather than one subordinate to the other. Moreover, the work of the executive and the board does not divide neatly into policy-making versus execution of policy. Boards and executives must be involved in both functions and must coordinate their work accordingly. In a well-functioning nonprofit organization, the executive will take responsibility for assuring that the governance function is properly organized and maintained.

The Modern Theory of Corporate Finance

Abstract: Introduction. Foundations of Corporate Finance. Corporate Payout Policy. Corporate Leasing Policy. Pricing of Debt Claims. Corporate Financial Strategy. The Market for Corporate Control.