Corporate Exec, Help Thyself; It's Not What You Know But...; In Search of Softball Questions
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Corporate Exec, Help Thyself
One of Jack Welch's most celebrated moves as CEO of General Electric was to make market share a top priority, cutting loose any businesses that weren't already first or second in their markets. The idea seemed to work: When Welch left the company, GE's revenues had gone through the roof, and management gurus spread his gospel. In Competitor-Oriented Objectives: The Myth of Market Share, forthcoming in the International Journal of Business, researchers at the University of Pennsylvania's Wharton School and Australia's Monash University argue that Jack's big idea has gone too far. Pointing to over a dozen studies, the authors maintain that for most companies, fixating on market share instead of profits tends to decrease profitability. Welch's winner-take-all mentality may be sending managers the wrong message. "Business isn't war," says coauthor J. Scott Armstrong, a professor of marketing at Wharton. "But a high percentage of people are more interested in damaging their competitor than in helping themselves."
It's Not What You Know But...
Why do some CEOs make so much more than others? Not necessarily because they're better, argue two professors at the University of Texas-Austin's McCombs School of Business in a working paper, But, Mom, All the Other Kids Have One! CEO Compensation and Director Networks. Examining data on the 1,500 largest public companies from 1996 to 2004, the authors found that the more "connected" a company's board of directors-meaning the more members served on other companies' boards-the bigger the paycheck going to its CEO. Company size and CEO performance aside, the best-connected boards paid their execs 10 percent more, and offered them 13 percent more in total compensation, than boards with smaller social networks. Who golfs with whom, in other words, makes some lucky CEOs worth an extra $500,000 a year. "If you ask me how it works, I have no idea," says coauthor Ilan Guedj, an assistant professor of finance.
In Search of Softball Questions
Do managers discriminate against some financial analysts who cover their companies? In Evidence of Management Discrimination Among Analysts During Earnings Conference Calls, Bill Mayew, an assistant professor of accounting at Duke's Fuqua School of Business, offers an emphatic yes. Examining the conference-call transcripts of nearly 3,000 large firms between 2002 and 2004, Mayew found that analysts with strong "buy" recommendations were more than twice as likely to be called on as those with strong "sell" positions. Managers whose stock options were dependent on rising stock prices were even more inclined to let only supportive analysts ask questions.
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This story appears in the December 25, 2006 print edition of U.S. News & World Report.