CONNELLY,BRIAN L ; Laszlo Tihanyi, David J. Ketchen Jr, Christina Matz Carnes, Walter J. Ferrier
In boxing, the fight does not always go to the bigger or stronger person, or even to whomever throws the most punches—the fight is sometimes won by the boxer who is unpredictable, such as throwing an uppercut when the opponent expected a right hook. Similarly, when companies compete in the marketplace, advantage is afforded not only to those with more resources or who engage in more competitive activity, but also to those whose actions are unpredictable. In this study, we develop the notion of “competitive complexity,” which describes the diversity and changing nature of a company's competitive moves. Implementing complex competitive repertoires can be painful in the short term but, if done correctly, can help company performance in the long run .
As firms consider transitioning proprietary products to more open platforms to grow market share and relevance, we suggest that managers consider the concerns of external participants when designing a system to govern a platform. Opening access to a platform alone may be insufficient to stimulate external participants to contribute and make real commitments. Our research shows that open access did not stimulate external participation when platform leadership was not clear. When a structured but collectively determined development and governance process was created, external participants increased their contributions and even took on project leadership roles—distributing leadership of the platform among many firms.
Executives often prioritize maximizing immediate returns over investing to build a long‐term competitive advantage. How they think about the future offers one explanation for this short‐termism. This article distinguishes two ways of framing the future with implications for decision‐making. Are we approaching the future (the ego‐moving frame) or is it approaching us (the time‐moving frame)? As long as executives have confidence in their ability to achieve forecasted results, they focus on long‐term returns in their decision‐making when they recognize the advent of the future as inevitable (the time‐moving frame). In contrast, though executives use the ego‐moving frame to show that they are active agents, they weigh future returns less heavily when framing the future in this way .
This article examines the effect of negative news on financial risk. It shows that negative media articles regarding environmental, social, and governance (ESG ) issues increase a firm's credit risk. It also provides a detailed analysis of the impact of an article's reach and severity, i.e., how many readers are exposed to the article and how harshly it criticizes the firm. The results allow to quantitatively assess the risk that emanates from negative ESG news. For executives, three strategies are derived for limiting a firm's exposure to this risk: balancing corporate social responsibility programs with operational safety programs, reporting suboptimal environmental and social performance transparently and proactively, and avoiding acquisition targets and markets with a legacy of negative news .
Investors and entrepreneurs face uncertainty when deciding what firms to start and fund. We show that an intermediation effort to make entry easier for entrepreneurs increases the uncertainty that entrepreneurs and investors face. For investors, the enthusiasm for technology firms engendered by the new exchange can motivate investment in marginal firms to maintain as desired deal flow. However, lower firm growth and less liquidity in the future is likely. For entrepreneurs, our results indicate that it is more challenging to manage technology firm growth as well as there is potential opportunity to investigate other industries. Finally, for policy-makers and supporters of the new exchanges, our results imply that investment flows are altered as intended, but unless listing standards remain high, the virtuous cycle of investment upon which a healthy entrepreneurial climate rests may be disrupted, muting the intended effects of the new exchange.
Top management teams (TMTs) in firms can fracture into subgroups based on demographic characteristics (e.g., age, gender, and education level) as well as based on task‐related characteristics (e.g., functional background, and tenure). We call the former relationship‐related faultlines and the latter task‐related faultlines. We predict and find that stronger relationship based faultlines hinders between subgroup cohesion, reducing TMTs' ability to initiate strategic change. We also predict and find that stronger task‐related faultlines facilitate inter‐subgroup knowledge‐sharing, improving TMTs' ability to initiate strategic change. We find that environmental dynamism reduces the negative effect of most relationship‐related faultlines (except age where this effect is positive) on strategic change, while strengthening the positive effect of task‐related faultline strengths on strategic change.
This paper shows that corporate short-termism is hampering business success. We show clear, causal evidence that imposing long-term incentives on executives—in the form of long-term executive compensation—improves business performance. Long-term executive compensation includes restricted stocks, restricted stock options, and long-term incentive plans. Firms that adopted shareholder resolutions on long-term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialized after two years. We unpack the reasons for these improvements in performance, and find that firms that adopted these shareholder resolutions made more investments in R&D and stakeholder engagement, especially pertaining to employees and the natural environment.
Despite criticism from stakeholders, the public, media, and policy makers, many firms do not take serious action against CEOs who have committed financial misconduct. Past studies have suggested that this is due to board structures (e.g., lack of board independence) or situations surrounding misconduct (e.g., severity of misconduct). We propose that political ideology, a set of beliefs and values, held by board members, influences whether firms dismiss their CEOs following financial misconduct. Examining S&P 1500 firms that were involved in financial misconduct, we find that politically conservative boards tend to dismiss their CEOs more often than do liberal boards, offering practical implications for how the ideology of board members can influence critical actions that they take.
We articulate how CEOs posses-sing certain psychological, behavioral, and social charac-teristics may unknowingly precipitate competitive attackson their firms. Our explanation integrates insights fromvictimology which explain how individuals are subject tomore attacks if they possess characteristics others perceiveas more submissive or more provocative. While priorresearch articulates that CEOs' characteristics affect deci-sions such as attacking rivals, integrating theories of vic-timization into this line of inquiry paints a more socializedview of why firms may be subject to competitive attacksas well. The logic and evidence we provide advances the-oretical explanations of firms' competitive behaviors andexecutives' roles therein. At the same time, providingknowledge about how CEO characteristics precipitate competitive actions toward their firms can aid in preven-tion and intervention strategies.
We study how the optimal configuration of the overall pay system differs between firms that pursue growth‐oriented and efficiency‐oriented strategies. Our results show that growth‐oriented firms (prospectors) benefit from pay structures with relatively large pay differentials horizontally between employees based on ability, effort, and results. Efficiency‐oriented firms (defenders), on the other hand, benefit from pay structures with relatively larger differences in pay across organizational levels vertically. Our findings suggest that while defenders should pay special attention to average pay levels to avoid over compensating their employees relative to competitors, prospectors should pay attention to the CEO‐employee pay differentials to avoid overcompensating executives relative to employees. Overall, our findings provide further evidence on the importance of matching the pay system design to a firm's strategy.
Business headlines regularly feature episodes of organizational misconduct, such as product safety problems, environmental violations, employee mistreatment, and securities lawsuits, and their aftermath. In such scenarios, shareholders demand answers from the people at the top, even if those people were not directly responsible for the problem. As a result, companies often fire the CEO as a means to restore investor confidence. Does this work? It depends on the type of misconduct and who is the CEO 's successor. Following a competence failure, investors welcome the appointment of an outsider, but they are indifferent to inside and interim successors. Following an integrity failure, shareholders greet outside and interim CEO successors favorably while frowning on the promotion of insiders .
As China's environmental awareness is growing, the country's government is increasingly concerned with the question as to how it can improve the environmental performance of the firms it controls. Our evidence shows the concurrence of two contravening government influences on corporate environmental practices: a performance‐enhancing effect of the regulatory pressure by multiple authorities and a performance‐diminishing effect of the autonomy enjoyed by local governments. Both the most centrally and the most decentrally controlled firms in China show significantly weaker environmental performance than those controlled by intermediary levels of government. The stringency of sectorial environmental regulation and environmental monitoring capacity affect the strength of the Chinese government's green grip.
Several studies suggest that political ties help firms survive or perform but do not examine the boundary conditions concerning which types of firms and which type of ties help firms. We draw from resource dependence and resource-based theories to argue that political ties can improve both firm survival (labeled “buffering”) and performance (labeled “enabling”), with weaker firms gaining more from buffering and stronger firms gaining more from enabling. We further examine the relative impact of local and central ties. We test our hypotheses on the television manufacturing industry in China between 1993 and 2003. Results demonstrate the buffering roles of political ties, and under narrower conditions, their enabling roles. Local ties account for these outcomes, while central ties do not provide buffering or enabling benefits.
This article deals with the performance implications of the governance mode (captive offshoring versus outsourcing) selected when companies offshore service activities, which is still quite controversial in the literature. After accounting for endogeneity issues, we investigate the relationship between governance and performances (both in terms of cost saving and service quality) on a sample of 132 initiatives from the 2009 Offshoring Research Network survey. Our results show that the alignment of the governance choice with an extended transaction cost economics approach leads to better performances. However, the impact of a possible misalignment: (1) is asymmetric, as only the failure to undertake a captive mode negatively affects performance; and (2) negatively affects service quality more than cost saving.
Founders of new ventures need to understand the factors that encourage others to give them the help they need for their new firms to survive and grow—what we call venture advocate behaviors (VABs). A new firm that enables these VABs is able to access resources without a monetary burden because they are activated through social exchanges. In order to enable VABs, founders need to understand the individual characteristics of potential advocates, how they will assess the likelihood of success of the new venture, and the decision rules they will use, such as reciprocity, building socioemotional wealth, and the positive identification the potential advocate has within the local venture ecosystem.