clair015

Ever wondered why there are so few films you really like? It has to do with an old choice in strategy: do you focus on a narrow, specific audience and really satisfy their needs or do you try to appeal to a broader audience, having a larger base of customers but risking to not really satisfy anyone? It appears that – perhaps a bit unfortunately – in the film industry, it often pays to do the latter. Professor Greta Hsu , from the University of California Davis, examined 949 movies in the US film industry and showed that films that fit more clearly into one specific genre (action, romance, comedy, drama, horror, etc.) generally are appreciated more by the audience. However, films that span various genres attract a larger audience, and that pays off at the box office. Of course it’s a trade-off – do you go for a broad or a specific set of customers? – and one that most firms in most industries face. It depends very much on the characteristics of the industry where the balance lies; towar...

Let’s face it; outside directors are just a very strange phenomenon in our global economy. They form a business elite that operates as a self-governing clique. Moreover, these people are amateurs. Literally. The supervision of the management of a globally diversified company is just something they do on the side – a couple of days per year or so. Often they are CEOs of other companies – so that might help a bit (or harm a bit…) – but typically they have about half a dozen of these gigs. So, they can’t let any single one of them distract them too much. It is a bit like we manage our own personal finances – paying bills and filing bank statements etc. In the evening, after a hard day’s work, while watching the X-factor, we quickly glance over the financials and put our signature on the most necessary evils before making a cup of coffee and turning our attention to the newspaper. Bills, bank statements, the accounts of a multinational; what’s the difference really? But not all outside dir...

Let’s face it; analysts are just a very strange phenomenon in our global economy. These people advise us to buy, sell or hold particular companies’ stock but we also all know that the banks that employ them make money if we buy. More importantly, we know that these very same companies that they advise us on are the banks’ customers (e.g. for their M&A deals), which makes it a rather hefty conflict of interest (especially when the real advice should be “sell, now!”). Moreover, on what information do these analysts base their recommendations? 1) The same o-so-reliable numbers as the rest of us have too, and 2) talking to the company’s sweet-talking CEO. Ooo… that’s comforting… That is of course a nice, glamorous perk for the average analyst; being invited to personal audiences with a real-life CEO. Mind you though, if you subsequently don’t write nicely about their company, they won’t invite you back! That’ll teach you! Or do you think I am exaggerating now, and really starting to cr...

When you compare the 2008 banking crisis with the Enron debacle, with Ahold’s demise or even with the Union Carbide disaster in Bhopal in 1984 some surprisingly clear parallels emerge. Various explanations have been offered for each of these crises, ranging from top management greed, failing watchdogs to insufficient government regulation and inappropriate accounting and governance structures. Yet, there is one common cause underlying all these symptoms and triggers, and that is the structural failure of management. One central element in each of these disasters, including the banking crisis, is caused by the division of labour and specialisation within and across organisations. In the case of investment banks, financial engineers drew up increasingly complex financial instruments that, among others, incorporated assets based on the American housing market. Yet, the financial engineers didn’t quite understand the situation in the housing market, the people in divisions and banks partic...

In many countries the topic of “excessive top management compensation” – especially for CEOs – triggers much emotion, social outcry and even calls to arms for politicians to finally regulate the issue and introduce mandatory caps on salaries. And I used to think that this was all nonsense, because the arguably high salaries of CEOs were simply the result of a market mechanism and “the way it is” (and certainly none of politicians’ business). However, the more I learn about academic research on CEO compensation and the workings of boards of directors (who usually determine a CEO’s remuneration package) the more I realise there is more going on than that. First of all, there has been quite a bit of research that has tried to show that CEO compensation is tied to firm performance. It ain’t. That research has tried, has tried hard and harder, but just could not deliver much evidence that CEO remuneration is determined by firm performance. Admittedly, some studies have uncovered some minor ...

Some time ago, my colleague at the London Business School, Phanish Puranam , and I ran a short survey with 111 top managers; all alumni from our School’s senior executive programme. We gave them a list of 35 strategic management topics asking them to rate each of them on a 7-point scale, ranging from unimportant to very important for corporate leaders in today's business environment. The three things that these senior executives said were the most important issues in their view and experience were: 1. Attract and retain talent 2. Decide on the company’s next avenues of growth 3. Align the organisation towards one common goal Some further (statistical) analysis showed us that the number one – “attract and retain talent” – pertained to things such as putting together an effective top management team, and managing top management succession. Many business leaders see as their main task to recruit and develop other leaders, and it seems our senior executives were no exception. The secon...

The level of top managers’ compensation is often a contentious topic of much spirited debate. Basically, most people think these buggers get paid too much. The buggers claim it’s simply the result of the market mechanism; supply and demand: Good buggers are scarce and therefore they earn hefty salaries (like movie stars, football players and other half-gods-to-be-worshipped). Although there is of course a bit of a market at work, it has to be said that the people who determine the pay of a company’s CEO – the board of directors – do face a conflict of interest of sorts. Board memberships are nice jobs to have, in the sense that they are usually rather lucrative gigs and provide a pleasant dosage of power and prestige for those who get them. And – and this is where the conflict of interest arises – it’s mostly the company’s top managers who nominate new board members. In the spirit of “don’t bite the hand that just fed you”, board members may be inclined to nominate their benefactors (i...