Corporate Political Transparency: Challenging Assumptions

[We’re pleased to welcome author Murad Mithani of the Stevens Institute of Technology. Mithani recently published an article in Business & Society entitled “Corporate Political Transparency.” Below, Mithani explains the inspiration for conducting this research:]words-1752968_1280

The idea for this study came during a preliminary investigation of managers’ thinking patterns when they are making campaign contributions. It appeared that regulatory and social implications of disclosure were one of their major concerns. This led me to think if legal enforcement regarding mandatory disclosure of political contributions can make firms fully transparent. Further exploration made it clearer that neither executives nor legislators wanted transparency. They were willing to do whatever was possible to discourage such a regulation, and when that would fail, they were likely to reframe campaign contributions as non-political giving such as charity. In sum, I was expecting that legal enforcement of corporate campaign disclosure may have limited effect. When I found the context of India and compared the ratio of disclosures due to purely legal enforcement and then subsequently when the legal enforcement was coupled with a regulatory incentive, I was surprised by the difference. There was a dramatic increase in the proportion of disclosures suggesting that most firms were unwilling to declare their political ties in the absence of an economic benefit.

I hope my findings can encourage a more informed discussion on the regulatory aspects of corporate campaign contributions. With so much at stake for corporations, legislators and the society, it may be worth discussing the mechanisms that can make it easier for firms to disclose their political choices. Although economic incentives may not reveal all political contributions, the findings of my study suggest that they can be an important step towards transparency.

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Albert Dunlap Style Likability: Those Who Seek Flattery Get Enemies

[The following post is re-blogged from Organizational Musings. Click here to view the original article. It is a commentary based on a recently published article in Administrative Science Quarterly entitled “Those Closest Wield the Sharpest Knife: How Ingratiation Leads to Resentment and Social Undermining of the CEO,” co-authored by Gareth D. Keeves, James D. Westphal, and Michael L. McDonald. From Organizational Musings:] 

I will start this post with an old story. CEO of Sunbeam Corp., Albert Dunlap, known as an expert in turning around troubled firms and selling them for a profit, was sued by the SEC in 2001 for accounting fraud. He was eventually barred from serving as an officer or director in any company, plus ordered to pay investors defrauded money in a class-action lawsuit.  Albert Dunlap was clearly someone in need of flattery, not just money, as he had the classical flattery-sickness symptom of a book written to celebrate his successes (see also his picture!). How he managed things internally in each firm he led is disputed, but much was said about his intimidation of other managers, who probably would conclude that a lot of flattery and ingratiation might help their career. Of course, managers still did better than employees, because his signature move in turning firms around was mass layoffs.

An interesting detail of his downfall was that managers around him were quick to release information that helped the investigation, which is distinct from the many firms with management teams that do all they can to deter and obstruct investigators. Is there a systematic reason for this difference? Possibly. A recent article in Administrative Science Quarterly by Gareth Keeves, James Westphal, and Michael McDonald looks at what happens when managers ingratiate their CEO through flattery and other tools. Their findings are interesting. First, managers who flatter lose their liking of the CEO. Somehow when people artificially put others on a pedestal they also start looking down on them.

Second, managers who flatter may go on to undermine the CEO. The light-handed version of this is to undermine the CEO’s messages to journalists, as this research showed. The heavy-handed version is what happened to Albert Dunlap. Among other events, his comptroller reported that he had been pushing for accounting practices that crossed the legal boundary, and sales people were quick to report “channel stuffing.” Channel stuffing is to sell too many goods and selling them too early, which is not illegal in itself (the sales channel can return unsold goods, so it is safe for them), but it is illegal when the sales are accounted as if they were final.  Those were practices that the SEC (and some investors) suspected, and that meant that what looked like a turnaround in sales and profits was actually a fraudulent scheme.

Seeking flattery is never thought of as a good thing. What we now know is that it also triggers undermining, and for those who have real weaknesses – like a CEO engaged in fraud – that undermining can be very consequential.

Elephant or Donkey? How Board Political Ideology Impacts CEO Pay

6261650491_0cd6c701bb_zHow much does directors’ political ideologies impact CEO compensation? Perhaps more than you might think–according to a recent paper published in Administrative Science Quarterlyentitled “The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay” from authors Abhinav Gupta and Adam J. Wowak, conservative and liberal boards differ in not only how much they pay CEOs, but how they adjust CEO compensation based upon company performance. The abstract for the paper:

We examine how directors’ political ideologies, specifically the board-level average of how conservative or liberal directors are, influence boards’ decisions about CEO compensation. Integrating research on corporate governance and political psychology, we theorize that conservative and liberal boards will differ in their prevailing beliefs about the appropriate amounts CEOs should be paid and, relatedly, the extent to which CEOs should be rewarded or penalized for recent firm performance. Using a donation-based index to measure the political ideologies of Current Issue Coverdirectors serving on S&P 1500 company boards, we test our ideas on a sample of over 4,000 CEOs from 1998 to 2013. Consistent with our predictions, we show that conservative boards pay CEOs more than liberal boards and that the relationship between recent firm performance and CEO pay is stronger for conservative boards than for liberal boards. We further demonstrate that these relationships are more pronounced when focusing specifically on the directors most heavily involved in designing CEO pay plans—members of compensation committees. By showing that board ideology manifests in CEO pay, we offer an initial demonstration of the potentially wide-ranging implications of political ideology for how corporations are governed.

You can read “The Elephant (or Donkey) in the Boardroom: How Board Political Ideology Affects CEO Pay” from Administrative Science Quarterly free for the next two weeks by clicking here. Want to stay up to date on all of the latest research published by Administrative Science QuarterlyClick here to sign up for e-alerts!

*Image attributed to DonkeyHotey (CC)

Happy Election Day from Management INK! Did you vote yet?

Book Review: Bruce Kogut (ed.): The Small Worlds of Corporate Governance

indexBruce Kogut (ed.): The Small Worlds of Corporate Governance. Cambridge, MA: MIT Press, 2012. 388 pp. $42.00, hardcover.

You can read the review by Mark S. Mizruchi of the University of Michigan, available now in the OnlineFirst section of Administrative Science Quarterly.

From the review:

Kogut’s primary interest is corporate governance and, secondarily, its role in economic development. Earlier work by economists had ASQ_v60n2_Jun2014_cover.inddsuggested that the primary route to development was a system of free and open markets, underpinned by an active capital market, strong legal protections of shareholder rights, and effective monitoring of management. Although liberalization and privatization occurred worldwide over the past four decades, Kogut argues that nations responded to these forces in very different ways. The outcomes they experienced, however, at least in terms of their ownership and director networks, were often very similar. In other cases, virtually identical levels of liberalization and privatization led to very different outcomes. Kogut’s goal in the book is to account for this convergence and divergence. To do this, he employs two approaches. The first, which he calls “comparing the comparative statics,” involves examining groups of countries that experienced a similar “structural break,” or what is usually termed an exogenous shock. The second, which he refers to as “Can you grow it?” (a phrase from the field of complex systems), involves the examination of network change through simulations, in particular the “rewiring” of the connections among units.

Kogut lays out these arguments in an extensive, wide-ranging introductory essay that is simultaneously an exegesis on organizational, economic, and sociological theory (with a dose of philosophy of science), punctuated with a didactic essay on social network analysis. This chapter, running 50 pages of densely packed text, is by itself worth the price of the book.

You can read the rest of the review from Administrative Science Quarterly by clicking here. Want to know about all the latest research and reviews from Administrative Science Quarterly? Click here to sign up for e-alerts!

Book Review: Martin Ruef: Between Slavery and Capitalism: The Legacy of Emancipation in the American South

pup-cover.originalMartin Ruef: Between Slavery and Capitalism: The Legacy of Emancipation in the American South. Princeton, NJ: Princeton University Press, 2014. 285 pp. $35.00/£24.95, cloth.

Heather A. Haveman of the University of California, Berkeley recently took the time to write a review of Martin Ruef’s book, available now in the OnlineFirst section of Administrative Science Quarterly.

From the review:

This compelling analysis of the swiftly changing economic and social institutions in the American south after the Civil War should be of ASQ_v60n1_Mar2015_cover.inddinterest to economic and organizational sociologists, stratification researchers, and labor and economic historians. Ruef’s central argument is that the emancipation of slaves generated great uncertainty for all economic actors in the south—the former slaves themselves, the planters who used to own them, the agents of the Freedmen’s Bureau who sought to smooth the transition, and white workers, merchants, and politicians who had supported slavery as a central precept of southern society. As in neoclassical economic theory, these actors were often subject to classical uncertainty (Knight, 1921), in that they could not predict the outcomes of their decisions to engage (or not) in economic transactions: although the set of possible outcomes was known, their probability distribution was unknown. But more than that, Ruef shows that these actors faced true or categorical uncertainty (Knight, 1921): the set of possible outcomes was also unknown, which made the probability distribution of outcomes not just unknown, but unknowable.

You can read the rest of the review from Administrative Science Quarterly for free by clicking here. Want to know about all the latest research and reviews from Administrative Science Quarterly? Click here to sign up for e-alerts!

Book Review: Hazard or Hardship: Crafting Global Norms on the Right to Refuse Unsafe Work

80140100093600LHazard or Hardship: Crafting Global Norms on the Right to Refuse Unsafe Work. By Jeffrey Hilgert . Ithaca, NY: Cornell University Press/ILR Press, 2013. 224 pp. ISBN 978-0-8014-5189-8, $45 (Cloth).

Read the review by Guy Mundlak of Tel Aviv University from the January 2015 issue of ILR Review.

“Workplace health and safety has now become an area of labor and employment relations that is ‘extensively regulated’ with ‘intense legislative activity worldwide’ in recent years” (p. 159). This apt observation by Jeffrey Hilgert can also account for the ILR_72ppiRGB_powerpointmarginalization of health and safety issues from the agenda of many labor scholars. Health and safety is often associated with technical standards on matters such as safety procedures on cranes or maximum exposure levels to toxic substances. Many scholars acknowledge that health and safety is important to human life, reaching into the heart of the labor rights–human rights intersection. Scholars of international labor law also pointed at the omission of health and safety from the roster of core labor standards in the International Labour Organization’s (ILO) 1998 Declaration on Fundamental Principles and Rights at Work. Few, however, are willing to plunge into the challenge to unveil the human rights dimension of what may seem a highly technical field.

In Hazard or Hardship, Hilgert provides a fascinating account of the missing link. This exploration of the link does not commence with a general theory of regulation or human rights, but instead with a very focused and seemingly minute corner of the health and safety field—the right to refuse unsafe work. The author begins the book with details, with stories, with human lives, and workers’ attempts to assert their rights; some were successful, many were not. Why focus on the right to refuse when so many other issues are at stake in the field, from standard setting, to enforcement, compensation, and rehabilitation? The reader is quickly initiated, learning that the right to refuse is a door through which many dilemmas are admitted and woven together in nonconcentric circles. The plot therefore involves multiple themes, ranging from the process of juridification and the substitution of collective bargaining with statutory rights, to the new policy-based regulatory trend in which fixed mandatory standards are replaced by processes in the workplace. The story flows from the individuals’ fight for health and safety to national legislation and adjudication, and to international standards. On the way, the author draws on fundamental concepts that are necessary for understanding governance of work—rights, power, commodification, and citizenship. This book is not for the technicians of health and safety, but rather for those who want to rethink the broader themes of labor governance, international labor law, and human rights.

You can read the rest of the review from ILR Review for free by clicking here. Want to know about all the latest research and reviews from ILR Review? Click here to sign up for e-alerts!

Award Winning Journal of Management Article on Capitol Hill

 “Age Stereotypes in the Workplace: Common Stereotypes, Moderators, and Future Directions,” by Richard A. Posthuma of the University of Texas at El Paso and Michael A. Campion of Purdue University, won Journal of Management‘s 2014 Best Paper Award. Dr. Campion recently provided us with some insight on both the creation and impact of the article:

The paper was originally written because of an age discrimination lawsuit for which I was the expert witness. I asked Rick (former student of mine and frequent coauthor) to help write it up. Two related things happened as a result:

jom cover1. I was invited to give “testimony” to the Commissioners of the Equal Employment Opportunity Commission (EEOC) on research on age stereotypes in employment. They were in the process of writing new guidelines on the enforcement of age discrimination guidelines. It was sort of like giving testimony in congress – very formal affair.

2. The article was cited in the Federal Register (government’s official publication outlet) by the EEOC in their ruling (guidelines) called “Disparate Impact and Reasonable Factors Other Than Age Under the Age Discrimination in Employment Act.”

The article has also helped my consulting in age court cases or work for the EEOC.

“Age Stereotypes in the Workplace: Common Stereotypes, Moderators, and Future Directions” can be read for free from Journal of Management by clicking here. Want to know about all the latest news and research from Journal of Management? Click here to sign up for e-alerts!