Posts Tagged 'CEOs'

From boardroom to boss – the rising tide of directors becoming CEO

by Simon Evans for Financial Review

A growing number of non-executive directors sitting inside Australia’s corporate boardrooms are being tapped to run the entire operations as a chief executive. Sometimes it’s out of necessity because of a sudden event, and sometimes it’s because boards want someone who “knows where the bodies are buried”.

Having a broad knowledge of the inner workings of a company through sitting around the boardroom table seems to count more and more. And corporate governance experts say the pressures on companies to deliver strong returns quickly means the six-month time frame it can take for an extended global search for the right person can be a deterrent to recruiting a complete outsider.

But does poring through monthly board reports and overseeing broad strategy around a boardroom table equip a director to actually run the company?

Explosives group Orica, theme park and fitness centre operator Ardent Leisure, copper and gold group Rex Minerals and insurer Suncorp have in the past six weeks hired chief executives from their boardrooms, joining pastoral company Elders Australia which installed Mark Allison into the chief executive role in April, 2014, swapping his previous duties as chairman. Read more here.

CEO Turnover, CEO-Related Factors, and Innovation Performance

by R. Christopher Small for The Harvard Law School Forum, December 29th, 2010.

In the paper New Dogs New Tricks: CEO Turnover, CEO-Related Factors, and Innovation Performance, which was recently made publicly available on SSRN, we examine the association between CEO turnover and innovation performance in the sample period 1993-2005. We find strong empirical support for the notion that CEO turnover is associated with higher levels of innovation, which we measure with patent counts and citations. After controlling for the endogeneity of CEO turnover, we present evidence consistent with CEO turnover increasing a firm’s patent counts, patent citations, patents per research and development dollar, and citations per patent in the subsequent three and five years. We also find that internal new CEOs create more innovation than external new CEOs. Moreover, we find that relatively overconfident CEOs, CEOs with higher option compensation, and an environment with relatively high information asymmetries are associated with more (and higher quality) innovation. Finally, we find that stock-option compensation and information asymmetries arenegatively associated with subsequent innovation around the time of CEO turnover.

Our study has a number of interesting implications. First, from an ex post perspective, the replacement of CEOs appears to be an effective mechanism for investors to modify the investment behavior of a firm that is under-innovating. Second, we find that the replacement of a CEO with someone from outside the firm has implications for firms’ innovation performance. This result can have implications for research that examines the degree to which firm-performance varies depending on whether the new CEO is from inside or outside the firm. Third, we provide additional support to previous studies that examine the effects of option compensation and overconfidence on innovation. However, we offer novel results regarding these variables’ effects around the time of CEO turnover.

In particular, we document that the joint effect of CEO turnover and option compensation on innovation reduces the effects of the individual variables. Finally, we present evidence of the effects of information asymmetries on innovation, finding a positive association in general and a negative association around the time of CEO turnover. These effects indicate that controlling for the effects of CEO turnover can provide helpful insights on the various determinants of a firm’s innovation performance.

The full paper is available for download here.


Risk managers becoming more important across their organization

by ILSTV Staff, November 8th, 2010.

Risk managers are becoming more visible and active across their organizations and are wielding greater influence on strategic decisions, according to a senior executive at Marsh, the world’s leading insurance broker and risk advisor.

Addressing the Asociación Latinoamericana de Administradores de Riesgos y Seguros (ALARYS) Latin America Risk Management Conference in Bermuda, Alex Moczarski, President of Marsh’s International Division, said that recent events highlighted the need for a more enterprise-wide approach to risk management. Mr Moczarski said that while management of individual hazard risks had historically been viewed by many firms as an “ancillary operational function”, the global financial crisis and the Chilean earthquake illustrated the growth of interdependencies within organizations and world economies.

“With companies focusing less on ‘insurance’ and more on risk management, the role of the CRO [chief risk officer] within organizations has become more crucial. This is especially true since risk and governance issues became more prominent during the global financial crisis,” observed Mr Moczarski.

Boards of directors, CEOs and risk professionals are now paying more attention to historically non-insurable strategic and operational risks, including those arising out of mergers and acquisitions. In addition to such expanded responsibilities, the purview of the risk manager is also growing. Mr Moczarski said: “Risk managers are increasingly playing a role in divisions that have traditionally operated in ‘silos’ separate from other operations, including treasury, health and safety, business continuity, human resources, compliance, and information technology.

“Risk managers are increasingly focusing on counter-party risk involving key suppliers, joint venture partners, insurance carriers and others whose financial and operational performance are of significant importance to the firm. Alignment of risk management, operational excellence and corporate governance has enabled risk managers to influence the thinking and direction, and ultimately the culture of the organization,” Mr Moczarski added. (continue reading… )


Executive Compensation Reform Taking Some Baby Steps

by Gary Larkin, for The Conference Board, December 15, 2009.

The Obama Administration is using good old-fashioned peer pressure and more targeted disclosure to change the way executive compensation policies are carried out by public companies in the U.S. (How else can you explain that only days after the House narrowly approved an historic financial reform package (NYT, Dec. 12)  that the SEC is meeting to approve new compensation disclosure rules?)

As part of his peer pressure campaign, the President met with 12 of the CEOs from the largest U.S. financial institutions Monday morning to drive home the message that after these banks received help from the taxpayers, it’s time for them to give back. (Thanks to the tip from Pete Davis of Pete Davis Capital Investment Ideas)

“Now, I should note that around the table all the financial industry executives said they supported financial regulatory reform,” the President said in an official statement following the meeting. “The problem is there’s a big gap between what I’m hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they’re a member up on Capitol Hill.  I urged them to close that gap, and they assured me that they would make every effort to do so.”…(continue reading)

Corporate Culture Is Becoming A Science

by Dean Stamoulis, for Forbes, November 23, 2009.

And it’s beginning to greatly benefit companies in their executive hiring.

It’s all too common: An exciting new executive is appointed with great fanfare only to leave after a short and rocky tenure. Or the merger of two companies is pitched to investors as guaranteeing great synergies, and they never materialize. The cause of these failures often seems obvious. The executive had the right knowledge and experience but simply couldn’t grasp the way things were done in the new organization. The combined balance sheets and product lines of the two merging companies looked great, but there was no way the highly collective one was going to blend well with the individualistic other. In other words, it was all the fault of “culture” and “cultural fit.”

The problem with blaming culture for failures like those is that we’ve never been completely sure what culture means. The same is true when things go well. Chief executive officers–and the people who write books about them–are quick to celebrate corporate culture and its importance in times of success…(continue reading)

The envy theory of merger waves

by Robert Teitelman, for The Deal, November 24, 2009.

The busy folks at the Harvard Law School Forum on Corporate Governance and Financial Regulation — the name keeps getting longer — posted a paper Monday with the provocative title: “Do Envious CEOs Cause Merger Waves?” The study, by DePaul finance professor Anand Goel and Washington University in St. Louis finance prof Anjan Thakor, puts forth the theory that CEOs engage in merger activity out of envy of other CEOs who have boosted their company’s size through M&A and thus succeeded in raking in more pay for themselves. Not only that, but that powerful engine of envy is perfectly capable, they argue, of being set off by what they describe as an “idiosyncratic shock,” which seems to be defined as anything that’s not envy-driven, and which then creates a kind of cascade of greedy longing, as one CEO after another engages in a feverish attempt to keep up with the Joneses.

The envy theory is very au courant, taking a bit of behavioral economics, mixing it with some populist stereotypes about CEOs, pay and M&A and some sociological studies on envy and consumption choices. Now does anyone not believe that some CEOs do M&A transactions to get larger, drive the share price up and get paid more? Probably not, though as far as I know, no one can quantify how much exactly M&A is shaped by compensation. And most observers of the M&A scene would say that envy jostles with a small army of other factors when it comes to making the decision to acquire (not to say requires approval presumably from a board, which may not fully share in the CEOs envy drive; in fact this theory only works if shareholders and boards are effectively neutered.) This paper though assumes that envy supersedes all other factors, from the desire to acquire new products and technologies, to the imperative to grab market share or simply take out a rival. Some M&A deals are rational exercises in generating growth; others attempts to drive change…(continue reading)

Do Envious CEOs Cause Merger Waves?

by Jim Naughton, for The Harvard Law School Forum at Harvard Law School, November 23, 2009.

This post comes to us from Anand Goel, Assistant Professor of Finance at DePaul University, and Anjan Thakor, the John E. Simon Professor of Finance and a Senior Associate Dean at Washington University in St. Louis.

In our paper, Do Envious CEOs Cause Merger Waves?, which was recently accepted for publication in the Review of Financial Studies, we develop a theory which shows that merger waves can arise even when the shocks that precipitated the initial mergers in the wave are idiosyncratic.

We start with a simple premise: CEOs have preferences defined over both absolute and relative consumption, with relative-consumption preferences characterized by envy. Whenever we refer to a CEO, we mean the CEO of a bidding firm, and by envy, we mean that an individual’s utility is increasing in the difference between his consumption and that of the person he envies. There is now a large literature on the biological, sociological, and economic foundations for envy-based preferences, and substantial empirical evidence that preferences display envy. Assuming envy-based preferences generates a simple yet powerful intuition for why mergers come in waves. If CEOs envy each other based on relative compensation and CEOs of bigger firms get paid more, then a merger in the industry that increases firm size for one CEO will cause other envious CEOs to be tempted to undertake value-dissipating but size-enhancing acquisitions, thereby starting a merger wave…(continue reading)

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