Daily Archives: June 27, 2016

Here’s How to Rethink the Corporation

BOOK REVIEW

The Shareholder Value Myth, Author: Lynn Stout.
Pay Without Performance, Authors: Lucian Bebchuk and Jesse Fried.
In Search of Excess: The Overcompensation of American Executives, Author: Graef Crystal.
The Price of Inequality, Author: Joseph Stiglitz.
Strategic Management, Author: R. Edward Freeman.

By Susan Holmberg and Mark Schmitt – The story of skyrocketing executive pay is a story about our conception of the corporation and its responsibilities.

And until we rethink our deepest assumptions about the corporation, we won’t be able to master the challenge of excessive CEO pay, or the inequality it generates. Is the CEO simply the agent of the company’s shareholders?

Is the corporation’s only obligation to return short-term gains to shareholders?

Or can we begin to think of the corporation in terms of the interests of all those who have a stake in its success—its customers, its community, and all of its employees?

The foundation of “pay for performance” is “agency theory” or “shareholder primacy.” The intellectual godfather of shareholder primacy is Milton Friedman, who wrote in 1970 that “a corporate executive is an employee of the owners of the business [i.e., the shareholders]. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible,”

The stakeholder corporation is not a new idea. The term stakeholder has been in circulation since the 1960s to characterize the key groups of people that support an organization. R. Edward Freeman brought it into the management world in 1984, when he published Strategic Management. The book proposed that effective management consists of balancing the interests of all the corporation’s stakeholders, including employees, customers, and communities.

The stakeholder corporation is not only a brilliant model, as the German economic success, especially in manufacturing, shows—it is also the key to the unresolved problem of CEO pay.

Shareholder primacy is now so self-evidently flawed that we should be emboldened to think of a range of options—through policy, corporate norms, and culture—for changing CEO pay practices. more> http://goo.gl/yzhzPP

What Leaders Do to Inspire Engagement

BOOK REVIEW

1001 Ways to Energize Employees, Author: Bob Nelson.

By Howard Risher – This is not an issue that can be delegated to the human resources office or to consultants. Neither has much influence on how managers at any level do their jobs. They can write the script but the message has to come from an organization’s leaders.

With the caveat that every organization is different, students of leadership have highlighted several things that leaders emphasize in organizations with high levels of engagement.

One that should be automatic in government is making certain employees understand and agree with the purpose of the organization.

People want to work for successful organizations. Agencies could do a far better job of keeping employees aware of progress. The corollary is that leaders articulate and frequently repeat goals and expectations. From advertising we know people need to hear things a number of times before they “buy” it. more> http://goo.gl/Rd1pei

Updates from GE

The Lazarus Project: How Software Brought To Life A Decommissioned Power Plant In Italy’s Industrial Heart
By Tomas Kellner – Outside the industrial city of Turin, the combination of renewable energy, traditional generation and a high-voltage cable from France has created more power supply than the region can absorb.

So much so, in fact, the glut took at least one decades-old power plant out of commission in 2013.

“If you are losing money, you don’t want to invest more if you have no clue whether you are ever going to get it back,” says Mario Cincotta, general manager of multi-year agreements for GE’s Power Services business in Europe.

But Cincotta’s business came back with a solution. He and his team analyzed the local energy segment, upgraded the plant’s natural gas turbine with new technology and software and figured out how to start and stop it 2.5 times faster. The speed is critical to helping the plant ramp up when the wind stops blowing and the grid needs power.

Cincotta says the project started as a data mining exercise.

They first installed a new type of combustor on GE’s 9FA gas turbines powering the plant that improved the turbine’s response times and also allowed it to operate within the emissions envelope set by Italian regulators.

“The technology turned an airplane into a space shuttle, but now we needed the data and software to drive it,” Cincotta says. “Without them, the power plant would be just a fancy toy.” more> http://goo.gl/lV3OXX

Brexit will hurt the UK. But it could save the European Union.

By Timothy B. Lee – Unsurprisingly, the Brits have looked at the shambles the euro had made of the rest of Europe and vowed never to adopt the common currency.

But the rest of the EU is in a pickle, because it’s extremely difficult to leave the currency once you’ve joined it. Greece discovered this the hard way during last year’s financial crisis.

What the eurozone needs, then, is to develop the economic institutions that can make the euro work well as a shared currency.

In other words, the EU needs to transform itself from a loose confederation of governments — akin to America’s Articles of Confederation — into a proper government with the full powers of a sovereign state.

One of the biggest problems with this plan was that the British had no interest in participating. And because they had refused to join the eurozone, they had little skin in the game and felt no particular urgency about it.

At the same time, it would have been extremely awkward for the eurozone to try to integrate without Britain. more> http://goo.gl/UaT5bZ

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