The role of technical expertise in firm governance structure: evidence from chief financial officer contractual incentives

We provide evidence that the presence of technical expertise in firm governance structure reduces reliance on contractual incentives to control the potential agency problem for executives whose responsibilities require specialized knowledge. Specifically, we find that firms with financial expertise in the form of a board finance committee, or a chief executive officer with a financial background, tend to use lower levels of incentive‐based compensation for their chief financial officers. Our findings suggest financial experts provide stronger oversight and/or direction with regard to firm financial policies and strategies, thereby allowing firms to reduce reliance on incentive compensation. Our study provides insight into the role of technical expertise and board committees in firm governance, and into the benefits of common functional expertise within top management teams. Copyright © 2010 John Wiley & Sons, Ltd.     

The Form of Relationship between Firm‐Level Product Innovativeness and New Product Performance in Developed and Emerging Markets

This study compares the new product performance outcomes of firm‐level product innovativeness across a developed and emerging market context. In so doing, a model is constructed in which the relationship between firm‐level product innovativeness and new product performance is anticipated to be curvilinear, and in which the nature of this relationship is argued to be dependent on organizational and environmental factors. The model is tested using primary data obtained from chief executive officers and finance managers in 319 firms operating in the United Kingdom, an advanced Western market, and 221 firms from Ghana, an emerging Sub‐Saharan African market. The model is assessed using a structural equation model multigroup analysis approach with LISREL 8.5. In the United Kingdom and Ghana, the basic form of the relationship between firm‐level product innovativeness and business success is inverted U‐shaped, but the strength and/or form of this relationship changes under differing levels of market orientation, access to financial resources, and environmental dynamism. While commonalities are identified across the two countries (market orientation helps firms leverage their product innovativeness), differences are also observed across the samples. In Ghana, access to financial resources enhances the relationship between product innovativeness and new product performance, unlike in the United Kingdom where no moderation is observed. Furthermore, while U.K. firms leverage product innovativeness to their advantage in more dynamic environments, Ghanaian firms do not benefit in this way: here, high levels of innovation activity are less useful when markets are more dynamic. If the study's findings generalize, there are a number of implications for managers of both emerging and developed market businesses. First, managers in both developed and developing market firms should focus on determining and managing an optimal balance of novel and intensive product innovativeness within the context of their unique institutional environments. Second, for emerging market firms, a market orientation capability helps businesses leverage local market intelligence, enabling them to compete with multinational giants flocking to emerging markets, but typical developed market learning approaches may be insufficient for multinational firms when seeking to compete in emerging markets. Third, for emerging market firms, access to finances helps deliver product innovation success (although this is not the case for developed market firms, possibly due to strong financial institutions). Finally, unlike developed market firms, burdened by institutional voids at home, emerging market firms appear to be less capable of competing on an innovation front in more dynamic market conditions. Accordingly, policymakers in emerging markets should consider identifying ways to help businesses raise market orientation levels, and seek to create conditions that enhance access to financial capital (e.g., direct financing, matching grants, tax rebates, or rewarding firms that innovate creatively and intensely). Likewise, since environmental dynamism is likely to be a growing issue for emerging markets, efforts to help firms become more adept at keeping up with more agile developed market counterparts are needed.     

How entrepreneurial orientation can leverage innovation project portfolio management

Innovation project portfolio management (IPPM) is a key task in R&D management because this decision‐making process determines which R&D projects should be undertaken and how R&D resources are allocated. Previous research has developed a good understanding of the role of IPPM in R&D strategy implementation and of successful IPPM practices. But the fundamental orientations that drive the strategy formation and implementation process have never been investigated in the context of IPPM, and it is unclear whether successful practices are equally valid for different strategic orientations. This study, therefore, investigates the moderating impact of a firm’s entrepreneurial orientation on the relationship between strategic portfolio management practices and portfolio success. An empirical analysis of 257 firms shows that both innovativeness and risk taking as entrepreneurial orientation’s dimensions positively moderate the relationship between managerial practices and performance. Specifically, we find that firms high in innovativeness profit more from stakeholder engagement compared to firms low in innovativeness. Firms high in risk‐taking profit more from a clearly formulated strategy. With increasing innovativeness and risk‐taking propensity, firms also profit more from business case monitoring and agility in portfolio steering. The results suggest that a firm’s entrepreneurial orientation can leverage the effect of IPPM practices. Vice versa, a lacking entrepreneurial orientation can render these practices ineffective. Strategic orientation and IPPM practices should, therefore, be aligned with each other to enable firms to better implement their strategy and generate competitive advantage.     

What Makes a Family Firm Innovative? CEO Risk‐Taking Propensity and the Organizational Context of Family Firms

Investigating the new product portfolio innovativeness of family firms connects two important topics that have recently received considerable attention in innovation and family firm research. First, new product portfolio innovativeness has been identified as a critical determinant of firm performance. Second, research on family firms has focused on the questions of if and why family firms are more or less innovative than other organizational forms. Research investigating the innovativeness of family firms has often applied a risk‐oriented perspective by identifying socioemotional wealth (SEW) as the main reference that determines firm behavior. Thus, prior research has mainly focused on the organizational context to predict innovation‐related family firm behavior and neglected the impact of preferences and the behavior of the chief executive officer (CEO), which have both been shown to affect firm outcomes. Hence, this study aims to extend the previous research by introducing the CEO's disposition to organizational context variables to explain the new product portfolio innovativeness of small and medium‐sized family firms. Specifically, this study explores how the organizational context (i.e., ownership by top management team [TMT] family members and generation in charge of the family firm) of family firms interacts with CEO risk‐taking propensity to affect new product portfolio innovativeness. Using a sample of 114 German CEOs of small and medium‐sized family firms operating in manufacturing industries, the results show that CEO risk‐taking propensity has a positive effect on new product portfolio innovativeness. Moreover, the analyses show that the organizational context of family firms impacts the relationship between CEO risk‐taking propensity and new product portfolio innovativeness. Specifically, the relationship between CEO risk‐taking propensity and new product portfolio innovativeness is weaker if levels of ownership by TMT family members are high (high SEW). Additionally, the effect of CEO risk‐taking propensity on new product portfolio innovativeness is stronger in family firms at earlier generational stages (high SEW). This result suggests that if SEW is a strong reference, family firm‐specific characteristics can affect individual dispositions and, in turn, the behaviors of executives. Therefore, this study helps extend the knowledge on the determinants of new product portfolio innovativeness of family firms by considering an individual CEO preference and the organizational context variables of family firms simultaneously.     

CEO incentives,innovation, and performance in technology‐intensive firms: a reconciliation of outcome and behavior‐based incentive schemes

Building on the agency view of corporate governance, we propose that technology‐intensive firms use both outcome and behavior‐based performance criteria for rewarding CEOs. Using a sample of 206 firms from 12 U.S. manufacturing industries, we find that as technological intensity increases CEO bonuses are more closely linked to financial results and that total CEO incentives are associated with two indicators of desirable innovation behaviors: invention resonance and science harvesting. Invention resonance refers to the impact a firm's inventions have on other firms' inventions, while science harvesting reflects a firm's commitment to scientific research. As technological intensity increases, aligning bonus with financial results, total incentives with invention resonance, and total incentives with science harvesting predict firm market performance. Copyright © 2006 John Wiley & Sons, Ltd.     

Testing a model of reasoned risk‐taking: governance,the experience of principals and agents,and global strategy in high‐technology IPO firms

Research on the governance of risky ventures, like the initial public offerings (IPOs) of high‐technology firms, has focused primarily on the relationship between governance mechanisms and firm performance. While such an emphasis is clearly important, it does little to shed light on potential relationships between governance and the strategies pursued by risky firms, nor does it take into account the complementary role of key stakeholders in affecting those strategies. To partially remedy this deficit we integrate agency and behavioral perspectives to develop a theory of ‘reasoned risk‐taking,’ whereby the nature of risks undertaken is a consequence of the interaction of governance mechanisms and stakeholder characteristics. We demonstrate our theory by predicting when corporate governance should be associated with strategic risk‐seeking beyond a firm's technical core—as seen in the degree to which it has expanded internationally. Surprisingly, even though venture capitalists (VC) are risk specialists, we find that technology‐based IPO firms are less likely (i.e., a negative relationship) to have extensive global sales when they are backed by a VC. In support of our reasoned risk‐taking theoretical framework, we find that VCs are indeed risk‐seeking when VC backing is complemented by the international experience of their board appointees, top management team (TMT) members, or both. IPO firms with significant insider ownership are similarly global risk‐seekers, and those effects are strongest with an internationally seasoned board and TMT at the helm. Copyright © 2003 John Wiley & Sons, Ltd.     

Market Orientation and Innovativeness in Supply Chains: Supplier's Impact on Customer Satisfaction

As today's firms increasingly outsource their noncore activities, they not only have to manage their own resources and capabilities, but they are ever more dependent on the resources and capabilities of supplying firms to respond to customer needs. This paper explicitly examines whether and how firms and suppliers, who are both oriented to the same customer market, enable innovativeness in their supply chains and deliver value to their joint customer. We will call this customer of the focal firm the “end user.” The authors take a resource‐dependence perspective to hypothesize how suppliers' end‐user orientation and innovativeness influence downstream activities at the focal firm and end‐user satisfaction. The resource dependence theory looks typically beyond the boundaries of an individual firm for explaining firm success: firms need to satisfy customer demands to survive and depend on other parties such as their suppliers to achieve customer satisfaction. Accordingly, the research design focuses on three parties along a supply chain: the focal firm, a supplier, and a customer of the focal firm (end user). The results drawn from a survey of 88 matched chains suggest the following. First, customer satisfaction is driven by focal firms' innovativeness. A focal firm's innovativeness depends, on the one hand, on a focal firm's market orientation and, on the other hand, on its suppliers’ innovativeness. Second, no relationship could be established between a focal firm's market orientation and a supplier's end‐user orientation. Market orientation typically has within‐firm effects, while innovativeness has impact beyond the boundaries of the firm. These results suggest that firms create value for their customer through internal market orientation efforts and external suppliers' innovativeness.     

Home Alone: The Effects of Lone‐Insider Boards on CEO Pay,Financial Misconduct,and Firm Performance

Research summary: Corporate scandals of the previous decade have heightened attention on board independence. Indeed, boards at many large firms are now so independent that the CEO is “home alone” as the lone inside member. We build upon “pro‐insider” research within agency theory to explain how the growing trend toward lone‐insider boards affects key outcomes and how external governance forces constrain their impact. We find evidence among S&P 1500 firms that having a lone‐insider board is associated with (a) excess CEO pay and a larger CEO‐top management team pay gap, (b) increased likelihood of financial misconduct, and (c) decreased firm performance, but that stock analysts and institutional investors reduce these negative effects. The findings raise important questions about the efficacy of leaving the CEO “home alone.” Managerial summary: Following concerns that insider‐dominated boards failed to protect shareholders, there has been a push for greater board independence. This push has been so successful that the CEO is now the only insider on the boards of more than half of S&P 1500 firms. We examine whether lone‐insider boards do in fact offer strong governance or whether they enable CEOs to benefit personally. We find that lone‐insider boards pay CEOs excessively, pay CEOs a disproportionately large amount relative to other top managers, have more instances of financial misconduct, and have lower performance than boards with more than one insider. Thus, it appears that lone‐insider boards do not function as intended and firms should reconsider whether the push towards lone‐insider boards is actually in shareholders' best interests. Copyright © 2017 John Wiley & Sons, Ltd.     

Does a long‐term orientation create value? Evidence from a regression discontinuity

Research summary : In this paper, we theorize and empirically investigate how a long‐term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long‐term incentives. Specifically, we examine shareholder proposals on long‐term executive compensation that pass or fail by a small margin of votes. The passage of such “close call” proposals is akin to a random assignment of long‐term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to (1) an increase in firm value and operating performance—suggesting that a long‐term orientation is beneficial to companies—and (2) an increase in firms' investments in long‐term strategies such as innovation and stakeholder relationships. Overall, our results are consistent with a “time‐based” agency conflict between shareholders and managers. Managerial summary : 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. Copyright © 2016 John Wiley & Sons, Ltd.     

Shareholder influence over director nomination via proxy access: Implications for agency conflict and stakeholder value

Corporate governance research indicates that corporate boards of directors may be overly beholden to management, which can be detrimental to firm value creation. Drawing upon agency theory and the governance law literature, we examine the effects of a new SEC rule designed to lessen managerial power by increasing large, long-term shareholders' influence in the director nomination process. We predict and find support for a positive overall market reaction to the rule's announcement as well as a greater reaction for firms with characteristics that suggest compromised board independence or greater CEO control. Moreover, we examine the implications of greater shareholder voice for another key stakeholder group, firm bondholders, and find evidence that it is also value increasing. We conclude by discussing important implications for theory and practice. Copyright © 2012 John Wiley & Sons, Ltd.     

A clash of governance logics: Foreign ownership and board monitoring

We ask whether and when shareholder‐oriented foreign owners are likely to change corporate governance logics in a stakeholder‐oriented setting by introducing shareholder‐oriented governance practices. We focus on board monitoring and claim that because the bundle of practices used in a stakeholder context does not protect shareholder‐oriented foreign owners' interests, they seek to introduce their own practices. Our results suggest that board monitoring is only activated when shareholder‐oriented foreign ownership is high and that the influence of foreign ownership is especially strong in firms without large domestic owners, with high levels of risk and poor performance. Our findings uncover the possibility of the co‐existence of different corporate governance logics within a given country, shaped by the nature and weight of foreign owners Copyright © 2014 John Wiley & Sons, Ltd.     

The Impact of Family Ownership,Management, and Governance on Innovation

Previous research suggests that the distinctive nature of family firms, including both specific advantages and disadvantages related to their particular agency situation, influences innovation activities. Most studies, however, view family firms as homogeneous entities and thus neglect the heterogeneity of family firms when comparing them with nonfamily firms. One important factor of this firm heterogeneity is family influence in terms of ownership, management, and governance. A data set of large German publicly traded firms between 2000 and 2009 is used to test how these three dimensions of family influence predict innovation input and output. The results show that family participation in management and governance has a negative impact on innovation input and a positive influence on innovation output. This suggests that family members are risk averse and reluctant to invest in innovation, but at the same time do so more effectively.     

The effects of stakeholder integration on firm‐level product innovativeness: insights from small and medium‐sized enterprises in Ghana

In spite of growing research on the influence of external stakeholders on firm outcomes, there is a paucity of research on how they influence innovation in emerging economies. In addition, the specific environmental factors that may influence the effect of stakeholder integration (SI) on firm innovation is less understood. Using data collected from 248 small‐ and medium‐sized enterprises in Ghana, this paper develops and tests a model that examines the relationship between SI and firm‐level product innovativeness. The findings from the study indicate SI positively relates to product innovativeness. Moreover, under conditions of higher competitor pressure and greater customer expectations, the effect of SI on product innovativeness is amplified. Contributions for theory and practice are discussed.     

Mutual commitment to support exchange: relation‐specific IT system as a substitute for managerial hierarchy

This paper examines the effects of information technology (IT) on the governance of vertically related firms. We propose that a highly relation‐specific IT system in inter‐firm transactions plays a key role in the resulting inter‐firm governance as a mutual sunk‐cost commitment, in terms of leading to both less vertical integration (i.e., a change in governance mode as a first‐order effect) and a smaller number of suppliers (i.e., a change within a governance mode as a second‐order effect). As a result, this highly relation‐specific IT system (bilateral investment) can be an alternative governance mode of electronic integration that acts as a substitute for managerial hierarchy and vertical financial ownership. From a strategic management perspective, this paper provides transaction costs and resource‐based explanations on IT systems' impact on the organizational boundary decision and its impact on the likelihood of the firm achieving sustainable competitive advantage. Copyright © 2006 John Wiley & Sons, Ltd.     

Competing internationally through multiple innovative efforts

Increasingly, small firms will be required to compete on international markets in order to grow and survive. This paper reports on a study of 86 small manufacturing firms operating in the metal sector. All firms had adopted one or more advanced manufacturing technology and were considered by the Canadian Association of Manufacturers as process innovative. The basic premise of this research was that in order to compete internationally, a small firm had to develop certain innovative capabilities. These capabilities were not only associated to traditional innovative efforts in R&D and process innovation, but also in supportive organizational capabilities in the form of strategic orientation, technological policy, and technological scanning. Results show that, for these small firms, process innovativeness remains an important competitive factor for international competition and that it is often linked to an aggressive strategic orientation coupled to a short term emphasis on efficiency.     

On the duality of political and economic stakeholder influence on firm innovation performance: Theory and evidence from Chinese firms

Research Summary

In this study, we propose and test a multi‐stakeholder perspective to address variation in innovation performance across firms. Specifically, we analyze how a focal firm's innovation performance is shaped by its political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using a data set consisting of over 26,400 Chinese firms, we first find support for our predictions that a focal firm's innovation performance will be enhanced by both its government connections and the innovativeness of its economic stakeholders. We then analyze whether the interdependent effect of these political and economic stakeholders is more likely to be synergistic versus antagonistic, and find evidence consistent with the antagonistic view.

Managerial Summary

We show how a firm's innovativeness is influenced strongly by its relationships to external stakeholders. Specifically, we examine the potentially dual‐edged role of political stakeholders (local and central governments) and economic stakeholders (suppliers, buyers, and competitors). Using extensive data on Chinese firms, we find: (a) that the higher the level of government connections, the greater a firm's innovativeness; (b) that firms located in proximity with more innovative economic stakeholders also tend to have higher innovation performance. We also look beyond these independent positive effects to examine the joint effect of these two forms of stakeholder influence, and here we see that more influence is not always better. Specifically, we find that the innovation benefit that typically accrues to firms in proximity to more innovative economic stakeholders is weakened when those firms also have higher‐level government connections.     

"债转股"企业治理评价体系研究

资产管理公司应在债转股企业中确立共同治理原则，发挥积极机构投资者的主导功能。针对资产管理公司股权管理实践，本文提出债转股企业治理评价体系包括关键股东影响、财务信息披露、董事会责任感、经理层考核激励、企业关系管理等五个方面。资产管理公司应建立统一、公开的治理评价体系，以之作为诊断并改善债转股企业治理的工具。     

Alternative Corporate Governance Systems in Japanese Firms: Implications for a Shift to Stockholder-Centered Corporate Governance

In Asia, the recent catastrophic decline in regional stock markets, continuing currency crisis and failures of major financial institutions and industrial corporations have increased domestic and international interest in corporate governance. Nowhere is this greater than in Japan where financial institution reform has catapulted this to the fore. In this paper, we use agency theory and institutional theory, together with comparative case examples, to derive some propositions on the dynamics of changing corporate governance systems in Japanese firms. We argue for the co-existence of stakeholder and shareholder-centered corporate governance systems in Japan. This argument has an important implication for corporate governance research and agency theory. Namely, changes in ownership structure and institutional expectations would force firms to focus on maximizing shareholder value even where the interests of stakeholders are more emphasized. It suggests an environmental selection mechanism to ensure the emergence of appropriate corporate governance mechanisms to solve the agency problem. Further, the loss of competitiveness and the prolonged poor performance of firms can change the institutional norms to emphasize asset efficiency and transparency rather than stability and business ties.     

When the Former CEO Stays on Board: The Role of the Predecessor’s Board Retention for Product Innovation in Family Firms

Understanding product innovation in family firms is an important research endeavor given the economic predominance of those firms, their idiosyncrasies, and the importance of constant renewal for those firms to achieve transgenerational survival. Recently, family firm research has highlighted the role of next-generation chief executive officers (CEOs; i.e., successors) who are often seen as drivers for innovating a family firm’s products. However, prior research has typically neglected that predecessors, who are often portrayed as less willing to introduce product innovation, frequently remain involved postsuccession through occupying board positions and thus still substantially influence the decision-making processes and outcomes of family firms, such as product innovation. As a result, our understanding of the role of predecessors and their postsuccession involvement in family firms’ product innovation remains unclear. Building on stakeholder salience theory and on insights from the literature on innovation and succession in family firms, we develop hypotheses about how and under which conditions the predecessor’s board retention affects product innovation in family firms after succession. Building on more than 200 family firm CEO succession cases in small- and medium-sized, privately owned family firms, our results reveal that the predecessor’s board retention negatively affects product innovation. This negative effect is strengthened with increasing involvement of the predecessor in the successor selection process, and it is offset in the case of family succession. Our findings contribute to the emerging stream of research on family firm succession and product innovation and provide important implications for practice.