An Ethical Perspective on CEO Compensation

The controversial issue of whether Chief Executive Officer (CEO) compensation is excessive or appropriate is examined in terms of two competing claims: that CEOs are overpaid for the value they provide to an enterprise, and that CEO compensation is inherently equitable. Various arguments and perspectives on both sides of the issue are assessed. Little evidence supports the claim that CEO performance justifies very high compensation. Further, the complex interactive alliance between boards of directors and CEOs compromises rational decision-making about CEO compensation, with the Enron affair offered as an illustration of what can go wrong when dishonest CEO actions combine with lax board oversight. Recommendations for restoring trust in the system include continuing current regulatory actions, using different metrics for determining CEO compensation, making board member-CEO relationships transparent to all company stakeholders, and several more radical ideas for change. Stakeholders must resist being distracted by other social, economic, or political issues from pursuing serious, lasting reform.     

Corporate Social Responsibility Theories: Mapping the Territory

The Corporate Social Responsibility (CSR) field presents not only a landscape of theories but also a proliferation of approaches, which are controversial, complex and unclear. This article tries to clarify the situation, “mapping the territory” by classifying the main CSR theories and related approaches in four groups: (1) instrumental theories, in which the corporation is seen as only an instrument for wealth creation, and its social activities are only a means to achieve economic results; (2) political theories, which concern themselves with the power of corporations in society and a responsible use of this power in the political arena; (3) integrative theories, in which the corporation is focused on the satisfaction of social demands; and (4) ethical theories, based on ethical responsibilities of corporations to society. In practice, each CSR theory presents four dimensions related to profits, political performance, social demands and ethical values. The findings suggest the necessity to develop a new theory on the business and society relationship, which should integrate these four dimensions.     

Financial performance patterns of new corporate ventures: an alternative to traditional measures

This paper describes some of the limitations involved in using traditional performance measures to evaluate new ventures and suggests an alternative. We argue that the use of traditional performance measures in the new venture setting can produce misdirected decision making by managers and misleading model development by researchers. The traditional performance measures evaluated are return on investment, cashflow, market share gain, and returns to stockholders. The alternative performance measured presented is based upon an evaluation of patterns of improvement in return on investment across time.These patterns of performance are mapped using regression analysis. Return on investment is regressed against time, and the parameters of the resulting models' parameters are themselves used as performance measures. The beta-coefficient (β) is used to measure the overall rate of change in financial performance from year to year and the coefficient of determination (r²) is used to measure the predictability of change. To combine the information available in each of these parameters into a single variable, we multiply β by r² and call the result “V.” Thus, V is a measure of the velocity of improvement in financial performance across time adjusted for the level of variability in the performance trend.Much work remains to be done that could substantially improve the usefulness of V to managers and researchers. More sophisticated approaches than the one used here might include weighting either β or r² to fit the particular goal orientation of a given management team. Other model parameters might be used in conjunction with, or in place of, β or r² to increase or improve the information captured in V. Measures of financial performance other than return on investment (ROI) could also be used as the basis of calculating V.Even in its current simple form, however, V appears to be a useful performance measure. In 87 of 112 NCVs studied, V provided a useful summary of the pattern of performance's development. In 25 of 112 cases, there were important characteristics of performance that could not be captured by V. The most important managerial implication of V entails the shift to evaluating a new venture on the basis of its progress toward a desirable end rather than on the end itself. This provides a logical means of evaluating the financial performance of a new venture at an earlier time than would be possible otherwise.     

REGIONAL VARIATION OF MORTGAGE YIELDS AND SIMULTANEITY BIAS

This paper has important methodological implications for the literature on regional variation of mortgage yields. Previous studies typically estimate models of regional disparities in mortgage yields using single-equation regression techniques. It is well known, however, that such methods can lead to biased estimates when simultaneity exists. In this paper it is demonstrated that the single-equation approach, when applied to mortgage data from the 1980s, produces radically different results from the previous literature. It is further demonstrated that simultaneous-equations techniques resolve these apparent anomalies.