Session I: Corporate Purpose and Governance

In this first of five sessions of a recent Columbia Law School symposium devoted to discussion of his new book, Prosperity—and The Purpose of the Corporation, Oxford University's Colin Mayer begins by calling for a “radical reinterpretation” of the corporate mission. For all but the last 50 or so of its 2,000‐year history, the corporation has combined commercial activities with a public purpose. But since Milton Friedman's famous pronouncement in 1970 that the social goal of the corporation is to maximize its own profits, the gap between the social and private interests served by corporations appears to have grown ever wider, helping fuel the global outbreaks of populist protest and indictments of capitalism that fill today's media. In Mayer's reinterpretation, the boards of all companies will produce and publish statements of corporate purpose that envision some greater social good than maximizing shareholder value. To that end, he urges companies to make continuous investments of their financial capital and other resources in developing other forms of corporate capital—human, social, and natural—and to account for such investments in the same way they now account for their investments in physical capital. Although the author appears to prefer that such changes be mandatory, enacted through new legislation and enforced by regulators and the courts, his main efforts are directed at persuading the largest institutional owners of corporations—many of whom are already favorably predisposed to ESG—to support these corporate initiatives. Marty Lipton, after expressing enthusiasm about Mayer's proposals, suggests that mandating such changes is likely neither feasible nor desirable, but that attempts—like his own New Paradigm—to gain the acceptance and support of large shareholders is the most promising strategy. Ron Gilson, on the other hand, after voicing Lipton's skepticism about the enforceability of such statements of purpose, issues a number of warnings. One is about the political risks associated with ever more concentrated ownership of public companies in a world where populist distrust of all concentrations of wealth and power is clearly on the rise. But most troubling for the company themselves is the confusion such proposals could create for corporate boards whose responsibility is to limit two temptations facing corporate managements: short‐termism, or underinvestment in the corporate future to boost near‐term earnings (and presumably stock prices); and what Gilson calls hyperopia, or overinvestment designed to preserve growth (and management's jobs) at all costs.     

The effects of processing mode and brand scandals on copycat product evaluations

Conventional wisdom suggests a ‘copycat’ (look-alike) product’s success is due in part to the halo generated by its positive association with national leader brands (NLB). But, what if the NLB is the focus of negative publicity? In the current investigation, we seek to determine the extent to which NLB scandals (i.e. negative news stories) have an impact on consumers’ evaluations of copycat products. Further, we extend recent work on comparative evaluation strategies (consumer information processing modes) by demonstrating that a copycat product is evaluated more favorably when presented separate from (as opposed to adjacent to) the NLB product. However, negative perceptions of the NLB are shown to moderate these effects. Furthermore, a follow-up study supports the notion that visual similarity drives these effects.     

Profit Warnings and Timing

We find that profit‐warning announcements elicit a strong negative market response that is not sensitive to timing the warning in advance of the earnings announcement. Share prices begin to adjust about five days before a profit warning, and the market response is not complete until about five days after the warning. The accumulated response over the 11‐day period ending five days after the announcement is ?21.7%. The profit warning effect over the two‐day announcement period is 32 times the valuation effect upon subsequent release of the actual earnings. There is no evidence of a reversal after this period, and therefore no sign that the market response is excessive.     

The impact of power and relationship commitment on the integration between manufacturers and customers in a supply chain

Supply chain integration (SCI) has received increasing attention from scholars and practitioners in recent years. However, our knowledge of what influences SCI is still very limited. Although marketing and management researchers have investigated power and relationship commitment issues between organizations, few have examined their impact on SCI. This paper extends the power–relationship commitment theory established in Western marketing literature and links it with SCI in China, through examining the relationship between power, relationship commitment and the integration between manufacturers and their customers. We propose and empirically test a model using data collected from 617 manufacturing companies in China. The results show that different types of customer power impact manufacturers’ relationship commitment in different ways. Expert power, referent power and reward power are important in improving manufacturers’ normative relationship commitment, while reward power and coercive power enhance instrumental relationship commitment. We also found that normative relationship commitment had a greater impact on customer integration than instrumental relationship commitment. These findings are interpreted in light of national culture differences between China and the U.S. in terms of power distance and collectivism, which provide a new perspective on SCI.     

Australasian environmental economics: contributions,conflicts and ‘cop‐outs’*

Australian and New Zealand environmental economists have played a significant role in the development of concepts and their application across three fields within their subdiscipline: non‐market valuation, institutional economics and bioeconomic modelling. These contributions have been spurred on by debates within and outside the discipline. Much of the controversy has centred on the validity of valuations generated through the application of stated preference methods such as contingent valuation. Suggestions to overcome some shortcomings in the work of environmental economists include the commissioning of a sequence of non‐market valuation studies to fill existing gaps to improve the potential for benefit transfer.     

The end of public housing as we know it: public housing policy,labor regulation and the US city

In this article I argue that the US public housing policy, as codified by the Quality Housing and Work Responsibility Act of 1998 (QHWRA), is helping to reconfigure the racial and class structure of many inner cities. By promoting the demolition of public housing projects and replacement with mixed‐income housing developments, public housing policy is producing a gentrified inner‐city landscape designed to attract middle and upper‐class people back to the inner city. The goals of public housing policy are also broadly consonant with those of welfare reform wherein the ‘workfare’ system helps to bolster and produce the emergence of contingent low‐wage urban labor markets. In a similar manner, I argue that public housing demonstration programs, such as the ‘Welfare‐to‐Work’ initiative, encourage public housing residents to join the lowwage labor market. Although the rhetoric surrounding the demolition of public housing emphasizes the economic opportunities made available by residential mobility, I argue that former public housing residents are simply being relocated into private housing within urban ghettos. Such a spatial fix to the problems of unemployment and poverty will not solve the problems of inner‐city poverty. Will it take another round of urban riots before we seriously address the legacy of racism and discrimination that has shaped the US city? Cet article démontre que la politique du logement public américaine, telle que la réglemente la Loi de 1998, Quality Housing and Work Responsibility Act, contribue à remodeler la structure par races et classes de nombreux quartiers déshérités des centres‐villes. En favorisant la démolition d'ensembles de logements sociaux et leur remplacement par des complexes urbanisés à loyers variés, la politique publique génère un embourgeoisement des centres‐villes destinéà y ramener les classes moyennes et supérieures. Les objectifs de la politique du logement rejoignent largement ceux de la réforme sociale où le système de ‘l'allocation conditionnelle’ facilite et nourrit la création de marchés contingents du travail à bas salaires. De même, les programmes expérimentaux de logements publics, telle l'initiative Welfare‐to‐Work (De l'aide sociale au travail) poussent les habitants des logements sociaux à rejoindre le marchéde la main d'?uvre à bas salaires. Bien que les discours autour de la démolition des logements sociaux mettent en avant les ouvertures économiques créées par la mobilité résidentielle, leurs anciens habitants sont simplement en train d'être déplacés vers des logements privés situés dans des ghettos urbains. Ce genre de solution spatiale aux problèmes du chômage et de la pauvreté ne viendra pas à bout du dénuement des quartiers déshérités du centre. Faudra‐t‐il une autre série d'émeutes urbaines pour que l'on aborde sérieusement l'héritage de racisme et de discrimination qui a façonné les villes américaines?     

Small Business Failure and External Risk Factors

Unlike much of the previous literature, which has generally focused on internal risk factors, this study seeks to explore the impact of macro-economic factors on small business mortality. The results suggest that economic factors appear to be associated with between 30% and 50% of small business failures, depending on the definition of failure used. As expected, failure rates were positively associated with interest rates (where failure was defined as bankruptcy) and the rate of unemployment (where failure was defined as discontinuance of ownership). However, somewhat unexpectedly, failure rates were found to be positively associated with lagged employment rates (where failure was defined as to prevent further losses) and with current and lagged retail sales (where failure was defined as either: failed to "make a go of it"; discontinuance of ownership; or discontinuance of business). This indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital.     

Measuring National Well‐Being: A UK Perspective

The Measuring National Well‐being program began in the UK in November 2010. Traditional measures of progress such as GDP have long been recognized as an incomplete picture of the state of the nation. Following a six‐month National Debate that elicited 34,000 responses, ONS developed a framework for measuring national well‐being consisting of 10 domains and 40 headline indicators. The indicators include a mixture of both subjective and objective measures. Through supplementing existing economic measures, such as GDP, with measures that reflect social and environmental well‐being, national well‐being looks at the state of the nation through a broader lens. The paper will describe the development of the framework of indicators, including developing subjective well‐being measures, and the dissemination of this information using a range of interactive tools developed for this purpose. This is a long term development program and is still in its early days of measurement. How these data are used to improve policy design, delivery, and evaluation will be important to assess the success of the program. In particular, having a more complete picture of national well‐being will lead to a better understanding of policy impacts on well‐being; better allocation of resources; more informed decisions; assessment of government performance; and international comparisons.