ORGANIZATIONAL CONTEXT AND THE INTERPRETATION OF STRATEGIC ISSUES: A NOTE ON CEOS’ INTERPRETATIONS OF FOREIGN INVESTMENT*

This paper explores the relationship between organizational context and the interpretation of strategic issues by examining the hypothesis that CEOs' interpretations of foreign investment in the USA are influenced by the organizational context in which they are embedded. Three aspects of organizational context - the global business experience of the firm; the firm's level of organizational inertia (as represented by firm age and size); and the resources available for responding - are examined as predictors of CEOs' perceptions of foreign investment as a threat or an opportunity. Analysis of data from 320 organizations, controlled by industry, shows that global business experience, firm size, and perceived capability are significant predictors of the perception of threat and opportunity. the discussion addresses the implications of these findings for future research on issue interpretation and organizational context.     

The Evolution of the Social Contract

Two transitions in the evolution of the social contract are considered, the first from the dominance hierarchies of the great apes (used as a proxy for our prehuman ancestors) to the egalitarian political structure of non-sedentary hunter-gatherer bands, and the second, to the reintroduction of hierarchical institutions of governance, primarily a result of living in fixed settlements after the inception of agriculture. The first transition was a product of biological and cultural evolution, which brought about big brains, language, higher consciousness, and a lower rate of time preference that enabled early man to sustain an egalitarian social contract and thereby escape the domination that confronted his prehuman ancestors. The second transition was a product of cultural evolution alone. The high costs of enforcing the hunter-gatherer social contract caused it to break down and be replaced by hierarchy when the domestication of plants and animals gave rise to a sedentary existence and increased populations. However, it is shown that the very biological and cultural adaptations that made hunter-gatherer egalitarianism possible were a necessary foundation for the spontaneous creation of complex culture and the evolution of institutions that would once again eventually make freedom possible and economic prosperity possible.     

Heterogeneous ability,career choice and firm size

Entrepreneurial ability is the ability to innovate new products. Managerial ability is the ability to maintain the profitability of current operations. By assuming heterogeneous abilities of acquiring and maintaining an endogenous number of production processes, the model of this paper predicts a distribution of firm sizes, a diversity in the composition of R&D and chosen career. Firms conduct product improvement if and only if managerial ability is high relative to entrepreneurial ability. Individuals choose careers as either innovative entrepreneurs, managerial entrepreneurs or salaried employees depending on their abilities. An individual's entrepreneurial ability may not be high enough to choose a career as an innovative entrepreneur, but if managerial ability is sufficiently high, then a career as a managerial entrepreneur is optimal. Managerial ability has an effect on expected firm size if and only if the individual is a managerial entrepreneur.This material is based upon work supported by the Research Committee of the Rutgers Graduate School of Management. I wish to thank two anonymous referees for helpful suggestions.     

Bank and Business Performance Measurement

Given the objective of maximizing the wealth of existing shareholders, this paper discusses some of the issues that arise in attempting to measure the performance of individual businesses within a bank. The paper describes two return measures – return on assets within a business and the return on the 'equity' of an individual business – and discusses the appropriate bench–marks. The paper ends with a discussion of the cost of unused allocated capital and the appropriate performance metric.
(J.E.L.: G30, G31).     

Proportionate Growth and the Theoretical Foundations of Financial Ratios

The article proposes a theoretical framework for understanding financial ratios, showing that the multiplicative character of the financial variables from which financial ratios are constructed is a necessary condition of valid ratio usage, not just an assumption supported by evidence. Also, by assuming that firm size is a measurable statistical effect, the article offers an informed reappraisal of the limitations of financial ratios, particularly the well–known limitation of proportionality. The article is divided into two parts, one where ratio components are viewed as deterministic vari– ables and the other where they are random. Such an approach allows the characteristics of ratios to be more easily understood before generalizing the relationship between ratio components to encompass randomness. In the second part, when variability introduced by firm size is treated as a random effect, it is shown that if the accounting variables Y and X used to calculate a financial ratio Y/X are exponential Brownian motion, and if continuous growth rates are equal and proportionate to firm size, this may lead to ratios which are asymmetric but which do not necessarily drift.     

Shop-floor attitudes to industrial relations change

Whilst the shop-floor workers interviewed showed a high degree of interest in, and knowledge of, the Industrial Relations Bill, there were deep divisions over the necessity of introducing the law into the industrial relations system and of the results of doing so.