Separating the wheat from the chaff

2017 ◽  
Author(s):  
Graeme Guthrie
Keyword(s):  
Labor Market ◽  
Firm Performance ◽  
Career Concerns ◽  
Independent Director ◽  
High Profile ◽  
Market Perceptions

Past pay generates incentives via the ownership stake that it creates; present pay generates incentives via the link between firm performance and the level of pay; future pay generates incentives via executives’ career concerns. This chapter explains how uncertainty about an executive’s ability and effort generates incentives for the executive to exert effort on behalf of shareholders. These incentives stem from the links between labor-market perceptions of an executive’s ability and the likelihood that he is promoted or fired from his current job, able to gain employment at another firm, and able to find post-retirement work as an independent director. Strong boards can use these links to design compensation schemes that benefit shareholders. This chapter describes career-based incentives using the story of Carl Yankowski, the high-profile CEO of Palm who endured a series of career disappointments.

Litigation Risk and the Independent Director Labor Market

2019 ◽  
Author(s):  
Dain C. Donelson ◽  
Elizabeth Tori ◽  
Christopher G. Yust
Keyword(s):  
Labor Market ◽  
Independent Director ◽  
Litigation Risk

scholarly journals CEO Career Concerns And Voluntary Disclosure

2016 ◽  
Vol 32 (6) ◽  
pp. 1603 ◽  
Author(s):  
Soo Yeon Park ◽  
Kwan Hee Yoo
Keyword(s):  
Labor Market ◽  
Chief Executive Officers ◽  
Voluntary Disclosure ◽  
Chief Executive ◽  
Career Concerns ◽  
Management Forecasts ◽  
Ceo Tenure ◽  
Disclosure Decisions ◽  
Executive Officers

This paper investigates the relation between Chief Executive Officers (CEO) career concerns and voluntary disclosures using listed firm (KOSPI) data in Korea. Prior research suggests that explicit incentives in the form of CEO stock-based compensation or CEO’s equity ownership mitigate the agency problems of reluctance to make voluntary disclosure. In addition, implicit incentives arising from CEO career concerns are as important as explicit incentives for mitigating agency problems.The labor market assesses CEOs ability and CEO reputation in the market is a valuable asset that is associated with many long-term benefits, such as better future compensation, reappointment in the position, and greater managerial autonomy. CEOs are concerned about such an assessment and these concerns are referred to as career concerns. However, the market has incomplete information about CEOs’ ability especially when the CEOs have short tenures as a CEO position. Hence, CEOs with short tenures have more strong incentives to signal their ability to the labor market so that they can build proper reputation.Implicit incentives arising from CEO career concerns are measured by CEO tenure. I assume that short-tenured CEOs are more career-concerned than long-tenured CEOs. I find that CEOs with short tenures tend to more likely disclose management forecasts. I interpret this result that more career-concerned CEOs have strong incentives to signal their ability to the labor market in order to build their reputations which affect their future payoffs such as compensations and reappointment. In addition, management forecasts, means of voluntary disclosure, are used as effective mechanism. I also find that CEOs with short tenures tend to disclose more accurate management forecasts. This result implies that CEOs with more career concerns have more pressure to provide accurate forecasts because of their reliability in the labor market. Based on these empirical results, I infer that CEOs’ implicit incentives affect their voluntary disclosure decision.This study will contribute to academics and disclosure-related practitioners by documenting about CEOs’ career concerns and their voluntary disclosure decisions.

The Role of Board Leadership Structure in Firm Governance

2021 ◽  
Author(s):  
Danuse Bement ◽  
Ryan Krause
Keyword(s):  
Firm Performance ◽  
Independent Director ◽  
Negative Consequences ◽  
Ceo Duality ◽  
Board Chair ◽  
Board Committees ◽  
Board Leadership ◽  
Leadership Structure ◽  
Board Leadership Structure

Boards of directors are governing bodies that reside at the apex of the modern corporation. Boards monitor the behavior of firm management, provide managers access to knowledge, expertise, and external networks, and serve as advisors and sounding boards for the CEO. Board attributes such as board size and independence, director demographics, and firm ownership have all been studied as antecedents of effective board functioning and, ultimately, firm performance. Steady progress has been made toward understanding how boards influence firm outcomes, but several key questions about board leadership structure remain unresolved. Research on board leadership structure encompasses the study of board chairs, lead independent directors, and board committees. Board chair research indicates that when held by competent individuals, this key leadership position has the potential to contribute to efficient board functioning and firm performance. Researchers have found conflicting evidence regarding CEO duality, the practice of the CEO also serving as the board chair. The effect of this phenomenon—once ubiquitous among U.S. boards—ranges widely based on circumstances such as board independence, CEO power, and/or environmental conditions. Progressively, however, potential negative consequences of CEO duality proposed by agency theory appear to be counterbalanced by other governance mechanisms and regulatory changes. A popular mechanism for a compromise between the benefits of CEO duality and independent monitoring is to establish the role of a lead independent director. Although research on this role is in its early stage, results suggest that when implemented properly, the lead independent director can aid board monitoring without adding confusion to a unified chain of command. Board oversight committees, another key board leadership mechanism, improve directors’ access to information, enhance decision-making quality by allowing directors to focus on specialized topics outside of board meetings, and increase the speed of response to critical matters. Future research on the governance roles of boards, leadership configurations, and board committees is likely to explore theories beyond agency and resource dependence, as well as rely less on collecting archival data and more on finding creative ways to access rarely examined board interactions, such as board and committee meetings and executive sessions.

Chief Knowledge Officers

2005 ◽  
pp. 409-413
Author(s):  
Richard T. Herschel
Keyword(s):  
Knowledge Management ◽  
Problem Solving ◽  
Firm Performance ◽  
Value Creation ◽  
Senior Executive ◽  
Market Perceptions

A chief knowledge officer (CKO) is a senior executive who is responsible for ensuring that an organization maximizes the value it achieves through one of its most important assets-knowledge. Knowledge is often defined as information exercised for problem solving, understanding, and benefit. By adopting a CKO, firms formally recognize that knowledge is an asset that needs to be captured, disseminated, and shared to enhance firm performance and value creation. And most of all, they realize it is an asset that must be managed. Knowledge management is seen as essential, because firms today are valued in part on market perceptions of expertise as expressed through their processes, products and services (Choo, 1998).

scholarly journals Coordination under the Shadow of Career Concerns

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Alexander K Koch ◽  
Albrecht Morgenstern
Keyword(s):  
Labor Market ◽  
Tacit Knowledge ◽  
Innovation Process ◽  
Career Concerns ◽  
Work Outcomes ◽  
Incentive System ◽  
Work Processes ◽  
The Way

A firm's innovation process requires employees to develop novel ideas and to coordinate with each other to turn the tacit knowledge embodying these ideas into better products and services. Such work outcomes provide signals about employees' abilities to the labor market, and therefore career concerns arise. The effects of career concerns can both be ‘good' (enhancing incentives for effort in developing ideas) and ‘bad' (preventing voluntary coordination). Our model shows how a firm can take these conflicting forces into account through the design of its explicit incentive system and the way it organizes work processes.

Performance Measure Aggregation, Career Incentives, and Explicit Incentives

2010 ◽  
Vol 22 (1) ◽  
pp. 115-131 ◽  
Author(s):  
Romana L. Autrey ◽  
Shane S. Dikolli ◽  
D. Paul Newman
Keyword(s):  
Firm Performance ◽  
Performance Measures ◽  
Performance Measure ◽  
Career Concerns ◽  
The Cost ◽  
Career Incentives ◽  
Aggregate Measure

ABSTRACT: We examine a setting in which managers have differential career concerns and firm performance is publicly observed using disaggregated measures that are incrementally informative but costly to contract upon. In such a setting, when do firms contract on aggregated rather than disaggregated performance measures? We show that at intermediate levels of managerial career concerns contracting on an aggregate measure can be welfare-enhancing. In this case, the net cost of both contracting directly on an aggregate measure and exploiting career incentives based on disaggregated measures is smaller than the cost of contracting directly on disaggregate measures. Our findings also imply that detailed performance disclosures will be accompanied by lower incentive weights based on aggregate performance when career incentives mitigate distortions caused by aggregation. Further, if performance measures become noisier due to transient shocks, we find that contractual incentive weights on aggregate performance can be either increasing or decreasing, depending on the magnitude of a manager’s career incentives.

scholarly journals The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover

2006 ◽  
Vol 81 (1) ◽  
pp. 83-112 ◽  
Author(s):  
Hemang Desai ◽  
Chris E. Hogan ◽  
Michael S. Wilkins
Keyword(s):  
Labor Market ◽  
Firm Performance ◽  
Resource Constraints ◽  
Corporate Boards ◽  
Management Turnover ◽  
Accounting Earnings ◽  
Public Enforcement ◽  
Corporate Fraud ◽  
Earnings Restatements ◽  
Top Manager

In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, we examine management turnover and the subsequent employment of displaced managers at firms announcing earnings restatements during 1997 or 1998. In contrast to prior research (Beneish 1999; Agrawal et al. 1999), which does not find increased turnover following GAAP violations or revelation of corporate fraud, we find that 60 percent of restating firms experience a turnover of at least one top manager within 24 months of the restatement compared to 35 percent among age-, size-, and industry-matched firms. Moreover, the subsequent employment prospects of the displaced managers of restatement firms are poorer than those of the displaced managers of control firms. Our results hold after controlling for firm performance, bankruptcy, and other determinants of management turnover, and suggest that both corporate boards and the external labor market impose significant penalties on managers for violating GAAP. Also, in light of resource constraints at the SEC, our findings are encouraging as they suggest that private penalties for GAAP violations are severe and may serve as partial substitutes for public enforcement of GAAP violations.

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