Tuesday, October 14, 2014

Regional Disadvantage? Employee Non-Compete Agreements and Brain Drain

Regional Disadvantage? Employee Non-Compete Agreements and Brain Drain Research Policy (forthcoming)

A growing body of research has documented the local impact of employee non-compete agreements, but their effect on interstate migration patterns remains unexplored. Exploiting an inadvertent policy reversal in Michigan as a natural experiment, we show that non-compete agreements are responsible for a “brain drain” of knowledge workers out of states that enforce such contracts to states where they are not enforceable. Importantly, this effect is felt most strongly on the margin of workers who are more collaborative and whose work is more impactful. 

Monday, October 13, 2014

Shareholder Primacy, Corporate Social Responsibility, and the Role of Business Schools

Shareholder Primacy, Corporate Social Responsibility, and the Role of Business Schools Journal of Business Ethics (forthcoming)

This paper examines the Shareholder Primacy Norm (SPN) as a widely acknowledged impediment to corporate social responsibility and explores the role of business schools in promoting the SPN but also potentially as an avenue for change by addressing misconceptions about shareholder primacy and the purpose of business. We start by explaining the SPN and then review its status under US and UK law and show that it is not a legal requirement, at least under the guise of shareholder value maximization. This is in contrast to the common assertion that managers are legally constrained from addressing CSR issues if doing so would be inconsistent with the economic interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we show that it is certainly evident as a social norm among managers and in business schools— reflective, in part, of the sole voting rights of shareholders on corporate boards and of the dominance of shareholder theory—and justifiably so in the view of many managers and business academics. We argue that this view is misguided, not least when associated with claims of a purported legally enforceable requirement to maximize shareholder value. We propose two ways by which the influence of the SPN among managers might be attenuated: extending fiduciary duties of executives to non-shareholder stakeholders and changes in business school teaching such that it covers a plurality of conceptions of the purpose of the corporation. 

Friday, October 10, 2014

Comment l’industrie agro-alimentaire peut contribuer à lutter contre l’obésité

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Harvard Business Review France (2014)

En trente ans, le nombre d’Américains considérés cliniquement comme « en surpoids » selon l’OMS est passé de 45% à 65%. En France, ce n’est guère mieux, avec une augmentation de 30% à 40% de la population. Bien que les causes soient multiples (environnement, modes de vie), le marketing alimentaire porte sa part de responsabilité. C’est la raison pour laquelle, partout dans le monde, on accuse l’industrie agro-alimentaire (le « big food ») de devenir le « big tobacco » du XXIe siècle. Pour répondre à ces critiques, de nombreuses start-up, imitées par des géants comme Danone, PepsiCo, Unilever, McDonald’s, voire Disney (pour ses parcs) ont réagi en reformulant leurs recettes avec moins de gras, de sucre et de sel. Cette prise de conscience et ces nouveaux engagements sont bien sûr une bonne chose. Cependant, les recherches que j’ai menées à l’INSEAD sur « l’effet de halo santé » ont démontré les limites de cette approche. Mais avant d’expliquer cet effet, il est nécessaire de faire un petit détour pour comprendre comment on aborde l’alimentation.

Thursday, October 9, 2014

Book Review: Damon J. Phillips Shaping Jazz: Cities, Labels, and the Global Emergence of an Art Form

GODART Frederic
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Organization Studies 35, 10 (2014) 1541-1544

Damon Phillips’ first book, Shaping Jazz: Cities, Labels, and the Global Emergence of an Art Form, is a timely and path-finding contribution to the growing sociological and organizational literature dealing with the structural dynamics of creative industries by using social network analysis as a main analytical tool (Cattani & Ferriani, 2008; Godart, Shipilov, & Claes, 2013; Perry-Smith & Shalley, 2003; Uzzi & Spiro, 2005). This book synthesizes, and significantly expands, about a decade of work on jazz by the author and his colleagues (Phillips, 2011; Phillips & Kim, 2009; Phillips & Owens, 2004). The setting—jazz—makes it an appealing and pleasant read. The book is structured in seven chapters, six of which (1 to 6) are each focused on a specific puzzle related to the central question of “(sociological) congruence,” the last one being a synthesis and an opening to further research. “Congruence”—which can be understood as a match between the features of a cultural product and its audiences’ needs and expectations—is key to the understanding of jazz—and beyond of any industry “where novelty is rewarded” (p. 143)—because it helps shed light on the thorny question of success in creative industries (Bielby & Bielby, 1994; Godart & Mears, 2009; Salganik, Dodds, & Watts, 2006).

LPs and Zombie Funds in Private Equity Investment

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Through the last cycle following the global financial crisis (GFC), stagnant economic growth in mature economies, greater economic and political uncertainty, increased sovereign risks, and a reduction in the amount of available bank financing led to a significant reduction in the performance of the private equity (PE) industry overall. In response to lower performance and higher uncertainty, many investors (limited partners or LPs) reduced their allocations to PE funds raised by fund sponsors (general partners or GPs). As a result, a number of well-known PE firms had to delay fund-raising or reduce their fund-raising targets. The difficult fund-raising environment extended to the mid and lower mid-market, where a number of firms struggled and failed to raise follow-on funds. While for the most part this occurred out of the public eye, it did not go unnoticed by the LP community. In June 2013, Preqin estimated that there were about 1,200 “zombie funds”– PE funds managed by sponsors unable to raise a follow-on fund – which had some $116 billion under management. Zombie funds present a range of issues, chief among them a lack of resources to execute the fund’s mandate, misalignment of interests between GPs and LPs, and capital trapped in non-performing funds. The aim of this report is to explain how LPs approach zombie funds in their portfolios and how GPs are managing the situation. It draws on insights from interviews with LPs and service providers such as lawyers and placement agents. We start by describing what constitutes a zombie fund and the typical PE incentive structure that can lead to conflicts of interest between GPs and LPs. We then address the zombie fund issue in more detail, delving into (1) the magnitude of the problem in LP portfolios, (2) the nature of the problem (why LPs decide not to reinvest in certain GPs), (3) how LPs are addressing the problem, and (4) steps that GPs can take to increase their chances of successfully raising a follow-on fund. To illustrate our findings we have included several case studies highlighting specific points and recommendations. We hope that our comprehensive overview of this under-studied but topical issue in the private equity industry will be of use to both LPs and GPs facing issues resulting from zombie funds, and that our findings will help improve the efficiency of the capital allocated to this asset class.