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Reducing Certainty:
Increasing Open-Mindedness in
Research, Teaching, Law, and Life
Edward J. Zajac, Ph.D.
James F. Beré P...
To my collaborators: Thank you!
n  John Kimberly
n  Randy Beatty
n  Charles Fombrun
n  Graham Astley
n  Steve Shortel...
Today’s Three (Subversive) Goals
I.  Shift scholarly attention from uncertainty
reduction to certainty reduction, with the...
Famous Quotes (from the Greeks)
Ø The more you know…
Ø  the more you know you don’t know
(Aristotle)
Ø The more you own...
Why Discuss Alternative Realities?
Ø To gain a deeper understanding of
management and organizational issues
Ø How things...
Who Has Shown Me Alternative
Realities?
I.  Academic Researchers
II.  Managers and Students
III.  Lawyers
Academic Research in Corporate Governance
Formal Structure Behavioral Structure Behavioral Process
Firm
Micro
Macro
Firm
E...
Symbolic Management as it Relates to…
Ø Neo-Institutionalism
Ø  Social Audience; Legitimacy; Appearance
Ø Impression Ma...
Symbolic Management: Appearance and Language
n  1994 ASQ: “Substance and Symbolism in CEOs' Long-Term
Incentive Plans”
t...
Alternative Logics for Long-Term Incentive Plans:
Human Resource Logic vs. Agency Logic
Alcoa's Board of Directors has dec...
0
10
20
30
40
50
60
70
80
90
1976 1978 1980 1982 1984 1986 1988 1990 1992
Percent of Long-term Incentive Plans
Using an Ag...
Symbolic Management: Appearance and Language
n  1998 ASQ: “Symbolic Management of Stockholders:
Corporate Governance Refo...
Symbolic Management: Appearance and Language
n  2004 ASR: “The Social Construction of Market Value:
Institutional and Lea...
0
10
20
30
40
50
60
70
80
90
1976 1978 1980 1982 1984 1986 1988 1990 1992
Percent of Long-term Incentive Plans
Using an Ag...
Excess Returns from Stock
Buyback Announcements*
-3
-2
-1
0
1
2
3
1980 1982 1984 1986 1988 1990 1992 1994
* t-statistics a...
Symbolic Management: Appearance and Language
n  2004 ASR: “The Social Construction of Market Value:
Institutional and Lea...
The Adoption and Decoupling of
Stock Buybacks
0
10
20
30
40
50
60
70
80
90
100
1980 1982 1984 1986 1988 1990 1992 1994
Dec...
Symbolic Management: Appearance and Language
n  2004 ASR: “The Social Construction of Market Value:
Institutional and Lea...
Diffusion of a Shareholder Value Orientation Among
the 112 Largest German Corporations
0
10
20
30
40
50
60
70
1990 1991 19...
Symbolic Management: Appearance and Language
n  2004 ASQ: “The Diffusion of Ideas over Contested Terrain:
The (Non)Adopti...
Symbolic Management: Appearance and Language
n  2006 AMJ: “The Symbolic Management of Strategic
Change: Sensegiving via F...
Dutch Corp Gov Code: 2003
n  ‘The code is based on the principle accepted in the
Netherlands that a company is a long-ter...
Macro-trend: Espousal of SVO by 100
largest Dutch corporations (1992-2008)
0	
  
10	
  
20	
  
30	
  
40	
  
50	
  
60	
  ...
Symbolic Management: What’s Ahead?
§  Expanding research to analyze different:
§  Situations (e.g., firm bankruptcy),
§...
Symbolic Management: Is It Real?
n  Ask American Express...
n  6) Non-Executive Chairman/ Lead Director
n  Ordinarily a...
Prof. Edward J. Zajac © 2012
Legal and Economic Realities for
Good Directors…
n  They agree on the fundamental issue of
a...
Legal Reality for Board Members
Duty of Loyalty
n  Duty of Loyalty: Directors have a fiduciary
responsibility -- but to w...
“The obligation of directors … is not merely to be
the agent of the residue risk bearers but rather to
remember their fidu...
Labor Market Decides Who is a
Really Good Director, or…?
Being an activist director enhances the
likelihood of maintaining...
Finding One’s Real Self Among
Management Researcher Ideal Types
u  Evangelists:
Strong, faith-like belief in a single the...
Finding One’s Real Self Among
Management Researchers
u  Brokers:
Look to reconcile rival perspectives
-- without offendin...
Open-Mindedness as an Intellectual
and Personal Aspiration
n  open-minded (adjective)
n  1. having or showing a mind rec...
Implications for Us
n  As academics, we have a special duty to be
open-minded
n  Why? We have a privileged VIP position ...
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Ed Zajac 2013 OMT Division Distinguished Scholar Talk

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Ed Zajac was named the 2013 Distinguished Scholar by the Organization and Management Theory Division of the Academy of Management. He gave this presentation on the occasion of his award, August 12, 20123, in Lake Buena Vista (Orlando), Florida.

Ed is the James F. Bere Professor of Management & Organizations, and Chair of the Management & Organizations Department at Northwestern University's Kellogg School of Management. He earned his Ph.D. in organization and strategy at the Wharton School, University of Pennsylvania in 1986.

Since 1980, the Organization and Management Theory Division has been presenting the Distinguished Scholar Award to scholars whose contributions have been central to the intellectual development of the field of organization studies.

The Distinguished Scholar Award and Breakfast was sponsored in part by the Boston College Carroll School of Management.

Published in: Business, Economy & Finance
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Ed Zajac 2013 OMT Division Distinguished Scholar Talk

  1. 1. Reducing Certainty: Increasing Open-Mindedness in Research, Teaching, Law, and Life Edward J. Zajac, Ph.D. James F. Beré Professor of Management and Organizations Kellogg School of Management Northwestern University
  2. 2. To my collaborators: Thank you! n  John Kimberly n  Randy Beatty n  Charles Fombrun n  Graham Astley n  Steve Shortell n  Max Bazerman n  Brian Golden n  Maggie Neale n  Kathleen Valley n  Yong-Min Kim n  Cy Olsen n  Matt Kraatz n  Jay Barney n  Rudi Bresser n  Jim Westphal n  Ranjay Gulati n  Xiaoli Yin n  Michael Jensen n  Peer Fiss n  Marvin Washington n  Lihua Wang n  Mark Kennedy n  Don Hambrick n  Axel von Werder n  Sekou Bermiss n  Jing Li n  Changhui Zhou n  Shaz Ansari n  Simona Giorgi n  Hongjin Kim n  Ishtiaq Mahmood n  Ayse Karaevli n  Ming Piao n  Brayden King n  Sascha Albers n  Franz Wohlgezogen n  Janet Dukerich n  Ithai Stern n  Jo-Ellen Pozner n  Rob Solomon n  Razvan Lungeanu n  Ivana Naumovska n  Peggy Lee n  Mae McDonnell n  Thomas Mellewigt n  Adeline Thomas n  Michael Mauskapf n  Willie Ocasio n  Sheen Levine n  Susan Perkins n  Pieter-Jan Bezemer
  3. 3. Today’s Three (Subversive) Goals I.  Shift scholarly attention from uncertainty reduction to certainty reduction, with the result of our knowing less and more; II.  Illustrate this paradoxical outcome by highlighting alternative realities in one domain of scholarship and practice; III.  Have you appreciate this seemingly disruptive development, and let it change your academic and personal life!
  4. 4. Famous Quotes (from the Greeks) Ø The more you know… Ø  the more you know you don’t know (Aristotle) Ø The more you own… Ø  the more you know you don’t own (Aristotle Onassis!)
  5. 5. Why Discuss Alternative Realities? Ø To gain a deeper understanding of management and organizational issues Ø How things work (or should work) Ø Who are we? Ø Academics, Analysts, Board members, Citizens, Investors, Managers, Students, Voters, Witnesses Ø In all these roles, we can find alternative realities if we are open-minded Ø 
  6. 6. Who Has Shown Me Alternative Realities? I.  Academic Researchers II.  Managers and Students III.  Lawyers
  7. 7. Academic Research in Corporate Governance Formal Structure Behavioral Structure Behavioral Process Firm Micro Macro Firm Economics Designing Optimal Incentive and Monitoring Structures Power Showing How Positions Affect Political Behavior Of Boards and Senior Managers Social Psychology Revealing How Board and Top Management Decision Processes May Be Biased Legal Creating/Enforcing Governance Rules and Regulations for Societal Benefit Social Networks Mapping Power and Information Flows in Interorganizational Networks Symbolic Management Using Language and Appearance To Match (Changing) Societal Norms & Values
  8. 8. Symbolic Management as it Relates to… Ø Neo-Institutionalism Ø  Social Audience; Legitimacy; Appearance Ø Impression Management Ø  Actors Seek to Influence Target Audience; Language; Framing; Resonance Ø Strategic Management Ø  From Substance (Signal) to Symbol Ø  From Reputation to Status (earned vs. ascribed) Ø Philosophical Question of Reality Ø  Truth, Lies, and Bullshit (Frankfurt, 2005)
  9. 9. Symbolic Management: Appearance and Language n  1994 ASQ: “Substance and Symbolism in CEOs' Long-Term Incentive Plans” t  Firms may formally adopt executive incentive plans but then decouple actual compensation from those plans (esp. poor performers, firms with powerful CEOs, & late adopters). n  1995 ASQ: “Accounting for the Explanations of CEO Compensation: Substance and Symbolism” t  Firms provide varying explanations for new CEO incentive plans (predictable based on CEO power, board demography, and era of incentive plan adoption)
  10. 10. Alternative Logics for Long-Term Incentive Plans: Human Resource Logic vs. Agency Logic Alcoa's Board of Directors has decided to place an increasing share of management's overall compensation at risk rather than in fixed salaries. The new approach to compensation was recommended by the Board's compensation committee, which is composed solely of outside directors. The board believes that granting stock options, performance shares and [bonuses] will create a more appropriate relationship between compensation and the financial performance of the company in order to increase key employees personal financial identification with interests of the Company's stockholders. (Aluminum Company of America). The board believes that adoption of the Plan will enhance the Company's ability to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends ... . (AT&T).
  11. 11. 0 10 20 30 40 50 60 70 80 90 1976 1978 1980 1982 1984 1986 1988 1990 1992 Percent of Long-term Incentive Plans Using an Agency Explanation
  12. 12. Symbolic Management: Appearance and Language n  1998 ASQ: “Symbolic Management of Stockholders: Corporate Governance Reforms and Shareholder Reactions” u  Stock market reacts favorably to adoption of incentive plans with an “agency” explanation, whether or not plans are implemented; other reforms are also deferred. n  2001 ASQ: “Explaining Institutional Decoupling: The Case of Stock Repurchase Programs” u  First evidence of decoupling of stock buybacks (also predictable based on CEO power, network ties, and prior decoupling of LTIPS).
  13. 13. Symbolic Management: Appearance and Language n  2004 ASR: “The Social Construction of Market Value: Institutional and Learning Perspectives on Stock Market Reactions” u  Extensive longitudinal data on 860 announced stock buybacks over a fifteen-year time span. u  What do buybacks mean? u  Stock market reacts very differently to stock buybacks, depending on the prevailing interpretative ideology. u  What do I mean by prevailing interpretative ideology?
  14. 14. 0 10 20 30 40 50 60 70 80 90 1976 1978 1980 1982 1984 1986 1988 1990 1992 Percent of Long-term Incentive Plans Using an Agency Explanation
  15. 15. Excess Returns from Stock Buyback Announcements* -3 -2 -1 0 1 2 3 1980 1982 1984 1986 1988 1990 1992 1994 * t-statistics are presented. For years with less than fifty observations, statistics are derived from a bootstrap distribution of excess returns (Dodd and Warner, 1983; McWilliams and Siegel, 1997).
  16. 16. Symbolic Management: Appearance and Language n  2004 ASR: “The Social Construction of Market Value: Institutional and Learning Perspectives on Stock Market Reactions” u  Given a dominant prevailing interpretative ideology, can market reactions to announcements can persist even in the face of non-implementation? Yes
  17. 17. The Adoption and Decoupling of Stock Buybacks 0 10 20 30 40 50 60 70 80 90 100 1980 1982 1984 1986 1988 1990 1992 1994 Decoupled Implemented N u m b e r of P ro gr a m s
  18. 18. Symbolic Management: Appearance and Language n  2004 ASR: “The Social Construction of Market Value: Institutional and Learning Perspectives on Stock Market Reactions” u  Markets can be “taught” by active attempts to establish a dominant ideology that will influence collective perceptions, but that such efforts may paradoxically limit a market’s opportunity for subsequent learning u  Need for healthy skepticism, i.e., open-mindedness
  19. 19. Diffusion of a Shareholder Value Orientation Among the 112 Largest German Corporations 0 10 20 30 40 50 60 70 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year %EspousingaSVO
  20. 20. Symbolic Management: Appearance and Language n  2004 ASQ: “The Diffusion of Ideas over Contested Terrain: The (Non)Adoption of a Shareholder Value Orientation Among German Firms” u  What drives the diffusion of corporate governance models and practices, particularly when they diffuse in new contexts where the concepts and practices may be very controversial? u  Results suggest that the diffusion of an SVO is a socio- political process driven by the power of heterogeneous share/stake-holders and by managerial predispositions
  21. 21. Symbolic Management: Appearance and Language n  2006 AMJ: “The Symbolic Management of Strategic Change: Sensegiving via Framing and Decoupling” u  What drives a firm’s linguistic framing to explain a potentially controversial strategic change, and with what consequences? u  Results: Linguistic framing of an SVO (add vs. replace) is culturally important, can substitute for substantive action, and can affect stock market valuation.
  22. 22. Dutch Corp Gov Code: 2003 n  ‘The code is based on the principle accepted in the Netherlands that a company is a long-term form of collaboration between the various parties involved. The stakeholders are the groups and individuals who directly or indirectly influence (or are influenced by) the achievement of the aims of the company. In other words employees, shareholders and other providers of capital, suppliers and customers, but also government and civil society. The management board and the supervisory board have overall responsibility for weighing up the interests, generally with a view to ensuring the continuity of the enterprise. In doing so, the company endeavours to create long-term shareholder value’.
  23. 23. Macro-trend: Espousal of SVO by 100 largest Dutch corporations (1992-2008) 0   10   20   30   40   50   60   70   80   90   100   1992   1994   1996   1998   2000   2002   2004   2006   2008  
  24. 24. Symbolic Management: What’s Ahead? §  Expanding research to analyze different: §  Situations (e.g., firm bankruptcy), §  Audiences (employees; creditors, customers, analysts), §  Reactions (labor strikes, bond ratings, et al.) §  Channels of communication (press releases, road shows, speeches), and the consistency across channels
  25. 25. Symbolic Management: Is It Real? n  Ask American Express... n  6) Non-Executive Chairman/ Lead Director n  Ordinarily and in normal circumstances, the Chief Executive Officer shall also serve as Chairman of the Board. During difficult transition periods or in periods of reduced investor confidence, it may be appropriate to have a non-executive Chairman as a symbol of the Board’s responsiveness to shareholder concerns.
  26. 26. Prof. Edward J. Zajac © 2012 Legal and Economic Realities for Good Directors… n  They agree on the fundamental issue of accountability, or…? n  They are rewarded with more board opportunities, or…?
  27. 27. Legal Reality for Board Members Duty of Loyalty n  Duty of Loyalty: Directors have a fiduciary responsibility -- but to whom? u  “Duty of loyalty means that a director must demonstrate unyielding loyalty to the company’s shareholders” u  “Corporate law grants directors wide discretion to consider the interests of other corporate participants in their decision making – even when this adversely affects the value of the stockholders’ shares.”
  28. 28. “The obligation of directors … is not merely to be the agent of the residue risk bearers but rather to remember their fiduciary duties to the corporate enterprise itself, in the sense that the directors have an obligation to the community of interest that sustained the corporation and to preserve and, if prudently possible, to maximize the corporation's value to best satisfy the legitimate claims of all its constituents, and not simply to pursue the course of action that stockholders might favor as best for them.” Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772, 788 (Del Ch. 2005) Shareholders vs. Stakeholders
  29. 29. Labor Market Decides Who is a Really Good Director, or…? Being an activist director enhances the likelihood of maintaining existing directorships and adding new ones… but only at those firms where boards are relatively powerful vis-à-vis management.
  30. 30. Finding One’s Real Self Among Management Researcher Ideal Types u  Evangelists: Strong, faith-like belief in a single theoretical perspective; Keen to proselytize to increase numbers of like-minded folks. u  Contrarians: Also strong beliefs, but counter-punch to reject dominant views; Few in number, but highly visible; not keen to proselytize.
  31. 31. Finding One’s Real Self Among Management Researchers u  Brokers: Look to reconcile rival perspectives -- without offending anyone. u  Individualists: Seek to gain understanding; Take what is useful and reject what is not.
  32. 32. Open-Mindedness as an Intellectual and Personal Aspiration n  open-minded (adjective) n  1. having or showing a mind receptive to new ideas or arguments. n  2. unprejudiced; unbigoted; impartial.
  33. 33. Implications for Us n  As academics, we have a special duty to be open-minded n  Why? We have a privileged VIP position with special access to opening minds of each other and our students n  Risks: Unpopularity; Overthinking; Cynicism! n  Plato’s Allegory of the Cave/ life in a bubble n  We are all philosophers (Ph.D?) and we need to get out more!

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