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.

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. 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. 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. 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. 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. Who Has Shown Me Alternative
Realities?
I. Academic Researchers
II. Managers and Students
III. Lawyers

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. “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. 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. 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. 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. 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. 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!