We’re all familiar with titles such as chief executive officer, chief financial officer and chief operating officer. We have even grown used to chief technology officer, chief marketing officer and chief diversity officer. What about chief talent officer, chief cultural officer, chief innovation officer, chief privacy officer, chief reputation officer and chief geek, to name just some of the more contemporary titles that have cropped up in today’s companies?
On the surface, this looks like title inflation—an overabundance of C-level job descriptions cheapening the prestige and achievement that top titles once signalled. Yet chief you-name-it titles can also be a reflection of corporate restructuring, says Betsey Stevenson, professor of business and public policy at Wharton. Job title inflation, she suggests, “seems to go hand in hand with the flattening of the organization. People want to be distinguished in some way from everyone else but, in a flat organization, there is less hierarchy and, therefore, less opportunity to be distinguished. One good thing about hierarchy is you can climb a corporate ladder. If there is no ladder, there is nothing to climb.”
Decreased job security and fewer benefits have also left employees feeling less loyalty for their employers and greater responsibility for managing their own careers. Because companies “just don’t have enough titles that are significant sounding, they generate new ones as a reward”, says Peter Cappelli, director of Wharton’s Center for Human Resources. Companies, he adds, have figured out that “many times, it is cheaper to give people a title increase than a raise increase.” And if the issue is hiring, “it’s easy to offer a potential employee a title that he asks for if it means he will come on board.”
Another reason many companies give out “chief” titles is “to signal the importance of that particular issue to the corporation”, says Wharton management professor Sarah Kaplan. In addition, such a title might be a signal “that the job is more than just an operational one, that there is something strategic about it…. It is an elevation of the importance of the role.”
The only problem with this, Kaplan adds, “is that now [all the companies] are doing it.... Now, everybody is strategic. So, at some point, companies will have to create some other term.”
Privatization in India: Reasons for slow progress
Most economists agree that privately owned companies are more efficient and profitable than government-owned ones. Why, then, are so many countries slow to privatize their government-owned enterprises?
Politics, says Nandini Gupta of Indiana University’s Kelley School of Business. “We’re going to try to convince you that electoral support does matter,” Gupta said at a recent conference on India’s financial system, organized by Wharton’s Financial Institutions Center with the Centre for Analytical Finance at the Indian School of Business in Hyderabad and the Stockholm-based Swedish Institute for Financial Research.
In a paper titled The Decision to Privatize: Finance, Politics and Patronage, Gupta and co-author Serdar Dinc note that government ownership in India was originally justified as a way to insure that large projects were undertaken, and there was a wave of nationalization in the 1960s and 1970s. Following the balance-of-payments crisis of 1991, India undertook economic reforms that included privatization. Yet, by 2004, only 50 of the 300 firms owned by the Union government had been privatized. In the vast majority of cases, privatization was only partial, with the government remaining in control after selling minority equity stakes.
Like many other studies, this one found that privatization makes companies more efficient and profitable. The privatized firms enjoyed significant increases in sales and profit, and a decrease in the ratio of wage expenses to sales.
To measure the political factors impeding privatization, Gupta and Dinc gathered data on more than 250 government-owned firms, including 49 which were privatized.
According to their findings, privatization was “significantly delayed for firms with a large wage bill”, suggesting that “employees of firms with large workforces may successfully oppose privatization.” They also found evidence that politicians fear a backlash from privatization. Between 1991 and 1996, not a single firm was privatized, whose primary operation was in the home state of the cabinet minister overseeing it.
Further underscoring the political considerations, they found privatization was far less likely in regions with close elections, or where the party in power held only a slim majority of seats.
Hedge funds impact target companies’ share prices
Despite the high profile of hedge funds, their inner workings remain shrouded. These lightly regulated investment pools for wealthy investors don’t report their holdings and say little about their investment strategies.
With an estimated $1.2 trillion (Rs49.2 trillion) under management, hedge funds must impact the financial markets. The question is: How?
In one of the first studies to shed light on that question, researchers at Wharton and other business schools found that hedge funds’ efforts to improve companies they hold big stakes in have spillover benefits for all shareholders: a quick 5-7% jump in stock prices. The gains, measured as an “abnormal return” on top of the broad market’s, were nearly 11% when a hedge fund pushed for the targeted company to be sold.
This makes hedge funds far more effective than other activist shareholders, such as pension funds and mutual funds, the researchers note in their paper titled Hedge Fund Activism, Corporate Governance and Firm Performance.
According to the study, the share-price boost came during the 40-day period surrounding a hedge fund’s public announcement of a push for change. “The price gain came immediately upon the announcement,” said Wei Jiang, a finance professor at Columbia Business School who is a visiting faculty member at Wharton. The gains were, therefore, caused by investors’ anticipation of improved company performance. “The improvements will occur anywhere from a year to two years down the road,” she added.
In fact, they did: Return on equity typically soared in the 12 months after a hedge fund announced it had targeted a company.
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