Organizational Control Systems: Matching Controls with Organizational Levels

Companies today face a number of risks, such as environmental liabilities, losses from misuse of derivatives or harassment suits, which underscore the need for better control systems. Clearly, there is a tradeoff between having too much versus too little control. However, in addition to the amount of control, the mix of controls is important in maintaining the right balance within an organization. A framework is proposed that should help managers determine the appropriate matching of control types and control levels in their organizations. The matching is discussed for both traditional companies and modern, information-age companies

Family Firms and Internationalization-Governance Relationships: Evidence of Secondary Agency Issues

This article documents that blockholders with both ownership and management control in family firms have different goals compared to blockholders with only ownership (but no management) control. We theorize and find evidence that family controlled and family managed (FCFM) firms negatively moderate the relationships between internationalization and governance mechanisms, while family controlled and nonfamily managed (FCNFM) firms do not. The findings indicate that family owners in FCFM firms have greater opportunities to reap private benefits of control indicating the presence of secondary (principal-principal) agency problems, while these problems are mitigated in FCNFM firms. In emerging economies like India where family firms are ubiquitous, they highlight the need to recognize differing blockholder influences on internationalization-governance relationships and to develop more nuanced theorizing for understanding them

The Compensation Committee Process

The article investigates the process used in executive compensation committees to meet their responsibilities, particularly noting the lack of research into the committee process itself. It discusses committee\u27s areas of responsibility, approaches to meeting their responsibilities, and committee operational issues through the use of interviews with compensation committee members. It addresses themes of the interviews including achieving fair compensation, promoting the legitimacy of the committee\u27s decisions, and monitoring the committee for appropriate behaviors. It comments on the tension between executive committees, shareholders, organizational management, and stakeholders

What Do Compensation Committees on the Boards of Public Companies Do? Comparisons of Indian and U.S. Process Differences Juxtaposing Complementary Theoretical Lenses

This study examined the processes undertaken by compensation committees (CCs) on Indian public company boards building on the CC process study of U.S. public company boards reported in Hermanson et al. (2012). The Indian data reported here were gathered through scripted, in-depth, semi-structured interviews of 21 Indian directors (17 CC members, two Management Committee members and two directors, all of whom dealt with compensation matters on their boards). In keeping with agency theory predicates, Indian CC processes were designed to safeguard the independence, knowledge and expertise of CC members, while ensuring they had access to the resources needed to make sound and informed decisions. Compensation principles emphasized paying for performance, ensuring a proper mix of compensation, benchmarking to market practices and retaining good talent. There were some process differences among Indian organizational archetypes like family businesses, public sector firms, multinational subsidiaries (MNCs) and promoter-controlled firms, suggestive of neo-institutional theory influences. Notable differences from U.S. CC practices were that Indian CC practices were less formal, and directors were seen to be more partners of management playing broader roles extending beyond traditional agency-theory-driven fiduciary responsibilities. Some of these differences could portend the existence of secondary (principal-principal) agency problems. There were other process differences from U.S. practices, arising from institutional and cultural variations. In particular, institutional frameworks and statutory limits appeared to circumscribe the Indian CCs\u27 role, enabling greater managerial oversight of CC processes and engendering a more collectivist ethos among CCs in India. CC practices in the Indian context also lead us to discern some elements of an underlying tension between agency theory and institutional theory. These underlying tensions are further compounded by firm ownership differences (family, business group, MNC subsidiary, government owners, majority control, etc.). This is where we argue that neo-institutional influences based on ownership structure differences manifest themselves. To the best of our knowledge, our study represents a pioneering attempt at depicting these latent tensions between agency and institutional theory, and in teasing out how neo-institutional influences impact CC practices, thereby furthering our understanding of these phenomena. Cumulatively, these findings provide important directions for advancing theory, and enabling a more grounded and holistic understanding of CC processes. Since CCs were not mandatory for Indian public companies at the time this study was conducted, requiring CCs on all Indian company boards (as the revised 2013 Indian Companies Act has mandated ) would provide an added fillip to legitimizing and formalizing the role of this committee. However, because of the existing differences in the institutional and socio-cultural contexts, it is unlikely that CC processes across the Indian and U.S. company boards will converge and become completely uniform or homogeneous

What Are Compensation Committee Members Thinking About?

An in-depth examination of public companies\u27 compensation committee processes

Strategic planning committees on U.S. public company boards: Axiomatic or paradoxical?

© 2020 Elsevier Ltd This study examined the strategic planning process used in U.S. public company boardrooms, with a particular focus on companies that used board-level Strategic Planning Committees (SPCs) as opposed to those that engaged the full board in strategic planning oversight (which we call “strategic planning overall” or “SPO” firms). Based on interviews with 8 SPC members and 12 directors from SPO firms, we found a number of similarities in SPC and SPO processes, as well as a number of key differences. Overall, it is clear that there often can be a fundamental tension between management and directors with respect to the responsibility for strategic planning. There also can be significant information asymmetries arising from agency theoretic assumptions requiring board independence and arms-length interactions. Organizational scope may, within limits, constrain these assumptions. Such conditions increase both resource and information processing demands on the board, creating a need for greater formality in the board\u27s strategic planning processes. These demands increase the need for paradoxical approaches that can accommodate greater flexibility in board-management interactions. The paradox lies in the board\u27s ability to simultaneously meet and balance agency theoretic, resource dependence based and information processing demands. The contrasting organizational logics that are in play result in paradoxes that influence whether and in what form a board-level SPC should be constituted. The evidence suggests that constituting and structuring SPCs to embrace more collaborative interactions between the board and management could be helpful in dealing with the contrasting requirements and tensions that arise in certain firms. Embracing paradoxes and modifying governance approaches to include collaborative interactions with management may also help in ensuring that the board\u27s strategic planning processes are equipped to deal with the challenges that confront the organization. Ultimately, individual company directors will need to determine whether and in what form a board-level SPC would add value to their governance structure and processes. Our interview-based evidence suggests that firm size and director experience are important considerations in the choice of how the board should oversee strategy