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September 2006
ARCHIVE
SUMMARY
Rubbing Elbows: The Harm of CEOs' Social Ties
Why So Few Women at the Top?
10 Ways to Give the Small Shareholder a Loud Voice
The Time Has Come for RFID
How Private Equity Investors Value Entrepreneurial Ventures
For Efficient HR Management, Be Consistent!
For Media "Punch," Zidane and France Won the 2006 World Cup
Deciding What to Eat For Lunch: The Economics of Human Behavior

When we were children, heading back to school after summer break, we were always excited to see our friends again. Years later, one of the highlights of getting back to work after vacation is rejoining our colleagues, customers and professional contacts.

These relationships make up what is known as a company's "social capital." While social capital is difficult to measure, it is a key asset for survival in business. And the higher we go up in the corporate organizational chart, the more important social ties become for a company's economic health. So, it's not surprising that many CEOs are chosen for their personal network of contacts. Knowing the right people can open the door to new business opportunities, or simply smooth the way for existing businesses.

However, CEO networking can also be dangerous, as research conducted by IESE Professor Fabrizio Ferraro and doctoral candidate Erica Salvaj shows. By rubbing elbows with members of the corporate elite on other boards of directors, CEOs just might influence their companies' governance mechanisms and use corporate resources for their own benefit. The authors analyze the impact of these relationships on the incidence of golden parachute clauses and accelerated cash outs. And they propose measures to avoid such abuses of power.

At the opposite extreme, there are those who have to fight to assert their rights and to gain a say in corporate decision making. Such is the case of small shareholders and women managers. Due to their limited (economic or numerical) clout, they often find themselves sidelined and hindered from achieving their professional ambitions or investment objectives. These two minority groups are the subjects of articles in this issue of IESE Insight, which comes to you, as on the first day of school, bursting with new ideas and eager to continue to spread IESE's knowledge to companies. Welcome back!

 Corporate Governance 
Rubbing Elbows: The Harm of CEOs' Social Ties
Erica Salvaj, Fabrizio Ferraro
CEOs shake hands and strike deals. But who do the deals benefit - the company or the chief executive? Researchers have recently uncovered evidence of CEOs' ability to influence the board of directors and to obtain favorable contractual conditions such as golden parachutes and accelerated cash outs, which are not necessarily in line with shareholders' interests. In the paper "CEOs Social Capital and Corporate Governance Provisions," doctoral candidate Erica Salvaj and Professor Fabrizio Ferraro study CEO-board relations and corporate governance processes by investigating the social position of CEOs and board members in the corporate elite.
 Organizations and People 
Why So Few Women at the Top?
Nuria Chinchilla, Consuelo León, Elizabeth Torres, Miguel Ángel Canela
Although women nowadays share the working world with men, they are poorly represented in the upper echelons of management. According to Núria Chinchilla, Consuelo León, Elisabeth Torres and Miguel Angel Canela, women managers still face numerous cultural and social obstacles that prevent them from developing harmoniously as professionals and as people. And yet, executive women have certain specific qualities which, carefully administered, make them powerful agents of change in business and society. In their paper "Frenos e impulsores en la trayectoria profesional de las mujeres directivas" ("Career Inhibitors and Career Enablers for Executive Women"), the researchers analyze the factors that enable some women to pursue successful executive careers.
 Finance 
10 Ways to Give the Small Shareholder a Loud Voice
Foro del Pequeño Accionista
When it comes time to make big decisions, the boards of large, publicly traded companies often ignore the small shareholder. Despite the recent emphasis on good governance, minority investors still have a tough time making their voices heard at general shareholders' meetings. The second edition of the "Informe sobre las juntas generales de accionistas de las empresas del IBEX" ("Report on General Shareholders' Meetings of IBEX Companies"), prepared by the Foro del Pequeño Accionista (Small Shareholder's Forum) in conjunction with IESE-IRCO and the communications consulting firm Inforpress, recommends ways to pump up the volume of the small investor. For example, broadcast the meeting live on the Internet and back up the principle "one right, one vote."
 Marketing 
The Time Has Come for RFID
Nicolás Muñoz, Brian Subirana, Lluís G. Renart
Some technologies arrive before their time. Such is the case of radio frequency identification (RFID), which Harry Stockman invented in 1948 and which has since been used to identify cattle and aircrafts and to collect tolls on motorways. Now, these tiny computer chips are set to revolutionize the retail industry by controlling and improving the path of goods from production to store shelves. In the paper "RFID in June 2005: A Fundamental Innovation for the Retail Industry," Nicolás Muñoz, Brian Subirana and Lluis G. Renart review RFID's origins, its evolution - and its future.
 Accounting and Control 
How Private Equity Investors Value Entrepreneurial Ventures
Chris Armstrong, Antonio Dávila, George Foster
Private equities are an important and growing part of the worldwide capital markets, and include early stage investments, often backed by venture capital. In the article "Venture-Backed Private Equity Valuation and Financial Statement Information," Professors Antonio Dávila of IESE, and George Foster and Chris Armstrong of Stanford analyze how financial statement information impacts the valuation of firms by private equity investors in the U.S. market. What they find is that it plays a significant role in explaining changes in market value.
 Organizations and People 
For Efficient HR Management, Be Consistent!
Pablo García Ruiz, Carlos Sánchez-Runde
To succeed, a company's human resources system must be consistent. While this may seem obvious, it's not and HR managers are constantly struggling to mesh individual HR practices with other corporate systems and policies. In "Teoría de sistemas y propiedades emergentes en las organizaciones" ("Systems Theory and Emergent Properties in Organizations"), Professors Pablo Garcia Ruiz of the University of Navarra and Carlos Sánchez-Runde of IESE present a model for analyzing the various dimensions of consistency in human resource practices. These days, HR, they say, is less about theory and more about relationships.
 Marketing 
For Media "Punch," Zidane and France Won the 2006 World Cup
Francesc Pujol, Pedro García del Barrio, Ángel Barajas, Ignacio Urrutia, Kimio Kase
Zinédine Zidane, the French national squad, the English Premier League and Chelsea FC are the four big winners of the "Media World Cup," refereed by the Center for Sport Business Management at IESE. IESE Professors Ignacio Urrutia and Kimio Kase, together with Francesc Pujol and Pedro García of the University of Navarra and Ángel Barajas of the University of Vigo, present the "Barómetro de fichajes: estudio del valor mediático tras el Mundial de Alemania" ("Players Barometer: Study of Media Value in the Aftermath of the German World Cup.") The barometer measures variables such as prestige, audience awareness and the media impact and value of the players who took part in the recent World Cup. The celebrated clash between Zidane and the Italian Materrazi meant major points with the media.
 Economics 
Deciding What to Eat For Lunch: The Economics of Human Behavior
Antonio Argandoña
One of the first things economics students learn is classical decision theory, which explains how individuals act. It states that the consumer chooses the option that will give him the most satisfaction, based on his preferences, relative prices and his resources. While the model is useful, it is limited, particularly when we consider people's behavior over time. For example, the classical decision theory assumes that an individual's preferences are unchanging and that a person will never try out a new product if he has the option of buying one that he already likes. In the research paper "La teoría de la acción y la teoría económica" ("Action Theory and Economic Theory"), IESE Professor Antonio Argandoña pulls apart the classical model and proposes a new, more realistic approach that embraces the fact that people do like to try new flavors.
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