Corporations and their CEOs

[TCO]

Originally posted by Zkribbler
The reason is this: The Board sets the CEO's rate of compensation. The more it is, the more the Board can justify their own high salaries. Plus, one of them might get to be CEO on day, and so they all what high salaries already in place.

Correct. The ironical thing is that the one thing that can nip this in the budd is to allow corporate raiders to do their job and buy companies where management is not executing (it is almost impossible for shareholders to kick management out, and shareholders have no joint incentives). The main hindrance to raiders is the poison pill, which I beleive to be illegal, but which Deleware and Federal courts have allowed.

Ironic is that the same lefties who are against management stealing from shareholders, won't empower shareholders by allowing an active market for control.

[TCO]

Originally posted by DanS
If that were true, I would expect companies do well that are cheaters from the fraternity.

Can you identify those companies or industries?

Yes. They are private or private equity. Koch is a good example.

[TCO]

Damn Drogue, you're not only cool, you're smart. I had you confused with Spinks. Guess you are some other English person.

[TCO]

Originally posted by pchang
When companies lay off employees, they are not replaced. There is real cost savings.
When companies get rid of CEOs, they replace them with equally expensive (or even more expensive) CEOs. There is no cost savings (in fact, there is usually a cost increase because you are now paying a new CEO salary and the severance for the past CEO at the same time.

But what if the new one is better or less bad?

[Drogue]

Originally posted by TCO
Damn Drogue, you're not only cool, you're smart.

Thank you

But really, it is what my degree's in (economics and management), and Oxford happens to be one of the best places in the world to do information economics and the economics of uncertainty. If I didn't know the answer to questions like this, I'd really be stuck in 4 months when I take my final exams!

[TCO]

Just read Brealey and Myers. Including the sidebars (best parts).

[TCO]

Oh, thank you for sparing me from having to be a moderator. Much more fun being a miscreant.

[Drogue]

Originally posted by TCO
Just read Brealey and Myers. Including the sidebars (best parts).

I have Although that only goes so far, journal articles are needed to compliment the textbook, and Brealey and Myers is purely corporate finance. I need finance theory and oodles of articles for strategy, and I only too two modules of management *cries*.

[TCO]

It has references. But I think the point is that if you think about the implications of things in the sidebars that it leads you to the right place. Heck in many cases in the sidebars, they really spell it out. Things like how cost of bankruptcy litigation affects the principle agent effect, etc.

Actually I think it's more important to have a true intuitive feel for economics (for instance macro guys who think micro, not think bull****ting and armwaving), than to have extensive coursework. Milton Freidman said that there are people who "get it" without Ph.D.'s that are "economists" and some who have Ph.D.'s that are not. I say that having never had a formal course.

[Drogue]

I completely agree. Our exams tend to focus on that - the theory parts on very good and succinct knowledge of the intuition and ability to answer questions from it, and the applied side on the application of intuition and theory to real world problems. The issue with strategy is that there's a *lot* of issues and thus a lot of opinions on the subject. For an essay subject like that, you have to have read loads, understood it and had your own ideas to get high marks.

Also, US PhDs are generally extremely maths focused - most Ivies would prefer a math-focused undergrad to an economics one. It's different here. I've three years of economics, the same as most US PhD students (1-2 years undergrad and 1-2 years postgrad), but because it's all undergrad it's not done as formally. Some of it is, but we don't use 'real' maths (proofs, real analysis, etc.) at all, just intuition, theory and the core maths needed to show things.

[TCO]

My econ was 3 days of corporate class and finance was 7 days. Still had a better feel for game theory (simple things like a dominant market player) than my HBS roomie. I can tell you go to a good school. Or just that you get it.

"Strategy" is a bit of a wierd term in corporate america and MBAdemia. I think classical ability to analyze issues and carefully construct heirarchies of information is really more imporant in a strategy function than any particular training. Maybe having seen a reasonable diversity (5 or so) of strategy problems.

[Imran Siddiqui]

Nice job, Drogue . I must salute you.

I think if more people listened to Steve Levitt (the guy behind Freakonomics) about following the incentives, they'd have a better grasp on not only formal economics, but anything that involves money. Have to follow what people are trying to get others to do and how they are doing so.