Hodak Value

I don't expect big things from my Enron presentation because its breaks new ground in research or analysis. It doesn't. Nor does it come to any startling new conclusions. What it does is distill the whole, incredibly complicated story to the essential elements that distinguished Enron from all the other companies whose greedy, lazy, or corrupt management didn't bankrupt them. And it puts it all together in a form uniquely useful to a professor who has to cover this material in about two hours. That's why I expect big things from this presentation.

My wife, who counted all the non-revenue generating hours I put into it, is skeptical. I can now point out that this submission is suddenly among SSRN's Top 10 in the Organizational Behavior Research Centers Papers. But I'm afraid that just makes her more concerned--that this nominal success in an admittedly narrow category will only egg me on in spending unruly amounts of time preparing the remaining cases.

My new paper is up on SSRN! This is the cool case of Ford v. Dodge (the famous 1919 legal case is only part of the whole, sordid story). This fully-sourced presentation is for my "History of Scandal" class opening this semester, where I'm teaching about the evolution of corporate governance in the U.S.

If you're into business history with a legal twist, you will enjoy this case. I was hoping to get six cases up before the class started, but reality intrudes. I'll be lucky to have three up by the middle of the semester. I made a slight revision to my other case already up on SSRN, The Enron Scandal, which was the #5 most downloaded new paper in the Management Research Network this summer.

I'm still promising an awesome class, but the rest of the class material just won't look as finished as I would have hoped.

The "Ford Squeeze-out" abstract appears below the fold!

For the longest time, my most downloaded paper on SSRN has been my contribution to mechanism design. My paper on the Enron Scandal submitted last June, however, has been downloaded at a rapid clip (it was #5 among "new papers" in the Management Research Network)--a trajectory that would make it my #1 paper sometime next month. Maybe with the publicity of the Hurwicz, Maskin, and Myerson Nobel, my ingenious mechanism may see a surge!

My mechanism, a corporate cost allocation method, was praised at the time of publication (ten years ago) as extraordinarily clever. It was adopted by some very large, complex organizations, and succeeded in getting their managers to reveal reservation prices (a key objective of mechanism design) on major investments, with the effect of significantly improving their corporate returns.

Unfortunately, over the last decade, corporate cost allocations have come to be driven almost entirely by tax considerations rather than internal economics. The impact on organizational efficiency of this sorry trend is incalculable. Imagine E-bay auctions organized by the IRS.

I haven't been that into baseball since I was a kid, when I was really into baseball; I could tell you the stats of every player in the league. But, since we have family in the game tonight, there's someone to root for. And it looks like a pitching duel!

Forbes added the first and last line of this article. The rest was (mostly) what I wrote last weekend. For those of you taking my "History of Scandal" class, this is your first reading. Enjoy!

I'm leaving for a farm in southern Missouri with no internet connection. For those of you not familiar with U.S. geography, that will place me squarely in the middle of...nowhere.

I usually take this week of peaceful isolation to develop an idea for the following year. Two years ago, I used the time to write up some research that became the basis for our highly regarded, compensation governance advisory work. Last Christmas, I developed a proposal to NYU for what would become my "History of Scandal" course. I'm still amazed that the department deans approved the course last spring, but having just finished its opening semester, I'd like to think they're pretty happy they did.

The idea I've teed up for next week is quite novel, but I've gotten spoiled by my successes these last couple of years, so I'm getting bolder. (Hint: if you're a public company CEO, your options will multiply as your excuses shrink.)

To the couple dozen of you who faithfully--or otherwise--follow these scribblings, I hope that this season is one of relaxation, hope, and good cheer with your loved ones.

President's Day marked a minor milestone in my academic career, such as it is. I scored my 1,000th download of a paper published to SSRN.

To give you an idea of how small a milestone this is, a real academic has thousands of papers downloaded; a successful academic, tens of thousands. Alas, I'm not a real academic, so 1,000 is not bad.

Among NYU professors, who collectively rank 4th among business schools in SSRN downloads, I am in the top quarter of professors, most of whom are tenured or on a tenure track. That and a dime...

Right about now, high school students across the country are getting their verdicts on where they were admitted, or not. For the hundreds of thousands who were applying to selective institutions, this is the last stage of a decision making process that began last summer. This process included decisions about which schools to apply to, early versus regular applications, financial aid considerations, etc.

As one can imagine, any tool that can bring a little sense of control to this grind is a welcome help. My older guy, Max, came up with just such a tool. College Admissions collects information from users (i.e., a college applicants), and returns some user-specific information to help them decide where to apply and their odds of getting in. Max used a proto-type of this system to get into Duke. As with most things in this Internet Age of network effects, the more people who use this tool, the better it works, and the more it spreads. Thousands of students have already used College Admissions in applying for the upcoming freshman year, offering a lot of positive feedback.

Those of us with high school juniors know that the process is just beginning for a whole new round of kids. If you know kids ready to start down this road, especially they are on Facebook, they will probably encounter this application. But feel free to send this link to them, anyway: http://app2.collegeproject.net/. That way, when you wish them good luck, and they will at least know what their odds are!

That was the working title for this article that I just published in Forbes. Another possible title was "Defending Outrageous CEO Pay." Anyway, it appears in their special report on Competition. Dissenting mail (not quite hate mail) has already started rolling in.

I was explaining to my Russian audience why their oligarchs deserved their billions, when someone decided to launch a pointed comment...

I hear they found something that looked like a controller in the bag of an attendee representing the AFL-CIO. Or maybe one of those Towers Perrin hecklers.

Forbes published this article about female CEO compensation. Markets often get a rap for being impersonal (it's just about the money) but impersonal interactions, by definition, overcome discrimination. Women still suffer from discrimination in the work place, but relentless demand for better talent is arguably driving up their numbers in the C-suite.

My favorite part of the article, however, is their quote from "Mike Hodak." No, my brother doesn't even work with me. I suppose it's natural to blame one's parents for such things. After all, they felt compelled to name all their sons starting with "M." Mike, Marc...an understandable confusion in a phone interview. Of course, the author of this story couldn't have known that Mike exists, except that he thought it was me. Alas, I don't mind sharing the limelight with my family.

Many people believe that corporate social responsibility is part of good governance. I guess that's why Forbes asked me to write this article on the subject.

In a small step toward legitimacy, my Enron Scandal paper passed 1000 downloads today. I don't check these things every day. (Honest.) I happened to be looking up one of my old papers and saw an even 1000 on the screen beneath my top-ranked paper. I know it's podunk stuff in the academic world (real academics have a dozen papers with over 1000 downloads, many in the several thousands), but I'm excited by the notion that my creation has attracted 1000 viewers. I hope they liked it. Kurt Eichenwald, author of bestselling Enron tome Conspiracy of Fools liked it. Of course, his book was a major source for my document.

My colleague, Stephan, is successfully introducing a radical new incentive plan structure for UBS. I can't go into it more than what has been publicly disclosed, but it will have most of the elements that our research has shown works for public companies.

One of those elements is a potentially uncapped reward. Incentive compensation has many moving parts, so it might seem counter-intuitive that a capped bonus potential actually undermines accountability to shareholders, but it's true--both in theory and in empirical research. The article notes that the uncapped bonus aspect of the proposed plan is a sticking point for "shareholder advocacy group" Ethos. The article ends with:

"UBS does not intend to limit the variable part of the remuneration, by capping for example the bonus in terms of base salary or by setting a maximum amount of shares to be awarded under the long term incentive plan," Ethos said.

"Consequently Ethos has concerns that the new system will not prevent UBS from paying, in the future, remunerations that could be deemed excessive."

Alas, we can attest that very few "shareholder advocates" or institutional shareholders or any other outsiders who have not been apprised of the plans as the board has, can really, fully comprehend them, especially if the plans involve any innovations. Yet these are the people to whom we want to give a "Say on Pay."