Book Finds: The Managerial Mystique
Once the dominant innovator in technology, marketing, and manufacturing, US business has lost ground to foreign competition. The causes of this decline are complex, but at the forefront is the attitude of management. Essentially, business in the US lost its competitive advantage by focusing on profits and stock prices instead of fostering innovation and long-term goals. Leaders must face situations actively rather than passively, overcome and transform conditions, and not simply react and adapt to them. The failures of business in the 1980s reflect a lack of this type of effective leadership and an overconcentration on the false virtues of the managerial mystique. Business executives incorrectly believe that management and leadership are synonymous. For the past 40 years, executives have put their faith in numbers, managed by process, and formed elaborate structures to get people to do the predictable thing. Leadership moves past the accepted body of knowledge of how to manage a process, and leaders overcome the process to establish creative programs, ideas, and actions.
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Zaleznik, Abraham
Full text: [Sales and Marketing Management] Jul 1989
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Stock Compensation Plans: Types And Accounting Issues
Accounting for the rapid proliferation of incentive compensation packages and stock compensation plans for senior management in US companies has become an issue of debate within the profession. In the area of stock compensation plans, there are 2 broad categories – noncompensatory and compensatory plans – and more specific categories of particular plans. Accounting Principles Board (APB) Opinion 25 sets forth the expectations of current accounting requirements for such plans, including the disclosures that should be made in the notes that accompany the financial statements. The Financial Accounting Standards Board (FASB) currently is reconsidering these basic guidelines, which involve methods to calculate the fair market value of stock options. While there are some possible solutions that the FASB can employ, it is likely that several years will pass before any new stock compensation accounting standards will take effect.
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Salwen, Robert J.
Rasey, T. David
Full text: [Ohio CPA Journal] Summer 1989
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Stock Compensation Plans: Types and Accounting Issues
Accounting for the rapid proliferation of incentive compensation packages and stock compensation plans for senior management in US companies has become an issue of debate within the profession. In the area of stock compensation plans, there are 2 broad categories – noncompensatory and compensatory plans – and more specific categories of particular plans. Accounting Principles Board (APB) Opinion 25 sets forth the expectations of current accounting requirements for such plans, including the disclosures that should be made in the notes that accompany the financial statements. The Financial Accounting Standards Board (FASB) currently is reconsidering these basic guidelines, which involve methods to calculate the fair market value of stock options. While there are some possible solutions that the FASB can employ, it is likely that several years will pass before any new stock compensation accounting standards will take effect.
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Salwen, Robert J.
Rasey, T. David
Full text: [Ohio CPA Journal] Summer 1989
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Investment Psychology: Cognitive Biases
The typical turnover ratio for managed funds is over 60%. There are 2 kinds of reasons why people trade so much: cognitive and emotional. Cognitive errors appear in many financial contexts. The confusion between a variable that leads and a variable that follows is a common form of optical illusion. Standard statistical techniques can be used to distinguish the follower from the leader, but they are not always used. People generally substitute intuitive judgment for statistical analysis. While such judgment is usually good, sometimes it is insufficient. Yet, people are highly confident of their intuitive judgment. People trade partly because they think they have superior information or superior information processing skills. Traders see patterns in stock prices that are random, and they rely on intuitive judgment even when systematic analyses demonstrate that their judgment is incorrect. People trade because it brings the joy of pride. Investors try to increase the pride and reduce the regret through several devices.
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Statman, Meir
Full text: [Intermarket] Jul 1989
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Controlling Market Volatility
Even if it is agreed that government should try to control volatility, a point on which there is anything but agreement, there appears to be no easy answer as to how it should do so. Those seeking an answer have recently discussed 3 techniques: trading halts or circuit breakers, increased margin requirements, and a stock transfer tax. Circuit breakers are coordinated market mechanisms that produce trading halts across all affected markets in extreme circumstances. They could be triggered by a variety of ways – order imbalances, position limits, or volume limits. The argument for imposing higher margins on buyers and sellers of futures is this: Index futures generate substantial stock trading; the stock market cannot now handle this additional trading pressure without substantial increases in volatility; raising futures margins will decrease the amount of futures trading; therefore, stock price volatility will be reduced. Transfer tax proponents assume that a transfer tax would fall most heavily on short-term speculators.
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Harris, Alton B.
Kramer, Andrea S.
Foley, Kevin M.
Full text: [Intermarket] Jul 1989
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Money, Credit, and Security Markets: Common Stock Prices and Yields
Statistics from 1981 through Jul 29, 1989.
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Anonymous
Full text: [Economic Indicators] Jul 1989
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The Joys of “Selling Out”
In 1988, Firestone Tire & Rubber Co. was purchased by the Bridgestone Tire Corp. of Japan. The Bridgestone-Firestone merger can be used as an example to show which values foreign ownership is reinstating in the US. First, after 8 years of being forced to make short-term decisions to stabilize or increase the stock price, decisions are now based on the long-term future. Second, Bridgestone prioritizes production operations, starting with the individual, placing first priority on safety, then quality, then productivity, and, finally, cost. Third, Bridgestone means uncompromising quality. Fourth, the firm is willing to help. A sister-plant concept has been established that pairs a Firestone plant with a plant making similar products in Japan. Fifth, every employee plays a vital role at Bridgestone. Sixth, Bridgestone is willing to invest to improve and expand operations throughout the world. Finally, Bridgestone is focusing on a single goal: to be the best and biggest tire company in the world.
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Aucott, George W.
Full text: [Directors and Boards] Summer 1989
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A Potpourri Of Commentary On Data Communications
On May 30, 1989, S. Robert Levine, Craig R. Benson, and Kenneth Levine made $347.6 million, with most of the money in the shares the 3 men own in Cabletron Systems Inc. (Rochester, New Hampshire), a manufacturer of local area network products. There were 5.4 million shares sold at $15.50 each, for a total initial offering of $83.7 million. With 26.26 million shares outstanding, that puts a total valuation of $407 million on the company, which is more than 7 times 1988 sales and 32 times 1988 earnings. Rarely do executives cash out or keep for themselves so large a portion of the proceeds of their company’s initial stock offering. The deal raises questions about the way Cabletron’s stock was marketed. It is widely believed that the shares were sold through retail outlets, not to the institutional investors who usually get first crack at new offerings. Further, the valuation on the company was so high and the percentage of shares being sold by insiders so large that at least 2 leading brokerage houses backed out.
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Mulqueen, John T.
Full text: [Data Communications] Jul 1989
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Long-Term Incentives for Management: An Overview (Part 1)
The evolution of long-term incentives appears likely to continue. The major long-term incentive grant types are broadly categorized as: 1. stock-price appreciation grants, 2. restricted stock and restricted cash grants, and 3. performance-based grants. The distinction between grant-type availability and actual usage is becoming increasingly significant. Options continue to be the most prevalent grant type used. Restricted stock has been the fastest growing grant type offered to companies. More companies have also been introducing performance-based grants. Research shows that grants below the executive level are typically in the form of options. The challenge ahead for those involved in long-term incentive design and administration is to make sure that the shareholders receive their money’s worth from these programs. In addition, the following 4 steps are essential: 1. Use stock grants to create ownership. 2. Balance rewards and risk. 3. Avoid entitlement. 4. Reflect value creation in strategic measures and goals.
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Paulin, George B.
Full text: [Compensation and Benefits Review] Jul/Aug 1989
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How Do Stock Returns React to Special Events?
Although stock markets usually react to new information, the timing, magnitude, and direction of the reaction are hard to predict. Unexpected news about a particular company can change its stock price, simply by suggesting a different picture for the firm’s profit potential or riskiness. To study the effects of new information, financial economists conduct “event studies,” which are statistical techniques for analyzing the pattern of stock prices and returns when a special event occurs. Event studies have investigated how stock returns react to mergers and acquisitions, to regulatory decisions, and to changes in a company’s capital structure. Event studies have helped identify and quantify cases in which bad news affecting one bank or group of banks has had a contagion effect on other banks. The methodology of these studies will likely continue to have widespread uses in the fields of banking and finance.
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Schweitzer, Robert
Full text: [Business Review - Federal Reserve Bank of Philadelphia] Jul/Aug 1989
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Bank Success Stories: Bland Recipe, but Tasty Profits
First Commercial Corp. (FCC) of Little Rock, Arkansas, has used a staid-but-steady strategy to earn respectable annual profits and increase earnings in 4 of the 5 years since its creation in 1983. Henry Coffey of J. C. Bradford & Co. likes FCC’s strategy of home-state loans and periodic acquisitions of strategically placed Arkansas banks. According to FCC board Chairman and Chief Executive Officer William H. Bowen, part of FCC’s conservative strategy may stem from employee stock ownership. He notes that about 600 of the company’s 2,400 stockholders are employees. FCC’s net income has risen every year except 1986, from $8.5 million in 1984 to $13.3 million in 1988. Susan Wagley, bank analyst for Alex Brown & Sons, explains that the lack of a significant growth rate in assets is the only missing element for Arkansas banks. Bowen states that FCC looks for potential acquisitions in quality banks that are in a stable or growth market at either a cash price or a stock-for-stock split that does not dilute earnings after affiliation.
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Coan, Howard
Full text: [Bankers Monthly] Jul 1989
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Why Companies Pay No Dividends
The behavior of a sample of New York Stock Exchange (NYSE) firms with a long-standing policy of paying no cash dividends is examined. The chief financial officers of 175 NYSE companies were surveyed to elicit their opinions about various elements of the firms’ dividend policy. A total of 68 usable responses were received. The results indicate that the most important determinants of firms with no cash dividends policy are the availability of cash, the availability of profitable investment opportunities, and the cost of raising external funds. The results provide only marginal support for the belief that policymakers consider their shareholders’ preferences in setting a no cash dividend policy. The results are inconclusive with respect to the respondents’ perceptions of the relationship between dividend policy and stock prices and the role that dividend policy plays in signaling.
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Baker, H. Kent
Full text: [Akron Business and Economic Review] Summer 1989
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Why Companies Pay No Dividends
The behavior of a sample of New York Stock Exchange (NYSE) firms with a long-standing policy of paying no cash dividends is examined. The chief financial officers of 175 NYSE companies were surveyed to elicit their opinions about various elements of the firms’ dividend policy. A total of 68 usable responses were received. The results indicate that the most important determinants of firms with no cash dividends policy are the availability of cash, the availability of profitable investment opportunities, and the cost of raising external funds. The results provide only marginal support for the belief that policymakers consider their shareholders’ preferences in setting a no cash dividend policy. The results are inconclusive with respect to the respondents’ perceptions of the relationship between dividend policy and stock prices and the role that dividend policy plays in signaling.
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Baker, H. Kent
Full text: [Akron Business and Economic Review] Summer 1989
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Corporate Dividends: Views Of Institutional Investors
A survey research approach was used to investigate the views of institutional investors, including portfolio managers and security analysts, concerning various issues involving corporate dividend policy. Such topics as dividend patterning, information signaling through dividends, and perceived relationhips between dividends and share prices were analyzed. Of the 503 questionnaires mailed to members of the Financial Analysts Federation, 130 responses were received. The results reveal that institutional investors are unimpressed with the theoretical message that dividends do not matter. The respondents perceive that dividend policy affects stock prices and that dividend consistency is of utmost importance. Their views are strikingly similar to those of dividend policymakers, as indicated by recent research. Policymakers pay close attention to the continuity and consistency of dividends, presumably in order to hold the confidence of stockholders.
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Farrelly, Gail E.
Baker, H. Kent
Full text: [Akron Business and Economic Review] Summer 1989
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PepsiCo Rolls Out Unusual Plan of Stock Options for Employees
Equality is coming to the masses at PepsiCo and its soft drink, restaurant and snack food businesses with the company’s unveiling of a stock option plan that no longer caters to the corporate elite. In a move unique to the corporate world, PepsiCo last week began rolling out a stock option program for its 100,000-plus employees — dishwashers, bottlers and engineers — who average at least 30 hours a week. Wichita-based Pizza Hut Inc. chief executive officer Steven Reinemund was scheduled to brief employees on the program in a meeting late last week. (excerpt)
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Groene, Lee Ann
Full text: [Wichita Business Journal] Jul 03, 1989
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Air Midwest Board Members Reject Takeover Offer
Members of Air Midwest Inc.’s board of directors rejected a buyout proposal late last week, saving the $8-per-share bid was “inadequate.” Board members of Air Midwest Inc. met last week to review the proposal made by Resort Air Inc., a regional airline company based in St. Louis. Officials from Resort Air had proposed to buy all of the outstanding common shares of Air Midwest for $8 per share in cash. Air Midwest and Resort Air currently split the regional commuter service to St. Louis. With 3.9 million shares of common stock outstanding, the Resort Air bid had a value of $31.2 million. (excerpt)
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Bradley, Tami
Full text: [Wichita Business Journal] Jul 03, 1989
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McClatchy Stock Sale Likely to Cool Takeover Talk
Last week’s sale of 1 million shares of stock by the estate of C.K. McClatchy may cool notions by speculative stockbuyers that family-controlled McClatchy Newspapers Inc. may be sold. The shares of C.K. McClatchy, the company head who died of a heart attack April 16, were sold to an undisclosed party, reportedly at $22 a share, to pay estate taxes. Analysts said the stock could command $35 to $42 per share from an acquisitive suitor. “This should end the speculation on the stock,” said John Reddan, a newspaper analyst with the Greenwich, Conn.-based Moran & Associates Inc. “We saw the family sell a large chunk of stock at half its value.” (excerpt)
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Larson, Mark
Full text: [The Business Journal; Sacramento] Jul 03, 1989
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Higby’s to Reveal Pact
J. Higby’s Inc., the suffering Sacramento-based franchiser of frozen yogurt restaurants, soon will announce a move to restructure the company. Company officials say they’re talking with other parties, but won’t disclose whether those negotiations involve a merger, acquisition or something else. “We have not selected a final candidate, but we’ve talked to probably 40 people and will boil it down to eight or 10,” said president Gary Nelson. By early this week, the company should have narrowed the choices to the candidates that will be presented for a shareholders’ vote, he said. (excerpt)
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Graebner, Lynn
Full text: [The Business Journal; Sacramento] Jul 03, 1989
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Sharing the Wealth: ACC, Voit, Moscom Rewarded Their Investors With Stellar Stock Performances
For Rochester’s Top 50, 1988 was a year of dizzying heights and dismal lows on the stock market. Those stocks posted an average total return to investors of 31 percent. The 24 locally based companies on the list posted an even higher average return — 40 percent. Several, however, blew the averages out of the water. ACC Corp., buoyed last year by reconsolidation and interest spurred by a near-takeover, returned 212 percent to investors. Voit Corp., which last year completed a financial restructuring, saw its stock rise 167 percent. (excerpt)
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Ericson, Rose
Full text: [Rochester Business Journal] Jul 03, 1989
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Revved Up at Roadway
Spurred by a large acquisiton, Roadway Motor Plazas Inc. was the fastest-growing locally based company among Rochester’s Top 50 in 1988. Roadway operates a chain of full- and mini-service truck stops throughout the Eastern United States. Net sales (excluding consumer excise taxes) jumped 89 percent, from $52.6 million in fiscal 1987 to $99.4 million in fiscal 1988. Among the Top 50 only MDT Corp., based in Torrance, Calif., posted faster sales growth. Acquisitions fueled Roadway’s sales boom in 1988, says President John Holahan. The company doubled in size in December 1986 when it acquired LaBar Enterprises, which owned 10 truck stops, a trucking company and other operations. Sales from those operations were first reflected in the company’s 1988 report. (excerpt)
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Bonfield, Tim
Full text: [Rochester Business Journal] Jul 03, 1989
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