With SUVs in demand, what does the future hold for electric vehicles? – David Keith, Don MacKenzie, Stephen Zoepf

MIT Sloan Assistant Professor David Keith

David Keith, Assistant Professor of System Dynamics, Mitsui Career Development Professor

From the Detroit Free Press

In 2018, two of Detroit’s three automakers announced that they will cut many of the cars in their lineups. Late last year, GM shook the industry with plans to shutter three assembly plants and lay off thousands workers across the company, and analysts expect layoffs on a similar scale at Ford. The moves unveil a stark reality: Most U.S. consumers still want larger and more powerful gasoline vehicles.

Both automakers say they’ll invest resources in electrification, and we still hear predictions that we are on the cusp of an unstoppable electric vehicle (EV) revolution.

Which is it? An EV revolution, or a gas-guzzling nation?

The track of the Detroit automakers shows that the transition to electric vehicles in the U.S. will take decades to play out, and will likely be only partial. That makes steady gains in fuel economy of gasoline vehicles imperative if U.S. automakers are to remain competitive in a carbon-constrained world.

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Carlos Ghosn, Nissan, and the need for stronger corporate governance in Japan – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

Robert Pozen, Senior Lecturer, MIT Sloan School of Management

From Harvard Business Review

Carlos Ghosn was widely recognized as a hero in Japan for turning around Nissan when it was on the brink of bankruptcy in 1999. Things couldn’t look more different today. Ghosn was recently arrested for financial misconduct, fired from his position as Nissan’s board chairman, and criticized by Nissan’s Japanese CEO for accumulating too much power.  Without Ghosn, the Nissan-Renault alliance is likely to falter — leaving two small auto manufacturers without competitive economies of scale.

Ghosn’s swift downfall comes as a result of a Japanese criminal case against him for causing Nissan to make incomplete securities disclosures about his deferred compensation. These disclosure problems are rooted in the company’s weak governance procedures, and they offer a lesson to investors in Japan’s other listed companies about the need for much stronger governance protections than those brought about by recent Japanese reforms.

The heart of the legal controversy is whether Nissan violated Japan’s securities laws by not including Ghosn’s deferred compensation in its annual reports over the last eight years. Under Ghosn’s deferred compensation arrangement, he would receive substantial payments from Nissan after his retirement – the equivalent of $44 million. Such payments were not taxable when this arrangement was made, but would become taxable when Ghosn actually received them.

Since 2009, all Japanese listed companies have been required to disclose in their annual reports an executive’s compensation if it exceeded 100 million yen – the equivalent of $800,000.  This rule was pushed through by the new head of Japan’s Financial Services Agency, an outspoken critic of the high pay awarded to corporate executives.

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How big institutional shareholders make companies more investor-friendly – Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

From MarketWatch 

Over the past three decades, there has been tremendous change in ownership of publicly traded firms in the U.S. Consolidation in the asset management industry and the rise in mutual fund investing have led to a small number of institutional investors becoming the largest shareholders of most listed firms. Today, just shy of 70% of U.S. public firms are commonly owned. According to Compustat, Black Rock and Vanguard Group are among the largest five shareholders of more than 53% of the firms in its database.

Given this significant shift toward common ownership, it’s important to understand the consequences on a company’s behavior. Does common ownership impact competition? Does it benefit investors?

Prior literature suggests that common ownership decreases competitive behavior. The theory is that managers of co-owned firms behave in ways to increase the portfolio value of the common owners. It also maintains that disclosure by one firm in an industry is good for everyone, as there are spillover effects related to liquidity and cost of capital for other firms in that industry.

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B2B sellers need to get on the machine-learning bandwagon – Matias Adam

Matias Adam, Lecturer at MIT Sloan School of Management

From The Hill

As companies collect increasing amounts of data about customers, a key challenge is connecting that information to customize the customer experience and boost sales. The customer journey begins long before the actual sale.

It starts with online searches, store visits, conversations and emails. Companies need to connect all of these touch points to identify potential customers and turn research and exploration into sales.

While business-to-consumer (B2C) markets have been deploying customer data platforms to consolidate the customer experience and improve marketing personalization, this has been a bigger challenge in the business-to-business (B2B) markets.

This is due to the complexity of B2B, where each customer has multiple decision-makers and users that are not always identified in the early stages, and the entire sales cycle is longer and relies on fewer leads, prospects, opportunities and sales than in B2C space.

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What GE’s board could have done differently – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From Harvard Business Review

During Jeff Immelt’s tenure as CEO of General Electric, from 2001 until 2017, the company’s stock price fell by over 30%, a decline of roughly $150 billion in shareholder value. Since Immelt’s departure, GE’s stock is down another 30%, as its new CEO, John Flannery, has struggled to cope with the cash flow drain from years of problematic acquisitions, divestitures, and buybacks. Because of these dubious decisions, GE’s ratio of debt to earnings has soared from 1.5 in 2013 to 3.7 in early 2018, according to Moody’s.

So, during GE’s long and steep decline, where was the company’s board of directors? Composed almost entirely of independent directors, it was a distinguished and diversified group of former top executives and other leaders with relevant experience. In my view, however, the structure and processes of the GE board were poorly designed for effectively overseeing Immelt and his management team. There were three problems in particular:

During most of Immelt’s tenure, the GE board was much too large, with 18 directors. The average size of U.S. public company boards is 11 members, with most boards having between eight and 14. Smaller boards are significantly correlated with better stock performance — 8% to 10% higher, according to a GMI study.

Why? After studying meetings of various sizes, researchers have concluded that the optimal number of participants is seven or eight — small enough for good discussions, but large enough for a diversity of opinions. Sociologists observe that many participants in large meetings engage in “social loafing”: Because of the large size, they do not feel responsible to contribute, and instead are content to rely on others to carry things forward. Read More »