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 »

Why your diversity program may be helping women but not minorities (or vice versa) – Evan Apfelbaum

MIT Sloan Asst. Prof. Evan Apfelbaum

MIT Sloan Asst. Prof. Evan Apfelbaum

From Harvard Business Review

When it comes to issues of race, gender, and diversity in organizations, researchers have revealed the problems in ever more detail. We have found a lot less to say about what does work — what organizations can do to create the conditions in which stigmatized groups can reach their potential and succeed. That’s why my collaborators — Nicole Stephens at the Kellogg School of Management and Ray Reagans at MIT Sloan — and I decided to study what organizations can do to increase traditionally stigmatized groups’ performance and persistence, and curb the disproportionately high rates at which they leave jobs. Read More »

Thomas Kochan: U.S. Companies Versus the U.S. Economy

MIT Sloan Prof. Thomas Kochan

From Harvard Business Review

It’s obvious to anyone paying attention that the United States needs well-educated, technically skilled workers if it’s to remain competitive in the global marketplace. Just as obvious: We need a robust middle class with adequate disposable income and a sense that our economic system is working in a reasonably fair way. Yet business leaders and policy makers behave as if they don’t believe either of those things: Read More »

Duncan Simester on customer response: Why guess and get it wrong when you could do a little experimenting and get it right?

MIT Sloan Prof. Duncan Simester

The business pages are filled with examples of companies that have taken big hits to their brands because they’ve made marketing decisions that ran afoul of customer expectations. Take Netflix, and its aborted scheme to divide its streaming and DVD video offerings. Netflix could have avoided its embarrassing reversal if it had experimented on this decision before publically announcing the change.

Read More »