Free Elon Musk! – Bill Fischer

Bill Fischer, Visiting Professor, Operations Management

From Forbes

No, it hasn’t gotten to this just yet, but we shouldn’t even be having this conversation.

The SEC’s decision to sue Tesla CEO Elon Musk, with the intention of barring him from serving as an executive or director not only of Tesla, but of any corporation under the jurisdiction of the SEC, was the height of folly. Do any of us, including the SEC commissioners involved, really believe that our society would have been better off with Elon Musk on the sidelines? Do they really think that anyone else could do the job of representing Tesla, or the future, better than Elon Musk?

Let’s be clear, there are a lot of smart people in Silicon Valley. But, most of them are not named “Elon Musk.” What we discovered over the weekend was that that name was worth at least $6 billion in value, and possibly a lot more, based on the fall in market capitalization on the day following the announcement of the SEC action. It’s hard to imagine very many other people whose suspension from work life would bring such a hit on the very next day. Yet, I suspect that very few of us are actually surprised. In our minds, Tesla is Musk, and without Musk, what is Tesla?

Read More »

The Fix for Misleading ‘CEO Pay Ratios’ – Robert Pozen and Kashif Qadeer

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan MBA ’18, Kashif Qadeer

From The Wall Street Journal

In the coming weeks, many public companies in the U.S. will disclose for the first time their “pay ratios”—the CEO’s compensation divided by the median employee’s. The requirement to provide this ratio was included in the Dodd-Frank Act of 2010. But comparing the figures among different companies—and particularly different industries—will hardly be a straightforward task.

The consulting firm Equilar estimates that the pay ratio will be two or three times as high for retailers as for drug, financial or tech companies. But the reason isn’t soaring CEO pay in the retail industry. For one thing, midlevel retail workers simply make less, on average, than their peers in pharma, finance and tech, which skews the ratio.

Another issue is that 31% of retail employees work part-time, compared with 17% for the rest of American employees. When computing the CEO pay ratio, the Securities and Exchange Commission prohibits companies from adjusting part-time earnings to “annualize” them—to show what these employees would have earned if working full-time. The SEC also bars companies from counting several part-time employees as a single full-time equivalent. Because of this, having many employees who work only a few days each week drags down the median.

To understand how much this might overstate the pay ratio, we examined data for a midsize retail company that operates about 1,200 stores, primarily in the U.S. The company had more than 25,000 employees in 2017. Almost half worked less than 30 hours a week. The median pay of these part-timers (without annualizing) was less than $6,000 a year. By contrast, the median pay of full-time employees who worked for the whole year was approximately $30,000. Read More »

Keep quarterly reporting – Robert Pozen

From CFO

On August 17, President Trump waded into another complex area by a short tweet. He had apparently asked several top business leaders how to “make business (jobs) even better in the United States.” He then directed the Securities and Exchange Commission to study one business leader’s reply: “Stop quarterly reporting and go to a six-month system.”

Trump’s tweet reflects the belief of many corporate executives and commentators that quarterly reporting pushes public companies away from attractive long-term investments. However, the long-term benefits of semi-annual reporting are doubtful, while its costs are significant.

Shifting company reports to every six months does not meet anyone’s definition of the long-term. An extra three months to announce financial results would not induce American executives to take off the shelf the hypothetical stockpile of long-term, job-creating projects — now allegedly stymied by quarterly reporting.

For years, public companies like Amazon have achieved large market capitalizations by following long-term strategies, as investors waited patiently. Indeed, most biotechs go public successfully without any history of profits, so investors must be endorsing their plans for completing clinical trials and marketing their drugs.

Read More »

Six months isn’t long term – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

Robert Pozen, Senior Lecturer, MIT Sloan School of Management

From Wall Street Journal

President Trump tweeted on Friday that he had directed the Securities and Exchange Commission to study a suggestion from a business leader, later revealed as outgoing Pepsi CEO Indra Nooyi: “Stop quarterly reporting & go to a six month system.” The popular theory is that quarterly reporting discourages firms from making long-term investments.

But switching to semiannual reporting wouldn’t help. Find us CEOs with stockpiles of good, long-term projects that they are not pursuing—but that they would, if only they had three extra months to report earnings. Reporting every six months is nobody’s definition of “long term.” Besides, investors have waited patiently as Amazon, Netflix and many biotech firms have followed long-term strategies.

In 2007, financial reporting in the United Kingdom moved from semiannual to quarterly. Yet capital expenditures and research-and-development spending didn’t fall significantly over the next three to six years, according to a study from the CFA Institute Research Foundation. When the quarterly requirement was ended in 2014, investment by U.K. companies didn’t change.

Read More »

A live conversation with Chester Spatt and Deborah Lucas: Financial regulation–What Lies Ahead?

Former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spatt

Our latest installment of the MIT Sloan Experts Series includes a live conversation with former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spatt and Golub Center Director and Professor of Finance Deborah Lucas.

As the 10-year anniversary of the great financial crisis approaches, the program seeks to answer two questions: what have we learned? And have we made enough progress to prevent a repeat of something similar? Chester and Deborah will discuss financial regulation and housing market finance reform, and share their ideas for fostering stronger ties between the regulatory and the academic communities and what lies ahead

MIT Sloan Prof. and Golub Center Director Deborah Lucas

Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute also appears on the program to talk about the housing shortage and housing finance reform.

Watch the entire livestream here.