Based on research Kerry Back, Tao Li and Alexander Ljungqvist

• Conventional business wisdom holds that high liquidity is good for corporate governance because large shareholders, or blockholders, are more likely to intervene when the stock is highly valued.
• Recent research contradicts this finding: High liquidity instead increases the fragility of the block.
• Managers and investors should expect that a blockholder is more likely to cash out when stock is trading high and problems arise.

Imagine that articles about publicly traded Company X appear in a business journal questioning the company’s latest acquisition. Another publication criticizes the company's risky entry into a new and volatile market. Yet the company’s stock trades high. According to conventional business wisdom, the conditions are ripe for a large shareholder, or blockholder, of the company to want to get involved.

But recent research by Kerry Back, a professor at Rice Business, counters this prevailing idea, which was based on a framework known as Maug's model. Back and professors Tao Li of the City University of Hong Kong and Alexander Ljungqvist of New York University challenged the model, revealing limitations within its assumptions. These flaws, they contend, led to an errant conclusion that the link between high liquidity and blockholder corporate governance was “unambiguously positive.”

Later researchers had tried to improve the model by adding elements of dynamism, the fast, nonlinear market changes that spring from a range of factors. But, Back and his colleagues concluded, they didn’t go far enough.

Back and team decided to use a different model, called a dynamic Kyle model, to more closely mimic natural trading conditions. This, they reasoned, could help determine what might spark blockholder activism. They crafted their model to include random events and continuous trading times to echo the randomness and fluidity of real-life trading.

The team also used three shocks from outside sources – two that reduce liquidity and one that increases it – to determine how liquidity affected four proxies for blockholder activism. The proxies: Filing a shareholder proposal in opposition to the target firm’s management, the likelihood that a previously passive blockholder turns activist, the emergence of a blockholder who has activist intentions and the launch of an activist hedge fund campaign against the target firm.

Once a block is created, the researchers found, greater trading liquidity harms governance by lowering the chances of activism for each proxy.

The team's findings contrast sharply with Maug’s model, showing that its all-positive outcome of higher liquidity can’t be replicated in models that take into account the almost infinite possibilities in the actual trading world relating to blockholder activism. In fact, the opposite outcome – a negative impact – was more likely.

Reflect for a moment on the earlier scenario, in which a blockholder who has bought stock as an investment learns of potential management concerns in firm governance. According to Back and his colleagues, potential problems with the firm are more likely to influence this blockholder to cash in while the stock is riding high. Such an investor would rather “take the Wall Street walk” than to intervene in a firm in which she may have no experience, time or inclination.

Yet these findings don’t suggest that high liquidity can never be beneficial for governance. Instead, managers and investors should understand that the role of liquidity in governance is risky. High stock value helps create blocks, but blocks should not be created with the idea that they’ll improve a firm’s governance or performance. High liquidity actually jeopardizes the block’s continued existence, because as time passes, the blockholder becomes more likely to cash out than she is to devote time, energy and resources intervening in a company’s affairs.

Kerry Back is a J. Howard Creekmore professor of finance and professor of economics at Jones Graduate School of Business at Rice University.

To learn more, please see: Back, K., Li, T., & Ljungqvist, A. (2015). Liquidity and governance. ECGI - Finance Working Paper No. 388.

Based on research Brian Rountree, James P. Weston and George Allayannis

• Investors pay a premium for firms with low cash-flow volatility.
• Investors don’t value earnings smoothed only through accruals. An accrual is a non-cash account that is used to recognize revenues/expenses in the same period as the transaction, even when cash flow does not occur in that period.
• Cash flow volatility affects firm investment decisions.

If money flows like a river, then investors prefer the waters calm. According to research authored by Brian Rountree and James P. Weston, both professors at Rice Business, investors put a premium on firms with smooth cash flows. But that premium does not extend to earnings that have been smoothed via accruals. 

Using a large sample of non-financial firms, the researchers found that fluctuations in cash flows can create strong ripples in the capital market. A one percent increase in these fluctuations, known as volatility, corresponds to a 0.15 percent drop in a firm’s value. To understand the magnitude of this decrease, Rountree and Weston project an individual firm’s cash flow against the total sample. If individual firm’s cash flow volatility fell from the median to lower quartile amidst the sample the firm would see roughly an eight percent increase in value.

The authors also provide insight on how investors value the overall smoothness of earnings. Since earnings are made up of cash flows and accruals, volatility in earnings is affected by fluctuations in cash flows and by executive judgment through accruals. Past research has suggested that investors can’t discern whether firms obtain their smooth earnings through accruals or through low cash flow volatility. But Rountree's and Weston's study suggests that investors value smooth earnings only when they are achieved through lower cash-flow volatility.

One way in which managers smooth cash flows is through hedging with derivatives. In their analysis, Rountree and Weston found that using derivatives enhances firm value. They also showed that investors value smooth cash flows above and beyond the use of derivatives. These results suggest that other forms of managing cash-flow volatility are valuable to investors. 

Lastly, the study indicates that investors are especially sensitive to cash-flow volatility in firms that rely heavily on external financing. This finding corroborates earlier research suggesting that cash-flow volatility can directly affect firm investment policy through the cost of capital.

James P. Weston is the Harmon Whittington Professor of Finance at Jones Graduate School of Business at Rice University

Brian Rountree is an associate professor of accounting at Jones Graduate School of Business at Rice University

To learn more, please see: Rountree, B., Weston, J. P., & Allayannis, G. (2008). Do investors value smooth performance? Journal of Financial Economics, 90(3), 237-251.

By Jennifer Latson

This article originally appeared in Rice Business, Fall 2016.

If buzzwords like “synergy,” “value add” and “leverage” make you want to go big AND go home, you’re not alone. Few of us have the bandwidth for dated business jargon — and it gets dated fast. By the time we’ve learned the meaning of the latest lingo, it’s already annoying to the “gurus,” “rock stars” and “thought leaders” who likely coined it in the first place.

Take “future proofing,” a fresh concept when it appeared on the scene a few years ago to describe, well, pretty much what it sounds like: making something immune to the unforeseeable ravages of the future.

Future proofing was a game changer on the bleeding edge, in bizspeak — until it wasn’t. In 2013, the same year it began popping up in Wall Street Journal headlines (for example, “Barbers, Bakers and Bankers: Whose Job Is Future-Proof?”) it was listed as one of “The 65 Business Words to Strike from Your Vocabulary Right Now” by Bryan A. Garner, the author of the “HBR Guide to Better Business Writing.”

Garner took the phrase to task in a tongue-in-cheek Huffington Post article, advising, “Leading-edge leveraging of your plain-English skill set will ensure that your actionable items synergize future-proof assets with your global-knowledge repository.”

Part of the problem with phrases like “future proofing” is that, while snazzy, they are essentially meaningless. Making anything truly future proof is, after all, impossible, since no one knows what the future will hold.

Others are offensive because they’re wordier or showier versions of phrases that exist already and are perfectly useful. Garner, along with other wordsmiths, points out that using more or bigger words doesn’t mean you’re communicating better. For example, in lieu of the jargony “in light of the fact that,” he suggests a simple, elegant alternative: “because.”

James Weston, a finance professor at Rice Business, argues that buzzwords either make simple concepts more confusing or complex concepts more superficial. “Generally, buzzwords like ‘global synergies’ and the like are a big red flag to me that a shallow and meaningless argument is about to come my way,” he says.

Then there are the insidious euphemisms, such as “let’s communicate offline,” which Weston translates to “I want to tell you something and I don’t want it to be discoverable in litigation.”

Or the obnoxious exaggerations, like “thought leader.”

“I might punch the next person that says this to me in the face, but we should communicate offline about that,” Weston jokes.

But for sheer superfluity of meaning, the word “ideate” is unbeatable — literally. It won Forbes’ 2015 “Jargon Madness” competition, elbowing out contenders like “leverage,” “disrupt” and “growth hacking” as the term most abused by startup founders, developers and marketers.

Forbes defined the winning term as “a nonsense word meaning ‘think,’ ‘dream up’ or ‘conceive of an idea.’ Formerly known as ‘brainstorm.’”

If it irks so many of us, then, why is jargon so common? James Sudakow, the author of “Picking the Low-Hanging Fruit… And Other Stupid Stuff We Say in the Corporate World” believes the use of buzzwords is driven in part by the urge to be seen as an insider — but it has a tendency to backfire.

“Sometimes people who overuse corporate jargon actually lose credibility,” he says. “Being authentic and relatable are more and more important in leadership these days. Talking in jargon hardly makes someone relatable or authentic.”

So how do we rid our vocabularies of the dreaded buzzwords? It’s harder than you’d think, Sudakow says. He once found himself using one of his least favorite expressions, “We’ll bake that into the process” — meaning simply “we’ll include it” — in a presentation. The phrase just popped into his head because he’d heard it so often.

“The reality is that corporate jargon is used so frequently, no matter where you work, that it is actually hard for it not to rub off on all of us and become a habit.”

You could be a regular buzzword user without even knowing it, warns Peter Cardon, an associate professor of management communication at the University of Southern California’s Marshall School of Business and the author of “Business Communication: Developing Leaders for a Networked World.”

“I was once coaching a manager with his public speaking. He used ‘at the end of the day’ at the beginning of every tenth sentence or so. In one presentation, he used the phrase nearly twenty times,” Cardon recalled. “When I mentioned it to him, he was shocked. In fact, he didn’t believe me. So, I showed him video of his presentation so he could see for himself. All of us are like this to some degree — we overuse and abuse certain words and phrases without even knowing it.”

When used sparingly, of course, jargon isn’t inherently evil, according to Janet Moore, the director of MBA communications at Rice Business.

“Jargon can save time, as long as everyone in the conversation understands it,” she says. “Problems arise when it excludes listeners who don’t get it — and are too afraid to confess their ignorance.”

But a surprising number of people, including seasoned veterans of the corporate world, aren’t familiar with every buzzword — especially the buzziest of them all, which tend to come from Silicon Valley and spread like wildfire, Moore says.

So is it worth trying to stay abreast of the buzz? Or will today’s future proofers soon go the way of yesterday’s paradigm shifters?

“Some buzzwords come and go quickly and never reappear,” Cardon says. “Others come in and out of fashion every few decades like bell-bottom pants. Many, like ‘synergy,’ ‘proactive’ and ‘win-win,’ have stuck around for a long time.”

And some corporate cultures are more infested by buzzwords than others. When Sudakow worked for a management-consulting firm, he says, he felt as though he’d entered an Olympic competition for jargon use — “with the winner based strictly on quantity.” Now, as an independent consultant, he tries his hardest to eliminate buzzwords entirely.

“Not using them is what makes you stand out these days,” he explains. “A client recently told me, ‘That’s why we like you. You talk like a normal person.’”

Jennifer Latson is an editor at Rice Business Wisdom and the author of The Boy Who Loved Too Much, a nonfiction book about a rare disorder called Williams syndrome.

By William M. Arnold 

This article originally appeared in The Hill.​

Last week, President Donald Trump signed legislation into law that repeals a Dodd-Frank securities disclosure rule aimed at curbing corruption at energy and mining companies. The action by the Trump administration was appropriate but gives no cause for celebration.

It was a recognition that the law was discriminatory against American companies and would have been ineffective. Now, energy and mining companies should work with the new administration to strengthen transparency in their industry. It is grinding work, but ultimately can be effective.

The world needs greater transparency to limit corruption that saps democracy and undermines development. Funds intended to support infrastructure, education, public health and other important functions have, all too often, gone to private bank accounts to support luxurious lifestyles of government officials from developing countries.

This, along with broader mismanagement of countries’ finances, is often referred to as the “resource curse.” Some of the biggest transfers to the developing world — after military and official transfers — come from the energy and mining sectors. The scope of their investments can be enormous. A single contractual payment to secure licenses or leases may amount to hundreds of millions of dollars, or even more.

The U.S. Foreign Corrupt Practices Act (FCPA) has been an important tool for many years, imposing jail terms and fines for individuals and massive fines for companies that have been found guilty of violations. This has been an important tool that U.S. and foreign companies ignore or circumvent at their own peril, as the record clearly shows.

The Department of Justice and the Securities and Exchange Commission had been pursuing about two dozen cases annually. Apparently, companies got the message — the cases dropped to 11 in 2014 and six in 2015. In 2009, Siemens reached an agreement to pay $800 million in fines, and, in 2013, Total of France paid a fine of $398 million for having paid $60 million in bribes.

Complementing this effort is the Extractive Industries Transparency Initiative (EITI), which includes 51 countries. It treats all companies equally as it promotes "public awareness about how countries manage their oil, gas and mineral resources,” according to its website.

The initiative is a continuous process that highlights problems and offers courses of action, but it is not necessarily a prescription to cure the disease quickly. Its website provides substantial data on scores of countries — from Organization for Economic Cooperation and Development (OECD) member countries to some of the poorest — and their progress in implementing updated standards.

In the last months of the Obama administration, rules were created under the Dodd-Frank legislation to force American companies — and only American companies — to disclose all kinds of payments to foreign governments. Corrupt payments are already covered under FCPA, but Dodd-Frank would require them to disclose proprietary information to the public — including their competitors.

That proprietary information includes what the company paid to win licenses in public tenders. Companies always would like to know the bidding strategy of their competitors — so they can improve their own chances the next time around.

Corrupt officials prefer shadows over light. As implemented, Dodd-Frank would have been ineffective at fighting corruption, but would have made American companies uncompetitive in many countries. Unfortunately, corrupt officials have options to select companies from countries with less onerous (or no) provisions.

Investing in mineral-rich countries has never been easy, and standards tend to shift, even after contracts have been honored and operations begun. Recently, Nigeria seized a $1.2 billion oil field from Royal Dutch Shell and Italy’s ENI that was related to a 2011 purchase of an oil-prospecting license from a private Nigerian company headed by a former Nigerian oil minister.

Officials now claim that only $210 million of the $1.2 billion paid ultimately found its way to the state oil company. The companies point out that the payments were made to an official Nigerian government escrow account at the London branch of JPMorgan Chase, and the justice minister at the time authorized its distribution. To what extent should companies be held liable?

Congress acted under the Congressional Review Act to overturn the Dodd-Frank rule and Trump signed it into law last Tuesday. While this action was appropriate, it gives no cause for celebration, nor should it pause efforts to fight corruption, which penalizes the people of the countries involved and raises the cost of doing business for all parties.

Energy and mining companies should work with the new administration to strengthen EITI. It is necessary, grinding work, but ultimately can be effective.

Bill Arnold was a professor in the practice of energy management at Rice University’s Jones Graduate School of Business. Previously, Arnold was Royal Dutch Shell's Washington director of international government relations and senior counsel for the Middle East, Latin America, and North Africa.

Based on research D. Brent Smith and Juan M. Madera

• In a corporate crisis such as a product recall, outside perception of leaders is strongly shaped by the emotions they display.
• Considerable research has explored the role of leaders' emotions in times of crisis. There is less research on the role of displaying specific emotions at such times.
• New research demonstrates that during a crisis, outsiders view a leader who voices both anger and sadness, or even sadness alone, as more effective than a leader who shows only anger.

There is a wide range of executive responses to crisis. In 2014, The Wall Street Journal described a string of seppuku cases among Japanese executives after failures or scandals. In the West, of course, such steps are extreme. Yet even in the U.S., the Internet and other sources of public information make stony silence obsolete as a crisis tool. 

So how should a boss strike the balance? In a recent study, Professor D. Brent Smith, senior associate dean of Executive Education at Rice Business, and his colleagues sounded the emotional depths of U.S. leaders’ responses during crisis. What they found was that even in the digital age, the public responds best to leaders who act like humans.

Much research, the team noted, has explored how emotions influence business leaders during a crisis. Less attention, however, has gone toward the specific emotions leaders show at such times, and how those emotions strike the public.

Whether the crisis is external, such as a terrorist attack, or internal, like a recall or scandal, is an important factor, Smith and his colleagues knew. They designed their study to analyze an internal crisis: a corporate product recall. Aiming to understand the role of anger and sadness during such an event, the researchers then asked 322 employees at different companies for reactions to a written account about an executive in a troubled firm. The research subjects were an average of 34 years old and had spent an average of 14 years in the workplace. Told they were joining a study about "knowledge of recent headlines in the news," each was given a newspaper story describing a product recall, then asked questions about the events and leaders portrayed in the story.

Existing literature in organizational psychology, the researchers noted, holds that a leader who shows anger during a crisis conveys competence, strength and intelligence. A leader who expresses sadness in the same situation conveys remorse, sympathy, warmth and affiliation. Based on this research, Smith’s team proposed that a leader who expressed both sadness and anger in a failed-product crisis would be evaluated more favorably than a leader who voiced either anger or sadness alone.

The newspaper experiment confirmed their theory. Most subjects indeed factored the leader's public display of emotion into their assessments of her or him. In addition, the subjects reacted more favorably to leaders who publicly voiced both anger and sadness, or even sadness alone. A leader who showed anger alone, the subjects said, seemed less effective.

Falling literally on the sword will never be a widespread corporate option in this country. But as Smith and his colleagues show, the traditional option of stonewalling may no longer serve companies either. At least in the case of a product recall, a leader who shows a human range of emotions, or simply the "soft" emotion of sorrow, paradoxically comes off as more powerful.

D. Brent Smith is senior associate dean of Executive Education and associate professor of management and psychology at Jones Graduate School of Business at Rice University.

T o learn more, please see: Madera, J. M., & Smith, D. B. (2009). The effects of leader negative emotions on evaluations of leadership in a crisis situation: the role of anger and sadness. The Leadership Quarterly, 20(2), 103–114.

Critical Thinking and Strategic Decision Making

"The three terms — strategic decision making, critical thinking and ICO," explained Vikas Mittal, J. Hugh Liedtke Professor of Marketing and head of the Energy Initiative at the Jones School, "have very specific meanings."

Clarifying those specific meanings is vital. "Strategic decision making is the process where people, instead of getting bogged down with the problem-solving aspects of a decision, actually pay attention to the strategic process," Professor Mittal continued. "They ask questions about engaging the right people, developing the right relationships, keeping personal bias out of the decision process, and managing cognitive and emotional conflict. Critical thinking is the art of being able to evaluate an issue non-judgmentally — thinking about an issue from all perspectives, evaluating different alternatives without getting wedded to any particular alternative."

So, why is an ICO — integrated course offering — needed for enabling students to become strategic decision makers and critical thinkers? Don't these skills automatically come through the basic MBA curriculum?

"As easy as it seems, both skills are difficult, subtle, and involve rigorous thinking and adaptability in perspectives and behaviors," Professor Mittal said. To inculcate these skills, he developed the concept of an ICO. The ICO is taught by four professors whose research and expertise bring a multi-disciplinary approach to the topic: Alex Butler, finance and econometrics; Vikas Mittal, decision making and psychology; Amit Pazgal, game theory and operations management; and Brent Smith, psychology and social psychology.

Leading scholars in their area, professors Pazgal (2008), Butler (2011 and 2012) and Mittal (2009 and 2015) each won the prestigious Jones School Award for Excellence in Research. Professor Mittal won the 2012 and 2015 MBA for Professionals Weekend Award for Teaching Excellence. Similarly, professors Mittal, Pazgal and Smith have taught extensively in Rice's executive education program for companies such as: National Oilwell Varco, Shell, BP, Chicago Bridge & Iron and Cameron.

These professors brought a wealth of research, academic and executive experience to the classroom. Bryant Fulk, a professional MBA student and vice president at Wells Fargo Securities Acquisition and Divestiture Advisory Group, said, "All four of these professors are quite different and yet very complementary of each other in terms of approach and world views. This was by far the most useful course for me in the program. Its utility was evident, and yet its whole impact is years away from revealing itself, as I am early in my career and still naïve in the world of executive decision making."

ICOs for Energy: A PRIME Directive

The energy industry is facing a looming shortage of executive talent as growing numbers of CEOs and other C-suite executives retire, forcing companies to confront the lack of experience in their ranks. If you're a junior analyst or engineer, you might be in a really good position to take advantage of that … except that your promotions are based on core skills, and you've never actually managed a team through conflict or organizational change. What's a reliable way to build a more substantial knowledge base? What's the next step?

Thirty participants — made up of second-year professional and full-time students and one alumnus — figured out their next step with the Jones School's first ICO, Critical Thinking and Strategic Decision Making. The course, along with others launching during the summer and fall of 2015, was offered on a competitive basis. "It's a chance for students in the MBA program to discover themselves," said Ankur Dayal, director of the Energy Initiative at the Jones School.

And it's a chance for the energy industry to fill its pipeline of potential CEOs with the next generation prepared to lead. The Partnership for Research Insight and Management Excellence (PRIME) at the Jones School has a particular interest in and focus on the energy and oil and gas industry. PRIME increases the potential of insightful executives with technical ability by enhancing their commercial acumen and leadership ability.

Lynn Elsenhans, former chairman and CEO of Sunoco, member of the Board of Trustees of Rice University, and a strong supporter of the Energy Initiative explains its value: "PRIME leverages the technical skills and knowledge of industry professionals by developing their leadership potential and preparing them for executive leadership positions."

Self-awareness, relationships and reflection 

"I recently became a manager," said Jeanie Oudin, a professional student in the course who works for Wood Mackenzie. "So I've had to think bigger picture. One of the interesting things that the first two modules stressed had to do with internal biases that a lot of people carry. It helped me be more aware that I'm thinking a certain way or reacting too quickly. Now I'm taking a step back, pausing and trying to understand how other people might interpret something."

The first two modules Oudin referred to are decision making and social psychology, taught by professors Mittal and Smith, senior associate dean of Executive Education and associate professor of management and psychology. For emerging leaders, a theoretical understanding of psychological biases, personality, group processes, provides the mechanism for effective and critical self-analysis, which is a pathway for continuous self-improvement and the crux of the opening modules.

Professor Mittal's module starts off by asking students to take a self-assessment, then evaluating their milieu based on a reading of Daniel Kahneman's book, Thinking Fast and Slow. By reflecting on themselves and their surroundings, students start to understand their personal biases, their relationships and the shortcomings of the intense technical focus they espouse. Professor Smith's social psychology module flows into the science of group dynamics. He focuses on relating to others, laterally and vertically, and how crucial that is to becoming a successful leader of decision-making teams — both the quality of the decisions and the level of engagement and commitment to team decisions. He focuses on helping students to better understand issues related to change management. Using a simulation, students put into practice their learning and reflect on their experiences as human beings, managers and leaders.

A long-term perspective

The third and fourth modules of the course cover econometric regression modelling and game theory, taught by Professor of Finance Alex Butler and Professor of Marketing Amit Pazgal. Professor Butler taught students how to think rigorously when making causal judgments. Using an econometrics-based approach, students learned how to conduct analysis that credibly establishes causal effects in terms of social and corporate policy — based on observational data. The techniques they covered empowered students to make better decisions with data.

Professor Pazgal's final module used both game theory and decision models to help students understand the structure of decisions. Using decision trees and equilibrium analysis how can you work backward to figure out what you should or should not do? They discussed a myriad of topics including the use of credible threats and promises, strategic use of information through signaling and screening, and bidding in auctions. The ultimate goal of his section was to enhance the students' ability to understand decision making — from an economic and psychological perspective — in complex, interactive business situations.

Ali Alqahtani, a full-time student who will be taking on a new role of business development specialist at Saudi Aramco, felt the course provided him with a general framework for the decision-making process. "It made me realize how hard it is to make appropriate decisions especially in a fast-changing environment." Integrating the ideas from all the modules inspired students to adopt a long-term perspective and to develop a more thoughtful position on complex judgments and strategies.

Executive Interaction

Students had the opportunity to extensively interact with industry leaders who participated in the class for extended periods of time. Lynn Elsenhans; Steve Geiger Ph.D., vice president and chief administrative officer at Cameron International, contributed as executives in residence. Mark Shuster, executive vice president exploration, Upstream Americas, Shell Oil Company; and Aya Kameda Ph.D., business advisor to Mark Shuster, provided perspective to students about decision processes in Shell.

These executives not only read and studied the course material but also sat through parts of the course to provide insights, perspectives and thoughts to the students. Steve Geiger, very graciously shared a presentation usually reserved only for his senior leadership to illustrate a crucial point: how we can lose sight of the bigger picture when we get wedded to a particular point of view? "Are we missing any F's?" he reminded his students to always ask during any decision when they are really sure of themselves.  They related their many experiences from careers that illustrated the concepts discussed in class, both agreeing and disagreeing with students and faculty members.

"The enormity of this benefit — real time commentary and perspective from industry veterans — is incalculable," Professor Mittal said. "In most instances, even when I teach such a course to executives, they do not have the benefit of this collective insight and wisdom."

How will the ICO help the Energy Industry? 

The next step for companies invested in reinforcing their pipeline is first to identify leaders with the highest potential to be successful executives. Then provide those high potentials with strategically focused coaching, an expanded knowledge base and deeper skills to prepare them for the kinds of things they would encounter — from human capital, new technologies and evolving business models to intense public scrutiny, geopolitical complexities and broad involvement in corporate governance. The ICOs identify the high potentials and prepare them for leadership responsibilities.

Upon reflection, Fulk said, "Framing the problems I am facing currently through the architecture outlined in the course was extremely germane. They presented all four modules as vaguely interdependent … both insightful and elegant. It's difficult to explain in the real world how discretely these things interact but rather all of the competencies show up to differing degrees all the time. Framing it loosely and indiscreetly was helpful in how I graft these tools into my own world view."  

Perspective, Insight and Thoughtfulness

A typical course within the MBA curriculum may be focused on helping students develop applied skills or helping them find answers. "This is not that course," explained Professor Mittal. "Rather than give answers, or applied tips — each professor focused on helping students develop the art of asking the right questions, understanding different perspectives and ways of approaching the questions, and thoughtfully examining the pros and cons of each option or answer. These pros and cons are not just financial — they are reputational, relational, and emotional. They accrue in the long, medium and short run. They are relevant at an individual, group and organizational level."

Fulk found the course has made him more thoughtful about his job and his personal life, even the process of buying a house helped him frame how he approached the contract. "The lens through which I view these personal circumstances and the depth that I dive into the problem have been improved by the ICO."

Based on research Robert E. Hoskisson, Luis R. Gomez–Mejia, Joanna Tochman Campbell, Geoffrey Martin, Marianna Makri and David G. Sirmon

• Family firms invest less in research and development than their non-family counterparts.
• When making business decisions, family firms weigh both economic and non-economic factors. These can include family prestige, emotional attachment to the firm or the legacy of a multigenerational link to the firm.
• When a family firm underinvests in R&D, it may in fact be protecting its other, intangible capital.

Family firms are publicly traded companies in which family members own at least 20 percent of the voting stock, and at least two board members belong to the family. For obvious reasons, the central principals in these firms tend to have a longer view than principals in non-family firms. Yet family firms invest less in research and development (R&D) in technology firms than their non-family counterparts. Since investments in R&D are stakes in the future, why this disparity?

Robert E. Hoskisson, an emeritus management professor at Rice Business, joined several colleagues to answer this question. Refining a sociological theory called the behavioral agency model (BAM), the researchers defined family-firm decisions as “mixed gambles”: That is, decisions that could result in either gains or losses.

Because success in high technology relies so much on innovation, it's especially puzzling when such a family owned business underinvests in R&D. So Hoskisson and his colleagues focused on the paradox of family firms in high tech.

According to previous research, family owners weigh both economic and non-economic factors when making business decisions. Hoskisson and his team labeled these non-economic factors socioemotional wealth (SEW). SEW can include family prestige through identifying with and controlling a business, emotional attachment to the firm or the legacy of a multigenerational link to the firm.

That intangible wealth (SEW) explained some of the families' R&D choices. While investment in R&D may lower future financial risk, it can threaten other resources the family holds dear. Expanded R&D spending, for instance, is linked with competitiveness. At the same time, it is associated with less family control. That’s because to invest more in R&D, businesses typically need more external capital and expertise. So when a family firm underinvests in R&D, it may in fact be protecting its socioemotional wealth.

To further understand these dynamics, the researchers looked at three factors that they expected would raise families' R&D spending to levels more like non-family counterparts.

The first factor was corporate governance. As predicted, the researchers found that family firms with a higher percentage of institutional investors invested in R&D at levels more like those of non-family firms. The institutional investors naturally prioritized economic benefits far more than the founding family's legacy wealth (SEW).

The researchers also analyzed corporate strategy. Family firms, they found, invested more in R&D when it might be applied to related products or markets. Even families bent on preserving non-economic wealth could be lured by a big economic payoff, and related business are easier to control because they are closer to the family legacy business expertise.

Finally, Hoskisson and his colleagues looked at performance. When a family firm’s performance lagged behind that of competitors, they reasoned, the owners would spend more on R&D. A higher percentage of institutional investors, the team theorized, would magnify this effect. Interestingly, the primary data (from 2004 to 2009) failed to support this hypothesis, while an alternative data set (from 1994 to 2002) confirmed it.

Further research, the investigators wrote, could shed useful light on this puzzle. They also encouraged study of how family firms conduct mergers and acquisitions. After all, while families can seem inscrutable from the outside, most run on some kind of economic system. The currency just includes more than money.

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

To learn more, please see: Gomez-Mejia, L.R., Campbell, J.T., Martin, G., Hoskisson, R.E., Makri, M., & Sirmon, D.G. (2014). Socioemotional wealth as a mixed gamble: revisiting family firm R&D investments with the behavioral agency model. Entrepreneurship Theory and Practice, 38(6), 1351-1374.

Based on research Yan Anthea Zhang, Robert E. Hoskisson (George R. Brown Emeritus Professor of Management), and Wei Shi (former Rice Business doctoral student)

• Different factors drive location choice for a state-owned enterprise investing overseas vs. location choice for other multinationals.
• When a state-owned enterprise invests abroad, the government of the home country has control rights. That means the choice of where to expand may depend on more than just economic considerations.
• Among the possible factors are geographic distance, similarity in religious beliefs and resource complementarity between an SOE’s home and a target country.

Past research assumes that multinational enterprises interested in overseas investment choose locations based on economic goals. But when a multinational firm is a state-owned enterprise (SOE), it’s a different story. The home country has control rights – which can shape strategic decisions including choices of where to focus overseas investment. The choice of where to expand thus may hinge on more than economics. Geopolitical factors, national interests, social priorities and even political missions may play a role.

Potential opposition from the target countries can also play a role. When an SOE decides to branch out abroad, what might seem like a straightforward business venture from another type of multinational may look like an incursion from foreign agents or even a threat to national security. The United States isn’t immune to such concerns. In 2005, the U.S. blocked a Chinese state-owned oil company, China National Offshore Oil Corporation, from acquiring the U.S. firm Unocal.

So what are the factors that can shape opposition toward a foreign SOE?

A former Rice Business doctoral candidate, Wei Shi, along with Rice Business professor Yan Anthea Zhang and emeritus professor Robert E. Hoskisson created a conceptual model to analyze the level of potential opposition from target countries. Their model proposes five geopolitical factors that can affect the kind of welcome an SOE can expect from its new home.

• Geographic distance

For a private multinational enterprise, hopping over to a neighboring country makes economic sense: it can be simpler and cheaper to manage overseas investment if it’s nearby. But from a geopolitical standpoint, proximity isn’t necessarily a plus. Close neighbors may pose greater threats to each other’s national sovereignty than countries that are comfortably far apart. Neighbors may also have a track record of conflict. Think of the historic conflict between China and Japan, or more recently, between Russia and Ukraine. The lesson? For an SOE, moving into the neighborhood next door may threaten the target country’s sense of sovereignty, or even national security, and spark opposition.

• Similarity between religious beliefs

Everywhere from small towns to large nations, shared religious beliefs can increase trust and dissimilar beliefs can sow suspicion and conflict. It’s no different in international investments. When an SOE’s home country and its target country share religious beliefs, the Rice professors wrote, the move may be smoother.

• Similarity between governments

The modern business world involves governments ranging from full autocracies to full democracies, with a kaleidoscope of possibilities in between. Countries with similar government forms, however, are more likely to identify with each other and agree about how governance should work. That mutual identification and acceptance can lower opposition to a foreign SOE’s investment.

• Resource complementarity

Resource complementarity between countries means the degree to which one country has resources that the other country needs. The coveted resources might be energy, technological savvy or financial muscle. If an SOE has resources that its target country wants, there’s more chance its target country will roll out a red carpet.

• Nationalist politics in the target country

For an SOE looking to move abroad, the target country’s political leaders can either muffle or amplify the first four factors in this list. For example, even if the target country sees a hopeful SOE as a threat, its political leaders might be able to propose official visits or foster economic cooperation. If these leaders can calm nationalistic friction, they can help open even the stickiest doors to the SOE. By the same token, political leaders can use nationalistic feelings to stoke opposition.

This research raises some intriguing questions. Are the factors in this model as applicable to SOEs from emerging markets such as China, India and Latin America as they are to SOEs from developed countries such as France? Are the factors equally applicable to SOEs with majority state control rights, and SOEs from countries such as Brazil, which often holds minority state control rights? And do the same factors hold for SOEs from countries with better or worse governance structures?

Whether it’s in a cow pasture or a sovereign nation, the arrival of outsiders onto home territory can kick up some dust. For an SOE, analyzing the factors in an overseas venture can determine whether it’s worth climbing over the fence.

Yan Anthea Zhang is the Fayez Sarofim Vanguard Professor of Management in Strategic Management at Jones Graduate School of Business at Rice University. 

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

Wei Shi is a former doctoral student in the strategy department in the Jones Graduate School of Business at Rice University, and now is an assistant professor at Kelly School of Business at Indiana University.

To learn more, please see: Shi, W., Hoskisson, R. E., & Zhang, Y. A. (2016). A geopolitical perspective into the opposition to globalizing state-owned enterprises in target states. Global Strategy Journal, 6(1), 13-30.

Peter Rodriguez, currently senior associate dean for degree programs and chief diversity officer at the University of Virginia’s Darden School of Business, has been named dean of Rice University’s Jones Graduate School of Business.

He will join Rice as dean of the Jones School on July 1. In addition to being dean of the business school, Rodriguez will serve on the Jones School faculty.

“Peter Rodriguez’s exceptional talent as a leader is evident from his broad impact at the Darden School,” said Rice Provost Marie Lynn Miranda. “As an accomplished scholar and educator, with a unique ability to connect with the many Jones School constituencies, Peter is exceptionally well-positioned to lead the Jones School. We are both extremely grateful to current Dean Bill Glick for his service and leadership and very excited to welcome Peter to the Rice community.”

Rodriguez is a Princeton-educated economist and specializes in the study of international business and trade, with an emphasis on understanding and alleviating the effects of corruption on economic development.

“I am thrilled to have the opportunity to join Rice as both a faculty member and as part of the leadership team at one of the country’s top business schools in one of its top cities,” Rodriguez said. “Rice is an outstanding university with a clear commitment to excellence in research, teaching and outreach at all levels.” 

He said he looks forward to working with the Jones School Council of Overseers and the Houston business community to identify areas where the business school can best serve the community while also strengthening its global engagement and stature. 

“I’m delighted that Peter is joining the senior leadership team at the university,” said Rice President David Leebron. “He brings an extraordinary breadth of experience and accomplishment. He is well positioned to lead the school to new heights in scholarly reputation, teaching excellence, global engagement and online programs.” 

Rodriguez has served in his current position at the University of Virginia since 2011, where he leads the MBA programs at the Darden School and its global, online, and diversity strategies. In this role, he helped lead Darden to the No. 2 spot in the Economist’s 2015 global ranking of full-time MBA programs, which was the highest ranking in the school’s history. For the fifth consecutive year, the Economist also named Darden the No. 1 education experience in the world. As part of this, Rodriguez was able to lead strategies for online initiatives and new Global MBA programs. He also prioritized faculty development, especially for junior faculty, and fostered a culture of leading-edge research and a deep commitment to teaching excellence. 

He teaches classes on comparative economic growth and development, international business and international macroeconomics. His research publications include theoretical explorations of international trade policies and firm behavior and empirical and practice-based studies of issues in international business and management. 

Before joining the Darden faculty, Rodriguez was on the faculty of Mays Business School and the George Bush School of Government and Public Service at Texas A&M University. He also previously taught at Princeton University. In addition, he worked for several years as an associate in the Global Energy Group at JPMorgan Chase. Rodriguez has received numerous awards for teaching excellence in classes such as international macroeconomics and business-government relations.

As dean, Rodriguez will oversee a school that is distinguished by its strong foundation in accounting, finance, marketing, organizational behavior, and management with areas of substantive excellence in energy, entrepreneurship, and health care. Degreed programs include the Rice MBA, MBA for Executives and MBA for Professionals, plus a Master of Accounting program, as well as joint MBAs in medicine, engineering, and professional science, and a Ph.D. in Business. The Jones School has also played an increasingly important role in undergraduate education at Rice. 

A native of Kilgore, Texas, Rodriguez has a B.S. in economics from Texas A&M University, where he graduated cum laude, and a master’s and Ph.D. in economics from Princeton University. 

Rodriguez succeeds William H. Glick, who led the Jones School’s growth in enrollment and programming and increased national and international reputation for the past 11 years. Glick will return to the faculty. 

“During Bill Glick’s term as dean, the Jones School experienced exceptional growth,” Miranda said. “We are grateful to Bill for his remarkable record of accomplishment over the past decade, which reflects extraordinary dedication to the Jones School and to Rice.”

Based on research Gustavo Grullon, James P. Weston and Sebastien Michenaud 

• In 2005, a Securities and Exchange Commission rule change for a randomly chosen set of stocks offered scholars a unique chance to study the causal effect of short selling on stock values and company investment decisions.
• When curbs on short selling are removed, the price of overvalued stocks tends to drop.
• Firms respond to lower stock prices by cutting investments and issuing less stock.

When a company's stock price changes due to outside factors, does the company change its standing decisions on investments and financing? In 2005, when the Securities and Exchange Commission (SEC) launched a project lifting some short-selling limits, Rice Business professors Gustavo Grullon, Sébastien Michenaud (now at DePaul University) and James P. Weston resolved to find out.

The scholars seized a unique chance to perform what's called a natural experiment: one in which the factors assigning the subjects either to the experimental group or the control group are not determined by investigators and, instead, are more like random assignments.

Since 1938, the SEC has maintained an "uptick rule," a limit on short sales of stock whose price is falling. Short selling is selling stock you don't own, hoping to buy it at a lower price and make a profit.

In 2003, the SEC decided to waive the uptick rule for a set of companies dubbed the pilot group. The commission chose the firms through a random process in June 2004 and publicly announced them a month later. The next year, the pilot group was exempted from the uptick rule, and short selling was allowed even when the stock price was sinking. Then in 2007, the SEC relaxed the rule for all companies. The measures created a kind of laboratory setting where researchers could study the effect of stock price changes on business investment choices.

Gathering data from the Center for Research on Security Prices, the three Rice professors compared numbers for the pilot group and the control group, those companies that were not chosen. Their data included stock prices, the number of security shares that investors have sold short and the following measures of company investment and financing:

• Capital expenditures
• Changes in total assets
• Capital expenditures plus R&D
• Equity issues (issuing stock)

According to theoretical models, the uptick rule, by limiting short selling, would curb the effects of negative information on stock prices. Thus the stock can get overvalued. If the constraints were lifted, it followed, the jolt of negative information was no longer buffered and stock prices would drop to a more realistic value.

Past studies after the uptick rule ended showed that short selling did increase, but stock prices for the pilot companies stayed the same. The Rice Business researchers, though, studied data from a longer period — a month before the pilot group was selected and two years afterward — and found different results. Compared to the control group, the companies in the pilot group experienced both more short selling and lower stock prices. (While these changes might have been expected after the company names were announced, they began just after the pilot companies were selected. In their paper, the authors suggest that the pilot companies' names may have been leaked before the official announcement.)

So limitations on short selling do indeed lead to overvaluation of company stock. But what effect does that have on company investments? One possibility is that company managers may issue more over-valued stock and increase their investment in real assets. Another is that the managers may perceive overly optimistic signals about the company’s prospects and therefore overinvest. In either case, company investments would be increased. On the other hand, if the limits on short selling are lifted and the stock is no longer overvalued, logic suggests that investments won't be as high.

Grullon, Michenaud and Weston confirmed the final outcome. Compared to the control group firms, the firms in the pilot group lowered their investment in fixed assets between 8 percent and 13 percent. In addition, the pilot companies cut the sale of common and preferred stock between 19 percent and 34 percent. The results were strongest for small companies, and for companies such as growth firms and companies that were more sensitive to overvaluation before the start of the pilot study.

So curbing short sales does indeed alter stock values. Loosening those rules leads to lower prices, which in turn prompt firms to alter investment and financing choices. For the scholars Grullon, Michenaud and Weston, it was a dynamic that started as theory, then played out in real life thanks to a unique laboratory supplied by the SEC.

Gustavo Grullon is a Jesse H. Jones Professor of Finance at the Jones Graduate School of Business at Rice University.

James P. Weston is a Harmon Whittington Professor of Finance at the Jones Graduate School of Business at Rice University. 

T o learn more, please see: Grullon, G., Michenaud, S., & Weston, J.P. (2015). Real Effects of Short-Selling Constraints. Review of Financial Studies, 28(6), 1737-1767 .