The Diffusion of Ideas over Contested Terrain - Personal World Wide ...

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In the U.S., these governance practices
are often supplemented by the separation
of the CEO and board chair position as
well as the presence of independent
directors, both of which are usually considered
important governance mechanisms
to protect the interests of shareholders
(e.g., Pozen, 1994). In Germany,
neither of these measures is applicable
because the position of CEO and chair of
the supervisory board are separated by
law and other company officers are also
prohibited from sitting on the supervisory
board.
#2144-ASQ V49 N4-December 2005—file: 49401-fiss
shareholder value orientation. Examples of such statements
are “.|.|. boosting shareholder value is at the centre of the
Metallgesellschaft Group’s strategies and decisions” (Metallgesellschaft,
1995) or “raising shareholder value will
remain our overriding goal” (Thyssen, 1997). Both coders
were native speakers of German and were instructed to consider
only statements that included either the English term
“shareholder value” or its German translation of “increasing
firm value” (“Unternehmenswertsteigerung”). The coding
scheme thus contained very little ambiguity, and interrater
agreement was high, at 0.916.
To measure the implementation of a shareholder value orientation,
we collected data on the firms’ adoption of three specific
governance practices that are considered consistent
with that orientation: (a) “value-based” management control
systems, (b) stock option plans for management, and (c)
internationally accepted accounting standards. 5 “Valuebased”
management control systems are an important way
in which shareholder value management is implemented and
are often linked to profitability goals specified by division or
activity (Jürgens, Naumann, and Rupp, 2000). A number of
different metrics and control systems have been developed,
among them Stern Stewart’s Economic Value Added, LEK’s
Shareholder Value Added, and the Boston Consulting Group’s
Cash Flow Return on Investment (CFROI). Differences
between these metrics tend to be small, and all represent a
“financialization” of management by explicitly tying performance
evaluation to the interests of the shareholder. Adopting
these control systems thus presents a credible commitment
to shareholder-oriented management, and they are
associated with “a quasi-religious element of shareholder
fundamentalism” (Froud et al., 2000: 85). Value-based management
systems are frequently coupled with stock incentive
plans for managers. These programs are generally considered
powerful tools for aligning the interests of management with
those of the firm’s owners and for implementing a shareholder
value approach (e.g., Meyers, 1981).
Our third measure of commitment to a shareholder value orientation
is the adoption of more transparent accounting standards
such as U.S. Generally Accepted Accounting Principles
(US-GAAP) or International Accounting Standards (IAS). For
years, international analysts have criticized German corporations
for not being investor friendly, because German
accounting rules easily allow firms to hide large cash
reserves or improve the balance sheet. The adoption of international
accounting standards reduces the ability of managers
to hide their assets and significantly strengthens the position
of shareholders.
Implementation of these structural changes was coded both
individually (i.e., whether the firm adopted any of these governance
practices) and grouped (i.e., as the number of adopted
practices). Data on a firm’s use of value-based incentive
systems and stock option plans for executives were collected
from annual reports and were verified by contacting the
investor relations or public relations departments of all firms
that were still in existence in 2002. Data on accounting standards
came from the Worldscope segment of the Global
514/ASQ, December 2004