Knowledge at Wharton

Companies that use compensation consultants end up paying more to their CEOs leading to allegations that these consultants push for excessively high CEO packages because many of them profit from doing other work for the company. A recent Congressional committee report supported the idea that such conflicts drive up CEO pay. But a new Wharton study by accounting professor Mary Ellen Carter and two colleagues suggests that conflicts of interest between the consultant and the firm aren’t to blame.

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When a report prepared by former Senator George J. Mitchell indicated that Roger Clemens and others used illegal performance-enhancing drugs a marketing agency prepared a voluminous report that relied on statistics to make the case for Clemens’ innocence. But an article written by four Wharton faculty -- Justin Wolfers Shane Jensen Abraham Wyner and Eric Bradlow -- questions the methodology used by the marketing agency noting that the validity of any statistical analysis is only as good as its individual components. And these components they add can be easily misinterpreted.

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John Luke Jr. chairman and CEO of global packaging giant MeadWestvaco was a U.S. Air Force pilot in Southeast Asia during the tail end of the Vietnam era. Since coming home to join and eventually run the company he has been responsible for steering a steady course even as flak comes in from all sides. Speaking at a recent Wharton Leadership Lecture Luke said that during MeadWestvaco’s transformation into a business focused on packaging solutions he had to push for a radical change in focus while continually resisting pressure for quick short-term results.

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The video-sharing site YouTube is currently running a comedy sketch contest sponsored by Toyota’s 2009 Corolla. It’s just one of the latest examples of companies using this advertising hot spot to target customers who spend a lot of their time watching online videos. But finding a home in the medium is not so easy Wharton professors say. In a digital world of instant feedback and ruthless honesty a company can either score major brand points or look as ridiculous as any adult trying to hang with the cool kids.

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Hedge funds are key players in the world’s financial markets but no one knows exactly what they’re up to. Critics and supporters tend to share an assumption however that hedge funds are run by talented people who merit their hefty management fees. But new research by Wharton statistics professor Dean P. Foster and Brookings Institution senior fellow H. Peyton Young questions that idea arguing that it’s easy for hedge funds to fool their investors into believing the managers are better than they really are. The industry ”risks being inundated by managers who are gaming the system ... which could ultimately lead to a collapse in investor confidence ” they say.

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The financial markets are in turmoil. Inflation is picking up. Home prices are falling. More companies are laying off workers. Oil prices are sky-high. It’s getting harder and harder to borrow money. It seems like a nest of conspirators is preying on America. Even Washington is reinforcing the impression with talk of sweeping reforms to the system of economic oversight. Indeed  economic commentator Ben Stein has promoted the notion of market manipulation from the shadows largely in the form of hedge funds. Yet Wharton faculty reject that idea saying instead that the market is suffering a hangover from the easy-money excesses of recent years.

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Securitization is often blamed for aggravating -- if not causing -- the subprime mortgage crisis that keeps roiling U.S. real estate and credit markets. By repackaging pools of mortgages into securities that could be resold to investors the argument goes securitization permitted unscrupulous underwriters to offer housing loans to poor borrowers and transfer the risk to Wall Street. How then will the present credit crisis affect the future of securitization? According to professors from Wharton’s finance and real estate departments securitization will not disappear -- but it is in for radical changes.

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Kevin Roberts has been CEO Worldwide of Saatchi & Saatchi since 1997 and in the space of 11 years has cemented the ad agency’s reputation as one of the most successful and creative companies in the industry. Roberts is perhaps most well known for an idea he came up with called ”lovemarks” -- which means creating a brand for which the consumer has ”loyalty beyond reason.” During a visit to campus last week he talked with Knowledge at Wharton about lovemarks and other initiatives. In addition as part of the Wharton Leadership Lecture series he spoke about the skills needed to be a successful marketer what consumers really want his personal management style and the need to have a dream.

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In a new research paper titled ”Dogs on the Street Pumas on Your Feet: How Cues in the Environment Influence Product Evaluation and Choice ” Wharton marketing professor Jonah Berger suggests that what you see in your everyday world can influence what you buy. For example participants in one study who were shown more images of dogs liked sneakers from the Puma brand more than those who had not seen the images -- because dogs are associated with cats and cats with Puma. ”Marketers ... think they have to come up with a catchy slogan or slick advertisement to create a buzz ” Berger says. Instead companies can get a payoff by creating a link between their product and a cue in the environment.

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Innovation timing a good idea and luck are all ingredients of success in the technology industry according to speakers at the recent Wharton Business Technology Conference titled ”Enterprise Agility: Lead with Speed.” Former Microsoft executive Rob Glaser who went on to found RealNetworks and Glenn A. Britt CEO of Time Warner Cable both said strong technology businesses are built on firm technical footings but shaped by business forces that are not always predictable. ”Any successful entrepreneur who says luck did not play a role is either lying or lacks self-awareness ” stated Glaser.

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