Management Practices in Europe, the US and Emerging Markets

1. Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics) John Van Reenen (Stanford GSB/LSE) Lecture 6 1

2. Take away summary points from last week • Many firms often are not adopting basic management practices, in large part due to a lack of awareness • Changing practices is very slow – takes several years: • Takes time for employees to buy into change • Changes are complementary – e.g. monitoring & pay • Change may not be permanent – need to change processes, incentives and often people to avoid backsliding

3. WE FIND FIVE FACTORS ARE ASSOCIATED WITH DIFFERENCES IN MANAGEMENT PRACTICES Competition Governance - Family firms & Private Equity Multinationals Labor market regulations Education

4. COMPETITION IS ASSOCIATED WITH BETTER MANAGEMENT PRACTICES Assessed management practice score Reported number of competitors

5. WE FIND FIVE FACTORS ARE ASSOCIATED WITH DIFFERENCES IN MANAGEMENT PRACTICES Competition Ownership Multinationals Labor market regulations Education

6. FIRMS WITH PROFESSIONAL CEOS ARE TYPICALLY WELL RUN. GOVERNMENT, FOUNDER, FAMILY MANAGED FIRMS ARE NOT Distribution of firm management scores by ownership. Overlaid dashed line is approximate density for dispersed shareholders, the most common US and Canadian ownership type Average Management Score

7. share family CEO share founderCEO (1st generation) share government owned ONWERSHIP PATTERNS OF THESE “POOR MANAGEMENT” GROUPS VARY SUBSTANTIALLY share of ownership (for types associated with low management scores)

8. WE FIND FIVE FACTORS ARE ASSOCIATED WITH DIFFERENCES IN MANAGEMENT PRACTICES Competition Ownership Multinationals Labor market regulations Education

9. MULTINATIONALS APPEAR ABLE TO TRANSPORT GOOD MANAGEMENT AROUND THE WORLD Foreign multinationals Domestic firms Average Management Score

10. MULTINATIONAL OWNERSHIP VARIES SUBSTANTIALLY ACROSS COUNTRIES Foreign multinationals Domestic multinationals Share of multinationals

11. WE FIND FIVE FACTORS ARE ASSOCIATED WITH DIFFERENCES IN MANAGEMENT PRACTICES Competition Governance - Family firms & Private Equity Multinationals Labor market regulations Education

12. LIGHT LABOR MARKET REGULATIONS ALSO FACILITIATE GOOD PEOPLE MANAGEMENT Average people management(hiring, firing, pay and promotions) World Bank Employment Rigidity Index

13. WE FIND FIVE FACTORS ARE ASSOCIATED WITH DIFFERENCES IN MANAGEMENT PRACTICES Competition Governance - Family firms & Private Equity Multinationals Labor market regulations Education

14. EDUCATION IS ALSO STRONGLY LINKED WITH BETTER MANAGEMENT PRACTICES Non-managers Managers Percent with a degree Management score (rounded to nearest 0.5)

15. Take away summary points • Family, founder and government firms, in uncompetitive markets are likely candidates for bad management • Detached external owners (private equity and dispersed shareholders) are associated with the best management • Practices can be improved in every country – multinationals seem to be well managed everywhere

16. MY FAVOURITE QUOTES: The difficulties of defining ownership in Europe Production Manager: “We’re owned by the Mafia” Interviewer: “I think that’s the “Other” category……..although I guess I could put you down as an “Italian multinational” ?” Americans on geography Interviewer: “How many production sites do you have abroad? Manager in Indiana, US: “Well…we have one in Texas…”