New Professor in Financial Accounting Examines Corporate Governance and Executive Compensation
The Telfer School of Management welcomes Professor Lamia Chourou, a new faculty member in the Accounting Section. With a Ph.D. in Accounting from Queen's University and a Ph.D. in Finance from the University of Tunis, professor Chourou brings a research focus on capital markets. She was previously a Teaching Fellow at Queen's School of Business. Professor Chourou has published in refereed journals such as the Canadian Journal of Administrative Sciences, the Journal of Multinational Financial Management, and the Canadian Investment Review.
Dr. Chourou’s study of executive compensation in the Canadian context provided something of a departure from previous research that had centred on executive compensation in the U.S. Using a sample of Canadian firms, she examined whether owner managers in Canadian family-owned businesses “expropriate” minority shareholders, with the CEOs receiving higher compensation than the non-owners. She demonstrated that there was indeed evidence of this, particularly when voting and cash-flow rights diverge; the higher the divergence the higher the excess compensation, according to this study published as a lead paper in the Canadian Journal of Administrative Sciences (2010).
The positive news, the study found, was that “good governance helps mitigate or even resolve the problem of managerial opportunism.”
Professor Chourou is continuing her research into executive compensation. She has completed, for example, a study focusing on manipulation of stock options granted to CEOs. The Sarbanes-Oxley Act (SOX) restricted the time frame allowed for reporting of stock option grants to two days, thereby making dishonest backdating much less likely in the U.S. context. Professor Chourou says her upcoming study provides “an opportunity to see whether (and in what manner) Canadian domestic firms cross-listed in the U.S. stock market in the wake of SOX have adjusted the way they manipulate stock option grants.”
Professor Chourou is also interested in examining managers’ accounting discretion in preparing financial statements. For instance, her thesis dealt with managerial discretion in estimating fair values. She found evidence indicating that the market to a larger extent trusts fair value estimates by managers of firms located in more religious areas in the U.S. She also found that religiosity matters more when other external monitoring mechanisms are low. Her thesis adds to the new emerging literature on the effect of firm geographic location on several accounting and finance issues.
Research Seminar by David Doloreux in France to Examine Canadian Wine Industry
Professor David Doloreux examines the Canadian wine industry in the context of the link between innovation and territory in a presentation at the University of Bordeaux in France on April 7 (“Collaboration (Transferable and Nontransferable) Knowledge and Innovation: Study of Cool Climate Wine Industry in Canada”). A Full Professor and Chair in entrepreneurship, innovation and regional development at University of Ottawa, Doloreux will discuss features of the industry, the key factors in the emergence of the wine industry in the different wine-producing regions and the structural and institutional problems hampering the development of the wine industry. He will explore the nature and geography of collaboration in this industry, with emphasis on the relative importance of different sources of knowledge, the spatial dimension of exchanges and their relevance for innovation. This research seminar will be presented at the Institut des Sciences de la Vigne et du Vin at the University of Bordeaux.
Related link:
Research Grant Awarded for Comparative Study of Innovation Practices in Canada and France
Key Lessons Learned From the Demise of Nortel
Three years ago, an interdisciplinary team from the University of Ottawa set out to learn about corporate failure from the demise of Nortel, once Canada’s largest company. The team studied Nortel’s activities for the period from 1997 to 2009. The resulting report explains how a combination of external shocks and managerial decisions led to the eventual demise of a Canadian giant. At its peak, Nortel was the ninth most-valuable corporation in the world.
“By the time data gathering was completed, most of the major customers of Nortel from 1997 to 2009 had been interviewed,” says Jonathan Calof, lead researcher and a professor at the Telfer School of Management. “We interviewed CEOs and several senior officers who were in the room when Nortel decided to file for bankruptcy protection. Our interviews also included 48% of Nortel’s officers who had been with the firm at some point between 1997 and the filing decision.”
Why were all these people willing to share their stories and experiences? It’s clear that many were touched by the failure of this great Canadian company and wanted to help students and others learn from their collective experience.
The demise of Nortel
Failure is complex. With Nortel, it took a combination of many factors, such as a changing business environment, poorly aligned strategies, management decisions that had catastrophic implications for the future of the company and information systems out of step with business needs. Failure is temporal, and for Nortel, it occurred over a number of years. Nortel had underlying problems that began even before 1997, the start of the study period. In 2009, Nortel filed for bankruptcy protection in order to re-group and re-focus.
The study identified three broad factors as reasons for the demise of Nortel:
External business environment. There were several changes in the marketplace—it had had become more competitive, less attractive and far less profitable. Without these changes, the Nortel story would have been very different. But Nortel misread the market and was ill equipped to respond to increased competition, the accelerating rate of technological change and the shift in power to customers.
The black cloud. Key customers no longer believed that Nortel would be around in the long term to fulfill their R & D and support requirements.
Lack of resilience. Nortel’s strategy, structure, poor financial management, business processes, people and culture decreased the company’s ability to adapt to disruptions in the business environment, such as global recessions and increased competition.
What can we learn from this?
The events at Nortel raise some important questions. Should boards fulfill more than just a monitoring function? Or should they adapt to emerging situations, be more proactive and show entrepreneurial leadership when times are challenging? Nortel’s experience offers valuable lessons for advancing corporate theory, for emphasizing the limits of the bare monitoring function of boards of directors and for having adaptive boards that can better cope with challenges arising from leadership problems and the external environment.
Over 100 lessons were learned through this study. Here are the key ones.
- In thinking about how one wants to grow a business, make sure strategy and culture are aligned.
- In a fast-moving environment, one has to maintain situational awareness on customers, competitors and the market.
- Understand your competitive advantage and protect it.
- In a technology-driven company, senior management needs to listen carefully.
- When it comes to customers, one needs to strike a balance between meeting their current requirements and future needs.
- Watch the bottom line, not just in bad times but also in good times.
- Boards are the last line of defence and as such should make evidence-based decisions.
- Customers pay attention to how suppliers behave.
- Business leaders need to know when and how to shift their own corporate culture.
- Manage the ‘business,’ especially during crises.
- Knowing when to retrench is essential in rebuilding resilience and in reducing and eliminating a black cloud of customer doubt.
“Hundreds of people put their faith in our team by telling their Nortel stories in the hopes that they would help us learn lessons and contribute to minimizing or preventing future corporate failures,” says Calof. “It’s our hope that this research will aid in educating tomorrow’s leaders.”
This is more than a Nortel story. It’s a story about corporate failure.
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Study Led by Finance Professor Samir Saadi Awarded Research Development Grant
Research by Samir Saadi focusing on the influence of media coverage on corporate risk-taking behaviour has been awarded $6,000 from the Research Development Program of the University of Ottawa. The aim of this project is to provide insight into three research questions: (1) Does media coverage induce managers to take more or less risk? (2) Does media coverage influence the probability of publicly traded stock experiencing a crash? (3) How does media coverage influence stock price volatility? Professor Saadi and colleagues will carry out their analysis using data from firms included in the S&P index from 1990-2012.
The key objective of the research will be to promote a greater understanding of the linkages between media coverage and firms’ risk-taking as well as firms’ stock prices behaviour. Telfer professors Imed Chkir and Lamia Chourou and Shatanu Dutta of University of Ontario Institute of Technology are co-investigators. Assistant Professor of finance at Telfer, Samir Saadi holds a Ph.D in Finance from Queen's University (2012). His main research interests include IPOs, mergers & acquisitions, payout policy and corporate governance. Professor Saadi’s articles have been published in leading peer-reviewed journals and presented at numerous finance conferences and seminars in North America, Europe and Asia. His work has also been widely cited, including his recent paper on capital budgeting in Canada now cited by several studies and books including four of the most popular corporate finance textbooks (Ross et al, 2013; Booth and Cleary, 2013; Brigham et al, 2013; and Petitt and Ferris, 2013).
Wojtek Michalowski Delivered the Laurent Picard Distinguished Lecture at McGill University
Professor Wojtek Michalowski presented the 2013-2014 Laurent Picard Distinguished Lecture at McGill University, March 14, 2014 in Montreal. This annual event recognizes leading scientists with clear impact on multi-disciplinary research domains. Professor Michalowski drew from his experiences designing, developing, and implementing clinical decision support systems (http://www.mobiledss.uottawa.ca) to discuss the challenges associated with introducing non-medical innovation in healthcare. The talk explored the links between the bench-to-bedside culture of medical research and the process of introducing innovative business of medicine solutions derived from Operations Research models and health informatics. It also explored how participatory medicine affects the innovation process in healthcare.
For more information, including the abstract of Dr. Michalowski’s lecture, visit this link.
