[su_pullquote align=”right”]By David Stolin[/su_pullquote]

On March 31, 2005, Lehman Brothers chairman and CEO Dick Fuld was re-elected to the company’s board with 87.3% investor support. Four years later Mr. Fuld was ranked as “the worst CEO of all time” by Portfolio magazine, and widely described as having professional and personal qualities that contributed to Lehman’s collapse – and, due to Lehman’s position at the heart of the financial sector, to the international financial crisis.

We do not know how every Lehman shareholder voted in that election, much less the reasons for how they voted. We do know that around two-thirds of Lehman’s stock was held by other prominent financial institutions, the top ten being Citigroup, State Street, Barclays, Morgan Stanley Dean Witter, Vanguard, AXA, Fisher Investments, MFS, Mellon Bank, and Merrill Lynch. Most of these firms and their managers would be expected to have repeated dealings with Lehman and its management. As a result, we would expect these firms to be particularly well-informed about Mr. Fuld’s shortcomings and to have voiced concerns about his ongoing concentration of power.
On the other hand, the combination of Mr. Fuld’s shortcomings and his power made him a formidable enemy. He is on record as saying “I want to reach in, rip out their heart, and eat it, before they die” about his professional adversaries.

It is a stimulating thought exercise to visualize Mr. Fuld’s reaction upon learning that, say, Citigroup or Merrill Lynch had voted against his re-election to Lehman’s board. We note that at Lehman, like at the vast majority of U.S. firms, voting was not confidential. This means that Lehman’s management could find out how each of the company’s shareholders voted. And this would raise a problem for Lehman’s institutional investors: even if they disagree with the management, is it worth incurring the management’s wrath by voting against it?



Of course, it is natural for managers to be unhappy with shareholders who vote against them. But for at least three reasons, such feelings matter more when the investee company is in the financial sector.

• The first reason is the “old boys’ network”. Decision-makers at the investing firm are especially likely to be connected to their counterparts at the investee if both have finance backgrounds: they are more likely to have received the same education, to be active in the same professional organizations, to have worked at the same companies in their past careers, and to expect to do so in the future. This increases the potential for retaliation (or reciprocation) at the individual level.

• The second reason is firm-level interaction. Financial firms are more likely to have competitor or supplier/client relationships with their investors than do non-financial firms. This means that retaliation and reciprocation can be channeled through such relationships as well.

• The third reason is cross-holdings of shares. A financial firm may hold shares in its own institutional shareholder, which gives the firm another potential means of retaliating for any anti-management votes by that shareholder, namely, voting against the shareholder’s own management. Conversely, investor and investee may reciprocate by supporting each other through voting.

How can we examine if our suspicions are founded? The only group of institutions systematically required to disclose their votes is U.S. mutual funds, and accordingly we focus our study on mutual fund companies. Our empirical tests suggest that all three types of conflicts of interest listed above do matter. Social ties between the voting and target firms increase the voting firm’s support for the target’s management. In addition, voting appears to be influenced by the fear of retaliation, both in the form of being voted against in the future and of being aggressively competed against in the future. Our results suggest that there is “clubbiness” in the way fund companies vote on each other. We then go on to examine the implications of this clubbiness. We show that directors elected in fund companies with greater own-industry support, monitor senior management significantly less.

To generalize our findings, we then use aggregate voting outcomes to assess whether financial companies as a group vote more favorably when it comes to their financial sector peers and we find that this is the case as well.

In short, the financial sector’s inevitable and extensive investment in itself has a deleterious effect on its governance. What can be done about it? We believe that our work has at least two important policy implications.

First, the notion of conflicts of interest which institutional investors address in their voting policies should be explicitly defined to include not only client/supplier relationships, but also conflicts of interest through product market competition and reciprocal investments. Such recognition would help take voting out of the hands of individuals most inclined to vote in a conflicted manner, or at least constrain these individuals’ discretion.

Second, proxy voting should be required to be confidential at firms in the financial sector; i.e. investee firms should not be able to discover how different shareholders voted. This would mitigate a key reason for conflicted voting, which is potential retaliation/reciprocation by the investee’s management.

It would be naïve to think that decision-making in business can ever be rid of conflicts of interest. But in the case of proxy voting in financial firms, the problem is important enough to deserve a close look from regulators.

[su_spoiler title=”Méthodologie”]Afin d’enquêter sur les conflits d’intérêts entre les gestionnaires d’actifs, les auteurs ont étudié la procuration de votes des fonds communs de placement sur des propositions de gestion d’actifs. L’étude couvre la période 2004-2013 et les variables explicatives étaient les fonds, la société et la relation fonds-société. Ils ont également analysé les résultats des votes rattachés. L’étude a été publié en Mars 2017 en la version papier du Management Science Journal.[/su_spoiler]

[su_pullquote align=”right”]By Pierre-André Buigues and Denis Lacoste[/su_pullquote]

French car-makers exported fewer and fewer cars over the course of the first decade of the 2000s. At the start of the 2000s, PSA was exporting 54% of its French production and Renault 47%.

Ten years later, that percentage had dropped by over 20 points for PSA; Renault’s case is even more critical since the company has even started importing vehicles to France. Today, Renault now produces fewer vehicles in France than it registers! And France now has a significant trade deficit in the car sector; the last surplus was in 2004!

Does this mean that French manufacturers have become less international in their reach?

Absolutely not. Indeed, during this same period, French manufacturers invested heavily in building assembly plants abroad. In the early 2000s, the number of cars manufactured by Renault and PSA abroad represented about 70% of domestic production. In 2010, the ratio of foreign production to domestic production was close to 170% for PSA and almost 300% for Renault.
One might think that these developments are related to macroeconomic and monetary conditions in the Eurozone. However, when you look at the development of German car-manufacturers’ strategies over the same period, it is clear this is not the case. Between 2000 and 2010, we can see that Volkswagen’s exports remained stable while Mercedes and BMW’s exports rose.

Why did delocalized production replace export?

Specialists in business strategy generally agree that the choices made for an international development strategy are determined by two key factors: the company’s competitive advantages and the economic conditions affecting production in the home country.

The competitive advantages of French manufacturers. . Basically, industrial companies can choose between strategies based on low production costs or differentiation strategies based on technological innovation. A low-cost strategy drives companies to delocalize a significant part of production to low cost countries. On the other hand, a differentiation strategy generally goes hand in hand with increased exportation, because the competitive advantage is based on R & D and hence on the high-level expertise that is only available in developed countries. Companies that opt for a low-cost strategy will look abroad for cheap labor whereas those who base their strategy on differentiation will be less affected by the higher production costs linked to domestic production and can draw on the positive effects of the interaction between production and R & D.

In the case of the car industry, there are considerable differences between the innovation strategies of French companies – which seek to set up production abroad – and German companies, which maintain a high level of exports. At the start of the 2000s, Volkswagen was already investing more than twice as much as Renault and PSA in research, and in 2010, Volkswagen’s research budget was three times greater. If we specifically look at the R&D content of each vehicle sold, there is naturally a quite significant technology input with high-end manufacturers like Mercedes and BMW (more than €2,000 per vehicle), but this is the case even with mid-range manufacturers; the R&D content in a Volkswagen car is 20% higher than that of Renault and 45% greater than that of PSA. Again, the gap widened during the first decade of the 2000s; the increase in R&D expenditure per vehicle is significantly higher in German-made cars compared to French-made cars.

The economic conditions in France The more or less favorable domestic business environment, particularly in terms of cost, also has an impact on their choices in terms of international development. What about the French car industry? What are the differences between the French and German environments? If we look at things on a very general level, we see that the hourly labor costs for manufacturing in general increased by 38% in France, compared with only 17% in Germany, during the first decade of the 2000s. If we look closer at the car sector, we can note that productivity per employee was lower in Germany than in France in 2000, but that productivity increased sharply over the decade in question, while it decreased in France. In 2008, employee productivity was 25% higher in the German car industry compared to France. This can be explained by the fact that French car manufacturers have made little investment in France, their priority being their overseas factories.

Even though we may bemoan the extremely negative consequences in terms of employment and the creation of wealth in France, French car manufacturers made strategic choices that are coherent in terms of international development in view of their low R&D expenditure, their medium- and low-end positioning and the unfavorable domestic production conditions in terms of cost. However, it is not surprising that French manufacturers’ profit margins are lower than those of their German counterparts. For example, over the period 2000-2010, the operating profit per car was €635 for VW and around €250 for Renault and PSA.

Is this specific to the car industry in France?

Unfortunately for French international trade and the employment market in France, the car sector is not an isolated case. France has far fewer companies that export than Germany, and the share of exports in French GDP is almost two times lower. On the other hand, France has more large multinationals than Germany (14 companies in the world’s top 100 compared with 10 for Germany) and these French multinationals have a larger proportion of their workforce abroad than their German counterparts.

Consequently, for France to become an “export country” once again, it would take a radical change in the strategic positioning of companies located in France as well as more favorable production conditions in the country.

[su_note note_color=”#f8f8f8″]Written by P.A. Buigues and D. Lacoste. The information in this text is taken from the following articles: “Les déterminants des stratégies internationales des constructeurs automobiles européens : exportation ou investissements directs à l’étranger” (Determining factors in the international strategies of European car manufacturers: exportation or direct investment abroad? ”), published in 2015 in the magazine “Gérer et Comprendre”, written by the authors in collaboration with M. Saias M, and “Les Stratégies d’internationalisation des entreprises françaises et allemandes : deux modèles d’entrée opposés” (International business development strategies of French and German companies: two opposite input models), written by the authors and published in “Gérer et Comprendre” in 2016, as well as their book “Stratégies d’Internationalisation des entreprise” (International Business Development Strategies), published in in 2011 by De Boeck. [/su_note]

[su_spoiler title=”Methodology”]The database was essentially built using information published by the manufacturers in their annual reports, as well as data provided by the French Automobile Manufacturers’ Committee (CCFA), the International Organization of Motor Vehicle Manufacturers (OICA) and by Eurostat. The data relating to international business development, strategies and economic conditions were analyzed over the entire 2000-2010 period. [/su_spoiler]

[su_spoiler title=”Practical applications”]This study shows that any assessment of a company’s choice in terms of international development cannot be cannot be conducted without analyzing other aspects of its strategy (particularly in terms of positioning) and the economic conditions in the company’s home country. The study also suggests that foreign investments are not necessarily the best way forward in terms of international development. The case of the car industry shows that it is possible for a company to keep a significant part of its production in its home country while remaining efficient, even in a global industry. [/su_spoiler]

[su_pullquote align=”right”]By Servane Delanoë-Gueguen[/su_pullquote]

When looking at business creation, people tend to take more interest in the project than in the entrepreneur behind it. However, starting a business has strong personal implications. Assessments of personalized support programs would be more relevant if they paid greater attention to gauging how entrepreneurs feel about their ability to see their project through to completion, particularly as regards the strategic and financial aspects.

What drives someone to want to start a company? Obviously there is the initial project, which may or may not result in the creation of a start-up, but above all there is the individual behind the project, the budding entrepreneur, who will end up transformed by the experience, whatever the result. The process is a form of apprenticeship, during which the business creator acquires new skills, develops new ways of looking at things, and builds networks. If the individuals manage to create their business, this personal transformation will provide them with valuable skills for the company’s development. If not, they will be able to draw on these newly-acquired skills to prepare an entrepreneurial project later in life, or to use their new knowledge working for someone else.

Taking greater interest in the perceived abilities rather than the number of creations

People with new business projects do not have to go through the process alone. They are even encouraged to participate in support programs, which may have a profound impact on the project as well as the person behind it. Unfortunately, when assessing such programs, this personal dimension is rarely taken into account: to evaluate their effectiveness, we tend to focus on the participants’ satisfaction with the program or the fact that they managed to create their business, but not on the effects that the programs have had on the budding entrepreneurs. Our study looked at people participating in a support program set up by Brittany Chambers of Commerce and Industry (CCI). The aim of the study was specifically to analyze this personal impact. Rather than focusing on the project leader’s actual skills, we studied their perceived entrepreneurial self-efficacy , i.e. how the individuals perceived their ability to create a business.

This perceived entrepreneurial self-efficacy – originally developed in the field of psychology – is a key determining factor in the process of creating a company, because not feeling capable can be a major obstacle. If properly evaluated, it can even foster the entrepreneur’s tenacity in the face of difficulties. However, this remains a perceived ability, which is not necessarily representative of the actual ability; indeed, certain individuals have a tendency to underestimate their abilities whereas others overestimate them. Finally, the perception can change, according to four major influences: personal experience, observation of others, verbal persuasion by third parties and emotional state.

The shock of reality

The study sought to measure the change in the perceived self-efficacy of budding entrepreneurs who took part in a support program by interviewing them at the beginning of the project, and then a year later. While we might expect participation in a personalized support program to have a positive effect on entrepreneurial self-efficacy (that is to say, the project leaders feel more capable of creating their company), the results of the study actually show an overall decrease in self-efficacy. If we look in more detail, the only positive impact was on entrepreneurial administrative self-efficacy – concerning the planning of the project and formalities – whereas perceptions related to strategy and finance tended to deteriorate.

These results can be explained by what we could term a “reality check”. At the start of the process, many budding entrepreneurs think that the administrative side is highly complex and focus on this aspect; then they realize that this is not actually the most complicated aspect, particularly since a number of measures have simplified business-start-up procedures over recent years. At the same time, they start to realize how difficult it is to find customers and funding, that there are competitors in the market, and that they never have enough time to do everything. All these aspects are often under-estimated when they build their project.
However surprising it may be, this result shows the value of having an objective assessment of start-up support programs, by focusing on the personal impacts: the aim of support programs is to help people with start-up projects set up viable businesses and understand the realities of the market, not to simply ensure that the majority of the individuals actually start their businesses. With this in mind, it is not necessarily a bad thing for prospective business creators to feel less capable at the end of the process than at the beginning. Participants who ultimately decide not to start their business, after appreciating the importance of having a customer base and a network, have the opportunity to ask themselves the right questions, to readjust their perceived ability, and sometimes realize they are simply not made to be entrepreneurs. They will be better equipped for the next project, or at least thy will have more realistic perceptions.

A practical tool for improving programs

This evaluation method is a valuable tool for improving support programs, with practical uses that can be taken advantage of almost immediately. For example, it may be interesting to adopt a differentiated approach depending on whether the people at the start of the program underestimate or overestimate their ability to create a company, in order to help them reach a more realistic self-perception. In relation to the case analyzed in this study, the support programs could focus more on strategic issues and funding.
These results are a step towards achieving an objective assessment of support mechanisms for budding entrepreneurs. Now, it would be useful to fine-tune the results with a more representative sample group of budding entrepreneurs and extend the research to different types of support initiatives.

[su_note note_color=”#f8f8f8″]Servane Delanoë-Gueguen is a research professor in entrepreneurship and business strategy in Toulouse Business School. She is responsible for the TBSeeds incubator and is joint Head of the “entrepreneur” vocational option. She has a PhD in emerging entrepreneurship from the Open University (UK). Her research focuses on budding entrepreneurs, entrepreneurial ecosystems, business-creation support programs, entrepreneurial desire and business incubation. This publication is a summary of the article “Aide à la création d’entreprise et auto-efficacité entrepreneuriale” (Support for business creation and entrepreneurial self-efficacy”) published in 2015 in theRevue de l’entrepreneuriat.[/su_note]

[su_spoiler title=”Methodology”]Within the framework of her research, Servane Delanoë-Gueguen conducted a longitudinal study. Based on a literature review, she developed a theoretical model with 3 research hypotheses concerning the evolution of entrepreneurial self-efficacy over the course of one year concerning individuals with business start-up projects involved in a support program, who had ultimately created their business or not, with gender differentiation. The model was then tested with a group of budding entrepreneurs. In the first year, a total of 506 people answered a questionnaire to assess their perception of their entrepreneurial abilities. The following year, she managed to re-contact 394 of the people concerned, of whom 325 had a genuine start-up project in progress. Out of this group, 193 people answered the questionnaire again. [/su_spoiler]

[su_pullquote align=”right”]By Akram Al Ariss[/su_pullquote]

In order to win points in the global search for talents, companies had better create a human resources policy that is attractive to self-initiated expatriates. Akram Al Ariss, research professor at Toulouse Business School, has carried out a review of scientific research on this important subject.

The scale of international migrations has been steadily increasing for many years: from 214 million in 2010, the number of people living outside their country of origin has risen to 232 million and may well increase again by 96 million people between now and 2050 according to United Nations estimates. Until now, the potential use of highly skilled talents from this population by organizations has not been paid much attention by researchers. The human resource management literature on this topic refers to these talents as ‘self-initiated expatriates’. Therefore, we use this term in the rest of this article.

A talent pool of self-initiated expatriates

Highly skilled talents who undertake an international mobility are a pool of human resources that could give host countries and companies a competitive edge in the global war for talents. This is especially the case with regard to self-initiated expatriates (SIEs) made up of individuals who have chosen to move of their own free will, and who are often highly qualified and experienced, with a rich linguistic and cultural background. But dipping into this pool first requires identifying, recruiting, developing, and retaining them as staff while satisfying their ambitions. In order to do so, companies need to devise and implement a specially-tailored Human Resources strategy.

This is particularly important for companies which are expanding internationally. For cost reasons, the classic pattern of expatriation of their employees with concomitant salary bonuses and various other benefits, has been replaced in the past few years by a more economical, “local plus” model, in which the employee resigns in order to be rehired under a local contract, with much less favorable conditions. But this system, which generates frustration and understandably dents staff motivation, often leads to a swift resignation, and is counterproductive. In reality, rather than the employee, it is the company that ends up losing in the long term: the saving is only illusory, since the “local plus” strategy creates a detrimental turnover of employees, leading to a brain drain in the company and damages its image in the eyes of potential expatriate candidates. The recruitment of self-initiated expatriates is undoubtedly an interesting way out of this impasse. Since they are already expatriates for non-professional reasons, they will more readily accept to work at local market conditions.

Removing obstacles to their professional integration

The question actually applies to every business: how to target and reach those with high added value individuals? One answer could be by simply taking into account their specific needs. The situation varies according to their experience as well as their countries of origin and host countries. Nevertheless, studies have shown that SIEs face a number of barriers and obstacles that limit their opportunities for integration in their host organizations and societies. Among the most commonly cited, we find the immigration policies of states, particularly regarding visas and work permits, recognition or not of qualifications and professional experience, barriers related to language proficiency and communication codes and, more insidiously, discrimination and stereotypes of all kinds. These difficulties are also exacerbated when it comes to women, who nowadays make up one out of two self-initiated expatriates. A company’s first responsibility is to recognize these obstacles and then help self-initiated expatriates to find a way round or overcome them in order to facilitate recruitment and enable them to find jobs matching their skills.

A differentiated HR strategy

Human resource (HR) managers’ strategy plays an essential role in two specific ways: through adapting their organizational recruitment and selection procedures, on the one hand, and through providing cultural training and development opportunities to these self-initiated expatriates, on the other. In terms of recruitment, HR practices must adapt to this expatriate population, not only to avoid excluding it (for example by neglecting its preferred communication channels or requiring local professional experience that, by definition, it cannot have), but also to attract it (for example by not restricting the job offer to a technical description of the proposed job but giving in addition general information on life opportunities linked to the job). For the company, the main benefit of this proactive and differentiated approach is not to miss out on this highly skilled labor.

The second priority is to encourage them to stay with the company by facilitating their integration and cultural adaptation. Research cannot provide a comprehensive and definitive answer as to why an SIE remains in a job, especially as these reasons may vary from country to country. However, HR management should strive to understand the motivating factors in order to implement appropriate development and retention solutions.

These are only a few indicators from research results. The development of a relevant HR strategy tailored for self-initiated expatriates is essential in any case. Of course, whatever happens, it’s a win-win policy for expatriates themselves, for whom the choice of mobility is then crowned with success, but equally for companies who manage to attract the best candidates, thus giving them a decisive advantage in global competition. Indeed, the international workforce is a source of diversity, creativity and innovation. The winning companies will be those that are capable of looking beyond the various stereotypes, discrimination and obstacles, in order to tap into this worldwide flow of human resources.

[su_note note_color=”#f8f8f8″]


This article written by Akram Al Ariss and articles on “self-initiated expatriation and migration in management literature,” co-authored with Marian Crowley-Henry (Department of Management, National University of Ireland Maynooth), published in Career Development International (2013); “Human resource management of international migrants: current theories and future research”, co-authored with Chun Guo (Department of Management, Sacred Heart University, Fairfiels, CT, USA), published in The International Journal of Human Resource Management, 2015.

Further Reading (books):


[su_spoiler title=”Methodology”]In writing the two articles referenced above, Akram Al Ariss and his two co-authors conducted a systematic review of the scientific research conducted on the subject of self-initiated expatriation.[/su_spoiler]