Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion

Augustin  Landier; Vinay  Nair; Julie  Wulf

Article | Review of Financial Studies | March 2009

Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion

by Augustin Landier, Vinay Nair and Julie Wulf

Abstract

We document the role of geographic dispersion on corporate decision-making. Our findings include: (i) geographically dispersed firms are less employee friendly; (ii) dismissals of divisional employees are less common in divisions located closer to corporate headquarters; and (iii) firms appear to adopt a "pecking-order" and divest out-of-state entities before in-state. To explain these findings, we consider both information and social factors. We find that firms are more likely to protect proximate employees in soft information industries (i.e. when information is difficult to transfer over long distances). However, employee protection only holds when headquarters is located in a less-populated county suggesting a role for social factors. Additionally, stock markets respond favorably to divestitures of in-state divisions. Our findings suggest that social factors work alongside informational considerations in making geographic dispersion an important factor in corporate decision-making.

Keywords: Business Divisions; Business Headquarters; Decision Choices and Conditions; Geographic Location; Employees; Resignation and Termination; Retention;

Format: Print

30 pages

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Citation:

Landier, Augustin, Vinay Nair, and Julie Wulf. "Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion." Review of Financial Studies 22, no. 3 (March 2009): 1119–1148.

Article | Management Science | April 2014

Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management

Maria Guadalupe, Hongyi Li and Julie Wulf

Top management structures in large U.S. firms have changed significantly since the mid-1980s. While the size of the executive team—the group of managers reporting directly to the CEO—doubled during this period, this growth was driven primarily by an increase in functional managers rather than general managers, a phenomenon we term "functional centralization." Using panel data on senior management positions, we show that changes in the structure of the executive team are tightly linked to changes in firm diversification and IT investments. These relationships depend crucially on the function involved: those closer to the product ("product" functions, e.g., marketing, R&D) behave differently from functions further from the product ("administrative" functions, e.g., finance, law, HR). We argue that this distinction is driven by differences in the information-processing activities associated with each function and apply this insight to refine and extend existing theories of centralization. We also discuss the implications of our results for organizational forms beyond the executive team.

Keywords: communication; organizational design; functions; centralization; M-form; hierarchy; top management team; C-Suite; information technology; activities; diversification; Organizational Change and Adaptation; Diversification; Managerial Roles; Organizational Design; Information Technology; Organizational Structure; Management Teams; United States;

Citation:

Guadalupe, Maria, Hongyi Li, and Julie Wulf. "Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management." Management Science 60, no. 4 (April 2014): 824–844. View Details

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This study suggests that peer comparison affects both wage setting and productivity within firms. We report three changes in division manager compensation following a 1991–1992 controversy over executive pay. We argue that this controversy increased wage comparisons within firms, particularly those with geographically dispersed managers—managers with the greatest information frictions. Following the controversy, pay in dispersed firms co-moves more and is less sensitive to individual performance. Relatedly, pay disparity between managers located in different states decreases relative to that of co-located managers. Finally, division productivity falls in dispersed firms, particularly among managers at the low end of the wage distribution.

For decades, management consultants and the popular business press have urged large firms to flatten their hierarchies. Flattening (or delayering, as it is also known) typically refers to the elimination of layers in a firm's organizational hierarchy and the broadening of managers' spans of control. The alleged benefits of flattening flow primarily from pushing decisions downward to enhance customer and market responsiveness and to improve accountability and morale. Has flattening delivered on its promise to push decisions downward? In this article, I present evidence suggesting that while firms have delayered, flattened firms can exhibit more control and decision making at the top. Managers take note. Flattening can lead to exactly the opposite effects from what it promises to do.

Faculty & Research

Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion

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