Interview with Marc Hodak, adjunct professor at NYU-Stern, visiting lecturer at the University of St. Gallen and founder of Hodak Value Advisors
What are your main areas of research?
I look at corporate governance in the context of how agency mechanisms (e.g., the formal and informal relationship between employees, directors, and owners) contribute to value creation, both at the firm level and for overall economic welfare. My particular areas of research include performance measurement, executive compensation and organizational behavior, where I have a couple of decades of practical experience in working with corporations and institutional investors.
I have recently broadened my research to look at governance innovations through history, and attempts to create new models of interaction between owners and other stakeholders.
How does your work on corporate governance help companies that want to improve themselves as ethical systems?
I have studied and contributed to a body of knowledge on governance mechanisms, i.e., the legal and financial incentives and constraints under which managers act. I have applied that knowledge via implementation of management programs and incentives at hundreds of organizations over the last 20 years. My colleagues and I (in and out of academia) are continually revisiting the results of this work, and enhancing its applications in the real world.
If you could highlight one paper or research finding (or piece of work that you’ve been involved with) that relates to Ethical Systems which one would it be?
My most comprehensive paper to date on the practical applications of agency incentive mechanisms was “Letting Go of Norm: How to Do Better Than “Best Practices,” in the Journal of Applied Corporate Finance, Volume 17, Issue 4. This was picked up in the July/August 2006 issue of Chief Executive magazine, and by the Aspen Institute’s “Long-term Value Creation: Guiding Principles for Corporations and Investors” in 2010.
Last year, I published a paper that got some attention: “The Growing Executive Compensation Advantage of Private Versus Public Companies,” Journal of Applied Corporate Finance, Vol. 26, Issue 1. This was picked up in The Wall Street Journal, noted by a number of private equity firms and large institutional investors and ultimately contributed to the governance guidelines of some of the world’s largest institutional investors.
Tell us about one of your current or future projects.
I am very excited about the work I am doing on utopian experiments in American business. These include both utopian communities that evolved into businesses (presumably incorporating the values of the communities from which they arose), and businesses that have attempted model communities based on bold visions for redefining the relationship between their companies and their employees or other stakeholders. There were dozens of such experiments in the nineteenth century (and hundreds of other utopian experiments besides) that provide important lessons for social entrepreneurs and visionary business leaders today, both in terms of what can work, and what the real tradeoffs are in implementing significant changes.
How did you first get interested in your field?
For as long as I can remember, I have been obsessed with the question “Why do people do the things they do?” I also started with a strong utopian streak, when I was younger imagining a better world, and later trying to understand both the drivers and roadblocks of human progress.
While my own path looks rather circuitous—engineering, law, finance, and management—each step has helped me better understand the nature of the world, and the inherent trade-offs that must be respected if one wishes to effect change. I’m very big on understanding trade-offs, particularly regarding risk and reward, and between the virtues of progressive versus conservative thinking in problem solving.
If you could give one piece of advice to companies, what would it be?
Mechanisms are at least as important as people. Most owners and directors invest a lot in getting “the right people.” As important as that is, strong capabilities must be matched by good incentives. Highly capable people working under perverse incentives are more dangerous than mediocre people working under good incentives. As companies grow in complexity, perverse incentives begin to proliferate, and need to be increasingly, consciously managed.
Featured academic article: The Growing Executive Compensation Advantage of Private Versus Public Companies
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