Guest Speaker:
Professor of Management & Sociology Marshall W. Meyer
The Wharton School, University of Pennsylvania
Topic:
High-Variance Enterprise Reform: the Case of Chinese State-Owned Enterprises
Chairman:
Associate Professor Augustine H H Tan
Deputy Director, Wharton-SMU Research Center
Venue:
Seminar Room 4, Singapore Management University, 11 Evans Road, Singapore 259368
Date:
Tuesday, 5 June 2001, at 4.30 pm
Reservation:
This seminar is free. Places are limited. Please confirm your attendance by Monday, 4 June 2001, 12 noon with Ms. Lim Lih Yeng at lylim@smu.edu.sg or telephone: 822-0197.
About the seminar:
-Variation rather than convergence is the name of the game among Chinese State-Owned Enterprises (SOEs). SOEs remain vestiges of a command economy but can no longer be commanded to operate uniformly or predictably. The differences in SOE governance, market power, diversification, performance, and CEO aspirations are vast.
-It is likely that differences so vast were never intended. But imagine that they were. Imagine that someone understood ex ante that the capabilities of otherwise inertial organizations can be changed by removing institutional supports, encouraging variation, and then allowing selection and learning to favor firms at the upper tail of the distribution.
-The twin forces of selection and learning may render ownership the last rather than the first concern when reforming SOEs: the state can remove the old institutional props while retaining ownership of these enterprises directly or indirectly. The result is ownership without control, hardly a textbook model of management but, rather, something akin to late 19th century managerial capitalism in the U.S. where firms were driven by strong leaders ("robber barons") whose accountability to shareholders ranged from weak to nonexistent.
-Encouraging variation while retaining ownership and hoping for learning and selection to favor the upper tail is a second-best solution to the problem of reforming state enterprises. It is viable only if firms at the lower tail of the distribution exit successfully. It is inelegant because our standard theories do not anticipate relaxing state control while retaining state ownership.
-Note the priorities implicit in the above: build capabilities first, privatize later. Where capabilities are weak, as they usually are in command economies, firms cannot be improved by command. Reform by command is an oxymoron. Nor can firms be improved by selling shares and hoping for effective corporate governance without experienced directors and senior managers. Rather, capabilities must be strengthened by removing the props sustaining inefficiency, nurturing variation, and allowing learning (imitating and/or replicating the upper tail) and selection (bankrupting the lower tail) to operate.
-Though second-best, the strategy of breaking the rules while retaining state ownership for the time being may work well enough. The question is whether the first-best solution-rapid privatization of state assets and hoping for effective corporate governance-would work better. Would anyone want China to emulate the Russian model of reform?
About the speaker:
Professor Marshall W. Meyer joined the Wharton faculty in 1987. His previous appointments were with the University of California, Cornell University and Harvard University. His research areas are in organizational theory and design; organizational change; organizational performance; and not-for-profit organizations. His current research focuses on properties of performance measures-how performance expectations arise, why measures lose their capacity to discriminate good from bad performance with use, how firms adapt to multiple and inconsistent performance measures.
