| Peter Klein |

To paraphrase Groucho Marx, would you want to take over a firm that wants you to take it over? Most corporate bidders don’t. From Derek Oler and Kevin Smith:

We investigate 401 firms that publicly advertise a desire to be acquired (”take-me-over” or TMO firms) from 1990 to 2006. Over this period the TMO “wave” lags about one year behind the acquisition wave. Most TMO firms show evidence of high debt levels as well as fundamental underperformance relative to industry peers. Although most TMO firms enjoy positive announcement period returns, they significantly underperform in the year following their TMO announcement, and most do not receive a takeover offer. Greater proportionate ownership of the firm by dedicated institutional investors is associated with greater likelihood of the firm avoiding bankruptcy, but not with greater likelihood of the firm being acquired. These results suggest that the TMO announcement is a significant signal of bad news that is not fully anticipated by the market. However, the TMO announcement does increase the odds of the firm actually receiving a takeover offer.

The paper is titled “The Characteristics and Fate of ‘Take Me Over’ Firms.”

I tell you, I’ve been looking for an opportunity to reference Henny Youngman and Groucho Marx in the same post for years!

| Peter Klein |

As a Francophile and Turgot enthusiast I direct you to Frédéric Sautet’s remarks on today’s anniversary of Turgot’s dismissal by the French crown:

May 12, 1776 was one of the saddest days for France. It was the day Louis XVI removed A.R.J. Turgot from office. Turgot was the Minister of Finance of France, the greatest French economist of the 18th century, and a key figure of the French enlightenment (he was a close friend of Condorcet, and Voltaire came to his rescue). He had a great sense of duty, freedom, and civilization. Turgot was too successful, so to speak, in his economic reforms and in the fiscal discipline he imposed on the finances of the French Crown. He fell because he wanted to go too far in the removal of confiscatory taxes (la taille and la corvée), the deregulation of commerce and industry, and the abolition of privileges many guilds and others possessed at the time (e.g. les droits féodaux). Turgot is perhaps the greatest reformer the world has ever seen. If Louis XVI had trusted his Minister of Finance to the end, it is likely that the French Revolution would not have taken place.

Note that Turgot even had his own castle. Ricardo was almost certainly wealthier, though. Böhm-Bawerk was also a fine Minister of Finance.

| Peter Klein |

One of my favorite local restaurants sits next to a Sherwin-Williams paint store. When leaving the restaurant I always pause to gaze upon the Sherwin-Williams logo. A paint can dumping red ooze over the planet’s surface — you can’t get more politically incorrect than that! There’s even a tagline, “Cover the Earth,” in case you miss the point. In today’s environmentally sensitive age this logo is the Anti-Green. It screams: synthetic, industrial, man-made, unnatural. I love it.

I imagine there’s a lot of pressure on the company to reject the logo, but Sherwin-Williams soldiers on. There’s a brief description, charmingly apologetic, on the “Green Initiatives” page of the company website. “Created in the late 1800s, the logo’s purpose was to represent the company’s desire to help beautify and protect the buildings of the world. It was a symbol of a young company’s enthusiasm, idealism and hope regarding its future and the possibility for achievement that hovered on the nation’s horizon.” In other words, that was a different age, please forgive us. Today it’s simply “a figurative emblem signifying quality, integrity and service.” And no more oily residue!

What other firms have politically incorrect logos? Marlboro of course ditched the Marlboro man long ago. Joe Camel made it to 1997 before being ushered into retirement. Robertson’s kept Golly on its marmalade jars until 2001. Oh, and check out this funny set of politically incorrect ads of yesteryear (Santa smoking Chesterfields, a husband spanking his wife for serving the wrong coffee, a group of servicemen being warned “You can’t beat the Axis if you get VD”).

| Peter Klein |

Like other blogs, O&M gets most of its new readers through links from other blogs and websites. But people also find us by searching. Our software shows us what search terms lead people here, and I recently looked up the most popular search terms from our 24 months of existence. Here’s the list.

1. agency theory
2. organizations and markets
3. market based management
4. corruption in organizations
5. concept map
6. organization and markets
7. life in hell
8. history of marketing
9. strategic entrepreneurship journal
10. swot model
11. nicolai foss
12. history of accounting
13. theories of profit
14. unusual business ideas
15. market-based management
16. queen bee syndrome
17. peter klein
18. pareto criterion
19. management theory
20. management theories

Obviously there’s something wrong with the order of items #11 and #17, but otherwise the software seems to work pretty well. . . .

| Peter Klein |

Jim Surowiecki’s latest New Yorker column focuses on Toyota and makes several important points about innovation.

• Process innovation is at least as important as, though less visible than, product innovation.
• Innovation can be an incremental process in which “the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis.”
• Process innovations often bubble up from the bottom, rather than the top, of the hierarchy.
• Cumulative, bottom-up, process innovation is really hard to imitate. “[T]he fundamental ethos of kaizen — slow and steady improvement — runs counter to the way that most companies think about change. Corporations hope that the right concept will turn things around overnight. This is what you might call the crash-diet approach: starve yourself for a few days and you’ll be thin for life. The Toyota approach is more like a regular, sustained diet — less immediately dramatic but, as everyone knows, much harder to sustain.”

These points are well known in the innovation literature but Surowiecki’s succinct and elegant presentation is well worth a read, even by specialists.

See also Steve Postrel’s earlier post on Toyota.

| Peter Klein |

It’s Hayek-Klein Day, and bloggers are sharing their favorite Hayek quotes (Boudreaux, Horwitz). Here’s one of mine:

The typical intellectual . . . need not possess special knowledge of anything in particular, nor need he even be particularly intelligent, to perform his role as intermediary in the spreading of ideas. What qualifies him for his job is the wide range of subjects on which he can readily talk and write, and a position or habits through which he becomes acquainted with new ideas sooner than those to whom he addresses himself.

That’s from “The Intellectuals and Socialism,” published in 1949. (See this for an elaboration of Hayek’s argument.) Substitute “blogger” for “intellectual” and the passage could have been written today!

| Peter Klein |

A special report from Knowledge@Wharton:

While the credit crunch has put a damper on headline-grabbing large buyouts, private equity firms have found other ways to discover value in the current market. In this special report, produced in cooperation with the Wharton Private Equity Club, Knowledge@Wharton looks at how funds are adapting to changes in the credit environment, what opportunities exist in the developed markets of Europe and Japan, and the ways that proposed changes in taxation may affect the industry. Also included is a roundtable discussion on setting up a first-time fund in the current market, as well as an interview with David Rubenstein, co-founder and managing director of The Carlyle Group.

Get the report here. For more on private equity see the proceedings from last fall’s AEI conference.

Incidentally, I used Jensen’s “Eclipse of the Public Corporation” in my strategy class this semester amd continue to be impressed with Jensen’s insight and prescience in that piece, now nearly twenty years old. Still an excellent introduction to the organizational economics of private equity.

| Peter Klein |

Did you catch the list of Top Business Gurus in Monday’s WSJ? Based on Google, Lexis-Nexis, and academic citation indexes, it puts Gary Hamel at the top, followed by Tom Friedman, Bill Gates, Malcolm Gladwell, and Howard Gardner. Our own Jeff Pfeffer checks in at #11. Click the picture below for the entire list. Hamel, Stephen Covey, Michael Porter, Clayton Christensen, and Tom Peters are obvious candidates for Guru Status, though the ranking algorithm produces some unlikely results too, such as Robert Reich and Myron Scholes.

| Peter Klein |

If you troll our comments threads you may notice that each commentator is identified by a little image, what WordPress calls an Avatar. Registered WordPress users can upload custom images to serve as their Avatars. Otherwise, each commentator is now represented by an Identicon, which is not a kind of alien Transformer but a math-based image derived from a user’s IP address. Hope you like your new online self!

| Randy Westgren |

Before enplaning for Vancouver, I spent a great day at the University of Missouri with Peter Klein and his (local) colleagues. I discovered that Peter and I share a common interest in the fiction of Richard Powers, a novelist whose works draw from the biological, physical, cognitive, and information sciences. Moreover, Peter acknowledged that his favorite Powers novel is The Gold Bug Variations; it’s my favorite as well. I finished my second reading on the airplane and found a passage that incites this post:

The world we know, the living, interlocked world, is a lot more complex than any market. The market is a poor simulation of of the ecosystem; market models will never more than parody the increasingly complex web of interdependent nature. (First edition, p. 411)

I agree that market models are pale abstractions compared to any ecosystem. But I have studied a great many models of ecosystems (dynamic system simulations, agent-based simulations, statistical models of species interactions, analytical models of populations) and find them to be pale abstractions of ecosystems, as well. I will propose — for refutation — that most market models I see are less interesting than ecosystem models; they are still undersocialized in the Granovetter sense. The ecological models seem to require more attention paid to the social interactions of the individuals.

Just a thought.