UNIVERSITY OF ROCHESTER
WILLIAM E. SIMON GRADUATE SCHOOL OF
BUSINESS ADMINISTRATION
EXP/BRN/444
Organization Theory & Control
© 2005
Summer 2005
Professors James Brickley and Gerard Wedig
Telephone: (585) 275-3433 (Brickley)
e-mail: Brickley@simon.rochester.edu
Telephone: (585) 273-1647 (Wedig)
e-mail: Wedig @simon.rochester.edu
Fax: (585) 442-6323
COURSE OVERVIEW
Basic economic concepts introduced in EXP/BRN 410 are combined with propositions
about contracting problems, knowledge, and the assignment of decision rights in
organizations to develop a framework for solving important managerial and
organizational problems. The course also uses this framework to analyze contemporary
issues in corporate governance.
READINGS
Brickley, Smith, Zimmerman, Managerial Economics and Organizational Architecture,
(BSZ), 3rd edition (McGraw-Hill/Irwin) is the required textbook for this course. There
will also be cases, articles, a video, and handouts distributed.
GRADING
The grading for the course will be based on two components: (1) Study group project
assignment — 25%; and (2) final exam — 75%.
USE OF CLASS TIME
Managerial Economics and Organizational Architecture by Brickley, Smith and
Zimmerman summarizes theoretical aspects of organizational design and provides the
student with a framework for solving organizational problems. Past experience indicates
that most students can comprehend the material without substantial lecturing by the
instructors. Students, however, need practice and guidance in implementing the concepts
from the book. Some class time will be devoted to lecturing and summarizing key
concepts. Most of the class time will be devoted to real-world applications of the
material (examples from your organizations and case studies). Students are responsible
for comprehending all reading assignments regardless of whether or not they are
directly covered in class.
EXP/BRN 444 Course Syllabus
2
Summer 2005
COURSE SCHEDULE
Class 1: Friday, June 10 (Americans) and Monday, June 13 (Swiss)
Introduction to Course
Instructor: Professor Wedig
Topics:
1.
2.
Introduction
Manager’s and Owner’s Perspectives
Readings:
BSZ, Chapter 1
“Meltdown – Barings Bank Collapse”
Class 2: Friday, June 17
Overview of Organizational Architecture and Corporate Governance
Instructor Morning Sessions: Professor Wedig
Topic:
1.
Overview of Organizational Architecture
 Economic Darwinism
 Determinants of Organizational Architecture
 Airtex Case
Readings:
BSZ, Chapter 11
Airtex Aviation, Harvard Business School Case
Topic:
2.
Readings:
BSZ, Chapters 2, 3 (pp. 42-48, 56-68), 10
Malone, “Bringing the Market Inside,” Harvard Business Review Reprint
Jensen and Meckling, “The Nature of Man”
The Building Blocks of Organizational Economics
 Markets and Knowledge
 Firms and Markets
 Contracting Costs
EXP/BRN 444 Course Syllabus
3
Summer 2005
Class 2: Friday, June 17 (continued)
Corporate Governance – Organizational Architecture at the Top of the Firm
Instructor Afternoon Sessions: Professor Brickley
Topic 1:
Background
Readings:
Brealey, Myers, and Allen, “What is a Corporation”
NYSE, Institutional Investors
BSZ, pps. 257-260, “Incentive Conflicts within Firms,” part of already
assigned chapter
BSZ, pp. 319-322, “Decision Management and Control,” part of already
assigned chapter
Topic 2:
Corporate Governance Overview
Readings:
Holmstrom and Kaplan, “The State of U.S. Corporate Governance:
What’s Right and What’s Wrong”
TIAA-CREF – “Policy Statement on Corporate Governance”
“Three Surveys on Corporate Governance”
Topic 3:
Earnings Management
Readings:
Levitt, “The Numbers Game”
“Earnings Management: So What Happened to Reserving: Too Many
Executives Got Caught with Their Hands in the Cookie Jar”
“Freddie Mac Understated Its Earnings by $5 Billion”
Class 3: Monday, June 20
Enron Case Study; Boards of Directors, Auditors and Other Watchdogs; Issues in
International Governance
Instructor for all Sessions: Professor Brickley
Topic 1:
Enron Case Study
Readings:
Darden Case Video: Enron: 1986-2001
“The Finest in Finance: CFO of the Year”
Andrew S. Fastow – Enron Corp.
Report of the Special Investigation Committee, pps. 1-28
EXP/BRN 444 Course Syllabus
4
Summer 2005
Class 3: Monday, June 20 (continued)
Enron Case Study; Boards of Directors, Auditors and Other Watchdogs; Issues in
International Governance
Instructor for all Sessions: Professor Brickley
Topic 2:
Boards of Directors
Readings:
Hamilton, Law of Corporations, Chapters 10, 11, pp. 444-484
“The Five Best Boards”
The Role of the Board of Directors in Enron’s Collapse
Board’s Response to PSI Report
“Ten From Board to Pay”
Topic 3:
Auditors and Other Watchdogs; Sarbanes-Oxley
Readings:
Financial Oversight of Enron: The SEC and Private-Sector Watchdogs
Price Waterhouse Coopers “The Sarbanes-Oxley Act of 2002”
“Companies Complain About Cost of Corporate Governance Rules”
Topic 4:
International Corporate Governance
Readings:
Note on Corporate Governance Systems, Harvard Business School Case
“Europe’s Revolting Shareholders”
“Investigators Outline Parmalat’s Efforts to Hide Liabilities”
Royal Dutch Petroleum Company and the “Shell” Transport and Trading
Company, P.L.C. Pay $120 Million to Settle SEC Fraud Case
Involving Massive Overstatement of Proved Hydrocarbon Reseves
“Sony Breaks with Tradition”
“Standing Firm: Despite Pressure, Samsung Resists Changing Its Ways”
Keidanren Handouts
Class 4: Friday, June 24
Decision Rights, Performance Evaluation and Compensation
Instructor for all Sessions: Professor Wedig
Topic 1:
Decision Rights Assignment
 Centralization vs. Decentralization
 Separation of Decision Management and Control
 Visionary Designs Case
Readings:
BSZ, Chapters 12, 13
Visionary Design Systems, Harvard Business School Case
EXP/BRN 444 Course Syllabus
5
Summer 2005
Class 4: Friday, June 24 (continued)
Decision Rights, Performance Evaluation and Compensation
Instructor for all Sessions: Professor Wedig
Topic 2:
Compensation Policy
 Attracting & Retaining Employees
 Theory of Incentive Pay
Readings:
BSZ, Chapters 14, 15
Kohn, “Why Incentive Plans Cannot Work,” Harvard Business Review
Topic 3:
Performance Evaluation
 Performance Metrics
 Nordstrom Case
Readings:
BSZ, Chapter 16
Nordstrom: Dissension in the Ranks, Harvard Business School Case
Topic 4:
Executive Compensation: Stock Options
 Stock Option Theory
 Theory of Executive Pay
 Evidence on Executive Pay
Readings:
Hall, “What You Need to Know About Stock Options,” Harvard Business
Review
Rappaport, “New Thinking on How to Link Executive Pay with
Performance,” Harvard Business Review
“My Big Fat C.E.O. Paycheck”
“Fat Cats Turn to Low Fat”
“An Early Advocate of Stock Options Debunks Himself”
Class 5: Monday, June 27
Implementation Issues; Project Presentations
Instructor: Professor Wedig
Topic 1:
Implementing Change in OA
 Becton Dickinson case
Readings:
BSZ, Chapter 20
Becton Dickinson: Designing the New Strategic, Operational and
Financial Planning Process, Harvard Business School case
Topic 2:
Project Presentations
FINAL EXAM: FRIDAY, JULY 1, 2005 AT 8:30A.M.
WRITTEN PROJECTS ARE DUE AT THIS TIME!