Measuring and Explaining Management Practices Across Firms and Countries

Management practices of U.S. and European firms are explored in pursuit of an answer to two questions: why so many firms exist despite poor practices and why so much variability exists across countries. An innovative survey tool that scores 18 key management practices was applied to data collected on 732 medium-sized manufacturing firms in the United States, France, Germany, and the United Kingdom. It was found that the measures of best management practices correlate strongly with superior firm performance in terms of productivity, profitability, Tobin's Q, sales growth, and survival. Significant variation across countries was found, with U.S. firms being better managed than European ones. Firm survival, despite poor management, is found to be a combination of low product competition, allowing poor management practices to persist, and family firms passing management control down to first-born sons. European firms face lower levels of competition and have higher levels of passing firms to eldest sons than do U.S. firms. These two factors alone account for half of the large number of very badly managed firms and between two-thirds and one-third of the management gap between Europe and the United States. (LKB)