In a recent study, a Rice Business professor found that board members actually need incentives — both short- and long-term — to act in stakeholders' best interests. Getty Images

If you're a stockholder, you may envision your investment helmed by a benevolent, all-knowing board of directors, sitting around a long finely-grained wooden table, drinking coffee, their heads buried in PowerPoint charts as they labor to plot the best course for the company. Too often, however, you can't take for granted that a company's board will steer it wisely.

Companies choose directors because they offer rich and varied experience in the business world. Many who serve on boards, moreover, are CEOs of other corporations, or have headed big companies in the past. As of October 2018, for example, six of the 11 directors on Walmart's board and eight of 13 on AT&T's board hold CEO or CFO positions in other firms. So it's easy to assume that board members will act in the best interests of stockholders.

But in a recent study, Rice Business professor Shiva Sivaramakrishnan found that board members actually need incentives — both short- and long-term — to act in stakeholders' best interests.

Corporations usually compensate board members with stock options, grants, equity stakes, meeting fees, and cash retainers. How important is such compensation, and what sort of incentives do board members need to perform in the very best interests of a company? Sivaramakrishnan joined co-author George Drymiotes to trace how compensation impacts various aspects of board performance.

Recent literature in corporate governance has already stressed the need to give boards of directors explicit incentives in order to safeguard shareholder welfare. Some observers have even proposed requiring outside board members to hold substantial equity interests. The National Association of Corporate Directors, for example, recommended that boards pay their directors solely with cash or stock, with equity representing a substantial portion of the total, up to 100 percent.

To the extent that directors hold stock in a company, their actions are likely influenced by a variety of long-and short-term incentives. And while the literature has focused mainly on the useful long-term impact of equity awards, the consequences of short-term incentives haven't been as clear. Moreover, according to surveys, most directors view advising as their primary role. But this role also has received little attention.

To scrutinize these issues, the scholars used a simple model, which assumes the board of directors perform three roles: contracting, monitoring and consulting. The board contracts with management to provide productive input that improves a firm's performance. By monitoring management, the board improves the quality of the information conveyed to managers. By serving in a consulting role, the board makes managers more productive, which, in turn, means higher expected firm output.

This model allowed the scholars to better understand the relationship between the board of directors and the company's managers, as well as with shareholders. The former was particularly important to take into account, because conflict between a board and managers is typically unobservable and can be costly.

The results were surprising. Without short-term incentives, the researchers found, boards did not effectively fulfill their multiple roles. Long-term inducements could make a difference, they found, but only in some aspects of board performance.

While board members were better advisors when given long-term motivations, short-term incentives were better motivators for performing well in their other corporate governance roles, according to the research, which tied specific aspects of board compensation to particular board functions.

Restricted equity awards provided the necessary long-term incentives to improve the efficacy of the board's advisory role, the scholars found, but only the short-term incentives, awarding an unrestricted share or a bonus based on short-term performance, motivated conscientious monitoring.

The scholars also examined managerial misconduct. Board monitoring, they concluded, lowered the cost of preventing such wrongdoing — but only if the board had strong short-term incentives in place.

Even at the highest rungs of the corporate ladder, in other words, short-term self-interest is the greatest motivator. Maybe it's not surprising. In the corporate world, acting for one's own benefit is a given — so stockholders need to look more closely at those at the very top. Like everyone else, board directors need occasional brass rings within easy reach to do their best.

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This story originally ran on Rice Business Wisdom.

Shiva Sivaramakrishnan is the Henry Gardiner Symonds Professor in Accounting at the Jesse H. Jones Graduate School of Business at Rice University.

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Houston tech startup acquired by Tokyo-based multinational company

exit executed

A Houston company that provides analytics solutions within the chemicals industry has exited to a Japanese company.

Yokogawa acquired Fluence Analytics Inc. in a deal announced today. The terms of the deal were not disclosed and, effective immediately, the company operate as Yokogawa Fluence Analytics. Jay Manouchehri, who joined the company in 2022, will continue to serve as CEO of the entity.

“Combining forces with Yokogawa Electric enables us to capture the full value of our unique data sets, and we can't wait to deliver this added value to our customers," Manouchehri says in a news release. "Together, we will enable autonomous operations and digital transformation in the polymer and biopharma industries."

Founded in 2012 in New Orleans, Fluence Analytics moved to Houston in 2021 following a $7.5 million venture capital raise led by Yokogawa Electric Corp., which has its North American headquarters in Sugar Land.

The company's technology — automatic continuous online monitoring of polymerizations (ACOMP) product — provides real-time analytics solutions to polymer and biopharmaceutical companies worldwide. According to the company, its ACOMP product is the only commercially available system that can measure and analyze multiple polymer properties in real time, which leads to an improved system and less energy consumption and waste.

“Polymers are used in nearly every aspect of modern society in the form of plastics, rubber, paint, and so on," says Kenji Hasegawa, a Yokogawa Electric vice president and head of the Yokogawa Products Headquarters, in the release. "Combining Fluence Analytics' ACOMP system and other technology with our industry know-how will enable us to work with our customers to digitalize and automate polymerization processes that are currently monitored and adjusted manually.

"This will assist customers to improve worker safety, profitability, and environmental performance. We also plan to apply this technology to polymer re-use. We believe this is truly a game-changer for the industry,” he continues.

Fluence Analytics offices in Stafford, just southwest of Houston and has a team of 25 employees. Last fall, Fluence Analytics won in the Hardtech Category of the Houston Innovation Awards.

Houston expert on the advantages of adopting robotic dog technology

guest column

What has 4 legs, can recognize your face, and precisely obey commands on cue? If you guessed a dog, you’re half right.

I’m referring to robotic dogs, a modern marvel of innovative engineering. AT&T recently expanded our solution offers to include network-connected robotic dogs for public safety, defense, federal and state agencies, local police and fire departments, and commercial customers. We do this in collaboration with a leading provider of robotic dogs, Ghost Robotics.

Robotic dogs are just one way we are proving the innovation and transformational possibilities of 5G and IoT. Network-connected robotic dogs can deliver a broad range of IoT use cases, including many that have previously required putting personnel in dangerous situations. Here’s a quick look at some of the fantastic capabilities network-connected robotic dogs deliver.

  • Our robotic dogs can support public safety agencies and organizations on FirstNet – the nation’s only network built with and for America’s first responders. FirstNet delivers always-on prioritized network connectivity for these “first responder” robotic dogs, helping them stay connected during disaster response and recovery, facilities surveillance, and security operations. They can support search and rescue, venture into areas that could imperil human lives, and support the ability to reestablish local communications services following major infrastructure damage.
  • We can integrate Geocast into the robotic dogs to provide Beyond-Visual-Line-of-Sight (BVLOS) operational command and control so that operators of the dogs can be located virtually anywhere in the world and remotely operate them. Geocast is an AT&T innovation covered by 37 patents.
  • The robotic dogs can be equipped with sensors that allow them to operate autonomously without human intervention. They can be outfitted with drones that can launch and return to their backs while in motion, allowing the drones and dogs to perform missions as an integrated team.
  • Rugged terrain? Water? Not a problem. These robotic dogs can move across natural terrain, including sand, rocks, hills, rubble, and human-built environments, like stairs. They can operate fully submerged in water and, like living dogs, can swim.
  • An early use case adopted by the military involves equipping our robotic dogs with wireless network-connected cameras and deploying them to patrol military bases. Robotic dogs we provided to the Air Force at Tyndall Air Force Base in the Florida panhandle are doing just that. Our robotic dogs patrol the flight line and base perimeter at Tyndall, feeding video data in real-time to base personnel who can safely track activity 24/7/365 and support the safety of base operations. They can perform the same task for commercial users, indoors or outdoors. For example, they can patrol the perimeters of large warehouses or outdoor fence lines.
  • They can also support hazmat efforts, inspect mines and high-voltage equipment, and detect explosive devices including improvised explosive devices (IEDs): all while keeping people out of harm’s way.
  • Another interesting use case involves equipping robotic dogs with Long Range Acoustic Devices (LRADs). LRADs are sound cannons that produce noise at high decibels and varying frequencies. We have discussed with the Navy the possibility of outfitting our robotic dogs with sound cannons to warn off wild boars and feral dog packs that have impeded operating crews working on telecommunications infrastructure located in remote areas of one of its bases.

Commercial applications for network-connected robotic dogs are proliferating. Utility companies, for example, are using robotic dogs equipped with video cameras to perform routine equipment inspections in substations. Human inspection requires operators to shut down the facilities during inspections; the robotic dogs eliminate the need to take this precaution. Allied Market Research projects a $13.4 billion global market for the particular use case of robotic dogs performing such inspections.

Our robotic dogs can also be equipped with technology that extends network connectivity into difficult-to-reach areas or mechanical arms that can grip and carry materials such as tools. Their use cases include Pick and Pack capabilities for warehouse operations to improve order fulfillment efficiency.

And this is just the beginning. We’ve said from the outset that the 5G journey of innovation and solution development would evolve to deliver new ways to conquer many challenges.

Now, we’ve let the dogs out.

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Lance Spencer is the Houston-based client executive vice president of defense at AT&T Public Sector.

Exclusive: Hardtech-focused program announces Houston expansion, seeks local leader

changing the world

An organization that directs support to scientists developing impactful technology has decided on Houston for its fifth program.

Activate was founded in Berkeley, California, in 2015 to bridge the gap between the federal and public sectors to deploy capital and resources into the innovators creating transformative products. The nonprofit expanded its programs to Boston and New York before launching a virtual fellowship program — Activate Anywhere, which is for scientists 50 or more miles outside one of the three hubs.

"Our mission is to empower scientists to reinvent the world by bringing their research to market," Aimee Rose, executive managing director of Activate, tells InnovationMap. "There's so much technical talent that we educate in this country every year and so many amazing inventions that happen, that combining the two, which is the sort of inventor/entrepreneur, and giving them the support mechanisms they need to get on their feet and be successful, has the potential to unlock an incredible amount of value for the country, for the environment, and to address other social problems."

This year, Activate is planting seeds in Houston to grow a presence locally and have its first set of fellows in 2024. While Activate is industry agnostic, Rose says a big draw from Houston is the ability to impact the future of energy.

"We're super excited about Houston as an emerging ecosystem for the clean energy transition as being the energy capital of the world, as well as all the other emerging players there are across the landscape in Houston," Rose says. "I think we can move the needle in Houston because of our national footprint."

The first order of business, Rose says, is hiring a managing director for Activate Houston. The job, which is posted online, is suited for an individual who has already developed a hardtech business and has experience and connections within Houston's innovation ecosystem.

"We want to customize the program so that it makes the most sense for the community," Rose says about the position. "So, somebody that has the relationships and the knowledge of the ecosystem to be able to do that and somebody that's kind of a mentor at heart."

The program is for early-stage founders — who have raised less than $2 million in funding — working on high-impact technology. Rose explains that Activate has seen a number of microelectronics and new materials companies go through the program, and, while medical innovation is impactful, Activate doesn't focus on pharmaceutical or therapeutic industries since there are existing pathways for those products.

Ultimately, Activate is seeking innovators whose technologies fall through the cracks of existing innovation infrastructure.

"Not every business fits into the venture capital model in terms of what investors would expect to be eventual outcomes, but these these types of businesses can still have significant impact and make the world a better place," Rose says, explaining how Activate is different from an incubator or accelerator. "As opposed as compared to a traditional incubator, this is a very high touch program. You get a living stipend so you can take a big business technical risk without a personal risk. We give you a lot of hands on support and mentoring."

Each of the programs selects 10 fellows that join the program for two years. The fellows receive a living stipend, connections from Activate's robust network of mentors, and access to a curriculum specific to the program.

Since its inception, Activate has supported 104 companies and around 146 entrepreneurs associated with those companies. With the addition of Houston, Activate will be able to back 50 individuals a year.