As the vitriolic debate on healthcare reform dominates the news, healthcare industry leaders continue to focus on several issues: innovation to drive growth and promote cost efficiencies; new offerings to generate higher value for each healthcare dollar invested; and the emergence of attractive new global markets and technologies. They recognize that continued economic weakness and new sets of competitive and regulatory pressures create a more challenging environment to drive business growth. At the same time, they see tremendous opportunities to develop cost-effective products and services that can dramatically improve patient care on a global basis.

At Columbia Business School’s 6th Annual Healthcare Conference held on November 6, nearly 500 students, alumni and other professionals heard more than 35 speakers and experts discuss these issues. The attendees benefited from panels on an array of healthcare topics including biopharmaceuticals, medical devices and diagnostics, healthcare services and information technology, venture capital/private equity, mergers and acquisitions and emerging markets. The day concluded with a networking reception and career fair where attendees met with the event’s 20 corporate sponsors.

Fred Hassan, chairman and CEO of Schering-Plough, gave the opening address. Despite economic, competitive and regulatory pressures facing the pharmaceutical industry, he was confident that new therapies and vaccines would be developed to address large areas of unmet needs, most notably Alzheimer’s disease, which represents a devastating social and economic threat to society.

Following his remarks, three concurrent panels took place in the morning. They focused on information technology solutions, growth strategies of Big Pharma and small-cap biotechnology companies, venture capital and private equity investment strategies in healthcare, and the impact of proposed healthcare reform initiatives on payors and providers.

Mike Barber, vice president and head of Healthymagination for GE, reviewed GE’s new $6 billion global commitment to develop new technologies and services to reduce costs, improve quality and expand access for millions of people around the world. Among other objectives, this initiative will accelerate healthcare information technology, support consumer-driven healthcare, create new wellness and healthy worksite programs and facilitate access to cost-effective healthcare in rural and underserved areas.

Three concurrent afternoon panels covered healthcare mergers and aquisitions, medical devices and diagnostics, and challenges and opportunities for healthcare companies in the emerging markets. Alex Gorsky, worldwide chairman for medical devices and diagnostics at Johnson & Johnson, discussed emerging opportunities to develop new therapies to extend and improve a patient’s quality of life, as well as new cost-effective and less invasive medical devices and procedures. He also commented on the changes underway in global healthcare companies and how employees need to expand their skills and experiences, such as seeking new functional roles and positions in new geographic regions to broaden their understanding of different healthcare systems and customers.

Photo courtesy of the Healthcare Conference

Behind every great man, some say, is a better woman.

Last Thursday, I had the rare and exclusive privilege to attend “Keeping America Great”, a CNBC-moderated town hall event at Columbia Business School with two incredible men: Warren Buffett, MS ’51, and Bill Gates. Buffett and Gates, the introduction announced, were returning to school, not to learn, but to teach.

Students asked questions about the influence of greed on the financial crisis, Buffett’s purchase of Burlington Northern, career advice, Steve Jobs and what keeps them up at night.

One student asked what advice they had for those who were unclear about what to do in life?

“First of all,” Buffett replied, “I’d say marry the right person. And I’m serious about that. It will make more difference in your life. It will change your aspiration, all kinds of things. It’s enormously important who you marry.”

“Oddly,” writes Roger Lowenstein in his Buffett biography, “when Buffett graduated in 1951, both (Benjamin) Graham and his father advised him not to go into stocks.” Buffett offered to work for Graham for free but Graham turned him down, saying he was still overpriced. Rather than take another job on Wall Street, Buffett returned to Omaha where he began to court Susan Thompson. The two married in 1952. Two years later, he was hired by Graham and the Dow had its best bull run since 1942. In 1954, the Dow (including dividends) rose 50 percent. Three years later Buffett opened his Partnership and the rest, as they say, is history.

Similarly, Bill Gates met his wife at a Microsoft press conference in 1987, “coincidentally” just before the company’s meteoric rise (see stock chart below).

Now, if I learned anything in statistics, there is clearly a positive correlation here. This poses an interesting question. Would Buffett and Gates had such tremendous runs as single men?

Which leads me to a question posed by Dean Glenn Hubbard. He asked the two men how they would develop business leaders who understand context and connect the dots.

“Some never learn, you know,” Buffett replied. “Having sound principles takes you through everything. And the bedrock principles that really I learned from Graham and Dodd, I haven’t had to do anything with them. They take me through good periods. They take me through bad periods. In the end, I don’t worry about them because I know they work.”

Teaching principles has become the new hot topic among business schools. “A year after the collapse of Lehman Brothers,…” a recent article in The Economist questioned, “will (MBAs) be taught to do things differently?”

Along these lines a student asked Buffett whether ethics could be taught in business school.

“Well, I think the best place to learn ethics,” Buffett replied, “is in the home.” (see video clip)

As the event progressed, I began to realize that the event was less about teaching future business leaders about business and more about teaching future business leaders folksy home-grown values.

So allow me to attempt to provide context and connect the dots: a strong partner leads to a successful marriage, which leads to good family values and ethics, good business, and keeping America great. Or in mathematical terms:

Then again, I should have gathered this from the event’s own introduction. Buffett and Gates were returning to school, the introduction announced, “not to learn, but to teach, showing the next generation of business leaders that wealth is not about the money you amass, but the number of lives you enrich.”

So was Buffett’s marriage his most important investment?

If so, please take note: We don’t need a revised MBA curriculum, just more social mixers! Two Columbia Business School students, Mandy Tang ’10 and Lori Clement ’10, are already leading this charge with a new company called Pom Pom Love, a “NYC-based, fun-loving singles events company.”

Cover photo credit: Eileen Barroso

While there is no secret recipe for success, a few of the necessary ingredients became evident on November 12 during an hour of conversation with two of the most successful American businessmen of all time, Warren Buffett, MS ’51, and Microsoft founder Bill Gates.

During their town hall meeting with the Columbia Business School community, Buffett and Gates discussed the environment that facilitated their success, from America’s “equality of opportunity” and willingness to invest in long-term projects to their own driving passion, mentors and even good fortune.

Both Buffett and Gates gave enormous credit to what Buffett termed the “fertile soil” of the American economy: “What drives the American system is the equality of opportunity in a market system and the knowledge that when you get out of here, you're going to enjoy the fruits of the knowledge you have gained,” said Buffett. Gates added that he “was a huge beneficiary of this country's unique willingness to take risk on a young person.”

It became clear that the fruit Buffett referenced was neither money nor his investment in clothier Fruit of the Loom. It’s crucial, Buffett argued, to find a career or idea that “turns you on,” while Gates added that his “fanatical” passion for software drove him forward for the early part of his career. Buffett summarized this point in one of the most poignant moments of the conversation:

“We did both have a passion. We were doing what we did because we loved it. We weren't doing it to get rich,” he said. “We probably felt if we did it well, we would get rich. But we’d have done it if somebody was slipping bread in under the door, you know, to keep us going.”

The two titans of industry also touched on the importance of being taught by good mentors. Buffett cited Columbia professor and father of value investing Benjamin Graham, for whom he went to work shortly after graduating from Columbia Business School.

Another important element of success, they acknowledged, was luck: Gates credited his parents for creating an environment that enabled him to pursue his passion, and his good timing to be working with software while the applications for microprocessors were still developing. “It turned out only if you were kind of young and looking at [the invention of microprocessors] could you appreciate what it meant,” he said.

Passion and opportunity continue to propel Buffett and Gates’ upward trajectories — and they’d like to keep going: “I’d love to trade places with any of you,” Buffett said to the student audience with a knowing smile.

Cover photo credit: Eileen Barroso

“I was told when I graduated that I had to come back and take a few classes,” Warren Buffett, MS ’51, deadpanned as he took the stage with Bill Gates on Thursday as part of a community forum at Columbia Business School. More than 700 students from the Business School were in attendance at the event, which was filmed for global broadcast by CNBC.

A major theme of the 90-minute Q&A session was optimism about U.S. economic prosperity in the long-term, with a nod to future energy issues. That theme underscored Buffett’s comments about Berkshire Hathaway’s recent acquisition of Burlington Northern Santa Fe for $34 billion last week.

“The railroads are tied to the future prosperity of this country. You can’t move a railroad to China or India or anywhere else,” he said. “As the country grows, the transport of goods will grow — [people] will be moving more and more goods back and forth to each other. And you have the most environmentally friendly and the most efficient way of doing that on the railroads.”

The theme returned later in Gates’ discussion about areas he sees with the most growth potential in the United States. He said those include information technology, energy and medicine. Gates discussed the growing field of alternative energy as a driver for a long-term economic development.

“Solar-thermal, solar-electric, nuclear [energy] is going to go through some of the revival and see if it can solve some of its cost challenges. As a country, we want to make sure all of those get lots of R&D and regulatory enablement because one of them is going to give us much cheaper power,” he said. “We don’t have quite as much R&D going into those things as I’d like to see. We have quite a bit, but I think the government policies could drive for more.” He added that he foresees an energy revolution and the United States is expected to lead the way.

Buffett also discussed his value-investing strategy, saying that it had not changed in light of the financial crisis and the fundamentals were the same. “We like companies with a durable, competitive advantage,” he said. On the economy, both Buffett and Gates lauded the actions of the government and the Federal Reserve.

Both men offered advice and inspiration to students. (Marry the right person, said Buffett. Act on your self-confidence, Gates added). Buffett signaled his optimism for future MBA graduates of Columbia Business School, making a promising offer to those in the audience.

“I would pay a $100,000 dollars for 10 percent of the future earnings of any of you,” Buffett said. “If that’s true, you’re a million-dollar asset right now.”

CNBC will broadcast “Warren Buffett and Bill Gates: Keeping America Great” moderated by Becky Quick on November 12 at 9 p.m. and 12 a.m. ET . Join the conversation with other students on Facebook and on Twitter.

Photo credit: Eileen Baroso

They are two icons of American business — Warren Buffett, MS ’51, and Bill Gates. On November 12, Columbia Business School students will have the opportunity to connect with them in person. They will appear together in a special hour-long community forum at Columbia Business School, which will be filmed by CNBC for global broadcast. During the event, Buffett and Gates will field questions from students about the economy, the future of capitalism and corporate social responsibility.

It is the first time Buffett and Gates, who met each other in 1991, have appeared together at Columbia University. The last student forum they participated in was in 2005 at the University of Nebraska at Lincoln. Of the many bonds in their friendship, philanthropy and a shared philosophy of giving back to society is one of the strongest. In 2006, their relationship made the history books when Buffett announced that he would give the bulk of his estimated $40 billion fortune to the Bill & Melinda Gates Foundation.

Gates and Buffett’s latest ventures have been in recent headlines. Last week, Berkshire Hathaway announced a $26 billion deal for the railway company, Burlington Northern Santa Fe. Earlier in this year, Berkshire invested in BYD, a Chinese electric car company.

In a speech in October, Gates called for a new green revolution in agriculture and announced a $120 million package of agriculture-related grants to nine institutions around the world. Taking a page from Berkshire’s playbook, Gates wrote the foundation’s first annual letter this year and said the foundation will give away $3.8 billion in 2009.

CNBC will broadcast “Warren Buffett and Bill Gates: Keeping America Great” moderated by CNBC’s Becky Quick on November 12 at 9 p.m. and 12 a.m. ET . Join the conversation with other students on Facebook and on Twitter.

Photo courtesy of Columbia Business School

Today, one of TED’s offspring — an independently organized local version called TEDxEast — is taking place in New York City. Professor William Duggan, author of Strategic Intuition and co-author of The Aid Trap, written with Dean Glenn Hubbard, and Naif Al-Mutawa ’03, founder of The 99, are among the speakers at the inaugural event. Other speakers include author Suzy Welch, 10-10-10: A Life-Transforming Idea; Scott Heiferman, CEO of Meetup; and Chris Elam, artistic director of Misnomer Dance Theater. Ed Rashba ’04 and Melek Pulatkonak ’02 helped organize the event.

TEDxEast is streaming live from the City Winery in New York City from 1 to 6:30 p.m. ET on November 6. Check back soon for video clips from the event.

How is open source software a form of social enterprise? That was one of the many timely topics that surfaced at this year’s Social Enterprise Conference on October 9. A theme of technology — how it can be leveraged and developed for social endeavors — was prominent throughout the day. Dr. Craig Barrett, the retired CEO and chairman of Intel, was awarded the 2009 Botwinick Prize in Business Ethics, which was presented by the Sanford C. Bernstein & Co. Center for Leadership and Ethics, and gave the keynote address.

In a panel on “The Power of ICT in Social Enterprise,” several participants discussed the challenges of scaling microfinance and mobile banking. In another popular panel with Wikipedia’s Jimmy Wales, the encyclopedia founder addressed the question of open source software: “It solves a lot of incentive and trust problems,” he said. “It’s a powerful way of leveling the playing field and allowing for collaboration.” Wales went on to offer three tips for community design: 1) Open is not the enemy of quality, 2) You cannot have community without participation and 3) Participation can come in unexpected ways.

In his keynote address, Barrett discussed the ways in which Intel has used technology to do good, including its successful education program in 60 countries that is focused on math and science. He also named the challenges he sees for business leadership, drawing from his experience with the European Union’s anti-trust case against Intel that ended with a $1.45 billion fine against the company last May.

“The increasing role of government will put a burden on CEOs to respond to regulations in an appropriate fashion,” he said. Barrett lauded a recent Wall Street Journal op-ed by Coca-Cola CEO Muhtar Kent arguing against a proposed sugar tax as a way to tackle obesity.

Later he said, “The challenge for CEOs and business executives is to stand behind ethics in the face of governments that don’t have the same ethical background or breadth of view.”

Photo courtesy of Columbia Business School

“These are hard times and it’s nasty out there,” Shumeet Banerji, the CEO of Booz & Company, told students in early October. “But hold your nerve. It is getting better and recovery is long and slow.”

Banerji visted Columbia Business School as part of the Silfen Leadership Series and gave an hour-long presentation on career and leadership topics and answered questions. He encouraged students to focus on developing well-rounded characters rather than overly focusing on résumé success.

“It is important to know thyself. Acquiring self-consciousness is the most exquisite transformation that you make in your 30s and 40s,” he said. “Learn what you are good and bad at. Especially what you are bad at.” He also suggested that good leaders think in six to eight month campaigns. “Taken together, they are a course of action,” he said.

He offered 10 career development tips:

1. Pay attention to human capital and who you are as a human being; consider how you think about and construct problems.

2. Get and feed a network. If you only get in touch with people when you need something, it doesn’t work. Be helpful to others as well, even if it’s difficult to take the time and effort.

3. Find mentors. No one is good enough to sort out his problems on his own. Good mentors are the ones who have influenced you and paid attention to you. They not only advocate for you, but they are critical of you as well.

4. Seek diverse experiences and stretch yourself into areas where you are not naturally comfortable. Diverse experience builds character.

5. Be curious about the world and its issues; despite the pain of the financial crisis, it has been an accelerated learning curve.

6. Be interested or else you can’t be interesting. Nothing is worse than a dull dinner companion — you can be interested in anything.

7. Form an educated and distinctive point of view. It helps you make sense of abstraction. Have a worldview to see what forces are at play.

8. Read. At the minimum read a daily financial paper and a dozen good books a year.

9. Look after yourself. Careers are an endurance game and work happens to you more than any other activity.

10. Make time for people you love and who love you. It’s too early to let these people become a subsidiary early in your career. The thing about time is that it is very unforgiving.

Photo courtesy of Silfen Leadership Series

“Your Business School years have coincided with an extraordinary time and now you have a huge opportunity,” Paul Calello ’87 told students in a recent lecture. “The themes of this time are change and responsibility.”

The CEO of the investment bank and a member of the executive boards for Credit Suisse Group and Credit Suisse, shared his views on the financial crisis and gave mentor advice on September 17 as part of the Silfen Leadership Series. Calello serves on the School’s Board of Overseers.

In discussing the impact of the crisis on the financial industry, Calello talked about the ways banks have had to innovate new solutions. He pointed to Credit Suisse’s executive compensation strategy as an example. The bank made headlines last December when it announced it would use its illiquid assets to fund some of its executive compensation packages.

“At first it was internally unpopular … but it was the right and responsible thing to do,” Calello said. “It was a way to align with the interests of shareholders, continue to rid the firm of these risky assets and, at the same time, address employees’ needs.”

Looking into the near future for the finance industry, Calello said he expected “many more significant developments to come in the next two years,” particularly from regulators. In response to a question about job opportunities, he said flow trading areas and products that are exchange-traded and centrally cleared would be strong.

As for practical advice for MBA students, he said there was no alternative to hard work and urged students to learn all they can about the crisis they’ve been living through.

“You will be part of an era of reform,” he said. “We’re relying on you to not repeat mistakes that have been made, but to help restore trust and confidence in our industry.”

Photo courtesy of Columbia Business School

Is it time for a new approach to solving world poverty? That question is at the heart of a new book, The Aid Trap, by Dean Glenn Hubbard and William Duggan, a senior business lecturer at Columbia Business School. In it, they argue that direct loans to businesses similar to the Marshall Plan is a more effective way to help sub-Saharan Africa pull out of poverty, rather than direct aid from charities and NGOs.

Hubbard and Duggan argue the current economic aid system — where non-governmental organizations run development projects — isn’t working effectively and there needs to be a “reorientation” of aid directly into the business sector. In many poor countries local business sectors are suppressed, they say, and that leaves economic development to either NGO-type entities or large multinationals. Their answer is to open up the middle of the economy for local business in order to have long-term sustainable growth.

“The question is mid-sized businesses. If you look at growth in the U.S. over the past two centuries or the industrial revolution in Western Europe, it was centered on growth of mid-sized enterprises,” Dean Hubbard said in a recent video interview at Forbes.com. “Mid-sized businesses need a very different credit structure than either microfinance or large multinationals, and that is missing in much of sub-Saharan Africa. A business focus on aid could get that going.”

Read more about The Aid Trap and in a Q&A with Dean Glenn Hubbard.

Dean Glenn Hubbard called the selection of James P. Gorman ’87 as the new chief executive of Morgan Stanley a “recipe for success.”

Morgan Stanley announced the news on September 10 that Gorman, currently in charge of the firm’s global wealth management division, would replace John J. Mack as CEO starting Jan. 1, 2010.

Gorman has been with Morgan Stanley for four years. In that time he has had key success, including turning around the bank’s retail brokerage operation. Prior to joining Morgan Stanley, he ran the global private client business at Merrill Lynch. Gorman has been a member of the School’s Board of Overseers since 2006.

Dean Hubbard, who has known Gorman since his days at Merrill Lynch, said Gorman was a “terrific pick” and a “strategic thinker”, underscoring industry reports that Gorman was favored as CEO for his ability to switch quickly between jobs and his long-term thinking for the firm.

Photo courtesy of Columbia Business School

If the financial crisis taught business schools anything, it's that the curriculum can no longer turn a blind eye to pressing policy issues that impact business, says Professor Bruce Kogut. (See yesterday’s post about some of the ways the School is incorporating the financial crisis into course work.)

In a recent article in BusinessWeek magazine, Kogut elaborated on his view of the financial crisis and said that it might be best seen through a political perspective, rather than a technical or managerial one. Abundant liquidity and “unprecedented income inequality”, he wrote, paved the way for a flawed incentive system. Kogut argues that there should be more focus on “regulation of the financial markets and less deference paid to financial innovation.”

What does this view mean for business education? Kogut says that politics must have place in the MBA education. He writes:

	Do you share this view? Please leave a comment.

Financial crises are the children of troubled politics, yet management education often eschews political questions. This is a fundamental flaw of most, if not all, business schools. If such questions are left unaddressed, we will produce business leaders with limited perspectives who may not be equipped to deal with the pressing issues of the day. In other words, we must make the case to our students that the political questions, while difficult, are critical to the practice of business — even if this kind of analysis may not appear to serve their immediate self-interest. …

The crisis has reshaped the financial landscape, shifting the value of management education toward pedagogies that strengthen students’ understanding of the fundamental relationships in society — how managerial, technical, ethical, and political elements work together.

Photo credit: Theo La Photo

Stereotypes and bias can affect judgment in the subtlest of ways. New brain imaging research shows just where these biases are experienced deep within grey matter.

“My colleagues and I were interested in determining how the brain responds when people are ‘put on the spot’ by decisions that could make them appear racially biased,” says Malia Mason, assistant professor of management who studies decision-making and the neuroscience of social perception. She will be co-hosting a symposium on diversity and leadership later this month at Columbia Business School.

Mason and her co-authors, Michael Norton, Joe Vandello, Andrew Biga and Rebecca Dyer, looked at how the brain helps people manage decisions that others might interpret as discriminatory. The researchers measured their white participants’ brain activity while they decided which of two individuals was more likely to have certain traits (e.g., gentle, intelligent, Canadian). On some trials participants were asked to decide between two white candidates, on other trials the particpants had to make a judgment involving a white and an African-American candidate.

“The results revealed that the brain’s alarm — the anterior cingulate cortex (ACC), a cortical region that detects conflicts or uncertainties — is triggered when people have to choose between a black and a white candidate,” Mason says. “Importantly, this occurs regardless of the relevancy of the trait or characteristic in question. The sound of the ACC alarm was just as loud when people decided who was Canadian as when they decided who was intelligent.”

Having to choose between a black and white candidate was also associated with activity in brain regions that support concentration (the dorso-lateral prefrontal cortex or DLPFC) and flexible responding (the lateral orbital frontal cortex or LOFC). Like the brain’s alarm (the ACC), these regions were recruited even when participants’ decisions could not be taken as evidence that they harbored stereotypical beliefs. These findings suggest that the judgmental context itself — having to choose between a white and a black participant — sets off a cascade of events and signals the need to proceed with caution and care, to inhibit stereotypical beliefs, and to consider how a decisions will be interpreted by others, says Mason.

“The good news is that people appear to be sensitive to social injustices and highly motivated to seem egalitarian,” says Mason. “Unfortunately, these findings also suggest that egalitarian aspirations alone do not lead to social colorblindness. The challenge is to help people unlearn beliefs with a dubious basis. Our results suggest that brute inhibition of stereotypes is a lot of work for the brain.”

The Program on Social Intelligence and the Sanford C. Bernstein & Co. Center for Leadership and Ethics are hosting the research symposium “Inclusive Leadership, Stereotyping and the Brain” on September 18, 2009. Learn more about the symposium and register for the event here.

Images courtesy of Malia Mason

About one-fifth of the adult population in the United States experiences some kind of mood disorder, with about 6 percent of the population suffering from severe mood-related disorders. The most prevalent instances fall into one of two classes: depressive disorders or anxiety disorders. But why do some people develop depression during very stressful times while others develop anxiety disorder? The answer may lie in regulatory fit and regulatory engagement.

My work on motivational systems recognizes a distinction between the two different types of basic preferences that people exhibit when pursuing their goals, each corresponding with a distinct regulatory state.

People who tend to make decisions and pursue their goals in an eager way, seeking opportunities for advancement, operate in a promotion state. Promotion people are more likely to consider a number of courses of action and exercise a greater willingness to take risks. People who are motivated primarily by cultivating safety and security as they pursue goals operate in a prevention state; they are intently concerned with avoiding errors and less likely to consider a wide variety of options.

When a promotion person operates in an environment in which there is a lot of innovation and risk taking, her environment fits her regulatory state. If you put that same promotion person in an environment where most of her colleagues are vigilant and slow to take risks, she’ll have a hard time operating in the prevailing prevention state — it’s a nonfit for her promotional motivation system. Conversely, when a prevention person finds himself in an eager, risk-taking work culture, she’s in a nonfit environment. (You can read more about the underlying research and its management and marketing applications in Columbia Ideas at Work.)

Depression versus anxiety

I’ve long been interested in why some people fall into depression and others develop anxiety disorder. And I believe that the logic of the two regulatory states, prevention and promotion, can account for these two very different reactions to stress.

Depression and anxiety both represent failures in goal pursuit — depression is a failure in promotion pursuit, while anxiety is a failure in prevention pursuit. When life isn’t going well, people with a promotion focus become sad and discouraged; people with a prevention focus become anxious, tense and worried.

To more fully understand how the promotion and prevention regulatory states inform depression and anxiety, I’ve investigated the role that engagement plays in intensifying how we value the activities we take part in and the goals we pursue.

Engagement is a way of understanding value — how much people value an activity or goal. And engagement is directly related to intensity. Typically when someone’s engagement in an activity or in pursuit of a goal increases — under fit conditions — intensity increases. Sometimes obstacles to goals can make us engage even more intently in what we are doing — and as a result, a goal can become more highly valued; sometimes obstacles cause us to disengage in what we’re doing, and goals and rewards become devalued.

Under fit conditions, both motivational types are engaged. But promotional people decrease their engagement after failure, while prevention people increase their engagement after failure.

When people with a promotion focus fail, they become less eager, and become sad and discouraged. They are no longer enthusiastic — and that’s a nonfit for promotion, there is less of the eagerness that fits their system. The nonfit causes a promotional person to disengage, and that deintensifies all the positive things in life. Loss of interest in even the good things in life is the major symptom of depression.

Prevention is the exact opposite — when prevention-focused personalities fail in prevention, they become more vigilant, anxious and on guard than ever. In prevention, the increased vigilance fits their system — so they actually become more engaged, intensifying all the negative things in life. All the negatives become more negative — which is precisely the main symptom of generalized anxiety disorder.

This work represents the first time in psychology that there has been a theory for why depressed people lose interest in everything and why anxious people generalize their anxiety to everything: they are reacting differently to failures in their distinct regulatory states with respect to both regulatory fit and engagement, which deintensifies positives in one case and intensifies negatives in the other.

If failures in promotion and prevention do account for the two major symptoms of depression and anxiety and explain why they are different, what does that imply for treatment? Tim Strauman of Duke University and I have received a grant from the National Institute of Mental Health to consider this question. Our hypothesis is that by increasing engagement for promotional personalities you can make life’s positives once more positive, and by decreasing engagement for prevention personalities you can deintensify the negatives. We intend to pursue new interventions in therapy that directly address the differences in engagement.

Photo credit: Yoel Ben-Avraham

Should we really be encouraging students to start businesses early in their careers?

I must admit that while my instinct has always told me yes, there have been moments when I wondered if I was right. While our success rate is similar to that of the venture capital industry as a whole, not all of the students we have encouraged to found businesses have been successful.

So in the spring of 2006, some colleagues of mine and I decided to collect some data. We wanted to learn about the entrepreneurial careers of Columbia Business School graduates so that we could know how to serve them better during their time as students.

After analyzing the survey results, we found that the answer to the question of when best to start your own business is not straightforward.

For our survey respondents, starting a first business two to five years after completion of business school led to the creation of the most successful businesses in terms of revenue. However, starting earlier than that was strongly correlated with starting multiple ventures — which was an even more important predictor of success.

The thousands of unique stories that lie beneath these results, all reveal that learning by experience is hard but unavoidable. We’ve found that students learn best when they are working on real projects, and that combining academic and practical experience while in business school can minimize the pain and maximize the gain of entrepreneurial endeavors. We seek to combine the best of academic and practical experience.

Becoming an entrepreneur is a very personal decision, and the right time to start a business is when it’s right for you. On average, 90 percent of the entrepreneurs we surveyed felt it was a good professional decision to start their business when they did; only 10 percent regretted their decision.

But regardless of what the timing may be, there is ultimately nothing more satisfying than running your own company and being master of your own destiny.

Next Week: What to Consider When Starting a Business

	Students use reusable water bottles to reduce plastic waste.

The Columbia Business School community has always evolved with the times, and in recent years, through the tireless work of student leaders, school administrators and faculty members, the thread of sustainability has been woven into the fabric of the School.

Environmental sustainability is important not only in light of increased and increasing regulation, but also the opportunity that comes with it. The cover article in this month’s Harvard Business Review explains that sustainable practices allow business to capture two unique opportunities. First, as much of sustainability is related to reducing waste, companies with sustainable practices can reduce waste and subsequently costs in their value chains to grow their bottom lines. Second, the innovations that are developed to reduce waste can be used to create new products or services to grow a company’s top line. Sustainability could very well be the foundation of business growth for decades to come.

This year, it seemed only fitting to debut a green program as part of orientation to inform students from Day One that sustainability and environmental awareness are part of the MBA experience. Several changes, including waste reduction, recycling, and improved communication, have been made to orientation to reduce environmental impact while maintaining everything that students loved about orientation.

We reduced waste by distributing more materials electronically and we used recycled products where possible (for print outs, packaging for lunch). Peer advisors communicated the importance of green behaviors and extra signs were placed to inform students of recycling locations. In addition, peer advisors also advocated the use of reusable water bottles and coffee mugs that were distributed as part of orientation.

When orientation wraps up next week, we hope new students have had a small taste for one more aspect of what it means to be a Columbia MBA student. The lessons of environmental consciousness that were inculcated during orientation will last well beyond their two years and help to shape their business practices and leadership in an increasingly environmentally conscious world.

Photo courtesy of the Office of Student Affairs

Public outcry has a mixed history of leading to changes in foreign labor practices. For example, in the 90s anti-sweatshop activism led to some successful reforms in labor policy. Today the issue appears less visible. New research from a visiting scholar at the Bernstein Center for Ethics & Leadership examines how organizations respond to societal pressures for changes in their corporate social responsibility policies.

Noshua Watson, visiting Bernstein from INSEAD, studied the case of MAS, a Sri Lankan apparel manufacturer that supplies to companies like Victoria’s Secret, as part of her PhD dissertation. Professor Bruce Kogut advised her work. One of the questions she looked at was whether it is better to meet external demands and conform to industry norms for CSR, or for an organization to differentiate itself.

MAS is typical of many manufacturers in developing countries, where the low cost for implementing modern production methods and an available low-skilled labor pool are appealing. In 2003, the company created — and then heavily promoted — a robust CSR program called Go Beyond for the education and empowerment of its predominantly female workforce. The program has been a social and financial success and it has contributed to the company’s doubling of its revenue from $500 million to $1 billion between 2005 and 2008 by supporting strategic partnerships and bringing in customer donations, Watson found.

Watson concluded that the CSR program at MAS illustrates that there is a difference between “substantive compliance with human rights standards and superficial conformity with industry peers in the way the standards are implemented.” In other words, MAS outperformed the industry standard for CSR and in doing so, was able to leverage that success into growth.

However, Watson says it is not without risk to deviate from industry norms and that companies with a thicker financial buffer are better positioned to innovate new ways of implementing CSR.

“Companies that consistently go beyond industry standards and thrive tend to begin with additional resources that allow them to experiment with their CSR policy,” said Watson. “They also perceive that there will be gains from that experimentation even though simply conforming to industry standards would allow them to satisfy critics.”

Photo credit: hexodus

Even as Spain’s savings banks struggle to survive in the fallout of the banking crisis, one bank, Caja Navarra is pioneering a new way with what it calls civic banking. Their goal is to provide a new level of transparency and agency for customers by engaging them in a dialogue about where their money should be placed.

Caja Navarra is one of 46 regional savings banks in Spain called cajas. The operations are owned by local interests and governments, and the cajas comprise almost half of the country’s banking system. Unique to these regional unlisted mutuals is that they give a hefty piece of their profits to local causes. One criticism of the caja system is that the banks “have become a financial tool of whichever party governs the region.” However, Casa Navarra is doing something new: the bank donates 30 percent of its profits to a social cause that its customers decide upon — and there is transparency about exactly how much the bank’s profits are.

In the latest issue of the Chazen Web Journal, Nicholas Doimi de Frankopan ’09 sat down for a video interview with Enrique Goni, the CEO of Caja Navarra. (view the complete interview). Goni said that he doesn’t think that civic banking is a niche trend, but rather represents the future of banking.

“I am convinced that civic banking and our way to understand it is the pioneer,” Goni says. “I am personally convinced that banking activity has to change radically and if banks are not civic-minded in the future, they will not [exist].”

Earlier this year, as Spain’s commercial banks, such as Santander, went relatively unscathed by the banking crisis, cajas took a hit — Caja de Ahorros Castilla-La Mancha received a €9 billion bailout at the end of March — and they have been far more affected by delinquency and high-risk loans. That has placed renewed debate over the future of Spain’s savings bank system.

Photo credit: failurez

Read the previous post

What is the key to case studies at business school?

“Always know someone who has read the case,” said Professor Todd Jick, bringing a light-hearted touch to a serious subject: learning in the MBA classroom.

Last week, international students arrived on campus. With more than 40 countries represented, the School designed an orientation to help them navigate the intricacies of American (and New York City) culture, including a lecture on learning.

Professor Jick discussed cold calls — the legendary practice of being called on at random — and speaking in class.

We offer you a few dos and don’ts from his presentation:

	What is your best tip for succeeding in the classroom? Please leave a comment.

Do

Add something you know about or share your unique knowledge, such as how it works in your country or experience.

Prepare special analysis (number crunch, Google some background information) and be prepared to share.

Volunteer to add more information to the debate and take a position.

Don’t

Sit in the back of the classroom and try to hide.

Make one big comment and then withdraw for the rest of the term.

Over-prepare a comment and then say it even if the conversation has moved on.

Wait until the end of the term to start speaking and participating.

Participating in class discussion is an essential part of the MBA experience, Jick said, but he also pointed to skills acquired in addition to the case material. The practice of cold calls helps students learn to think on their feet, speak in public, deal with pressure and assemble ideas under the spotlight.

“It’s not the end of the world when you don’t have the answer and you’re cold called,” said Jick, smiling. “But it is the second time.”

Photo courtesy of Columbia Business School

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Today is the last day of the term for MBA students. To recap the summer’s goings-on: in June, J-Term president Christopher Duve ’10 blogged about his hopes for creating an even-stronger community of students. By term's end, the class had hosted a number of happy hours and dinners with an international flavor. Students also completed a volunteer project at the Brooklyn Bridge Park in July. On campus, the summer’s Case Competition (“The Launch of the Indian Premier League”) was won by Philip Buergin ’10, Davide Grande ’10, Phillip Koehler ’10 and Koenraad Wiedhaup ’10. On July 23, the School held a Community Forum focused on behavioral economics with presentations by professors Gita Johar, Eric Johnson and Nachum Sicherman (view the complete video of the forum). And in case you missed it, Daniel Sorid ’10 published an article in the New York Times on August 8 about informal power and authority, inspired by Prof. Eric Abrahamson’s class Power & Influence.

Photo credits: Sridhar Anand ’10; Samberg Center for Teaching Excellence

Her words are now prescient. Sallie L. Krawcheck ’92, speaking on a panel to incoming students in early 2005, discussed the conflict of interest between analysts and investment bankers on Wall Street.

“There is one client and one client only,” she told the audience about how analysts should conduct themselves, warning that research should not be dressed up to please companies. “If the company gets upset with you, then so be it — that’s not your client.”

Her vision for a cleaner Wall Street — which has earned Krawcheck a reputation for honest numbers and ethical leadership over the past decade — may be getting closer to reality. On August 3, she was named president of Global Wealth and Investment Management for Bank of America. This places her as a potential successor to Kenneth Lewis as CEO, according to industry reports. From March 2007 to December 2008 she was the CEO and chairman for Citi Global Wealth Management. She is a member of the School’s Board of Overseers.

Krawcheck’s participation in the School’s Individual, Business and Society Curriculum, which is on focused corporate governance and ethical leadership, underscores the ethics framework she will likely bring to her latest role in the banking industry.

Later this month, incoming students will begin the MBA core, which encompasses corporate governance and lessons learned from the financial crisis of 2008. Paul Glasserman, the Jack R. Anderson Professor of Business, who is overseeing the curriculum’s response to the crisis, says that students will need to take a broader view of management, which includes the role of government in business and behavioral aspects of markets.

“The crisis is a reminder of the importance of integrative thinking — connecting ideas that cut across disciplines,” said Glasserman. “In the coming year, we’ll be involving our students in new cases and classes that stress integration. We’ll also be engaging them in a discussion of the future of finance in the wake of the crisis.”

Photo courtesy of Columbia Business School

About half way through my MBA I began to realize that I was not only learning new skills, but also a new way of thinking. The change in perspective was a bit unexpected. I knew I would learn analytic skills, leadership and marketing techniques at Columbia Business School, but I did not anticipate evaluating opportunities differently or gaining insight into why some business prosper while others fail. That perspective would have served me well in a number of situations. It is something I should have and could have learned in high school or even earlier.

About a year ago I decided to use this summer to try and teach kids about how to be entrepreneurial in business, in life and in their academic careers. A friend of mine runs a NGO in Mexico called PEACE Mexico. The organization hosts summer camps for children and she agreed to let me offer a program focused on entrepreneurship to middle school and high school kids. We opened the camp to public school kids in some of the smaller towns surrounding Puerto Vallarta.

At first, it was a bit of a hard sell — when you are 14 spending your summer learning how to run a business is not the most exciting proposition. But we created a fun and interactive curriculum that teaches entrepreneurship through English language classes, art workshops, games and outdoor activities. We hired most of our camp counselors locally and we also have six volunteer English teachers from the U.S., including Lauren Wall ’09.

On the first day of camp the students heard from a roundtable of local business people who spoke about their experiences as entrepreneurs. The business people spoke about the hard work, challenges and failures they have experienced as entrepreneurs in addition to talking about all the great parts of owning a business. One of the guest entrepreneurs distributes ice cream to local restaurants. Each flavor of ice cream is packaged in the skin of the fruit that it comes from (coconut, orange, etc.). The campers loved hearing about that business because ice cream is always a popular topic, but also because the business idea was launched almost a decade ago in a similar student business plan competition. The ice cream is now sold throughout all of Mexico.

	In addition to learning about entrepreneurship we also did all the things you are supposed to do at summer camp — go to the beach, play soccer, have water balloon fights. Both campers and counselors have had a great time.

We are now wrapping up the fourth and final week of camp. Our 60 campers have learned about famous entrepreneurs, considered their career plans and thought about how they can make a difference in their communities. They have also learned the four Ps of marketing (product, price, place and promotion) and discussed operating and financing businesses. Each group has created a plan for a business that they would like to launch and they will be pitching their ideas in a business fair to local entrepreneurs in hopes of finding funding.

Our students have come up with a range of business ideas. All are easy to start and appropriate for young entrepreneurs to run. One group of kids will take photos in their communities and use those photos to hold photo exhibits and to make calendars. With the money they collect from the calendars they will make improvements to their school (a new science lab is the first project they hope to fund). A second group is going to start a dance school and will teach dances to kids in their community for quincenas (a Mexican tradition much like a debutante ball or Sweet Sixteen celebration). A third group plans to open an after school program for primary school children where they will offer help with homework and extra curricular activities.

All of the business ideas are unique. And like all ideas, some will succeed and others will fail. However, our hope is that the lessons learned can be applied later in life when the students are faced with supporting themselves and their families. For many of the students who are attending the summer camp, life’s prospects are challenging. They come from low-income families and the chances are high that many will not complete high school. Even for those who do make it through high school and college, salaries can still be very low. In Mexico, business ownership is often the key to achieving a solid middle-class lifestyle.

Although I won’t have three months off next year to run the summer camp, the groundwork has been laid. The camp is self-sustainable and the curriculum can be reused. This year we charged kids 10 pesos a day to attend (about $0.80 USD). But not to worry, I haven’t given away all the secrets of business school — some of the kids can probably still benefit from getting an MBA later in life.

Melissa Floca ’09 received the 2009 Nathan Gantcher Prize for Social Enterprise.

Photos courtesy of Melissa Floca ’09

The key challenge that healthcare enterprise leaders face is determining how to drive innovation while addressing problems of affordability, inefficiency and gaps in quality. This task is now complicated by strong economic headwinds that limit the resources available to attack these problems. Industry executives are also dealing with new sets of competitive and regulatory pressures on their efforts to drive business growth.

At Columbia Business School’s 5th Annual Healthcare Conference held in New York City on November 21, over 500 students, alumni and other professionals heard more than 40 speakers and panelists discuss these issues.

The featured healthcare leaders said they are embracing change to develop creative solutions to the industry’s growing problems and to provide attractive investment opportunities on a global basis. A career strategies panel of executive and corporate recruiters also presented their views on the skills and talents necessary for healthcare professionals to succeed in this dynamic environment. This was followed by a concluding career fair and networking reception with the conference’s 17 corporate sponsors.

Ed Ludwig ’75, chairman and CEO of BD (Becton, Dickinson), gave the opening keynote address. Ludwig said that a successful global healthcare company must use technology, scale, global reach and operational excellence to offer value-added products. These products should reduce costs, enhance the quality of patient care and generate sustainable earnings growth.

Following his remarks, four concurrent panels took place in the morning session on the topics of pharma and biotech, medical devices, diagnostics and payor/provider issues.

The pharma and biotech panel discussed the trend among companies to narrow their therapeutic priorities, focus on biologics, pursue licensing and target acquisitions and seek enhanced productivity and cost savings. Numerous early-stage biotechnology companies are turning to larger pharma and biotechnology firms to survive as they are unable to secure capital from the public market. Global medical device companies are seeking to introduce innovative and cost-effective products in a challenging regulatory and pricing/reimbursement environment and pursuing acquisitions and new markets to meet growth objectives. The consensus of the payor/ provider panel was that any healthcare reform in 2009 would likely be incremental due largely to economic and political headwinds, and that a key focus would be on information technology and expanding access to those without insurance coverage.

Robert Essner, former Chairman and CEO of Wyeth Pharmaceuticals and now executive-in-residence at Columbia Business School, provided the lunchtime keynote speech. He suggested that although the pharma industry faces significant challenges, the combination of new drugs, biologics and vaccines in key areas of unmet need (e.g. Alzheimer’s, cancer, congestive heart failure) and the massive influx of informed baby boomers, who are demanding health solutions, provides favorable long-term growth prospects for innovative global pharmaceutical companies.

Three afternoon panels covered M&A, life science investments and emerging markets. It is anticipated that healthcare M&A will remain active across all sectors and that consolidation among Big Pharma companies appears inevitable. Early-stage life science companies and investors face a capital squeeze, which is threatening the viability of existing companies with lower levels of funds available for new investment. Emerging markets are an increasing focus for global pharmaceutical and medical device companies that are seeking new markets for their products.

The final panel of the day focused on the changing talent acquisition and development strategies of major healthcare enterprises. Panelists commented that successful leaders will need to have global and cross-functional experiences; that employees should be open to lateral moves that broaden their skills and experiences; and that healthcare companies considering new hires are seeking a broader “toolkit” of skills that reach beyond the traditional focus on healthcare backgrounds.

For more information about the conference and sponsors visit www.cbshealthcareconference.com.

Columbia Business School’s Social Enterprise Program is poised to reach a milestone this fall when Professor Ray Fisman begins as faculty director, succeeding Ray Horton who stepped down as director of the program in the spring.

In the new issue of Hermes, the cover story tracks the development of the program under Horton’s guidance over the past 25 years. He attributes the proliferation of student interest in social enterprise to corporate scandals and a changing attitude toward the value of contributing to society. Last March, speaking at a social enterprise conference hosted by the Korea Development Institute and Columbia Business School, he elaborated on the meaning, scope and potential of social enterprise. (Complete video of his presentation above.)

Broadly defined, the field of social enterprise is the application of business skills and methods to social problems, Horton said. That can take place in many forms, from socially responsible investing and corporate responsibility to nonprofit management and social entrepreneurship. Horton says that one of the biggest challenges entrepreneurs in the social sector face is how to sustain growth.

	How does an entrepreneurial organization approach the challenge of scalability? Please leave a comment.

“The factor more than any other that clouds the potential of social entrepreneurs is the difficulty of bringing the organizations they found to scale, to sustainable scale,” he said. “The inability to attract sufficient resources converts many would-be social entrepreneurs into salaried employees of larger organizations...Fortunately, there are new developments and new institutions and new ways of using the market that will bring financial and human resources.”

NOTE: In a school-wide effort to conserve materials and reduce costs, Hermes magazine will no longer be mailed to alumni unless they confirm they would like to continue receiving it. If you are an alumni of the School, please log in and confirm your preference.

Cover photo credit: Simon Harvey

	Hiking along the Great Wall of China was a cultural highlight of the East Asia tour.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

During the month of July, approximately 30 incoming Columbia students traveled through East Asia with the goals to experience life in East Asian countries by immersing ourselves in the different cultures and to learn about local economies and how business is conducted in the area. The month-long journey included visits to six countries, nine cities and 12 companies.

East Asia is rich in history and we were able to see it firsthand with a guided tour through the National Palace Museum in Taipei, a hike to the Great Wall in Beijing and a visit to the demilitarized zone in South Korea. The area is also rich in culture, customs and cuisine and we were fortunate enough to learn about them through the eyes of fellow admitted students living in these cities, who acted as our student ambassadors. We will all walk away with fond memories of Jessica Lam ’11 and her parents showing us how to eat local Chinese cuisine in Hong Kong, Kevin Coll ’11 teaching us how to pray to Buddhist deities in the Longshan Temple in Taipei and Jessie Yang ’11 and Janie Kim ’11 demonstrating the proper way to hold chop sticks in Seoul.

One thing that amazed us was the constant juxtaposition of historic relics from the different East Asian dynasties and Buddhist temples with Western-style restaurants, retail stores and corporations. We took many pictures of traditional Chinese temples and markets where the background contained record-setting Shanghai skyscrapers that were home to some of the largest U.S. and European financial institutions in the world.

As Columbia students, we were granted an insider’s view to several of these financial institutions and other companies with significant presence in Asia, including the Hong Kong Trade Commission in Hong Kong, Bertlesmann Media and Goldman Sachs in Beijing, SK Telecom in South Korea and Toyota in Osaka.

The most interesting company visits occurred in China where we learned about the challenges of doing business in a heavily regulated environment. First, we heard from representatives from the Hong Kong Trade Commission who are of the opinion that the People’s Republic of China will shift to a more capitalist, less-regulated society in preparation for Hong Kong’s economic and political integration with the mainland in approximately 40 years.

	The students visited Goldman Sachs in Beijing.

We also heard from an investment banker at Goldman Sachs in Beijing who was not as optimistic about the deregulation, given the recent rejection of Coca Cola’s proposed $2.4 billion acquisition of Huiyuan Juice Group by the China Ministry of Commerce. However, she remained hopeful that M&A regulation would decrease and both international and domestic M&A would increase as the Chinese government and Chinese businesses recognize the importance of M&A to the growth and success of the Chinese economy.

Last, we heard from an equity research analyst at Goldman Sachs who felt that China’s recent announcement, which stated that the government will allow domestic companies to make foreign investments using the renminbi, China’s local currency, is a step in the right direction for deregulation and a more free trade economy.

All the company visits left us intrigued and spurred many debates, especially about where the different East Asian economies are heading and how these nations’ political and economic decisions will affect the U.S. and the rest of the world.

This World Tour experience proved to be a success with all of us for gaining more knowledge of East Asian culture, increasing our interest in East Asian economics and politics and building life long friendships with our fellow classmates.

Photos courtesy of Maria Testani ’11

Read the prior Tour Report blog post from Iran.

The authors won the 2009 Pershing Square Value Investing and Philanthropy Challenge, which was made possible through a gift from Bill Ackman and Pershing Square Capital Management LP and awarded through the Heilbrunn Center for Graham and Dodd Investing.

Participating in the Pershing Square Challenge is the type of experience you go to business school for. Where else in the world do you have the opportunity to pitch a stock to a panel of value investing legends including Bill Ackman, John Griffin, Dan Loeb and Bruce Greenwald?

Our team came together quickly — Tim and Grant worked together over the summer at Blue Ridge Capital and John and Tim knew each other through the CIMA mentor program. Despite other recruiting, academic, and personal (like Grant’s son Griffin) commitments, we all agreed that our goal was to win the competition and that would be a priority for each of us.

We were keen to find a short to differentiate our work from the other 45 teams that were going to have very strong long ideas. After reviewing different sectors, for-profit education appeared to still be attracting rich valuations despite the severe downturn in the market and a questionable customer-value proposition.

We split the sector into three areas and each of us conducted initial diligence on a subset of companies. After reviewing all the major for-profit education stocks, we settled on the Apollo Group (parent company for the University of Phoenix) for three reasons. First, it had a rich valuation. Second, it has questionable business practices, and, lastly, the company cost U.S. taxpayers $250 million dollars through defaulted loans that the government guarantees. We believed highlighting the government subsidy of corporate profits dovetailed with the philanthropic goals of the competition.

We worked on the idea all semester, coming together weekly to discuss the team’s progress and ideas for different analyses. As we neared the submission deadline the measured pace became frantic and our weekly meetings turned into daily ones. In spite of our differing styles and opinions — Grant wanted to explain every detail, John wanted to explain nothing, and Tim wanted a balance — we shared a common goal and our discussions, though at times heated and lengthy, always ended with agreement.

After all the groups presented in the finals and we were waiting for the results, the three of us were remarkably calm. We all had a feeling of accomplishment, not from winning (we hadn’t heard the results yet!), but from putting together what we thought was a thorough and convincing stock pitch. Our feeling turned out to be spot on — we had won the competition and a prize of $25,000 to be used as a gift back to the School.

We took the responsibility of directing Mr. Ackman’s $25,000 gift very seriously. We agreed the money should be used to support both students interested in investing and students who will make a broader impact on society. We hope Mr. Ackman is pleased that the money will be going to scholarships for veterans returning from military service (as part of the Yellow Ribbon Program), a student with a focus on investing and community service, and to the Heilbrunn Center to support the value investing curriculum at Columbia Business School.

We would like to thank Bill Ackman for sponsoring the competition, the judges for taking the time to give us feedback, Erin Bellissimo and the Heilbrunn Center for supporting the competition and the class, professors Paul Sonkin ’95 and Caryn Zweig ’98 for their support in and outside the classroom, and all the mentors who took their personal time to help students and provide feedback throughout the semester.

Photo courtesy of the Heilbrunn Center

We asked some of our faculty members what books they are reading or what they recommend this summer. Here are some of their selections. Please feel free to leave your own recommendations in the comments section.

Maria Guadalupe
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof and Robert J. Shiller
The Savage Detectives by Roberto Bolaño

Jonah Rockoff
Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life by Avinash K. Dixit and Barry J. Nalebuff. (“It’s a classic on game theory and fun to read,” says Rockoff.)

Laurie Simon Hodrick
The Omnivore’s Dilemma by Michael Pollan. (“It’s an incredibly eye-opening book and it raises even more important questions than it answers,” says Hodrick.)

Ray Fisman
Myth of the Rational Market by Justin Fox (“It connects the academic world of finance to the market ethos that took hold on Wall Street over the past few decades,” says Fisman.)
American Pastoral by Philip Roth

Michael Keehner
The Art and Politics of Science by Harold Varmus. (“He’s an interesting guy — winner of the Nobel prize in medicine, NIH boss and now co-chair of the Council of Science and Technology Advisers,” says Keehner. “No doubt he is a player in any healthcare reform package and so I’m curious to see how he choose his particular career journey and how he thinks.”)

Gita Johar
Mindless Eating: Why We Eat More Than We Think by Brian Wansink
Outliers: The Story of Success by Malcolm Gladwell
Made to Stick: Why Some Ideas Survive and Others Die by Chip Heath and Dan Heath
The Histories by Herodotus
Shantaram by Gregory David Roberts
The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It by Paul Collier

Ray Horton
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof and Robert J. Shiller
The Ascent of Money: A Financial History of the World by Niall Ferguson
A Splendid Exchange: How Trade Shaped the World by William Bernstein
A Short Walk in the Hindu Kush by Eric Newby

Daniel Beunza
Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

Joel Brockner
Outliers: The Story of Success by Malcolm Gladwell
Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein

Seth Freeman
Negotiating Hostage Crises with the New Terrorists by Adam Dolnik and Keith M. Fitzgerald (read Freeman’s review)
Shakespeare by Another Name: The Life of Edward De Vere, Earl of Oxford, the Man Who Was Shakespeare by Mark Anderson (read Freeman’s review)

You can also view this complete list and a list of other faculty-authored books on Public Offering’s Good Reads profile.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

Shortly after we began our journey on the World Tour, our South African host took us on a road trip close to the southern most tip of the African continent. The breathtaking setting of the Cape of Good Hope seemed an appropriate point to stop and reflect on the vast inequalities we had witnessed over the first few days of the tour. From the hope and despair of Johannesburg’s Soweto township to the luxury villas and trendy bars of Cape Town’s Clifton Beach, South Africa seemed to represent the full range of potential and challenges that coexist in Africa.

The following travel-filled days — by plane, bus and car ride — were full of discussions about global social welfare and the role of business in achieving it. There was plenty of personal experience to draw on — we have students from Greece, Germany, Egypt and the U.S in our group. Jon Kornik ’11 is working on renewable energy in Africa and Sekher Suryanarayanan ’11 is wrapping up a project aimed at bringing solar-powered lights to Tanzania and beyond. Another group member was reading Jeffrey Sachs’ The End of Poverty, which was an apt book to be passed around the bus on our journey to Kenya. The country is a relative economic success story for Africa, but it is also home to perhaps the world’s biggest slum in Kibera. On the same bus journey, a heated discussion broke out about a Bruce Greenwald lecture attended by Georgios Dimopoulos ’11 and Sekher, who came away with almost completely opposing opinions. We concluded that one of the things we were most looking forward to over the next two years was plenty more intelligent and passionate disagreements!

Traveling in Africa, which is in many ways the world’s final socio-economic frontier, reconfirmed to me that the roles of business and commerce are, in fact, humanity’s true universal languages (step aside pretenders art, music and even love!). Entrepreneurship may take less formal roles but human ingenuity is on offer everywhere you look (street hawkers, foreign exchange touts, Masai tour guides and souvenir sellers) often in spite of, or in outright defiance of, local governments and local laws. I was often reminded of Dean Glenn Hubbard’s “business is social development” phrase.

The following days included a brief stopover in a surprisingly hip Nairobi and a visit with Babafemi Agboola ’11 to the Badagry slave museum a few hours outside of Lagos, Nigeria. A few days later (and just after President Obama’s visit) I found myself retracing the president’s steps alongside Alexander Gordon ’11 and Takayuki Matsunaga ’11 in Cairo, Egypt.

Now, from the historical Middle East to the future Middle East, we’re on to Dubai and Abu Dhabi next and have company visits planned with Google, GE and Mubadala amongst others. The historic events unfolding in Iran mean that portion of the trip will need to be postponed to next year’s World Tour. There’s a sense of uncertainty and wonder about how these economic times will pan out amongst the incoming Class of 2011 but it is more than offset by an infectious mix of ambition and optimism.

Photo credit: Shehab Hamad

Above: Class of 2011 Columbia Business School students visit local business offices in Singapore.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

Our intention, as part of the World Tour, was to adopt a total-immersion approach, which would not only provide us a closer look at the countries’ economies by meeting the local executives, but also introduce us to the local culture and cuisine. Our first stop was Singapore, where we landed on June 7. To help us “immerse” in this country’s culture and introduce us to the city, we connected with a local business school admit, Xin Yu '11, who was a very helpful resource. After uniting with a few more local admits we thus began our Singapore odyssey.

In between visiting local attractions, we had the opportunity to meet with key executives from Credit Suisse, Standard Chartered and Thomson Reuters to learn about their operations in Singapore and other Southeast Asian countries. My most memorable experience was our interaction with former Iraq Bureau Chief from Thomson Reuters. His experience convinced me how safe our working and living environment is compared to a war journalist, who face such tremendous difficulties in getting a real story and earning a livelihood. After our three-day stay in Singapore was over I concluded that it is the most Westernized country in Asia. Indeed, Singapore is now an economic powerhouse precisely because its political, legal and social institutions have been shaped in ways to ensure its assimilation into a global economic system that emanates from the West.

On June 10, we arrived in Malaysia. The drive from the airport revealed to us the country’s strong Middle Eastern and South Indian influences in the region. The architecture of the buildings, a trip to the Batu caves and the local cuisine further confirmed my belief. The highlights of our visit were to the Petronas Towers, which symbolize the strength and grace of the Malaysian economy in the center of Kuala Lumpur, and to Putrajaya, the seat of the federal government. I have never seen such an amazing organization of a government’s office in any other place.

Fresh from our Malaysian quest, we touched down in Bangkok on June 13. Our city ambassador Preaw Achiraya Chalermsuk ’11 did a fantastic job in preparing our itinerary, and our stay in Bangkok encompassed everything that one could ask for. We saw breathtaking natural and cultural sites in and around the city and we ate at exquisite restaurants where we relished the authentic hot-and-spicy Thai food. We also experienced the world-renowned Thai hospitality extended to us by the local Columbia Business School alumni during our company visit to SCG Chemicals. One could easily feel the warmth of the people as one toured around and I would definitely like to visit here again.

Photo courtesy of Kuber Sharma ’11

Above: Class of 2011 Columbia Business School students with Fernando Cardoso and Bill Clinton in Sao Paulo, Brazil.

This post is part of a series following the “Pre-MBA World Tour,” a program of international trips organized by incoming students in the class of 2011.

We started out in Sao Paulo, Brazil to begin the first leg of the World Tour on June 1. Little did we realize our first day would end with bang — Bill Clinton, who was in town to speak at the Ethanol Summit, appeared at the restaurant where we were dining. After some negotiation with the secret service, we managed to steal him and former Brazilian president Fernando Cardoso for some handshakes and pictures. Sao Paulo was an incredible first stop, given the fantastic food, music, diversity, and inviting culture. A fellow 2011 Columbia Business School classmate and Paulista even guided us to his favorite samba locale.

Next, after a few days on the beaches of Rio de Janeiro, we took our time crossing the Brazil-Argentina border at Iguazu Falls. We spent one week in Buenos Aires, splurging on great steak and Malbec wine.

Santiago was our next destination. This Chilean city awed us upon arrival with its beautiful backdrop of the snow-covered Andes. Local Columbia Business School alumni took us out for a fantastic dinner and through them we were able to meet the chairman of Banco de Chile, the largest national bank of the country, and a Department of Commerce representative at the U.S. Embassy.

We’re now in La Paz, Bolivia and already the city has been an eye-opener, both in terms of both the breathtaking landscape and the abundance of poverty. We’re headed to Peru next for the final stop of our journey.

Photo courtesy of Genisha Saverimuthu ’11

From left to right: Executive education account manager Alan Chen, Columbia Business School Professor Ray Horton, University of Massachusetts professor Brian Lickel, Professor Eric Abrahamson and Professor Daniel Ames. They recently returned from teaching a one-week program for nonprofit leaders in Riyadh, Saudi Arabia. Horton, the faculty director of Social Enterprise Programs in Executive Education, shared his thoughts about the experience.

Let me say up front that the assignment with the King Khalid Foundation was one of the most interesting and rewarding experiences I’ve had as a professor. It was also one of the most challenging.

A little background for our assignment: There’s a strong tradition in the world of Islam for giving, which Saudi Arabians certainly live up to. Yet nonprofit organizations have not played a very important role in the country historically because many of the wealthy simply hand out money directly to those in need or to charities that distribute the funds without maximizing the impact of each riyal. However, a growing number of Saudi leaders now recognize that “street-level philanthropy” of this kind tends to sustain poverty rather than reduce it. One of them is Princess Banderi AR Al Faisal, the director general of the King Khalid Foundation.

A growing movement for development
Princess Banderi is leading a movement among Saudi foundations to channel more charitable giving to nonprofit organizations whose programs are designed to address the poverty issue through human development rather than handouts. The success of that strategy depends on the ability of nonprofit leaders to manage their organizations effectively. In recognition of this, the Princess and her colleagues designated management training for leaders of the nascent nonprofit movement as one of the Foundation’s key initiatives.

To this end the Foundation decided it would sponsor the first-ever Executive Education program for nonprofit leaders in Saudi Arabia. With the help and coordination of Dr. Natasha Matic, a strategic consultant to the Foundation, the Columbia Business School program was selected to bring that management training to Riyadh.

It wasn’t an easy program to develop or deliver. We academics can say all we want about the “fundamentals” of nonprofit management, but many fundamentals in the U.S. are not the same fundamentals in Saudi Arabia. We spent a great deal of development time in the months leading up to the program working on our presentations until they received Dr. Matic’s stamp of approval. We thought we were well prepared when we arrived in Riyadh, but we still had some lessons to learn ourselves.

Teaching past cultural differences
I could go on for a long time about the cultural differences that become readily apparent when New Yorkers arrive in Riyadh, but the most obvious difference, on the street and in the classroom, is the relationship between men and women.

I think all of the participants were a little discombobulated at first to discover that the training would be provided in one room rather than two, and that women out-numbered men two-to-one. It took a day for everybody to start feeling comfortable, including us, but by day two things were starting to go smoothly. By day three, the men and women were engaged in lively debate with each other over the strategy projects Eric Abrahamson had designed for them; by day four, Daniel Ames had women and men choosing to negotiate with each other rather than with a member of the same sex. And by day five, I had everyone in the room laughing at me after I illustrated the importance of not wasting scarce resources in reference to some nonprofit leaders in New York City who use chauffeured cars rather than subways to get around — forgetting for the moment that there is no public transportation in Riyadh and, to make matters worse, that Saudi women are not allowed to drive cars. So much for cultural sensitivity.

While it was interesting to see the male-female dynamic change in the course of the week, what impressed me most was the passion these people brought to their professional lives, women and men alike. Many of them run nonprofits with small or non-existent staffs, small or non-existent budgets, and small or non-existent boards, conditions of nonprofit life that would seem to be discouraging. But when you hear them talk about the importance of their missions and the scale of the problems they’re fighting you begin to understand how motivated they are to make their world a better place.

In the end, I know the participants were grateful to the King Khalid Foundation and to us for the learning experience they received. I’m grateful to have had the experience too.

Photo courtesy of Alan Chen

On Thursday the Treasury announced their choice of executive pay overseer, Kenneth R. Feinberg, who will have the task of setting compensation of the top 25 executives at seven financial firms. The new appointment challenges the view that it is not what you pay, but how you pay, that matters, says accounting professor Sudhakar V. Balachandran.

“What we have seen to date tells us that reforms in how boards set compensation are warranted, and that there needs to be a better relationship between pay and performance, particularly performance that is not immediately observable, ” he says.

“That said, it is a completely different matter to say that a centralized body in Washington D.C. can do this better, ” Balachandran continues. “Boards have substantially more information about the company and its circumstances and by centralizing the process we might be throwing away a lot of valuable information. There is a difference between providing reform to the compensation process and providing a centralized compensation policies that are determined by a political process. I believe only the former has a chance of success but I’m afraid we may be heading towards the latter. ”

Photo credit: Michael Aston

The upcoming transition at Xerox from Ann Mulcahy to Ursula Burns as CEO is an important benchmark for female corporate leadership. However, the news at Xerox doesn’t compensate for the fact that there continues to be a paucity of women in senior management positions, says Professor Ray Fisman. Why is that?

In a recent article for Slate, Fisman looks at one of the reasons the gender gap persists in some fields, like science and technology. He suggests that mentoring — beginning in the classroom — may be one area to consider. Fisman considered a study by University of California-Davis economists Scott Carrell and Marianne Page and James West at the Air Force Academy, about academic performance in math and science and professor gender at the Air Force Academy. The study demonstrated that female cadets who had female instructors had better performance than those with male professors (download PDF).

“Having a male instructor didn't just affect female cadets’ performance in their first-year classes — ramifications could be seen throughout their undergraduate careers. Not surprisingly, students who did well in their introductory science classes were more likely to go on to obtain science degrees (and presumably go on to science-related professions),” he writes.

Fisman brought the issue to a scientist and colleague at Barnard, Stephanie Pfirman, for her insight. She made the point that academic performance in young women is not only an environmental issue — but it is also a psychological one and that there needs to be more encouragement for women to “realize that getting an A- or even a B+ in an introductory course doesn’t spell the end of your career as a scientist, as many high-achieving young women believe.”

Without diminishing the very real issues that exist at the institutional level, we wanted to know more about how perfectionism may bottleneck female achievement, in the sciences and beyond, and how might mentorship meet that challenge?

We asked Cali Yost ’95, author of Work+Life Fit, who has written widely about gender and the workplace and mentorship issues, about that topic. She agreed that perfect is too often the enemy of good and that better mentoring could start to resolve this.

“There is a lot of pressure on women to be perfect at both work and at home,” says Yost. “Female mentors may say ‘You can’t do this job and have a life’ rather than giving a broad and innovative way to do both. They may not have had a lot of choices and flexibility when they were doing it 20 or 30 years ago, and so they are not able to mentor in that dimension. There needs to be more conversation around that.”

Yost points out that employers today are more willing to consider alternative and flexible options for women with families, for example. And that needs to be acknowledged in the mentoring process itself.

“One skill set for mentoring is that when mentees ask ‘How did you do it?’ the mentors talk about in such a way that shows that their experience isn’t the only way or answer,” Yost says. “They may say things that may not apply today and we need to facilitate the conversation and help mentors be creative in the context of today.”

Photo credit: Alvaro Canivell

Narayana Murthy is arguably the most respected voice in India’s business community. Under his leadership, the computer services firm Infosys, which he founded in 1981 with six others, paved the way for the booming outsourcing industry that now thrives in the country. In 2005, the Economist ranked him 8th among the 15 most admired global leaders.

His words and his presence exuded a blend of conviction, practical wisdom and humility as he delivered the inaugural Khemka Distinguished Speaker Forum talk to the Columbia Business School community at University Club in Manhattan on May 26.

Mr. Murthy offered a provocative thesis on what has gone wrong with capitalism in recent times and how to fix it. Instead of focusing on regulatory policy and institutional reform, he took aim at the enemy within — the need for a change in leaders’ attitudes and mindsets, the need for each of us to, in Gandhi’s words, “be the change we want to see in the world.”

What do you think of Mr. Murthy’s definition of “success” as being “not about money or power… [but] the acceptance by the circle of your family, friends and your community that you are indeed valuable”? What is your definition of success in life?

Mr. Murthy’s prescriptions for strengthening our leadership qualities — such as “creating an environment of happiness around you”, “shunning jealousy” and seeing all parts of your life in totality — resonate well with the scientific findings and great-achiever stories that we discuss in the CBS course on Personal Leadership & Success. Which prescriptions do you find provocative, or difficult to accept? Why? And which of them strike a strong chord with you?

Columbia Business School students will have the opportunity to strengthen the spirit of a lifetime community in the coming months. As part of the 180 January-start students who converge on Warren each day over the summer, we can draw on our smaller class size to strengthen our bonds.

Summer on campus is more relaxed and less hectic than the fall schedule when days are filled with running from meetings to guest speakers to club events. Daily life is more personal and we have the chance to break out of the three J-Term clusters and intermingle with the entire program.

However, too many of us fall into the trap of thinking that building a network of our peers is synonymous with creating a community of our peers. Instead of being an aspiration, creating community has quickly become a buzzword or an empty cliché. But every one of us at CBS has the chance to build more than just a world-class network; we have the opportunity to become a member of a family. This summer we can jump-start that process.

We are making a concerted effort to break down the cluster barriers and fully integrate everyone in the J-Term into one big community. Events in the spring semester, such as Cluster Cup and core classes, revolved around our small cluster groups. However, this summer those lines are dissolving and we are planning all activities — Friday soccer anyone? — for the entire community of J-Term students.

Community is about more than the person standing to your right and the person to your left when you graduate, it is about creating a sense of belonging where you can feel a part of something greater than yourself. Camaraderie and loyalty that extends to anyone who shares the CBS experience is the foundation for developing the lifetime community as well as growing a strong brand.

Though we come from diverse backgrounds and all have different goals and dreams, no matter where we go in life we all forever be linked to each other through our time here at the School.

As a member of the Class of 2010, and a January-start student, I look forward to welcoming the returning class, alumni, newly admitted students, faculty and staff. Our experiences together this summer, and until we graduate next May, create a community that brings the words on paper for the Community Contract to life.

Photo courtesy Office of Student Affairs

Last week, Xerox made history when it announced that CEO Anne Mulcahy will be succeeded by Ursula M. Burns when Mulcahy steps down in July.

The occasion marked the first time that a female CEO of a Fortune 500 company has passed the position to another female. Currently, there are 12 female CEOs in the Fortune 500.

The transition, which has been carefully orchestrated, represents a textbook leadership succession plan as well as an important benchmark for women in corporate leadership. However, as important — if not more so from a performance standpoint — will be the number of women holding senior management positions. (Indeed, Mulcahy will remain as chairman on the board.)

Research from Professor David Gaddis Ross indicates that having a higher percentage of women in senior management positions equates to better firm performance. From a recent article in Ideas at Work about Ross’s research:

To investigate the connection between women senior managers and firm performance, Ross and Dezsö examined such performance metrics as the market-to-book ratio, return on assets, return on equity and annual sales growth from 1992 to 2006 for the largest 1,500 U.S. firms. The researchers analyzed the relationship between these measures and the percentage of women in senior management positions up to, but not including, the CEO level. Separately, they studied these performance measures in firms that had female CEOs.

Their findings showed that having a higher percentage of women in senior management positions up to the CEO level — in most cases, just having a single female — is positively associated with better firm performance. For companies with a female CEO, however, the association with firm performance is neutral or negative. This suggests that female senior managers do add value to their firms but that whatever special qualities female managers may have are neutralized by the unique attributes of the CEO position.

In news closer to home, another technology company led by a female CEO was recently profiled in Alumni News. Read a Q&A with Rebecca Masisak ’90, co-CEO of TechSoup Global.

Photo courtesy of Xerox

This post contains an update.

If there was a theme to the evening it was the call for bold, new action in business leadership. Columbia Business School’s 33rd Annual Dinner, held at the Waldorf-Astoria on May 4, honored Meg Whitman, former CEO of eBay, and Cory Booker, mayor of Newark, N.J., for their leadership in private and public sectors.

“We are on the cusp of a new era of business,” Dean Glenn Hubbard said in his introduction. “We must reaffirm the positive role that business plays in society and to reinforce the responsibility of schools like ours to create whole business leaders — problem solvers who understand the puzzle, not just one piece of it.”

The dinner, which was attended by more than 800 alumni, students and friends of the School, included remarks by Board of Overseers member Paul Calello ’87, Columbia University President Lee Bollinger and Professor Bruce Greenwald.

Whitman, who is seeking the Republican nomination for California governor in 2010, discussed her experience at eBay and offered a few ideas that she said were key to the company’s success under her leadership. Those ideas included focusing on what you do best, surrounding yourself with talented people, and being courageous enough to take calculated risks.

“The price of inaction is greater than making a mistake,” she said.

Booker, honored for his leadership in public service, received a standing ovation for his remarks, which were a call to action for value-based leadership.

“We must answer to the call of courage in our own way,” said Booker. “It falls on us to do something in this century that we will be remembered for.”

UPDATE (5/21/09): View more photos from the Annual Dinner, now posted on Columbia Business School’s Flickr group. -CN

Photo credit: Jon Roemer

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More than 700 freshly minted MBAs lined up on the west side of Uris Hall on the morning of May 20, 2009 to start the procession for the 255th Commencement of Columbia University.

In his final e-mail address to the class of 2009, Dean Glenn Hubbard offered guidance for the uncertain economy that the new graduates face. He wrote:

The current economic situation offers another lesson as well. Recessions are times of change and turmoil. In this environment, economies built on entrepreneurial capitalism offer managers and entrepreneurs chances to “connect the dots” in a bottom-up way that drives innovation. Seen this way, entrepreneurship and innovation are less the harsh discipline of creative destruction, to use Joseph Schumpeter’s famous term, than the nondestructive creation embedded in the company examples I gave earlier [Revlon, Hewlett-Packard and Apple].
 
And you will feel this opportunity. Your MBA and the network that comes with it are like a key to unlock a future opportunity whenever it comes your way. The most frequent comment I get from alumni is that their Columbia MBA gave them a Eureka! moment just when they needed it.

Congratulations, class! To see more pictures from the past year, view the Columbia Business School’s Flickr page. Complete webcasts of the Commencement ceremonies are also available.

Photo credit: Catherine New

	Brad Doppelt ’10, Brandt Blimkie ’10 and Darren Bounds ’10 proudly bearing their “partner” passes while waiting for the doors to open at the annual meeting.

I could have sworn I was at a rock show, not an annual meeting. Yet there I stood outside the Qwest Center in Omaha, Nebraska at 6 a.m. on a Saturday morning alongside 35,000 other excited fans waiting for the doors to open for the 2009 Berkshire Hathaway Annual Meeting.

The annual meeting’s “cowboy” theme this year couldn’t have been more appropriate. Our tickets branded us as “partners,” not shareholders. And when the doors finally opened, I found myself caught in a stampede for the best seats in the stadium. Never in my life did I anticipate that I’d be competing in an early morning foot race against agile seniors at 7 a.m. for a chance to listen to a pair of octogenarians speak for six hours.

Fortunately, I was traveling with another student who had attended before, and he was able to guide us through the crowd into seats ten rows off stage left, giving us a perfect sight-line for the Oracle. It was 7:15 a.m.

Opening Night

The night before, we attended a shareholders’ reception at Borsheim’s, one of North America’s largest jewelers, which Berkshire purchased in 1989. The store overflowed with partners proudly bearing their shareholder passes around their necks. At the reception, I met a family represented by three generations. The grandmother’s father had been approached by Warren Buffett in the 1950s to contribute $10,000 to his original partnership but he declined the offer. Another family had a similar story. Her father had also been approached by Buffett, but had told the young Oracle to come back when he was driving a nicer car than his own. The irony is that Buffet is probably still driving a worse car than the grandfather (Buffett drove a Lincoln Town Car until 2001, when he replaced it with a Cadillac DTS). I wondered how many others had similar stories. A simple lack of trust had cost these families literally millions of dollars.

After we left Borsheim’s, we ventured over to the local Dairy Queen (also owned by Berkshire). It was hosting a book-signing with authors who had written books on Warren Buffett, while a BBC film crew was there filming a documentary. After indulging my childhood sweet tooth with my favorite DQ Blizzard, I sat down and spoke with Bill Child about his book, How to Build a Business Warren Buffett Would Buy. Child, who inherited the company RC Willey from his father-in-law, built the operation into Utah’s largest furniture store. In 1995, he sold the company to Berkshire for $175 million after being introduced to Buffett by the owners of the Nebraska Furniture Mart (which, as you might guess, is also owned by Berkshire).

I asked Child how Buffett had assessed his company. He told me that Buffett had asked him why he was selling the company and what he intended to do after the sale, and then instructed him to send over three years of financial reports along with a brief history of the company. Within three days, Child had received an offer. It was significantly lower than the $200 million he had been offered by investment bankers and other furniture retailers, but Bill decided to accept the lower offer from Buffett. I was amazed that it took Buffett only three days to feel comfortable purchasing this company and to trust his investment with Bill Child. It takes me three days just to read an annual report!

“Disneyland for Investors”

Waking up on Saturday morning, even at 5 a.m., was remarkably easy. I jumped out of bed like a kid on Christmas morning. We arrived outside the Qwest Center an hour later and, after claiming our seats, decided to go explore the exhibition hall. Two friends stayed behind to guard our prized spots.

	Darren Bounds ’10 and the author pose with the Fruit of the Loom bunch.

The hall was filled with booths from Berkshire-owned companies, including Borsheim’s, Fruit of the Loom, Dairy Queen, NetJets, Justin Boots, See’s Candy and more. We had our pictures taken with the Fruit of the Loom “fruit” and the Dairy Queen mascot. Add in a Wall Street-themed roller coaster to parody the ups and downs of “Mr. Market” and the annual meeting would have resembled a Disneyland for investors, or maybe a Star Trek convention. But instead of speaking in Klingon, people used words like “margin of safety,” “intrinsic value” and “moats.”

“Those Dilly Bars look good,” said Warren Buffett, as he walked through the crowd. “I should get one.”

As we wandered the hall, I noticed a press circle moving toward us. Before I knew it, Warren Buffett was walking directly toward me. In fact, I was in his way. I came face-to-face with my idol and froze completely, like a deer in headlights. Would security jump on me if I said hello and reached out to shake his hand? I decided to smile and politely step aside. “Those Dilly Bars look good,” he said pointing to a member of the crowd as he walked by. “I should get one.”

We returned to our seats, eager to finally hear him speak. The morning began with a one-hour video montage of commercials for the companies Berkshire owns and a few short satiric skits. In one clip, Buffett pretends to be Tiger Woods’s caddy. In another, he sells a mattress called the Nervous Nellie to a customer in the Nebraska Furniture Mart. The mattress had a compartment to store money, Berkshire shares and old magazines.

The rest of the meeting followed a question and answer format. Questions alternated between those from audience members and those submitted in advance by journalists from Fortune, CNBC and the New York Times. The questions covered a range of topics, including the improvement of financial literacy, Berkshire’s exposure to derivatives, Buffett’s view on the government bailout, the threat of inflation and Berkshire’s investment in Chinese battery maker BYD. The entire time Buffett and his partner, Charlie Munger, drank Cherry Coke, ate See’s fudge and looked happier than two kids in a sandbox. The Q&A period broke for a half-hour lunch and then resumed.

Tough questions for Berkshire

	Kiewit Plaza is home to the world headquarters for Berkshire Hathaway.

The most intriguing questions were the ones that Buffett didn’t really answer. Who was in line to replace him as CEO and head investor? There were three candidates for CEO and four for CIO, he said, but he didn’t give any names. Why does he hold Wells Fargo stock? If he could only invest in one company, he replied, it would be Wells Fargo, but he never said why. How does he evaluate and incentivize managers? That was a great question. “We don’t want relationships that are based on contracts,” he responded.

Charlie Munger added, “Our model is a seamless web of trust that’s deserved on both sides. That’s what we’re aiming for. The Hollywood model where everyone has a contract and no trust is deserved on either side is not what we want at all.” Buffett cited Peter Kiewit’s contracts (Kiewit founded Omaha’s largest construction company) as an example, without specifying what those contracts entailed.

By 2 p.m. we were all getting fidgety. I didn’t want to miss a word, but my legs were beginning to cramp. I had to get up and walk around. I couldn’t believe these two men could sit there for so long in such comfort with no break. At 3:30 p.m. the Q&A period ended and the formal annual meeting began, whereupon the board of directors were reelected by majority vote.

During the meeting, a shareholder put forth a motion requesting Berkshire to produce a sustainability report. This was my first exposure to the criticisms levied against one of Berkshire’s subsidiaries. According to the shareholder’s representative, there were allegations of labor violations at a Russell Athletics factory in Honduras. These allegations have caused several Ivy League schools, including Columbia University, to discontinue their use of Russell Athletics. The representative then passed the microphone to a worker from the factory in Honduras. She spoke for ten minutes in Spanish about the cramped workspace, long hours with few breaks and anti-union activity. Following her testimony, Buffett asked the CEO of Russell Athletics to respond. The CEO outlined the actions they had taken to improve conditions, and how a non-partisan labor rights group had been invited to monitor and evaluate the conditions. The motion was put to a vote and defeated.

Graham and Doddsville

After the meeting concluded, we walked over to a Columbia Business School reception hosted by the Heilbrunn Center for Graham & Dodd Investing. Professor Bruce Greenwald, Tom Russo of Gardner Russo Gardner, and Adam Weiss of Scout Capital shared their thoughts on the meeting and the enduring relevance of Benjamin Graham and David Dodd’s seminal 1934 text, Security Analysis.

To illustrate this point, Weiss cited passages warning of the dangers presented by over-levered institutions. Russo explained how his best investments had come from companies that had grown in value and benefited not only when the market recognized their intrinsic value but also when the company grew and its multiple increased. Professor Greenwald shared his perspective on the questions that Buffett opted not to answer completely. Why was Wells Fargo different from most other banks? Because it focused on local economies of scale, Greenwald said. Unlike other banks, Wells Fargo had concentrated its growth in the west (similar to See’s Candy) rather than spread itself across the country like other banks. What made Buffett’s contracts unique? They incentivized managers to not only pursue growth but to achieve profitability.

Following the reception, we made our last stop of the day. We drove to Berkshire’s legendary Nebraska Furniture Mart for a western BBQ cookout. I was expecting a large warehouse like Costco and was shocked when we arrived. At 77 acres, the Mart was not only larger than eight Costco warehouses laid side-by-side, it probably had its own zip code. Talk about local economies of scale!

A View on Trust

	Blimkie, standing outside Buffett’s house in Omaha, says the lack of a fancy security gate is one way Buffett demonstrates his trust.

On the way to the airport the next day, we drove by Buffett’s house and Kiewit Plaza, Berkshire’s headquarters. They are only a ten-minute drive apart, and you can easily picture Buffett skipping into work. Buffett owns a gorgeous brown house with a barn-style roof. It certainly was not the palace you would expect one of the world’s richest men to own. But what surprised me the most was the lack of a visible security presence. No fence. No moat. Just trust. I realized that if there was one underlying theme to the weekend, it was the value of trust.

After all, how valuable is a partner if you can’t trust him? Unlike some of the family members I met, Buffett’s original partners trusted him with their hard-earned money. Buffett, in turn, has held that level of trust in the managers of every company he has ever owned. He trusted Russell Athletic’s management to make the right decisions in Honduras. He trusted Bill Child to continue to run RC Willey exactly the same way after he bought the company. He trusted all of his managers and that partnership manifested itself as stable, predictable cash flows.

But trust is not something that appears explicitly in a P/E ratio or a discount rate. It’s not something you can model in an excel spreadsheet. And it’s certainly not something that can be quantified in a contract. This presents amateur investors like me with a challenge. If trust is so important, how do we decide whom to trust — and how to value it? I suppose that is the art of investing. After all, Benjamin Graham did not title his second book The “Value” Investor, but The Intelligent Investor. Those who recognize the additional margin of safety that trust bestows would be intelligent to follow Buffett’s lead. Trust is certainly a concept that holds enduring relevance, as Buffett’s 35,000 adoring “partners” can attest.

Brandt Blimkie ’10 is the incoming co-president of the Investment Management Club.

Photos courtesy of Brandt Blimkie ’10.

Daniel Petroff ’09 was the student speaker at Columbia Business School’s Recognition Ceremony on May 17, 2009. This is an excerpt from his speech.

I remember the first week of school being full of surprises. I didn’t expect that I’d be nervous that first morning as I walked up the steps of Uris past our cheering Peer Advisors. Or that my clustermates would actually think I was the single oldest person in our entire class. I was amazed that it was possible to produce such a wide variety of completely inedible box lunches. And I hadn’t expected that taking every class with the same people would be such a comfort and such a pleasure.

I remember hearing how a classmate’s parents started dating at the School and graduated 36 years ago, a story that a number of you are well on your way to making your own.

I remember the phenomenal trips I’ve shared with so many of you. Skiing the bumps in Colorado; smoking a hookah in Dubai; offroading in Iceland; diving on the Great Barrier Reef; tasting wines in Napa; sailing in the Caribbean. All made possible by countless hours of hard work by people here today.

I remember standing in a packed Uris lobby as we stared up at the televisions and watched the markets dive. I remember finally having my “wow” moment as a Peer Advisor. And I’ll remember being here today with all of you.

When I was struggling to write this speech, I was heartened by how many classmates provided encouragement and advice. One suggested a theme centered on the economist Joseph Schumpeter and creative destruction. Another offered me the speech he had drafted for his own audition. And there were many more creative ideas and magnanimous gestures.

Then one wise classmate brought it all together for me when he said, “I came to Columbia expecting great things for my career, and instead the greatest things came from the people I met.”

At the start of school, we heard again and again about the value of the Columbia network, about how important your classmates are to you, about how you can’t do it alone.

And I remember that many of us, me included, didn’t really get it. I remember the former investment banker who patiently taught a clustermate how to build a discounted cash flow model to value Clarkson Lumber.

I remember the alumna who, though exhausted from constant travel, took three precious hours out of a rare day in New York to help me figure out what to do with my life.

I remember the entire student body, despite the economic downturn and uncertain employment outlook, raising almost exactly as much money this year as we did last year for the Social Enterprise Summer Fellowship Program.

I remember the consultants who returned from their summer internships with full-time offers and then devoted part of their winter break to preparing classmates for case interviews.

And I remember the classmate who stayed in Africa to look after a friend struck ill and hospitalized while on spring break, and another who stayed overnight in the emergency room watching over a friend with a broken jaw.

I am honored to be a member of the Class of 2009. Individually, you are as talented and driven as anyone I have ever met. Together, we are even better.

If I can ask only one thing of each of you, then I ask you this: just as you have spent the last two years being excellent to each other, spend the next 50 years being even more so.

Photo courtesy of the Office of Student Affairs

In a recent column for Slate, Professor Ray Fisman argues that the process of how executive compensation is determined — namely the practice of peer-pay comparison — has allowed the pay of top-level employees to snowball. Fisman suggests that the priority for pay must be realigned with performance. He writes:

… the lesson isn’t that we should dump the baby of peer comparison out with the bathwater. If CEOs and others should earn “what the market will bear,” how better to figure this out than to look at how the market is treating other CEOs? But this CEO labor market will work only if all companies also keep an eye on the more basic market principle that higher CEO pay must first and foremost be tied to the success of the companies they lead.

Accounting professor Sudhakar Balachandran argues that another potential effect of the peer-pay model is decreased sensitivity of pay-to-poor performance (see blog post “Paying for a Pulse”).

“Peer-pay comparison is typically motivated by the goal of trying attract and retain the best talent, which is often at odds with the other major goal in compensation, that of motivating performance,” says Balanchandran. “Businesses are trying to achieve multiple objectives that are conflicting with each other, and that tension has to be managed and resolved by the board.”

Balanchandran suggests that the balance for determining how to structure executive pay — where a firm must find and retain talent on one hand and motivate leaders on the other — creates a tension that is never likely to disappear. Recognizing and accepting that push-and-pull may be the first step for creating a new model for pay, he says.

“Some of the populism found in the business press these days is a little dangerous because it tries to pretend that tension doesn’t exist. And that can create a bigger problem because you are ignoring real economic tensions.”

Photo credit: Thomas Claveirole

Above: Members of the Social Enterprise Club with Joel Klein.

What are the most important characteristics for MBAs in the education sector?

Transparency, consistency and being genuine, Jemina Bernard, executive director of Teach For America, told students at a recent lunch with the Social Enterprise Club.

This year the club has organized events with education leaders from Uncommon Schools, The New Teacher Project, a meeting with New York City Schools Chancellor Joel Klein, Washinton D.C.’s chancellor Michelle Rhee, as well as the recent lunch with Bernard as part of its education initiative. The education events are part of the club’s peer-to-peer structure, which gives students within the club a group based around their particular career interest.

At the brown-bag event, Bernard added that TFA and the education reform movement are receptive to MBAs because graduates have “strong people and project management skills.”

As the business and education sectors continue to cross-pollinate, there are even broader lessons from the field of social enterprise that are shaping education reform say members of the club.

Lisa King ’09 says the education sector can learn to “replicate successful models and scale to meaningful impact” from the development of other social ventures.

Another lesson is to apply more quantitative methods for measuring what works, adds Jessica Hendrix ’09. “Social Enterprise has started to emphasize the ability to quantify results in order to measure success,” she says. “After quantifiable data exists, it is far easier to determine the success drivers which need to be replicated to spread successful results.”

Organization, rather than management alone, is another key distinction for successful education reform. “One can be a gifted manager or a talented planner, and that’s needed to keep an organization running,” says Joe Chmielewski ’09, the club’s co-president. “But to affect organizational change, you need to work with constituencies.”

“Organizing generates that buy-in and an enthusiasm and passion for vision that will carry it through the bumps in the road of implementation,” adds King.

Photo courtesy of Joe Chmielewski ’09

For the National Football League, the off-season is anything but uneventful. From the frenzy surrounding the league’s annual draft to decisions about the league’s Collective Bargaining Agreement to the question of whether to expand the regular season to 18 games, these warmer months are crunch time for the world’s most successful and popular sports league.

In an April 23 talk with students sponsored by the Sports Business Association and led by Matthew Hill ’09, NFL Commissioner Roger Goodell discussed many of the major issues currently facing the league.

On increasing the marketing push behind the NFL Draft.
“People have a great interest in our game. And we’ve tried to show that the game isn’t just on Sundays and Mondays in the fall, that there’s a game in the offseason, as well. It’s in how teams prepare for the coming season, how they select players, evaluate players, how they manage the salary cap, how they train. All of that goes into how successful a team will be. What we’ve tried to do is expose the fans to that.”

On renegotiating the NFL’s collective bargaining agreement.
“The CBA is at the core of our economics. Sixty percent of our gross revenue goes to players. That’s a pretty good business for the players. For the owners, particularly in this climate, it’s a risky proposition. And I think that’s what they want to evaluate — how do we get better recognition of the costs associated with creating that revenue? Obviously we have significant TV and media contracts, but more and more the revenue is being created on the local level with stadiums. In New York, the stadium across the river is going to probably cost $1.8 billion. That’s all privately financed. That risk in the marketplace is one that the owners have to bear; the players don’t bear that. But they’re the biggest beneficiaries.”

On playing regular season games outside the United States.
“International growth is important to us. Up until three years ago we had a different strategy — we invested in NFL Europe. What the fans eventually realized is that it wasn’t the best quality product. And when we played preseason games there, they understood it then, too. So we said, listen, we can’t sell to our international fan base what we couldn’t sell here in the United States. So we started taking regular season games there. And this year we sold out 90,000 tickets in the UK, in a terrible market, nine months in advance — in four hours.”

On expanding the NFL’s regular season schedule to 18 games.
“What we’re trying to do is what most organizations are trying to do: create greater value for our customers. It’s no secret that the quality of our preseason suffers because many of the more prominent players don’t play and because the games don’t count toward the regular season standings. We’re charging our customers for that, and I think it’s wrong for us to do that to our fans. We can create the same high quality programming and content in the regular season with only two preseason games. So the question is, can we convert two of the preseason games to regular season games so you will get a higher quality product for the same value? But we have to determine the unintended consequences of that, and that’s why I haven’t taken a position on it yet.

Photo credit: Ryan Lejbak

“You have to find a way to unite people behind a central theme,” National Basketball Association Commissioner David Stern told students in a speech delivered on April 14 as part of the School’s Silfen Leadership Series.

Stern, who joined the NBA in 1978 as general counsel and became commissioner in 1984, discussed how this leadership principle helped the league overcome some of its early struggles.

“What people wrote about us is that we were too black. We were too drug-infested. Our players were too highly paid. And so we fell into every stereotype that you could possibly imagine,” Stern said. He referenced a Boston Globe journalist who “had the audacity to believe that our league was doomed because America would never accept a black league.”

To combat this, Stern focused the organization on a single idea: basketball is a great game. “In the face of the press, in the face of the media showing our empty seats, we focused on our product. We focused on the talents of our players. And we focused on America. It sounds corny now, but we said, ‘It can’t hold. America’s too good for this.’”

Leadership, Stern said, is ultimately defined by how you manage change and respond to crises. He described several significant changes to occur during his time as commissioner:

• The rise of sports marketing. “Michael [Jordan] did wonderful things on that front, and suddenly everyone was involved in sports marketing. To get a sponsor to spend behind your product and promote your player with his uniform on and your brand equity is an acquisition that you couldn’t possibly afford to make yourself.”
• New arenas. If the Nets move to Brooklyn as intended, all of the league’s buildings will have been built or dramatically renovated since 1987. “We had bigger buildings and higher prices, and our revenues were going straight up,” Stern said.
• Television and media. When Stern negotiated the league’s first cable deal in 1979, there were only four million cable subscribers in the U.S. “Now we have NBA TV, our own digital network, we have NBA.com. We weren’t the first to do each of those; we were the second. We don’t mind being second. We want to see what’s going on and then move into it.”
• Globalization. “We’ve just enjoyed enormous growth” since NBA players became eligible for the Olympics, Stern said. He cited the NBA’s opening of offices in Milan, Istanbul, Madrid, Paris, London and China as evidence of basketball’s global reach. He also discussed a new joint venture with the Anschutz Entertainment Group to build and manage arenas in China.

Stern also discussed three crises the league has had to overcome during his tenure: Magic Johnson’s HIV positive diagnosis (“It became an opportunity for us; we changed the debate on HIV and AIDS in this country”), the 2004 brawl at the Palace at Auburn Hills and the indictment of referee Tim Donaghy on gambling charges in 2007.

“My conclusion is, as it always is: enjoy it if you get lucky,” Stern told the students. “And we’re pretty lucky. We work in a great industry, we have an impact on people’s lives, and every year there are new players. We’re constantly refreshed. The changes in the world are our friend.”

Photo courtesy of Columbia Business School

How can managers prepare for the less beneficial outcomes of practicing fairness?

According to the research of Professor Joel Brockner, both staff and management alike benefit when a firm makes a strong commitment to practice fairness. While there are some barriers to implementing fair process, Brockner says, it’s undeniable that firms that do so consistently see higher levels of employee commitment and productivity and that their employees report more job satisfaction and less stress — which makes overcoming those barriers a worthwhile investment. His research is featured in the most recent Ideas at Work.

But fairness can come at a cost.

“If people feel that the process was handled fairly regarding a decision that they will not be happy with, such as the loss of a job, or the failure to get a promotion, there is less resentment directed toward to the organization,” he says. “But the potential risk is there is more self-blaming and more low self-esteem.”

The tenure system illustrates the dilemma of process fairness. “When someone is turned down for tenure, the last thing they want to hear is what a fair process it was because then they feel like ‘OK, I got what I deserved.’ If they got what they deserved and the outcome is bad then they may feel badly about themselves.”

Brockner’s advice to managers? “The negative consequences of fair process don’t mean you should forego fairness. Practice fairness but also be aware that people may end up feeling badly about themselves and take additional action to counteract it.”

For example, Brockner and his co-authors recently found that people who engage in corporate-sponsored volunteer activity often feel more committed to the organization, precisely because the act of volunteering reaffirms their sense of self.

“There is a conundrum when you dole out unfavorable outcomes. If you are fair, people blame themselves, if you are unfair, then they blame you. So beware — you’ve got work to do as a manager either way.”

Learn more about Professor Brockner’s research in Columbia Ideas at Work, where he outlines the keys to process fairness and offers guidelines to help firms make hard decisions in a fair way. Read more about (download file) his research on the downside of process fairness.

Photo credit: Eric Lemoine

Earth Day 2009 is here, and if you’re a business student or a practitioner, you might want to pay attention.

Long considered the province of treehuggers and other warm-hearted-but-corporately-challenged individuals, Earth Day in the 21st century has taken on a new importance. And unlike previous corporate excursions in the environmental realm during the ’70s and early ’80s, this time around the movement is unlikely to be subject to the whim of oil prices. Environmental progress touches a wide array of policy issues dear to the hearts of both liberal and conservative politicians: energy security, job creation, climate change and human health. In other words, sustainability and environmental issues are here to stay.

Last week the Environmental Protection Agency (EPA) issued a finding that carbon dioxide and other greenhouse gas emissions endanger “the health and welfare of current and future generations.” EPA Administrator Lisa Jackson cited the report as “the first formal recognition by the U.S. government of the threats posed by climate change.” The finding has far-reaching significance for U.S. business — whether through EPA regulation or congressional legislation, change is coming soon.

While some of the world’s leading organizations have made meaningful progress on their environmental impact, there remains a general lack of expertise on the way that business intersects with the environment. A focus on environmental issues appears likely to follow the same adoption path that the Internet experienced in the mid-to-late ’90s: from novelty, to practice by a few early adopters, to acknowledged competitive advantage, to business-as-usual.

Today, some of the world’s largest and best-run companies, including DuPont, GE, Sony, 3M and Coca-Cola, have already recognized the reality that their industry landscapes will be profoundly impacted by a greater focus on the environment. They have responded to these pending changes by devoting substantial resources to develop expertise on sustainable issues and how they can benefit from improving their environmental standing.

Given the direction in which these industry bellwethers are moving, business schools must start paying attention. The limited supply of managers educated in both business and the environment creates enormous opportunities for those students coming out of school with knowledge of both these areas.

Columbia Business School has been quick to recognize this, responding with a number of theoretical and practical learning opportunities for its students. Course offerings such as Finance & Sustainability, Green Marketing and New Developments in Energy Markets focus specifically on how students can maximize organizational performance in light of environmental opportunities. Practical experience in the form of cutting-edge programming and activities has been supplied by the recently formed Green Business Club, which had a membership of almost 200 students in its first year on campus.

Some examples of the Club’s recent events and advocacy include:

• “The Future of Business is Green” event with executives from Goldman Sachs, the Clinton Climate Initiative, the NRDC and McKinsey
• Unveiling of the UN’s Green Jobs Report
• PepsiCo Sustainability Tour
• Clean Tech Month
• LEED platinum campaign
• CFL lightbulb exchange
• Reusable happy hour steins
• Green Columbia initiatives, including increased recycling capacity and decreased paper waste

Through events and activities such as these, Columbia Business School is creating leaders who truly understand the importance of environmental impacts on business performance. While more apprehensive managers may think it unwise to divert their attention to environmental issues until absolutely necessary, savvy executives will see the advantages of being first-movers. For institutions with the mandate of preparing forward-thinking, strategic leaders, now is the time to start focusing on environmentally sustainable business. And that starts here, at business school.

Photo courtesy of the Green Business Club

Thomas Russo, the former vice chairman and chief legal officer of Lehman Brothers, met last night with students in a Community Forum discussion about the financial crisis. Russo will be teaching the half-term summer course “Credit Crisis: As Seen Through Different Lenses.”

In a 45-minute presentation, followed by a Q&A, Russo gave his perspective on the origins and fallout of the crisis. One topic he focused on was the changing role of leverage for banks.

“Leverage now has a lot of bad things attached to it, but that’s the way we make money,” he said. “If you change leverage, you are limiting profitability.”

He predicted that it will be easier for smaller firms to make money in the future because they will not be encumbered by the enormous cost structures and lack of flexibility that larger institutions have.

“Since banks won’t have leverage down the road, it will be harder in the institutional sense to make money,” he said. “There will be more opportunity to make money outside the institution. Things in the future will be developed by smaller entities.”

Segueing into advice for future CEOs in the audience, Russo said the most important thing to remember was to have multiple points of view.

“You have to put yourself in other people’s shoes,” he advised. “Understand that every problem has many sides and if you’re in the decision-making role, you have to look at all of them.”

Photo credit: Antonio Morales Garcia

This post is part of a special series celebrating the School’s Alumni Forever Week (March 30 through April 2).

Profile
Karen Kalina ’94
Director, Strategy and Portfolio Analysis, Siemens Real Estate

Tell us about your career path since getting your MBA.
Before Columbia Business School, I worked at the United Nations. I worked on various budgets, and that inspired me to go to business school. I knew there was some method I needed to find out. I also speak five languages, including Czech and German, so my dream was always to get over to Eastern Europe. After I graduated, I worked at State Street Bank and Trust in the global custody division and later their credit and risk management group, focusing on Europe and Eastern Europe. After leaving State Street, I moved to Prague to work in financial services with KPMG Consulting on bank privatizations and then to Credit Suisse Financial Services in mergers and acquisitions in Weisbaden, Germany. After the Internet bubble popped, I had been in Europe for six years and I made a decision to come back to the U.S. I looked for jobs through the School’s job BANC network. Through a fellow alum I found a position with Siemens.

What has the transition from financial services to corporate business been like?
I am now celebrating five years at Siemens. In financial services I was a three-year person, so that tells you something! You can shift internally in corporate business and it is more flexible than financial services, which calls for a very defined set of skills. Working in finance as a woman with two kids, I had to make trade-offs. I am believer of staying in the work force as a working mother, but I knew being in mergers and acquisitions, where I was on the road all the time, would be too much. When I missed my second child’s first steps, that was an eye opener.

What has been your experience as a woman in finance?
I’ve always thought that being a woman in finance was fantastic. There are less of us so we tend to stand out more. I think that was an advantage because you automatically got more visibility; I stood out because I wasn’t wearing a necktie. Once you’re in, how do you handle it? There are not a lot of people to meet in the bathroom. You find other women in external organizations and keep in touch with them.

Looking back at your Columbia Business School experience, what was your aha! moment?
I was having tough time with Introduction to Finance, but I also didn’t have trouble visiting my professors’ office hours. The obvious one was in Bruce Greenwald’s class. I went to his office hours and he looked me in the eye and he said, “Not only can you do this, you can be great at it!” That was a turning point for me. His confidence that, yeah, I could do it, really empowered me, as did the knowledge that he and many others would support me. I knew at that moment that this was really possible if wanted to do it. Up until then, I would have done marketing or international business. Finance changed my life. The other person who was an “aha!” is Laura Resnikoff. I took Turnaround Management with Laura when she was still a new professor. That class was very small; it took place over the summer and I was the only female student. She’s an amazing teacher and a tough cookie. She really challenged us and especially challenged me. But again, she gave me a real “You can do it” impression. Her class taught me that I liked not only finance but also the whole business and strategy. Every job I’ve had since State Street has contained strategy elements, and Laura’s course opened my eyes to that possibility.

What advice do you have for MBA or prospective MBA students?
Let go of incredibly high expectations. When I graduated in 1994 it wasn’t that great of a job market. If you don’t start at most spectacular place on planet, you’re still going to be okay. I never thought of working at a major corporation, but each one has a finance group and excellent training programs. It is also important to pursue the things you are inherently interested in. Look inside yourself for career advice, because that is important, wherever it might lead you. In finance, people can get trapped into a certain narrow way of thinking. The world is a lot bigger than New York City.

This post is part of a special series celebrating the School’s Alumni Forever Week (March 30 through April 2).

Profile
Stephano Kim ’03
President and Chief Operating Officer, [x+1]

Tell us about your career path since getting your MBA.
When I came to business school I really wanted to know what I didn’t know. A lot of my colleagues came for the networking or certification or career change, but I went to figure out what I wanted to round out in my skill set. I have a background in venture capital and entrepreneurship, but I knew my professional experience was lacking something. After graduation, I joined AOL’s business strategy and development team and helped turn them into a portal- and ad-driven business. In July 2006 I joined [x+1], where I am the president and COO. Our mission is to use data to make online advertising more effective. We have Fortune 500 brands that power their advertising through us to make it more targeted and efficient. In a time with increased focus on ROI, our story has become powerful.

Looking back at your CBS experience, what was your aha! moment?
My core classes validated and formalized what I already knew, but Professor David Juran’s modeling and stats classes were key for me. I realized I should have been an engineer! The data and the numbers speak for themselves, and they are the foundation of what we do. Juran is now on our advisory board and he is helping us with new product development.

In your field, what business trend or idea are you watching this year?
In media and marketing, there are a couple of key trends. First, the agencies are embracing digital. It has been a buzzword for the past 10 years, but as CEOs demand more ROI, agencies and their respective clients are forced to take a harder look at which channels are performing. When you dissect a $1 billion ad spend and look at where the chunks go — online, print, broadcast — you see that it is hard to measure the effectiveness of a television ad campaign and that the reach of newspaper and other print is falling off. So now it is about finding pockets of performance that can deliver the reach of TV with new platforms like mobile, where you can measure the ROI. While overall ad spend will decline this year, performance based online advertising will grow as the marketing mix shifts away from less effective and less measurable marketing channels.

What advice do you have for MBA or prospective MBA students?
Take a hard look at your skill set and see where you can leverage those while figuring out what other skills you need to develop. The roles within media and marketing have traditionally required very specific personality traits but with recent trends, those roles now require more business savvy people with well rounded skill sets. People who haven’t considered careers in media and marketing should take another look because their skills will be more and more relevant.

Photo courtesy of Stephano Kim

This post is part of a special series celebrating the School’s Alumni Forever Week (March 30 through April 2).

Profile
Robert Klein ’04
Vice President, MJC Associates LLC

Tell us about your career path
Prior to business school, I was at Goldman Sachs in Fixed Income Derivatives and Private Wealth Management. Upon graduation I worked at Reckson Associates Realty Corp. When Reckson was acquired by SL Green, I left and helped start a boutique investment bank focused on the real estate sector, MJC Associates LLC, and I have been there ever since. Last year we completed our largest deal, which was $1.7 billion.

Looking back at your CBS experience, what was your aha! moment?
Taking Real Estate Finance with Larry Raiman ’89 in 2003 was where I got my first exposure to real estate finance. He was a phenomenal teacher and I spent a lot of time with him, outside of class, discussing my thoughts on real estate. Leanne Lachman, who is an executive in residence, really helped me shape and define my career goals. Her guidance in conjunction with the rest of my experiences at the School gave me the framework and connections to execute my plan. It’s important to learn about real estate and to know about real estate companies, but it is crucial to have professors and faculty, such as Larry and Leanne, available to help you network.

As a business practitioner, where do you see opportunity this year?
There are a few places for opportunity. In the distressed side of the world, there are an abundance of companies with liquidity issues ranging from the capital structure of the companies all the way down to the performance of individual assets. The opportunity is to creatively match capital and distressed product. There is a lot of phantom capital right now and they key is knowing how to align yourself with real capital.

What advice do you have for MBA or prospective MBA students?
My advice, especially for folks in real estate or looking to get into it: be creative and really put yourself out there and meet as many people as possible. Jobs are few and far between, and because many firms are not using traditional sources of hiring, you have to be creative and figure out a way you can add value to a person or organization. You can’t rely on having an MBA to secure a position in this market. Your networking skills are crucial, and if you opitmize your student experience, it will define and separate you.

Photo courtesy of Robert Klein

This post is part of a special series celebrating the School’s Alumni Forever Week (March 30 through April 3).

Profile
Rob Torti ’07
Turnaround Consultant, AlixPartners LLC

Tell us about your career path.
Like every other former investment banker, I wanted to be in private equity. I pursued that but I learned it was a solitary job and that my real passion was for management, and that was something I was good at. After school, I took the summer off and traveled and then came back and looked for jobs at turnaround firms. I wish I could say that it was the result of having foresight, but realistically I liked the job description. The job entails a lot of finance, business analysis and strategy as well as some law; there is a huge management aspect where you get parachuted into a company and take a senior management role.

Looking back at your Columbia Business School experience, what was your aha! moment?
While I was in school my ideas changed dramatically. I took Turnaround Management with Gregory Rourke during the first semester of second year and that opened that whole world to me that I didn’t know that existed. I also took Professor Ralph Biggadike’s Top Management Process class. I really enjoyed the complexity of management, and I realized I had a passion for working with a lot of different people and solving complex problems.

In your industry, what trends are you watching and where is there opportunity?
I probably have a more doom-and-gloom view of the economy in the next two years than most. Having been an investment banker myself, I know that some of these companies just cannot survive. Given the distresses out there, I am looking at the end of 2010 for the economic recovery — and it won’t be a quick bounce back. If you see your company headed for a bad spell and think that bankruptcy will be a real possibility, rather than put everyone in bind at the eleventh hour, you need to get professional help. The bankruptcy process is not something to be feared; you have to embrace it. Don’t wait for a white dove to save you. There won’t be a huge turnaround.

What advice do you have for current or prospective MBA students?
Think of your career as a tree: move along the trunk and don’t jump to a branch too early. When you work for a distressed company, you are given more work and you learn so much more. If the company has a good management team and you are there to help them through the process and see the nuts and bolts at a unique time in their business, you will be successful. This climate allows you to learn at a magnified rate.

Economics may not always be the dismal science, after all.

In a recent article in Columbia Ideas at Work, Professor Paul Ingram writes that despite being “pummeled by measures of our decline” — such as stock indices, home values and unemployment rates — our overall level of happiness has remained high.

Ingram, along with doctoral student Xi Zou, surveyed more than 500 businesspeople — mostly employed young executives in New York and London “on the front lines of the financial crisis” — to gauge their level of happiness.

What Ingram and Zou found is somewhat surprising: since the crisis began, the happiness level of their respondents has remained relatively stable.

Can this really be possible?

“This may come as a shock to anyone who works in finance or knows people who do,” Ingram writes. “There is certainly more moping and doomsaying in this group than there was a year ago,” he acknowledges, “but negative moods are not the same thing as low life satisfaction.”

Ingram suggests that people “consistently underestimate their capacity to adjust to negative life and career events, and overestimate the impact those events will have on their happiness.”

In his research, Ingram noted the following trends:

• People disposed to comparing their position with others’ tend to be less satisfied with their lives.
• People who are vigilant about protecting what they have and value — whatever it is — tend to be happier than those not as concerned with losing what’s important to them.
• People in eager pursuit of some potential gain tend to be happier than those not focused on achieving a specific goal.

To read more about Professor Ingram’s research, see “How to be happy during the crisis” in Columbia Ideas at Work.

Photo credit: Pfala

At Friday’s community forum, Professors Paul Glasserman, Trevor Harris and Hitendra Wadhwa (pictured at right) held an open discussion with students about how best to move forward from the financial crisis. The forum covered economic issues ranging from risk management to accounting to the importance of not allowing the near-constant stream of negative news to affect your decision making.

Professor Glasserman began the event by speaking about capital requirements for banks as they relate to the banks’ risk management practices. He offered three main points:

1. Tightly linking capital requirements to risk can lead to dangerous procyclical behavior

   “When a bank’s assets start to look more risky [as a result of a downturn], it must hold more capital. How does it hold more capital? It cuts back on lending. So at the worst possible time, there’s an incentive — in fact, a requirement — for banks to cut back on lending.”

   To help prevent this, Glasserman suggested that banks take countercyclical measures, such as averaging out their risk over the business cycle. He also recommended that banks be required to hold additional capital in good times so that in down times there’s a buffer for them to draw on.

2. Banks should continue to bear the responsibility of regulating their own risk
   

   While it’s understandable that the recent trend of forcing banks to regulate their own risk has received a lot of criticism, Glasserman said, putting the burden back onto regulators might make matters worse.

   “If you go to an environment where the regulators are specifying a very precise set of rules, you’ve created an enormous incentive for banks to manufacture products that look low-risk by regulators’ standards but are in fact high-risk in all the ways the regulators haven’t anticipated. And that’s a large part of what’s led to the current crisis.”

3. Systemic risk must be factored into capital requirements
   

   “A traditional view of risk management says, ‘What harm can the market do to me?’” Glasserman said. “When you ask about systemic risk, you’re asking, ‘What harm can I do to the market?’ It’s a fundamentally different approach, and it’s not been part of the way capital standards have been set to date.”

Professor Harris referred to the situation described by Glasserman as a “classic accounting problem.”

Harris spoke about a critical flaw in the subprime mortgage-backed securities that are a big part of the crisis, is that all parties (originators, intermediaries, investors, rating agencies and auditors) lost sight of the underlying fundamentals of people who had borrowed more than they could afford.

“My whole view is that people have forgotten fundamentals, and they’ve created lots of quant-based analytics that actually have nothing to do with reality,” Harris said. “What that leads to in many cases is the illusion of precision. We have so many techniques, including valuation techniques, to come up with point estimates, and the reality is that there’s huge amounts of uncertainty going forward, and we have to deal with that.”

He concluded, “I view [the crisis] as a great opportunity to fix a lot of systemic problems. My biggest fear is that if we come back too quickly, we won’t actually address a lot of these issues. If we don’t deal with complexity and address these fundamentals, we will actually end up in a much worse situation.”

Professor Wadhwa said that while it’s easy to allow the near-constant stream of negative economic news to affect your mood, doing so can impair your ability to make critical decisions.

“[Maintaining a positive outlook] broadens your mind, making you more aware of the periphery of whatever it is you’re looking at. It makes you more mindful of a whole range of ideas.”

To support his position, Wadhwa cited research that demonstrated a link between the mood of physicians and their ability to properly diagnose patients.

To keep yourself in a positive state of mind, Wadhwa suggested taking the following steps:

1. Break the causal link between external events and your internal mood. Do this by injecting behaviors, such as displaying gratitude.
2. Use humor and body language to project a positive mood not only outward but also inward.
3. Turn adversity into transformational opportunities.

“Even with the constraints many of us face,” Wadhwa said, “there’s a potential for us to ask ourselves, ‘What is there within this that might be redemptive?’ By the fact that certain doors might have closed on us, we are forced out of our comfort zone to think anew about our skill set and interests and who we are.”

Photo courtesy of Columbia Business School

Note: The remarks of Professors Calomiris and Balachandran were made prior to AIG CEO Edward Liddy’s call yesterday for employees earning more than $100,000 a year to return at least half of their bonuses.

As anger on the Hill mounts over AIG’s use of bailout funds to pay executive bonuses, a debate has grown about how the bonuses fit into the firm’s contractual obligations. Professor Charles Calomiris discussed the matter in an interview with NPR’s Talk of the Nation on March 17 (listen to audio).

“A lot of these bonuses are being used to pay middle-level managers who have this coming as part of their contractual agreements with AIG. From what I understand … much of this money, if not all of it, is something AIG would like to get out of paying, but doesn’t see any way to do so. The remainder [is] the normal bonuses it feels it wants to pay to retain good people,” said Calomiris. “What we are seeing is a backlash of anger and that’s understandable — but anger is not what gets us out of this mess.”

He continued, “There is a strong economic argument for some bonuses, and I can’t judge without knowing more details what is warranted and what is not, but why are we so sure that the AIG CEO is wrong?”

Professor Sudhakar V. Balachandran said in a recent interview that it is not a matter of the company abrogating contracts but rather a situation in which executives could voluntarily defer bonus payment in order to restore public confidence.

“We’re missing a great opportunity here. If you think about the Great Depression, one thing we saw was that a set of business executives really stepped up to the plate to use their skills and their management capabilities to lead their country and their companies back out. They were voluntarily setting aside compensation that they contractually been awarded and entitled to said they would come to work for $1,” said Balachandran.

He continued, “Maybe the folks at AIG didn’t have to do anything that drastic, but wouldn’t it have been a great idea if they had said, ‘We know we are contractually allowed to take this, but why don’t we change this? We are willing to defer what we are entitled to.’ They could do this as an act of faith and take the bonus after the company has turned the corner and is able to pay back the government and taxpayers. Think about the amount of confidence it would restore to voters and taxpayers who feel helpless right now.”

Balachandran added, “This is the time for business to lead, not for business to sit there and say, ‘We’re contractually entitled, so this is what we do.’ We have to restore people’s confidence. The same thinking that got us into this mess isn’t going to get us out.”

Photo credit: Clarke Thomas

When Jackie Endriss Oberoi ’04 arrived at Columbia Business School in the fall of 2002, she knew she wanted to move from human resource consulting into finance. She accomplished the career transition and is now an associate director and credit analyst with Standard & Poor’s. Public Offering spoke with her about the unexpected perks of working in industry finance.

What has been your path since graduation?
I took advantage of the School’s internship program and came to Standard & Poor’s in the summer of 2003. I came back to S&P after graduation. I have changed roles within the company — I am now in corporate ratings and rating retail companies. Even though I have stayed with the same company, changing positions has allowed my career to stay fresh.

How has your MBA experience shaped where you are today?
I came to CBS as a career-changer. I was in human resources consulting and had no financial background when I came to the School, but I knew I wanted to do something more quantitative. The finance classes were quite strong; I was impressed with the finance and capital markets courses in my second year, when I focused my studies. The excellent faculty and high quality of the students made the courses more discussion-oriented than lecture-oriented and contributed to the overall experience.

What helped you make the career change?
The key is parlaying your skills from your former industry into a new one. For me, I focused on how my presentation and communication skills were relevant to a career in finance. In this economy, people really have to push their strengths from their former career and explain how they can be applied.

Now that you are working in finance, have your expectations been met? What has been totally unexpected?
My expectations coming into S&P were met fully — this company is very transparent. I have found a challenging work environment with interesting people and a daily schedule that lacks monotony. There is a lot of flexibility in my career. With telecommuting and flexible hours, I was able to take a six-month maternity leave. Most nights, I can leave at 5:30 p.m. I can spend time with my family and excel at my job at the same time. That was unexpected. S&P is very family-friendly.

Where are the opportunities for people just starting their careers in finance?
My advice is to broaden your expectations — think about doing finance in industry or in-house and then you can move to an investment bank when the economy improves. This doesn’t just apply to students, but also to people who have lost their jobs.

What’s your advice to current MBA students?
Lean heavily on your network of other students. Build your network while you are at the School. You can learn so much from other students, so learn everything you can from the people you’re in contact with. The people you work with after you leave the School might not be as interesting and as diverse.

This column is part of our Next Steps series, which profiles alumni in their first five years after Columbia Business School. Do you know someone we should write about? Let us know about other candidates.

Photo courtesy of Jackie Endriss Oberoi

Weaving personal growth into professional success was one of the main themes at this year’s annual Columbia Women in Business (CWIB) conference held on February 20. The conference brought hundreds of alumnae and professional women together for more than a dozen panels.

“We are entering a phase where we are delving into much deeper civic engagement,” said Paula Kerger, CEO of PBS, in her keynote address. “It’s important to get outside your work experience to get perspective. Engage with your relationships, family, life and community.”

The day’s panels addressed the work-life matrix through different lenses, including Wall Street, corporate social responsibility and all-female industries.

Across the panels several common threads emerged. Good relationships — both in and out of the office — are key to success; the definition of success is constantly evolving; and the importance for women to develop specific skill sets.

“I realized how important it’s been to have partners in other parts of the bank,” said panelist Chandra Metzler, a director at Deutsche Bank, when speaking about how the banking crisis has impacted her job. “It’s been important to have people to talk to because you have already-established relationships.”

That theme was also discussed in the “Creating Champions and Allies” panel, in which participants advocated a 360-degree approach to developing allies, encouraging the attendees to “champion above, down and around.”

On the subject of networking and career development, Merle Duskin Kailas, executive director of the Samuel Waxman Cancer Research Foundation, advised the audience, “Develop a skill set early in your career. Always remain on the credit-side of every equation.”

Where can career seekers find opportunity? Lisa Carnoy CC ’89, managing director and head of global equity capital markets at Bank of America, told audience members at the “Banking in High Heels” panel that it is still an opportune time to begin a career in finance.

“It is a fantastic time to join banking,” Carnoy said. “You will be pulled up faster on the upside — which will inevitably be more extreme the next time — than if you joined in a more robust period. It takes guts and long-term perspective.”

Photo courtesy of PBS/Columbia Women in Business

The New York Times (and others) reported on Tuesday that Morgan Stanley’s real estate man in Shanghai has come under investigation for giving gifts and cash to government officials in order to get in on choice deals in China, likely in violation of the U.S. Foreign Corrupt Practices Act (FCPA).

The Morgan Stanley head office has taken the view that this was the rogue act of a rogue individual, and an internal investigation revealed that “questionable activity was isolated to a discrete set of real estate transactions in China.” This is an unfortunate — yet all too common — reaction to revelations of corporate misdeeds.

Bribery and corruption are global problems that, at least from the perspective of countries like the U.S., remain safely hidden from view. Garth Peterson was a blue chip banker from a blue chip firm, yet anyone involved in land deals in China surely won't be surprised that he was involved in illicit payments to politicians and bureaucrats.

When evidence of pay-offs or favor-seeking surface in such organizations, many of which have explicit public anti-corruption stances, it is seen as a pathological deviation from the legal conduct of business.

Yet Peterson was most likely a typical banker put in a situation where bribe-paying was very literally the norm. Before its company-wide corruption scandal made global headlines, Siemens was an average company bidding on contracts in corrupt countries — rather than a corporation with a rotten culture.

Labeling individuals like Peterson or companies like Siemens as unprincipled exceptions shoves under the rug the deeper problem: informal rules that dictate global commerce. As long as the conversation focuses on catching deviants, we’ll never have an open dialog on changing the norms that bear much of the responsibility.

There is also the need for those higher up in the chain of command to accept responsibility. Local managers are often given conflicting messages. They’re rewarded first and foremost for making big bucks for the company. (It’s interesting to note that Peterson's monkey business only came to light after China’s real estate market went sour.) Of course, this directive may be accompanied by warnings to stay on the right side of laws like the FCPA and to adhere to a corporate code of conduct, but it’s often with a wink and a nudge. The message: do what you can within the confines of the law to maximize profits.

Yet given legal ambiguity combined with innate human ability to rationalize anything from stealing office pens to Enron-style fraud, it’s not surprising that expediency and the lure of promotion or profits rule the day.

What’s to be done? There are certainly efforts underway to change global business culture. One particularly noteworthy example is the Partnering Against Corruption Initiative (PACI) spearheaded by Mark Pieth and the World Economic Forum. PACI focuses specifically on changing the “cultural equilibrium” of business practice by attracting a large number of CEOs to sign on to a public declaration of personal anti-corruption pledge. Shifting the equilibrium will be a difficult process; there will always be “rogue” corporations that are willing to undercut the honest conduct of business. Yet it’s hard to imagine we'll get very far in affecting change unless we can start with an honest conversation.

This article originally appeared on Forbes.com.

Photo credit: theCarol

Over the last two weeks, international students and foreign nationals working in the United States under H-1B visas have been forced to grapple with a new reality: under a provision in President Obama’s recently passed stimulus package, they may not be able to continue working in the U.S. (View a list of H-1B employers in 2008.)

The provision, which calls for limits on hiring H-1B visa holders, affects firms that have accepted TARP funds. Major TARP recipients include Citigroup, Bank of America, AIG, JPMorgan Chase, American Express and Goldman Sachs among others. (View the compete list of TARP recipients.)

In response, Dean Glenn Hubbard has written letters to Treasury Secretary Timothy Geithner and National Economic Council head Larry Summers to express deep concern over the provision and how it will be implemented.

“This is absolutely terrible,” the dean told students in a town hall meeting last Thursday. “It gives an advantage to international institutions over American institutions,” he said. The dean did sound a note of optimism, saying, “I believe [the problem] will get fixed.”

It is still unclear how the provision will affect students looking to enter the workforce. Thomas Monaco, director of international advising and outreach, says that recruiters have not yet indicated any changes in their strategies. The School’s Career Management Center is in contact with all of its recruiters and peer schools to continue to monitor developments.

“Many of our recruiters are still translating the legislation,” Monaco says. “Right now it is very much a wait and see situation.”

International students comprise approximately one-third of the class of 2009. Some of those with student visas can stay in the United States for one year after graduation for optional practical training. However, workers who need or have H-1B visas still face some uncertainties.

“The School is doing everything possible to act as advocates where we can and stay abreast of developments as they occur,” says Monaco.

The provision has generated concern throughout financial and academic communities alike. Last month at a conference organized by the Council on Foreign Relations, Columbia professor and economist Jagdish Bhagwati commented on the loss in talent that will occur if the provision is upheld. “In terms of broader considerations like the people who are coming in on H-1B visas,” Bhagwati said, “they’re frequently highly trained and talented people … a lot of our progress and prosperity depend on having such people.”

Photo credit: Columbia Business School

“We are great risk of becoming over-dependent on a miracle solution,” Sam Zell cautioned students during his recent presentation at Columbia Business School. Referring to the current economic crisis as the first “Blackberry recession,” Zell warned against instant gratification and said the economic recovery could be slow and gradual.

Professor Lynne Sagalyn introduced Zell, who spoke about the economy and the real estate market on February 17 as part of the Silfen Leadership Series.

Though cautious, Zell did sound a note of optimism when he said that the real estate industry will recover more quickly than pundits suggest, and that equilibrium for the single-family home market could appear as soon as the summer.

“But before you ask where the opportunities are, you have to identify what your capital is worth. The biggest mistake anybody could make is to assume that his capital is worth the same today as it was a year ago or two years ago,” he said. “The reality is that it is worth two, three or four times more than it was as recently as 24 months ago.”

Zell said opportunity could be found in the debt-side of real estate and in geographic areas where demand is growing, citing locations as diverse as China, Brazil, Mexico and Egypt.

“Ultimately, profitability will come from the acquisition of assets at measurable discounts to replacement costs, whether it is in equities, real estate or any other area,” he said.

Photo credit: Leslye Smith

This is part of a series of posts to celebrate the 25th anniversary of the Social Enterprise Program and newly expanded nonprofit and social enterprise course offerings in Executive Education.

Today, the nonprofit sector is one of the fastest-growing areas of the economy. It is doing more and more of what the government used to do in social services, healthcare, education and culture. Along with the growth in this sector, there comes a greater need for leadership over bigger and more complicated enterprises. If nonprofit organizations are not performing efficiently, it affects our whole economy.

Nonprofit leaders have the same accountability to “stretch a dollar” as their corporate counterparts. We’re seeing a great deal more sophistication in how nonprofits operate and how they relate to the board and their constituents. Accountability is strong and forceful, and the media is playing a vital role in making sure nonprofits are accountable and transparent to stakeholders.

Another change we’re seeing in nonprofits is that wealth is no longer available to the same degree as in the past. Increasingly, there is more dependence on operating income rather than philanthropy. The skills required for growing capital on the inside are different from those you need for raising capital on the outside. This shift will transform nonprofits, because they now must be self-sustaining and enterprising.

I recently had the opportunity to work with Betsy Poirier ’08 at the Norman Rockwell Museum as part of the School’s Nonprofit Board Leadership Program. She brought a whole new level of expertise in how to commercially position the museum store on the Internet. Betsy’s experience exposed a real gap between the skill sets Columbia Business School students have and what most museums can attract and compensate.

How do nonprofits close that gap and attract that kind of talent? For starters, nonprofits need to offer compensation and benefits that can compete with for-profit organizations. They must also consider where they need talent. Do they need it at the operating level if it exists at the board level? The need for talent is acute at both levels, especially as demands on board members increase.

One solution to think about is to consolidate nonprofits under “umbrella” organizations. Perhaps several affinity organizations could operate within a “holding company” with administrative, IT and marketing services to better share limited talent and expertise. Nonprofits need to start thinking about what we can do collaboratively, given shrinking community resources. Nonprofits can use economies of scale to access leadership capital. They can also be more businesslike by creating growth paths and sharing corporate overhead and expertise. Community stakeholders will benefit as more output is gained from limited resources. In 10 years, we will not recognize the not-for-profit landscape as it enters the post-2008 world of economics.

Photo credit: Columbia Business School

This is part of a series of posts to celebrate the 25th anniversary of the Social Enterprise Program and newly expanded nonprofit and social enterprise course offerings in Executive Education.

MBA graduates often have the opportunity to work in the nonprofit world in two ways: organizationally, as a business manager in the daily operations, and strategically, as a board member. Lulu Wang ’83, who is a member of Columbia Business School’s Board of Overseers, is an expert in the latter. With her experience serving on numerous boards including those at Rockefeller University, WNYC Public Radio, the Asia Society and the Metropolitan Museum of Art, she has also been an active participant in the Nonprofit Board Leadership Program. The program, which is now in its third year, is part of the Social Enterprise Program and matches students with nonprofit board member mentors.

For you, why is being active in nonprofits important in your life? Was there an “ah ha” moment or event that was defining for you as a board leader?
My work with nonprofits has enriched my life, giving me a great return on my investment of time and financial resources. I’ve tried to be thoughtful and selective with which nonprofits I join, as I know I am most engaged when I can make a real difference. Whether enabling a major capital project or enabling a group of students, my defining moment as a board member has to come from seeing a positive impact that would not have happened if I had not been there.

With your experience serving on a wide variety of boards, are there any common themes or challenges in leadership that you see across all of them?
The one common attribute I’ve observed in the most effective board members is a genuine passion for the mission of the organization, paired with an expertise or talent that is much needed by the nonprofit.

As a supporter of the Columbia Business School Nonprofit Board Leadership Program, how do you see this program contributing to the future of nonprofit leadership?
I strongly believe that nonprofits benefit from the rigor and the accountability found in the best for-profits. The Columbia Business School Nonprofit Board Leadership Program provides the business skills that enable our students to go into the nonprofit sector and, while preserving the values of volunteerism and social commitment, help bring both focus and discipline to their organizations.

Photo credit: Courtesy of Lulu Wang

This post is part of a series celebrating Professor Ray Horton’s final academic year as director of the Social Enterprise Program and the newly expanded nonprofit and social enterprise course offerings in Executive Education.

The ashes of crisis create fertile ground for change. Indeed, the very origins of Columbia Business School’s Social Enterprise Program can be traced to New York City’s fiscal crisis of the late 1970s. Today, a new financial crisis serves as a pivotal backdrop for founder Professor Ray Horton’s final year as the program’s director.

Horton recently reflected on the elements that have shaped the thinking of students in the program over the last 25 years, and he pointed to the considerable influence of both corporate scandals and the environment.

“The corporate scandals of the 1980s and early 2000s have had an impact on MBA students. And there was also the realization that we’ll be choking on our own air pollution 50 years from now if we don’t do something about it,” he said.

“But the great crash of 2008 has turned a huge number of students off about greed. I think people now understand the antisocial consequences of the finance game that major institutions were playing.”

That shift in student thinking underscores Horton’s own view that the traditional economic division between profit incentive and social good is fading away.

“The private sector and the nonprofit world are more alike than they are different,” Horton said.

However, as the students’ thinking — and the discipline itself — continue to evolve, there is one element that is a constant for the program: Horton’s own sense of service.

“I’ve always felt you have an obligation to pay back to society,” Horton said. “Part of my role at the School is convincing people that there is something beyond trying to make as much money as possible.”

Photo courtesy of the Social Enterprise Program

How are entrepreneurs weathering the financial storm? Panelists in a recent Master Class on Innovation and the Economy discussed some of the ways entrepreneurs can stay competitive in a down market. (view video of the Master Class)

1. Look for money in the right places
While money is scarce (and being used to fund existing portfolios), it’s not impossible to find, the panelists agreed. “You can raise money if you have the right idea, but it has to be very real and very targeted,” said Professor Cliff Schorer. Alumni panelist Leonard Sylk ’65 said cutting costs was essential to raising funds and that firms should look to their suppliers for money. “Ninety days from your supplier is a gift because that can be interest-free money,” he said.

2. Secure your balance sheet
Preserve cash flow, ensure that there is capital on your balance sheet, take the long perspective and be wary of a high burn-rate, said Professor Morten Sorensen.

3. Find the opportunity
“Look at your resources and assets and find the opportunity,” said Schorer. “Ask, ‘Where can I take advantage of pockets of gold?’” Panelists discussed healthcare and energy as two areas with the potential for growth. “Provide services that can help companies run more efficiently and find places where there is revolutionary change,” continued Schorer.

4. Tap hidden resources
Schorer recommended that entrepreneurs wanting to build intellectual or leadership capital enlist the help of retirees. “Look to older people who are not returning to the work force and who are willing to help,” he said.

5. Be prudent to survive the game
“Resist the urge to expand beyond what you can handle, especially with fixed costs, and know how much debt you can take on,” said Sylk. “Have the discipline to say, ‘It’s not the right thing to do.’ Learn how to not be greedy and secure your position. If you can survive, that’s the most important thing, because you won’t have much competition left if you do.”

Photo credit: Jim Wallace

In a recent USA Today op-ed, Professor Seth Freeman discusses why admitting what you don’t know — and asking questions about it — can be a very smart proposition.

“Ask me to explain things like derivatives and I'll look blankly at you,” Freeman says of his ability to understand the financial crisis. “My credentials in economics, negotiation and law should qualify me to speak, but often the news leaves me slack-jawed with confusion. Bring me to a panel discussion, and I'll ask dumb questions,” he writes.

But instead of wanting his students to avoid ever asking a “stupid” question, Freeman encourages them to ask more. “In short,” Freeman says, “I am a role model. I want them to join me in the fight against the fear of looking dumb. Overcoming that fear can save them from serious traps.” Failing to ask the right questions — no matter how embarrassing — allows us to be overwhelmed by jargon and complex terms, making us more susceptible to questionable practices, Freeman says.

The value of unabashed critical thinking seems especially important in the midst of the financial crisis. In a recent piece for Portfolio, Michael Lewis chronicled the success of hedge fund manager Steve Eisman, who scored big in the years leading up to the financial crisis by betting against the banks. Eisman, famous among colleagues for his skeptical nature, became suspicious of the financial underpinnings of mortgage-backed securities when he realized that not even the banks themselves could grasp the investments’ complex nature.

Freeman communicates this point to his students through a classroom exercise that penalizes them for failing to ask “dumb” questions. Freeman describes the exercise:

Students pretend to be teams of entrepreneurs, preparing extensively. I walk into class in the role of a corporate executive and give each team a complex investment offer. Secret: My character wants to take over their businesses, using charm, jargon and complicated terms. If they understand my offer, or admit to themselves they don't understand it, they’ll walk away. Yet, it’s easy to con a third to a half of them into fatal deals.

Professor Seth Freeman is currently working on a book, Promises: Making Commitments More Reliable in Business and Beyond.

Photo credit: e-magic

President Barack Obama announced a plan this week that would limit executive compensation at companies seeking large amounts of government aid. The plan includes placing a $500,000 cap on the annual salary of senior executives and restricting the cashing in of stock incentives until government assistance is repaid.

But will the limits create a leadership void at these firms? Professor Nahum Melumad said that some of the proposal’s terms could hinder recruitment and retention.

“You need the best talent money can buy and that may be difficult without the right award,” said Melumad. “Currently the administration is saying that a company may pay a large amount in the form of stock options, but that executives will be allowed to exercise those only after the government has sold its equity positions. That may be too long a period to retain any incentive impact and to attract top managers."

“A better way might be to have executive compensation consist of two key components: a ‘reasonable’ base pay and an additional component that is a function of improved company performance,” Melumad said. “The latter should have significant upside potential to attract top managerial talent.”

Professor Sudhakar Balachandran points out that even if firms aren’t too concerned about losing talent, they’re still faced with the challenge of motivation.

“There have been some arguments that there will be an exodus, but I am not too worried because the job market and prospects are tougher now,” he said. “In the past we’ve seen turnover when a firm’s retention mechanisms fail. But today, if someone wants to leave, where would they go?”

“If there’s no upside potential, you now have to worry that people will not work hard or smart, but instead that they will just show up and check off the boxes,” said Balachandran.

Photo credit: White House/Pete Souza

What would you do if a client gave you a very expensive gold watch? The question was just one of many discussed at an ethics panel and debate that took place last week at Columbia Business School. Organized by the Student Leadership and Ethics Board, working with the Sanford C. Bernstein Center for Leadership and Ethics, an international panel of students discussed their perspectives and experiences confronting ethical dilemmas or corruption.

“Most of the time the ethical dilemmas are not created at the junior levels, but we are most often responsible for their execution,” said student board member Vicente Brocchetto ’10. “The way we handle these situations can make all the difference.”

Several key points/questions were raised:

• Knowledge of local customs and how respect is conveyed in different cultures is important. In one example, the matter of taking shoes and hats off when dealing with a local chief was key to winning a negotiation.
• At what level of materiality does corruption matter? There was an interesting debate about what a manager can overlook, and what a manager cannot, particularly in areas of the world where poverty is prevalent.
• How the use of the English language for business establishes formality and implicitly suggests that business is operating under a different set of standards.
• Leverage what you do have, rather than trying to meet or beat local corruption. In an example case of an international firm that confronted bid rigging by regional groups, the firm’s solution was to capitalize and leverage proprietary products available through its global network, rather than engage with local competition.
• How does perspective change for foreign national managers after training/managing in the United States? How do managers handle different standards for business in the U.S. versus abroad?
• Prof. David Beim, who moderated the panel, said, “Talk about [differences]. People are reluctant to talk about it because it is personal and can appear embarrassing. When you do talk, you find more options and that there’s more nuance than you might have imagined.”
• Don’t be afraid to turn down business. “Any quality firm turns down more business than it accepts,” said Prof. Beim.

Photo credit: Public Offering/Catherine New

Your life may get a little healthier thanks to Cyrus Massoumi ’03, founder and CEO of ZocDoc. The company aims to change the way you find and book a doctor’s appointment. While the company is not even two years old, the accolades have come quickly. In 2007, it was named one of TechCrunch’s top 40 hottest startups, and last month it won Forbes.com’s “Boost Your Business” contest (check out their video pitch). Public Offering caught up with Massoumi to talk about life as an entrepreneur.

How did you get started?
Before I came to Columbia Business School, I ran a software company called OneSizeTooSmall in Austin. It was really helpful to bring that experience with me to Columbia. After School, I joined McKinsey & Company, and the idea for ZocDoc came about from a business trip. I was on an airplane and ruptured my eardrum, and I needed to find a doctor on short notice. After that experience, I talked to my coworker, Oliver Kharraz, who was the expert on electronic health records, and we both liked the idea of an online service to connect patients with doctors. Our third co-founder, Nick Ganju EMBA ’08, joined us next as the chief technology officer.

How did you know that it was the right idea at the right time?
You kind of know in your gut. At first this was just a pebble in my shoe and I kept thinking, Do I want to do another start-up? Is this the right one? But I couldn’t get away from it, and it came to a point where I knew it wouldn’t be successful unless we immersed ourselves completely. So that’s what we did.

So how do entrepreneurs know if now is the right time to start a venture?
Now is the best time to take that leap. Everything is cheaper to do, and resources are more readily available — real estate and hiring, in particular. Fewer hedge funds are competing for talent, so more really good people are available right now. The best businesses were built in recessions, so if you have capital or time to invest, that is a great thing. With so many companies contracting and worrying about survival, you can be more aggressive and actively pursue opportunities. It might sound risky, but great ideas transcend bad economies.

What advice do you have for Columbia MBAs?
In New York City there is so much access to people with practical knowledge and I tried to find classes that had a lot of guest speakers, like Leadership in Retail. I knew I didn’t want to go into retail, but the class had 20 CEOs coming in to speak. Hearing first-hand from someone who runs a company is good for an entrepreneur. There is really no other way to prepare to be one. Also, it’s not a joke that investors like to invest with other investors. Some people invested only because they knew me, even without a business plan. Many of my CBS classmates invested in ZocDoc, and that confidence has paid off, ultimately leading to us getting investments from people like Jeff Bezos. Having people regard you well in your class is important; they need to know they can count on you.

What is the toughest thing about being an entrepreneur?
It can be lonely. There are ups and downs and the buck always stops with you. It can be hard sometimes to lead the charge uphill while getting fired at non-stop, but that comes with the territory. The great thing about co-founders is you have that feeling a lot less.

…and the best thing?
It doesn’t seem like work anymore. I love my company and I enjoy coming in to work every day. I wouldn’t go home if I didn’t have to get some sleep.

This is the inaugural column in our Next Steps series, which will profile alumni in their first five years after Columbia Business School. Do you know someone we should write about? Tell us about other candidates.

Photo credit: Julie Galluzzo

While firms with charismatic CEOs often enjoy an advantage in communicating their message to their target audience, they are also subject to a unique set of challenges, as chronicled by Professor Bruce Kogut in a recent post about leadership in social enterprise.

When Apple CEO Steve Jobs recently announced that he’d be taking a leave of absence until the end of June to address his health concerns, investors panicked and initiated a wave of selling that sent the stock down 10% within minutes of the news.

Now, despite the company posting better than expected first quarter results, some are expressing doubt about Apple’s long-term outlook. As Slate’s Farhad Manjoo asked in a recent article, “What happens to a cult without a leader?”

Apple’s milieu raises several important questions about leadership and corporate governance issues that all successful firms must address. Here are just a few:

How integral is a CEO to a company’s success? Should firms work to dispel the idea that one individual can play such a large role in the company’s business?

By allowing senior leadership to personify the company’s message, is it in effect diluting its brand in the long term?

How necessary is it for companies to develop transparent leadership succession plans?

Should firms be wary of creating celebrity CEOs that become too closely associated with their brand?

What obligation do publicly traded companies have to disclose the health of its senior leadership to its shareholders?

Have an opinion on any of these issues? Let us hear it.

Photo credit: acaben

Linda V. Green: He should give top priority to changing the diagnosis-related group (DRG) system, which is the hospital payment system for Medicare (and which is used by private insurers, as well). This system is highly skewed toward compensating for procedures rather than medical care. As a result, hospitals tend to invest in profitable areas, such as cardiac and orthopedic surgery, but neglect to add capacity to often over-crowded clinical units that care for patients suffering from strokes, heart attacks, pneumonia and kidney failure. This has caused the nation to experience increasing emergency department congestion and ambulance diversions, which lead to sometimes-fatal consequences. Also as a result, many unnecessary, expensive procedures and surgeries are being performed. Current estimates are that up to 45% of cardiac bypass surgeries and perhaps the majority of angioplasties are unnecessary. So changing the DRG system would result in both lower costs and better quality.

Murray Low: The top priority has to be to restore confidence in our institutions, both government and business. In recent years there has been a huge erosion of trust because of self-dealing by those in leadership positions. We need to have leaders that inspire.

Garrett van Ryzin: Restore the world’s faith and trust in the American ideal.

Michael Feiner: The most important issues are trust and transparency. If those are addressed, Obama will get it right as it relates to healthcare, the economy and education and so on. People need a dose of the optimism that has characterized the American mindset. And the optics of trust and transparency are as important as substantive fixes and solutions in each area. The first thing to do is hire great people, which he has done for the most part — he has gone for quality, not cronies. The second thing is to become vocal, frank and communicative frequently — both with press and American people. This is not the time to hide and manage and spin the data. He needs to communicate his plans and where he is against those plans. He needs to demonstrate that he will reach out to foreign powers and that he is more collaborative and less isolationist. There are lots of public things he can do using pulpit of presidency to show that the administration will do things very differently.

Photo credit: Jay Tamboli

This is the last in a series of posts on the challenges surrounding social entrepreneurship.

I have learned in my life as a business professor that just as being a good manager is not the same thing as being a good leader, being a media star is far different from being a good leader or manager. We live in an era where the media-friendly entrepreneur/founder must act on stage, under the spotlight. Many of the foundations supporting social entrepreneurs encourage what the French call mediatisation, supposedly under the theory that media attention draws resources to the enterprise. It also draws attention to the foundation or private investor who funds the star leader.

All of this comes at a cost. I wonder how many tragic failures we have created as a result of our preference for sparkling leaders, rather than ones who know their business and who know how to work on a team. I am absolutely for charismatic leadership, but I am wary of the prima donnas that we tend to create.

I would like to see fewer media leaders and more good team leaders in control of social enterprises. And I would encourage investors to put aside their egos in promoting excessive media attention. It is quite possible that when we have managed to develop better social capital markets, there will be less dependence on the egos of private investors who tend to bet on media figures.

It is a tragedy when an organization’s leader must leave his business and retire, or seek another role in the project. I can think of a social enterprise in Portugal that has done great things in its work with troubled youth. After 30 years of success, the company has slowed and the founder is in danger of seeing a total reversal of the gains it has made. The problem is that too much weight was attributed to the founder and not enough effort was spent creating a team around her that had real capacity or power. Not surprisingly, the leader has become too accustomed to the media spotlight to depart.

An equally painful case is the argument between two founders of an exciting enterprise engaged in funding new ventures in deprived urban communities in a European country.

One leader managed to attract far more media attention, and the chairman of the board threw his support to him for this reason. But was he the better leader or manager? This question appears to have been almost beside the point. As a consequence and despite ample talents, the other founder was forced to leave the enterprise he helped build.

A good entrepreneurial leader is not a substitute for good management, and an organization is more than just the leader. Success also requires team leadership and capable management. To build a successful social enterprise, we must make sure that teams lead the enterprise. And watch out for media-struck leaders.

The above is drawn from remarks made at “Leadership for the 21st Century,” an interactive training session held at the U.S. Ambassador’s Residence in Paris on October 23, 2008 to launch the Ariane de Rothschild Fellows Program: Dialogue & Social Entrepreneurship. The program aims to develop a network of social entrepreneurs with an interest in fostering a culture of mutual respect and dialogue among Jewish and Muslim communities. ]]> Fri, 16 Jan 2009 13:11:56 EST ]]> Entrepreneurship Leadership Organizations Social Enterprise Strategy

Rembrandt, it turns out, is a great teaching tool for business leaders. Not as cautionary tale — the painter had notoriously bad money management skills — but rather as an expert on symbolic communication.

Executives from the Columbia Senior Executive Program (CSEP), gathered at the Frick Collection on a recent Monday morning to learn how to better use symbols as leaders by looking at how master artists, such as Rembrandt, used symbolism in their paintings.

The class was a unique collaboration between CSEP’s director, Professor Paul Ingram, and the museum’s chief curator, Colin Bailey, that was part of the month-long executive education module on organizational alignment.

“When you draw your own conclusions from a story or symbol,” Ingram said in his lecture, “you are engaged in the creation of the message, you are active in creating meaning. That affects commitment.”

Consider direct versus symbolic communication: direct missives — such as a mass email — are fast and clear, they create authority and allow little room for misunderstanding. However, they are not very powerful messages; the more people who receive the message, the less power the message contains.

“Direct communication can be cheap talk,” said Prof. Ingram. “It doesn’t have much credibility.”

Symbols, however, require an investment from both the sender and the receiver of the message. That, said Ingram, makes the message all the more meaningful. The reader — and in the case at the museum, the viewer — is an active receiver. Take Rembrandt’s 1658 Self Portrait (pictured above), which was part of the day’s lesson: what is the meaning of the staff in the artist’s hand, the vestment-style clothing, the colors used? (Listen to Frick audio guide)

“There is no one right answer,” said Mr. Bailey. “There are only ways to appreciate the sophistication of what’s being communicated.”

Image courtesy of the Frick Collection.

We asked faculty members to look back at the year and give us their pick for the best idea or book of 2008. Here’s what they said.

Professor Joel Brocker
Best idea: Behavioral economics and decision making
Why? “This year it’s been quite exciting to see the related fields of behavioral economics, behavioral finance and behavioral decision making coming into the popular domain,” said Brockner. “The fields refer to the psychological influences on decision making, and how people don’t always adhere to ‘economically rational’ views of decision making. There have been a number of books on this topic in recent years, such as Blink by Malcolm Gladwell, and in 2008, Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein.”

Professor Eric Johnson
Best idea/book: Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein
Why? The book’s notion of choice architecture is very powerful for firms and policymakers because they can make changes within their organizations for almost no money, said Johnson, who reviewed the book for Science magazine earlier this year.

Professor Rita McGrath
Best books: The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation by A.G. Lafley and Enough: True Measures of Money, Business, and Life by John Bogel
Why? Both of these topics, growth and a reordering of business values, will be key in the coming year, according to McGrath. “There will be a structural shift and we’re seeing the early warnings that will happen,” said McGrath. “Financial innovation is not the only kind of innovation. It is a great time for innovators to be looking forward for two reasons. First, tough times mean we have no choice but to be creative; a lot of great companies started this way. Secondly, when resources are hard to come by, people have to behave with more discipline. They test assumptions and impose a more disciplined approach.”

Professor Ray Horton
Best book: John Maynard Keynes: Economist, Philosopher, Statesman by Robert Skidelsky
Why? “I read this book last August while capitalism as we’d come to know and love was melting down into what now looks like the most severe downturn since the Great Depression,” said Horton. “Keynes had been out of vogue among most economists and policymakers for more than a quarter-century, dating back to the ‘purification’ of capitalism by Milton Friedman and other monetarists. If anyone wants to understand why we’re all Keynesians now, to borrow a phrase from Richard Nixon, Skidelsky’s biography provides the answer: Capitalism is very unstable from time to time, and from time to time the state needs to bail it out in order to get it up and running again.”

Professor Paul Glasserman
Best idea: The Federal Reserve’s managed sale of Bear Stearns
Why? “It was executed quickly (over a weekend) and creatively (given that Bear was not subject to regulation by the Fed). The Fed’s only exposure is a collateralized loan, backed by the type of mortgage-backed securities the TARP was later created to prop up,” said Glasserman. “Employees and shareholders suffered from Bear’s collapse, but the managed sale may have been the most effective step taken this year to try to limit the spread of the financial crisis.”

Professor Ray Fisman
Best book: Gomorrah: A Personal Journey into the Violent International Empire of Naples’ Organized Crime System by Roberto Saviano
Why? “The Camorra, Naples’ version of the Cosa Nostra, out-Godfathers The Godfather and out-Sopranos The Sopranos. Sometimes, as the saying goes, truth is stranger than fiction (and in this case it’s certainly a lot more violent). As a scholar of economic gangsterism, it is really striking how often Saviano emphasizes that Naples’ mob bosses are rational businessmen of crime,” said Fisman. “You’ll never look at a ball of mozzarella the same way again.”

Business leadership has fallen under the microscope in 2008. Part of this scrutiny has been a renewed look at how business schools fit into the leadership landscape. Recent op-ed articles by Dean Glenn Hubbard (“Back to Basics”) and by Professor Ray Fisman (“The Marie Antoinettes of Corporate America”) examine the role of business education and ethical leadership.

Dean Hubbard discusses challenges and solutions for business programs and students. He writes:

Especially since students graduating today find themselves in management positions sooner than was the case in business even just 10 years ago, management education needs to focus on social intelligence and leadership development training. Also, schools must bridge academic theory and current, real-world experience so students can hit the ground running, making immediate contributions to the organizations they join or ventures they launch.

Professor Fisman, co-writing with Rakesh Khurana of Harvard University, supports a broadening of the business education to instill a sense of social purpose in MBAs. They write in their op-ed:

Adding another perspective to the conversation is a new documentary, “Business Ethics in the 21st Century,” which premieres tonight on WLIW21 at 7:30 p.m.

Hosted by executive-in-residence Bill Baker (author of Leading with Kindness), the show examines the topic of leadership through the lens of social enterprise. Interviews with industry leaders from Unilever and GE and professors Ray Horton, Bruce Kogut, Geoff Heal, Ray Fisman and Dean Glenn Hubbard examine how CSR, corporate governance and executive compensation play a role in leadership ethics.

“At the end of the day, it’s not enough to turn a profit,” says Baker. “There’s a clear indication that to be successful, we must bring good business and character traits to the marketplace.”

“Business Ethics in the 21st Century” airs on WLIW21 on Monday, December 22 at 7:30 p.m. and on THIRTEEN on Saturday, December 27 at 9:30 a.m.

This is part of a series of posts exploring issues of careers and women that were discussed at the “Universities, Careers and Women” symposium on September 19.

There are blogs and books and there is plenty of anecdotal evidence, but finding the right calculus for work and life is no easy task. For many, this is where the role of a mentor comes in handy. Especially for women who seek to have a family and a career, finding a mentor can be critical to establishing a realistic template for what’s to come.

This topic was part of the discussion of September’s “Universities, Careers and Women” research symposium. Panelist Subha Barry, managing director and head of multicultural careers at Merrill Lynch, talked about some of the reasons behind the dearth of female mentorship.

“There is an ignorance, and [senior women] don’t know how they could help to guide them differently,” said Barry. “There is a pathway they created for themselves as the way to success, and they are unsure whether they can affirm that there is an alternative path, so they feel you need to march in lockstep with what they did to be successful.”

Mentoring is critical for many reasons: it provides a transfer of human and intellectual capital, it creates a web of accountability and loyalty, and it provides comfort and guidance in the face of challenges. Mentoring is also about the bottom line. Without it, there are some very real retention issues.

Economist Anne Preston of Haverford College, who spoke at the symposium, discussed her study that showed that the number one reason women leave the science field is a lack of mentorship.

Earlier this year, Professor Jonah Rockoff blogged about his research showing that teachers were more likely to return the following year if they were assigned a mentor that used to work in their school.

So if mentoring works, but there’s a lack of it for professional women, what can be done?

Cali Williams Yost ’95, author of Work+Life, has spent more than a decade researching and writing about the intersection of career and personal life issues.

In a recent interview, Yost discussed how both roles — mentor and mentee — can be improved. The increasing emphasis on global business and the 24/7 culture of the workplace has changed what it means to have separate professional and private lives, Yost said. Like Barry, she pointed to some generational issues that hinder the mentoring process. In a prior generation, “when [professional women] were raising children, you worked or you didn’t,” said Yost. “Now you have a younger generation who says, ‘I am not going to do that. I want to find a new way and its not going to look the way you did it.’ And leaders struggle to have that conversation. They did it the way they did it for some reason, but now it’s different and you have to engage in a dialogue and move out of the ‘all or nothing’ mindset.”

Yost says the emphasis in mentorship should be less about handing down practices and more about sparking a discussion of how to support realistic life demands.

“[Mentorship] is not giving younger women ideas but rather supporting the conversation and working with them to find a creative way to do it and knowing you yourself may also experience elder care or work in retirement,” said Yost.

“For younger women, when you experience a work-life transition, you need to say something. You need to initiate and come to the table having thought of a plan that considers what you need to do as well as the needs of your business.”

Photo credit: Leslye Smith

This is the first in a series of posts on the challenges facing social entrepreneurship. The following is drawn from remarks made on October. 23, 2008 at “Leadership for the 21st Century,” an interactive training session held at the U.S. Ambassador’s Residence in Paris.

I want to consider the question of strategy and competition among social enterprises. Is it true that there is no competition between organizations? Or do social enterprises need to be better equipped to function in the context of competition?

Among the conditions often attached to a foundation’s money is that the social enterprise receiving it must disseminate its business model to other organizations. This is not easy because there is little incentive to do so or time to allocate to this project.

I propose an alternative for exchanging knowledge that does not put a considerable burden on the people who must share it: co-location. Consider the model of La Ruche, a social enterprise that provides collective space to other social enterprises. A beehive offers a collective space where bees — the social entrepreneurs — meet and the exchange of knowledge can go through informal channels. Social enterprises that co-locate in this kind of setting are not in competition, for by design, they serve different needs by different means. Instead, the shared collective space creates a community of practice with positive incentives to share knowledge — without creating competition.

Whereas voluntary sharing knowledge is a good thing, we should not ignore that competition still exists everywhere and is itself an important driver of the dissemination of good ideas. Though often painful, it can serve us collectively if we give it the respect it deserves. Take this example: a very talented entrepreneur had the idea to create a company that would employ people with disabilities and allow the customers to share the experience of being disabled. The idea sold very well, and it came time to design a strategy to implement the concept in the real world.

But when the entrepreneur arrived in a major European city to study the possibility of implementing his business model, he was surprised to learn that he had arrived too late. Someone else had seen the idea and already launched the project. The entrepreneur was very disappointed and felt betrayed by a stranger.

When an idea is copied, who is in the wrong? In the business world, the fault lies with the creator: it is his responsibility to protect his idea and devise a strategy to exploit it.

But let’s not overlook the big picture: even though the case was disappointing for the entrepreneur, the social enterprise concept was still allowed to spread.

Like the previous example has shown, competition does not prohibit the dissemination of good ideas. However, instead of foundations demanding that the social enterprises they fund involuntarily disseminate their ideas, we should provide the tools and knowledge to entrepreneurs and equip them to effectively grow their business and innovations in the context of competition.

Photo credit: Peter Shanks

Above: Part one of Jeffrey Immelt’s Botwinick Prize acceptance speech on October 24. Watch the speech in its entirety.

Jeffrey Immelt, chairman and CEO of General Electric, visited Columbia Business School on October 24 to receive the Botwinick Prize in Business Ethics, which is organized under the auspices of the Sanford C. Bernstein & Co. Center for Leadership and Ethics and its director, Professor Bruce Kogut, the Sanford C. Bernstein & Co. Professor of Leadership and Ethics.

The three keys to ethical leadership, Immelt told a capacity crowd at Riverside Cathedral, are keeping the company financially safe, operational excellence and protecting the future. He shared his thoughts on the industry’s future, citing its need for “a regulatory structure that is industry focused, led by domain experts” as well as more investment into technological research and development. He also encouraged the education of more engineers.

GE spends $6 billion annually in R&D, Immelt said. While this investment may not show returns on GE’s near-term balance sheets, it signals Immelt’s intent to lead the company into a clean energy future. He said:

We can make a clean energy future. This is an extremely solvable problem. Most of the technology is on the shelf today. There’s been a pitiful amount that’s spent in energy technology over the past 25 or 30 years. Even if the price of oil is considered low today at around $70 or $75 a barrel, maybe half what it was two months ago, it’s still four times higher than it was the previous 25 years. So the need to create this clean energy future, I think, is both a social imperative as well as an economic windfall for the people that figure out how to do it, and in my mind should be job one of the next administration because it’s so highly solvable. It requires investment in renewable technology; it requires rejuvenation of core technologies like clean coal, nuclear power.

It requires a build-out of the national grid. It requires the evolution of new technologies like battery and solar and technologies like that. But I would say in the next 10 or 20 years, countries like the United States and much of the developed world can really develop an energy infrastructure that is diverse, that is protected, that is economical and that can create lots of jobs while we’re at it. So the first thing I would say in our new society, in our innovative society has got to be an incredible focus on energy because it’s so solvable.

Above: Xerox’s Anne Mulcahy spoke to Columbia MBA students as part of the Silfen Leadership Series on Oct. 6 (part 1). View entire speech: part 1, part 2, part 3, part 4.

It is one thing to turn around a troubled company — it is another to transform it. Anne Mulcahy has done both. As the CEO and Chairman of Xerox, she led the company from near bankruptcy in 2000 to $17 billion in revenues today. She recently spoke to Columbia Business School students about her experience guiding a corporation out of a time of crisis — more relevant than ever, she noted — and creating one of the most respected and enduring businesses in the world.

A few of Mulcahy’s lessons on leadership:

Take time

“Understand the issues in the company and know what the problems are that you are facing. When I started … I traveled the world for 90 days listening to the problems through the eyes of our employees, investors and customers. A lot of our problems were masking fundamental issues in the business; we were trying to put out fires when we didn’t even know were the fuel leak was. Taking the time to understand the issues in a company is important.”

Communicate openly

“With our people and in public I was very candid about the issues. The level of transparency with regard to the problems you have is becoming more important by the day; an ability to talk about what will be done to overcome them is the other part of the communications strategy.”

Believe in it

“You have to have people aligned with your goals and objectives. It’s the scale of belief that is the single most important thing to making progress and without that, it is a disadvantage being big. It was the single most important thing for [Xerox] to make as much progress as we did.”

Make decisions

“Be bold and decisive in a time of crisis. Moving quickly and decisively and making a few mistakes is much more important than being as thoughtful and as perfect you can be when you don’t have time to put that perfect solution in place.”

Simplify your business plan

“We undid all the complexities and engineering so that there was this incredible logic about revenue, costs, expenses and profits that we hadn’t seen in a while. … It’s about strengthening the business fundamentals, discipline and control; it’s about having the discipline be focused on productivity and improvement.”

Don’t wait to change

“Use good times to change; don’t wait until the crisis. ... You have the luxury of time and [change] can thoughtful and it’s easier on the people.”

Follow your instincts

“Use your experience to make decisions. We had a five-dimensional management matrix [when I took over as CEO] and each step of it was logical, but when I looked at it, I couldn’t really find anyone who was accountable. It’s far less important the choice you make, than making a choice for clear accountability. So we made a choice: geography is our P&L center. At the end of the day, when I want to know what’s happening in Europe, I call the guy who is managing in Europe. It’s not perfect, but it’s clear and it enabled us to move quickly and efficiently.”

That diet, at least elements of it, was at the core of a panel discussion with Dean Glenn Hubbard and professors Bruce Greenwald, Pierre Collin-Dufresne and Christopher Mayer.

“We still are in a period of substantial credit stringency,” said Hubbard in his opening remarks. “Financial institutions remain undercapitalized for normal activity.” [In a separate column published on Oct. 3 with Princeton's Alan Blinder, Hubbard suggests expanding the FDIC cap.]

Prof. Greenwald followed with a discussion of monetary policy’s role in the financial crisis with a ‘tale of two decades’. In the 1960s the changes in U.S. money supply were linked to subsequent growth in the nominal GDP. In the 1990s, reforms in monetary policy led to very little movement in the nominal GDP, while the money supply was extremely unstable.

“The real heart of this crisis is that the traditional means for recapitalizing these institutions have gone away,” Greenwald said. “The movement of interest rates down to 2% has had no effect, just as monetary policy has had very little effect for a long time. If you’re going to restabilize the economy, you have to have a direct means to recapitalize the banks.”

Greenwald came out in favor of the Treasury’s bailout plan, saying, “If you don’t want to be Japan in the 1990s, just give [the banks] the money. The return in terms of economic stimulus will far outweigh the cost of any financing they get.”

Prof. Dufresne, speaking next, pointed to the location and foundation — low interest rates, high demand, insufficient models, complex vehicles — of the risks in the 1990s as key factors in the current financial crisis. “This made exposure hard to measure,” he said.

Concurring with Greenwald, Dufresne said the solution to the crisis was in bank recapitalization. (watch video)

Prof. Mayer focused on the housing market’s role in the credit crisis. “As we look at the problem in the U.S.,” he said, “we need to think about how to stop the housing crisis.” Mayer and Dean Hubbard have proposed a much-discussed plan that would allow anyone with a primary residence mortgage to refinance at 5.25% on a 30-year-fixed rate loan. (listen to NPR audio about proposal)

Mayer closed his comments considering the coming year: “We’re going to have to re-create a new lending system in the future.”

In an interview with Bloomberg TV on November 4, Professor Charles Calomiris discussed the economic challenges facing the incoming president, Barack Obama (watch video/WMV). Professor Calomiris said:

The most obvious set of issues is dealing with the financial crisis … We need to increase capital injections to the banks, improve the way they have been managed, and then we need to do a whole set of things to help the consumer: foreclosure mitigation, refinancing at lower interest rates and putting a bottom on how far the value of mortgages can go. The other major immediate issue — which has been neglected — is preventing the implosion of global trade … We are already in a situation where there is a lot of anti-trade sentiment the U.S., and [that] sentiment, especially [in] organized labor, is now ascendant under [an Obama presidency]. We are sitting on three bilateral trade agreements that Obama has been opposing and he’s already threatened to abrogate NAFTA …

The right formula [for banks], which is different than the one Secretary Paulson has been pursuing, is to maintain a more senior position in the bank with straight preferred [stock], no warrants, and to have less of a micromanaging role. But, more importantly, you have to help not just by injecting capital but by helping the consumer and the mortgage markets. That means direct loss sharing to mitigate foreclosures and it means helping healthy mortgage holders refinance at lower rates. And it means putting a floor in the market by guaranteeing a very low price for mortgages. If you did that, it would it preclude all those disastrous death spirals scenarios and have an immediate positive effect in elevating mortgage-backed security prices and CDO prices.

What you do in the voting booth on Election Day could be the product of your system’s hardwiring. According to recent research by Prof. Dana Carney, political left-right differences are rooted in basic heritable personality traits such as openness and conscientiousness.

The study, conducted with professors John Jost (NYU), Sam Gosling (UT-Austin) and Jeff Potter at Atof Inc., demonstrates that liberals are generally messier, more open to new experiences and more expressive than their conservative pals, who tend to be more organized, conventional and reserved. Sound familiar? Recall that Family Ties’ Alex P. Keaton, a suit amongst the hippies, was a die-hard Reagan supporter. However, in this campaign season a substantial number of Republicans have defied the liberal stereotype and crossed the aisle to become “Obamicans.” We spoke with Prof. Carney about this trend. She said:

There is a cognitive style association with being more liberal or more conservative. Liberals are able to tolerate more ambiguity and more ideas all at one time, as well as ideas that don’t have a right answer. That cognitive style lends itself to work in experimental science, literature and other things that are ambiguous. A conservative mind searches for answers and looks for them in black and white; it wants resolution and order in work and life.

We as people are cognitive misers and so we want leaders who will worry about “it” for us. That’s why in last few elections we have seen the electorate gravitate towards leaders who appear to have answers and are not wish-washy, like we saw with [the failure of] John Kerry’s campaign. We want things to be simple so we don’t have to think as much. Historically, we have seen this issue. Democrats tolerate ambiguity and open mindedness. Americans have gravitated away from that because we’re cognitive misers and it is costly to think — we want to reserve these precious cognitive resources for other, more immediate, activities like how to do one’s job, how to raise one’s kids and what to have for dinner.

But Obama has done a lot of conservative things in the way he speaks and in the simplicity of his message. He’s being clear about what he is planning to do and where the country will be during his presidency; he is much more decisive and people have responded to that. McCain has also been decisive and clear. So this decisiveness is certainly not the only thing carrying Obama’s lead in the polls.

Our data suggest that liberals are much warmer and approachable than conservatives. We are certainly seeing this play out among Obama and McCain. Obama is much warmer and charismatic. He smiles more and has more expansive gestures which signal dominance. McCain has a shorter stature and limbs which, even when he does make expansive gestures, appear less dominant than when Obama makes them. McCain has very serious facial expressions and smiles less. McCain is less warm to his family members, as well. All of these nonverbal behaviors add up to Obama appearing more warm and approachable and charismatic which, as we well know, accounts for some of the variance in for whom Americans vote. It seems the recipe for whom Americans elect may well be rooted in some combination of simplicity of message, interpersonal warmth and a charisma quotient.

Barack Obama did not go to business school, but he will win the U.S. presidency because he understands the core principle of developing a market strategy — the positioning statement. Similar to how L’Oreal became an industry leader by telling a consistent story to its customers (“Because You’re Worth It”), Barack Obama has offered voters a consistent message: “The Change We Need.” It’s everywhere: in his speeches, in the advertising, and in the placards held his by supporters at campaign events. By contrast, John McCain’s message has been inconsistent and confused.

As any marketing student knows, the positioning statement has four elements: customer target, competitor target, value proposition, and reason to believe. Obama’s customer targets are the specific voters he is trying to attract: young and first-time voters, African-Americans, Hispanics, Democrats, Independents. Obama is not concerned with mainstream Republicans or the religious right, reflected in his decision to make little effort in heavily red states such as Texas, Oklahoma and Kansas. His competitor target is also pretty clear — it’s not McCain, but rather George W. Bush. How many times has Obama reminded us that “John McCain voted with President Bush over 90% of the time”? Obama’s advertisements even depict McCain confirming that assertion (video).

Obama’s value proposition, “The Change We Need,” is clear and resolute, but from the start his main problem has been establishing the reason to believe. Why should anyone think that a first-term senator from Illinois with minimal executive experience can handle the most powerful office in the world? Sure, he’s an excellent speaker and has a credible record in Illinois, but president of the United States?

The answer is threefold: first, he has run a highly disciplined campaign that has been consistently on message; to put it another way, he has stuck to his value proposition. Second, his selection of Joe Biden as his running mate has shored up his foreign policy credentials. Third, in all three presidential debates, Obama showed himself to be intelligent, capable, and thoughtful about just exactly what needs change, and how he would go about implementing it.

John McCain, on the other hand, has got his marketing all wrong. Independents hold the key to the election, but McCain chose the right wing of the Republican Party as his customer target, evidenced by the selection of Sarah Palin as his running mate. McCain’s competitor target is clearly Senator Obama, but he might have done better running against Congressional Democrats, thinking, “Things don’t look good for Republicans in the House and Senate, but a McCain presidency will keep a lid on the Democrats’ excesses.”

McCain’s real problem, though, has been his value proposition. What is it, you ask? Well, there are a few to choose from: war hero, bipartisan, courageous patriot, conservative, straight-talker, and experienced leader. While each of these is credible on its own, there is no cohesive narrative or consistent value proposition. One moment, McCain’s a war hero, the next he’s an experienced political leader, and then later he’s a bipartisan trying to build consensus on immigration. The shoot-from-the-hip, overnight decision to select Sarah Palin, the suspension of his campaign and his personal attacks on Obama have destroyed whatever coherence a voter might try to construct. Just compare all of this to the resolute consistency of “The Change We Need.”

So what should we take away from this presidential race? First, I would like to award Barack Obama an Honorary Honors grade for the marketing core course at Columbia Business School. John McCain is receiving an Honorary Fail, but he can turn this into a Low Pass by submitting an analytic paper on the role of positioning in the market strategy. Second, and more generally, the market strategy is at the core of any successful business strategy. Check with your own marketing department. If they cannot articulate a coherent positioning statement, then you have a problem!

Noel Capon is the R.C. Kopf Professor of International Marketing at Columbia Business School. He is author of The Marketing Mavens; his marketing textbook, Managing Marketing in the 21st Century, is available FREE online at www.mm21c.com.

Recent weeks have left no doubt that the business world has made a fundamental shift: the marketplace — including every up and down — is now global.

In an address to students earlier this year, Dean Glenn Hubbard emphasized that opportunities for students are now increasingly global in nature. “The overwhelming forces of globalization and the demands for international finance,” said Hubbard, “should be a source of optimism for MBA job seekers.”

And if the practice of business is now global, so too must be the theory. EMBA-Global has met that need for international education with its partnership between Columbia Business School and London Business School, which started in 2000.

The success of the New York and London-based program, rated No. 1 overall by the Financial Times in rankings published October 27, has brought expansion to yet another world financial center: Hong Kong. Next May, EMBA-Global Asia will welcome its first executive MBA students at HKU Business School.

“Students have an unmatched opportunity,” said Ethan Hanabury, associate dean of Executive MBA Programs at Columbia Business School, “to study global business in every respect — through professors from each of the three institutions and their fellow students, who are accomplished executives from around the world.”

“Business and the management of people and organizations is becoming increasingly complex in today’s fast-moving and inter-dependent world,” said Lyn Hoffman, associate dean at London Business School. “The events of recent weeks are a sobering reminder of how important it is to equip our students with global business capabilities. EMBA-Global has sought to do that, and we are delighted that our alumni are having such success in their own global careers.”

The internationalism of the program, with classes in the world’s three major financial hubs, provides a key advantage for firms that are trying to meet new challenges.

“We are finding that for current [EMBA] students it is a great time to be in business school,” Hanabury said. “They can bring insights right back into the workplace. Companies want perspective about the changing economic landscape and to learn about current research.”

Lindsay Kruse ’06 is speaking on a panel as part of the Social Enterprise Conference on Oct. 24, 2008. The panel will discuss ways to lead and implement change in K-12 education, with a focus on improving teacher quality.

There is no more urgent or important work than providing children from low-income communities the same high quality education that their affluent peers receive. There is no more effective means to accomplish this end than by creating schools of the highest quality. Uncommon Schools (Uncommon) was founded to create more “uncommon” schools — uncommonly good, extraordinary, autonomous and distinctive.

We aim to serve 11,500 students. Recognizing that leveraging human capital in this work is critical, we must do the following in order to achieve our goal:

• Ensure that teaching is seen as a challenging profession that provides ongoing growth and development
• Recruit the highest quality teachers
• Develop purposeful and strategic efforts to retain teachers and leaders
• Recruit and develop tenacious school leaders who drive student achievement
• Foster strong management support and processes
• Define clear performance feedback to align the goals of student achievement with teacher performance
• Ensure that our workforce is diverse and represents the needs of the students we serve

We are working to recruit diverse, high-quality teachers and to ensure that our teachers receive regular feedback as well as opportunities to stretch and develop professionally. We have created a dual-leader model to allow instructional leaders to focus on the core of student achievement while operations leaders manage all non-instructional functions. We have created a yearlong fellowship program that includes a residency within one of our schools and a personalized development plan.

Uncommon has built — and continues to build — a diverse home office staff of educators, MBAs (including six CBS alums!) and other driven professionals to ensure that our organization is poised to address these challenges in a systematic, sustainable way. Uncommon provides a great opportunity for MBAs than to have a deep and lasting impact on this, the greatest civil rights issue of our time. MBAs are bringing their skills to bear across all aspects of the education world. At our organization, we have MBAs working as managing directors, as school-based operations leaders, and from the home office in finance, leadership development, operations, and real estate.

Should you be interested in exploring opportunities at Uncommon, feel free to contact us.

Photo credit: Uncommon Schools

Nothing gets past a Manhattan doorman. Not even 25 CEOs from Korea, collectively representing one-fifth of the nation’s GDP. As part of their weeklong visit to Columbia Business School, the group visited the famously white-glove Metropolitan Club for an event hosted by GC Andersen. The establishment has but one rule: everyone must wear a tie. Unfortunately, no one in the group was wearing one.

However, the tie-less executives cheerfully divvied up the backroom emergency stash — paisley and all — and proceeded to the special event in high spirits. The moment, noted faculty director of the Korea CEO program Prof. Cliff Schorer, exemplified the warmth and flexibility that they displayed during their stay.

In mid-September, two groups of high-level executives from China and Korea completed Executive Education courses in general management, conducted site visits and networked with US executives and each other. Asia’s growing role in international finance has brought an increasing number of executives to American universities to learn how to sustain and scale their own economic growth, and how the US economy impacts their own. Columbia Business School has partnered with the Cheung Kong Graduate School of Business and Global Education Network to offer different types of programs for those executives.

For both groups of CEOs, the coursework — which bridged practice and theory — had historical implications as their final week of classes, held in New York City, coincided with one of the most tumultuous weeks in Wall Street history.

Economic Insights

Prof. Wei Jiang, responding to the week's news, gave a presentation to the Chinese CEOs and discussed the impact of the current financial crisis on Asian markets. She placed the crisis in a historical long-cycle context and offered insight on what is new to this crisis. Using the example of Morgan Stanley’s reported real estate offering in Shanghai in early September, Prof. Jiang considered how the current financial crisis is different than the crisis in 2001.

“Now they are looking at their balance sheet, and suddenly those assets they hold in China become their most sellable assets,” said Prof. Jiang. “Because the foreign investment in China are real [estate] assets and are a relatively new phenomena, China doesn’t have any experience with the contagions of financial crisis through the asset sales channel.”

Understanding the economic implications of the trade imbalance was also of interest to the group and part of the group discussion, she said.

“The real reason for a trade imbalance is a fundamental imbalance in savings behavior. In the end, a country that consumes more than it produces will import from a country that produces more than it consumes,” she said. “In the US, they worry that people don’t save. In China, they have the opposite headache, and people don’t spend.”

Management Style

Another area that was covered as part of the Chinese CEOs’ course work was cross-cultural differences in management style. Prof. Joel Brockner, faculty director of the China CEO program said differences in management style were less important than how they are managed and discussed. For example, the issue of “power distance” differs between American and Chinese management styles.

“You read a lot about employee involvement and how you need to involve them in decision making. That’s a Western principle,” said Prof. Brockner. “In China there is not the same feeling. People at the bottom aren’t expecting or wanting to be involved in decision-making. We are preaching involvement as our management style and we assume low-deference to authority. But in China there’s more high deference.”

“Asian businessmen tend to be more introspective,” said Prof. Schorer. “They absorb, consider and ponder versus shooting from the hip.”

Global Vision

On the morning of Sept. 29, the Korean executives had an unexpected surprise: a site visit to the New York Stock Exchange with NYSE president Gerald Putnam became front-row seats to the biggest single-day drop in Dow Jones history.

The timing of the visit, coming at the height of chaos in the financial markets, generated much stimulating discussion according to Prof. Schorer. The US market collapse in 1987 (25% drop in one day) and the subsequent Asian financial crisis were both really confined to an identifiable geographic region. It was an eye-opener to see how immediately this crisis spread, and how the domino effect, caused by the subprime debacle, spread fear and reaction around the world so quickly, Prof. Schorer said.

Wall Street’s role as the center of global finance was also the focus of discussion in a special class session with Prof. Ray Horton, who gave a presentation to both groups of CEOs on the changing distribution of global power.

He asked the groups to consider what the world’s distribution of power will look like in 20 years and whether the world would have one, two or more poles of control. Breakout groups debated and then assigned probabilities to all the type of international power structures. Both the Chinese CEOs and the Korean CEOs were split between a unipolar world, with either the US or China leading (usually the US), or a bipolar world, with both China and the US, said Prof. Horton.

Their conclusions mirrored the overall tenor to the visit.

“The Korean CEOs had a global vision and a heightened recognition that we’re seeing how integrated we’ve become,” said Prof. Schorer. “We’re all now related in this web of commerce and investment.”

Photo credit:Courtesy of Executive Education

In recent years, compensation packages for CEOs and other senior corporate executives have been criticized for both their high level and their growth, often despite poor company performance. Are patterns such as this likely to continue in the aftermath of the recent financial meltdown?

You might think the answer would be obvious. For one thing, the precipitous drop in the stock market reduces the value of stock options, typically the largest component of executive compensation. Even companies that have a history of granting a fixed value of stock options may be unable to continue the practice.

“It may simply be too dilutive to grant the number of options required to maintain fixed value,” says Irv Becker, managing director of the compensation consulting firm The Hay Group, in New York. Second, current economic conditions are likely to depress corporate earnings, which are commonly used to determine incentive-based bonuses. Third, executive compensation packages are designed to attract and retain the best managerial talent, so an executive being recruited by company A is likely to be “made whole” for any compensation that he or she might lose if they leave company B, including unvested stock options. Since the current market is likely to leave many previously granted options “under water,” the cost of attracting and retaining employees is likely to decline.

In other words, when we “pay for performance,” if performance is down, shouldn’t pay go down with it? In theory yes. But many of my academic colleagues and I have observed a very robust pattern in executive compensation over the years that we like to call “pay for pulse.” The pattern is as follows: Suppose we split all companies into two groups: Group one, in which shareholders saw some positive returns to their investment for the year, and group two, in which returns were negative. As you might expect, the executives in group one receive compensation that is greater, with better returns corresponding to larger increases in compensation. So in group one we observe “pay for performance.”

In contrast, executives in group two typically also receive more in compensation, despite their poor performance. Historically this increase has been more than double the rate of inflation in most years. What’s even more troubling is that there is typically no difference between pay for executives in firms with marginally poor performance compared to those in firms with worse performance. Hence the term “pay for pulse.”

What’s driving this?

When performance is poor, the company’s board of directors and its compensation committee face the difficult task of separating the role of the economy from the contribution of management. So when the economy is bad, boards may be tempted to conclude that their management team did a great job given the circumstances. Typically boards rely on two mechanisms to reach such a conclusion.

First, compensation committees typically benchmark their company’s compensation and performance with that of a peer group. Correspondingly we see better compensation in firms where the board concludes that the company has outperformed its competition. Second, executive compensation typically allows the inclusion of subjective assessments of factors such as leadership, which are difficult to measure objectively.

Are there reasons to believe that “pay for pulse” will go away?

I think so. The revised compensation disclosure requirements enacted by the Securities and Exchange Commission (SEC) in 2006, combined with the observed growth in shareholder activism in recent years, is likely to reign in the board’s use of peer groups and subjectivity in awarding compensation. With broader disclosure, shareholders have substantially more information from which to form opinions of the fairness of their company’s executive compensation. For example, companies must disclose the peer group that they used in the compensation process, so shareholders can form their own opinion on whether a reasonable peer group was used or whether the board “cherry-picked” the peer group to justify higher compensation.

Even before the economic meltdown reached its peak, we began seeing examples of the effectiveness of the SEC’s regulations and the actions of shareholders. Specifically, a survey of executive compensation in 2007 by The Hay Group showed — for the first time in recent history — decreases in compensation when firms had decreases in stock price. In prior years, we typically observed small increases in compensation for firms when stock price decreased, and larger increases in compensation as stock price increased.

In addition, we recently began to see firms take steps to curtail “golden parachute” severance packages. Finally, in 2007 we saw the growing use of “claw backs,” which permit firms to take back the portion of compensation that was awarded to executives using misstated accounting numbers.

Overall, the executive compensation process is shaped by many forces, but in our current environment scrutiny from both regulators and investors is particularly high. The rescue of Fannie Mae and Freddie Mac, and the $700 billion federal financial rescue package, impose executive compensation restrictions including the elimination of golden parachutes and provisions for claw backs.

But as you might expect, there are efforts underway to negotiate exceptions to these compensation restrictions. Will our current economic meltdown, combined with regulatory scrutiny, shareholder activism and increased disclosures, eliminate “pay for pulse” going forward? Let’s hope so.

This column also appeared on Forbes.com.

While everyone is looking for reasons why this nation is in a financial mess, let me toss another one into the ring. We’re in this situation because we’ve focused almost exclusively on the income statement and ignored the balance sheet.

An income statement indicates how revenues are transformed into net income, or profits after taking expenses into account. The balance sheet lays out the assets deployed in the operations to generate the revenues that drive profits. The critical factor for any firm’s success is its profitability, i.e., how much profit is the firm making relative to the amount of assets that have been deployed. Almost no one looks at profitability — we focus on raw profits instead, to our detriment.

Who’s “we”?

It’s the manager chasing growth in sales and earnings, without worrying about the resources used to obtain the growth.

It’s the financial analyst who incessantly focuses on Earnings Per Share (EPS) targets without any concern for whether the targets were met by organic growth or by value-diminishing acquisitions.

It’s the investment banker who spends most of his attention on whether a transaction is going to be "accretive" or "dilutive" to EPS, not on whether the transaction is going to improve asset productivity.

It’s the business media, which focus on these flawed metrics and increase the pressure on managers to meet rising earnings expectations, even at the cost of declining profitability.

It’s investors who focus all their attention on whether the firms meet analysts' estimates, harshly penalizing firms that miss by a few cents.

It’s the board of directors who compensate managers based on earnings targets instead of profitability targets.

It’s the regulators who have permitted firms to park many of their toxic assets off the balance sheet.

And it’s all of us in business academia for not properly explaining to our students that profit growth and profitability growth are not the same; in fact they are often opposites.

What happens when one ignores the balance sheet? First, one ignores the quantum of assets deployed for the generation of income. Consider Lehman Brothers and other firms that increased their profits quite dramatically until last year through investments in mortgage-backed and similar assets. Their profit growth was dramatic, as was their stock price performance, almost doubling from $44 at the start of 2005 to around $80 in June of 2007. However, if one considers the growth in the amount of assets on their balance sheet, the trend in profitability is much more modest.

Second, one ignores the quality of assets on the balance sheet. If one had paid attention to the rising profits from these risky investments with one eye on the balance sheet, one might have had a better appreciation for the nature of the risk involved. Of course, regulators made this worse by allowing firms to place many of their assets (such as Variable Interest Entities (VIEs), which are at the heart of the subprime mess) off the balance sheets. When people ignore what’s on the balance sheet, what are the odds that they’re reading the footnotes to see what’s left off it?

What does paying more attention to the balance sheet imply? Managers should care as much about what any new transaction brings to their balance sheet as what it brings to their income statements. Analysts should stop focusing exclusively on EPS targets and also forecast profitability targets. Investment bankers should abandon the charade of “accretion-dilution” analysis and focus on whether an M&A transaction really adds economic value (historically, most do not, and my guess is this is partially driven by ignoring the balance sheet).

The business press should stop facilitating the negative cycle caused by an emphasis on profits and growth without regard to the assets used to derive them. Boards of directors should reward managers for growth in profitability, not profit, by incorporating measures such as residual income (earnings less a charge for capital employed) in deciding executive compensation. Regulators should clamp down on off-balance sheet items, a lesson that apparently wasn't learned from the Enron debacle. Finally, business academics must train the next generation of managers, financial analysts and investment bankers to understand the critical difference between profit and profitability.

With any crisis, there is always a period of increased scrutiny, followed by business as usual. In this case, I hope all the “we’s” listed above continue to pay greater attention to the balance sheet once this crisis has been resolved.

This column originally appeared on Forbes.com on Oct. 5, 2008.

Photo credit: Dan Foy

This is the first in a series of posts exploring issues of careers and women that were discussed at the “Universities, Careers and Women” symposium on Sept. 19, 2008.

Historically, the women’s movement has focused on providing equal opportunity and access to education for women. By any measure, it’s been a roaring success: since 1980, women have comprised the majority of BA holders and more recently, the majority of newly minted MDs and JDs.

However, as more women than ever enter the professional labor force — equal with men in both numbers and stature — there remains a persistent fault line: the earnings gap. Complicating the equality landscape is how education, especially at the top tier, and so-called “opting out” are playing into — or out of — this gap.

The topic was the subject of last month’s research symposium, “Universities, Careers and Women”, hosted by Columbia Business School and the Sanford C. Bernstein Center for Leadership. Keynote speaker Harvard economist Claudia Goldin and her colleague Lawrence Katz presented their findings from their recent “Harvard and Beyond” (download PDF) study, the first to examine how the earnings gap plays out at the top-tier education level. (They co-authored The Race Between Education and Technology, published in June 2008.)

Goldin and Katz found that the earnings gap widens the further up the educational and professional food chain the female college grad goes. There is a 67% difference in earnings between Harvard men and women compared to 40% for college grads nationwide.

For MBA women, bottom line parity is especially elusive. Economist Marianne Bertrand from the University of Chicago’s Graduate School of Business also presented her research at the symposium. She found 60% earnings difference between female and male Chicago GSB alums 10 years out of school.

“There is a big earnings difference,” Bertrand said, “and it is affected by whether or not you have children. There are no signs that there is discrimination affecting gender gap in earnings, although there is a penalty for stopping out to raise kids.”

Katz found in his data that for MBA holders, any work interruption led to a 30% drop in earnings, and the longer the stop-out, the bigger the loss. A timeout of 15 to 18 months sunk earnings by 35% immediately; once lost wages were factored in, this decline reached 50%. (download presentation PDF)

An interesting twist, however, was the key role of spouse choice. According to Bertrand’s research, MBA women with high-earning mates were more likely to move off the fast track; whereas women with husbands not on the fast track were more likely to return to full-term office work sooner and purchase childcare. (download presentation PDF)

The symposium discussion went on to consider the issues that might close the gap and allow women to pursue career and family in a mutually beneficial fit. Mentoring and coaching, male behavior modeling (e.g. paternity leave), job sharing and career development programs are some of the issues that were discussed.

The takeaway: Women face steep economic penalties for stepping out of the labor force (for children, eldercare, etc.). This, of course, drills down right to the core of womenomics and has serious implications for firms competing for human capital and knowledge. A perplexing question remains at large: how to shift the corporate paradigm so that women not only make equal pay for equal work but have equal work and family opportunities at equal pay? The next blog post will consider some of the ways this is happening.

Photo caption: Left to right, panelists Marianne Bertrand, Lawrence Katz and Anne Preston

Photo credit: Leslye Smith

Tonight, John McCain and Barack Obama will meet in Nashville for the second of three presidential debates. In an op-ed published in the New York Times on Oct. 7, 2008 (“The Dismal Questions”), Dean Glenn Hubbard and Prof. Joseph Stiglitz posed several questions relating to the economy they would like the candidates to answer. Select questions:

From Prof. Stiglitz:

More than a million people have lost their homes in the past two years. A million more are expected to lose their homes in the next 12 months or so. Do you support a more direct program of relief for homeowners? The government pays more of the mortgage costs of rich homeowners, through larger tax deductions, than of poorer homeowners. What would you do to correct this injustice?

From Dean Hubbard:

Does the financial crisis indicate that we need more regulation? Or is the problem less one of too little regulation than of poorly focused regulation? The crisis had its origins in part in international capital flows that led to extraordinarily low interest rates. But high-risk mortgage lending drew some of its breath from regulatory interventions. Some heavily regulated financial institutions managed to get themselves in trouble. And it was government-sponsored enterprises, no strangers to regulation, that stimulated the demand for questionable mortgage products. Shouldn’t the next president be standing up to protect markets instead of sowing doubts about them?

What questions about the economy would you like the presidential candidates to answer?

In an Oct. 2 column published in the Wall Street Journal (“First, Let's Stabilize Home Prices”), Dean Glenn Hubbard and Prof. Chris Mayer propose that bolstering housing prices will improve the intent of the Treasury’s bailout plan. They write:

We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac. Investors and speculators should not be allowed to qualify.

The historical spread of the 30-year, fixed-rate conforming mortgage over 10-year Treasury bonds is about 160 basis points. So a rate of 5.25% would be close to where mortgage rates would be today with normally functioning mortgage markets. One of us (Chris Mayer) recently published a study showing that — assuming normally functioning mortgage markets — the cost of buying a house is now 10% to 15% below the cost of renting across most of the country. Rising mortgage spreads and down-payment requirements are what’s still driving down housing prices. We need to stop this decline.

The direct cost of this plan would be modest for the 85% of mortgages where the homeowner owes less on the house than it is worth. Lower interest rates will mean higher overall house prices. The government now controls nearly 90% of the mortgage market and can (and should) act on this realization. Remove the refinancing option and you can have lower rates without substantial cost to the taxpayer. Homeowners would have to give up the right to refinance their mortgage if rates fall, although homeowners could pay off their mortgage by selling their home. For borrowers with lower credit scores, the mortgage rate would be greater than 5.25%, but it would be less than their current rate.

Now, what about mortgages on homes that are worth less than the total amount of the loan? These mortgages could be refinanced into a 30-year fixed-rate loan to be held by a new agency modeled on the 1930s-era Homeowners Loan Corporation. New mortgages would be made of up 95% of the current value of a home.

The government might use two approaches to mitigate its losses. It could offer owners and servicers the opportunity to split the losses on refinancing a mortgage with the new agency. Servicers would have to agree to accept these refinancings on all or none of their mortgages, to avoid cherry-picking. Or the government should take an equity position in return for the mortgage write-down so that the taxpayers profit when the housing market turns around.

Last night, John McCain and Barack Obama came together to praise the value of national service. Volunteerism is an important aspect of what makes a society civilized. Contributing to the community at large is not only good business or good government; it’s also the right thing to do.

But to what extent can bureaucratic forces foster national service without stifling it? McCain reminded the crowd that the federal government has its limits, and Obama shied away from the idea of compulsory “national civic service.”

Perhaps the best way to promote a culture of service is through business education. At Columbia Business School, we learn to appreciate not only the facts of the case in question but also the issues surrounding and clouding the situation. In Leadership, we are always taught that raw intelligence only gets you so far and that emotional intelligence is the true determinant of success. Learning how to insert the relevant resources to the relevant people at the relevant time is essential to a Columbia MBA. It is this knowledge that is required to organize or help movements that people care passionately about. This is the kind of service that all Americans would like to see at the heart of this country.

MBA students must also learn another element of service — that to whom much is given, much is expected. An MBA equips people with the skills and knowledge to be more socially conscious precisely because the degree is part of such an august tradition. It should escape no one’s attention that service is an essential component of leadership. In today’s society, there is no shortage of good causes for which our skills can be put to use. For every person there is a cause that rings strong and true. As McCain stated last night, “It’s not about the individual — it’s about the cause that they serve.” This discussion, which occurred on the seventh anniversary of the tragic events of September 11, reminded Americans of a greater common cause.

By happenstance I’m lecturing on John Maynard Keynes in my Modern Political Economy course today. I don’t ask my students to read the whole of The General Theory of Employment, Interest and Money, which would indeed be cruel and unusual punishment, but I do require them to read chapters 10, 12 and 24. Those, to me at least, are most essential to understanding the General Theory. Chapter 12 certainly makes the carnage on Wall Street a bit easier to understand; it also is a reminder that recovery isn’t going to be easy. Quoting Keynes:

A conventional valuation which is established as the outcome of the mass psychology of a large number of ignorant individuals is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really make much difference to the prospective yield; since there will be no strong roots of conviction to hold it steady. In abnormal times in particular, when the hypothesis of an indefinite continuance of the existing state of affairs is less plausible than usual even though there are no express grounds to anticipate a definite change, the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning and yet in a sense legitimate where no solid basis exists for a reasonable calculation.

So far we have had chiefly in mind the state of confidence of the speculator or speculative investor himself and may have seemed to be tacitly assuming that, if he himself is satisfied with the prospects, he has unlimited command over money at the market rate of interest. This is, of course, not the case. Thus we must also take account of the other facet of the state of confidence, namely, the confidence of the lending institutions towards those who seek to borrow from them, sometimes described as the state of credit. A collapse in the price of equities, which has had disastrous reactions on the marginal efficiency of capital, may have been due to the weakening either of speculative confidence or of the state of credit. But whereas the weakening of either is enough to cause a collapse, recovery requires the revival of both. For whilst the weakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition. (emphasis added)

These days, Keynes is not very popular in some circles; in truth, he is a bit hard on the neo-classicists in chapter two. But behavioral economics, which is now mounting a serious attack on the neo-classicists (at Columbia Business School as well as in the discipline), owes a lot to Keynes, as the above quote makes clear. As he wrote more than seven decades ago, strengthening credit is a necessary but not sufficient condition for recovery. We need to restore some confidence too, which is probably where political leadership comes in.

I am an economist, so naturally I believe that a lot of behaviors can be explained by the incentives people face and the cost-benefit calculations that ensue.

But I like to think I’m not a narrow-minded economist. I can acknowledge that the foibles of human psychology also account for a lot of what we do. And sometimes the two interact in surprising and interesting ways.

In understanding who does — or does not — get ahead in the workplace, some (economic) discrimination surely plays a role – a subject not unfamiliar to many working women. But it also appears that some women may be leaving the work force as a pre-emptive strike; why stick around when all that hard work isn’t going to pay off?

Some years ago, I had a conversation on this topic with Maura O’Neill, who at the time was an MBA student in the Berkeley-Columbia program. Maura suggested that active discrimination accounts for only half of a vicious cycle. The other half, she said, is women simply choosing not to compete for leadership positions in order to avoid facing such dispiriting discrimination. This, of course, only reinforces the idea that women are unwilling to or incapable of fulfilling such roles, perpetuating the cycle.

And so began our very happy academic collaboration to study the difference in attitudes between men and women and return on effort in the workplace.

In the resulting study, which will be published next year in the Journal of Human Resources, we discovered that women are more likely to view success as a matter of luck or connections rather than hard work, a result consistent with Maura’s description of the discouraging prospects for promotion for many women. We used data from the World Values Survey, which allowed us to look globally at the relationship and find that this gender difference in viewpoint is remarkably persistent over time and across countries. Perhaps more concerning for those with leadership ambitions is that this “gender perceptions gap” is far wider for those in managerial positions.

But these findings represent something that concerns us all. As Maura wrote in a column on the study last year, “I worry that if women don't think that the workplace is a level playing field where effort generates promotions, they will not feel compelled to invest their best efforts. As a result, corporate America will lose out on a vast reservoir of talent.”

Well put, Maura. Now that we have a better sense of the problem, how about some suggested solutions?

Columbia Business School and the Bernstein Center for Leadership and Ethics are hosting a research symposium on “Universities, Careers and Women” on September 19.

Photo credit: Ricardo Motti]]> Fri, 19 Sep 2008 15:56:44 EDT ]]> Leadership Organizations

On Tuesday at lunchtime, students navigated pizza boxes and a packed auditorium for the semester’s first Town Hall meeting. Dean Glenn Hubbard addressed the school-wide audience about the near and long-term economic impact of the current Wall Street crisis. He also addressed the job market, a source of great concern for many students, saying:

A question that may be on your mind is “Does financial services need to shrink?” There will be job losses and exits, not only with the firms that have exited but probably more. But I have considerably more optimism for the medium term in financial services, and there are three simple reasons for that:

1. The global phenomenon of an aging society puts pressure on the demand for a whole variety of financial products and services. This isn’t as well developed as it should be in the U.S. or the U.K., let alone in many emerging economies, and the number of return income vehicles, insurance products and so on will increase.
2. Many of the big emerging economies are improving their domestic demand, which will generate a huge demand for financial services as they exit from the state provision of services to the market.
3. The overwhelming forces of globalization and the demands for international finance. Anyone who says that the financial sector is going to shrink out of business has not been through these cycles before.

Dean Hubbard urged students to remain flexible and keep perspective.

“We are behind you,” he said. “Ask yourself, ‘What are the right jobs for me on my career ladder?’”

Photo credit: Catherine New]]> Thu, 18 Sep 2008 09:56:53 EDT ]]> Corporate Finance Leadership Organizations

Tonight, Senators McCain and Obama will speak about public service here at Columbia University. They are likely to talk about creating a program for a year of national service. That is a fine idea, but what strikes me today is that there is a management gap in service: Social organizations need people with managerial skills to better achieve their goals and support their mission.

The greatest constraint in solving the world’s most pressing problems, from health care to environmental policy to poverty, is not a lack of ideas. Many great minds, including those of large numbers of Columbia faculty members, are focused on research relating to society’s most fundamental challenges.

What the social sector still needs, however, is management. Management, along with the ability to get things done, is the scarcest skill among those who devote themselves to service. A desire to do good is an absolute requirement, but in order to navigate complex social and governmental channels and effectively create change, one must be equipped with the knowledge and skills necessary to analyze, decide, and lead.

That’s what business schools do. Top business schools are producing MBAs whose management skills will be invaluable in the social sector—even if they are not necessarily the people who are running nonprofit organizations. I argue that what a lot of development and health care reform efforts are missing is the involvement of people who know how to manage and run large, complicated organizations. If management is the scarce skill, then that means business schools need a seat at the public service table.

Columbia Business School’s involvement in Africa and other emerging markets and its health care management, entrepreneurship, and social enterprise programs are just some of ways we are committed to service. We also have programs to train principals for New York City schools and work with community businesses here in Upper Manhattan. We are taking management skills and actively applying them to public service.

Senators Obama and McCain have already demonstrated their understanding of the critical importance of business in creating and sustaining economic growth. It is my hope that when they take the stage this evening at ServiceNation’s Presidential Candidates Forum, they will also convey the need to engage business and businesspeople in the social sector.

Feats of breathtaking athleticism and sportsmanship are the hallmark of the Olympic Games, but behind the televised events another story unfolds. That story is about teamwork, focus and time management. Sound familiar? Olympic performance has many overlaps with the business world. No one knows that better than Keeth Smart ’10, who will be starting at CBS next week on the heels of his third Olympic appearance as the captain of the U.S. Fencing Team. We spoke with Smart in Beijing about getting ready for his quest for the gold — and how that experience will carry over at CBS.

Public Offering: This is your third time to the Olympics. What stands out as a new experience at the Beijing Games for you as a veteran Olympian?

Keeth Smart: The thing that stands out to me the most as a veteran Olympian is how knowledgeable so many athletes are about the sport of fencing. In the past, I had to explain the sport to various U.S. athletes, while this time around it seems that many of them are far more knowledgeable about the sport. This year I have also tried to take the initiative with several of my younger teammates to help them make the most of this experience. I really want each of them to have a phenomenal memory of the Games.

PO: You have had some challenges this year as you prepared for the Games, there are many high expectations for you and the U.S. team, and a lot of media attention on Beijing itself. What is the key to staying focused?

KS: The key is to maintain the same routine while competing. It is really important that I don’t focus on the magnitude of the Olympics and instead treat the tournament as another event. My coach has done a great job in helping me remain focused throughout the lead up to the Games.

PO: You’re starting CBS orientation only days after competing in your final event. Are there any Olympic lessons you will bring with you as you start your first year at B–school?

KS: The most important lesson I am learning from life in the Olympic Village is the ability to keep an open mind and perspective to things. When you live at the Olympic Village you are taken out of your comfort zone in terms of food, sleeping arrangements and the number of people from all over the world housed in one location. I am looking forward to the opportunity to meet individuals from so many different sports and countries and to learn more about their personal stories.

PO: Are there things you have learned in corporate finance, where you worked before CBS, which are serving you well at the Games?

KS: Being properly prepared is one of the biggest assets in business and in athletic competition. In my job, whenever I delivered a presentation I would rehearse several times before the actual event. In sport, it is important to be equally prepared about my opponents. Some of my competitors overlook the importance of knowing as much as possible about their opponents, but I think that it is an invaluable asset that I have gained from working.

Another great asset I have acquired from working is knowing how to properly manage my time. At the Olympics, it is especially important to have strong time management skills because there are so many requests for our time from friends, family, coaches and sponsors.

UPDATE: Keeth Smart and the United States men’s sabre team won the silver medal at the Beijing Olympics on Aug. 17, 2008. ]]> Wed, 27 Aug 2008 12:34:38 EDT ]]> Leadership

Professor Frank Edwards is the faculty chairman of the Corporate Governance Committee and created the new corporate governance module that is part of the revised CBS core curriculum.

There is no more basic question in corporate governance than “who gets to decide.” We are moving away from a world where shareholders are small, passive investors to a world where investors hold sizeable positions in companies and want to be heard on vital corporate decisions.

There is a growing movement to give shareholders — especially institutional investors and substantial block-holders such as private equity firms — a larger role in corporate governance. In recent years, we have seen large individual activist shareholders, such as Carl Icahn and Warren Buffett, influence companies’ policies and strategies; activist hedge funds, private equity funds and union and public pension funds have successfully persuaded or forced changes upon recalcitrant managers.

But moving away from the traditional director-primary model raises the fundamental issue of what powers should shareholders have. Will more shareholder involvement disrupt the very mechanism that makes the public corporation practical, which is the centralizing power in the board of directors?

One controversial area is the adoption of majority voting standards. In the United States, the traditional way of electing directors has been by plurality voting in which directors typically are elected if they receive one or more shareholder votes in favor. Shareholders are now demanding that the plurality system be replaced by a majority vote rule, a system used in many other countries, including the United Kingdom. Some American firms have already voluntarily instituted some form of majority voting, while many others are resisting this change.

Another area of controversy is whether or not advisory or even binding shareholder “say-on-pay” resolutions should be permitted. The law in the U.S. specifies that even shareholder resolutions receiving a majority vote are nonbinding on the board. In the past, even shareholder advisory votes on executive compensation plans have not been permitted under SEC regulations. This has changed and evolved into a new, more profound issue: should a wider range of shareholder resolutions be permitted and should those receiving a majority vote be binding on the board?

Lastly, some shareholders want the right to propose resolutions pertaining to corporate social-issue policies. Resolutions on the emission of greenhouse gases, effects of climate change on less developed countries, research on renewable energy sources and national healthcare programs have all been proposed by shareholders.

In the future, managers will have to balance shareholder involvement with the practical considerations of running a company efficiently. Understanding what good corporate governance practices are and how these can contribute to the success of a company will help mangers find the optimal balance between these competing considerations. The goal of introducing corporate governance into the CBS core is to lay a strong foundation to help future MBA managers decide these issues and to manage successfully.

Photo credit: Daniel Martini

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Halfway through a discussion of Parker Petroleum, a fictional case centered on tough corporate governance and leadership issues, Professor Laurie Hodrick asked cluster G and H students, “Does this make you want to be a CEO?” A wave of firm “yesses” rang out through the lecture hall.

New student orientation was well underway by Thursday afternoon. As the class of 2010 — which includes NFL linebackers, Phi Beta Kappas and an Olympian — went through first-week-of-school rituals, one thing was clear: the work hard, play hard mindset was already forming. Introductions, handshakes and perhaps even a little flirting were taking place on the front steps of Uris under a bright blue summer sky.

This year’s CBS orientation debuts the new core curriculum, designed to offer more flexibility for students, and includes a module in corporate governance. “The core is the first step in the journey to the MBA degree,” said Dean Glenn Hubbard. “It is essential to preparing our students to analyze, decide and lead in an increasingly complex and global business environment.”

Hodrick gave students some advice as well while they considered the Parker case. “Give yourself the right toolbox to take you to the places you want to go. And push yourself to think about other things than where you came from.”

Ron Gonen ’04 will change the way you think about recycling. He’s been honing his strategy ever since the day he convinced his high school of the economic benefits of purchasing reusable metal silverware instead of plastic.

Get tough love

When you’re an entrepreneur in the midst of traditional businesspeople, everyone wants to pat you on the back and encourage you. But when you get into something like the Entrepreneurial Greenhouse Program and you’re in the company of other entrepreneurs, you get a much higher degree of constructive criticism, which is critical to the success of any new venture.

You have to believe in yourself when starting a business like this. Before you pitch the idea to anyone else, you first thing have to sell it to yourself, and keep convincing yourself of its potential every day. But you also have to be humble enough to acknowledge areas for improvement.

Once I had committed myself to launching RecycleBank, I needed people who were going to tell me at key junctures: “That’s not going to work.”

Articulate the benefits

People want to do good things, but it helps when they’re given an incentive.

In the RecycleBank program, we make the incentives explicit, by rewarding people with points based on how much they recycle. These points can then be redeemed through our corporate partners — vendors as diverse as Apple, Chipotle and Zales.

I’ve tried to communicate to a variety of constituents that in all the actions that we take, if we think about the environment, we can also think about the ways to cut costs. I don’t want people to think about helping the environment as just the right thing to do — which it is — I also want them to see that it’s an effective way to generate positive financial return.

Make it scalable

In 2004, I was operating this business out of my apartment on the Upper West Side, and now, in 2008, we’re already providing service in 10 states.

In the beginning, growth was largely supported by millions of dollars in private equity investments, but at this point, I hope that we’ve done our last round of fundraising.

Since RecycleBank’s revenue comes from our ability to divert trash from landfills, this program is naturally sustainable.

I believe we can continue to grow with the support of our Reward Partners, leaders in local government and our team. We’ve been incredibly successful, reaching 90 percent of households in the areas we’re operating within and increasing recycling rates by more than 100 percent.

And I’m confident that we’ll soon be able to reach the entire country, as we keep making it easier for more people to see the immediate rewards of their recycling efforts.

Photo Credit: RecycleBank

Yesterday I suited up in my shalwar kameez and GreenMango uniform and joined my team for their daily fieldwork. As we made our way through the slow moving Hyderabad traffic, someone started a discussion on marriage. And then one of my female staff members, who often goes to temple, said, “Actually, madam, we are also praying for you that you will have a marriage!” We all had a good laugh.

When I decided to move to Hyderabad, India, I knew I would not exactly be the norm. I would be a single, Caucasian woman running an internet business for low-income clients. If anything, I figured I would stand out because I wasn’t Indian or because I wasn’t from Hyderabad.

In fact, it’s being a female entrepreneur that makes me an anomaly. Some 95 percent of the meetings I have in a given week are with businessmen, nearly all of our company investors are businessmen and my most trusted advisers are businessmen.

When my business partner (another woman) and I went for our legal incorporation in Hyderabad, our lawyers kept asking for our fathers’ and husbands’ signatures. This would not be possible, we explained. This started a long line of questioning and a lot of laughter as to why a single woman would start a business. One of my most memorable experiences in this regard came when I tried to get a wifi internet card from Tata Indicom. As I was applying, the staff kept asking me funny questions about my living situation, for example: Did I stay with someone?, Where did my family stay?, etc.

When they finally learned that I lived alone and did not have a husband, they triumphantly proclaimed, “Ma’am, you will need to fill special application. This is the spinster application!”

Of course, the irony of all of this is that women in India and Indian women around the world are incredibly accomplished. At the highest levels, you see amazing women as leaders in business, politics, law, medicine, science and academia. So, I wonder why do I not encounter these women more often? Are there too few of them? Are they only at the huge corporations, but not in the small and medium businesses that I interact with? Are they not in my sector? Are they not in my city?

Perhaps after a few more years here, I’ll understand. But at the end of the day, I’m not too bothered and recognize that all I have to do is accept the reality and move forward. Sometimes standing out disadvantages you. Sometimes it helps. At this point, my primary focus is making my business a success, regardless of the roadblocks or how I am perceived.

I devote much more energy to thinking about how to build a company that creates opportunities for my clients (both male and female business owners) to succeed. It is a task that is easier said than done, especially given the divisional realities I’ve observed: Having spent less time in the public sphere, women tend to have less local knowledge, such as where to go for certain goods, who to contact for certain services. Women and men come into GreenMango with very different salary histories, which seems only partially due to their work experience levels. As we build up our team, there are certain positions where I know a man would be more traditionally suitable. And I also know that the way I handle hiring decisions is what impacts whether or not women like me will continue to be anomalies in Hyderabad.

All of these things are surmountable.

There are certain practices that take place in the for-profit world that can benefit us in this sense. For example, strict accountability, transparency and financial purity are the kinds of things that, like it or not, Sarbanes Oxley has taught us. I think a lot of this can be applied to the nonprofit world.

Having said that, for the most part people work here because they believe in a noble cause and want to do good works. As we borrow some of these techniques in the for-profit world, we have to be very mindful of making sure that we don’t turn antiseptic and lose our soul and our heart.

We do amazing things every single day. We’re filled with heroes here, and it’s so easy to feel inspired. In my former life I definitely worked for companies with higher purposes, but at the end of the day you’re counting widgets, you’re counting dollars. Here, we’re counting lives impacted — it’s extraordinarily inspiring.

The conversations at the Red Cross are so different than the conversations that go on in the corporate world. Here, we ask: How do we galvanize people from 42 states to get into Iowa and help people clean up after the flood? How do we get enough emergency response vehicles to drive around with hot meals to keep these people fed? How many people can we shelter in high schools and dormitories?

So when I say we have to revitalize the brand, I don’t mean redo or replace. We don’t want to change what the brand stands for, since it’s such an international treasure. You see that red cross and think: help is on the way. I don’t want to change that. I just want to turn it into something hip and exciting. Part of that involves becoming more consumer-focused. Here, it’s all about putting our brand in front of people so that they donate time, money and blood.

UNICEF is a good example of brand revitalization. And I think when you have a beautiful legacy, it shouldn’t be that hard. Our favorability and affection rating is highest among 18 to 34 year-olds, so we just have to tap into that and make it so that the Red Cross becomes part of the fabric of the way they become philanthropic. That generation is so in tune with community service. They want to change the world, and we just have to let them change it with us.

Gail McGovern ’87 was named President and CEO of the American Red Cross on April 8, 2008. In both 2000 and 2001, Fortune magazine recognized her as one of the 50 most powerful women in business. She is a graduate of the Executive MBA Program at Columbia Business School.

I asked a few members of the CBS community what they are reading this summer:

Professor Daniel Ames (Management):

I’m reading Snoop, a book by psychologist Sam Gosling. Gosling’s work revolves in part around how people intuit what others are like based on their stuff, such as their offices or bedrooms or what music they listen to. It gets readers thinking about how they themselves might be judged or misjudged by others based on their stuff.

Professor Hitendra Wadhwa (Marketing):

Groundswell, by Li and Mernoff
An Inner Journey to Optimal Performance, by Josh Waitzkin
Sway: The Irresistable Pull of Irrational Behavior, by Brafman and Brafman

Professor Paul Glasserman (Decision, Risk and Operations):

The Master and Margarita, by Mikhail Bulgakov

Professor Eric Johnson (Marketing):

Nudge: Improving Decisions About Health, Wealth, and Happiness, by Richard Thaler and Cass Sunstein
You can read Professor Johnson’s review of Nudge in the July edition of Science magazine.

And for summer reading online (get out your Kindle), a recent media panel at CBS shared their online favorites.

Any other suggestions?

In an effort to reduce turnover, the NYC Department of Education established a formal teacher-mentoring program several years ago based on a nationally recognized model. Recently, I studied the effects of this program on New York teachers.

One of the most interesting findings was that teachers were more likely to return the following year if they were assigned a mentor that used to work in their school. In contrast, it did not seem to matter whether their mentors had many years of experience, used to teach the same subject as them, or had a similar demographic background — things that you’d think might be characteristics of an effective mentor.

What this signals to me is that what is important in the mentoring process in regards to retention is providing employees with what economists call location-specific or firm-specific human capital. Learning how to navigate the local environment seems to be an important issue for new teachers, whether it is dealing with the school administration, connecting with the particular kinds of students at the school or understanding other local institutions. Mentors can even help provide some of the small details that make life on the job easier, like where to get a good, inexpensive lunch or how to shorten the morning commute.

Finding policies that reduce teacher turnover are important for two reasons. First, research that I and other economists have done shows that more experienced teachers are more effective at raising student achievement. Second, turnover is typically highest in the schools serving the most disadvantaged kids. Quite simply, more experienced teachers tend to migrate to schools with fewer poor and low-achieving students. So, the benefits of increasing retention among new teachers are going to accrue to the children who need the most help.

Turnover is an important issue that all firms face, not just in teaching, and the lessons from my work with teachers in New York can also apply to professional development and training in other industries and occupations. One way to reduce turnover is through financial incentives, but another important tool is giving employees the support that makes their job more pleasurable and less stressful. Mentoring — with an eye towards local issues — is a policy worthy of attention.

Yesterday was the last day of school in the New York public school system.

As I wrote in a previous post, our recent Lang Center survey showed that starting multiple businesses is an important predictor of entrepreneurial success.

One thing I encourage students to do when looking to start a business is that they must temper their idealism with a bit of realism. For instance, those who start businesses in search of autonomy may find themselves jumping through hoops for a host of customers, bankers, investors and employees. Challenge, excitement and creativity are surely part of the experience, but entrepreneurship is also a lot about slogging through the tough times.

Having a great business idea is a good start, but very few ideas are compelling strokes of original genius. Most initial business concepts go through significant revision as the idea moves into reality. And it is rare for a business to unfold according to plan.

However, that original idea will get students into the venturing corridor, where one opportunity leads to another. Those who start with the long-haul view of building something significant have the right mindset for dealing with the ups and downs of an entrepreneurial career.

Asia especially has exploded with economic growth and opportunity in recent years, in turn creating a great need for leadership skills in business.

In light of this and the ever-growing importance of Asia in the world economy, I am pleased to announce the launch of EMBA-Global Asia, a new addition to Columbia Business School and London Business School’s highly successful, top-ranked EMBA-Global program.

CBS and LBS are extending our fruitful partnership to include the University of Hong Kong’s Business School in order to create the first and only program to offer business education and networking opportunities in the world’s three leading financial centers: New York, London and Hong Kong, as well as in the hub of China’s most dynamic city, Shanghai. The first EMBA-Global Asia class will matriculate in May 2009. Students who complete the 20 months of intensive work will receive a joint MBA degree awarded by the University of Hong Kong, Columbia University and London Business School.

The greatest companies in the world became more productive by having managers and entrepreneurs who knew how to integrate groundbreaking ideas with sound business principles and the best available technology. With this program, Columbia Business School will continue its long tradition of teaching these ideas to the world’s future business leaders.

I cover 22 countries, and of course, every market has some differences. For me, the most important thing about working internationally is to be flexible: Respect the people and the differences between countries and cultures, and adapt to each country’s way of doing business, rather than expecting the country to adapt to you. Spend time understanding the local market and getting to know the people, and then you can become effective.

A common mistake some people make is thinking that because they know the language they can do business in that country. Language, although relevant, is not the critical ingredient. Many other things are even more critical, such as understanding the legal system, the key players and what moves the country or its people.

I think it’s important to keep learning. I was only at CBS for two years but the experience gave me a new perspective on international business. Since then, I’ve benefited from interacting with people from various industries and backgrounds, and the people I’ve met through CBS’s Alumni Club of Mexico have played a big part in expanding my world.

I’ve always thought that what happens at universities is important and that business education should not be confined to the two years you pursue your MBA. In business, it’s easy to get so focused on what’s going on around you that it’s easy to lose track of other things. That’s why it’s refreshing to hear about other methods and practices, including ideas from the world of academia, and then to try to apply some of those ideas to my work.

Jose Maria Uriquiza Gonzalez is the club leader of the Alumni Club of Mexico.

According to a 2008 report from the Aspen Institute, MBA programs definitely influence the way students think about the role of business and its relationship to society once they become managers and leaders.

Many of the report’s key findings were related to shifts in student attitudes on corporate social responsibility. The Institute reported that:

• Business school students are thinking more broadly about the primary responsibilities of a company. In addition to citing shareholder maximization and satisfying customer needs, the students surveyed in 2007 also said that “creating value for the communities in which they operate” is a primary business responsibility.
• MBA students are expressing more interest in finding work that offers the potential for making a contribution to society (26 percent of respondents in 2007 said this is an important factor in their job selection, compared with 15 percent in 2002).
• Though MBA students are clearly seeing the benefits of social responsibility in terms of a good public image, they aren’t seeing the connection to such other business benefits as increased revenue, fewer legal or regulatory problems or reduced operating costs.

After the deregulation of the Reagan and Thatcher eras, corporations did not become ethically focused overnight. So how can we account for this?

What I’ve found is that there’s been a shift in corporations’s mindset about the relation between high ethical standards and the bottom line, which might best be understood as “enlightened self-interest.”

Corporations now see that a narrow understanding of self-interest is going to hurt them in the long run. Thanks to globalization, corporations have had to make significant ethical decisions. For example, when expanding into regions of the world where there is little corporate governance legislation (or where it’s not implemented), U.S. corporations face the question: “Should we operate according to U.S. standards, or should we take advantage of the fact that this country’s standards are lower than ours?”

Corporations have learned that operating according to the bare-minimum ethical standard does not serve them well in terms of both public image and bottom line. Quite a few corporations had to contend with consumer backlash, boycotts and significant declines in sales thanks to NGOs who called attention to subpar practices relating to labor and the environment.

The capital markets have also provided incentives for corporations to behave responsibly. Roughly 10 percent of all professionally managed funds are explicitly designated as socially responsible investment funds with prominent environmental, social or ethical components — and this does not include the many other funds, such as University endowments, that also take these aspects seriously. It is therefore reasonable to say that approximately 25 percent of all professionally managed money has some socially responsible component attached to it.

The bottom line is that companies have learned that abiding by a narrow understanding of self-interest is going to hurt them in the long run. And we’ve seen evidence of how ethical behavior is good for the health of organizations of all sizes, across all industries — particularly those that sell directly to consumers. Risk reduction, lower employee turnover, cost savings, increased profits and stability in the stock market are just some of the benefits companies have experienced by taking CSR seriously.

It’s becoming clear to both corporations and their consumers that we all affect one another, and in some ways, we all depend on one another.

When I enrolled at CBS, just across town from where I’d been living and working for the past four years, I had no idea that I’d have such a global experience right in my own backyard — or how that would help me see how important an international perspective is to succeeding in business.

I think it first hit me during orientation, when I met my learning team. A learning team is an assigned group of four classmates — mine consisted of people from Taiwan, Mexico, Thailand and the United States (though my fellow American had spent most of his life in England).

Not only did we work hard together, we also got to know one another as friends. We planned bimonthly dinners at restaurants that represented our respective cultures. We had meals at Thai and Mexican restaurants, savored homecooked Taiwanese food and Southern fried chicken, and (my contribution) had brunch — the quintessential Manhattan meal.

The globalness of my class manifested itself everywhere. My 66-person cluster alone represented 20 countries, and I’d daily hear classmates speaking to each other in Chinese, Spanish or German.

On a few occasions, heated debates arose, and I’d hear firsthand about economics in Argentina or trade policies in China and Taiwan or organizational leadership in African oil fields — all from classmates who’d been there. In some ways, it felt like we were living and studying within a mini-UN, able to challenge each other, debate issues and discuss topics within a multicultural context.

It was at these moments that I realized the importance of going beyond my familiar environment. I’ve learned that in tackling business issues, you have to be able to incorporate ideas and opinions that are beyond your own established beliefs about how things should be done in order to avoid stagnation.

I’ve been able to experience this concept on a personal level as well. Just as it’s easy to fall into established modes of doing business within an organization, it’s easy to fall into a blinding routine where you live. Having classmates so eager to explore the city has catalyzed my interest in immersing myself in the city’s offerings and I feel like I’m now experiencing my home environment with new eyes.

Observing my friends’ experiences of international discovery this past year has also made me eager to experience the same for myself — so I have decided to spend the fall semester at London Business School. I’m excited to have the chance to study business and management within a foreign setting and to expose myself to the methodologies, structures and worldviews of another global financial capital.

I’ll be back to blog from London this fall.

At the business school recognition ceremony, over 600 of my fellow MBAs and I assembled to hear some speeches, spend time with our families who have stuck by us through the process and enjoy a few final hours together as a class.

The ceremony was put together well, and more important, was held underneath tents, so that we weren’t drenched by the monsoon going through New York City at the time. :) Dean Hubbard gave some opening words and then introduced Jerry Speyer ’64, of the real estate powerhouse Tishman Speyer. Jerry shared with the audience a great story about his old Columbia College friend who had lost his eyesight during their time at school and went on to do incredible things.

Venk Varadan ’08, fellow J-termer and executive vice president of the GBA, gave the student speech about his trip to Kilimanjaro, where he met a CBS alum 30-plus years his senior who was also making the trek in terrible conditions. In fact, the alum was a member of Columbia Business School’s class of 1969, the one dubbed “The Whiz Kids” by Forbes, which graduated heavy hitters like Henry Kravis, Erskine Bowles and Lew Frankfort. What are the chances that this sort of chance encounter would occur? I have no idea (stats wasn’t my best subject) but it’s gotta be small. :)

My thoughts on the day? It went fast, and still hasn’t hit me yet. And who knows what the future will bring — other than that I’ll soon be the father of two beautiful baby girls!

Commencement seems an appropriate time to reflect on the meaning of a business education. In the spirit of taking on the question, the Social Enterprise Program at Columbia hosted a discussion by Rakesh Khurana, a professor from Harvard Business School, who recently came out with a somewhat critical assessment of the state of business education in his book From Higher Aims to Hired Hands.

In his discussion, Professor Khurana traced the history of modern business schools from the late 18th century, when they first appeared in universities such as Columbia. Prior to this, there had been many business schools, but they were all for-profits and more like today’s vocational institutes.

The move of business schools to America’s elite universities was decidedly controversial. At Columbia, the trustees voted to keep business out, but they were overruled by Nicholas Butler, president of the University at the time. He argued that the rise of modern business had created a class of professional managers who were now essential to society’s well-being, and it was incumbent upon Columbia and other institutions of higher education to provide a training ground for America’s future business leaders.

Underlying this was the assumption that business and management should be elevated to the status of a profession, like law and medicine, based on a common body of knowledge and a sense of higher social purpose — and hence belonged in universities.

But Khurana expressed skepticism that this “professionalization” has been successful. To condense his 500-page book’s arguments into a single sentence: Modern business schools provide a hodgepodge of course offerings that teach a disconnected set of tools; they have lost sight of their social purpose; and their graduates leave prepared to be investment analysts and consultants, not leaders.

You may or may not agree with Professor Khurana’s claims (you can watch the video of his presentation here). Regardless, he presents a useful opportunity to consider what business schools are all about.

The following is excerpted from Jerry Speyer’s 2008 MBA recognition ceremony remarks. (download pdf of full text)

There must be a great deal on your minds today. I could be wrong, but I’d venture to guess that more than a few topics are vying for your attention right now. The economy, job losses, wondering if the job you’ve accepted is the right one, student loans and the inevitable apartment search are probably all preying on your minds.

These are some of the same concerns I had back in May of 1964. Back then, the business climate was challenging, to say the least. The market was down, jobs were tight and competition was fierce. America was also fighting a war that was polarizing the nation. Sound familiar? It was, like now, a challenging time. How do we go forward in challenging times?

I want to tell you how a friend of mine dealt with the devastating reality of change in his own life. One of my college roommates was Sandy Greenberg. He was a drycleaner’s son from upstate New York, and a full scholarship student. . .and a truly brilliant scholar. Everybody loved and admired him.

During our third year of college, Sandy got glaucoma. The doctor told him he was going to go blind within weeks. Sandy left school, and moved home to Buffalo.

It was tragic! In Buffalo, Sandy was advised he could learn to cane chairs.

Here’s how he responded. The next semester, Sandy returned to school. He was blind and deeply afraid, but he said he had to try. He quickly developed techniques that allowed him to return to his former high standards of academic performance. He also deftly adjusted to his new life.

One day, our other roommate Art asked Sandy if he wanted to join him to take the subway downtown to run an errand. Sandy went along, but when they got there, Art said, “Alright then Sandy, I’ll see you back at the dorms.” Art walked away. Sandy had not been on the subway alone since he’d gone blind.

You or I cannot even imagine how Sandy felt at that moment, but he summoned something inside of himself, some untapped courage, and figured it out. Unbeknownst to Sandy, of course, was that Art never left him that day. When Sandy made it back to campus, Art tapped him on the shoulder and said, “I knew you could do it. . . I wanted to be sure YOU knew you could do it.”

I’ll leave out Sandy’s exact words to Art in that moment, but suffice it to say, they laughed about it later.

Sandy went on to graduate Phi Beta Kappa and Summa Cum Laude from Columbia and to receive a Marshall Fellowship and a PhD from Harvard. He married his high school sweetheart, was appointed a White House Fellow, became the father of three, an inventor, a corporate CEO, a venture capitalist, an advisor to the president and the White House and business manager for a goofy, long-haired singer named Art Garfunkel, who at that point he had forgiven for abandoning him on the subway. I tell you this story because it has remained with me for over 48 years. I tell it because I am moved and inspired by perseverance in the face of setbacks. I tell it because it is a gorgeous example of something that I hold dear in life, and in business: Don’t be afraid of failure, and dream big dreams, and most importantly, don’t let adversity get in your way.

The world needs you now. It’s waiting to embrace you and your new ideas in the energy sector, in the protection of the environment, transportation, technology, healthcare, infrastructure, media, finance, and yes, even real estate. It needs your bold ideas, your energy and your passion. It needs doers and dreamers and optimists. It needs people who believe that things can get better, and people who are willing to work to make them better. It needs you not merely when the market is up, when money is easy, when the banks are only too eager to lend, but now, ladies and gentlemen, in difficult, challenging times.

How do we live in difficult, challenging times? Well, that is where I leave you. It is your decision, for the future is yours to create. Thank you, and congratulations.

This post is part of a series following the “Pre-MBA World Tour” organized by Shoaf and members of the class of 2010.

Paris
While in Paris, we met with a few CBS alumni, including the president of the Alumni Club of France. We had many intriguing discussions, though one particular theme that arose — responsibility — left us with a new perspective on our careers. As CBS students we are now part of a larger community that has the ability (and inherent responsibility) to make a positive difference in the world.

During this trip I’ve been reading Making Globalization Work by Professor Joseph Stiglitz and am realizing that perhaps “another world IS possible.” Globalization is happening whether we like it or not, and the question now is: how should it happen? As leaders of our generation, it will be up to us to solve these challenges.

Frankfurt
Frankfurt is much different than I had anticipated. I expected it to be a traditional German town, but it’s actually a very modern city and reminds me (surprisingly) of Charlotte, North Carolina. Although it’s a much smaller city than London or Paris, Frankfurt has the tallest buildings in Europe, and because it sits directly on the Main River (pronounced Mine), it’s often referred to as “the other Mainhattan.” It also has a disproportionate number of investment bankers, giving rise to its other nickname: “Bankfurt.”

There seem to be many advantages to working in Frankfurt. Because most of the companies based here operate in several foreign countries, most business is conducted in English. So if you don’t speak German, you can still get by. That said, you still might be better off working for a U.S.-based firm, rather than one of the three large Frankfurt-based banks (Deutsche Bank, Commerzbank and Dresdner).

Another advantage is that the city is very affordable to live in. Euros go much further than they do in any other major financial city center. Public transportation is excellent (you don’t even need to swipe your card to use the subway, tram or bus), but since Frankfurt is a small, clean, pedestrian-friendly city, you can pretty much walk anywhere.

Clearly, one of the downsides to living in any small city is the dearth of nightclubs, restaurants and cultural centers. And though Frankfurt has many of these things, one thing it does seem to lack is diversity.

Life often gives us hard decisions to make, and in my line of work — M&A at GE — hard decisions come fairly often.

But good decision making requires skills, and one way to learn these skills is by practice. Last year I got to take part in developing case study materials for CBS’s core strategy class, which gives students the chance to practice real-world decision making. It involved creating a video to record the decision-making process that a colleague and I participated in at GE in a way that allowed students to think about what they would do if faced with the same circumstances. Students got experience, and also got to see how a major corporation evaluates tradeoffs and makes decisions.

Another facet of good decision making is learning how to ask the right questions. I was just telling EMBA students in Donna Hitscherich’s M&A class that when we evaluate divisions at GE we don’t just ask, “How is this business unit performing?” but rather “How will this business be performing three, five or ten years from now?”

One recent example is the divestiture of our plastics business. GE Plastics was performing OK, but we decided it would be difficult for us to grow the business due to our inability to hedge the ever-increasing cost of benzene (an oil-based derivative and the primary ingredient for plastic pellets). GE Plastics had an excellent valuation, so we decided to monetize the business in favor of reinvesting the proceeds towards some of our faster growing, more profitable businesses.

The key point is that good decision making is a process, and learning how to analyze and interpret the tradeoffs among choices is a critical skill. Ultimately, the goal is to make good decisions that result in positive outcomes, but a robust decision-making process will also mitigate the risk of bad outcomes over time.

As CBS’s Michael Mauboussin quotes Robert Rubin in the book More Than You Know:

Individual decisions can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful, because the recognized possibility of failure in fact occurs. But over time, more thoughtful decision-making will lead to better overall results, and more thoughtful decision-making can be encouraged by evaluating decisions on how well they were made rather than on outcome.

]]> Fri, 16 May 2008 12:21:53 EDT ]]> Leadership Organizations Strategy

It seems like any entrepreneur would kill for the chance to become an early leader in one of the many fast-growing global industries. Yet fast growth can lead to a wide range of problems, from human resources and managerial control to finance and information technology.

And when a company’s development is driven primarily by industry-wide expansion rather than the company’s innovation and operational excellence, you can be certain that the organization will experience its share of growing pains.

These challenges were the focus of Professor Michael Preston’s class, Managing the Growing Company. In this class we examined the common patterns that emerge when high-performing small and mid-sized companies outgrow their infrastructures. We studied many companies that successfully made this transition, including TheKnot.com and Mitchells & Richards, and some that did not.

Turns out that companies that grew successfully exhibited some of the same patterns:

1. The founders acknowledged their weaknesses and sought outside help. They were willing to consider that the people and processes that contributed the most to their growth in the start-up phase could be part of what was holding them back in the next phase.

2. When the organization grew, formal systems were put in place to manage functions like accounting and human resources that were once handled on an ad-hoc basis.

3. Founders avoided becoming a bottleneck by delegating important decisions. Trusted operational managers focused on day-to-day firefighting, while top executives focused on more strategic issues.

For the final class project, our team studied Did-It.com, a leader in search engine marketing (SEM). Over the past ten years, SEM has undergone wave after wave of upheaval and growth. Industry changes, which now occur almost daily, have left a long trail of shattered business models.

It was technological change that led Did-It.com to change its business model at least a half dozen times since it was founded in 1996. Each time the industry shifted, the company managed to move to an even stronger position. Over the past five years, the company recorded growth of 1,369 percent, landing it at number 137 on Inc. magazine’s list of the fastest-growing private companies in the United States.

How has Did-It.com remained so nimble? To find out, Jindra Zitek ’08 and I caught up with founder Kevin Lee at the company’s New York headquarters.

It became clear almost immediately that the leadership of Lee and his partner Dave Pasternack has been a huge factor in the company’s success. By constantly adapting their vision to both market realities and employee sentiments, they’ve kept their organization one step ahead of the curve.

For example, Lee told us that a few years ago he was walking around the office when he noticed that half of his employees were stressed-out and unhappy — employees focused on “organic” SEM. When this trend continued, he and Pasternak promptly closed this part of the business to focus on paid listings-management.

When asked about the defining factor that allowed Did-It.com to succeed where many rivals foundered, Lee cited his willingness to delegate responsibility. Employees are empowered to make important decisions without oversight, allowing them to deliver exceptional customer service while adapting quickly to whatever changes new technologies may bring.

“My employees don’t work for me,” Lee said. “They work for my customers.”

This post is part of a series in honor of the School’s Leadership and Ethics Week.

There’s something almost irresistible about the story of bad apples — unscrupulous individuals whose lack of integrity can humiliate an unwitting organization or even bring it to its knees. Witness Société Générale’s recent rogue trader Jérôme Kerviel or knife-and-mallet wielding Lisa Nowak, the love-triangle astronaut at NASA.

Hand-in-hand with the notion that bad apples are at the root of much trouble is the idea that we can — and should — spot them in advance. According to the popular story, the fix for ethical problems is to identify and weed out the troublemakers before they make trouble. The problem with this bad-apple story is that it’s almost entirely wrong — if not in theory then at least in practice.

Let’s start with the first part of the story: bad apples are at the root of most trouble. A century of social science highlights how behavior is a joint function of people (their character, their vulnerabilities and so forth) and the situations in which they act (incentives, pressures, temptations, role models, etc.). To be sure, some characters need only a weak situation to evoke their unethical behavior, and indeed some characters simply create those situations for themselves.

On the other hand, some situations are powerful enough to get almost anyone to go along, even though most people outside the situation would see it as unacceptable or unwanted behavior. Psychologist Phil Zimbardo argues that the terrifying, sleep-deprived, pressure-cooker, no-rules environment at the Abu Ghraib prison in Iraq in 2003 was sufficiently intense and relentless to evoke sadistic behavior from otherwise normal, well-adjusted soldiers.

Management scholars Ann Tenbrunsel and David Messick suggest that much unethical behavior in organizations stems from people being in situations where they can readily deceive themselves into believing they are doing the right thing. Thanks to an organization’s habitual language or labels for describing things — the ways in which decisions are framed, for instance — decent people can do awful things while seeing themselves as just and reasonable.

None of this is to dismiss the idea of personal responsibility for one’s own behavior. But if our goal is to predict untoward behavior, grading the badness of apples may not be sufficient to forecast who will do what.

Do bad apples exist? Yes. Is bad-appleness the best explanation for bad behavior? Sometimes it is; but in many cases the story is considerably more complicated.

Now, the second part of the story: can bad apples be spotted? Let’s consider one approach that seems tempting: catch bad apples on their way in the door by gauging their integrity during a job application or interview. Pose an ethical dilemma to a candidate, the idea might go, and use their response to predict whether their morals pass muster.

I sympathize that this method would appear to be utterly rational, but my reluctant conclusion is that it’s likely to be almost meaningless, or worse. Recent work on ethical thinking suggests there are multiple mental systems in play. For instance, research by neuroscientists such as Joshua Greene suggests that moral choices and behavior often flow from intuitive, unconscious, sometimes emotional processes that are distinct from rational or conscious processes. Asking someone to respond to a hypothetical ethical situation could tap into this later system of conscious thought, extemporaneous account-giving, and verbal proficiency. When put on the spot, a charming sociopath could confabulate an enchanting account about impeccably ethical behavior, even though their actual behavior in a real situation might be something quite different. A tongue-tied do-gooder might botch his or her answer but do the right thing if the situation actually happened.

In a way, doing something like posing ethical challenges to screen applicants could be worse than useless if an organization believed that such screening meant they were bad-apple free. Misplaced confidence in gatekeeping could lead an organization to ease up elsewhere in reinforcing the importance of integrity.

Does this mean scrapping ethics and integrity from interviews or hiring conversations? Not at all. I think discussing integrity during an interview can provide an important signaling function, saying, in effect: “We care about integrity here.” The focus would not be so much on whether someone passes an ethics test, but on showing candidates from day one that the organization takes integrity seriously.

Bad apples exist and can cause dramatic harm to an organization. But this isn’t the only, or perhaps even dominant, explanation for bad behavior. And while it may be tempting to try to catch these characters on their way in the door, practical and reliable methods for doing so are not readily at hand. It may be better to start sending a message from those early moments that integrity is taken seriously inside the organization.

And beyond this, organizations can work to build what Tenbrunsel calls an “ethical infrastructure” — formal and informal systems of communication, sanctioning, decision framing, and so forth — that creates situations pulling for everyone to do the right thing.

How do you get nearly seven hundred graduate students to donate to an unrestricted gift? In past years, class gift committees thought it wouldn’t be possible to rally students around something that wasn’t tangible like a scholarship fund or a classroom. Others tried, but then had to change course when they faced too much pushback from the student body.

But the fact is that unrestricted gifts make the biggest difference to nonprofit organizations — including business schools. And this year, the Class of 2008 not only became the first class in the history of CBS to pledge an unrestricted gift, but also attained a never-before-seen participation rate: 95 percent. We beat practically all of our peer institutions — in both participation and total dollar amount pledged.

More importantly, such an achievement signals our commitment to each other, and to our school. This is one of the few opportunities our class as a whole had during our two years to work toward a common goal — and the class of 2008 came together in a way that’s never been done before.

It was a challenge from the beginning because there was little structure, precedent or knowledge of how to run a campaign like this. We had a town hall and other education sessions to discuss why we thought the unrestricted gift would be the best choice for the School, and agreed that our class had the ability to make the leap and support such a mission. Then we began to plan our campaign.

We invited Dean Hubbard to a few talks, displayed signs around the school and thermometers in the lobby to publicly gauge our progress. We also had training lunches for cluster representatives so that they could give more in-depth responses to their classmates’ questions and held events for our entire Class to participate in. Our success was also largely due to the hard work of the Alumni Transition and Development Committee, which we created last year to raise awareness about what it means to be a graduate of Columbia Business School.

Because of our early efforts, we were able to get a lot of buy-in before we even started the campaign — and survey results showed that giving unrestricted funds was something a significant portion of our class supported.

Once the campaign launched, more and more students engaged in the process, and even some of the hardest skeptics turned into vocal advocates when they saw how the Class of 2008 had the chance to do something historic.

I’m so heartened and impressed by my classmates. The economy is the worst it’s been in a long time, but we realized how fortunate we are to have a Columbia MBA and to have a huge community of people who will continue to support us throughout our careers.

I care deeply about this school, and it was so exciting to have the opportunity to help the class give back — and build community — in a way that hasn’t been done before.

Thanks to everyone for rallying around such a great cause.

The highlight of my year at CBS is teaching Entrepreneurial Finance. I enjoy interacting with students, putting together the cases and bringing in speakers from the entrepreneurial and venture capital communities.

But what I enjoy most as an economist is the opportunity to think deeply about entrepreneurship. To many, entrepreneurship calls to mind the path-breaking motivation envisioned by Schumpeter’s “creative destruction.” But much of entrepreneurship — and much of what we can teach in business school — is more akin to “nondestructive creation,” in which the entrepreneur puts the pieces of a puzzle together in a way others haven’t seen before.

And many examples bring these economic insights to light: CBS ’01 grads John Londono and Zohar Yardeni discussing how they turned listening to corporate calls into a multi-million dollar business. Ben Rosen ’61 recognizing great potential in Lotus. Russ Carson ’67 taking insights from the healthcare industry to transform a modest hospital contract-management business into a major hospital chain, collecting billions of dollars in value.

The combination of a compelling profit model at a disruptive time by the right entrepreneur can be a winning one. This critical feature of entrepreneurship — identifying and capturing opportunity — is teachable, and is integral to the efforts of many faculty members at CBS. Instead of saying “no” whenever an opportunity has problems (as it always does) one can learn to ask: “What can go right? What can go wrong? And how can I tilt the odds toward success?”

The day after completing my application to CBS, I purchased a world map and a box of thumbtacks and began charting my trip: a 15-week journey to some major cities around the world. I was hoping for the adventure of a lifetime.

At the MBA open house in late February I decided to recruit a few of my future classmates, and the idea of a pre-MBA trip caught on like wildfire. By the following day, a group of admitted students had gathered together to discuss how we could all coordinate our summer travel plans. That’s when we realized we had stumbled onto something big!

Within one week, a leadership team had emerged with each person leading a two-week section of the trip. By the end of the second week, most alumni chapters had volunteered to host a group of students in their cities.

The snowball kept getting bigger and pretty soon several organizations at CBS (including many student clubs, the Alumni Association and the Chazen Institute) joined our cause by providing networking opportunities and advice on how to make the most of our excursions abroad.

Today, nearly 1 out of 10 admitted students plan to participate and almost half of them have a significant leadership role. It’s evolved into a fast-paced and dynamic organization that exemplifies the modern way of doing business on a global scale.

So until August 7, a lot of us pre-MBAs will be on the road, traveling to the following cities: London, Paris, Frankfurt, Zurich, Milan, Rome, Istanbul, Dubai, Mumbai, Delhi Bangkok, Phuket, Kuala Lumpur, Singapore, Manila, Hong Kong, Shanghai, Seoul and Tokyo.

Our hope is that the trip will bring together students and alumni to share cultural and professional experiences, and that our visits with companies and organizations will provide us with a truly global perspective. We also hope to have a great time before school starts in the fall.

You can see the full itinerary and track the progress of our journey at our Web site www.cbsworldtour.com. You can also email me (jshoaf10@gsb.columbia.edu) if you would like to discuss anything in more detail.

And stay tuned for more Public Offering posts from us on the road.

Does Barack Obama have a better shot at beating John McCain than Hillary Clinton? The answer may lie partly in whether voters are looking for honesty or competence in their candidate. And one clue to how candidates are perceived is the shape of their face. Babyfaces (large eyes, small nose, high forehead and small chin) are judged to be more honest than mature faces, but also as more naïve and perhaps less competent.

A survey of 150 Columbia undergraduates found that they perceived all three presidential hopefuls as having somewhat mature (rather than baby) faces; however, Obama was judged to have a significantly less mature face than Clinton. Consistent with the face stereotype, he was also perceived to be more honest than Clinton.

So is Obama likely to have a better shot at beating McCain than Clinton? Not so fast. In our survey, judgments of babyfaceness were negatively correlated with competence. In other words, the less mature the face is perceived to be, the less competent the candidate is judged to be.

And while Obama and Clinton are rated as equally competent when the question is asked directly, Clinton’s and Obama’s faces could cue voters to perceive Clinton as more competent.

The ultimate question is whether honesty or competence will dominate the election this Fall. Our survey found that George W. Bush was rated to be both dishonest and incompetent (this was a Democratically skewed sample), but judgments of his competence were significantly lower than judgments of his honesty.

In this situation, Obama has two winning strategies. First, make the issue of honesty crucial in the election by highlighting instances of dishonesty in the current administration. And second, provide strong cues to competence so that the face-shape cue is not used to form competence judgments.

What about Clinton? Given her low honesty ratings (even lower than McCain’s), she needs to downplay the importance of honesty and hope that her face helps legitimize her claims of greater competence.

Rajat Gupta talked with the CBS community on Thursday, April 10, about his life, career and the personal-leadership principles that have shaped his journey. Gupta (pictured at right) is senior partner emeritus and former worldwide managing director at McKinsey.

The big take-away from the event for me was this set of six principles, which I’ve recapped below:

1. Anger, Forgiveness: If someone behaves in a way that is unjust or insulting to you — view it as their problem, not yours. That way, you won’t react with anger, won’t feel the need for revenge and can keep moving on in your work.

2. Non-Attachment to Outcomes: Just focus on your performance and on doing your best — don’t get attached to the outcome. All outcomes can be good.

3. Learning Orientation: Focus on professional development rather than career development. Emphasize the learning opportunities that each situation can provide.

4. Humility: Success comes only partly from your own doing — a lot comes from external factors and from other people’s doing. If you realize this, you’ll keep your pride in check.

5. Making Others Successful: Very little can be accomplished purely via one’s own effort. So focus on making others successful. This will inevitably come back and help you in life.

6. Staying True to Yourself: Don’t wilt to popular pressure and do something that conflicts with your values or convictions. You only work with other people for a limited time, but you have to live with yourself a long time.

These principles are in fact very much in line with what I've observed in “great achievers” such as Abraham Lincoln, Martin Luther King and Mahatma Gandhi. In my experience, cultivating such principles isn’t only a matter of intellectual buy-in, but also of diligently training your mind to respond to day-to-day circumstances with the right thoughts.

What do you think of these principles? Can you envision truly putting these into practice in your own life? And for those who attended the event — any other memorable moments you’d like to share?

For years, I’ve been running “divide the pie” experiments with students at Berkeley to try to understand how people (or at least students at Berkeley) make decisions about giving.

One of my collaborators, Professor Daniel Markovits of Yale Law School, suggested that we take our experiments to New Haven to see how Yale Law students change their pie-dividing behavior after sitting through a semester of classes.

As at CBS, Yale Law students are randomly assigned to instructors in their core classes. But unlike Columbia, there can be very large differences in the material covered, depending on whether you are being taught by, say, an economist or a philosopher.

So with this experiment, we were trying to find out if differences in what and how materials were covered translated into differences in students’ giving decisions.

I must confess that I hadn’t wanted to run the Yale experiments — I have always believed that we teachers exert some influence over our students, but I thought it was more in the domain of ignoring sunk costs and figuring out how to establish entry barriers. And I certainly hadn’t expected any differences in giving decisions to show up after a single semester of classroom instruction.

But as with a lot of things in life, I was wrong. As I wrote in this recent Forbes article, it turns out that exposure to economics makes a big difference in how students split the pie, in terms of both efficiency and outright selfishness.

It’s a sobering message for teachers such as myself: students learn much more than the facts from us. What we do in the classroom matters for students, not just for learning how to maximize profits, but also for figuring out what it is that we should actually be maximizing.

Once upon a time risk management was a highly technical discipline of interest mainly to risk management professionals, but over the past decade it has become a topic of great interest, particularly among managers, investors and regulators. And recent economic news has put an even bigger spotlight on the profession.

Of interest to me is how, and how well, risk management information has been making its way into governance frameworks of companies, and I had the chance to hear firsthand about this when I was at an assembly of large company chief risk officers in October 2007. The topic of my discussion was how risk management organizations (RMOs) and boards of directors interact — and it was clear from the group interaction that top-level practices differed extensively.

So as a followup to that assembly, my colleague David R. Koenig, the former chairman of PRMIA, and I conducted a survey of very large corporations around the world, and the results confirmed that a standard of best practices for employing risk management within a governance structure does not yet exist.

Our survey results also confirmed something else: there is substantial change occurring within governance structures toward a more robust incorporation of risk management. And we found that while some companies employ ongoing efforts for the communication and improvement of governance and risk management practices within their board and employee populations, a very substantial number of others do not have such capabilities in place.

Our survey shows a wide variety of approaches currently being used to facilitate interactions between RMOs and boards — even within the same industry — and that meaningfully different approaches to risk/governance implementation exist at many levels in the companies: at the board committee and executive level, in the chains of reporting within the executive suite and in patterns of communications to governance structures.

Not surprisingly, an audit committee is the most frequent choice for board oversight of risk management, but still was the choice of less than one third of our survey respondents. The remaining choices span a wide range of board entities. Risk committees are emerging as an important board-level committee, but they only accounted for 17 percent of the risk oversight assignments reported to us. There are many factors that can account for this wide dispersion of choices, but it certainly suggests that the board of directors interface with the risk management organization is far from settled into a widely acceptable pattern, and the relationship will continue to evolve.

We asked participants about their objectives for risk management and found they also differ even between participants in the same industry and are almost always multifold. Most of our survey participants agreed on loss avoidance and control as objectives, while a smaller number — but still a majority of respondents — also identified securing a competitive advantage as an objective.

Finally, we found the most significant task lacking with many (but certainly not all) of our survey group was effective communication and education on risk policies for employees, a surprising gap in this important element of good governance practice.

It’s clear that further study of means for effective communication of the corporate appetite for risk, risk policy and risk data/reporting expectations is warranted to ensure that firms are creating the kind of effective culture that boards are increasingly seeking to foster. And if there is an expectation that employees are engaged in best practice governance and risk management, it must be modeled and communicated from the top to be achieved.

The full study is scheduled for publication by Wiley-Blackwell later this year in their monograph series, “Corporate Boards: Managers of Risk, Sources of Risk.”

“To be where the consumers are just before they get there and offer them what they didn’t know they wanted.”

This ability to see change before it happens — or to imagine change and create it — can result in billions of dollars. We know the legends well:

Bernie Marcus was fired as CEO at Handy Dan, a small home-improvement chain. Together with a colleague who had also been axed by the board, he developed a customer-centric supersized chain known today as Home Depot.

Jerry Perenchio co-purchased Univision television network for $500 million in 1992. Since that time, Univision Network grew to become one of the top five networks in the country in any language, and in 2006, Perenchio sold Univision for $13.5 billion.

Howard Schultz was an executive at a housewares manufacturer when he noticed that a client was ordering an unusually large number of specialty coffee machines. He visited the client, a four-store operation called Starbucks Coffee, Tea and Spice — and today he oversees more than 3,300 stores worldwide.

Ted Turner bought two failing TV stations in the Southeast and launched a revolution in the way we watch and receive the news. In 1970, he believed that a 24-hour all-news network would turn a profit and transform the news business. By 1980, that vision became CNN.

In all of these, it’s easy to see that innovative thinking was critical in their success.

But can we be taught that? Or is innovation instinctive?

While you consider your answer, I asked experts on the topic to weigh in:

Tom Kelley:

I absolutely believe that innovation can be learned. And the good news is that everyone has that innovator’s mindset already inside them, so the challenge is not so much to learn innovation as to recover some of the open-minded creativity of youth. Baudelaire said “Genius is childhood recalled at will,” and the innovator’s challenge is to tap into that latent talent hidden within their team.

Kelley is the author of The Art of Innovation and general manager of IDEO, the award-winning design and development firm that produced the Apple mouse, the Palm V and the revolutionary and deceptively simple Shimano Coasting bike. Kelley’s work deconstructs the practice of creativity and examines the genesis and execution of an original idea.

John Maeda:

It is this basic question the innovator asks herself, “Am I normal” or asked another way: “Am I different?” Innovators are born when they choose to leverage their mind to the fullest — when they flip the simple switch in their mind from “normal” to “different.” Keeping the switch flipped ON while the pressures of the world keep flipping it OFF — now that’s the hard part and the real challenge: how to stay innovative for life. That’s the greater question in my mind.

Maeda is from MIT’s Media Lab and soon will assume the reins of the Rhode Island School of Design. He is a world-renowned graphic designer, artist, computer programmer, educator and theorist. Esquire magazine named him one of the most important people in the 21st century. I.D. magazine selected him as one of the year’s 40 most influential people in design.

Bernd Schmitt:

Many view innovation as technical innovation; that’s a narrow engineering mentality. From a customer-oriented perspective, innovation is anything that improves customers’ lives in product design, but also communications, shopping environments, on web sites, etc. Think Dove’s Campaign for Real Beauty (the message and the innovative You Tube ads); think Abercrombie’s hip retail space; think Facebook. And that type of innovation can certainly be learned and taught — just like technical innovation. In my marketing courses and in my writings I equip students and executives with tools that marketers can use to challenge marketing and communications assumptions (the sacred cows), look outside the industry for inspiration (outside-industry benchmarking) and examine the core of a strategy and take it to an extreme (strategy stripping).

Schmitt is executive director of the Center on Global Brand Leadership at CBS and has written about the limitations of traditional corporate culture, the need to promote creativity and innovation and the unique challenges of establishing and cultivating a powerful brand.

What do you think? When it comes to entrepreneurship and innovation, what can and can’t be taught?

On March 21 I flew to Omaha — along with 150 of my classmates — to meet Warren Buffett, MS ’51, a man I have admired (some friends would say fanatically idolized) for close to 15 years.

After a tour of the Berkshire Hathaway-owned Nebraska Furniture Mart, we were brought to a room at the Omaha Field Club. Warren Buffett stood at the front — two of his five daily cans of Cherry Coke nearby — and for the next two and a half hours, answered our questions.

The questions covered a wide range of issues, including what he looks for in a business, the current financial situation, recent events at Bear Stearns, ethics, emerging markets, commodities, his relationship with Benjamin Graham and his typical day. His answers were a powerful reminder of his unique ability to distill complex issues down to their bare essence.

When asked about how long the current financial crisis would last, he replied, “I don’t know. I have never made money on macro calls.” Buffett said that even if he had perfectly predicted macro conditions in 1973–74, he would not have bought See’s Candies in 1972 going into a recession and would have missed out on a company that he has referred to as “the prototype of a dream business.”

After joking that our graduation was not perfectly timed, Buffett warned that we should not be discouraged from pursuing a career in finance. Finance is only going to become more important as time goes on, he said, and it is a field where one can truly stand out and be recognized.

He advised MBA students to learn as much about accounting as possible, adding that, “accounting is the language of business.” He also said that writing and verbal communication are extremely important in the business world and that students should seek out ways to improve these skills every chance they get.

Buffett urged students looking for jobs not to pay too much attention to salary. “Who you work for is extremely important, so choose carefully,” he counseled, adding that the most important decision of his own career was going to work for Benjamin Graham.

As MBA students, we are beginning our careers in an age where the image of a corporate executive has been bruised. Spending time with Warren Buffett — an astute businessman, a legendary investor, a rational and disciplined person and a generous philanthropist — afforded us the opportunity to learn much more than just how to pick stocks.

Before the trip, I was certain that no one could ever live up to the sincere, humble and generous image depicted of him in books, shareholder letters and TV interviews. I was wrong. Even that lofty image did not hold a candle to the man I was lucky enough to spend half the day with in Omaha.

The following is based on a PBS interview and is part of our series this week on leadership and ethics.

What I try to convey to students is that it’s not so much that bad things are done by bad people, it’s that the world is one vast gray space. And we, as human beings, are incredibly good at coming up with rationalizations for doing that which is expedient.

The problem is that it’s never really clear what’s right or wrong, and we will take that ambiguity and use it effectively as a tool to align what is expedient with what we tell ourselves is actually the moral course of action. I tell students that I’ve probably engaged in a dozen self rationalizations by the time I walk into the classroom at 9 a.m.

Take for example the coin-toss experiment. It runs something like this: You give a subject the following instructions: go into that room and flip a coin. If it comes up heads you’ll get $10, and if it comes up tails you get nothing.

(By the way, this is also something we economists couldn’t do, because we can’t lie to subjects or mislead them, and in this experiment there is a hidden camera in this room.)

What we find is that people don’t just walk in to the room, stand there for five seconds, and then walk out and say it was heads. Some flip the coin, so they at least have a 50 percent chance of not having to lie. But the most common outcome is that they flip the coin until it comes up heads. Then they walk out and say, “I got heads.” So they are taking advantage of the ambiguity in the instructions to do what is clearly expedient (the instructions don’t specify how many times you flip the coin).

When I tell the students about this, I tell them what I would do: walk into the room, wait for five seconds, and walk out and say I got heads. The reason I would do that is that I would be thinking to myself: This is a ludicrous experiment; I’m sure this psychologist is misleading me in some way, and in general this is just an illegitimate exercise so I may as well get $10 out of it. Which is just a self rationalization of another sort.

This post is part of a series in honor of the School’s Leadership and Ethics Week and was first published in the Columbia Daily Spectator.

A common way to define business ethics is as the interplay between two agents: the company’s stakeholders and the law. But a company has many stakeholders, and since it’s impossible to do what’s best for each one — how do companies decide where the tradeoffs occur?

Consider coal mining in West Virginia. In the Appalachian Mountains, coal companies employ techniques called mountaintop removal and valley fill, in which they use huge amounts of explosives to remove tons of topsoil and rock in order to access seams of coal within the mountain. This resulting topsoil and rock is than scraped by dragline cranes into the adjacent valleys.

Photographs of this process are quite striking — the environment around these mines is devastated. The clear-cutting and topsoil removal destroys whatever native forest existed on the site. The valley fill creates havoc in the local watershed, and thus the surrounding water table is often unsuitable for anything, let alone human consumption.

Ask an environmentalist about this process and watch out. The destruction of pristine mountain wilderness eliminates the possibility of sustainable tourism revenue for the local inhabitants and destroys the intrinsic value found in the natural world (although some would argue against this point). Burning coal also produces a great deal of harmful emissions, including carbon — the main culprit in global warming.

Ask a union worker and you’ll get a slightly different — but equally big — response. Mountaintop removal has caused the coal industry to shed thousands of mining jobs over the past few decades, effectively breaking the power of the mining unions and the protection they engendered.

But in looking for solutions, this example unravels into a more complex ethical dilemma.

Underground coal mining is extremely labor intensive and dangerous, and the additional costs are likely to be absorbed by the end consumer — raising a number of issues as to how low- and middle-income families could afford higher energy prices.

And according to the Energy Information Administration coal generates 48.6 percent of our country’s electricity — yet there is no easy alternative. Natural gas is subject to severe price fluctuations and requires importation terminals near which no one wants to live. Not to mention that most of the world’s proven natural gas reserves are located in Russia and the Middle East — not exactly regions that one would categorize as ideal sites for a reliable energy source.

Oil carries the same risks, and solar, hydro, wind and nuclear power are in no position to provide this much electricity. Based on their current levels of output, it will take decades until they are as efficient as coal.

So the fact remains that coal companies are providing an affordable and necessary service to the electricity consumer and high returns to their investors, and yet industry practices are ruinous to the natural environment and the human communities around the mines.

Here lies the new frontier of business ethics. The idea that an ethical business must simply follow the law and provide the highest returns to shareholders while doing so is dying a long-overdue death. There are far too many examples of laws being designed and interpreted to suit powerful industries for this myopic belief in the rightness of the letter of the law to be anything but wishful thinking.

Right and wrong in the business world must be constantly examined by all participants in the decision making process and answer the question: What are our priorities? Tradeoffs must be weighed, sacrifices must occur and eventually, a decision must be made in which there are winners and losers. As a society — and especially as a business community — it is our responsibility to determine the balance between these winners and losers in a manner that reflects the ideals we wish to pass on to future generations.

Bill Baker: What are the characteristics of successful businesses and successful business leaders?

Dean Glenn Hubbard: Successful businesses tend to be very entrepreneurial. They tend to seize opportunities as they come about in the marketplace, in a way that somebody else hasn’t. So successful business leaders are, in a sense, entrepreneurs, even if they didn’t start the business. They are also people who have a great global sense, and an enormous sense of the social context.

BB: Is it a lot more difficult to run or work in a business today and become successful than it was decades ago?

DH: It is. Businesses have always been very complex organizations, but all the more complex today. The pace of change has picked up so rapidly, in part because of globalization, but also because of technological change. You really have to be able to adapt quickly. Leaders often don’t stay in their chairs very long. The route to leadership is a long and winding one and yes, it’s much more complex.

BB: How have students changed over the years? Have their values changed?

DH: Well, I’m actually very encouraged by the current generation of MBA students. I know it’s fashionable to worry about the values of the young. I don’t. I see the social concerns of these future business leaders as being far greater than students who were in business school when I was in graduate school, say 25 years ago. It used to be that social enterprise was a marginal club activity related to not-for-profits alone. Today more than half of the students in the MBA program view this as a very serious area of interest, and all of them are exposed to it. It’s hard not to be impressed by that kind of attitude.

BB: What has happened to greed? It used to be that one always assumed that good business schools and good business students were just greedy. That doesn’t seem to be the case anymore. They seem to have much more nuanced value systems.

DH: I think that’s true. I say to the students at orientation, or in commencement that what I care about is not the change that’s jingling in their pocket, it’s the change they are going to make in the world. And what’s more important is that that’s the way they think about themselves.

Of course, they do want to do well, they do want to make money. That’s part of why they are in business school. But I think most of them have extremely serious interests outside of the financial realm that you might not have seen a generation ago.

BB: But what about the pressures of the real world? How do they react to those?

DH: Well I hope that we give them preparation for that. Part of the purpose of our values curriculum at the school is to help people deal with tradeoffs. I don’t view our role as teaching ethics to 27 or 28 year-old men and women. I view our role as being able to help manage tradeoffs. And I think these students are very well prepared to do that. They understand, particularly given events of recent years, that it’s leaders with strong values who actually do succeed in the marketplace.

BB: You talked about students interest more than ever and doing things the right way, doing things with integrity. Do you think the future will hold a time when more and more people will be getting wealthy by doing the right thing, not just by being greedy?

DH: Absolutely! I believe that leaders and entrepreneurs with strong values are the ones who tend to have the greatest success in the marketplace over long periods of time. I think most of our young business school students who are aspiring business leaders fit that mold very, very well. I am very optimistic for that future for our country and for the world.

I love the tagline for this year’s Ethics Week — Invest in Values: Advance Your Career Through Principled Leadership. I wish I could claim credit for minting it. I love the line because it captures the essence of what will be the most important determinant of an MBA’s professional success.

Let me be specific. Leadership is all about pulling people, all about taking people with you. Whether you’re running a trading desk, leading a consulting engagement, or directing a marketing team, the fact is that motivating and energizing and inspiring your team requires you to build followership. Leading people is much less about exercising power and much more about empowering others to achieve great results.

And the way you go about leading your people every day sends a strong signal about what you value in life, and what you don’t; what you value in relationships, and what you don’t; and what you value in people, and what you don’t. The values that you signal determine whether the relationships that you build will endure or not, and they determine whether your subordinates, peers and bosses will follow your lead or not. Values are the oxygen of followership.

We all know of executives with great leadership ability who diminish their potential for building followership. They do this in any number of ways: by making unwelcome sexual advances toward fellow employees, by caring about nothing beyond their own success, by abusing their access to corporate perquisites, by failing to honor their personal commitments, by treating employees with rudeness and nastiness, by blaming others for their own mistakes, by behaving arrogantly — well, you get the idea. Other leaders get results by pushing people and using fear as a motivator, or relying on the carrot of financial reward to keep their people working hard.

But over the long run, people will only follow a leader whose values they respect. Of course, values must encompass meeting business targets and deadlines, keeping commitments and satisfying customers — clearly, business leaders have to deliver the goods, that is, meet or exceed their objectives. But values must also extend to giving honest feedback, to knowing your people and letting them know, through a multitude of activities, that they matter. They must also — critically — extend to treating people decently, to speaking the truth, to saying what you mean, to telling the emperor when he or she has no clothes and to doing the right thing. People follow not just because of what you do, but because of who you are.

So there really are two reasons for leaders to have a value system that prompts people to feel respected. First and most importantly, it’s just the right and proper and decent thing to do. How sad that this may sound simple-minded and naïve in the halls of today’s business schools!

Secondly, it’s what will determine whether your people will follow you — and enable you to pull your team to achieve the results that you as its leader will be measured against. And determine whether you achieve the success you came to Columbia to ensure.

When you demonstrate principled leadership, amazing things will happen in your organizations. You’ll build followership — and your people will respect and trust and follow you. You’ll make the numbers, grow your businesses and outperform competitors — not just in the short term but in the long term — by treating people with decency, honesty and dignity. There’s nothing inherently soft or weak about this approach. You can set very high performance standards and, at the same time, motivate people to meet these standards without the need to sabotage peers or intimidate employees.

Remember, leadership is all about building followership — and values are the oxygen of followership.

I went confident that the reunion would be a great chance to uncover shining nuggets of career wisdom to share in this space. What I found was somewhat less enlightening and more complex.

Reunions famously inspire that insecure, competitive vibe: Who’s thriving? Who’s struggling? Where do I fit in?

Sitting on the plane to New York, I decided to opt out of that mindset, recalling the line from Max Ehrmann’s Desiderata: “If you compare yourself with others, you may become vain or bitter, for always there will be greater and lesser persons than yourself.”

Approaching New York’s LaGuardia Airport, we flew over the World Trade Center site. That hit me hard: A lot has changed since 1997.

Class Was Divided
My business school class was divided into subgroups of about 50 students. I’d stayed in loose contact with my group over the years, and some of us met and caught up at the reunion.

As you’d expect, there were moves, marriages, kids, divorces, remarriages. Several of us had lost a parent. One of us had died.

Looking for pearls of professional advice, I checked our career paths over 10 years. Less than 10% of us were at the same company we’d joined at graduation. A few of us were in our second job, and most of us had held three jobs or more in a decade. At least 15% of us had spent some time self-employed or started our own companies.

I was particularly curious about the five-member “decade club,” those who’d spent their 10 years since graduation at the same company.

Were they happier, more fulfilled? Did they have some secret of success? It was hard to know.

Two of them, an investment banker and a software marketing manager, loved their work and couldn’t see doing anything else.

One, an IT sales manager, was burned out and looking for a career change. Another, an investment banker living in London, did not attend.

The fifth decade club member, who seemed to have a charmed life — brilliant and likeable, she’d made partner at a top consulting firm in record time, while having three children — registered for the reunion but was a no-show.

Careers Reflected Turbulence
In most cases, our career paths reflected the turbulence that has come to define the world of work.

We’d joined household-name companies and new businesses when they were full of momentum and promise, and left when they were foundering. We’d weathered — and some of us engineered — mergers, acquisitions, consolidations, spinoffs, bankruptcies, turnarounds, IPOs and private buyouts.

One classmate tried to enlist me in his venture capital scheme, which as far as I could tell involved getting investors to pay large sums of money to him and to mercenary management teams (which I would assemble) in search of rudderless companies to fix and wring profits from.

I went in search of career wisdom, but pat answers eluded me. Leaving, I remembered words from one of my favorite career advice authors, Mark Albion: “Live a life, not a resume.”

This piece originally ran in the Wisconsin State Journal. Republished with permission.

Blankfein insisted that this is not pure philanthropy, but that it is in Goldman’s business interest. Shareholders should like it.

Here’s his argument: Educating women — especially in business — promotes growth. If developing economies grow faster, that’s good for Goldman’s business. The firm manages IPOs from the newly formed companies, gets to finance them, merge them, invest in them through private equity deals, etc. So promoting global growth is good for Goldman, and promoting women’s education is a cost-effective way of promoting global economic growth.

Mark Tercek, a senior executive at Goldman, spoke to my class last week about Goldman’s environmental policies, which are equally spectacular. The firm gave away a huge parcel of land in Patagonia to the Wildlife Conservation Society; built some of the greenest buildings in the United States; acquired a fleet of hybrid limos; forced TXU to drop plans for eight new coal-fired power station in the recent buyout of TXU by Goldman, KKR and TPG; invested heavily and early in renewable power; and has persistently and forcefully promoted green behavior by its clients. Tercek gave similar arguments for why they do this: it’s good for Goldman. Why?

We need a healthy environment to survive and prosper, and only if we survive and prosper will Goldman do likewise. There were some other arguments too, in both cases, the most interesting being about motivating the firm’s employees and making them proud to work for Goldman.

Bottom line? What’s good for the world is good for Goldman. Remember the old saying — attributed to “Engine Charlie” Wilson, the then CEO of GM — “What“s good for General Motors is good for America”? There’s been an interesting order reversal here. And we’ve gone global too.

It’s a striking claim: by giving money away, we make ourselves better off — not just psychologically or ethically, but financially too. For every $1 we give away, more than $1 comes back.

Can this be true, or is someone deluding him- or herself here?

I have to plead the economist’s occupational disease — skepticism. But there is a possibility of validity.

Analytically, the issue is whether someone gains from providing a public good at his or her own expense. Global growth is a public good, as is a better environment. Generally the answer is no, it doesn’t pay any individual to provide a public good. But if the provider is also a major consumer of the public good, it could be the case.

So the issue is whether Goldman is dominant enough in its field to be sure that the lion’s share of the new banking business generated by growth anywhere in the world comes to it. Maybe that’s the case; certainly that’s what they are banking on.

Prior to the taping, we found ourselves in the green room with Professor Jonathan Knee, director of the Media Program, and Karmazin, who regaled us with tales from his days at CBS Corp. and his experiences with higher education.

“When I was in college, they wouldn’t have even let me walk in this neighborhood!” he quipped.

During the taping, Karmazin spoke candidly to CNN host Andrew Stevens about his life. He is the son of a taxicab driver, and he reminisced about attending P.S. 1 in Queens, high school in Hell’s Kitchen and maintaining a C average as an accounting major at Pace University in Manhattan.

Karmazin found his calling in ad sales at CBS Radio, and at an early stage in his career began making more money than his bosses.

“Because of my own insecurity, I worked harder than everybody else,” he said.

When the top brass tried to cap his pay with the reasoning that “CBS made you, you didn’t make CBS,” he left and went on to build Infinity Broadcasting in 1981.

Eventually, he became president and COO of CBS Corp., but he left in 2004 (CBS Corp. was acquired by Viacom in 2000).

In November of 2004 he took the helm of Sirius, he said, because he could “maneuver [in radio] much quicker than [in] the television business,” due to the myriad of long-term production and distribution contracts that are prevalent in TV.

Karmazin remembered advice handed down to him by an early mentor: “Managing is like holding a dove. Hold it too tight and you’ll kill it. Hold it too loosely and it’ll fly away.”

“I’ve always believed in paying the people who work for me very well,” he said. “I have huge expectations. I expect zero defects. I expect you go to the Super Bowl every single year, and I expect you to win it.”

But Viacom didn’t exactly win Super Bowl XXXVIII in 2004, the year of the infamous Janet Jackson “wardrobe malfunction” during the half-time show, which resulted in FCC fines of over a half-million dollars.

After conducting an internal investigation, Karmazin decided he would not be made a scapegoat. “If I thought I did something wrong, I would have been happy to step down,” he said. He blamed the incident wholly on Jackson and didn’t say whether the network passed any fines or other penalties on to her.

Then again, Karmazin is no stranger to controversy; he has often been a staunch defender of the right of broadcasters to put divisive material on the air.

The Howard Stern Show was first broadcast on Infinity before moving to Sirius in 2006. Since the switch, Sirius has rapidly grown its subscriber base from 700 thousand to 8 million.

“Most of us believe a significant driver in this was related to Howard,” Karmazin said. Although the company paid Stern $80 million a year, Karmazin said CBS Radio lost $200 million in revenue when Stern departed.

“It’s about the content. Shakespeare said, “The play is the thing.” Although 90 percent of people don’t listen to Howard Stern, the 10 percent [who are] fans are huge fans. We all would like to get that content cheaper,” Karmazin said. “But that content helps separate your brand.“

Karmazin believes that Sirius will move to a model of increased content choices in the same way that cable TV relies on identifiable brands ranging from HBO to VH1 to ESPN.

“I think it’s a great time to be a consumer,” he said. “Technology is so phenomenal. You have so many choices.”

Karmazin closed his talk by reminding students that ethics — honesty, credibility, following the rules, integrity — are the most important element in business.

“I’m willing to believe someone until he tells me the first lie,” he said. “Then I’ll never trust him again.”

This event will also be viewable online at www.cnn.com/boardroom.

In a similar spirit, Capon’s Customer-Centric CEO Index (C4I) is a simple measure of your firm’s degree of customer orientation.

There is scarcely a senior executive today who doesn’t recognize the importance of customers to the firm’s financial health. Relationships with customers drive the firm’s top-line performance; hence the role of NPS in trying to understand the customer-firm relationship.

My concern is broader; I want to understand the degree to which the organization as a whole puts customers at the center of its activities and is committed to using its entire set of resources to deliver customer value. What could be a better basis for determining your firm’s degree of customer orientation than the behavior of your CEO?

So, the C4I is very simple: C4I = the percentage of time your CEO spends with customers. Consider some polar opposites: for example, C4I = 0 and C4I = 30.

We could label the C4I = 0 CEO as the bureaucratic manager, internally focused and presiding over the entire organizational apparatus. Far from being central to the CEO’s concerns, relationships with customers are something to be delegated to the marketing or sales departments. Organizational layers shield this CEO from the realities of the marketplace — from competitors, customers and customers’ customers. Lack of firsthand customer interaction means that the firm likely makes all critical customer-oriented decisions at lower organizational levels. Alternatively, if the CEO does make these decisions, they are based on information filtered through the organization.

By contrast, a C4I = 30 CEO is highly engaged with customers. In B2C, some CEOs spend time on customer-complaint phone lines; former Southwest Airlines CEO Herb Kelleher was famous for interacting with passengers; and Terry Leahy, CEO of British retailing giant Tesco, and Mickey Drexler, CEO of J. Crew (formerly CEO of Gap), frequently walk around their stores talking with customers.

C4I = 30 CEOs recognize that the firm’s revenues are probably based on an 80:20 distribution — 80 percent of revenues generated by 20 percent of customers. In B2B, or in B2C where channel entities are increasingly important, powerful customers play an ever more critical role in deciding the firm’s future. C4I = 30 CEOs use direct customer input to help plot the firm’s strategy — recall Lou Gerstner’s early days at IBM as he met with customers in the process of developing the strategy that would turn IBM from a lumbering and declining giant into a preeminent industry player. And a few years ago, EMC’s CEO Joe Tucci changed his firm’s direction only after meeting with the CEOs and CFOs of customers’ customers.

Furthermore, as strategic/key/global account management practices become more widely entrenched, the potential roles for customer-driven CEOs become increasingly obvious. Hank Paulson was an obsessively customer-focused on-the-road CEO at Goldman Sachs, and Larry Ellison is Oracle’s point person at major customer General Electric. Other CEOs, like Sam Palmisano at IBM, are ready to directly engage with customers to close a deal or redirect a contract that was headed for a competitor.

The message should be clear. As IBM’s Thomas Watson Sr. famously said, “Nothing happens until a sale is made.” Even if you only half believe this statement, you must ask the question, “What is my CEO doing directly to help make this happen?”

As a starting point, I suggest you figure out your CEO’s C4I score. If it’s in the doldrums, you owe it to your firm and the shareholders to do what you can to inch it upward. CEOs, take note!

Professor Capon is author of Key Account Management and Planning, Managing Global Accounts, and The Marketing Mavens. His new textbook, Managing Marketing in the 21st Century, is a quarter the price of most competitive offerings; see www.mm21c.com.]]> Wed, 12 Mar 2008 16:06:42 EDT ]]> Leadership Marketing Organizations Napoleon, Buddha, Bill Gates — what makes them all great? According to a new book by Professor Bill Duggan, extraordinary achievements begin with strategic intuition, or flashes of insight in which the brain connects seemingly unrelated bits of information to solve a complex problem.

“Like leadership or judgment, sometimes it seems like some people have it and some people don’t,” said Duggan during an interview with The Invisible Hand. “The most important thing I’ve learned is that it's a normal function of the human mind. You can indeed learn it, and teach it.”

Many of us have had an “Aha!” moment. But whether your “Aha!” is about a shorter subway route or the meaning of life seems to depend on your situation. As Duggan points out, it was not Archimedes the cobbler who shouted, “Eureka!”

New research from Professor Maria Guadalupe suggests that high CEO salaries do pay off. Guadalupe and her research partner Vicente Cuñat found that as global competition grows, so does the link between executive pay and performance.

Two other scholars — W. Gerard Sanders (Brigham Young) and Donald Hambrick (Penn State), formerly of CBS — did a different study and found that CEOs whose compensation packages include a large percentage of stock options tend to make risky decisions that generate share-price losses more often than gains.

According to Forbes, the average CEO salary for an American company is $15 million, with top salaries in the hundreds of millions.

According to the article, decision briefs — pioneered by experts here at CBS — have a leg up on the case study in doing this. Decision briefs provide students with less information than a standard case study and require them to come up with strategies.

“We want our students to be used to dealing with incomplete data,” Dean Hubbard was quoted in the article. “They should be able to make decisions out of uncertainty.”

According to the article, nonart subjects such as donations, budgets, construction and attendance are increasingly dominating the time and energy of museum administrators. And as a few prominent museums search for new directors — including the Metropolitan Museum of Art — curators interested in advancing are looking toward programs like this one to add business skills to their résumés.

“It’s easier to teach a curator how to manage than it is to teach a manager to have passion for art,” said Professor Ray Horton, faculty director of the new program. “That is the underlying assumption in the curators’ program. Because to lead in the art world, you have to have both.”

The center is run by Elizabeth W. Easton, and relies on faculty expertise from CBS Executive Education.

I think education is important in ways that are obvious to every human being out there. You think about what education did to your life, you think about the teachers who changed your life, you think about the knowledge you developed.

For the country and for the city, education is important for two reasons, and one is that we have a racial and ethnic achievement gap in this country that is the greatest shame of this great nation.

The idea that skin color or poverty can determine the quality of the education you get is wrong. It’s fine for rich people to have bigger houses, larger cars, more diamonds — but a better education is morally wrong.

That moral issue takes on another dimension as we move forward in an increasingly globalized competitive economy, and I think it’s going to create enormous economic challenges.

We cannot have an education underclass in an increasingly competitive global economy. If you watch what’s going on in the rest of the world, there are people out there — quite literally — looking to eat our lunch.

And it is so critical to the transformation to have people who are bringing entrepreneurial, innovative juices — who instinctively get accountability, who understand leadership and care deeply about management. In the world of education, when I talked like that in the beginning, people looked at me like I was nuts. This was an alien language.

But at its core, education is a service-delivery challenge — if you don’t lead it, manage it and create the proper incentives in order to make it happen, it won’t happen. It’s about cultural transformation. That’s why the kids from business school want to come and be a part of it.

The core leaders that I have at many levels in the system are not people who came from the education schools — they’re people who came from the business schools, and from the business sector.

That causes me a lot of political heat, but that’s just fine, because if you don’t inject entrepreneurialism, accountability, innovation, differentiation, all of those things — you know what? We’ll continue to get the same pitiful results that we have gotten for the last 50 years in American education.

“We suggested a very difficult problem to him,” said Donaldson of Pandit’s dissertation, “and he made substantial progress on it.”

“His topic was to assess whether an appropriately structured dynamic heterogeneous agent model could shed light on the equity premium puzzle. The puzzle points out the implausibly high risk aversion necessary for standard homogeneous agent models to reconcile the high historical returns of stocks versus risk-free T-bills.”

A full resolution of the equity premium puzzle has yet to be found.

“In terms of theoretical explorations, he was way ahead of the curve,” said Donaldson. “His choice of dissertation topic shows that he is willing to think very carefully about complex equilibrium questions.”

There’s no question that email offers great efficiency in passing on information and in asking for information, and this efficiency leads to productivity — a good thing.

But the sheer amount of email exchanged at companies is an overwhelming problem. Emails have come to replace voice-to-voice and face-to-face transactions and are making the workforce feel anonymous and impersonal. Bosses complain that they get too many emails, and their people, ironically, complain that these same bosses send too many emails.

There is no good solution. What I tell leaders in my consulting job is that if you’re trying to make decisions around something or if you’re trying to coach people or if you’re trying to motivate, inspire or galvanize people through email, you’re wasting your time.

Until leaders recognize how counterproductive and demotivating the email experience can be at times, this isn’t going to get fixed.

There are some tricks that can help:

1. Set some ground rules to help employees decide which conversations should be handled via email and which should be handled face-to-face or phone-to-phone.

2. Restrict your email to a certain number per day per person.

3. Don’t use email for those occasions when you’re trying to motivate, inspire, galvanize or energize.

4. Ask an admin to vet emails and try to handle the less important ones themselves, passing on the most important ones to you.

5. If the matter being discussed is urgent, put “urgent” on it — and if this is a crisis, and you really need an answer immediately, put that in the subject line. Sometimes people cheat with this, but even if people are playing it straight 70 percent of the time, this will very often get you to the most critical emails during the day, and the others you can defer.

Professor Feiner is frequently called upon by alums for advice. If you have a suggestion for a question, please drop us an email at media@gsb.columbia.edu.

Pandit’s move is good for Columbia Business School — he is an ’86 PhD graduate of the School, and is an active member of the School’s Board of Overseers. But the move also has much to say about business and leadership today.

The analytical Pandit, a former finance professor, is less a deal guy than an entrepreneur — fresh from the success of his own hedge fund Old Lane selling to Citi in 2007 — and a risk manager par excellence. Running a big financial institution today is principally about identifying and capturing emerging opportunities (the essence of entrepreneurship) and assessing and managing exposures to narrow market factors (the essence of risk management).

Pandit’s rise also sheds light on the two key leadership factors from business school onward. First, today’s business leaders must think globally and understand the forces of globalization. The Mumbai-born Pandit immersed himself in the analytical and international setting of Columbia Business School, and two decades later, he is running a business that generates about half of its profits outside the United States. Today’s young business leaders must think of the world as the source of investment opportunities.

The second factor is entrepreneurial agility — being a corporate leader is less likely the key to success than being open to opportunity. Pandit moved from president and chief operating officer of Morgan Stanley’s Institutional Securities Group, to Old Lane, to Citi’s top job within 2 years. And today’s MBAs are likely to assume leadership positions after 5 to 10 years.

Congratulations, Vikram.