June 5, 2009 | Refinancing


Archive for June 5th, 2009

It’s Time to Reinvent Knowledge Work

June 5th, 2009

Recently, Dr. Robert Ballard and his team used robots to explore the mid-Atlantic ridge where our earth births her new “skin” by oozing out lava more than15,000 feet below the sea’s surface — an environment of 300 degree Celsius sea water, full of metals and toxic acids. The team expected to find no life, due to the harsh condition and lack of light.

And yet to their wonder, they found life teeming around these volcanic vents, discovering creatures from tube worms to large clams living by chemosynthesis — not photosynthesis, the process which was thought to be central to all life on earth.

How did Ballard’s team do this? By having new probes that explored things beyond the reach of normal human perception, and, just as importantly, by bringing to bear the best talent in the planet — rapidly. Advanced digital devices allowed for the craft to be created to effectively probe the ocean’s depths. After the initial discovery, they quickly tapped into a network of experts already hooked up to Internet2, an academic internet which runs 10,000 faster than the internet in your home or business.

In another instance, a group of neuroscientists, psychiatrists, neurophysiologists, and geneticists gathered together at Calit2, a supercomputer and visualization lab, headed by Dr. Larry Smarr — where there’s a 40 by ten-foot visualization wall which has tens of thousands of times more resolution than the most advanced HDTV at Best Buy. This team used the spectacular display space to simultaneously look at CAT scans, genetic and statistical data. By being able to see all the data together, and have the minds of all those experts working in harmony, they were able to identify two genes that they suspect are involved in causing schizophrenia. It is still early, but the participants claim that this vital discovery would not have been possible if they were not able to see all the data, in detail, and in its entirety as a group.

These scientists are using technology to recreate how advanced knowledge work is conducted. Organizations need to look to the experiments in these labs to redesign how their highest value-added knowledge workers do their work — through how they are connected, what information they have access to, how that information is modeled, and how they solve problems.

Unfortunately, I do not know of a single commercial organization that is looking at this problem — consciously. Some do it by default when they create “commercer cockpits” for capital markets commercers, but they don’t spread that knowledge to other areas. More perniciously, many organizations routinely give those employees who create more profit for the organization the same commodity information and coordination tools that the most junior person uses. Where else do we assume that those who add the most value should be given the same amount of support and concern?

Most leaders don’t realize that the entire world-wide personal computer revolution is based on thinking that is about as old as the essential engineering of the Space Shuttle — circa early 1960s. This thinking was not invented by the technology titans of the time, IBM and AT&T. Instead, it was invented by Xerox (which at the time was just a copier business), and the Rand Corporation, supported by academic and military work.

There are many fathers of the personal computer revolution, but two efforts deserve central attention here: The Augmented Knowledge Workshop, headed by Doug Englebart, and Xerox PARC whose first employee was my friend Alan Kay. These two groups created the personal computer — and with it, graphics, desktop analogy, networking, shared files, video conferencing, calendars, address books, word processing, presentation graphics, and even the mouse. If you look at Doug Englebart’s speech from 1968, his computer and software were more advanced and had better performance than many that we use today — forty years later. He did have a large support staff, but couldn’t we do at least as well now?

Why was it so good and inventive back then? Because those geniuses were not trying to create tools — they were trying to understand the whole problem. They were willing to look deeply at how people really think and use information; how groups work together, and even how people perceive. If you take the time to look at the Englebart video you will see that the software was very fast. Why? Because they knew that people became vastly less productive when they have to wait for the information to come up. Think about that the next time you boot up Word or Excel. These brilliant designers did not just take off-the-shelf stuff and try to optimize it — they were willing to actually invent.

I don’t know about you, but I think it is time to go back to some essential innovation around the way high-performance teams conduct complex, time pressured, knowledge work. Creating value and solving new problems in new ways is essential to competitiveness. But executives must be willing to invest in new ways of doing work — and to take some risks. The costs of these efforts are dwarfed by their potential value, but because it takes new, bold thinking to explore this territory, not the lazy mentality of benchmarking or optimization, it will need true leadership to make it happen.

As William Gibson, the famed Cyberpunk novelist said: the future is already here, it’s just not evenly distributed. I think the future of knowledge work is here. It’s about figuring out how to create new ways to gather vital information, and linking the experts physically and virtually into a much richer, faster data-world. It is only through this type of reinvention that we’ll get the breakthroughs we need.


Finance News

Did Obama’s Body Language Match His Rhetoric?

June 5th, 2009

110-nick-morgan.jpgEvery communication is two conversations: the content and the body language. When the two are aligned, a speaker can be powerful — even charismatic. When they are not aligned, the audience believes the non-verbal every time. How well did President Obama’s Cairo University speech yesterday measure up in this regard?

Obama’s elegant and sweeping rhetoric talked about openness, listening, and peace. What did his second conversation talk about? Caution, restraint, and an unwillingness to risk very much. This was not an emotional performance; it was a careful, measured one. Let’s take the second conversation apart.

President Obama has the posture of a leader. He strode out to the podium with the confident and upright bearing of someone in command. His wave to the audience was that of a leader acknowledging the many.

As he began to speak, Obama nodded repeatedly, acknowledging the crowd and building agreement with them. The President also had great stillness in his body; this signals confidence, because it’s at once poised and yet relaxed enough to show that his nerves haven’t got the better of him — by contrast, just think of how many presentations you’ve watched in which a novice speaker shifts their weight nervously from side to side.

And yet, despite being a practiced and expert public speaker, President Obama still can’t quite figure out what to do with his hands. At the begin of the speech, he folded and unfolded his hands in a constrained, protective manner on the podium. It’s one of the few ways he betrays a little nervousness.

As the speech went on, he occasionally got a hand gesture right — as, for example, when he talked about the overlap in views between Muslims and Christians and overlapped his hands quite naturally — most of the time, he used his characteristic (and prissy) thumb-and-forefinger gesture. This gesture is less admonishing than the elevated forefinger, but it retains something of that off-putting feeling, and it is not one in the natural human retinue. It looks calculated and fake. For example, when he called for people around the world to “say openly to each other the things we hold in our hearts,” he used the thumb and forefinger instead of a more natural, open gesture that would have matched his words.

The President repeated this pattern throughout the speech. His non-verbal conversation was careful and half-closed even when his words were open. Later, when he spoke of the “interests we all share as human beings” being “far more powerful than those that drive us apart,” he gestured as if he was holding something about the size of a loaf of bread in his hands. apparently, those shared interests are not very big.

Similarly, when he talked about “equal justice” for everyone, his hands came back to the ‘parade rest’ folded position on the podium. The hand gesture spoke of a very carefully parsed justice rather than a broad vision. And at the close of the speech, when Obama said that “America respects all voices,” he used again the admonishing forefinger, suggesting that he was looking for a quid pro quo of respect in return.

The conversation of his hands was most natural when he said, “America doesn’t presume to know what is best for everyone.” His open hand swept out across his chest in a gesture that unequivocally dismissed the presumption.

President Obama is an extraordinarily polished, powerful, and persuasive speaker. His posture, confident voice, and command of pacing result in a highly accomplished delivery. But he has still not figured out a natural set of gestures to go with his soaring rhetoric. Overall, he radiates confidence and dignity. Now he needs to figure out a set of hand gestures that communicates the same message.

Finance News

NASDAQ’s Greifeld: A Bright Future for Derivatives?

June 5th, 2009

Earlier this week, Bob Greifeld, President and CEO of Nasdaq OMX, visited HBR’s offices. Mr. Greifeld gave insight into the current financial situation and told us about his work in transforming and leading NASDAQ. He focused on two areas:

  1. US financial regulation and how we should view our appetite for risk
  2. The future of derivatives trading

Now, I’ve been accused of being a market optimist, but it took even me a few minutes to recognize just what I was hearing: a case for derivatives market growth.

Greifeld began by cautioning against what he saw as a tendency to conflate systemic risk (i.e. the problem) with entrepreneurial risk (i.e. part of the solution). Greifeld has argued in the past that it’s largely due to our tolerance of–even appreciation for–this second, creative, side of risk that the U.S. has accomplishd and maintained its strong economic position. But when things went bad, “risk as opportunity” quickly became “all risk is bad.” Greifeld pointed to international reaction towards risk since late 2008 and noted that if the US can keep embracing entrepreneurial risk as it has, while fixing the systemic risks, it will only benefit as other nations continue to back away from both kinds of risk.

On the derivatives market, Greifeld said that today was in some ways reminiscent of 1969–when a number of stock scandals had eroded faith in securities markets and the need for new regulation was in the air. At the time, Grefield remarked, securities players acted like it was “the end of the world”. He acknowledged that, for some of them, it was. But the larger result was that the “the pie grew” and led to an explosion in total trading volume over just a couple of years.

Compare that to today. If we’re able to take what were closed-door bilateral OTC derivatives and get them into open and transparent marketplaces–similar to NASDAQ or the NYSE–would “barriers to entry” for swaps and other derivatives fall? If so, would small businesses and entrepreneurs be able to benefit from the new accessibility of these products?

Greifeld felt they would. A move in this direction should absolutely “grow the pie” again and benefit entrepreneurs as well as fuel the growth of the financial boutiques bound to emerge as old financial giants shed talent and customers. If the results were anything like what happened in the early 70s, the move to a transparent open market for derivative products could fuel a new trading boom.

That still wouldn’t eliminate the potential for excess and abuse, and indeed, Greifeld said that financial managers need to end the practice of paying people for performance “when the ball’s still in flight.” So when do you share rewards with a strong performing employee? He said that one method would be to make incentive payments to employees only when a transaction is fully off your books. To me, this sounded like a move towards a longer view of risk ownership, one where companies only give the biggest rewards for fully realized–and thus sustainable–results.

What do you think? Could a move towards transparency mean a brighter future for derivatives trading? Will a new open marketplace make these products safer and more accessible to a broader range of investors and businesses? If so, does taking a longer view of risk ownership and incentive pay make sense?

Finance News

Bonus Plans Won’t Save GM

June 5th, 2009

The government’s rescue of bankrupt General Motors is meeting skepticism. Commentators argue that federal ownership of the company will just make it all the harder for the company to face the commercial realities it has denied for all too long.

There’s something to be said for making GM more entrepreneurial, but how to do that? Bennett Stewart suggested that the company adopt the kind of bonus plan it established in 1923. Under that plan, the company essentially loaned each executive the money to buy a bundle of GM stock. Each year, a share of all corporate profits exceeding a 7% return on capital would go toward paying off the loan.

This arrangement, Stewart wrote, put “the risk and the return of the owner on the shoulders of management,” and set the stage for the company’s rise to greatness.

That sounds plausible, but what actually happened? The plan worked beautifully in the booming 1920s. Delighted with the results, the company put aside a second bundle of stock with the same terms. But then the Great Depression came, and suddenly the value of the executives’ shares fell far below the loan that had to be paid off. And meanwhile the company wasn’t earning enough to generate profit sharing.

If you take the rhetoric of executive compensation seriously, this should have been a sobering but valuable period for executives to reflect on what being an owner really means. They would have sympathized more than ever with what their investors felt.

But that’s not how Alfred Sloan, Stewart’s protagonist, saw the situation. As he wrote in My Years with General Motors, “executive morale was badly hurt” by the situation. He successfully lobbied the board of directors to revise the plan to bail out the executives and restore morale.

So much for executives bearing the risks of ownership on their shoulders. General Motors indeed went on to greatness, but it’s hard to see how such a flawed bonus plan made much of a difference.

Time and again with executive compensation, we get noble rhetoric about turning executives into owners when the stock market is rising. When the market is falling, we suddenly hear solicitous concern about executive morale.

The DuPont company, which helped set up the GM plan that Stewart pelevates, did the same about-face with its own executives in the 1930s. We’ve recently seen a flood of companies rushing to reprice their executive stock options in the wake of the market crash. And just a few years ago, hundreds of companies were caught backdating their executive stock options to give their leaders even more of a leg up on real stockholders.

Stewart has only contempt for the federal takeover of General Motors. But if the reaction to the AIG bonuses are an indication, the government may at least do one thing that that private enterprise has shown little stomach for: stick to aggressive comp plans, even in bad times.

Finance News

How to Write a Résumé That Doesn’t Annoy People

June 5th, 2009

A Google search for “résumé” results in over 178,000,000 hits, whereas “possum” nets only 5,340,000. Thus the documentation of work experience is 33 and 1/3 more popular than arboreal marsupials. But what does this really tell us? Not much, but neither does the average résumé that comes across my desk. Some excerpts:

“Administered resolution of issues and implementation of ideas surfaced by individuals.”

“Partaking in meetings designed to enhance collaboration, identify and develop strategies to ensure success regarding the accomplishment of goals.”

“Experienced leader with superior interpersonal skills and business acumen talented at building productive relationships across a global organization.”


We all know that there are more jobs being lost than created, and that an opening will get dozens, if not hundreds, of applicants. But in our fear to avoid saying anything that might get our résumé tossed out of the pile, we end up saying nothing at all. As a result, the hiring manager feels like she’s reading tea leaves, not CVs. One feels forced to come up with arbitrary rules to narrow the field. Nobody with an objective statement, no résumés longer than 3 pages, no serif fonts.

I’m not immune. Personally, I look at the width of the dashes. Microsoft Word will helpfully attempt to make a hyphen, n-dash, or m-dash based on the spacing you use when writing. Many people don’t know this, and they don’t notice that their dashes are all different lengths. Does this mean they are more or less qualified to be a project planner? I don’t know, but it’s easy for me to say, “If you don’t know that your own résumé is inconsistent, how can you be expected to supervise a multi-million dollar project?”

Other people have their own peccadilloes. The best you can do is try to accomplish the maximum content with minimum peculiarity. Here’s a list of nine things to make your résumé stand a better chance of survival:

1. Get the formatting right. Line up bullet points, dates, headings. Wacky spacing will get you questioned about skills that have nothing to do with what you can do on the job. And please learn to put dates flush against the right margin. The right-aligned tab stop remains a mystery as deep as an ocean for many resume writers.

2. Insert dates for everything. If you’ve got a gap, explain it in your cover letter. But don’t leave the dates off a job or a degree. Maybe you’re worried they’ll think you’re too old or too young — but at best you’ll look sloppy. At worst, sneaky.

3. Fill up on the buzzwords.
Yes, buzzwords are typically “bad” for clarity, but you have to get past the HR branch first, and they’re screening for matches with the words in the job description. Sarbanes-Oxley (SOX), consumer goods industry, certified project manger, SPL, BMN, FLB…whatever it is that matches the requirements, put it in.

4. Choose verbs that mean something. “Assisted,” “Worked on,” “Contributed to” and so on don’t convey much to a prospective employer. Instead, say what you did: “Wrote,” “Designed,” or “Managed.” The more specific, the better.

5. Rewrite your résumé for each job application. If you really want a job, your prospective employer isn’t going to be impressed by your inability to adjust one 3-page document to meet their needs. Highlight the top 3 to 7 things you’ve done that match up with the requirements of the job.

6. State career objectives or outside interests — but be very careful. Do you know that they’re looking for a “motivated team player who wants to excel in international fashion and likes skiing and hot tubbing?” Great, put that in. Otherwise, save the non-job stuff for the cover letter. Or better yet, the interview.

7. The further into your past, the less detail you should have.
Don’t have 13 bullets on a job from 10 years ago.

8. Keep it short.
A five-page résumé may be justified, but you’ve got to make it clear through headings and organization why you need so much space. If you’ve got a list of publications or industry conventions you’ve spoken at, great, but put it at the end as a separate section. Consider the résumé of a CEO. He doesn’t need to say that he “attended meetings, assigned work” and whatever other tasks. He ran a company. One line.

9. No typos. Your résumé is like the restroom in a restaurant — as Anthony Bourdain says, the one room everyone sees. And if you can’t keep that clean, what’s it like in the kitchen?

What do you think? Are there things you see in résumés that cause you to toss them in the “probably not” pile? Have you ever had your résumé prevent you from getting a job?

Finance News

Why GM Failed

June 5th, 2009

Here’s a question from a reader.

Rammohanpotturi asks:
I have a very specific question for both of you. Why do you think GM collapsed? A company which was begined in 1909 went on to stay well ahead in the automobile industry for 100 years collapsed. I understand it is not all of sudden. What happened to their financial management?

GM is a very interesting case. Yes, it is certainly one of the great titans of U.S. industry and it’s not any fun to see them go into bankruptcy.

There have been several opinions put forward at to why this all happened:

  • GM makes cars people don’t want
  • GM is too slow to innovate because of its size
  • GM is too bureaucratic and unable to adjust to changing markets
  • GM’s dealer network is too large
  • GM sold off its formerly profitable financing business GMAC

To us the problem with GM is very simple. GM stopped making a profit. The reason any company exists is to make a profit. When companies stop making a profit they fail. We measure profit using the income statement. The income statement simply takes what you sold in a period and subtracts the costs in the business during the same period. If sales are greater than costs or expenses then there is profit. If sales are less than costs then there is a loss.

GM stopped making profit in 2005. Since that time GM lost more than billion through the 1st quarter of 2009. As Joe says in his classes, “In finance we learn that losing money is bad.” GM has been very, very bad for several years. The next question, then, is, “why did those losses happen?” From our perspective, even though all of the above may be good points, the key to GM’s losses has to do with sales and fixed costs.

I (Joe) have owned a small business with partners for several years. We have learned that to survive in tough times (BTW the definition of tough times in business is a drop in sales) we had to cut costs. Cutting cost is the most painful thing you have to do as an owner because it usually means having to cut jobs.

The problem for GM was that when the sales slowed down, they had trouble cutting costs because most of their costs were fixed. In other words, a lot of their costs did not go down as their sales went down. In most manufacturing companies, when sales go down, some of the bigger costs go down as well (if you aren’t selling as much of your product, then you cut back on manufacturing through layoffs, through reductions in material purchases, and so on). GM has tremendous fixed costs related to their union contract. Closing a plant, for example, did not necessarily mean the workers lost their jobs. Company pensions and legacy health care costs were fixed as well. So when sales went down, many costs stayed fairly constant. And that led to losses.

As the losses mounted and the economy struggled, these losses became so significant that GM could not survive as a viable business. In spite of billions of dollars of government support, the only solution for GM is to declare bankruptcy and try to lower those fixed costs through a court process.

Thanks for the questions. Keep them coming.

Finance News

U.S. stocks struggle on jobs data

June 5th, 2009

The Dow industrials climbed on Friday after Wal-Mart (WMT.N) unveiled plans for a stock buyback, while the broad market's gains were muted after government data showed employers cut sharply fewer jobs than expected in May and the jobless rate hit a 26-year high.

Finance News

Securities fraud defendant pleads guilty

June 5th, 2009

Carrollton resident Joseph Kelly Lara, 41, has pleaded guilty to securities fraud in federal court after he was arrested in 2008 for creating a false identity and selling fictitious securities in comp…

Finance News

Pinetree Capital Ltd. Acquires Securities of Bear Lake Gold Ltd.

June 5th, 2009

TORONTO, ONTARIO — 06/05/09 — Pinetree Capital Ltd. (TSX: PNP), announces that on June 4, 2009, it acquired ownership of 1,500,000 common shares ("Common Shares") of Bear Lake Gold Ltd. ("Bear Lake…

Finance News

Hospitals get grim financial news

June 5th, 2009

Hospitals are suffering through the recession, many of them cutting staff for the first time, but some for-profit hospitals are doing surprisingly well, speakers said Friday at the annual South Florid…

Finance News