June 9, 2009 | Refinancing


Archive for June 9th, 2009

Going Beyond MBA Oaths

June 9th, 2009

Siemens has just gone through the largest bribery scandal in history, paying more than .5 billion in fines and penalties, restating earnings by more than 0 million, incurring more than 0 million in forensic expenses to enquire itself and sidelining a whole generation of top board and business leadership.

And Siemens had a strongly worded code against bribery. It just lacked principles, practices and, ultimately, a culture to make that code a reality.

The extreme Siemens example came to mind as I read stories about the large numbers of HBS students (more than 400) who last week signed the “MBA Oath” at graduation in response to the dramatic business failures of the past year. Signers of this oath promise during their careers to, among other things, “act with utmost integrity and pursue my work in an ethical manner;” to “safeguard the interests” of shareholders, co-workers, customers and society; to “understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct and those of my enterprise;” and “to create sustainable economic, social and environmental prosperity worldwide.”

The HBS student who organized the effort, Maxwell Anderson, and the HBS faculty members who inspired him, Rakesh Khurana and Nitin Nohria, deserve great kudos for raising in a powerful, symbolic way critical issues for MBA students about building a foundation of integrity for business performance–student commitments that are echoed at other business schools and now resonate in major media take-outs. (Both the New York Times and The Economist published lengthy stories on the HBS oath.)

But oaths (and codes) are empty, even hypocritical rhetoric if they’re not backed by more, as the Siemens case so starkly shows. In this period when trust in capitalism and business decision-making has been severely eroded, the question is whether the MBA oath will (along with many other developments) effect consequential change. Mr. Anderson himself recognizes this challenge. On the Oath’s website, he acknowledges that the oath is but a “a first step.”

The MBA students who follow this year’s oath-takers might engage with HBS faculty in at least three areas at the Business School to leverage the deep concerns underlying the oath towards meaningful action.

• In light of the dramatic business failures of this decade–from Enron to the credit crisis–how should the mission of the business school and its essential curriculum be changed? Do business in society, risk and integrity issues play a prominent enough role in all business courses? Is having just one central business ethics course (the estimable Leadership and Corporate Accountability) enough? Doesn’t the faculty owe itself, its alums and its students a candid, systematic, in-depth evaluatement of this essential question? Students, wishing to go beyond the oath, could press for such a considered response.

• A related question students could press is how the HBS faculty brings its powerful collective intelligence to bear on what happened in the global economy in the past two years. What were the causes, what are the remedies? apparently, individual faculty members are concerned with–and writing about–these issues. But does the school itself need to stand up and acknowledge the watershed events which will reshape business for years to come? Should the school organize serious intellectual analysis of the crisis in the form of major conventions or organized volumes of essays? Isn’t an institutional or quasi-institutional response needed given teh severity of a crisis relating to the core of a business education?

An example of this is Restoring Financial Stability: How to Repair a Failed System, Viral Acharya and Matthew Richardson eds. (John H.Wiley & Sons, 2009). This is a volume organized by the dean and vice dean of NYU’s Stern School of business, with essays from 33 faculty members which describes key problems, analyzes causes and suggests solutions.

• Finally, students deeply and properly concerned about how central business and society issues should be addressed by contemporary business leadership could press to increase the momentum for joint degrees and joint courses with the Harvard Law School and the Harvard Kennedy School. All three schools could benefit greatly from teaching students multiple intellectual angles of attack on their respective core problems. Team teaching from all three schools is essential on essential issues like climate change, international commerce, health care or the legal, economic and country risk and economic dimensions of cross-border transactions. Yet, despite a recently renewed HBS-HKS effort truly to create an integrated joint degree program, the cross-professional school aspirations are, after many years of discussion, still far from a reality.

Of course, beyond these examples of how the concerns underneath the MBA Oath might be moved forward in a professional school setting, there is the much larger issue of how they can have impact in practice in real business institutions. With the crisis in capitalism, new graduates will have an opportunity to observe–and perhaps in a limited way to help shape–whether top business leadership can meet today’s challenges of responding to the outpouring of proposed regulation, balancing risk-taking (creativity and innovation) with risk-management (financial discipline) and fusing high performance with high integrity. But current students might also press for systematic discussions and debates with alums at HBS–moderated with hard-, not softball questions–to explore these issues from a practical business perspective, a dialogue that only had some “green shoots” at last year’s centennial event.


Ben W. Heineman, Jr., GE’s former Senior Vice President for Law and
Public Affairs, is senior fellow at Harvard Law School’s Program on the
Legal Profession and Program on Corporate Governance and senior fellow
at the Kennedy School’s Belfer Center for Science and International
Affairs. He is the author of “High Performance with High Integrity” (Harvard Business Press 2008).


Finance News

Wonga, Redux

June 9th, 2009

So, Wonga reached out to me on Twitter and asked if I’d sit down for a chat with their CEO regarding some of the issues we discussed in my post.

I think that’s really cool, so kudos to Wonga for doing it.

Let me add a note about the Wonga post. It was a harsh post. Maybe, on reflection, a bit too harsh. I let it stand, though, because I think it’s critical for us to discuss this stuff. Surfing around, I couldn’t find any substantive discussion of Wonga’s business model or strategy.

I said at the end of the post: feel free to prove me wrong. There were a handful that of comments that were personal attacks, with zero substance. But many of you elevated very good points in defence of Wonga’s strategy and business model (like this comment by Charlie).

Who’s “right”? That’s not the point.

The point is deliberation. We’ve got to think about this stuff. The real danger is too little discussion and debate — because the result is groupthink. What killed finance, GM, the Gap? What’s the real driving force behind the zombieconomy? Challenging the status quo is something that we feel too uncomfortable doing.

So what’s my response to the comments?

Simple. I think Ethan got the point of the post best. It wasn’t about Wonga ex nihilo. It was about Wonga’s investors, and their lack of strategic imagination. And it was about our economy, and its lack of leadership. Wonga was a metaphor for those themes — which are the real key takeaways.

That Wonga wants to chat is, like I said, a good sign. So I’ll let you know what happens after I meet with the CEO!

Thanks to everyone for the comments — I really enjoyed the discussion. Fire away in the comments if you’ve got stuff you want Wonga and I to discuss.

Finance News

How Europeans Do Layoffs

June 9th, 2009

At America’s 500 largest enterprises, layoffs look like anonymous, mass-market phenomena. Recently announced reductions affect thousands of employees at companies where whole manufacturing plants and divisions are being shuttered.

But compared to overall monthly U.S. job losses (see chart below), such massive layoffs are a relative rarity–the scale of most layoffs is far smaller and more personal.

In the vast majority of businesses, decisions of whom to let go versus retain are made by weighing one individual against another; in most cases, the decisions will be made by a manager–often the CEO–who has a personal relationship with each potential layoff candidate. The personal and psychological effects are significant for both the boss and the laid-off employee. Neither can offload the blame on impersonal, macroeconomic factors. The layoff is up-close and personal.

Do you remember the last person you laid off? Did you focus on performance issues? Maybe you had other options: A recently hired young employee could be terminated under the LIFO (last in first out) rule; maybe a senior manager was eligible for early retirement; perhaps a junior manager would be better off in another job and company; or did you choose a middle-aged, expensive, average performing manager?


We asked these questions of almost 2,000, mostly European, managers by presenting them with typical employee profiles and asking them to fire one person. We proposed four layoff candidates: the youngest, an above-average performer earning the lowest salary; a young, low-salaried average performer; a middle-aged average performer earning a high salary; and an older, excellent performer earning the highest salary. The responding managers were also asked to explain the reasons behind their decisions in their own words.

To test for trends in national values we ran this survey twice during the years between 1999 and 2007. Initially, we surveyed managers from Austria, France, Germany, Italy, Spain, and the U.K. We found that, together, Europeans tended to use the FIFO (first in first out) principle to make layoff decisions (see tables below), in which the oldest employee goes first, followed by successively younger employees. However, when broken down by nationality, these layoff decisions varied widely.

The reasons given to justify decisions also varied. The managers offered almost 35 different reasons to support their decisions.

layoffs2.jpgSome focused more on productivity, others on social consequences, and a few on personal concerns. Most used a combination of reasons and typically gave more reasons to fire older employees than younger ones. The top reasons for firing employees were bad performance, eligibility for early retirement, and–surprisingly–good performance.

In many cases, European managers laid off a high-performing employee assuming the person could easily find another job. Similarly, being young or trainable often got one fired. Other respondents focused on potential group effects, citing reasons that ranged from a “warning effect” to the deterioration of “social peace among different classes of employees.” Some choices suggested that respondents were more influenced by their individual situations. The choices and rationale varied widely across cultures. If you manage a multinational firm you might be surprised by your European colleagues.


The key point to remember is that even managers in your own company might be applying different criteria in choosing whom to fire because they accept, or are constrained by, national norms or laws. Without oversight or common standards, your cost cutting might leave you with a massive headache next year if the choices your colleagues make damage your recovery plans. Don’t leave your success to cultural chance.

In the next part of this series we will drill down into the cultural differences underlying the choice of whom to fire during a recession and uncover three culturally based strategies that relate to downsizing.

Help shape the results of the 2009 HBR-HEC Trust and Firing Survey by telling us whom you would fire and why.


Michael Segalla is a professor and researcher at HEC School of Management, Paris. Previously he taught at McGill University and City University of New York. His research led to the development of the Cultural Risk Framework which guides managers in identifying the risks of moving people, products, and processes across borders. He is the scientific advisor to the French International Investment Agency’s European attractveness Scoreboard project, which markets Europe’s strengths to multinational investors.

Finance News

Did Professional Management Cause the Fall of GM?

June 9th, 2009

The recession has intensified calls for making management a profession. On top of the threat of global warming, we’ve seen how narrow-minded, self-serving behavior by executives can grievously damage the financial system. To inject more social responsibility, students and professors at several prominent schools are promoting a version of the Hippocratic Oath for graduating MBAs.

Yet professional management involves more than social responsibility. Doctors, for example, are trained to collect facts, analyze them objectively, and make impersonal decisions based on deep expertise. That sort of rational work has many clear benefits, but also dangers for large organizations. General Motors is a prime example.

To see why, let’s go back to 1964, when HBR published “The Great GM Mystery,” by Harold Wolff. GM was at the peak of its success. Longtime leader Alfred Sloan may have retired, but the company was still posting growing profits and market share. And Sloan had just published My Years with General Motors, which executives by the thousands read not as a memoir to be enjoyed but as a guide to success.

For Wolff, the mystery of GM was that the company had succeeded with practices that had failed elsewhere. General Electric, for example, had eagerly imitated the company’s much-heralded multi-divisional structure, only to see operations get worse. DuPont used the same financial controls and P&L approach as GM, with disappointing results. It was the flip side of today, when we wonder why GM can’t get the same results from lean production as Toyota.

Wolff found the answer in the company’s managerial culture. Sloan, he argued, relentlessly pushed for a highly disciplined form of decision-making that took full advantage of GM’s structure. In contrast to the seat-of-the-pants, instinctive management of his predecessor, Billy Durant, Mr. Sloan taught his colleagues to make decisions with hard facts.

As Wolff explained, the multi-divisional structure worked only because it clarified decision rights between headquarters and the field. Financial controls supplied clear, standardized, and frequent performance information. Armed with these tools, executives could make decisions objectively with up-to-date information, reducing the influence of personal loyalties or entrenched perspectives. It was this clarity, objectivity, and responsiveness, Wolff argued, that enabled GM to adapt quickly to changing markets despite its enormous size. GM had triumphed, he concluded, because it made its managers into professionals.

So what went wrong? Robert Freeland, writing 38 years later in HBR, told a different story. After digging through materials not available to Wolff, he found that for all of Sloan’s zeal for clarity and standardization, he actually tolerated a lot of organizational messiness.

Freeland found that Sloan implemented his ideal system in the 1920s, but his strong-willed divisional managers hated being left out of decisions at headquarters. They retaliated by supplying only minimal, pro-forma information to Detroit. That left Sloan without a lot of essential, often intangible news from the factory and field. They also showed little enthusiasm for corporate initiatives.

Bruised and newly pragmatic, he wooed the divisions back by allowing them some say over headquarters’ decisions — which inevitably led to some unprofessional horse-trading. Over the next three decades he adroitly managed these relationships, unlike arch-rival Ford where the patriarch found himself increasingly out-of-touch. But he never lost his faith in rationalization, and in My Years with General Motors he returned to his original faith.

The trouble is that his successors took him seriously, perhaps influenced by accolades such as Wolff’s. After Sloan stepped down as chairman in 1956, they gradually recalibrated the organization according to his full vision. Once again the divisions fought back by hoarding information and dragging their feet on execution. But this time, confident in their approach and lords of a grand empire, headquarters didn’t react.

That left GM slow to react as the market changed in the 1960s and 70s with imported cars and the oil crises. While complacency bred of success surely had a lot to do with it, professional management played a leading role.

GM’s rise and fall points to the inherently political aspects of executive work. We don’t expect politicians to be professionals, even though we have schools of government and MPA degrees. Why should we expect executives?

Finance News

Sensex up 461 points after PM

June 9th, 2009

Mumbai, June 9 : Bombay Stock Exchange benchmark Sensex on Tuesday recorded a surge of over 461 points on aggressive buying by funds and regained 15,000-level, which it lost during Monday's steep fall.

Finance News

Punjab farmers getting drawn to natural farming

June 9th, 2009

Abohar, June 9 : Many farmers in Punjab are doing away with the usage of pesticides and fertilizers and increasingly taking to natural farming methods for better financial returns.

Finance News

Canadian natural resource companies predict near-term surge in commodity prices

June 9th, 2009

The Canadian Press –
TORONTO – Talk of a nascent recovery in the global economy has been embraced by the Canadian natural resources sector, with several companies predicting a near-term surge in commodity prices.

Finance News

Stock markets stall for second day as spring rally ends third month

June 9th, 2009

The Canadian Press –
TORONTO – The Toronto stock market managed a toehold on positive ground mid-afternoon Tuesday as commodity stocks climbed despite doubts about the economic recovery.

Finance News

GM says former AT&T CEO Edward Whitacre Jr. will become new chairman

June 9th, 2009

The Canadian Press –
DETROIT – A former CEO and chairman of telecommunications giant AT&T Inc. will lead General Motors Corp.’s board after the automaker emerges from bankruptcy protection, GM said Tuesday.

Finance News

Number of takeovers and mergers falls to six-year low, study finds

June 9th, 2009

The Canadian Press –
TORONTO – The number of mergers and acquisitions involving Canadian companies fell to a six-year low in the first quarter, according to a study published Tuesday by Crosbie & Co.

Finance News