European fund managers are only beginning to concern themselves with investment capacity issues and the need to shut their doors to new investors. But in the US, closing a fund is not all that an uncommon occurrence.
To date, T Rowe Price has closed $36.7bn (€27.4bn, £18.5bn) worth of funds, Vanguard $86.2bn, and Fidelity over $268.4bn. These are startling numbers, especially when one considers that they represent 8.7 per cent of Vanguard's assets, 18.9 per cent of T Rowe Price's assets, and nearly 30 per cent of Fidelity's assets - all net of money market funds.
But the phenomenon is not limited to big fund families with assets spilling over their portfolios.
In May 2005, with total assets of just $7.36bn, the well-respected value investor Tweedy, Browne in New York closed both of its funds - the Global and American Value Funds.
Christopher Browne, one of the company's fund managers, had said at the time that the "current stock market levels worldwide present few investment opportunities selling at an attractive discount to intrinsic value. Moreover, certain holdings have risen to levels of full value in our view, resulting in both funds being net sellers of securities".
The lack of investment opportunities is probably a minor matter aggravated by more challenging issues. According to Spence Fitzgibbons, vice-president of product management at the Kansas City-based American Century Investments with more than $100bn of assets, the flow of so-called hot money into funds that have been doing particularly well can play havoc with efficient fund management.
In just two years ending in 1999, American's International Discovery Fund saw assets soar from $622m to nearly $2bn on the back of strong performance, which culminated in an 88.5 per cent gain in 1999. So the company decided to soft close the small- and mid-cap international growth fund in January 2000. This shuts off the fund to new investors but allows existing investors to add to their holdings.
Some of the metrics employed by American Century to determine when capacity is being approached include a limit of 5 per cent of the portfolio for individual holdings and a limit of one third of a stock's average trading volume for individual postions.
When the latter occurs, liquidity can become a factor, especially as a manager attempts to exit a position. Excess assets can also make it difficult to establish meaningful positions in small up-and-coming stocks.
Mr Fitzgibbons is also mindful that when a fund's capacity is reached, managers may see cash pile up or establish positions in so-called "secondary" choices, which can lead to over-diversification.
"These actions may be adverse to shareholder interests by compromising both a fund's strategy and overall performance," he notes.
After American Century closed the International Discovery Fund in 2000, it ended the year down by more than 14 per cent, basically matching the MSCI EAFE (Europe, Australasia and Far East) Index. Yet, assets declined by one quarter as the flow of hot money stopped and investors started pulling out of foreign markets.
"This didn't bother us though," Mr Fitzgibbons says, "because we felt more comfortable managing a smaller asset base." The fund's relative performance bore out the merits of doing so. Between 2000 and the end of 2006, it made annualised returns of 11.14 per cent, topping EAFE by a yearly average of 5.5 per cent. Despite assets having remained fairly stable, currently at $1.6bn, the fund never reopened.
While fund companies close a successful fund to help ensure continued performance, some are occasionally reopened. T Rowe Price's New Horizons Fund, whose inception dates back to 1960, has closed and reopened several times. After having shunned new investors for six years, it reopened in May 2002 to counter the effects of negative cash flows.
Then there are funds that close but virtually clone themselves for new investors. In May 2005, Julius Baer closed its top-performing International Equity Fund, which had grown from $600m as of the end of 2001 to more than $12bn in assets on annualised returns of 15.06 per cent. The fund outperformed EAFE by 4.85 per cent and nearly doubled the performance of its peer group.
But on the day it closed, it opened the International Equity II Fund, run by the same managers following pretty much the same investment strategy. The main difference: the new fund could not invest in companies with market caps of less than $2.5bn.
On the surface, it certainly wasn't obvious how starting a second version of the fund was in the best interests of existing investors.
But so far, the new version - having appreciated 28.6 per cent in 2006 and 3.71 per cent during the first 11 weeks of this year - has kept close pace with its brethren. And it has done so without having been a drag on the original fund, which turned in even better results, gaining 31.8 per cent and 4.55 per cent over the same periods.
But stopping the flow of new investor assets into a fund hardly assures future returns, especially if a fund is already struggling.
Fidelity closed its Magellan Fund in September 1997 with $61bn in assets, in attempts to stabilise performance, which many observers believed had been compromised by its sheer size. But Fidelity's former flagship fund continued to stumble. Its 10-year annualised returns were just 6.8 per cent, 83 basis points less than the S&P 500, and its assets have declined to $43.81bn.
While constraining rapid asset growth sounds intuitively helpful, it's not clear whether closing a fund is superior to alternative strategies, such as diminishing back-end loads. This would attract and reward committed investors and sales intermediaries, while preventing asset base attrition.
Moreover, the main argument for closing a fund - limited investment capacity - may not be a transparent issue. A number of fund companies run proprietary accounts that shadow their public funds. This could arguably stress a fund's capacity well before it would become public knowledge.
Since its inception in 2001, the US-focused Allianz NFJ Dividend Value Fund has generated five-year annualised returns of 12.42 per cent. That is nearly 6 per cent better than the S&P 500. With only $6.4bn in assets, it seems strange that management has decided to close this mega-cap fund in April. One explanation: NFJ has more than $20bn in managed accounts that track the fund.
Thursday, May 31, 2007
Wednesday, May 30, 2007
High-stakes cuisine - Julie Traves
On the stovetop, a honey-ginger reduction is simmering. Grilled vegetables cool on a rack nearby. And trays of brilliant-orange carrot pulp stand at the ready, perhaps for garnishing plates of quail with scallop and raspberry mousse, or for a chipotle avocado sorbet.
For chef Martin Buijsrogge, it's a typical Monday here on the 68th floor of a Toronto office tower. Down the hall, William Downe, the chief executive officer of the Bank of Montreal, toils away in his office.
At a time when shareholders are demanding more accountability on executive compensation and perks, Bay Street bosses like to keep quiet about their on-site chefs and private dining rooms. But high above the city, deals are done over rack of lamb served on bone china.
At such Canadian corporate top dogs as Royal Bank of Canada, Bank of Nova Scotia and Onex Corp., the executive dining tradition continues to flourish. In the United States, Christian Paier's company Private Chefs Inc. is placing a growing number of chefs at companies ranging from design houses to mining offices to the Federal Reserve Board. Chefs often do more than just dish up meals in the office-tower kitchen. “Some people fly their chef to Alaska to get fresh salmon,” Mr. Paier says. “Money is not the object here.”
Companies aim to impress guests with culinary feats by private chefs. Clients will order up “five kilos of beluga caviar at a company party (even if) they would have enough with one kilo,” Mr. Paier says. “It's about showing off.”
At the Bank of Montreal, flaunting it starts with the stately setting. The club room and dining rooms sport the names of long-dead bank presidents. Tables are set with cloth napkins in artful fans, silver cutlery and Villeroy & Boch dishes. The dining area is so high up that in a strong wind, the skyscraper sways enough that diners can see the chandeliers rock slightly.
In addition to Mr. Buijsrogge, who worked at the Royal York Hotel before the bank, the kitchen is staffed by a pastry chef and two sous-chefs. Since Mr. Buijsrogge loves to experiment with ingredients, a typical daily menu might include simple tuna steaks with jasmine rice, or appetizers such as house-cured salmon with bouquets of mini daikon in a chipotle dressing.
For special guests — a delegation from the Bank of Bermuda, say, or a star from the Maple Leafs — the menu kicks up a notch. The King of Sweden asked for “very small portions of food.” So the kitchen whipped up sushi, duck confit tarts and deep-fried oysters. “You can't have dinner for the Pope and we're serving a burger on a bun,” Mr. Buijsrogge says. “It's a showpiece for the bank.”
The dining room is aimed at top executives, and the tab for meals appears to be on the house.
Some firms take a lower-key approach to feeding staff. At law firm McCarthy Tétrault, there are no showpiece dining rooms or sets of bone china. But every morning, the on-site kitchen staff bakes 1,500 cookies by 9 a.m. The company cookie jar is filled with peanut butter, shortbread and chocolate chunk varieties— some of which are shipped to clients in signature silver boxes.
The Toronto office also serves buffet dinners to staff working overtime, with favourites running toward comfort food such as chicken cacciatore and beef lasagna. In fact, the chef's tomato sauce is so sought after that she bottles it and auctions it off at company fundraisers.
At the more full-service executive kitchens, chefs develop an intimate knowledge of employees' tastes and dietary needs. Nick Lorenz, the cook for Las Vegas liquor distributor Southern Wine and Spirits, jokes that his bonus hinges on senior managing director Larry Ruvo's cholesterol level.
“We really don't cook with any butter, any dairy or anything like that,” says the 29-year-old chef. “Larry's diet is very strict. Everything is organic. No beef. No sugar.”
At the Bank of Montreal, Mr. Buijsrogge tracks which VPs want shots of wheat grass in the morning and which ones scoff down eggs and bacon every day. And, though he insists the executives are “not like princes and princesses,” he will honour special requests – like one woman's yen for peanut butter and banana muffins.
This pampering doesn't come cheap. In the United States, Mr. Paier pegs chef salaries at $60,000 to $150,000 a year. Spending on ingredients is also lavish. “It's like being a sculptor in the 17th Century working for a king,” he says.
Mr. Lorenz says he uses his “very lenient” budget to equip his kitchen with ultra-specialized toys. “There really are no constraints,” he says.
Mr. Buijsrogge's kitchen is a bit more frugal. While he can serve such costly dishes as deboned quail stuffed with foie gras, he estimates that BMO's dinners cost the bank $25 to $30 a plate.
Robin Jay, author of The Art of the Business Lunch, says executive kitchens help keep sensitive negotiations under wraps.
Despite the luxe surroundings and elaborate meals, executives are generally done within 45 minutes, says Mr. Buijsrogge. And most choose mineral water over wine. “Even though it looks very nice, this place is for business.”
A corporate chef's secret tomato sauce When Maria “Rosa” Machado started at McCarthy Tétrault 18 years ago as a “coffee hostess,” she pushed a cart around and rang a bell to let the lawyers know it was coffee time. But there were no cooks on-site, so she would occasionally bring in homemade food for staff events. Even some lucky clients got a taste of her dishes. Soon, clients were requesting her staples at meetings — and Ms. Machado, 58, moved in front of the stove full-time. Among her hits: this made-from-scratch tomato sauce.
For chef Martin Buijsrogge, it's a typical Monday here on the 68th floor of a Toronto office tower. Down the hall, William Downe, the chief executive officer of the Bank of Montreal, toils away in his office.
At a time when shareholders are demanding more accountability on executive compensation and perks, Bay Street bosses like to keep quiet about their on-site chefs and private dining rooms. But high above the city, deals are done over rack of lamb served on bone china.
At such Canadian corporate top dogs as Royal Bank of Canada, Bank of Nova Scotia and Onex Corp., the executive dining tradition continues to flourish. In the United States, Christian Paier's company Private Chefs Inc. is placing a growing number of chefs at companies ranging from design houses to mining offices to the Federal Reserve Board. Chefs often do more than just dish up meals in the office-tower kitchen. “Some people fly their chef to Alaska to get fresh salmon,” Mr. Paier says. “Money is not the object here.”
Companies aim to impress guests with culinary feats by private chefs. Clients will order up “five kilos of beluga caviar at a company party (even if) they would have enough with one kilo,” Mr. Paier says. “It's about showing off.”
At the Bank of Montreal, flaunting it starts with the stately setting. The club room and dining rooms sport the names of long-dead bank presidents. Tables are set with cloth napkins in artful fans, silver cutlery and Villeroy & Boch dishes. The dining area is so high up that in a strong wind, the skyscraper sways enough that diners can see the chandeliers rock slightly.
In addition to Mr. Buijsrogge, who worked at the Royal York Hotel before the bank, the kitchen is staffed by a pastry chef and two sous-chefs. Since Mr. Buijsrogge loves to experiment with ingredients, a typical daily menu might include simple tuna steaks with jasmine rice, or appetizers such as house-cured salmon with bouquets of mini daikon in a chipotle dressing.
For special guests — a delegation from the Bank of Bermuda, say, or a star from the Maple Leafs — the menu kicks up a notch. The King of Sweden asked for “very small portions of food.” So the kitchen whipped up sushi, duck confit tarts and deep-fried oysters. “You can't have dinner for the Pope and we're serving a burger on a bun,” Mr. Buijsrogge says. “It's a showpiece for the bank.”
The dining room is aimed at top executives, and the tab for meals appears to be on the house.
Some firms take a lower-key approach to feeding staff. At law firm McCarthy Tétrault, there are no showpiece dining rooms or sets of bone china. But every morning, the on-site kitchen staff bakes 1,500 cookies by 9 a.m. The company cookie jar is filled with peanut butter, shortbread and chocolate chunk varieties— some of which are shipped to clients in signature silver boxes.
The Toronto office also serves buffet dinners to staff working overtime, with favourites running toward comfort food such as chicken cacciatore and beef lasagna. In fact, the chef's tomato sauce is so sought after that she bottles it and auctions it off at company fundraisers.
At the more full-service executive kitchens, chefs develop an intimate knowledge of employees' tastes and dietary needs. Nick Lorenz, the cook for Las Vegas liquor distributor Southern Wine and Spirits, jokes that his bonus hinges on senior managing director Larry Ruvo's cholesterol level.
“We really don't cook with any butter, any dairy or anything like that,” says the 29-year-old chef. “Larry's diet is very strict. Everything is organic. No beef. No sugar.”
At the Bank of Montreal, Mr. Buijsrogge tracks which VPs want shots of wheat grass in the morning and which ones scoff down eggs and bacon every day. And, though he insists the executives are “not like princes and princesses,” he will honour special requests – like one woman's yen for peanut butter and banana muffins.
This pampering doesn't come cheap. In the United States, Mr. Paier pegs chef salaries at $60,000 to $150,000 a year. Spending on ingredients is also lavish. “It's like being a sculptor in the 17th Century working for a king,” he says.
Mr. Lorenz says he uses his “very lenient” budget to equip his kitchen with ultra-specialized toys. “There really are no constraints,” he says.
Mr. Buijsrogge's kitchen is a bit more frugal. While he can serve such costly dishes as deboned quail stuffed with foie gras, he estimates that BMO's dinners cost the bank $25 to $30 a plate.
Robin Jay, author of The Art of the Business Lunch, says executive kitchens help keep sensitive negotiations under wraps.
Despite the luxe surroundings and elaborate meals, executives are generally done within 45 minutes, says Mr. Buijsrogge. And most choose mineral water over wine. “Even though it looks very nice, this place is for business.”
A corporate chef's secret tomato sauce When Maria “Rosa” Machado started at McCarthy Tétrault 18 years ago as a “coffee hostess,” she pushed a cart around and rang a bell to let the lawyers know it was coffee time. But there were no cooks on-site, so she would occasionally bring in homemade food for staff events. Even some lucky clients got a taste of her dishes. Soon, clients were requesting her staples at meetings — and Ms. Machado, 58, moved in front of the stove full-time. Among her hits: this made-from-scratch tomato sauce.
When small is career beautiful - Wallace Immen
Once you've swung a big bat in the major leagues, should you jump to the minors?
Until recently, very few senior executives would consider it a wise career move to shift from the power and perks of a big, established company to the challenges and risks of leading a small startup.
But John Maduri discovered what a growing number of executives are finding: A smaller organization can offer the opportunity to move to the top faster and, in the process, gain new career experience.
"It's a very different game. I describe it as owning my own destiny," says Mr. Maduri, who became chief executive officer of Barrett Xplore Inc. in the fall of 2005. A startup partnership between a U.S. private equity group and family-owned holding company Barrett Corp. of Woodstock, N.B., it provides satellite Internet and wireless communications to rural and remote communities.
In his previous jobs, he worked for telecom giants as an executive at Rogers Communications Inc. and, more recently, as executive vice-president of Telus Corp., where he led billion-dollar business units with thousands of employees.
Barrett Xplore, by contrast, is "tiny," he says, with a staff of just 200 and a budget measured in the millions, rather than billions.
But Mr. Maduri, 45, knew that his aspirations to be a CEO might take years to achieve in a huge corporate hierarchy. By taking the helm of the small company, he saw the potential to be more directly involved in steering it to success.
"There's a sense that we in the senior management team own this business -- and it's not just because there are stock options. It comes from realizing that what we do day-to-day determines what this company becomes. The attraction of the opportunity to create our own destiny and corporate culture is pretty powerful," Mr. Maduri says.
Increasing numbers of top executives are feeling that same attraction to smaller companies, career experts say.
A few years ago, most executives weren't interested in moving from a large company to a startup because it was perceived as a step backward in career growth, says Valerie Spriet, an executive recruiter with Egon Zehnder International in Toronto.
Now, she says, more than half of big-company execs she approaches for a senior role at a small company are willing to look at the opportunity. Many still back off when they realize the move would sharply reduce the budgets and resources available to them.
"But a growing number of executives are at a time in their career that they say they are looking for an opportunity to revive their competitive drive and get a sense of personal involvement they may be missing by working with a giant corporate bureaucracy. Heading a small company is a change that can help them get out of bed in the morning," Ms. Spriet says.
While in the past, it might have been a minus on your résumé to have scaled down from a giant to a startup, now it can be a plus. Employers recognize that it shows initiative, enthusiasm and a sense of adventure, adds Jeff Rosin, managing director for Canada for executive search firm Korn/Ferry International. "We never hesitate to approach high-calibre talent because you never know when they might be receptive to a move to a smaller organization."
Mr. Rosin finds it's not salary that's the attraction. "The lure is the excitement although, invariably, there is an offer of equity in the company. It's a matter of 'if you help us grow, we'll make sure you are rewarded.' "
The trend does represent a shift in attitudes toward career growth, says Chris Laubnitz, Toronto-based partner in executive recruiter Caldwell Partners. "Younger executives, in particular, are no longer seeing themselves as lifers, and they see smaller companies with less bureaucracy as a way to fast-track their way into the senior ranks."
Mr. Laubnitz points to a PricewaterhouseCoopers study in 2003 of graduating students around the world that found that money ranked no higher than third place among their lists of reasons for choosing an employer, with opportunity for training and development ranking second.
The No. 1 reason: potential for career growth.
Another survey by Allbusiness.com, the Web based small-business guide, found that 79 per cent of executives at small companies derive more satisfaction and reward working in a small business than they would in a large organization.
The reason? The 1,000 executives polled cited less bureaucracy, the ability to get results more quickly and more flexibility to be creative.
As for the appearance on a résumé of a step down to a small organization, "there is a growing acceptance among employers that it shows you are willing to take a risk, so good for you," Mr. Laubnitz says.
But big companies are anxious to keep their talent, "so small companies must work hard to sell candidates on their passion and vision and get them to make the leap," says Minto Roy, president and chief executive officer of career counselling and recruiting company PCMG Canada in Vancouver.
That makes it increasingly common for candidates to be able to negotiate substantial equity positions, along with perks and benefits.
"Smaller companies are saying to CEOs and CFOs, we can't offer you the $200,000 you want, but we can give you $100,000 and an equity of 10 per cent or more in the company that will give you a return in three to five years," Mr. Roy says.
"That ownership of a piece of the pie is attractive, especially if there is a vision that if you work hard, the pie will become much bigger. "
But money and a piece of the action aren't all. While Mr. Maduri did negotiate an equity position, what really clinched it for him, he says, was the company's willingness to be flexible about where he was based.
Mr. Maduri was uncomfortable about moving his family away from Calgary, where they'd been living for more than five years, so as not to disrupt the schooling of his son, who was 16 with one year of high school left, and his daughter, who was 12. Any move to another big company he knew would probably require a relocation.
Barrett Xplore, however, allowed him to continue to call Calgary home, although his country-wide operation does require a fair amount of travel to head office in Woodstock, N.B., an hour's drive northwest of Fredericton, and meetings in Toronto and Edmonton, where the company has offices.
Would he go back to a big company again?
"There are times when I'm flying to a meeting in economy class and eyeing the big seats in front and remembering that we flew nothing but business before," Mr. Maduri says.
"It might be easier in a big company, but ultimately, being in a small, fast-paced business is intoxicating. It sharpens the senses and creates a level of focus and creativity and commitment to staying on top of your game that doesn't exist when you are running a large, established business unit," he says.
"When you combine it all, there is not a minute in which I can say to myself I'm bored or that this is the same old stuff I did last week.
"There's absolutely no doubt in my mind that this experience has made me a much stronger leader."
Making the move
If you're ready to make the transition from large corporation to a smaller organization, here are some things the career pros say to keep in mind:
Curb your ego. You'll lose a lot of the trappings of the corporate world, such as a big office and business-class plane tickets.
Ask questions they don't ask you. Startups rarely have the money to hire a recruiter, so they're often vetting candidates themselves without much experience.
Get perks in lieu. Cash is tight in a startup, so salary offers may be small. But other benefits, such as longer vacation time, concierge services and family care are ones the company can add relatively inexpensively.
Be upfront about risk. Be sure to lay out in a contract what's expected -- and what will happen if the position doesn't work out.
Know yourself. Assess your emotional and intellectual ability to be able to handle the challenges of starting from scratch.
Fight for recognition. A lesser-known company won't be as well known so your calls may not get answered as quickly, and you'll have to work harder at establishing your new identity.
Smaller isn't simpler. The issues you'll face at the top are just as complex in a small company as a large one -- and you may not have as many options to solve them.
The blows are harder. A setback in a big company may have only a minor impact on the bottom line, but in a small company, a single regulatory change or lost client could threaten the survival of the business.
It's more personal. Small companies are more like families than bureaucracies. It's important to get to know the personality quirks and individual approaches of the principals in the organization.
Teamwork more critical. With limited resources, it is important to have a team with a lot of ideas and willingness to give and take.
Wallace Immen
STEPPING DOWN: BENEFITS AT ALL LEVELS
It's not just at the most senior executive ranks that there are benefits to be had from stepping down to a smaller organization.
Ali Spinner used to work at one of the Big Four accounting firms. While she enjoyed the job, she found it too limiting to have to specialize in a single practice area. "I was becoming too focused, and I didn't want to pigeonhole my career," she says.
So when an opportunity opened in 2005 to become tax planning manager at RSM Richter LLP, a smaller firm, she decided it was time to make her escape.
Now she is working on a much larger variety of practice areas, from tax and estate planning to insolvency and risk management.
Of course, there are things she misses. "Working at a big firm is a security blanket," Ms. Spinner says. "You can tell anyone in the world I work for a big firm and everyone instantly recognizes the name and there is a connection." There were also more opportunities to travel.
But she has discovered other compensation in working with a smaller employer. One of them: getting to know co-workers better.
The family feeling started from the first day she arrived. "When I pressed the elevator button for the floor the office is on, people who saw it said: 'Oh, you must be Ali. Welcome aboard.' "
She expects the move will also put her on a faster track to promotion.
In a big firm, advancement to senior positions is based on strictly defined rules about number of years worked, she explains. "Here, you advance when you are ready to advance and as soon as you are able to move on you do.
"You still have to be great at what you do, but you have a much bigger say in how your career moves along."
Until recently, very few senior executives would consider it a wise career move to shift from the power and perks of a big, established company to the challenges and risks of leading a small startup.
But John Maduri discovered what a growing number of executives are finding: A smaller organization can offer the opportunity to move to the top faster and, in the process, gain new career experience.
"It's a very different game. I describe it as owning my own destiny," says Mr. Maduri, who became chief executive officer of Barrett Xplore Inc. in the fall of 2005. A startup partnership between a U.S. private equity group and family-owned holding company Barrett Corp. of Woodstock, N.B., it provides satellite Internet and wireless communications to rural and remote communities.
In his previous jobs, he worked for telecom giants as an executive at Rogers Communications Inc. and, more recently, as executive vice-president of Telus Corp., where he led billion-dollar business units with thousands of employees.
Barrett Xplore, by contrast, is "tiny," he says, with a staff of just 200 and a budget measured in the millions, rather than billions.
But Mr. Maduri, 45, knew that his aspirations to be a CEO might take years to achieve in a huge corporate hierarchy. By taking the helm of the small company, he saw the potential to be more directly involved in steering it to success.
"There's a sense that we in the senior management team own this business -- and it's not just because there are stock options. It comes from realizing that what we do day-to-day determines what this company becomes. The attraction of the opportunity to create our own destiny and corporate culture is pretty powerful," Mr. Maduri says.
Increasing numbers of top executives are feeling that same attraction to smaller companies, career experts say.
A few years ago, most executives weren't interested in moving from a large company to a startup because it was perceived as a step backward in career growth, says Valerie Spriet, an executive recruiter with Egon Zehnder International in Toronto.
Now, she says, more than half of big-company execs she approaches for a senior role at a small company are willing to look at the opportunity. Many still back off when they realize the move would sharply reduce the budgets and resources available to them.
"But a growing number of executives are at a time in their career that they say they are looking for an opportunity to revive their competitive drive and get a sense of personal involvement they may be missing by working with a giant corporate bureaucracy. Heading a small company is a change that can help them get out of bed in the morning," Ms. Spriet says.
While in the past, it might have been a minus on your résumé to have scaled down from a giant to a startup, now it can be a plus. Employers recognize that it shows initiative, enthusiasm and a sense of adventure, adds Jeff Rosin, managing director for Canada for executive search firm Korn/Ferry International. "We never hesitate to approach high-calibre talent because you never know when they might be receptive to a move to a smaller organization."
Mr. Rosin finds it's not salary that's the attraction. "The lure is the excitement although, invariably, there is an offer of equity in the company. It's a matter of 'if you help us grow, we'll make sure you are rewarded.' "
The trend does represent a shift in attitudes toward career growth, says Chris Laubnitz, Toronto-based partner in executive recruiter Caldwell Partners. "Younger executives, in particular, are no longer seeing themselves as lifers, and they see smaller companies with less bureaucracy as a way to fast-track their way into the senior ranks."
Mr. Laubnitz points to a PricewaterhouseCoopers study in 2003 of graduating students around the world that found that money ranked no higher than third place among their lists of reasons for choosing an employer, with opportunity for training and development ranking second.
The No. 1 reason: potential for career growth.
Another survey by Allbusiness.com, the Web based small-business guide, found that 79 per cent of executives at small companies derive more satisfaction and reward working in a small business than they would in a large organization.
The reason? The 1,000 executives polled cited less bureaucracy, the ability to get results more quickly and more flexibility to be creative.
As for the appearance on a résumé of a step down to a small organization, "there is a growing acceptance among employers that it shows you are willing to take a risk, so good for you," Mr. Laubnitz says.
But big companies are anxious to keep their talent, "so small companies must work hard to sell candidates on their passion and vision and get them to make the leap," says Minto Roy, president and chief executive officer of career counselling and recruiting company PCMG Canada in Vancouver.
That makes it increasingly common for candidates to be able to negotiate substantial equity positions, along with perks and benefits.
"Smaller companies are saying to CEOs and CFOs, we can't offer you the $200,000 you want, but we can give you $100,000 and an equity of 10 per cent or more in the company that will give you a return in three to five years," Mr. Roy says.
"That ownership of a piece of the pie is attractive, especially if there is a vision that if you work hard, the pie will become much bigger. "
But money and a piece of the action aren't all. While Mr. Maduri did negotiate an equity position, what really clinched it for him, he says, was the company's willingness to be flexible about where he was based.
Mr. Maduri was uncomfortable about moving his family away from Calgary, where they'd been living for more than five years, so as not to disrupt the schooling of his son, who was 16 with one year of high school left, and his daughter, who was 12. Any move to another big company he knew would probably require a relocation.
Barrett Xplore, however, allowed him to continue to call Calgary home, although his country-wide operation does require a fair amount of travel to head office in Woodstock, N.B., an hour's drive northwest of Fredericton, and meetings in Toronto and Edmonton, where the company has offices.
Would he go back to a big company again?
"There are times when I'm flying to a meeting in economy class and eyeing the big seats in front and remembering that we flew nothing but business before," Mr. Maduri says.
"It might be easier in a big company, but ultimately, being in a small, fast-paced business is intoxicating. It sharpens the senses and creates a level of focus and creativity and commitment to staying on top of your game that doesn't exist when you are running a large, established business unit," he says.
"When you combine it all, there is not a minute in which I can say to myself I'm bored or that this is the same old stuff I did last week.
"There's absolutely no doubt in my mind that this experience has made me a much stronger leader."
Making the move
If you're ready to make the transition from large corporation to a smaller organization, here are some things the career pros say to keep in mind:
Curb your ego. You'll lose a lot of the trappings of the corporate world, such as a big office and business-class plane tickets.
Ask questions they don't ask you. Startups rarely have the money to hire a recruiter, so they're often vetting candidates themselves without much experience.
Get perks in lieu. Cash is tight in a startup, so salary offers may be small. But other benefits, such as longer vacation time, concierge services and family care are ones the company can add relatively inexpensively.
Be upfront about risk. Be sure to lay out in a contract what's expected -- and what will happen if the position doesn't work out.
Know yourself. Assess your emotional and intellectual ability to be able to handle the challenges of starting from scratch.
Fight for recognition. A lesser-known company won't be as well known so your calls may not get answered as quickly, and you'll have to work harder at establishing your new identity.
Smaller isn't simpler. The issues you'll face at the top are just as complex in a small company as a large one -- and you may not have as many options to solve them.
The blows are harder. A setback in a big company may have only a minor impact on the bottom line, but in a small company, a single regulatory change or lost client could threaten the survival of the business.
It's more personal. Small companies are more like families than bureaucracies. It's important to get to know the personality quirks and individual approaches of the principals in the organization.
Teamwork more critical. With limited resources, it is important to have a team with a lot of ideas and willingness to give and take.
Wallace Immen
STEPPING DOWN: BENEFITS AT ALL LEVELS
It's not just at the most senior executive ranks that there are benefits to be had from stepping down to a smaller organization.
Ali Spinner used to work at one of the Big Four accounting firms. While she enjoyed the job, she found it too limiting to have to specialize in a single practice area. "I was becoming too focused, and I didn't want to pigeonhole my career," she says.
So when an opportunity opened in 2005 to become tax planning manager at RSM Richter LLP, a smaller firm, she decided it was time to make her escape.
Now she is working on a much larger variety of practice areas, from tax and estate planning to insolvency and risk management.
Of course, there are things she misses. "Working at a big firm is a security blanket," Ms. Spinner says. "You can tell anyone in the world I work for a big firm and everyone instantly recognizes the name and there is a connection." There were also more opportunities to travel.
But she has discovered other compensation in working with a smaller employer. One of them: getting to know co-workers better.
The family feeling started from the first day she arrived. "When I pressed the elevator button for the floor the office is on, people who saw it said: 'Oh, you must be Ali. Welcome aboard.' "
She expects the move will also put her on a faster track to promotion.
In a big firm, advancement to senior positions is based on strictly defined rules about number of years worked, she explains. "Here, you advance when you are ready to advance and as soon as you are able to move on you do.
"You still have to be great at what you do, but you have a much bigger say in how your career moves along."
At Morgan Stanley, a game of catch-up to regain firm's perch - Anita Raghavan
When John J. Mack became chief executive of Morgan Stanley in 2005, he was disquieted by what had become of the big securities firm he had left four years earlier.
The firm wasn't wagering much of its own money with big trades and investments, missing Wall Street's latest gold mine. Its bankers were losing out on far too much mergers-and-acquisitions work. "He didn't recognize the place, how lumbering we had become," says Paul J. Taubman, head of global mergers and acquisitions. Last June, after Morgan Stanley bankers watched the $67 billion purchase of BellSouth Corp. by AT&T Inc. from the sidelines, Mr. Mack slipped into a meeting of 100 investment bankers and delivered a blunt, impromptu speech suited for a losing team.
"It bothers me the way we interact with a number of our clients," he said in his North Carolina drawl, his unmistakable anger captured in an internal Webcast. "It bothers me that we take no and walk away. . . . There are people in this room embarrassing the firm. This is a great firm," he said, his voice rising. "You've lost your swagger. . . . When we miss business, I want it to ruin your day, because it ruins my day."
A former bond salesman nicknamed "Mack the Knife" for his cost-cutting tendencies, Mr. Mack, 62 years old, is two years into his campaign to raise Morgan Stanley's metabolism. He wants to restore the firm's reputation as a top merger adviser, to make a lot more financial wagers with the firm's own money, and to discard some remnants of its ill-fated merger with Dean Witter, Discover & Co.
Already, he has jettisoned 2,000 Dean Witter brokers and steered the remaining force to richer clients. He plans to spin off the Discover credit-card business. And he is pushing the firm to get into the private-equity business by teaming up with big investors to buy entire companies, with the intention of reaping big profits by selling them or taking them public. Buoyed by trading gains and more merger-advisory work, Morgan Stanley earned a record $2.67 billion in the fiscal first quarter, up 70% from a year earlier.
His effort underscores a major shift in how money is being made on Wall Street. When Mr. Mack helped orchestrate Morgan Stanley's 1997 merger with brokerage giant Dean Witter, large securities firms were infatuated with the small investors plowing oodles of money into stocks. That love affair with the "little guy" soured when the stock market nose-dived in 2000, leaving many small investors saddled with losses and gun-shy about further trading.
Meanwhile, tens of billions of dollars were flowing into hedge funds and private-equity funds, private investment vehicles for institutions and the wealthy. Competitors such as Goldman Sachs Group Inc. and Lehman Brothers Holdings wasted little time going after these new big fish. They targeted the investment funds for business, and began behaving like hedge funds themselves, notching huge profits wagering their own capital on everything from stocks to the price of oil. But Morgan Stanley, which was once a pioneer in investing in buyout deals, was slow to respond, and now lags archrival Goldman. Mr. Mack's big challenge is to catch up.
For most of its 72-year history, Morgan Stanley had been a leader on Wall Street. It traces its roots to banking titan J.P. Morgan & Co., the famed "House of Morgan." When the Glass-Steagall Act of 1933 erected a wall between commercial banking and investment banking, the company split in two. The investment bank, which can issue securities but cannot take deposits, took the name Morgan Stanley, and it was investment banker to such blue-chip companies as International Business Machines Corp. and General Motors Corp.
The theory behind its $10.2 billion merger with Dean Witter was that Dean Witter's army of retail brokers would sell stocks and other products for Morgan Stanley bankers. Dean Witter chief Philip Purcell became chairman and chief executive, with Mr. Mack his No. 2. Before long, it became clear to Mr. Mack that he wouldn't get the top job anytime soon, and he left in January 2001, after 29 years at the firm. Later, his son gave him a custom Monopoly board with a "Chance" card that reads: "A struggle with Phil Purcell finds you in a dilemma at MSDW. Should you stay or should you Go? You choose Go."
It was a troubled merger. The brokerage businesses were never effectively integrated. Mr. Purcell showed little interest in investment banking and blocked proposals to use Morgan Stanley's money to make financial bets or to invest in private-equity deals, current and former Morgan Stanley executives complain. Morgan Stanley's market valuation slipped from about $94 billion in January 2001 to about $57 billion in June 2005, a bigger drop than its main competitors. As discontent from shareholders and employees mounted, Mr. Purcell stepped down that June. He declined through a representative to comment.
Mr. Mack grew up in Mooresville, N.C., the son of a Lebanese grocer. He attended Duke University on a football scholarship, but a neck injury ended his years on the defensive line and his financial aid. To raise tuition money, he took a job at a local brokerage firm.
In his years away from Morgan Stanley, Mr. Mack ran rival financial firm Credit Suisse Group, but was ousted over his support for pursuing a big merger. A registered Republican, he supported Mr. Bush in the last election, although he recently threw his support behind Democratic presidential candidate Hillary Clinton. In mid-2005, after a short stint as chairman of Pequot Capital Management Inc., a hedge fund, he returned to Morgan Stanley to take the top job.
"I don't think you get too many second chances" in life, says Mr. Taubman, the mergers-and-acquisitions chief: "This was an opportunity to come back to a place desperately in need of leadership."
When he arrived for work, one of the first things Mr. Mack discovered was that Morgan Stanley had missed the private-equity boat. It hadn't done much advising, lending to, or investing alongside buyout firms like Blackstone Group, which can generate big fees and profits. Nor had it raised a U.S. buyout fund of its own, a lucrative business for competitors like Goldman.
He asked Alan Jones, then head of corporate finance, what had happened. Mr. Jones pushed a stack of papers toward his new boss. "Here are five years' worth of business plans I wasn't allowed to execute," Mr. Jones said, according to people familiar with the conversation.
"Just go do it," Mr. Mack responded, according to these people.
It hasn't been easy. Morgan Stanley investment bankers, wary of competing with their own clients to buy companies, questioned the move. Some wondered if Morgan Stanley was getting into the private-equity game too late. And they worried about risk. Investment banks have always put their own money on the line by buying stocks and bonds from clients and by extending short-term loans. But the modern private-equity business, where deal sizes run to many billions of dollars, involves taking much bigger risks -- bigger loans to clients and bigger direct investments.
Mr. Mack argued that the move is essential to the firm. The potential fees and investment profits were too big to ignore, he said.
Recently, he gave employees an example: Merrill Lynch & Co. is teaming up with buyout funds on a $21 billion leveraged buyout of hospital company HCA Inc. Morgan Stanley is advising HCA's board, a traditional investment-banking role. Merrill will make eight to 10 times as much money as Morgan Stanley, he said.
Playing catch-up has been costly. Morgan Stanley lured Stephen Trevor from Goldman to run the new business, which cost the firm more than $30 million, mostly to buy out Mr. Trevor's Goldman stock and private-equity interests, according to two people familiar with the pact. Morgan Stanley is now raising a buyout fund projected to be $6 billion, and has about $8 billion in private-equity investments. By comparison, Goldman has a $20 billion fund and has $28 billion in investments.
To get a role in some private-equity deals, Morgan Stanley has extended risky short-term loans to help buyout firms fund large transactions. This exposes it to the risk that the borrower won't be able to find longer-term financing, potentially leaving Morgan Stanley with a piece of the target company.
During his first 100 days on the job, Mr. Mack asked his lieutenants to draw up proposals for boosting Morgan Stanley's profits. Among their ideas: investing in the financial-derivatives business, getting more involved in residential-mortgage finance, and taking more risk by trading with the firm's own capital.
One of his first difficult decisions was what to do about the firm's Discover credit-card operation, which had been criticized as a slower-growth business than the firm's core ones. Mr. Purcell had decided to spin off the operation to shareholders. Mr. Mack reversed course, arguing that Discover provided diversification and cash flow.
At an internal Morgan Stanley meeting in the fall of 2005, Henry McVey, the firm's chief strategist, told Mr. Mack that Discover's growth prospects were keeping a lid on the firm's stock price. During a business trip to China in early 2006, people familiar with the matter recall, Mr. Mack told Mr. McVey: "We don't need a quick fix."
Last summer, a group of the firm's top bankers, known as the chairman's council, gave Mr. Mack an earful during a meeting in the firm's corporate dining room, several attendees recall. Mr. Taubman, the mergers chief, argued that Discover was of no strategic importance, these people say. Ruth Porat, a senior banker, questioned whether Morgan Stanley would be better off if management focused on the firm's core banking and other businesses, they say.
"Everybody was on me for Discover," says Mr. Mack, including eight former executives who two years earlier had waged a public campaign to unseat Mr. Purcell.
In the end, Mr. Mack was persuaded. In December, he proposed that the firm spin off Discover, which is set to take place in this year's third quarter.
The firm wasn't wagering much of its own money with big trades and investments, missing Wall Street's latest gold mine. Its bankers were losing out on far too much mergers-and-acquisitions work. "He didn't recognize the place, how lumbering we had become," says Paul J. Taubman, head of global mergers and acquisitions. Last June, after Morgan Stanley bankers watched the $67 billion purchase of BellSouth Corp. by AT&T Inc. from the sidelines, Mr. Mack slipped into a meeting of 100 investment bankers and delivered a blunt, impromptu speech suited for a losing team.
"It bothers me the way we interact with a number of our clients," he said in his North Carolina drawl, his unmistakable anger captured in an internal Webcast. "It bothers me that we take no and walk away. . . . There are people in this room embarrassing the firm. This is a great firm," he said, his voice rising. "You've lost your swagger. . . . When we miss business, I want it to ruin your day, because it ruins my day."
A former bond salesman nicknamed "Mack the Knife" for his cost-cutting tendencies, Mr. Mack, 62 years old, is two years into his campaign to raise Morgan Stanley's metabolism. He wants to restore the firm's reputation as a top merger adviser, to make a lot more financial wagers with the firm's own money, and to discard some remnants of its ill-fated merger with Dean Witter, Discover & Co.
Already, he has jettisoned 2,000 Dean Witter brokers and steered the remaining force to richer clients. He plans to spin off the Discover credit-card business. And he is pushing the firm to get into the private-equity business by teaming up with big investors to buy entire companies, with the intention of reaping big profits by selling them or taking them public. Buoyed by trading gains and more merger-advisory work, Morgan Stanley earned a record $2.67 billion in the fiscal first quarter, up 70% from a year earlier.
His effort underscores a major shift in how money is being made on Wall Street. When Mr. Mack helped orchestrate Morgan Stanley's 1997 merger with brokerage giant Dean Witter, large securities firms were infatuated with the small investors plowing oodles of money into stocks. That love affair with the "little guy" soured when the stock market nose-dived in 2000, leaving many small investors saddled with losses and gun-shy about further trading.
Meanwhile, tens of billions of dollars were flowing into hedge funds and private-equity funds, private investment vehicles for institutions and the wealthy. Competitors such as Goldman Sachs Group Inc. and Lehman Brothers Holdings wasted little time going after these new big fish. They targeted the investment funds for business, and began behaving like hedge funds themselves, notching huge profits wagering their own capital on everything from stocks to the price of oil. But Morgan Stanley, which was once a pioneer in investing in buyout deals, was slow to respond, and now lags archrival Goldman. Mr. Mack's big challenge is to catch up.
For most of its 72-year history, Morgan Stanley had been a leader on Wall Street. It traces its roots to banking titan J.P. Morgan & Co., the famed "House of Morgan." When the Glass-Steagall Act of 1933 erected a wall between commercial banking and investment banking, the company split in two. The investment bank, which can issue securities but cannot take deposits, took the name Morgan Stanley, and it was investment banker to such blue-chip companies as International Business Machines Corp. and General Motors Corp.
The theory behind its $10.2 billion merger with Dean Witter was that Dean Witter's army of retail brokers would sell stocks and other products for Morgan Stanley bankers. Dean Witter chief Philip Purcell became chairman and chief executive, with Mr. Mack his No. 2. Before long, it became clear to Mr. Mack that he wouldn't get the top job anytime soon, and he left in January 2001, after 29 years at the firm. Later, his son gave him a custom Monopoly board with a "Chance" card that reads: "A struggle with Phil Purcell finds you in a dilemma at MSDW. Should you stay or should you Go? You choose Go."
It was a troubled merger. The brokerage businesses were never effectively integrated. Mr. Purcell showed little interest in investment banking and blocked proposals to use Morgan Stanley's money to make financial bets or to invest in private-equity deals, current and former Morgan Stanley executives complain. Morgan Stanley's market valuation slipped from about $94 billion in January 2001 to about $57 billion in June 2005, a bigger drop than its main competitors. As discontent from shareholders and employees mounted, Mr. Purcell stepped down that June. He declined through a representative to comment.
Mr. Mack grew up in Mooresville, N.C., the son of a Lebanese grocer. He attended Duke University on a football scholarship, but a neck injury ended his years on the defensive line and his financial aid. To raise tuition money, he took a job at a local brokerage firm.
In his years away from Morgan Stanley, Mr. Mack ran rival financial firm Credit Suisse Group, but was ousted over his support for pursuing a big merger. A registered Republican, he supported Mr. Bush in the last election, although he recently threw his support behind Democratic presidential candidate Hillary Clinton. In mid-2005, after a short stint as chairman of Pequot Capital Management Inc., a hedge fund, he returned to Morgan Stanley to take the top job.
"I don't think you get too many second chances" in life, says Mr. Taubman, the mergers-and-acquisitions chief: "This was an opportunity to come back to a place desperately in need of leadership."
When he arrived for work, one of the first things Mr. Mack discovered was that Morgan Stanley had missed the private-equity boat. It hadn't done much advising, lending to, or investing alongside buyout firms like Blackstone Group, which can generate big fees and profits. Nor had it raised a U.S. buyout fund of its own, a lucrative business for competitors like Goldman.
He asked Alan Jones, then head of corporate finance, what had happened. Mr. Jones pushed a stack of papers toward his new boss. "Here are five years' worth of business plans I wasn't allowed to execute," Mr. Jones said, according to people familiar with the conversation.
"Just go do it," Mr. Mack responded, according to these people.
It hasn't been easy. Morgan Stanley investment bankers, wary of competing with their own clients to buy companies, questioned the move. Some wondered if Morgan Stanley was getting into the private-equity game too late. And they worried about risk. Investment banks have always put their own money on the line by buying stocks and bonds from clients and by extending short-term loans. But the modern private-equity business, where deal sizes run to many billions of dollars, involves taking much bigger risks -- bigger loans to clients and bigger direct investments.
Mr. Mack argued that the move is essential to the firm. The potential fees and investment profits were too big to ignore, he said.
Recently, he gave employees an example: Merrill Lynch & Co. is teaming up with buyout funds on a $21 billion leveraged buyout of hospital company HCA Inc. Morgan Stanley is advising HCA's board, a traditional investment-banking role. Merrill will make eight to 10 times as much money as Morgan Stanley, he said.
Playing catch-up has been costly. Morgan Stanley lured Stephen Trevor from Goldman to run the new business, which cost the firm more than $30 million, mostly to buy out Mr. Trevor's Goldman stock and private-equity interests, according to two people familiar with the pact. Morgan Stanley is now raising a buyout fund projected to be $6 billion, and has about $8 billion in private-equity investments. By comparison, Goldman has a $20 billion fund and has $28 billion in investments.
To get a role in some private-equity deals, Morgan Stanley has extended risky short-term loans to help buyout firms fund large transactions. This exposes it to the risk that the borrower won't be able to find longer-term financing, potentially leaving Morgan Stanley with a piece of the target company.
During his first 100 days on the job, Mr. Mack asked his lieutenants to draw up proposals for boosting Morgan Stanley's profits. Among their ideas: investing in the financial-derivatives business, getting more involved in residential-mortgage finance, and taking more risk by trading with the firm's own capital.
One of his first difficult decisions was what to do about the firm's Discover credit-card operation, which had been criticized as a slower-growth business than the firm's core ones. Mr. Purcell had decided to spin off the operation to shareholders. Mr. Mack reversed course, arguing that Discover provided diversification and cash flow.
At an internal Morgan Stanley meeting in the fall of 2005, Henry McVey, the firm's chief strategist, told Mr. Mack that Discover's growth prospects were keeping a lid on the firm's stock price. During a business trip to China in early 2006, people familiar with the matter recall, Mr. Mack told Mr. McVey: "We don't need a quick fix."
Last summer, a group of the firm's top bankers, known as the chairman's council, gave Mr. Mack an earful during a meeting in the firm's corporate dining room, several attendees recall. Mr. Taubman, the mergers chief, argued that Discover was of no strategic importance, these people say. Ruth Porat, a senior banker, questioned whether Morgan Stanley would be better off if management focused on the firm's core banking and other businesses, they say.
"Everybody was on me for Discover," says Mr. Mack, including eight former executives who two years earlier had waged a public campaign to unseat Mr. Purcell.
In the end, Mr. Mack was persuaded. In December, he proposed that the firm spin off Discover, which is set to take place in this year's third quarter.
Tuesday, May 29, 2007
Before shovel to earth, it's pen to paper - Randi Chapnik Myers
Take a stroll in downtown Vancouver, Calgary or Toronto, and you'll feel the frustration. Drivers lean on their horns, stuck in car jams caused by road delays. Half-finished buildings litter the skyline. Sure, it's easy to blame the disappearing (or striking) trades who can't seem to finish what they start. But have you ever considered the billion-dollar question: With costs mounting by the minute, who's on the hook?
What no one sees is the frustration of those in charge - the engineers, architects, contractors - who, against all odds, are sweating to build Canada's commercial infrastructure.
"Typically, we're on their side," says Bob Jenkins, construction litigator at Jenkins Marzban Logan LLP in Vancouver, and member of the Canadian College of Construction Lawyers (CCCL), an association of about 75 specialists from across the country who meet at yearly conferences - including this weekend - to swap industry contacts and bone up on the newest legal rules. For these men and women, sorting out who pays when construction goes awry - from condos to shopping malls to transit systems to dams - is all in a day's work.
Until a dispute erupts, they may seem invisible, but, in fact, construction lawyers are behind every transaction from the get-go, drafting the complex contracts upon which the construction we see everywhere is based.
Take, for example, P3 agreements (public private partnerships) where, more often, mammoth public projects, such as Prince Edward Island's Confederation Bridge, the Toronto area's 407 toll highway and Vancouver's Sky Train system, are being privately funded and managed for a set period of time after which ownership reverts to the government. "It's a means by which Canada gets infrastructure built with very little public funding," Mr. Jenkins says.
Document drafting is just one of the construction lawyer's myriad skills. "We're also amateur architects, engineers, even electrical and soil experts," says Stanley Naftolin, a CCCL founding fellow who litigates construction disputes at Goldman Sloan Nash & Haber LLP and mediates or arbitrates them there or at Team Resolution in Toronto. That's because, whether these lawyers are dealing with liens, tenders, or sureties, or defending delay, liability or workplace claims, they're quickly morphing into construction gurus.
"In this business, it's not enough to know the bricks and mortar," Mr. Naftolin says. "You have to know how the bricks and mortar are designed, how they stay together, how the ground can support their weight." Otherwise, costs start growing from the ground up.
The litigation surrounding Toronto's Sheppard subway line is a prime example, says CCCL past president Harvey Kirsh, construction litigator at Osler Hoskin & Harcourt LLP, who acted as counsel for the TTC. It was only after the contract was signed that subcontractors, digging into the soil, found that it was contaminated, likely from an old gas station that may have sprung a leak.
"Right out of the gate, there were unforeseen delays," Mr. Kirsh says. As usual, everyone involved in the project started pointing fingers. "The contractors sued the owners who sued the design consultants." In no time, damages mushroomed to a whopping $40-million - almost half of the projected price to build.
Despite the perception to contrary, heading off to battle in court is no panacea. It can take years from the date that a construction claim is filed to when a judgment is rendered, and even longer for money to be recouped. So these days, parties are opting instead to bring their cases before a mediation or arbitration consultant. While arbitrators act like judges and render decisions, mediators help guide the warring sides toward their own agreement.
"The upside is that huge conflicts can be resolved fast so construction can continue. Also, decisions are often right on the mark," Mr. Jenkins says. But on the downside, because the resulting agreement is private, it cannot be used as a legal precedent.
So, when a similar issue arises in another case, the argument starts all over again. And yet the trend away from litigation continues. "Interestingly, it's my experience that judges love when someone else decides a construction case," Mr. Naftolin says. "It's that esoteric a field."
Keeping on top of such a specialized field takes work. At CCCL conferences, the weekend is packed with high-end educational seminars that only a legal mind could appreciate, such as: "The lien is dead, long live the lien: Can the equitable doctrine of estoppel resurrect expired lien rights?"
Mr. Naftolin says: "Whether the topic is 'developments between insolvency legislation and the construction lien act,' or 'entitlement to damages in construction litigation,' we really hone in. We leave no rock unturned."
Papers delivered by fellows are regularly published in the Construction Law Reports. A few are also archived on the CCCL website (cccl.org). Also online are links to the college's mini-Construction Law Library and to its roster of members, some of whom are named in the Lexpert Guide to the Leading 500 Lawyers in Canada.
As for Messrs. Naftolin, Jenkins and Kirsh, along with incoming president George Macdonald (a partner at McInnes Cooper in Halifax), they are all gearing up for this weekend's celebration of the college's 10th anniversary at Predator Ridge Golf Resort in Vernon, B.C. Topics slated for this year's agenda: the state of construction for the upcoming Winter Olympics in B.C., as well as the current legal rules surrounding the discovery and production of electronic documents.
"As usual, we'll bring in the leading international authorities," Mr. Naftolin says, referring to past speakers from as far as England, Mexico and Australia. "The fact is, none of us knows it all. From each other, there's always so much more to learn."
What no one sees is the frustration of those in charge - the engineers, architects, contractors - who, against all odds, are sweating to build Canada's commercial infrastructure.
"Typically, we're on their side," says Bob Jenkins, construction litigator at Jenkins Marzban Logan LLP in Vancouver, and member of the Canadian College of Construction Lawyers (CCCL), an association of about 75 specialists from across the country who meet at yearly conferences - including this weekend - to swap industry contacts and bone up on the newest legal rules. For these men and women, sorting out who pays when construction goes awry - from condos to shopping malls to transit systems to dams - is all in a day's work.
Until a dispute erupts, they may seem invisible, but, in fact, construction lawyers are behind every transaction from the get-go, drafting the complex contracts upon which the construction we see everywhere is based.
Take, for example, P3 agreements (public private partnerships) where, more often, mammoth public projects, such as Prince Edward Island's Confederation Bridge, the Toronto area's 407 toll highway and Vancouver's Sky Train system, are being privately funded and managed for a set period of time after which ownership reverts to the government. "It's a means by which Canada gets infrastructure built with very little public funding," Mr. Jenkins says.
Document drafting is just one of the construction lawyer's myriad skills. "We're also amateur architects, engineers, even electrical and soil experts," says Stanley Naftolin, a CCCL founding fellow who litigates construction disputes at Goldman Sloan Nash & Haber LLP and mediates or arbitrates them there or at Team Resolution in Toronto. That's because, whether these lawyers are dealing with liens, tenders, or sureties, or defending delay, liability or workplace claims, they're quickly morphing into construction gurus.
"In this business, it's not enough to know the bricks and mortar," Mr. Naftolin says. "You have to know how the bricks and mortar are designed, how they stay together, how the ground can support their weight." Otherwise, costs start growing from the ground up.
The litigation surrounding Toronto's Sheppard subway line is a prime example, says CCCL past president Harvey Kirsh, construction litigator at Osler Hoskin & Harcourt LLP, who acted as counsel for the TTC. It was only after the contract was signed that subcontractors, digging into the soil, found that it was contaminated, likely from an old gas station that may have sprung a leak.
"Right out of the gate, there were unforeseen delays," Mr. Kirsh says. As usual, everyone involved in the project started pointing fingers. "The contractors sued the owners who sued the design consultants." In no time, damages mushroomed to a whopping $40-million - almost half of the projected price to build.
Despite the perception to contrary, heading off to battle in court is no panacea. It can take years from the date that a construction claim is filed to when a judgment is rendered, and even longer for money to be recouped. So these days, parties are opting instead to bring their cases before a mediation or arbitration consultant. While arbitrators act like judges and render decisions, mediators help guide the warring sides toward their own agreement.
"The upside is that huge conflicts can be resolved fast so construction can continue. Also, decisions are often right on the mark," Mr. Jenkins says. But on the downside, because the resulting agreement is private, it cannot be used as a legal precedent.
So, when a similar issue arises in another case, the argument starts all over again. And yet the trend away from litigation continues. "Interestingly, it's my experience that judges love when someone else decides a construction case," Mr. Naftolin says. "It's that esoteric a field."
Keeping on top of such a specialized field takes work. At CCCL conferences, the weekend is packed with high-end educational seminars that only a legal mind could appreciate, such as: "The lien is dead, long live the lien: Can the equitable doctrine of estoppel resurrect expired lien rights?"
Mr. Naftolin says: "Whether the topic is 'developments between insolvency legislation and the construction lien act,' or 'entitlement to damages in construction litigation,' we really hone in. We leave no rock unturned."
Papers delivered by fellows are regularly published in the Construction Law Reports. A few are also archived on the CCCL website (cccl.org). Also online are links to the college's mini-Construction Law Library and to its roster of members, some of whom are named in the Lexpert Guide to the Leading 500 Lawyers in Canada.
As for Messrs. Naftolin, Jenkins and Kirsh, along with incoming president George Macdonald (a partner at McInnes Cooper in Halifax), they are all gearing up for this weekend's celebration of the college's 10th anniversary at Predator Ridge Golf Resort in Vernon, B.C. Topics slated for this year's agenda: the state of construction for the upcoming Winter Olympics in B.C., as well as the current legal rules surrounding the discovery and production of electronic documents.
"As usual, we'll bring in the leading international authorities," Mr. Naftolin says, referring to past speakers from as far as England, Mexico and Australia. "The fact is, none of us knows it all. From each other, there's always so much more to learn."
How to Network: For Introverts
I have a problem. I'm an introvert. I'm not shy. I'm not afraid of being in public. But I am horrible at chit-chat and gossip. If I spend an evening at a social function with people I don't know or don't like, I get home and feel like I've spent all day at the ocean. It's that fighting-the-waves and drained-by-the-sun kind of tired. I would rather spend four hours with my head stapled to the carpet. I would be more comfortable that way.
In engineering school, I was fine. Engineering classes aren't particularly interactive, and in study groups, we only spoke when needed. In business school... well that was tough. I tried to sit in the back most of the time so as not to participate. But it was a mistake not to go to all the social functions. There are probably people from my classes in high places now, and they won't remember me and I don't know what they do.
For better or for worse, connections make the world go round. Just this week I was reading about the importance of networks in the VC industry. It applies to all of business though. Knowing lots of people reduces your headaches by a factor of 10 when you need to get something done. Requests from strangers don't get filled as quickly as requests from acquaintances or friends. If you don't network, you find yourself in situations (particularly as an entrepreneur or business owner) where you need someone with a certain skill set and you don't even know where to start looking. Then you have to advertise a position or opportunity, and weed through the applicants to find the 5% that are actually worth talking to.
Over the last 7 years I've made a lot of progress. Here's what I've learned about networking as an introvert.
Networking is an investment, not a nuisance.
Imagine if you could always find what you needed in just 1 or 2 phone calls. If you are well networked, you probably can. By putting in the time to build your network, you save time when you need to get things done. Well networked people don't have to waste time firing off random emails to people they don't know, buying leads or industry lists, or hunting through hundreds of resumes for the right candidate. Pick your poison. Do you want to put in the time now, or later?
At first, you have to kiss a lot of frogs.
Sometimes you have to start by picking events at random. You spend an hour in a very uncomfortable setting, but you learn what to go to and what to skip. Eventually you find a few people or events that you like.
Don't spend too much time on it.
If you wear yourself out, you won't ever want to do it. Accept your limitations and just do 1 or 2 events a month. It takes a long time to build these relationships, so it's better to stick with a few groups over the long haul than 10 groups for two months.
Do cool things.
Introverts typically don't like to talk about themselves - we prefer to talk about ideas. Force yourself to discuss some of the things you've done. Don't brag, make sure they are relevant to the conversation. Then the extroverts can talk about you and pass your achievements along. It gives you credibility in some circles. Yes, I realize you would rather be accepted for what you think and know, but the truth is that the world measures you by what you do.
Invite people to lunch.
Or invite them to coffee or for a beer after work. If you meet a fellow introvert, he/she is unlikely to do the inviting, so you have to do it.
Go regularly to things you like.
When I was living on the Space Coast, I went to a group called Founders Forum. It was for entrepreneurs and investors. I learned a lot at the meetings, but it took about 6 months for people to start recognizing me and saying hi. It was uncomfortable, being 23 in a room of mostly middle aged people. You just have to keep showing up, month after month.
Analyze your results.
Introverts are intuitive and analytical. Use that skill. What is working? What isn't? Where do you get the most bang for your buck?
Find the key nodes in the network.
Don't find a marketing person, find someone who knows lots of marketing people and then invite that person to lunch. If networking wears you out, you will be better off finding the ten key people who all know lots of other people, than finding and maintaining fifty relationships. This takes a long time because it is hard to find the right person. Look for introverts that, for whatever reason, are in jobs that force them to be well connected. Extroverts that share one of your core passions are also a good match.
Don't network just for the sake of networking.
There is a book called "Never Eat Alone". That's all fine and good for extroverts, but we introverts can't network just to network. As you meet more people, focus on spending your time with the ones that are the best fit, and focus less on meeting new people.
The hardest part for me was the first few events. I sometimes feel like I don't know what to say when I meet new people. I would be soooo much more comfortable if someone started a conversation by asking me what I thought of utilitarianism as a way to make ethical decisions, or whether Sarbanes-Oxley has encouraged companies to list on other exchanges. Ideas usually seem so much more interesting than people. But, by sticking it out, month after month, I've slowly learned some good things to say, and grown more comfortable meeting strangers. So trust me when I say it gets easier.
The majority gets to set the rules, and the majority of people are extroverts (70% I think). Networking is an important key to unlocking your own potential. So play by the rules of the game the best that you can, or don't sit and complain when you have a great idea and no one to help you launch it. I hope you can learn from my experiences, so that you don't waste as much time as I did fighting the inevitable.
In engineering school, I was fine. Engineering classes aren't particularly interactive, and in study groups, we only spoke when needed. In business school... well that was tough. I tried to sit in the back most of the time so as not to participate. But it was a mistake not to go to all the social functions. There are probably people from my classes in high places now, and they won't remember me and I don't know what they do.
For better or for worse, connections make the world go round. Just this week I was reading about the importance of networks in the VC industry. It applies to all of business though. Knowing lots of people reduces your headaches by a factor of 10 when you need to get something done. Requests from strangers don't get filled as quickly as requests from acquaintances or friends. If you don't network, you find yourself in situations (particularly as an entrepreneur or business owner) where you need someone with a certain skill set and you don't even know where to start looking. Then you have to advertise a position or opportunity, and weed through the applicants to find the 5% that are actually worth talking to.
Over the last 7 years I've made a lot of progress. Here's what I've learned about networking as an introvert.
Networking is an investment, not a nuisance.
Imagine if you could always find what you needed in just 1 or 2 phone calls. If you are well networked, you probably can. By putting in the time to build your network, you save time when you need to get things done. Well networked people don't have to waste time firing off random emails to people they don't know, buying leads or industry lists, or hunting through hundreds of resumes for the right candidate. Pick your poison. Do you want to put in the time now, or later?
At first, you have to kiss a lot of frogs.
Sometimes you have to start by picking events at random. You spend an hour in a very uncomfortable setting, but you learn what to go to and what to skip. Eventually you find a few people or events that you like.
Don't spend too much time on it.
If you wear yourself out, you won't ever want to do it. Accept your limitations and just do 1 or 2 events a month. It takes a long time to build these relationships, so it's better to stick with a few groups over the long haul than 10 groups for two months.
Do cool things.
Introverts typically don't like to talk about themselves - we prefer to talk about ideas. Force yourself to discuss some of the things you've done. Don't brag, make sure they are relevant to the conversation. Then the extroverts can talk about you and pass your achievements along. It gives you credibility in some circles. Yes, I realize you would rather be accepted for what you think and know, but the truth is that the world measures you by what you do.
Invite people to lunch.
Or invite them to coffee or for a beer after work. If you meet a fellow introvert, he/she is unlikely to do the inviting, so you have to do it.
Go regularly to things you like.
When I was living on the Space Coast, I went to a group called Founders Forum. It was for entrepreneurs and investors. I learned a lot at the meetings, but it took about 6 months for people to start recognizing me and saying hi. It was uncomfortable, being 23 in a room of mostly middle aged people. You just have to keep showing up, month after month.
Analyze your results.
Introverts are intuitive and analytical. Use that skill. What is working? What isn't? Where do you get the most bang for your buck?
Find the key nodes in the network.
Don't find a marketing person, find someone who knows lots of marketing people and then invite that person to lunch. If networking wears you out, you will be better off finding the ten key people who all know lots of other people, than finding and maintaining fifty relationships. This takes a long time because it is hard to find the right person. Look for introverts that, for whatever reason, are in jobs that force them to be well connected. Extroverts that share one of your core passions are also a good match.
Don't network just for the sake of networking.
There is a book called "Never Eat Alone". That's all fine and good for extroverts, but we introverts can't network just to network. As you meet more people, focus on spending your time with the ones that are the best fit, and focus less on meeting new people.
The hardest part for me was the first few events. I sometimes feel like I don't know what to say when I meet new people. I would be soooo much more comfortable if someone started a conversation by asking me what I thought of utilitarianism as a way to make ethical decisions, or whether Sarbanes-Oxley has encouraged companies to list on other exchanges. Ideas usually seem so much more interesting than people. But, by sticking it out, month after month, I've slowly learned some good things to say, and grown more comfortable meeting strangers. So trust me when I say it gets easier.
The majority gets to set the rules, and the majority of people are extroverts (70% I think). Networking is an important key to unlocking your own potential. So play by the rules of the game the best that you can, or don't sit and complain when you have a great idea and no one to help you launch it. I hope you can learn from my experiences, so that you don't waste as much time as I did fighting the inevitable.
Internet can cut both ways for brand management - Daniel Muzka
A few months ago, I had a series of conversations with managers who reflected on the increasing difficulty of managing the perception of their brand. They told stories of customer complaints spreading like wildfire through the Web before they had a chance to deal with them, and opinions expressed in blogs and forwarded e-mails by some of their detractors that appeared to be magically reprocessed into fact.
You don't have to search hard to find examples of such challenges. An international fast-food chain is sideswiped by images available on YouTube of rats roaming freely in one of their outlets. A global apparel maker contends with allegations, published online, of operating sweatshops.
No matter our organization or place in the world, we will all have to deal with some issue - fact or fiction - that has become real or has achieved greater proportions as it winds its way through the Web.
This has all led me to a series of questions. Is it more difficult to manage brands in an Internet world? Does this latest "noise" matter? And finally, what have we learned about managing brands, and managing the message, in this environment?
Is it harder today? On balance the evidence weighs heavily on the "yes" side. The 2007 media landscape - which now includes blogs, wikis, social networking sites and message boards - is far more complex than the one companies experienced even a decade ago.
Consumer word-of-mouth has forever existed in established media. Radio and television talk shows, newspaper editorials and special interest newsletters have served as consumer forums for brand commentary for quite some time.
The difference today is that commentary travels faster and potentially reaches more people through the web of personal networks we find in cyberspace.
The consequence is that firms often have less time to react to what is being said about their brands. Consider the impact Orson Welles might have made in cyberspace.
In his 1938 radio enactment of H.G. Wells' The War of the Worlds, fiction became fact for thousands, even though the new "reality" was contradicted by what they observed out their windows! How many people might he have influenced had his message travelled online?
Does all of this really have any impact? I would argue that corporate brand reputation management is a critical challenge for today's business leaders.
The impact of these new channels is undeniable. In 2005, for example, a blogger named Jeff Jarvis decided to take Dell Inc. to task for his struggles with the computing giant's customer service unit. He posted a series of articles to his blog, titled "Dell Hell," which became among the most read in the blogosphere and emboldened others online to take aim as well. Suffice to say, Dell fully appreciates the brand impact of these new channels.
Customers and other stakeholders control the company message as much, or more, than companies do; and, by controlling the message, can truly influence brand perception. And we all know the importance of one's brand in everything from sales growth and employee hiring to stock price.
Recent research from my colleague at the Sauder School of Business, Marcin Kacperczyk, demonstrated that being perceived as a publicly "sinful" stock has its cost in diminished institutional investment.
Finally, let me share some of what we have learned about managing the message, the perception and the brand in light of these new information channels.
First, actively monitor the messages out there. It is an extension of something marketing experts have been advising for years: Listen.
Second, use the observed ideas and messages to inform your continuing marketing and communications plan and actions. You can react indirectly to negative or incorrect messaging.
Third, be careful about where, how, and when you take action. Consider the size and reach of these online forums.
Many are small in size and their discussions have little impact beyond their circle. Intervening in their discussions is unlikely to change their point of view and may draw even more attention to their comments. In short, be wary of appearing heavy-handed.
Fourth, do fully disclose who you are when communicating online.
We have seen the emergence of non-disclosed commercial bloggers - sometimes known as fake bloggers or floggers - who actively promote their brands. This practice is deemed so contentious that some companies have explicitly banned the practice in their code of ethical communication practices.
Finally, you can use some of the new venues to actively carry on a dialogue and solicit ideas.
Last spring, in an ambitious move, General Motors allowed Internet users to create commercials about the company's Chevy Tahoe. More than a few of the online ads put the SUV in an unflattering light, but it did provide a forum for new ideas. When you do open the doors, however, realize that anyone can walk in.
The good news: Strong brands still stand despite this complexity. Well managed brands like Apple and Starbucks continue to ride high. Recent research by Patrali Chatterjee of Rutgers University showed the positive benefits of a strong brand or product, as represented by strong consumer familiarity, in mitigating the impact of negative consumer reviews online: People are less likely to listen to disparaging and confusing messages if the brand is known and delivers on its promise.
New information paths do require new measures and a stronger dose of monitoring. The new paths, however, can help as well as hurt in managing your brand.
You don't have to search hard to find examples of such challenges. An international fast-food chain is sideswiped by images available on YouTube of rats roaming freely in one of their outlets. A global apparel maker contends with allegations, published online, of operating sweatshops.
No matter our organization or place in the world, we will all have to deal with some issue - fact or fiction - that has become real or has achieved greater proportions as it winds its way through the Web.
This has all led me to a series of questions. Is it more difficult to manage brands in an Internet world? Does this latest "noise" matter? And finally, what have we learned about managing brands, and managing the message, in this environment?
Is it harder today? On balance the evidence weighs heavily on the "yes" side. The 2007 media landscape - which now includes blogs, wikis, social networking sites and message boards - is far more complex than the one companies experienced even a decade ago.
Consumer word-of-mouth has forever existed in established media. Radio and television talk shows, newspaper editorials and special interest newsletters have served as consumer forums for brand commentary for quite some time.
The difference today is that commentary travels faster and potentially reaches more people through the web of personal networks we find in cyberspace.
The consequence is that firms often have less time to react to what is being said about their brands. Consider the impact Orson Welles might have made in cyberspace.
In his 1938 radio enactment of H.G. Wells' The War of the Worlds, fiction became fact for thousands, even though the new "reality" was contradicted by what they observed out their windows! How many people might he have influenced had his message travelled online?
Does all of this really have any impact? I would argue that corporate brand reputation management is a critical challenge for today's business leaders.
The impact of these new channels is undeniable. In 2005, for example, a blogger named Jeff Jarvis decided to take Dell Inc. to task for his struggles with the computing giant's customer service unit. He posted a series of articles to his blog, titled "Dell Hell," which became among the most read in the blogosphere and emboldened others online to take aim as well. Suffice to say, Dell fully appreciates the brand impact of these new channels.
Customers and other stakeholders control the company message as much, or more, than companies do; and, by controlling the message, can truly influence brand perception. And we all know the importance of one's brand in everything from sales growth and employee hiring to stock price.
Recent research from my colleague at the Sauder School of Business, Marcin Kacperczyk, demonstrated that being perceived as a publicly "sinful" stock has its cost in diminished institutional investment.
Finally, let me share some of what we have learned about managing the message, the perception and the brand in light of these new information channels.
First, actively monitor the messages out there. It is an extension of something marketing experts have been advising for years: Listen.
Second, use the observed ideas and messages to inform your continuing marketing and communications plan and actions. You can react indirectly to negative or incorrect messaging.
Third, be careful about where, how, and when you take action. Consider the size and reach of these online forums.
Many are small in size and their discussions have little impact beyond their circle. Intervening in their discussions is unlikely to change their point of view and may draw even more attention to their comments. In short, be wary of appearing heavy-handed.
Fourth, do fully disclose who you are when communicating online.
We have seen the emergence of non-disclosed commercial bloggers - sometimes known as fake bloggers or floggers - who actively promote their brands. This practice is deemed so contentious that some companies have explicitly banned the practice in their code of ethical communication practices.
Finally, you can use some of the new venues to actively carry on a dialogue and solicit ideas.
Last spring, in an ambitious move, General Motors allowed Internet users to create commercials about the company's Chevy Tahoe. More than a few of the online ads put the SUV in an unflattering light, but it did provide a forum for new ideas. When you do open the doors, however, realize that anyone can walk in.
The good news: Strong brands still stand despite this complexity. Well managed brands like Apple and Starbucks continue to ride high. Recent research by Patrali Chatterjee of Rutgers University showed the positive benefits of a strong brand or product, as represented by strong consumer familiarity, in mitigating the impact of negative consumer reviews online: People are less likely to listen to disparaging and confusing messages if the brand is known and delivers on its promise.
New information paths do require new measures and a stronger dose of monitoring. The new paths, however, can help as well as hurt in managing your brand.
Monday, May 28, 2007
How an emerging-market trend may ease volatility - David Wessel
A decade ago, when financial crisis spread from Thailand to Indonesia to
Korea to Russia to Brazil, one common thread was that emerging-market
economies had done a lot of borrowing -- in dollars. Sharp declines in
their exchange rates increased the burden of paying back debts --
measured in baht, rupiah and won.
Painful tax increases, cuts in government spending, sharply higher
interest rates and corporate bankruptcies ensued.
Emerging-market countries' inability to borrow abroad in their own
currencies has been dubbed "original sin" by economists Barry
Eichengreen, Ricardo Hausmann and Urgo Panizza. They have argued it is a
major reason that developing-country economies are more volatile and
crisis-prone than the U.S., Europe and Japan, which long have borrowed
in their own currencies.
A lot has not changed in the past 10 years -- the tendency of investors
to assume that today's trends will continue indefinitely, for instance.
One thing that has changed is that emerging-market governments and
corporations increasingly are borrowing in their own currencies, and
that should make their economies more stable.
Emerging-market governments had $786 billion in home-currency debt
outstanding when the crisis hit in 1997. Last year, they had $3.15
trillion, according to the Bank for International Settlements, the
central bank for central bankers. Companies in those countries had $416
billion of home-currency debt in 1997; last year, they had $1.38
trillion.
A lot of those bonds are held by emerging-market citizens, who save in
the currency they earn. Available data reveal the currency in which debt
is denominated, not the nationality of the debt holder. But in the past
two years, foreign investors have become active buyers of local-currency
debt. J.P. Morgan Chase now calculates indexes for emerging-market debt
issued in local currencies; the market capitalization of such debt
available to foreign investors stood at $468 billion at the start of
2007 -- excluding China, India and others with capital controls or other
hurdles for foreign buyers.
WHY? And is this redemption from original sin? Or is it a passing moment
likely to vanish when financial-market sentiment shifts?
The fact that Poland and Brazil can borrow billions in zlotys and reals
reflects a confluence of forces.
Foreign investors traditionally feared that an inflation-prone debtor
could simply print more of its own currency if it had trouble paying its
debts, so they insisted on being paid back in dollars or euros. That's
still a risk, but low inflation rates around the world make it less of a
concern; the virulent high inflation rates that often triggered sharp
currency devaluations have vanished. And low interest rates in many
developed countries have led global investors to take more risk to get
higher hoped-for returns or borrow in low-rate countries like Japan and
invest in higher-rate emerging markets.
At the same time, financial markets have evolved. "The growth in
derivatives markets and credit-default swaps means that you can better
cover exchange-rate risk and credit-event risk [market jargon for
defaulting on debts] internationally than in the past," says Vincent
Truglia, who oversees sovereign risk ratings at Moody's Investors
Service.
And emerging-market economies are stronger. Their government budgets are
in better shape. Many are running trade surpluses. The move toward
flexible exchange rates has reduced the proclivity for economy-shaking
crises. Countries from South Africa to Mexico to the Philippines have
been buying back dollar-denominated debt and replacing it with
local-currency bonds. And their successful companies are getting better
at global finance.
From Wall Street to academia, there are differences on how much of this
reflects the kindness of global economic conditions and how much lasting
changes. "Perhaps the market may be a little exuberant," says University
of Chicago economist Raghuram Rajan, "but there are fundamentals that
have helped. When it's easy to borrow, easy to finance, these countries
look very healthy."
But some of this reflects structural changes that should withstand the
next economic storm. Joyce Chang, J.P. Morgan's head of emerging
markets, says flatly, "I don't think it's at all transitory." Among
other things, the rise of pension funds, insurance companies and mutual
funds in Latin America, Eastern Europe and Asia creates an appetite for
local-currency bonds. This growing base of local investors brings demand
and depth to markets that once had very little. That, in turn, makes
foreign investors more comfortable. Global financial markets won't
remain placid forever. Some emerging-market country will default, and
remind global investors that they aren't demanding enough for taking
risks. All investment fads end.
But some of the right lessons have been drawn from the 1997-98 crisis.
This is one of them. The eagerness and ability of emerging markets to
borrow in their own currencies makes life a little less treacherous for
the people who live in those countries. And that is a good thing.
Korea to Russia to Brazil, one common thread was that emerging-market
economies had done a lot of borrowing -- in dollars. Sharp declines in
their exchange rates increased the burden of paying back debts --
measured in baht, rupiah and won.
Painful tax increases, cuts in government spending, sharply higher
interest rates and corporate bankruptcies ensued.
Emerging-market countries' inability to borrow abroad in their own
currencies has been dubbed "original sin" by economists Barry
Eichengreen, Ricardo Hausmann and Urgo Panizza. They have argued it is a
major reason that developing-country economies are more volatile and
crisis-prone than the U.S., Europe and Japan, which long have borrowed
in their own currencies.
A lot has not changed in the past 10 years -- the tendency of investors
to assume that today's trends will continue indefinitely, for instance.
One thing that has changed is that emerging-market governments and
corporations increasingly are borrowing in their own currencies, and
that should make their economies more stable.
Emerging-market governments had $786 billion in home-currency debt
outstanding when the crisis hit in 1997. Last year, they had $3.15
trillion, according to the Bank for International Settlements, the
central bank for central bankers. Companies in those countries had $416
billion of home-currency debt in 1997; last year, they had $1.38
trillion.
A lot of those bonds are held by emerging-market citizens, who save in
the currency they earn. Available data reveal the currency in which debt
is denominated, not the nationality of the debt holder. But in the past
two years, foreign investors have become active buyers of local-currency
debt. J.P. Morgan Chase now calculates indexes for emerging-market debt
issued in local currencies; the market capitalization of such debt
available to foreign investors stood at $468 billion at the start of
2007 -- excluding China, India and others with capital controls or other
hurdles for foreign buyers.
WHY? And is this redemption from original sin? Or is it a passing moment
likely to vanish when financial-market sentiment shifts?
The fact that Poland and Brazil can borrow billions in zlotys and reals
reflects a confluence of forces.
Foreign investors traditionally feared that an inflation-prone debtor
could simply print more of its own currency if it had trouble paying its
debts, so they insisted on being paid back in dollars or euros. That's
still a risk, but low inflation rates around the world make it less of a
concern; the virulent high inflation rates that often triggered sharp
currency devaluations have vanished. And low interest rates in many
developed countries have led global investors to take more risk to get
higher hoped-for returns or borrow in low-rate countries like Japan and
invest in higher-rate emerging markets.
At the same time, financial markets have evolved. "The growth in
derivatives markets and credit-default swaps means that you can better
cover exchange-rate risk and credit-event risk [market jargon for
defaulting on debts] internationally than in the past," says Vincent
Truglia, who oversees sovereign risk ratings at Moody's Investors
Service.
And emerging-market economies are stronger. Their government budgets are
in better shape. Many are running trade surpluses. The move toward
flexible exchange rates has reduced the proclivity for economy-shaking
crises. Countries from South Africa to Mexico to the Philippines have
been buying back dollar-denominated debt and replacing it with
local-currency bonds. And their successful companies are getting better
at global finance.
From Wall Street to academia, there are differences on how much of this
reflects the kindness of global economic conditions and how much lasting
changes. "Perhaps the market may be a little exuberant," says University
of Chicago economist Raghuram Rajan, "but there are fundamentals that
have helped. When it's easy to borrow, easy to finance, these countries
look very healthy."
But some of this reflects structural changes that should withstand the
next economic storm. Joyce Chang, J.P. Morgan's head of emerging
markets, says flatly, "I don't think it's at all transitory." Among
other things, the rise of pension funds, insurance companies and mutual
funds in Latin America, Eastern Europe and Asia creates an appetite for
local-currency bonds. This growing base of local investors brings demand
and depth to markets that once had very little. That, in turn, makes
foreign investors more comfortable. Global financial markets won't
remain placid forever. Some emerging-market country will default, and
remind global investors that they aren't demanding enough for taking
risks. All investment fads end.
But some of the right lessons have been drawn from the 1997-98 crisis.
This is one of them. The eagerness and ability of emerging markets to
borrow in their own currencies makes life a little less treacherous for
the people who live in those countries. And that is a good thing.
The new entrepreneurs - Joanne Lee-Young
he Cheung Kong Graduate School of Business in Beijing is only five years old, but it is quickly catching the attention of China's top executives.
The CEO of the country's largest property-development company is a few months from finishing his executive MBA there. The owner of Yahoo! China is a graduate.
Recently, the school chose Vancouver as the home of its first overseas alumni chapter and celebrated the occasion with a reception at the Westin Bayshore Hotel.
Many in the little hub of about 30 guests that gathered represent a new breed of immigrant entrepreneur, one that darts back and forth, building business on both sides as trade between China and Canada grows.
A new report by two University of Toronto sociologists, released by the Asia Pacific Foundation, examines the recent influx of immigrants from China, such as these Cheung Kong alumni, and their role in helping Canada tap China's rising economy.
Wenhong Chen and Barry Wellman found that there is a positive relationship between the inflow of immigrants and bilateral trade. Between 1995 and 2005, each increase of 1,000 in the number of immigrants from China was associated with about a $700 million increase in Canada's trade China, Chen said in a telephone interview.
"The research started with discussion that it is often hard for skilled immigrants to find jobs that fit their qualifications.
"Mostly, it has been commonly accepted that immigrants should just adapt. The value of their connections to their home country has been ignored. But these are contributing to business."
She did much of the field research by infiltrating business association meetings, monitoring Chinese chat rooms and websites, conducting almost 70 personal interviews and coordinating larger random sample surveys that yielded more than 300 replies in Toronto and Beijing.
What she discovered was that these new immigrant entrepreneurs are not necessarily the same as their counterparts a generation ago.
Back then, many were nicknamed "astronauts" because they spent so much time flying back and forth between Canada and China, including Hong Kong; but, really, many left their families in Vancouver or Toronto and stayed overseas for longer periods, usually returning just in time to meet minimum residency requirements.
This new generation of immigrant entrepreneurs still clocks plenty of air miles; however, the difference now is that their success depends on doing well in both China and Canada, Chen said.
"They are sometimes caricatured as calculating opportunists who obtain citizenship as a travel document or an insurance policy against potential social or political turmoil in their countries of origin," Chen and Wellman wrote in their report.
"Our interviews with returnee entrepreneurs in Beijing suggest that this view may be exaggerated. Just as they did not cut off their home country ties when they emigrated to Canada, most returnees keep close social and business relations with Canada."
A quick scan through some business cards suggests as much. James Wang, vice-president and marketing director of Canadian Overseas Holdings, runs various businesses aimed at the mainland Chinese market in Vancouver. He also oversees the Blenz coffee brand in China.
When he is not at his Marine Building office in downtown Vancouver, he is often on business in Beijing or in his hometown of Xian in central China. So, his business card very practically lists one active cell phone number for Canada and one for China.
"I have many friends who put their China cell numbers on their business cards as well . . . . We try to keep the connections. I can even receive Chinese text messages (here in Vancouver) from my friends in China," Wang said in an e-mail.
Rui Feng, CEO of Silvercorp, the Vancouver-based, TSX-listed company that produces silver in China, also has two numbers on his card.
It is telling that when a reporter tries to track down a few of the Vancouver-based Cheung Kong alumni after their inaugural event, the contact details are all China cell-phone numbers, even though they might ring through just down the block in Vancouver.
Some of these execs keep their China and Canada cell phones on round the clock, to cover all the bases -- that is, who might call and from which time zone.
It's definitely a hazard of what Chen calls "glocalization."
"They have to have global connections, but they also have to maintain local interactions too," he explained.
Dean Xiang Bing of the Cheung Kong Graduate School of Business in Beijing put it this way in en e-mail: "Many of our EMBA alumni are at the peaks of their careers, and represent the best and brightest entrepreneurs driving the Chinese economy.
"While opportunities abound within China, we encourage our alumni to go global. With globalization, entrepreneurs are free to operate beyond national borders, so a back-and-forth movement between China and destinations such as Vancouver is becoming more established business practice."
Saturday, May 26, 2007
The ‘optimal negotiator': Always cool under fire - Virginia Gult
Jim Murray has advised such disparate groups as military commanders and accountants on the art of negotiation – and, while their workplace issues are obviously different, his counsel is consistent: remain cool under fire.
“Know your hot buttons. When you know what your hot buttons are, you have just discovered your pause button,” says Mr. Murray, who recently designed a three-day course on “the optimal negotiator” for the Institute of Chartered Accountants of Ontario.
While accountants are not generally regarded as hotheads, Mr. Murray says everyone has vulnerabilities and “soft spots” which – when pushed – trigger stress, anger and frustration.
It is far easier to muster a controlled, rational response if one knows in advance of a crucial negotiation what – or who – is most likely to set him or her off, Mr. Murray advises his clients.
It sounds basic, but more people lose negotiations by losing their cool than by any other strategic blunder, says Mr. Murray, chief executive officer of optimal solutions international, a consulting firm based in Maxwell, Ont.
“When you are going ballistic and losing it, you are defeating yourself,” Mr. Murray says.
Although the stereotypical image of a negotiation is two parties going at it hammer and tong over a boardroom table, Mr. Murray advocates a more constructive approach.
“You can't win an argument by arguing with people … Goals are achieved by influence, not force.”
The group brought Mr. Murray in because, as its members climb the corporate ranks, they need to learn “the softer skills” required of leaders, says Robert Gagnon, a chartered accountant and assistant director of professional development at the institute.
“Negotiation is a daily experience and … when you look at it in that perspective, you realize what an essential skill it is,” Mr. Gagnon says.
For the accountants, the objective is to learn to read people as well as they read numbers – “negotiation is as much intuition as it is intellect,” Mr. Gagnon says.
Mr. Murray, author of The Game of Life: How to Play, How to Win, says that “information is the ultimate source of power in a negotiation” – and the best way to gain that information is to listen, ask insightful questions and keep the lines of communication open.
Assuming the goal is not to totally crush the other party – although this is sometimes the case – negotiation requires creativity, tact, persistence and patience, he says.
Knowing when not to spout off during a lull in the negotiation, takes discipline, he says. “We are all socially predisposed after four to seven seconds [of silence] to feel a certain kind of angst. But if you can wait a couple of seconds – I call that the green banana principle – time changes everything.”
The outcome of a negotiation where there is give-and-take is more lasting than a winner-take-all situation, which leaves the loser chafing to eventually “even the score.”
The best negotiators generally allow the other side some wins, Mr. Murray says.
Of course, not all negotiations are entered in good faith.
When this is the case, it is prudent to be supremely well prepared, to know one's enemy – and not be goaded into an irrational or emotional response.
The key to a successful negotiation is recognizing – and dealing with – the tactics of the other party.
This is not easy when confronted with “difficult people … who are somewhat immune to the normal tactics of persuasion,” Mr. Murray concedes.
“The temptation, if you treat me aggressively is to treat you aggressively … Well, eventually that just spirals downward. It's a cycle of destruction which will lead to remorse, revenge and so on,” he says.
And once a set of negotiations goes off the rails, it is very difficult to get back on track.
“At some point, if you have gone too far, no amount of skill, no amount of effort or creativity will ever enable you to right the balance,” he says.
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