See You at the C-Suite

Getting Into Harvard Easier Than McDonald's University in China

2011-02-06T16:46:00.001-08:00

Zhou Xiaobu runs from one end of a table to another, grasping a piece of a puzzle she and her team are assembling as part of a leadership training exercise for McDonald’s Corp. managers.

“Go, go, go,” yells their Taiwanese teacher, exhorting them to work for the prize, a box of Danish butter cookies, for being the first to build the company’s trademark Golden Arches. Above their heads is a sign that reads: “Learning today, leading tomorrow.” The thick green binders stuffed with paperwork on each of the 31 students’ desks indicate the next activity may not be as rousing.

This is McDonald’s Hamburger University in China, and it can be harder to get into than Harvard.

Zhou’s classroom, with its gray walls and carpet, is one of seven in the management training center occupying the 20th floor of the 28-story building on the outskirts of Shanghai that houses McDonald’s China headquarters. The art consists of pictures of McDonald’s products and equipment, such as a milk- shake maker from the 1950s.

The 1,565 square meter (16,846 square foot) facility doesn’t have a pool or a gym and its one-room library holds books with titles such as “Just Listen,” “Personal Accountability” and “None Of Us Is As Good As All Of Us: How McDonald’s Prospers By Embracing Inclusion and Diversity.”

Selection Rate

There’s a coffee machine in the corridor. There’s no cafeteria, although students and staff can order food delivered to the office pantry one floor down.

“I’m thrilled and proud to attend Hamburger University,” said Zhou, who in 2007 started as a management trainee in the central Chinese city of Changsha, a job for which she and seven others were among 1,000 applicants. That’s a selection rate of less than 1 percent, lower than Harvard University’s record low acceptance rate last year of about 7 percent, according to the school’s official newspaper.

To get to the training center, Zhou competed with 43 other workers at her store to be made first assistant manager. She didn’t pay any tuition; it cost McDonald’s about 10,000 yuan ($1,518) to put her through the five-day course.

The world’s biggest restaurant operator moved the training center from Hong Kong last year as it expands in mainland China, where its market share is less than half of KFC owner Yum! Brands Inc. McDonald’s opened a record 165 restaurants in 2010 and will accelerate that growth this year to meet its goal of 1,000 new outlets in the four years through 2013.

Expansion May Accelerate

“They are preparing a base that will allow them to accelerate that rate of expansion,” said Peter Jankovskis, co- chief investment officer of Oakbrook Investments LLC, which holds about 300,000 McDonald’s shares. “They may well have announced a conservative store opening target and their true plan is much greater.”

The school last year trained 1,000 of the almost 70,000 employees McDonald’s has in mainland China, a region that doesn’t include Hong Kong, Macau or Taiwan.

Another 4,000 people will attend classes at the training center through 2014, said Susanna Li, the head of the training center. The classrooms are equipped for simultaneous translation into English, Mandarin and Cantonese to accommodate students from Hong Kong and teachers from overseas.

“We’ll make sure the people pipeline is ready,” Li said. “Having the school here in China helps us provide training faster than sending students to Hong Kong.”

Trailing Yum

Total sales for fast-food chains in China rose 12 percent last year to 60 billion yuan, according to London-based researcher Euromonitor International. Yum’s restaurants, which include Pizza Huts as well as KFCs serving fried chicken alongside Chinese dishes, accounted for 40 percent while McDonald’s had 16 percent, the researcher said.

Oak Brook, Illinois-based McDonald’s has 1,300 stores in China and aims to have 2,000 by 2013. Yum has 3,700 restaurants in China, where it earned 44 percent of its $1.33 billion operating income in the first three quarters of last year.

Yum’s market value surged 40 percent last year, compared with McDonald’s 23 percent gain.

McDonald’s plans to increase its investment in China by 40 percent this year after boosting spending in the world’s most- populous nation by 25 percent in 2010, it said last month, without providing dollar figures. Sales at McDonald’s stores in China open more than a year grew 12.7 percent in the three months ended September, more than double the global average. In the quarter ended December, sales growth was 5.2 percent compared with a global average of 5 percent.

Nurturing Talent

The training center in Shanghai differs from those in six other locations around the world in that it also offers senior management courses, Li said. Running the school, which has seven teachers, will cost McDonald’s 150 million yuan in the five years through 2014, she said.

McDonald’s set up its first Hamburger University in Elk Grove Village, Illinois, in 1961 to train managers as well as franchise owners.

“It’s certainly possible to move up through the hierarchy,” said Jankovskis of Lisle, Illinois-based Oakbrook, which manages more than $2.6 billion. “Many people do consider fast food in general is kind of a dead end, but in the case of McDonald’s, they have a very strong professional organization.”

McDonald’s Chief Executive Officer Jim Skinner, who was paid $17.6 million in 2009, started as a management trainee in 1971 after serving in the Navy, according to the company’s website.

Unemployed Graduates

Getting into the school is competitive because more than 26 percent of China’s 6.3 million college graduates were unemployed as of July 1, according to the Ministry of Education. That compares with a 4.2 percent unemployment rate for China’s urban workforce, according to data compiled by Bloomberg.

Companies face rising labor costs in China, where annual economic growth has averaged 10 percent over the past three decades. Urban Chinese average yearly wages surged to 32,244 yuan in 2009 from 8,319 yuan in 1999.

Sun Ying, 25, started working part-time for McDonald’s in 2005 during her freshman year as a tourism management major at East China Normal University. When she graduated in 2008, she opted to work full-time for the hamburger chain instead of applying for a job at a bank as her father advised.

The restaurant chain “offers many career opportunities,” said Sun, who in April was made store manager at McDonald’s Xinhualian store in Shanghai’s central Huaihai Road. “I’m even happier to continue to grow with my team,” said Sun, who’s seen the number of people she supervises grow to 55 from 45 since her promotion.

Not Banking

McDonald’s Hamburger University in Shanghai and its training programs are meant to address its “No. 1 challenge,” which is to recruit and retain skilled workers, said Joel Silverstein, president of Hong Kong-based restaurant consultants East West Hospitality Group Ltd.

“It’s getting harder and harder to hire employees in the food-service business,” he said. “The main reason that McDonald’s put up the Hamburger University is to professionalize the sector, making it easier to recruit better people.”

Sun, the store manager in Shanghai, said she’s due for more training next month: a one-week course on “business leadership practices.” Her next goal is to be made operations consultant, which involves supervising a group of stores.

“Now my father has stopped trying to persuade me to work in banking,” she said.

- Michael Wei and Margaret Conley in Shanghai. Editors: Frank Longid, Bret Okeson

While the Rich Splurge, the Rest Hold Back - Shobhana Chandra and Anthony Feld

2011-02-05T12:43:00.000-08:00

Wealthy shoppers are bolstering the recovery—and masking the reluctance of many less affluent Americans to join in. Sales are up at Tiffany (TIF) and Coach (COH), thanks to demand for $6,000 diamond pendants and $1,200 leather handbags as a stock market surge pads the wallets of the rich.

At the other end of the economic spectrum, Wal-Mart Stores (WMT), the world's largest discount retailer, reports that many of its customers are still living paycheck to paycheck as they await an improvement in job prospects. That means they stick with the essentials. "Financial uncertainty still weighs heavily on everyday Americans," said Mike Duke, the Bentonville (Ark.) company's chief executive officer, in a Nov. 16 conference call with investors.

Those ordinary Americans who have jobs worry about holding onto them, and they expect few if any increases in pay as the recovery inches forward. For upper-income households, it's a different story, says Michael Feroli, a former Federal Reserve economist who is now chief U.S. economist at JPMorgan Chase (JPM) in New York: "They're the ones benefiting the most from the stock market rally, and they're spending."

Consumer spending accounts for about 70 percent of the economy, and the uneven pattern in household expenditures helps explain why Fed policymakers will likely keep interest rates near zero while carrying on with a second round of Treasury purchases aimed at getting credit flowing again. Unemployment averaged 9.6 percent last year, the highest rate since 1983, even as the expansion gathered speed. Feroli estimates the top 20 percent of income earners account for about 40 percent of spending. Dean Maki, chief U.S. economist at Barclays Capital (BCS) in New York, puts the figure at closer to 50 percent.

High-end retailers led the increase in December sales at stores open at least a year, company data showed on Jan. 6. The Bloomberg Retail Sales Luxury Index of U.S. sales revenue jumped 8.1 percent from the same month a year earlier, while the Bloomberg Retail Sales Discount Index eked out a 0.9 percent rise. Purchases made in the third quarter with American Express (AXP) credit cards, carried by relatively wealthy and corporate customers, were back to the most recent peak for a third quarter, which was reached in 2008.The combined total for Visa (V) and MasterCard (MA) didn't experience a similar rebound, according to company data.

The U.S. lost about 8 million jobs during the recession, and Fed Chairman Ben Bernanke said in Senate testimony on Jan. 7 that employers remain reluctant to hire. Payrolls expanded by 103,000 workers in December, less than the median forecast of economists surveyed by Bloomberg News. A healthier labor market would put more money in the hands of shoppers across the board, further lifting consumption. In the meantime, rising stock prices signal that rich shoppers will retain an edge in driving spending. The top 20 percent of income earners account for about 80 percent of equity wealth and half of housing wealth, Maki estimates.

The Standard & Poor's 500-stock index has almost doubled from its March 2009 low. On top of that, President Barack Obama on Dec. 17 signed into law a bill extending Bush-era tax cuts for all income groups, instead of letting them expire for families earnings more $250,000 a year, the cutoff the Administration uses for the middle class. "It's striking," says Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. "Most of the rest of the country is still suffering while the wealthy seem to be largely insulated. You would think they wouldn't have all that much to complain about. Instead, they've had unending criticism for the Obama Administration."

Sentiment data reflect the stock market gains. The Conference Board's Consumer Confidence Index for households making more than $50,000 a year hit a 33-month high in January, while the gauges for households earning under $50,000 a year are still below their levels of last May. Rising foreclosures and declining real estate values indicate middle- and lower-income households will remain cash-strapped. The asset value of property held by Americans fell by $649 billion in the third quarter, to $16.6 trillion, the Fed said on Dec. 9. Home prices may drop as much as 11 percent through the first quarter of 2012, which would leave them 36 percent below their 2006 peak, according to a Dec. 8 Morgan Stanley (MS) report.

For companies that cater both to the well-off and those of modest means, the divergence is striking. There's been "a greater bounceback in the more affluent customer," says Clarence Otis, chief executive officer of Darden Restaurants (DRI). The Orlando company owns casual-dining chains such as Red Lobster and Olive Garden as well as the upscale Capital Grille steakhouses. On a Dec. 21 conference call with investors, Darden's chief operating officer, Andrew Madsen, noted that "less affluent guests who tend to have a lower check are reducing their restaurant visits."

Maki, for one, expects consumption patterns to normalize as the year moves forward. "The labor market recovery will become more widespread as we go through 2011, which should take away some of the imbalance" in purchases, says the economist, who specialized in researching household finances at the Fed from 1995 to 2000. "We definitely expect to see some catch-up in spending by middle- and lower-income households. It's one of the ways the recovery will become more entrenched."

The bottom line: Strong Christmas sales numbers obscure the discrepancy between increased shopping by the affluent and cautious spending by the rest.

Charlie Rose Talks to John Mack

2011-02-05T12:42:00.000-08:00

Were U.S. business leaders satisfied with their conversation with Hu and the U.S.-China summit? Do they see change coming?
Anytime there can be a direct dialogue, CEOs find that helpful. What the Chinese want, I think, is a better understanding, having the U.S. really understand what they're trying to do. I was there in December, and I had a discussion with one of the vice-premiers. He talked about our congressmen, our senators, coming to visit him and saying, You should be doing this, you should be doing that. … He said: "I've read over 100 books about your country. I know something about your culture, but I'm not an expert. To come and preach to me what our country should do when you really don't have an understanding, I find very resentful."

One of the things I've found as a businessperson: Our elected politicians don't travel enough. To understand the Chinese and to get along … we need more meetings like what took place with the CEOs and Hu Jintao. And then kind of cajole and push and say why certain things should work and certain things wouldn't work. That's the dialogue I think they're looking for. They really want to work together, and work with us.

What's the goal of this dialogue?
To build relationships. The Chinese … want to trust the people they're doing business with. You can't just fly in and fly out. The first—I'm going to guess—25 times I went to China, I didn't do any business. The first piece of business that we got was a power project. We raised debt money. I finally said to the minister, "Why did you give me this business?" And I laughed at his answer. He said: "You're the only bank that has come without a lawyer. You trust us."

Do they recognize that there's a belief among some businesspeople that they want to learn what you can teach them and then say goodbye?
We can't forget, this is still an emerging market. Really, it wasn't until the late '80s, early '90s, that they started making this huge change in their economy. So you can understand why they don't want to see outside companies come in and take control of their major businesses. They have to be cautious. But at the same time, I think if you build the sense of trust and communications over time, some of the complaints that we have will go away. Look at General Motors (GM). General Motors sells a lot of cars [there].

The Chinese like their Buicks, right?
It's been one of their best businesses. Do they own 100 percent of it? No. But I would argue, in China you want to have a local partner, and you want to make sure it's fair. It takes time, and I think our time frame is very short. Their time frame is very long, and they have issues they have to address. One of the big ones is unemployment. I think they have to create over 25 million jobs a year. You have this whole movement from the agricultural sector into these urban centers, and you need to create jobs to do that. So you could understand why they have to be somewhat cautious. But at the same time, I've never dealt with any group around the world who are [more] open to ideas … and who make sure that you get the right return on your investment. Are there places where someone has copied things? The answer is yes, but that's not just in China. Do they do some things that upset people? Absolutely, they do.

There are a lot more Chinese students studying in the U.S. than Americans studying in China.
That's right. And I think that's changing. But these students are going to go back to China. They're going to have a different view of things. I think things will change in China.

One of the questions that keeps coming up—in the U.S. and everywhere else—concerns whether America is in decline.
Well, one thing that you have to change—we owe so much money. We have such a large deficit. Clearly, that, I think, saps a lot of our power to be as creative as we should be. But I do not hold the view that America is in decline. I believe we have, you know, ups and downs.

Are the Chinese worried that their economy is expanding too fast, that inflation will get out of control?
They're very concerned about inflation and what it could do to their economy. But again, after having said that, I think they're very focused on it. Their central bank is very focused on it. And they get a lot of advice from people from the outside.

You urge people to go to China. And then you ask them how many books they've read.
I don't ask them about the books. I just want them to go.

An Iron Ore Rush Above the Arctic Circle - Natalie Doss

2011-02-05T12:38:00.000-08:00

Baffin Island in Canada's frigid Nunavut territory is about as far off the grid as most people can imagine. Subzero temperatures, ice-blocked sea lanes, and a lack of conventional infrastructure make this spot more than 300 miles above the Arctic Circle among the planet's most inhospitable places to do business. That hasn't stopped international mining companies from fighting over the remote turf. The attraction: huge iron ore deposits underneath a barren landscape—a reminder of just how far global mining companies will go to secure new reserves.

After oil, almost nothing is as central to the operation of a modern economy as steel. Everything from appliances to automobiles to skyscrapers depend on the stuff. That has made iron ore, steel's main component, a hot commodity amid the current global resources boom, especially for fast-growing emerging economies.

The price of iron ore has more than doubled in the past two years amid surging Chinese steel production. Most ore exports come from Brazil and Australia, where the world's three biggest mining companies, Brazil's Vale (VALE) and Australia's Rio Tinto Group (RTP) and BHP Billiton (BHP), dominate. That's left other mining companies, steel producers, and big users such as China to fight over the few remaining big iron fields, including desolate Baffin Island.

Luxembourg-based ArcelorMittal (MT), the world's largest steelmaker, and Nunavut Iron Ore Acquisition, a company backed by Houston-based private equity firm Energy & Minerals Group, on Jan. 14 struck a C$590 million ($593 million) deal to jointly acquire Baffinland Iron Mines, whose Mary River project on the island may become the first iron-ore mine inside the Arctic Circle. The estimated cost of building the project, including an 87-mile railroad and a port that can be reached only by custom-built cargo ships able to navigate frozen seas, is more than $4 billion.

Other companies don't want to be left behind. Cleveland-based Cliffs Natural Resources (CLF) in mid-January agreed to pay C$4.9 billion, including net debt, for Montreal-based Consolidated Thompson Iron Mines to lock up iron ore assets in northern Quebec. And Liu Yikang, chief of the Expert Group for Overseas Resources Projects at China's Ministry of Land and Resources told Bloomberg News in mid-January that a Chinese company was involved in the bidding for Baffinland, though he declined to name it.

"There's nowhere else to go," explains Benjamin J. Cox, the founder of Portland (Ore.)-based research company Oren and chief executive officer of Canadian iron-ore mine developer Roche Bay. "There's no rock left unturned in Australia, and anything that's nice in Africa already is controlled."

Baffinland has so far spent almost $500 million evaluating Mary River. To get ore to the coast, Baffinland CEO Richard D. McCloskey says four rivers must be crossed. The company has resorted to using temporary bridges made from shipping containers welded together so rock samples can be moved by truck. Workers also must contend with temperatures that sometimes dip below -50C (-58F). At such temperatures, "steel starts breaking, fuel starts freezing," McCloskey says.

To guarantee deliveries, Mary River will need ice-breaking, bulk-commodity-carrying ships with three times the normal engine power, says Tim Keane, Arctic operations manager for Montreal-based shipper Fednav. Such vessels have never been built and, according to Keane, may cost up to twice the price of conventional vessels. "Ordinary ships don't have the horsepower required to muscle their way through those conditions," he explains.

Mary River has an estimated 365 million tons of reserves in its first deposit (eight others have been discovered so far), based on ore being transported by rail. Production could surpass 18 million tons a year on that basis. That would cause Canadian ore output, which the U.S. Geological Survey pegged at 27 million tons in 2009, to soar. Even so, it would be dwarfed by Brazil's 380 million tons and Australia's 370 million tons of annual production.

Asian steelmakers are already involved in Canadian iron ore. Tata Steel, India's biggest producer, has a joint venture with Canada's New Millennium Capital to mine in the provinces of Quebec, Newfoundland, and Labrador. China's Wuhan Iron and Steel, the world's fifth-biggest steelmaker, owns 19 percent of Consolidated Thompson and has agreed with Adriana Resources of Vancouver to develop the Lac Otelnuk iron-ore project in Quebec.

"There's a feeling in China that the Big Three have taken advantage of China in the past and that's something they want to avoid in the future," says Adriana CEO Allen J. Palmiere, referring to the dominance of Vale, Rio, and BHP.

ArcelorMittal, meanwhile, is reducing its reliance on third-party suppliers by raising its mining capacity. The company said in September it planned to spend $4 billion to increase output to 100 million tons by 2015.

Even before ArcelorMittal's initial bid in November, Baffinland had already attracted other steelmakers' attention. Germany's ThyssenKrupp and Voestalpine reached accords to buy some future output from the Baffin Island field, and Mitsubishi agreed to buy up to 1 million tons a year to sell in Japan and Taiwan. Notes Gordon A. McCreary, chairman of Toronto-based explorer Asia Now Resources and a former CEO of Baffinland: "Huge things are going on in the North."

The bottom line: The world's appetite for iron ore, used in steelmaking, has sparked interest in mining reserves in Canada's desolate Arctic Circle region.

The Next King of Coal?

2010-12-23T13:21:00.000-08:00

Central Banker's Pay

2010-12-23T13:05:00.000-08:00

New Business Models in Emerging Markets - by Matthew J. Eyring, Mark W. Johnson, and Hari Nair

2010-12-23T13:04:00.000-08:00

Right now more than 20,000 multinationals are operating in emerging economies. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But if the opportunity is huge, so are the obstacles to seizing it. On its 2010 Ease of Doing Business Index, the World Bank ranked China 89th, Brazil 129th, and India 133rd out of 183 countries. Summarizing the bank’s conclusions, the Economist wrote, “The only way that companies can prosper in these markets is to cut costs relentlessly and accept profit margins close to zero.”

Yes, the challenges are significant. But we couldn’t disagree more with that opinion. We have seen the opportunities of the future on a street corner in Bangalore, in a small city in central India, in a village in Kenya—and they don’t require companies to forgo profits. On the surface, nothing could be more prosaic: a laundry, a compact fridge, a money-transfer service. But look closely at the businesses behind these offerings and you will find the frontiers of business model innovation. These novel ventures reveal a way to help companies escape stagnant demand at home, create new and profitable revenue streams, and find competitive advantage.

That may sound overly optimistic, given the difficulty Western companies have had entering emerging markets to date. But we believe they’ve struggled not because they can’t create viable offerings but because they get their business models wrong. Many multinationals simply import their domestic models into emerging markets. They may tinker at the edges, lowering prices—perhaps by selling smaller sizes or by using lower-cost labor, materials, or other resources. Sometimes they even design and manufacture their products locally and hire local country managers. But their fundamental profit formulas and operating models remain unchanged, consigning these companies to selling largely in the highest income tiers, which in most emerging markets aren’t big enough to generate sufficient returns.

What’s often missing from even the savviest of these efforts is a systematic process for reconceiving the business model. For more than a decade, through research and our work in both mature and emerging markets, we have been developing our business model innovation and implementation process (see “Reinventing Your Business Model,” HBR December 2008, and “Beating the Odds When You Launch a New Venture,” HBR May 2010). At its most basic level, the process consists of three steps: Identify an important unmet job a target customer needs done; blueprint a model that can accomplish that job profitably for a price the customer is willing to pay; and carefully implement and evolve the model by testing essential assumptions and adjusting as you learn.

Start in the Middle

Established companies entering emerging markets should take a page from the strategy of start-ups, for which all markets are new: Instead of looking for additional outlets for existing offerings, they should identify unmet needs—“the jobs to be done” in our terminology—that can be fulfilled at a profit. Emerging markets teem with such jobs. Even the basic needs of their large populations may not yet have been met. In fact, the challenge lies less in finding jobs than in settling on the ones most appropriate for your company to tackle.

Many companies have already been lured by the promise of profits from selling low-end products and services in high volume to the very poor in emerging markets. And high-end products and services are widely available in these markets for the very few who can afford them: You can buy a Mercedes or a washing machine, or stay at a nice hotel, almost anywhere in the world. Our experience suggests a far more promising place to begin: between these two extremes, in the vast middle market. Consumers there are defined not so much by any particular income band as by a common circumstance: Their needs are being met very poorly by existing low-end solutions, because they cannot afford even the cheapest of the high-end alternatives. Companies that devise new business models and offerings to better meet those consumers’ needs affordably will discover enormous opportunities for growth.

Take, for example, the Indian consumer durables company Godrej & Boyce. Founded in 1897 to sell locks, Godrej is today a diversified manufacturer of everything from safes to hair dye to refrigerators and washing machines. In workshops we conducted with key managers in the appliances division, refrigerators emerged as a high-potential area: Because of the cost both to buy and to operate them, traditional compressor-driven refrigerators had penetrated only 18% of the market.

15 golden rules of wine collecting - Beppi Crosariol

2010-09-21T18:46:00.000-07:00

It's cellaring season. I can smell the pungent waft of white vinegar from my window. Canadians are pickling, saucing, jamming and chutneying. Some are making wine, too.

And while strictly speaking there's no cellaring season for those of us who buy our cabernets and merlots ready-made and punitively taxed, this is the time of year when stockpiling instincts tend to go into high gear. Liquor stores also ramp up their big-red offerings, making it a good time to hunt for bottles to lay down.

If you've just begun keeping a stash or are considering embarking on that journey, it's good to bear a few hazards in mind. Candid collectors, when they're done boasting about prized trophies, will admit they've committed boners in their buying along the way. I've got my own regrets, which I'm sharing here as part of this wine-cellar confessional. I'm also including tips from bona fide experts: Peter D. Meltzer, New York-based author of Keys to the Cellar: Strategies and Secrets of Wine Collecting, and Tony Aspler, Toronto-based author of Tony Aspler's Cellar Book. Check out their books for extensive information on which styles of wine tend to age gracefully and which don't.

1. Resist hoarding

Don't break the bank today by feverishly scooping up every available bottle of something you've read about or tasted believing it to be the last smart buy on Earth. There'll always be more wine.

2. Don't limit yourself to single-bottle purchases

Previous point notwithstanding, consider buying at least two or three wines of the same kind. When you crack open the first and it delivers bliss, the pleasure will be sweeter knowing you've got more in the basement. Besides, the first will serve as a barometer of how the wine is aging.

3. Make room

If you're building a cellar, think of the capacity, then double it, Mr. Aspler advises. “You'll find that you fill the cellar quickly and wish you had more space.”

4. To thine own tastes e true

Buy wines that reflect your lifestyle, not some critic's scorecard, Mr. Meltzer says. “Try to project the occasions at which your wines will be poured. Extrapolate from your present drinking patterns. Ask yourself how often you entertain, the wines you serve and a typical menu. Break down your purchases accordingly.”

5. Mix it up

“It's possible to have a cellar full of wine yet nothing to drink,” Mr. Meltzer warns. Ideally, you should have a mix of both young wines that need further aging and mature examples that you can consume in the interim.

6. Segregate

“Mark a rack in your cellar for your wife for her book-club nights and your son's rugby party,” Mr. Aspler says. “Otherwise you'll find your first growths missing,” he adds, referring to the top tier of red Bordeaux that cost well into the three digits. Ditto your husband, same-sex partner or daughter, depending on your domestic situation.

7. Be prepared for nevitable letdowns

Trophy hunters never want to admit it, but even the best blue-chip labels can underdeliver 10 or 20 years down the road, either because of poor storage conditions, inherent flaws in the wine or a defective cork. Get set to shed a few tears over the coming years – and always have a backup bottle to crack open.

8. Take regular inventory

Wines can get long in the tooth faster than you anticipate. Make sure you stay on top of your stash.

Mr. Meltzer says one solution is to store wines that are close to maturity in a separate bin or rack for easy access.

9. Wine is for drinking, not idol worship

Don't treat your gems like museum pieces. Mentally expense your wines at the moment of purchase, Mr. Meltzer says.

That way you won't put off opening a precious old bottle until it's too late, waiting for that special occasion that somehow never seems special enough for the wine.

10. Think white

You will inevitably buy too much red wine and not enough age-worthy white, such as German riesling, Australian semillon or fine white Burgundy.

But they can take on glorious nuances and deliver just as much complexity and nirvana as reds – and don't require red meat to make them sing.

11. Beware the shoe closet and furnace room

Store your wines at a constant temperature of 13 C (55 F).

12. Remember the sideways rule

Save your limited horizontal shelving for traditional bottles sealed under cork, which must be kept moist. Screw-cap wines, some of which are good enough to age, can be stored standing up, Mr. Aspler notes.

13. Buy some big bottles

Nothing says fun or conveys generosity at a dinner party like a 1.5-litre magnum or three-litre double-magnum. I wish I had bought more.

14. Beware of older vintages purchased at auction

“Try to determine their provenance and how they were stored,” Mr. Meltzer says. “The level of the wine in the bottle, also known as ‘ullage,' is the barometer of a bottle's condition. Top or upper-shoulder levels are not uncommon for 30-year-old wines but are unusual for a 10- or 20-year-old vintage, where levels should still be into or close to the bottle's neck.

15. Forget not the fizz

“Always keep Champagne on hand,” Mr. Aspler advises, especially vintage-dated bubblies, which can improve nicely with five to 15 years in the cellar. “You'll never know when you'll need to celebrate or commiserate.”

Leadership lessons to live by - Harvey Schachter

2010-09-16T22:26:00.000-07:00

Kouzes ... Posner ... Bennis. Three hallowed names in the literature of leadership, and they’re offering new gifts for the fall reading season – simple gifts, in the shape of books with clearly stated ideas, unadorned but punchy, and certainly wise.

James Kouzes and Barry Posner, professors at Santa Clara University in California, write as a team. They are best-known for their 1987 bestseller The Leadership Challenge, which offered a principled and practical view of leadership.

Warren Bennis, a distinguished professor of business administration at the University of California and chairman for the Center for Public Leadership at Harvard University’s Kennedy School, is viewed as the founder of leadership studies. His 1985 book Leaders with Burt Nanus is a talisman for many executives, and he has collaborated on a string of books (my favourites are Organizing Genius, about great groups, and Co-Leaders, about pairs of effective leaders).

Professors Kouzes and Posner are continually asked what is new in leadership ideas. The more they pondered that question, they more they realized that good ideas aren’t new, but have stood the test of time. They describe their new book, The Truth About Leadership, as “a collection of the real thing – no fads, no myths, no trendy responses – just truths that endure.”

They discuss 10 such enduring truths, backed by research they and others have carried out over the years:

You make a difference: Before you can lead, you have to believe you can make a positive impact on others. You have to believe in yourself.

Credibility is the foundation of leadership: As well as believing in yourself, you have to behave in a way that will spur belief in you. “If people don’t believe in you, they won’t willingly follow you,” the authors advise.

Values drive commitment: People want to know what you believe in and you need to know what others treasure if you are going to create the commitment needed to bring everyone together into a powerful force.

Focusing on the future sets leaders apart: Leaders need the capacity to imagine and articulate exciting future possibilities. They need a long-term perspective.

You can’t do it alone: Leadership is a team sport.

Trust is paramount: If you rely on others, you will need their trust. That will only come if you trust them first.

Challenge is the crucible for greatness: Exemplary leaders don’t maintain the status quo, they change it. “Change invariably involves challenge, and challenge tests you. It introduces you to yourself. It brings you face-to-face with your level of commitment, your grittiness, and your values,” they write.

You either lead by example or you don’t lead at all: Leaders must keep their promises, and be role models for the values and actions they espouse.

The best leaders are the best learners: Learning is the master skill of leadership.

Leadership is an affair of the heart: Leaders are in love with their colleagues and their constituents. They make others feel important, and graciously show appreciation. And they love their work, or they wouldn’t be successful at it.

Prof. Bennis’s new book, Still Surprised, is a memoir describing his experiences in the Second World War as a leader of others at age 19; his mentorship by a towering figure in organizational psychology, Douglas MacGregor; the excitement of being at the cusp of the new breakthroughs in social sciences and management in the 1950s and 1960s; his experiences as provost at the State University of New York at Buffalo during the student activism of the 1960s and later as president of the University of Cincinnati; and, most poignantly, his feelings, at age 85, about growing old, as his body (and sometimes mind) fails him, and he experiences the insults of ageism.

The memoir is suffused with insights in leadership, such as how, at both Buffalo and Cincinnati, he learned the dangers of coming on too strong as a newly hired outsider, and the need to master a new culture before trying to change it. Or how he resigned from the helm at Cincinnati after being asked a simple question he couldn’t answer: “Do you love being president of the University of Cincinnati?” The answer turned out to be that he would be happier as a professor than a president.

Whether leadership lessons are learned from Prof. Bennis’s memoir or from the detailed advice from Professors Kouzes and Posner, either book makes for rewarding reading.

The U.S. Open Costs $236,000 a Day With Mercedes, Nice Seats - By Philip Boroff

2010-09-11T23:43:00.000-07:00

Courtside seats at Sunday’s men’s singles final at New York’s U.S. Open go for as much as $5,300 via Ticketexchange, a division of Ticketmaster. (Plus an $800 service charge.)

Women’s final courtside tickets tonight are more widely available, starting at about $700, via Ticketmaster.

Cheapskates endure a love-hate relationship with the Open - - loving the tennis and carping about prices, including $3.75 for a tiny Evian bottle.

Big spenders, though, can get really happy here. A lot of damage can be done in a few hours of conspicuous consumption.

Enticed by a $1,000 discount offered by local Mercedes-Benz dealers, my first stop was the $183,000 silver SLS AMG sports car, on view by the Open’s East gate.

Some 10,000 people have allowed themselves to be photographed with the car at the Open. (The shots are retrieved online, in exchange for providing Mercedes with your e-mail.) With gullwing doors, it has a look James Bond could love.

A few paces away, a volunteer from the United States Tennis Association detailed the terms of Open immortality. He pointed to tiles on the ground of the plaza with names of donors to “USTA Serves.” It provides scholarships to middle school and high school students, among other deeds.

The top tiles, 16-inch squares of white bronze, go for $25,000. Audio equipment mogul Sidney Harman, the new owner of Newsweek, sprung for one with his wife, Jane, a California congresswoman.

Dress Like Roger

While duplicating Roger Federer’s forehand is impossible, replicating his outfit is easier.

Nike’s outpost sells Federer’s collared shirts and shorts, which end just above the knees; plus sneakers artfully depicting New York’s skyline over the heel. Rafael Nadal’s uniform is more informal, with shorts below the knees and neon sneakers.

The two getups run a total of just over $600.

As an investment, player autographs can be dubious. Federer, for one, patiently dilutes the market when encountering fans outside Ashe Stadium. Mementos do evoke our shared history. The Ace Authentic Collectibles kiosk has them in abundance.

For the budget-minded, there are tennis trading cards, modeled after baseballs cards. Four cards per $3 pack -- with surprise autographs and bits of player clothing.

Then there’s a wall mounting of champions Rod Laver, Pete Sampras, Federer and Bjorn Borg, including a picture of them taken last year at Wimbledon clutching a trophy, with balls autographed by each. It goes for about $1,200.

Ashe Endowment

The Arthur Ashe Endowment for the Defeat of AIDS is auctioning a jumbo tennis ball, signed by Federer and others, which as of Wednesday required a minimum bid of $600. Among other tasks, the endowment annually brings eight doctors to New York who do AIDS work in their home countries, training them in the latest clinical techniques. It was started in 1995, two years after Ashe died of pneumonia, a complication of AIDS.

“AIDS doesn’t have the same consciousness and urgency in this country that it once had,” said Leslie Allen, a former world No. 18 singles player who manages the booth.

For nourishment, I sampled Aces Restaurant on the “club” level of Ashe Stadium, adjacent to suites that accommodate 20 people and that the Open sold for $10,000 to $65,000 a session. I sustained myself with a $12 heirloom tomato salad and $28 Scottish salmon. Monitors at the bar showed live tennis on center court without commercials.

Silk Rug

The last stop was the Silver Tennis Collection shop on the club level, next to Aces. A rare 1998 Jack Kramer Autograph graphite racket costs $6,000; a silk tennis-themed rug was tagged at $15,000 and there’s tennis jewelry. One-third of proceeds go to USTA Serves.

After spending a theoretical $236,000 on my spree -- skimming the surface of goods advertised and sold at the Open -- I bought a salmon-and-blue striped tie, embossed with gold, wood rackets.

It cost $65.

Petrobras to Buy Oil From Brazil for $42.5 Billion in Stock - By Peter Millard, Maria Luiza Rabello and Katia Cortes

2010-09-01T23:06:00.000-07:00

Petroleo Brasileiro SA, Latin America’s largest company by market value, agreed to pay the Brazilian government $42.5 billion in new stock for the right to develop 5 billion barrels of offshore oil reserves.

Petrobras, as the state-run company is known, will pay an average of $8.51 a barrel for the oil after almost two weeks of negotiations with the government, according to a regulatory filing yesterday. More than half the oil will come from the Franco field in the offshore Santos Basin, the company said.

The value set for the reserves will determine how much new stock Petrobras must offer minority investors in a related public offering to raise funds for a $224 billion plan to develop offshore fields and boost refinery capacity. Petrobras has plunged 26 percent in Sao Paulo this year on concern it would pay more for the oil than it’s worth, diluting earnings.

The price is “certainly at the high end” of what investors and analysts were expecting, said Gianna Bern, president of Brookshire Advisory & Research Inc., based near Chicago. “Market conditions right now are less than desirable, but Petrobras has a good long-term growth story.”

The price is more than the $7.50 per barrel estimated by UBS AG analyst Lilyanna Yang and Ted Harper, who help manage about $6.8 billion at Frost Investment Advisors in Houston. A price of $7.50 a barrel or higher would force Petrobras to sell more shares to the government than investors expect and dilute earnings, Yang said in an Aug. 11 report.

High Price

Haroldo Lima, head of the Brazilian oil regulator, known as the ANP, said in an Aug. 12 interview that $8 a barrel would be a “reasonable price” for the reserves.

About 3.1 billion barrels of the reserves will come from Franco, Petrobras said in yesterday’s statement, while the Iara and Florim fields will account for another 1.07 billion. Petrobras, based in Rio de Janeiro, will also receive the rights to oil at Tupi Northeast and Sul and Guara East fields.

“This is the biggest operation ever done of its kind,” Finance Minister Guido Mantega said in Brasilia yesterday.

Billionaire George Soros’s Soros Fund Management LLC, which oversees $25 billion, sold its Petrobras stock in the second quarter, dumping its biggest company holding. BlackRock Inc., the world’s biggest asset manager, and Banco BTG Pactual SA also sold Petrobras in the quarter, according to Bloomberg data.

Petrobras rose 97 centavos, or 3.7 percent, to 27.03 reais in Sao Paulo trading yesterday. The yield on the company’s $2.5 billion in 5.75 percent bonds due 2020 fell to the lowest since Aug. 26, declining to 4.828 percent yesterday from 4.942 percent, according to BNP Paribas SA prices on Bloomberg.

Maintaining Stakes

Petrobras, which aims to carry out the share sale by the end of this month, said in the regulatory filing it expects to disclose the terms of the offer on Sept. 3. The company plans to issue enough shares to allow the government and minority investors to maintain their stakes. The sale was delayed in June as the company and the government awaited independent assessments on the value of the reserves.

Mantega and Petrobras Chief Executive Officer Jose Sergio Gabrielli yesterday declined to comment on the total value of the share sale.

The oil-for-stock swap is part of new regulations from President Luiz Inacio Lula da Silva late last year to increase government control over reserves after Petrobras discovered the Tupi field, the largest oil find since Mexico’s Cantarell in 1976. Lula received two separate independent valuations on the crude reserves on Aug. 19 from Petrobras and the ANP. The ANP, government and company began negotiations on Aug. 20.

Lula is ’’happy’’ with the price, according to Mantega.

‘Commercial Transaction’

Petrobras said last month it was treating the price talks as a “commercial transaction” and that “it’s natural that both parties would seek to maximize their results.”

Petrobras in June named Banco Bradesco SA, Citigroup Inc., Itau Unibanco Holding SA, Bank of America Corp., Morgan Stanley and Banco Santander SA to manage the share sale and that Banco do Brasil SA will manage the offering to minority investors in the domestic market.

Chief Financial Officer Almir Barbassa said Aug. 13 that the share sale is needed to replenish capital after debt rose to the upper limit of the company’s target. Debt as a percentage of equity rose to 34 percent in the second quarter, from 32 percent in the previous quarter and 28 percent in the year-earlier period, Petrobras said in its earnings report.

Immigrants Don't Take Jobs From Americans, Fed Study Says - By Courtney Schlisserman

2010-08-30T18:49:00.000-07:00

Immigration has no “significant” effect on the number of jobs available to U.S.-born workers and helps boost incomes and productivity over time, according to a paper by an economist at the Federal Reserve Bank of San Francisco.

“There is no evidence that immigrants crowd out U.S.-born workers in either the short or long run,” Giovanni Peri, an associate professor at the University of California-Davis and a visiting scholar at the San Francisco Fed, said in the paper released today. “Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity.”

Immigrants, who tend to be less educated and lack English- language skills, allow U.S.-born workers with similar levels of education to shift toward more communications-intensive jobs, which generally pay better, Peri said. Also, a growing workforce prompts companies to expand and upgrade equipment, making the economy more productive, he said.

An inflow of immigrants equal to 1 percent of the increase in employment helps boost overall incomes by 0.6 percent to 0.9 percent, according to Peri’s research. That means that immigration pushed wages up by $5,100 on average from 1990 to 2007 after adjusting for inflation, accounting for 20 percent to 25 percent of the gain during those years, he said.

The paper comes as U.S. hiring shows signs of cooling. A Labor Department report on Sept. 3 may show that private payroll rose by 47,000 this month after a 71,000 gain in July, and the unemployment rate rose to 9.6 percent, according to the median forecast of economists surveyed by Bloomberg News.

“The painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence,” Fed Chairman Ben S. Bernanke said at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming, on Aug. 27.

Rising China Wages Cut Advantage Over Mexico, Flextronics Says - By Tim Culpan and Frederik Balfour

2010-08-29T22:18:00.000-07:00

China’s rising wages are cutting the country’s cost advantage over other manufacturing centers such as Mexico, according to Flextronics International Ltd., the world’s second-largest custom electronics maker.

“As China moves up, up and up and up, for five straight years, it’s been moving up heading towards Mexican pricing,” Mike McNamara, Chief Executive Officer of Singapore-based Flextronics, said in an interview. “Mexico’s been the same labor cost for the past five years, it hasn’t moved up at all.”

Flextronics, which supplies to Hewlett-Packard Co. and Cisco Systems Inc., has been forced to increase wages in China in line with government regulations and growing affluence in the fastest-growing major economy. Larger rival Foxconn Technology Group said this month it will move production away from China’s coastal regions after announcing a doubling of wages at its largest production bases in the south east.

The failure of Flextronics to make its components business profitable means the company will “probably not” achieve its operating-margin target of 3.5 percent this fiscal year which ends in March, McNamara said, without giving a goal timeline. Components account for about 10 percent of sales, he said. Operating income as a percentage of revenue is a key measure of profitability.

Mexico’s Appeal

Mexico, where Flextronics makes televisions for LG Electronics Inc., contributed 15 percent of the manufacturer’s sales in the fiscal year to March, compared with 11 percent a year earlier, its annual report showed. China provided 33 percent of the company’s revenue.

“Mexico’s proximity to the U.S. is phenomenal,” McNamara said. “You start thinking about freight and you think about all the green energy initiatives that are going on. It’s going to put a little bit more emphasis toward doing more products in Mexico.”

Former Mexican Economy Minister Gerardo Ruiz Mateos said in a June 29 interview that the nation will create 750,000 formal jobs this year as the economy rebounds from a recession and foreign direct investment rises. Demand for Mexican exports will help draw about $20 billion in foreign direct investment this year and a greater amount in coming years, Mateos said.

“Mexico is close to the U.S. and is part of the North American Free Trade Agreement, which is why more and more companies are building facilities for exports to the U.S.,” said Vincent Chen, an electronics analyst at Yuanta Securities Co. in Taipei. “China labor costs have been rising 10 percent to 20 percent per year for the last decade, but the cluster of suppliers is still there.”

Flextronics employs 200,000 people globally with operations in 30 countries. Around 30 percent of its workforce is the Americas and 90,000 in China, spokeswoman Valerie Kurniawan said in an e-mailed statement.

No Inland Move

Rising wages in China won’t spur an exodus or prompt Flextronics to move all of its production bases in the country, since labor remains a small cost of manufacturing for many of its products, McNamara said. Labor is about 0.5 percent of sales for computers, rising to 10 percent for power supplies, which require more manual work, he said.

“As far as a wholesale, large-scale effort to move inland, I don’t see any economics at all to it,” McNamara said. Ninety- percent of Flextronics’ production is exported, making a move away from China’s ports less economically viable, he said.

Flextronics plans to continue hiring for the next five years at a power-supply factory in Ganzhou, in China’s inland Jiangxi Province where wages are lower, offsetting the higher labor component for those products, he said. The company will hire up to 6,000 in Ganzhou this year.

Foxconn Shifts Production

Foxconn, which makes Apple Inc.’s iPad and also supplies most of the components used in the cell phones it assembles, in June announced the company would double base-wages for employees in Shenzhen, where it has around half its 900,000 workers, and cut the headcount there by about 170,000 over five years. A 40 percent expansion in its workforce over the next year will occur in inland China, where wages are lower and factories will be closer to the hometowns of its migrant workers, it said.

Foxconn controls 50 percent of the electronics manufacturing services market, double the share of Flextronics, according to researcher iSuppli Corp.

Flextronics shares have lost 30 percent this year on the Nasdaq stock market to close at $5.11 on Aug. 27. Hon Hai Precision Industry Co., the Taipei-based flagship of the Foxconn Group, has declined 11.3 percent on the Taiwan Stock Exchange over the same period.

Solar Power: Brighter Long-Term Investment Outlook - David Bogoslaw

2010-08-28T13:23:00.000-07:00

With utilities adopting standards to increase the amount of solar-generated electricity in coming years, the U.S. could bolster its presence in the global solar-power market. The quickening growth pace could present attractive opportunities for investors, according to some professionals.

At the end of 2009, the U.S. ranked fourth in total solar capacity, with 2.09 gigawatts installed, behind Germany with 9.79Gw, Spain with 4.01Gw, and Japan with 2.68Gw, according to Bloomberg New Energy Finance. With U.S. installed capacity growing at a faster pace than that of the international market, the country may be on track to become a more dominant market by 2014, according to Larry Sherwood, an analyst at the Interstate Renewable Energy Council (IREC).

Some 23Gw of solar capacity are under development in the U.S., enough to provide electricity for 4.4 million households, according to the Solar Energy Industries Assn. (SEIA). Solar demand in the U.S. is expected to grow 75 percent in 2011, compared with 2010. About 1.5Gw to 2.0Gw of capacity—1.36Gw in California alone—is scheduled to be installed next year.

One factor could snarl that time line: the expiration of federal incentives, specifically the Treasury Dept.'s cash grant program, which currently covers 30 percent of a project's costs, as long as construction has begun by the end of 2010. SEIA and other groups are pushing to have the qualifying construction start date extended by two years, to the end of 2012. Members of the U.S. Senate Finance Committee didn't return calls asking when they would vote on extending the program. Kaufman Brothers said in an Aug. 17 research note that the firm didn't expect a major decision on solar incentives until after the fall U.S. elections.

U.S. FOCUS ON UTILITY-SCALE SOLAR
The diversion of $3.5 billion from the Energy Dept.'s Loan Guarantee Program to other stimulus projects—and uncertainty as to whether any of the money will be restored—is also delaying some projects. Indeed, the main reason the U.S. solar market lags Europe's is that the federal government has consistently failed to commit to a long-term policy offering financial incentives to power providers, without which solar can't yet compete with such cheaper sources of electric generation as coal and natural gas.

While Europe is moving toward smaller rooftop installation, utility-scale projects are fast becoming the focus in the U.S. and are the most likely way for the U.S. to catch up with the leading solar markets. Photovoltaic panel makers FirstSolar
Solar's brighter future has some investment pros seeking opportunities beyond manufacturers of photovoltaic solar panels. Page at Guinness Atkinson recommends investing in stocks likely to benefit, no matter where solar demand is strongest. Page likes SMA Solar (S92:GR), a German producer of inverters, which convert the direct current produced by solar and wind into alternating current that can be used on the grid.

SATCON'S UTILITY-SCALE INVERTERS
The bigger the installation, the more important the inverter that enables a connection to the grid, says Osborne at Stifel Nicolaus.

While SMA Solar dominates the inverter market, Satcon Technology (SATC) is the largest manufacturer of utility-scale inverters, whose importance is sure to grow as the U.S. market moves toward utility-scale systems. While Satcon continues to report net losses, its revenue tripled from a year earlier, to $27.6 million in the second quarter. Some 45 percent of that volume derived from Europe, vs. nearly all its demand coming from North America a year earlier. The company's "geographic diversification is also reflected in its record backlog of $111 million," 20 percent of which comes from Europe, with another 33 percent coming from Asia, according to an Aug. 6 research note by Raymond James & Co. (RJF). The total backlog has grown 35 percent since June 30. Satcon has announced plans to build annual production capacity from 1Gw now, to 1.25Gw by the end of 2010, and to 1.75Gw in 2011.

Much of Satcon's revenue growth and gross margin expansion, bolstered by a recent shift to lower-cost manufacturing in China, is being offset by higher fixed costs necessitated by international expansion and a bigger workforce, said Raymond James, which still expects the company to post net losses through 2011. The red ink didn't stop Osborne at Stifel from upgrading the stock on July 27 to buy, from hold, citing improving margins and prospects for market share expansion.

The transformation of the U.S. market from rooftop to utility-scale systems is also expected to benefit Power-One (PWER) and Advanced Energy Industries (AEIS), which also make inverters. Dougherty & Co. estimated in a July 30 research note that Power-One's total renewable energy backlog increased by more than $500 million, compared with the first quarter, and is now over $900 million, the equivalent of 3.2Gw to 3.5Gw in shipments. The fast-growing inverter business introduces "a compelling growth aspect to an otherwise cyclical semiconductor capital equipment stock," giving the company more potential than other semiconductor makers to branch into adjacent segments such as solar over the long term, Pacific Crest Securities said in an Aug. 12 note.

KEY ROLE FOR CAPITAL EQUIPMENT MAKERS
Another company that is expected to do well regardless of where demand is strongest is STR Holdings (STRI), which makes adhesive encapsulants, the ethylene vinyl acetate sheets used to weatherproof solar panels and prevent yellowing. Demand for STR's products is strong, with half the world's solar panel makers signed up to use them, says Page at Guinness Atkinson. The company's net sales for the second quarter rose 126 percent from a year earlier, to $67 million, and were up more than 22 percent from the first quarter.(FSLR) and SunPower (SPWRA) have large pipelines of utility-scale projects and will be dominant players in the U.S., starting in 2011, says Matthew Page, one of the managers of the Guinness Atkinson Alternative Energy Fund (GAAEX).

With so much uncertainty surrounding incentives at home and overseas, the fact that more countries are adopting renewable energy standards and planning to build solar plants has analysts and some fund managers feeling more confident about the industry. "I'm bullish on solar because the market is no longer dominated by two or three countries," says Jeff Osborne, an analyst who covers clean energy stocks at Stifel Nicolaus (SF). "Morocco said in 2009 that it wanted to build 2Gw of solar." Utilities in Eastern Europe, he adds, are eager to diversify their energy sources to reduce their exposure to periodic supply disruptions from Russia's Gazprom (OGZPY:US), which provides roughly 25 percent of Europe's natural gas needs.

Capital equipment makers are also a fairly safe bet, with attractive returns on invested capital, says Osborne. Applied Materials (AMAT) and GT Solar (SOLR) both make the semiconductor equipment that deposits chemicals on large polysilicon cell surfaces. Applied Materials also makes equipment that cuts silicon wafers, while GT Solar makes polysilicon and wafers. Osborne sees them as "the arms merchants to the sector," which is attracting new customers in such countries as Korea and India.

If utility-scale installations grow as analysts expect, photovoltaic technologies will in time be outshone by concentrated solar thermal power, or CSP, which uses rotating mirrors to reflect the sun toward parabolic troughs carrying a liquid heat conductor or to so-called "power towers" with hot water boilers on top. The concentrated sunlight superheats the liquid heat conductor or the water, producing steam that drives turbines and generates electricity.

The companies that make materials for solar thermal installations such as mirrors and receiver tubes are now privately held. Turbines are made by public companies, however, and Siemens (SI) is one manufacturer whose turbine orders may increase as solar thermal power gets commercialized. BrightSource Energy, the privately held developer of Ivanpah, a 392-megawatt complex consisting of three CSP plants in California, is using Siemens turbines; the first of those plants is scheduled to begin operation in 2012.

BY 2020, 6GW OF SOLAR CAPACITY
Still, photovoltaic systems are the backbone of the U.S. market, now and for the foreseeable future. In the U.S., 29 states and Washington now have mandatory Renewable Portfolio Standards, while a further six states have set voluntary goals. Most of the solar development is occurring in the 16 states that have "carve-outs," which establish a minimum percentage of electricity that retailers must provide from solar or distributed generation by a certain date, says Justin Barnes, a policy analyst for the Database of State Incentives for Renewables & Efficiency (DSIRE).

Total capacity for grid-connected PV installations was 1.26Gw at the end of 2009. Total solar capacity must reach 6Gw by 2020, and 9.5Gw by 2025, in order for the 16 states with solar carve-outs to meet their targets, according to projections by the Lawrence Berkeley National Laboratory, which is part of the U.S. Energy Dept. That's expected to be a key driver of revenue growth for manufacturers of PV panels and related materials.

Apart from companies that serve the PV panel market, there isn't yet much of a solar industry for retail investors to buy into. That will change in the next couple of years, says Nancy Pfund, a managing partner at DBL Investors, a San Francisco venture capital firm that was spun out of a JPMorgan equity fund in 2008 and which has invested in the Ivanpah complex. "There's going to be a lot more choice very soon," she says, citing the coming of gigawatt-sized solar projects by 2016.

Eventually, manufacturers of solar mirrors used in CSP plants will either go public or be acquired by public companies, she says. She foresees the same trajectory for makers of concentrated photovoltaics, which boost the efficiency of energy conversion from silicon on the panels by focusing on how the silicon is arranged alongside glass.

SOLAR FINANCING OPTIONS
Solar installation financing is another potentially big area for investment, Pfund believes. She sits on the board of SolarCity, the only full-service solar installation company in the U.S. In January, SolarCity signed a deal with Pacific Gas & Electric (PCG) under which the California utility will provide $60 million in tax equity financing for solar installations in U.S. homes and businesses in exchange for lease revenue from SolarCity customers, as well as federal investment tax credits and local rebates. SolarCity's financing options let homeowners and businesses switch to solar power with no up-front investment, so they can start saving on energy costs right away. The company's goal is to be a national brand and become publicly traded, although that's a few years away, says Pfund.

Banks such as Rabobank have also begun to establish tax equity funds. As solar energy becomes more prevalent, Pfund believes more utilities will be attracted to the financing model in order to avoid losing some of their biggest customers, who will move to solar because of how much power they consume.

Investors need to maintain a lengthy time horizon in betting on the growth of the solar industry, says Mark Burger, a principal at Kestrel Development, a consulting firm for renewable energy policy, markets, and technologies.

Solar is "the new 30-year Treasury bond," Burger says. "It's a nice, conservative investment. And you'll get a better return than owning a Treasury bond."

China's Billionaire Builder - William Mellor

2010-08-25T14:30:00.000-07:00

Zhang Xin is betting hundreds of millions of dollars that the warnings of a housing crash are wrong. The former sweatshop worker has a track record of being right.

From her leafy, 11th-floor rooftop terrace at the headquarters of Soho China Ltd., billionaire Zhang Xin scans the relentlessly expanding Beijing skyline she helped create. Zhang’s avant-garde buildings -- some sleek as chopsticks, others stepped like rice terraces -- became part of the hottest real estate market on Earth in 2010.

Zhang says she’s well aware of the chorus of investors and economists who predict that China’s property boom is about to go bust, taking the global economy down with it. The doomsday scenarios don’t intimidate Zhang, a onetime penniless sweatshop worker who ascended to Wall Street by defying the odds. She hopes to prove skeptics wrong again this year by betting hundreds of millions of dollars on new buildings in Beijing and Shanghai, Bloomberg Markets magazine reports in its September issue.

“I don’t see any bubbles,” says Zhang, dressed in a white V-neck zippered top, black slacks and red heels. “The next few months will be a fantastic time to buy.”

Zhang, 44, personifies the explosive rise of China, from the poverty of Mao Zedong’s communist rule to the riches of state-controlled capitalism in the world’s third-biggest economy. At age 30, armed with a master’s degree from the University of Cambridge in England and connections from working at Goldman Sachs Group Inc. in New York and Hong Kong, Zhang founded Soho China with her husband, Pan Shiyi. The company became central Beijing’s biggest developer about a decade later in 2005 -- and a favorite among investors.

Soho China’s Shares

Soho China’s shares jumped about 17 percent on the Hong Kong stock exchange this year through Aug. 3 compared with a 6.1 percent fall in the Bloomberg Asia Pacific Real Estate Index, which includes 191 property stocks. Zhang’s ownership stake is worth about $2.2 billion, ranking her alongside Oprah Winfrey as one of the world’s wealthiest self-made women, says Rupert Hoogewerf, whose Shanghai-based Hurun Report tracks China’s rich.

Zhang, who rode the wave of China’s three-decade expansion, now faces a real estate market that’s due for a crash, says Andy Xie, formerly Morgan Stanley’s Asia-Pacific chief economist, who now works independently in Shanghai. Economists began predicting a real estate bubble in China last year after its government pumped $585 billion of stimulus funds into the economy. State- controlled banks went on a record $1.4 trillion lending spree in 2009.

See-Through Buildings

That sent residential real estate prices soaring 68 percent in the first quarter of this year compared with the same period in 2009, pushing mainland China past Hong Kong as the world’s fastest-appreciating housing market, says London-based property adviser Knight Frank LLP. Beijing’s skyline has shot up along with prices, leaving it with many unoccupied see-through buildings. In the central business district, 37.5 percent of office space was vacant in the second quarter, according to Chicago-based property advisory firm Jones Lang LaSalle Inc.

“This is a serious bubble,” Xie says. “The alarm bells are ringing.”

Kenneth Rogoff, a Harvard University professor and co- author of “This Time Is Different,” (Princeton University Press, 2009), a book that examines financial crises during the past 800 years, already sees signs of turmoil in China’s housing market.

“Property prices are starting to collapse,” he says.

Barclays Capital and Standard Chartered Plc analysts forecast a falloff of as much as 30 percent in China’s big cities in the second half of 2010 compared with those of mid- April.

Double-Dip Recession

If China’s real estate takes a dive, so will its economy, analysts say. Property investment and related industries make up about 20 percent of the country’s gross domestic product, Citigroup Inc. research shows. The economy, which expanded 10.3 percent in the second quarter, may slow to 5 percent in the third period if housing plummets, says Jim Walker, chief economist at Hong Kong-based Asianomics Ltd.

The slowdown would reverberate throughout Asia and beyond, especially to countries that supply iron ore and other commodities that have fueled China’s boom.

“Commodity suppliers such as Australia and Brazil will be hard hit,” Walker says. “They are incredibly China dependent. It could result in the double-dip recession people are talking about.”

China’s economic rulers moved earlier this year to engineer a soft landing. In April, China’s cabinet, led by Premier Wen Jiabao, began imposing stringent restrictions on lending to curb speculation, particularly on luxury dwellings.

Housing Soars

Officials raised down-payment requirements and interest rates on housing purchases, boosted the proportion of deposits that banks must hold in reserve and, in Beijing, banned families from buying more than one new home.

The measures cooled the economy after it grew at a sizzling 11.9 percent pace in the first quarter. Housing prices, which jumped a record 12.8 percent in April, eased to 11 percent in June.

While Zhang says government managers will prevent a crash, she would prefer they let the market dictate demand. Unlike most of her rich Chinese peers, who keep a low profile to stay on good terms with officials, Zhang has been very public in her criticism of government policies.

“The market should be making the decision to buy or not to buy, not be told by the government,” says Zhang, who lives with her husband and two sons, ages 10 and 12, in a 32nd-floor penthouse in her Jianwai Soho development in Beijing. “The government is very sensitive to public opinion and that’s why people like us have the responsibility to talk honestly about what is happening. That would hopefully help to get the truth to the decision makers.”

Rupert Murdoch

The English-speaking Zhang, who regularly appears in Beijing’s society magazines, brings a Western style to the way she does business. During the 2008 Summer Games in Beijing, Zhang and Pan entertained fellow billionaire Rupert Murdoch and his wife, China native Wendi Deng, at a celebrity party -- attended by bankers, movie stars and the media -- at a resort they built with the help of 12 architects next to the Great Wall of China. An inveterate blogger and user of a Twitter-like service, Zhang, who calls herself a soccer mom, praised Spain’s “perfect” defense in a post following its World Cup victory in July.

Fiberglass Pigs

Zhang’s company headquarters in the Chaowai Soho building looks like a Silicon Valley tech firm. Casually dressed engineers, architects and salespeople bounce around ideas in a communal coffee bar decorated with a sculptured herd of life- size fiberglass pigs.

“Many Chinese companies are run like military camps with military discipline,” Zhang says. “We do not run a company that way. It does not help the creative process.”

Pan, 46, the slim, balding and bespectacled chairman of Soho China, says his wife’s relaxed management style only goes so far. Zhang, the chief executive officer of Soho China, enforces its corporate culture with the determination of a Communist Party cadre, Pan said through a spokesman in an e- mail.

“Zhang Xin’s personality, value system and educational background are just like our own personal Central Commission for Discipline Inspection,” Pan jokes. He wasn’t available to be interviewed in person.

Natural Experimentalist

In hiring noted architects from around the world, Zhang has pushed the boundaries of design in Beijing. Kengo Kuma of Japan, who designed the Osaka headquarters of LVMH Moet Hennessy Louis Vuitton SA, created Sanlitun Soho, a development of nine office and apartment buildings shaped like ocean waves. It opened in June.

“She is a natural experimentalist, simultaneously setting and defying trends,” Pan says.

Zhang and Pan develop buildings for Chinese much like themselves: entrepreneurs. Many of their rivals put up conventional offices, to be leased mainly to multinational tenants, or grandiose villas and luxury apartments with swimming pools for China’s superrich. The duo conveyed their more practical side with the name Soho, which stands for small office, home office.

The company says it has developed 2.3 million square meters (24.8 million square feet) of real estate -- including about a fifth of Beijing’s central business district. Soho China’s early projects were multiuse, designed for living, working or both. Buyers of Zhang’s high-end units, which can cost more than 60,000 yuan ($8,860) a square meter, include coal mine owners and exporters. In the second quarter, 92 percent of Soho China’s buildings were occupied, Zhang says. Profit surged last year more than eightfold to 3.3 billion yuan.

Zhang Expands

“They focus on sectors which hold long-term promise,” says Mark Mobius, Singapore-based executive chairman of Templeton Asset Management Ltd., which is Soho China’s largest institutional investor, with a 4 percent stake, according to data compiled by Bloomberg. “They have high sensitivity and a great sense of style.”

Zhang is now expanding her empire again, dismissing the China bears. In June, she paid 2.25 billion yuan for a 22,500- square-meter plot of vacant land on the Bund, Shanghai’s stately colonial-era waterfront strip, where buildings resemble those of 19th-century Europe. Two weeks later in Beijing, she started marketing a futuristic 485,000-square-meter commercial, retail and entertainment complex that’s shaped like interlinked cocoons. It will be designed by London-based Pritzker Prize- winning architect Zaha Hadid.

Agricultural Bank

Many investors don’t share Zhang’s optimism about the housing market. On July 16, the Agricultural Bank of China debuted on the Hong Kong stock exchange, rising 2.2 percent to 3.20 Hong Kong dollars. Analysts and fund managers surveyed by Bloomberg had predicted a first-day gain of 5 percent, according to the average of seven estimates. On Aug.3, the stock closed at 3.51 Hong Kong dollars, a rise of 9.7 percent.

Agricultural Bank made 1 trillion yuan of mortgage and other loans last year, and its rate of nonperforming credits at the end of 2009 was 2.91 percent -- almost double that of China’s three other largest state-run banks.

As housing prices fall, bad loans will surge and hurt the state-owned banks, says Michael Pettis, a professor of finance at Peking University. “I would stay clear of property developers and banks,” says Marc Faber, who oversees $300 million at his own firm and has managed money in Hong Kong for the past 37 years.

Cultural Revolution

Zhang, who was born in 1965 as China was about to plunge into the chaos of the Cultural Revolution, is an unlikely billionaire. Her parents, who were both translators at Beijing’s Bureau of Foreign Languages, separated during Mao’s crackdown. As part of the Communist Party’s forced exodus of intellectuals to work in the countryside, Zhang and her mother ended up in a rural part of Henan province.

In 1979, they found their way to Hong Kong and lived in a single room just big enough for two bunk beds. They shared a bathroom with other families.

For five years, from age 14, Zhang toiled in small factories making sleeves, collars, zippers and electrical parts. She says conditions there were similar to those in mainland China today. At Taiwanese-owned Foxconn Technology Group, which makes Apple Inc. iPhones in Guangdong province, at least 10 of its workers committed suicide in recent months, according to China’s official media. Foxconn employees work a massive amount of overtime to make a living wage and grow extremely exhausted, Li Qiang, executive director of New York-based China Labor Watch, said in a statement in May.

Cambridge University

“My life then was exactly the same as those factory workers,” Zhang says. “It was mindless work. You basically moved from one factory to another for whoever paid you slightly more.”

By age 19, she had saved the equivalent of a few thousand British pounds -- enough to buy an airplane ticket to London and support herself while she studied English at secretarial school.

“Quickly, after I landed in England, I found out ways to get scholarships,” she says. “England turned out to be a very encouraging place for me.”

She won a spot at the University of Sussex, where she earned her undergraduate degree in economics in 1991. Then she enrolled at Cambridge and graduated in 1992 with a master’s in development economics.

Goldman Sachs

Barings Plc, a London-based investment bank, hired Zhang right out of Cambridge to work in Hong Kong analyzing privatization in China. Soon after starting the job, she switched to Goldman Sachs, serving as an analyst at the investment bank. It was a short stay. In 1994, she joined Travelers Group Inc. Homesick, she returned to China a year later.

Zhang told the New Yorker magazine in 2005 that she had detested investment banking.

“On Wall Street, all values seemed upside down,” she said. “People spoke crassly, treated each other badly, looked down on the poor and adored the rich.” She said investment banking reminded her of her days working in the Hong Kong garment factories. “The difference is, in Hong Kong the competition turned people into shortsighted mice, whereas on Wall Street it turns them into wolves and tigers,” she said.

Zhang stepped back into China in 1995 as the economy was moving away from orthodox Marxism. As early as 1978, China’s leader, Deng Xiaoping, had begun to open markets, declaring: “To get rich is glorious.” Beijing, famous for its exquisite 600-year-old Forbidden City flanked by stolid Soviet-style architecture, was beginning to sprout modern buildings. Workers were flocking to the capital as China’s economy surged at the rate of 10 percent a year. A friend of Zhang’s recommended that she contact Beijing Vantone Real Estate Co., where Pan served as a partner.

Hawaii of China

Like Zhang, Pan was self-made. His grandfather, a supporter of Mao’s rival, Nationalist leader Chiang Kai-shek, had fought on the losing side in the civil war that ended in 1949, Zhang says. The family had been persecuted for it and forced to eke out a living as peasants in impoverished northwestern Gansu province.

“If I grew up with nothing, they grew up with even less,” Zhang says.

After getting a college diploma and working in the petroleum ministry, Pan in 1989 headed south to the tropical island of Hainan, then a freewheeling frontier about to be reshaped as the Hawaii of China. There, Pan learned the real estate business before returning with his partners to seek opportunities in Beijing, Zhang says.

Tiananmen Square

Within four days of meeting Zhang, Pan proposed. Soon after their marriage, he left Vantone and the newlyweds teamed up to form a company called Hongshi (red stone), later renamed Soho China. Zhang would use her experience in investment banking to attract foreign investors and architects; Pan had local knowledge and connections to negotiate with the government to acquire the land.

“It was the initial attraction in us being partners in business as well as partners in life,” Zhang says.

Zhang and Pan were setting up their company in 1995 as the local government in Beijing was developing a 4-square-kilometer central business district beyond the eastern end of the Avenue of Eternal Peace. The development was about 5 kilometers (3 miles) from Tiananmen Square, where the army had killed pro- democracy demonstrators six years earlier. The couple correctly gambled that the government would soon allow citizens to get home loans, and that a class of entrepreneurs would emerge to buy their live-work units.

Asian Crisis

For their first project, Pan and Zhang planned to turn a malodorous old Chinese liquor factory into Soho New Town: 10 brightly colored buildings from 12 to 40 stories high and accommodating 8,000 residents and hundreds of small businesses.

“Neither of us was financially established,” Zhang says. “But the good thing about having no experience is that you have no fear.”

As construction was about to begin in 1997, the Asian financial crisis struck. Beginning in then-debt-ridden Thailand when the government was forced to abandon its currency peg to the U.S. dollar, the contagion spread across the region, sending currencies other than the nonconvertible yuan plunging.

Investors outside of China who had promised to back the project suddenly couldn’t or wouldn’t come up with the funds. Pan turned to local investors to save Soho New Town, and the development sold out even before completion in 2001. Rather than trying to sell or lease entire buildings, Zhang and Pan peddled units to individual purchasers, a practice they still use today to reduce the risk of whole buildings sitting vacant.

Management Disputes

As China’s global aspirations grew, so did Zhang’s. By the early 2000s, China’s economy was rapidly overtaking those of the U.K. and Germany. Beijing had been chosen to host the 2008 Olympics, accelerating the government’s plans to develop the equivalent of three Manhattans in the central business district.

On the site of an old machine-tool factory, Zhang and Pan began in 2002 to put up Jianwai Soho, a 683,000-square-meter complex of 24 white, cubic buildings of varying heights designed by a Japanese architect, Riken Yamamoto. The project was so large that it took five years to complete and exposed a weakness in Soho China’s business model, says Jack Rodman, president of Shanghai-based Global Distressed Solutions LLC.

After selling the apartments, offices and shops in their developments, Pan and Zhang turned over control to independent management companies. At Jianwai Soho, disputes over management fees and quality of service broke out between owners and property managers -- tensions that continue to flare today. Some of the buildings are now in need of repair.

2007 IPO

Zhang says the management breakdowns hurt the reputation of Soho China, which is taking back control of all but one of its developments.

“Earlier, we said, ‘This is not our problem; why should we manage them?’” she says. “Then we realized they have our names on the buildings.”

Zhang in 2007 persuaded Pan to take the company public in Hong Kong and cash in. The timing of the initial public offering on October 8, 2007, was exquisite. Less than a month later, global markets began to tumble in the early days of the credit crisis. They raised $1.9 billion -- the biggest IPO by a property company in Hong Kong that year.

Soho China shares traded at HK$4.92 on Aug. 3, 40 percent below the offering price. After plummeting along with the rest of the stock markets during the financial meltdown, Soho China’s stock outperformed the Hong Kong and Asia Pacific property indexes almost twofold since it hit bottom in October 2008 through Aug. 3.

Wall Street Wolves

The IPO, which was underwritten by Goldman Sachs, HSBC Holdings Plc and UBS AG, marked a change in Zhang’s relationship with Wall Street. Only two years earlier, she had publicly lambasted investment bankers as wolves. Today, Zhang is more circumspect when asked about her Wall Street experiences.

“I had better be careful these days,” she says. “I am their client. I work with them very closely.”

Today, the Soho name appears on 14 developments in Beijing, a city of 22 million people. In August 2009, Zhang and Pan made their first move into Shanghai with their purchase from Morgan Stanley of the Exchange, a 50-story office building on Nanjing Road, Shanghai’s main shopping street.

Now called the Exchange-Soho, the development is a prime example of the real estate bubble in China, economist Xie says. Soho China paid Morgan Stanley 2.45 billion yuan for the building -- the equivalent of 34,000 yuan per square meter. In the first quarter of 2010, Zhang says, she was selling office space in the building for an average 61,500 yuan per square meter, almost doubling her money. That works out to $843 per square foot -- more than twice the $381 per square foot that HSBC made when it sold its New York headquarters on Fifth Ave. in October.

Feared a Bubble

“Chinese property prices are 100 percent higher than can be justified,” Xie says.

Zhang, who early this year feared a bubble, now says her own research reveals that the property market is regaining its sanity. She says real estate prices have been cooling since April, following the government’s lending restrictions, but aren’t headed for a collapse.

“We know from our own experience the prices are staying flat,” she says.

Stephen Roach, Asia chairman of Morgan Stanley, agrees with Zhang. China’s property bubble is confined to luxury properties, he says. Roach says the lending curbs are successfully deflating high-end speculators in the top 10 cities, which collectively account for just six percent of the total market.

“It’s a micro bubble, not a macro bubble,” he says.

Slower Growth

Roach says the drop in the high-end market will slow economic growth, which he estimates will fall to between 8 percent and 9 percent by the end of the year.

“This would be a much more sustainable growth rate for China -- especially in light of the recent uptick in inflation,” he says. Inflation reached 3.1 percent in May, the fastest growth in 19 months, before falling back to 2.9 percent in June.

To stabilize the housing market, China needs to build more affordable dwellings to be sold to the 500 million Chinese whose income has been rising for a decade, says Donald Straszheim, Los Angeles-based senior managing director and head of China research at ISI Group, a firm that advises institutional investors. He says the government should put together a long- term program to increase construction of low- and middle-income housing.

Zhang’s Forecast

“If they don’t, the massive number of people getting richer each year will continue to bid up house prices and frustrate Beijing,” Straszheim says. “When the government takes the lid off lending, house prices are going to go back up again. That’s a persistent boom-bust cycle.”

Zhang says success in real estate has come down to guessing what the government will do next. In June, she gave her prediction at a JPMorgan Chase & Co. conference attended by almost 2,000 foreign investors in Beijing.

“Everyone was so pessimistic, and I was saying that in the next six months or a year, prices will go up again,” she says. “My guess is that it is austerity now, but at some point it will become stimulus again.”

If the former sweatshop worker is right, her latest property investments will likely prosper -- as will China, perhaps sparing the global economy the threat of a double-dip recession.

William Mellor is a senior writer for Bloomberg Markets in Sydney at wmellor@bloomberg.net.

Millionaires’ Kids Hunt M&A for Standard Chartered - Joyce Koh -

2010-08-25T14:28:00.000-07:00

Standard Chartered Plc started a trainee program for the children of private-banking clients, joining bigger rivals including Citigroup Inc. and UBS AG in reaching out to Asia’s next generation of millionaires.

Eighteen people aged 18 to 26 enrolled in the six-week program in Singapore, which ended Aug. 13. They were assigned to projects ranging from identifying potential acquisition targets for London-based Standard Chartered to developing ideas for branch design, said Jungkiu Choi, the executive responsible for the course.

UBS and Citigroup, the biggest managers of money for the rich in the Asia-Pacific region, also run programs for children of their private-banking clients as banks target the scions of millionaires. Asia’s wealth may grow at double the global pace over the next four years, according to a Boston Consulting Group report published in June.

For “rich people, the next generation is their number one concern,” Choi said in an Aug. 23 interview in Singapore. “Transferring knowledge, discipline, business acumen, capability -- that’s more important to them than transferring their wealth.”

Private banks ignore the offspring of rich clients at their peril, said Justin Ong, PricewaterhouseCoopers LLP’s private banking leader for Asia-Pacific. A survey by PwC last year showed almost 40 percent of private banks in Asia don’t know how much money they’ll keep when a clients’ wealth gets transferred, he said.

Loss of Customers

“This is really a time of investment by the banks to develop relationships with the next generation of high net worth,” Singapore-based Ong said. “They have only just come to realize the deepening issue around potential customer loss if they don’t react to this and start building relationships now.”

Standard Chartered, the U.K. lender that gets more than three-quarters of its profit from Asia, restarted wealth management operations in 2006 after a decade-long hiatus. It caters to people with more than $1 million of assets. Half of the interns’ families have at least $10 million managed by the bank, said spokeswoman Ally Lim.

Standard Chartered’s private bank increased assets under management by 27 percent in Asia in the first half, more than twice the global pace.

The bank has no plans to extend the program to other parts of Asia, since most senior executives are based in Singapore, said Choi. This year’s participants came from Singapore, China, Dubai, South Korea, India, Indonesia and Malaysia and paid for transport and accommodation themselves.

UBS, Citigroup Courses

In Asia, Zurich-based UBS runs a two-week course once a year in Singapore and Hong Kong on topics including wealth management, leadership and personal development. Citigroup’s program, which alternates between the two cities, ran for five days this year and covered financial planning, investing and “soft skills” such as public speaking, said Aamir Rahim, the New York-based bank’s Asia-Pacific chief executive officer of wealth management.

Both banks said their courses had record numbers of participants in Asia this year. Credit Suisse Group AG this year started its first Chinese-language course for young investors in Taiwan.

“Our programs for the next generation of ultra-high net worth clients are designed to provide practical advice on how to manage the wealth they will eventually acquire,” said Daniel Harel, UBS’s head of private banking in South Asia for clients with at least 50 million Swiss francs ($48 million) of assets.

M&A Shortlist

Standard Chartered’s program is the only one in Asia that takes place in a real-life business setting, Choi said. At the end of the six-week course, participants can opt for a one-week class in financial planning, he said. They get paid an intern stipend of S$1,300 ($957) a month for their work at the bank.

“I tell them: ‘You are Spiderman. You have a special power and a special responsibility, but you need to learn how to deliver pizza first’,” said Choi.

One thing the trainees may deliver for Standard Chartered is an acquisition. As part of their on-the-job training, they were asked to help identify potential takeover targets for one of the bank’s units. The participants whittled down the list of candidates to less than 10 from “a few hundred,” and Standard Chartered may start talks with those companies, Choi said.

He declined to identify the potential targets.

--Editors: Philip Lagerkranser, Lars Klemming

Working in good company - Jennifer Myers

2010-03-13T13:13:00.000-08:00

ou've gotta have friends,” as Bette Midler's song goes. And that goes for the workplace, too. Having a bosom buddy in the office can go a long way toward making that workday more satisfying – and productive. And workplace friends are all the more important in these times, experts say.

“We are social beings, we needs those connections. Friends provide social support that helps to buffer employees against stress. Friends help employees weather the stress that comes from the threat of downsizing and job insecurity, higher workloads and anxious bosses,” said Sandra Robinson, a professor of organizational behaviour at University of British Columbia's Sauder School of Business.

More than 38 per cent of American workers have colleagues they consider personal friends, 67 per cent believe that having workplace pals makes their job more fun and enjoyable, while 55 per cent say work friends make their job worthwhile and satisfying, according to a new poll of 1,017 employees by Ipsos Reid for staffing firm Randstad U.S.

Having a pal at work can boost employees' energy and enthusiasm, provide an ally and fulfill emotional needs so much that they look forward to going to work, Prof. Robinson said. “And they'll come in early and stay late if they find work more enjoyable.”

It's good for the employer, too: Workplace friendships boost teamwork, morale, communication, motivation, productivity and commitment to the company, and lower turnover, the Randstad survey found.

But as with any relationship, there are pitfalls to befriending your colleagues. If conflicts arise, you still have to work together, said Antoinette Blunt, president of Ironside Consulting Services Inc., a human resources consultancy in Sault Ste Marie, Ont.

Dealing with issues such as favouritism, gossip, conflicts of interest, blurring boundaries, oversocializing and cliques can make office friendships tricky, Ms. Blunt said. “And a falling out with a friend can have a huge negative impact.”

______

GOING STRONG

Sharing a tight office space could have been a disaster, but it was one of the best things that happened to Linsey Nogueira and Erin Manning, employees of Ketchum Public Relations Canada in Toronto.

“You get to know someone quite quickly when you can just turn your chair around and talk. We bonded. We have similar backgrounds, we're around the same age, went to the same PR school and have similar personalities. We became friends,” Ms. Manning said.

While the two had pals in common, they didn't know each other until Ms. Manning joined Ketchum about five years ago, a year after Ms. Nogueira started. The shared office space was a happy coincidence that lasted for about 18 months, until the company moved into new quarters and they got their own offices, but the friendship is still going strong.

The two regularly meet over lunch, and often check in with each other throughout the day on both work and non-work-related issues.

“It certainly makes it more enjoyable to come to work and have someone here who understands you and the office and the stresses of everyday life. Erin is honest and funny and supportive. And we trust each other,” Ms. Nogueira said.

There's also comfort in knowing that someone has your back, Ms. Manning added. “Who wouldn't want to work with someone who is also a close friend?”

The two agree that trust and respect are a big part of their friendship. And that makes for a safe environment in which they can confide in each other without worrying that it will end up feeding the office rumour mill, says Ms. Nogueira.

But the mates are careful not to let their friendship distract them from the work that needs to be done. “We're still professionals, we have clients and teams that rely on us. We realize we still have to do our jobs,” says Ms. Manning.

How would Ms. Manning feel if Ms. Nogueira left Ketchum? “I'd be devastated. I know that life goes on and the reality is we won't always work together, but it would be sad not to see Linsey's face here each day.”

______

HOW WORKERS SEE IT

The up side of workplace friendships

Creates a more supportive and friendly environment 70 per cent

Increases teamwork 69 per cent

Increases knowledge sharing and open communication 50 per cent

Higher job satisfaction 45 per cent

Makes employees more motivated 36 per cent

Reduces employee turnover 36 per cent

Creates a stronger commitment to the organization 32 per cent

Increases employee engagement 31 per cent

Increases productivity 30 per cent

The down side of workplace friendships

Feeds gossip 44 per cent

Create favouritism 37 per cent

Blurs professional boundaries 37 per cent

May cause others to feel uncomfortable 26 per cent

Reduces productivity 22 per cent

Reduces constructive feedback or openness 19 per cent

Source: Ipsos Reid/Randstad U.S., 2010 survey of 1,017 American workers

______

MANAGING OFFICE FRIENDSHIPS

1. Take it slowly. It takes time to develop trusting relationships with colleagues.

2. Set boundaries. Refrain from revealing characteristics and details about your personal life, which could haunt you later.

3. Be professional. Try to remain fair and objective in all your workplace activities and decisions. Remember your work has to triumph over friendship.

4. Keep a lid on workplace socializing. Don't turn a brief water-cooler chat into a marathon gab session. Limit cubicle banter that could distract and irritate others. Save those conversations for lunch or drinks after work.

5. Be inclusive . If you're going for coffee or lunch with a co-worker, consider inviting others to join you.

Source: Sandra Robinson, professor of organization behaviour at University of British Columbia's Sauder's School of Business, and Antoinette Blunt, president of Ironside Consulting Services Inc.

______

THE NUMBERS

38

Percentage of employees who say they have colleagues they consider personal friends with whom they interact inside and outside of work

32

Percentage of workers who describe their socializing with co-workers as strictly workplace friendships

17

Percentage of workers who say their work friendships are a matter of necessity or convenience

67

Percentage of workers who say having friends at work makes their job more fun and enjoyable

55

Percentage of employees who say friends at work make their job more worthwhile and satisfying.

49

Percentage of managers who say they encourage the development of workplace friendships

29

Percentage of workers who feel their workplace supports workplace friendships

11

Percentage of workers who say they would sweep a friend's mistake at work under the rug

6

Percentage who said that if a friend at work were laid off, it would affect their decision to stay with the company.

57

Percentage of managers who said productivity improves when co-workers are friends outside of the office.

Sources: Ipsos Reid/Randstad U.S., 2010 survey of 1,017 American workers; Accountemps, 2007 survey of 150 U.S. senior managers

______

HOW COMPANIES CAN HELP SPARK WORKPLACE FRIENDSHIPS

1. Provide opportunities for employees to connect with each other formally and informally by hosting interdepartmental activities, for example, or offering mentoring opportunities and social functions.

2. Create an environment that encourages socializing; set up conversation areas where staff can chat.

3. Don't automatically squelch cubicle chit-chat. As long as employees get the work done, give them a little leeway for fraternizing.

4. Encourage playfulness. Let employees decorate their cubicles, play the occasional foosball game and otherwise joke, laugh and have fun. Social play often leads to stronger friendships among staff.

Source: Sandra Robinson, professor of organization behaviour at UBC's Sauder's School of Business Special to The Globe and Mail

Reading people is the real competitive advantage - Avner Mandelman

2010-03-13T13:12:00.000-08:00

Before I switched to investing I used to be an engineer, so for a long while I had the engineer’s bias for data: The more of it I had, the better investments I’d find. So I collected documents, numbers, graphs, filings, and created my own databases and also subscribed to commercial ones – all of which I browsed happily. It went well. But one day something happened that made me realize an important part of business couldn’t be captured in text and numbers. This was when Steve Jobs recruited John Sculley to Apple.

Because then-small Apple was growing fast, Steve Jobs saw that he needed seasoned management. So he went straight to the top – John Sculley, president of PepsiCo, a Fortune 500 company – and tried to recruit him. At first Mr. Sculley scoffed, but Mr. Jobs was persistent; little by little Mr. Sculley wavered, but still wouldn’t decide. Finally, Mr. Jobs asked him, disdainfully, “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” Within a day Mr. Sculley came over, and Silicon Valley was amazed: How did Mr. Jobs manage it?

It was then that I realized there’ll always be a crucial part of business my databases will miss: The ability of the magician-in-chief (aka the CEO) to “walk boldly into men’s hearts” (in Akira Kurosawa’s words from his film Kagemusha) and rev them up.

I recalled that in the good companies I followed, employees’ hearts were usually revving and sparkling, while in the mediocre ones, they were idling and sputtering. The real engine of business, it seemed, was not just the human brain but also the human heart. Choosing the best brains may have been all the rage, but what about setting the attendant hearts aflame? If the first was science, the second was magic. So, by default, picking magic stocks was partly picking magicians.

Now, let’s pause here, because you might rightly object that, as a value investor, if the price-to-book value, the price-to-earnings ratio, the enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization), and the debt-to-equity ratio are all low, why should I waste time on how employees feel?

Simply because databases are open to every investor to see, and act on, so my competitive advantage using data alone is low; whereas if I can develop an eye for corporate magicians, I can get an extra edge in picking those who can light fires in people’s hearts, which would generate even stronger numbers in the future.

How can such people-picking be learned? Two ways: First, try to meet as many truly gifted corporate leaders as you can – in annual meetings, in informal settings, in corporate gatherings – and study them. Not merely with your brain; try to develop a gut sense of their emotional impact. This way, when you do due diligence on fresh companies, look for those with a similar impact, on both others and on you.

But second, since the number of great leaders you can meet face-to-face is small, read also about great men and women of the past, so as to develop the same gut feeling of what made them different.

Why, before Harvard and Stanford ever used the case method, Plutarch’s Parallel Lives (aka the “pasturage of great souls”) was used in studying what was then called wisdom (the Greek term for management). Or read Thucydides’s histories, or Xenophon’s, or any of the other recorders of greatness, and study how past leaders solved problems and how they got others to follow them, then learn to identify both the opportunities and risks of great leadership.

Oh, yes, there are risks.

At the time Mr. Jobs got Mr. Sculley to join Apple, I chatted about it with a business school classmate, an ex-psychologist who used her people-reading ability to put together winning venture capital teams, and to advise Silicon Valley corporate boards. When I marvelled at Mr. Jobs’s feat, she warned me that the way he prodded Mr. Scully into joining Apple also carried a future cost. Which cost? I asked. Well, said my classmate, Mr. Sculley just upturned his life to change Mr. Jobs’s disdain into approval; but he must also resent it, though he may not know it yet. So in future he must strive to get even with Mr. Jobs. And when he does, sell the stock.

I laughed at this offbeat prediction. But indeed within a few years, Mr. Sculley deposed Mr. Jobs in a Shakespearean boardroom drama; Apple almost disintegrated, and the stock plunged precipitously. None of this was readable in the databases. Mr. Jobs was then called back – at which point employees’ hearts revved again, and the company (and the stock) blossomed. This was not in the databases, either. I then understood that if I could ever read people like that, I could get a clear advantage – and so can you.

Thus, besides The Globe and Mail, The Wall Street Journal, annual and brokerage reports, and databases, you should also start reading the classics, take notes, then let your gut be your CEO-picking guide.

Do it well

2010-01-25T20:22:00.000-08:00

In whatever you do, do it well. When you make the effort, give your best to it.
You cannot cheat life, so don't bother trying. If you compromise your integrity, it will quickly drain away and you'll always regret the loss.

When you do what you do, do what is right. Even though you think no one will ever know, you will always know.

You will know, and that makes all the difference. For real confidence comes from a job well done, and confidence is worth more than gold.

It doesn't have to be perfect, though the closer you can get, the better. What you must always do, in whatever you do, is your best.

The quality of what you experience in life depends on the quality of what you give to life. Make it good, make it right, make it honest, and add real, lasting value to your world.

THE ULTIMATE GUIDE TO 2010 INVESTMENT PREDICTIONS AND OUTLOOKS

2010-01-14T21:06:00.000-08:00

http://pragcap.com/the-ultimate-guide-to-2010-investment-predictions-and-outlooks

Sample Referral Thank You Write-Up

2010-01-14T21:04:00.001-08:00

“A referral is one of the highest compliments I can receive.

Thank you for your trust in referring me to your [friend/relative/colleague] [referral name here]. I look forward to providing [referral name here] with the same high level of service that I strive to deliver to you.

Thanks once again for everything, [client name here] – I look forward to our next meeting sometime soon.

Best regards,

[Your signature]”

Don't Let Your Strength Become Your Weakness - Harvard Business Review

2009-12-25T16:14:00.000-08:00

One of the first things I ask my new clients to do is write down three of their key strengths and three of their flaws. Typically, strengths might be attention to detail, focus, and drive; flaws can be delegation, lack of creativity, and people-management skills. I then ask clients to look carefully at what they have written. Often, they will stare at the paper and then at me. They will ask me to explain. Rarely do they see the connection.

The fact is that our flaws are often the mirror image of our strengths, and it's important to realize that we should not over-develop our strengths, causing them to turn into flaws. There is always an optimal point: confidence that doesn't border on arrogance, wit that doesn't slide into sarcasm, and diligence that doesn't become perfectionism. I have observed many leaders who have fallen into the strengths/weaknesses trap. Having been praised and rewarded for demonstrating particular strengths throughout their careers, they become blind to the shadow sides of these strengths. Often, this blind spot can derail a career.

I was therefore very interested to read about some new research that delves into leaders' dark sides. The researchers interviewed 18,000 U.K. leaders over a decade (1999 to 2009) to discover what derailed them under pressure. They identified 11 derailers — strengths which turned into flaws under pressure. These include shrewd-mistrustful; charming-manipulative; vivacious-dramatic; and diligent-perfectionist. These "Dark Side Characteristics" were present in 85 percent of the leaders surveyed, with 16 percent having three dark-side characteristics.

Interestingly, the most common dark side characteristic in the U.K. is dutiful-dependent, that is being too appeasing and accommodating when under pressure. Additionally, a quarter of U.K. leaders also tended to withdraw from difficult situations and become remote.

The implications of these findings are significant for companies battling with the uncertainties of the new economic era. Consider, for example, a company whose senior executive team is uniformly dutiful: what happens when they encounter a crisis or an all-powerful CEO drives their strategy in the wrong direction? Common sense dictates that they should meet the crisis head on or challenge the CEO, yet the research suggests they are more likely to jointly keep their heads down. This behaviour was revealed at the Royal Bank of Scotland as it came under severe pressure last year: it became apparent that the senior team had not properly challenged the strategy or called the CEO to account.

I am sure that we can all come up with examples of managers and leaders who are unaware of the shadow side of their enthusiasm (volatility), charm (manipulativeness) or focus, (passive aggression). All too often they are aware only of the positive effects of their personalities, screening out the negative impact on those surrounding them. If they remain impervious to feedback — or the organizational culture doesn't support individual feedback — then senior leaders can be in serious danger of sabotaging their careers as well as their companies. A leader embarking on a senior role should remember that there are many things beyond his or her control that can derail them: they should not add their own blind spot to that list.

So what can organizations and individuals do?

1. Look out for potential derailers at the recruitment stage. Don't be dazzled by outstanding performance in one area only to overlook a lack of basic competences in other areas. Tough, results-focused executives might be desirable, but these traits must be balanced with some understanding of how to manage people. Similarly, recognize that success in one company does not necessarily mean guaranteed success in another organizational culture.

2. Ensure that careers are managed in a sustainable way. Many organizations fast-track high fliers beyond their real capabilities, ignoring their limitations and flaws until they emerge in times of pressure. This can be highly damaging to the individual, team, and organization.

3. Use feedback and psychometric tests to raise awareness. Regular 360 feedback surveys can help executives and top teams (including the CEO) identify, understand, and analyze the real impact of their flaws. Psychometric tests such as the HDS can also help executives understand where the fault lines lie in their personalities. Using this information, they should work on a personal strategy to manage these flaws, either through coaching or training programmes.

4. Understand how traits vary across generations. The research found, for example, that members of Generation Y are more compliant and dutiful than other generations, which could make them reluctant to take decisions or challenge the status quo. Generation Xers, meanwhile, have more social skills, but can be perceived as being superficial or manipulative if they overplay their hands.

What are your thoughts on the dark side of leaders? Have you any further evidence or experiences of how strengths can turn into weaknesses? Do you have any experiences to share of derailers — your own or those of others? And have you come across any interesting ways to ensure that strengths are not overplayed?

Savor the challenge

2009-12-25T16:10:00.001-08:00

Are you waiting for things to get better before taking action? The fact is that things will not get better until you go ahead and get yourself moving forward.
The best time to start is always now. For no matter what the outside circumstances may be, the most effective strategy is to get your inner strength revved up and rolling right away.

If you're waiting for things to be perfect, you'll wait forever. Instead, grab hold of what is here and now and find a way to make positive use of it.

Though your excuses for delaying may be very reasonable and impressive, those excuses won't move you forward. Circumstances will improve when you make the effort to improve them.

Even the smallest effort is much better than doing nothing. And small efforts that bring results will motivate you to take bigger, more effective steps.

You know from experience that you can do what you set your mind to do. Set your mind on the best of what can be, and savor the challenge of making it happen.

Consistent effort - Daily Motivator

2009-11-20T18:28:00.000-08:00

If you make more progress than you thought you would, don't compensate by slowing down. You're doing great, so raise your expectations even higher and keep going strong.

If you fail to make as much progress as you had planned, don't get discouraged. Remind yourself of why you're making the effort, and re-commit to getting it done.

Consistent, purposeful effort will reliably bring the results you seek. On some days you'll move faster than on other days, yet every day you'll keep going forward.

Never forget that there is great power in small actions that are repeated again and again. Though the path may be long and winding and uneven, by continuing to put one foot in front of the other, you'll reach your destination.

Celebrate the small victories and learn from the small defeats. Then, keep on moving steadily toward the goal you've chosen.

Put the power of consistent effort to work. And each day, you'll bring new value to life.

The substance of style - The Economist

2009-11-11T12:44:00.000-08:00

“THERE are four main elements to our business model—product, distribution, communication and price,” explains an executive at LVMH, the world’s largest luxury-goods group. “Our job is to do such a fantastic job on the first three that people forget all about the fourth.” For decades LVMH’s formula has worked like a spell: seduced by beautiful status-symbols, perfect shops and clever advertising, millions of people have swooned forgetfully towards the firm’s cash registers. At Louis Vuitton, LVMH’s star company, the model’s pricing power has yielded consistent profit margins of around 40-45%, the highest of any luxury-goods brand.

These days customers are finding it far harder to forget about price. The seriously rich, of course, are still spending freely. But much of the industry’s rapid growth in the past decade came from middle-class people, often buying on credit or on the back of rising house prices. According to Luca Solca of Bernstein Research, 60% of the luxury market is now based on demand from “aspirational” customers rather than from the wealthy elite. The recession has quickly reversed the trend to trade up, and people are delaying expensive purchases. Bain & Company, a consulting firm, expects the industry’s sales to fall by a tenth in 2009, to €153 billion ($225 billion).

Some executives even expect a lasting shift in customers’ preferences, towards discretion and value. Bernard Arnault, chairman and chief executive of LVMH, believes that the whole industry needs to rebrand itself. “The word luxury suggests triviality and showing off, and the time for all that has gone,” he says. Brands which sold “blingy” easy-to-sell products, milking old names, he says, will fare particularly badly in the new environment. LVMH, by contrast, has never taken such an approach, he says, instead emphasising quality, innovation and creativity.

To underline these values, the group is going back to basics in its daily operations. “Before the crisis, we were putting a lot of energy into beautiful stores, but now we care a bit less about expanding our network and even more about design and price,” says an executive. A few years ago, for instance, at the height of the boom, one LVMH brand was putting diamonds all over its watches, so that it was almost difficult to tell the time. “Now we are getting back to what really matters, which is nice movements and design,” he says.

For some luxury firms, the recession’s effects have already been brutal. Private-equity firms and other outside investors which rushed into the industry at its peak have suffered most. “At the top of the market this industry was perceived as easy by outsiders,” says Mr Arnault. “You borrowed 80% of a target’s asking price and hired a good designer, but the strategy has not been successful in several cases.”

Lenders to Valentino, an Italian fashion house, are reportedly trying to renegotiate its debt. Permira, a private-equity group, bought the firm in 2007 in a deal valuing it at €5.3 billion. Permira has since written down its equity investment of about €900m by more than half. Prada Holding, through which Miuccia Prada and her husband control Prada Group, another Italian house, recently restructured its loans in order to defer payment to banks. Prada Group has denied that there are talks to bring in a minority shareholder. Two particularly weak firms, Christian Lacroix, a Paris-based ready-to-wear and haute couture label which used to be part of LVMH, and Escada, a German maker of luxury womenswear, filed for bankruptcy earlier this year.

Amid this turmoil, LVMH is performing relatively well (see chart 1). It has benefited from an established pattern in the luxury industry: when people have less, they spend what they do have on the best quality. Shoppers are going for fewer, classic items—one Burberry raincoat, rather than three designer dresses, or a single Kelly bag by Hermès, a French luxury-goods group, instead of four bags from various lesser designers. For this reason, says Yves Carcelle, chief executive of Louis Vuitton and president of fashion and leather goods for LVMH, “Vuitton always gains market share in crises.”

As reliable and sturdy as one of its own handbags, therefore, Vuitton is carrying LVMH fairly comfortably through the recession. In the first half of 2009 the group’s revenues were about the same as a year before, though profits were 12% lower. Two divisions—wine and spirits, and watches and jewellery—were the worst affected: their revenues each fell by 17% and their profits by 41% and 73% respectively (see chart 2). Rapid de-stocking by retailers exacerbated the effect of falling demand. But the falls were offset by Vuitton, where revenue rose by a double-digit percentage, registering gains in every market. “It is incredible that in a downturn the consumer still buys so many Louis Vuitton bags, but she or he does,” says Melanie Flouquet, luxury-goods analyst at JPMorgan in Paris.

Vuitton’s performance, and the overall robustness of LVMH, a global conglomerate with more than 50 brands and revenues of €17.2 billion in 2008, should allow it to take advantage of its competitors’ weakness in the recession. “In the next few years we expect several failures in the industry and good opportunities to acquire assets at attractive prices,” says Mr Arnault. Shareholders in the firm are particularly preoccupied by what he might buy and sell in the next few years.

What explains Vuitton’s resilience? Beneath the gloss of advertising campaigns, catwalk shows and each season’s fleeting trends, Vuitton brings a machine-like discipline to the selling of fancy leather goods and fashion. It is the only leather-goods firm, for instance, which never puts its products on sale at a discount. It destroys stock instead, keeping a close eye on the proportion it ends up scrapping (which it calls the “destruction margin”). In 2005, when Maurizio Borletti, owner of several prominent department stores in Italy and France, was preparing for the opening of a refurbished La Rinascente department store in Milan, he recalls, the Vuitton people built a scale model of the building in their offices to understand customer flows and get the best positioning. “In this they’re the most professional in the industry,” he says.

Unlike most other luxury marques, Vuitton never gives licences to outside firms, to avoid brand degradation. Its factories use techniques from other industries, notably carmaking, to push costs down ruthlessly and to allow teams of workers to be switched from one product to another as demand dictates. It has adopted methods of quality control, too: one quality supervisor came from Valeo, a French auto-parts supplier. The result is long-lasting utility, beyond show, which is valuable in difficult times.

Owning shops gives Vuitton control over levels of stock, presentation and pricing. It was not therefore affected by the panicked price-slashing of up to 80% by American luxury department stores in the run-up to Christmas last year—a “catastrophe” for others in the industry, according to Mr Arnault. Although other LVMH divisions have been hit by outside retailers de-stocking during the crisis, Vuitton has managed its own inventory, with no competition for space from other brands. With a global network, says Mr Carcelle, the firm can move poorly selling stock to shops where it has performed better.

The luxury of diversity
Vuitton’s ability to offset the steep falls in other divisions shows the value of the diversified conglomerate model in luxury goods. Richemont, the industry’s second-largest company, has a less varied portfolio and greater exposure to watches and jewellery, demand for which has been especially weak. According to a recent trading statement, its sales fell by 16% in the five months to the end of August.

A group structure also yields savings when negotiating deals for advertising space, property and credit-card fees. It helps to have a specialist beauty retailer, Sephora, and a chain of airport shops, DFS, to sell perfumes and cosmetics. When Vuitton develops watches, say, it can call on the talents of TAG Heuer. But LVMH’s breadth also comes in for criticism. Although there is undoubtedly value in some diversification, some people ask whether 50-odd brands under one roof are too many. Vuitton, for instance, would doubtless like to see disposals of weaker brands as a result of the crisis, and a greater concentration of resources on the group’s key businesses.

The group’s executives devote the bulk of their attention to the most important of these: Louis Vuitton, Moët Hennessy in drinks, TAG Heuer in watches, Christian Dior in perfumes and cosmetics, Sephora and DFS. The group has many smaller businesses, and these get much less attention in such a big group. LVMH does not disclose financial figures for individual brands, but at its presentation of first-half results the group’s finance director replied to an analyst asking about fashion and leather-goods that a “handful” had lost money “somewhere”. There is speculation that Celine, a ready-to-wear clothing and accessories label, Kenzo, a fashion brand which analysts have long suggested LVMH dispose of, or Loewe, a Spanish leather-goods brand which has so far failed to win much of a following outside Spain and Japan, are among the less profitable.

Nevertheless, the group can use the might of Vuitton to support its smaller, upcoming brands. A department store, for instance, may be asked to take Loewe or Celine in order to get Vuitton. That often frustrates people at Vuitton, however, who would prefer to use the power of the brand for its own benefit, says a person who knows the company well. “They’ve never heard of another of LVMH’s brands saying, ‘Either give this to Vuitton or I won’t come’,” he says. Apart from the synergy in watch design, Vuitton does not find that it benefits much from the rest of the group.

The reason why LVMH has many small brands which aren’t quite making it, says another person familiar with the company, is that Mr Arnault is an optimist who believes that every property can at some point be turned around. That can pay off: some years ago Mr Arnault halted the imminent sale of a make-up line. Thanks to the distribution muscle of Sephora, it has since turned into a bestseller in America. Investors, however, are nevertheless wary of what they see as Mr Arnault’s tendency to collect brands.

The crisis has also underlined the fact that Vuitton dominates the group’s results. Were it not for Vuitton, estimates one analyst, LVMH’s sales would have fallen by 3% in the first half of 2009 and profits would have plunged by 40%. In normal times Vuitton contributes about half of the group’s profits, and most of the rest comes from Moët Hennessy. In the first half of this year, however, Vuitton contributed an estimated 70% of profit. That leads some people to question whether LVMH is overly dependent on the leather-goods firm.

“You can argue that there’s nothing as good as Vuitton in LVMH’s portfolio,” says Pierre Mallevays of Savigny Partners, who was formerly director of acquisitions at LVMH, “but that simply states the fact that LV’s business model is the gold standard of luxury brands; no other brand in the world compares to it.” The biggest risk to LVMH is Vuitton, argues Ms Flouquet, since it accounts for such a big proportion of profits; the company depends on it, she says. The risk to Vuitton, in turn, is that it could fall out of fashion or lose its exclusivity in the eyes of consumers.

So far there is no sign of fatigue with the brand. LVMH’s senior managers have devised ways to refresh it. In the late 1990s, for example, Mr Arnault saw that there was a risk that as a maker of leather goods alone, Vuitton could be perceived as boring. In 1997 he hired Marc Jacobs, then a relatively unknown designer, to design a fashion line. The aim was to generate seasonal buzz and press coverage. Vuitton’s senior executives at the time were against the idea, fearing that adding fashion could undermine a timeless image, but Mr Arnault’s move proved successful.

To avoid overexposure of its signature “Monogram” print, Vuitton has taken care to develop a wide range of products and other patterns. “We increase the number of product lines and we are careful to have several different colours and shapes,” says Mr Arnault. Thus Vuitton sells reasonably priced handbags—the smallest Speedy Bag costs €430 in Paris—but also wildly expensive custom-made luggage, reinforcing its exclusive image. Another effective tactic is to make limited-edition handbags which are hard to get hold of.

Five or so years ago Vuitton depended to a large degree on one market, Japan. Most Japanese women owned at least one Vuitton product—and hence provided a large proportion of Vuitton’s profits, which worried analysts at the time. Yet the Japanese market for luxury goods was souring. Spending on such items in Japan has fallen sharply since the end of 2005, according to a recent report by McKinsey, a consulting firm. Young women are more individualistic than their mothers, and are seeking out lesser-known brands. “You used to see thousands of Vuitton bags coming at you in the Ginza shopping district but far fewer now,” says Radha Chadha, author of a book, “The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury”.

That reliance on one country is no longer so marked (see chart 3). Fortunately, Vuitton has since rapidly established a strong position in what it hopes will become another Japan: China. “The Chinese consumer is in a love affair with the Vuitton brand,” says Ms Flouquet. According to LVMH, in the first half of 2009 sales to Chinese people (at home and travelling) made up 18% of Vuitton’s revenue. Despite widespread concerns about counterfeiting in the country, the Chinese are now Vuitton’s biggest customer base after the Japanese. The key to the firm’s success, says Mr Arnault, has been approaching the market exactly as if it were a developed market. “We treat the Chinese customer as being very sophisticated.” Many competitors, by contrast, have at times lowered their standards for shops in China, he says, using inferior furniture or positioning their stores poorly.

Going into new markets and developing new product lines will enable Vuitton to continue producing double-digit growth for years to come, says Mr Carcelle. On every trip to mainland China—he makes five or six a year—he tries to discover a new city and meet its mayor. Mr Carcelle is also tackling other new frontiers: in October he will open a shop in Sukhbaatar Square in Ulan Bator. “Already if you go to an upmarket disco in Ulan Bator you will see a significant number of our bags,” he says.

Vuitton’s expansion into China, Mongolia and new product lines such as watches and shoes, suggest that the leather-goods firm will continue to be LVMH’s main source of growth. However, it also means that the group may become more rather than less reliant on Vuitton. In theory, the answer could lie in strengthening some of LVMH’s smaller names, such as Fendi, a fashion and leather-goods brand. But buying a big, established, global brand with potential for growth could be both a quicker and a surer route.

A new collection?
Analysts and bankers are convinced that Mr Arnault wants to buy the Hermès Group, a producer of leather goods and fashion which matches Vuitton for quality and design. Because Hermès is run so conservatively, says an investment banker who knows LVMH well, it is only a quarter of the size that it could be. “Mr Arnault would grow it while preserving its values,” he says. Earlier this year, there were rumours that LVMH would sell Moët Hennessy to Diageo, the world’s biggest spirits group, which already owns 34% of the business. Such a sale could raise money to buy Hermès. Mr Arnault, however, refuses to be drawn into commenting.

For the moment, such an acquisition is impossible, since the family which controls Hermès does not want to sell, and the firm is strongly defended against takeover. Nevertheless, says the banker, the family which controls it has several branches, all with different views. “It’s a pressure cooker and some day it will blow up,” he says. Chanel, another closely held global luxury brand, could also make a desirable target for LVMH. Some people recommend a merger with Richemont, which, Mr Solca argues, would address LVMH’s relative weakness in watches and jewellery.

Any such deals, or selling Moët Hennessy, would radically change the balance of the group. “I would be surprised if LVMH sold Moët Hennessy. The business has high margins, high cashflow and it is well managed,” says Ms Flouquet. “They would probably only sell it if they had a large deal ahead.” Shareholders are nervous that LVMH will pay too high a price for a large acquisition. For this reason the group’s valuation may not fully reflect its performance during the crisis. Such concerns are not likely to deter Mr Arnault, who has demonstrated his confidence in LVMH’s prospects in luxury by raising his stake in the group over time: he owns 47%. If LVMH does go shopping, it will probably behave like one of its best customers: with price in mind, but willing to spend on enduring prestige.

http://www.economist.com/displaystory.cfm?story_id=14447276

Celestial sacrifice - The Economist

2009-11-05T21:35:00.000-08:00

LONG before singers became superstars by surviving humiliating television contests, they did so by surrendering much more than their dignity. For almost 200 years Europe’s biggest singing celebrities were the castrati: surgically snipped “man-boys” whose high voices and incredible breathing powers captivated audiences and commanded football-star salaries.

Cecilia Bartoli, a mezzo-soprano—and one of the few classical artists today who can claim sports-star fees of her own—is trying to resurrect the art of the castrati with her new Decca album, “Sacrificium”. This collection of 15 opera arias from the early 18th century (11 of which have never been recorded before) is packaged with notes that illuminate the castrati’s glamorous and tragic world.

Gelded male sopranos began falling from favour as the baroque era gave way to the romantic age and the robust sound of male tenors caught on. The 1870s finished them off when laws passed by a newly unified Italy made castration for musical purposes illegal. Even more important, an edict by Pope Leo XIII banned the hiring of castrati by the church. This made the practice unprofitable.

Apart from a handful of wax phonograph recordings of Alessandro Moreschi, who died in 1922, there is no audible record of this rich tradition of European music. In the years since Moreschi last sang, recordings of arias composed for castrati, most of them written by Handel, have been transposed an octave for baritones or are sung by sopranos or countertenors.

Ms Bartoli focuses on the music and influence of Nicola Porpora, a largely forgotten 18th-century Neapolitan musician. Like Schoenberg in the 20th century, Porpora was well-known as a composer—in London in the 1730s he was second only to Handel in popularity as a writer of operas—but equally famous for his students. He taught two of history’s most famous castrati: Caffarelli and Farinelli.

Farinelli created the title role in Porpora’s opera “Adelaide”. Hearing Ms Bartoli sing one of his arias (“Nobil onda”) in “Sacrificium,” the listener gets a sense of why the castrato was in such demand: the five-minute, lung-busting number makes Mozart’s famously treacherous “Queen of the Night” aria seem like a walk in the park. As a mezzo, Ms Bartoli cannot match Farinelli’s reportedly celestial tone, nor is she in possession of his man-sized lungs. What she does exhibit in the album is precision coloratura singing with her dark-hued voice, not to mention a studied sensitivity to the contours and rhythms of these almost 300-year-old songs.

Few question Ms Bartoli’s voice or musicality, but her critics contend that the singer is less a scholar than a fetishist. The project before this one was devoted to bringing Maria Malibran, a fellow mezzo with a brief but illustrious career in the 1830s, out of obscurity. But the album, “Maria”, resembled swag from a million-dollar theme party, featuring lavish photos of Ms Bartoli dressed up in Malibran’s jewellery and period costumes. A mobile museum of the singer’s personal collection of Malibran artefacts followed her on tour.

This sideshow element is less evident with “Sacrificium”—though the album features extraordinary images of Ms Bartoli’s head atop crumbling male statuary—but the singer’s immersion in the past seems complete. She speaks of Porpora and Caffarelli as if they were contemporaries and, as an Italian, finds it hard to believe “that in my country 200 years ago, they castrated boys like animals.” The “sacrifice” in the album’s title is Ms Bartoli’s way of reminding opera lovers of the barbarism that gave voice to these fine baroque melodies.

The Smart Way to Influence Your Boss - John Baldoni

2009-10-31T10:20:00.000-07:00

How can I sell this idea to my boss?

This is something that executive coaches hear regularly. It usually comes from someone seeking to lead from the middle. To begin to answer this question, let me tell you a story.

Ronald Reagan is credited with hastening the end of Cold War between the USSR and the USA. While he had long preached nuclear disarmament, his argument gained personal impetus after watching the made-for-TV movie, The Day After, which depicted the destruction of Lawrence, Kansas, after a nuclear blast. The movie, according to The Dead Hand, a recent history of the Cold War era by David Hoffman, left Reagan depressed for days and gave him even more resolve to seek nuclear banishment. Skeptics may scoff that it took a movie to influence the president, but as Hoffman explained on NPR's Fresh Air, movies helped to shape Reagan's world view.

Few managers who seek to influence upward have the resources to make a motion picture, but many managers have the cleverness and street smarts to craft an argument to win their cases. As I illustrate in my new book, Lead Your Boss, The Subtle Art of Managing Up, critical to developing a strong case is first and foremost to frame your argument according to the business case: why is it good sense for the organization to pursue your idea? Without a foundation based on either improving or saving the business, your idea has no chance; with it, you can begin.

To build upon your business case, you must frame your argument, in effect your sales pitch, in ways which appeal to the person with authority. Here's how.

1. Adopt your boss' point of view. Marshall Goldsmith taught me that if you want to influence the CEO then you need to see the world as he or she sees it. CEOs take a corporate-wide view of performance, of course, but each of them has hot button issues around products and services, employee morale, or their legacies. If you have a boss who's a cost-cutter, frame your pitch as a means of cutting costs, or at least reducing expenses. Likewise if you have a boss who is focused on customer issues — frame your pitch as a way to improve customer service or product benefits. The angle of your pitch depends upon the boss' interest.

2. Paint a picture. We saw how movies affected Reagan. Consider how your boss likes information. It may a straightforward spreadsheet or a narrative business plan. Do what makes sense but don't stop there. If your idea is big and bold, make it so by producing a video or using photographs. These options are effective when demonstrating customer concerns. A video of a customer expressing a desire or a concern about a product improvement or deficiency can be a powerful persuasive tool. If your initiative is about an internal improvement, interview end-users who will benefit from the adoption of your idea.

3. Make it come alive. When Eleanor Roosevelt was being courted by Franklin, she took him to the Lower East Side of New York City where she was doing relief work with the poor, chiefly immigrants. Taking the patrician Franklin in and out of decaying tenements opened his eyes to the fact that there was real poverty in the world. So to make your case, take your boss to the heart of the action. For example, if you are pushing for an improvement on the factory floor, bring him to the line and show him what you intend to do. Or if you want to demonstrate a customer need, invite the boss to a focus group with customers. There is nothing like real world examples to demonstrate your argument.

These steps to make your argument come alive do work, but they need something else — your credibility. If you want to lead up, you need to be perceived as competent. Therefore, it is more difficult to sell upward if you are brand new to your job, unless you were hired to do so (that is, shake things up with new ideas). Credibility is earned through example, especially by doing your job well over a period of time. Also, critical for those who manage in the middle, credibility is enhanced by the ability to collaborate with peers.

Pitching ideas upward and acting on them is essential to the process of leading up, which by nature is something that demands an ability to balance the big picture of what the organization needs with the day-to-day reality of what you do. When selling an idea to your superiors, even to the CEO, it is important to believe in your ability to effect positive change. Transformation may be sanctioned from on high, but it is men and women in the middle who make it become reality, and that is a persuasive case in itself.

Doo-Doo Economics - William H. Gross

2009-10-07T23:57:00.001-07:00

The world is turning “green” – global warming or not. Electric cars, free-range chickens, and White House vegetable gardens are the wave of the future, but the defining badge of environmentalists may be none of those and might, in fact, be colored blue, as opposed to green. Dog owners would be the first to acknowledge it. Having converted reluctantly to felines nearly ten years ago, I myself am only forced to humble myself by emptying the litter box once or twice a year when Sue is visiting the relatives. But dogs? Well, Bowser has to be walked, and Bowser owners these days are being forced to subserviently follow in step, holding those little blue “doo-doo” bags at the ready that keep the neighbors’ grass green instead of brown and minimize the number of summer flies to a billion per square mile. No longer will the current generation be allowed to use pooper-scoopers; they must in fact be pooper “stoopers,” bending down, turning the bag inside out to form a glove, and then – EEECH – making the grass environmentally friendly again by picking it up, reversing the bag and hurriedly looking for the nearest neighbor’s garbage can who might conveniently be at church or shopping at the grocery store. One can only hope that Fido is mildly constipated, if you get my drift. I can recall the diaper days with my three kids. It wasn’t a pleasant experience, but those non-environmentally friendly Pampers at least afforded one-stop dropping – easy on, easy off – no touchy, no feely. In those days, a doggie bag was something you asked for in a fine restaurant to take home the steak bones. Now it’s a blue plastic reminder that the world is changing and in many respects our daily routine is becoming a dog’s life.

A similar metaphor could be applied to the 45 million citizens of the State of California. Once “golden” and the land of entrepreneurial opportunity, the state has turned from filet mignon to ground chuck and its residents are now on a short leash as opposed to masters of their own universe. Unemployment at 12.2% is near the nation’s highest and its Baa bond rating is the country’s lowest. Its schools are abysmal, competing with Louisiana and Mississippi for the lowest rating in the federal government’s National Assessment of Educational Progress. While the air is much cleaner than it was 20 years ago, the freeways are stereotypically jammed and increasingly less free – the age of the toll road serving the exasperated (or simply the Mercedes owners) is upon us.

Our canine existence has many fathers. Perhaps more than any other state, California has been affected by its perverted form of government, requiring a two-thirds vote by state legislators to effectively pass a budget. In addition, the state’s laws are almost tragically shaped by a form of direct democracy more resemblant of the Jacksonian era, where the White House furniture was constantly at risk due to unruly citizens, high on whisky, and low on morals and common sense. Propositions from conservatives and liberals alike have locked up much of the budget, with Proposition 13 in 1978 reducing property taxes by 57% and Prop. 98 in 1988 requiring 40% of the general fund to be spent on schools. Recently, much of any excess has been gobbled not only by teachers, but unbelievably by a prison lobby that would be the envy of any on Washington’s K Street.

The result has been a $26 billion deficit that was supposedly “closed” in recent weeks, but which largely was a “kick the can” accounting scheme that postponed the pain, or better yet, pled for a federal solution to self-inflicted wounds. State budgets of course are required to be balanced each year, but that has long been a fiction throughout most of the country. Still, California’s 2009 fix was perhaps the longest kick of the can in history, refusing effectively to raise taxes, superficially cutting expenses, and shaming its fading image by refusing to disburse required billions to local counties and communities, as well as using accounting tricks that couldn’t fool a grade-schooler. In the process, they managed to reinvent the IOU, paying bills in virtual scrip that then traded at substantial discounts on eBay of all places. They have issued tax anticipation notes of all sorts with a multitude of lettered configurations that anagram aficionados would revel in. Just last week the state extended its begging bowl for $8 billion of “RANs” (Revenue Anticipation Notes) at an onerous money market rate of 1 1⁄2%. Previously they had issued “RAWs” (Revenue Anticipation Warrants). “BAGs” might be next – blue BAGS, that is, full of the doo-doo that California citizens have grown used to picking up.

There are signs that California voters are ready to make some tough choices, having recently refused to pass five propositions that would have extended tax hikes and failed to address spending. Whether or not Governor Schwarzenegger and legislators will agree to a constitutional convention to address the poisonous proposition plebiscite itself is a larger question that will likely be affirmatively answered only if the state economy continues to remain in the tank, which it likely will. But California’s problems, while somewhat unique and self-inflicted, are really America’s problems, and not just because the California economy is 15% of national GDP. While California’s $26 billion deficit is not directly comparable to the federal gap of $1 trillion-plus, they both reflect a lack of discipline and indeed vision to perceive that the strong growth in revenues was driven by the same excess leverage and the same delusionary asset appreciation that was bound to approach cliff’s edge. California’s property taxes, income taxes, and sales taxes were all artificially elevated by national and indeed global imbalances as the U.S. manufactured paper, and Asia manufactured things in mercantilistic exchange. Total tax revenues have actually fallen 14% over the past 12 months in California and substantially more in other states. At some point, that Fantasyland merry-go-round had to stop and whether the defining moment was marked by Bear Stearns, Lehman Brothers, or the tumultuous week that followed in September of 2008 is really not the point.

What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.

What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.

Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.

My heart is full.

2009-09-30T17:43:00.000-07:00

Πάτερ ἡμῶν ὁ ἐν τοῖς οὐρανοῖς·
ἁγιασθήτω τὸ ὄνομά σου·
ἐλθέτω ἡ βασιλεία σου·
γενηθήτω τὸ θέλημά σου, ὡς ἐν οὐρανῷ καὶ ἐπὶ τῆς γῆς·
τὸν ἄρτον ἡμῶν τὸν ἐπιούσιον δὸς ἡμῖν σήμερον·
καὶ ἄφες ἡμῖν τὰ ὀφειλήματα ἡμῶν,
ὡς καὶ ἡμεῖς ἀφίεμεν τοῖς ὀφειλέταις ἡμῶν·
καὶ μὴ εἰσενέγκῃς ἡμᾶς εἰς πειρασμόν,
ἀλλὰ ῥῦσαι ἡμᾶς ἀπὸ τοῦ πονηροῦ.
[Ὅτι σοῦ ἐστιν ἡ βασιλεία καὶ ἡ δύναμις καὶ ἡ δόξα εἰς τοὺς αἰῶνας. ἀμήν.]

Pater noster, qui es in caelis:
sanctificetur Nomen Tuum;
adveniat Regnum Tuum;
fiat voluntas Tua,
sicut in caelo, et in terra.
Panem nostrum cotidianum da nobis hodie;
et dimitte nobis debita nostra,
Sicut et nos dimittimus debitoribus nostris;
et ne nos inducas in tentationem;
sed libera nos a Malo.

Three Tips for Becoming an Energizer - ROSABETH MOSS KANTER

2009-09-29T16:45:00.000-07:00

Some people become leaders no matter what their chosen path because their positive energy is so uplifting. Even in tough times, they always find a way. They seem to live life on their own terms even when having to comply with someone else's requirements. When they walk into a room, they make it come alive. When they send a message, it feels good to receive it. Their energy makes them magnets attracting other people.

Just plain energy is a neglected dimension of leadership. It is a form of power available to anyone in any circumstances. While inspiration is a long-term proposition, energy is necessary on a daily basis, just to keep going.

Three things characterize the people who are energizers.

1. A relentless focus on the bright side. Energizers find the positive and run with it. A state government official in a state that doesn't like government overcomes that handicap through her strong positive presence. She dispenses compliments along with support for the community served by her agency, making it seem that she works for them rather than for the government. She greets everyone with the joy generally reserved for a close relative returning from war. I can see skeptics' eyebrows starting to rise, but judging from her success, people love meeting with her or getting her exclamation-filled emails. She is invited to everything.

The payoffs from stressing the bright side can be considerable. In my new book, SuperCorp, I tell the story about how Maurice Levy, CEO of the global marketing company Publicis Groupe, tilted the balance in his company's favor when his firm was one of several suitors for Internet pioneer Digitas. At one point in a long courtship, Digitas hit problems, and the stock collapsed. One of Publicis's major competitors sent Digitas's head an email saying, "Now you are at a price which is affordable, so we should start speaking." Levy sent an email the same day saying, "It's so unfair that you are hurt this way because the parameters remain very good." Levy's positive energy won the prized acquisition.

2. Redefining negatives as positives. Energizers are can-do people. They do not like to stay in negative territory, even when there are things that are genuinely depressing. For example, it might seem a stretch for anyone to call unemployment as "a good time for reflection and redirection while between jobs," but some energizers genuinely stress the minor positive notes in a gloomy symphony. A marketing manager laid off by a company hit hard by the recession saw potential in people he met at a career counseling center and convinced them that they could start a service business together. He became the energizing force for shifting their definition of the situation from negative to an opportunity.

"Positive thinking" and "counting blessings" can sound like naïve cliches. But energizers are not fools. They can be shrewd analysts who know their flaws and listen carefully to critics so that they can keep improving. Studies show that optimists are more likely to listen to negative information than pessimists, because they think they can do something about it. To keep moving through storms, energizers cultivate thick skins that shed negativity like a waterproof raincoat sheds drops of water. They are sometimes discouraged, but never victims.

An entrepreneur who has built numerous businesses and incubated others had a strong personal mission to raise national standards in his industry. He began that quest by meeting individually with the heads of major industry organizations, all of whom told him that he would fail. He nodded politely, asked for a small commitment to one action anyway, just as a test, he said, and went on to the next meeting. Eight or nine meetings later, he was well along on a path everyone had tried to discourage him from taking.

3. Fast response time. Energizers don't dawdle. Energizers don't tell you all the reasons something can't be done. They just get to it. They might take time to deliberate, but they keep the action moving. They are very responsive to emails or phone calls, even if the fast response is that they can't respond yet. This helps them get more done. Because they are so responsive, others go to them for information or connections. In the process, energizers get more information and a bigger personal network, which are the assets necessary for success.

The nice thing about this form of energy is that it is potentially abundant, renewable, and free. The only requirements for energizers are that they stay active, positive, responsive, and on mission. Are you an energizer? Any tips you'd like to share?

After Lehman: How Innovation Thrives In a Crisis - Scott Anthony

2009-09-16T21:36:00.000-07:00

The economic shocks that reverberated through the economy a year ago could easily have marked the end of the nascent "Innovation Movement." After all, how could companies prioritize developing innovation programs in the face of very real questions of fundamental survival?

A year later, it is clear that innovation has never been more important. And, in a strange way, the scarcity forced on many companies has been a hidden accelerator of efforts to systematize innovation.

Certainly companies like General Motors faced such critical operational issues that innovation efforts had to be de-prioritized, if not shut down. Arguably the struggles of these companies highlighted how very important it is for companies to get ahead of the innovation game by investing in innovation before they need to invest in innovation.

More and more executives have come to terms with the fact that the "new normal" of constant change necessitates developing deep competencies around innovation.

The increasing pace of change is not really new. Long-term research by Innosight Board member Dick Foster shows how the pace of "Creative Destruction" has been accelerating for some time.

One simple way to demonstrate this increase is to look at the turnover in Standard & Poor's index of leading U.S. companies.

The S&P index goes back to 1923. Foster's research found that in the 1920s (when the list contained 90 companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.

In the 1960s, a company that entered the S&P index could expect to stay on it for about 40 years -- long enough for one career at least.

Today, a company that enters the S&P 500 index will stay on it for less than 20 years. That means if you join an S&P 500 company today, it most likely won't be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired.

Increasingly, companies that buck the trend and last 30 or more years will do so only by mastering the ability to perpetually transform themselves. As Foster notes, "It's an entirely different world where the balance between continuity and change has moved to change."

Companies that continued to focus on innovation in the midst of the downturn, such as Amazon.com, IBM, and Procter & Gamble, are very well positioned to create substantial distance between themselves and their competitors. Their success will provide further fuel to arguments that innovation isn't a nicety, it is a necessity.

The good news for companies evaluating their innovation investments is that innovation is one area where less truly is more.

For example, time and again resource-constrained entrepreneurs have won disruptive battles to transform existing markets and create new ones against large companies with hordes of talented employees, great brands, and deep pockets.

The root cause of large corporate struggles, ironically, is abundance. Too much patience. Too much investment. Too many people. Abundance leads companies to lock into bad strategies early. It leads to overly slow decision-making processes.

Strategy can't be scheduled. Making decisions on a quarterly basis when new information comes in daily consigns companies to miss the innovation mark.

Constraints are innovation enablers. Small teams are faster than big teams. Teams with tight budgets make decisions more quickly than teams with loose budgets. Tight milestones force teams to address critical assumptions early, facilitating the re-direction that typifies the entrepreneurial process.

Innovation-seeking companies have two choices. One is to "outsource" innovation by developing world-class expertise in investing in and acquiring emerging disruptive businesses. For a long time Cisco has demonstrated the power of developing this expertise.

Of course, following this approach requires sometimes paying substantial acquisition premiums. And it denies companies the important process-based learning that comes from organic innovation efforts. Remember, failed efforts often are the springboard to future success.

The second choice -- and my admittedly biased preference -- is to develop deep competency around organic innovation. This kind of competency comes from treating innovation like a discipline with six, interlocking components;

An innovation strategy that details targets, tactics, and required resources
An innovation process that iteratively spots and shapes new growth businesses
Structures that support the nurturing of innovative ideas, providing a "safe place" for innovation
Supporting processes that helps ensure that companies don't succumb to the "sucking sound" of the core
A common language that helps build corporate alignment
Metrics that help senior leaders appropriately track their innovation efforts
These efforts need not require massive investments. In fact, a far better approach is to treat the creation of an innovation capability like a startup venture. Give a small team a small amount of money to address critical organizational uncertainties. Invest more only as the team learns more, demonstrates success and adapts its strategy based on "in-market" learning. Ensure that senior leaders "lean forward" and role model the importance of innovation.

There are ample tools in the academic literature and in the accumulated experiences of early corporate adopters to accelerate this journey.

As an innovation practitioner, I am grateful for the 2008 crisis. Rather than killing the innovation movement, it forced a scarcity mindset that will do the innovation movement much good. I suspect that history will ultimately judge 2005-2010 as the years where the innovation movement really took an important step from the fringes of the corporate world towards the mainstream.he economic shocks that reverberated through the economy a year ago could easily have marked the end of the nascent "Innovation Movement." After all, how could companies prioritize developing innovation programs in the face of very real questions of fundamental survival?

A year later, it is clear that innovation has never been more important. And, in a strange way, the scarcity forced on many companies has been a hidden accelerator of efforts to systematize innovation.

Certainly companies like General Motors faced such critical operational issues that innovation efforts had to be de-prioritized, if not shut down. Arguably the struggles of these companies highlighted how very important it is for companies to get ahead of the innovation game by investing in innovation before they need to invest in innovation.

More and more executives have come to terms with the fact that the "new normal" of constant change necessitates developing deep competencies around innovation.

The increasing pace of change is not really new. Long-term research by Innosight Board member Dick Foster shows how the pace of "Creative Destruction" has been accelerating for some time.

One simple way to demonstrate this increase is to look at the turnover in Standard & Poor's index of leading U.S. companies.

The S&P index goes back to 1923. Foster's research found that in the 1920s (when the list contained 90 companies), when a company got on that list, it would stay on for about seventy years. That meant that people who joined an S&P company might be joining the same company their parents worked for and might expect their children to work there as well.

In the 1960s, a company that entered the S&P index could expect to stay on it for about 40 years -- long enough for one career at least.

Today, a company that enters the S&P 500 index will stay on it for less than 20 years. That means if you join an S&P 500 company today, it most likely won't be an S&P 500 company by the end of your career because it will have failed, shrunk, or been acquired.

Increasingly, companies that buck the trend and last 30 or more years will do so only by mastering the ability to perpetually transform themselves. As Foster notes, "It's an entirely different world where the balance between continuity and change has moved to change."

Companies that continued to focus on innovation in the midst of the downturn, such as Amazon.com, IBM, and Procter & Gamble, are very well positioned to create substantial distance between themselves and their competitors. Their success will provide further fuel to arguments that innovation isn't a nicety, it is a necessity.

The good news for companies evaluating their innovation investments is that innovation is one area where less truly is more.

For example, time and again resource-constrained entrepreneurs have won disruptive battles to transform existing markets and create new ones against large companies with hordes of talented employees, great brands, and deep pockets.

The root cause of large corporate struggles, ironically, is abundance. Too much patience. Too much investment. Too many people. Abundance leads companies to lock into bad strategies early. It leads to overly slow decision-making processes.

Strategy can't be scheduled. Making decisions on a quarterly basis when new information comes in daily consigns companies to miss the innovation mark.

Constraints are innovation enablers. Small teams are faster than big teams. Teams with tight budgets make decisions more quickly than teams with loose budgets. Tight milestones force teams to address critical assumptions early, facilitating the re-direction that typifies the entrepreneurial process.

Innovation-seeking companies have two choices. One is to "outsource" innovation by developing world-class expertise in investing in and acquiring emerging disruptive businesses. For a long time Cisco has demonstrated the power of developing this expertise.

Of course, following this approach requires sometimes paying substantial acquisition premiums. And it denies companies the important process-based learning that comes from organic innovation efforts. Remember, failed efforts often are the springboard to future success.

The second choice -- and my admittedly biased preference -- is to develop deep competency around organic innovation. This kind of competency comes from treating innovation like a discipline with six, interlocking components;

An innovation strategy that details targets, tactics, and required resources
An innovation process that iteratively spots and shapes new growth businesses
Structures that support the nurturing of innovative ideas, providing a "safe place" for innovation
Supporting processes that helps ensure that companies don't succumb to the "sucking sound" of the core
A common language that helps build corporate alignment
Metrics that help senior leaders appropriately track their innovation efforts
These efforts need not require massive investments. In fact, a far better approach is to treat the creation of an innovation capability like a startup venture. Give a small team a small amount of money to address critical organizational uncertainties. Invest more only as the team learns more, demonstrates success and adapts its strategy based on "in-market" learning. Ensure that senior leaders "lean forward" and role model the importance of innovation.

There are ample tools in the academic literature and in the accumulated experiences of early corporate adopters to accelerate this journey.

As an innovation practitioner, I am grateful for the 2008 crisis. Rather than killing the innovation movement, it forced a scarcity mindset that will do the innovation movement much good. I suspect that history will ultimately judge 2005-2010 as the years where the innovation movement really took an important step from the fringes of the corporate world towards the mainstream.

Information-rich and attention-poor - Peter Nicholson

2009-09-15T17:57:00.000-07:00

Council of Canadian Academies president Peter Nicholson writes in his weekend essay that in becoming information-rich, we have also become attention-poor.

"The three technologies that have powered the information revolution – computation, data transmission and data storage – have each increased in capability by about 10 million times since the early 1960s, unleashing a torrential abundance of data and information," Mr. Nicholson writes. "But economics teaches that the counterpart of every new abundance is a new scarcity – in this case, the scarcity of human time and attention."

He argues information technology is driving a correspondingly profound transformation of knowledge production, the main feature of which is a shift of emphasis from depth to speed.

"The challenge is to adapt, and then to evolve, in a world where there continues to be an exponential increase in the supply of information relative to the supply of human attention," he writes.

Mr. Nicholson also argues that as the flow of information speeds up, fewer resources will be invested in the creation of information products and as a result, the "market" for depth is narrowing.

"There is also under way a shift of intellectual authority from producers of depth – the traditional “expert” – to the broader public," he writes, adding that several heads are indeed better than one.

"But while hundreds of thousands of Web-empowered volunteers are able to very efficiently dedicate small slices of their discretionary time, the traditional experts – professors, journalists, authors and filmmakers – need to be compensated for their effort, since expertise is what they have to sell. Unfortunately for them, this has become a much harder sell because the ethic of “free” rules the economics of so much Web content. Moreover, the value of traditional expert authority is itself being diluted by the new incentive structure created by information technology that militates against what is deep and nuanced in favour of what is fast and stripped-down."

"Because I Said So..." - Paul McCulley

2009-09-13T11:26:00.000-07:00

Most parents have, at some point or points, responded to the incessant whining of a child asking “Why, why, why, why?” by retorting “Because I said so.” And for those that haven’t, they are either saints or possess DNA unfamiliar to me. It’s not that we don’t feel a duty to explain in as rich detail as we can the logic of our decisions. Most of us do.

But at some juncture in the dialogue with the child, we run into one or both of two problems:

The child simply refuses to acknowledge our well-articulated logic; and/or
We admit to ourselves that our logic may not be all that tight and that the decision at hand is a function of our fuzzy instincts, rather than our un-fuzzy brains.
I’ve been there and done that, and I have only one, 20-year old Jonnie. For my colleagues and friends with larger families, I’m sure the urge to say, “Because I said so” surfaces even more often.

Such is the case with central bankers, too, and they have many children:

Their political overseers, who may be also their enablers;
The financial markets, given to wanting instantaneous results when that is impossible and certainty of intent when uncertainty abounds;
Ivory tower academics who know all about how the financial world is supposed to work, but with few having actually worked in it;
International players, who lack familiarity of what is economically desirable relative to what is politically feasible in foreign environs; and perhaps most important,
The general public, who instinctively understand microeconomics (what is in it for me?) better than macroeconomics (what is in it for us?).
Accordingly, central banks have a long history of wrapping what they do in varying degrees of opaqueness, if not secrecy, on the proposition that some things are simply just too complicated, or delicate, for all their “children” to understand.

Glasnost Is Only As Good As The Reaction Function
Fortunately, the last couple of decades have been a period of evolving central bank glasnost. The Fed did not lead the charge, but rather foreign central banks, starting with the Reserve Bank of New Zealand, where legislation was passed in 1989 requiring the central bank to adopt an official inflation target, including regular reporting on performance. Many other central banks followed. The Fed didn’t, in part because it has a legal dual-mandate of both low inflation and low unemployment, while many other central banks have a sole legal mandate to pursue low inflation.

Nonetheless, the Fed has made remarkable strides over the last couple decades in both announcing and explaining the rationale for its actions. Former Fed Chairman Greenspan got the Fed on the glasnost train, even if begrudgingly at times, while current Fed Chairman Bernanke has always had a reserved seat in the formal dining car. In academia, he was a vocal proponent of the Fed announcing an official inflation target, and since becoming a Fed Governor in 2002, and especially since becoming Fed Chairman in 2006, has successfully pushed for ever more transparency in both the logic and the actions of the central bank.

The reasons have been straight forward. Philosophically, accountability in a democracy demands that the secrets of the monetary temple be revealed. And practically, the more transparent is a central bank as to the ways and means of what it does, the more efficient will be the markets’ transmission of the central bank’s actions to the real economy. Thus, central bank transparency is not just a virtue in its own right, but also a virtue in enhancing the efficacy of central bank policy.

Or so the logic goes. I certainly philosophically buy it. But clearly, increased transparency did not prevent the worst financial crisis (in the developed world) since the 1930s. Thus, we ineluctably must conclude that good monetary policy, or more appropriately, good monetary and financial policy, is not just about central banks revealing their objectives and reaction functions, but more fundamentally about designing the correct objectives and reaction functions.

Or returning to my analogy at the outset, good parenting is not just about explaining the logic of reaction functions to children, but starting with fundamentally–sound reaction functions. Logically explaining a decision derived from a poorly-founded reaction function may satisfy a child for a time, but it is unlikely to serve the long-term well being of the child. Or the parent.

Taylor-like Rules Can’t See Systemic Risks
Such is the case with the Fed’s reaction function over the last decade: flexible, implicit inflation targeting, using a Taylor-like rule as a reference guide grounded on the proposition that the Fed could and should fine tune aggregate demand to exploit the economy’s Phillips curve – the cyclical trade-off between the inflation rate and resource utilization rates, notably labor market utilization rates.

To be sure, there has long been a raging debate in the economics community – in academia, in policy circles and in the markets – as to the “best” specification of Taylor-like rules. Indeed, former Fed Governor Larry Meyer and John Taylor himself are presently debating in public the “right” co-efficients in a Taylor-like rule.1 But where there has been little debate at all is what should go into a Taylor Rule, so as to compute the “appropriate” nominal policy rate:

A constant, which is assumed to be the “neutral” real rate, which would hold if the inflation and unemployment were both at “target”.
The inflation rate itself.
The gap between the actual inflation rate and the target inflation rate.
The gap between the actual unemployment rate and the full-employment unemployment rate, commonly known as the NAIRU (non-accelerating inflation rate of unemployment), which can also be viewed as the “target” rate.
Nowhere in such Taylor-like rules is there a term for the state of financial conditions, or more specifically, asset prices. The argument for not including such a term – made famously by Fed Chairman Bernanke and Professor Gertler in their 1999 paper2 presented at Jackson Hole – has been that changes in financial conditions and asset prices are indirectly “picked” up when implementing a Taylor-like rule, because they influence aggregate demand relative to aggregate supply potential and thus, the unemployment gap, which cyclically drives inflation.

More to the point, ebullient financial conditions stimulate aggregate demand, arguing for a smaller output gap and thus a higher policy rate while depressed financial conditions do just the opposite. Thus, so the argument goes, there is no need to include financial conditions in a Taylor-like rule, because to the extent that financial conditions influence aggregate demand, the rule will point to changes in the policy rate in the “right direction”.

To be sure, this intellectual edifice has not been religiously followed. Indeed, a favorite analytical means that is used to show this is the pattern of deviations in the actual policy rate from that prescribed by Taylor-like rules. And when using Professor Taylor’s own specification of his rule, computing such deviations is actually very easy, because Taylor used historical data for the independent variables, rather than forecasts of those variables. Such deviations of the actual policy rate from the “Taylor-prescribed” policy rate are viewed as the central bank being both forward looking and engaged in risk management, tilting policy relative to the rule in a judgmental fashion (hence, one of the reasons the paradigm is called “flexible” inflation targeting).

As a factual matter, the sum of the deviations – as shown in the graph alongside – over the last decade has been for an actual policy rate meaningfully below the Taylor-prescribed level, because the dominant “fat tail” in the Fed’s forecasts has been unacceptably low inflation rather than unacceptably high inflation. Professor Taylor takes great umbrage with the Fed for having systematically tilted policy to a more accommodative stance than prescribed by his rule, arguing that such a tilt in the middle years of this decade was a dominant – if not the dominant – cause of the housing and housing finance bubbles that formed during that period.

Intuitively, there must be some validity to Professor Taylor’s argument because by definition, running policy in risk management mode, biased to cutting off the fat tail of excessively low inflation, if not deflation, means an easier monetary policy that would be “appropriate” if the Fed looked only at the central tendency of the probability distribution of its forecasts. Many economists – myself included – would argue that this was the right thing to do, given the imperative of avoiding a Japanese-style liquidity trap. Did this low interest-rate deviation from Taylor’s specification of the Taylor rule really cause the asset bubble?

On this point, I think John Taylor takes his argument further than the evidence. To be sure, there is a correlation between low interest rates and rising home prices, but that correlation is not equivalent to causation. In my view, the evidence is much more persuasive that the primary villain in the bubble was ever-more lax underwriting standards for mortgage creation, facilitated by the unholy trinity of the originate-to-distribute business model, explosive growth in the shadow banking system, and complicit rating agencies. Had it not been for these enabling factors, the bubble would not have inflated – or subsequently deflated – as violently as it did.

But at the same time, bubbles are also endemic to human nature and behavior of markets. Old fashioned animal spirits, with optimism that housing prices could never fall propelling momentum-driven buying that drove up prices, re-enforced and turbo-charged the momentum from financial innovation and poor underwriting standards. Such is the nature of bubbles.

And conventional Fed wisdom for well over a decade has been that the central bank should not be directly concerned with such bubbles, because (1) they are devilishly difficult to preemptively identify and because (2) following a forward-looking Taylor-like rule “automatically” leads to a policy of leaning against bubbles. Rather than trying to pop putative bubbles, which would only definitively prove their existence by blowing up, conventional wisdom favored a “mop up strategy” – if and when bubbles did blow up.

To be sure, this conventional wisdom was not shared in all circles. Most notably, the Bank for International Settlements, the BIS, consistently warned that central bankers could and should identify nascent bubbles and could and should lean against them by more than what would be implied via their impact on aggregate demand, viewed through a Taylor-like rule. The BIS’s Bill White – and guest lecturer at PIMCO’s 2009 Secular Forum – led this great research and advocacy work.3 He was essentially ignored.

But no longer, following the greatest economic and financial downturn of the post World War II period. The analytical community – again in academic, policy and market circles – has no choice but to embrace that something went wrong, very wrong. And it is only natural that some of the re-examination take place with respect to the flexible inflation-targeting regime, implemented via a Taylor-like rule. That’s not to suggest that there was nothing right about that regime; it did indeed provide an analytical foundation for fine-tuning the economy to both low inflation and low unemployment, summarized in the motto, the Great Moderation.

But that regime left no room for the insights of Hyman Minsky, drawn from John Maynard Keynes, that financial capitalism is inherently given to endogenous boom and bust cycles, what Minsky called his Financial Instability Hypothesis. The tumult of the last two years ensures that the analytical community, in forming a new consensus around a new central bank reaction function, will incorporate Minsky’s insights, as suggested by San Francisco’s Fed President Janet Yellen.4 This process is still in its infant stages, but in my view, the doctrine of hands-off as to bubbles on the way up, to be followed by mopping up, is in ineluctable retreat.

None of the Fed’s five constituents – or children – presented at the outset will accept continuation of a regime that culminated in the drama of the last two years. Asset prices do matter. And policy makers will have no choice but to include them in their reaction function. Indeed, where the debate is most fertile is to whether asset prices, or financial conditions more generally, should (1) be added as an additional independent variable in Taylor-like rules, and/or (2) incorporated in a new regulatory reaction function, commonly called Macro-Prudential Regulation. The latter refers to a comprehensive revision of the regulatory framework to strengthen capital requirements; remove the pro-cyclicality of capital requirements that encourages banks to lend ever-more into booms and cut back ever-more in busts; and to modify compensation schemes to remove incentives for short-term gains at the price of long-term losses.

Bottom Line
Consensus opinion at Jackson Hole, as best as I can glean from the formal papers and informal write-ups of participants, is for the need to develop a robust, internationally harmonized framework of Macro-Prudential Regulation. Such a framework will have many objectives and features, but, in my view, the core objectives must be (1) counter-cyclical capital/margin arrangements, replacing the pro-cyclical paradigm that has been in place, which has turbo-charged the inherent boom-bust pathologies of financial capitalism that Minsky so richly identified; and (2) a robust resolution regime, outside the disorderly bankruptcy process, for all systematically important financial institutions.

There are many, many steps to go before consensus – both analytical and political – will form as to the details of a Macro-Prudential Regulatory regime. And as Charles Bean, Deputy Governor of the Bank of England, noted in a powerful speech last week in Barcelona,5 in the absence of such a regime, central bankers will have to consider seriously the “second best” option of incorporating asset prices more explicitly into their Taylor-like rules, being willing to accept somewhat larger deviations from “target” for both inflation and unemployment, if that is necessary to enhance prospects for systemic stability.

What we can say with high confidence is that central bank transparency of its reaction function is not a holy grail in its own right. Getting the reaction function right, including having different reaction functions for different problems, is the Holy Grail. And in my view, central bankers need not wait until a new consensus is fully formed, fully buffed with academic logic and empiricism, before pursuing new paths.

Yes, that will sometimes mean taking action that is not fully anticipated, based on old rules of the game. But just like parents, central banks must exercise judgment, and sometimes, good judgment does involve making decisions on the basis of where the gut says the brain is going. Yes, sometimes, “because I said so” is the right answer to a child’s question.

Should Work Make Us Happy? - GILL CORKINDALE

2009-09-08T19:55:00.000-07:00

In these times of economic uncertainty and job insecurity, the question of whether work should make us happy seems an unnecessary self-indulgence. Many of us are just happy to have a job and be surviving the downturn. And yet happiness has been getting a lot of air-time lately — from the Guardian, the Atlantic, and Slate, just to name a few. It's also a question that still occupies many of the leaders I coach, from fresh MBA graduates to senior executives at the top of their organisations. Why is this?

According to Swiss philosopher Alain de Botton, we are living in a unique era, when we are encouraged to seek happiness through work. The idea of work as a source of fulfillment has been around much longer (championed by Benjamin Franklin in the 18th century), as has work as a source of meaning (articulated by Victor Frankl in the 1940s). Yet work as a source of happiness is something else. De Botton believes that while work has been important in all societies, it is now so closely tied up with our identity that the first question we ask new acquaintances is not where they come from, but what they do.

In his new book, The Pleasures and Sorrows of Work, de Botton interviews a range of workers, from rocket scientists to biscuit manufacturers to accountants to artists to find out what makes jobs fulfilling — or soul-destroying. One of the most disturbing discoveries he makes is that most of us are still working at jobs chosen for us by our sixteen-year-old selves.

As an independently wealthy intellectual himself, de Botton is a world away from another great writer on the varieties of work experience, Studs Terkel. Terkel, who called work "a Monday-to-Friday sort of dying," brilliantly chronicled the lives of ordinary 20th-century working Americans in his book Working. The account of the young woman advertising executive who recounts her ways of dealing with a patronizing male boss sound remarkably contemporary. Throughout these accounts, workers describe their satisfaction in doing a job well, but rarely refer to work as a source of happiness per se.

Personally, I am looking forward to the publication of The Joy of Work? — note the question mark — in October. Peter Warr, a professor of work psychology and Guy Clapperton, a business journalist, believe that since we spend an average of 25 percent of our lives at work, we should make the best of it. Very practically, they offer strategies to get more enjoyment from work and steps to improve your job without changing it.

The point about accepting your work and making the best of it is an important one. I have seen many cases among my clients of executives who have expected — or been promised — too much from their jobs. As reality dawns, they experience such crushing disappointment and unhappiness that they feel compelled to walk out of their jobs or even change careers. Of course, there are times when this is the only option, but more often it is their attitudes and approach to work that cause the misery. Herminia Ibarra, a Professor at INSEAD, urges executives to think carefully before they make dramatic career changes in pursuit of greater fulfilment and happiness. As she indicates, far less is written about career changes that go wrong than vice-versa.

Uncharacteristically, the British Government has decided that happiness is of great importance to the nation and has appointed economist Richard Layard our first "Happiness Tsar." His mission is to build some positive thinking into the workforce from childhood, so children will develop into more resilient adults. In his book, Happiness: Lessons from a New Science, he writes: "There is a creative spark in each of us, and if it finds no outlet, we feel half dead. This can literally be true: among British civil servants, those who do the most routine work experience the most rapid clogging of arteries."

So what do you think? Can you find happiness through work or is this an unrealistic expectation? Do you have any experiences or thoughts you could share? What are your recommendations for a happy, fulfilling life at work or in your wider life?

The Most Powerless Powerful Man on Wall Street - Joe Hagan

2009-09-01T19:47:00.000-07:00

For a few seconds, the question hangs in the air.

“Would you just raise your hand?”

The congresswoman from California peers down through her spectacles at the eight men in front of her, their faces as dour as war criminals at a tribunal. It’s the congressional Finance Committee hearing in February, and Maxine Waters has demanded to know who among America’s investment-bank CEOs had the gall to take billions in federal bailout money and then raise credit-card rates on the very taxpayers who’d helped prop up their sorry companies.

Heads crane to look. Then the long, thin arm of Vikram Pandit, the chief executive of global banking conglomerate Citigroup, goes up in the air like a flag of surrender. When it drops back down again, Pandit’s shoulders slump, a weak smile of acquiescence on his face. Behind him, the Reverend Jesse Jackson glowers with righteous anger.

“Thank you,” Waters says curtly.

It’s a moment of withering humiliation for Pandit, but it’s only the latest disgrace: In the preceding months, he has barely clung to his job, as Citigroup’s board considered replacing him with a former media CEO and offered the government his head in exchange for the billions in bailout money. President Obama himself publicly rebuked him for ordering a new $50 million jet. Forced to break up Citigroup against his own strategic aims, he’s taken so much government aid that one i-banker jokes that Citi has become “the Wall Street version of the DMV.” The rank and file at Citi, their net worth destroyed, accuse him of cronyism and absentee leadership. He’s become a virtual corporate eunuch, his options narrowed to nil, making a $1 salary as a public display of humility.

Pandit is trying to keep his chin up. “Look, I don’t want to leave until the job is done,” he tells me late last week. “I don’t want to lose the opportunity to put this company in the right place, because I believe I can do it.” Not everyone agrees, of course, and the consensus is that he might already have been replaced at Citi if the government could find anyone willing to take the thankless job. (“The funniest blog was e-mailed to me by a friend,” he jokes wanly. “ ‘Pandit Gets to Keep His Crappy Job.’ ”)

It wasn’t supposed to be this way. When he arrived at Citi in late 2007, Vikram Pandit was the definition of the fabled “smartest guy in the room,” the kind of brainy financial engineer Wall Street invented—and rewarded richly—over the past twenty years, as complex instruments like derivatives fueled wealth creation. He saw hidden folds in complicated problems that others didn’t see, and when he spoke, which was not often and always quietly, people listened. But for all his brains, he never quite seemed to be in control of his own destiny. Fourteen months later, Pandit is the latest to be blamed for everything that is wrong with Wall Street, the smartest guy in a room full of idiots.

In the 1976 Columbia University yearbook, Vikram Pandit appears with the Institute of Electrical and Electronics Engineers: He’s a slight young man with huge black-framed glasses perched over a thin, aquiline nose and a sparse mustache, his thin neck poking out of a too-big plaid lumberjack shirt. He looks cheerful among the academic elite. Pandit had moved to Queens from a town in central India when he was 16, the son of a middle-class pharmaceutical executive. His family was of the Maharashtrian Brahmin caste, traditionally known as priests and scholars (Pandit, in fact, means “priest” or “learned person”), who frequently enter the business class in Indian society. When Pandit was born, an astrologer told his family that “whatever this boy touches will turn to gold.”

A spectacular student, Pandit studied summers and earned an undergraduate degree in electrical engineering in only three years. He then turned to finance and earned a doctorate after publishing a dissertation involving a crushingly complex financial puzzle. After teaching economics at Columbia, he moved to Bloomington to take a job as a professor of finance at Indiana University. This was a time when lowly professors at midwestern schools were suddenly being offered entry into the world of high finance. Wall Street needed so-called quants who could understand sophisticated investment structures like derivatives. Pandit saw an opportunity. He started as an associate at Morgan Stanley in 1983, among the first Indians to be employed at the firm.

Almost immediately, his colleagues recognized his sharp mind. “Whenever we had a tough problem, whatever the complex structuring was, we’d send Vikram to do that job,” recalls Anson Beard, an advisory director at Morgan Stanley and a veteran of the company’s seventies vanguard.

“There were probably only five or six people who really understood the balance sheets and the trading positions,” says Barton Biggs, a former colleague at Morgan who now runs Traxis Partners. “And none of those people were members of the executive committee. Vikram did understand it and could explain it.”

He was consistently prescient on sophisticated trends in financial theory. “He was talking about fat-tailed risks fifteen years ago,” says a former colleague from Morgan, referring to the concept eventually popularized in Chris Anderson’s 2007 book, The Long Tail. Others described Pandit’s uncanny ability to “see around corners,” predicting, for instance, the rise of hedge funds in the late nineties.

Pandit may have been Morgan Stanley’s resident genius, but he was nobody’s idea of a natural-born leader. He lacked charisma, detested glad-handing, avoided confrontation, and generally struck people as awkward and uncomfortable. The guy who seemed to have everything he didn’t, Pandit couldn’t have helped but notice, was John Havens.

Born to wealth and married to an heiress of the Doubleday book-publishing fortune, Havens hunted birds, played golf, smoked cigars, and knew his way around private clubs and charity dinners. His unusual looks—he was hairless owing to the rare skin disease alopecia universalis—were offset by his flashy ties, suspenders, and meticulous tailoring, “a walking advertisement for a bespoke clothing store,” according to one of his former colleagues at Morgan. His status among the elite members of the firm, old-line executives like Anson Beard and Parker Gilbert, was high. He played the part to the hilt, carrying himself with a martial bearing and once standing on a desk in the trading floor and exulting: “I bleed Morgan Stanley blue!”

Havens and Pandit had an unlikely but natural affinity. As a sales trader in the equity division, Havens sold clients the complex securities Pandit crafted. When Pandit came up with a new investment instrument, Havens wasn’t afraid to say “this is a shitty product you’re coming up with,” says a mutual colleague of the men. “[Pandit] came to appreciate Havens’s abilities not only to sell things but to help with the creation of the product.”

But Havens wasn’t just a business partner; he was also a kind of social prosthetic for Pandit. In exchange, Havens found Pandit’s brainpower useful in attaining higher corporate ground. By the late nineties, they had risen through the ranks of the equity division. When Neal Garonzik, the head of equities, left in 1997, both were up for the job. “There are two kinds of generals,” says Beard. “Some generals who can fire up the troops and take any hill, and some generals who sit in a tent and figure out which hill. Vikram is a terrific strategist. John is a leader.” In this instance, the strategist won out. Pandit was named Garonzik’s replacement, and Havens became Pandit’s No. 2. “I know John was disappointed, but he never let it affect his relationship,” says a colleague of the two men. “In fact, it grew stronger.”

His closest friends describe Pandit as quietly backing into power, too meek to grab for it directly, never ambitious in the pejorative sense of the word. To them, Wall Street was a meritocracy and the best and brightest mind, however passive and un-Gekkolike, had simply risen to the top in an orderly and natural fashion. After all, for every hard-charging trader who broke phones and kicked in doors, you needed a Vikram Pandit who could hedge against overzealousness. “Many people wanted to see him get his chance in the sun,” says Paul Kimball, a former Morgan colleague.

But with his newfound power came critics and rivals who saw Pandit’s dry, quiet ways as hubris and political cunning rather than shyness and humility. When he became president of investment banking at Morgan Stanley in 2000, “that’s when he said, ‘I am a king,’ ” says a former Morgan executive who is critical of Pandit.

Pandit was exceedingly cautious in his leadership role, always looking for ways to make money with a minimum of risk. When hedge funds came along, his idea was not to invest directly but to sell brokerage services to them. He would often avoid acting on a problem until he felt he’d perceived every possible risk involved—and the delays would frustrate his subordinates (“analysis paralysis,” they called it). He rarely expressed strong opinions in meetings, instead chiming in with a single Socratic question. “A lot of people were a little afraid of him,” recounts one former colleague. “He was so smart, and they didn’t want to look dumb.”

While Pandit observed and listened, Havens would execute Pandit’s strategies while another close aide, an outgoing and socially connected marketing man named Don Callahan, would sound out underlings and keep tabs on political machinations. To critics, it seemed that Pandit was merely trying to avoid risk to his career. “His attitude was all about, ‘I am not going to do anything, decide anything, that’s going to get in the way of an upwardly mobile career trajectory,’ ” says one of his Morgan Stanley antagonists. But his critics couldn’t deny the power of his intellect, and his superiors were beguiled by it.

Pandit made gestures toward the trappings of Wall Street success, buying a house in Greenwich, Connecticut, next to former Lehman Brothers CEO Dick Fuld and sending his children, Maya and Rahul, to Trinity School on West 91st Street (Pandit eventually joined its board of trustees). In most ways, however, Pandit remained a cultural outsider: While he paid dues to the exclusive Country Club of Purchase, part of Morgan Stanley’s unofficial social agenda for managing directors, a friend says Pandit never actually saw the inside of the club. His parents lived with him for part of the year in his Manhattan apartment, and Pandit drove the extended family around in a minivan. A fellow executive who once saw him at a movie theater was shocked to see Pandit out of his usual C-suite suit and tie, wearing an oversize anorak, stonewashed jeans, and white sneakers. He looked like “a nerd in the computer faculty,” says the onlooker.

Pandit was of two worlds, and the subtle cultural bias at Morgan Stanley didn’t make it easy to fit in. His wife, Swati, was frequently invited to Morgan Stanley events in which wives were expected to appear, but she never did. “Nobody has seen her at one work function,” says a former colleague at Morgan Stanley. Her absence didn’t help with the perception among some at Morgan that Pandit had a bias against women. A female executive who once worked for Pandit says he was uncomfortable having women in anything other than supporting roles. In 1998, one of Pandit’s female underlings filed a legal complaint against Morgan Stanley that resulted in a $54 million sex-discrimination settlement.

Pandit also took heat over his alliance with an Indian equities trader named Guru Ramakrishnan. Pandit and Ramakrishnan had come from the same Brahmin caste in India and had both gone to Columbia before seeking their fortunes on Wall Street. But that’s where the similarities ended. Ramakrishnan was outwardly confident and even arrogant—he once bragged that an astrologer told him he was going to be the head of sales and trading at Lehman Brothers. Many at Morgan considered him unpleasant and prickly. When he lost money, he had a habit of insisting “why he was right and the market was wrong,” says a person who worked with him. Some suspect that Pandit abided Ramakrishnan because he was a useful henchman for the conflict-averse president. “When Vikram wanted to browbeat somebody, he didn’t want to do it himself. He’d send Guru to do it,” says another former Morgan Stanley executive. It also didn’t hurt that Ramakrishnan was worshipful of Pandit: He once cried when he thought he would be unable to fulfill an order Pandit gave him. “Guru was very well protected by Vikram,” says a former colleague. Non-Indians at the company privately referred to Pandit and Ramakrishnan, along with two other Indian executives, as the “Indian Mafia.”

In 2001, John Mack, Morgan Stanley’s charismatic CEO, was edged out by Phil Purcell, the Dean Witter CEO who had merged his company with Morgan. Pandit was not bothered by the change at the top. Former colleagues say he told a group of people that it wasn’t a big loss because Mack wasn’t that smart. (Pandit denies saying this.)

In principle, Pandit and Purcell were aligned on the crucial subject of how much risk to take—neither was entirely comfortable with excessive leverage. By contrast, Zoe Cruz, the president of the fixed-income division, felt the credit markets were ripe for bigger bets and more leverage—and she was bringing in more money than Pandit. Pandit and Cruz jousted for influence with the CEO.

Meanwhile, in 2005, eight veteran former Morgan Stanley executives, known as the Group of Eight, made a run at Purcell’s power, co-opting disgruntled senior executives—including Pandit’s No. 2, Havens—to plot against him. To recruit Pandit, the G8 dangled before him the CEO job at Morgan Stanley—if Purcell was driven out, Pandit would eventually take over. It was a risky move: There was no guarantee that the coup would work. But when Purcell asked Pandit for his loyalty, Pandit refused, betting his chips on Havens and the G8. “He does not like conflict and does everything to avoid it,” says a person involved in the Morgan Stanley battle. “But this was an irreconcilable conflict and he acceded to Havens as he almost always does.”

Given Pandit’s coy style, Purcell was shocked when he learned Pandit had turned against him. “I don’t understand. Vikram was my guy,” he told a friend. “I saved his job three times.” When he learned of the betrayal, Purcell promoted Cruz, ousting Havens and Pandit.

On his way out, Havens walked through the trading floor to standing ovations, but Pandit left the building alone, taking only his raincoat into a cold March drizzle. “It was the most upsetting thing that ever happened to him,” says a friend and former colleague. Morgan Stanley, says another, “was his soul, his identity—home.”

The year that followed was difficult for Pandit. He was out of a job. And his mother, Shailaja, died of breast cancer, a blow that cracked his otherwise cool façade. He nearly broke down while telling a fellow executive the details, pausing to collect himself before he could speak again. In her memory, Pandit started the Maina Foundation for Raising Breast Cancer Awareness.

That same year, 2006, Pandit regrouped by forming a boutique hedge fund called Old Lane Partners with John Havens, Guru Ramakrishnan, and several other Morgan Stanley refugees. The name gave it the air of a Waspy clubhouse, but during a charity roast for Pandit in 2007, an Indian colleague joked that it should be called “Brown Brothers and Havens” because of all the Indians working there. Ramakrishnan, the only one with hedge-fund experience, was named CEO. He spearheaded $500 million in infrastructure projects in India.

Early on, Pandit and Havens went looking for investors and arrived at the door of Citigroup. Pandit had a friend in Robert Rubin, the company’s director. Rubin first saw Pandit at a private panel discussion in 1999 that was hosted by former SEC chairman Arthur Levitt. He was so impressed by Pandit’s intellect he asked to meet him. The two men struck many as kindred spirits. Like Pandit, Rubin favored intelligence over less quantifiable assets like charisma. In their views, such retail-business talents were secondary to cool analysis. “Vikram,” says Barton Biggs, “is an Indian version of Bob Rubin.”

Citi executives vetting Old Lane refused to stake client money on the investment, feeling Pandit’s team didn’t have enough experience. If they wanted Citi to invest, then Citi’s top executive, chairman and CEO Chuck Prince, would have to personally approve the deal. And Prince did: Citi invested $100 million in Old Lane.

Old Lane was performing poorly, earning only a net 3 percent return in 2007, worse than a money-market account. It was clear to everyone who knew him that Pandit was unhappy managing a hedge fund. He was restless and dissatisfied. “He wanted his shot at running something really big,” says Biggs.

Rubin and Citigroup were eyeing Old Lane as an acquisition—not for high-yield returns, but for Pandit, a potential candidate to one day run Citi. In April 2007, Pandit sold Old Lane to Citi for $800 million, a price tag that boggled the minds of Wall Street observers. Pandit personally reaped a huge bounty, what amounted to $165 million in cash. With his windfall, he bought a ten-room, $17.9 million co-op apartment on Central Park West, the former home of the late actor Tony Randall. Rubin made little pretense about why Citi had spent so much money: He publicly called Pandit “a genius.”

Pandit was made chief executive of Citi Alternative Investments (CAI), the hedge-fund arm of the company under which Old Lane now resided. At a company town-hall meeting, Rubin stood by him beaming, as Pandit announced that he would double the company’s hedge-fund business over the next few years. Havens, Pandit’s de facto No. 2, explained to their new underlings at CAI that “we need good DNA in here”—which meant, says one former Citi staffer, purging their colleagues and bringing in “a bunch of rejected Morgan Stanley guys.” Citi executives bristled at what they considered Havens’s swaggering leadership style. “He made it very clear he thought they were all morons,” says the former Citi executive. Pandit rarely showed up at CAI, instead spending time in Citi’s corporate suite near the top brass on Park Avenue. The hedge-fund wing was just a place to park until the real opportunity presented itself.

Six months later, Pandit was asked to investigate the bank’s books and discovered what would turn out to be billions in subprime losses—leading Chuck Prince to step down as CEO. Rubin immediately lobbied to have Pandit replace him, but there was unexpected resistance from a number of board members, including Alain Belda, chairman of Alcoa, and C. Michael Armstrong, the former AT&T CEO, who did not believe Pandit was ready to lead and thought Citi had overpaid to get him in the first place. Meanwhile, Citigroup founder Sandy Weill was advocating for Tim Geithner, a former protégé of Rubin’s then working for the New York Federal Reserve (and now, of course, Treasury secretary). Rubin began telling board members that Pandit might leave if they didn’t give it to him, making a mockery of the $800 million they’d paid for his hedge fund—a claim that detractors took as explicit arm-bending.

Rubin sold Pandit as the consummate problem-solver and a man who could see around corners—the sorts of descriptors that were often applied to him. Pandit’s pedantic style and reputation for risk-aversion dovetailed with the going mood, a balm for the go-go era of high risk that was battering the investment banks. After all, hadn’t Pandit resisted the leveraged risk favored by Mack and Cruz at Morgan Stanley?

Rubin ultimately prevailed, and the board of directors at Citi agreed to make Pandit CEO in December 2007. A confidant warned Pandit that he should think twice about taking the job. Citigroup was an unwieldy monster: A so-called financial supermarket built by Sandy Weill out of the merger of Travelers Group and Citicorp in 1998, Citi had a global reach that, in theory, was supposed to give it extraordinary leverage. But with the credit markets collapsing, the bad parts could start bringing the good parts down with them. The conversation over whether the business model was still relevant was reaching a fever pitch.

“Vikram, this is impossible,” the confidant said. Pandit replied, “No, this is a terrific opportunity.”

Pandit would be the leader of the biggest bank in the world, what amounted to a small country, population 350,000, and he would have at his disposal four airplanes, a helicopter, cars and drivers, chefs, dozens of aides, and the ear of the White House. Better still, running Citi would be his chance for redemption after missing his shot at Morgan Stanley. Once the deal was done, Rubin personally went from division to division praising Pandit to staffers.

Pandit laid out an ambitious three-year plan for Citigroup’s future: centralizing management, restructuring, selling billions in assets, and raising capital as a buffer against further credit collapse. (Rubin personally cruised a golf course with Prince Alwaleed bin Talal in Abu Dhabi to procure a $7.5 billion investment.) Pandit studiously read books on Citibank history, hoping to divine a common thread running from the company’s roots as City Bank of New York in 1812 to its present incarnation and perhaps gain an inkling of the pride he’d felt for Morgan Stanley. He brought in long-retired Citi executives to talk about the old days and reanimated the company’s seventies ad campaign, Citi Never Sleeps, to try to recapture its past glory.

“The funniest blog was e-mailed to me by a friend,” jokes the Citi CEO. “ ‘Pandit Gets to Keep His Crappy Job.’ ”
The main issue on the table was whether the “supermarket” model could be maintained. One trusted associate advised Pandit that he had to break up the company to make it work. Consultants from McKinsey & Co. offered the same suggestion in a report. Pandit rebuffed those suggestions. Some say that breaking up Citigroup was never truly an option. A senior executive at the company suggests Pandit had an implicit directive from the board of directors, especially Rubin, to keep Citigroup together, thereby preserving the legacies of founder Sandy Weill and Rubin himself. Rubin and Weill had been friends since the late nineties, when Rubin served in the Clinton administration. It was Rubin who helped push through the Gramm-Leach-Bliley Act that effectively allowed the merger of Travelers and Citicorp. A year later, Weill made Rubin a board member at the company he helped create, paying him a salary of $17 million a year.

Pandit chose to embrace the challenge of Citi in the only way he knew how: He elevated his Old Lane team to positions of power, bringing in Don Callahan, who had been working in marketing at Credit Suisse, to be his chief administrative officer and promoting Havens to head of investment banking. (Ramakrishnan opted to remain in the offices of Old Lane.) Perhaps the most powerful member of Pandit’s circle of lieutenants—which became known as the “Gang of Five”—however, wasn’t a Morgan Stanley alum but Lewis Kaden, a loyal Rubin associate. Kaden, a lawyer who’d worked for the powerful DC firm Davis Polk & Wardwell, had been friends with Rubin since the eighties, when Rubin was head of Goldman Sachs. Now he was involved in everything from the $400 million Citi Field naming project to negotiating with government officials, in addition to penning Rubin’s correspondence. A common internal joke at Citi was, “If Bob Rubin turns a corner too fast, Kaden breaks his nose.”

Pandit often stayed in his corner office on Park Avenue for hours, Kaden and Callahan serving as his links to the outside world. When one senior executive finally met with Pandit, both Kaden and Callahan afterward gave opposing takes on what Pandit had meant. At a time of duress, Pandit appeared disconnected from his staff. On Pandit’s trip to Baltimore last year with the head of Citi’s investor relations, there was a third passenger onboard the company helicopter to whom Pandit didn’t say a word. When the investor-relations man finally asked which division of Citi he worked in, they learned that he was a stranger who had accidentally boarded the wrong helicopter.

To Pandit’s mind, traditional morale-building leadership had always been an ephemeral concern. He knew he was no inspirational leader, instead seeing his mission as keeping the troops at bay while he spent his time making sense of what was happening to the banking industry. Messy human affairs were best outsourced to his trusted soldiers. But the perception that Pandit was hunkering down with select lieutenants gave way to accusations of cronyism by people who felt he was not taking advice from longtime Citi executives, including Michael Klein, Citi’s vice-chairman, and Sallie Krawcheck, the head of wealth management.

Pandit’s problems with Krawcheck—onetime CEO candidate and, incidentally, the top female executive at Citigroup—came to a head over how to handle Smith Barney, the brokerage arm of the company. There was a major fire to put out. Clients were suffering extraordinary losses on Citi’s alternative investments and so-called auction-rate securities, causing brokers to exit Citi in big numbers. E-mails from Smith Barney staffers poured in expressing dismay that Pandit wouldn’t reimburse clients who had lost money under Citi’s management. By this time, Krawcheck was already considered a thorn in Pandit’s side for continually arguing that the risk to clients had been higher than advertised and giving back a portion of the proceeds would protect the franchise. She was met with resistance from Pandit’s team: Havens was against reimbursing and yelled about it in a telephone conference. But the board sided with Krawcheck, asking that Citi take action with clients.

By September, Havens told Krawcheck that two major components of her division, research and the private bank, would now be under Havens’s management in the banking division, ostensibly part of overall restructuring. Krawcheck felt they were stripping her of power and essentially forcing her out. She announced her departure in September, leaving the company without an exit package.

During all this, Sandy Weill, who had originally hired Krawcheck, was breathing down Pandit’s neck. Concerned about the company’s stock price, Weill personally asked Pandit to buy back shares along with him, in a show of public confidence. Pandit agreed, according to a person close to Weill. But when Weill started buying back stock and Pandit didn’t do it right away, Weill complained loudly to friends. Pandit stopped returning Weill’s calls altogether, referring him to Callahan. (According to two people close to the situation, Pandit and Weill have spoken exactly twice since Pandit took over Citigroup; Pandit has since bought $8.4 million in Citi shares, although at a lower price than Weill did.)

Even within the ranks of his own lieutenants, there was infighting. Old Lane Partners was on the skids, and Ramakrishnan rushed to Pandit to secure a large capital infusion to keep it from going under. Pandit promised him $2 billion. When Havens found out about Pandit’s promise, he was furious, demanding to know how Pandit could have done such a thing without consulting him. Caught between two old friends, Pandit listened to Havens, as he usually did in the end. The Wall Street Journal published a story about the end of Old Lane, featuring Pandit’s stippled headshot and calling the event a “blow to CEO.” Feeling betrayed, Ramakrishnan threatened to sue Pandit for a better exit deal. The men reportedly no longer speak. “I think Vikram is more upset about it than Guru,” says a mutual acquaintance. “He’s disappointed in Guru.”

In September, the markets plunged along with the collapsing credit markets, and the foundation of Citigroup began to crumble. While Pandit had managed to accrue $60 billion in capital to shore up finances, it wasn’t near enough. Pandit was smart enough to know what needed to be done: He had to secure more access to cash, lots of it. As banks began to fail, he bid $1 a share for the commercial bank Wachovia, which the government was hoping to quickly marry off and save from dissolution. It was a cheap way to get access to cash deposits that could shore up Citi’s credit problems. As a deal drew near a close, Pandit appeared confident that he had achieved a much-needed victory.

Perhaps a little too confident. Pandit and Citi had relied on what amounted to the legal version of a handshake to secure the deal with Wachovia. And they dragged out the process while trying to separate Wachovia’s wealth-management division from the rest of the company, feeling it had too much overlap with Smith Barney. (Lew Kaden told a private group, “We’ve got 15,000 complainers, we don’t need 15,000 more.”) Pandit left just enough room for Wells Fargo to swoop in with a bid for $7 a share and snatch the bank out from under Citi.

Pandit was beyond infuriated. After learning of the coup during a middle-of-the night phone call, he angrily demanded to senior executives at Citi that they pull Wells Fargo’s credit lines. “Pull their fucking lines!” he screamed. “Pull their fucking lines!” A senior executive in the room calmly explained that Citigroup had no business with Wells Fargo. There was nothing they could do. Ultimately, Citi filed a lawsuit against Wells Fargo for breaching what Citi considered an exclusive deal.

What no one had realized at the time was that this was effectively Pandit’s last stand before the markets would lay all previously made plans to waste. The failed bid for Wachovia was a major blow to investor confidence, and Citi’s stock tumbled as the markets buckled and Lehman Brothers folded. Within a week, Pandit was lined up with the other banking CEOs to meet with then–Treasury Secretary Hank Paulson. With the government fearing massive bank failures and a wider financial meltdown, Citi accepted $25 billion in federal bailout money in exchange for issues of preferred Citi stock.

Increasingly, Pandit was acting out of character, barking profanities in the hallways. One former Citi executive says that the head of human resources expressed concern about Pandit’s expletive-laced outbursts he’d had in the C-suite. (Pandit denies any such outbursts.) The Wachovia incident, says one longtime friend, “was the first time I have ever seen him go nuts.”

Citi’s stock declined week after week. During a town-hall webcast meant to quell concern on November 17, Pandit forecast massive layoffs and felt the need to explain in his usual academic fashion what exactly a bank did (“A bank takes deposits and puts them to work”), which baffled the closed-circuit audience of veteran bankers. As Pandit flailed, the stock declined nearly 50 percent in four days, dipping below $5 a share, the trigger price at which pension funds would sell en masse and the bank would collapse completely. When Pandit took over, the stock had been at $52.

That Friday, November 21, reports surfaced that Pandit’s job was in the balance. According to a person familiar with the discussions, the name of former Time Warner chief Dick Parsons, a Citi board member and onetime head of Dime Savings Bank, was floated as a possible replacement. News of Pandit’s possible ouster furthered the stock’s fall. A team of Citi executives led by Ned Kelly, a seasoned negotiator who had been friends with Havens for many years, began talks with then–New York Federal Reserve chairman Tim Geithner’s team to ask for more money. Kelly’s first question to Geithner’s people was whether they wanted Pandit out. Federal officials reportedly concluded that the number of candidates willing and able to replace him was now next to zero.

Instead, federal officials encouraged Citi to start off-loading more properties and consider breaking up the company—even as the separate pieces were clearly worth less than they had been a year ago. The following Monday, Citi announced that it was receiving another bailout, this time $20 billion. (A month and a half later, Citi would merge Smith Barney with Morgan Stanley, giving Morgan a majority stake.)

Meanwhile, colleagues told Pandit he had a problem with morale at Citi, but he insisted his problems were bigger than that. “Pandit said, ‘I can give all the internal motivational speeches to the troops; it won’t matter if I don’t deliver,’ ” recounts the friend. “Rightly or wrongly, he was very dismissive of his traditional leader role, the ‘Hey, you’re a statesman’ role. The problem is much more serious, and fixing the problem will change everybody’s mind both inside and outside.”

How had Citigroup come to this? Blame began to circulate, with Rubin targeted as the alleged architect of the company’s high-risk investments. Before the spotlight could find him, Pandit, under pressure to defend Citigroup and give investors confidence that he was running the company, finally agreed to come out of hiding and appear on Charlie Rose. The performance was a slightly uncomfortable tap dance. The message: No one could have predicted this, no one is to blame, and there would be no further need for government bailouts. “We moved really fast,” Pandit told Rose. “What this market tells you is one should have moved even faster. And I keep thinking about it, is there something else I could have done sooner than what I did … But the most important thing, Charlie, is that it’s very, very important to look forward from where we are … We need to do a lot of hard work to figure out how to get from here to there.”

“And you are confident that we can get there?” asked Rose.

Pandit tried on his best inspirational-leader voice: “We, as a country, have no choice. We, at Citi, will get there.”

Last week, Citi was back before the government with its hat in its hands. After $45 billion in federal aid, the company was desperate for more. The negotiations went on for over a week—although the word negotiation might be overstating it. “You don’t negotiate with the government,” says a Citi executive involved in the talks. “It’s not like there’s a give and take.”

In the end, the Treasury Department agreed to convert up to $25 billion in preferred shares to common stock, shoring up Citi’s capital base. The deal is expected to give the government up to a 40 percent stake in the company—and influence within the board of directors. Pandit’s position, according to an internal memo to Citi staffers, is that this is “not a nationalization by any definition.” But while the Citi deal may not be nationalization in the strictest sense, it is a stunning turn of events for the U.S. government to own nearly half of one of the world’s largest banks. What that means in terms of the operations of Citi is anyone’s guess at this point. Federal officials seem reluctant to issue directives to Pandit, hoping to avoid the appearance of a true government takeover of the company. On the other hand, the consensus among Citi’s newest shareholders is that the “supermarket” model is untenable and the company needs to be broken up into smaller, more manageable entities. It’s a move Pandit has resisted from the beginning.

But Pandit isn’t calling the shots anymore. The Wall Street Journal, which has been particularly harsh in its depiction of the CEO, had him literally begging the government for his job last week: “Don’t give up on us,” he reportedly pleaded. “Give us a chance to execute.”

“He’s playing defense all the time,” says a longtime friend from his Morgan Stanley days. “This is just grinding these people down to nothing.” Another friend calls him “tragic,” a government “charity case.” Says another, “Would I have advised him to take the job? Yeah. Would I feel bad in retrospect? Yeah.”

Pandit has very little time to use whatever power he has left to try to turn things around at Citi—news of the Treasury deal sent the stock plunging to a historic low. A friend jokes that the CEO is the “MacGyver of the private sector banking system,” out to “save Citi before the timing device runs to zero.” But Pandit has never seen himself as the hero type. He looks at the problem with the eyes of an engineer: “My job is to figure out which pipes go where and which pipes have to be cut off, which pipes have to be unclogged,” he told a close associate. “It’s going to take me a year and a half to two years and then the water will flow, and when the water will flow, the stock price goes up. The stock price goes up, everybody will come around.”

The night before the government deal is sealed, Pandit finally comes to the phone, after weeks of resisting an interview, to put rumors of his demise to rest. He seems amused, slightly giddy. He has survived, for now.

He brushes off Journal reports that depicted him as powerless, running Citi under the heel of his “federal masters.” “We all have a master,” he says. “It’s not about that … It’s a tough time. There is adversity out there. If I don’t step up and do what I’m doing, take what is thrown at me and get this company going, I would have been the wrong choice of CEO.”

In conversation, he comes across as assertive, even a little cocky—bold in a way his critics don’t believe he can be. “I have complete confidence in my plan,” he says. “That’s what gets me here every morning.” Then again, what choice does he have?

Millionaire

2009-08-29T18:57:00.001-07:00

A young investor stood looking out into the cool Gulf waters on the end of
pier in a small coastal Mexican village. Having spent the last several
months working hard toward gaining his securities license, he left for a few
days of sun-soaked pleasure in Western Mexico. As the sun sank into the pale
horizon, a single fisherman docked his boat along the far side of the
pier. The young Wall Street banker walked over to the boat and saw several
large yellow fin tuna gasping for air. The young executive complimented the
tanned fisherman, a wise-eyed, weathered man, on the quality of his fish and
asked how long it had taken to bring in the catch.

“Not long at all,” the fisherman replied.

“Well, why not stay out longer and catch more fish?” the young New
Yorker asked smiling.

“I have enough for today,” said the fisherman, “this is what I need to
feed my family.”

“What do you do with the rest of your time?” the young man asked
curiously.

“I sleep late, fish a little, play with my children, take a siesta with my
wife, Maria, and stroll into the village each evening where I enjoy some
wine and laughter with friends. It’s a full and happy life,” the
fisherman replied.

“Well, I'm a Harvard MBA and have just completed my investment securities
training. I could help you. You could spend more time fishing and with the
proceeds from the larger catch, buy a bigger boat. Then you could catch even
more fish. With those profits you could buy several more boats and hire
captains to fish for you, and eventually you could open your own cannery.
Then you would control the product, processing, and distribution. You would
need to leave this small coastal village and move to Mexico City or LA or
even New York where you could run your expanding enterprise.”

“How long would that all take?” asked the somewhat bewildered fisherman.

“Fifteen, maybe twenty years, max.”

“But then what?”

“Well, when the time was right, you could announce your IPO, sell your
company stock to the public, and become very rich. You could be worth
millions,” retorted the proud young investor.

“Millions? Then what?”

“Then you could retire and move to a small coastal village like this one
where you could sleep late, fish a little in the morning, play with your
grandkids, take a siesta, and enjoy wine and music with your friends in the
evening.”

The fisherman grinned, tipped his hat at the young advisor, and shook his
head as he walked off the pier without a reply.

Two Steps to Simplify Your Workday - Ron Ashkenas

2009-08-21T16:50:00.000-07:00

Have you ever gone home at the end of a long day and wondered what you really accomplished?

That's the complaint I hear from many managers these days who feel that they are working harder than ever, but don't have much to show for it. While globalization, innovation and communications technologies have created incredible opportunities, they also have made organizations much more complex, more exhausting, and more overloaded with meetings, emails, and presentations — often without the counterbalancing benefit of more productivity or satisfaction. And to make matters worse during the economic downturn, many organizations have cut their staffs and just expect the remaining people to do the same (or more) work. It's not a pretty picture.

Unfortunately, if you're waiting for someone else to initiate simplification and make your life better, you might as well buy a lottery ticket. Sure there are some enlightened CEO's — like Jeff Kindler at Pfizer, Gary Rodkin at ConAgra Foods, and Annika Falkengren at SEB Bank — who make it their business to streamline processes, reduce the number of products, cut out layers, and make simplicity a business priority. But in most organizations you're on your own. And if that's the case, what can you do?

Here are two simple steps that any manager, at any level, can take to start down the path of simplification:

Start with your own behavior. How many times have you gone to a meeting that lacked an agenda or a clear set of objects — and didn't do anything about it? How often have you received unnecessary email or reports — but didn't let the senders know that they were clogging up your inbox? How often have you sat through a presentation with too many slides, unclear points, and too much data — but didn't provide any feedback to the presenter? And how often have you been the perpetrator of these complexity-causing behaviors without anyone pushing back on you?

We all allow these things to happen. Often, we're guilty of doing them. But since most people dislike confrontation, we let things slide. It's an unspoken conspiracy: "I won't challenge you if you won't challenge me." The net result is that we unwittingly create a culture of complexity.

The first step towards simplification is to break out of this silent collusion. Challenge yourself and challenge others. Put a three-slide limit on presentations; insist that every meeting have an agenda; eliminate "reply all" emails to schedule meetings. Get simplification started in your own day-to-day life.

Enlist others in the cause. Just like you are often unconscious of how you cause complexity, your boss and your colleagues are probably unaware of how they are making life difficult for you and others. So after you've changed some of your own behaviors (and you need to do that first to have credibility), get some discussion started about other sources of complexity in the company. Don't worry at first about making big changes — just get some dialogue going, either physically or virtually.

Encourage other people to experiment along with you, and to share what works and what does not. Look together at processes that cut across your functions, and how you might streamline handoffs and interactions. Talk about issues that you can't tackle alone, but might be opportunities for group problem-solving. At a minimum, you can create a simplicity support group. But who knows, you might create a movement!

What's your experience with making things simpler in your company?

Alchemy

2009-08-07T18:25:00.000-07:00

Sandpaper was first created in 13th century China where crushed shells, seeds, and sand were glued to parchment paper. This abrasive product is used to remove small amounts of material from surfaces with the intent of making them smoother or to remove a layer. Sandpaper comes in many different grits designed to smooth out even the toughest and most coarse materials.

In life we all need sandpaper, we all need an antagonist, and we all need friction. There isn’t a one of us that is silky smooth and if we plan to get the best out of ourselves we need someone who will oppose us. While motivation is at its best when it is internal, we do need something to rub us the wrong way in order for us to achieve our potential.

The greatest harm we can do in our quest for excellence is to surround ourselves with others who think exactly like us. When we only interact with likeminded individuals we only get the answers we want to hear. When excellence is at stake we need an abrasive individual that will cause us to question our motives and evaluate our reasoning. It is through the roughing up of our ideals that we can find the way to smoothly experience greatness.

The bigger the idea we have the tougher grit we need to surround ourselves with. Big ideas are not materialized without friction, big mistakes are. If we are to minimize the amount of mistakes we make through transitions it is essential that we assess all ideas, especially the ones we don’t agree with. Somewhere between the emotion that is produced from an antagonist and our original idea is the opportunity for excellence. This opportunity is not available when we are not challenged personally, emotionally, socially, and spiritually.

Excellence is a form of alchemy, the transformation or enchantment of power. Alchemy is both a philosophy and a practice with the aim of achieving ultimate wisdom through change. In order for us to make the necessary change that has the potential to reach ultimate wisdom we must use the old woodworker’s philosophy of “going through the grits” and progressively remove scratches until our surface is perfectly smooth.

It isn’t until we embrace ideas that go against our grain and create scratches that we will be able to see the opportunity that will generate excellence. Without abrasive others we will not create enough thought to achieve alchemy and without alchemy we will not create enough change to achieve wisdom.

Quote of the Day - "None of us is as good as all of us"

2009-08-03T17:28:00.001-07:00

12 Ways to Thank Your Customers - Client Appreciation Strategies You Can Use Year-Round - Stephanie Chandler

2009-08-01T11:48:00.000-07:00

One of the biggest mistakes a business can make is investing the majority of marketing efforts in attracting new customers and forgetting about past customers. Your current and past clients are the foundation of your business because without them, your business would not exist. It also costs far more to acquire a new client than it costs to generate business from an existing client.

Showing appreciation for your clients can set you apart from your competitors, increase loyalty, improve retention, inspire sales and even build relationships that last a lifetime. Reaching out to your clients is also an opportunity to remind them that your business exists. Effective marketing relies on repeat exposure and showing appreciation is an affordable and effective way to keep your marketing wheels in motion.

One note of caution: some companies and industries have strict guidelines about accepting gifts. This is especially true of media professionals and government workers. Gifts can be construed as bribes so when in doubt, ask your clients if such policies exist or stick to sending items with no monetary value.

Following are client appreciation strategies that can help you cultivate client retention.

1. Greeting Cards

The Guinness Book of World Records lists Joe Girard, a car salesman from Detroit, as the world's best salesman. Girard earned the honor by selling 18 cars in a single day. One of his secrets to success is sending 12 cards per year to every single customer and prospect. There are dozens of major and minor holidays throughout the year and each provides a great reason to send a card.

2. Personal Notes

Thoughtful and unexpected thank you notes can be sent after client appointments, following a purchase or whenever a client has done anything deserving some appreciation. While sending an e-mail may be quick and easy, you will make a better impression by sending a note in the mail.

3. Invitations

Though it is important to recognize all of your clients, it is just as important to pay extra attention to your top clients. Spending time together outside of the office gives you a chance to cultivate the relationship by getting to know each other better (in the sales world, this is called "face time"). Consider inviting your top contacts to lunch, dinner, sporting events, charity functions or other events where you can spend time together.

4. Small Gifts

Flowers, books, a mug full of candy and other token items can make thoughtful gifts for clients. These can be sent on special occasions such as birthdays, holidays or anniversaries, or can be sent for no reason other than to show your gratitude.

5. Food

Everyone loves food. Consider sending cupcakes from your local bakery, providing a catered lunch at your client's office or dropping off a tray of cookies.

6. Gift Cards

Sending gift cards for items or places your clients will enjoy can have an added benefit: they will think of you when it comes time to redeem the gift! Options include coffee shops, restaurants, movies, bookstores, office supplies or anything else your clients would appreciate. For even more mileage, consider partnering with another business and send each other's gift cards.

7. Referral Rewards

The highest compliment you can receive is a referral to your business. This gesture deserves recognition in the form of a thank you note, discount on services or small gift card. Always acknowledge when a customer sends business your way.

8. Reverse Referrals

If your clients are business owners, look for ways to refer business to them. This is an unexpected gesture that is sure to set you apart.

9. Customer Appreciation Days

Designate one or more days each year to celebrate your clients. You could offer a customer-only secret promotional sale, give away lunch if you have a physical location or provide a special bonus to those on your mailing list.

10. The Gift of Information

Ebooks, reports, workbooks, videos and other types of information products can make great gifts. For example, compile a list of useful tips that your customers will appreciate and either deliver it via e-mail in a PDF document or publish it in booklet format to mail or hand out.

11. Host Events

Host a party or an open house at your office or a restaurant. If your clients are geographically dispersed, you can hold a virtual event by inviting them to participate in complimentary online seminars.

12. Life Events

If you know that your client is getting married, having a baby, being promoted or enjoying another major life event, send an acknowledgement--even if it is a simple card. Your gesture will not be forgotten.

When to Keep Your Mouth Shut - TAMMY ERICKSON

2009-08-01T11:42:00.000-07:00

The pilot on tonight's flight just came on with an important announcement: we have enough fuel to get to Boston.

Hmmm. I probably was assuming that before he mentioned it. Is this something I really want to have brought to my attention? Is this something I need to hear?

I started to imagine all the other situations in which I really would not appreciate an announcement. How about a nurse who assured you that the syringe she's about to stick in your arm has never been used before? Or a waitress who mentioned that she washed her hands before she made your sandwich? Again, really something I prefer you not call to my attention.

A boyfriend who says that he is not going to break up with you today? A boss who is not going to fire you? (Okay, in today's climate, I grant you that one might be nice reassurance to have.)

But we often say too much.

Here are five situations in which saying less would have been more.

1. Describing one more product feature, after the customer's facial expression indicates that she has already decided to buy. By describing an additional feature, the only thing you can possibly do is trigger an objection the customer had never considered.

2. Beginning any meeting or speech by letting your audience know that you are poorly prepared or prepared at the last minute. At a minimum, this demonstrates a lack of respect for the importance of the event or other participants. In most cases, you also decrease the authority of your conclusions.

3. Asking a question that shows you have absolutely no idea about something you really should understand. I know, people often say there's no such thing as a dumb question. But, frankly, that's just . . . well, dumb. Sometimes it's much wiser to do some research (or ask a friend) to get grounded, and then go back with "smart" questions.

4. Trying for a second laugh after your first spontaneous comment proves amusing. (Think of this as the George Costanza rule for any of you who are Seinfeld fans.) It almost never works. Quit while you're ahead.

5. Assuring people things won't happen that people never imaged would. An airplane with enough fuel should be a given.

Shhhhh . . .

The Best Leadership Advice I Ever Got - MARSHALL GOLDSMITH

2009-08-01T11:41:00.000-07:00

This week's question for Ask the Coach:

As a coach, you are asked to give others advice - what is the best coaching advice that you have ever received?

Like many young Ph.D. students, I was deeply impressed with my own intelligence, wisdom and profound insights into the human condition. I consistently amazed myself with my ability to judge others and see what they were doing wrong.

UCLA Professor Fred Case was my advisor and head of the Los Angeles City Planning Commission - where I was doing my dissertation research. At this point in my career, he was clearly the most important person in my professional life. He was also a man that I sincerely respected. He had done an amazing amount to help the city become a better place. He was also doing a lot to help me.

Although he was normally in a very upbeat mood, one day Dr. Case seemed annoyed. He looked at me and growled, "Marshall, what is the problem with you? I am getting feedback from some people at City Hall that you are coming across as negative, angry and judgmental. What's going on?"

"You can't believe how inefficient the city government is!" I ranted. I immediately proceeded to give several examples of how taxpayer's money was not being used in the way that I thought it should be. I was convinced that the city could be a much better place if the leaders just listened to me.

"What a stunning breakthrough!" Dr. Case sarcastically remarked, "You, Marshall Goldsmith, have discovered that our city government is inefficient! I hate to tell you this Marshall, but my barber who is cutting hair down on the corner figured this out several years ago. What else is bothering you?"

Undeterred by this temporary setback, I angrily proceeded to point out several minor examples of behavior that could be classified as favoritism toward rich political benefactors.

Dr. Case was now laughing. "Stunning breakthrough number two!" he chuckled. "Your profound investigative skills have led to the discovery that politicians may give a more attention to their major campaign contributors than to people who support their opponents. I am sorry to report that my barber has also known this for years. I am afraid that we can't give you a Ph.D. for this level of insight."

As he looked at me, his face showed the wisdom that can only come from years of experience. He said, "I know that you think that I may be old and 'behind the times', but I have been working down there at City Hall for years. Did it ever dawn on you that even though I may be slow, perhaps even I have figured some of this stuff out?"

Then he delivered the advice I will never forget. "Marshall," he explained, "you are becoming a 'pain in the butt'. You are not helping the people who are supposed to be your clients. You are not helping me and you are not helping yourself. I am going to give you two options:

"Option A - Continue to be angry, negative and judgmental. If you chose this option, you will be fired, you probably will never graduate and you may have wasted the last four years of your life.

"Option B - Start having some fun. Keep trying to make a constructive difference, but do it in a way that is positive for you and the people around you.

"My advice is this: You are young. Life is short. Start having fun.

"What option are you going to choose, son?"

I finally laughed and replied, "Dr. Case, I think it is time for me to start having some fun!"

He smiled knowingly and said, "You are a wise young man."

Most of my life is spent working with leaders in huge organizations. It doesn't take a genius to figure out that things are not always as efficient as they could be - almost every employee has made this breakthrough discovery. It also doesn't take a genius to learn that occasionally people are more interested in their own advancement than the welfare of the company. Many employees have already figured out this one as well.

Real leaders are not people who can point out what is wrong. Almost anyone can do that. Real leaders are people who can make things better.

Dr. Case taught me a great lesson. His coaching didn't just help me get a Ph.D. and become a better consultant. He helped me have a better life.

Think about your own behavior at work. Are you communicating a sense of joy and enthusiasm to the people around you - or are you spending too much time in the role of angry, judgmental critic?

Do you have any co-workers who are acting like I did? Are you just getting annoyed or are you trying to help them - in same way that Dr. Case helped me? If you haven't been trying to help them, why not give it a try. Perhaps they will write a story about you someday!

How to Run a Meeting Like Google - Carmine Gallo

2009-08-01T10:49:00.000-07:00

Meetings get a bad rap in business today and for good reason—very little gets accomplished in them. I can recall a Dilbert cartoon in which several people sat around a table while the meeting organizer said, "There is no specific agenda for this meeting. As usual, we'll just make unrelated emotional statements about things which bother us…"

That pretty much sums it up. The majority of meetings are unstructured, uninspiring, and unproductive. But they don't have to be that way.

When I decided to write a column about running effective meetings, I turned to a leader who holds more than anyone I know and who actually credits her meeting structure for leading to some of the most innovative advances in technology today: Marissa Mayer, Google's vice-president of search products (see BusinessWeek.com, 6/19/06, "Marissa Mayer: The Talent Scout").

Mayer holds an average of 70 meetings a week and serves as the last stop before engineers and project managers get the opportunity to pitch their ideas to Google's co-founders, Sergey Brin and Larry Page. Eight teams consisting of directors, managers, and engineers—all at various stages of product development—answer to Mayer.

In a shop like Google (GOOG), much of the work takes place in meetings, and her goal is to make sure teams have a firm mandate, strategic direction, and actionable information, while making participants feel motivated and respected. Mayer's six keys to running successful meetings follow:

1. Set a firm agenda.
Mayer requests a meeting agenda ahead of time that outlines what the participants want to discuss and the best way of using the allotted time. Agendas need to have flexibility, of course, but Mayer finds that agendas act as tools that force individuals to think about what they want to accomplish in meetings. It helps all those involved to focus on what they are really trying to achieve and how best to reach that goal.

2. Assign a note-taker.
A Google meeting features a lot of displays. On one wall, a projector displays the presentation, while right next to it, another projector shows the transcription of the meeting. (Yet another displays a 4-foot image of a ticking stopwatch.) Google executives are big believers in capturing an official set of notes, so inaccuracies and inconsistencies can be caught immediately.

Those who missed the meetings receive a copy of the notes. When people are trying to remember what decisions were made, in what direction the team is going, and what actions need to be taken, they can simply review the notes.

3. Carve out micro-meetings.
Mayer sets aside large blocks of time that she slices into smaller, self-contained gatherings on a particular subject or project. For example, during her weekly two-hour confab with the co-founders and CEO Eric Schmidt, she sets aside five- to 10-minute segments—or longer, depending on the subject—devoted to such specific areas as weekly reports on how the site is performing, new product launches, etc.

This method offers enough flexibility to modify the agenda just before the meeting, should anything pressing occur. It also instills discipline that keeps the meeting tightly focused. Mayer does the same with members of her teams who might need only five or 10 minutes of her time instead of 30 minutes—the shortest block of time her calendar permits. By setting aside micro-meetings within a larger block of time, she accomplishes more.

Mayer, who has a background in engineering and computer science, jokingly refers to micro-meetings as "reducing latency in the pipeline." That means if she has an employee with an issue that comes up Tuesday, he or she can schedule a 10-minute micro-meeting during Mayer's large time block, instead of waiting for her next 30-minute opening, which might not be available for two weeks.

4. Hold office hours.
Mayer brought this idea from her experience teaching computer science at Stanford, where she first met the two guys who would go on to revolutionize how the world gets its information. Beginning at 4 p.m., for 90 minutes a day, Mayer holds office hours.

Employees add their name to a board outside her office, and she sees them on a first-come, first-serve basis. Sometimes project managers need approval on a marketing campaign; sometimes staffers want a few minutes to pitch a design (see BusinessWeek.com, 6/30/06, "Inside Google's New-Product Process").

Says Mayer: "Many of our most technologically interesting products have shown up during office hours. Google News, Orkut [Google's social networking site], Google Reviews, and Google Desktop all showed up first in office hours." During office hours, Mayer can get through up to 15 meetings, averaging seven minutes per person.

5. Discourage politics, use data.
One of Mayer's "Nine Notions of Innovation" is "Don't politic, use data" (see BusinessWeek.com, 6/19/06, "9 Notions of Innovation").

This idea can and should apply to meetings in organizations in which people feel as though the boss will give the green light to a design created by the person he or she likes the best, showing favoritism for the individual instead of the idea.

Mayer believes this mindset can demoralize employees, so she goes out of her way to make the approval process a science. Google chooses designs on a clearly defined set of metrics and how well they perform against those metrics. Designs are chosen based on merit and evidence, not personal relationships.

Mayer discourages using the phrase "I like" in design meetings, such as "I like the way the screen looks." Instead, she encourages such comments as "The experimentation on the site shows that his design performed 10% better." This works for Google, because it builds a culture driven by customer feedback data, not the internal politics that pervade so many of today's corporations.

6. Stick to the clock.
To add a little pressure to keep meetings focused, Google gatherings often feature a giant timer on the wall, counting down the minutes left for a particular meeting or topic. It's literally a downloadable timer that runs off a computer and is projected 4 feet tall.

Imagine how chaotic it must look to outsiders when the wall shows several displays at once—the presentation, transcription, and a mega-timer! And yet, at Google, it makes sense, imposing structure amidst creative chaos. The timer exerts a subtle pressure to keep meetings running on schedule.

Mayer does have one caveat when it comes to the timer—maintain a healthy sense of humor about it. (The timer was counting down to the end of my interview with Mayer—but she turned it into a fun and friendly reminder instead of an abrupt end to our discussion.)

Please keep in mind that these meeting techniques work well for Google. They may or may not be appropriate for your place of business. But these six keys should give you some new ideas about how to transform your meetings from a waste of time to time well spent.

How to Perfect an Elevator Pitch About Yourself - Daisy Wademan Dowling

2009-07-30T17:52:00.000-07:00

You're in the elevator with the hiring manager of Dream-Job Corporation. As the door slides shut, you feel a combination of adrenaline and slight nausea: you've got 15 seconds, if that, to communicate your value as a potential employee in a compelling way — just 15 seconds to cram in a whole resume's worth of work and accomplishments and late nights and successes. There's so much you want to say, but your message has got to be crisp, tailored, to-the-point. Handle this one right, and you'll be the newest member of the Dream-Job team. Flub it up, and you're back to scanning listings on Monster.com. What are you supposed to say?

Here are the five key things to know and do in order to make your elevator pitch successful:

Practice, practice, practice. Very few people have the oratorical power to make compelling 15-second speech about their entire professional lives on demand and under pressure. Practice your speech 100 times — literally. Know it, get comfortable with it, be able to tilt it effectively for a different audience. Practice your body language with it: how will you give the speech differently sitting down vs while walking down a hall? How will it be different over the phone vs in person?
Focus on impact. Two weeks ago, 60 Minutes aired a segment set at a white-collar job fair. One of the interviewees, a laid-off Wall Street secretary, looked straight into the camera and said, with total conviction, "I can make any boss shine." I wanted to hire her on the spot. Who doesn't want to shine? Describing the impact you've had, and can continue to have, is much more compelling than talking about your number of years of experience.

Ditch the cultural baggage. A lot of us have been taught — by parents, teachers, or team-oriented corporate environments — not to toot our own horns, and to use "we" instead of "I". Elevator pitches are all about "I". You've got to get comfortable with bragging about your own individual contributions (in a graceful way).
Be slow and steady. Whether out of nervousness or a desire to cram in a lot of information, people giving elevator speeches tend to talk at breakneck pace — which is extremely off-putting to potential employers. Speak at a pace that shows your calm and confidence. You want them to think of you as thoughtful and deliberate — not as some manic babbler.

See the whole world as an elevator. Too many people looking for jobs save their elevator speeches for job fairs and interviews. Remember the first rule of sales: ABC (Always Be Closing). Give your elevator speech to everyone — at family gatherings, in the waiting room of the dentist, at coffee hour at your church or temple. You never know where the next job is coming from.

How do you pitch yourself to prospective employers? What advice do you have for other people doing the same? What works — and what doesn't?

Why Generation X Has the Leaders We Need Now - Tammy Erickson

2009-07-30T17:50:00.000-07:00

William Strauss and Neil Howe, coauthors of Generations, posit that each generation makes a unique bequest to those that follow and generally seeks to correct the excesses of the previous generation. They argue that the Boomer excess is ideology and that the Generation X reaction to that excess involves an emphasis on pragmatism and effectiveness.

As many of you know, I've spent much of the last year talking with members of Generation X — those of you born roughly in the 1960s and '70s. The book I've written based on those conversations (What's Next, Gen X? Keeping Up, Moving Ahead, and Getting the Career You Want — safely in the hands of the publisher and due out in December) includes many of your voices — including quotes from your responses to posts on this site. Through this research, I developed a deep admiration for the generational traits evident among most X'ers, particularly in the context of our current challenges.

Future leaders in all spheres will have to contend with a world with finite limits, no easy answers, and the sobering realization that we are facing significant, seemingly intractable problems on multiple fronts. Perhaps the biggest change from the past: leaders will have to listen and respond to diverse points of view. There will be no dominant voice.

In this context, I'm convinced that Gen X'ers will be the leaders we need. The experiences that shaped those of you who were teens in the late '70s and '80s, as I've outlined in past posts, translate into valuable contemporary traits and perspectives.

Your accelerated contact with the real world, for many through a "latch-key" childhood, has made you resourceful and hardworking. You meet your commitments and take employability seriously.
Your distrust of institutions grew as you witnessed the lay-offs of the '80s and has prompted you to value self-reliance. You have developed strong survival skills and the ability to handle whatever comes your way with resilience. X'ers instinctively maintain a well-nurtured portfolio of options and networks.

A sense of alienation from your immediate surroundings as teens, coupled with rapidly expanding technology, has allowed you to look outward in ways no generation before could or did. You operate comfortably in a global and digital world. Many of you are avid adopters of the collaborative technology that promises to re-shape how we work and live.

Your awareness of global issues was shaped in your youth, and you are richly multicultural. You bring a more unconscious acceptance of diversity than any preceding generation. Your formative years followed the civil rights advances of the 1960s. High divorce rates during your youth meant you are the first generation to grow up with women in independent authority roles. You welcome the contributions of diverse individuals.

Your preference for "alternative" and early experience in making your own way left you inclined to innovate. You tend to look for a different way forward. Your strongest arena of financial success as a generation has been your entrepreneurial achievements.

Your skepticism and ability to isolate practical truths have resulted in rich humor and incisive perspective. You help us all redefine issues and question reality.

Your childhood made you fiercely dedicated to being good parents, prompting you to raise important questions about the way we all balance work with commitments beyond the corporation.

Your pragmatism has given you practical and value-oriented sensibilities that, I believe, will help you serve as effective stewards of both today's organizations and tomorrow's world.
The most difficult elements of your past may well be those that provide you with the strongest capabilities for today.
You have traded the idealism of my generation for realism, tempered by value-oriented sensibilities. At mid-life, you are well-prepared to serve as pragmatic managers, applying toughness and resolution to defend society while safeguarding the interests of the young. You will force nations to produce more than they consume and fix the infrastructure.

In today's challenging world, your humor may be your most-valued asset. Czech leader Václav Havel said, "There are no exact guidelines. There are probably no guidelines at all. The only thing I can recommend at this stage is a sense of humor, an ability to see things in their ridiculous and absurd dimensions, to laugh at others and at ourselves, a sense of irony regarding everything that calls out for parody in this world." You help us step back . . . and remind us to laugh.

You will have the opportunity to change the corporate template, and create organizations that are more conducive to your values. As leaders, you will be able to reshape the organizations you lead to make them better places for future generations and yourselves, make them more humane, and break the cultural norms of corporate life — long hours, a focus on full-time work, heterogeneous perspectives, and language of combat. You will bring your desire to create better alternatives, including how to balance work with commitments beyond the corporation and finding meaning in work. Most importantly, your preference for "alternative" and your inclination to innovate will allow you to look for a different way forward.

I'm ready to join the team.

The Generation M Manifesto - Umair Haque

2009-07-30T17:46:00.000-07:00

My generation would like to break up with you.

Everyday, I see a widening gap in how you and we understand the world — and what we want from it. I think we have irreconcilable differences.

You wanted big, fat, lazy "business." We want small, responsive, micro-scale commerce.

You turned politics into a dirty word. We want authentic, deep democracy — everywhere.

You wanted financial fundamentalism. We want an economics that makes sense for people — not just banks.

You wanted shareholder value — built by tough-guy CEOs. We want real value, built by people with character, dignity, and courage.

You wanted an invisible hand — it became a digital hand. Today's markets are those where the majority of trades are done literally robotically. We want a visible handshake: to trust and to be trusted.

You wanted growth — faster. We want to slow down — so we can become better.

You didn't care which communities were capsized, or which lives were sunk. We want a rising tide that lifts all boats.

You wanted to biggie size life: McMansions, Hummers, and McFood. We want to humanize life.

You wanted exurbs, sprawl, and gated anti-communities. We want a society built on authentic community.

You wanted more money, credit and leverage — to consume ravenously. We want to be great at doing stuff that matters.

You sacrificed the meaningful for the material: you sold out the very things that made us great for trivial gewgaws, trinkets, and gadgets. We're not for sale: we're learning to once again do what is meaningful.

There's a tectonic shift rocking the social, political, and economic landscape. The last two points above are what express it most concisely. I hate labels, but I'm going to employ a flawed, imperfect one: Generation "M."

What do the "M"s in Generation M stand for? The first is for a movement. It's a little bit about age — but mostly about a growing number of people who are acting very differently. They are doing meaningful stuff that matters the most. Those are the second, third, and fourth "M"s.

Gen M is about passion, responsibility, authenticity, and challenging yesterday's way of everything. Everywhere I look, I see an explosion of Gen M businesses, NGOs, open-source communities, local initiatives, government. Who's Gen M? Obama, kind of. Larry and Sergey. The Threadless, Etsy, and Flickr guys. Ev, Biz and the Twitter crew. Tehran 2.0. The folks at Kiva, Talking Points Memo, and FindtheFarmer. Shigeru Miyamoto, Steve Jobs, Muhammad Yunus, and Jeff Sachs are like the grandpas of Gen M. There are tons where these innovators came from.

Gen M isn't just kind of awesome — it's vitally necessary. If you think the "M"s sound idealistic, think again.

The great crisis isn't going away, changing, or "morphing." It's the same old crisis — and it's growing.

You've failed to recognize it for what it really is. It is, as I've repeatedly pointed out, in our institutions: the rules by which our economy is organized.

But they're your institutions, not ours. You made them — and they're broken. Here's what I mean:

"... For example, the auto industry has cut back production so far that inventories have begun to shrink — even in the face of historically weak demand for motor vehicles. As the economy stabilizes, just slowing the pace of this inventory shrinkage will boost gross domestic product, or GDP, which is the nation's total output of goods and services."

Clearing the backlog of SUVs built on 30-year-old technology is going to pump up GDP? So what? There couldn't be a clearer example of why GDP is a totally flawed concept, an obsolete institution. We don't need more land yachts clogging our roads: we need a 21st Century auto industry.

I was (kind of) kidding about seceding before. Here's what it looks like to me: every generation has a challenge, and this, I think, is ours: to foot the bill for yesterday's profligacy — and to create, instead, an authentically, sustainably shared prosperity.

Anyone — young or old — can answer it. Generation M is more about what you do and who you are than when you were born. So the question is this: do you still belong to the 20th century - or the 21st?

2009-07-29T18:06:00.000-07:00

“The final thing is – and it comes back to the notion of leadership – it's empowering other people,” he says. “And entrepreneurs are people who have a sense of empowerment, of doing things better. They have the courage of the innocents, which is to ask, ‘Why are we doing it this way? Because we've always done it that way?' But not just why, why, why – but why not? Having put forth the question, what's the resolution?”

Technology a favourite for Templeton - Shirley Won

2009-07-25T15:15:00.000-07:00

Templeton Growth is one of the oldest mutual funds in Canada, launched 55 years ago by the late Sir John Templeton, who died last year. Since its inception, the storied fund has posted an average annual return of 11.9 per cent. Like its peers, however, Templeton Growth suffered during last year's market collapse.

Lisa Myers took over the helm of the fund nearly three years ago. From her perch in Nassau, Bahamas, she is the fifth manager with Franklin Templeton Investments to run the fund. Despite its strong history, the fund wasn't left unscathed by the market turmoil. It posted an compounded annual loss of 8.3 per cent for the three years ended June 30, compared with a loss of 6.2 per cent for the MSCI World Index in Canadian dollars.

We asked Ms. Myers, who was in Toronto yesterday for Franklin Templeton's annual investment outlook forum, about her strategies in the current market environment.

In last year's market collapse, your fund lost 30 per cent. Were you shocked?

The Templeton discipline has been around for 60 years. Buying undervalued stocks and taking advantage of opportunities to buy stocks in those times has historically shown to be a way of generating strong returns for shareholders over time. The discipline has never permitted us to participate in market bubbles or trends - whether it was the Japanese bubble in the 1980s, the technology bubble in the 1990s or the recent commodities bubble and China bubble. Last year, it was very anomalous time. There were very few stocks that went up in that market.

Stock markets have rallied from the March lows. Is it a rally in a bear market or is it the start of another bull market? We don't have an answer to that. There is lot of mixed data out there right now. Corporations were announcing their earnings this week and last week, and they are beating expectations. On the other hand, unemployment is still rising. Industrial production is better, but small companies are still having difficulties to get access to credit ... What we know is that we want to own companies because when the market is rallying you want to participate. You don't want to be out of the market.

Where are you finding the bargains?

We like technology, telecommunications, heath care and media. We like technology in general. There are big companies in the world cutting their costs. They are under pressure from slowing revenues because of the global economic environment. When they get to the point where they can no longer reduce head count and cut expenditures, they start making technology investments, which tend to be productivity enhancing. That helps companies generate earnings growth when the revenue line is not necessarily increasing as fast as it was, or at all. We also think the media space is really undervalued. Media companies, like News Corp., have become big acquirers. By diversifying their asset bases, they have continued to generate a lot of free cash flow.

What about the financial stocks that have been rebounding?

We were very underweight financials going into the crisis, but own some. We think the ones that we hold are better positioned, and didn't hold the toxic assets. One of the largest holdings is DBS Group Holdings Ltd., which is a large Singaporean bank that has a large exposure to the emerging markets. We are still very underweight financials - particularly in the United States. There are certain U.S. and European financials that will continue to see rising default rates, and rising issues for their assets for which they will have to raise more capital. It means dilution for shareholders ... We think [financial stocks] have gotten ahead of themselves.

What advice can you give investors shell-shocked by last year's steep market declines, and those in your fund?

I would tell them that they need to take a long-term view ... The bursting of these bubbles often cause recessions. Markets are quite volatile coming out of those recessions. Generally the things that go down the most will go up the most initially. Then, what happens is that the market reverts to a more value-oriented, normalized market. Investors start paying attention to valuations again, and we get out of this bubble or extreme macro-trading mentality like we have seen over the last month ... That's when the Templeton Growth Fund and the undervalued investments in the fund tend to outperform.

TOP PICKS

Oracle Corp.

The U.S. business software giant will benefit from firms needing its products to generate efficiencies and earnings growth, said Lisa Myers, head of Templeton. "Oracle throws off $8-billion (U.S.) in cash each year, and has $2.5-billion in cash on its balance sheet. It is a consolidator in the sector ... It acquired PeopleSoft Inc., Siebel Systems Inc. and it just recently bought Sun Micro Systems."

Microsoft Inc.

Microsoft, whose software drives more than 90 per cent of the world's personal computers, has more than more than $25-billion in cash on its balance sheet, Ms. Myers said. If its new Bing search engine can increase market share in that space beyond the current 8 per cent, "that's a huge uplift for Microsoft," while China is a potential growing market for its PC software, she adds.

Amgen Inc.

Biotechnology firms have been hit as hard as pharmaceutical companies, whose stocks are under pressure because of drug patent expiration and generic competition, Ms. Myers said. "Amgen doesn't necessarily suffer from [the same] stresses because biotechnology drugs are not as susceptible to patent expiration and to things that chemically-based drugs are subject to because of the way they are formulated."
TOP TEN HOLDINGS

Oracle Corp. 3.19%

Microsoft Corp. 2.97

Singapore Telecom. Ltd. 2.54

UPS Inc., B 2.34

Vodafone Group PLC 2.30

Telefonica SA 2.22

Amgen Inc. 2.20

Comcast Corp., A 2.09

DBS Group Holdings Ltd. 2.08

News Corp., A 2.06

50 Best Employers in Canada - Globe and Mail

2009-07-20T18:03:00.000-07:00

For the past four years, BC Biomedical Laboratories has topped our list of the 50 Best Employers in Canada. But in 2006, we crown not one but two new champions. Among medium-sized companies (300 to 1,499 employees), the Winnipeg-based financial services firm Wellington West Capital took the top honour; Cintas Canada, meanwhile, ranked first among larger companies (1,500 employees or more). This is the first year we've separated companies by size, a format that should allow readers to better compare firms.

As always, those that make up our Top 50 this year are a diverse group, ranging from car rental companies like Enterprise to retailers like Wal-Mart, a multinational often portrayed as a foe of labour rather than a friend. In "What can we learn from Wal-Mart..." (next page), writer Steve Brearton explores why employees gave the nod to the store Sam Walton built, as well as to a couple of other firms that occupy less-than glamorous positions in the corporate pecking order—including our co-winner, Cintas. On the following pages, we chart the Top 50 and put a human face on all the numbers, with some key lessons delivered by employees themselves.

Our partner in the 50 Best survey again this year is Hewitt Associates, a leading global human resources outsourcing and consulting firm. Hewitt began work on the project in March, sending out invitations to 1,500 organizations. For each of the 137 companies that ultimately participated, between 200 and 1,000 employees completed a detailed questionnaire; these results account for the lion's share of an employer's ranking. The remainder is based on a survey of leadership qualities among the senior executive. Hewitt also examined how closely employees' and leaders' goals are aligned, and whether workplace practices and programs reinforce corporate vision. All responses were vetted to ensure companies followed the required survey guidelines.

For more information, including instructions on how firms can participate in next year's Best Employers survey, log on to www.hewitt.com/bestcompaniescanada.

Secrets of their success (and failure)

A firm's chances of ending up on our annual Best Employers list often turn on two simple words: thank you. In the seven years Neil Crawford, leader of the 50 Best study at Hewitt Consulting, has been ranking Canada's best employers, several themes have emerged. For one, organizations where managers and leaders show appreciation for their employees—those thank yous are known in HR circles as non-cash recognition—appear in large numbers in our Top 50. Another factor: Companies fare better when managers coach workers up the corporate rungs. Which leads to the final, crucial point, without which all the thank yous in the world are for naught: leadership. If employees have faith in their managers and executive team, if those in power present the corporate strategy clearly and consistently, employees will be engaged and care about the future of the company—the best outcome an employer can hope for.

Building a culture that embraces these ideals every day requires commitment, patience and single-mindedness, but once in place they become self-sustaining, a habit as natural as breathing. This year Hewitt identified a trio of top-ranked companies that have done this particularly well, and organized focus groups with their employees and managers. What follows are capsule descriptions of key characteristics of the 50 Best and ideas on what works from the employees themselves. Just as importantly, Crawford and Hewitt have drawn from their extensive research with other organizations to paint a picture of leadership, career opportunity and recognition practices that, in the end, fall short.

BEST
LEADERSHIP
Every employee has a role in making the organization successful—and each one knows what that role is. What's more, company leaders provide all employees with opportunities to practise their leadership skills.

In practice

* All levels of leadership understand where the organization is headed—and what it will take to get there
* Leaders display passion and enthusiasm for the future
* They build trust by making commitments and consistently delivering on them
* Leaders roll up their sleeves and work alongside employees to get the job done
* They spend most of their time and energy coaching employees
* They listen to what the front-line employees are saying and act quickly to fix problems
* They forge personal connections with employees
*

In the employees' words
* "Our leaders are in the trenches, and they don't see themselves as part of a hierarchy; they make sure we understand the decisions and that we buy into them"
* "The leaders want us to hold them accountable"
* "If we're not doing what management needs us to be doing, they will come right out and tell us—and help us get where we need to be"
* "What I love the most is the motivation that comes from the general manager"

COACHING FOR SUCCESS
Career growth and development is not just about being promoted; it needs to be an organic process whereby employees are encouraged to integrate change and grow, regardless of their position or role within the organization. Broad career development and advancement ensures an organization's future growth and success.

In practice

* Leaders continuously talk about the importance of growth and development. They ensure the appropriate resources are in place to support career development
* Leaders and managers are truly excited at the prospect of grooming their successors and helping employees reach their career goals
* The most qualified people inside the company are promoted. People are hired based on their potential
* Managers are properly equipped and trained to coach employees. Discussions about career development are ongoing
* Leaders and managers actively work to remove barriers to career development and advancement

In the employees' words

* "They pull out your great potential"
* "I'm a woman who wants a career and a family, and I was concerned this might jeopardize my career. But I don't worry about that here; the managers know my goals, and we worked out a game plan together"
* "There's an openness to learning here—a push to learn"

A RECOGNITION CULTURE
People feel emotionally connected to the organization because their personal contributions are recognized by managers and leaders alike. Moreover, the ways in which employees are recognized are tailored to the individual.

In practice

* Leaders and managers are always looking for ways in which employees can be recognized for their achievements—something that is especially important for those people who are new to the organization
*

* Extra work rarely goes unnoticed
*

* Recognition is delivered with an expression of sincere appreciation
*

* Employees' family members are recognized when appropriate

In the employees' words

* "We had a challenge to meet a specific goal. When we exceeded that goal, the executive team had to wash our cars and we were invited to the CEO's house for dinner"
* "Someone always gives us recognition when we do something extra. They expect us to do overtime, but they also appreciate it and thank us. A little 'thank you' goes a long way"
* "Some individuals are uncomfortable with public recognition, so we're very cautious about who we recognize publicly. Sometimes we just send a handwritten note"
* "People here take their cue from senior management, who have been publicly appreciating people for years"

WORST
LEADERSHIP
Employees are not clear on how day-to-day tasks affect the success of their company; they let their managers take the lead while they sit passively on the sidelines. Meanwhile, managers focus most of their time and energy on pumping up their own status within the company, rather than building their reputations on their workers' accomplishments.

In practice

* Messages from the most senior leaders become distorted as they descend through the layers of management
* Trust collapses as leaders consistently fail to deliver on their commitments
* Leaders tell employees what they are doing wrong but give them no help in fixing problems
* Management imposes its own solutions to problems without considering the advice of front-line employees
* Leaders maintain distance from employees

In the employees' words

* "'Leading by fear' would be an accurate description of our executive management style"
* "Leadership is not open to criticism or question.
* They humiliate the guy who asks questions"
* "A lot of employees feel that if they say too much or provide an opinion they'll get the cold shoulder from supervisors, a situation that persists for days and poisons the workplace environment"
* "In the last four years, we've never seen a business plan.
* The only plan we've seen is what profit margin was required"

COACHING FOR SUCCESS
Career growth and development is fragmented and inconsistent. Employees receive little encouragement to grow and learn, especially the people on the front lines. Career advancement and development is limited to those employees whose experience happens to fit profiles of positions that are hard to fill.

In practice

* Rather than promoting from within, leaders and managers hire from the outside
* Leaders constantly talk about the importance of growth and development, but provide no resources
* Managers and leaders set aside little time to groom successors
* The promotion process is rife with nepotism
* Managers appear to be uncomfortable when they have to discuss career development with their employees

In the employees' words

* "I know of several examples where suitable internal hires were rejected in favour of external people. In most cases, the position would have been ideal for the internal candidate, but the decision for an external hire was made 'because external requisitions are harder to get and we don't want to waste the opportunity'"
* "There are barriers to moving people around in different jobs"
* "Career development does not seem to be a priority in my organization. They've cancelled all the management and staff development programs; the attitude now seems to be all about reducing the cost of training, conferences and travel"

A RECOGNITION CULTURE
Workers are recognized inconsistently if at all, and some groups of employees seem to be recognized more often than others. Recognition is often confined to formal programs like awards for long service; in other cases, recognition attempts backfire because the type of recognition doesn't fit the employee's personality.

In practice

* Planned extra work is treated as business as usual, and goes unrecognized
* Praise is delivered as an afterthought and without sincerity
* Leaders and managers don't know enough about the personalities of their employees to be able to choose the right way of showing appreciation

In the employees' words

* "Some VPs encourage recognition, but they don't practise it"
* "I'm a relatively new people manager, and there's not much support to tell me what should be recognized, how to recognize and how the company feels about recognition"
* "Our recognition plan is flawed at best. It creates the impression that you have to know the right people to get enough recognition to win an award"
* "It's the local sales and service in each region that drives this company, but recognition always seems to happen at the corporate level. There are many more local success stories that could be recognized and communicated to the entire company"

DESK ORGANIZATION - TAVIA GRANT

2009-07-20T17:33:00.000-07:00

BRING ON THE MESS

The view: "A messy desk says that you're a normal human being, and, in fact, that you're like the vast majority of people. It also says that you're not the kind of person who places neatness and organization over actual efficiency, because a messy desk tends to be more efficient than a very neat desk."

Proof: "A survey my co-author and I did found that people who had messy desks spent less time hunting for things than people who had very neat desks. That makes a lot of sense, because, when you have a messy desk, you're arranging things in a way that's customized to the way you think and work."

Caveat: "Some people claim that having a messy desk is a sign of being a more creative person. I don't think it's true that someone who has a very neat desk is necessarily an uncreative person, and I've seen accountants with very messy desks and artists with extremely neat desks. But it's true that creativity is largely about making surprising connections, and a messy desk is certainly a way of mixing and matching things in sometimes interesting ways."

David Freedman, co-author of A Perfect Mess

***

CLEAN IT UP

The view: "We've lapsed into this culture where we believe that the messier we are, the busier we look. Having an untidy desk says you have no sense of priority. ... It damages your ability to make good decisions, and all of that combines to add more stress in the workplace [for you and your colleagues]."

Proof: "Our research found a clear desk space also gives a clear mind space. It helps you prioritize what's most urgent and makes you more efficient. It also helps your ability to make good decisions because you have the information available where you need it."

Caveat: "There are cases where [people can still function well]; it's just about our individual makeup." Also worth mentioning is that messiness nowadays is much less visible: It's become "electronic clutter," or excessive files stored on office computers.

Theo Theobald, co-author of Detox Your Desk

***

FIVE TIPS FOR A CLEANER DESK

1 Contain your stuff

Don't let your belongings spill onto your colleagues' desks, or into the corridor.

2 Don't obstruct daytime traffic

If you need to overhaul your filing system and spread all your possessions out on chairs, do it after hours.

3 Avoid the photo gallery

How much do you really want others to know? Don't display an album of pictures - a few photos will suffice.

4 Avoid extra pairs of shoes, or a change of clothes

Your cubicle is not your home closet.

5 Be cautious with foliage

Plants can drop leaves and leak water; do not cultivate a jungle. Remember that others may have allergies to certain plants.

Source: Diane Craig, Toronto-based workplace etiquette specialist

***

By the numbers

48

Percentage of people who are "pilers" - they organize paper by piling it on their desktops.

38

Percentage of people who are "filers" - they file rather than pile, and tend to have

management titles.

14

Percentage of people who are "tossers" - they keep their desks spare and uncluttered.

Source: 2005 survey by Pendaflex, a New York-based company specializing in organizational solutions

Managing Oneself - Key ideas from the Harvard Business Review article by Peter F. Drucker

2009-07-18T11:48:00.000-07:00

The Idea in Brief

We live in an age of unprecedented opportunity: If you’ve got ambition, drive, and smarts, you can rise to the top of your chosen profession—regardless of where you started out. But with opportunity comes responsibility. Companies today aren’t managing their knowledge workers’ careers. Rather, we must each be our own chief executive officer.

Simply put, it’s up to you to carve out your place in the work world and know when to change course. And it’s up to you to keep yourself engaged and productive during a work life that may span some 50 years.

To do all of these things well, you’ll need to cultivate a deep understanding of yourself. What are your most valuable strengths and most dangerous weaknesses? Equally important, how do you learn and work with others? What are your most deeply held values? And in what type of work environment can you make the greatest contribution?

The implication is clear: Only when you operate from a combination of your strengths and self-knowledge can you achieve true—and lasting—excellence.

The Idea in Practice
To build a life of excellence, begin by asking yourself these questions:

“WHAT ARE MY STRENGTHS?”
To accurately identify your strengths, use feedback analysis. Every time you make a key decision, write down the outcome you expect. Several months later, compare the actual results with your expected results. Look for patterns in what you’re seeing: What results are you skilled at generating? What abilities do you need to enhance in order to get the results you want? What unproductive habits are preventing you from creating the outcomes you desire? In identifying opportunities for improvement, don’t waste time cultivating skill areas where you have little competence. Instead, concentrate on—and build on—your strengths.

“HOW DO I WORK?”
In what ways do you work best? Do you process information most effectively by reading it, or by hearing others discuss it? Do you accomplish the most by working with other people, or by working alone? Do you perform best while making decisions, or while advising others on key matters? Are you in top form when things get stressful, or do you function optimally in a highly predictable environment?

“WHAT ARE MY VALUES?”
What are your ethics? What do you see as your most important responsibilities for living a worthy, ethical life? Do your organization’s ethics resonate with your own values? If not, your career will likely be marked by frustration and poor performance.

“WHERE DO I BELONG?”
Consider your strengths, preferred work style, and values. Based on these qualities, in what kind of work environment would you fit in best? Find the perfect fit, and you’ll transform yourself from a merely acceptable employee into a star performer.

“WHAT CAN I CONTRIBUTE?”
In earlier eras, companies told businesspeople what their contribution should be. Today, you have choices. To decide how you can best enhance your organization’s performance, first ask what the situation requires. Based on your strengths, work style, and values, how might you make the greatest contribution to your organization’s efforts?

How to Make People Passionate About Their Work - John Baldoni

2009-07-16T22:05:00.001-07:00

I know two CEOs: one in publishing is a friend; the other in manufacturing is an email correspondent. There is a common bond between the two; both are in their sixties and both act as if they are closer to twenty-two. Their sense of vitality springs from their passion for what they do.

Each feels a sense of pride in the businesses he leads; more importantly, each is pushing his respective organization to new heights with a vigor found typically in much younger men. Their can-do attitudes seem almost corny, as if sketched from an earlier age or at least from musicals like The Music Man. But both men are in exactly the right positions at the right time.

Generating enthusiasm, or passion, for what you do is essential. It is doubly so in perilous times. When everything around us seems to be coming apart, a leader who has a passion for what he does is essential. Such a spirit fuels the engine of enthusiasm needed to spark the enterprise. More importantly, such passion is vital to convincing others that the work matters. It is easy to get discouraged by today's market news and so it is vital that someone, be it the CEO or another senior leader, serves as the organization's designated cheerleader.

Ultimately instilling passion for the work is not an exercise in rah-rah; it is a search for meaning and significance. So how can you cultivate passion for work in others and do it in ways that have significance? Here are some suggestions.

Focus on the positive. Passion in leaders can be palpable; you know in an instant that the executive cares about the company. In my experience, those senior leaders who stroll through the halls with a nod or good word to say to all are those executives who get things done. And it is because they are out and about, not cloistered in their offices on mahogany row. Rather, they are meeting with employees and customers, vendors and investors, getting to know issues and concerns. They also use these times to talk up the good things.

Address the negatives. Passionate leaders are not Pollyannas; they know the score, precisely because they spend so much time out of their offices. They see firsthand what is working and what is not, and because they have a relationship with people in all levels of the company, they can more readily mobilize employees to solve problems.

Set high expectations. Those who care about the work and set a high standard challenge others to do the same.

As much as generating passion for the work matters, it is no guarantee of success, or even survival. Radiating passion is no excuse for ignoring attention to the fundamentals.

Yet successful organizations are more than the sum of fiscal prudence. Good ones are the collective values and aspirations of dedicated men and women who have made a choice to work there. Such organizations, be they in healthcare or manufacturing, consumer goods or government, ultimately depend upon the commitment of individuals pulling together to make things work. That's why you need leaders who have a passion for what they do and are able to spread that passion to others so that people feel better about what they do, and ultimately, what they can do better.

Monkey Business - Sarah Lolley

2009-07-13T19:00:00.000-07:00

The botanical gardens in Dalat, Vietnam, were a total bust – as scrappy and uninspired as a miniature golf course, despite the inflated entry price for foreigners. My boyfriend, Jack, and I were about to leave when we spotted the monkey enclosure, where five scruffy monkeys hoped around in individual cages.

As we approached, one of them climbed up the bars of his cage to our eye level. Jack laughed in surprise and leaned in to get a better look at the monkey. The monkey leaned in to get a better look at Jack. The two stared at each other for a moment. Then, in a flash, the monkey reached through the bars, snatched the sunglasses off Jack's face, and retreated to the middle of its cage.

The sunglasses weren't expensive – we'd bought them at a gas station in the Australian Outback earlier on our backpacking trip – but Jack loved them, mainly because of the cheesy race car-esque flames down the sides. Glumly, we watched the monkey chew on one of the arms of the sunglasses.

Figuring someone might have a key to the enclosure, Jack headed off in the direction of the ticket booth. He was already out of sight when I remembered the banana in my bag.

Seeing me take it out, the monkey lost all interest in the sunglasses, dropping them in the dirt and jumping up to my level again.

“So,” I addressed the simian, in the voice of a stern librarian. “You're an intelligent animal, and what I'm proposing is a simple trade. You have something I want,” I said, pointing at the sunglasses. The monkey looked down at them, then back at me.

“And I have something you want,” I concluded, holding up the banana. I brimmed with self-confidence. This plan is brilliant, I said to myself.

A young Vietnamese couple wandered over. They watched me for a few moments, then called out to another Vietnamese couple, who came rushing over.

That's right I thought, proudly. Come see how amazing we Canadian travellers are I kept up my assertive negotiations.

A group of five Vietnamese men in business suits joined us. A rapid-fire Vietnamese exchange ensued between the couples and the businessmen. The men all looked at me, incredulous. Two started giggling.

A crack formed in the bedrock of my poise. I tried to ignore it, but nothing doing.

Suddenly, I saw myself as my audience must have. “Give me the damn glasses,” I snapped at the primate.

Over the next few minutes of fruitless, one-way conversation with the monkey, my confidence was replaced with burning shame. It became clear that I wasn't going to get the sunglasses back. Even worse, I now had a group of spectators to face up to.

It was at that exact moment that the monkey hopped down to retrieve the sunglasses, ambled over to the side of the cage, extended his little monkey arm outside the bars and let go. He then ran back up the bars to my level and reached for the banana.

There was a stunned silence. All eyes, including the monkey's, were on me.

Was it a trick? Slowly, I retrieved the sunglasses. For a brief second, I thought about leaving the monkey high and dry, but fair was fair. I placed the banana in his tiny paw.

“Sarah”

I turned to see Jack approaching, two Vietnamese groundskeepers in tow. I smiled victoriously, suddenly loving the Dalat Botanical Gardens, and held up the sunglasses for all to see.

PIMCO Investment Outlook - "Bon" or "Non" Appétit?

2009-07-05T13:24:00.001-07:00

“Kill the umpire,” the fan cried to open the 1996 baseball season in Cincinnati, and eight pitches later, the man behind the plate, John McSherry, was dead, all 320 pounds of him screaming for more and more oxygen to feed his spastic heart. He’d been killed by a billion molecules of sink-clogging, Drano-resistant cholesterol that fed on his coronary artery and sucked up his life’s blood like a vampire in the heat of the night. The next day Howard Stern had characteristically railed that the antidote was obvious. It was the same for all fat people: “DON’T EAT,” he howled. As if the ump hadn’t known. The fact was, he couldn’t stop. He loved the taste of food – every sugary, fat-ladened, carbohydrated morsel. The first bite was a special ecstasy, as was the last, and everything in between. The man, it seemed, was a Cuisinart with four limbs.

Franz Kafka wove a tale 100 years earlier that was a mirror image of McSherry’s tragedy. His “A Hunger Artist” described a professional faster – a sideshow freak in 19th century Europe who attracted attention and spare coins by withering away inside a wooden cage. The gapers marveled at his shriveled skeleton, stuck their hands through the bars to nudge his boney ribs, and awed at his resolve to starve himself to the precipice of self-extinction. “I always wanted you to admire my fasting,” confessed the hunger artist, “but you shouldn’t have. The fact is, I have to fast, I can’t help it. I couldn’t find the food I liked. If I had found it, believe me, I would have made no fuss and stuffed myself like you or anyone else.”

The juxtaposition: one man who couldn’t stop and another one who couldn’t start – eating, that is. Their stories, though, are really not about food, but life itself – what compels us to do what we do, what forces us to act or not to act, what makes us who we are: is personal behavior really beyond our control? Shakespeare would retort that the fault lies not in our stars, but in ourselves. On the other hand, who are we other than this amorphous, gelatinous blob of moving flesh and bone molded primarily without our input, first by DNA, and then by environment into the living person we know as ourselves? Are we all just walking Cuisinarts, or better yet, mobile computers with a consciousness? Modern science has progressed to the point of asking, “Can machines think?” and if they can, it might well ask the corollary, “Are people machines?” The fact is that sophisticated modern machines can do just about anything a human being can do. The difference between “us” and “them” may only be our consciousness. We are “aware” whereas they are not. But if true, who wants to be a machine that simply knows it’s a machine? Who wants to walk the Earth as a preprogrammed robot with no input or free will? Unless the John McSherrys of the world can stop eating and the hunger artists can start, we might as well just turn out the lights.

Our economy’s lights, if not switched off in a rehash of the 1930s Depression, have certainly been dimmed in a 21st century version likely to be labeled the Great Recession. Much like John McSherry, U.S. and many global consumers gorged themselves on Big Macs of all varieties: burgers to be sure, but also McHouses, McHummers, and McFlatscreens, all financed with excessive amounts of McCredit created under the mistaken assumption that the asset prices securitizing them could never go down. What a colossal McStake that turned out to be. Now, however, with financial markets seemingly calmed and an inventory-based recovery in store for the balance of 2009, there is a developing optimism that we can go back to the lifestyle of yesteryear. PIMCO’s driving thesis however, if not a juxtaposition, is succinctly described as a “new normal” where growth is slower, profit margins are narrower, and asset returns are smaller than in decades past based upon the delevering and reregulating of the global economy, which in turn should substantially inhibit the “gorging” of goods and services that we grew used to in decades past.

Forecasts based on econometric models inevitably miss these secular/structural breaks in historical patterns because it is impossible to quantify human behavior, and long-term trends involving risk-taking and in turn derisking are decidedly human in their origin. Bell-shaped curves with Gaussian/random distributions fail to anticipate that human beings do not make decisions by chance or independently of each other, but in many cases in reaction to one another. Humanity’s personal and social computers appear to be programmed that way. And so, instead of “normal” distributions, economists and investors must learn to be on the lookout for “black swans,” and if not, then certainly “fat tails,” which differ from the measurement of natural phenomena accepted in science. “New normals,” flatter-shaped bell curves, and structural shifts in previously accepted standards become not only possible, but probable as human nature reacts to itself and its prior behavior. The efficient market hypothesis was always dead from the get-go, but academic tenure and Nobel prizes were food for the unwilling or perhaps unthinking.

PIMCO and yours truly are not masters of the antithesis, a subjective approach which might derisively be called “crystal ball gazing,” but we try to focus on what might be legitimate changes in the way economies and financial markets are affected by seemingly irrational or “non-normal” behavior and events. The supersizing of financial leverage and consumer spending in concert with the politicizing of deregulation describes in fifteen words our most recent brush with irrational behavior and inefficient markets. Greed will come again. But for now, the trend is the other way and it promises to persist for a generation at a minimum. The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007. Global estimates are less reliable, but certainly in multiples of that figure. And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%. There’s no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.

I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, “How do you put together a consumer economy that works when the consumers are out of work?” That is really all one needs to ask when divining our economy’s future fortune. Unless an optimist can prescribe how to put Humpty Dumpty back together again and shuffle him/her back to work then there can be no return to an “old normal.” As unemployment approaches 10%, what is less well publicized is that the number of “underutilized” workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering. Commonsensically, one has to know that many or most of these are untrained for the demands of a green-oriented, goods-producing future economy. Imagine a welding rod in the hands of an investment banker or mortgage broker and you’ll understand the implications quicker than any economist using an econometric model.

What this all means to you as an investor is near obvious as well. Unsurprisingly, what still can be modeled is the direct correlation of real profit growth to real economic growth, assuming a constant division of the “pie” between profits, labor and government. If long-term economic growth declines by 1½% then profit growth will as well. This, after settling at perhaps half of absolute peak profit levels of 2007, because of the rise of savings rates from 0 to 8% or higher. But to add to the woes of the investor class, one has only to observe that their share of the pie is shrinking. What does the General Motors example tell us all about the rebalancing of power between the investor class and the proletariat? What do trillion-dollar deficits and the recent reinitiation of PAYGO government programs tell you about the future of corporate tax rates? They’re headed higher. Do you really think that a national health care program can be paid for with cost-cutting as opposed to tax hikes at insurance companies and benefit-paying corporations throughout all sectors of the American economy? The new normal will not be investor-friendly unless your forecasting dial is turned to “Pollyanna” or your intelligence quotient is significantly less than 100.

Investors who stuffed themselves on a constant diet of asset appreciation for the past quarter-century will now be enclosed in a cage featuring government-mandated, consumer-oriented fasting. “Non Appétit,” not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the U.S. Because this is so, short-term policy rates will be kept low for longer than cyclical norms, and the outlook for risk assets – stocks, high yield bonds, and commercial and residential real estate will involve just that – risk. Investors should stress secure income offered by bonds and stable dividend-paying equities. Consumer Cuisinart consumption is a relic of the past.

William H. Gross
Managing Director

Gendell, Scholes Are Losers as Hedge Funds Drop for Fifth Month - Saijel Kishan and Katherine Burton

2008-11-15T11:38:00.000-08:00

Hedge funds run by Jeffrey Gendell and John Burbank III posted their worst monthly losses in October. Peter Thiel gave back gains made earlier in the year. Nobel-prize winner Myron Scholes froze his biggest fund.

The managers, like many in the $1.7 trillion hedge-fund industry, were caught in a downdraft of market declines, client redemptions, demands from lenders for more collateral and forced asset sales that accelerated after Lehman Brothers Holdings Inc. collapsed in mid-September.

Funds fell by an average 5.4 percent last month, pushing the year-to-date drop to 15.5 percent, according to the HFRI Fund Weighted Composite Index compiled by Chicago-based Hedge Fund Research Inc. Investors have been handed losses for five straight months, the longest streak since HFRI started the index in 1990.

``October was the perfect storm for liquidity drying up, especially in the credit markets,'' said Gary Vaughan-Smith, co- founder of London-based SilverStreet Capital LLP, which has $600 million invested in hedge funds for its clients. ``We are through the worst and the turmoil should be gone by the end of November.''

While hedge funds have held up better than actively managed mutual funds or index-based investments, losses in 2008 are almost certain to be the biggest on record. U.S. global equity mutual funds fell by an average of 39 percent in the first 10 months of the year, according to data compiled by Bloomberg. The Standard & Poor's 500 Index was down 34 percent. The hedge-fund industry's only unprofitable year was 2002, when the HFRI index shed 1.45 percent and the S&P 500 tumbled 23 percent.

Redemptions Rise

Hedge fund investors have reacted by requesting withdrawals that may reach 15 percent of assets in the U.S. and 25 percent in Europe, Huw van Steenis, a Morgan Stanley analyst in London, told clients last month. Combined with investment losses, industry assets may drop by 24 percent to $1.3 trillion in the fourth quarter, van Steenis said.

``I don't think the hedge fund model is broken,'' said Jaeson Dubrovay, head of the $19 billion hedge-fund group at Cambridge, Massachusetts-based consulting firm NEPC LLC. ``We just need to loosen the credit spigots to get the system working again. We don't anticipate that they will be loosened in any way like they were before.''

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested. They typically charge fees of 2 percent of assets and 20 percent of investment profits.

Tontine, Passport

Gendell's Tontine Capital Partners LP fund, based in Greenwich, Connecticut, plunged 65.7 percent in October, extending its decline for the year to 76.8 percent, according to investors. Burbank's Global Strategy fund fell 38 percent in the month and 44 percent year-to-date, according to a letter to clients of his San Francisco-based based Passport Capital Management LLC.

Ken Griffin, founder of Citadel Investment Group LLC, lost 22 percent last month in his Kensington and Wellington funds, extending the year-to-date-slide to 39 percent, according to people familiar with the firm.

Chicago-based Citadel, which oversees $16 billion, held a conference call with investors Oct. 24 to dispel speculation that it was liquidating. Griffin, 40, told Citadel bondholders that the firm had $8 billion in untapped bank credit and 30 percent of its assets in cash, and faced ``modest'' client redemptions.

Gains Evaporate

Some managers have seen gains from the first half of the year evaporate. Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Thiel, slumped 18 percent in October, according to estimates given to investors. The San Francisco-based firm's Clarium LP fund reported a year-to-date decline of 2.8 percent, wiping out the 58 percent gain from the first half.

Harbinger Capital Partners Fund, run by Philip Falcone, dropped about 5 percent in October, bringing its loss for the year to about 13 percent, according to investors. The New York- based fund was up 42 percent at the end of June.

Blue Mountain Capital Management LLC of New York and London, Scholes's Platinum Grove Asset Management LP in Rye Brook, New York, and Deephaven Capital Management LLC of Minnetonka, Minnesota, were forced to freeze investor withdrawals after a surge in redemptions.

Some Winners

``We continue to re-evaluate hedge funds,'' Brad Alford, head of Alpha Capital Management LLC in Atlanta, which invests in hedge funds, said in an interview. ``They should do better.''

Managers that made money last month include Christian Levett, whose Clive Capital LLP fund advanced 19.8 percent, bringing its annual return to 43 percent, according to investors. The firm manages more than $2.5 billion from London.

Ionic Capital Management LLC, a $3.5 billion hedge fund run by former Highbridge Capital Management LLC executives Bart Baum, Adam Radosti and Dan Stone, rose 8 percent in October, extending its gain to 16.5 percent for the year, according to a person familiar with the New York-based firm.

John Paulson's New York-based Advantage Plus Fund, which rose 3.8 percent last month, extending its increase for the year to 29.4 percent, according to investors.

Bruce Kovner, who runs Caxton Associates LLC in New York, posted a 2.6 percent return in October for his Caxton Global Investment Ltd. fund, which has climbed 7.25 percent so far this year.

Bob Farrell’s Ten Market Rules to Remember

2008-11-15T11:33:00.000-08:00

1) Markets tend to return to the mean over time. This

is especially noteworthy now, for the housing market is

returning to its mean by plunging, as are equity market,

the dollar, the Yen, et al.

2) Excesses in one direction will lead to an opposite

excess in the other direction. They always do, and the

excesses of the housing bubble and excessive, lenient

bank lending, are giving way to the housing collapse and

inordinately tight lending practices.

3) There are no new eras — excesses are never

permanent. And how strongly does that speak to us

now, for the supposed era of unending housing price

increases and of globalisation has given way to weak

housing and growing protectionism.

4) Exponential rapidly rising or falling markets usually

go further than you think, but they do not correct by

going sideways. Markets correct by going in the

opposite direction, falling sharply after sustained, broad

rallies, and rallying after sustained broad weakness. The

world ebbs and the world flows; it has always been thus,

and shall always be thus.

5) The public buys the most at the top and the least at

the bottom. Of course they do; they always have and

they always shall. The public buys when euphoria reigns,

and it sells when depression does years later.

6) Fear and greed are stronger than long-term

resolve. We are human beings dealing with rational and

irrational markets; to believe that "fear" and "greed" can

ever be lost is naive for they are the most fundamental of

human traits.

7) Markets are strongest when they are broad and

weakest when they narrow to a handful of blue chip

names. Just as volume must follow the trend, so too

must good markets have broad support and weak

markets have broad weakness... and at the moment, the

market is very, very broadly weak.

8) Bear markets have three stages — sharp down —

reflexive rebound —a drawn-out fundamental

downtrend. This really is how this bear market shall end;

not with a hoped for "V" bottom, but with a great

washing-out... a capitulation... and then months, or even

years, of base building.

9) When all the experts and forecasts agree –

something else is going to happen.... or as we like to

say, "When they are yellin', you should be sellin,' and

when they are cryin,' you should be buyin.' "

10) Bull markets are more fun than bear markets.... or

as a friend of ours from Raleigh, N. Carolina used to say

many years ago, "Bears don't eat; bulls party!"

Interview with Don Coxe - ROBIN GOLDWYN BLUMENTHAL

2008-11-14T10:16:00.000-08:00

November 7th, 2008

ONCE A WEEK, LOADS OF INSTITUTIONAL INVESTORS DROP whatever they're
doing to tune in to Donald Coxe's strategy conference calls. Small
wonder. With a keen sense of history and wry sense of humor, Coxe has
helped his followers anticipate some of the biggest shifts in markets,
be they in stocks or commodities. As global portfolio strategist for
BMO Financial Group, a Toronto-based bank that is among Canada's
largest, he now sees real hope for two sectors that have been taking
poundings: banks and commodities. Though he launched the Coxe
Commodity Strategy Fund this past summer, right before commodities
took a nose dive, Coxe remains convinced that we are in the midst of
the greatest commodities bull market of all time. For his reasons,
please read on.

Matthew Furman for Barron's

"The gigantic investment returns are all going to be tied to companies
that meet real human needs and do it better than other companies. What
a great time to be an investor."--Donald Coxe

Barron's: What's your take on the monetary scene?

Coxe: The Fed has doubled the debt on its balance sheet in five weeks.
We don't know how long they are going to be carrying out these
policies, which would send Milton Friedman spinning in his tomb. On
the other hand, they had to do it. I challenged groups this week,
saying, if I had said to you a year ago things will be so bad that the
Fed will double its balance sheet in five weeks, would any of you have
ever invited me back to speak to you? And, of course, the reaction was
the same: Clearly you are stark raving mad.

Are the economic prospects any better in Europe?

The Europeans had thought it was an American problem, but European
banks have lent a vast percentage of their capital to these Slavic
countries, with even worse demography than Europe. Emerging markets
are such a powerful asset class because each generation is bigger than
the next, and there is an increasing middle class and a high savings
rate. That's the stuff of real economic power, and a terrific
investment concept. By contrast, in the OECD countries, each
generation is just 60% of the predecessor generation, there's no
growing middle class and there's a zero savings rate. The formula
across the OECD is for sluggish growth at best.

How should investors approach today's stock market?

If you aren't deeply in the equity market, this is not a time to be
committing large amounts of money. Stocks are cheap but they can get
cheaper; we know that. We got back to the Dow having a multiple of 5.9
in December of '74, which was the foundation of Warren Buffett's
wealth because he started buying at that level. The Dow isn't anywhere
near 5.9 [its multiple last week was 11], but some of my favorite
stocks are trading at lower P/Es than that. I can tell you they are
the fertilizer, oil and agricultural companies.

Tell us some more about those industries.

The core investment concept of our time is that we are living through
the greatest simultaneous effervescence of personal economic liberty
in history. When people go from abject poverty to dwellings with
indoor plumbing, electricity, basic appliances and access to motorized
transportation, they have more economic liberty than 99% of humanity
enjoys and we are adding 50 to 150 million people a year to that list.
The gigantic investment returns are all going to be tied to companies
that meet real human needs and do it better than other companies. What
a great time to be an investor, because it is not just about the
dwellings and the transportation, it is about the high-protein diet.
When I came back from a trip two years ago, I said the biggest
commodity story is going to be food, bigger than the other ones. It is
high-protein food. The way to play that is through the fertilizer
stocks, the genetically modified seed stocks and the farm-equipment
stocks. [Coxe would not recommend specific companies, citing his
firm's compliance restrictions.]

What are the big trends in food consumption?

If you look at areas under cultivation, wheat has only gone up in
hectares a little bit in a decade. Rice is flat in a decade.
Meanwhile, our need for protein has gone up dramatically because
people are consuming more beef and pork. But more important than oil
in this decade is milk. In rural India, the kids are getting animal
protein and they are going to be physically stronger than their
parents. Their brains are going to be better.

But there's still a serious global food shortage.

Until four months ago, when you Googled "global 'blank' crisis" it was
the global food crisis. The global food crisis was our big theme. The
global financial crisis has pushed the food crisis off the front page
at a time when people are actually getting together to say, "How do we
deal with this problem?" We have an enormous challenge, but we also
have the technology to increase farm productivity. Investors who
invest in this are going to make a lot of money, and they don't have
to apologize to anybody for doing it. If it hadn't been for [the
development of genetically modified crops], corn would have gone to
$10 a bushel [instead of a recent high of $7.50] and we would have had
another 100 million people starving. This is a great investment theme.

Which commodity groups do you like best?

Agriculture is first. We will need more fertilizer. There are only
three farm-equipment companies of any size in the world. Terms of
entry are difficult. You have to have dealerships. CNH Global [ticker:
CNH] is one of the top three companies in the world in the field. It's
a subsidiary of Fiat and its stock has collapsed, but earnings haven't
collapsed. In May it sold for $45 a share. It's $17 now. The next
group has to be gold stocks. A period of massive reflation always
leads to a good move in gold.

Next?

The third group is energy. Despite Obama's plan to spend $150 billion
on alternative energy, each year we still lose 4.5 million barrels of
oil a day that we have to replace. Oil is trading now at $61 a barrel,
but oil for delivery in 2015 is trading at over $90 a barrel. Those
with reserves in politically secure areas of the world will do well.
Venezuela could solve a large part of the world's energy needs, but
not under the current management.

How about base metals?

Those stocks are selling for pennies on the dollar. Take BHP Billiton
[BHP]. It was $95 in May, it recently fell to $30, but it's back up to
nearly $40. This is an unrivaled set of assets, a great balance sheet,
top-notch management and no scandals.

Is copper worth a look?

Copper is now at $1.80 per pound, where it was in '05. But as soon as
the economy recovers, copper always doubles in price. It's levered to
growth in China and India. They have an increasing percentage of
well-off people who use energy and metals, and each generation is
bigger than the last. Since 1995, China has had a plan to create 200
cities of more than one million people. The investment strategy should
be tied to areas of the world that are growing the fastest in the next
five years.

As for stocks in general, when will we know that they're ready to
rebound?

In every bear market since 1972, when the banks went through a period
of at least six weeks where they outperformed the S&P, it was over.
But we can't use the rule this time because of the TED spread, which
has a 100% forecasting record in all bear markets.

You have our attention.

The TED spread is the spread between the front-month T-bill contract
and the front-month Eurodollar contract, because the Eurodollar
contract is uninsured deposits in banks around the world in dollars.
Therefore it is the measure of risk in the system. It reached a high
of 500 after Lehman Brothers collapsed. The highest reading we have
ever had up till then was 415 when Continental Illinois bank went bust
in 1984 and got saved in order to save the system. The only reason
they knew they had to save it was because of the spike in the TED
spread. I know that from having interviewed the people involved. I
used it to predict the crash in 1987. Then there was a long period
where my knowledge of the TED spread was useless.

What does TED tell us now?

The spread has fallen to a little under 200 because of the various
bank-rescue programs, and it could easily get to 140-145, which signal
that banks are in a position to start lending again.

Does that favor any particular sector?

As they put this money into the banking system, then the oddity is
that when the bear market ends, the bank stocks will be among the
leaders in the rally that will come. This is based also on the
principle of redemption and religion, which holds that when you have
redeemed your sin you can come into heaven. When the bankers have
stopped sinning and have gone through enough penance, then...

How do we know this will happen?

The TED spread certifies for bankers collectively they are entitled to
go to heaven because it indicates they have gotten their balance
sheets in order and the system is working again and money is flowing
more freely.

Which banks are you buying?

We like those that show that they actually had a pretty good risk
culture beforehand, but a couple of mistakes were made. The system is
shot through with corrupt practices.

Thank you, Don.

The Best Business Schools of 2008 - by Francesca Di Meglio and Alison Damast

2008-11-14T09:44:00.000-08:00

No. 1: University of Chicago
Booth School of Business
2006 BusinessWeek Rank: 1
Total Tuition and Fees: $97,165
Applicants Accepted: 22%
Pre-MBA/Post-MBA Pay in $ Thousands: 78.0/105.0
In Brief: This year's No. 1 has it all: ambitious students, academic rigor, and top-notch faculty.

No. 2: Harvard Business School
Boston
2006 BusinessWeek Rank: 4
Total Tuition and Fees: $101,660
Applicants Accepted: 12%
Pre-MBA/Post-MBA Pay in $ Thousands: 77.0/121.0
In Brief: A century old, Harvard's case-based curriculum continues to set the standard.

No. 3: Northwestern University
Kellogg Graduate School of Management
Evanston, Ill.
2006 BusinessWeek Rank: 3
Total Tuition and Fees: $93,918
Applicants Accepted: 20%
Pre-MBA/Post-MBA Pay in $ Thousands: 75.0/110.0
In Brief: Kellogg's distinct culture of collaboration and competition sets it apart.

No. 4: University of Pennsylvania
The Wharton School
Philadelphia
2006 BusinessWeek Rank: 2
Total Tuition and Fees: $100,860
Applicants Accepted: 18%
Pre-MBA/Post-MBA Pay in $ Thousands: 80.0/120.0
In Brief: Highly competitive program features flexible curriculum, diverse student body.

No. 5: University of Michigan
Ross School of Business
Ann Arbor, Mich.
2006 BusinessWeek Rank: 5
Total Tuition and Fees: $90,879
Applicants Accepted: 20%
Pre-MBA/Post-MBA Pay in $ Thousands: 63.5/105.0
In Brief: School spirit runs high at Ross, where students are highly sought after by recruiters.

No. 6: Stanford University
Graduate School of Business
Palo Alto, Calif.
2006 BusinessWeek Rank: 6
Total Tuition and Fees: $97,842
Applicants Accepted: 8%
Pre-MBA/Post-MBA Pay in $ Thousands: 75.0/125.0
In Brief: Small classes and sense of community in the heart of Silicon Valley are hard to beat.

No. 7: Columbia Business School
New York
2006 BusinessWeek Rank: 10
Total Tuition and Fees: $94,104
Applicants Accepted: 15%
Pre-MBA/Post-MBA Pay in $ Thousands: 75.0/110.0
In Brief: Finance focus and access to Wall Street are pluses—or used to be before the investment banking industry collapsed.

No. 8: Duke University
Fuqua School of Business
Durham, N.C.
2006 BusinessWeek Rank: 9
Total Tuition and Fees: $99,906
Applicants Accepted: 30%
Pre-MBA/Post-MBA Pay in $ Thousands: 65.0/100.0
In Brief: Passionate teachers and competitive, collaborative learning environment all get high marks.

No. 9: MIT
Sloan School of Management
Cambridge, Mass.
2006 BusinessWeek Rank: 7
Total Tuition and Fees: $93,568
Applicants Accepted: 15%
Pre-MBA/Post-MBA Pay in $ Thousands: 70.0/116.0
In Brief: Quantitative skills and entrepreneurship are this program's strong suits.

No. 10: University of California-Berkeley
Haas School of Business
Berkeley, Calif.
2006 BusinessWeek Rank: 8
Total Tuition and Fees: $84,055
Applicants Accepted: 12%
Pre-MBA/Post-MBA Pay in $ Thousands: 78.0/110.0
In Brief: Small size, diverse class, and attentive faculty are pluses. Access to Silicon Valley doesn't hurt either.

Goodbye Letter of a Hedge Fund Manager

2008-10-24T10:15:00.000-07:00

Now, this is how you close a fund!

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866% betting on the subprime collapse. Last month, he took his ball and went home. Tired of the stress, he closed the fund.

Today, Lahde passed along his "goodbye" letter (via FT Alphaville and Portfolio.com), a snarky "Up Yours" to those who do deserve it.

Enjoy:

Dear Investor:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde”

The cult of the dabbawala - From The Economist print edition

2008-07-10T15:43:00.000-07:00

AS THE warrior king who defeated the Mughals and founded the Maratha empire of Western India in the 17th century, Shivaji Bhosle is remembered as a tactical genius as well as a benevolent ruler. The direct descendants of his Malva-caste soldiers are also developing a reputation for organisational excellence. Using an elaborate system of colour-coded boxes to convey over 170,000 meals to their destinations each day, the 5,000-strong dabbawala collective has built up an extraordinary reputation for the speed and accuracy of its deliveries. Word of their legendary efficiency and almost flawless logistics is now spreading through the rarefied world of management consulting. Impressed by the dabbawalas’ “six-sigma” certified error rate—reportedly on the order of one mistake per 6m deliveries—management gurus and bosses are queuing up to find out how they do it.

The system the dabbawalas have developed over the years revolves around strong teamwork and strict time-management. At 9am every morning, home-made meals are picked up in special boxes, which are loaded onto trolleys and pushed to a railway station. They then make their way by train to an unloading station. The boxes are rearranged so that those going to similar destinations, indicated by a system of coloured lettering, end up on the same trolley. The meals are then delivered—99.9999% of the time, to the right address.

Harvard Business School has produced a case study of the dabbawalas, urging its students to learn from the organisation, which relies entirely on human endeavour and employs no technology. For Paul Goodman, a professor of organisational psychology at Carnegie Mellon University who has made a documentary on the dabbawalas, this is one of the critical aspects of their appeal to Western management thinkers. “Most of our modern business education is about analytic models, technology and efficient business practices,” he says. The dabbawalas, by contrast, focus more on “human and social ingenuity”, he says.

Firms, both Indian and foreign, are similarly curious. Tata, Coca-Cola and Daimler have all invited dabbawalas to explain their model to managers. Last month it was the turn of delegates at an accountancy conference in Dubai. There are even plans within the organisation to create a consulting business. The dabbawalas, who all receive the same pay, are also seen as paragons of “bottom up” social entrepreneurship. C.K. Prahalad, a professor at the University of Michigan’s Ross School of Business, says they show how a home-grown business can help lift workers at the “bottom of the pyramid” out of poverty. They also contradict the stereotype of developing-world labourers as low-wage economic victims.

In Salman Rushdie’s 1988 novel “The Satanic Verses”, one of the main characters, Gibreel Farishta, worked as a dabbawala before going on to become a film star. The deliverymen no longer need a career change to get noticed.

How leaders trip over their own Achilles heel - John Izzo

2008-06-14T16:52:00.001-07:00

Many years ago, when I worked as the vice-president of a consulting company, staffers were discussing how a client was so competitive that it got in the way of his success. I casually mentioned how hard it was for me to understand that behaviour, since I was not very competitive myself.

How wrong I was. After the meeting, one colleague had the guts to tell me he hoped I really didn't believe that about myself. I was, he said, "the most competitive person" he knew. Furthermore, everyone considered me a "know-it-all" who would argue a point just to prove how smart I was. "Other than that," he quipped, "everybody loves you."

Amazingly, until he took me aside, I had no clue others saw me that way. Not only did it make me less well liked, but getting ideas from others was being hampered by my need to always be right. It limited my ability to perform at my leadership best.

Call it my Achilles heel: a behavioural weakness so powerful that, despite many other strengths, it could impede career success.

Everyone suffers from at least one such fatal flaw, a quality so annoying that, even as people seem to score success, it can sabotage possibilities of further promotion or stand in the way of forming the networks that help a career grow.

Anyone who wants to be a leader or aspires to that role needs to discover his or her Achilles heel, and take steps to overcome it.

The flaw can take many forms: an inability to listen effectively, a lack of showing appreciation, dismissing other people's opinions, being overly critical, having to be right all the time, tending to micromanage, blaming excessively or resorting to sarcasm.

Ironically, people often remain blissfully unaware of their Achilles heel even while all those around them are painfully aware of it. It may even be a regular topic of conversation among colleagues and subordinates, yet nobody will tell the one person who needs to know it.

How can otherwise smart and successful people be so unaware of such critical flaws?

One major reason is that we rarely see ourselves the way others see us. And the higher up we go, the less likely anyone is to point out our flaws. Employees and peers may feel it's too risky to confront a manager. They may also feel someone would not be open to such feedback, especially when the flaw is perceived to be so much a part of a person's identity.

What's more, many leaders never ask.

So how can you discover your Achilles heel? Simple: Don't delude yourself. Assume you have such a flaw, since most of us do. Then ask, and enlist the help of others in changing it.

To create an environment that will invite such feedback, tell people that you want it. State your awareness there are ways leaders behave that hamper their effectiveness - and say you want to be a more effective leader.

Here's a tip: It has been my experience that people are more likely to offer up constructive feedback if they are asked to provide both positive and negative comment.

So it's best to ask both what is working well, and what one thing you do that you could change to make the biggest difference.

Another tip: Be receptive to the reply. Don't debate or defend it. How you react to hearing about your Achilles heel can either shut down conversation or encourage it.

So rather than get defensive, be open. For example, if an employee tells you that you would be more effective if you were more consistent, don't respond with something like "I may appear inconsistent, but let me explain." Rather, ask for clarity: "Can you give me some examples of what you mean by inconsistent or can you help me with a recent example of when I acted this way?" Then ask for specifics about how you could act differently.

Here's a third tip: Humour helps. If people won't give you the goods directly, they'll often hint at it or give veiled feedback in the guise of jocularity.

One client, the chief executive officer of a health care company, learned about his Achilles heel through a jab at an office party. A peer offered up a toast to "the manager most able to cut you to greatness with his tongue."

The room burst into laughter. But the CEO caught the seriousness of the comment behind the humour and took the time later to ask about it. He learned that, while employees liked his high expectations and the way he coached, they felt his critical comments often left them feeling inadequate and unappreciated. That was his Achilles heel.

So what do you do once you've identified yours? It's time to try to change it.

Changing behaviour, especially habits built up over a lifetime, is never easy. But there are things you can do to help ease such a transition.

The first step is to let those around you know you are aware of your flaw, and want to make change.

Recently, I was working with a senior vice-president of branch banking for a large financial institution. Through formal feedback, he learned his tendency to micromanage was a real impediment. He then let his team know he was aware of the flaw, and wanted to learn how to micromanage less and trust more. He asked for help in better understanding his behaviour and requested they point out instances when he was overmanaging versus being helpful.

You can also reinforce for yourself your efforts to change. For instance, write down the change you want to make on a card and carry it with you. Jot it down on sticky notes that you place on your desk. Your messages might say something simple like: "Let people do their job" or "Don't argue just to prove you are right."

Then be conscientious about your efforts. The micromanager, for instance, decided that, every time he was tempted to ask someone about the status of a project, he would hold off for a few hours; every time, he was tempted to correct someone's work, he would ask himself first if what he was about to say was truly helpful. This made him catch his micromanaging behaviour before he acted on it.

It can also help to track and rate your progress. The micromanager committed himself to 30 days of trying to change. Every day during that month, he gave himself a grade on how well he had performed.

He found that both of these moves made a big difference in his daily behaviour. And the month-long commitment began to create a new habit.

It's also a good idea to make it fun for others. The micromanager invited his team to levy a fine of a dollar every time he slipped up, with the money going toward a team dinner. Even when he didn't agree, he went along.

Six months and $210 later, his team let him know that he was, as one employee said at the fine-funded dinner, "officially kicked out of the micro-man club."

The CEO with the biting tongue also made an effort to change. Over a year, he worked to balance positive feedback with constructive coaching, and was careful about the way he worded his criticisms.

A focus on this one behaviour paid off. Said one employee: "We used to dread hearing his feedback because he could tear you to pieces. Now, we all agree that fixing this one thing about his style turned him from being perceived as an ogre to being seen as a mentor."

One of the interesting things about your Achilles heel is that, once it's pointed out, it becomes painfully obvious. Over the few weeks after I was told about being a know-it-all, I started to notice how often I argued, how many times I would hardly listen to others' ideas because I was so eager to share my own, and how often I was talking just to prove how smart I was. I began to aggravate even myself.

So I went to those I worked with, let them know it was behaviour I wanted to change, and asked for help. I worked hard at not arguing a point just to prove I was right, on listening to the ideas of others, and on commenting on the value of their ideas..

I was able to change. And I realized that while being right might feel good at the moment, it wasn't serving my long-term interests. As a leader, I was much better off removing the poisoned arrow that had struck my heel.

Going toe to toe

Some people don't discover their Achilles heel until someone has the guts to tell them. Afraid to confront a boss or colleague about his or her flaws? Here are some tips:

Ask for permission. Try: "I have a lot of respect for you and have noticed some things I believe would make you more effective. Are you interested in hearing them?"

Balance negative with positive. Offer up at least three things you appreciate about the person before moving on to the flaw.

Frame feedback around future success. Few of us want to know our faults, but many want to know how to be more successful. So instead of telling someone he or she isn't a good listener, say, for example: "I think you would be more successful if you listened more to the ideas of others instead of debating."

Be sincere. Only offer up feedback if you honestly want to help. If that comes across, it's likely to get a better reception.

Be supportive. Say: "I believe you have good intentions and have great potential but I have noticed that your tendency to be critical often discourages others."

Give helpful examples and suggest alternatives. For example, say: "Sometimes people feel you don't trust them because you keep checking up with people. Perhaps you could set up regular meetings for updates and ask people to contact you in between if they need your help."

With online trading, it pays to shop around

2008-06-11T21:08:00.000-07:00

It's nice to know as you gas up your car or buy groceries that some things in life are still a bargain.

Online stock-trading commissions, for example. At a discount broker, also called an online or direct brokerage, you can trade stocks for as little as $1 to $29 over the Internet, depending on which firm you use, how large your account is and how often you trade. And whereas brokers used to use commission schedules that charged you a lot more for larger orders, many of them now use a flat rate.

With all sorts of daily living costs on the rise, now's a good time to make sure you're paying as little as possible to invest in stocks. Let's start with a reminder of how you benefit when you cut your trading costs.

First, and most obviously, paying less in commissions can help boost your returns. On a dozen trades per year, the difference between paying $10 and $29 per trade amounts to an extra $228 in your account. Low commissions can also help you put cost considerations aside so you can make buy and sell decisions for your portfolio based strictly on investing merit.

Several years ago, the standard online discount brokerage commission schedule was based on a $29 minimum for trades of up to 1,000 shares placed online. Lower costs were available to active traders - who make 30-plus trades per quarter - but this group represented only a small minority of customers.

E*Trade Canada intensified the level of price competition when it introduced a flat rate of $9.99 for clients who traded actively or had $50,000 in assets with the firm (with less, you pay $19.99). Very quickly, heavyweights like BMO InvestorLine, RBC Direct Investing and industry leader TD Waterhouse began to offer sub-$10 trades for clients with a total of $100,000 in assets. Note: The gap between online commissions and those for trades placed by telephone with a live agent are growing ever larger.

As far as the big firms have come in lowering commissions, they don't offer the cheapest trades around. For that, you have to try small brokers like Questrade and Interactive Brokers.

Both Questrade and IB have been around for years, primarily serving very active or professional traders who require high levels of data and flexibility in placing their trades. Questrade in particular has been trying to appeal to cost-conscious mainstream investors with a plan that offers commissions of 1 cent a share with a minimum of $4.95 and a maximum of $9.95.

IB describes itself on its website as "the professional's gateway to the world's markets," which tells you what type of clientele is being served. But the firm also has a detuned version of its trading platform, called WebTrader, which should be manageable for reasonably experienced investors who are comfortable with online investing.

The reason to consider IB is that it charges 1 cent per share to trade Canadian stocks and half a cent for U.S. stocks, with a minimum commission of $1. You read that correctly - you could, for example, buy 100 shares of a $50 TSX-listed stock and pay $1 in commissions.

Remember, though, that IB is a firm for serious traders (it doesn't even have registered accounts). You need a $10,000 (U.S.) deposit to open an account and you're subject to account fees if you don't meet requirements for a minimum level of activity. Stock market data feeds cost extra, although you can skip them.

The cheapest broker for your account depends in large part on how much money you have. With a small account, you'll pay a minimum of just under $20 at Credential Direct, E*Trade and Qtrade, or less at Questrade and IB. Most other brokers charge in the $25 to $29 range.

Many brokers now cut their cost to the sub-$10 range if you have $100,000 in assets with them, and this usually encompasses multiple accounts. If you have your registered retirement savings plan account at one broker and your registered education savings plan and cash accounts elsewhere, consider a consolidation to get up to the $100,000 mark (or, in the case of E*Trade, $50,000).

Despite the trend for falling commissions, trading costs remain on the high side at some brokers. Scotia McLeod Direct Investing charges $28.95 for up to 1,000 shares and up to 3 cents per share for trades of more than 1,000 shares. If you placed an order for 5,000 shares of a stock trading at $7, you'd pay $150. Compare that to the flat $10 commissions available elsewhere. For active traders, SMDI offers flat-rate commissions of $8.95 to $14.95.

CIBC Investor's Edge charges a minimum of $25 for market orders, where you accept or agree to pay the going market cost of a stock, or $28.95 for orders where you put limits on what you'll accept or pay. If you're an active trader, CIBC offers a deal of $395 paid upfront for 50 trades.

When choosing a discount broker, low commissions have to be balanced against the quality of service, tools and resources available. Consult The Globe and Mail's annual online brokerage survey, available on Globeinvestor.com (look for the Noteworthy headline close to the bottom of the homepage, on the right side), and check individual brokerage websites for demos and other information. Also try the ratings issued by a company called Surviscor on its website at surviscor.com.

When assessing the importance of commission costs on your portfolio, remember that the number of times you buy and sell stocks is just part of the equation. With low commissions, you can be aggressive and yet cost effective in managing your portfolio.

For example, you can cheaply use stop-loss orders, where your stocks are sold at preset prices to either lock in gains or limit losses. It's also more economical to rebalance your portfolio, which means selling down your winners and putting more into asset classes that are under-represented. One last benefit of cheap commissions: It's more cost effective to average your way into a stock, which means making multiple periodic purchases to limit the risk of making a big commitment to a stock or exchange-traded fund just before it tanks.

Discount brokers have become a lot more price competitive in the past year or so, providing a welcome price to the rising cost of so much else. Make sure you're getting your fair share.

Discount brokerage cost comparison

You're an occassional stock trader who is looking for the lowest possible costs for trading online. Here's a comparison of minimum commissions at a variety of brokers.

Minimum
Broker commission Web address
BMO InvestorLine $25 market bmoinvestorline.com
less than $100,000 in assets $29 limit
$100,000+ $9.95
CIBC Investor's Edge $25 market investorsedge.cibc.com

$28.95 limit
Credential Direct $19 credentialdirect.com
Disnat
disnat.com
less than $100,000 in assets $29
$100,000+ $9.95
eNorthern $24 enorthern.com
E*Trade Canada
canada.etrade.com
less than $50,000 in assets $19.99
$50,000+ $9.99
HSBC InvesDirect $29 investdirect.hsbc.ca
Interactive Brokers $1 interactivebrokers.ca
National Bank Direct Brokerage $28.95 nbdb.ca
Qtrade $19 market qtrade.ca
less than $100,000 in assets $23 limit
$100,000+ $9.95
Questrade $4.95 questrade.com
RBC Direct Investing
rbcdirectinvesting.com
less than $100,000 in assets $28.95
$100,000+ $9.95
ScotiaMcLeod Direct Investing $28.95 scotiamcleoddirect.com
TD Waterhouse
tdwaterhouse.ca
less than $100,000 in assets $29
$100,000+ $9.99
Trade Freedom $9.95 tradefreedom.com

Five ways for keep brokerage commissions low

1. Consolidate assets at one firm to benefit from low rates for large accounts.

2. Ask if there are any data or market access fess in addition to posted commissions.

3. If you typically trade more than 1,000 shares at a time, flat-rate commissions will save you a lot of money.

4. Hyper-active traders may qualify for lower rates than are posted here.

5. Avoid trading by phone through a live agent - it costs substantially more.

Through a glass rosily - John Daly

2008-06-01T10:23:00.001-07:00

Meredith Whitney's "15 minutes" appear to be far from over. The CIBC World Markets banking analyst ascended to Wall Street's equivalent of Brad-and-Angelina megastardom last October when she downgraded her rating on beleaguered Citigroup Inc.'s shares and warned of a possible dividend cut. That triggered a $369-billion (all currency in U.S. dollars), one-day drop on U.S. stock markets already shaken by the subprime lending crisis.

And what's not to love? A smart, tough-talking blonde, married to former WWE wrestler John Charles Layfield (a.k.a. "Death Mask"), who--oh so rare among analysts--actually says what she thinks. "No one had the moxie to put in print what I put in print," she said.

Indeed, Whitney's pronouncements stand out because analysts rarely issue negative recommendations, and be-cause--so far, at least--she's been right. Although it shouldn't come as a surprise to any serious investor, analysts' buy recommendations still outnumber sells--or whatever euphemisms they use--by about 9 to 1.

Back in 2002, it looked like the profession might change, when then-New York attorney general Eliot Spitzer went after analysts hard. His whipping boy: Henry Blodget, star tech analyst at Merrill Lynch during the dot-com bubble (see "Look who's back," page 9). In 2003, 10 leading firms agreed to pay $1.4 billion to settle conflict-of-interest charges, and Blodget accepted a lifetime ban from the securities industry without admitting or denying civil fraud charges.

Yet, today, the scandal is water long under the bridge. Sure, Chinese walls are higher now than at the turn of the decade, but most analysts still wear soft gloves when it comes to the companies they cover. But the intriguing question isn't why analysts don't tell the literal truth; it's why retail investors continue to believe analysts' recommendations.

In a study published last August ("Are small investors naive about incentives?"), University of California assistant professor of economics Ulrike Malmendier and Harvard Business School assistant professor Devin Shanthikumar looked at analysts' recommendations from 1993 to 2002. What they discovered proves what we already guessed: Small traders tend to follow recommendations literally, exerting upward pressure on prices after "strong buy" and "buy" recommendations, and no pressure following "hold" recommendations.

But large traders are savvier. They tend to buy after strong buy recommendations, hold after buy, and sell after hold. Why is the split so clear? Malmendier and Shanthikumar couldn't find a definite explanation in the data, although they say the reason could be gullibility, er, "investor naivete."

It's doubtful such a study would produce different results if 2008 trading activity was used, especially in light of the upsurge in websites such as newratings.com that are dedicated to tracking analysts' upgrades and downgrades.

But reading analysts' reports isn't rocket science, or at least it shouldn't be. Just ask Blodget, who has risen from the ashes and now publishes the Silicon Alley Insider, a popular online newsletter that concentrates on tech investments.

So how should individual investors read these reports? "Almost all analysts are going to be flat-out wrong at least 40% of the time," says Blodget. "As long as you understand that, the reports are very reliable. I think the quality of Wall Street research has gone up in the past 10 years, but that doesn't mean analysts are right about stocks more often."

Nor should you take their recommendations literally. "The media generally equates buy ratings with 'urging investors to buy,' which is often unfair to analysts, because the ratings themselves aren't actually action recommendations," says Blodget. "I know that sounds ridiculous, but it's true. Most firms use the words as nouns instead of verbs, as in: 'It's a buy,' and not ' Quick, mortgage your house and buy!' "

Within constraints, analysts appear to choose their words very consistently. In a study entitled "Do security analysts speak in two tongues?" published last October, Malmendier and Shanthikumar found that analysts' buy and sell recommendations tend to be more optimistic than their detailed earnings forecasts. Why? The analysts know that retail in--vestors pay close attention to the recommendations, but bigger players concentrate on earnings.

Even so, analysts employed by underwriting brokerage firms tend to be more positive than independent analysts. Yet they often revise earnings forecasts down just before companies issue results--making it easier for the companies to meet, or even better, the Street's consensus earnings targets.

Again, Blodget isn't surprised. Picking stocks is just a small part of an analyst's job. That job also includes client visits, detailed financial analysis, primary customer research, historical research, meetings with management and investment conferences. "For most professional investors, stock ratings are the least valuable service that analysts provide, because opinions are a dime a dozen," he says.

Putting it in even more startling terms, Blodget isn't optimistic that retail investors have a hope when it comes to playing against Wall Street. "A Little League team is always going to get destroyed by the Yankees," he once told Bloomberg. "It doesn't matter what field they play on, and that is exactly what happens when individuals try to compete with hedge funds."

As long as the retail investor believes the analysts, then there's no reason to believe he isn't right.

WHEN BUY MEANS HOLD

Ever read the back of your analyst's report? While there's lots of dull fine print to help you fall asleep, one reason to read it is to see how your analyst arrives at making a recommendation. Not all "buy" and "sell" recommendations are created equal.

Canaccord Adams, for instance, rates stocks as "buy," "speculative buy," "hold" or "sell." The buy stocks are supposed to generate a return of more than 10% over the next 12 months, while the speculative buy stocks have a significantly higher risk. The hold stocks are meant to generate a return of 0% to 10%, while the sell stocks are expected to lose money.

Okay, that seems fairly straightforward, but what if two stocks that are both rated buy are forecast to generate returns of 11% and 50%, respectively? If what you want are bullish stocks, you'll have to pay more attention to the analyst's target prices.

The stock-picking system over at RBC Capital Markets is different than at Canaccord. RBC designates stocks as "top pick," "outperform," "sector perform" or "underperform" based on sector comparisons. Top picks represent an analyst's best bets, and can only comprise about 10% of his recommendations. Outperforms are expected to materially outperform the sector average over 12 months, while sector performs will be in line with the sector and, you guessed it, underperforms will underperform the sector.

If the sector is expected to underperform the market, then that outperform-rated stock in a lousy sector may suddenly look a lot less enticing.--Scott Adams

LOOK WHO'S BACK

In 1998, Henry Blodgetwas the boy-wonder analyst at Merrill Lynch who set a target price of $400 (all currency in U.S. dollars) for Amazon.com when it was trading at $242. After splitting, Amazon soared to the equivalent of $500. But four years later, he was the fall guy in Eliot Spitzer's offensive against tainted Wall Street analysts who had hyped stocks to help secure fat investment banking fees for their firms. No one received more scorn than Blodget, who was on record publicly recommending a stock like Excite@Home, while describing it in an e-mail to a colleague as "such a piece of crap!" By 2003, he had quit Merrill Lynch under a cloud and agreed to a lifetime ban from direct involvement in the securities business. Though only in his mid-30s, he appeared to be washed up. Notoriety often isn't fatal in America, however. Since his downfall, he's written an online column for Slate, and contributed to Fortune, Newsweek and The New York Times. Last July, he co-founded the Silicon Alley Insider, a New York City-based online news service that's garnered a big audience among do-it-yourself investors. In March, the website Wall Street 24/7 valued the Insider at $5.4 million, and ranked it No. 12 in its list of the "25 most valuable blogs," not far behind such Internet veterans as The Drudge Report (No. 8). Blodget is also a regular contributor to Yahoo! Finance's tech ticker, a news and video site.--J.D.