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Corporate Governance Conference Addresses Global
Challenges Corporate Governance Conference Addresses Global Challenges “Corporate Governance: A Functional Approach,” a two-day, HBSsponsored research conference held in Shanghai last July, brought together leading figures in business, government, and academia to consider this important topic. The emphasis on function reflected conference chair Professor Kenneth A. Froot’s decision to bring a different message to the gathering. “With a functional approach, you do less comparison of the institutions for corporate governance and instead compare the effectiveness of what they are meant to achieve,” he explained in a recent interview. This premise allowed exploration of many approaches to corporate governance, drawn from a wide variety of countries and cultural histories. Presenters evaluated success in terms of outcomes such as fostering healthy capital markets, supporting global competition, and offering resilience for economic downturns. “Any governance system is going to have to achieve these kinds of things,” said Froot, noting that ineffective governance may have contributed to the demise of certain dot-coms and thus to that sector’s collapse. One lesson of the dot-com phenomenon, he suggested, may be that American models are themselves in need of increased scrutiny. The wide variety of governance models presented was matched by a diverse array of panelists and discussion leaders drawn from fourteen countries, including the People’s Republic of China, Hong Kong, Japan, Korea, Singapore, Malaysia, Taiwan, Indonesia, India, and the Philippines. Professor F. Warren McFarlan, senior associate dean and director of the HBS Asia-Pacific Initiative, credited the School’s Asia-Pacific Research Center, led by Executive Director Camille Tang Yeh (MBA ’80), for recruiting an impressive and influential list of participants. “We focused the dialogue on the right issues, and we had the right people there,” said McFarlan. “Without our office in Hong Kong, we would not have been able to pull it off.” The global reach of the conference was clear from its initial session, led by HBS professor Dwight B. Crane. Crane’s research, prepared in partnership with Ulrike Schaede of the University of California, San Diego, chronicled the evolution of German business from a banking-led corporate finance environment toward a capital markets–driven model during the 1990s. The presentation stressed ways in which Germany’s culture and history shaped its adoption of the model, a relevant concern for many Asian nations with similarly distinct corporate-governance traditions that need to blend with newer models. India’s thriving software industry is another example of evolution in governance, discussed in a presentation by HBS professor Krishna G. Palepu and associate professor Tarun Khanna. They suggested that the need to compete in global product and labor markets actually preceded capital-market concerns as a driver for Infosys, an industry leader in India, to adopt more transparent and globally standardized methods of corporate governance. Dozens of countries worldwide, each representing different degrees of involvement of legal systems and regulators in corporate governance, were studied by Harvard economics professor Andrei Shleifer and MIT’s Simon Johnson. In discussing their findings, Shleifer and Johnson combined business and economic statistics from these nations to illustrate the levels of investor protection achieved by the disparate models. Establishing appropriate legal support for corporate governance is an active issue for Asian nations hoping to privatize certain state concerns while maintaining efficiency in management. Another session brought together leaders of state-owned enterprises. Several Asian countries offer varied models of state ownership of businesses. Although their goal may not be privatization, many are exploring changes in corporate-governance practices to reap similar benefits. “I think all kinds of business institutions are trying to achieve transparency,” said Froot. “Effective global governance isn’t completely encompassed in one type of ownership.” The broad range of conference topics clearly appealed to many in the region, as the gathering attracted over 170 attendees. McFarlan pointed out that fostering intellectual cooperation between HBS faculty and academics and practitioners throughout the world is an important goal of the School’s Global Initiative. He noted that, partly as a result of connections furthered at the conference, last fall HBS researchers started work on a case with the Beijing-based Cosco Group, one of the world’s largest shipping companies. By this measure and many others, the conference achieved its goals. — Laura Singleton (MBA ’88) RETURN TO THE TOP OF THE PAGER&D RoundupTeens and Magazines: Where There's Smoke, There's Advertising In their article in the New England Journal of Medicine last August, King and Siegel analyzed trends in expenditures for advertising between 1995 and 2000 by examining fifteen specific brands of cigarettes and the exposure of young people to cigarette advertising in 38 magazines. Cigarette brands were defined as “youth” brands if they were smoked by more than 5 percent of the smokers in eighth, tenth, and twelfth grades; magazines were classified as “youthoriented” if at least 15 percent of their readers were 12 to 17 years old. The authors noted, among other things, that last year, magazine advertising for the three cigarette brands most popular with young people on average reached more than 80 percent of American youth seventeen times per brand. King and Siegel concluded that “the Master Settlement Agreement with the tobacco industry appears to have had little effect on cigarette advertising in magazines and on the exposure of young people to these advertisements.”
Kudos from the Academy Professor Christopher Bartlett was honored with the Distinguished Scholar Award for outstanding scholarly contributions to international management, while Professor Rosabeth Moss Kanter was the recipient of the Distinguished Educator Award in recognition of her “gigantic impact on management” throughout her career. Ten other HBS faculty members and doctoral students were honored for various publications, papers, and scholarly contributions. Effective Leadership and Decision-Making In “We Don’t Need Another Hero,” Professor Joseph Badaracco argued that the outsized attributes of high-profile heroes don’t necessarily guarantee effective corporate leadership. Instead, he said, modesty and restraint are largely responsible for creating effective moral leaders. Badaracco listed four rules for making wise decisions and meeting ethical challenges: “Put things off till tomorrow” (let turbulent times quiet down to allow moral instincts to emerge); “Pick your battles” (don’t waste political capital on lost causes); “Bend the rules, don’t break them” (in order to resolve a complicated dilemma); and “Find a compromise” (view situations as prone to responsible and workable solutions, not as polarizing tests of ethical principles). RETURN TO THE TOP OF THE PAGE
The Money of Invention by Paul A. Gompers and Josh Lerner
Did venture capital cause the explosion in innovation in the last thirty years, or did innovation jump-start venture capital investing? This is just one of many questions about the power of venture capital that HBS professors Paul Gompers and Josh Lerner ask in The Money of Invention: How Venture Capital Creates New Wealth. The authors answer the chicken-or-egg question, showing that venture capital has indeed been a force in innovation — so much so, in fact, that by 1999 it accounted for 18 percent of innovative activity in the United States. That trend will continue, they contend. Despite many of the recent excesses in the venture industry and the slide in the economy — and more specifically in the venture-drenched tech sector — Gompers and Lerner assert that venture capital investing will remain a critical force in bringing new ideas and innovations to the marketplace. At the same time, the industry is likely to undergo fundamental changes in the years to come. Gompers and Lerner explain in detail how the venture capital industry works, including its boom-and-bust cycles. The authors put the feverish venture capital activity of the last few years in the context of the broader history of the industry. While they suggest the events in recent years had many similarities with earlier cycles, they highlight some fundamental discontinuities occurring in the industry, including the changing mix of investors and the growing role of intermediaries. Gompers and Lerner argue that the next decade is likely to see a fundamental transformation in the structure of the venture industry, as a relative handful of large, professionally managed venture capital groups becomes increasingly dominant. The Money of Invention is geared toward three key audiences. Entrepreneurs can use the book as a guide through the intricacies of seeking a capital investor and to understand that entrepreneurial success depends on many factors — money is just the beginning. For independent venture capital managers, the book gives advice about the strategic responses that are likely to be most effective in the changing venture capital environment. The third group — governments, nonprofits, academic institutions, and large corporations — can learn how to emulate the rigors of a venture capital firm to finance innovative ideas in their own organizations. — Margie Kelley RETURN TO THE TOP OF THE PAGE
“You Can't Enlarge the Pie” by Max H. Bazerman, Jonathan Baron, and Katherine Shonk
In “You Can’t Enlarge the Pie”: Six Barriers to Effective Government, authors Max Bazerman, the Jesse Isidor Straus Professor of Business Administration at HBS, Katherine Shonk, an HBS research associate, and Jonathan Baron, a psychology professor at the University of Pennsylvania, argue that too many government decisions and initiatives are shaped by psychological biases and unproductive thinking habits. The result, they say, is a public-policy mindset that’s geared to maintaining existing procedures and resources — the finite “pie” of the book’s title. This adherence to the status quo often blocks out negotiations and tradeoffs that could benefit everyone. The authors suggest that what public policy needs — and what a democracy’s citizens must insist on — is the sort of approach to decision-making that MBA students are routinely exposed to in business schools. When management students learn to negotiate and solve problems, they are first trained to recognize their own biases and then to seek solutions that involve the least pain and the greatest potential advantage for all concerned. “Once they have been taught to analyze the likelihood of various consequences, these students learn that the best decisions are those that minimize expected costs and maximize expected benefits,” the authors write. The best decisions typically are those that “enlarge the pie,” thus creating value for all concerned. “Our core argument,” the authors emphasize, “is that large gains can often only be achieved when citizens learn to accept small losses in return.” Standing in the way of this, however, are what the authors identify as six leading examples of muddled reasoning: “Do no harm” (in which misinformed attitudes about risk hinder attempts to make improvements); “Their gain is our loss” (the assumption that one’s own group suffers if another benefits); “Competition is always good” (indulging in competition’s wasteful aspects while shunning cooperation); “Support our group” (the irrational acceptance of special- interest groups); “Live for the moment” (condoning present behavior that negatively affects the future); and “No pain for us, no gain for them” (resisting change that, over time, would benefit the majority, out of concern that it might hurt a minority in the short term). The authors’ intent is to expose these fallacious attitudes in order, they write, “to encourage citizens to adopt a new way of thinking about political issues that will inspire them to work for positive social change.” “Thinking and acting more rationally about politics,” the authors conclude, “is a worthwhile goal for everyone.” RETURN TO THE TOP OF THE PAGE
Ruling the Waves by Debora L. Spar
With the advent of a revolutionary technology, Spar asserts, four sequential phases typically occur: innovation (a technology’s invention and initial development); commercialization (introduction of the technology to the mainstream); creative anarchy (conflict over issues of ownership, rights, standardization, and competition); and rules (legal strictures, backed by enforcement). While she begins by discussing the impact of developments such as the printing press and ocean navigation, Spar focuses on the communications technologies of the last two centuries. She explores the advent of technologies such as telegraphy, radio, cryptology, satellite television, and computers and describes how, before they became a routine part of everyday life, they seemingly threatened to overturn the status quo. “During the innovation and commercialization phases, the very idea of governance seems absurd,” Spar writes. But, she adds, with the onset of creative anarchy and the activities of “pirates” who commandeer the new technologies for their own profit, “even the pioneers begin to realize the costs of chaos.… Once they understand that a lack of rules can diminish their own financial prospects, they begin to lobby for what they once explicitly rejected.” While acknowledging that the state or various societal groups also clamor for order, Spar declares that, in general, “rules get created because private firms want them.” And she observes that what’s true for many of the world’s poorest economies is also true whenever a revolutionary technology first takes the world by storm: “Without rules, and particularly without rules of property and exchange,” Spar writes, “markets simply do not grow.” RETURN TO THE TOP OF THE PAGE
Creating Value through Corporate Restructuring by Stuart C. Gilson
The book is based on the MBA course of the same name that Gilson has taught for the last eight years. It explains exactly how corporate restructuring is done, from the first signs of concern until the last deal is completed. An expert on corporate bankruptcy and turnarounds, Gilson uses intensively researched case studies of thirteen corporations that tackled some of the most controversial and innovative restructuring efforts of the last decade. Each case reveals the multitude of decisions that took place behind the headlines, describing, for example, the massive downsizing at the Scott Paper Company under “Chainsaw” Al Dunlap and the merger of Chase Manhattan Bank with Chemical Bank. Based on interviews with CEOs, managers, investors, bankers, management consultants, and attorneys, the cases look at why each company decided to restructure and then at how it proceeded when faced with multiple options. Those options — from mergers and acquisitions to leveraged buyouts and asset divestitures to “vulture” investing and tracking stock — are also explored. Gilson reminds readers that the devil is truly in the details, filling the 516-page text with real and specific financial data, flow charts, and statistics to illuminate each case. A portable version of Gilson’s course, Creating Value through Corporate Restructuring gives readers the chance to learn the intricacies of this increasingly critical management process in today’s volatile business climate. — Margie Kelley |
In
recent years, government and business leaders throughout the world have
made governance issues a prime focus, as capital markets have increased
their scrutiny of countries’ and companies’ corporate-governance
structures, policies, and enforcement. The issue is of particular interest
to Asian business leaders as they work to revitalize the region’s
faltering economy. 
According
to their 1998 agreement with the attorneys general of 46 states, the four
largest U.S. tobacco companies are prohibited from using advertising that
targets people younger than 18. But HBS assistant professor 
HBS
faculty members and doctoral students were prominent among honorees at
the Academy of Management’s annual conference, held last summer in
Washington, D.C. For their book Breaking Through: The Making of Minority
Executives in Corporate America, Professors
In
feature articles in the September issue of Harvard Business Review,
three HBS professors offered useful ideas about leadership and decision-making.
In “What You Don’t Know about Making Decisions,” Professor
Giants
of Enterprise: Seven Business Innovators and the Empires They Built
(
In her new book, Ruling the Waves: Cycles of Discovery, Chaos, and
Wealth from the Compass to the Internet, HBS professor Debora Spar
looks back over the centuries and examines how revolutionary technologies,
including the telegraph, radio, and Internet, have appeared, in their
early stages, to threaten governmental control and authority. While aspects
of its power may indeed be diminished, government inevitably survives
these apparent challenges, Spar observes, because the state provides “the
property rights that entrepreneurs eventually want, the legal stability
that commerce craves, and the stability that society demands.” Time
and again, Spar writes, “once the technological frontier has moved
beyond a certain point, power and profits seem to shift away from those
who break the rules and back to those who make them.”
News
of major job cuts, bankruptcies, mergers, and buyouts seems to dominate
the headlines these days, as global economic forces put pressure on companies
to adapt in pursuit of higher market value. Indeed, in recent years, thousands
of companies have had to restructure in one way or another in order to
survive in an uncertain economy. The only sure thing, according to HBS
professor Stuart Gilson, is that restructuring itself has become more
than just a last-resort action of desperate management teams. It is, instead,
a critical management tool that must be carefully utilized in light of
its far-reaching implications for a company’s many stakeholders.
“Once considered a rare event, restructuring has become an important
part of everyday business practice,” Gilson asserts in Creating
Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts,
and Breakups.