Smart Choices

Regarding your December cover story on Jeff Hicks (MBA ’97), CEO of Crispin Porter + Bogusky, I find it interesting that in the many articles written about the firm, the principals never seem to acknowledge the fact that their early and greatest successes were for clients that had very substantial product differentiation from their competition or, in the case of the “Truth” anti-tobacco campaign, no competition — just a villain that was an easy target.

I don’t know if the agency pursued such clients as a conscious strategy or if they just happened upon it. Knowing a little about Chuck Porter and the type of work he wanted to do, I think this may have been an intentional and very smart strategy. Advertising campaigns for products with strong points of differentiation are much more fun and easier to develop in a creative manner. They are also much more likely to be perceived as successful.

Ron Kurtz
(MBA ’67)
Miami, FL

Private-Equity Lessons Don’t Apply

Professor Malcolm Salter’s article “Enron’s Legacy” in the December issue seems to offer an “if pigs had wings” analysis of Enron’s board of directors problem. Obviously, if Enron had been owned and controlled by a small group of private-equity investors, then there would have been few employee shareholders or any kind of shareholders at risk.

Yes, the board failed all Enron stakeholders. Many of the private-equity board virtues Professor Salter espouses are, indeed, to be hoped for on all public-company boards. The concept of a private-equity board’s “long-term” being beyond the next quarter fails my giggle test, however. In the public perception, even the reputable buyout shops, such as Carlyle, Blackstone, and KKR, exist to reorganize, to refinance, and finally to get out by going public in the shortest possible time. Perhaps they make a contribution, but the process seems close to plain old “pump and dump,” hardly my idea of long term.

Professor Salter offers several thoughtful recommendations to improve the performance of independent directors. Finding enough interested and qualified people to pay close, intelligent attention may be a challenge. We must recognize that there exists a number of public companies that might not merit a significant commitment of wealth by people who would be highly qualified to serve as directors (a variant of Groucho Marx’s “I wouldn’t belong to a club that would have me as a member.”)

I suspect that the magazine’s space constraints led to overconcentration of the theme of his forthcoming book and that these issues will not seem to be so problematic when addressed at greater length.

James V. Hoagland
(MBA ’65)
Thousand Oaks, CA

Professor Salter Responds: While James Hoagland is correct that in recent years there is a growing tendency to flip or resell buyouts after a rapid turnaround, the general experience is actually quite different. As I mentioned, holding periods and investment time horizons of many successful buyout firms run five to seven years. Research by our own George Baker (and George David Smith) shows that until the mid-1990s KKR, for example, had an average holding period of over six years, with very few under four years. And while this average has probably declined a bit in recent years on an industrywide basis, the average holding length of most private- equity portfolios is in fact remarkably longer than that of many mutual funds, which turn their portfolios over anywhere from 50 percent to 100 percent a year — thereby exacerbating the short-termism of which Mr. Hoagland correctly complains.

Regarding Mr. Hoagland’s second observation about some public companies not deserving a significant commitment of wealth by sitting directors, I couldn’t agree more. In those cases, the directors should simply resign, or commit to turning around (and investing in) the operation the way directors representing buyout sponsors do.

Editor’s Note

The December issue’s “Last Look” photo generated several richly detailed e-mails that appear below.

Cold in the Wintertime

I know the “Last Look” scene well, having lived at Harvard Way Extension from the summer of 1946 until March 1948, when my dad, Curtis A. Schrader, graduated from HBS. We lived at 74 Harvard Way Extension in the building closest to the river and on the south side of the project, which extended from the Dean’s House to Soldiers Field Road and the footbridge. There was an entrance on Soldiers Field Road into the project. In the direction of Western Avenue, there was a marsh being filled in. That was our ice-skating area.

Units in the project rented for $35 a month and consisted of a combination kitchen-dining area, two little bedrooms, a separate living room, and a bath. There were six units per building, with three on each side. They were kept warm by kerosene heaters. You can see the kerosene tanks in the picture, one per unit. Frequently, it seemed, my dad would have to transport kerosene from the outside tank to the one inside heating unit in the dining area, which did a great job of heating the unit up to a radius of about eight feet. The rest of the house was bitter cold in the wintertime. My dad bought an electric heater for the living room so he could study there. It seems to me that some of the units must have had iceboxes, for I think I remember an ice truck periodically making the rounds. The cars parked on the street were allowed there in the daytime but had to be moved (for reasons unknown) to a big parking lot behind Baker Hall no later than 9 p.m.

To augment my 25¢ a week allowance, I organized many of the residents in Harvard Way Extension to save their newspapers and magazines for me. I had a regular pickup schedule, although some kind folks would just walk them over to our unit and put them on the porch. I tied them up in bundles, stored them in my folks’ bedroom, and every couple of weeks we took them to a place in Cambridge that paid $1 per 100 pounds for both newspapers and magazines. When they reduced the amount they paid for newspapers to 25¢ a 100, I retired from the business.

I returned to the Business School as a student in 1962. Of course, Harvard Way Extension was long gone by then. So it was a real thrill to see the picture in the Bulletin to refresh my memory of what it was like.

Frederick A. Schrader
(MBA ’64)
Alexandria, VA

Torn Down by 1950

The “Last Look” photo looks very familiar. I remember it being called Harvard Way, just like the street. It was temporary housing during World War II, put up in what was then a field to the east of the north-south street, Harvard Way, of today in front of Kresge Hall. I married my wife, Barbara (Simmons College ’48), in April 1948. We moved in during the summer after her graduation, and I worked at the Boston Naval Shipyard as an engineer.

I am sure it was torn down during 1948–49 because I would have continued to stay there. Instead, I was forced to vacate and moved to student housing at Ft. Devens in Shirley, a forty-mile commute. The B-School wanted to expand, which it did quite rapidly, filling up the field completely. At the time I had a 1937 Hudson Big Boy automobile, which looked very much like the car behind the 1939 Chevrolet in the middle of the picture.

Nicholas S. Hill
(MBA ’49)
Old Saybrook, CT

Married Student Housing

Your “Last Look” photo shows post–World War II veterans’ housing at Harvard. I entered Harvard College in the fall of 1948 (Class of ’52), so

I remember it well, although I never lived there. It was located in the open field beside Harvard Stadium, across North Harvard Street from HBS, near the Newell Boathouse, where I was training for the Harvard crew. We could also see these buildings when we went to football games in the stadium. This housing for married veterans may have been built during World War II for families of men in military service while they attended military training programs operated by Harvard during the war, but I think it was used mostly after the war for the large influx of married veterans under the GI Bill. This facility was not solely for the benefit of HBS; it was a Harvard University project.

Notice the fifty-gallon barrels beside the steps of the houses on the left. This was for storage of kerosene used to heat the apartments. Natural gas or propane would not have been available at that time. Occupants would carry the kerosene in cans from the barrels and pour it into the space heaters in the apartments.

The photo can be dated by the cars. The center car is a ’41 Chevrolet, and those parked in front and to the rear of it are from the late 1930s, judging from their headlights, which were not encased in the front fenders. It was very difficult to purchase a new car after World War II, and no cars were produced during the war, so all of these vehicles had to be kept in repair until about 1948, when the new ones were more available.

I do not know when these buildings were torn down. I would guess they were gone by 1950.

Jack Beggs
(MBA ’56)
Novi, MI