16 May 2017
Facing the Board
Students make their case to alumni in a new RC capstone programRe: David Baum (MBA 1996); Samantha Gray (MBA 2004); Bill Gluck (MBA 1970); Al Gordon (MBA 1985); Leo Corbett (MBA 1975); Felix Oberholzer-Gee; Nitin Nohriaby Jennifer Myers; photos by Susan YoungTopics:
It may have been a year—or 50—since the six dozen Harvard Business School alumni gathered in an Aldrich Hall classroom Monday morning had dug into a case study. However, once they got over the initial fear of being cold called by Professor Mihir Desai, it didn’t take long to get back into the swing of things.
The 72 alumni were among 400 who returned to campus to join 936 students for the inaugural HBS Boardroom, a new RC capstone experience that includes first-year student teams presenting case-based management decisions to alumni playing the role of board members.
For the alumni, the day began with a review of the case, which was focused on two decisions facing asset management firm BlackRock, Inc.: Should the company license its Aladdin operating system? And should it acquire Merrill Lynch Investment Managers (MLIM)?
Professor Desai was among a number of faculty members prepping the alumni by immersing them back into the HBS case study experience before they met up with the student management teams. One of the major concerns raised in BlackRock acquiring MLIM—in a deal that would give MILM 49.5 percent equity in BlackRock—was how the addition would affect the unique culture at BlackRock.
David Baum (MBA 1996), an entrepreneur and early-stage venture capitalist, pointed out that when Larry Fink cofounded BlackRock, he had just lost $100 million at First Boston. His failure was the foundation upon which BlackRock was built. “You can build success off of your failures, and the best way to learn is from your failures,” Baum said, adding that is what led to BlackRock’s culture of collaboration, something that was lacking at Merrill Lynch.
Broad Institute COO Samantha Gray (MBA 2004) agreed, adding that the principals at BlackRock were all paid the same, more like a startup than an asset management firm. BlackRock, she said, was about “performance and collaboration in a real way.”
Bill Gluck (MBA 1970), managing director of the Farmington Group, countered, saying BlackRock could use the acquisition to go global. “We are in the business of managing risk,” he said. “We know the industry is changing and we need to become very good global thinkers. The risk of not acting is even bigger.”
After kicking the case around, talk turned to the pending role play and the best ways to make it a valuable learning experience for the students. “They are craving feedback from experienced people,” Desai said. “Sitting back and listening is the worst thing you can do. Be aggressive in challenging them.”
The Boardroom concept was born in response to feedback from HBS students following the 2015 launch of the Bridges program, a capstone experience for graduating students, said Felix Oberholzer-Gee, the Andreas Andresen Professor of Business Administration. “We wanted to do something meaningful, big, and interesting for the first-year students,” he said. “And the response from alumni was very enthusiastic immediately; we had 300 signed up in just the first few days, from all over the world.”
Oberholzer-Gee envisioned the Boardroom as more of a collaborative effort than a formal presentation. There is no PowerPoint, he stressed. “The task is to draw on the wisdom in the room and for the students to apply everything they have learned this year,” he said. “And it is an opportunity for alumni to have a meaningful experience with students and relive a little of the energy of HBS.”
With the alumni up to speed, the 156 six-person student groups—who had received the case and assignment questions six days prior—began to fan out across campus at 11 a.m., ready to present to their boards of directors, which were made up of two-to-four alumni. The team in Spangler 205 included Pieterjan Goedertier, Ben Samuels, Rachel Blank, Ambuj Kashyap, Jenn Volk, and Amy Shah as the student management team and Brit Dewey (MBA 1996), managing director of special projects at HBS, and Al Gordon (MBA 1985), president and CEO of the Delectable Dining Group, as the board members.
Kashyap opened the presentation, stating the team is recommending licensing the Aladdin operating system to government clients and institutional investors as a “good opportunity to diversify revenue.”
The risk would be giving up their competitive advantage, but Goedertier said, if BlackRock doesn’t do it, a software company would come up with a similar product, so they should capitalize on it now.
On the issue of the 64 million share ($8 billion) all-equity acquisition of MLIM, Blank said it is a great deal financially for BlackRock, but there is concern with the execution and how to integrate the cultures of the two businesses. “Our people are our biggest asset, and we are afraid this could erode that asset,” she said.
“Is there a reason to move forward to think about his deal?” asked Dewey.
No, Blank said. “We believe if everything were to work perfectly we would support the acquisition—it is a good price, but the price could also skew our decision,” she said.
Gordon questioned the wisdom of killing the deal.
“It may be our only chance to get a large company at a good price, but we have seen too many companies lose their edge by diversifying to large too quickly,” Blank said, recommending BlackRock focus on growth through the licensure of Aladdin.
Dewey noted that with no hard finances on what revenue Aladdin could bring in, that bet is dicey.
“Margins on software are pretty good,” Blank said. “We would need more people if we expand money management, but software … is more scalable.”
“Nothing about this acquisition makes me excited,” said Goedertier, adding that Merrill Lynch is a company struggling to define its own culture and he does not feel comfortable giving them 49 percent control of BlackRock.
“Are you recommending we grow domestically?” asked Gordon.
“Initially, yes,” said Kashyap. “We are not ready for the combination of both retail and expanding abroad, neither of which we have much experience in right now.”
“You just don’t like this deal,” said Dewey.
“We are not opposed to international expansion if that’s where the wealth is,” Blank said, “but this deal gives us concerns and we may be blinded by the good price.”
“I think you’ve made a really clear case,” said Dewey.
With the business decisions made, the two groups took off their management and board member hats and reverted to the roles of students and mentors. Dewey said that a board is there “to help you as an inner circle and you have to be open for dialogue. It’s like walking into a HBS class; your training in case management is perfect for board presentations.”
Goedertier asked how to weigh a strong, clear opinion to the board versus the spectrum of opinions.
“It is hard to obtain approval for something if you have as many doubts as reasons to do something,” he said. It is valuable for the board to understand that the process to consensus was messy, said Dewey. “You were really clear that, even with that value, you had execution issues that kept you up at night,” she said of the MLIM decision.
As the team packed up to head to the Shad basketball courts to congregate with the rest of the 1,400 students and alumni and to hear from BlackRock cofounder Sue Wagner, they reflected on the day’s experience.
“In class, everything is very theoretical,” said Goedertier. “Simulation like this is very helpful, especially when someone challenges you and continues to challenge you. I think we should do more of these exercises.”
“There was a lot of pushback that made me think on my feet,” said Kashyap.
Dewey, said she was excited to participate in the Boardroom because, “I have benefitted greatly from the generosity of HBS alums through mentorship and if I can step into the role a bit, I’m happy to—plus it’s always nice to come back and chew on an HBS case.”
Dean Nitin Nohria addressed the crowd at Shad, highlighting the importance of these types of pilot programs. “If we don’t experiment, if we don’t try new things, we aren’t doing what we owe you,” he said. “What more can we do to make you better prepared?”
First-year students Chris Wolf and Selene Kim said they both enjoyed the experience, particularly hearing the different perspectives of the alumni. “We worked with an alumnus who had been on several boards and brought a lot of experience to the discussion about board composition, which I never really thought about,” Kim said. “It was interesting to hear that real-world perspective.”
Leo Corbett (MBA 1975), whose career both in the private and public sectors includes stints in the Social Security Administration and on Wall Street, has served on many boards of directors. He said he enjoyed interacting with the students and hopes there will be more similar events in the future.
“The students did a nice job on the case and we had a nice conversation about the variables they employed,” he said. “They were actually more risk averse than we were—and do you know why? We have experience. They’ll learn in time.”