Business Today Spring 2010

By students for students published at Princeton since 1968

Jim Cramer Goes Mad | Chat with Sec. of Commerce | Student Start Ups | Pandora Unlocked cover.indd 1

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When A GOOD NEIGHBOR meets A GREAT CAUSE I’M THERE

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RNZ Business Today is America’s largest student-run publication, reaching 200,000 readers nationwide. Published at Princeton University, the magazine is distributed at over thirty of the top schools in the country and has extensive online readership at our website, www.businesstoday.org.

Business Today is dedicated to presenting the opinions of students and business leaders. By examining controversial issues facing our world and exploring life after college, we hope to help readers prepare for their futures. The magazine has been published by Princeton University undergraduates since 1968.

AMIRA polack President CARMEN MARIA SANCHEZ PINILLA Editor-in-Chief IRENE ZHANG Publisher Philipp Bewerunge Seminar Series Director scott baxter Regional Conference Director kevin cheng Regional Conference Director GENEVIEVE FISH National Conference Director Jasmine Chen International Conference Director Matthew Medina Executive Relations James Connolly Online Journal Director Alexander Cantwell Corporate Contacts Director dan salvato Finance Director

Business Today Princeton University 48 University Place Princeton, NJ 08540 609.258.1111 magazine@businesstoday.org

The Foundation for Student Communication, Inc. is the parent company of Business Today. FSC, a 501(c)(3) non-profit foundation, is run entirely by students for students at Princeton University. In addition to the magazine, FSC sponsors International and Regional Conferences held across the country that bring together students and executives to discuss the future of business. For more information, visit our website, www.businesstoday.org.

THE MAGAZINE Carmen Maria Sanchez Pinilla Editor-in-Chief caroline Hanamirian Executive Editor IRENE ZHANG Publisher MiLES WU Design Director Editorial Eileen Chen Caroline Clark CHRISTINE MAK BRIAN NWACHUKWU Brian reiser RYAN SHYU Design DAN HONG AJ KOGER MICHAEL LACHANSKI ERIC REHE TIANTIAN ZHA Publishing gregory Cheung Keanan Clark William Ellis Augusto Leal Alice Li May Li Yupeng Liu Andrea Schiller Juliet Tempest Hanna Tian Cover design by Mandy Lee

SPRING 2010 BUSINESS TODAY

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Words from the Editor “The world was not left to us by our parents— it was lent to us by our children.” Few would have guessed that a traditional African proverb could summarize the changes taking place in the 21st century’s recovering global economy.

As a third grader I sometimes watched my mom write checks for employees who worked at her business. Signing the checks looked like fun, and I asked if I could try. She said it wasn’t my turn yet.

Now our turn has come. In the past three years, as our parents have weathered the pop of the global housing bubble, the eclipse of investor confidence, the tumble of asset prices, and the shrinkage of retirement savings, we the children have not stood idly by. As award-winning journalist and GenY admirer Donna Fenn tells us in this issue, college students are starting businesses at an unprecedented rate, and our approach to money-making marks a break from past conventions of hierarchical business management. Instead, taking a cue from the Ubuntu philosophy of Southern Africa, young entrepreneurs have come together in a creative, collaborative venture and are bound to become the creditors of a fast-changing and fast-globalizing business landscape.

In our fall issue we gave you tips to help you manage your money responsibly, according to the rules of good finance and accounting. In this issue we tell you how the rules of the economic game are changing, and how you can help shape those rules in your favor. Here you will hear from US Secretary of Commerce Gary Locke, who tells us how America is re-orienting its trade policies in the face of rising competitors like China and Brazil. You will hear from students who are traveling to the landfill slums of the developing world to find first-rate business and community development opportunities. You will hear from CEOs of leading corporations who have navigated successfully through rising and falling waves of revenue. Whether you are looking for a college major, looking for a post-grad path to fame and fortune (whatever that means these days), or looking for more information about why the world our parents once ruled has become so topsy-turvy all of a sudden, this issue will give you insight into how you can play the new Monopoly of today— a Monopoly where, contrary to the name of the game, no man or woman can take over the world alone.

Carmen Maria Sanchez Editor in Chief

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FEATURES

14 Southwest Airlines Linda Rutherford, Vice-President of Communication and Strategic Outreach, reveals how Southwest is flying ahead.

16 Brazil Factor Discover why this developing country is setting a Latin American tone for “BRIC” leadership.

18 Financial Regulation Overload Will Congress’s regulation of Wall Street go too far?

34 Weapon of Choice Making the transition from the war room to the boardroom.

48 EmPOWER How student entrepreneurs are turning waste-filled slums into hope-filled urban communities.

BUSINESS TODAY SPRING 2010

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42 CONTENTS [Spring 2010. volume 47. Issue 1]

INTERVIEWS

DEPARTMENTS

30 Gary Locke, US Secretary of Commerce 41 Barry Salzberg, CEO of Deloitte 42 Donna Fenn, Award-Winning Journalist and Author 51 Marc Rosa, Student Entreprenuer in the Music Industry 53 Joe Kennedy, CEO of Pandora 60 Burt Malkiel, Economist behind the Index Fund 64 Jim Cramer, Host of CNBC’s “Mad Money” 66 John Sheptor, CEO of Imperial Sugar

08 BT Books 10 BT Biz 12 BT Tech 58 Sound Off

SPRING 2010 BUSINESS TODAY

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Money-making Reads...

Super-Freaking Not Worth Your Time There is an old joke about economists that defines them as people who are good with numbers but lack the personality to become accountants. If nothing else, Steven Levitt and Stephen J. Dubner’s Freakonomics went a long way towards proving that economists and the things they care about— incentives and rationality—can be surprisingly relevant and even fun. The sequel, Superfreakonomics, has been four years in the making. Unfortunately, it is decidedly not worth the wait.

Simply put, Superfreakonomics deals with generally uninspiring subject matter. While the authors certainly apply economic thinking in original situations, as the first book did, the episodes are notably more bland. For instance, is it really so surprising or so informative that an increase in the supply of oral sex has led prostitutes to charge lower prices for such services? This particular fun fact, along with many others offered by Levitt, may be interesting enough to be included as case studies in economics textbooks, but they are unworthy of Superfreakonomics’ hype or, more relevantly, your time.

The first Freakonomics backed its contrarianism with the highlights of Levitt’s John Bates Clark Medal-winning academic research (the Medal is considered the highest honor in economics outside the Nobel Prize). While Levitt is still behind the ideas here, his new theories fall short of rigorous and come close to simplistically speculative.

One particular instance of such dubious contrarianism is the book’s claim that drunk driving is safer than drunk walking. This claim is intuitively bogus. In any properly controlled experimental setting, drivers are much less in control of their movements and much more likely to harm themselves and others compared to walkers. Even if data suggested that a higher percentage of drunk walkers die per year, this need not, should not, imply that it is wiser and safer for an intoxicated person to choose to drive home rather than walk home. Clearly, the conclusion that drunk walking is worse than drunk driving is horribly premature given the limited available information and the limitless number of confounding variables that could discredit Levitt’s observation.

No evaluation of Superfreakonomics would be complete without a discussion of its highly controversial section on climate change. Nobel Prize-winning economist Paul Krugman and writers from The Economist and The New Yorker are just a few of the inflamed critics who have ripped apart what most experts agree is a monumental misunderstanding of global warming and its global consequences. Ken Caldeir, one of the few climate experts cited in the book, insists today that his views were entirely misrepresented by Levitt. In a more humorous but nonetheless critical tone, Levitt’s University of Chicago colleague and professor of geophysical sciences Raymond T. Pierrehumbert highlighted one of Levitt’s errors regarding climate change and as a remedy, provided a link to a Mapquest.com map with directions from Levitt’s home base, the Booth School of Business, to Pierrehumbert’s residence at the Hinds Geophysical Laboratory, for future reference.

It appears that contrarianism in Levitt’s second attempt at unconventional economic analysis has gone too far, far enough to be contrary to all reason.

The case against Superfreakonomics extends beyond its own failures to the merits of its competitors in the market for applied economics reading. The competition is good, in many cases better. Don’t waste your time here; if you want a fun economics read that comes closer to the standard set by Freakonomics, try The Logic of Life by Tim Harford. Ryan Shu

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BUSINESS TODAY SPRING 2010

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...for Money-making Minds A Meeting with The Real George Soros George Soros is known as the man who broke the Bank of England. Robert Slater, author of a series of best-selling business books and frequent contributor of Time and Newsweek, recently investigated the traits and tactics of a man both feared and admired as an investor, as an economist, and as a philanthropist. Soros, The World’s Most Influential Investor, offers an in-depth perspective into the life George Soros, the man, not just the businessman . As a world-renowned biographer of business luminaries such as GE’s Jack Welch, IBM’s Lou Gerstner, and Donald Trump, Slater’s passion for and expertise shine through in his latest work.

For those unfamiliar with Soros and his market-rocking history, he is currently the Chairman of Soros Fund Management, LLC and founder of The Open Society Institute. A financial genius and promoter of global networking, Soros has shared his knowledge and success through both literature and philanthropy. Soros has authored and co-authored numerous publications of his own covering topics including globalization, the workings of US financial institutions, and the War on Terror.

The title of Slater’s book may lead you to believe that it contains valuable secrets to Soros’ financial investment strategies. However, if you are looking for investing tips from the man who made big bucks on the foreign exchange market in 1992 on the day that is recorded in Economics textbooks as “Black Wednesday,” this may not be the book for you. Slater’s latest work is less about Soros’ investing strategies and more about the man himself. Emerging from the destruction of Europe in the mid 20th century, Soros arrived in London, England without a penny to his name. His unlikely and inspirational rise is well documented by Slater, who attempts to demystify the man whose approach to money-making has been both extolled and demonized by the leaders of the global business community.

Slater offers exclusive, in-depth interviews and fastidious analysis of Soros’ remarkable journey to fame and fortune, and includes detailed accounts of the obstacles he faced along the way. In deciphering Soros’ success in the financial world, Slater gives the reader an overview of his economic philosophy. Soros is known for claiming he does not follow mainstream models of economics, and for suggesting that our current interpretation of global financial markets is fundamentally flawed. Soros’ ideas on reflexivity and human uncertainty have influenced both his own investing strategies as well as those of his competitors.

According to Slater, the investor’s progressive way of thinking extends beyond financial investing to other areas of his personal life. Soros’ progressive approach consists of a philosophy of openness, both in business innovation and in international commerce relations. Many of his philanthropic endeavors have aimed to promote the integration of nations into the global economy. He played a central role in the democratization of former states of the Soviet Union, helping to bring them back onto the global scene. A left-leaning, outspoken proponent of Democratic leadership, Soros led a vigorous campaign against the George W. Bush administration. Slater documents Soros’ influence on both American and international politics with precision and flare, chronicling Soros’ controversial partnership with MoveOn and his founding of Americans Coming Together. By the end of this read, you will be well acquainted with an investor whose passions go beyond money, to various political and philanthropic causes.

Though this book is not particularly ground-breaking, Soros’ life is. Slater weaves together a fluid tale of a boy fleeing a Nazi takeover in Europe, a young man’s first exposure to economic theory in London, and the rise of the most influential investor of our time. Brian Nwachukwu

SPRING 2010 BUSINESS TODAY

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BT Biz

Marketing Masterminds

A new wide-body passenger jetliner from Boeing promises to be the most advanced and efficient up-and-coming commercial airplane in its class. The 787 Dreamliner sets new standards for ecofriendly design and passenger comfort, marrying cutting-edge technology with first-rate customer service. In launching its latest product, Boeing is making effective marketing a new priority. “You can expect to see a whole new approach to how we tell the world about the airplane and encourage participation and feedback in the work we are doing,” says Rob Pollack, vice president of Branding for Boeing Commercial Airplanes Marketing. In addition to catering to the interests of airline companies who directly purchase Boeing aircrafts, Boeing is now making an extra effort to turn airplane passengers— the secondary target audience— into primary loyal customers.

As the name of the new aircraft suggests, Boeing aims to conquer the minds and fulfill the travel dreams of the world’s most ambitious frequent flyers. This real-life fantasy plane was conceived in a collaborative new marketing framework. Boeing recently entered into a marketing alliance with AOL Time Warner Inc. to invite people from around the world to participate in the “Name Your Plane” event and vote from among four potential names. Boeing even made a special effort to involve children in the naming. A special issue of TIME For Kids that was sent to more than 2 million students in grades four through six featured the history of flight, introduced kids to the 787 and invited them to help name the new plane. Nearly 478,000 people in 166 countries voted, and the name “Dreamliner” was announced at the annual Paris Air Show. As part of a second initiative to reach out to the flying public, Boeing also invited Internet users to join the World Design Team, a virtual community whose members provided input toward the design of the 787 as it took its final shape in 2009. Virtual designers completed surveys regarding blueprints and got periodic sneak peeks of the jetliner exterior and interior. Since the 787 Dreamliner’s first flight in December 2009, Boeing anticipates making 3,500 more planes with an estimated value of $610 billion over the next two decades. Thanks to Being, flying really is becoming a dream.

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BUSINESS TODAY SPRING 2010

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BT Biz

When Rugby opened its doors in 2004, the young, edgy Ralph Lauren label established itself as a leader in a largely untapped retail niche. This self proclaimed “sport-inspired and sexy” look first found a home on Boston’s chic Newbury Street and now has established itself on both coasts, with a flagship store in New York and stock available online. The clothes are aimed at 18 to 25 year-olds, a market often overlooked by top designers, and are priced accordingly. To target college shoppers, the brand is known to hold photo shoots on university campuses. The signature Rugby shirts usually run in the $60 to $100 range, with pea coats running up to $300 and accessories like a studded leather belt for just $55. This fall, Rugby adeptly caught onto the student iPhone craze and harnessed it as a marketing tool by introducing the “Make Your Own” iPhone App. The gadget allows shoppers to design their own shirt and then preview it on an image of themselves, with the ability to change everything from stripes to hair color and backdrop. And then, of course, users can purchase they’re custom couture with the click of a button. Another unique aspect of the brand is its social action initiatives, which promote a variety of organizations including Teach for America, Tom’s Shoes and the Harvey Milk School. Whether label, tech or socially savvy, students are drawn to the triple threat of Lauren’s newest and, refreshingly, most accessible lifestyle brand.

The Geico Gecko, arguably one of the most recognizable television commercial characters, has evolved from a marketing strategy to a cultural phenomenon. The intention of the Gecko ad campaign was to help consumers understand the pronunciation of Geico, and its fruition was somewhat serendipitous. Ted Ward, vice president of marketing for the Martin Agency (the company that handles Geico’s advertisements) was not completely sold on the idea at first. But when the 2000 Screen Actors Guild strike prevented the agency from using live actors, the Gecko finally got its lucky break. Since then, the Martin Agency has rolled out several other unique and catchy campaigns, including the well-known caveman commercials which feature Homo sapiens offended by the claim that using Geico.com is so easy “ a caveman could do it.” The self-righteous Neanderthals actually inspired a spin off sitcom, “Cavemen,” which barely lasted a month on ABC. To continue to engage consumers in a time of economic uneasiness, Geico has shifted their focus back to the Gecko and brought out another industry giant- this time a human. While not featured on television, the newest ads in newspapers and magazines link the Geico Gecko and Warren Buffet, the primary shareholder of Berkshire Hathaway, which has controlled Geico for more than a decade. The ads’ attempts to link the associate Geico with the famous financier are not subtle, with one claiming “Warren Buffett and the gecko. They go together like pie and chips.” Ward claims that the Martin Agency devised the idea before the economic crisis hit, but believes that it is now more important than ever for consumers to understand that Geico has the backing of a stable household name.

SPRING 2010 BUSINESS TODAY

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BT TeCh

Go-Go Gadgets Apple iPad After months of hype, the long-awaited Apple tablet is finally here. Named the iPad, it has already endured its fair share of feminine-product related jokes. Essentially a large iPhone, the iPad sports a new Appledesigned processor, a 9.7 inch screen, and will run the same operating system and App Store applications (apps) as the iPhone. Apple has developed a more advanced Photo app, as well as a new version of iWork (Apple’s answer to Microsoft Office) for the iPad. Slated to be released in March, it will be available with or without 3G connectivity in storage capacities ranging from 16 to 64GB, at a cost ranging from $499 to $829. Unlimited 3G data service provided by AT&T will cost $30 per month.

Fujifilm Finepix REAL 3D W1

Google Nexus One It has become fashionable to point out that Google is taking over the world. Its prospects in China are currently iffy, but the company hopes to do better in the mobile phone market with its new Nexus One, its first play in the already-crowded smartphone market. Google hopes that its product will be a strong competitor to the iPhone. Nexus One features a touchscreen that supports multitouch gestures such as two finger zooming, and can also convert speech into written words with surprising accuracy. It runs the Google Android Operating System, which is also available on many other smartphones from a wide variety of manufacturers and service providers. The Nexus One comes with 4GB of storage, but it is expandable up to 32GB via an SD card slot. It costs $179 when purchased with a contract through TMobile, and $529 without a contract.

What is next in digital media? The answer is undoubtedly 3-D technology. The Fujifilm Finepix REAL 3D W1 is a groundbreaking concept in photography. With two lenses, it is the first camera capable of taking 3-D pictures and videos. Viewers don’t need special glasses to view the content they record in 3-D. But there’s a catch: To view recorded content in 3-D, one must use either the camera screen or a separate 3-D viewing screen that costs $499. 3-D photo prints will set you back $6.99 a piece. Although the price of 3-D technology may currently seem a bit high, the technology is certainly capable of becoming dominant in the future. Many companies are developing and showcasing new 3-D technologies. For example, Panasonic recently released a 3-D capable HDTV ($3100) and a 3-D camcorder ($21,000) at this year’s Consumer Electronics Show in Las Vegas. It won’t be long until 3-D technology will be just another convenience that we take for granted.

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BUSINESS TODAY SPRING 2010

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“WE THINK BIG. AT PRUDENTIAL,

WE’RE REWARDED FOR IT.”

If you have big ideas and goals—the courage to lead and the drive to make things happen— Prudential is where you can Rock your Career!

A Global Leader with over 130 years of success, Prudential offers a wide range of career opportunities throughout the country. Join us!

We want to hear from you.

To learn more about our exciting professional openings or to apply online, please visit: jobs.prudential.com

©2009. The Prudential Insurance Company of America, Newark, New Jersey. Prudential, Prudential Financial, the Rock Logo, and the Rock Prudential Logo are registered service marks of The Prudential Insurance Company of America, Newark, NJ, and its affiliates. The Prudential Insurance Company of America and its affiliates are Equal Opportunity/ Affirmative Action Employers.

IFS-Axxxxxx Ed. 1/2009

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High Flying

C-Suite

In 2009, the global commercial airline industry reported a staggering net loss of $11 billion, according to the International Air Transport Association. Yet Southwest Airlines recently announced its 37th consecutive year of profitability. How did they do it? A Southwest executive tells Business Today about how sometimes, the best way to adapt is to stay just the way you are.

by Linda Rutherford, VP Communication and Strategic Outreach

R

aise your hand if you thought In our 39th year, you’d think the na2009 was a breeze and you’d like tion’s largest low-fare airline would be imto relive it over, and over again. mune to a fickle economy. Not so much.

Anyone? No? Me neither. Having lived True, Southwest Airlines has long appealed through a recession second only to the to the price-sensitive traveler. We’ve been Great Depression, 2009 for me can best be the champion of college students, busithought of as the year that followed 2008. ness travelers and family travel planners After more than 17 years in the com- alike, all who recognize the importance mercial airline industry, and as a newspa- of attending the meetings, celebrations, per reporter before that (neither industry and events that help paint the pictures you would pick right out of college for big of our life (even if it’s just to get home to money or financial stability), I’ve seen sev- Mom before you run out of clean undereral economic highs and lows, each with wear). But, in the last few years, despite its unique challenges. Reeling in the years, lower and lower airfares to entice people 2009 appears to have been a perfect storm into airplane seats, many businesses and of several of these challenges. families curbed their travel plans as access

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to credit dried up, home mortgages sank under the water line, and prices at the fuel pump, grocery store, and doctor’s office continued to climb. In contrast, demand for air travel went into a steep descent.

The economic rollercoaster of 2009 for the airline industry actually started in 2007 when the price of jet fuel soared to all-time high levels. Going from $66 a barrel at the end of 2006 to nearly $150 a barrel in the summer of 2008 (and back down to about $35 a barrel in December 2008), fuel-dependent industries like passenger airlines had to adapt by significantly changing a business model that had been built upon much lower fuel costs.

BUSINESS TODAY SPRING 2010

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C-SuiTe

Whether it’s the cost of jet fuel, newspa- Wall Street to cover rising costs and gener- greater value in continuing to be the travper ink, or grain, the wild fluctuation of ate incremental revenue has been intense. eler’s champion. We braced and planned even a single item in your cost structure Analysts questioned if Southwest was pass- for hard times while continuing to invest means you simply can’t afford to stand ing up potentially hundreds of millions of in our People and the technology and Cusstill. Change is essential for survival. Sev- dollars of new revenue by not jumping tomer Experience tools that would pave eral airlines couldn’t adapt fast enough, on the fee bandwagon. Why would we the way for our future while our competihowever. Denver-based Frontier Airlines not take the “easy money” and loosen the tors continued to cut back—on people, on and Milwaukee-based Midwest Express economic stranglehold? Why did we not services, and on planes and routes. were both acquired by Republic Airways embrace this change along with the other Our 37 consecutive years of profitHoldings, Northwest Airlines merged airlines? ability, I hope, reflect the passion and with Delta Air Lines (both having been in Whether in business or in life, some- pride nearly 35,000 people have in serving bankruptcy), and Aloha and Skybus both times the greater risk is in staying true to their Customers and making a difference. shuttered completely.

Once you accept the need for change as an imperative, how then do you decide which elements of a very successful business model to change? How much of your sell? One path many 2004 soul can you afford to6.4 airlines have chosen has been the “unbun2005 dling” of airfares, which 7.3 morphed into new fees for services previously included 2006 8.7 in a passenger’s airfare. In the case of who you are and not being pressured into We’ve elevated the function of getting 2007 Southwest Airlines,9.5 however, 2008 and following the rest of the pack. The tram- people from Point A to Point B to a mis2009 surfaced a major 2008 10.5point of differen- pled path may be easier to view than the sion of connecting people with the events tiation, which was not to change the way road less traveled, but the reward is not and opportunities that make life richer. I we do business. Rather than go the way of always as sweet. How did we know that, am proud to be one of those 35,000 people the rest of the industry, Southwest resisted by doing essentially nothing, we would and I could wish nothing more for those the urge to nickel and dime passengers. end up gaining market share and closing pursuing a higher education than to find We did not implement a passenger fee a tumultuous year with a year-end profit? their mission, their road less traveled, their for checking the first two bags, making a How did we know that one of our great- opportunity to make a positive difference change to a ticket, booking a ticket on our est acts of change would be in staying the in any form. Now, go out and change the telephone reservation line, or sitting in an same? We didn’t have a crystal ball. But world! (But don’t let the world change aisle or window seat. The pressure from we did have a hunch that there would be you.) BT

Whether in business or in life, sometimes the greatest risk is staying true to yourself.

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Reform and Regulation

The Powerhouse Next Door: Brazil’s Leadership in a New Global Dynamic

By Daniel Hong, Princeton University

In the wake of the global financial crisis, the United States has lost its magic touch when it comes to international commerce. America has struggled domestically with a decrease in real GDP and with unemployment that has remained at a level twice that of the pre-crisis economy.

Domestic uncertainty has led to loss of confidence on the international stage. Once upon a time, the US was distinguished by its ability to supply aid and technology to other states and encourage open markets. Today, it appears that keeping global markets alive is a burden the US (by itself) is no longer able to carry by itself.

The catastrophic collapse, hasty rescue, and slow-paced reform of the US financial sector have struck a hard blow to America’s credibility as a model of economic success. The principles of good business practice, responsibility and accountability prime among them, are no longer hallmarks of American business. Attitudes toward American business leaders have changed, both inside and outside the country. In the words of Brazilian President Luiz Inacio Lula de Silva, “They looked like they knew everything about economics, [but] have demonstrated they know nothing about economics.”

For Brazil’s burgeoning business landscape, America’s recent trip on the economic race track has opened up a highway of opportunity. Alongside BRIC friends like China and India who have impressed and intimidated leaders of Western capitalist nations by responding quickly and effectively to the worldwide economic downturn, Brazil stands tall as a nation with the potential to change global economic and political dynamics. Brazil may not get as many headlines as China or India when it comes to identifying ‘the next big power,’ but its fast-growing economy combined with its proximity to the United States make it a competitor worth noticing. Leading American firms have recognized a need to incorporate the Brazil factor into their profit-making strategy. Rather than compete with their American neighbor, most US firms have chosen Brazil as a partner in competition. At present, Brazil is Goldman Sachs’ fastest growing office.

True to these expectations, Brazil has made extraordinary progress since the nation was returned to civilian rule in 1985. The country’s resources, both natural and human, are remarkable, far surpassing that of its Latin American neighbors. With the largest population on the continent and plentiful mining reserves, for example, it has been able to form strong manufacturing and mining industries that have propelled its economy not only to the head of its region,

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Reform and Regulation

but also to its current status as the ninthlargest economy in the world.

Natural assets alone, however, are not enough to account for Brazil’s trajectory to international business success. Growthfocused state policies have made careful, calculated use of Brazil’s resources, creating what foreign investors regard as an increasingly stable, dynamic framework. In the past 20 years, Brazil has earned a track record of responsible economic administration. After the Asian crisis in the 1990’s, Brazil took steps to protect the national economy and promote internal stability by building reserves, moderating fiscal spending, and reducing inflation. While addressing deficits in its balance of payments, Brazil opened to international markets by introducing advanced business management models that attracted an increasing number of foreign investors. With this impressive series of economic maneuvers, Brazil went from being a net debtor to being a net creditor in 2008. Pre-crisis, in the second quarter of 2008, Brazil grew 6.1% from the previous year. Total growth during 2007 and 2008 was unprecedented by national standards— a sign of growing potential and power to come.

This is not to say that Brazil escaped the storm of global financial crisis, which arrived at its shores in September 2008. As panic spread across markets, many foreign investors who had been crucial to Brazil’s pre-crisis growth took their money and ran.

With the withdrawal of foreign investment came low confidence levels and frightening fluctuations in the Bovespa, Brazil’s stock market. Meanwhile, demand for Brazilian exports declined and major national industries, the mining and manufacturing industries especially, struggled to adjust to sudden falls in revenue.

But as the global economic storm raged, Brazil clung to brighter days ahead.

In early 2009, President Lula commented on Brazil’s future: “I say every day Brazil was the last country to be affected by the crisis. But we also have the possibility to be one of the first countries to resolve and get out of the crisis. We don’t face any problem in our financial system.” Both government and business leaders in Brazil have suggested that economic obstacles in Brazil during the past two years arose not from failure within the domestic infrastructure, but

rather from international circumstances into the global dynamic. Moreover, the outside of Brazil’s direct control. This can- impulse within Brazil to improve its innot be said for the United States, who in frastructure is growing day by day, as the the wake of the financial crisis has made a country prepares to host the 2014 World sweeping attempt to re-orient and improve Cup as well as the 2016 Olympic Games. economic regulations at home. It seems In anticipation of these crowning events, that while the US has been struggling major construction projects have been to rebuild its former image of economic launched throughout Brazil. The state has power and prestige, Brazil has become in- been a major investor in these projects, but creasingly confident in its own image as an financing has also come from private invesAmerican model of economic success. tors both inside and outside the country. It To tackle the crisis, Brazil’s govern- is telling that Brazil cited its need to imment spent billions in stimulus dollars prove its infrastructure as part of its bid to create jobs and generate consumption. to the International Olympic Committee, This recent surge in government spending, arguing that the push to accelerate induscombined with the stability-promoting trial, environmental, and social initiatives economic platform introduced in the early in preparation for the Games would ben2000s before the crisis has helped Brazil efit not just Brazil’s image, but the image to fulfill Lula’s prophecy and become one of Latin America as a whole. Past host cit-

“We have the possibility to be one of the first countries to resolve and get out of the crisis.” – President Lula of the world’s first major economies to ies have spent billions—$12.8 billion for step out of crisis mode. Arguably, Brazil’s Athens in 2004, $44 billion for China in recession lasted just two quarters in total 2008, and a projected budget of $17.4 bilbefore it was able to reestablish investor lion for London in 2012. According to reconfidence and see its GDP surge back up search conducted by Merrill Lynch, 10 out into positive figures in the second quarter of the 11 most recent host cities have inherof 2009. Despite the promising steps to- ited persistently troublesome budgets after ward recovery that Brazil has taken, how- the Olympic Games. Dilma Rousseff, the ever, further challenges lie ahead. Brazil Brazilian Cabinet Chief, has already stated has seen such rapid growth since early that approximately $10.7 billion will go 2009 that some worry Brazil’s progress is towards infrastructure preparations for too much too fast. Brazil’s Central Bank, the 2014 World Cup. Today’s Brazil means expecting national growth rate of 5.6% in business, even when it comes to games.

2010 has been pushing interest rates up to With the promise of an improved inquell inflation concerns. Moreover, Brazil’s frastructural framework and the increased infrastructural development has not kept confidence it has gained as the more efpace with the country’s financial boom. fective of two American economic powArminio Fraga, former Brazilian Central erhouses in the midst of the recent global Bank president, characterized the state of economic crisis, Brazil exists today as a Brazil’s infrastructure as “terrible” and a symbol of American growth during a time “barrier to growth.” Lack of organization when most have lost faith in the American within the political bureaucracy combined dream. If its selection as the host of two with infrastructural weakness thus poses a of the world’s largest multinational events challenge to the prospect of unbridled eco- is any indication, Brazil has a winning fornomic progress. mula that will allow it to emerge soon as a Brazil’s need for better highways, leader in its own right, not just as the “B” bridges, and urban transportation services in BRIC. BT has become increasingly salient as Brazil’s economy becomes increasingly integrated SPRING 2010 BUSINESS TODAY

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Reform and Regulation

Reining in the Bull As the country emerges from the recession, the government faces the challenge of reforming financial regulation while allowing for adequate growth in the financial sector. A recent Lehigh graduate argues that this balance can be achieved by focusing on executive compensation and “too big to fail” institutions.

By Joe Seydl, Lehigh University

Mark Twain said it best when he b) design an oversight council to monitor American economic story unfold and it wrote, “History may not always repeat it- the health of the overall financial system did not step in with regulations to control self, but it rhymes a lot.” A year has passed and to control systemically important (i.e. incentives and curb new business practices. since the height of what we student histo- ‘too big to fail’) financial institutions, c) So what makes this past decade different? rians will recall as the 2008-2009 financial regulate a $600 trillion over-the-counter According to Adam York, an economist at crisis. If we take a close look at the sweep- financial derivatives market, d) oversee the Wells Fargo, financial regulation always ing overhaul of the U.S. financial system nation’s ‘shadow banking’ sector—where implies a risk vs. return and a cost vs. benthat navigated its way through Congress we find hedge funds and credit rating efit trade-off for society and markets. York late last fall, we can see similarities be- agencies, and e) crack down on executive observed, “While some regulation is essentween today’s regulation vogue and the compensation. With such massive regula- tial to ensuring fair dealing and efficiently New Deal regulations set forth by a bold tory renovations proposed on Capitol Hill, functioning markets, too much regulaPresident Roosevelt in the 1930s. one crucial question arises: Is the govern- tion will impart costs that far outweigh any benefits. When considering new and The financial regulation bill being de- ment going too far?

There is a fine line between controlfuture regulation, estimating costs and bated on Capitol Hill is an ambitious project. The bill seeks to: a) create a consumer ling risk and stifling opportunity. Follow- benefits becomes particularly difficult as protection agency designed to protect the ing the innovations of the 1980s and 1990s, the cost of stifling innovation is virtually public against predatory banking practices, the government was content to watch the impossible to measure. At the same time, 18

BUSINESS TODAY SPRING 2010

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however, valuing the benefit of preventing compensation within the industry rose working in financial services because the large-scale fraud or public abuse can be more than five times faster than the rate of compensation threshold for this mandate just as difficult.” inflation over a three-year period, this im- could be set high enough so as to target One way to measure the costs of over- plies that those on the receiving end were only upper-level managers and executives. regulation is to consider the labor market taking a short-term view on their income Regarding the approach of “too-bigfor recent college graduates. From 2000 to gains and, as we later found out, on their to-fail” institutions, our strategy must 2008, the financial services industry has on performance as well. change. If the failure of an institution average hired over 8 million workers each Some countries have attempted to such as Lehman Brothers—which at the year inside the U.S. and contributed over shift performance views within the indus- time was less than a third of the size of $21.6 trillion towards U.S. GDP, accord- try from the short-term to long-term by Citigroup by total assets—can bring the ing to the Bureau of Economic Analysis.

In 2008 alone there were over 250,000 financial analysts employed in the U.S., the majority of which are classified as recent college graduates. According to the Bureau of Labor Statistics, this employment figure is projected to increase by nearly 20% by the year 2018. Excessive securities dealings regulation runs the risk deterring imposing a tax on financial institutions U.S. financial system to its knees, then labor market demand across the entire paying excessive bonuses. The United clearly the system must be fixed. One soindustry, especially for college graduates. Kingdom recently did this, imposing a lution would be for the government to Yet public outcry in support of financial 50% levy on bonuses within the industry set up a resolution bankruptcy plan for reform continues to intensify across the exceeding £25,000 (≈$40,000). It is also systemically important financial institucountry. To satisfy both parties, the gov- predicted that many other large European tions. Alan Blinder, professor of economernment must reform financial regulation countries, such as France and Germany, ics at Princeton University, has advocated without harming the labor market for new will adopt a similar tax. An excess tax on the need to extend bankruptcy laws in college grads. In my opinion, the govern- bonuses is not the best approach to con- the U.S. and create a new Chapter 16 of ment can achieve this balance by focusing trolling incentives within the industry the bankruptcy code, which would focus its reform on executive compensation and though, because taxing bonuses to control solely on winding down insolvent systemi“too-big-to-fail” institutions. of compensation sizes would undermine cally important financial institutions in a First, regarding executive compensa- the integrity of our capitalist system and way that avoids serious adverse effects on tion, it is imperative that we restructure could potentially cause top American fi- the financial system or the broader econincentives across the entire industry in a nancial performers to relocate to other in- omy. Extending bankruptcy laws in this way that is conducive to long-term stable ternational financial hubs. manner would also benefit job seekers by growth, not short-term get-rich-quick A better way to control incentives opening up employment opportunities schemes. During the height of the hous- that does not involve the aforementioned in the field of law for those interested in ing boom in 2006, executives and top- trade-offs, however, would be to control corporate litigations and/or bankruptcy performers at some of the largest financial the method in which bonuses are paid out, settlements. And, given that law is lucrainstitutions received massive year-end as opposed to controlling the amount that tive enough and that the government does cash-bonuses. Total compensation and is paid out. In January, New York State indeed scale back shadow banking pracbenefits during 2006 exceeded $130 bil- Attorney General Andrew Cuomo asked tices, students’ aspirations upon gradulion among the various financial institu- some of the largest financial institutions ation could shift from Wall Street to law tions that went on to subsequently receive to disclose information regarding the school, which would further help mitigate TARP funds, which compares to total structure of their bonus packages going job losses. compensation & benefits of only $80 bil- forward—i.e. whether bonuses are paid As future business leaders, we need to lion for those same institutions in 2003, out in cash or stock, the length of vesting ensure that, through legislation, Congress according to a 2009 report by the New periods for stock options paid, and wheth- does not make the American financial York State Attorney General’s Office. Ef- er any clawback or deferral provisions ex- system more inefficient by over-regulating. fectively, what this means is that compen- ist. The government can shift industry in- We as students have the responsibility to sation at these institutions increased by centives by mandating that bonuses paid speak out against government over-regulaover 62% from 2003 to 2006, while aver- over a specific amount must be entirely tion. After all, we are the ones inheriting age yearly inflation in the U.S. economy in the form of stock that vests over a long the system; we are the ones who care the during the same time period amounted to period of time, which can be clawed back most. And as Mark Twain also fittingly only 11.6%. Most economists would agree if employee performance deteriorates. wrote: “That’s the difference between govthat, in the long-run, wages tend to rise at Moreover, this form of regulation would ernments and individuals. Governments a rate very close to the rate of inflation. If not directly affect recent college graduates don’t care, individuals do.” BT

With such massive regulatory renovations proposed, one crucial question arises: Is the government going too far?

SPRING 2010 BUSINESS TODAY

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02/03/2010 20:50:56

Ruff Market Despite tough times, pet owners continue to spend on everything from vet visits to paw pedicures. With the newest numbers indicating that pet expenditures are due to increase by 4.9% in 2010, it appears that the pet industry is recession proof.

By Caroline Hanamirian, Princeton University

S

ome insist that recession cutbacks U.S. pet industry expenditures totaled reveal what excesses Americans are to $41.2 billion, rising to $43.2 billion willing to forgo. The trends of the in 2008. According to the American recent economic downturn, however, have Pets Products Association (APPA), this exposed an even more telling phenome- number rose to an all time high of $45.5 non: what Americans will always spend on. billion in 2009, nearly double the figures New statistics show that, when it comes to from only ten years ago. Impressively, cutting back, consumers draw the line at growth has been consistent across the the kibble and kitty litter. Over the past board-, with no declines in any category year, businesses centered on pet services, such as food, grooming or veterinary care more so than those catering to human since 2007. clientele, have come out on top of the ecoThe results of a recent survey connomic dog pile. ducted to 21,000 pet owners nationThe most current data reveals that wide by the APPA is even more telling. the pet industry as a whole has indeed Although respondents cited decreased proven to be recession proof. In 2007, the spending on sporting events, travel, din-

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ing and even shopping, more than eighty percent of pet owners reported that they had not changed their spending patterns on pet items since the recession hit. With a projected 4.9 percent growth rate, pet products constitute one of the fastest growing categories of the retail industry.

APPA President Bob Vetere told Business Today that, despite increased spending, the pet industry has not emerged completely unscathed. “Many consumers have had to adjust their purchase patterns to accommodate belt tightening. One of the adjustments has been to make fewer trips to the store for shopping. As a result, some owners have

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Grab Bag

In terms of the future of the industry, discovered that they can obtain pet sup- the recession storm. Over just the past twelve months, the wealthy Washington Vetere insisted that growth will hinge on plies in other outlets that they will freD.C. suburb has seen over fifty businesses the development of products and services quent such as grocery and mass merchanshutdown, including clothing stores and that allow pet owners to work, travel, and disers,” observed Vetere. restaurants that have been Georgetown still feel confident that their pet will be “As the economy begins to feel a real staples for decades.

To maintain a comsafe and healthy.

While the local kennel recovery it will be interesting to see if petitive spot in the market, Chichie’s was once the only option for four-legged these changes in shopping habits are perowner Aleta Elsayed explained her marfamily members who were not traveling manent or just stop gap measures. Conketing strategy. with their owners, pet hotels are growing sumers who perceive a service level at a lo“Our business is unique based on in popularity.

Companies like PetSmart cal pet store retailer that they do not feel ‘how’ we give service, rather than ‘what’ now offer basic lodging for cats and dog, they can find at a non-pet only retailer complete with in-room televisions, lambservices we offer,” commented Elsayed. will be more likely to return. I think the skin blankets and room service.

She continued, “Pets are an important larger retailers like PetSmart have been feeling some of the same pinch but not as part of a human life. If you own a pet you want to give your personal best, to take Pooch Paradise dramatically.”

For the more discerning dog, luxury very good care of it… We have known pet hotels offer individualized care and some of our clients from the time their Personal Touch spa treatments.

At the Pooch Hotel, with dogs were puppies and have lived to the Personalized service has been one locations in Chicago and California, the senior years and have gone on to their secfoundation of success that many small cheapest rooms cost $50. But for $100 ond or even third dog.

We cultivate longpet business owners have cited. Chichie’s, for example, a pet spa and grooming fa- term relationships. Our clients know per night, dogs can be spoiled in a Palace cility in Georgetown, emphasizes its indi- their dogs are happy, safe and in very Suite, which boasts a flat panel television, raised bedding and a web camera for vidualized approach as key to weathering good hands, never sacrificing quality.”

Pet Expenditure Trends Other Services

Live Animal Purchases

2008 2009 2010 (estimated)

Veterinary Care

Supplies

Food

0

2

4

6

8

10

12

14

16

18

20

Spending (billions of dollars) SPRING 2010 BUSINESS TODAY

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Grab Bag

BT

owners to stay in touch with.

Perlmuter continued explaining the One might expect that the luxury nature of the luxury pet business itself, pet industry, characterized by extrava- saying, “One thing about the pet indusgancies, might have been hit hardest by try is that traditionally it’s been ‘recession the recession. Leaders in the industry, proof ’, for the most part. For the majorhowever, have reported the opposite. ity of our customers, their portfolios have “When times are tougher, people are get- gone from $500 million to $100 million. ting down to the bare bones minimum of That doesn’t mean they’re treating their what is important to them, and when it pets any different, especially because comes down to it, their pets get up to the they’re the ones going on vacation and

Customers’ portfolios have gone from $500 million to $100 million. That doesn’t mean they’re treating their pets any different. top of the list, ” said Howard Perlmuter, President and CEO of Beverly Hills Pet Hotels Inc. and managing member of The Barkley Pet Hotel & Day Spa. The Barkley is one of the country’s premier pet hotel and day spa venues and has locations in Ohio and California. A leader in the industry, The Barkley offers its guests a variety of services rivaling some human hotels, including supervised swimming in the indoor pool, limousine rides to the local park and ice cream socials. Signature spa packages include a “pawdicure,” essentially a mani-pedi for canine nails.

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they still feel that they need to give their pets the same type of treatment.”

Vetere echoed this sentiment, observing that although the luxury industry has faced some economic difficulties, its wealthier consumer demographic has, in general, continued spending despite the recession.

“While pet owners have done far less cutting back than most other retail segments, the most affected segment is high end luxury items as well as more costly veterinary procedures and extravagant services,” said Vetere.

He continued, “Even as I note some negative impact, because much of the demographic who supports this niche have been less dramatically impacted by the struggling economy there is still a significant market demand for these products and services.”

When asked if the recession had forced The Barkley to reevaluate the way it does business, Perlmuter pointed out that, in the ever-evolving pet industry, embracing change has always been necessary to stay afloat.

“We’re constantly evaluating the plan and making revisions…When we started this business it wasn’t like there were a whole lot of models out there for us to emulate. It’s been a big learning process.”

Man’s Best Friend Apart from specialized services and evolving business models, experts agree that the mainstay of the pet industry has always been the deep owner-pet relationship. Perlmuter observed, “In my opinion, people have really made their pets an integral part of their family. With the increase in dual working families, empty nesters and everything else, pets have become people’s children…They have become so close to their owners’ hearts—for companionship, especially in these tough times, it’s just something that’s not overlooked. They’ve become more of a priority than anything else.” BT

BUSINESS TODAY SPRING 2010

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C-Suite

THE TELOS DIFFERENCE Telos Corporation provides advanced technology solutions for federal agencies such as the Defense Department and the Department of Homeland Security, in addition to commercial enterprises. These solutions include network assurance, enterprise messaging, and identity management. Telos is distinguished by its real world experience in achieving regulatory compliance, securing critical information, and by its respect for customer value. Here, CEO John Wood gives us insight into how to manage a first-class corporation in times of economic distress. By John Wood, CEO

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C-Suite

E

ven in the best of times, executives reviews, we determine whether our people coming through our doors every week, face a constant barrage of challeng- are meeting expectations, and ultimately, if education is a continuous process, which ing questions. Is this employee a they should continue at the company. An starts at the very beginning. Telos’ values good fit for our organization? Would that employee who consistently meets perfor- are discussed throughout the interview company be a good strategic partner? But in mance objectives and demonstrates adher- process. Potential employees are told about a difficult economic environment, like that ence to our shared values are recognized as Telos’ values from their first contact with of the past year, a company’s mere existence stars. Those who are under-performing and the company. We let candidates know that may depend upon the choices of its manage- have demonstrated unwillingness or inabil- these values are a critical part of our comment. Without a firm, strategic foundation ity to embrace our values present an equally pany culture and that they apply to all emupon which to base such decisions, execu- simple decision: they will go. But what do ployees. They do not change from person tives may be tempted by short-term gain at you do with a top performer who demon- to person or situation to situation. A dual the expense of business fundamentals. strates unethical behavior? Or alternatively, assessment takes place during the interview A company’s fundamental values, what do you do with the ethical person who process: hiring managers not only deterwell articulated by its management and embraced by its employees, provide such a critical foundation, informing internal and external stakeholders how a company will operate. It is a mistake to think of core values as just a moral compass for an organization—they are no less important than the company’s strategic foundation, guiding all company decisions. And, while the process of defining and implementing core values is has had a bad year? mine whether a candidate’s qualifications not an easy one, it is well worth the effort.

These decisions are infinitely easier make them a good fit for the job, but also During the past year, Telos Corpora- with a set of guiding principles in place, as- take an honest look at whether a particular tion has undertaken the task of articulating suming they are embraced at all levels of the candidate is a good fit for the organization. and building commitment to our core val- organization. By making core values a conLikewise, it is important for a candiues. The principles on which we are based dition of employment, the struggling em- date to honestly assess whether a company boiled down to this brief statement, which ployee that embraces our values will have is a good fit for him or her. Let’s face it: we will guide the company at both the strategic another chance. And, despite the perceived spend a great deal of time at work. Doesn’t and tactical levels. Always with integrity, at business loss, I will not let a person whose it make sense to work for a company whose Telos we: build trusted relationships, work actions are inconsistent with the company’s values reflect your own? In short order, each hard together, design and deliver superior values continue to be part of the organiza- of you will be faced with a choice of where solutions, and have fun doing it. tion; his or her presence will ultimately to launch your career. I would encourage Much of the recent academic literature poison the organization’s culture and do far you to make sure there is not a disconnect on the subject warns against naming integ- greater damage over the long haul. between your own values and those of the rity among a company’s core values, citing By educating our employees about company where you would like to work. To Enron among those who have failed to live the organization’s core values, we’re creat- ignore such a disconnect in core values only up to it. Hollow claims touted as core values ing awareness and encouraging discussion sets up the employee, and the company, for are extremely damaging to an organization. about applying core values to real situations. internal conflict down the road. If no one Yet, with advanced technology security so- We want to engage our employees in mean- talks to you about core values, ask. lutions as our value proposition and U.S. ingful conversations about these important We have entered a new era where commilitary, intelligence, and civilian agencies issues. In fact, if core values are just words panies must demonstrate solid values in orof the federal government as well as NATO that hang on the wall in a frame, they are der to drive business success. As you prepare allies among our customers, integrity is a useless. However, if employees have a fo- to enter the workforce, you can succeed in vital component of our brand. Integrity is rum where they can discuss scenarios with this new business climate by honestly asthe foundation on which our core values their peers, we have values in action. Be- sessing your own values. This will enable are built—a fundamental, non-negotiable cause of this, we have created an internal you to articulate these values to the hiring requirement of employment and expected forum where employees can post problems managers at the companies where you want of all suppliers, partners and customers. and questions that can be answered by their to work. In turn, you can evaluate the firms’ Even basic personnel decisions can be peers. This joint problem solving has prov- values and decide if you want to share a coldifficult if you have not clearly articulated en invaluable and encourages all to embrace lective future. By taking the time to assess core values. Conversely, with these guiding our core values. your values and making sure these align principles in place, decisions that were once Fortunately, Telos Corporation has with the company where you will work, you difficult and awkward become clear. continued to grow, even during these chal- can create a win-win for yourself, the comEach year as we complete performance lenging economic times. With new people pany and its stakeholders. BT

Hollow claims touted as core values are extremely damaging to an organization.

SPRING 2010 BUSINESS TODAY

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RefoRm and RegulaTion

A Tale of Two Powers The United States and the European Union share many of the same economic and political views, but when it comes to financial regulation, the superpowers start to diverge.

A comparison of recent government reforms in both regions reveals subtle but striking differences in economic philosophy.

By Shali Zhu, University of Cincinnati

Y

ou will often hear that the powerhouses of the Western world are philosophical siblings—that they share similar religious beliefs, cultural customs, and democratic ideals. Many students are not, however, aware that although the United States and Europe are close allies, they tend to embrace two diametrically opposed approaches to fi nancial regulation and reform. Whereas the US prefers to implement regulatory changes en masse, European countries united in the context of the European Union tend to tweak their fi nancial systems gradually, introducing just a few new changes at a time. While the US often responds

26

to economic crisis with quick start-stop spurts of reform, the EU often continues to modify its fi nancial system well after a crisis has passed. Understanding these dramatic differences in policymaking, it becomes possible to assess whether the EU or the US economy has performed better in achieving its goal of recovery in the current economic climate.

To contextualize our analysis of the present, it is useful first to assess how each economy has protected itself from the economic debacles of the past. Here we ask not only what these economies are doing now, but also how the US and the EU have differed historically in pro-

tecting national economies from sudden fi nancial shocks.

As US hedge fund Long-Term Capital Management (LTCM) teetered on the brink of collapse in September 1998, the Federal Reserve moved swift ly to save the fund from bankruptcy and avert the risk of systemic failure throughout other areas of the fi nancial system. That month, the Fed brokered a deal between LTCM and a consortium of fourteen leading US banks that bailed out the ailing investment legend for $3.65 billion. The following month, the Fed complemented this bailout initiative with an emergency interest rate cut designed to further stabi-

BUSINESS TODAY SPRING 2010

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RefoRm and RegulaTion

lize the fi nancial markets.

These actions were successful; the markets quickly returned to normal and LTCM showed signs of recovery by the end of the year, posting a small but notable profit. Going back further in history, we may recall how quick, decisive action by the Fed also proved successful after the Black Monday crash of 1987. On October 19, 1987, the Dow Jones Industrial Average index plummeted more than 20 percent, translating into a 508-point loss and marking the biggest stock market crash in the nation’s history. Concerned that dramatic falls in the stock prices of leading US companies could drag major fi nancial institutions into bankruptcy, the Fed reduced the federal funds rate from 7.5 percent to 7 percent the very next day. Along with an infusion of Federal reserves into the economy, this sudden yet decisive interest rate cut helped to sustain liquidity in the market and smooth the tensions caused by market turbulence.

Is swift , drastic action the panacea that will restore America’s fi nancial health in the aftermath of the recent fi nancial crisis, as the past seems to suggest? It may be too early to answer this question, but a look at recently produced regulations reveals that at least some of the leaders of economic reform in the US have acted in the hope that once again, a series of ‘pump-up’ shots will ignite recovery.

The most prominent example of America’s inclination to pursue a “one-hit” approach to revitalizing a struggling economy is the economic stimulus package enacted by Congress in February of this past year. The American Recovery and Reinvestment Act of 2009—including everything from federal tax cuts to expansion of unemployment benefits to increases in student aid funding—tried to resolve in a single bill not only the country’s pressing economic woes, but also other issues such as the lack of higher education opportunities for students from low-income families. Th is comprehensive attempt at reform is admirable in theory, but in practice it risks becoming a major crutch for the US economy. In its effort to fi x everything at once, this bill may end up doing nothing at all for recovery.

Parallel to Congress’ stimulus pack-

age, federal regulatory agencies have tried to soften the severity of Wall Street’s mistakes in order to restore hope among hesitant investors. For instance, the Financial Accounting Standards Board (FASB), which establishes fi nancial accounting standards for private sector organizations, issued a ruling in April 2009 that allowed fi nancial institutions to “use judgment” in estimating the fair value of an asset in an “inactive market.” The document provided banks with flexibility in the valuation of toxic assets and the reporting of losses,

the signing of the Maastricht Treaty, the political and economic contract between European states that founded the European Union. Ratified by twelve European countries, the Treaty required qualified EU countries in the Economic and Monetary Union (EMU) to “ensure coordination of their economic policies” in preparation for a single currency system.

Coordination, however, did not come easily for some member states. According to Dr. Akila Weerapana, an economics professor at Wellesley College,

[The American Recovery and Reinvestment Act] is admirable in theory, but it risks becoming a major crutch. In its effort to fix everything at once, this bill may end up doing nothing at all. enabling these institutions to boost their the economic shock created by the rebalance sheets, albeit temporarily. unification of Germany in 1990, coupled While the effectiveness of the stimu- with the destabilizing fiscal and monlus package remains unclear, leaders of fi- etary policies enacted by the German nancial reform in the US have resorted to government at the time of the treaty’s reform tactics other than the traditional signing, induced a rise in German inter“one-hit” approach in order to create an est rates that pushed the currencies of the aura of positive change within the fi nan- other member countries to the dangerous cial sector. In December 2009, ten months bottom of allowable exchange rate bands. after the stimulus package was passed and Incidents of speculative frenzy caused the over two years after the symptoms of the devaluation of several currencies against sub-prime mortgage crisis began perme- the German mark and prompted the ating the rest of the fi nancial system, the United Kingdom and Italy to leave the House of Representatives passed the Wall Exchange Rate Mechanism. In response Street Reform and Consumer Protection to a perceived breakdown of economic Act, which has been touted as the most unity, fi nance ministers of EU countries significant, most comprehensive revision decided to raise the exchange rate flucof the US fi nancial regulatory system tuation margins from less than 6 percent since the 1930s. to 15 percent in August 1993. Though So how does the US’ most recent decisive, this measure was not swift . The recipe for economic recovery compare to alteration of exchange rate margins came the tactics being endorsed by the EU in almost a year after the initial crisis began, the midst of the recent fi nancial crisis? It but it was followed by a steady, gradual turns out that US regulatory actions dur- increase in regulatory initiatives. ing the past two years are actually akin to In September and October 1993, the the strategies often associated with the European Parliament declared that it was EU, strategies which emphasize mind- “against competitive devaluations and in ful, measured reform in times of fi nan- favour of lifting the legal barriers to use cial turbulence. To illustrate, consider of the ECU [European Currency Unit] in the 1992 currency crisis that followed commercial transactions.” In 1995, aimSPRING 2010 BUSINESS TODAY

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Reform and Regulation

Left: Federal Reserve Building, Washington D.C. Right: European Central Bank, Frankfurt, Germany

ing to improve the European Monetary This shift will “ensure that the recovery products.”

System (EMS) which was in place during takes hold and maintains the EU’s growth In typical EU fashion, these leaders the currency crisis, the European Par- potential in the long-run.” of European economic reform emphaliament “called for a new exchange-rate In December 2009, more than a year sized the importance of setting a gradual, mechanism that was simple, transparent after the tidal wave of the recent financial forward-looking course toward a more and flexible.” The EU’s strategy of gradual crisis first reached Europe, the European stable, multi-state economic structure. reform proved successful; by 1996, all the Council announced in a press release that Having painted two pictures of ecoparticipating currencies returned to the it has accepted proposals to establish three nomic reform, one on each side of the normal margin of fluctuation.

European authorities for the supervision Atlantic Ocean, the question remains The European Union tackled the of banking, insurance, and securities which course toward economic recovery, recent financial crisis with a similar phi- markets as part of a comprehensive effort the US course or the EU course, is more losophy in mind, but incorporated a to improve the EU’s supervisory frame- effective. The question of who leads the sprinkling of the American approach as work in the wake of the global financial economic reform movement ultimately well. In December 2008 the EU launched crisis. The three European Supervisory comes down to which body’s reform lega sizeable fiscal stimulus plan equivalent Authorities (ESAs), namely the European islation most directly addresses both doto 5 percent of EU GDP. The European Banking Authority, the European In- mestic and international financial chalEconomic Recovery Plan (EERP), simi- surance and Occupational Pensions Au- lenges at hand. While both the US and lar to the American Recovery and Rein- thority, and the European Securities and the EU seem to have adopted a blend of vestment Act passed in the US, aims to Markets Authority, will be part of a Euro- “one-hit” and gradualist reform tactics, “restore confidence and bolster demand pean System of Financial Supervisors. In the US seems more focused on producthrough a coordinated injection of pur- a joint article written by French President ing the results of recovery while the EU chasing power.”

Nicolas Sarkozy and UK Prime Minister seems more concerned with tracking the The European Commission stressed, Gordon Brown, the two European heads process of recovery. Over-focus by the US however, in a summary article published of state explained that the new rules and on end-results risks making the American reform plan too rash. Meanwhile, an over-concern with process among EU leaders risks making the EU reform plan just a plan, with no immediate path toward a tangible solution.

The difference in the approaches of these two economic unions is a difference of style. Each style has its merits, one being sudden and swift, the other more predictable and graceful. In the midst of financial crisis, what matters more— swiftness or grace? on its website in September 2009, that institutions will serve as preventative Students who are concerned with the while a swift EU response was necessary measures against future financial crises. responses of national governments to the to prevent the crisis from spreading fur- These new supervisory authorities, they current global financial crisis continue to ther, the focus of the recovery plan must added, are designed such that there will debate this question, and only time will shift from short-term demand manage- be “control over credit rating agencies and tell which style will ultimately save the ment to supply-side structural measures.” stronger capital requirements on complex world. BT

The difference in the approaches of these two economic unions is a difference of style. Each style has its merits, one being sudden and swift, the other more predictable and graceful.

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BT Talks

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BT Talks

Gary Locke Secretary of Commerce – On America’s Economic Priorities

Business Today: What are the Obama administration’s current economic priorities, especially in light of the financial crisis?

Gary Locke: I think it’s very clear that the President inherited a huge financial mess and the severity of the problems is much more than anyone ever thought.

But I do think he’s done a terrific job of stabilizing the financial markets and reviving lending to small businesses and families and trying to help homeowners from losing their homes. The Recovery Act, even economic advisers to John McCain credit the President with preventing a second depression and in fact leading the country back to recovery. But while all the indicators are increasing in their positive outlook, nevertheless the President is most concerned with unemployment, unacceptably high unemployment, that as far as he is concerned getting more people back to work as quickly as possible with good-paying jobs is his number-one priority, and that the recovery will not be complete nor a success until everyone who wants jobs is able to get a job. When

you think about it, the economy is now growing again for the first time in more than a year, and some of the news about manufacturing shows that it is stronger than people thought, and some of the indicators of recovery are showing that activity is stronger in the say, last two or three years, but there’s still a lot to be done.

BT: What are some potential mistakes in policy that you are trying to avoid?

GL: As we work on economic recovery and on stimulating the economy, getting more people back to work, we need to avoid protectionism. We also need to be aware of the deficit, the looming deficit, that the President inherited. Remember eight years ago, we had a budget surplus, but in the last eight years of the Bush administration we have had record, record deficit. The President has inherited that, yet economic advisers all say that some additional spending is necessary to prevent a financial meltdown and avoid another Great Depression. But as we head toward recovery, we need to be careful not to ex-

acerbate the deficit. But of course most economists would agree the faster you can get people to work, the faster you can stimulate the economy. That will drive down the deficit because the more people and companies gainfully employed and productive and profitable paying taxes then the draw on federal funds for things like unemployment, safety net programs, decreases and therefore that actually helps with the budget deficit situation in terms of a strong robust economy.

BT: What time frame are we looking at when talking about economic recovery?

How long will recovery take? Has it even started yet?

GL: The economy IS improving, it IS improving now. The question is: how fast will that recovery, and how strong will that recovery be? And that is why the President is focused on job growth, that is one of the last indicators, and job growth always lags the other indicators of economic recovery. The President does not want stand still, he wants to try to get as many people back to work as possible.

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BT Talks

BT: What are the Obama administration’s goals in relation to China, and what can we expect to see in that regard?

GL: Well, I think you’re going to see a greater increase in engagement, and stronger commercial ties, but one that has to be rebalanced. First of all, we need to export more to China by way of goods and services, we cannot continue to import as much from China. And China it-

on the financial sector for all of America’s growth has gotten us into a lot of trouble, and as Chairman Bernanke indicated, the problems we’ve seen manifested just within the last year have been several years in the making, and a lot of it because of a lack of proper regulation. Now the entire American society is paying for the excesses of Wall Street.

BT: What is the administration’s policy

If we don’t pass an energy bill, if we don’t have a firm energy policy soon, then China, or Copenhagen, or Berlin, will become the next Silicon Valley of green energy. self as an economy cannot rely on exports from China to fuel their growth. Chinese leaders themselves realize that they need to focus on more domestic consumption, and domestic consumption presents greater opportunities for US companies, whether it’s in cosmetics to pharmaceuticals to software to high-value manufactured goods.

BT: What economic imbalances, be it in our trade balance or in our financial sector, do you think warrant attention today and correction in the near future?

GL: First of all, the current trade imbalance needs to be reduced between the US and China. There are great opportunities to increase exports of American goods and services all around the world, especially to China. China has the enormous demand for financial services, insurance, health care insurance, and other goods from America. So those are great opportunities for our country as both countries try to correct this trade imbalance, and as China also seeks to focus on greater internal domestic consumption, and relying less on exports to fuel their economy and to improve the standard of living for the Chinese people. I think the reliance 32

on greening the economy, and what measures are you taking to making America more environmentally sustainable?

GL: The President very much supports a market-based approach to the reduction of carbon emissions. That certainly is very much consistent with our free-market approach, but also knowing that we have to get serious about reducing the emissions of greenhouse gases and how we need to be more energy-independent, and using a market-based approach will actually foster innovation, and reward entrepreneurs and the creative genius of Americans.

BT: What types of market-based approaches can make the US economy greener?

GL: The current budget in the Stimulus Act does have a lot of grants and tax incentives for advanced manufacturing, green manufacturing, as well as grants for development. The energy bill that passed the House has a market-based approach to greenhouse gas emissions (reduction of). The recent letter signed by Senators Kerry, Lieberman, and Graham, endorses that market-based approach to a cap on greenhouse gas emissions.

BT: How does the U.S. plan to work with other countries economically in order to reduce carbon emissions and develop new technology?

GL: Focusing on a green economy has enormous benefits for Americans and will be the source of millions of new jobs over the next few decades. The President and I firmly believe that the country that leads in the green sector will really have a dominant role in the world economy. Again, we have an opportunity as we come out of this recession; we need to ask ourselves, where do we want job growth to occur?

Is it going be in the traditional sectors, or will it serve two purposes or kill two birds with one stone: create jobs, but create them in the green energy sector and therefore accomplish our goals of energy independence and reduction of greenhouse gas emissions. So we can achieve both objectives of enormous job growth while protecting our planet. And quite frankly, we need to really engage and move forward aggressively with respect to green energy and pass an energy bill, because if we don’t, other countries are going to step forward and be the provider of green energy, alternative energy, renewable energy, energy efficiency, and they will get all the jobs. China is spending some $9.5 billion a month promoting their green energy sector, and they’re doing this not only to meet the energy needs of their people and that nation or to reduce greenhouse gas emissions from China. They’re spending all of this money developing a green energy sector to meet the energy needs of the entire world. If we don’t pass an energy bill, if we don’t have a firm energy policy soon, then China, or Copenhagen, or Berlin, will become the next Silicon Valley of green energy. The longer the US waits to pass an energy policy, the farther ahead these other countries will be, and they may end up with an insurmountable head start. Now, it’s important that the United States pass an energy policy, now we may debate what that energy policy may entail, but we HAVE to pass an energy policy. Too many companies and too many investors are sitting on the sidelines, unwilling to commit without predictably.

Why would you start manufacture product X if energy policy says “we favor product Z.” And if you don’t know what the

BUSINESS TODAY SPRING 2010

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BT Talks

tax policy is or the tax incentives are with respect to energy policy, how can you commit scarce dollars or very valuable dollars to a particular sector if that’s not the green energy sector that the US policy will favor.

I’ve heard this from companies, I’ve heard this from manufacturers, I’ve heard this from investors in the financial sector, that they’re all sitting on the sidelines because there is no clear US policy right now, and the longer we wait to pass that policy, the farther ahead other countries will be in developing a green sector.

BT: How concerned should we be about international trade?

GL: Trade is a very important component of our US economy. We are much more of a global society, and many of the products and services produced in America, offered

by American companies, are highly-valued and highly-sought around the world. I very much believe in open trade, but we need to have very clear standards with respect to that trade, and companies and countries that violate those trade agreements need to be held accountable. Our trade agreements have to be enforced, otherwise Americans are not getting the full value of the bargain when we enter into those trade agreements. When both sides make promises and commitments, both sides need to adhere to those commitments and promises. If one side or both sides fail to do that, then the various remedies have to be invoked.

BT: How are you looking to expand trade with developing countries? What tools besides trade agreements an be employed?

GL: The benefit of trade agreements is that they can significantly open markets for US companies, reducing barriers to companies in those areas or regions, thereby providing good-paying jobs for Americans, with products and services produced here at home, but at the same time helping those countries develop, and helping to raise the standard of living for the inhabitants of those countries. I very much believe that trade is beneficial in terms of not only raising the standard of living for people in other countries, not only creating jobs for people here at home, but [also] introducing American values and a way of life that will hasten the spread of democ-

racy and freedom in many parts of the valuable to me throughout my entire caworld. So, I believe in mutually beneficial reer. This job as Secretary of Commerce trade, trade that will help achieve the de- is really an extension of all the other jobs velopment goals of a country, whether it’s I’ve had now. It’s really an honor and a improving their health care or education privilege to serve this President, who is system, providing medicine, or providing so committed to making sure we have a products and services to clean up the en- strong economy and that we have a future vironment for the people of that country, where our children have big dreams and and at the same time providing jobs for feel confident that those dreams can come people here in America. That’s the type true. I’m really proud to be serving this of mutually beneficial, win-win trade that administration, this President, because if raises the standard of living for people in the President succeeds, America succeeds. other countries, but also provides jobs for We have enormous challenges in front of people here in America. us, enormous challenges, challenges that this President inherited. As Bernanke inBT: How do you work with countries who dicated, so many of the problems that we have political and economic systems vastly face are because of lack of regulation and different from those in the US? oversight for many, many years. We have huge deficits, when just eight years ago unGL: For those types of governments, we der President Clinton we had budget surin government need to engage with their pluses and we had a very strong economy governments to reduce barriers on US and people were optimistic about the fucompanies and work with them on trade ture. So, the President is trying to restore agreements that ensure that US compa- relations around the world, he’s trying to nies will have access to their consumers rebuild the economy, he’s giving people and can provide products and services that hope, and also as we are trying to restrucwill help those governments achieve their ture, excuse me, restore this economy, we

Trade is beneficial not only in creating jobs for people here at home, but [also] in introducing American values and a way of life that will hasten the spread of democracy and freedom in many parts of the world. development goals. So, it means that in a controlled economy there is a greater role for the US government in terms of advocating on behalf of US products and services.

It means we have to engage with them as opposed to in a completely free-market economy, where the companies themselves are able to promote themselves.

BT: How has the fact that you were an Eagle Scout affected you and your work?

GL: I think Scouting has benefited me all through the years in terms of leadership skills, working with people, collaboration, teamwork. Scouting has been very, very

do it in a way that’s sustainable, creating jobs not based on bubbles, but long-term economic growth, especially focused on the jobs of the future and the needs of our country over the long-term, which means green energy, which means focusing on education, focusing on a health-care delivery system, where people are not deprived of basic health care. And I can just say that having served in Scouting instills that sense of public service as well as success in collaboration and teamwork and working with others. When you’re a member of the cabinet, you have to work with other agencies. But I’m really proud to be part of this cabinet. Interviewed by Brian Reiser BT SPRING 2010 BUSINESS TODAY

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Grab Bag

WEAPON OF CHOICE: Execution and Strategy in Business and Beyond

Rye Barcott, Nathaniel Fick, and Maura Sullivan comment on the mettle they bring to the table as former Marines, as well as the interplay of strategy, ethics, and leadership in the private sector.

By Jessica Bruckert, Duke University

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Grab Bag

Business Today: What are three unique things you brought to the table as a Marine in a business school environment?

Rye Barcott served as a Marine captain in Bosnia, Africa, and Iraq. He founded Carolina for Kibera (CFK), an international nongovernmental organization based in Nairobi, Kenya, and is a graduate of Harvard’s Business and Kennedy Schools.

Rye Barcott: Within the military the focus is on leading other people and being responsible for other people’s lives. It is a fact of life in the business environment in the U.S. that, as a young college graduate, there are very few opportunities to truly lead. You might have a junior analyst report to you after two or three years, or, if you’re in a line operating job, you might get small teams. But there’s just no corollary to having that responsibility for other people’s lives.

The military—and particularly the Marine Corps—is a service designed to train people to make many decisions in a short period of time and in a very chaotic environment. Combat is at one end of that spectrum, but there are other more mundane tasks of keeping a military and army ready to fight, or responding to peace-keeping or humanitarian missions.

Invariably, on any given day, you will face many different things that surprise you, and that you weren’t necessarily prepared for. But the training is really designed to hone that judgment, so that you can operate under that kind of chaos and stress.

It keeps everything in perspective. Personally, at least, I found that after going through such an experience, you have a perspective that is perhaps a bit more balanced and more contextualized given the relative nature or degree of stress. Very rarely will you confront a business situation that will potentially kill people or injure them. You might—and hopefully you’ll act in the right way—but that will probably not happen.

Many military jobs emphasize tactical and strategic decision making and being able to differentiate. One of the key components before any military mission is an operations order, and there’s a structure of what that’s supposed to look like. One of the first bullets is: what is

the commander’s intent, what is the overall mission? That ability to not only focus on the mission, but also to continually asses it—and assess where a unit is fitting into these broader strategic objectives— is a perspective that is unique and valuable for business. It’s easy—particularly for driven, type-A people—to just dive nose first into their work, and you often have to do that to be successful. But it’s also important to be able to also step out and look at the greater context of where you’re going and where your organization is going at the same time.

and certainly there is a lot they can learn.

But never in a corporate boardroom do I expect to feel the same leadership pressure, or have to exert the same influence and persuasion that I did on the battlefield when my life and the lives of my men were on the line. I had a leadership professor who—I’ll just point blank say— didn’t have the leadership experience of the veterans in his classroom. Third, I think that business schools now are under enormous pressure to teach ethics, especially in the wake of what’s happened in the financial markets, and in the whole

I think Harvard Business School is a great place...But I’ll tell you what: they’re not training leaders among their military vets. Their military vets are coming to them as leaders.

Nathaniel C. Fick served as a Marine officer in Afghanistan, Pakistan and Iraq. He is the author of New York Times best-seller One Bullet Away, the CEO of a Center for a New American Security, and a graduate of Harvard’s Business and Kennedy Schools.

financial system over the last eighteen months. Military veterans come with a highly developed sense of professional ethics. This is because ethical leadership and ethical decision making have been a part of the military officer’s training for a long, long time. This might be new in business schools, it might be new on Wall Street—it’s not new in the military. I certainly felt like I had benefitted from a lot of training in that area, and some of my classmates hadn’t.

Nathaniel Fick: One was the benefit of perspective. I feel like too often we do things in life too soon. I went to college when I was eighteen, just like most people, but I was too young at the time to get the most out of it. I’m really glad Maura Sullivan, a former Marine captain, I went to business school after five years spent seven months as a logistics officer in in the Marines, because I’d seen a lot, Fallujah. She is part of PepsiCo’s leadership I’d done a lot, and I could contextual- development program, and is a graduate of ize things in a way that I wouldn’t have Harvard’s Business and Kennedy Schools. been able to had I showed up at business school after working as a consultant or Maura Sullivan: The military’s training investment banker for two years. I need- programs are terrific at instilling the core ed that context. values of the organization. For example, I’d also been a leader. Business school the most important value the Marine doesn’t train military veterans to be lead- Corps holds is integrity. The Marine ers. I think Harvard Business School is a Corps doesn’t just tell people, “OK, you great place, and their mission is to train have to have integrity. And now go out leaders. But I’ll tell you what: they’re and do this…” Its discipline system, its not training leaders among their military values system—you actually see that lived vets. Their military vets are coming to out on a day to day basis. them as leaders—maybe not fully formed, I was at Marine Corps Officer SPRING 2010 BUSINESS TODAY

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Grab Bag

Candidates School (OCS), a six week boot-camp equivalent for officers in Quantico, VA, during the summer of 2000. Both Nate and Rye would have

some other things to boost your GPA, but it wasn’t impossible to do.

Not so with an integrity violation, which one candidate in my platoon had

You’re done. You’re gone. It’s such a great lesson to take over to the business world.

For me the business world is definitely still a male-dominated arena; business schools are roughly two-thirds men, one-third women right now. In the upper echelons of management, I think six percent of Fortune 500 CEO’s right now are women. We’re definitely a long way from fifty-fifty. For me, coming from the military, I was so used to working in a male dominated organization that when I transitioned to business school—I thought there were so many women there!

It was sort of growing up in the school of hard-knocks; it was a really, really great training ground where I learned to find my voice, and be confident and speak in a done. It was found she had a piece of certain command to a platoon of mostly chocolate in her footlocker when you young men Leading twenty one eighteen year weren’t allowed to—she was kicked old guys …that was great preparation for out of the program in three hours. The message that sends to everybody is: we me for both for business school and the will work with you if you’re physically real world, where a lot of times you are a little bit slower, or if you’re academi- going to be a woman leading in a male cally a little behind. Integrity violation? dominated organization. BT

Coming from the military, I was so used to a male dominated organization that when I transitioned to business school-- I thought there were so many women there! gone different years, but both attended the same program. You have to climb a rope, you have to do an obstacles course, endurance course, all sorts of things.

You could graduate Officer Candidates School even if you didn’t make it to the top of the rope. You wouldn’t do very well. You’d have to do really well on

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On Campus

THE POST-GRAD ROAD LESS TAKEN With the landscape of the job market changing, college graduates find themselves taking on a new set of endeavors—and making a splash.

By Caroline Clark, Princeton University

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On Campus

I

t happens at a certain moment. You crease in applications just from the past competitive programs. Business schools, had not given much thought to it un- few years alone. According to Stephanie law schools, and competitive firms have til now, but suddenly internship ap- Mirkin, Princeton Project 55’s Program not only recognized these options, but plications are looming and you are forced Manager, numbers have increased from also embraced these programs. Some proto present yourself with the question: 117 applications from 2008-2009 to 145 spective applicants see these opportuniwhat career path do you want to choose? applications in 2010-2011. ties as a way to enhance their resumes.

Up until now, you had been on the The post-graduate landscape is changThis intertwining of the non-profit predictable and safe path of being a stu- ing, and fast. However, the question is: and for-profit worlds can be seen further dent. Now, suddenly the real world beckons towards you and you must begin to formulate a prospective career path. Remember all those times your family members asked you what you want to be when you grow up? Now is the time that you are suddenly faced with that opportunity to be that person you wanted to be.

What most students wanted to be, until recently, was the person who landed why? Are we, as young adults about to in the donation of office spaces. Amongst a coveted summer or year-round offer to enter to world, becoming more altruistic? the highest donators for Teach For a large, prestigious, top-ranked, for-profit Or are we simply becoming practical, fac- America (exceeding 1 million per year) firm within his or her area of interest. If ing economic realities? are Goldman Sachs, and Co., Wachovia you are an aspiring investment banker, This growing trend can be attributed Foundation, and Glenview Capital. Inthen you know you have made it if you are to a number of factors: the economy, the terviews for Teach For America even can extended an offer to work for Goldman growing alumni networks of social entre- take places in the office spaces of McKinSachs, J.P.Morgan or Morgan Stanley. If preneurship models, the growing desires sey, and Co. One applicant reported that you are hoping to work in security and of graduates to have ‘hands on’ experienc- in a recent interview with a high-ranking American foreign policy, you are ready to es, and finally, a growing awareness of so- hedge fund, the hour was not spent disgo once you are within the State Depart- cial responsibility and civic engagement. cussing market trends or specific financial ment. For those who wish to work within With the recent economic down- instruments; instead, the interview was health, a foot in the door of a large phar- turn, the already competitive job market about the ethical nature of obligation. maceutical company can pay off dividends has fewer available opportunities for col- Ethical awareness among these high-profor your future prospects. lege graduates. With companies having file firms seems to taking on new life.

However, graduates from top tier col- budget cuts and layoffs, there are less jobs With this high level of cooperation, leges in the past five years have been gravi- being offered to college graduates today. students no longer feel that they are castitating towards alternatives to Wall Street, Therefore, once students are finding that gating themselves from the world of Wall top law firms, or leading research labs in they are unable to pursue their original Street—they are part of a world that Wall medicine or applied sciences. They are career option, they have been turning Street is already present in. If anything, it now considering careers in public service, their minds towards other possibilities. can be a prelude to Wall Street. global outreach programs, and even selfWith students turning their minds For some students, it’s a way to have designed projects in order to give back to towards these other possibilities, hearing a ‘hands on’ job that allows the recent the wider community. about the experiences of others who have college graduate to have a direct impact.

This trend can be seen in one of the pursued these alternative options has The fear amongst many recent graduates nation’s largest non-profits, Teach For been the trigger. The Peace Corps, one of is leaving the walls of their respective America. According to the 2009 Teach America’s most successful initiatives in al- schools into the desk cubicle—or the beFor America’s Corps Profile, the number lowing college graduates to serve, has over ginning of their slow decline into an epiof applicants increased from 17,348 in 200,000 alumni. Teach For America has sode of The Office, with the ultimate fear 2005 to 35,178 in 2009—a two-fold in- over 17,000 alumni. Since the inception of interacting with a daily Michael Scott. crease in applicants in the past five years of such successful programs created in the As a solution, college graduates are now alone. past forty years, growing alumni networks casting their eyes towards these opportuEven within universities, initiatives have not only increased college graduates’ nities as a way to avoid this office world and fellowships designed to match stu- exposure to these opportunities, but have and see the real world. dents with non-profit organizations have also inspired college graduates.

As Sarah Schiff, a Princeton senior seen an extraordinary increase. Princeton Furthermore, the success of certain graduating in 2010 heading for Teach For University’s Project 55, an alumni initia- non-profit models have not only legiti- America said: “I didn’t want a desk job. I tive in which students are paired with mized this alternative career path, but also wanted a job with direct impact.” non-profit organizations, has seen an in- created a platform for continuation onto And what better way to have direct

Graduates have been gravitating towards alternatives to Wall Street, top law firms, or leading research labs in medicine.

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On Campus

impact than entering the classroom, or Wakefield was asked why this trend of Bryant to pursue, as he says, the “passion making a difference in a country of your more and more college graduates are ap- that was always inside me.” For Bryant, he choice through The Peace Corps? plying to Teach For America, he pointed always had the passion—it was a matter of Why are students desiring jobs with to the cause underlying Teach For Amer- finding the means to perform it. ‘direct impact’? Some say that we are cur- ica’s mission—the problem of education For others, simple exposure to their rently in a wave of an American movement inequality. “Over 14 million children are respective fields allowed them to find in which there is a higher desire than ever affected by [this], and by 12th grade, over this passion. Julie Rubinger, a recipibefore to serve others for the greater good. 50% will have dropped out. 50% of these ent of Princeton’s Project 55 Award, has The more direct impact students have, the 12th graders will have 8th grade level of spent her first year after college working more they know they have had an influ- math and reading,” he says. Therefore, na- for Education Through Music. She found ence on this greater good. tionwide causes are becoming more and that, after exposure to the non-profit secAs James Bryant, Princeton Universi- more publicized. tor, she found her calling: “it wasn’t unty class of 2010 and recipient of the Reach This external awareness as combined til after I started working for Education Out 1956-1981 Fellowship, said: “I think with internal forces on campuses creates Through Music that I developed a passion that there is something to be said that in the drive for college graduates to pursue for public service, and decided that I definitely wanted to pursue a career in public Teach for America Expansion Years service/the nonprofit sector.” Therefore, by working for a non-profit, she made her decision to pursue her career choice for the long term.

A combination of college graduates’ desires to be civically engaged and opportunities to do so has caused higher rates of college graduates to apply to nonfor-profit programs every year. But what are the implications of this trend? Does this mean that in ten, twenty years there will be fewer individuals within the traditional, for-profit sectors? Although many college graduates are initially going into their respective non-profit programs with an intent to remain for only two the greatest trials of American history, the these career choices. More and more alum- years, after exposure many will choose to spirit of service comes out in the toughest ni, as well as campus recruiters, return to recreate their career path. Indeed, the vast times.” Globalization for the past twenty campus to recruit future employees. This majority of those about to enter Teach for years has brought an increased awareness creates a cycle in which those who are re- America aim to remain involved in the of other civilizations and ways of liv- cruited return to campus to recruit more. education sector after graduating. ing; combined with the tensions of wars Which begs the question: is our naFurthermore, what does this say abroad and environmental concerns, the tional consciousness and desire for civic about Americans in relation to eachother overarching national response has been to engagement growing, or are there more and to other countries? Will, for example, help. This national response trickles down opportunities to implement this desire? alumni of Teach For America within govto young college graduates.

For some, there was always an eventual ernment have a different approach to conHowever, it was not until recently destination of a path towards civic en- structing policy than the current adminthat there have been successful ways of gagement. For Bryant, his fellowship istration? Will those who taught English going about solving these pressing prob- was the inevitable beginning point as a in Asia for a couple of years have a radilems. With the leadership of individuals, continuation from his previous interests. cally new perspective on the interactions including but not limited to Wendy Kopp In the fall of 2010, he will digitize tribal between doctors and patients? Will those (Founder and C.E.O. of Teach For Amer- constitutions for the Native American exposed to microfinance models within ica), Linda Rottenberg and Peter Kellner Rights Fund. Coming into college, he developing countries shake up established (Founder and C.E.O of Endeavor), and did not always know that he wanted to corporations within the U.S.?

Bill Drayton (Founder of Ashoka), social pursue tribal law—rather it was an evoluWhatever the results will be in the entrepreneurship has now become a part tion, stemming from courses he took, his years to come, no longer are college graduof our vocabulary. And college graduates internship experiences at (and eventual ates who are pursuing the ‘alternative’ caare recognizing these organizations as ef- return a year later) to the Pine Ridge res- reer options delaying the real world for a fective models to implement change. ervation. Therefore, the resources of being couple of years—they are becoming the When Teach for America Victor within a collegiate environment allowed real world. BT 40

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BArrY SALZBErG CEO of Deloitte, International Accounting and Consulting Firm On Surviving the Financial Crisis Business Today: What kinds of skills do you look for in young people who want to work for Deloitte, and how are their individual skills related to the success of the organization as a whole?

Barry Salzberg: I think it’s very important that we hire people who are both competent and have the foundational skills in the area that we’re hiring them for: accounting, engineering, and the like.

We’re looking for people who are able to communicate orally and in writing, people who are able to build relationships, people who are networkers, and people who care about people, so that when they’re interfacing internally with their colleagues, or interfacing with their clients, the skills they bring to the table are of the quality that would match the standards we have at Deloitte.

BT: How does this recession differ from other recessions that Deloitte has experienced in the past?

BS: It’s deeper, it’s broader. This recession has more uncertainty associated with it, and it has had a greater impact on our business in terms of demand for services.

It was global, and almost instantaneous, which had a tremendous impact on our overall position.

BT: In hindsight, how do you evaluate what Deloitte has done to prepare for this recession?

BS: I think we did pretty well because we anticipated an economic cycle of this nature, not quite as dramatic as this one, but we sufficiently planned for it. We were ready for it, and were able to immediately implement our good thinking associated with it, rather than first trying to figure out how to deal with it when it came upon us. So I think overall I would give us a very good mark. For example, we had a contingency playbook; it was real guidance on how to go about infrastructure, sizing, and headcount alignment. We also planned for a strong balance sheet with a new position in order to be able to make acquisitions when the opportunity presented itself in keeping with our strategy.

BT: How has Deloitte changed as a result of this downturn and what have you personally learned from it?

BS: Deloitte didn’t change in terms of our

culture or in terms of our commitment to our people. We did change in terms of the strength of our conviction to be aggressive in the market, to be able to go out and make acquisitions, to go out and continue to hire in the market, and to be very aggressive in of terms working the market share and the opportunities that exist in the market place.

Personally, it’s about conviction and sticking to your values. We always thought it was important, but when you are in the midst of the recession, it became pretty clear to us that that was key.

BT: Are there tradeoffs between short-term and long-term interests, and if so, how do you prioritize?

BS: There are always tradeoffs between short-term results and matching long-term strategic opportunities. You can never calculate it, you can’t quantify it. What you have to do is to obtain the right balance, making sure that what you do positions yourself in the future but doesn’t so compromise your short term performance as to make your sustainability suspect. But on the flipside, you can’t invest too much in the short term and have no vision in the future. Interviewed by Tiantian Zha BT SPRING 2010 BUSINESS TODAY

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Aw

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D onna F enn Award-Winning Journalist and Author – On Generation Y Entrepreneurs Donna Fenn, renowned author and journalist, gives insight into the minds of young entrepreneurs in her latest book Upstarts: How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit from their Success. Donna was a co-recipient of the Women’s Economic Round Table Entrepreneurship Prize in 2001, and formerly worked as a foreign correspondent for the Associated Press in Saudi Arabia. Her work has been featured in the New York Times and Newsweek.

Business Today: Can you describe a agree with those who defame Gen Y as typical Gen Y-er? What would he/she be spoiled and narcissistic. You say that Gen wearing? What would be in his/her wal- Y-ers are determined to control their inlet or purse? What are the signals, styles, dividual destinies, and that we are selfcentered in a way that is good for business. speech that set Gen Y-ers apart?

Are we successful because we are selfish?

Donna Fenn: Well you know that better than I do! It’s a huge generation so DF: I think that selfish is not really the it’s very hard to say what is typical. My right word. I think that you’re very selfperspective is my own kids age group, and directed and self-determined, in your they’re younger than the people I inter- careers especially, always thinking about viewed in the book. So as far as wardrobe your next opportunity and where your goes, I’d say it’s jeans with maybe your un- current job or venture is going to lead you. derwear showing, if you’re a guy (which I Now is that always good for business? still don’t get), and I think they’re very Probably not. I think that while Gen Yinto brand loyalty so you might see a lot ers are motivated to be creative and agile of logos. Girls definitely like their low-cut I think they can be impatient and a little jeans and more often than not something bit unwilling to sacrifice, although I think skimpy on top, which I’m still trying to on this note the recession is teaching get used to, but definitely there’s a lot of them some valuable lessons about frugalskin showing in this generation. I guess ity and boot-strapping. But I don’t think that’s how you’d spot them from far away. it’s a selfish generation, you know this is In their wallet or purse, minimal cash a very socially-conscious generation and I probably, cell phone absolutely, fake ID, think it’s a generation that’s generous in and probably mom’s or dad’s credit card. terms of wanting to help other people and wanting to reach out to other cultures. At Minimal cash, but lots of ambition! its heart, this is not a narcissistic generaBT: In your most recent book, you dis- tion at all.

BT: Some say that Gen Y, having been born into the Internet era, is the generation that has mastered the art of networking, of persuading people, of connecting one person to another at a variety of levels. Is our talent for networking a secret of our success?

DF: Yes it’s a very team-oriented generation. It partly has to do with the Internet, absolutely, but you can go further back than that. When you were in school, participation in team sports began very early. And although you may take that for granted, understand that when baby boomers were growing up, there were no seven-year-olds playing soccer—our parents did not drive us to soccer games so we could practice our team skills. So I think you are immersed in team activity from a very young age, and that is certainly an advantage. Your generation tends to be surrounded by other people constantly, and as a result there is a certain comfort level that results from interacting with groups of people. You seem to need that interaction, in a way. Gen Y-ers are not so good at being alone. With cell phones SPRING 2010 BUSINESS TODAY

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and the web, the reality is that you all are hardly ever alone.

writing the book. Seeing this wisdom of crowds concept in action really struck me. I kept seeing young entrepreneurs

Copy-cats don’t really seem to be a threat to Gen Y-ers. The latter are more concerned with executing ideas than claiming them.

BT: Upstarts is not your first look at what makes an individual entrepreneur stand out in a crowd of competitors and consumers. What prompted you to write this book in particular and to portray Gen Yers as new model business managers in the 21st century? Can such a young generation really serve as a model of knowledge and experience for the older generation to follow?

DF: I have to say that the idea of collaboration, which is a theme that comes up throughout my book, is a very important concept and one that older generation entrepreneurs should pay attention to. One of the very first young people whom I met when I first became interested in young entrepreneurs was a fellow named Ben Kaufman, who back then owned an iPod accessories company called Mophie. He sold it and started Quirky, a crowd-source product development company. But when he had Mophie, he did something extraordinary to develop a new product. He went to Mac-world and he handed out paper and pens to the the Mac-world attendees, and told them to doodle their ideas for his next product. And you know, this sort of thing is foreign to very traditional entrepreneurs. But I thought this was pretty amazing—you’re not just collaborating with your peers and your teachers and your parents and the person next door— you’re collaborating with people you don’t even know. Since then, this crowd-source model has become a business model for the business Ben has today, and these are the sorts of models I kept track of as I was 44

tap into every resource they could muster up, whether it was alumni networks or professors or their roommates or their parents, or like Ben, people they didn’t even know, to really get a handle on starting and running their companies. This is very contrary to the ‘lone-wolf ’ model of starting your business, so I think that’s a huge distinguishing characteristic of this generation—their willingness to reach out and collaborate far beyond their immediate environment. And they do that without fear that they’re going to be copied. Copy-cats don’t really seem to be a threat to Gen Y-ers. They are more concerned with executing ideas than claiming them.

BT: Among the entrepreneurs you interviewed for your book, did you find particular cultural or socioeconomic

population of Gen Y entrepreneurs?

DF: It was really widespread. Some of these people came from very economically challenged backgrounds. One person I interviewed for the book was in the process of starting his own company when his parents who were on the verge of bankruptcy—his dad said to him, “Either we make a go of this or we may have to declare bankruptcy.” So imagine the pressure there. I talked to other people with similarly challenging economic backgrounds—entrepreneurs who were the children of immigrants who came with this country with 20 dollars in their pockets. A lot of kids belonging to ethnic minorities are starting businesses today, certainly. At the same time, though, we also have children of people in the financial sector, as well as children of bus drivers. I think it’s really across the board. And I think this stems from the fact that this is a very diverse generation anyway – you are part of one of the most diverse generations in this country’s history. I think that nearly 40% of GenYers describe themselves as non-white. And from what I’ve seen, I think most of you are almost or completely colorblind. And that’s a highly admirable characteristic.

BT: What about gender differences? Did you observe a difference between Gen Y men and women in their approach to business management?

DF: What I found, and I really don’t want to claim that this is at all a signifi-

I think that this is a generation of men and women, liberal and conservative, that from the very beginning of their entrepreunerial careers think about what they can do to make the world better. backgrounds that were common among those eager to start their own businesses at a young age? How diverse is this new

cant observation because my sample is not big enough for that , but what I found was that the guys tended to start busi-

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nesses earlier. I had no trouble finding young men who started businesses in their early twenties, but I had more trouble finding women who started businesses in their early twenties. I found them starting businesses a bit later, but once they got going, look out! The women in my book are running really successful companies.

There are fewer women than men in the book but their companies are formidable. One interesting thing I found was that women were a little less likely than men to start businesses with partners, which surprised me a little bit.

BT: We’ve talked about the fact that the Gen Y-ers you interviewed were sociallyconscious and eager to work with people of different backgrounds and interests to make the world a better place. How related was this drive among Gen Y entrepreneurs to their political ideologies? Do these young business managers have a political message they want to send?

DF: I think it’s two different things—politics and being socially responsible. I think of this generation as a very pragmatic generation. When I was interviewing people for this book, my bias inclined me to think “Oh, you’re all going to be liberals,” and I couldn’t have been more wrong. I would say, yes, most were liberals, but I met many more conservatives than I thought I would meet. But the conservatives are as concerned with creating socially responsible businesses as the liberals—they don’t regard having a profit motive at odds with giving back to society.

I think that this is a generation of men and women, liberal and conservative, that from the very beginning of their entrepreneurial careers think about what they can do to make the world better, either through donating a percentage of profits to a certain cause that is synergistic with

DF: This generation describes itself as a generation of ‘serial entrepreneurs,’ so most of the people I interviewed told me they had already started a couple of businesses in the past and that they planned to have even more in the future. So what’s that about? Is it that “I’ve started this and now I’m bored,” or is it that “I’ve gone as far as I can with this and now I’ll go start something else,” I’m not exactly sure.

What I found is that there seems to be a mentality that says, “I love the start up phase, but once I get to the point where I have to start thinking about how to manage people and grow this company, and put in internal systems, all of a sudden that’s not very exciting anymore. Now it’s time for something new.” I think this generation of entrepreneurs is even more prone to this mentality than older generations. But I do think that a lot of this is just a factor of age, of being young, excited, ambitious, and a little bit distracted. I think that by the time these entrepreneurs reach their 40s and they have a couple of companies under their belt and they’ve got kids and mortgages and they are thinking more long term, they will draw from the failures they experienced while they were BT: In Upstarts, you talk about the incom- young. I think what is going to emerge is a parable speed at which Gen Y-ers are start- very experienced generation of leaders and ing businesses. Does this speed hinder managers who are going to create the next effective long-term planning? Given their generation of great companies because relative lack of managerial experience, they’re applying lessons from previous sucwhat prevents Gen Y-ers from launching cesses and failures. I do believe they will a business at a superfast pace and then let- change the entrepreneurial landscape for ting it fall to the ground just as quickly? all of us. Interviewed by Carmen Maria Sanchez BT

their brand, or doing pro-bono work, or volunteering somewhere and encouraging employees to volunteer with them. It’s an important part of the way they do business. As far as business and politics go, I met very few people during my interviews who had political ambitions. Like I said, I think they are more pragmatic, rather than tied to any particular ideology.

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INNOVATION AND ENTERPRENUSHIP

Choosing Academic Majors in 2010 So Not 2007

Choosing the correct major and the right career path is more important than ever in the present economy. However, this single decision that will impact your college years should be influenced by more than mere practicality. By Melody Rodari, UCLA

O

n November 19, 2009 thousands of students, faculty, staff, teaching assistants and researchers across the ten University of California (UC) campuses walked out of their classrooms and offices to protest unprecedented mid-year and annual student fee increases, a response to the state’s reduction of $33 million of university funding. At my home campus of UCLA, people filled the streets preventing any movement in and out of campus by groups such as the UC Regents, who met at Covel Commons to vote in favor of increasing fees by 15% for undergraduates and graduate professional students, and 2.6% for academic graduate students mid-year. According to the UC, an additional 15% increase for all students will be added for the 2010-11 academic year, re-

46

sulting in an increase of fees by roughly 1730% depending on one’s degree and major.

Overshadowing these numbers, however, is the addition of professional degree fees for certain fields such as architecture, social work, and urban planning, previously exempt from such surcharges. For example, UCLA’s annual fee charts indicate that MA students with resident status in social work will see their tuition increase by 37% in the next academic year, taking their bill from roughly $14,000 to $19,000 (excluding room and board) annually.

While it is too soon to know what longterm affect these fee increases will have on students’ decisions on where to apply or on their majors, what seems to be clear is that students are thinking about what majors are viable and relevant. This is evidenced by reading the Chronicle of Higher Education or more mainstream publications such as The New York Times’ Education Life. In recent months and weeks, both publications have included articles focused on identifying employable majors such as engineering and

ships, I very well may not have a job. In doing so, I hope not to deter them from pursuing a degree or degrees in art history, but rather to prepare them for the future that they may face and to prod them to think creatively of how to make their knowledge marketable and relevant to all possibilities. I wish that someone would have said similar words to me, but I started my graduate studies during a time of financial prosperity.

Now it is 2010 and the national unemployment rate hovers around 10%. With the increasing cost of education and no guaranteed employment after graduation, many students are left with the question of: do I choose to pursue something that I have passion for, but that may not have a direct vocational outlet or desirable salary, or do I instead opt for a commonly considered practical major? As someone who has chosen the former, I implore you, and all employers, to consider that while a degree in the humanities may not be as seemingly “shovel ready” as a degree in aerospace, the critical thinking and analytical reasoning skills associated

Your college years are not only about refining your knowledge and skills for your desired place in the world, but it is also a once in a lifetime opportunity to explore your interests and all of the things that your university has to offer the biomedical sciences, in addition to gently with liberal arts education encourages innowarning humanities students of the harsh re- vation and reflection, an asset to any vocaalities of having a degree in fields such as clas- tion and more importantly, to being a well sical studies and philosophy when universi- adjusted human being. ties are canceling these programs and majors.

Remember that your college years are In speaking with my own students, mostly not only about refining your knowledge and art history majors ---I am in the Department skills for your desired place in the world, but of Art History---these articles come to life are also a once in a lifetime opportunity for when they ask me if they should pursue grad- you to explore your interests and all of the uate school or switch majors. As someone things that your university has to offer you. who had dedicated my entire scholastic ca- The next time you see a class on Zen Budreer to one field, I do not have the privilege or dhist Art, don’t just ask yourself how this the right to steer them away from something course will help you get a job and fulfill your that they have interest or passion for. Instead, requirements, but also consider how it will I try my best to explain to them that when I help you see the world from a different pergraduate in June of this year with my PhD, spective and enable you to take various apyears of teaching and curatorial experience, proaches to find innovative solutions in what several publications, and prestigious fellow- ever you decide to do in life. BT

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Innovation and Entrepreneurship

EmPOWER! Reinventing Electricity in the Developing World.

By Faaez Ul Haq, Princeton University Living in Waste developing world.

Picture a community of 2,000 people, These landfill slums present a variety living on a landfill site where 3,000 tons of environmental and social challenges of garbage is dumped everyday. To make that will require innovative solutions. a living, they sift through the garbage The dumped, unrecovered trash not only searching for recyclables. Their homes are releases massive amounts of methane shanty houses made out of scrap material into the air, but is also frequently set on and their children play around on heaps fire, to make finding metals easier. Those of trash: this is Kachra Kundi in Karachi who work amidst these burning piles of Pakistan, a typical example of a landfill trash face severe health problems, such slum developing on the outskirts of unsus- as respiratory infections and high-degree tainably exploding mega-cities across the burns, which often get infected. To sus48

tain themselves, the residents of these slums are restricted to low-margin, inefficient scavenging. Meanwhile, opportunities for education and growth are severely restricted.

Solving a Dead-End Model What can be done to reverse this cycle of waste and desperation? It would be a mistake to dismiss these communities as sorry anomalies that simply need to be relocated. In fact, government attempts

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*6-10(64"-/C((D4(:1G(@63*(1/(5+00-.*>9(3.(+.*-.3B>-(/1*+3*14.;(1*(1/(1"=40*3.*(*4( 3==04356(*6-/-(54""+.1*1-/(1.(3(=04,+5*1?-P(.4*(0-,+5*1?-P(/*3*-(4:("1.,C(D6-0-( 1/(1.50-"-.*3>(?3>+-(*4(B-(/3>?32-,(:04"(*6-(+./+/*31.3B>-(6-3=/(4:(+.=045-//-,( *03/6(B-1.2(=04,+5-,(B9(51*1-/(>1E-(F303561(3>>(4?-0(*6-(@40>,C((Q=303203=6( Innovation and Entrepreneurship 54.*1.+-/R( (

9(2-.-03*40(*63*(O-"H=4@-0/O(*6-(54""+.1*9O/(/4513>(1.:03/*0+5*+0-P(>1E-( !G*035*14.( J3.+:35*+01.2( W1/*01B+*14.( X4./+"=*14.( %3/*-( ( 4>(3.,(*6-(6-3>*6(5>1.15C(D61/(=4@-0(2-.-03*14.(=045-//(3>/4(:40"/(*6-( Current Equilibrium!

4.(.+5>-+/(:40(3(64/*(4:(54""+.1*9H4@.-,(B+/1.-//-/(*63*(+/-(*6-(B9H to evict( communities living in landfill simple biogas technology that has been published on the virtues of this simple D6-(54.*1.+-,(=0-/-.5-(4:(*6-/-(54""+.1*1-/(0-:>-5*/(*6-(:35*(*63*(*6-0-(1/(3( (3/(3(/4+05-(4:(1.54"-C(Y40(1./*3.5-;(+.,12-/*-,(@3/*-(3*(*6-(B4**4"(4:(*6-( slums are usually unsuccessful and often in use for centuries. The organic content model of electricity generation. The addlead to ,-3,-.,(1.(*6-(5+00-.*(>1.-30(=04,+5*14.("4,->C(D6-(?3>+-(>4/*(3*(*6-(,-3,H-.,(53.( violent conflict between authori- in the waste, which is currently just be- ed value here is clear:, the introduction of *-0(:40"/(3(6126>9(.+*01-.*H0156(/>+,2-(*63*(@6-.("1G-,(3.,(3>>4@-,(*4( ties hoping to ‘clear away’ the problem of ing burned away, becomes an input to a this model to landfill communities such B-(/3>?32-,(1.(/3:-0(3.,("+56("40-(-::151-.*(@39/(*63.(@-(5+00-.*>9(/--C(S*(*6-( slum life/3"-(*1"-;(*6-(=045-//(53.(B-(:1.-H*+.-,(*4(1.*04,+5-(4=*1"3>(/4513>(3.,("4.-*309( and residents unwilling to aban- biodigestion process that produces meth- as Kachra Kundi will make way for more 14,-203,-(@1*6(3,,1*14.3>(4023.15("3*-013>(:40"/(6126HI+3>1*9(54"=4/*C( don their homes. To fix what is currently ane as the final product. This methane productive work hours, facilitate a range ?3>+-(1.*4(>3.,:1>>(54""+.1*1-/'( =4/*(53.(B-(/4>,(1.(>453>(32015+>*+03>("30E-*/;(40(+/-,(1.(3.(4.H/1*-(4023.15( an untenable situation, it is important then runs a small electricity generator of essential social services, and give rise

( to approach these communities in a pro- that ’em-powers’ the community’s social to new community-run businesses that D61/(1/(*6-(=0-"1/-(4:(-"T#$%!&U(!.-029;(3(/*+,-.*H0+.(/4513>(-.*-0=01/-(*63*( ductive—not reductive—state of mind. infrastructure—like the school and the can counter cyclical poverty. As a simple There is:45+/-/(4.(,-?->4=1.2(54""+.1*9H4@.-,(3.,(4=-03*-,(@3/*-H*4H-.-029(B+/1.-//-/( incremental value to be salvaged health clinic. This power generation pro- exercise, imagine for one moment, the from the unsustainable heaps of unpro- cess also forms the production nucleus world before electricity. Romantic nos1.(*6-(,-?->4=1.2(@40>,C((S*(*6-(6-30*(4:(-"T#$%!&UO/("4,->(>1-/(/1"=>-(B1423/( cessed trash being produced by cities like for a host of community-owned business- talgia aside, societies have become drasti*-56.4>429(*63*(63/(B--.(1.(+/-(:40(5-.*+01-/C(D6-(4023.15(54.*-.*(1.(*6-(@3/*-;( Karachi all over the world. @6156(1/(5+00-.*>9(V+/*(B-1.2(B+0.-,(3@39;(B-54"-/(3.(1.=+*(*4(3(B14,12-/*14.( The continued presence of these =045-//(*63*(=04,+5-/("-*63.-(3/(*6-(:1.3>(=04,+5*C(D61/("-*63.-(*6-.(0+./(3(/"3>>( communities reflects the fact that there is a dead-end in the current linear production model. The value lost at the dead-end can be salvaged in safer and much more efficient ways than we currently see. At the same time, the process can be fine-tuned to introduce optimal social and monetary es that use the by-products as a source of cally more productive as a direct result of value into landfill communities: income. For instance, undigested waste this singular innovation. This drastic imat the bottom of the bio-digester forms provement in living standards is taking The Meaning of emPOWER a highly nutrient-rich sludge that when place in Kachra Kundi, and emPOWER This is the premise of em[POWER] mixed and allowed to further biodegrade is leading the way. By turning the waste Energy, a student-run social enterprise with additional organic material forms at landfill sites, especially non-recyclable that focuses on developing community- high-quality compost. This compost can organic waste, into a valuable resource owned and operated waste-to-energy be sold in local agricultural markets, or that will feed back into the production businesses in the developing world. At used in an on-site organic farm. scheme, em[POWER] loops an otherthe heart of em[POWER]’s model lies Many pages of research have been wise linear and unsustainable production model into a cycle of hope.

2-/(4:(0-/-3056(63?-(B--.(=+B>1/6-,(4.(*6-(?10*+-/(4:(*61/(/1"=>-("4,->(4:( 9(2-.-03*14.C((D6-(3,,-,(?3>+-(6-0-(1/(5>-30';(*6-(1.*04,+5*14.(4:(*61/("4,->( >(54""+.1*1-/(/+56(3/(F35603(F+.,1(@1>>("3E-(@39(:40("40-(=04,+5*1?-( It is important to approach these +0/;(:351>1*3*-(3(03.2-(4:(-//-.*13>(/4513>(/-0?15-/;(3.,(21?-(01/-(*4(.-@( communities in a productive—not *9H0+.(B+/1.-//-/(*63*(53.(54+.*-0(595>153>(=4?-0*9CC(S/(3(/1"=>-(-G-051/-;( reductive—state of mind.

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

%3/*-(

X4./+"=*14.(

W1/*01B+*14.(

!G*035*14.(

J3.+:35*+01.2(

em[POWER] Equilibrium(

Expanding emPOWER While Kachra Kundi in Karachi is emPOWER’s pilot project, this integrated approach to landfill slum development is applicable to similar slums all over the world. We at emPOWER have selected eight new cities worldwide, each characterized by its high population density, concentration of urban slums, and need for development as potential candidates for future projects. Our vision for international expansion embodies the same modular approach that characterizes our plan at every stage of individual deployments: develop small, self-sustaining units and keep adding similar modules to maximize impact. Every successive implementation builds on the experience and resources gained from the previous

(

SPRING 2010 BUSINESS TODAY

5603(F+.,1(1.(F303561(1/(-"#$%!&O/(=1>4*(=04V-5*;(*61/(1.*-203*-,(3==04356( empower.indd 49

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Innovation and Entrepreneurship

Slum Name Neza Cono Sur Ajegunle Soweto

City, Country Mexico City, Mexico Lima, Peru Lagos, Nigeria Gauteng, South Africa

Population in 2005 4.0m 1.5m 1.5m 1.5m

Pikine Imbaba Dharavi

Dakar, Senegal Cairo, Egypt Mumbai, India

1.2m 1.0m 0.8m

Kibera

Nairobi, Kenya

0.8m

BT

Table 1: Future emPOWER projects ones. Additionally, by modularly expanding operations to other landfill communities and packaging their products together, em[POWER] can enable businesses at these sites to access markets which require scale. We seek locations with high levels of unused waste, a neighboring slum community, and most importantly, the presence of a strong local partner who can recruit community support for our teambased approach.

One of em[POWER]’s greatest strengths is its ability to combine strong

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community partnerships on the ground than 100 members based at universitites with cutting-edge research and student and research institutes worldwide, with initiatives at leading universities and insti- each team working across the globe on tutes in the U.S. Thanks to this ongoing different aspects of our common mission. exchange of expertise, we are able to come Through emPOWER, we aim to take big up with solutions tailored to each landfill steps with a simple, innovative development blueprint. We hope that more stucommunity. dents will join our initiative as it grows Students emPOWER and develops. With helping hands and As a student-run organization, em- creative minds spread across the globe, we POWER is in its most exciting stage to aim to infuse communities of the developdate. In the past year we have grown from ing world with a new power that can turn just an idea to an organization with more landfills into lands filled with potential. BT

BUSINESS TODAY SPRING 2010

empower.indd 50

02/03/2010 21:19:42

Protecting Mission-Critical Assets A D VA N C I N G Y O U R C A R E E R

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02/03/2010 20:52:09

Innovation and Entrepreneurship

Marc Rosa N ot r e D ame U ni v e r sity

YOUNG ENTREPRENEUR ON HIS EXPLOITS IN THE MUSIC INDUSTRY AND BEYOND

Business Today: How did you start your first business?

tition with it. It was mostly an idea but it really helped us get more experience.

Last summer, I formed Minute36 Music Management. It’s a music media art management company that works with students to manage their goals and develop their long-term careers. I have a really good buddy named Alex who was in a band, The Orange Juice. These guys were really talented and, up until then, they were getting by on just word of mouth. Well, last summer, I was reading the blog of a music manager and it reminded me of my relationship with Alex, where he was very involved in music, and I was very involved in business. So I gave Alex a call this past summer and talked to him about how he should expand his audience. He says, “You’re right. I just don’t know how to do it.”

So I tell him, “Here’s what you do: You keep up with your music and I’ll manage you.” It was my little side project of sorts, and we had a great time collaborating a lot on this. Before you know it, I formed Minute36 Music Management LLC.

Marc Rosa: It all started the summer before my senior year in high school. I was with a bunch of buddies and we were bored.

A lot of my buddies thought there was absolutely nothing to do, but I said, “No, you guys are wrong. There’s a ton to do, you just don’t know what’s going on.” I brought my buddies together from all over Naples, about twenty of them, and together we created a publication called GOGI, or Get Out Get Involved. It was a student run publication that advertised sporting events and other local events that kids could go to, in collaboration with the Naples Chamber of Commerce, the YMCA, the Collier County school board, and all types of businesses that wanted to get involved.

I was always involved in student government, but this was really my first entrepreneurial endeavor. But as I moved on to my college career, I really had to give that up. I was going away to Notre Dame and the publication was so geographically spe- BT: What kind of things did you have to cific that I didn’t think that I could man- do when managing the band? age it from so far away. I gave up my managerial position to the Naples Chamber of MR: We collaborated on the second album.

Commerce and they did what they pleased It’s very difficult to get them to play live with GOGI. concerts because they’re spread out around During my freshman year, I was hav- the country right now. But what we could ing a great time, but I thought it was time to do for them was put together a website for start something new and different. One of them, organize Facebook and marketing our ideas was Student Buzz, an online pub- campaigns, and market their albums and lication that allowed college kids to know come up with different album covers. We’re what was happening on campus. We put a also working on merchandise so that we little business plan together and we actually can sell the CDs with some type of package. went to the semifinals of a business compe- You can get music anywhere for free right 52

now. We put their music on their website and made it as easy as possible to find. So if a customer wants the music, they can get it for free, but they also get information that goes along with it. Right now, we’re trying to create an underground audience by having the band release a lot of mixtapes. The idea is to keep producing excellent songs, and by the time the band gets out of college, they will have this huge market base.

BT: Once you have the base, what’s the business plan for making a profit? You mentioned that you can’t really sell music anymore so what exactly would you be selling?

MR: We’re really excited about this summer. The band is living in a house on their own with a music studio and they’re going to pump out music. The plan is to come out with a new album and a new music video. And from that point, market, market, market. Market through Facebook, market through Myspace, market by word of mouth. As far as making profit, it’s really about selling T-shirts, posters, and other things that college kids would want.

We’ve had ideas about selling vinyl records for the indie niche. And we know a lot of people who really appreciate the quality and texture of vinyl.

Musically, the band is really a mix of rock and reggae. They have the potential to be mainstream but right now we’re really trying to build up that non-mainstream, underground audience. When we do go into mainstream production, we can have both mainstream and non-mainstream fan bases. Once they graduate from col-

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Innovation and Entrepreneurship

lege, the possibilities are endless. The band can go on road trips and tours, and then start making profitable albums. This summer, we’re also working with a couple of distributors to expand our merchandise and go through channels like iTunes to help legitimize their work. Eventually we will be selling albums, and fans can buy them if they want, but right now it’s really about the access to music.

BT: Will you continue this after you graduate from college?

MR: I don’t know. We’ll have to see. This started out as a passion project and we’ll have to see if the passion continues. Currently I’m working with four different artists. My friends like to compare me to Ari Gold from Entourage. Sometimes its good, sometimes its bad, but we’ll see if this persona persists. We’ll have to see.

BT: How do you find the time to do this in college? We all know how much time schoolwork and extracurricular activities usually take up.

MR: There really is no answer. I usually schedule as many things as possible and try to make it work. I carry around two planners and a notebook; it gets pretty crazy. I think there are three different categories of school: academic, social, and extracurricular. If you focus on two of those categories, you might have to give the other one up.

My freshman year was all about social and extracurricular, which turned out not to be the best strategy. It’s not that I gave up homework, but my priorities were making friends and business. You really can’t get distracted. The hardest part is saying ‘no.’

BT: How did you decide to start your own publication? It sounds like a daunting task.

MR: I was already pretty involved in my community. It was kind of tough at first because I didn’t know where to start. Being in high school, you really only have to worry about schoolwork and friends.

So the idea of starting a publication was pretty scary. But since I was involved in the community and student government, I had a lot of contacts that I could use, and I knew people who could help me with my idea. Talking to my professors and using the networking to spread ideas and col-

laborate really built up everyone’s interest.

BT: When you pitched your idea to businesses, how exactly did you go about it?

How did you get them interested in your business?

MR: We really just marketed ourselves really well. We showed them how we have 3-4 kids at each school in Naples really excited about it. It really worked well because we were giving them access to a market they hadn’t had before. No one thought about Naples, because compared to Orlando, there aren’t a lot of kids. So they were really excited about the prospect of a new market in Naples.

BT: Can you talk a little about your newest business venture?

out of anything but I say I can talk my way into selling something. Knowing a little bit about business is also helpful. Luckily for me, I already had two businesses platforms underneath me. It’s also about the smaller stuff, not necessarily the business plan or what you’re going to name the company, but how to handle excel sheets or how to talk to angry employees and customers. Maybe the most important is timing—if you wait for the best time than you can handle anything.

BT: What is your major?

MR: Right now, it’s Finance, and maybe Mandarin Chinese.

BT: How useful do you find it being a business-type major and running your own business simultaneously?

MR: My friends know I like to get involved with things on campus, and so one MR: I have an IT management class, and of my friends tells me, “I have this great every time I come out of that class, I walk idea but I think I need your help. There are out like “Oh my god, I can totally revamp these seniors on campus that want to sell my excel documents or my customer sertheir business. It’s called Dormdrinks. It vice.” The class has helped my business looks cool, would you like to help me run and the business has helped my classes. this?” and I told him I’d check it out. So In school, the problems they give you are I spent this past winter break looking at pretty clean—there’s always an answer their website, talking to people, talking in the back of the book, but in the real about pricing, and, before you know it, my world, it’s not really that clean or simple. buddy and I bought out the company with Running a business really taught me those another investor. We’ve owned it now for things. This collaboration between theoabout a month. Dormdrinks is a student- retical and the real world has made this managed, student-run, student-owned experience so successful and exciting. It’s non-alcoholic beverage, food, and snack been a phenomenal experience. delivery service for students. It’s great for Notre Dame because the campus is really BT: What advice would you give to someself-enclosed. Everything you need is on one in college who wants to start their campus, but students can’t get off-campus own business? to find competitive prices for drinks, foods, or school supplies.

MR: For someone in college, the best adRight now we deliver on Wednesdays vice I can give is to learn how to prioritize. and Sundays and we currently have four Also, remember that timing is everything. employees. We see a lot of good income, If you have a great idea and the economy and we also see a lot of good customers. So, is not good, things still might not work right now I’m balancing two full-blown out. It’s got to be the right timing. People companies, Dormdrinks and Music Man- also want to know that their money is goagement. ing into a safe investment, and if you give them that financial security, then there’s BT: What skills do you think are the most no reason why you shouldn’t get that monvaluable to what you’ve been doing? ey. Finally, don’t let schooling get in the way of your education. It’s the best advice MR: The best quality is definitely enthu- I’ve ever heard. I’m not saying drop out of siasm, but you definitely must have some college, but what I am saying is to learn decent communications skills. My friends how to balance it all and you can make it joke around and say that I can talk my way happen. Interviewed by Tiantian Zha BT SPRING 2010 BUSINESS TODAY

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BT TALKS

JOE KENNEDY CEO of Pandora

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On the Online Music Industry

BUSINESS TODAY SPRING 2010

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BT TALKS

PANDORA’S SECRETS Pandora’s single mission: to play only the music you’ll love. Through its Music Genome Project, this easy-to-use internet radio hub allows you to create over 100 unique stations catered to your personal music tastes.

CEO Joe Kennedy tells how Pandora interprets your music dreams and makes them come true.

Business Today: How much of Pandora’s projected growth will be fueled by innovations in technology, and what proportion will depend on innovative marketing?

Joe Kennedy: Pandora has grown because its users can tell other users about. It’s an extraordinary word of mouth story. Word of mouth, though, is being facilitated further right now by virtue by the number of devices that are Pandora-enabled, and in that sense our future growth is very much tied to technology. Certainly the iPhone and smart phones that followed the iPhone have been tremendous platforms for Pandora, accounting for more than 50%

of our growth at this point. More and more now there are consumer electronic devices in the home that enable Pandora in the living room, and then people seeing others listening to Pandora on an iPhone, or seeing others listen to Pandora on a DVD player, has further enhanced the word of mouth spread of Pandora.

Expansion of digital music connectivity is foundational to our upcoming growth for the next 3 to 5 years.

BT: How is Pandora going to compete with other forms of music services, for example download-based music services like Spotify, or iTunes?

JK: In general, if you think about how

you listen to music, most people have two modes. One mode of listening is, I know exactly what I want to hear and I want to hear it now. And to use a pop example, I want to hear Bad Romance by Lady Gaga, and I will play it. And there’s also a mode in which we want someone else to play DJ for us. Sometimes that’s because we’re doing something else and music is frequently the background as we work on a spreadsheet or have a party. And sometimes it’s because we just want a more serendipitous experience and want to discover some new tunes, or even if it’s a familiar tune then we might want to play it in a fresh and different order than you could on an iTunes playlist. We really scratch that second itch, SPRING 2010 BUSINESS TODAY

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BT TALKS

and we see our service as a complement to what Spotify does or what iTunes does; it’s that serendipitous form of listening that we’re more focused on. And interestingly, for the vast majority of people that’s the majority of their music listning. The percentage of the time most people play their own DJ and decide what songs the want to hear and in what order is generally a relatively small percentage of the time spent listening to music. Half of all iPod usage is on shuffle mode, because people are trying to create that serendipity, and that’s exactly what we’re most focused on: the

devices that were connected, and the wonderful thing in today’s world is that connectivity is becoming ubiquitous and all of these devices are becoming internetBT: Could you explain more about Panconnected.

The iPhone defi nitely started dora’s expansion plans, such as increasing that and ignited that, but like I said all the user’s ability to listen to it anywhere devices like the smart phone devices to and any time? the Blu-Ray DVD players can help people JK: Yes we’re really focused on enabling stay connected, and some people can get Pandora to being listened to wherever or Netfl ix, some people can get Pandora... whenever a listener wants, in the home, We ensivision a world in which most lisin the car, commuting, jogging, when- tening to Pandora is not on a desktop or ever. Pandora started 4 and a half years a laptop PC. Already more than a third ago pretty much tethered to desktops, of our listening is on something other and laptops PCs because those were the than a desktop or laptop PC. I’m imaginabsolute best serendipitous music listening experience.

Half of all iPod usage is on shuffle mode, because people are trying to create that serendipity, and that’s exactly what we’re most focused on: the absolute best serendipitous music-listening experience.

ON JOE KENNEDY’S CAREEER BT: Can you please describe your transition from graduating with a Bachelor of Science in Engineering degree to a business career?

JK: Transition for me started with summer jobs between sophomore year and junior year and junior year and senior year.

Those were important in terms of introducing me to the business work place and actually also formed a connection that led to my first job after Princeton so the summer experiences were very important in my career. Even though I ended up doing something quite different immediately after graduation from what I had done over the two summers, it was the personal conections I made with people at a company I joined that paved the way for me to

56

find what I thought was the right job after college BT: What was your first job out of college?

JK: My first job out of college was a business planning analysist, working on the business plans for a very large division of general motors BT: It seems that as soon as you graduated, you worked in a field that’s unrelated to your computer science and engineering background. Was it a difficult adjustment?

JK: It might seem that way but that’s really not true in that while I didn’t do elec-

trical enginenering and computer science in my first job, I worked in a company that was fundametanally a technology-oriented company and from the beginning, for every day I worked since I left Princeton, the fundamental foundation in terms of understanding engineering, understanding things that are technical have served me extremely well, even when I had gone off and done things that were more along the lines of business planning or marketing. That technical foundation was always relevant.

BT: Do you feel that it’s particularly true for the company where you’ve worked, or would it be applicable across the board?

JK: I certainly think that we’re in a world

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BT TALKS

ing that in the next few years most of our listening is going to be on mobile devices, cars, living rooms.

BT: What is going to be the new trend in selling music? Right now it seems that most people use Pandora for free, whereas relatively few people subscribe to the premium service.

JK: We actually have over a quarter million people subscribed to the premium service, but the vast majority of our listeners listen to the free ad supported service and thats great. We have a very

nicely rolling business in selling ads, and we are generating enough revenue to make the business work off the ad dollars.

BT: Can you talk a bit about the Music Genome Project? To where we can trace its roots? Was it the creation of technicians, or musicians, or was it both?

BT: Are you working on broadcasting outside the US?

JK: The music genome project was conceived of by a musician, Tim Westergren, and the first co-founder he joined with was a technician, actually a math, computer science physics triple major from Cornell. And the theory and implementation of the concept was an extraordinary integration of music knowledge and technology, both through computers and math.

JK: We absolutely have a vision of making Pandora a global service. The good news is that the Internet is global, but that bad news is that music copyright is country-by-country. It will take a lot of time to sort through all the issues with all the countries around the world, but we’re commited to doing so.

There’s definitely a trend in which technology is [becoming] a core ingredient of possibly everything.

in which it’s harder and harder to find a And I remember distinctly thinking at above all other subjects, and to some extent job in which technology is not relevant. that well point, well that’s not going to be electrical engineering and computer sciI think it’s particularly true in my case. I me. And now I have spent the last 11 years ence. One of the fascinating things about work for a music company now and tech- in silicon valley and running a very entre- Pandora is that there is a tremendous nology is really important, and I worked preneurial small business at this point, so amount of mathematics in Pandora and for a lending company several years ago my career was more serendipitous. In ju- it has reunited me with that deep love of where technology was really foundational. nior year I did begin to have a sense that mathematics as well as computer science.

There’s definitely a trend in which tech- an MBA would be very good for me and nology is a core ingredient of possibly I wanted to work in technology business, BT: What advice would you give to stueverything, certainly everthing that’s hap- but I wanted to work on more than the dents who have interests similar to yours. pening in business and commerce and ar- just technology aspect of the business. I Would you advise them to start with a guably in fields outside of those as well. enjoy the technical facets of business but I more technical job, or would you advise also enjoy the other non technical aspects them to start immediately in business?

BT: When you first started working did of the business and it really fasctinates me you envision your career to look like this? to integrate them all. So I got this sense JK: I think in many ways my career exemhow far ahead did you plan? somehow while I was still at Princeton plifies that there are many different paths and in many ways it defined my career but to the same end, and so my biggest mesJK: I had no idea where I’d end up. In fact the specifics of what I’ve been doing in the sage is relax, there’s not one answer and a funny story: I remember when businss industry , I never could have predicted. the most important thing I believe in the school respresentatives came during juearly part of the career is to find somenior year to Princeton and in particular I BT: How did you decide to major in Com- thing you love to do. If you love to do it, remember he said that over half the peo- puter Science and Electrical Engineering? you’ll be better at it, and if you’re better ple who graduate from business school, 25 at it you’ll be more successful, and then years after receiving that MBA, are work- JK: Great question. In high school I loved you can find the pathway that leads your ing in small or entrepreneurial companies. math. I still at the core probably love math career to where you want it to go Interviewed by Tiantian Zha BT

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B u r ton M a l k ie l Famed Economist – On Financial Markets Dr. Burton G. Malkiel is the author of the bestselling investment book, A Random Walk Down Wall Street. Dr. Malkiel has long been a professor of economics at Princeton University, where he was also chairman of the Economics Department. Prior to this post, he was the dean of the Yale School of Management and the William S. Beinecke Professor of Management Studies at Yale from 1981 to 1987. He is a also a former appointee to the President’s Council of Economic Advisors. He has served on the boards of several financial corporations such as Prudential Financial and the Vanguard Group and nonfinancial corporations such as Genmab and Theravance, and he is still active in such roles today.

Business Today: You’re famous for being a proponent of the efficient markets hypothesis. How do you think the hypothesis held up in light of the 2008 financial crisis?

Burton Malkiel: I would say that in some sense it confirmed efficient markets and in another sense it didn’t. The sense in which it was quite rational for people is that if you are a trader and if you’re in a situation in which if you make profits, you keep the profits, and if you make losses because you’ve made bad decisions, either the firm or in the case of the financial crisis, the government picks up the tab. In other words, if you’re in a situation where it’s heads I win, tails you lose, then it’s in some sense perfectly rational to take on a great deal of risk. The problem was that the regulators were asleep at the switch letting these financial in-

stitutions take on too much risk. This is what’s called moral hazard; namely that people will tend to take on too much risk if you privatize the gains and you socialize the losses. So, in that sense, some of the things that happened where people clearly took on much too much risk is perfectly rational. I mean, think of yourself as a trader for Bear Stearns. If you made a profit in a particular year, you get a big cash bonus. You make a profit the next year; you make a big cash bonus.

Then you lose more than that in the third year. You just walk away, and in the case of the financial crisis the government picked up the tab. So, in that sense, it was perfectly rational.

Now what wasn’t clearly right was that these very complex derivative instruments were inappropriately priced and, if you believe that the efficient market hypothesis means that everything is

going to be absolutely accurately priced, you would say that this was inconsistent with the efficient markets hypothesis.

My own view is that the EMH (Efficient Market Hypothesis) doesn’t mean that the market won’t make mistakes; the market certainly makes mistakes and did in this case, but in my view that does not mean that markets are not efficient.

I think it’s often the case that the new instruments and particularly complex instruments don’t get efficiently priced and we do know that there are bubbles in stock prices and sometimes Internet stocks are inefficiently priced. So, I fully understand that the pricing of these instruments was not accurate but, in my own view of what efficient markets hypothesis means, it was not a situation where you then would believe that markets are no longer efficient.

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BT: Among economists, Greg Mankiw has supported a bank tax and Paul Krugman has supported a financial transactions tax. What do you think about these proposals?

BM: I don’t agree with either of them.

The transactions tax is, as I have argued in the Wall St. Journal with George Sauter from the Vanguard group, likely to make markets very much less liquid, very

that there were a number of economists who thought you ought to let the banks go into bankruptcy and save the depositors but let the bondholders and the preferred stockholders suffer and wipe out the common stockholders. We didn’t do that as a policy, what we did was we had a policy that might be called forbearance; we will let the banks earn their way out of the situation. So, if that’s in fact the policy that the government used, there’s

To say the banks should earn their way out and then to say they can’t do the most profitable thing they do doesn’t make sense.

much less efficient. It wasn’t the traders in the market who caused the financial crisis; it had nothing to do with the so called high frequency trading that’s done in the market. It was an entirely different phenomenon and I think the result of the transactions tax would be very much less liquidity and actually less efficient markets. For example, most of the high frequency trading is arbitrage trading. This kind of trading brings the prices of S&P futures in line with the prices of the underlying stocks. Such trades make both the futures and the underlying stocks more efficiently priced.

So I think you will get less liquidity, less trading, and paradoxically, less efficient markets if you have the transactions tax.

What we do know is that in countries that have transactions taxes and when we had a transactions tax ourselves, the bid-ask spreads were higher so that it was more costly for individuals to trade and even for institutions to trade, so I’m absolutely opposed to that.

In terms of a bank tax you can certainly understand the argument that, gee the bankers were responsible for—and they certainly were, at least in part—for the financial crisis so let’s tax them. The problem that I see in that is 62

something inconsistent in saying that the banks should be allowed to earn their way out but let’s tax them to make sure that they don’t earn their way out. As I said I understand the feeling that people have that the banks were responsible and they ought to pay, but there’s something peculiar in my mind about saying our policy is we’ll let them earn their way out and then we’ll tax their profits. That doesn’t make any sense to me.

BT: What do you think of the Volcker rule that would ban proprietary trading?

BM: Again, the same kind of argument I just used. Proprietary trading is the most profitable thing that banks do. To say the banks should earn their way out and then to say they can’t do the most profitable thing they do doesn’t make sense. I think it’s also not entirely clear what the details of that tax would be, but if the details were that you can do some trading to help your customers but you can’t do any trading to take on risk, it would be just devilishly hard to separate proprietary trading that is just a help to your customers from proprietary trading that allows the bank to take on a great deal more risk. I just think the details of try-

ing to do this in a way that lets you serve your customers is not something that you will be able to do practically.

BT: Do you think there is any effective way to deal with the concept of institutions being “too big to fail” and is there any precise way to determine which institutions are in fact “too big to fail”.

BM: Look, I think there’s a real problem with big institutions because they are in a sense too big to fail, and one proposal is to break them up and have them be very small. I don’t think we can do that, and I don’t think we should. Big corporations need big banking institutions. Big corporations do business all over the world, and they need big institutions to be able to service them, so I don’t think breaking them up is the right answer nor do I think it’s even necessary. For example, just over the border in Canada, five banks essentially control all of the banking in Canada, and Canada didn’t have the problem that we had. I think the problem was that we completely failed to regulate properly and in particular we let financial institutions, both investment banks and commercial banks, increase their leverage—that is their debt—to extraordinarily risky levels. Regulation was much better in Canada: they limited the banks’ leverage ratios, and they limited the amount of debt that they could take on. So I don’t think the answer is just to put the US at a competitive disadvantage versus Canada or some of the big banks in London by breaking them up. I think the answer is much better regulation. When I say ‘better regulation’ what I mean is that you need to be much more careful about making banks have more capital and banks with liquidity requirements—that is to say, when they take on debt one of the problems in the crisis was: a) They took too much debt and b) The debt was short term, so that when people got worried they wouldn’t roll over the so-called commercial paper and shortterm indebtedness of the banks and so the banks couldn’t finance themselves.

So what you need are leverage requirements that reduce leverage, and liquidity requirements that make sure to the extent you’ve got debt, it’s not all short term debt, and back to the proprietary

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trading issue, proprietary trading where you take big positions may well be riskier, but I think the way you deal with this is you make the banks have more capital against their proprietary trading assets.

BT: What do you think of the proposal to make an independent agency to regulate consumer loan products?

BM: Probably not a bad idea. But look, to say that the problem was that rapacious bankers caused the crisis by misleading individuals is, I think, far too simplistic. Probably most of the problem was in fact encouraged by the government—you know 75 percent of the bad loans are held by Fannie Mae and Freddie Mac and Congress was encouraging these agencies to buy up loans with less equity, with less documentation. In other words, having a consumer agency is not the worst idea in the world but to take the view that that would have solved the problem is far too simplistic. Again, if we go back to Canada, while Canada did have a consumer protection agency it basically was described in a talk at Princeton recently, by a former governor of the Bank of Canada, as an agency that really did almost nothing. So it’s not the worst idea in the world but don’t count on that to give you an answer to the problems that we’ve had.

BT: What do you think of the state of corporate governance in America?

BT: What investment advice do you have in general, and do you still think index funds are the best long-term investment?

BM: The two bits of advice that I think are the best advice that I could give to anybody would be to start early—the dollar you save in your early twenties is going to be worth a hell of a lot more in retirement than the dollar you save in your forties. So number one: save early.

Number two, the evidence is that consistently index funds are absolutely not mediocrity. They’re not average; they’re above average because index funds are low cost and the investor who saves for retirement using indexed stock and bond funds is going to have above average performance.

BT: How do you feel about emerging market index funds as opposed to just putting all your money in the S & P, for

substantial amount I would say I think people ought to have at least half their money outside the US. BT: Many students want to work in finance, government, possibly even academia. You’ve worked at the highest levels in all these worlds. What advice do you have for students who aspire to these types of careers?

BM: Number one, get as much education as you can because I think in our complex world that we will experience over the next fifty years, education is going to be absolutely essential. So I think in general people ought to think about graduate education, not necessarily right after college, but at some point. I would also certainly say from my own experience that people ought to be open to moving from sector to sector and I think that that will both make life richer and will also make one more effective in dif-

The evidence is that index funds are not mediocre, they’re not average, they’re above average because index funds are low cost and the investor is going to have above average performance.

BM: I don’t think it’s very good, but I am hopeful that things are changing for example? the better. Having been director of many corporations, I would say that 20 years BM: I think that people have what econago too many directors were just happy omists call a home country bias. People to take their paychecks and say yes to generally put too much money in their anything that management asked, and I home country. The emerging markets think some of the criticism along these are growing much faster than the devellines was certainly justified. My sense oped markets, and I think in the next today is that things are changing—that ten or twenty years they will continue boards are taking their responsibilities to grow a great deal faster. If there were much more seriously. So, while I would a third major piece of investing advice absolutely agree with the critics who I’d give—with, number one start saving would say it has not worked very well in early and number two use index funds— the past, my own view is that it’s work- number three would be to put a substaning much better now and I am hopeful tial amount of your money outside the that it will continue to get better in the USA. What do I mean by a substantial future. amount? Well the US economy is maybe 40 percent of the world economy so by a

ferent areas. I’ve worked on Wall St., I’ve worked in the government, I’ve worked in academia, and I think I was able to be more effective because of the experience in the different sectors. So I think not only has it made life richer, but I think I’m a better teacher of finance having worked in finance, and a better government official because I have worked in academia and I have worked in finance.

I also think that in terms of working in finance, you’ll learn a lot from academia that will help in the practical world, so I would urge people to be very open to whatever possibilities arise and that life will be richer and better if one thinks of a career that is not confined to one specific area. Interviewed by Ryan Shyu BT SPRING 2010 BUSINESS TODAY

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J im C r ame r Host of CNBC’s “Mad Money” – On Playing the Stock Market Jim Cramer, the fiery host of CNBC’s hit, “Mad Money w/ Jim Cramer,” has one goal in mind—to help you make money. A graduate of Harvard College and Harvard Law School, Cramer jumped into the stock market by investing his student loans. He went on to become a hedge fund manager and founder/owner and Senior Partner of Cramer Berkowitz. Cramer retired from his hedge fund in 2001, finishing with one of the best records in the business.

Cramer just published a new book, Getting Back to Even.

Business Today: How early in life should a young person begin to build a stock portfolio? After landing the first job? In college?

college investors as well, or are there certain long-term growth industries that would be better suited for young investors’ money?

from law school. What inspired this decision? Is hand-on experience the only way to learn the ins and outs of investing?

Jim Cramer: You should start immediately.

Start with one share. Get familiar with the process. If you don’t have a lot of money buy a share of some company you like- Apple, Disney, Google I don’t care. You can’t learn without skin in the game.

JC: While no one ever got hurt taking a profit and while it is never good to be greedy, the only time in your life when you can afford to let things run is in school because you have your whole life to make back the money. Let ’er run!

BT: What are the biggest stock market investment blunders that a college student could make?

BT: There are other investment opportunities other than the stock market (e.g. commodities). Do you have any advice for young people who may want to invest in those?

JC: Overconfidence, I guess. It was pretty outrageous but I had a hot hand and pressed it, something that I have been known to do all my life. But remember, when you are young you have years and years to make it back- and I was confident that I could do so.

Better than gambling!

JC: Giving up when they lose money . My first stock was an orange grove stock. Got hit with a frost. Went from nine to zero. I lost $63. I got right back on the horse.

BT: The economic climate in this country has changed drastically over the past year.

What are the changes in the market that students should be most aware of right now?

JC: You should recognize that, despite what you read, the system is sounder than it has been in years. The budget deficit is terrible but we will grow our way out of it. Not now, but eventually.

BT: On your show, you often advocate for selling part of one’s holdings in a company and letting the rest run after it has some success. Is this kind of play advisable for

JC: Actually I would say that you should always own gold. I do not think that people should trade commodities without deeper pockets because you can lose more than your investment because of the margin rules and that’s always a mistake.

BT: How did your time at Harvard influence your ultimate career path?

BT: What did working in a hedge fund teach you? What did you dislike?

JC: Hedge funds teach discipline. If you are disciplined you will make money even if you aren’t that good at stock picking. Disciplines like never turning a profit into a loss and cutting your losses first—your first loss is your best lost. What I disliked is real easy: myself.

BT: Do you ever make investment decisions based on your mood or a gut feeling?

JC: My gut has been very good to me, but gut is really synonymous for seeing patterns before, recalling them, and placing calculated bets on them. That’s what I did.

That’s what I do still. Pattern recognition and betting whether the pattern is going to be repeated and the odds of such a move.

When the odds are greatest, my gut says BT: Your first experiences in the stock mar- pull the trigger. Interviewed by Caroline ket came from investing your student loans Hanamirian BT

JC: My time at Harvard frankly had almost nothing to do with what I ended up doing in business but plenty to do with “Mad Money,” which is literally a liberal arts show gone wild! I am not kidding. It is Western Financial Civ 101.

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SWEET BUSINESS ADVICE FROM THE KING OF SUGAR John Sheptor, CEO of the Imperial Sugar Company, offered insight into the “Lost Economic Foundation” at the Business Today fifth annual Regional Conference, held this year in Austin, Texas.

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As future executives, you have the everyone along the journey, not just a few. responsibility and the accountability to Injuring one stakeholder for the benefit address the social network of where our of another only leads eventually to breakbusiness is operating. I chose to do that by downs of the delicate system that connects working as the leader and the founder of all our stakeholders together. a not-for profit company that delivered esThe US economy is in a very critical sential medicine to the poor and the poor- state. We are accumulating public debt est countries of this world, and I’ve also done that in my daily activities. I continuously challenged myself to be intelligent enough to produce the maximum profit possible, generating wealth for my investors and, at the same time, improve the lives of the communities that are a part of our company. You can do both; it is not a tradeoff, one or the other.

As a leader, you are challenged to stand up to responsibilities and accountabilities to your shareholders and your community.

That particular project I worked on for three years resulted in two hundred thousand people receiving treatment to 1.3 million receiving treatment; people who at a frightening pace, with 3.8 billion would have died otherwise from HIV/ dollars a day of public debt increase. Our AIDS. We reduced the costs of a patient wealth is being transferred from our counto $180 per year, enabling the donor dol- try through a deficit of trade. One of our lars to go a factor of ten further. We never greatest assets is evaporating as we pay lost a shipment. The US government, prior others more than we are receiving. Our edto our involvement, lost thirty percent of ucation now ranks 27th in the world and what they shipped into the economically we are graduating substantially fewer scichallenged areas. We didn’t lose one the ence and engineering students than those whole time. How did we do that? We ap- whom we compete against within the plied good, solid business sense, business global economy. There were some 80,000 experience, and business capabilities in the engineering graduates last year compared middle of a mission-driven initiative. It to the 350,000 graduates in India and over was exciting for me as a business executive, 600,000 graduates in China. Our current in that I learned a lot, and the people that state is simply not sustainable. We, the big I worked with learned a lot, and the US we, you all included, must urgently bond government learned how to do multi-year, together to change our course. indefinite quantity contracts solving pricTo do so, we must redefine our econing, as opposed to buying all the medicine omy. To do so, as we have in the past, we on the spot. Everybody learned. But most must step into new business paradigms importantly, disadvantaged people were before others do. What is competitive adallowed to live. So I challenge you to not vantage? It is implementing an idea that forget as you advance in your careers that you had first, exploiting it until it’s copied, it is you who has the responsibility to your and then following the next new idea becommunities and your employees, and not fore anyone else does. Our great cultural to get wrapped up producing wealth for dream of the opportunity to have a higher your investors. quality future must be reestablished to catEvery executive has the difficult task alyze the relationship between life success of managing long and short-term objec- and hard work. Hope has been lost by a lot tives simultaneously. We integrate into of people in our economy. The dream has this process values, ethics, strategy, tactics, been replaced with “Can I survive?” Leadour visions, and our various interests. Ul- ers hold the responsibility to give it back. timately, our aim is to maximize value cre- Continued results would collapse the ation for all our investors, to create wealth structure that holds our economy together for our stakeholders. But we should be do- and the demise of the life that we celebrate ing that by creating pathways that benefit together today. Some of you come from

economies that have eroded away and you know that my words can become a true.

We have to fix this, or the life that we have today will not be given to our children and grandchildren.

A vibrant manufacturing sector has preceded the development of every great

What is competitive advantage?

It is implementing an idea that you had first, exploiting it until it’s copied, and then following the next new idea before anyone else does. economy. Some of you are historians and can go back to your texts and validate that. Consider both the expansion of the US, Europe and Japan and now the rise of China. Anecdotal evidence shows that manufacturing leads to a growing middleclass and an expanding demand. Those demands often lead to growth in the service sector and the eventual competition for talent between the service sector and the manufacturing sector. The exchange of talent continues with productivity advances but eventually depletes the middle class of the strength of the manufacturing employee. Higher paying blue-collar jobs are being replaced with lower paying white-collar jobs and the economic foundation begins to crack. This is not an overnight change, but one that takes place over decades.

The renewal of our manufacturing assets stimulates new products, new jobs, new careers, and new research to start the cycle again. Investing in the manufacturing sector allows the economy to reinvent itself of new products and new business opportunities. The obstacle is not compensation level, as some might think, but rather to renew the technology banks.

How many times have you heard that the US jobs have disappeared because foreign laborers are willing to work for less an hour? I assert to you that that is only smoke. It is a cloud that has been put in front of the public’s eye to hide to truth.

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workforce that has a lower hourly wage Our leaders must speak new hope and viif you have better technology. The better sion into our society regarding our future technology comes from the willingness to of our global economic leadership. Tax reinvest in it, to create it, and to build it. If form must rebalance the benefits of finanyou stop doing that, then business, once cial engineering and manufacturing enthe technology has been copied, flows gineering. We cannot try to recover what from higher wage rate to lower wage rate we have lost exactly as it was before. The economy. world economy has evolved and moved on.

Our appetite for short-term finan- And we must now compete against a forcial return has swayed our wisdom, to midable China. To do so, we must develop sacrifice our future for what we can ex- technologies and products that they don’t

Fundamentally, we must feed our capacity to create, innovate, and develop by aggressively training our youth in science and math based studies. ploit today. Pressure on businesses to demonstrate higher multiples of shortterm returns has led to cost minimization and the wasting of our mental and physical assets. Manufacturing has become a nonstrategic asset in the eyes of many of our leaders and has become outsourced to those with lower cost alternatives. Our employees have been redefined as human capital, where they were once considered our most valued asset. How do we devalue, how do we deface our employees? We turn them into something we can identify as if they were a piece of steel. We have lost our wisdom in the balance between the short-term and the long-term.

We must urgently rebuild what we have allowed to erode away.

We must incentivize entrepreneurial activities; some might say small business reform. University research grants, small business tax incentives, ready access to visas for the world’s brightest minds, reduced tax burdens upon numerous new manufacturing assets, workforce reeducation incentives, and public recognition of this who lead and achieve in this model of reform needs to occur. Fundamentally, we must feed our capacity to create, innovate, and develop by aggressively training our youth in science and math based studies.

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produce.

I turn my attention to a case study.

My employer, Imperial Sugar Company, is the largest manufacturer of sugar in North America. We produce 3.8 billion pounds of sugar annually. Our customers span industrial baking, cereal producers, confectionary beverages, restaurants, institutions, and retailers. We produced white refined sugar, brown sugar, and any kind of sugar that you want to consume.

We purchase our raw sugar domestically and internationally. Imperial Sugar makes a profit or a loss based on how we trade futures for those of you who are aspiring futures traders. We’re like most commodities; we are actually a trading company.

We may look like a retail or consumer goods company. We are a trading company because that’s the origin of our product.

Imperial Sugar Company abruptly spun into financial crisis February 7, 2008, just 8 days after I was appointed as the CEO of this company. The port went with Georgia facility, experienced the combustible dust explosion that ultimately killed 14 workers and injured more than forty others.

That shutdown of the Fort Wentworth Plant reduced our production capacity by 50% for two months. I have yet to make a profit since becoming the CEO of this

company. Filing every quarterly has been a discussion of how we’ve managed the loss as opposed to company profits. The reconstruction would cost $230 million against a market cap that ultimately would sink to $60 million. Now, you’re the board of directors, you have to make this decision. Do you invest $230 million to rebuild when your market capital is measured at $60 million? Our stock price plunged from $22 a share to $5 a share over 14 months and the execution of our recovery program would once again rebuild investor confidence regarding our future earnings potential only 18 months after the original event. Today we trade for $15 a share, almost back to where we were in the beginning. I aspire to cover that gap over the next months and quarters ahead. The board of directors faced the complex and difficult decision to decide the fate of the company. Within the following 60 days we met multiple times to consider our alternatives. Our options included rebuilding, partially liquidating, or closing the company. We did our best to quantify the returns of each alternative, much like your exams and your classes.

You’re given a hypothetical case and you determine what the return might be. But this is the real world; we were making forecasts that would determine the fate of the lives of over one thousand employees. Our options were difficult to assess or project.

We did our best to quantify, but the most difficult part of this analysis was how to put a value on the intangibles.

We made the choice as a company to rebuild and at the same time invest in our future by renewing our technologies and establishing new industry-based practices.

A bold step but one anchored on the belief that our employees would contribute materially to our future returns if given that opportunity. I was one voice in the boardroom representing thousands of workers.

I believed in their capacity to create and I represented and established a value in the equation that we were just talking about for the directors on the board. The CEO of the company is the director of the company that has the contact with the employee base. It’s my responsibility to put a value on the capacity of the work team. I did that in the boardroom and I influenced the decision that enabled us to make a great decision for the company to rebuild.

We retrained our personnel with support

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C-Suite

from the state of Georgia and we recruited new talent support our transitions to more modern work practices and new technology. We engaged our personnel in the rebuilding, and, in creating our new future, we enabled 450 families to continue their lives ans a community of 30,000 people to hope for a brighter future and we chartered a course for superior value for our shareholders. We set our course to create technological quality, service, relationship, management, and innovative and competitive advantage; the common thread being the successful engagement and contribution of our employees. To choose this direction we had to believe in them and their ability to arise to the occasion. They had for generations.

To begin, we had to heal and to overcome tragedy. Fourteen colleagues had died and 14 others were severely burned, their lives changed forever. We needn’t to comfort each other to meet the needs of those who were lost and disabled. We prayed together, we mourned together, we wept together. The process was heartbreaking and required courageous, compassionate leadership. This was the cost that we needed to pay in order to have the opportunity to proceed with the alternative of our choice. Without the healing and the overcoming of the tragedy within the work force, we couldn’t ignite the capacity that we put a value on of our people.

People reinvent companies, people generate new ideas for new business, but they don’t do that when they are trapped in the loss and heartache of a tragedy of this nature. We needed a healthy workforce and a healthy community to embrace our challenge ahead. Investing in our employees would bring what return? We had to believe in them and act with moral integrity.

We kept all of our employees on pay roll the entire time we were rebuilding. I believe that continuity of employment had a value. I believed that taking the opportunity to re-train your workforce while you were shut down gives you an opportunity to run better when you start up again and that the cost of carrying that employee work base was justified by the return we would get when we started up again. We initiated and ceded a community relief fund that raised over $1.5 million in support for our employees’ families. We provided full-time hospital assistance, includ-

ing housing and transportation and paid it came from a credible response to a tragfor all funeral expenses. We trained our as- edy and the way we treated our employees. sociates and manufacturers in approaches We were humane, we were compassionate, and basic functional skills while we were and we gave dignity to those from whom down. We provided meaningful work for dignity had been taken. every person on payroll, including comIn completing our $300 million munity activity like construction of three rebuild, we established new norms for houses for Habitat for America by our combustible risk management within the mechanics, electricians, and our plumb- industry, personal safety, and food safety. ers. And I shared their hurt and loss by Our new facility produces much higher walking together with them during these quality sugar products than before with weeks by not leaving the site until they more flexibly to meet more customer rewere ready stand by themselves. I stayed quirements. We experienced no employee in Georgia for five weeks straight, ran the turnover; no employee left in all the time company from the site of the tragedy, not we were down. And we received favorable from the comfort of my office in Houston. federal and state treatment after regaining I gave our employees a new vision to reign their trust in our credible investments and this darkness of tragedy. I invited them to credible actions. Imperial Sugar Company transform their company during crisis as will never be the same again. We stayed a metamorphosis into a new day of com- our course in the storm and trusted that petitive advantage and growth. We would investing behind our employees would become a North American sweetener return the best alternative return. We becompany as opposed to a Texas based sug- lieved. ar company. We would assume sales leadCrisis is an opportunity to transership as a consumer trend to organic and form your future. When you go through socially responsible products. We would crisis moments, there are opportunities establish new industry practices in safety to transform yourself as opposed to fail.

Crisis is an opportunity to transform your future. When you go through crisis moments, there are opportunities to transform yourself as opposed to fail.

and service and bring new innovation Investors and employees can succeed by to the sweetener category to create new being on the same team, seemingly imeconomic opportunity. We would speak possible in our media conversation about for our industry and influence positive Wall St. and Main St. today. But the change. We would embrace our custom- investor and the employee share a comers and growers as partners and develop mon vision, if leadership unites the two solutions in collaboration along the supply together. Together sustainable short and chain. Imperial Sugar Company would long-term returns can be achieved and become what it had not been before, rein- our future prospects greatly enhanced. venting ourselves, emerging from tragedy The invitation to bring both together and into new strengths. Our insurance into a common game plan must come carriers advanced to us $300 million dol- from us, the leaders of our economy. I lars in support of rebuilding and we ulti- invite you to help us bring this optimism mately resettled with them for $345 mil- and hopeful reality into our great nation lion. Why did they believe us? I assert that once again. BT SPRING 2010 BUSINESS TODAY

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