Johns Hopkins Carey Business School, Fall/Winter 2011 Where business is taught with humanity in mind.
Featur es 12
M O D E L B E H AV I O R
By Mat Edelson
High-frequency trading has the potential to make markets more volatile than ever. Federico Bandi uses complex mathematical models to find reason—and to predict behavior—amid the chaos. 18
T H E D I SAST E R TA B
By Lawrence Lanahan
Earthquakes, hurricanes, fires, and floods. Natural disasters are unpredictable, costing billions in economic losses each year. Can businesses make them survivable?
These shipping containers piled up in the wake of Japan’s 2011 tsunami are evidence of the estimated $210 billion in economic losses caused by the disaster, most of it uninsured. Story on page 18
24
BY T H E N U M B E R S : T H E G R E AT FA L L O F C H I N A
By Jim Schnabel
China’s growing economy is second only to that of the United States, but with economic imbalances threatening sustainable growth, China needs to adjust. Adjusting, however, carries its own set of risks. 26
T H E B I O CO N D U CTO R
By Michael Blanding
For nearly three decades, bioengineer Robert Langer has been leading the way in connecting science and industry—with more than 800 patents and 200 companies to show for it.
COVER PHOTO: BILL DENISON TABLE OF CONTENTS PHOTO: API
FA L L / W I N T E R 2 0 1 1 | 1
DEAN’S MESSAGE
D ep a r t m ent s
p
f
s
complex and tough to understand. They’ve
and legal obligation—to your workers, your
E X EC U T I V E E D I TO R ’ S N OT E
basically amounted to job-creation bills for
customers, and your stakeholders—to perform
5
FROM THE WEB
the lawyers and accountants hired to find
your role to the best of your ability.
loopholes on the one side against another
Secondly, it’s essential that we help
6
P E R S P ECT I V E S
army of lawyers and accountants closing
students understand the purpose of business.
32
OT H E R B U S I N E S S
the same loopholes on the other side. The
A business exists, fundamentally, to make a
corporate governance systems that work
profit. Otherwise, it can’t provide jobs, produce
36
A LU M N I N OT E S
best are those with guidelines that are easy
goods and services, or do right by its employees
39
BOOKS
to grasp and easy to enforce.
and shareholders. Strange to say, not enough
40
O N E F I N A L LO O K
of figureheads. Indeed, they are bound to a
broader perspective, which can go a long way
fiduciary duty imposed by law. Looking at the
toward instilling an ethical, social-minded
past decade’s corporate collapses, one can’t
philosophy in everyday operations.
Corporate boards are not mere collections
The Buck Stops at the Board The past decade has been one long field day for researchers who, like me, focus on corporate performance. From Enron to Parmalat to AIG,
ONE FUTURE
Executive Editor: Barbara Wallace
from this period.
University Magazine Group Staff Writers: Andrew Blumberg and Patrick Ercolano Design: Greatest Creative Factor
60,000
Number of “mass group incidents,” i.e., riots or demonstrations by 50 or more people, in 2006.
u l
we’ve seen a steady harvest of case studies
Consulting Editors: Catherine Pierre and Dale Keiger
a
A theme that has emerged from these cases is the critical need for corporate governance. That’s not to say a radically new governance model is required. We can
ONE Advisory Board
do nicely with the classic model, which I would
Ravi Aron, Assistant Professor Dipankar Chakravarti, Professor Thomas Crain, Lecturer Maqbool Dada, Professor C Professor Toby Gordon, Associate Stacey Lee, Assistant Professor Louise Schiavone, Lecturer
describe as consisting of four fundamental
p p
ONE magazine is available in a print edition and online at carey.jhu.edu/one. If you receive the print edition but would prefer to read only the electronic version, contact us at carey.one@jhu.edu. Please direct all correspondence to Barbara
processes: deciding how to deploy corporate resources, evaluating those decisions to determine whether they make sense, implementing the decisions, and monitoring the results to keep the entire process on a good course. Management is responsible for the deciding and implementing, while the corporate board does the evaluating and monitoring. Ideally, these two sets of processes should be separated so they don’t cross-contaminate;
Wallace, Executive Editor, ONE magazine, Johns Hopkins Carey Business
the people spending the money shouldn’t
School, 100 International w Drive, Baltimore, MD 21202, or call 410-234-9270.
also be the people who judge whether it’s
g
To submit a class note,dsend mail to Sara Rutstein, Director of Alumni Relations,
a wise use of the money. When properly
at the address above, or email srutstein@jhu.edu. (By submitting a note, you give
implemented, this model works well, as has long
Johns Hopkins University permission to edit and publish your information in the
been the case at most of our big companies.
print magazine and in online publications.)
No doubt government regulation has its place, particularly if it targets specific areas
2 | ONE
you’re a manager or CEO, you have a moral
4
O N E Tea mi
h 7 C
students immediately comprehend that if
D E A N ’ S M E S SAG E
ONE WORLD
ONE SCHOOL
of accounts. But the major regulatory measures
3
t s r
laws about corporate governance. Not many
of the past 10 years have been exceedingly
b i a U
c
such as the transparent and accurate reporting
help concluding that some boards failed to do
business schools help their students gain this
Business ethics, with its sometimes
their duty. They didn’t provide the necessary
elusive gray areas, is a subject we take very
vigilance that could have forestalled events
seriously at the Carey Business School, which
caused by bad managerial decisions. Board
is why we require course work in leadership
members are the ones ultimately accountable
ethics in all our programs and try to include
for how the organization conducts its business.
ethical discussions in every class where
The buck stops at the board, not management.
appropriate. We stress to our students that
Hence, more attention should be paid to board
being ethical businesspeople is not just about
structure, director behavior, and board dynamics.
following the letter of the law or using the law
One way boards have been compromised
for selfish benefit. It’s about looking at business
in their supervisory role has been when the
issues in a societal context that will inevitably
positions of board chairman and chief executive
raise ethical questions. Whether launching
have been vested in one person. Watchdog
a marketing campaign, reporting financial
groups rightly worry that such arrangements
results, acquiring another company, or
reduce the independence of the board. But
closing a plant, effective managers must
this has become common practice among
always consider the broader stakeholder
U.S. companies. The hazard is that people
community and how it will be affected by
who vet their own decisions aren’t likely to
their decisions as business leaders.
admit to mistakes. Moreover, research has
If our big companies—and the boards
shown that large companies with strong,
that oversee them—were guided by such a
separate chairmen are generally less prone to
philosophy, we would probably see far fewer
the types of spectacular blowups brought on
cases of corporate malfeasance. And as a
by the reckless investment bets behind the
researcher in this area, I suppose I would
collapses of the 1990s and 2000s.
have less grist for my mill, but that’s a
Business schools can play a significant
trade-off I’d be willing to accept.
part in preparing their students for effective and ethical corporate governance. For starters, they can make them sensitive, as future business leaders, to the technicalities of managing in an institutionalized environment
Phillip Phan
where there are fiduciary responsibilities and
Interim Dean and Professor FA L L / W I N T E R 2 0 1 1 | 3
EXECUTIVE EDITOR’S NOTE
FROM THE WEB:
Carey Business School students lead busy
Like the other features in this issue, “The Disaster Tab” examines the intersection of
lives, both inside and outside the classroom.
economics, research, and business practice, as
What follows are excerpts from blog entries by students in three Carey Business
it considers the devastating costs of earthquakes, tsunamis, and other catastrophic events. “By the Numbers” probes the obvious to discover the unexpected: considering the bust that could be on the heels of China’s economic boom.
What’s the Big Idea? I am often asked why ONE magazine gives “ink” to other business schools and universities— why guest writers include faculty and leadership from “competitors”; why we interview and profile professors from Harvard, MIT, and other top schools. The answer lies in ONE’s mission: to tackle big ideas and provocative subjects that frame the debate about business and business education at Johns Hopkins and beyond. ONE seeks to engage and challenge readers by looking at global issues from diverse perspectives. This means presenting ideas and voices from within Johns Hopkins University and without. In this spirit, the pages ahead explore the interrelationship between science and industry by profiling MIT bioengineer Bob Langer (“The Bioconductor”), whose work highlights the roles of perseverance and business acumen in identifying the ideas that have potential business applications and understanding how to make those ideas successful. Evaluating the business potential in an entrepreneurial idea is also the core of the Carey Business School’s Discovery to Market program. Our cover story, “Model Behavior,” spotlights one of our own: Carey Business School professor Federico Bandi, expert in financial econometrics, continuous-time asset pricing, and empirical market microstructure, whose innovative financial modeling may help sort out the chaos on Wall Street.
On the squash court
The issue’s contributing writers include the former general manager and legal counsel of the Philadelphia Eagles; the program director for the arts at the Doris Duke Charitable Foundation; and a Carey Business School lecturer in business and crisis communications who is also a national news media journalist. We also report on faculty member Tom Crain’s chairmanship of the Maryland Humanities Council. What do a football GM, a journalist, and the Humanities Council have to do with issues that shape and inform business education? Read the pages that follow to find out. You’ll discover students, alumni, and faculty who embody our school’s mission of developing global business leaders and transforming society through discovery, education, entrepreneurship, and engagement. You will read about CareyServes, a student organization that supports community service locally, domestically, and internationally; meet eight new members of our full-time faculty; see the impact of a new scholarship fund on the life of a student; and learn how a graduate of our MBA in Medical Services Management program developed a cell phone–based medical network that gives economically disadvantaged Iraqis access to lifesaving information and care.
Mission Statement The Johns Hopkins University Carey Business School, a premier humanistic learning community, develops global business leaders and transforms organizations, communities, and society through discovery, education, entrepreneurship, and engagement. Johns Hopkins Sustainability Initiative The mission of the Johns Hopkins Sustainability Initiative is to make the university a showpiece of environmental leadership by demonstrating smart, sensible, and creative actions that promote the vision of sustainability. The sustainability initiative grew out of the concept that being smart and being innovative are the strongest tools for overcoming difficult environmental challenges. Being creative produces opportunities. Being sensible means finding good economic value. At Johns Hopkins, we embrace these values and use them daily to meet our challenges and to explore new opportunities for sustainability.
School programs.
me about something unusual you have done— we may feature it in the next issue.
. . . I am somewhat of a nontraditional student in the part-time MBA program; I graduated
Posted September 6, 2011 by Michael B. Fensterstock
am the youngest student in my MBA cohort.
. . . By day a marketing director for a commercial
student in the national nonprofit organization
litigation boutique in New York City, I am about
Teach For America.
this past June, and at the tender age of 23, I I am also the only Carey Business School
to begin my 18-month journey in the Carey
Why an MBA? And why a Carey MBA?
Business School’s Executive MBA program.
Most Teach For America corps members in Baltimore are students at the Johns Hopkins
Gorillas in our midst
to me since my early teens. For the past seven
School of Education, pursuing master’s degrees
years, I have devoted myself to StreetSquash,
during their two-year commitment to the
a Harlem-based after-school program that
corps. However, I chose to apply to the Carey
Posted July 30, 2011 by Carolyn Nold
combines academic tutoring with squash
Business School and pursue an MBA because
. . . A few weeks ago, I was able to get out of the
instruction, community service, and one-on-
I recognized the curriculum’s unique potential
city and visited Rwanda’s Volcanoes National
one mentoring. I have served in planning,
to develop skills that can effectively transform
Park, where the mountain gorillas live. Though
leadership, and management roles for the
public education inside my classroom.
I requested to be in the hard-core hiking
organization, and most importantly, I have
In the previous issue of ONE, Margaret
group, something about my physique led the
mentored two incredible young men, Raheem
Guroff wrote that our nation’s public schools
guide to place me with the group of senior
and Terrance. My two mentees taught me
are operating from a model that is not only
citizens. So, after going a short distance from
about struggles that I have not had to endure;
outdated but that also actively discourages the
the four-wheel drive vehicles that drove us to
in me, they have a professional role model,
skills that are essential in the 21st-century
the base of the volcano, I was among a family
both in a suit and on the squash court. Through
economy [“Unlearning Education,” Spring/
of gorillas. It was an incredible experience! All
the common language of sport, I have loved
Summer]. As the article stated, “America’s
that separated me from a 200-kilo silverback
teaching them about squash and also about
children need to learn more than just the
was a slight man with a machete. However,
life, leadership, success, and community. . . .
traditional academic skills. They must learn
the gorillas are so used to humans that they
Read more at carey.jhu.edu/studentexperience
how to be creative and collaborative workers
basically ignore your presence. The group we
and managers.”
observed was led by a 23-year-old silverback
/service/EMBA_Student_Fensterstock.html. Michael B. Fensterstock, a student in the new Executive MBA program, is the marketing director of Fensterstock & Partners LLP in New York.
in this issue: “From the Web” and “ONE Final achievements of alumni and students. Email
Posted August 25, 2011 by Alexander McCafferty
with a degree in political science and history
Community service has been important
Gorillas in our midst
Why a Carey MBA?
On the squash court
Be sure to check out two brand new items Look,” which show the surprising talents and
Why a Carey MBA?
Correction: “Up and Out: The Last Days of Carbon” [Fall/Winter 2010] included an error in our listing of the United States’ GDP. The correct figure should be $14.12 trillion.
Does that sound familiar? The kinds of
named Charles, and there was also a two-
essential skills that children need to learn, and
week-old newborn still clinging to its mother.
that they lack today, are among the objectives
It was another National Geographic dream
we are expected to master during our studies
fulfilled, and also a relief to see that such
at the Carey Business School. . . .
extreme efforts are being made to repopulate
Read more at carey.jhu.edu/studentexperience /service/MBAstudent_TeachForAmerica.html. Alexander McCafferty is a first-year student in the part-time MBA program. Also, through Teach For America, he is an instructor at Baltimore IT Academy.
the mountain gorillas that were previously driven to endangered status by poachers. . . . Read more at springs85.wordpress.com. Carolyn Nold is a student in the full-time Global MBA program. This past summer, she worked in Rwanda through a fellowship with the microfinance organization Kiva.
Barbara Wallace, Executive Editor
4 | ONE
FA L L / W I N T E R 2 0 1 1 | 5
PERSPECTIVES
Women with Imagination
follow: Infant mortality declines, child health
From Socially Responsible to Socially Strategic
or a corporate social responsibility program.
By Josh Raymond
aren’t being as effective as they could be. I
best of the men. And it is important to say here
global village. And we know that a rising tide
high school during the day, to get a college
that I am rooting for all of them, wish them
lifts all boats. In “The Global Glass Ceiling: Why
degree, and then to get a graduate degree
every success, and stand ready to assist them,
Empowering Women Is Good for Business,”
from an Ivy League university. I have gone on
male or female. But I have not heard from the
Isobel Coleman writes for ForeignAffairs.com
to attend parties with presidents and senators,
men, as I have from some of the women, that
that changing the global culture about women
By Louise L. Schiavone
interview leaders from Nicaragua to the former
the path to executive success appears to be
will mean gains for everyone. “When women
“Why do you need to go to college?” my
Soviet Union, and have my journalistic work
obstructed by gender. In the era of Angela
are educated and can earn and control income,”
grandmother asked me, as I prepared to
reach viewers, listeners, and readers around
Merkel of Germany, Christine Lagarde of
Coleman writes, “a number of good results
graduate from high school. She arrived in the
the world. I now have a daughter in law school.
France, Condoleezza Rice—and her successor
Why? Because I could imagine it. I knew I
United States as a young woman, an Italian
I was the first female in my family to finish
as secretary of state, Hillary Rodham Clinton—
and nutrition improve, agriculture productivity
immigrant with an eighth-grade education.
could make it happen. And because I had the
this is puzzling. But the figures bear out
rises, population growth slows, economies
She was fabulous and creative and wonderful
support of leaders, in a male-dominated field,
the complaints.
expand, and cycles of poverty are broken.”
company. Like so many women, then and now,
who opened many doors for me. When as
A report issued this past spring by the
cultural assumptions limited her definition of
a society, both nationally and globally, we
White House Council on Women and Girls
bombings at girls’ schools, killings of those who
female success, even as grand plans were
continue to discuss the glass ceiling, we are
found that “earnings for both women and
would educate females, and abuses of women
imagined for the men of the family. “Why can’t
speaking about a cultural failure of imagination
men typically increase with higher levels of
who dare to achieve. When we, as Americans,
you stay home and learn how to be a secretary?”
and, sadly, sometimes a deliberate slamming
education.” At the same time, the report finds,
learn of these situations, we are shocked.
she would ask me. And in my mouthy way, I
of doors.
“at all levels of education, women earned about
would respond, “Really, Grandma? Stay home
The best of the women in my classes at
like you did?” Having left her village on the
the Carey Business School at Johns Hopkins
Adriatic coast, she never went back.
University can compete with the
Ironically, it was her trip as a young
In emerging cultures, we still hear of
At the same time, however, it is clear that
75 percent as much as their male counterparts
women in the Western business world face
in 2009.” The report also found that, from
challenges that, while clearly not as daunting,
1988 to 2008, wages rose 27 percent
can be discouraging. A survey by the British
for women heading their family house-
Institute of Leadership and Management found
woman across the Atlantic that influenced
holds. However, “family earnings levels
this year that “almost three-quarters of women
me to envision my own options as limit-
among female-headed families were
(73 percent) believe the glass ceiling exists
less. English was a second language for
the lowest among all family types, in
and say there are still barriers for women
both of my Italian-speaking parents. My
both 1988 and 2008.”
looking to be appointed to senior management
mother’s resulting English was especially
And while women are more often in professional occupations, more of
of roughly 3,000 managers indicated that “over
funny, but such subtleties are lost on children.
them are in lower-paying jobs. “For
a third of women (36 percent) feel that their
She would often remark, “Your grandmother
example,” the report states, “in 2009,
gender has hindered their career progression.
came here from Italy, alone on the boat.”
professional women were more likely
This figure rises to almost half (44 percent)
(nearly 70 percent) to work in the
among those women over the age of 45.”
take out fishing on the lake near our home
relatively low-paying education
north of Boston. And for years, as a small
($887 median weekly earnings) and
advice to young women making their way is
child, I had imagined my grandmother
health care ($970 median weekly
this: Do not be afraid to be excellent. Command
rowing across the Atlantic Ocean alone, in
earnings) occupations, compared to
your knowledge and your skills. Hold on to
a rowboat just like his. Thinking about the
32 percent of male professionals.”
your soul. Imagine yourself as a successful
tremendous danger of it, which I often did,
As of 2009, just 7 percent of women
individual, as the woman who could row the
made me shudder. How did she know where
had taken a foothold in the fields of
Atlantic Ocean if necessary! And never give up.
she was going? What did she do in a storm?
computers and engineering, where
Wasn’t she always worried she would lose an
the pay is considerably higher.
oar? Wasn’t she scared? Meeting obstacles
At the Carey Business
available in the region just a generation ago. Citizens of these formerly impoverished regions now have not only food and water but even the necessary infrastructure to access the global marketplace thanks to good corporate citizenship. But these social improvements didn’t happen because of charitable contributions
form. But too often, firms stop at publishing a values statement or code of ethics. Even those who make their products “greener” or support philanthropic efforts with time and money think businesses must go one step further and use social responsibility as a driver of business strategy, not just a supplement to it. Current global economic problems only punctuate the need for businesses to re-examine their strategic directions. Profit, while essential, should not be a firm’s sole purpose. Too often, the pursuit of profit comes at great expense to one or more stakeholders. We know much of the financial crisis that
Louise L. Schiavone is a lecturer ONE
who teaches business and crisis communications at the Johns
School, we say that we teach
row across the entire Atlantic Ocean, from
business “with humanity in
Hopkins Carey Business School. She is also
Europe to New York City, all alone in that little
mind.” We are mindful of the
a journalist who reports for CNN, NPR, and
6 | ONE
each morning with necessities that were not
Many companies today incorporate social responsibility into their businesses in some
Have I met obstacles? Yes, many. But my
of every kind, I would think, “If Grandma could
boat, I can certainly do this!”
to India and Guatemala currently wake up
Nestlé designed to increase shareholder value.
and board level positions in the U.K.” The survey
tortured. Her twisted idioms were riotously
My father had a little rowboat that he’d
Thousands of people from Kenya and Uganda
They were the result of strategic thinking at
numerous publications.
ILLUSTRATIONS: ANTHONY FREDA
FA L L / W I N T E R 2 0 1 1 | 7
PERSPECTIVES
old business models, decimating monasteries
additional 10,000 hours playing video games.
and convents in particular—a shift that may be
Corporation says it recycles approximately
A New Era for the Performing Arts
than 20,000 hours on the Internet and an
new expertise, find a market, or divest itself
27 billion cans annually—five cans for every
of the business altogether.
four packaged by the company. In addition to
By Ben Cameron
began in 2008 was caused by unconcern for
second step in the process is an analysis to
customers’ financial security and well-being as
find commonalities among them. Opportunities
strategic opportunities to improve its bottom
Wall Street and mortgage companies tried to
that appear in all four categories should become
line while supporting a social purpose defined
sell more and bigger home loans. Around the
growth priorities and receive resources
as “promoting alcohol responsibility, preserving
world we’ve seen ecosystems destroyed by
accordingly. Strategic decisions must then be
and protecting the environment, and supporting
companies who care only about harvesting
made regarding other opportunities that meet
local communities.” One strategic social effort
natural resources as quickly and profitably
three or fewer of the criteria. Depending on the
was the creation of a subsidiary dedicated to
as possible.
relative position of an opportunity within this
recycling. The Anheuser-Busch Recycling
model, the company might need to develop
world take the step from socially responsible to socially strategic? First, I think a firm must
So how can companies in today’s
buy into the notion that profits, while extremely
There are firms of all sizes that illustrate
Anheuser-Busch has also found numerous
keeping these cans out of landfills, the business
important, are not its only reason for being.
what this approach looks like in practice. The
unit generates multimillion-dollar profits.
Then, it must have a clear understanding of
process and tools these companies use to
Anheuser-Busch also has developed
other ways it can create value, which requires
develop their strategies may differ from what
processes to capture biogas from wastewater
defining its social purpose. Once a firm
is described above, but they have made an
at its breweries, which it uses as an alternative,
embraces these concepts and defines its
effort to use social purpose as a key input.
sustainable energy source. According to com-
social purpose, strategy should be determined by using a two-step process. The first step is looking at current and
For example, Nestlé describes itself as
pany reports, doing so decreases greenhouse
“the world’s largest food company with a focus
gas emissions by hundreds of millions of pounds
on nutrition, health, and wellness,” and employs
each year and significantly reduces energy
potential businesses and opportunities
the slogan “Good Food, Good Life.” The
costs. The remaining wastewater is then pumped
through four lenses.
company has taken this clearly defined social
to company-owned farms. The practice reduces
Lens 1: Alignment with Social Purpose. What
purpose and made it an important strategy
overall water consumption and costs, while
driver. Through the social purpose lens, Nestlé
the nutrient-rich water helps grow better raw
looks for opportunities to improve nutrition,
materials such as barley and grain.
opportunities exist that allow us to further our contribution to humanity? Whether it’s in public health, environmental improvement,
water, and rural development. It has core
Not all companies have the size and
expertise in research and development as well
resources to use their social purpose as a
as operational efficiency. As for market demand,
strategy driver in such an impactful way. But
Nestlé believes that premium products,
that should not deter the average car dealer-
emerging markets, and food services for
ship, medical clinic, accounting firm, or food
restaurants, hospitals, and schools represent
manufacturer from using this approach.
its best growth opportunities. Finally, the
Developing strategies with this model can
company believes it offers employee fulfillment
create value not only for the world but for
Lens 3: Market Demand. What are customers
through diverse work opportunities and the
investors and employees as well.
willing to buy? Are there unmet needs that
ability to impact the world around them. As
we can profitably satisfy for customers in both
mentioned earlier, Nestlé has helped numer-
existing and untapped markets?
ous communities in India, Africa, and South
Lens 4: Employee Fulfillment. What opportu-
America improve their income, infrastructure,
nities would fully engage our work force?
and health. How? By sending employees to
What kinds of work will provide personal and
develop and train local farmers based on the
professional development and satisfaction?
company’s expertise. In turn, Nestlé has a
This is a key factor because strategy is useless
steady source of quality raw materials at prices
if employees are not motivated to execute it.
that give it a cost advantage, and the company
transportation, or anything else, what course of action would expand our reach? Lens 2: Core Expertise. What goods or services could we offer that would allow us to leverage our competitive advantages? This could be a process, product, or technology.
Once each of the four lenses has been used to identify business prospects, the
8 | ONE
helps create markets for its products that did not previously exist.
Josh Raymond is principal corporate ONE
strategy officer at Amtrak and will graduate from the Carey Business
School with an MBA in December.
The last 10 years have witnessed a gradual erosion of performing arts support—regular declines in the percentage of philanthropic dollars, the inability of arts giving to keep pace with inflation, the disappearance of major national arts funders, and the elimination of arts education programs in many school systems. Especially since the national economic collapse, arts giving has been under assault. But the ultimate crisis may not be financial. In 2006, the Doris Duke Charitable Foundation sponsored 22 meetings in 14 cities involving more than 700 artists, administrators, and technicians to discuss the pressures the arts faced in our new millennium. Even then,
Most profoundly, perhaps, technology has
finding parallels in the struggles that symphonies
created consumer expectations of personaliza-
in particular face today. And perhaps most
tion, customization, and convenience. These
significantly, that reformation questioned the
are expectations that live performing arts—
necessity of intermediation in a relationship
bound by set curtain times, set venues, and
with the divine, a challenge echoed in the
attendant inconveniences of travel, parking,
explosion of arts participation—avocational
etc.—simply cannot meet. In an age where
artists creating their own work—at the same
young people access culture-on-demand
time the role of the professional artist is
through YouTube and iTunes, and for little or
increasingly questioned.
no apparent cost, what happens when we ask
But just as the Reformation did not spell
them to pay $100 for a symphony, opera, or
the end of the Roman Catholic Church, many
dance ticket? The arts are, in short, in a moment
of our historic arts institutions will continue to
of profound redefinition and realignment; the
be worthy of our investment. They represent
financial pressure merely redefines the resources
the best opportunities for lives of economic
we bring to bear.
dignity for many artists, and the logical place
History often holds the key for understanding, and the Reformation of the 16th century has been particularly instructive
where artists who need and deserve to work at a certain scale can find an appropriate home. But to see these institutions as synony-
for many of us in the arts. That reformation
mous with the totality of the arts is far too
was also spurred in part by a technological
limiting. The most dramatic recent development
breakthrough—the printing press—which
in the arts is the rise of hybrid artists, or artists
enabled sudden widespread access to
who work in multiple arenas—science or
Scripture and religious tracts. It also upended
technology, prison reform or education, AIDS
more than two years before the global financial crisis, we heard about demographic changes and the erosion of audiences in every performing arts field. We read statistical analyses that described a populace marked by overscheduling and exhaustion. And we learned that while our audiences were shrinking, our ticket prices were increasing, threatening to make attendance cost-prohibitive for too many members of our communities. We also heard about the struggle to understand the impact technology is having on the live performing arts. In trying to attract the attention of potential ticket buyers, we now compete with somewhere between 3,000 and 5,000 different marketing messages a typical American sees every day. In fact, technology has emerged as our biggest competitor for leisure time. By the time the Net Generation reaches their 20s, they will have spent more
FA L L / W I N T E R 2 0 1 1 | 9
PERSPECTIVES
awareness or environmental reform—not
especially when it comes to the leaders of
merely for economic survival but because of
those industries. As author Daniel Goleman
a deep belief that the work they are called to
notes in his book Working with Emotional
do cannot be accomplished in the traditional
Intelligence, the primary indicators of leadership
hermetic environment of an arts institution.
success include empathy, the ability to listen
Today’s dance world is defined not only
to others and motivate them, and the ability to
by the New York City Ballet but also by Liz
initiate and accept change—the very principles
Lerman’s Dance Exchange, whose multi-
that lie at the heart of creating art, the very
generational dancers collaborate with genomic
abilities instilled by arts instruction.
scientists to explore the DNA strand or with
We have long known the impact the arts
nuclear physicists at CERN (the European
can have on young people; high-risk inner-city
Organization for Nuclear Research) in Geneva.
students who work with the arts are more
Today’s theater world is defined not only by
likely to run for class office and graduate from
Steppenwolf Theatre Company of Chicago
high school, and they show greater tolerance
but also by Cornerstone Theater Company of
for ambiguity, greater interpretive skills,
Los Angeles, whose recent faith-based project
and greater self-esteem than their non-arts
brought together 10 religious communities to
peers. But the arts can be more important in
create plays that would bring diverse religious
educational and cognitive reform. Traditional
congregations together to engage in social
emphasis on science and math, while critical,
healing in the aftermath of 9/11. Today’s
falls short of the advanced integrated thinking
museums embrace not only great visual artists
of left and right brain demanded by the future—
working in traditional media but also Stan’s
a shift articulated by, of all people, American
Cafe, which uses grains of rice to graphically
conservative Mike Huckabee, who compared
embody the distribution of population and
science-and-math-only education to creation
wealth—one grain of rice for every African
of a database without a server.
with HIV next to a pile with one grain of rice for every African. The Solomonic question facing us all may well be: How do we embrace this new wave of
Especially now, when we all must confront the fallacy of a market orientation uninformed by social conscience, we must embrace the role of the arts in the formation of our collective
participation without dismantling the seminal
and individual characters. We must nurture
achievements of the past?
the arts, which gather audiences to look at our
As we enter a time in which the ability to think and behave creatively will be paramount,
fellow human beings with curiosity and generosity. We all must work together to promote
the arts cannot be viewed as peripheral or a
a healthier, more vibrant world; to ameliorate
luxury. They must be viewed as part of the
human suffering; and to nurture a more
solution to our global challenges, whatever
thoughtful, empathic, and economically
those challenges may be.
prosperous society. The arts are a key part
The arts have long been important to
of the strategy to make this world a reality.
economies, leveraging for local businesses more than $3 to $5 for every dollar spent on a performing arts ticket. But as creative industries explode—think of iPads and computer games—the arts will be increasingly important to economic vitality and business success,
Ben Cameron is the program ONE
director for the arts at the Doris Duke Charitable Foundation.
Going to Bat for Your People When the Doors Close By Susan T. Spencer There came a time in my business career when one of the companies I had purchased— a meat processing plant—just didn’t have the staying power to survive. I had done everything I could to make the company a success, but after three years of hard work, long hours, and millions of dollars in losses, it was time to throw in the towel. My company employed 200 workers, and under federal law (the WARN Act), any company with 50 or more employees is required to give those workers 60 days’ notice before closing its doors. I knew it would be ethically dishonest to take the easy way out—to simply issue pink slips, skip out during the wind-down period, and delegate the job of closing the business to someone else. Instead, I called a plant meeting and delivered the bad news myself. It wasn’t easy to terminate people who’d worked so hard for me for years and, in the same breath, ask them to keep working for another 60 days so I could fulfill an existing contract. It would be entirely natural for employees in this situation to be angry and resentful—not reactions that would give an employer confidence that they would show up for work after that. And it wouldn’t be unheard of for angry employees to lash out against the owner, harming the plant or its products in some way, just to get even. I didn’t want that to happen. As I stood in front of my employees explaining to them why the plant had to close and giving them a brief
1 0 | ON E
and sick pay, plus two weeks’
recap of the efforts I had made to try to save the business, I could
severance on their last day of work,
see the disappointment and fear
which added up to about a month of
in their faces. I wanted them to
pay. I hired bilingual job counselors to
understand that I cared about
help non-English-speaking workers fill
them, that I’d done my best
out their unemployment papers. I gave
for them—and that I was
them an hour of paid time to visit the plant’s job counselor and a paid day off if
truly sorry.
they needed to interview for other jobs. I
My plan was to tell them those things in a calm, clear,
called competitors and urged them to hire
unemotional way. But when
line managers, and I wrote letters of recom-
I stood in front of the men
mendation for each position manager. And I
and women I had talked
met with the local heads of my company’s
to and worked with every
labor unions—the Teamsters and Meat Cutters’
day, tears filled my eyes.
Union—and asked them to set up a help desk in
I couldn’t help it, and the
the plant for workers to locate job opportunities
tears continued to fall
and fill out any necessary paperwork, so they
until my speech was
would be on file with the union office. These actions, combined with an open-
finished. I stood there embarrassed that I
door policy during that time period, created
was unable to hide
a positive atmosphere that reaffirmed my
my emotions, and
belief that if you treat others with honesty and
I feared an angry
respect and preserve their human dignity, they
crowd of disgruntled
will reciprocate in kind. All of my employees
workers would jeer and mock
stayed on and saw the company through
me. But, as I dried my eyes and tried
until closing day, allowing me to meet my
to regain some composure, one of the
contractual commitments. It also gave me the opportunity to say a personal thank-you and
workers shouted out, “You’re not so tough, Boss!” and the rest of the workers applauded
proceed. My core belief has always been to
and laughed.
put myself in the other person’s shoes in order
good-bye to each and every one of them. Less than five years later, I opened a new
to solve a problem. So, I asked myself, what
meat plant about 60 miles away. Surprisingly,
leader, I had always thought that having a
would I want my employer to do for me in
many of my former employees found me once
buddy-buddy relationship with my employees
this situation? I decided then that if they were
again and became the core of my new team
would compromise my ability to manage
going to spend the next 60 days working for
and work force for many years to come.
effectively. I followed this principle throughout
me, I’d spend the next 60 days working for
my career, and it served me well until that day.
them. While the plant remained open, I would
However, I realized then that there are times
tell them the truth, provide for their short-term
when compassion and empathy should guide
needs as best I could, and help identify other
your decisions, and if your emotions are
job opportunities.
It was a telling moment for me. As a
sincere, a moment like that one will be
One of the things I did was offer employees
remembered and appreciated by everyone
the opportunity to work up to seven days a
who witnesses it.
week, with three separate shifts per day; they
But crying in front of my employees
Susan T. Spencer is an entrepreneur, ONE
attorney, former GM and minority owner of the Philadelphia Eagles,
and author of Briefcase Essentials (Greenleaf Book Group, 2011). A portion of this essay was adapted from her book.
had the option, through overtime, to earn at
couldn’t be the end of it. This was my first plant
least twice their usual take-home pay for eight
closing so I had no prior experience in how to
straight weeks. I gave them all accrued vacation
FA L L / W I N T E R 2 0 1 1 | 1 1
F E AT U R E : Model Behavior
Model Behavior
Call it a moment of monetary mayhem that, like a partial nuclear meltdown, could have wrought unimaginable devastation had it run fully amok. On May 6 of last year, at 2:41 p.m., Wall Street’s financial control rods failed, sending the market into free fall. Due to frenzied computer trading, in 300 seconds the Dow Jones average dropped 600 points. It was a full-out binary panic, the “flash crash” of 2010. Shocked traders watched helplessly as the machines they depended upon unexpectedly took Wall Street to the brink of chaos. Later reports in the New York Times determined that a single trade made in Kansas began this electronic financial fission. It was powered at the trading equivalent of light speed by so-called high-frequency transactions— computerized deals that occurred in microseconds, faster than any humans can reckon.
High-frequency trading has the potential to make markets more volatile than ever. Federico Bandi uses complex mathematical models to find reason—and to predict behavior— amid the chaos. By Mat Edelson
1 2 | ON E
FA L L / W I N T E R 2 0 1 1 | 1 3 BILL DENISON
F E AT U R E : Model Behavior
Such voluminous dealing always creates “noise” in the markets, but in this case the electronic forces—the SEC later found that 140,000 individual contracts had cascaded back and forth in three minutes, culminating in a frenzy of 27,000 trades in 14 seconds—had turned into runaway sell orders that threatened the whole system. The suddenly seismic volatility initiated an automated but uncoordinated set of checks and balances that sent stock prices crashing; according to the Times, a share of Procter & Gamble could be momentarily had for 1 cent. Only another computerized signal coming out of the Chicago Mercantile Exchange created the financial equivalent of throwing boron on the pile: For five precious seconds the cascade was somehow interrupted, long enough in supercomputer time for the cosmic reboot button to kick in and halt the skid. Within 20 minutes, the Dow had fully recovered the losses sustained in the flash crash, but those who ran the markets were badly shaken. More than 20,000 trades involving 300 securities had to be retroactively canceled after the close of trading because of their obviously erroneous pricing caused by the crash. The market makers had been jolted into the reality that high-frequency trading was a more powerful—and potentially dangerous— tool than even they had imagined, rapidly implemented but often poorly understood. By their nature, these very trades energize (and perhaps overheat) the markets, creating volumes—and volatilities— unheard of just a generation ago. Even after the market recovered from the flash crash, it went on to lose more than 3 percent on that day, and still no one is quite sure what role the mini-meltdown played in the day’s final tally. That’s the kind of black hole that market players up and down the line could no longer tolerate, where for 1 4 | ON E
unknown reasons the very foundation of every decision they make—the validity of the price of a commodity—could suddenly be called into question. What they needed were whiz-bang types who could get inside the high-frequency trading mechanism, look at the data it created, make sense of the seemingly indecipherable, and help create models in which volatility and market stability could peacefully coexist. What they needed was Federico Bandi.
T
he soft-spoken Bandi arrived at the Johns Hopkins Carey Business School with research that built on the work of New York University’s Robert Engle. Engle’s work on market volatilities in the 1980s became the underpinning for many forecasting models, leading to Engle’s Nobel Memorial Prize in Economic Sciences in 2003. What Engle began, Bandi and perhaps a dozen colleagues around the world have built upon. Think of it as Financial Econometrics 2.0: the use of sophisticated mathematical models to predict how individual financial products and overall markets will behave over time. The field has numerous practical applications. For example, financial econometricians seek a financial instrument’s “true” value, such as the proper interest rate on a bond or price of a stock. In regard to a stock price, that could mean creating mathematical models that separate a company’s real assets—the core of stock valuation—from the distortion of temporary pressures, such as a large sale by a major investor in need of cash, that can spook the market but may have little to do with the company’s actual performance. Everyone from hedge fund managers to CEOs to national fiscal policymakers now keep an eye on the discipline, looking to glean from financial econometricians better ways to conduct their business. When Engle was doing his seminal work—defining the relationship between
what occurs over a period of time (aka time-series measurements) and the upand-down movements of a given market (aka volatility)—financial econometrics was in its infancy, Intel 80286 computers were state-of-the-art, and the focus was on low-frequency trading and financial forecasts measured in days or months. The work was a little bit like figuring out the languid movement of a planet across the heavens versus the frenetic motion of an electron around an atom. The jump to understanding high-frequency trading became necessary as computing power exploded. Newer, faster trading models made their way to the markets, in no small part because each trade meant additional monies to brokers. To put it in perspective, the New York Stock Exchange’s trading volume surged from a high of 100 million shares on a single day in 1982 to 10 times that in 1997, to roughly 2.6 billion shares traded on the day of the flash crash. Some estimates say that perhaps 60 percent of all stock shares currently traded on the NYSE and Nasdaq involve high-frequency computer algorithms. One market watchdog, Tabb Group, estimates that firms involved in such trading earned nearly $13 billion during the last two years of their highfrequency transactions. Any way you look at it, that’s a lot of market noise. Fortunately, the same computers that make the mind-boggling trading volume possible also allow researchers such as Bandi to make some sense of the cacophony. By bringing to bear his economic intuition and mathematical acumen, Bandi works and reworks what to him is an irresistible exercise: Look at all trades across a given time span, distinguish meaningful trends from flukes, represent those trends mathematically, account for the right amount of volatility, and see if his models hold true when applied to future trading. What he does is the equivalent of a tourist getting on a packed, noisy subway
car at rush hour and amid a thousand conversations hearing the only thing that matters—where the train is headed. By better understanding asset volatility, the markets—and by implication, their computerized trading programs—might be made more impervious to trading shocks that threaten to destabilize them.
S
itting in his 13th-floor office at Carey, one sheet of glass comfortably separating him from an oppressive summer morning in the Baltimore neighborhood of Harbor East, Bandi is asked what he tells strangers who lead with that ever-invasive opening salvo: “So, what do you do for a living?” “I tell them I write mathematical models,” he says, breaking into a big smile, “and that usually ends the conversation.” One can understand, with papers titled “Microstructure Noise, Realized Variance, and Optimal Sampling,” “Time-Varying Leverage Effects,” and “Fully Nonparametric Estimation of Scalar Diffusion Models” that incorporate formulas that look something like this (see below).
Let’s just say that at first, second, and third glance, Bandi’s work seems inaccessible to an outsider. Yet he insists that higher math aside, it’s not. “The idea is relatively simple,” he says in thoughtful, measured tones. “There are quantities of items that people are interested in and talk about all the time, like inflation rates, interest rates, and stock returns. You can actually write down mathematical expressions that tell you rather clearly how these objects move around and evolve as time goes by.” Each increment in accuracy can mean the difference between a 401(k) in crisis or a flush retirement fund, or trading algorithms that are more finely tuned to prevent overreaction and massive selloffs. What makes Bandi unique in his field is that he’s a bit of an intellectual estuary; where many of his contemporaries stick to either the theoretical or the applied side of econometrics, Bandi flows seamlessly between the two. As such he finds himself in a unique position, not unlike Oppenheimer at Los Alamos: a respected leader who converses, based on his own bona fides, with both fundamental and applied researchers,
uniting them to move the field forward. (Bandi notes that the dizzying array of talents drawn from many disciplines includes Oppenheimer’s ilk—physicists— who are bringing their mathematical skills to bear on financial econometrics.) In the classroom, his verbal and mental dexterity appeals to students, who consistently gave him outstanding marks for his “clear and interesting delivery” of executive, MBA, and PhD course materials while teaching at University of Chicago’s Booth School of Business from 1999 to 2009. But it’s the challenge of making hard predictions more predictable that drives Bandi. To hear his passion for his field is to witness someone at the intersection of art and science. As a youngster in Milan, he went to what he calls “a very scientific high school” that first exposed him to advanced math, which became his Rosetta stone as he dug into economics at Yale, where he received his master’s and doctorate. He uses interest rates as an example of applying math to a conundrum. Economists believe that interest rates always rise and fall over time. Mathematicians often use the idea of stationarity—a mean number around which a set of data hovers—to predict trading trends. So, for example, if your interest rate on a given day is way above the stationarity point, eventually it should begin to decline toward the mean. But what do you do with that concept when interest rates plunge, and then keep on plunging with no expected cyclical rise, as they have steadily since the 1980s? Now how do you predict where they’re headed? “We weren’t seeing much reversion to the mean, and if things aren’t stationary and you’re making long-term predictions, [those predictions] become much weaker,” says Bandi. “That made me think about alternative ways to model interest rates. And I realized there was a friction between what I was observing and my intuition as an economist. At the end of the day, it was hard FA L L / W I N T E R 2 0 1 1 | 1 5
F E AT U R E : Model Behavior
Bandi prefers to hop into his car, flip on anything from classical music to salsa, and think while he drives. Or take a long walk around his D.C. neighborhood and think some more. Or go to sleep . . . and think still more. to believe there wasn’t some stationarity in any interest rate series, that they wouldn’t get back to some level—they’re not going to go down to zero and be stuck at zero forever. Yet the data didn’t account for stationarity, so how do you model that?” His answer, in a 2002 Journal of Financial Economics paper titled “Short-Term Interest Rate Dynamics: A Spatial Approach,” employed new methods to work around the stationarity issue and provide a new tool for predicting interest rates. Bandi says these short-term rates are the kind of “underlying object” that for financial product managers play a huge role in “models that are used to price bonds and fixed-income securities.” This ebb and flow between observed problem and mathematical solutions—or at least propositions—is for Bandi like running the rapids: constantly churning and more than a bit of a rush. When asked where he likes to work, he waves a dismissive hand at his computer screen. “That’s where I answer my emails. The tedious stuff. I like to work in unusual circumstances. Some people find it easier to write down everything on a piece of paper. I don’t do that.” He prefers to hop into his car, flip on anything from classical music to salsa, and think while he drives. Or take a long walk around his D.C. neighborhood and think some more. Or go to sleep…and think still more. And somewhere in all that cogitating —maybe it’s the stimulation of Mozart and Frankie Ruiz—bingo! “Being in those everyday situations helps the process because it stays with you, you’re sort of 1 6 | ON E
metabolizing it a lot better,” says Bandi. “I’ve had multiple occasions when I’ve gone to bed, thought about something I’m working on, and woken up in the morning with a reasonable solution. There’s nothing magical about it; it’s just an indication that your brain keeps on working.” While he acknowledges that many respectable researchers fall in love with a theory and then find a problem to wrap it around, “that doesn’t suit me. I don’t just work on a model for the sake of it. Usually I go in the opposite direction. I look at the data. I think about the data. I think about a problem that has an applied nature, and the model is the way to address the problem I observe in the data. It may be a strongly theoretical solution, but always to an applied problem. I think that’s the intellectually correct way to go about a problem.” Some of Bandi’s latest work deals with a new movement in financial data sifting: nonparametric versus parametric models. The latter builds basic assumptions or parameters into the model. For example, instead of looking at every stock trade on a given day, the parametric approach limits the forecasting model to companies that trade between $30 and $50 per share. That’s been the traditional approach. By contrast, nonparametric models essentially reverse engineer the problem, saying, “Let’s look at all of those trades without constraint to see if we can find patterns in all that data and build predictive models off of that.” The advantage of the nonparametric approach is that it could overcome faulty assumptions built into parametric models. To use a
baseball analogy, a general manager using a parametric approach might assume that, in a given year, the best hitters in the league are first basemen; he would then ask his computer to pull the batting averages of the top three first basemen so he can decide which one to trade for. But a GM using a nonparametric approach with no assumptions, by looking at every hit by every player in the league, might discover that it’s actually center fielders who are doing the best hitting, and then build a model that figures out which center fielder to target. When applied to high-frequency trading and volatility, nonparametric modeling might take preconceived notions out of the picture, allowing the data to better express its own true tendencies. With Bandi’s growing recognition within his own field—his papers have been cited in economics journals more than 1,000 times—there’s a sense that his influence is being felt beyond the walls of academia. Former Carey professor Celso Brunetti, who now works at the Federal Reserve, calls Bandi an “elegant” mathematician whose work is well-known by people at the Fed. “One of his main contributions is he basically developed the theory and the application of how to measure the volatility of financial assets,” says Brunetti. “This is a major breakthrough, extremely important for policymakers when they have to regulate markets; for CEOs running a company who want to know the volatility of crude oil, for example; and for portfolio managers because they need to compute how risky is their portfolio.”
Former Carey professor Celso Brunetti, who now works at the Federal Reserve, calls Bandi an “elegant” mathematician whose work is well-known by people at the Fed. “One of his main contributions is he basically developed the theory and the application of how to measure the volatility of financial assets,” says Brunetti. And while the Wall Street Journal and other mainstream consumer publications have yet to write about Bandi’s work, Brunetti and others suggest that players in the biggest financial houses are among the cognoscenti. That includes Michelle Yang, a financial engineer in Moody’s Credit Policy Department who says she used Bandi’s papers to help develop trading strategies involving equities derivatives while she was at Merrill Lynch. “[His work] definitely was one of the things we looked at,” she says. “My boss at Merrill knew Federico, and, at Moody’s, my boss’ boss, he knows [Bandi’s] work.” Bandi’s knowledge is also being sought out directly by market makers as he’s lectured to business leaders
in New York, Europe, and Asia. Fellow financial econometrician Torben Andersen of Northwestern University’s Kellogg School of Management isn’t surprised, putting Bandi’s versatility in baseball terms (must be a summertime Chicago thing): “He certainly hits with power to all fields, making his theories relevant to financiers and economists with applications that can easily reach into Wall Street for sure, such as characterizing liquidity.” Andersen, who just wrote about the flash crash for the Social Science Research Network, says Bandi’s concepts could help the markets bolster themselves against future incidents, which, given Wall Street’s recent debt ceiling– induced roller coaster, can only be seen as a
good thing. Bandi himself notes that when markets start going nuclear, “big spikes in volatility occur precisely when you have big spikes in asset prices,” and it’s an inverse relationship, meaning when markets overheat, prices plunge like, well, nuclear winter. “It’s what I’m working on right now, figuring out the relationship between the changes in stock prices and changes in volatility. It’s not easy.” No, but it may be the only thing standing between the markets and more meltdowns. Mat Edelson is a Baltimore-based freelance writer whose feature work has previously appeared in ONE. FA L L / W I N T E R 2 0 1 1 | 1 7
F E AT U R E : The Disaster Tab
1994, U.S., Northridge earthquake 1995, Japan, Kobe earthquake 1997, Poland, Oder River flood 1997, Indonesia, wildfires
THE DISASTER TAB
1998, China, Yangtze River floods 2001, India, Gujarat earthquake 2004, SE Asia, Indian Ocean tsunami 2005, U.S., Hurricane Katrina 2008, China, Sichuan earthquake 2009, U.S., severe drought
By Lawrence Lanahan
The fire at the factory lasted just 10 minutes. The sprinklers worked as they were supposed to. Unfortunately for a handful of companies hustling after a major share of an expanding mobile phone market, that factory was full of semiconductors. And semiconductors can’t get wet. The bolt of lightning that started the fire in Royal Philips Electronics’ factory in Albuquerque, New Mexico, on March 17, 2000, struck at the heart of supply chains for Nokia and Ericsson, two northern European companies that, along with Motorola, were dominating mobile phone sales at the time. Nokia and Ericsson were the biggest customers for chips produced at the Philips plant, and after the fire, officials at Philips estimated a weeklong disruption in chip manufacturing. A week became over a month. No chips, no phones. 1 8 | ON E
FA L L / W I N T E R 2 0 1 1 | 1 9
F E AT U R E : The Disaster Tab
Nokia was ready to handle the disruption, and within a year, its market share was up 2 percent. Ericsson, however, wasn’t so prepared. The company lost 2 percent of market share, announced an annual loss of over $1.6 billion, eliminated thousands of jobs, outsourced its mobile phone manufacturing, and brought in Sony for a fifty-fifty merger on its handset design and marketing. But the Philips factory fire resulted from just one lightning bolt. Imagine the scope of economic loss in a hurricane, in a tsunami, in an earthquake. Or in a tsunami on top of an earthquake.
T
he year 2011 isn’t even over, but it already ranks as the worst year in history for economic losses caused by natural disasters. The 9.0-magnitude earthquake that flushed a tsunami through northern Japan in March caused $210 billion in losses, according to global reinsurer Munich Re. Add to that $20 million for earthquakes in New Zealand, $14.5 million for tornadoes in the United States, $7.3 million for Australian floods, and about 350 other events around the world, and the global disaster tab for the first six months of 2011 comes to $265 billion. Of that $265 billion, Munich Re estimates that just $60 billion was insured— partly because of indirect business interruption costs not covered by insurance, but also because not enough business assets are insured in the first place. In fact, most years, well under half of all economic losses are covered. As for the rest? “The polite term is ‘self-insurance,’” says Brian Thomas, a sustainability consultant who runs the blog Carbon Based. The impolite term? “In many cases,” says Yossi Sheffi, author of The Resilient Enterprise, “when it’s one company’s problem, usually the company eats it.” When disaster is a problem for many companies, Sheffi points out, the losses may
2 0 | ON E
Of the $265 billion in losses incurred during the first half of 2011, Munich Re estimates that just $60 billion was insured—partly because of indirect business interruption costs not covered by insurance, but also because not enough business assets are insured in the first place.
be spread throughout society. For example, when the federal government makes an official disaster declaration, it sends aid to state and local governments, and it provides loans, tax relief, and other support to businesses and homeowners. However, even with government assistance, international aid, and insurance, companies that have fallen victim to natural disasters are likely on the hook for most of their losses. And natural disasters are on the rise. According to the Intergovernmental Panel on Climate Change, an international body created by the United Nations Environment Programme and the World Meteorological Organization, global climate change has already started to affect the “frequency, intensity, and length” of some extreme weather events, such as droughts and cyclones. Munich Re, which has studied climate change for 38 years, notes that dramatic increases in the frequency and
intensity of weather-driven disasters are “indications for a causal association for climate change.” Munich Re data show disaster losses increasing from $75 billion in the 1960s to $660 billion in the 1990s. European insurer Allianz SE projects, by 2019, a 37 percent increase in insured losses from catastrophes caused by climate change. Of course, in the regions of the world most exposed to natural disaster, such as cities and coastlines, the population has increased, as have industrialization and the wealth it generates—meaning that there is more value in the places that are most at risk. Just look at Florida’s population boom. In 1950, fewer than 3 million people lived in the hurricane-battered state. In 2010, it was almost 19 million. A 2006 estimate by the Hazards and Vulnerability Research Institute found that 91 percent of Americans lived someplace with at least a moderate risk of natural disaster. Peter Hoeppe, who runs Munich Re’s Geo Risks Research division, was part of a team that investigated whether climate change was responsible for the rise in disaster costs after accounting for the increase of assets in at-risk regions. He and his co-authors found that to be the case, identifying a “climate variability impact”— a 4 percent rise in adjusted losses that “cannot be explained by socioeconomic factors,” such as rising population. Whether or not global climate change is responsible for an increase in disasterrelated economic losses is still being established. But the fact that the number of disasters is increasing—and costing more money—is clear. With that in mind, companies might do well to examine their vulnerability to catastrophe. Companies often portray their global presence as an asset, but when the increasing frequency and intensity of natural catastrophes are factored in, they need to think about it as global exposure as well.
W
almart has more than 9,000 stores spread across 28 countries. Ten of those stores are within 15 miles of New Orleans. So, during the last weekend of August 2005, a lot of people in Bentonville, Arkansas, were nervous. Nervous but prepared. The company already had specific plans for hurricanes. “[The company] triggered a response every time a storm vaguely came in its direction— at a ‘tropical storm’ designation, not even ‘hurricane,’” says David Ingram, executive vice president with global reinsurer Willis Re. “They calculate a cost of business disruption each time there’s a warning.” Walmart began making calculations about Katrina before the storm even had a name. Six days before landfall in Louisiana, while the storm system was still 350 miles east of Miami, Walmart started collecting data. It looked at purchasing patterns at stores in areas likely to be hit by hurricanes, matched it with meteorological data on Katrina’s potential path, and shipped items accordingly. It sent generators and dry ice, established communication patterns, and assigned roles for employees to deal with damage on the ground. “When Katrina hit and the whole region was out of business, Walmart was open for business the next day,” Ingram says. “Their parking lots became staging areas for most of the response teams.” Walmart had a systematic riskmanagement process in place years before the storm hit. In the 1990s, Walmart’s CFO tasked a vice president with developing a companywide risk-management strategy. The resulting plan identifies the most important risks by plotting them on x and y axes for probability and impact. A leadership team votes on risk prioritization. Staff from many departments talk about risk mitigation and lay out procedures to deal with each risk. Then they figure out roles for those procedures, set timelines, measure whether plans actually mitigated
the risks, and calculate the overall effect on finances. Such an enterprisewide approach to risk management has a name: enterprise risk management, or ERM. Since it first gained prominence in the 1990s, ERM has achieved buzzword status, and an industry has built up around it. You can get ERM software from SAS. You can get a master’s degree in ERM from St. John’s University. You can choose from legions of ERM consultants. Stuart Greenbaum, a professor at Washington University in St. Louis’ Olin Business School, says that, beginning with the savings and loan crisis, “this series of calamities we’ve had has prompted a new level of corporate discipline embodied in this code of enterprise risk management. It elevates corporate oversight to a higher
Whether or not global climate change is responsible for an increase in disaster-related economic losses is still being established. But the fact that the number of disasters is increasing— and costing more money— is clear. With that in mind, companies might do well to examine their vulnerability to catastrophe.
level.” ERM advocates describe earlier riskmanagement practices as “siloed.” Each department might have had a risk manager, but they didn’t communicate, and they didn’t have much influence with upper management. The new approach is systemic (or “holistic,” as its advocates often say) and expects formal support at the highest levels of management. Sustaining the movement is pressure from the outside: Investors, regulators, and even ratings agencies are eager to see well-documented ERM practices. (In 2008, Standard & Poor’s decided to base corporate ratings partly on a review of companies’ ERM.) The ability to quantify risk down to the finest detail is one of the most attractive selling points in ERM, especially when it comes to “tail risks”—the high-impact, low-probability events that can completely wipe out an organization. “They are the most improbable of disasters,” Greenbaum says, “but with the most calamitous of outcomes.” The collapse of Japan’s Fukushima Daiichi nuclear power plant was a tail risk. There’s no question that it was a high-impact event. Japan gave the nuclear crisis the highest rating there was: 7 out of 7, the same as Chernobyl. It was also a low-probability event. Engineers must have considered 14-meter waves unthinkable because the plant was built to withstand 5.7-meter waves. “It’s a very human response to imponderables,” Greenbaum says. “What do you do with an imponderable? You don’t ponder it.” However, as much security as quantification can provide, overreliance on quantification is its own risk. Anette Mikes studies risk management as an assistant professor at Harvard Business School. In an expert panel conversation published in the October 2009 Harvard Business Review, she noted the danger in replacing human judgment with the “scientification” of risk. “Models are not decision makers,” she said. “People are. So the real issue is the culture FA L L / W I N T E R 2 0 1 1 | 2 1
F E AT U R E : The Disaster Tab
“The reason why things become problems,” says Mukherjee, “is that people don’t have information early enough to do anything about it. Most companies have a simple policy: Don’t share information unless you have to.” It should be the other way around, he says.
you have around modeling.” Indeed, the final report of a national commission created by Congress to “examine the causes” of the U.S. financial crisis of 2008 repeatedly cited failures of risk management, including relying too much on quantification. “Financial institutions and credit rating agencies embraced mathematical models as reliable predictors of risks, replacing judgment in too many instances,” the commission wrote. The quantification of a company’s exposure to disaster, even if it is practiced judiciously, can’t happen in a vacuum. If a company’s CEO and board are not invested in ERM, then the effort is wasted, as it was in the financial crisis. “I happen to sit in downtown New York,” says Willis Re’s Ingram. “What you hear from riskmanagement people in firms that had 2 2 | ON E
trouble is that they had trouble getting a meeting with anyone with any decisionmaking power.” A 2008 study by property insurer FM Global unearthed an alarming statistic. “Ninety-six percent of financial executives surveyed said their companies have operations that are exposed to natural catastrophes like hurricanes, floods, and earthquakes,” the company wrote in a report called “Flirting with Natural Disasters: Why Companies Risk It All.” “Yet fewer than 20 percent said their organizations were ‘very concerned’ about such disasters affecting their bottom line.” The study also found that half of companies reported not being “well-prepared” for a hurricane, yet 80 percent were exposed to hurricanes. Walmart is an example of what can go right when a CEO and lower management are in sync when it comes to preparing for risks. But not every company has Walmart’s resources. It can be expensive to prepare for tail risks. The farther out on the tail you go, the more resources you need to devote to preparing for those risks. “One way of overcoming the economies-of-scale disadvantage with a small company is by increasing the risk,” said Ingram. For example, you can skip out on insurance you think you can’t afford. But one day you may find you can’t afford not to have it. “It’s like that old commercial,” he says. “‘Pay me now or pay me later.’ It looks good until the earth starts shaking.”
F
ive years before the Philips Albuquerque plant caught fire in 2000, an episode of supply chain problems caused Nokia to miss out on several million dollars in sales. The CEO didn’t want that to happen again, so he asked an executive named Pertti Korhonen to figure out a way for the company to find out quickly when a problem was threatening to become a crisis. Amit Mukherjee, president
of Ishan Advisors in Massachusetts, studied the resulting change in Nokia’s culture. “From the point of view of process, they created an incredible sense-and-respond process,” he says. The new culture allowed “an immediate sense of something going wrong in the environment.” Korhonen has had 11 years to reflect on the lessons of the Albuquerque fire and apply them to disaster preparation at Outotec, a Finnish company that provides technology for processing minerals and metals. It’s a $1.3 billion company with 3,300 employees based in 24 countries. That’s the kind of exposure to disaster that demands systematic risk management. “There has to be an approach,” Korhonen says, “that forces one to stop, sit down, and instead of just executing day-to-day business, put your risk-management hat on, think what could go wrong, and prepare backup plans for that.” When Nokia’s CEO first asked him to protect the company’s supply chain, Korhonen looked beyond headquarters, focusing on the strength of the company’s relationships with customers, technology partners, and suppliers. Nokia set up a system in which someone would call suppliers once a week to confirm the next week’s deliveries. After the fire at the Philips plant, “someone in production simply picked up the phone and didn’t get the answer he was expecting,” says Mukherjee. Nokia then put those semiconductor chips on an already existing “special monitor” list and began checking it every day. Why did Nokia spring into action after just one phone call placed by someone in the procurement department? Because Korhonen, then Nokia’s top troubleshooter, believed that bad news should travel fast. “The reason why things become problems,” says Mukherjee, “is that people don’t have information early enough to do anything about it. Most companies have a simple
policy: Don’t share information unless you have to.” It should be the other way around, he says. Of course, sensitive information should be protected, but the vast majority of information should be shared. It was this approach, Mukherjee believes, that helped save Nokia after the fire. Communication is one thing, execution another. Fortunately, part of Korhonen’s risk-management plan—also backed by his CEO—was to give lower-level executives the authority to make decisions on the fly. Nokia’s culture kept its employees informed and in constant communication, and power was distributed appropriately. Ericsson was not ready to react to the Albuquerque fire—the head of its mobile phone division didn’t even know about the fire until more than two weeks after Philips put it out. The company eventually found its footing after merging with Sony. But when the March 2011 Japan earthquake struck, Sony Ericsson took another major hit on its supply chain. CEO Bert Nordberg referred to April 2011 as a “formidable catastrophe.” The quake shut down the company’s Japanese suppliers, and Sony Ericsson had to redesign handsets to accommodate substitute components. “Had it not been for the earthquake and the supply chain constraints,” Nordberg told Dow Jones Newswires in July, “we would have shipped 1.5 million more units and we would have been profitable during the second quarter.” As Korhonen continues to oversee Outotec, he recognizes that his approach to disaster preparation isn’t going to win him any gold stars, especially if no more disasters cross his path. “The challenge is that there is no instant payback,” he says. But if you do good, proactive risk management? Eventually, Korhonen says, “it pays back.” Lawrence Lanahan is a Baltimore-based print and radio journalist.
The Insurance Gap
AERIAL VIEW OF 2010 PAKISTAN FLOODS NEAR GHAZI
A hurricane doesn’t necessarily make the rich richer, but it sure makes the poor poorer. Brian Thomas, a sustainability consultant who runs the blog Carbon Based, points out that years or even decades of development can be wiped out when disasters hit poorer countries. “In the 2010 Pakistan floods,” he says, “they figure it wiped out all development progress in the country since 1948.” Part of the problem is that developing countries are underinsured. Only 5 percent of direct disaster-related losses are insured in low-income countries; 40 percent are covered in developed nations. The United Nations’ Hyogo Framework for Action lays out a 10-year plan to minimize the impact of natural disasters. One strategy it suggests is the private-public partnership. The Caribbean Catastrophe Risk Insurance Facility is one such collaboration: Sixteen governments, with contributions from the World
Bank and other nations, are pooling their risk to provide quick liquidity after a disaster. The organization has paid out about $15 million to help Caribbean nations, including Haiti, to recover from earthquakes and hurricanes. Microinsurance is also helping individuals and businesses in the developing world to mitigate disasterrelated losses. Some governments, particularly India’s, have taken measures to entice the private sector into providing microinsurance. Thomas says the success of microfinance is encouraging insurers to extend insurance coverage to poor entrepreneurs. “They’re reliable, they work hard to pay premiums,” Thomas says. “They’re very good risks.” However, even these small premiums are a high percentage of a poor entrepreneur’s expenses, and assuring the financial sustainability of providers without subsidies remains a challenge. —LL FA L L / W I N T E R 2 0 1 1 | 2 3
BY THE NUMBERS
THE GREAT FALL OF CHINA INVESTMENT HAS BEEN THE MAIN DRIVER OF CHINESE GROWTH ...
... BUT IT HAS PRODUCED UNDERUSED ASSETS AND BAD DEBTS ...
34%
70-98%
Percentage of Chinese GDP represented by household consumption in 2010, down from 46 percent a decade earlier. In the United States, consumption represents about 70 percent of GDP.
Estimated total percentage of China’s annual GDP represented by Chinese local government debts, costs of recapitalizing stateowned banks, bonds issued by state-owned banks, and railway bonds (making this debt level comparable to that of the United States and the United Kingdom).
With an annual GDP of more than $6 trillion, China’s economy is second only to that of the United States. And with a white-hot annual growth rate of about 10 percent, the country is looking to catch up within a decade or two. But will it? Since 2008, China has been able to maintain its high GDP growth only through investment in
15%
Percentage of China’s annual GDP represented by vacant real estate properties held by speculators.
25-30%
Estimated percentage of vacancies for private commercial housing stock in China.
infrastructure and real estate projects—a debt-fueled building binge that has created asset bubbles and crowded out consumer spending. Correcting that imbalance in economic activity could require a long period of reduced growth. “China’s GDP growth rate is going to slow significantly, perhaps to as low
as 3 percent for a decade or so, because of this unsustainable increase in debt,� says Michael Pettis, a professor of finance at Peking University’s Guanghua School of Management and a senior associate at the Carnegie Endowment for International Peace. If China genuinely rebalances to become a more consumption-driven
300,000
... AS WELL AS INEQUALITY AND UNREST ...
$
0.8%
Approximate average cost, in dollars, of a new 1,100-squarefoot apartment in Beijing, based on 1,778 yuan/square foot average price.
Percentage of Chinese households that control 70 percent of wealth in China, 2007.
98.6%
Percentage of Chinese urban households making less than $15,000 per year.
60,000
Number of “mass group incidents,� i.e., riots or demonstrations by 50 or more people, in 2006.
economy, its growth would be more sustainable, and the United States and other countries would benefit from increased Chinese consumer demand. “The risk for China is that it waits too long to adjust,� says Pettis. But adjusting, it turns out, carries its own set of risks. —Jim Schnabel
... AND THERE’S ANOTHER LOOMING PROBLEM: A SOON-TO-BE-SHRINKING WORK FORCE.
8%
Percentage of people 65+ in Chinese population in 2010.
16%
Projected percentage of people 65+ in Chinese population in 2030.
-0.7%
Projected average annual growth rate of Chinese working-age population during the 2030s.
67%
Percentage of Chinese GDP growth contributed by investment between January 2009 and June 2011.
47%
Estimated percentage of Chinese GDP contributed by investment in 2011. World average is about 20 percent.
186 MILLION
$
40%
Percentage of loans held by local governments that are expected to mature in 2011 and 2012.
27:1
Average housing priceto-income ratio in Beijing Ă„]L [PTLZ [OL ^VYSK average and a clear sign of a price bubble).
2 4 | ON E
Amount, in dollars, of bonds sold by the city of Yichun, without collateral, to demolish traditional houses in favor of new ones and construct a reservoir, an airport, and parks (one of which, according to Bloomberg News, features “faux Corinthian columns topped by winged warrior princesses and bronze sculptures of chariot-riding local gods�).
99%
Percentage of currently vacant leasable space in New South China Mall, built in 2005 to be the largest mall in the world.
0.47
The 2009 estimate for the .PUP JVLMÄJPLU[ PU *OPUH H number used to measure wealth inequality in a given population. (Numbers above 0.4 are thought to indicate excessive inequality.) China’s LZ[PTH[LK .PUP JVLMÄJPLU[ was 0.32.
230 MILLION
Estimated number of rural migrant workers, whose low pay and relatively high unemployment rate make them a frequent source of civil unrest (as of early 2010).
80,000
Mass group incidents in 2007.
180,000
Estimate for mass group incidents in 2010.
2007
The last year for which the Chinese Academy of Social Sciences published mass NYV\W PUJPKLU[ Ă„N\YLZ
7.8
Number of working-age adults available to support each nonworking older person in China, 2010.
3.8
Projected number of working-age adults available to support each nonworking older person in China, 2030. FA L L / W I N T E R 2 0 1 1 | 2 5
F E AT U R E : The Bioconductor
For nearly three decades, bioengineer Robert Langer has been leading the way in connecting science and industry—with more than 800 patents and 200 companies to show for it.
The Bioconductor B
ob Langer was frustrated. The year was 1983, and the future biotech wunderkind had licensed his first laboratory technology to a couple of big-shot pharmaceutical firms, Eli Lilly and Company and Inventory Management Corporation. Langer had worked for 10 years to perfect the technology, a way to release drugs made of large molecules into the bloodstream in a controlled way, potentially benefiting both human and animal health. The companies he’d sold it to, however, had put it on the back burner. “That was very discouraging to me,” says the scientist 28 years later, sitting at his desk in a lab a few blocks from the campus of the Massachusetts Institute of Technology, where he is an engineering professor. “I wanted people to use it.” Around the same time, Langer was approached by a small Baltimore-based startup firm called Nova Pharmaceutical Corporation, which was looking for its own technologies to license. Langer suggested they might help him fund a new brain cancer treatment he was working on with Johns Hopkins School of Medicine neurosurgeon Henry Brem involving a disc made of a revolutionary new polymer. Langer watched as the company funded experiment after experiment, sticking with the technology despite naysayers from the 2 6 | ON E
National Institutes of Health and the Food and Drug Administration. Eventually, those brain wafers would become the first new brain cancer treatment approved in more than two decades, leading to a $12 billion company with Langer on the board of directors. “I’m sure their stock price depended on it, but that showed me these small companies could really advance it. That was very powerful to me.” If ever there was a turning point in the career of one of the most prolific inventors of our time, that was it. Thirty years ago, it was practically heresy for an academic to partner so closely with a company— tantamount to sullying the purity of science. Langer has been one of the most successful pioneers in commercializing science, showing that connecting science and industry creates more potential than either has on its own. “In the end I don’t want to just write papers, I want to change people’s lives,” he says, arguing that the only way to do that is to get scientific discoveries out in the marketplace. If other scientists wring their hands over potential conflicts of interest in sharing profits from their discoveries, Langer brushes aside their concerns. “I felt that it would be worse to just leave these things in academia and not get them out to other people,” he says. “I’d rather be criticized for that than to feel in my heart I wasn’t doing anything.”
By Michael Blanding
Langer has written papers—at last count 1,100 of them—but in the past three decades he has also secured 800 patents, granted or pending, and licensed research to more than 200 companies, two dozen of which he’s had a direct hand in creating. Along the way, he’s invented drug therapies that have saved thousands of lives and created technologies that have cut costs, improved efficiency in health care, and opened the door to whole new fields of research. These days, more and more scientists are dipping their toes into the marketplace, as new discoveries in biotechnology demand entrepreneurs to take them on. However, “the average scientist still isn’t there,” says Dipankar Chakravarti, a Johns Hopkins Carey Business School professor who helped create the school’s Discovery to Market program for MBA students, which examines the commercial implications of technological inventions. “There are many good people who see the bounds of their activities as the laboratory workbench and are not willing to walk through the sausage making of what it takes to bring ideas to the marketplace.” Where Langer is unique, says Chakravarti, is in recognizing which ideas in the lab have potential business applications and understanding how to get them into the hands of those who will make them succeed.
FA L L / W I N T E R 2 0 1 1 | 2 7
F E AT U R E : The Bioconductor
HEINZ AWARDS PHOTO/JIM HARRISON
In the early days of his startup companies, Langer admits he sometimes ran into investors who were too eager to show rapid results in order to raise capital. “It was too sales-y. I want to deliver the best thing I can, but I don’t want to overpromise,” he says.
L
anger’s lab is one of the largest at MIT, occupying nearly the entire floor of a shiny new building of beige granite and shimmering glass in the midst of Kendall Square. Its location is both practical and symbolic—a few blocks from MIT’s campus, it is surrounded by similarly reflective office buildings that serve as home base to drug companies such as Novartis and Genzyme, venture capitalist firms, and nonprofit medical foundations.
2 8 | ON E
Amid a maze of cold storage rooms and biohazard symbols, Langer’s small office is wallpapered with awards, which fill almost every inch of space on two walls and include every major scientific award short of a Nobel. Short and slight of build, he is simply dressed in a beige polo shirt and black cotton pants, with oval wireframed glasses perched on a nose that curves noticeably to his left. But his words flow with a natural assuredness, with constant eye contact and conspicuously absent verbal pauses.
Langer had a typical middle-class childhood in Albany, New York, where his father owned a liquor store and his mother stayed home to look after him and his sister. As a kid, he played around with a Gilbert chemistry set, but his decision to become a chemical engineer was more a result of recommendations by his father and his guidance counselor than any internal drive. Entering Cornell University as a chemical engineer, he says, “I was good at math and science, but I really had no idea what an engineer did.” He enjoyed learning the field as an undergrad, but he enjoyed
being a teaching assistant and tutoring younger students just as much. Upon graduation, he was offered 20 different jobs from oil companies—four from Exxon alone—but turned them all down. “One of those interviews made quite an impression on me,” he said in a commencement address given at the Carey Business School this spring. “I went to this interview in Baton Rouge, and they said if I could just increase the yield [of oil production] by 0.0001 percent, it would be worth billions.” But using his skills only for a commercial enterprise didn’t appeal to
him. “That just wasn’t exciting to me. I wanted to try and change people’s lives.” That proved to be not as easy as he’d hoped. First, he thought he might help develop a new chemistry curriculum for high school students and applied to 40 different jobs to do so. He was turned down 40 times. Abandoning that idea, he thought perhaps his chemical experience might benefit the health care field. Again he wrote letter after letter, only to be turned down. Back in the early 1970s, the only chemists working in hospitals were doing complex mathematical modeling, not
participating in experiments. Only one doctor responded to his query—Judah Folkman, a doctor at Children’s Hospital in Boston, who was himself known as something of an iconoclast for his stubborn belief, unheard of at the time, that cancer cells could be killed by choking off their blood supply. Folkman was also unusual in that he looked outside of medical schools for laboratory staff; thinking a chemist might help with his experiments, Folkman hired Langer. “He was someone who thought really, really big and thought anything was possible,” says Langer. “A lot of people were skeptical of his work, and he was criticized for it, and the fact that he stood up to them and never gave up was a great thing for me to see—and in the end he turned out to be right.” Langer’s job was to experiment with stopping angiogenesis, the process by which tissues create new blood vessels. The idea was that if one could stop blood vessel growth, it might slow or stop the growth of cancer. Other researchers had shown that cartilage placed on rabbit eyes would stop new blood vessels from growing, but Folkman wanted to find an extract that could be inserted directly into cells through a new polymer. Langer began visiting the slaughterhouses in Cambridge, scraping meat off cartilage in an effort to isolate a material found inside the cartilage that would have the same effect. “The only thing I had going for me was that I hadn’t read the literature on why this was impossible,” he said in his Carey Business School address. “I spent two years working on the problem and found 200 different ways to make it not work.” Finally, however, he had a breakthrough when he discovered a protein that could effectively disrupt angiogenesis, starving the flow of blood to the tissue. The research led to publication of two papers in 1976, one in Nature that explained how the protein FA L L / W I N T E R 2 0 1 1 | 2 9
F E AT U R E : The Bioconductor
worked and the other in Science that explained the technique for isolating it, which is still used today. Asked why he stuck with it, he begins with an idealistic answer. “If I did it, I felt like it could be important, and of course that has been true,” he says, before breaking eye contact and looking down at his desk for the first time. “But I suppose it was more than that, an innate personality quirk of just being stubborn. I don’t give up easily.” His perseverance earned him a professorship at MIT in a funky new department called Applied Biological Sciences, which brought together scientists from a number of disciplines researching new applications in health and food science. It was a perfect fit for Langer, who followed Folkman’s example in reaching outside his own areas of expertise to ask the really big questions. “I had things I wanted to do that, if they worked, were to have not just an incremental effect, but create a new kind of entity or device to treat a disease, or be so big it changed our fundamental understanding of the science,” he says. “People would say I couldn’t do things, and I felt that I could, but I also realized that to do them I needed people from different disciplines.”
A
fter Langer’s breakthrough moment involving the brain cancer wafers, he increasingly turned to people outside academia as well. The first company that Langer helped create came through a collaboration with his MIT colleague Alex Klibanov, a chemist researching new food additives who shared his frustration with the inability to translate their scientific discoveries outside the lab. In the early 1980s, Langer and Klibanov would get together on Saturdays for something they called “yogurt lunches”—where they’d meet outside the lab, order yogurt, sound each other out on ideas, and vent their frustrations. “One thing led to another, 3 0 | ON E
and we decided one way to address those frustrations was to create our own company,” says Klibanov. In 1986, they met with venture capitalists and business consultants to produce a business plan—which would combine a drug delivery technique Langer was developing using microspheres with a similar technology Klibanov was developing to create nonfat food additives. “At the time we thought what we were proposing was such a good idea,” says Klibanov. “But it became clear very early on that these two components didn’t have a great deal in common.” Eventually, the company they created, Enzytech Inc., split into two parts, with the food part going public and being acquired by a Canadian drug company. Even though Langer continued to believe in the microspheres concept, Enzytech sputtered along with a “so-so CEO.” Meanwhile, he says, “there was a company downstairs that had a great CEO but not a good technology.” The two companies eventually merged, and the new company, Alkermes Inc., began pursuing the microsphere idea; today, it’s a $200 million-a-year company that produces treatments for everything from diabetes to addiction to schizophrenia. That was the first company Langer helped create, and in many ways it became typical of the experiences he’s had since. For most of the kinds of technologies that come out of his lab, there isn’t just one application. “We have created these platforms, but the fact is there are many, many applications that can come out of them,” he says. “We’ve done the science, but then the businesspeople will work with me to figure out the first application, the second application, the third application, and so on.” Using that principle, Langer has distilled the initial stages of creating a company into, well, a science. Rather than try to form a company around one specific application, he looks to find ways that research from his lab might fulfill a
larger “unmet need,” such as a new way to synthesize or deliver a drug, or a way to improve a medical procedure. The next two stages, which happen in tandem, are writing the seminal paper to present the idea and patenting the concept to claim intellectual property. In fact, he says, it’s important to have a patent in place before the paper is published to make sure that investors have the proper incentive to put money into the company. In speeches, Langer loves to quote Abraham Lincoln, who declared the patent system one of the three greatest inventions and discoveries in history along with the printing press and the discovery of America. Without a patent and industry backing, Langer says, ideas won’t get grants. “Ninety-nine percent of these ideas won’t happen.” The Carey Business School’s Chakravarti agrees that many of today’s innovations need an extra push to get them into the public sphere. “Most discoveries these days have a kind of J-shape or
“He is just as good a businessman as he is a scientist, he doesn’t worry about who gets the credit, and he is someone who enjoys making connections and isn’t closed off,” says David Lucchino, CEO of Semprus BioSciences, a company Langer helped found in 2006.
hockey-stick shape when you look at opportunity to time-space—to be able to identify that takeoff point is really important,” he says. If more scientists don’t form companies, he says, it’s because they worry that it will somehow compromise science—by rushing the testing phase of new drugs or medical devices to get them to the marketplace. “Those are the kinds of things that people succumb to in dealing with commercial properties,” says Chakravarti. “If you cut those corners, it’s bad science, and it’s also unethical and illegitimate science.” In the early days of his startup companies, Langer admits he sometimes ran into investors who were too eager to show rapid results in order to raise capital. “It was too sales-y. I want to deliver the best thing I can, but I don’t want to overpromise,” he says. In 1993, he met Terry McGuire, co-founder and general partner of Polaris Venture, a venture capital company that has since worked with Langer on 17 companies. The two have built up a level of trust that has allowed McGuire to follow Langer’s lead on the abilities of the science; at the same time, Langer has learned to take a step back in the business of developing the science, which doesn’t always go in the direction he imagines. One recent example is a company called Momenta Pharmaceuticals, which two of Langer’s students founded based on a technology that Langer had created years ago that used enzymes to break down complex chains of carbohydrates known as polysaccharides. Early on, however, Momenta determined it would be more profitable in the short term to use the same technology to produce cheaper generic versions of drugs already on the market. A year ago, it became the first company to successfully get FDA approval to produce enoxaparin (a generic version of the drug Lovenox), which has been worth a billion dollars in the first year.
In fact, very few of the companies Langer has started have turned out as planned, he says. He compares them to his children. “Growing up, in the beginning they need a lot of nurturing. As time goes on, they need less and less, and when they grow up they may not want you or they may. But all you want is for them to be happy and be good.” Langer’s own role within the companies he creates is often connecting the right people to make them successful. Those who have worked with him cite his natural ability to network and collaborate with people across disciplines—both inside and outside academia—as key to his success. “He is just as good a businessman as he is a scientist, he doesn’t worry about who gets the credit, and he is someone who enjoys making connections and isn’t closed off,” says David Lucchino, CEO of Semprus BioSciences, a company Langer helped found in 2006. Such skill will likely be more and more valued, now that many universities have come to embrace the idea of creating companies to put scientific technologies into practice. Meanwhile, Langer’s lab at MIT is pursuing new breakthroughs in nanotechnology. And, true to form, he hasn’t given up on experimenting with growing human tissues—an idea he’s been pursuing since the late 1980s. “Just thinking about it theoretically, we ought to be able to do it,” he insists. “Our bodies can do it, right? I look at the animal data, and to me it feels like just a question of time.” If and when he achieves his breakthrough, you can bet a new company won’t be far behind.
In speeches, Langer loves to quote Abraham Lincoln, who declared the patent system one of the three greatest inventions and discoveries in history along with the printing press and the discovery of America. Without a patent and industry backing, Langer says, ideas won’t get grants. “Ninety-nine percent of these ideas won’t happen.”
Michael Blanding is a magazine writer and author of The Coke Machine: The Dirty Truth Behind the World’s Favorite Soft Drink (Penguin/Avery, 2010).
FA L L / W I N T E R 2 0 1 1 | 3 1
OT H E R B U S I N E S S
Fishing for Business in New Orleans
In the aftermath of Hurricane Katrina and the BP oil spill, the large VietnameseAmerican community on the east side of New Orleans is still in recovery. By year’s end, it is expected to launch a small foodproduction operation that will eventually help residents regain some of their economic stability. Students from the Carey Business School’s part-time MBA program have helped make the concept a reality.
News from the Carey Business School and Beyond The Carey–New Orleans connection began
earn their living in an area subject to the
in mid-2010 with a Baton Rouge, Louisiana,
vagaries of Gulf weather and oil spill damage.
native and former Peace Corps worker named Veneeth Iyengar, at that time a student in the
accelerated early in the spring semester, when
Carey Business School’s Master of Science
school officials recruited 12 part-time MBA
in Finance program. (He graduated in May.)
students for a course in which they would
Iyengar heard that the school sought for its
first complete a feasibility study and then a
part-time students something akin to the
business plan for the New Orleans East
full-time Global MBA’s Innovation for Humanity
concept. Professor Richard G. Milter, who
overseas business project. His familiarity with
helped oversee the project from the Carey
his home region—particularly with the environ-
side, says the question for students was,
mental and economic blows it has suffered—led
“How do we add commerce and jobs, and
him to urge Carey Business School administra-
do it in a way that’s sustainable and specific
tors and faculty to arrange a student project
to the culture of this community?”
with members of the Vietnamese enclave in
In March, five of the students went on a
New Orleans East, who were considering
two-day fact-finding trip to New Orleans to
various business initiatives. “It made strategic
begin the feasibility study. After presenting
sense for Carey to be involved,” Iyengar says,
their study to the community members via
“given its mission of business that tries to do
videoconference in May, the other seven
good for society.”
students commenced the business plan.
A fishing community that also has strong
The details from the MBA candidates’ number
roots in agriculture, New Orleans East finally
crunching later proved crucial to strengthening
set its sights on a business that will combine
the community’s applications for operational
both pursuits under one roof: an aquaculture-
grants and demonstrated to the residents how
hydroponics facility. Here’s how it will work:
to make the business a going concern. The
Food fish (hardy, low-maintenance tilapia) will
students’ in-person presentation of the plan
be raised in 50-gallon tanks, and the water and
to the community in early July especially
waste from those tanks will flow into adjacent
impressed the residents because it was made
containers where vegetables will be cultivated
in Vietnamese by Carey student My Yen Le.
on 4-by-6-foot “grow rafts.” The plants—
Kevin Moss, on track to graduate in 2013,
growing entirely in water—will take their
calls the experience “the best thing I’ve done
nutrition from the fish waste, and then the
in my time at Carey. I didn’t even know how to
plant water will be sent back to the fish tanks
write a business plan when we started, but we
with the waste filtered out.
all learned by doing it in seven weeks. It was a
Each single operation, comprising four fish tanks and three vegetable grow rafts, will be contained within a backyard greenhouse.
two-hour [per week] course, but I was putting in at least 30 hours every week.” Daniel Nguyen directs the project for the
CareyServes In August 2010, members of the just-arrived charter class of the Global MBA program set out to show that the Carey Business School’s humanistic philosophy should embrace not only communities on the other side of the world but also neighborhoods around the corner. The student-run organization CareyServes was formed, and it quickly went to work lining up volunteer projects to aid nonprofit groups in the Baltimore area. Recently the leadership team of CareyServes—president Allison Kooser, vice president Matt Eversman, and secretarytreasurer Lauren Drake, all members of the 2012 Global MBA class—published a report on the organization’s activities during the 2010–2011 academic year. Among the highlights:
Carey Business School students painted, cleaned, and did landscaping at a community center for the elderly in Baltimore’s Hampden neighborhood as part of Johns Hopkins’ annual President’s Day of Service in September 2010. The following month, CareyServes held a food drive at all four of the business school’s campuses, collecting hundreds of canned items for distribution by the Baltimore Urban Leadership Foundation. At a December 2010 event, CareyServes raised about $1,000 for the Adopt A Family program of the House of Ruth, a shelter for abused women and their children. As part of Johns Hopkins’ Stocks in the Future program, CareyServes members began work last March on an online game designed to teach financial literacy and money management to local high school students. Carey Business School students responded to the Japanese earthquake and tsunami with a fundraising initiative that raised more than $5,000 for the Japanese Red Cross Society. That same month, closer to home, CareyServes helped raise several thousand dollars in funds and household items for a Carey operations worker whose home was lost in a fire.
The project is designed to start slowly, with one
community group behind the plan. One of his
pilot facility opening this year. Organizers hope
tasks has been raising $700,000 in funds from
to have 20 of the backyard operations running
federal and private sources for the project,
by 2014, resulting in one new job for every
whose main customers will likely be local
two facilities that open. By year five, they
restaurants and food wholesalers. “It was
hope to generate enough revenue (a projected
great working with the Carey students,”
$128,000) so additional grant money won’t be
Nguyen says. “We could see they were all
The organization’s plans for the 2011–2012 year include a Carey-specific day of service and pro bono consulting for local nonprofits.
required for operation. Aside from the expected
putting more than 100 percent into the project.”
—PE
financial benefits, the operation will give com-
—Patrick Ercolano
munity members greater control of how they 3 2 | ON E
The Carey Business School’s involvement
FA L L / W I N T E R 2 0 1 1 | 3 3
OTHER BUSINESS
Humane Debate
Meet the New Faculty
In the rugged coal country of western Maryland, amid the ancient folds of landscape that gave
Angelo Mele, Assistant Professor in the Research Track
rise to the Appalachian Mountains and a way of life for generations, a potential standoff looms. Hydraulic fracturing, or “fracking,” a controversial method of extracting natural gas from shale deposits deep within the earth, has sparked an often acrimonious debate that pits the prospect of new jobs and a vast source of clean energy against the threat of contaminated groundwater and subterranean scarring. This is a job for humanities counseling, says Tom Crain, a lecturer at the Johns Hopkins Carey Business School. Crain isn’t your typical business faculty. An expert in ethics, leadership theory, and cross-cultural communications, he holds bachelor’s and master’s degrees in English (to which he will soon be adding a doctorate in English literature from Johns Hopkins) and was instrumental in creating the Carey Business School’s Thought and Discourse Seminars, in which Global MBA students examine complex issues relating to ethics and corporate responsibility. For the past six years, Crain has also served on the board of the Maryland Humanities Council, where he was appointed chair last fall.
Kudos
Recognizing accomplishments of Johns Hopkins Carey Business School faculty and staff • “Generic Manufacturers’ Labeling Catch-22,” by assistant professor Stacey Lee, has been accepted for publication in the Yale Journal of
Areas of expertise: Applied econometrics, Still from the movie Gasland, showing flammable tap water. The council sees great works of art and
to them emotionally and spiritually, as well as
scholarly achievements as increasingly relevant
economically. Ultimately, the discussion
in a world where coarseness and closed-
generated by the film birthed a community
mindedness encroach upon informed and
group that pledged to gather more information
respectful debate. To that end, the council taps
and keep the citizenry active and informed.
the humanities—a short story by Tolstoy, a
This is just the kind of thoughtful and
Monet painting—to establish common ground
productive debate Crain encourages in the
and promote constructive dialogue in commu-
business community in general, and among
nities across the state. “We started thinking
Carey Business School students in particular.
how we could develop programs focusing on
“Carey and the Humanities Council take a
creating conversations and discourse concern-
parallel approach in many respects, by
ing ‘problem areas,’” Crain says.
examining our sense of stakeholders and
This is just what the council did with the
the often complex relationships at play when
KIM
GUNIA
SAHIN
MONTE
MAUSKOPF
GIL
Previously: Earned a master’s in economics from New York University. Race matters: Wrote a series of essays on the economics of racial segregation for his doctoral thesis.
Meng Zhu, Assistant Professor in the Research Track
Previously: Taught two courses in negotiations
International relations: Has experience as
Areas of expertise: Consumer judgment and
to MBA students and led a workshop in team
an external consultant for private and public
decision making, marketing.
building in the executive development pro-
organizations in Italy and Switzerland.
Credentials: Doctorate in marketing from
gram at Northwestern’s Kellogg School of
Carnegie Mellon University, 2011.
Management.
Previously: Received a bachelor’s in compara-
Blame game: Currently researching the
Eileen Mauskopf, Associate Professor in the Practice Track
tive literature from Nanjing University, 2001.
factors that lead people to take blame for
It’s an honor: Won one of three dissertation
collective mistakes.
than 200 community members last March to
other at cross-purposes,” he says. “What both
participate in a spirited dialogue. During the
are coming to realize is that a symbiotic relation-
forum, a screening of the 2010 film Gasland—
ship often exists where discourse, disclosure,
a documentary that takes an unblinking look at
and collaboration realize advantages for all.
Tepper School of Business.
the history of fracking—encouraged all in
Businesses that do right by their communities
attendance to articulate what the area meant
will ultimately do the best for themselves.”
Sharon Kim, Assistant Professor in the Research Track
—Andrew Blumberg
• With just three William H. Newman awards
ZHU
University of Illinois at Urbana-Champaign, 2011.
companies and communities perceive each
• Assistant professor Meng Zhu had her paper
MELE
Credentials: Doctorate in economics from the
fracking debate, gathering together more
awards given annually at Carnegie Mellon’s
Areas of expertise: Macroeconomics, monetary economics, and real estate economics. Credentials: Doctorate in economics from
Ozge Sahin, Assistant Professor in the Research Track
Johns Hopkins University, 1976.
Areas of expertise: Pricing and revenue
Reserve Board.
management, supply-chain management.
Learning from the crisis: Co-authored a
Areas of expertise: Individual and group
Credentials: Doctorate in operations research
chapter in the book Lessons from the
creativity, causal attributions in creative evalu-
from Columbia University, 2007.
Financial Crisis: Causes, Consequences, and
ation, individual and organizational identities,
Previously: Senior economist for the Federal
Previously: Assistant professor of operations
Our Economic Future (Wiley, 2010).
given each year by the Academy of Manage-
“Double-Edged Sword of Signaling Effective-
affect and cognition, and career management.
management at the University of Michigan’s
ment, Carey featured one winner and one
ness: When Salient Cues Curb Post-purchase
Credentials: Doctorate in organizational
Ross School of Business.
finalist for 2011. Assistant professor Sharon
Consumption” accepted for publication in the
behavior from Cornell University, 2011.
Tech savvy: Worked as a researcher at the
Ricard Gil, Assistant Professor in the Research Track
Kim won the award for her paper “Selling Out:
Journal of Marketing Research.
Previously: Earned two master’s degrees from
IBM Thomas J. Watson Research Center and
Cornell’s School of Industrial and Labor Relations.
as a consultant at Lucent Technologies.
How Impressions of Materialism Influence
• Dipankar Chakravarti, professor, published
Creative Evaluations and Performance.”
“Price Presentation Effects in Purchases
Creation: Contributed to a study of the rela-
Brian Gunia, assistant professor, was a
Involving Trade-Ins” (co-authored by Joydeep
tionship between narcissism and creativity that
finalist for the same award.
Srivastava of the University of Maryland). Their
was covered by Bloomberg Businessweek,
paper appeared in the October issue of the
Science, and the Wall Street Journal.
Journal of Marketing Research.
Brian Gunia, Assistant Professor in the Research Track
• Brian Gunia received the 2011 Kenneth E.
Health Policy, Law, and Ethics. The study
Clark Student Research Award, sponsored
examines the legal and regulatory framework
by the Center for Creative Leadership and
needed to ensure that generic drug manufac-
the International Leadership Association,
Learning Experiences in a Changing World
turers provide consumers and the medical
for his paper “The Blame-Takers Dilemma:
(Springer, 2011). The book is the third in a
community with current and accurate labeling
Actions and Reactions in the Wake of
series of works on the latest developments
instructions for their products.
Organizational Failure.”
in business education and training.
3 4 | ON E
applied microeconomics, and labor economics.
• Professor Richard Milter edited Building
—AB
Areas of expertise: Organizational economics focusing on strategy and industrial organization. Credentials: Doctorate in economics from the
Ferdinando Monte, Assistant Professor in the Research Track
University of Chicago, 2004.
Areas of expertise: The interplay between
versity of California Santa Cruz and a visiting
international trade, labor markets, and the
assistant professor at both the London School
microeconomics of the firm.
of Economics and Political Science and the
Previously: An assistant professor at the Uni-
Credentials: Doctorate in economics from the
MIT Sloan School of Management.
Areas of expertise: Ethical decision making,
University of Chicago, 2011.
Game on: Has explored the role of flexible
trust, and negotiation.
Previously: Earned a master’s in economics,
contracting practices in creative and innovative
Credentials: Doctorate in management and
Universitat Pompeu Fabra in Barcelona, Spain.
fields, such as the video game industry.
organizations, Northwestern University, 2011.
—PE
FA L L / W I N T E R 2 0 1 1 | 3 5
ALUMNUS PROFILE
ALUMNI NOTES
1931
2002
Bessie Pear Jacobs (BS) celebrated her 100th birthday with a gathering of her friends and family on Sunday, July 10, in West Palm Beach, Florida.
Maurita Soltis (MS/ITS, Advanced Technology and Electronic Communication; Graduate Certificate, Information Security ’03) recently joined MITRE, based in McLean, Virginia, as a lead artificial intelligence engineer.
1988 Dennis Averill (MAS, Administrative Science), also a graduate of the Johns Hopkins Bloomberg School of Public Health, is senior manager of safety, health, and environment for Unilever North America and author of Lean Sustainability: Creating Safe, Enduring, and Profitable Operations (CRC Press, 2011). Kenneth Harvey Homer Jr. (MAS, Administrative Science), a senior analyst at the technology resource organization BRTRC Inc., is assigned to the U.S. Army Research Development and Engineering Command.
1993 Edward Tuvin (MBA, Management), vice president of Capital Bank, received the 2011 SBA D.C. Financial Services Champion award on May 11 in Arlington, Virginia.
1994 Kenneth Bethea (Graduate Certificate, Leadership Development Program; MS, Management ’96; MBA, Management ’02) currently serves on the board of directors for Southeast Fuels Inc., in Greensboro, North Carolina. Southeast Fuels is a Black Enterprise Magazine “Industrial 100 Company.” Mark Shapiro (MS, Real Estate) has written and recorded Dream Catcher, an album of 11 original songs, with a Grammy-nominated engineer and several leading musicians in the Baltimore area. Proceeds from the CD are being donated to Baltimore’s Fallstaff Elementary School.
1998 Constance Hays Matsumoto (MS, Management), owner of Pabríque, a custom interior design company, is now associated with Girls Quest, a nonprofit that provides enrichment programs to low-income families and disadvantaged girls in New York. For more information, visit www.pabrique.com.
1999 Craig Enger (MS/ITS, Telecommunication Systems) has released his fourth album, Coastline. Profits from the album, which can be found on iTunes, go to charity.
2001 Noelia Cantu (BS, Social Sciences; Graduate Certificate, Business of Medicine ’04; MBA, Medical Services Management ’06) is director of clinical research administration at Johns Hopkins’ Center for Surgical Trials and Outcomes Research. 3 6 | ON E
Kathy Mignini Walsh (MS, Marketing) is a regular columnist for I95 Business, a new business magazine dedicated to connecting successful people, ideas, and entrepreneurship in Maryland’s northeast corridor. She is also president and founder of JigSaw Marketing Solutions.
Wellness Goes Wireless Fadul, a physician and 2011 graduate of
for example—Omnnea launched the One
2003
2009
the MBA in Medical Services Management
Touch Health initiative early this year. In the
Jeffrey Hausfeld (Graduate Certificate, Business of Medicine; MBA, Medical Services Management ’05) was recently appointed to the board of directors of the Society of Physician Entrepreneurs. Hausfeld is a co-founding member of the organization.
Susan Chu (MS, Organization Development) is the chief administration officer for Newspaper Support Services, a division within Advance Publications, one of the largest privately held media companies in the United States.
program, was keenly aware of the huge
planning stages are live streaming video of
disconnect in health care access for virtually
physicians discussing various health care
all but the wealthiest people in his family’s
issues and the possibility of eventually offering
homeland. (Fadul’s parents left Iraq just after
videoconferencing services or assembling
Linda Brown Rivelis (BS, Management and Leadership) and her husband, Steven Rivelis, are the founders of Eye Byte Solutions—a Baltimore-based Web, design, and new media studio. The company was recently named an American Design Awards winner for its corporate identity work.
Segun Dawodu (MBA, General Studies) was appointed associate professor of physical medicine and rehabilitation at Albany Medical College. Dawodu is a board-certified specialist in physical medicine and rehabilitation with subspecialization and board certifications in pain, spinal cord injury, sports, and electrodiagnostic medicine.
Saddam Hussein came to power; they later
individualized health databases for subscribers.
moved to the United States when Fadul, born in
Every Omnnea subscriber in Iraq (approxi-
Abu Dhabi, was an infant.) “Iraq currently does
mately 250,000 at last count) has access to
2005 David Svec (MBA) is founder and principal of the rapidly growing cyber security services firm Veris Group LLC, a recent recipient of the Inc. Magazine 5000, Washington Technology Fast 50, and Virginia Chamber of Commerce Fantastic 50 awards.
2006 Katherine Luber (MBA) started her new position as curator of the San Antonio Museum of Art on July 1. She is the former curator of European art at the Philadelphia Museum of Art.
2007 Wendi Brown (Graduate Certificate, Leadership Development Program) was awarded the Bronze Star for her service in Afghanistan. Brown has been deployed under the Army Sustainment Command and is charged with providing trained and ready Army Reserve soldiers to support mission requirements. Sherry Buckles (BS, Business and Management) has been appointed director of Major Gifts for Children’s Programs at the Medical Foundation of North Carolina Inc., which raises funds for the University of North Carolina School of Medicine and UNC hospitals. Buckles is also the current Johns Hopkins University alumni chapter president for the Raleigh-Durham-Chapel Hill area. John S. Butler (MS, Management, Police Executive Leadership Program) is the assistant chief admini strative officer with the state of Maryland’s Howard County Department of Fire and Rescue Services. In April, Butler was awarded a certificate of completion for the Leadership in Crisis program through Harvard University’s John F. Kennedy School of Government.
not have much of a medical infrastructure,” Fadul says. “There are few specialists, for example, and most are poorly trained and equipped by our standards.” To complicate matters further, relatively few physicians practice
Katrina McDow (MS, Marketing) is special assistant to chairman Daniel R. Elliott III at the U.S. Department of Transportation’s Surface Transportation Board. She is responsible for ensuring that the chairman’s platform, including major laws that pertain to the railroad industry, is effectively disseminated to stakeholders.
outside the country’s wealthy urban areas. Realizing the sobering socioeconomic gaps that feed the problem, Fadul took advantage of one of the commodities Iraqis (as people almost everywhere) seem to have in abundance—cell phones. This basic
2010 Katie McClammer (MS, Marketing) a product manager at McCormick & Company Inc. in Sparks, Maryland, recently became a board member of the nonprofit Friends of Great Kids Farm, a project of the Baltimore City Public School system. The farm, which welcomed more than 2,000 students this past school year, engages students and their families through food and prepares them to lead sustainability efforts in their communities.
Elizabeth S. E. Moran (MS/ITS ’87) died March 15 in Greenville, Delaware. A conservationist, she founded 82North, which facilitates the efforts of nonprofit organizations. In addition, she served as a board member of the Delaware Nature Society and the Squam Lakes Natural Science Center in Holderness, New Hampshire, where she was a member of the town’s conservation commission.
telecommunications tool, he reasoned, could
One Touch Health as part of a basic package
put reliable, useful health care information into
of services, at no extra charge. “This is not
Stultifying heat.
the hands of people who live in remote villages
inherently a moneymaker for Omnnea,” says
Dirt roads.
and rarely see a doctor. In addition, mobile
Fadul. “Instead, the motivation is to do right
Mountainous
technology could significantly improve access
by doing good—it’s really analogous to the
terrain. The
to physicians themselves, as in the case of a
mission of the Carey School.”
specter of bandits
small clinic without access to even a modest
and terrorists. The
computer or digital camera. Using a cell phone,
“conceptually well received,” with some
nearest physician
a patient’s medical records and diagnostic
resistance typical of first adopters—including
a two-hour drive
photos, for example, could be shared with a
physicians and patients—fading as the program
away—provided
specialist hundreds of miles distant, whereas
gains traction, the technology proves its
one has access to a vehicle to begin with.
an in-person consult and exam would be
usefulness, and the benefits become clear.
For many in the United States, a visit to the
next to impossible.
“It’s been exceedingly rewarding and intrinsically
IN MEMORIAM Frederick J. Hanna (BS, Social Studies ’69) died February 25 in Westminster, Maryland. He was the former rector of All Saints’ Episcopal Church in Reisterstown, Maryland, and an outspoken champion of civil rights in the 1960s. He also worked for repeal of Maryland’s miscegenation law.
“The motivation is to do right by doing good—it’s really analogous to the mission of the Carey School.”
doctor’s office is somewhat less dramatic.
To implement his vision, Fadul approached
Fadul says One Touch Health has been
valuable,” Fadul says of his collaboration with
But this is a reality for a sizable segment of the
Iraq’s sole data and wireless communications
Omnnea. “It’s an example of taking off-the-
Iraqi population. For a burgeoning democracy
provider, Omnnea Wireless Ltd. The company
shelf, existing cell phone technology that most
struggling to emerge from years of war, social
proved extremely receptive to the idea. Seeing
Iraqis already possess and using it to best
strife, and economic instability, advances in
the potential to turn thousands of mobile
advantage. I can’t speak highly enough of the
health care might seem a pipe dream. Yet Rafid
devices into sources of medical information—
Omnnea staff. They’ve devoted time, energy,
Fadul, a Carey Business School alumnus, has
using prepackaged text messages and emails
and resources, and the best part is they’re in
helped spur change at the grassroots level,
to communicate advice concerning diet, exer-
it for the long haul.”
without costing Iraqis a cent.
cise, and heart disease and cancer prevention,
—AB FA L L / W I N T E R 2 0 1 1 | 3 7
OTHER BUSINESS
New Associate Dean for External Affairs Brown’s career is marked by broad
Kelly Mansfield Brown joined the Johns
Channeling the Entrepreneurial Spirit
many wonderful experiences—first as a student
Are you an Elvis or a Col. Tom Parker (better
experience in fundraising, alumni relations,
and later as an administrator in development,”
known as Elvis Presley’s manager)? A
board development, and strategic planning at
Brown said. “It’s exciting to be part of such a
talented creator or a managerial whiz who can
public and private institutions. Her duties at the
trailblazing business school as Carey, and I
turn a million-dollar idea into a million dollars?
Carey Business School embrace these areas as
look forward to helping it continue the amazing
well as management of the school’s branding
run of success it’s enjoyed since its launch.”
and its communications to key constituencies,
Brown, who lives in Silver Spring,
Professor Toby Gordon poses such questions to her students at the start of the Discovery to Market (D2M) technology
such as current and prospective students and
Maryland, with her husband and two children,
faculty, alumni, board members, potential
also served as director of development at the
BOOKS
donors, and the general public.
Smithsonian Institution’s National Air and
Make Way for the Little Guy
The appointment is a homecoming of
Space Museum and UMD’s Clarice Smith
Hopkins Carey Business School in April as
sorts for Brown. She earned her bachelor’s in
the new associate dean for external affairs.
American history from Johns Hopkins, and
Previously the assistant dean of development
during the 1990s she worked in development
at the Smith School of Business, Brown
and alumni relations at the University of
and alumni relations at the university’s Nitze
improved the annual base of philanthropy
Maryland’s Robert H. Smith School of
School of Advanced International Studies in
from $5 million to $11 million and directed a
Business in College Park, Brown oversees
Washington, D.C., and at Johns Hopkins’ Center
fundraising campaign that met its original goal
the Carey School’s offices of development,
for Talented Youth in Baltimore. “I’m really thrilled
of $90 million 20 months ahead of schedule.
communications, and alumni relations.
to be back at the university where I’ve had so
—PE
Performing Arts Center. During her six-year tenure in development
University series on entrepreneurship, an allstar roster of strategy experts charts the intersection of two areas of business research: how competitive actions and responses affect a market, and how new
Driven Students, Financial Need
ventures start and
alumni programs, and volunteer opportunities;
develop. “We are still
All board members are Carey Business
When Tolulope Fafowora came to the United States from Nigeria, she was seeking a better situation for herself, her daughter, and her disabled sister. Shortly after Fafowora entered the Carey Business School’s part-time evening MBA program, however, she was laid off from her job at Howard County General Hospital, leaving her worried about how she would pay for
school officials on new initiatives, services, and support community-building activities.
management, which ultimately helped her land
School alumni. DAAB member Jeri Fellerman,
neurs,” write Carey Business School interim
a senior vice president at Wells Fargo Bank, re-
dean Phillip H. Phan and Colorado State
members seeing some classmates struggling
University professor Gideon D. Markman, who
to pay for their education while working full-
edited the book, The Competitive Dynamics of
time jobs and supporting families. Now, Feller-
Entrepreneurial Market Entry (Edward Elgar
man says, she feels she should help support
Publishing, 2011). The volume functions as a
Carey students who have high academic stan-
primer, compiling seminal papers dating as far
dards and ambitious goals but also financial
back as the 1980s with retrospective updates
need. Fellow DAAB member William Enright,
from their authors. There are also important
her present job as a research associate and
going to school,” Fafowora recalls, “but I knew I
president-CEO of vaccine creator Vaxin Inc.,
project manager at Howard University Hospital
says, “All of the students that we are looking at
Waldron’s look at how new market entrants
[for scholarships] are very driven. We look at
that aren’t competitors (such as nonprofit
giving aid to those students who are out to
interest groups) can reshape a competitive
It was about this time that the Dean’s
Providing scholarships to students like
Alumni Advisory Board (DAAB) created a
Fafowora is one of the central initiatives of the
scholarship program for Carey Business
make a difference in their lives and in the lives
landscape. And embedded with the academic
DAAB. Its 28 members serve on at least one
of others.”
theory is a strategic insight for the entrepreneur:
School students with financial need. With
of the DAAB’s four committees (nominations,
funds from the DAAB program, Fafowora was
fundraising, governance-strategy, and net-
able to finish her degree in medical services 3 8 | ON E
working-career service); provide feedback to
To make a gift please visit carey.jhu.edu /give-to-carey. —Tracy Deemer
Early in That Used to Be Us (Farrar, Straus and Giroux, 2011), Thomas Friedman and Michael Mandelbaum cite the post–World War II “Long Telegram” in which U.S. diplomat George Kennan warned of the growing Soviet threat. This new book by Friedman, a New York Times columnist, and Mandelbaum, a professor of American foreign policy at the Johns Hopkins Nitze School of Advanced International Studies, is, in effect, a Long Telegram for 2011. It warns of the major threat America poses to itself because of its failure to tackle four great post– Cold War challenges:
marketplace dynamics triggered by entrepre-
new contributions, such as Theodore L.
in Washington, D.C.
The Way We Were
way off from a thorough understanding of the
her education. “It was a big struggle to continue had to finish the program to reach my goals.”
You will arouse less hostility from incumbent players if your own disruptive entrance expands the playing field for everyone. —Gadi Dechter
program. Her aim is to help students tease out where they fit in the tech transfer arena. “Some will say, ‘I thought I was an Elvis, but I’m really a Parker,’” Gordon explains. “Everyone has a role in bringing an innovation to market, from inventors to social entrepreneurs to finance people to accountants.” D2M teaches that it takes various people
In this first installment of the Johns Hopkins
GIVING
transfer course in Carey’s Global MBA
globalization, the IT revolution, chronic deficits, and energy gluttony. The authors argue that our polarized, instant-gratification society has mislaid the tried-and-true formula for American greatness— a formula built on education, infrastructure, immigration, research and development, and prudent regulation. The co-authors’ conclusion is a call for a “radical centrist” presidential candidate who would talk grown-up sense about setting proper national priorities with the long view and the sense of sacrifice that once defined us and could again. —PE
working together to create a marketable product from an idea. The course starts in the second semester of the Global MBA program, when groups of about a half-dozen students are matched with unpatented projects funneled through the Johns Hopkins Technology Transfer Office (JHTT). Global MBA students in last year’s charter class were assigned to health, energy, and environmental projects that originated at the university’s Department of Medicine and the U.S. Army Telemedicine and Advanced Technology Research Center, among other sources. Gordon emphasizes that D2M is intended as an experiential academic exercise, not a commercialization factory. Still, she says, the program “is a win-win in that [JHTT] gets these smart students working on important projects, and the students get a great educational experience.” During that first semester of work in the spring, the students began gathering details about their assigned inventions. This fall, the students conclude their work by doing a deeper analysis and determining if, and how, the inventions can be launched commercially. A key step, Gordon points out, is assessing who will pay for the product. An invention might be deemed useful to millions of people, but unless, say, an insurance company or hospital will shell out for it, it won’t fly. “The students learn there are many great ideas out there,” Gordon says, “but also many hurdles to clear if you’re going to get that great idea to the marketplace.” —PE FA L L / W I N T E R 2 0 1 1 | 3 9
O N E F I N A L LO O K
One-Two Punch Good things seem to come in twos for Carey Business School alumnus Tri Nguyen (’08). He holds a dual MBA/MS in Information and Telecommunication Systems, and he has developed a productive outlet for his twin passions: photography and boxing. This page features a photo taken by Nguyen at a January 2010 match in Glen Burnie, Maryland. More photos by Nguyen, who works as a technology consultant for the federal government, can be viewed at tringuyenimages.com.
Johns Hopkins Carey Business School Board of Overseers Board of Overseers Chair Morris W. Offit Chairman Offit Capital Advisors LLC
C. Michael Armstrong Senior Advisor SV Investment Partners Former Chairman and CEO AT&T Norman R. Augustine Retired Chairman and CEO Lockheed Martin Corporation
H. Furlong Baldwin Chairman of the Board and Director NASDAQ OMX Group Inc. Alfred R. Berkeley III Chairman and CEO Pipeline Financial Group Former President and Vice Chairman NASDAQ Stock Market Inc. David H. Bernstein Retired President Carisam-Samuel Meisel Inc. Francis B. Burch Jr. Chairman of the Global Board and DLA Piper US Wm. Polk Carey Chairman W. P. Carey & Co. LLC Harvey P. Eisen Chairman and Managing Partner Bedford Oak Advisors LLC John C. Erickson Founder Erickson Retirement Communities Mark R. Fetting Chairman and CEO Legg Mason Inc. Benjamin H. Griswold IV Senior Partner and Chairman Brown Advisory Former Sr. Chairman Deutsche Bank Securities Inc. Russell E. Palmer Chairman and CEO The Palmer Group Brian C. Rogers Chairman T. Rowe Price Group Inc. James E. Rogers Chairman Sunbelt Communications Company
4 0 | ON E
Johns Hopkins Carey Business School Corporate Advisory Board Corporate Advisory Board Chair Michael D. Hankin President and CEO Brown Advisory
Anastasia D. Kelly Partner DLA Piper Anthony A. Lewis, LDP ’96; MBA ’99 Vice President Wholesale Development and Operations Verizon Wireless
Tilak Agerwala, PhD Vice President, Systems IBM
Thomas Lewis CEO Green Exchange Holdings LLC
Peter L. Bain President and CEO Old Mutual Asset Management
John McLaughlin CEO DAP Products Inc.
Robert B. Barnhill Jr. Founder, Chairman, President, and CEO TESSCO Technologies Inc. Maj. Gen. John Batiste US Army (Ret) President Klein Steel Service Kevin Bittner Vice President, Contracts Electronic Systems Northrop Grumman Martin Brunk Office Managing Partner Baltimore McGladrey
Roger Meltzer Partner and Global Chair Corporate and Finance Practice DLA Piper Anil Menon President Globalisation and Intelligent Urbanisation Cisco Systems Surya N. Mohapatra, PhD Chairman and CEO Quest Diagnostics Inc. Robert Mosbacher Jr. Chairman Mosbacher Energy
Glenn C. Campbell Managing Partner Hogan Lovells LLP
Mark E. Nance General Counsel Medical Diagnostics GE Healthcare
George Chavel President and CEO Sodexo Inc.
Patricia Nazemetz Former Chief Ethics Officer Xerox Corporation
Neil D. Cohen President and CEO District Photo Inc.
Edward E. Nusbaum CEO and Executive Partner Grant Thornton International
Jeffrey Grossman National Managing Director of Specialty Finance/Legal Specialty Wells Fargo Wealth Management
Steven Pann Executive Vice President Blackbird Technologies Inc.
Henry G. Hagan Former President and CEO Monumental Life Insurance Company Gerry Hartung Co-CEO Med-IQ John A. Hunter Executive Vice President of Customer Fulfillment QVC Inc. Mark L. Joseph CEO and Vice Chairman Veolia Transportation
Karen B. Peetz, MS ’81 Vice Chairman and CEO for Financial Markets and Treasury Services BNY Mellon Carol Ann Petren Executive Vice President and General Counsel MacAndrews & Forbes Holdings Inc. Roger J. Pomerantz, MD, FACP Global Head of Infectious Diseases Senior Vice President Merck & Co.
Michael S. Poulos Partner and Regional Chair, US Litigation Practice Group DLA Piper Ajit Shetty, PhD Corporate Vice President Worldwide Operations Johnson & Johnson Alan Siegel Founder, Chairman, and CEO Siegel + Gale Susan Silbermann Regional President Latin America Emerging Markets Business Unit Pfizer Inc. William P. Sullivan President and CEO Agilent Technologies Rajat Taneja Chief Technology Officer Electronic Arts Fuat Tosyali President and Chairman Tosyali Holding Group Brian Trelstad Chief Investment Officer Acumen Fund William J. Wolfe President and CEO First Washington Realty Inc.
Johns Hopkins Carey Business School Dean’s Alumni Advisory Board Dean’s Alumni Advisory Board Chair Bryan M. McMillan Divisional Manager-Business Operations; Government Systems Division Northrop Grumman Corporation Rizwan Ahmed Senior Consultant Deloitte
Todd Breighner COO Streamlined Solutions Inc. LouAnn Conner Founder Sagacious Consulting David Crouch Jr. Senior Business Service Analyst Johns Hopkins University, HITS William Enright Director, President, and CEO Vaxin Jeri A. Fellerman Senior Vice President Wells Fargo Bank, NA Yasmina Ghantous Law Student West Virginia University College of Law Anita Holloway Manager, Health Strategy and Clinical Programs Navistar Inc. Sam Huleatt Founder Workstreamer Jesse D. Jacoby Managing Principal Emergent Zenora Khan Business Management Northrop Grumman Andrew Klein Director Cedars-Sinai Comprehensive Transplant Center Chunrong Li Director Merkle Inc. Seth McDonnell Founder Waverly Management Heather J. Reichardt Director, Lodging Property Tax Marriott, International
Auburn Bell Assistant Vice President Legg Mason
Robert J. Valdes Director, Large-Scale Manufacturing Human Genome Sciences Inc.
Jonathan E. Bradley Founder and Portfolio Manager Cristata Wealth Solutions LLC
Montressa L. Washington Senior Managing Consultant IBM
Philip L. Bradley Finance Manager, Global Human Resources Latham & Watkins LLP
University Trustee University Trustee Emeritus Board of Overseers Honorary Chairman University Alumni Council Member
Johns Hopkins University Carey Business School 3400 N. Charles Street Baltimore, MD 21218
Non-Profit Org. U.S. Postage Paid Baltimore, MD Permit No. 1235
One Small Text for You One Giant Leap for Your Career Now therre’s an even smarter way to connect. Our alumni are everywhere in the world. Doing fascinating things. They are business leaders, policy makers, teachers, agents of change. Take the leap. Connect now.
cconnect.jhu.edu onnect.jhu.edu IIt’s t’s who yyou ou know know