Business Today Spring 2012

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FALL 2010 BUSINESS TODAY

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56

BUSINESS TODAY FALL 2010

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lthough it may be hard to believe today, until the late 1970s college graduates came out in droves to interview for jobs at blue chip manufacturing companies such as Ford or General Electric. America was the world’s largest and most efficient manufacturer, so a job at one of these companies would provide a steady income and unparalleled job security, right? What many of these eager graduates failed to anticipate, however, was the rapid rise in outsourcing to industrializing nations that was only a few years down the road. In an alarmingly short period of time, the United States lost its comparative advantage in manufacturing, and, consequently, the once coveted blue chip employers lost their aura of invincibility. The ailing American manufacturing industry precipitated rapid expansion in the service industries, and particularly the financial sector, throughout the 1980s and 1990s. Fueled by financial deregulation and lasseizfaire economic policies, financial markets soared and Wall Street posted record profits. The era was characterized by unprecedented wealth creation, the landmark insider trading scandals involving Ivan Boesky and Michael Milken, and, of course, Wall Street’s Gordon Gekko and his infamous mantra “greed is good.” Before long, the promise of quick fortunes had spread to campuses around the country, and a job at Solomon Brothers or Drexel Burnham Lambert became the new gold standard. Students lined up outside the career services office when investment banks came to campus, hoping that their English major and general lack of interest in finance would not preclude them from landing a job on the Street. Michael Lewis was one such student. An art history major from New Orleans, he did not fit the mold of the stereotypical investment banker, but rose quickly through Solomon’s famed training program gaining the respect of peers and mentors at every step along the way. His bestselling book Liar’s Poker recounts his years as a bond salesman, and is a window into a time on Wall Street that has come and gone. Lewis shared his insight into the current financial system and his views on education in this issue of Business Today. Known as the digital age, the 1990s and 2000s saw the emergence of Silicon Valley as a hotbed of innovative economic activity. Tech startups with only an idea and an office of several employees were valued at hundreds of millions of dollars before they made their first penny. There were the success stories that made news headlines across the world (Bill Gates dropping out of college only to become the wealthiest man in the world) and the stories that make investors cringe even twelve years later (theglobe.com was valued at over $840 million at the time of its IPO in 1998, but was worth only $4 million just three years later), but it is hard to deny the irrational valuation of the technology sector in the late 1990s. However, the industry has recovered since the NASDAQ crashed with the bursting of the dot-com bubble in 2000, and it remains a crucial growth area of the US economy. Silicon Valley has spread to New York where tech companies continue to thrive despite the poor economy and the setbacks in the finance industry. The past few years have seen a return to our nation’s roots as manufacturing has migrated !"#$%&'()*('!"#$%&##'()*+,

3

NEW ROUTES THROUGH CAPITALISM

back onshore and the economy has become more product focused. Real wages in the United States have not risen significantly since the 1970s. While this has decreased the purchasing power of the average consumer and contributed to a widening income gap, the flipside is that American labor is now more competitive in the world market than it has been for most of the last thirty years. At the same time, a weaker Dollar has boosted exports and abundant domestic natural gas reserves have the potential to reduce energy costs for manufacturing. Over and above all else, the United States is a very business friendly corporate environment with well defined intellectual property laws and flexible labor markets. We have already seen this trend start to occur primarily in the South. Economically depressed towns in South Caolina that were at one time home to the booming American textile industry have been revitalized by foreign automobile companies. Caterpillar, the giant construction equipment manufacturer, has closed major plants in Canada in favor of more business friendly and cost effective areas of Georgia and South Carolina. Attracting manufacturing businesses from abroad will have a very positive impact on economically devastated areas of our nation that have only suffered more with the onset of the Great Recession. This issue seeks to examine the areas of growth and innovation in an economy characterized by fewer and less !"#$%&'()**'"++,% lucrative jobs on Wall Street, rapid growth of social media starups, and widespread reform in both finance and healthcare. Will Wall Street continue to attract the nation’s brightest students or are we on the brink of another fundamental shift in the job market? How much growth will we see in the manufacturing industry or is the recent spurt merely a transient phase? Will the social media industry outpace the finance industry, and, if so, can we expect a shift of power from New York to Northern California? But we must remember that this has happened in the past. As is evident from this 1988 cover of Business Today, Wall Street has an uncanny ability to rebound from missteps both large and small, but the question remains: was the recent financial crisis too big of a blow for the industry to handle or will we see a recovered Wall Street in the near future?

Sam Heffernan Editor-in-Chief

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[Spring 2012. Volume 49. Issue 1]

14 24 28 44 52 56 58 63 69

Silicon Valley vs. Silicon Alley Dodd-Frank: Is it the Answer? Facebook’s (ir)rational Popularity Obamacare: How Much Will it Hurt? To Matriculate or Not to Matriculate? Israeli Startup Oasis Nutrition in Global Agriculture Cash Still King in the Heart of Darkness Do What You Can’t Not Do

Michael Lewis, Author Eric Lefkofsky, Groupon Seth Goldman, Honest Tea Bill McComb, Liz Claiborne Gary Gottlieb, Partners Healthcare David Holl, Mary Kay

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9

TECH REVOLUTION

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:4;91<='(166' >0?=67'(?1@6A Did you ever fantasize about spending the night in your tree house as a child only to have your parents say no? Well, your dreams can still come true at the Kadir Tree Houses in Antayla, Turkey where the wooden bungalows are literally suspended in pine trees. For around $20 a night, you and up to four friends can experience living in the trees in one of over 125 bungalows, cabins, or dorm rooms on site. For those of you inclined towards business, the row of cabins called “Wall Street” ensures that you won’t feel too out of place in this one-of-a-kind Turkish hostel. 10

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In conversations about travel destinations, the words “paradise” and “crater” are rarely paired together. However, the Ngorongoro Crater, located west of Arusha, manages to combine the biodiversity of the African savanna with a luxury safari experience; all within the confines of an extinct volcano. A UNESCO World Heritage Site, the crater has a diameter of approximately 14 miles and is often referred to as the “Eden of Africa”.

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TECH REVOLUTION

3456'708195:' -))-.& -))-.& -;<==0= Internet giant Google is developing a new product in its secretive Google X laboratory to further expand its empire. Later this year, look for Google Glasses, which will project information, entertainment, and, of course, advertisements onto the lenses. Powered by Android software, the glasses will be equipped with GPS, motion sensors, a camera, and audio inputs/outputs. Uses for the glasses may include providing the wearer with information about a landmark they are seeing or for virtual reality games. Questions are already being raised about the privacy issues and advertisement barrage that will accompany the arrival of this new technology, but until then, prepare for the humorous sight of crowds in thick glasses weaving down the street.

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/01.02 At this former monestary turned upmarket retreat on the banks of the Loire, 12 of the 15 lavish rooms are set in caves. However, even if you get one of the three “ordinary” rooms, you dont have to do without the troglodyte experience altogeher as the hotel’s bar is also set deep into the rock. When you want to come up for air, this wellappointed property features a sunny terrace, a pool, and a top rated restaurant.

Come one step closer to defying gravity with the JetLev water-propelled jetpacks. A small boat is tethered to the jetpack that holds the propulsion engine, keeping the actual jetpack relatively light. Intended for recreation only, the JetLev can take a 150 lb pilot to heights up to 28 ft at speeds up to 22 mph. At a more leisurely pace, it provides enjoyment for up to two to three hours. Plan on trying one at a resort rather than buying, though - the JetLev retails for $99,500.

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11

BT BOOKS

Travels in the new Third World... Boomerang

Michael Lewis

Michael Lewis transforms a subject as dry as the European sovereign debt crisis into a riveting tale accessible to those with virtually no financial knowledge. His penchant for storytelling pervades his serious journalism, producing a book that is both captivating and highly informative. In Boomerang, Lewis takes us on a whirlwind tour of some of Europe’s hardest hit economies, which he refers to as the “new third world,” and explains what precipitated the crises in each nation. He uses individuals who had particularly keen insight or were victimized by the flawed economic system as a lens for understanding each economy. Whether it is the fisherman turned investment advisor in Iceland or the monk turned real estate investor in Greece, Lewis has a unique ability to expose people who perfectly epitomize a larger trend in the economy as well as those who are able to see financial disasters before they become apparent to the masses. Boomerang could not been released at a more appropriate time. News headlines around the world are focusing on Europe’s fiscal troubles as European politicians are scrambling to support the ailing economies in an attempt to ward off a true economic catastrophe. Lewis addresses the fiscal imbalances in Greece by first taking us to a very unlikely place: The Vatopedi Monastery. Accessible only by boat, the 10th century monastery is a picturesque fort-like structure home to some of the most devout monks in the western world. Lewis intrigues the reader with his detailed description of the monks’ strict diets and recounts the history of the institution before describing the organization’s involvement in a corrupt real estate deal with Greek politicians. In the process, he illuminates the unsustainable and irresponsible government spending in pre-crisis Greece as well as the unbelievable amount of political corruption. Lewis claims that the government accumulated over $1.2 trillion in debt, which amounts to over a quarter million for every Greek citizen. Not only did I question how Greece could have entered the EMU in the first place (which, as it turns out, seems to have been a result of very generous inflation and development predictions by the Greek government), but I also began to grasp the concept of the “new third world.” Prosperous countries whose government debt was awarded AAA ratings only three years ago, whose citizens enjoy the luxuries of western societies, are being forced to institute austerity measures and deal with unprecedented fiscal crises. Many of Lewis’s stories center on the theme of short-term greed over long-term planning, a topic he has discussed in The Big Short and even to a certain extent in Liar’s Poker. Lewis states that, “Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do” because they have “been conditioned to grab as much as they could without thinking about the long-term consequences.” It seems that the same is true for the Greek monks who couldn’t resist a corrupt real estate deal and the Icelanders who abandoned careers to reap the short-term benefits of their country’s thriving subprime loan market. For the Unfortunately, while the Germans implemented restrictions on government spending and low tolerance for inflation, their less responsible neighbors are dragging them down. Lewis comically claims that “Germans longed to be near the s–t, but not in it” and uses this idea to describe their position in the current financial crisis. German’s may be able to wear protective aprons when watching a popular mud-wrestling event, Lewis argues, but there is nothing protecting them from the threats to the EMU posed by Greece and the other debt-ridden, peripheral European nations.

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BT BOOKS

... And how America fell behind That Used To Be Us

Thomas Friedman and Michael Mandelbaum

It is hard to deny that the 20th century was the “American Century.” Henry Luce first set forth this idea in his influential 1941 Life Magazine article in which he explained how the United States should act to be the foremost world leader. Luce implored the United States Government to be the “good Samaritan” of the world, a role that our nation has at times actively embraced and at other times eschewed. More generally, the American Century refers to the United States’ political, economic, and cultural influence in the world as well as its status as arguably the world’s only superpower. It was not until the culmination of the Cold War that the United States cemented its position as the most powerful nation in the world. After WWII, there was widespread fear that the Soviet Union would emerge as the world’s political and economic leader. This fear weighed heavily on American politics of the era and precipitated an arms race of unprecedented magnitude and a competition to put a man on the moon. Politicians thought carefully about how to position America in world affairs, business leaders expanded America’s manufacturing capacity and created millions of jobs, and our education system set the standard of excellence to prepare leaders of the next generation. However, the same cannot be said for next generation. “We shifted from [the] greatest generation that really operated on what we call in the book ‘sustainable values’ — saving and investing — and we handed power over to the baby boomer generation who really lived by ‘situational values’ — borrow and consume,” Friedman told NPR. “The baby boomers, I believe, have a lot to answer for. They have not followed in the path of their parents in terms of making the hard decisions, making the long-term investments.” In the book, Friedman and Mandelbaum discuss the decline of the United States from its pinnacle of influence in the latter half of the 20th century, yet they convey sincere optimism for the nation’s future. Once the United States is able to tap into its “collective action” to impose strict environmental protection measures such as carbon taxes and clean energy initiatives, we will be on a path to recovery. And the preservation of American influence is not merely of local concern, the authors argue, but of global significance because, while the United States is becoming less important in international affairs, our influence in the world remains second to none. As is characteristic of Friedman’s work, he and Mandelbaum assault the reader with a barrage of facts, figures, and anecdotes. While it may seem overwhelming at times, the abundance of concrete evidence both lends the argument legitimacy and helps illustrate some of the abstract ideas discussed in the book. I would hesitate to claim that this book tops The World is Flat or From Beirut to Jerusalem, but it is incredibly thought provoking and makes you contemplate issues as relevant as the role of the United States in world affairs. What’s more, it leaves you feeling cheerfully optimistic about the future of our nation, so there’s no reason not to give it a shot.

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BUSINESS TODAY FALL 2010

By Janie Gu, Princeton University

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I

n the past fifteen years, the nar- and Berkeley played a key part in build- ly, those have been New York’s strongest row alleyways of downtown ing the Silicon Valley start-up scene: sectors,” said Fred Wilson, co-founder of SoHo and Tribeca sparked a new flame. “Silicon Alley,” a cluster of old office buildings along the Broadway corridor, has emerged as the tech innovation center of the East, giving rise to various Internet and social media start-ups, such as Foursquare and About.com. The area, named as a wordplay on its West Coast counterpart Silicon Valley, creates an innovative and creative environment for young business leaders that aim to integrate a wide range of industries, in- their students often scoop up the many Union Square Ventures, a venture capicluding art, travel, and fashion, into the part-time employment opportunities tal firm based in New York City. The digital world. that start-ups offer to college students city is home to over eight million people, The recent financial crisis has only and make impressive contributions. New one of the largest urban populations fueled Silicon Alley’s fire. As Wall Street York offers similar benefits because of its in the United States. The concentracontinues to burn out, Silicon Alley is direct transportation lines to cities in- tion has about 10,000 more people per stealing some of the best thinkers away cluding Boston and Philadelphia. square mile than a West Coast equivafrom the financial sector and into the Last June, New York City Mayor lent, San Francisco. This provides comthriving technology sector. Michael Bloomberg announced his ad- panies with over eight million consumA number of large technology firms ministration’s support for the booming ers, a huge market that generated a gross have set up offices in the city, including industries. He offered land and up to metropolitan product of $1.28 trillion search engine giant Google, social net- $100 million in infrastructure upgrades in 2010, according to the Bureau of Ecoworking sites Facebook and Twitter, and to universities willing to build an en- nomic Analysis. Building a start-up in global software company Infor. Famous gineering or applied science campus in New York City taps into an overwhelmbusiness social media site LinkedIn has Brooklyn’s Navy Yard or on Roosevelt ing mass of wealth, not to mention the even taken over the 25th floor of the Em- or Governor’s Island. Bloomberg said abundant resources offered by its induspire State Building. Furthermore, many that the initiative is “just one of the ways tries, particularly mass transit, restaulocal businesses, including location- we are supporting the tech sector” and rants, nightlife, theater, museums, and based networking site Foursquare, have is driven by a desire to attract “a critical green space. expanded their offices. In November, mass of technology entrepreneurs.” CorCarl Meshenberg, an engineer who eBay bought Hunch, a recommenda- nell University, in a partnership with has over forty years of experience worktions engine based in New York, for an the Technion-Israel Institute of Tech- ing with start-ups in the suburban area impressive $80 million. According to nology, accepted the challenge and cur- outside of Manhattan, pointed to the the city’s Economic Development Corp., rently plans to build a $2 billion campus abundance of manufacturing resources patents awarded to NYC inventors in- on Roosevelt Island for around 2,500 in the area just outside of the city as creased 23% from 2003, and high-tech graduate students. “We understand a key to success. He said that the suremployment soared by over 30% in the that we will not catch up to Silicon Val- rounding states – New York, New Jersey, last five years. ley overnight,” Bloomberg admitted at Connecticut, and Pennsylvania – are One important benefit of building Crain’s New York Business Conference. home to many precision machine shops, a tech business in the Alley is the avail- However, the Mayor remains hopeful, skilled model makers, sheet metal shops, ability of and access to talent within predicting that a New York City engi- and contract assembly houses, resources prominent universities, including MIT neering school could result in 400 new that are critical to a start-up involving and the Ivy League schools. “It is evident companies and more than 22,000 jobs in hardware development. He explained, that higher-education institutions have the next 30 years. “These were mostly spawned by the dea tremendous impact on start-ups eager Silicon Alley’s prime location offers fense industry in the 50s and 60s when to take advantage of both fresh ideas and yet another key benefit: a large and con- there were many subcontracting oppora young, well-educated labor force,” said centrated consumer population. “Ten tunities for these feeder firms. Although Dr. Jian Song, who served as Vice Presi- years ago, maybe 80 percent of software many have disappeared, there are still dent of Engineering at the start-up Salira was being built for enterprise. Now it’s many available and even some new ones Optical Network Systems for four years. being written for consumers and is more that have emerged recently.” He noted that schools such as Stanford media-centric than ever. And, historicalAnother interesting geographic

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perk to note: Silicon Alley has attracted community. Meshenberg reinforced this there are people working on fundamena number of European, Australian, and notion as he described his recent efforts: tal developments in software and hardIsraeli start-ups. The entrepreneurs from “We tried to raise capital via a private ware, smartphone apps, silicon chip deIsrael, in particular, seek to take advan- placement through several Wall Street sign, material research, and information tage of New York City’s central location specialist firms but to no avail; they re- technology. But New York City in generas well as the 7-hour time difference be- main exceedingly risk averse and almost al also attracts a more diverse population tween the development team in Israel all wanted personal guarantees from the of entrepreneurs. Such residents are not and the business team in New York that management team and also very high limited to the world of technology and is more manageable than the 10-hour fees to go through with the deal.” wish to take advantage of the vibrant difference between Israel and CaliforThe Valley also fosters a culture culture and diversity provided by the Big nia’s Silicon Valley. that is uniquely suited to start-ups: Apple. The Silicon Valley entrepreneur, for the most part, is concerned with applying technology to more technol!""#$$%&'%(%$&)'*+%,#*&-)#%"(./&(0/$&%"'11-*/&2%3($% ogy, but the New York entrepreneur has learned to apply technology to fashion, .)',#4%&'%5#%(*%#$$#*&/(0%(4,(*&(+#%'6%&3#%7(00#28%($% medicine, and video production, generating unique start-ups like Gilt Groupe, 1(*2%$&()&9-.$%5($#4%/*%:#;%<')=%$&)-++0#%&'%6/*4% ZocDoc, and Animoto. The general unspoken consensus 5("=/*+%6)'1%&3#/)%';*%6/*(*"/(0%"'11-*/&2> currently is that New York City needs to, as Mayor Bloomberg put it, “catch up to Silicon Valley.” But New York City can Silicon Valley also has a number of an ecosystem of hackers and founders never become Silicon Valley – and in advantages of its own. “The mature en- building networks that may be “even all honesty, it shouldn’t. Silicon Alley’s vironment encourages entrepreneurial more important than the major capital name might be derived from its West spirit,” explained Song. He commented that the financing industry can provide,” Coast counterpart, but the start-ups that on Bloomberg’s initiatives to boost said Meshenberg. He continued to stress NYC’s tech sector, stating, “Govern- the importance of networking when ment-sponsored incubators are good, but he noted, “In most cases, if the foundtrue entrepreneurship is cultural and ers are willing to take the risk, they can infrastructural.” As a result of Silicon self-finance in some way, but they have Valley’s experience in entrepreneurship, to know whom to trust technically to the area has developed a sophisticated support the initial design and developsecondary infrastructure that provides ment efforts prior to seeking outside fimany resources critical to the develop- nancing.” ment of start-ups. This includes quick John Dunn, president of Ambertec, turn-around manufacturing, material a small tech company on the outskirts and component suppliers, and contract- of New York City, also referred to this based design services. Song also noted unique culture. “I was once driving that Silicon Valley has the right mixture in Silicon Valley,” he said, “when I saw of labor, including seasoned executives a huge billboard made to look like a with successful start-up experience, new California automobile license plate that graduates with fresh ideas, and tech im- read ‘ASIC – FPGA.’ Underneath, the migrants willing to break through brick sign read, ‘If you know what this means, walls to achieve success. call...’ and there was a telephone num- emerge from the region are exceptionally Song added, “Venture capitalists ber.” The billboard, he realized, was an unique, as evidenced by tech companies play a very important and engaged role in employment advertisement and the let- such as Tumblr and Foursquare. As a the entire start-up process, and they ex- ters stood for Application Specific In- result of the central location, invaluable ist in abundance in the Valley, with vast tegrated Circuit – Field Programmable resources, and people, Silicon Alley has investment history and management ex- Gate Array. “This is the Silicon Valley emerged not as a replica but rather as a perience.” Access to a strong venture cap- environment that nurtures start-ups,” fast competitor with potential yet to be italist community has proved to be an es- Dunn explained. “There is no analogous discovered. Song commented, “As long sential advantage of the Valley, as many environment in New York.” as it doesn’t try to copy the Silicon Valley start-ups based in New York struggle to It’s true: there really is no “analo- model and instead builds itself on its own find backing from their own financial gous environment.” In Silicon Valley, strength, it may just have a chance.” BT

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FALL 2010 BUSINESS TODAY

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Business Today: As you describe in Boomerang , capitalism as executed in Greece has been an abject failure, but the US model of more laissez-faire capitalism is producing unexpected and arguably undesirable outcomes: increasingly skewed distribution of income and record corporate profit margins coupled with high unemployment. What might work better? Michael Lewis: Gosh, that’s a huge question. That sounds like a Princeton test question. The first part of this question presumes that Greece doesn’t have a laissez-faire model, and that’s not really true. It’s true that the parts of the economy that are subjected to market forces don’t seem to work very well – aren’t very productive – but neither are the other parts. I wouldn’t contrast dramatically the Greek system with the American system. I think the Greek system looks like an even more dysfunctional version of our system. The first thing that I would say is that you have to back away from this a little bit because the economy looks bad, and the job market is as bad now as it was when I graduated, but the American economy has been by world historic standards an incredible miracle. The prosperity it has generated

over the last 100 years is unprecedented in I would have the government invest very, the history of the world, so it’s hard to call very, very heavily in technical education it a failure. I think it’s a giant success with – well, education at every level. The jobs some problems, so I wouldn’t tear down problem is in part a skills problem, and the system and build a new one; I would so I think that the government can interfiddle with this system. The first thing I cede there very usefully. It has in the past would do if I were God in charge of our done very useful things. The land-grant economy would be to restructure the fi- colleges were extremely important around nancial industry. I think that it is insane the country, for example. But I think one that we have these too-big-to-fail institu- of the problems we have as a society is that tions at the heart of our capitalism. The we think of the government as the enemy way markets work is that the good drives as opposed to a potential source for assisout the bad – you need to have failure in tance. There’s a sort of knee-jerk hostility order to have the process of creative de- towards any government intervention in struction working, and we don’t have that the economy, and I think that’s a mistake. right now in the context of the big finan- There are intelligent things the governcial institutions. And we are even leaving ment can do that are subtle, and I think aside the question of fairness of people one of those is to invest more in education. working for these companies and get- But anyways, my big answer is that I don’t ting paid huge sums of money to destroy buy the premise of the question – the wealth. We are not likely to get an efficient economy is basically a miracle. It’s incredfinancial system if the major businesses at ible how we live if you step back and look the heart of it are not subjected to market at it from a world historical perspective, so forces like everybody else. So that’s the it’s hard to find a lot of fault with it. first thing I would do – not let anybody be too big to fail. I would break up the BT: You were talking about how we need big banks so that there are no institutions to restructure the financial sector to break that couldn’t fail. The second thing that up too-big-to fail institutions. Do you I would do more broadly in addressing think regulation in Dodd-Frank and Volthe problems of the American economy is cker rule will address the “too big too fail?”

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ML: No. It does address it but not sufficiently. I would say that the Volcker rule is necessary but insufficient. The problem with the Volcker rule is that firms are already finding ways around it. If

effort was thwarted by, shockingly, Wall Street influence in the legislative process. BT: In Lair’s Poker, you describe a world in which students gravitated in droves to-

!"#$%&'"#$(#"%#"%)"%&)(&*"#$(#"+*"$(,*"#$*)*" #--".%/"#-"0(%1"%&)#%#2#%-&)"(#"#$*"$*(3#"-0"-23" 4(5%#(1%)67"8$*"+(9"6(3'*#)"+-3'"%)"#$(#" #$*"/--:":3%,*)"-2#"#$*".(:";"9-2"&**:"#-" $(,*"0(%123*7 you actually could enforce the spirit of wards economics as a path to Wall Street. the Volcker rule and say that these firms Although this trend only accelerated over couldn’t take trading positions of any sort, the ensuing three decades, there are insipithen you would effect significant change. ent signs that students have begun to turn You would essentially be walking into away from banking. Will students abanGoldman Sachs, and the whole part of it don economics for other disciplines that that was involved in financial risk taking may better prepare them for other sectors would have to walk out the door, so you of the economy? Where will the jobs be? would have essentially a financial advisory business left. The firm would divide very ML: When I was at Princeton, this was neatly in two, and it would be a great thing just starting. The Economics Department – but the problem is that this is not what is was acquiring a huge wave of students happening. In practice, the firms are gain- who were using the department not to ing the ability to define trading positions acquire knowledge or understanding as something other than trading positions, about the way the world works but rather so they are still taking the risk. The other to signal to Wall Street that they were part of the Dodd-Frank legislation that willing to sacrifice their education for a would have a meaningful effect – if the Wall Street job. It was kind of a signaling spirit were here too – is that it supposedly device. And I think that was horrible begives the Treasury new resolution pow- cause Princeton is such a rich place, so it ers to unwind one of these firms if it gets just seemed to be an abuse of the instituin trouble. Except you can’t see how that tion, and I had a very hostile reaction that would ever work. I’m not sure they didn’t was unfair at the time towards the Ecoeven have that power in the first place, but nomics Department. I sort of blamed the this is just a fig leaf. Because if, for example, department, but that’s not who I should we woke up tomorrow and there was a run have blamed. I subsequently went and got on Bank of America, and it was discov- a master’s in economics, and I think that ered that it had enormous losses that we it’s actually a wonderful and very interestdidn’t previously know about and that it ing discipline, though it has virtually no was essentially on its way out of business, I connection whatsoever to a job on Wall don’t think that the Treasury would have street. I think it’s very weird that economthe nerve of going through with putting it ics is regarded as preparation for a job on out of business. Because we could be right the financial markets. Financial markets back where we were in 2008, and there are largely salesmanship and not techniwould be a run on all of the other finan- cal expertise. Most Wall Street careers are cial institutions. The world is behaving as built on bullshit, so in any case it was just if all of these institutions are effectively stressing in my mind to have the spirit of government guaranteed, so I don’t think a Princeton education undermined. I still that the Dodd-Frank bill goes far enough. hold the view that it is a misuse of PrincI think that it tries, but I think that the eton for students to come in and treat it -.

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as a trade school. I think that there is incredible value – not just economic value but life value – in a broad, general education. This sounds airy fairy I know, and I know that people have student loans they need to repay and they need to figure out what to do with their lives, but just suspending that anxiety for the few years you are at Princeton makes a huge different to the rest of your life. So again I don’t completely buy the premise of the question because I don’t think that students should be approaching their choice of major with a view to what they are going to do for a living necessarily. They should just be following interests – finding pockets of passion in the university. Having said that, what’s happening now is that there are fewer Wall Street jobs available to students, and the quality of those jobs looks radically lower, so it looks like a less desirable place to work. It probably is, and it probably will be. It looks to me like the Economics Department is going to take a hit because the value of the signal has declined. Where people go? God knows. If I could wave a wand over the place, I would say to go to the places that really light your fire. Don’t go to places that you think are going to make you money when you get out – you can worry about that later. BT: Whereas college campuses were breeding grounds for political activism until relatively recently, students today seem far more politically apathetic than those in the past. If the recent financial crisis is as much a consequence of lack of political will as of economic mistakes, doesn’t the lack of political interest of today’s youth bode ill for the future? ML: Is that true that Princeton students have a lack of political interest compared to generations of previous students? Let me see what it looks like to me. Between the time that I was there and now I have not detected a whole lot of political activity, but when I was there, there was a brief flare-up of political activity in response to South Africa oddly. Students tried to get the university to divest their investments in South African companies, and they succeeded. I think there is probably a pretty strong inverse correlation between the strength of the economy and students’

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1989

2000

2003

2006

“In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000.” The Big Short: Inside the Doomsday Machine, 2010 “To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me.” Liar’s Poker, 1989

2010

2011

“Germans longed to be near shit, but not in it. This, as it turns out, is an excellent description of their role in the current financial crisis.” Boomerang: Travels in the New Third World, 2011 !"#$%&'()*('!"#$%&##'()*+,

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interest in politics. The more time people The kind of people who you are talking have and the more resentment and anxi- about – and I would say it’s Jim Clark ety they feel, the more likely they are to be in The New New Thing and Billy Beane politically active and motivated. I’m not in Moneyball or even the Tuohys in The sure that it’s true that students now are Blind Side or the people in The Big Short inherently politically detached – or to put that made the bet – all had this trait, and it another way, I think that it can change it was a fearlessness about them. Bravery – very quickly, especially if circumstances I am very attracted to that in people, and change and people feel angry and a little I try to cultivate it in myself. It’s not an hopeless about what awaits them when intellectual trait; it’s almost spiritual. Inthey get out of school. I kind of don’t tellectually they are all over the map, but blame people for not taking an interest the spirit with which they move through when they can’t see how it affects their the world is a very brave spirit and a willlives at all. Yes, I agree that they kind of ingness to not care too much what other

!"#$%&"'(#'%$()&(%*+&+,-*'(,).+/(&+"("+( 0)-&(#&$%/'")&$-&01(2#"(/)"3%/()'()('-0&)4("+( 5)44(!"/%%"("3)"("3%6(7%/%(7-44-&0("+(')*/-8-*%( "3%-/(%$#*)"-+&(8+/()(5)44(!"/%%"(.+29 should and that part of being a citizen of people think. Lots and lots of people are as the republic is engaging politically and capable but it is a characterological dimenthere is a certain responsibility, but when sion that they lack. There are also circumyou are nineteen or twenty years old and stances: it wasn’t just that these were very you are in school and you can’t see how brave people, but they were brave people your vote is going to make a difference put into a circumstance where the bravery one way or the other, I can sort of under- had a chance to shine. If Billy Beane had stand why people seem apathetic. But as not been the general manager of Oakland I said before, I think the minute that it but rather groomed inside the Yankee sysappears to someone that they have some tem, it never would have crossed his mind kind of skin in the game – that it has some that he had to do anything different. If the effect on their lives, and when they have Tuohys had never encountered Michael or children that it will affect their children’s if the housing bubble had not produced lives – they will become engaged, so I this very curious bet of buying credit dedon’t think that if a person is apathetic at fault swaps on subprime mortgage bonds that state in his life that it will be a perma- – I mean the circumstances had to be right nent condition. People often wake up. In as well. But to the extent that the stories college you feel immortal, and the truth are driven by something inside the people, is that your vote probably has no tangible this bravery is the quality inside the people. effect on you: it would be a theoretical act only in the interest of principle that you BT: You argue that the transformation would get out of bed early and go vote. within financial institutions from a partnership structure to a publically owned BT: Many of your books focus on seem- company changed the incentives for maningly ordinary people who have extraor- agement and allowed the banks to make dinary insight. What allows them to do such poor investments. Do you think that this? it was primarily this change, or was it also the result of a larger shift in the types of ML: Here’s one thing: a lot of people people who now go to Wall Street, or the are scared, and they don’t even know it deregulation of the 1990s, most notably but they are constrained by their fears. the repeal of Glass-Steagall, that allowed

the sub-prime crisis to happen? ML: I don’t think it was a change in the character of the people as much as it was a change in the nature of the incentives. I think that the incentive changed the people – but if you had not changed the incentives by turning the risk-taking enterprises on Wall Street from partnerships to corporations, then people would have behaved as they always had behaved. I don’t think that worse people showed up and behaved more badly, but that people just showed up and there was a worse system of incentives, and they responded to those incentives. It’s not just top management either. It really is pernicious what happens when one of these firms goes from a partnership to a corporation. I think this is generally true in the economy – employee-owned corporations are better run than publicly held companies. But it is especially a problem on Wall Street because in a partnership if you lose money it is your money and the money of the people around you, so the people who are most interested in not making mistakes are the people closest to the decision-making. There’s no heads-I-win-tails-you-lose situation that you get in a public corporation. If I am a trader at a big firm and I make a big bet and it goes bad, it gets stuck on the shareholders, and I can just move to another firm and nobody remembers. And this is the second aspect of the change that was so pernicious. When the firms were partnerships, you were essentially locked in as an employee. There was no free agency. You weren’t bouncing around every couple of years form Merrill Lynch to Bear Stearns to Lehman Brothers to Goldman Sachs. You didn’t have mobility, so you had to live with the long-term consequences of your short-term actions – and that is very demoralizing if you think that you’re going to be around to suffer those consequences. Your wealth was correlated with the long-term health of the enterprise, not the short-term fluctuations. People behaved differently under these conditions, and they were much less willing to take big risks. So I think that was the beginning of the end – the first step on the slippery slope that we are now at the bottom of was firms ceasing to be partnerships. !(

Interviewed by Sam Heffernan --

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*.//012345 13678 INNOVATION AND ENTERPRENUSHIP

Signed into law

July 21st, 2010

The Dodd-Frank Act creates... 1) The Financial Stability Oversight Council 2) The Office of Financial Research

Introduced by

Congressman Barney Frank and Senator Chris Dodd

2,319

pages long

149 out of 200

deadlines have been missed by financial regulators in 2011

3) An independent Bureau of Consumer Financial Protection 4) The Office of National Insurance 5) The Office of Credit Rating Agencies

-

The Dodd Frank Wall Street Reform and Consumer Protection Act represents the most comprehensive financial regulatory reform measure taken since the Great Depression. Dodd-Frank tries to combat “Too Big To Fail,� a notion that caused the government to feel obligated to bail-out Wall Street in 2008, by imposing regulations on large financial companies and outlining a process !"#$%&##'()*+,'!"##$%&'& for liquidating troubled companies with no cost to taxpayers.

NEW ROUTES THROUGH CAPITALISM

DODD-FRANK: !"#$%#%&'#()"*'+, [by George Maliha, Princeton University]

T

he Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July 2010, is one of the most important pieces of legislation to be formed under the Obama Administration—as well as one of the most controversial. The act, which attempts to overhaul the entire regulatory framework of America’s financial system, passed with only four Republican votes in the entire Congress. Its broad sweep

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and scope are staggering. Compare Dodd-Frank, at over 2,000 pages, to the famous New Deal Glass-Steagall Act that created the “firewall” between traditional banks and investment institutions, at 34 pages. Any bill touching so many parts of the financial system and broader economy is bound to meet detractors. However, whether pro or con, understanding what the act actually says and does is essential.

Before proceeding, it is important Federal Deposit Insurance Corporation to note that many of the act’s provi- (FDIC), the Securities and Exchange sions—and thus its impact—will come Commission (SEC), the Federal Trade from an array of regulations currently Commission, and other agencies all had being drafted and yet to be written. This some stake in regulation. Complicating fact alone makes it difficult to assign matters further, since 1945 insurance costs and benefits to man portions of the regulation had been left to the states, so legistlation. many of the insurance products designed For instance, regulations imple- to protect against default were outside of menting the Volker Rule, which restricts federal regulators’ scope. the amount of money that a bank can So, a great deal of Dodd-Frank is invest in proprietary trading, span hun- devoted to eliminating or consolidating dreds of pages and contain over 300 the responsibilities of agencies. The Ofhundred questions for industry lawyers fice of Thrift Supervision is abolished by to comment on. The rule is meant to the legislation, and its responsibilities prevent firms from betting against their are parceled out to the remaining reguown clients (as Goldman Sachs was ac- latory bodies. Agencies are coordinated cused of doing in recent hearings before under the Financial Stability Oversight Congress), but to implement such a small Council chaired by the Secretary of part of the bill requires highly detailed the Treasury. The council also has the and nuanced regulation in order to en- power to break up large financial institusure that banks are not unduly restricted. tions deemed to endanger the financial While simple in principle, it is difficult system (the so-called “too big to fail”). to distinguish between proprietary trad- The Federal Reserve and FDIC retain ing and trading on behalf of clients in some regulatory power—but only for practice. Even with such detail, industry the purposes of collecting data for forlawyers are sure to challenge the rule in mulating monetary policy and insuring court as they have successfully done with banks against default, respectively. Furother provisions of Dodd-Frank regard- thermore, to avoid the controversial and ing the ability of shareholders to nomi- chaotic shutdown of banks during the nate the board of directors. crisis, institutions are required to submit However, even though many of the “break-up plans” and contribute to an Orregulations implementing the act have derly Liquidation Fund of approximately not seen the light of day (and are overdue $50 billion to facilitate the shutdown of according to the act’s deadlines), the pro- insolvent institutions. visions of the law itself have the ability Moreover, to address what some to vastly remake the structure of finan- perceived as gaps in financial regulation, cial regulation. Up until Dodd-Frank, regulatory powers are increased under American financial regulation was en- the act. The infamous derivatives that acted piecemeal, creating a patchwork of some have blamed for magnifying the regulatory agencies for different types financial crisis and spreading it to the of institutions. The Federal Reserve, real economy are now be tightly reguthe Office of Thrift Supervision, the lated under the same body that manages

By the Numbers

Dodd-Frank is one of the largest pieces of economic reform in history by its sheer number of pages. Here’s how it stacks up against other important legislation.

Sherman Antitrust Act (1890) 2 Pages

Glass Steagall Act (1933) 37 Pages

Dodd-Frank Act (2010) 2319 Pages !"#$%&'()*('!"#$%&##'()*+,

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futures. In addition, most derivatives are required to trade through exchanges or clearinghouses with stricter regulations and standards. Similarly, to prevent the perceived reckless insurance practices by firms such as AIG, some insurance regulation is now coordinated and standardized at the federal level. It also grants the SEC even broader powers to regulate exchanges and public trading. Credit rating agencies are also to be more tightly

financial products, including loans, any hindrance to the growth of small mortgages, and other services. Most business could be problematic. So-called await regulations to see how aggressive “angel” investors that are the saviors of the agency will be in enforcing its man- many tech start-ups now face registradate and cracking down on lenders that tion and other bureaucratic challenges in are widely seen as precipitating the hous- funding promising ideas. Angels’ accreding and ultimately the financial crisis as itation by the federal government—vala result of lax standards. ued strongly by venture capitalists—is The bill also limits the discretion of now more difficult. Even start-ups wantfinancial institutions in setting interest ing to receive needed investment must rates or fees for their services to consum- endure a costly 120-day review by the SEC, which many entrepreneurs claim could destroy and hobble some firms needing additional capital. Although the act is supposed to deal with the problem of “too-big-to-fail,” its complex provisions and red tape demand favor already large institutions that can afford the legal teams to comply with Dodd-Frank. Financial regulators— more likely to underestimate the costs of compliance—believe that banks will spend 6.6 million hours to implement the new law and will need to spend 1.8 ers. One particularly publicized example million hours every year to continue to is the capping of the rates credit and remain compliant. Thousands of emdebit card companies can charge to con- ployees will be required to perform a job sumers and merchants. For instance, be- that does not add value, generate revfore Dodd-Frank, credit and debit card enue, or perform a service for the public. companies typically gave small vendors As the law already limits the opportudiscounts on small transactions, allow- nities for banks to generate profit and ing larger companies and transactions fund business, if these additional costs to subsidize small business. However, and burdens become a reality, the finanby forcing companies to cut their full cial sector and the broader economy may rates by half, costing companies over $6 continue to face challenges in the future. billion annually, such discounts ended. Dodd-Frank represents a reaction Some vendors reacted by dropping cards, to one of the worst financial crises in the others by raising prices—some by as post-war era. It is true that the shock remuch as 20%. Credit card companies are vealed the vast inadequacy of America’s also feeling the pinch and subsequently regulatory apparatus to deal with or even passing it on to consumers and employ- avert a crisis. Few, in hindsight, are surees. Bank of America, although troubled prised that the institutions created in in recent months, has announced that it the 1930s were relatively ineffective at will attempt to slash $5 billion in expens- monitoring the 21st century’s constantly es from its consumer division—mostly changing financial system. However, the in the form of 30,000 layoffs. The bank solution to this crisis is far from settled. also attempted to recover revenue by While the additional regulation spawned charging for its debit card services—a by Dodd-Frank is not yet entirely known, move that triggered great public outcry many question whether more rules are reNovember of last year. ally the solution to the worst crisis since Another potential danger of the the Great Depression. No one disagrees bill that some have identified is restric- that both significant changes need to be tions on start-up funding. As many have made and smarter regulation is definitely claimed that the key to economic recov- required. However, it is far from clear if ery from this most recent recession is Dodd-Frank actually accomplishes this through entrepreneurs and their ideas, goal—only time will tell. !(

Thousands of employees will be required to perform a job that does not add value, generate revenue, or perform a service for the public. watched, and institutions are encouraged to perform their own investigations rather than rely upon ratings agencies. For all of these enhanced powers, Dodd-Frank is silent on what many have identified as pressure points precipitating the crisis. For instance, take Fannie Mae and Freddie Mac, two governmentsponsored enterprises blamed for aggravating the housing and, ultimately, financial crisis. Both of these mortgage underwriters had to enter government receivership in 2008 and received massive taxpayer-funded bailouts. Their status is still relatively uncertain, as some have suggested breaking up these mortgage giants. Moreover, the lending standards prescribed in the Community Reinvestment Act, another area where some have called for reform, remain unchanged. However, one of the most controversial additions to the American regulatory framework is the Bureau of Consumer Financial Protection, which is to fund itself (subject to caps) through Federal Reserve revenues outside of the normal appropriations process. The Bureau, which received a new head through President Obama’s controversial recess appointment in January of this year, has a broad mandate to regulate consumer 26

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SHOWBIZ

The Verizon Foundation helps people live healthy, safe and independent lives by addressing disparities in education, health care and sustainability. Since 2000, the Verizon Foundation has invested more than half a billion dollars to better the communities where we work. Our employees, who have logged more than 6.6 million hours of community service, support our philanthropy goals to make a positive difference. See how we are making a difference in your neighborhood, and tell us how you will change the world. www.verizonfoundation.org

FALL 2010 BUSINESS TODAY

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+,-./00 3%$4$,5%0 #0#76, !"#$%&&'%#(")*+ ,-')*%./)#0)'1%-2'." It is difficult to imagine a world today without social media and networking sites such as Facebook, Twitter, YouTube, and LinkedIn, which are used by millions of people across the globe every day to stay connected. While these networks were originally used only to reconnect old acquaintances, such as high school friends and long-lost relatives, they now not only link like-minded people throughout the world, but have sparked political action in Tunisia and Egypt during the Arab Spring and catalyzed change with the Occupy Wall Street movement starting in the fall of 2011. During these movements, dissenters used Facebook and YouTube to coordinate protests and disseminate information about their cause. Now, with the long awaited initial public offering of Facebook expected to occur in 2012, the question looms: will the public’s fascination with social media create a bubble akin to the

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dotcom era, or has a decade of flat stock lock-up provisions. Maximizing their inmarket performance brought a new sobri- vestment value means taking the company ety and discipline to the valuation process? public when market conditions are most Why do companies go public? The favorable – optimistic economic forecasts, answers vary from company to company, high market price to earnings multiples, but generally gravitate towards one of two price to sales multiples, and investor optireasons: either to raise capital for future mism about industry’s future. growth or to sell the shares of certain inSince social media companies are vestors, thereby “cashing out.” This pro- very prominent and popular today, they cess is natural, as venture capital investors are likely to attract optimistic investors who provided early stage investments to who will prop up stock prices soon after nurture these start-up companies through the IPO, at least until lock-up periods end their early years want to realize their prof- and short selling restrictions are removed. its. They can then recycle their capital into Economist Robert Shiller wrote about the new ventures, thereby promoting growth 1990s dot-com bubble in his bestseller Irraand innovation in other firms or sectors of tional Exuberance, saying that bubbles are the economy. While new investors look at formed by positive feedback loops. They future prospects of a company before in- start to form when any particular group vesting, selling shareholders are only con- of stocks begins to rise, causing more and cerned with maximizing the sale price of more people to buy the stocks to earn their investments by achieving a high IPO high returns, which leads to more media price and negotiating the most favorable coverage of these stocks. Friends and fam-

012! 0%,6 ,#$58 ily members then spread the good news through stock tips as more and more investors buy into the frenzy, but eventually interest wanes and the bubble bursts. This cycle is magnified when a new technology is involved. New technologies, whether electric utilities in the early 1900s, aircraft in the 1920s and 1930s, nuclear energy and helicopters in the 1950s and 1960s, personal computers in the 1980s, or the Internet in the late 1990s, have led people to develop wildly optimistic visions of the future. If you think social networking has changed your life by enabling you to stay in contact with “friends,” just imagine how dramatically bringing electricity into homes for the first time changed people’s lives. Alternatively, look back at some of the predictions in the 1960s, that, within a few years, every family would have a helicopter in its driveway. These dramatically optimistic visions of the future of various

technologies have led some investors to overlook the traditional stock valuation metrics (such as revenue, earnings, cash flow, P/E multiples, and book value) and instead rationalize that new metrics (such as page views for a website or unique users per month) are more appropriate. In A Random Walk Down Wall Street, Burton Malkiel notes that the dotcom bubble of the 1990s grew in this way, as the share prices of Internet companies like Amazon.com and Priceline.com rose to spectacular heights, only to decline by over 90 percent from their highs in 2000 to their lows in the next two years. Another example of a dot-com bust was theGlobe. com, an early social networking message board site that set the record for IPOs with a 606% increase over its target share price on the first day of trading. As irrational exuberance wore off, investors realized that theGlobe.com had no real revenue or

NEW ROUTES THROUGH CAPITALISM

profit, and the company was delisted by NASDAQ in 2001 after the share price fell below $1. It is clear that the dot-com bubble was a result of new tech companies being over-hyped by Wall Street analysts and the media, causing their prices to well exceed their “fundamental value,” based on the expected growth of their future cash flows. Of course, it is important to remember that sometimes the exuberance is rational. Like Facebook, the current dominant player in social networking, Google was the dominant player in the search engine business at the time of its IPO and remains so today. Google went public in August 2004 in one of the most anticipated IPOs of the decade. Google shares were initially priced at $85 in an unusual Dutch Auction style IPO, in which the auctioneer starts at a high price and descends, and began trading on its first day as a public company

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at $100. It closed the first day at just over that mark. At the time of Google’s IPO, Wharton Professor Peter Fader was interviewed about the process and said “I’m skeptical about the IPO process in general. Ego and hope for a quick buck drive these new stocks.� However, unlike the earlier dot com failures, Google had real revenues, real earnings, and real staying power, hitting $700 per share on October 31, 2007, just over three years after its IPO. While Google shares have fallen with the broader stock market since 2007, its shares

article about the IPO, Jack Ablin, Chief Investment Officer at Harris Private Bank in Chicago, was quoted as saying, “It seems to bring back memories of the tech bubble. Based on what I know, it seems like investors are a little overly enthusiastic.� Since the IPO, LinkedIn shares have languished, trading around $75 per share as of the end of January 2012, which was above the IPO price but well below the trading range on the first day. Other 2011 social media IPOs continued this trend of a first day pop fol-

If Facebook were to raise $10 billion, it would become the biggest internet IPO ever, surpassing Google, which raised $1.9 billion in 2004 indicating a $23 billion valution. still ended 2011 at $645.90, an impressive lowed by a slow flop, as lock-up periods 658% increase from its $85 IPO price less ended and the euphoria of the IPO faded. than eight years ago. Shares of Pandora Media, Inc. have fared With rising revenue and an increas- even worse. With a June 2011 IPO at $16 ing number of users, several prominent per share, Pandora shares followed the social media companies, including Linke- LinkedIn trend with a significant first day dIn, Pandora, and Zynga, launched initial spike to as much as $25 per share. However, public offerings in 2011. None of these the shares since fell to around $13.60 at companies had the size or market strength the end of January 2012, about 15% below of Facebook, but, unable to invest in Face- the IPO price and 22% below the first day book, many investors became excited closing price of $17.42. Zillow, an on-line about these companies. LinkedIn debuted real estate information site, jumped 79% with an IPO price of $45 per share. On on its first day of trading to $35.77 and May 19 of last year, its first day of trading, Yandex, a Russian search engine company, shares of LinkedIn rose as much as 171% rose 55% to $38.84 on its first day as a pubabove the IPO price in intraday trading, lic company. At the end of January 2012, closing the day at $94.25, more than 109% Zillow was trading around $28 per share above the IPO price. In a Reuters news and Yandex around $20 per share. Social

media ended the year of 2011 with perhaps the most disappointing IPO of all, Zynga Inc. After pricing its IPO at $10 per share in December 2011, Zynga opened the next day at $11 per share but quickly dropped, ending its first day of trading down 5% at $9.50. Zynga’s shares were trading around $10.40 at the end of January, after falling as low as $8 per share earlier in the month. With many of the 2011 tech IPOs trading below their first day closing prices and some below the IPO prices, some investors have suggested that in 2012 they will avoid purchasing shares of new IPOs during their first day of trading, indicating that the hype surrounding tech IPOs has worn off. The prospect of a Facebook IPO continues to intrigue the marketplace, however. Investors have yet to see any financial information on Facebook, as it has yet to file a S-1 form with the SEC, but there is wild speculation about Facebook’s value. Facebook’s IPO, which, like those of LinkedIn and Zynga, is being led by Morgan Stanley, is expected to raise around $10 billion and value the social networking site at $75 to $100 billion. If Facebook were to raise $10 billion, it would become the biggest internet IPO ever, surpassing Google, which raised $1.9 billion in 2004 indicating a $23 billion valuation. While Facebook has been able to dramatically increase its advertising revenue from $738 million in 2009 to $3.8 billion in 2011, it is still unknown how profitable the company will be. Only time will tell how investors will receive the Facebook IPO, either with rational expectations or irrational enthusiasm, but the track record for rationality thus far does not look promising. BT

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Business Today: Can you start by tell- Groupon has taken off every since then ing us about both your current compa- and is now in 47 countries. Groupon is ny, Lightbank, and Groupon? essentially a large community of people who sign up everyday to get our email Eric Lefkofsky: Lightbank is es- to get deals in their local community. sentially an early stage tech venture The discounts are 50%-70% and cover a capitalist fund with a twist, and the wide range of businesses – local goods twist is that we tend to be pretty ac- and services, restaurants, travel, and tive in helping our companies grow. live events. We also offer product deals It’s a bit more than your typical fund (Groupon Goods). It runs a pretty wide because we invest our money and our range. For more information on Lighttime. I am the co-founder of Groupon, bank and Groupon, you can check out which started in 2007. Beforehand, I the websites www.lightbank.com and invested in a series of tech companies www.groupon.com. (Innerworking, Echo, MediaBank), and those businesses have also gotten BT: What was your path into investpretty big—a couple thousand employ- ments in the tech industry? Have you ees. Andrew Mason, a former employee always been interested in this, or is it at InnerWorkings before Groupon, something you stumbled upon? started with an idea called ThePoint. I provided the funding, and Andrew EL: I got into technology in 1999. Bestarted the company in 2007. After 18 fore that I was doing other business in months, in October of 2008, ThePoint non-technology. My partner Brad Keytransformed into Groupon to save peo- well and I decided to focus on techple money instead of saving the world. nology, so we did our first tech deal

in 1999. Then, I did my 2nd in 2001 called InterWorkings. For me, it was one of those things where I was in business and thinking about business just as the Internet began to take off, which meant I was in the right place at the right time. BT: Now, what is your role on a dayto -day basis and what was your role in starting Groupon with co-founder Andrew Mason? EL: My work for each company is different. In the case of Groupon, I am chairman, so I spend quite a bit of time there. Lightbank and Groupon are the two that take up the majority of my time. Typically, being chairman of Groupon involves working on special projects and big strategic stuff – the parts of the business that at that moment need particular attention. The management team, especially in a high growth situation, is very active and !"#$%&'()*('!"#$%&##'()*+,

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busy running the day-to-day business, so it is often important for me to step in and help if needed.

of Groupon coming; we at Groupon have all spent the last three years working really hard at managing the growth. Its one of those things where when you BT: What did you see missing in the have a high growth company, you’re almarket that sparked the idea of Grou- ways trying to catch up because things pon? are moving so quickly. Each day, our

!"#$%&'(%")*#%)%"+,"%,-'./"% 0'12)$&3%&'(4-#%)5.)&6%/-&+$,%/'% 0)/0"%(2%7#0)(6#%/"+$,6%)-#%1'*+$,% 6'%8(+095&: EL: At the time, there wasn’t really anything like Groupon out there. There were sites like Gilt doing flash sales, but nobody focused on local business and services – in particular the idea of the tipping point where people in the community can come together. The idea early on was that merchants could sell hamburgers, for example, at 50% only if they can get 100 customers. Good contact between Groupon and the merchants was necessary. Even when ThePoint first started, the power of the tipping point was important. BT: Did you foresee the exponential growth of Groupon? How did you/do you tackle this growth? EL: No one could have seen the growth

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focus is to tackle the day’s issues and make sure we don’t take our eye off the ball.

EL: We are focused on the highest rated merchants with the best reviews, best reputation, and most customers. Those are the people you want to run on Groupon – where the people will want to buy those high value discounts. The top merchants were our focus back then and what we focus on today. There’s a very long list of people wanting to run their deals on Groupon. We have a challenge to get the best people. What differentiates us is that we have been fortunate to feature the best merchants over and over again. BT: Have you seen a positive or negative impact on small businesses using Groupon? Is there a chance for those businesses not necessarily well-known in the community to be on Groupon?

EL: There’s a lot of diamonds in the BT: How do you plan to sustain prof- rough, a lot of merchants that offer reits and stability for Groupon in the fu- ally great services or food that many ture? people don’t know about. We may put a merchant on Groupon and shine a EL: Groupon is stable today. In terms very big flashlight on that merchant for of profits – Google lost money for a that day, which can spark their busilong time before it made money. It is ness. People are starting to realize the common for large tech companies to Internet, especially the power of the lose money before things turn around. community on the Internet, is really We’ve been at this for 3 years and con- important. You have to find a way to tinue to focus on thinking long term. get your name out there. Traditional forms of advertising aren’t working BT: How do you reach such a wide anymore; for example, advertisements variety of companies? How do you in the yellow pages or street posters are decide what companies to work with? not getting merchants the traffic they What is the process for striking deals? want to get. We at Groupon are really

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in success and positivity of your company’s because of your hands-on approach?

delivering a huge amount of customers to these businesses. Paying for marketing space on Groupon, rather than using alternative marketing schemes, is really paying the dividends by bringing in so much business. That kind of return on investment is really important. BT: What has been the biggest success of Groupon that makes your business model stand out? i.e. something that has stood out to you that you believe to be especially inventive or popular?

A lot of people have also come into the space but haven’t been as successful (Google, Yelp, etc.). A few have also come in and gotten out.

EL: The fact that we’re pretty handson means we tend to help entrepreneurs avoid mistakes that we have encountered in the past. The difference between us and other venture capitalist firms is that we really help deal with issues that arise on daily basis. We have been very active and involved with most of the businesses we have taken on.

BT: Finally, your slogan for Lightbank is “you’re not in the valley anymore.” How do you think the Chicago tech inBT: What are Lightbank’s new ven- dustry compares to that of Silicon Altures in the future? Why was the tech ley and Silicon Valley? Why do you see industry appealing to you? Chicago as an emerging tech market?

EL: Working with the tech industry is all I’ve been doing for the last 10 years. We (Lightbank) have 37 companies now, and we continue to make around one investment a month on average. We are looking for entrepreneurs in the

EL: Our business model is unique in that it has been growing so fast and copied so many times throughout the world. If you look at the Groupon site today, we have taken our brand and transformed it to include travel and other products in a unique way. We have a series of technology advancements, whether it’s Groupon Now! or our Merchant Center or Rewards (where you can redeem Groupons towards a deal in the future), or our Scheduler, for merchants to sched- tech space – whoever we find that has ule their Groupons online. All these a great idea. things are key to Groupon’s success and progress. BT: How do you see the market trending toward the use of online social BT: Do you feel pressure of competi- media? Are you still looking towards tors using a similar business model? social media or other forms of technological innovation? EL: We haven’t felt the pressure of competitors because we have always EL: Online social media is a big interbeen way ahead. There is one competi- est of Lightbank, but we invest in a lot tor that is bigger than the others, Liv- of mobile businesses as well as ecomingSocial, which was a site that came merce companies. We are starting to out around 6 months after Groupon make investments globally in social and copied our business model. Liv- media, e-commerce, and others. ingSocial is still much smaller than Groupon, roughly 1/6 our size I think. BT: What differences have you seen

EL: I graduated from the University of Michigan, so it was not a conscious choice to start my company in Chicago but it was an easy transition and has been very successful. Chicago competes pretty effectively with New York,

!"#$#%"&'#%(##)%"*+#%,-.$/'#-#)01% ,)%0"#%2",3&+/%0#3"%13#)#%,)%0"#%.&10% 4#5%6#&$17%!"#%8*#10,/)%,1%,4%5#%3&)% 3/)0,)*0#%0"#%-/-#)0*-7 even though people in New York might not agree. At present, we don’t compete with the breadth and scope of the tech community in Silicon Valley. There is too much technical talent. I do think that Chicago can be a really important technology community. Some other cities have a shot at it too – Seattle, for example. And that’s the road we’re on, trying to make Chicago attract as much capital as it can. There have been huge improvements in the Chicago tech scene in the past few years. People will now say that it’s on the map, attracting venture capitalist firms. The question is if we can continue the momentum. BT

Interviewed by Eliza Learner !"#$%&'()*('!"#$%&##'()*+,

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Business Today: You’re easily the world’s only TeaEO. Why did you choose that title?

go back and share the product with others.

talking to the owner of the garden, and he said, “Oh, but humans are going to ruin BT: Your company has been at the fore- the earth!” The owner said, “Don’t worry front of this relatively recent organic and about the earth. The earth is going to be Seth Goldman: Part of it is that we do sustainable foods wave. Do you see the around even if we’re not able to continue things differently, and that’s a quick way to greening of American business as a neces- to exist in the way we do.” I don’t think the let people know that that’s the case. Also, sary part of our future? world is going to end, but we have a better I’m ultimately responsible for the product chance of having a positive quality of life we produce, and that’s at the center of what SG: To me, it’s a hopeful part and cer- if people do make sustainable and healthy we do. tainly an encouraging part, but the fact choices. is that our economy could continue to BT: We’ve seen brand representatives grow without it. There’s a question about BT: In a world where profit is the bottom handing out Honest Tea at university what the long-term implications would line, what is the role for socially conscious events. How important is the college de- be to our planet, but there’s certainly no investment and enterprise? mographic to launching a new product? imperative. When people choose organic, it’s a conscious choice to invest in a better SG: It’s really about giving people the SG: It’s not where we sell the most prod- future—better for the planet and better choice to make a decision to invest in a betuct—we sell most of our product through grocery channels. But we always believe that college students are going to be the audience most receptive to what we are doing because they are the most conscious consumers. They’re thinking about how what they do affects the world, and that’s why you see fair trade and organic groups flourishing on college campuses. We put a disproportionate emphasis on connect- for their health. It’s very encouraging to ter future. Some students may say, “Well, ing with college students, not because we see it growing the way it is, but, as much it’s not relevant for me because I don’t think we’ll sell a lot, but because we think as I would like to say it is, I don’t think it’s have any money to invest.” But every day they’re important influencers as we think necessary. you purchase something, you’re making a about building our brand. And since most choice. It’s a question about what kind of of them are from different parts of the Once, we were in a tea garden in India, the future you’re investing in with that purcountry, we can get a bunch of them con- first organic tea garden in Darjeeling, and chase, and part of our job is to help make centrated in one college campus and they I had my oldest son along with me. He was people aware that they’re making that

When people choose organic, it’s a conscious choice to invest in a better future--better for the planet and better for their health.

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choice. During my experience in the mutual fund business, we found people working in hospitals and their retirement portfolio would be investing in tobacco companies. Until you helped people understand that they were doing that, it never crossed their mind. They were making a choice: it just wasn’t one they were conscious of. I think most of us would agree that we do share common values about the hopes for the planet, but the gap is between the values and the actions.

places we never had our product before. BT: In a market space that is growing more crowded, Honest Tea makes a strong effort to remain relevant. What keeps you experimenting?

SG: One reason is because it’s fun. Another reason is because it’s part of how we grow. The more we can keep doing things differently, the more opportunities we’ll see. Every time we can go to a retailer and say, “You don’t have a product like this,” BT: You started out catering to grocery they’re likely to take that product. Our stores’ needs. As Honest Tea has grown, first innovation in 1999 was to be the first have you changed the customer that you to make an organic bottled tea. That’s had have in mind when making your teas? a big influence on the rest of the beverage industry, and you’ll see a lot of other SG: We’re not changing the products. companies offering organic drinks. The What has changed is our reach. For our same with fair trade, that also pushed the first ten years, at least 75 percent of our envelope. Whenever we find an innovasales was in natural foods stores. Now, in tion that especially furthers our mission, the past three years, we’re reaching con- that’s when we really get behind it. One sumers who are in college or in a conve- of the big innovations that we’re working nience store or a drug store. Those are on is to be able to incorporate a new kind

of resin into the bottle that we use. We’re working on a project with Coca-Cola to be able to use a resin made out of plant-based material, and so it would continue to be recyclable, but it would be renewable, and that’s very exciting from a sustainability perspective. BT: Honest Tea has kept a pretty flat administrative structure and a start-up atmosphere despite your tremendous growth and purchase by Coca-Cola. Why did you choose this path for your business? SG: One of the reasons we succeeded is that we have a really distinct culture, identity, and way we do things. We knew, and Coke knew, it would be a mistake to have Coke buy the company and then get all corporate. If we started walling people off and creating executive suites, it would have changed the way we operated the brand. It’s nice that we’ve been able to keep growing, but, at the same time, maintain the culture that got us there. !(

Interviewed by Alex Chuka

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“Whatever your discipline, become a student of excellence in all things. Take every opportunity to observe people who manifest the qualities of mastery. These models of excellence will inspire you and guide you toward the fulfillment of your highest potential.” – Tony Buzan

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Business Today: Were you always interested in the fashion industry? If not, how did you end up in this field?

when the company had overextended itself and the stock was struggling. What were your first steps to turn around the ailing company?

Bill McComb: No, it was never even a motivation for taking the position. In fact, I BM: Well, in fact, when I signed on and didn’t enter the industry until I was 42 when I started the company stock was actuyears old. I had had a long and deep career ally stable. I would call it stable but stagnant. in consumer products and in healthcare. I It was after one quarter in the job when had built a reputation of what is known as a things that had been building, but had been “best athlete type player,” having succeeded sort of swept under the carpet, all came to at Johnson & Johnson in multiple different surface. It was as much of a surprise to me afindustries and business sectors. Sometimes ter taking the job as it was to the average perwhen a company is recruiting for a CEO role, son at large. But the analysts and investment they’re looking for people with a very broad community had noted a couple of things. skill set that isn’t necessarily industry specif- They had noted that the company was buyic. What appealed to me about this industry ing too many other companies and brands, was that I was interested in going back to a that the cost structure was rising, and that business that was driven by the demand side, the ability to deliver what was promised in where brands and branding mattered and the acquisitions was inconsistent and not customer interface and customer experience on target. They also pointed out that the were direct. I wanted to take a step back into namesake mother brand had been over prothe consumer realm, but I didn’t want to go liferated and margins were declining. And back to fast moving consumer goods spe- even before the economy collapsed, those cifically. So this represented a very strongly factors which were conspiring against us as consumer centric business, but with differ- our debt was rising and our P&L was getting ent business model and dynamics that I had more and more pressured. It all collapsed at never experienced before. It was the fact that once. And very quickly I went from coming this position satisfied my passion business in and figuring out on a proactive basis what and that the industry is demand side driven, the next phase of our strategy would be to product centric, and brand oriented that at- all of a sudden having to develop and impletracted me. ment a full-scale turn around strategy. It was urgent, and it was important at the same BT: You came into the company at a time time. What we had to do was break each of

the pieces of the business down and separate and create--I’ll call it categories--within the businesses. The brands that had the strongest links to the consumer and had the most buildable brand equity, those that were in the early phase of their life cycle, were sorted into the high growth, high profit category. There were other areas of the business that were in decline or faced some big threats, but were still big and deserved some work, and finally those that were gravely underwater or too small to matter, but were still taking too many resources and needed to go. So that first step was to differentiate the portfolio and articulate the portfolio strategy, and with that we announced and set out to divest up to 20 of our businesses, which we did over the course of the next 9 months. At the same time, we doubled down in the critical area of the three businesses that we identified at that time to have high growth potential. We applied turnaround strategies to make the most of the assets we had in the brands that fell into the middle category of declining, mature, highly scaled businesses. What ended up unfolding was a multi-year turnaround of a public company. Most companies go private to do the kind of changes we had to face, but we had to do it in the glaring eye of the public. Unfortunately, very quickly into the process we were simultaneously facing massive dislocation in the industry from the fall 2008 and 2009 recession.

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BT: In May, you will be officially changing the name of your company from “Liz Claiborne Inc.” to “Fifth and Pacific Companies.” What prompted this change? BM: A number of things, really. Underlying the name change was the fact that how and where we are sourcing our revenues and profits are increasingly from new brands of the business, specifically Kate Spade, Lucky

tion structure, in who the actual leaders of the company are. We went from focusing on wholesale selling to being focused on direct consumer retailing, and those changes have been taking place over the course of the past five years. The name change is almost ceremonial because it recognizes that this, in fact, is a very different company than it was in 2007.

!"#$%&#'%()#*%+),-./01#$%&#2.''#3)# 0%%4#5,#.,6#7/4#."#$%&89)#0%%4#5,#.,1#.,# 2.''#3)#0%%4#35:;#,%#$%&6 Jeans, and Juicy Couture. And the Liz Claiborne name, which was an incredible, wellrespected, iconic name to investors was a disconnect and strategic missignal in other ways. From a category inside the industry, Liz connotes something very different from what defines our portfolio today. But that alone did not trigger the name change. Ultimately, when we actually sold the brand Liz Claiborne globally to JC Penny, they did not want consumer confusion and we did not want consumer confusion, so we actually agreed contractually that as part of the sale we would make the name change. So we came at it from both angles. You know, there was a strange precedent out there with The Limited. It was a women’s sportswear company that was built on the chain called The Limited, but eventually ended up owning Victoria’s Secret and Bath & Body Works. They went through a series of big strategic changes in the mid 2000s that ended with them divesting all of their apparel brands and keeping only Victoria’s Secret and Bath & Body Works. However, they never changed their company name. It’s very confusing to investors and consumers, so we didn’t want to make that mistake. BT: How, if at all, will the rename change how you run the business? BM: It doesn’t, actually. The name is actually the frosting on the cake, not the cake. We’ve been baking the cake over the past five years. We’ve radically changed how we run the company and the business. All of the turnaround strategies and activities resulted in massive changes in our organiza-.

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BT: How do you run a company that doesn’t provide one product, or even cater to one target consumer group? BM: Well, I’m no different than almost any other CEO. Almost every company these days has more than one product line or more than one brand and that typically entails multiple target audiences. There are even companies that are mono-brand and have multiple target audiences within a brand by producting different product lines. That being said, the easy answer to your question is that we have a series of brand management groups. For example, Kate Spade is set up as a free standing brand group inside Fifth and Pacific Companies, and it has its own creative director and its own CEO that partner together to run the business. The same applies for Juicy Couture and for Lucky. And that’s no different from what I would call a series of brand management groups. It is no different from how J&J or Kraft run their businesses, where they have groups of people dedicated to a single brand pursuing single or multiple target audiences, but that differ across the entire company’s portfolio. Of course, they operate somewhat differently because those industries are different. BT: You have been expanding the brands into foreign markets, especially the rapidly expanding Asian market. How do you establish the status of the brand in a new market? BM: Well, the predicate to successfully doing that is to have a highly differentiated brand. That means that there is visual cod-

ing, pricing tiers, a look and feel, and brand standards that are common across all markets in the world. That’s the very basis of actually having and managing a brand. When we go into new markets, we partner with local operators to help build up a team, build out stores, and execute our global strategy. So the same visual merchandising standards we operate with here in the United States are the ones apply to foreign markets. And that’s important because what matters is not the local execution of a brand, but the global brand. The people that we work with are so experienced in branding that they are good at it and understand the culture of brand management. BT: Our readers are usually college students, many looking to start careers right after graduation. What advice would you offer to them? BM: I tell people in school to find their passion and success will find them. Too many times these days I see students trying to find a path in a job that pays well right out of college, and all to often they’re denying their own sensibility and their own interests. If you love something, you will be good and it, and if you’re good at it, it will be good back to you. You will find the rewards of not only career satisfaction, but also the more material side, like being paid well. College is a time to really figure out and explore what makes you tick. Different careers offer, and require, very different skill sets and personality traits. Finding that match and being honest with yourself is an absolutely important internal dialogue that should be taking place throughout your time in college. It’s also important to recognize that there is a whole period when you get out of school that is called “test and learn” because we don’t always know what makes us tick or what our passions are. Sometimes you will make a mistake and take a job in which you find that you spend all your time doing something that doesn’t excite you or interest you, or the work itself doesn’t lead to something that it interesting and rewarding. And it’s okay during the period of “test and learn” to make those mistakes--you have a year or two to redeploy. The ultimate aim is that by the time you’re 30, you want to find what your really passion is and what you’re good at, and you want to make it happen. !(

Interviewed by Margaret Meyer

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t can be difficult, if not impos- “serve as a non-partisan source of facts, in- tax on high-cost insurance.” sible, to understand what Obam- formation, and analysis for policymakers, The Commonwealth Fund, which acare actually means, let alone to predict what the effects will be on consumers, businesses, and the healthcare industry as a whole. This confusion lingers even though the bill was signed in March 2010, when the President listed three clear goals for the legislation: expanding access to people without coverage, decreasing costs for those who already have insurance, and slowing the media, the health care community, aims to “promote a high performing the increase in healthcare costs without and the public,” offers its Summary of healthcare system that achieves better adding to the federal deficit. Partisan Coverage Provisions in the Patient Pro- access, improved quality, and greater efthink-tanks shout harsh criticism or lav- tection and Affordable Care Act. The ficiency, particularly for society’s most ish praise from the sidelines on the same documents interpret the Act as doing vulnerable, including low-income peoplan, whose official name, the Patient the following: requiring individuals to ple, the uninsured, minority Americans, Protection and Affordable Care Act, have healthcare insurance as of 2014; young children, and elderly adults,” ofnicely symbolizes the length and politi- creating a Health Insurance Exchange fers its presentation of the contents of cal nature of the 2,409 page bill (approxi- with cost-sharing credits for people with- the bill chronologically in its Health mately the same length as the combined out employer-based coverage as well as a Resource Reform Center. This tool collection of Nobel Prize winning novels separate exchange for small businesses; highlights the small business tax credit, from 2003-2009). While Vice President penalizing employers, with some excep- which provides businesses with fewer Biden showed photos of people newly tions for small businesses, for employees than 25 employees whose average salaries covered due to Obamacare, some have who use tax credits for health insurance are less than $50,000 a year 35% credit argued that the Supreme Court should bought on the Exchange; regulating (rising to 50% in 2014) on premium costs declare the bill unconstitutional. Every health plans to prevent denials of cov- if the businesses pay at least 50% of the Republican nominee for President has erage or increased premiums due to rea- premium. Beginning in 2011, rebates to promised to repeal the bill, with Mitt sons such as health status; and expand- consumers will be offered by insureres Romney even stating that on day one of ing Medicaid to 133% of the poverty which spend less than 85% of premiums his presidency he would direct his “Sec- level. The only factors that healthcare on medical care in the large-group marretary of Health and Human Services to companies may employ in varying rates ket, and less than 80% for small-group put an executive order granting a waiver are age, geographic area, tobacco use, and and individual markets. from Obamacare to all 50 states.” number of family members—without beProjections for the impact on busiPerhaps the nature of healthcare ing able to impose lifetime limits on care. nesses seem to correspond with the contributes to the complexity of the leg- More specific changes include reviews political ideology of the group making islation associated with it—healthcare of increases on premiums as well as the the predictions. John Ligon of the conpolicy represents a cornerstone of how a extension of the date to which children servative Heritage Foundation argues society wishes to value productivity and may stay on their parent’s plans to age 26. that Obamacare, with its combination economic efficiency against health out- It is important to note that, in the con- of regulations, taxes, and other indirect comes. In other words, it forces society, text of the individual mandate, patients costs, “will dramatically affect compaon some level, to put a value on human who arrive in need of emergency care still nies’ per-employee costs, firm-level allolife. Yet many cringe at the notion of receive it, at the expense of the taxpayer. cation of labor, desire to take on health looking at something as fundamental to This system has led to a reduction in the coverage and motivation to grow both in human life as a business—whether due number of emergency rooms, making terms of income and employment.” He to moral opinions about the importance pre-existing ones more packed and busy. specifically cites the mandates to provide of wealth as opposed to health or more The report also cites the estimate by the health insurance as raising costs in the concrete economic perspectives such as Congressional Budget Office (CBO) that industry, a claim based on the economic the asymmetry of information between the legislation will reduce the number of belief that more demand without an inpatients and doctors. Further analyzing uninsured by 32 million in 2019 at a cost herent increase in supply will raise costs the connection between the economy of $938 billion over the next 10 years as (although with insurance some would and health can add even more layers of well as resulting in a deficit reduction of argue that a bigger pool decreases costs). issues, such as the necessity of healthy $214 billion. The savings from the plan These higher costs, according to Ligon, workers for a productive economy. will come from “a combination of sav- will result in reduced hiring and lower The Henry J. Kaiser Foundation, a ings from Medicaid and Medicare and wages. Other areas of concern include non-profit private foundation aiming to new taxes and fees, including an excise an ineffective small business tax credit,

The official name, the Patient Protection and Affordable Care Act, nicely symbolizes the length and political nature of the 2,409 page bill.

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higher regulation compliance cost, higher Medicare payroll taxes, and a Medicare non-payroll tax on investment.

of the conservatives, that the bill “will make medical care more efficient and less costly” and that these lower costs will ac-

According to the bill, the only factors that healthcare companies may employ in varying rates are age, geographic area, tobacco use, and number of family members. Michael Cannon of the similarly libertarian Cato Institute makes the prediction of the impact of Obamacare on a small business owner married with two kids. Cannon argues that they will pay higher premiums due to the need to purchase unlimited coverage (none of the breakdowns of the bill include this reference, instead they refer to a minimum level to be determined in the future, which may or may not be unlimited), as well as increased expenditures to cover their children until they are 26. The increased costs, according to Cannon, may even lead small business owners to stop providing dependent care. Efforts to lower costs could push the business owner to switch to a health plan that matches the mandates but compensates by restricting access to care. The credit for small business may help in the short-run, but, as Cannon continues, the credit ends after six years. Like Ligon, Cannon also highlights the new higher Medicare taxes which are paid for mostly by high-income earners, and he advances a new argument that uncertainty, due to the potential for increased costs due to the movement of a worker’s spouse or parents, will deter small employers from adding employees. Liberal groups, on the other hand, have offered praise for Obamacare. Analysts at the Center for American Progress argued that Obamacare, by preventing insurance companies from refusing to provide coverage for individuals with pre-existing conditions as well as offering more coverage options for individuals, has helped to “alleviate the gap in health disparities among different racial and ethnic groups.” David Cutler even argued, directly contrary to the assertions 46

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tually result in job creation. Mark McClellan, director of the Engelberg Center for Health Care Reform at the Brookings Institution, referred to the bill as “an important step,” specifically highlighting the provider payment reforms as key to reducing spending growth and thereby expanding courage, as well as the spirit of various pilot programs for Medicare, as positive developments. Pay for performance also receives note as does the emphasis on “reforms that pay doctors and hospitals more when they get better outcomes for people at a lower overall cost” and the switch from care delivery from inpatient to outpatient. Reports on the actual effects so far, even though many of the bill’s provisions have yet to take effect, have caused Forbes magazine (which generally supports businesses) to exclaim, “More Small Business Offering Health Care To Employees Thanks to Obamacare” in January 2011. The article states that “major health insurance companies around the country are reporting a significant increase in small business offering healthcare benefits to their employees.” The writer, Rick Ungar, attributes the expansion of health insurance to the tax cut portion of the reform law, with the results beating expectations by the Kaiser Foundation, especially considering the state of the economic recovery (or lack thereof). Some specific examples include United Health Group, Inc., which added 75,000 new customers from businesses with fewer than 50 employees, Coventry Health Care, which added 115,000 workers from small businesses, and Blue Cross Blue Shield of Kansas City, Missouri, reported a 58% increase in the

number of small business providing coverage. Steve Benen argued that the trend continued through at least December 2011, titling his article for the political section of Washington Monthly “Affordable Care Act, still working.” He refers to an article by a small business owner in Michigan who argued that the same tax credits emphasized in the article in Forbes have helped create jobs. Benen refers to other changes that he attributes to the bill as well, such as the savings for seniors on prescription drug costs as well as increased options for cancer patients and the decreased rate of growth on Medicare spending. The most more important statistic for Benen centers upon the increase in number of individuals covered, which amounts to 2.5 million young adults according to new analysis. The Obama Administration specifically contributes the increase to the extension of the maximum age (to 26) at which children can stay on their parent’s healthcare plans. Of course, none of these statistics can prove definitively that any changes resulted from Obamacare, just as no statistic really clearly exists for the costs, if any, on small businesses. In the end, one conclusion that can be made is that Obamacare means that we, as a society, are paying more for healthcare than we would be otherwise— the conservative groups emphasize the increased costs, while the liberal ones highlight the expanded coverage. Whether or not this tradeoff is good depends upon your individual valuation of healthcare, both for yourself and for others. However, the complexity surrounding Obamacare means that both sides will change these assertions, with the conservative groups arguing that the higher costs may ultimately decrease access and the liberals arguing that Obamacare’s payment provision clauses will (and have) lowered costs in the industry, helping to drive the apparent boom in the number of individuals insured. In the end, the confusion experienced by the general populace corresponds to the clear uncertainty about the bill as well as a lack of general consensus about what the tradeoff between price and health should be. In other words, how do we value the relationship between health and the economy? BT

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Business Today: What are the most important principles of the Affordable Care Act?

ability on the part of organizations to take care of populations rather than the current model of patient referrals and fee-forservice medicine. Moving in this direcGary Gottlieb: There are two or three tion, redesigning our care around patients, exceptionally important principles in the their needs, and populations has been part Affordable Care Act. One is coverage. Giv- of our strategy at Partners HealthCare. en that we have determined that we want To sign on as a Pioneer ACO was consisto use an insurance model in this country, tent with our strategic direction. and that private and public insurances will still be part of the general driver of BT: Some have described the patient and the way that we manage healthcare deliv- doctor relationship as broken, leading to ery, the Affordable Care Act provides for both parties over-utilizing resources. Is increasing coverage for individuals based this description accurate, and what facon their levels of income. The second is to tors lead to it? move from fee-for-service transactional medicine and begin to create incentives GG: The general indictment of fee-forthat are different than the general incen- service medicine is that in this country tives of a fee-for-service model. we have built an illness care system based upon specific needs and not a healthcare BT: How does Partners’ selection as a system that is focused on primary, secondPioneer Accountable Care Organization ary, and tertiary prevention. A good deal (ACO) impact the future delivery of care? of this is driven by payment mechanisms. The fragmentation of care, the fragmentaGG: The Center for Medicare and Med- tion of the relationship between the paicaid Innovation (CMMI) was given $10 tient and the doctor, and some perverse billion to create giant experiments that incentives, like provider-induced demand, could shift markets away from general can develop from this insurance model. transactional fee- for-service medicine. Moving away from this model could creThe Pioneer ACO was one of those experi- ate incentives to use resources more effecments in which there is a shared-savings tively and to try to improve health and to paradigm. That paradigm creates account- reduce the effects of chronic illness.

BT: What do you think will be the biggest impact of the Affordable Care Act at Partners? GG: At Partners, the effect will be pretty modest because we are located in a state that has embraced many of the elements of the Affordable Care Act. We moved to insurance products sold through an exchange; in Massachusetts, through the coverage act of 2006, more than 98% of the population has some kind of insurance or government-related coverage. BT: How do you balance thinking of a business and something that is fundamentally trying to save lives? GG: The most important question is what is the fundamental mission of the institutions that are responsible for healthcare delivery? There are many elements of business that are extremely important as drivers for the way we organize ourselves, creating efficient systems, creating incentives to optimize a set of desired outcomes. However, if the principal mission is profit maximization and shareholder cash profit, it would be difficult for business and health care delivery to be compatible. BT: Are there any areas of healthcare that

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the Affordable Care Act did not attempt to change which needed change?

and in certain states. Statistics suggest that Americans support the contents of the bill

!"#$%&'#(")#*+)$,-").',"*'".)&#/")0""*) -#()#*+)#1#2)%&")34.%),354(%#*%).%#0$") "35$42"(.)+6(,*7)%&")34.%)("'"*%)'2'$".)4-) "'4*43,')7(41%&8)("'"..,4*8)#*+)("'4/"(29 GG: The Affordable Care Act (ACA) tries to drive towards different payment mechanisms to stimulate innovation without dramatically mandating those changes. It did not address much in the way of malpractice liability and tort reform. In general, it did not create any ceilings or budgets. With continued advances in technology, costs will be driven up in a variety of different ways. While the ACA supports an oversight body for the review of costs and technologies, its proper implementation will be critical. Healthcare costs are concentrated in a small fragment of the population. For example 10% of Medicare patients consume close to 70% of the costs, and end-of-life care has extraordinary costs. We, as a society, must have a transparent conversation about the issues concerning chronic disease and how we care for people who are approaching the end of life. If we are going to address healthcare’s available resources without having those ethical questions publicly discussed and debated, we will find ourselves lost and without any moral construct to develop a sustainable system.

more than what is known as Obamacare. Do you think that a fundamental communication error occurred in conveying what was in the bill to the populace?

from what you have described as a complex and broken legislative process or because various groups are trying to co-opt healthcare for their own political ambition? GG: Healthcare as a public good is a political good. Consider the portion of the GDP that it consumes; think of the policies that do and don’t exist that affect individuals’ lives that relate to healthcare - it is by nature political. Any policy maker who tries to lead this kind of change should expect and anticipate that elements will be attacked and portrayed in a light that will have political valence. The Affordable Care Act is a massive piece of social and fiscal legislation. Its discussion and debate are somewhat distorted by a polarized political environment and the discussion often becomes a caricature of a debate, with critics fueling public fear. It was only a few months ago that we heard “Keep the government out of my Medicare!” A government program since 1965.

GG: I think there are two elements. One, I think there were flaws in the legislative process. Instead of the President putting a bill together that was consistent with a set of objectives and draped in a tight framework, he allowed Congress to create a series of related amendments that became a bill. Much of the debate as to how each of those elements was negotiated and created BT: What are some of the key reasons for was extremely public. As a result, it cre- anger about the bill? ated distaste for the process, particularly at a time when the country was suffering GG: A lot of the anger about the bill is due with a massive recession and very high to the fact that we are in a difficult time. unemployment. Additionally, in order to The bill was proposed, debated and passed keep costs from going too high, many of during the worst economic conditions of the best benefits of the bill don’t begin the last half century and in the midst of a until 3 or 4 years after its passage; the bill loss of nearly 8 million jobs. The bill is emwas passed in 2010, the real implementa- blematic of what feels like big government tion begins in 2014. Important steps have when government doesn’t feel like it is suchappened already, specifically for older cessful in improving economic conditions adults by filling the doughnut hole in the and the costs of government and healthMedicare Drug Payment, the coverage of care are crowding out other critical investyoung people up to the age of 26 by their ments. So, it’s a very easy target and it’s so BT: Do you see another major healthcare families’ insurance, removing pre-existing complicated to explain; it is very hard to discussion occurring in 10-20 years? condition elements, and other pieces all of market or defend in soundbites. which effect fragments of people separate GG: I think the healthcare discussion has from one another and don’t have a single BT: Are more college-graduates moving not ended at all. We are in the first chapter political voice. The bill was so complex. into the healthcare industry as a response of a very long book. This will be an ongo- The process to get to the bill’s formation to recent events on Wall Street? ing debate because 50-60% of healthcare was so complex and a key messaging opis being paid for by public dollars and the portunity was lost. As we move to 2014, GG: I think they already are. Healthcare pressure around how to spend those dol- there needs to be a tremendous amount and life sciences have been far and away lars will continue to intensify over the of teaching, learning and communication the most important stable employers durnext decade. around the benefits of implementation. ing the most recent cycles of economic growth, recession, and recovery in almost BT: There seems to have been a relatively BT: Much of my research about the bill every regional market. That stability will strong backlash against the Affordable demonstrated contradictory interpreta- diminish as some of the government payCare Act, at least among certain groups tions. Does much of this confusion derive ment is constricted and jobs that are re-.

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lated to healthcare are going to have to go. GG: The average medical loss ratio in MasSeventy percent of expenses in healthcare sachusetts now is between 88-90% and the are labor. insurance companies still are creating substantial reserves. We would save a lot more BT: The medical loss ratio, limiting ex- from administrative simplification which penses on non-healthcare related items to would reduce costs for both insurance 85%, has received significant attention as companies and for providers who are tryboth a key provision and impossible stan- ing to get paid for their work. Moreover, dard. What role do you think it will play given that most insurance functions are in healthcare reform? highly scalable, it is hard to understand

why the percentage of cost attributable to insurance administration, profits and reserves has not diminished remarkably as total health care costs, i.e.: the denominator has grown at a rate that has far outstripped general inflation. In that reality, insurance companies could enjoy substantial increases in profitability, even if they were holding the medical cost ratio constant. !(

Interviewed by Russell Morton

Partners HealthCare represents a consortium of a healthcare institutions providing high quality care throughout Massachusetts. Brigham and Women’s Hospital (BWH) and Massachusetts General Hospitals, both teaching hospitals of Harvard Medical School and ranked among the top of America’s Best Hospitals by U.S. News & World Report, co-founded Partners in 1994. Since then, a number of other hospitals, North Shore Medical Center, Faulkner Hospital, Newton-Wellesley Hospital, Nantucket Cottage Hospital, and Martha’s Vineyard Hospital, as well as the nation’s top freestanding psychiatric hospital according to U.S. News & World Report, McLean Hospital, have joined Partners. Patient care extends beyond the typical hospital, with Partners HealthCare at Home serving a large population with over 1,400 staff members and the Spaulding Rehabilitation Network, working intensive rehabilitation and long term acute care. Partners also includes the Massachusetts General Hospital Institute of Health Professions, a graduate school focusing on work with practitioners, and Partners Community Healthcare Inc. (PCHI), which serves to connect Partners physicians and hospitals and ensure that Partners continues to provide services of high quality and efficiency with the latest clinical technologies.

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I

’m a sucker for musicals. Any of you who are familiar with the stage show “Avenue Q” are probably familiar with the (rather humorous) struggles the character of Princeton undergoes upon graduation. In the play, he sings: “What do you do with a B.A. in English? What is my life going to be? Four years of college, and plenty of knowledge, have earned me this useless degree….” Some, like Princeton in “Avenue Q,” believe that a college degree is worth less today than it was perhaps fifty years ago. However, it is my firm belief that the advantages of receiving a college education lie far beyond the tangible. There are definite measurable benefits as well. For instance, Collegeboard reports that the average college graduate makes 62% more than a typical high school graduate. If you were to run something like a cost-benefit analysis, though, on the “monetary value” of pursuing a college degree, you would probably meet much difficulty. This is because it is nearly impossible to put a price tag on the immeasurable benefits that one would gain from even four years of college. To start, I understand college may very well not be the right path for everyone. To be frank, some people would not have the patience or resources to maneuver through university in a way that would be of any real benefit to them. Those that view college as one big

party will pay later. I almost guarantee you, though, that each and every single

As a student of the University of Virginia, I am a firm believer in the

Collegeboard reports that the average college graduate makes 62% more than a typical high school graduate. person you know could benefit from a college degree. I highly respect selfmade individuals who specialize and are experts in their field; however, a college education would by no means foreclose development of those skills, but rather act as a venue for further expansion. College is not just four years spent in a classroom—it is a life experience. There is something absolutely invaluable about being surrounded by a diverse community of academia consistently, each day, over a four-year period. While a person can dedicate their lives to independent study without having a college education, I do not believe that that person would benefit in the same way as someone who had had the opportunity to bounce their ideas off of professors or college peers. This opportunity to engage in open dialogue facilitates a safe and supported environment for intellectual exploration.

Jeffersonian model of education. When founding our University, Thomas Jefferson designed the campus with the library as the centerpiece, surrounded by residences. The majority of these residences were student rooms with pavilions sandwiched between where the professors resided; the top floor of these were their homes, the bottom floor their classrooms. Mr. Jefferson was a strong proponent of the idea that education should exist in a community, and he reinforced this belief by positioning student and faculty housing in a way that cultivated personal relationships and, therefore, a “learning culture” that extended far beyond the classroom. This is what a college education is truly about. It is not the prestige of what you major in or where you obtained your degree—it’s the skill set that you develop while you’re there. It’s learning how to express yourself and how to communicate with peers; it’s learning how to think; it’s learning how to argue your point; it’s learning how to understand the world as something that revolves around much more than yourself. As people, we are drawn to those who can easily engage us in conversation. The more you know, the more others will be attracted to you. While someone who opts for a liberal arts degree may not possess the same pragmatic knowledge as a student pursuing one of the STEM (Science, Technology, Engineering & Math) fields, what they are learning will likely propel them to better express themselves and maneuver through life. A well-rounded individual is one who is able to converse intellectually about a variety of topics with their peers. It is

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taking what they learned during their time at college, and applying it to their day-to-day lives. Because of the education you receive not just in the classroom, but also on campus and in the real world, college truly prepares you to be a better leader for the next generation. During my

your career. To land that job, you must be able to not only play off what connections you have, but also the strengths you bring to the table. In an ideal world, all candidates applying to a job would be viewed holistically; however, that is not the case in today’s society. Let’s take two

“Education is not a means to an end, but a means to enlightenment.” Laurie Casteen - Associate Dean, UVA conversation with Professor Christian Steinmetz, coordinator of the Student Affairs Practice in Higher Education program at UVA’s Curry School of Education, she posed an interesting question: “What conversations do you expect to hear around the dinner table?” Typically, a parent is likely to talk to their children about how their day went and what’s going on that weekend, and it will be a pleasant conversation. But how likely are those parents to push beyond that? Will they talk to their children about literature or politics or current events and really push them to think outside the box? Again, we like to talk to people who are highly knowledgeable and the amount of education you’ve received does tend to influence how and to what extent you converse with those around you on a daily basis. College entails surrounding yourself with interesting and motivated people at all hours of the day and interacting with them everywhere you go. It is only natural for you to build connections that you will then be able to use later in life. This networking skill is one that is of vital importance. I believe that it’s not what you know, it’s who you know— because if you are connected to the right individuals, your chances of landing your dream job will be dramatically increased. This “social capital” is what will propel you up the ladder through your education, and eventually through

54

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candidates applying to a job working for Microsoft. Person A has been in love with computers all his life. He has developed programs on his own, learned to write in different scripts, and is a master at most applications you could name. He has done nothing but eat, sleep, and breathe computers for all his life. Person B, however, has a Master’s degree in Computer Science from a top

university. Which candidate will get the job? In most situations, it will be the one who received the formal education, regardless of whether he knows more or less than the self-made business man. I’m not saying that it’s impossible to be successful without a college degree. By all means, there are some exceptional individuals who are highly successful and either dropped out or didn’t go to college at all. However, a formal college education could have allowed the individual to expand even further upon their knowledge—there could be a wide array of things they just don’t know that they don’t know. Furthermore, successful individuals who dropped out of college did enroll at one point, so they should still be grouped among those who attend university. However, judging people in terms of professional success is contrary to a prevailing view among educators that university is for personal developement, not a means of preparation for a specific profession. As Associate Dean Laurie Casteen at the University of Virginia told me, “Education is not a means to an end, but a means to enlightenment.” BT

TECH REVOLUTION

!"#$%&'()*%+,#$)-./&'0%1( “If everyone went to college there’d be no rewards of going to college. The universal push to college isn’t the answer if there aren’t enough jobs.” Shamus Khan - Professor of sociology, Columbia University How College Presidents assess the future of US Universities compared to World Universities Best One of the Best Above Average Average Below Average

2012 19% 51% 17% 10% 1%

2022 7% 46% 28% 12% 6%

Source: Almanac for Higher Education

Fun Facts - Just 16 percent of students attend private nonprofit colleges and universities. - Between 1999 and 2009, undergrad enrollment at for-profit schools soared 539 percent compared with 32 percent for public institutions. - While 347,985 students earned business degrees in 2009, only 15,496 grads walked away with a degree in mathematics. - An analysis of nearly 1,400 four-year institutions shows that one-third reported lower graduation rates for the six-year period ending in 2008 than for the one ending in 2003. “Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the ’90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999. Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It’s basically extremely overpriced. People are not getting their money’s worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there’s this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that’s what everybody’s doing. So the crazy bubble in education is at a point where it is very close to unraveling.” Peter Thiel - Founder and Benefactor, Thiel Fellowship 26

BUSINESS TODAY FALL 2010

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hile the United States and si, nevertheless, had the courage to push being stuck in limbo. However, if you are the European Union are through all of the resistance because he bright enough to get a job when you gradusearching for economic wasn’t worried about success. He believed ate, you will still be bright enough after tryremedies to the recession, a country the in his idea. Today, Better Place, the com- ing to start something for yourself, regardsize of New Jersey is fostering the high- pany started by Agassi, has momentum in less of how successful the venture. However, est density of startups in the world. Since Australia, Denmark, China, Japan, Amer- this is easier said than done. Israel is one of 2002, Israel has experienced sustained ica, the EU, and, of course, Israel. In fact, the easiest countries in the world to start a economic growth and has seized this pe- Nissan is now manufacturing fully electric new company after going bankrupt with a riod of prosperity to become an emerging cars with swappable batteries for Better prior company, which makes failure a lot entrepreneurial center. The business sector Place. He was comfortable as a corporate less intimidating. Still, if we want to build can learn two lessons from Israeli entrepre- executive, but he risked a secure career to the entrepreneurial class and bring our neurs: how to maximize the benefits of a tackle a grand vision. economy back to where it should be, we loose corporate hierarchy and how to culIn order to increase entrepreneurial- must be bold enough to take these chances. tivate chutzpa, a Yiddish word meaning au- ism and the startup class in America, the Now let’s look at the vastly different dacity and gumption. In Start-up Nation: brightest minds need to cut themselves corporate environments in Israel and the The Story of Israel’s Economic Miracle, loose from the typical, corporate mold. United States. The differences in the hierauthors Dan Senor and Saul Singer assert, Young, educated Americans need to be archical systems of the Israeli and US mili“When an Israeli entrepreneur has a busi- bold enough to turn down that investment taries parallel the structural differences ness idea, he will start it that week.” banking analyst offer because of an idea. It between Isreali and US corporations. In Shai Aggasi is a 24-year-old Israeli and could be starting a new social network like Start-up Nation, Senor and Singer compare a former executive at one of the largest en- Facebook, a game development platform these two military cultures: “American terprise software companies in the world. like PopCap, or an innovative web browser captains and a major walked in, everyone Though successful, he had an even bigger like Mozilla. All three were started while would stiffen. And then a colonel would idea. While hybrids and more fuel efficient their creators (Mark Zuckerberg, John walk in and the major would stiffen. It’s cars were becoming a larger factor in the Vechey, and Blake Ross, respectively) were extremely rigid and hierarchical in the US. global economy, Assai decided to dive into still enrolled in college. Technically speak- Rank is very, very important.” This strict the alternative energy industry with a goal: ing, college graduates are more educated hierarchical structure translates to the Make Israel completely electric. Assai’s ini- than these entrepreneurs, but many have typical American corporate environment. tiative involved creating battery swapping the wrong mindset. After all, the future of Junior employees often fear challenging stations where electric cars could restore our economy is likely going to depend more the operations of the company, and manenergy. When Israeli Noble Prize winner heavily on high-tech startups born out of agement is rarely receptive to ideas coming Shimon Peres originally presented this novel ideas. from downstairs. technology to the CEOs of the five largest The attitude of many is that graduatApple, one of the most successful car companies, only two responded. Agas- ing college without a job is tantamount to growth companies of the past decade, is 56

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well known for having a vastly different humility of senior officers, who do not feel corporate culture. In fact, according to compelled to exercise their authority and Channelnomics.com, “Apple shows that cast down their subordinates. As Israelis the cultivation and rewarding of talent is become comfortable challenging authority, more important than maintaining some American youth practice ingratiation. In artificial hierarchy and notions that rank the classroom, they are polite to professors has its privileges.” This egalitarian way of to get better grades; in job interviews, they thinking is much more consistent with the speak only of a company’s strengths, not its way the Israeli military operates. Further- weaknesses, to try to get entry level posimore, it has provided a corporate environ- tions. While submission to authority is the ment that is conducive to cooperation and norm for American youth, assertiveness is innovation. not only accepted but expected across the Senor and Singer describe a situa- world in Israel. tion at an Israeli army base as the followInnovative ideas come from challenging: “You would sit around with a bunch ing superiors, as well as from questioning of Israeli generals, and we all wanted cof- accepted ideas. Shai Agassi challenged the fee. Whoever was closest to the coffee pot presumption that we could only be partialwould go make it. It didn’t matter who—it ly oil independent and is now getting supwas common for generals to be serving cof- port to potentially make Israel a gas-free fee to their soldiers or vice versa.” This scene country in the future. We need to alter our portrays both the lack of pressure on young corporate work environments so that juIsraelis to please their senior officers and the nior employees are not afraid to challenge

the company’s operational framework or accepted industry standards. In order to loosen this corporate hierarchical structure, upper management needs to be more receptive, and large companies need to be more cohesive rather than segmented by artificial ranks. This open, collaborative culture enabled Apple to become one of the world’s leaders in innovative thinking, and it can work for other companies too. If we want the entrepreneurial spirit in America to thrive, we must make progress in breaking down the rigid corporate hierarchy that suppresses it. It is arrogant to think that we have it right when there is a democratic country across the world with consistent growth and an equal, if not greater, promise for innovation in the future. If we can emulate these cultural characteristics, we will be closer to seeing our economy recover and entrepreneurialism flourish. BT !"#$%&'()*('!"#$%&##'()*+,

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Elevating Nutrition in the Global Food Security Area By Daniel Bornstein, Dartmouth College

I

t seems that whenever a food crisis Bonnie McClafferty, the director of the arises nowadays—whether it’s the Agriculture and Nutrition program at the recent famine in the Horn of Africa Global Alliance for Improved Nutrition. or the 2008 global food price spike—the Investing in merely crop productivity international community inevitably calls risks repeating the shortcomings of the for the need to increase crop production. 1960s Green Revolution, which averted The standard mantra goes something famine in India and Latin America like this: “The world will have to double through the deployment of high-yielding agricultural output by 2050 to feed a crop varieties, fertilizers, and pesticides. population of 9 billion.” One of the main criticisms of the Green Yet a narrow focus on boosting crop Revolution is that its emphasis on a select production neglects the crucial role of few crops and on external chemical inputs nutrition in agricultural development. served to displace nutritious indigenous Integrating nutrition and agriculture food systems. requires an expansion of the definition “The Green Revolution’s focus was of food security. While this term has just on a few crops: rice, wheat, and maize, long been seen as simply access to food, which are not particularly nutritious,” now it’s crucial to include the nutritional Molly Anderson, the Partridge Chair in adequacy of that food, according to Food and Sustainable Agriculture Systems

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at the College of the Atlantic, said. “You can deal with caloric malnutrition and protein malnutrition with those crops, but a lot of nutritional deficiencies are vitamins and minerals, and focusing on a few major grain crops won’t help with that.” The result has been detrimental for nutrition in developing countries. The poorest populations can for the most part afford only the staple crops that were the core of the Green Revolution’s work, given the high level of investment in this those crops, according to McClafferty. By contrast, the comparatively little research investment placed on boosting the productivity of fruit and vegetable varieties has rendered many of them too expensive for the most vulnerable. The key to prioritizing nutrition in

NEW ROUTES THROUGH CAPITALISM

food security policy is to engage farming communities in the research process, making them partners in knowledge production rather than recipients of scientific research. The International Institute for Environment and Development has been working precisely on this participatory approach in West Africa. IIED helped to establish “citizens’ juries” in Mali so that farmers could gather to define their own priorities. The juries’ recommendations focused on improving local rather than corporate-controlled seed verities and on protecting domestic growers from unfair foreign competition. The farmer-led approach promoted by IIED is clearly meant to democratize agricultural research, equipping farmers with the ability to formulate their own vision for agriculture and lessen dependence on international institutions. Yet the U.S. government would have you believe that its own approach toward fighting global hunger—which puts a premium on high-input Green Revolution crop technologies—is the path to promoting farmers’ freedom of choice. “What we promote is giving to ramp up export-oriented commodity smallholders the same choices that we in production systems. That legacy lives on the U.S. have,” said Tjada McKenna, the today, as the focus on export production Deputy Coordinator for Development has impeded investment in local food for the Obama administration’s Feed self-sufficiency systems. This model the Future initiative—which targets has long rendered developing countries agricultural development mainly in reliant on exports from Western sub-Saharan Africa. “We make different industrial agriculture systems. technologies available so they can choose “Farmers tend to move away from what’s most appropriate.” growing a diversity of crops when there Yet Western nations’ international is pressure to export, and move into development policies in Africa have growing single crops that are considered actually come at the expense of farmers’ to have a comparative advantage in that choices, ignoring local knowledge- country,” Anderson said. “Part of the based food security solutions. The U.S.’ ideology behind free trade is that certain focus on external inputs for African parts of the world have a comparative agriculture renders farmers susceptible advantage for growing certain crops. to high input prices and may displace The idea is to focus on growing things the farmers who cannot afford such your region is best suited to grow, export expensive crop technologies. Indeed, those, and earn cash.” these vulnerabilities were the most But this model breaks down when detrimental social consequences of the global food prices rise beyond the reach Green Revolution in India. of the world’s poor. That is exactly what There is historical precedent for how happened during the 2008 food crisis, the policies of industrialized countries which was driven by the rising price have exacerbated hunger in Africa. In of chemical inputs and the diversion response to the African debt crisis of cropland toward both biofuel and of the 1980s, international financial livestock production. A key lesson institutions pressured African countries from 2008 is that the international

community needs to recognize agriculture’s multi-functionality: it is not merely about producing food but about ensuring stable livelihoods and nutritional adequacy. Implementing this pro-poor vision for agriculture requires shifting away from the high-input Green Revolution model that has taken on an ideological hegemony over international development discourse. Instead, what’s more appropriate is a focus on agroecological approaches, which increase crop diversity and rely on nutrient recycling rather than on external inputs. “Increasing diversity means you have different crops, and different crops have different nutrient profiles,” Anderson said. “It’s easy, with agro-ecological approaches, to incorporate the fruits and vegetables that people need to round out their diets.” Overall, realizing the expansion of agro-ecological approaches will depend on whether international institutions and donor governments are willing to challenge the underlying ideologies that have driven global agriculture policy since the Green Revolution. !(

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BTInvests !"##$%&'()*$+),-). /0)'123$%22') In 2011, global growth slowed from 2010. According to the IMF, GDP growth was just over 5% in 2010 and just under 4% in 2011, with a further slowdown to 3.3% forecasted for 2012. Inflation in developed economies picked up a bit but remained subdued, while continuing to accelerate through the middle of the year in most developing economies. The main market movers during the year were Europe’s sovereign debt crisis and monetary tightening in response to inflation in emerging markets. This meant that global equity markets were modestly up going into the summer, when worries about the US’ debt ceiling and Europe’s over indebtedness in peripheral countries resurged. In

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July through September, equity markets went sharply downward. However, markets started rallying in October and have continued to do so. At the same time, the Fed announced Operation Twist, a scheme to lower short term rates by selling the Fed’s holdings of short term Treasuries and buying long dated Treasuries. Unfortunately, although markets no longer seem to be very worried about European and American indebtedness and deficits, neither has been solved. Looking forward, we see the best long term opportunities in certain cheap equity sub-classes, real assets, and nondollar parts of the credit markets, although, with the exception of real assets, we do not expect those investments to outperform until the imbalances in Europe have been corrected.

INNOVATION AND ENTERPRENUSHIP

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Domestic equities endured a volatile year. Large capitalization equities enjoyed moderate returns, with the S&P 500 up just over 2%. Investors in small and mid capitalization stocks, however, did not achieve positive returns. Most of the underperformance in these sectors was due to an extraordinarily tumultuous third quarter, as macroeconomic concerns over the US government downgrade and the Eurozone crisis precipitated massive declines throughout the market. Small capitalization stocks were hit the hardest during this period in what was a continuation of trends from the second quarter, as investors initiated a transition from risk seeking (risk on) to risk aversion (risk off ). This risk off attitude defined much of the year as investors fled towards quality, choosing large companies with strong balance sheets to weather the crisis. Despite such underperformance, however, corporate America looks strong. Balance sheets are deep, with companies holding a higher percentage of their assets in cash now than at any point in the last ten years. Earnings growth, while not dramatically rapid, has continued, and companies are lean and productive. However, spending on capital investment is constrained by uncertainty surrounding macroeconomic events and equities have tended to move in sync with each other in response to national or global phenomena instead of individual corporate news. 2012 looks to continue these trends as the Eurozone crisis remains unresolved and the Federal Reserve hints at another program of quantitative easing, or QE3.

2011 was a terrible year for emerging markets investors. To give a broadx picture, the MSCI Emerging Markets Index is hovering about 10% below its level a year ago, but that figure alone does not adequately depict the beating that many EM bulls took in 2011. For example, investors in the Market Vectors Vietnam Index have lost close to 40% over the past year—and that is after the index rebounded from its nadir in late December. Few emerging economies showed robust growth in 2011. Thailand led the pack, with the iShares MSCI Thailand Investable Market Index ETF gaining about 10.5% over the past year. Everything is correlated. Major negative developments in the world economy have outweighed secular local trends in determining the pricing of emerging markets assets. Continued uncertainty in the Eurozone has impeded growth and many emerging national economies have seen their currencies brutally devalued, though the Mexican Peso, the Brazilian Real, and the Indian Rupee have bounced back, each having gained about 5% each against U.S. Dollar in the first month of 2012. The upshot of these developments is that there is a price at which almost any asset is worth purchasing and many emerging markets stocks appear to have bottomed-out. Investors are looking to places like Brazil for good deals, as offshore drilling and local demand remain strong. There is a faulty assumption in the way that most investors seem to have approached the emerging markets this year: they see emerging markets countries as vassals of developed nations and passive victims of overriding

FALL 2010 BUSINESS TODAY

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global trends. The reality, however, is that so-called emerging economies are increasingly propelling those trends. BRIC countries are both essential suppliers of commodities and labor as well as drivers of global demand for those goods. China, for example, contributes more than one third of global economic growth and accounts for more than half of the global industrial commodity demand. We expect that, over the next few years, asset pricing in the emerging markets will start to be determined more by positive local trends and less by unfortunate global circumstances. !"#$%&'()*+$ ,-+.$/&0-(1 Although periodic bouts of risk-on and risk-off regimes dominated the financial markets in 2011, the market was overall risk-averse due to the resulting volatility. As the traditional safe haven asset, fixed income outperformed equities: the Barclays U.S. Aggregate Bond Index, the standard U.S. bond market index, returned 7.9%, while the S&P 500, the standard U.S. stock market index, returned 2.1%. Driven by the European sovereign debt crisis, the political brinksmanship over the U.S. debt ceiling and the subsequent S&P downgrade of U.S. debt, weak global economic growth, and the Federal Reserve’s verbal commitment to low interest rates and launching of Operation Twist (a program to drive down long-term interest rates), the bond space itself exhibited risk aversion. U.S. Treasury securities, long considered a risk-free asset, outperformed riskier bonds, including high-yield corporate debt and foreign debt. Going for-

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ward, we expect strength in corporate bonds, as recent economic data suggest stronger economic growth to come and record-high levels of cash provide companies with defensive, yet flexible, balance sheets. In addition, we recommend non-dollar denominated emerging market government debt, with their lower debt-to-GDP ratios relative to that in developed countries and emerging market growth driving the global economy. 2.3*4$-(&5-36$78 9(%3$:&5);-// The major story of European equity markets in 2011 was the sovereign debt crisis that came into the limelight in the early spring. European markets were highly correlated to confidence in the risk of government debt default. As bond yields rose and the risk of default grew, equities plummeted. The U.K.’s FTSE 100 was down 5.6%, Germany’s DAX fell 15%, and France’s CAC-40 lost 17%. Greece was one of the worst performers; the ASE Composite index was down 52% in 2011. The Stoxx Europe 600 index dropped 11%. The viability of a common currency within the European Union has been called into question and was closely scrutinized and debated throughout the year. However, European leaders repeatedly assured markets that an exit of Greece, or any other country, from the Eurozone was out of the question. Markets moved on this type of news consistently during the year. Looking forward in 2012, the sovereign debt crisis will continue to drive equity markets in Europe and will impact global markets as well. !"

NEW ROUTES THROUGH CAPITALISM

Cash Still King in the Heart The Congolese have a country blessed with mineral riches, but a banking system and financial culture incapable of making it count By Minas Panayi, Cass Business School

FALL 2010 BUSINESS TODAY

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NEW ROUTES THROUGH CAPITALISM

The Democratic Republic of the Despite GDP growth of 6.1 Congo is, in one sense, the richest country per cent in 2010, a Belgian official at the in the world. Estimates indicate that the embassy in Kinshasa estimates that “80 nation’s untapped mineral wealth is worth to 90 per cent of economic transactions $24 trillion. This is higher than the com- are made in the black economy.” As a rebined GDP of the whole of Europe and sult, “all firms working officially have to greater than any other nation on earth. carry the weight of the informal economy At present, though, this wealth is simply through heavy taxation in addition to a dream. The country is per capita the non-official taxation.” This has adversely second poorest on earth, and still reeling affected the amount of money the Congofrom the Second Congolese War, the most lese government is able to spend on public deadly conflict since WWII, which finally services. “The Congolese government has ended in 2003. Part of the reason for this estimated the 2011 budget to be $7 billion. failure to match potential performance The problem is that this is not enough in a with actual results is the lack of a solid fi- country of 65 million inhabitants. It only nancial architecture. represents approximately $10 per person,” The blame for this lies with the says the Belgian official. “If an employee Congo’s colonial past. While the British earns $75 a month, they will not want to and French left a basic physical, legal, and open a bank account. Why? Because with constitutional infrastructure in their for- the cost of living in Kinshasa, they have mer fiefs—hence the foundations of mod- not enough to live by,” says Vidal. “As a ern African success stories such as Botswa- result, they cannot save a portion of their na, Morocco, and Tunisia—the Belgian salary. There is no point.” experience amounted to little more than Part of the difficulty of rectifywhat Joseph Conrad described in Heart of ing this problem is the heavy dependence Darkness as, “the vilest scramble for loot on cash, which makes transactions hard to that ever disfigured the history of human measure. Only 0.6 per cent of the populaconscience.” With no sound banking in- tion of the Congo have bank accounts, and frastructure in place, the Congo has always the lack of ATM’s outside of secure facilibeen a frontier too far for modern banking, ties makes accessing funds difficult. Baruh and thus has fallen behind through lack of Avzaradel, a local employer in the car parts the credit and payment facilities. business, believes that the problem lies in This lack of a proper banking the banking infrastructure, not a lack of infrastructure is a major problem for Didi will on the part of employees. “By paying Vidal, an official at the Trust Merchant workers’ salaries through the banks, we

Despite official GDP growth of 6.1% in 2010, a Belgian official at the embassy in Kinshasa estimates that “80 to 90% of economic transactions are made in the black economy.” Bank, founded in 2004 and now one of will obviously have to pay for fees, which Congo’s largest banks. “In the period when are very high in Congolese banks,” he says. Mobutu was in power, people lost faith in “This is the reason why firms do not want to the banks,” she says. This was because “they pay wages through the banks. [We] would were totally corrupted for the state.” Slow- of course do so if the employee asks for it, ly, though, people are beginning to regain and pays himself for the bank account fees.” their trust, and an emerging middle class is This position is unlikely to find many takonce again gravitating towards structured ers in a nation where the average wage is finance as opposed to “carrying all their less than $40 a month. money, all of the time.” One prospective solution to this

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is prepaid debit cards, which would be cheaper to implement than full scale bank accounts and are currently used in Britain as a means of account management for those with poor credit records. Praxell is a business to business firm operating in the Congo which implements solutions such as closed-loop or prepaid cards that can be used within its network of terminals or for payment on mobile phones. Moshe Golomb, its founder, is optimistic about the prospects of such a system. Firms can now “give a disposable, anonymous card to their employee with the amount of their salary” thereby reducing expenditure on banking fees and accommodating employees who do not have an independently established a bank account. Another hindrance to business transactions is that fact that the Cong uses both the US Dollar and the local CDF interchangeably. Golomb says that her company has found a solution which they call “multi-buckets.” It “would enable the user to choose whether he wants to pay in CDF or USD.” Changing local behavior is also problematic. Because of the novelty of the banks and a mistrust of public institutions, Katende points out that “employees tend to withdraw all their money at once,” giving banks little room to lend and provide liquidity to the economy. An alternative to prepaid cards that does sit so well with the Congolese is the use of mobile phones as a payment mechanism. Golomb explains that “the options are you either send an SMS to the retailer with the payment and he receives the payment at the end of the day, [or you] have a card associated with the phone which can be used to withdraw money from an ATM.” Money could be loaded onto telephones in the same way as credit top-ups usually work, but would be usable for other transactions. A remarkably similar system already exists in the informal economy. According to Katende, “Because access to different parts of the country is so difficult and [many people] do not own a bank account, the one that pays buys phone credit and sends it to the other person who sells it on for cash to someone else.” Such a system might even encourage a degree of fiscal rectitude presently lacking in the Congo, the Belgian official believes. At present, even high earning

NEW ROUTES THROUGH CAPITALISM

Congolese manage their money using “the ASAP method, which means they spend what they have.” Vidal believes that such discussions are premature, and cash will remain king until the corporate landscape in the Congo is more accepting of alternative payment methods. “One of the problems here is that all the population has to pay for its water, electricity, etc. in cash unlike in Europe,” she says. She adds that “there is a firm which already tried to launch [a phone payment] system, but it failed because firms in general felt it would be too complicated to pay [employees].” What the idea does have is the advantage of an existing infrastructure. The problem with implementing a traditional system of bank accounts is that the bank infrastructure does not exist. Katende believes that the mistrust of electronic savings will diminish in the same way that the middle class eventually took to bank accounts. “People that started to use this technology were checking their account three or four times a day to make sure the money was still there. But once trust is built, the process is done.” For any of these plans to be successful, the physical infrastructure must be present. The twin problems of Congolese cashpoints is their particularity and their irregularity. “Today there is a problem in the homogeneity of banks,” says Avzaradel. Banks might accept international marques such as Visa or MasterCard, but do not allow withdrawals from other Congolese banks in their branches. “We do not have an organization, such as Bank SIS in Belgium, that centralizes all transactions.” This means that one needs a bank whose branch network matches one’s personal movements, which is the second problem identified by the Belgian official. “The main problem is lack of infrastructure. Card payment terminals and ATMs can only be found in very few places,” she says. “ATMs are only available in banks which means going through security, which takes time and is inconvenient.” Vidal believes that over time ATMs are likely to make more of an appearance in the Congolese main street. “Other banks do offer ATMs in public places such as hotels and hospitals that are used by the middle and upper class,” she says. Eventually, “in the medium to long

term, this is something that will change.” However, even if ATMs appear and help facilitate withdrawals from telephones or pre-paid cards, there is still a concern that the public will not understand them. Saloman Soulam, manager of the department store Hasson & Frère, says that, “in front of our shop we have an ATM, but it seems obvious that people do not know how to use it.” Even if these formidable obsta-

wage to employees. Again, this exacerbates existing problems with poverty and inequality. “Certainly firms that abide by the norms of the minimum wage are rare,” says Avzaradel. With a per capita annual income of $189 and agriculture accounting for 42.5 per cent of GDP last year, one could argue that the Congo does not need a more sophisticated banking system. The problem is that it is as much the constraints of

Only 0.6% of the population of the Congo has bank accounts, and the lack of ATM’s outside of secure facilities makes accessing funds difficult. cles are met, the cultural changes still needs the existing system as the structure of the to be made. While the cash economy in economy that contribute to the present the Congo derives from well documented state. Without a functioning system for historical reasons as well as present poverty, monitoring and auditing payments, as well the culture of secrecy regarding financial as a system for electronic transfers, then transactions must be transformed going the weaknesses which plague the existing forward. “We still have one major problem, system are insoluble. This is a Congolese which is the fact that in many firms, the problem, not an African one. CongoBrazwage of employees is not fully declared or zaville, whose capital sits across the river not declared at all,” says Vidal. This helps from Kinshasa, has encouraged the uptake the employee and employer avoid tax ob- of bank accounts by insisting that governligations, but such rampant tax evasion is ment employees receive their wage into not sustainable in a sophisticated market an account. As a result, habits are differeconomy which needs well-funded gov- ent. The result is a more balanced, stable ernment supervision. Transparency feeds economy, with GDP per capita nearly into wider societal problems. A society in twice that of its neighbor. Vidal believes which payments are shrouded in mystery the problem is not one of bureaucracy, but and are made sporadically in cash, rather instead one of inaction on the part of the than regularly by debit, is one in which government. Accounts are easy to establish, reckless and amoral behavior proliferates. Vidal points out. All you need is “an ID The problem with cash is that, “at every lev- card, two pictures, and to fill in a form — el, the money disappears,” says the Belgian that’s it.” There is no obvious reason, given official. With the army, in particular, this a good spread of banks and a number of leads to gross abuses. “The military only employees on the public payroll, why the has a small proportion of what it is sup- government could not institute a similar posed to have. This is a problem as it push- program to the one in CongoBrazzaville. es the military to steal, and ultimately, as The magnitude of the Congo’s problems is a result, it tends to rape.” In a system with matched by the magnitude of its potential. an audit trail through the banks, such cor- In order to recognize that potential, howruption can be found and eliminated easily. ever, it must find not only a workable payIf cash must be physically transported be- ment and monitoring mechanism, but also tween locations, then the opportunity for the collective will to bring about a change larceny increases. Likewise, firms at present in cultural attitudes towards banking. The are able to simply ignore legislation which road will be tough, but the potential rewould require them to pay a minimum wards are staggering. "(

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*+/$*'0)11 !"#$%&$'()*$+(*$,-./ Nearly 50 years, $2.5 billion in annual sales and more than 2.2 million ladies in pink later, Mary Kay Inc. is what some would say – bringing back the true spirit of America. The economy may be in recovery, but for Mary Kay, providing a limitless business opportunity is making each woman, and the occasional man, some serious profits. In 1963 Mary Kay Ash, with the help of her son and nine of her friends, unsuspectingly founded a cosmetics empire that would forever change the concept of the modern day entrepreneur. Fast forward almost 50 years and you’ll see the countless number of lives transformed in nearly 40 countries around the world. From its humble beginnings in a 500 square foot store front to today’s global cosmetic empire, this is the story through the eyes of the man currently leading Mary Kay Inc. That’s right. A company founded for women and by a woman to enrich the lives of women around the world is led by a man. With an eye on growing the company young, international ,and tech savvy, let’s meet David Holl, the CEO of Mary Kay Inc. Business Today: David, let’s ask the most obvious of questions: you’re a man leading a company for women. How does that work?

of touch points for our brand. Some of our largest markets internationally are China, Russia and Mexico and in fact, in the next year or so, we will probably see China surDavid Holl: (Laughs) This is a familiar pass the United States as our largest market. question and one that I get quite often. The We also see great growth potential in Brashort answer is that my wife and I have been zil – it’s by far our fastest growing market. blessed with three daughters, so it was fate. In order to accelerate the growth, we are But it’s pretty simple, actually. One of the customizing certain products for different biggest reasons that Mary Kay Ash decided markets. For example, we are known for our to start Mary Kay was because she had hit skin care and color products in the U.S., but the glass ceiling in her own career. She was have found that we needed to expand our a woman in a man’s world. Her entire pro- fragrance market for Brazil and Mexico. We fessional career she had been very success- are also providing more tools to our global ful, trained her male counterparts and then sales force to make managing their business watched them get the promotion. So she and selling our products easier. We have a founded what she called a dream company, virtual makeover online (also soon to be where there is no glass ceiling and where available as an iPhone, iPad or Android app), your success is up to you and how hard you where women can upload their own picture want to work. That being said, I think that and try different looks using our products. woman or man, she would have never put It is our most visited site on marykay.com. someone in a job based on their gender. We’ve also enhanced our online order capabilities for our sales force and 98% of all BT: I think that most people would consid- product orders are now done online. We er the economy to still be “recovering,” yet want our consultants to be “high tech” in Mary Kay is thriving. What do you think is addition to being “high touch” with their your secret to success? customers. Technology helps consultants be more efficient and frees them up to being DH: Hands down, it’s our sales force. A able to provide the best service possible and close second would be our diversification meet the differing needs of their customer. internationally. There are more than 2.2 million people around the world in almost BT: Who is Mary Kay’s target demograph40 countries selling our products. That’s a lot ic?

DH: Well, really anyone who is interested in a business opportunity or buying skin care and color cosmetics. Someone can start their own Mary Kay business by purchasing a starter kit for $100. That kit contains everything they need to start their own business. You purchase your products directly from the company and, on the corporate side, there are corporate employees there to support you – but, as a member of the sales

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NEW ROUTES THROUGH CAPITALISM

force you are not a Mary Kay employee. You Mary Kay is a “green company?” dillacs are reserved for the most important are an independent contractor or as we call it people at Mary Kay – our sales force. As at Mary Kay, an independent beauty consul- DH: I would say that like most companies, the story goes, in 1969 when Mary Kay Ash tant. It’s been interesting because what we’ve we aren’t perfect and we are trying to be had achieved a particular level of success she seen women of all ages and backgrounds more green. But we do have a concerted went to the Cadillac dealership here in Dalfind this business opportunity appealing. effort in this area called Pink Doing Green. las and wanted to buy a new car. She pulled But in particular, we are seeing more milen- Our global manufacturing facility in Dallas her Mary Kay pink compact out of her purse nials starting their own Mary Kay business. just celebrated accomplishing zero landfill and said, I want that car in this color. So We hear stories of women who started their site status and we use “bio peanut” (made they painted the car. Well as you can imagbusiness to earn $50 a week. And then on from renewable corn and starch) in all of ine, our sales force went nuts. Mary Kay has the other end of that spectrum we have our shipping. They are 100% biodegradable. always been known for fantastic rewards several sales force members who are at the We also have a recycling program where, for and incentives for our sales force, so we call pinnacle of success in the company and are every 10 flip top caps or color refill cases re- the Cadillac a trophy on wheels. When you millionaires. On the product side, Mary turned to the company, we will plant a tree see someone driving a pink Cadillac, you Kay produces skin care and color cosmetics through our partnership with the Arbor know that they are very successful! that appeals to women and men of all ages. Day Foundation. By the end of this year, From anti-aging products to the latest inno- Mary Kay will have donated 400,000 trees BT: What advice would you give to college vation in color, there are Mary Kay products as a result of our recycling programs. students today? for everyone. Our most recent endeavor is a botanical line made with the environment BT: Ok, we have to know, what’s with the DH: Let your decisions make your life, not in mind. Pink Cadillac? Do you drive one? your life make your decisions. Meaning, don’t let life come at you. Make your life BT: That’s interesting. Would you say that DH: (Laughs) Actually no I don’t, Pink Ca- what you want it to be. Too many people just roll with the punches versus actively planning their future. !(

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NEW ROUTES THROUGH CAPITALISM

Do What You Can’t Not Do

by Jed James

Jed James is the co-founder of Nisolo Shoes and maintains a blog on entrepreneurship. He graduated from The University of Mississippi in 2010. Sometimes when you are lost, there be easy for Jon to become discouraged and themselves the chance to find true fulfillis no better way to grab inspiration than give up on the industry as a whole, but to ment. Life is about choices, and you have by picking up a book. That’s what I did a Jon that simply was not a factor. Jon knew to choose whether you will set your sights few weeks ago when I found Uncertainty that if he gave up today, he risked missing on your true goals or if you will make conby Jonathan Fields. Yes, I just felt you out on the huge opportunity that might cessions in your life. cringe….and no, this is not a book review. await him tomorrow morning. Jon took If you take anything from this article, I do, however, want to point out the title a calculated risk, because he knew the the two words I want you to take with you of a chapter in his book, one that spoke to upside of fulfilling his dreams and aspira- are passion and persistence. With these me in a way that few ever do: “Do What tions completely outweighed the risks that two qualities, everything that leads to You Can’t Not Do.” This phrase, to me, is he would never get his big break. He de- happiness in your life will come within one that every person could apply to his cided that in order for his life to be worth reach. Work can sometimes be tough, esor her life, whether it is within your ca- something, he had to work as hard as he pecially if you are sitting in a cubicle all reer or just with a side project. We worry could to reach his goals. day. It is important, no matter where you so much about our career paths and how Doug Stanford currently works as our actions today are going to affect our an analyst for a boutique investment firm. future. With every new idea comes goals, After a few years of working in the corsome that you know you can reach and porate world, he finds that he prefers the some that are more of a stretch. But the solitude of writing so much more than goals you set will be the driving force as the fast-paced investment banker lifeto whether you begin to work on your style. He knows he can’t just quit his job dreams or let these ideas sit in the back of to start writing full-time, but he wants your mind. to begin writing and learning as much Working towards your goals is of the as he can. What does he do? He starts a utmost importance for any job, especially blog. He started this blog so that he could if it is a job you are passionate about. We one day captivate an audience of a milhave such short-sighted viewpoints that lion readers that would hinge their lives we sometimes forget all about the larger on what he had to say. He wrote well, he goals for why we started a venture, proj- worked long hours, and he found intriguect, or job. It is so easy to allow the daily ing pieces. However, after a month of puttribulations to consume our lives. These ting his nights and weekends toward this goals, or even the fear of failure to reach blog, Doug only averaged 120 readers per work, to find something that you are pasthese goals, can lead people to overcome day and no one was posting comments on sionate about. If you are lacking in pasincredible obstacles and to persist through his articles. Most people would have given sion, sit down and evaluate your situation. devastating trials in order to one day stand up the ambitious dream of having a mil- What steps will you need to take in order at the pinnacle of their dreams. lion readers and would have just focused to fix your situation? It may involve quitJon Richards, an aspiring filmmaker, on writing for their core group of friends. ting your job and becoming an entreprehas just graduated from one of the top pro- In fact, most blogs are like that. Not Doug. neur. It may mean you have to move to a duction schools in the country. His dream He knew that success did not come over- new city. It may mean it’s time to build is to one day be standing at the micro- night. Success comes through hard work, a shed in your backyard so you can start phone accepting an Oscar for production determination, persistence, and passion, building birdhouses. It may mean that it’s of a major motion picture. This sounds and with each post he is coming that much time to get up and run that marathon or like a dream that many people have had, closer to achieving his goal. 5k. The most important thing is that you right? After around five years of grueling One thing that Jon and Doug had are doing something that you care about. grunt work behind the camera, Jon still in common is that they both set a goal Set your goals, and start working towards hasn’t had his big break. Actually, the for their life and knew that they could them. It may take a while to get where you most prestigious job he has held in the past not afford to not work every day towards want, but if you pick something you are exfive years has been working as a personal accomplishing that goal. They both also tremely passionate about, it will be worth assistant to the director of a film that won knew that had they given up when times it in the end. Do what you can’t not do and awards at the Sundance Festival. It would were hard, they would not have given don’t look back. BT !!"#$%&'()*('"#$%&'$$!()*+,

69

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