GWSB Research Report

GWSB Research Spring 2013

The George Washington University School of Business

THE BRAVE NEW WORLD OF

CYBERSECURITY

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for information systems – the people in charge of protecting their organizations from cyber attacks,” said James Bailey, Hochberg Professorial Fellow of Leadership.

“The WEMBA in Cybersecurity is serving a demand and a niche that is not being filled by others,” said Frank Cilluffo, director of GW’s Homeland Security Policy Institute. “We are bridging the gap for executives, teaching them what they need to know so they can make informed, valuable decisions – without having to become programmers.We are also helping tech experts take advantage of new executive opportunities.”

One of the most cutting-edge aspects of the new program is the overseas residency at the NATO Cooperative Cyber Defence Centre of Excellence in Tallinn, Estonia. Cilluffo explained that Estonia is literally and figuratively on the front lines of Cyber Threats to the U.S. Homeland: cybersecurity. The tiny former Soviet-occupied Examples of Potential Triggers for Escalation nation on the Baltic has “gone all-in” on cyber technology – everything is online, from national russia IDs to health records to banking. Estonia was russia ChiNa ChiNa also the victim of the first documented statesponsored cyber attack when Russia targeted it for a distributed denial of service attack in 2007.

Especially vulnerable to cyber threats, Estonia iraN is particularly attuned to the need for state-ofthe-art cybersecurity. “Estonian first graders are iraN taught computer coding,” said Cilluffo.

According to Cilluffo, who recently testified on cyber threats from China, Russia, and N.Korea Iran before the U.S. House Subcommittee on N.Korea Cybersecurity, Infrastructure Protection and Security Technologies, “This can’t be looked at as a traditional national security issue – what’s Computer Network Exploitation (CNE) at stake is our national security and our Computer Network Attack (CNA) economic security.” he new World Executive MBA in Cybersecurity,

capabIlIty

a joint venture of GWSB and the Cyber Center for National and Economic Security (housed in GW’s Homeland Security Policy Institute), provides executives with the knowledge, tools, and experience to protect their organizations from potentially devastating computer-borne interference and disruption. Candidates learn from top academic experts and have the opportunity to work alongside cybersecurity practitioners as they research and adapt to the everchanging and evolving nature of threats in this new and in-demand field.

“This is a degree for executives who are leading cybersecurity initiatives in their organizations: senior vice presidents for security, senior vice presidents

Intent

Frank Cilluffo and James Bailey

Cilluffo added that the business side of the cybersecurity equation was equally as important as the national security aspect. “We’re working to promote better sharing between the public and private sectors on cybersecurity. Cyber technology is the engine that drives the world. We have to find the right balance between making the walls too high – hindering the vital sharing of information – and making them too low, which would leave us vulnerable to threats.”

Taking Advantage of the Federal Funding Flow Smart Financing for WATER PROJECTS

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Michael Curley

ater. Ensuring the delivery

of a plentiful supply of clean, potable water and providing for the safe, efficient removal of wastewater rank high among the necessities of civilization. According to Michael Curley, visiting assistant professor of strategic

management and public policy, inefficiencies in financing currently make it more difficult than it need be for states, municipalities, and localities to meet these basic obligations.

Adjustments made in the ’80s and ’90s to the disbursement procedures for congressional appropriations under the 1972 Clean Water Act changed federal aid to states for water projects from a grant program to a loan program. Curley, a former banker with government service experience, including more than 20 years on the U.S. Environmental Protection Agency’s Environmental Financial Advisory Board, says that the changes have created a “methodology of finance issue” because states are not effectively leveraging available federal funding to deliver it to counties, cities, and water

and sewer districts for needed projects.

(In “The Gold Mine,” a 2012 article he wrote for The Environmental Forum, Curley argued that the EPA’s Clean Water State Revolving Fund, if properly structured, could finance nearly $3 trillion in projects.)

Curley, an expert on the topic and author of The Handbook of Project Finance for Water and Wastewater Systems, says that proper financing would allow states to maximize the impact of available federal funds to complete needed projects while easing the burden on taxpayers. “We have enough money,” he said. “There shouldn’t be anybody on the waiting list.” Curley explained how inefficient current state financing methods hinder projects. “Each state develops a project priority list,” he said. “For example, Maryland in 2012

had 129 projects on their project priority list and funded only 13. “If they didn’t use subsidized loans, but used marketrate loans and went from a direct loan, 20-year program to a 30-year guaranty program, they would have delivered environmental services – water and waste water projects – at a lower cost to taxpayers, and could have funded all 129 projects on the list.”

Curley has been busy sharing his research on this topic. He recently made a presentation to the Conservation Leadership Partnership detailing his argument. He said that a change in how states finance water and wastewater projects is “bound to happen,” as state legislatures come to understand that the numbers soundly trump the “this-is-theway-we’ve-always-done-it” excuse.

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Challenges in Corporate Governance First-hand Reports from Board Members

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WSB’s Institute for Corporate Responsibility’s Challenges in Corporate Governance project examines the issue of what policies are associated with good corporate governance, and promotes dialogue on how those policies are translated into practice.The project is co-directed by John Forrer, associate research professor and director of the ICR Governance Program, and Cynthia Glassman, ICR senior research scholar.

Over the course of the past three years, the project has hosted a series of panel discussions on key governance issues, including diversity, executive compensation, and social policy requirements. “We started the program at a time when people were starting to question the ability of corporations to govern themselves,” Forrer said.

The project has relied on panelist presentations as primary-source research in examining how their personal, realworld experiences compare to accepted practices and procedures. Forrer said he expected the panels to form the basis of additional research on corporate board governance issues.

The project recently presented its fifth program, a panel discussion on the role of corporate directors in planning for CEO succession, which is, according to Forrer, one of the most critical responsibilities of board members.

The panelists were: Julie Howard, CEO

of Navigant Consulting; Nels Olson of Korn/Ferry; and Anthony Santomero, former president of the Federal Reserve Bank of Philadelphia and the Richard K. Mellon Professor Emeritus of Finance at the Wharton School of Business.

Forrer gives considerable credit to his project co-director for the program’s success.

“Cynthia’s been great,” he said. “Her experience at the Federal Reserve Bank and as a commissioner at the Securities and Exchange Commission – and often being the only economist in a room full of lawyers – has given her a different set of perspectives. She has been instrumental is putting together top-quality panels, getting speakers with the right kind of experience, and has the willingness to be frank and open.”

Forrer said the Challenges in Corporate Governance project would continue to examine the increasingly complex issues confronting boards of directors, including how boards can best achieve the benefits of greater independence and diversity.

John Forrer

“The idea of independence and diversity makes sense,” he said, “but how do people sitting on a board make decisions that are going to accomplish these goals? GWSB’s new On the Board program ties in very well with what we’re looking at. Having more women on boards brings different points of view and different experiences that challenge an all-male board’s old-boynetwork culture.”

Cynthia Glassman

Growth Critical to

Economic Recovery

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bonds for public projects such as bridges, tunnels, and high-speed rail construction.

“There are plenty of bankable infrastructure projects in the U.S. that the private sector and

he Growth Dialogue, the economic policy think tank housed at GWSB,

and the Initiative for Policy Dialogue recently co-hosted the roundtable on Growth, Jobs, and Distribution at Columbia University. The event brought together a number of key scholars and policy makers to examine issues still hindering full recovery from the global economic crisis of 2008-2009.

Danny Leipziger, professor of international business and founder and managing director of the Growth Dialogue, detailed a number of serious economic challenges confronting the U.S. and the world, among them: • Income Inequality: In 1978, the top one percent of the population commanded 7.8 percent of national income; in 2007, roughly 30 years later, it was 23.5 percent.

• Unemployment: “Coming out of this crisis there was a lot of job destruction; the rate at which jobs are being created is far lower than the rate at which they were destroyed,” Leipziger said.

• Increasing Indebtedness: The debt to GDP ratio is now above 100 percent.

With regard to the debt to GDP ratio, Leipziger said that stimulating growth is as important as controlling debt. “The debt ratio is a concern,” he said. “You don’t want to see debt stock – the numerator – rise, but you’d also like to work on the denominator, which is growth. The tricky part is how to provide some sort of fiscal impulse at a time when consumers are not spending and businesses are not investing. There is only one other component of what we call aggregate demand—namely, government spending.

“There are government expenditures that would help growth and pay for themselves,” Leipziger said. “My favorite example is the National Infrastructure Bank, which is a proposal that’s been in Congress for more than a decade.” The proposal calls for the creation of an authority that would issue low-interest, government-guaranteed

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“There are government expenditures that would help growth and pay for themselves.”

Danny Leipziger

state and local governments could undertake with a boost from the federal government.

The projects would pay for themselves through tolls and fees, and create demand, growth, and jobs.”

Proposals like the National Infrastructure Bank would require bipartisan cooperation in Congress, as would any serious efforts to promote economic growth and recovery.

“We need to both increase tax revenues by closing loopholes and limit spending, but it’s politically difficult,” Leipziger said. “There is a lack of economic and political consensus in the U.S.” Leipziger reiterated the importance of sustained recovery, noting that the Growth Dialogue was acutely aware of the need to stimulate and maintain economic growth in advanced, emerging and developing economies. “That task has become harder, however, and our policy prescriptions may need re-examination,” he added. “That’s what the work of the Growth Dialogue is all about.”

Recent Research JAMES BAILEY Hochberg Professorial Fellow of Leadership “The Iron Cage and the Monkey’s Paw: Isomorphism, Legitimacy, and the Perils of a Rising Journal,” Academy of Management Learning & Education

JENNIFER GRIFFIN Professor and Chairwoman, Strategic Management and Public Policy Department

SOYOUNG BOO Assistant Professor of Management

“Corporate Responsibility, Multinational Corporations, and Nation States,” Business and Politics (co-authored with Aseem Prakash, Walker Family Professor, College of Arts and Sciences, University of Washington)

WENJING DUAN Assistant Professor of Information Systems and Technology Management

WILLIAM C. HANDORF Professor of Finance

STUART LEVY Assistant Professor of Marketing

“The Cost of Bank Liquidity,” Journal of Banking Regulation

“An Analysis of One-Star Online Reviews and Responses in the Washington D.C. Lodging Market,” Cornell Hospitality Quarterly

SALAH S. HASSAN Professor of Marketing

KEITH WILLIAM DIENER Visiting Assistant Professor of Strategic Management and Public Policy • “The Charitable Responsibilities Model of Corporate Social Responsibility,” Journal of Academic and Business Ethics • “The Road to Discrimination: Implications of the Thought of F.A. Hayek for Equal Employment Law,” the Journal of Employment and Labor Law ERNIE ENGLANDER Associate Professor of Strategic Management and Public Policy Book contract with Stanford University Press for The Politics of Corporate Control: The Business Roundtable and the End of Managerial Ideology

Faculty Author Spotlight

“Examining World Market Segmentation and Brand Positioning Strategies,” in the Journal of Consumer Marketing (co-authored with Stephen Craft, GWSB, PhD, ’01, and Michael E. Stephens College of Business at the University of Montevallo in Alabama) SANJAY JAIN Associate Professor of Decision Sciences • “Supply Chain Environmental Performance Evaluation,” presented at the 6th annual conference of the Indian Subcontinent Region Decision Sciences Institute (ISDSI) held on the campus of ICFAI Business School in Hyderabad, India • “Supply Chain Carbon Footprint Tradeoffs Using Simulation” (coauthored with Bjorn Johansson,

A sampling of recent scholarly articles and research papers authored by GWSB faculty associate professor at the Chalmers University of Technology in Sweden and his PhD student, Erik Lindskog), at the 2012 Winter Simulation Conference CHRISTOPHER KAYES Associate Professor of Management • “Learning, Leadership and Crisis in Management Education: Learning from Army Officers” (co-authored with N. Allen and N. Self), presented at the Academy of Management annual meeting, Management Education and Development Division, in Boston • “Team Leadership Self-Assessment Exercise” (co-authored with M. Knott and A.B. Kayes), presented at the Organizational Behavior Teaching Conference in St. Catharines, Ontario, Canada MARK KLOCK Professor of Finance “Cooperation and Division: An Empirical Analysis of Voting Similarities and Differences during the Stable Rehnquist Court Era – 1994 to 2005,” presented at the Canadian Law and Economics Association meeting held at the University of Toronto MIGUEL LEJEUNE Assistant Professor of Decision Sciences

• “Pattern Definition of the p-Efficiency Concept,” Annals of Operations Research • “Game Theoretical Approach for Reliable Enhanced Indexation,” Decision Analysis • “Stochastic Portfolio Optimization with Proportional Transaction Costs: Convex Reformulations and Computational Experiments” (with T. Filomena), Operations Research Letters • “A Logical Analysis of Banks’ Financial Strength Ratings,” (with P.L. Hammer and A. Kogan), Expert Systems with Applications VANESSA G. PERRY Associate Professor and Chairwoman, Marketing Department • “Understanding the Fine Print: The Need for Effective Testing of Mandatory Mortgage Loan Disclosures,” the Journal of Public Policy and Marketing (co-authored with Pamela M. Blumenthal, U.S. Dept. of Housing and Urban Development) • “Shopping for a Home vs. a Loan: The Role of Cognitive Resource Depletion,” the International Journal of Consumer Studies (co-authored with J.D. Lee, GWSB doctoral candidate in marketing)

• “Pattern-Based Modeling and Solution of Probabilistically Constrained Optimization Problems,” Operations Research continued on page 4

Tim Fort

Tim Fort, Linder-Gambal Professor of Business Ethics and director of GWSB’s Institute for Corporate Responsibility, is under contract with Stanford University Press to write The Diplomat in the Corner Office: How Business Can Impact Peace.

Tell us about the book. What’s your main thesis?

The main theme is that ethical business behavior can reduce violence and constructively aid peace in the world.

That is not always the case; businesses can also sow the seeds of resentment and anger. But businesses often foster peace intentionally – the social entrepreneurs, for instance – and also by simply engaging in solid ethical business practices.

How did the idea of “peace through commerce” come about? What drew you to the concept?

For me, it came as I was getting tenure at the University of Michigan, and I wanted to take it seriously by risking something big – something that was worth failing at. As an ethicist, I had never been convinced that we had provided an adequate explanation for why a business should be ethical. I was finishing a book for Oxford University Press and found that the arguments I was making for how to build an ethical culture mapped pretty well in anthropological studies identifying the attributes of peaceful societies. That was the “aha” moment for me: Could

ethical business foster peace? If so, that would be interesting in its own right, and also an argument for why a business person should be ethical.

I looked around for literature, but I didn’t find much. It seemed there was quite a bit of open territory to write about how business people and business institutions might contribute. That grabbed me as something I wanted to spend 10 years (and now more) trying to figure out.

Tell us about the research you’ve done in examining the “peace through commerce” argument. Can you provide some historical (or recent) examples of “peace through commerce” in action?

I am a lawyer and a theologian. I couldn’t run a regression to save my soul. Rather than creating studies to test a hypothesis per se, I look at already existing data and see how they fit together, very much like a lawyer building a case. There is a lot of peace-building already going on. I am not asking CEOs to become Gandhi or Jesus (though I also wouldn’t object to that), but there is an argument for business contributing to peace that fits very well into the mainstream, especially if mindfully pursued.

As far as how this happens in practice, one could look at a non-profit at George Mason University that runs tours in Jerusalem with both Jewish and Muslim guides so tourists get (and get to see) both sides of that issue. Or one could look at a Secretary of State winner of the Award for Corporate Excellence, such as Ford Motor Company and its HIV awareness program for Tim Fort employees in South Africa as a way to build constructive diplomatic relations. Or one could go to Northern Ireland to see companies during “The Troubles” that hired half Protestants and half Catholics to work together and discover that the “other” has a face. Or, one could simply look at a company grounded in good ethics and recognize that what they do – being profitable, following the rule of law, treating employees well and being respectful of the community – models what peaceful societies do, even if the company doesn’t have a clue that what it is doing is peace-building.

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Engaging the World From the

Nation’s Capital

GWSB Research is published by The George Washington University School of Business Dean: Doug Guthrie Vice Dean of Faculty and Research: Sok-Hyon Kang Vice Dean of Programs and Education: Philip W. Wirtz

Recent Research

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Editor: Christine Patton Senior Writer: Dan Michaelis Design: Lloyd Greenberg Design, LLC For comments or suggestions contact us at: gwsbcomm@gwu.edu

About GWSB The George Washington University School of Business provides undergraduates, graduates and executives with a world-class business education. It is recognized globally as a leading academic institution, especially for international business programs.

Located in Washington, D.C., just steps from the World Bank, the International Monetary Fund, the State Department, the White House and the Securities and Exchange Commission, the School’s innovative programs emphasize ethics, sustainability and international business.

To learn more, visit: www.business.gwu.edu

JORGE RIVERA Associate Professor of Strategic Management and Public Policy

JORGE WALTER Associate Professor of Strategic Management and Public Policy

• Presented: “The Influence of Partner Selection and Organizational Control on the Corporate Environmental Responsibility of International Joint Ventures: Evidence from Trinidad and Tobago” (co-authored with Kalim Shah, York University, Toronto) at the 2012 Policy Sciences meeting in Canada

• “The Influence of Firm and Industry Characteristics on Returns from Technology Licensing Deals: Evidence from the U.S. Computer and Pharmaceutical Sectors” R&D Management

• “Environmental Regulations and Multinational Corporations’ Foreign Market Entry Investments” (co-authored with Chang Hoon Oh, Beedie School of Business, Simon Fraser University, British Columbia) • “Environmental Performance: Monitoring or Incentive Mechanisms?” (co-authored with Patricia Kanashiro, GWSB doctoral candidate in strategic management and public policy) and “Social Pressure and Innovation: Does Social Pressure Dilute the ‘Greenness’ of Innovative Efforts of Organizations?” (co-authored with Yooma Youm, GWSB doctoral candidate in strategic management and public policy), both at the Strategic Management Society Conference in Prague, Czech Republic

• “Decision-Making within and between Organizations: Rationality, Politics, and Alliance Performance” (co-authored with F.W. Kellermanns, University of Tennessee, and C. Lechner, University of St. Gallen, Switzerland), the Journal of Management • Presented “Relational Enhancement: How to Unlock the Value of Network Bridges” (co-authored by D.Z. Levin, Rutgers University, and R. Cross, University of Virginia) at the Strategic Management Society Conference in Prague, Czech Republic ROBERT J. WEINER Professor of International Business, Public Administration and Public Policy, and International Affairs “Who Bribes?: Evidence from the UN Oil-for-Food Program” (co-authored with Yujin Jeong, GWSB PhD, ’10), the Strategic Management Journal