Shake the World
I reviewed James Marshall Reilly’s Shake the World for today’s FT. It’s a good New Year pick-me-up for anyone, entrepreneurs or not.
Dec 22
Bankers and maths
I just wrote this for the Notting Hill Editions in London. I argue that technology has introduced a deceptive ease to finance, which trips up those who don’t understand the complex maths, but creates a vast opportunity for those who do. Merry Christmas.
Sep 29
Reading list for entrepreneurs
I’m often asked what to read in the business literature.
At least as regards entrepreneurship, Tom Eisenmann of Harvard Business School has done a good bit of the heavy lifting with this very comprehensive and up to date list.
Eisenmann and Eric Ries are breathing life into HBS’s entrepreneurship teaching.
And I say that without the slightest hint of cynicism.
Columbia updates disclosure requirements
Delighted to find that Columbia’s business school refreshed its disclosure requirements for faculty with outside interests this past July. Those who fail to fulfill them will be “subject to sanctions as judged appropriate by the Dean.” The same Dean, Glenn Hubbard, whose dismal performance in Inside job, I suspect, prompted the review in the first place.
UBS’ Rogue Trader
When Jerome Kerviel was charged with losing 5 billion Euros at SocGen, I wrote about his case in The Sunday Times of London. My conclusion was that there was no way he could have acted without some level of management consent, even if it were just tacit.
My suspicion is that in these cases, a huge loss is preceded by a huge gain. The gain is quietly accepted, but the loss produces a panic and all the blame is foisted on one individual, often at a very low level in the organization. Kerviel at SocGen, Fabrice Tourre at Goldman Sachs and now Kweku Adoboli at UBS.
Carsten Kengeter, the head of UBS’ investment bank, has spent his professional life in derivatives. Earnings at the bank have been poor for some time now. Many jobs were on the line. My guess is that in an effort to boost them, short-cuts were taken which led to excessively risky trading.
It worked well for a while, but in the kind of volatile markets we have seen in recent months, there was a sudden drop. A few hundred million can be made back. Once you get to $2 billion, you have to call in the authorities, before anyone finds out what’s going on.
Kerviel said something along these lines in his own defence, but wasn’t believed. Adoboli may be taking a similar fall.
Mar 29
Inside Job and b-school disclosure
Finally got to see Inside Job, Charles Ferguson’s documentary about the financial crisis. It’s terrific and should be on the curriculum at every business school.
The final 20 minutes or so are devoted to the failures of academic economists to predict the crisis, or even come down on the banks afterwards. Ferguson, rightly I believe, attributes this to the economists’ eagerness to receive consulting gigs with banks. His interview with Glenn Hubbard, Dean of Columbia Business School is devastating. Here’s where Hubbard goes from Jekyll to Hyde.
It seems so obvious that economists and business school professors should have to disclose their consulting arrangements. I cannot see a single, reasonable argument for them not to. If our economic health really does depend on their ideas, and much of it does, then we deserve to know what goes into shaping them. If they wish management to be treated as a profession, then they should abide by the codes of doctors and lawyers in disclosing any potential conflicts of interest.
Which brings me to Michael Porter and Libya. I’m a great fan of Porter’s work generally - though his most recent HBR cover wasn’t so hot – and his history advising Libya doesn’t change that. I’m sure part of him wishes he had never taken up the invitation from Gadaffi and his son. But his work is in helping countries which could use his advice. These tend to be places with serious problems of every kind. As long as he’s open about this, which he was, then I see no problem.
Grave dancers and Optimists
Niall Ferguson on Start the Week yesterday grave dancing about the demise of the US and Western Europe and the rise of Asia. All familiar stuff. I guess a historian’s job is to interpret rather than suggest solutions. But is Ferguson so popular with hedge funds and banks – he’s a consultant at GLG – because he appeals to those whose lives and capital are completely mobile? They can easily modify their behavior based on what Ferguson and the other prophets of Western decline say. What is anyone else to do with this endless doom-mongering?
Fortunately I also read this wonderful piece in the NY Times about the rise of local manufacturing in certain American cities. It offers an interesting challenge to the obsession with scale growth companies and the rise of new mass markets in Asia. Could a very different force also be at work – a return to small companies which offer mass customization? We see great scale opportunities for pure tech plays, Twitter, Facebook etc. but also the rise of many more niche businesses which can take advantage of plummeting technology, manufacturing and marketing costs.
End of stocks
An excellent oped in the NYTimes today by Felix Salmon of Reuters makes the point that public stock markets are becoming increasingly irrelevant. Young companies don’t need them – see Facebook and Twitter – established companies don’t need them for capital-raising – see Apple’s vast pile of cash – and the consolidation between exchanges is more about acquiring profitable derivatives trading operations. So why are so many ordinary investors still being encouraged to invest in publicly listed stocks?
It’s also worth noting the effect of ETF trading in vastly increasing the volatility of stock prices – making life miserable for the managers of companies whose stocks end up in these ETF indices and dissuading companies from going public.
HBS MBA class of ’93 avoids jail…just
A gloating friend emailed me this from The New York Daily News. Llewellyn Connolly, HBS class of 1993, pleads guilty to tax fraud. Saying he was living in London while living in New York. Pays millions of dollars in fines and has to spend 300 hours tutoring prison inmates. Gothamist notes Connolly appeared in the latest HBS Alumni magazine and includes this photo:
I fished out my December issue to find this entry for Section A, class of 1993: “For another first, we received word from Llewellyn Connolly who writes: “Not sure I have ever written in. I started a new hedge fund in March: Eumaeus Asset Mgt. (Eumaeus was the shepherd for Odysseus, the keeper of his wealth.) Most important, I have been spending a lot of time in the last few years mountaineering and snowboarding, mostly in Alaska and South America.”
I wonder if that last line was a coded message to the IRS. “Not in New York, see????”
Eumaeus was launched in March 2010 and by July had $26 million in Assets Under Management. Eumaeus was in fact Odysseus’ swineherd rather than his shepherd. He is a model of simplicity, honesty and integrity, the very opposite of Penelope’s suitors who consumed Odysseus’ wealth in the expectation he would never return from Troy.
