I was greedy,too

Americans are outraged at the greediness of Wall Street analysts, dot-com entrepreneurs, and, most of all, chief executive officers. How could Tyco's Dennis Kozlowski use company funds to throw his wife a million-dollar birthday bash on an Italian island? How could Enron's Ken Lay sell thousands of shares of his company's once high-flying stock just before it crashed, leaving employees with nothing? Even America's most popular domestic guru, Martha Stewart, is suspected of having her hand in the cookie jar. To some extent, our outrage may be justified, writes HBR senior editor Diane Coutu. And yet, it's easy to forget that just a couple years ago these same people were lauded as heroes. Many Americans wanted nothing more, in fact, than to emulate them, to share in their fortunes. Indeed, we spent an enormous amount of time talking and thinking about double-digit returns, IPOs, day trading, and stock options. It could easily be argued that it was public indulgence in corporate money lust that largely created the mess we're now in. It's time to take a hard look at greed, both in its general form and in its peculiarly American incarnation, says Coutu. If Federal Reserve Board chairman Alan Greenspan was correct in telling Congress that "infectious greed" contaminated U.S. business, then we need to try to understand its causes--and how the average American may have contributed to it. Why did so many of us fall prey to greed? With a deep, almost reflexive trust in the free market, are Americans somehow greedier than other peoples? And as we look at the wreckage from the 1990s, can we be sure it won't happen again?     

The development of standard costing at SaintGobain, 1920-60: forty years of quarantine?

Standard costing, conceived in the first two decades of the twentieth century in the United States, became widespread in American literature and enterprises between the two World Wars but was not introduced at Saint-Gobain until around 1960. This article investigates the circumstances behind the forty-year period separating the availability of the technique and its application in a significant French company. The time lag required by the French accounting profession to adopt the technique is put forward as the primary, though not the only, cause of this delay.     

'Nonprofits' need surplus too

By definition profit refers to the difference between revenue and expenses. In for-profit organizations profit or surplus gives a return to the owners of the company and serves as a source of financing for capital acquisitions and working capital. Nonprofit organizations, which are not allowed a surplus, don't suffer on the first count because they have no owners. But they do suffer on the second count because, if expected to grow, they need to finance asset replacement and growth. In these days when funds for long-term debt are becoming scarcer, this author asserts, the need for regulators to allow 'nonprofits' to keep a surplus is increasing. In this article, he argues for a surplus and then discusses how managers and regulators can determine how much a nonprofit organization should be allowed. He presents a combination of a modified version of the return-on-asset pricing model used in for-profit organizations and a model for assessing working capital needs associated with growth.     

Your alliances are too stable

A 2004 McKinsey survey of more than 30 companies reveals that at least 70% of them have major alliances that are underperforming and in need of restructuring. Moreover, JVs that broaden or otherwise adjust their scope have a 79% success rate, versus 33% for ventures that remain essentially unchanged. Yet most firms don't routinely evaluate the need to overhaul their alliances or intervene to correct performance problems. That means corporations are missing huge opportunities: By revamping just one large alliance, a company can generate 100 million dololars to 300 million dollars in extra income a year. Here's how to unlock more value from alliances: (1) Launch the process. Don't wait until your venture is in the middle of a crisis; regularly scan your major alliances to determine which need restructuring. Once you've targeted one, designate a restructuring team and find a senior sponsor to push the process along. Then delineate the scope of the team's work. (2) Diagnose performance. Evaluate the venture on the following performance dimensions: ownership and financials, strategy, operations, governance, and organization and talent. Identify the root causes of the venture's problems, not just the symptoms, and estimate how much each problem is costing the company. (3) Generate restructuring options. Based on the diagnosis, decide whether to fix, grow, or exit the alliance. Assuming the answer is fix or grow, determine whether fundamental or incremental changes are needed, using the five performance dimensions above as a framework. Then assemble three or four packages of restructuring options, test them with shareholders, and gain parents' approval. (4) Execute the changes. Embark on a widespread and consistent communication effort, building support among executives in the JV and the parent companies. So the process stays on track, assign accountability to certain groups or individuals.     

Corporate governance and regulation: Can there be too much of a good thing?

We investigate how company-level corporate governance practices and country-level legal investor protection jointly affect company performance. We find that in any legal regime there are a few specific governance practices that improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices. Our analysis suggests a threshold level of country development above which stringent regulation hurts the performance of well governed companies or has a neutral effect for poorly governed companies.     

Analysis of business failures in France

In the present economic situation, business failures are a matter of major concern to government and business alike. The current period of slow growth in France, and the rigidity of its productive system make it more important than ever to act to insure the survival of its industrial fabric. This necessity has found recognition in the fact that the French Parliament is now discussing a Government bill designed to head off business failures by means of a series of early-warning signals. Under this bill, the company auditors' obligation is widened to include the duty to report to the company any factor liable to compromise the continued operation of that firm. The context within which the Banque de France's ‘Centrale de Bilans’¹ is currently pursuing its work favors the development of a discriminant function capable of detecting symptoms of business failure at the earliest possible opportunity. This work has been facilitated, and usefully guided, by Altman's pioneering research in this field since 1968, as well as by the work of Blum, Deakin, Edmister and Taffler, to rite just a few names from the Anglo-Saxon world. In France, the most recent research has been initiated by the CESA [Altman et al. (1974)] and pursued by Collongues, Sulzer, Conan and Holder, as well as by certain banks. But in this last case applications have remained strictly limited.     

Musings on management. Ten ideas designed to rile everyone who cares about management

Henry Mintzberg, a professor of management at McGill University in Canada and at INSEAD in France, takes aim at the hype surrounding management fads and gurus and dares to suggest that the emperor has no clothes. In order to rile all who care about management and get them thinking creatively, he presents ten contrarian observations on such topics as the meanness of leanness, the folly of CEOs who fancy themselves strategists, the disempowering that so-called empowerment creates, the myopia of purely financial measures, and the inadequacy of M.B.A. programs. Mintzberg maintains, for example, that it is time to delayer the delayerers. He argues that delayering has created more problems than it has solved be cause it is, in essence, a process by which people who barely know what's going on get rid of those who do--a process ensuring that the real database of the organization, the key to what was its future, lines up at the unemployment office. Too many managers, he says, dream of becoming the next turnaround doctor. They fail to understand that great organizations, once created, don't need great leaders: if a company can't function on its own, a hero won't help. A leader who draws out the knowledge embedded in all parts of an organization is a leader who can help a company function alone--without heroes. Such leaders often practice what Mintzberg calls the craft style of management (as opposed to the professional style or the boss style). It is about inspiring, not empowering. It is based on mutual respect rooted in common experience and offers hope for improving what is now wrong with management.     

The availability of information and the accumulation of experience as motors for the diffusion of budgetary control: the French experience from the 1920s to the 1960s

Budgetary control has developed in France since the 1930s. If the initial importation from the United States was rapid, subsequent development was slow. Diffusion of the technique occurred through a number of mechanisms: professional reviews, books, consultants, think tanks, and through experiences originating in the public sector. The particular experiences of other organizations often served as reference points. In comparison with other European countries, the awareness of budgetary control in France was high, but the method was practised in only a few enterprises. The common link for these firms was their interconnection via an information network which ensured the promotion of this new management technique. The supply of information seems to have been a more important factor in the development process than the search for a rational solution to business problems.     

From collective learning to Silicon Valley replication: The limits to synergistic entrepreneurship in Sophia Antipolis

Taking Silicon Valley as a “Weberian ideal type” of high-tech development, one can derive 10 key characteristics which together can be used to measure to what extent other regions of the world have been able to duplicate this “hot spot” of economic transformation. Comparisons of such synergistic entrepreneurship are illustrated by the case of Sophia Antipolis in France, characterized by initial large company involvement, a utopian environmental design by Pierre Laffitte and the process of high-tech innovation among small and medium-sized companies, particularly in the telecommunication sector.     

The stock market speaks: How Dr. Alchian learned to build the bomb

At RAND in 1954, Armen A. Alchian conducted the world's first event study to infer the fuel material used in the manufacturing of the newly-developed hydrogen bomb. Successfully identifying lithium as the fusion fuel using only publicly available financial data, the paper was seen as a threat to national security and was immediately confiscated and destroyed. The bomb's construction being secret at the time but having since been partially declassified, the nuclear tests of the early 1950s provide an opportunity to observe market efficiency through the dissemination of private information as it becomes public. I replicate Alchian's event study of capital market reactions to the Operation Castle series of nuclear detonations in the Marshall Islands, beginning with the Bravo shot on March 1, 1954 at Bikini Atoll which remains the largest nuclear detonation in US history, confirming Alchian's results. The Operation Castle tests pioneered the use of lithium deuteride dry fuel which paved the way for the development of high yield nuclear weapons deliverable by aircraft. I find significant upward movement in the price of Lithium Corp. relative to the other corporations and to DJIA in March 1954; within three weeks of Castle Bravo the stock was up 48% before settling down to a monthly return of 28% despite secrecy, scientific uncertainty, and public confusion surrounding the test; the company saw a return of 461% for the year.