Turn public problems to private account

Many managers face increasing calls to invest corporate resources in charitable causes. How should executives balance a firm's very real economic imperative to maximize profitability with its hypothetical moral imperative to improve society? To provide one answer, the author draws on his experience as president of an economic-development company, IBEC. Viewing profit as "an essential discipline and measure of economic success" but not "the sole corporate goal," the company actively invested in social programs that met four criteria: they served a need of the local population; they required innovative approaches; they made sense on economic grounds; and they respected the social norms of the community. Such civic-minded efforts, the author argues in this prescient 1971 article, not only improve people's lives but also create the foundation for more affluent and dynamic markets--markets that ultimately produce greater profits for business. For example, one of IBEC's earliest ventures was directed toward solving Venezuela's problems in retail food marketing. Many important items were unavailable at the small stores where people shopped. So in 1949, working with local partners, IBEC opened a supermarket. Supermarkets soon changed the food-buying habits of the nation, and the initiative helped alter patterns of food distribution and created the reliable demand needed to establish a host of local suppliers. Return on IBEC's investment, and that of its local partners, was most satisfactory, the author reports. The road to meeting a public need-especially a major one--is rarely easy, the author says. But if management sizes up the need well, there is a good chance its new venture will survive under adversity.     

论公司慈善捐赠中董事的忠实与勤勉义务

妥当定位公司慈善捐赠中董事的行为规则,是解决公司慈善捐赠活动中各种利益冲突的关键.客观上公司慈善捐赠会增进社会公共利益,但董事决策公司慈善捐赠的行为目标却应该与董事在公司治理中的职责相一致,即促进公司利益最大化.公司慈善捐赠中董事需对公司承担忠实义务和勤勉义务,以公司利益为自己的行为准则,竭力通过捐赠促进公司长期与短期利益的最大化.     

Creating corporate advantage

What differentiates truly great corporate strategies from the merely adequate? How can executives at the corporate level create tangible advantage for their businesses that makes the whole more than the sum of the parts? This article presents a comprehensive framework for value creation in the multibusiness company. It addresses the most fundamental questions of corporate strategy: What businesses should a company be in? How should it coordinate activities across businesses? What role should the corporate office play? How should the corporation measure and control performance? Through detailed case studies of Tyco International, Sharp, the Newell Company, and Saatchi and Saatchi, the authors demonstrate that the answers to all those questions are driven largely by the nature of a company's special resources--its assets, skills, and capabilities. These range along a continuum from the highly specialized at one end to the very general at the other. A corporation's location on the continuum constrains the set of businesses it should compete in and limits its choices about the design of its organization. Applying the framework, the authors point out the common mistakes that result from misaligned corporate strategies. Companies mistakenly enter businesses based on similarities in products rather than the resources that contribute to competitive advantage in each business. Instead of tailoring organizational structures and systems to the needs of a particular strategy, they create plain-vanilla corporate offices and infrastructures. The company examples demonstrate that one size does not fit all. One can find great corporate strategies all along the continuum.     

Profits for nonprofits: find a corporate partner

Here's a familiar story. A nonprofit organization joins forces with a corporation in a caused-related marketing campaign. It seems like a win-win deal, but the nonprofit--and the media--find out several weeks into the campaign that the corporation's business practices are antithetical to the nonprofit's mission. The nonprofit's credibility is severely damaged. Is the moral of the story that nonprofits should steer clear of alliances with for-profit organizations? Not at all, Alan Andreasen says. Nonprofit managers can help their organizations avoid many of the risks and reap the rewards of cause-related marketing alliances by thinking of themselves not as charities but as partners in the marketing effort. More than ever, nonprofits need what many companies can offer: crucial new sources of revenue. But nonprofits offer corporate partners a great deal in return: the opportunity to enhance their image--and increase the bottom line--by supporting a worthy cause. Consider the fruitful partnership between American Express and Share Our Strength, a hunger-relief organization. Through the Charge Against Hunger program, now in its fourth year, American Express has helped contribute more than +16 million to SOS. In return, American Express has seen an increase in transactions with the card and in the number of merchants carrying the card. How can nonprofit managers build a successful partnership? They can assess their organization to see how it can add value to a corporate partner. They can identify those companies that stand to gain the most from a cause-related marketing alliance. And they can take an active role in shaping the partnership and monitoring its progress.     

The competitive advantage of corporate philanthropy

When it comes to philanthropy, executives increasingly see themselves as caught between critics demanding ever higher levels of "corporate social responsibility" and investors applying pressure to maximize short-term profits. In response, many companies have sought to make their giving more strategic, but what passes for strategic philanthropy is almost never truly strategic, and often isn't particularly effective as philanthropy. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image through high-profile sponsorships. But there is a more truly strategic way to think about philanthropy. Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company to not only give money but also leverage its capabilities and relationships in support of charitable causes. The produces social benefits far exceeding those provided by individual donors, foundations, or even governments. Taking this new direction requires fundamental changes in the way companies approach their contribution programs. For example, philanthropic investments can improve education and local quality of life in ways that will benefit the company. Such investments can also improve the company's competitiveness by contributing to expanding the local market and helping to reduce corruption in the local business environment. Adopting a context-focused approach goes against the grain of current philanthropic practice, and it requires a far more disciplined approach than is prevalent today. But it can make a company's philanthropic activities far more effective.     

Value acceleration: lessons from private-equity masters

The most successful private-equity firms regularly spearhead dramatic business transformations, creating exceptional returns for their investors. To understand how those firms do it, the authors studied more than 2,000 PE transactions over the past ten years and discovered that the top performers' success stems from the rigor with which they manage their businesses. This article describes the four management disciplines vital to the success of the best PE firms. First, for each business, they define an investment thesis: a brief, clear statement of how to make the business more valuable within three to five years. The thesis, which guides all actions by the company, usually focuses on growth. PE firms know that the demonstration of a path to strong growth produces the big returns on investment. Second, they don't measure too much. They zero in on a few financial indicators that most clearly reveal the business's progress in increasing its value. They watch cash more closely than earnings and tailor performance measures to each business, rather than imposing one set of measures across their entire portfolio. Third, they work their balance sheets, mining undervalued assets, turning fixed assets into sources of financing, and aggressively managing their physical capital. Last, they make the center the shareholder. Corporate staffs in PE firms make unsentimental investment decisions, buying and selling businesses when the price is right and bringing in new management when performance falters. These firms also keep their corporate centers extremely lean. By adopting these four disciplines, executives at public companies should be able to reap significantly greater returns from their own business units.     

FUTURE VALUE: THE $7 TRILLION CHALLENGE

As of May 2003, $7.6 trillion (or 58%) of the aggregate value of the U.S. stock market represented "future value"–that portion of value that does not depend on current operating performance but rather on anticipated growth. This concept of future growth value is especially important in newer industry sectors and among companies whose value is based heavily on intangible assets, such as brand and proprietary knowledge. But traditional accounting remains focused on tangible assets. And because most executives rely on accounting- based financial data to run their businesses, they end up focusing on current operating results when they should be investing in strategies that optimize future growth. In short, many of the assets that are most responsible for creating value in today's economy are not managed as well as they could be.
As part of its high-performance business initiative, Accenture has developed a comprehensive research database and a set of tools for examining the components and drivers of future value, along with a methodology for applying this research on a companyspecific basis. Accenture's futurevalue analytics can determine the portion of a company's market value that is attributable to future growth, and can help identify the drivers of that future growth value. The development of a viable operational framework will enable executives to translate corporate intangibles into manageable market value.     

Are you a strategist or just a manager?

Perhaps the greatest strategist of all time was not a business executive but a general. Helmuth von Moltke, chief of the Prussian and German general staffs from 1858 to 1888, issued "directives" to his officers rather than specific commands. These guidelines for autonomous decision making encouraged Moltke's subordinates to show individual initiative. In this article, Hans Hinterhuber and Wolfgang Popp translate Moltke's example into business terms. According to Moltke, strategy is applied common sense and cannot be taught. The authors suggest that good entrepreneurs and managers--along with generals--are born with the qualities that make them successful. But even if managers have the potential to be good strategists, they must develop and hone their natural talents. And CEOs and top management can help by identifying and promoting such talents in their employees. Hinterhuber and Popp have created a questionnaire that helps measure strategic management competence. Managers and entrepreneurs take this test themselves, answering ten questions such as, "Do I have an entrepreneurial vision?", "Do I have a corporate philosophy?", and "Do I have competitive advantages?" Using the questionnaire, company management can evaluate managers being considered for a promotion. At the same time, those who take the test can use it to determine their own performance as strategists. Strategic managers provide subordinates with general guidelines, just as Helmuth von Moltke issued directives to his officers. And outstanding entrepreneurs create a corporate culture in which their vision, philosophy, and business strategies are implemented by employees who think independently.     

RETHINKING RISK MANAGEMENT

This paper presents a theory of corporate risk management that attempts to go beyond the "variance-minimization" model that dominates most academic discussions of the subject. It argues that the primary goal of risk management is not to dampen swings in corporate cash flows or value, but rather to provide protection against the possibility of costly lower-tail outcomes –situations that would cause financial distress or make a company unable to carry out its investment strategy. (In the jargon of finance specialists, risk management can be viewed as the purchase of well-out-of-the-money put options designed to limit downside risk.)
By eliminating downside risk and reducing the expected costs of financial trouble, risk management can also help a company to achieve both its optimal capital structure and its optimal ownership structure. For, besides increasing corporate debt capacity, the reduction of downside risk also encourages larger equity stakes for managers by shielding their investments from "uncontrollables."
The paper also departs from standard finance theory in suggesting that some companies may have a comparative advantage in bearing certain financial market risks–an advantage that derives from information acquired through their normal business activities. Although such specialized information may lead some companies to take speculative positions in commodities or currencies, it is more likely to encourage "selective" hedging, a practice in which the risk manager's "view" of future price movements influences the percentage of the exposure that is hedged.
But, to the extent that such view-taking becomes an accepted part of a company's risk management program, it is important to evaluate managers' bets on a risk-adjusted basis and relative to the market. If risk managers want to behave like money managers, they should be evaluated like money managers.     

Hiring for smarts

Yes, it's nice when a leader is charismatic and confident. And a great resume can tell you a lot about a person's knowledge and experience. But such assets are no substitute for sheer business intelligence, and they reveal very little about a leader's ability to consistently reach the "right" answer. How can hiring managers flag individuals with such smarts? Historically, the only reliable measure of brainpower has been the standard IQ test, which is rarely used in business settings because of the specific subjects it tests for-math, reading, and spatial reasoning-and because of its multiple-choice format. Despite its shortcomings, the standard IQ test is still a better predictor of managerial success than any other assessment tool companies currently use, Justin Menkes argues. It's true that there isn't a version of IQ testing that applies to the corporate world, but in rejecting IQ tests altogether, hiring managers have thwarted their own attempts to identify true business stars. The author defines the specific subjects that make up "executive intelligence"-namely, accomplishing tasks, working with people, and judging oneself. He describes how to formulate questions to test job candidates for their mastery of these subjects, offering several examples based on real situations. Knowledge questions, such as those used in standard behavioral interviews, require people to recite what they have learned or experienced; intelligence questions call for individuals to demonstrate their abilities. Therefore, the questions in an executive intelligence test shouldn't require specific industry expertise or experience; any knowledge they call for must be rudimentary and common to all executives. And the questions should not be designed to ask whether the candidate has a particular skill; they should be configured so that the candidate will have to demonstrate that skill in the course of answering them.     

Strategic sourcing: from periphery to the core

As globalization changes the basis of competition, sourcing is moving from the periphery of corporate functions to the core. Always important in terms of costs, sourcing is becoming a strategic opportunity. But few companies are ready for this shift. Outsourcing has grown so sophisticated that even critical functions like engineering, R&D, manufacturing, and marketing can-and often should-be moved outside. And that, in turn, is changing the way companies think about their organizations, their value chains, and their competitive positions. Already, a handful of vanguard companies are transforming what used to be purely internal corporate functions into entirely new industries. Companies like UPS, Solectron, and Hewitt have created new business models by concentrating scale and skill within a single function. As these and other function-based companies grow, so does the potential value of outsourcing to all companies. Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone. But all companies need to rigorously reassess each of their functions as possible outsourcing candidates. Presented in this article is a simple three-step process to identify which functions your company needs to own and protect, which can be best performed by what kinds of partners, and which could be turned into new business opportunities. The result of such an analysis will be a comprehensive capabilities-sourcing strategy. As a detailed examination of 7-Eleven's experience shows, the success of the strategy often hinges on the creativity with which partnerships are organized and managed. But only by first taking a broad, strategic view of capabilities sourcing can your company gain the greatest benefit from all of its sourcing choices.     

Funding growth in an age of austerity

Everyone knows that corporate growth--true growth, not just agglomeration--springs from innovation. And the common wisdom is that companies must spend lavishly on R&D if they are to innovate at all. But in these fiscally cautious times, where every line item of every budget in every company is under intense scrutiny, many organizations are doing just the opposite. They tighten their belts, subject nascent product-development programs to rigorous screening, and train R&D staffers to think in business terms so the researchers will be better able to decide whether an idea for a product or service is worth pursuing in the first place. Such efficiency measures are commendable, say authors Gary Hamel and Gary Getz. But frugality is not a growth strategy, they point out, and, in truth, there is very little correlation between corporate performance and the amount spent on innovation. Companies like Southwest, Cemex, and Shell Chemicals have shown that businesses don't have to spend a fortune on R&D to reap the benefits of innovation. To produce more growth per dollar invested, companies must produce more innovation per dollar invested. Hamel and Getz explain how businesses can dramatically improve their innovation yields. They offer these five imperatives: Increase the number of innovators among existing employees (whatever their job titles) by involving them in innovation processes and events. Focus on developing truly radical ideas--ones that change customers' expectations and behaviors and industry economics--not just incremental ideas. Look for innovation sources outside the organization, as well as inside. Increase the learning from small, low-risk experiments. And commit to long-term, consistent development efforts.     

TRANSFORMING ENRON: THE VALUE OF ACTIVE MANAGEMENT

Soon after Enron was formed as a regulated gas pipeline company in 1985, economic events forced a dramatic reorganization of the company. The result was the creation of an unregulated energy trading operation whose mission was to capitalize on opportunities arising from the deregulation of the natural gas market The initial form of the new business was that of a "gas bank" in which Enron became an intermediary between buyers and sellers of gas, locking in the spread as profit. Since there was no source of liquidity to the market, Enron had to develop its own risk management system.
Furthermore, the need to respond quickly to rapidly changing market conditions required that Enron flatten its organizational structure and hire new people whose skills were better suited to the new decentralized organization. The focus of the new Enron accordingly became human and intellectual capital, not physical assets. Employees were encouraged to move about the firm to staff new business ventures. And in what may well be a unique feature in corporate America, Enron's top management today uses its human capital flows to guide its allocations of financial capital. Other aspects of the Enron model include attempts to capitalize on the option (as opposed to current DCF) value of assets, recognition of the value of networks in adding value to trading platforms, and the use of mark-to-market accounting for business transactions as a means of ensuring transparency and promoting timely decision-making.     

The CEO as organizational architect: an interview with Xerox's Paul Allaire. Interview by Robert Howard

As chairman and CEO of the Xerox Corporation, Paul Allaire leads a company that is a microcosm of the changes transforming American business. With the introduction of the first plain-paper copier in 1959, Xerox invented a new industry and launched itself on a decade of spectacular growth. But easy growth led Xerox to neglect the fundamentals of its core business, leaving the company vulnerable to low-cost Japanese competition. Starting in the mid-1980s, Xerox embarked on a long-term effort to regain its dominant position in world copier markets and to create a new platform for future growth. Thanks to the company's Leadership through Quality program, Xerox became the first major U.S. company to win back market share from the Japanese. Allaire describes his efforts to take Xerox's corporate transformation to a new level. Since becoming CEO in 1990, he has repositioned Xerox as "the document company" at the intersection of the worlds of paper-based and electronic information. And he has guided the company through a fundamental redesign of what he calls the "organizational architecture" of Xerox's document processing business. Few CEOs have approached the process of organizational redesign as systematically and methodically as Allaire has. He has created a new corporate structure that balances independent business divisions with integrated R&D and customer operations organizations. He has redefined managerial roles and responsibilities, changed the way managers are selected and compensated, and renewed the company's senior management ranks. And he has articulated the new values and behaviors Xerox managers will need to thrive in a more competitive and fast-changing business environment.     

Enterprise Risk Management: Theory and Practice

The Chief Risk Officer of Nationwide Insurance teams up with a distinguished academic to discuss the benefits and challenges associated with the design and implementation of an enterprise risk management program. The authors begin by arguing that a carefully designed ERM program—one in which all material corporate risks are viewed and managed within a single framework—can be a source of long‐run competitive advantage and value through its effects at both a “macro” or company‐wide level and a “micro” or business‐unit level. At the macro level, ERM enables senior management to identify, measure, and limit to acceptable levels the net exposures faced by the firm. By managing such exposures mainly with the idea of cushioning downside outcomes and protecting the firm's credit rating, ERM helps maintain the firm's access to capital and other resources necessary to implement its strategy and business plan. At the micro level, ERM adds value by ensuring that all material risks are “owned,” and risk‐return tradeoffs carefully evaluated, by operating managers and employees throughout the firm. To this end, business unit managers at Nationwide are required to provide information about major risks associated with all new capital projects—information that can then used by senior management to evaluate the marginal impact of the projects on the firm's total risk. And to encourage operating managers to focus on the risk‐return tradeoffs in their own businesses, Nationwide's periodic performance evaluations of its business units attempt to refl ect their contributions to total risk by assigning risk‐adjusted levels of “imputed” capital on which project managers are expected to earn adequate returns. The second, and by far the larger, part of the article provides an extensive guide to the process and major challenges that arise when implementing ERM, along with an account of Nationwide's approach to dealing with them. Among other issues, the authors discuss how a company should assess its risk “appetite,” measure how much risk it is bearing, and decide which risks to retain and which to transfer to others. Consistent with the principle of comparative advantage it uses to guide such decisions, Nationwide attempts to limit “non‐core” exposures, such as interest rate and equity risk, thereby enlarging the firm's capacity to bear the “information‐intensive, insurance‐ specific” risks at the core of its business and competencies.     

Holes at the top. Why CEO firings backfire

When a company does well, its CEO is showered with money and adulation. When it does poorly, the CEO gets the blame--and the boot. For better or worse, investors now view chief executives as the primary determinant of corporate performance. But the reality is that most companies perform no better after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by a rushed firing can leave a company with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound. The blame for such poor results, the author argues, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to choosing a replacement CEO. Concern over restoring investor confidence quickly--rather than doing what's right for the company--drives the selection process. And all too often, companies continue to be dogged by the same old problems after the new CEOs come on board. But a good board can make a CEO replacement pay off if its members first develop a better understanding of the business context, worry less about pleasing the investment community and more about a replacement's strategic fit, and take an active role in overseeing the new CEO and the performance and direction of the company. In the long run, such approaches are likely to foster stability at the helm--making it less likely a company will have to fire its CEO in the first place.     

What's a business for?

In the wake of the recent corporate scandals, it's time to reconsider the assumptions underlying American-style stock-market capitalism. That heady doctrine--in which the market is king, success is measured in terms of shareholder value, and profits are an end in themselves--enraptured America for a generation, spread to Britain during the 1980s, and recently began to gain acceptance in Continental Europe. But now, many wonder if the American model is corrupt. The American scandals are not just a matter of dubious personal ethics or of rogue companies fudging the odd billion. And the cure for the problems will not come solely from tougher regulations. We must also ask more fundamental questions: Whom and what is a business for? And are traditional ownership and governance structures suited to the knowledge economy? According to corporate law, a company's financiers are its owners, and employees are treated as property and recorded as costs. But while that may have been true in the early days of industry, it does not reflect today's reality. Now a company's assets are increasingly found in the employees who contribute their time and talents rather than in the stockholders who temporarily contribute their money. The language and measures of business must be reversed. In a knowledge economy, a good business is a community with a purpose, not a piece of property. If, like many European companies, a business considers itself a wealth-creating community consisting of members who have certain rights, those members will be more likely to treat one another as valued partners and take responsibility for telling the truth. Such a community can also help repair the image of business by insisting that its purpose is not just to make a profit but to make a profit in order to do something better.     

论有限责任的实现及其法律适用界限

有限责任制度适用于公司、商业信托、合伙企业等各种商业组织形态.在这些企业中,有限责任通过构建商业组织和资产分割得到实现.组织化的重要功能在于通过建立公司或商业信托构建法律实体、促成资产分割并形成独立公司财产或独立信托财产从而实现商业组织所有人的有限责任.有限责任削弱了对债权人利益的保护,容易造成利益不均衡.在有限责任制度被滥用的情况下,应适用法人人格否认、实质合并规则等制度性措施予以纠正.同时,应谨慎对待有限责任在专业服务领域的适用,强调专家严格责任.     

UNIVERSITY OF GEORGIA ROUNDTABLE ON ENTERPRISE-WIDE RISK MANAGEMENT

For many years, MBA. students were taught that there was no good reason for a company that hedged a large currency exposure to trade at a higher P/E than an otherwise identical company that chose not to hedge. Corporate stockholders, simply by holding well‐diversified portfolios, were said to neutralize any effects of interest rate and currency risk on corporate values. And thus corporate efforts to manage risk were thought to be “redundant,” a waste of corporate resources on a function that was already accomplished by investors at far lower cost. But the theory underlying this “perfect markets” framework has changed in recent years to focus on ways that corporate risk management can add value. The academics and practitioners who participated in this roundtable began by discussing in general terms how risk management can be used to support a company's strategic plan and investment policy. At Merck, for example, where R&D spending was determined as a percentage of earnings, a policy of hedging foreign currency exposure to reduce earnings volatility was viewed as adding value by “protecting” the firm's R&D. The panelists also agreed that a well executed risk management policy can increase corporate debt capacity and, in so doing, reduce the cost of capital by lowering the likelihood of financial distress. For example, companies with debt covenants might undertake a risk management program to lower earnings volatility and ensure a minimum level of earnings for debt compliance purposes. But one of the clear messages of the roundtable is that risk management and earnings management are not the same thing, and that companies that view risk management as primarily a tool for smoothing reported earnings have lost sight of its real economic functions. Moreover, in making decisions to retain or transfer risks, companies should generally be guided by the principle of comparative advantage. That is, if there is an outside firm or investor willing to bear a particular risk at a lower price than the cost to the firm of managing that risk internally, then it makes sense to lay off that risk. In addition to the cost savings and higher return on capital promised by such an approach, a number of the panelists also pointed to a less tangible benefit of an enterprise‐wide risk management program—namely, a marked improvement of the internal corporate dialogue, leading to a better understanding of all the firm's risks and how they are affected by the interactions among the firm's business units.