Is the Business of America Still Business?

by Niall Ferguson, June Harvard Business Review

It was his only one-liner. In January 1925 President Calvin Coolidge—nicknamed “Silent Cal” for his taciturnity—declared, “The chief business of the American people is business.” Is that still true? When I moved from the United Kingdom to the United States, I certainly assumed so.

Yet evidence to the contrary is accumulating. In 2012 Michael Porter and Jan Rivkin showed that graduates of Harvard Business School overwhelmingly favor foreign over U.S. locations for new investment. They asked HBS alumni about 607 decisions in which they’d been involved on whether or not to offshore operations. The U.S. retained the business in only 16% of those cases. Asked why they favored foreign locations, the respondents listed the areas in which they saw America falling behind the rest of the world. The top 10 included effectiveness of the political system, simplicity of the tax code, regulation, efficiency of the legal framework, and flexibility in hiring and firing.

Shell Scenarios 2013

Shell ist seit 50 Jahren führend in der “SZENARIO PLANUNG”. Anbei ihr Szenario 2013 (aus der Mai Harvard Business Review)

Why “Fair Value” Is the Rule

by Karthik Ramanna, Harvard Business Review March 2013

 For the past two decades, fair value accounting—the practice of measuring assets and liabilities at estimates of their current value—has been on the ascent. This marks a major departure from the centuries-old tradition of keeping books at historical cost. It also has implications across the world of business, because the accounting basis—whether fair value or historical cost—affects investment choices and management decisions, with consequences for aggregate economic activity.

The argument for fair value accounting is that it makes accounting information more relevant. However, historical cost accounting is considered more conservative and reliable. Fair value accounting was blamed for some dubious practices in the period leading up to the Wall Street crash of 1929, and was virtually banned by the U.S. Securities and Exchange Commission from the 1930s through the 1970s. The 2008 financial crisis brought it under fire again. Some scholars and practitioners have connected its proliferation in accounting-based performance metrics to the actions of bankers and other managers during the run-up to the crisis. Specifically, as asset prices rose through 2008, the fair value gains on certain securitized assets held by financial institutions were recognized as net income, and thus sometimes used to calculate executive bonuses. And after asset prices began falling, many financial executives blamed fair value markdowns for accelerating the decline.

Yet both Generally Accepted Accounting Principles in the United States and International Financial Reporting Standards, adopted by nearly 100 countries worldwide, continue to use fair value extensively—for example, in accounts concerning derivatives and hedges, employee stock options, financial assets, and goodwill impairment testing.

Saving Economics from the Economists

by Ronald Coase, Harvard Business Review 12/2012 

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

That was not the case in the past. When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.

How President Obama Should Choose His Leadership Team

by Gretchen Gavett  |   1:04 AM November 7, 2012; HBR

Barack Obama is once again the president of the United States. The first thing he should do is pick his leadership team — carefully. “No other action will have a larger impact on his ability to meet the huge, immediate challenges facing the U.S.,” says Claudio Fernández-Aráoz, the author of Great People Decisions. I interviewed Fernández-Aráoz and Harvard Business School professor Nancy Koehn about why the right group of advisers is important for the president and what pitfalls he should look out for when shuffling his cabinet.

But first, he needs to lay out his objectives.

You can’t choose your advisers before you know what they’ll be advising. “What’s the overarching mission over the next four years?,” asks Koehn. “And under that umbrella, what are the three or four most important objectives? We’ve seen too many people pursue too many, or pursue the wrong ones.” Once you’ve made a plan, you can go about picking the right people for it. But it’s worth noting that, neurologically, we may do the opposite.

We’re actually wired to make the wrong people choices.

Our brain is a piece of hardware that hasn’t had any major upgrade over the last 10,000 years,” Fernández-Aráoz explains. “Evolution has favored those of us who choose people familiar and similar to us, with whom we feel comfortable. Similarity, familiarity, and comfort were the right criteria for survival people choices over the millennia. Unfortunately, they are today the exact opposite of what we need to set up great teams with complementary skills and the ability to properly challenge each other.”

Four Ways to Fix Banks

aus der Harvard Business Review June 2012

by Sallie Krawcheck

It is tempting to view the financial downturn as a closed chapter whose primary causes have been resolved—perhaps not perfectly, but fairly comprehensively—by the Dodd-Frank Act’s reregulation of the financial services industry. But big banks continue to have a governance problem, which poses significant risks not just to them but potentially to the entire economy during the next downturn.

It is well-known that many banks were nearly wiped out in 2008 by a global financial crisis they helped cause. Since then most of them have been nursed back to health, with lots of help from taxpayers and central bankers. Yet despite the reregulation, they remain complex, opaque institutions in the business of taking enormous risks. Figuring out how to oversee them successfully—to keep their risks in check while allowing them to be profitable and economically productive—is a continuing unmet challenge for boards, regulators, and society as a whole.

Upgrading bank boards is one way to take on the challenge. Since the crisis, boards at major banks have revamped their membership and substantially increased their time commitments. This movement could be taken even further: Robert C. Pozen has suggested (“The Case for Professional Boards,” HBR December 2010) that board membership at a big bank should be a full-time job.

America: Excelling at Mediocrity

Freitag, 28. Oktober 2011, 20:26:46 | Umair Haque Blog HBR

Recently, I’ve been around the world and then back to the US of A. And what strikes me is how fast many parts of the globe are forging ahead — and how decrepit coming home can feel in comparison (JFK airport, I’m looking at you). It’s got me wondering: what is America still the best at?

Consider this thought experiment. If you were really, really, really rich — say, not just part of the routinely opulent 1%, but a card-carrying member of the eye-poppingly decadent .01% — what part of your life would be American? If you had the money, I’d bet you’d drive a German car, wear British shoes and an Italian suit, keep your savings in a Swiss bank, vacation in Koh Samui with shopping expeditions to Cannes, fly Emirates, develop a palate for South African wine, hire a French-trained chef, buy a few dozen Indian and Chinese companies, and pay Dubai-style taxes.

Were to you have the untrammeled economic freedom to, I’d bet you’d run screaming from big, fat, wheezing American business as usual, and its coterie of lackluster, slightly bizarre, and occasionally grody “innovations”: spray cheese, ATM fees, designer diapers, disposable lowest-common-denominator junk made by prison labor, Muzak-filled big-box stores, five thousand channels and nothing on but endless reruns of Toddlers in Tiaras — not to mention toxic mega-debt, oxymoronic “healthcare,” decrepit roads, and once-proud cities now crumbling into ruins. Sure, you’d probably still choose to use Google on your iPhone to surf the web — but that’s about far as it’d go.

How did we get here?

Robert Kaplan: The Hollow Science

Der Harvard Business School Professor und “Erfinder” der Balanced Score Card in der Mai Harvard Business Review über den (hohlen) Zustand seiner Wissenschaft (hfk)

But like the 19th century African cartographers, we actually know less about what happens inside companies than we did 40 years ago. Most of us are neither studying nor teaching the emerging best practices in asset valuation and risk management in wellmanaged financial institutions.

Learning How the Economy Really Works

by Joseph E. Stiglitz, Harvard Business Review 01/11

The economic crisis has resulted, or should have resulted, in a crisis in economics—in the prevailing ideas about how economies function. The dominant macroeconomic paradigm not only failed to predict the crisis but said that such a crisis could not occur in rational markets with rational expectations. Monetary and regulatory policies predicated on this prevailing view were central to the creation of the crisis.

For decades I have been engaged in a critique of the standard paradigm, attempting, for instance, to construct models whereby rational individuals interact with imperfect and asymmetric information. The results have been devastating for much of the conventional wisdom. For instance, with Bruce Greenwald, I showed that the reason Adam Smith’s invisible hand often seemed invisible was that it was not there: Markets in general were not efficient when information was imperfect and asymmetric or risk markets were not complete—which is to say, always.

Who Do These Bankers Think They Are?

 With better regulation, can we tame the financial markets so they’ll once again perform the social functions that are their responsibility? This is the challenge facing the U.S. and the rest of the world—and the prognosis is not good. The reason is simple: Though bankers may have done a poor job of managing financial capital, they have excelled at getting returns out of their investments in political capital. Since the crisis, they have used all their political muscle to resist curbing their bad practices.

Ein kritischer Artikel des Wirtschaftsnobelpreisträgers Joseph Stiglitz aus der März Harvard Business Review. HBR03_10 Stiglitz Column_ Who Do These Bankers Think They Are