- 19 Jan 2017
- Cold Call Podcast
Research says that people imprint on music in their dating years, and carry those tastes with them through the rest of their lives. Lately, this has spelled trouble for jazz music, which is failing to attract new and younger fans in a competitive musical landscape. With its listenership in steep decline, jazz legend Wynton Marsalis is looking to rebrand the genre and engineer its comeback, with the help of Professor Rohit Deshpande. Open for comment; 0 Comment(s) posted.
- 10 Nov 2014
- Working Paper Summaries
In essence, crony capitalism conveys a shared point of view-sometimes stretching to collusion-among industries, their regulators, and Congress. The result is business-friendly policies and investments that serve private interests at the expense of the public interest. In this research paper, the author's goal is to add precision and nuance to our understanding of this form of corruption. He does so first by exploring definitions of crony capitalism. He then outlines the toolkit of crony capitalism including 1) campaign contributions to elected officials, 2) heavy lobbying of Congress and rule-writing agencies, and 3) a revolving door between government service and the private sector. The paper next describes the costs of cronyism and concludes with innovative ideas for curbing the excesses of crony capitalism. As the author notes, thorny problems remain: for example, the fact that "the public interest" in matters involving subsidies, tax preferences, and legislative loopholes is often difficult to discern and agree on. Key concepts include: The line between corrupt cronyism and legitimate bargaining among self-interested parties in the halls of government may be blurry. Although the costs to taxpayers of direct and even indirect subsidies can be measured, quantifying the cost of violations of the principle of equal treatment by government, the distortion of market mechanisms, and the undermining of public trust in government and business is vastly more difficult. The US has a long history of attempted campaign finance reform, which is critical to curbing crony capitalism. In the absence of meaningful reform, one corrupting feature of federal campaigns has not changed. Today 85 percent of funding for congressional campaigns comes from large contributors-mainly wealthy individuals and corporations. Among other necessary reforms, we need to take seriously the need to minimize trust-destroying conflicts of interest in Congress and privileged access by influential business interests to Congress and regulatory agencies. In the absence of such reform, the many benefits of the espoused system of democratic capitalism cannot endure. Closed for comment; 0 Comment(s) posted.
- 07 Jun 2012
- Working Paper Summaries
A long-term time horizon is most sensible where a business or investor has some edge and when short-term risks associated with a longer-term strategy are hedged and opportunity costs minimized. However, when perverse, short-term incentives artificially encourage executives to ignore high-yielding, long-term opportunities, then the costs of short-termism set in. The recent financial crisis suggests that the rise of short-termism has been especially troublesome in the finance industry. In this paper, Malcom Salter starts by analyzing a case involving the mortgage-banking desk at Citigroup because it can help us think about how short-termism-the collapsed time horizon of both business decision makers and investors-not only sabotages an enterprise's reputation and value, but also invites individual and institutional corruption. He then examines the key drivers of short-termism in contemporary business, and their potential effects on the behavior of both executives and their organizations. He concludes by proposing mechanisms to deter the corrupting effects of short-termism, including changes in both business and public policy. Key concepts include: Today the seedbed for institutional corruption is richly endowed by perverse business and public policies that tend to limit the decision horizons of investment managers and corporate executives. The absence of horizon-stretching management systems and public policies has tended to fertilize rather than discourage lawful but corrupt behavior-such as the purposeful and often institutionally supported gaming of society's rules. The current wave of institutional corruption has inevitably led to diminished public trust in our leading business institutions, and persistent public calls for radical reform. While business leaders and policymakers have been cautious in implementing countermeasures to the ill effects of short-termism, we must seriously consider them if we truly want to rein in the public and private costs of institutional corruption. Closed for comment; 0 Comment(s) posted.
- 02 Feb 2011
- Working Paper Summaries
In the business world, "gaming" refers to the act of subverting the intent of rules or laws without technically breaking them--a skillful if unsavory way to achieve private gain. Harvard Business School professor emeritus Malcolm S. Salter explores how gaming the system can lead to institutional corruption, citing examples from Enron and early efforts by some banks to game the implementation of the Dodd-Frank financial reform act. Key concepts include: A Rule-Making Game involves influencing the writing of societal rules such that deliberate loopholes, exclusions, and ambiguous language provide future opportunities for sneaky behavior. A Rule-Following Game involves the actual exploitation of these gaming opportunities. Enron's story includes both types of games. The paper explores three hypotheses. First, extensive lobbying by business interests during rule-making sessions aims not only to minimize regulatory constraints, but also to ensure future gaming opportunities for the firms. Second, the gaming of rules is often fueled by the short-term goals and incentives of both corporate executives and investment managers, ignoring possible long-term consequences. Third, corporate boards become complicit in gaming when they allow gaming to take root and persist as an acceptable organizational norm, and fail to identify and monitor behavior that threatens compliance with socially mandated rules and regulations. Remedying rule-making gaming likely will require policies that address both lobbying efforts and campaign contributions. Meanwhile, extending the decision-making time horizon for investment managers and corporate executives should help to diminish rule-following gaming. Closed for comment; 0 Comment(s) posted.
- 15 Jun 2009
For decades, General Motors reigned as the king of automakers. What went wrong? We asked HBS faculty to reflect on the wrong turns and missed opportunities of the former industry leader, and to suggest ideas for recovery. Key concepts include: Formed in 1908, General Motors was the world's largest carmaker between 1931 and 2008. GM filed for bankruptcy protection on June 1, 2009. In the bankruptcy petition, GM claimed slightly over $82 billion in assets and nearly $173 billion in debts. GM's failure of leadership is astounding and ironic given its early history as an innovator, says HBS professor Nancy Koehn. GM faces a unique opportunity to retool itself for the 21st century, says visiting scholar Daniel Heller. Meanwhile, the U.S. government administration is embarking on an interesting experiment in political economy, according to professor Joseph Bower. Closed for comment; 0 Comment(s) posted.
- 07 Jul 2008
- Research & Ideas
The train wreck that was Enron provides key insights for improving corporate governance and financial incentives as well as organizational processes that strengthen ethical discipline, says HBS professor emeritus Malcolm S. Salter. His new book, Innovation Corrupted: The Origins and Legacy of Enron's Collapse, is a deep reflection on the present and future of business. Key concepts include: Enron's stated purpose was too general to permit disciplined and responsible decision-making in the face of difficulty. The lessons of Enron relate to strengthening board oversight, avoiding perverse financial incentives for executives, and instilling ethical discipline throughout business organizations. Directors of public companies can adapt key aspects of the private-equity governance model to ensure that they fulfill their oversight responsibilities. Incentive systems should reward accomplishments other than economic performance, and penalize failures. Companies can take steps to help senior executives avoid the two sources of leadership failure at Enron: personal opportunism and flights to utopianism. Closed for comment; 0 Comment(s) posted.
- 17 Jan 2007
Boards of professionally sponsored buyouts are more informed, hands-on, and interventionist than public company boards. HBS professor emeritus Malcolm S. Salter argues that this board model could have helped Enron—and perhaps your company as well. Key concepts include: Boards compiled by professionally sponsored buyout firms are typically more informed and hands-on, and have more investment at risk than boards of public companies. That makes them more likely to spot problems and intervene before the problems become crises. Public companies need to consider a different population of directors to include the large pool of former executives and successful entrepreneurs who have stepped down after decades of accomplishment and have the time, energy, and interest to be truly focused directors. Given increasing time commitments and responsibilities, public companies need to present a better financial reward for directors—a doubling of director compensation may be an absolute minimum. Directors should be required to invest between $250,000 and $1 million in personal holdings depending on revenue size of the company. Closed for comment; 0 Comment(s) posted.
- 21 Jul 2006
Although the actions of Enron's executives were in many areas neither clearly legal nor illegal, jurors sent an unambiguous message that all executives should heed: Truth telling and ethical discipline are the cornerstone values in corporate governance. Key concepts include: Executives can be convicted in a court of law for a pattern of deception, even when it is not illegal. Firms that focus on exploiting the rules rather than building a sound business often lose their way. Closed for comment; 0 Comment(s) posted.
- 10 Apr 2006
- 12 Jul 2004
- Research & Ideas