NOVEMBER 2007
PHD Program
Graduates
Few Influence Many
Bill Sharpe
on Retirement
Portfolios
Creative
Business Models:
Harvesting Underwater
Timber,Changing
Corporate Law
Investing in Centers:
Transforming the Learning Experience
How we are using challenging experiential
learning opportunities to help students
develop their leadership skills and learn
to inspire others.
The Innovation: Through the Center for Leadership
Development and Research, the Stanford Graduate
School of Business is providing experiential learning
opportunities such as simulations of real-world business
challenges and interactive video cases coupled with
in-depth critiques of students’ performance. “It added
a whole other aspect to my GSB experience. What I
gained is something that you can’t get just from books,”
says Leadership Fellow Vanessa Scotto, one of a select
group of second-year MBA students who coaches firstyear students. “I will never be able to get this kind of
feedback again—certainly not in the workplace.”
The Need: To address the pressing social problems of
our time, the world needs innovative, principled, and
insightful leaders. By highlighting practical business
situations in the classroom, the School is allowing
students to focus on developing core leadership skills
such as motivating others, building relationships, and
influencing outcomes.
Why Give: Leadership development is a key focus of the
new MBA curriculum. “It is critical to support the GSB’s
efforts around leadership development because those
skills are critically needed in the business world,” says
Jerker Johansson, MBA ’86, co-head of institutional sales
and trading at Morgan Stanley, where he rallied fellow
alumni to provide support for the Center.
Impact on GSB: Increased focus on leadership is a key
facet of the School that distinguishes its graduates and
prepares them to effectively lead organizations that
change the world. “How I approach business issues has
changed a lot. There’s much more thought that goes into
every interaction in a business setting,” says Scotto.
The gifts that alumni and friends make to the GSB enable
us to reinvent management education and provide
powerful experiences for students like Vanessa Scotto.
Vanessa Scotto, Class of ’08, is a Leadership Fellow who is coaching
first-year students through activities that simulate real-world business
challenges.
If you would like to support the GSB,
please contact Sharon Marine,
Office of Development, 650.725.3213
change lives • change organizations • change the world
gsb-thestanfordchallenge.stanford.edu
16
S T A N F O R D
NOV E M B E R 2 0 0 7
G
B U S I N E S S
VO LU M E 76 , N U M B E R 1
MORE FEATURES
8
riskier than poker
A marketing professor develops an internet-based game
to train sales managers.
9
corporate law revised
Alec Guettel, MBA ’97, is shaking up the business model
of corporate law practice.
11
goofy greetings
Some people do scrapbooking; these alums prefer making
twisted greeting cards.
16
looking for green amidst rust
Engineering students give poor “green” grade to existing
GSB buildings.
17
entrepreneurs ponder their futures
The Center for Entrepreneurial Studies hosts an
existential discussion of life’s meaning.
KNOWLEDGE NETWORK
18
Monika Piazzesi, PHD ’00, now a University of Chicago professor
26
body language for leadership
You don’t need an org chart to tell you who is leading
the project. by meredith alexander kunz
28
hp-compaq merger
ON THE COVER
18
In hindsight the HP-Compaq merger was a success
orchestrated by two successive CEOs. by alice laplante
29
corporate valuation
Exponential Education
Return-on-investment data analyzed.
The Business School’s highly selective doctoral program shapes
business and education practices through its graduates.
health insurance
BY MARGARET STEEN
faculty news
30
Students honor three teachers.
12
Logging Under Water
Sloan fellows plan to harvest precious hardwoods from
a hydroelectric reservoir in Ghana. BY ANNE FIELD
24
extra credit
31
faculty publications
32
24
COLUMNS
.........
2
...........
3
spreadsheet
.............
4
newsmakers
............
34
class notes
.............
37
about this issue
Nobel Laureate Bill Sharpe
on Retirement Economics
The inventor of a well-known investment-risk assessment
tool is rethinking how to spend and save through
one’s retirement years. BY BILL SNYDER
ON THE COVER:
29
Costs transferred from Medicare
dean’s column
Photograph by Musilek Studio
STANFORD BUSINESS | NOV 2007
1
AboutThis Issue
Change the World One PHD at aTime
FOR ANYONE FAMILIAR with large research universities, one of the more surprising statistics
about Stanford is the high proportion of graduate students. At UC-Berkeley, for example, there is
1 grad student for every 2.3 undergraduates. At Purdue’s main campus, there is 1 for every 8. At
Stanford, however, the ratio is 1.22 graduate students for every undergrad! So while there are quite
a few research universities with more than twice as many students as Stanford’s roughly 15,000,
they are not producing anything near double the number of graduate degree holders. When I
finally realized that, I started to grasp a not-so-obvious aspect of this university’s leadership: Its
PHD programs are powerful drivers not just of new technology companies but also of the world’s
future higher education system.
Many Stanford graduate students, of course, are in professional
schools with no intention of becoming university researchers, scholars,
and teachers. As you walk this campus during daylight hours, you see
plenty of master’s students among the undergrads heading to classes in
the schools of Law, Education, Engineering, and Business. When you
walk the campus after a nighttime concert or lecture, you are more likely
to spot the doctoral students silhouetted in laboratory windows as they
monitor their experiments.
Here at the Business School, the doctoral students are almost invisible, which is why we chose
to focus some attention on them in this issue. We think of our MBA Program as small and intimate,
and it is compared to our peer schools, but it swamps our own PHD Program. This year the school
awarded 439 master’s degrees compared with just 22 doctoral degrees. Those numbers go a long
way to explaining why I had been at the Business School for several years before I actually met a
doctoral student. It didn’t happen until my office was temporarily relocated to a corner of the
fourth floor of the South building, where, much to my surprise, I found a large room and interior
courtyard where the doctoral students hung out as they worked—and sometimes played or slept—
at odd hours. Their empirical experiments and theory-making activities span a wide range of topics
from brain activation to market meltdown. It’s important to remember they are part of the implementation of our efforts to “change lives, change organizations, change the world.”
According to the Association to Advance Collegiate Schools of Business, too few schools are
willing to bear the cost of producing qualified professors of business-related disciplines, and fewer
still are able to produce those who create new scholarship. Without us and a few peers who are
also in this Academic Major League, I can imagine business education surviving but whipsawing
erratically between stale ideas and the latest fad. The number of doctoral graduates we produce
is not large, but their role in holding the bar high cannot be underestimated.
Our PHDs, like our MBAs, are scattered around the world in industry as well as education, but
to glimpse just a little bit of their impact, think about how different this particular school would
be without the faculty who were trained in our very own PHD Program: Jennifer Aaker, Mary
Barth, George Foster, Robert Joss, John McDonald, David Montgomery, George Parker, Jeffrey
Pfeffer, Garth Saloner, Kenneth Shotts, and Tunay Tunca.
a quarterly publication
for alumni/ae of the stanford
university graduate school
of business
ONLINE VERSION
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PUBLISHER
Cathy Castillo
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2
STANFORD BUSINESS | NOV 2007
STANFORD BUSINESS Published quarterly
(February, May, August, November) by the
Stanford University Graduate School of
Business (ISSN 1094-5423). © 2007 by the
Board of Trustees of Leland Stanford Junior
University. All rights reserved. Printed in
the United States. Periodicals postage paid
at Palo Alto, Calif., and at additional
mailing addresses.
Dean’s Column
by Robert L. Joss
Multiple Ways to be Green at the GSB
THERE’S BEEN A LOT IN THE MEDIA about the greening of corporate
America. Just what does it mean to be green? At the Business School,
we wrestle with this—both as a leader in management education and
as a functioning, resource-consuming institution. How should our
MBAs learn to incorporate environmental sustainability into management practices? How do we envision the sustainability of the physical
facilities that serve our own needs?
We’ve developed significant momentum in educating our students
in this area, in large part through a critical mass of resources fostered
by our Center for Social Innovation. We now offer our MBA students
three key courses on sustainability: Environmental Science for Managers
and Policy Makers, Environmental Entrepreneurship, and a Business and
Environmental Issues seminar. These classes form a base for a new joint
MBA–MS in environment and resources offered for the first time this
fall. The program is a joint effort with the School of Earth Sciences.
There are other opportunities for our students to integrate resource
use into their analysis and thinking. In Entrepreneurial Design for
Extreme Affordability, students from the Engineering and Business
schools work to solve problems faced by the developing world without
introducing environmental harm. One result is d.light design, a studentcreated company that manufactures a safe, cheap, and easy-to-power
LED light to replace polluting kerosene lamps. This is the second student-founded company to develop a product of this nature.
As we encourage more multidisciplinary thinking, business students
are able to enroll elsewhere on campus for classes such as The Coming
Energy Revolution, Global Environmental Ethics, International Environmental Law, and Economics of Natural Resources.
We bring executives to the School to inspire our students and
demonstrate how business can be an active agent in helping to solve
environmental challenges; for example venture capitalist John Doerr
on entrepreneurial opportunities to address climate change. As the
PHOTO BY ROBERT HOLMGREN
We’ve made a commitment to both
teaching sustainability and living it.
2006 von Gugelberg Memorial Lecturer on the Environment, former
Environmental Protection Agency administrator Carol Browner
warned about global warming. Last fall, Patagonia founder Yvon
Chouinard pledged that by 2010 his company will make all its clothing
from recycled and recyclable materials.
The 2007 educational initiative of the MBA Public Management
Program, titled “Greening the Bottom Line,” helped students focus on
how sustainability can be a competitive advantage in business. In addition to sponsoring workshops and site visits, students helped our own
Arbuckle Cafeteria implement a composting program, a model for
other facilities on campus as we strive for zero waste.
Faculty have developed fresh case studies such as the greening of
Wal-Mart and Starbucks’ bid to set up a sustainable supply chain.
Another case features venture capitalist Vinod Khosla, MBA ’80, and
investments in ethanol production that are part of his firm’s focus on
green technology.
We know executives are hungry for this material as well. In
September, we held our first executive education program in Business
Strategies for Environmental Sustainability. The course brought
together executives, public agency officials, and nonprofit leaders.
Directed by Professor Bill Barnett, who is also a senior fellow at the
Woods Institute for the Environment at Stanford, it took a multidisciplinary look at environmental issues from supply chain management to
regulatory concerns. The next program will be held Sept. 14–20, 2008.
Last April more than 200 corporate and nonprofit leaders attended
our first conference on “Socially and Environmentally Responsible
Supply Chains: Making the Business Case,” codirected by the Stanford
Global Supply Chain Management Forum and the Center for Social
Innovation. It too will be offered again next April. Alumni will have
an opportunity to join a special three-day back-to-school program
Jan. 11–13, 2008, called “Reduce Your Ecological Footprint: Choose
Environmentally Sustainable Business Practices.” To enroll, see page 14.
Next summer we plan to break ground on an exciting new Business
School campus that will carry our programs forward for 75 years or more.
Our goal is to build for sustainability. Plans are still on the drawing board,
but we are aiming for the highest Leadership in Energy and Environmental Design (LEED) Platinum certification. Some of our goals include
reducing water usage, exceeding current energy efficiency standards, and
recycling 50 to 75 percent of non-hazardous construction debris.
By pushing boundaries as educational innovators we are demonstrating the role universities can play in helping students, executives,
and organizations solve real problems. Much work remains, but we’ve
made a commitment to both teaching sustainability and living it. G
Educating the Next Generation of Leaders at the GSB.
GSB’s goal within The Stanford Challenge:
$500 million
Progress to date (as of 8/31/07):
$372.5 million
Every gift to the gsb counts toward The Stanford Challenge.
For more information, see www.gsb.stanford.edu/giving
STANFORD BUSINESS | NOV 2007
3
Spreadsheet
, WHAT’S UP: NEWS ABOUT THE GSB AND ITS GRADUATES
Around the Globe
in 950 Miles
Was it the hard-boiled egg at
breakfast or the dumplings at
dinner? Thirty-eight days into a
15,200-mile, muscle-punishing,
round-the-world relay run, Sean
Harrington, MBA ’07, didn’t
know what had caused his food
poisoning, but he was happy
to have a recovery day to finish
reading Anna Karenina before
he left Russia.
Harrington and his wife, Brynn,
were the only married couple
among 20 international runners
taking part in the Blue Planet
Run, a feel-good publicity stunt
intended to spread awareness of
the global need for safe drinking
water. Brynn, a nonprofit manager,
had heard about the project at
the 2005 Net Impact Conference
at Stanford, and she and Sean
applied, not dreaming both
would make the cut. On June 1
the Harringtons made a pre-run
PR appearance on NBC’s Today
show, then double-timed it down
to New York’s United Nations
Plaza for the official start of the
event. They would each run 10
4
STANFORD BUSINESS | NOV 2007
miles a day, for a total of 950
miles each, returning to New
York September 4—95 days and
16 countries later.
If aching muscles and the occasional meal gone wrong were
par for the course, Harrington
found them minor annoyances
compared to the thrill of carrying
the baton into Paris and delivering the Blue Planet message in
his rusty French; the surprise of
finding a sushi bar at a truck stop
between Kraków and Warsaw;
the delight of meeting a bunch
of fisherman on Lake Baikal who
thrust a pail of freshly caught
omul, the local delicacy, upon
him; and the sublime joy of
running alone through the vast
quiet of the Gobi Desert.
Harrington was in Germany
when the rest of his Business
School class graduated, but he
plans to return to campus to work
at the Center for Entrepreneurial
Studies this year while he pursues
his own entrepreneurial venture.
“Missing graduation was definitely disappointing,” he wrote
from Bayan Qagan, China, “but I
felt I couldn’t possibly pass up the
opportunity to be a Blue Planet
global messenger. Sometimes it is
hard to pursue idiosyncratic projects that don’t seem to directly
advance your career. However,
I’ve always found that the experience that comes with such unique
opportunities is well worth the
effort and—to use b-school buzzwords—opportunity cost.”
CFOs Rely on People,
Not Just Numbers
It isn’t enough to be a financial
whiz; successful CFOs are also
good politicians, said Al Castino,
chief financial officer of Autodesk,
a desktop design company with
sales that have nearly tripled
since he joined the business. His
success would not have been
possible without understanding
“the levers to influence people,”
Castino, MBA ’77, told an audience
at the Business School, where he
delivered the annual Arjay Miller
Lecture in May.
When Castino arrived at Autodesk in 2002, the company was
living off its bestselling AutoCAD
software and growth was at a
near standstill. Castino wanted
to sell new products, streamline
departments such as accounting,
invest in emerging markets, and
rev up the company’s loyal but
unadventurous employees.
To effect these major changes,
he needed the support of his
people. Drawing on his successful experience, Castino offered
10 tips to aspiring CFOs:
Q
Q
Q
Q
Q
Q
Learn how to lead. Castino’s
predecessor knew finance, but
wasn’t able to persuade company leaders to change.
Build a strong team.
Be honest with employees
and investors.
Share credit for success.
Make things better. Don’t
waste time and money making
them look better.
Be suspicious. The bigger the
Al Castino, MBA ’77
TOP PHOTO COURTESY OF CHRIS EMERICK. LEFT: © COPYRIGHT 2007, THE NASDAQ STOCK MARKET, INC. REPRINTED WITH PERMISSION.
Sean Harrington, MBA ’07,
on Highway 1 near Big Sur.
Q
Q
Q
Q
Q
investment banking fees, the
more wary you should be.
Remember that tech mergers
are not always made in heaven:
Think culture clash, not to
mention software/hardware
incompatibility.
Look to the future: Think
at least five years ahead.
Be sure your financial strategy
parallels and supports your
company’s business strategy.
Keep physically fit. You will
be more creative and engaged
in your work.
Don’t be afraid to try your hand
at running teams and building
companies. If you’re good at it,
the money will come.
On the Eighth Day
God Created Diet Soda
The chairman of the National
Endowment for the Arts has a
recurring nightmare. He is in
Rome visiting the Sistine Chapel.
“I look up at Michelangelo’s incomparable fresco of the Creation
of Man. I see God stretching out
his arm to touch the reclining
Adam’s finger. And then I notice
in the other hand Adam is holding
a Diet Pepsi,” Dana Gioia, MBA ’77,
told Stanford University’s 2007
graduates at their commencement
in June.
Don’t get him wrong. Gioia
loves the free market. He spent 15
years in the food industry and, in
fact, helped invent Jell-O Jigglers.
“But we must remember that
the marketplace does only one
thing,” he said. “It puts a price
on everything.”
Culture conveys value beyond
price, and art is its most valuable
expression, he said. “Art is an irreplaceable way of understanding
and expressing the world. Art
addresses us in the fullness of our
being—simultaneously speaking
to our intellect, emotions, intuition, imagination, memory, and
physical senses. Art restores
our humanity.”
ILLUSTRATION BY PETER HOEY
Saved by a Secretary
If you want to see the view from
the top, you’d better listen to the
view from the bottom. Jeffrey
Bewkes learned this lesson in his
first job after business school.
Bewkes, MBA ’77, had recently
joined Citibank in international
accounting, lending money to
Alumni Snippets
Can You Guess?
17%
Blogs
How many GSB
alums have built or
remodeled a home
since graduation?
35%
15%
RSS
Feeds
22%
24%
Cell
Phones
Pre-1990s
1990s or later
35%
0
10
20
30
40
50
What Digital Information Sources
Do You Use?
Bay Area alums
are more likely to
read blogs than
other alumni:
32%
vs.
23%
Bay Area alums
are more likely
to download
podcasts:
19%
vs.
12%
SOURCE: Stanford Business School Survey of 2007 reunion classes (1957, 1962, 1967,
1972, 1977, 1982, 1987, 1992, 1997, 2002).
ships, when Greek shipping
heiress Christina Onassis called
frantically and asked him to
move $24 million in gold from
Athens to New York. Cold War
tensions were high, and Onassis
was sure the Soviets were poised
to invade Greece.
As Bewkes recalls, he panicked. It was lunchtime and his
bosses were gone. He went in
search of advice and happened
upon a back office where the
clerical staff worked. “Jeff, you
don’t ship gold,” said one of the
clerks. “You sell it in Athens and
buy it in New York.”
Twenty seconds later, it was
done. The woman in the back
room had saved him from his
first business disaster, Bewkes
told a student audience in May
as part of the View from the Top
speaker series. Lesson learned,
Bewkes moved to the fledgling
cable company HBO in 1979 and
became its chief executive in
1995. He is now president and
COO of HBO’s parent company,
Time Warner.
Black-Owned Firms
Face Unique Hurdles
When Robert J. Dale’s small but
lean, black-owned advertising
agency captured a five-year, $100
million contract with the Illinois
Quotable
“Every time I see a Prius, I think
about the parts manufacturer.”
Professor Bill Barnett, explaining that thinking about the
hybrid Prius as a source of new markets rather than as an
environmental statement helps push economic activity
toward more sustainable solutions. Barnett was introducing
his new executive education program, Business Strategies
for Environmental Sustainability.
“This generation has grown up
with a much higher global awareness.
They see what kind of problems
we’re facing and want to be engaged
in solving them.”
Kriss Deiglmeier, executive director of the Business School’s
Center for Social Innovation, explaining to U.S. News & World
Report why business schools are seeing greater numbers of
socially responsible students.
(Answer on Page 7)
Lottery in 2003, it suddenly
found itself subject to capricious
new invoicing rules, an unheardof five audits, and six-month
delays in payments.
Hearing similar stories from
other minority business owners,
Dale, MBA ’73, confirmed that
his experience was not unique.
Black-owned businesses that
become serious competitors
with their white-owned counterparts often experience deliberate
attacks aimed at undermining
their success, he said.
Such obstacles can nevertheless be overcome, Dale, founder
and president of the Chicago
firm R.J. Dale Advertising and
Public Relations, told attendees
of the 2007 Stanford Black
Business Students Association
conference. With the help of a
sophisticated accounting consultant and lawyer, his company
was able to come out a winner—
in fact, it turned out the state
owed the firm money.
One major challenge black
businesses face is lack of access to
capital, Dale said, citing research
indicating that white-owned
businesses secure loans twice as
often as black-owned businesses.
“Banks treat blacks like sellers
instead of buyers of money,” he
said. “They act as though they’re
doing us a favor when we’re
looking for funding. We must
change that attitude.”
Dale urged black students to
persist in considering entrepreSTANFORD BUSINESS | NOV 2007
5
Spreadsheet
MBAClass of ’09 Profile
GENERAL
Total Applications
New Students
Women
International (includes permanent residents)
U.S. Minority
Advanced Degree Holders
YEARS OF WORK EXPERIENCE
Range
Median
0-12
3.9
SCHOOL/GEOGRAPHIC REPRESENTATION
U.S. Institutions
Non-U.S. Institutions
Countries (including the U.S.)
UNDERGRADUATE MAJORS
Humanities/Social Sciences
Engineering/Math/Natural Sciences
Business
neurial careers. “There’s no limit
to what you can accomplish, and
we need you out here,” he told
the audience.
Quant Jock Proves
Naysayers Wrong
Michelle Clayman, MBA ’79,
founded a New York asset management firm that now invests
$6 billion. Not bad for a girl whose
grandmother said her education
would “make her eyeballs spin
around in her head,” Clayman
recalls. Later, after she graduated
from University of Oxford,
Clayman’s father marveled that
she, a girl, had found a job. When
she quit that job to attend the
Business School, he warned
against it, cautioning that she
might never get another position.
Today such antiquated attitudes
are almost funny. But not quite.
Clayman concedes they have left
their mark on her. For example,
when she received an email
inviting her to headline the
Women in Management (WIM)
banquet in May, she demurred,
replying, “Oh my gosh. Am
I interesting enough?”
Well, yes, she is. Clayman is
a pioneer in the male-dominated
6
STANFORD BUSINESS | NOV 2007
5,741
362
38%
34%
23%
11%
79
77
54
46%
35%
19%
First-year students get briefed on all things GSB
at the Schwab Residential Center in September.
TOP 5 INDUSTRIES
Consumer Products (manufacturing & services)
Investment Management 1
Consulting
Nonprofit/Government
High-tech (manufacturing & services)
34%
22%
17%
10%
9%
1
e.g., Investment Banking, Hedge Funds, Private Equity, Venture Capital.
SOURCE: MBA Admissions Office as of September 17, 2007.
field of quantitative analysis
in finance and founded New
Amsterdam Partners, the money
management firm where today
she is managing partner and CEO.
But she still succumbs to
moments of “girly” modesty, she
told the WIM conference, after
finally saying yes to their invitation. She reported she gave in
to similar feelings in 2006, when
she donated $3 million to Stanford’s Institute for Research on
Women and Gender—now the
Michelle R. Clayman Institute
for Gender Research. When she
found out the institution’s leaders
wanted to put her name on it, she
told them, oh, no, you can have
the money but please “don’t
name it for li’l ol’ me.”
Clayman suspects she owes
Michelle Clayman, MBA ’79
football career. He was assistant
coach of the Stanford football
team in the 1960s and head coach
in the 1970s and 1990s. After retiring from coaching altogether,
he rejoined the Stanford Department of Athletics in early 2004
as special assistant to the athletic
director, a position he held until
his death.
Meanwhile, in 2002, Walsh
came to the Business School
to join Foster in developing and
teaching an MBA elective in sports
management. The following year,
Walsh, Foster, and former NFL
wide receiver Gene Washington
created the NFL–Stanford Executive Education Program, an
ongoing offering that is intended
to develop the core business skills
of executives from the league
and its players’ association. In
2005, Walsh, Foster, and Harvard
business professor emeritus
Stephen Greyser combined their
her first finance job at Bank of
America to a group of female
employees that had sued the
company, and she asked her
mostly female audience to remember the women who came
before them. “You have to look
back through history,” she said.
“There are plenty of people
who did something for you.”
Bill Walsh Legacy:
Big League Biz Skills
When Pro Football Hall of Fame
coach Bill Walsh died July 30 at
the age of 75, he was lauded on
sports pages around the country
for his role as teacher and mentor to players in the National
Football League. But there was
more to the story.
“Bill was a master educator in
many areas, whether of players,
coaches, business people, or students,” Business School Professor
George Foster recalled. “He was
always interested in making those
around him continue to learn and
grow and be better people. He
was pivotal in building all the
major sports business initiatives
at Stanford University.”
Walsh had ties to the University
before, during, and after his pro
Bill Walsh, 1931–2007
expertise in The Business of
Sports: Cases and Text on Strategy
and Management.
“Those of us privileged to work
closely with Bill fully appreciate
why so many people from diverse
areas—from the sports world,
the business world, and the
college world—remember his
legacy of innovative thinking
and genuine caring about other
people,” Foster said.
Think Like an Immigrant
Google executive Omid Kordestani remembers growing up
watching an American TV sitcom
about an African American family;
he says it was a defining moment
in his life.
Kordestani, MBA ’91 and
TOP PHOTO BY JOHN LESCHOFS; BOTTOM PHOTO BY ANNE KNUDSEN; WALSH PHOTO COURTESY OF KYLE TERADA/STANFORD ATHLETICS.
For the Record
Google’s senior vice president
of global sales and business
development, was a teenager
when he emigrated from Iran
to England, where he and his
mother and brother intended to
take up residence. There, on the
telly, he encountered The Jeffersons. “There was this incredible
optimism that came through
the show—and that hope is what
drew me to this country,” said
Kordestani at the San Jose State
University (SJSU) commencement
in May. “Even The Jeffersons’
theme song was inspiring—it was
called ‘Moving on Up.’ What the
show embodied, what it illustrated
for me, was a family pursuing
the American dream and they
were—moving on up!”
The young man persuaded his
mother to move on along to the
United States. “There’s something
very special about being an immigrant in the U.S.,” said Kordestani,
who graduated from SJSU in 1984.
“You come here and you just
don’t believe anyone or anything
can make you fail. It is shocking
how much confidence you have
as an immigrant. Inherently, you
are a dreamer—and a fighter. You
come to this country to prove
something to yourself.
“This country was founded
by immigrants; the genes of that
unbounded optimism and free
thought are in all of you,” he told
the SJSU graduates. “With the
unshakeable determination of an
immigrant you can make things
happen. So I encourage all of
you—those who were born here
and those who were not—to act
like an immigrant and think like
an immigrant.”
Talk Dollars and Cents,
Not Parts Per Million
As an advocate for the environment within the Mexican
government, Adrian FernandezBremauntz regularly clashes
with powerful industry groups
and fellow government ministers.
One of his strategies is to talk dollars and cents, as he did when
quantifying air emissions from
one of Mexico’s largest power
plants near the city of Tuxpan,
Veracruz. Fernandez-Bremauntz,
who is president of Mexico’s
Instituto Nacional de Ecología,
estimated that that facility alone
costs $13 million each year in
negative effects on public health,
including premature deaths.
His goal is to show the government that “not doing anything
is going to be more costly to the
country than trying to do something to cut emissions,” FernandezBremauntz told an audience at
the annual Stanford International
Development Conference, which
was devoted to a discussion of
“Energy and the Developing
World: Working Toward a
Sustainable Future.”
Fernandez-Bremauntz has
helped shepherd green housing
developments that will someday
include roughly 400,000 energyefficient homes. He helped introduce low-sulfur fuel standards in
Mexico and has worked on rules
that would require car makers to
label vehicles with fuel economy
information. He measured the
air impact of Mexico City’s new
bus rapid transit system and
found that the new line not only
saved commute time but halved
pollutants that passengers were
exposed to on older buses.
Transparency is the environment’s best ally against powerful
opponents of pollution controls,
Fernandez-Bremauntz has
found. “I have leaked information to the media every other
day for the past 10 years,” he
said, smiling but clearly not
joking. “You have to make a
big splash with the media to
persuade policymakers.” G
And the answer is: 55%
Spring Alumni Reunions
May 2–3, 2008
We’re planning a very special weekend in the spring of
2008 for the classes of 1993, 1998, 2003, and 2007 who
will be celebrating their 15th, 10th, 5th, and 1st reunions.
Join us for two dynamic days at Stanford and a chance
to reconnect with the GSB. Catch up with old friends,
spark ideas for the future, and have an all-around good
time. Make your plans now for May 2–3, 2008, and
watch for more details online.
reunions@gsb.stanford.edu
https://alumni.gsb.stanford.edu/reunions
650.725.3767
Stanford Graduate School of Business
1 9 9 3
1 9 9 8
2 0 0 3
2 0 0 7
STANFORD BUSINESS | NOV 2007
7
Teaching
by Sarah Ruby
Sales SimulatorThrows
Curveballs to Students
Many students objected to the idea that
they couldn’t find the key to the game.
SLOAN FELLOW Jonathan Solomon has renewed sympathy for sales
managers—particularly those he used to employ. That’s because he
took a Business School elective titled Building and Managing Professional
Sales Organizations, a class that simulates the world of selling portable
ultrasound devices.
“I used to crush the VP of sales for not giving me accurate forecasting,” said Solomon, Sloan ’07, who ran a technology and warehousing
logistics company based in the United Kingdom before coming to
Stanford. “I could not understand why he was so far off.”
Solomon has a better idea now that he’s taken the sales class taught by
marketing Professor James Lattin and Lecturer Mark Leslie, cofounder
of Veritas Software. Together they developed a computer-based game
meant to teach sales firsthand.
“They made it clear that there is no magic [to forecasting], that it is
a very complex and difficult thing,” Solomon said.
The game lets students learn by doing.
“It occurred to us that we couldn’t simply lecture the students about
how hard forecasting is—they’d nod their heads but they wouldn’t
really get it,” Lattin said.
A typical day in the internet-based game goes like this:
Solomon and his classmates log on and assume the persona of Taylor
Richardson, a new sales rep facing down a $2 million annual quota.
8
STANFORD BUSINESS | NOV 2007
Students typically simulate a fiscal quarter per sitting, allocating 600 hours to a variety of sales-related tasks such
as qualifying leads and showing off the inventory. As they
divide their time they make decisions: Should they run
extra demonstrations for the large hospital account? Or
would they be better off working on several smaller deals?
The art of the game is to hit on an eager client. As in life,
it’s difficult to tell who those clients are. Deals fall through
with no explanation. Students throw hundreds of hours at
big clients only to lose them. The computer decides which
deals close and which fall through, and Lattin and Leslie
post the results in class. As in a real sales organization, the
best reps are celebrated with fictional oversized checks and
trips to tropical paradise.
“There were a lot of students who objected to this idea
that they couldn’t find the key [to the game],” Lattin said.
But it’s “not about [finding a] secret, it’s about the process
you use to deal with what comes at you.”
That’s not to say there isn’t science to selling. Some customers, particularly large ones, won’t be rushed no matter
how many times Richardson demonstrates the device. The
trick is to spend enough time on each account to keep up the
relationship and devote the rest to developing other leads.
After a few simulated years as sales reps, the students
are promoted to managers. Now they log on to find an
entirely new set of tasks ready to gobble up their hours.
They manage a team of sales reps responsible for bringing
in more than $12 million in sales annually, and some are
better salespeople than others. Richardson must figure out
if working with an inferior sales rep is preferable to the
hassle of looking for his or her replacement. What if the
new hire is just as bad?
Solomon, who said he was a far better manager than sales rep,
described his strategy this way: “Manage people the way they need to
be managed, and when they don’t work, can them.”
His classmates came to the same conclusion. “You’d be surprised
how quickly people start pulling the trigger [on poor performers],”
Lattin said.
Sales managers also have to forecast sales based on information from
individual sales reps. This poses a problem—some reps are overly optimistic; others believe in under-promising and over-delivering. None of
this helps the sales manager, whose job depends on accurate forecasts.
The most successful Richardsons learn to ignore their reps’ own
forecasts and rely instead on what kind of deals the sales team has in the
pipeline. How many big deals are in the works? Historically, how many
big deals end up closing? Likewise, how many small- and medium-sized
deals is each sales rep working on? How many close, statistically?
“Good forecasters look at the pipeline quantitatively,” said Jeffrey
Yuwono, MBA ’07, who also took the class. He doubts he would have internalized this lesson through hypothetical discussion. “It’s just one of
those things you have to go through and try for yourself,” said Yuwono,
who plans to start his own online gaming business.
“What it did give me is a bunch of tools,” he said. “I can look at the
sales team in a completely different light.” G
PHOTO BY SAUL BROMBERGER/SANDRA HOOVER PHOTOGRAPHY
Professor James Lattin exposes students to sales forecasting with the help of an internet-based simulation
game that he developed with the School’s information
technology department and Lecturer Mark Leslie.
New Business Model
by Sarah Ruby
Antidote for Law Firm Burnout
that stay on, more than half doubt they’ll
be working at a law firm in five years.
Guettel’s partner, attorney Mark
Harris, had taken a job at a prominent
New York law firm where in one month
he billed the equivalent of his entire annual salary. For the next 11
SAVE THE LAWYERS. That’s the cause to which Alec Guettel, MBA ’97,
has dedicated himself since 1999, when he and an attorney friend months his work helped pay off the firm’s overhead. Frustrated by
cofounded a company bent on using technology to liberate lawyers what he saw as inefficiency, Harris sat down with Guettel in 1999 to
brainstorm a new legal business model. The result: Axiom attorneys
from the tyranny of the billable hour.
In the process Guettel and his company, Axiom Legal, also have work from home or clients’ offices, eliminating 30 percent of a tradispared clients the exorbitant fees required to keep traditional law firms tional firm’s overhead. Axiom also abandoned the partner structure,
afloat. Axiom hires high-powered lawyers from top firms and corpora- in which top attorneys are paid with revenue generated by younger
tions and matches them up with interesting projects—mostly short-term lawyers, and passed that savings on to clients: Rich partner salaries
assignments from corporate general counsel. These attorneys give up account for another 30 percent of a typical firm’s operating budget.
Axiom’s business model is made possible by the internet. Initially,
the promise of making partner, a sacrifice that some 170 lawyers in New
the company provided researchers and secretaries for its lawyers,
York, San Francisco, and London so far have been delighted to make.
“There’s got to be a better way to do things in this industry,” Guettel but they didn’t get used. The days of dictation and longhand drafting
said. “[Law firms] can be frustrating and inefficient for clients and very are over, and as long as Axiom pays for online research tools, its attorneys are self-sufficient. “Lawyers can access the resources they need
unhappy homes for attorneys.”
Burnout is a common complaint among lawyers, some of whom are from anywhere they can operate a laptop,” Guettel said. “So why pay
expected to bill clients for as many as 2,000 work hours each year. for a mahogany-paneled office in midtown?”
At first it was tough to convince clients to take a chance on a legal
Attrition rates are high, with some 80 percent of associates leaving fancy
law firm jobs within five years of being hired, according to figures com- startup. But in 2001, Axiom landed Reuters, its first blue-chip client,
piled by the Project for Attorney Retention at UC Hastings College of which was making acquisitions in the financial information services
the Law’s Center for WorkLife Law in San Francisco. Of the associates industry. Axiom was able to ride on the reputation of Reuters and
other early clients as it began to develop a
Alec Guettel, MBA’97, in the lounge of an office building in London’s financial district where
brand of its own.
Today its clients include Cisco Systems,
his law firm, Axiom Legal, opened its third office.
Google, Yahoo, eBay, Goldman Sachs, and
Genentech, and the company has just about
doubled revenues each year since 2003, when
it first turned a profit. Last year Axiom took
in $31 million.
“Everyone [in Silicon Valley] is using Axiom
to some extent and considering how to use
[the company] more because of the flexibility,” said Michael Callahan, general counsel for
Yahoo, who started hiring Axiom attorneys
for in-house assignments in mid-2006. “You’re
getting really experienced people. You’re not
dealing with the overhead of the law firm. …
[Axiom attorneys] can walk right in and pick
it up.”
Guettel’s firm caught on relatively quickly
because it fills a demand in the marketplace,
said Peter Zeughauser, an attorney and chairman of the Zeughauser Group, an international legal consulting firm based in Newport
Beach, Calif. “Globalization has generated
more work for lawyers, but it also increased
competitiveness among firms for new business,” he said. Because top lawyers are in
short supply, firms pay incredible salaries to
hire and retain the best, the cost of which is
PHOTO BY JUDE EDGINTON/REDUX PICTURES.
The company cuts overhead costs of traditional corporate
law firms by abandoning the partner structure.
Continued on page 10
STANFORD BUSINESS | NOV 2007
9
New Business Model
passed on to clients. Lawyers, meanwhile, are pressured to bill thousands of hours each year to keep firms afloat, he said.
Clients are looking for ways to cut legal costs at the same time many
lawyers are looking for an alternative to the partner track, in which they
work for the better part of a decade to become partner, a position that
nets even more work and more money. Axiom meets the demand for
change by hiring experienced lawyers, charging less for their services,
and giving attorneys a say in how they want to structure their work
week. It’s an “elegant” solution to several problems, Zeughauser said.
Axiom doesn’t compete with law firm salaries, but it does pay a bit
more than what attorneys would make as in-house counsel, Guettel
said. Lawyers join Axiom as paid employees with benefits, and about
three-fourths of them choose to work full time. If they decide to work
less, they take home less money. Given this flexibility, Axiom employs
more moms than a typical firm, but the overall gender breakdown is
about half and half.
Guettel’s mission is to change the legal profession in a permanent
way, but he doesn’t predict the end of the traditional law firm. Large
mergers and acquisitions are still the domain of big firms, as are class
action and other contingency cases. Besides, Axiom enjoys a “healthy
symbiosis” with law firms, Guettel said. The law firm model relies on
armies of young lawyers to support a few partners at the top. Burnout
and attrition aside, the imbalance creates a constant stream of qualified, firm-trained attorneys from which Axiom can choose.
Axiom’s early backers envision it outgrowing its current niche as
a high-end legal outsourcing agency. Bob Kagle, MBA ’80, an Axiom
investor and partner at Benchmark Capital, sees Axiom leading an
industry-wide revolution facilitated by the internet. He envisions a
clearinghouse of highly qualified attorneys and interesting projects,
an online marketplace that does for legal services what eBay did for
garage sales and flea markets.
“It would be really great if you could find the world’s authority in a
few keyboard strokes,” said Kagle, an early investor in eBay and other
consumer internet companies.
Kagle also was drawn to Axiom because of its potential to empower
lawyers. “It was almost as if [Axiom’s founders] were seeing this as a
liberation of the attorneys,” he said.
Among the liberated is Marlene McLarty, a 1990 Stanford graduate
and a Columbia Law School grad who quit her New York City law firm
job after she had her second child. She stayed home with her children
for a year and a half, psyching herself up for a career change or an eventual return to full-time work. She didn’t think she would get anything
part time.
Then she found Axiom. The company hired her about a year ago,
and she now works four days a week, part time, at a financial services
company 10 minutes from her Westchester home. She turned down a
few full-time assignments in the first six months with Axiom, holding
out for a gig that would fit with her family’s needs, she said. She credits
Axiom with the fact that she’s still a lawyer.
“A lot of what I hated [about being a lawyer] was tied to the fact that
it was in a law firm setting,” she said. “This flexibility I now have makes
me enjoy being a lawyer so much more.” G
Cardinal Rule:
A flat world requires a dimensional education.
The Stanford Sloan Master’s Program is a full-time, intensive academic degree program for mid-career
executives that deepens organizational management skills, provides global perspective, and transforms
leaders for success in the 21st century.
D EVE LO P I N G LEADER S FO R A C HANG ING G LOBAL ECONOMY
www.gsb.stanford.edu/sloan
650.723.2149
10
STANFORD BUSINESS | NOV 2007
Change Lives. Change Organizations. Change the World.
Lighter Side
by Janet Zich
The Unsinkable Art of Holiday Family Poses
IT SEEMED LIKE SUCH A SIMPLE IDEA. “We wanted
to take a very formal picture with us seated in chairs
like the old family portraits back in the 1800s—except
we would be under water,” says Tom Garland, MBA ’88.
“We had my brother-in-law in the swimming pool with
a plastic $5 disposable camera. Unfortunately, we and
the chairs kept floating to the surface. Seventy-two pictures later we got one where we weren’t floating and
didn’t have bubbles obscuring our faces.”
The Unsinkable Garlands appeared on the family’s
2002 Christmas card. It is one of the best examples of
a recent trend in holiday cards: the family photo with
a twist.
Dave Merriwether’s 2006 card, which featured a
portrait of his 4-month-old daughter, Alexa, was a
takeoff on the baby-on-a-bearskin classic. But, surprise: It’s Santa Baby! The photo, which looks as professionally styled as a centerfold, was taken on a whim
with a digital camera by Alexa’s mom, Marla.
But for a shock, take a quick look at Rob Henderson’s
family portrait on his 2003 card. Then take a second
look. Henderson, MBA ’88, says the trick was simple:
“We took a family portrait and used Photoshop to
switch two of the heads after sizing them.” The heads in question were
Henderson’s and that of his youngest daughter, Kayla, then 1 year old.
Ah, Photoshop. Garland received a huge response from his underwater card. Problem was, nobody believed it wasn’t manipulated. He
decided he would show them real manipulation. For his 2003 card, he
Greetings from the Hendersons from left: Nicola; mom Laura
holding dad Rob; 1-year-old Kayla with her arm around Fiona.
picked something recognizable, the Beatles’ Abbey Road album cover,
and used Photoshop to switch his family of five for the four Beatles
(little Tommy was the fifth Beatle). The following year, Garland chose
the Sgt. Pepper album and Photoshopped some of his MBA classmates
into the background.
So what should friends and family expect this holiday season?
Merriwether, MBA ’00, who moved East and looks forward to a real
white Christmas, suggests something along that line. Henderson hints
his card “may involve our little ones emerging victorious in a worldclass athletic event.” And Garland says, “My wife spends a lot of time
driving kids to soccer games. I have not decided yet but I will give you
a small hint: ‘We all live in a yellow minivan, yellow minivan. …’” G
Ho, Ho, Ho from Santa Baby Alexa Merriwether,
who strikes a pose for her mom.
Break out the bubbly for the Garlands from left:
Tom, Peggy, Graham, Colleen, and the ever-buoyant Tommy.
STANFORD BUSINESS | NOV 2007
11
Ghana
by Anne Field
Harvesting an Underwater Forest
the wood but also provide social
and environmental returns.
He has a long way to go before
realizing this triple bottom line,
however. The company has to assess
exactly how many trees are under
water and where; design and construct equipment to harvest them and
carry the wood to shore; and build a sawmill. Plus, it needs to figure
out how to do it all without harming the underwater habitat for fish.
Inspiration for the company came on a cold and miserable fall day
in 2004 as Dunn sat in an Ottawa hotel room during a business trip.
A documentary on television described a Canadian company that
had developed a remote-controlled device to harvest underwater pine
trees in reservoirs in British Columbia. Because the wood was completely submerged, it hadn’t been exposed to oxygen and, as a result,
was in pristine condition.
Dunn, who was running a consulting firm that specialized in socially
responsible business, immediately thought of Ghana, where his wife,
Gifty, was born and raised before moving to Canada. He had met her
in the mid-nineties when they both served on the board of Plenty
Canada, an Ottawa-based group that helped African natives and
Canadian aborigines build more sustainable communities through
programs that provided such resources as instruction in better farming
techniques and new water systems. Since their marriage, Dunn had
spent quite a bit of time in his wife’s native country as a consultant.
Perhaps, he thought, the same harvesting technique would work on
the trees in Volta Lake.
Dunn consulted his unofficial board of advisors starting with his
THE LARGEST MAN-MADE RESERVOIR in the world, covering roughly twice as much land mass as San Francisco Bay, is Ghana’s Volta Lake.
Created by damming a river gorge four decades ago, the 250-mile-long
lake supplied hydroelectric power to a newly independent African
nation. Today it also provides irrigation for farmers, fish habitat supporting commercial fishermen, and transport for people and goods
that need to move from remote inland villages to markets closer to
Ghana’s coast and back.
Yet the lake is also a killer. When the gorge was flooded in 1966,
thousands of hardwood trees were left standing. Many of them lurk
just below the water surface much of the year where they snag the nets
of fishermen and are a collision peril for the long wooden kayaks and
other boats that transport goods and people. At least 300 people in the
region of 2 million have died from boating mishaps—most related to
the underwater hazards.
For Wayne Dunn, Sloan ’97, however, the massive reservoir represents a wonderful opportunity. The underwater forests “could
generate the largest source of environmentally sustainable natural
tropical hardwood in the world,” says the 51-year-old former Canadian
logger with a long-time interest in socially responsible business practices. Dunn is cofounder of a for-profit company headquartered in
Mill Bay, British Columbia, that hopes to not only harvest and sell
12
STANFORD BUSINESS | NOV 2007
PHOTOS BY MICHAEL M. PHILLIPS
Sloan Fellows find a triple-bottom-line business in West Africa.
SLOAN FELLOWS PORTRAITS COURTESY OF CSRD
The Sloan Fellows team, from left: Michael Bush,’94;
Wayne Dunn, ’97; Steve Hicks,’98; and Naa Lamle Wulff,’07.
father, John, once a logger. Then he turned to former Canadian Prime
Minister Joe Clark, whom Dunn had met not long before when Dunn
was a guest speaker at a conference in Africa on corporate social
responsibility that Clark also attended. Dunn knew the former PM had
a long-standing interest in Africa and was working at the Woodrow
Wilson Center in Washington, D.C., so he arranged a lunch meeting to
discuss the Ghana idea. Next, he approached Steve Hicks, Sloan ’98,
a former investment banker and close associate, and Michael Bush,
Sloan ’94, a management consultant specializing in small business. In
October 2005 Clark agreed to cofound Clark Sustainable Resource
Developments (CSRD) to harvest underwater
timber. Hicks came on board as chief admin- Nayon Bilijo,
istrative and financial officer, and Bush Ghana executive
assumed the role of unofficial chief operating director of Clark
officer. Recently Naa Lamle Wulff, Sloan ’07, Sustainable
joined the company’s management team.
Resource DevelopThe lake’s forests had the potential to be ments, stands
highly profitable. They figured each tree was beside a mahogany
likely to sell for $1,500 to $2,500, and possibly tree that was pulled
much more. But they also saw the company from Volta Lake
as having two other bottom lines—providing in order to clear
social improvements in the form of jobs for a transportation
some residents and greater boating safety path for boats.
for others; and reducing the threat to forest The company hopes
environments by satisfying demand for ebony, to harvest many
mahogany, and other hardwoods without more such
removing living trees. In fact, CSRD planned valuable trees.
to plant new trees around the lake and in
other parts of Ghana. “I have never seen a
business opportunity where these dimensions lined up so well,”
Dunn says now.
It was an ambitious plan, but Dunn had a history of doing the seemingly impossible. After quitting high school to become a logger, he
eventually became involved in economic development for indigenous
peoples. His efforts included creating partnerships between the
Miskito Indians in Nicaragua and members of industry and government to increase fishing and forestry job opportunities, and a program
for South African mining companies to help miners with AIDS. Dunn’s
background and experience so impressed the Sloan Program’s administration he was accepted by the highly competitive master’s program
despite the fact that he never attended college.
After seeking cofounders for the Volta Lake project, Dunn knew he
had to persuade the Ghanaian government to go along. In mid-2005,
even before the official company launch, he and Clark initiated discussions with Ghanaian officials ranging from President John Kufuor
to the ministers of harbors and railways and energy. “They were
intrigued by the notion,” Clark says. “But we still had an enormous
amount of work to do.” For example, Dunn says, no country has a “regulatory framework for mining of underwater forests. We had to create an agreement from a base of zero.” Investors couldn’t be expected
Continued on page 14
A motorized canoe
carrying passengers, food, and
other supplies
approaches
Dzemeni, a town
on the east shore
of Lake Volta. On
market days the
boats navigate
around tree stumps
on their journey to
the Afram Plains.
A Dzemeni villager
brings fuel to the
incoming vessel.
STANFORD BUSINESS | AUG 2007
13
Ghana
to sign on without a realistic possibility of government approval. To
keep the project moving, Dunn and Clark funded the company largely
themselves, including taking out a second mortgage on Dunn’s home.
By early 2006, friends and family were considering investing in the
company but not without a signed agreement with the government
of Ghana.
With money running dangerously low 14 days before the Ghanaian
Parliament was scheduled to adjourn, Dunn hopped a plane and spent
a week in intense discussions. It worked. In February Parliament unanimously approved the agreement and the Ghanaian government signed
the deal giving CSRD exclusive rights to the lake for 3 years, and another
15 years during which it can harvest areas of its choosing. In return, the
government is entitled to 20 percent of net profits. Six months later CSRD
closed on a $1.5 million round of financing from friends and family, as
well as London-based City Capital Corp. In February 2007, the company
closed a second round for $12.5 million, this time from a handful of institutional investors, including Goldman Sachs and City Capital Corp.
Getting government approval and investor funding were only two
of the challenges. Just how many trees were beneath the lake? How
would CSRD get them out, process them, and ship the wood? As a first
step, working with a former Ghanaian deputy minister of lands and
forestry, the company located an aerial photograph of the area dating
from after World War II that was digitized and superimposed on
a map of the lake. This produced a rough estimate of the number of
submerged trees, which were also inventoried by boat.
Using more sophisticated sonar technology, the company started
a comprehensive survey of the trees in July and began developing
remote-controlled equipment able to locate, grab, and cut the trees.
Work also is under way designing barges able to carry the logs. “The
more we know about the forest, the more efficient we can be in our
equipment design,” Dunn says. “If the trees are mostly at 100 feet
below, that calls for a different design than if they’re, say, at 50 feet.”
The technology will combine sonar imaging with equipment used
by the off-shore petroleum industry that relies on remote-controlled
devices to operate under water.
Not long after the government and CSRD signed their agreement,
a global environmental group called Conservation International voiced
concern that harvesting the trees could destroy the fish population that
used tree roots for protection. The current sonar evaluation will assess
the condition of the fish and the impact the operation could have on
them. “We will need to cut the trees in a way that doesn’t have a negative effect,” Dunn says.
There’s also the matter of building a sawmill to process the timber,
something still in the planning stages. Fortunately, there are railroad
tracks and paved roads built when the dam was under construction.
“It means we can do processing of logs and manufacture right on site,”
Clark says. By fourth quarter of 2008, they hope to begin harvesting.
At some point the underwater trees will run out. What then? For
the Volta Lake region, Dunn hopes to have created a more sustainable
economy. For example, the lake is heavily used for commerce now, and
water transport is likely to improve dramatically because the danger
of colliding with the trees will have been eliminated. As for CSRD, the
company’s executives are already thinking about underwater trees
in other locations in Africa and Latin America. “The Ghana venture
is bigger than just this one piece,” Dunn says. “Our efforts will move
to different areas where the power of business can profitably drive
environmental and social value as well.” G
Reduce Your
Ecological Footprint:
Choose Environmentally
Sustainable Business Practices
January 11-13, 2008
Schwab Residential Center, Stanford University
Environmental changes are driving individuals and businesses to
reduce their ecological footprints and develop sound water and
energy use practices. There are a myriad of smart environmental
choices for us to make including answering the question:
Can I develop a business advantage by offering the environmentally
sustainable option?
Stanford alumni are invited to explore the issues and solutions. The GSB
in partnership with the Stanford Woods Institute for the Environment will
offer ideas, insights, and solutions to many of our environmental challenges.
Register today at: https://alumni.gsb.stanford.edu/backtoschoolgreen
GSb
bACK 2SCHOOl
14
STANFORD BUSINESS | NOV 2007
Your time at
Stanford was
transformational
Your colleagues will say the same. Only Stanford Executive Education offers
senior executives the chance to learn from world leaders in business research in an
environment unrivaled for openness and collaboration. Tell a friend
• Stanford Executive Program
• Executive Program for Women Leaders
• Strategies and Leadership in Supply Chains
• Leading Family Firms
June 22 – August 5, 2008
May 12 – 16, 2008
August 17 – 22, 2008
August 24 – September 5, 2008: Module 1
January 11 – 23, 2009: Module 2
E X E C U T I V E E D U C AT I O N
www.gsb.stanford.edu/exed
Change Lives. Change Organizations. Change the World.
Green Analysis
by Ben Pimentel
Engineering StudentsTake Apart GSB Buildings
IF IT COULD TALK, the South Building would likely be in a foul mood
these days.
In a few years, the Stanford Graduate School of Business will abandon the 41-year-old edifice from which the GSB emerged as one of the
world’s top b-schools.
And a group of students from the Stanford School of Engineering
has given the building a failing grade.
The South Building was constructed in 1966 as the School, led by
former Dean Ernest Arbuckle, was becoming nationally known as a
leading academic institution for management education. So there’s a lot of history
to be proud of here.
Today, however, the 259,000-squarefoot facility—along with the newer Knight
Building and Littlefield Management
Center—is out of sync with an increasingly green-conscious world. As
people pay more attention to the multiple factors affecting climate
change and pollution, they are asking that buildings contribute less
to the problem.
Engineering students from Assistant Professor John Haymaker’s
class, Goals and Methods of Sustainable Building Design, evaluated the
“green profile” of the existing business school campus last spring, and
all gave it a big fat “F.”
One group pointed to leaky windows and to the outdated storm
water management system. Another, using a rating system that analyzed air quality within the buildings, complained about the lack of
adequate ventilation in some locations.
“It was no one thing, but rather a death by several cuts,” Haymaker
said of the students’ evaluation. “The buildings don’t inspire, don’t provide a comfortable place of work and learning, lack flexibility to meet
an evolving curriculum, are not environmentally friendly to operate,
and lack in the way they provide for community interaction.”
Now it must be pointed out that the students’ analyses were part of
a classroom exercise and not the result of a professional evaluation.
Haymaker’s civil and environmental engineering class was meant
to introduce students, both grads and undergrads, to the concept of
“sustainable design” and the different “environmentally sustainable”
building standards that have emerged over the past decade. That was
when concerns over climate change and the growing impact of society
on the environment prompted builders and designers to come up with
guidelines for greener construction projects.
For Haymaker’s students, the Business School’s plan to move to a
new, state-of-the-art campus offered a unique opportunity. “We used
the GSB as a good case study, as something to sink our teeth into,”
Haymaker said. “It’s great that we can walk through the existing building and have the designer come and talk to us about the [process of
designing the] new building.”
The class analyzed the existing campus based on several standards
now being adopted by more designers and builders amid the rising
concern over the environmental impact of construction projects. The
most widely accepted is LEED, or the “Leadership in Energy and
Environmental Design” rating system from the U.S. Green Building
Council, a trade association for the building industry. LEED rates
a building based on the number of points it earns by meeting performance benchmarks in categories that include power use, water
efficiency, and indoor environmental quality.
An existing building needs at least 32 points to be certified. A building could aim for greater green glory: A score of at least 40 earns a
silver classification, while tallying at least 48 points means a gold rating.
The highest classification is platinum—a building needs at least 64
points to reach that level. (LEED uses a different set of criteria for new
construction. A new building would need at least 26 points for basic
certification, 33 for silver, 39 for gold, and 52 for platinum.)
How green is the existing campus based on LEED?
16
STANFORD BUSINESS | NOV 2007
Pretty pale, according to each group in Haymaker’s class. On one
group’s tally sheet, the campus earned only 11 points. While the School
earned points for what students described as innovative practices—
such as offering compostable cafeteria utensils made from potato
starch—the buildings scored poorly on other key aspects.
The campus, for example, earned only 9 out of a possible 22 points
for “indoor environmental quality,” which includes such factors as
ventilation.
One group observed that “there was inadequate ventilation in many
spaces.” The group cited the walkthrough report of engineering PHD
student Ben Welle who said, “The men’s and women’s bathrooms
don’t get exhaust when supply shuts off, though used 24 hours a day.”
The campus also got poor marks in energy efficiency, with one
group citing the use of incandescent and halogen lighting in some
classrooms. Haymaker’s students pointed to the lack of operable controls in classrooms and offices that prevent occupants from simply
ILLUSTRATION BY MICHELLE THOMPSON/AGOODSON.COM
The South Building flunked the evaluations, but building
a new campus is an opportunity for higher marks.
opening or closing a window to maintain a pleasant indoor temperature.
The existing campus also flunked LEED standards for “light pollution
reduction” because, as one group reported, “The campus focuses on
achieving a feeling of safety at night by using lots of lighting instead
of on decreasing light pollution.” Recommended alternative light
fixtures focus brightness downward.
Students went beyond the green stuff by citing issues that, in their
view, made the South Building a socially unappealing environment.
Junior Jen Tobias, for example, pointed to the Arbuckle Cafe’s subterranean location. “There are a lot of people, but it’s buried down
here,” she said as she gazed around the near-empty cafeteria last
summer. “The feeling we got from talking to people was the cafeteria
was not the place they loved and where they can just hang out for fun.”
Some building rating systems cover areas beyond what are generally understood to be green issues, such as how energy efficient are
the light bulbs or how water-wise the plumbing.
The Sustainable Project Appraisal Routine guidelines, known as
SPeAR, a proprietary system developed by a London-based engineering
firm, includes scores for non-green factors such as employees’ access to
education and training.
Haymaker himself is helping to develop a new standard at the
Stanford School of Engineering called Multi-Attribute Collective
Decision Analysis for Design Initiatives. The system, known by its
quirky acronym MACDADI, takes an even more comprehensive
approach. In evaluating the environmental friendliness of a new construction, MACDADI factors in the preferences and desires of people
who will be using a new construction—faculty, staff, and students, for
example—and others who will be affected by the project—the rest of
the Stanford community and even the city of Palo Alto.
The South Building may have flunked the engineering students’
evaluations, but building a new campus is an opportunity to aim for
higher marks. In fact, Dean Bob Joss and the team planning the new
campus are aiming for the highest score—they want the future Knight
Management Center to go LEED platinum.
The design for the new campus has yet to be finalized, but the planners are looking closely at a host of green features. Those include using
rainwater or recirculated gray water to cut potable water usage for
building sewage and using building materials that emit little or zero
volatile organic compounds that cause poor indoor air quality.
Kathleen Kavanaugh, program manager for the building project, said
designers are also looking into a system that monitors indoor and outdoor temperatures and lets people in a building know when it’s okay
to open their windows to let cool air in. The system is meant to save
money on air-conditioning costs.
“It’s a very green message,” Kavanaugh said. “It’s the easiest way to
communicate your high aspirations. … Pursuing LEED platinum for
the Knight Management Center campus sends a very clear message
about [the GSB’s] position on the important role business plays in the
environmental movement.” G
A Student Group’s Analysis
of Existing GSB
Sustainable Sites
Water Efficiency
Energy & Atmosphere
Materials & Resources
Indoor Environmental Quality
Innovation & Design Process
Total
Yes
Unsure
No
6
1
8
2
9
1
4
4
11
14
9
4
4
0
4
0
4
0
27
46
12
An existing building needs a minimum of 32 points to be certified
as a leader in energy and environmental design.
Entrepreneurs Ponder
WhatTo Do Next
SUCCESSFUL ENTREPRENEURS are like everybody else. They don’t
know what to do with their lives. They aren’t sure how to balance
meaning and money when it comes to work. And they have trouble
managing their time.
The everyday nature of their worries is remarkable in light of their
accomplishments. They’ve started companies, invented the PC fax
modem, and taught themselves molecular biology. Yet, when slightly
more than a dozen of them gathered in May to talk about the rest of
their lives during the second Alumni Entrepreneur Reunion sponsored
by the Business School’s Center for Entrepreneurial Studies, they
sounded like any other group of achievement-oriented people grappling with life’s next steps.
“I find myself positioned very well to do more of the same,” said
a 1996 MBA graduate. He wonders, “What will I want to have done?”
The youngest among them showed the most angst. They’ve had
a few years to play golf, hang out with their children, and dabble in
The youngest among them showed
the most angst. The older alumni seemed
to have lost their fear of regret.
angel investing. Some of them teach, and others joined new companies or nonprofits in an attempt to put their skills to use. It can be
fun, some of them said, but does fun lead to fulfillment?
The older alumni seemed to have lost their fear of regret, if they ever
had it. They were easier on themselves and took obvious pleasure
in each other’s catamaran trips and cross-country bike expeditions—interludes between chairmanships of companies and full-time
philanthropy, teaching, or investing.
That’s roughly the path taken by John Morgridge, MBA ’57, the
former chairman of Cisco Systems, and a lecturer in management at
the School, who led the alumni discussion. When he left Cisco, he
and his wife rode bicycles cross-country, stopping unannounced at
statehouses to visit governors along the way. They met with only one;
the governor of South Dakota hunted for them all over town after
Morgridge left his Cisco card with the receptionist. Now Morgridge
devotes his time to conservation efforts, international development,
university donations, and teaching. He doesn’t appear to be weighted
with regret, but if he thinks about it he might have enjoyed politics
if he’d made time by leaving Cisco sooner.
“It’s probably the only thing that looking back I have missed,”
he said.
The seasoned entrepreneurs had some advice for their younger
colleagues.
“Lighten up,” said Michael Lutz, MBA ’79, a physicist-turnedinventor-turned-sailor-turned-angel investor-turned-teacher. He
recommends packing many careers into a single lifetime but insists
on enjoying the ride.
“I do see too many of my friends just doing what they’ve done all
their life,” he said. “Think about doing something totally new.”
But don’t think too hard, said Ken Saxon, MBA ’88, an entrepreneur
who sold his company and now volunteers for nonprofits and does
some angel investing. You also have to give yourself a break.
“If I’m always looking for the perfect thing, I don’t act,” he said. G
— SARAH RUBY
STANFORD BUSINESS | NOV 2007
17
EXPONENTIAL
EDUCATION
The Business School’s highly selective doctoral program
shapes business education and practice. By MARGARET STEEN
W
WHEN MEMBERS OF THE FEDERAL RESERVE are contemplating
a change in interest rates, one way they predict how the bond markets
will react is to use a model developed by Monika Piazzesi, PHD ’00.
Piazzesi’s work models the relationship between bond prices, which
are tied to interest rates, and trends in the macro economy such as
unemployment or a recession.
She started on this work because one of her professors at the
Stanford Graduate School of Business, Darrell Duffie, has the confidence to tell his students what he doesn’t know as well as what he does,
and then guide them as they find the answers. In Duffie’s class Piazzesi
learned that standard bond pricing models did not take overall economic trends into consideration, an omission she set out to rectify.
Built on this sort of interplay between professors’ research and that
of their students, the GSB’s doctoral program produces work that often
changes the practices of businesses and other institutions. Because
doctoral students must make a substantial, original contribution to
knowledge in their field to earn their degree, faculty members play an
18
STANFORD BUSINESS | NOV 2007
unusual role: They must guide their charges toward answering a question when they don’t know the answer themselves. The answers may
affect how governments auction off access to the public airwaves or
the way businesses do accounting. At the pharmaceutical company
Merck, for example, some executives were known in the 1990s to call
one of their accounting analysis tools “The Darrell.”
The PHD Program is much smaller than the MBA Program, with
only about two dozen new students enrolled each year. Each has his
or her tuition paid and also receives a combination of fellowships and
research and teaching assistantships.
“One of the biggest challenges any PHD student faces is the transition from coursework to independent research,” said Ken Singleton,
the Adams Distinguished Professor of Management, senior associate
dean for academic affairs, and faculty director of the doctoral program,
which has students and faculty in seven different areas of study. The
school is developing its research practicum to help students make
this leap, as well as a teaching practicum so they can gain experience
in the classroom.
The PHD Program is critical to the Business School’s culture as an
academic institution as well as to the scholarly reputations of its
tenured faculty, nearly all of whom are considered top scholars in their
field and who continue to produce new insights, partly by guiding the
PHOTO BY STEVE NIEDORF
Monika Piazzesi, PHD ’00 and professor at the University of Chicago,
is “probably the superstar of the new generation of specialists in
asset pricing,” says her GSB thesis advisor, Darrell Duffie.
research projects of PHD students. Because the program trains future
teachers at other institutions, it also helps disseminate the GSB’s
approach to business education. Recent doctoral graduates have been
hired at universities that include Harvard, Massachusetts Institute of
Technology, Columbia, Northwestern, the University of Pennsylvania,
and the University of Chicago.
The program is “one of the things that make this place a great
intellectual environment,” said Mary Barth, the Joan E. Horngren
Professor of Accounting and senior associate dean for academic affairs.
“It’s great to have young minds around who are asking ‘why?’”
As the faculty expands and becomes more engaged in research
that requires a greater number of assistants, the PHD Program may
grow slightly, Singleton said. Faculty like to collaborate with PHD
students because “it increases people’s productivity and enjoyment
and strengthens the School as a whole,” he said.
Doctoral students also like to collaborate with faculty and often
develop lifelong working relationships with their mentors. Here are
examples of PHD alumni and four Business School faculty whose
intellectual reach was expanded through their former students.
NONMARKET FORCES ON BUSINESS
In 1988 when Christophe Crombez, a college student in Belgium, was
looking through brochures for graduate programs, he happened on
one that seemed a perfect combination of his interests in politics and
economics: a PHD in political economy from the Stanford Graduate
School of Business. It was, at the time, an unusual field of study, so he
asked his professors for advice. They spoke very highly of the Stanford
professor who had set up the program and encouraged him to apply.
That Stanford professor was David Baron, today the David S. and
Ann M. Barlow Professor of Political Economy and Strategy, Emeritus.
Baron had been working at the intersection of business, economics,
P H D PROGRAM FACTS
annual applicants: over 500 >> acceptance rate: 5 to 8 percent >> entering students each year: 20 to 25 >>
STANFORD BUSINESS | NOV 2007
19
EXPONENTIAL EDUCATION
and politics since the 1970s when he began studying regulation.
As he looked at the calls for deregulation by critics of government
intervention, Baron realized that economics alone couldn’t explain
the interaction between government and business.
Establishing a new field of scholarship doesn’t happen overnight. In
1981, the GSB hired Baron away from Northwestern to focus on how
firms respond to outside pressures. “It wasn’t a recognized field
of study at the time,” Baron recalled. “We sought to change that. Our
objective was to have an impact on business education and to develop this particular area that hovered around government, social
issues, and ethics.” He started developing a base of scholarship on
nonmarket forces; for instance, how outside groups can threaten
boycotts and drive media coverage in an attempt to make companies
change their conduct.
“One of the many things I admire about Dave Baron is how he was
both willing and able to switch from doing world-class research in
the economics of regulation and incentives to doing world-class work
in political economy and nonmarket strategies,” said Dennis A.Yao,
PHD ’84, the Lawrence E. Fouraker Professor of Business Administration at Harvard Business School. Yao, who was hired in 2004 by
Baron’s textbook has become the reference
manual for people working in the business
environment and nonmarket strategy area.
Freeman Spogli Institute for International Studies. He also teaches
a class on European politics and business at the GSB.
Baron’s way of thinking about external forces on business has had
effects beyond academia. Yao said that when he spent three years as a
commissioner at the Federal Trade Commission, Baron’s ideas helped
him analyze the FTC’s relationship to the businesses it regulated,
especially in situations where the regulator lacked critical information
that the firms had.
RESHAPING ACCOUNTING
When Mary Barth researches questions such as whether stockbased compensation should count as an expense, she has firsthand
knowledge of how her results may affect companies. Barth was an
audit partner at accounting firm Arthur Andersen before a conversation with the GSB’s Bill Beaver, the Joan E. Horngren Professor
of Accounting, Emeritus, sparked her interest in getting a PHD.
Today, Barth is firmly rooted in the academic world, but she also
spends half her time as a member of the International Accounting
Standards Board (IASB), which develops and promotes accounting
standards used in more than 100 countries.
“In many cases as a standard-setter, she’s facing questions that the
IASB doesn’t know the answer to. Those questions spur some of her
research,” said Stephen Stubben, PHD ’06 and assistant professor of
accounting at the University of North Carolina at Chapel Hill. As a
student, Stubben worked with Barth to answer some of those questions.
“It is very rare to find someone as accomplished and respected as she is
in both academia and business practice. And I think the reason she’s able
to do that so successfully is that she finds synergies between the two.”
On the question of whether companies should treat stock option
grants as expenses, Barth examined share prices, returns, and
accounting numbers to understand how investors viewed the issue.
“Our studies showed pretty clearly that investors do perceive it as an
expense,” she said.
Research like Barth’s was key to Stubben’s switch from a planned
career as a public accountant to the academic world. “I was interested
in how accounting research could be used to form accounting
standards, which affect the whole economy,” he said. When he came
to Stanford, he hoped to work with Barth.
Harvard, in part to expand that school’s teaching and research in nonmarket strategies, was a PHD student when Baron arrived at Stanford.
He knew about Baron’s work, so he simply went to his office and introduced himself.
“Dave is such a gracious guy,” Yao said. “He said, ‘I’d be delighted
to talk with you—let’s just meet every so often.’ The level of his
commitment to his students has been extraordinary.”
Today, Baron’s contributions in both political science and economics have led to courtesy appointments in both those academic
departments at Stanford. And the field has enough active faculty participants to hold an annual conference and teach courses at many
business schools.
The courses often use Baron’s textbook,
which, Yao said, “has become the reference
manual for people working in the business
environment and nonmarket strategy area.”
Deregulation, the rise of nongovernmental
organizations, and increased media interest
in business all have raised the level of interest
in nonmarket forces on business.
Crombez, PHD ’94, who adapted the ideas
to a European setting and developed a similar
class at the University of Leuven in Belgium,
Doctoral students each year honor a professor whom they consider to be an
said Baron “has been very influential in sevoutstanding mentor. Professors honored in recent years include, from left: Dave
eral fields of research, and has definitely had
Baron, the David S. and Ann M. Barlow Professor of Political Economy and Strategy,
lots of impact on the curriculum of business
Emeritus; Mary Barth, the Joan E. Horngren Professor of Accounting; Darrell Duffie,
schools in the U.S. and abroad.” Crombez now
the Dean Witter Distinguished Professor of Finance; and Bob Wilson, the Adams
Distinguished Professor of Management, Emeritus.
splits his time between Leuven and Stanford’s
P H D PROGRAM FACTS
seven areas of specialization: Accounting; Economic analysis and policy; Finance; Marketing; Operations, information, and technology;
20
STANFORD BUSINESS | NOV 2007
Christophe Crombez, PHD ’94, came
to the Business School because of
Professor Dave Baron’s reputation for
studying the impact of politics and other
nonmarket forces on business. Now
a professor at the University of Leuven
in Belgium, Crombez also teaches
at Stanford.
looked at how capital markets reflected the
different accounting treatments for joint ventures in the United Kingdom, the United
States, and Canada. She helped Peter Joos,
PHD ’97, finish his dissertation on how different accounting systems affected the capital
markets in the European Union.
Barth’s comfort with both the corporate
and academic worlds rubs off as well: Joos
recently left an academic position to work in
Morgan Stanley’s equity research office in
Hong Kong. “It’s like being a professor, but
within a bank,” he said. “It’s a real-world
application of a lot of the stuff I’ve studied.”
PHOTO BY GABRIELA HASBUN
MODELING FINANCIAL RISK
“At the end of my first year, she contacted me, knowing that I had
an interest in her line of research, and asked if I wanted to work with
her on a project that she was just starting,” Stubben said.
The project, which was related to a question facing the IASB, had
to do with how a company’s debt should be accounted for and whether
changes in a company’s credit risk should affect the reported value
of debt. “A lot of people don’t think debt values should incorporate
changes in credit risk,” he said. “But the evidence suggests that it
reflects an economic reality.”
In an extreme case, he explained, if a company has no chance of
paying off a $1 million debt, then that debt has no value. By contrast,
a $1 million debt that is certain to be paid back is highly valuable. Some
people argue that $1 million owed should appear on a company’s
financial statements as a $1 million debt, regardless of credit risk.
And it may seem counterintuitive that the company with the better
credit risk would have a worse balance sheet. Stubben and Barth found
that companies’ stock prices do generally decline when their credit
risk increases. But they fall less for companies with more debt than
for those with less.
Stubben learned more from his work with Barth than just the
outcome of the research, which they and a third author, Leslie Hodder
of Indiana University, are still finishing. “She was teaching me how to
conduct academic research,” Stubben said, from framing questions
to presenting findings.
Barth is also an expert on accounting in other countries. She advised
Kazbi Soonawalla, PHD ’02 and now a tenured lecturer at the London
School of Economics and Political Science, on her dissertation, which
Darrell Duffie’s research on credit-risk modeling takes him to the world’s investment
capitals where he leads seminars on how to measure the risk of loaning
money to a corporation or a country, and how to price credit derivatives
that protect against that risk.
Although Duffie, the Dean Witter Distinguished Professor of
Finance, has done groundbreaking work on credit risk and more generally on securities markets, he is also quick to point out the holes
in the models academic researchers use. As a result, his students have
plenty of research topics.
“When I started working with Darrell during my dissertation,
models of bond prices didn’t relate bond prices to what was going
on in the macro economy,” said Piazzesi, professor of finance at the
University of Chicago Graduate School of Business. “There was no
connection between interest rates and GDP growth or whether we
were in a recession or not. Darrell said early on that this was an important connection to make.”
Building on mathematical models that Duffie and Ken Singleton
had developed, Piazzesi found a way to add these variables to the
models for predicting interest rates.
“There had been some unexplained features in the behavior of
interest rates that only became clear once Monika’s work was done,”
Duffie said. For example, the price of an option to buy a bond reflects
how much uncertainty there is about how much the bond will cost in
the future. A lot of uncertainty means the option is worth more,
since there’s a better chance that the price will go up and make the
option more valuable. For reasons that no one had understood, the
uncertainty regarding bond prices seemed to be greatest for those
options expiring in roughly two years. Now, because of Piazzesi’s
H D PROGRAM FACTS
Organizational behavior; Political economics
>> length of program: 4-5 years >> total phd program graduates: 685 >>
STANFORD BUSINESS | NOV 2007
21
Peter Joos, PHD ’97, wrote his dissertation
on how different accounting systems
affected the capital markets in the
European Union. He currently works
in Morgan Stanley’s equity research
office in Hong Kong.
have the luxury of having Darrell in the office
next door,” she said. “But when there’s something that I find very difficult to think about,
I ask Darrell.”
MARKET DESIGNERS
The Federal Reserve uses Piazzesi’s models in
reverse to assess the potential effects of changes
in interest rates. “They don’t want to generate
big chaos in the financial markets,” she said.
Piazzesi credits Duffie with giving her the idea for some of her
more current work in real estate as well. “In his class, I remember he
mentioned that most of the models we’re using today do not have, for
example, real estate as one of the assets that households choose,” even
though for most households their home is their largest asset. She has
written a number of papers that try to account for real estate when
considering individuals’ investing decisions.
Piazzesi, whose first PHD student graduated earlier this year and is
taking a job at MIT, said she still relies on Duffie for advice. “I don’t
I
Wilson and former students Paul Milgrom, PHD ’79, and Peter
Cramton, PHD ’84, have helped design spectrum auctions, government
auctions of the public airwaves.
Auctions are a particularly good area for economic theorists who
want to gain a deeper understanding of markets and price setting,
because participants tend to be well informed and have a lot at stake,
said Cramton, professor of economics at the University of Maryland.
He recently worked with regulators in the United Kingdom to design
a spectrum auction there. “The distance between the state-of-the-art
theory and the application is essentially zero.”
Spectrum auctions are complicated because the value of different
parts of the spectrum may vary depending on who is buying and what
else they can get along with it.
“It could be that an existing cell phone operator wants to deepen
service and another only wants it to cover the whole country for
national service,” said Milgrom, the Shirley and Leonard Ely Professor
of Humanities and Sciences in Stanford’s Department of Economics.
“It makes this much more complicated than the sale of a single item.”
Along with Wilson, he advised the Federal Communications Commission as a consultant to Pacific Bell in the early 1990s. Many of their
suggestions were adopted wholesale by the FCC.
P H D PROGRAM FACTS
countries represented: over 20 >> average age of new students: 23.5 >> average cost of program: $250,000 G
22
STANFORD BUSINESS | NOV 2007
TOP: PHOTO BY VIRGILE BERTRAND. OPPOSITE PAGE: COURTESY OF EVA MEYERSSON MILGROM.
research, it is more clear that this time profile for uncertainty is connected to the availability of macroeconomic information and to how
the Federal Reserve might act on it.
The Federal Reserve uses Piazzesi’s models in reverse, to assess
the potential effects of changes in interest rates. “They don’t want to
generate big chaos in the financial markets,” she said.
Piazzesi has since extended these ideas and is now the head of the
Program in Asset Pricing at the National Bureau of Economic
Research. “She’s probably the superstar of the new generation of
specialists in asset pricing,” Duffie said.
Decades of research by Robert Wilson and his
academic protégés have influenced markets
for everything from electricity to advertising
to higher education.
Wilson, the Adams Distinguished Professor of Management, Emeritus, was one of
the first people to apply the principles of game
theory—the idea that how people interact in a
market affects the outcome—to market design.
“Bob was very interested in practice,” said
Chris Avery, PHD ’93 and professor of public
policy at Harvard’s Kennedy School of Government. “We were in this very high-powered
program—who can prove the most theorems,
take on the most mathematically challenging problems.” Yet Wilson
said it was OK to think about real-world applications as well.
“What was so extraordinary about Bob as an advisor was that his
students had worked on a wide range of different topics, all connected
broadly to his area of expertise,” Avery said. A few of those topics:
EXPONENTIAL EDUCATION
I
The market for electricity is “the most complex thing you could imagine,” Wilson said. He and Cramton consult with system operators in
the United States and abroad. “The idea is to design these markets that
enable the buyers and sellers to express their preferences and then have
reliable electricity at the lowest possible price,” Cramton said.
I Google, Yahoo, and other internet search engines use auctions to
sell ads on their sites. The losers don’t leave empty-handed, as in a
more traditional auction, but instead pay less for a less desirable
placement for their ad. Michael Ostrovsky, assistant professor of economics at the GSB, who studied with one of Wilson’s students, Alvin
Roth of Harvard University, PHD ’74, has researched these auctions
and figured out how rational advertisers would bid in them.
Understanding bidders’ behavior can help improve the design of these
auctions, making them more efficient and lucrative. Ostrovsky now
advises one of the search engines on ad auction design.
“I think that’s something very much in line with the Bob Wilson
tradition—the research has very direct practical implications,” he said.
I Education may seem far afield from auctions, but game theory can
be used to assess the impact of college admissions programs. Wilson’s
former student Avery has done research that may have played a role
in some colleges’ decisions to change their early admissions policies.
“We documented that colleges were favoring early applicants,” Avery
said. Since students who didn’t have counselors helping them through
the admissions process were less likely to apply early, they were at
a disadvantage.
Wilson’s wide-ranging interests make students eager to work with
him. When Milgrom entered the PHD Program, a fellow student told
him he needed to land Wilson as an advisor, so Milgrom took a class
from Wilson and wrote a term paper extending Wilson’s work on competitive bidding. It worked: “Bob was extremely excited by my paper,”
said Milgrom, who now lives across the street from Wilson and sees
him out walking his dogs. “He said, ‘Well, this is nearly a PHD thesis.
All you have to do is write an introduction and a conclusion.’”
Once they were working with him, students found Wilson a dedicated advisor. “I would go to Bob thinking that I had just discovered
something that had totally invalidated all my results and I would have
to start over,” Avery recalled. “An hour later I’d come out, thinking,
‘Bob just saved my dissertation.’”
It was two of Wilson’s students who started Ostrovsky on his own
research path. Ostrovsky took a class on market design with Roth
and Milgrom, who was visiting at Harvard. “I knew that I liked economics, math, and game theory,” Ostrovsky said. “I was very excited
by this combination. It’s interesting mathematically, it’s very rigorous, and at the same time it has these very obvious real-world applications. However, I didn’t want to just keep doing research on the
same specific markets. I wanted to look at something that hasn’t been
studied before.”
This combination of academic rigor and real-world application is
at the heart of the Business School’s PHD Program, whose graduates’
influence extends to businesses around the globe. “We’re disseminating
a view of the world and management education,” Singleton said. “We’re
enhancing the training of future managers all over the world.” G
PLACE ART AND PHOTO CREDITS HERE
Game theorist Bob Wilson has been a prolific producer of university professors, many of whom came to a 2002 conference held at
Stanford in honor of his 65th birthday. Front row from left: Avraham Beja, ’67, University of Tel Aviv; Steinar Ekern, ’73, Norwegian
School of Economics and Business Administration; Claude d'Aspremont, ’73, University of Louvain; Bob Wilson; Muhamet Yildiz, ’01,
MIT. Middle row: Paul Milgrom, ’79, Stanford; Takao Kobayashi, ’78, University of Tokyo; Peter Cramton, ’84, University of Maryland;
Sridhar Moorthy, ’83, University of Toronto; Jean-Pierre Ponssard, ’72, Ecole Polytechnique; Howard Raiffa, Wilson’s thesis advisor at
Harvard; Peter Jennergren, ’71, Stockholm School of Economics. Back row: Marciano Siniscalchi, ’98, Northwestern; Joseph Sakovics,
’90, University of Edinburgh; David McAdams, ’01, MIT; Alvin Roth, ’74, Harvard; Christopher Avery, ’93, Harvard; Sushil Bikhchandani,
’86, UCLA; and Bengt Holmstrom, ’78, MIT.
STANFORD BUSINESS | NOV 2007
23
Investing
by Bill Snyder
WITH MILLIONS OF BABY BOOMERS closing in on retirement age, saving
money for a comfortable old age is nearly as popular a conversation
topic as sex. There’s no shortage of advice, good or otherwise, as legions
of pricey financial advisors, money managers, and columnists weigh
in, and no shortage of financial products claiming to solve the problem.
But much less attention is focused on managing those hard-won
assets once the aging boomer has cleared his or her desk for the last
time. With the nest egg finally hatched, retirees are faced with a new
set of critical questions: How much can I safely spend every year;
should I buy an annuity; what about long-term care insurance; and is
selling my house a better idea than a reverse mortgage?
William Sharpe, the Nobel Prize-winning economist whose groundbreaking work on the dynamics of the stock market has guided generations of professional portfolio managers, says, “In the old days, you got
a pension or Social Security check and your choices were pretty clear
cut. Now they’re not, and people with money are begging for answers.”
Sharpe, an emeritus professor of finance, is addressing these ques24
STANFORD BUSINESS | NOV 2007
tions as he turns his attention to a nascent field he
calls “retirement economics.” His goal: Lay some of
the theoretical and practical groundwork that will
help financial advisors, including a company he
founded, do a better job guiding retirees and possibly
lead to a new generation of commercially available
retirement tools.
Although Sharpe has shifted his focus in recent years, retirement
economics is by no means a break with his earlier work. The theoretical
underpinnings are similar, and the researcher’s four basic rules, or “pillars,” for investors and their advisors—diversify, economize, personalize,
and contextualize—apply to the retiree and to the younger employee in
the midst of building a portfolio.
Sharpe’s prize-winning work changed the way professional
investors think about stocks. While much of it is rather technical, his
capital asset pricing model, or CAPM, focuses on the relationship
between risk and reward in the context of the entire market. As Sharpe
puts it: “Some investments have higher expected returns than others.
And they are the ones that will do the worst in bad times.” In other
words, if you want higher returns, you’ve got to take some of the market’s overall risk.
In theory, an investor would be assured of a return that equaled that
of the market as a whole if he or she owned a portfolio that encompassed
all traded stocks. In fact, low-cost index funds allow investors to come
PHOTO BY ANNE HAMERSKY
Nobel Laureate Sharpe on
Retirement Economics
close to that ideal state, and are an excellent alternative to traditionally
managed portfolios for many investors, Sharpe says.
It’s important to remember that investments have costs such as
management and brokerage fees that reduce profits. And here’s where
Sharpe takes sharp issue with the conventional “stock-picking”
approach to investing. “A lot of people have a strong vested financial
interest in saying ‘I know how to beat an index fund,’ and if you torture
a body of data long enough it will confess to anything you want. I’d be
skeptical of anyone who assumes there is a simple formula to get something for nothing.”
Now 73 and still working a 50-hour week, Sharpe jokes that he
wants to act “in loco parentis to my potentially deranged older self.”
Humor aside, Sharpe has a serious point: Older people may be less able
as well as general market theory. He maintains that in general there
are two types of risk: market risk and nonmarket risk. Market risks are
conditions that all stocks are subjected to, such as major changes in
the economy, war, or disaster. Since all stocks are affected, this type of
risk pays a significant premium. But nonmarket risk, the kind that
affects a single stock or sector, does not.
In practice, much nonmarket risk can be diversified away. The risk
of holding a stock in an exotic new technology, say hydrogen fuel cells,
could be offset by an investment in a conventional energy company.
And it’s worth noting that although the fuel cell company is probably
a very risky bet, its stock price is not likely to be affected substantially
by the risk that is specific to the company or its technology.
Sharpe’s CAPM theory offers investors a way to quantify risk; it’s called
beta, a concept that has become a standard
financial tool. Beta measures a stock’s relative volatility—that is, it shows how much the
price of a particular stock is likely to jump up
and down when the stock market as a whole
moves. On average a stock with a beta of 1
would move in harmony with the market, while a stock with a beta of 1.5
would likely rise by 15 percent if the market rose by 10 percent, and fall
by 15 percent if the market fell by 10 percent.
While all of this sounds complex, and it is, Sharpe maintains that his
investment philosophy can be summed up with four verbs explained
in his most recent book, Investors and Markets: Portfolio Choices, Asset
Prices, and Investment Advice. In it, and during an interview with
Stanford Business, he explained his four-verb mantra:
The researcher’s four basic rules apply to the retiree and
the younger employee in the midst of building a portfolio.
to make intelligent decisions about complicated financial matters. So
having a plan mapped out in advance “while I can still think clearly”
is essential, he says.
And while many financial advisors tend to separate plans for spending and investing, Sharpe maintains that integrating the two is key to
achieving the right balance and the best results.
Sharpe calls his solution to the spending/investing conundrum “a
lockbox.” Rather than using a rule of thumb that encourages a retiree
to spend a certain percentage of saved assets each year, he suggests
making discrete plans for investing and spending during each year of
retirement. The money in each year’s lockbox is invested independently from other lockboxes, and, barring emergencies, the retiree
spends only the funds in that year’s box.
At some point, it’s possible that Financial Engines, the investment
advisory firm founded by Sharpe, will sell a product built around the
lockbox theory, but not in the next few years, says a spokesman for the
Palo Alto, Calif.-based company.
Meanwhile, Financial Engines already manages about $11 billion
of the assets of more than 150,000 401(k) participants in some 100
companies. Sharpe, who stepped down as chairman of Financial
Engines in 2003, remains on the board but is not active in day-to-day
management of the firm.
The company’s clients are firms that offer 401(k) plans. It provides
personalized advice, typically paid for by the employer, and fund management, paid for by employees who opt for it. For a fee ranging from
0.2 percent to 0.6 percent of the money managed, Financial Engines
will choose a desirable combination of mutual funds available through
their employer for each employee.
How does Sharpe explain the possible contradiction between
founding an investment management and advisory firm and his advocacy of passive investment, index funds, and the like?
Sharpe replies that fees charged by Financial Engines combined
with the fees charged by the funds the company recommends are substantially lower than the typical combination of fees investors pay if
they hire independent financial planners who claim they can help
them beat the market. “We are not trying to help people beat the market,
but by using the tools of financial economic theory and empirical
research we find efficient strategies that provide diversification at low
cost,” he says.
In conversation, Sharpe is disarmingly affable and takes time out to
good-naturedly shoo Henry, his new Bichon Frise puppy, from his home
office in Carmel, Calif. But don’t think he’s always Mr. Nice Guy. Sharpe
can be very tough minded, offering scathing criticisms of conventional
money managers. He once called financial planning “a fantasyland.”
Sharpe’s view of risk and reward underlies retirement economics
This is pretty simple. “For many investors a few
highly diversified low-cost index funds may suffice,” he writes.
I DIVERSIFY.
I ECONOMIZE. If an index fund is right for you, as it is for many
investors, why spend a lot of money on management fees in a likely
vain attempt to beat the market? In financial argot, index funds are
“passively managed”—which means your advisor doesn’t do much
and can’t charge very much. Active management, which includes
stock-picking, costs a lot more. Of course, investors willing to bear
additional risk may want to earmark part of their portfolios to
potentially market-topping ideas.
This may seem obvious, but there’s more to it
than you might think. As an example, Sharpe talks about an investor
who works and owns a home in Silicon Valley. Personalizing her
portfolio might well mean underweighting technology stocks, since
a downturn in the Valley could cost her job and knock a big percentage off the value of her home. So why risk having the retirement
portfolio going down as much with the other ships?
I PERSONALIZE.
Here Sharpe departs a bit in his focus and is
speaking more to the advisor and money manager when he says:
“Asset prices are not set in a vacuum. … It is impossible to choose
an appropriate portfolio without a coherent view of the determinants of asset prices.” In other words, consider the underlying
factors, whether it be CAPM or other theories, that move markets.
I CONTEXTUALIZE.
Because the 1990 Nobel Prize made him something of a celebrity
in the academic community, Sharpe’s words get a lot of attention.
A comment here and there to a journalist has led to speculation that
he has abandoned much of his earlier thinking. Does he really believe
that beta is dead? “Not in my house,” he says wryly.
But Sharpe is quick to add that “when I first published in 1964
I built a very simple model. Since then I and 10,000 other researchers
have thought more about these issues and have much more empirical
data to work with. We’ve added a bit more reality.” G
STANFORD BUSINESS | NOV 2007
25
Knowledge Network
by Meredith Alexander Kunz
HUMANS MAY BE THE ONLY CREATURES to use words, but they share
another form of communication with the rest of the animal kingdom:
body language. And while a gorilla’s chest beating and foot stamping
are obvious dominance displays, human equivalents can be as subtle
as a furrowed brow.
People engage in nonverbal cues all the time. But how do those
wrinkled brows impact a business meeting or a company’s org chart?
That’s the focus of Business School Professor Larissa Tiedens’ recent
research exploring body language and leadership. Tiedens’ insights
can help people harness dominance displays to become better leaders. Because, she says, what you don’t know about nonverbal communication can hurt you.
Although people try to assert their superiority in many different
ways, their nonverbal behavior is powerful simply because it affects
people on a subconscious level, says Tiedens, who focuses on organizational behavior. People notice—and resent—verbal bullying, but outstretched arms and a wide stance do not register the same way. “It flies
under the radar,” she says. “Nonverbal communication is not resisted
as much because it’s less noticed.”
Tiedens has drawn on research by biologists who study the minimal
organizations of the animal world, where forms of nonverbal communication can sway a group. The social behavior of primates and other
26
STANFORD BUSINESS | NOV 2007
species is “a great lens for thinkAssertive and deferential
ing about what might be going
postures send messages
on in human groups,” she says.
that can be more effective
Biologists such as primate
than words because they
expert and Emory University
are less noticed.
Professor Frans de Waal have
demonstrated the pervasiveness
of hierarchy in animal societies. To understand whether human societies also tended to form dominant/submissive pairings and hierarchies as a result, Tiedens crafted experiments to see if she could observe
similar behavior in human groups. In one experiment using pairs of
subjects, one person was directed to behave in a dominant manner. This
prompted the other partner to respond with submission. Tiedens also
learned that subjects felt more satisfied with this hierarchical outcome
than with a situation in which both partners were told to act dominant,
creating a clash, or—interestingly—also more satisfied than in instances
where both partners were asked to act submissive. So at least in some
cases, hierarchy can breed contentment.
Tiedens’ research on nonverbal communication is informed by her
interest in hierarchies generally. Many people find the idea of power
cascading down from the top too restrictive to the individual—and
possibly undemocratic. But Tiedens points to hierarchy’s virtues.
ILLUSTRATIONS BY REMIE GEOFFROI
Dominance and Deference in Pantomime
“Hierarchies clarify roles, responsibilities, and division of labor, as
well as increasing efficiency,” she says. In situations requiring cooperation, rather than competition, tasks are accomplished more quickly
and easily in a hierarchy. Hierarchy does have a downside. “It can be
bad for creativity,” she says, and in competitive situations, deference
can be a problem.
But even if we try not to form a hierarchy, we’ll eventually do so,
Tiedens says. In Silicon Valley, many companies boast of their “flat”
power structures and claim their lack of hierarchy means that every
employee gets a say. But as many who’ve worked in these startups have
found, an informal hierarchy soon takes root. Body language and physical interactions can create “natural” leaders in a group, she says. Such
hierarchies may not benefit the company, however, because they’re
developed without any rational thought. Thus, awareness of dominance
in the workplace is key to defeating unwanted “power moves.”
Examples of dominant human behavior include physical positions
that take up a lot of space or make a person look bigger. For instance,
stretching arms out to one’s sides or placing them on one’s hips;
Even the tone of voice expresses one’s dominance or submission:
A firm, loud, and deep voice is more respected than a high-pitched
or soft one.
If the nature of many of these dominant/submissive displays seems
like received wisdom, that’s because in some ways it is. Historically,
there is a long tradition of studying—and perfecting—physical postures
to “get ahead” in social situations, says Thomas Freeland, a lecturer in
oral communication at Stanford’s Center for Teaching and Learning.
While the very earliest recorded instances of training in gestures to
accompany speech took place in ancient Greece and Rome, early modern Europeans placed a new emphasis on grace and fluidity in physical
postures. “Its origins are in fencing manuals,” he says. In early modern
Europe, courtiers made a study of “using gesture and rhetoric as
a means of self-defense and of presenting arguments,” he says. In the
19th century, French musician François Delsarte believed that specific gestures and facial expressions could trigger universal emotional
responses, and illustrated instruction manuals based on his method
circulated widely in Europe and the United States.
Yet despite its grounding in history and
in the animal world, some find the dominant/submissive dichotomy in Tiedens’
work to be unnerving. For one thing, the
gender implications are a concern: She
acknowledges that dominant moves are
more typically practiced by men, while submissive gestures are more
often seen in women. But that’s not set in stone: “Women are socialized into this behavior,” she says. And while it may be socially unacceptable for women to sit with legs wide, for example, they may be
able to compensate in other ways.
To understand the gender issues better, Tiedens points to other
scholars’ examinations of the difference between how men and
women use dominance. Laurie Rudman of Rutgers University studied verbal exchanges rather than body language and found that when
a woman made an aggressive speech, for example, she was less likely
to be chosen for a new job. That effect was cancelled out, however,
when a woman added language indicating that she cared about people and their needs.
Conveying dominance can be dangerous not only for women. There
are situations in which dominance should be avoided, Tiedens says,
including job interviews, when an outsider is trying to join a new
organization. That echoes the way animals behave: Newcomers to a
tribe or group are expected to show submission, or else are rejected.
However, in job promotion situations, she found, the opposite is true:
Dominance can win you the job.
In addition to Tiedens’ spotlight on these topics, other Stanford
faculty are exploring ways to teach students to use nonverbal communication to become better business leaders. Professor Deborah
Gruenfeld is developing a new elective, Acting with Power, designed to
help MBA students tap into the craft of acting to project their authority.
Gruenfeld says acting can be an effective tool for business students
because it “involves using your voice, body, and your mind to alter
yourself to play a particular role.” Freeland—a trained actor—also offers
a quarterly workshop as part of the Business School’s Management
Communication Program that shows students how to take charge of
their voices and to use gestures more effectively when speaking.
Tiedens says she has reexamined her own behavior since she began
investigating this topic. She has worked on her linguistic patterns, tempering ones that seem overly deferential. And she makes an effort to
appear larger—and thus more powerful. “I try not to stand in a small
way,” she says.
And that made a huge difference. Because in the business world,
harnessing the potential of body language is not just about a person’s
inborn size or strength—anybody can take advantage of these subtle
“power moves” to help level the playing field. G
Newcomers to a group are expected to show submission,
but dominance behavior can win you a promotion.
extending legs or widening knees in standing or seated positions; and
standing or sitting on a table while other people sit lower down are all
dominance displays. Some facial expressions are perceived as dominant, especially those that are angry, like eyebrows drawn across the
face in a long, thick line.
These kinds of nonverbal cues show up everywhere in human
society. Posters depicting Uncle Sam’s tall hat and lanky body, along
with his serious brow and pointed finger, urged people to volunteer
for the Army or buy war bonds, for instance. Famous examples of
experts using dominant behavior include Lyndon Johnson, who towered over cowering senators, and Donald Trump, whose trademark
“you’re fired” seems extra-powerful because of his furrowed brow
and sharply pointed index finger. Tiedens also has conducted
research showing that people who viewed tapes of Bill Clinton’s testimony during the Lewinsky investigation responded favorably to his
angry fist pounding and finger wagging. Clinton’s fury seemed to lend
him extra credibility.
Submissive displays run the gamut from head tilting, bowing, and
nodding to demurely crossing ankles or pressing knees together.
Raised eyebrows and parted lips are expectant—and submissive.
Despite the common stereotype of a tough cop with crossed arms staring down a suspect, Tiedens explains that arm crossing is perceived as
submissive because it makes a person look smaller and self-protective.
Eyebrows, lips, and the angle at which people hold their heads
can convey whether they are taking charge or deferring to others.
STANFORD BUSINESS | NOV 2007
27
Knowledge Network
by Alice LaPlante
Compaq and HP: Urge to Merge Was Right
IN 2001, when Hewlett-Packard’s then-CEO Carly Fiorina announced
that the technology giant proposed to merge with Compaq Computer
Corp., she set off a firestorm of controversy. Michael Dell, CEO of rival
Dell Computer, famously called it “the dumbest deal of the decade,” and
Walter Hewlett, the son of one of the company’s founders, mounted
an aggressive proxy fight to prevent the corporate marriage from being consummated.
Stockholders and the media were fiercely
divided as to the wisdom of the move.
Not any longer. Two years after Fiorina’s
acrimonious departure—which many attributed largely to the 2002 merger—and the promotion of former NCR
head Mark Hurd to lead HP, the consensus has been that the merger
was indeed a good idea.
The change in attitude is due as much to Hurd’s leadership as to the
fact that the logic driving the merger was sound. “Public opinion about
the merger has fluctuated over the years, but people don’t talk about
it anymore because its initial assumptions have been proven right,
and because Mark Hurd is making it work,” says Robert Burgelman,
the Edmund W. Littlefield Professor of Management. With Webb
McKinney, a former HP executive vice president who led HP’s postmerger integration team, Burgelman analyzed the merger to distill
lessons for other managers, which were published in the spring 2006
issue of California Management Review.
“Although the logic of the merger was correct, executing it was difficult,” Burgelman says. Where Fiorina failed—and where Hurd excels—
was in educating HP managers and employees on how to realize the cost
and operational efficiencies and translate those into higher
margins for each business. “This set the stage of achieving
a higher growth rate. By getting HP’s leaders to do a better
job of exploiting the possibilities of the merger and thus the
capabilities of the combined company, Hurd accomplished
what Fiorina couldn’t.”
One of the best things that HP did early on was to
engage in rigorous integration planning while waiting for
the courts and regulatory authorities to approve the merger. Eventually, more than 1,500 people worked full time
on both short- and long-term goals, defining exactly how
the new organization and related decision-making
processes would work, and developing comprehensive
plans for upcoming operational and strategic integration
phases. “The integration planning process was so successful that on the day the merger was approved, the new company was ready to go,” Burgelman says. Because of this
rigorous pre-clearance integration planning, many issues
and problems that typically hinder the effectiveness of
large acquisitions were resolved much more easily than
most skeptics had expected. The short-term goal of cutting
$2.5 billion from operations was exceeded by more than
$1 billion, and short-term market-share losses were lower
than expected.
“However, it was at this point that Fiorina took a wrong
turn,” he says. Because senior management of the combined
companies now focused on executing the very complex
operational integration, the strategic integration aspect of
the merger faltered. For example, HP failed to pick up on key customers’ concerns about the new corporate strategy: Where was the
firm heading after the integration was complete? Would HP be capable of continuing its legacy of breakthrough innovation? Or would it
simply be a more operationally efficient company? “These were valid
28
STANFORD BUSINESS | NOV 2007
questions. And by the end of 2003 things were not going well,”
Burgelman says.
For starters, HP was beginning to miss its longer-term goals. Also, its
estimates about growth of both the business and consumer PC markets
turned out to be overly optimistic. Despite this, top management
declared victory. “But it was too soon. And because senior management
failed to follow through, it failed to achieve the full promise of the merger,” which led to market disillusionment, and the stock price fell.
In summary, Burgelman says, “establishing the logic for the integration and setting the performance goals were right on target. The
pre-clearance integration planning was first-rate. But the strategic
integration aspects of the acquisition raised significant challenges that
the company did not overcome.”
In hindsight—and the takeaway for other firms—the weak feedback
loop between the operational integration process and the firm’s longterm strategic goals prevented management from testing the new
ILLUSTRATION BY JOHN RITTER
Rigorous pre-merger planning led to fast cost cutting
and few initial market-share losses.
strategy with key customers and responding more agilely to longerterm shifts in market direction. “This in turn led to insufficient attention being paid to the multiyear strategic activities required to exploit
all the opportunities created by the merger,” he says. Fiorina should
have kept the large-scale integration team that had been formed for
pre-approval activities. “It could have become much smaller and
more focused during strategic integration, but it should have remained
in place.”
Ultimately, Mark Hurd did “a much better job at reading the market
and adjusting HP’s corporate strategy to reality,” Burgelman says.
“What Fiorina was attempting to do was extremely complicated. She
was trying to change the culture of HP without really understanding
what that culture was like in the first place. Hurd simplified things,
and, recognizing that HP was first and foremost a technology company,
put it on track to leveraging its considerable strengths.”
>Corporate Valuation
Decoding Business Profitability
FOR YEARS, return on investment (ROI) and related financial accounting ratios have been widely used as key measures of business profitability. Now three Business School accounting professors have written an
award-winning paper that shows the economic interpretation of the
ROI metric requires more careful analysis.
For more than 40 years, business professionals and academics have
relied on ROI to infer a company’s economic rate of return, which is
usually conceptualized as the internal rate of return of a firm’s investment projects. Many recognized that financial accounting is subject
to biases that could skew the magnitude of the ROI ratio, but they
tended to believe these effects would average out over time, thereby
enabling parity between ROI and real economic return. On the other
hand, when companies such as those in the
oil industry have been accused of abusing
their market power, as evidenced by excessive
accounting profitability, they tried to explain
away high accounting returns by claiming that
standard metrics do not adequately measure
real economic returns.
“There wasn’t a precise mathematical
understanding of the issue,” said Madhav
Rajan, a professor of managerial accounting
who collaborated on the study with Stefan
Reichelstein, who also specializes in managerial accounting, and Mark Soliman, a financial accountant.
The threesome developed a model that
enabled them to examine analytically and
empirically how a firm’s ROI was affected by
two central variables: accounting conservatism and growth in new investments. They
considered accounting to be conservative if
it resulted in book values that were understated because investments were written off
faster than they should be, given the underlying pattern of project cash flows. Direct
expensing of intangible investments is a prime
example of such conservatism.
The researchers found that accounting conFrom top, Mark
servatism and past growth in investments
Soliman, Stefan
jointly determined how ROI compared to the
Reichelstein, and
Madhav Rajan
underlying economic profitability of a busi-
ness. Given conservative accounting, higher growth tended to depress
ROI, a decline that was accentuated by more conservative accounting
rules. On the other hand, more conservative accounting increased ROI
only if the rate of past growth in new investments was below some
critical value, with the opposite effect emerging for growth rates above
that critical value. To test the theoretical predictions of the model,
the researchers used a data sample of 43,680 firm-year observations
from 1982 to 2002.
The result is a tool for “decoding the economic profitability of a firm
given the accounting profitability reported in the ROI number,”
Reichelstein said. Contrary to earlier examples and numerical illustrations in textbooks and the relevant literature, “we now have a much
more systematic grasp of the linkage between accounting and economic return.”
Both investors and managers can use the tool, “From a management
perspective, it’s perfectly possible that one of your divisions has an ROI
of 15 percent while another one has an ROI of 10 percent,” Reichelstein
said. “You shouldn’t jump to the conclusion that the one giving you
15 percent is the one that’s adding more value to the business.” By
applying the model, taking into account how rapidly both divisions
have been growing and which has assets that may be more subject
to a conservatism, management can more accurately determine the
real economic profitability of both business groups.
The research, which earned best paper awards when presented
at two international accounting conferences, is published as “Conservatism, Growth, and Return on Investment,” in the September 2006
issue of the Journal of Accounting, Auditing, and Finance. —LYN DENEND
>Health Insurance
Private-Payer Rates Increased
by Uncovered Medicare Costs
ARGUING THAT CARING FOR THE UNINSURED has prompted doctors
and hospitals to shift the burden to private payers as a type of “hidden
tax,” California Gov. Arnold Schwarzenegger proposed a universal
health coverage system. The governor cited a study by the New
America Foundation that said private payers are handing over 6 to 11
percent more in order to cover the cost of caring for those without
health insurance.
Not so, counters Daniel Kessler, a professor of economics, law, and
policy at the Business School. He says that health care costs for those
without insurance led to a 1.4 percent increase in private premiums,
compared to a whopping 10.8 percent escalation due to uncovered
costs of MediCal and Medicare from 2000 to 2005.
Using hospital data from the California Office of Statewide Health
Planning and Development, Kessler analyzed how health care
providers shift costs in a study commissioned by the California
Foundation for Commerce and Education, a private, nonprofit
organization affiliated with the California Chamber of Commerce. He
published results in a 2007 paper titled “Cost Shifting in California
Hospitals: What Is the Effect on Private Payers?”
“At least for hospital care in California, the costs of caring for the
uninsured or indigent patients do not impose a heavy burden on private health care costs,” he says. “However, the burden of uncovered
Medicare and MediCal costs is substantial.
“State health policy reforms that seek to cover the currently uninsured are unlikely to lead to significant reductions in private insurance
premiums, at least due to decreases in cost shifting. In contrast, increases in public program reimbursement rates could have an economically
important impact on premiums.” —BEN PIMENTEL
STANFORD BUSINESS | NOV 2007
29
Faculty News
Knowledge,Style,and Enthusiasm Cited
exciting one. He taught us very practical,
useful, and essential tools.” Moore, who
directs SunTELL, the School’s Technology
Experimental Learning Laboratory, has received the Sloan teaching award twice before.
School Welcomes
New Faculty
Students selected three teachers to honor, from left:
Hau Lee, Jeffrey Moore, and Keith Krehbiel.
AN EXPERT ON SUPPLY CHAINS, Hau Lee views students as “co-
production agents” with their teachers. “You are part of the supply
chain,” he told MBA students who honored him with the 2007 MBA
Distinguished Teaching Award. “You ask great questions. You stimulate the discussion, and you challenge the rest of us,” said the Thoma
Professor of Operations, Information, and Technology.
The MBA Student Academic Committee chose Lee from 50 faculty
members who were nominated for the class’s teaching honor.
Meanwhile, doctoral students selected Keith Krehbiel, the Edward
B. Rust Professor of Political Science, for their distinguished teaching
award, and the Sloan Fellows honored Jeffrey Moore, a senior lecturer
in operations, information, and technology.
Students praised Lee for his “exceptional expertise,” and described
him as “engaging, knowledgeable, and humble.” One student wrote:
“This professor manages to balance fun and humor with insight and
knowledge.” Lee is faculty codirector of the Global Supply Chain
Management Forum, an industry-academic consortium that examines
the theory and practice in the field. He has done extensive research—
some of which has been adopted by businesses—such as his work on
security issues associated with supply chains.
Krehbiel also complimented doctoral students. “When you walk
into the classroom, [PHD] students actually know what you do, they
know why you do it, they think it’s important, and they truly want
someday to sort of do the same thing or something close to it or be
somewhat like you. And that makes all the difference in the world.”
Sloan Fellows honored Moore, who taught their core course in
Modeling and Analysis. He “took me from poet to novice modeler,” one
student wrote. Another said, “He turned a very boring subject into an
30
STANFORD BUSINESS | NOV 2007
added expertise in accounting, finance, marketing, and political economy to the Business
School. The new associate professors are
Ernesto Dal Bó, Joseph Piotroski, and Zakary
Tormala. Assistant professors are Dirk Jenter,
Uzma Khan, and Arthur Korteweg.
Nonmarket strategy and ethics courses
will be taught by Ernesto Dal Bó, who comes
from the University of California at Berkeley,
where he taught in both the Haas School of
Business and the political science department. Before earning a doctorate in economics
from the University of Oxford, he evaluated large investment projects
during the Argentine privatization process. His research deals with the
connections between economics and politics, and he has written about
vote buying, coercive influence, and the impact that policies and economic shocks have on social and political conflict. His interest in ethics
originates in concerns with the nature of shared notions of legitimacy.
Joseph Piotroski hales from the University of Chicago Graduate
School of Business. A former tax consultant for Coopers and Lybrand,
he earned his PHD from the University of Michigan. His research
focuses on financial reporting issues such as how financial, legal,
regulatory, and political institutions shape behavior of capital market
participants and on the economic consequences of alternative financial reporting, information dissemination, and governance practices
around the world. Piotroski teaches elective courses in AccountingBased Valuation and Valuation in Emerging Markets. He serves on the
editorial advisory boards of the Accounting Review, Journal of Accounting
Research, and Journal of Accounting and Economics.
Zakary Tormala is a social psychologist who will teach courses on
consumer behavior. His research on attitudes and social cognition
often takes a metacognitive approach by exploring the role of people’s
thoughts about and perceptions of their own thoughts and attitudes
in social and consumer contexts. For instance, he seeks to better understand the feeling of attitude certainty, its origins, and its numerous
implications for evaluative decision making and attitude-relevant
behavior. After earning a PHD from Ohio State University in 2003,
Tormala was an assistant professor at Indiana University.
Dirk Jenter has been an assistant professor of finance at the Sloan
School of Management at MIT, where he was named teacher of the
year in 2005. His research focuses on the interaction of managers with
possibly inefficient capital markets. Recent projects have involved the
capital structure decisions of U.S. firms, option and stock compensation,
PHOTO BY SAUL BROMBERGER/SANDRA HOOVER PHOTOGRAPHY
SIX NEW TENURE-TRACK PROFESSORS bring
insider trading by top managers, and forced CEO turnovers. His working paper “CEO Turnover and Relative Performance Evaluation” was
selected as the best corporate finance paper at the 2006 Western
Finance Association meeting. He is a referee for scholarly journals and
was a faculty research fellow at the National Bureau of Economic
Research. He holds a PHD from Harvard University.
Uzma Khan won the American Marketing Association’s John A.
Howard Dissertation Award and the SCP-SHETH Doctoral Dissertation
Award. She uses psychological and economic principles to explain how
consumers form preferences as she seeks to understand and predict
their behavior and to recommend successful managerial strategies. For
instance, she investigates how a current choice is influenced by prior
unrelated decisions or by similar future choices. Previously an assistant professor of marketing at Carnegie Mellon University, she received
her PHD in marketing from Yale University in 2005 and has consulted
for clients in airline, education, and high-tech industries. She will teach
the MBA course in Strategic Services Marketing.
Arthur Korteweg’s current research estimates the costs of financial
distress for publicly traded corporations, the risk and return trade-off
to private equity investments, and the effect of investors’ uncertainty
on the credit spreads of corporate bonds. He also examines the impact
on portfolio formation of learning about stock return predictability.
He holds an MBA and PHD from the University of Chicago Graduate
School of Business and will teach corporate finance.
Two New Endowed Chairs Filled
FOUR FACULTY MEMBERS recently were honored by being named to
endowed chairs, including two new chairs created by School alumni
and their family members. Two tenure-track faculty also were promoted to full professor.
Faculty member Larissa Tiedens and Peter Henry were named full
professors. Tiedens’ expertise is organizational behavior while Henry’s
field is economics.
Deborah Gruenfeld, a professor of organizational behavior, was
named first holder of the Moghadam Family Professorship, a new
endowed chair created by Hamid Moghadam, MBA ’80, and his wife,
Tina, a Stanford graduate and volunteer. Hamid serves on the board
of the Stanford Management Company and on the Business School’s
Advisory Council and Campaign Steering Committee. He is chairman
and CEO of San Francisco-based AMB Property Corp., with approximately 125 million square feet of industrial
property in 11 countries.
Stefanos Zenios, a professor of operations,
information, and technology, is the first to
hold the Charles A. Holloway Professorship, a
chair created by more than two dozen alumni
and friends to honor a faculty member who
has taught many GSB graduates about entrepreneurship. Douglas Burgum and Robert
Kagle, both MBA ’80, provided the idea and
seed capital for the chair. Significant lead gifts Larissa Tiedens
were provided by Donald Petersen, MBA ’49,
and by Tashia and John Morgridge, MBA ’57.
Two existing chairs were reassigned. Sunil
Kumar, professor of operations, information,
and technology, was named to the Fred H.
Merrill Professorship, and Daniel Kessler,
professor of economics, law, and policy, was
named to the David S. and Ann M. Barlow
Professorship. Both chairs were previously
held by faculty who recently moved to emeritus status, Joanne Martin and David P. Baron. Peter Henry
>Extra Credit
Do SEC Rules on Insider Trading Really Protect?
A SEVEN-YEAR-OLD RULE designed by the Securities and Exchange
Commission to keep permitted insider trades from hurting others
in the market may not be achieving its goal, says Business School
researcher Alan Jagolinzer.
Rule 10b5-1 allows executives, directors, and employees of
public companies to buy and sell shares in their companies via
automatic plans that—once they are initiated—function without
direct input from the owner. By trading within the plans, insiders
are better protected from securities lawsuits, which are often
associated with the selling of shares by insiders. The rule specifies
that insiders may not plan trades while in possession of material,
nonpublic information.
“If the rule was intended to allow only random trades for the
purpose of diversification, it doesn’t appear to be doing that,” said
Jagolinzer, an assistant professor of accounting, after he looked at
five years of trading activity. On average, he found trades conducted
under 10b5-1 outperformed the market by about 6 percent six
months after the trades were executed. This association, he said,
was statistically very strong, suggesting that, on average, trades
appeared more strategically timed than random.
Legal inferences cannot be drawn from his evidence because
there is little information available regarding the underlying process
that generates these patterns. Some possibilities are that insiders
set up their plans to trade profitably with the benefit of long-term
information, or they time the release of certain information—such
as the pre-announcement of quarterly earnings—to enhance
the profits from previously scheduled trades, or they selectively
terminate their plans to prevent pending scheduled trades
from executing unprofitably.
For more details, search online on Jagolinzer Insiders Trade.
Time IS Money When You’re Paid by the Hour
PEOPLE WHO BILL OR EARN by the hour start thinking of time
as a commodity almost equal to cash. They can tell you how much
it will “cost” them to wash the car or go to a movie. And given the
choice, they’re nearly always willing to put in more hours to get
more pay, say Business School researchers Jeffrey Pfeffer and
Sanford E. DeVoe.
In one of their studies, lawyers who were watching their kids
play soccer admitted to mentally ticking away lost income for each
minute they stood on the sidelines. One researcher at Warwick
University has even gone so far as to calculate that the average
British minute is worth a little more than 15 cents, which means
that “across the pond” brushing your teeth results in 45 cents’
worth of “lost” time, while washing a car by hand has a hidden
cost of $4.50.
Pfeffer, the Thomas D. Dee II Professor of Organizational
Behavior, and DeVoe, a Business School doctoral student,
found only employees who were not paid by the hour used
different mental accounting standards for time than for money.
Those paid by the hour, given the choice as to whether they’ll
take time or green bills, said they’ll usually take the latter—
meaning they’re nearly always willing to put in more hours
to get the pay.
“This shows how a commodified view of time spills over into
how people view their personal and leisure time,” Pfeffer said.
The researchers also found that people paid hourly spend about
36 percent less time volunteering than salaried people. G
For more details, search online on Stanford Pfeffer Time Is Money.
STANFORD BUSINESS | NOV 2007
31
Faculty Publications
ACCOUNTING
Delisting Returns and Their
Effect on Accounting-Based
Market Anomalies
Discussion of the
Book-to-Price Effect in Stock
Returns: Accounting for Leverage
FINANCE
Technological Innovation and Real
Investment Booms and Busts
Joseph Piotroski
Peter DeMarzo, Ron Kaniel, and Ilan Kremer
William Beaver, Maureen McNichols,
and Richard Price
Journal of Accounting Research
(Vol. 45, No. 2), MAY 2007
Journal of Financial Economics
(Vol. 85, No. 3), SEPTEMBER 2007
Cost Allocation for Capital
Budgeting Decisions
Information Percolation
in Large Markets
Tim Baldenius, Sunil Dutta,
and Stefan Reichelstein
Darrell Duffie and Gustavo Manso
Journal of Accounting & Economics
(Vol. 43, No. 2/3), JULY 2007
Biases in Multi-Year Management
Financial Forecasts: Evidence
from Private Venture-Backed
U.S. Companies
Christopher Armstrong, Antonio Davila,
George Foster, and John R.M. Hand
Review of Accounting Studies
(Vol. 12, No. 2/3), SEPTEMBER 2007
Management Control Systems in
Early-Stage Startup Companies
Antonio Davila and George Foster
Accounting Review
(Vol. 82, No. 4), OCTOBER 2007
Corporate Governance,
Accounting Outcomes, and
Organizational Performance
David Larcker, Scott Richardson,
and Irem Tuna
Accounting Review
(Vol. 82, No. 4), OCTOBER 2007
Accounting Review
(Vol. 82, No. 4), OCTOBER 2007
ECONOMICS
Evaluating Effects of Tax
Preferences on Health Care
Spending and Federal Revenues
John Cogan, Glenn Hubbard,
and Daniel Kessler
NBER/Tax Policy & the Economy
(Vol. 21, No. 1), 2007
Tradeoffs from Integrating
Diagnosis and Treatment in
Markets for Health Care
Christopher Afendulis and Daniel Kessler
American Economic Review
(Vol. 97, No. 3), JUNE 2007
Is There an Insider Advantage
in Getting Tenure?
The Shopping Momentum Effect
Ravi Dhar, Joel Huber, and Uzma Khan
Journal of Marketing Research
(Vol. 44, No. 3), AUGUST 2007
Where There Is a Will, Is There
a Way? The Effect of Future
Choices on Self-Control
Uzma Khan and Ravi Dhar
American Economic Review
(Vol. 97, No. 2), MAY 2007
Journal of Experimental Psychology:
General
(Vol. 136, No. 2), MAY 2007
Systemic Illiquidity in the
Federal Funds Market
Emotions, Decisions,
and the Brain
Adam Ashcraft and Darrell Duffie
Baba Shiv
American Economic Review
(Vol. 97, No. 2), MAY 2007
Journal of Consumer Psychology
(Vol. 17, No. 3), 2007
Employee Sentiment and
Stock Option Compensation
Preference Fluency in Choice
Nittai Bergman and Dirk Jenter
Nathan Novemsky, Ravi Dhar, Norbert
Schwarz, and Itamar Simonson
Journal of Financial Economics
(Vol. 84, No. 3), JUNE 2007
Journal of Marketing Research
(Vol. 44, No. 3), AUGUST 2007
MARKETING
Where Consumers Diverge
from Others: Identity Signaling
and Product Domains
Ease of Retrieval Effects
in Social Judgment: The Role
of Unrequested Cognitions
Jonah Berger and Chip Heath
Journal of Consumer Research
(Vol. 34, No. 2), AUGUST 2007
Zakary Tormala, Carlos Falces,
Pablo Briñol, and Richard Petty
Journal of Personality & Social Psychology
(Vol. 93, No. 2), AUGUST 2007
Paul Oyer
American Economic Review
(Vol. 97, No. 2), MAY 2007
MANY EXECUTIVES TALK THE TALK ABOUT
SUSTAINABLE BUSINESS PRACTICES. FEW OF THEM
WALK THE WALK.
What’s the most effective way to integrate social and environmental awareness into your
organization’s business strategy? Spend three days in Barcelona with top faculty from
Stanford and ESADE and find out. You will learn the frameworks and tools you need to make
sustainable thinking a practical — and profitable — reality.
STANFORD BUSINESS SCHOOL IS IN BARCELONA.
CORPORATE SOCIAL RESPONSIBILITY: STRATEGIC INTEGRATION AND COMPETITIVENESS
26 – 28 March 2008 / In Partnership with ESADE Business School / Barcelona, Spain
T O R E G I S T E R , V I S I T W W W. S TA N F O R D I N E U R O P E . C O M
32
STANFORD BUSINESS | NOV 2007
Unpacking Attitude Certainty:
Attitude Clarity and Attitude
Correctness
ORGANIZATIONAL BEHAVIOR
Interdependent Sampling
and Social Influence
John Petrocelli, Zakary Tormala,
and Derek Rucker
Jerker Denrell and Gaël Le Mens
Journal of Personality & Social Psychology
(Vol. 92, No. 1), JANUARY 2007
OPERATIONS
Have Your Cake
Psychological Review
(Vol. 114, No. 2), APRIL 2007
Sins of Commission
Jeffrey Pfeffer
Conference Board Review
(Vol. 44, No. 4),
JULY/AUGUST 2007
The Curious Life of Clusters
Long-Term Effects of Subliminal
Priming on Academic Performance
Henry Rowen
Far Eastern Economic Review
(Vol. 170, No. 6),
Hau Lee
Brian Lowery, Naomi Eisenberger,
Curtis Hardin, and Stacey Sinclair
Supply Chain Management Review
(Vol. 11, No. 3), APRIL 2007
Basic & Applied Social Psychology
(Vol. 29, No. 2), JUNE 2007
The Greening of Wal-Mart’s
Supply Chain
Ibsen, Ideals, and the
Subornation of Lies
Erica Plambeck
James March
Supply Chain Management Review
(Vol. 11, No. 5), JULY/AUGUST 2007
Organization Studies
(Vol. 28, No. 8), 2007
Journal of Economics &
Management Strategy
(Vol. 16, No. 3), SEPTEMBER 2007
Note: A Separation Principle for
A Class of Assemble-to-Order
Systems with Expediting
The Pursuit of Relevance in
Management Education
Bribing Voters
Mie Augier and James March
Erica Plambeck and Amy Ward
California Management Review
(Vol. 49, No. 3), SPRING 2007
American Journal of Political Science
(Vol. 51, No. 4), OCTOBER 2007
Operations Research
(Vol. 55, No. 3), MAY/JUNE 2007
The Last Line of Defense: Designing
Radiation Detection-Interdiction
Systems to Protect Cities from
a Nuclear Terrorist Attack
Lawrence Wein and Michael Atkinson
The Study of Organizations
and Organizing Since 1945
James March
Organization Studies
(Vol. 28, No. 1), 2007
JULY/AUGUST 2007
Strategic Activism and
Nonmarket Strategy
David Baron and Daniel Diermeier
Journal of Economics &
Management Strategy
(Vol. 16, No. 3), SEPTEMBER 2007
A Delayed Return to Historical
Norms: Congressional Party
Polarization After the Second
World War
Hahrie Han and David Brady
POLITICAL ECONOMY
Corporate Social Responsibility
and Social Entrepreneurship
David Baron
Ernesto Dal Bó
Introduction to the Special
Issue on Nonmarket Strategy
and Social Responsibility
David Baron and Daniel Diermeier
Journal of Economics &
Management Strategy
(Vol. 16, No. 3), SEPTEMBER 2007
IEEE Transactions on Nuclear Science
(Vol. 54, No. 3, 2 of 2), JUNE 2007
British Journal of Political Science
(Vol. 37, No. 3), JULY 2007
Corruption and Inefficiency: Theory
and Evidence from Electric Utilities
Ernesto Dal Bó and Martín Rossi
Journal of Public Economics
(Vol. 91, No. 5/6), JUNE 2007
Reputation When Threats and
Transfers Are Available
Ernesto Dal Bó, Pedro Dal Bó,
and Rafael Di Tella
Journal of Economics & Management
Strategy (Vol. 16, No. 3), SEPTEMBER 2007
When Do Elections Encourage
Ideological Rigidity?
Brandice Canes-Wrone and
Kenneth Shotts
American Political Science Review
(Vol. 101, No. 2), MAY 2007 G
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STANFORD BUSINESS | NOV 2007
33
Newsmakers
, WHO’S IN THE NEWS: A ROUND-UP OF MEDIA MENTIONS
Keeping Vegas Bright
Walt Higgins, SEP ’89, led Sierra
Pacific Resources, a Nevada
utility company, through energy
crises, the repeal of utility deregulation, and potential bankruptcy.
Now, with the company back
on its feet, he’s retiring. When
an interviewer from the Reno
Gazette-Journal described him
as “the right guy at the right
time” for the company, though,
Higgins was not so sure.
“It’s always hard to know.
I mean, maybe somebody else
could have done a better job,” he
said. “I was committed to Nevada
and wanted Nevada to succeed.
And the state has trouble if its
power company has trouble. And
so maybe it was just a confluence
of fortuitous events that I was
here and very committed to
the company, and the company
needed a leader, and I apparently
had most of the characteristics
it took to lead through that very
difficult time. I’m not sure anyone could say I was the best one
34
STANFORD BUSINESS | NOV 2007
to lead it, but I was here, I knew
the issues, and the board decided
to keep me on even when things
got very tough.”
PHD Alum to Head
Singapore B-School
The new dean of the business
school at Singapore’s Nanyang
Technological University is
Jitendra Singh, PHD ’83. Singh,
who also holds an MBA from the
Indian Institute of Management
in Ahmedabad, has extensive ties
to both academia and business
in India and China, according to
the Financial Times. He has advised Silicon Valley startups and
served on the board of Infosys
Technologies in India.
operated van. Carmel, who is
vice president for business development of StemCyte, which collects and stores stem cells from
umbilical cords, was paralyzed
in a diving accident eight years
ago. He needed to renovate
the apartment so he could get
around in his wheelchair, and
he turned to Andy Bernheimer
and Jared Della Valle, architects
who are about his age.
“Jared and Andy saw me as a
20-something who wanted a great
apartment—it had to be totally
accessible but not look institutional,” he told Dwell magazine.
The result is an open apartment
with roll-in shower, a table without corner legs and a sliding wall
made of light aluminum foam
that Carmel can open and close
from his wheelchair.
Risky ’98 Bail Out
Brought Banks Bucks
In 1998, hedge fund Long-Term
Capital Management was on
the verge of a collapse with the
potential to plunge the financial
markets into chaos. Herbert M.
Allison Jr., MBA ’71, was one
of a handful of business leaders
called to a meeting with a Federal
Reserve officer to see if the
industry could work together
Double-Duty Design
for New York Digs
When David Carmel, MBA ’02,
found a new apartment in New
York, he liked the view and the
elevator access to the garage
where he could keep a hand-
on a bailout plan.
“We had to make big decisions
under conditions of great time
pressure, with large financial
amounts involved, and large risks,
whether we did it or not,” Allison
told Q1, the magazine of the Yale
School of Management. Allison
proposed having the 16 banks
with significant exposure contribute equally to a bailout fund.
He appealed to their “civic
responsibility” and, after some
tense negotiations and emergency board meetings, 14 firms
put in a total of $3.6 billion to take
a 90 percent interest in LongTerm Capital. “The firms actually
made modest amounts of profit
on that investment,” he said.
Media Challenged on
Creation Controversy
Writing in the Los Angeles Times,
Michael Patrick Leahy, MBA ’81,
took on both the recently opened
Creation Museum and the media’s
coverage of it.
The Creation Museum claims
that humans and dinosaurs
coexisted in the early days of
the 6,000-year-old Earth. Leahy,
managing editor of the online
magazine Christian Faith and Reason, disagrees. But he also thinks
the media unfairly portray most
Christians’ beliefs about creation.
“While it plays to the Los Angeles Times editorial board’s sense
of intellectual superiority to pit
the ‘caveman and dinosaur’ crowd
against the learned professors, it
is not an intellectually honest way
to cover the scientific and political
debate surrounding the teaching
of Darwin’s theory of evolution,”
he wrote in an op-ed piece.
Rattled Voter Seizes
Palo Alto City Hall
The first experience Yoriko
Kishimoto, MBA ’79, had with the
Herbert Allison, MBA ’71
city council in Palo Alto, where she
lives, was when she was notified
TOP: PHOTO BY RAIMUND KOCH. LEFT: JULIE BROWN.
David Carmel, MBA ’02, in his
custom-designed wheelchairaccessible home office.
Palo Alto Mayor Yoriko Kishimoto,
MBA ’79, center, in brown jersey,
on Bike to Work Day in May.
that the city was considering raising the speed limit on her street.
“I said, ‘Cars go way too fast
already. What in the world are
they thinking about?’” Kishimoto
told the Palo Alto Weekly. From
there she became more involved
in city planning, and today she
attends ribbon cuttings about
twice a week as mayor.
“I feel like I’m the symbol of
the changing Palo Alto in many
ways,” said Kishimoto, who was
born in Japan and started a technology consulting firm.
Roots of an Olympian
“My hockey career began at the
age of 4 with a super tantrum
at center ice,” Sarah Tueting,
MBA ’05, reminisced in the
Chicago Sun-Times. “White skates
wouldn’t do. I wanted black
skates like my older brother.”
Before coming to Stanford,
Tueting won an Olympic gold
medal with the U.S. women’s
hockey team in Nagano, Japan,
in 1998, and graduated from
Dartmouth with a degree in
neuroscience. She also played
cello in several groups. Today,
she is a business development
manager for Medtronic Inc.
in Minneapolis.
Aloha Wheelwright
Brigham Young University–
Hawaii has tapped Steven C.
Wheelwright, MBA ’69, PHD ’70,
to be its next president. The
campus on Oahu serves 2,400
students from 70 countries.
Wheelwright, an emeritus scholar
of business administration and
former associate dean at the
Harvard Business School, will
be the school’s ninth president.
“We are excited because
we believe in the mission of
Cult Runs Hot and Cold
spiritual with secular learning
and focuses on the development
of character and understanding
in these young people,” Wheelwright told the Deseret News.
Running 100.2 miles in temperatures that can range from the
30s to 117 degrees may not sound
like most people’s idea of a good
time. But when Graham Cooper,
MBA ’97, talks about running the
ultra-marathon known as the
Western States Endurance Run,
he says, “To me, the biggest thing
is making it fun.”
Cooper, who is the CFO of a
pharmaceutical company and
lives in Oakland, Calif., trains by
wearing three layers of clothing to
run up nearby Mt. Diablo. He won
the race in 2006 and placed third
in 2007. “The race is a cult,” Cooper
told the Contra Costa Times.
“It’s the big one—the original.”
Mr. Fery Goes to Idaho
Cutting-Edge Advertiser
The retired CEO of Boise Cascade,
John Fery, MBA ’55, is spearheading a fundraising campaign to
develop a YMCA camp in Idaho.
“I feel that a Y-camp experience
for young boys and girls is a very
Brian McAndrews, MBA ’84,
TOP PHOTO BY STEVE CASTILLO. WHEELWRIGHT PHOTO COURTESY OF BYU.
Wheeling, Dealing
Began with Dirty Dishes
“My two sisters and I had to do
all of the cooking and cleaning,
and my two brothers only had
to take out the trash,” Miriam
Rivera, MBA ’94/JD ’95, recalled
for the online magazine
Latina.com. “I’d engage my
mom in a discussion as to why
this wasn’t fair—sometimes
I went on strike. I actually got
away with it for a while.”
That unofficial training—along
with her Stanford degrees—has
paid off, the magazine said,
because Rivera is now a vice
president and deputy general
counsel for Google, where in
May she beat out Microsoft
in a reportedly billion-dollar
deal with Dell to preinstall
Google desktop software on
most Dell computers sold in
the next three years.
important experience in their
maturing process, gaining independence and establishing their
values,” Fery told the Idaho Business Review.
Fery and his wife are honorary
chairs of the $22 million fundraising campaign for the camp. As of
early July they were halfway to the
goal. “Idaho businesses will be an
important contributor to the camp,
although most of the $22 million
will come from foundations, individuals, and families,” he said.
Steven Wheelwright,
MBA ’69/PHD ’70
BYU–Hawaii because it combines
knows the power of good advertising. When he was 11 and mowing
lawns in Westport, Conn., he didn’t just ask his parents’ friends if
they wanted their lawns mowed.
The young McAndrews put out
fliers with his own slogan—“A
professional job without the
professional price”—and earned
$10 to $15 per lawn mowed.
Today he is on the cutting
edge of the next generation of
advertising as CEO of aQuantive,
the Seattle-based online global
advertising company that
Microsoft has agreed to buy
for $6 billion. The sale has not
tamed his ambitions for his
company. “TV is still the big
kahuna,” he told Washington
CEO magazine. “As TV becomes
digital, we believe we can be
a leader in that space.”
Two School Chums
Create Korean Alliance
Two buddies from Stanford have
helped their companies, Altos
Ventures and DCM, team up to
make investments in South Korea.
“There are a couple of minuses
to working in Korea, one being
it’s a smaller local market. It can
only support a certain size of
company,” Han Kim, MBA ’94,
told the Wall Street Journal. Kim
is general partner and cofounder
of Altos and a former captain in
the U.S. Army Corps of Engineers,
with whom he served two years
in Korea.
The smaller market means
it makes sense for Altos to work
with DCM, where David Chao,
MBA ’93, is cofounder and general
partner. The firm has strong
connections in China, which
can provide a larger market for
Korean technology. G
STANFORD BUSINESS | NOV 2007
35
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C O R P O R AT E
F O U N D AT I O N I N V E S TO R S
AND
2006 – 2007
W
E WISH TO RECOGNIZE AND THANK THE FOLLOWING COMPANIES AND
FOUNDATIONS WHOSE GENEROUS INVESTMENT ENABLES THE STANFORD
GRADUATE SCHOOL OF BUSINESS TO SUPPORT OUR EFFORTS IN THE STANFORD
CHALLENGE, THE UNIVERSITY-WIDE CAMPAIGN TO SEEK SOLUTIONS FOR THE
WORLD’S MOST PRESSING PROBLEMS AND EDUCATE FUTURE LEADERS FOR
THE COMPLEXITIES THEY WILL FACE.
Thank You
Principal Investors
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$500,000 and Above
Capital Group Companies
Reliance Industries Limited
$25,000 - $49,999
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Bain & Company
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Capital One
General Atlantic LLC
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The Manufacturing Institute
McKinsey & Company
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GXS, Inc.
JP Morgan
PIMCO
The Skoll Foundation
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Investors
$10,000 - $24,999
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AMB Property Corporation
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C.V. Starr & Co., Inc.
Chilton Investment Company
Cornerstone Research
Deutsche Bank
Dodge & Cox
Everest Capital
First Republic Bank
Gap Inc.
General Mills Foundation
Jefferies & Company, Inc.
Lexington Partners Inc.
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T. Rowe Price Associates Inc.
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Foundation Inc.
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Guidant Corporation
LG Electronics
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Garrison LLP
Pfizer Inc
The Procter & Gamble Company
Spencer Stuart
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All support acknowledged here was received between September 1, 2006, and August 31, 2007.
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School, please contact: Astrid Thompson,
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