britain’s supercop › sites › gsb › files › 2002may.pdf · graduate school of business,...

Paul Romer on Economic GrowthJohn McMillan on Markets

MAY 2002

Howard Davies, SLOAN ‘80

of Financial Servicesof Financial Services

BRITAIN’SSUPERCOPBRITAIN’SSUPERCOP

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dar JUNE

june 15–16: gsb diploma cere-mony, Stanford commencement

june 20–23: mba Class of1977 25th reunion, Stanfordcampus. Contact Lisa Brownat 650.724.4101 or [email protected]

june 23–july 5: Executiveprogram “Marketing Manage-ment: A Strategic Perspective,”Stanford campus

june 23–august 6: StanfordExecutive Program, Stanfordcampus

june 24–28: New executiveprogram “Teams WithoutBoundaries,” Stanford campus

JULY

july 7–19: Executive program“Financial Management,”Stanford campus

july 21–august 2: “ExecutiveProgram for Growing Compa-nies,” Stanford campus

july 28–august 16:“Stanford–National Universityof Singapore Executive Program in InternationalManagement,” in Singapore

AUGUST

august 4–9: New executiveprogram “Mergers and Acqui-sitions,” Stanford campus

august 4–16: “Executive Program in Strategy and Orga-nization,” Stanford campus

august 12–16: “Executive Program in Leadership: The Effective Use of Power,” Stanford campus

august 25–30: Executive pro-gram “Managing Your SupplyChain for Global Competitive-ness,” Stanford campus.

✱ FUTURE EVENTS

september 8–13: “HumanResource Executive Program:Leveraging Human Resourcesfor Competitive Advantage,”Stanford campus

september 15–20: Executiveprogram “Advanced Manage-ment College,” Stanford SierraConference Center

september 26: First day ofregular mba classes, StanfordBusiness School

October 6–11: Executive program “Electronic Businessand Commerce,” Stanfordcampus

October 13–18: Executive program “Credit Risk Model-ing for Financial Institutions,”Stanford campus

october 18–19: Fall AlumniWeekend and mba classreunions for ’52, ’57, ’62, ’67,’72, ’82, Stanford campus.Contact Claudia Diven at650.725.3767 or [email protected]

november 1: Alumni confer-ence in Hong Kong. ContactLaura Moore at 650.723.2694or moore–[email protected]

See the alumni online calendarat www.gsb.stanford.edu/alumni/events/calendar.html

For details on Executive Education programs, see theadvertisement on page 25 orvisit www.gsb.stanford.edu/exed

MAY

may 3: Half-Century Clubreunion, mba classes of 1925to 1951, Stanford campus.Contact Claudia Diven at 650.725.3767 or [email protected]

may 3–4: mba class reunionsfor ’01, ’97, ’92, ’87. Stanfordcampus. Contact Lisa Brownat 650.724.4101 or [email protected]

may 4: 19th annual BlackBusiness Students AssociationConference, Stanford campus.Contact Nate Brown at650.917.8740 or [email protected]

may 5–10: Executive program“Finance and Accounting forthe Non-Financial Executive,”Stanford campus

may 10: gsb Student show,Stanford campus. Contact Tad Glauthier at [email protected]

may 19–24: Executive program “Leading Changeand Organizational Renewal,”Harvard University

may 22–23: sep 50th Anniversary Berlin Confer-ence, Berlin, Germany. Contact Beverly Smith at650.723.2921 or see www.gsb.stanford.edu/exed/sep50

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F E A T U R E S

16The RegulatorExecutive chairman of Britain’s Financial Services Authority,Howard Davies, Sloan ’80, eschews the traditional formalityof his country but feels right at home as the most powerful financial services regulator in the world.b y j o h n o ’ ry a n

20A Natural History of MarketsIn his new book, economics professor John McMillanexplores markets ranging from ancient bazaars to eBay and explains what makes or breaks a marketplace.b y j o h n m C m i l l a n

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may 2002 • volume 70, number 3

D E P A R T M E N T S

Yesterday 11Hug Club students in 1985wanted to make the BusinessSchool a friendlier, more cuddlyplace to get an mba.

Opinion 12If America is to maintain itsgrowth rate, the governmentneeds to invest in future scien-tists and engineers. by paul romer

Southeast Asia 14Stories from Bangkok(Jonathan Hayssen, mba ’81)and Hong Kong (Regina Ip,Sloan ’87) illustrate the diversity of gsb alumni.

Faculty News 26

Faculty Publications 27

Faculty Research 28Measuring the performance of top-level executives > Freetrade should not be blamed for worker upheaval > Peopleadapt to predicted outcomes >The timing of venture capitalfunding matters

Newsmakers 32Who’s in the news: A roundupof media mentions.

Class Notes 35

32

About This Issue 2

Dean’s Column 3

Spreadsheet 4What’s Up: News about the gsb and its graduates.

Public Management 8How do you talk risk-aversebankers into investing in low-income neighborhoods? by bill youstra, mba ’92

People 10Richard Scurry, mba ’63Kristin Majeska, mba ’94

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COVER: Photo by Jillian Edelstein

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about this issue

Anchoring Your Globetrottingthis magazine might appear to some as having “globalized” since the last issue. We have followed alums, faculty, and students to a variety of locales including Bangkok, Hong Kong, London, and East San Jose. We also report on the “Winning Globally” conference that researchers from the School’s globe Initiative and from McKinsey hosted in January. If youattended the conference, you heard that devising a product that will satisfycustomers around the world is a huge challenge. That is no less true for a magazine than for an automobile or a wine, but at least Stanford Businesshas the advantage of knowing that the bulk of its readers have been exposedto the Business School’s culture and hopefully return physically for a newexposure now and then.

Since we are located on the Stanford campus, we naturally hear moreabout those of you who live and work in the Silicon Valley. While we mustguard against becoming a Silicon Valley-only magazine, some alums wholive elsewhere have said they read this magazine precisely because it keepsthem posted on and attached to an interesting and innovative group of people whose network hub is the gsb and San Francisco Bay Area.

But business these days requires a global perch as well as a local one, and it is that global perch that the globe Initiative folks are trying to betterdefine through research on global companies with wide-ranging styles ofoperation and products. What percentage of alumni/ae would say they work with a global concern? The definitions of global companies need to befirmed up before we can answer this question definitively, but I am certainthe number grows nearly every quarter. The researchers would love to hearabout your global challenges (email [email protected]) and so would the magazine editors (email [email protected]).Whether you’re just down El Camino or half a world away, you are part of an innovative gsb network.

A member of that network, Robert L. Strauss, mba/ma ’84, interviewedJonathan Hayssen, mba ’81, in Bangkok last year while on the way homefrom working on a care project in Sri Lanka; he subsequently wrote thestory on page 14 for Stanford Business. Strauss has known Hayssen sincegoing to Thailand in 1984 on a development assignment. Now, 22 yearsafter serving as a Peace Corps volunteer in Liberia, Strauss is returning to the Corps as country director in Cameroon, where he will manage 135volunteers working in education, health, agro-forestry, and small business.

Closer to home, Bill Youstra, mba ’92 and a former aol vp, has been fol-lowing the innovative community development efforts of his classmate Eric

Weaver in Silicon Valley. Youstra was moved to sub-mit the story on page 8 after observing how Weaver’swork has helped attack the social hardships broughton by dot-com inflation in the late nineties.

Our May cover photograph of Howard Davies,Sloan ’80, was taken by one of Britain’s foremost portrait photographers, Jillian Edelstein. With a string of prestigious awards attached to her name, Edelsteinused her considerable skill to give us a strong image of Britain’s financial regulatory services’ top gun.

E D I T O R

a quarterly publication for

alumni/ae of the stanford university

graduate school of business

PUBLISHERCathy Castillo

EDITORKathleen O’Toole

ASSOCIATE EDITOR (CLASS NOTES)Gale Sperry

ASSOCIATE EDITOR (PRODUCTION)Nan Christensen

ART DIRECTION & DESIGNSteven Powell

CONTRIBUTING WRITERSHelen Chang; Lisa Eunson; John McMillan; John O’Ryan; Paul Romer; Robert L. Strauss, mba/ma ’84;Bill Youstra, mba ’92; Janet Zich

COPYEDITINGHeidi Beck, Lila Havens, Kate Kimelman

PREPRESSPrepress Assembly, San Francisco

PRINTINGGraphic Center, Sacramento

STANFORD BUSINESS Published quarterly (February,May, August, November) by the Stanford UniversityGraduate School of Business (issn 0883-265x). © 2002by the Board of Trustees of Leland Stanford Junior University. All rights reserved. Printed in the UnitedStates. Periodicals postage paid at Palo Alto, ca.

POSTMASTER Send address changes to Stanford Business,Graduate School of Business, Stanford University, Stanford, California 94305-5015.

SUBSCRIPTIONS For nonalumni — $10/year in the u.s.and u.s. possessions and Canada; elsewhere $12/year. For faster delivery outside the u.s., add $14 per year tosubscription payment.

CHANGE OF ADDRESS Alumni Office, Graduate Schoolof Business, Stanford University, Stanford, ca 94305-5015. Phone: 650.723.4046; fax: 650.723.5151; email:[email protected].

CONTACTS For subscription information, permissions,and letters to the editor, contact our editorial office: Stanford Business, News and Publications, GraduateSchool of Business, Stanford University, Stanford, California 94305-5015. Phone: 650.723.3157; fax:650. 725.6750; email: [email protected].

STANFORD BUSINESS SCHOOL OFFICES Admissions:650.723.2766; Alumni: 650.723. 4046; Development:650.723.3356; Executive Education: 650.723.3341.

MAGAZINE WEB SITE www.gsb.stanford.edu/news/bmag

2 STANFORD BUSINESS MAY 2002

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by dean robert l. jossdean’s column

A Commitment to Leadmanagement issues that the Enron story has exposedand am determined to redouble our course and teach-ing efforts in such areas as leadership, values, ethics, anddecision making. Stanford Business School is one ofthose exceptional institutions that makes a critical dif-

ference through our impact and leadership. We have arequired pre-term course in ethics, and issues address-ing ethics are then found in many courses throughoutthe curriculum. We also offer a number of courses underthe subheading of “leadership” in the elective choices.One of our accounting professors is already planning asession to deconstruct some of Enron’s practices.

I assure you that issues of integrity, values, and ethicsin decision making are at the forefront of what we dohere. My own seminar, “Issues in Leadership,” dwelledheavily on issues of integrity and values throughout thereadings and discussions, as I am confident the studentswould report to you. We have accelerated faculty andfundraising efforts to expand our recently developedCenter for Social Innovation, which is developing teach-ing and research around issues of nonprofit managementas well as ethics.

I am committed along with our faculty to raising theawareness and importance of social responsibility andethics throughout the curriculum and the experiencesthat students have while they are here at Stanford. ■

The managed institution is society’s cho-sen instrument for the best way to produceand deliver its goods and services, both pub-lic and private. Management—as embodied in

effective, ethical, disciplined, high-achieving teams ofmanagers—is responsible for how well these institu-tions perform. Worldwide, the difference between out-standing and poor institutional performance can bemeasured in hundreds of millions of jobs and trillionsof dollars of income and wealth gained or lost. It is theresponsibility of the managers within those institutionsto deliver their performance.

Much management skill is learned and developedthrough on-the-job experience. But there is an impor-tant body of knowledge that serves as an essential andlifelong foundation for anyone seeking a satisfying pro-fessional career involving management.

Creating and disseminating that body of knowledgeis a critical part of the mission of the Stanford Gradu-ate School of Business, where we aim to lead the worldin the promotion of learning about management—about what it is, what it does, how it can become better;how to recognize it, develop it, hold it accountable.

The vast majority of our alumni recognize this, butoccasionally we hear from some of you who believemanagement education might have taken a wrong turn.In recent months, I’ve heard from several of you whoare embarrassed by the bad publicity that professionalmanagement is getting in the wake of the collapse of theEnron Corp. Some of you are disturbed that a valuedteacher, a former dean of the school, has been criticizedpublicly for his role on the company’s board of direc-tors, and you want to know what the School’s leader-ship is planning to do about it.

Obviously, something went very wrong at Enron andneeds to be thoroughly investigated and reviewed. Thisis happening now—through the courts, the media, andthe Congress. I have no doubt that this investigation willbe thorough and instructive. As Dean of our School, Iam not going to prejudge anyone on the basis of mediaspeculation and certainly am not going to prejudge BobJaedicke—a person I have known for nearly 37 years tobe of the highest character and competence. Bob willundoubtedly be in the public spotlight for some time andwill be explaining his role on the audit committee andthe board. For me, his professional career and recordhave earned him the right to our patience and consider-ation before making judgments. I have read with inter-est a transcript of his recent testimony before Congress—I suggest it to anyone interested in this matter—and I hope the gsb community will join me in, at least, sus-pending judgment until the whole story has been told.

That said, I share concerns about the far-reaching

I share concerns about the far-reaching management issuesthat the Enron story has exposed and am determined to redouble our course and teaching efforts in such areas as leadership, values, ethics, and decision making.

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SpreadsheetWHAT’S UP News About the GSB and Its Graduates

Civilized table con-versation is not neces-sarily a skill developedby the fast-food gen-

eration. Yet in this gulp-and-goworld, gsb students have madegood food and—more important—leisurely dinner table exchangepart of their student life.

Hungry for dinner fellowship,some 260 mba students signed upthis year for the e@t club. At oneclub event in early March, second-year Victoria Dimitrakopoulos(pouring wine in photo above)cooked up a meal for club par-ticipants including Bart Menayas(left) and Hubert Sonnelet (right)and his wife, Brigitte.

At ordinary standup socialevents, the guests chat with each

other for a few minutes and thenmove on, never getting beyondthe top layer of pleasantries. So,15 to 20 times each quarter, e@tmembers pull up chairs andspend two or more hours sharingfood, drink, and the kind of con-versation that can build realfriendships. “You can make greatfriends when you find yourself inany situation where you spendsome period of time togethertalking,” says Menayas, one ofthe club’s copresidents.

Most dinners involve 10 to 12guests selected through a systemthat mimics the Business School’sbidding system for its electivecourses. Instead of wagering thesilver bullets students use to getinto popular classes, e@t mem-

bers bid chocolates for the chanceto sup on sushi, Indian cuisine, orsome other meal whipped up bya classmate.

“Many Americans find cook-ing scary,” jokes French citizenMenayas. Yet e@t members riseto the occasion. The club has ex-tended its membership to a fewrecent alums, including DanielBeltramo, mba ’94, who hosted adinner featuring wild boar (theresult of a hunting trip) and chut-ney made from Beltramo’s home-grown peaches.

“It’s not all that much harder to cook for 20 than for 4,” saysMenayas. Last year the club host-ed a Friday night lpf to attractnew members. “I think we hadfood for more than 600 people.We got a little carried away, butit was a great evening,” he recalls.

Forensic Gumshoewhen security agencieswant to know where a video-tape or a hostage letter origin-ated, they can turn to StoneyForensic Inc., a Clifton, Va.,business founded by PaulStoney, mba ’84, and his brotherDavid, a forensic scientist. Theircustomers want to know suchthings as, “If this item camefrom near a specific factory, canyou confirm that the activityinside the factory is related toproducing fertilizer or are theowners up to some unpleasantactivity?” says Paul, who hasbeen a consultant to small busi-nesses since 1992. Stoney’s firmprovides answers but often doesnot know what its governmentclients do with the information.

“Following September 11,there has been a large demandfor anything appearing like it

might help identify terroristactivities,” says Paul. “We con-sidered pursuing a rapid growthplan; however, we decided tostick with our original objectiveof selecting only projects wherewe find both the science andend-use exciting and the profit-ability and long-term potentialcompelling.”


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Step in Business but said that itgenerated a great group conver-sation. The discussions were“more intimate than what younormally see in a large class,”said associate professor Debo-rah Gruenfeld, who hosted twodiscussions of the book Our Separate Ways.

The overarching lesson fromthe experience, according tofirst-year Shani Jackson, shouldbe that “a simple idea, carriedforth, can make a huge impacton the culture of the School.”

Gardner Awards in march, the Stanford Busi-ness School Alumni Associationfor the first time presented two

awards named after the lateJohn Gardner to recognize thecontributions of outstandingvolunteers. Jerry Tomanek, mba’73, and Noel Fenton, mba ’63,were honored with the John W.Gardner Volunteer LeadershipAward recognizing 25 years ormore of service to the School.Lynn Utter, mba ’86, and SusanAustin, mba ’93, received theJohn W. Gardner Volunteer Service Awards.

Resources for Global Managerscompanies in globalizingindustries often pay “too muchattention to acquiring assets and too little to how they aregoing to improve their ability to access and serve customers,”said Lorenzo Zambrano, mba’68, at a conference on “Win-ning Globally,” held at the gsbwinter quarter. Zambrano ischairman and ceo of cemex,one of the world’s largestcement companies.

Sponsored by the Stanford/McKinsey globe Initiative andthe gsb’s Global ManagementProgram, the daylong event pro-vided a chance for executivesfrom different leading global

businesses to compare notes on the challenges they face.

In his keynote address, Zambrano cited Stanford ties as an important element incemex’s success. Several otherprominent speakers focused on the challenges of managingbrands, addressing ethicalissues, and sustaining growthin tomorrow’s global economy.

The conference also show-cased initial findings of theglobe Initiative, a research-based study of global firms.Working with a growing num-ber of companies, globe isstudying the mechanisms usedby large firms to address thetensions that arise when theyattempt to “think global, actlocal.” Researchers identifiedseven levers, or “drivers,” thatcompanies use in combinationto resolve global–local tensionsand evaluated which combina-tions work best in differentglobal contexts.

To view globe’s initial find-ings or to learn how you canhelp further gsb research whilegaining insights about your owncompany’s ability to “thinkglobal, act local,” visit globe’sWeb site at www.gsb.stanford.edu/globe or call 650.724.4508.

Winter Readings Break the Icea junkie for books on busi-ness topics, second-year studentJeral Poskey suggested coordi-nating book reading over theDecember 2000 holiday breakwith a discussion to follow inJanuary. Student life directorCourtney Payne took up thechallenge and “Books on Break”became an immediate success.Repeated this past winter, students, faculty, and alumni/aefilled up new book-readinggroups within minutes of theirposting on the gsb Web site.

“It’s always interesting to seewhat other things [the profes-sors] like and to know they aremultidimensional,” first-yearstudent Adrienne Klembara told the Reporter. She read SnowCountry, a book about a Japan-ese geisha, which was chosen byprofessor emeritus Jim March.March provided sushi for twogroup discussions.

In general, readers enjoyed abreak from business books, withnovels being especially popular.First-year student Carl Palmerdid not like reading The Natural

John Gardner, Social Reformer, Dies at 89

John W.Gardner,who played a central role in the creation of Medicareand coined the term “independent sector” to capture the idea ofthe latent potential within America’s nonprofit institutions, died

February 16 at age 89 in his Stanford campus home. A consulting pro-fessor in the School of Education at the time of his death, Gardner joinedthe GSB faculty in 1989 as lecturer in organizational renewal and lead-ership and held a University chair in public service.The School chose himto receive the 23rd Ernest C. Arbuckle Award in 1993. Former GSB DeanArbuckle and Gardner met as Stanford undergraduates, and Arbucklecalled upon Gardner for advice when he first became dean.

Gardner was secretary of health, education, and welfare in the John-son administration, when Medicare was created. He founded CommonCause, a citizens’ advocacy group that aims to make political institutionsmore open and accountable. He also cofounded Independent Sector,

which supports hundreds of non-profit groups nationwide.

Dean Robert Joss recalled meet-ing Gardner in the late 1960s whenJoss was a White House Fellow.(Gardner helped establish the pro-gram.) More than three decadeslater, noted Joss, Gardner inspiredhim to become the School’s eighthdean. “He had a tremendous con-cept of leadership and what itmeant to be a citizen,” Joss said.

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John Scully Wins Arbuckle Award

Thirty-eight members of the MBA Class of 1968 joined nearly 400 other guests at a February dinner to honor John Scully as theSchool’s 32nd Arbuckle Award winner. Scully founded SPO Part-

ners, a private investment firm and merchant bank, two years after earn-ing his MBA degree.

Before turning to a more serious note, Scully and his classmates traded good-natured jibes about Scully’s undergraduate success sellinga product known as Mojo Love Oil.

“1966 to 1968 was an extraordinary juxtaposition of a very prosper-ous economy with a period of political unrest, combined with a gather-ing at the GSB of highly motivated young men. (It was 98 percent men,and half the class was right out ofundergraduate.) We were broughttogether to a school literally blos-soming under the leadership ofErnie Arbuckle,” Scully recalled.

Attending the dinner were 13recipients of MBA fellowships es-tablished by Scully in honor of hisparents. Scully is also chairmanand founder of the Making Wavesprogram that provides tutoring,mentoring, and college guidanceto more than 350 inner-city youth.


Building CapacityWithin Nonprofits“i was panicked the firstweek at the pace, but as thecourse went along, the thingswe talked about fit into a fullpicture,” said Thomas Haar,director of Family ServicesAgency Inc. and one of 49 lead-ers of nonprofit organizationswho participated last summer in the School’s first ExecutiveProgram for Nonprofit Leaders(epnl). They came from healthcare, education, and communitydevelopment organizations.

A similar group of partici-pants was scheduled for thisMarch, and a third session,planned for June, will be heldfor executives of arts organiza-tions. It is a joint project of theSchool’s Center for Social Inno-vation and National Arts Stabi-lization, an arts group interestedin developing the art world’smanagerial and financial skills.

The programs offer much of the same educational frame-work the School long has pro-vided to for-profit leaders in itsexecutive education programs.

The program’s purpose,according to epnl director andfaculty member James Phills, is to provide the growing non-profit sector with the skills to beeffective stewards of the billionsof dollars contributed to theirorganizations every year.

Participants in the first pro-gram said they took away newideas on how to refine their missions, improve their use ofhuman resources, and evaluatetheir effectiveness; they alsomade mentoring friendships.Sheryl Brissett-Chapman of theNational Center for Childrenand Families said she was sur-prised to find how similar herwork was to profit-sector entre-preneurship. Added EdwardKelley of rfk Children’s Action

Corps Inc.: “Nothing hasmoved my thoughts about howI manage my agency more thanthese two weeks.”

Green Opportunitiesfor Entrepreneursfor terry anderson, no vaca-tion beats encountering the wild-life of Botswana’s OkavangoDelta from the top of a horse. If you prefer an elephant, theyare available too but at morethan double the price, or $2,000a day. Licensed by governments,operators of ecotourism servicescan earn large profits and pre-serve natural habitat, Andersontells students, but one problemwith investing in them is thatgovernments can, and often do,

change the terms of the contract.Ecotourism is just one of

many cases of “environmentalentrepreneurship” that Ander-son discusses in a new gsbcourse by that name. Alongwith a course in environmentalregulation taught by RobertGrady, mba ’88, it is made pos-sible by a donation for environ-mental sustainability initiativesfrom Heidi, mba ’90, and DavidWelch of Menlo Park.

Anderson’s course is designedto get students to think of theenvironment as something morethan regulations to cope with oras “the thing that’s left over after

Spreadsheet


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The Business of Options:Time-Tested Principles andPracticesMartin P. O’Connell, JD/MBA ’70John Wiley & Sons, 2001A guide to using options as a tool for investment and managing risk.

Defining Markets, DefiningMomentsGeoff Meredith, MBA ’70,and Charles ScheweHungry Minds Inc, 2001A marketing approach that looks atcustomers as multidimensional beingsand focuses on the concept of genera-tional cohorts as the most influential of five factors that shape marketplacebehavior.

Good to Great: Why SomeCompanies Make the Leap …and Others Don’tJames C. Collins, MBA ’83HarperBusiness, 2001Collins’ attempt to uncover how average companies can morph intogreatness through good old-fashioneddiscipline. Listed on numerous best-book compilations.

Survival Is Not Enough:Zooming, Evolution, and theFuture of Your CompanySeth Godin, MBA ’84The Free Press, 2002An exploration of the classic conceptof Darwinian evolution to explain howbusinesses that embrace change cansurvive and prosper and, conversely,how businesses that resist change are history.

Jews in American PoliticsLouis Sandy Maisel and Ira Forman, MBA ’83 (eds.)Rowman and Littlefield, 2001A look at the tradition of the Jewishengagement in the public life of America. Introduction by Sen. JosephLieberman.

Internet Commerce Metricsand Models in the New Era of AccountabilitySri Jagannathan, Sloan ’96;Jay Srinivasan; and Jerry KalmanPrentice Hall, 2001A framework for e-business investorsand managers that includes businessmodels for content development,community/markets, pricing, cus-tomer acquisition, and infrastructure.

Results from the Heart:How to Instill Commitment in Your Employees by HelpingThem to Fully Develop Their TalentsKiyoshi Suzaki, MBA ’81The Free Press, 2002How creating "mini-companies" withinlarger organizations can have a posi-tive effect on employees’ sense ofpurpose. Foreword by the Dalai Lama.

Strategic Planning for theFamily Business: ParallelPlanning to Unify the Familyand BusinessRandel S. Carlock and John L. Ward, MBA ’69, PhD ’73Palgrave, 2001Help for business families who strivefor improved strategic performanceand family harmony.

New on the Bookshelf

ALUMNI AUTHORS



istan withdrawal and on missiledeployment, offered “10 com-mandments of negotiation.” He cautioned against forcing anagreement on negotiators whentheir constituents don’t supportit. u.s. leaders should work toreduce the tension between Indiaand Pakistan, Shultz said. “Theyneed to contain it, to stop aggres-sive actions, but the situationneeds to evolve” before usefulmediation can begin.

Perry, who helped revise post–Cold War u.s. military strategy,said investment in informationtechnology has paid off in theGulf War, the Balkans, and inAfghanistan, but u.s. battlefieldsuperiority also has promptedenemies to try “asymmetricwarfare,” such as the 9-11attacks. The terrorist threatrequires added effort by publichealth and law enforcementagencies, he said, with specialattention to weapons of massdestruction. He predicted mili-tary action against Iraq in 2002if that nation does not allow unweapons inspections again. ■

making money,” says Anderson,a senior fellow at the HooverInstitution and executive direc-tor of perc—The Center forFree Market Environmentalismin Montana. “We talk aboutturning the environment from a liability, which is what regula-tions make it, into an asset. Wedeal with everything from pay-ing ranchers for damages causedby Yellowstone’s wild wolves outof wolf poster money, to ideasfor converting waste streams,such as steel slag or waste water,into ingredients in other prod-ucts,” Anderson says.

Room for Relaxationroom 100 of the gsb southbuilding was converted in Feb-ruary to a sleek student lounge,outfitted with leather seatingand two large tv screens, thanks to the Class of 2001. While stu-dents have many places to relaxat the Schwab Residential Cen-ter, indoor space for informalmeetings with friends has beenin short supply in the academic

building complex. But the envi-ronment is on the upswing, withthe Class of 2000 renovation of the second floor of JacksonLibrary and the improvement of the South building’s terracefunded by the Class of 1999.

Shultz and Perry onNational Securitytwo stanford sages ofnational security—former Secre-tary of Defense William Perryand former Secretary of StateGeorge Shultz—shared views ofthe world’s current dangers withgsb audiences during winterquarter. Perry, a Democrat, pre-dicted a u.s. showdown withIraq, and Shultz, a Republican,counseled against expecting anyresolution of the India–Pakistandispute over Kashmir in thenear future. Shultz is the gsb’sJack Steele Parker Professor ofInternational Economics Emeri-tus. Perry, a Stanford engineer-ing professor, is an sep ’74 alum.

Shultz, who negotiated withthe Russians over their Afghan-

today

2002YOU COULD have heard a pin drop in anyclassroom of the GSB lastDecember 16, when this photograph was taken highabove the Stanford campus.

Assigned to armed combatair patrol “Operation NobleEagle,” 144 Fighter Wing Cali-fornia Air National Guard pilotCapt. Kirk “Hawk” Hawkinsspent his Sunday piloting hisF-16 fighter jet as he keptwatch over the San FranciscoBay Area skies.

Hawkins, a ’94 Stanford MS engineering graduate,is a fellow fighter pilot ofBusiness School alumnusDavid Fleshman, Sloan ’01,who was called upon in thedays immediately after Sep-tember 11 to help keep theskies over California safe.

PHOTO BY LT. COL. JON TAGGET


by bill youstra, mba ’92public management

Real Business, Real ResultsEric Weaver, MBA ’92, treated an East San Jose neighborhood like an emerging market

and successfully persuaded traditional banks to invest in the community.

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That was the idea, but the sources of money and ofneeded insight are not necessarily the same. This is thestory of how one gsb graduate, drawing on a broader,sustained infrastructure supporting venture philan-thropy, built a successful nonprofit dedicated to improv-ing the quality of life for thousands in Silicon Valley. Indoing so, he consistently relied on the resources andexpertise of other successful managers—from both thenonprofit and for-profit sectors—often facilitated byother gsb alums.

In 1992, a group of Silicon Valley bankers met withPeter Hero, mba ’66, of Community Foundation Sili-con Valley (cfsv) to discuss the challenge of a new fed-eral law, the Community Reinvestment Act, whichrequired banks to invest in low-income communities.While the banks supported the spirit of the law, theystruggled with how to put bank dollars to work withmaximum community development impact while main-taining alignment with the banks’ business practicesand low appetite for risk.

In typical Silicon Valley thinking, the group decidedthat a startup would be their best course. They hiredEric Weaver, mba ’92, who had just graduated from the gsb and had experience working in low-incomecommunities. The original steering committee includedthen-Bank of Santa Clara president Bill Scilacci, mba’49, who would mentor Weaver. Hero offered a cubi-cle, office support, and the good name of cfsv. SiliconValley Bank offered to pay Weaver’s salary while hewrote a business plan for investment in affordable hous-ing and small business.

More than two years of planning, financial model-ing, and market analysis went into the original plan. “Iwanted to look at underserved neighborhoods like EastSan Jose as emerging markets and figure out what sortof demand they represented,” Weaver explains. “Therewas a credit gap. Dollars were flowing out of these com-munities. They showed classic signs of decay: deterio-rating commercial strips, vacant lots, and abandoned

buildings. Clearly, there was theopportunity to bring in someoutside capital. The trick was tomake it worthwhile as an invest-ment for local banks.”

Weaver proposed a financialintermediary called Lenders forCommunity Development (lcd),incorporated in 1993 by 15member banks. While the banksnever intended to earn a profit

In the broad spectrum of businesses, the cate-gory of nonprofits is stereotyped as one run by well-intentioned believers, champions of the underclass,and visionaries for virtuous causes that would go

unrealized if left to the sterile strategists of corporateAmerica. These are ventures that seek social good ratherthan financial profit as their principal goal, and there-fore are assumed not to be able to meet requirementsof “normal” business.

This was the subtext of a phenomenon in the latenineties, when some of those who had achieved fabuloussuccess in the for-profit world spread their wealth andadvice to the nonprofit sector.The former was certainly wel-comed. The latter was also wel-comed, principally due to its tidybundling with the former. Thusburst forth the notion of venturephilanthropy, in which hard-knuckle neo-titans introducedmetrics and accountability totheir virtuous yet soft-belliedcousins in the nonprofit sector.


Robin Hunt (above) expanded her EastSan Jose hair-braid-ing business withhelp from Lendersfor CommunityDevelopment. LCD,founded by EricWeaver, MBA ’92(right), also financed1,700 new units ofaffordable housing.

08-09.public-3.29-pp 6/11/12 11:56 AM Page 8


from lcd, they hoped to receive regulatorycredit from the federal government for par-ticipation. This credit would afford themthe flexibility to open or close branches andto merge with other financial institutions.The banks had one other requirement: lcdwas to preserve the banks’ principal. Theywere willing to sacrifice some rate of returnin exchange for community developmentimpact but did not want to create a patternof grant making disguised as loans thatwould inevitably be written off.

Weaver counted on this businesslike phi-losophy to build confidence in lcd. Thoughhis “product” was a community benefit andregulatory flexibility, he nonetheless com-peted for the banks’ investment capital,which could be invested elsewhere for ahigher return. “We ended up applying basicfinancial principles to meet our investors’requirements: sharing risk through pooledfunds, creating backstops for losses, andfinding philanthropic subsidies to fundoperations,” Weaver explains. “Beyondthese mechanisms, we’ve attracted investorswho are interested in social as well as finan-cial return. We offer them specific, measur-able goals—for example, number of unitsof housing built, number of loans made,number of low-income entrepreneurs fund-ed, number of jobs created and retained—and we monitor and report on our results.”

Since its first loan in January 1995, lcdhas originated more than $17 million inaffordable housing and community facili-ties loans, financing 1,700 units of housingand five new facilities.

How has it worked? East San Jose is hostto a working-class, predominantly Latinoneighborhood called Mayfair. Plagued bypoverty and unemployment, Mayfair haslong been a community revitalization proj-ect for both the city and cfsv. In 1996, lcd financed a 34-unit town home projectthat ultimately extended home ownershipto families earning 65 percent of area medi-an income and less. Four years later, thanksto lcd, the Mexican American CommunityServices Agency acquired a commercialbuilding for its youth outreach programs.

Most opportunities require “predevelop-ment” loans. These provide nonprofit devel-opers with the seed capital they need toperform the necessary feasibility studies andtie up available parcels of land. Typicalbanks are unwilling to provide this earlyfinancing because of the uncertainty of thedevelopment outcome. Despite this risk,lcd has not experienced a single loan losson its housing lending activities.

Through its Small Business Program, lcd

has provided $2.4 million to more than 100entrepreneurs, with 75 percent of loansgoing to minority-owned businesses, 52percent to women-owned businesses, and87 percent to businesses owned by low-income people. The demographic profile oflcd’s borrowers is clearly different from theborrowers reached by a typical commercialbank. lcd does not offer below-market in-terest rates but may bend on other key fac-tors that determine loan profitability, such

as loan size, transaction costs, or repaymentrisk. Its focus on community lending allowslcd to offer loans as small as $1,000 and to work diligently and creatively with theborrower to make a deal work. It alsoallows lcd to lend to those with limitedtrack records and no collateral.

Robin Hunt is an example. Operating agrowing hair-braiding business in East SanJose, Hunt sought financing to expand. Thebanks turned her down, citing a lack of col-lateral and insufficient borrowing history.After thorough due diligence, lcd lent Hunt$10,000. Two years later, she has opened asecond location, and business is booming.

lcd has borne losses of approximately 3 percent on its small-business lending. Thisis slightly above what commercial banksexperience but substantially below the 10to 15 percent that similar community in-vestment programs typically experience.

There are two possible reasons for thelow loss rate: lcd does an excellent jobmanaging their loans, or they’re selective.But there is a danger in the latter. Becauselcd’s charter is to accept risks where com-mercial banks would be less comfortable,one should notice a difference in loss per-centage. lcd claims the difference is smallbecause of sound underwriting and long-term follow-up with borrowers.

On even modest loans, due diligence isperformed not only on behalf of lcd but forthe prospective borrowers. “It’s never in aborrower’s long-term interest to undertakea loan they will be unable to repay,” Weaversays. “We owe it to ourselves, our memberbanks, the community, and our borrowersto make sure everyone is in a manageable

position.” This painstaking process is but-tressed with creative use of government andfoundation funds to provide guarantees andreserves as a backstop against loan losses.

lcd’s third program area is truly on thecutting edge of community development inAmerica. Borrowing a concept from 401(k)retirement programs, lcd and partnersmatch a family’s savings. Participants takea five-week money management course andthen begin saving an average of $50 permonth over a two- to three-year period.Every dollar that a family adds to its savingsis matched two-to-one. At the end of theperiod, the savers can use their own fundsplus the match money for one of fourinvestments: home purchase, buying orinvesting in a small business, paying foreducation, or opening a retirement account.

More than 500 participants are enrolledin this program, which is operated by lcdin partnership with the Center for VenturePhilanthropy, Citibank, and several otherarea nonprofits. Despite the typical savingsobstacles for low-income families (the aver-age saver’s income is $23,000—desperate-ly low for Silicon Valley), the participantshave saved a collective $750,000 in lessthan three years. Eleven have become home-owners. Robin Hunt—the borrower withthe hair-braiding business—used some ofher savings to buy inventory and equipmentfor her new business location.

Once merely a beneficiary of cfsv’s infra-structure, lcd, with a staff of 15, is now asupplier as well. Weaver has become an ex-pert that Hero taps for philanthropists andnew nonprofit ventures. Weaver’s experienceand gsb education provide a solid founda-tion for both the nuts-and-bolts demands of lcd as a financial institution and therequirements to fulfill its social mission.

“The dramatic growth of our programshas forced me to deal with the same chal-lenges any successful entrepreneur in theprivate sector would face,” Weaver says.“Attracting, developing, and retaining theright people to make these programs workis a top priority. This work is highly satisfy-ing, as it offers all of the challenges of anyfast-paced, high-growth business environ-ment. Those who join us want more. Weoffer the chance to make a difference.”

The Silicon Valley nonprofit scene is wellpopulated with alums like Weaver, whodeliver on the sustained promise of venture philanthropy rather than the short-livedworship of Internet riches. The promise isbeing delivered day by day, as talented exec-utives manage growing businesses that feedinto this local network. ■

“There was a credit gap.Dollars were flowing out

of these communities, and theyshowed classic signs

of decay. Clearly, there was the opportunity to bring in some outside capital.”

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people

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Richard Scurry, MBA ’63

When he returned from a1994 trip to Russia,Richard Scurry was excited.With tens of thousands of

other American Christians who had beeninvited by Gorbachev’s education depart-ment to teach the Bible to Russian school-teachers, he had learned firsthand whathappens to a child’s education when a corepiece of Western history is missing. “Peoplewere telling us that the worst mistake they

had made in 70 years of Communism was taking theBible out of schools,” Scurry says.

Today, Scurry, mba ’63, is a partnerworking half time at the Jefferson FinancialGroup in Manhattan and also vice presi-dent for development of the Bible LiteracyProject, a nonpartisan, nonprofit organiza-tion of business people dedicated to the aca-demic and objective study of the Bible andits influence on Western civilization. TheProject, in conjunction with the FreedomForum, has developed “The Bible and Pub-

lic Schools, A First Amendment Guide,” en-dorsed by 18 organizations, including Jew-ish, Christian, and Muslim groups as well asthe two national teachers’ unions. It is thefirst consensus statement on teaching aboutthe Bible in 160 years of u.s. public schools.

Scurry reports that many teachers, includ-ing atheists, are enthusiastic about this proj-ect because the Bible is foundational toWestern culture. Large portions of history,literature, art, and especially English arebased on scriptural references and cannot befully understood without that key resource.

The Project has met with educators in 22states so far, but Scurry notes real changewill happen at the local school board level.The Project currently is putting together apilot curriculum for schools in Dallas.

On his personal beliefs, Scurry says withhumor: “I always went to church, but fam-ily and business were my priorities, withreligion way down the line somewherebehind football.” After a series of experi-ences following the death of his best friend,George Clark, mba ’63, he now describeshis faith as life changing. Asked about hiscommitment to the Project, Scurry replies,“I’m 63 years old. At some point you have

Shopping at a public marketin Portland, Maine, one day in1999, Kristin Majeska inquiredabout the expensive organic beef

she spotted. Erick Jensen, manager of afarm that had been willed to a nonprofitorganization, explained that his processingcosts were three times those of feed lotsbecause of the small volume.

“We started talking about ways to in-crease the volume and partnering with farm-ers in northern Maine rather than havinghis coastal farm add more cattle,” recallsMajeska, mba ’94. Together they developeda business plan, and Jensen tapped into the newly created Common Good Ventures,a venture philanthropy arm founded byMajeska with support from the MaineCommunity Foundation. Jensen’s Wolfe’sNeck Farm now partners with farmers in

the economically depressednorthern part of Maine whoalso raise cattle without useof hormones, antibiotics, oranimal by-products in theirfeed. The meat is sold to Bos-ton-area supermarket chainsthat promote the brand’snatural qualities. Consumerdemand for the premiumproduct has led to higher in-come for the farmers.

Majeska’s Common Good, meanwhile,is making grants and providing businessadvice to other nonprofits that want to fur-ther their social goals and increase theirfinancial self-sufficiency through mission-related businesses. Some of these partnersare training and job-creation organizations;one is a catering service whose primary mis-sion is providing nutritious meals to low-income children in day care.

“For us to invest, an organization has to

have a believable businessplan that shows how theywill break even in approxi-mately three years, includingextra costs associated withusing the business to accom-plish their social mission,”says Majeska, who contrib-uted a chapter on marketingto Enterprising Nonprofits(John Wiley & Sons, 2001),which was coedited by for-

mer gsb professor Greg Dees. Her currentwork “draws heavily” on her previous pri-vate-sector consulting and her StanfordPublic Management Program experienceand connections, she says. Another advan-tage of her mba, Majeska says, is “the con-fidence to do something interesting andmeaningful wherever you go. I’m in Water-ville, a town of 17,000 people 75 milesnorth of Portland, and I still found greatwork to do.” —kathleen o’toole ■

Kristin Majeska, MBA ’94

to start giving back.” —lisa eunson

10.People-03.29-pp 6/11/12 12:12 PM Page 10


yesterday

1985 IT WASN’Tquite the Summer of Love,but 17 years ago there was a lot of huggin’ goin’ on at theGSB. Founded by then second-year student Mike McTeigue,with help from his classmatesTodd Harris, Mickey Levitan,and Susan Toeniskoetter,the Hug Club filled a marketniche for some 125 GSB stu-dents who were looking for a way to mitigate some of thestress of school. Armed withthe motto “Dare to Hug,”prospective club membersachieved charter status bycompleting the requiredcoursework—certified hugs for 20 people. Easy for some,“extra credit” for others.

PHOTOGRAPH BY JOE MELENA

11-yesterday.hugs-3.29-pp 6/14/12 10:30 AM Page 11

by paul romeropinion

Growth Hinges on Science EducationPaul Romer argues that too few college students receive undergraduate degrees

in science and engineering, and the shortage is one factor affecting economic growth.


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WHY THE TREND RATE OF GROWTH MATTERSIn 1870, Britain was the world’s most productive econ-omy. Output per person in the United States lagged farbehind. Since then, the rate of growth in the UnitedStates has been higher by about 0.5 percent per year.This difference may sound small, but after 130 years, ithas a huge cumulative effect. By the beginning of the20th century, annual output per head in the UnitedStates had pulled even with Britain. By the end of thecentury, it was higher here by $10,000 (in the purchas-ing power of 1996 u.s. dollars).

By way of comparison, during the recession of theearly 1990s, output per head in the United States fell byabout $500 in 1991 and returned to its previous levelin 1992. This kind of temporary reduction in output isdwarfed by the permanent $10,000 difference createdby a faster trend rate of growth.

SOURCES OF GROWTHEconomists cannot say with certainty why growth inthe United States has been faster. Given the state of ourknowledge, we can only point to a list of candidate fac-tors and steer people away from the most basic pitfallsin thinking about growth.

Three broad factors contribute to growth in outputper capita: 1) increases in physical capital—the build-ings, machinery, and infrastructure that we use in dailylife; 2) increases in human capital—the skills and expe-rience of the workforce; and 3) increases in productiv-ity—a catchall category that includes the many largeand small discoveries that lead to the introduction ofnew goods and services or to more efficient productionof existing goods and services.

A myriad of national institutions and governmentpolicies determines the rate of increase along these threedimensions. For example, legal and financial systemschannel capital goods to promising firms. Formal edu-cational opportunities and on-the-job training increaseskills and experience. Research and development andthe pressure created by intense competition spur the discoveries that raise productivity. Excessive rates of tax-ation or burdensome regulations can slow progressalong all three dimensions.

The most common mistake in thinking about growthis to search for the “silver bullet,” a single policy thatis everywhere and always the key to faster growth. Infact, it is a whole range of policies and institutions thatmust work together to sustain a high rate of growth.Each is more valuable when it is adopted in conjunc-tion with all the others.

When the actual rate of economicgrowth falls temporarily below theeconomy’s potential for growth, atten-tion naturally turns to policies that can

help it recover: tax cuts, interest rate reductions, tem-porary investment incentives, extended unemploymentbenefits, and increases in government spending. Un-fortunately, more attention to measures that provide short-run stimulus can mean less attention to long-runpolicies that might permanently increase the economy’sgrowth potential. History shows us that a small per-manent increase in the trend rate of growth can pro-foundly alter our quality of life. There is much we don’tknow about the details of policies that can cause thiskind of increase, but there is one easy measure we canimplement with confidence. The government shouldincrease incentives for our universities to train moreyoung people in science and engineering.

12-13.opinion-3.29-pp 6/14/12 10:39 AM Page 12

STANFORD BUSINESS MAY 2002

In setting national policy, a better strat-egy is to find the “weakest link,” where cur-rent policy is far from ideal and it would beeasy to do better. At different times and indifferent countries, this weak link may vary.

LAGGING BEHIND OTHER COUNTRIESThere is one clear area in which the UnitedStates now lags behind and could makerapid progress. Too few of our young peo-ple receive undergraduate degrees in scienceand engineering. According to the data col-lected by the National Science Foundation(nsf), in 1997, 5.4 percent of all 24-year-olds in the United States received an under-graduate degree in the natural sciences orengineering. In Japan the comparable figureis 7 percent. In Germany it is 8 percent, andin South Korea it is 9 percent.

If undergraduate training in science andengineering were the long-sought silver bul-let that ensured rapid technological prog-ress, these countries would soon surpass our technological lead. It is not. There areno silver bullets. But these internationalcomparisons do highlight one area wherethe United States surely could do better.

Our recent performance also falls shortof what we accomplished in the past. In the first seven decades of the 20th century,the United States steadily increased the frac-tion of the labor force trained as engineers.But since 1970, this fraction has remainedroughly constant, despite the fact that theselast three decades were, by all indications, a time when technological change steadilyincreased the demand for skilled problemsolvers and knowledge workers.

All observers agree that the universitysystem in the United States is the best in theworld. Even if the elementary and second-ary school system leaves many childrenpoorly prepared for advanced study, surelythe top 8 or 10 percent of the students edu-cated in this system could profitably pursuestudies in science and engineering.

Students themselves are interested in sci-ence and engineering. Data from the nsfshows that for every two graduates whoreceive a degree in these fields, there is athird who expressed an intention to majorin them but became discouraged along theway. It’s not hard to see why. The gradesassigned in science courses are systemati-cally lower than grades in other disciplines,and students rely heavily on grades as sig-nals about the fields for which they are bestsuited. The introductory science courses arealso large, impersonal, and threatening. Stu-dents know them for what they are. Theycall them “weed out” or “weeder” courses.

The key to solving the problem is to rec-ognize that incentives matter on universitycampuses, just as they do in every otheraspect of life. Since World War ii, the fed-eral government has substantially increasedthe incentives for university professors to do research, with dramatic results. Beforethe war the United States was not a worldleader in basic research. Now we are. But incontrast to the practice in many other coun-tries, our government does not give univer-sity professors or administrators a finan-cial incentive to train more undergraduatescientists and engineers. Universities haveresponded by devoting more effort to re-search and less to teaching.

Without taking any resources away fromits support for research, the federal govern-ment could create a new arena in which uni-versities and colleges compete for funds.The Tech Talent Bill recently introduced bySens. Bond, Domenici, Frist, Lieberman,and Mikulski and Reps. Boehlert and Lar-son shows how this could be done. Institu-tions would compete for grants on the basisof their success in increasing the fraction oftheir students who receive undergraduateeducation in science and engineering. Per-formance along this dimension is easy tomeasure and can be closely linked to an eas-ily stated national policy goal. The UnitedStates should lead the world in the fractionof 24-year-olds who receive science andengineering degrees.

Because human capital is one of the threekey drivers of growth, we know that outputper capita will be higher if we have more ofthe kind of human capital that education in science and engineering creates—the abil-ity to state and solve problems, to quantifywhat’s at stake, to reason abstractly aboutcausality and counterfactuals.

More important, there is good reason toexpect that more of this kind of human cap-ital will lead to more rapid growth in pro-ductivity, the most important of the threefactors that drive growth. Whatever the pri-vate-sector challenge, be it increasing thespeed of the next generation of computerchips or refining the logistical systems thatmove goods from factories to retail outlets,productivity growth will be faster if the people working on solutions have trainingin science and engineering. ■

Paul Romer is the STANCO 25 Professor ofEconomics at the Stanford Graduate School ofBusiness, the Ralph Landau Senior Fellow atthe Stanford Institute for Economic PolicyResearch, and a senior fellow at the HooverInstitution.

✴

Stanford Business wants more of YOU

in your magazine

WHAT TO SEND

A Letter to the Editor

An Idea for a Story You’d Like to Read

News or News Clippings About You

or a Fellow Alum

A Photo from Your GSB Days

for the Yesterday Page

Although we can’t promise to include everything you send, we dopromise to give all submissions our thoughtful consideration.

HOW TO SEND IT

Address: Stanford Business magazine,Graduate School of Business, Stanford University,

Stanford, CA 94305-5015 Phone: 650.725.3242 Fax: 650.725.6750Email: [email protected]

12-13.opinion-3.29-pp 6/14/12 10:39 AM Page 13


southeast asia

Backward Glances over a Traveled RoadTo run a business in Thailand, you need patience and flexibility, advises alumnus

Jonathan Hayssen, who opened a high-end crafts boutique in Bangkok 12 years ago.

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Bangkok, Rasi Sayam has been credited with reinvigo-rating traditional Thai craftsmanship. The shop’s suc-cess has helped transform the way Thais think aboutinterior design and their own culture.

“We had an impact on making Thais appreciate nat-ural things,” says Hayssen, who has been compared toanother American, Jim Thompson, who was responsi-ble for the resuscitation of Thailand’s silk industry afterWorld War ii. “There was a time when people wantedglitzy stuff—naugahyde, fake leather, and electronics.Thais who were getting wealthy didn’t want things thatreminded them of their youth and poverty.” These daysthe tastes reflected at Rasi Sayam have become “thenorms of good taste in Thailand,” Hayssen says.

Establishing a successful and culturally influentialbusiness was hardly what Hayssen had in mind whenhe went to Thailand to work with Mechai Viravaidyain 1981. Better known as “Mr. Condom” in the West,social entrepreneur (and now Senator) Mechai found-ed the Population and Community Development Asso-ciation, where he orchestrated revolutionary familyplanning campaigns that dramatically slowed the coun-try’s rapidly growing population. Hayssen turned downa position with McKinsey to become Mechai’s residentmba—for $4,000 a year.

Soon afterward, he found himself regularly workingat Khao-I-Dang, a refugee camp populated by 150,000displaced Cambodians, “all with horror stories to tell.”“It’s hard to complain about your $4,000 salary whenall these people had their relatives bayoneted in frontof them,” Hayssen says.

After working with Mechai for three years, Hayssenestablished himself as a Bangkok-based managementconsultant. An assignment with the u.s. Agency forInternational Development got him acquainted withmany of the craftspeople who would later become RasiSayam’s vendors.

Twenty years after graduating from the BusinessSchool, Hayssen, 47, remembers thinking that if thingsdidn’t work out, he’d simply return to McKinsey, wherehe had spent the summer while at the gsb. His super-visor there had told him he could “always come back.But if you start working here, two years from nowyou’ll never take the development job and you’ll alwaysregret it.” Though he deeply enjoyed his summer atMcKinsey, Hayssen has no regrets—even though the1997 collapse of the Thai economy provided plenty ofopportunity to rethink taking a path many consider butfew actually take.

Thanks to the Thai baht’s devaluation of more than

Having gone far down the path lesstraveled, Jonathan Hayssen began to won-der if he hadn’t taken a wrong turn. In theheat and humidity of rural Thailand, he had

spent an entire day searching for highly skilled artisanshe hoped would supply Rasi Sayam, the high-end craftsboutique he was about to open in Bangkok. One pro-spective vendor had died. Another no one had everheard of. A third produced goods Hayssen character-ized as “disgusting.” Finally, he found one man whohad a single basket that met his standards. “This isridiculous,” Hayssen, mba ’81, recalls thinking. “Driv-ing through all these villages to wind up buying onebasket for a dollar fifty.”

But in the 12 years since he founded Rasi Sayam,which means “radiant Thailand,” Hayssen’s persistencehas paid off in many ways. For every dead end Hayssencame across while scouring countless small villages, healso discovered little-known artists of striking talent.More than 200 now sell their products through RasiSayam, supporting themselves and as many as 1,000family members while sustaining a heritage of artistrythat was in danger of extinction.

Rasi Sayam’s influence has extended far beyond theindividual livelihoods of its vendors. Located in a beau-tiful wooden home in the upscale Sukhumvit district of

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50 percent, sales and profits at Rasi Sayamskyrocketed—in local currency. Yet, whileHayssen was rewarding his staff with bo-nuses equal to five months’ pay, he saw hisown cautiously feathered nest egg shrink by half in dollar terms. “That was a real bigblow,” Hayssen says, from which he has yet to recover. And at the same time, manyThai shops switched their store inventoriesaway from more expensive imported itemstoward the niche Hayssen had spent eightyears developing.

“The competition didn’t hurt us as muchas it could have,” Hayssen says. “But it sti-fled our growth,” he adds, before notingthat his competitors’ wares are “still nice,and your cousin in Toledo probably won’tknow the difference.”

Having been in Thailand for more than20 years, Hayssen’s advice for those inter-ested in working or starting a business over-

seas is simple and straightforward. “Be flex-ible,” he says. “The corporate culture youwant to establish may conflict with local cul-ture.” As an example, he cites his own chal-lenge of getting Thai staff members to thinkand act on their own after being schooled byrote and taught to do as told by superiors.

“Be patient,” he advises, noting that evenin relatively advanced Thailand, “nothingworks as quickly or as efficiently as one isused to in the u.s.” Finally, Hayssen says toalways delegate paperwork to a “trustedlocal partner.” Relying on one’s own foreignlanguage skills, no matter how fluent, is aninvitation to fall afoul of local bureaucracy.

On a more personal level, Hayssen saysthat working with everyone from subsis-tence farmers to cabinet ministers has madehim a much broader and more capable indi-vidual. But being so far away also has hadits costs—what he calls the “ex-pat guilt

syndrome.” That’s the account that regis-ters missed weddings and gatherings withfriends, and not being there as parents ageor siblings take ill.

Returning to his development roots,Hayssen recently coauthored a u.n. publi-cation with Mechai on how nongovern-mental organizations can become more self-reliant and entrepreneurial. With Thailandnow painfully working its way out of its eco-nomic malaise, Hayssen hopes to spend lesstime at Rasi Sayam and perhaps to beginwriting on international development orconsulting with “risk-seeking philanthro-pists.” Or even teaching high school backhome in Wisconsin. However, one doubtswhether Hayssen—after two decades over-seas—will ever leave Thailand, because tosee him behind the mahogany counter ofRasi Sayam is to see him at home.—robert l. strauss, mba/ma ’84 ■

On Guard in Hong Kong

When governor Chris Pattensailed out of Hong Kong in1997, ending more than 150

years of British rule, he left behind asmoothly functioning civil service. One ofits top career professionals was Regina Ip,Sloan ’87,who is currently secretary for security of the Hong Kong Special Administrative Region (sar).

Professionally, Ip has fared well since the transition: In 1998, Beijing appointedthe then-immigration director to her cur-rent post. The first woman under either government to head the Security Bureau, Ip is responsible for internal security, lawand order, drug control, and immigration.Some 63,000 civil servants and more than10,000 volunteers serve under her.

But personally, the limelight has proveddifficult. Ip has been roasted in the press forwhat opponents see as hard-line stands onMainlander immigration and on the FalunGong. Her critics have dubbed her “RedRegina,” and last summer she was cruellycaricatured in a comic book. What wasworse, her 12-year-old daughter was in-cluded in the parody. Ip fired back in an op-ed piece in the South China Morning Post.She called the criticism sex discriminationposing as political satire; her critics calledher oversensitive.

Ip, who was born and raised in Hong

Kong, remembers when women there wereaccustomed to being judged by the fit oftheir cheongsam. And even though a quar-ter of the top officials in the new govern-ment are women, she says her hometownhas not yet outgrown its sexism. Upset bythe attacks, she sought the advice of oldfriends from Stanford.

“Larry Diamond of the Hoover Institu-tion told me if I want to continue with myjob, I simply have to develop a thick skin.He is absolutely right. I also need a willing-ness to accept the increasing loss of privacyand freedom to pursue my private life. It’s aheavy price that any person interested inhigh public office is well advised to pauseand think about.”

Meanwhile, Ip has more pressing con-cerns. “The events of September 11 are acompelling reminder that danger occurswhere it is least expected,” she says. “Wecannot take for granted that [terroristattacks] will never occur here. After all,Hong Kong is an international city withconsiderable u.s. interests, including a sub-stantial American community of 50,000people and frequent u.s. warship visits.”

From her headquarters in Hong KongIsland’s Central District—a room so outfit-ted with security devices she likens it to “abig safe”—Ip has reviewed the sar’s con-tingency plans for security and worked onnew legislation to combat terrorism.

“The counter-terrorism task is compli-cated by immense pressures to loosen con-trol of the boundary with Mainland Chinafor tourists and business people,” she says.“Human rights groups are concerned that

we might take theopportunity to seeke x -cessive law enforce-ment powers or rollback rights.We haveno hidden agenda.”

Ip graduated fromHong Kong Univer-sity and then stud-ied Elizabethan poetSir Philip Sidney atGlasgow University.She set aside herscholarly aspirationsand, in 1975, joinedthe Hong Kong gov-ernment. A widow, she lives with herdaughter in a spacious harbor-view apart-ment above the bustling Central District.There the security chief reads for relaxation;John LeCarré is a favorite.

Ip sees few differences between the twoadministrations aside from the fact that theChinese language has become more wide-spread in the government. “I think in bothlanguages,” she says. “Sometimes I feel I ammoving across different worlds.” The mostdifficult issue for her since the transition isskepticism about the new government’scommitment to “one country, two systems.”

“It may be that a few people have not yetcome to terms with the resumption of Chi-nese sovereignty over Hong Kong,” Ip says.“But times have changed. China is mod-ernizing rapidly across the board. I believewe have done well maintaining the two sys-tems under Chinese sovereignty. In sum, Ihave a clear conscience.”—janet zich ■

Regina Ip, Sloan ’87

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hen tony blair became britain’s prime minister five years ago, a keypledge was to transform the hit-or-miss way the country’s financial servicessector was regulated. The industry accounts for as much as 10 percent of gdp

in the world’s fifth biggest economy. A string of scandals, from the dramatic col-lapse of Barings Bank following a billion-dollar loss to the misleading of millionsof pension buyers, was clear evidence that change was needed. ■ Britain had beenoperating under regulations set in 1986, when—somewhat naively perhaps—it wasbelieved that the market would regulate itself and that established-by-statute regu-lators with real teeth, such as those in the United States, were unnecessary. Ten yearsand a string of scandals later, it was clear that self-regulation was not working. Itwas past time for change. ■ The powers vested in the Financial Services Authority(fsa) were sweeping. In place of a myriad of self-regulating industry bodies, the fsawas established with Davies as its executive chairman, bringing responsibility forthe supervision of nearly all niches of the financial services industry under one roof.Davies, then deputy governor of the Bank of England, wound up regulating every-one from door-to-door insurance salesmen to the rocket scientists in the fiendishlycomplex and rapidly evolving derivatives business. ■ Although finance types were


W

By John O’Ryan PHOTOGRAPHS BY J I LL IAN EDELSTE IN

Regulator

THE

SIR HOWARD DAVIES, SLOAN ’80, has packed lots into

half a century. A one-time McKinsey man, he also has been a diplomat, advisor to Britain’s finance

minister, and No. 2 at the Bank of England. Davies, 51, is now the most powerful regulator of finan-

cial services companies in the world, a job he has had for five years and will hold until January 2004.

Few expect anything other than a high profile for Davies for some considerable time to come.

16-19.feat.-davies-3.29-pp 6/14/12 10:46 AM Page 16


nervous about the creation of such a Leviathan, few in the businesscriticized Davies’ appointment. First, he was well qualified, not leastbecause the Bank of England had, up to that time, been in charge ofthe prudential supervision of the banking system, one of the manyroles to be centralized at the fsa. Moreover, his considerable expe-rience in the private sector, at McKinsey and Co. (among others),allayed concerns of some who feared the appointment of a chief witha bureaucratic heart poorly attuned to the ways of profit making.

His appointment also put an end to whispers that the top manwould be a government yes man, delivering heads on plates at thebehest of politicians too eager to grab headlines. Not a member ofany party, Davies had been appointed to posts by both the currentLabour Party government and its Conservative Party predecessor.He also is known for independent-mindedness, a characteristic that his Sloan Program classmates noted back in 1980. Jean-PierreDupret, chairman of Brussels-based firm rova, recalls that Davies,despite his relative youth, would not hesitate to take a view contraryto the majority. What’s more, says Dupret, his air of calm author-ity ensured that others listened.

This willingness to follow his instincts has, at times, ruffled feath-ers. As head of the government Audit Commission in the 1980s,Davies unsettled some local politicians by taking a tough stancewith municipalities that dabbled in derivatives. After his appoint-ment to the fsa in 1997, he raised eyebrows by staying on as pres-ident of a high-profile charity for the elderly and continuing asgovernor of De Montfort University, one of Britain’s largest aca-demic institutes and well known for its close links to industry.

Among consumer groups, his was not an unwelcome appoint-ment. Davies was already a nationally known figure. As director-general of the Confederation of British Industry, the country’s mainbusiness lobby group, he appeared regularly in the national mediaarguing the case for business. Media friendly and unflappable, hecut a figure that the public could relate to, in contrast to the oftenaustere and unbending image of some of his predecessors.

Davies typifies the new generation at the top in a more merit-ocratic Britain. He was educated in a publicly funded school in Manchester, an unglamorous city in England’s northern half longassociated more with declining smokestack industries than finan-cial services. On his own steam he made it to Oxford, the country’sbest university. He is married to a highly successful broadcast jour-nalist, and his passion in sport is for soccer, the average guys’ game,rather than rugby, traditionally the field sport of the well-heeled.

Indeed, he spends many of his weekends taking his two teenagesons to see Manchester City, an ever-struggling team that he hasbeen passionate about since his youth. Tom Hayhoe, mba ’80 anda former McKinsey colleague, recalls Davies’ editorship of the club’sfan magazine in his limited free time at McKinsey. Davies’ appetitefor journalism also extended to reviewing books on a range of top-ics for the Economist newspaper.

Much of Davies’ time at fsa has been spent at institution build-ing, a task made difficult by the need to legislate the fsa into exis-tence in the first place and one that ended up taking longer than any-one had anticipated, Davies included. When the legislation finallytook effect last December 1, it had earned the distinction of beingthe most amended act in Britain’s long parliamentary history.

In an industry as well resourced as financial services, armies oflawyers and lobbyists were hired to pore over the proposals, Daviessays. With the fsa granted virtually unlimited power to investigateand fine, firms wanted to be sure some seemingly innocuous clausedid not prove costly down the road.

Indeed, one does not have to travel far in London’s financial dis-

trict today to hear the murmurings. Some go so far as to liken the newbody to Frankenstein—made up of many different bits and, ulti-mately, destined to run amok. Even less excitable souls remain wary,and an eagle eye is kept on anything that looks like empire building.

Davies acknowledges this fear and partly counters it with open-ness and transparency. In fairness, he has put his money where hismouth is. Last year he took a reduced bonus after admitting thatthe agency slipped up when okaying an insurance company thatsubsequently ran into financial difficulties. His manner helps, too.He is clearly a man who is comfortable in his own skin, a charac-teristic that helps to put others at ease. At the same time, he givesnothing away. He knows exactly the points he wants to get acrossand uses words and body language to do just that. “Not a singlefsa decision has been reversed in the courts, and charges of actingwith excessive zeal have been few and far between,” he says point-edly during an interview. But no wonder, say industry sources. “Thefsa acts as judge, jury, and executioner; the costs of seeking judi-cial review fall entirely on the company that has been accused ofwrongdoing,” said one, who, like all others, agreed to speak onlyon condition of anonymity—a further indication of just how pow-erful the fsa is.

Once a period of reputation building has been completed, Daviessays, those whom the fsa regulates will see his one-stop-shop assaving time and money when they need clearance to enter a newbusiness or launch a new product. Sooner or later, he says, the fsawill enjoy the same high reputation with the public and industry asdoes, for instance, the u.s. Securities and Exchange Commission.

But to compare the fsa with the sec may mislead. It is far morethan a British sec with bells and whistles. To get an idea of just howwide-ranging are its powers, consider that it does the work of thesec (overseeing the business of brokering stocks and trading bonds)along with doing the scrutinizing part of the Fed’s job (keeping tabs on banks) and the states’ insurance regulators (monitoringplayers in that industry), among others. “The u.s. has more than 70separate regulatory agencies for our one fsa. Moreover, there are26,000 people in the u.s. doing the work of our 2,000-strong super-regulator,” says Davies. Even allowing for the difference in sizebetween the two countries, these are efficiency gains.

That said, he does not go so far as to say the fsa way is better.Much has been learned from the American way, he says, but withlittle statutorily established regulatory infrastructure in place in1997, his country had to build a structure from the ground up.

Though it may sound strange to American ears, as recently as20 years ago the financial services industry was cartel-ridden, withlaws preventing real competition and practices that had changedlittle in decades. This was all far too cozy for Margaret Thatcher,the most reform-minded British leader of the past half-century. Sheignited the “Big Bang” of 1986, allowing foreign firms in, sweep-ing away fixed commissions for stock-brokering services and giv-ing banks the freedom to trade in securities for the first time. Theliberalizing gales unleashed allowed firms the freedom to innovateand grow. By almost any measure—turnover, profits, or jobs—theindustry has grown in multiples. In a number of global niches, suchas currency trading, London is the world leader.

But the Big Bang brought losers, too. The slow to adapt wentout of business or were gobbled up, usually by u.s. players. (Thiswas the fate, for instance, of all of Britain’s investment banks.)Reflecting wider social change, the once gentlemanly business offinance ceased to be the exclusive preserve of the privileged. In highly competitive marketplaces, merit came to matter more thanold school ties and one’s capacity for bonhomie.


Davies moved quickly to look for evidence of suspicious trans-actions in the days before the attacks but found none. A longer-termeffort is under way to strangle the financial networks of terroristgroups. Legislation went into force in December giving the fsagreater powers to combat money laundering. It now can fine finan-cial institutions that fail to ensure that their clients’ money is clean.More informally, increased information exchange on suspicioustransactions already is taking place as the world learns to live withthe threat of terrorism on a previously unimaginable scale.

The fsa also is dealing with the potentially destabilizing effectsof mammoth liabilities incurred by the re-insurance industry. Thesheer scale of the September 11 destruction, Davies says, raises newquestions about precisely what is and is not insurable and aboutthe balance sheet positions of some of the biggest re-insurers. Hesays that his agency is keeping an eagle eye on the sector, using expe-rience gained during the 1990s when London’s financial districtwas devastated on a number of occasions by terrorist truck bombsand paid out hundreds of millions of dollars.

An age of hyperterrorism has seen premiums being jacked up,particularly for airlines, improving insurers’ cash positions and,Davies worries, possibly lulling some of them into a false sense ofsecurity, as it remains unclear at the time of writing as to the size of thepayouts and on whom they will fall.

As the interview wraps up, Davies expresses optimism that withregulatory practices being constantly improved, there are multiplebenefits. Not only does good regulation cut down on opportunitiesfor criminals and terrorists, but it also attracts the best business.With London still head and shoulders above any of its Continen-tal European competitors as a financial services center, at least somecredit must go to the man who has been at the helm of the fsa sinceits launch. ■


This suits Davies, as he is not one of the back-slapping boys. Heis an excellent networker and exhibits none of the awkward stiff-ness for which the English used to be known. At the fsa, dress-down informality has replaced the once obligatory pinstripe suitand starched white shirt of London’s financial districts. When inter-viewed for this profile, Davies himself was tieless and hiply shod;he personally collected this interviewer from the lobby of the fsa’sshiny, new 15-story home on the banks on London’s Thames. Hiseschewal of formality goes as far as foregoing the entitlement to becalled “Sir” (he was knighted last year in recognition of his workwith fsa); Davies is referred to by his first name by everyone fromhis pa to the security staff.

Davies says he believes the all-under-one-roof approach is espe-cially logical now because of the way the industry is changing. Withthe lines between different businesses blurring and the consequentemergence of giant financial services groups whose operations in-clude everything from selling pensions and life insurance to run-ning big trading floors, he sees advantages in being able to gatherexperts quickly if questions arise about a firm or industry. Indeed,the stability of the financial system depends on the speed with whichhe can muster his forces at a time of crisis—for example, the collapseof Long-Term Capital Management, a u.s. hedge fund, in 1999.

The ltcm debacle also illustrates yet another benefit of the single-regulator approach. The financial services industry is notonly among the most globalized of industries but is itself an engineof the globalization process. This means regulators in different jurisdictions need to be in almost constant contact. Davies says he believes that a single super-regulator smoothes the interface

between authorities in different countries.Apart from the bilateral ties, the fsa is involved in many forums

that seek to do everything from cutting down on money launder-ing to redesigning the architecture of the international financial sys-tem. Indeed, Davies chaired a g-7 committee that recommended aseries of measures to strengthen the foundations of the world’sfinancial system.

Another foreign connection is the United Kingdom’s member-ship in the European Union, Europe’s experiment in merging itsnational economies and some of their political functions. But cre-ating a single European market in financial services, particularly insectors such as life insurance and asset management, has proveddifficult to achieve, a constant reminder of the difficulties of weld-ing together different regulatory practices and traditions.

The September 11 attacks in the United States mean that coop-eration is a matter not just of economic security but also of physi-cal security. As a result, contacts between regulators have reacheda new intensity. Davies expresses a deep sense of personal shock at the attacks, in part because of the closeness of New York andLondon, often said to be sister cities owing to the connectedness of the world’s two preeminent financial centers—links that were sotragically evidenced by the 53 Britons who died or are still unac-counted for in the attack on the World Trade Center.

t h e r e g u l a t o r

“The U.S. has more than 70 separate regulatoryagencies for our one FSA. Moreover, there are26,000 people in the U.S. doing the work of our2,000-strong super-regulator.”


We encounter markets every day in countless ways: in our buyingand selling, working and investing. We can glean insight, how-ever,by taking a fresh angle on the familiar.

This is a riposte to McNealy’s challenge. Current research byeconomists is deepening our understanding of markets. These newideas in economics, and some old ones, are used in what followsto dissect exotic, innovative, and everyday marketplaces: some inphysical space, others in cyberspace.

Markets are subtle organizations. This is one of my themes.The mechanisms that underpin transacting are intricate—and theyare in everlasting flux. People are ingenious at finding ways tomake exchanges that bring mutual gains.

Markets do what they are supposed to do, however, only if

‘‘What is a tenured professorgoing to teach me about the mar-ket economy?” asked ScottMcNealy, mba ’80, chairman andchief executive officer of SunMicrosystems, when he spoke

before students at Stanford’s Graduate School of Business.Notably skeptical of tenured professors, McNealy meant his question to be takenrhetorically; but the challenge he posed deserves to be taken up.

The market economy is as ever-present as the air we breathe,not only for a superstar executive like McNealy but for everyone.


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they are well structured. Any successful economy has an array ofdevices and procedures to enable markets to work smoothly. A workable platform for markets has five elements: informationflows smoothly; property rights are protected; people can be trusted to live up to their promises; side effects on third parties arecurtailed; and competition is fostered.

Even the simplest markets reveal surprising subtleties when youlook at them up close. Consider the Makola marketplace in thecenter of Accra, Ghana, as described by Claire Robertson, anAfricanist scholar. The stallholders, who are mostly women, sellfish, vegetables, grains, canned foods, and basic household items.They operate on a tiny scale, a typical day’s turnover being just a few dollars. The marketplace, housed in several large dirt-floor

sheds, is overcrowded and dusty. The press of people, the noise,and the smell of fish overwhelm a visitor.

First impressions are misleading. Primitive as it may look, theMakola market is an intricate system. The stallholders are not justretailers but also wholesalers: They buy in bulk to sell small quan-tities to consumers, and they aggregate small purchases for resaleto other sellers. They organize transportation of goods—not a simple matter in a country with inadequate roads and railroads—serving as intermediaries between widely scattered producers andconsumers. They do some rudimentary manufacturing: craftingwith beads, and processing raw materials into foodstuffs, condi-ments, and cosmetics. They find recycling uses for cans, bottles,and newspapers. Assessing their customers’ creditworthiness and

Billingsgate Fish Market, London

Adapted from a new book by Professor John McMillan


granting some of them credit, they take on the role of banks. Being illiterate, the stallholders must keep their business records

in their heads, using impressive powers of memory. They make pre-cise calculations of their input costs to keep track of their profits.The price for a string of beads, for example, reflects the price a ven-dor paid for the beads and thread, the time she or her employeespent stringing the beads, and her target profit margin.

The stallholders have developed their own miniature legal sys-tem. Informal property rights have arisen. Although they do nothave legal title to their stall space, which is technically owned bythe Accra city council, they act as though they do. Spaces are inher-ited. Often the current stallholder acquired the space from hermother or sister. Spaces are also rented, bought, and sold. Certainrespected merchants called “queen mothers” play the part ofjudges, arbitrating when disputes arise.

Gains from trade are generated. The vendors make others bet-ter off—as well as themselves—by making food available to theurban poor and by providing income to farmers with which to buynecessities like clothing. Thus, they exemplify Adam Smith’s anal-ysis of the merchant: “By pursuing his own interest he frequentlypromotes that of society more effectually than when he reallyintends to promote it.”

The Makola marketplace has continued to operate despite peri-odic, sometimes violent attempts by the Ghanaian government toshut it down. These attempts reached a height of brutality in 1979after the military government accused marketplace traders of vio-lating its price controls. Soldiers looted the stalls and then dyna-mited the marketplace. Later, in the town of Kumasi, soldiersarmed with machine guns raided the marketplace and beat up thetraders. Accusing one of profiteering, a soldier ripped her baby offher back and shot her. Bulldozers then ground the marketplacestalls into the dust. A soldier remarked, “That will teach Ghana-ian women to stop being wicked.”

The Ghanaian government, invoking the “market women men-ace,” was using the merchants as a scapegoat for its own policyfailures, which had led to severe shortages and inflation. News-papers parroted the government’s line. One described the marketdemolition as a “happy tragedy,” which produced “tears of joy inthe worker, the common man,” who was “helpless at the hands ofthe unfeeling Makola conspirators” (that is, the vendors).

Within a week the merchants were back where their stalls hadbeen, selling their fish and their vegetables, though now without

a roof over them. The Makola traders’ accomplishments, Robert-son says, “have been triumphs of intelligence, determination, andsometimes desperation.”At the Internet auction site eBay, bidders feverishlycompete for everything from junk to high art. It all began in 1995when Pierre Omidyar set up a Web site called AuctionWeb for people wanting to exchange information about collectibles and to make trades. Legend has it that his initial goal was to sell hisgirlfriend’s collection of Pez dispensers. The site’s services were initially offered free of charge, as a service to the public. After sixmonths’ explosive growth in usage, based on word-of-mouth rec-ommendations, Omidyar began charging a fee, a small percentageof the sale price, to cover his costs of running the Web site. Pay-ment was left up to the honesty of the seller, but the checks rolledin. He gave up his day job and was joined in the firm by Jeffrey

Skoll, mba ’95. Together they developed the auction software andthe customer-support infrastructure. “We would work virtuallyanywhere we could find an office,” recalls Skoll. “We started offin Omidyar’s living room, then we moved to my living room.”They initially contemplated focusing on a particular market seg-ment, such as coins or stamps. “In the early days, our strategychanged by the day,” says Skoll. They finally decided not to spe-cialize, but to let anyone sell anything.

With the auction system reengineered to handle the massivevolume of traffic, they relaunched AuctionWeb as eBay in Sep-tember 1997. Less than two years later, eBay’s stock market valuereached $22 billion. The business press proclaimed eBay’s rein-vention of markets. Business Week reported that, with its online auctions, “eBay has single-handedly created a new market.”According to the Economist, “Internet auctioneers such as eBaymay be the instigators of a revolutionary leap forward in the effi-ciency of the price mechanism.”

The eBay Web site is a high-tech flea market. It has over 10million registered users; the typical user spends 20 minutes a dayon the site. Around 5 million auctions are running on any givenday, selling everything from cast-offs to fine art. As I write this,there are, for example, nearly 1,500 items listed under the head-ing “Victorian tradecards”—which, it turns out, are a 19th-cen-tury version of junk mail.

EBay has created a global market for goods that previously hada purely local market. One of the secrets of eBay’s success was inrecognizing that the Internet, by making it easy for buyers and


Roman Traders, 1st Century A.D. Market in Frankfurt Germany, 1599 Venetian Fish Market, 18th Century

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sellers to get together, created new possibilities for trading knick-knacks of all kinds. The other secret of its success was in build-ing a user-friendly and flexible auction mechanism. Pre-Internet auctions had the disadvantage that they required the potential buy-ers to assemble in one place. (Bids were sometimes made by fax ortelephone, but this was clumsy.) Bidders in an eBay auction get together only in cyberspace.

EBay lowered the costs of transacting enough that people any-where wanting to trade low-value items are able to deal directlywith each other. Its popularity induced others to start offeringInternet auctions. Now, at hundreds of different auction sites, people bid for computer equipment, antiques, fine art, stamps,toys, jewelry, travel services, real estate, and wine. EBay showedthat the Internet and auctions were made for each other.

What do the eBay founders have in common with the Makola

merchants? Each set up exchange mechanisms to generate gainsfrom trade. Where markets are absent, mutual gains can be real-ized by establishing them. Where markets are present, further gains are sometimes to be had by finding ways to make them work better. People have forever been devising new markets andimproving existing ones.

While the Internet has linked people more closely than everbefore, this is not the first or even the biggest such transformation.Earlier advances in communications technology had a similareffect in broadening markets. Entrepreneurs were improving mar-kets long before the Internet came along. “The telegraph and theprinting press,” observed the magazine Contemporary Review in1886, “have converted Great Britain into a vast agora, or assem-bly of the whole community.” The postal service, the railroads, the telephone, and radio and television all in their own way trans-formed communications. In his 1847 Principles of Communism,Friedrich Engels remarked of the industrial revolution, “Big indus-try has brought all the people of the earth into contact with eachother, has merged all local markets into one world market.”

Engels was not enamored of the reinventing of markets, ofcourse, but it is inexorable. Potential gains are missed if a trans-action cost of some kind impedes buying and selling, so there is a profit opportunity in finding a way to lower that cost. Novel mar-ket devices appear. Someone may design a whole new marketplace.Or, through the separate actions of many, the market’s rules andprocedures may gradually emerge.

Modern markets are sophisticated organizations. Markets for

multifaceted products like automobiles and computers, and forlabor and financial services, must solve a range of problems thatmay not arise with simpler items like clothing and food. A marketworks well only if information flows smoothly through it. An uneven distribution of information hinders negotiations and limits what can be contracted. Information transmission requiresdevices that ensure the communications are reliable. A marketworks well, also, only if people can trust each other. Trust requiresmechanisms to bolster it since, regrettably, not everyone is inher-ently trustworthy. Many goods have hidden characteristics, sothere must be some way of assuring buyers of the goods’ quality.Trust is needed also in transactions that take time to complete. People are reluctant to invest in the absence of some assurance thatthe others’ promises will be kept. A modern market economy needsa platform sturdy enough to support highly complex dealings.

Some of the pieces of a market’s design are devised by the mar-ket participants themselves; other pieces are devised by the gov-ernment. It is by spontaneous change, for the most part, that therules of the market game develop, with the market participantsdesigning better ways to transact. Lowering transaction costs is atask not only for entrepreneurs, however, but also for public pol-icy. The government has the responsibility to establish and main-tain an environment within which markets can work efficiently.

Some invoke the supernatural to explain what they findextraordinary: that markets can work with no one in charge. TheRev. Richard Whately, a professor of political economy at OxfordUniversity in the 18th century, believed the coherence of the mar-ket to be proof that God exists. If no human planner is guiding the market to the optimal outcome, God must be. The invisiblehand is the hand of God.

A religious fervor characterizes some of today’s fans of the freemarket. “The true spirit capital of the current capitalist economyis not material. It is moral, intellectual, and spiritual,” declaredGeorge Gilder, an evangelist for libertarianism. He also said thatentrepreneurship “most deeply springs from religious faith andculture” and that entrepreneurs “embody and fulfill the sweet andmysterious consolations of the Sermon on the Mount.” RonaldReagan liked to use the catchphrase “the magic of the market”—inadvertently bearing out the jibes about his “voodoo economics.”

Carlos Fuentes, the novelist, derided what he calls economicfundamentalism, “with its religious conviction that the market,


a n a t u r a l h i s t o r y o f m a r k e t s

Market in Durban, South Africa, 1960 Floating Market, Saduak Thailand Chicago Stock Exchange

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A workable market design keeps in check transaction costs—the various frictions in the process of making exchanges. These include the time, effort, and money spent in the process of con-ducting business: both any costs incurred by the buyer in additionto the actual price paid, and any costs incurred by the seller in making the sale.

Markets provoke clashing opinions. Some revile themas the source of exploitation and poverty. Others extol them as thefont of liberty and prosperity. There is the dogma that markets areinherently harmful, so they should be routinely overridden by thestate; and the dogma that markets are unambiguously beneficial,so we can leave everything to the free market. “For every problemthere is a solution,” said H.L. Mencken, “that is simple, direct,and wrong.” Both of the simple, direct solutions regularly offered

for all kinds of societal ills—“suppress the mar-ket” and “leave everything to the market”—more often than not are wrong.

“Find me a one-armed economist,” PresidentHerbert Hoover ordered, out of frustration witheconomic advisers who kept saying, “On the onehand ... on the other hand ...” Honest answersto the big questions in economics, however, arerarely free of caveats. On the merits of markets,most economists are unapologetically two-armed.

Markets are too important to be left to theideologues. In fact, markets are the most effectivemeans we have of improving people’s well-being.For poor countries they offer the most reliablepath away from poverty. For affluent countriesthey are part of what is needed to sustain theirliving standards.

Markets, then, are the most potent antipov-erty engine thereis—but only where they work well. The caveat is crucial. Over abillion Africans and Asians, according to the World Bank, eke outa living of sorts on one dollar or less a day. That is more peoplethan live in the affluent West. For a great many, it would seem,markets are not doing much good.

Governments in poor countries sometimes intervene exces-sively, stifling markets and exacerbating the poverty. But that is notthe entire story. If the state were to cease its counterproductive inter-ventions, those countries would remain poor. In Calcutta or Cairoor most other third-world cities, markets operate everywhere. Youcan’t steer clear of peddlers eager to sell. The problem is not thatmarkets are absent; it is that they are working badly.

Left to themselves, markets can fail. To deliver their full bene-fits they need support from a set of rules, customs, and institutions.They cannot operate efficiently in a vacuum. If the rules of the mar-ket game are inadequate, as often they are, it is difficult and time-consuming to set them right. Many countries, to their citizens’detriment, have not yet been able to do so.

Markets are not miraculous. There are problems they cannotaddress. If their platform is unsound they do not even solve theproblems they are supposed to solve. Viewed as tools, marketsneed be neither revered nor reviled—just allowed to operate wherethey are useful. ■


a n a t u r a l h i s t o r y o f m a r k e t s

left to its own devices, is capable of resolving all our problems.”Mocking market zealots, Harvey Cox, who happens to be a pro-fessor of divinity, said that for its true believers the market is likeGod in “the mystery that enshrouds it and the reverence it in-spires.” Like God, the market is avowed by its proselytizers to be“omnipotent (possessing all power), omniscient (having all knowl-edge), and omnipresent (existing everywhere).” These divineattributes, Cox continued, “are not always completely evident tomortals but must be trusted and affirmed by faith.”

Faith is not needed. The “hand” that guides the market may beinvisible, but it is not actually supernatural. The market is notomnipotent, omnipresent, or omniscient. It is a human inventionwith human imperfections. It does not necessarily work well. Itdoes not work by magic or, for that matter, by voodoo. It worksthrough institutions, procedures, rules, customs. One of my aims

is to demystify the market. Modern economics has a lot to say about the workings of

markets. Theorists have opened up the black box of supply anddemand and peered inside. (The Nobel Memorial Prize commit-tee recognized this work with its 2001 award to George Akerlof,Michael Spence, and Joseph Stiglitz.) Game theory has beenbrought to bear on the processes of exchange. Examining marketsup close, the new economics emphasizes market frictions and howthey are kept in check. Expressed in mathematics and impene-trable jargon, these new ideas reside obscurely in the technical jour-nals. They have, however, a deeply practical content.

Exchange is “one of the purest and most primitive forms ofhuman socialization,” sociologist Georg Simmel wrote in 1900; it creates “a society, in place of a mere collection of individuals.” Amarket is a social construction. If it is to work smoothly, it mustbe well constructed. By market design is meant the methods oftransacting and the devices that serve to allow transacting to pro-ceed without obstructions.

Market design consists of the mechanisms that organize buy-ing and selling; channels for the flow of information; state-set lawsand regulations that define property rights and sustain contract-ing; and the market’s culture, its self-regulating norms, codes, andconventions governing behavior. While the design does not con-trol what happens in the market—as noted, free decision makingis key—it shapes and supports the process of transacting.

Markets are too important to be left to the ideologues. In fact, markets are the most effective means we have of

improving people’s well-being. For poor coun-tries they offer the most reliable path away from poverty. For affluent countries they are part ofwhat is needed to sustain their living standards.


For information or applications, please contact: ANGEL DODSON

Phone: 650.723.3341 Fax: 650.723.3950 Email: [email protected]

OFFICE OF EXECUTIVE EDUCATION, STANFORD GRADUATE SCHOOL OF BUSINESSSTANFORD UNIVERSITY, STANFORD, CA 94305-5015

www.gsb.stanford.edu/exed

Executive EducationG R A D U A T E S C H O O L O F B U S I N E S S

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At the Stanford Graduate School of Business, you

stand at the window of one of the world’s most

powerful academic and business centers. By

participating in one of our executive programs,

you will gain access to the world’s leading faculty,

develop unparalleled insights into the innovative

spirit that drives Silicon Valley, and foster a dynamic

connection to a global network of senior executives.

General Management ProgramsStanford Executive ProgramJune 23 – August 6, 2002

Executive Program for Growing CompaniesJuly 21 – August 2, 2002, and Spring 2003

Stanford – N.U.S. Executive Program inInternational Management (in Singapore)July 28 – August 16, 2002

Advanced Management College(at Stanford Sierra Conference Center)September 15 – 20, 2002

Financial ManagementFinance and Accounting for the Non-FinancialExecutiveMay 5 – 10, 2002, and November 10 – 15, 2002

Financial Management ProgramJuly 7 – 19, 2002

Credit Risk Modeling for Financial InstitutionsOctober 13 – 18, 2002

PO WE R F U L ID E A S,IN N O VAT I VE PR AC T I C E,LA S T I N G VA L U E

These dates may be subject to change.

Leadership and Strategy

Leading Change and Organizational RenewalMay 19 – 24, 2002 (Harvard Campus), and November 3 – 8, 2002 (Stanford Campus)

Teams Without BoundariesJune 24 – 28, 2002

Mergers and AcquisitionsAugust 4 – 9, 2002

Executive Program in Strategy and OrganizationAugust 4 – 16, 2002

Executive Program in Leadership: The Effective Use of PowerAugust 12 – 16, 2002

Human Resource Executive Program: Leveraging Human Resources for Competitive AdvantageSeptember 8 – 13, 2002

Managing Teams for Innovation and SuccessFebruary 2003

Marketing

Marketing Management ProgramJune 23 – July 5, 2002

Negotiation

Negotiation and Influence StrategiesOctober 20 – 25, 2002, and April 2003

Advanced Negotiation ProgramApril 2003

Technology and Business

Managing Your Supply Chain for Global CompetitivenessAugust 25 – 30, 2002

Electronic Business and CommerceOctober 6 – 11, 2002

Strategic Uses of Information TechnologyApril 2003

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faculty news

Banking Scholar Awarded Sloan Grant

Manju Puri, associate professor offinance, has been awarded anAlfred P. Sloan Research Fel-lowship, an honor that carries

a $40,000 grant. Puri’s work has focused onfinancial intermediation, particularly bank-ing and venture capital.

Sloan research fellowships, awarded fortwo-year terms, recognize young scientistswho show outstanding promise of makingfundamental contributions to knowledge.

Puri’s research in banking has centered on the conflicts of interest banks face inserving as both securities underwriters andlenders to companies, and how their rolecompares to that of investment bankingfirms, which serve only as underwriters. Herpapers on universal banking and the impli-cations for the Glass-Steagall Banking Acthave received numerous awards.

Puri has coauthored several papers on thesubject of venture capital, including its rolein the professionalization of start-up firmsand its role in the product market. Alongwith Thomas Hellmann, she has recently beenawarded a National Science Foundationgrant to investigate the economic founda-tions of venture capital. (See research paperslisted on the Web at http://gobi.stanford.edu/facultybios/bio.asp?ID=140.)

Appointed to the National Bureau of Eco-

nomic Research in 2001, shealso serves on the editorial boardof the Journal of Financial Inter-mediation, the Journal of MoneyCredit and Banking, and theJournal of Banking and Finance.

Behind the scenes of negotiat-ing the new trade agreement

between the United States andVietnam last summer, laboreconomist Robert Flanagan washelping Vietnamese academicsand policy makers understandthe ramifications. Flanagan,who is the Konosuke Matsu-shita Professor of InternationalLabor Economics and PolicyAnalysis, spoke in Hanoi and

Ho Chi Minh City about the impact of freetrade and increased foreign direct invest-ment on emerging economies. The seminarswere organized by the University of SanFrancisco Law School, which has beenworking to build legal institutions in South-east Asia.

“I explored the paradox of why free tradeagreements, which promise benefits to allparties to the agreement, are so difficult to implement,” Flanagan says. “I also dis-cussed the effects of free trade agreementson growth and foreign investment elsewherein Southeast Asia.”

Flanagan says he felt the most importantseminar was in Hanoi at the Central Insti-tute for Economic Management, becausethat agency “has responsibility for most eco-nomic policy in Vietnam.”

The Université Paris-Dauphine, one of theinstitutions that comprises what was for-

merly known as the Sorbonne, has award-ed David Kreps an honorary doctorate. TheNovember award ceremony was held in the legendary “war room” of the convertednato headquarters that now houses theprestigious university.

Kreps is the School’s Paul E. Holden Pro-fessor of Economics and a senior associatedean for academic affairs. He is known for

his pathbreaking work in dynamic choicebehavior and economic contexts wheredynamic choices are key. Among his manycontributions to the literature of financialeconomics and dynamic games, he hasauthored a widely used graduate-level text-book on economic theory.

George Parker, who has served the Busi-ness School and University in more roles

than even he can count, was honored by gsbfaculty recently with the Robert T. DavisAward, recognizing his extraordinary con-tributions to the School.

Parker, the Dean Witter Professor ofFinance and Management, first came to theSchool in 1960 as an mba student and re-turned in 1965 to study for a doctorate. Hetaught at Columbia University and workedat a venture capital firm before joining thegsb faculty in 1973 to teach finance anddirect the Sloan Program. Most recently, hedirected the mba Program.

Dean Robert Joss described Parker as an “irrepressible, enthusiastic, and tirelessambassador for the School”; a great teacher,communicator, and adviser to young peo-ple, deans, and university presidents. For-mer Davis Award winners James Van Horneand Charles Holloway agreed with Joss, butthey picked apart Parker’s skills as a studentand cowboy.

Parker drove Van Horne crazy with ques-tions when he was in his finance class, VanHorne recalled. “Like the Energizer Bunny,he never really woredown.” Hollowayregaled other facul-ty with his stories ofParker’s mishaps onhorseback, includ-ing the time Parkerreturned to the barncovered with the mo-lasses that he hadintended to use as a lure to catch his horse.

The Davis Award was created in memoryof Professor Robert Davis to honor a life-time of achievement at the School.

Faculty member J. Michael Harrison hasbeen honored with the 2001 Frederick

W. Lanchester Prize of the Institute for


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Manju Puri received a $40,000Alfred P. Sloan research grant.

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ECONOMICSCourts and Relational ContractsSimon Johnson, John McMillan, andChristopher WoodruffJournal of Law, Economics, and Orga-nization (Vol. 18), spring 2002

Incentives and Coordination in HierarchiesDilip Mookherjee and Stefan ReichelsteinAdvances in Theoretical Economics(Vol. 1, No. 1), 2001

Measuring the Dynamic Gains from TradeRomain WacziargWorld Bank Economic Review october 2001

Reinventing the Bazaar: A Natural History of MarketsJohn McMillanNew York: W.W. Norton, 2002

FINANCEExpectation Puzzles, Time-Varying Risk Premia, and Affine Models of theTerm StructureQiang Dai and Kenneth J. SingletonJournal of Financial Economics (Vol. 63, No. 3), march 2002

Forecasting Crashes: Trading Volume,Past Returns, and ConditionalSkewness in Stock PricesJoseph Chen, Harrison Hong,and Jeremy C. SteinJournal of Financial Economics (Vol. 61, No. 3), september 2001

Prospect Theory and Asset PricesMing Huang, Nicholas Barberis,and Tano SantosQuarterly Journal of Economics february 2001

Venture Capital and theProfessionalization of Start-Up Firms:Empirical EvidenceThomas Hellmann and Manju PuriJournal of Finance (Vol. 57, No. 1)february 2002

GAME THEORYHighway Robbery: ComplementaryMonopoly and the Hold-Up ProblemYossi Feinberg and Morton I. KamienInternational Journal of IndustrialOrganization (Vol. 19, No. 10), 2001

Prices and the Winner’s CurseJeremy Bulow and Paul KlempererRAND Journal of Economics (Vol. 33,No. 1), spring 2002

MARKETINGCan Mixed Emotions Peacefully Co-Exist?Patti Williams and Jennifer AakerJournal of Consumer Research march 2002

Consumers as Motivated Beings:The Influence of Self-Regulation onJudgment and PersuasionMichel Pham and Jennifer AakerAdvances in Consumer Research (Vol. 29), 2002

Earning the Right to Indulge: Effortas a Determinant of CustomerPreferences Toward FrequencyProgram RewardsRan Kivetz and Itamar SimonsonJournal of Marketing Research (Vol. 39), may 2002

In Search of Negative Customer Feedback: The Effect of Expecting toEvaluate on Satisfaction EvaluationsChezy Ofir and Itamar SimonsonJournal of Marketing Research (Vol. 38), may 2001

Off Target? Changing Cognitive-Based AttitudesAimee Drolet and Jennifer L. AakerJournal of Consumer Psychology (Vol. 12, No. 1), 2002

OPERATIONS MANAGEMENTMulticlass Queue in Heavy Traffic withThroughput Time Constraints: Asymp-totically Optimal Dynamic ControlsErica L. Plambeck, Sunil Kumar,and J. Michael HarrisonQueueing Systems (Vol. 39), 2001

ORGANIZATIONAL BEHAVIOR The Psychology of Legitimacy: Emerg-ing Perspectives on Ideology, Justice,and Intergroup Relations John T. Jost and Brenda Major (eds.)Cambridge University Press, 2001

Emotional Selection in Memes:The Case of Urban LegendsChip Heath, Chris Bell, and Emily SternbergJournal of Personality and Social Psychology (Vol. 81), 2001

Gender and the Organization-Building Process in Young,High-Tech FirmsJames N. Baron, Michael T. Hannan,Greta Hsu, and Ozgecan KocakIn Mauro F. Guillén, Randall Collins,Paula England, and Marshall Meyer(eds.), The New Economic Sociology:Developments in an Emerging Field,Russell Sage Foundation Press, 2002

How Status and Power DifferencesErode Personal and Social Identitiesat Work: A System JustificationCritique of Organizational Applica-tions of Social Identity TheoryJohn T. Jost and K. ElsbachIn M. A. Hogg and D. J. Terry (eds.),Social Identity Processes in Organiza-tional Contexts, Philadelphia: Taylorand Francis/Psychology Press, 2001

Information Technology, WorkplaceOrganization, and the Demand forSkilled Labor: Firm-Level EvidenceTimothy Bresnahan, Erik Brynjolfsson,and Lorin M. HittQuarterly Journal of Economics (Vol. 117, No. 1), february 2002

ManagementRobert L. JossAustralian Journal of Management(Vol. 26), august 2001

Changing Racial Beliefs by ProvidingConsensus InformationCharles Stangor, Gretchen Sechrist,and John T. JostPersonality and Social Psychology Bulletin (Vol. 27, No. 4), 2001

What Makes You Think You’re So Popular? Self-EvaluationMaintenance and the Subjective Sideof the ‘Friendship Paradox’ Ezra Zuckerman and John T. Jost Social Psychology Quarterly (Vol. 64,No. 3), 2001

Who’s Being Served? “Self-Serving”Attributions in Social HierarchiesFiona Lee and Larissa Z. TiedensOrganizational Behavior and HumanDecision Processes (Vol. 84, No. 2)march 2001

POLITICSEstimating Party Influence on Roll CallVoting: Regression Coefficients VersusClassification SuccessJames M. Snyder and Timothy Groseclose American Political Science Review (Vol. 95, No. 3), september 2001

Joseph G. Cannon: Majoritarian from Illinois?Keith Krehbiel and Alan WisemanLegislative Studies Quarterly, may 2001

A Model of Candidate Location When One Candidate Has a ValenceAdvantageTimothy Groseclose American Journal of Political Scienceoctober 2001

Plausibility of Signals by aHeterogeneous CommitteeKeith KrehbielAmerican Political Science Review (Vol. 95), 2001

STRATEGIC MANAGEMENTStrategy Is Destiny: How Strategy-Making Shapes a Company’s FutureRobert A. BurgelmanNew York: The Free Press, 2002

A Theory of Strategic VentureInvestingThomas HellmannJournal of Financial Economics (Vol. 64, No. 2), may 2002 ■

faculty publications


Operations Research and Management Sci-ence (informs), the leading professionaland scholarly organization devoted to oper-ations research and the management sci-ences. The prize annually recognizes the best contribution to the discipline published inEnglish and includes a commemorative me-dallion and a $5,000 cash award.

Harrison, the Gregor G. Peterson Profes-sor of Operations Management, was recog-nized for a series of four papers appearingbetween 1988 and 2000.The papers discussproblems of resource allocation in “pro-cessing networks”—examples include man-

ufacturing systems, communication net-works, product development systems, andservice operations like insurance claims processing. Harrison develops a novel meth-od of redeploying available capacity in theface of chance events; for example, whenequipment fails or when demand surges inmanufacturing.

Margaret Neale was elected to the FellowsGroup of the National Academy of

Management at its annual meeting held inAugust. She is one of 159 members of the11,000-member academy who have been

honored for their “significant contributionsto the science and practice of management.”

Neale is the John G. McCoy–Banc OneCorporation Professor of Organizationsand Dispute Resolution. Her research andteaching focus on negotiation and decisionmaking, collaboration, the allocation ofburdens and benefits, learning in groups andteams, and diversity. Other members of theBusiness School faculty who have beennamed fellows of the management academyand the year in which they were named areJeffrey Pfeffer, 1986; James March, 1988;and Joanne Martin, 1993. ■

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Measuring Executive Accountability

Over the past decade, companies increas-ingly have been called on to create morevalue for their owners. Led by aggressiveinstitutional shareholders like the Califor-

nia Public Employees Retirement System and fueled bywidely published reports of overcompensated execu-tives, shareholders are demanding that managers begiven incentives to focus on corporate value creation.Consulting firms have responded with a host of newperformance metrics. Some of the most popular areknown as “economic value added,” “flow return oninvestment,” and “economic profit.”

Whatever they’re called, they’re catching on fast. “Thenumber of firms that have chosen to adopt value-basedperformance measures in recent years has shot up,” saysaccounting professor Stefan Reichelstein. “According tosome estimates, around 200 of the Fortune 1000 firmsare now using some value-based metric to measure the

performance of their top-level managers.”Economic value added has become so popular a con-

cept that its acronym actually has been trademarked byconsulting firm Stern Stewart & Co. Still, it’s not reallynew. “The concept has been known for quite some timein the accounting literature as ‘residual income,’” saysReichelstein. “It’s really a very simple formula: account-ing income, properly measured, less a capital charge forthe assets used by that particular business or division.

“In contrast to ordinary accounting income, residualincome is fundamentally compatible with present valueconsiderations. That aspect in turn is critical in moti-vating managers to make long-term decisions that en-hance the overall net present value of the firm.”

Which is all well and good. But the problem remainsthat managers may not be willing to engage in projectsthat increase value way down the line, value that isn’tmeasured—and therefore rewarded—now. “This iswhere the accounting rules come in,” Reichelstein says.“Good accounting rules allocate current and expectedfuture cash flows to reflect value creation in the per-formance measure early on and consistently over time.That way, it is of less importance whether managershave shorter planning horizons than shareholders.”

Economic value added and similar formulas pro-posed in the “war of the metrics” all make adjustmentsto the accounting rules used for external financialreporting. But which of these adjustments is most effec-tive in aligning the objectives of managers and share-holders remains a subject of lively debate.

In a paper that won the Best Paper Award at theReview of Accounting Studies conference last year,Reichelstein and Sunil Dutta, assistant professor of ac-counting at the Haas School of Business, University ofCalifornia, Berkeley, analyze a model that compares theeffectiveness of alternative performance metrics andaccounting rules. The study, “Controlling InvestmentDecisions: Depreciation- and Capital Charges,” focuseson capital investment decisions and the choice of depre-ciation method to account for these investments.

Dutta and Reichelstein establish that residual incomeis indeed an efficient performance metric. When com-bined with particular depreciation schedules, residualincome can align the objectives of shareholders andmanagement consistently over time. In general, thesedepreciation schedules will differ from the commonstraight-line method used for external financial report-ing purposes. The model analysis also shows how thecapital charge rate used for performance evaluationshould vary with the riskiness of the investment project.

For other assets, such as receivables, inventory, ormultiyear construction contracts, similar issues arise.Reichelstein and Dutta broaden their inquiry in a relat-

Economic value addedhas become so popular a concept thatits acronymhas been trademarked.

Value-Based Management

faculty research

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ed paper, “Stock Price, Earnings, and Book Value inManagerial Performance Measures.”

“The setting in this paper is richer,” says Reichelstein,“in that you can base performance evaluation on bothstock price and the accounting numbers. Stock priceobviously is what shareholders ultimately care about.From a performance evaluation perspective, however,one drawback of stock price is that it aggregates allvalue-relevant information even though some factorsare beyond the manager’s control. Accounting-basedperformance measures can mitigate that problem, andtherefore you want both.” In this second paper, theauthors identify the need for performance measures thatare calculated as a properly weighted average of mar-ket value added and economic value added.

There is growing evidence that value-based manage-ment does deliver for shareholders. Reichelstein and hiscolleagues in academia predict that further analyticaland empirical research will explain why and how. Theybelieve that the interest in these metrics isn’t likely tolessen. After all, Reichelstein says, “People in the fieldrealize the old adage that ‘whatever gets measured alsogets delivered.’” —janet zich

“Controlling Investment Decisions: Depreciation- and Capital

Charges,” Sunil Dutta and Stefan Reichelstein, GSB Research

Paper #1722, November 2001 (http://gobi.stanford.edu/

ResearchPapers/detail1.asp?Document_ID=1619)

“Stock Price, Earnings, and Book Value in Managerial

Performance Measures,” Sunil Dutta and Stefan Reichelstein,

December 2001

Don’t Put the Blameon Trade Liberalization

A ntiglobalization protests took a vio-lent turn when the World Trade Organizationmet in Seattle in 1999. Impassioned activists

blamed trade liberalization policies in developing coun-tries for a variety of ills. Chief among them were theclaims that such policies have an adverse impact oncountries’ growth rate and that increased trade leads totectonic shifts in labor sectors—e.g., from agriculture tomanufacturing—that result in a multitude of problemssuch as the displacement of large numbers of workers,the abandonment of traditional ways of life, a deterio-ration of the environment, and massive unemployment.

“Trade economists know that a country opening upto trade will specialize in certain sectors, putting re-sources into producing goods and services that are moreefficient, and abandoning those that are relatively inef-ficient,” says Romain Wacziarg, assistant professor ofeconomics. “That’s called comparative advantage.” It iswhy some structural realignment can be expected in acountry’s workforce after liberalization of trade.

To Wacziarg’s surprise, his recent research uncovered

little or no evidence of shuffling of workers in the after-math of trade liberalization. “I thought I would be ableto quantify which sectors grew or diminished,” he says.

Wacziarg and coauthor Jessica Seddon, a doctoralstudent at the gsb, compared statistics—such as headcount before and after liberalization—from 26 devel-oping countries that had clear and discernible breaks intheir trade policies.

Using information consistent across countries, Wac-ziarg and Seddon found very little change in the struc-ture of labor sectors within five years of liberalization;what shifts did occur were either small or not statisti-cally significant. “In general, countries like Poland thathave very flexible labor markets where laborers areallowed to move around tend to have more movements.And countries like Spain that tend to use regulations tocreate safety nets, for example, that prevent workersfrom being fired, have less movement,” says Wacziarg.

Domestic policies to offset potential shocks to thelabor market are one explanation for the unexpectedlack of labor migration. These measures also tended toactively counter the positive effects of liberalization.

“If a country removes a tariff on a good, for exam-ple, it’s going to start competing with goods from for-eign countries because foreign goods can now enter thecountry at a competitive price,” Wacziarg says. “So toremedy this, governments enact domestic subsidies tothe industry to restore the competitive advantage, whichhad been lost with tariffs.” He cites the Philippines in1988 and Turkey in 1990 as examples.

“It’s clearly not the case that you have the post-lib-eralization sector-level upheaval that activists claim,”he says. “If it happens, the shuffling can take somethinglike 20 years, and that’s much less of a problem andallows workers to be retrained.”

In a separate, related study, he found countries thatadopted open trade policies did experience measurablegains in economic growth. Examining the link betweentrade policy and economic growth in 57 countries from1970 to 1989, Wacziarg developed an index for meas-uring trade policy openness and found that every 10 per-centage-point increase in the ratio of trade to grossdomestic product resulting from changes in trade pol-icy alone is associated with a 0.67 percentage pointincrease in a country’s annual growth rate.

“If you compound that over several years, the con-sequences for a country’s average per capita income canbe far-reaching,” he says. “The implications of this fora country like China are enormous, just because of itssheer size. Add in India, another country with vastpotential, and something like four-tenths of the world’spopulation could yet benefit from greater openness tointernational trade.” —helen k. chang

“Trade Liberalization and Intersectoral Labor Movements,”

Jessica Seddon and Romain Wacziarg, GSB Research Paper

#1652, October 2001 (http://www.stanford.edu/~wacziarg/

downloads/liberalization.pdf)

“Measuring the Dynamic Gains from Trade,” Romain

Wacziarg, World Bank Economic Review (Vol. 15, No. 3),

October 2001

When trade policies are liberalized, it can take yearsbefore workersare affected— enough time to allow them to be retrained.

Global Economics



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If You Can’t Beat ’Em, Join ’Em

News media are often criticizedf o rcovering presidential campaigns as if theywere horse races and for predicting the

winner before the polls close in all states. A new study suggests that some voters indeed might be influenced by predictions of who is likely to win. Surprisingly, it is the most partisan voters—not theundecideds—who are most likely to become morefavorably disposed toward a leading candidate whomthey initially opposed.

In the week immediately preceding the 2000 u.s.presidential election, graduate students Aaron Kay andMaria Cristina Jimenez polled 288 people in the SanFrancisco Bay Area in collaboration with associateprofessor of organizational behavior John Jost. Theyasked people at shopping malls, airports, and on cam-pus to evaluate candidates George Bush and Al Goreafter reading a purportedly authoritative analysis of theelection’s likely outcome. Some respondents read thatexperts expected Bush to win by a wide margin, othersread he would win narrowly, while still others read pre-dictions of a Gore landslide, narrow victory, or a tie.Participants were then asked to rate the desirability ofboth Gore and Bush presidencies on a scale of 1 to 9and also to indicate their own party affiliation.

Overall, the results showed a strong relationshipbetween a candidate’s perceived likelihood of winningand his desirability to voters. That is, both Republicans

and Democrats tended to rate Gore as moredesirable as the probability of his victoryincreased and to rate Bush as more desirableas the likelihood of his victory increased.Both candidates also were rated less favor-ably when they were believed to be losing.

People apparently have a “remarkabletendency to adapt and accommodate toanticipated outcomes, even if those out-comes are not personally good for them,”says Jost, who studies how institutions gainand lose legitimacy and who coedited thebook The Psychology of Legitimacy. “Thistendency may help to explain why socialand political systems are as successful asthey are at retaining cooperation and con-sent and why qualitative social change is sodifficult to accomplish,” Jost says.

However, evidence from this field studyand a follow-up experiment conducted bythe three researchers clarified that not every-one adjusts his or her views to fit the antic-ipated outcome. The people polled who said

they were political independents or from a third partydid not increase their evaluations of the likely winner,whether it was Bush or Gore.

In a second study, the researchers asked undergradu-ates to rate the desirability of either large or small tuitionincreases or decreases that were perceived as likely orunlikely. Thus, there were eight different conditions inthe experiment. Here again, those who learned that alarge increase was highly likely were far more likely torate it as desirable compared with those who thoughtthe large increase was not very likely or with those whowere told a much smaller increase was probable. Theseresults prompt Jost to suggest that people only rational-ize outcomes in which they are psychologically invested.

“When outcomes are highly consequential and at thesame time highly uncertain, people face an interestingpsychological dilemma,” he says. “They hope for thebest but must also prepare themselves for the worst. Asundesirable events are perceived as more likely, peoplerationalize anticipated outcomes. Events that are per-ceived as more likely come to be seen as more desirable—as sweet lemons—and those perceived as less likely cometo be seen as less desirable—or as sour grapes.”

Nonpartisans probably did not jump on the pre-dicted winner’s bandwagon in the polling experiment,Jost says, “either because they had no strongly preferredcandidate or because they knew that their third partycandidate had no chance of winning.” Thus, they werenot motivationally involved in the outcome of aBush–Gore contest. Similarly, students facing the likeli-

Organizational Behavior

faculty research

People adapt to anticipated outcomes,even if thoseoutcomes arenot personallygood for them.



hood of a small tuition increase did not feel compelledto support it, whereas those facing the likelihood of a large tuition increase did.

When people are highly involved personally, ration-alizing an unwanted outcome may make it easier forthem to cope, Jost says. But this tendency “has signifi-cant implications for the stability and functioning ofsocial and political systems.” Could democracy surviveif proponents of losing candidates refused or were unableto see any positive characteristics in the elected leader?

“When pre-election poll results are published,” saysJost, “it most likely stimulates processes of adaptationand accommodation. It may be that democratic insti-tutions work well to the extent that people are able andmotivated to rationalize electoral outcomes, especiallythose outcomes that might have initially seemed unat-tractive.” —kathleen o’toole

“Sour Grapes, Sweet Lemons, and the Anticipatory Rationali-

zation of the Status Quo,” Aaron Kay, Maria Cristina Jimenez,

and John T. Jost, Personality and Social Psychology Bulletin,

forthcoming

The Psychology of Legitimacy, John Jost and Brenda Major

(eds.), Cambridge: Cambridge University Press, 2001

Venture Funding Signals Growth Strategy

L imited resources, lack of market history, andinability to widely communicate product qualitymake it difficult for most startups to survive. Prior

research indicates that venture capital funding is themost significant resource for entrepreneurial success—it allows for faster product-to-market turnover andenables a company to “professionalize” managementteams quickly. (See Stanford Business, “Making StartupsGrow Up,” February 2001, and “Venture Capital:More Than Money,” June 1999.)

But how much does the amount of funding or its tim-ing matter? New research by gsb faculty suggests thatinitially the amount is less important than the fact thatventure funds were invested at all. Later on, the amountand timing significantly affect a startup’s growth path.

“There is a big difference in the relationship betweenvc firms and startups in early rounds of funding com-pared to later rounds,” says Antonio Davila, assistantprofessor of accounting and Morgridge Faculty Fellowin Entrepreneurship for 2001–02. “In early rounds, thestartup needs money to think and try things. Moneyallows you to fund the ‘idea generation process.’ In laterrounds, you have to implement a specific strategy.”

Early-round funding is typically used to increase acompany’s intellectual capital by hiring new employeesas well as bringing existing employee salaries up to the market average, Davila says. Later-round fundingallows venture capital firms to more directly affect the

specific strategy of a startup company’s growth. vcsinvest less cash when they want to guard against growththat is too aggressive and more cash to assist in fastergrowth than a startup could fund on its own.

Overall venture capital activity grew from $2.3 bil-lion in 1990 to $140 billion in 2000, according to Ven-ture Economics. But it’s not the nineties anymore, andthe economy is suffering a heavy dose of reality. AsDavila says, being a venture capitalist is like playing forthe nba. “In the nineties everybody thought, ‘I could beMichael Jordan.’ But the truth is that most people arenot Michael Jordan.”

To reach their conclusions, Davila and his coauthors,Stanford colleague George Foster and Mahendra Guptaof the John M. Olin School of Business at WashingtonUniversity in St. Louis, began by analyzing payroll datafrom 606 entities covering January 1994 through May2000. The data were useful in determining the effectsof specific funding rounds on company growth.

The team examined both the number of employeesand average salaries around the timing of financingevents and compared the amount of funding made avail-able. The results indicated that the average salary is lowerbefore early rounds than at any other point, which isconsistent with the financial constraints of startups. Andin early rounds, the specific amount of funding is not asimportant to growth as the fact of the funding itself. Inlater rounds, growth happens both before and after thefunding event, which suggests that later-stage startupshave the resources to grow, as soon as the signal of anupcoming round is credible enough. And in later rounds,the amount of funding has a significant impact on thesubsequent growth strategy of the company.

Davila and his colleagues use signaling theory devel-oped by retired gsb dean A. Michael Spence, one of lastyear’s Nobel laureates, to explain some of their results.Each funding event communicates information inter-nally to the employees and externally to the larger mar-ket. The researchers measured the internal signal bytracking employee turnover and found that in earlyrounds, turnover significantly decreased before thefunding event, which suggests that the signal has cred-ibility even before the salaries go up. “Employees startto believe that it will happen (not necessarily through apublic announcement but simply because of the com-ments in the company) and decide to stay in the com-pany. Believing that is going to happen is what we callthe credibility of the signal,” Davila notes. “It tells theemployees, ‘Hey, we’re a good company.’”

How should entrepreneurs take advantage of thisinformation? Davila cautions them: “When you thinkabout a vc, you shouldn’t think, ‘I’m getting money,’ asif you were going to a bank, and it doesn’t matter whichbank. Here it makes a lot of difference, because the ven-ture capital investment firm is going to affect the wayyou implement your strategy and the way you growyour company.” —lisa eunson ■

“The Impact of Rounds of Venture Capital Funding on the

Growth Strategy of Startups,” Antonio Davila, George Foster,

and Mahendra Gupta, GSB Research Paper #1727, November

2001 (http://gobi.stanford.edu/ResearchPapers/detail1.asp?

Document_ID=1636)

VCs invest less cash toguard againstgrowth that istoo aggressive,and more toassist in fastergrowth.

Venture Capital



From Rocks to Stocksshe has a doctorate inmineralogy, but Viola Sanvor-

denker, Sloan ’84, became fasci-nated with investments whenshe followed her father into theHong Kong Futures Exchangein the 1970s. Now a fee-onlyfinancial planner working fromher home in Citrus Heights,Calif., Sanvordenker recentlywas named Woman of the Yearby Sacramento’s DowntownCapitol Business and Profes-sional Women. Financial plan-ning is an excellent field forwomen, she told the SacramentoBee, because more women areseeking financial counseling,and many of them “don’t relatewell” to male financial planners.

Professor ChidesCancer Institutebusiness school professorJeremy Bulow took the NationalCancer Institute to task for dis-torting the facts in a recent

Forbes essay titled “The Anti-tobacco Jihad.” If a privatecompany distorted scientificclaims similarly, it would beprosecuted, writes Bulow, whodirected the Bureau of Econom-ics at the Federal Trade Com-mission during the Clintonadministration. Bulow agreeswith the Institute that “smokingkills” but says the agency’s latest monograph on cigarettesclaims that light or low-tar cigarettes are no safer than reg-ular cigarettes, despite researchto the contrary.

On Watch @Marketwatchwith wide-ranging experi-ence in news media, Kathleen

Yates, mba ’81, was recentlynamed president and chief operating officer of Market-Watch.com Inc., one of the lead-ing providers of financial newson the Web and also a providerto television and newspapers.Marketwatch.com quoted Yatesas saying she saw “great poten-tial for new revenue growth” inthe company. Yates cofounded

a technology firm called ITProInc. and has been a vice presi-dent in Knight Ridder’s newsmedia division and at Women.com Networks.

Some Like It Steepdescribing his career as“nothing if not bold,” the Balti-more Business Journal namedMayo A. Shattuck III, mba ’80,its Businessperson of the Yearfor 2001. An investment bankerat Baltimore’s 200-year-oldAlex. Brown until September, he felt the firm was too small to survive a global shakeout, so Shattuck led it through twomergers in the 1990s, includinga 1999 sale to Deutsche Bankag. Last October, he was namedpresident and ceo of Constella-tion Energy Group Inc., a newfield for him. Analysts said hisbanking experience would comein handy, and Shattuck said herelishes “steep learning curves.”

Dig Deeper Than Your Checkbook“writing a check is only the tip of the iceberg,” Laura

Arrillaga, mba ’97 and a lecturerat the gsb, told the San Jose Mercury News in a recent articleabout the new breed of non-profit giving circles. Arrillagafounded and cochairs SiliconValley Social Venture Fund, sv2,a group that has raised morethan $1 million for social causes.Its 135 members are expected to donate their time and expert-ise as well. Members includeMayfield Fund partner Kevin

Fong, mba ’82, and former eBaypresident Jeff Skoll, mba ’95.

The Bay Area is a hotbed for similar funds, the newspapersaid, despite the high-tech slow-

down. Some funds, such as theFull Circle Fund cofounded byJosh Becker, mba ’98, havereduced their minimum yearlydonation for membership butare still exceeding fundraisinggoals. Says Becker: “Our philos-ophy is, you may not have themillions of dollars in stockoptions, but you are still work-ing” and earning a salary.

Dr. Managertrained first in pediatrics in the United Kingdom and atHoward University, Dr. Andrew

Agwunobi graduated from thegsb last June and immediatelysigned on to revitalize Atlanta’sSouth Fulton Medical Center. The hospital had large debtsand had lost staff before TenetHealthcare brought it out ofbankruptcy last spring.

Part of Agwunobi’s manage-ment style, according to theAtlanta Journal Constitution, hasbeen to investigate every com-plaint and to work one or twohours every other day in some-one else’s job. “I want a classlessculture in the hospital,” he toldthe newspaper.

NewsmakersWHO’S IN THE NEWS A Roundup of Media Mentions

Sacramento, Calif., woman of the year Viola Sanvordenker.

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Being Small Relies on Big Supportcalling the gsb’s education-al programs “intense, intimate,and life-changing,” the FinancialTimes asked Dean Robert Joss

to explain why the School choseto keep its programs smallerthan those of its competitorsand how it could afford to do so.

The general managementknowledge taught by faculty“scales well in terms of ideas,”Joss said. “What we haven’t figured out is how to scale thelearning experience. You cantelevise or stream the class, but it does not replicate theexperience.”

The gsb’s model of education“will not pay for itself on a user-pays, upfront basis,” Joss ex-plained. “It relies on peoplebeing willing to pay throughouttheir lives. We rely on one gen-eration feeling responsible forthe next to keep it going. It’s not an easy model, and it’s notwithout risk.”

Risk Is Relativeentrepreneurship may seemmore risky than corporate con-sulting or banking jobs, but gsbfaculty member Irv Grousbeck

“asks his students to comparethe risks of entrepreneurshipwith the slim chance that they’llever become partners at a largefirm,” according to an article in Fortune Small Business.

Grousbeck and a partnerpooled $3,500 in 1964 to start a small cable tv company. Continental Cablevision hadbecome one of the biggest cablecompanies in the nation whenhe stepped down as president16 years later.

Building the New China“if my grandmother foundout what I’m doing, she wouldprobably jump out a window,”Eric Li, mba ’95, told the San JoseMercury News. Li is cofounderof a Shanghai-based venturecapital firm, Chengwei Ventures,and one of the “sea turtles,” asChinese call citizens who were

educated abroad and are nowbeing lured back by China’sstrong economy and entry intothe World Trade Organization.Raised in a Shanghai houseshared by four families, Li saidhis family valued scholarshipand government service, notentrepreneurship.

Globalization Criticone day in 1992, David Kor-

ten looked out his Manila officewindow and saw the diesel-polluting cars of multinationalexecutives on the clogged streetbelow and a few blocks awaypeople living in shacks atop a garbage dump. After threedecades training business managers in Africa, CentralAmerica, Asia, and at Harvard, he decided instead to becomeactive in the antiglobalizationmovement.

In October, Worth magazinelisted Korten, mba ’61 and phd’68, as one of the “100 peoplewho have changed the wayAmericans think about money.”

Critics call him a misguided

idealist, but his 1995 book, Why Corporations Rule theWorld, and speeches provideintellectual backing to groupswho have protested at meetingsof the World Trade Organiza-tion. Korten told the New YorkTimes he attended the gsbbecause he believed modernbusiness management wouldhelp impoverished countries,but he gradually came to believemultinational companies aren’taccountable and hold tyrannicalpower over the future of unde-veloped countries.

Fattening Up in a Downturn“people are realizing thatto get out of the downturn youdon’t just need a puny versionof the organization you hadbefore. You actually need to dosome new stuff,” says Robert

Sutton, a professor at the gsband the School of Engineering.Speaking to the Financial Timesabout the counter-intuitive ideasin his new book, Weird IdeasThat Work, Sutton cites SunMicrosystems and Intel Corp. as examples of companies thatspend more on research anddevelopment as they are cutting

jobs in manufacturing. Compa-nies need to strive to fail theway Procter & Gamble does,Sutton says. The shampoo anddetergent maker strives to test10 ideas in the supermarketrather than kill them off indevelopment, he says, because it does not know which of the10 won’t fail.

Critical Turnaround“we made it through the valley of the shadow of death,”William McGlashan Jr., mba ’90,told the New York Times in Janu-ary when the venture capitalistmoved from acting to perma-nent ceo of Critical Path Inc.Once a high-flying provider ofcorporate email systems, the San Francisco-based companyfirst ran into trouble in January2001 when it widely missedearnings projections. The nextmonth, it suspended two topexecutives, and the Securitiesand Exchange Commissionlaunched an investigation of

its accounting practices thateventually forced a restatementof earnings.

McGlashan was brought inas a turnaround specialist, andthe company secured a $95 mil-lion bailout from investors inNovember that allowed it toquietly settle more than 50shareholder lawsuits. The news-paper quoted one analyst whocalled it a “remarkable pullbackfrom the abyss.” ■

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San Francisco-based Critical PathInc. may have a second life, thanksto its new CEO Bill McGlashan.

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For additional information, please contact Laura Moore at

[email protected] or 650.723.2694

Professor Hau Lee

Dynamic Supply Chain Management

Professor Margaret A. Neale

Setting Us Up to Fail:

Psychological Barriers to Negotiation Success

Senior Associate Dean and Professor John Roberts

Entrepreneurship in Asia

Professor Channing Robertson

Brave New World: Bio-X and You

A. Michael Spence

Philip H. Knight Professor, Emeritus, and

Former Dean, Stanford Graduate School of Business,

and 2001 Nobel Laureate in Economic Sciences

Mark your calendar for the STANFORD BUSINESS SCHOOL ALUMNI CONFERENCEto be held on Friday

November 1, 2002 in Hong Kong

In addition to an informative and

dynamic academic program, this will be an

excellent opportunity to renew ties with

GSB faculty and classmates. We look

forward to bringing STANFORD TO ASIA

and hope you are able to join us for this

enriching day of education, networking, and

camaraderie. Invitations and complete

program details will be mailed in

September 2002 to all alumni/ae in Asia,

Australia, and New Zealand.

We are honored to have

Stanford University President

John Hennessy as our keynote speaker

at this year’s alumni conference.

In addition to President Hennessy,

our conference agenda of

distinguished faculty includes:H

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34-hongkong-ad 6/14/12 11:03 AM Page 34

GSB merchandise now available…

ONLINEINCLUDING

T-shirtssweatshirts

capsgolf shirts

boxer shortsflannel lounge pants

baby and children’s itemsmugs

diploma framesGo to the GSB Alumni homepage

www.gsb.stanford.edu/alumniand use the GSB MERCHANDISE link to go to the

ONLINE STORE.

At last, a quick and easy way to purchase official GSB products for delivery anywhere in the world!

…

67(Cv3).online store ad/pp 6/14/12 11:05 AM Page c3

Save t h e Da t efor t h e nex t S t an f o r d GSB A l umn i Weekend and Reun i on sOc t obe r 18 – 19 , 2002

O C T O B E R 1 8 – 1 9

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2 0 0 2

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G S B

F O R M O R E I N F O R M A T I O N , P L E A S E C A L L 6 5 0 . 7 2 3 . 4 0 4 6 O R V I S I T W W W . G S B . S T A N F O R D . E D U / A L U M N I

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