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Metrics and Methods to ImproveInnovation Success Rates

The Magazine of the Rotman School of Management

Fall 2006

The Loyalty IssueLoyalty Myths

Also, Fred Reichheld,Patriotism in Your Portfolio,

and The ‘New’ Loyalty

Magazine

The Lo

yalty Issue

Fall 2

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November 16, 2006New York City

Conference Moderator:Bruce Nussbaum,Assistant Managing Editor,BusinessWeek (New York)

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15960 Cover 8/4/06 3:47 PM

Upcoming Events

September 2006September 14, 5:00 – 6:20 pmRotman Corporate CitizenshipSpeaker SeriesSpeaker:Taddy Blecher, President,CIDA City Campus (South Africa)Topic: “Providing an Effective HumanDevelopment Strategy for South Africa viaMass-Scale, Quality Higher Education”

September 26, 5:30 – 7:30pmLaunch of Rotman Masters ofFinance Program

September 28, 5:00 – 6:20pmRotman Marketing ExpertsSpeaker SeriesSpeaker: Louise Wendling,Senior Vice President, Costco

October 2006October 10, 5:00 – 6:30 pmAnnual Rotman WorldMental Health Day ForumTopic: “Depression and Its Impacton the Workplace”Panelists: David Goldbloom,Centre for Addiction and Mental Health;Sarah VanderBurgh, RBC Insurance

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October 16, 5:00 – 7:00 pmAnnual Rotman/BDCEntrepreneurship ForumTopic: “Challenges and Opportunitiesfor Entrepreneurs to Advance YourInternational Competitiveness:Lessons Learned”Panelists: Les Mandelbaum, Umbra;Chip Wilson, lululemon athletica

October 26, 8:00 am – 4:00 pmOffshore Outsourcing: Capitalizingon Lessons LearnedKeynote Speaker: NatarajanChandrasekaran, Executive Vice President,Tata Consultancy ServicesConference Co-Sponsor: Industry Canada

November 2006November 7, 6:00 – 8:00 pmAnnual Rotman Women inManagement Open House

November 8, 8:00 am – 1:00 pmAnnual Canada’s Best-ManagedBrands ForumSpeakers: Joe Chidley, Editor,Canadian Business, with leaders fromCanada’s best-managed brands

November 9, 5:00 – 6:20 pmRotman Corporate CitizenshipSpeaker SeriesSpeaker: Phil Sorgen, President,Microsoft Canada Co.

Topic: “Encouraging CorporateSocial Responsibility in a CompetitiveGlobal Economy”

November 16, 9:00 am – 5:00 pm,New York CityGet Creative: Methods and Metrics toImprove Innovation Success RatesModerator: Bruce Nussbaum,BusinessWeek MagazineSpeakers:Yves Behar, fuseproject; BethComstock, NBC; Larry Keeley, DoblinGroup; Sohrab Vossoughi, Ziba Design;Roger Martin, Rotman School; DavidRockwell, Rockwell Group; JeneanneRae, Peer Insight

November 22, 8:00 am – 1:00 pm2007 Economic Outlook ForumSpeakers: Jayson Myers, CanadianManufacturers and Exporters;David Wolf, Merrill Lynch;Roger Martin, Rotman SchoolPresenting Sponsor: Accenture

December 2006December 1, 8:00 – 9:15amAnnual Rotman WorldAIDS Day LectureSpeaker: Nigel Fisher, President and CEO,UNICEF Canada (former AssistantSecretary-General, United Nations)Topic: “HIV/AIDS and Human RightsAbuses:What We Need To Do Now”

December 8, 7:30 – 9:15 amRotman Board EffectivenessSpeaker SeriesSpeaker: Stephen Davis, President, DavisGlobal Advisors (Boston)Topic: “The New Capitalists: How CitizenInvestors are Reshaping the CorporateAgenda” (HBSP, 2006)

Complete details are available at www.rotman.utoronto.ca/events

Rotman Magazine Fall 2006 • 117


ContentsFall 2006

Features4 Prosperity: A Function of Trust

Some people feel that it’s been overblown, but the corporate governance challenge may actually begreater than we think. ‘Director’s clubs’ could be the answer. By Roger Martin

8 Interview with a Loyalty Guru: Fred ReichheldThe ‘high priest of loyalty’ explains the difference between good and bad profits; the ‘ultimate’customer satisfaction question; and how Net Promoter Scores drive growth. By Karen Christensen

12 Identity and the Economics of OrganizationsIdentity-enhanced models of work incentives encourage a new view of a variety of managementpolicies and organizational behaviours. By George Akerlof and Rachel Kranton

18 Using Design to Create Fiercely-Loyal CustomersCultivating fiercely-loyal customers through design requires ambition andrisk-taking, but will ultimately provide your company with valuable and sus-tained relationships. By Jeremy Alexis

24 Loyalty Myths Blind reliance on loyalty as a universal goal will put you out of business. Any loyalty initiative needs to begin with an understanding of the profitability of individual customers. By Timothy Keiningham,Terry Vavra, Lerzan Aksoy,Henri Wallard

32 Patriotism in Your PortfolioOver-investment in home markets has long puzzled economic theorists. Patri-otism may help to explain it. By Adair Morse and Sophie Shive

36 The Trust Development ProcessPeople vary in their willingness to trust others. The Motivated Attributions Model explains theconditions under which acts of trust are most likely. By Mark Weber,Deepak Malhotra and Keith Murnighan

42 Competent Jerks, Lovable Fools, and the Formation of Social NetworksWhen people need help getting a job done, they’ll choose a congenial colleague over a more capable one, and this has major implications for organizations. By Tiziana Casciaro and Miguel Sousa Lobo

47 The New Loyalty: An Interview with John IzzoThe author and consultant discusses how today’s workers are ‘differently loyal’, and the importanceof standing up for what’s important to you. By Karen Christensen

54 Do Firms with Unique Competencies Have Special Obligations?The emerging concept of corporate citizenship entails membership in a global community wherecitizens have a duty to respond to the needs of fellow citizens. By Thomas Dunfee

62 Citizenship and Counterproductive Performance in the NBA and NHLIn the sports arena as in the office, leaders can decrease counterproductive behaviour by engenderingorganizational commitment and preceptions of fairness. By Maria Rotundo

70 Love Your DogsBehavioural economics can reveal hidden value in the poor performers of a business portfolio.By Harry Quarls and Thomas Pernseinter

15960 1-46 8/10/06 12:09 PM Page 1

2 • Rotman Magazine Fall/Winter 2006

Rotman Magazine Fall 2006

Editor:Karen Christensen

Contributors:Steve Arenburg, Laurence Booth, Don Brean,Roger Martin, Ken McGuffin, Maria Rotundo,Jack Thompson, Stephen Watt, Mark Weber,Andrea Wojnicki

Design:Ove Design & Communications Ltd.

Cover:Corbis Images

Copyright 2006. All rights reserved.

Rotman magazine is published three times per year for alumni and friends of the Joseph L. Rotman School of Management,University of Toronto.

Subscriptions are available for $99 per year.To subscribe, go towww.rotman.utoronto.ca/subscribe

To submit a change of address,please contact us at:Rotman Magazine Joseph L. Rotman School of Management 105 St. George StreetToronto, ON M5S 3E6 Tel: 416-978-0240 Fax: 416-978-1373E-mail: [email protected]: www.rotman.utoronto.ca

Departments

3 From the Dean

29 The Big Picture: Tom Stewart

51 Faculty Focus: Andrea Wojnicki

59 Questions For: David Sirota

67 Point of View: Subhashis Nath

74 Faculty Focus: Laurence Booth

76 Point of View: Mike Lipkin

80 Point of View: Patricia McConnell

78 Faculty Focus: Don Brean

82 News Briefs

90 Alumni Profile

91 Alumni Capsules

94 Reunion Roundup

95 Class Notes

117 Upcoming Events

2 • Rotman Magazine Fall 2006

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p.51

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Loyalties lie at the very heart of what it is tobe human, pertaining to bonds that with-stand the passing of time and the winds of change.

Some rare individuals, like cover sub-ject Nelson Mandela, personify thedictionary definition of loyalty: “unswerv-ing allegiance to a sovereign, government,person, cause, ideal, or custom.” But loyaltyof some sort is involved in the formation ofevery individual, and in living any sort ofvaluable life, every human being expressesloyalty to something beyond herself.

Customer loyalty and retention ishigh – if not top – on the list of challengesfaced by today’s leaders.The resulting bil-lions spent in the pursuit of it would leadyou to think brand loyalty should be skyhigh, and yet, it is at an all-time low. Theproblem is that the links between loyaltyand profitability are much more complexthan we think.

What actions can an organization taketo seek, win and retain the allegiance of itsvaried stakeholders? In this issue of Rotman,we attempt to uncover some answers.

Loyalties are central to the develop-ment of our morality, and are the verymeans by which individuals are tiedtogether to each other in a moral commu-nity. On page 4, I argue that well-placedtrust is too often a rare commodity intoday’s boardrooms, in Prosperity: AFunction of Trust.

His research shows that organizationslose half of their customers in five years,and half of their employees in four. Ignor-ing these skyrocketing defections is a sureticket to a dismal future, says author and

Bain and Co. Loyalty Practice founderFred Reichheld, in our Interviewwith a Loyalty Guru on page 8.

Workers either identify with their jobsand feel like insiders, or are frustrated andfeel like outsiders,according to Nobel Laure-ate in Economic Sciences GeorgeAkerloff and Rachel Kranton. Theyargue that as a result, ‘identity’ is the nextstep in the evolution of the economic mod-eling of organizations, in Identity andthe Economics of Organizations, onpage 12.

Fiercely loyal, profitable customers do

exist and can be created, but only if werethink the existing logic about loyalty, saysJeremy Alexis of the Illinois Institute ofTechnology’s Institute of Design. He dis-cusses the important distinctions betweenprofitable and unprofitable customers inUsing Design to Create FiercelyLoyal Customers on page 18.

The number one priority for any firmshould be customer loyalty, right? Wrong.Ipsos Loyalty’s Timothy Keininghamand Terry Vavra and their co-authorsdebunk this and nine other popular mythsin an excerpt from their latest book, inLoyalty Myths on page 24.

Altruism, sportsmanship, and civicvirtue are traits that can be observed bothin the workplace and in the sports arena,says Rotman Professor Maria Rotundo.She shows that both ‘organizational citizen-ship behaviour’ and counterproductivebehaviour can be shaped by leaders, in Citizenship and CounterproductivePerformance in the NBA and NHL onpage 62.

In this issue, we introduce a newdepartment called “The Big Picture,”which will feature commentary on amacro issue by a thought leader. We kickthings off on page 29 with Harvard Business

Review Managing Director Tom Stewart’sthoughts on the knowledge economy. Else-where, Rotman Professor Mark Weberand his colleagues discuss the trust-devel-opment process on page 36; WhartonProfessor Thomas Dunfee argues thatfirms with unique competencies have spe-cial obligations on page 54; and authorMike Lipkin describes his encounterwith Nelson Mandela on page 76.

The word ‘loyalty’ is derived from theFrench word for ‘law’, and to most of us,that is how loyalties seem: they are laws, butlaws of the heart and of the will. Whileprofit has always occupied centre stage inconventional business thinking, profit isonly a consequence of value creation,which, along with loyalty, makes up theheart of any sustainable business.

In many ways, the business worldseems to have given up on loyalty, but itmust not, because rumours of its death aregreatly exaggerated. Blind trust is indeed athing of the past, but it has been replacedwith something far superior: mutual,earned loyalty.We now say to the organiza-tions we buy from and work for, “I willinvest my loyalty in you, if you deliversuperior value.” When such loyalty exists,it can lead to great value for customers andemployees, and a long life of sustainedgrowth and profit.

So, where do your loyalties lie?

Where do your loyalties lie? To ask someone this is,in essence, to ask, ‘who are you’?

From the Dean: Roger Martin

The Loyalty Issue


15960 1-46 8/4/06 4:21 PM Page 3

by Roger Martin

Some people think it’sbeen overblown, but thecorporate governancechallenge may be evengreater than we think.‘Director’s clubs’ couldbe the answer.

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Prosperity:A F U N C T I O N O F T R U S T


15960 1-46 8/4/06 4:21 PM Page 4

There is no question that corporate gover-nance has become a ‘big deal’. The greatscandals of our day have left many of us ask-ing, even years later, “Where were thedirectors?”And everywhere you look, thereis active debate around key issues such asaccountability, standard-setting, monitor-ing, disclosure and enforcement.

Whether or not you think the impact ofa few big scandals has been overblown, I thinkmost of us would agree that there is a lot atstake here.As we collectively search for waysto fix what is broken, scholars of economicdevelopment and prosperity have lessonsburied in their work – not necessarily aimedexplicitly at corporate governance – to whichwe would be wise to pay attention.

First, let us scroll back to DouglassNorth, the 1993 Nobel Laureate in Eco-nomics. Like most Nobel Laureates, hereceived his award for a lifetime of work, inhis case for creating a field that becameknown as ‘The New Economic History’.North challenged the neoclassical view ineconomics that prosperity was a rather sim-ple function of the quantity and quality ofbasic resources – labour, capital andresource endowments. Like a properscholar, he explored the data to answer thefundamental question of why some coun-tries are rich, and others poor.

In his landmark book, Institutions, Insti-

tutional Change and Economic Performance,North argues that, “Institutions provide thebasic structure by which human beingsthroughout history have created order andattempted to reduce uncertainty inexchange. Together with the technologyemployed, they determine transaction andtransformation costs, and hence the prof-itability and feasibility of engaging ineconomic activity.”

The worse-functioning the institu-tions, the greater the institutionaluncertainty, the greater the transactioncosts, and the greater the difficulty ofentering binding contracts. The conse-

quence, according to North, is economicstagnation, as evidenced in most developingcountries and many former socialisticstates. North’s identification of the impor-tance of political, legal and administrativeinstitutional structures opened up a richvein of research and thinking about howimportant institutions can be to the pros-perity of countries.

This vein has been mined impressivelyby two other important scholars whosework bears on the issue of corporate gover-nance.The first is Peruvian Hernando deSoto, winner of the 2004 Friedman Medalfor Advancing Liberty and called by folks asdiverse as Bill Clinton and GeorgeBush “the most influential economist inthe world today.” In 2000, he wrote The

Mystery of Capital:Why Capitalism Triumphs in

the West and Fails Everywhere Else, in which hiscore thesis is that only in the developedwest do we have land registry systems andreal-estate law practices and procedures –i.e. institutions supporting real estate – thatallow owners to establish and enforce cleartitle to their property. This, he argues,enables owners to go to banks and financeproperty ownership, which creates massiveamounts of capital with which to improvereal estate, build factories, and create eco-nomic wealth.

De Soto shows that in Egypt, obtainingclear title to a piece of property on which toopen a store requires exactly 77 procedures,31 agencies, and a minimum of five yearsworking 250 days a year, eight hours a day –if you are lucky. If you are less than lucky, itcan take up to 19 years, and even after allthat work, it is unclear whether this cleartitle will be enforced. Hence, de Soto calcu-lates that more than of 80 per cent – and insome countries as much as 95 per cent – ofthe potential capital in these countries isessentially ‘dead’ and unusable.

For me, the most interesting part of thebook is de Soto’s description of the painful150-year process that America went through

to develop its now-robust system of landregistry and legal protection of title. In hisview, the functioning of these intricate andsometimes arcane institutions is as responsi-ble for American prosperity as anything else,because real estate is the biggest source ofcapital in the U.S., by far. Notwithstandingthe current real estate bubble, equity inone’s home is the largest asset for the major-ity of Americans at their death. De Sotoreinforces North in underscoring the factthat the functioning of certain key institu-tions determines not just small nuances inprosperity, but rather the not-so-fine linebetween prosperity and poverty.

How does all of this tie-in to corporategovernance? To get closer to the topic, weneed to look at a third great scholar, Fran-cis Fukuyama, who was a senior analystat the U.S. State Department when hewrote the article that made him famous –“The End of History” – in The National

Interest in the summer of 1989. He went onto write a fabulous book called, Trust: The

Social Virtues and the Creation of Prosperity, in1995. Richly researched and powerfullyargued, the book makes a central point: theprosperity of nations is a direct function ofthe broad institutionalization of trust intheir economies. For example:

• economies in which you can only trust yourimmediate family have the lowest prosper-ity – e.g. sub-Saharan Africa and Russia;

• economies in which you can trust thebroad-extended family are next moreprosperous – e.g. China;

• economies with primitive stock marketsand commercial legal institutions are thenext most prosperous – e.g. Indonesia,Thailand; and

• the economies in which there are robustlegal institutions, an independent judici-ary, advanced contract law, and tightlyregulated capital markets are the most prosperous – e.g. the major OECD countries.


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So, why are the countries in the fourthcategory so prosperous? Because capital for-mation can take place at a broad level.Individuals can trust people they don’t evenknow with their capital, because institutionsprovide protection and recourse for them.At the opposite end of the spectrum, wheretrust is low, capital cannot be gathered anddeployed, and widespread poverty ensues.

While none of these scholars wasspecifically studying or talking about corpo-rate governance (and all wrote their treatiseslong before the recent wave of scandals),nevertheless, their work holds a powerfulbut simple message: weak governanceundermines trust, and anytime trust isundermined, prosperity suffers fundamen-tally.These scholars help us understand thatthe institutions that provide trust for invest-ing in our economy are fundamental to ourstandard of living. Indeed, they represent thedifference between prosperity and poverty.

De Soto warns that in the West, wetotally take for granted that these institu-tions are dependably in place and operatingsmoothly. And for that reason, we don’talways nurture and protect them. And so itwas with boards of directors and corporategovernance as the millennium came to aclose: we took for granted that they woulddo perfectly-adequate jobs, without under-standing the magnitude and trickiness ofthat job, or the downside of not havingthese institutions ‘work’.

It isn’t as though we weren’t warned:all the way back in 1932, Adolf Berle andGardiner Means pointed out in The Mod-

ern Corporation and Private Property thatbecause professional managers were nowrunning corporations, a fundamental schismhad been created between owners and man-agers. In 1976, Mike Jensen and BillMeckling (in the third most-cited articlein the history of Economics, “Theory of theFirm: Managerial Behaviour, Agency Costs,and Ownership Structure”, Journal of Finan-

cial Economics) – warned of significant‘principal-agent problems’ in the moderncorporation, and that managers cannot betrusted completely to act in the interests ofshareholders. Despite these warnings, wesoldiered on, assuming that directors couldstraightforwardly fulfill the role assumed byBerle, Means, Jensen and Meckling.

Why Do Directors Join Boards?Let’s do a quick reality check and look atdirectors as the human beings they actuallyare, rather than the idealized saints that theshareholders of the modern widely-held,publicly-traded corporation assume theyhave at the helm.When you get right downto it, why would a person join the board ofa public corporation?

I can think of only six reasons: two ofthem are really bad, three of them are prettybad, and just one of them is honourable (albeitunlikely.) On the ‘really bad’ front, a personjoins the board of a public corporation:

1. In order to garner favours from theorganization in question. This is patentlywretched for the shareholders and detrimen-tal to trust.You may believe this just doesn’thappen; but remember, until relativelyrecently, it was historically a core rationalefor the CEOs of big companies to sit on theboard of their lead bank, in part to ensurethat their firm wouldn’t get cut off in thenext credit crunch.

2. As an opportunity to learn about aninteresting industry. This is also dreadfulfor shareholders, who certainly deserve tobe served by someone with better qualifica-tions than a motivation to learn about theirindustry. If and when shareholders need thehelp and expertise of their directors, theyaren’t going to get it from a director that issimply in ‘learning mode’.

On the ‘pretty bad’ front, a person joinsthe board of a public corporation because:

3. The compensation is highly attractive.This is a bad reason because it means thedirector will be conflicted in the event thathe or she objects to something managementsays, and will be inclined to be quiet ratherthan risk losing a lucrative board seat.

4. Being on a board is prestigious. Again,this is a bad reason, because the director willfear a loss in prestige if he or she is kickedoff the board for being ‘argumentative’.

5. The board community is sociallyenjoyable. If this is his or her motivation, aboard member will be disinclined to sayanything that might create discord with the

rest of the board members, because dis-agreeing with the prevailing view createsunpleasantness – the opposite of whatthey’re after.

If any one or a combination of theabove is the motivation for a director tojoin a board, then that director will behighly unlikely to serve the role of ensuringthat the institution of corporate governanceproduces the level of trust that is conduciveto prosperity. It won’t automatically meandisaster; fortunately for the world’s share-holders, many management teams actuallywant to do the right thing and act as if theyare principals themselves; but if a directordecides to join a board specifically for oneor more of the above reasons, he or she willlet shareholders down at the very time theyneed to be protected.

What, then, is the one honourable rea-son to join a corporate board?

6. Public service. The recognition of awell-intentioned citizen that the very pros-perity of his or her country depends on theinstitution of board governance, anddepends in a most serious way, as shown byNorth, de Soto and Fukuyama.

The Judge AnalogyIn essence, modern directors need to thinkand act a lot more like judges: on the whole,judges get crummy pay and have a largelythankless task, with more hardship thanexhilaration. But nevertheless, they do itbecause in the legal profession, there is a

The institutions that provide trust forinvesting in our economy are fundamentalto our standard of living.


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strong sense that the highest form of publicservice is to become a judge and apply yourwisdom to ensuring that the judicial institu-tion serves its country well. By and large –at least at the higher levels – this is the casefor judges, and it is seen to be the case bythe public.

The question is whether this is the casewith corporate directors. Are they drawnto directorship as an important public serv-ice, and are they seen by the publicprimarily as public servants? The two partsof this question are inextricably linked, andthe answer to the latter is a definitive “no.”If anything, the public sees directors ashighly-paid ‘fat cats’ who smoke cigars,drink martinis and line their pockets withbig pay packages. And the answer to thesecond question tends to influence theanswer to the first: it is rare, in any field,for those in it to view it as public servicewhen nobody else does. By definition, pub-lic service requires that the public feels it isbeing served.

There are two important implicationsof this analysis of director motivation andpublic opinion.The first is that for the sakeof our country’s prosperity, we need tomigrate to a state of affairs where director-ship of our public companies is motivatedfirst and foremost by public service; is seenas a valued public service; and is widelyrespected as such.

The second implication is that every-one who is currently a corporate directorshould stop complaining about two things ifthey want improved corporate governance:the first is director fees.The complaints arelegion: “It’s getting so hard”; “The liability isgetting greater”; “With Sarbanes-Oxley, themeetings are getting longer and longer”Believe me, I have heard them all, andheard them often.

The problem with these complaints isthat directorship shouldn’t be an attractivefinancial proposition; if anything, it shouldbe financially unattractive, as is the casewith all public service. Otherwise, it is nec-essarily bad for shareholders, as I haveargued. As long as directors continue tocomplain about directorship being ‘notworth’ the compensation involved, the pub-lic will never view their work as publicservice, and consequently, neither willdirectors.And that will leave directors to bemotivated by one of the other five reasonslisted earlier, which in turn is automaticallybad for governance, bad for the quality ofour institutions, and bad for prosperity.

The second thing directors shouldstop complaining about is Sarbanes-Oxley,and the liability concerns turning boardmeetings into long bureaucratic ‘check-the-boxes’ exercises. It is incumbent upondirectors not to let this happen in theirboard meetings: checking boxes and fol-lowing procedures is not their job, andthose who let it become their job will beconspiring with the often wrong-headedfolks who created many of the most knee-jerk regulatory reactions to the scandals todrive good governance into the ground.

A Modest Proposal: The Director’s Club So what would be the model for such apublic-service-oriented board? I believethat directors who care about the integrity

of boards should form a global ‘director’sclub’, whose members contractually obli-gate themselves to give 15 per cent of theirannual director compensation to a regis-tered charity, with the donations madethrough the club so that they can beaudited. Fifteen percent is a meaningfulamount, but not so great that it would turndirectorship into a charity. It does leave thestandard directors fees at something close

to market rate, but ensures that ‘club mem-bers’ are publicly accepting a marginallyunattractive compensation – a prerequisiteof service.

Club membership would conspicu-ously demonstrate a director’s commitmentto public service while offering the socialbenefits of being perceived as a good corpo-rate citizen. It would also provide entry intoa self-reinforcing support structure forgood governance, where club memberswould have the social support needed tomake difficult, disinterested decisions thatmight be unpopular with management, butin the best interest of shareholders.

Smart investors would want to knowhow many club members sit on which com-pany boards, because the more clubmembers, the greater the boards’ public-service orientation and the less potentialthere is for conflicts of interest. A high ratioof club members to non-members wouldindicate management’s commitment tointegrity, as club directors would have littletolerance for self-interested or corruptmanagement, and if they encounter it,would take their public service elsewhere.And because having club members onboards would make companies more attrac-tive to investors, corporate reports mighteventually declare the number of club mem-bers on a board, just as they now indicate thenumber of women and minority directors.

Such a director’s club would be goodfor shareholders, managers, and directorsthemselves. But as long as directors seektheir positions for the wrong reasons andcontinue to complain about how hard theirjob is and how underpaid they are, they’llremain deluded about their power to pro-tect the interests of shareholders.

Think once again about the judge anal-ogy, whereby the director’s ‘job’ is to serve asan underpaid public servant who exercisestheir best judgement and thinking capabili-ties to protect and uphold democraticcapitalism – and with it, our prosperity, andthat of our children and grandchildren.

I’m sure we can all agree that this issomething worth fighting for.

Roger Martin is dean and professor of Strategic Manage-ment at the Rotman School, where he is director of the AICInstitute for Corporate Citizenship.

We need to migrate to a state of affairswhere directorship of our public com-panies is motivated first and foremostby public service.


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Karen Christensen: In their endless questfor growth, you say that most compa-nies can’t tell the difference between‘good profits’ and bad, and that manyhave gotten hooked on ‘bad profits’.Please explain.

Fred Reichheld: In business today, we reallyonly have one set of reliable metrics forgauging success, and that’s accounting fig-ures – the financials that everybodyunderstands and trusts, knowing that thereare generally-accepted principles behindthem. The problem is, these generally-accepted principles don’t help us distinguishbetween ‘good profits’ and ‘bad profits’.

Good profits are the kind that are earned asa result of delivering great experiences andvalue to a customer, turning them into loyalpromoters; bad profits are those that areearned at the expense of customer relation-ships – that milk customer trust. But goodand bad profits are indistinguishable fromeach other on a spreadsheet.

KC: Who are some of the worst ‘badprofit’ offenders, in your view?

FR: There are many, but one that comes tomind is the cellular telephone providers, atleast in the U.S. (but I suspect it’s true inCanada as well.) If you are loyal to your cell

Called “the high priest of loyalty” by The Economist,

Fred Reichheld discusses the difference betweengood and bad profits; the ‘ultimate’ customersatisfaction question; and how Net Promoter Scores drive growth.

by Karen Christensen

Interview with a

Guru:LoyaltyFred Reichheld


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phone provider, they tend to take advantageof you and charge you the highest prices;the best prices go to disloyal ‘switchers’.And then, every opportunity they get, theyseem to grab an extra dollar or two withoutdoing it fairly. For example, if I dial direc-tory assistance on my cell phone today, myprovider will charge me $3.00 – for some-thing that costs them 30 cents. They justforget about the notion of actually beingobligated to deliver good value, and earningyour trust by treating you right; instead,they’re looking for ways to nickel-and-dimeyou. Firms like this lose customer trust, andas a brand, they’re going to find it very dif-ficult to expand into adjacent businesses.

The travel industry is another example:everything from hotels charging outrageousamounts for you to use the telephone in yourroom, to airlines who charge you $80 for anextra piece of baggage, or $100 to change aticket.That’s just not reasonable. I returned acar to Hertz last month, and I was runninglate, so I didn’t have time to refill the gastank; they charged me $75 for half a tank ofgas. Plus, I was 40 minutes late, so theycharged me for another half a day! How does40 minutes translate into half a day? Mostindustries have gotten addicted to these ‘badprofits’, and it’s a bad situation for a number

of reasons: it’s bad for customers, obviously,because they hate being manipulated, abused,and disrespected. But it’s bad for employees,too, because most employees hate carryingout these policies that have nothing in com-mon with ‘Golden Rule’ behaviour. Thesepolicies destroy growth, so investors hatethem too. And every business person shouldhate them, because they give business a blackeye: for the first time in decades, the major-ity of citizens have a negative opinion aboutbusiness, and it’s not just because of theEnrons and the Tycos (although thosethings didn’t help.) It’s because of the way weare treated day in and day out. Most people

think that business today is not about servingpeople, it’s about grabbing profits whenever acustomer is vulnerable.

KC: You have found that there is littleconnection between ‘customer satisfac-tion’ and growth. Why is this?

FR: There is certainly a correlation at themost aggregate level, but when you getdown to practical operational measures, cus-tomer by customer, there’s very littlerelationship, and that’s because satisfactionsurveys are a process that’s appropriate forresearch, but they can’t stand up to the kindsof rigours that accounting stands up to. Forinstance, car dealers get some sort of bonusbased on the so-called ‘satisfaction’ of theircustomers; but what often happens is, ratherthan true satisfaction, the customer gets alousy experience, and at the end of it, thesalesman says to them, ‘listen, you’ve got togive me a high score on this survey they’regoing to send you; what will it take?’ So theybribe the customer, or plead, thereby ‘gam-ing’ the system. Any time a research metriclike satisfaction is put into a basic operatingrole that drives people’s accountability andearnings, the result is this ridiculous games-manship that destroys the credibility of these

measures. The problem isn’t so much theo-retical: satisfied customers are inarguably agood thing; but the way these surveys aredone doesn’t give you the truth. In addition,satisfaction is too low a target: you’ve got todo more than satisfy your customer – you’vegot to ‘wow’ them, and delight them.

KC: It’s been said that half of the front-line employees working today are actu-ally undermining customer loyalty; whatcan be done about this?

FR: This is a huge problem. Some of the loy-alty leaders I study say that the first thing to do

is focus on your own employees, and I think inmany cases that’s right. Until you have front-line employees who are promoters, who areenthusiastic advocates for your product orservice, there’s no way you’re going to turncustomers into promoters.And as we’ve seenin our research, there are more detractorsamongst front-line employees than there arepromoters. It seems obvious, but companiesoften ignore this, and they go on thinking,‘weneed to be more customer-focused in orderto grow, so we’re going to send out a millionsurveys.’That’s the wrong thing to do: the firstthing to do is talk to your own employees, andfigure out what it is that they aren’t happyabout, and get their input to fix it.

KC: Tell us about ‘the ultimate question’,and the resulting ‘Net Promoter Score’.

FR: I was never a fan of 30-question surveysthat waste your time, where response ratesare lucky to be 10 per cent; you think toyourself, ‘who are these 10 per cent of peo-ple who are so bored or lonely that theytake the time to fill them out?’And let’s faceit, what can you learn from this group aboutyour profitable customers? Then one day Iran into a company called EnterpriseRent-a-Car, which was using a muchshorter survey, to great effect. It had justtwo questions on it, one a follow up to theother. I began studying their approach,wondering,‘is there one single question thatcould lead to information about repurchaseand referrals in other industries?’ Afteryears of research, I found that yes, there isone ‘ultimate question’ for most companies,and it is this: ‘How likely are you to recom-mend us to a friend?’ On a zero to ten scale,those who give you nines or tens are yourpromoters: they drive your growth, giveyou positive word of mouth, and areresponsible in large part for your reputa-tion. They are the true assets of a forward-looking organization.

A company’s true ‘balance sheet’ is thepercentage of customers who are promot-ers – the nines and tens – minus thepercentage that are detractors – who rateyou from zero through six.These people areyour ‘growth enemies’ – they hate you; theycomplain, and make your employeesembarrassed to work there.And that ‘net’ –what we call the Net Promoter Score –

Until you have front-line employees whoare enthusiastic advocates for your productor service, there’s no way you’re goingto turn customers into promoters.


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is really the equivalent of your net worthgoing forward. It’s a far better predictor ofgrowth than any of the metrics thataccountants work so hard to tally up.

KC: Is it worth spending energy to turn‘detractors’ into ‘promoters’, or shouldcompanies focus on increasing theirnumbers of promoters?

FR: There’s no simple answer here; the key isto understand the economics of having detrac-tors, and trying to fix that, to turn people intopromoters. And then, on a case-by-case basis,allocate resources thoughtfully. In most goodcompanies, they’ve already fixed the detractorproblem by using Six Sigma or other tech-niques to spot problems and fix them. But thatdoesn’t make you grow: that just stops youfrom having an anchor of detractors hurtingyour reputation. The challenge for goodcompanies is getting more promoters. Mostcompanies have a majority of customers who are ‘passively satisfied’ – who give aseven or an eight on the ultimate question.But how can you ‘wow’ or delight these peo-ple in an economically-rational way? That’sthe $64,000 question.

KC: Have you found a solid connectionbetween NPS and growth?

FR: We’ve studied 30 industries, examiningthe Net Promoter Score for each versustheir growth rate, and the average NPSleader is growing at 2.5 times the rate oftheir competition. It’s so obvious – there’sonly one way to grow profitably, and that’sto treat your customers so that they comeback for more – and hopefully, bring theirfriends! It’s so simple, and yet the account-ing conventions completely ignore it.Instead we measure profits, and that’s howwe set our budgets, that’s how we paybonuses, so that everyone in the organiza-tion is wired up to care about profits; butbefore long, companies fall into the trap of‘bad profits’, which destroys their growth.

KC: Who are some of today’s ‘loyaltyleaders’?

FR: There are loyalty leaders in just aboutevery industry. Vanguard MutualFunds is a superstar in financial services;

Enterprise Rent-a-Car is the leader inthe car rental business; Harley David-son does very well; and USAA has 90 percent-plus Net Promoter Scores in its creditcard business – which is just astonishing.Cisco Systems is a star in its industry;Chick-fil-A in the fast-food industry;Amazon.com in the online business;Costco in the wholesale business. eBay isanother online superstar; Apple does very

well; and JetBlue is the leader in the air-line industry – their scores are up in the 70sand 80s, which is amazing – they are evenahead of Southwest, which remains a realclass act.

A lot of banks think, ‘we can’t applyNet Promoter Scores’ – and of course,banks are having a hard time with organicgrowth – but the best banks in the U.S. have50 to 55 per cent scores, while the averagebank has an NPS of 10.We’ve also looked atthe Net Promoter Scores for banks inCanada, and they’re not pretty. The worstpossible scenario would be having a nega-tive-100 NPS – where you are turning 100per cent of customers into detractors, andthere are some industries that get high neg-ative scores. These include some of thecellular telephone companies; health insur-ance companies; some of the long-linetelephone firms; and many industrial ‘B2B’firms are lucky to score above -20. Overall,the average company in North America hasan NPS between zero and 10, which showsyou just how bad this addiction to bad prof-its has become.

KC: You have said that companies needto be more ‘picky’ in selecting their cus-tomers; but isn’t every customer a goodcustomer?

FR: When a company is trying to grow, andis focusing on accounting metrics as a signof success, it will get lots more customers.But that’s exactly the way to destroy your

ability to be ‘special’ for your core, targetcustomers. The best companies, who aregrowing the fastest, really maintain theirfocus on a set of core customers – a seg-ment for whom they can deliver somethingtruly special. And then, when they’ve pen-etrated all of the product or service needsin that category, they invent new stuff forthose customers.As opposed to the averagecompany, which says,‘I just want more cus-

tomers’: they end up getting all kinds ofdifferent customers who have differentconcerns, and they end up being special tono one.

KC: What are the first steps to building atruly effective customer feedback system?

FR: This may sound radical, but I believe thefirst step is to take this initiative away fromthe Marketing department.What we need isa rigourous, reliable feedback system that isaudited and trustworthy, that investors canbelieve in, and that bonuses can be basedon: there’s only one place in the businessthat I know of that understands how to dothat well, and that’s the CFO’s office. Myadvice is to get the CFO to build a processfor finding your Net Promoter Score thatcan be trusted by all stakeholders. Onceyou’ve got that, then your Marketing groupwill be very well positioned to help developthe tools required to get into meaningfuldialogues with customers, to diagnose whya rating is what it is, and what can be doneabout it. For as long as Marketing tries tohold onto this satisfaction survey stuff, theend results won’t change, and bad profitswill continue to dominate.

Fred Reichheld is the founder of Bain & Company’s LoyaltyPractice and author of The Ultimate Question: Driving Good

Profits and True Growth (Harvard Business School Press,2006) and The Loyalty Effect:The Hidden Force Behind Growth,

Profits and Lasting Value (HBSP, 2001). Consulting magazinehas named him one of the world’s top 25 consultants.

My advice is to get the CFO to build aprocess for finding your Net PromoterScore that can be trusted by all stakeholders.


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Identity and the Economics of

ORGANIZATIONSby George Akerlof and Rachel Kranton


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On their first day at West Point, known as‘R-Day’, new recruits strip down to theirunderwear. Their hair is cut off, and theyare put in uniform.They must then addressan older cadet with the proper salute andwith the statement: “Sir, New Cadet Doereports to the cadet in the Red Sash for thefirst time as ordered.” They then stand andsalute and repeat, stand and salute andrepeat, until they get it exactly right, all thewhile being reprimanded for every tinymistake. As one writer put it, “On R-Day,you surrender your old self in stages.”

But R-day is just the beginning of thetraining and personal re-engineering thatis to come, so that West Point graduatesemerge four years later as loyal officers ofthe U.S. Army. And despite some failures,this tough program is remarkably success-ful in creating officers with the will to leadin battle.

Economists’ current picture of organi-zations and work incentives has no place forthe West Point program and the motiva-tions it seeks to inculcate in recruits. In astandard economic model, an individual’spreferences are fixed, and utility dependsonly on pecuniary variables. The Army’saim at West Point is to inculcate non-eco-nomic motives in the cadets so that theyhave the same goals as the U.S.Army.Alter-natively stated, the goal of West Point is tochange the identity of the cadets, so theywill think of themselves, above all else, asofficers in the U.S. army.They will feel badabout themselves – i.e., they will lose util-ity – if they fall short of the ideals of suchan officer.

We believe that inculcating in employ-ees a sense of identity and attachment to anorganization is critical to well-functioningenterprises. And as we will show, bringingthe concept of identity into the economicsof organizations can change our under-

standing of policies such as incentive payand supervision.

The Limitations of MonetaryCompensationIdentity is an important supplement tomonetary compensation, which as solemotivator can be both costly and ineffec-tive.While economic theorists have derivedthe best ways to use available informationto construct incentive pay for workers,

monetary incentives remain a blunt instru-ment. First, compensation schemes can bebased only on variables (such as output orprofits) that are observable to manage-ment. But such variables are most oftenimperfect indicators of individual effort, aswhen, for example, output derives fromworkers’ collective efforts in a team. More-over, many monetary incentive schemescreate opportunities for workers to ‘game’the system.

For example, most jobs involve multi-

ple tasks. In this case, workers will haveincentive to over-perform on tasks that arewell rewarded and to under-perform ontasks that are poorly rewarded. ‘Tourna-ments’, where pay depends upon relativeperformance, solve one management prob-lem by reducing its need for information,but create another problem because work-ers have the incentive to sabotage oneanother. People respond almost too well tomonetary incentives. That is, ‘firms get

what they pay for’, but since these schemescannot be targeted well, what firms get isoften not what they want.

If an organization is going to functionwell, it should not rely solely on monetarycompensation schemes. The ability oforganizations to place workers into jobswith which they identify and the creation ofsuch identities are central to what makesorganizations work. Research shows thatproduction is enhanced when organizations

hire workers who share the organization’smission, and that an employee who identi-fies himself as ‘an insider’ in an organizationneeds little monetary inducement to per-form his job well.

Identity and Social CategoriesIt has been long accepted in sociology andpsychology that people’s notions of ‘how tobehave’ depend upon the situation, andresearchers discern norms for behaviour byvarying aspects of the situation. One keyaspect is, ‘who is interacting with whom?’Is the person a man or a woman? A manageror a worker? Researchers use the term‘social category’ to describe types of peo-ple, and argue that social categories matterto behaviour because people often think ofthemselves in terms of these categories.

Moreover, norms as to how they andothers should behave vary with their socialcategory and the situation.The term ‘iden-tity’ is used to describe a person’s social

Identity-enhanced models of work incentivesencourage a new view of a variety of managementpolicies and organizational behaviours.

George Akerlof Rachel Kranton

The ability of organizations to place workers into jobs with which they identifyand the creation of such identities are central to what makes organizations work.


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category–a person is a man or a woman, amanager or a worker. The term identity isalso used to describe a person’s self-image.It captures how people feel about them-selves, as well as how those feelings dependupon their actions.

In a model of utility, then, a person’sidentity describes gains and losses in utilityfrom behaviour that conforms or departsfrom the norms for particular social cate-gories in particular situations.This conceptof utility is a break with traditional eco-nomics, where utility functions are notsituation-dependent, but fixed. In our con-ception, utility functions can change,because norms of appropriate and inap-propriate behaviour differ across space andtime. Indeed, norms are taught – by par-ents, teachers, professors, priests, to namejust a few.

Identity is useful to economists becauseit suggests a natural way in which behaviourcan vary within a population. Since peoplethink about themselves this way, identitycorresponds to their own self-classificationsand also to their classifications of others.People’s speech, dress and demeanor typi-cally convey how they think of themselves.Indeed, some identities, such as by gender,race or national origin, are so much takenfor granted in everyday life that researchersdo not even feel any obligation to explainwhy they should assume that behaviour (andtherefore the utility that determines it)should vary with them.

Identity is also useful because it givesus a way to think about how behavior shouldvary across types. Particular norms forbehaviour are associated with social cate-gories. Sociologists often describe thisbehavior by referring to ‘ideals’ – real orimagined characters who personify howsomeone in a given social category shouldbehave. A person who identifies with beinga member of a respective social categorythen loses utility insofar as her behaviourdiffers from that of the ideal. She may alsolose utility insofar as associates fail to liveup to ideals – a loss that sometimes can bealleviated by a retaliatory response. Econo-mists have recently adapted frompsychology the idea that utility dependsupon how a situation is framed. Identitydescribes one special way in which peopleframe their situation.

A Model of Identity in OrganizationsA basic economic model would have aworker’s utility depend on income andeffort, with no relation to how she thinks ofherself as a member of the firm. In ourmodel, we allow for the possibility that theworker takes on an identity as part of theorganization. She then loses utility to theextent she does not act in the best interestsof the organization.

We amend the basic principal-agentmodel, which serves as a benchmark of cur-rent economic thinking about motivation inorganizations.The model depicts the inter-action between a firm and a worker,whereby the firm wishes to devise the opti-mal contract to maximize its expectedprofits, which are expected revenues net ofexpected wage payments.The contract willoptimally trade off the worker’s wages –which reduce the firm’s profits – againstincentives for work, which increases thefirm’s revenues.The worker wishes to max-imize expected utility. She has diminishingmarginal utility from income (which werepresent functionally as ‘ln y’, where ‘y’ isincome); and she loses utility from effort(which we represent simply as disutility ‘e’,where ‘e’ denotes effort).

The worker can take only two actions:a high-effort action, denoted ‘A’, and a low-effort action, denoted ‘B’. The high-effortaction increases the likelihood that thefirm’s revenues will take on a high valuerather than a low value. The firm (that is,the principal) cannot observe the effort ofthe agent, but it can observe whether rev-enues are high or low. The firm’s profitfunction, the employee’s utility, the rela-tion between worker effort and firmrevenues, and the information available tothe firm, as described, are sufficient todetermine the firm’s optimal wage pay-ments to the worker.To give the worker theincentive to take the high-effort action, the

firm will pay a high wage when it observeshigh revenues and a low wage when itobserves low revenues. With a sufficientlylarge difference in these wages, the workerwill do the high-effort activity, A.

How can we add identity to thismodel? Say that a worker can take on twodifferent identities: in one case, she identi-fies with the firm – she is an insider, an N.

The norms for insiders are to act in the

interest of the firm and to do the high-effort action A.When an employee has thisidentity, she loses some utility insofar as shedeviates from the ideal action of A. On theother hand, the worker may not identifywith the firm: she is an outsider, an O.Thenorm for an outsider is to do the least pos-sible effort on the job, and she will loseidentity utility insofar as she deviates fromthe low-effort ideal of B.

Adding together the economic and theidentity components of utility yields a for-mula that summarizes our discussion ofworkers’ utility. We suppose the workercan take on only two categories, c _ N or O.

Then the overall utility of the worker willbe summarized by:

U_y, e ;c_ _ ln y _ e _ Ic _ tc_e*_c_ _ e _

where U is the worker’s utility, y is herincome, e is her actual effort, c is her socialcategory, Ic is her identity utility from beingin category c, and tc_e*(c) _ e _ is thedisutility from diverging from the idealeffort level for category c, denoted e*(c).

The preceding formula captures twoimportant ideas not represented by utilityfunctions of standard economics. First, itcaptures psychologists’ and sociologists’view that decisions depend on social cate-gory. In the formula, the worker’s utilityvaries with her category c as either aninsider or an outsider. Second, the formulacaptures the notion of norms and ideals,

A person who identifies with being amember of a respective social categorythen loses utility insofar as her behaviourdiffers from that of the ideal.


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since the worker’s utility depends on thedeviation of her effort from the ideal forher respective social category, according tothe worker’s identity and situation.

The addition of identity-utility in thisfashion greatly affects the contractbetween the firm and the worker: if theworker has an identity as an insider, thepresence of identity utility will reduce thewage differential needed to induce theworker to take the high-effort action A.Correspondingly, if the worker identifiesas an outsider, the presence of identity util-ity will increase the necessary variation ofthe contingent rewards.

The explanation is straightforward:when the agent sees herself as an insider,she maximizes her identity utility by exert-ing the high-effort level. She does not needa large difference in monetary rewards toinduce her to work hard. When an agentsees herself as an outsider, she requires ahigher wage differential to compensate herfor the utility she loses when she works inthe interests of the firm.

Might a firm be willing to invest tochange a worker’s identity from an outsiderto an insider? The answer is yes. In ourmodel, a worker who derives identity fromher job is willing to work for lower overallpay. In addition, less variation in wages isneeded to induce her to take action A, andthis lower wage variation results in addi-tional cost savings for the firm.The workerin this model is risk-averse, so she dislikesvariation in wages. To compensate for thevariation, the firm must pay higher wages

on average for a worker to be willing totake the job. Hence, there is a cost advan-tage for firms when workers require lesswage variation. If these two cost advantagesare high enough, it can be worthwhile forthe firm to undertake a costly program tochange workers’ identities.

Changes in each parameter of themodel, and any extension to it, will affectthe firm’s profits from investing in identity.

If inculcating identity is cheap, if there ismuch uncertainty, if workers’ effort is hardto observe, if revenues/output dependupon special exertion at peak times, ifworkers are especially risk averse, if higheffort is critical to the organization’s out-put, we would expect a firm to find it moreprofitable to use an identity-orientedincentive scheme.

Workplace Illustrations of the Model Current theories of management empha-size its role in changing employeeobjectives (or in terms of the model,encouraging workers to be insiders, whoidentify with the goals of the firm, ratherthan outsiders.) Some of the most famoustaskmasters in industry and commerce havebeen known for their ideas about instillingcompany loyalty. For instance, Sam Wal-ton of Wal-Mart said, “If you want thepeople in the stores to take care of the cus-tomers, you have to take care of the peoplein the stores”; and Thomas Watson ofIBM said, “Joining a company is an act thatcalls for absolute loyalty.”

But identity and loyalty are not justfeatures of firms with unusual charismaticleaders: researchers find loyalty and iden-tity in most of the firms they study. Notonly is self-motivation and identificationwith the firm important to professionalsand managers, it is also important to work-ers farther down the occupational ladder.

A review of the litany of workers’ sto-ries in Stud Terkel’s classic Working

indicates the importance of identity. Con-

sider Mike, a steelworker from Cicero,Illinois. Mike is an outsider; he dislikes hisjob intensely, he feels insulted by his fore-man. For fear of unemployment, hecontains his anger on the job, showing onlyminor resistance, by “not even try[ing] tothink,” by refusing to say “Yes, sir” to theboss, and by occasionally “putting a littledent in [the steel] . . . to see if it will get by.”But his anger builds up, and after work, he

frequently gets into tavern brawls, “Becauseall day I wanted to tell my foreman to go(bleep) himself, but I can’t.”

Mike’s behaviour exactly fits themodel. He is an outsider, O, who performsthe high-effort action A rather than the low-effort action B because of the monetaryrewards. He then loses identity utilitybecause of the gap between the effort heexpends and what he ideally would like todo. His hostility both on the job, and alsooff of it, is a way of partially restoring thisloss of identity. This example shows thateven when pecuniary incentives are all thatmotivate a worker, identity does not liedormant. Its consequences are still visible.

We now turn to Shirley, who is theopposite of Mike. Despite daily insults, sheis a motivated worker, an insider who takespride in her position. She works forReproco (a pseudonym), which subcon-tracts on-site mailroom/photocopy work.Recognizing the potential for conflictbetween its employees and the profession-als in the companies it serves, Reprocotrains its employees to deal with insultsfrom clients.

An exchange at a Philadelphia law firmbetween a female lawyer and Shirley illus-trates: after the lawyer has expressed herimpatience with the time required to finishan order, Shirley responds by using her cal-culator to estimate the length of the queue.The lawyer walks off in a huff, verbally rep-rimanding Shirley and belittling herperformance. Shirley maintains her compo-sure by calling on her work identity as “aReproco person.” With her pride in thatidentity (even in the presence of thelawyer’s contempt for it), she complieswith the ideal to treat the client withrespect. Shirley’s identification withReproco causes her to engage in the high-effort action A, which here is holding hertemper. Had she taken the easy way out andvented her anger (the low-effort action B),as an insider she would have lost identityutility for failing to live up to her ownideal. Her behaviour and her explanation ofit thus conform to the model.

Shirley and Mike illustrate what wehave seen time and again in our research:workers either identify with their jobs (likeinsiders in the model) or they are frustrated(like outsiders in the model), putting in high-

Should a firm be willing to invest tochange a worker’s identity from an outsider to an insider? The answer is yes.


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level effort only when necessary because ofmonetary incentives.

Implications for ManagementIdentity-enhanced economic models oforganizations encourage a new view of avariety of management policies, organiza-tional behaviours, and employmentpolicies. For example, one well-knownconclusion from the economics literatureis the importance of connecting pay tofirm performance in the form of pay dif-ferentials. This conclusion has beenpopularly applied to CEO compensationpackages, where pay differentials areachieved through stock options. Yet aneconomic analysis would also indicate aproblem with this policy. As in the multi-tasking models, the more a CEO’scompensation is tied to the stock price,the more he will act to maximize the stockprice to the detriment of other importanttasks. In this case, what can work? Ouranalysis suggests one possibility: like Armyofficers, CEOs would have better incen-tives if their identity were bound up intheir position in the firm.

Identity could have implications wellbeyond the evaluation of incentiveschemes. First, identity considerationscould affect an organization’s optimalsupervisory policy. Second, the concept ofidentity could help us formulate a bettermodel of management–management couldserve to motivate workers by changing oraffirming workers’ identity. Third, identityis likely to have implications for mergerpolicy, since the operation of a mergedorganization would be affected by the iden-tities inherited from the mergedcomponents. Many a promising merger hasfailed because of such a clash. Fourth, bymodeling an employee’s attachment to afirm and motivations to act in the firm’sinterest, we can represent the legal conceptof a fiduciary. Thereby, we can expand thescope of economic theory to examine legalpolicy concerning responsibilities of peoplein both subordinate and oversight positionswithin a firm. Finally, it is now widelyaccepted among economists that institu-tions are a major determinant of economicwealth and growth. Our study of workeridentity suggests possible differences in

organizational behaviour across rich andpoor economies.

We see identity as the next step in theevolution of the economic modeling oforganizations. In the simplest representa-tion, an organization is equated to itsphysical capital. A more sophisticated viewadds the specific human capital of employ-ees to the description of the firm. Insofar asthe firm can profitably motivate its employ-ees through such attachments, theseinvestments should be considered a part ofthe capital of the organization, its motiva-

tional capital. Beyond that label, which maybe useful, identity considerations yield amuch richer portrait of organizations thancurrently in the economics literature – aportrait that we believe is truer to life.

2001 Nobel Laureate in Economic Sciences GeorgeAkerlof is the Koshland Professor of Economics at theUniversity of California, Berkeley. Rachel Kranton is aprofessor of Economics at the University of Maryland.Together they have a forthcoming book, More Than Money:

Economics and Identity, from Princeton University Press. Fora complete copy of the research paper on which this articlewas based, which appeared in the Journal of Economic Perspec-

tives (Winter 2005), e-mail [email protected]

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e-mail: [email protected].

15960 1-46 8/9/06 5:09 PM Page 16

Are your people ready?

Where do new products come from? How about new services? Or new and better waysof working? A people-ready business has the answer: It’s people, empowered by theright software. Software that streamlines the creative process, organizes the productionprocess, and connects people who have ideas with people who can manufacture, distribute,and sell them. That’s the foundation of a successful business. A people-ready business.Microsoft.® Software for the people-ready business.SMmicrosoft.ca/peopleready

© 2006 Microsoft Corporation. All rights reserved. Microsoft and Your potential. Our passion. are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

In aROI stands for “return on imagination.”

business,

15960 1-46 8/4/06 4:21 PM Page 17

Jeremy Alexis

Cultivating fiercely loyal customers requires ambition and risk-taking, but will ultimately provide your company with valuable

and sustained relationships.


Using Design to Create

FiercelyLoyal Customers

by Jeremy Alexis

15960 1-46 8/9/06 5:12 PM Page 18

It is a common observation: as soon as theplane lands, at least half the passengersquick-draw their Blackberries to checktheir e-mail and voicemail. The deviceresponsible for this behaviour is some-times mocked as a ‘crackberry’ or ‘anextra appendage.’ Some may see this as asad commentary on modern business life,but it is also evidence of fiercely loyalcustomers.

Most of the quick-draw artists on theplane will also likely be members of the air-line’s frequent-flier program. Whereas theBlackberry derives loyalty from an easy-to-use interface, consistent service, and arobust device design, the airline derivesloyalty from a complex and expensivereward program that includes call centers,free product giveaways, and sophisticatedaccounting practices. A recent studyreported in Brandweek shows that offeringssuch as the Blackberry (along with similarproducts from Samsung and Palm) andGoogle have the most-loyal customers,while companies such as, for example,American Airlines have increasingly less-loyal customers.

The companies at the top of this surveyshare a set of common factors: they offer

products and services that are easy to use,and address a holistic set of customerneeds. In other words, they are well

designed. This evidence suggests that tradi-tional levers for creating loyalty (rewardprograms and contracts) are easy to copyand increasingly less effective, and thatthose companies should look to new, more-powerful levers to build betterrelationships with their customers.

The Never-Ending Quest for Loyal Customers Creating loyal customers remains a goal(often articulated as the most importantgoal) of most companies. Estimates putthe number of books on customer loyaltyin the thousands. In North America alone,

companies spent $1.2 billion on loyaltyprograms in 2003, and this number isincreasing. There are more than 8,600supermarkets, 50 airlines, 30 phone com-panies, 20 hotel chains, and dozens ofcredit cards that offer loyalty programs.However, according to McKinsey &

Company, organizations oftenunderestimate the full cost of

setting up loyalty programs,and then, even if salesincrease, the program mayactually result in losses.

In addition, companies spend a greatdeal on technology to help them managetheir customers – with less than stellarresults. In 2004, North American compa-nies spent $10.9 billion on customerrelationship management systems. How-ever, only 28 per cent of companies thatimplemented a CRM system last yearbelieved it led to any improvements.

Despite these efforts, and not includingcustomers of outliers like Google and Sam-sung, consumers are increasingly less loyalto brands and products. For example, foodretailers will lose up to 40 per cent of theirnew customers in three months, and onlyabout 10 per cent of customers are 100 percent loyal to certain consumer products.

In a nutshell, customers are less loyal,and loyal customers are less profitable, thanmost companies estimate. Much of this canbe attributed to increased choice and avail-ability of information. However, we shouldnot overlook the fact that many organizationshave incomplete and old beliefs about loyalcustomers (see Figure One).This evidencebegs the question: should companies be con-cerned about creating loyal customers? And,if so, what tools can a thoughtful design man-ager employ to build more sustained andmutually beneficial customer relationships?

Old logic: loyal customers… In reality: loyal customers…

Cost less to serve Have higher expectations from your organizationand your offering

Will pay more for your offering Experience helps them to get the best price fromyour organization

Are receptive to cross selling Are very sensitive about your organization taking advantage of their loyalty for marketingand price increases

Will create positive word of mouth buzz for yourbrand: they will market it for you

Are not reliable marketers, and do not alwayspresent accurate and positive messages

Figure One: Rethinking Beliefs About Loyal Customers

Traditional levers for creating loyalty(like reward programs and contracts) areeasy to copy and increasingly less effective.


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The Range of Strategies for Creating LoyaltyThe answer is deceptively simple. A com-pany’s goal should be to create completelysatisfied customers through a more thor-ough understanding of their needs andthrough distinctive offerings. According toresearch conducted for Harvard BusinessSchool by Thomas O. Jones and W. EarlSasser, “To a much greater extent thanmost managers think, completely satisfiedcustomers are more loyal than just satisfiedcustomers.” Traditional loyalty efforts pro-duce customers who are only marginally

loyal, and they make it easy for customersto switch to competitors. In contrast, com-pletely satisfied customers become fiercelyloyal customers, exhibiting the qualities thatwere once assumed common for all loyalcustomers. But this class of customer loy-alty can be difficult to cultivate; it requiresan integrated approach to design, develop-ment, sales, and marketing, and it cannot beachieved with a stand-alone program.

Figure Two details the six availablelevers for creating customer loyalty. Thethree levers on the left are the more com-mon strategies. Customers (both consumerand B2B) are becoming more adept atavoiding lock-in; it is not a desirable condi-tion from a customer’s point of view.Theselevers operate under the false assumptionthat programs can change and control cus-tomer behaviour. Although the programsmay see initial success, customers will soonlearn how to extract the maximum valuefrom them while contributing limited valueand loyalty.

The three levers on the right createmore-sustained, fiercer loyalty, and theyreinforce and enhance customer behav-iours. Not surprisingly, the three levers onthe right benefit the most from integrateddesign efforts, which suggests that designmanagers have a more important role

in building customer loyalty than is gener-ally accepted.

To create fiercely-loyal customers,companies will often employ several leverssimultaneously.To illustrate this point, we’lllook at two examples:Wal-Mart and Apple.

Wal-Mart: Favorable Economics and Emotional Connection Among retailers, Wal-Mart’s customer baseis second in loyalty only to that of Target.The company has created a sophisticated sys-tem of partner relationships and logistics that

provide its customers with consistently lowprices. Customers are loyal to Wal-Martbecause of the favourable economics createdby these systems. In addition to price, Wal-Mart has created a close emotionalconnection with its customers. Despiterecent stories of labour and sourcing issues,most of them are fiercely loyal to the brand.Wal-Mart uses design strategically, creating a

brand and a store environment that is alignedwith the beliefs and values of its core audi-ence. That audience is attracted to simple,uncomplicated signage and merchandising,and a store look that embodies economy. Itremains to be seen how recent efforts to addmore upscale elements to the store willaffect the core audience.

Apple: Emotional Connection and Distinctive Solutions Apple is commonly mentioned when dis-cussing customer loyalty, and it is especiallyinstructive in this case; it would be difficult toidentify a brand with more-loyal customers.This high degree of loyalty results from theapplication of multiple, but well-integrated,levers.Apple has honed and strengthened thisemotional connection over the years. Thecompany also offers its customers uniquesolutions, such as the iTunes/iPod system.Customers are loyal to the iPod because itmade digital music easy to use. Other digitalmusic systems required users to understand adizzying array of file extensions, to log on andestablish accounts with several serviceproviders, and ultimately to live with a devicethat was not an attractive or desirable object.

A Guide for Creating Fiercely Loyal CustomersAs noted above, design and design thinking(both within the internal team and with

Lever Loyalty programs

Contracts Limitedchoice

Distinctivesolution

Emotionalconnection

Favorableeconomics

Source ofloyalty

Repeat pur-chase buildsrewards

Obligated,early termi-nation resultsin fee

Other choiceis nothing

Best solutionfor customerneeds

Customersare alignedwith / buyinto brand

Best eco-nomicproposition

Example AA advan-tage

Cell phonecontracts

Utilities Total Merrillfrom MerrillLynch

Apple Wal-Mart

Challenge • Expensive• Easy to

copy• Customer

loyal toprogram,not brand

• Can createadversarialrelation-ship withcustomers

• Can leadto complexaccounting

Subject toprivatizationand monopolyregulation

• Complexto manage

• Requiresconstantupdating

Requiresdeep customerknowledge

• Hard tomanage

• Can leadto lowprofits

Theselevers:

• Modify customer behaviour • Can easily be copied• Create marginal, temporary loyalty

• Build on / leverage existing behaviour• Are difficult to copy• Create sustained loyalty

Figure Two: The Six Levers for Building Customer Loyalty

Traditional loyalty efforts produce cus-tomers who are only marginally loyal,and they make it easy for customers toswitch to competitors.


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consultants) can play a critical role in cus-tomer loyalty efforts. A design team’s corevalue lies in developing economical anduser-centered solutions and/or creatingemotive and meaningful brand experi-ences, which ultimately are responsible forcreating the most loyal customers. FigureThree details how design efforts can beemployed as part of the three most power-ful levers.

So far, we have shown that traditionalloyalty efforts will not create completelysatisfied, and thus fiercely loyal, customers.We have also argued that design is wellpositioned to create this new class of loy-alty. The challenge remains for designmanagers to articulate this argumentwithin their companies and then to build anintegrated approach to employ more effec-tive loyalty levers. When implementedproperly, these efforts will create cus-tomers who:

• are more accepting and accommodatingof product launches that require furtheriteration and refinement;

• will be instrumental in moving yourofferings from early adopter to earlymajority markets; and

• can become partners in your innovationand development efforts.

Although implementation at your companywill vary based on culture and industry, thefollowing guide outlines a four-step processfor defining the appropriate levers, design

interventions, and organizational strategyfor creating fiercely loyal customers.

1. Shift mindset from ‘lock in’ to ‘lock out’The first step is both the most importantand the most challenging. It requires you,the design manager, to immediately shiftthe focus, first of your team, and eventuallyof your future collaborators, to the correctpath for achieving customer loyalty. Mostloyalty programs are based on a company-

centered point of view, and they attempt tolock customers in to services and offerings.

When a company takes a customer-centered point of view, which is ultimatelyrequired if you intend to create completelysatisfied customers, the corporate focusneeds to change. The goal of the loyaltyefforts should be to provide products, serv-ices, and communications that are socompelling and distinctive that customersdo not even consider switching, essentially‘locking out’ competitors and substitutes.

Although initially challenging, thischange in focus will be liberating. Most ofthe people in your organization will notdisagree with this suggested change (thereare few companies that do not give at leastlip service to “putting the customer first”).However, despite their agreement in prin-ciple, many of your colleagues will not beconverted until they begin to see changeand results. It is critical for the design teamto remain vigilant, positive, and dedicatedto the effort during the uncomfortableperiod between initial agreement and fullbuy-in based on results.

2. Diagnose the situationOnce your colleagues agree in principle,the design team should begin an analysis ofthe current situation. The team shouldgather data to help answer the followingquestions:

• How loyal are our current customers?• What levers do we employ to build

their loyalty?• How effective are these levers?• How loyal are our competitor’s customers?• What levers do they employ?• Do our competitors do anything related

to loyalty that we wish we did or wish wecould do?

• What can we learn from companies inother industries?

Much of the loyalty data may alreadyexist. However, it is important to under-stand the methods used to collect the dataand the objectives of each study. Loyaltystudies, like any good piece of research,need to limit bias. Often, these studies canbe biased to show loyalty being strongerthan it actually is. Ideally, you want to beable to identify customers who are not sat-isfied, somewhat satisfied, and highlysatisfied, and the drivers behind each seg-ment’s current state.

3. Choose the right leversYour situation diagnosis will help your teamto understand what gaps need to be filled inorder to create more loyal customers.Yourstudy will also likely reveal opportunitiescreated by your competitor’s myopia orcompany-centered focus on loyalty. Now,your team can select and then detail theappropriate levers.

• Set realistic and appropriate goals.Your teamshould be sensitive to the presenting con-dition and position of your customers. Ifyou have identified that the majority ofyour customers fall in the lower range ofsomewhat satisfied or even not satisfied, itmay be difficult to move all the way tofully satisfied with one set of interventions.In fact, these customers may prefer yourorganization to focus on getting the basicsright before they will become more loyal.It is critical to set goals that are appropri-ate for your customers and that can be

Lever Potential design interventions

DistinctiveSolutions

• Conduct design research to understand unarticulated and unmet needs.• Develop product platforms that address a comprehensive needs set.

• Conduct usability testing to ensure offerings are best in class for usability and usefulness.

EmotionalConnections

• Conduct design research to understand customer values, aspirations, and passions. • Develop brands that communicate emotion and feeling, not just functional value.• Develop products and communications that customers covet and desire.

FavorableEconomics

• Conduct usability design studies to understand which elements of the current offeringcan be shifted to customers, reducing costs and complexity.

• Seek innovative fabrication and sourcing models.• Assess product and service design with intent to reduce unnecessary components

and complexity.

Figure Three: Design Interventions That Can Build Customer Loyalty


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achieved by your team.This is truly a casewhere it is smarter to under-promise andover-deliver.

• Identify existing and new organizational capa-

bilities. Your selection of levers should bealigned with your organization’s capabili-ties. So, if your company does not have thesourcing and logistics capabilities todeliver low-cost offerings, selecting favor-able economics as a lever may not be theappropriate choice. There may be someinstances in which the team identifies newcapabilities that need to be developed ornurtured.This will require additional col-laboration and resources; developing anew capability is a strategic decision.

• Use multiple levers simultaneously. As notedearlier, several levers should be employedfor maximum impact. Ideally, these leverswill be mutually reinforcing. For exam-ple, if you choose to deliver the lowestprice to achieve favorable economics, youshould also be able to create an emotionalconnection with your customers based onoffering them a low price – this should bea key benefit for your customers.

4. Develop an integrated approach With a set of interventions defined, yourteam can now begin to plan the implemen-tation with other disciplines and functions.To the extent it is possible, you can includea broader coalition during development,but at this point it is critical to move effortsto a larger, more cross-functional team.

At the core of this integratedapproach is the idea that customer loyaltyis not created by a stand-alone programbut is the result of orchestrated efforts ofmarketing, sales, product development,and strategy.

It is critical at this point to create acoherent business argument for loyalty.Despite the common sense and clear bene-fits of creating completely satisfiedcustomers, there will no doubt be individ-uals in your organization that still requireconvincing. A tool for making this argu-ment and for engaging skeptics is theprofit/satisfaction matrix illustrated in Fig-ure Four. This tool integrates yourdesign-focused research, which segmented

customers according to loyalty, withresearch that likely lives in the financedepartment and details which segments ofcustomers are most profitable.

Combining these data into a singlemodel will require some cleaning and modi-fication, but it will create a common tool tohelp guide and shape a robust strategy. Thismodel also will force a much-needed collab-oration among design, marketing, sales, andfinance.What is important is that this modelwill move the customer loyalty conversationto a strategic level of the same rank as prof-itability. Although not always acknowledged,profitability and customer loyalty have amutually reinforcing relationship:

• If you just focus on creating profitablecustomers, without trying to make themcompletely satisfied, your competitors caneasily poach these highly valued customers.

• If you just focus on creating “completelysatisfied” customers, without understand-ing profitability, you may rack up lossesserving them.

Depending on the nature of your busi-ness, it may be possible to put individualcustomers (likely in a B2B environment) orcustomer segments in each cell in themodel. Figure Four lists strategies as appro-priate for customers or customer segmentsin each cell.

Summary Thoughts All companies should strive to createfiercely loyal, profitable customers.This canbe achieved only through rethinking existinglogic about customer loyalty and loyal cus-tomers, integrating loyalty efforts withoffering development, marketing, and sales,and close collaboration between the strategyand design functions within the organiza-tion. Cultivating fiercely loyal customersrequires ambition and risk-taking, but willultimately provide your company with avaluable and sustained relationship.

Jeremy Alexis is an assistant professor at the Illinois Instituteof Technology’s Institute of Design in Chicago, where heteaches design planning and the economics of design. He hasspent the majority of his career leading interdisciplinaryteams tasked with defining next-generation products, serv-ices, and business models, working with such clients asUnilever, Motorola, Citibank, Pfizer, American Express,and Target Corporation.

Figure Four: The Profit-Satisfaction Matrix

Not satisfied Somewhat satisfied Highly satisfied

Profitable customers

Start by getting the basics right to build initial loyalty.

Conduct research andapply appropriate leversto build satisfaction and loyalty.

Monitor and adjust effi-cacy of levers to ensureongoing satisfaction and profitability.

Break evencustomers

Provide incentives for customers to becomemore profitable and satisfied or to exit.

Apply appropriate leversand pilot alternative business models.

Shift cost/service burdento customers.

Unprofitablecustomers

Develop incentives to steerthese customers to differ-ent offerings and services.

Prototype and pilot alter-native business models.

Shift cost/service burdento customers.

Customer loyalty is not created by astand-alone program. It is the result oforchestrated efforts of marketing, sales,product development, and strategy.

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LoyaltyMyths Blind reliance on loyalty as a universal goal willput you out of business. Any loyalty initiativeneeds to begin with an understanding of theprofitability of individual customers.

by Timothy Keiningham,Terry Vavra,

Lerzan Aksoy and Henri Wallard

Timothy Keiningham Terry Vavra

Lerzan Aksoy Henri Wallard


15960 1-46 8/4/06 4:22 PM Page 24

Loyalty: without question, it is one of thegreatest virtues humankind can possess. Asrenowned film producer Samuel Gold-wyn once remarked, “I’ll take 50 per centefficiency to get one hundred percent loy-alty.” Like Goldwyn, most of us are willingto sacrifice much to achieve loyalty fromthose we depend upon. So it is with manage-ment’s current passion for customer loyalty.

And why not? Doesn’t every firm wantloyal customers? The simple answer is, “Yes,but…” The problem is that most of whatwe’ve been told about customer loyalty isjust plain wrong. Perplexed by the inconsis-tent results our clients experienced fromloyalty initiatives, we launched a full-year,global investigation into what is reallyknown about customer loyalty.

Our investigation revealed 53 com-monly-held beliefs about customer loyaltythat, when subjected to empirical tests orin some cases the simple test of plainlogic, turned out to be oversimplifica-tions, exaggerations or just plain lies. Thedifficult truth is that the links betweencustomer loyalty and business growth and

profitability are far more complex than wehave been led to believe. Following are tenkey misunderstandings surrounding thiswidely-coveted phenomenon.

Myth #1: The number one goal of anyfirm should be customer loyaltyIn 1960, Theodore Levitt wrote “Marketing Myopia,” one of the mostwidely-quoted Harvard Business Review arti-cles ever. In it, he warned of the dangers offirms’ short-sightedly focusing on theirproducts, and in so doing, overlooking theneeds of their customers. Levitt insistedthat, “the organization must learn to thinkof itself not as producing goods or services,but as buying customers, as doing thethings that will make people want to dobusiness with it.”

Today, most managers recognize thatlosing sight of customer needs is a recipe fordisaster.The problem is how Levitt’s maximhas been misinterpreted in the modern era,which can loosely be summarized as, “cus-tomer loyalty is the number one goal of anyfirm.” The fundamental purpose of any

business is to identify and satisfy customerneeds at a profit, an idea Levitt certainlyembraced. The problem is that customerloyalty can be purchased, and frequently is;but to paraphrase an old saw, “you can’t buythings for a dollar, sell them at 99 cents, andmake up the difference in volume.”

Myth #2: Firms should emphasize reten-tion efforts rather than acquisitionactivitiesThe most obvious flaw in this misconcep-tion is its complete disregard for theproduct life cycle, which has four stages,each with very different strategic objectivesthat weigh heavily on the cost of acquisitionversus retention:

Introduction: With the launch of a newproduct, success hinges upon building acritical mass of early adopters. In this stage,product awareness and acceptance are thekey strategic objectives.

Growth: The product is now accepted bythe larger market, so consumer demand


15960 1-46 8/4/06 4:22 PM Page 25

increases and the market expands. In thisstage, brand awareness and market shareare the key strategic objectives.

Maturity/Saturation: The market for theproduct has reached saturation. Growthcomes largely at the expense of competi-tors, and therefore competition becomesintense. In this stage, defending marketshare and maximizing profits are the keystrategic objectives.

Decline: Sales decline as the productbecomes out-of-date. In this stage, firmsmust decide whether to: (1) rejuvenate itwith new features/functions; (2) ‘harvest’the product (reduce costs and continue tosell to a loyal niche segment); or (3) discon-tinue it.

When firms are in the introductoryand growth phases of their offerings, cus-tomer acquisition is critical. Conversely,when products are in the maturity anddecline phases, customer retention takes onmuch greater importance.

Myth #3: Companies should strive tomake all of their customers loyalThe fundamental assumption here is that allcustomers are, or can be made to be, prof-itable. While organizations will always havesome highly-profitable customers, they arealso likely to have some highly unprofitable

customers.We’ve labeled the main customergroups ‘desired customers’,‘break-even cus-tomers’, and ‘costly customers’.

For most firms, desired customers –usually about 20 per cent of all customers –will generate between 150 and 300 percent of total profits; break-even customers(the middle 60-70 per cent) about breakeven; and the least profitable, costly cus-tomers (10-20 per cent) lose 50 to 200 percent of total profits. In shorthand, 80 percent of a typical firm’s customers do notprovide an acceptable rate of return. Striv-ing to retain them all is suicidal.

Myth #4: Companies with more loyalcustomers will always have higher mar-ket sharesWhile it may seem counterintuitive, firmswith the highest loyalty levels frequentlydo not have the highest market shares.

Generally, organizations we tend to associ-ate with having fiercely loyal customersrepresent smaller, exclusive groups:Harley Davidson owners, FenderStratocaster owners, Jimmy Buffetfans, etc.

While satisfaction and loyalty are notthe same thing, they are strongly corre-lated. The results of various studies on thesatisfaction-market share relationship havebeen mixed, with some finding a positiverelationship while others find a negativerelationship. There are several reasons forthis. Increases in market share may nega-tively impact customers’ perceptions ofquality both indirectly (for example,decreasing perceived value due to productoveruse) and directly (for example, the lossof exclusivity). It also can result as a func-tion of the type of market itself. Inrelatively homogeneous markets wherecustomer needs are relatively similar, mar-

ket share and loyalty will move together. Inheterogeneous markets, market share lead-ership will not typically be associated withthe highest levels of loyalty, as niche playerswho address the unique needs of smallersegments will naturally enjoy a more loyalfollowing – at the expense of being lessattractive to the total market.

Myth #5: Companies should seek tochange ‘switchers’ into loyal customersTwo relatively universal customer segmentsmost prone to ‘switching’ are customerscommonly referred to as ‘variety seekers’and ‘deal seekers’. The variety seeker ismotivated by curiosity about and the desirefor new experiences in product types andbrands. The deal seeker is primarily moti-vated by price. Trying to change thesecustomers is simply a case of trying ‘to get aleopard to change its spots’. The desire toalternate between brands or firms is simplyinnate in some customers. Despite this tru-

ism, firms engage in extensive promotionalcampaigns hoping to graduate customers tohigher levels of loyalty and profitability.These false hopes have helped to inflate pro-motional spending to an unbelievable size.

The problem with chasing variety-seeking and deal-seeking customers is thatit actually deteriorates customer loyaltyacross the board. Too many firms have‘trained’ their customers to respond tosales promotions by overusing these tactics.Once-loyal customers actually becomeaccustomed to deals and alter their behav-iours by putting off scheduled purchases,waiting for deals or promotions.

Myth #6: Efforts to improve customer-centric measures are properly separatedfrom efforts to improve brand-centricmeasuresFor most firms, marketing largely focuseson brand-centric objectives. Simplistically,

brand-centric marketing can be thought ofas manipulating the elements of the mar-keting mix, commonly referred to as thefour P’s (product, price, promotion andplace) to improve brand equity.

In contrast, customer-centric marketinglargely focuses on efforts to improve cus-tomers’ perceptions of their experienceswith a firm’s products or services, or withthe firm itself. In opposition to brand-cen-tric’s focus on acquiring more customers(‘conquest marketing’), customer-centric-ity is aimed largely at retaining customersand developing loyalty with them (‘reten-tion marketing’).

Our own research confirms thatbrand-centric and customer-centric effortsneed to be considered jointly; while eachcontributes to the ‘share-of-wallet’ a cus-tomer allocates to a firm, they also act in acombined fashion. This indicates that theinteraction between the efforts can doublethe customers’ share-of-spending when

While organizations will always havesome highly-profitable customers, theyare also likely to have some highlyunprofitable customers.


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both are positive, or halve it when both arelow. Firms need to find a way to manageboth acquisition and retention effortssimultaneously if they wish to maximizetheir profits, which isn’t easy, as both per-spectives have different views of thefunction of marketing.

Myth #7: Retaining Five Per Cent More ofa Company’s Customers Will IncreaseProfits by 25 to 85 per centThis myth comes directly from what manyconsider an unimpeachable source, the Har-

vard Business Review. In 1990, Bain &Company consultant Fred Reichheldand Harvard professor Earl Sasser, Jr.published “Zero Defections: QualityComes to Services,” which claims that com-panies can boost profits by almost 100 percent by retaining just five per cent morecustomers. Later in the article, they refinethe claim to, “reducing defections by fiveper cent boosts profits 25 to 85 per cent.”Without question, this was a seminal arti-cle. Almost overnight, it spurred the questfor customer loyalty among firms world-wide. Unfortunately, the promise is flawedon at least three basic levels:

1. The company needs to be generatingrelatively small current profit percent-ages to expect such a high percentageincrease (25 to 85 per cent).If we assume that there are no additionalcosts associated with increasing retentionrates, and that each customer contributesequally to revenues, a firm would have tohave a pathetic five per cent rate of returnin order to increase profits by 100 percent from a five per cent increase inretention rates.

2. The ability to generate further profitsby improving retention is highly contin-gent upon a firm’s current retention rate. If we take away the assumption that thereare no additional costs associated withincreasing the retention rate for customers,it becomes very clear that there will bediminishing returns. At some point it willno longer be cost effective to dissuadepotential defecting customers from defect-ing.This means for firms with relatively lowretention rates (high ‘churn’) it will likely

cost less to increase retention by five percent than it will for companies with alreadyhigh customer retention rates. For virtuallyall firms, it will never be cost effective toretain 100 per cent of customers. There-fore, depending upon where a firm ispositioned with regard to its retention-profit function, the return on investment ofimproving customer retention by five percent can be either positive or negative.

3. For most firms, the most profitable 20per cent of customers generate between150 and 300 per cent of total profits, themiddle 60 to 70 per cent of customersabout break even, and the least prof-itable 10 to 20 per cent of customers lose50 to 200 per cent of total profits. For most firms, 20 per cent of the cus-tomer base (desired customers) generatethe lion’s share of the profits; and 10 to 20per cent are significant money losers(costly customers).The size of losses gener-ated by costly customers typicallydetermines whether or not a firm operatesin the black or the red. It doesn’t take arocket scientist to realize that retaining fiveper cent more customers won’t makemoney unless they are the right customers– those in the top 20 per cent.

Myth #8: It costs five times more toacquire a customer than to retain oneThis myth has stood unchallenged for 20 ormore years, but there is currently enoughcontrary information to bury or signifi-cantly qualify it.

1. The fundamental financial underpin-nings of the argument are eithermisallocated in terms of acquisition andretention, or the financial effects attrib-uted to retention are false. The basic argument hinges on the followingstream of interrelated factors. With regardto existing customers, there is the assump-tion that they will a) increase their level ofspending at an increasing rate; b) purchase atfull-margin rather than discount prices; andc) create operating efficiencies for firms.

Unfortunately, none of these things aretrue.With regard to new customers, oper-ating costs are presumed to rise as thecustomer has to learn the procedures of the

firm, and the firm has to learn the needs ofits new customer. Even if that were univer-sally true, most firms don’t go through newaccount setups, credit searches, etc. when anew customer walks through the door.Think about your own experiences as a newcustomer: what exactly was the additionalcost to the companies of your dining at anew restaurant, or flying with a new air-line? For those industries in which there isa legitimate cost associated with ‘signingup’, these costs are often incurred regard-less of whether or not the consumerremains loyal or not. Exactly how mucheasier is it to purchase a new car, television,or washing machine simply by staying withthe same brand?

The x-factor that makes this mythseem plausible is the costs associated withpromotional expenses. While it is believ-able that they represent enormousexpenses that would far more than exceedthe costs of retaining existing customers,there is one fatal flaw with this assumption:advertising and promotion are not simplyabout inducing first-time purchases. Muchof advertising is about reinforcing brandimagery and maintaining awareness amongcurrent customers. And while some firmspromotionally ‘price to lose’ to attract newcustomers in the short-term, typically suchpromotions are enjoyed by both prospec-tive and current customers. Therefore the breakdown of acquisition versus reten-tion-related expenses associated withadvertising and promotion is likely incor-rectly weighted to the acquisition side ofthe equation to arrive at this fallacy.

2. The assertion ignores the lifecycle ofproducts, services, and institutions.When firms are in their introductory andgrowth phases, allocations to acquire cus-tomers will be substantial. The customeracquisition-retention cost ratio will typi-cally be heavily weighted to acquisition.Conversely, when products or firms are inthe decline phase, allocations required toretain customers will be substantial, mak-ing the typical acquisition-retention costratio weighted heavily to retention. It is inthe maturity phase of a product’s lifecyclethat the ratio of acquisition costs to reten-tion costs can fall to either side.


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3. It ignores the fact that a company’scustomer base is made up of a broadmix of customers who vary in their coststo acquire and retainThis myth ignores the heterogeneity of cus-tomer bases.The fact is that customers varydramatically in the costs both to acquireand to retain. As noted earlier, for mostfirms, customer profitability is not evenlydistributed. Any costs associated withretaining customers in that bottom tier,when including their losses to the firm, arelikely to far outweigh the costs to the firmof acquiring another customer. Addition-ally, paying to retain a customer in the largemiddle ‘break-even’ segment is likely toresult in the same problem.

Often the most difficult customers toretain are those who generate the mostprofits for the firm: desired customers. Forobvious reasons, they are most desirable tocompetitors, thus are more likely to receiveattractive offers from the competition.Desired customers also often know thattheir relationship is significant to the firmand, consequently, expect a higher level ofservice.The costs to retain these customerscan be very high, but economically worth-while. As a result, while it seems plausiblethat acquisition costs are significantlyhigher than retention costs, the reality is farmore complex.

Myth #9: Companies should focus ontheir high share-of-wallet customersThe most obvious manifestation of loyaltyis customers’ consolidation of their relatedpurchases with a single vendor. In fact, formany product categories, share-of-wal-let–not retention–is the most relevantbehavioural loyalty metric. For example,Kraft Foods, the largest food and beveragefirm in North America, defines a loyal cus-tomer as someone who purchases 70 percent or more of the same brand within acategory over a three-year period. Becauseloyalty and share-of-wallet are inextricablylinked, improving wallet share has becomean overarching goal of many firms. Unfor-tunately, like many loyalty myths, itsseductiveness belies a complex truth.

As noted earlier, the majority of a firm’scustomers do not produce an acceptable rateof return. In many situations, they are not

unprofitable because they have a low share-of-spending with the firm, but because thelevel of service that they demand exceedstheir willingness or ability to pay for goodsand services. Efforts to get higher walletshares across the entire customer base arelikely to be an exercise in futility.

Second, customers can have high walletshares but be totally price driven. Forexample, a large financial services clientfound that in one of its product categories,increases in share-of-wallet resulted in cor-respondingly negative returns.The problemwas the price sensitivity of the customerbase. Whenever the company offered alower priced option, customers quicklysnapped up large quantities of the product.Share for these customers was entirelydriven by their propensity to seek deals.

Myth #10: In planning for the future, it isbest to focus on those customers whohave historically contributed the most tocompany profitsWithout question, companies shouldensure that their profitable customers arecherished. These customers have demon-strated a commitment by providing thefirm with the profits it needs to remainviable. Therefore, many loyalty-focusedorganizations choose to focus loyaltyefforts solely on these customers. In termsof a firm’s efforts to profit from customerloyalty, however, this practice does not rep-resent the best economic decision.

To pursue this approach, firms typicallyuse a technique called ‘recency, frequency,and monetary value’ (RFM) to detect theirbest customers. RFM basically identifies cus-tomers who have spent a lot recently, andtargets them for future marketing activities.The effect is one that we have all experi-enced. What is the first thing that happenswhen we give money to most charities ornon-profit organizations? We get floodedwith mail asking for more money the nextweek.This is RFM in action. But it also iden-tifies one of the problems with thisapproach: focusing on past profitability doesnot distinguish between frequent and infre-quent buying behaviours.

Many purchasing events are one-timeor infrequent, but this technique ensuresthat you will be in the system for quite a

while if you have generated significant rev-enue for the firm. Examining the purchasesof a mail-order company showed that alarge segment of customers made concen-trated purchases for a brief period of time,and then never again. Because of the waythe RFM scores were calculated, the com-pany kept this group on their active list for36 months, well after it was profitable todo so. These misguided investments costthis particular company approximately $1million annually.

Another major problem is that focus-ing on past profitability ignoreslife-changing factors that are likely to influ-ence future purchases. Customers getmarried, are promoted to better-payingjobs, buy homes, have children, et cetera,all of which affects their future potentialprofitability to a company. One large Euro-pean home products retailer found that byassessing nine key life factors of its cus-tomers, it was able to improve the returnon investment of its retention expendituresfrom two-to-one to ten-to-one.

Summary ThoughtsWe strongly support customer loyalty as acentral mission for organizations, so long asthere is an adequate understanding of itspotential return.

Blind reliance on loyalty as a universalgoal will put you out of business.Any loyaltyinitiative therefore, needs to begin with anunderstanding of the profitability of individ-ual customers. Without such information,retention efforts may be oriented towardsand offered to high-cost, low-value cus-tomers: an invitation to financial disaster.

Like the most pervasive myths, thelogic behind the loyalty myths is seductive,easy to grasp, and appealing to our humandesire for fairness.The truth about customerloyalty is far more complex than we’ve beenled to believe; but it is no less fair.

Timothy Keiningham is senior vice president and head ofconsulting for Ipsos Loyalty. Terry Vavra was founder andpresident of Marketing Metrics (now Ipsos Loyalty). He iscurrently principal of Terry Vavra Associates. Lerzan Aksoyis assistant professor of Marketing at Koç University inIstanbul,Turkey. Henri Wallard is CEO of Ipsos in charge ofIpsos Loyalty. The preceding is an excerpt from Loyalty

Myths: Hyped Strategies That Will Put You Out of Business – and

Proven Tactics That Really Work (John Wiley & Sons, 2005).

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The Big Picture:Tom Stewart

Management’s Role in the Knowledge EconomyThe editor of Harvard Business Review discusses the nature of competitiveadvantage in the knowledge economy, and management’s role in it.

Karen Christensen: Overall, U.S. compa-nies need 20 per cent less physicalcapital to produce a dollar’s worth ofsales than they did 25 years ago. Whatare the broad implications of this?

Tom Stewart:There are a number of impli-cations, but two stand out. First, somegood news: physical and financial capitalare more productive than they used to be.We are taking the assets that we have andputting them to better use. Another impli-

cation is more mysterious: if we need lessin the way of physical assets to produce adollar’s worth of sales, what exactly is pro-ducing that dollar’s worth of sales?

The answer is twofold. Number one,we are producing things that don’t involvemuch in the way of physical assets at all.We’re producing knowledge and otherintangible products and services, and theyare now a significant part of GDP. It’s cer-tainly well known that the service sectorsin all economies are growing faster than the

manufacturing sectors. But within thatgrowth, you see a tremendous amount ofgrowth in knowledge services and knowl-edge businesses that require very little inthe way of physical assets. I once read thatAlan Greenspan said that if you couldtake the U.S. economy and put it on a scale,it would weigh the same as it did 100 yearsago: the physical weight is the same, despitethe fact that its real value is 10 or 20 timeswhat it was. And you get a sense of that ifyou go to any developing country; if youlook at what’s in the trucks, you see thingslike logs, and coal – the physical ‘heaviness’of these economies is palpable. Whereas indeveloped nations, more of the compo-nents of GDP are now knowledge andintellectual products – advertising andmarketing, professional services, mediaand entertainment, education, and so on.

The second piece is that we’re simplygetting so much more efficient in using ourphysical assets that they have become muchmore productive.An interesting example inthe manufacturing space is machine tools:CNC machine tools can mow your lawn,cut your hair and cook your dinner.Because we have created much more intel-ligent management systems and tools, theknowledge that is in these tools simply getsmore out of them. So there are two keyimplications: one, by applying knowledgeto physical assets, you get a whole lot moreout of them; and two, this creates a sectorof the economy that is relatively asset-free.

KC: A survey by Wired magazine andMerrill Lynch showed that knowledgeworkers would rather stick with oneemployer for 20 years than have fivejobs for four years each – even if the

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money and responsibilities were thesame. What does this reveal aboutknowledge workers?

TS: This survey reveals that the forces ofcontinuity are very strong in life, and thatincludes economic life. ‘Me Inc.’ and thatsort of dot-com-age wanderlust dream ofitinerant knowledge workers moving fromjob to job with their laptops on their backsis one thing, but I have a mortgage to pay;and I have kids in school. Labour marketsmove more slowly than people think. Peo-ple in their work lives may like this idea ofbeing ‘footloose and fancy free’, but in thewhole of their lives, they’re a little less rad-ical.We’re revolutionaries with mortgages.So don’t assume that everyone is 23 andwants to go someplace new tomorrow.

Another revelation that is subtler andmore interesting is that people developwhat is called ‘firm-specific human capital’:the longer I stay in an organization, themore the knowledge I have is developed inthe context of that organization. We pub-lished an article a couple of years ago byNitin Nohria and Boris Groysbergcalled “The Risky Business of Hiring Stars”,which pointed out that when you take starperformers out of Procter & Gamble andput them into Colgate, or take them out ofMerrill Lynch and put them into

Charles Schwab, they tend to returntoward the mean. Because it turns out thata whole lot of their skill is actually contextor company-specific: they develop theirnetwork, they know how things work, andthey fit the culture. This suggests that partof the value of human capital is not just ‘howgreat I am’, but, ‘how great I am when I’mpart of this particular team in this particularcompany’. And people instinctively under-stand this. Even at the height of the dot-com

boom, people were saying, ‘you know, I’mnot sure I really want to move around as fastas the punditry would suggest’.

KC: You say that in the knowledge econ-omy, the tasks of management can besummarized by the acronym ‘DNA’:please explain.

TS: A few years ago, I came across an oldacronym that was used to describe the roleof managers, ‘POEM”, whereby the job ofmanagement was to Plan, Organize, Exe-cute, and Measure. It seemed to me that ina business environment where hierarchiesare flatter, work changes rapidly because ofnew technologies, new customers, newmarkets, etc., and where you’re working ina more networked environment, this justdoesn’t fit anymore. ‘POEM’ assumes thatyou know what your job is, so you’re ableto plan it, organize, execute and measure it.But if you don’t know what your job is,because of constant change – and becausewe have increasingly automated the repeat-able tasks and processes of work – then youhave a different set of priorities, and thefirst is to ‘Define’ what the job is. Is it thesame today as it was yesterday? It may notbe, so, it’s important to ask,‘who are we?’,‘what business are we in?’, ‘what is thevalue-added that we offer?’ and ‘what’s on

my to-do list this day, week, month, year?’The second piece is ‘Nurture’ – the

idea that managers are not just organizingpre-existing human and other assets; ourjob is also to develop them. It’s a usefuloversimplification to say that managershad less responsibility for the develop-ment of their staffs than they have now –or should have. They deployed. Today, wedevelop and deploy.

The third piece is ‘Allocate’. The

capabilities of a company are much lesshard-wired than they used to be.A businesscan be many things to many people, so tomanage is to choose. The allocation ofresources is something that people used tothink was only done by the executive team,but it is actually done by managers at alllevels. So there you have it: management’sjob is to Define, Nurture, and Allocate.

KC: Talk a bit about the role of ‘tacitknowledge’ in the knowledge economy.

TS: There are lots of things that I know thatI can’t articulate very well; and there arethings I know that can’t be articulated at all– by anybody. These include my experi-ences, my judgment, a whole set of thingsthat happen to me that give me a sense offluency and a set of skills. That’s tacitknowledge. It’s the distinction betweenthings you have to do by following a man-ual, step by step, and the stuff that is harderto express, that amounts to expertise.

An interesting aspect of the knowledgeeconomy is that explicit knowledge – thatwhich can be typed up, shown in a Power-Point slide, or turned into software – hasvalue, but it commoditizes quickly. If I canwrite it down, then I can e-mail it to you,and you can have the same knowledge. Thistype of knowledge cannot give anybodycompetitive advantage. Only knowledgethat cannot fully be expressed in an explicitform can provide competitive advantage.That’s how you get firm-specific human cap-ital, such as the ability of a team to worktogether; or the ability of a star salesman to‘smell a live one’. This is the most valuabletype of knowledge – but it’s also the typethat is least amenable to knowledge manage-ment, particularly knowledge managementthat is technology-based, because ‘deepsmarts’ (to use Dorothy Leonard’sphrase) transfers best person to person, byosmosis.This has very profound implicationsfor how you think about transferring themost valuable knowledge, and how youthink about knowledge management.

KC: To quote you from your book,“Knowledge management isn’t the firststep toward running a successful busi-ness in the knowledge economy: it’s thelast.” What, then, is the first step?

Part of the value of human capital is notjust ‘how great I am’, but, ‘how great Iam when I’m part of this particular teamin this particular company’.

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TS: The first step is to go back to your firstquestion–where do sales come from?–andlook at the knowledge that you buy and sell:define what your business is, and the rolethat knowledge plays in it. Most peopledon’t pay any attention to this, but every-thing you sell has a knowledge componentto it, whether it’s an automobile, a ream ofpaper, or legal services.Your business buys,creates and sells all kinds of knowledge, sothe first step is to define each of theseaspects of your business.Then you can startasking, ‘what can I do to lower my costs, orto get more for what I pay?’ ‘What can I doto add more value via knowledge?’ And,‘what can I do to increase the price I get forthe knowledge I sell?’ You start asking allthese questions about knowledge in thesame way you would ask them about rawmaterials or any other type of assets. Sofirst, you must find and define your knowl-edge business; then you can start thinkingabout knowledge management.

KC: Should all organizations have aChief Knowledge Officer?

TS: No. But I do believe that all organiza-tions need to do the exercise I’ve justdescribed. Many years ago, I heard a greatexample that shows why this is so impor-tant: there is this company, a supplier toUnilever, that makes a glue that acts as theadhesive on boxes of packaged goods.Somebody working there discovered a wayto either reformulate the glue or redesignthe manufacturing process, so that yourequired a lot less of it and got fasterthroughput on the machines. Sounds like agreat discovery, but the problem was thatthe guy who discovered this works for acompany that sells glue by the pound–sohe’s got a great idea that’s great for his cus-tomers, but terrible for his company.Whatthat company needed was a way to ask,‘we’ve got this great idea that’s even morevaluable than our glue; how do we charge

for it?’That’s why any company starting ona ‘knowledge journey’ needs somebody, orsome group of people, in a very seniorposition who is able to ask questions like,‘how do we build a new growth platformaround a knowledge business?’ How doesUPS, for example, go from being a ship-ping company to a logistics value-addedservices company that also does shipping?That may or may not be a chief knowledgeofficer, and the position may not be a per-manent one (or you may have more thanone of them), but in the beginning, you def-initely need high level, boundary-crossingpeople with access to the CEO, who canbash heads together and get answers tothese questions.

Thomas Stewart is the editor-in-chief and managing directorof Harvard Business Review and author of The Wealth of Knowledge:

Intellectual Capital and the Twenty-first Century Organization

(Currency, 2001) and Intellectual Capital:The New Wealth of

Organizations (Currency, 1998).


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Patriotismin Your Portfolio

by Adair Morse and Sophie Shive


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The phenomenon of over-investment inhome markets appears in numerous incar-nations, and there is mounting evidencethat such investment decisions depend onsocietal characteristics other than aggre-gate expectations and risk preferences. Justas organizational loyalty induces workersto choose too much employer stock fortheir retirement funds, and sports fans tobet too heavily on their home team, patri-otism may cause investors to concentratetheir holdings at home.

Car purchases provide a particularlygood example. Despite plenty of options,both Americans and the French buy 50 to60 per cent of new cars from domesticbrands.Why is this? Do they recognize thattheir product choices are sub-optimal, butnevertheless enjoy acting patriotically, orare they blinded by patriotic loyalty intobelieving that their country’s products aresuperior? In either case, the worldwideproduction of goods, and therefore marketequilibrium itself, may be altered by patri-otic preferences.

Patriotic investing is not a new phe-nomenon. In the U.S., the patrioticpromotion of war bonds traces backthroughout history; and after the Septem-

ber 11th attacks, Series I and EETreasury Bonds were

renamed ‘PatriotBonds’, and sales

rose 43 per cent over the prior year.September 11th brought media atten-

tion to the idea that investing was a forumfor expressing patriotism. The media evenencouraged equity investors to hold theirpositions (a losing proposition.) A charac-teristic article from the era is The Boston

Globe’s story of an individual who “won-dered what would happen ‘if everyred-blooded American... bought a fewshares of their favorite stock.”’ In a Novem-ber 2001 survey of affluent investors, 52per cent of respondents said they wouldshow their patriotism by making invest-

ments in U.S. companies. BusinessWeek

captured the sentiment best: “Patriotism isespecially evident when it comes to thefinancial services sector. Suddenly, buyingstocks in a down market is a duty.”

Asset-pricing theory predicts thatinvestors should hold a world market port-folio, not a portfolio primarily made up ofdomestic stock; despite this, country port-folios with small domestic holdings aresimply not observed, and researchers havedocumented that U.S., Japanese, and UK

investors held 94, 98 and 82 percent of their portfolios,

respectively, in domes-tic assets.

We recently set out to test the theorythat patriotism explains at least a portion ofportfolio selection bias.The existing litera-ture offers four principal explanations for‘home bias’: transaction barriers, improp-erly-measured diversification benefits,information asymmetries, and familiarity.Until ours, no study had tested the eco-nomic impact of patriotism.

Measuring PatriotismWe obtained our patriotism data from theWorld Values Survey (WVS), which is admin-istered by the Inter-University

Consortium for Political and SocialResearch at the University of Michigan.The survey was sent to 1,264 individualsper country in 78 countries over fourwaves: 1981, 1990-1992, 1995-1997, and1999-2001. We used the last three surveysand a total of 53 countries for our analysis.

To measure patriotism, we focused onindividuals’ responses to the question,“How proud are you to be [insert national-ity]?” Responses were coded from 1 to 4,and we used mean country survey scores asour primary measure of patriotism. Ourobjective was to use the patriotism score toanalyze the home bias, specifically askingwhether patriotism predicts how much for-eign equity each country’s nationals hold in

their total portfolios.

The worldwide production of goods,and therefore market equilibrium itself,may be altered by patriotic preferences.

Over-investment in home markets has long puzzledeconomic theorists.We believe patriotism helps toexplain it.

Adair Morse Sophie Shive


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Based on this measure, overall, patriot-ism has been slightly increasing over theperiod, from an average of 3.26 in the early1980s to 3.50 at the turn of the millennium.The exception is Eastern Europe, whosepatriotism has declined significantly sinceSoviet block times. Europe and Asia are lesspatriotic than the Americas, Africa and theMiddle East, and at the country level, Ger-many and Japan were the least patrioticcountries in our sample, and Venezuela wasthe most patriotic. For Germany and Japan,the events of World War II may yet be a fac-tor inhibiting patriotic feelings. By contrast,the high level of patriotism in Venezuela mayresult from past events, or may be embed-ded in the culture.

It is possible that the national pridemeasure of patriotism is mis-measured insome systematic way across countries: citi-zens may feel an innate duty to serve theircountry that comes from the order,lifestyle, and protection that the countryprovides to them. Researchers found that athird of respondents believe citizens feelthe duty to support their home country,even if it is in the wrong.

Alternatively, citizens may inherentlytrust and have a higher view of their coun-tries than other nations. Researchers foundthat half of respondents are nationalistic,

believing that their country is superior toothers. In our study, our nationalistic patri-otism measure was the country score to thequestion, “Do you think employers shouldgive jobs to nationals first over immigrants?”

We measured this ‘duty patriotism’ viascores to the yes or no question, “Would yoube willing to fight for your country?” Ourresults showed that duty, nationalism, andnational pride patriotism are all significantlycorrelated, confirming the notion that theseconcepts measure different aspects of peo-ple’s patriotism.

Explaining the Home BiasThe first common explanation for the home

bias, transaction barriers, should negativelyaffect foreign investment somewhat like atax paid on the absolute value of the holdingsof foreign stocks. Barriers may be restric-tions on capital outfiows or frictions inrepatriation of capital gains and dividends.Prior research suggests that transaction bar-riers are significant but not economicallylarge in explaining the home bias.

The second standard home bias expla-nation is the lack of an effectivediversification benefit. An investor mayinvest abroad to diversify-away financialrisk, and the benefits to doing so shouldvary by country.

The third explanation is that investorsmay either have incomplete knowledge offoreign equities or informational advan-tages on the home market. Using Koreandata from 1997-1998, researchers foundthat domestic individuals, but not domesticinstitutions, have a small informationadvantage over foreign investors. For U.S.data, another study showed that mutualfunds earn abnormal returns when theyinvest in nearby firms, and that investors inprofessional city centers have more infor-mation about specific stocks.

Since the literature studies both for-eign information disadvantages and localinformation advantages, we employed two

information variables. Drawing from theinternational trade concept of ‘gravitypulls’, the first measure is the sum of themarket capitalizations of contiguous coun-tries. Larger neighboring markets implythat domestic investors have access tobroader information opportunities.

The second measure of informationasks whether superior knowledge abouthome markets is vindicated with higher per-formance. All countries in our study wereextremely home biased, and all marketscannot be above average in performance.Yet, we can still ask whether the mosthome-biased investors have superior infor-mation about their market. If part of the

home bias is due to investors’ privilegedinformation about their own country’sreturns, the home bias should be positivelyrelated to the one year future returns.

The final standard explanation for theequity home bias is a lack of familiarity withforeign investment opportunities.The homebias could simply reflect the fact that peopledislike ambiguous situations and under-weight choices with unknown distributionof outcomes. Researchers found that U.S.outward investment into a country increaseswith the income of the U.S. immigrant pop-ulation from that country. Interestingly, thisstudy also found that the level of investmentin foreign countries is unrelated to languageor physical distance, which should affectinformation acquisition.

An example of the importance ofregional heterogeneity is the case of West-ern Europe, where the common marketfacilitates the diversification of investmentportfolios across national borders. Theregion’s fixed effects specification allows usto ask whether differences in foreign hold-ings between neighboring countries likeFrance and Germany can be explained bypatriotism over and above the effect ofbeing a part of the European Union.

On the economic front, patriotismmight be associated with economic prosper-ity; if a country provides its citizens with agood life, the citizens could have more alle-giance to it. The home bias might also berelated to economic prosperity.The dispos-able income of average investors in poorercountries is likely to be invested with sav-ings and pension institutions, which areoften themselves very home-biased in theirportfolios. It is possible that wealthy indi-viduals in poorer countries diversify theirportfolios more out of the country, but onlyto the extent that they are not the largeblockholders of domestic companies cap-turing private benefits of control.

Our key finding was an increasing lin-ear relation between patriotism anddomestic equity holdings: more patrioticcountries have higher domestic equityholdings, and therefore, a greater homebias. Deviations from this pattern exist pri-marily in the Baltics, Russia and Japan,where low patriotism and high domesticholdings are observed, and in NorthernEurope, where domestic holdings are low,

More-patriotic countries have higherdomestic equity holdings, and therefore,a greater home bias.


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irrespective of patriotism. Eastern Euro-pean countries, which have only moderatepatriotism by other measures, are some ofthe most nationalistic.

The Role of FamiliarityWe found that as the percentage of popula-tion that is foreign-born increases,domestic holdings decrease significantly,but patriotism retains its significance.A one

standard deviation change in familiarity

changes domestic holdings by three per centof the total country portfolio, and thehome bias by two per cent of this portfolio,representing $10 to $16 billion.

It is important to distinguish betweenpatriotism and familiarity. Although patri-otic loyalty and familiarity might bedifficult concepts to disentangle in a singlenation or an organizational setting, this isnot so in a cross-country analysis. It is clearthat domestic-born citizens of all countriesare most familiar with their home coun-tries, irrespective of their level ofpatriotism, which varies across countries.However, patriotism and familiarity mayyet be related; one could argue that resi-dents’ familiarity with other countriesmight be correlated with patriotism.

We found that patriotism and foreignpopulation are insignificantly correlated.This suggests that while immigration isimportant, it will be so independentlyfrom patriotism. The native population’slevel of familiarity with foreigners mightalso be correlated with patriotism in a waythat is inducing an association betweenpatriotism and the home bias. It would behard to believe that this is the case, sincethe number of foreign born is not evencorrelated with patriotism. Even if thisextreme case is true, our instrumentalvariables technique will isolate the effectof patriotism on the home bias independ-ently from that of familiarity.

We conclude that patriotism doesindeed affect portfolio allocations. Thishelps to explain why relatively similarcountries like Switzerland and Sweden –which have relatively low barriers to invest-ment and plentiful information sources –would invest such different proportions oftheir money abroad.

The economic magnitude of patrio-tism’s effect is significant. An average

country invests three to five per cent moreof its aggregate portfolio abroad with a onestandard deviation drop in patriotism,amounting to countries investing $18-$30billion more in foreign markets. As such,the worldwide production of goods, andmarket equilibrium itself, may be alteredby patriotic preferences.

ImplicationsTwo implications can be drawn from ourstudy.The first is that any additional demandthat patriotism generates for domestic equityis unrelated to objective expected return andrisk. Patriotism results in a ‘winner’s curse’ inthe sense that the person valuing a stock mosthighly will be the highest bidder.The citizensof a country will likely bid the highest pricesfor their own country’s assets, possibly raisingthe capitalization of their own market andlowering its expected returns.

Across countries, people may investdisproportionately at home, but a portionof this over-investment is offset by thehome-biased choices of other countries.These transactions may push prices up andexpected returns down in more patrioticcountries, and have the opposite effect inless patriotic countries. Since this trading isunrelated to the overall mean-variancecharacteristics of the stock, portfolios thatare home biased due to patriotism will havelower-than-optimal portfolio properties.

Additionally, the home bias can keepcapital from flowing to its most productive

use, if that use lies in unpatriotic countries.Researchers have shown that this effective‘protectionism’ can raise interest rates,hurt the housing market, and cause a hostof economic problems.

Price distortion does not necessarilypoint to a ‘free lunch’ or a welfare loss.Holding domestic equities may enterdirectly into the utility function, or patri-otic optimism may bias their expectationsof home country returns. Thus, if a patri-otic person were to hold the mean-varianceefficient portfolio in lieu of a home-biasedportfolio, her expected utility may belower. The pattern is similar for 401(k)portfolio allocations. For example, Coca-Cola Company employees allocate 76 percent of their discretionary contributions toCoca-Cola shares. Employer stock is theasset most correlated with an employee’shuman capital, and thus a rational agentshould short employer stock, not hold largequantities of it.

A second implication is that distortionslike the home bias can result from individ-ual investor decisions. Until recently, thevast majority of discussion on non-optimalportfolio allocations (e.g., in pension plans)has focused on distorting policies set bygovernments (in this case, protectionism).

Our findings suggest that calls for fur-ther liberalization of capital markets may beoverstating their claims; diversificationbenefits will not accrue in as much asinvestors do not choose to diversify. At thesame time, evidence that policy makersshould act to reduce such behavioral biasesis unclear and mostly unexplored.

A difficult question for policy makersis how they might reduce behavioural biaseslike patriotic investing, if they were soinclined. Unlike firms, which can mandatediversification of individual pensionaccounts, governments cannot optimizetheir citizens’ portfolios. Answers to thesequestions would be important not just fordiversification decisions, but also for deci-sions of real economic investing, where theimplication to widespread loyalty biases atthe firm and financier level might be large.

Adair Morse is a PhD candidate in Finance at the Universityof Michigan’s Ross School of Business. Sophie Shive is also aPhD Candidate in Finance at the Ross School, and a visitinginstructor at the University of Notre Dame’s Mendoza College of Business.

An average country invests three to fiveper cent more of its aggregate portfolioabroad with a one standard deviationdrop in patriotism.


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DevelopmentProcess

The

TRUSTDespite a pervasive need to engage withothers, people vary in their willingnessto trust.The Motivated AttributionsModel explains the conditions underwhich acts of trust are most likely.

by Mark Weber, Deepak Malhotra and Keith Murnighan

Mark Weber Deepak Malhotra J. Keith Murnighan


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As social beings, we learn early on that thefulfillment of our needs and desiresrequires interaction and cooperation withothers. The willingness to interact withothers to create mutual gain, however, car-ries with it the possibility of beingexploited. Since it is impossible to manageall of our vulnerabilities through raw poweror enforceable contracts, people rely ontrust to facilitate cooperation.

Trust has been defined as “a psycholog-ical state comprising the intention to acceptvulnerability based upon positive expecta-tions of the intentions or behaviour ofanother.” Organizational action is predi-cated on trust; indeed, it may be the singlemost important element of a good workingrelationship. Trust facilitates cooperationand helps people and organizations processinformation more efficiently. It also helps toreduce uncertainty and its related anxieties.

Situations that involve trust necessarilyinvolve the willingness of one party to takerisks in relation to another party. Trustingbehaviour, by extension, entails acceptingvulnerability in the hope or expectation ofgain at the discretion of another person.Common expectations are that mutual trustwill increase incrementally via carefullyconsidered, repeated positive interactions,and that an unexpected breach will result inan abrupt loss of trust.These characteristicsof trust conform to the widely-accepted‘trust as rational choice’ perspective.

The rational choice model of trust sug-gests that trust grows as positiveinteractions accumulate: developing trustgradually allows each party to take succes-sively larger risks as their confidence in theother’s trustworthiness grows. Each posi-tive act increases the perceived probabilityof the other’s continued trustworthinessand, over repeated interactions, additionalpositive information has less impact.

As positive attributions regarding eachother’s trustworthiness accumulate, trustcan develop more rapidly via mutual reci-procity. Eventually, when the parties haveachieved a high level of trust and there islittle room for growth, trust developmentslows. In essence, there are understandable,natural limits on how much people will bewilling to trust each other. This patternsuggests that interacting parties should ini-tially engage in small, unilateral acts of

cooperation and, contingent on reciprocity,gradually increase their cooperativeness.

However, trusting actions can also besudden and dramatic, rather than incre-mental – to the point where theysometimes appear unwise and potentiallydangerous. Examples include companiesthat fund expansion before they haveworked out the details of a new contract;managers who delegate important, sensi-tive duties to new employees; orindividuals who make significant emotionalinvestments in new romantic relationships.In each case, the trustor’s risks are consid-erable and exceed the recommendations ofa rational-choice approach to trusting.

The rational choice approach does noteasily accommodate large, highly-risky trust-ing acts that occur early in a relationship.Thefact that such seemingly rash acts are farfrom infrequent suggests that this widely-accepted model is in need of updating.

The Motivated Attributions Model ofTrust DevelopmentLike most models of trust, our MotivatedAttributions Model begins with a singleparty’s initial willingness to accept risk, andit expects that the reputation of the otherparty, as well as personal experiences withthat party, will contribute to perceptions ofthe other’s trustworthiness. However, themodel also includes a careful considerationof each party’s personal motivations. Inparticular, it suggests that the extent to

which a party feels dependent on the otheraffects their attributions of the other’strustworthiness and their evaluation ofinformation regarding the other’s reputa-tion and observed behaviour.

A party’s ‘relationship dependence’ iscontingent upon their desire (or need) forthe outcomes that they feel they can obtainthrough their relationship with the otherparty. For a trustor or a trusted party, then,the level of relationship dependence experi-enced should increase with: (a) thedesirability of the anticipated benefits of atrusting relationship; and (b) the criticality ofthe other party to achieving those benefits.

As noted in Figure One, the initialprocess of trust development begins withthe cognitions of a potentially-trustingactor, whom we designate as the ‘trustor’.The trustor must engage in some thoughtabout the target that they have chosen for apossible trusting act. Considering pastobservations and experiences with a party,combined with reputational information,leads to an assessment of the trusted party’strustworthiness.

Our model suggests that a person’smotivation to see someone as trustworthyincreases as their dependence on that personincreases; it’s almost as if they want theother person to be trustworthy.As a result,positive (or negative) judgments of a tar-get’s trustworthiness are possible evenwhen outside observers might come todecidedly different conclusions.

Figure One: The Motivated Attributions Model of Trust Development


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The model also suggests that, whenfeelings of dependence are relatively low,the entire process may not begin at all,because potential trustors will be less moti-vated to take the risks that are involved ininitiating a trusting action. Thus, overcom-ing the barriers to starting a trustingrelationship may, ironically, require miscal-culations on the part of a dependent party,in terms of either overestimations of thelikelihood of potential benefits or underes-timations of the risks involved.

Once they have concluded that there is‘sufficient trustworthiness to act’, trustorscan choose from a variety of trustingactions, some more risky than others.Much depends on the trustor’s specific,context-dependent perceptions of thetrustworthiness of the other party and theirpredictions about the likely results of theiraction. Thus, for example, a lawyer mightbe willing to trust one of her most articu-late partners to present a joint proposal toa potential client, but she might have con-siderably more faith in another partner toresponsibly accompany her younger sisterto an important social event.

The model also assumes that, prior toaction, trustors consider how their upcom-ing actions will refiect upon them. Intensefears of embarrassment, for instance, mayinterfere with trusting acts, as few peopleare comfortable ‘playing the fool’. Previous

research suggests that individuals, evenwhen they are acting anonymously, are stillconcerned about how their actions affecttheir own self-impressions. In the decidedlymore social context of interpersonal trust,in which the trusted party and many otherobservers may observe a trustor’s initialact, social impression management con-cerns – wanting to create a goodimpression in others – can loom large. Ourmodel predicts that these impression man-agement concerns will infiuence the form

and the probability of an initial trusting act,and that trustors will be most likely tochoose acts that they feel will refiect wellon them.

Once a trusting act has been chosenand implemented, the interaction movesinto the trusted parties’ court, at whichpoint the trusted party’s own levels ofdependence come into play to influencetheir perceptions, judgments and ultimately,their decision to reciprocate.

The Trust Dilemma Underlying each party’s decision to engagein a trusting act is what we call ‘the trustdilemma’: people are motivated to trustand to be seen as trustworthy, but they arealso motivated to minimize their risks andto escape the costs associated with obliga-tion and reciprocity. While dependenttrusting parties seek ways to justify theiracts of trust, trusted parties may also seekways to justify inaction and/or non-reci-procity.Thus, parties hope to gain from theestablishment of trust but, in the short-term – particularly in the initial phases oftrust development – they are also moti-vated by self-interest, which canundermine the trust development process.

Carefully-reasoned assessments ofanother party’s trustworthiness becomeincreasingly unlikely as dependenceincreases. In particular, as dependence

increases, so will selective attention toinformation that confirms what a partywants to believe, increasing the likelihood ofa conclusion that the other party is trust-worthy. For initial trustors, this increasesthe likelihood that they will engage in trust-ing behaviour and that the risks that theywill assume will be larger than carefulanalysis might recommend.

Thus, dependence has several conse-quences for trust initiators.As their depend-ence increases, potential trustors will:

(a) engage in less information search toassess a potential counterpart’s trust-worthiness;

(b) be more likely to evaluate ambiguousinformation about the counterpart positively;

(c) exaggerate the likelihood that thetrusted party will reciprocate;

(d) be more likely to engage in initial actsof trust; and

(e) be more likely to trust precipitously.

Consider an example.An entrepreneurwho does not have sufficient resources tobring a product to market will be morelikely to:

(a) accept capital guarantees from the firstventure capitalist (VC) who offers it;

(b) minimally seek or assess informationregarding the VC’s reputation or cre-dentials;

(c) conclude that the VC is trustworthy;and

(d) incur costs or invest considerably in theprocess (or both), especially as thedesire to launch the product increases.

Paradoxically, while dependenceshould lead individuals to be more likely toengage in risky trusting acts, the moredependent they appear to a trusted party,the less likely might the trusted party be toreciprocate. In particular, trustors who areperceived as ‘desperate’ or ‘calculating’ maybe less likely to induce reciprocity and sub-sequent trust development. Obviousdependence offers a trusted party an alter-native to attributing a trusting party’sbehaviour to genuine trust: the needysuitor, whether in romance or in business,often generates skeptical reactions that caninterfere with trust development.Thus, theimpetus of dependence can have dual-edged implications.

The Motivation to Escape ObligationLike trustors, trusted parties interpretinformation in the context of their ownmotivations and interests. At one extreme,these parties may see a unique and valuableopportunity in the overtures of a trustingparty, making reciprocity and the quickpropulsion of the trust developmentprocess particularly likely. At the other,

People are motivated to be seen as trust-worthy, but they are also motivated tominimize their risks and to escape the costsassociated with obligation and reciprocity.


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trusted parties who have numerous alterna-tives may have little desire or need to builda new relationship.

We often feel obligated to reciprocateand tend to believe that we should repay (inkind) what another has provided. Extensiveresearch on reciprocity has shown that peo-ple often reciprocate even when it goesagainst their self-interest. As a result, even

those who are uninterested in developing amutually-trusting relationship may feelcompelled to reciprocate unless they canfind ways to justify non-reciprocity andescape what might otherwise be powerfuland natural feelings of obligation.

Both the likelihood and the magnitudeof reciprocity vary across individuals, andreciprocity depends (in part) on the trustedparty’s attributions of the trustor’s actions.While trustors might hope that trusted par-ties will acknowledge the initiatives thatthey have taken to establish a trusting rela-tionship, some trusted parties may not evenknow that they have been trusted. For oth-ers, the high cost of reciprocity may inducethem to seek ways to justify not reciprocat-ing. This may be easiest when the trustor’sdesperation is obvious: reciprocity is par-ticularly unlikely when the trustor isperceived as parasitic, overly calculative, orself-interested.

An initial trustor’s precipitous trustingact not only makes it difficult to justify notreciprocating, but it also makes it easier fora trusted party to reciprocate by reducingthe trusted party’s risks. Even coopera-tively-inclined individuals are naturallywary of being exploited, so any risk reduc-tion can facilitate the process. In one study,potential parties in a merger eliminatedalternative suppliers to signal their trust-worthiness and made it easier for the otherparty to commit. The underlying logic isthat, in a relationship involving sequentialdecision making, each act can change the

perceived payoffs and the risks associatedwith different choices for the other deci-sion maker.

In interpersonal interactions, peoplewho share sensitive personal informationprovide their counterparts with the opportu-nity to later exploit this information if therelationship deteriorates, reducing thetrusted party’s own risks. Precipitous trust-

ing acts give trusted parties ‘fate control’over initial trustors, thereby reducing trustedparties’ risks in reciprocating and, conse-quently, increasing the likelihood that theywill reciprocate. Thus, precipitous trustingacts that benefit the trusted party will:

(a) be more difficult to judge as insincere;(b) reduce the costs and risks associated

with reciprocity;(c) increase the likelihood of reciprocity;

and (d) accelerate the development of mutual

trust.

Organizational and International TrustIndividual archetypes of trust are both rel-evant and helpful in thinking about trustwithin organizations. However, inter-orga-nizational, inter-institutional, andinternational exchanges can have broaderconsequences than those of individuals, andare more likely to include multi-party andinter-group dynamics.

At the same time, a variety of intra-andinter-organizational interactions depend onthe perceptions, cognitions, and behavioursof individual organizational actors. In thesecases, the Motivated Attributions Modelmay apply beyond the domain of individualinteractions to include interactions that areoften ascribed to organizations or evenlarger entities.

The recent accounting scandals providea particularly striking (and unfortunate)inter-organizational illustration of the

model. In a compelling analysis of the poten-tial for bias in auditing, researchers notedthat one of the central lessons of behaviouraldecision-making research is that, “when weare motivated to reach a particular conclu-sion, we usually do.” Despite theirprofessionalism, accountants are prone tothe same biases in decision making as therest of the populace. Situational and/orinterpretational ambiguity and familiaritywith or attachment to clients (and thereforetacit loyalty to those who pay them) are justsome of the sources of bias to whichaccountants and the audit firms that theywork for are unconsciously prone.The Moti-vated Attributions Model would also suggestthat overly-favorable audits may reflect irra-tional trust (in a client’s claims) that hasbeen facilitated by high levels of dependenceon clients who provide access to informationand opportunities for future business inaccounting and managerial consulting.

Inter-organizational trust yieldseconomies of effort, which facilitate othersignificant benefits like fine-grained infor-mation transfer, efficient jointproblem-solving ‘on the fly’, and complexadaptation.When as many as 80 per cent ofinter-organizational alliances fail, one of thebest predictors of success have been large,unilateral commitments by one of the par-ties. Examples of such acts of trust include:

• a company signing a long-term contractwith a third-party supplier for materialneeded for an impending alliance beforethe alliance was finalized;

• a computer hardware manufacturer dis-solving its internal software departmentto signal its commitment to an alliancewith a software firm;

• an automobile manufacturer making itsdesign specifications fully available to analliance partner before the partner hadinvested in the alliance; and

• a company making a promise of exclusiv-ity even when it could pursue a number ofviable partnerships to diversify its risks.

Consistent with the logic of the Moti-vated Attributions Model, these actions, byvirtue of their size and the risks involved,signaled that the organizations’ intentionswere sincere, creating a social context inwhich reciprocity was expected (and typi-

Inter-organizational trust yieldseconomies of effort, which facilitateother significant benefits like fine-grained information transfer.


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cally delivered) and, given the sequentialnature of relationship development, funda-mentally changed their counterparts’ riskcontext. Our model suggests that thesekinds of large trusting acts may be encour-aged by the initiating organization’s ownfeelings of dependence and their motivatedperceptions of the other party’s trustwor-thiness. They might also be intentionalinfluence strategies designed to shape theother parties’ motivated attributions.

The value of large, unambiguous trust-ing acts between polarized counterparts ininternational relations has also been noted.For example, researchers have describedthe importance of Anwar Sadat’s 1977trip to Jerusalem as a major unilateral ini-tiative that created the potential for futurevalue – at considerable risk to Sadat. Sadat’sgroundbreaking visit opened the doors tothe Camp David Accords, and ultimately toa peace treaty between Israel and Egypt. Itprobably also energized the internal Egypt-ian opposition that culminated in hisassassination.

It is important to note that the actionsof organizations may engender weaker feel-ings of obligation than do the actions ofindividuals, because people tend to vieworganizations less personally than they doindividuals. However, interorganizationalrelationships often hinge on interpersonal

relationships. The financial services indus-try, for example, appears fully aware of thestrength of interpersonal connections: theyassign personal bankers to clients to estab-lish a stronger sense of loyalty than any thatcould be engendered by repeated interac-tions with different organizationalrepresentatives.

The same phenomenon is true in salesin general: organizations try to build direct,personal relationships with their clientsthrough regular, repeated contact betweenthe same individuals. Thus, the predictionsof the Motivated Attributions Model maybe applicable in inter-organizational con-texts, particularly when individuals’ actionsand decisions figure prominently.

Practical ImplicationsPeople vary in their willingness to trust.For some, trusting intentions are central totheir conceptions of their social selves; forothers, the social world takes second place

to their individually-motivated concerns.Despite individual differences, extrinsicmotivations (i.e., the tangible benefits thatresult from trusting) provide strong moti-vations to establish mutual trust and/ormutually-trusting reciprocal actions.

The Motivated Attributions Modelexplains the conditions under which pre-cipitous acts of trust are most likely, andwhy they may be surprisingly effective atachieving initial trustors’ goals for a rela-tionship. One immediate implication of ourModel is for individuals in potentially trust-ing relationships to seriously consider theeffects of their motivations, their depend-encies, their need to see themselvespositively, and their inability to fully under-stand their counterparts’ perceptions. Themodel makes these considerations explicitby focusing on the attributions that sur-round initial trusting acts.

Our model also suggests that peoplewho are contemplating significant, highly-risky trusting acts should consider makingthe motives for their acts explicit – or at leastunambiguous. Clear statements of intent maybe effective in lessening a trustor’s exposureto risk by invoking the powerful norm of rec-iprocity. Depending on the circumstances,however, this kind of communication canbackfire. Saying, “I’m doing this because Itrust you,” may signal to trusted parties thatthe action is not based on trust, but is chosento manipulate. This ‘communicationdilemma’ in the trust-development process

requires that trustors reveal enough to beunderstood, but not so much that they leadtheir counterparts to question their sincerity,which requires tremendously astute inter-personal sensitivity.

There is no doubt that those who takelarge, trusting risks are more vulnerable toexploitation than those who do not. Yetwhat people often fail to see is ‘the otherside of the coin’ – the benefits foregone bydistrusters. In particular, the cautious initialtrusting acts of rational actors may reducethe risk of exploitation, but may simultane-ously, and more seriously, reduce thelikelihood of potentially profitable andadvantageous opportunities and relation-ships. The logic of our model suggests thatpeople’s motivational proclivities and (con-sequently) imperfect and irrationalreasoning may actually serve important,adaptive purposes.

In sum, the Motivated AttributionsModel provides a basis for predicting whento expect different patterns of trust devel-opment, and clarifies why significanttrusting acts can be perceived as ‘normal’and ‘reasonable’ rather than ‘irrational’,especially to the actors themselves.

Mark Weber is an assistant professor of OrganizationalBehaviour at the Rotman School of Management. In 2005,he was a visiting professor at INSEAD. Deepak Malhotra isan assistant professor in the Negotiations, Organizations,and Markets Unit at Harvard Business School. KeithMurnighan is the Harold Hines Jr. Distinguished Professorof Management and Organization at Northwestern University’s Kellogg School of Management.

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by Tiziana Casciaro and Miguel Sousa Lobo

and the Formation of Social Networks

Competent JERKS,Lovable FOOLS,


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One of management’s greatest challengesarises from a natural tension inherent inevery organization. People are broughttogether because they have the variety ofskills that, in concert, are needed to carryout a complex activity. But this varietyinevitably leads to fragmentation of theorganization into silos of specialized knowl-edge and activity.

How do you ensure that relevant infor-mation gets transferred between parts of anorganization that have different cultures?How do you encourage people from unitscompeting for scarce corporate resourcesto work together? How do you see to it thatthe value of a cross-functional team ismore, not less, than the sum of its parts?

The answers to these questions lie inan understanding of informal social networks

and how they emerge. Certainly, organiza-tions are designed to ensure that peopleinteract in ways necessary to get their jobsdone. But all kinds of work-related encoun-ters and relationships exist that only partlyreflect these purposefully-designed struc-tures. Even in the context of formalstructures – say, a cross-functional team –informal relationships play a major role.

In this article, we offer some surpris-ing insights into how informal networkstake shape in companies – that is, how peo-ple choose whom they work with.

How We Choose Work Partners When given the choice of whom to workwith, people will pick one person overanother for any number of reasons: theprestige of being associated with a star per-former, for example, or the hope thatspending time with a strategically-placedsuperior will further their careers. But inmost cases, people choose their work part-ners according to two criteria: one iscompetence at the job (does Joe know whathe’s doing?); and the other is likability (is

Joe enjoyable to work with?) Obviously,both things matter; less obvious is howmuch they matter.

To gain some insight into these ques-tions, we studied four organizationsselected to reflect a wide range of attrib-utes–for-profit and nonprofit, large andsmall, North American and European.Weasked people to indicate how often theyhad work-related interactions with everyother person in the organization.We thenasked people to rate each of these individ-uals in terms of how much theypersonally liked them and how well theydid their jobs. We found that ‘compe-tence’ and ‘likability’ combine to producefour archetypes:• the competent jerk, who knows a lot

but is unpleasant to deal with;• the lovable fool, who doesn’t know

much but is a delight to have around;• the lovable star, who’s both smart and

likable; and • the incompetent jerk, who…well,

that’s self-explanatory.No matter what kind of organization

we studied, everybody wanted to workwith the lovable star, and nobody wanted towork with the incompetent jerk.Things gota lot more interesting, though, when peo-ple faced the choice between competentjerks and lovable fools.

Ask managers about this choice andyou’ll often hear them say that when itcomes to getting a job done, of course com-petence trumps likability. “I can defuse myantipathy toward the jerk if he’s competent,but I can’t train someone who’s incompe-tent,” says the CIO at a large engineeringcompany. Or, in the words of a knowledgemanagement executive in the IT depart-ment of a professional services firm: “Ireally care about the skills and expertiseyou bring to the table. If you’re a nice per-son on top of that, that’s simply a bonus.”

But despite what people might sayabout their preferences, the reverse turnedout to be true in practice in the organiza-tions we analyzed. Personal feelings played amore important role in forming work rela-tionships – not friendships at work, butjob-oriented relationships – than is com-monly acknowledged, even more importantthan evaluations of competence. In fact,feelings worked as a ‘gating factor’: if some-one is strongly disliked, it’s almost irrelevantwhether or not she is competent; peoplewon’t want to work with her anyway.

By contrast, if someone is liked, hiscolleagues will seek out every little bit ofcompetence he has to offer. And this ten-dency didn’t exist only in extreme cases;it was true across the board. Generallyspeaking, a little extra likability goes alonger way than a little extra compe-tence in making someone desirable as awork partner.

There are justifiable reasons to avoidthe jerk. Sometimes it can be difficult topry the needed information from him; andknowledge often requires explanation to beuseful – you might, for instance, want tobrainstorm or ask follow-up questions –and this kind of interaction may be difficultwith a competent jerk.

The Likability Bias: The Pluses and the Pitfalls Some people are liked pretty much univer-sally. In other cases, likability is relative:one person’s friend may be another per-son’s jerk. This is because our positivefeelings toward someone else can resultfrom that person’s inherent attributes orfrom the situations in which we find our-selves with them. This distinction isimportant to keep in mind as we try tomanage this tendency of people to favor lik-ability over competence in their choice ofwork partners.

Miquel Sousa LoboTiziana Casciaro


New research shows that when people need help gettinga job done, they’ll choose a congenial colleague overa more capable one.That has big implications fororganizations – and not all of them are negative.

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Social psychologists have long knownthat we like people who are similar to us;people we are familiar with; people whohave reciprocal positive feelings about us;and people who are inherently attractive,either in their appearance or their person-ality – that is, they are considerate,cheerful, generous, etc. Each of thesesources of personal likability can con-tribute, for better or worse, to theformation of an informal network.

The fact that we like people who aresimilar to us – for example, in their back-ground, their interests, their personal style– is one of the most solidly-documented

findings in the social sciences. After all,these people make us feel good becausethey reaffirm the validity of our own char-acteristics and attitudes. But there’s also abusiness benefit when similar peoplechoose to work together: their similar waysof thinking and communication styles helpprojects flow smoothly and quickly.

Benefits also occur when we workwith people who aren’t necessarily similar,but are familiar, to us. When you launchinto a task with people you already know,you don’t waste a lot of time figuring outwhat to expect from your work partners orexplaining what you mean every time yousay something. In addition, because you areusually relatively comfortable with peopleyou know, you’re likely to be more accept-ing of their differences.

We also like to work with people whoseem to like us. This can produce a virtuouscircle in which everyone is more open to newideas and more trusting than would typicallybe the case. A similarly positive environmentcan be created if your work partner has anattractive personality. You know that you’llhave liberal access to his intellectualresources, however abundant or modest they

may be, and are likely to reciprocate by freelysharing your own knowledge.

And a work partner who is physicallyattractive? Well, in such a case, the job youdo together can be, in some indefinableway, simply a bit more enjoyable than usual.

The Pitfalls of SimilarityOne of the greatest drawbacks of choosing towork with similar people is the limited rangeof perspectives that a homogeneous groupoften brings to bear on a problem. A diversecollection of people – whatever the tensionsand misunderstandings that arise because oftheir differences – provides an array of per-

spectives that can lead to truly innovativeapproaches to accomplishing a task.

Even groups composed not of similarsouls, but merely of people who are veryfamiliar with one another, miss the chanceto integrate the fresh perspective that newplayers bring to a project.Working with thesame old colleagues can also dampendebate: Colleagues may hesitate to chal-lenge or reject a bad idea put forward bysomeone they know and like.

There is also an obvious downsidewhen we gravitate toward people becausethey like us or because they are pleasant towork with.These individuals, however ter-rific they may be, aren’t necessarily theones most suited to tackling the task athand.The required expertise or knowledgemay lie elsewhere, in someone who in factdoesn’t like us that much or isn’t attractive.

One other danger of people workingprimarily with those they like: They maysimply have a good time and get nothingdone. An experienced venture capitalistrecalls the case of a very capable managerwho hired people based on his personalaffinity with them. “His team had a greattime going out for a beer, but the quality of

their work was seriously compromised,”says the dismayed investor. “If you keep hiring only people you like, you can kill a company.”

The objective, therefore, is to leveragethe power of ‘liking’ while avoiding thenegative consequences of people’s ‘affect-based choice’ – to use the psychologicalterm – of work partners. Keep in mind thatwe’re not talking here about formal workrelationships: you work with your boss andyour direct counterparts in other divisionswhether you like them or not. We’re talk-ing only about people’s choices of informal,though work-related, interactions. Even so,that doesn’t preclude executives fromdoing some things that will positively affectthose interactions and the often task-crucialinformal networks that grow out of them.

We offer three basic approaches.

1. Manufacture Liking Given the central role that our feelingsabout people play in our work relation-ships, is there anything a manager can do tofoster positive feelings toward one another?The answer, perhaps surprisingly, is yes.

Promote familiarity. Research has shownthat regular exposure to someone generallyincreases the comfort and pleasure of inter-action.The power of familiarity to generatepositive interpersonal feelings argues forsome careful thinking by managers aboutthe design of office space. This couldinvolve anything from mixing up people’swork spaces (“I generally don’t care forpeople in Finance, but I’ve actually grownto like Sarah since she moved into the nextoffice”) to creating areas in an office thatfoster informal, watercooler-style chats.

You can also design processes that givepeople an opportunity simply to becomeacquainted with one another and thus makethem more comfortable with each other.The ‘peer assist’, a knowledge managementprocess in which team members aim tocapture the expertise of other colleaguesbefore starting a project, generally involvessome initial interaction – say a cocktailparty – the evening before work begins andany work-specific goals are addressed. Thisallows people to get to know one another abit while the relationship is still emotion-ally neutral and hasn’t yet been subjected to

One of the greatest drawbacks of choosingto work with similar people is the limitedrange of perspectives that a homogeneousgroup often brings to bear on a problem.


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any task-related ‘interference’. Less for-mally, all-office get-togethers on Fridayafternoons can be more than culture- andmorale-building exercises: they offer anopportunity for people from different func-tions to become familiar with one another,thus making it easier for them to shareknowledge in the future.

Redefine similarity. Similarities can be cre-ated where they might not naturally arise.It’s no secret, for example, that marketersand researchers tend to be wary of oneanother.Their personalities, as well as theirdepartmental allegiances, are generallyvery different. But if you create a productmanagement team that includes both mar-keters and researchers, there is a chancetheir similar identities as ‘Product X peo-ple’ may begin to feel stronger than theirdissimilar identities as ‘marketing people’and ‘R&D people’. Superimposition of theshared identity, by overriding natural dif-ferences, may lead to increasedcross-functional cooperation, both formaland informal.

Foster bonding. Sometimes, however,cooperation fails to emerge despite a redef-inition of similarities. Where there existspowerful forces of distrust or animosity,either because of strong dissimilarities (forinstance, loyalty to different pre-mergercompanies) or because of a troubled history(years of competition over budget alloca-tions, for example), you won’t be able toget people to like each other simply by

inviting them to a TGIF gathering or bysticking them on a cross-functional team.Promoting positive feelings in those cir-cumstances requires stronger methods – forinstance, the ‘Outward Bound–style’, off-site experiences used by many companies.Such tactics can be problematic, however,because novelty and authenticity are criticalto their success. The moment they become

trite or feel manufactured, they lose theireffectiveness. The challenge for managers,therefore, is to constantly find new ways totake advantage of this old concept.

2. Leverage the Likable What should managers do to make effectiveuse of people who are likable almostregardless of the situation? Perhaps the bestway to capitalize on their personal qualitiesis to have them play the role of ‘affectivehubs’ – people who, because they are likedby a disproportionate number of people,can bridge gaps between diverse groupsthat might not otherwise interact.

We don’t necessarily like such peoplebecause they are similar or familiar to us.More likely, we are drawn to their attractivepersonality traits, sophisticated social skills,and old-fashioned ‘chemistry’. Such indi-viduals aren’t necessarily the bestperformers (although they can be – that’sthe lovable star). More commonly, becauseof the time they devote to interacting withpeople, they may actually lag slightly behindtheir peers in terms of measurable perform-ance. But their ability to establish positiveworking relationships between groups thatwould otherwise tend to be disconnectedcan be crucial to an organization’s success.Managers can do several things to get themost out of such people:

Identify them. Attentive managers know ifthey have someone who could play the roleof an affective hub. But most aren’t closely-enough attuned to the emotional dimension

of work to recognize such an individual.Take the case of an employee in one com-pany’s IT department. She was the personwho dealt with breakdowns in the technicalinfrastructure of the company.Although lesstechnically proficient than many of her col-leagues, she acted, in the words of one, “as acoral-reef barrier when the user commu-nity in the company had problems. Because

she was liked by everyone, she could deflateusers’ frustration and anger, insulating usgeeks from complaints and allowing us tosolve the problem.” After she was laid off ina cost-cutting move, her job was dividedamong more technically competent people.The result? “It was a disaster,” according toher former colleague.

Protect them. Even when affective hubs areidentified, such soft contributions may bedeemed less important than more quantifi-able ones. When told about the concept ofaffective hubs, members of a managementteam at a large technology companyexclaimed almost in unison: “Damn, wejust fired him!” They went on to describesomeone who was beloved within and out-side the organization, a person otherpeople would turn to when they wanted tomake contact with someone in another partof the business or at an alliance partner. “It’snot just that he knew everybody,” accordingto one member of the team. “It’s that every-body really liked him, and they were happyto do him a favor.” Unfortunately, it wasn’tenough to save him from being one of thefirst to go in a round of downsizing.

Position them strategically. Clearly, youdon’t want to waste the talents of an affec-tive hub by letting the person languish in ajob that is only loosely connected withother functions. Such individuals should beput in a position to link people from differ-ent parts of the organization who mightotherwise resist – or never think of – col-laborating with one another. Affective hubsalso are useful in positions central to thediffusion of new ideas.Think, for example,of a program designed to communicatenew practices throughout an organization.How do you select participants? Do youchoose managers? Star performers? Or doyou choose the people who, because otherswill listen to them, are going to be goodevangelists for the new ideas?

3. Work on the Jerk Competent jerks represent a missed oppor-tunity for the organization because so muchof their expertise goes untapped. Dealingwith jerks is so unpleasant that colleaguessimply can’t be bothered with them. Whatcan you do with such people?

Competent jerks represent a missedopportunity for the organization becauseso much of their expertise goes untapped.


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Reassess their contribution.The individualperformance of the competent jerk isgreat. But how does he contribute to theperformance of the organization as awhole? Does he help the people who workwith him or actually hinder them? Take thecase of an investment bank that hired anextraordinary rainmaker in a difficult andhighly profitable market the bank wantedto enter. Unfortunately, the qualities thatmade the new hire a phenomenal producerin this rough-and-tumble market also alien-ated lots of his colleagues. Over time, itbecame clear that the newcomer’s mannerwas violating the culture of respect andpolite behaviour that helped define thecompany.What, then to do about it?

Reward good behaviour, punish badbehaviour. If the contributions of the com-petent jerk are significant, it’s probablyworth trying to turn him into a tolerated,even if not actively liked, star performer.Changing the behaviour of adults is never astraightforward proposition, of course, butsome things can be done. Jerks who can becharming when they wish – but simplychoose to do so only when convenient – mayrespond to incentives. The rainmaker wasone of those. He could be very charming topotential clients, but was not to his cowork-ers. So when it came time for him to beconsidered for a managing director position,the bank denied him the promotion.Socialize and coach. Although the rain-maker could have quit, taking hisrevenue-generating skills with him, he didnot. His boss adopted an aggressive coaching

stance, scolding for bad behaviour immedi-ately after the fact, rather than waiting for ayear-end performance review. The boss waseffective in explaining in detail how thebehaviour was self-defeating – informationthat a self-interested and ambitious individ-ual is likely to take to heart. After coachingfrom his boss, the rainmaker’s behaviourimproved, and he was promoted the follow-ing year. Sadly, there are people who aredisliked because they are socially incompe-tent and probably never will be trulycharming. For them, interpersonal-skillstraining, rather than incentive-based coach-ing, may be preferable.

Reposition. If likable people can improvean organization when they operate in highlyinterdependent roles, competent jerks arelikely to do best in positions in which theywork independently. There is often a place

for people who don’t need to be liked solong as they get their job done – even if youmust sacrifice widespread access to theirexpertise. Obviously, simply being likeddoesn’t mean a person is valuable to anorganization. We all know the fellow thatpeople adore whose performance is contin-ually disappointing – to the point that hiscolleagues end up disliking him because herepeatedly lets them down.We all know thewoman who builds relationship after rela-tionship that ultimately go nowhere, at leastas far as the organization is concerned.

Still, it’s easy to be mistakenly dazzledby a high performer, even if his expertise isnever tapped or shared because people don’twant to work with him.And too many man-agers fail to appreciate the benefits that alikable person can offer an organization,particularly if those benefits come at theexpense of some measure of performance.

Building an environment in whichpeople like one another – whether by cre-ating situations that make liking peopleeasy, by fostering those likable people whocan play the role of an affective hub, or byimproving the behaviour of competentjerks – can help all employees work morehappily and productively and encouragethe formation of strong and smoothlyfunctioning social networks.

Tiziana Casciaro is an assistant professor of OrganizationalBehaviour at Harvard Business School. Miguel Sousa Lobois an assistant professor of Decision Sciences at Duke Uni-versity’s Fuqua School of Business in Durham, NorthCarolina. Reprinted with permission from Harvard Busi-ness School Press.

Likability

Com

pet

ence

Low

Hig

h

Low High

CompetentJerk

Mostly Avoided

IncompetentJerk

Desperately Avoided

LovableStar

Desperately Wanted

LovableFool

Mildly Wanted

Figure One: Who Would You Choose?

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The NewLoyalty:The author and consultant discusses how today’s workers are ‘differentlyloyal’; the similarities between generations in the workplace; and theimportance of standing up for what’s important to you.

An interview with John Izzo

by Karen Christensen

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Karen Christensen: A recent Watson Wyattsurvey recently showed that two out threeCanadians keep their resumes up to date,and less than half are committed to stay-ing with their present employer. Despitethis, you contend that “employee loyalty isnot dead.” Please explain.

John Izzo: A lot has been made of howemployees are not loyal anymore, but whatI have found is that today’s employees arejust ‘differently loyal’. Twenty to 30 yearsago, people were loyal to one employer,primarily because of security; having asecure job and a secure paycheque was atthe top of their list of concerns, so peopletended to stay where they felt secure. Butnow, in survey after survey, what we areseeing at the top of the list are differentthings, like career development, andwhether the work itself is interesting andexciting; we are also seeing things likelifestyle, and the ability to balance workand personal life so that the two are syner-gistic. Pride in your employer is anothervery strong predictor of loyalty. So thethings that make someone loyal to a com-pany have changed fundamentally.

In our research for the new edition ofValues Shift, we found that two out of everythree workers in Canada still say that theywould like to stay with one employer fortheir whole career – if they could geteverything they needed. So the difference isthat today, people bring a whole new con-stellation of needs to the workplace. Theywill be loyal, if you meet their needs.They’re just not loyal in the same way: theloyalty is based on interests, on excitement,on whether a job is meeting their needs. Ifthose things are true, they’ll stay for a longtime; if not, make no mistake – they will gosomewhere else.

KC: We are constantly told that thereare important differences between theBaby Boomers and Generations X, Yand D (for ‘digital’). Does each genera-tion really want different things fromthe workplace?

JI: When we wrote Value Shift in 2001 [thesecond edition comes out this fall], one ofour contentions was that there were six shiftsin values that were actually shared among

most of the generations in the workplace. Ibelieve that generally, the generations havemore in common than people realize: forexample, the desire for balance betweenwork and personal life – that’s commonacross all generations; a desire for less hierar-chy, and for trust in a workplace, where youare told the truth and you can speak up – alsocommon across all four generations. Now,there are differences, too: one that is impor-tant for employers to know is that BabyBoomers still put security in their top twoconcerns in terms of why they would be loyalto a particular employer – whereas job secu-rity is not even in the top five for the otherthree generations. So that’s one significantdifference between them. Another is thatGeneration X, in particular, is more focusedon balance – on substantial family time, andtime for self – than any other generation cur-rently in the workplace. A recent surveyshowed that on average, Gen X parents spendtwice as much time with their kids and fami-lies than their Baby Boomer counterpartsdid; yet they are only half as satisfied with theamount of time they have – which gives anidea of how important this is to them.

So in general, more has been made ofthe differences than is true, but there are

differences. For instance, among theyoungest employees, the idea of expectingwork to be interesting and expectinggrowth opportunities early on – that’s verymuch the case.There is a much lower toler-ance amongst young workers for doingthings they perceive as ‘boring’; the idea of‘paying your dues’ is not something theybuy into. Overall though, there are manymore similarities between the generations.

KC: Do ‘exemplary environments’ such asthose in firms listed on Fortune maga-zine’s ‘best places to work’ ranking createloyalty?

JI: Again, we have to look at the research,which tells us what people are saying aboutwhy they stay. There’s research for Gen Xworkers, for example, that only careerdevelopment, interesting work and balancewere strong predictors of loyalty. So whatwe need to remember is that not every-thing about a work environment will leadto loyalty in the way that it used to; but thekinds of things that we associate with the‘best places to work’ are also associatedwith loyalty: things like balance, interestingwork, and promotion from within. One ofthe points I like to make about loyalty todayis that many people don’t want to leavetheir company as much as they want to dosomething different; so the more a com-pany promotes from within, the more it hasopportunities for people to move around –the less they have to look somewhere else.And then there are the old fashioned thingsthat are very often part of the best places towork: feeling a part of a family, feelingcared about at work; these are time-testedtruths about what keeps people in theworkplace. I could give examples of com-panies with stellar retention rates that arerelated to some very old-fashioned con-cepts – not new add-ons like daycare or

concierge services: when people feel loved,cared about, and are proud of theiremployer, they will stay for a long time.

KC: Studies show that 43 per cent of jun-ior managers value home over worktime, compared with just 20 per cent oftop executives. What are the implica-tions for organizations?

JI: There are tremendous implications. Ithink of law firm clients of mine, who reg-ularly talk about the difference betweentheir senior partners and their youngrecruits – even the top recruits from the

‘Gen X’ parents spend twice as much timewith their families than their Baby Boomercounterparts did; yet they are only half assatisfied with the amount of time they have.

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leading firms, who, during their inter-views, are already asking questions like,“Am I going to have to sacrifice my per-sonal life to become a senior partner in thisfirm? Because if so, I’m not interested.” Ihear these stories routinely.You see it in thecorporate world, where the older execu-

tives have a nose-to-the-grindstone, ‘we’regoing to do whatever it takes to make thiscompany successful’ attitude; but if you talkto the Gen X managers, the focus on bal-ance is very strong. I think it’s reallystarting to heat up. Every week or so, I’llhear about someone who has made a choice– a younger manager or professional – tonot take a promotion or a transfer because

their kids are in school, or they just don’twant to work that many hours; part of it isage, and part of it is where you are in thehierarchy. There’s a reason why the peopleat the top got to the top – often, they sac-rificed other things to get there. Theimplications are significant, because the

research on loyalty shows that balance, andthe ability to have an integrated work andpersonal life, is a very strong glue in termsof loyalty – probably one of the top twothings, along with interesting work. So ifthat’s the case, then the more tension thereis, the more likely you are to lose good peo-ple – people who are going to say, ‘it’s justnot worth it to me’.

KC: You have said that “each one of uscreates the climate in which we work.”Aren’t most aspects of the work environ-ment set before we arrive?

JI: It is both. Certainly, most companieshave a climate – a culture that’s been culti-vated over time. Large companies inparticular often have a robust culture thatchanges very slowly. I work with manycompanies that have thousands of employ-ees, and very often there lots of‘micro-cultures’ within the company. If youlook at a large company like Hewlett-Packard or TD Bank, you see a lot ofthese micro cultures – individual managersor unit heads that run their operations quitedifferently; so certainly at the manageriallevel, managers have a tremendous ability tocreate sub-cultures. The head of a machin-ists’ union recently told me about themanager of one particular maintence facil-ity at a major airline who had created anengaged, vital culture in the midst of amuch larger culture of disengagement. Somanagers can make their own reality evenwithin large companies. Of course, the

Research shows that balance, and theability to have an integrated work andpersonal life, is a very strong glue interms of loyalty.

People are loyal to their spouses, their dogsand their sports teams – but their jobs?While worker loyalty has jumped 10 per-centage points in the past four years, thenumbers aren’t good news for mostemployers, according to the 2005 WalkerLoyalty Report, released by Indianapolis-based Walker Information. Despite theincrease, only 34 per cent of more than2,500 employees surveyed nationally saidthey are truly loyal – meaning they aredevoted to the job, faithful to the company,and ready to turn down any job offer thatmight come their way.

In 2001, 24 per cent of workers weretagged as truly loyal. Walker’s 2005 studyalso revealed that 31 per cent of workersare high-risk and ready to bolt at anymoment. According to the survey, any

manager of 10 employees would find thatnearly seven are dissatisfied, trapped, readyto bolt, or open to leaving for personal rea-sons. The remaining ‘loyals’ would bewilling to recommend the company tosomeone else, do work above and beyondthe call of duty, and limit their job searches.And just because companies are able toretain their employees, that doesn’t meanthose workers are loyal: trapped workers,for example, stay at their companies onlybecause they feel they have no otheroptions. According to the study, theseemployees are less likely to give 100 percent on the job or recommend the com-pany to others.

The national survey of more than 2,500employees put workers in four categories:• Truly loyal: 34 per cent feel positive

about their jobs and are going to stay.• Accessible: six per cent feel positive

about their jobs but can’t say they willdefinitely stay due to outside influences,such as children at home or a spouse’smobility.

• Trapped: 28 per cent feel neutral ornegative about their employer, but feelthey have to stay.

• High-risk: 31 per cent feel negativelyabout their jobs and are looking to leave.

One of the top drivers of employeeloyalty, according to the study, is workersbelieving that what they do matters to thecompany. Other factors include the com-pany having a good reputation and aworkplace where development and trainingare encouraged to advance careers.

Reprinted from The Indianapolis Star.

Measuring Worker Loyalty by Dana Knight


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overall climate is dictated by the people atthe top.At the same time, each one of us hasimpact on the teams that we work with, thekind of culture that we come to work inevery day. I think too much is made of howthe person at the top sets the whole culture.Obviously, top leaders set the overall tonein a company, and if it’s very strong in a neg-ative direction, good people will leave.

KC: You recommend that people thinkabout their jobs with the eyes of anartist. What does this entail?

JI: When we conducted 3,000 conversationswith people about their ‘best times’ at work,people rarely talked about times where theywere on autopilot.They never said,‘the timeI remember most was that time I wasn’tlearning anything new.’ Quite the opposite:most of the time, people talked about a timewhen they were learning, growing, anddoing things differently than they normallydid. Often in a job, if we aren’t careful, weget into a routine where we’re just doing itthe same way we’ve always done it. Whenwe deliberately think about how we coulddo things differently, what we want to learn,how we want to bring more excellence to it,something happens to us. I often quoteMartin Luther King, Jr., who said, “Ifyou’re called to sweep streets, but yousweep them the way Beethoven wrotemusic, you will never have an unhappy day.”So at all levels, you begin to ask, ‘what doesit mean for me to find more excellence inmy work; how do I want to grow? I think ofa teacher who told me that each year for 26years, she set a goal of one particular wayshe wanted to become a better teacher; andwhen she retired at 65, she was more vibrantas a teacher than she’d ever been. She saidthat part of it was, she kept looking at herwork with the eyes of an artist. If we switchto autopilot, things get boring fast.

KC: What is ‘the 150 per cent question’,and why is it so important?

JI: That’s a question we’ve asked thousandsof people in our research: we ask them toidentify a time in their career where theyfeel they were at 150 per cent in terms ofperformance and satisfaction. In otherwords, times when you felt fully engaged at

work.We have discovered that almost every-one can think of one or two of these times.Answering this question allows you to beginto access what really matters to you at work.For our part, we wanted to understand whatwas common across thousands of peopleabout that question; what kind of workexperiences and environments brought thatout in them. Our ‘Four Paths’ model grewout of this data. At the individual level, it’sabout recognizing the ‘DNA’, if you will, ofwhat engages you. And you can often figurethat out by looking at the experiences atwork that somehow stand out.

KC: For your book Awakening CorporateSoul, you interviewed more than 3,000people as to where they found ‘soul’ intheir work. What did they tell you?

JI:This is what led to the ‘Four Paths’ model.First, the path of self. People were happydoing work that was aligned with their gifts,things that they loved to do. It’s amazing howeasy it is to fall into a job that isn’t alignedwith your gifts.That’s when the 150 per centquestion helps. You begin to realize, ‘whenI’m doing these particular things, I am com-pletely engaged’.The second path is the pathof contribution, where people felt like theirwork was making a difference to somethingthat mattered to them, they could see thattheir work had purpose, that they were mak-ing a difference in the lives of customers.Pride in your employer and the work you doenhances engagement significantly. Third isthe path of craft, where excellence comes in,and challenge. We discovered that most ofthe time when people talk about a greatwork experience, they talk about challeng-ing times; and most of the best places towork in the world are also high-expectationplaces. So craft is about excellence at thepersonal level, but also learning and growingand being in a place you’re proud of. Peopletold us, ‘I loved working at that place,because we were good.’ And finally, there’sthe path of community. When people talkedabout soul and work, it was about the rela-tionships they had with other people thatoften revolved around three simple things:first, did I feel appreciated and cared aboutas a person, beyond the job function? Ialways tell managers that the idea of ‘notgetting too personal’ with your employees is

ridiculous. People tell us that they like beingcared about as a person, rather than just anumber or a name. Second, is this a placewhere I can speak up and share my ideas, andmy ideas count? Do we tell the truth to eachother? And do I like the people I work with?Do I have a sense we are all rowing in thesame direction? In that way, organizationsthat tolerate poor performers really dimin-ish the soul.

KC: What advice do you have for read-ers who aren’t happy with their currentwork-life balance?

JI: The current work environment is sodemanding. When I ask people, ‘how areyou?’, I’m always surprised how, at all lev-els of the organization, part of the answerwill be, “...but I’m so busy”; “...but there’stoo much”. One executive at a bank, when-ever I ask him, says, “John, it’s like waterfrom a fire hose. It’s all good water, but I’mdrowning.” So I think that people have tolearn to ask for what they need. I alwaysthink of a woman at a law firm, who was ina meeting one night at 6 pm – which was aregular occurrence; and she just stood upand said, “You know what, I’m not staying.I haven’t been home for dinner in twoweeks. I need to go home. This can waituntil tomorrow.” And to her surprise, twoor three others said, “I agree. I’m goingtoo.” That’s an example of how we have tostand up for what we want at work, becausethere are often others with the samedesires. Another woman told me that whenshe looked for a new job, she negotiated anearly departure time three days every weekso she could spend time with her children.There’s this whole culture of overwork andover-commitment that has emerged in cor-porations, and it’s bigger than theindividual, so we have to ask for what wewant. And sometimes we have to take theconsequences, if it’s that important to us.

John Izzo is the co-author of Awakening Corporate Soul: Four

Paths to Unleash the Power of People at Work (Fairwinds Press1999) and Values-Shift:The New Work Ethic and What it Means

for Business (Fair Winds Press, 2006), and founder of TheIzzo Group, an international training and consulting firm.Raised in New York City, he holds a PhD in OrganizationalCommunication from Kent State University and lives inVancouver with his wife and three children.


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Stephen Watt: We’ve been hearing a lotabout word-of-mouth lately, both in themainstream press, and in academic cir-cles. What is it exactly, and what makesit such a significant marketing trend?

Andrea Wojnicki:Word-of-mouth is definedas consumer-to-consumer communicationregarding products, services or brands. Itcan be positive or negative, solicited orunsolicited, and depending on the context,

it verbal or non-verbal.Word-of-mouth hasmany synonyms that readers have probablyheard of, including ‘buzz’, ‘viral market-ing’, and ‘consumer-generated media’.People are sloppy with the term – evenmarketers and journalists aren’t consistentwith what they mean by word-of-mouth.

Word-of-mouth marketing refers to thevarious tactics that marketers employ toencourage consumer-to-consumer com-munication. For many people, word-of-mouth marketing has become synonymouswith stealth marketing, which is unfortu-nate. Stealth marketing is defined as ‘tacticswhere marketers pose as consumers ordon’t reveal their identity’.This is basicallydeceptive marketing–it’s the subliminaladvertising of the new millennium. Fortu-nately, the word-of-mouth marketingcommunity has come together under the

Word-of-Mouth Marketing Association,and they’ve created a code of ethics that isall about transparency, identifying who youare, and whether or not you’re being com-pensated for your messages. One significantthreat to the word-of-mouth marketingindustry is unethical marketers who maytaint the rest of the industry.

The current popularity of word-of-mouth among marketers derives fromseveral factors. As far back as the 1940s,

research demonstrated that word-of-mouthworks because it is credible.The message isusually coming from someone you knowand trust. So compared to traditional mar-keting messages, word-of-mouth messagesmay have higher integrity, but they alsohave better reach, more personalized mes-sages, and better timing. Word-of-mouthfacilitates things like the diffusion of inno-vations, competitive pricing, and even theformation of social movements. It is morepowerful than ever today, for two main rea-sons. First, there are many issues plaguingtraditional mass media, including costissues and cultural issues, as consumersbecome savvier and marketers become lesscredible. There are also technologicalissues–like people zipping and zappingaway from TV commercials with theirremotes or their PVRs. Second, WOM is

becoming a more impactful force in themarketplace due to communications tech-nologies. Obviously the internet and evencell phones are making it easier for peopleto talk to more people more often.This hasan exponential effect on communication.While some of these forces that propelword-of-mouth are recent, I don’t thinkthey are going away, and neither will word-of-mouth. Certainly, consumers will alwaystalk to other consumers.

SW: Let’s look at some examples of prod-ucts or services that have achieved iconicstatus primarily through word-of-mouth.

AW: One famous example is Hotmail,which put a message at the bottom of everye-mail message saying, “Get your free e-mail at Hotmail.” That strategy of viralmarketing helped Hotmail grow exponen-tially in a short period of time. In otherindustries, The Blair Witch Project was amovie that had negligible traditional mar-keting behind it, but did well on a smallbudget.The producers came up with ratherinnovative ways of seeding interest on theInternet, by creating a Web site that fed themystery of whether the film was a work offiction or not. The whole movie wasdesigned to get moviegoers to ask, “Is thisreally real? Did it happen?” The moviebecame part of our conversational agenda.Additionally, many brands in the toy cate-gory have benefited from word-of-mouthamongst kids and parents. Consider Poké-mon, Beanie Babies, and even CabbagePatch Kids, way back in the 1980s. Ishould clarify that word-of-mouth oftenoccurs at a very local level.There’s a sign on

Faculty Focus: Andrea Wojnicki

Delighting Customers and Influencing PeopleThe marketing professor and word-of-mouth expert talksabout WOM’s current popularity, how to delight customers,and why some people are more influential than others.

Word-of-mouth facilitates things like the diffusion of innovations,competitive pricing.

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the wall of my dry cleaner that says, “If youthink our service is great, please tell yourfriends. If you don’t, please tell us.”They’reencouraging positive word-of-mouth. Evenat a very local, grassroots level, word-of-mouth is happening all the time.

SW: You’ve worked as a brand man-ager for Kraft Foods and a researchconsultant with General Motors, andyou are currently on the advisory boardof the Word-of-Mouth Marketing Associ-ation. What lessons did you learn in thecorporate sector that inform your cur-rent research?

AW:At Kraft, I was asked more than once tocreate a word-of-mouth marketing campaignfor a product.When my brand team sat downwith our agency, we realized we had no ideahow to create a word-of-mouth campaign.We had this notion that if you make some-thing really newsworthy and shock people,they’ll talk about your product. So when Istarted my academic research on the topic, Idecided to focus on the antecedents that willpredict word-of-mouth, rather than theimpressive effects. In layman’s terms, I’minterested in helping marketers understandwho’s doing the talking and why they’redoing the talking. Under what conditionsdoes word-of-mouth happen? What levers domanagers have to encourage word-of-mouth? Another interesting question that hascome up several times recently in my conver-sations with managers is whether there is adifference between online and offline word-of-mouth. Not everyone’s on the Internet,not everyone’s participating in blogs, andwhat is said and by whom online is not nec-essarily indicative of what’s going on in the

rest of the marketplace. I’m also interested inthe difference between word-of-mouthwhen it’s natural or organic, versus when it’sinduced or inspired by a marketer. Clearly,there are many important unanswered ques-tions in this domain.

SW: In The Tipping Point, Malcolm Glad-well refers to what he calls ‘connectors’– people with wide social networks whoare the source of the popularity of cer-tain products and ideas. You refer tosuch people as ‘social hubs’. When itcomes to word-of-mouth, why are somepeople more influential than others?

AW: Gladwell – in his work in The Tipping

Point and in other papers he’s written inThe New Yorker – has served as a huge inspi-ration for me. I can’t speak for him, but hewould probably agree that these people,who he calls ‘connectors’ and I call ‘socialhubs’, are similarly imperative to the suc-cess of word-of-mouth marketingcampaigns. Sociologists would define bothconnectors and social hubs as people who

are highly connected, or who have manysocial ties. In The Tipping Point, Gladwelltalks about randomly generating a list oflast names from the Manhattan phone bookand asking people from the area to checkthose names of people they know. Those

who know many on the list are called con-nectors. I created a short survey tomeasure if someone is a social hub. Similarto a connector, a social hub is someonewho has relationships with a lot of people;but the second part of the definition is thatsocial hubs actively work to connect peo-ple to each other. It’s not just that I knowA, B, C and D, it’s also that when I’m talk-ing to A, I tell them how great it would beto meet B, for a particular reason, whichcould be “You’re looking for a car? I knowsomeone who’s an expert in cars. Youshould talk to them before you make a pur-chase.”And last, social hubs connect peopletogether simply because they enjoy it–notbecause they are paid or compensated inany tangible way.

SW: In your recent work, you take onthe ‘common knowledge’ that con-sumers talk more when they aredissatisfied than when they are satisfied– that is, that there is more negative thanpositive WOM. Please explain.

AW: When I first started my research onword-of-mouth, I often heard this phantomstatistic that if a firm delights a consumer,that consumer will tell one other con-sumer, whereas if the consumer isextremely dissatisfied, she will tell ten peo-ple. I did some digging and found that

I’m interested in helping marketersunderstand who’s doing the talking and why they’re doing the talking.

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Coca-Cola did some research in the early1980s that concluded, “on average, twice asmany people are told about a bad experi-ence than are told about a goodexperience.” In the research study, theyasked people to remember what other people

told them, and they recalled twice as manybad stories as good stories. Since then, thestatistic has been exaggerated to a ratio often to one. And the context has changed.It’s no longer about people rememberingwhat was said, it is now about how peoplewill talk.

So, I decided to try to demystify thisphenomenon. In the research I conducted,I pinned consumers who had positive expe-riences against those who had negativeexperiences to see who would talk. Inter-estingly, the answer depends on whetheryou are an expert or a novice. My researchresults show that all else equal, expertswho had positive or satisfying experiencestalk significantly more than anyone else.Many people are surprised to hear this, butthe reason is actually very simple: self-

enhancement. People who have positiveself-esteem are motivated to make them-selves look better. Socially and personallythey want to encourage their reputation ofbeing high status or being an expert, andthey generally wish to associate themselveswith positive things. If they have a positiveexperience, and they speak positively aboutit, it will reflect positively on them. If theirrestaurant experience turned out to behorrendous, they’re not going to talk aboutit because they’re worried it’s going toreflect on them negatively and hurt theirreputation as an expert.

What it comes down to is this: whenconsumers talk about products and serv-ices, they’re not just talking about productsand services, they’re actually talking aboutthemselves. If I tell you about a restaurantthat is high-end or new and trendy, then

just by bringing it up in conversation, I’mcommunicating something to you about mypersonal taste, my affluence and my abilityto be ‘in the know’.

SW: Aside from self-enhancement, whatare other reasons word-of-mouth occurs?

AW: When I ask people why they recom-mend products, they always start by sayingit is based on altruism – to help people.Eventually, they admit there are also lotsof other reasons they say what they say. It

can be to test an opinion, for example. IfI’m not sure what I think about a movie Iplan to see or already saw, I may bring itup in conversation. Consumers may alsowish to reward a firm that has performeda great service. On the flip side, there areconsumer vigilantes who punish a com-pany for a negative experience, and whoessentially police the market. I have inter-viewed several consumers who havethreatened firms with negative word-of-mouth: “If you don’t give me a refund orexchange, I’m going to tell all my friendsnot to shop here.” And let’s be frank here,a lot of word-of-mouth happens for thesake of making conversation. People willtalk about what they have purchased justto have something to say. That said, youhave to give consumers credit. Somethingthat marketers should consider is thatregardless of the motivation, consumerswill only talk about things that are news-worthy. A neutral experience doesn’tstand a chance of being mentioned.

SW: What advice do you have for com-panies or marketers who want toleverage the power of WOM?

AW: My advice would vary depending onthe firms’ product and specific objectives.But there are three main points that apply

well for most marketers. The first is torespect the consumer. This seems obvious,but many marketers simply do not. Con-sumers are becoming savvier and canidentify ploys such as stealth marketing.They also have incredible means of commu-nicating about products and services, andwith the Internet, their power to do so isincreasing. There are websites that act asclearinghouses for negative or positive con-sumer experiences. When marketersconsistently respect their consumers, con-sumers can sense it and they respondpositively. If you truly respect the con-sumer and have confidence in yourproduct, you should seriously consider let-ting consumers take control of the brandand market it for you.

The second, related point is to be eth-ical, transparent, and identify who you are.Isn’t it interesting that so many marketersfeel that they have to hide themselves fromconsumers? Consumers often feel flatteredwhen they are chosen by a firm to sampleand talk about a product.The third point isto set appropriate objectives and thenmeasure your success. Again, this seems soobvious, but it is not the norm. If your goalis to increase awareness through onlineword-of-mouth, then you better starttracking online chatter. You could do thisin-house or hire a sophisticated onlineresearch firm to do this for you. But itdoesn’t have to be complicated. If your goalis to have people recommend your brand tonon-users, then you better start askingeveryone who buys something from youwhen and how they discovered your brand.This is the essence of Fred Reicheld’stenet in his book The Ultimate Question. Headvocates simply asking consumers,“Would you recommend this product orservice to your friend?”This is a wonderfulquestion because it is clear, easily meas-ured, quantifiable and actionable, and itcaptures the essence of customer loyalty.He labels consumers who answer “yes” asPromoters and those who answer “no” asDetractors. It is the job of word-of-mouthmarketers to encourage the Promoters todo what they say they will do.

Andrea Wojnicki is an assistant professor of Marketing at the Rotman School. She has worked for such leading compa-nies as Kraft Foods Canada,Toys ‘R’ Us, and General Motors.

There are consumer vigilantes who punisha company for a negative experience,and who essentially police the market.

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DoFirms with UniqueCompetencies HaveSpecial Obligations?by Thomas Dunfee

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Thomas Dunfee

Global pharmaceutical companies are underextreme pressure to substantially increasetheir efforts to mitigate the AIDS catastrophein Sub-Saharan Africa. Defining the natureand scope of their obligations in this contextis a task required of the firms’ management,public officials and business ethicists.

As a starting point for this analysis, it ishelpful to consider the nature of an individ-ual’s duty of rescue in comparablecircumstances. Toward that end, considerthe following case. Sixth graders visit ahoney farm as part of a class outing. Atwister strikes the farm, breaking the hives,and causing an angry swarm of bees to stingmany of the children. Adult bystandersobserve the mass stingings and quicklyidentify five children with life-threateningallergic reactions. A policeman and thefarm’s manager attempt to treat the dis-tressed children, but they do not havespecial knowledge about bee sting reactionsand their interventions are not effective.Allfive children die.

Subsequently, it is revealed that one ofthe adult observers was a doctor specializ-ing in allergic reactions who had medicinesand equipment with her that might haveenabled at least one or two of the childrento survive. When questioned, the doctorexplains that she did not intervene because :

• the medicine in her bag was very valuableand belonged to the owners of the prac-tice group with which she was associated[a property rights argument];

• it was not her proper role to take actionbecause the policeman was the publicofficial in charge and if the policemanknew that he did not have special knowl-edge, he should have surveyed the groupto determine relevant expertise and thendetermined how resources should be allo-cated [a role-based argument];

• she had committed to teaching a group ofdisadvantaged children how to play theflute after the honey farm tour and hadshe intervened, she would not have beenable to live up to that commitment [anargument based on a prior, competingcommitment]; and finally

• she, as a doctor, knew that it was impos-sible to save all five children and she didnot consider herself an appropriate per-son to make triage judgments in thesecircumstances [an argument based onlack of competency].

Does the doctor have a moral obliga-tion to use her knowledge and medicine torescue one or more of the children? Is theobligation discharged or waived by the jus-tifications offered by the doctor?

These questions have relevance forglobal pharmaceutical firms in relation tothe devastating AIDS catastrophe in Sub-Saharan Africa because the firms possessunique competencies for rescue of the vic-tims.The explanations offered by the doctorare analogous to those that have been ormight be offered by the global pharmaceuti-cals as a way of refuting or limiting a claim

that they have a moral obligation to increasetheir existing commitments to mitigatingthe AIDS catastrophe.

Defining a Human CatastropheBefore we can evaluate whether pharma-ceutical firms have special obligations, it isfirst necessary to note the scope of the cur-rent pandemic. The UNAIDS 2004 reporton the Global AIDS pandemic documentsits shocking devastation in Sub-SaharanAfrica.A few salient facts are all that is nec-essary to detail its ravaging impact: in2003, 2.2 million people died of AIDS inSub-Saharan Africa, while another 3 millionbecame newly infected. In 2001, a total of28.5 million people were infected withHIV/AIDS in the region. Of the 28.5 mil-lion, fewer than 30,000 were receivingtreatment with antiretroviral drugs. In theseven Sub-Saharan countries where theprevalence of AIDS is greater than 20 percent, the average life expectancy is 13 yearslower than it would be in the absence ofAIDS.Virtually hundreds of similarly grue-some factoids could be presented. TheAIDS catastrophe in Sub-Saharan Africa isso well known and widely documented thatfurther elaboration is unnecessary.

The AIDS pandemic in Sub-SaharanAfrica easily meets the criteria of a gravehuman catastrophe. AIDS involves seriousdebilitation, often resulting in death, par-ticularly without treatment. Tens ofmillions are affected as the disease not onlytakes its toll on those who are directly

The emerging concept of corporate citizenship entailsmembership in a global community where citizenshave duties to respond to the needs of fellow citizens.

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infected, but also on governments andbackground institutions essential for pro-viding necessary social goods. It is difficultto think of a stronger example of a contem-porary human catastrophe.

Defining Corporate ObligationA unique catastrophe-rescue competencyand its corresponding role-based obligationis based on the relationship between a givenfirm (or industry) and a specific grave humancatastrophe. In order for a firm to qualify ashaving a unique catastrophe rescue compe-tency, the following must be established:

1.The core competency must enable thefirm to mitigate or alleviate the sourceor cause of the catastrophe, or enable itto respond to the devastation caused bythe catastrophe.

2.The firm must have the capability to actto mitigate or alleviate the catastrophe.This would require that it have availableresources that can be applied in a con-text in which they have reasonable accessto relevant people and areas. Thus,GlaxoSmithKline would not have acore mitigation competency in relationto an AIDS catastrophe in North Koreabecause of an inability to obtain access.

3.The firm must have a comparative advan-tage in its ability to respond so that noother firm or entity can be identifiedthat would be more effective in respond-ing.This is a critical element for insuringthat the uniqueness criterion is present.

Note that the critical comparativeadvantage criteria is defined so as to recog-nize that a number of, though notnecessarily all, firms in an industry mayqualify. This result follows from definingthe test so that a firm has a unique rescuecompetency so long as no other firm has a

greater competency.

The global pharmaceutical firmswould appear to be paradigmatic examplesof firms having unique catastrophe rescuecompetencies in relation to the Sub-Saha-ran AIDS catastrophe: the catastropheoverlaps with their core competencies, par-ticularly for those firms that produce ordistribute the drugs commonly used in

current treatment regimes; they holdpatents on essential drugs; they have specialknowledge concerning treatment regimes;they know about promising research leadsfor future treatment strategies; they eitherown manufacturing facilities or have specialcontractual relationships with suppliers;they have experience with transportinglarge quantities of drugs; and they haveexperience with educating medical staff inthe use of the drugs. The uniqueness oftheir position is strengthened by the factthat they hold legal rights that may restrictothers from providing relief without alicense. Even governments and public agen-cies are dependent upon the firms.

In most cases, the global pharmaceuti-cals have or can obtain access to employrepricing and other strategies to combat thecatastrophe. In many cases, those who con-trol access are demanding that the firms domore, so that access does not appear to bean issue. Thus, because of their patent pro-tection, productive resources andspecialized knowledge, the case can bemade that the global pharmaceuticals havecomparative advantages over other possible

providers, including other private-sectorproviders, NGOs and government agencies.

In contrast to the global pharmaceuti-cals, other pharmaceuticals that lack corecompetencies pertaining to HIV/AIDSwould not have a duty of rescue. In addi-tion, non-pharmaceuticals that areactively engaged in fighting the AIDScatastrophe in Sub-Saharan Africa wouldnot be considered to have unique catastro-phe rescue competencies.

The Coca-Cola Company forinstance, has delivered AIDS testing kits tohospitals in Nigeria and has made billboardsavailable for awareness campaigns in Kenya.There was even consideration that Coca-Colatrucks might deliver condoms to high risk

areas. Even though, as a large employer witha substantial fleet of trucks, the company hascomparative advantages in delivering items,there are other sources of delivery and thedelivery process is not the critical componentof the treatment of AIDS. Thus, Coca-Colawould not be a firm with unique humancatastrophe rescue competencies (‘UHRC’)in relation to this particular catastrophe,because it falls short on the uniqueness crite-rion. Coca-Cola is nevertheless to becommended for its voluntary efforts that do,after all, involve its core competencies andcore values and which, hopefully, will con-tinue. Non-UHCRC firms also need todevote substantial resources toward aidingthe victims of this grave human catastrophe.

Only a sub-set of the global pharma-ceutical firms would have uniquecatastrophe-rescue competencies concerningAIDS: those firms that produce, hold patentsto, or distribute drugs that comprise essen-tial components of the current treatmentregimes would qualify; other less-criticallypositioned firms would not. Because of thenarrow definition used, only a small set offirms in any given era would qualify as having

unique rescue competencies in relation tovictims of a qualifying catastrophe.

A Statement of Minimal Moral Obligation I propose the following Statement of Mini-mal Moral Obligation (‘SMMO’): firmspossessing a unique human catastrophe res-cue competency have a moral obligation todevote substantial resources toward bestefforts to aid the victims of the catastrophe.Unless financial exigency justifies a lowerlevel of investment, they should devote, at

a minimum, the largest sum of:

1.Their most recent year’s investment insocial initiatives;

In most cases, the global pharmaceuticalshave or can obtain access to employrepricing and other strategies to combatthe catastrophe.

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2.Their five-year average of investment insocial initiatives;

3.Their industry’s average investment insocial initiatives; or

4.The average investment in social initia-tives by firms in their home nation.Theymay devote a portion of those resourcesto concurrent social initiatives only ifthere is an equally-compelling rationalefor such an investment.

Due to the stringent definitions ofcatastrophe and unique competencies, onlya few firms will be subject to the specialobligations established by this statement.Because the proposal imposes an excep-tional burden, it must be limited to trulyexceptional circumstances.That is why it isimportant to restrict the definition to gravehuman catastrophes.

For similar reasons, there will rarely bea qualifying competing social initiative thatwould justify a concurrent investment.Merck’s extensive continuing efforts tocombat river blindness disease through dona-tions and distribution of Mectizan wouldprobably qualify as an equally-compellingconcurrent social investment. So, obviously,would be efforts to combat AIDS/HIV inother parts of the developing world.

The SMMO imposes a highly-circum-scribed restraint on the fundamentalproposition that beyond areas of legal com-pulsion, firms have moral free space todecide the scope and nature of their com-mitment to social issues. Instead, theSMMO recognizes that there are extremecircumstances in which a moral analysis ofsocial responsibility requires more.

Constraints on contractual dealingsare, of course, prima facie inconsistent withthe model of self-assumed obligations: peo-ple should be able to incur or to avoid anyobligations they wish, as long as all partiesto the contract agree. Constraints, how-ever, make perfectly good sense within themodel that traces special responsibilities tothe peculiar vulnerabilities of the partiesinvolved in the relationships.

With the SMMO, the limit on theright of voluntary action (or inaction) inthe area of social initiatives is quite con-strained. A compulsory, pure duty ofrescue arises only in the extreme circum-stance where a firm has a unique capacity

to aid the victims of a recognized humancatastrophe. Although this may seem to bea departure from accepted norms concern-ing the voluntary nature of proactive socialresponsibility, in fact many firms express ingeneral terms a commitment to enhancinghuman welfare.

This is particularly true of the firms inthe global pharmaceutical industry whichhave, by and large, recognized a fundamen-tal commitment to improving humanwell-being. For example:

“The mission of Bristol-MyersSquibb Company is to extend and enhance

human life.” (italics in original), taken fromwww.securethefuture.com; and “Our busi-

ness is preserving and improving humanlife. All of our actions must be measured byour success in achieving this goal,” takenfrom ‘Our Values’ statement by Merck,www.merck.com/about/mission.html.

These shared core values are particu-larly relevant to their role in the AIDScatastrophe.Whether they were pressuredby public censure that “brought the manu-facturers of AIDS medicines close topariah status in U.N. forums,” as someclaim, or they spontaneously developedAIDS-related social initiatives, the globalpharmaceuticals have now expressed long-term commitment to their existing AIDSrelief projects and have connected them totheir core values.

Henry McKinnell, chairman andCEO of Pfizer, stated in reference to thefirm’s Diflucan® Partnership Program, “Wewill support this initiative for as long as it isneeded.” Jean-Pierre Garnier, the CEOof GlaxoSmithKline, emphasized hisfirm’s “commitment to playing an integralrole in the global response through sustain-able preferential pricing, partnership andcommunity investment” and research.

There can be little doubt today of theconnection between the core values of theglobal pharmaceutical industry and aidingthe victims of the AIDS catastrophe.

Does the SMMO Impose an Unfair Burden on Firms?A final important question remains. Is theimpact on UHCRC firms unfair? Whyshould they be singled out for a special bur-den not expected of most other firms andindustries? The pharmaceuticals might notethat because of the nature of their business,they are much more likely to be associatedwith a grave human catastrophe than mostother industries. Would for example, theimposition of special duties on firms in thisvital industry have the unintended effect ofinterfering with the efficient allocation ofinvestment? Might firms steer away fromdeveloping core competencies relevant to

major catastrophes? Or, does the continuing nature of this

particular catastrophe create an opportu-nity for ‘free riding’ that might work to thedisadvantage of those firms that live up totheir moral obligations? Might some firmslag back, not meeting their moral obliga-tions, while their competitors aredisadvantaged by using resources to helprescue victims of the catastrophe? Or, morebizarrely, might some firms eschew theopportunity to develop capabilities thatmight place them at risk for the moral obli-gation of the SMMO?

This is similar to the argument some-times made that the liability rules in theU.S. have had the perverse impact of delay-ing or forestalling the invention andimplementation of safer products becauseto do so would be to appear to admit thatexisting products are unsafe, therebyenhancing liability. It is not inconceivablethat the current controversy and theincreasing demands made upon the globalpharmaceuticals is discouraging newinvestment in certain AIDS/HIV medi-cines. Finding a new AIDS treatment hasbeen described as, “a nightmare,” and “apoisoned chalice.”

One should keep in mind that theSMMO delineates a moral obligation, not a

“Because we can, we must.”Bono, Graduation Address,

University of Pennsylvania, May 17, 2004

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precise set of laws, and thus the level ofcompulsion is lower. Further, the SMMOprovides significant caveats that wouldallow firms to protect themselves againstthe negative impacts of free riding. Forexample, firms are entitled to considerserious financial constraints or the goodthat occurs from their other social invest-ments in determining the nature and scopeof their obligations to catastrophe victims.It is difficult to imagine a moral obligationof the sort set forth here forestalling theadoption of a profitable technology as ameans of avoiding having to make socialinvestments. The standard set forth in theSMMO might actually help firms with a

rescue duty in the sense that it would estab-lish an upward boundary on the obligation.If the SMMO were to become law, thedrafters should be sensitive to any potentialperverse effects.

The seeming intractability of the AIDScatastrophe raises a similar concern, as it isexpected to continue for the foreseeablefuture. Under that scenario, the globalpharmaceuticals would be constrained bythe SMMO for decades, even centuries. Onthe other hand, by encouraging the com-mitment of more resources toward findinga resolution to the catastrophe, the SMMOmight have the effect of shortening the timein which the AIDS pandemic meets the def-inition of a grave human catastrophe.

ConclusionSome may consider the statement of a min-imal moral obligation advanced here to beradical on first impression.After all, it takesthe discretion to choose social investmentsaway from management and in some cases,imposes an obligation to increase the totalamount of social investment.

The potential spillover from a failureto make sufficient efforts to rescue the vic-

tims of this catastrophe might seriouslyaffect the reputations of the global pharma-ceuticals. Some firms may take theapproach of disclosing that their corporatevalues do not support private social inter-ventions. In that case, the firms’ variousstakeholders become aware of the basis formanagement’s position and may take what-ever actions they find appropriate.Prospective employees may decide whetherthey want to work for the firm. Investorsmay consider this in their purchase deci-sions. Socially screening mutual funds mayuse the information in deciding whether toinvest. It has yet to be established whetherthese ‘moral’ markets have had significant

impacts on the operations of particularfirms, but there is always the possibility thatan egregious example might produce anidentifiable moral market impact.

Of even greater concern, it may result

in funding being taken away from other wor-thy social investments, such as support of thearts or community programs. However,although donations to the arts are unques-tionably worthy, they do not sustainjustifications equivalent to the need for com-mitment to the rescue of the victims of theSub-Saharan AIDS catastrophe. In fact, theymay not even fit the standards for good qual-ity run-of-the-mill social investments: theliterature increasingly advocates that firmsfocus on social initiatives that are connectedto their core values and core competencies.

The emerging concept of corporateand business citizenship supports recogni-tion of the duty established in the SMMO.Citizenship in this sense equates with mem-bership in the global community. Citizenshave duties to the broader community toobey laws, act consistently with generally-established norms, and respond to theneeds of fellow citizens; and by supportingthe global community, businesses help tomaintain a supportive environment forbusiness activity.

Thomas Dunfee is the Joseph Kolodny Professor of SocialResponsibility in Business and professor of Legal Studiesand Business Ethics at The Wharton School of Business. Heis the co-author of Ties That Bind: A Social Contracts Approach

to Business Ethics (Harvard Business School Press, 1999). Hisfull paper on this topic was published by Business Ethics Quar-

terly (16(2): 185-210).

The SMMO recognizes that there areextreme circumstances in which amoral analysis of social responsibilityrequires more.

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Karen Christensen: Studies show that theoverwhelming majority of people begin anew job with a sense of enthusiasm. Butafter a six month ‘honeymoon’ period,there are significant drops in morale in 9out of 10 companies. Why is this?

David Sirota: Our surveys of employeesshow this drop in the overwhelming major-ity of companies. It happens because it’svery difficult to be enthusiastic about anorganization that is demonstrably unenthu-siastic about you. And that shows up invarious ways; for one, over the last 25

years, companies – especially large ones –have been moving away from ‘paternalistic’management towards what I call a ‘transac-tional’ form of employee relations culture,where employees are treated as transac-tions, as ciphers, and almost as disposablepaper clips. So if profits go down by two orthree per cent, then the workforce will bereduced by two or three per cent. Some-times, business doesn’t even have to besuffering; but in order to impress WallStreet short-term, people are laid off. Theconsequence of this is that employees don’tfeel valued by their organization, so why inthe world would you expect them to valueit? Another reason is that people join an

organization excited about working there,about learning new things, meeting theirco-workers and their boss, but they findthat there is very little recognition fordoing a good job. Of course, you hear rightaway if you make a mistake. It might seemalmost corny or trite, but being recognizedfor good performance – not necessarily bigformal awards or anything, just your bosssaying to you, ‘thank you for working 16hours straight; thank you for the job youdid on that report’, is critically importantto human beings – from early childhoodthrough our entire career.

A third factor is that people are enthu-siastic about their new job, but they cometo work and get treated like children, orcriminals. This is especially true with largemasses of workers in factories or ‘whitecollar factories’ such as back offices ofbanks, or insurance companies or call cen-tres, where people are very closelysupervised. Even though the overwhelmingmajority of these employees come to workwanting to work, they get treated as if theydon’t want to work.What you get is a self-fulfilling prophecy: treat people likechildren or criminals, and sure enough,they turn out to be like that. Another thingthat depresses morale is the enormous

obstacles workers find at work, just to get-ting their jobs done: lack of training, lack ofequipment, poor communication, bureau-cracy, redundant paperwork – all of thesefactors de-motivate people. Then you havethe minority of organizations, about 14 percent of them, where morale does not drop– the honeymoon lasts throughout anemployee’s career. And those are compa-nies that don’t behave in this manner.

KC: You have said that in terms ofemployer-employee relations, there is athird alternative: partnership. Describe itfor us.

DS: Partnership entails treating people likeresponsible adults who are allies with you ingetting the job done – as opposed to pater-nalism, which treats people like children, ortransactionalism, which treats them as invis-ible objects (or a fourth approach,adversarial, which treats them like enemies.)Treating people as allies means that youcommunicate fully with them, you listen tothem, you treat them with respect, you helpthem do their job better by not puttingobstacles in their way. Business partnershave high standards for each other in termsof performance. It means sharing withemployees the financial gains of the business.So with layoffs, in companies with a realpartnership culture, when things aren’tgoing well, you have ‘pain sharing’, wherepeople at all levels take cuts in their pay, andwhen things are going well, you have gainsharing, where partners share the financialrewards. But again, it’s a whole packagehere; it involves input into decision making,listening to each other, communicating,sharing financially, and so on.

Questions for: David Sirota

The Importance of TreatingYour Employees as AlliesThe author and consultant talks about why employee morale drops after six monthson the job, and the importance of treating your employees as allies.

Even though the overwhelming majorityof employees come to work wanting towork, they get treated as if they don’twant to work.

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KC: In your research, you have found the‘job satisfaction norm’ to be 76 per cent.That sounds very high. Talk a bit aboutthe significance of this number.

DS: Job satisfaction means something veryspecific: it means liking the job itself. So I candislike my boss, or hate the company, but Ilike, for example, being a salesperson. Thenumber is that high because people typicallychoose jobs that they like to do. Take, forinstance, blue collar workers on an assemblyline: you might think that you’d be bored totears if you had to do that job; and that, bythe way, is why you’re not doing it! Otherpeople are doing it, and they’ve chosen it.There are exceptions of course – people getstuck in jobs they can’t get out of, or maybethey’re set to retire in five or ten years, sothey do jobs they don’t like – but by andlarge, we find satisfaction with the workitself to be very high. But job satisfaction isjust one component of morale. There’s allthis mythology that people hate their work –or that they hate to work, period – but wedon’t find that to be true at all.

KC: You believe that there are three pri-mary sets of goals that apply to 85 to 90

per cent of the workforce. Describe your‘Three Factor Theory’ for us.

DS: In our research we have found that thereare three major goals that people have atwork: number one is equity – the basic con-ditions of the job: to be paid fairly andcompetitively, to have fair benefits, goodworking conditions and safe conditions – thebasic conditions of employment. Second isachievement, which can be summarized asbeing proud of what you do and of theemployer you work for. People want towork, and they want to be proud of the qual-ity of their work; they also want to be proudof their employers, and for them to be anemployer that produces high quality productsand services, that is ethical – that’s terriblyimportant to people. Third is camaraderie –to have productive, good interactions withone’s fellow workers. That’s also terriblyimportant to the vast majority of workers.Now, there are exceptions to these rules; weestimate that about five per cent of any work-force is ‘allergic’ to work; they get up in themorning and break out in hives thinking theyhave to go to work. But that’s a very tiny per-centage. One of the problems is that this fiveper cent that are allergic to work, manage-

ment often generalizes about them, treatingeveryone as if they don’t want to work.

KC: We are constantly told that thereare important differences between theBaby Boomers and Generations X, Yand D [for ‘digital’]. Does each genera-tion really want different things fromthe workplace?

DS: No. Our research demonstrates clearlythat a lot of what people talk about as ‘gen-erational differences’ is malarkey.The threegoals I mentioned above are true of all gen-erations. Some researchers are taking verysuperficial differences like the way peopletalk or dress, the music they like, and theymake that into a big deal about differencesbetween generations. My father, who was ablue collar worker, wanted to be proud ofwhat he did; I want to be proud of what Ido; and my daughters want to be proud ofwhat they do.These are three very differentgenerations. The older generation tends tolook at the younger generation of peopleaskance and say, ‘they aren’t as loyal as mygeneration’;‘they don’t have the same workethic’ – but most of that is baloney.We havefound no significant differences.

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KC: Talk a bit about how ‘enthusiasm’ ismanifested in the workplace.

DS: Simply put, enthusiastic employees doas much as they possibly can.‘Discretionaryeffort’ is the effort people put in that theydon’t have to put in.You as an employer say,‘this is what we expect of you’, and theseindividuals go and do that and more.They goout of their way to perform at extraordi-nary levels, to satisfy their customer, aboveand beyond what’s required.We’ve all seenthe opposite of this: think of the airlineindustry, where passengers are oftenreferred to as ‘seats’; or in hospitals, somenurses will refer to patients as ‘beds’. Thecompanies with a demonstrably enthusias-tic workforce – like Southwest Airlines,like Intuit, like Barron’s, or FederalExpress or the Mayo Clinic – large per-centages of these workforces are reallythere to do their utmost, rather than justwhat they ‘have’ to do.

KC: You have said that there are certaingroups of employees who are justabout impossible to motivate – including‘angry employees’ and workaholics.Please discuss.

DS: Most people want to be proud of whatthey do; but as I mentioned, at theextreme you have that five per cent who,for whatever psychological reason, justdon’t want to work.You cannot motivate

them, other than with a baseball bat.At theother end of the spectrum are the worka-holics, who you don’t have to motivate.Most people will work the required hours,but they have lives outside of work: worka-holics, in a sense, don’t have personal lives.Work is life for them. So at each end youhave these extremes, but what we are mostinterested in is the 90 per cent in between.These people want to work, and to beproud of what they do – but it’s quite easyto de-motivate them.The real issue here ishow to keep managers from killing moti-vation, because people naturally bringmotivation to the workplace.

KC: Just how important is employeeenthusiasm to the bottom line?

DS: Studies show a very strong relationshipbetween the morale of a workforce andlong-term business success. Treating theworkforce as an asset is a long-term com-mitment. There are two forces thatdetermine the success of any company:number one, the competence of seniorpeople, especially the CEO, and the strat-egy; and second, the caliber of thefollowers – will they execute that strategyto its utmost? And that’s what you get froman enthusiastic workforce.

Employees today are seen as less loyal,and in fact they are less loyal – but notbecause they want to be! They aren’t treatedloyally, and who in the world is going to beloyal to an organization that doesn’t treatthem loyally? If you ask people, ‘if condi-tions change, would you like to stay here?’,very often the answer is yes, but very oftenthey don’t believe the conditions willchange. After 9/11, when all the airlineswere laying people off left, right and centre,Southwest Airlines’ chairman made a state-ment to the effect: “Yes, Business 101teaches that we should be laying people off;but no, we’re not going to, because they are

our most important asset.We’ve invested alot in them and we’re probably going to takea hit in the stock market (which they did),but we are keeping them anyway.” Cases likethis show that loyalty is far from dead.

David Sirota is co-author of The Enthusiastic Employee: How

Companies Profit by Giving Workers What They Want (WhartonSchool Publishing, 2005). He is founder and chairmanEmeritus of Sirota Survey Intelligence, and has taught atCornell,Yale, MIT and Wharton. Based in New York City,he holds a doctorate in Social Psychology from the Univer-sity of Michigan.

The real issue here is how to keepmanagers from killing motivation,because people naturally bring motivationto the workplace.

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Traditionally, job performance has beenmeasured in terms of specific task-relatedstatements and behaviours: did an employeeaccomplish the list of tasks set out in the jobdescription? Current approaches pay atten-tion to a much broader range of behavioursthat, when present, add value to an organi-zation by helping it achieve its goals and bycontributing to the social and psychologicalwork environment.

Various names have been given to suchbehaviours, including ‘organizational citi-

zenship behaviour’ (OCB) and ‘contextualperformance’, and they have been describedin broad terms such as altruism, sportsman-ship, courtesy, and civic virtue. Increasedattention is also being given to ‘deviant’ andaggressive behaviours in the workplace, asthe number of these incidents is on the rise.Generally speaking, counterproductivebehaviour can be defined as “intentionalbehaviour on the part of a member that isviewed by the organization as contrary to itsinterests”.The spectrum of counterproduc-

tive performance includes behaviours rang-ing from theft to poor quality of work.

My focus here is on a subset of thebehaviours that help peers or teams withorganizationally-relevant tasks: altruism,which involves helping and cooperatingwith others, and interpersonal facilitation,

which involves maintaining personal disci-pline, compliance and useful personalbehaviour. On the negative side, I will focuson personal aggression and unruliness, whichdescribe aggressive actions that are directed


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Citizenship &CounterproductivePERFORMANCEin the NBA & NHL


by Maria Rotundo

at coworkers or the organization and thatcreate a negative work environment.

Professional sports teams have beenexamined in organizational research toanswer a number of important questions.The present study relies on individual andteam-level data from the NBA and NHL toprovide objective measures of task, citizen-ship, and counterproductive performanceover time, in an effort to determinewhether these behaviours are ingrained inthe individual or dynamic and therefore,

possibly malleable for the betterment of anorganization.

Citizenship Behaviour in Professional SportsThe main goal of professional basketballand hockey players is to shoot the ball in thebasket or shoot the puck in the net. Hence,scoring a basket or goal is an example ofwhat the performance literature has tradi-tionally defined as ‘task performance’. Likeindividuals in most organizations, members

of sports teams engage in a variety ofbehaviours in the process of attempting toachieve task performance, some of whichare positive, and others negative.

For example, a player who is in posses-sion of the ball or puck may pass it to ateammate who is in a better position toscore, and if that teammate scores, an assist

is recorded for the player who passed theball or puck. An alternative action in whichthe player can engage instead of passing theball is to take a long shot, that is to shoot

Maria Rotundo

In the sports arena as in the office, leaders can decreasecounterproductive behaviour by engendering organizationalcommitment and preceptions of fairness.

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the ball or puck in an effort to score thebasket or goal himself and to increase his orher points per game.

The sports literature often labels play-ers who rarely pass the ball or puck, andinstead choose to take long shots, ‘ballhogs’ or ‘puck hogs’. In a profile ofLeBron James, the NBA’s number onedraft choice in 2003, one journalist wrote,“I love to watch LeBron pass. He’s notgoing to be a ball hog and take 25 shots anight.” Star basketball players are often crit-icized for playing ‘a one man show’ whenthey take too many long shots instead ofpassing to teammates. Thus, one couldargue that an assist is a ‘cooperative act’ that

helps team members and the team achievetask performance. Furthermore, it can beargued that an assist is an example of OCBthat falls under altruism, helping cowork-ers, or interpersonal facilitation.

Some researchers have argued that cit-izenship performance may be morerelevant or frequent in certain jobs than inothers.Thus, it is important to note that insports, the extent to which players engagein assists may depend on the position theyplay. For example, one of the responsibili-ties of a guard is to defend the net fromopponents.Thus, it is expected that guardswho obtain possession of the ball in theprocess of defending the net will pass it for-ward to someone who will attempt to scorea basket. One could argue that such ‘assists’are expected from guards and thus, are notas altruistic as assists by forwards: forwardsare expected to score, so one could arguethat an assist by a forward is more likely tobe viewed as an altruistic act, because theyare giving a teammate an opportunity toincrease his or her points per game.

Counterproductive Behaviour in Sports Another example of a behaviour that play-ers engage in while attempting to score agoal, defend the basket, or prevent theopponent from scoring is illegal body con-tact, which results in a penalty or a foul. Inhockey, a penalty occurs when a playercommits an infraction such as holding,cross-checking, roughing, or tripping,which leaves the team one player short forthe duration of the penalty.

In order for an organizational behav-iour to be considered ‘counterproductive’,two criteria must be satisfied: that the per-son intended to cause harm, and that thebehaviour is viewed by the organization as

‘contrary to its legitimate interests’. Thecriteria of ‘intent’ can be a tricky one todemonstrate. Nevertheless, the followingexamples are intended to illustrate two dif-ferent types of penalties, one that reflectsunintentional behaviour on the part of ahockey player and another that reflectsintentional behaviour.

Envision a player who is in possession ofthe puck and skating toward the net in anattempt to score a goal. A player on theopposing team attempts to steal the puckfrom him and in the process, accidentallytrips the player and is called for tripping. Inthis example, the player without possessionwas trying to steal the puck from the oppo-nent rather than trying to trip the opponent;however, the player failed in his objective tosteal the puck, made an error, or had poorskill in stealing the puck. In this example,the player did not intend to cause harm.

Contrast this example with the follow-ing situations: a player is checked legally byan opponent and retaliates with excessiveaggression or instigates a fight and is given apenalty; or, a player illegally cross-checks

the opponent from behind in an attempt tostop an opponent from getting to the puck.In these examples, it is more difficult toargue that the player did not ‘intend’ tocause harm. In a more extreme example of‘intent to harm’, a player punches an oppo-nent repeatedly, as was the case whenAnaheim’s Jim McKensie punched Dallas’Darryl Sydor continuously in the back ofthe head, even though Sydor lay facedownon the ice. McKensie’s behaviour is said bysome to have been premeditated. Thus, itcould be argued that penalties in whichintent is clear fall under personal aggression

(defined as aggressive or hostile acts towardsother individuals) because the behavioursthat lead to penalties involve aggression thatexceeds the appropriate limits specified inthe rulebook. In the two very differentexamples above, the behaviours that pro-duce the penalty calls differ in whether ornot they are intentional, and hence inwhether or not they satisfy one of the crite-ria for counterproductive behaviour.

The second criterion is that the behav-iour must run “contrary to the interest ofthe organization”.A penalty clearly puts theteam at a disadvantage, because the teammust play one player short for the durationof the penalty, making it easier for theopponent to score, and reducing the likeli-hood that their own team will score duringthe penalty. In fact, 27 per cent of the totalgoals scored during the 2003/04 NHL sea-son were power-play goals . Thus, since apenalty puts the team at a disadvantage, itsatisfies the second criterion for counter-productive behaviour.

Hockey has a reputation for being anaggressive and even violent sport. Somecritics argue that fighting is so commonplacethat players are increasingly worried aboutflagrant attacks. Observations like this onemake it easier to infer or argue that theoverly-aggressive behaviours that producepenalty calls are in fact intentional. In fact,there were 47 suspensions in the 2003/04season resulting from aggressive acts. Thus,certain behaviours that produce a penalty(i.e. instigating a fight, use of profanity) sat-isfy both criteria for counterproductivebehaviour, while others (e.g., tripping, highsticking) only satisfy the second criteria andarise naturally in the sport. Thus, not alltypes of penalties qualify as being labelled

Citizenship performance may be morefrequent in certain jobs than in others.Thus, it is important to note that in sports,the extent to which players engage in assistsmay depend on the position they play.

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‘counterproductive behaviour’ as defined inthe organizational literature. However, thereare enough examples in which intent can beinferred and that run counter to the inter-ests of the organization.

In basketball, players often attempt toblock a shot being taken by the opponent,and in the process, make illegal contactwith the player, and are called for a foul: apersonal foul is defined as illegal body con-tact between opposing players (i.e holding,charging, tripping, blocking, pushing, orinterference); a technical foul is unsports-manlike conduct such as the use ofprofanity or disrespectfully addressing anofficial. Fouls in basketball are not directlycomparable to penalties in hockey. Thus,we will discuss the extent to which a foul inbasketball satisfies the criteria for counter-productive performance.

On the criteria of intent, there aretimes when intent cannot be inferred. Forexample, fouls may occur when a player isattempting to block an opponent’s shot butmakes illegal physical contact instead. Inthis situation the player is not “intentionallyinflicting harm,” but rather trying toachieve task performance, and is unsuccess-ful in doing so. In this example, thebehaviour does not satisfy the criteria ofintent but does satisfy the criteria of “con-trary to the organizational interests,”because a player can be fouled out of thegame after reaching six personal fouls ortwo technical fouls, thereby reducing thetotal amount of playing time for that player.Furthermore, teams suffer when their starplayers are fouled out of the game.

There are also instances during a basket-ball game when players intentionally makeillegal physical contact with an opponent andintend to commit a foul, or when players orcoaches engage in profanity and are called ona ‘technical foul’. Some of these fouls arestrategic; for example, in the last minutes of agame, the losing team may decide to inten-tionally foul an opponent (forcing him to thefree-throw line) so that their team gainspossession of the ball after the free throw andhas a chance to score more points. A well-known example is the ‘Hack-a-Shaq’, whichoccurred when teams consistently fouled theLos Angeles Lakers’ center ShaquilleO’Neal during the 2003/04 season, when hisfree throw percentage was only 49 per cent.

In these examples, fouls are intentional,but although they satisfy the criteria ofintent, they do not satisfy the criteria of“contrary to the organization’s interest,”because the team believes it is in its bestinterest to foul the opponent, since it gainspossession of the ball and has an opportunityto score. However, technical fouls satisfyboth criteria.Thus, although all fouls in bas-ketball do not exactly fit the organizationalliterature’s definition of counterproductiveperformance, many fouls do.

The Stability of Performance Over TimeIn my study, I examined mean performancescores over time for evidence of change.Mean performance scores and correlationcoefficients were computed on 10-yearsworth of basketball and hockey player datafor assists and fouls, as well as baskets andgoals. Means and correlation coefficientswere also computed on 20-years worth ofteam data.

My first hypothesis was that OCB andcounterproductive performance aredynamic over time, and therefore are not‘engrained’ in an individual’s performance,and for the most part, the results supportedthis. For example, the average basketballplayer scores approximately 0.05 assists perminute in their first year, or approximately2.4 assists per game (assuming a 48-minutegame) and 0.04 assists per minute or 1.92assists per game in Year 10.The average bas-

ketball player scores approximately 0.16baskets per minute or 7.7 baskets per game(also assuming a 48 minute game) in YearOne and 0.12 baskets per minute or 5.7baskets per game in Year Ten. A review ofthe correlation coefficients indicates thatthe correlation coefficients become smalleras the time interval between yearsincreases. Thus, individuals are considered

to be ‘changing their rank’ over time, whichindicates the presence of dynamic criteria.

My second hypothesis was that individ-ual players will demonstrate varyingpatterns of changes in job performanceover time.At the individual and team levelsof analyses, my findings supported adecreasing trend for all three types of per-formance, with one exception:counterproductive performance in hockeyexhibited an increasing trend at the teamlevel of analysis.

Although the results provide supportfor a general decrease in performance overtime following a linear trend, one mayargue that the change in performance overtime is not extreme. For example, a visualinspection of the mean change in perform-ance over time for basketball players revealsthat performance is relatively stable. How-ever, the extent to which performancechange is practically significant can bedebated; for example, a decrease of onebasket or goal per game may explain thedifference between making it into the play-offs or not.

A similar inspection of the results forhockey reveals that performance increasesinitially and then decreases. One possibleexplanation for the difference in findingsbetween hockey and basketball is that,more often than not, basketball playersattend college and are drafted to the NBAduring or after college. However, hockey

players are more likely to join the NHLdirectly from high school. Thus, one couldargue that the average basketball playerwho attends college has anywhere fromtwo to four more years of practice over theaverage hockey player. Thus, the initialincrease in performance for basketball play-ers may have occurred during college, andhence we do not see the early increase in

There are times when intent cannot beinferred. For example, fouls may occurwhen a player is attempting to block anopponent’s shot but makes illegal physicalcontact instead.

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our data as we do with the hockey players.When I reanalyzed the hockey data,

excluding the first four years of player data,the results replicated those for basketball(i.e., performance demonstrated a decreas-ing linear trend over time). This findingsupports prior research which reportedthat task performance increases initially,and then decreases in subsequent years.Furthermore, this finding also supports thenotion that performance consists of transi-tion and maintenance stages.

ConclusionsPrior research has indicated that individualspossess different patterns of change in per-formance, and one objective of my studywas to investigate whether these findingsgeneralize to citizenship and counterpro-ductive performance. My findings indicatethat individuals do possess different pat-terns of change in both helping andaggressive behaviour.

Individuals and teams demonstrate dif-ferent performance patterns, and it is no

small wonder, given the varied environmen-tal inputs. My purpose here was to extendthe research on dynamic criteria to exam-ples of citizenship and counterproductiveperformance, namely altruistic acts andaggression or personal discipline respec-tively, at the individual and team levels.Theresults suggest that both types of perform-ance are indeed dynamic and demonstrate adecreasing trend over time, with one excep-tion: counterproductive performance forhockey players increases over time.

The findings that altruistic and aggres-sive acts are dynamic suggest that thesebehaviours are potentially malleable, and canbe therefore altered. This is consistent withthe body of research that suggests that differ-ent situational factors that result in differentlevels of citizenship and counterproductiveperformance. For example, an employee maybe predisposed to exhibit high organizationalcitizenship behaviour or counterproductivebehaviour, but may demonstrate differentdegrees of these behaviours, depending onthe environmental characteristics.

Prior research has shown that groupcohesiveness and transformational leader-ship are positively related to altruism, whileperceptions of unjust organizational policiesand practices have led to retaliatory behav-iours. Furthermore, aggression may resultwhen pay systems are perceived to be unfair.

Managers who want to increase organi-zational citizenship behaviours and decreasecounterproductive behaviour should focus onengendering employee satisfaction, organiza-tional commitment, perceptions of fairness,and trust in leadership, all of which create anenvironment that is encourages and supportsaltruistic acts. At the same time, they shouldmonitor levels of role ambiguity and roleconflict, both of which negatively affectaltruism and workplace sportsmanship.

Maria Rotundo is the David Y.Timbrell Associate Professorof Human Resource Management and OrganizationalBehaviour at the Rotman School. For a copy of her researchpaper on this topic, e-mail [email protected]

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As a United Airlines’ Mileage Plus mem-ber, I have always been very pleased withvarious aspects of United’s flight experi-ence: the Hemispheres magazine, the extralegroom in ‘Economy-plus’, and the channelnine pilot and ATC chatter, to name a few. Ifanyone asked me why I often flew United, itwas not because of my membership, butbecause of all these experiential facets.

But recently I ran into an old friend at theChili’s café at O’Hare, and given the locationand our travel-intensive lives, we got to dis-cussing airlines.Thanks to all the competition,my friend pointed out, the legroom onAmerican Airlines has gotten much better,as has the in-flight reading.And, my friend theAAdvantage member added, the frequentupgrades she got were simply delightful.

Why wasn’t I flying American, then?Because, as I realized, due to my continuedinteraction with United, I knew and experi-enced their positive aspects, and wasexposed to them so much more, that I hadno clue what other airlines were doing toprovide a competitive passenger experience.

If you are a practitioner, test the conceptdescribed above by conducting a survey ofyour regular customers.They may be regularcustomers for a variety of reasons: your storeis close to where they live, they like your serv-ice, they like your private label brands, theylike the ‘atmosphere’, they like your prices,they like your loyalty program, etc.Ask themto complete the following sentence: ‘I like toshop at [your place] because________’.Takethe responses and run a correlation with whatyou yourself think your firm’s differentiatorsare with respect to your competition. Don’t

be astounded if you find that many of the rea-sons your customers give for purchasing fromyou are actually aspects that you, being fullyaware of your competition, know to be avail-able from your competition as well.

If such results mystify you, you’ll beglad to know that this is normal behaviourfor most consumers. Any consumer trans-acting regularly with a brand is more opento that brand’s communication and experi-ence, and relatively closed to competingbrands. Now let us examine the continuingdebate about loyalty programs.The fact thatloyalty programs increase temporarybehavioural loyalty (i.e. actual repurchase),is agreed upon by most, but it is said that

• the loyalty is to the loyalty program, notthe brand;

• the customers attracted are those who are‘bargain-hunters’, not the type you’dwant to attract;

• if all competitors offer similar loyaltyprograms, all-round profitability reduceswithout gain to anyone.

So, would your customers begin to showlong-lasting commitment to your brand as a

result of a loyalty program? The answer is no:commitment to your brand would not becertain to increase as a direct effect of a loyaltyprogram. However, indirectly, one may expecta loyalty program to lead to some favorable

attitude change towards the brand. And thishappens due to the same reasons that led tomy thinking United was special. Let’s moveon to those reasons.

The Behaviour and Attitude LoopIt is has been proven that while attitude mayproduce behaviour, behaviour can also induceattitude change. Loyal behaviour exposes thecustomer to a greater number of ‘experi-ments in satisfaction’ with a specific brand.Asthose experiments are successful, it producesa learning in the mind of the customer thatBrand X is a good brand to transact with.

To quote Sabine Adams et al fromtheir paper on “Managerial and StrategicImplications of Customer Loyalty”:

“…. When the resulting ‘loyal’ customerbehaviours are positively reinforced, theconsequences of customers’ loyalty create acontinuing loop that can be broken only byextreme dissatisfaction, unusual price

Point of View: Subhashis Nath

A Hypothesis of thePsychological Aspectsof Loyalty ProgramsThe fine balance between ‘inconsequent rewarding’ and ‘over-incentivizing’is the most important part of managing a loyalty scheme.

Any consumer transacting regularly witha brand is more open to that brand’scommunication and experience, andrelatively closed to competing brands.

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increases or the introduction of a far-supe-rior substitute. Customers behave loyallywhen they (1) buy again, (2) buy more, (3)buy more often, and (4) buy other com-pany products. The consequences of thesebehaviours include: a higher tolerance formomentary dissatisfaction; resistance tocounter-persuasion; reduced search moti-vation; and reduced price sensitivity.”

Dissatisfaction and Defection As we know, a loyalty program is not asolution against customers leaving due todissatisfaction.The need for such programsstems from the fact that providing satisfac-tion to consumers is necessary but not

sufficient for ensuring retention. While dis-satisfaction is almost sure to lead todefection, satisfaction may or may not leadto retention. So, what are the other reasonsfor which a satisfied customer may defect?

• Satisfaction being a continuum, dissatis-faction could be relative and the customermight leave seeking or expecting greatersatisfaction (influenced by competitor’sadvertisements, promotions, and word ofmouth). Note that this type of dissatisfac-tion might not show up in surveys etc.since per se, the consumer is ‘satisfied’.

• The customer may just be the type wholoves to try out new sources for a change.

Customers who are at risk of switching in spite of satisfaction can be divided intotwo groups:

Rational Switchers: These customers are

not loyal to a brand and will generally beinfluenced by price/ value/ competingpromotions. They frequently re-evaluatetheir options and scan offers in the marketbefore most transactions.

Promiscuous Customers: They love topurchase the product but get bored ofbeing loyal.They are likely to try out newbrands, locations, price points, etc. “justfor a change”.

Of these, the promiscuous set is almostimpossible to make loyal, since the veryconsistency of experience that your brandloyalists love, will drive the promiscuousset away.

In the case of the rational switcher, thekey is to encourage the creation of a heuris-tic by them, and to educate them about thenuances in your competitor’s advertising sothey can see through more of them.That is,change their attitudes into those of rational,brand-loyal customers – those that aren’tloyal due to habit or emotional attachment,but those that are increasingly weary toevaluate all options because given their sat-isfaction with the brand, they see littlepoint in frequent re-evaluation of options.

The rational switcher, unlike hispromiscuous counterpart, has a higher levelof involvement in the decision of where toshop, or which product to prefer.This veryinvolvement is what also makes an attitudechange possible.

Attitude Change: The Role of Blocking As a consumer keeps on experiencing aproduct or service without dissatisfaction,

his confidence in the offering grows, and inthe absence of other strong influences, he islikely to remain loyal even if a loyalty pro-gram is discontinued. This happens due todevelopment of either a habit or an attitu-dinal loyalty towards the offering, througha process of learning.

Also, as he learns about the ‘cause andeffect’ of purchasing from a certain sourceand experiencing satisfaction, his vulnerabil-ity to competitor promotions etc. is reducedby the process of ‘blocking’. As mentionedearlier, in a survey of customers displayingbehavioural loyalty, one will find many ofthe customers talking of various benefits ofthe brand they’re transacting; while many ofthese benefits, if one checks, are availablewith other brands too. This phenomenon iswhat makes it likely that there is a process of‘blocking’ that works on the psychology of abehaviourally-loyal customer.

As originally documented in a study ofclassical conditioning, the learning of onepredictive cue can ‘block’ the learning ofsubsequently-encountered predictive cues.Specifically, once the relationship between aconditioned stimulus (e.g., a tone) and anunconditioned stimulus (e.g., a shock) isfully learned, consistent co-presentation of asecond stimulus (e.g., a light) with the orig-inal conditioned and unconditioned stimuliwill fail to produce any evidence of learningof the relationship between the second con-ditioned stimulus and the unconditionedstimulus.That is, the second stimulus evokesno response from the organism despitebeing perfectly predictive of the uncondi-tioned stimulus.Analogous effects have beenreported in human learning tasks.

“This phenomenon is pertinent to con-sumer learning because consumers often donot encounter all predictive cues simultane-ously, and it is likely that exposure tocertain cues will precede exposure to infor-mation about other similarly causal cues.”– Stijn M. J. Van Osselaer and Joseph W.

Alba in “Consumer Learning and BrandEquity”, Journal of Consumer Research (Vol-ume 27 pp.1-16)

Therefore, the trial and repurchase andcontinued repurchase induced by a loyaltyprogram can help in putting the brand firstin the consumer’s learning process, thus

Behaviour Attitude

Involvement, Quality Perception, Price Perception, Cognitive Dissonance

Learning, Cognitive Dissonance

Figure One: The Behaviour-Attitude Loop

Loyal behaviour creates a continuing loop of action and reward in terms of satisfaction, leading to anattitude that propels positive behaviour again.

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utilizing the blocking process to the brand’sfavour. This effectively reduces customervulnerability to competitor promotions.

Cognitive Dissonance A person who has dissonant or discrepantcognitions is said to be in a psychological stateof ‘dissonance’, experienced as unpleasantpsychological tension. Since the original atti-tude of a rational switcher is to be skepticalwith regard to brand loyalty, the behaviour inbuying more from one brand is an ‘attitude-discrepant’, which can be expected to causedissonance. As per the Theory of CognitiveDissonance, a person experiencing disso-nance consciously or unconsciously strives toreduce it.The dissonance, in this instance, canbe reduced by either ceasing to behave in theprescribed manner; or by way of convincingoneself that, since this brand is likely to keepproviding satisfaction, the attitude of re-eval-uating brand options was not justified in thefirst place.

One study uncovered findings thatclearly demonstrate the attitude-changinginfluence of cognitive dissonance.For example,

1. “It would appear then, that dissonant pur-chasers may use several methods toattempt to reduce feelings of dissonance.One of these ways would be for an indi-vidual to seek new information in orderto justify his action”. (Engel, J. F. & Light,M. L.The role of psychological commit-ment in consumer behaviour – 1968 [3])

2. “The consumer will often control hisown exposure to information and adver-tising to support what he wants tobelieve” (Kassarjian, H. H. & Cohen, J.B. Cognitive dissonance and consumerbehaviour – 1965 [8])

Thus one can look at this phenomenonin two steps:• the loyalty program led to behavioural

loyalty; and • since rational switchers considered the

transaction important, they experienceddissonance against their switching ten-dencies and became more open to thebrand’s promotion in the hope of gainingsome information that will help reducetheir dissonance.

This, when it occurs, is the first step inthe creation of an attitude of brand-loyaltyvia a rational heuristic (based on the pro-motions the rational switcher begins tobelieve frequent re-evaluation of options isnot necessary), and this is a loyalty which ismore permanent to the brand.

Cognitive Dissonance and Incentive Management Dissonance created by behaviour-attitudemis-match shall be reduced by the con-sumer, either by ceasing of the behaviour orby shifting of attitude. Now, the importantquestion is whether the cognitive disso-nance experienced due to incentivisedre-purchase leads to ceasing of the re-pur-chase behaviour or leads to an attitudechange toward the brand.This depends on:

• the basic quality of need fulfillment • the explicit attractiveness of the incentive • the effectiveness of re-assuring brand

communication

Attractiveness of the incentive is animportant factor.Analogous research showsthat if the incentive is too attractive, atti-

tude change will not happen, since, then,cognitive dissonance will not occur. Theconsumer will say to herself, “I’m engagingin this behaviour because I am getting thesebenefits and they are attractive enough tojustify the attitude discrepancy.” She thendoes not have to convince herself that theoriginal attitude was wrong, but rather shetells herself that there is a special consider-ation over-riding that attitude temporarily.

In general psychology it is found thatattitudes change to match behaviour ratherthan the other way around only when thesubject has no tangible or rigorous explana-tion for why she is behaving differently thanwhat her attitude would dictate. For exam-ple, in smokers, attitudes have been observedto change from “cigarettes are injurious” to“who gives a damn!” to fit their behaviour.

The incentives in a loyalty program,therefore, should be good enough for the cus-tomer to not cease re-purchase behaviour, butat the same time, should not be ostensiblylucrative.This is where incentive managementbecomes an art. Where loyal customers arebeing incentivised by hard and soft rewards, alarger portion should be soft, and to a certainextent intangible or non-quantifiable by theconsumer. Rewards need to be designed to beattractive to customers with involvement inthe product/service. For example, a bank giv-ing private investment advice tohigh-net-worth customers, or giving cus-tomers free subscriptions to investmentnewsletters (as against providing a variety ofredemption options or virtual currencies.)

The fine balance between ‘inconse-quent rewarding’ and ‘over-incentivizing’is, if one believes in the psychology of dis-sonance, the most important part ofmanaging a loyalty scheme.

To summarize, for a loyalty program tohave a long term effect on brand percep-tion, the product/service has to providesatisfaction; the incentive level and type hasbe such as to allow cognitive dissonance(the incentive type has to be such as to

appeal to ‘involved’ consumers intangibly);and reassuring brand communication has tobe designed to target program members.

The benefits of a loyalty program ful-filling the above requirements aresignificant: consumers displaying behav-ioural loyalty; consumers receptive to (andin fact, secretly ‘willing to believe’) thebusiness’ brand communication (due tocognitive dissonance reduction); and con-sumers unreceptive to competing brandcommunication, due to blocking.

Subhashis Nath is a principal in the Retail and ConsumerGoods Practice of Infosys Technologies Ltd. Currentllybased in Bangalore, he has provided consulting services toleading European and U.S. retailers in the areas of CRM,demand planning, merchandising and analytics, and partici-pated in the design of what is today Europe’s largestcoalition loyalty program.

Where loyal customers are beingincentivised by hard and soft rewards,a larger portion should be soft.

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Behavioural economics reveals hidden value in the poor performers

of a business unit portfolio.

by Harry Quarls,Thomas Pernsteiner & Kasturi Rangan

dogsyourVEL

Harry Quarls Thomas Pernsteiner

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EIn the course of maximizing shareholdervalue, senior executives routinely face deci-sions about which of their companies’businesses should be nurtured, whichshould be starved, and which should besold. The typical strategy is to invest moreheavily in the ‘stars’ that are earning supe-rior returns on capital, while starving orselling the underperforming ‘dogs’. This isthe conventional approach in corporatefinance and has become so ingrained inmanagement practice that it is almostimpossible to question it. But what if it iswrong? What if corporations would be bet-ter off shortchanging their stars andnurturing their dogs? What different deci-sions would managers make then?

There is, in fact, reason to believe thatthe conventional wisdom is wrong. Corpo-rate managers often rely on accountingmetrics to make business decisions. How-ever, these metrics are based on pastperformance; the market is interested onlyin the future. And past performance is gen-erally a poor predictor of the future.Thus,when performance is assessed over time,greater shareholder value can be created byimproving the operations of the company’sworst-performing businesses. The way tothrive is to love your dogs.

Just as some fund managers earn supe-rior returns by identifying and buyingundervalued “market dogs” – better knownas value stocks – corporate leadership canlearn to identify “value assets,” hold andnurture them, and produce superior per-formance. This in turn will ultimately leadto an increase in shareholder value.

From a recent analysis that we con-ducted of 25 years of U.S. stock-priceperformance, three messages for corporateleaders became clear:

• Fixing your dogs can yield unex-pected levels of shareholder value,even when their key financial indicatorslag behind those of other business units.Business unit returns are not tracked likestock prices. But experience suggeststhat turning around an undervaluedbusiness unit can be analogous to turningaround an undervalued company. In1992, the Lowe’s home improvementretail chain was considered a “dog,” afterfive years of lackluster revenues. But

then the chain’s executives conducted anoperations turnaround – leading to totalshareholder returns (TSR) of 37 percentannually over the next five years. Duringthat time, Home Depot outpaced Lowe’sin revenue growth. However, a dollarinvested in Lowe’s in 1992 would haveyielded returns of $4.83 in 1997, com-pared with $2.93 if invested in its “star”rival.The same dynamic can be found inany number of business unit examples,from a specialized product in a manufac-turing company to a moribund brand ina retail chain.

• Improving operations is an importantmanagement lever for adding share-holder value. Starving dogs is not astrategy for creating shareholder value;in aggregate, there is more potentialvalue in helping the dogs thrive. Focuson fixing the business – in both sales andoperations – in ways that allow businessunits to realize their potential. This mayprimarily involve investing time andattention, rather than more money.

• Buying and fixing someone else’sdogs will produce more shareholdervalue than buying stars. Adding valueto an overvalued business is a tall feat,especially on top of the premium thatacquirers typically pay for a controllinginterest in an enterprise. It is no wonderthat two-thirds of acquisitions fail to addvalue for the acquiring shareholder. Theright dogs, on the other hand, couldoffer a company focused on operationswonderful acquisition opportunities.

Far too often, senior executivesattempt to diversify out of their core busi-nesses, selling underperforming businessunits and buying their way into businessesthat appear to be more attractive.The ben-eficiaries tend to be the private equity firmsthat are usually the buyers of these “unat-tractive” businesses. Those companies thathave done the opposite – concentrated ontheir underperforming core business units– have tended to perform much better.

Why Markets MissAre we really suggesting that a companyshould abandon its stars and focus on itsdogs? We don’t rule out the possibility, espe-cially if the dogs can be rehabilitated in linewith the company’s core strategy. Superiorvalue creation comes from changes in futureperformance. What if the markets haveinherent biases in predicting performance?

The strategy of loving your dogs maybe intuitively difficult to swallow for many,but it is supported by an economic field ofstudy – behavioural finance – that has comeinto vogue over the last decade. Behav-ioural finance is founded on the precept, aseconomist James Montier puts it, that“not only do investors make mistakes, butthey do so in a predictable fashion.” Daytraders, for example, routinely displayoverconfidence; they trade with highturnover but low returns. And as NobelPrize-winning economists Amos Tverskyand Daniel Kahneman articulated intheir “law of small numbers,” people arelikely to overestimate the similarities

Figure One: Market Dogs Outshine Market Stars Traded stocks ranked into 10 goups according to investor popularity. Market dogs (at far right) outperformed the marketby 13 percentage points, whereas market stars (at far left) underperformed by 6 percentage points.

Performance of Companies (1975–2004, grouped in deciles ranked by market-to-book value)

Market Dogs

Source: Standard & Poor’s Compustat

Market Stars

15%

10%

5%

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between a small group they know and thelarger population – an error that leads tofaulty predictions of the behaviour of mar-kets and prices. Irrationality occurs evenwith highly trained specialists, such as pro-fessional investors, or, as Dr. Kahnemanputs it, when “people who are explicitlytrained to bring [rational] thinking to prob-lems don’t do so, even when they knowthey should.”

Guided by these types of insights,behavioural economists have developed arobust set of models of market behaviour.These models represent an alternative toconventional economic models, which arelogically consistent but fail to account forthe real behaviour of capital marketsbecause they assume that all markets areefficient, all investors are rational, and allrelevant information about securities isreflected in their prices. Because behav-ioural finance explains the gaps betweenideal valuations and actual prices, investorshave begun to use this theory to exploitthese mismatches and thus capture addi-tional value.

Although behavioural finance is usedby a growing number of fund managers toguide their purchases, another potentialapplication has largely gone unnoticed: itsuse as a guide to corporate strategy deci-sions.The same kind of behavioural analysiscan help corporate executives betterunderstand and manage their own “portfo-lios” – the businesses or business units thatmake up their companies. Executives whounderstand behavioural finance will cap-ture more shareholder value frombusinesses that have previously beenregarded as unworthy of much attention.

Consider, for example, how behav-ioural analysis can explain the poor trackrecords of capital markets as predictors ofthe true value of businesses. Investors don’tmake their choices through purely rationalprocesses or with complete information;they allow emotions to affect their deci-sions, they misinterpret data, and they areshortsighted in estimating the long-termviability of an enterprise.All of this can leadto a misunderstanding of the future poten-tial of a security (or other asset).

These “flaws” are pervasive enough tobe systematic in a population of investors.Enough people make decisions with

enough irrationality that individual mis-takes, however minor, combine to lead toroutine mispricing of securities and othercapital assets. Investors overvalue “glamourstocks,” those in vogue as evidenced bytheir high market-to-book value ratios orhigh price-to-cash-flow ratios. And theyundervalue “value stocks” – identified bysuch measures as low market-to-bookvalue ratios or low price-to-cash-flowratios – even though a vast amount ofresearch conducted over the past few yearshas shown conclusively that a portfolio of“value” stocks will consistently outperformtheir more popular “glamorous” counter-parts.

Research shows that this pattern existsboth over time and in all major capital mar-kets. While academics continue toinvestigate the rationale for this dynamic, aconsensus has emerged about its relation-ship to two phenomena. First, investors arepeople, not rational machines, and there-fore display “expectation biases” aboutfuture performance. If they can recall that astock has done well in the past, they aremore likely to expect it to do well in thefuture, and they invest accordingly.

Second, professional money managersas a group are limited in their ability tocompensate for this type of bias. Techni-cally, they have the ability to eliminate thegap between erroneous expectations andtrue value via arbitrage (transaction strate-gies designed to profit from fluctuations inmarket value). But in practice, the use ofarbitrage by professional managers is con-

strained by what economists call agencyissues: investment styles, concerns aboutdeviations from benchmark performance,and institutional practices.

To be sure, the distortion of any onecompany’s share price diminishes overtime; perception eventually catches up withreality. But the transition can take years.Behavioural finance has recently gainedincreased legitimacy because it has helpedinvestors realize significant returns byexploiting the gap between the irrationallyperceived value of shares and their actualpotential value.

Past Dogs, Future PerformersPerhaps the most common misperceptionthat leads investors and corporate decisionmakers to prefer glamour over value assetsis the simple effect of hindsight.We saw thisin our study of U.S. stock market perform-ance. We employed a common researchmethodology: sorting stocks into monthlyportfolios, which were then sorted intodeciles as measured by market-to-bookvalue, looking at the years 1975 through2004. We then calculated the returns toinvestors over a five-year horizon for eachdecile. The decile results were aggregatedfor each of the monthly portfolios. Wecharacterized the top decile as ‘marketstars’ (our own name for glamour stocks)and the bottom decile as ‘market dogs’(equivalent to value stocks).

Just as behavioural economists mightpredict, the market dogs consistently andsubstantially outperformed the market

Figure Two: Past Performance – A Poor Predictor of Future Growth Stocks with histories of higher past earnings performance (toward the right of the x-axis in both diagrams) yield high expectations (as shown in the scatter plot at left), but tend to yield lower actual performance (as shown in the scatter plot at right)

Source: Standard & Poor’s Compustat (expected future earnings-per-share growth derived from discount cash flow analysis)

Expec

ted F

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18%

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Past vs. Expected Performance

Past Earnings-per-Share Growth

Act

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Past vs. Actual Performance

Past Earnings-per-Share Growth

8%

2%

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stars in shareholder value creation. Indeed,over the period of our research, the dogsoutperformed the stars by an average ofnearly 20 per cent annually. Market dogsexceeded the market returns by 13 percent annually (see Figure One.) Otherresearchers have found results consistentwith our data for nearly all equity marketsin Europe and Asia.

We investigated the data set to deter-mine what operating factors investorscould have used to distinguish market dogsfrom market stars. One factor provides aclear correlation. As Figure Two shows,investors use past operating performanceto characterize companies.

We then compared actual past operat-ing performance with the futureexpectations required to justify the currentstock price. As expected, there is high pos-itive correlation between past performanceand future expectations. However, pastperformance is negatively correlated withactual performance. Established valuationmethodology prescribes that stocks be val-ued on future (not past) earning streams.Yet, many investors simply – and erro-neously – assume that a company growingearnings at 10 per cent per year will con-tinue to do so. This extrapolation,unsupported by actual market history, isthe primary driver of the difference inreturns between the market dogs and themarket stars.

Letting the Dogs OutHow similar are the ‘market dogs’ and‘market stars’ of stock analysis to the ‘dog’

and ‘star’ categories that corporate man-agement might use in discussingbusiness-unit performance? Our experi-ence and research suggest that they aresimilar enough that business decision mak-ers can benefit from the analogy.

In our study of the stock market, forexample, we looked at the average returnsfor market stars and dogs across twodimensions: whether the companies’ oper-ating margins had improved, and whethertheir sales had increased. These happen tobe the two main levers that corporate deci-sion makers use to try to improve theirbusiness units’ valuations. Improvements in both categories can increase the annual-ized mean shareholder returns by only 9 per cent for stars, compared with 15 percent for dogs.

To embrace this precept and use itsinsights effectively, management needs torethink the potential for future shareholdervalue creation in the company’s businessunits in a four-step process:

Mark each of the individual businessesto market (calculate a reasonable marketvalue for it) using the market value of com-parable enterprises. Evaluate their earningsperformance on this market-value basis.Return on market value provides a betterhandicap for future value creation thanbackward-looking accounting measuresbecause it incorporates the current mis-pricing into its calculation of true value.

Using the calculation of market-to-book as a basis, assign each business unit toa decile in the star-to-dog spectrum (asshown in Figure One). This will provide

an estimate of the expected market returnsthat will accrue to this business unit. Usethis to assess the degree to which each busi-ness is currently mispriced.

Since future shareholder returns are based on changes in expectations ofperformance, assess the potential improve-ment for each business.

Estimate the future shareholder valuecreation of each business by evaluating boththe degree to which it is currently mis-priced and the opportunity to transformthe business. Although it is easier said thandone, the effort yields important insights.

Viewing a company’s businessesthrough a behavioural finance ‘lens’ willensure that management is making portfo-lio decisions that offer the greatest potentialfor long-term shareholder value creation.Automatically directing resources to busi-nesses with the highest accounting returns,for example, may not be the best strategy.Selling your dogs may be counterproduc-tive. Instead, resources should be allocatedto those businesses that offer the greatestfuture increase in shareholder value.

There is thus large shareholder valuecreation potential for corporate manage-ment in exploiting the capital-marketanomalies that the behavioural finance liter-ature and our research have identified.When portfolio managers and other out-side investors evaluate a company’s stock,they are making implicit judgments aboutthe value of the company’s business units.Corporate management teams have betterinformation than outsiders about both theirown enterprise and their own industry. Inaddition, they have a longer time framethan most professional investors. Above all,senior executives have the ability to inter-vene and change the performance of theirbusinesses. For executives willing to chal-lenge the conventional corporate financewisdom, behavioural finance can provide amore sophisticated framework for settingcorporate strategy, a framework that willultimately lead to higher share prices.

Harry Quarls is a senior vice president in Booz Allen Hamilton’s Dallas office.Thomas Pernsteiner is a vice pres-ident of Booz Allen Hamilton based in Cleveland. KasturiRangan is an associate in Booz Allen Hamilton’s Clevelandoffice. This article appeared in the spring 2006 edition ofStrategy+Business magazine.

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After all, the prevailing philosophy infinance for the last 40 years has been thatmarkets are efficient and that decisionsshould be based on net present value (NPV).

And what exactly does that mean? Inthe first place, if markets are efficient, it

means that all information is impounded insecurity prices, or put another way, thatmarkets have no memory. And what is thepoint of being loyal or faithful if there is nomemory of that devotion or faithfulness?

In the second place, making decisionsbased on positive NPVs means that theanalysis is always forward looking. It iscommonplace in finance that ‘sunk costs’ –money already spent – should be ignored;all that matters are the costs and benefitsgoing forward. It is hardly surprising then,that modern finance inexorably leads to atransaction-based philosophy where theobjective is to win a transaction and gener-ate fee income before moving on. Youmight as well live for each transaction andforget about what has gone before it, sinceeveryone else will! The problem is, this ‘liv-ing for the next deal’ philosophy is bad forthe economy as well as being bad business.

The opposite of a transaction or deal-based philosophy is a ‘relationship’ or‘loyalty-based’ philosophy. Traditionally,commercial banking has been regarded asrelationship based, whereas investment bank-

ing has been transaction or deal-based.Youmay not think of your commercial lender aswarm and fuzzy, let alone loyal, but tradi-tionally, commercial lenders have adopted aphilosophy of sticking by their clientsthrough good times and bad. The reason is

that they generate income not from fees,but from a series of spreads between theirborrowing cost and the income over theterm of a loan.

This is changing, as even commercialbanking now tends towards fee income, butthere is still a basic difference in philosophy,whereby commercial lenders have to under-stand their clients, because their capital is atrisk. Obviously, this does not mean stickingby losers or throwing good money after bad,but it does mean understanding your client’sbusiness and what is good for them, in addi-tion to what is good for the bank.

Traditionally, the major banks havehad a relationship/commercial bankingspread-based culture, since bankers weregenerally ‘lifers’ – starting out as tellersand working their way up, absorbing theculture as they progressed through theranks. In fact, their culture was almost civilservice-like by nature.

Investment banks – what used to becalled ‘high finance’ – have an opposite cul-ture. It entails taking firms public throughinitial public offerings, advising on the

value and making a market in those securi-ties, arranging secondary offerings andusing their knowledge of security marketsto advise on mergers and acquisitions. In allof these instances, income is largely fee-generated and transaction-dependent.Further, investment banking has alwaysbeen a highly cyclical, competitive activity,and many investment bankers don’t stayaround for very long.The Darwinism effectof such a highly profitable and yet compet-itive business ensured that though manystarted out, few survived to make partneror get anywhere close to the top.

The cultural differences between ‘IBankers’ and ‘C Bankers’ were one of thereasons that traditionally, I Banks wereorganized as partnerships, like accountantsand lawyers, whereas C Banks, needingaccess to capital and deposits, were regularcorporations.This distinction was the focusof hearings before the Ontario SecuritiesCommission in the mid 1980s, where the IBanks wanted the power to organize as cor-porations and sell common shares to thepublic, and then be taken over by the banks.As we know, the I Banks won, since the reg-ulators were convinced that regulation byfunction was as efficient as regulation bylegal entity.

Subsequently, the I Banks were alllargely taken over by the C Banks at substan-tial premiums, and venerable names likeWood Gundy, Dominion Securities,McLeod Young Weir and Nesbitt Burnsbecame house names of the major C Banks.Canada was a leader in this, as it took theAmericans another 15 years before the rem-nants of Glass Segal and the separation ofC from I banking disappeared in 1999.

Point of View: Laurence Booth

Loyalty in Finance

Given the dictionary definition of loyalty (“devotion or attachmentto an individual or cause”), it might seem slightly incongruous toput finance and loyalty together in the same sentence.

“My word is my bond.”London Stock Exchange motto

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So by 1999, the wall separating deal-making from loan making, fee income fromspread income, or transaction from rela-tionship banking came down completely.Some would say that a relic from 1929finally bit the dust, but then along came thetech bubble and the subsequent bust as theimplications of a deal-based culture cameto the fore; perhaps not 1929 all over again,but certainly the most severe stock marketmeltdown for some time.

Two examples stand out from thisperiod: the scandal involving biased secu-rity analyst reports, and the bankruptcy ofEnron, which involved the active complic-ity of some major C Banks.

The biased nature of security analystreports is by now an old story.Why wouldanyone take at face value a ‘buy’ recom-mendation issued by a firm underwritingthe company’s stock? Conflicts of interestare endemic to most areas of finance, butclearly, a buy report from someone inter-ested in the stock going up has to bediscounted. However, the settlement thatU.S. Attorney General for New York,Elliott Spitzer, extracted from the majorU.S. investment banks in 2003 stunnedeveryone. It was a ‘who’s who’ of U.S. Ibanking, from J. P. Morgan to CSFB toGoldman Sachs; they all ponied up to theUS$ 1.4 billion settlement and essentiallypleaded guilty to tieing security analystcompensation to investment banking fees.In this case, a transaction-based culturecompromised the integrity of their

research reports. However, our main dis-cussion focuses on Enron. One might saythat ‘all roads lead to Enron’, such was themagnitude of its impact on capital markets.

So, how did a sleepy southwest Ameri-can pipeline – sort of like a U.S.TransCanada or Enbridge – become oneof the most-admired companies in the U.S.and the epitome of fraud and excess? The

answer, until recently, was that we didn’treally know, but it had something to do withenergy trading. We now know that it had alot to do with ‘aggressive accounting’.

Essentially, when Enron was in dangerof missing Wall Street’s earnings expecta-tions, it sold assets to special purposevehicles (SPVs) financed by the major banksin order to generate capital gains and meetits ‘numbers’. The only problem was thatthese ‘sales’ were not really sales, since theexternal equity in these SPVs was notregarded as equity by those contributing it.As a result, no genuine sales took place, andupwards of 25 per cent of Enron’s incomewas fraudulent, based on accountingmanipulation rather than operations.

How does all of this relate to our dis-cussion of loyalty? The answer is: CIBC.

All of the banks have slightly differentstrategies, and CIBC’s in the 1990s wasclearly transaction or investment-bankingbased. CIBC set out to make New York thecentre of its derivatives and structuredfinance business, and in 1999, chose as itsnew CEO John Hunkin, former head ofWood Gundy, its investment banking arm.For a short time, CIBC made hefty profitsin its Enron dealings, but the fact was thatwhat it regarded as short-term loans werebeing treated as asset sales by Enron toinflate its profits.

In December of 2003, CIBC reached asettlement with the U.S. Securities andExchange Commission, paying $80 millionin penalties. Of this, $37.5 million was for

disgorgement of profits made on its Enrontransactions, with an equivalent amount aspenalties and $5 million in interest. At thetime, CIBC dismissed investor class actionsuits as being “without merit,” and did notset any additional funds aside to meet thesepotential claims.

In August 2005, after the marketsclosed, CIBC announced a $2.4 billion

settlement of the class action suit. Thelawyer for the class action suit indicatedthat the settlement reflected CIBC’sinvolvement with Enron, that it played akey role in creating “fictional and illusory”transactions that won it lucrative invest-ment banking business, and that the bankalso created “false and misleading” analystreports to pump up Enron’s stock. In termsof CIBC’s involvement, the lawyer for theclass action suit simply stated: “The num-bers speak for themselves.”

So what does the CIBC debacle mean?In big-picture terms, not that much: $2.4billion is a lot of money, but it amounts tolittle more than one year’s earnings forCIBC. However, it points to the fundamen-tal conflict between traditional bankingbased on relationships (and loyalty) and atransaction-based, fee-driven business. Interms of an NPV transaction, CIBC’s Enrondeals generated short term profits of $37.5million at the expense of $80 million inSEC penalties and $2.4 billion in classaction settlements; so on any basis, CIBC’sinvolvement with Enron was a disaster.

More important, what emerged fromthe SEC settlement was that CIBC simplydid not do its due diligence. It should nothave dealt with these transactions as invest-ment banking, fee-based transactions. Eachof them left an audit trail that indicatedCIBC’s deep involvement, and the fact thatCIBC was into an ongoing relationship.

So where does this take us in terms ofloyalty? In the spring 2001 edition of Rot-

man Magazine, I pointed out the increasingcomplexity of bank brands and that banksneeded to strengthen their brands, which interms of financial markets, are “synony-mous with a reputation for honesty,integrity, fair dealing and putting theirclients interest’s first.”

With hindsight, the latter part of thatquote should be modified, in that a financialinstitution should always put itself first.Loyalty should not be to their clients or toa cause, but to their own reputation forhonesty, integrity and fair dealing.

What’s the cost of not doing that? Iwould say, at least $2.4 billion.

Laurence Booth is the CIT Chair in Structured Finance anda professor of Finance at the Rotman School. In 2003, hereceived the Leader in Management Education Award fromthe Financial Post.

By 1999, the wall separating deal-makingfrom loan making, fee income from spreadincome, or transaction from relationshipbanking came down completely.

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Upon meeting Nelson Mandela, my firstquestion for him was, ‘What was it likebeing in prison for all those years?’ Becausewhen you’re with this great man, the firstthing you want to do is cry. Here is some-one who has been subjected to everyindignity, every abuse that can be inflictedupon a human being. And yet, at the age of88 – when I met him, he was 84 – he’s justfull of possibilities. He is an extraordinary,worldly statesman, in every sense of theword, and yet there’s still a naivety abouthim, a sense that anything is possible. I wascurious about how a man sustains suchstrength alongside such innocence.

His response was characteristicallyprofound. He told me that he lived everyday so that when he was released, he wouldbe able to transform South Africa into thekind of nation that it needed to become. Hegot through 27 years in this 12-by-12-footconcrete cage, 24 hours at a time. Hisstrength came from his conviction that hewould not die in that place: he would pre-vail. In the midst of incredible hardship, thekind of hardship that would have crushedmost of us, he was thinking,‘Who do I needto be, what do I need to become to trans-form my nation?’

The meaning I took from what Mandelatold me is this: be present.Act now. Developthe kind of habits you will need in the future,because you’re creating your future through

your present actions.The best way to handlethe future is 24 hours at a time. WhatMandela understood through all those yearswas that he was not there for himself. He wasthere because he had given his life to a cause.When he was incarcerated in 1964, he spokethese famous words: “During my lifetime Ihave dedicated myself to the struggle of theAfrican people. I have fought against whitedomination, and I have fought against blackdomination. I have cherished the ideal ofa democratic and free society in which allpersons live together in harmony and withequal opportunities. It is an ideal which Ihope to live for and to achieve. But if need be,it is an ideal for which I am prepared to die.”

Mandela never wavered for a second,never questioned whether he was right todo what he was doing. If he had seen himselfas a lifetime prisoner who just had to some-

how survive each day with no end in mind,it’s quite possible he would have goneinsane. Or he could have become cynicaland said, ‘People are evil, and white people

are bad, and white South Africans specifi-cally are bad. Let me encourage my peopleto rise up and kill them.’ Except he knewthat was not the truth. He chose to take thehigher ground, and he pulled everyonearound him up to the higher ground.

I had my picture taken with Mandelawhen we met, and I often show this pictureat my seminars, asking the audience, ‘Howis your life compared to Mandela’s?’ Sayyou are complaining about not getting araise, or the weather, or that your food wascold or the paper didn’t arrive this morn-ing. Well, try 27 years in a prison cell togive you some perspective. Look at a daylike today, for example. It’s what you couldcall a Goldilocks day: it’s not too hot or toocold, it’s just right. A lot of people need tohave weather like this to have a great day. Ifit were minus twenty, with sleet coming

down, then they’d be miserable. And thoseare the people who are victims of theirenvironment. Whereas Mandela’s lifedemonstrates the power of choice.

Point of View: Mike Lipkin

Fifteen Minutes ThatChanged My Life as told to Stephen Watt

In 2002, Mike Lipkin – a Toronto-based motivational coach – was presented withthe opportunity of a lifetime: the born-and-bred South African was contacted by the Nelson Mandela Foundation to provide effectiveness training to 20 staffmembers at the foundation’s headquarters in Cape Town. Spotting an opportunityto meet his hero, he agreed to provide the seminar and pay his own way fromToronto to Cape Town in return for 15 minutes of Mandela’s time. He describedthis memorable encounter for Stephen Watt.

If he had seen himself as a lifetime prisonerwho just had to somehow survive each daywith no end in mind, it’s quite possible hewould have gone insane.

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I often tell people that we all have aMandela within us. His mission was totransform a nation; but their mission can beto transform a project, or to transform ateam of one. It can be to transform yourfamily. It can be to transform the next con-versation. And that’s what I try to teach:that every moment is an opportunity totake something to the next level.

While in Cape Town, I took some timeto visit Mandela’s prison cell on RobbenIsland. Robben Island is this wind-swept,desolate place about 12 kilometres off thecoast of Cape Town, surrounded by frigidsea.The prison is a square brick block, andpainted on the wall is the famous quotation[from Dante’s Inferno], ‘Abandon all hope,ye who enter here.’ When you go into hiscell, they close the door behind you. I thinkI was in there for 27 seconds when I felt thepanic begin, even though I knew I was atourist and could leave at any time.And yetMandela and his fellow prisoners managedto maintain their hope and ambition for all

those years. In a wonderful irony, the gov-ernment had concentrated all its politicalprisoners in a single place where they hadnothing to do but talk about how theywould run the country when they were

released. It was known as the University ofRobben Island, because many of thosepolitical prisoners later went on to becomecabinet ministers in Mandela’s govern-ment. It’s amazing to consider all they’veaccomplished since that time.

Ultimately, Mandela was sustained dur-ing his incarceration by his allegiance to hisidea of his country and what it couldbecome. If you look up the meaning of theword loyalty, it’s ‘allegiance to a sovereign

state or country’. If you’re a business person,what you want to do is to earn people’s alle-giance toward you. You must ask yourself,‘What must I do to earn that loyalty?’ Man-dela earned the allegiance of the nation and

the world through his resolve, through hischaracter, and through his unwavering com-mitment to transformation. In one sense,he’s the ultimate expression of loyalty.

Mike Lipkin is president of Environics/Lipkin, a motivationcompany based in Toronto. He has published seven best-sell-ing books, including his latest, Keeper of the Flame, spoken toover 200,000 people in 15 countries, and shared the stagewith such luminaries as former president Bill Clinton andDoctor Phil McGraw.

Ultimately, Mandela was sustained by hisallegiance to his idea of his country andwhat it could become.

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Point of View: Don Brean

The Price of Loyalty

In 1914, when standard pay in the automobile industry was $3 per day,the Ford Motor Company ceremoniously announced that it wouldpay its workers $5 per day. As Henry Ford tells it, raising hisworkers’ wages was the best cost-saving move he ever made.

By paying well above the going wage, Fordreckoned that he reduced shoddy work, pilfer-age and absenteeism. He not only eliminatedthe negative, he also accentuated the positive.By dint of enhanced pay, workers at the FordMotor Company had tangible proof thattheir work was appreciated. They respondedwith clever, constructive ideas to improveproducts and procedures. Happy workers,humming machines.

What exactly did Ford buy with higherwages? He bought subservience to a newmode of production that could not succeedwithout worker discipline. The originalassembly line, where the big job of manu-facturing automobiles was reduced tohundreds of little steps, each of which hadto be done promptly and properly, wasessentially a de-humanized process in aCharlie Chaplin world.

On the surface, higher wages seem tobe the price of loyalty. However, worker loy-alty should not be confused with discipline.

Henry Ford was not a man to fretabout semantic subtleties. Loyalty? Disci-pline? What’s the difference?

Whatever the answer, both manage-ment and workers at Ford were pleased.The price of the corresponding loyalty ordiscipline was the amount that Ford paid itsworkers in excess of the industry wage ofthe day. The pay-more-than-the-going-ratestrategy has been dubbed by economists as“efficiency wages”. Industrial and laboureconomists have mulled over this phenom-enon for years.

Formal economic logic tends to run inan opposite direction to Ford’s practical

thinking. The profit-maximizing wage,especially when labour is competitivelysupplied, is a wage that equals the value ofan additional worker’s contribution to the

company’s profit. The idea is to not paymore than a worker is worth nor to paymore than you have to. While that “profit-maximizing wage” can be tough for theindividual firm to estimate, the phlegmaticold-line economist would say, “Fear not,you will know soon enough if you havehired too many.Then fire a few.”

The key issue seems to revolve round thelink between workers’ wages and their out-put.The elusive subtlety is how, or indeed if,wages drive productivity.What is a worker’smotivation to work? Can a company todaybuy loyalty – or discipline – as easily and aseffectively as Henry Ford seemed to do?

A manager would fall somewherebetween naïve and downright dumb tothink that employees in today’s workplacecan be bribed to peak performance. Notthat Ford was wrong in1914. Times havechanged. So has our understanding ofworkers’ motivation.

In understanding motivation, the hardedge of economics is informed by thesofter stuff of psychology. Pay is not

everything.Workers, it seems, care deeplyabout the atmosphere and culture ofwhere they work, how they work and whothey work with.When they like their job,

when they feel engaged, challenged andappreciated, workers generally will give asgood as they get. They will go the extramile for the organization.

The assembly line of a century ago,regardless of its place in the history ofindustry, is hardly an appropriate model ofmodern day work. Those repetitive, mind-numbing tasks have been largely replacedby never-tiring robots. Furthermore, mostmanufacturing jobs have fading relevancefor questions of worker commitment.Work that requires an assembly line is bestautomated or shipped out to China.

The modern era has seen two majorthrusts in the sorts of work we do. First,professional and consumer services haveemerged as the single largest component ofemployment. For example, services repre-sent more than 70 per cent of Canada’snational income.The ‘product’ in services isintangible and non-storable. Retailing,wholesaling, transportation, tourism andteaching come readily to mind, but the listcan be easily extended to financial services,

On the surface, higher wages seemto be the price of loyalty. However,worker loyalty should not be confusedwith discipline.

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medicine and the performing arts. Manage-ment itself is a professional service.

The second modern thrust is “knowl-edge work”, a term coined by PeterDrucker in his 1959 book, Landmarks of

Tomorrow. Knowledge work refers to func-tions such as research, design and productdevelopment along with virtually allaspects of information technology. Com-mercial services and knowledge workincreasingly overlap as services becomemore specialized and knowledge intensive,a point that lawyers, engineers and consult-ants won’t let you forget.

The management challenge in motivat-ing service and knowledge workers stemsfrom the fact that workers’ responsibilitiestend to be defined in relatively vague termsand output is typically difficult to measure.What is the output of an accountant, a soft-ware developer or the person on the frontdesk of a hotel? The shift from tangible tointangible work or from unambiguousmeasures of output to unobservable effortcalls for greater reliance on employeeresponsibility and own-initiative in work.

The aim of modern management is toshape a worker-centric strategy that adds toperformance and profits. If motivation andloyalty cannot be bought, then what is thekey? Human resource experts advise that aslong as the formal pay package is within anacceptable “zone of indifference”, then the

motivational focus should turn to so-calledworkplace ambiance and organizationalculture. Common vision, collegiality, teamspirit, pride of purpose and the feeling ofbelonging are the psychological founda-tions of responsibility, commitment and,yes, loyalty.

Achieving constructive, productiveorganizational harmony, if not already pres-ent, may call for fundamental change in afirm’s philosophy. The transition from old-line rules-based authoritarian ways ofrunning things to a cooperative and moreparticipatory management system is root-and-branch in organizational re-design.Thesine qua non is alignment of the humanresource function to the overall strategy.Recruiting, hiring and effectively communi-cating the corporate philosophy are crucial.

To illustrate the organizational princi-ples that positively shape motivation andworker loyalty, the upstart SouthwestAirlines serves nicely.The Texas-based, nofrills, short-hop airline devised a marvelousmotivational potion to keep workers loyaland enthusiastically engaged. Unlike Fordin 1914, the trick is not wages since South-west does not deviate from the pay-norm inthe industry.

The president and CEO of SouthwestAirlines, Herb Kelleher, has been calledthe best CEO in America by Fortune maga-zine. Under Kelleher’s leadership,

Southwest has become the most consistentlyprofitable, productive and cost-efficientoperator in a ruthlessly competitive industry.The Southwest case is required reading inmost business schools primarily because ofthe firm’s seemingly revolutionary butremarkably easy to explain attitude to work-ers and their relation to the company. AsKelleher outlines the philosophy, he pointsout that, “We’ve always believed that businesscan and should be fun. We try not to hirepeople who are humorless, self-centred orcomplacent.Yet we are not looking for blindobedience. We are looking for people whoon their own initiative want to be doingwhat they are doing because they consider itto be a worthy objective. Our real accom-plishment is to have inspired our people tobuy into a concept, to share a feeling and anattitude, to identify with our company – andthen to execute!”

In the end, so much of the new view ofmotivation is simply common sense con-cerning the nature of modern work.Intelligent, self-respecting people are notinclined to view their time as a commodityto be sold to the highest bidder. In modernpost-industrial societies, people are alreadyoperating in the upper ranges of Maslow’sfamous hierarchy of needs, where energy isdirected to achievement and the accom-plishment of worthwhile goals.

Turning these psychological principlesinto productive practice calls for managersto oversee a goal-setting process based oncooperative communication. Clear, effec-tive communication harnesses the energyand loyalty of workers to the explicit goalsof the organization.

There is a crucial connection betweencommitment and achievement. It worksthrough the congruence of self-interestand the interest of the organization. If theemployees succeed, the business succeeds.If the business succeeds, the employeessucceed. Satisfaction and accomplishmentare mutually reinforcing.The challenge formodern management is to design corpo-rate roles and responsibilities that embracethis most fundamental feature of humanmotivation.

Donald Brean is a professor of Finance and Business Eco-nomics at the Rotman School. His latest book isInternational Financial Management:The Canadian Perspective

(McGraw-Hill 2005).

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Although the love we have for our dogs isoften trivialized, there’s nothing trivialabout it. A few weeks after my father died,one of my mother’s dogs was killed by a car.A visitor had come to help sort out myfather’s affairs, and unbeknownst to any-one, the exuberant Irish Setter Jenny had

dashed out the door, running free and wildand no doubt, full of innocent and cheerfulabandon. She was killed a half mile downthe road, in front of the church where myfather’s service was held.

My mother, stalwart and noble aftermy father’s death, sobbed so hard and for solong about her dog’s death that it seemed asif her grief would physically rip her apart. Ithought at the time, as did many, thatJenny’s death allowed my mom to finally,truly grieve over the death of her husband.I don’t think so now. My mother loved myfather, but their relationship was burdenedwith disappointments and perceivedbetrayals. But Jenny? Jenny sparkled withnothing but joy and devotion. She asked forlittle, and gave everything she had inreturn. No hard words late at night, noangry glances and saturated silences. Nobaggage. She loved mom, mom loved her,simple as that.

Such depth of emotion for dogs is notuncommon. During the days leading up toHurricane Katrina, hundreds if not thou-sands of people chose to risk death ratherthan leave their animals behind; and thestate of Florida learned this lesson well in

1992 during Hurricane Andrew, in whichthousands of people refused to evacuatebecause the shelters wouldn’t take pets.These decisions compromised the safety ofso many people that the state changed itsregulations, and now provides shelters forpets as well as for people.

After the tragedy of Katrina, I hearddiscussions all over the country about whateach of us would do if we were told to evac-uate without our pets. What would you doif you had to choose the safety of evacuationover risking your life to stay with your dog?Everyone at my office said we couldn’timagine living with the knowledge thatwe’d left our dogs behind, although we’d doit if we were forced to evacuate to save ourchildren. Merely the thought of such achoice was so upsetting we could barely talkabout it. Our response wasn’t unique topeople whose lives and careers are devotedto dogs: my farm’s pragmatic chain-sawing,brush-clearing handyman said that someonewould have to shoot him before he’d leavehis rat terrier behind to die.

What in heaven’s name is going onhere? Risking your life for a member ofanother species? Loving your dog as muchas you love a human? That’s flat-out amaz-ing if you think about it. And yet, whethersome people think it’s crazy or not, those ofus who love dogs love them like family, orperhaps more accurately, like the family wealways wanted.

I’m not talking about people who love

animals more than they love people(although there are, of course, many peoplelike, that and it’s an interesting phenomenonunto itself.) I’m talking about people whohave enriching, healthy relationships withfriends, family and co-workers, and yetwho love dogs so much they describe themas one of their greatest joys in life. Peoplewho skip having drinks with co-workersafter work because their dogs have beenalone too long, who take their dogs onvacation, who use limited funds to buythem toys and food, and who borrowmoney to pay the vet’s bill.

Why are dogs such masters at workingtheir ways into our hearts in a way that noother animal can? The traditional answer isthat they give us ‘unconditional love’ or‘non-judgmental positive regard’.There’s noquestion that often, much of this explanationrings true. The cheerful, loving nature ofmost dogs brings us a purity of emotion thatis hard to get anywhere else, no matter howmuch we want it. But I think we need toaddress this question in more depth. Perhapsour love for dogs, and their love for us, is toocomplex to be explained by any one factor. Itseems most likely that this special bond is theresult of a number of things, combiningtogether into a kind of ‘perfect storm’ oflove, devotion, and loyalty.

The faces of dogs are remarkablyexpressive, and many of their expressionsare similar to ours. More than any otheranimal except human children (and possi-bly chimpanzees), dogs wear their heartson their sleeves. The faces of dogs are likeliving, breathing, fur-covered emotions,with none of the masking and censoringdone by the rational cortex of mature adulthumans. The primacy of dogs gives them adirect line to the most primitive and perva-sive parts of our brain, and connects us inways that nothing else ever could.When we

Point of View: Dr. Patricia McConnell

Our Ongoing LoveAffair with Dogs

What would you do if you had to choosethe safety of evacuation over risking yourlife to stay with your dog?

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look at dogs, we’re looking into a mirror.The fact that they express happiness sowell, and that happiness is contagious, isjust icing on the cake.

The sociality of dogs is similar in manyways to that of humans. Dogs evolved fromone of the world’s most highly-socialspecies and are hard-wired to find socialcompanionship. That’s why sheep guardingdogs stay with the flock; why some dogsform friendships with horses that last a life-time; and that’s why your dog is waiting atthe window when you drive home fromwork. Dogs may live alone if they have to,but as long as there are enough resources togo around, dogs will always choose thecompany of others.

Although dogs cling to any kind ofsocial relationship, they don’t treat humansas any old port in the storm. Dogs wantmore than just to hang out with us, theyseem to want to understand us and for us tounderstand them.They look at our faces allthe time for more information, just likehumans do when they’re unsure of whatanother person is trying to communicate.

A dog’s desire to communicate withpeople fits within the bounds of its evolu-tionary baggage, in which pack membershunted together, raised their youngtogether, and fought to the death to keepthe group together. You can’t coordinateyour efforts as a group without some kindof communication, so it’s no wonder thatdogs are as obsessed with social communi-cation as we are. What’s amazing is theirdesire and ability to communicate with us,and their level of attachment to us that goesbeyond species boundaries.

Research on kenneled dogs found thatthey were calmer in novel environments inthe presence of a human caretaker thanthey were with a dog they’d been kenneledwith for over two months. It’s remarkable,if you think about it, that an animal wouldchoose an individual of an entirely different

species for comfort and companionship.Imagine being lost and alone in the jungleand stumbling upon a person and abird–and bonding with the bird and ignor-ing the person. In one study, dogs living inshelters formed attachments to peopleafter only minimal contact. It took onlythree ten-minute sessions of petting fordogs to become attached, and for the dogsto stand at the door, waiting, if the personleft the room.

There’s no question that most of ourdogs love us, and there’s little questionthat, sometimes, their love is often almostepic in its intensity. However, the chancethat our dogs are never irritated with us onoccasion is slim at best. How convenientthen, that they can never say so.

You may wish with all your heart thatyou could talk to your dog, but as MarkTwain reminded us, be careful what you

wish for, because you just might get it.Speech is an amazing and wonderful thing,but it comes with a price. It’s not true that“stick and stones may break my bones butwords will never hurt me.” We all knowthat bruises and cuts often heal faster thanthe damage done by a cruel comment.

Personally, I’m glad my dogs can’t nailme with the kind of hurtful comment thatcan come out of the mouth of even thekindest of friends, but our lack of a sharedlanguage has another, more amorphousadvantage. As I wrote in an essay in thebook, Dog is My Co-Pilot:

“Words may be wonderful things, butthey carry weight with them, and there’s agreat lightness of being when they are dis-carded. Some of my happiest moments arewhen [my dog] Luke and I sit silentlytogether, overlooking the green, rollinghills of Southern Wisconsin. Our lack oflanguage doesn’t get in the way, but createsan opening for something else, somethingdeep and pure and good. We dog loversshare a kind of Zen-like communion withour dogs, uncluttered by nouns and adverbsand dangling participles. This connectionspeaks to a part of us that needs to be nur-tured and listened to, but that is so oftendrowned out in the cacophony of speech.Dogs remind us that we are being heard,without the additional weight of words.”

What a gift. No wonder we love themso much.

Patricia McConnell is an adjunct associate professor of Zool-ogy at the University of Wisconsin, where she teaches “TheBiology and Philosophy of Human-Animal Relationships.” ACertified Applied Animal Behaviourist, her latest book is For

the Love of a Dog: Understanding Emotion in You and Your Best

Friend (Ballantine, 2006). She is also the co-host of “CallingAll Pets,” from Wisconsin Public Radio, where she givesadvice to animal lovers in over 120 U.S. cities.

The fact that they express happinessso well, and that happiness is contagious,is just icing on the cake.

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A Rotman professor known for his ground-breaking research on goal-setting hasreceived a prestigious award from theSociety for Human Resource Man-agement (SHRM). Gary Latham,Secretary of State Professor of Organiza-tional Effectiveness at the Rotman School,received the 2006 Michael R. LoseyHuman Resource Research Award atSHRM’s 58th Annual Conference andExposition in Washington, D.C. in June.This prestigious award recognizes human

Prof. Latham has notably influenced fourareas in human resource management: selec-tion, performance appraisal/management,training, and motivation. He has led researchon situational interviews; the concept ofBehavioral Observation Scales for evaluatingemployee performance; pioneered the use ofgoal setting and social cognitive theory fordesigning training programs; and has carriedout groundbreaking research on goal settingwith underprivileged individuals as well ashighly educated scientists and engineers.

Prof. Latham has received muchrecognition for his research, includingawards from the American PsychologicalAssociation, the Canadian Psychologi-cal Association, the Academy ofManagement, and the Society forIndustrial/ Organizational Psychol-ogy. His research includes over 140published studies, five books and severalcassettes and videos. He received his B.A. inExperimental Psychology from DalhousieUniversity, his M.S. in Social-IndustrialPsychology from Georgia Tech, and hisPh.D. in Psychology from the Universityof Akron.by Ken McGuffin

News Briefs

Professor Wins Prestigious HR Research Award

resource researchers or professionalswhose contributions significantly advancethe field of HR management.

As noted in Prof. Latham’s nomina-tion form, submitted by his colleagues,“Gary’s contribution to the science andpractice of human resource managementis shown in the extent to which he hasdeveloped and used theory as a frameworkfor guiding practice, and the methodolog-ical rigor with which he has done so. As ofthe mid-1980s he had done more fieldexperiments and quasi-field experimentsthan any other human resource manage-ment scholar to that point in time. I canthink of no better candidate for the LoseyAward than Gary Latham.”

The special research fund, named inhonor of former SHRM President andCEO Michael R. Losey, was endowedwith a one million dollar gift in 2000.SHRM, the Human Resource CertificationInstitute (HRCI) and the SHRM Founda-tion jointly funded the endowment. Prof.Latham will receive $50,000 as recognitionfor his contributions, which may help tofacilitate future research. He is the firstwinner of the award to come from an insti-tution outside the United States.

Arts and science graduates make attractivehires for many employers because of theirabilities to think and write. However, theyoften lack basic business knowledge andteamwork skills. A new program at theRotman School has been designed to fillthis gap.

The month-long Rotman Bridge-to-Business Program, offered for thefirst time this June, is geared towards newarts and science graduates and third-yearundergraduates entering their final year

New Program Connects Arts and Science Grads with their First Job

who are interested in moving from univer-sity life to the working world. In this ‘bootcamp’-style program, they gain fundamen-tal business skills, and the ability to workwithin a team in a professional work setting.

“These students also need to learn howto find the right first job,” says JoeD’Cruz, academic director of the programand a professor of Strategic Management atthe School. He recommends that they finda job that will become the platform onwhich they can build a career.


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Prof. Gary Latham

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Yale Economist on Irrational Exuberance

Yale economist Robert Shiller, author ofIrrational Exuberance, earned a reputation asa ‘bubble guru’ when he predicted the stockmarket crash in 2000 at the height of thedot-com era. More recently, he has turnedhis attention to the soaring real estate mar-ket. On the evening of May 10, Shillershared his ideas on the rebound in stockprices and the current state of the housingmarket in the 52nd session of the Rotman

Integrative Thinking Seminar Series.With the Dow Jones Industrial Index

hovering around levels not seen since itsformer peak of January 2000, Shiller con-tends that we are in a new era of irrationalexuberance. This time, however, the focusof the speculative frenzy is an overinflatedreal- estate market. Home prices have risendramatically in such cities as London, Syd-ney and Paris since the mid-90s. The samepattern holds true for most American cities– in Las Vegas, for example, housing pricesrose more than 50 per cent in 2004 – whileconstruction costs and rents, which moreaccurately reflect real estate value, haveremained largely stable.

Such disparities could exert a powerfulinfluence on the world economy if the bub-ble were to burst. “In the U.S. alone,” Shillerpoints out, “the estimated value of realestate owned by households is $20 trillion –more than the stock market” (which is val-

allow investors to profit from real estate inan era of market decline, says Shiller, whoaims to remedy this imbalance by launching acompany that sells housing futures contracts.MacroMarkets LLC, which debuted onthe Chicago Mercantile Exchange on May22, provides futures and options for realestate markets in ten major U.S. cities, withmore to be added as more reliable houseprice indexes are developed. “This meanspeople can invest in U.S. real estate even ifthey think the price is going to fall,” saysShiller. “That’s what we need: people on bothsides of the investment spectrum. I think thiswill be a revolutionary change.”by Stephen Watt

ued at $15 trillion.) Shiller was pleased tonote that the U.S. Federal Reserve,under Chairman Ben Bernanke, soundedan oblique warning about the housing boomin a statement accompanying its interestrate hike on May 10, the first time such anacknowledgement has been made. “This isprogress,” said Shiller. “Market volatilityposes threats to the world economy.And theparticular kind of volatility that poses thebiggest threat is real estate price volatility.”

Contrary to the perceived wisdom ofmany home buyers, the real estate market isnot immune to the laws of gravity. “Homeprices don’t go up on average over longperiods of time,” Shiller says. “They’re a pro-ducible commodity, and we get better andbetter at producing them as time goes on.”In the U.S., the average cost of a house(adjusted for inflation) can actually beexpected to fall as a number of factors comeinto play, including the introduction ofcheap labour from Mexico and falling con-struction costs due to increased efficiency inthe lumber industry. A decline in the hous-ing market would be particularly distressingfor the many consumers who have been bet-ting on future wealth by taking out secondmortgages and lines of credit.

With the real estate market possiblycaught in a boom-and-bust cycle, what islacking are sophisticated tools that would

“Rotman Bridge-to-Business is the firstprogram of its kind to be offered by a Cana-dian business school, and we believe itanswers a huge need in the marketplace,” saysD’Cruz. “Our conversations with programapplicants and some of Canada’s largest com-panies indicate that the blend of criticalthinking and writing skills learned in an artsand science program, strong communityleadership experience, knowledge of businessfundamentals, and the ability to work well in a team creates highly attractive and

well-prepared candidates for many employers.”The program involves six-day weeks

and 10-hour days, and is designed and taughtby the same faculty who teach in the Rot-man MBA program. It also features an arrayof guest speakers and advisors drawn fromalumni of Rotman’s executive and degreeprograms. Unlike the traditional undergrad-uate learning models, there is little lecturetime, with the focus placed instead on groupwork, peer and mentor feedback, and expe-riential learning sessions.

Learning modules include such funda-mentals as Marketing, Finance andAccounting, and Business Ethics, but alsofocus on how to work in a team, approachcomplex business problems successfully,make decisions, and get things done in anorganization.The program provides partic-ipants with opportunities to interview withsome Canada’s leading employers for manyexciting entry-level positions. For furtherdetails, visit www.rotmanb2b.com.-by Ariana Bradford

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Yale Professor Robert Shiller

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News Briefs

When you’re one of the world’s largestconsumer goods companies, how do youconnect with the individual customer at alocal level? This was the challengeaddressed by Jim Stengel, global marketingofficer for Procter and Gamble, at thisyear’s Rotman Marketing Guru Lecture. About300 Rotman faculty, staff and students gath-ered in the Fleck Atrium on April 11 tohear Stengel discuss, “Marketing Unleashed:Empowering People to Drive Innovationand Results.”

Once considered a safe but somewhatstodgy giant in the world of consumergoods, P&G has achieved some remarkablemilestones of late: in the last five years it hasincreased sales by more than 40 per cent,doubled its earnings and stock price, andincreased its stable of brands from 10 to 17(its recent acquisition of Gillette brings thenumber to 22.) Key to the revival of thecompany’s fortunes has been its remarkableefforts to invigorate its marketing andbranding strategy, under the leadership ofStengel and CEO A. G. Lafley.

Stengel explained how it happened.“As with every great change, it started witha deceptively-simple notion: let’s reallymake the consumer our boss.” To that end,the company has implemented a number of“customer immersion” programs across itsvarious brands.At Iams, the pet food maker

that was acquired by P&G in the late 1990s,staff volunteer at an animal rescue shelter,caring for animals and learning about thechallenges faced by caretakers. In Mexico, atraining program called “Live It, Work It,Shop It” brings new sales and marketingemployees into low income neighbour-hoods for a week to work in small retailstores. “They put on an apron and they arein the neighbourhood, meeting the neigh-bours and watching the kids and the momsto understand what influences a purchasedecision, and to see how the products areused.” While staff later undergo more for-mal training at corporate headquarters, thisinitial experience profoundly shapes theirappreciation of consumers and their rela-tionship with P&G brands.

Such close attention to customers hasresulted in marketing strategies that makethe most of local cultural differences. “Thetraditional model of marketing, the massmodel, is dead,” says Stengel. “It’s nowabout understanding a specific group that isvery important to your brand’s future, andcustomizing your efforts around that.” Inthe Middle East,Tide launched a successfulcampaign to associate itself with family cel-ebrations during Ramadan. In Pakistan,P&G partnered with the Pakistan MedicalAssociation to promote health and hygienepractises for children. The mascot of this

P&G Marketing Guru Visits Rotman

campaign, Commander Safeguard, “is nowconsidered the superman of Pakistani kids,”according to Stengel.

As well as having an impact on the bot-tom line, such culturally-specific brandpromotion has won Stengel and P&G plau-dits from peers in the marketingprofession. In 2003 and 2004, Stengel wasrecognized by Ad Age as the number one“Power Player” in marketing; and in 2005,it named P&G its “Marketer of the Year.”Stengel is quick to share credit for P&G’ssuccess with those within the organization,as well as the company’s advertising agen-cies, retailers and other partners. “We’veunleashed marketing by unleashing ourpeople,” he says. “We’ve given them per-mission to lead with their hearts as well astheir minds, to be passionate about thecause, and about their consumers.”by Stephen Watt

based on his latest book, Hard Facts, Danger-

ous Half-Truths, and Total Nonsense: Profiting

from Evidence-Based Management.“We carry the past into the future, tak-

ing our experience with us. This happensnot only in business, but in fields like edu-cation, medicine, and criminology. In thelatter, for example, we keep putting misbe-having youths in detention centres, despitea long record of bad outcomes.” Decisionsare also too often based on what others aredoing, says Pfeffer. “You’ll hear people saythings like,‘GE does ‘x’, and GE is success-ful; so we should do it, too’.” None of this

“Roger Martin is one of the mostextraordinary deans I’ve ever had thepleasure of meeting: I would love to clonehim.” Having ensured himself a return invi-tation to the Rotman School, JeffreyPfeffer went on to tell the capacity crowdthat organizational decisions are too oftenbased on what senior leaders have alwaysdone in the past and think has been effec-tive. Pfeffer, the Dee Professor ofOrganizational Behaviour at Stanford’sGraduate School of Business, was featuredin the Rotman Knowledge Management Speaker

Series on March 28th in a presentation

The Merits of Evidence-Based Management

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From left, Dean Roger Martin, Rotman MarketingAssociation President Laurel Sutton (MBA ’06)and Jim Stengel.

Stanford Professor Jeffrey Pfeffer

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How many best-selling authors wouldbegin a public presentation by announcingthat they don’t want to discuss their books?And of that small group, how many wouldtell the audience that they would muchprefer to talk about a now-defunct 70srock band? The answer is, one: but then,Malcolm Gladwell is an original. Thebest-selling author of Blink: The Power of

Thinking Without Thinking and The Tipping

Point: How Little Things Can Make a Big Dif-

ference was featured in the 51st session ofthe ongoing Rotman Integrative Thinking™

Seminar Series on April 3rd.Many people refer to ‘the story of rock

and roll’ as if it were a singular story, Glad-well told the crowd, but it is actually twostories. “In the 1960s and 70s, FleetwoodMac went through a dizzying array oflineup changes, relationship issues, and

drug problems. If you listened now to theirfirst few albums, you would have no ideawho it was – they sounded nothing like theband we have come to know.” At the otherend of the spectrum is The Eagles, whocame about their success in a much differ-ent manner. “Their very first album,Desperado, sounds unmistakably like theEagles we have come to know, and they hitit big immediately. Only three years later,they released their first ‘Greatest Hits’compilation; and then came Hotel California

– which remains one of the best-sellingrecords of all time.”

The main difference between the twogroups? “It took the Eagles just four yearsto create their greatest artistic achieve-ment, while Fleetwood Mac took 16 yearsto make Rumours. As University of ChicagoProfessor David Galenson has shown inhis research, creative people don’t matureat a consistent rate: they can be either‘experimental’ (like Fleetwood Mac), or‘conceptual’ (like the Eagles.)”

Conceptual artists, such as Picasso,continue to innovate with ground-breakingnew ideas throughout their career, whileexperimental types like Cezanne have onekey idea for their whole career, which theycontinue to chip away at. “This distinction isimportant,” says the UofT (Trinity College)graduate, “because in modern business, we

tend to favour one kind of innovator – thePicassos – and turn our backs on theCezannes.And there are major implications.”

Take the U.S. auto industry, whichisn’t known for being very innovative. “Infact, it has made several conceptual innova-tions – the muscle car, the SUV – thatrevised the very notion of how we drive.”The Japanese, on the other hand, have notcreated new categories of cars; their focushas been on experimental innovations.“They work on things like reliability andlow cost, over years and years.”

Detroit is always looking for big ideas,says Gladwell.The problem? “The Cezannemodel takes time; but North Americanmanagers want results now!”The same biascan be found in Silicon Valley, he says.“Show me a VC firm that will stick with aproject for 10 years. Today, Picasso wouldbe circled by VCs, while Cezanne would beignored. It takes longer for us to warm toexperimental ideas.”

The trick for today’s firms is to find abalance, he says. “It’s no coincidence that thepharmaceutical, music and auto industries –all of which are wedded to the Picasso style ofinnovation – are in crisis at the moment.Theyneed to change the way they think aboutinnovation, and realize that there isn’t justone story of rock and roll: there are two.”by Karen Christensen

Gladwell on the History of Rock and Roll

They must start challenging conventional wisdom,” says Pfeffer. “Evidence-based man-agement doesn’t require that you know all theevidence before making a decision: what itrequires is an ability to unpack assumptionsand confront them with evidence, or at leastwisdom and informed opinion.This leads youto employ different, more effective mentalmodels – and practices.”

For example, Southwest Airlines paysits pilots $180 per hour, while United pays$120. So, why is Southwest profitable andUnited not, despite its significantly lowerwages? “Answering this requires examiningassumptions about the relationship between

wage rates, labour costs and profits; and inthis case, United has the assumptions allwrong. They forgot about a key piece of thepuzzle: discretionary effort. That extra effortemployees don’t have to put in, but do,because they care about their company. It’sworth its weight in gold, and that’s whySouthwest does so well.”

In addition to his role at Stanford,Prof. Pfeffer is also a columnist for Business

2.0 Magazine. He has written several best-selling books, including The Knowing-Doing

Gap: How Smart Companies Turn Knowledge

into Action.by Karen Christensen

leads to better decisions, he says. Whatdoes? Evidence-based management.

“Evidence-based management is apowerful new way of thinking that requiresmanagers to see their organization as anunfinished prototype,” says Pfeffer. “It’sabout knowing what you know and knowingwhat you don’t know – and being willing toact on the basis of what is known at thetime, learning while you act.” Thisapproach leads to continuous experimen-tation and an acceptance that you are“always in the design phase,” he says.

“Managers must develop their skills inuncovering assumptions and examining them.

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News Briefs

Scholarship Aims to Strengthen Health Research and InnovationA new program from the CanadianInstitute for Health Research (CIHR)will help recent doctoral graduates in thelife sciences pursue a Rotman MBA with amajor in Health Sector Management.

The CIHR Science to Business Grantprogram will enable the School to providescholarships to three students while theypursue a two or three-year MBA program.The program aims to strengthen Canada’sability to commercialize its world-classresearch in the life sciences. It will supportthe development of entrepreneurs and ven-ture capitalists with a scientific background,and aims to foster an entrepreneurial culturewithin the research community.

“The Rotman School is uniquely posi-tioned to participate in this program, withour proximity to one of the largest concen-trations of health sciences research inNorth America, and our additional access

to the resources of the University ofToronto, the Medical and Related Sciences(MaRS) Discovery District and over 30internationally-renowned hospitals andresearch institutes,” says Rotman professorBrian Golden, who holds the Sandra Rot-man Chair in Health Sector Strategy at theUniversity of Toronto and the UniversityHealth Network. “The development andsupport of entrepreneurs in the life sci-ences will directly impact Canada’scompetitiveness and take scientific inven-tion to its natural end state: commerciallyviable life sciences products and services.”

The Rotman School is one of only fourCanadian business schools receiving fund-ing through this program. Potentialcandidates must be Canadian citizens whohave obtained a PhD in health scienceswithin the last five years.by Ken McGuffin

For Some Workers, Secrecy is the Norm When it Comes to Passing Along What They KnowWhen it comes to job knowledge, few peo-ple know more about it than the personperforming the assignment. “Employeesaccumulate a wealth of information abouttheir jobs and, along the way, develop effi-ciencies that make them more productive.”Yet they are often reluctant, for variousreasons, to pass this knowledge along toothers, says David Zweig, an assistantprofessor of Organizational Behaviour atthe Rotman School.

Zweig and Prof. Susan Brodt ofQueens University have been studying whypeople are reluctant to share their knowl-edge, and have identified three reasons whyemployees engage in ‘knowledge hiding’.One is interpersonal, and that includes cir-cumstances when people feel that aninjustice has been done to them, they aredistrustful of management or feel they arereciprocating for someone else’s behaviourtoward them. Closely related are employ-ees who are unsure of themselves. “They

are afraid of negative job evaluations andfigure they are better off not sharing any-thing,” he says.

A third reason is the organizational cli-mate. “If there is a culture of not sharingand being secretive, then employees tend toadopt that culture,” he adds. Also, hangingon to their job knowledge gives them asense of power and importance becausethey have specific information that no oneelse has. Zweig notes that not all employeesrefuse to share information: many are morethan willing to provide job knowledge topeople they trust and who treat them fairly.

If organizations want to promoteknowledge sharing – and it is in their bestinterests to do so, says Zweig – they needto enhance the workplace climate and makeknowledge sharing and collaboration anorm in the workplace. “It could be part oftheir performance appraisals. If employeesknow they will be rewarded for sharingtheir expertise, they will be more open to

doing so.” He also suggests that if organiza-tions emphasize positive relationships andtrust among employees, then knowledgesharing will become part of the culture.“And that makes everyone better,” he says.by Ken McGuffin

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ICD and TELUS Partner on Not-for-Profit Governance TrainingThe ICD Corporate Governance College, apartnership between the Institute of Cor-porate Directors, the Rotman School,and TELUS recently announced the launchof an innovative new program for not-for-profit directors.

“According to Statistics Canada, non-profit and voluntary sector organizationsmanage more than $112 billion in revenues.The Governance Essentials Program willeducate not-for-profit directors on their keyboard accountabilities and director responsi-bilities,” said Institute of CorporateDirectors and ICD Corporate GovernanceCollege President and CEO Beverly Top-ping. “The program will focus on thefundamental learning in core areas includingknowledge of the role of board members,conceptual thinking and communication,

change management principles needed tobuild an effective board and governanceprocess, and best practices for non-profitgovernance. This program is equally forsmall and large NFP directors.”

The Governance Essentials Programwas offered through the ICD CorporateGovernance College partner universitiesbeginning with the Rotman School inToronto in May, and will also be offered inEdmonton, Calgary, Montreal, Ottawa andVancouver. “We are delighted to have TELUSas our presenting sponsor for this program,”says Topping. “Not only are they providingthe capital to set this program in motion,they will also provide nine scholarships percity, for a total of 54 for directors of not-for-profit organizations who may not otherwisehave been able to attend such a program.”

“This initiative goes beyond traditionalcharitable giving by fostering effective lead-ership within the not-for-profit sector andthereby maximizing the benefits to the com-munities in which we all live and work,” saysDarren Entwistle, president and CEO ofTELUS. “We hope to leverage this ground-breaking program to establish best-in-classleadership and in this regard, governance ofthe seven TELUS Community Boards estab-lished across Canada to enhance our supportof the not-for-profit sector.”

“Director education is being taken veryseriously in Canada,” says Topping. To date,the ICD Corporate Governance College hasover 700 directors who are enrolled in orhave graduated from the Directors Educa-tion Program.by Ken McGuffin

Department of Management have also beencross-appointed to the Rotman School:Samantha Montes will be an assistantprofessor of Organizational Behaviour andJohn Trougakos will be an assistant pro-fessor of Organizational Behaviour.

nia at Berkeley.Philipp Aféche is an assistant profes-

sor of Operations Management. He will jointhe Rotman School in January 2007 fromthe University of Chicago, where he is cur-rently teaching following an earlierappointment at the Kellogg School of Man-agement. His research focuses on theoperations and economics of response timemanagement for service and manufacturingprocesses

is an assistantprofessor of Finance who has a researchinterest in investing, including mutualfunds, and asset pricing. He is completinghis PhD at the University of Chicago Grad-uate School of Business.

Chen-Bo Zhong joins the RotmanSchool as an assistant profess of Organiza-tional Behaviour from the Kellogg School ofManagement, where he is completing hisPhD. His research focuses on ethics anddecision making.

In addition, two new appointments atthe University of Toronto Scarborough’s

Five new professors have joined the facultyof the Rotman School for the 2006/07 aca-demic year, bringing a wide range ofexpertise to the School’s teaching andresearch activities.

Olav Sorenson is known for hisresearch in the areas of organizational learn-ing, technology management, and therelationship between social networks andeconomic geography, particularly in thefilm and venture capital industries. He joinsthe Rotman School as the Jeffrey S. SkollChair in Technological Innovationand Entrepreneurship and a professorof Strategic Management. Previously, hetaught at the London Business School, Uni-versity of Chicago, and UCLA’s AndersonSchool of Management.

M. H. Franco Wong is an associateprofessor of Accounting who comes to theRotman School from the University ofChicago. His research interests includeearnings management, employee stockoptions, and market risk disclosures. He has also taught at the University of Califor-

Rotman Welcomes Five New Professors

Olav Sorenson joins the Rotman faculty as the Jeffrey S. Skoll Chair in Technological Innovationand Entrepreneurship.

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Lukasz Pomorski

News Briefs

MDS Endows Scholarship Fund at RotmanMDS Inc., a leading provider of enablingproducts and services to the global life sci-ences markets, has established a newscholarship at the Rotman School in honourof John Rogers, the company’s formerpresident and chief executive officer.

The $250,000 gift to the School will bematched by the University’s Graduate Stu-dent Endowment Fund, creating a $500,000fund for the John A. Rogers Award inLeadership for MBA students. The firstaward will be granted in the 2007/2008academic year, with a value of $30,000.

John Rogers, who joined MDS in1973, became a member of the board ofdirectors in 1993, and president and CEOin 1996. He was integral to MDS’ transfor-mation from an Ontario laboratorycompany, with revenues of $9.5 million, toa diversified international organization withrevenues in excess of $1.5 billion and over9,000 employees worldwide. Rogersretired from MDS in October 2005.

“MDS is pleased to support the RotmanSchool of Management in developing futurebusiness leaders. John Rogers built MDSinto a global business over his more than 30years of service,” says Stephen DeFalco,the company’s president and CEO.

The John A. Rogers Award in Leader-ship will be given to an incoming graduatestudent who exhibits outstanding qualitiesof leadership. Incoming students mustapply for the award by submitting an essaydescribing their approach to leadership andhow their leadership will contribute to abetter world.The recipient will be selectedby the Dean of the Rotman School of Man-agement, on the recommendation of anawards committee.

“John Rogers received the RotmanDistinguished Business Alumni Award in2004. His accomplishments not only set aterrific example for Rotman students, butalso provide a great source of pride for theUniversity of Toronto community,” saysDean Roger Martin. “This award willassist some of our most promising newleaders and creates a fitting legacy for Johnat the Rotman School.”by Catherine Riddell

Student volunteerism was celebrated at theUniversity’s Gordon Cressy LeadershipAwards for 2006, where six Rotman stu-dents were honoured. Named after theformer university vice-president, theawards recognize outstanding extracurricu-lar contributions to a faculty, school,department, or to the university as a whole.The March 7 ceremony was hosted byMichael Deck, president of the Univer-sity of Toronto Alumni Association, andrecipients were greeted by Cressy, nowpresident of the Canadian Tire Founda-tion for Families, and David Naylor,president of U of T. Pictured here, recipientsincluded William Fox (MBA ’06), PaulNagpal (MBA ’06), Ryan Starkman(MBA ’06) and Zorik Nizan (MBA ’06).Not pictured are Brendan Bergie (MBA’06) and Paul Forma (MBA ’06).

U of T Honours Student Leaders


From left,William Fox, Paul Nagpal, Ryan Starkman, and Zorik Nizan, all MBA ’06.

From left, Prof. Brian Golden, the Sandra Rotman Chair in Health Sector Strategy; Susan Harnarine (MBA’06); Stephen DeFalco; John Rogers; and Dean Roger Martin.

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Making an ImpactFor over 30 years, the Impact ConsultingGroup at the Rotman School has sup-ported clients with premium consultingservices while providing valuable summerwork experience to a generation of Rotman MBA students.

Founded in 1972, Impact is a full-service, student-owned and managed firmthat hires new partners each year fromstudents who are completing the first yearof the Rotman Two-Year MBA program.The team is able to draw on the resourcesof the internationally acclaimed RotmanSchool and their own unique backgroundsto create specialized and professional con-sulting services, at a fraction of the cost ofthe big firms. Graduates of Impact andRotman have gone on to work in a widerange of industries in countries aroundthe world.

“Impact’s competitive advantage liesin its provision of high quality consultingwith a fresh perspective – influenced bythe innovative Rotman MBA Program–coupled with an ability to leverage theresources available through our world-class School,” says Dean Roger Martin.“I am very proud of Impact’s legacy of

achievement and look forward to its con-tinued success.”

This year’s Impact team includes part-ners with experience in marketing, finance,the public sector, human resources and law:before coming to Rotman, ChristopherCharlesworth was an account representa-tive for the media company FrameBlender;Andrew Clarfield-Henry worked as theprogram director for a summer camp, andfounded a successful small business venture,the Toronto Flag Football League; MichaelDary spent several years working as astrategic human resources consultant with

the Government of Alberta; Sandy Sue wasthe director of marketing at Alliance AtlantisCommunications and is also a partner at amultimedia studio where she manages busi-ness development and client projects in awide range of industries. Rounding out theteam is Roger Thompson, who previouslyworked as a financial analyst at IBMCanada, and was a business studies lecturerat a college in London, England.

The Impact Consulting Group can bereached at: 416 978 4343, [email protected], or visited online atwww.ImpactConsultingGroup.ca.by Ken McGuffin


From left, Christopher Charlesworth, Michael Dary, Roger Thompson, Sandy Sue and Andrew Clarfield-Henry.

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Professor Wins Award for Contributions to Accounting

Rotman Accounting Professor JeffreyCallen recently won a prestigious award forcontributions to his field. Prof. Callen, whoholds the Rotman Chair in Accounting, wasgiven the Haim Falk Award for DistinguishedContribution to Accounting Thought. Theaward is given by the Canadian AcademicAccounting Association (CAAA) inrecognition of a significant contribution toscholarly thinking and research in Canadathrough a body of work that clearly has con-tributed to the advancement of accountingthought.The award was presented during theCAAA’s annual conference in June.

Rotman Professor Gordon Richard-son, who nominated Prof. Callen for theaward, cited the importance of his work inbringing variance decomposition analysis toimportant financial reporting issues, includ-

ing distinguishing the relative roles of operat-ing income versus free cash flows, domesticversus foreign earnings, and most recently,understanding the information content ofSEC filings. “Jeffrey’s ability to provide novelapproaches to accounting research is rootedin his remarkable ability to be influential ineach of economics, finance, and of course,accounting,” says Richardson.

Prof. Callen has provided valuable ref-eree services to numerous journals, andwas editor of the Journal of Accounting, Auditing

and Finance from 1994 until 2000. Currentlyhe is an associate editor of Contemporary

Accounting Research. He joined the Univer-sity of Toronto from New York University in2000, and was instrumental in establishingthe Rotman doctoral program in Accounting.by Ken McGuffinPh

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Alumni Profile: Gord Nelson (MBA ’85)by Stephen Watt

Stephen Watt: Describe your role atCineplex.Gord Nelson: As the CFO, I am responsiblefor financial matters such as the company’s performance and various com-pliance issues. In addition, I spend a fairamount of time dealing with externalstakeholders, including our investor com-munity and analysts. I like to think that I represent the interests and concerns ofthis community in our internal businessdecision processes.

SW: What is the best thing about your job?GN: Cineplex Entertainment has a domi-nant position in the industry and we’veassembled one of the best managementteams in this business in North America.Our CEO has an MBA and a CA, and wehave a number of chartered accountantsamong our senior staff, making it easy forus to function as a financially literate team.Also, unlike other firms, where new prod-ucts don’t occur that frequently, we have anew slate of films every week.This week isa classic example: The Da Vinci Code andOver the Hedge are opening, and boththose films should do extremely well.

SW: What is your greatest challenge?GN: Cineplex has undergone some funda-mental changes in the past few years. In1998, when I was a senior vice-president offinance, Cineplex Odeon, as we wereknown then, was acquired by Loews, aNew York-based company, and we had toshut down about two-thirds of the office inCanada as our corporate functions movedto the US. In 2001, Loews filed for Chapter11 and Cineplex Odeon filed for the Com-panies’ Creditors Arrangement Act(CCAA), the Canadian equivalent. In 2002,we came out of CCAA and were acquiredby Onex Corporation. Then in 2003, wemerged with Galaxy Entertainment and didan IPO, and in 2005, we acquired ourlargest competitor, Famous Players, and did

another public offering. That’s a lot to gothrough: a CCAA filing, downsizing,changing ownership, trying to integratemanagement teams. But the biggest chal-lenge was dealing with the human element,knowing when to push people and when tohold back, how to prioritize to get whereyou need to be.

SW: Where do your loyalties lie?GN: I’ve been with this company for about17 years and in that time it has changed sig-nificantly from a business operations andownership perspective. Early on we wereinvolved in television production, liveentertainment, post-production laborato-ries, Universal Studios in Florida and manyother ventures. We disposed of most ofthese businesses and focused on our corebusiness, theatre exhibition and as we wentthrough the divestiture process and owner-ship changes our core team was split up.The more recent IPO and acquisition ofFamous Players has almost brought us fullcircle.The team I work with today virtuallystarted with me. We’ve all been split upthroughout our careers but now we’re backtogether again. So I definitely feel loyalty tothis executive team and to the employeesthat have been with me throughout thischallenging period.

SW: What’s the biggest personal or pro-fessional risk you’ve ever taken?GN: A few years ago, there was a realdownturn in this industry, and a lot ofmovie chains filed for bankruptcy, espe-cially in the U.S. When a firm goes intoChapter 11 and you’re the finance guy,there’s always that fear that you’re going toget tainted. But I believed that people willalways want to go to the movies. I also sawthat there were some wrongs that could becorrected with the right people. In recentyears, we’ve turned things around. Byacquiring Famous Players, we’ve gainedapproximately 64 per cent of the Canadian

market. So it’s a risk that paid off for me.And I can honestly say that I could neverhave accumulated such a wealth of knowl-edge and experience by moving elsewhere.

SW: What is your fondest memory ofyour Rotman MBA experience?GN: What I enjoyed most about earning myMBA was the experience of broadening myperspective and knowledge base, taking ahigher view of things, as well as the cama-raderie. At the time, we were at the oldbuilding at St. George and Bloor, with asmaller class than probably exists today.Wedeveloped a closeness of a sort that I didn’tfind during my undergraduate years.

SW: What do you do for fun?GN: I used to play in a rock band. I playedkeyboards and we did the Queen Street cir-cuit back in the late ‘80s. But now I havetwo children and a wife who doesn’t like itso much when I crank up the music. I alsohave power tools at home, and if I have thetime and opportunity to try to build some-thing, I will. I think that many people in thebusiness world sometimes grow tired ofjust pushing paper and look for anotheroutlet. Just don’t take a level to anythingI’ve made!

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Alumni Capsules

Dennis Choa (MBA ’95)

Director, Corporate Sales and Structuring,

Citigroup Korea

Lives and works in: Seoul, South Korea

Best thing about my job: The opportu-nity to live and work in various countrieswith people from different cultures andbackgrounds.

My biggest challenge: Language is alwaysa problem when working in a foreign coun-try.Yet, it also gives a person the chance tobecome creative in how to communicatewith others.

Most important skills for my job: Theability to motivate, communicate, coachand gain trust; the ability to embracechange; creativity and analytical skills.

Proudest moment: I had my proudestmoments when my wife, Janice, and I had ourtwo sons, aged nine and five. It just gives us somuch joy to see them grow up and learn newskills every day. Living overseas also givesthem the chance to adapt to new places,people and culture, even at a young age.

The word that best describes me: adaptable.

The most innovative thing I’ve ever doneis: My work involves structuring innovativefinancial products for our various customersegments and building an efficient androbust process for delivering them.

How I relax: Biking or in-line skating withthe family in the numerous parks aroundSeoul. Occasionally, climbing some of themountains around Korea offers a breath offresh air away from the city.

Most important thing my MBA taughtme: My best recollections of my MBA pro-gram were the group projects where wegot to work on real life business problems.Academically, Professor Hull’s course onDerivatives also gave me a very solid foun-dation for my field of work.

Words of Wisdom: “Are you here with asolution or are you part of the problem?”

Naomi Fraser (MBA ’00)

Account Director,Arts & Entertainment,

Television and New Media Communications,

CBC Television

Lives and works in:Toronto

Best thing about my job: Working with anamazing and extraordinarily talented teamdedicated to creating and promoting com-pelling content for Canada’s national publicbroadcaster.

Biggest challenge of my job: Making theCBC more relevant, popular and entertain-ing. Studies have confirmed that Canadiansbelieve in the CBC and its unique mandate.Winning greater audience share in the mostcompetitive and changing television marketin the world is our objective.

Most important skills for my job: Visionand focus. I am constantly managing multi-ple priorities, clients, and projects. Whenplanning time is short, it is important tostep back and think strategically about how

to approach the specific series, movie ormini-series.

I am loyal to: My values, family andfriends. I have been privileged to work fora number of amazing companies. However,you can usually find another job. The samecan not be said of family.

Proudest moment: Personally, the birth ofmy son was the most extraordinary, life-changing moment that I treasure every day.In broadcasting, I’m thrilled each time acampaign resonates with the audiences.

The word that best describes me:Unflappable. Being calm and patient aredefinitely learned traits but ones that havepaid big dividends.

The most innovative thing I’ve ever doneis: Yet to come. There is a tremendousamount of change and evolution takingplace at the CBC, making it an excitingtime to work in communications.

How I relax: Playing with my son.There isnothing better than seeing the smile on hisface. All the chaos of work simply fadesaway.

Most important thing my MBA taught me:How to work in and manage teams.Withoutteam members’ expertise, executing a project well would be infinitely harder.

Words of Wisdom: If you don’t ask, youdon’t get.

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Claudia Avila (MBA ’06)

Executive Director, Mexican Association of

Industrial and Business Parks (AMPIP)

Lives and works in: Mexico City, Mexico

Best thing about my job: The industrialparks I represent host more than 2,000multinational companies and generatemore than 300,000 jobs. As such, my workputs me in daily contact with such diversegroups as these multinationals; state andnational government authorities, congress-men lobbying for new projects;universities, embassies and internationalorganizations.

My biggest challenge: Time managementis essential; I have to set priorities formyself and for the rest of the staff becausethere are so many things to do at once. In2006 alone, our members will investaround $1 billion USD in new industrialreal estate projects.

Most important skills for my job: Planning, organizing and negotiating;promotional and analytical skills.

I am loyal to: Honesty and responsibility.

Proudest moment: Received recognitionfrom the federal authorities in Mexico andfrom the business sector regarding my pastjob as a Secretary of Economic Develop-ment in the Mexican State of Hidalgo.Thanks to results generated, I was invitedto assume this new position, my first in theprivate sector.

The word that best describes me: Reliable– someone you can trust as an employee, asa team player and as a friend.

The most innovative thing I’ve everdone: Introduced a new vision to work byobjectives and results, to a government areawhich was used to bureaucracy and pro-crastination, ended with the ISO9000certification for a group of 250 people.

How I relax: Reading, going to the moviesand a spa!

Most important thing my MBA taughtme: To analyze the big picture and not toget caught in the fragmented details.

Words of Wisdom: Be happy. Don’t suffermore than ten minutes. Finish your frustra-tion session quickly and continue with thenext thing.

Farzad Alvi (MBA ’92)

PhD Candidate, Judge Business School,

University of Cambridge

Lives in: Cambridge, U.K.

Best thing about my job: How I get towork. I used to take planes to work for 10years, originating mergers and acquisi-tions, equity capital markets andrestructuring advisory transactions inAsia, the Middle East, and EasternEurope. Now I ride my bicycle throughthe lovely green fields of Cambridge,avoiding cows and swans when they wan-der onto the bicycle path.

My biggest challenge: making an originalcontribution to knowledge.

I am loyal to: The Montreal Canadiens.

Proudest moment: Holding my baby boy,the inimitable Tarek Ming Alvi, in thedelivery room.

The word that best describes me: Reified.

The most innovative thing I’ve everdone is: Following the Asian economic

crisis, restructuring and merging fourdefunct state-owned banks into thelargest bank in Indonesia (at the behest ofthe IMF and World Bank), and then fouryears later, privatizing the merged bankthrough a heavily oversubscribed interna-tional share offering.

How I relax: Playing squash on the DarwinCollege team at Cambridge, usually againstguys at least 10 years younger than me, andusually losing.

Most important thing my MBA taughtme: Glen Whyte’s Negotiations class paidhuge dividends for me throughout mycareer as a banker; I always sought to‘expand the pie’, taking a smaller share ofan enlarged whole rather than a larger shareof a much smaller one.

Words of Wisdom: By ‘retiring’ from bank-ing and doing a PhD at Cambridge, I thinkthat my actions speak louder than words!

Alumni Capsules

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Rosa Villanueva (MBA ’91)

President and CEO, xplora Inc.

Lives and works in: Monterrey, Mexico

Best thing about my job: The absolutediversity of what I do.

My biggest challenge: Having to multitaskfrom the moment I wake up until the still-ness of night, remaining focused, energeticand creative throughout.

Most important skills for my job: If youare to succeed in your target markets andthey happen to be in different countries,you must understand the culture at least asmuch as you do the language.

I am loyal to: Loyalty is without questionan integral part of who I am and in turn,how I define my company.

Proudest moment: On a personal level,being godmother to three beautiful kids as

well as being the spoiling aunt of six pre-cious boys. On a professional level, beingaccepted to the Rotman MBA programwhen NAFTA did not even exist on a napkin (I truly had to sell myself via phonein order to be accepted); also, setting upmy own business 15 years ago, and openingan office in Manhattan ten years later.

The words that best describe me: passion-ate, devoted, loyal, persistent, adventurous.

The most innovative thing I’ve everdone: I became independent when every-one around me was telling me not to do so.I had a great job and the country’s economywas quite bad, nonetheless my entrepre-neurial spirit kicked in, making me ignorethose hard facts.

How I relax: Going out with friends, read-ing a book, listening to music, writing,driving, spoiling my nephews and godsons(yes, only boys thus far), planning trips, andenjoying travel as much as the destination.

Most important thing my MBA taughtme: Believe in yourself enough that you’llcompel others to do the same.

Words of Wisdom: Never give up hope;never lose your sense of innocence; doeverything you say you will; and when pos-sible, outdo yourself. By all means, dare bedifferent if that’s who you are!

Angelo Lai (MBA ’94)

Channel Director, China,

Sun Microsystems Inc.

Lives and works in: Beijing, China

Best thing about my job: Meeting with allreseller partners in China; many friends,across all industries

My biggest challenge: Finding theresources to do the job

Most important skills for my job: Lever-aging charm for leadership, rather thanusing pure authority.

I am loyal to: My professional image in theindustry

Proudest moment: About 18 months aftermy MBA graduation, all of sudden being ableto link up all MBA knowledge together for mymanagerial skills (perhaps it takes 18 monthsto digest all the textbook knowledge and toincubate a real post-MBA professional).

The word that best describes me: Aninternational professional.

How I relax: Sports and travelling.

Most important thing my MBA taughtme: Business strategy, the ability to inter-pret situations from a higher horizon.

Words of Wisdom: Life is short: balancework and living.

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Rotman Reunion 2006 Round-Up by Heather Ullman

What a celebration! On June 1, 2006, classescelebrating milestone reunions (5th,10th…25th, etc.) were invited to the RotmanSchool for an evening of reminiscing withclassmates and professors. Knowing thevalue of connecting with classmates andother alumni as well as giving graduates anopportunity to learn more about the School,the Alumni Office organized this excitingevent in conjunction with class volunteers.

Over 170 alumni from the classes of1966, 1971, 1976, 1981, 1986, 1991,1996 and 2001 from the Full-time, Part-time, MMPA, EMBA, and GEMBAprograms attended the evening’s festivi-ties, which included a cocktail reception inthe Fleck Atrium, where Dean RogerMartin welcomed alumni back to theSchool. After the reception, celebrantsgathered for class dinners.

The evening was a great success, andmany of the attendees remarked on hownice it was not only to catch up with theirfellow classmates, but to come to theSchool – some for the first time – and seefirst hand the exciting changes and progressRotman has made.

Save this Date: May 31, 2007Plans are already underway for RotmanReunion 2007, featuring the classes of 1952,1957, 1962, 1967, 1972, 1977, 1982, 1987,1992, 1997 and 2002. For those interested inlearning more about Rotman Reunion 2007or volunteering, a planning meeting will beheld in September 2006. Contact HeatherC. Ullman, reunion coordinator, at 416-946-3975 or at [email protected].

Thanks to our volunteersThis year’s Reunion would not have been asuccess without the hard work of the ClassChampions and Reunion Volunteers whoworked tirelessly to get the word out aboutReunion and help maximize attendance. TheSchool would like to thank the following ClassChampions and Volunteers for their efforts:

Class of 1966

Gary Halpenny

Class of 1976

Jane Gertner

Class of 1986 (Full and Part-time)

Catherine Ingram, Larry Simon, Roy Turunen

Class of 1991 (Full-time)

David Littlejohn

Class of 1991 (Part-time)

Pamela Kanter


Leo Burns, Vanessa Engel, Suzy Wilcox,Jason Williams, Christine Wong


Daisy Azer

Class of 1996 (EMBA/GEMBA)

Carmine Domanico, Jon Waisberg

Class of 1996 (MMPA)

Vanessa Blumer


Daniel Zinman


Lisa Samson,Walter Sophia

Class of 2001 (EMBA)

Anne Brethet, Ken Hagerman,Angie Makie, Gary Ryan

Class of 2001 (GEMBA)

Margaret Evered

EMBA 2001

Members of the Class of 1996 (Full-time) contingent

EMBA/GEMBA 1996

Class of 1986 (Full and Part-time)

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Class Notes: Fall 2006 Editor: Jack Thompson

Fall is here, and a new host of graduates have hit the ground running: check out page 106 to find out where many of them have landed. Alsofeatured in this issue are the many class reunions that took place over the past few months. These successful events, which offer plenty of oppor-tunity for networking and catching up, are a testament to the hard work of the class champions and reunion coordinators.

The next issue of Rotman comes out in January 2007, and will be called ‘What’s Next?’ – which sounds like an open invitation to fill this sec-tion with more Class Notes than ever! Please keep us updated on your lives and careers, and what’s next for you and yours. The easiest way tokeep us informed is to visit our dedicated class notes web page, which includes a place for uploading your photos:www.rotman.utoronto.ca/alumni/forms_classnotes.asp. The deadline is Friday, November 3, 2006.

A reminder – Class Notes are viewable on the Alumni Portal. Contact us if you need access ([email protected]). Thank you,and keep them coming! – Jack

MBA/MCom Full & Part-Time

1951Donald Dawson has lived in Hawaii since1960. He established a number of compa-nies there, including Dawson Group, a$10-million environmental consulting busi-ness, which he turned over to his son, and aprepaid legal business. Recently retired, hehas been contemplating a return to Canada,where he hopes to connect with otherexpatriates whose talents and resourcescould be put to good use.

1958Douglas Crowe has over 25 years ofmanagement experience as a plant and gen-eral manager in small and mediumdiversified manufacturing operations inCanada and abroad. More recently, heenjoyed a life-altering change of directionwhen he became a private business consult-ant in the informal sector (undergroundeconomy) of the Dominican Republic andelsewhere in Latin America.

1959Charles (Chuck) Mayer is professor ofmarketing and head of department at theCentral European University’s BusinessSchool in Budapest, Hungary. He retiredfrom Schulich in 1994 after serving therefor 25 years. He has taught for extendedperiods at the Amos Tuck School, Dart-mouth; Oxford Centre for ManagementStudies (now the Syed School); Interna-tional University of Japan; TianjinUniversity, PRC; University of Auckland;Tel Aviv International School of Manage-ment; Trinity College, Dublin; StuttgartInstitute of Management and Technology;and Instituto Technologico Autonomode Mexico. From 1994 to 1996 he wasprofessor of strategy at Rotman. Afterhis MBA, Mayer earned a PhD in Businessfrom the University of Michigan.Recipient of numerous academic honours,he has published five books and over 80articles in refereed journals. Chuckhas four children, two of whom holdMBA’s. In his “spare” time, he is a profes-sional ski instructor, a pilot, and a certifiedscuba diver.

Morton Rapp is the president of Manu-facturers Realty in Toronto.

1960William Saunders has retired as a man-agement consultant, and is in the process ofwriting two books on the psychological andtheological adjustments that follow a per-sonal serious tragedy.

1963Ted Runge is retired after working 30years with Xerox Corporation. Ted and hiswife Ellie have two daughters and one son.

1965MBA Class Champion:Cam Fellman [email protected] Class Champion:Gary [email protected]

1967MBA Class Champion:Len Brooks [email protected]

Henry Mansikka is project manager,server systems operations with IBM Canadain Toronto.

1968MBA Class Champion:George Hayhurst [email protected]

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MBA/MCom Full- and Part-Time

George Hayhurst is still the proud ownerof a Canadian Tire store in Oshawa Southafter 34 years, and lives in south Rosedale,Toronto. Other members of the class of1968 are encouraged to get in touch withGeorge Hayhurst to let him and fellowclassmates know about their latest news.

Ross Reid has retired, most recently asthe president and CEO of the OntarioLung Association.

Vance White lives in Collingwood at thebase of Osler Bluff ski club, one of the busi-ness ventures in which he is involved.

1969David Bishop (DBA 1969) is a charteredaccountant with his office in Richmond Hill.

Michael Levy is executive director fitnessfor Spa Chakra, an international developerand operator of luxury spas and fitnessclubs, and chair of the board of IHRSA(International Health Racquet and SportsClub Association). He chairs the endow-ment program, and is currently a boardmember of the Baycrest Geriatric CentreFoundation, as well as of the Pine RiverInstitute, which deals with severely trou-bled teenagers.

1970MBA Class Champion:Charles [email protected] Baker spent his career in the bondinvestment industry as a financial analyst/portfolio manager with Sun Life, and as apartner/director with Altamira, beforeforming his own company, Baker Gilmore &Associates in 1988. David retired in January2004 and spends his time traveling, relaxingand managing private financial interests.

Michael Beamish recently shrugged offsemi-retirement to become CEO of Com-puterState Systems Inc., a Calgary-basedcompany specializing in custom electronicsystems and assembly. He also chairs com-mittee within the RTCA, a volunteerorganization that develops world standardsfor avionics. He and his wife Mary, a pastor,have two middle-aged children and five

grandchildren. They have lived in Calgaryfor the past 34 years.

1971Eid Attia is president of Attia Quarry, withquarry operations in Orillia and Minden,ON. The company specializes in naturalstone for landscaping, building and otherenhancement projects.

Gautam Hooja is enjoying a break inJaipur, Rajasthan, after helping to organizethe annual Canadian Film Festival in NewDelhi. He is enjoying his new career in thefilm business, finding it to be as exciting asthe hyper-stimulated Indian stock market.

Bruno Kristensen is an associate withMercantile Bancorp Ltd. in Vancouver.

1973MBA Class Champion:George [email protected]

Michael Brau-Boucher (DBA 1973) isthe president of Advanced TechnologiesAllotropes of Carbon Inc. in Ottawa.

Bob Cooke is a principal with theOsborne Group in Toronto.

Bob Turner is a principal with theToronto office of Mercer Human ResourceConsulting.

1974 MBA Class Champion:Hank Bulmash [email protected]

Donald Minegishi is the president ofthe Stephen Leacock Tennis Club inScarborough.

1975MBA Co-Class Champions:Susan [email protected] [email protected]

Alan Cooper (DBA 1975) has justcompleted Brain Injury, a book about his25-year ordeal after being struck in his carhead-on by a wild driver.To be launched atthe Arts and Letters Club on September14, 2006, the book has received advancedpraise for telling the story of brain injuryfrom the perspective of someone whohas experienced such an ordeal and itsmany ramifications.

Colin Young launched a business ininvestment and financial planning afterspending 24 years as a marketing executiveand another 16 as a professor of marketingat a Toronto university. He lives in theOkanagan Valley, BC.

1976MBA Class Champion:Jane Gertner [email protected]

Anthony Dobranowski is vice presidentwith Magna International in Richmond Hill.

William Munns is chairman and CEO ofInnocan Innovation Centre Inc., and holds thesame positions with two other companies,Innovation Canada Inc. and HumbervaleChristian Outreach Foundation Inc.

Harry Sildva is co-founder and presidentof Sigmabond Technologies Corporation,which specializes in high energy bonding.He has raised two daughters, both of whomare now studying abroad, one in Australiaand one in Italy, and has a niece-in-law atRotman. Harry sends his best regards to



the Class of ’76 and to all the students andgraduates of Rotman.

1977MBA Class Champion:Judy [email protected]

Robert Ozero is director of finance atPareto Corporation, the fastest growingmarketing services company in Canada(and the lead story in the July edition ofMarketing Magazine). He and his wife, Bea,a U of T graduate, are celebrating their 30thwedding anniversary with a trip to Califor-nia and the Napa Valley this summer. Theiroldest daughter, Tara, will be applying toRotman next year to start her MBA.Daughter Victoria is pursuing her BMus atWestern (with apologies to U of T!)

1978Alexis Clark is in the global technologyservices finance area of IBM Canada,in Toronto.

Rob Coatsworth is an independent busi-ness consultant providing organizationalgrowth and business development strate-gies to mid-sized businesses.

Eric Grabher-Meyer is certified principalconsultant with Y2Marketing in Pickering.

Jacquie Houston is payroll administratorat Baird MacGregor Insurance Brokers Inc.in Toronto.

Lance Smith is the vice president of riskmanagement and chief internal auditor atthe Toronto office of Foresters, the financialservices organization of the IndependentOrder of Foresters.

1979MBA Class ChampionLorn [email protected]

Myra Libenson has recently beenappointed vice president and chief opera-tions officer of the CPP Investment Board.Myra has over 20 years of finance and oper-ations experience, most recently as vicepresident, finance, Europe, for Great-WestLifeco Inc. During her combined ten-yeartenure with Canada Life and Great-WestLifeco Inc., she held several senior posi-tions including vice president, finance,Canadian Division and president, CanadaLife Casualty Company. Prior to joiningCanada Life, Myra had a variety of roleswithin the Bank of Montreal, O&Y Enter-prises and Ernst & Young. She is a charteredaccountant and earned a BA from VassarCollege in New York, in addition to herRotman MBA.

John McDonald is the president and CEOof Canada Southern Petroleum in Calgary.

Bruce Sinclair was recently appointed tothe board of directors at Harris SteelGroup Inc. Bruce is a director of WaveWireless Corporation, which merged withWaveRider Communications Inc. in March2006. He was the president and CEO ofWaveRider from 1997 to 2005. He was alsothe founding president of Dell ComputerCanada from 1987 to 1991, and in 1991moved on to lead Dell Europe.

1980MBA Full-Time Class Champion:Frank [email protected]

Gary Dobbie is senior vice president andhead of compensation, benefits andemployee relations at RBC, the largestfinancial institution in Canada. Gary islocated in Toronto.

Annette Godziek is the controller of theWWF-Canada in Toronto.

Mansoor Haidary is one of the threeowners of Home Medical Equipment,which employs 70 people and has show-rooms in New York, Connecticut and India.Mansoor and his wife Hamida, whorecently celebrated their 28th weddinganniversary, have two boys in college, one asophomore at Carnegie Mellon and the

younger a freshman at Cornell. Mansoorsends best wishes to all of the Class of 1980and would love to hear from his classmates.

Kenneth Koval is vice president, financefor the EMEA, at FedEx. He is located inBrussels.

Irene Mo-Kit So is director and seniorvice president at RBC Dominion Securitiesin Toronto.

Brian Underwood Seville has retired asassociate professor at the School of Busi-ness, Cape Breton University. Brian mostrecently taught university business coursesfor a year each in China and Egypt.

1981Dale Martin is senior manager delivery,corporate learning and development forthe TD Bank Financial Group in Toronto.

Sandy Turney is executive director of theLions Foundation of Canada Dog Guides,the national charity that provides dogguides to Canadians with a wide range ofphysical and medical disabilities.

1982MBA Full-Time Class Champion:Danny Chau [email protected] MBA Part-Time Class Champion:Michael [email protected]

Richard Brott is chief financial officer ofAllard Johnson Communications in Toronto.

Ken Godevenos went into full-time con-sulting in 1997 after retiring from a careerthat included employment with the York




County Board of Education, OntarioHydro, the Ontario Government andRogers Communications. Ken consults inlabour relations, strategic planning, policydevelopment, compensation and job evalu-ation for clients in Canada and the US. Heand his wife Chrysogon are celebratingtheir 35th anniversary this year as theirthird and last child gets married. Ken alsoleads a church and is the executive directorof a Canadian Christian Mission.

Rob Goldberg has returned to academiclife, currently studying toward his bache-lors education degree through BrockUniversity, and completing a contract as aco-op education officer at George BrownCollege. Rob and his wife Shellie enjoytheir growing family, which includes afourth grandchild to arrive later this year.Rob looks forward to the ’82 reunion nextspring prior to the Life Long Learningevent and can’t believe that it has been 25years since the BIZCON/SBCS adventure!If anyone has any opportunities for his stu-dents, he would like to hear about it.

Brian Mintz is vice president of salesand marketing for Giatex Bicycles Inc. inConcord, ON.

Dean Murdock is a vice president at Cit-igroup Private Bank in New York, helpingclients in need of structured credits forpersonal and business-related investing.Dean’s wife Jackie is a special educationteacher in a school district in WestchesterCounty, NY.Their older son, David, is in hissecond year at UBC and this fall theiryounger son, Christopher, will enter Colby

College in Waterville, ME. (Picture is of theMurdocks at Whistler in February 2006).

Gerry Preville is a CPA and managingdirector of the Laurentian ConsultingGroup in Fairfax, VA. The firm providesfinancial project support, Sarbanes-Oxleyassistance and pre- and post-M&A support.Gerry is also the founder of the CanadianBusiness Network of Washington, a net-working group for Canadians based in theWashington, DC area.

Louise Sommers and her daughter Shanaown Tryst Lingerie. Dedicated to expertlyfitting women of all shapes and sizes withquality bras, Tryst has been featured inLucky, Lou Lou, Fashion, Toronto Life andShop Toronto. Louise is married to DavidTilbrook, a computer scientist, and hasthree children and a granddaughter, twoyears old.

1983Eli Javier is director, software develop-ment and IT, at CIBC in Toronto.

1984Barry Hogan is associate dean of market-ing at the British Columbia Institute ofTechnology, in Burnaby, BC.

Dan Lioutas is a partner in the Torontooffice of Solaris Capital Advisors Inc.

Peter MacLaurin is a commanding offi-cer with the Canadian Department ofNational Defence in Toronto.

George Morrison is an investment advi-sor at BMO Nesbitt Burns in Toronto.

1985MBA Full-Time Class Champion:Gerald [email protected] Part-Time Class Champion:Daniel [email protected]

Kurtis Bishop recently joined CGI asdirector, global marketing, healthcare. Inthis role, Kurtis leads strategy developmentand solution identification for healthcareacross North America and Europe.

Colin Chan is senior corporate controllerat the ABC Group Inc. in Toronto.

Sheila Middleton is the coordinator ofdietetic internship at North York GeneralHospital.

Sian Owen is an executive vice presidentat Strategic Capital Corp. in Toronto.

Albert Somody is senior vice presidentfor commercial real estate banking at theBank of America in Vancouver.

1986MBA Class Champion:Roy [email protected]

Rick Findlay is a partner and CEO ofPSTG Consulting Inc., a management con-sulting firm specializing in transformingorganizations. The company has offices inToronto, Ottawa, New York and Port ofSpain, Trinidad (where the picture wastaken). This year, Rick and his familyenjoyed a ski season that included a trip toKillington, VT, a spring visit to Trinidad tosee the leatherback turtles, and a summertrip to Malta. He says, “I can’t believe it hasbeen 20 years!”




Laird Miller is the chief financial officer ofLondon Drugs Limited in Richmond, BC.

Michael Pangia has been appointedpresident of Nortel’s operations in Asia,responsible for the company’s overall salesstrategy and operations in Greater China,Japan, India, Australia, New Zealand, theSoutheast Asia Region and Pakistan. In his20 years with Nortel, Michael has heldvarious senior management positions, andhas worked in US, Canada, Europe, and theCaribbean and Latin America regions. Priorto this appointment, he was the chief oper-ating officer for Asia Pacific. In additionto his Rotman MBA, he holds a Bachelorof Commerce degree from the Universityof Windsor.

1987Roy Borzellino is a senior portfolio man-ager with SEI Investments in Toronto.

Stephen Holden continues in the easy lifeas an associate professor of marketing at BondUniversity on the Gold Coast of Australia.Still a bachelor, he nevertheless is a proudpapa to Zachary – et je ne parle que francais avec

lui. The (contest-winning) photo is of Papaand Zachary on the beach near their home.

Emilio Passani is senior manager, credit,for the Bank of Montreal in Toronto.

David Watkins is an engineer at AjilonCommunications, based in Rochester, NY.

1988MBA Class Champion:Grace [email protected]

Betsy Bascom is vice president businessdevelopment at BIOTECanada in Toronto.

Trevor DaSilva is the chief financial offi-cer at Curtis International Inc. in Toronto.

Rosemary Evans is the director of aca-demic studies at Branksome Hall in Toronto.

Christopher Flann is the market areacontroller for Eastern Canada, at WasteManagement Inc.

Tema Frank owns and runs her own com-pany, Web Mystery Shoppers Inc., whichhelps organizations profit from their web-sites by learning what is frustrating theirsite visitors. For the past two years she’salso taught a course on electronic market-ing at the University of Alberta. In herspare time, she adjusts to the notion of hav-ing children taller than she is.

Joe Fusco is vice president operations atLoblaws Supermarkets in Brampton.

Laura Johnston deals with vendor com-pliance at Nortel in Brampton.

Martha Oberndorfer is the chief invest-ment officer at Trans Europe Financials inVienna.

Yoram Shalmon recently founded In2-GPS, a start-up company offeringnavigation and tracking solutions. He con-tinues to live in downtown Toronto with hiswife and children within walking distanceof the Rotman School.

1989MBA Full-Time Co-Class Champions:David [email protected] [email protected]

MBA Part-Time Class Champion:John [email protected]

Robert Bronk is the executive director ofthe Sign Association of Canada in Toronto.

Doug Collier is SVP and chief marketingofficer at Select Comfort Corporation inMinneapolis.

In Memoriam

Louise Van Paassen (MBA 1989)was taken from us suddenly on Thurs-day, April 27, 2006 in a tragic motorvehicle accident. She was noted forher tireless commitment to helpingfriends, family and business associ-ates, and always put their bestinterests far ahead of her own. Thedepth of her knowledge and wit wasonly outdone by her immense generos-ity. Her love of the equestrian sportswas shared with daughter Alana, alsoan accomplished rider. Louise was notonly Alana’s mom and best friend, butalso was there to help Alana achievegreat success as an equestrian. Profes-sionally, Louise was a prominenthuman resources professional whocombined her background in law withher love of helping people becomehigh achievers. Louise served as direc-tor, human resources and was a seniormember of the Human Capital Team atPricewaterhouseCoopers, Tax Divi-sion. Her career also included majorhuman resources and legal roles withsuch organizations as Burger KingCanada, ICOM Information & Com-munications Inc., Leica Surveying Inc.as well as the Province of Ontario.Beyond her high profile corporateaccomplishments, Louise worked qui-etly behind the scenes volunteeringcountless hours assisting immigrantsand disadvantaged persons in work-place entry. As well as her degreefrom Rotman, she was a dean’s hon-our list graduate with an LLB from theUniversity of Western Ontario.




Jonathan Erling is the managing directorof KPMG LLP in Toronto.

Catherine Gauthier Ludlow is workingin marketing campaign for Lenovo CanadaInc. (formerly the IBM Personal Comput-ing Division).

John Hemingway is the director oftransportation for Giffels Associates Ltd.in Toronto.

Tom Payne is the president of MacrotekInc., in Markham.

Michael Tam is a relationship executivewith JP Morgan Chase Bank, N.A. in Toronto.

1990Kathleen Caswell is an account managerwith Henkedan Corporation, a financialservices organization that provides portfo-lio management and investment counselingto individuals. The company is located inToronto, with clients across the province.

Lynne Ferrier is the communities oncol-ogy pharmacy educator at the BritishColumbia Cancer Agency in Surrey, BC.

Kevin Greenwood recently becamemarketing director for the Nucasa MillingCompany of North Vancouver.

Catherine Hartman (née Hagon) is aregional business manager for the HamiltonNiagara Region of the Ministry of Commu-nity and Social Services. She lives inCambridge, ON, with her husband, Pauland their daughter Emily.

Yu-Wai Hung is section manager at OPG’sDarlington Nuclear Generation Station.

Allan Kimberley is managing director ofCIBC World Markets in Toronto.

James Kin-Ching Liu is a senior techni-cal engineer with Ontario PowerGeneration in Bowmanville, ON.

1991MBA Full-Time Class Champion:David [email protected] Part-Time Class Champion:Pamela [email protected]

Ruth Ackerman (formerly Mallon) isassociate vice president, operations forMediResource, Canada’s largest internethealth information content provider. Shealso represents corporate and consultingpharmacists on the board of directors of theCanadian Pharmacists’ Association. Ruth,who is enjoying her life in the Toronto area,says “hi!” to her classmates.

Gunars Balodis is the managing directorof INVESCO in Frankfurt.

Jamie Gerson has just started a newcareer at Festo Inc. as a process industryspecialist, and continues to be active in theISA, CPSA and CPCA associations. TheGersons have three boys, aged three, fiveand seven, who enjoy soccer, baseball, base-ball and Boy Scouts. Jamie wishes all thebest to her MBA part-time class of 1991.

Graham Harrison is president of his ownconsulting business, PRISM Management,in Toronto.

Tricia Jensen is happily retired after 31years at Ryerson University. She enjoys vol-unteer activities, and continues to serve asa consumer voice on two delegated admin-istrative authorities in Ontario, and for theConsumers Council of Canada. “I encour-age MBA grads to become involved in thevolunteer sector,” she says.

James McCallum is currently the engi-neering manager responsible for cablehandling systems at Indal Technologies, amajor supplier of specialized machinery toaviation and naval users overseas.

Robert Rutledge has recently taken onthe role of vice president, business develop-ment and marketing at Boost Motor Groupin Toronto.

1992MBA Class Champion:Blair [email protected]

Joseph Conneely is an associate withMcCarthy Tetrault LLP in Toronto.

Joseph DeFoa is the head of planningand control, GTO Finance at RBC Financialin Toronto.

1993MBA Full-Time Class Champion:Daniel [email protected] Part-Time Class Champion:Kathryn [email protected]

Kathryn Beaton has joined theSaskatchewan Institute of Applied Sciencesand Technology (SIAST) as vice president,administrative services. SIAST isSaskatchewan’s primary public institutionfor post-secondary technical education andskills training. Kathryn has spent most ofher career in IT and customer servicesroles, in both private and public sectors.Most recently, she was chief of businesssolutions for the Ontario Ministry ofHealth and Long Term Care. She has also




spent several years at Hydro One as corpo-rate CIO and general manager, and heldvarious senior roles at IBM Canada.

David Budman owns and runs ServicelabCanada Inc., providing cleaning systemsand repair services to restaurants andhotels. He and his wife Amy live in Mon-treal with their three wonderful children:Ezra (seven), Benji (five) and Liberty (one).

William Clements works with interna-tional bankruptcies at Export DevelopmentCanada in Ottawa. He would appreciatehearing from classmates from the ’92 and’93 part- and full-time MBA programs.

Randall Craig is the author of Leaving the

Mother Ship and runs Pinetree Advisors. Anexperienced public speaker who hasappeared on numerous TV and radio shows,he is a member of the Canadian Associationof Professional Speakers and the Associa-tion of Career Professionals International.Randall spends his spare time readingbooks, writing music, cycling, and practic-ing martial arts. He lives in Toronto with hiswife and three children.

Sorina Givelichian is the national direc-tor, information solutions at RussellInvestment Group in Toronto.

Elie Kamar is the credit risk manager atBank Audi in Beirut, Lebanon.

Robert Natanegara is the finance man-ager, multi-residential for GWL RealtyAdvisors in Toronto.

Judith Thom is the new executive direc-tor of the Capital Markets Institute at theRotman School.

Jean-Philippe Vorsanger is vice presi-dent - engineering at Teradata, a division ofNCR, in Toronto.

1994 MBA Full-Time Class Champion:Glenn Asano [email protected] Part-Time Class Champion:Cheryl [email protected]

Ralph Awrey is the managing directorof Royal Bank of Canada Trust Company(Cayman) Limited on Grand Cayman Island.

Stephanie Brun de Pontet is complet-ing work on her PhD in clinical psychologyfrom Concordia University in Montreal.She lives in Atlanta, GA with her husbandRobert Ivanier and their two daughters,Gabrielle (almost 8) and Ariane (5). Priorto her return to school, Stephanie ownedand operated a retail establishment, andspent a few years in small business lending.She hopes to eventually combine her entre-preneurial and academic credentials toprovide advice to family businesses.Stephanie welcomes news or visits fromany of her long-lost class mates, and hopeseveryone is well.

Ian Dong is a franchise business analystwith National Grocers, a division of LoblawCompanies Limited. Previously, Ianworked as a management trainee for theHudson’s Bay Company. Ian, his wife Emmaand their two daughters Amanda (ten) andJessie (eight) have settled into their newhome in Toronto. Every day Ian travels westto Loblaw’s head office in Brampton andbrings the family to their east-end cottagehome in Port Hope over the weekends.

Andreas Eichhorn is the CFO atAmedis-UE AG in Switzerland.

1995MBA Full-Time Class Champion:Nick [email protected] Part-Time Class Champion:Darlene [email protected]

Kimberly Cohen is CEO of Brown &Cohen Communications & Public AffairsInc., providing expertise on such topicsas media and government relations, brandcreation, crisis management and spokesper-son training. She is a contributor to PRNewswire, Marketing and Strategy Maga-zines, and was a media commentator forthe 2006 federal election for CTV News-net. In her spare time, she trains for severaltriathlons. Originally from Philadelphia,she and her team now work on both sides ofthe border.

Luis Fernando Luque is the CEO ofGOLOX S.A. in Bogota Colombia.

Astrid Surberg (née Koller) is a productmanager at Hilti, a global leader in con-struction fastening technology. She lives inFeldkirch, Austria, with her husband Hen-rik and three young boys (see thephotograph for the company’s locationnear the Rhine river).Astrid is still holdingout for a major construction project totake her back to Toronto, even if only for abusiness trip.

James Taylor is vice president, venturecapital at FCC Ventures in Calgary. FCCVentures is the venture capital/privateequity division of Farm Credit Canada, a$10-billion agriculture lending institution.




1996MBA Full-Time Co-Class Champions:Christine [email protected] Suzanne [email protected] Part-Time Class Champion:Daisy [email protected]

Sheila Boyce sent the photo below ofsome of the members of the full-time MBAClass of ’96 at their recent reunion week-end. Pictured, from left, are Carl andJennifer Spiess, Colin Mulligan, SheilaBoyce, Suzy Schwieters Wilcox, StephenKrane, Brad Worth, Susan JohnstonRossanos and Leo Burns. “We had a greattime at the various events during the week-end, with over 25 classmates attending atleast one of the events.”

Carolyn Gaunt is moving into her 21styear of teaching with Cambrian in Sud-bury, providing leadership in the fields oforganizational behaviour, training anddevelopment, and labour relations. Com-ing off a sabbatical in ’06, Carolyn hasbeen recruited as acting president for thefaculty union for the upcoming year, inaddition to her teaching duties. Carolynand Bill, along with Sadie and Pai, con-tinue to enjoy an active lifestyle thatincludes martial arts, motorcycles, andliving by the lake. She says, “If you are inSudbury, Class of ’96, drop by for a visit!”

Susan Rossanos (née Johnston) is thenational manager, client strategy with RBCRoyal Bank in Toronto.

Ali Salahuddin is a director with MerrillLynch & Co. in London.

Suzy Wilcox has some big news: the birthof her second daughter, Claire Ruth Wilcox(pictured). Weighing eight pounds, twoounces, Claire was born on June 12, 2006at 3:49 pm. Big sister Maggie is now man-aging the house as mom copes with sleepdeprivation.

1997MBA Full-Time Class Champion:Burke [email protected] Part-Time Class Champion:Nancy [email protected]

Tim Wong is a vice president with CreditSuisse in New York City.

Ali Yu is the senior director of businessmanagement for CIBC in Toronto.

1998MBA Class Champion:Mari Iromoto [email protected]

Patrick Armstrong is co-head of InsightInvestments’ multi-manager team, based inLondon, England. Insight Investments is theasset management arm of Halifax Bank ofScotland. The Armstrong family is prepar-ing to celebrate son Philip’s fourth birthday

in July, and daughter Elizabeth’s secondbirthday in August.

Jack Crane is director, strategic planningand analytics with EMCOR Group Inc. ofArlington,VA.David Desembrana is manager of corpo-rate operations at TD Bank Financial Groupin Mississauga.

Laurie Dillon-Schalk is a senior con-sultant in the CRM Division of IBM GlobalBusiness Services specializing in marketingstrategy, new media and e-commerce. Inthe past three years, she has bought ahouse, married her online sweetheart,Andrew, and had a little girl, Lucy Coco,now just over one year old. Below is a pic-ture of Laurie,Andrew and Lucy in front oftheir house on Hallowe’en in 2005.

Andrew Doman is the chief operatingofficer of Abria Financial Group in Toronto.

Dennis Kwong is the director, businessdevelopment for Falconbridge Ltd. inToronto.

Wayne Li is a management consultantwith Capgemini Australia in Sydney.

Peter Moon is a management consultantwith Outsourcing Advisory Services inToronto.




1999MBA Full-Time Co-Class Champions:Lenore [email protected] [email protected]

Greer Hozack is director, business plan-ning and risk management at AstraZenecaCanada. Greer and Derek now have two lit-tle girls: Kate, born in April 2003, andNora, who joined the family in June 2005.

Paul Kapsos is a portfolio manager withinstitutional investment counsel AMI Part-ners Inc. in Toronto, covering Canadianconsumer, industrial and utility stocks.

Christopher Kerr is branch manager forTerminix International in Petaluma, CA.

Phillip Lund works in services excellenceat Schneider Electric Industries in Paris,France.

Bernadette Naumann is the senior man-ager of human resources at Scotiabank inScarborough.

Tomi Poutanen is the senior director ofproduct management at Yahoo Inc. inToronto.

Lily Wang is supervisor, car forecasting andscheduling at General Motors of CanadaLtd. The Wang family now has two girls,Kathy (eight), a talented cello player, andJoanna (four), who wishes to become a truefigure skater someday. Lily sends her bestwishes to everyone of Class of ’99 and looksforward to the class reunion next year.

2000MBA Class Champion:Mitchell [email protected]

Ruth Abbott will be taking a year offfrom her job as vice president, strategy andmarketing for OMERS to focus on raisingSean (three) and Max (eight). She and herpartner Muriel Deschenes live with theirtwo children in Toronto. Ruth says, “Pleasekeep in touch!”

Amy Charette was recently promoted atHudson’s Bay Company to director ofreplenishment for consumables and phar-macy. She and Jason live in Toronto withtheir two active girls, Casey (4) and Cyn-thia (1). She sends her greetings to theClass of 2000, and wishes to be contactedat [email protected].

Julie Denton is a senior manager withBearingPoint in Toronto.

Ronn Goldberg is a consultant specializ-ing in medical imaging, as well as emergingmedical technologies and the biomedicalsciences. He is a co-founder of ImagingComplete, which will be developing a digi-tal platform for global medical services,and director of Ontario MD and OME e-Services Inc., a subsidiary of the OntarioMedical Association.

Onorio Lucchese is vice president withTD Securities in Toronto.

Michael Paszti has developed a passionfor renewable fuels since joining MapleLeaf Foods as a process improvementleader. He is proud to have led the com-missioning of Canada’s first commercialscale biodiesel fuel plant in Montreal. InAugust he and his wife Laila will be hikingthe Inca Trail in Peru to Machu Picchu.Michael sends his warmest regards to hisY2K classmates.

Natasha Sviridova and her husband Rezawelcomed their first child Daniel Cyrus inNovember 2005. Natasha is enjoying hermaternity leave and is planning to returnback to Redline Communications as direc-tor of finance at the end of the year.

Karen Tyler is now a mother of two andliving in Kitchener. She’s still withDeloitte, which is now only a 15 minutecommute to work, and doing some interestrate determination work for the TransferPricing group. She’s also helping out withher father’s hotel in Berlin and workingwith a friend to start up a school. She highlyrecommends a nanny to anyone with kids:she hasn’t had to do laundry since April!

Robert Vandervelde is a senior managerwith the Alberta Ministry of Finance inEdmonton.

2001MBA Full-Time Class Champion:Daniel [email protected] Part-Time Co-Class Champions:Lisa [email protected] [email protected]

Adam Bekhor is a group product man-ager for CIBC working in their GICs,deposits and payments group. Adam is cur-rently managing the deposit consolidationservices within CIBC’s cash managementportfolio. Adam has been married for fiveyears to Eryn Green, daughter of MollineGreen (MBA ’98), and co-founder andCEO of Sweetpea Baby Food.

Songguo (Scott) Cheng is a seniorinvestment analyst at Ontario Teachers’Pension Plan in Toronto.




Michael Demeter is a senior manager atRBC Asset Management in Toronto.

Robert Field is the manager of regionaloperations for Canadian Tire, responsiblefor the operations of the company’s distri-bution centres in Calgary and Montreal,and one in Toronto. In October 2004, WeiHe (PhD 2001) joined the Credit PortfolioManagement Group of TD Securities.Megan (pictured) completed the training ofher parents and is now attending daycare.

Robert Hartman is director, businessdevelopment, international content distri-bution at Alliance Atlantis Communicationsin Toronto.

Alina Lopez recently started her ownconsultant practice, Pink Idea Inc. inToronto.

Robin Manweiler is a pharmacy man-ager and store manager for Shoppers DrugMart in Vancouver, responsible for manag-ing the new concept store on the UBCcampus. Robin has recently met the love ofhis life, Shannan, and they are planning toenjoy a West Coast lifestyle that includesplaying tennis, golfing, skiing and windsurf-ing. Robin wishes all of his 2001 classmatesthe best and promises to see everyone inToronto sometime soon.

Nancy Shaw is a senior engineer withTellabs, based in San José, CA.

Barry Shin is associate, health care invest-ment banking, at Piper Jaffray in New YorkCity.

Daniel Zinman is director of businessdevelopment at Constellation Software,which acquires niche vertical market soft-ware companies. He manages a number ofgrowth initiatives and is active in newacquisitions. Daniel and fellow 2001 alum-nus Erik Levy built Shine Dry Cleaning into

Toronto’s largest dry cleaning deliveryservice before selling it to their supplierlate in 2005. He and his wife Natalie havetheir hands full with their twin daughtersAshley and Jessica (pictured), born inNovember.

2002 MBA Full-Time Class Champion:Rizwan [email protected] Part-Time Class Champion:Jay [email protected]

Chris Hilborn, Paula and Mackenzie areexcited to welcome Adam Thomas intotheir family. Born November 17, Adam islooking forward to playing with his big sis-ter Mackenzie and spending some time inthe canoe in the summer.

Harold Ho recently joined Royal ScenicHolidays Ltd. as director of marketing andbusiness development.

Ben Isaacson is at Scotia Capital inToronto, working in equity research.

Sonja Jobst (née Hilger) is the controllerat Kiefel AG, in Freilassing Germany.

Janet Law is manager of risk managementat CIBC Mellon Trust in Toronto.

Julian Leizerovici is the director ofdevelopment and construction, Quebecregion for EL-AD Group (Canada) Inc.in Montreal.

Allan MacNeil is the national sales man-ager, retail division, for Hilroy Ltd. inToronto.

Ahsan Sadiq is director, business devel-opment at ZTE Canada Inc. in Toronto.

Theresa Shutt is a vice president withRBC Capital Markets in Toronto.

Jamie Stiff and his wife Pauline Dekkerwelcomed their first child, daughter Isla, tothe family in April.All are happy and healthy,and having fun getting to know one another.

2003MBA Full-Time Class Champion:Pamela [email protected] Part-Time Co-Class Champions:Jennifer [email protected] [email protected]

Ian Bisset married Nanae on April 18,2006, and enjoyed a lovely wedding recep-tion at the Toronto Botanical Gardens onJune 2 when the picture was taken. In thepicture from top left to bottom right: Stan-ley and Jill Lam (MBA ’03/’04), Ian andNanae Bisset, Carmina and Chris Scott(MBA ’03), Andrea Leong (JDMBA ’04),and her fiancé Richard Quek.




Juan Caceres is an associate, credit origi-nation at TD Securities in Toronto.

Jennifer Ilkiw is the director for Singa-pore of the New York Mercantile Exchange(NYMEX).

Wally Lawson is a project manager atMercer in Toronto.

Mike Ponter is a brand manager atCanada Bread in Toronto.

Thiago Silva and mom Katy are proudparents of a baby boy, Rafael, born in April.Thiago says he is “overwhelmed with thejoy that he brought and would like to shareit with you.”

Sunny Sun is a senior analyst at TD Secu-rities in Toronto.

Andree Surianta is training in engineer-ing management at the YTL Hotel andProperties in Kuala Lumpur, Malaysia.

Quinn Yong is manager of corporate devel-opment at Sherritt International in Toronto.

Thomas Zelenka is a senior consultantwith IMS Health Canada in Mississauga.

2004MBA Full-Time Class Champion:Maya [email protected] Part-Time Class Champion:Steven [email protected]

Vikas Agrawal is an assistant vice presi-dent with Citigroup in Mississauga.

J.P. Beaudoin is a district vice president atFidelity Investments in Toronto.

Diana Brink is a strategist with DigitalCement in Toronto.Adriane David is brand manager atNxCare Inc. in Mississauga.

Li He is project manager at Tian Invest-ments Group in Singapore.

Scott Keech is medical group advisor atThe Permanente Medical Group/KaiserPermanente in Oakland, CA.

Karim Keshavjee is a family physicianwith a part-time practice in Mississaugaand a project director for the Computeri-zation of Medical Practice for theEnhancement of Therapeutic Enhancement(COMPETE). He is also an associate mem-ber of the Centre for Evaluation ofMedicines, an independent academicresearch institute affiliated with McMasterUniversity in Hamilton, Ontario. His wife,Zahra, is a PhD Candidate at OISE/UT.

Jill Nien-Ling Lam (formerly Szu) is a senior analyst with Air Miles Reward Program in Toronto.

Ashley Lawrence is senior associate, realestate opportunity group with BrookfieldAsset Management in Toronto.

Isabel Qingyuan Li is a director withChina Duty Free Group in Beijing. Shesends her greetings.

Sabrina Li is a sales analyst with NissanCanada Inc. in Mississauga.

Stewart Lyons is executive vice presidentof XM Satellite Radio Canada in Toronto.

Lisa Mitmaker is coordinator, hospitalreports at the Canadian Institute for HealthInformation in Toronto.

Carla Philp is SPC manager at McCainFoods (Canada) in Toronto.

Steven Richards is senior manager, auditand risk management at BCE in Montreal.

Karl Schmitz is project manager withPraxair Canada Inc. in Mississauga.

Ted Steube is vice president, corporatedevelopment at JumpTV Inc. in Toronto.

Adrian Van Mierlo recently joinedPricewaterhouseCoopers’ Advisory Ser-vices practice in downtown Toronto,working with manufacturing companies toimprove their profitability. He says, “Pleasedon’t hesitate to call me if I can help out.Let’s make the Rotman alumni networkwork for all of us.”

Jiaying Wu is the project engineering /EPPR coordinator for Bantrel Co., a leaderin the Canadian engineering, procurementand construction industry.

James Jian Yu is an analyst at TD Securi-ties in Toronto.

Ian Yi Zheng is business developmentmanager for Intel Corp.’s Beijing office.

2005MBA Full-Time Co-Class Champions:Fiona CunninghamFiona. [email protected] [email protected] Part-Time Class Champion:Bob [email protected]



Rotman MBA grads from the full- and part-time classes of 2006 are out in the realworld now. Many of them have checked into let us know where they have landed:

Aly Abbas, Alcan Inc.Sandeep Kumar Agarwal, A.T. Kearney Ltd.Ateet Agarwal, CIBC World MarketsShehryar Ahmad Ali, Drug Royalty CorporationJessica Aurora Anaya, Merck Frosst CanadaGaurav Batra, Capgemini CanadaGordon James Bennett, TELUSSaju Bhaskaran, Oracle CorporationGrace Yuhong Bi, TELUSCarlos Kenji Blanco Matzuno, ScotiabankAdam Brueckner,

RPOptions Management ConsultantsSean Buckley, BMO Financial GroupGeoffrey Michael Cambridge,

PepsiCo International (UK)Robby Sai-Kit Chang,

Blair Franklin Capital PartnersSandy I-Sin Chang, IBM CanadaJeffery Coles, Manulife FinancialJohn David Gordon Crean, ScotiabankAlberto Cuevas, Kraft Canada Inc.

Jillian Darroch, McKinsey & CompanyJeronimo De Miguel, Manulife FinancialXavier Debane, Boston Consulting GroupShaun Desai, CIBCNita Sadashiv Dhir,

University Health NetworkAnthony Di Carlo, Accenture Inc.Michele Discepola, Skadden Arps LLPPatrick Donnelly, Raymond James Ltd.-TorontoKevin Douglas, Nutri-Con International Inc.Nicholas Dubick, RSM Richter Consulting Inc.Andrew Edwards, Bain & CompanyAndrei Duane Edwards,

Deeth Williams Wall LLPAndrea Etherington,

Toronto Rehabilitation InstitutePaul Edward Forma,

UBS Securities Canada Inc.Julio Armando Fournier, ScotiabankWilliam Fox, A.T. Kearney Ltd.David Garcia Gonzalez, TELUSYevgeni Garif,

Siberia-Urals Petro-Chemical CompanyRandy Gladman, Smart!CentresVincent-Nicolas Gladu, Deloitte

Fernando Goettems, RPOptions Management Consultants

Cameron Goldade, Scotia Capital MarketsIsaac Oded Guttman Kisner, Alcan Inc.David Harrington,

Mercer Management Consulting GroupGraeme Hartlen, Bain & CompanyKennyYu Kai He, BMO Financial GroupAmanda Fang He, BMO Financial GroupJose Gabriel Hernandez Figueroa, CIBCMartin M K Ho, DeloitteYale Marshall Holder,

TELUS Communications Inc.Timothy Huang, BMO Financial GroupLinda Irwin, TD SecuritiesTahir Janmohamed, IBM Canada LimitedCraig Jerusalim, CIBCSameet Kanade, CanaccordAdamsArun Kandanchatha, CIBCVivek Kirpalaney, Ontario Power GenerationJustin Klein, Procter & GambleSanjay Krishnan, RCM TechnologiesCanada CorporationKalpesh Lad, Procter & GambleArthur Lam, CentractCalvin Tze-En Lam, Morgan Stanley

The Class of 2006 has left the building!


Robert Arandjelovic is product marketingmanager at Siemens Canada in Mississauga.

Gavin Brauer is an account manager withthe Business Development Bank of Canadain Toronto.

Paul Budovitch is an articling studentat Davies Ward Phillips and Vineberg LLPin Toronto.

Michelle Cui is a strategy consultant forIBM Business Consulting in Markham.

Dave Eden has joined the business develop-ment group at Ontario Power Generation,where he manages commercial and contrac-tual aspects of a joint venture in a new powerplant development. Dave and his wife Rosewelcomed their fourth child, MatthewThomas, on May 12. Dave and his oldest child,Adrian (six) recently discovered the beauty oftraditional Okinawan karate at a dojo in Pick-ering. He enjoys post-MBA life, but missesregularly seeing all his PT 2005 classmates.

David Elsner has recently joined theToronto Centre for Medical Imaging as thegeneral manager of business operations,which necessitated moving back to Torontoafter living and working in NorthernAlberta for seven months. “I’m excited tobe working with such an exceptional organ-ization,” he says. “However, I will missskiing in Jasper, and evenings with sunlightuntil midnight.” David sends his best wishesto all the Class of ’05 and looks forward toupcoming class get-togethers.

Ted Fill is an associate equity research ana-lyst at UBS in Toronto.


On March 31, 2006, Rotman alumnihad the opportunity to meet with DeanRoger Martin at a regional alumnireception in London, England. Pictured(from left to right): Sabbaa Quao(EMBA ’03), Roger Martin, ShammiKhanna (MBA ’05), and StewartHayes (MBA ’05).


Vincent Lau, Accenture Inc.Ryan Bennett Lavallee, Self-employedSimon Yong Hoon Lee,

Export Development CanadaMichael Kent Lehman, ScotiabankAl Leong, IntegerisYing Li, UBS Securities Canada Inc.Qun Lu,

Johnson & Johnson Family of CompaniesLaura Michelle Manes, Bain & CompanyMichael Thomas Martin,

RBC Financial GroupRishi Marwah, Deutsche Post World Net

Business Consulting GmbHJavier Miguel Matany,

Colgate-Palmolive Canada Inc.Eric May, Kimberly-Clark CorporationAndrew McCoubrey, Bain & CompanyJonathan Neil McKeown, Bain & CompanyRobert Quinn McLean, Sky Investment CounselGary McNeily, Manulife FinancialJulie Yin Ling Mok, Alcan Inc.Enzo Matias Morandi Loret De Mola,

Barrick Gold CorporationWalid Muslih, TD Bank Financial GroupPaul Nagpal, A.T. Kearney Ltd.

Robin Irene Neufeld, General MillsZorik Nizan, Managerial Design CorporationSusan Amanda Noble, RBC Financial GroupRyan O’Connor, DeloitteShruti Owerie, Kraft Canada Inc.Lydia Anne Cecile Paffrath,

Courtyard GroupAmy Lynne Parr, DeloitteArtem Pirogov, RBC Financial GroupJeffrey Charles Pootoolal,

Infinium Capital Corp.Shilpa Ranjan, Manulife FinancialBrent Rector, RBC Financial GroupMichael Reitsma, SECOR ConsultingPaul Gordon Riedlinger, Terranova Capital Inc.Gina Rizhanovsky, PCM TechnologiesJulia Rosenberg, National Bank FinancialMaher Roz, Standard Chartered BankRaju Ruparelia, Credit Suisse Mauricio Mazaru Saishio, ScotiabankSanjeebhan Selvarajah, Hewitt AssociatesUshnish Sengupta,

Centre for Addiction and Mental HealthAnuja Sheth, inCode WirelessMichael Shinewald,

Mezzanine Business Consulting

Nekzad Shroff, RPOptions Management Consultants

Ganna Shynlova, Procter & GambleDavid Smith, Managerial Design CorporationDemetrios John Sophianopoulos,

Canadian Tire Corporation Ltd.Ryan Bradley Starkman,

TD Bank Financial GroupLaurel Katherine Sutton, Accenture Inc.Fiona Sze Wan Tam, ScotiabankJohn Thornton, IMGRyan Tollofson, TELUS Communications Inc.Jose Antonio Vergara Oliveros,

Scotia Capital MarketsAndrew Blake Wallace,

National Bank FinancialAlan C Wen, Procter & GambleMichelle Man Shan Wong, A.T. Kearney Ltd.Thomas Wong, Monitor GroupLeong Hwa Wong, RBC Financial GroupBrandon Oliver Xavier, TELUSCindy Yip, RBC Financial GroupJaime Zenizo Dorbecker, Citigroup


Jasmine Gill is currently an articling student at Cassells Brock & Blackwell,in Toronto.

Heather Graham McCourt is market-ing manager for Medtronic of Canada, inMississauga.

Brian Ilavsky is senior manager of busi-ness risk at GMAC Residential Funding ofCanada, in Toronto.

Aven Li is an import consultant, globalsourcing at Canadian Tire Corporation, inToronto.

Steve Maletic is a research associate,special situations at Northern SecuritiesInc., on Toronto.

Umar Malik is an associate with North-water Capital in Toronto.

Florence Narine is working in productdevelopment for Fidelity InvestmentsCanada, in Toronto.

Christopher O’Brien is an account man-ager at J-Squared Technologies in Toronto.

Elena Pankoff is an associate analyst instructured finance, at Moody’s Canada,Toronto.

Daniel Phillips is pleased to announce hisrecent engagement to long-time companionand best friend Winnie.Their courtship endedMarch 6, 2006 on Vancouver’s Pacific shore.The wedding is tentatively set for late 2007.

Toby Pierce is an equity research analystwith Tristone Capital, in London, England.

Matthew Protti is an associate at Hori-zon One Asset Management, in Toronto.

Jinlu Qian is an independent consultantwith HoneQ Consulting Group in Toronto.

Tayyab Shah is a fund accountant withOC Financial in Mississauga.

Nanthini Sriskanthan, along with hus-band Kanna and son Ashwin, relocated toBermuda in November 2005. Nanthinirejoined the HSBC group and is a creditanalyst in the alternative fund services divi-sion. Nanthini sends best wishes to theClass of ’05 and looks forward to hostingher friends who visit Bermuda for a holiday.

Jackson Wang is now consulting withRoland Berger Strategy Consultants, inShanghai.

2006Randy Gladman is an associate in thenew rotational program at Smart Centres,Canada’s largest and most-active retaildeveloper and operator. He was very happyto begin his new career in commercial realestate development after returning from afive-week adventure in Southeast Asia,where he toured solo to the beaches of



MBA/MCom Full- and Part-Time/Executive MBA


Thailand, the Angkor temples of Cambo-dia, the two-wheeled cities of Vietnam, andthe hustle and bustle of Hong Kong. Randycontinues to live in downtown Torontowhere he remains an active participant inthe city’s vibrant contemporary art scene.You can read his thoughts on art and cul-ture at www.akrylic.com.

Yale Holder is a strategic project managerwith Telus, where he oversees projects thatsupport the company’s strategic initiatives.The Holder family has grown from two tothree with the addition of a new member,Kara - future Rotman graduate. “Best ofluck to my class mates who are now enter-ing the working world after two years ofhard work, play and growth.”

Rishi Marwah is a management consult-ant for the business consulting group ofDPWN, a German conglomerate withinterests in over 100 companies globally.He is currently at the German HQ in Bonn.Rishi sends bests wishes to the class of ’06and asks everyone to keep in touch.

Ushnish Sengupta is a project leader withthe Centre for Addiction and Mental Health(CAMH), Canada’s leading addiction andmental health teaching hospital. His projectportfolio includes information technologyprojects including Web sites for mental healthand addiction professionals.At Rotman, Ush-nish was the co-founder of two student runorganizations – Rotman Net Impact and Rot-

man Nexus – involving corporate socialresponsibility and the not-for-profit sector.He looks forward to keeping in touch withthe class of 2006 at social events and is alwaysup for a game of golf or lunch.David Smith currently works at Manage-rial Design Corporation as a consultant andproject manager. Prior to this role, he spentsix years in the financial services sectorworking in the areas of retail banking, tech-nology training and project management,and most recently as an executive relation-ship manager and consultant. In addition tohis MBA, he holds degrees in Psychology,English Literature, and Adult Education.David is an active alumnus of the RotmanSchool and currently sits on the advisoryboard of the Impact Consulting Group.

Ryan Tollofson has taken on the role ofsenior market manager for TELUS Com-munications Inc., responsible for their U.S. wholesale marketing strategy. Prior tothis, he successfully led a national team ofsales support engineers for TELUS –Canada’s second-largest telecommunica-tions company. Having just graduated, he isre-learning how to enjoy his life!

Executive MBA

1985Class Champion:Bob [email protected]

In 2005, Dick Clark contemplated earlyretirement. Four months of “Oprah at Four”convinced him that the good life would haveto wait. He saw a unique opportunity in themarketplace.A year later he launched a newbusiness - CB Intelligence Inc. CBI is a sur-vey research firm whose customers arecorporations with revenues greater than$15 million. Its business is market intelli-

gence about bank-pricing practices. Com-panies use CBI benchmarking informationto bring transparency to banking negotia-tions. In Dick’s words, “We make principlednegotiating and fair banking agreementspossible.” You can check out Dick’s handi-work at www.banksurvey.ca. “If you’re aCFO, a few minutes here will change theway you think about banking arrangementsforever. If you’re a CEO, CBI’s analysis ofwhy bank fee negotiations are so one-sidedis a must read.” As Dick puts it, “With CBI,corporations finally have an alternative toprice taking when negotiating bankingarrangements.”

1987Class Champion:Vitor [email protected]

Bill Townsend is deputy CEO for Holcim(US) Inc., located in Waltham, MA.

1988Barry Gutteridge retired in June 2004from his position as commissioner of worksand emergency services for the City ofToronto, where his responsibilities includedcoordination of emergency services includ-ing fire and emergency medical services as well as solid waste, transportation, andwaste water and city engineering, with9,500 staff, and annual budgets of $1.1 bil-lion for operating and $500 Million forcapital. The Gutteridges now divide theirtime between Toronto and Cobourg, wherethey are building a home on Lake Ontario.

1989Co-Class Champions:Peter [email protected] [email protected]

1990Class Champion:Jeffrey [email protected]

Tim Adlington owns a compost-produc-tion business that supplies 15,000 tonnes ofmushroom-growing substrate annually to



Executive MBA

mushroom farms in Eastern Canada and theUnited States. Tim and wife Jeanette areenjoying watching their children as theyfinish their University education.Their eld-est is in medical school and will be gettingmarried this summer, while the youngest isin final year at the Ivey School of Business.

Val Alston is director of health informationmanagement and privacy officer at TrilliumHealth Centre, one of the country’s largestcommunity hospitals. She is also the pro-gram lead for business application projectsat Trillium, and serves on the Board of theLAMP Community Health Centre inToronto. She and her partner,Allen, traveledto India earlier this year where, in additionto visiting some well-known tourist areas(Agra, Rishikesh, Khajuraho), they partici-pated in a leadership program at the IndianInstitute of Management at Lucknow. Theywere also fortunate enough to meet theDalai Lama. Val attended the class reunionlast fall (on a very snowy evening) and, whilethrilled to see her old friends, wonderedwhere the heck the rest of her study groupwas! She has since seen Bernie Souche(who is training for the Ironman!!) and hasgotten onto David Lynch’s “MondayFunnies” distribution group. David is livingin California with the beautiful Monique.Running and grandchildren (2) occupy Val’sspare time.

On April 1, 2005, Jean-Pierre Sabourinretired as president and CEO of the CanadaDeposit Insurance Corporation, a position hehad held since graduating from EMBA in1990. In August 29, 2005, JP was appointedby the Minister of Finance (also the PM) ofMalaysia as the CEO of the newly establishedMalaysia Deposit Insurance Corporation(MDIC), a statutory government entity. Jean-Pierre is also the chairman and president ofthe International Association of Deposit

Insurers (IADI), which represents some 50countries who have established explicitdeposit insurance schemes. “It is the interna-tional voice of deposit insurers,” he says.TheHead Office resides at the Bank for Interna-tional Settlement (BIS) in Basel Switzerland.Additionally, JP is the chairman of the Advi-sory Council of the International Centre forLeadership in Finance (ICLIF). ICLIF wasestablished in 2004 to develop future leadersin the financial services in Asia.

1991Mark Foote was appointed executive vicepresident, general merchandise at LoblawCompanies Limited, where he is responsi-ble for all procurement and merchandisingactivities in the general merchandise, healthand beauty and gasoline bar businesses.Mark is a well-known, successful and highlyregarded executive in Canada’s retail indus-try who spent the past 27 years inincreasingly senior roles at Canadian Tire,most recently as president of their retailoperations.

Leonard Hill is the deputy chief of mis-sion with the U.S. Embassy in Belize.

1992 Class Champion:Chris Hill [email protected]

Michael Rose is CEO of Blue Chip Engi-neered Products Inc, in Cincinnati.

1993 Class Champion:Andy [email protected]

Bruce Douglas and his wife are having agreat time running a postage meter dealer-ship on a part time basis. After spendingmany years running one of the large suppli-ers of meters, “this has been a terrific wayto keep the business juices flowing withoutall the stress. It also keeps two kids at Wil-fred Laurier University earning theirBCom degrees.” Bruce has also taken thematerial taught in Finance and written anew chapter. He has discovered that withNet Future Value of an asset and current

lease cash flows, it is possible to lease outproperty for fun and profit. His neighboursare all jealous that a tough day at the officeinvolves going to the post box to collectand deposit a cheque!

Andy Hofmann has created his own con-sulting organization, Metrics ManagementConsulting Inc. Specializing in businessprocess improvement and risk management,the practice has increased in volume yearover year. Clients now include organizationsin retail, automotive and transportation. For“a former government wonk” from theDepartment of National Defence, this hasbeen quite an exciting journey. Andy enjoysthe bit of irony that his eldest son will nowstart studies at UTM in September. It hasbeen 15 years since EMBA 93 startedclasses. “Of course, joining in Frosh week inan executive program and at UTM are a verydifferent deal indeed!”

Frederick Innis is “hanging out in Win-nipeg,” wondering what his nextincarnation will be. He has been a stay-at-home dad while his wife Lorna getsestablished in her academic career. She isnow associate dean at Robson Hall LawSchool, University of Manitoba. Frederickhas been day trading his way to a small for-tune, starting with the big one he pulledout of the markets in 2001. He has alsobeen a bad influence on his kids, the oldestof which has decided that she wants to bean investment banker.

1994Class Champion:Andrew [email protected]



Executive MBA

1995Class Champion:John [email protected]

1996Co-Class Champions:Jon [email protected] [email protected]

EMBA 12 (1996) Co-Class ChampCarmine Domanico sent along a compre-hensive class update, thanks to the gang’s10th reunion weekend in Toronto. “It wasgreat to see everyone at our reunion.We hadan extended weekend reunion starting withthe reception and dinner at Rotman on June1st.The next day we had a great day of golfat Legends in Niagara, dinner at Skylonoverlooking fabulous Niagara Falls, withfireworks to top off the night! On the finalday of the reunion, we visited the Hillebrandand Peller Estates Winery and sampled somevery nice wines, ice wines, cheeses and adinner full with great conversation and won-derful food.Thanks to everyone who made itto the reunion - remember that the next oneis in five years, and we are already thinkingabout location… how does Austria sound??Now that we have the most up to dateresumes keep in touch and continue to enjoyare your successes. Remember our classmotto: “You look so good you should giveyourself a kiss!!!”’

Alfred Angerbauer is “still in charge”with Voestalpine Stahl Gmbh in Linz as asenior vice president for cold rolling andcoating. “Still married with the same wife(Petra) and my children are grown up andboth studying. I am just one month from my50th birthday, but still trying to keep inshape by running, in-line skating, and othersports activities... not to mention drinkinga good beer when the time is right…”

Claudia Avila is managing director at theMexican Association of Industrial Parks,which represents more than 50 majorindustrial real estate corporations, whoaltogether own more than 150 industrialparks, located all over Mexico. Previously

she was Secretary of Economic Develop-ment in the Mexican State of Hidalgo,located 45 miles north from Mexico City;Managing Director of Hidalgo’s Interna-tional Corporation, a state governmentagency for export and investment promo-tion; Deputy Trade Commissioner inToronto, and in Stockholm, Sweden withthe Mexican Bank for Foreign Trade (Ban-comext). Claudia also worked as a privateconsultant for American Steel Foundry(ASF-Keystone), with headquarters inGranite City, Illinois, for the acquisition of aMexican steel foundry located in CiudadSahagún, Hidalgo. In addition to her MBA,she holds a Bachelor’s degree with honors inInternational Relations from the NationalAutonomous University of Mexico(UNAM), and a Degree on InternationalBusiness and Foreign Trade from the Tech-nological Autonomous Institute of Mexico(ITAM). She speaks five languages, and ismarried with two daughters.

Kris Bailey writes, “After graduation, theBaileys sold everything and went off to Aus-tralia, where Kris took on the role of VPmarketing for Chiron Diagnostics. Travelwithin Austral-Asia was routine for workand for pleasure. By 2000, Bayer Diagnos-tics purchased Chiron, and Kris went off toNew York for a year, while commuting toMelbourne, in the role of special projectsfor Senior Management and the Board.After several months, the family made aVERY difficult decision to return to ourroots. We left behind daughter Julie andmany new friends and colleagues in Aus-tralia. My husband returned to teaching,our youngest – Tom started high school andKris started her own business. Now, fiveyears later, Kris is the founding memberand president of AiCon Inc., specializing inconsulting and contracting services to thediagnostic industry and medical laboratoryclients. Laboratories in Toronto,Winnipeg,

Denver, California, Oregon and Hawaiihave the AiCon stamp. Kris has been adirector and executive member for GrandRiver Hospital Corporation for the last fiveyears and became board chair in June ofthis year. Enough about business, Juliestayed in Australia – is now 28 years young– was married this year to a fine Aussie lad,and is attending LaTrobe University inNursing – after a degree in Fine Art andPhotography. Tom is now in second yearuniversity at Windsor, starting defensiveline of the Windsor Lancer Football team.Dennis has retired from teaching and con-tinues to manage the family.As a division ofAiCon, he runs the property managementbusiness – which is growing!! My brotherand his family have grown to three childrenand are residing in Pennsylvania. My par-ents continue to be well and reside near us.So all in all – LIFE IS GRAND!”

Eva Belabed holds degrees in economicsand public management. After two years ofteaching at the Université-Paris-X-Nanterre,she joined the Chamber of Labour in Austriaand served as managing director of the ISWand head of the department for Europeanaffairs of the Chamber from 1991– 2005.Since 2005, she has headed the unit forEESC- international affairs in the Chamber.Since 1995, she has been a member of theEuropean Economic and Social Committee.Eva has been rapporteur for social and eco-nomic effects of enlargement, transatlanticrelations and the Lisbon Strategy and was co-president of the Joint ConsultativeCommittee EU – Czech Republic during theenlargement process. She is Vice-President ofthe Internal Market Observatory and Mem-ber of the Bureau for External Relations.

Since completing EMBA in 1996, JeremyCarvell married Shannon in the summerof 2002 and moved to the UK in 2003. “Weare now based in North London and I am



Executive MBA

working for SIRVA Inc, the relocation serv-ices company, which includes Allied andnorthAmerican in the U.S. and Pickfords inthe UK, as Director (Europe) FinancialStandards Quality & Control. Interestsinclude travel, the performing arts, golfand squash.”

For Carmine Domanico, a lot has hap-pened since completing EMBA 10 yearsago. “I took on a new global role at Norteloverseeing a major divestiture, and thenmoved to Rome, Italy for two wonderfulyears working with the EMEA HR teambefore returning to Canada. In 2003 Idecided to leave Nortel and venture out onmy own, starting a retail venture and animporting business with my wife, Cathy. Ithen became vice president of humanresources at CIBC for the Retail & SmallBusiness Banking business. I left CIBC lastyear, and again ventured out on my own; Inow provide HR consulting and executiveinterim management services to a diversegroup of global clients.The EMBA experi-ence was great and certainly helpedprepare me for a significant amount ofchange in my life. My daughter Alessia isstarting her second year in the Film Pro-duction program at York, and my sonChristian is just about to enter high school– a long way from ages seven and twowhen we started EMBA! All the best toeveryone, it was great to see a lot of youduring the reunion and I look forward tostaying in touch.”

Malcolm Eade is vice president, sales,Practice Solutions Software. He left J&Jafter 15.5 years in July 2004, moved out tothe country in Carlisle, Ontario, and built ahouse. Malcolm got engaged to Anne, andthey are getting married October 7th,2006. “We met in December of 2003 whileriding our bikes. It all came together whenher bike broke and I pushed her all the way

home!” Malcolm has competed in two EcoChallenges, appeared on TSN’s – Off the

Record 4 times, and has started the “arduoustask” of getting his CFA.

Since graduating, Caroline Hogwoodstill lives in Oakville and has remained with“the Tire”, moving out of IT and throughvarious roles in Operations, HumanResources, and Finance. Currently, she isvice president, store finance and administra-tion, which involves store audit, riskmanagement, and retail analysis for theCorporation and its dealer network. Caro-line has a daughter, Hilary, who is nowthree. She looks forward to the day thatHilary can pick up a golf club, as her handi-cap has suffered severely with motherhood!

For Debbie Landers, life has been awhirlwind since graduating in 1996. “DanBornais and I married in Cayuga, Ontarioon August 24, 1996 with most of my “Blue”teammates in attendance. Our son Alexarrived on June 29, 1997 and we com-pleted the family with daughter Kate’sarrival on March 3, 1999. My two step-children are now 19 and 17. Where doesthe time go? We still live in Tecumseh,Ontario, a suburb of Windsor, where Dancontinues to practice law.We recently ren-ovated the house to add a new floor,complete with a full office suite for me. Ihave now been working at home for 11years and can’t imagine going back to theoffice. I am still at IBM, and still loving it: Iam now the director of worldwide clientsupport for one of our five software divi-sions. I really enjoy the client contact, asthe global perspective it provides. In addi-tion to travelling all over the U.S. andEurope, I experienced my first trip toChina earlier this year. I also represent IBMon the board of directors of INWES, anorganization that strives to help women andyoung girls in emerging countries conquerthe poverty divide through career optionsin technical areas. My EMBA education hasserved me well in many ways. It is an expe-rience I will always treasure.”

Susanne Laperle was recently appointedsenior vice-president, human resources ofExport Development Canada. Prior to join-

ing EDC, she was a vice-president of humanresources and communications for a numberof major Canadian retail companies, and hasextensive experience in facilitating changeacross large organizations. She was also asenior consultant with the John C.WilliamsGroup in Toronto where she specialized inthe fields of HR and communications toboth service industry and public sectorclients. In her role on the executive team atEDC, she oversees a portfolio that includestotal compensation, business partners/recruitment, learning and development, andorganizational effectiveness.

Since EMBA, Ron Lovelock has contin-ued to work at the Workers CompensationBoard, which became the Workplace Safetyand Insurance Board in 1998. He has nowpassed 30 years with the ‘Board’, and alsocompleted his Certified Financial Plannerdegree in 2002 in his spare time, with theintention of pursuing a financial careerwhen he retires. In his personal life, he wasrecently married, and was unable to attendthe EMBA reunion because he was on hishoneymoon in southern France and Tuscanywith his new life partner, Alan Laing.

Shortly after graduation, Chris McLellanmarried Dianne Davey. “Dianne and I havetwo children (Samantha, 8, and Jackson, 6).Two years after graduating, I was trans-ferred to Denver CO by StorageTek.Subsequent to that I was involved in theestablishment of a “dot-com” spin off fromStorageTek- ManagedStorage International.In late 2000, I was recruited to join Inflowas their Canadian general manager, andspent the next five years at Inflow, afterwhich the company was sold to StorageTek,where I work today as their Canadian GMof managed services. Personally, I’ve finallytaken up hockey and become an avid cot-tager, along with the rest of my family.”



Executive MBA

After graduation, John Miller joinedDeVry University, teaching in the businessdegree program. “They closed their Torontolocation in the fall of 2004 and I joined myson’s financial services firm in Whitby. I alsomoved to Seneca College’s Financial Ser-vices Management degree program, where Iteach “Introduction to Marketing”, “Market-ing of Financial Products,” and “Introductionto Management Principles.” As well, my sonGeoff, who joined us for one class you mayremember, has married. He and his wife,Christine, gave Lynda and me a granddaugh-ter, Lauren, back in Nov. 2002. We [were]expecting twin granddaughters from themin June. Lynda and I have moved from ourAjax condo to a home in Pickering Villageback in 2002. Most of my interests lie inhelping Geoff and his partner develop thebusiness, or learning with my grandchil-dren, or pursuing learning opportunitiesthrough my role with post secondary institu-tions. If there was anything I learned fromEMBA, it was that I had little use for thecontinued pursuit of business problems.Academia is where I would rather be – orretired to a farm in PEC (sooooooon).”

After Rotman, David Robertson formeda small consulting company and carried outseveral large projects for multinational,high technology and financial service com-panies. “In addition, I successfullyconcluded several mergers and acquisi-tions, acquired funding for two start-uporganizations and helped develop an e-commerce company which is still runningin the U.S. In 2000 I joined epost, theworld’s first electronic post office, as theirchief financial officer. At the time, epostwas a joint venture between Canada Postand the Bank of Montreal. In early 2001, Iincorporated the epost partnership, addingTELUS Corporation as a minority share-holder. In 2004 Canada Post purchasedboth the Bank of Montreal and TELUSshare interests to pursue the acquisition ofthe only competitor, webdoxs, which wasowned at the time by Bell Canada. In Janu-ary of 2006, I was asked by Canada Post tomove over to the “mother ship” as a generalmanager responsible for supporting newly-

created lines of business within the Corpo-ration, which gives the post office a newprofit-oriented outlook. I spend three daysa week in Ottawa, as my staff is all there,returning (usually) Wednesday night. Thedeal with Canada Post is that I live inToronto but my staff is all in Ottawa.”

Jean Taillon is a bilingual, senior clientrelations executive with over 22 yearsexperience in the telecommunications andhi-tech fields. He is currently the vice pres-ident of signature engagements at Bell,which consists of managing Bell accountsworth $100 million or more. Previously, hesuccessfully turned around the mid-marketsales organizations, attaining three per centyear-over-year growth. Previously, he heldpositions of senior vice president of BellCustomer Operations, as well as seniorroles in marketing, sales and operations atAT&T Canada, Motorola and NorthernTelecom. In addition to his MBA, he holdsa Masters in Engineering from the Univer-sity of Toronto. Jean is also a regionaldirector with the Canadian Forces LiaisonCouncil that was created by the Depart-ment of National Defense to foster contactsbetween the civilian community andreservists. He is an active member in twocustomer advisory boards, NTG Clarityand Sun Microsystems, and is a boardmember of Connexim and Pro-Action aswell as a director in the Kitchener/Water-loo Chamber of Commerce. He is alsoexecutive sponsor responsible for theKitchener/Waterloo and the Hamilton/Burlington area. In his spare time, he is afrequent lecturer for the EMBA programand enjoys running, skiing and other out-door activities. Jean is married and thefather of two daughters.

Iain Taylor reports, “My wife, Nancy, andI have been enjoying life watching our sonSimon (9) and daughter Emily (11) growup. In 2004, Universal Music Canadastarted up a new DVD distribution firmcalled Vivendi Visual EntertainmentCanada.We are now a leading distributor ofCanadian and International theatrical filmproduct on DVD. I have been overseeingthis venture from its inception, and amextremely pleased with all our successes todate. My EMBA 12 friends will probablyfind it amusing that I finally ‘left’ the musicbusiness only to land in film!”

Bruce Toner is VP and general manager ofProcor Rail Services. With its U.S. sistercompany Union Tank Car, Procor manufac-tures, leases, fleet manages and maintainsspecialty tank and freight rail cars through-out North America.The EMBA experience,supplemented by previous roles in sales andmarketing, HR, strategy and operations, hasalso been leveraged into other executive andboard positions in business, not-for-profitorganizations and sports organizations.Bruce and wife, Donna (a teacher), reside inCarlisle, Ontario with their two girls –Kathryn and Sara.

1997Class Champion:Jennifer [email protected]

1998 Class Champion:Ashok [email protected]

Jeff Williams is vice president informa-tion systems at Staples Business Depot, inRichmond Hill.



Executive MBA

1999 Co-Class Champions:Mo Mauri [email protected] [email protected]

Hedy Luetjen-Scott is an investmentrepresentative at Edward Jones FinancialServices, in Thornhill.

2000 Co-Class Champions:Jennifer [email protected] [email protected]

Helen Platis sends along this note. “Yes,we really did have a baby, and I am finallygetting around to sharing this announce-ment with my classmates. His name isConnor Andrew Zakary, born March 31,2005. Rather than include the usual hospi-tal photo, I am attaching one that I thinkbest suits the personality of our little one.This is Connor last summer. He now hasblond hair and his eyes are a more naturalcolour, too.We still try and keep him in thelaundry basket, but now that he is cruising,he is much harder to contain. Hope every-one is well.”

2001Co-Class Champions:Ken [email protected] [email protected]

Anne Brethet is president of Brethet Bar-num and Associates, in Toronto.

William Smalley’s newest client is amedia production and documentary filmcompany working in the Arabian Gulf. “Iam helping them set up the Golden GulfMedia Group in Dubai. The goal of thiscompany is to produce documentary con-tent the bridges the gap between east andwest to increase opportunities for Canadiancompanies to work in the United Arab Emi-rates and the Gulf Region. Our firstproduction, “New Dawn in the Desert,” is adocumentary about Canadian success sto-ries in Dubai and the United Arab Emirates.Part of my job is to market the film inCanada and worldwide.The photo below isof me with David Hutton, CanadianAmbassador to the UAE, and John Rodney,the Senior Trade Commissioner in theUAE, at the Canadian Embassy in AbuDhabi. The Canadian Government is asponsor of the film.

2002 Class Champion:Cheryl Paradowski [email protected]

Alan Dunn is capital projects manager forGeneral Motors Canada, in Oshawa,

Mary Mullens is the director of the busi-ness law clinic at the University ofVictoria’s Faculty of Law.

2003 (EMBA19)Class Champion:Jennifer [email protected]

Dorino Borsato is engineering programsmanager at Magellan Aerospace Corpora-tion, in Mississauga.

Ahmed Daoud is the IT manager atRogers Communications Inc., in Toronto.

Rikk Salamat is a principal consultantwith Case Lab Inc., in Toronto.

Dave Stauble is still working at Pet Valuto earn tuition for three students in thefamily. Son Michael has turned 18 and is offthis fall to St. Joseph’s University inPhiladelphia on a tennis scholarship.Daughter Maddy (Madelaine) is startingpre-school after turning two in June. Shealready talks in longer sentences than herdad.After supporting Dave through EMBA,it is now Maria’s turn to go back to school:she has started correspondence courses forHomeopathic College and begins classesthis winter. Dave has been getting back inshape and is gearing up for the OntarioProvincial Seniors (Over 50) Tennis Cham-pionships in July. Life is Good.

2003 (EMBA 20)Co-Class Champions:Andrew [email protected] [email protected]

2004 (EMBA 21) Co-Class Champions:Fariba [email protected] [email protected]

Mike Christensen is director, solutionsdelivery at Visionmax Solutions, Inc. inMississauga.



Executive MBA

If you watched the Winter Olympics on TVthis February, you couldn’t miss the numer-ous mentions of the Toronto-basedorganization, Right to Play.When Americanspeed skater Joey Cheek donated his prizemoney to the organization, it helped to cre-ate a flood of donations from otherathletes, including Canadian ambassadorsBecky Scott, Cindy Klassen,Arne Dankers,Clara Hughes, Kristina Groves, and themembers of the gold medal women’shockey team. Johan Olav Koss, a four-time gold medalist in Olympic speed skat-ing, is the president and CEO of Right toPlay. “I remember being on the podium,thinking how fortunate I was to have theopportunity to reach the pinnacle of sportaccomplishments, especially while therewere so many children in disadvantagedareas of the world who didn’t even have thechance to play. But, just over 10 years later,it’s amazing to see that Right to Play ischanging that.We now reach over 500,000children on a weekly basis.” Right to Play is“creating a healthier and safer world forchildren through the power of sport andplay”, and can be reached throughwww.righttoplay.com.

Perry MacDonald and his wife JanetLo, welcomed their first child, JuliaCatherine Wei, on April 14, 2006. Allthree are doing great.

2005 (EMBA22)Class Champion:Michele [email protected]

Jim Dimakos is vice president of ICAPplc, in Toronto.

Heather Hack was recently promoted tonational account manager for business andindustry and health care at Fishery Products

International. In her new role, Heather isresponsible for all of these accounts,nationally, and will be handling the largestand most profitable customers corporatelyfor the health care sector, as well as productdevelopment.

Linda Lindsay recently took on the roleof manager, regulatory affairs and qualitysystems, at St. Jude Medical Canada Inc., inMississauga.

Brett Roberts is manager, IT asset man-agement at Canadian Tire FinancialServices, in Welland, Ontario.

2005 (EMBA23)Co-Class Champions:Karen [email protected] [email protected]

Yufei Lu is a researcher in the doctoralprogram at The Latinamerica Institute, Chi-nese Academy of Social Science, one of thetop three scientific research organizationsand top think-tanks for the government ofChina. He was appointed by the institute tobe the coordinator for academic exchangeactivities between countries like Mexico,Brazil, Argentina, Chile and China. He andhis wife recently traveled to Brazil andArgentina. Yufei sends his best wishes toEMBA 23.

Brad McCamus is the president of hisown consultancy, Sales Performance Con-sulting, in Toronto.

2006 (EMBA 24)Co-Class Champions:Linda [email protected] [email protected]

2006 (EMBA 25)Class Champion:Rob [email protected]

GEMBA (OmniumGlobal Executive MBA)

1996Marlene Dikany-Lehner is leader ofthe human capital business line of Mercerin Linz, Austria. She is also working inmajor projects in Europe and the MiddleEast in the area of strategy and HR relatedfields. Marlene graduated in 1996 in thefirst global MBA Program. Prior to Mer-cer, she was general manager of LIMAKBusiness School and has been employed inother educational institutions before. Mar-lene supports alumni and other networksand serves as a European Envoy for Rot-man alumni.

1998Class ChampionLan [email protected]

1999 Class Champion:Jim [email protected]

Dr. Alaa Serry is the proud father ofNehad Serry (Nona) who became the sec-ond UofT graduate in the family, on June19th, 2006. “Nehad earned her BComdegree and is currently working at therenowned Hospital for Sick Children. Mysecond daughter, Nada, is a second-yearUofT student and our plan for Hosam (my12 year old son) is to enroll at UofT in theyears to come.We intend to have a ‘record’four UofT graduates amongst our immedi-ate family members.”

2000 Class Champion:Nancy Dudgeon [email protected]



GEMBA

2001 Co-Class Champions:Margaret Evered [email protected] Hennig [email protected]

Klaus Dorninger is the managing direc-tor of Erdgas Oberosterreich GmbH,Austria’s first biogas feeding plant.Launched in June 2005 in Pucking, UpperAustria, the plant supplies refined andupgraded biogas of natural gas quality tothe existing natural gas grid. The aim of theproject is the innovative use of biogas froman agricultural source. Using a complexpurification process, biogas produced fromanimal waste is dried and carbon dioxideand hydrogensulphate is removed in a refin-ing plant. On March 29, 2006 the Erdgasplant took the top award in the ‘Air’ cate-gory at the prestigious “Energy GlobeAward 2005”. Winners from Austria,Uganda, India, Indonesia, Israel, andSwitzerland were honoured at a gala held inVancouver. Pictured below, Justin Trudeaupresented Klaus with the award. “Our cus-tomers’ expectations regarding modernenergy sources are great. They should beecologically friendly and comfortable touse for a variety of applications.The biogasfeeding-plant meets these demands.”

2002 Co-Class Champions:Manfred [email protected] Cerhan [email protected]

Manfred Koo and his wife Sarah areproud to announce that their baby girl,Elise Laura, made her debut on March30. Parents and grandparents are over the

moon. Elise has already taken her Dad’sheart hostage.

2003Co-Class Champions:Michal [email protected] [email protected]

2004 Co-Class Champions:Ralf [email protected] [email protected]

In May 2006, the first official GEMBA’04(a.k.a. Module 4) class reunion took place inTuscany, Italy. Attending the reunion wereWerner Pamminger (Austria), UweLeopold (Austria), Hubert Zajicek (Aus-tria), Nicola Brown (Canada), HerbertWagner (Austria), Felicia Purcaru(Canada), Hermann Kaineder (Austria),David Di Felice (Canada), Frank Reuter(Germany), Andreas Asamer (Austria),and Ralph Martinelli (Austria). As theclassmates took in the Tuscan sunshine andlandscape, relaxed by the villa’s pool, andstayed up until the early morning hoursenjoying fine Italian wine and superb Austrianbeer, they were able to catch up with eachother and reminisce about the great timesthey shared during the GEMBA program.Thegroup also took numerous day trips thatincluded stopovers in Lucca, Volterra, SanGimignano, Siena, Firenze, and Cinque Terre,where the GEMBAs engrossed themselves inItalian culture and cuisine. Many historicalsites were visited and countless espressos,gelatos, pizzas, pastas, and of course, bottlesof vino were downed. Perhaps, one of thegreatest aspects of the reunion was the dis-

covery of the four “hidden gems” of Toscana.This consisted of the charming Tuscan townsof San Miniato, Vinci, Palaia, and of course,Agliati. All of the GEMBA 04’s are lookingforward to the next reunion (a.k.a. Module5) being planned for 2008.

On June 4, 2006 Jonas Paul Pamminger,the fist child of Birgit and Werner Pam-minger was born. The whole family iswell and happy and looking forward to thenext reunion.

2006 Class Champion:Cecilia [email protected]

MBA (Accounting) /Master of Management &Professional Accounting

1990Sandra Dowling is the president of Inve-nio Minerals Inc, in Toronto.

Rowena Yue is director of corporatefinance and advisory at Standard CharteredBank in Hong Kong.

1991Moira Gill is director of insurance regula-tory affairs for TD Insurance in Toronto.



GEMBA/MMPA

Jeff Pocock is a partner in Toronto-basedSolaris Capital Advisors Inc.

Lorinda Thompson is the director offinance, HR and administration at ScottsCanada in Mississauga.

1992Vanessa Beresford is an investor rela-tions analyst at Old Mutual plc, in London.

1993Kippy Wiegand continues to live in Mon-treal, where he returned after UofT. Hebecame an audit partner at Deloitte &Touche in 2003, serving a mixture of pub-lic and private clients. Kippy is still an avidhockey and tennis player.Travelling is still ahobby, including visiting siblings 5,000 kmsaway. He enjoys seeing former classmateswhen he gets to Toronto.

1994Class Champion:Chris [email protected]

1996Co-Class Champions:Vanessa [email protected] [email protected] [email protected]

Greg Dick recently became vice presi-dent, finance of Toronto-based StreetcarDevelopments Inc.

1998Class Champion:Melody Tien [email protected]

Justin Cressall is senior vice presidentand treasurer of Platinum UnderwritersHoldings Ltd., in Bermuda.

1999Class Champion:Jamie [email protected]

Aamir Ahmad is compliance officer atthe Mutual Fund Dealers Association ofCanada,Toronto.

Albert Chiu is a director at Quality RiskManagement & Operations Limited inHong Kong.

Mark Mandel is a vice president at Price-waterhouseCoopers in Toronto.

Amrit Samtani is an audit manager atScotiabank in Toronto.

2001Class Champion:Elaine [email protected]

Marc Abou-Faissal is the senior corpo-rate auditor at Wolseley plc, in Toronto.

Lilin Luo had a baby boy, Richard Chen, inSeptember 2004. “Time flies so fast –Richard is turning two this year!”

2002Class Champion:Ali Spinner (Charyk)[email protected]

2004Wanxia (Sherry) He is manager offinance and HR at the Royal Bank ofCanada, Beijing branch.

Sonia MacIntosh-Dobson (DIFA 2004)is manager of administrative services forNova Scotia Community College, PictouCampus.

David Qu is a senior accountant at KPMGin Toronto.

2005Cheng Qian is a financial auditor withKPMG in Toronto.

PhD

1982 Dr. Jacob Warshavsky (Col. Res.) hasbeen manager of the information divisionand the research and information centre ofthe Knesset (Israel Parliament) since itsfoundation in 2000. In addition to his PhD,he holds an MBA and BA in Economics andPolitical Science from the University ofTel-Aviv. Prior to joining the Knesset, Dr.Warshavsky worked in the IT industry,both in the public sector and in interna-tional and Israeli corporations. He teachesmarketing management, information sys-tems, and industrial management at theCollege of Management and the HebrewUniversity of Jerusalem.

Be a Class Act:Volunteer as a Class ChampionClass Champions ensure their classremains active and vibrant long aftergraduation and bring the RotmanSchool and its graduates closertogether. They help organize reunions,promote events, and keep track of theirclassmates’ activities for inclusion in theClass Notes section of Rotman maga-zine. To represent your graduatingclass, contact the Rotman AlumniOffice at (416) 978-0240, or via e-mail at [email protected].


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15960 Cover 8/4/06 3:47 PM Page 2

Upcoming Events

September 2006September 14, 5:00 – 6:20 pmRotman Corporate CitizenshipSpeaker SeriesSpeaker:Taddy Blecher, President,CIDA City Campus (South Africa)Topic: “Providing an Effective HumanDevelopment Strategy for South Africa viaMass-Scale, Quality Higher Education”

September 26, 5:30 – 7:30pmLaunch of Rotman Masters ofFinance Program

September 28, 5:00 – 6:20pmRotman Marketing ExpertsSpeaker SeriesSpeaker: Louise Wendling,Senior Vice President, Costco

October 2006October 10, 5:00 – 6:30 pmAnnual Rotman WorldMental Health Day ForumTopic: “Depression and Its Impacton the Workplace”Panelists: David Goldbloom,Centre for Addiction and Mental Health;Sarah VanderBurgh, RBC Insurance

October 12, 5:00 – 6:20pmRotman Corporate CitizenshipSpeaker SeriesSpeaker: Benjamin Friedman,Maier Professor of Economics,Harvard UniversityTopic: “The Moral Consequences ofEconomic Growth” (Knopf, 2006)

October 13, 7:30 – 9:15 amRotman Board EffectivenessSpeaker Series

Speaker: Rt. Hon. John Turner,Partner, Miller Thomson LLP(former Prime Minister of Canada)Topic: “Sarbanes Oxley: A CanadianView - The Impact on Directors andManagements of North AmericanPublic Companies”

October 16, 5:00 – 7:00 pmAnnual Rotman/BDCEntrepreneurship ForumTopic: “Challenges and Opportunitiesfor Entrepreneurs to Advance YourInternational Competitiveness:Lessons Learned”Panelists: Les Mandelbaum, Umbra;Chip Wilson, lululemon athletica

October 26, 8:00 am – 4:00 pmOffshore Outsourcing: Capitalizingon Lessons LearnedKeynote Speaker: NatarajanChandrasekaran, Executive Vice President,Tata Consultancy ServicesConference Co-Sponsor: Industry Canada

November 2006November 7, 6:00 – 8:00 pmAnnual Rotman Women inManagement Open House

November 8, 8:00 am – 1:00 pmAnnual Canada’s Best-ManagedBrands ForumSpeakers: Joe Chidley, Editor,Canadian Business, with leaders fromCanada’s best-managed brands

November 9, 5:00 – 6:20 pmRotman Corporate CitizenshipSpeaker SeriesSpeaker: Phil Sorgen, President,Microsoft Canada Co.

Topic: “Encouraging CorporateSocial Responsibility in a CompetitiveGlobal Economy”

November 16, 9:00 am – 5:00 pm,New York CityGet Creative: Methods and Metrics toImprove Innovation Success RatesModerator: Bruce Nussbaum,BusinessWeek MagazineSpeakers:Yves Behar, fuseproject; BethComstock, NBC; Larry Keeley, DoblinGroup; Sohrab Vossoughi, Ziba Design;Roger Martin, Rotman School; DavidRockwell, Rockwell Group; JeneanneRae, Peer Insight

November 22, 8:00 am – 1:00 pm2007 Economic Outlook ForumSpeakers: Jayson Myers, CanadianManufacturers and Exporters;David Wolf, Merrill Lynch;Roger Martin, Rotman SchoolPresenting Sponsor: Accenture

December 2006December 1, 8:00 – 9:15amAnnual Rotman WorldAIDS Day LectureSpeaker: Nigel Fisher, President and CEO,UNICEF Canada (former AssistantSecretary-General, United Nations)Topic: “HIV/AIDS and Human RightsAbuses:What We Need To Do Now”

December 8, 7:30 – 9:15 amRotman Board EffectivenessSpeaker SeriesSpeaker: Stephen Davis, President, DavisGlobal Advisors (Boston)Topic: “The New Capitalists: How CitizenInvestors are Reshaping the CorporateAgenda” (HBSP, 2006)

Complete details are available at www.rotman.utoronto.ca/events


Reserve your seat now for this Rotman School conference. In 2005 BusinessWeek

their proven strategies for embedding creativity in business:

Create Powerful, Emotional Brand Stories That Customers Connect ToYves Béhar, Founder, fuseproject (San Francisco)

Drive Growth By Encouraging Employees To Think ‘What If?’Beth Comstock, President, NBC Universal (New York)

Discover And Understand Your Company’s ‘Innovation DNA’Larry Keeley, Co-Founder & President, Doblin Group (Chicago)

Shaping Experiences That Last in Customers’ MemoriesDavid Rockwell, Founder & CEO, Rockwell Group (New York)

Understanding Why Customers Do What They DoSohrab Vossoughi, Founder & President, ZIBA Design (Portland, Ore.)

Using Design Principles To Rethink StrategyJeneanne Rae, Co-Founder, Peer Insight (Alexandria,Va.)

Business Design™:The New Competitive WeaponRoger Martin, Dean, Rotman School of Management, University of Toronto

Get Creative!

105 St. George StreetToronto, Ontario, Canada M5S 3E6

Publication MailingAgreement Number 40062461

Metrics and Methods to ImproveInnovation Success Rates

The Magazine of the Rotman School of Management

Fall 2006

The Loyalty IssueLoyalty Myths

Also, Fred Reichheld,Patriotism in Your Portfolio,

and The ‘New’ Loyalty

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November 16, 2006New York City

Conference Moderator:Bruce Nussbaum,Assistant Managing Editor,BusinessWeek (New York)

Complete details:www.rotman.utoronto.ca/events

named their 7 “Innovation Gurus”. On Nov. 16 these “Magnificent 7” will share

fall 2006

Documents