Boards and fraud – who gets the sack and who gets to stay?

We have seen lots of corporate scandals over the past decade, and in many of these cases the boards of directors were up for some heavy criticism. Whether it was Enron, Tyco, WorldCom, or one of the toppled investment banks, their boards took some flack, since of course they are ultimately responsible for the corporation’s actions.



But what happens to such directors? What happens to these people in the business elite when their company, for example, is caught being involved in financial fraud? Well, perhaps not surprisingly – and this may come as a relief – they often get the sack (as research by Professor Arthaud-Day from from Kansas State University and colleagues convincingly showed). Directors associated with financial misrepresentations are often dismissed from the board of their fraudulent company but, interestingly, subsequently they also regularly get the boot at another board. As you may know, outside directors often serve on the boards of multiple companies and a study by Professor Srinivasan from the Harvard Business School showed that they lose about 25 percent of these (rather lucrative) jobs if one of the companies in their portfolio is caught up in fraud.



Yet, this also implies that 75 percent of companies retain a particular board member, even though he or she is compromised having served on the board of another company while it was committing fraud. And that begs the question, what firms decide to retain such a tainted board member, and which ones decide give them the sack?



Professors Amanda Cowen and Jeremy Marcel from the University of Virginia decided to examine this. They managed to collect data on 277 directors who served on multiple boards concurrently, one of which was associated with financial fraud. Their statistical analysis showed that companies that were covered by more equity analysts and governance-rating agencies were more likely to dismiss compromised board members; up to twice as likely. These external observers apparently serve as a bit of watchdog. However, surprisingly, when a company had a relatively large number of public pension fund investors amongst its shareholders, they were less likely to dismiss a compromised board member. Cowen and Marcel speculated that this was because these pension fund shareholders do the monitoring themselves, so that they don’t care much about the company’s directors; tainted or not.



You also have to realize who does the firing; and that is the rest of the board. Cowen and Marcel’s research also showed that very prestigious, well-networked boards were less likely to fire their tainted fellow director. It is well known that boards of directors form a rather cliquish corporate elite. It is not easy to find your way into this world, but once your solidly in, not even a little financial fraud is going to convince your corporate buddies to throw you out.

How to look ridiculous

This blogger freely admits to being severely sartorially challenged. The words fashion, smartly dressed, even, nice shirt, are outside his lexicon. It is therefore entirely appropriate that a learned treatise on the recently concluded Lakme Fashion Week features as this Sunday post. For those unacquainted with this earth shattering event, it is the premier event in India where impossibly thin human beings (mostly female) walk with a funny walk, looking like having descended from outer space and get ogled at by a horde of notebook clutching "experts".

This is India. This blogger has eloquently expressed his opinion on the clothing tendencies of the Indian female here.  Now, compare that with the presumably "hot" outfits on full display at the aforementioned fashion event.

Have you ever seen anybody dressed like this ?

Or like this ?

Can you imagine Rajalakshmi like this

Or even like this ?

Alas, this is no longer a feminine preserve. There seem to be metrosexuals who want to look like this

Not even for fun can I picture Gils like this

Or Zeno like this

I mean, who wears such stuff ??  Have you seen a single human being attired like this ? OK OK - I don't frequent the crowd that features on Page 3 (for non Indians - Page 3 in Indian papers is not topless females; its photos of the so called party goers - apparently there are a breed who want their mug shots looking silly to feature in the papers). I am told reliably that such monstrosities may feature there.

Judging by the buhaha (word courtesy Reflections) over this event, there are presumably lots of people interested in such stuff. Corporate sponsors fall over themselves to be seen there. Now corporate sponsors are not exactly known for their wisdom when it comes to throwing away somebody else's money.  So everybody has a ball - the slightly weird lot who make this stuff, the anorexia addicted lot who wear this and walk that funny walk and the notebook clutching lot, who love a free drink and like to think that their opinion matters.

Well, to each his own. However, chances are that most people, if they see an apparition like this .......

.... are likely to run a few miles.

Tepid Beer

Here is an example of how corruption starts. Anti corruption sentiments are high in India these days , as any Indian reader would know.  This blogger, trying to be apolitical, steers clear of any comment on the movement launched by Anna Hazare. But an instance of how a warped economic policy breeds corruption would be entirely appropriate for this blog.

The state of Andhra Pradesh is the largest beer market in India.This would not be surprising to readers with some knowledge of the state. Its is a large state with lots of people. It is also "blessed" with one of the hottest climes in the country. Naturally a cold beer would be very welcomed by many.

Unfortunately the neta babu raj is very much alive and kicking in the beer industry in Andhra Pradesh. The government decides what brands of beer you can buy, from whom and at what price. A very worthy organisation called the Andhra Pradesh Beverages Corporation Ltd  exists staffed by Ramamrithams of all shapes and hues. They tender for all the beer to be sold in the state and decide how much is to be bought from each company.

Some years back United Breweries (Vijay Mallya's company) and SAB Miller (a global giant) virtually sold all of the beer in the state. A year back government policy changed stating that they would buy beer from companies in the proportion of their national market share (only a Ramamritham can think like this). This massacred SAB Miller and benefited UB hugely - ( for sake of absolute clarity let me categorically state that I am not implying that UB had any say in this decision). Recently, the policy got reversed, benefiting SAB Miller (ditto clarification regarding any influence of SAB Miller in this decision)

What is the government doing deciding whose beer you should drink. Its none of its business. Hasn't it heard of consumer preference, supply and demand, etc etc. Why is beer any different from the hundreds of products that are bought and sold daily. There is some mistaken belief that the government should protect its citizens from the harmful effects of liquor consumption (??) and that is best achieved by controlling it. Quite apart from it being nonsensical thinking, government control is the surest way to drive bootlegging underground and spark the all too frequent illicit liquor tragedy. 

There is every temptation in an environment like this for normal commercial decisions to be taken on criteria other than economic. Why leave this window for corruption? The state of Andhra Pradesh has many issues confronting it. It needs to address so many problems. Production, distribution and pricing of beer is not one of them. Governments should get out of normal commercial activity. Let the market decide.

Corruption is a many headed hydra. Effective policing is one aspect of the solution and can be a good deterrent. Eliminating an environment that breeds corruption is also equally important.

Wordless Sunday

So, you think you have a strategy? Five poor excuses for a strategy

Most companies do not have a strategy. Ok, I admit it, I do not have any solid statistics (if such a thing were possible) as evidence to back up this statement, but I do see a heck of a lot of companies, strategy directors, and CEOs present their “strategies” and I tell you, I think 9 out of 10 (at least) don’t actually have one.



Sure, it depends on the all-evasive question “what is strategy?” but even if you would take the most lenient of definitions, few companies actually have one. Let me not tire you with some real strategy textbook definitions but if I would just put it as “you know what you are doing, and why”, most firms would already fall short on this one.



Most companies and CEOs do not have a good rationale of why they are doing the things they are doing, and how this should lead to superior performance.



I’d say there are 3 types of CEOs here: 1) CEOs who think they have a strategy; they are the most abundant; 2) CEOs who pretend to think that they have a strategy, but deep down they are really very hesitant because they fear they don’t actually have one (and they’re probably right); these are generally quite a bit more clever than the first category, but alas fewer in numbers; 3) CEOs who do have a strategy; there are preciously few of them, but invariably they head very successful companies.



So what do all these CEOs do, when confronted with the question “what is your strategy?” Well, of course they will retaliate with a powerpoint presentation, headed by the title “our strategy”, and there is stuff on it. It just ain’t strategy.



Let me present you with five such common excuses for a strategy or, put differently, five examples of why the things on the powerpoint are not strategy:



Are you really making choices?

Strategy, above all, is about making choices; choices in terms of what you do and what you do not do. Future Plc for example has chosen to focus on specialty magazines for young males (decent magazines, by the way…) in English. This contains some very clear choices. The point is that what they are throwing away, i.e. choosing not to focus on is meaningful. They concerns things that could have made them money as well. For example, magazines for middle aged women might potentially be very profitable, but that is just not what they want to do, because they think concentrating on a clear set of consumers and products will help them do better. Most companies don’t do this; they cannot resist the temptation of also doing other things which, on an individual basis, look attractive. As a consequence, they end up with a bunch of stuff that appears attractive, but strangely enough they don’t manage to turn them into a profitable proposition.



Or do you just stick to what you were doing anyway…?

Another variant of this is the straightjacket of path dependency, meaning that companies write up their strategy in such a way that everything fits into it that they were doing anyway. And there might be nothing wrong with that, if it so happens that what you were doing anyway represents a nice coherent set of activities. Yet, more often than not, strategies adapted to what you were doing anyway results in some vague, amorphous statement that would have been better off in a beginners’ class on esoteric poetry, because it is meaningless and does not imply any real choice. The worst of the lot I have seen (although low on poetic value) was Ahold’s poor excuse for a strategy, which ended up doing so many different things in so many different corners of the world that they resided to calling their strategy “multi-format, multi-local, multi-channel”. This – not coincidentally – was shortly before the company collapsed.



Your choices have no relationship with value creation (you’re in “The Matrix”)

Sometimes companies make some choices, but it is wholly unclear why these choices would do you any good? It is not just about making choices, you need a good explanation why these choices are going to create you a heck of a lot of value. Without such logic, I cannot call it a strategy. Let me give you an example, which happens to be the most common strategy I have seen among multinational corporations: The Matrix. On the horizontal axis, one puts countries; on the vertical axis, one puts business lines. And the strategy is to tick boxes, as many as possible, as quickly as possible (preferably through acquisitions). But why would performing all your activities in all your countries be a good strategy? If you can give me an explanation of why this would lead to superior value creation, I might label it a strategy, but such an explanation is usually conspicuously absent. Without a proper rationalisation of why your choices are going to help you create value, I cannot call it a strategy.



You’re mistaking objectives for strategy

“We want to be number 1 or 2 in all the markets we operate in”. Ever heard that one? I think it is bollocks. A CEO who wrote to me the other day, after having read my book (“Business Exposed”), said of most of these things proclaimed to be strategies that they were like saying “I am going to win the 400 meters during the 2012 Olympics by running faster than anyone else”. Yes, that is very nice, but the real question is “how?” We want to be number 1 or 2 in the market; we want to grow 50 percent next year; we want to be the world’s pre-eminent business school, and so on. These are goals; these are objectives, and possibly very good and lofty ones, but strategy they are not. You need an idea and a rationale – a strategy – of how you are going to achieve all this. Without it, they are an aspiration, but certainly not a strategy.



Nobody knows about it

The final mistake I have seen, but scarily common, of why CEOs who think they have a strategy don’t actually have one (despite circumventing all of the above pitfalls), is because none of their lower ranked employees actually knows about it. A strategy is only really a strategy if people in the organisation alter their behaviour as a result of it. And in order to achieve that, they should know about it… Strategy by itself does nothing; the powerpoint presentation – regardless of how colourful and fine-tuned – is not going to resort to improved performance unless the choices and priorities it contains result into actions by middle managers and people on the work floor. A good litmus test is to simply ask around; if people within the organisation do not give you the same coherent story, chances are you do not have a strategy, no matter how colourful your powerpoints.

The Business August 17th 2011, "I Feel Witty" Edition

Jesse Elias and Issac Witty join The Business this Wednesday, which will most likely cause a pulsing force-field of quirky and awkward delivery styles to envelop the entire theater. That means it will be very very funny night.



The Business is excited to welcome Issac Witty's unique and hilarious comedy style, which has been featured on the Late Show with David Letterman, A Prairie Home Companion, Comedy Central, and Bob and Tom radio show just to name a few. His CD "Zero Balance" was released last year on the Rooftop Comedy label. There is much to be said of his delivery, which feels both classic and completely left field at the same time. All in all, Issac Witty is very...Issac Witty. You'll see what I mean.



Jesse Elias is probably too smart for his own good, but obviously not smart enough to stay away from a career in stand-up comedy, and audiences all over the Bay Area are all the better for that oversight.

A recent winner of the not-even-close-to-prestigi​ ous Twisted Biscuit competition, Jesse made a smashing debut at the Punch Line comedy club recently, and is following up with his premier here at the Dark Room.



As always we start at a very 8pm, we cost a very $5 and have a very good burrito radius around the theater. Be very here.

Never mind chaps, let's move on

The true test of character is in times of adversity. For an Indian sports fan, it has been adversity with a capital A, the past two weeks. India has suffered a heavy defeat , actually a pasting, against England. A series , that was billed as the clash between the top two teams in the world, turned out embarrassingly one sided. We can take defeat, but its rather hard to swallow being thumped.

These things happen in sport. India is not as bad a team as it appears. And England is not as good a team as it would like to believe.Nothing went right for India and everything went right for England. England were certainly the better team and deserved to win. But the crushing nature of victory was unexpected, to say the least.

It is in the natural order of things that sportsmen are defied when they win and are torn apart when they lose. The Indian team has already started to take a hiding and will no doubt be insulted with every possible epithet.  Somebody's house will, no doubt, be stoned. Pundits, and there are many, will decry the mercenary attitude of the players. IPL has spoilt them. They don't care for their country anymore. The team is ageing and everybody above 30 must be sacked. Blah Blah Blah.

It's in times of adversity that character shows. Character of all the people concerned. The fan, to take it philosophically and to stand behind the team. Resist the temptation to kick the guy who has fallen, for that is all too easy. It takes character to look for flaws to patch up and further improve when you are winning handsomely. And to put an arm around the shoulder and say better luck next time, when the chips are down. 

The character of the players as well. To them this has been a ruder shock, they themselves would have never expected. After all they won the World Cup just a few months ago. And these are roughly the same lot who have performed heroics after heroics for many a year. This must be the most depressing moment of all. But this is the time to let true character show. Pick yourself up by the bootstraps. There is one more test to go. At the Oval, where India has traditionally performed well. Put the past three tests behind you. You have nothing to lose now. Stand up tall and be counted.  Play freely without the burden of the crushing defeat. And exit the disastrous series on a  more positive note.

Its also in moments of great victory that the character of the victors are shown too. To be graceful in victory.  They have won a resounding and thoroughly deserved victory. They have been on a roll in test cricket at least over the past 2 years. They are entitled to gloat. But they will stand even taller if they showed some of that noble British quality of restraint and understatement..English cricketers, and sports writers, have not exactly distinguished themselves with grace in the past. Let us see if this time it will be different.

As in cricket, so in life. If it's a moment of great victory for you, you deserve every cheer. But if it's a moment when life has dealt you a rough hand, you deserve a warm hug.

And so to the Indian team. Never mind old chaps. Let's move on. You guys are still our heroes. Tomorrow is another day.

Stop watching the stock market ticker

As stock markets fell on Monday there was the predictable response from governments. Take for example the Indian Finance Minister. He says "we are prepared to address any concern that may arise on account of the present situation".  He should do no such thing. Stock markets should not drive government policy.

Have you noticed that the bleating and braying is all one sided. When markets are rising, nobody wants the government within one million miles of their trying to fill their pockets as fast as possible. When markets are falling , governments should come and "help them". Nonsense. Just as stock markets fell, you see the price of gold skyrocketing. I am yet to hear anybody express concern on where that market is heading.

For that matter, why be only concerned about stock markets ? Why not debt markets. Or, as above, gold markets. Or platinum markets. Or whatever.

Governments should simply adopt the right economic policy for the long term. Of course, they have to react to economic events, but that would be in the form of reacting to say a recession or overheating. Not to stock markets falling.  Stock markets, in the short term, are largely in the hands of speculators. More than 95% of transactions are speculative in nature. They perform a useful economic function - that of providing liquidity. But they need no support and certainly not an ounce of the time of the Finance Minister. If they mint money gambling, good luck to them. If they lose their shirts, well tough luck.

India is not in a bad position in the current situation. Unlike China, its not so dependant on exports and therefore the impact of a possible global recession will be lesser. India's growth will continue to be strong. The falling oil prices is a huge boon ; this can be the solution to controlling inflation, the most serious problem facing the nation today. Speculative inflows may dry up, but investment is not a problem - the country remains one of the most attractive markets in the world. The demographic dividend continues - India has a young population and not a dwindling supply of productive individuals. The Finance Minister has many things on his plate. Controlling corruption. Eliminating wastes and handouts. Restraining the burgeoning national debt. Continuing with reform and remove the current malaise of masterly inactivity. He doesn't need to watch the Sensex. When the shrill, loud, breathless "journalist" from CNBC asks him about it, the correct response should be - Sensex ? What Sensex ?

The Business August 10th 2011, "One In, One Out" Edition

This week at the Business is about hellos and goodbyes as we welcome Phoebe Robinson FROM New York, and send-off Emily Heller TO New York.



We say hello to Cleveland-native Phoebe Robinson who is in town from New York, where she performs at clubs like Carolines, New York Comedy Club and runs her own show as well. Recently, she was a finalist in NBC’s Stand Up for Diversity competition and co-created and co-hosts a weekly podcast Shelarious.



We say "Goodbye Heller Brick Road" to Emily Heller, a Business favorite who needs little introduction but deserves a grand send off. She performs all over the Bay Area, produces the popular Girl Talk show at the SF Punch Line and hosted the podcast Slumming It (well, up until last week) We are happy to have Emily for one of her last SF performances before heading east.



The regular Businessmen Chris, Sean, Alex and Bucky will all be on hand to make sure all this transitioning runs smoothly and stays hilarious. Burritos and refreshments are available adjacent to the theater and are not subject to agricultural inspection of any kind.

Just a chuckle

This blogger suffers from an acute affliction of verbiage. Where 7 words will do, 70 are used. This Sunday, we will therefore take our cue from another, fellow afflicted , far more illustrious and important. I shall manfully strive to follow his example.

Watch this.

The Business LA Edition - Hot August Night (Singular)

UPDATE: King Of Tweets, ROB DELANEY will join the Business at Meltdown August 26th!

Listen up LA.



Carmageddon couldn't stop us.



The Electric Daisy Carnival couldn't stop us.



You think Gwyneth Paltrow can stop us?



HAHAHAHAHAHA!



July has been defeated and we're charging into August like a pair of wind-swept bangs at a Neil Diamond concert. And I'm mixing metaphors for one simple reason: YOU DON"T WANT TO MISS THIS ONE!



Chris, Alex and Sean Proudly return to The Nerdist Theater @ Meltdown Comics Friday August 26th to bring you the comedy sweeter than Caroline herself.



Bucky is away that night, but we've got Special Guests Kyle Kinane and Matt Knudsen! More guests to come! Plus the raffling off of the sacred Burrito From Above (Bakersfield) returns and heaven knows what else!



Tickets are $8 if you get them online, and $10 at the door. You know what to do.



http://www.meltcomics.com/​webstore/index.php?main_pa​ge=index&cPath=6



"...San Francisco does have a comedy scene—it’s just a little weirder, a lot less commercial, and often much funnier than what you’ll find elsewhere, and the Business, held every Wednesday night inside the Mission’s Darkroom theater, is at its rumbling epicenter. Founded in 2009 by local comedians Sean Keane, Alex Koll, Chris Garcia, and Bucky Sinister, the Business has become the place to see edgy, often pee-in-your-pants-funny stand-up."



-San Francisco Magazine

Watch out Bollywood

Which country produces the largest number of films every year ? The answer is easy - India, some 1300 films in all. Which country is the second largest producer of films ? You might scratch your head or have guessed Hollywood. Wrong. The reality is Nigeria. Watch out Bollywood; Nollywood is all set to overtake you.

The Nigerian film industry is apparently thriving and booming. Its the film capital for all of Africa. Some 1000 films are apparently made each year. Unlike the more traditional format of movie halls, Nigerian films are mostly released on videos - there's hardly much of the theatre format in Nigeria and almost all of Africa. Each video costs some US$ 2 or so - cheap enough to be affordable and not worth counterfeiting. The distribution channel is therefore by retail stores for home viewing. No doubt, cheap video parlours would have sprung up for those unable to own a video player.

The industry is still small - Only some $250m or so. But with enormous potential. Africa is under served by entertainment. Movies are a great way to bring some cheer to  people - as India has so amply demonstrated. A peculiarly African solution has emerged. A distribution system and a pricing methodology that suits the market. Videos rather than hall screenings. 

India is virtually saturated by movies. I read that an astounding 3.2 bn cinema admissions happen in a year in India. That's an average viewing of 3 films per year per person. Amazing. I know that such a number is laughably low for movie buffs such as  Zeno, but you must also count that there are worthies like me with a viewing habit of precisely zero. How much more can India grow - not much. Whereas in Africa, the market is still virgin.

Gils has some competition here. At this site you can read reviews of Nollywood movies. At this site you can even watch them. They seem to have a tendency to raunchiness in their titles - "Obama Babes" goes a movie title. "Ladies Gang" goes another. Before you get any ideas, these are not that sort of a movie - they seem to be more of the serials type of stuff that are inflicted on the unsuspecting public world over.

I might be even tempted to watch one of them and write a review !!!!!

The Business August 3rd 2011, "Lest Ye Be Erin Judge" Edition

This week the Business regains it steadfast foundation of all four Businessmen Chris, Alex, Bucky and Sean while welcoming Comedian Erin Judge all the way from Brooklyn, New York. Erin Judge describes herself as "a comedian, writer, and caffeine enthusiast" who has been featured on Comedy Central's Live at Gotham and praised by Vanity Fair and Time Out New York. She is in town for the very funny Girl Talk show at the SF Punch Line (run by friends of the Biz Emily Heller and Janine Brito) and we are lucky enough to snag her here for a night at The Dark Room.

As you may know the show is but a mere $5, starts at a mere 8pm and is located a mere street-widths away from fine burritos and tallboys.

FCC Moves to Give Viewers Choice and Provide More Competition on Cable Systems

The U.S. Federal Communications Commission has adopted rules designed to halt cable system operators from retaliating against independent channels when there are business disputes or discriminating against them in favor of ones in which they ownership stakes.

The rules are intended to ensure that the monopoly power of cable operators is not used to deny viewer choice or harm competition channel providers.

One rule is designed to prohibit systems from dropping channels when there are business disputes with systems that have been taken to the commission for resolution.

Another rule is designed to create a more level playing field for independent channels by making it possible for them to reach more viewers. Comcast Corp., for example, has been accused in recent years of forcing competitors’ sports channels into premium packages that fewer viewers select.

Given that price rises for cable services have far outstripped inflation rates in recent years, that service providers create bundles of channels that primarily serve their benefits rather customers, and that consumers continually express dissatisfaction with choices, prices, and customer service provided, it is not surprising that the commission decided to act to slightly limit the power of the major players.

The big cable players are livid about the rules, of course, and can be expected to be highly active in the next regulatory stage seeking comments on how to implement the rules.

At this point they and they supporters are complaining that keeping channels on the air while dispute resolution is underway is somehow unfair to them. The system operators, of course, refuse to recognize how it is particularly unfair to customers who have no way to influence the decision.