Monthly Archives: September 2011

Andrew Hill

A deal between McGraw-Hill and CME Group to bring together the Dow Jones Industrial Average and the S&P 500 index would be a good moment to consider the irrelevance of the former and the significance of the latter.

What does the Dow have going for it? It’s arguably the highest profile stock market benchmark in the world – granted a daily airing by media worldwide. Its composition is stable (the last change was more than two years ago, when Travelers replaced Citigroup, and Cisco replaced General Motors). Its 30 component stocks are highly liquid, which makes the average quick to calculate. It is old. Very old: it was conjured up by Charles Dow in 1896, with a basket of railroads, steel companies and textile mills. Read more

Michel Barnier has shocked the Big Four accounting firms. The European Union internal market commissioner wants to ban them from operating as consultants as well as auditors, force them to work jointly with others, and set time limits on how long they can audit each company.

John Gapper

Since he kept on repeating it, there was no difficulty in working out what Jeff Bezos regarded as the most important aspect of the Kindle Fire launch in New York this morning.

Mr Bezos gave a little smirk as he announced the $199 price of his new competitor to the Apple iPad – and to the entire ecosystem of films, music, magazines and books that can appear on Apple’s device:

“This is unbelievable value. We are building premium products at non-premium prices. We are determined to do that, and we are doing it.”

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John Gapper

The latest developments at Groupon hardly improve my faith in its prospects for a sound initial public offering.

Not only has Margo Georgiadis, its chief operating officer, left after five months (having, according to the FT, “struggled in dealings with Andrew Mason”, its chief executive) but on Friday it adjusted its S1 IPO filing in a way that cut its reported revenues by more than half. Read more

Andrew Hill

European Union commissioner Michel Barnier’s proposals for tough new rules for audit firms have the Big Four professional services firms in a lather.

As the specialist journal Accountancy Age puts it:

Big Four interests are most threatened by Barnier’s proposals. At their size, they will cop the full force of regulation completely separating audit and non-audit services, potentially compelling them to split and trampling on their business model.

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Andrew Hill

It is a rash commentator who calls the end of history. Such declarations, as Francis Fukuyama discovered, tend to be made on the eve of wrenching change. Even so, despite the mass of management thinking forced between hard covers and carpet-bombed weekly on to cowering readers, it is hard to identify radical innovations from the past decade and tempting to think great breakthroughs are no longer possible.

Andrew Hill

It is a shock to hear Muhtar Kent, chief executive of that quintessentially American company Coca-Cola, suggest that the US is now less friendly to business than China.

But Mr Kent’s comments – “In the west, we’re forgetting what really worked 20 years ago” – echo what I heard two weeks ago at Harvard when I talked to Michael Porter, perhaps the world’s best-known expert on competitiveness. Read more

Andrew Hill

One common public perception of business – as I blogged earlier this week – is that the bigger it is, the worse it is. I was interested, therefore, to read in The Times on Friday that Britain’s top 50 businesses are to get a “hotline” to senior ministers. The paper writes (subscription required):

Bosses of companies, including BP and GlaxoSmithKline, will be able to telephone directly to the top of Whitehall departments in new individually tailored relationships with senior ministers who will act as their “buddies”.

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John Gapper

The appointment of Meg Whitman today to replace Léo Apotheker at Hewlett-Packard is a resounding blow to Mr Apotheker. But it also reflects very badly on the hapless HP board.

I was very critical of Mr Apotheker’s abrupt change of course in August, arguing that he had “needlessly alienated investors by thrusting so much unpalatable information and future uncertainty on them at once. He should have taken things steadily rather than making a big bang.”

But what was HP’s board doing by appointing him less than a year ago, agreeing to his strategic shift, including a spin-off of its personal computer division, and then turning round and jettisoning him after the market reacted badly? Read more

According to the business textbooks, Reed Hastings is a visionary and innovator. But thousands of his customers, and many of his investors, think the chief executive of Netflix is an idiot.

Andrew Hill

When I worked in Milan in the mid-1990s, it was a standing joke that young Italians would not quit the family home: it was just too comfortable being cosseted by mamma and papà. Now this stereotype has solidified – young Italians feel unable to leave, even if they want to – and this could have serious implications for how the financial and economic crisis there plays out. Read more

Andrew Hill

Most companies aim to get bigger. But beyond a certain point, bigness becomes synonymous with badness. Think of Big Pharma, Big Auto, Big Oil.

Worse, if you are regularly described as one of the Big Four, Five or Six in any business sector, you are probably already in the sights of regulators and lawmakers.

This demonisation of corporate girth is nothing new. I can’t find a source for this image – which Marc Gunther uses to illustrate a blogpost about the growing power of US big business – but I’d say it dates from the first half of the last century, and there are plenty more where it comes from. Read more

The $2.3bn trading scandal at UBS – uncannily similar, it seems, to the €4.9bn hole uncovered by Société Générale in 2008 – makes me wonder whether corporate boards have fully appreciated the risks of relying on risk managers.

John Gapper

At first glance, the apology by Reed Hastings, chief executive of the US video service Netflix, for raising the base price of his video service by 60 per cent looks sincere and heartfelt – the kind of plain-speaking that is too rare in chief executives.

“I messed up. I owe everyone an explanation.”

So far, so good, but reading further into Mr Hastings’ missive, which follows a 15 per cent fall in Netflix shares last week as it said it expected to lose 1m subscribers as a result, it becomes clear that the apology does not mean he is backing down – in fact, he is going further. Read more

John Gapper

Given the recent history of UBS, it is fair to ask if Kweku Adoboli is a rogue trader or his employer is a rogue bank.

At one level, Mr Adoboli might appear to fit neatly into the stereotype of the rogue trader, a phenomenon that recurs so often that it is an endemic aspect of modern investment banking. He is young, fairly junior and works on a desk that combined proprietary position-taking with “flow trading” in customer orders.

The latter has in the past allowed rogue traders such as Nick Leeson of Barings and Jérôme Kerviel of Société Générale, to conceal losses while appearing to be doing what their employers wanted. Mr Adoboli has been arrested but not charged, let alone convicted, so he has the presumption of innocence. Read more

Andrew Hill

Ensuring energy security; fighting poverty; the future of the US dollar; the future of cities; why leaders turn a blind eye; and why they build bad strategies.

These are the contrasting themes of the six books battling to win this year’s Financial Times and Goldman Sachs Business Book of the Year Award – a shortlist that is low on “crisis”  books compared with prior years. The finalists are:

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee and Esther Duflo (Perseus Books, Public Affairs, USA)

Exorbitant Privilege: The Rise and Fall of the Dollar by Barry Eichengreen (Oxford University Press, UK)

Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier and Happier by Edward L. Glaeser (The Penguin Press, USA; Macmillan, UK)

Wilful Blindness: Why We Ignore the Obvious at Our Peril by Margaret Heffernan (Walker & Co, USA; Simon & Schuster, UK)

Good Strategy, Bad Strategy: The Difference and Why It Matters by Richard Rumelt (Crown Business, USA; Profile, UK)

The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin (The Penguin Press, USA; Allen Lane, UK)

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For a man running a small business, Michael Arrington has attracted a lot of attention in the past couple of weeks. By the time he agreed to leave AOL this week, he had stirred up a maelstrom across Silicon Valley and the digital media.

John Gapper

Warren Buffett

Warren Buffett in July 2011. Image by Getty.

Today’s story about Warren Buffett hiring the hedge fund manager who paid more than $5m to have two lunches with him in Omaha, Nebraska does nothing to diminish my questions about corporate governance at Berkshire Hathaway.

At any other company, the fact that Ted Weschler, the hedge fund manager in question, paid for access to the chief executive and was hired as a result would be unthinkable. Yet Mr Buffett and his partner Charlie Munger appear to run the top echelon of Berkshire more or less as they wish. Read more

Andrew Hill

Consider how many BHAGs you have achieved over your career. “Big hairy audacious goal” is the memorable (if faintly bizarre) phrase coined by Jim Collins and Jerry Porras 15 years ago for a visionary strategic objective that can inspire a whole team.

John Gapper

Arvind Subramanian’s piece in the FT arguing that the renminbi could become the world’s reserve currency within a decade strikes a chord since I spent the past couple of weeks in Hong Kong and China.

Rather like Mandarin is already rivalling Cantonese as a language in Guangdong province, Hong Kong residents are increasingly keen to hold savings in renminbi over Hong Kong dollars, given the latter’s peg to the US dollar. Read more