Britain’s Conservative MPs have been told to read Nudge, a book that explores how businesses and policymakers influence behaviour at a subconscious level (see this post I wrote in June for a fuller summary).

David Cameron, the party’s leader, has embraced one of the book’s tenets: that politicians should use these techniques to “nudge” people into changing bad habits or adopting good ones. 

I saw Richard Thaler, one of the authors, speak in London last month. ”Don’t use bans and mandates, just nudge,” he declared. He convinced me that careful study of the way people make choices would improve market regulation and policy formulation.

However, his alternative to “bans and mandates” seemed too reliant on bombarding the public with information in the name of transparency. It’s worth checking out the Nudge blog, though. And here’s a video of Prof Thaler at the Royal Society of Arts.

Elsewhere:

1. Dealing with the talent shortage in China
2. Fostering leadership skills in Muslim women
3. How to raise capital without giving away your company
4. Confessions of a bank’s risk manager
5. The art of raising prices to offset cost inflation without alienating shoppers

Following the news that companies owned by the state of Dubai have taken a 20 per cent stake in Cirque du Soleil, some fresh research on sovereign wealth funds has caught my eye.

Building on material already published, the working paper - from a pensions research body at Wharton business school - ranks 37 public investment bodies around the world on their governance, accountability and investment policies.

Istithmar World, one of the two Dubai bodies that took the stake in Cirque du Soleil, comes in third from bottom in the ranking, just ahead of the Abu Dhabi Investment Authority and Council and the Qatar Investment Authority, which share last place.

The New Zealand Superannuation Fund comes out best, followed by the Alaska Permanent Fund and then the global arm of the Norwegian Government Pension Fund.

Writing before the circus deal was announced, the authors of the paper - Olivia Mitchell, John Piggott and Cagri Kumru - said sovereign wealth funds “appear to be demonstrating an increasing risk appetite, very little transparency and virtually no clarity of objectives”.

Keen readers of the FT will remember that Cirque du Soleil employs a heckler called Madame Zazou to disrupt its management meetings. If she quotes this research in future subversions then she is a very bold jester indeed.

Ever wondered whether a particular company might be targeted by a private equity firm? You might want to look beyond the financial ratios: new research suggests that the past experience of board directors can be a predictor of private equity buyouts too.

Harvard’s Toby Stuart and Soojin Yim studied 483 private equity deals announced in the US between 2000 and 2007. They looked at the directors of the public companies involved in these deals, tracking whether or not they had served on the board of a company previously targeted by private equity.

They found that having a director with such experience increased by roughly 40 per cent the likelihood of a typical US public company receiving a private equity-backed offer to go private. (That said, the baseline probability of getting such an offer was low in the first place.)

Why the increase in likelihood? The authors suggested that directors with prior exposure to private equity would know the relevant people needed to get a buyout done. They also reckoned that other directors would bow to their expertise when discussing a buyout offer.

I wonder how the credit crunch has affected all of this. My guess is that it would make boardroom buyout veterans even more effective predictors of interest from private equity. In lean times, personal networks should be even more potent than normal.

The debate over the extent to which shareholders should be kept informed of the health of CEOs has a new medical drama to mull over: Jimmy Cayne’s apparent brush with death.

Fortune reports that the bridge-playing former Bear Stearns boss was rushed to hospital last September because of a severe prostate infection.

Sharp-eyed investors would already have known that Mr Cayne was not well then. The New York Times disclosed on September 21, 2007, that Mr Cayne had been in hospital “for several days”.

However, the Fortune article, which says it drew upon “a series of lengthy interviews” with Mr Cayne himself, claims that he only had a 50/50 chance of survival when he was admitted.

The hospital stay lasted 10 days, it asserts. Moreover, it claims that he took a Town Car to the hospital instead of an ambulance, partly to protect the firm from a potentially-damaging public disclosure of his condition.

Mr Cayne ceased to be CEO of Bear Stearns in January 2008 but remained chairman. The stricken bank was absorbed into JP Morgan in May. Mr Cayne could not be immediately reached for comment.

Steven Kaplan has been blogging about research he co-authored suggesting that a chief executive’s success depends more on execution-related abilities - aggression, speed, persistence, etc - than interpersonal, team-related skills.

The main findings have been widely disseminated. Yet I found something intriguing in the detailed assessments of 316 very senior executives that underpinned the research.

The stats suggested that the biggest weakness of these managers was a tendency to hang on to underperforming employees. And this was in spite of the execs ranking highly on other macho measures.

Did this stem from a squeamishness about jettisoning a predecessor’s dud hires? Or did it reflect a stubborn loyalty to one’s own flops? I asked Professor Kaplan. He said: “Probably a little of both, but more the latter than the former.”

Elsewhere:

1. McKinsey says some Asian companies are giving a masterclass in managing big capital projects.
2. A nifty interactive guide to common forms of accounting fraud (while this was published a little while ago, I thought it would be a handy follow-up to my recent post on accountancy’s invisible ink).

Preparing for the GMAT business school admissions test has been more nerve-wracking than usual recently. GMAC, the not-for-profit body that owns the exam, announced in June that it had won a court order to shut down Scoretop, a website it had accused of improperly featuring questions still being used in the computerised exam.

GMAC says it might cancel the scores of those who broke its rules by using Scoretop to share or confirm the content of “live” questions, leading to speculation that some students might be thrown out of business school or have the offer of a place on an MBA course rescinded.

In the light of this drama, I decided to have a chat with Dave Wilson, chief executive of GMAC, about the dos and don’ts of getting ready for the GMAT, which aims to test verbal and mathematical ability through multiple choice questions and essays (it is also a “computer-adaptive” test, which means it gets harder the better you do).

In the first section of the interview we talk about issues such as: the ideal length of preparation (100-120 hours spread over 7-10 weeks); new security features designed to prevent cheating; and the difficulties faced by non-native speakers of English. In the second part, we discuss the ongoing Scoretop crackdown.

Both sections can be found at the FT Podcast Player.

The shareholder is king, says Anglo-American management dogma, so run your company for his benefit. I’ve often struggled with that one. Kings? Those people scrambling for the egg sandwiches at the end of the annual meeting? That automaton running the index-tracker fund?

Freek Vermeulen of London Business School also has trouble with this truism. The Dutchman argues persuasively on his blog that employees should perhaps be a greater priority than investors - and throws in a boozy anecdote about the late Sumantra Ghoshal to boot.

John Thornhill sagely extends a similar line of thinking in a column about the people-centred - as opposed to profit-centred - model of capitalism often found in continental Europe.  

Elsewhere:

1. The Chippendales brand gets a fresh coating of oil rubbed into its pecs.
2. Why cash-hoarding European family companies suddenly don’t look so stupid.
3. Which country’s bosses get as many as 18 weeks of annual holiday? (Clue: not France.)
4. How to start a mentoring program.
5. What publicly-traded companies are up against when trying to retain executives tempted by private equity.

Anyone who oversees accountants would do well to read details of a freshly-settled fraud complaint in the US.

The SEC had accused Scott Hirth - a former divisional CFO at ProQuest, a producer of electronic databases of archived information - of fraudulently boosting recorded revenues and under-reporting costs.

Without admitting or denying the allegations, Mr Hirth has agreed to pay a fine and be barred as a company director. ProQuest, which is now known as Voyager Learning Company, has also consented to settle SEC claims of lax controls without admitting or denying the claims, but it does not have to pay a fine.

Two things in the 24-page complaint filed by the SEC struck me as particularly fascinating. The regulator alleged that Mr Hirth had covered up his spreadsheet manipulation by using hidden rows and entries in white text on a white background.

That’s right: we’re talking about the accountancy equivalent of invisible ink.

(more…)

Don’t miss Anna Fifield’s superb reportage from South Korea - with accompanying slideshow - in which she looks at the employee training courses that use graphic simulations to demonstrate the finality of death.

The likes of Samsung Electronics and Hyundai Motor send workers to Korea Life Consulting to show them the value of life and encourage them to question their priorities. The course includes mock burials - yes, attendees are actually shut into coffins temporarily - and will-readings. One aim is to discourage suicides, particularly prevalent in South Korea.

The piece left me wondering how many of the employees sent on these courses re-evaluate their priorities to the extent that they then quit their jobs. I guess it depends on the traditional internal battle between reinvention and inertia that occurs following most training courses.

Usually, the call to action articulated in a good training session - must lead team better, must lead more meaningful life - fades within a couple of days as the old ways of doing things reasserts itself.

That said, an inspirational PowerPoint slide is likely to be easier to forget than the sound of dirt being thrown on the lid of your coffin - with you inside.

RiskMetrics, the owner of corporate governance adviser ISS, has just delivered its assessment of the latest round of annual shareholder meetings in the US, also known as the proxy season. Its verdict?

Simply put, the bear market mauled the 2008 proxy season… The collapse of Bear Stearns on the eve of the season let most of the air out of the shareholder activism balloon.

Deteriorating economic conditions meant shareholders were more likely to back management and refrain from ousting directors, while activist pension funds and unions sensed which way the wind was blowing and decided to rein in their demands. RiskMetrics also said companies were getting better at talking to investors on contentious issues.

Yet it added that one type of investor has been pursuing its own agenda in muscular fashion during the market turmoil. It pointed out that many boards - including those of The New York Times Co and Tiffany - have in recent months agreed to yield one or more seats to hedge funds unperturbed by the choppy waters.