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:

• Dealing with the talent shortage in China;
• Fostering leadership skills in Muslim women;
• How to raise capital without giving away your company;
• Confessions of a bank’s risk manager;
• 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.

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.

Continue reading "Don’t be fooled by accountancy’s invisible ink"

David Rubenstein, co-founder of The Carlyle Group, the private equity investor, has defended his industry’s management style in an interview with Wharton business school’s private equity club:

The techniques that private equity developed have helped to make companies more efficient. They do make workers more motivated and they do produce the kind of returns that I think enable the system to move forward…. if you give a manager a large piece of a business, if you have people who are investing in the business, putting their own money at risk, and if you can operate in a private setting to a large extent, you can create value.

But does that add up to much without colossal slugs of debt? Michael Gordon, the global head of institutional investment at Fidelity International, says it hasn’t so far. In a recent article for the FT, he declared that the turbo-charged returns delivered by private equity investors before the credit markets seized up were almost exclusively the result of leverage, not the superior accountability or incentivisation of owner-managers. “Private equity as we have come to know it is all about debt - lock, stock and sinking barrel,” he claimed.