COLUMBIA BUSINESS SCHOOL HERMES

KNOWLEDGE IS POWER BY DIANA KATZ Faculty members on today’s public policy issues: Calomiris comments on the Argentina cataclysm; Green on getting admitted—to the hospital; Heal on doing well by doing good; Horton reflects on the NYC recovery; from the White House, Hubbard on the U.S. economy; Mishkin on what 9/11 proves; Sagalyn on rebuilding city icons; and Zeldes debunks Social Security myths

NO NATION IS AN ISLAND: THE GLOBAL CONTAGION OF ECONOMIC POLICY Nobel laureate and Columbia Business School professor Joseph Stiglitz considers how a nation’s economic policies go global

WHY CONGRESS IS WRONG ABOUT ENRON BY JOHN O. WHITNEY Instead of knee-jerk reactions and empty finger-pointing, an explanation—and a possible solution

SPRING 2002 HERMES

Spring 2002

Features

7 KNOWLEDGE IS POWER by Diana Katz Faculty members share insights into some of today’s most pressing public policy issues as they pertain to the environment, health care, Social Security reform, the U.S. economy, development aid, globalization and recovering and rebuilding in New York City.

12 NO NATION IS AN ISLAND: THE GLOBAL CONTAGION OF ECONOMIC POLICY by Joseph E. Stiglitz Reflections by the 2001 Nobel laureate on how the economic policy of a nation becomes the economic policy of the world. Columbia Business School faculty members bring finely honed analysis and years 14 WE REMEMBER: TEN CHERISHED LIVES of experience to bear on Several months after the terrorist attacks on the World Trade Center public policy issues, from and the Pentagon, we offer a portrait of each of our alumni who died health care management to urban affairs. on September 11. We also share a survivor’s story and our students’ inspiring efforts on behalf of 9/11 victims.

32 WHY CONGRESS IS WRONG ABOUT ENRON by John O. Whitney As Congress, shareholders, attorneys and journalists attempt to untangle corporate scandals, professor of management and turnarounds expert John Whitney offers an explanation— Departments and a solution.

Dean’s Message 2

Newsmakers 3

Class Notes 18 2 HERMES HERMES, ColumbiaBusinessSchool’s a yearbyColumbiaBusinessSchool, The TrusteesofColumbiaUniversity alumni magazine,ispublishedtwice New York,York10027-6902 Alisa MacNeille,DonovanNewell, [email protected]. Opinions expressedarethoseof directed to (212) 854-6891 orto directed to(212)854-6891 sent bymailorelectronicallyto HERMES editor andClassNotesupdates, the authorsandeditorsdo soit enfrExternal Associate Deanfor not reflectofficialpositionsof Relations andDevelopment Columbia BusinessSchoolor Columbia University. ©2002, Columbia University.©2002, 3022 Broadway,Room204 Columbia BusinessSchool Nicola Fabens,DianaKatz, Address changesshouldbe Director ofPublications HERMES [email protected] Janet L.Schi Kenneth J.Selvester, Contributing Writers Fax: (212)961-9613 Columbia University. Zehno CrossMedia the addressesabove. for SpecialProjects Nancy L.Freireich Communications Associate Dean Editorial Office Marilyn F.Kohn Meyer Feldberg (212) 854-8567 Ouriana Walker welcomes letterstothe and Editor Uris Hall Design Dean nderman I Dean Professor MeyerFeldberg’65 Dear Friends: Sincerely, New YorkCity. theWestCoast,abroadorherein your mostrecentadvancesaswell—on Institute launchesacutting-edge,Web-basedinternational businessjournal. itssecondanniversary. Andearlythisfall,theChazen School—celebrates pioneeringexecutive MBAprogramwithLondonBusiness Global—our business schoolsandtwooutstandingcities. bicoastal graduatebusinessprogram,capitalizingontheresourcesoftwotop Executive MBA,anincomingclassofseniorexecutivesbeginsathoroughly several excitingmilestones.WiththeJunelaunchofBerkeley-Columbia Looking forward,IampleasedtoannouncethatthissummertheSchoolreaches ture ofthosealumniandtheirgiftsashumanbeings,weofferaremembrance. alumni hadperishedintheterroristattacks.Today,withamorecompletepic- very muchinshock.Atthattime,wesharedthedevastatingnews10ofour nation, NewYorkCityandtheColumbiaBusinessSchoolcommunitywerestill now perhapsmorethaneverbefore. expertise intheglobaleconomyandeconomicsofinformationisneeded than-life figureinhisfieldwhojoinedthefacultyJuly2001.Hiseminent Government. Stiglitz,winnerofthe2001NobelPrizeineconomics,isalarger- which hewashonoredwiththeawardforDistinguishedLeadershipin Joseph StiglitzattheSchool’s26thAnnualDinner, scandals. WealsoshareremarksmadebyProfessor to theheartofEnronimplosionandothercorporate Whitney cutsthroughmediaandpoliticalspintoget howitcouldwork. world works—and opinion, thesescholarstellthetruthabouthowour policymakers canbecomemiredinpoliticsorpublic address ourmostpressingpublicconcerns,andwhile in diversefieldsareexaminingpoliciesdesignedto a sourceofinsightand,indeed,solutions.Professors standing oftheissuesthatgovernworldaroundus,ourfacultystandsoutas As wewelcometheseeventsatColumbia,Iinviteyouto letusknowabout Also thissummer,followingaphenomenallysuccessfulstart, EMBA- This academicyearhashighlightedsomeofourbestqualitiesasacommunity. Our previousissuewaspublishedwithinweeksofSeptember11,whenthe JohnO. Also inthisissue,ProfessorofManagement planning anddevelopmentaid,amongotherareas.Asweseekanunder- who studyandshapepublicpolicyinhealthcare,theenvironment,urban n thesepages,wehighlighteightColumbiaBusinessSchoolfacultymembers ENSMESSAGE DEAN’S SPRING 2002

JON ROEMER NEWSMAKERS

STIGLITZ AND WEILL olumbia Business School HONORED AT Ccontinued its tradition 26TH ANNUAL DINNER of outstanding success at the 26th Annual Dinner on May 6. Held at the Waldorf- Astoria Hotel, this year’s Annual Dinner honored 2001 Nobel laureate Joseph E. Stiglitz, professor of finance

and economics at the School, JON ROEMER with the Distinguished Dean Feldberg and more than 1,000 guests feted Joseph E. Leadership in Government Stiglitz, Nobel laureate (left), and Sanford I. Weill, chair- man and CEO of Citigroup (right), at the Waldorf-Astoria. Award and Sanford I. Weill, chairman and CEO of student financial aid and most influential economists Citigroup, Inc., with the faculty research. More than of the last half-century. The Distinguished Leadership in 100 corporate sponsors and pioneer of the economics of Business Award. 1,000 guests attended. information, he is former Cochaired by Russell L. This year’s award recipients chief economist and vice Carson ’67 and Erskine B. are giant figures in business president for development Bowles ’69, the event and in economic policy. economics for the World raised $2.4 million in Stiglitz, who joined the fac- Bank and was chairman unrestricted support for ulty of Columbia Business of the U.S. Council of Eco- curriculum development, School in 2001, is among the nomic Advisers to President Clinton. He was awarded the Nobel Prize for his EXECUTIVE EDUCATION EARNS THE FT’S NO. 1 RANKING—AGAIN analyses of markets with asymmetric information. or the third consecutive Earlier this year, the FT An excerpt of Stiglitz’s Fyear, the Financial also ranked the School’s remarks at the Annual Times ranked Columbia MBA program No. 3 among Dinner appears on page 12. Business School’s Executive 100 international MBA pro- Weill has led Citigroup Education program No. 1 grams worldwide. The since its creation in 1998 by worldwide—an unprece- analysis placed special the merger of Citicorp and dented achievement in emphasis on faculty research the Travelers Group—the the media’s rankings of and international focus, as then-largest merger in business school programs. well as graduates’ salaries history—of which he was Columbia Executive and career progression. an architect. He has since Education also ranked No. 1 Three years after graduation, developed the company in the special categories of Columbia MBAs’ salaries into the largest financial quality of participants, had soared 247 percent, on services firm in the world, course design, new skills average, noted the FT. The and Citigroup has registered and learning, follow-up, School also garnered special the highest net profit of value for money and inter- recognition for the quality any diversified global finan- national participation. of its faculty and faculty cial services company in research. U.S. history.

SPRING 2002 HERMES 3 NEWSMAKERS

CWIB CONFERENCE FOSTERS CONNECTIONS

n March 1, more Othan 500 students, alumnae, faculty members and businesswomen gath- ered at the ninth annual Columbia Women in Business (CWIB) confer- ence, “Inspiring Success: Sharing the Experiences of Women in Business.” The full-day conference, run entirely by students, was sponsored by American

Express and Deutsche Bank. SMITH BAER STUDIO Pamela Thomas-Graham, Distinguished Alumna Ann Kaplan ’77 urged women MBAs to seize this “time of opportunity” and to “like what you do.” president and CEO of Pictured, left to right, are conference cochairs Tyana Freyer ’02 CNBC, gave a keynote and Liz Cotter Schlax ’02, Kaplan and Dean Feldberg. address on the importance of mentoring for women, Ann Kaplan ’77, a manag- School experience. Catalyst, particularly those who are ing director at Goldman, a nonprofit research and young or of color. “Some- Sachs & Co. who heads a advisory organization work- one has to take risks to group devoted to enhanc- ing to advance women in change the face of corporate ing the firm’s work with business, collaborated America,” she said. private, corporate and gov- with CWIB to develop the Conference panelists ernmental women clients program. included Kathleen Biro ’79, worldwide, received the At the mentoring initia- cofounder and vice chair- sixth annual Distinguished tive’s inaugural event last man of Digitas; Elizabeth Alumna Award. She echoed fall, 2001–02 CWIB presi- Bramwell ’67, president of the importance of mentor- dent Amanda Magliaro ’02 Bramwell Capital Manage- ing in women’s careers, as noted the School’s standing ment; Caroline Dorsa ’87, well as the need to balance as the premier business treasurer of Merck & Co., work and home life. “Have school for women, and Inc.; Christy Haubegger, faith,” she said. “This is a Dean Meyer Feldberg dis- founder of Latin Media time of opportunity.” cussed the many leadership Ventures/Latina magazine; The conference under- roles women have taken on Professor Laurie Simon scored the timeliness of the at the School. Magliaro Hodrick of the School’s newly launched CWIB said, “While our Columbia Finance and Economics Mentoring Program, which Business School education Division; and Michaela K. pairs students with alumnae has served us very well, we Rodeno, CEO of the to encourage career advice, know that there are still St. Supéry Winery. guidance and a strong net- some skills that can’t be work of women who share taught or refined in the the Columbia Business classroom. This mentoring program fills that gap.” For more information about the annual conference or the mentoring program, visit www.cwib.org.

4 HERMES SPRING 2002 NEWSMAKERS

ENTREPRENEURS INTO AFRICA

rivate Equity and the entrepreneurs them- PEntrepreneurship in selves before presenting Emerging Markets, a new their findings to clients and lab course in entrepre- drafting case studies. neurship offered last fall, The five start-ups are culminated in what might diverse—a private school be considered the ultimate for children, a database final exam. A final project implementation and mainte- required students to apply nance company, a catering

their classroom learning to business, a commercial rose MYKA REINSCH ’02 an intensive, real-world farm, and a canning and On breaks from their rigorous consulting assignments, Columbia experience: consulting for processing factory—and MBAs visited Victoria Falls and Lake Nokuru, took in Nairobi nightlife and went on a Masai Mara safari. women entrepreneurs in are located, respectively, in Africa. Kenya, Cameroon, Zambia, business cultures that are The development of the The project not only South Africa and Ghana. male-dominated as well as Private Equity and Entre- enhanced the businesses Their owners face obsta- antigrowth. The student preneurship in Emerging of five emerging-market cles that include ineffective consultants discovered, Markets course was sup- entrepreneurs and the government policies, however, that despite these ported by the Lambert education of 12 MBAs, double-digit interest rates extraordinary challenges, Family Social Enterprise but also demonstrated (and then some), weak entrepreneurs who perse- Curriculum Fund at Columbia Business School’s financial infrastructures and vere can and do succeed. Columbia Business School. commitment to social entrepreneurship. The course was cotaught WAITE LEADS EXECUTIVES-IN-RESIDENCE PROGRAM by Murray Low, associate professor of management n March, Don Waite ’66, national firms on International; and executive director of Iretired senior partner and their development M. Leanne the Eugene M. Lang Center director at McKinsey & strategy, con- Lachman, prin- for Entrepreneurship, and Company, accepted the sulted for the U.S. cipal and global executive-in-residence Paul position of director of the government on institutional Tierney. Diana Yousef ’03, School’s Executives-in- regulatory policy, investment man- president of the School’s Residence Program. This led McKinsey’s ager at Lend Managers in International distinctive program brings worldwide consult- Lease; Oliver R. Development Initiative the special insights of ing activities for Sockwell, found- (MIDI), and Kenyan entre- senior business leaders to financial institu- Donald C. Waite III ing president and preneur Peter Kibiriti, a the classroom, student tions and played a CEO of Connie former Knight-Bagehot advising and special proj- key role in building the Lee; Sabin C. Streeter, fellow, helped organize the ects on campus. firm’s European practice. managing director of the final project in Africa. Waite, an active member McKinsey, which has an Sprout Group at Donaldson, The emerging-market of the School’s board of especially strong relation- Lufkin & Jenrette; and economies of Africa are overseers since 1993, ship with the School, hired Paul E. Tierney, Jr., manag- some of the most chal- remains a member of the 49 graduating Columbia ing partner and chairman of lenging frontiers for new McKinsey Advisory Council. MBAs in 2001, more than Darwin Capital Partners. businesses. Student consul- He joined McKinsey in any other single firm. The program, founded tants met with competitors, 1966 upon earning his Current executives-in- by Robert Lear in 1977, customers, bankers, MBA. During his more than residence are Ehud capitalizes on the School’s development agencies, 35 years with the firm, he Houminer, former president location in the world’s cor- government officials and personally advised multi- and CEO of Philip Morris porate and financial center.

SPRING 2002 HERMES 5 6 NEWS FACULTY MEMBERSGARNERAWARDS HERMES MAKERS Association arranged thetribute. Remember,” page14).Onbehalf ofthestudentbody,GraduateBusiness commemorative plaquetothe10 alumniwhodiedonSeptember11(see“We on May9todedicateawhiteAmerican dogwood,nowinfullbloom,anda The Schoolcommunitygathered atthenortheastcornerofLowMemorialLibrary A LIVINGREMEMBRANCEOFTHOSELOST O Iyengar was chosenfromamong greater satisfaction. more motivatingandyields choice isintrinsically accepted notionthatmore challenged thecommonly year. Herresearchproposal grant, bytheNSFearlylast CAREER award,a$679,500 Iyengar wasgivena motivation andsatisfaction, her researchonchoice, (PECASE). in theSocialSciences Scientists andEngineers Early CareerAwardfor Management Associate Professorof Foundation (NSF)awarded Subsequently, Iyengar Widely renownedfor National Science n December11,the the Presidential Sheena S. Sheena S.Iyengar their independentcareers. neers whoarelaunching young scientistsandengi- by theU.S.governmenton the highesthonorbestowed tiers ofknowledge”andis for leadershipatthefron- nizes “exceptionalpotential PECASE. Theawardrecog- single winnerofthe group ofscholars,asthe awards, ahighlyselect all recipientsofCAREER Mark Broadie

ALISA MACNEILLE ations, and of decision,riskandoper- vation withinthefirm. creativity tofosterinno- manage orfailtouse examines howcompanies the EMBAprogram,which Creativity, developedfor his newcourseCorporate the course. faculty memberswhoteach they arenowusedbyall course DecisionModels; oped forteachingthecore for thematerialshedevel- Curriculum. for Innovationinthe with theDean’sAward were honoredthisyear Global BrandLeadership, the School’sCenterfor and executivedirectorof professor ofmarketing Mark Broadie, Schmitt washonoredfor Broadie wasrecognized Bernd Schmitt SPRING 2002 Bernd Schmitt, professor Knowledge Is Power

Faculty Members Share Insights into Today’s Public Policy Issues

by Diana Katz

ew realities—from possible Social Security insolvency to global warming to September 11—pose serious challenges to policy- Nmakers. At stake are economic stability, national and global security, public health and the environment. The most successful solutions to these challenges come from specialists who apply close analysis, sharp insight and accumulated expertise to the issues at hand. Here eight Columbia Business School faculty members discuss their research on a broad spectrum of public policy issues. Their work addresses some of the most pressing concerns about how we, as a society, work and live.

SPRING 2002 HERMES 7 MAKING DEVELOPMENT AID WORK

s a leading authority on not that unusual.” Today, the financial institutions, Bush administration is adopting A Calomiris has advised the policies that would concur with U.S. government on the reform of Calomiris’s findings on develop- the IMF, the World Bank and ment aid, avoid past mistakes and development aid, among other make “worlds of difference.” As areas. In the mid-’90s, he helped Calomiris wrote recently in the shape reforms in Argentina that Financial Times, new policies created one of the best financial must increase aid unilaterally, CHARLES W. CALOMIRIS systems among emerging market make aid contingent on effective Director, Financial Markets countries. But when the Argentine infrastructure reforms, provide Deregulation Project, American government subsequently began grants for services instead of loans Enterprise Institute; Paul M. borrowing heavily and forcing to governments and allow multi- Montrone Professor of Finance banks to lend it funds (and as lateral institutions more flexibility and Economics IMF aid only fanned the flames), on forms of aid. This “would put New development aid Calomiris warned, presciently, of an end to the squabbling that has reforms would make a “cataclysmic event”—the implo- prevented urgently needed reform “worlds of difference.” sion of the Argentine economy. and growth in development aid.” “Unfortunately,” says Calomiris, “the situation [in Argentina] is

A DIAGNOSIS FOR HEALTH CARE

n expert in using quantita- model-based analyses routinely tive models for designing used in most other service A and managing service industries to determine impact operations, Green has found that on customers—in this case, while attempting to control costs patients.” Now studying the rela- and increase revenues, hospitals tionships between mortality rates, LINDA V. GREEN are ignoring the impact of their ambulance diversions and bed Armand G. Erpf Professor of the Modern Corporation; Faculty policies on timely provision of unavailability, Green says Coordinator, Columbia Alliance beds. Because many hospitals September 11 highlighted the for Health Care Management have not met a 1970s federal need for adequate emergency target of 85 percent average resources. But given cost pres- “The common wisdom is occupancy, “the common wisdom sures, substantial change will that we have too many is that we have too many health happen only when policymakers health resources.” resources”—even as the offer hospitals a clear incentive: unavailability of inpatient beds “Hospitals are at the mercy of increasingly forces emergency government rules and regulations rooms to divert ambulances. and payment systems. It’s really “Critical capacity decisions are about where the dollars are going generally made without the to come from.”

8 HERMES SPRING 2002 DOING WELL AND DOING GOOD

nvironmental issues, from management, says Heal, “can vehicle emissions to help companies do well by doing Eendangered species, are good.” Heal also has studied increasingly important to firms’ the phenomenon of socially customers and shareholders—and responsible investing yielding to firms themselves. An authority higher-than-average returns, and on the impact of economic activ- he suggests the “interesting possi- ity on the environment, Heal has bility that socially responsible found that while command-and- behavior proxies for general man- GEOFFREY M. HEAL control legislation often fails to agerial competence.” An expert, Paul Garrett Professor of force corporations to adopt envi- additionally, on the impact of risk Public Policy and Business ronmentally sound policies, allocation in the economy, Heal is Responsibility economic incentives succeed. By researching solutions to inade- Economic incentives harnessing market forces, incen- quate investment in security by “can help companies tives allow businesses to make such industries as airlines and do well by doing good.” conservation integral to their busi- communications networks— ness strategy and may even lead which can lead to loss of to new opportunities for innova- information and even loss of life. tion. Market-based environmental

THE ROAD TO RECOVERY

n expert on municipal Innovation is essential, however, finance and urban affairs, as the city recovers from the A Horton has conducted September 11 terrorist attacks. extensive research on municipal Reporters covering the city’s management in New York, focus- efforts to rebuild and recuperate ing on how financial resources have turned to Horton’s expertise. RAYMOND D. HORTON Professor of Management; are converted into city services, He recently commented to the Chair, Management Division; as well as the consequences of Financial Times that New York Director, Social Enterprise those processes. “Management is now facing “challenges of a Program; Former President, counts a lot in the translation very substantial scale, and they Citizens Budget Commission, of money into services,” says are all coming together at the New York Horton. “Generally speaking, con- same time.” Horton told the Rebuilding efforts in sumer or citizen interests are Washington Post that although themselves could further systematically traded for producer “in the short run, the disaster will interests. In the bureaus that gov- amplify our recession,” efforts to the economic recovery in ern large portions of New York rebuild, including new construc- New York City. City, stasis is the rule, and innova- tion downtown, could further the tion or adaptation, the exception.” city’s economic recovery.

SPRING 2002 HERMES 9 WHITE HOUSE POLICY FOR A STRONG ECONOMY

s chair of the Council of term”); a commitment to free Economic Advisers, which trade and negotiating trade A advises the U.S. presi- agreements that satisfy U.S. inter- dent on economic policy and ests; a broad commitment to trends, Hubbard has predicted deregulation that allows capital that the U.S. economy will experi- technologies to flow as freely as ence long-term growth, strong possible; and a commitment to productivity and low, stable infla- making structural adjustment in tion. The positive economic the labor market easier. The Bush R. GLENN HUBBARD outlook is in part the result, says administration has recently Chair of the Council of Hubbard, of four key policies of focused new attention on this last Economic Advisers to the Bush administration. They are area. “What the president has in President George W. Bush; a commitment to lower taxation mind,” says Hubbard, “is reinvigo- Russell L. Carson Professor (shown early in Bush’s admin- rating programs for training and of Finance and Economics istration by a tax cut, which the job search, to help people as Long-term growth, strong Hubbard foresees having “a large industries grow and decline.” worker productivity and effect on economic growth in the low, stable inflation long term as well as the very pos- are expected. itive effects it’s had in the short

THE EVEN-KEEL ECONOMY

he spiraling crises in allowed the United States to Turkey and East Asia weather the bursting tech bubble T exemplify how crucial it is and even 9/11—which disrupted for any nation, whether industrial- the “plumbing” of the financial ized or an emerging market, “to system itself. “Not only has the FREDERIC S. MISHKIN get the financial sector healthy Fed done well in responding to Alfred Lerner Professor of and properly supervised,” says shocks, but also the quality of Banking and Financial Mishkin, an expert on monetary regulation and supervision of the Institutions; Former Executive policy and financial crises. Strong financial sector has improved Vice President and Director fundamentals—a healthy banking dramatically,” says Mishkin. of Research, Federal Reserve sector—can keep unexpected Recent shocks “show what we’ve Bank of New York financial shocks from sending the been doing right in the United “Recessions are like death economy into a downward spiral. States: We have set up our finan- and taxes. We’ll always “What you want to do is set up cial institutions so the system have them.” your framework so that the public doesn’t break down.” Mishkin supports the central bank. The explains: “Recessions are like central bank then needs to focus death and taxes. We’ll always on the longer-run perspective so have them. The real issue is that it produces an even-keel making sure you set up your economy.” Sound fundamentals institutions so that recessions don’t spin out of control.”

10 HERMES SPRING 2002 REDEVELOPING A CITY ICON

s New York anticipated “Unfortunately, you’re working redeveloping the site of with a cleared site. The real issue A the former World Trade is: What should be there? That just Center, Sagalyn, one of the intensifies the battle.” Sagalyn foremost experts on public devel- notes that a “time-based tension” opment finance, policy and adds more conflict. “You need a practice, published Times Square plan, which takes time and a pro- Roulette: Remaking the City Icon cess to build consensus. Yet the (MIT Press, 2001). The book sooner you get something done, LYNNE B. SAGALYN details “the interplay between the better for the economy. You Professor of Finance and politics, policy and market forces” also want to move quickly and Economics; Earle W. Kazis and behind the Times Square redevel- decisively to show you’re in con- Benjamin Schore Director of opment project. Sagalyn sees trol and to make sure you get the the MBA Real Estate Program parallels to rebuilding lower money from Washington.” Sagalyn In rebuilding the site of the Manhattan that include “a large, adds, “There was a lot at stake in razed World Trade Center, symbolic site; the economic sig- Times Square. There’s even more “the real issue is: What nificance of the site; the city and at stake in lower Manhattan—this should be there?” the state being players together; is on the international stage.” and certainly the fractious devel- opment politics.” In contrast,

FOR SOCIAL SECURITY, THE BEST OF BOTH WORLDS

n an award-winning article increased sense of ownership and (“Social Security Money’s responsibility.” Zeldes and a co- IWorth,” which appeared in author are now developing an Prospects for Social Security alternate reform plan that includes Reform, University of Pennsyl- provisions to make the system STEPHEN P. ZELDES vania Press, 1999), Social Security self-balancing; retains some insur- Benjamin Rosen Professor of and household saving expert ance against long lifespan and Finance and Economics Zeldes, along with two coauthors, low wages; and offers limited refuted the popular misconcep- portfolio choice. The reform will The answer to the debate on tion that private account–based require new types of financial Social Security reform may Social Security would yield higher securities. Zeldes describes his well be “a hybrid plan.” returns for all current and future proposed solution as “a hybrid retirees. In fact, once transition plan,” one that does not promise costs and risk are accounted for, threefold increases in returns but returns would equal those pro- “incorporates advantages of both vided by the current system. But an individual account–type plan advantages to individual accounts and the current system.” Zeldes include “increased portfolio and his collaborators hope that choice, reduced political risk, their work will “inject some clarity possibly reduced labor supply into what is often a muddled distortions and an intangible debate on Social Security reform.”

SPRING 2002 HERMES 11 No NATION Is anIsland THE GLOBAL CONTAGION OF ECONOMIC POLICY

JOSEPH E. STIGLITZ, professor of business and Stiglitz joined the faculty of Columbia economics and 2001 Nobel laureate, is among Business School, and of Columbia University’s the most important economists of the last half- School of International and Public Affairs and century. He has shaped economic theory and Department of Economics, in 2001, following his policy with elemental contributions to both. His tenure as the first Joel M. Stern Faculty Scholar work pioneered a new branch of knowledge, the at the School. On campus this spring, in a three- economics of information, that has been widely part lecture series, he presented his first public, applied throughout his field. He originated such comprehensive analysis of his seminal work— concepts as adverse selection and moral “analyses of markets with asymmetric hazard, now standard tools of policy analysts information”—that earned him the highest honor and economic theorists. Stiglitz served as in his field. Given the School’s Distinguished chief economist and senior vice president for Leadership in Government Award at the Annual development economics at the World Bank Dinner in May 2002, Stiglitz discussed current and as chairman of the Council of Economic ideas in economic policy and the role that Advisers to former President Bill Clinton. New York City plays in the global village econ- omy. An excerpt from his remarks follows.

12 HERMES SPRING 2002 ew York has always been recognized as the subsidies in the more developed countries exceed- global financial center, but as globalization ing the entire income of sub-Saharan Africa, how Nhas proceeded, the role of New York in can they compete? our global village has taken on new dimensions. For countries in distress, trade is even more It used to be said that “when the United States important. We need to open our market up to sneezes, Mexico catches a cold.” The new aphorism Argentina unilaterally, on an emergency basis, to is, “When New York sneezes, the rest of the world help restart its economy. Studies at the World Bank catches the flu.” The health of New York and the showed that what restarted the Mexico economy United States has become of vital concern to every- after the crisis more than anything else was trade one in the world. with the United States under the NAFTA As globalization has proceeded, not agreement. only have economies become more Of course, interdependence is interdependent, but so too have two-way: Not only do policy economic policies. Decisions When decisions in the United States made in the United States affect affect the rest of the world, those everywhere in the world. New York but decisions in Europe U.S. public policy ends up and elsewhere affect the often being global policy, and sneezes, the U.S. economy. With global not necessarily because we markets, competition want it to. We often set the world catches policy has become global, standards and provide the exam- and competition has to be ple. The sheer scale of our the flu. looked at from a global economy, and the nature of our eco- perspective. This is an arena in nomic success, makes it inevitable that which there has been an interesting we will have global impacts. Our advocacy interplay between the globalization of of free trade has been important in enhancing the knowledge and economic globalization. Twenty commitment to opening up markets. But that puts a years ago, competition policy did not have the heavy burden on our policymakers. The imposition central place among European policymakers that it of steel tariffs has sent a very mixed message around does today. The United States has played a central the world. If America, a country with close to full role in convincing others of the importance of employment, finds it difficult to adjust to the opening competition, to make a market economy work, of trade, what can be said of poor emerging markets, to make it work efficiently and in ways that benefit which often face high unemployment? consumers. Opening up our markets more broadly can be one Whatever one thinks of the merits of the alter- of the most important ways that we can help devel- native positions, this much is clear: There is an oping countries—at the same time that we improve inevitable interdependence of policy, and it is our living standards at home. Europe has undertaken inevitable that we will often think differently about an important initiative, called the “Everything but policies. Discussions among policymakers from Arms” initiative, to open its markets to the poorest different countries have done much to develop countries of the world unilaterally, unconditionally, common understandings and to narrow the gap in in everything but arms. America should do the same. perspectives. We in New York have long shown But the initiative should be broadened to include respect for a diversity of cultures and viewpoints. more countries. And the one area that is of vital Without this, we could not have become the global concern to many developing countries, agriculture, city we are today, nor would we become the even remains protected and subsidized. With agricultural more global city that we will be in the future.

SPRING 2002 HERMES 13 We Remember: Ten Cherished Lives

On September 11, 600 Columbia sector, and, naturally, many of our graduates Business School alumni were employed in join the New York offices of multinational offices in the vicinity of the World Trade banks and financial services firms. Most of Center. Countless other alumni were our alumni who were there, miraculously, attending conferences or meetings in lower survived the attacks, including the gravely Manhattan. Our proximity to the very epi- injured Phidia Wong ’01, whom we profile center of international finance has always in these pages. But news that 10 alumni had been a tremendous asset for students and a perished, nine in the twin towers and one considerable draw for prospective MBAs. aboard a hijacked plane, left our community We take great pride in the outstanding rela- distraught. In honor of their lives, we tionships we have built with the financial publish these remembrances.

14 HERMES SPRING 2002 Phidia Wong ’01: Surviving and Healing

nlike Phidia Wong, most of us can all too Despite having suffered a fractured eye socket and easily conjure our memories of September 11— damage to her spinal cord, among other serious Usurreal images in such stark contrast to injuries, she left the hospital after an eight-week the mundane predictability of breakfast coffee stay. She will, however, require prolonged reha- and the morning commute. A recent hire at bilitation. Wong is very aware of her hard-won Salomon Smith Barney Hong Kong who was gains: “I learned that you should do what you in New York for new employee training, Wong want [in life] when you can. I’m so lucky, I’m remembers neither the events watched on tele- going to be able to get back to normal.” She vision by the world nor the specific blows that is also deeply thankful for the response of the led to her devastating injuries en route to 7 WTC: School community and others: “I feel so much “It’s one thing being conscious, and it’s another support. When I first got out of the hospital, all I thing being able to admit to what happened,” she says. did was reply to e-mail like it was a full-time job.” “I have completely blocked out the entire incident.” PHOTO: ALISA MACNEILLE

MICHAEL J. BERKELEY ’87 JOHN C. HARTZ ’62 A self-proclaimed “premier bunker A newlywed, an athlete and the player,” Michael Berkeley was a president of his country club, lifelong athlete: a former Little John Hartz, 64, was a senior League player, ninth-grade quarter- vice president at Fiduciary Trust back and college varsity basketball who took special satisfaction in star and, as an adult, a member of managing portfolios for charitable four golf clubs. His company, the RICHARD P. GABRIEL, SR. ’72 organizations. Hartz, who had Berkeley Group (which he founded been a widower, remarried in Richard Gabriel, 54, was aboard after a successful career with November 2000. “He American Airlines Flight 77. The Merrill Lynch), focused in part on taught me how to founder of Stratin Consulting Co. golf course development projects. live,” said his wife, in Virginia, Gabriel was en route to The firm also specialized in Ellie Hartz, and “that Australia for business. He was a securities brokerage and private everyone is beautiful.” lifelong entrepreneur who had equity investments. Hartz had worked for launched a fishing lure company, Berkeley’s memorial service Fiduciary at the time a frozen food business and a reflected lovingly on his “Summer of the 1993 World construction firm, among others. Camp Years,” “Caddy Years” and Trade Center bombing Gabriel was awarded the Purple “Business School Years,” among and had walked down 94 floors, Heart for his service in Vietnam, others. “Above all,” read the leading many colleagues to in which he served as a Marine service’s program, safety. On September 11, even and lost a leg in combat. “Mike was an as his own life was in danger, his His daughter Patricia said, adoring husband, utmost concern was again his “Life with Rich was like standing a caring son and coworkers’ safety. out on a tree limb while he jumped a devoted father up and down.” With a talent for to his two special improving businesses, he also ‘men’ . . . Eric and “made everyone around him want Jason.” to be better.” September 11 was his 38th birthday.

SPRING 2002 HERMES 15 NASIMA SIMJEE ’93: A TRIBUTE TO A LIFE OF REALIZED DREAMS

athering in New York for her memorial global pharmaceuticals, Latin American stocks and service, more than 100 friends, classmates global media. “Always eager to lend a helping hand Gand colleagues of Nasima Simjee remem- and a patient ear, she was our favorite consultant, bered a woman of warm spirit and sharp intellect trusted adviser and best friend,” said Karen Fang who had the unique ability to unite people from of Fiduciary. many walks of life. A hiking enthusiast, Simjee “Friends of Nasima” established the was training to climb Mount Kilimanjaro. Nasima Simjee Memorial Fellowship at “She was just beginning to realize her Columbia Business School, which aims American dream,” said Tina Ogden ’93, a to reach a $750,000 endowment goal close friend. for the fellowship by September 11, 2003. Born in Yangon, Myanmar (formerly Rangoon, The fellowship will go to a student who exhibits Burma), Simjee put herself through college and earned “the values, drive and academic excellence of a CPA, an MBA and a CFA before accepting a position Nasima Simjee.” Those interested in contributing may at Fiduciary Trust in 1998. She was a vice president contact Ogden at (203) 531-9522. Management of the and equity analyst for global research, responsible for fund will be overseen by Columbia Business School.

CHARLES A. LESPERANCE ’73 BRIAN J. MURPHY ’87 JOSEPH MATHAI ’76 The head of information services Brian Murphy, 41, who coordinated Soon after earning his MBA, Joseph for the New York Metropolitan electronic bond trading for Cantor Mathai, 49, opened a luxury spa, Transportation Council, Charles Fitzgerald, was a doting family man but he later established himself in Lesperance, 55, was “the tech guy who taught his daughters, ages 4 high tech. Known as an insatiable everybody checked in with when and 5, about nature and gadgets, reader, especially about anything something new came out,” said as well as how to ride bikes and technology-related, he had already his fiancée, Renee Alexander, swim. Spontaneous and full of imparted a love of learning, reading who also described him as “deep- enthusiasm for life, he surprised and computers to his two young thinking, iconoclastic, tenacious, his “three girls”—his daughters children. He also instilled in them compassionate.” They were to be and wife, Dr. Judith Bram Murphy— the confidence to achieve their life married in November 2001. with apple-picking and other dreams. Lesperance was a Vietnam adventures. When the Murphys A managing partner at Cambridge War veteran, held season invited company over, he would Technology Partners in Massachu- tickets to the Metropolitan pick up a menu from a restaurant setts, Mathai was attending a Opera and was a father of and whip up the entire gourmet business conference at Windows on three daughters. “Charles meal himself at home. the World on September 11. quietly, often anonymously, used his resources . . . to help people that need an extra SOURCES: Information for each profile hand,” said Alexander. He tele- was contributed directly by family members or close friends of our alumni, phoned her at 9:34 a.m. to say he with the exception of the profile of Joseph was going to the aid of an injured Mathai, which is based, with permission, colleague. on an article in the December 7, 2001, issue of the Columbia Spectator. The profile of Brian Murphy is based in part on an article published in the New York Times on October 27, 2001, and is used with permission.

16 HERMES SPRING 2002 THOMAS M. REGAN ’98 VICTOR WALD ’76/MIA ’75 “Steady Tom was the glue,” said A stockbroker of diverse intellectual J. J. Keyser ’98 of Thomas Regan’s passions—from baseball to opera role among his B-school teammates. to Judaism—Victor Wald, 49, He was a natural spokesman for packed his home with books group projects and typed up most of HARRY TABACK ’84 and his mind with infor- their reports. When the work was Harry Taback, 56, was an executive mation. An aficionado of finished, Regan rallied everyone for vice president for Marsh & McLennan world politics, he collected golf, tennis and racquetball. who had spent 30 years with the stamps, flags and even for- A managing director and sector firm. His employees remember him eign languages. Friends and leader of the pharmaceutical and as a kindhearted man who treated colleagues regularly tele- chemical division at Aon, Regan, 43, them with respect. They joked, phoned for his illuminating adored his wife and sang Irish lulla- endearingly, that the best reincarna- insight into current events, bies to his twin sons. The boys, tion would be as one of Taback’s including terrorism. born while he was three daughters, to whom he was Wald was the father of two teen- a student in the devoted (his wife, Jean, pictured with age daughters, who will “miss him EMBA program, their grandchild, died in 2000). terribly,” said his wife, Rebecca. talk to him at “Even in his absence, he still takes “But he left a very stabilizing night in their beds care of us,” said his daughter Cheryl impression on them.” He was to this day. Taback. More than 75 colleagues buried on November 23, which wrote remembrances for a booklet would have been his 50th birthday. given to the family at his funeral.

Students Respond with Offers of Support

n the weeks following September 11, students from coordinating efforts at the World Trade Center site, across the School contributed to relief efforts in and they joined in the evening’s events as well. Imyriad, often spontaneous, ways. MBA students An impromptu auction to benefit 9/11 relief funds made red, white and blue lapel ties from ribbon began when CSEP executives started bidding on NYPD donated by a local vendor, later giving them out as they and FDNY items belonging to those gathered. Several collected donations. One cluster sold “We love FDNY” PMI officers ran to retrieve more items from their cars. T-shirts. All told, they raised $13,000 for the Red Cross One Swiss executive offered $4,500 for an NYPD wind- and the Fire Department of New York. breaker and cap. By the end of the evening, CSEP Nonmonetary support was as freely given: students executives had raised $14,300; corporate matching gifts volunteered language and other skills to victims in later increased the amount to $25,000. The auction’s need; staffed a holiday party for families directly proceeds were donated to the Twin Towers Fund and affected by the terrorist attacks; and helped the to the New York Police & Fire Widows’ & Children’s Manhattan Borough President’s Office counsel small- Benefit Fund. business owners on their eligibility for relief funds. Appearing before the group a week later, NYPD A singularly compelling display of support took place First Deputy Commissioner George Grasso remarked, in October at Arden House, the University’s conference “I have completed over 22 years in the police depart- center, during the Columbia Senior Executive Program ment, and I thought that by this time in my career (CSEP), the School’s flagship Executive Education pro- no real surprises were left. Tragically, what happened gram. CSEP executives invited senior officers from the little more than a month ago proved me wrong. I want Police Management Institute (PMI) to join them for to thank each and every one of you for what you International Night, an evening of international cuisine have done. Your generosity will sustain our belief in and presentations on participants’ home countries. Also the value of what we do. On behalf of the NYPD, at Arden House were 15 police officers on short leave we thank you from the bottom of our hearts.”

SPRING 2002 HERMES 17 Pan-European REUNION 2003

Berlin October 16–19

Join Columbia Business School graduates from around the world in Berlin for our sixth Pan-European Reunion. From Thursday evening to Sunday afternoon, enjoy three days of panel discussions by global business leaders and an array of social and cultural events in one of the most cosmopolitan and historical world capitals.

Event Chairs Heinz Dürr Paolo Scaroni ’73 Chairman of the Supervisory Board, CEO, Enel, S.p.A., Rome César Alierta ’70 Dürr AG, Berlin President, Telefónica S.A., Madrid Jerry I. Speyer ’64 Michel M. Favre CFT ’75 President and CEO, Tishman Speyer Jean-Luc Biamonti ’78 CEO, Tamedia AG, Zurich Properties, Inc., New York Managing Director, Goldman Sachs International, London Henry R. Kravis ’69 Sidney A. Taurel ’71 Founding Partner, Kohlberg Chairman, President and CEO, Jerome A. Chazen ’50 Kravis Roberts & Co., New York Eli Lilly and Company, Indianapolis Founder and Chairman, Chazen Capital Partners, LLC, Alexander Riesenkampff ’61 New York Senior Partner, CMS Hasche Sigle Eschenlohr Peltzer, Frankfurt

For more information, please contact the Alumni Relations Office by phone at (212) 854-8815 or by e-mail at [email protected].

SPRING 2002 HERMES 19 SPRING 2002 HERMES 21 WHY CONGRESS IS WRONG ABOUT ENRON

weaknesses helps them perform superbly (by the BY JOHN O. WHITNEY way, the initials of the firm are A.A.). I also serve on the board of a firm that long ago decided the he problem uncovered by the accounting audit firm should not perform extensive consulting scandals at Enron is not—as congressional services. The company is in the best position to questioning suggests—the sullying of audi- T decide—not Congress, the SEC or the media. tor independence by consulting fees. The audit firm Transparency, not micromanagement, will improve loses its independence the moment the client writes financial reporting. it a check. Instead, the problems are a lack of trans- Finally, timeliness in financial reporting would parency and a need for timeliness, compounded by help. The Internet and the ubiquity of financial overreliance on audited financial statements. news provide the opportunity for more timely dis- First, the overreliance problem: financial state- closure. Information about key financial indicators ments are nothing more than a fuzzy approximation could be shared with creditors and shareholders of a distant past. They do not give answers. They more than once per quarter. Transactions by merely suggest what questions to ask. Enron’s executives or directors should be reported financial statements clearly posed questions immediately. Of course, companies should that analysts failed to ask. Were they lazy, not be compelled to divulge information tired, greedy, coerced? Time will tell. that aids competitors. And we need to We obviously need greater trans- insulate companies from lawsuits that parency in financial reporting. All might arise from so-called forward- related party transactions (RPTs) and looking statements. special purpose entities (SPEs) should The observations and suggestions be disclosed in the beginning of the above might patch a flawed system. 10K or any financial report. So should We must also make certain that wrong- anything related to the company’s debt doers face severe penalties. Those load or capacity and nonoperating income. who mislead through fraudulent financial The same goes for the audit firm’s activities and reporting are stealing money from lenders and the fees it receives. shareholders. They should be punished as thieves. Derivatives, currency translations, joint ventures The fundamental problem, however, is divided and other RPTs and SPEs can mitigate risk and responsibility. Radical as this might sound, the enhance profitability. But they complicate reporting system of certified audits should be discarded. It and have promulgated 144 FASB statements. I wrote means almost nothing. A company produces finan- once that man can defeat any system that man can cial reports, and through sampling and analysis, the devise: “The more controls you have, the less auditor certifies them. Most of the big bankruptcies control you have.” Years ago there were 31 basic in the United States have followed a “clean” opin- guidelines issued by the Accounting Principles ion from auditors. The company probably will still Board. Perhaps today there are as many people need to hire an accounting firm to assist in the trying to subvert the FASB pronouncements as there preparation. But only the company knows fully are people writing them. what it is doing. And the company should take The knee-jerk reaction of Congress and some

responsibility. MIKE FISHER/ILLUSTRATIONWEB.COM regulators that the audit firm should be prevented from performing certain consulting assignments is John O. Whitney is a professor of management; wrong. I serve on the audit committee of a $6-billion codirector of the W. Edwards Deming Center for company that employs the audit firm to certify our Quality, Productivity and Competitiveness; and a two-time recipient of the Singhvi Prize for statements, lead the internal audit and help with Scholarship in the Classroom. An authority on tax work and other non-audit-related activities. The turnarounds, he is focusing his research on fact that they understand our systems’ strengths and policies and practices that help large, profitable businesses avoid setbacks.

32 HERMES SPRING 2002