features best business books 18 eely usiness 05 elch, the Blood on Blood ree Press, ree d B W elch fr (F ar W v ack ar . y J H b Ponzi’s Scheme: The Scheme: Ponzi’s BOOKS BEST e written specifically for (Random House, 2005), (Random House, Will Your Next Mistake Be Mistake Next Your Will inning, oid. ., ar W arperBusiness, 2005), by Jack 2005), by arperBusiness, is well organized, clearly written, organized, is well : A True Story True A of Fools: Conspiracy (H etlaufer) of the (Wharton School Publishing, 2005), (Wharton School Publishing, W ely illustrate the importance of context tance of context in business, though in ittelstaedt Jr Winning inning uzy eviewing both the recent and distant historyeviewing both the recent W of concern for context. Mr t E. M y r would sur ou would expect that ober Although Y Similar charges could be leveled at those most charges could be leveled Similar in this essay under- books reviewed Each of the five es the impor lack nalysts Duped a Generation of Investors nalysts Duped a Generation eview, y R to management action. GE, after all, was one of the laboratories of managerial thinking in the 20th great managers out to provide and the authors set century, assumptions rules to consider, with guidelines to follow, to adopt, and mistakes to av 2005), by Charles Gasparino; and Charles Gasparino; 2005), by Fatal? Avoiding the Chain of Mistakes That Can Destroy Can That the Chain of Mistakes Avoiding Fatal? Organization Your and worthwhile, it is disappointing in one major respect: its the Street: The Sensational Inside Story of How Wall Street Wall of How Story Inside The Sensational the Street: A acknowledges the importance of organizational culture acknowledges (Broadway Books, 2005), by Kurt Eichenwald; Eichenwald; Kurt Books, 2005), by (Broadway b general aimed at more are three The other managers. important lessons for business audiences, but provide leaders b of financial scandals: retired celebrity chief executive officer of General officer celebrity chief executive retired former editor (under Welch, and his wife, Suzy Electric, the name S by Mitchell Zuckoff. Mitchell by Welch with Suzy Welch, and Welch, with Suzy Welch True Story of a Financial Legend of a Financial Story True R GE, Wal-Mart, or whoever else’s or whoever Wal-Mart, GE, in currently is garden corporate arrange frequently managers themselves bloom. And of success” “flowers to exhibit reporting their financial In and unsustainable. turn out to be rootless that later to blossoms turn out the cases, such as , the worst artificial. be entirely manage- arrangers: writers of books on of flower ardent depict managers as lone often, their books Too ment. whose methods and tech- actors in generic landscapes, one corporate from transferred niques can be freely the expe- to learn from are if we Yet situation to another. to understand their have we rience of others, surely in the particularthoughts and actions situations in to human When it comes which they found themselves. action of any kind, context matters. scor different ways and from very different perspectives. The very perspectives. ways and from different different first two, - ed v omot ” and then pr AND ch el aniel Boorstin once obser e the florists always seem to out- ee courses of action that can be k is especially applicable to the field ess D emar Bad, Good, st s r ’ he late historian and former Librarian of Congr without a sense that planning for the future of the past is like trying to plant cut flowers.

. Boorstin r by David K. Hur Jack W THE THE D ing these to other firms so that they too can be like Dell, implemented anywhere). Some consultants fall into the consultants fall Some implemented anywhere). doing well, apparently finding firms that are same trap, identifying their “key success factors of management, wher business academics regu- Many number the gardeners. competencies (managerial abilities arrived larly represent experience and learning, on-the-ground at through which apply only to the particular context at hand) as strategies (context-fr

1 4 e u s s i s s e n i s u b + y g e t a r t s f - f that is obert E. R om successes. e GE. I , that goes uncor y and context, the reader es than they do fr eciate how different the con- different eciate how only there had been more emphasis had been more only there on histor deal learned a great might have this highly successful from more is, for There experience. manager’s example, anecdotal evidence that often strug- star “alumni” GE’s even gle on their first managerial assign- ments after they leav expla- many possible are true, there nations, but one leading candidate has to be that these alumni fail to appr excellent sections on the role of lead- sections on the role excellent and the ers, straightforward strategy, handling of crises and mergers. I wledged that tough assignments and oblem, often minor en failur has much to commend it, especially for has much to commend ecent times. An initial pr rected ill Your Next Mistake Be Fatal? Be Mistake Next Your ill Winning Professor Mittelstaedt suggests that there is a com- that there suggests Mittelstaedt Professor 1. The second crucial component of GE’s culture is culture crucialThe second of GE’s component W n t is generally ackno texts of most firms are from that of GE. that from texts of most firms are Disastrous Situations Disastrous I of leadership among the best developers are hardships from skills, and that managers usually learn much more mistakes and ev young managers setting out on their careers. There are There managers setting out on their careers. young Mittelstaedt Jr., dean of the W.P. Carey School of Carey W.P. dean of the Jr., Mittelstaedt (and former entre- University State at Arizona Business examines and submariner in the U.S. Navy), preneur notorious business and physical some of the more calamities of r mon sequence of failure: too often encourage otherwise encourage too often smart do dumb people to their integrity. or worse, to compromise things — (HR) of the human resources elevation the genuine or marketing of finance and the equivalent function to Nardelli’s Mr. (this was one of higher function an even action be bet- Could any Depot). at Home first moves this to underline the importanceter calculated than of the in an organization, heighten development” “people the the process and give of differentiation, critical role if not most, corporations, HR is many, In right “spin”? it functional totem pole, where at the bottom of the statements about people being our mocks all those pious important asset.” “most I ecasting formance- een the need budgeting and per which all management processes, Spring 2005.) Spring e? s+b, s cultur ein the functions of financial for come to mind. The first is its budgeting come to mind. 05 y GE’ formance management are clearly separated. formance management are The examples in the book, y leadership teams “lacking in

Two key components of GE’s culture discussed in discussed culture key components of GE’s Two

ocess, wher eated b Winning (context writ large) by recounting, for example, the for example, recounting, large) by writ (context Kidder, faced when it acquired that GE problems “my he says, were values, top three firm’s (that Peabody to seems reluctant but he bonus, my bonus”), bonus, my importanceaccept the or cul- environment of a business organizations. of key policies and processes to the ture of the is best seen in the discussion This reluctance (in which the formula differentiation “20/70/10” people majority in the mid- the promoted, top performers are fired) are and the bottom 10 percent nurtured, dle are famous. One and GE became Welch for which both Mr. the numbers of validity with the formula is the problem former Welch’s Mr. Bob Nardelli, Even themselves: has said, Depot, CEO of Home colleague and now (See nothing magic about 10 percent.” “There’s by Depot,” at Home and Minds “Winning Hearts Griffith, Victoria pr brains or integrity or both,” as the authors maintain. brains or integrity or both,” as the authors works likely that the 20/70/10 process it more Isn’t acceptably in GE largely because of the unusual context cr drawn from the playground and pro- the playground drawn from cut it fessional baseball, just don’t as useful analogies to the business of the failure world. And surely in many process the differentiation organizations cannot be explained away b Then there is the statistical nonsense Then there of applying the formula to small the importantly, departments. More authors do not appear to consider of and reward that the measurement individual performancein works in some contexts but does not work others. for financial forecasting and the demands of perform- for financial forecasting dysfunctional practice more ance management. Most Performance bonuses are not based on budgets; rather, not based on budgets; bonuses are Performance against the perform- calculated retrospectively they are and against ance of the same individuals in prior years few companies Very the performance of competitors. make this commonsense separation betw and per

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tures best business books a fe 19 features best business books 20 - en eated y fee- ’ dura 05 York Times, York Conspiracy of Conspiracy betted b tems, ew N exist not so long s balance sheet. ’ es in effect cr ely that they ev BOOKS BEST on did nr ecutiv ehensiv or sys shows that many of Enron’s shows ket risk for the contracts is my choice as the year’s best is my choice as the year’s ogant ex The rich and complex picture that The rich and complex picture t but arr ichenwald, a writer for the . E he reminds us that Enron us that Enron he reminds Conspiracy of Fools Conspiracy Mark-to-market accounting, when applied to long- Mark-to-market Mr Conspiracy of Fools Conspiracy onzi scheme so complex that neither they nor their oup of smar a P advisors understood its true dynamic. earned profits to report Enron term contracts, allowed the but left of such contracts immediately, the lives over company exposed to mar efforts to mitigate these risks led to The firm’s tions. hedges using special-purpose complex attempts to create entities that did not appear on E hungry and accountants; lax govern- bankers, lawyers, a small booming stock markets, and ment regulation; gr does a masterfultogether the multiple of weaving job — Enron were characters and complicated deals that and School of Scandal School of Scandal object lesson in is an enormous of Enron The downfall to learn any- the importance are of context, but if we and under- need to remember its fate, we thing from financial have we Fortunately, wrong. stand what went to help us. In Eichenwald journalist Kurt us very its managers fooled ago, and shows clearly how so many people so compr fooled themselves. management book. was rooted collapse that the company’s emerges reveals of accounting and report- muddy standards in America’s of corner-cutting that ing, and in the environment had been rampant for nearly a decade. A Fools, cise. This demands an in-depth demands This cise. of the present understanding itself. the firm finds context in which and historical surfaces management team the its often implicit EBV, In which and examines about the business assumptions also gives The exercise not. and which are valid are what is possible and what might managers a sense of be very difficult in their industry and organizational contexts. - reveals the incompetence the incompetence reveals estone’s ir s and their disdain f s and their disdain y of the sys y organization er om the peripher disciplines, and accountability. . Venezuela as early as 1997. Both as early Venezuela s manager ely y-helpful category, and it is difficult y-helpful category, er er d and labor strife at one of F t was not until 2000 that the media on’ or Conspiracy of Fools Conspiracy of the facts control financial resources rofessor Mittelstaedt draws 38 insights from the from draws 38 insights Mittelstaedt rofessor audi Arabia and ue-but-not-v 2. A subsequent problem that compounds the effect compounds that problem 2. A subsequent effort corrective 3. An inept accelerating situation at the 4. Disbelief while hiding the situation 5. remedy An attempt to of the situation is out that recognition Sudden 6. scenario — with loss of life and/or The disaster 7. with intimately connected are All these elements P of Enr aluable, such as the suggestion that ev like S tem — tire failures occurring in extremely hot countries occurring in extremely failures tem — tire the power of context to sway the perceptions and behav- to sway the perceptions of context the power The Ford situation. in a given iors of the actors debacle of 2000 is a perfect tire Explorer/Firestone actors in situation with numerous example of a complex The result. a disastrous multiple contexts that produced with the tires might be a problem first clues that there sport came, as they often utility vehicle on the Explorer do in complex situations, fr Ford and Firestone discounted the significance of these discounted the significance and Firestone Ford 1998 an analyst for but by for the U.S. market, results identi- already insurance company had Farm the State fied a pattern. I and the issue mushroomed picked up on the problems A complex set of causes, awareness. in the public’s design and specifica- cost-driven including numerous tion issues at F conduct an “economic business visioning” (EBV) exer- (EBV) business visioning” conduct an “economic to see how a manager could integrate them into his or to see how are of his points, however, her daily activities. Many v older manufacturing plants, had interacted to tip the a disaster that damaged the edge and create system over both companies sev incidents he studies, conveniently summarized at the summarized incidents he studies, conveniently and of these, such as “establish end of the book. Some is “culture and operating procedures” standard enforce fall into success may kill you,” — what creates powerful the tr

1 4 e u s s i s s e n i s u b + y g e t a r t s - - Blood on the Blood y post offices in ecounts the little- , r change rates for these onzi’s Securities Exchange Securities onzi’s tunately, probably foretells probably tunately, ersity niv Mitchell Zuckoff, a professor of a professor Zuckoff, Mitchell eflected market rates, and profits eflected market ithout outstanding leadership at sev W . estigators looking into the case, who often uments sold at the time b ar I, the official ex wn financial crisis in less than eight months. Ponzi’s Scheme, Ponzi’s W ecent past and, unfor is scathing about the inadequacy of the role per- inadequacy of the role is scathing about the Perhaps the most interesting feature of the dot-com feature most interesting the Perhaps History, of course, provides the highest level of con- the highest level of course, provides History, On paper, the scheme could be made to work, and the scheme could be made to work, paper, On wn the inv orld Company. Like Enron, Ponzi’s company had an arcane company Ponzi’s Like Enron, Company. but superficially business model: foreign plausible (nego- coupons arbitrage in international reply exchange tiable instr writers to send letter many countries, which allowed letters). After coupons to pay for the stamps on reply W known tale of the king of all get-rich-quick schemers. It known adds perspective is an engagingly written book that both to the r of 1929 Crash the Great Before as well. the future and Exchange and the formation of the Securities the most securities markets, Commission to regulate famous “SEC” was Charles P leagues. They paid for their hypocrisy when the media when hypocrisy for their They paid leagues. down. them them up tore that had built is that it happened examines Gasparino Mr. debacle that train in plain viewa slow-motion at the pace of and the sto- on stocks and ratings dearthThe of “sell” wreck. that the showed of IPO shares ries of the “spinning” banking separating investment Wall so-called Chinese had been crumbling yet and stock brokerage for years, did verythe regulators little to bolster it. formed by Mr. Levitt, who headed the SEC from 1993 from Levitt, who headed the SEC Mr. formed by Levitt was hamstrungthe by doubt Mr. to 2001. No his that was elected in 2000. But Congress pro-business to the more owes to act prior to that probably failure ways and the equivocal challenge of complex problems emerges, in which they unfold. As a complex problem their import many straws in the wind, but is are there usually unclear — it is executive legislative, — regulatory, eral levels that it is possi usually only in hindsight, after the crisis, ble to build an unassailable case for action. text. In coupons no longer r buying them with by could be made, at least in theory, one. them in a stronger redeeming and a cheap currency This later slowed about it. was nothing illegal there do competing jurisdictions and faced other came from nothing to from the scheme grew result, As a problems. a full-blo tried to make the arbitrage The charming, affable Ponzi journalism at Boston U Street Street - - in or sev e too com er Newsweek, York Attorney General Attorney York w e wn cheerleaders for deals, ess, while denigrating them pr to their col- e-mails in private e focuses on the actions of the illuminates the larger context in illuminates the larger ersified portfolio was for those who eill; and N The reputation of investing legend of investing The reputation W er-ending boom to recant. , er-ending boom to recant. andy 05 alued. A div

y the time the crash came, the stars w Charles Gasparino, a senior writer at a senior writer Charles Gasparino, One has to have some sympathy for Wall Street’s Wall some sympathy for has to have One e dev

ofessional facade. H er arney, (Merrill Lynch), and Mary Lynch), (Merrill Henry Blodget arney, mitted to a nev had always urged her job, the only one of them to retain kept Gasparino, to Mr. and, according caution investor of marginal initial pub- out of hundreds Stanley Morgan on the and Henry Blodget, Grubman lic offerings. Jack other hand, became full-blo and indulged in a form of Orwellian doublethink, prais- ing shaky startups on television and in the financial didn’t “get it.” Investment analysts did their best to it.” Investment “get didn’t with their consciences, irrational and live the rationalize but b which the Enron debacle took place — and in which debacle took place — and which the Enron other companies made unwise managers at countless of the late 1990s. and costly decisions during the boom sloth, anger, book is a catalog of the pride, envy, His Street’s Wall and lust that lie behind gluttony, avarice, pr major players: analysts of Salomon Smith of Salomon Grubman analysts Jack major players: B and Exchange Securities Stanley); (Morgan Meeker Grasso, Commission Chairman ; Richard Citibank Exchange; Stock York chairman of the New Chairman S , Blood vaunted new ventures were simply bad businesses, bad simply were newventures vaunted by for a while had been disguised results whose poor of incompetence of many The sheer bogus accounting. for disdain universal and their managers the company’s and accountability systems, disciplines, the nitty-gritty everythat underpin breath- are organization successful writes Mr. tragedy,” it was Enron’s taking. “Ultimately be filled with people smart enough to “to Eichenwald, the rules, around but not wise to maneuver how know why the rulesenough to understand been written in had the first place.” eral years in the “New Economy,” the financial laws of Economy,” in the “New eral years up — stocks went seemingly suspended gravity were this context, it seemed Within came down. and never folly to be wise: with his quaint buy-and-hold strategy, Buffet, Warren the memories of the few personal people with suffered; booms and busts of the past experiences of the great w analysts and traders during the dot-com boom. F analysts and traders during the dot-com . Spitzer. Eliot

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tures best business books a fe 21 features best business books 22 - Crisis Harvard icholas 05 es. Lost ero-sum y the vul uptcy laws, to + BOOKS BEST ansson, and N (Free Press, 2002) and Press, (Free , and other leading business , and other leading e situations, need above earning from the Links: Mastering earning from L t to the bankr s, 1995/2002). es What executives in these indus- What executives Thomas H vators” series, for instance, or, as a as series, for instance, or, vators” ture capitalists circling overhead. overhead. capitalists circling ture as others in less extreme tries, as well competitiv shed obligations incurred during shed obligations incurred having better times and to avoid their bones picked clean b strategy making; managers are the laws of the situations bound by in which they find themselv of constraints, at times in a maze they appear to be waging a z a battle in which combat- game. It’s ants make use of every stratagem government to them, from available suppor Financial Times whose writing has also appeared in the whose writing has also appeared nno all 2005). The most interesting business The most interesting all 2005). helton, s School Pr , the F ([email protected]) is a regular contributor to contributor is a regular ([email protected]) , s “I ’ s+b trand S d Busines ations. He is the author of er At finer scales of analysis, however, the power of the power finer scales of analysis, however, At ar odson, y B & Renewal: Meeting the Challenge of Organizational Change Organizational of & Renewal: the Challenge Meeting David K. Hurst strategy+business Review Business (Harv public Management Using Lessons from Golf from Using Lessons Management more recent example, “Format Invasions: Surviving Invasions: example, “Format recent more Upheavals,” Competitive Least Understood Business’s b all is to understand the contexts in which they operate. all is to understand the contexts in which new are theories in management The most interesting in contextual analysis (Clayton M. rooted those that are Christensen H damental attribution error.” In error.” attribution damental management, where American effort of individual the and of in the powers the belief articles faith rather than of spirit are entrepreneurial fundamental attribution for testing, the hypotheses of abstraction, level some At seems to be endemic. error that do not cultures be: Fatalistic this is as it should their own to control in the ability of individuals believe typically struggle vibrant economies. lives to develop numer- are There so lightly. context cannot be dismissed in which companies and ous instances of industries auto Three Big clearly constrained — the managers are steel mills, and the major airlines companies, integrated firms and many such In come to mind immediately. is little talk of activist, optimistic others like them, there books of the future will be those that keep in mind the will books of the future management advice needs to Sound reality: unvarnished situations. business be based on real e edit for els that stor es on circum- ead that in social - ted eceived uptcy that estors r es usually take personal cr e being depor ecutiv oblems with either the barr y befor ’s thoughts on ethics in ’s onzi P Charles Ponzi remained irrepressibly optimistic as optimistic irrepressibly remained Charles Ponzi enty thousand inv each of ethics incidental to the acquisition of it.” w n business, ex them or the trees that grew them. The tendency to them. grew that them or the trees rather attribute outcomes to personal predispositions than situational factors is so widespr the phenomenon has been named the “fun- psychology ject of ethics…. Then, as now, nobody gave a rap for nobody gave as now, Then, ject of ethics…. dollar was the only goal. And its The almighty ethics. criticism for any possession placed a person beyond br 37.5 cents on the dollar in the largest and most complex bankr seen. Ponzi had ever Massachusetts himself served in a state four years in a federal years prison and seven penitentiar his 1937 biography business from “The the years: echo down [Amer- had ican business] environment made me rather callous on the sub to Italy. He died penniless in Rio de He to Italy. in 1949. Janeiro The Fundamental Error The Fundamental I success and blame any mistakes or failur Cases of outright fraud their control. stances beyond and and Adelphia, WorldCom, such as those at Enron, Street, Wall abuses of the public trust on the recurrent usually ascribed to the actions of a few bad apples are rather than pr business work in practice (it never did), and he gave his and he gave did), never (it in practice work business on their investment return a 50 percent early investors new from them with money paying by in 45 days testimonials out to be easy: As This turned investors. he was flooded with became public, early investors from as the million a week than $1 in more funds, pulling money madness. gripped by Boston public became busi- to find legitimate, profitable he twisted and turned his fortunes and him to restore nesses that would allow When his business model was criti- his creditors. repay & Jones of Dow owner Barron, Clarence by cized financial journalists, of the era’s Company and doyen sufficient have just didn’t Barron that Mr. replied Ponzi to understand exchange of foreign knowledge sell his company to When a last-ditch attempt to it. of shady investors another group was doomed. failed, Charles Ponzi T