If I was eighteen, and clueless about what I wanted to do with my life, I would do business school all over again.

I’m not eighteen anymore, so I would not go back to business school.  Not when there are many other ways of learning out there.

1. I’m not fit to give you any business advice

A couple of months ago, a friend of mine headed back to school in a remote community in interior BC.  She wrote to me, excitedly about her new surroundings.  She was also excited about a business idea she’s had: the campus was set up miles away from the nearest town, so why not start a grocery delivery service for the hungry students?  I was the only person she knew with a business degree, so it found me.

I started to write back somewhat vague and non-committal, than I stopped typing, hit the ENTER key, and wrote the following: “The thing is, a business degree is probably the least helpful to someone that wants to start their business, because in business school, all we got trained on was how to service someone else.”

I wrote this to concede that I had little practical advice for her.

I was not wholly clueless when it comes to entrepreneurship – I did get my hands dirty on a business for a couple of years during university, and that has proven to be one of the biggest confidence-booster of my life.  But whatever skills I had gained during this time became neutered in a classroom setting.

School trained us to become task-masters, one that is great at driving efficiency, expediency, and a razor-sharp ability to prioritize.  We become extremely proficient at functional tasks, but terrible at matters involving creativity and imagination.  It takes a smart and able person to answer a question correctly, but a non-conformist to re-phrase the questions posed in the first place. In face of the current crisis, I think that kind of out-of-the-box inquisitiveness might have been helpful.

But perhaps that was the plan all along with business schools and their generous donors. Just like the military, business schools are probably better at training problem solvers instead of thinkers.  It didn’t profess to churn out Aristotles that philosophize.  Equipped with plenty of discipline and normalized by years of standardized training, we marched into the corporate world.  I then got into bed with Excel, let someone else worry about the bottom line, and became a cog.

2. Business school made us masochists

I was a mediocre student at best, struggling to keep up with endless lists of projects, papers, presentations.  After four years of hard labor, I barely made it out with honors.

The only subject that I liked was statistics.  Not because I was a huge fan of means and standard deviations, but because statistics was the only subject where the exams were open book!  All other subjects had exams that required an immense and inexhaustible capacity to memorize and reproduce.  Whether they’d be accounting principles and subsequent treatment of business scenarios, or spewing out every piece of marketing jargon that we could to cram into a 30-page exam, or to reproduce mind boggling hedging formulations. Exams were like bulimia for the brains.

The mantra in business school was “work hard, play harder”.  It wasn’t until I left school that I found out this was the mantra employed by every other sports team or cultish business organization.  Most of us bought the idea wholesale, because work and partying looked so cool in movies, and it worked for a while with coffee slurping and caffeine pills popping.

The type-A success stories graduated to high-rolling careers in banking or consulting.  When alumni visited our school, they would boast of working 80, 90, or over 100-hour weeks – because they were so dedicated to their careers and cared so much.  We were in awe.  They told stories of themselves falling asleep in the shower or taking naps in the bathroom, we thought they were hilarious.  Worse yet, most of us thought we could beat that.  Because at 22, we were all Superman with complete disregard for our bodies, and working inhumane hours get you a badge of honour.

3. I’m not sure I would trust me with your money

I can’t say it with a straight face anymore. But back then, “maximizing shareholders’ value” was something we strived to put on every slideshow that could fit during case study presentations.  If you’ve been to a business school, you know what I’m talking about.  It’s nothing to smirk at.

There is a fine line between corporate responsibility and civil responsibility.  Sometimes the line is gray and very blurry; other times it is, unfortunately, a zero-sum game.  I’m sure all business professors are well aware of the fact, and it must be a struggle to instill business principles into our impressionable mind, without crossing that line of ethics.  Because every marketing principle, every tax minimization tactic, and every financial hedging strategy could be turned into something sinister and potentially corrupt in the hands of an ethically ambiguous individual.  Give that person a budget to work with, put in some skewed incentive structures, add lax regulation, sprinkle genuine misunderstanding and ignorance of the marketplace, then top it with a 90-hour workweek, is it really any surprise that within the last ten years, we’ve had three severe instances of corporate breach?

The bursting of the tech bubble in the early 2000s was partially blamed on the team of analysts that talked up stocks despite evidence to the contrary.  Failing to sniff the trail of accounting misconduct and fueling the speculative frenzy based on investment banking relationships, the stock market wiped out $5 trillion of market value.  Everyone had invested in the stock market then, and almost everyone I knew lost money, directly, or indirectly.  That includes my college fund.

After 9/11, accounting scandals surrounding Enron and Worldcom, among others, eventually brought down Arthur Andersen, and forced the SEC to examine the relationship between auditors and their consulting branch.  We were in school then, and we most definitely did not delight in learning the new rules ordained by Sarbane-Oxley.

Again, the first decade of the 21^st century, saw us failing again to learn from neither the speculative hubris of the tech bubble, nor from the accounting fraudulence of the Enron era: banks, lawyers, and accountants had helped to create a debt-induced housing recession.  Skeptics that doubted reckless lending practices were either ignored by the authorities, or chided by the mainstream media.

It could’ve been isolated cases of bad apples that got us to where we are today.  But it is hard not to see those disastrous endings as results of concerted, if not colluded effort by those in charge.  Incentives are a huge part of the problem, and so is the overall framework in place that resulted in the hubris.  So it really begs the question from or an ex-business school student: who’s at fault here, the system itself, or the people in charge of the system?  And given the system and the opportunity, what would I have done?

4. Where did our sense of humor go?

We all took ourselves so seriously.

We studied separately from the rest of the school.  We had our own buildings, and were usually only friends or housemates with people from the business school.  We studied in private meeting rooms named after wealthy donors, many of which were heads or former heads of something publicly listed.  We held roles in clubs manned exclusively by business students.  The air of self-importance, cliqueness, and hierarchy can put Mean Girls in a corner.  At 18, we wore our first power suit, trying to walk on heels while looking professional.  At 20, we were using various permutations of the word strategy without really understanding what it meant.  At 22, some of us had signed on to jobs that made more than our professors, business professors!  On some days, it’s a wonder how all our egos could fit in one room.

I’m sure some people had it all figured out, and probably saw the whole thing as one big joke.  I was not bright, so I went along for the ride.

5. In pursuit of sustainable careers

Talking about career burn-outs in a big banking firm for a 22-year-old was not unlike talking about hangovers from the best frat party.  It sounds painful but the sheer awesomeness of the job, and the doors it would open for you, would makes the pain worthwhile.  At the time, the popular roadmap for soon-to-be bankers was to toil as an analyst for two to three years, then leave to get an MBA, or to move on to the buy side.

It occurred to me a while ago that this short-term mindset is hardly the exception among bankers of all ranks and ages.  Hardly anyone I know had plans to stick around for the long term at one firm, and nor should they have.  But the issue of employee attrition may be the problem behind a genuine disregard of corporate responsibility.  Short-term financial incentives begets short-term profiteering behaviour.  And when an entire layer of a business is expected to depart after two or three years of sweatshop labour, how realistic is it to expect the firm to create and foster a culture that emphasizes anything long-term? So is it any surprise that a couple of years of record profits were made on backs of unreasonable risk-taking activities?  No, because they were offsprings of short-term thinking.

It’s hard to say how much structural changes will really take place as a result of this economic fall-out. Business cycles will most likely continue oscillating in response to economic activities, and careers will be made and then broken.  But as business owners, investors, consumers and employees, a longer term, more sustainable way of doing business, of investing, of consuming, and of working, may be a solid way forward.

picture source: ~roscofox

Given the present market bloodbath, there are many ongoing discussions on what the sensible investment strategy should be going forward, and whether one should still be investing in face of economic uncertainties at all.

Most solutions favour an old-school approach. Many personal finance writers have gone back to basic principles of investing such as dollar-cost averaging, diversification, looking at the long term, be calm when the market is fearful, etc. Many are viewing investment through a mostly unchanged framework as what we have become accustomed to. But my question is, in a time when the corporate world, government bodies, and media complex have abdicated or neglected to perform their roles, why aren’t investors moving towards a different paradigm?

Here are some ways that I see the rules of investing change in the coming decades.

Long-term sustainability. Once a successful business becomes a publicly traded company, the management team willingly subjects themselves to continual scrutiny by the market. Dozens of analysts pore over the company’s quarterly and yearly forecast and issue their own estimates. After each earning call, those whiz kids compare and contrast their estimate to the actual numbers and company forecast, and issue their “buy” or “sell” recommendations. The market then reacts, sometimes violently, if the quarterly numbers greatly exceed or disappoint the analysts.

As a system, we have a stock market that rewards short-term gains and profits. By doing so, we inadvertently create unsavory incentives for the management team to maximize short-term profits at the expense of pretty much everything else.

Remember Chainsaw Al? A self-proclaimed turn-around artist, Al Dunlop infamously presided over Sunbeam over a decade ago. Within three months of his installation as CEO, Sunbeam had cut over half its employees and eliminated 87% of its products. Employees saw working for him akin to trench warfare, many exhausted from having unrealistic goals imposed on them. Upon his firing, it became clear that massive accounting fraud had taken place. Revenues had been padded through various dubious or outright illegal revenue recognition techniques. The company was cash strapped. Share prices shot up from $12 to $53, before falling back to $11.

Dunlop was an extreme example from another time. More current incarnations of companies and individuals buckling under the market pressures of high performance are numerous. Enron and Worldcom all carried on the tradition of growing through accounting trickeries.

Looking forward to the investment environment, I imagine the investors would be very wary of overly aggressive CEOs whose claims to fame are quick turnarounds accompanied by massive restructurings. Maybe investors would be more interested in slower and steadier progress that are on par with the general economy, and have long-term, sustainable trends supporting their growth.

Shafeen Charania coined the term “Integrity, transparency, accountability (ITA)” as qualities that investors will place most value on in the new investment environment. He likened the corporate imperative to act with ITA to the initial challenges faced by the green movement.

In the beginning of green, companies that chose to act did so knowing that while it was the right thing, costs would initially be higher than returns. They felt in their hearts and stomachs that green was a societal imperative, and that others would come around. They engaged the world on this basis, sacrificing the perception of being less-profitable for the reality of being more right. So too must the out-behave community act.

He goes on to say:

Integrity, transparency and accountability (ITA) are not where a company will out-innovate or out-perform their competitors, but rather where a company out-behaves. This could also be where a company creates market advantage, where they can capitalize on the perception of mistrust and outshine the rest to be recognized as having a management ethos and discipline that can be trusted, that won’t be rapacious, that will be open and honest and accountable. This could also be a really effective marketing strategy, one that results in (like Whole Foods) market and price advantage.

My gut says companies that out-behave are more sustainable than those that don’t. They are potentially better long-term investments because they are less likely to get caught out, but will be able to capitalize on the those that do, capturing market share, talent, etc., when the ill-behaved are outed (AIG, GM, Madoff, etc.). Imagine if there was an ITA-compliant directory of companies from which you could choose your insurance, banking, investment provider, or where you could buy your car, etc. Would you go there if you just found out that you’d been “Madoff’ed”?

In face of an investment landscape that has been all but ravaged by incompetence, greed, short-sightedness and outright corruption, sustainability and steady growth might not be a bad deal after all. The investment industry has long been plagued by its lack of transparency and secretiveness when it comes to strategy, and investors have been more or less silent on this information asymmetry as long as money rolled in.

Less than a decade ago, Enron and Worldcom rocked Main Street with its unscrupulous practices. The solution was to impose tougher accounting regulation. But instead of addressing corporate integrity and accountability at its source – to be upheld by corporations themselves, the investors relegated those issues to the regulatory bodies. Now the alarm has struck again, the SEC and various other watchdog bodies are under attack for their lack of oversight. This is justified. But this extricates responsibilities from investors themselves. And this cannot go on.

The corporations and the investment industries will only change when the consumers demand it so. Government mandated monitoring will exert some pressure, but this pressure will tighten or relax along with the wind of politics and ties to the industry itself. The only unwavering voice that can have a long-term influence on the behaviour of corporations is from the consumers. Without a collective call for corporate responsibility, and without subsequent consumer behaviour modification that either rewards or punishes certain corporate actions, most businesses will continue to place the achievement of short-term goals before sustainability and corporate responsibilities (the stockholders – us, demand it so!), and investment managers will continue to invest in those volatile and supposedly high-performing stocks (its customers – us, demand it so!).

Diversification will take on slightly different connotations. Traditionally, an average investor focuses on investment classes such as bonds, preferred stocks, common stocks, mutual funds. And for the higher-worth investors, hedge funds. To diversify, we look at the bond/stock split, and within stocks, we look at large/small cap, tech versus pharmaceuticals, commodities, and different regional indexes. This strategy didn’t work too well this time. The increasingly inter-connected web of global commerce has rendered much of the benefits of diversification meaningless.

Many people have discussed the issue of self-education when it comes to investing and personal finance. But unless you are an accounting and finance whizz, can you make sense of a public traded company’s EDGAR filings? Even if you can, how can you be sure of their various off-shore financing vehicles and securitized debt obligations are recorded correctly? If you invest in a mutual fund, those quarterly reports paint a vague picture of your holdings. How much information can you squeeze out of that coloured pie-chart, when up to 1/3 of your money is sometimes placed in the dubiously named “others” category?

I hate to bring up Madoff’s name again. But when I read about how some of his victims were not aware of their involvement in his scheme until the bottom fell out, because their investment advisor had put all their money in one of his feeder funds, that makes me cringe. Going forward, I want to know where my money is going to. That might constitute micro-management. But unless the investment industry can demonstrate its trust-worthiness, I don’t mind that.

The rise of peer-to-peer lending is as interesting as the idea of Kiva and various other micro-financing initiatives. Kiva works on a micro level to help individuals in developing regions who may not be able to secure a loan through any other means. The domestic peer-to-peer lending program takes bank out of the equation, and allows lending on a more individual, grassroot level. They are different in application, but the core idea to me is the same. Both are highly transparent, both are highly personal, and from what I hear, loan repayment statistics are pretty good.

Now my question is, what if we apply the idea of peer-to-peer lending on a more macro scale, and allow for corporations to solicit loans from the general public, without relying on the bank as middleman and spin master. This is already done with much of corporate debt using public auctions, so the customers here are mostly institutional. But for small to mid-sized companies, can direct lending from an investor to a business become a viable way to grow that may be cheaper, more sustainable and creates more goodwill for the business; and allow an average investor to invest directly in a transparent, responsible, and sustainable business? Warren Buffet has done this on a mass scale for decades with success, but his success can hardly be replicated without his money. Short of buying shares of Berkshire Hathaway, can we find a similar investment model for the average investor along the same line?

picture source: ‘gilad

Does the name Abby Cohen ring a bell? It does for me, and it broils my blood. Chances are, if you were at all invested during the tech bubble in the early 2000s, you would recognize the name too. Dubbed “perpetual bull“, she championed the rise of tech and telecom stocks all the way to the stratosphere.

At that time, she was the star analyst at Goldman Sachs. The companies she covered loved her (which should’ve been a warning sigh all by itself), the market loved her, as wave after wave of heart-stopping rises made her outrageous bullish calls nothing but prophetic. In fact, in the midst of the March 2000 sell-off, she was still lauding for another bullish run.

So it bugs me to no end that a few weeks ago, the name Abby Cohen popped up on my screen again. It seems like over the last few years, Ms Cohen was back to her old tricks, spreading her never-ending cheery outlook throughout 2007 and 2008 on any media outlet that would have her. Her standing at Goldman was seemingly undiminished till mid-2008 when she was finally replaced (or self-demoted) in her role as the chief strategist. Yet her name still pops up, ready to hypnotize another generation of ill-informed investors, eager for a quick buck in the casino of stock trading.

My question now is this. How could this happen? How can individuals like Abby Cohen not only survive, but thrive as an analyst, with consistently bad calls on the market? If a supermarket stocker routinely make mistakes while stocking, fail to input the right information into the computer and create nothing but inconvenience for the customers, he would be fired, right? So why can’t the same accountability be applied to a stock market analyst when it is her job to be, at least, be more right than wrong?

It might be negligence, ignorance, or outright incompetence. But the media, so keen on scrutinizing every piece of breaking news on its 24-hour network, seems to lack both the will and the ability to call out the inconsistencies.

And I can hardly imagine the conversations that would go on behind closed doors at Goldman (and undoubtedly many others) when it comes to dealing with puppet analysts such as Cohen. The thing is, the stock market can only go two ways, up, or down. So whichever way you call it, you are going to be 50% correct. I wonder if these advisory outfits divide their analysts into two groups, the uppers and the downers, each inextricably bound to their roles as surely as they are to their bonuses. And just like a traveling puppeteer workshop, they would whip one or the other out when the occasion calls.

Perhaps with the impending restructuring of the entire investment/banking industry, some level of scrutiny, accountability and integrity will be injected into the system. These basic human decencies should be demanded of our bankers as much as any service providers we pay for.

After all, these are values we demand from each other in almost every other aspect of our lives. We ask for it from our educators, our politicians. We don’t always get it, but we ask for it, don’t we? Then why don’t we place the same standard of consistency and integrity to these so-called experts that roam between their computer monitors and the TV screen?

Granted, the skewed relationship between the media and the investment industry doesn’t help, so interest does not often favour the everyday investors. Changes should, and must happen. In the meantime, any serious investor who still wants to venture into the market needs to take some serious steps in self-education.

picture source: *deaddays