Monday, June 29, 2009
As I end my time in the dean's office this week to return to the faculty I have received wonderful comments about my time as dean. While I have surely played a role, it is the larger community of the School that deserves praise - the faculty who teach rigorous and relevant classes, the students who challenge themselves and each other, alumni who support our efforts in many ways, and the staff who somehow make it all work.
Still it is pretty special to be noticed by someone who is famous, inspirational AND interesting. Here's the letter that Warren Buffett sent to me this week:
Monday, May 4, 2009
Business schools are
(a) the cause
(b) the solution
(c) both (a) and (b)
(d) neither (a) or (b)
It’s an interesting time to be a b-school dean. With the collapse of financial markets, a deep and global recession, and the destruction of portfolios and dreams, I am often asked what role business education plays in “this mess.” Sometimes I stand accused, a scapegoat for whatever irritant is on someone’s mind. At other times people look expectantly for whatever answers I can offer.
Although Bernie Madoff did not attend business school, there are a number of recently discredited and disgraced business leaders and financiers who have MBA degrees. Of course every profession can point to those who push the bounds of legality and morality, whether it is corrupt policemen, rapscallion lawyers or physicians scamming Medicare. No occupation can claim immunity from cheating, much less hubris.
The current recession cannot be traced to the fraudulent acts of a group at a company such as Enron. It is a far more pervasive, systemic problem with intermingled roots and no Sarbanes-Oxley type of legislation will fix this one. The recent turmoil in financial markets is less about illegality than poor judgment and failed systems that circle the globe. Those are much harder to legislate, although governments have and will continue to try to shore up regulations to calm citizens and anticipate areas of weakness.
At the recent annual meeting of AACSB International, the largest and most global accrediting body for business education, 1,200 attendees considered the same question I posed above. What, if anything, could we be doing differently to develop business leaders who will face more complexity than any previous generation? How could we train thoughtful leaders who would build value and enduring prosperity for a global society?
There was no agreement, although many were concerned that the deal-making culture of Wall Street, expressed as short-term gains and unbridled self-interest, undermined the creation of lasting value in human and financial resources. One dean suggested that instead of trading rooms, maybe we should put in leadership rooms.
Others were concerned that the importance placed on rankings had made us too competitive and too specialized. As a very small school, the UC Davis Graduate School of Management works hard to attract great students and faculty and provide the best possible learning experience, but I can imagine the temptation to focus narrowly to gain attention in a competitive market.
We will climb out of this recession, as we always have. But as former Yale Dean Jeffrey Gartner said, “when the pieces fall back, they will not fall back in the same place.” Too many things are changing.
What challenges lay ahead? What will be different for future business leaders? Here are some of the prognostications that I heard:
· Government-business relations will change dramatically. Governments will play more visible roles in ensuring business stability. Business needs government to create stable settings for exchange.
· Emerging markets will become more important and threaten the U.S. dominance in global trade. Collectively the impoverished and less affluent nations will be attractive markets.
· Risk management will go far beyond financial probabilities as a wide variety of sources—from terrorism to pollution—also get attention.
· Earth-business relations will take center stage. Businesses will have to—and want to—pay attention to their impact on the natural world. Carbon will be the new asset, and liability.
· Right-brain skills will gain new importance. In a world where information overflows, the ability to interpret data is more critical than ever.
· Business leaders will manage to multiple objectives. Profit will be one but not the only aim.
How do we teach all of this in a two-year MBA program? We will have to create a more integrated curriculum where problem solving and a multidimensional perspective, not functional skills, take precedence. Our collective well-being depends on it.
Wednesday, April 1, 2009
Today in many advanced countries such as the U.S., having a highly educated workforce that continually innovates is the ticket to prosperity.
There is another source of economic wealth that has become important in recent years, and it is one that some less developed nations such as Ecuador are trying to capture.
Countries that have historically significant monuments and shrines, or beaches and ski runs attract millions of tourists each year. Indeed, depending on how it is measured, tourism is the largest global industry. It supports hotels, restaurants, airlines, cruise ships and t-shirt manufacture and it is labor-intensive. Tourism supplies many jobs even for the less educated.
Ecuador does not have anything to equal the Parthenon or the Pyramids, but it does have the Andes, the Amazon, and is one of the most bio-diverse lands on the planet. Its indigenous Indian peoples hold interest to those from developed nations. Moreover, the isolated Galapagos Islands six hundred miles off the coast of Ecuador were the place that Charles Darwin developed his ideas about natural selection and evolution. Anyone who watches the Discovery Channel knows about the blue-footed booby and the giant sea tortoises which lay their eggs on the beach.
The natural bounty of Ecuador brings adventurous travelers and their dollars – Ecuador like Panama uses the U.S. dollar as its official currency. Throughout our visit to Ecuador we saw the impact of tourism on the economy. In Quito we visited a shirt factory that was making hats and t-shirts for Galapagos tourists more than a thousand miles away.
Some of us with full-time jobs returned to the U.S. after visiting Guayaquil, but nine of us went on to the Galapagos Islands for three days. I don’t know what “normal” tourism is on the islands, but we were surprised by how few visitors we saw. Perhaps the relatively simple accommodations available on the islands are not attractive to well-off tourists who can cruise the islands in ships and off-load for nature visits. Perhaps it is the worsening global economy.
The Galapagos are amazing scientifically and naturally. The iguanas, penguins, land and sea tortoises, the sea lions and tropical birds are everywhere and easy to see. Ecuador maintains strict control over entry and exit from the Galapagos province and the paperwork and inspections are similar to entry into another country.
The authorities are right to be protective because so much has already been damaged by earlier visitors who brought to extinction a number of species. The “Lonesome George Foundation” sells t-shirts with an image of “George”, the last remaining tortoise of his sub-species. Proceeds go to conservation efforts. I bought two shirts.
The benefits of tourism are there to see, too. The Galapago natives are very proud of their islands and have benefited from the education and jobs that have come. Our local assistant, “Jimmy” spoke English because he went to a church school started by missionaries. He was studying to become a naturalist and guide visitors. His life is much larger because of the efforts and interest of visitors to the Galapagos.
Eco-tourism is a balancing act of generating currency and education, with managing the impact of populations on fragile ecosystems (the Galapagos imports most of its water and energy from the continent). I am glad that we got to see so naturally wonderful a place as Ecuador. But I think that much of the learning will come in the months ahead as the students, Wil Agatstein and I return home to our resource-intense lives.
From now on, when I hear “banana republic” I will think of Dole’s corporate banana operations in Ecuador.
After meeting with Rebeca at the Fundacion Macquipucuna and her attempt to manage cloud forest crops of cacao and coffee in careful, sustainable ways, I was interested in going to our next stop outside Guayaquil, one of Dole’s large banana operations. Bananas are one of Ecuador’s largest exports and Dole is one of the largest producers. Five million boxes of bananas are shipped weekly from Ecuador, and Dole ships a million of them. Dole is the largest exporter of Ecuadorean bananas.
Dole owns relatively little land or facilities in Ecuador, unlike its operations in Costa Rica where it owns half of its growing operations. Instead, Dole contracts with Ecuadorian growers who agree to accept Dole’s technical direction and audits. Instability in government policies toward foreign companies has made foreign investors wary in Ecuador.
Dole pays slightly less than some other companies such as Chiquita and Del Monte, but Dole buys year round, not only during the preferred selling season and therefore has a stake in sustaining grower relations. Dole sells to Costco, Ralphs and other major retailers in the U.S. as well as to markets in South America and Europe.
We were met at a gas station on the outskirts of Guayaquil by Jorge, Dole’s regional quality assurance manager in Ecuador. He has been with the company for 20 years and is clearly proud of the way the Dole operations are run. Jorge lead us down miles and miles of banana plantations, some of which carry the Dole name. The Dole plantations are neater and obviously more productive.
We had asked UC Davis alumna Rebeca Justicia of the Maquipucuna Foundation what to look for when visiting the planations. She said that the damage done by banana monoculture took place many years ago and that to change it now would cause the loss of many jobs. Instead, she said to look for the use of plastic to cover the hanging bananas to protect them from insects and blemishes, the use of metal rather than bamboo props to hold up the ripening fruit, child labor, the use and half-life of chemicals, the management of water, and protection and payment of workers.
When we arrived at Primo Bananas we saw an operation in full swing, literally. A metal trolley system ran throughout the banana groves and heavy bunches of bananas as much as 5 feet long came swinging along a metal wire into a processing area.
A worker hosed each bunch down with a detergent – yes, they had had protective plastic coverings which were recycled – and then the 10-12 “hands” or mega-bunches were cut off the stalk and floated during sorting and cutting into smaller bunches.
Why the plastic coatings on the bananas? It’s because North Americans want their fruit blemish-free. The Europeans and Argentineans will take a small blemish, South Americans care even less about the appearance of the peel, but North Americans want perfect looking fruit, even if the peel is thrown away. Hmmm, so we are the cause of all that plastic.
The U.S. market gets bunches of four to seven bananas and the Italian only four. We buy less frequently apparently and have larger kitchens.
Boxes of correctly sorted bananas are loaded into refrigerated containers headed for the Panama Canal. Perhaps we had seen the Dole containers when we were at the Port of Balboa
The workers had good conditions of work. The facility was clean, open and safe, though we noticed some things that wouldn’t pass an OSHA inspection.
Did they use chemicals? Yes, at this facility, which did not produce organic bananas, a fungicide was sprayed aerially to protect the leaves. The half-life of the chemical is 32 minutes and they keep workers out of the groves for a day after the chemical becomes inert. There were no children working, only young adults.
We passed recreational and housing facilities and schools built by a Dole-supported foundation. Dole wants educated workers, and wants the workers to stay in the rural area. Without schools for their children they leave for the city. Social amenities are a cost of doing business, though I think Jorge was proud of Dole’s contribution.
Clearly we had been shown a model banana plantation, and perhaps others are not so carefully managed. But Dole has ISO 9000 and 14000 certifications, and social accountability certifications which means they are open to audit. They are concerned with food safety – as they should be after last year’s tainted spinach in California’s Salinas Valley – and their practices seem thoughtful and prudent.
After a day in “Banana School,” where we learned about cultivation and processing practices, I think we were all impressed by the care with which those bananas floating in our cereal bowls were produced.
We saw a banana republic under modern management.
Wednesday, March 25, 2009
Ecuador has more than 40,000 NGOs operating within its borders, 400 concerned with issues related to environmental degradation and preservation. There are also a number of NGOs providing social and cultural support for the many indigenous and often poor rural populations of Ecuador.
One of the first Ecuadorean NGOs was started by UC Davis alumna Rebeca Justicia. According to her, “UC Davis has almost everything to do with what we do in Ecuador.” That is high praise considering that Justicia’s Fundacion Maquipucuna is a 15,000-acre, privately owned tropical reserve that protects some of the most biologically diverse land on earth. The Foundation supports scientific study, eco-tourism and provides jobs for many of the area’s rural population.
We met at Macquipucuna’s Quito office where Justicia and her staff, including her co-founder and husband Rodrigo, manage the grant-writing and outreach that sustain the cloud forest preserve about 50 miles away. Rebeca’s story, told over an hour with cups of Macquipucuna coffee, was one of naivete and pluck as well as hard work and persistence.
Rebeca was a student in the 1980s at the University Catholica in Ecuador when Rodrigo, then working as a banker, learned about a spectacular piece of land that had been defaulted on by a timber company. The two of them were concerned about the rapid deforestation of the Ecuadorean highlands and saw this as an opportunity to preserve a special piece of it. Although the bank only wanted $25,000 for the 6,000 acres they had no way to finance it. The bank refused to give it to a non-profit. There are no tax-deductions for donations in Ecuador making philanthropy difficult.
Rebeca went on to UC Davis to study for a BSc in genetics, which she completed in 1988, but she and Rodrigo continued to think about the special piece of Ecuadorian cloud forest that they wanted to preserve. By happenstance a major biological conference was held at UC Davis while Rebeca was doing her doctoral research and she was able to meet several environmental leaders at the conference, including Tom Lovejoy an eminent researcher with the Smithsonian Institution and expert on biodiversity in Brazil.
Rebeca’s story then takes on a madcap character--raising $3,000 at a fundraiser at the Blue Mango Cafe in Davis that allowed her and Rodrigo to fly to Washington to plea their case at the World Wildlife Fund and other major environmental foundations. The rental car company, all out of standard vehicles, rented them a Mercedes-Benz and they were taken seriously by the Washington NGOs.
One month later the The Nature Conservancy called to say they had a possible donor, but he wanted to see the land. Rebeca and Rodrigo, who had recently founded their NGO, begged a storage room in the Quito National Museum, remodeled it as an “office” and tried to look more established and mature when the potential donor visited.
The story goes on from there into many twists and turns, but they received the donation and leveraged it with a “debt-for-land swap,” an idea they learned about from Tom Lovejoy at the UC Davis conference. It is a strategy whereby debtor nations can swap property and cancel loans to international agencies. The exchange rates allowed the donor to greatly increase the impact of his gift.
Today their NGO is a success story that requires constant attention and maintenance. Maquipucuna Reserve hosts students, volunteers and researchers and provides 120 jobs, education and health care to the nearby population while protecting a spectacular and important region. They are constantly looking for economic support.
What is the business lesson we learned here?
Early in their venture Rebeca and Rodrigo followed the traditional Ecuadorian practice of paternalism--giving things away as the grant money came in. “But now we only give jobs or loans” because that creates a sustainable economy. In order to provide ongoing benefits to the environment and the Maquipucuna region, they have started eco-tourism, coffee plantations and a bamboo business. They practice “active capitalism.”
“We do for-profit, and for-purpose.”
Tuesday, March 24, 2009
We arrived at the Quito airport on Friday night and split into three groups. One group jumped into a van and headed south for Banos, a charming provincial city with hot springs, water falls and zip lines through the jungle. Another group went off to the Killan cacao bean cooperative. Twelve hundred families belong to a coop that processes their beans into high-end cocoa for export to Switzerland and other premium chocolate manufacturers. That group got to help process fermenting beans and help in the production. They left promising to help the cooperative's financial management practices.
Wil Agatstein and I opted to stay in Quito. We both had some work to do and thought a weekend away from the class was probably a good idea all around. We took off on Saturday and jumped on the "trole" or trolley into the older colonial part of town and walked back stopping at the National Art Museum for a Chagall exhibit, enjoying the numerous public squares, visiting food markets and just generally enjoying Quito. We found a very walkable city.
Today we all resumed out study of Ecuador and the political-business climate with a visit to the U.S. Embassy. The Embassy is new and impressive, a true fortification that houses more than 300 employees. We went through a serious security check and were met by a diplomatic officer whose role is to do outreach into the community. I think we were all amazed to have a series of briefings by top officials who took our visit seriously.
We had our pictures taken and were told that we would see them on the Embassy web site next month. The officials explained that Ecuador is a country squeezed between two large drug-exporting countries, Peru and Columbia, and that its position has made it wary of its neighbors. It has regular skirmishes over borders and refugees, but nothing that compares to the Middle East. One of the big issues now is a dispute with Chevron over degradation of an Amazon region caused by oil drilling. Wil and I had heard about this controversy and a law suite against Chevron from Amazon Watch activists who were staying in our hotel. We were amazed at the very different "facts" we heard from both parties. Indeed the damage was caused by Texaco beginning in the 1970s and the liability has been assumed by Chevron a few years ago after an acquisition of drilling rights. It has started the mitigation and remediation process but apparently the damage is extensive to both the natural and the human environment. There are billions of dollars at stake.
We probably learned as much about life as a diplomat as anything from our visit. The diplomatic corps members we met were constantly rotating between embassies and consulates, from one region to another. One diplomat had been assigned to Mexico, then Jordan, then Ecuador picking up Arabic on a stint in Washington. These rotations keep them from developing deep roots in any one society, and keeps them focused on their ties to the U.S. and its mission. Four of our students talked about taking the Foreign Service Entrance Examination. I could see the wanderlust in their eyes.
Our last visit was to a factory that makes shirts and caps with embroidered logos for businesses such as the local Pepsi distributor and for tourist venues like the Galapagos Islands. Wil and I were expecting perhaps a sweat shop--this is a low-wage country--but the factory was clean and well lit and had little turnover. Again, we were pleasantly surprised by Ecuador.
Sunday, March 22, 2009
For two days this week they got to experience global trade in a way we cannot teach them at UC Davis. They saw trade as a material flow, as huge ships carrying goods from one distant place to another. There is nothing quite like seeing dozens of ships queued up to enter the Panama Canal, or standing in the midst of thousands of containers being off-loaded and re-loaded at the Port of Balboa to appreciate the enormity and connectedness of global exchange.
On Wednesday we went to the Panama Canal Authority, the governance and administration office of the Panama Canal, and to visit the Miraflores Locks. The Canal is not the long tube-like passage I had imagined. Rather it is a series of locks that raise ships in a step-wise fashion at one end until they reach the large man-made Gatun Lake which is 85 feet above sea level. They traverse the lake and a series of islands in the middle of the country under the control of one of the Canal’s 300 pilot captains. The ships then step down through another series of locks to the other ocean, either the Atlantic or Pacific depending on the direction of travel.
I could see why cruise ships take this trip. Not only is it a bird’s eye view of an engineering marvel, it is a trip through a lush tropical landscape. The whole trip takes 24 to 48 hours and the crossing fee can be well over $100,000. The largest tariff ever was more than $300,000.
The Panama Canal is being expanded to accommodate larger ships. “Panamax” ships – the maximum size vessel currently accommodated in the Canal, are now dwarfed by newer container ships. In order to compete successfully with the Suez Canal, the Panamanians are developing a third series of “post-Panamax” locks. This is a $5+ billion investment by the Panamanian people in the future of the Canal.
Because the Canal is not being used by the U.S. as a strategic military asset, but by Panamanians who see it as an economic and development asset, they are investing in it as a business. It is extremely well run—something we learned from engineering consultants back in California—and is now a place that Panamanians can learn management techniques. We saw a troop of maritime engineer students who were on internships at the Canal.
Through a couple of well-placed phone calls we were invited to stand, literally, on a swaying bridge atop the Miraflores Locks. I may travel through the Canal some day, but I suspect that this was the only time I will ever stand on the Panama Canal.