strategy+businessBest Business Books 2009from strategy+business issue 57, Winter 2009 reprint number 09407by Clive Crook, Charles Handy, Phil Rosenzweig, Ayesha Khanna andParag Khanna, Judith F. Samuelson, Catharine P. Taylor, Steven Levy,and James O’Toole Reprint
1best books 2009 best business books NO MATTER WHAT THE FUTURE the changing topology of holds, the Great Recession of global business. They find 2008–09 has had a seismic changes in regional trading impact on the global business patterns and increasingly dy- landscape and has called into namic emerging economies question its philosophical and that will challenge any estab- systemic foundations. lished player — all evidence Certainly, it has been keenly felt among publishers of an ongoing shift in competitive power that is sure to and booksellers. In May 2009, year-to-date sales of accelerate if the U.S. economy remains stagnant. professional books in the U.S. were down 6.8 percent As one might expect, our management and leader- from the year before, according to the Association of ship essays are rife with recession links. In the former, American Publishers. The recession also colors the Judith F. Samuelson, the founder and executive direc- writing — and the reading — of this year’s s+b best tor of the Aspen Institute’s Business and Society business books essays in ways both obvious and subtle. Program, searches out books that reveal the recession’s The most direct manifestation is evident in the silver lining: its challenges to outmoded ways of think- appraisal by Financial Times commentator Clive Crook ing about management and governance. In the leader- of the books that seek to make sense of the recession, ship essay, Charles Handy, whose memoir was one of its implications, and its ramifications. In barely more 2008’s Top Shelf selections, mines books on topics as than a year, the business section has become crowded diverse as America’s Puritan settlers and the Buddhist with such books, but with the story still unfolding, Tzu Chi movement for insights into how to begin none of them yet are comprehensive. Crook’s picks mending the torn fabric of leadership. strategy + business issue 57 provide the multiple levels of perspective needed to The University of Denver’s Daniels College of appreciate the recession’s many facets. Business professor James O’Toole grounds his review Ayesha Khanna, managing director of Hybrid of this year’s best biographies in a hefty tome about a Realities, and Parag Khanna, New America Founda- 19th-century prime mover, John Stuart Mill, whose tion senior research fellow, team up to review books on advocacy of free markets and private ownership res-
2 best books 2009 best business books 3 13 23 32 onates amid the dramatic new books as the recession A Wealth of Explanations The Capable and In Search of the Disruption 2.0 Clive Crook the Failed Silver Lining Steven Levy government response to — as one of the leading Phil Rosenzweig Judith F. Samuelson this economic crisis. IMD technological mechanisms 8 Means to a Greater End 18 28 37 professor Phil Rosenzweig enabling this phenomenon. Charles Handy Western Dominance Branding Goes Viral Unconventional Lives returns for an encore per- Steven Levy, senior writer at in Decline Catharine P. Taylor James O’Toole formance in the strategy Wired and newcomer to our Ayesha Khanna and Parag Khanna category, pointing us to- pages, broadens the thesis by ward books on intellectual property and dynamic capa- reviewing books that explore the disruptive power of bilities in an effort to identify enduring strategic technology and what happens when companies such as advantage. Rosenzweig also recommends a new book MySpace don’t heed that power. on Enron that takes us back to the last recession and This year’s best business books help us understand explores the perils of stretching any strategy too far. current conditions and chart a secure course forward. Marketing maven Catharine P. Taylor is back as With luck, next year’s best books will offer similar well, with a proposition that should raise executive eye- insight into a recovery of historic proportions. brows: Branding is becoming an open source endeavor. — Theodore Kinni She calls out Twitter — the subject of almost as many THE MELTDOWN STRATEGY MANAGEMENT TECHNOLOGYIllustrations by Guy Billout LEADERSHIP GLOBALIZATION MARKETING BIOGRAPHY
David Wessel, In Fed We John B. Taylor, Getting Off Gillian Tett, Fool’s Gold: How Richard A. Posner, A Failure Trust: Ben Bernanke’s War on Track: How Government the Bold Dream of a Small of Capitalism: The Crisis of ’08 the Great Panic (Crown Actions and Interventions Tribe at J.P. Morgan Was and the Descent into Business, 2009) Caused, Prolonged, and Corrupted by Wall Street Depression (Harvard Worsened the Financial Crisis Greed and Unleashed a University Press, 2009) Mark Zandi, Financial Shock: (Hoover Institution Press, 2009) Catastrophe (Free Press, 2009) Global Panic and Government Gerald F. Davis, Managed by Bailouts — How We Got Here William D. Cohan, House of the Markets: How Finance and What Must Be Done to Cards: A Tale of Hubris and Re-Shaped America (Oxford Fix It (2nd ed., FT Press, 2009) Wretched Excess on Wall University Press, 2009) Street (Doubleday, 2009)3 A Wealth OFbest books 2009 the meltdown Explanations by Clive Crook T HE DEFINITIVE ACCOUNT OF THE FINANCIAL meltdown of 2008–09 has not been written, and cannot be just yet because the story is unfinished. A degree of stability returned to financial markets this summer, but the system is still stressed and nobody can be sure what will happen next. The broader economy shows signs of recovery, but unemployment is high and likely to rise further, a prospect with political and economic implications still unknown. By the autumn of 2009, only a small part of the huge fiscal stimulus deployed against the downturn in the U.S. had made itself felt. In monetary policy, the Federal Reserve and its counterparts intervened to sup- port the banking and credit systems in new ways and on a wholly unprecedented scale. To call these interventions “unfinished business” would be putting it mildly. Meanwhile, not just the future is uncertain. The next surprise could change our understanding of what has happened so far, as earlier shocks already have. Never mind: A crop of new books on the subject has already come to market. All were written under strategy + business issue 57 the pressure of short deadlines and fast-changing cir- cumstances — and, as you might expect, many were worthless on arrival. But there are some splendid exceptions. The best books from this first crop are fine by any standard.
on the subject unsettled markets BOOKS BEST 09The Fed’s-Eye View Among the successful books, the range of explana- recall that his rare interventionstions for the crisis is wide. Some focus on economic pol-icy, others on closely reported tales of greed and fallibil- more than calming them — that deer-caught-in-the-ity. One locates the root cause in the triumph of finance headlights affect was enough to panic anybody — youover manufacturing in the United States. Another asks might thank him for recusing himself as often as he did.whether capitalism itself stands condemned. Just as the It is hard to disagree with Wessel’s criticisms of Alancrisis had no single source, there is no single way to best Greenspan, Bernanke’s once-lionized predecessor at thetell what happened. This makes it hard to say which Fed. If any official should have acted to avert this crisis,book is best. Nonetheless, if forced to choose just one, I either by raising interest rates sooner to choke off thewould pick David Wessel’s In Fed We Trust: Ben credit boom, or by bringing subprime mortgages underBernanke’s War on the Panic — an excellent work on a stricter regulation, it is he. Again, though, one should 4crucial aspect of the story, and one that addresses my remember that Greenspan was little criticized on eitherprofessional interest in economic policy. score while the bubble was inflating. As recently as 2007, the politicians and commentators now pillorying him were cheering him on.Wessel, the Wall Street Journal ’s economics editor, tells Many would say that Geithner faltered in his earlythe story from the point of view of days as Treasury secretary. He start- best books 2009 the meltdownpolicymakers in the Department of ed under a cloud because of his dif-the Treasury and the Federal Reserve, ficulties during confirmation; heand especially that of Ben Bernanke, was ridiculed for his first lamenta-the Fed’s chairman. The book is ble performance for the cameras; A Myriad of Causesbeautifully written and a gripping and his previous position at theread throughout. Although Wessel New York Fed implicated him inprovides enough context to make the the mess. Lately his stock has risen,crush of events intelligible, unravel- and he will not be displeased withing causes is not his main concern. In Wessel’s essentially sound take onFed We Trust is about how the key him. The book treats him kindly,officials coped, usually none too con- calling him calm and coherent, andfidently, with the torrent of disasters well prepared to lead by his experi-that began in 2008. The cast includes ence from earlier financial crises.Bernanke; Henry Paulson, who was Wessel touches on wider issues,Treasury secretary in the Bush but he keeps the focus on the Fed.administration when the crisis broke; Timothy Geithner, This emphasis guarantees the book an extended shelfpresident of the Federal Reserve Bank of New York when life, because the salience of the Fed is only going tothe emergency started and now Barack Obama’s Treasury grow, not just in the domestic economy but interna-secretary; and many others in cameo roles. tionally as well. The awkward unwinding of the Fed’s Wessel’s telling arouses sympathy for all the main financial interventions, its role in managing the dollarplayers. Mistakes were made, to be sure, but they were and the external deficit, the new duties envisaged for itnot obvious errors at the time. These leaders all did their in the Treasury’s blueprint for financial regulation, andbest in extremely trying circumstances. Still, some of the the disenchantment of many in Congress with the wayprincipals emerge looking better than others. it has performed — raising the possibility of stronger Wessel is not much impressed with Paulson, argu- external oversight, which Bernanke opposes strenuouslying that his trader mentality — instinctive more than — all put the Fed at the center.calculating, inclined to abrupt and unpredictablechanges of position — was ill suited to the problem.Greater consistency was needed. No doubt, but was any- In Fed We Trust is superb, but if you want a briskbody inside or outside government supplying that at the overview of the whole story, Wessel’s book is not it. Heretime? George W. Bush is also somewhat unfairly the honors go to the new edition of Financial Shock:impugned for choosing to take a backseat. When you Global Panic and Government Bailouts — How We Got
09 Here and What Must Be Done to Fix It, by Mark Zandi, and Interventions Caused, Prolonged, and Worsened the the chief economist of Moody’s website Economy.com. Financial Crisis deserves honorable mention. It is as nar- As he finished work on the first version in the sum- row in its focus as Zandi’s is wide, concentrating almost BEST mer of 2008, Zandi wrote, “The worst of the crisis exclusively on interest rate policy before the crisis, and appears to be over.” Not long after, the authorities made arguing that this is where the critical mistake was made. their fateful decision to let Lehman Brothers go bank- Taylor disagrees, for instance, that the Lehman decision rupt. That decision, which most observers now regard as was the pivot on which everything turned. He is not even a terrible error, shut the credit system down and precip- very interested in subprime mortgages — they were a itated the full fury of the crisis. symptom, in his view, not the cause. Everything went This gives Zandi reason to argue — as he does, in wrong for one simple reason: the Fed abandoned its tried- this revised edition — that the Lehman decision “turned and-true rule for setting interest rates — a rule, it so hap-5 a serious yet manageable financial crisis into an out-of- pens, that Taylor, a senior fellow at the Hoover Institution control financial panic.” Yet in Zandi’s view, although and a Stanford University professor, first formulated. mistakes were made, they were not inexplicable or The Taylor rule was devised as a recommendation to downright stupid. His retelling of his own mistaken pre- central banks, and was later seen as a way to predict how diction seems to inoculate him against the 20/20 hind- the Fed actually will behave. It says that central banks BOOKS sight to which most authors on this subject fall prey. He should set interest rates equal to one and a half times thebest books 2009 the meltdown writes with a keen sense of the complexities that con- inflation rate, plus half of the gap between actual and fronted policymakers. He is level-headed and fair. potential gross domestic product, plus 1. So if inflation is Of all the books in this review, Zandi’s ranges most 5 percent and the output gap is 3 percent, the rule says “Fix securitization, don’t scrap it,” Mark Zandi writes. Regulate the complex repackaging of assets more carefully, don’t regulate it out of existence. widely over the economic causes of the meltdown. He dis- to set the short-term interest rate at 10 percent: one and cusses the sources of the surge in subprime lending; the a half times 5, plus half of 3, plus 1. From the late 1980s American obsession with home ownership; the tax breaks onward, deliberately or otherwise, the Federal Reserve that promote borrowing of all kinds; the roles of financial followed the rule. Earlier this decade, it stopped. engineering, loan securitization, and exotic financial Aiming to speed the recovery from the previous instruments; attitudes toward risk; the role of the rating recession, the Fed cut interest rates in 2002 and kept agencies; monetary policy before and after the credit them low even when the Taylor rule said to raise them. crunch; fiscal policy; regulatory policy — you name it. Hence the boom in house prices, hence the boom in Lacking the flair of a David Wessel, Zandi nonethe- mortgage borrowing. Taylor presents a simulation that less writes clear, straightforward prose and puts this shows what would have happened with “normal” inter- bewildering mass of material in some kind of order. He est rates: no meltdown. ends with a 10-point checklist of actions we can take This mono-causal explanation is not altogether per- to avoid the next crisis. The seventh one is “Fix suasive. A once-in-a-half-century crisis, which this is, Securitization, Don’t Scrap It.” That is, regulate the must be a perfect storm of multiple forces. A lot has to go complex repackaging of assets more carefully, don’t reg- wrong at once; otherwise, such wrenching events would ulate it out of existence. This is characteristic of Zandi’s be commonplace. Yet Taylor believes in the one true calm approach. He does not hyperventilate. He recog- cause. Questionable as this approach may seem, in fact he strategy + business issue 57 nizes the benefits that modern finance has brought, as makes a powerful case. At the very least, he establishes the well as the damage done in this crisis. centrality of monetary policy earlier in the decade among Before we leave books that concentrate on causes, the various causes, a perspective that is lacking in many John B. Taylor’s Getting Off other accounts. Extra marks for brevity, too. The main Track: How Government Actions text runs just 60 pages. They are well worth reading.
A Fly on the WallFool’s Gold: How the Bold Dream of a Small Tribe at J.P.Morgan Was Corrupted by Wall Street Greed and body. However, despite the BOOKS technology, not by gulling any- BEST 09 brains, the work, and the good intentions, the risk gotUnleashed a Catastrophe, by Gillian Tett of the Financial out of control.Times, and House of Cards: A Tale of Hubris and In House of Cards, Cohan does for the team at BearWretched Excess on Wall Street, by William D. Cohan, Stearns what Tett does for JPMorgan — but with ainvestment banker turned financial writer, zoom in, tighter focus on the instant of Bear’s demise and every-minutely reporting a fragment of the action, hoping to thing that brought the firm to that point, plus amped- Fundamental Systemic Flaws?clarify the bigger picture, ever in search of a ripping up disapproval of the principals. These characters mightgood yarn. not actually be evil, but, in Cohan’s telling, they are cer- Tett turns the microscope on the elite team of tainly disagreeable: brash, bullying, loudmouthed, foul- 6bankers at JPMorgan that in the 1990s developed a fam- mouthed, and oozing testosterone — reminiscent of theily of new financial instruments — credit default swaps, sociopaths described by Michael Lewis in Liar’s Poker:synthetic collateralized debt obligations, and other so- Rising through the Wreckage on Wall Street (Norton,called credit derivatives. These were seen as a way to 1989), the seminal work (forgive the expression) of thismanage risk more effectively, and to spread it around. genre. Of course that book was a fabulous, irresistibleInvestors could fine-tune their expo- read, and so is House of Cards. best books 2009 the meltdownsure in more sophisticated ways, Cohan’s sourcing is especiallydiversifying their risk or concentrat- impressive. The book is richlying it, according to what made sense detailed and brilliantly constructed.for them. Its only real flaw is that the Bear As these derivatives caught on, Stearns failure no longer seems asfinancial engineers at other firms significant as it did pre-Lehman.married them to recent innovations That is an odd thing to say, admit-in mortgage finance. Mortgage debt tedly. At any other time, the collapsecould now be sliced and diced, and of a once-mighty investment bankthe pieces traded every which way. would have been regarded as a mon-The breakthrough was combining strous shock in its own right. Fromdebt securitization and credit deriva- where we stand now, it looks like atives. Soon the traditional mortgage lesser part of the story.loan — lender, borrower, document-ed income and assets — was regardedas passé. The new technology encouraged the spread Moving to the opposite extreme, two books zoom outof much riskier arrangements, extending even to “ninja” wider even than Zandi’s encompassing perspective. Theyloans (no income, job, or assets) that came close to take in more than mere issues of economic manage-sanctifying fraud. But the risk was always under control, ment, and ask questions that are bigger still.you see, because those guys at JPMorgan really knew Richard A. Posner’s A Failure of Capitalism: Thetheir stuff. Crisis of ’08 and the Descent into Depression tries to say In a way, they did. Tett explains that despite coming what kind of calamity this really is — is it a breakdownup with the new techniques and selling them to others, caused by structural flaws in the market system, or thethe firm consistently exposed itself much less to the dan- end result of an orgy of individual greed and irrational-gers, as they proved to be, than did more adventurous ity? One could always say it was both, but Posner takesoutfits such as Bear Stearns and Lehman. Partly for this the more intriguing line of arguing it was the former andreason, she has been accused of being too sympathetic not the latter. The people involved were no more or lesstoward her sources at JPMorgan. That was not my feel- rational than usual, he says; on the whole, they acteding. These people were not evil, and in a way, that is the in their own best interest. The problem is that an out-point. They worked insanely hard and had brains to right depression — for that is what we are in, accordingspare. They saw themselves as pioneers — getting rich, to Posner — is so rare an event that investors cannotto be sure, but doing it by inventing a marvelous new sensibly take account of it. “The profit-maximizing
09 businessman rationally ignores small probabilities that Then, thanks partly to information technology, finan- his conduct in conjunction with that of his competitors cial services gradually gained the societal upper hand. may bring down the entire economy,” he writes. The sector made the most money, offered the highest BEST Through the systemic vulnerability of the market econ- salaries, and attracted the best talent — and prospered in omy, individual rationality conspires to cause a collective part by breaking down the traditional structures. nervous breakdown. Today, Davis argues, an individual’s prospects in It is an interesting argument, though not in my work and in retirement are tied less to the fate of one view a very convincing one. You can pick any of the long-lived company than to the vagaries of financial other books mentioned here for instances of outright markets. This is a shift as profound as the transition individual irrationality — ninja loans, for one; debt val- from farming to manufacturing, though as yet much less uation models that returned “cannot compute” when well understood. One consequence is economic insecu-7 asked to contemplate a fall in house prices, for another; rity, a problem writ large in the current crisis (which is the list is long. A Failure of Capitalism is indispensable itself a product of the hegemony of finance). nonetheless, for Posner’s trademark intellectual vitality The book is too gloomy for my taste, although in and his tireless instinct to start a quarrel. And it is a this it conforms to the current mood. And Davis ex- they will no longer be able to stand aside. + pleasure to find that a public intellectual of Posner’s presses a faith in good government that strikes me as BOOKS amazing productivity — he seems to publish a book naive. But Managed by the Markets gave me more foodbest books 2009 the meltdown every six months — is still capable of surprising his read- for thought than any of the other books mentioned in ers. Despite his free-market instincts, his book confronts this review. In the past 20 years, finance did indeed tri- the limits of the market system. umph over other modes of enterprise in the U.S. and The most scholarly book of the bunch, with due elsewhere. This was, as Davis says, a momentous shift. respect to Posner, is Gerald F. Davis’s Managed by the To the victor went the spoils, with far-reaching social Markets: How Finance Re-Shaped America. Davis is a and economic consequences. In contemplating the professor of management at the University of Michigan, wreckage of the crisis, one should follow Davis’s exam- with particular interest in sociology and finance. He ple, and ask whether this was either inevitable or desir- steps back farthest of all, and asks whether the crisis is a able, and what, if anything, we might learn from it. sign that finance has vastly outgrown its proper place in Because the crisis is not yet over, many of the lessons the U.S. social and economic system. must be tentative. But one certain casualty of the melt- Clive Crook (email@example.com) is a senior editor of the This is an excellent question, and Davis deserves down — as nearly all of these books, in their different Atlantic, a columnist for National Journal, and a commentator for great credit for trying to answer it in a serious way. His ways, confirm — is credulous faith in self-regulation. the Financial Times. He was formerly a deputy editor at the basic argument is that “twentieth century American This has been the principle underlying financial regula- society was organized around large corporations, partic- tion in recent years. Financial institutions need to be ularly manufacturers, and their way of doing things. It is supervised, went this credo, but what they do is so now increasingly organized around finance — not just complicated, and the regulator’s powers necessarily so particular Wall Street banks, but finance as a model of circumscribed, that firms must be trusted not to do how things are done.… The consequences of tying the things reckless or stupid enough to put themselves in well-being of society to financial markets have become jeopardy. What we have learned is that, as a group, starkly evident.” Even aside from the immediate crisis, financial institutions cannot be trusted even that far — in Davis’s view, those consequences are mostly grim. and when they put themselves in harm’s way, the rest of This is a valuable and novel perspective. Seen from us share in the consequences. high altitude, things look different. You see features of The credo was right about the difficulties of regulat- the economic and social landscape that escape your ing effectively. But that will no longer serve as an excuse. attention at ground level. Davis explains how many Governments will have to try harder. After this crisis, aspects of U.S. society shaped themselves around the strategy + business issue 57 traditional large corporation, and especially around manufacturing: a settled career pattern; lifetime employ- ment with a company pension to follow; the phenome- non of the company town; the company as welfare state, almost. Economist.
Kenneth Hopper and William Warren Bennis, Daniel Edgar H. Schein, Helping: How C. Julia Huang, Charisma andHopper, The Puritan Gift: Goleman, and James O’Toole, to Offer, Give, and Receive Compassion: Cheng Yen andReclaiming the American with Patricia Ward Biederman, Help (Berrett-Koehler, 2009) the Buddhist Tzu ChiDream amidst Global Transparency: How Leaders Movement (Harvard UniversityFinancial Chaos (revised ed., Create a Culture of Candor Alan Deutschman, Walk the Press, 2009)I.B. Tauris, 2009) (Jossey-Bass, 2008) Walk: The #1 Rule for Real Leaders (Portfolio, 2009) 8 Means TO A Greater End by Charles Handy best books 2009 leadership I F EVER THERE WAS A TIME WHEN LEADERSHIP Lesson from Our Forefathers was badly needed and sorely tested, it was during the 12 months after October 2008. The financial crash that almost became a catastrophe was a self-inflict- ed wound. It did not need to happen. There were warn- ings enough from concerned observers of troubles ahead, but those in positions of power in leading orga- nizations paid no heed until it was too late. As financial journalist Gillian Tett put it in her book Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe (Free Press, 2009; see “A Wealth of Explanations,” by Clive Crook, page 3), the “social silence” around the explosion of derivatives, and around the wealth and influence of the banking cadre, encour- aged financiers to regard their activities as detached from the rest of society, until they became “like the inhabi- tants of Plato’s cave, who could see shadows of outside reality flickering on the walls but rarely encountered that reality themselves.” Nor did they show interest in look- ing outside. Too many leaders, ensconced in their tall towers, insulated themselves from the world they were supposed to be serving and forgot what they were about. The best reminder of that underlying purpose comes from a book by brothers Kenneth and William Hopper — Kenneth, an engineer in business in the U.S.; William, an investment banker in London. The Puritan Gift: Reclaiming the American Dream amidst Global
09 Leadership and Truth Financial Chaos may have escaped notice when first selected for this review do not pretend to be as all-encom- published in 2007 because of its unusual title, but this passing as The Puritan Gift, but they provide insights into year’s paperback with a new preface by that wise man important aspects of the leader’s role. The first deals with BEST Russell Ackoff deserves rediscovery at this critical time. the need for truth (or candor, as the authors call it) in “Puritan gift” refers to what the authors describe as the organizations, something that has been badly missing of United States’ superb managerial culture as established late. The second is a primer on helping, a key facet of a by the descendants of the country’s early settlers. Those good leader’s work. The final two provide vivid and valu- settlers sought to create God’s kingdom on earth in New able examples of leadership in practice, largely but not England in the 17th century. As businessmen they also wholly drawn from business organizations. needed to earn a return on capital but saw no conflict between the two. Profit to them was the means to a9 greater end. Warren Bennis, Daniel Goleman, and James O’Toole The Puritan gift, therefore, is that rare ability to cre- are three of the most influential management thinkers ate and manage organizations that serve a useful purpose around. Accordingly, Transparency: How Leaders Create in society. As the authors note, it later inspired the cre- a Culture of Candor, their combined take on the key ation of a federal political culture that enabled 13 obscure challenges facing business today, has to be taken serious- BOOKS colonies at the edge of the civilized ly. The book takes the form of threebest books 2009 leadership world to transform themselves, with individual essays, one by each of the the passage of time, into a great main authors. power. This managerial culture was Bennis looks at the conse- even successfully transplanted to quences of what Thomas Friedman Japan under the U.S. occupation after has described as the flattening of World War II and turned a poor organizations, made possible by country lacking natural resources into new technologies. As information, the second-richest in the world. and with it power, is shared more It was, the Hoppers suggest, the widely, communication across the United States’ gift to the world until organization as well as vertically sometime around 1970, when profit- becomes ever more crucial. and-loss accounting began to take Openness and honesty are essen- priority, a time they describe as “the tial. But being honest in an organi- years that the locust ate.” It was then zation is more difficult than it that the cult of the expert and the rise sounds. People hoard information, of the so-called professional manager shifted the focus of indulge in groupthink, tell their bosses only what they management to money as the measure that mattered, for think they want to hear, and ignore facts that are star- self and organization. The elevation of shareholder value ing them in the face. As Bennis points out, as the main criterion of business success mistook the “Technologies change. Human nature doesn’t.” The means for the ends, a classic category error for logicians, book, he says, is about “the things that have mattered but a calamitous strategic mistake for leaders. This error since the new technology was the flint and the long- was compounded when managerial reward was tied to bow — courage, integrity, candor, responsibility.” share value. In his eloquent and moving essay, O’Toole argues The Puritan Gift, this year’s best leadership book, is that “speaking truth to power is, perhaps, the oldest of partly a history of American business, but it is also a all ethical challenges.” To make his point, he refers the lament for the decline of the collegial style of leadership reader to classics of literature — to Sophocles’ Antigone, that drove what the authors call the “great engines of John Osborne’s Luther, and Robert Bolt’s A Man for All strategy + business issue 57 growth and prosperity” and that was replaced by the Seasons, the story of Sir Thomas More. O’Toole is at his “imperial” rule of the professional CEO in so many best in bringing these texts to illuminate our current companies. It is a reminder of what made the U.S. great condition, but he also cites contemporary organizations and a heartfelt plea for its recall. such as FedEx and Motorola. The prime responsibility The other four books I have of leaders, he argues, is to create “a culture of candor”
really know how to help each BOOKS BEST 09Leadership as Helpingin which they are constantly “willing to rethink even being a group of people whotheir most basic assumptions through a process of con-structive dissent.” The culture must be one in which other...yet that is precisely what good teamwork is —every individual is encouraged to speak the truth, successful reciprocal help,” he writes. Schein also lists 27because only then can proper trust be established — synonyms for helping. One way or another, it seems, wetrust that is the basis of all effective leadership but also are helping or being helped most days of the week. Thethe most elusive and fragile of things, so hard to estab- book is therefore a practical guide to everyday life, aslish, so easy to lose. well as an invaluable guide for all those who have some Transparency is a slight book, carefully crafted and responsibility for others, be they students, subordinates,easy to read. The messages may be as old as time, but or clients of one sort or another.they are no less important for that. Of course, those Schein’s main thesis is that all human relationships 10messages are easier to deliver than to act on, and the are a mixture of economics and theater, because they allauthors refrain from offering specific recommendations involve what sociologists call “status positioning” betweenfor action. They don’t need to. To tell the truth is all that the parties involved in any social interaction, whether for-one has to adhere to, even when it hurts, and that ex- mal or informal. It is human to want to be granted theample has to come from the top. status and position that we feel we deserve, no matter how low or high that is, and to want to do best books 2009 leadership what is appropriate to the situationEd Schein knows a lot about organi- and the occasion. If we get it wrong,zations. He has been working with the relationship doesn’t work. A verythem, advising them, studying them, simple example: If a child fails to sayand, yes, helping them and many of thank you, a social expectation hastheir leaders for decades. Helping: not been met and the child is repri-How to Offer, Give, and Receive Help manded. We also intuitively andis a small book that is his reflective almost unconsciously measure inter-summary of what works in a helping actions by how much we have gainedrelationship and how to make it hap- or lost, compared to our expectations.pen. He is uniquely qualified to do Thus, for a helping interaction tothis, combining, as he does, a knowl- work, each party needs to be clearedge of sociology, anthropology, and about the role each is playing, and allsocial psychology, as well as long parties’ expectations of the outcomeyears of teaching executives at the have to be similar.Sloan School of Management at MIT. (Schein was my After explaining the many pitfalls of helping —thesis supervisor 40 years ago, at MIT, and has been a why well-intentioned advice is perceived as criticism,good friend ever since, so I have firsthand experience of how the different social rules in individual cultures cre-his help.) ate unintended offense, how a tone of voice or form of Helping, Schein points out, takes many forms. He address can alter a relationship in an instant — Scheinlists 30 helping situations, including a boss giving offers seven principles and 18 tips, because this is, aboveinstructions to a subordinate, a stranger giving traffic all, a book of practical help.directions to a tourist, and a child showing a parent how These often sound obvious but, as the examplesto play a computer game. Further, he draws heavily on demonstrate, we often ignore his principles amid thehis experience helping his wife cope with breast cancer daily course of life, taking for granted relationships andover 25 years, involving periodic visits to hospitals and exchanges that may not be what they seem. We get lazy.home care, with all the different relationships involved. I found this little book a salutary reminder of too many And help, as Schein points out, is not limited to lapses on my part, while it also explained why some ofone-on-one situations. Group effort and teamwork my well-intentioned attempts to help only led to wors-often hinge on the degree to which members perform ening relationships. Any aspiring leader would do welltheir roles properly in accomplishing the group’s task: to review his or her own behavior in the light of this very“We do not typically think of an effective team as useful guide.
09 Leadership by Example reveal the ranking of your values. He describes the Alan Deutschman is a journalist, which is fortunate for response of Martin Luther King Jr. when he was us, the readers, because not only does he write fluently attacked by Roy James, a Nazi sympathizer, in BEST and vividly, but he tells stories, which is what all good Birmingham, Ala., in 1962. King staggered back under journalists do. Walk the Walk: The #1 Rule for Real a rain of blows, but dropped his hands and refused to Inspired by Compassion Leaders is a compendium of stories taken from the inter- fight back. He turned the other cheek. He walked his views he has conducted with leaders over the past 20 walk, lived his teaching, and so demonstrated that oth- years, most of them in business but some, equally rele- ers, too, could live by his principles. Deutschman con- vant and revealing, from the worlds of sports and poli- trasts King’s behavior with stories of corporations and tics. Deutschman’s subjects range from Jeff Bezos of chief executives that have ignored their declared values Amazon.com to Barack Obama in the first week of his and principles when it suited them to so do or when11 presidency, from FedEx to the Florida Gators, Nelson they went along with the prevailing customs of their indus- Mandela, and the Greensboro Four, whose lunchtime try, most flagrantly in the case of the airline compa- sit-ins in 1960 helped to jump-start the desegregation nies. Deutschman labels them lemmings, those who fol- movement in the United States. low the herd rather than setting their own standards. The stories make for compelling reading, par- Deutschman distills his long list of stories into a BOOKS ticularly because they are not all series of principles. Although thesebest books 2009 leadership paeans to the individuals profiled. are obvious, like so much in the lit- Deutschman is critical of quite a erature of leadership, it is the stories few leaders, including California that bring them to life. My recom- Governor Arnold Schwarzenegger mendation would be to read the sto- for talking the talk about energy and ries and make a note of the ones that the environment but continuing to resonated most with your own situ- own a fleet of five Hummers. The ation, underline the simple message fact that, in response to criticism, that they contain, and then resolve Schwarzenegger got General Motors to act on it or, as Deutschman to retrofit one of the vehicles to would say, to walk your walk. run on hydrogen and another on biofuel was not helpful, suggests Deutschman, because neither fuel is There is only one story in C. Julia readily available to his constituents. Huang’s Charisma and Compassion: Obama, too, comes in for some mild Cheng Yen and the Buddhist Tzu Chi criticism for not leading enough by example in Movement, but it is a remarkable one and a vivid exam- the very early days, although he is praised for many of ple of Deutschman’s advice to live your values. Venerable his initiatives. Master Cheng Yen, now 72 years old, is an unassuming Deutschman uses his stories to make a point, or sev- Taiwanese Buddhist nun who founded a worldwide eral points. He starts with the statement that “the most social welfare movement with more than 10 million crucial role of a leader is establishing and instilling the devotees in more than 30 countries, 5 million of them one or two values that will be most important for an in Taiwan itself and the majority of the remainder in the organization or a movement or a community.” There are United States. This remarkable organization, the Tzu always a multitude of values that are important — the Chi Foundation, which started as a tiny grassroots hard part is making the trade-offs between them in women’s charitable group in 1966, now runs three state- order to focus on one or two. He castigates Coca-Cola of-the-art hospitals in Taiwan, a university, and a televi- for its list of six goals and seven values, many of which sion station, as well as an international relief organiza- strategy + business issue 57 are potentially contradictory: Were “people” more tion that provides money and provisions to those affect- important than “profit,” and where did “integrity” come ed by disasters, including the tsunami in Sri Lanka, in the pecking order? Hurricane Noel in the Dominican Republic, and floods It is, Deutschman says, only in Indonesia and the Midwestern United States. Cheng when you walk the walk that you Yen has been nominated for the Nobel Peace Prize and
is well known as a Buddhist peace activist. She was alsoidentified by Business Week as an entrepreneurial star. Cheng Yen’s leadership story started in 1966 when known as the Abode, where BOOKS in the original monastic building Cheng Yen resides. BEST 09she was visiting a sick friend at a hospital and noticed a I once had the privilege of meeting Cheng Yen. Thispool of blood on the floor. She was told that an tiny, wafer-thin woman was not one’s image of a charis-Aboriginal woman had miscarried because, after being matic leader, but it was clear from everyone I met that order to understand the true secrets of leadership. +carried for eight hours by her family to the hospital, she she was greatly revered. It was also plain that she waswas refused treatment without the NT$8,000 deposit very much in control of the huge organization she(then about US$400). When Cheng Yen learned that had created. She follows all the precepts of Alanthe woman had died, she resolved to start a mission to Deutschman, even literally walking the walk withdefray medical costs for the poor. She began by mobiliz- monthly tours around the island of Taiwan to visit her 12ing the resources of her disciples in her local Buddhist organizations. A well-staffed publicity organization,community, asking them to make baby shoes to sell and including the 24-hour television station, keeps thealso to place NT$0.50 (about US$0.025) each morning membership attuned to her values and her thinking —in a bamboo container before doing the daily grocery vital for the finances of the whole venture. Of course,shopping. In one month the daily practice of “50 cents the challenge for any charismatic leader is, What hap-to save one human life” had started to spread, and an pens when he or she goes? Cheng Yen has attempted to best books 2009 leadershiporganization of sorts was born. answer that by institutionalizing her mission, but her It was a heart attack she suffered in 1978 that personal appeal may be hard to match.prompted Cheng Yen to create a hospital so her relief The story of how this frail woman could build such A Buddhist nun, with a following of monastic disciples, now had to raise money for a modern hospital and create the necessary organization to build and run it. Charles Handy (firstname.lastname@example.org) is a writer and socialwork would continue after her death. The organization a successful and far-reaching organization is an illustra- philosopher living in London. He is the author of many books ontherefore had to change; a Buddhist nun, with a follow- tion of just how much a dedicated leader and an inspir- work, life, and organizations, the latest being a memoir, Myselfing of monastic disciples and laity, whose goal was to ing mission can accomplish. It is an apt illustration, and Other More Important Matters (AMACOM, 2008), which was acollect money to supplement the medical costs of the albeit from a far different belief system, of The Puritan Top Shelf selection in last year’s Best Business Books.needy, now had to raise money for a modern hospital Gift. The book itself is neither slim nor easy to read,and create the necessary organization to build and run written more for students of the Buddhist tradition thanit. Task forces, boards of governance, coordination meet- for practicing managers, but it is worth the effort inings, and organization charts began to appear. ChengYen was careful to enroll the time and talents of profes-sionals (not necessarily Buddhists), but she personallychaired all the important committees. By 1999, the organization had evolved into fourbasic missions — charity, medical care, education, andculture. The hospitals, university, and relief organiza-tions are set up as regular nonprofits, albeit with somedistinguishing features — e.g., the hospital offers freecare for Buddhist monastics and the poor, and the uni-versity requires a one-year foundation course in “TzuChi Humanity.” The whole organization is financed, inaddition to the fees it charges, by tiny regular donationsfrom its 10 million devotees, many of whom also workas volunteers. It is overseen by a small headquarters
Mark Blaxill and Ralph David J. Teece, Dynamic Malcolm S. Salter, Innovation Eckardt, The Invisible Edge: Capabilities and Strategic Corrupted: The Origins and Taking Your Strategy to the Management: Organizing for Legacy of Enron’s Collapse Next Level Using Intellectual Innovation and Growth (Oxford (Harvard University Press, Property (Portfolio, 2009) University Press, 2009) 2008) Legal Monopolies13 know any company that was following its three-year strategic plan or even its one-year forecast; companies were operating strictly on a month-to-month basis. Yet if the current crisis affords us one thing, it’s the chance to stand back and reflect on eternal questions of strategy: How should we lead companies in competitivebest books 2009 strategy arenas where success is relative, not absolute; where tech- nologies change rapidly; where profits attained in one time period are eroded in the next? What’s the best way to drive companies forward when they have to run faster just to stay in the same place (a phenomenon described by William P. Barnett in last year’s best book on strategy as “Red Queen competition”)? With these questions in mind, a few new strategy books stand out from the pack. They would be good in any year, but in the present environment they have the virtue of reminding us what it takes to achieve and sus- tain high performance. The year’s best strategy book is The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property, by Mark Blaxill and Ralph Eckardt, formerly of Boston Consulting Group and now running their own THE Capable practice. Intellectual property (IP) often brings to mind patents and lawyers, but this notion is far too limited. In AND THE Failed fact, IP is about much more than patents; it also encom- passes trademarks, copyrights, and brands, as well as by Phil Rosenzweig trade secrets, which are aspects of knowledge kept safely away from the eyes of competitors. Seen this way, the entire field of knowledge management is essentially the management of intellectual property. IP isn’t a legal issue I N A YEAR WHEN THE MARKET VALUE OF THE FORTUNE 500 fell by 37 percent and profits plummeted by 85 but rather a business issue, and, as the authors point out, strategy + business issue 57 percent, conventional strategy books seem beside far too important to leave to the lawyers. the point. Keys to guaranteed success? If only there were Blaxill and Eckardt maintain that companies with such a thing. Delivering high performance? Not very the highest returns tend to have advantages that effec- likely. Effective strategic planning? JPMorgan Chase & tively limit competition. “As we know, when competi- Company’s CEO, Jamie Dimon, said that he didn’t tors smell profits they come running, so without some
form of protection, those companies will quickly copythe innovations and drive the profits (for both the inno-vator and themselves) down to nothing.” The authors’ are protected by no fewer than BOOKS tion the most current examples, BEST 30 U.S. patents that cover the blade geometry, blade 09thinking is linked closely to the industry analysis frame- coating, blade guard, pivot mechanism, trimming blade,work pioneered by Harvard Business School professor blade retaining clips, handle design, grip design, systemMichael Porter, which emphasizes the importance of design, cartridge design, cartridge connection, cartridgedifferentiation as a defense against rivals. “Intellectual dispenser, and more. Several of these elements have mul-property,” Blaxill and Eckardt write, “represents small tiple patents.monopolies.” Beyond control, companies can capture the benefits If the authors left matters there, they would add lit- of IP through collaboration with others. The Toyotatle to earlier discussions. Much of this terrain was cov- Motor Corporation’s network of suppliers is a widely 14ered by Hiroyuki Itami in Mobilizing Invisible Assets acknowledged source of competitive edge; less well(with Thomas W. Roehl; Harvard University Press, known is its extensive array of complementary patents1987), and the ability to apply knowledge without loss and cross-licensing deals that make the idea of imitationwas addressed by Carl Shapiro and Hal R. Varian back daunting to rivals. By dispersing IP among a networkin Information Rules: A Strategic Guide to the Network of firms with which it collaborates closely, Toyota gainsEconomy (Harvard Business Press, a competitive superiority that is best books 2009 strategy1998). The Invisible Edge takes the even more difficult for others todiscussion a step further by analyzing overcome. Far from yielding its IPhow companies can protect knowl- advantage by working with otheredge-based capabilities and retain the firms, Toyota cements its IP advan-benefits for themselves. tage through its network. The key argument is captured in Finally, since complexity adds toa refrain that echoes throughout the unwieldy coordination tasks, thebook: Innovation without protection is third approach, simplify, emphasizescorporate philanthropy. All too often, the benefits of setting industry stan-Blaxill and Eckardt argue, managers dards. Here the authors explore theemphasize innovation without con- trade-offs between open and closedsidering how to capture its benefits. architectures, showing how openThey essentially make a unilateral architectures can bestow benefitsdonation to others. The authors ex- on companies that set the rules forplain: “Simply put, when businesses the interfaces and interdependenciesinvest in intellectual assets they need to protect the fruits among components in a product design. As a primeof their investment in the form of intellectual property. example, Blaxill and Eckardt describe IBM’s successOnly with the appropriation of ownership rights, and with the System/360, which set a standard that othernot the creation of the asset itself, does an investment players in the industry were forced to follow. Theprovide competitive advantage.” paradox: Simplicity, far from leading to imitation and Blaxill and Eckardt identify three ways to secure the irrelevance, can lead to a profitable position of networkbenefits of IP: control, collaborate, and simplify. Control centrality.is the most obvious and easily understood. The success The Invisible Edge is not without shortcomings. Theof the Gillette Company (a subsidiary of Procter & concept of IP can be made so broad as to explain any-Gamble) is often ascribed to its business model: Give thing that confers advantage, and any success can some-away the razors and make money on the blades. This how be attributed to IP. Furthermore, too much space isstrategy sounds clever, until we realize that it affords lit- devoted to Facebook, perhaps an appealing exampletle protection from rivals and can hardly explain given its recent success, but surely an atypical exampleGillette’s high performance over so many years. Yes, given that it has yet to establish a clear business modelGillette has been a relentless innovator, but more impor- able to produce a stream of profits. Yet on balance,tantly, it has protected its innovations with a blizzard of Blaxill and Eckardt have produced a fine book that ispatents. The Fusion and Fusion Power razors, to men- both insightful and timely. It sets forth a strong intellec-
09 The Importance of What You Do tual premise but is aimed at a practitioner audience. If Moreover, in a competitive market economy, capa- anything, the authors’ subtitle sells their book a bit bilities must be constantly reinvented and reapplied if short. The Invisible Edge isn’t merely about taking strat- firms are to maintain high performance. Last year’s capa- BEST egy to the next level. Intellectual property is central to bilities are inadequate; new combinations are necessary. the formulation and execution of a successful strategy at Thus, writes Teece, dynamic capabilities form the foun- any level. And by the end of the book, it is hard to imag- dation of competitive advantage, for “the extent to ine a successful strategy that isn’t solidly backed up by which an enterprise develops and employs superior the protection of intellectual property. (nonimitable) dynamic capabilities will determine the nature and amount of intangible assets it will create.” How do managers renew their firm’s capabilities? What enables companies to develop the innovations First by sensing new opportunities in a shifting landscape15 that are essential to protect? For that, we turn to a sec- of competition and technology, and then by seizing ond book, Dynamic Capabilities and Strategic Man- opportunities through managerial initiatives, which in agement: Organizing for Innovation and Growth, by turn lead to reconfiguring capabilities. In all this, the David J. Teece, longtime professor at the University of manager plays a central role: Resources do not effortless- California at Berkeley. The book is not based on origi- ly combine and recombine to create new capabilities, BOOKS nal research or empirical findings, but are manipulated by the actionsbest books 2009 strategy and indeed has relatively few exam- of managers who function as in- ples of specific companies. It is more ternal entrepreneurs. Teece scolds a collection of articles, written over those who build models of strategy many years, capturing an evolution on theoretical foundations that in thinking by one of the most emphasize market structure but accomplished academics in the field overlook the importance of manage- of strategic management. rial behavior: “The cavalier treat- To Teece, “the field of strategic ment of entrepreneurship and man- management has been stranded for agement in economics stems in part some time with a framework that from a failure to understand the implicitly assumes that industry importance of managing organiza- structure (and product market tions and the absence of well- share), mediated by enterprise behav- developed and well-functioning ior, determines enterprise perfor- markets for intangibles and other mance.” The target of his concern is idiosyncratic assets.” clear. Michael Porter’s framework, anchored in industri- Dynamic Capabilities and Strategic Management is a al organization economics, conceives of the firm as a succinct statement of what has come to be the prevail- black box and ignores its inner workings, neglecting the ing academic school of thought in the field of strategy. vital role of managerial decisions. Unsatisfied with this It’s not hard to see why. In a world where profits erode approach, Teece looks inside the firm and sees it as a thanks to increasingly intense competition, or so-called set of distinctive capabilities. Companies are notable not hypercompetition, only the ability to continually gener- for the positions they occupy in an industry landscape, ate distinctive capabilities is likely to lead to success. Yet but for the things they actually do: how they learn one of the criticisms that can be leveled against The from their environment, how they combine ideas as they Invisible Edge can be raised here, too. Viewed in retro- seek to develop new products, how they deliver services spect, successful companies can always be said to have to customers, how they develop the talents of employ- mastered dynamic capabilities, whereas failed companies ees, and more. Further, these many capabilities differ can always be said to have been unable to satisfactorily strategy + business issue 57 from company to company because of the deliberate sense, seize, or reconfigure. A second-order question of actions of managers. In Teece’s vision, understanding vital importance is not entirely resolved: What can be managers and the decisions they make is central to done to improve our ability to generate distinctive capa- understanding company strategy bilities, not just once, but over and over — and defy and performance. gravity as long as possible?
Strategy FailedThe importance of managerial decisions in strategybrings us to Innovation Corrupted: The Origins and cess, Enron began to look for BOOKS Building on this early suc- BEST 09 areas where it could replicate its business model. OneLegacy of Enron’s Collapse, by Malcolm S. Salter, the Enron executive claimed, “Anything we want to inter-James J. Hill Professor of Business Administration mediate, we can.” By that logic, the key to Enron’s suc-Emeritus at Harvard Business School. On a superficial cess was not its knowledge of the gas trading industry orlevel, the demise of Enron is a story of dishonesty and of any other particular industry, but rather a set ofreckless behavior, made possible by a lack of internal and capabilities that could be applied in any trading domainexternal oversight. It’s tempting to blame Enron’s execu- — the more fluid and complex the better. As Enrontives for arrogance, greed, and hubris — the same expla- reported in its SEC filings, it believed “skills developednations offered for so many Wall Street failures in the in merchant energy services could yield operating 16past year. And to be sure, Jeffrey Skilling, Andy Fastow, efficiencies for Enron and other participants in theand the late Ken Lay make excellent villains. But Salter, developing bandwidth market.” Finding this argumenta veteran observer of the world of management, looks persuasive, investors and bankers were eager to providebelow the surface. abundant resources to finance Enron’s growth. The tale of Enron is not a story about them, he Over the next years, Enron made repeated attemptswrites, but about us. “After decades to apply its business model of inter- best books 2009 strategyof studying the practice of manage- mediation in new domains, includ-ment, I am convinced that very ing electricity trading, broadbandfew of us who live in the world of trading, electricity generation, andcompetitive product markets and water. Yet every attempt to extendunforgiving capital markets have the model into new domains turnednot encountered the management out to be a failure. Salter’s conclu-behavior and business policies that sion, based on an extensive readingbecame so toxic at Enron,” he of Enron finances, is that it is doubt-declares. “As self-interested individu- ful the company earned its cost ofals, we are also all susceptible to capital in any of these new business-incentives that improve our eco- es. “In retrospect, both the strategicnomic well-being and tempt person- and economic logic of EES [Enronal opportunism....” Energy Services] look highly ques- Salter’s main interest is in prob- tionable,” he writes. “Neither funda-ing the failures of governance at mental economics nor managerialEnron, including the lack of strong board oversight and capabilities could support Skilling’s hopes of extendingthe dereliction of duty by watchdogs and auditors. Yet his energy-based business model down the value chainthe collapse of Enron is also very much a story about from sales to utilities, to sales to consumers. Skilling’s bigstrategy. It offers an object lesson in the possibilities and bet on retail energy did not come close to being viable.”perils of extending success in one industry to others, and Yet with massive incentives to show ever-increasing top-how managers respond when their strategies go awry. line and bottom-line growth, Enron executives devised Salter wisely notes that the executives involved did questionable, and eventually illegal, ways to maintain annot set out to be dishonest or to defraud. In its early illusion of success. The end was inevitable, and it cameyears, Enron was innovative and successful by any objec- swiftly in 2001.tive standard. During the early 1990s, Ken Lay and With the benefit of hindsight, it’s easy to say thatJeffrey Skilling recognized the trading opportunity in trading electricity and broadband is fundamentally dif-the newly deregulated market for natural gas and ferent from trading natural gas, and that Enron’s busi-devised a business model that was insightful and novel. ness model could not bring value to new industries. ButThe key insight was that Enron could play an interme- that’s in retrospect. Whether the limitations should havediary role without owning physical assets, namely plants been visible at the time is by no means certain. For cor-and pipelines. The result was an “asset-light” model for porate strategists, the most difficult questions are, Totrading natural gas. what extent can existing capabilities be applied in new
09 domains? How certain should we be before committing 1957 classic, Leadership in Administration: A Sociological resources to move ahead? What are the warning signs Interpretation (Row, Peterson), and its emphasis on prin- that a strategy is not working successfully? And perhaps ciple and a sense of ultimate consequence. Perhaps, BEST most troubling, in the event of poor returns, what are despite our fondest hopes to engineer superior results under uncertainty. + the consequences — to the firm and to the manager — with strategic formulas, we are best off reading a 50- of admitting failure? year-old leadership book. Toward this end, Salter seeks to distinguish between Which brings us back to the current crisis. In the optimism, which can help performance and have “sur- financial meltdown, it’s tempting to search for books vival-enhancing effects in business,” and hubris, which that promise to create profits amid turbulence or turn has “survival-destroying effects.” But in our daily lives, adversity into advantage. The three books reviewed here optimism and hubris are terms we bestow after knowing remind us of timeless themes in strategy, yet each offers17 the outcomes. If a firm performs well, we infer that something new. The Invisible Edge addresses IP as a core healthy optimism was present; in the event of failure, we issue of differentiation, but emphasizes the need to infer hubris. For the strategist, such ex post facto attri- protect what we create, whether through control, col- butions are insufficient. Salter tries to offer a few guide- laboration, or simplification. Dynamic Capabilities lines: “Certainly, investments in new gas pipelines, gas reminds us of the need to look within the firm and BOOKS trading, and even electricity trading — areas in which examine the ways that organizations sense changes,best books 2009 strategy Enron had operating experience — should be consid- seize opportunities, and reconfigure capabilities, all in ered intelligent gambles, which are well accepted as nor- response to the actions of managers. And the story of mal activities in business. However, investments pursued Enron in Innovation Corrupted makes clear how hard it Perhaps the most troubling question is, In the event of poor returns, what are the consequences — to the firm and to the manager — of admitting failure? Phil Rosenzweig (email@example.com) is a professor at IMD in without relevant operating experience; without deep, is to know how far we can extend core capabilities and Lausanne, Switzerland, where he works with leading companies on specific knowledge on the part of project overseers at warns us that the impulse for high performance can be questions of strategy and organization. He is the author of The Halo corporate headquarters; and without effective risk con- perverted without proper oversight. Strategic decisions trols — such as the aforementioned electric power can never be reduced to exact formulas. They require Managers (Free Press, 2007). projects and the excursions into water and broadband a sense of balance and perspective to guide choices businesses — crossed the line into the zone of reckless gambles.” Fair enough, but perhaps it still prompts the deeper question, How much relevant experience and how much specific knowledge is needed before we undertake a new strategic initiative? Strategy always involves making commitments in conditions of uncer- tainty, and risks can never be fully obviated. One legacy of the Enron disaster is a spate of new rules concerning corporate oversight, governance, and the independence of auditors. Such rules are important, but Salter argues that “the irony of that legacy is that the new rules cannot — by themselves — prevent Enron- strategy + business issue 57 style debacles, because they do not address many of the causes of the company’s breakdown.” For a cure, he points us not in the direction of greater regulation, but to principles of responsible leader- Effect...and the Eight Other Business Delusions That Deceive ship found in Philip Selznick’s
Ben Simpfendorfer, The New Nandan Nilekani, Imagining Ian Bremmer and Preston Robert P. Smith, with PeterSilk Road: How a Rising Arab India: The Idea of a Renewed Keat, The Fat Tail: The Power Zheutlin, Riches among theWorld Is Turning Away from Nation (Penguin Press, 2009) of Political Knowledge for Ruins: Adventures in thethe West and Rediscovering Strategic Investing (Oxford Dark Corners of the GlobalChina (Palgrave Macmillan, Nirmalya Kumar, with Pradipta University Press, 2009) Economy (AMACOM, 2009)2009) K. Mohapatra and Suj Chandrasekhar, India’s Global Powerhouses: How They Are Taking On the World (Harvard Business Press, 2009) 18 New Ties That Bind Western Dominance best books 2009 globalization IN Decline by Ayesha Khanna and Parag Khanna T HE BEST BOOKS ON GLOBALIZATION THIS YEAR offer insights into three directional trends that are changing the topology of global trade and influence: the deepening of regional ties across emerging markets; the continuing rise of powerful new global players; and, finally, the intractability of risk factors inherent in emerging markets and regional networks, and how best to analyze them. Indeed, as the United States loses its hegemony as the primary engine of glob- al growth, the new drivers of growth deserve intense examination. Traditionally, the West has myopically viewed globaliza- tion from the perspective of how its influence has spread eastward, but globalization also entails the deepening of economic, political, and demographic ties between any two regions, not just between the countries in the Organisation for Economic Co-operation and Develop- ment (OECD) and the rest of the world. The simulta- neous rise of the economies of China and the Persian Gulf region, for example, is no coincidence. They are intimately connected and contributors to one another’s rising prosperity, as skillfully described in this year’s best book on globalization, Ben Simpfendorfer’s The New Silk Road: How a Rising Arab World Is Turning Away
09 from the West and Rediscovering China. infusions and building trust, while many U.S. compa- Simpfendorfer, a Royal Bank of Scotland economist nies and markets look more and more like dry holes. based in Hong Kong, has the unique vantage point of Even before the economic crisis struck in 2008, Gulf BEST having worked in Damascus and Dubai, as well as in countries had begun a gradual shift of foreign exchange many countries in East Asia. He uses the southern reserve holdings to euros, and the European Union is in Chinese city of Yiwu as a microcosm for the reopening the final stages of free-trade negotiations with the Gulf of the Silk Road. Until recently an out-of-the-way vil- Cooperation Council. China has also telegraphed its lage, Yiwu is a revealing node because its residents make desire to diversify investments and currency reserves their fortunes selling cheap “made in China” goods to away from the U.S. dollar, in essence signaling a certain the developing world, not to the U.S. and Europe. ideological unity with its new Arab partners. Yiwu’s rise as a trade center — its annual trade fair The political ties on the new Silk Road are evident19 drew 3 million visitors in 2007 — and the repaving of in the frequent reciprocal summits to which Saudi the Silk Road are due in part to the United States’ harsh Arabia’s King Abdullah and China’s President Hu Jintao response to the attacks of September 11, 2001. bring planes full of executives eager to sign deals. Difficulties getting U.S. visas forced Arabs to take their Oil trading, foreign investment, arms deals, and the rhet- business elsewhere at the very time they were amassing oric of diplomatic alignment are all part of the mutual BOOKS India’s Bid for Economic Leadership capital from high oil prices. The reinforcing.best books 2009 globalization growing demand for oil from India In using the Silk Road as a and China provided a natural alter- metaphor, Simpfendorfer reminds native, and Gulf-Asia trade bur- us that the trade networks between geoned. Saudi Arabia’s oil exports to the Middle East and Asia date back China hit US$31 billion in 2008, centuries, illustrating how globaliza- and China’s exports to the Arab tion is not an entirely new phenom- world pulled even with those of the enon either. He also points out that U.S. at about $50 billion, a trend the Silk Road was in fact plural; it embodied in the sprawling Dragon was many routes in multiple direc- Mart on Dubai’s outskirts (the largest tions. Much like the new world trading hub for Chinese goods out- order, it had no single center. side the Chinese mainland) and The New Silk Road is a window Chinese car dealerships in Damascus. into the deepening commercial and This new Silk Road is not only cultural ties that define globalization slicked with oil, it is technologically outside the Western domain. English enhanced through multilingual B2B websites such as may be the necessary global language, but it’s insuffi- Alibaba.com, which have dramatically lowered the costs cient to understand and capitalize on today’s multi- of trade between the Persian Gulf and China. And it is directional globalization. Simpfendorfer’s first-person reinforced by the migration of labor; at least 10,000 observations plausibly sketch the many individual Chinese work on building oil terminals in Saudi Arabia threads that will likely be woven together to create on the coast of the Red Sea. This also means that 10,000 tomorrow’s geopolitical alliances. potentially idle young Saudi men are not working at oil terminals, something for which China may eventually suffer political blowback. But for now, China’s baggage It is remarkable how in the past few years the analytical in the Arab world remains very light, unlike the Gulf perspective on globalization has shifted from West- region’s conflicted relationships with the U.S. and other ernization to the rise of two Asian giants. The literature Western nations. on Asian globalization has also matured; the overly strategy + business issue 57 Shifts in trade are usually followed by shifts in simplistic language of “Chindia” is gone, with each finance, and here the evidence Simpfendorfer offers is nation now being treated as a confident competitor in equally revealing. Arab and Chinese businesses continue its own right — and it is India that has gained ground, to court one another’s sovereign at least in publishing-volume terms, over the past year. wealth funds, looking for capital After several years of almost outlandishly unrealis-
tic portraits of India’s rise that glossed over its crumblinginfrastructure, fractious politics, and impoverishedmasses, in Nandan Nilekani’s Imagining India: The Idea state of Andhra Pradesh, which BOOKS business-friendly model of the BEST features India’s best highway system and emphasizes 09of a Renewed Nation, we finally have an inspiring yet competition instead of subsidies.balanced account that takes these challenges head on. The recent electoral victory of the CongressNilekani, the hero of Thomas Friedman’s The World Party–led alliance ought to mean greater support for andIs Flat: A Brief History of the Twenty-first Century (Farrar, confidence in India’s ability to establish more such zonesStraus and Giroux, 2005), a former co-chairman of of innovation. The India of the past, where entrepre-IT giant Infosys and now a cabinet minister in the neurs were considered “devious capitalists” and com-Indian government, knows that for India to achieve puters referred to as “job-eating machines,” is beginningglobal respectability, the success of firms like Infosys to look like the U.S. of the 1990s, whereas Nilekani’s 20must spread to companies throughout India. As a CEO India of electronic ID cards and e-governance is provingand statesman, he elegantly glides between national his- to be a progressive experiment worthy of investors’tory, entrepreneurial autobiography, trend forecasting, attention. After the book’s publication, Nilekani leftand public policy — taking the attitude that “what’s Infosys to become chairman of the Unique Identi-good for India is good for Infosys” and focusing on fication Authority of India, a $6 billion smart-card proj-how to improve access for all Indians ect aimed at providing Indians with best books 2009 globalizationto health, education, jobs, and personal ID cards.infrastructure. (Also see Nilekani’s Where Nilekani champions“India’s Demographic Moment,” India as a market destination,s+b, Autumn 2009.) Nirmalya Kumar, Pradipta K. Although so much of the talk Mohapatra, and Suj Chandrasekharabout the Indian market opportu- focus on the nation’s growing statusnity revolves around the “bottom of as a player in the global arena andthe pyramid,” Nilekani wants to the effect this will have on the nextshrink the pyramid’s base by growing phase of globalization. Their book,the middle class while also ensuring India’s Global Powerhouses: Howa dignified and sustainable life for They Are Taking On the World, offersthose who are worse off. The twin a deeper look at the way India’sfoundations of this strategy are IT major multinationals are pursuingand the promotion of English- globalization on their own terms.language education above all else. Kumar, a marketing professor at theExuding a confidence that rivals China’s pronounce- London Business School, and his coauthors argue thatments about its economic future, Nilekani states, “We these firms, which include the Birla and Tata groups, cancan, first of all, reasonably assume that within a few leverage vast assets and tolerate high debt-to-equityyears we should be able to have ubiquitous connectivity ratios to complete international deals, such as Tata Steel’sto cover every Indian home, hamlet and town.” Such 2006 acquisition of Anglo-Dutch steelmaker Corus andambition is coupled with a detailed strategy for harness- the 2007 merger that created ArcelorMittal, the world’sing an emerging demographic dividend created through leading steelmaker.the combination of economic growth and a boom in the Based on extensive interviews with deal makers innumber of working-age people. This will create tremen- major Indian firms, the authors’ case for eventually see-dous business opportunities for foreign firms and Indian ing more Indian companies (as opposed to Chineseentrepreneurs alike, particularly in products such as low- companies) among the top multinationals rests on argu-cost computers and PDAs. ments similar to those of Nilekani — namely that To realize this vision, Nilekani says, universities Indians’ command of the English language and comfortmust be stripped of ideological dogmas and produce with diverse, multiethnic workforces result in relativelymore experts in health care and alternative energy; infor- frictionless outbound acquisitions. The fact that out-mal and non-unionized labor must be empowered as bound investment surpassed inbound investment forservice distributors; and more states must follow the the first time in 2006, a major turning point for “Brand
09 India,” lends credence to this reasoning. Further, they tives. “Fat tail” is a statistical term that refers to a bump expect to see Indian companies competing globally in a at the end of a distribution curve where there is added greater variety of industries. Indeed, this well-selected set risk, but the likelihood that a particular event will occur BEST of cases, which includes Hindalco’s global aluminum “appears so catastrophically damaging, unlikely to hap- empire and Suzlon’s international windpower supply pen, and difficult to predict, that many of us choose to chain, demonstrates that India has already branched out simply ignore it. Until it happens.” The authors’ main Risk and Reward in New Markets beyond IT and manufacturing, with biotech and other point: Black swans, as Nassim Nicholas Taleb calls them, sectors certainly on the near horizon. can be political as well as financial. Both Imagining India and Global Powerhouses see Such is the volume’s tone as it takes the reader India as a rival to China in the global arena, competitive through a wide variety of events that wreaked havoc in thanks to its younger demographic profile, English pro- capital markets, including the Russian ruble devaluation21 ficiency, and higher-value finished goods. The fact that of 1998, the 2003 PDVSA oil strikes in Venezuela, the Indian companies have proven that they can pull off 9/11 terrorist attacks, and the passage of the U.S. multibillion-dollar acquisitions overseas gives them an Sarbanes-Oxley legislation in 2002. Indeed, as shown by additional advantage. Many questions remain, however: the critical firestorm that forced state-owned China Will India’s publicly traded companies be allowed to National Offshore Oil Company to withdraw its bid to BOOKS hold high levels of debt? What will acquire Unocal in the U.S. in 2005,best books 2009 globalization happen when the country’s domi- local political sensitivities impact nant family-owned model is con- investments everywhere, even in the fronted with international manage- United States. ment practices — and scandals on Bremmer and Keat turn the the magnitude of Ramalinga Raju’s amorphous notion of risk into a cat- billion-dollar fraud at Satyam alog of former secretary of defense Computer Services? India has Donald Rumsfeld’s oft-quoted reached well beyond its borders, but “known unknowns” and “unknown a turbulent global economy means unknowns,” covering warfare, en- that there is no guarantee of smooth ergy supply disruptions, terrorist progress. attacks, coups and civil wars, expro- priation and breaches of contract, currency controls and defaults, glob- Major Western firms, such as Coca- al warming and demographics, and, Cola and GM, have reported greater of course, corruption. Along the profits overseas than at home for almost a decade now, way they offer sensible resilience mechanisms to prepare and global expansion into faster-growing economies for such events (e.g., risk mapping, data collection, seems essential to all First World companies that can scenario analysis), ensure continued operations (e.g., afford it. But even though emerging and frontier mar- personnel location), and hedge strategic bets (e.g., joint kets, such as Sri Lanka and Romania, are undoubtedly ventures). the next major globalization story, they are volatile and But lest we begin to believe that political risk is fully unpredictable. Yet few companies take political risk seri- manageable, Robert P. Smith’s Riches among the Ruins: ously. Most either rely on experts and “insider advice” or Adventures in the Dark Corners of the Global Economy simply ignore the subject as too complex and intangible (written with Peter Zheutlin) provides a stark reminder to integrate with day-to-day strategy. that “frontier markets” can be a euphemism for the In this sense, Ian Bremmer and Preston Keat’s The chaotic Third World. Smith, the founder and managing Fat Tail: The Power of Political Knowledge for Strategic director of the Turan Corporation, which specializes in strategy + business issue 57 Investing is long overdue. The authors, both at the pres- emerging-market sovereign debt, takes us on a tour of tigious consulting firm Eurasia Group, draw on years of places where he says you have to “hold on to your wal- top-level advisory experience to provide the first accessi- let and your life”: El Salvador, Guatemala, Iraq, Nigeria, ble and rigorous treatment of Russia, Turkey, and Vietnam. political risk for business execu- In the 1970s and ’80s, before dollarization and
Smith’s boots-on-the-ground BOOKS BEST 09 A Warning to Established PlayersBloomberg terminals, sovereign debt–trading middle- In the evolution frommen like Smith relied on chutzpah and instinct to deter-mine bond prices and find trusted money changers. For adventures to Bremmer and Keat’s more detached,such financial swashbucklers, understanding people was methodological approach, an interesting mutual appre-as important as, if not more important than, under- ciation appears: Smith thinks that his adventurous tac-standing markets. Clearly, improvisation was Smith’s tics are no longer relevant in a world of real-time, elec-greatest gift: He carried large volumes of cash interna- tronic information, yet Bremmer and Keat argue thattionally, set up local holding companies to collect debts, local political knowledge is still essential to staying ahead ful players in their own domains and beyond. +and sent alias-named proxy lawyers to scout for contacts of the curve. In other words, paying more attention toand information — anything to get the job done. data is not enough — good instincts are also essential to Even as the sovereign debt trade has grown into a figuring out all the unknowns. 22$1.7 trillion industry conducted by multinational banksand investment firms, Smith’s characters are alive andwell today, just dressed better and using BlackBerrys An unmistakable conclusion that we share with all theinstead of rotary-dial telephones. After reading this books featured in this essay is the assertion that the U.S.book, one wonders how Arab and Chinese investors has lost its status as the preeminent driver of globaliza-described by Simpfendorfer will treat the frontier mar- tion. Thus, we predict that two trends will typify the best books 2009 globalizationkets of Uzbekistan, Afghanistan, and Pakistan that lie next phase of globalization: First, stronger regionalismbetween them on the New Silk Road. in terms of deepening economic integration in areas Smith witnessed every incident in The Fat Tail tax- such as East Asia, Latin America, and the Arab worldThe global playing field for firms, capital, and strategies will become more level as Western companies lose the Ayesha Khanna (firstname.lastname@example.org) is managing automatic edge they once held in trust and credibility. director of Hybrid Realities, a research and strategy consulting firm, and author of Straight Through Processing for Financial Services: The Complete Guide (Elsevier, 2008).onomy, from arbitrary currency controls to coups to will be driven by local powers such as China, Brazil, and Parag Khanna (email@example.com) is a senior researchexpropriations. His implicit reminder is that emerging Saudi Arabia. Second, the global playing field for firms, fellow at the New America Foundation and author of The Secondmarkets are a long-term investment. It’s a reminder that capital, and strategies will become much more level aswould have been worth hearing in late 2008, when the Western companies lose the automatic edge they once in the Twenty-first Century (Random House, 2009).worldwide flight of capital to safety caused foreign direct held in trust and credibility. (See “Capturing the Asianinvestment in the developing world to plummet. Many Opportunity,” by Andrew Cainey, Suvojoy Sengupta,analysts threw the baby out with the bathwater, and the and Steven Veldhoen, s+b, Winter 2009.) Companies inU.S. became the default market of choice even at near emerging and frontier markets may not become globalzero percent yield on Treasury securities. But, in fact, by leaders in their own right, but they will surely be power-April 2009, the Wall Street Journal was already reportinga surge in emerging market indexes. Growth had notgone negative, and foreign exchange reserves and highsavings rates combined to restore stability. This isn’t to say that recoveries are permanent.Smith’s description of Russia in 1997, when he andothers bought in heavily on the assumption that Russiawas too big to fail, inadvertently reminds us of Russiain 2007: too dependent on high oil prices and withweak regulations and enforcement. Just over a decadeago, the Russian stock market lost 75 percent of itsvalue; in 2009, it has lost at least 60 percent. Emerging World: How Emerging Powers Are Redefining Global Competitionmarkets can always submerge again.
Geoff Colvin, The Upside of the Henry Mintzberg, Managing John C. Bogle, Enough: George Friedman, The Next Downturn: Ten Management (Berrett-Koehler, 2009) True Measures of Money, 100 Years: A Forecast for the Strategies to Prevail in the Business, and Life (Wiley, 21st Century (Doubleday, 2009) Recession and Thrive in the 2008) Aftermath (Portfolio, 2009) today. Radical change is upon us, the systems we knew23 and believed in have fallen apart, and whether we are corporate leaders or employees, fund managers or investors, laid off or relatively secure, the uncertainty and contradiction evoked in the quote are probably familiar feelings. Indeed, it is hard to imagine a more dispiriting sub-best books 2009 management ject to write about than business management during this year of business failures, plunging corporate profits, and public distrust. Some writers have handled this chal- lenge by dissecting the failures and extracting their les- sons; others hold up the shining examples of survivors or Here’s Your Burning Platform find fixes for our problems. The authors of the books in this review are of the latter variety. They perceive, as did Dickens, that even in the midst of the chaos and despair brought about by radical change, there is always the hope for something better and the possibility that new opportunities are hid- den in the upheaval and destruction. I agree, and it is more than optimism that steered me in this direction; it is the conviction that the prevail- ing ethos of management has reached a tipping point. IN Search OF THE After more than a decade of making the case for inte- grating corporate profitability and social value in a new Silver Lining sustainable business model, I’m finding that people are ready for a conversation about the purpose of business, by Judith F. Samuelson the definition of business success, and the time frame for measuring that success. In fact, the conversation is already taking place, in corporate settings and business T WAS THE BEST OF TIMES, IT WAS THE WORST OF schools, among leaders, employees — and business writ- I times, it was the age of wisdom, it was the age of fool- ishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season ers. The books I have chosen see the potential, enhanced by the destruction around us, for making daring changes in the way we manage our companies and in the way we of Darkness, it was the spring of hope, it was the winter look at the role of business. strategy + business issue 57 of despair, we had everything before us, we had nothing before us.... The descriptive start of Charles Dickens’s A Tale of In this year’s best management book, The Upside of the Two Cities, a story of the havoc that revolutionary Downturn: Ten Management Strategies to Prevail in the change wreaks on the lives of people, seems eerily apt Recession and Thrive in the Aftermath, Geoff Colvin, sen-
ior editor-at-large for Fortune, argues that tough timesare the right time to make big changes in an organiza-tion. “Step one in every consultant’s advice on how to BEST tives right. It’s time to jettison BOOKS ting compensation and incen- pay programs that encourage executives to take high 09lead change is ‘Create a burning platform,’” writes risks by limiting the negative consequences. Colvin sug-Colvin. Well, here it is, he adds. The “platform really is gests following the example of companies like Deere &burning. If ever people were ready to be led toward new Company, where incentives are based on economic prof-ways of doing things, they are now.” it, which includes capital costs, and bonuses are paid out Doing things differently will be crucial to business over four years and subject to cancellation if perform-survival in this century, Colvin asserts, pointing out that ance is not up to par, a system that Deere CEO Robertthe world has already begun to change in “several big, Lane told Colvin he likes because “it encourages long-long-lasting ways.” These changes include a reduction in term thinking.” 24consumption to the historic norm as consumers pay off Which brings up another opportunity afforded bymountainous debts, and a cultural shift toward thrift. the downturn: freeing managers from providing earn-“Forces in today’s society are already being adapted to ings guidance to the investment community. Colvinclothe thrift in modern dress,” he writes. “One is envi- describes earnings guidance as a game that has de-ronmentalism; the mantra of ‘reduce, reuse, recycle’ is a veloped so gradually that “those in its midst may haveformula for saving money, while trouble seeing how insane it has best books 2009 managementwasting resources is not only person- become.” (As one of the developersally profligate, it also harms everyone of the Aspen Institute’s 2007 Aspenby hurting the planet.” The dual Principles, a series of signatory state-anxieties of health-care costs and ments promoting long-term man-impending retirement for a large seg- agement and value creation strate-ment of the population will also fuel gies, I agree. The principles advocatethis shift, and Colvin sees trauma- that companies stop providingtized consumers and investors being short-term financial guidance alto-risk averse for a long time to come. gether.) Companies such as Government will play a much GlaxoSmithKline and Unilever havelarger role in the new world order, suspended guidance, and Colvinespecially the regulatory sector, says suggests that the time is right forColvin. A few years after Hurricane others to follow suit: “While sud-Katrina, when “government looked denly ceasing guidance in goodincompetent while business rode to times may alarm investors, theythe rescue,” the opposite view has taken hold: “Business understand that in a historic recession even the bestscrewed up, government steps in.” companies can’t predict results a year down the road.” Whether you subscribe to that view or not, Colvin Colvin also sees this as a good time for managers tothinks that the faster and more effectively managers consider environmental initiatives, despite the conven-respond to these changes, the more likely their compa- tional view that going green is a luxury a company cannies are to do well. What do managers need to do? To ill afford in a downturn. He argues that “seeing the busi-begin with, says Colvin, managers must avoid falling ness from an environmental perspective can be a greatback on outdated models in their rush to respond to idea in distressed times because it can reveal cost savingtoday’s stresses. For example, they should not “obey opportunities that had previously been invisible.”ancient instincts from the industrial age” and treat work- The author also recommends going against the con-ers as expendable. The best companies and leaders will ventional practice of immediately cutting spending intake a more enlightened view, says Colvin, using the R&D and advertising during down times, citingopportunities created by the downturn “to begin prac- research showing that companies that continued totices they should have been using, to improve the qual- invest in these areas during the 1990–91 recessionity of their people, to increase employees’ loyalty and retained their competitive advantage and became topmotivation, to build the culture.” market performers, undercutting many managers’ asser- One of those not-to-be-missed opportunities is get- tions that the stock market would “punish them for
09 Managers Can Be Leaders spending more and cutting less than competitors during writes. He thinks of both functions in terms of the a recession.” (See “Profits Down, Spending Steady: “communityship” inherent in them. The effective man- The Global Innovation 1000,” by Barry Jaruzelski and ager, he says, is one who “leverages the natural propen- BEST Kevin Dehoff, s+b, Winter 2009.) Successful companies, sity of people to cooperate in communities.” says Colvin, “play offense, not defense, during a reces- Management books often make me feel like I sion… . [They] see opportunities to build advantages should head back to boot camp. But reading Managing, when their competitors have in effect taken themselves which is written in a breezy and accessible style, I out of the game.” found my own managerial insecurities melting away. Colvin’s overarching prescription is to make changes Mintzberg reminds us that most managers are prey to now, while employees are looking for something that will events and demands they do not control, and that a move them beyond anxiety or despair. Citing research on wide range of styles can work well for a boss. Balance is25 military leadership during crises, he notes that people the key: keeping up with the hectic pace of business respond better when their leaders help them see stressful yet making time for reflection; driving change yet main- events as challenges from which they can learn and ben- taining stability; leading and collaborating; leavening efit. “A crisis is the optimal moment for personal analysis with judgment. growth,” writes Colvin. “It is also the best time for a Further, all these skills must function within the BOOKS company’s own personal growth, the larger context of a worldly mind-setbest books 2009 management improvement of its culture.” — an attitude that Mintzberg dis- tinguishes from the common man- date for companies to be global. “All Although managers can help lead managers function on a set of edges change, they cannot bring it about between their own world and those alone, according to Henry Mintzberg of other people,” he writes. “To be in his new book, simply called worldly means to get over these Managing. The Cleghorn Professor edges from time to time, into those of Management Studies at McGill worlds — other cultures, other University and author of more than organizations, other functions in 15 books, Mintzberg continues to their own organization, above all promote his belief that management the thinking of other people — so is not merely a science encompassed as to understand their own world in a set of analytical skills taught in more deeply.” a classroom, but also an art that For Mintzberg, management is depends on imagination and creative insight, and a craft not confined to the inner workings of an organization, that is learned on the job through apprenticeship, men- but takes into account the larger landscape in which a torship, and direct experience. business functions. “Is there an economist prepared to Mintzberg researched this book by spending a day argue that social decisions have no economic conse- each with 29 managers and watching them work. quences?” he asks. “Not likely: everything costs some- The managers were employed in a variety of industries, thing. Well, then, can any economist argue that there are government, and nonprofit organizations, in settings as economic decisions that have no social consequences? disparate as offices, refugee camps, and symphony And what happens when managers ignore them, beyond orchestras. Watching these managers balance thinking remaining within the limits of the law?” and acting, as well as dealing with multiple activities, Mintzberg finds the answer in a quote from Russian frequent interruptions, and a pace that never let up, author Aleksandr Solzhenitsyn, who, describing his life inspired Mintzberg to propose both a model and a set of under a Communist regime, said: “A society that is strategy + business issue 57 concrete skills for managerial effectiveness. based on the letter of the law and never reaches any The model seeks to erase the arbitrary line between higher is taking very scarce advantage of the high level of managers and leaders — “we should be seeing managers human possibilities. The letter of the law is too cold and as leaders and leadership as man- formal to have a beneficial effect on society. Whenever agement practiced well,” he the tissue of life is woven of legalistic relations, there is
an atmosphere of moral mediocrity, paralyzing man’snoblest impulses.” How do we develop managers who can lead busi- BEST the managerial traits he has iden- BOOKS echo what Mintzberg says about tified as vital, such as commitment, caring, and the 09nesses in a more sustainable direction? Mintzberg, a reli- ability to leverage people’s desire to work together inable critic of business schools, challenges them to go community.beyond the usual fare of courses organized by business Unsurprisingly, trust is also high on Bogle’s list offunctions — marketing, finance, and accounting. That leadership and organizational attributes. He quotesapproach “amounts to a focus on analysis,” he says. economist and investor Henry Kaufman, who assertedInstead of “calculating managers,” he wants managers in On Money and Markets: A Wall Street Memoir, “Trust“who can deal with the calculated chaos of managing — is the cornerstone of most relationships in life. Financialits art and craft — which highlights the importance of institutions and markets must rest on a foundation of 26reflection, worldliness, collaboration and action.” trust as well.” Bogle points to a survey of fund investors The bottom line for Mintzberg is instilling a sense that found that almost three-quarters of the respondentsof commitment in managers — commitment “to the did not trust the fund industry. “And how can fundjob, the people, and the purpose, to be sure, but also investors muster any faith whatsoever in the funds thatto the organization, and beyond that, in a responsible now exist,” he asks, “when more than half of their man-way, to related communities in soci- agers won’t put their own money on best books 2009 managementety.” Amen. the line?” That same sense of commit- Bogle points to the emphasis onment lies at the heart of John C. measurement at the expense of judg-Bogle’s Enough: True Measures of ment as another factor that is erod-Money, Business, and Life. The germ ing trust. “Business organizationsfor this book and its title come from must learn that ‘not everything thata story about writers Kurt Vonnegut can be counted counts,’” he pointsand Joseph Heller. At a party given out, quoting Albert Einstein. “Yetby a billionaire hedge fund manager, today we rely too heavily on count-Vonnegut informs Heller that their ing and not enough on trusting. Ithost makes more money in a single is time — well past time in fact —day than Heller has earned in total to strike a healthier balance betweenfrom his wildly popular novel Catch- the two.” For Bogle, it all comes22. Heller responds, “Yes, but I down to a lack of leadership, as hehave something he will never illustrates through discussions ofhave. . . enough.” excessive CEO compensation, the lack of accountability The founder of the Vanguard Group and the cre- and principles for ethical conduct, short-term specula-ator of the first index fund, Bogle examines how leaders tion at the expense of long-term investment and growth,and managers in the financial-services industry — and and more.business generally — have failed both investors and soci- The final section of the book, labeled “Life,” callsety and discusses what can be done to set things right. for a return to 18th-century values. Before rolling ourBogle could be the poster boy for Mintzberg’s effective collective eyes, let’s remember that the 18th century wasmanager and leader. The tenacity of his message and his the age of reason, and of Thomas Paine, Adam Smith,business model of long-term investing, especially in an and Benjamin Franklin, whom Bogle calls the “para-era when the so-called smart money ran in the opposite digm of the eighteenth-century man.” It is Franklin thedirection, makes him a real hero of mine. entrepreneur whom Bogle holds up as a contrast to In a world where measurement has replaced judg- those in our own century — a man motivated not by ament, where investing subtracts value from society desire for personal profit but by the joy of creating andrather than adds it, and where our financial system of exercising his ingenuity and energy. Indeed, accordingchallenges corporations to “produce earnings growth to Bogle, the leaders of the 18th century were ablethat is, in truth, unsustainable,” Bogle would have us to “implant in society a reliance on reason, a passionadopt some new rules for leaders. Some of these rules for social reform, and the belief that moral authority is
09 The End Isn’t Near integral to the successful functioning of education and despite the self-doubts and doom-filled predictions religion as well as to commerce and finance.” He would engendered by our current financial crisis. like to see more such leaders today. The sense that this country is “approaching the eve BEST of destruction,” says Friedman, is the same foreboding that was present during the Nixon presidency. In fact, Given the current conditions, and the rise of new eco- the U.S. has historically been plagued by the nagging nomic powers such as China and India, I can’t help wor- feeling that “the country isn’t what it used to be.” It rying that there might not be time to build the kind of turns out that American culture mirrors the dichotomies managers and organizations that Mintzberg and Bogle of the Dickens quote I used earlier. According to envision, especially here in the United States. So I was Friedman, it is “the manic combination of exultant surprised in an airport bookstore when I found The hubris and profound gloom.”27 Next 100 Years: A Forecast for the 21st Century and read: But then, what else would you expect from a coun- “The history of the U.S. will be the history of the 21st try still in its adolescence? Calling on history, demo- mature society that we all want to live in. + century.” Its author, George Friedman, is founder and graphics, and geopolitical patterns over the centuries, CEO of Stratfor (Strategic Forecasting Inc.), a global Friedman argues that the U.S. is experiencing an adoles- intelligence-gathering company. A former academic cent identity crisis, “complete with incredible new BOOKS whose geopolitical and economic analysis has been used strength and irrational mood swings.” This will eventu-best books 2009 management by the Pentagon and Wall Street, Friedman makes a con- ally lead to an adult nation that, he explains, will be trarian yet convincing case for seeing the future for the more stable and powerful. U.S. as a glass half full. Thanks to factors like immigration (which will be By the end of the century, says George Friedman, technology and immigration will be the key ingredients of economic competitiveness and power. Judith F. Samuelson (firstname.lastname@example.org) is the Friedman bases his case on what he cites as “the sin- welcomed as falling birthrates fuel an international labor founder and executive director of the Aspen Institute Business and Society Program, which employs research and dialogue among gle most important fact of the twenty-first century: the shortage by 2020), the power of the computer (whose business leaders to build a sustainable global society. She end of the population explosion.” He argues that “the programming language is English), and U.S. military was previously with the Ford Foundation and helped launch its entire global system has been built since 1750 on the might (especially its sea power), Friedman foresees a Corporate Involvement Initiative. expectation of continually expanding populations. More United States that will continue to hold center stage as workers, more consumers, more soldiers — this was the century progresses. always the expectation. In the twenty-first century, how- To help make the case, the author offers a long sum- ever, that will cease to be true.” Because advanced indus- mary of all the times over the past several centuries that trial countries will be losing population at a dramatic the popular geopolitical forecast turned out to be dead rate by 2050, and birthrates are slowing in most under- wrong. The message: The future is never set in stone. So developed countries, Friedman believes that population stay on your toes, fellow travelers. There is time to influ- growth will stabilize, and by the end of the century, ence events in business and in life. All the more reason technology and immigration will be the key ingredients to use this opportunity to build the institutions — and of economic competitiveness and power. And in both of develop the managers — that will help us create a these areas, the U.S. has the advantage. Assessing China’s current “economic dynamism” as unsustainable, Friedman sees other economic powers strategy + business issue 57 emerging at mid-century: Japan, Turkey, and Poland — for a number of fascinating and convincing reasons that I cannot do justice to in this review. But looming over them all, in Friedman’s assess- ment, is the U.S. powerhouse,
Shel Israel, Twitterville: How Chris Anderson, Free: The John Gerzema and Ed Lebar,Businesses Can Thrive in the Future of a Radical Price The Brand Bubble: TheNew Global Neighborhoods (Hyperion, 2009) Looming Crisis in Brand(Portfolio, 2009) Value and How to Avoid It (Jossey-Bass, 2008) 28 It’s been true for a few years that consumers have a All Aflutter about Twitter more commanding voice in the marketing arena; the difference now, as Twitter’s popularity reveals, is that more and more individual consumers are using their voices — what was once a trickle produced by the most tech-savvy consumers is now a rushing stream. The best books 2009 marketing injection of the consumer’s voice into brand messaging may be the most explosive change for digital-age mar- keters, but it’s the ongoing contribution of all those voices that is actually making the impact. Now that major marketers and individual con- sumers use the same tools to produce and distribute messages, it’s as though the open source movement has spread into the business of brand communications. Take Dunkin’ Donuts: It spends millions of dollars on mar- keting, but there are also dozens of fan-produced Dunkin’ Donuts pages on Facebook, and the vast major- ity of the 5,000 YouTube videos tagged “Dunkin’ Donuts” were uploaded by consumers. The cross- pollination of corporate marketing and consumer mes- saging has reached a point of irreversibility. The three best marketing books of the year address this reorderedBranding world of messaging and marketing.GOES Viral It is virtually, pardon the pun, impossible to ignore theby Catharine P. Taylor mental space that Twitter has taken up in the last year within the marketing and communications industries. The service is still relatively small — InformationWeek reported that Twitter attracted about 23 million hits ver-P ERHAPS NOTHING THIS YEAR CAPTURED THE fancy of the marketing and media intelligentsia, sus Facebook’s 122 million hits in June 2009 — but its and the interest of pop culture as a whole, more hold on the marketing imagination is profound. Twitterthan Twitter. This micro-blogging service promised to is word-of-mouth moving at hyper-speed. Each personinfuse excitement into moribund customer service, re- (or corporation) using the free service can post text-sizedvitalize marketing, reengineer the connections between messages (tweets) and “follow” the messages of othercelebrities and fans, and perhaps even overthrow govern- users. Users resend the most interesting of the messagesments, all in 140 characters or less — the maximum to their followers, creating a constant spreading of tweetsallowed length of a message. in a very public forum in real time. This makes Twitter
09 an incredibly dynamic platform for communicating flights, and then, completing the virtuous circle, posted with and distributing messages to people with high lev- messages on Twitter to market the added seats. Mean- els of interest in a brand, as well as a potent platform for while, the other airline with many flights to Austin — BEST gathering consumer intelligence. American Airlines (@aaairwaves) — missed the money- Not surprisingly, about two dozen books solely making opportunity, simply because Twitter wasn’t yet devoted to the two-year-old service are already for sale on its corporate radar. on Amazon. Thus, in picking books to review, the task Israel’s understanding of Twitter culture is best dis- became not whether a Twitter book should make the list, played in an anecdote about how Procter & Gamble but which book to include. Some of the authors are mar- Company, usually among the most savvy advertisers, got keting wonders, but many are charlatans who simply Twitter wrong. P&G partnered with Feeding America consider their role as Twitter pundits to be a get-rich- to sell Tide T-shirts to fight hunger, but it failed to29 quick opportunity. understand how the Twitter community worked when Shel Israel (Twitter user name: @shelisrael) doesn’t it attempted to piggyback on the reputation of 150 fit into that latter category. Israel is the coauthor, with of the most followed users of the service. P&G asked tech evangelist Robert Scoble (@scobleizer), of Naked these influencers to send tweets to their followers, who Giving the Store Away, but Making a Profit Conversations: How Blogs Are Changing the Way would presumably re-tweet the message to their follow- BOOKS Businesses Talk with Consumers ers, and so on. However, the good-best books 2009 marketing (Wiley, 2006), and he admits his own will of the Twitterati didn’t extend early skepticism about the service. In to hawking T-shirts promoting Twitterville: How Businesses Can Tide, especially since Procter & Thrive in the New Global Neigh- Gamble didn’t disclose how much borhoods, he writes: “When a friend of the purchase price was actually talked me into trying Twitter in going toward feeding people. In the August 2007, I found myself reluc- end, P&G sold only 2,000 T-shirts tant.… I already had all the contacts and the initiative was considered, by I thought I needed and was having the Twitter community at least, to plenty of interaction with people have bombed. through traditional and social media No one knows if Twitter will tools.” Israel’s experience, replete become a permanent fixture in the with early fits and starts, makes his social networking scene or turn out insights into Twitter all the more to be a fad, but in terms of this credible, as does his research method book’s relevance, it’s a moot point. — about three-quarters of the book comes from people Reading Twitterville should be a priority for anyone who who are active users. He also knows how to tell a good is serious about marketing today, because the online story, in this case of how a teenager named Jack Dorsey conversation is just beginning to evolve, and dismissing created an online municipal dispatch service in 2000, the phenomenon exemplified by Twitter would be a which provided the seed that became Twitter. major mistake. For the marketer, Twitterville really shines in its case studies, which show how the service can provide a dis- tinct, and easily achievable, competitive advantage. One It might be tempting to dismiss Free: The Future of a case study concerns the JetBlue Airways Corporation Radical Price, except that its author is Chris Anderson, (@jetblue), which in 2008 discovered the service’s utility editor-in-chief of Wired and author of The Long Tail: as both a mechanism to determine consumer needs and Why the Future of Business Is Selling Less of More a promotional tool. When airline employees who used (Hyperion, 2006), whose title became one of the big strategy + business issue 57 Twitter noticed messages complaining about the diffi- catchphrases of Web 2.0. Anderson’s controversial new culty in booking flights between San Francisco and theory is that sooner or later, every business will have to Austin, Tex., for the SXSW Interactive conference, a key deal with Free (a term that he uses as a capitalized noun, gathering of technology execu- somewhat preciously, throughout the book) and start tives, the airline quickly added giving away goods and services that in a pre-digital era
would have been sold. Up to a point, anyway. Not that “free” is easy. After quoting Sheryl Crowabout how “sad” she feels that some people think music Quarterly Review in the weeks BOOKS was uncovered by the Virginia BEST 09 leading up to the book’s publication. (Anderson calledshould be free, Anderson says the most heretical thing his lapse “sloppy” and “inexcusable.”)that it’s possible to say to a capitalist. “Spot the fallacy?” For marketers, the most salient points of Free aren’the asks. “It’s that the only way to measure value is with really pricing related, even if that’s what the book’s titlemoney.” Anderson argues that Crow doesn’t recognize implies. The concept of “free” is important for two rea-that when her songs are stolen, she is really participat- sons. First, it has already been embraced by youngering in two of the Internet’s “nonmonetary economies” demographics. We’re now dealing with an entire genera-— economies measured in attention and reputation, tion that, through file sharing, free Facebook accounts,which can be used to make money. Thus, he espouses and free Google Docs software, views “free” not just as 30the idea that “free” is the essential first step toward rev- the way things are, but as the way they should be. Givenenue, particularly in digital businesses, where the mar- marketers’ endless pursuit of youth culture, they’d betterginal costs of reproducing and distributing products are get their arms around this. Second, although Andersonessentially zero. doesn’t quite come out and say it this way, “free” can be If that doesn’t sound heretical exactly, it does sound seen as the new mass media. As it becomes harder andwrong-headed — maybe even crazy. harder to engage consumers, perhaps best books 2009 marketingAnd yet, there is no denying that the easiest way to create interest is to“free” can work marvelously. Look at give away a stripped-down version ofGoogle, which gives away e-mail, a product. The trick then becomesblogging software, maps, and even a how to get those people who uploadsoftware suite that rivals Microsoft pictures to the basic Flickr service orOffice, and thrives from this expo- play a free version of an online gamesure. (As for Crow, Anderson points to buy the premium version of theout that the exposure stemming from same product. It’s a strategy thatfree music leads to revenue from mer- Anderson references throughout thechandising, concerts, and licensing; book as a “freemium.”just ask the surviving members of the Anderson also tracks the “free”Grateful Dead.) phenomenon into the analog world, Of course, the trouble with where it has existed at least as long as“free,” especially in these data-driven there have been “buy one, get onetimes, when return on investment free” deals. His most detailed exam-should be an exact science, is that the profit it generates ple is Ryanair, which sells airline tickets for unbelievablyis indirect. The ties between Google’s sponsored links low prices (a recent visit to its website showed flightsprogram and revenue could not be more direct, but how from Liverpool to Stockholm for only £4). But the Irishdoes a traditional businessperson rationalize the com- airline charges for nearly everything else, from flyingpany’s decision to simply give away software? Anderson’s with an infant to renting a car through its website. It iscaustic answer to those still attached to 20th-century even considering charging passengers to use the rest-ideas of pricing: “You have to think creatively about how room and pondering whether letting people gamble onto convert the reputation and attention you can get board would allow it to give away tickets on somefrom Free into cash…. This is just like everything else in flights. One thing Anderson doesn’t point out is thatlife — the only mystery is why people blame Free for “free,” like any other marketing program, can have atheir own poverty of imagination and intolerance for substantial cost in a company’s reputation with cus-possible failure.” tomers if it’s done poorly. In a series of interviews on the Yes, there is certainly stridency here, so much so U.K.-based website BrandRepublic.com, for instance,that you have to wonder if there’s a subconscious con- Ryanair customers called its plan to charge for toiletsnection between Anderson’s passion for his theory and “absolutely horrific.” Still, as the tens of millions of peo-his lifting of some of the book’s passages from ple who have flown Ryanair can attest, “free” has anWikipedia, the free online encyclopedia; the plagiarism obvious allure — and so does Anderson’s book.
09 When the Brand Bubble Pops Decades ago, as they put it, “simple awareness was If this year’s best marketing book, The Brand Bubble: enough to create product differentiation, especially The Looming Crisis in Brand Value and How to Avoid It, when brands were small and regional.” Now, “barring BEST weren’t so well-documented, it would be easy to accuse meaningful distinction, brands enter into a transaction- the book’s authors of trading in scary headlines — burst al relationship with consumers, letting price dictate the bubbles are all the rage these days. But John Gerzema purchase decision.” As brand equity erodes, the specter and Ed Lebar, executives at the global ad agency Young of commoditization rises. & Rubicam, have plenty of data; they oversee the Just as insightful is their discussion of why certain agency’s BrandAsset Valuator, an analytic database that brands continue to resonate with consumers. What is it currently encompasses 600,000 customers, 30,000 about Apple, Nike, Virgin, Whole Foods, and Google? brands, 48 countries, and 240 studies. They’ve all achieved “energized differentiation,” accord-31 Here’s what they found: Wall Street has been bid- ing to the authors. These brands don’t rest on their ding up the value of brands to such an extent that laurels, they are continually looking forward and staying “brands account for approximately 30% of the market in motion: capitalization of the S&P 500” and “have doubled in their contribution to shareholder value over the last 30 We used to think of positioning as a hole in the BOOKS years.” The problem, as the authors explain, is that while ground in which to plant a brand. Water itbest books 2009 marketing Wall Street has been bidding brands up, consumers have with repetitive messages and GRPs [gross rat- been bidding them down. The public’s faith in most ing points] until it bears the fruit of brand brands has been eroded by decades of over-the-top ad equity. But the marketplace is in constant The public’s faith in most brands has been eroded by decades of over-the-top ad claims and shelves that are overcrowded with undifferentiated products. claims and the fact that the shelves are overcrowded with motion. Competitors, consumers and culture undifferentiated products. Kudos to Gerzema and Lebar are constantly reordering brand meaning…. for also making the link between the accelerating decline It’s no longer effective to stake a claim to a per- in brand credibility and the mass adoption of the petual territory and defend it through repeti- Internet, which, in effect, open sourced people’s ability tion. Instead, the best way for a brand to own a to research brands and communicate about them. position is to be constantly dynamic with it. Among the loads of evidence The Brand Bubble presents to substantiate consumers’ lack of interest is Eureka! The power of Apple’s iPod isn’t in the core data from Forrester Research Inc. revealing that the per- invention, but in how the brand is constantly evolving. centage of people who say they “buy products because of And the decades-old skin-care brand Dove is still rele- their ads” fell from 29 percent to 13 percent in the four- vant because it “elevated itself from a memorable prod- year period between 2002 and 2006, and the percentage uct attribute focus (‘one-quarter cleansing cream’) to of those who agreed with the phrase “companies gener- engaging in a cultural conversation with consumers ally tell the truth in ads” declined from 13 percent to 6 (reframing social perceptions of beauty).” percent at the same time — and those figures came after Fortunately, the book spends much more time on decades of slower erosion in the power of brands. how to capture energized differentiation — starting It wasn’t only the authors’ command of the facts with an energy audit to assess a brand’s current position strategy + business issue 57 that struck me when reading The Brand Bubble. It was a — than it does on explaining why the brand bubble gut reaction that Gerzema and Lebar, having examined exists in the first place. Although much of it is too all the many facts at their disposal, have articulated detailed to describe here, the book’s advice for reenergiz- something profound about the ing moribund brands is as well reasoned as its big ideas. sorry state of brand equity. (Also see Gerzema and Lebar’s “The Trouble with
it’s less and less true that past is prologue. + Catharine P. Taylor (email@example.com) has covered adver- tising and marketing for almost 20 years, focusing on the impact of digital media since 1994 and writing for publications including Adweek, Advertising Age, and Wired. Founder of Adweek’s AdFreak blog, she currently posts about advertising at her own blog, Adverganza.com, posts daily to the BNET Media blog, and writes a weekly column, the Social Media Insider, for Mediapost. Her Twitter user name is @cpealet.Julia Angwin, Stealing Lawrence Lessig, Remix: Scott Rosenberg, SayMySpace: The Battle to Making Art and Commerce Everything: How BloggingControl the Most Popular Thrive in the Hybrid Economy Began, What It’s Becoming,Website in America (Random (Penguin, 2008) and Why It Matters (Crown,House, 2009) 2009)Brands,” s+b, Summer 2009.) the only books worth reading are those that help us Finally, in a move that Chris Anderson would come to terms with the dangers and opportunities in aapplaud, the authors invite marketers to go to www completely reordered communications and competitive.thebrandbubble.com as a starting point for conducting landscape. Many older books that once contained greattheir own energy audits. Even though the process does marketing insights have become obsolete, because in therequire registrants to give up “basic information” to marketing and communications industries these days,receive a password, the authors promise they won’t fol-low up. (But if you want to get in touch “for a personaldiscussion of your brand,” they won’t object.) In some sense, what makes these the three best mar-keting books of the year is that they couldn’t have been 32written at any other time, maybe not even as recently asa year ago. The cross-pollination of brand messaging hasbeen slowly emerging, but as it comes into full flower, best books 2009 technology Disruption 2.0 by Steven Levy N MARCH 2007, AT A LUNCH WITH MYSPACE.COM I founders Tom Anderson and Chris DeWolfe, I per- sonally delivered what I thought would be some troubling news to them. MySpace had just lost the United Nations School in New York City. My son, who was then a junior at that high school, had been part of a cohort that spent a huge amount of time on the social network. But recently, the entire junior and senior class had engaged in a mass defection to Facebook. What’s more, I had collected anecdotal information that this was happening all over the country. I thought I knew what the MySpacers would reply. They first would acknowledge the trend and assure me they were on top of the situation. Then they would out- line the myriad ways they were improving their site to make it more compelling for people like my son and his friends. But to my surprise, they shrugged off the migra-
09 tion, sniffing that it was an isolated phenomenon the subtitle (more than 70 million users by April 2008), among privileged East Coast schools, and changed the would be a chronicle of far-seeing visionaries who first subject to movie tie-ins with the MySpace parent com- identified, then successfully harnessed, the need that BEST pany, Rupert Murdoch’s News Corporation. They were young people had to organize their social networks also eager to discuss their plans to start a record label. No online. That’s not the case. Nor is Stealing MySpace a matter how hard I tried, they would not engage in a dis- deep analysis of what the company means to the mil- cussion of the competition between MySpace and other lions of people who create messy pages, swap songs, and social networking sites. intemperately post party pictures on its site. Angwin is I was baffled. Two years later, Facebook — growing less concerned with cultural effects than she is with spin- at a breakneck pace — passed the flatlining MySpace in ning an old-fashioned investigative boardroom drama. number of users. And I was still baffled by Anderson MySpace’s DNA did not spring from the gene pool33 and DeWolfe’s continued insouciance. But Julia that yielded great Internet companies like Amazon, Angwin’s relentlessly researched and compellingly ren- eBay, and Google, but from a fetid digital backwater dered Stealing MySpace: The Battle to Control the Most called eUniverse, based in an industrial park near the Popular Website in America explains everything. The Los Angeles airport. The idea sprang from two “cubicle- founders of MySpace had unwittingly put their compa- dwelling marketing executives with no technical prowess BOOKS ny in jeopardy because they, like a or revolutionary ideas,” Angwinbest books 2009 technology surprising number of other technol- writes. As a teenager, Anderson ogy pioneers, did not understand the had flirted with the dark-hat hacker nature of what they had created. underground; he was mentored Stealing MySpace, along with the by Bill Landreth, a well-known other two books that stand out in the malefactor who parlayed a criminal business and technology field this record into a book contract with year, would seem at first glance to Microsoft Press. Later, he got grapple with a particular aspect of involved in a website focusing on the digital revolution: the empower- Asian pornography. DeWolfe was a ing effect of technologies that allow frat-boy finance major who took a people to communicate, connect, marketing job during the first dot- and express themselves on a global com boom. His activities at scale via the Internet. This effect eUniverse involved creating e-mail alters the relationship between com- spam and spyware; his big success panies and customers, which, in was getting people to download a turn, lays waste to traditional business models, while patriotic cursor (to show support for Operation Desert giving rise to new ones. Storm) that secretly loaded software to snoop on their The direction of technology itself is rather pre- online activities. EUniverse, writes Angwin, was “the dictable. We know that it insistently drives forward, pow- trailer park of the Internet.” ered by the rocket fuel of Moore’s Law and a seemingly When DeWolfe launched MySpace as an eUniverse bottomless reservoir of innovation and brainpower, most property in 2003, it seemed like yet another exercise in often generated by fuzzy-cheeked geeks wearing sneakers. bottom-feeding: It was a bald attempt to clone what was But those people actually running businesses — not just then the Net’s hottest newcomer, a social networking the enterprises that introduce disruptive elements, but all site called Friendster. Despite massive buzz and invest- of the enterprises subsequently affected, too — must nav- ments from top venture-capital firms, Friendster flamed igate new minefields. How well they do this depends not out while MySpace thrived. just on wizardry and gadgetry, but also on more elusive fac- How did two SoCal hustlers beat out a Silicon strategy + business issue 57 tors like personality, culture, and a knack for knowing Valley first mover? One factor was MySpace’s malleabil- what to do when the lawyers come calling. ity — of all the social networks, MySpace has been the One might assume that a book about MySpace, one to allow users the most latitude. This tapped into which seems to deserve the “most the teenage urge to personalize a corner of the Internet, popular Website” description in even though it wound up making a user’s space the dig-
ital equivalent of a disheveled dorm room. Angwinreveals that this was not a conscious management deci-sion, but sloppy programming that enabled users to Twice. Both times, the asking BOOKS MySpace tried to buy Facebook. BEST price was way too high for MySpace’s taste.) 09hack their own pages. And whereas Friendster was built The speed of MySpace’s relative decline has appar-to reflect users’ real identities and help people connect ently blindsided even the gimlet-eyed Angwin. In herwith others in the spirit of an actual social circle, epilogue, she writes, “MySpace remains the dominantMySpace wasn’t nearly as picky. People could use fake social networking website.… Facebook is just half theidentities or try out alternative personalities. Emerging size.” But those were last year’s numbers. In May 2009,rock bands or wannabe celebrities were welcome to MySpace’s problems became sufficiently dire forsolicit and link to massive numbers of “friends.” A soft- Murdoch to fire DeWolfe and shuffle Anderson off toporn model named Tila Tequila garnered 1.7 million a quiet office. The new CEO is Owen Van Natta, for- 34MySpace friends. merly an executive at Facebook. Angwin deftly describes how as MySpace grew, There is a bigger picture behind the phenomenonDeWolfe and Anderson became more committed to its that drew millions to MySpace: the shift that suddenlymission. But they found themselves fighting the fast- opened a new channel of communication, part personalbuck mentality of its parent company. MySpace had and part broadcasting. Because it is as easy for friends tobecome eUniverse’s most valuable property. The tale share copyrighted digital files as it is to tweet their activ- best books 2009 technologytakes on Shakespearean tones when eUniverse’s CEO, ities, the Net is also a disruptive (to say the least) distri-a golden-tongued businessman named Richard bution system. Cheap, or free, software tools allow peo-Rosenblatt, enters negotiations to sell the company to ple to add their own creative spin to existing books, The idea for MySpace, Julia Angwin writes, sprang from two “cubicle-dwelling marketing executives with no technical prowess or revolutionary ideas.”Rupert Murdoch’s News Corporation without the movies, and songs — though the activity is currentlyknowledge of DeWolfe and Anderson. Another suitor illegal. But when a technological reset dramatically alterswas Viacom, and followers of the long-running war the landscape, shouldn’t legal boundaries be altered asof media behemoths will savor the competition between well? And if so, which ones? And how?Murdoch and archrival Sumner Redstone, CEO of These are complicated questions, and no one hasViacom. (Bottom line: Murdoch’s trust in his executives deconstructed them more vividly than law professorallowed News Corporation to move nimbly, while Lawrence Lessig. (See “Lawrence Lessig: The Thoughtthe paranoid Redstone fumbled the deal by second- Leader Interview,” by Lawrence M. Fisher, s+b, Secondguessing his underlings — and then blamed them for Quarter 2002.) Over the past decade, Lessig has beenlosing the prize.) writing what may now be seen as a multivolume work on True to Rosenblatt’s promise, MySpace got Rupert how the Web interacts — and often clashes — with theMurdoch on the cover of Wired. And a US$900 million law. (His pioneering role in the field has earned him thead deal with Google seemed to make Murdoch’s $580 sobriquet “the Elvis of cyberlaw.”) Taken as a whole,million purchase price a bargain. But DeWolfe and Lessig’s body of work is sort of a digital War and Peace, aAnderson — who were shut out of the Google negotia- mix of gleeful optimism at the new creative opportunitiestions — still found themselves struggling to control the technology provides and grim hand-wringing at howtheir creation, this time squabbling with Murdoch’s entrenched forces can stifle those prospects with restrictiveminions. All this was a distraction from the surprisingly regulations and software. The latest tome is Remix:strong challenge from Facebook — the threat that Making Art and Commerce Thrive in the Hybrid Economy.MySpace’s founders tried to shrug off during our lunch. Make no mistake, Lessig is an advocate. He tilts his(Angwin recounts something else DeWolfe and lance at the entrenched forces that have fortified andAnderson didn’t mention during our meal — that extended the laws of copyright. The Recording Industry
09 Association of America probably considers him a bigger we were toward the culture around us. We can only threat than peer-to-peer file-sharing programs like make them ‘pirates.’” Even when the law doesn’t prohib- LimeWire. Lessig has even abandoned his armchair to it remixing (such as under fair use provisions), some BEST found an organization, Creative Commons, that allows copyright holders have installed digital locks on their artists to register their work in a way that circumvents works to deny even legal reuse of the material. the restrictive default copyright status, allowing more Having established these points in the first half of freedom to those who would share the works or include Remix, Lessig tries something more ambitious in the sec- portions of them in their own creations. But he also bris- ond part of the book: laying the groundwork for an tles at attempts to make him into a radical who wants to entirely new copyright system through which artists and eliminate copyright entirely. businesses might make money in an era of thriving, and In Remix, Lessig draws a sweeping picture of the legal, RW culture. Although not necessarily convincing,35 rise, fall, and budding revival of participatory culture. his arguments are fascinating. He starts with the 19th century; before radio and Lessig delineates two current economies on the phonographs, people actually made their own music! Internet: a traditional commercial one in which the (John Philip Sousa, Lessig tells us, argued for copyright dominant form of exchange is money, and a “sharing protection, but also worried that the advent of “infernal economy,” in which labor and goods are traded for love, BOOKS machines” would mean the end of altruism, patriotism, the fun of par-best books 2009 technology the amateur music maker.) Lessig ticipation...anything, it seems, but describes that participatory process as money. Amazon belongs to the first “read write” (RW) culture. During economy, and Wikipedia is a prime the 20th century, however, popular example of the second. Lessig envi- media such as radio, vinyl recording sions the emergence of “an increas- disks, and movies generated an over- ingly important third economy: one whelming bias toward “read only” that builds upon both the sharing (RO) culture, where highly commer- and commercial economies, one cialized information, art, and enter- that adds value to each. This third tainment was delivered to passive type — the hybrid — will dominate listeners and viewers who had little the architecture for commerce on ability — and less inclination — to the Web…. The hybrid is either a create their own work. commercial entity that aims to In the 21st century, the era of leverage value from a sharing econo- digital files and the Internet, it’s my, or it is a sharing economy that much easier for amateurs to tweak existing works, mix builds a commercial entity to better support its sharing them into new creations, or hatch new work. And for aims. Either way, the hybrid links two simpler, or purer, the first time, instant global distribution is accessible to economies, and produces something from the link.” all. (With a $200 Flip video camera and YouTube, mil- In other words, the Third Way is definitely for-prof- lions have the power that only a few decades ago was it but not rapaciously so, and such businesses are synced reserved for a very few broadcasters.) As you would to the sharing spirit of the Web. It sounds terrific, but expect, we’re seeing a triumphant return to RW culture, the examples Lessig gives aren’t exactly overwhelming. and Lessig trots out a number of examples, including a There’s Red Hat, the company promoting the open Pittsburgh medical technician who mines hundreds of source Linux (struggling in recent years). He also cites songs to create avant-garde remixes (called mash-ups) Flickr, a photo-sharing site (now owned by Yahoo) that and communities making Star Wars sequels with Lego takes in revenues from premium memberships. He talks blocks. about Craigslist, a service that was firmly planted in the strategy + business issue 57 Unfortunately, says Lessig, our current laws regard sharing economy but is still struggling to figure out how the creation of such works as a criminal act. The situa- far it wants to venture into the commercial realm. tion is not only repressive, it’s ludicrous, according to (Oddly, Lessig doesn’t dwell on the examples of social Lessig, who argues, “We can’t networking sites like Facebook or MySpace, which make our kids passive in the way appear to fit his hybrid prototype, with their for-profit
exploitation of user content.) Lessig returns to firmer ground in his conclusions,where once again he urges a rethinking of copyright BEST history of blogging by way of the BOOKS rytellers, constructing his brief 09 bloggers themselves. He does this so well that it appearslaws. His closing argument, while spirited, has an elegiac almost serendipitous that each aspect of his subject istone. After four books attacking copyright laws, Lessig is almost perfectly embodied by the story of one or twoon to his next crusade — fighting the influence of cam- individuals. To illustrate how blogging provides a mega-paign money on legislators. Throughout the copyright phone to one’s personal life, we meet Justin Hall, a nudi-controversy, Lessig’s arguments have ultimately rested on ty-loving college student whose compulsive candorcommon sense and logic. As far as legislators are con- made him a harbinger of the reckless sharing that wouldcerned, both of these are almost always trumped by spe- follow on blogs and social networks. And to show howcial interest money. Case in point: a copyright regimen a blog can make an impact on a professional commu- 36that has criminalized an entire generation. nity, there is Dave Winer. A well-known software devel- One of the most prominent examples of 21st- oper who helped create some of the technology behindcentury RW culture owes less to remixing than to sim- blogging, Winer became captivated by the ultimateple expression. That would be blogging. This doesn’t soapbox, leading him to a series of endless feuds and asurprise Scott Rosenberg, a former newspaper writer basic truth: “As long as the voice of a person comesturned online journalist and blogger. “Commu- through, it’s a weblog.” best books 2009 technologynication,” he writes in Say Everything: How Blogging Blogging also turns out to be an excellent lens forBegan, What It’s Becoming, and Why It Matters, “was not viewing some of the commercial dilemmas of thesome bell or whistle. It was the whole point of the Web, the Internet age. (Maybe blog networks will provide somedefining trait of the new medium — like motion in examples of that elusive hybrid economy that Lessigmovies, or sound in radio, or narrow columns of text in envisions.) Rosenberg is particularly vivid in talkingnewspapers.” (Emphasis author’s.) But although blog- about the commercialization of blogs by entrepreneursging in one sense seems a fairly predictable outgrowth of like Nick Denton, who pays journalists by the post toa medium that allows instant publication to a global write the snarky contents of Gawker, Wonkette, andaudience, the path toward ubiquity is more colorful Valleywag, and Jason Calacanis, who lured awaythan one might expect. And despite all the attention Denton’s talent and made a bundle selling his blog net-paid to blogging, in Rosenberg’s hands, the implications work to AOL. Clearly, the essence of blogging — theturn out to be more profound than most people, even authenticity that arises from directly addressing thebloggers, have recognized to date. audience in one’s own, unedited voice — can be a pow- Say Everything is not only a delightful history of the erful marketing force (even if you’re creating a hothouseform but a surprisingly broad account that touches on a form of authenticity by dressing up traditional modelsnumber of major issues of the past decade, quietly mak- in edgier blog attire).ing a case that blogs now play an indispensable role. This Rosenberg is a mensch, resisting cheap shots evenfor a format that was once (and in many quarters, still when his subjects behave badly. But he is quick to punc-is) dismissed as the time-wasting, unreliable, and often ture pretense, whether it comes from the self-antisocial rantings of “guys in pajamas.” The book importance of bloggers suddenly thrust into the publicbegins with descriptions of how blogging provided some eye, or the snobbery of mainstream media dismissingof the best, and certainly the timeliest, accounts of the citizen postings because their authors lack the trainingSeptember 11, 2001, attacks. We revisit the role blogging or credentials to participate in a national discussion. Asplayed in unseating a senator, dislodging an anchorman, one would expect, he is at his best in the inevitable chap-and giving a face to the Iraqi population in the days ter “Journalists vs. Bloggers,” in which he sympatheti-before the U.S. invasion began. In every case, the digital cally regards the defensiveness of mainstream mediasoapbox provided by a blog empowered an unheralded while building a strong case that blogging is an essentialcitizen (or group of citizens) to affect the world. Bloggers part of the journalistic ecosystem. As proof, he notesmay not have elected the current U.S. president, but that many of the harshest criticisms of blogs from mem-every candidate in the 2008 election certainly regarded bers of the mainstream media come in the form of blogbloggers as a constituency to be taken seriously. postings hosted by the authors’ publications. Rosenberg’s approach is to tell the stories of the sto- Rosenberg does engage in some last-minute scram-
book of the year. + Steven Levy (firstname.lastname@example.org) is senior writer at Wired magazine and previously was senior editor and chief technology correspondent at Newsweek. His most recent book is The Perfect bling to accommodate the more recent rumblings that allegedly endangered form: the book. Only by such the era of the blog is passing, rendered moot by the an extended and well-organized presentation can (Simon & Schuster, 2006). shorter, more insistent postings on Twitter. But he’s got Rosenberg both give us a comprehensive account of Richard Reeves, John Stuart T.J. Stiles, The First Tycoon: Alice Schroeder, The the numbers to prove that although some of the buzz is blogging and successfully argue for its importance. The Mill: Victorian Firebrand The Epic Life of Cornelius Snowball: Warren Buffett and gone from blogging, more people than ever are actually pages of Say Everything provide not only an expertly (Overlook, 2008) Vanderbilt (Knopf, 2009) the Business of Life (Bantam, doing it. And, he writes, this is a very good thing: curated burst of information, but also entertainment for 2008) several evenings. The book provides thought and provo- Hostile observers have always painted bloggers cation. It illuminates the deep economic challenges of as barbarians thronging before the gates of a the Internet. And, as is the case with blog postings, besieged culture…. But it has always been a Rosenberg speaks with the clarity and wit of an authen- fantasy. Bloggers are writers who sit down to tic voice — even after the highly filtered, far-from-real-37 type character after character, word upon word, time processing of a major publisher. That’s why I think day by day, steadily constructing, out of their Say Everything is the best technology-related business fragments, little edifices of memory and public record. In this activity they resemble not the hordes outside the gates of a city, but rather the studious scribes within.best books 2009 biography Ironically, Rosenberg’s extended encomium of blog- Thing: How the iPod Shuffles Commerce, Culture, and Coolness ging also turns out to be an implicit defense of another Unconventional Lives by James O’Toole HIS YEAR ’ S BEST BUSINESS BIOGRAPHIES — T volumes on the lives of John Stuart Mill, Cornelius Vanderbilt, and Warren Buffett — weigh in at a hefty eight and a half pounds, in toto. strategy + business issue 57 Fortunately, the varied and numerous rewards that read- ers will find in these three engaging books more than compensate for the risk of hernia and the obvious toll on the eyes of poring over 2,295 densely printed pages. Each of these biographies is meticulously researched,
basically the coauthor of, some BOOKS BEST 09Champion of Libertymasterfully written, and replete with insights relevant not only his inspiration for, butto the lives of contemporary businesspeople. Becauseeach book delights in a different way, the judgment of of his most important works. Reeves documents howwhich of the three is best depends more on the reader she greatly influenced the conclusions in Mill’s multivol-than this reviewer. ume Political Economy, often cited as the 19th century’s leading work on the subject, and in the classic On Liberty, the book on which his lasting reputation isMy personal preference among the three is British jour- based. Without a doubt, Harriet disabused Mill of hisnalist Richard Reeves’s critical biography, John Stuart beliefs in doctrinaire utilitarianism: He would hence-Mill: Victorian Firebrand. Mill (1806–1873) was a true forth add a touch of poetry to Bentham’s mathematics.polymath — political economist, philosopher, polemi- Mill was, and still is, known as the “champion of 38cist, parliamentarian, and a prime mover in the 19th- liberty.” His “harm principle” is commonly used tocentury reform movement that transformed Britain define the proper limit of governmental authority overfrom an aristocracy into a modern liberal democracy. the individual: “The only purpose for which power can Homeschooled by his father, noted scholar James be rightfully exercised over any member of a civilisedMill (with an occasional assist from Mill family benefac- community, against his will, is to prevent harm to oth-tor Jeremy Bentham), the young ers. His own good, either physical or best books 2009 biographyMill mastered Latin at age 6 and moral, is not a sufficient warrant.”Greek two years later, and was writ- He applied this principle to count-ing a treatise on political economy less controversial domestic issues,by his 12th year. Philosopher Isaiah including state control of prostitu-Berlin deemed Mill’s education “an tion, gambling, and the sale of alco-appalling success.” Indeed, years of hol. His conclusion will resonatenothing but study, coupled with im- with contemporary libertarians: Anymersion in Bentham’s coldly rational activity should be legal to the extent itutilitarian philosophy (in which hap- doesn’t harm others. (He also appliedpiness is reckoned by a “felicity his principles to foreign policy, rea-calculus”), turned Mill into the soning that a country has a duty toheartless thinking machine dubbed try to prevent a powerful nation“Arithmetic Mill” by Thomas from attacking a weak neighbor but,Carlyle. Eventually, a childhood and conversely, no nation has the right toadolescence of all work and no play intervene in the domestic affairs ofexacted a heavy toll on Mill: In his 20s, he suffered what another, even if the intent is to rid that country of ahe termed a severe “crisis,” or psychological breakdown. tyrannical leader.) What finally snapped him out of it was love, sweet Unlike modern libertarians, Mill believed the primelove. Mill fell madly, adoringly, and enduringly in love threat to freedom in a democratic country is not thewith Harriet Taylor, who would become his lifelong soul nanny state but what he called the “despotism of soci-mate and collaborator. Unfortunately, there was also a ety.” He argued that in countries like Britain and theMr. Taylor, whose existence would ordinarily have con- U.S. the tyranny of the majority and the intolerance ofstituted a formidable obstacle in Victorian England, powerful religious and ideological minorities constitutewhere divorces were rare and extramarital affairs were the real threats to individual liberty. For example, byviewed as several degrees worse than scandalous. Un- questioning the patriotism of dissenters, vocal minori-daunted, Mill and the Taylors entered into a kind of ties can effectively kill off healthy discussion of policyménage à trois in which she had, in effect, two husbands. alternatives. Because Mill believed that no one is everTaylor would retreat to his gentleman’s club when Mill either all right or all wrong, he saw the function of lib-visited. Things went on that way for two decades until erty as guaranteeing that all perspectives could be airedJohn Taylor died, thus clearing the way for a happily- so that the inevitable shortcomings of any policy wereever-after marriage between the persistent lovebirds. more likely to be identified. Mill controversially claimed that Harriet Taylor was What most distinguishes Mill from other great
09 minds of his time is that, in hindsight, he turns out to that prevented those who wished to do so from develop- have been on the right side of history with respect to ing their character to the fullest. At the same time, Mill almost every significant issue he addressed. He was a balanced his libertarianism with an equal measure of BEST forceful advocate of free markets and private business communitarian responsibility. He believed that we are ownership (at the same time that Karl Marx was reach- not isolated islands unto ourselves but, instead, mem- ing quite the opposite conclusions). Mill’s favorite cause bers of moral communities. For example, to build char- was universal, compulsory education, and he was the acter among the working classes, he believed that estab- first to advocate a school financing system that we lished companies ultimately should be owned by their would call vouchers. He was a leader of the anti-slavery employees (he advocated that a financing system similar movement and one of the most vocal British advocates to today’s employee stock ownership plans be put in of the Union cause during the American Civil War. He place after the deaths of founding entrepreneurs). He39 fought for free speech and the right of assembly reasoned that workers who were also owners would (Speakers’ Corner in London’s Hyde Park is his lasting behave more responsibly and productively than if they legacy). He was an early environmentalist, calling for a were mere hired hands, to the benefit of society and the tax on coal to reduce its consumption and for accessible economy. They would have the opportunity to grow as green spaces. He advocated birth control, fought for responsible individuals and, as a fillip, the inequities of BOOKS Irish home rule, sought a ban on smoking in public capitalism (which led Marx to call for revolution) wouldbest books 2009 biography places, and legislated to prevent fraud in voting. Most be addressed through peaceful reform as every man and The Original Robber Baron significantly, he worked ceaselessly to expand the right woman became a capitalist. to vote to the British middle and working classes — and Mill loved entrepreneurs, those independent and not just to those of the male persuasion. unconventional sorts who defied the tyranny of custom Not surprisingly, almost all of Mill’s views were through experimentation and innovation. Because he unpopular among the landed aristocrats who dominat- saw them as the drivers of social and economic progress, ed British politics at the time, but none of his causes he did not want to hamper their motivation by taxing irked them more than his ceaseless advocacy of the rights their income. By the same token, he disapproved of of women. If British feminism can be said to have had those who lived on “unearned” income, namely the idle many mothers (foremost of whom was Harriet Taylor), inheritors of great wealth. In his view, trust fund babies it had only one father: J.S. Mill. His uncompromising were unproductive members of society who had no stand that women were entitled to full equality in polit- incentive to improve their character. He thus advocated ical affairs, in workplaces, and in the home was viewed high inheritance taxes as the fairest, and least economi- as dangerously extremist in an era when women were cally inefficient, means of generating state revenue. denied the right to vote and hold office, could work only Reeves concludes that Mill was the “voice and con- as domestic servants, and were viewed as mere legal science” of the greatest era of progress and wealth cre- wards of their husbands (in most cases, wives couldn’t ation in history. Yet it is nearly impossible to pigeonhole own property in their own names). Mill’s views about him in ideological terms. Was he liberal or conservative, women were the logical extension of his fundamental Democratic Socialist or free marketer? Mill’s admirable philosophical belief that the good life consists of contin- many-sidedness, his belief that no one is ever wholly ual learning and growth. He argued that people develop right or wrong, and his tolerance of those who advocat- character through their habits — for example, through ed the most unpopular of causes made him simply and participating in political, community, and workplace admirably “the champion of liberty.” activities. Because women were manifestly denied the opportunity for such development, he felt they were denied their basic humanity. As portrayed in T.J. Stiles’s The First Tycoon: The Epic Moreover, he believed that everyone should be able Life of Cornelius Vanderbilt (1794–1877), Vanderbilt strategy + business issue 57 to develop that character in whatever manner each saw might, at first blush, appear to be the type of custom- fit. He didn’t believe the state could, or should, make breaking entrepreneur Mill admired. A self-made man people happy; instead, he argued that the proper role of without formal education, Vanderbilt was universally government was to free people afforded the high naval title “commodore” because of from the involuntary constraints the great steamship line he created from scratch (starting
with the single sailboat that he skippered himself to ferrypassengers between Staten Island and Manhattan). Inthe process, he transformed shipping through consolida- internal corporate records to BOOKS willies). Similarly, he draws on BEST 09 document exactly when, why, and how this or that cor-tion and price cutting, creating a modern industry in porate takeover (or bankruptcy) occurred. As history,which his giant ships dominated the lucrative North this is great stuff.Atlantic route and transported men from New York to Where the book doesn’t quite work is in regard towork in the goldfields of California in the 1850s. Vanderbilt the man. In my reading, he is an imperfect As the Civil War drew to a close and Vanderbilt instrument for the complex tune Stiles wishes him toentered the eighth decade of his life, he daringly sold all play. The Commodore, for all his wealth and power, washis ships to concentrate his efforts on the emerging rail- a rather one-dimensional character. Doubtless, he was aroad industry. In a spectacular second act, Vanderbilt financial genius, and one of the first to understand how 40transformed the railway business as thoroughly as he the game of publicly trading corporate shares could behad transformed shipping. In a short span of time, he made to work in favor of investors (he was the first toconsolidated numerous small trunk lines competing for “corner the market” for a major stock). That said, hadbusiness between Chicago and New York into one the book focused solely on the life of Vanderbilt, itmammoth, integrated network that would become the would have been repetitious at 200 pages. Thus, whatNew York Central Railroad. we get is a paragraph or two about best books 2009 biography When he died, Stiles says, the man, followed by long, fascinat-Vanderbilt was probably the richest ing asides on the culture, politics, orman in the U.S., with a fortune that economy of his time. Occasionallyrepresented US$1 out of every $20 we lose sight of Vanderbilt altogeth-in circulation in the country, includ- er, which isn’t necessarily a bad thinging cash and demand deposits (to because the historical context Stilesput that in perspective, Bill Gates’s describes is usually more interestingwealth in 2008 represented $1 out of than the life of the man.every $138). But Stiles has much Vanderbilt was a ruthless com-more in mind in this weighty tome petitor: opportunistic, aggressive,than simply documenting the rise of greedy, egotistic, monomaniacal, andone fabulously wealthy man. The vindictive. He believed in winning atreal subject of his book is the trans- all costs, and some of the methods heformation of the U.S. economy from employed — for example, stock-the solo-owner, small-scale capital- price manipulation — were unethi-ism of the 18th century to the modern age of giant, pub- cal even by the lax standards of his era and would belicly held corporations. To make that potentially arid outright illegal today. He was a hypocrite to boot, a pro-topic appealing, Stiles casts Vanderbilt as the personifi- fessed anti-monopolist who sought to create legalcation of that historical shift, beginning his career as the monopolies. Notwithstanding those manifest faults,sole owner of a business in a simple industry character- Stiles bends over backward to offer a balanced portrait,ized by many small competitors and ending it as the trying to get us to at least respect his protagonist, even ifmajor investor in a huge company that, for all intents we can’t like him. The main line of defense is that, for alland purposes, is a monopoly. his faults, Vanderbilt lived by “a strict code of honor in The book succeeds brilliantly as a history of the rise business.” In fact, he does seem to have been as “good asof American corporate capitalism. Stiles has great com- his word” — invariably a point of pride with even themand of the ins and outs of national economics and cor- most patently unethical entrepreneurs. Perhaps there isporate finance. He explains in clear language and honor among thieves, but that doesn’t make thievesauthoritative detail just how the U.S. came to have honorable.a national currency of “greenbacks,” and what caused Although Vanderbilt was the first to earn the sobri-the panic of 1873 and the decade-long depression that quet “robber baron,” he was not the least admirable ofensued (conditions in that sorry era sound enough the group. That distinction goes to his archenemies,like our current economic crisis to give a reader the James Fisk and Jay Gould, owners of the Erie Railway,
09 The Oracle of Omaha who had the pleasure of being among the few of ments in the hands of his eldest son in hopes that the Vanderbilt’s competitors ever to best him in a deal. In Vanderbilts would carry on for generations like the aris- one tricky maneuver described by Stiles, tocratic Astors and Schuylers. He should have read Mill. BEST Within two generations, his ne’er-do-well descendants [Fisk and Gould] secretly purchased some six had pretty well dissipated the fortune and lost their thousand head of livestock in the West. social standing. His remaining monument is Man- Then. . . they announced they were cutting the hattan’s Grand Central Station, the terminus of his New Erie’s livestock rates to $1 per car. The move York Central Railroad. If you crane your neck, you can forced the [New York] Central to follow suit, as make out his statue way up there over the entrance, star- they knew it would. Shortly afterward, Gould ing out over Park Avenue South. and Fisk boasted to the press that they had41 shipped their livestock over the Central at these absurd rates, reaping a huge profit at the There is no greater contemporary “conjurer in the finan- Commodore’s expense. The Central instantly cial ether” than Warren Buffett, the subject of Alice raised rates to $40 per car. Schroeder’s surprisingly objective biography, The Snowball: Warren Buffett and the Business of Life. The BOOKS Vanderbilt predictably went bal- book is not what I (or, apparently,best books 2009 biography listic, but he didn’t pull back from Buffett) expected from an “ap- competition. Many of his invest- proved” bio written with the full ments turned out to be significant cooperation of the subject. Far from losses, and he took them like “the being an adoring hagiography, this man” he prided himself in being. But is as thorough and honest an he won many more than he lost and, account of Buffett’s life and career as in the end, “proved himself an expert one could ask for. Significantly, at using the stock market to concen- showing Buffett’s warts ultimately trate capital or avenge himself on his serves more to humanize the man enemies.” Alas, there was little else than diminish the mogul. about his life that merits reporting. It is hard to imagine there is Aside from betting on cards and anything new to write about the horses (he helped establish harness eccentric and humble multibillion- racing as a sport), he had no dis- aire who, as we know, drives his own cernible interests. He was an absent, SUV, carries his own luggage, lives perhaps even abusive, husband and father (he had his in the same modest house in Omaha where he has first wife briefly committed to an asylum so he would be resided for decades, works out of an unadorned office free to dally with their servant girl); uninvolved in poli- with minuscule staffing, dresses like an engineering tics (except to lobby both parties in the service of his undergrad, and subsists on a diet of burgers and cherry investments); unmoved by culture (his “only notable Coke. And we all know about his oracular annual letter work of art was a bust of himself”); and lacking in to Berkshire Hathaway shareholders, in which he offers almost any philanthropic inclinations (the exception sage investment advice and commonsense insight into being his funding of Vanderbilt University, which was the arcana of corporate finance, and the related stadium- far less expensive than one might expect). filling shareholder meetings at which he and longtime In Vanderbilt’s own eyes, he was the avatar of the sidekick and business partner Charlie Munger proclaim Jacksonian promise: the hardworking, nearly illiterate on all manner of subjects economical and commercial son of a poor boatman who, by dint of his own efforts, (some 30,000 Berkshire Hathaway stock owners showed strategy + business issue 57 created wealth far in excess of anything produced by up in 2007). the privileged sons of America’s decadent landed gentry. But it turns out we really didn’t know him all that Paradoxically, he then spent the last years of his life try- well. Schroeder offers us a nuanced portrait of a surpris- ing to create his own dynasty, ingly complex and insecure man whose life is full of leaving the bulk of his invest- paradoxes and contradictions, one who somehow com-
bines a career quite similar to Vanderbilt’s with a philos-ophy much like Mill’s. The son of an abusive motherand an ideologically wacko father who represented Iowa tured in “Adam Smith’s” best- BOOKS and fame, thanks to being fea- BEST 09 seller, Supermoney, as not only a genius investor, but anin the U.S. Congress, Buffett grew up socially awkward, honest one too — almost a saint among the demons ofneedy, and nerdy. Immature and maladjusted through- Wall Street.out his prolonged adolescence, he was a chronic pilferer Buffett’s reputation would grow with his wealth. Inof golf balls from the local Sears store. 1987, the value of a Berkshire share had increased 23 His saving grace was that he was a born entrepre- percent per annum for 23 years (an initial investment ofneur. In high school he started a pinball machine busi- $1,000 was worth $1.1 million — there’s that snow-ness and had accumulated on the order of 50 grand ball!). In the process, his name became synonymous(in today’s dollars) by age 16. He drifted until graduate with careful, prudent, and patient investing and with 42school, when he came under the influence of two traits such as openness, integrity, and extreme honesty. ItColumbia University B-school profs, David Dodd and was all about the basics, starting with living by DaleBenjamin Graham, who taught him the virtue of low- Carnegie’s sensible rules for success (“Ask questionsrisk investing, primarily by scrounging for “cigar butts” instead of giving direct orders”) and Buffett’s own home-(obscure stocks trading below the liquidated value of a spun common sense (“Be long-term greedy, not short-company’s assets). He quickly learned how to do the term greedy”). Although his personal expertise was lim- best books 2009 biographyresearch and analysis required to find these gems in the ited to finance, Buffett appreciated the value of strongrough, developing the mind of an actuary in his ability enterprise management and knew great leaders when heto calculate risks and future returns. It was all about the saw them (then he invested in their companies and left Where others saw a dollar today, Warren Buffett saw a hundred in 20 years. Hence his legendary tightfistedness.math of compounding (that’s the “snowball” effect of the them in place to run their businesses without interfer-title). Buffett was quick to appreciate that it is far better ence). He was ahead of his time in calling for independ-in the long term to reinvest than to spend. Where oth- ent boards, the expensing of stock options, and an enders saw a dollar today, he saw a hundred in 20 years. to excessive executive compensation and, especially,Hence his legendary tightfistedness (when a millionaire unconscionable perks. Most famously, he was a constantfriend once asked to borrow a dime for a phone call and critic of Wall Street and often cautioned managers not toBuffett found only a quarter in his pocket, he went look- take expedient actions to satisfy the short-term thinkinging for change). of stock analysts. Buffett developed his own simple formula for what That’s the story we all know — the official line thatto do with a cigar butt once he owned it: Take out all the “media-shy” Buffett turns out to have promulgated andcash and raise prices. That worked well for a while, until carefully managed for decades. But Schroeder shows usit became harder to find undervalued companies. It was another, more complicated and factual, version of thethen that Munger — a charmingly crotchety lawyer — legend that is Buffett, one in sharp contrast to his “aw-stepped in to wean Buffett off bargain hunting and shucks” image.teach him to appreciate the value of “great businesses.” How to explain the dichotomy between Buffett fig-Once Buffett added the art of qualitative assessment to uratively sitting on the front porch with a glass ofhis prodigious quantitative skills, the rest was history. lemonade, telling folksy stories and teaching throughBuffett and Munger’s holding company, Berkshire homilies, and his long history of sophisticated businessHathaway, would become a major shareholder or out- feats? What was he doing as interim chairman of anright owner of companies with such perennially strong investment bank while talking and writing about Wallbrands as Coca-Cola, Fruit of the Loom, Geico, Gillette, Street as a gang of con men, sharpies, and cheats?and See’s. By 1974, Buffett was on his way to fortune As a major investor in and a board member at
09 Salomon Brothers, Buffett was the logical choice to step petitive in the extreme, sure of himself in business mat- in to chair that firm in the early 1990s when the head of ters to the point of arrogance, and fixated on money- its government bond business was caught making illegal making. Both were mavericks in their business dealings, BEST trades that netted about $4 million in profits. That act often willing to swim against the tide of conventional would cost Salomon some $800 million in “lost busi- investment wisdom. (Buffett has said, “You can’t do well ness, fines, penalties and legal fees.” The episode nearly in investing unless you think independently.”) Other led to Salomon’s demise as its reputation was blown to similarities are striking: Both men were incapable of smithereens. In great detail, Schroeder documents how expressing emotion to their wives and children, and Buffett’s actions — most notably his willingness to cap- both habitually retreated behind a hand of cards to com- italize on his own reputation for integrity — saved the pensate for being socially maladroit. firm. In the process, she also shows that he was no naive But there is also a crucial difference: Unlike the43 outsider in the investment industry but, instead, one of Commodore, the Oracle has a sense of humor about its shrewdest players. And the contradictions continue: himself and understands his own limitations. Buffett have approved. + More recently, he was a vocal critic of the derivatives truly seems to appreciate that good luck was a major fac- game, in 2003 calling them “financial weapons of mass tor in his success. Although he is proud of the fact that destruction.” Later, it turned out that companies in his he has worked hard for what he has rightly earned — BOOKS own portfolio were major players in derivatives markets. Munger calls him a “learning machine” — Buffett isbest books 2009 biography (And, in 2008, he spectacularly became one of the quick to point out that he also was a winner in “the ovar- largest investors in Goldman Sachs, arguably the master ian lottery.” He notes that had he been born the son of of the derivatives game. In hindsight this investment an Alabama sharecropper or in an underdeveloped appears to be so potentially lucrative that it may offset nation, he doubtless would not have become one of the his recent heavy losses in the Great Recession.) richest people on the planet. Hence, he has adopted a It is when explaining derivatives and other technical Millian philosophy of political economy, believing that issues, such as the shortcomings of the “efficient-market the “ideal was a world in which winners were free to hypothesis,” that Schroeder shines as a writer. A former strive, but narrowed the gap by helping the losers.” His staffer at the Financial Accounting Standards Board, she belief in meritocracy, coupled with his sense that win- Reprint No. 09407 displays profound financial expertise and the ability to ner-take-all capitalism is unjust, has led him to take a James O’Toole (email@example.com) is the Daniels Distinguished employ that knowledge to clarify and simplify complex principled, vocal stand against the repeal of the estate tax Professor of Business Ethics at the University of Denver’s Daniels concepts for the benefit of readers. She is also good at (“I am not an enthusiast for dynastic wealth”). In this College of Business and coauthor, with Warren Bennis and Daniel explicating the many contradictions in Buffett’s person- regard, at least, his words have matched his deeds: He Goleman, of Transparency: How Leaders Create a Culture of al life. For example, while he keeps his modest house in has insisted that his own children largely make their own Candor (Jossey-Bass, 2008). Omaha and hangs out at the local diner, he has hob- way in the world. And the philanthropic act that has nobbed throughout most of his adult life with the rich- capped his unconventional career is indicative of virtu- est and most powerful people in America. He has been ous character: Instead of funding monuments to him- a jet-setter par excellence (with his own jet), most often self, he has chosen to give the bulk of his vast fortune to in the company of his closest friend (and, possibly, the Bill & Melinda Gates Foundation, with the proviso more), Katharine Graham, the now-deceased publisher that the entire sum be spent quickly on the major social of the Washington Post and one of the nation’s leading problems that his friends and protégés the Gateses have socialites and power brokers. And it wasn’t his wife who targeted for aid. Buffett came to the honest and humble was in that ol’ house. For decades, he had a most uncon- conclusion that the couple were far more skilled philan- ventional marital relationship with, in effect, two wives: thropists than he would ever be. Doubtless, Mill would Susie, the one he was legally married to, living in San Francisco and seeing him regularly, and the other, Astrid, Susie’s good friend, living at the Omaha house. strategy + business issue 57 After Susie’s death, he married Astrid. Shades of Harriet and John (and John)! Buffett’s life and career actually resemble Vanderbilt’s: Each man was an eccentric stock speculator, com-
David Wessel, In Fed Geoff Colvin, The UpsideWe Trust: Ben Bernanke’s of the Downturn: TenWar on the Great Panic Management Strategies(Crown Business, 2009) to Prevail in the Recession and Thrive in the Aftermath (Portfolio, 2009)Kenneth Hopper and John Gerzema and EdWilliam Hopper, Lebar, The Brand Bubble:The Puritan Gift: The Looming CrisisReclaiming the American in Brand Value and HowDream amidst Global to Avoid ItFinancial Chaos (Jossey-Bass, 2008)(revised ed.,I.B.Tauris,2009) 44Mark Blaxill and Ralph Scott Rosenberg,Eckardt, The Invisible Say Everything: HowEdge: Taking Your Blogging Began, WhatStrategy to the Next It’s Becoming, andLevel Using Intellectual Why It MattersTH M E ELTDOWN M AGEM T AN ENProperty (Crown, 2009) best books 2009 s+b’s top shelf(Portfolio, 2009)Ben Simpfendorfer, Richard Reeves, JohnThe New Silk Road: Stuart Mill: VictorianHow a Rising Arab World FirebrandIs Turning Away from (Overlook, 2008)the West andLEADER I P SH M K AR ETI NGRediscovering China(Palgrave Macmillan, 2009)STRATEGY TECH OLOGY NGLOBALI ZATI ON BI OGRAPHY