Roger Martin reinvents the finance system

What makes a the Dean of an MBA school effective? Personally, I appreciate Roger Martin, Rotman, because he puts his opinions down on paper and we benefit from his books but he also participates in public debates.
Here he is with Ed Clark of TD Bank and Arianna Huffington on a panel with The Economist and their video series on the financial markets. Arianna does not agree with Roger Martin's thesis that the system needs regular tweaking just like the NFA. As I am a Director on the board of the Exempt Market Dealers Association, I do agree with Roger Martin. Making changes in the finance industry takes a great deal of time to get through the system and encouraging incremental changes in the rules is good. The danger is that this tweaking will morph into an ever thickening rule book. I am in the private equity industry and as an example of the foolishness of government and regulatory rules, my small office must submit Anti-Terrorist reports every few months as part of our compliance. It is the over-zealous rule book making we all fear.
The comments by Ed Clark also make the video well worth watching, particularly where he answers the question, "Banks are hated by the public - do you think that view is valid?"
http://bcove.me/9g98h0j9

Why do entrepreneurs drop out of school?

A list of top entrepreneurs will reveal that many do not stay in university for very long. What is it that makes them less likely to follow the usual path?
A study of 5,000 business innovators, described in the recent book The Innovator's DNA by Hal Gregersen, Jeff Dyer, and Clayton Christensen, identifies five mental habits that characterize how successful entrepreneurs operate:

1. questioning, 
2. experimenting, 
3. observing, 
4. associating (that is, making connections among disparate ideas), and 
5. networking. 

It is clear that curiosity is at the heart of these mental habits—the desire to find out more about something that one finds interesting, to tinker with it, and to forge something new from ways that have grown stale. Curiosity is fueled by a passion to explore the world.

What did Jobs himself have to say about the genesis of his amazing career? He shed light on this question during his 2005 Stanford commencement address.

Jobs recounted the story of his brief college experience: at seventeen years old, he enrolled in college and then dropped out six months later. He recalled that "I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure that out." Yet he did not disappear entirely from the college scene. He stayed in town, sleeping on friends’ floors and dropping into some college classes that he found interesting. First and foremost among these was a calligraphy class.

This is the part I like in particular as Jobs dos the terrible act of dropping out but then gets to experiment with learning because he is just curious. I often wondered what Bill Gates thought of Steve Jobs' speech when he talks about Microsoft's copying ways.

"Because I had dropped out and didn't have to take normal classes," Jobs recalled, "I decided to take a calligraphy class...I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes typography great. It was beautiful, historical, artistically subtle…and I found it fascinating." At the time, he thought that his interest was just in fun, without "even a hope of any practical application in my life." But it turned out differently, with world-transforming consequences. "When we were designing the first Macintosh computer, [what I learned in that class] all came back to me. And we designed it all into the Mac." He added that, since Windows copied the Mac, it's likely that no personal computer would have the elegant typography that they all now share if Jobs had not dropped in on that college calligraphy class during his free time of intellectual soul-searching. "Much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on."

 Three points from Jobs' commencement address are noteworthy for an understanding of youth entrepreneurship and how it is fostered. First, consistent with evidence presented in studies such as The Innovator's DNA, a principal factor in entrepreneurial achievement is persistent curiosity. Second, many young entrepreneurs are unable to satisfy their curiosity in the context of today's schools and colleges, so they drop out. This has been the response of not just Steve Jobs, but of founders of Microsoft, Facebook, and a host of other contemporary business icons. Third, there is a vast store of useful knowledge available in our academic heritage that can prove invaluable for entrepreneurs who learn it. Jobs found useful ideas in calligraphy; others have found useful ideas in science, engineering, economics, history, art, music, psychology, ancient Egyptian studies, and the list goes on.

Putting these three points together leads to an inescapable conclusion about educational priorities today: They are poorly suited for cultivating the entrepreneurial genius that lies nascent in many young people today. At the K-12 level, amid the frantic pressures to raise student test scores on basic (and usually remedial) skills, stimulating curiosity is barely on the classroom radar screen these days. Many of the subjects that could evoke interest among all of the students who find memorizing basic skills dreary—subjects such as art, music, theater, or emerging media technology—have been squeezed out of the curriculum by budget reallocations intended to make room for yet more instruction in remedial skills. The intention has been to equip students with abilities that can make them "employable."

The Need For Stable Financial Partners

Businesses beneath the $100M revenue mark and who have narrow EBITDAs, below $5M, will be struggling to find banks willing to lend to them over the next year.
After all, if you had one million dollars and you could lend it out, but at such a low rate of return, would you? That is the question banks are asking themselves. Why would they lend to SMEs who do not have the fat in their systems to take more bumps from Europe and American business news? That risk is just not worth the razor thin profits to made from SMEs below $100M.
Yet, unwittingly, banks are allowing direct competitors to flourish in this Scrooge environment because into this risk category steps Private Equity.
Banks are leaving an enormous gap for those who can take the higher risk and who will be more expensive money if the business owner just looks at the interest rate. The Private Equity firms still alive are tough and are flourishing in this hard economy because they are stepping up to invest in business owners and their companies, even if there is risk. They also get in and help grow the EBITDA.
Private equity partners will be there for business owners who realize that they can grow more with more capital and with smart partners at the Board room table. Here is a WSJ story on Private Equity taking over the bank's usual territory - small business. We will be seeing much more of this.

Private equity-backed bank holding company SKBHC Holdings continues to take advantage of the shaky environment for small community banks, picking up Seattle’s Viking Bank. Viking had assets of roughly $400 million and assets of $379 million as of June 30. read more.

Women Want Leadership Courses

Women in business seem to be finally dropping their requirement for women based courses at the MBA level of business education. Over the past two decades, there has been a rush of women clubs, women networking groups and even made for women university courses. Here is an intersting article on the European MBA school IMD leading the way by changing their course titles, dropping the gender differential. Who asked for the change in title - the women on the MBA courses who have already jumped the required hurdles to get to the top. They have achieved it on their own and know it is a tough world where men and women need to compete aggressively. IMD changed the name of its course to Strategies for Leadership from Strategic Leadership for Women. Participants did not like the [original] name of the program, says Prof Toegel.





Read the full article here http://www.ft.com/cms/s/2/e2ba5f0a-d947-11e0-884e-00144feabdc0.html#ixzz1XkIzJnwC

I am not against all business, just big business

An anti-business, anti-capitalism, view is popular with the young people today, despite their good fortune to be born into such a wealthy society. It seems to be forgotten how our wealth developed by individuals with a dream. The business owners take out mortgages and risk everything, including their marraiges, to create something of value. They pay the salaries and taxes that then pay government officials and for government programs. This rise of Western capitalism, even embraced by China and India, has uplifted the living standards of so many yet the current US government labels all business owners as one category of business leadership. 
I agree that there are flaws that this recession has laid bare, but I disagree vehemently that business owners of private companies can be compared with public companies.
The media, school teachers, university professors, political experts and those denouncing business would gain credibility if they distinguished between corporations, which may be public and have professionally paid CEOs, and owner operated corporations, which are run by the original founder or family.  
My uncle was one of the leaders of The Royal Bank of Scotland back in the 90's, just as bankers stopped being bankers and became corporate finance experts, and he talks about one of his top issues with this distinction between big and middle business. 
The salaries and benefits of Directors in public companies are disgusting. This needs to be said a hundred times.
These corporate CEOs, paid to lead, do not take the same risk as owner operated business because they get obscene salaries and benefits even if (and when) they fail. Mid sized business owners often lose everything, their house, their wife. 
Here is my dear uncle:

I am not against all business, per se, but only big business. I noticed today in an article in the Independent that the average Pension Pot for FTSE 100 Directors had risen in less than a decade to £84 million, nearly 600 times the average retirement fund for five ordinary workers! These are the same people who have been closing down Final Salary Related Pension Schemes for their staff on the grounds that they are simply unaffordable! Small businesses, on the other hand, are finding it difficult to obtain necessary support from the Banks, who are amongst the worst culprits in the Obscene Rewards League.

What Big Government Does Not Reveal

The expansion of government is easy for politicians and means announcements of programs can be made to the media, like mother bird dropping bits of regurgitated worms into the mouths of eager baby birds. 

Another issue my uncle speaks about is the image of Scotland as a Quebec of Canada, keen for a dying culture while taking in more from London government than paying out in tax revenues. When there was North Sea oil, the revenues were taken to London and not saved for future generations in the form of a sovereign fund similar to Finland. 

Here is my uncle again:

As I said earlier, there is a great deal of comment in the press about the pros and cons of Scottish independence, with varying statistics being thrown around to "prove" opinions. Statistics can be invoked to prove almost anything, but one quoted last week was that, despite all the areas where Scotland seems to do better than England, Northern Ireland looks better off and Wales only slightly less well treated. Guess who gets most support from central government - the City of London!!! Furthermore, the Exchequer receives more in taxes from Scotland than it pays out under the Barnett Formula.