Innholdsfortegnelse for Winter 2017 i Rotman Management

THE WORLD HAS NEVER BEEN MORE PROSPEROUS than it is today. People around the world live longer, healthier lives than ever before. In emerging markets, billions of people have moved out of extreme poverty, and in the developed world, we enjoy better medicines, education, information, connectivity, and mobility than most of us could have imagined a quarter century ago. These achievements have many fathers and mothers. Human inventiveness, political leadership, social activism and entrepreneurship have all contributed to what Nobel Prize winner Amartya Sen described as ‘human freedom’. Carefully-crafted policies for the free exchange of goods, services, capital and labour — commonly known as globalization — and the march of technology have also played essential roles. These two forces have increased productivity, opened up markets, and created opportunities for billions…

MOST LEADERS RECOGNIZE that they need to take proactive steps to break down the silos within their organizations, so that people can work together more easily and innovate across departments. They also know that in today’s innovation-starved environment, they need to collaborate externally with their customers and others in their ecosystem to create new products and solutions. This sort of collaboration has been well-documented in the business-to-consumer (B2C) context, but less so in the businessto-business (B2B) space. In our work with clients, we have seen first-hand that, when done right, B2B collaborations can generate benefits in four distinct areas: • DEEPER KNOWLEDGE. Collaborations allow a business to closely explore the ‘context of use’, giving it a more in-depth knowledge of end-user needs; • LOWER MARKETING COSTS. Market research costs can…

You believe today’s leaders should keep the following mantra in mind at all times: ‘What appears to be the problem, isn’t.’ Please explain. That’s the first part of a longer mantra, which goes on to say, ‘What appears to be the solution, isn’t. What appears to be impossible, isn’t.’ It’s something I learned from working with Toyota for eight years. Here’s the thing: we solve dozens of problems every day, but the vast majority of them don’t require deep thinking; they are routine in nature and demand nothing more than a reactionary work-around — one we’ve undoubtedly used in the past. But because we solve so many challenges this way, we tend to use the same approach when tackling more complex problems. We mistakenly pose the question ‘What should we…

THE MOST CRITICAL FUNCTION of every board of directors — and more broadly, of every executive team — is to make decisions that benefit an organization in the long term. Therefore, one would imagine that the more domain experts involved, the better: their extensive collective knowledge of risks and opportunities in a particular industry will surely lead to more effective long-term decision making, the thinking goes. However, recent evidence suggests that this reasoning is flawed. The fact is, in certain circumstances, decision-making groups that are dominated by domain experts may exhibit several harmful tendencies that actually detract from effective decision making. In this article we will explain why and summarize our recent research, which suggests that the proportion of domain experts in a decision-making group can be a key determinant…

QUESTIONS FOR Jesse Sostrin, PhD, Leadership Expert, PricewaterhouseCoopers You believe that one of the most overlooked factors in effective leadership is capacity. How do you define ‘leadership capacity’? A leader’s capacity is the time, energy, resources and focus that she needs to effectively address her priorities and responsibilities. Simply put, it’s the ‘fuel’ that every leader needs in order to accomplish what matters. Deficits in capacity are among the most common factors responsible for breakdowns in a leader’s performance and overall impact. You have found that leaders at every level — including most executives — do not possess enough capacity to meet their demands. Why is this? There are two factors, and the first is external and largely out of our personal control: structural forces in the economy have literally…

FACULTY FOCUS Craig Doidge + Alexander Dyck, Professors of Finance, Rotman School of Management  KC: Describe how corporate ownership has been transformed over the last few decades by the emergence of institutional investors. Craig Doidge: In The Modern Corporation and Private Property (1932), Berle and Means warned that with the separation of corporate ownership and control, the interests of shareholders and managers may diverge, and that “no shareholder is in the position to place important pressure upon management.” Back when that was written, there was ‘The Corporation’ and there were a bunch of passive shareholders, and their paths rarely crossed. The picture is much more complicated today. While ‘dispersed ownership’ is still largely the case in the U.S. (and to some degree, in Canada), there are lots of large shareholders…

QUESTIONS FOR Ann Kaplan (Rotman MBA ‘05), CEO, iFinance Canada  What prompted you to launch Medicard Finance (now iFinance Canada) 20 years ago, and how has your business model evolved over the years? In 1996, the indications were that Canada would be moving towards a two-tiered healthcare system, and as a result, more people would be paying for things out of their own pockets. If someone wanted to get, say, laser eye surgery, how would they finance that procedure? I founded Medicard to fill this gap. This was also right at the beginning of the cosmeticenhancement boom. Certain cosmetic procedures were just coming on the market and were now acceptable to talk about. Initially, cosmetic surgery was our biggest line of business. A few years later, we expanded our model…

January 9, 5:00-6:00pm Speaker: James Dewald, Dean and Professor, Haskayne School of Business, University of Calgary; Author Topic: Achieving Longevity: How Great Firms Prosper Through Entrepreneurial Thinking (Rotman-UTP Publishing, 2016) January 11, 5:00-6:00pm Speaker: Eugene Soltes, Professor of Business Administration, Harvard Business School; Author Topic: Why They Do It: Inside the Mind of the White-Collar Criminal (Public Affairs, 2016) January 12, 5:00-6:00pm Speaker: Rory Capern, Managing Director, Twitter Canada Topic: Social Media: Positioning Canada as a Hub for Digital Innovation January 16, 5:00-6:00pm Speaker: Gary Taubes, Co-Founder and Senior Scientific Advisor, Nutrition Science Initiative; Science and Health Journalist; Author Topic: The Case Against Sugar (Knopf, 2016) February 1, 5:00-6:00pm Speaker: Fareed Zakaria, Host, Fareed Zakaria GPS, CNN; Editor-at-Large and Columnist, TIME magazine; Author Topic: tba March 21, 8:00-9:00am Speaker: Clare…

ON THE EVENING OF OCTOBER 28, 2011, Canadian Pacific Railway Vice-President Paul Guthrie and a senior team were travelling across Canada, touring the company’s facilities, when Paul received a call. CP’s legal advisory firm had heard a rumour: activist hedge fund Pershing Square Capital Management (‘Pershing’) was buying up CP stock — and had surpassed the five-per-cent threshold requiring it to notify the Securities and Exchange Commission (SEC) of its activity. Headed up by William Ackman, Pershing was a private, U.S.-based hedge fund that took positions in companies it considered to be under-valued. With US$7.78 billion in assets under management, it had already made investments in Target, Kraft Foods, J.C. Penney, Citigroup and Wendy’s — where Ackman had forced the sale of its Tim Hortons operations. Unbeknownst to CP’s senior…

How did you come to see Walmart as a possible change-maker in the world? Let me start out with a pretty simple proposition that is, nevertheless, somewhat contentious: business exists to serve society. The question is, how do companies interpret that, and what do they do to fulfill that promise? The most obvious way is to look at what your business does from day-to-day, to serve its customers. Three years ago, soon after I joined Walmart, I travelled to Soweto, South Africa, where we run our stores under the Cambridge banner. I was in one of the stores with our management team, as they coached the person behind the deli counter about food safety — making sure raw chicken didn’t touch the vegetables, and other important procedures. I stood there…

PROESSOR BARUCH LEV ON FINANCIAL REPORTING, THEN AND NOW: “Surprisingly, with all the advances in information technology, communication, and investment analysis affecting capital markets — as well as the substantial changes affecting the strategies and operations of businesses — the structure and content of corporate financial reports to investors didn’t change during the past century. Investors, 110 years ago, received similar balance sheets and income statements as do their present counterparts. This would suggest a constant decrease in the role of financial information.” “[Comparing 1902 with 2012,] Amazingly, there are absolutely no differences in the structure and information items provided to investors by [U.S. Steel’s] two financial reports. Seriously, a struggling enterprise, like the 2012 U.S. Steel, providing the same information as the booming 1902 company? Shouldn’t today’s investors be…

IMAGINE A WORLD IN WHICH it is possible for a financial innovation to generate solid returns alongside positive social and environmental impact. This is the promise of an emerging investment approach called ‘impact investing’ that is gaining the attention of pioneering investors: big institutions, foundations and high net-worth individuals are moving quickly into this new market. However, in order to succeed, impact investing will need to grow beyond these pioneers and reach a broader set of investors. In The Diffusion of Innovations, Everett M. Rogers proposes that five attributes influence the spread of any innovation: • its relative advantage over alternatives; • compatibility with the values, experiences and needs of adopters; • simplicity; • trialability; and • visibility. Applying these principles to impact investing in its current state, it clearly…

One big factor affecting the quality of decisions is whether a decision involves a group. That’s because group dynamics can lead otherwise sensible individuals to make (or agree to) decisions they might not come to on their own. At times the effects are positive, as when some group members help others overcome prejudices. But the dynamics of a group often have negative consequences. Since nearly every company relies on collective decision making in some contexts, executives need to be on the lookout for group biases and their undesirable results. Following are four common manifestations of the ‘group effect’ and some suggestions about how to counter them: Conformity. Many people go along with the group regardless of what they themselves might think as individuals. A famous experiment by psychologist Solomon Asch…

QUESTIONS FOR Claude Lamoureux, Co-Founder, Canadian Coalition for Good Governance When you interviewed for the CEO’s role at Ontario Teacher’s Pension Plan, you told then-chair Gerald Bouey that if you took on the job, you would ‘run it like a business’. What did you mean by that? It could be that I had a negative view of government organizations at the time, but what I meant is that in a corporation, the CEO is given a clear mandate: he or she draws up a plan and determines objectives, and makes sure that they are followed. I’m a big fan of management by objectives, so I wanted to make sure that if I took on the role, this would be a result-oriented organization. I needed to communicate this, because I had…

QUESTIONS FOR Dan Pontefract, Chief Envisioner, Telus The importance of ‘having a purpose’ is not a new idea; it has been discussed since the time of the ancient Greeks. Why write a book about it now? Quite frankly, society has lost its way, and there is no better time than the present to start bringing up the concepts of what the Greeks — along with Peter Drucker, Charles Handy and many others — have been writing about for years: what are we here for? Are we here to serve ourselves — or, in the case of a publicly-traded company, our shareholders? Or, are we here to serve all of society’s stakeholders? Since Milton Friedman came on the scene in the early 1970’s, for the better part of the past 46…

FACULTY FOCUS Ole-Kristian Hope, Professor of Accounting, Rotman School of Management In a recent paper, you examined the ‘economic usefulness’ of accounting for private firms. What did you find? For some privately-held firms, the costs of providing high-quality, accrual-based financial statements outweigh the benefits of accommodating the demands of their stakeholders — who may rely more on cash flows or have direct access to management. But for other private firms, greater stakeholder demand for their financial information necessitates highquality accounting. Using a large sample of U.S. private firms, we confirmed that accrual quality in private firms is associated with the ability of accruals to predict future cash flows; next, we found that accrual quality increases with the demand for monitoring by equity investors, lenders and suppliers. Overall, our evidence suggests…

QUESTIONS FOR Ellen Auster, Professor, York U, and Lisa Hillenbrand, Former Head of Marketing, P&G Jack Welch once said of businesses, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” Describe the significance of this statement for today’s leaders. Ellen Auster: It’s certainly true that change is everywhere. In today’s hyper-competitive and fast-paced business environment filled with disruptive technology, fierce global competition and shifting customer expectations, change is the new normal. There are periods when we’d all like to slow it down, but the fact is, most businesses need to be continually changing to stay ahead of the curve. Those like Blockbuster who don’t adapt fast enough risk getting blindsided by game changers like Netflix. You believe today’s leaders…

Along with McKinsey’s Dominic Barton, you have been closely involved in the quest to focus investors' mindsets on the long term. Describe how and why you became involved. It all started with an article Dominic wrote for Harvard Business Review [“Capitalism for the Long-Term”] back in 2011. In it, he argued that, if we didn’t shift to more long-term thinking — and start producing greater prosperity for citizens — capitalism could be at risk as an organizing principle for society. Dominic made this point extremely well in the article, but because he’s a good friend of mine, I called him up and said, ‘Dom, you’re being a typical consultant — pointing out all these issues, but not doing anything to find solutions. What are you going to do about it?’…

IN GENERAL, IT IS ASSUMED that every company’s top executives and its board of directors possess a keen understanding of investor priorities. Indeed, most would agree that this is one of their key responsibilities. Based on their understanding of investor interests, a leadership team will often focus corporate strategy and behaviour in one direction rather than another. For instance, if executives believe that their investors prioritize short-term profits, they will tend to organize sales, cost management, and research and development activities to maximize such profits rather than make certain long-term investments. Today, many executives continue to embrace the conventional wisdom that mainstream investors care very little about an organization’s performance on environmental, social and governance (ESG) metrics. Investors won’t shift their investments, the thinking goes, based on ESG performance. For…

WHEN WE THINK ABOUT CONFLICT, what often comes to mind is war: factions diametrically opposed over a significant issue. But not all conflicts are struggles for power or property or people. Lines are often drawn at work, too — and just because a workplace is civil and quiet doesn’t mean it is devoid of conflict. Consider this story. Robin and Eli worked together on a joint project virtually, from different time zones. Robin spent her mornings drafting the piece of the project she’d be working on that day with Eli. When Eli came online several hours later, he wouldn’t read what Robin had done; instead, he wanted to work together in real time to create a bullet-point outline. This practice annoyed Robin. Why had she spent hours getting a head…

IT’S NOT A GOOD TIME to be young and in the job market. After a period of modest improvement, the global youth unemployment rate worsened in 2016. Globally, joblessness among 15- to 24-year-olds reached 13.1 per cent, just shy of the 20-year peak in 2013, according to a report from the International Labour Organization. In raw numbers, 71 million young people can’t find work. Some regions are in worse shape than others. Youth unemployment in the Arab States is highest, at 30.6 per cent, and lowest in East Asia, at 10.7 per cent. In the European Union — still suffering the residual effects of the 2009 global recession — it totals 19.2 per cent. The report also finds that even where jobs are available to young people, they often fail…

WITH THE OPINIONS of countless thousands only a tweet away, it has never been easier for decision makers to engage and consult. The like-minded can now organize with ease, and as a result, more groups and organizations are demanding a voice in governance. Yet, at the same time as people are becoming more determined to have their voices heard, our problems are becoming more difficult to solve. This is the era of overload: a world of information and misinformation, interconnection and openness; a world in which people know more, share more and aspire to have greater influence on the forces that shape their lives. In the face of such radical transformation, why would we assume that our old methods of governance would still serve us best? The traditional, top-down model…

FACULTY FOCUS Claire Celerier, Professor of Finance, Rotman School of Management Many people believe that the finance sector is contributing disproportionately to income inequality in our society. Do you agree? I do. Ever since the 1980s, compensation in finance has been higher and more skewed than in other sectors. It has been shown that the ‘finance wage premium’ — the degree to which finance salaries exceed those in other industries — is, on average, 50 per cent. That is why the sector has been criticized as one of the sources of growing income inequality. My colleagues and I felt that this public debate called for an improved understanding of the drivers of bankers’ pay. Our intuition told us that one of the key drivers is the competition for talent. For…

POINT OF VIEW David Weiss and Ted Cadsby, Authors and Decision-Making Experts WHEN LEADERS FACE COMPLEXITY, ineffective deliberations and decision making are often the result. In our experience, this occurs because they fail to differentiate complex situations from complicated ones. As a result, they engage in superficial team discussions often relying on one perceived expert opinion — and they take shortcuts in the decision-making process. The fact is, complex situations are materially different from complicated ones — and increasingly common in today’s environment: building earthquake-resistant towers is complicated; tackling climate change is complex. Managing inventory is complicated; mapping out corporate strategy is complex. Diagnosing a machine’s performance is complicated; assessing a CEO is complex. Complicated situations are characterized by many moving parts, whose interactions may or may not be immediately…

QUESTIONS FOR Hatem Jahshan (Rotman MBA ‘10), CEO, Steeped Tea By many measures, Hatem Jahshan (Rotman MBA ’10, B.Eng, ’99) and his wife Tonia are enjoying stratospheric success. Their 10-year-old loose-leaf tea company, Steeped Tea, has 9,000 ‘consultants’ across Canada and in every U.S. state who directly sell up to 300 types of tea to their family, friends and neighbours by hosting tea parties in people’s homes. In the last five years, the Ancaster, Ontario-based company has seen its revenues grow 3,500 per cent, and last year, it pulled in $20 million. Earlier this year, Tonia scored the top spot on the 2016 PROFIT/Chatelaine W100 ranking of Canada’s top female entrepreneurs. But one business milestone stands out from the others — both because it happened on national television, and involved…

POINT OF VIEW Daniel Markovitz, Lean Enterprise Institute THE OCCUPY WALL STREET MOVEMENT. Donald Trump’s unexpected presidential victory. The popularity of the TV show Undercover Boss. The stunning pay gap between CEOs and front-line workers. What do these things have in common? They are evidence of the increasing disconnect between people at the top and people at the bottom — or even the middle — of society. When transferred to a corporate environment, they are evidence of a misuse of power and, frankly, a lack of leadership. By contrast, ‘smart power’ seeks to minimize the distance between the top and bottom ranks of an organization in the service of greater cohesion and superior performance. Let’s be clear: this is not a Marxist, anti-capitalist screed arguing for total equality of all…