The London Business School Accounting Symposium celebrated its tenth anniversary in June and attracted more than 70 academics from throughout the world. From London Business School, Sir Andrew Likierman provided an introduction to the event and Francesca Franco, Oktay Urcan and Ningzhong Li chaired sessions.
Maria Correia, Scott Richardson and Irem Tuna presented a paper on value investing in credit markets. “Credit markets have become an increasingly common source of finance for publicly traded firms,” they note, putting the total value of US corporate bonds at nearly $7 trillion and the global credit default swap market at more than $30 trillion. The paper was also presented at the State Street Global Markets Quantitative Forum in September. This paper won the best paper award at the Review of Accounting Studies Conference held in November in Milan, Itlay.
The year also saw the publication of a definitive textbook by Eli Talmor and Florin Vasvari. International Private Equity: A Case Study Textbook (published by Wiley) provides a unique combination of a practitioner and academic perspective on global private equity. In the book, Eli (chairman of the Coller Institute of Private Equity) and Florin explore subjects such as LBO modelling, the secondaries markets, emerging markets, listed private equity and gatekeepers. The book was inspired by the school’s Private Equity and Venture Capital MBA elective
Corporate governance remains high on most corporate agendas and accounting faculty are among those leading the way. Irem Tuna received funding from the European Research Council for a five-year research programme on corporate governance. Her research will focus on the measurement of corporate governance and the interaction between financial reporting and governance.
Research by Lakshmanan Shivakumar has examined whether audited financial reporting and voluntary disclosure complement each other and provide the best possible information for managers, investors and regulators. His work was recognised by his appointment to become editor of the Review of Accounting Studies one of the foremost publications in accounting. He has been invited as plenary speaker at the Workshop on Empirical Research in Financial Accounting to be held next year at Las Palmas, Canary Islands. He will also be a key speaker at the 2012 Better Markets Conference organised by Institute of Chartered Accountants of England and Wales for its members.
The worldwide crisis has meant that the school’s economics faculty have been in huge demand for their research and insights into the causes of the crisis and likely future developments.
Andrew Scott completed work on a new edition of his highly influential textbook, Macroeconomics: The Wealth of Nations (with David Miles). The new edition will be published in Spring 2012 by John Wiley & Sons.
Andrew was part of the faculty team which visited China in November to discuss the rise of China and its likely effects on the world economy. He also spoke at the school’s China and the Challenge of Commodities forum held in Shanghai in July. “The world economy is still weak and fragile. And structural problems remain,” says Andrew. “In terms of getting growth, we can't rely on government leverage through low interest rates and liquidity. We've seen in Japan that it doesn't work. The West needs to start focusing more on longer-term issues, to do with investment in innovation and technology. For their part, emerging markets need to stop relying on external demand and invest their savings locally.”
Also leading the economics debate was Richard Portes. Early in 2011 he joined forces with other leading European economists warning that action needed to be taken to save the euro. He was also involved in a unique gathering to tackle the Greek crisis later in the year.
Lucrezia Reichlin is one of the world leading experts on the concept of nowcasting which involves an econometric model using real time data to predict the impact on the economy. It seeks to overcome the fact that economic measures are often historical and repeatedly revised before being finalised. Her work establishes a model for nowcasting so that shifts in information can be quickly acted upon. For example, an announcement of the number of new car registrations in the first quarter of 2012 could be put into the model to generate a predicted impact on the UK economy.
Paolo Surico was recognised as one of the top young researchers in the field with a 2011 Kiel Institute Excellence Award in Global Economic Affairs. This was in acknowledgement of Paolo’s work in macroeconomics and monetary policy. He also received funding from the European Research Council to conduct research on macroeconomic dynamics with heterogeneous agents. Paolo leads a research team also including Kanishka Misra. “Quantifying the diverse effects of fiscal and monetary policies on the aggregate economy is a first order challenge for both academics and policy makers alike,” says Paolo. “My research will work towards an assessment of the varies and diverse effects of the kind of policy actions which prevailed during the financial crisis.”
Another notable accolade was the election of Hélène Rey to become a Fellow of the British Academy. Other Fellows include the poet, Seamus Heaney; the Governor of the Bank of England, Mervyn King; and the writer, Marina Warner.
Over the last fifty years the world of finance has been revolutionised. In no other discipline is theory and practice so intimately related. In the wake of the worldwide financial crisis, how best can we make sense of how far the world of finance has come and where it will likely go in the future?
“I think there are a many lessons to be drawn from the financial crisis,” says Stephen Schaefer. “For example, one of my particular areas of interest is fixed income markets; and one of the things that we learned from the crisis is that there are risk exposures in some of these markets, that have some of the characteristics of earthquake insurance: most of the time nothing happens and then, very occasionally, something awful happens. The interesting thing is that it seems that you could actually detect some of those exposures before the crisis.”
Research by Vikrant Vig has looked at American mortgage market and the allocation of credit and James Dow chaired the European Winter Finance Conference in 2011. While among those at the hard-end of the crisis is adjunct professor Robert Jenkins who was appointed to the Bank of England’s Interim Financial Policy Committee in 2011. The Committee was formed to better ensure the stability of the financial system.
Research is the engine of discovery and nowhere is this clearer than in finance. In 2011 the School topped a table which examines financial research contributions by Europe’s leading institutions. Henri Servaes, Narayan Naik and Julian Franks were all included in the top ten European financial researchers from business schools.
Francesca Cornelli, academic director of the Coller Institute of Private Equity, has been looking at how market economies employ incentives to enhance investor returns. “How do you provide the right incentives? How do you design the optimal organisation? Those are questions private equity has tried to address. Private equity companies are trying to set incentives in the best possible ways,” she says. Her work has examined the turnover of general partners in private equity companies.
Anna Pavlova was awarded funding for her five-year research programme on “Institutional Frictions in International Finance and Asset Pricing. Prevailing models of financial markets ignore financial institutions and this has not served us well in the recent crisis,” says Anna. “My research seeks to model how financial institutions influence market prices and allocations.”
Also recognised was Christopher Hennessy who received funding from the European Research Council for a four-year research programme on “Dynamic Structural Corporate Finance: Linking Theory and Empirical Testing”. Says Christopher: “As an academic working on corporate finance today, I never face a shortage of interesting questions. This gives me a tremendous opportunity to work on two pressing questions: How responsive are corporations to changes in taxes and regulations? And what combination of taxes and regulations should be used to improve corporate incentives?”
Julian Franks’ research continues to be as eclectic as it is influential. It covers company ownership; family businesses; distressed restructuring – what happens to distressed or even bankrupt companies; and shareholder activism.
Some more positive news came from the annual Global Investment Returns Sourcebook produced by Elroy Dimson, Paul Marsh and Mike Staunton. They revealed that over the long run, equities have outperformed inflation, bonds and cash in every market they examined – and the Sourcebook uses data which stretches back to 1900.
MANAGEMENT SCIENCE AND OPERATIONS
With increasing emphasis on doing more with less resources, management science and operations has been at the centre of many organisational agendas in both the public and private sectors.
The nitty gritty of making things happen is the focus of the faculty in management science and operations. Their work covers a huge variety of perspectives from inventory management and fast track retailing (Jeremie Gallien) to managing service systems (Vasiliki Kostami); from carbon trading (Derek Bunn) to rewarding people according to their decisions and decision-making processes (Zeger Degraeve).
Kamalini Ramdas who is an Academic Director of the newly launched Deloitte Institute of Innovation and Entrepreneurship attended the World Economic Forum’s annual meeting in Davos. Among the biggest themes of Davos was healthcare, one close to the heart of her research. “The key to seeing widespread improvement in the health care world is to make everyone involved – from doctors to those who prepare food in the hospital cafeteria, from nurses to those who work in maintaining the hospital grounds – to become patient-centric,” she says.
Kamalini Ramdas’ research challenges some preconceptions about innovation and highlights groundbreaking innovations happening in unlikely places and environments. She cites an example of a cardiac preventive care clinic in which the doctor sees a group of 12 patients at once in an 1.5 hour slot, rather than seeing one patient at a time for half an hour. Outcomes are up and costs are down.
In the same sector, Nicos Savva was involved in two studies in hospitals in the US. The first was a comprehensive examination of detailed data from the trauma department of a major urban hospital to explore the discharge forms filled out by physicians that lead to the assignment of codes for reimbursement for care. The second was an analysis of the link between nurse absenteeism and workload using data from the emergency department of a large New York City hospital.
One of the main findings was that absenteeism increases when there is an increase in stress levels as a result of a higher anticipated workload. The effects of these high absentee levels include increases in medical errors, delays for patients waiting for beds in emergency rooms and ambulance diversions — as well as increased financial costs.
In tough times marketing is neglected at an organisation’s peril. The School’s marketing faculty have been arguing the case for marketing and proving its all embracing – and often world changing – impact on business. Research by Rajesh Chandy, for example, has looked at the importance of chief marketing officers; how incumbents take on acquisitive entrants into their markets; and the emerging role of micro-entrepreneurs in re-creating a robust global economy.
“If you walk into any market in the developing world, you are surrounded by capitalism on steroids – dozens, even hundreds of micro-entrepreneurs selling almost identical assortments of products and services, making puny profits,” said Rajesh. "In The Wealth of Nations, Adam Smith pointed to the self-interest of the butcher, the brewer, and the baker to explain the workings of capitalism. I argue that it is in our own self-interest to understand micro-entrepreneurs, and help improve their lives.”
In a related vein, John Mullins has examined how companies can act ethically in the unethical environments which exist in many places around the world.
On the theme of global change, London Business School’s Aditya Birla India Centre leads the way in exchanging ideas between the vibrant Indian economy and the rest of the world. Its directors are Phanish Puranam and Nirmalya Kumar. Their new book, India Inside, was published in November to widespread acclaim.
They argue that for Indians innovation is actually not the great undiscovered land which – largely Western – stereotypes suggest. The stereotype is that Indians don’t really do innovation. In order to refute this common refrain, Nirmalya and Phanish offer a compelling array of statistics and observations. They point out that Vinod Khosla founded Sun Microsystems; Sabeer Bhatia created Hotmail; Kanwai Rehki helped develop Ethernet; Narinder Kapany was there at the start of fibre optics; and Vinod Dham was involved in the development of the Pentium chip. All are Indians. Indeed, 26 per cent of start-ups in Silicon Valley have an Indian as a founder or a co-founder.Silicon Valley (and the world) owes a considerable and continuing debt to innovative Indians.
The holy grail for corporations is the ability to sustain growth. Very few companies manage to achieve consistent profit growth year after year. In his new book, Beyond the Familiar published by John Wiley and Sons, Patrick Barwise and his co-author, Sean Meehan, offer practical guidance to help firms improve their chances of doing do. They champion open organisational cultures which enable firms to achieve four imperatives – to offer and communicate a clear, relevant customer promise; to build customer trust and brand equity by reliably delivering that promise; to drive the market by continuously improving the promise; and getting further ahead by innovating.
Nader Tavassoli’s innovative research (published in the Journal of Marketing Research) gained a lot of attention. With colleagues from Insead and Erasmus University, Nader conducted a series of experiments to determine the impact of women’s exposure to communication about breast cancer in situations where their gender was especially salient or not. The findings run counter to prevailing wisdom and were that awareness campaigns for breast cancer should avoid using gender cues as they are less effective in getting the message across.
Language is also central to recent work by Marco Bertini. His article “The Best Way to Name Your Product 2.0” (with John Gourville and Elie Olek) appeared in the Harvard Business Review and looked at the naming of products. Marco’s work on pricing led to his input being sought for ticket pricing for the 2012 Olympic Games. He has since written a case study on the subject.
In other research emerging from the prolific marketing faculty, Simona Botti has looked at the interplay between power and choice and the relationship between speed of decision and regret. Anja Lambrecht has examined how consumers respond to personalised online advertising. A big question for marketers is whether or not to tailor advertisements to individuals’ interests. If you’re looking at a pair of running shoes on a website, how effective would it be for those shoes to pop up again later on in an ad on an unrelated website? Maybe that ad would persuade you to buy the shoes, but it is unlikely to have any effect at all, according to the study by Anja and Catherine Tucker of MIT.
The essential humanity of business lies at the heart of much of the work of faculty in organisational behaviour.
Take Nigel Nicholson. He has introduced the ideas of evolutionary psychology to family businesses and has also brought in ideas and research from agency theory, behaviour genetics, family systems theory and anthropology, as well work in the areas of top management teams and leadership. In parallel, Nigel has a database of around 4,000 executives and management students, which has enabled him to conduct studies of birth order effects (none, he concludes), entrepreneurial leadership, and risk propensity. This in turn has led to his work on Critical Leader Relationships. This takes a new look at the most important dyadic relationships leaders have, what shapes them and makes them effective or ineffective. This research utilises personality profiling and measurement of relationship quality.
A similarly diverse process of development can be seen in the work of Lynda Gratton. Her recent global research features some of the world’s greatest corporations contemplating the changing nature of work. The results were captured in her bestselling book, The Shift, published by Collins.
“Work is, and always has been, one of the most defining aspects of our lives. It is where we meet our friends, excite ourselves and feel at our most creative and innovative. It can also be where we can feel our most frustrated, exasperated and taken for granted. Work matters — to us as individuals, to our family and friends and also to the communities and societies in which we live,” says Lynda. “Whatever your age, one of the most crucial questions you face is how the forces shaping the future of work will develop and the impact on you and the organisations of which you are a member.”
Lynda was ranked by Human Resources magazine as the most influential HR person in the UK. Four members of the faculty featured in the biennial Thinkers50 ranking of management thinkers – Lynda Gratton, Gary Hamel, Nirmalya Kumar and Costas Markides. Nirmalya also won the Thinkers50 Global Village Award for his contribution to promoting understanding of emerging markets.
Having conducted a number of years of research into global talent, Doug Ready, working with Emily Truelove, has turned his emphasis to the concept of purpose. His belief is that companies with purpose are able to prosper in difficult times while rudderless organisations are more likely to struggle. “In today’s fiercely competitive, dynamic and often short-term obsessed economy, it can be quite easy for companies to operate without taking pause to reflect on why they’re in business in the first place. It happens all of the time, even at some highly regarded companies. But not all organisations work this way. In fact, for some companies, being clear about their core purpose — in short, why they exist — is essential not just for daily operations, but for future success,” Doug argues. His research looks at what he calls Purpose-Driven Enterprises (PDEs), organisations with this clarity of purpose.
Of course, not all organisations are blessed with clarity or purpose. Life in organisations is riddled with politics and all-too-human frailty. Randall Peterson’s research looks at one of the natural but perennially troubling aspects of group and organisational behaviour: conflict.
Among the most elusive issues facing the business executive, ethics must be high on the list. The work of Celia Moore sheds unusual light on this thorny issue. Her research focuses on the causes and consequences of unethical behaviour and organisational corruption. In 2011 she was awarded a year long Fellowship at the Edmond J. Safra Center for Ethics at Harvard University.
Celia is undertaking two research projects. The first examines the impact of leadership change on officer discretion in drunk driving enforcement. The second uses a proprietary sample from the U.S. Sentencing Commission of several hundred criminally convicted firms to examine how firms re-establish their legitimacy after episodes of misconduct.
STRATEGY AND ENTREPRENEURSHIP
The year saw the creation of the Deloitte Institute for Innovation and Entrepreneurship. Some of the faculty involved in launching the new centre played a prominent role in the School’s Ideas Lab session at the World Economic Forum’s annual meeting at Davos.
This was the first time the School had led such a session. Kamalini Ramdas, Rajesh Chandy, Michael Hay and Gary Dushnitsky examined breakthroughs in business strategy.
The Ideas Lab session looked at interconnectedness in a changing landscape and set out to challenge prevailing theories, unquestioned assumptions and established ways of working. Says Michael Hay: “The world is not a modified version of the reality to which we have become accustomed. The New Reality is profoundly different and it is these differences, together with the challenges that arise, which we want to explore and debate.” Among the new realities Michael’s research is exploring is social entrepreneurship.
Gary Dushnitsky looked at the financing of innovation and charted the emergence of exciting new models in the world of innovation. “In a world faced with new realities, it is incumbent upon us to start from square one, to revisit past assumptions, and to bridge east and west.Gary’s research has also examined financing innovation in the 21st century and the rise of what he labels “an eBay for ideas and inventions”.
Faculty also contributed to the urgent debates surrounding the crisis in the Eurozone. With riots in Athens and uncertainty at an unprecedented high, a unique group of senior stakeholders were brought together to discuss practical actions to avoid economic catastrophe and social meltdown in Greece. The group included MPs, former ministers, economic advisors to the Greek Prime Minister, policy-makers and advisors, former senior IMF executives, bankers and lawyers from Greece and elsewhere, as well as leading academics.
Astonishingly it was the first high level meeting on the crisis. “A remarkable consensus on potential future directions did emerge,” said Michael Jacobides who helped organise the event. “Some of the policy choices we propose may be controversial, but are necessary given the circumstances.”
The importance of management and business in tackling big issues is a recurring theme. Costas Markides is working on a book covering the ability of management to solve some of the world’s biggest problems – such as drug addiction and crime. Ioannis Ioannou, working with George Serafeim of Harvard Business School, has looked at the effect of sustainability reporting on management practices in 58 countries. The conclusion of the research is that mandatory reporting laws helped increase social responsibility among business leaders with sustainable development and staff training both becoming a higher priority. It also found that more ethical practices were adopted to fight bribery and corruption particularly in countries where law enforcement is strong.
Elsewhere, Julian Birkinshaw continued to gather a unique collection of some of the world’s most originally managed companies – practising what Gary Hamel labels Management 2.0; Dominic Houlder analysed the future of professional service firms; Freek Vermeulen developed the straight-talking themes of his bestselling book, Business Exposed published by Financial Times/ Prentice; and Kevin Boudreau continued to look at how large systems of innovators can be governed so as to best harness creative efforts and diverse ideas.
Many of these themes were celebrated and dissected at the annual Global Leadership Summit. The theme of the Summit was Innovation: Idea, Create and Accelerate. The event featured George Buckley of 3M; Sir Martin Sorrell of WPP; David Sproul of Deloitte and many other business leaders and faculty.