Sunday, April 05, 2009

Stanford GSB, Entry 20: 9 and 1/2 weeks, Google, CitiBank, Fannie Mae, Big Brother, and Keeping the Talent Happy

Only Ten Weeks Left. Wow. This year has moved quickly.

We just started (on April 1st) the Spring Quarter, the third of our three quarters in the Sloan program at the Stanford GSB. I guess that means only 9 and half weeks left.

It seems just yesterday we were sitting on the fourth floor of the GSB wondering how long it was going to take us to get used to being in school again, and how/when we might meet some of the MBA students.

And now, already there is talk of Graduation (ordering your caps and gowns, making sure you have enough units to graduate, and oh yeah, did you apply to graduate?).

Not only that but we’re already making preparations for the Orientation at the beginning of May for the next Sloan class – the Class of 2010.

I guess that’s the nature of a 1 year program, but it’s strange to be talking about next year’s class when we’re not done with this year’s class ☺

A lot has happened since my last blog entry. I’ll fill you in on whatever I can fit in: Read More

Eric Schmidt, Google, and the arrival of Big Brother

Before the end of the winter quarter, Eric Schmidt, the CEO of Google came and spoke at the GSB. Now, he’s already a guest lecturer for one class here, so it’s not that big of a deal, but it was one of the most highly attended talks I’ve seen since Steve Ballmer came to visit.

Bishop Auditorium, where the bigwhigs usually speak, was full and many of us had to go to an overflow classroom, which showed Eric talking on a big screen in the front of the room.

Now, generally speaking, I’ve been a fan of Google, and they’ve been the anti-establishment company for a long time now (Eric is also the only big company CEO who’s attended Burning Man, for example).

But I have to say, Eric’s talk creeped me out, and I wasn’t the only one.

He spoke about the future of Google, and how they can use the intelligence gained from what you’ve searched for to link to mobile devices and let you know when you’re passing a shop that has something in it you might have searched for.

Only with your permission, he slipped in, perhaps noticing that there might be some privacy issues being raised there.

Moreover, Google can monitor what search terms are coming from an entire community. So for example, if a community starts to have an above-average numbers of searches for “flu”, Google could take action, alerting the government that there might be an epidemic there.

Of course, he slipped in, very casually and almost as an after-thought, Google would only do these things with your permission.

A few of us in the overflow room started shifting in our seats. The big talking head at the front of the room was telling us that he knows what we’re thinking, what we’re buying, what our neighbors are thinking, and he has the ability and technology to alert the government to this.

Hmmm. I looked over at a classmate of mine, and his expression was as puzzled as mine. “Did he really just say what I thought he said?” Was this the twenty-first century equivalent of “I know what library books you’re checking out" ?

Now it’s funny, because when we think of “loving-to-hate” a nerdy looking, very wealthy white guy on a big screen in charge of a monopolistic technology company that may have grown too powerful, a different image usually comes to mind.

There’s a great TV mini-series, Pirates of Silicon Valley, from a few years ago, which tells the story of Microsoft and Apple (among others) in the early days of the PC revolution. At the end of the mini-series, Steve Jobs is speaking at MacWorld, and behind him, on the screen, in streaming video is Bill Gates head (oversized) smiling and looking down through his glasses at Steve. Microsoft has just rescued Apple from the clutches of bankruptcy, and Steve is grateful.

The last scene was meant to evoke the image of “Big Brother” from George Orwell’s 1984. It was also meant to evoke the image of Big Brother in the famous Apple commercial from 1984 (when IBM and Microsoft were Big Brother). Big Brother had arrived, and his name was Bill Gates, the mini-series seemed to be saying.

I couldn’t help but feeling, as I sat in that room at Stanford, watching an oversized talking head telling us he know what we’re thinking that maybe reports of Big Brother’s identification were greatly exaggerated.

In fighting the old Big Brother by supporting companies like Apple and Google in Silicon Valley, we (meaning myself and many other well-meaning consumers) may just have created an opportunity for the real Big Brother to arrive.

To quote another George Orwell novel, Animal Farm, about what happens when power shifts from one powerful group to the ones that overtook them: Four Legs Good, Two Legs Better.

Finals and End of Winter Quarter

Just after that interesting experience, we had our final exams and papers for the Winter Quarter. Our two Sloan core classes, Marketing and Accounting both had final exams, while two of my elective classes had final projects. One other elective class, finance, had a final exam as well.

As I sat there, getting ready for the our East Coast Study Trip (which happened during Spring Break), I was trying to get a handle on how to calculate net present values in two different countries using various exchange rates, interest rates, and discount rates. I think that was the moment I decided it’s probably better not to take a finance class in my last quarter at the GSB.

Grading at the GSB continues to mystify me. Classes that I thought I might not do well in, I did very well in. Classes that I thought I was doing really well in, I did only OK in.

Go Figure. Oh well - I still stick firmly by the anonymous assertion (which I repeated in my last blog entry) that grades in the GSB are guaranteed to be accurate, but with a plus/minus margin of error of two letter grades.

East Coast Study Trip

After finals we had our “Spring Break”.

I put “Spring Break” in Quotes because it wasn’t really a break. We had our East Coast Study Trip to Washington, DC and New York City. Because the Sloan Program is a one-year program it feels like we have a lot of mandatory stuff crammed in.

Despite having to dress up in a suit and tie (every single day), and despite having to get up to board the bus by 7:15 am on most days, and despite being herded around like sheep from place to place, the trip was actually quite interesting.

I always get asked what we do on study trips. Well, other than get up early, dress in a suite and tie, and get herded around from building to building like a flock of sheep, we usually get a talk by a senior member of the company we’re visiting. In some cases, it’s the CEO of the company, which is very cool. They give us a little lecture, and then we are able to ask questions of them.

So here are some people and places we visited, and some random things I remember about the visits:

Smithsonian. We had a talk by the head of the Smithsonian. I found this to be one of the more interesting talks, mainly because I didn’t know much about the Smithsonian (other than they run a great Air & Space Museum, which I visited). Turns out they run 19 museums and have collected something like over a 100 million scientific specimens over the years. There was a British guy in the 1800’s (Smithson) whose will said that if his only surviving heir (his nephew), didn’t have any heirs, then the money should be donated to the “United States of America” for the "Establishment for the increase & diffusion of Knowledge among men". That’s a pretty vague mission statement, and the government (under Andrew Jackson) they really didn’t know what to do with the money, until they established the Smithsonian as a scientific quasi-governmental organizations. Other things I didn’t know: that on the Board of Directors of the Smithsonian are both the Chief Justice of the Supreme Court and the Vice President. Memorable Quote: “When raising money for a non-profit, you still have to have a sales pitch”

Senator Kent Conrad and the Capitol. We had a tour of the Capital Building visited the office of Senator Kent Conrad (D), of North Dakota, who was in the charge of the Senate budget committee. He only had a few minutes with us, because that week he was on TV a lot, and was overseeing the senate’s work with President Obama’s budget. Obama won’t get everything he wants in his budget, said the Senator to us, and then alter that night many of us saw his name being referenced again and again by the talking heads on TV. Little Known Fact About the US Capitol: there is a room called the crypt, which was meant for the Tomb of George Washington (he wasn’t buried there, he was buried at Mt. Vernon), and there is a compass on the floor of that circular room, which is the point from which all addresses in Washington DC get their name. Little Known Fact about me: I lived in North Dakota for a few very formative years, even started high school there – Mr. Conrad might have been my senator! Memorable quote: “I have to go meet with the Obama administration in 15 minutes. Now in the 14 minutes I have left… Now in the 13 minutes I have left, I’d like to talk about… Now, in the 12 minutes I have left, “

Postmaster General of the United States. We met the postmaster general of the United States of America. He started off as mail clerk in Boston and is now in charge of one of the largest organizations in the US. He reminded me of the guy on Cheers (the mailman) a little bit. His biggest challenges: How to make the US Postal Service profitable when the volume of mail has been decreasing every year. They are required by law to have post offices in every single zip code, even if those zip codes have something like 100 households in them. Little Known Fact: the Postal Services biggest customer is its biggest vendor is its biggest competitor: Federal Express. Memorable Quote: “If there’s one thing that everyone has a strong opinion about – it’s the mail!”

Chairman of the Federal Reserve. We were supposed to meet with Ben Bernanke (who used to be a professor of Economics at Stanford), but who had to go testify in front of Congress that day. Why? The AIG bonus scandal (more on this later). Instead we met with Kevin Walsh, who is the youngest of the 12 members of the Board of Governors of the Federal Reserve. Q: How did he get his job so young? A: He was a protégé of Bernanke so BB pulled him in on his coattails. He seemed like a pretty smart guy (also a Stanford alum). My question for him (hey here’s one thing I learned in my last finance class): With all the talk of the Fiscal bailout, there isn’t much talk about the monetary bailout underway –with the Fed buying up trillions of dollars in assets, and increasing the available money supply, aren’t they worried about devaluing the currency or inflation?”. His answer: “Under Chairman Bernanke, We’ve been aggressive about buying up assets; but that means we have to be equally aggressive about selling those assets when things stabilize.”

CEO of the NY Stock Exchange. We met with the CEO of the NYSE in New York. What struck me most about this meeting was just how “calm” this guy was in the middle of one of the biggest financial crises in the past 50 years. In fact, he was a little too calm. The NYSE has been around a long time, he seemed to be saying with his demeanor, and has weathered other storms and it’ll weather this one too. But then we learned the real reason for his equanimity: “When stocks go up, I don’t necessarily have a good day. When stocks go down, I don’t necessarily have a bad day.” The unspoken message: He makes money either way, as long as there is a lot of share volume. Wow- nice business model, dude! Other memorable quote, when the first two questions asked were from our two Russian classmates, “Are there any questions from students who aren’t from Russia today?”

Fannie Mae and Citibank. I put these last two together, because as those of you following the financial markets will know, both of these institutions had to be bailed out using billions of dollars of US Government money (i.e. our money, the taxpayers). At Fannie Mae, we met with two people: the CEO (relatively new) and the Chief Economist. At Citibank, we met with Vikram Pandit the CEO of Citibank. These meetings were very surreal – it felt like these guys were living inside bubbles (called their companies in particular, and the financial services sector in general) that were pretty disconnected from the rest of the world.

The other thing that these two organizations had in common? They were both upset about the AIG bonus scandal. Now, let’s get this right, they weren’t upset that AIG, which took billions of dollars in aid from the Federal Government was paying multi-million dollar bonuses to its management team members. They were upset that th taxpayers and the government would have the audacity to ask for it back!

They were of the opinion that the bonuses being paid by institutions like themselves were necessary for “retaining the talent” and that the Government has no business meddling in the internal affairs of these companies.

All I have to say is that both were pretty out of touch with how the US Public was feeling that week, when this was the biggest story in the news and individual taxpayers were upset about the million dollar bonuses.

One more thing that both CEO’s said, almost verbatim: “The People that were part of the problem are gone; the people that we have left here are part of the solution, not part of the problem”. It was so verbatim that I wonder if there was a “federal bailout CEO phrasebook” that they shared.

This of course begs the question, where did those people, who were part of the problem, go?

Moreover, the CEO of Fannie Mae said that he’d agreed to pay bonuses last year to his senior people, including some 7 figure bonuses. Let me repeat that, 7 figure bonuses were paid by Fannie Mae after being bailed out by the Federal Government. If they didn’t pay these 7 figure bonuses, he said, the “talent” would leave and go elsewhere.

Which brings up my next question: “What bank or insurance company has a mortgage business that has so much money that they are willing to lure away Fannie Mae executives by paying them 7 figure bonuses?”

I can only think of one: AIG.

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