It's a Banker's World

Citigroup Investment Banking recently snatched a team of investment bankers from Lehman. The team comprises six experienced bankers in the financial institutions industries, led by a 20 year veteran IBer.

I have written on this topic a bit previously. When recruited previously by other financial institutions, I was asked the question of whether I could bring others with me. In each case, I declined--felt uncomfortable poaching the talent from a good employer. In one case, it was so blatant that I declined the job offer outright. And yet, in reflection, it was probably a misperception.....bringing your own team brings cohesion to your effort in a new organization. When moving to a new organization you are a stranger in a strange land; even if it is the same industry, the feel of the organization is totally different. As you grow in an organization, we are taught to look upwards in the organization for promotion; but actually much of your market value will be based on your ability to instill loyalty and confidence from your subordinates--and much of your protection as you move across to other organizations may also come from this loyalty.

Technology Successes and Failures

Pip Coburn, formerly a noted technology analyst for UBS wrote a book entitled "The Change Function". He seeks to identify the factors of tech product failure. An excerpt of the book is contained here and worth reading.

It requires tremendous internal thinking to develop a product and far more external thinking is required to make it a success.

Jackson Tai, CEO of Development Bank of Singapore was interviewed in the Asia WSJ. A former Morgan banker, he was hired by DBS in 1999 as CFO and has been the CEO since 2002, where he guided the bank to become more of a pan-Asia bank, rather than just another bank in Singapore.

Some key excerpts of the interview related to starting your career:

"I remind our entry-level people that we are in an extremely competitive world and that one has got to specialize, to know something very well. You will get a chance to grow in the business, apply and over time broaden it. With knowledge comes a strong point of view, one is more comfortable taking risks and therefore is likely to get decent returns. As you develop this specialized knowledge, as you go up, you will get the chances to add a second or third dimension to help you become a successful manager and leader."


On the understanding the Arts and Business:

"I think that an appreciation for the arts, be it music or literature, gives you a deeper perspective. It helps you engage people and appreciate the undercurrents, providing that 20/20 vision when it comes to understanding situations, people and personalities."

As you rise higher in the organization your skill set will need to transform from the technical to the humanities--to understand people and their quirks, how to get them to work together in teams, how to drive them. It is then that such depth comes into play.

The Impermanence of Business Models

It has been some time since I have last written. Too much time actually.

It is now earnings season, giving analysts the opportunity to view who is "hot" and who is "not". DELL announced that they would be off by 30% in their earnings versus analyst expectaions--the stock tanked by 10% and now trading at its lowest point in recent memory. Google on the other hand blew through their numbers--their annualized revenue and earnings is in the range of $10BN an d $3BN, respectively based on their most recent announcement. The lesson is that business models come and go quickly in technology--what is hot for one period can quickly dissipate.

This was brought out most succinctly in an interview by Charlie Rose of Warren Buffett and Bill Gates together. As is well known, Buffett never invested seriously in Microsoft despite his deep friendship with Gates, as he could not see ten years out in the industry. But as Gates said, you can make significant returns if you learn to surf the industry--ride the waves of technology. And one of the keys of "riding" such waves is knowing when to get off. I encourage you to view this interview--it is not just about business, but also about deep friendship. The interview was the last of a three part interview of Warren Buffett and delves deeply not just into his investment philosophy but also his way of life.

In the News

For those of you who do not see the future competition between Google and Microsoft please see this article that appeared in Slate (a publication formerly owned by Microsoft).

And also, for those of you who like deal-making (or the thinking therein) there was an interesting column in Bloomberg about Ghosn vs. Waggoner (GM CEO). The columnist supposes that GM will turn to Toyota as a white knight against the Ghosn/Kerkorian onslaught. And actually, if you think about it, is it possible that Toyota has seen what has happened in the Steel Industry (with Mittal Steel coming out of nowhere to become the dominant provider of Steel to the world) and wonders whether the same thing could happen with Renault + GM + Nissan.

Lastly, there was the following interaction at a press conference where GWB introduced Hank Paulson, former Chairman of Goldman Sachs and now Secretary of the Treasury as quoted by the New York Times:

Quote:
“Our first challenge is to keep taxes low,’’ Mr. Bush said. “Hank understands that cutting taxes has helped launch the strong economic expansion that is lifting the lives of millions of Americans.’’

Mr. Paulson was more demure.

“We need to pursue economic and regulatory policies that are responsive to today’s world,’’ he said. He did not mention tax cuts, one way or the other. Unquote.

Diplomacy and evasive action are all part of being a global investment banker. For the full article go to the NY Times.

Intel and the Spurring of Innovation--Wimax/Wibro

Intel recently announced that they will be investing $600Mn in Clearwire, a Wireless data company started by Craig McCaw, founder of two blockbuster companies in the US. McCaw previously founded McCaw Cellular and Nextel (which recently merged with Sprint in a $30BN + deal). His latest venture is focused on rolling out Wimax (the latest of wireless broadband technologies which is otherwise known as "WiBro" here) principally in the US, but also in other parts of the world.

$600Mn is a lot of money for a young telecom venture company, even for Intel. Clearly they believe that a spear is needed for building out Wimax. They will be looking to Clearwire as the sharp point that will drive the technology to become a predominant technology standard. And it is strongly in their interest to build out the Wimax platform, much like they built out wireless LAN with their Centrino product. People around here can point to KT as being among the first to roll-out this broadband wireless technology, but frankly they are not in the same league (I know others may disagree). Yes technically they may be there and they have money and are making big investments in the technology, but their deal-making--which after all is what Intel needs for the spread of the technology--is suspect. If KT cannot get out of Korea with the technology, then they are a relatively small piece of what Intel hopes will be a big puzzle.

Country Branding

An interesting post on the importance of country branding is at this link.

Some of you may go on in careers in international business from your country's home base. And in such instances, it is important to measure the market and just as importantly how your company and where you originate from is "pre-measured" by the market. Overcoming these stereotypes will increasingly become important for economies--it is not just building the product or service--nearly anyone can do that. It is changing people's minds about your country that will become increasingly important.

The Other Side of China Business

We have watched while Chinese companies have sought to expand boldly overseas through M&A. Lenovo taking over IBM's PC Division was one good example. The pursuit of Unocal, a large US energy company was a second example. And perhaps it conjured up visions of future Li Kai Sheng like deal-makers taking their trade surpluses and aggressively buying assets overseas, much like the Japanese buying Rockefeller Center or Pebble Beach, except in a more astute way--less focused on "trophies" and more focused on money-making. But alas, reality hits...many of you know that China Mobile had agreed in principle to purchase Millicom a cellular operator with 10Million subscribers in a number of emerging markets. See the article below from the WSJ:

China Mobile AgreementTo Acquire Millicom Fails
By JASON SINGER in London and KATE LINEBAUGH in Hong Kong Staff Reporters of THE WALL STREET JOURNALJuly 4, 2006
Millicom International Cellular SA ended talks with China Mobile Communications Corp. just hours before Millicom executives were due to fly to Beijing to announce the $5.3 billion sale of their company.

The planned acquisition by China Mobile, had it been completed, would have been the largest foreign purchase by any Chinese firm.

Millicom said in a prepared statement that negotiations ended because the buyer "won't be in a position within an acceptable timeframe to make a binding offer that is suitably attractive, given the current strong performance of the business."

The sudden collapse of a deal that had been in exclusive negotiations since May could have far-reaching implications for future Chinese deals, bankers say, as sellers are likely to be wary about Chinese bidders' lengthy bureaucratic process and their ability to follow-through on talks to complete a deal.

Millicom, of Luxembourg, operates wireless networks in 16 countries in Africa, Asia and Latin America. China Mobile conducted an extensive review of Millicom's businesses in each market, from Chad in Africa to El Salvador in Central America.
Millicom's shares, listed on the Nasdaq Stock Market, were down $12.10, or 27%, at $33.33 each in trading near the early close in the U.S.

People close to both sides said the due-diligence process, which took much longer than expected -- partly because China doesn't have diplomatic relations with all of the countries Millicom operates in -- was completed without any snags. Negotiations also dragged on while state-controlled China Mobile negotiated many layers of bureaucracy to gain approval for the purchase.

Executives from Millicom were due to fly to Beijing yesterday to announce a deal on Wednesday. An agreement would have given a key Chinese state-owned company instant access to new markets around the world and opened pathways for further business for many other suppliers that already do business with China Mobile at home.
But, following a China Mobile board meeting Sunday, the company said it had last-minute price concerns, people close to the matter said.
After seeing its business grow strongly in recent months -- including significant strides during the period China Mobile was reviewing the deal -- Millicom responded by announcing the talks had collapsed.

People close to the matter said the Chinese company had last-minute concerns over the disparate nature of Millicom's sprawling businesses and the challenges China Mobile would have in managing it. Millicom's top executives, however, were due to remain in place after the deal to continue running the businesses.

Millicom is controlled by Swedish investment firm Investment AB Kinnevik, which owns nearly 40% of the company. It said it "supports the decision by the board of Millicom to terminate all discussions concerning a potential sale of the company."
Millicom operates mobile-phone operations in many of the world's poorest countries and has about 10 million subscribers. The market for mobile operations like Millicom's have been in increasing demand by some of the world's biggest operators looking to enter the world's few remaining fast-growing markets.

A deal would have been the first foray by China Mobile, the world's largest cellular operator by subscribers, outside of its home market.
While the two companies were negotiating the deal, asset prices across emerging markets fell sharply, which added to concerns at China Mobile that Millicom was seeking too high a price, according to people familiar with the deal. "They really liked the business. They just refused to pay a big premium," a person close to the talks said of the Chinese company.

China Mobile officials couldn't be reached to comment.
Bankers also said it is difficult for the management of state-owned enterprises to take the leap on a big deal for fear of facing criticism at home. "There are issues with the politics of state-owned enterprises and risk-taking," said a person close to the talks.

China Mobile's management, like those of the other state-owned companies, has to consider the reaction of several Chinese agencies in considering whether to go ahead with such a large deal.
The state-owned Assets Supervision and Administration Commission controls China Mobile and other state-owned companies. China Mobile also answers to the Ministry of Information Industry, which regulates China's telecom sector. And deals involving foreign exchange -- the Millicom deal was to be paid in dollars -- require a separate agency's approval. Ensuring that all sides within the China's bureaucracy are supportive of such a large acquisition is difficult, these people said.

Failure

We all have a fear of it. This from Business Week:

But intelligent failures -- those that happen early and inexpensively and that contribute new insights about your customers -- should be more than just tolerable. They should be encouraged. "Figuring out how to master this process of failing fast and failing cheap and fumbling toward success is probably the most important thing companies have to get good at," says Scott Anthony, the managing director at consulting firm Innosight."Getting good" at failure, however, doesn't mean creating anarchy out of organization. It means leaders -- not just on a podium at the annual meeting, but in the trenches, every day -- who create an environment safe for taking risks and who share stories of their own mistakes. It means bringing in outsiders unattached to a project's past. It means carving out time to reflect on failure, not just success.

Perhaps most important, it means designing ways to measure performance that balance accountability with the freedom to make mistakes. People may fear failure, but they fear the consequences of it even more. "The performance culture really is in deep conflict with the learning culture," says Paul J. H. Schoemaker, CEO of consulting firm Decision Strategies International Inc. "It's an unusual executive who can balance these."

And to add to the above, there are two things you need to make sure of in promoting this culture of "learning to fail" (as opposed to "failing to learn"). First, as they point out, fail early, not late; late failure is expensive. Second, have at least an inkling when you push out to the beyond where the failure can come from (and the upside as well) and watch it closely--have the scenarios of failure and upside mapped out in your mind. Know when to pull the plug beforehand.

Deal-making

GM has become DM--Dismal Motors. But now GM is in talks to become part of the Renault-Nissan alliance. Renault would invest and take a 20% stake in GM. And it was initiated by Jerry York, who is generally credited with helping to turn around IBM and Chrysler and who now sits on the Board of GM. In the background, supporting York, is Kirk Kerkorian, a well known financier and often called a "corporate raider". Carlos Ghosn who heads both Renault and Nissan is leading the discussion. The way big money capitalism works is exemplified well here-- global media turning him into an icon, York flying to London to meet him, Ghosn follows up to meet the real money man, Kirk Kerkorian. Deal proposed, board considering, deal leaks and stock goes up by 8-9%, enough to make the Board think hard about it (and maybe increasing the leverage of Renault in the negotiations).

Carlos Ghosn is the man who turned around Nissan. His words and actions come right to the point--like a knife. And there can be no question that he is a serious man--perhaps the second coming of Jack Welch--but this comparison is not fair to the man. He has his own legacy to build which will be a great one--maybe bigger than Welch as he will cross continents and cultures to do it.