- Subject: Strategic Management. - Mandatory book for this week's assignment (file attached - please include in citations): Rothaermel, F. T. (2013). Strategic management: Concepts. New York: McGraw-

E ssay # 1: T he M BA o ath s a ys in p art, “ M y d ecis io ns a ff e ct th e w ell- b ein g o f in div id uals

i n sid e a nd o uts id e m y e nte rp ris e , to day a nd to m orro w .” T his e ch oes w hat J o hn M acke y

of Wh ole F oods h as in r e ce nt y e a rs c a lle d c o n scio us c a p it a lis m .

One e xa m ple o f a la rg e fir m r e orie ntin g to w ard th is a ppro ach is P epsiC o. In th e la st fe w

ye ars , P epsiC o h as b een c o ntr a ctin g d ir e ctly w it h s m all fa rm ers in im pove ris h ed a re as

(fo r e xa m ple , in M exic o ). Wh at s ta rte d a s a p ilo t p ro je ct in P epsiC o’s S abrit a s s n ack

fo od d iv is io n h as n ow s p re ad to o ve r 1 ,0 00 fa rm ers p ro vid in g p ota to es, c o rn , a nd

su nflo w er o il to th e fir m . P epsi p ro vid es a p ric e g uara nte e fo r fa rm ers ’ c ro ps th at is

h ig her a nd m uch m ore c o nsis te nt th an th e p re vio us s yste m o f u sin g in te rm edia rie s. T he

fa rm ers r e port th at s in ce th ey h a ve a fir m m ark e t, th ey a re p la ntin g m ore c ro ps. O utp ut

is u p a bout 1 60 p erc e nt, a nd fa rm in co m es h ave tr ip le d in th e la st th re e y e ars . T he

pro gra m h as b enefit s fo r P epsi a s w ell. A s h if t to s u n flo w er o il fo r it s M exic a n p ro ducts

w ill r e pla ce th e 8 0,0 00 to ns o f p alm o il it c u rre ntly im po rts to M exic o fr o m A sia a nd

A fr ic a , th us s la sh in g tr a nsp orta tio n a nd s to ra ge c o sts .

Q uestio ns

1. Wh at a re th e b enefit s o f th is p ro gra m fo r P epsiC o? W hat a re it s d ra w backs?

2. Wh at o th er s o cie ta l b enefit s c o uld s u ch a p ro -g ra m h ave in M exic o ?

3. If y o u w ere a P epsiC o s h are hold er, w ould y o u s u p port th is p ro gra m ? W hy o r w hy

not?

4. C an y o u fin d o th er e xa m ple s o f fir m s e m plo yin g “ c o n scio us c a p it a lis m ”?

E ssay # 2: It is n ot u nusu al fo r e ve n la rg e c o rp ora te b oard s to h ave n o w om en o r

m in orit ie s o n th em . In th e U S, w om en h eld 1 6 p erc e n t o f b oard s e ats a t F ortu ne 5 00

co m panie s in 2 012. In h er 2 013 b ook, L ean In , S hery l S andberg p oin ts o ut th at th is

n um ber h as b een fla t fo r 1 0 y e ars — o r, a s s h e p uts it , th ere h as b een n o p ro gre ss in

t h e p ast 1 0 y e ars . In E uro pe, o f th e to ta l n um be r o f b oard m em bers in B rit a in , o nly 1 2

perc e nt w ere w om en; S pain , F ra nce , a nd G erm an y a ll h ad le ss th an 1 0 p erc e nt. In

N orw ay, b y c o ntr a st, fe m ale m em be rs c o m pris e d 4 0 p erc e n t o f th e b oard s.

S o h ow d id N orw ay d o it ? In 2 00 5, th e g ove rn m en t o f N orw ay g ave p ublic fir m s tw o

ye ars to c h ange th eir b oard s’ c o m po sit io n fr o m 9 p erc e n t fe m ale to 4 0 p er-c e nt fe m ale .

Is th is a g ood id ea? S pain , Ita ly , F ra nce , a nd th e N eth erla nds m ust th in k s o : E ach

c o untr y is c o nsid erin g im ple m en tin g a s im ila r q uota ( th ough g enera lly w it h m ore th an

tw o y e ars to im ple m ent it ) .

Q uestio ns

1. D is cu ss in y o ur g ro up to w hat e xte nt it is a p ro ble m th at w om en a re p ro portio nally

u nderre pre se nte d o n c o rp ora te b oard s. P ro vid e th e r a tio nale fo r y o ur r e sp onse s.

2. Wh y h as r e pre se nta tio n b y w om en o n U S b oard s n ot in cre ase d o ve r th e p ast 1 0

ye ars ? Wh at a ctio ns c o uld b e ta ke n b y c o m pa nie s to in cre ase p artic ip atio n? W hat

actio ns c o uld b e ta ke n b y w om en w ho s e e k to b e d ir e cto rs ? 3. Would a r e gula to ry q uota b e a g o od s o lu tio n? W hy o r w hy n ot?

4. Wh at o th er m eth ods c o uld b e u se d to in cre ase fe m ale a nd m in orit y p artic ip atio n

on c o rp ora te b oard s? S hould it b e p erc e iv e d a s a p ro ble m w hen a c o m pany s e eks

m in orit y w om en a s d ir e cto rs s o th at b oth s ta tis tic s r is e ? W hat d ata w ould y o u

gath er in o rd er to v e rif y th at s u ch a ppoin tm en ts a re s in ce re ?

E ssay # 3: U BS w as fo rm ed in 1 997 w hen th e S w is s B ank C orp ora tio n m erg ed w it h th e

U nio n B ank o f S w it z e rla nd. A fte r a cq u ir in g P ain e W ebber, a 1 20-y e ar-o ld U S w ealt h

m anagem ent fir m in 2 000, a nd a ggre ssiv e ly h ir in g fo r it s in ve stm ent b ankin g b usin ess,

U BS s o on b eca m e o ne o f th e to p fin ancia l s e rv ic e s c o m pa nie s in th e w orld a nd th e

big gest b ank in S w it z e rla nd.

B etw een 2 008 a nd 2 012, h ow eve r, U BS’s s ta ndin g w as h arm ed b y a s e rie s o f e th ic s

s ca ndals , d eta ile d n ext. T hese s ca ndals c o st th e b ank b illio ns o f d olla rs in fin es a nd

lo st p ro fit s , a nd s e ve re ly d am age d it s r e puta tio n.

E th ic s S ca ndal # 1: U S T a x E va sio n S w is s b anks h ave lo ng e njo ye d a c o m petit iv e

a dva nta ge b ro ught b y th e S w is s b ankin g p riv a cy la w s, m akin g it a c rim in al o ff e nse to

s h are c lie nts ’ in fo rm atio n w it h a n y th ir d p artie s. T he e xce ptio ns a re c a se s o f c rim in al

acts s u ch a s a cco unts lin ke d to te rro ris ts o r ta x fr a ud. M ere ly n ot d ecla rin g a sse ts to ta x

auth orit ie s ( ta x e va sio n), h ow eve r, is n ot c o n sid ere d ta x fr a ud.

A fte r th e a cq uis it io n o f P ain e W eb ber, U BS e nte re d in to a Q ualif ie d In te rm edia ry ( Q I)

a gre em ent w it h th e In te rn al R eve nue S erv ic e ( IR S), th e fe dera l ta x a gency o f th e U S

gove rn m ent. L ik e o th er fo re ig n f in ancia l in stit u tio ns u nder a Q I a gre em ent, U BS a gre ed

to r e port a nd w it h hold ta xe s o n a cco unts r e ce iv in g U S-s o u rc e d in co m e. R eportin g o n

non-U S a cco unts w it h U S-s o urc e d in co m e is d one o n a n a ggre gate b asis . T his in tu rn

p ro te cts th e id entit y o f th e n on-U S a cco unt h old ers .

In m id -2 008, it c a m e to lig ht th at s in ce 2 000, U BS h ad a ctiv e ly p artic ip ate d in h elp in g it s

U S c lie nts e va de ta xe s. T o a vo id Q I r e portin g r e quir e m en ts , U BS’s S w it z e rla nd-b ase d

banke rs h ad a id ed U S c lie nts in s tr u ctu rin g th eir a cco unts to d iv e st U S s e cu rit ie s a nd

se t u p s h am e ntit ie s o ff s h ore to a cq u ir e n on-U S a cco unt- h old er s ta tu s. A id ed b y S w is s

b ank p riv a cy la w s, U BS s u cce ssfu lly h elp ed it s U S c lie nts c o n ce al b illio ns o f d olla rs

fr o m th e IR S. In a ddit io n, U BS a g gre ssiv e ly m ark e te d it s “ ta x s a vin g” s ch em es b y

se ndin g it s S w is s b anke rs to th e U S to d eve lo p c lie nte le , e ve n th ough th ose b anke rs

n eve r a cq uir e d p ro per lic e nse s f r o m th e U S S ecu rit ie s a nd E xch ange C om mis sio n

(S EC ) to d o s o .

T he U S p ro se cu to rs p re sse d c h a rg es o n U BS fo r c o n sp ir in g to d efr a ud th e U nit e d

S ta te s b y im pedin g th e IR S. In a s e p ara te s u it , th e U S r e queste d U BS to r e ve al th e

nam es o f 5 2,0 00 U S c lie nts w ho w ere b elie ve d to b e ta x e va d ers . In F ebru ary 2 009,

U BS p aid $ 780 m illio n in fin es to s e ttle th e c h a rg es. A lt h ough it in it ia lly r e sis te d th e

pre ssu re to tu rn o ve r c lie nts ’ in fo rm atio n, c it in g th e S w is s b ank p riv a cy la w s, U BS

eve ntu ally a gre ed to d is clo se 4 ,4 50 a cco unts a fte r in te nse n egotia tio ns in vo lv in g

off ic ia ls fr o m b oth c o untr ie s. C lie nts le ft U BS in d ro ve s: O pera tin g p ro fit fr o m th e b ank’s

w ealt h m anagem ent d iv is io n d eclin ed b y 6 0 p erc e n t o r $ 4.4 b illio n in 2 008; it d eclin ed anoth er 1 7 p erc e nt ( $ 504 m illio n) in 2 009. T he U BS c a se h as fa r-re ach in g im plic a tio ns

fo r th e b ank’s w ealt h m anagem ent b usin ess a nd th e S w is s b ankin g in dustr y a s a

w hole , e sp ecia lly fo r th e b ank s e cre cy in w hic h th e in dustr y ta ke s s u ch p rid e.

To c lo se lo ophole s in th e Q I p ro g ra m a nd c ra ck d ow n o n ta x e va sio n in c o untr ie s w it h

s tr ic t b ank s e cre cy tr a dit io ns, P re sid ent O bam a s ig ned in to la w th e F ore ig n A cco unt

Ta x C om plia nce A ct ( F A T C A) in 2 010. T he la w r e quir e s a ll fo re ig n fin ancia l in stit u tio ns

to r e port o ff s h ore a cco unts a nd a ctiv it ie s o f th eir U S c lie nts w it h a sse ts o ve r $ 50,0 00,

and to im pose a 3 0 p erc e nt w it h h old in g ta x o n U S in ve stm en ts o r to e xit th e U S

busin ess a lt o geth er. S w it z e rla nd h as a gre ed to im ple m en t th e F A T C A. T he a nnual

co m plia nce c o st fo r e ach S w is s b ank is e stim ate d to b e $ 100 m illio n.

E th ic s S ca ndal # 2: R ogue T ra de r

O n S epte m ber 1 5, 2 011 , U BS a n nounce d th at a r o gue tr a der n am ed K w eku A doboli a t

it s L ondon b ra nch h ad r a cke d u p a n u nauth oriz e d tr a din g lo ss o f $ 2.3 b illio n o ve r a

p erio d o f th re e y e ars . N in e d ays la te r, U BS’s C EO O sw ald G rü bel r e sig ned “ to a ssu m e

re sp onsib ilit y fo r th e r e ce nt u na uth oriz e d tr a din g in cid ent.” [1 ] A fte r m ore th an a y e ar o f

jo in t in ve stig atio n b y th e U K a nd S w is s r e gula to rs , th e c a se w as c o nclu ded w it h

f in din gs th at s yste m s a nd c o ntr o ls a t U BS w ere “ s e rio usly d efe ctiv e .” [2 ]

A s a r e su lt , M r. A doboli, a r e la tiv e ly ju nio r tr a der, w as a ble to ta ke h ig hly r is ky p osit io ns

w it h v a st a m ounts o f m oney. M ore a la rm in gly , a ll th re e o f M r. A doboli’s d esk c o lle agues

adm it te d th at th ey k n ew m ore o r le ss o f h is u nauth oriz e d tr a des. M ore ove r, M r.

A doboli’s tw o b osse s h ad s h ow n a r e la xe d a ttit u de to w ard b re ach in g d aily tr a din g

lim it s . U BS w as fin ed $ 47.6 m illio n in la te 2 012.

E th ic s S ca ndal # 3 : L ib or M anip ula tio n. L ib or, o r th e L ondon In te rb ank O ff e re d R ate , is

t h e in te re st r a te a t w hic h in te rn atio nal b anks b ase d in L ondon le nd to e ach o th er. L ib or

is s e t d aily : A p anel o f b anks s u bm it s r a te s to th e B rit is h B anke rs ’ A sso cia tio n b ase d o n

th eir p erc e iv e d u nse cu re d b orro w in g c o st; th e r a te is th en c a lc u la te d u sin g a “ tr im med”

ave ra ge, w hic h e xclu des th e h ig hest a nd lo w est 2 5 p erc e n t o f th e s u bm is sio ns.

L ib or is th e m ost fr e quently u se d b ench m ark r e fe re nce r a te w orld w id e, s e ttin g p ric e s o n

fin ancia l in str u m ents w orth a bou t $ 800 tr illio n. U BS, a s o ne o f th e p anel b anks, w as

fin ed $ 1.5 b illio n in D ece m ber 2 0 12 b y th e U S, th e U K, a nd S w is s r e gula to rs fo r

m anip ula tin g L ib or s u bm is sio ns fr o m 2 005 to 2 010. D urin g th at p erio d, U BS tr a ders

a cte d o n th eir o w n o r c o llu ded w it h in te rd eale r b ro ke rs a nd tr a ders a t o th er p anel b anks

to a dju st L ib or s u bm is sio ns to b en efit U BS’s o w n tr a din g p osit io ns. In a ddit io n, d urin g

th e s e co nd h alf o f 2 008, U BS in str u cte d it s L ib or s u b m it te rs to k e ep s u bm is sio ns lo w to

m ake th e b ank lo ok s tr o nger. A t le ast 4 0 p eople , in clu din g s e ve ra l s e nio r m anagers a t

U BS, w ere in vo lv e d in th e L ib or m an ip ula tio n. In a ddit io n to th e fin e, U BS J a pan

ple aded g uilt y to U S p ro se cu to rs fo r c o m mit tin g w ir e fr a ud. U BS e nded th e y e ar 2 012

w it h a lo ss o f a lm ost $ 3 b illio n, c o m pa re d w it h a p ro fit o f $ 4.5 b illio n fo r 2 011 .

Q uestio ns 1. Min i C ase 2 0 d eta ils th re e e th ic s s ca ndals a t U BS in r e ce n t y e a rs . W hat d oes th at

te ll y o u a bout U BS?

2. G iv e n th e U BS e th ic s fa ilin gs, w ho is to b la m e? T he C EO ? T he b oard o f d ir e cto rs ?

3. Wh at le sso ns in te rm s o f b usin e ss e th ic s a nd c o m pe tit iv e a dva n ta ge c a n b e d ra w n

fr o m th e U BS s ca ndals , e sp ecia lly c o m pa rin g th e fir m ’s 2 012 a nd 2 011 n et

in co m e? L ookin g a t E xh ib it M C20.1 , w hy d o y o u th in k th e s to ck m ark e t h asn ’t

r e acte d m ore s tr o ngly to th e e th ic s fa ilin gs?

4. Wh at c a n U BS d o to a ) a vo id m ore e th ic s s ca ndals in th e fu tu re a nd b ) r e pair it s

d am aged r e puta tio n?

E ssay # 4: H P w as o nce s o s u cce ssfu l th a t it w as fe atu re d a s o ne o f a h andfu l o f

vis io nary c o m panie s in th e b usin e ss b ests e lle r B uilt to L ast, p ublis h ed in 1 994. T hese

se le ct c o m panie s o utp erfo rm ed th e s to ck m ark e t b y a w id e m arg in o ve r s e ve ra l

deca des. B uilt to L ast o pens w it h a q uote b y H P’s c o -fo under B ill H ew le tt:

A s I lo ok b ack o n m y lif e ’s w ork , I’m p ro bably m ost p ro ud o f h avin g h elp ed to c re ate a

c o m pany th at b y v ir tu e o f it s v a lu es, p ra ctic e s, a nd s u cce ss h as h ad a tr e m endous

im pact o n th e w ay c o m panie s a re m an aged a ro und th e w orld . A nd I’m p artic u la rly

p ro ud th at I’m le avin g b ehin d a n o ngoin g o rg aniz a tio n th at c a n liv e o n a s a r o le m odel

lo ng a fte r I’m g one. [3 ]

B ill H ew le tt p asse d a w ay in 2 00 1. M uch h as c h a nged s in ce th en. A lt h ough g enera lly

C EO s a re b la m ed fo r a c o m pany’s p oor p erfo rm an ce , it a ppears th at in th e c a se o f H P

m uch o f th e b la m e is to b e la id o n th e b oard o f d ir e cto rs . T he b oard is a k e y c o rp ora te

g ove rn ance m ech anis m th at is s u p pose d to a ct in th e b est in te re sts o f s h are hold ers ,

b ut m any o f th e H P b oard ’s d ecis io ns c o n tr ib ute d to th e d estr u ctio n o f $ 82 b illio n in

s h are hold er v a lu e. F or th e la st d eca d e, it a ppears th at H P’s b oard o f d ir e cto rs w as

dysfu nctio nal. It s ta rte d w it h th e p re te xtin g a ff a ir , fo llo w ed b y th e h andlin g o f th e M ark

H urd e th ic s s ca ndal, th e a ppoin tm en t o f L eo A poth eke r, a nd th e b otc h ed A uto nom y

acq uis it io n. In o rd er to a ppoin t a s u cce sso r to A poth eke r q uic kly , th e b oard m ade th e

co ntr o ve rs ia l d ecis io n n ot to e ng age in a n o pen s e a rc h fo r th e n ext C EO b ut r a th er

appoin t M eg Wh it m an, w ho w as s e rv in g a s a n H P b oard m em be r a t th e tim e.

A c lo se r lo ok, fo r e xa m ple , a t th e A uto nom y a cq u is it io n in w hic h H P lo st s o m e $ 9 b illio n

sh ow s th at th e d ue d ilig ence p ro ce ss b y th e b oard w as fla w ed. T he p ro ce ss it s e lf w as

tr u nca te d. M ore ove r, th e H P b oa rd d id n ot h eed th e r e d fla gs th ro w n u p b y D elo it te ,

A uto nom y’s a udit o r. In deed, a f e w d ays b efo re th e A uto nom y a cq uis it io n w as fin aliz e d,

D elo it te a udit o rs a ske d to m eet w it h th e b oard to in fo rm th em a bout a fo rm er A uto nom y

exe cu tiv e w ho a ccu se d th e c o m pa ny o f a cco untin g ir re gula rit ie s. D elo it te a ls o a dded

th at it in ve stig ate d th e c la im a n d d id n ot fin d a ny ir re gula rit ie s.

P erh aps m ost p ro ble m atic , th e b oard fe ll v ic tim to g ro upth in k, r a lly in g a ro und M r.

A poth eke r a s C EO a nd R ay L an e, th e b oard c h a ir , w ho s tr o ngly s u pporte d h im . M r.

A poth eke r w as e ager to m ake a h ig h-im pa ct a cq u is it io n to p ut h is s tr a te gic v is io n o f H P

as a s o ftw are a nd s e rv ic e c o m pa ny in to a ctio n. In th e w ake o f th e M ark H urd e th ic s

s ca ndal, a n o uts id e r e cru it in g fir m h ad id entif ie d M r. A poth eke r a s C EO a nd R ay L ane as th e n ew c h air o f H P’s b oard o f d ir e cto rs . T he fu ll b oard n eve r m et e it h er o f th e m en

befo re h ir in g th em in to k e y s tr a te gic p osit io ns!

T he H P b oard o f d ir e cto rs e xp erie nce d a m ajo r s h a ke u p a fte r th e M ark H urd e th ic s

s ca ndal a nd th en a gain a fte r th e d epartu re o f L eo A poth eke r. M r. L ane s te pped d ow n

as c h air m an o f H P’s b oard in s p rin g 2 013, b ut r e m ain s a d ir e cto r. [4 ]

Q uestio ns

1. Wh o is to b la m e fo r H P’s s h are hold er v a lu e d estr u ctio n— th e C EO , th e b oard o f

dir e cto rs , o r b oth ? Wh at r e co urs e , if a ny, d o s h a re hold ers h ave ?

2. Y ou a re b ro ught in a s: a ) a c o rp o ra te g ove rn ance c o n su lt a nt o r b ) a b usin ess

e th ic s c o nsu lt a nt b y H P’s C EO . W hat r e co m mendatio ns w ould y o u g iv e th e n ew

C EO , M eg Wh it m an? H ow w ould y o u g o a bout im ple m en tin g th em ? B e s p ecif ic .

3. D is cu ss th e g enera l le sso ns in te rm s o f c o rp ora te g ove rn ance a nd b usin ess e th ic s

th at c a n b e d ra w n fr o m th is c a se .

E ssay # 5: D eve lo pm ents a fte r th e g lo bal f in ancia l c ris is m ove d th e U S a w ay fr o m

bein g o ne o f th e m ost fr e e-m ark e t e co n om ie s in th e w orld to w ard a n e co nom y w it h

m uch m ore a ctiv e a nd s tr o nger g ove rn m en t in vo lv e m en t ( e . g ., th e “ P atie nt P ro te ctio n

and A ff o rd able C are A ct,” c o m m only k n o w n a s “ O bam a-c a re ,” r e quir e s e m plo ye rs to

s p end m ore o n h ealt h c a re , in clu din g s m alle r fir m s). W hat im plic a tio ns d oes th is s h if t in

t h e p olit ic a l a nd e co nom ic e nvir o nm en t in th e U nit e d S ta te s h ave fo r la rg e fir m s ( s u ch

a s G E o r IB M ) v e rs u s s m all fir m s ( m om a nd p op e ntr e pre neurs a nd te ch nolo gy

sta rtu ps)? H ow d oes th is c h ang e th e c o m pe tit iv e la ndsca pe a nd a ff e ct a fir m ’s s tr a te gy

fo rm ula tio n a nd im ple m enta tio n?

[1 ] M em o to U BS s ta ff fr o m in te rim C EO , c h a ir m an ,” R eute rs , S epte m ber 2 4, 2 011 .

[2 ] U BS fin ed £ 2 9.7 m o ve r r o g ue tr a der,” F in ancia l T im es, N ove m ber 2 6, 2 012.

[ 3 ] B ill H ew le tt, H P c o -fo under, a s q uote d in C ollin s, J . C ., a nd J . I. P orra s ( 1 994), B uilt

t o L ast: S ucce ssfu l H abit s o f V is io nary C om pa nie s, p . 1 .

[ 4 ] “ H P s h ake s u p b oard in s ca nd al’s w ake ,” T he W all S tr e et J o u rn al, J a nuary 2 1, 2 011 ;

and “ In sid e H P’s m is se d c h ance to a vo id a d is a str o us d eal, ” T he W all S tr e et J o urn al,

J a nuary 2 1, 2 013.