Top of Mind

Is maximizing shareholder value hurting American capitalism?

Steven Pearlstein, George Mason University Robinson Professor of Public and International Affairs, argues that “the dominance of the shareholder-value mentality blinds us to the variety of other things business can maximize—the quality of their products or services, customer satisfaction, providing good jobs, and creating long-term market value. Promoting these things in tandem creates thriving, sustainable businesses,” according to a summary of his recent whitepaper  for the Center for Effective Public Management at the Brookings Institution. Pearlstein also discussed the issue with Charlie Rose.
Yale Insights talked with Lynn Stout, Distinguished Professor of Corporate & Business Law, Cornell University Law School. She has been a driving force behind re-examination of the legal basis and economic merit of shareholder-value primacy.


Is it time to revamp GDP?

Economists routinely use GDP growth as shorthand for well-being but that’s not actually what it measures. Introduced by the UK’s Treasury in 1941, it provided policymakers with a much improved summary of economic activity, particularly mass production.
But today, the reality presented by government statistics shows "the 'information sector' of the economy—which includes publishing, software, data services, and telecom—has barely grown since the late eighties, even though we’ve seen an explosion in the amount of information and data that individuals and businesses consume," writes James Surowiecki in the New Yorker.
Should we revisit GDP? Diane Coyle, writing in Aeon magazine, looks at the history and possible next steps for measuring economic activity and well-being.


Brooks on Future Workforce

In a recent talk at Yale SOM, Dean Edward A. Snyder highlighted a column by David Brooks speculating about what's likely to happen as more and more knowledge work becomes automated. Snyder noted that in Brooks's analysis, certain skills are likely to become less valuable (memorization, ability to follow protocol), while others become more valuable ("voracious explanatory drive," "strategic discipline," and ability to drive "loosely bonded teams").

This has far-reaching implications for MBA students considering their future careers, and Snyder pointed to this sentence as being particularly noteworthy: "So a manager who can organize a decentralized network around a clear question, without letting it dissipate or clump, will have enormous value."


Capital Requirements

At more than one panel at the Business + Society conference at Yale SOM, speakers suggested that reducing the leverage carried by financial institutions could stabilize the system and prevent future crises. See our reports here and here.

Slate writer Matthew Yglesias has an update on the ongoing competition between bankers and regulators over capital requirements.


Finance and Society

In 2014’s financial news, we often hear echoes of the 2008 crisis. In the last week, we learned that JPMorgan Chase agreed to a $2 billion settlement with the US Department of Justice related to its failure to alert regulators to suspicions about Bernie Madoff. Not only did Madoff’s exposure and collapse occur in the midst of the 2008 crisis, but the bank’s actions and the subsequent disciplinary response raise the question of how effectively regulators can oversee large, global financial institutions. At the same time, parts of the commercial paper market are finally returning to pre-crisis levels, which could be seen as a sign of renewal or a reminder of how slow economic recovery has been.

In an upcoming panel discussion at the Yale School of Management, academic experts and investors will talk about the critical role the finance sector plays in society. You can watch the discussion live on Saturday or read a preliminary discussion with the participants


Robert Shiller's Nobel Prize Lecture

Robert J. Shiller, the Sterling Professor of Economics at Yale University, delivered his Nobel Prize Lecture on December 8, 2013. In it, he took up the running argument over whether financial markets efficiently price in information about future dividends. Through a comparison of actual stock prices since 1871 to what efficient market theory would predict, he argued for the existence of bubbles, driven by "fads, fashions, or social epidemics that come and go."

View the entire lecture, as well as the lectures of his fellow prize recipients Eugene F. Fama and Lars Peter Hansen.


Changing China

China’s 30-year miracle has produced extraordinary growth, but there are complicated questions about the next steps. Despite the economic opportunity, successful people in China and other countries across Asia are moving to North America for a better quality of life, according to New Geography. 
Yale’s Deborah Davis discusses the balancing act of optimism and uncertainty she’s seen in Chinese business. 
Stephen Roach, of the Jackson Institute, highlights the complex dynamics between the United States and China that hit at the intersection of politics and economics in each country.



Shipping News

Understanding bubbles in maritime shipping. New research from HBS professors shows despite the boom-and-bust cycles, the industry offers long-term predictability and rewards a contrarian approach.

Insights talked with one of the small group of bankers that handle all the financing for ships that can cost hundreds of millions of dollars.



Commercial Space

Hauling cargo into space is becoming a viable commercial venture. Wired notes two milestones on September 29. SpaceX successfully launched version 1.1 of their Falcon rocket. And Orbital Sciences docked its Cygnus space capsule with the International Space Station delivering 1,300 pounds of supplies. That demonstration mission triggered Orbital’s $1.9 billion contract with NASA for eight more flights.

Yale Insights looked at the business of private space flight and talked with Orbital’s Bill Claybaugh ’83 about the “high risk, low return” industry.