Taking Stock After a Bad Year

August, 2002

I HOPE YOU'RE READING THIS in a hammock with a tall glass of lemonade and enjoying August, the traditional vacation month, for 2002 has been a year in which we've been drenched in a monsoon of headlines about business scandals. Gloomy weather can make one appreciate sunshine, but if we slush around in it too long, it plays havoc with our sense of who we are and our worldview. August is a good time to step back and ask not only how good people go bad but also how we might make it easier for them to stay good.

Kathleen O'Toole

In a short time, we have gone from a plethora of business news praising celebrity CEOs and stock analysts to daily tirades about scoundrels. Given the evidence of corporate greed and mismanagement, it is hard to call this yellow journalism, but this year's business headlines portray a kind of hopelessness that may be just as unjustified as the previous irrational exuberance (detailed by Ronan McGovern, Sloan '96). As Professor James Van Horne makes clear, the current problems have subtle differences, but they are not really new. In fact, our scholars at the Graduate School of Business have been telling us for some time that we were overconfident in the transparency of u.s. market systems. Past issues of this magazine have described GSB research related to problems with stock analysts, CEO pay, accounting conflicts of interest, corporate governance÷in other words, nearly all the hot business topics of 2002. Empirical research by Harrison Hong on stock analysts and by Eric Zitzewitz on stale pricing in international mutual funds are just the latest entries in a tradition of research aimed not only at uncovering problems but at making improvements.

Some folks think this research is too dry÷we all love a good story about sex, greed, and avarice in high places. But when the gossip dies down, somebody has to be there with substantive information to help us put Humpty Dumpty together again.

Kathleen O'Toole
Editor