Who's in the News

November, 2002

Get Stock Options Out of the Footnotes

“YOU MANAGE what you measure,” Mary Barth says in one of many recent articles that quotes the GSB senior associate dean and professor of accounting on the controversial corporate accounting practice of burying the news of stock options granted to employees and others in annual report footnotes.

Her opinion counts because she sits on the International Accounting Standards Board, which is developing accounting rules that will be binding—starting in 2005—for companies listing their shares on exchanges in Australia or the European Union. In July the board voted unanimously to require expensing of options, the Washington Post reported. Silicon Valley firms have lobbied heavily against the change, and so far U.S. officials have refused to commit to joining any international standards regime.

Company executives have argued that options are hard to value accurately, but Barth told the San Jose Mercury News that if firms were required to treat options as one of their expenses, many would likely conclude, “We’re giving too much away.” That is what happened two decades ago, she points out, when U.S. corporations finally were required to subtract the value of future retiree benefits from their earnings.

Stealth VC Flies Below the Radar

THEIR PORTFOLIO has included such household names as Beringer, Del Monte, and Continental Airlines, but Texas Pacific Group (TPG) is not well known and “cruises below the radar screen” on purpose, according to the San Francisco Chronicle, which recently reported on the buyout firm’s decision to finance the bankruptcy operation of us Airways.

Organized to buy Continental Airlines in 1993, TPG was founded by Jim Coulter, MBA ’86, and two partners, who made their reputation as smart, contrarian investors by selling Continental for 11 times their initial investment.

Getting Coulter to talk on the record about company strategy is difficult, wrote Chronicle reporter Carol Emert. The firm, with $10 billion under management, is so taciturn that TPG “pulled the plug on its perennially ‘under construction’ website on the belief that people who need to know about the firm already do—and that providing easy information on the Web to its rivals is just dumb,” Emert wrote.

She Never Has a Bad Hair Day

Candace Matthews, MBA '85 heads a venerable beauty products line.

EXECUTIVE PERKS come in all flavors, but many GSB alums would envy one that belongs to Candace Matthews, MBA ’85. As president of L’Oréal’s Soft Sheen-Carson division, she has a private room with a hair dryer hung from the ceiling and her own swivel styling chair. “They keep me coiffed,” the former steel mill worker and executive for Coca-Cola, Cover Girl, and Bausch & Lomb told the Chicago Sun-Times.

Matthews, who must have struggled for the bathroom mirror, not to mention a hair dryer, as the youngest of 18 children in her Pennsylvania family, was tapped last year to run Soft Sheen-Carson, a beauty products line created for African Americans. Soft-Sheen founder Ed Gardner agreed to sell the company only if L’Oréal USA promised to keep it headquartered on Chicago’s South Side, and Matthews’ private salon is part of an $8 million renovation of the old Johnson Products building there, according to the newspaper.

Energy Not to Burn

WATCH OUT FOR Frank Colvin, Sloan ’78—the guy at exhibitions standing near the electric-powered pickup truck. Colvin could “rearrange the planet,” the Indianapolis Star said in a feature about progress on fuel cells and Colvin’s latest assignment—as GM’s vice president for global fuel cell activities.

Colvin has spent much of his GM career consolidating various operations at the giant auto-maker. This time he is expanding them. About 500 engineers, scientists, and technicians work under him on fuel cells, compared to just 80 three years ago.

Why Didn’t I Think of That?

WITH HER IDEA on how to improve photocopier reliability, Leslie Preston, MBA ’93, is turning heads in Auckland. Preston’s consultancy, Ingenio, proposed granting the people who maintain and repair the equipment a “virtual franchise.” Since Ingenio took the plan to a photocopier company with 70-odd technicians, the firm has had an improvement of 30 percent in productivity and 25 percent in response time to customers, she told New Zealand’s National Business Review.

Once dispatched like taxis to customers based on their respective locations and the order in which requests for service were received, the technicians now have their own geographical zones. This allows them to get to know their customers and decide which jobs are most urgent. “They now have relationships with people. It’s very powerful,” Preston said.

Track Record to Envy

WHEN FORBES MAGAZINE looked around for investment newsletters that were giving better-than-average advice in this bear market, it found Good Fortune, edited by Bill Ragsdale, Sloan ’86, who lives in the farming community of Woodland, Calif.

Tracking the top 30 Fidelity mutual funds, each issue reports on only the top eight, so its recommendations are “crystal clear,” he told Forbes. Its most aggressive portfolio has produced a 19.4 percent annualized return since 1996, Forbes said, and was flat for the year as of July, when the S&P had lost nearly 20 percent.

Ragsdale compares his system to a horse race: “The bell rings, the gates open, and you bet on the first horse out. When they get a quarter of the way around the track, you check to see if you’re on the leading horse—and if you’re not, you jump over to another one. You may not always end up on the winning horse, but at the end of the race, you’ll be on a damn fast animal.”

Power Blurs Reality

IN A STORY on the rise and fall of John Rigas and his company Adelphia, the Chicago Tribune turned to Irving Grousbeck, GSB professor of strategic management, for an explanation of why the company’s management imploded. “We’re all speculating. My speculation is that power is a great insulator,” Grousbeck said. “It insulates you from people saying no, from strongly disagreeing with you, from feeling that you’re human or vulnerable or mortal. That line between what’s right and wrong gets blurred.”

Would a law requiring executives to vouch for the accuracy of their firm’s financial reports help? Finance professor George Parker suggested yes in the San Jose Mercury News. “The analogy that comes to mind is the business of taking an oath in court. When anyone has been sworn in, they probably ask themselves one more time, ‘Is what I’m saying what I really mean?’”

Alumni to Know

Faculty

Newsmakers

This Analyst Doesn’t Mince Numbers

“THE ONLY THING RARER than an unconflicted analyst is a chip researcher with a value philosophy,” Fortune said in introducing Vadim Zlotnikov, MBA ’88, to its third annual list of “All-Star Analysts.” Zlotnikov’s ratings of companies in the tech/semiconductor sector for Sanford C. Bernstein focused on valuation and sales growth, producing a 21 percent return in 2001 compared with a 1 percent loss for the average analyst in that sector, the magazine said.

Born in Ukraine, Zlotnikov was captain of his high school math team, and he clearly is not afraid of juggling large numbers. At one point, he warned that to justify Qualcomm’s multiple of 400 or so, within a decade two-thirds of the earth’s population would have to own wireless headsets with CDMA multiplexing technology.

Experiment Pays Off

WITH ADVICE AND CASH, venture capitalists often tell inventors which ideas to pursue, but VC Adam Grosser, MBA ’90, gave one Stanford engineer more than encouraging words or capital—he offered a testbed.

According to Fortune, Grosser, a former CEO of Excite@Home, used his connections there to let Stanford doctoral student Amit Singh test an idea. Singh applied the technology used to compare DNA patterns to look at patterns in other types of data, such as the standard verbiage at the end of emails and other corporate documents.

The result is Peribit, a company that makes a VCR-sized box that reduces bandwidth use on corporate networks by 50 to 80 percent. One client’s network manager quoted in the story said that $50,000 of Peribit equipment allowed him to avoid $240,000 in bandwidth expansion.

Circuit CEO

ACCORDING TO the San Jose Mercury News, Jeff Crowe, MBA ’82, is the start-up world’s “cowboy CEO.” That’s because he rides into the CEO’s office, stays a few months, and moves on to the next herd of little doggies. Crowe is called upon by venture capitalists such as Norwest Venture Partners of Palo Alto to help their portfolio companies survive, which often means laying off workers and arranging mergers and buyouts. For instance, six months after he joined PowerMarket, a San Jose maker of supply chain management software, Crowe had led the firm through two mergers, won $11 million in additional funding, and positioned it to better compete, the newspaper said.

The job requires winning over some traumatized employees. While he loves the thrill of new challenges, Crowe said it is tough to leave companies because “part of the way I operate [is] building trust and developing attachments to people.”

“Who Am I” Gets Easier to Answer

GENEALOGY IS the second most popular hobby in the United States after gardening, which is why Tom Stockham, MBA ’91, sees plenty of room to grow MyFamily.com Inc., where he recently became CEO.

A former Ticketmaster division president, Stockham moved back to his native Utah to take the job with the company that has the world’s largest collection of electronic genealogical records, including U.S. Census and Civil War pension records.

In an interview with the trade publication Wasatch Digital IQ, Stockham said he anticipated the day when the company’s computers, using information previously requested by family members tracking their ancestry, would search the databases on their own to find records of interest. Currently, users tell the company what they want to search for.