Book Review: Corporate Finance Law - A Guide for the Executive

Corporate Finance Law by Bruce Wasserstein is The Prince of our day. Wasserstein writes it to explain corporate finance and to market himself to executives. I would caution that the book was copyrighted in 1978 and some of the information likely has changed and may be no longer accurate.

Topics of Interest-

• Why to choose a specific business structure
• Corporation- Taxed at the corporate level and ownership transferable via stock certificates
• Partnership- Agreement outlines control and share of profits, individual taxed
• Limited Liability Partnership- Partners share in profit with limited liability as long as they take role in the management

Tax shelters are typically partnerships due to flow of losses generated by deductions: 1) depreciation or 2) depletion allowances

Subchapter S- corporations with X<100 shareholders benefit from incorporation while being taxed as partnership (section 1244 IRS code-net assets X<500,000 issue stock where my losses to investors will be deducted against income rather than capital loss(great for startups due to tax advantages and extended losses).

• Directors have a fiduciary responsibility for all stockholders of a company.
• The business judgment rule protects directors from liability if they used best judgment even if the decision was a mistake... HOWEVER, if any part of prospectus used in connection with public offering contains a misstatement or material omission, every director is personally liable
• Directors along with officers and beneficial owners of a public company with more than 10% ownership are considered insiders and must file with the SEC their holdings
• Trustees
• 1939 Act- limits who can be a trustee for public debt issues
• Cannnot be trustee under another issue with conflicting rights
• Cannot control the issue
• Cannot own X>10% of issuing company 
• Capital Structure
• Net Operating Approach: Company valued on capital structure as a whole. No difference between debt/equity (assumes debt there is an explicit cost of interest and as debt/equity increases, common stock perceived riskier which leads to increase in demand payments. This leads to value/share declining
• Majority Approach: as debt increases, it leads to increased risk, which leads to decline in p/e but not enough to offset the benefit of using debit instead of equity for financing (There is an equilibrium where the marginal cost of selling equity equals selling debt)
• Off-Balance Sheet Financing
• Project financing (subsidiary even with a parent guarantee)
• Municipal pollution bonds
• ESOPs
• Leasing
• There exist tax benefits to leasing over owning the property outright. They typically are shown as footnotes in reporting but if capital lease most but included on balance sheet.
• Reorganizing a Company
• Creditors can force a bankruptcy or the company can voluntarily file
• Ch11-arranging unsecured creditors
• Ch10- reorganization of securities and unsecured debt
• Ch12- real estate
• Section 77- railroad reorganization
• Indemnity hearing- hearing set up to specifically negotiate under bankruptcy with creditors and potentially reorganize the company
• Combining Companies
• 3 Major Merger Movements
• 1900-1907 (Horizontal Merger)
• 1920-1929 (Horizontal Merger)
• 1960-1968 (Conglomerates)

• Short tendering was used to avoid maximum firm commitment from purchasing a company by arbitragers. Now not allowed because of the disadvantages to the public.
• Additional Interesting Facts
• Small Business Investment Corporation- Licensed by SBA to finance small companies
• They treat losses of sales as loss but gains treated as capital gains
• SBA will purchase/guarantee debt of SBIC up to 4 times the equity of SBIC
• MESBICs lend to minorities 
• Antitrust handled by both 1)Antitrust division of Justice Department 2) Bureau of Competition of the Federal Trade Commission
• SEC lets accounting community choose the standard of reporting

Book Review: Keynes Hayek: The Clash That Defined Modern Economics

Prior to starting Kenyes Hayek, I asked myself, "What do I really know about these two men". I graduated college having double majored in Economics and Business Admin and upon asking myself this question, realized I knew very little...

Both economists built on and contributed to man's understanding of economics. They observed massive social upheaval in World War I, the Great Depression, World War II, and the post-war reconstruction efforts. This upheaval, the relationship with each other, the breakthroughs in economic understanding, and implications and utilization in public policy were my major takeaways from this work.

The Development of Economic Understanding:

The economic solutions that competed during Hayek and Keynes can almost be viewed from a linear perspective in degrees of the appropriate amount of government intervention needed to ensure economic growth. The classical perspective of Hayek argued for as little intervention as possible, Keynes believed that stimulus utilization would correct economies gone awry, subscribers to fabian socialism believed government control of production, and marxist socialism advocated control of both the supply and consumption. Economists dedicated academic careers to researching and promoting one view or another, "Keynes wrote to Bernard Shaw, announcing that, thanks to his upcoming book, a Fabian future would no longer be in the card". 

The audiences of the economic works published would include other economists, political decision-makers, and the public in general. The Means to Prosperity (the precursor to the General Theory) was intended for non-academic audiences, the political elite in England and the US. Much of this book focused on the relationship between Hayek and Keynes. It provided letters written between the pair and interactions their followers had while attending lectures. Keynes wrote, "it may well be that the classical theory represents the way in which we should like our Economy to behave, but to assume that it actually does so is to assume our difficulties away" demonstrates one such debate. Their debates discussed often came down to the definition of a term or impact that term has on the system. For example, Keynes believed savers would fluctuate between saving and investing while Keynes viewed savers as wanting their money in liquid form (cash). Liquidity preference may be a footnote in most investment courses today but was revolutionary from an economics perspective at this time. 

The concepts introduced in the book by Keynes and Hayek were not developed in a vacuum. Keynes built off of a denial of Say's Law (supply creates its own demand) and he integrated into his works Kahn's multiplier effect (each dollar spent was worth more to the economy than a dollar). Hayek breaks new ground in theorizing an economic equilibrium that never can be fully reached and could never be externally influenced since no one can understand the economy fully. He argued that individuals used information at their disposal(the information or deductions could even be wrong). All of the individual's choices would average out into what could theoretically be observed as the market in operation. The observable by-product that economists could see were prices. Surrounding the two economists emerged other theories the Laffer Curve (cut taxes -> increased personal spending-> inc demand via trickle down, Alvin Hansen introducing the algebraic formula for the IS-LM mode based on Keynes ideas, and the Taylor Rule (tradeoff between interest rates and inflation) replacing the Phillips Curve(tradeoff between employment and inflation).

Propositions for Public Policy in History:

Keynes blamed the 1929 slump on increased interest rates which caused deflation. He advocated for decreasing taxes along with increasing government spending (deficit financing) to get the economy back to full employment so the classical model could take over. He argued governments performed deficit financing during times of war but not in peace, "some cynics who have followed the argument this far conclude that nothing except a war can bring a major slump to its conclusion", instead offering public work programs as an alternative solution. Hayek, on the other hand, said deflation was not the cause of the slump but easy credit going towards unprofitable industries. He concluded, "to combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about". Taking this even further he argued Socialism and Nazim were near identical in their removal of the free market, thereby curtailing the liberties essential to a free society" and by implication, Keynes to a lesser extent advocated a similar model that curtailed the ability of accurate prices in his work the Road to Serfdom.

Also of Interest Topics:

The Austrian school believed the market was totally too complex to quantify or average. It would provide misleading indicators of individual preference while Friedman in the Chicago camp utilized Keynes's notion of utilizing averages to determine cause and effect of economic changes. 

Stagflation: increasing of both unemployment and inflation at the same time under Ford. This wasn't supposed to occur in Keynes theories. Thatcher and Regan combated stagflation by the privatization of government-owned companies and regulation of the money supply.

Book Review: Flight Capital

Summary: 

Flight Capital by David Heenan seeks to warn of an increasing exodus of human capital out of the United States. Heenan draws upon first-hand accounts to make his case that, compared to previous years, more immigrants to the United States are choosing to return to their country of origin later in life or not immigrate to the States at all. Those who do come to the US utilize our education system, build a network in the United States—giving them access to capital and labor—markets, and harness their managerial experiences from working in US companies to start competing businesses back home. Capitalism tells us this is a good thing. Competition reduces costs and increases the standard of living for consumers. However, the worry is this is not a free market. To their own advantage, many of these countries limit foreign investment and do not enforce intellectual property rights.

The stories compiled reinforce the central theme that the US is losing access to more engineers, mathematicians, and scientists than in the past. When this book was written in 2005, India was spending roughly $1.2 billion every year to send Indian students to the States for an education. As more universities are set up in India, Heenan argues fewer and fewer workers will come to the US. This will eventually stymie growth in the US without access to physicists, computer scientists, and mathematicians. These types of jobs come with higher earning power for citizens and are predicted to be what countries will need in the long-term to provide higher standards of living to their citizens.

The irony is that as a country experiences the benefits of higher standards of living, their cost of capital increases. As Singapore has grown, it has needed to invest in China and India to magnify returns. This also has magnified their regional risk since they are already highly dependent on exporting within the region. Countries which once benefited from the exodus of know-how are now experiencing the reverse. More and more countries have begun trying to entice the best and brightest to live in their cities. They provide tax subsidies, market a better standard of living, and offer higher positions to attract those with know-how due to the lower supply of similar experts in-country.

So what can be done?!

The final chapter discusses what can be done to stem the brain drain from the United States. Reforming immigration through a point system, reforming public education, and encouraging dual loyalties and national service are given roughly a page and half each. Unfortunately, despite this book being written in 2005, not much progress has been made in the immigration debate. 

My opinion:

All in all, I found the topic interesting but the book difficult to immerse myself in. Each chapter focuses on a different country but reiterates the same points repeatedly. This made for a disjointed and at times overly repetitive read, which failed to hold my interest. The primary source examples provided context into personal experiences of individuals interviewed but may not have been representative of those returning to their country of origin as a whole. Those interviewed typically were leaders in their field and, likely, received more incentives during the recruitment process than would less accomplished workers. I would have liked to read accounts of immigrants who had not achieved as high a status in their field and who might be more representative of the average experience.

The author attributes much of the human capital outflow to premeditated decisions of loyalty and preference for one’s home country. The incentives and marketing home countries utilize to lure brainpower back to their country of origin seemed oversimplified by the author. Discussion of the limited resources of other countries, especially capital markets, for starting new ventures appeared throughout the chapters. Often, the state appeared to be allocating resources instead of the market. Despite trying to jumpstart similar markets in their own country, the reliance on state controls will inevitably leave the countries poorer off.

The chapters used little in the way of statistics and charts to reinforce the central argument. When numbers were provided, the numbers lacked a clear benchmark to illustrate magnitude. It would have been interesting to compare total expenditures of government recruitment programs compared to the total number of recruits, as well as the total estimated economic benefit each recruit provided.

The chapters followed a similar pattern of sharing successes of each country in their efforts to recruit highly skilled people back from the US and ended with the barriers to continued success in recruitment. It is a difficult topic to encapsulate and the book does a good job of highlighting counterarguments as to why there may not be so much cause for alarm. These counterarguments were spread throughout and could have been made into a chapter of their own, concerning various barriers that prevent immigrants to the US leaving.

Though alarmist in nature, the true value in Flight Capital comes from understanding the various programs other countries employ in their search for more qualified human capital. Even assuming the US must now compete more for highly educated workers, often the countries we compete against are starting from a weaker position and it is the United States' game to lose. As one interviewee in the book stated: "I felt incredibly privileged to live and work in the States. I was never treated like a foreigner. America is extraordinarily generous if you have something to contribute" (Kari Stefansson with deCODE Genetics).

Book Review: Swiped

Swiped is the identity theft warning disclosure that should be sold with every piece of "smart technology" or required reading before being allowed to signup for social media accounts. It should be right up there with sexual education in schools. Everything from your credit card, bank account, credit score, future mortgage interest rate, criminal record, and peace of mind are at risk of theft in the modern technologically embedded age.

In full disclosure, the author, Adam Levin is the chairman and founder of Identity Theft 911 which offers identity theft services to consumers... never hurts to create your own demand. However, that doesn't discount the value the reader of this book gains from the real-life examples, information provided, and prevention methods. I've never faulted someone for trying to make a buck providing useful information or services to consumers.

The format of the book slowly introduces the problem of identity theft, provides basic preventative measures to avoid theft (as much as possible), describes various types of identity theft, and provides resources for the average consumer to turn to; including, a glossary of scams, theft tips, how to
request your credit report, and templates for how to notify credit agencies of a loved one's death.

The book provides a great number of external resources to turn to for those who may want additional information, advisement, or emergency resolution.

1) Are you concerned about identity theft? With so many stories about identity theft in the news, you’re not alone. IDTheftInfo.org was created by Consumer Federation of America to help you learn how to reduce the chances of becoming a victim, detect identity theft quickly if it does happen, and deal with the consequences. If you have a business, there is information for you about how to keep employee and customer information secure. 2) If you want to check your credit score on Experian, TransUnion, or Equifax go to https://www.annualcreditreport.com/index.action. You are legally required to be able to get 1 free copy of each report once a year. I typically recommend checking one every 4 months to space them out throughout the year.  3) I've personally worked with Identity Theft 911, now called CyberScout and very much liked the service. There are plenty of identity theft aids out there but of all the services offered I've found the resolution service to be the biggest bang for your buck. Talking to credit bureaus, researching where the fraud originated, and piecing the puzzle of identity theft together is hard for those of us with a busy schedule from 7 in the morning until 11 at night. I rely on someone else to do my taxes despite (or maybe due to in part) the mounds of information out there. It is just too much for my sleep deprived and emotional brain. As a strong believer in the need to evaluate opportunity costs between myself and others performing a task, I recommend paying for help.  By getting one or two fewer lattés at Starbucks a month you could reallocate that freed up capital to this worthwhile safety net.  Finally, even if you don't think identity theft is something you are worried about, yet... Reading the crazy scenarios, that are unfortunately accounts of horrible experiences people had to endure, was fun in itself (I may have a warped sense of fun).

Book Review: The Last Tycoons - The Secret History of Lazard Freres & Co.

The Last Tycoons is written in the same style of Barbarians at the Gates with smatterings of journalist style exposés and personal anecdotes from key players embedded within the historical backdrop of the bank and employees. The firm pioneered unique approaches to Merges and Acquisitions and was involved with many groundbreaking deals that shaped the modern corporation. However, at times the firm and employees bent or broke the law, utilizing connections, in politics and paying huge settlements to remain in business. The firm was so inventive that its employees came up with trade deals that became illegal after the fact because they were so effective at accomplishing their clients' purchases.

Lazard started out as a French retail clothing store in New Orleans. In San Francisco, the firm expanded into importing/exporting gold to New York, France, and England. These three hubs of commerce would later become the firm's focus of operation. Lazard takes its next major leap into the investment services arena during the 1920s speculative short-selling of the Franc. As an adviser credited with keeping the French Government out of a financial crisis, it chose not to flaunt in the media the same name recognition of rivals like JP Morgan. Following their successes in France, the company put together a mutual fund that consistently had capitalization issues, managerial theft, and overexposure to inflated markets. Due to Glass-Steagall and their recent success in advisory services, Lazard went into the advisory side of investment banking and not commercial banking. The bank's brand positioning as "brilliant advisers" behind the scenes would make it a favorite of self-aggrandizing corporate executives up into the 1990s.

During France's occupation by the Nazi's, Lazard had to change its decentralized corporate structure. It started the tradition of placing the responsibilities of corporate governance, employee compensation, and hiring and firing under one single person - Andre Meyer. Meyer fled from Nazi-occupied France due to his Jewish ancestry and relocated to New York with the aid of his politically influential contacts. New York became the designated headquarters for the firm with franchises in London and Paris.

Andre Meyer doubled down on the idea of Lazard as banks' advisory business and hire "Great Men" who would be valued by corporate CEOs for their intelligence. He institutionalized the idea that "all evidence of partners increasing wealth should be reserved for their private homes but never revealed at the offices". Meyer hired David Supino to write a white paper on why synergy was good for corporate America. This proved great marketing and justified the merger and acquisition business that the firm dominated. One colossus that emerged as a great man of Lazard was Felix Rohatyn. Rohatyn's ability to place himself in corporate executive's office would bring in millions of dollars in fees for his advice. Unlike firms in other sectors of the investment banking space, M&A did not require the investment firm to put up their own money. He capitalized on the shift in Corporate America looking to take advantage of the synergies Supino wrote about to become conglomerates.

Harold Geneen bought into conglomerate America worked closely with Felix Rohatyn for some of the largest acquisitions at that time. The unabashed executive is credited with saying, "Gentlemen, I have been thinking. Bull times zero is zero bull. Bull divided by zero is infinity bull. And I'm sick and tired of the bull you've been feeding me." This type of CEO and banker made acceptable the structuring of enormous companies and enormous fees for banks. Due to the industry's only recent emergence, Rohatyn as a generalist was able to advise in multiple arenas whereas today companies look for industry specialized advisory firms. According to him, "M&A advisors initiate, analyze, negotiate, & coordinate M&A deals". Part of his success stemmed from being able to sit on company boards and their advisory banker (this was later banned under the Sarbanes-Oxley Act). He was known for wanting sole contact with the corporate decision makers and limiting younger bankers access and growth as future leaders. A quote about Felix that I think encapsulates the internal resentment against him, "What's the difference between God & Felix? God doesn't think he's Felix".

In contrast, not everyone felt this was a good shift in corporate philosophy. In 1968 the House Judiciary Committee began a study into the economic & political consequences of M&A by conglomerates. The Clayton Act which built on the 1890 Sherman Antitrust Act became one obstacle for M&A. This battle between bankers and regulators heated up under Nixon's presidency. Nixon called the acting attorney general at the time and told him to let the ITT antitrust federal suit drop. Around this same time, Harold Geneen donated $400,000 to have the RNC convention in San Diego. I questioned the objectivity of this portion of the story. The facts stand for themselves but the author's commentary clearly disfavored the Nixon Administration. On the other side of the aisle, Senator Kennedy called the SEC commissioner, William Casey, telling him that Andre Meyer was "a man of high reputation" who "had been very helpful" to the Kennedy family.

One takeaway from this period: 
Felix Rohatyn learned the hard way that his own firm's lawyer represented the firm at his own expense and he should have sought his own legal counsel. During the congressional hearings, Felix met with the attorney general on ITT's behalf alone to discuss the need for the merger. This was attacked as improper after the Attorney General dropped the antitrust suit. Felix became notorious as a wheeler and dealer in banking and politics lambasted by the media.

One such deal that resulted in scrutiny was the ITT's acquisition of Hartford Fire Insurance Company. The deal became contingent on the IRS allowing ITT stock to be tax-free to Hartford shareholders. The IRS did allow this and wanted ITT to sell the Hartford share it already owned (at the time of the ruling owned 89.1 million shares). To comply, ITT sold the shares to MedioBanca(which had a friendly banking relationship with Lazard) as a holding company to appear as if the shares were not on their books. The IRS later said this did not comply and ITT paid tax consequences for Hartford shareholders who were penalized due to their own greed, while Lazard settled several suits out of court.

As leadership changes within the firm occurred and employees like Felix began trying to exit the firm, new "Great Men" were sought. Steve Ratter was brought into the firm with a strong background in junk bonds to handle "special situations" targeting emerging growth companies. This was never the firm's plan, however, and he ended up specializing in media and communication company mergers due to his background and connections in the press. David Supino brought in as head of bankruptcy advising services. The firm followed the market trend in having specialized advisers for banks/insurance, telecoms/technology, oil/gas, etc.

The M&A cycle climaxed with the RJR Nabisco deal where Felix advised the Board of Directors on bids. Then in 1989, completed deals began blowing up due to the debt load of the conglomerate companies. Many of these firms accomplished their purchases through high-interest loans and bridge loans that were not renewed by debtholders. This led to a sharp drop in equity prices, allowing for foreign Japanese Investment firms and employee buyouts to purchase companies at lower valuations. In this downturn, companies like Lazard looked to new sources of revenue to supplement their profits. Municipal bond offerings provided great sources of revenue and firms like Lazard leveraged their connections through politics and name brand to get the best deals. Lazard got the New Jersey Turnpike bond offering even though it was a new entrant to the municipal bond offering arena."While by no means illegal, the fee-splitting arrangements between Lazard Feres & Merril Lynch is a symptom of the underregulated Municipal finance industry, where political connections can often bring more dividends than the substance of an underwriter's proposal and where hidden conflicts often abound". As scrutiny of these deals intensified, many accused the banks of yield burning (overpricing of securities) for their own benefit. After the congressional hearings, Rohatyn's reputation needed rebuilding. He joined the New York City Municipal Assistance Corporation to keep the city from bankruptcy. He held regular meetings with the press to explain the goings on and in doing rebuilt his goodwill in the community. Lazard and Felix worked for free on the MAC but received enormous benefit from press. This parallels with how Lazard handled the French currency speculation in the 1920s.

The final portion of the book deals with a path forward for the struggling firm. Mismanagement under Michael David-Weill left the firm looking for the M&A firm to itself be bought out, restructured, or going through a public offering. Michael brought in Bruce Wasserstein. His eagerness to have Bruce in the firm forced him to give far more control over the firm than to any other Head of Banking. Bruce in his career would advise companies to utilize a two-part tender offer during a hostile bid. First, offer cash to gain quick ownership control of the firm and then offer stock to those who held out. This combination put pressure on holdouts to give up control faster or lose out. Bruce got picked by KKR a large investment firm to bid for RJR Nabisco becaues the previous month Burce being on the board of Macmillian Publishing board provided confidential informaton on bid offerings to KKR to help them secure the bid.



Interesting Stories:
1)1967 "back-office crisis" - as financial markets rapidly expanded, wall street firms did not have the staffing for processing the paperwork and accounting. Quality suffered, processing times increased, and made brokerage firms increase personnel costs.
2)1970 election of candidate leftist Chilean President Salvador Allende- ITT helped the CIA prevent his election and donated "up to seven figures" to prevent Allende from taking office.
3)Supposedly Andre Meyer's hurdle rate for investments was 150% profit or not worth it to the firm to personally undertake the project. Andre wanted to buy Franco Wyoming's assets. After determining the takeover would return 197%, Lazard announced a tender offer and physically walked into the boardroom to announce the takeover completion. After liquidating the oil and gas company, Lazard netted 25 million dollars and ushered in the age of the hostile takeover.
4)Under Michael David-Weill, Lazard began hiring more women, minorities, and associates from graduate schools. The introduction of computers according to the book was the "democratization" of wall street. Suddenly WallStreet needed more college-educated men and women to work spreadsheets.
5) In 1969 there were 6,107 m&a deals worth 23.7 billion dollars compared to 1981 2,395 deals worth 82.66 billion dollars.
6) Felix worked with Oppenheimer's mutual fund business selling to his corporate clients for a time. In doing so he learned who the key operators of the fund were and helped Michael poach Herb Gullquist and Norman Eig to Lazard to found Lazard's own fund.
7)Former Lazard employee John Grambling bought RMT Properties (an American subsidiary of Canadian Husky Oil Ltd). The purchase price was 30million but he needed 100 million to run the firm. Grambling did a leveraged buy out through the Bank of Montreal along with a personal loan to pay for supposed expenses as a result of the buyout. He personally guaranteed the loan and put up Dr. Pepper stock as collateral which he would be supposedly selling to Frostmann Little & Co (New york based Private Equity Group) on Jan 22 1985. It was later revealed Frostmann closed the Dr. Pepper deal on February 28th 1984 and there was no way he could own the shares. Grambling claimed Lazard was aware of the deal and had Montreal call a Lazard VP who did not deny the wrong date because he may not have known of Grambling's accounts or was himself involved in the scam. Someone forged a Lazard partner's signature stating that Grambling had the stock and Montreal called a dummy phone number for the partner who supposedly signed (never call a number given to you if you are trying to verify, do your own search for the person). Once the Montreal bank attempted to collateralize the Dr. Pepper stock after the funds had been paid out to Grambling, they realized the form was signed incorrectly. Turned out that Grambling was running a ponzi scheme. The prosecutor gave the VP Montreal called for verification immunity before realizing that he was likely involved. He has been giving Dennis Levine inside information on Lazard m&a deals for years - also discussed in Barbarians the Gates.
8)Bruce Wasserstein was involved in the Texaco Pennzoil deal which resulted in the biggest jury award at that time, 11.1billion dollars, against Texaco. The decision resulted in Texaco declaring bankruptcy. The suit occurred due to Bruce's belief he could break up the already agreed upon merger between Getty Oil and Pennzoil by offering more to Getty and covering any legal costs that might arise for the the majority owner, Gordon Getty.
9)Bruce pioneered the "Street Sweep" which is subsequently no longer allowed. A firm would launch a hostile bid at X price, then drop the offer and buy on the open market at X+1 price. As shareholders would rush to exit the position, Bruce would be able to buy huge chunks of control in a company.
10)Michael David-Weill (head of Lazard after Meyer) felt "the optimum number" of partners to be twelve, since "it's possible to get that number around a conference table". Voltaire's Candide- The British executed own admiral who lost an important battle to "encourage the others" Michael demoted several partners to make being a partner more meaningful.

11)Billy Loomis the first Head of Banking under Michael pushed for structural reform by having more productive partners along with strong relationships between Lazard's three core markets. He wanted more autonomy over hiring and firing but was later removed from Head of Banking due to Michael wanting to retain control of his family's company.

Lazard pioneered:

1. Selling Memoranda- used to solicit bids for a public company.
2. Toehold- Lazard helped ITT buy 6% of Hartford Fire Insurance Company(5th largest property and casualty insurer in the country) as leverage in discussion between the companies.
3. Bear hug- ITT makes $1.452 billion hostile offer for Hartford. 

William Cohan writes in a manner to suggest his own aversion to many of the investment bankers at Lazard and from time-to-time, this comes to the point of gratuitous character bashing. I found his commentary on Lehman Brothers ironic and illustrative of his own bias against Lazard: "Lehman Brothers, which had been utterly re-engineered during the past decade by its brilliant CEO, Dick Fuld" was the most obvious potential buyer of Lazard. As this book was published in 2007, ironically, Cohan would not have known Lehman Brothers would be filing for bankruptcy in September 2008.

Book Review: Unhappy Union: How the Euro Crisis – and Europe – Can be Fixed

Reading Unhappy Union by John Peet and Anton La Guardia was an intentional choice to increase my limited understanding of the European Union. In doing so I found a deeper causal relationship between topical market episodes including the bailout of Greece, the rise of nationalist parties, and now Brexit. Decisions made even before the signing in 1992 of the Maastricht Treaty impacted events within the Eurozone. Both world wars, French vs. German struggle for political dominance, East verse West mentality, Northern Protestantism vs. Southern Catholicism rivalries all have had an impact on Europe's ability/inability to work towards closer union. 

In the hope of countries joining the union on "solid" economic footing, the fiscally responsible countries imposed specific requirements:

1. Low inflation 
2. Low long-term interest rates
3. Two years' membership of the exchange-rate mechanism of the EMS
4. Ceilings on public debt of 60% of GDP
5. A limit on budget deficits of 3% of GDP

These five "supposed" criteria were designed to provide a common union to allow the free movement of goods, services, labour, and capital. Not imposing limits on who could join, might lead to moral hazard as countries moved towards monetary union. Germans feared having to pay for Italian and later Greek mismanagement. They foresaw fiscally responsible countries having to pay for those countries that gorged on debt and governmental largess. However, the rules were set with no one to enforce them, and when exceptions in the criteria for Belgium's joining occurred, Greece and Italy utilized similar loopholes to enter the EU during economic upswings. 

As more countries joined the union and gave up control of their currencies (first by pegging it to the Deutschemark, then by adopting the Euro) many gained cheaper access to credit as markets assumed any EU members debt was backed by the rest. To compound this erroneous assumption, by accepting the Euro as their currency, countries lost the ability to manipulate their own monetary instruments including interest rates and their supply of money. This later led to a predicament for national finance ministers losing control of their ability to manage their nation's economy. In Peet and La Guardia’s assessment, "one-size-fits-all interest rate is a one-size-fits-none arrangement that has a tendency to amplify economic divergence. It is now too low for Germany and too high for the Mediterranean countries".

Organizations were set up to manage the newly formed Union in terms of policy creation, governance, and fiscal policy at the EU level. "National governments and their leaders (with an increasingly large role played by finance ministers at the expense of foreign ministers, formerly the main actors in Brussels) have become the driving force of the euro zone and, by extension, of the EU as a whole. Broad political power is thus shifting from the supranational European institutions and towards national governments thanks to the euro crisis. Yet at the same time, many more intrusive powers are being vested at the EU level, because the euro zone has been forced to move in the direct of greater political as well as economic integration". This conundrum birthed the plethora of problems the EU faced during the financial crisis, migration crisis, and reemergence of nationalism within Europe. As power moved away from the egalitarian EU bodies towards national leaders who could navigate the 2000s financial crisis (especially Angela Merkel).

The supposed safety of being in the Euro dissolved as countries like Greece's insolvency raised fears of contagion to countries like Portugal, Ireland, Italy, and Spain. Just like a run on the banking system, markets could not properly evaluate nation state's balance sheets. Unfortunately, nations could not react on an individual level. "If you have an exchange rate, you can move your brush back and forth. If you don't have an exchange rate, you have to move the whole house," says Nemat Shafik, deputy managing director of the International Monetary Fund(IMF). The typical method of dealing with various crises that arose was some combination of German and French influence in treaty negotiations, development of new financial oversight boards/mechanisms, and use of the Bundesbank as a stopgap measure.

The supposed safety of being in the Euro dissolved as countries like Greece' insolvency raised fears of contagion to countries like Portugal, Ireland, Italy, and Spain. Just like a run on the banking system, markets could not properly evaluate nation state's balance sheets. Unfortunately, nation's could not react on an individual level."If you have an exchange rate, you can move your brush back and forth. If you don't have an exchange rate, you have to move the whole house" -Nemat Shafik-Deputy managing director of the IMF(66). The typical method of dealing with various crises that arose was some combination of german and french influence in treaty negotiations, development of new financial oversight boards/mechanisms, and use of the Bundesbank as a stopgap measure.

In summary, Germany takes on a disproportionate role in shaping the union, much of closer integration becomes reactionary to crisis after crisis, forces outside of the official institutional structures European Commission, European Parliament, European Court of Justice, European Central Bank, and Council of Ministers exert their own influences. This book also appropriately highlighted Britain's on-again-off-again relationship with the Euro and presents a background to the demand for the referendum on its EU status (the book is written before the result of Brexit was known).

Future issues include:

1. At Franco-German summit at Deauville where Germany agreed to a crisis-resolution system for the EU, under the condition that in future bail-outs, bondholders would have to bear part of the pain (private-sector involvement). We are just now seeing this in the handling of Italy's banking crisis.
2. Germans refuse to issue EuroBonds because it would mean Germans guaranteeing other country's debt at the expense of German taxpayers.   
3. "Countries that accede to the European Union are now legally required by their accession treaties also to join the euro (something that would apply, incidentally, to an independent Scotland)".
4. Need for more democracy in the development of a federal European government.
5. Banking sectors: "cross-border lending to banks and sovereigns grew fast, but retail lending remained Balkanised in national markets. Cross-border ownership of banks grew only slowly. Mergers and acquisitions tended to happen within a country's borders, a sign of strong economic nationalism in the banking sector".

Additional insights:

1. As an American, I did not realize the extent to the east-west divide, "one reason was the panic in France over the supposed threat of the 'Polish plumber'".
2. The G20 really emerged out of the financial crisis in 2008.
3. The troika, that was so influential in dealing with Greek and other Pig bailouts, consisted of the IMF, the European Commission, and the European Central Bank. The IMF's involvement highlighted the inability of Europe to handle the crisis solely by internal means.
4. France's rationale for letting the Greeks into the Union despite their clear inability to reach the above-mentioned criteria for entry can be summed up by President Valery Giscard d'Estaing, who said "one does not say no to Plato". This to me further highlighted the disproportionate role of France and Germany in making... and breaking the rules.
5. "The idea that a small group of countries might go faster than others had been floated as fast back as the 1970s by Leo Tindemans. Rather than always being forced to go at the pace of the slowest, a "hard core" of countries might move ahead with deeper integration, letting backmarkers catch up later (or perhaps not at all)".
6. The book did not touch on the immigration from Northern Africa or the Middle East. Yet, the Schengen Zone and refugee crisis has vastly altered the political landscape from Brexiteers wanting to reduce aid to migrants to terror attacks in France and Germany.

Boow Review:The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation

When someone says the word innovation, what typically comes to mind? Flying cars and hover boards? Well, not all innovation is as huge as the light bulb or internet. Game-Changer by A.G. Lafley and Ram Charan shares some technological disruptors from Procter & Gamble, GE, Lego Group, Marico, Honeywell, DuPont, Cisco, Nokia, 3M, Dupont, etc. But innovation is not limited to developing a new revolutionary technology. 

This book beats into every chapter the importance of the consumer from start to finish. Lafley talks about the 360-degree experience of every consumer consisting of the functional, emotional, and experiential with the product. This holistic approach to the consumer experience helps develop a relationship to turns into repeat usage and revenue.

In order to understand what functional, emotional, and experiential experiences with a product the consumer wants, P&G hones in on market segmentation. Identifying the product's customer is key, and "sometimes P&G gets the consumer right, but misses the real need or real want," but is not the end all be all. Similar to every bad sci-fi alien abduction, who are they!? What do they want?! If you never answer these questions, you end up lost in the galaxy... so to speak. In the story of the tampon brand Always, P&G came to the realization that what Mexican women wanted from a tampon ran counter to the Always brand. Instead of destroying the brands characteristics or simply pushing it down retailers’ throats, P&G went back to the drawing board and created a new brand that met this specific markets needs.

This is all well and good... but how does a company get employees to think on this level? Well, the book discusses the myriad of ways companies go about it. Developing leadership and teamwork comes from the right incentives. P&G invests in several hubs that allow teams to break down problems with facilitation. They develop metrics to quantify the process to better autopsy projects. It allows the company to emphasize a structured development process that does not penalize best efforts but utilizes benchmarks during the development and production phases. P&G invests money in these programs because they have seen that failed innovation typically is caused by "ineffective interaction between experts, team members, and team leaders. It can be fixed through well designed social mechanisms and effective leadership". 

These social mechanisms and effective leadership allow for failures to occur earlier in the development cycle, thus reducing losses. One way pointed out to quickly cut off projects with no chances of success is, "doing the last experiment first," Reflection is also an important part of the innovation process, during an after-action review/post-mortem. It is a great way to capture some value from a failed and often costly innovation through using the information already learned and applying it to future projects.

The authors warn that effective marketers will "focus on organic growth first, then acquisition for long-term strategic growth". Synergy can be a great thing. However, purchasing a brand/company is cautioned as a silver bullet. It won't turn around a company and certainly won't reduce the issues. Financing concerns put added pressure on acquisitions to produce. If a company forgets who the boss is (the consumer), it could mean years down the rabbit hole... if your cash flow allows. Taking in the expertise and ability to broaden households can become a core strength. "The acquired brands are the beneficiaries of future business model, business process, and new production innovation" that your company can leverage and share with your original portfolio.  

One concept I was unaware of before reading this book was the emphasis P&G's CEO had on outside partnerships for innovation. In my business classes, protecting trade secrets were up there with the 10 Commandments, "Thou shall not open your company to theft from corporate spies!" Yet, "P&G will compete with a company on one side of the street, and cooperate with it on the other. In an open innovation system, anything out there is fair game, even if competitors are sitting on it." Fantastically business utopian idealism right there. This doesn't just mean partnering with the enemy, but the company set a goal of “partnering 50% of our innovations with outsiders." Partnering with retailers who sell your products can be a win-win...-win. Helping Target or Lego's merchandisers better market to their customers directly helps P&G's bottom line. Building that relationship may have value during the next margins negotiation, #softpower.

A final nugget of useful information that I choose to highlight, IDEO's office in Palo Alto has these 7 Commandments written in large letters above the conference room:

1.     Defer Judgment

2.     Encourage Wild Ideas

3.     Build on the Ideas of Others

4.     Stay Focused on Topic

5.     One Conversation at a Time

6.     Be Visual

7.     Go for Quantity