From the Knowledge@Wharton today blog.

China’s economy may be bottoming out in the face of a weak third-quarter GDP growth rate of 7.4%. It was the seventh straight quarterly decline. Although this and some other recently released indicators look gloomy, they have been partially offset by more positive economic news, all of which suggests that the hoped-for soft landing for China’s economy may be underway.

But for the Chinese economy to revive in a sustainable way, the household consumption portion of GDP “has to reverse course and start going north,” says Wharton management professor Marshall W. Meyer. Given China’s stage of development, “household consumption is extremely low, about 34%. Neither exports, given the parlous state of the EU and, to some extent, the U.S., nor capital formation, given there has been so much of it, can provide the path to sustainable growth at this point.”

China has relied on investment activity to grow more than any economy in modern history. The country’s disappointing third-quarter numbers were foreshadowed earlier in the month when the World Bank cut its growth forecast announced just five months ago from 8.2% to 7.7% for all of 2012. Still, the Bank now projects GDP growth next year will tick upward to 8.1%, albeit a bit below its May forecast of 8.6%. Holding economic growth above 8% will be possible next year because of additional liquidity injections and higher spending by the government, World Bank economists say.

Local Chinese governments have been spending heavily to grow local industry. Various reports note that some 7 trillion yuan in spending has been set loose since July.

“When you throw a trillion dollars into the Chinese economy something is bound to happen,” says Meyer. “Whether it’s a good thing is another matter.”

Already there are signs that, despite the third-quarter’s overall letdown from the second quarter’s growth rate of 7.6%, other indicators are starting to turn around. For example, China also reported this week that exports unexpectedly jumped 9.9% in September compared with a year ago. There were additional reports that retail sales, industrial production and investment all rose toward the end of the quarterly reporting period, which prevented the numbers from deteriorating even further.

But as Meyer suggests, the short-term challenge to China’s economy seems to be one of stopping the bleeding rather than offering hope of resuming the robust growth of recent years. As he notes, the Baltic Dry Index (a measure of prices for shipping basic materials and commodities) is still far below its all-time high in May 2008, and HSBC’s China purchasing managers index “was pretty low, 47.9, at the end of September.” (A number below 50 typically suggests economic contraction, while a number above 50 suggests expansion.) The August consumer confidence level, meantime, was below that of August 2011.

The World Bank also cut its forecast for the whole of East Asia this week from 7.6% to 7.2%, acknowledging the drag China’s economy is exerting on the region. That outlook marked the lowest level of GDP there in more than 10 years.

This post was previously posted in Knowledge@Wharton today blog: China’s Third Quarter Turns Down — Again

Gina Anderson| CSI Blog

We often talk about the role of philanthropy as ‘venture capital for the not for profit sector,’ able to take risks on new ideas, innovation and social change. However for many in the not-for-profit arena, the problem with philanthropy is the lack of ambition and lack of purpose.

A fascinating new report by The Resource Alliance, supported by the Rockefeller Foundation, entitled  ’Risk and Philanthropy‘ examines how risks in international development philanthropy are defined, assessed and managed. It reports the conclusions from a series of 27 interviews conducted with development philanthropists, philanthropic intermediaries, grant makers from leading international foundations and sector academics in April 2012.

The report argues that philanthropy needs to become better at understanding the relationship between risk and opportunity, cognisant of the distinctive contribution that effective risk strategies can play in creative solutions to the most intractable development and social problems. It also argues that philanthropists need to be much more accepting of failure and recognise that to achieve large-scale change much of the resource may be ‘wasted’ along the way. Occasional failure should be seen as the acceptable cost of innovation.

In the report they seek to understand more about why so many individuals and foundations are seemingly risk averse with their philanthropy. While the focus of the report is on international development philanthropy, their examination of risk assessment, risk management and how philanthropists and philanthropic institutions use different decision rules depending on categories of risks experienced, is very useful for understanding all types of philanthropy.

The report defines the two main risks that are of primary concern to philanthropists engaged in international development:  Impact Risk and Operational Risk.

Impact Risk is most often cited as the critical risk and is defined as the risk of not achieving the required impact given a specified level of philanthropic investment – in short, is the money making a difference? There appears to be three drivers of impact risk in international development:

• It is often difficult for philanthropists to articulate how they define impact
• It is often difficult for philanthropists to decide a priori how to design an effective social innovation system to achieve the desired impact
• It can be difficult to establish meaningful metrics to measure success and/or to encourage those being funded to report on the impact achieved in a meaningful way.

Operational Risk often goes hand in hand with impact risk and is defined as not having the right operational approach to support sustainable impact – in other words, is the money being spent appropriately? As part of the discussion of operational risk, I particularly enjoyed their examination of the selection of appropriate business models and of the importance of developing a diversified risk profile, an organisational learning culture and adequate control mechanisms.

Other risks identified in their interviews were financial, reputational, political and personal risks. However, these were rarely considered as important and typically only became a concern when they were perceived as increasing either impact or operational risk.

The report also highlights the importance of trust on the part of both beneficiaries and funders.  So much of risk is subject to trust with the corollary that little trust often means big risk.  In most cases, the perception of risk is based on the philanthropist’s past experience. In reality the risk in philanthropy is often a lot less than imagined and the possibility of failure not as great as imagined. The onus falls to the not-for-profit organisation to manage and mitigate risks, while understanding the philanthropist’s biases and educating the philanthropist on the field of endeavour.

However, as learning begets learning, the pragmatists among us plead:  don’t over intellectualise philanthropy – just do it!

Gina Anderson is a member of The George Institute Board and was Executive Director and Chief Executive Officer of Philanthropy Australia from 2005- 2010. This article first appeared on the CSI Blog.

 Jeffrey Knapp

Largege Australian companies which have previously complied with all disclosure requirements in accounting standards are now claiming that they do not have public accountability and are doing less disclosure.

The auditors of these companies are going along with this treatment. The reduced disclosures under AASCB 1053 include the removal of information about remuneration for key management, financial risk management, and audit firm remuneration.

The new Australian Accounting Standards for ‘Reduced Disclosure Requirements’ , or AASB 1053, remove the requirement to publish much of the detail about a company, if they have no ‘public accountability’.  It does not officially commence until July 1, 2013, however some companies have already implemented the new standards.

I do not understand how a public company complying with all accounting standards overnight becomes an entity with no public accountability, thereby reducing its disclosures. It’s not a good look when the management of a public company is responsible for reduced disclosures of management remuneration or an audit firm agrees that the disclosure of audit firm remuneration should be removed from the accounts.

Under AASCB 1053 a company must have no ‘public accountability’ to take advantage of the new reduced disclosure requirements. Public accountability is defined to mean “accountability to existing and potential resource providers and others external to the entity who make economic decisions but are not in a position to demand reports tailored to meet their information needs.”

A large Australian company that is economically significant employing hundreds of employees or with hundreds of creditors has public accountability because those stakeholders and resource providers cannot command specific financial information from the company. Employees and creditors of such a company are entitled to information about how the company is managing financial risks, especially given the current economic environment.

I will issue a challenge to the big audit firms to show leadership when interpreting the meaning of “public accountability” for the purpose of accounting standards disclosures. 

The accounting profession must act in the public interest and it fails in this regard when it reads down definitions in accounting standards and meekly concedes to fee-paying clients. If the big audit firms are weak when interpreting the meaning of ‘public accountability’, then they make the case for less professional judgment and more hard and fast rules like audit firm rotation.

Jeffrey Knapp is a lecturer in financial accounting at the Australian School of Business.

Professor John Piggott

All around the world, governments are trying to get workers to work longer. Australia is no exception.

Population ageing – increasing longevity combined with lower fertility – will generate massive increases in the per worker fiscal cost of supporting people in retirement and old age, unless we work for longer. This is a calculus most governments now appreciate, at least in theory.

By 2050, the 65-plus population of Australia will have doubled, and the 85-plus group will have increased by a factor of four.

So how is it that the average Australian retirement age, according to figures from the Organisation for Economic Co-operation and Development (OECD), is lower by three years compared with 40 years ago? It now stands at 23 years for 60-year-old males, and 26 years for females, among the world’s highest, and our healthy life expectancy’s been going up too.

International experience indicates, and Australian experience supports, the idea that the single most important determinant of retirement age is the age you can access your retirement income. The OECD estimates that Australian labour force participation moves from a highly respectable 82 per cent for the 50-54 age group to 53 per cent for those aged 55-64, and then plummets to 25 per cent for ages 65 to 69.

Australia has three access ages: 55 (about to start moving to 60) for superannuation access; 65 (about to move to 67) for age pension access; and 60 for tax-free superannuation benefits. Two sticks and a carrot.

This alignment between access age and falling labour force participation is no coincidence.

To take just one cross-country comparison, New Zealand’s mature labour force participation rate climbed rapidly over the last 20 years, to 76 per cent for ages 55-64, as age pension access there increased from 60 to 65, with no widespread superannuation to buttress it. It is now higher than Australia’s, whereas 20 years ago it was lower, at least for males.

Australia is adjusting the access ages for the two sticks. But the access age for tax-free superannuation is stuck at 60. Once the standard superannuation age reaches 60, in 2024, the carrot will have lost its crunch.

The social cost of this policy paralysis is very high. Professor John Piggott from the ARC Centre for Excellence in Population Ageing Research and Senior research fellow Rafal Chomik calculate that GDP would be 4 per cent higher if our mature age participation rates were like New Zealand’s.

But there are other costs too. Mature age unemployment is lower than among the young, but duration in unemployment is much longer. Nearly half of the unemployed in their early 60s have been unemployed more than a year.

It follows that once you leave the labour force at a mature age, re-entry is likely to be difficult.

These hazards will occur much more frequently when there is a seven-year gap between tax-free superannuation and the age pension, which is where we’re heading on current settings.

Relative to 40 years ago, current mature age workers are healthier and can expect to live much longer. And for the most part, the work they do is less physically demanding. Retiring should be happening later, not earlier. And we should use the policy levers we have to make this happen.

John Piggott is Director of the ARC Centre of Excellence in Population Ageing Research (CEPAR), and Scientia Professor of Economics at the University of New South Wales.  A version of this article was previously published in The Australian Financial Review.

From the Knowledge@Wharton today blog.

The consumer markets of India and China are widely viewed as a potential goldmine for companies and investors. These two markets are expected to triple over the current decade and by the end of 2020, are likely to be around US$10 trillion in size. Take away a few billions, or even a couple of trillions, and it would still be a huge opportunity for firms around the world. A newly-released book, The $10 Trillion Prize: Captivating the Newly Affluent in China and India, written by a quartet from Boston Consulting Group (BCG) aims to provide a window into the forces driving this new generation of consumers and discusses how companies can use this knowledge to their advantage to win not only in these two countries, but also in the rest of the world.

At a recent panel discussion on the book at the Indian Institute of Management, Bangalore (IIMB), co-author Michael J. Silverstein, who is one of the founders of BCG’s global consumer practice, and Abheek Singhi, leader of BCG’s India consumer practice, reiterated that this is an unprecedented opportunity in world history. The growth that China and India will see in the next 10 years is something that has never happened earlier in human history. “The secret [of success for companies] is to be able to identify the supply chains that allow for [the dissemination of] products at price points affordable for every segment,” said Silverstein.

Panelist Vinita Bali, managing director of Britannia Industries, noted that the huge absolute numbers in these markets mean that for every product category, and at every price point, there is a large base of consumers that can make doing business in the two nations worthwhile. “Companies who ignore these markets would be doing so at their own peril. And those who want to succeed here must be ready for the long haul. It takes a reasonably long time period to get the return on investment.” Singhi noted. “A half-hearted commitment is a recipe for disaster.”

While Singhi pointed to asset bubbles, political and social disharmony, bureaucracy and corruption, and environmental degradation and pollution as possible risk factors, panelist J. Ramachandran, professor of corporate strategy and policy at IIMB, suggested that “the central argument is the importance of education — How [India] as a nation [has] failed on the education front.” Pointing out that both the schooling and the higher education system in India are “broken and in a shambles,” Ramachandran said that the problems are a result of “policy issues.” Silverstein said that India is severely disadvantaged as compared to China in terms of its education system. “In India, education is under-funded, under-regulated and you tolerate 70% of primary schools being substandard. This is a matter of serious concern for India,” he noted. ”I believe that India is up to it. But it will require a change in behavior and a change in political capital.”

Another area where India is seen to be lagging behind China is in terms of excellence. “Excellence is a mindset and we don’t have enough of it,” Bali stated. “We tolerate a lot of nonsense and it permeates into a lot of what we think is acceptable.” Ramachandran added: “The clue to our future is how well we [strengthen] our education system. We must be unwilling to except less. That will drive the desire for excellence.”

This post was previously posted in Knowledge@Wharton today blog: How Companies Can Succeed in the China-India Market

Tim Harcourt | The Airport Economist

Once upon a time when I went to my publisher, he told me adamantly “Economics doesn’t sell.”

I was gobsmacked! “Economics, that tells us all about supply and demand and how to run a business or a household doesn’t make a quid?  How could that be?” I asked the great man of Australian publishing.

“Well, you see, my friend, “it’s the dismal science” explained my publisher.

Not to be deterred I had a look at the origins of this term ‘the dismal science’ and whether it was an albatross around the neck of economics and its popularity. In my historical voyage of intellectual discovery I found out a few interesting things along the way, and some myths and realities about the history of economics and how it has been perceived in past times and in the modern day.

First things first about economics, it’s not dismal it’s gay. When I looked up the term “dismal science” I found a fascinating history of how the label became associated with economics. It was found that the British historian Thomas Carlyle used the term in his debates with the Quakers and Baptists over the emancipation of slavery in the West Indies and his fears about what had occurred in the Irish famine.

Carlyle was debating the ‘Exeter-Hall Philanthropists who called for emancipation of black slaves in the West Indies whom he feared be worse off under the laws of supply and demand as free man, as had happened to free agricultural labourers in Ireland who perished by famine.  Carlye is reported to have said in 1888:

“Truly, my philanthropic friends, Exeter-Hall Philanthropy is wonderful. And the Social Science – not a ‘gay science’, but a rueful – which finds the secret of this Universe in ‘supply and demand’ and reduces the human governors to that of letting men alone is also wonderful. Not a ‘gay science’ I should say, like some we have heard of: no, a dreary, desolate, and indeed quite abject and distressing one, what we might call, by way of eminence, the dismal science.”

In an absorbing analysis of the debate by the historian of economic thought, Peter Groenewegan, Caryle’s main contention is that slavery was better than the forces of supply and demand that had impoverished the Irish farm worker. Carlye further thought that slave owner had a mutual obligation to look after black slaves in the West Indies and thought that any move to emancipate them into a free labour market would make the West Indies a ‘Black Ireland’ in terms of economic misery. In fact, the whole debate about the West Indies and Ireland reminds me of Roddy Doyle’s film ‘The Commitments’ when the fledgling band manager Jimmy wants his (lily white) band to say: “We’re from Dublin, we’re black and we’re proud!”

Who would have thought a popular movie about a fledging rock band would have had its historical roots in the history of economic thought?

In any case, as a result of this chequered history, several myths about economics developed. Some are still hanging around today, like a dead cat in the middle of Anzac Parade, stinking to high heaven. Its troublesome origins have made a bit of mud stick.

Myth one: ‘economics is not ethical’. It’s all about profit and welfare maximising, that is how to be selfish and what it means as a result. Hence the term ‘homo economicus’ about rational decision makers individually pursuing their own ends. Or as my grandpa who was a professional punter at the Randwick racecourse used to say: “Always back the horse called ‘self-interest’, it doesn’t always win but you can guarantee that it will be a trier.”

However, the real story is more complicated than that. It needs to be recalled that early political economists were moral philosophers like Adam Smith. Smith’s ‘The Theory of Moral Sentiments’ was in some ways a much more important treatise in the early development of economic thought than the ‘The Wealth of Nations’. Smith was a theologian, and he was interested in ethical behaviour and what was better for society as a whole as well as the individual.

In fact, in Australian economics today, many of our leading thinkers such as UNSW’s own distinguished emeritus professor, John Nevile (whom my fellowship is named after) and the likes of Ross Gittins (the son of a Salvation Army chaplain in Newcastle), Ian Harper and Nevile Norman have a strong ethical and religious roots in how they think about economic issues.

On the other hand, some economists, of the neo-classical variety, take a different tack.  For instance, Milton Friedman, the father of the Chicago School once famously said about ethics and economics that: “The only ethical obligation of a business is to make a profit.” So the debate rages on.

Myth two: ‘economics is not accurate’. Many engineers and members have the natural scientific community have sneered at economics for ‘not getting its forecasts right’ and make the famous jokes about ‘when you get 4 economists in a room you get 5 answers.’ This seems to forget that economics is one of the social sciences, predicting human behaviour, so it’s like psychology, history or sociology rather than a ‘hard’ science. Of course, economists themselves have acted like ‘social science imperialists’ and have tried to make their discipline closer to the hard sciences and more mathematical. The risk they have run here is that distancing economics from the social science and closer to the hard science rather than becoming a rich man’s sociology they will make economics a poor man’s mathematics.

Myth three, ‘economics is dry’. You hear this all the time, that it is a dry subject and/its proponents are dry. Well it’s a difficult subject but dry? Whether it be the economics of being a child, growing up, getting a job, getting married, working out super, economics is about everything that touches our lives. As the Cambridge economist Alfred Marshall says “Economics was the study of mankind in the ordinary business of life.” And its ‘big picture’ too, whether we are talking war and peace, free trade and protection, or global warming all these issues have an economic dimension.

Myth four, ‘economics won’t get you a job’. When I was at University nearly everybody was advised to do accounting as you can always “fall back” on an accounting qualification. Economics was warned to be ‘too risky’. Two decades of full employment on I have found economics to not only be in great demand in the labour market, but also a means to a number of very stimulating and interesting jobs. Furthermore, I have found that many of my colleagues at Austrade, DFAT, the ACTU and in the private sector had ‘secretly’ got economics degrees but didn’t tell people they were economics graduates (at Austrade I was the only one ‘out of the closet’, so to speak, with economist officially in my title). I think this shows that in many profession with a business dimension, whether it be accounting, politics, journalism, marketing, engineering, or general management, economics is a useful discipline to have as a way of thinking. Just as Dr Karl Kruszelnicki, the Julius Sumner Miller at Sydney University (or ‘Dr Karl’ fame on the ABC) says all scientists should have a background in physics as a way of thinking and solving problems, all business professionals need to have economics in the tool kit as they embark into the big wide world.

Myth five, ‘economics books don’t sell’. Well we are no Stephen King or JK Rowling but we economics authors have actually done ok. In fact, my own publisher had a change of mind, after he saw the success of Freakonomics and told me to “Hurry up and get that manuscript finished,” and hence The Airport Economist took off thanks to the success of Freakonomics and The Undercover Economist by Tim Harford.  (In fact the British based Tim and I often get confused for each other, which is great for business on both sides of the world!). In addition, there’s Ross Gittins’s The Happy Economist, Zombienomics by John Quiggin, Parentnomics by Joshua Gans, Disconnected by economist turned Labor MP Andrew Leigh and the new contribution by Jessica Irvine titled Zombies, Bananas and Why There are no Economists in Heaven: the Economics of Real Life. In fact, my publisher (Allen & Unwin) has been a publisher of most of these titles in Australia and have now become the ‘true believers’ of the new economics literature.

In conclusion, maybe economics is the gay science rather than the dismal one after all. So in that vein I should conduct some research into the economics of gay marriage and its impact on the economy. If the Tasmanian gay marriage act gets up maybe it will provide some lucrative stimulus to the local economy. And then we can start research on something even more potentially economically lucrative – gay divorce…

Tim Harcourt is the JW Nevile Fellow in Economics and an adjunct professor in International Business Strategy, at the Australian School of Business, the University of New South Wales (UNSW) & author of The Airport Economist:  www.theairporteconomist.com.

From the Knowledge@Wharton today blog.

A decade after a Knowledge@Wharton article analysed an outpouring of corporate apologies, the word “sorry” is back in the headlines. Apple’s apology for errors in its maps app sounds truly remorseful, but the company needs to watch out for less forgiving technology users, says Wharton professor of operations and information management Kartik Hosanagar.

“While it is true that consumers are often forgiving of [problems] with technology products because of the usual trial and error issues, this is less so for a product that charges a premium like the iPhone,” Hosanagar notes. “Apple will need to be careful about these kinds of mistakes more so than a typical tech player.”

This isn’t Apple’s first mea culpa over the iPhone. The company was prompted to offer $100 rebates to some consumers after it slashed prices for the first iteration of the iPhone from US$599 to US$399 just two months after the product launched. Apple was made to apologise again in 2010, when iPhone 4 users complained about poor signals and dropped calls due to a design problem with the device’s antenna.

Apple under Jobs had been seen as generally reluctant to acknowledge errors. But current CEO Tim Cook was more candid in his statement about the maps flap. “We fell short on our commitment,” he said, as he apologised for the company’s decision to remove Google Maps from the list of default apps in the newest version of the iOS operating system and to replace it with an in-house program that has proven to be riddled with errors. Cook even directed customers to maps apps of rivals including Google and MapQuest while Apple fixes its mapping utility.

Comparing Jobs to Cook on apologies may not be entirely fair. “Tim Cook is an unfortunate position in which everything he does will get compared to Steve Jobs,” Hosanagar notes. “These kinds of things happen often and good CEOs often take responsibility for such missteps. That his style is different from that of Jobs will keep getting attention. But analysts must recognise that Cook has his own style.”

Others like ousted Barclay’s Bank CEO Bob Diamond have also not minced words when their firms were caught making an error. In July, he apologised to a British parliamentary panel for “reprehensible behavior” on the part of his bank’s traders indulging in manipulating interbank lending rates. It didn’t help much, though. By then, U.S. and U.K. regulators had already slapped a fine of $453 million on the bank.

On Thursday, appliance maker KitchenAid of St. Joseph, Mich., apologized for “an irresponsible tweet” about President Barack Obama’s late grandmother. “Another company learns the pitfalls of social media,” said a USA Today report on that episode.

Companies must use their apologies carefully, Wharton marketing professor Stephen Hoch cautioned in the 2002 Knowledge@Wharton article referenced earlier. When a company is apologising for a mistake to a group of people, such as customers, who know about the mistake, then the “right way to do it is to spill your guts, lay the negatives on the table and then try to refute those negatives,” he noted. It’s a kind of “boomerang approach, turning the negative into a positive …” Yet, he advised against firms apologising to all and sundry, since they tend to deal with heterogeneous sets of customers. “In fact, a massive apology can be risky.”

Even the world of apologies has its heroes, however. James Burke, the former Johnson & Johnson CEO who died last week, will be most remembered for the 1982 Tylenol recall, according to a Knowledge@Wharton Today blog post from last week. Burke ordered a nationwide recall after seven people died in Chicago from taking cyanide-laced Tylenol capsules. In a 2004 Wharton School Publishing Book titled, Lasting Leadership: What You Can Learn from the Top 25 Business People of Our Times, Burke explained that Johnson & Johnson’s celebrated credo that places customers above all had emboldened him: “It gave me the ammunition I needed to persuade shareholders and others to spend the $100 million on the recall.”

This post was previously posted in Knowledge@Wharton today blog: The Ifs and Buts of Corporate Apologies

From the Knowledge@Wharton today blog.

Before he was the superstar writer/director of the summer’s big budget box office hit, The Avengers, Joss Whedon created the modestly-budgeted musical comedy, “Dr. Horrible’s Sing-Along Blog.” Whedon intended “Dr. Horrible” to serve as something of an experiment in new media production and distribution — at least in part. As Whedon told Knowledge@Wharton in early 2009, “It was equal parts that and the love of the silly….  We said we were going to roll it out for free and then put it on iTunes. We just steamrolled past everybody’s idea of how you market … these things.” The project was, as Whedon characterized it, “a bit of a lark.” But it was also a serious experiment to create and distribute content outside the conventional Hollywood machinery. “[I]f somebody isn’t out there creating a system wherein independent production can thrive, it will wither,” Whedon said.

“Dr. Horrible” stars Neil Patrick Harris as the titular lovelorn villain, Felicia Day as the object of his affection, and Nathan Fillion as his arch-nemesis and romantic rival, Captain Hammer. Originally released online over the span of a week in three roughly 15-minute segments, the original plan was to build audience buzz through the online release and then take the free version offline and make the three-part series available for purchase through iTunes. Shortly after becoming available on iTunes, however, all three episodes could be streamed for free (with advertising) on Hulu. Subsequently, “Dr. Horrible” was released on DVD (and later Blu-ray), could be viewed online through Netflix, and spawned a book, comic book, audio CD, and digital audio download. On Tuesday, the experiment comes full circle as Dr. Horrible debuts on the CW television network in the US.

As Whedon noted in 2009, “The movies, TV — everything is melding, everything is shifting. If you saw it on a movie screen, it’s going to be on your phone. That territory is moving … now in a destructive way because we’re losing residuals. But eventually it’s just going to be an inevitability that … the studios are going to have to rethink how they monetize [content].”

When Whedon spoke to Knowledge@Wharton in early 2009 — roughly six months after “Dr. Horrible” first appeared online — the project had returned “about twice” the original budget of roughly $200,000. At that early date, Whedon reported that iTunes had “been a great boon” and the DVD had “done quite well.” The streamed online video with advertising was the “smallest revenue.”

Despite the “old media” veneer of television, the airing on TV could provide a significant boost to the revenues from “Dr. Horrible.” As independent filmmaker Jon Foy told Knowledge@Wharton last year following the release of his low budget independent documentary, Resurrect Dead: The Mystery of the Toynbee Tiles, “In this world of independent documentary film, broadcast is still where the biggest share of money is. Fewer people buy DVDs. And we all know that fewer people are going to the theatres. More people are streaming [movies] on Hulu and Netflix. Everyone in the independent film world is scrambling to figure out how to monetize that.”

Back in 2009, Whedon was uncertain how his experiment would turn out. “This could just stand out as Camelot and disappear. Or it can be a model that is built on.” More than four years after its original release in the summer of 2008, “Dr. Horrible” is still going strong.

Now that the original 43-minutes of “Dr. Horrible” have played on multiple media, what’s next? Will we see more of Dr. Horrible in the future? Whedon was asked this question this past July at San Diego Comic-Con. As if to prepare the crowd for a letdown he began, “The thing you have to understand is…” He then abruptly cut off the rising disappointment with one word: “Yes.”

As Neil Patrick Harris’s Dr. Horrible states in the original series, “The world is a mess, and I just need to rule it.” Although his character failed to do so, the series that tells his story has progressively conquered nearly every domain of the media landscape – both old and new.

This post was previously posted in Knowledge@Wharton today blog: Old Media Turns to the New: Dr. Horrible Strikes Back

From the Knowledge@Wharton today blog.

Anyone who has ever sat through a commencement address, read a self-help book or sought input from a friend when making a tough decision has probably heard this seemingly straightforward piece of advice: “Do what makes you happy.”

But the connection between doing what’s best for you and being content with that decision is more tenuous than most of us might think. According to Wharton marketing professor Deborah Small and PhD student Jonathan Berman, the conflict inherent in making a decision – and guilt about choosing oneself over the chance to help others – often makes looking out for your own self-interest seem downright miserable.

“Context is critical – people make very different choices based on the background. When the context is right, self-interest can feel quite pleasurable,” Small says, noting that people make numerous choices every day without thinking of them in moral terms. “But when self-interest is directly pitted against the needs of others, it makes self-interest feel selfish.”

Some people are psychologically hard-wired to think everything they do is selfish, Berman points out, while “others are oriented to think that nothing they do in their own self-interest is selfish.” Berman and Small decided to see what happened when the choice was taken out of people’s hands. In a recent paper, “Self-Interest without Selfishness: The Hedonic Benefit of Imposed Self-Interest,” which is forthcoming in the journal Psychological Science, they show that people who had a self-interested outcome imposed on them were able to enjoy it without the burden of feeling “selfish” – and were happier on average than those who got to make the choice on their own.

In the first of three experiments, 216 people were told that they were either going to be given US$3 to spend on themselves, or would donate that money to UNICEF. Some participants got to choose between the two options; the others had no choice – they were forced forced to either keep the money or give it to charity.

After the first study, participants were asked was asked to rate on a scale of one to seven how much enjoyment they got from the experience. The happiest group of people by a significant margin were those who were simply told they could keep the money, rather than being told to donate it to charity or to decide between the two options. (Credit: Deborah Small and Jonathan Berman)

Afterward, the entire group was asked to rate on a scale of one to seven how much enjoyment they got from the experience. The happiest group of people by a significant margin, the researchers found, were those who were simply told they could keep the money.

“The idea is to make it feel less and less like a choice,” Berman says. “The less something feels like a choice, the less tension people feel and the better they feel as a result.”

In the next experiment, 132 people were asked either to choose between accepting one of two gift cards, to pick one of two charities to give a $5 donation to or to decide whether to take a gift card or give the equivalent amount to charity. Once again, those who were only presented with gift cards(self-interested options) proved to be the happiest with the outcome.

Finally, Berman and Small conducted a third experiment designed to study whether people’s perceived level of control over a decision impacted their level of happiness with that choice. They recruited 252 people through Amazon Mechanical Turk and told the group that each would receive a monetary bonus in exchange for their work or would be asked to donate the same amount to UNICEF.

Participants were asked to give their preference between the two options and then told that either they would get to make the choice, or the computer would make it for them. (Unbeknownst to the group, however, the computer “picked” whatever option the participant said he or she wanted.) Once again, the group was asked how happy they were – and once again, those who got to keep the money were happier when they believed the decision was imposed on them.

According to Small and Berman, the research shows the danger inherent in giving people too many choices, and how giving moral undertones to a particular decision could put at risk the happiness that consumers associate with a particular store or product.

As an example, Berman points to programs in which supermarkets give customers a choice at checkout of whether to keep a refund for bringing their own reusable grocery bags, or to give that money to charity instead. “Companies tend to think about the people who would want that option, not about the people who don’t want to take it,” he notes. “Maybe if they just gave everyone the money as a refund, everyone would feel better off.”

“Or they could impose the choice to donate to charity,” Small adds. “Lots of companies do. For example, they say that for every dollar you spend, a portion of that is given to charity. Cause marketing is very effective if it is done well. Consumers like the idea of doing good. But the potential downside is that putting the customer in the position of deciding whether or not to do good might make him or her feel less satisfied.”

However, Berman notes, that feeling selfish isn’t necessarily a bad thing. “In some sense, the feeling of selfishness is a good thing for morality because people who don’t want to feel selfish end up doing good deeds,” Berman says. “Maybe there is a trade-off between your own happiness and doing good deeds, but it’s also doing good for the world.”

This post was previously posted in Knowledge@Wharton today blog: Do Something Nice for Yourself — Without Feeling Selfish

Anil Hargovan

Fortescue Metals Chairman Andrew Forrest can breathe a huge sigh of relief after winning his High Court appeal against a Federal Court finding that might have seen him banned as a company director.

The Australian Securities and Investments Commission (ASIC) suffered loss in more ways than one. Apart from the financial sting, where costs were awarded against ASIC, the regulator also suffered from reputation loss arising from the way in which it ran the case.

The unanimous judgement was highly critical of the manner in which ASIC framed its case and has sent a clear and sharp message to the corporate regulator for the need for greater transparency when formulating claims against defendants.

In 2011, the Full Federal Court overturned the decision of the trial judge and held that (then-CEO) Forrest had breached his duty of care and diligence by allowing Fortescue to make misleading statements that it had entered into “binding contracts” with several Chinese companies for the development of critical mining infrastructure.

When news broke in the media that such agreements struck in the framework agreement were not binding, the Full Federal Court also upheld ASIC’s claim that the company had breached the continuous disclosure laws by failing to disclose this to the market.

However, before the findings of the Full Court were remitted to the trial judge to assess civil penalties for breach of the Corporations Act (which included the prospect of being banned from being a director, as well as financial penalties), Forrest appealed to the High Court.

In rejecting ASIC’s claim that the public statement was misleading, the High Court emphasised the need for ASIC to identify the intended audience and to ask: what would they have understood?

Applying this test, the High Court found that the intended audience of investors and members of the business community would not have understood the agreement to be binding in a legal sense. According to the High Court, “it would be extreme or fanciful” for the target audience to have understood that the contracts were capable of being enforced by an Australian court if the parties later disagreed.

Of all the competing meanings of the phrase “a binding contract”, as used in the context of this case, the High Court took the view that it simply conveyed to the intended audience what the parties to the framework agreement had done and said they had done.

In preferring this narrow meaning, the High Court found that there was no evidence led at trial to show support for a broader meaning, for example, that a court will grant relief should the agreement be breached.

Concerned that the decision might be seen as falling short of protecting the investing public, the High Court was at pains to point out that the result in this type of cases are determined by the particular facts and evidence.

As a result, the High Court cautioned that this case does not establish a broad proposition to the effect that any public statement that Company A has made a contract with Company B necessarily conveys to its audience a message only about what the contractual document contains. The effect of the message conveyed is, ultimately, dependent on a close and careful analysis of the facts.

There are at least two key messages highlighted in today’s judgement. First, the value of this judgement as a precedent for corporate management to navigate its way through the investor protection provisions of the Corporation Act is limited, due to its narrow focus.

Based on the High Court’s finding on the core issue of misleading or deceptive conduct in favour of the defendants, the court did not focus on other significant issues such as the use of the business judgement defence – that the decision was made in good faith and with the best interests of the company – as a defence for breaching directors’ duty of care and diligence.

Nor did the result in this case warrant an examination of the directors’ obligations under the continuous disclosure laws.

It is understandable, but regrettable, that the High Court did not offer guidance on such important issues of major concern to the corporate community.

Second is the clear and sharp message sent to ASIC that its litigation strategy was defective for two main reasons.

One, ASIC failed to clearly specify the basis of the alleged misrepresentation (for example, whether it was fraudulent or negligent), resulting in confusion and potential unfairness to the defendant.

Second, in piling one alternative claim on top of another, ASIC was found to have taken this strategy to litigation to new heights which was condemned.

Such an approach was considered by the High Court to be “planting a forest of forensic contingencies” and unacceptable to achieve a fair trial.

In so doing, the High Court upheld the notion and reminded ASIC that no person ought to be put to loss without having a proper opportunity of meeting the case alleged against them.

Such critical remarks offer comfort to potential defendants facing allegations of breach of law by regulatory agencies.

Anil Hargovan is an Associate Professor at the Australian School of Taxation & Business Law at the Australian School of Business. This opinion piece was previously published on The Conversation under Sharp message to ASIC as Forrest wins High Court appeal.