Greg Combet AM MP
Minister for Industry and Innovation
This post first appeared on the CIE Blog.

The Australian economy is globalising and fast. One facet of this trend is the way Australian entrepreneurs are criss-crossing the world, building experience and networks and selling not just themselves and their products and services, but the view of Australians as global entrepreneurs.

A series of articles in the Sydney Morning Herald has bemoaned this so called “brain drain” as, mostly young, entrepreneurs depart our shores in search of investment and markets for their ideas. The fact is that these journeys are part of the economic and social transformation that shows a path to the future of the Australian economy. This is no “brain drain” but actually a small country finding opportunities in a global market and punching above its weight.

As these entrepreneurs know, a global audience of 7 billion investors, customers and partners brings tremendous opportunity. Closing our borders or limiting our aspirations to the domestic market alone will only limit the entrepreneurs’ growth and our economy’s growth.

We need these entrepreneurs to mentor and introduce local businesses to global networks, to share their experiences and to promote Australia’s strengths around the world. We don’t want to lose them – but we should recognise that they don’t need to be physically here to add value.

Our long-term competitive advantage is in the ideas and energy of our people. The coming century will be shaped by significant geographical, demographic and technological trends.

Two of those technological trends that our entrepreneurs are already tapping into are clean technology and ICT. The Government is making significant investments in infrastructure, skills, research and innovation to support their initiative.

The $36 billion National Broadband Network is the most ambitious investment in infrastructure in our history. The NBN is the cornerstone of our Digital Economy Strategy, which will help Australia become a leading global digital economy by 2020.

The NBN will provide the platform for Australian businesses to develop, distribute and benefit from a wide array of digital applications and services. This opportunity will catalyse local development and take-up but also tell the world that Australians will be players in the global digital economy.

Faster broadband will provide benefits to the Australian economy through digital productivity, cloud computing and virtual collaboration.

The Australian Government’s Clean Energy Future plan will encourage the development of low carbon energy generation technologies. The transformation of the energy sector will drive $100 billion in investment in renewable energy electricity generation over the period to 2050.

We’re also investing almost $9 billion per annum in science, research and innovation, representing a 35 per cent increase on the 2007 figures.

In addition to the digital economy and clean energy strategies, the Government has a comprehensive set of support programs for Australian entrepreneurs to innovate and commercialise new technologies.

The new R&D Tax Incentive which delivers a significant increase in support for entrepreneurs; Commercialisation Australia; Enterprise Connect and the current round of the Innovation Investment Fund where the Government will be committing up to $100m of co-investment.

It is hard to predict the future but two things are certain – we’re going to be more connected and going to be doing more with less from a resource perspective. So, instead of pessimism, we should also be celebrating the increased globalisation of our entrepreneurs. The experiences, networks and success that they are having on a global stage are part of this transformation. Our challenge is to remain connected with our own global citizens and use these Australian links to our advantage.

The Australian Government is making a significant investment in the future and laying the policy foundations that will help our entrepreneurs make their mark in global markets.

This post first appeared on the Centre for Innovation and Entrepreneurship CIE Blog.

About this blog:

These blogs are all about getting you expert advice for the business you are in, however, I will not be using the traditional business experts you may expect.

You will get access to greater tools to use in your professional life from these specialists I have lined up just for you, that will allow you to think outside the square and succeed.

Read on a benefit from these ‘not so usual expert’ experts.

Danielle Di-Masi | AGSM Alumna

Effective leadership skills are one of the most desired skills to have in your toolkit, well especially according to Google Trends and the conversations and questions I get from my clients. People always seem to be wanting to enhance their leadership abilities and so in this blog series we will get a few different views on this skill from different ‘not so usual expert’ experts.

For the first touch on leadership I thought I would start with an expert where being an effective leader can be a life or death situation. I’m not talking about end of financial year kind of life or death, I’m referring to the real deal so our expert is a man who’s ability to lead a team can lead them to safety and success, for themselves, his unit, the mission and our country.

Shaun McTeigue was an Army leader for Australian Special Operations. When interviewing Shaun for his thoughts on leadership I wasn’t sure what response I would get back that would benefit those in business, however, his answers were some of the most insightful and articulate I have had on this topic so I am now confident that he can help think about being a leader in a much different way.

For Shaun, being a leader is about balance; a balance of looking out for your team but also your mission and seeing it until completion. “Leadership is being able to mentor and nurture to not only maximise the efficiency of the team but enhancing their skills and ability.”

His view on leadership is extremely team focused as he states, “You always have to earn the respect and never demand it.  People who sit in positions of authority or power must remember that, for your team to achieve the task at hand, you need all efforts from each of them and to remember that no matter how much power or authority you have, no job can be completed with just the leader alone.”

Sometimes, when you are busy, you can lean on the team to get things done but this is not the most effective way forward.

Shaun also states that leaders should always remember how they are perceived in their role by their team so they are in fact not left alone, “The position that you are in is merely a word, you must prove in actions that you are worthy of the position; people will not respect someone who does not show their team that they are capable of the role.”

Engaging your team is a powerful tool and Shaun best does this by involving the team in every aspect of the mission, right from the planning, this way they take ownership and responsibility of the outcome and the mission as a whole.

Shaun also has a tactic of engaging his team by letting them learn from his mistakes. I had to ask this question twice to confirm he said “mistakes” as some leaders don’t like to expose their faults, however, Shaun believes it’s a brilliant learning tool, for all. “I definitely have made mistakes, thankfully it was always in training and I would always stop the team and explain that I made the wrong decision and we would identify why it was the wrong choice.  This way, my team can identify Team Leader mistakes and when they are in the hot seat they won’t do the same.  I want my team to always be judging my leadership and decisions just as I do to them.  This kind of environment always ensures that each of the soldiers, me included, are performing 110%.  This also builds trust and trust is how I turn my team into a family and this was my ultimate goal, because brothers will do anything for each other.”

So can we all learn to be strong leaders like Shaun? He thinks we can but it doesn’t just come down to a sole effort, “There is certainly an element in every person to lead, but certain lifestyles and experiences will unlock that ability in you. There are definitely people who naturally can lead, but I believe that you need good mentors and leaders that will foster you.”

So look at your leadership strengths, engage your team as a whole, learn from your mistakes, always remember to work with your team to utilise all of the team as it is very hard to run a mission alone and approach a good mentor that will help you develop strategies and a path towards your successful future as a victorious leader.

Danielle Di-Masi is the Principal Click! Consultant at Click! Training & Consulting. She is a keynote speaker and business trainer. She specialises in business etiquette and all things around behaviours and human interaction; especially in building effective business relationships through connection and rapport.

Contact Danielle @ Click!:

info@clicktrainingandconsulting.com

www.clicktrainingandconsulting.com

www.facebook.com/clicktrainingandconsulting

 Tim Harcourt | The Airport Economist

A government deal to allow 1700 people from overseas to work on the Roy Hill iron-ore project in Western Australia has angered union groups – however overseas workers have always been a part of Australia, and it is important for companies to get the people they want, with the skills they need.

A lack of the right kind of workers is a major headache for large projects, particularly in more remote areas. This is damaging for Australian trade, just at the time when we should be jumping at opportunities to increase our foreign earnings from mining.

The Roy Hill enterprise migration agreements – and another six which are still being considered – have caused uproar among those who claim the foreign workers will steal jobs from Australians despite evidence that East coast residents are unwilling to migrate to WA.

This is a real problem for the Pilbara and our economy. People on the East Coast will not willingly take these jobs, despite the ‘Gilly Effect’, named after Australia’s retiring cricket legend, Adam Gilchrist, who began his career in his native New South Wales but found much more success when he moved to Perth and started to play for Western Australia. Tens of thousands have followed his lead, and made it a success, but for many Sydneysiders, it is a leap too far.

At the moment miners face a shortfall of the right kind of people. Ideally we would find these workers in WA, but it has record low unemployment. There are some people in NSW willing to ‘do a Gilly’ and go west – but not enough. So the obvious answer is to take people from overseas who would jump at that opportunity if they get training in a specific field and a well-paid mining job.

Recently-released statistics from the ABS show Western Australia has clocked the fastest population growth of any state in Australia: 2.3% compared with 1.1% for New South Wales. Despite its geographic remoteness, by 2030 the population of Perth is expected to grow by 40%.

With a shortage of workers, the obvious answer is to look overseas – and migrants love WA. Over a third of the population of Perth either hold UK passports, or their parents do, and in the Pilbara 70% either have Irish or UK heritage. Many are already in Australia on 457 visas – and these are the people doing a Gilly. They can see the opportunity WA offers,” Tim Harcourt says. “If we have exhausted all the Australians who want these mining jobs, and there are migrants who want what Aussie firms are offering, then perhaps instead of wringing our hands over it, we should welcome these people who have so much to add to the Australian economy. If it is really a problem, why aren’t Australians following Gilly? We should protect workers’ rights – but let’s keeps Australia open in terms of trade and migration, which gives a boost to us all.

Tim Harcourt is the JW Nevile in Economics at the Australian School of Business, UNSW and author of The Airport Economist: www.timharcourt.com

From the Knowledge@Wharton blog.

Reports about European bank fragility in the so-called “periphery” have picked up. Two weeks ago, Moody’s cut ratings for the deposits and long-term debt of 16 banks in Spain between one and three grades as customers increased withdrawals. In Greece, unsurprisingly, the pattern was even more pronounced – people increasingly were withdrawing their bank deposits. New terms are being coined for the significant level of bank withdrawals – such as a “slow-motion” bank run or a “bank jog.”

It’s an ominous development to those worried about a runaway-train dynamic with Europe’s banks. For all of the thorny problems facing European officials, and for all of the financial instruments and lending programs they continue to deploy to try to solve them, one problem could trumps all others: a market panic in which events move so fast that officials, no matter how well intentioned, simply cannot move fast enough to stop a huge, new financial meltdown that might quickly spread globally.

For now, the relatively slow-moving speed of the withdrawals has kept the anxiety in check. Wharton management professor Mauro Guillen says that, on balance, “my sense is that a run on the banks is very unlikely, except for Greece, where the risk of an exit from the Eurozone remains high.” He adds that his information is based only press reports, however.

Wharton finance professor Franklin Allen, meanwhile, is surprised at how “slow people have been to withdraw money from Greek, Spanish and Italian banks. This is particularly true in Greece. My understanding is that only about a third of deposits have been removed so far,” less than might be expected given the gravity of the situation. “For Greece the likelihood of an exit is generally estimated to be high. Probably people will lose half the value of their money relative to withdrawing now and putting it in a German bank. If people do figure this out … it will be over quite quickly. I don’t think they [officials] will be able to put in place what they need to stop it in time.”

Since there are huge doubts over whether national governments, in Greece or Spain, would have enough resources to overwhelm a full-scale bank run, the question becomes: What is the next line of defence for Europe? Until now officials have tapped various funds to support banks and sovereign debt, such as the European Financial Stability Facility the European Stability Mechanism and the Long-term Refinancing Operation. But much of that money is exhausted. And the European Central Bank (ECB) by treaty cannot be used right now as a bank of last resort.

“Each country has the equivalent of the FDIC,” Guillen notes. “That’s the first line of defence. Governments could also take over a bank if it becomes the target of a bank run. Right now, there is no European-level mechanism.” Guillen thinks that it is increasingly likely “that only eurobonds will eliminate for sure the Greek risk of exit. But we need to wait until the Greek election to see how the situation changes after that.”

Eurobonds, which would spread bailout liability among all eurozone members, are being pushed strongly by France’s new president, Francois Hollande. However, German officials have strongly reiterated their opposition to such common bonds. If ever issued, the bonds would help reduce financial pressure on the countries in the eurozone that are struggling with debt and recession, but would raise borrowing costs for Germany, which can borrow practically for nothing right now.

Germany’s strong opposition was restated despite newfound support for Hollande’s position from the International Monetary Fund and the Organization for Economic Co-operation and Development, two of the top global economic organisations.

“The problem is that these solutions, especially things like fiscal union will take a significant time to implement,” says Allen. ”This is their problem at the moment.” The same is true for eurobonds. “Again, this will take a long time to put in place safeguards in terms of controlling expenditures, even if the Germans were to agree. However, I don’t think they will. They are gradually being sucked in further and further in terms of their exposure.”

Allen added that “we are getting closer to a bad outcome occurring,” says Allen. “Maybe they will save it this time, but before too long something must change drastically if we are to avoid it.”

This post previously appeared in the Knowledge@Wharton today blog: ‘Bank Jogs’ Ratchet up European Risks.

Professor Chris Styles

Mark Zuckerberg has done well. He founded a successful company, made a lot of money, changed how millions of people relate to each other, was the subject of an Academy Award-winning movie, and just got married. Not bad for a 28-year-old.

But there are a few dark clouds on the horizon. The recent float was fraught with problems. Trading was 30 minutes late because of technical problems on the NASDAQ, and the share price has already gone from $US38 down to $US31.

Mr Zuckerberg himself cashed out 30.2 million shares at $US37.58, netting a cool $US1.13 billion. This hasn’t gone unnoticed by his world of followers, and there is the prospect of class action suits from investors because of a question over whether Facebook is growing as fast as originally thought.

Indeed, the US Senate banking committee has launched an inquiry. Investment banking giants Morgan Stanley and Goldman Sachs are also in the firing line.

One of the recent criticisms of the new breed of internet billionaire is an inherent ‘lack of maturity’, and inexperience. Wearing a T-shirt is fine for a Silicon Valley start-up, but does being the CEO of a listed company valued in the billions require a slightly different approach? This highlights two issues. First, when should a company founder step aside and make way for ‘professional managers’?  And does age matter?

On the issue of founder vs professional CEO, we see different models. Bill Gates was at the helm of Microsoft for some time before finally stepping aside. Google took a different approach. Co-founder Larry Page started off as CEO but then handed the reins to 46-year-old Eric Schmidt in 2001. An experienced CEO, Mr Schmidt took charge of the company for 10 years while Larry page focused on building products. Then in 2011, it was back to the future when Mr Page again became CEO.

In the initial years of a start-up, the success of the company is highly dependent on the founder. It is their vision, passion, drive and often technical expertise that investors are buying into. At some point, however, as the company grows, there is the need to implement what seem like mundane things such as processes, systems, governance mechanisms and sound financial management.

Is the founder the right person to oversee this phase? Perhaps not. The smart founder needs to be honest about what they are good at, and what they are not. In their own interests, and the interests of investors, the time may come when it’s right to hand over. But it’s not an easy thing to step away from control of something you created from nothing.

The question of age is really about appropriate experience and ability. Over the past decade we have seen a raft of relatively young CEOs in our part of the world – Alan Joyce became Qantas CEO at 41, Cameron Clyne at NAB was 40, and George Frazis was named CEO of Westpac NZ at 43 (he is now CEO of St George Bank).

There were probably others in line for these positions who were older with more ‘experience’, but coupled with demonstrated ability, it was probably the type of experience they had that got them the jobs. We often see job ads that quantify the length of experience needed. What this probably means is that the company advertising the role doesn’t believe that someone with less miles on the clock would have had the breadth and depth of experience the role requires.

But we need to be careful about assumptions. Someone with 10 years’ experience may merely have lived the same year 10 times, whereas someone half that age may have faced extraordinary situations and done extraordinary things. And some ‘younger’ executives have the capacity to reflect and learn fast – from successes and failures – a key characteristic of a good leader.

The next 6-12 months of the Facebook story and its young CEO will be interesting to watch. Does Mark Zuckerberg have the knowledge, skills and attributes to successfully lead Facebook into its next phase? Or will he take a leaf out of Larry Page’s book, appoint someone with the requisite experience, and serve as an apprentice until he is ready to return to the helm once again?

Whatever the case, the honeymoon for Mr Zuckerberg may well be over.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM). This opinion piece first appeared on ABC’s The Drum 28 May 2012.

From the Knowledge@Wharton blog.

Knowledge@Wharton spent a few days this week at TechCrunch’s Disrupt conference at Pier 94 in New York. The burgeoning startup scene in the Big Apple was a hot topic of discussion during the event. As the New York scene solidifies and expands, attendees said that startups are now competing for clients with larger financial institutions; employees from large companies are making career moves to smaller organizations, and major tech firms are opening offices in New York to establish an East Coast presence (i.e., Facebook, Twitter and eBay via its acquisition of Hunch).

Many panelists, including David Tisch, managing director of technology accelerator TechStars NYC, noted a shift in student interest in smaller companies versus larger Wall Street corporations and highlighted the strategy of startups banding together to recruit from top universities. He also predicted two to three major exits out of New York in the coming year by either IPO or acquisition. Fred Wilson, co-founder of New York venture capital firm Union Square Ventures, said in a conversation with TechCrunch founder Michael Arrington that he expects the “next big thing” in tech will come not out of Silicon Valley, but out of New York.

Josh Miller, co-founder of discussion platform Branch, noted in a panel discussion that more computer science students are taking post-graduation roles at startups instead of banks, and others who go to larger firms are getting “bored” within one to two years and are leaving to join a startup.

Jake Schwartz, co-founder of NYC startup incubator General Assembly, says the GA team has “worked with universities like Wharton to get students involved and introduce them to the New York tech scene.” By working together to attract talent at joint events or career fairs, he noted, startups “mirror that same recruiting power that big companies have on college campuses.”

Perhaps the biggest challenge set forth was one from Alexis Ohanian, co-founder of social news site Reddit: “We need to come up with a better name than Silicon Alley.”

Discussion at the event also revolved around Facebook’s recent IPO and what attendees considered the next major priorities for the technology industry:

– Roelof Botha, partner at Sequoia Capital, knows a thing or two about IPOs and acquisitions.  Prior to his role at Sequoia, he helped take PayPal public as CFO and later participated in negotiations for the sale of PayPal to eBay.  In a conversation about the recent Facebook IPO, Botha cautioned entrepreneurs against selling too early, encouraging them to “build something enduring” and “something that really makes a dent in the universe,” stating that Facebook’s core value is in its platform.

Despite the challenges Facebook is facing on the stock market, Botha praised the social network’s innovation around ad formats, such as sponsored stories curated by your friends, to solidify the presence of the network. “Think about what would have happened to Facebook if they had taken an acquisition offer early on from Yahoo or Google,” he noted. “We have at least 10 companies that have produced 10 times the returns after going public.”

Botha also provided insights about Sequoia’s recently uncovered “stealth” program started more than two years ago, in which the firm wires funds to dozens of individual entrepreneurs, or “scouts,” who need cash to start a venture. Botha gave the example of two engineers working at a large company who “need US$50,000 to afford to leave their jobs to get their idea off the ground” as the type of entrepreneurs who are recipients of these funds.

– Ron Conway, a prominent Silicon Valley angel investor, said the next two priorities for the technology sector should be immigration reform and reforms for H1-B visa authorization requirements, stating “We don’t have enough engineers in this country.”

Conway is involved with SF City, an organization mirroring a chamber of commerce whose members are technology companies in the city of San Francisco. The organization’s two main goals, he said, are encouraging job creation by hiring San Francisco citizens and reducing the city’s onerous payroll tax by shifting the tax burden to more of a gross receipts tax. Conway noted that San Francisco’s unemployment rate is falling faster than that of other cities in the country.

He shot down rumors that he is planning to run for mayor of San Francisco (after prodding by Arrington), but did confirm he was in attendance at Mark Zuckerberg’s surprise wedding ceremony over the weekend, revealing that it was the white flowers that tipped him off to the fact that the event was not, as advertised, a graduation party for Priscilla Chan.  Conway closed by urging every entrepreneur to read Zuckerberg’s letter to shareholders as it effectively maps out the type of “hacker” culture he would build if starting a company today.

– Jeff Jordan, general partner of venture capital firm Andreessen Horowitz, noted that his firm’s strategy is to “look for companies that can … create … value each year and be core franchises in their markets.” His message to Wall Street is that there is currently “an unparalleled opportunity for the growth of technology companies,” noting that “the addressable market has just exploded” because compared with 1999, the cost of getting products to market has plummeted.

“If you can get product/market fit, there is virtually no [limit] on how fast a product can grow,” he said, referencing Pinterest as the fastest growing Internet firm ever.  He also admitted that he spends more time in New York now than he did when he was CEO of a public company — largely because of the number of fast-growing e-commerce companies launching out of New York, including Fab.com, Warby Parker, Birchbox, and Bonobos.

This post previously appeared in the Knowledge@Wharton today blog: New York to Silicon Valley: Watch Your Back

From the Knowledge@Wharton blog.

Share prices of Indian companies have plunged. The rupee is at historic lows. Profits — barring an exception or two like the State Bank of India — are sharply down. The issuers of Foreign Currency Convertible Bonds (FCCB) are in deep trouble. People are even talking about the possibility of defaults.

The convertible bond has always been a favorite of corporate India. When the Controller of Capital Issues (CCI) decided the premium at which a company could make a follow-on public issue (FPO), the convertible bond was the instrument of choice. You could issue a bond (debt) at, say, US$10 and convert it later into a share of US$1 with a premium of US$9. The share premium account was boosted while the equity capital (which needs to be serviced by way of dividends) stayed low. The CCI would probably have allowed a premium of only US$1 on a share issue of US$1. Everyone was happy as, at the time of conversion, the promoters ensured that the market price was above US$100. Reliance Industries under Dhirubhai Ambani had several series of such debentures.

When the world was experimenting with exotic derivatives in the lead-up to the global financial crisis, Indian companies were taking tentative steps forward with FCCBs. They were very easy to understand. You just borrowed, say, US$100. The rate of interest was much lower than Indian rates. On the pre-decided date of maturity, the lender would be returned US$100 plus the interest. But that was not the principal attraction. Each debenture could be converted into an equity share; the choice lay with the lender. If the share price was higher than the principal plus interest, the lender would gain and opt for the conversion option. When the market was booming, nobody gave thought to a situation in which the FCCBs would be underwater — less than the principal plus interest.

To make a long story short, that is what has happened. Companies had realized this over the past couple of years and they were trying to make arrangements. The conversion option was out, of course; no lender wanted equity. Some companies felt they could generate the repayment funds needed through operations. But high inflation and the decision-making paralysis in Delhi have meant weaker bottomlines. The internal generation is not adequate.

Many companies saw that coming, too. So they borrowed from wherever they could and even sold assets. But the corpus they had collected in rupees is no longer enough. The rupee was 44.36 to the U.S. dollar in early May 2011. At 54.43 on May 19, 2012, the fall is nearly 23%.

“The rupee is the joker in the pack,” Rajesh Subramaniam, CEO of BPO company Firstsource, told CNBC-TV18. Firstsource has to return US$237 million by December 4, 2012. It has made arrangements for US$150 million, but now has to find the rest.

Suzlon Energy is facing a more serious issue; its redemption date is around the corner. Suzlon has to pay back its bondholders around US$360 million by June 17. This includes US$300 million in principal and US$60 million in interest. The company has asked its bondholders for more time; it says it will be able to raise the funds in an extra 45 days. Suzlon had made the FCCB issue in 2008.

Some other companies with FCCBs to pay include Tata Motors, which needs to return US$473 million (by July 12, 2012); Gayatri Projects, US$2.7 billion (August 3); Tata Steel, US$382 million (September 5); and Jaiprakash Associates, US$355 million (September 12). Some of these firms have already made arrangements.

Analysts have likened this to a time-bomb waiting to explode. According to a report by ratings agency Fitch, 20% of these FCCBs are likely to default. According to Fitch, 59 companies have to redeem FCCBs in 2012, involving an amount of US$7 billion.

The saving grace, of course, is that it is not a large figure. The Reserve Bank may allow some relaxation to tide over the crisis. It may allow companies to borrow money at a higher interest rate than earlier to facilitate rollovers.

If there is a default, it will reflect on the country’s image and rating. There were a couple of defaults in the late nineties. But that was a different situation. The wealth tax on shares had gone, courtesy then Finance Minister Manmohan Singh. But structures had yet to be unwound. The foreign borrowings were really a way of shoring up the promoter’s equity, without adding to his tax burden. Today’s lenders are genuine.

If a company has a reasonably healthy balance sheet and a good track record, it will be able to raise the money. If not, watch for fire sales. And, given the state of the rupee, foreign assets may be the first to go.

This post previously appeared in the Knowledge@Wharton today blog: A Triple Whammy for Indian Foreign Exchange Bond Issuers

Daniel Schlagwein

After the first full day of trading, Facebook shares have lost over 10% off their issue price as the enthusiasm for the social network giant has turned to scepticism, following its lacklustre initial public offering.

Why is this?

Probably over worry that users might turn to other social networks if Facebook tries to capitalise on them too much.

Facebook went public last Friday with what was forecast to be a big-bang IPO of shares that valued the company at more than US$104 billion. Alas the bang turned into a fizzle.

The Facebook IPO is a case of pricing the distant future of company based on sheer potential — and a perceived one at that.  Investors fear that Facebook will never realise its full potential. The worry is that its users – or friends – might turn to other networks if Facebook tries to capitalise on them too much. Other social networks—Friendster, MySpace or the VZ network in Germany—vanished quickly. With Wall Street in a bearish mood, it’s clear it didn’t want to take a punt on something that might not last the course.

The stock closed at $US34.03 yesterday, down 11% for the day and well below the $US38 initial public offering price

I see three major concerns.

Firstly, Google could be in a position to attack Facebook. This may seem optimistic; after all Google Buzz failed, and Google+ is only moderately successful for now. However, Google has a better business model, the cash and the clout to get a new competing network up and running: all it has to do is get enough people to like it.

There are also not-for-profit developers, who are giving established corporations a run for their money.

Open source software can move the market in unexpected ways – look at Firefox for example, which is now a serious competitor for Internet Explorer. There are likely to be new developments in the social network space. An open source system, or an otherwise non-business driven social network might emerge. Never discount software developers creating new tools for free – and that could seriously impact on Facebook.

Finally, the EU and other regimes are not shy about taking on monopolies. Right now there are legitimate concerns about how legislative systems will deal with a monopolist Facebook.

However Facebook is an excellent example of how small start-ups can become huge. I consider Facebook to be in an excellent position to benefit from the social-centric web and I would expect much social commerce to be increasingly built on Facebook. Current developments remind me of the concerns with Google’s IPO in 2004. However, the Google IPO stock price was $85 on the first day, and now it is above $600. It could all pan out for Facebook, but right now it is pure speculation to provide any estimate on Facebook’s “real value”. Investing in Facebook is a gamble.

Daniel Schlagwein is a lecturer at Australian School of Business

Professor Mark Stewart

The preferred skill set of potential leaders is evolving, just as the needs of business itself are evolving – and the challenge to leading business schools is to adapt and develop existing programs while remaining true to our role and purpose in servicing leadership education needs.

It is interesting to observe the changes currently under way within master of business administration programs at many leading international business schools. Notable shifts are occurring on two fronts – the developing needs of business and the community and the level of demand from potential MBA students.

In addition, an increasing number of substitute education alternatives continue to emerge. And of course, there are many different types of MBA programs now available.

As a consequence, the role and purpose of MBA programs are under scrutiny from several perspectives. Many business schools are redesigning their MBA products to service a more segmented market and a more sophisticated consumer. And, for the vast majority of business schools, this is occurring within an economic environment that requires more done with less.

Recent studies by Harvard Business School have identified several unmet needs as identified by business – including development of critical thinking skills, an improved understanding of risk and markets, the development of a global perspective and a heightened awareness of the role and responsibility of business in society. Each of these examples represents a broad area of knowledge that complements an underlying base in core disciplines such as finance, marketing and economics.

In order to address these unmet needs within MBA programs, business schools are faced with two significant challenges: how to include additional learning within an already full curriculum; and how to meet these requirements within existing constraints on financial and human resources.

The use of integrated learning and experiential learning courses (comprising a multidisciplinary approach to problems and projects) can help with the curriculum challenge, but invariably these types of courses are resource intensive and relatively more costly to deliver.

In any event, after allowance for necessary courses that address the core disciplines, it is unlikely that the remaining capacity within the MBA program is sufficient to meet all of the unmet needs.

But addressing the interests of business must also be considered within the context of addressing the interests of potential students. Although these requirements arguably converge, evidenced by likely job prospects being a key factor when incoming students select a preferred business school, there are many alternative paths available for talented executives seeking to enhance their careers.

The traditional MBA is now just one of several MBA alternatives. Shortened versions service a market characterised by time-poor executives seeking to progress their studies while holding full-time jobs.

Shortened versions must, by definition, have a reduced curriculum. To some extent this compromise can be offset by prior education and extensive professional experience. But it is difficult for a short course to adequately address the significant benefits that arise from learning reflection, cohort experience and network engagement – all typically associated with comprehensive MBA programs.

And potential students can also consider a variety of MBA substitutes in the form of specialised postgraduate programs and in-house training programs.

The abovementioned study by Harvard Business School also identified a change in the demand for MBA programs from 2000 to 2011. Enrolment at the leading US business schools remains stable – but at other US business schools there appears to be a shift from full-time to part-time programs and, post-GFC, there are indications that the demand for part-time programs has also weakened.

While it is not possible to present a definitive explanation for these changes, it is reasonable to argue that some factors are transitory (such as employment prospects linked with the economy) and others more lasting (the changing needs of business and the rise of substitute education programs).

But the aggregation of data obscures some outstanding success stories at several business schools that, against the trend, have grown their MBA programs. These schools acted early to innovate with a focus on developing a niche within the broader MBA landscape.

The leadership needs of our local market differ, of course, to those offshore. But there are valuable lessons and precedents available to us from offshore markets.

And, in some aspects (such as global perspective) Australia is ahead of the knowledge curve. We see increased international diversity within our cohorts and many of our graduates secure employment with firms active in global markets.

Meeting the leadership needs of the regional market, within a global context, must be the primary focus.

Just as business responds to changes in markets and products, so too must business schools in servicing the educational development needs of the leaders of the future.

Professor Mark Stewart is the academic director of MBA programs at the Australian Graduate School of Management.

This article first appeared in the AFR, 21 May 2012

Peter Swan

With the fallout from the huge losses at the bank JPMorgan being felt around the globe, it is clear non-executive directors of banks should exercise more scrutiny, and that if they had ‘skin in the game’ they would be more cautious about taking huge risks.

America’s biggest bank, and its high-profile CEO and Chair, Jamie Dimon, have announced trading losses on its derivatives position in bonds in excess of $2 billion. The blunder on risky derivatives trading has caused mammoth losses which have marred JP Morgan’s reputation for risk management – and have once again thrown a spotlight onto corporate governance, and investment banking.

Chief Investment Officer Ina Drew, who was among the highest-paid executives at the bank, will now be succeeded by Matt Zames, a trader who is well versed in risky financial bets. He was at one time employed at Long-Term Capital Management, a hedge fund whose 1998 collapse nearly caused a global crisis.

If it turns out to be anything like the disaster at ‘Long Term Capital’, unwinding its position could prove both time-consuming and very expensive. It is far from an isolated example of rogue trading. Despite having survived the Sub Prime Loan and GFC crises relatively unscathed with Jamie Dimon emerging as a hero, JP Morgan has been taking high risks with its huge bond portfolio, only 30% of which is in federally guaranteed bonds. This compares with Bank of America with 87%. JP Morgan also has depositors funds of $1,127,806 million reported in its 2011 accounts. This is reflected in its 25% return on equity of $6.5 billion. It is clear the bank is highly leveraged and has gained high returns on its equity until recently – but with high returns comes high risk. Not surprisingly, there are calls for the reintroduction of the Glass-Stegall Act that until recently separated deposit-taking banks from investment banks that take their own risky principal positions.

I have conducted research which indicates that large boards dominated by non-executives with very little of their own cash invested, pay management excessively and give far too much reign to the CEO.

JPMorgan displays all the signs of a bank dominated by one man, Jamie Dimon, who rightly or wrongly is perceived to be a hero. He reports to a huge 12 person board made up of 11 non-executive directors and he is also the chairman. Generally, in these sorts of firms, there is also very poor alignment between the interests of shareholders and management. In this case, the problem is compounded by Jamie’s dual role. The overall performance of such boards is also generally exceedingly poor. This poor performance is also borne out by top 200 companies listed on the ASX that have large boards relative to those with smaller boards in which directors have more ‘skin in the game’. Quite simply, smaller boards are better able to see what is going on and work out the risk, and directors are forced to take more responsibility for decisions made collectively by the board. If they also invest their own money, they are more cautious.

Peter Swan is a professor of finance at the Australian School of Business, University of NSW.