Nice Girls Don't Get the Corner Office: 101 Unconscious Mistakes Women Make That Sabotage Their Careers (Business Plus)

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A Sporting Chance for Regulating Capital Markets

By Roger L. Martin

How do you fix a broken game? Or more importantly, how do you regulate a game over the long-term to keep it from breaking? These questions should have been on the minds of our financial regulators as they reacted to the 2008 stock market crash. Instead, they focused on how to manage the risk associated with mortgage derivatives and missed the much bigger problem: How do we keep players from gaming our capital markets and causing devastating meltdowns?

Regulators have tried to fix the markets before. In 2002, after the spectacular dot-com bubble burst, the solution was a comprehensive overhaul of regulation, with Sarbanes-Oxley as the centerpiece. Yet, as 2008 proved, Sarbanes-Oxley didn’t fix even a fraction of the market’s ills. Now regulators are again attempting to fix our markets—once and for all—this time with Dodd-Frank.

Washington’s approach to regulating our financial markets follows the most common theory of regulation: Create the perfect set of rules that, once codified, are studiously maintained and protected from challenge or modification.

This approach is pervasive in business (and sports), yet we know that any time there is money to be made and power to be won, clever players will game games to their own benefit. Rather than attempt to outthink future market players, why not accept that perfect, omniscient regulation is impossible? Instead, accept the nature of players and games and continuously tweak the rules to neutralize the innovations by clever market players that threaten the game itself.

The world of sports offers two useful lessons for regulators. Major League Baseball (MLB) is the poster child for the “perfect regulatory paradigm” approach. Despite changes in the marketplace, in team strategy, and in player physiology, MLB has allowed only two consequential rule changes in 90 years—lowering the pitcher’s mound in 1968 and introducing the designated hitter in 1973 (in the American League only).

The National Football League stands in stark contrast to MLB. The NFL embraces the “continuous tweaking” approach. At the end of the 1970s, San Francisco 49ers coach Bill Walsh pioneered the West Coast Offense, a short-passing strategy that created a significant offensive advantage. The result was an amazing four Super Bowl wins in nine years. In the mid-1980s, New York Giants coach Bill Parcells pioneered a blitzing defense that rendered opposing offenses utterly ineffective. That led to two Super Bowls as well.

Each innovation created tremendous advantage on one side of the ball, and in so doing, threatened the parity between offense and defense. In response, the NFL tweaked the rules of the game—allowing defensive backs more latitude in the face of Walsh’s innovation and then giving more latitude to offensive lineman in reaction to Parcells. The changes were aimed at restoring balance to the game and taking away new-found advantages.

After every season, the NFL Competition Committee meets to adjust the rules of its game to make sure the fan experience is the best it can be. One result is that the NFL has dramatically eclipsed in fan support, television ratings, and revenues what used to be America’s game—baseball.

The capital markets have their Walshs and Parcells: incredibly clever hedge fund managers, CEOs, and investment bankers dedicated to gaining advantage in playing the game. There are plenty of examples: John Paulson and Goldman Sachs getting together to create synthetic mortgage products for the purpose of shorting the mortgage market; AIG setting up its Financial Products Group in London under the supervision of the U.S. Office for Thrift Supervision instead of the SEC; and hedge funds launching short attacks on Lehman Brothers to ensure that it went down. And that’s just a few.

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The MBA Advantage

By Rebecca Homkes

Viewers of the popular TV show The Office are no doubt familiar with the impact bad management can have on office productivity. Michael Scott (played by Steve Carell), the infamous manager from the U.S. show, is notoriously incompetent and can do almost nothing right. Given that the The Office has been exported to more than 50 countries, bad managers like Michael Scott are presumably a global problem.

Despite the media and business interest in management, it has not been seen as a rigorous science by researchers. Frederick Winslow Taylor invented the concept of scientific management in the early 1900s, but since then most management research has been case-study driven. Case studies are useful for teaching but can be very misleading for research. The example of Enron—a widely popular case-study subject in the early 2000s—highlights this.

My colleagues and I—including researchers from Harvard, the London School of Economics, McKinsey & Co., and Stanford—decided to try to scientifically measure management practices across firms and countries. We developed an interview-based tool to evaluate management practices across four main areas: operations, monitoring, targets, and people management. A team of analysts scored managers’ responses from one (extremely poor) to five (best practice) across 18 dimensions. Over the last decade we used this tool to evaluate more than 10,000 firms across 20 countries.

Not surprisingly we find well-managed firms massively outperform badly managed firms. Companies with good management are more productive, more profitable, grow faster, and are less likely to go bankrupt. For example, going from bad management (the 25th percentile of management practices) to good management (the 75th percentile of management practices) is associated with a 3 percent higher return on capital and 70 percent faster growth.

In terms of management, Americans outperform all others. Developing countries Brazil, China, and India lag at the bottom of the management rankings. Greek firms are typically also badly managed, giving some insight into the depth of problems the country faces. Firms from Japan and Northern Europe tend to be well-managed but not quite up to U.S. levels.

But while cross-country rankings grab headlines, there is even greater variation in management within each country. For example, while the U.S. has many world-class firms, even the best-performing countries have their share of badly run firms. These are typically inherited family-owned firms, or those operating in more sleepy uncompetitive sectors. Indeed, rather alarmingly, about 15 percent of U.S. firms have worse management than the average Chinese and Indian firms.

So if management matters so much for performance, why are so many firms badly managed? One key factor is skills. Better-managed companies employ more educated managers and workers. This makes sense. Implementing best practices requires an educated managerial team and a skilled workforce.

And an advanced business degree—an MBA, in particular—has an even greater effect. If we divide all firms into three buckets by the percentage of MBA-trained managers, we find that firms where the percentage of managers with MBAs is 10 percent or higher are about 0.5 management points better on our five-point scale than those with no MBA managers. To put this in perspective, this skills gap is roughly the same size as the one between Japan and Brazil. This relationship holds even when controlling for firm characteristics, such as country of location and size.

Why is education so strongly linked to better management? One reason could be selection—for example, MBA students are much better at picking well-managed firms to join. But we also think an MBA toolkit emphasizes the very practices that our management measure finds are associated with performance. These include the following:

• Rigorous monitoring. Top firms are ruthless in monitoring their entire production process. While most U.S. firms understand and track their key performance indicators, the very best firms continuously collect, process, and evaluate these data. They have sophisticated systems to ensure employees relentlessly seek out performance improvements to keep ahead of their competitors. MBA students are typically taught statistics and data analysis throughout their coursework, equipping them with the tools for effective monitoring.

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Motorola Solutions Makes Returning Cash to Owners a Priority

July 13, 2011, 4:36 PM EDT By Hugo Miller

(Updates with closing share price in seventh paragraph.)

July 13 (Bloomberg) -- Motorola Solutions Inc., the maker of bar-code scanners, plans to make returning cash to investors a priority after selling its networks unit and shoring up its balance sheet, Chief Executive Officer Greg Brown said.

“We prioritized the establishment of investment-grade rating with all three agencies, we’ve done that; we prioritized the completion of the networks business, we’ve done that,” Brown, 50, said in an interview this week. “The next priority is the opportunity to return capital to shareholders.”

Motorola Solutions, which spun off its mobile-phone unit in January, says it cut its debt by $540 million this year and generated $975 million from the sale of the networks business to Nokia Siemens Networks, completed in April. Brown said he is now weighing how to best use the company’s $3.55 billion in net cash, whether it’s giving money back to shareholders through a dividend or share buyback or buying companies.

“We’ll always look at that balance between returning capital to shareholders or acquiring,” he said. Returning cash to shareholders “is both a priority and an opportunity. We’re making the final determination now and stay tuned.”

Motorola Solutions, based in the Chicago suburb of Schaumburg, Illinois, has $3.57 billion in outstanding bonds and loans, including $600 million in bonds that come due in November, according to Bloomberg data.

Outperforming Mobile Phones

Brown said that the January spinoff of Motorola Mobility Holdings Inc., run by his former co-CEO Sanjay Jha, has given investors the chance to recognize the more focused nature of the new business: building walkie-talkies and other communications equipment for emergency workers and radio-powered bar-code scanners for companies.

The stock has outperformed the Standard & Poor’s 500 index since the Jan. 4 split, rising 11 percent to the S&P’s 3.7 percent gain. In that time, Motorola Mobility dropped 35 percent. Motorola Solutions rose 73 cents to $44.23 at 4:02 p.m. on the New York Stock Exchange.

“I’m really pleased that the investment community has understood the Motorola Solutions story,” said Brown, who joined Motorola in 2003. “We’ve had a great six months, but that’s just one inning.”

Motorola Solutions’ sales to businesses jumped 14 percent to $695 million last quarter while sales of communications gear to government authorities climbed 5 percent to $1.2 billion.

Android Product Coming

To focus on the faster-growing enterprise market, Motorola Solutions plans to sell a device that runs on Google Inc.’s Android software, part of a bid to help retailers such as Wal- Mart Stores Inc. get more merchandise into consumers’ hands. The “enterprise mobile-computing product” will likely start selling by the end of this year or early 2012, Brown said.

“In the retail segment often times the consumers are more informed than the store-operations people” because of their ability to locate product and pricing information faster on their smartphones, and Motorola wants to rectify that, he said.

The move reflects the growing popularity of Android in wireless computing, and signals the software’s expansion to enterprises from the consumer market. Motorola Solutions devices and the developers who build applications for them are currently “100 percent” dependent on Microsoft Corp.’s Windows software, Brown said. The Motorola Mobility spinoff has revived sales by building a new range of Android smartphones like the Droid that resonate with consumers.

“If there are hardware or software combinations that allow us to expand and reach a dimension or segment of the market we don’t serve today, we’ll certainly entertain doing that,” Brown said.

Android Investments

Motorola Solutions is spending $1 billion or more a year on research and development for new products it can sell to government agencies, freight delivery customers like FedEx Corp., and retailers like Wal-Mart and Costco Wholesale Corp.

“There’s a lot of move towards the Android operating system,” Gene Delaney, executive vice president, product and business operations, said in a separate interview. While Motorola’s approach is to be operating-system “agnostic,” the company is making “early software investments internally” to prepare for Android, he said. He declined to say how much money or resources Motorola is putting into that.

Consumers with Android phones can tap more than 200,000 different applications available in the Android market that allow them to buy music, games and browse online shopping catalogs. Android’s share of global smartphone sales more than tripled in the first quarter to 36 percent, the fastest growth of any smartphone platform, according to Gartner Inc.

Delaney said improving the ability of store clerks to get shoppers the merchandise they need has room for improvement.

“We’ve not even scratched the surface in the enterprise space of connecting to the consumer,” he said. “More and more of them have smartphones and are coming into stores much smarter because they’ve done research on their smartphones. Clearly there’s an opportunity for enterprises to connect in a much closer relationship with consumers.”

--Editors: Ville Heiskanen, Cecile Daurat

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Owning Calvin Klein Margins Points to Warnaco Merger: Real M&A

July 13, 2011, 4:46 PM EDT By Tara Lachapelle, Joseph Ciolli and Danielle Kucera

July 13 (Bloomberg) -- PVH Corp., owner of the Calvin Klein and Tommy Hilfiger labels, may find a takeover of Warnaco Group Inc. the cheapest way to boost operating margins that lag behind all of its biggest competitors.

PVH will “aggressively” look for acquisitions, Chief Executive Officer Emanuel Chirico said in a Bloomberg Television interview this month. The New York-based company earns less than 9 cents in operating income per dollar of sales, the lowest among its rivals including VF Corp. and Polo Ralph Lauren Corp., according to data compiled by Bloomberg. Warnaco, which has controlled the license to sell Calvin Klein jeans since 1997, is less expensive than 93 percent of U.S. apparel companies versus earnings before interest, taxes, depreciation and amortization.

Chirico, who is using acquisitions to try and turn PVH into the world’s largest apparel company, may target Warnaco after purchasing Tommy Hilfiger in its biggest deal, according to Penn Capital Management Co. Warnaco, which began as a maker of corsets more than a century ago, would help PVH increase sales in faster-growing markets outside the U.S. and cost at least $3 billion, Wells Fargo & Co. said. That would rival the amount that PVH spent to acquire Tommy Hilfiger, the second-biggest U.S. apparel takeover in history, the data show.

“It makes a lot of sense,” said Kevin Roche, a Philadelphia-based fund manager at Penn Capital, which oversees $6.5 billion including 65,000 PVH shares and 200,000 Warnaco shares. “PVH is looking for more international exposure. PVH can definitely do something in the market and seems to be looking to. Warnaco is cheap right now.”

Shoe Company

Daniel Gagnier, a spokesman for PVH, declined to comment. Deborah Abraham, a spokeswoman at New York-based Warnaco, didn’t respond to an e-mail or telephone message requesting comment.

PVH gained 3.7 percent to $70.40 today in New York. Warnaco advanced 2.5 percent to $54.06.

PVH, which traces its roots to a shoe company founded in 1876, currently trails rival apparel retailers VF and Polo in sales. PVH owns brands such as Calvin Klein, Tommy Hilfiger, Van Heusen and Izod, and holds licenses to sell brands such as Geoffrey Beene and Kenneth Cole New York.

Formerly known as Phillips-Van Heusen Corp., PVH has grown through acquisitions, including G.H. Bass & Co. in 1987, Izod in 1995, Calvin Klein in 2003 and Tommy Hilfiger last year.

While the $3.1 billion takeover of Tommy Hilfiger was the biggest in PVH’s history, according to data compiled by Bloomberg, Chirico, 54, is looking to make more deals.

‘On the Table’

“Acquisitions will be back on the table,” he said in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan” July 1. “We will start aggressively looking for acquisitions beginning in the fourth quarter of this year.”

While PVH rose 84 percent since Chirico was named CEO in February 2006 through yesterday, the stock still underperformed VF and Polo, which have both more than doubled, according to data compiled by Bloomberg. Since completing the purchase of Tommy Hilfiger in May 2010, shares have fallen behind even more.

PVH generated an operating margin of 8.5 percent in the past 12 months, data compiled by Bloomberg show. That’s less than the average of 13.6 percent for its four most comparable U.S. rivals. VF, the world’s largest apparel maker, had a 13.6 percent margin, while New York-based Polo had operating income equal to 15 percent of sales, the data show.

By acquiring Warnaco, PVH would narrow the gap to Greensboro, North Carolina-based VF, which agreed this year to buy Timberland Co., Evren Kopelman, a New York-based analyst at Wells Fargo, wrote in a report to clients dated July 11.

Luxury Brands

Warnaco makes sense as a target because PVH already sells Calvin Klein apparel and Warnaco controls the licenses for the brand’s jeans, underwear and swimwear lines, according to Penn Capital’s Roche. PVH bought the Calvin Klein label in 2003 for $430 million, data compiled by Bloomberg show.

PVH may want to take advantage of bigger markups in Europe and Asia to boost profitability since both Tommy Hilfiger and Calvin Klein are considered “luxury” brands outside the U.S., according to John Kernan, an analyst at Cowen & Co. in New York.

A pair of Calvin Klein jeans that cost $70 in the U.S. may sell for about $120 in Europe, a 71 percent increase, he said.

“PVH is focused on growing overseas,” said Scott Tuhy, a New York-based credit analyst at Moody’s Investors Service. “The example of that is Tommy Hilfiger.”

Adding “higher-end” apparel brands are also attractive because they can help clothing companies combat an increase in production costs, which make up a smaller portion of the sale if the product is more expensive, Tuhy said.

Speedo Swimsuits

Revenue at Warnaco has increased at a faster pace than PVH in the past five years, after stripping out PVH’s sales from Tommy Hilfiger, data compiled by Bloomberg show. In 2010, Warnaco generated more than half of its revenue internationally, while PVH relied on the U.S. for 67 percent of its sales.

Prior to acquiring Tommy Hilfiger, the U.S. accounted for almost 90 percent of PVH’s revenue, the data show.

A deal for Warnaco, which also makes Speedo swimsuits, as well as bras and underwear, would let PVH cut overlapping expenses, said Lawrence Creatura, a Rochester, New York-based manager at Federated Investors Inc., which oversees about $360 billion. They include expenses for cotton and leather, as well as costs to transport and distribute their products, he said.

Relative Value

Warnaco is currently valued at about 7.8 times its Ebitda in the past 12 months, less than 93 percent of comparable companies, data compiled by Bloomberg show. At a price of $70 a share that Wells Fargo’s Kopelman says Warnaco could command in an acquisition, the company is still valued at 8 times next year’s projected Ebitda of $383 million, the data show.

“Clearly it would benefit PVH because the multiple is lower and they won’t have to pay up for it,” said Matt Spitznagle, an analyst at Sentinel Investments in Montpelier, Vermont, which oversees $9.5 billion, including PVH shares. “With the addition of Warnaco, they would be right up there with one of the larger apparel companies in the world.”

--Editors: Michael Tsang, Daniel Hauck.

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net; Danielle Kucera in New York at dkucera6@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net.

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Breaking out of Insular Cultures

By Jeff Schmitt

It was the meeting we’d never forget. Our vice-president had finished a quick pep talk and opened the floor. Sure enough, the newbie took the bait, posing the question we were all dying to ask: Why didn’t leadership follow the same rules we did? We collectively cringed as our brave rookie pulled the thread, exposing the negligence and hypocrisy underlying so many decisions. Having suffered tongue lashings for expressing similar doubts, I admired her pluck, even as I lamented her naivete—and likely fate.

You can imagine our vice-president’s response to our heroine’s query. His eyes narrowed, face reddening. His thoughts raced like graffiti across his carefully calculated persona: How dare she question me, I don’t have to answer to her. He quickly shut down the question, issuing the usual platitudes. "This is the way it is." "We have to move forward." "We all want the same thing." And the crowning insult: "This has been a useful discussion." He thought he was sending a message. And he did— just not the one he intended.

Instead he channeled our frustration toward himself. Suddenly, he was part of the problem, if not its embodiment. Some viewed him as a coward, afraid to face the issues. To others, he was a bully who hid behind his title when he couldn’t defend himself. We imagined him in the boardroom, going fetal when his superiors pushed back. And we questioned whether or not he truly understood our concerns, let alone cared about their impact on us. In a word, he was insular, an island unto himself. His short-sighted sureness had narrowed and limited us. As our leader, he set the tone—and our division’s culture had grown as stale and insular as he was.

Many times, you can best judge leaders by how they handle that which is politically incorrect, questions, skepticism, and criticism. Some look to stamp out dissent, chilling openness, creativity, or caution. Others sidestep it, knowing that an immovable bureaucracy and unforgiving job market will discourage serious challenges. The best leaders understand one truism: Silence and its offshoots—disengagement, antagonism, fear, and stagnation—are far more lethal to a culture than uncomfortable discussions are.

The command-and-control culture is still alive and well in many companies. At every level, employees are taught to withhold conjecture and judgment, to give the benefit of the doubt in the face of preselected facts. But a "know your place" mind-set breeds secrecy, encourages indolence, and inevitably heralds abuse. Our vice-president was the product of his insular culture. He viewed himself as the one who always knew best. Everyone else was a means to an end, someone who would naturally accede and fall in line.

Such 19th century thinking was discredited long ago. We live in a decentralized world whose freedom and technology permit millions to express views globally in seconds. We must contend with the transparency brought on by e-mail, blogs, Facebook, YouTube, Twitter, and WikiLeaks. Try as they may, companies can never again bury their issues in-house for long. With rapidly compounding breadth and depth of information, one person cannot possibly stay fully versed in emerging trends and best practices. Now companies grow through an influx of ideas and participants. Too often, that’s what’s missing in decisions: due diligence, input, and debate.

Take our dismissive vice-president. His attitude undermined his message and credibility. Like everyone, he craved certainty, viewing anything contradictory as threatening. Brick by brick, he built a wall founded on fear. Walls are but temporary. They are meant to be torn down when threats pass. How can you tear down an insular culture and reconnect? Consider doing the following:

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What to Consider When Making a Career Change

JPMorgan Promotes Slaughter to Co-Head of North America Unit

July 14, 2011, 11:13 AM EDT By Brett Foley

(Updates with earnings in penultimate paragraph.)

July 14 (Bloomberg) -- JPMorgan Chase & Co., this year’s top adviser on corporate takeovers, promoted Larry Slaughter to co-head of its North American investment banking division, replacing Jeff Urwin.

Slaughter, based in London and head of corporates for Europe, the Middle East and Africa, will relocate to New York at the end of the third quarter, according to a memo. A spokeswoman for the second-biggest U.S. bank confirmed the appointment today. He joins Kevin Willsey as head of the unit.

The promotion follows less than a month after Urwin was appointed global head of investment banking. Slaughter, who joined JPMorgan more than two decades ago, had helped oversee European mergers & acquisitions and advised private-equity and industrial clients, according to the memo. The spokeswoman declined to say who will replace Slaughter.

JPMorgan, based in New York, is the No. 1 adviser on global M&A this year, providing counsel on $282 billion in transactions, according to data compiled by Bloomberg. The firm is working with AT&T Inc., the second-largest U.S. wireless carrier, on its $39 billion bid for Deutsche Telekom AG’s T- Mobile USA Inc. unit, the biggest transaction of the year, Bloomberg data show.

Slaughter has been based in London since 1992. He has advised on the sale of Chrysler by DaimlerChrysler, moisturizer- ingredient maker Cognis Holding GmbH’s sale to to BASF SE and on the acquisition of British drugstore chain Alliance Boots Holdings Ltd. by KKR & Co.

Separately, the company said today that second-quarter net income rose 13 percent, more than analysts projected, partly because of surging profit at the investment-banking unit. Fees from underwriting stocks and bonds boosted investment-banking earnings to $2.06 billion, or 38 percent of the total.

JPMorgan, led by Chief Executive Officer Jamie Dimon, was the most profitable bank in 2010, with a record $17.4 billion in earnings.

--Editors: Julie Alnwick, Edward Evans

To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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Validus Chief Noonan Says ‘Size Does Matter’ for Reinsurers

July 13, 2011, 5:44 PM EDT By Brooke Sutherland

(Updates shares in the last paragraph.)

July 13 (Bloomberg) -- Validus Holdings Ltd. Chief Executive Officer Ed Noonan, who bid $3.5 billion for Transatlantic Holdings Inc., said increased scale benefits reinsurers as they seek to attract clients.

“Size does matter in terms of your ability to take on risk and manage risk,” Noonan said in an interview today. “Size and scale is an asset to the reinsurance business and it seems like increasingly more so with the passage of time.”

Validus offered $55.95 a share to buy Transatlantic and derail a planned $3.2 billion merger with Allied World Assurance Company Holdings AG. Bermuda-based Validus said its offer would create the world’s sixth-largest reinsurer and the second- biggest in North America, behind Warren Buffett’s Berkshire Hathaway Inc. Reinsurers back primary carriers against some of the costliest risks, including natural disasters.

Transatlantic, which was previously owned by American International Group Inc., is among reinsurers that have sought mergers to gain scale. Validus acquired IPC Holdings Ltd. in 2009 after it broke up a merger agreement with Max Capital Ltd. Bermuda-based Max Capital joined with Harbor Point Ltd. last year to form Alterra Capital Holdings Ltd.

Validus was formed in 2005 amid demand for catastrophe reinsurance after hurricanes Katrina and Rita. The company was backed by Aquiline Capital Partners LLC, run by Jeffrey Greenberg, the former Marsh & McLennan Cos. CEO who is on the Validus board.

Breakup Fee

Transatlantic would have to pay a breakup fee of $115 million if it backs out of the Allied deal, it said last month in a conference call. Transatlantic’s biggest shareholder, Davis Selected Advisers LP, said in June it may oppose the Allied deal and approach other companies about alternatives.

“A lot of Transatlantic shareholders feel the same way,” Noonan said, without naming investors. “We’re getting calls from lots of them today. You have a general awareness that the Allied World bid perhaps undervalued the company.”

Transatlantic’s board will “consider and evaluate the Validus proposal in due course and will inform Transatlantic stockholders of its position,” the New York-based company said in a statement today. “Transatlantic advises stockholders to not take any action at this time and to await the board’s recommendation.”

A spokeswoman for Allied had no immediate comment.

Transatlantic gained $2.52, or 5.1 percent, to $51.54 at 4:15 p.m. in New York Stock Exchange composite trading. Zug, Switzerland-based Allied climbed 51 cents, or 0.9 percent, to $57.23. Validus dropped $2.79, or 9.1 percent, to $28.02.

--Editors: Dan Kraut, Peter Eichenbaum

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland5@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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The Virtues of Curiosity

By John Baldoni

The chief executive asked his audience of engineers how many were using an iPhone or Android phone. A few brave souls raised their hands. Brave? They need not have been. The inquisitive CEO is Stephen Elop, who is in his first year as head of Nokia.

"That upsets me—not because some of you are using iPhones," a recent Bloomberg Businesweek story quotes Elop as saying, "but because only a small number of you are using iPhones. I’d rather people have the intellectual curiosity to see what we are up against."

Nokia faces significant challenges, which accounts for its hiring of a CEO from the outside, one from Microsoft, no less. So it should come as no great surprise that one of the first things Nokia did under Elop’s leadership was drop Symbian, its programming language, in favor of Microsoft’s mobile platform.

The success of that move will play out over time, but Elop’s belief in the virtues of curiosity is something that has stood the test of time. Many large organizations get stuffy inside and musty on the outside. Employees seem to spend more time going through the motions than seeing if the motions make sense. Churn replaces change.

Curiosity, by contrast, is the spark of wonderment that fuels creativity. It begins with questions like "why" and "what if?" It will not take a simple "no" for an answer, and it drives people to push for answers to questions they never knew existed. In my career, I have had the opportunity to work with a few genuinely curious people. It seemed that adulthood never squelched their curiosity gene as it has for so many adults.

The good news is that you can turn it back on with a little effort. Here are three suggestions for doing so:

1. Network outside your organization. Make a habit of attending industry and professional trade association gatherings. They are a good place to hear alternate points of view as well as exchange ideas with colleagues.

2. Immerse yourself outside your culture. Nokia was once widely praised for its marketing research. Its designers and engineers spent lots of time outside Finland, in places like New York and Los Angeles, to get a feel of what young people were doing, saying, wearing, and creating. Observations led the Nokia of the 1990s to become a trendsetter in mobile handsets.

3. Read, read, read. Keep abreast of the news and trends in your industry. But also expose yourself to fiction and drama as well as publications outside your field. And yes, you can get a great deal of such information in downloadable audio formats—suitable for listening on the commute to and from work.

Of course, curiosity has its limitations. The person who is always asking —why?" can turn into a nuisance, more like a 3-year-old who asks it as a matter of rote rather than as a matter of inquisition. Too much curiosity can lead to endless questioning that is as wearying as the staid culture it seeks to alter.

Curiosity will not add ballast to the balance sheet or solve all the vexing issues businesses face. But here is what it can do: energize your workforce. It can infuse a spirit of change that challenges people to think about what they could do differently. Not for the sake of change, but for the sake of the future.

As Walt Disney once said, "When you are curious, you find more and more interesting things to do."

John Baldoni is a leadership development consultant, executive coach, speaker, and author. In 2009, Top Leadership Gurus named John one of the top 25 leadership experts in the world. His newest book is Lead Your Boss: The Subtle Art of Managing Up (Amacom, 2009). John also writes the "Leadership at Work" column for Harvard Business Publishing. He can be contacted via his Web site, www.johnbaldoni.com.

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How the Big Idea Will Get You Fired

By G. Michael Maddock and Raphael Louis Viton

"Wouldn’t it be cool if …"

And with that phrase comes a chance to lose tens of millions of dollars—and maybe your job.

We don’t want you to be afraid of what we call the "idea monkey" (someone who tends to come up with tantalizing, imaginative ideas) in your organization and his big thoughts. Far from it. Helping companies come up with the Next Big Thing is how we make our living. Idea monkeys with their big ideas play a critical part in the process.

What we oppose is thinking that the innovation process starts with the idea monkey’s big idea. Too many ideas fail this way. Take it from an idea monkey and his ring-leader partner.

Yes, of course, you often hear about the legendary entrepreneur with all her big, successful ideas. But dig deeper into her successful company and you’ll find rigor and process supporting the brilliant entrepreneur’s brain children.

And without the due diligence? Well, you’ve seen this movie before: The idea monkey has a super cool idea for a colorful gizmo whose ad copy writes itself. And so the idea monkey, perhaps someone in R&D, develops a "safe" cigarette. Or one of the senior marketing idea monkeys decides that since the consumer market is bifurcating, what their fast-food chain should offer is an "upscale burger," or some aggressive entrepreneur says "What this new Internet thing needs is its own online money to serve as an alternative to credit cards."

And so what you get are ideas that never fulfill their promise: R.J. Reynolds’ Smokeless Cigarettes, McDonald’s Arch Deluxe, and Flooz currency.

In each case, the idea was "good" because the product did exactly what it was designed to do; the problem was too few people cared. And unfortunately that is too often the case. While some companies consistently nail the right insight and deliver evolutionary or revolutionary ideas against it, others spin their wheels creating new products and services that prove at best irrelevant and at worst career-ending.

The difference: The companies that don’t struggle understand how cost-effective innovation really happens. As we have talked about in previous columns, innovation occurs at the synchronized intersection of:

1) A meaningful insight or market need

2) A new product, service, or business model that meets that need

3) A communication and commercialization strategy that connects the two

Think of the definition as a three-legged stool. Most companies successfully build only one or two of the legs—and Step 1 is most often the missing leg—causing their innovation efforts to fail. To succeed, you need all three. And you will experience a lot more success and waste far less money if you take the steps in order. For example, a fast-food chain takes note that consumers in focus groups are consistently saying they long for a hamburger appealing to adult tastes and would pay extra to get one. And it just so happens that last year your idea monkey suggested just such a hamburger. That’s the time to move forward with it.

You need to start the innovation process by devoting a disproportionately large amount of your time to discovering the market need (Step 1). More specifically, what the market needs that customers would readily accept coming from you, your brand, or a company you could acquire. You already know the methods for doing that: market-segmentation exercises, insight workshops, online panels, and focus groups.

If you do create this discipline of stepping back and objectively listening to consumers, you may find, on the other hand, that your idea monkey’s really great idea, while intriguing, is not something your customers are willing to pay for. Sure, some consumers liked the idea of McDonald’s (MCD) offering a "grown-up" burger, but most people don’t go to McDonald’s because they want gourmet food. They want speed and consistency. True, the company offered the Arch Deluxe during a time when it was struggling and needed something new to stimulate sales. But it wasn’t new offerings like McPizza and McLobster that turned the company around. It was when McDonald’s got back to the basics with its simplified menu—e.g., "I’ll take the #2 and super size it!"—that it got back on track.

Allowing customers to order their meal by number is not as "exciting" as coming up with a new sandwich. But it was a truly innovative model for addressing a sizable need, which created many happy customers.

Remember: Big insight first. Big ideas second. Big promotion third.

G. Michael Maddock is chief executive, and Raphael Louis Viton is president of Maddock Douglas, an innovation consultancy that helps clients invent, brand, and launch new products, services, and business models. Maddock is author of the upcoming book Brand New: Solving the Innovation Paradox—How Great Brands Invent and Launch New Products, Services, and Business Models (Wiley, April 2011).

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Career Services Professionals - Recklessly Running a $50m Business

Singapore: It's the Caring, Not the Caning

By Ron Kaufman

Singapore is not known for being soft. On crime, drugs, graffiti, and corruption, the country is world-renowned for its tough stance, punishing offenders with fines, jail time, and yes, the occasional caning.

But in the softer business of delighting customers, Singapore is now beating the naysayers and proving that great service equals cold, hard prosperity.

Retrace Singapore’s financial history just a few decades and you’ll notice a very different picture from what you see today. Singapore has few natural resources other than people and location. In the 1980s and 1990s, Singapore’s industrial base was moving to China where land was vast and labor inexpensive. Administrative tasks were being outsourced to India and other low-cost locations. Like many organizations today, the country was seeing its expected future disappear. And it needed to do something about it fast.

Consider these statistics about the country of Singapore today:

Foreign Reserve: $300 billion-plus

Population: about 4.5 million

Economic Growth: 14.7 percent in 2010, according to Standard Chartered Bank

Those are impressive credentials—a relatively small group of people, living on a small island, creating a massive impact. And considering its current government was born in 1965, Singapore is merely a baby. It’s like the highflier at your workplace who catches the eye of leadership. It’s the player on your team who constantly challenges the status quo. It’s the fearless meeting-attendee who speaks up and shares new ideas, even though he or she doesn’t have rank. It’s the person who, without question, will go above and beyond.

Singapore is a maverick. And it has become a beacon of hope in the past few years due to a simple strategy called "service." I’m not talking about niceties like a fake friendly smile or a cheesy tag line that many companies promote as their customer service policy. Instead, Singapore embraces service as an area for constant focus and improvement, with a mindset that digs deep into the fiber of the country.

Here are four examples of how to follow suit:

1. Entice the Best and Brightest. You may not relate superior service to recruitment. But Singapore understands the nation’s strength depends on the people who live and work there. With only 4.5 million residents, how do you bolster your primary resource—people—and develop it into a world-class phenomenon? Singapore does it by recruiting and retaining the best and the brightest. The country wants all-star residents and innovative workers. So it offers A-players a warm welcome to make the island their home, including friendly service at Immigration and concierge-type attention even in the Employment Pass office.

2. Create Service Efficiency. Take a country that had once built a culture on zero-defect manufacturing, and insert service as your primary outcome. What happens? You get a zero-defect service mentality. Consider the country’s "No Wrong Door" policy. No matter which government office you call, the person who picks up the phone will politely answer the question or personally transfer your call to the agency you need. This doesn’t sound like a big deal until you consider the magnitude of reaching into every government department, giving service education to all employees, and then providing government workers with centralized information so that every caller receives prompt and proper service. It’s especially impressive when you keep in mind that this is a government, not a five-star resort.

3. Take Ownership. Many companies talk about their employees taking ownership of their jobs. It’s often just lip service. But consider Singapore’s Central Provident Fund system. Much like Social Security does in the U.S., the government sets aside a percentage of workers’ incomes so when those workers choose, they can use the money for homeownership, stock ownership, medical care, and eventually retirement. Imagine the impact of this program. The system not only helps each resident afford a home but also serves as a massive crime deterrent. Most residents in the country own homes, so vandalism, burglaries, and other property crimes rarely happen. That’s not from fear of caning; it’s respect for fellow homeowners.

4. Don’t Make Punishment the Point. There have been media frenzies surrounding the country’s policy of caning criminals. And there’s no question that Singapore doesn’t tolerate crime. However, a close inspection of the country’s prison system reveals that even the justice system focuses on superior service. Criminals receive punishment, but the prison system aims to serve the criminal and the country by concentrating on reform. Inmates get the life-skills training and support needed to get back into the workforce. And after releasing prisoners, the government monitors them individually to ensure they all get the tools and support they need to remake themselves as self-sufficient, contributing members of society. This is a service process that gives the people who most need it a second chance to serve.

Can a true service mindset uplift an entire organization? Absolutely. Numerous companies are proving daily how service orientation leads to higher profits: Disney (DIS), Nordstrom, Ritz-Carlton (MAR), Amazon.com (AMZN), Singapore Airlines (SINGY), Four Seasons, Southwest Airlines (LUV), Starbucks (SBUX), and Zappos are just a few examples.

Can uplifting service differentiate an entire country? Singapore proves the case.

Ron Kaufman is a global consultant who specializes in building service cultures. He is the author of UP! Your Service and 14 other books. His firm, UP! Your Service, has offices in Singapore and the U.S.

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Career Objectives - Overlook Them at Your Peril!

Diamonds Lure Insurance Investor Cowdery as Gems Beat Gold

July 07, 2011, 8:25 AM EDT By Thomas Biesheuvel

(Updates with polished diamond prices in ninth paragraph.)

July 7 (Bloomberg) -- Clive Cowdery, the Resolution Ltd. founder who made about $240 million buying and selling insurers, is betting on diamonds after prices rose five times faster than gold this year on surging demand from China and India.

Cowdery, 48, is among startup investors in Diamond Capital Ltd.’s $20 million fund that will manage a portfolio of the polished gems valued at as much as $400,000 apiece. Rajeev Misra, UBS AG’s securities business joint head, is also backing the London-based project, Diamond Capital said.

“I’m conscious of the need to balance out my investment risk,” Cowdery said in an interview. “Something that is as non-correlated with financial-market movements as this fund was attractive.”

Diamond prices jumped 26 percent in the first six months as rough gem production failed to match surging demand from jewelry buyers in the swelling middle classes of China and India. That compares with 5.6 percent for gold, which reached a record $1,577.57 an ounce in May. Investors disappointed at bullion’s performance or the 4 percent advance in the MSCI World Index of stocks in the first half may still prove hard to sell on diamond funds.

“I’m not a great supporter of them, but I can understand why high net-worths find them quite attractive,” said Des Kilalea, an analyst at RBC Capital Markets Ltd. “You rely really keenly on the guy who is doing the buying to know what he is doing.”

Strategy Meetings

The new fund’s diamond trading will be headed by Rishi Khandelwal, who established a gem wholesaler and retailer in Dubai in 2006. He is part of a three-member board that will meet quarterly to set strategy, said Peter Langdon, investor- relations director for the fund.

Diamond Capital joins Harry Winston Diamond Corp. and Fusion Alternatives in planning funds to profit from soaring prices. Harry Winston said in May it proposes a $250 million diamond fund for institutional investors, while Fusion plans one backed by polished stones this year.

Supplies of rough diamonds, which are turned into polished gems, are forecast to remain flat in the next five years and will fail to match demand driven by China and India, according to RBC. De Beers, the world’s largest producer, said June 9 demand will surpass output for at least the next five years because of a lack of new mines.

Insurance Salesman

Last year polished gems advanced 17 percent, according to data compiled by polishedprices.com, while gold gained 30 percent. Prices advanced a further 2.2 percent in the past week to the highest since at least 2002, according to polishedprices.com data.

Diamond Circle Capital Plc, the first publicly listed fund to invest in the stones, has plunged 54 percent since selling shares in 2008. The fund slumped as the financial crisis reduced investor appetite for its $1 million-plus gems. The first diamond investment trust, set up by Thomson McKinnon Securities Inc. in the 1980s, was wound up after a decline in the market, according to press reports at the time.

Cowdery, a former life insurance salesman, made his fortune by buying closed life insurance funds through Resolution Plc between 2003 and 2007. He sold the firm for 5 billion pounds ($7.2 billion) in May 2007, before the financial crisis, to Pearl Group Ltd., which was then headed by Punch Taverns Plc founder Hugh Osmond.

‘City Personalities’

Cowdery declined to say how much he’s placed with Diamond Capital, which opened for minimum investments of $75,000 on June 13. It’s targeting $20 million and will stop accepting money on July 22, said Langdon.

Misra, 48, who joined UBS in 2009 as global head of credit at its investment bank after leaving Deutsche Bank AG in June 2008, said June 17 he was considering making an investment. He hasn’t returned calls since seeking further comment.

“We’ve got some strong support from some high-profile City personalities who like the concept and back the idea,” Langdon said in an interview. “Diamond prices have been increasing. There is definitely demand there for diamonds as an investment.”

The Diamond Capital fund seeks to be different from predecessors by trading the stones as well as holding them in anticipation of prices rising, Langdon said. The fund will lend stones from its inventory to jewelery retailers and allow them to sell the gems on its behalf at a profit. The advantage for shops is that they can offer a greater choice of diamonds, rather than be limited to what they can buy upfront.

Banker Customers

The arrangement will enable jewelers like Dominic Carr to meet the demanding tastes of his City of London banker customers who pay anything from 5,000 pounds to 100,000 pounds for the pieces, the store owner said.

“People like myself will have access to huge stock which wouldn’t normally be available,” said Carr, who has been in the industry for 25 years and has two shops on Liverpool Street. “The main thing is having an inventory of $20 million of diamonds within 48 hours.”

China has surpassed Japan as the second-biggest buyer of diamonds behind the U.S., where demand rose 7 percent last year, compared with 25 percent in China and 31 percent in India, according to De Beers.

Polished diamonds, like fine art or wine, lack fully transparent price data. They typically attract investors who are betting on excess demand and, unlike gold, haven’t traditionally been used as an inflation hedge. The new fund’s diamond holdings will be valued quarterly using prices from RAPnet, the world’s largest diamond-trading network, to determine whether investors make money.

Diamond Capital, which may expand the fund to $100 million within four years, will buy stones of between 1 carat and 5 carats, said Sanjay Khandelwal of Emdico. The family-owned business will help manage the fund’s gem inventory and invest a minimum of $500,000, he said.

--Editors: John Viljoen, Alex Devine

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net -0- Jul/07/2011 12:02 GMT

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Online Career Tests - A First Step to Your Ultimate Career

Buffett Says Employment to Gain ‘Big Time’ on Housing

July 08, 2011, 8:40 AM EDT By Andrew Frye

(Updates with Buffett comment in fourth paragraph.)

July 8 (Bloomberg) -- Billionaire Warren Buffett said U.S. employment will surge with the eventual rebound of the housing market.

“We will come back big time on employment when residential construction comes back,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today, in an interview from Sun Valley, Idaho. The unemployment rate will drop to 6 percent “within a few years,” he said.

Buffett’s Berkshire Hathaway Inc. added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February. Employment gained last year at Berkshire units including car insurer Geico and railroad Burlington Northern Santa Fe. Staffing fell at carpet-maker Shaw Industries.

“Jobs come with demand,” Buffett said today. “We’re seeing demand a lot of places but we’re not seeing it in the construction field.”

--Editors: Dan Kraut, Rick Green

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

View the original article here

Ignited (paperback): Managers! Light Up Your Company and Career for More Power More Purpose and More Success

“Thompson rolls up his sleeves and provides managers a vision and road map to inspire organizational change and personal success.”

—Chris Gorog, Chairman & CEO Napster

 

THE BUSINESS BOOK FOR THE REST OF US

Ah, the life of a manager. You’re squeezed between the needs of your corporation, your team, your customers, and your colleagues. Whatever your day-to-day realities, you can achieve far greater power, purpose, and success—Ignited will show you how.

 

“With a real-world view of what it's like to lead in limited space, Thompson shows middle managers how to access their true power and purpose to achieve the work life they've always dreamed of. This book really delivers on its promise to Ignite the magnificence of all.”

—Ken Blanchard, coauthor of The One Minute Manager ® and Leading at a Higher Level

 

“Brilliant; this is the best management book of the year. Jammed with vital takeaway value for managers, it should also be required reading and a sobering look-in-the-mirror for every business owner and CEO. This breakthrough work absolutely sparkles!”

—Jason Jennings, bestselling author of It’s Not the Big That Eat the Small—It’s the Fast That Eat the Slow, Less Is More, and Think Big—ACT Small

 

“Ignited speaks to managers in a way that I’ve seen no other business book do before. With sharp insights and an authentic understanding of our roles, Thompson demonstrates how managers can create the future. With Ignited you’ll get the big ideas that spark as well as the fuel to get you there.”

—Brad Simmons, Senior Director Partnership Marketing, Experian

 

“Like a demolition expert, Thompson craftfully implodes America's old school management chain and shines the light on the hero in American business: the Manager. I was amazed at the immediacy in which you can apply the information in Ignited! Read this book and re-light the fire in your career, your company, and with everyone you come into contact with.”

—W. Grant Eppler, Divisional Sales Manager—West, Heinz–Portion Pac

 

“If you want to change the world, you've gotta take a stand. With Ignited Vince Thompson does just that, showing managers how, in this time of reinvention and chaos, they can rise above the constraints to put the heart and soul back into business. This book and its lessons have the power to change your life and propel your career. Read it, Live it, and Be Ignited!”

—Erin Brockovich, Advocate, Author, and Speaker

 

More Power, More Purpose, and More Success for Managers

Have you ever been maligned, misunderstood, downsized, reengineered, reorganized, or even misled? Even in the best organizations, you face brutal competition, non-stop pressure, and relentless change.

Ignited reveals the gathering forces that will offer you unprecedented opportunities to reshape your career and organization. It outlines clear, realistic steps for leveraging your networks and resources to transform your vision into reality, and accomplish powerful goals only you can achieve. This is not another diatribe on leadership or grand strategic vision written by those already at the top: the Jack Welches or Rudy Giulianis who can simply dictate their visions to the organization. Ignited is for those leading from the middle: managers who need real tools to make a real difference. If you’re ready to take back your business, your career, and your life, Ignited is for you.

 

More Power

• Learn how to lead in a limited space
• Power up your network, expand your influence
• Overcome the traps of time, powerlessness, and negative emotions
• Drive meaningful strategic change across your company and industry

More Purpose

• Harness the power of seven key ignition points for achieving your highest purpose
• Accomplish the powerful goals you’re uniquely positioned to achieve
• Master the new roles of linkmaker, process master, pilot, healer, bard, scout, and translator
• Connect your personal passions with your company’s goals

More Success

• Master a system for selling your vision, and succeeding with the projects you’re most passionate about
• Live your best life, not just your company’s

 

 

 

INTRODUCTION: LIVING IN QUAKE COUNTRY  1
BASE CAMP: THE IGNITED QUIZ  13 
Part I GET MORE POWER
1 ACTION WITH TRACTION  19
2 THE MANAGER’S UNIVERSE  39
3 LEADERSHIP IN LIMITED SPACE  57
4 MANAGING YOUR EMOTIONS  79
5 THE DEADLY LACK OF EMPOWERMENT TRAP  97
Part II GET MORE PURPOSE
6 IGNITION POINT 1: THE PROCESS  117
7 IGNITION POINT 2: THE PEOPLE  137
8 IGNITION POINT 3: THE MESSAGE  153
9 IGNITION POINT 4: THE LANDSCAPE  167
10 IGNITION POINT 5: THE STRATEGY  187
11 IGNITON POINT 6: THE STORY  207
12 IGNITION POINT 7: THE SPIRIT  227
Part  III GET MORE SUCCESS
13 SELLING FROM THE FULCRUM  247
14 YOUR OWN SENSE OF BALANCE  271
INDEX  281

Price: $34.99

Click here to buy from Amazon

Buffett Says ‘Bet Very Heavily’ Against Double-Dip Recession

July 08, 2011, 9:20 AM EDT By Andrew Frye

July 8 (Bloomberg) -- Billionaire Warren Buffett said he is wagering on continued economic expansion and doesn’t expect a second recession.

“I would bet very heavily against that,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today after data showed slowing U.S. job growth. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

The unemployment rate unexpectedly climbed to 9.2 percent in June, the highest level this year, and hiring by companies was the weakest since May 2010, Labor Department data showed. U.S. employers added 18,000 jobs last month, less than the 105,000 median estimate in a Bloomberg News survey.

“It means that we’re still a ways off from getting to where we should be,” Buffett said in the interview, in Sun Valley, Idaho. “We’re seeing growth around the world, but it’s not mushrooming.”

Buffett’s Berkshire Hathaway Inc. added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The Omaha, Nebraska-based company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February. Employment gained last year at Berkshire units including car insurer Geico and railroad Burlington Northern Santa Fe. Staffing fell at carpet-maker Shaw Industries.

“Jobs come with demand,” Buffett, 80, said today. “We’re seeing demand a lot of places but we’re not seeing it in the construction field.”

Bricks, Carpet

Berkshire owns a real estate brokerage, a maker of manufactured homes and units that construct roofs and sell bricks and carpet. Buffett said in February that a housing recovery would begin “within a year or so” and that he’s preparing the company’s businesses for growth. Buffett is chairman and chief executive officer of Berkshire.

Berkshire expanded its Acme Brick unit with a $50 million acquisition, and Johns Manville, the roofing subsidiary, is building a $55 million plant in Ohio, Buffett said in his annual letter. Shaw will spend $210 million on plant and equipment this year, Buffett said.

“We will come back big time on employment when residential construction comes back,” Buffett said. The unemployment rate will drop to 6 percent “within a few years,” he said.

--With assistance from Brooke Sutherland and Noah Buhayar in New York. Editors: Dan Kraut, Rick Green

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

View the original article here

Breaking the Bamboo Ceiling: Career Strategies for Asians

The Myth

The popular media often portrays Asian Americans as highly educated and successful individuals -- the "Model Minority."

The Reality

As the ethnic minority with the largest percentage of college graduates, many Asian Americans do enter the professional workforce. However, many of them seem to stall in their careers and never make it to the corner offices.

The Solution

Leading executive coach Jane Hyun explores how traditional Asian values can be at odds with Western corporate culture. By using anecdotes, case studies, and exercises, Hyun offers practical solutions for resolving misunderstandings and overcoming challenges in an increasingly multicultural workplace. This timely book explains how companies will benefit from discovering and supporting the talents of their Asian employees and shows Asians how to leverage their strengths to break through the bamboo ceiling.

Price: $14.99

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Philips Chief Seen Calling Upon KKR Past to Eliminate More Costs

July 08, 2011, 1:32 AM EDT By Maaike Noordhuis

July 8 (Bloomberg) -- Frans van Houten, 100 days into his job as chief executive officer at Royal Philips Electronics NV, is poised to announce a bigger overhaul of the Dutch maker of lighting and DVD players, drawing on cost-cutting skills honed when working with private equity firms.

Philips may remove management layers and cut office and information technology costs, said FNV Bondgenoten union official Ron van Baden. At least 300 million euros ($430 million) in savings are needed just to offset higher costs, analysts surveyed by Bloomberg said. Philips will announce “decisive action” shortly, spokesman Joost Akkermans said, without being specific.

Van Houten, the former head of NXP Semiconductors, part owned by Kohlberg Kravis Roberts Co, faces the challenge of boosting profit and sales growth against a backdrop of slowing markets for lighting and traditional electronics in Western Europe and competition from low-cost Asian manufacturers. Shares of the Amsterdam-based company dropped 8.8 percent on June 22, when van Houten warned profit from lighting and consumer- electrical goods slumped in the second quarter.

“You would rather think management layers or specific product groups may be cut out,” given the job cuts Philips already made, van Baden said in an interview. He posted on Twitter: “Philips employees now will experience what van Houten learned from KKR.”

Since van Houten became CEO, Philips shares have declined 23 percent, paring the company’s market value to 17.7 billion euros. The company reports earnings on July 18. Fresh cost- cutting goals may not trigger a share rebound, said Peter Olofsen, an analyst at Kepler Capital Markets. Investors may instead wait for third-quarter results, and the release of financial targets reflecting moves such as ceding control of an unprofitable TV operation, he said.

‘Drastic Measures’

“Drastic measures” are needed to ensure Philips doesn’t fall short of targets, said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers.

The company in September outlined a goal for earnings before interest, taxes and amortization of 10 percent to 13 percent of sales through 2015, and it’s vital that Philips doesn’t come up short, Versteeg said. Analysts predict 200 million euros in extra costs stemming from sales and research, and an added 100 million euros in TV spinoff expenses.

Reviewing the workforce will be part of van Houten’s plan to deepen an existing program called Accelerate, Akkermans said. The program is designed to bring products to the market more quickly to push growth. Sales, excluding takeovers, disposals and currency shifts, grew 4 percent last year.

Growth Challenge

“The story of Philips is about accelerating growth given they have lowered their break-even point quite a lot since the downturn,” said Klas Bergelind at RBS. “And in this macro- environment that is a challenge”.

Second-quarter earnings at lighting and consumer lifestyle units dropped 60 percent and 71 percent respectively, Philips predicted. It’s on course to report its worst quarterly result in two years with analysts estimating a 42 percent drop in EBITA to 304 million euros.

Advised by consultants McKinsey & Co., van Houten employed a traffic-light system to warn managers of the company’s 400 business groupings if results are going astray, with those classified as red indicating a need to make adjustments. His strategy is focused on decentralizing decision making.

Worst Over

Van Houten is also partway through a clear out of executives. By the end of this year, five of the six management board members will have left. Van Houten and Chief Financial Officer Ron Wirahadiraksa have temporarily assumed the day-to- day running of lighting operations until management can be appointed.

Philips in 2009 set out to slash 6,000 jobs to bolster profitability to deal with the financial crisis, which lowered demand for products spanning electronic toothbrushes to health scanners.

Measures already taken probably mean that another cull of workers is unlikely, union official van Baden said. Of the 119,001 workers in 2010, about 45 percent worked in lighting, 30 percent in healthcare products, and 15 percent in consumer- goods.

“In every division there are still weak spots,” Theodoor Gilissen analyst Versteeg said. “If you’re a manager underperforming within your division, you have a serious problem.”

--Editors: Andrew Noel, Robert Valpuesta

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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Ex-Spouses on the Company Health-Care Plan

(Corrects the spelling of ConSova in the first paragraph.)

Employers looking to cut health-care costs just might find a way to do it without having to embrace such pesky measures as raising prescription drug co-payments or narrowing the field of in-network doctors. "We’re seeing that 2 percent to 5 percent of heath-care expenditures go toward insuring employee ‘dependents’ who really aren’t eligible dependents," says Michael Smith, founder of ConSova, a Lakewood, Colo., firm that performs health-care audits for client organizations. "We just did an audit for the city and county of Denver, and we’re looking at a 3 percent savings for the taxpayers."

We’re not talking about the employee who occasionally lends a health-ID card to an uninsured family member in need of a trip to the urgent-care center for a sprained ankle. Many employees have enrolled on their company-paid insurance individuals who don’t qualify legitimately as children, spouses, or domestic partners. To find out how this happens and what you can do about it, Businessweek.com staff writer Rebecca Reisner recently spoke to Smith. Edited excerpts of their conversations follow.

Rebecca Reisner: How did you become aware of this trend?

Michael Smith: Back in 2003, a client in Kansas City said: "I want to talk to you about a business problem and get your raw reaction to it." It turned out that on average, the company’s insurance policy had a ratio of about three-and-a-half dependents per employee (not factoring in employees who had claimed zero dependents). I knew this was a little high. Normally it’s around two-to-one. It turned out the company had been building plants around railroads, and ancillary businesses like groceries stores were springing up around them. But the manufacturer was one of the few employers in the area that offered health insurance, so people who worked there were enrolling people who weren’t dependents.

Why is it so easy for employees to enroll ineligible people?

In a lot of organizations, signing up dependents for insurance is basically on the honor system. No one is requesting verification of dependents. It’s a free-for-all. What you have to know is that human-resources people generally don’t want to upset the apple cart. They want the business to be a popular place to work—and retain employees. For HR people to ask employees to verify the status of a dependent goes against their grain.

Does this phenomenon occur because of intentional rule-breaking—or misunderstandings?

Both. A lot of people aren’t well-educated about who qualifies as a dependent. They’ve said to us: "You mean I can’t cover my ex-wife?" On the other hand, at one client company, we sent out letters explaining to employees the definition of "dependent" and stated who was eligible. Afterward, we still found that 10 percent to 12 percent of the dependents employees were claiming were ineligible. It’s just a little too tempting to claim people as dependents if all you have to do is check off a box.

What category of ineligible people most often turns up on employees’ insurance policies?

Ex-spouses. Let’s say I divorce my spouse. If her attorney negotiates that I have to provide health care for her, I might think I can still put her on my insurance policy as a dependent—and that it’s a "court order." In reality, it’s not the employer’s responsibility to provide health care. (The one exception is in Massachusetts and that’s only in certain cases.) Former step-children [also an ineligible group] turn up on policies a lot, too.

What about adults sneaking their parents on insurance?

Yes, it happens. Some people do claim a parent as a spouse.

Can you point to geographical areas of the country where the ineligible-dependent problem is particularly prevalent?

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Sun Valley Moguls Shift Focus to Sales to Refine Media Models

July 05, 2011, 12:23 AM EDT By Brett Pulley

July 5 (Bloomberg) -- Media executives gather at Allen & Co.’s Sun Valley conference this week looking to shed assets such as the Hulu LLC video website and G4 game channel amid a declining global stock market and slowing economic growth.

Rupert Murdoch and executives from Hulu’s owners will join Warren Buffett, Bill Gates, and Mark Zuckerberg among about 300 participants scheduled to arrive today for the weeklong annual conference in Idaho organized by the investment bank.

“I talk to some bankers inside of big media players and they are seeking to refine their models and shed some things that they once thought they needed to own,” said Anthony LeCour, a New York-based media investment banker formerly at LaidLaw & Co. who is now a consultant. “We’ll see a lot of deal-making and it’s not going to be all monster deals. There will be a lot of small, sweet spots.”

Takeovers of technology and media companies globally climbed 38 percent in the first half to $51.1 billion from the $37 billion announced a year earlier, according to data compiled by Bloomberg. There’s also a boom in Internet companies going public, including LinkedIn Corp. and Zynga Inc., the largest maker of games on Facebook Inc., with help from by Allen & Co.

Overall, concerns about stock markets and slowing economic growth are taking a toll on deal-making, with takeovers in June tumbling to the lowest level in eight months. Still, media stocks have been holding up. The Standard & Poor’s 500 Media Index has gained 15 percent in the first half, compared with 5 percent for the S&P, which is down 1.8 percent from its April 29 peak this year.

MySpace Sale

Murdoch, the 80-year-old chairman and chief executive of New York-based News Corp., is expected at the conference a week after agreeing to sell the MySpace social-networking website to Specific Media Inc. for $35 million, a fraction of the $580 million News Corp. paid six years ago. MySpace had lost its early lead in the industry to Zuckerberg’s Facebook.

Among the assets attracting potential suitors are Hulu, the video-streaming service owned by News Corp., Walt Disney Co. and Comcast Corp.’s NBC Universal, and G4, a Comcast unit. Top executives from all three media companies are attending the Sun Valley retreat, according to a copy of the private guest list obtained by Bloomberg News.

Hulu has reached out to 10 to 12 potential bidders through its bankers, a person familiar with the process said this month. Google Inc., Yahoo Inc. and Microsoft Corp. have met with Hulu bankers Morgan Stanley and Guggenheim Partners, said the person, who wasn’t authorized to speak publicly.

‘Premium Programming’

Hulu, which scuttled an IPO that had been projected to value the company at $2 billion, is an asset likely to appeal to a large company like Mountain View, California-based Google, according to Shahid Khan, chairman of MediaMorph Inc., a New York-based media advisory and venture firm.

“There’s a big move towards premium programming, which is what Hulu has,” Khan said. “Google is the best candidate to buy Hulu. They can monetize it a lot better, they have a strong ad team and much better ad technologies. Plus, they have a lot of cash.”

Chris Gaither, a Google spokeswoman, declined to comment. Google’s founders, Sergey Brin and Larry Page, and its chairman, Eric Schmidt, are on the list of Sun Valley’s attendees.

NBC Universal has been in talks to sell G4 to Ultimate Fighting Championship, the mixed-martial-arts league, people with knowledge of the situation said last month. The channel may fetch as much as $600 million in a sale, according to analysts including David Joyce of Miller Tabak & Co. D’Arcy Foster Rudnay, a Comcast spokeswoman, declined to comment.

Other Networks

Comcast, which in January acquired control of NBC Universal from General Electric Co., might consider selling other cable networks in addition to G4, according to Khan.

“They have a lot of genre overlap as a result of the acquisition,” Khan said. “They are going to have to do a lot of rationalization of the networks.”

Among the Sun Valley participants seeking to buy assets is IAC/InterActiveCorp.’s chairman, Barry Diller, who in December stepped down as CEO of the New York-based owner of websites. Diller said IAC needed a new chief executive to seek acquisitions. His successor, Greg Blatt, is also attending the Sun Valley conference. Both declined to comment.

AMC, TiVo

Other media assets may come to the market.

AMC Networks Inc., spun off from Cablevision Systems Corp., could become a takeover target for other media companies or private equity firms, said Tom Eagan, an analyst at Collins Stewart LLC in New York.

“A larger media company with a bigger ad sales force could probably take advantage of AMC,” Eagan, who predicted a takeover could occur in 2012 at the earliest, said last week.

TiVo Inc., the Alviso, California-based pioneer of digital- video recorders, may be of interest for a company such as Google or Microsoft, according to Janney Montgomery Scott LLC. In the cable industry, Insight Communications Inc. has hired Bank of America Merrill Lynch and UBS AG to explore strategic options including a possible sale.

Cable billionaire John Malone, a Sun Valley regular who is expected to attend again this year, is trying to buy the bookstore chain Barnes & Noble Inc. Malone’s Liberty Media Corp. offered $1 billion in cash for the company in May.

Since 1983, the Sun Valley Conference has been sponsored by the media investment-banking boutique Allen & Co. It is called a “summer camp for moguls,” as the heads of industry ride around the resort on bicycles, go fishing, hiking and white-water rafting. Many of them bring their families, and the guest list usually includes a few celebrities, from politics, sports or entertainment. New Jersey Governor Chris Christie and the actress Candice Bergen are on this year’s list.

It’s the kind of place where a passing interest can blossom into a deal, according to LeCour, the investment banker.

“You get all these powerful people to go on a retreat in the mountains together,” he said. “It’s perfect for trading and transactions.”

--With assistance from Alex Sherman, Jeffrey McCracken and Sarah Rabil in New York, Andy Fixmer in Los Angeles and Brett Foley in London. Editors: Cecile Daurat, Peter Elstrom

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom in New York at pelstrom@bloomberg.net.

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Munger Disbands His Investor Cult With Barbs for Walls Street

July 05, 2011, 12:22 AM EDT By Andrew Frye

July 5 (Bloomberg) -- Charles Munger, the 87-year-old billionaire, used his farewell conference to criticize Wall Street, reflect on investing and raising children, and treat a fawning audience to his gratitude and familiar jibes.

“You all need a new cult hero,” Munger said on July 1 at the conference, called ‘A Morning with Charlie,” in Pasadena, California. “I’m doing you a favor” by ending the annual question-and-answer sessions with investors, he said.

Munger, vice chairman of Berkshire Hathaway Inc., began the three-hour meeting with observations on the deficiencies of bankers, the rise of China and the record of George W. Bush. He criticized decisions at Bank of America Corp., praised Costco Wholesale Corp.’s pricing policies and said he hopes he’s dead before Berkshire pays a dividend.

“I think that some of you will live to see a Berkshire dividend but I hope I don’t,” Munger said. Omaha, Nebraska- based Berkshire, which uses earnings to fund acquisitions and stock picks, has said it will consider a payout when managers are no longer able to find investments for its profits.

Munger gained a following among investors as the outspoken business partner of Warren Buffett, Berkshire’s chairman and largest shareholder. He speaks in front of tens of thousands of people at Berkshire’s annual meetings in Omaha, where his role on stage is the caustic foil to a courtly Buffett. Hundreds of people, whom Munger called “groupies,” would show up at the Pasadena events to see him speak without Buffett.

‘Peculiar People’

“You people aren’t normal,” Munger told the audience last week. “It’s only peculiar people like you that I want to impress.”

Investment bankers and mortgage issuers were afflicted with “insanity, megalomania and evil” when they helped inflate the pre-2008 housing bubble, Munger said. He said U.S. unemployment must be faced with “gumption” -- which he called one of his favorite words -- because people in China, Japan and other Asian countries have demonstrated talent at production and innovation.

“This brutality of capitalistic competition is really something,” Munger said. “I kind of like seeing the Chinese rise after so many years being down.”

Bank of America, which has lost more than three-quarters of its stock value since 2006, was guided by decision-making that Munger called “a disgrace.” Wells Fargo & Co., which counts Berkshire as its biggest shareholder, was better than most big banks at “avoiding the common stupidities,” Munger said. Berkshire divested a three-year holding of Charlotte, North Carolina-based Bank of America last year.

Punic Wars

Munger quoted Oscar Wilde, cited author W. Somerset Maugham’s views on romantic relationships and likened the U.S. response to the credit crunch of 2008 to the strategy employed by ancient Rome in wars that left Carthage destroyed. The bailouts under former President Bush and then-Treasury Secretary Henry Paulson helped the U.S. recovery, he said.

“I feel good about the way the Romans handled the Punic Wars, and I feel good about the way Paulson, and both political parties and George W. Bush handled the great recession,” Munger said.

Munger, a lawyer who gave up his practice after meeting Buffett in 1959, promised the “Morning with Charlie” to former shareholders of Wesco Financial Corp. Berkshire, which had owned 80 percent of Pasadena-based Wesco since 1983, increased its stake to 100 percent this year and removed the company from the stock exchange. Munger was Wesco’s chairman and chief executive officer and presided over the unit’s annual meetings.

Member of ‘Cult’

“I’m delighted to count myself in as a member in your cult,” a questioner said.

Attendees, who lined up behind microphones at the Pasadena Convention Center, thanked Munger for his time, and some said their lives had been improved by the billionaire’s musings on topics ranging from investment planning to filial relations. Munger was asked to give pointers for wealthy parents and recounted a conversation he once had with a successful friend.

“I just think it’s too damn bad that you got too rich and you can’t provide hardships for your children,” Munger said he told the person. “I gave him the same advice I gave myself, ‘Lose graciously.’”

Wesco investors were offered cash or Berkshire stock for their holdings in a transaction completed last month. Elizabeth Caspers Peters, a former Wesco director and an ally of Buffett and Munger in the 1970s when the men were building a stake in the firm, said in an interview that the deal made her a Berkshire shareholder for the first time. She didn’t need stock in Buffett’s company as long as she had Wesco shares, she said.

Berkshire’s Surge

“I had my own and I thought they were better than his,” Caspers Peters said at Munger’s conference. “And it worked out fine.”

Berkshire has surged more than 30-fold since 1987 when it was listed on the New York Stock Exchange. Wesco advanced more than 20-fold since the end of 1983. Wesco paid dividends to shareholders, while Berkshire hasn’t. Berkshire, whose Class A shares ended at $117,050 on July 1, will continue to provide growth for investors, Munger said.

“I think that people that own Berkshire stock at current prices will do quite all right just sitting on their patoots,” Munger said.

Munger had a lawyer on stage at his event, whom he turned to for help understanding what a questioner said or meant to say. Munger didn’t seek clarification for all his doubts, as when he told one attendee:

“I’m not sure I fully understood the question, but let me answer the question I would prefer to have been asked,” Munger said. He made a few remarks about Berkshire’s growth, and said, “Anyway, I think that answers the question I hope you asked.”

BYD, Coca-Cola

Munger was asked to review some of Berkshire’s holdings, including BYD Co., the Chinese carmaker facing a decline in sales. BYD has the ability to recover from missteps, he said.

Coca-Cola Co. was cited by Munger as one of his favorite consumer-goods companies. Even so, “it’s not nearly as good a business as it was 20 years ago,” he said. Berkshire is Atlanta-based Coca-Cola’s biggest shareholder.

Costco, the largest U.S. warehouse-club chain, was praised by Munger, a Costco director, for its skill at cutting costs and passing savings on to customers.

“It’s almost a religious duty,” Munger said. “Costco is just about the most admirable capitalist enterprise that ever existed.”

--Editors: Dan Reichl, Dan Kraut.

To contact the reporter on this story: Andrew Frye in Pasadena at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Heiwa Target for Mitsubishi Exploiting 49% Discount: Real M&A

July 05, 2011, 3:26 AM EDT By Kathleen Chu and Katsuyo Kuwako

July 5 (Bloomberg) -- Mitsubishi Estate Co., whose $1.4 billion Rockefeller Center investment ended in default, may find buying Heiwa Real Estate Co. the cheapest way to profit from the rebirth of Tokyo’s oldest neighborhood as a financial center.

Mitsubishi Estate, which currently holds an 11 percent stake in Heiwa, will pursue acquisitions to help it overtake Mitsui Fudosan Co. as the biggest developer in Japan, President Hirotaka Sugiyama said last month. Heiwa, which owns some land and about six buildings including the Tokyo Stock Exchange in the historic Nihonbashi district, trades at a 49 percent discount to the value of its net assets, the cheapest of any Japanese real estate developer, according to data compiled by Bloomberg.

A takeover of Heiwa would give Mitsubishi Estate, which has turned Marunouchi into Tokyo’s most expensive business district, a foothold in Nihonbashi, a center of commercial life in Japan’s Edo period from 1603 to 1867. The former owner of Manhattan’s Rockefeller Center, which projects profit will decline after it missed three-year sales and earnings targets, would be making inroads into Mitsui Fudosan’s most important district as tax breaks accelerate construction in Nihonbashi.

“Buying Heiwa would open a door for them there and will probably help boost their profit target in the long run,” said Hideyuki Shinkai, a fund manager in Tokyo for Norinchukin Trust & Banking Co., which has $149 billion in assets. “Mitsubishi Estate is probably aiming for participation in redevelopment of the area around the Tokyo Stock Exchange as an international financial center by entering Mitsui Fudosan’s territory.”

Heiwa rose 3.9 percent, its biggest gain in more than three months, to 185 yen as of the 3 p.m. close of trading in Tokyo. Shares of Mitsubishi Estate were unchanged at 1,447 yen.

‘The Time Being’

Mitsubishi Estate’s Sugiyama said in an interview on June 22 that the company doesn’t have a plan to boost the stake, “for the time being.” Company spokesman Ryuichiro Funo said the stance toward Heiwa has not changed since then.

Naoto Kato, a spokesman for Heiwa, said there is no plan for Mitsubishi Estate to raise its stake.

“We are not in the position to comment on a plan by Mitsubishi Estate and Heiwa,” said Hideaki Yamakawa, a spokesman at Mitsui Fudosan. The company, along with Mitsubishi Estate and Heiwa, is based in Tokyo.

Mitsubishi Estate, Japan’s second-biggest real estate company by sales, forecast in May that profits will drop 14 percent in the fiscal year ending in March as demand for office space and new homes weakens after Japan’s biggest earthquake on March 11 spurred the worst nuclear disaster since Chernobyl 25 years ago. By market capitalization, Mitsubishi Estate is Japan’s largest developer, with a value of 2.01 trillion yen ($25 billion). Mitsui Fudosan is valued at 1.27 trillion yen.

Office Rents

Mitsubishi Estate fell short of its three-year profit target in the year ended in March, after the global credit crisis halted a recovery in Japan’s real estate market. It posted net income of 64 billion yen last fiscal year, about half of the 115 billion-yen goal it had set in 2008.

The company still announced plans last month to invest about 600 billion yen over the next three years, 53 percent more than the previous three-year period, to redevelop buildings in central Tokyo in anticipation of a recovery in rents. About half of the funds will be spent outside the Marunouchi area.

Tokyo’s office vacancy rate fell to 8.88 percent in May, after reaching a record of 9.19 percent in March, while rents in the city’s five main business districts slid to an all-time low in May, according to Miki Shoji Co., a privately held office brokerage company.

Mitsubishi Estate is still aiming to double operating profit for its residential business to 26 billion yen by the year ending March 2014.

‘Difficult to Neglect’

“Without purchasing a company, I don’t think the company can achieve double profit growth,” said Masahiro Mochizuki, a Tokyo-based analyst at Credit Suisse Group AG who has a “neutral” rating on Mitsubishi Estate. “It’s difficult to neglect the possibility that it may acquire Heiwa.”

Mitsubishi Estate’s largest deal outside Japan was a $1.4 billion investment in the owner of Manhattan’s Rockefeller Center two decades ago.

The move was part of a buying spree by Japanese investors that included California’s Pebble Beach golf course and Vincent Van Gogh’s Sunflowers painting as the Nikkei 225 Stock Average reached a record close of 38,915.87 in December 1989. Many of the purchases were later sold at a fraction of their cost as the country’s asset bubble burst.

Rockefeller Group

Mitsubishi Estate purchased 80 percent of The Rockefeller Group in three stages in 1990 and 1991. It lost Rockefeller Center to creditors in 1996 and booked 150 billion yen in losses and writedowns, according to the company. Mitsubishi Estate bought the remaining 20 percent of Rockefeller Group, which invests in and manages commercial real-estate, in 1997.

Now, Mitsubishi Estate’s 53 billion yen ($656 million) acquisition of Towa Real Estate Development Co. could serve as a guide for future deals, Sugiyama said in the June 22 interview. The developer first announced the partnership with Towa in 2004, buying one-third of the Tokyo-based company three months later. It increased its ownership to 100 percent by April 2009.

The acquisition of Towa, which develops apartments in western Japan, enabled Mitsubishi Estate to sell apartments in areas where it didn’t have a strong presence, Sugiyama said.

“We would like to look at deals that will boost business feasibility,” said Sugiyama, 62, citing Towa as an example.

Mitsubishi Estate bought its Heiwa stake in a deal that closed on March 7. The magnitude-9 earthquake four days later and crisis at the Fukushima nuclear plant sent the Nikkei average down 18 percent in three days through March 15.

Stock Market Slump

Heiwa has lost 19 percent to 185 yen since the earthquake, nearly double Mitsubishi Estate’s 11 percent drop to 1,447 yen and almost five times the 4.4 percent retreat in the Nikkei. That means Mitsubishi Estate could buy the rest of Heiwa for 23 percent less than the 230 yen it paid for the March stake, excluding a possible premium, data compiled by Bloomberg show.

Heiwa currently trades at the cheapest valuation relative to net assets of the 22 Japanese real estate developers with a market value greater than $250 million, data compiled by Bloomberg show. Heiwa, with a market capitalization of $441 million, trades at 0.51 times book value, or assets minus liabilities. That compares with a median multiple for the group of 0.97. Mitsubishi Estate fetches 1.67 times, and Mitsui Fudosan 1.24 times, the data show.

The quality of office buildings Heiwa controls and lower sales for the Tokyo Stock Exchange may account for Heiwa’s cheaper valuations, according to Satoshi Yuzaki, a Tokyo-based analyst at Takagi Securities Co. Revenue for the TSE, Heiwa’s main tenant, may be curbed by a weaker stock market, he said.

Operating Margins

Still, Heiwa has generated more operating income per dollar of sales than Mitsubishi Estate and Mitsui Fudosan. Heiwa’s operating margin almost doubled to 28 percent last fiscal year, compared with 16 percent for Mitsubishi Estate and Mitsui Fudosan’s 8.6 percent, data compiled by Bloomberg show.

An acquisition of Heiwa would intensify a century-old competition between Mitsubishi Estate and Mitsui Fudosan, which are each part of two of Japan’s largest so-called keiretsu, or groups of companies that often share business relationships and own shares in each other.

About 43 percent of the floor space Mitsui Fudosan holds in central Tokyo is in the ward that includes Nihonbashi, according to the company. Besides the TSE, the area is home to one of the flagship stores of Isetan Mitsukoshi Holdings Ltd., Japan’s biggest department store operator, and the headquarters of Nomura Holdings Inc., Japan’s largest brokerage.

Edo Period

The revival of Nihonbashi, which includes plans to bury a highway and resurrect a river-cruise route that hasn’t been used since the Edo era, could boost the area’s economy by as much as 3.1 trillion yen through higher property values and revenue generated by more visitors, according to Nihonbashi Michikaigi, a group of academics that advocates for the redevelopment.

Fueling the development are tax breaks on property acquisitions as well as financial assistance offered by the government for specific zones including Nihonbashi. The latest of these were established on June 22 by Japan’s Cabinet Office.

Average asking rents for office space in Marunouchi are still the highest in Japan at 24,200 yen per tsubo, according to Los Angeles-based CB Richard Ellis Group Inc. One tsubo, a measure of property area in Japan, is 3.3 square meters, or 35.5 square feet.

“Mitsubishi Estate continues to create an entire portfolio of relatively new buildings in Marunouchi, but they also know that pretty soon there are going to be much younger crop of buildings in Nihonbashi,” said James Fink, senior managing director at Colliers International in Tokyo. “They will want to have some participation in that.”

--With assistance from Sarah Rabil in New York and Michael Patterson in London. Editors: Mohammed Hadi, Daniel Hauck

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net.

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