J a c k W e l c h H e a d l i n e s S t e l l a r C E O L i n e u p ■ S t e r n E n t r e p r e n e u r s M a k eB u s i n e s s P l a n s P a y ■ I s Y o u r 4 0 1 ( k ) O K ? ■ W h y S o a p C o s t s $ 1 . 9 9D i g i t a l R i g h t s a n d W r o n g s ■ H o l l y w o o d ’ s B o f f o F o r e i g n B o x O f f i c e

STERNbusinesst h e A l u m n i M a g a z i n e o f N Y U S t e r n

F A L L / W I N T E R 2 0 0 5

Sonny Bazbaz (MBA ’04) enjoys the views at

real estate giant Fisher Brothers

H I G H R I S E

a l e t t e r f r o m t h e deanWelcome to the new and

improved STERNbusiness.For many years, the maga-zine has functioned as ahighly effective – and visu-ally appealing – showcasefor the prodigious and var-ied research of our faculty.With this issue, the maga-

zine has been redesigned and re-imagined. Its vision,scope, and circulation have all been expanded.

Why change a good thing? NYU Stern may be a group of buildings in

Greenwich Village. But it’s really a growing virtual andreal community, comprising tens of thousands of stu-dents, faculty, staff, and alumni. Stern alumni consti-tute a growing and remarkably accomplished anddiverse group of 70,000 people. Many of you continueto live and work in and around New York. But I’ve alsoenjoyed meeting with Stern alumni in Los Angeles,London, and Tokyo.

From these interactions, I’ve learned that there’s astrong sense of community surrounding Stern. There’salso clearly a strong desire among alumni to maintainand reestablish connections, to continue to learn. Wethought that a revamped STERNbusiness – one thatcombines news about and for alumni, along with con-tent about what’s going on at Stern today – could helpfurther strengthen the sense of community.

With the expanded news section and the additionof features on alumni, a good deal has changed aboutSTERNbusiness. But some important things have not.Research remains at the center of the magazine, just asresearch remains at the core of our academic missionhere at NYU Stern. Our professors are well-versed inthe theoretical tools of their disciplines. Yet they rou-tinely apply them, with great imagination, to real-world problems. And so the research articles in thisissue offer insights into questions that companies andentrepreneurs face every day. Are companies offeringtheir employees the best investment options for their401(k) plans? Which Hollywood movies perform bestin foreign markets? What’s the best way for content

companies to manage digital rights? Why does a six-pack of cola priced at $3.99 strike consumers as beinga lot cheaper than a $4.00 six-pack?

As you read through the magazine, it will be clearthat Stern regards New York City as not just its home,but as a classroom and laboratory. Because of ourlocation, our students and faculty have the rare abili-ty to see and experience things first-hand, to learndirectly from practitioners at the highest levels in cru-cial fields. In an “only in New York” story (p. 10),Sonny Bazbaz (MBA ’04), within two years of arrivingin the city, became a teaching assistant and then a col-league to Richard Fisher of the real estate firm FisherBrothers. The Public Offerings section details themany events that Stern hosts, including a gathering ofprominent economists to honor Nobel laureate PaulSamuelson, and a corporate governance conferencethat drew both Citigroup CEO Charles Prince andTreasury Secretary John Snow.

Finally, I think the magazine conveys Stern’s senseof dynamism – beyond the astonishing range of activ-ities taking place, beyond the energy bursting fromformer General Electric CEO Jack Welch (p. 16), andbeyond the impressive accomplishments of our stu-dents and alumni. At its root, education is aboutequipping people and organizations to compete in thefuture, tackling complex problems, and offeringinsight and solutions. It’s an interactive, continuallyevolving, and challenging enterprise.

And so is this magazine. We’ll continue to rely onour faculty and editors for much of the content, butwe’ll also be relying on you, our readers. Our ClassNotes section affords ample space in which alumni canshare thoughts, accomplishments, and milestones.And our editors are eager to entertain article ideas. AsSTERNbusiness re-launches, grows, and evolves, weinvite you not only to read, but to connect, to respond,and to contribute.

Thomas F. CooleyDean

contents F A L L / W I N T E R 2 0 0 5

2 Public OfferingsTreasury Secretary John Snow advises directors, Nobel laureatesgather to honor a colleague, and Liz Claiborne’s global designer

6 Stern in the City6 Kenny Lao’s Rickshaw delights diners, By Jessica Neville7 A scrapbook venture worth keeping, By Stephanie Sampiere9 8 questions for NASDAQ CEO Robert Greifeld

10 Cover Story – High RiseSonny Bazbaz’s express elevator ride in New York real estateBy Susan C. Walsh

14 Leading Indicators Stern’s CEO Series: Getting down to business with Craig Donohueof the Chicago Mercantile Exchange, James H. Quigley of Deloitte & Touche USA, and Jack Welch, formerly of General Electric

18 ProspectusNew faculty, noteworthy papers, awards, and honors

Office Hours – Faculty Research20 The Best-Laid Plans

Are 401(k) plans offering investors adequate choices?By Edwin Elton, Martin J. Gruber, and Christopher R. Blake

24 A Penny SavedWhy soap retails for $1.99 instead of $2.00By Manoj Thomas and Vicki Morwitz

28 Digital Rights & WrongsHow old media can profitably manage digital contentBy Gal Oestreicher-Singer and Arun Sundararajan

32 Found in TranslationFor Hollywood, the Golden Arches can point to box-office gold overseasBy C. Samuel Craig, William H. Greene, and Susan P. Douglas

36 Peer-to-PeerStudent Life in Washington Square and Beyond:Volunteer consulting, the ultimate Hollywood career, andfrom Russia with degrees

38 Class Notes

44 Past Performance“Dr. Bob” Kavesh has long found poetry in economics By Daniel Gross

STERNbusinessA publication of the Stern School of BusinessNew York University

President, New York UniversityJohn E. Sexton

Dean, Stern School of BusinessThomas F. Cooley

Deputy Dean, Stern School of BusinessRussell S. Winer

Chairman, Board of OverseersWilliam R. Berkley

Chairman Emeritus, Board of Overseers Henry Kaufman

Associate Dean, Marketingand External RelationsJoanne Hvala

Editor, STERNbusinessDaniel Gross

Managing Editor, STERNbusinessStephanie Sampiere

Assistant Managing Editor, STERNbusinessJenny Owen

Contributing WritersAngela Parks Antonelli, Rika Nazem,Jessica Neville, Susan C. Walsh,Lisette Zarnowski

DesignEsposite Graphics

Letters to the Editor may be sent to:NYU Stern School of BusinessOffice of Public Affairs44 West Fourth Street, Suite 10-160New York, NY 10012www.stern.nyu.edusternbiz@stern.nyu.edu

Illustrations by:Juliette Borda, Steve Dininno,Steven Salerno, Doug Panton,Bryan Leister, Michael Caswell,Robert O’Hair

Public Offerings

From left to right: WilliamAllen chairs the DirectorsFiduciary Duty of Carepanel; US TreasurySecretary John Snow joinsNYU Trustees Ken Langoneand Martin Lipton; CharlesPrince delivers the lunch-eon keynote address.

DIRECTIONS FOR DIRECTORS

An NYU Stern event in early June attended by morethan 80 experts and practitioners in the fields of law,business, and regulation brought new meaning to theterm “high-level discussion.” The Third AnnualDirectors’ Institute, hosted by the NYU Center for Law& Business, featured both the US Treasury Secretary andthe chief executive officer of the nation’s largest bank.

The Center, a joint initiative between NYU SternSchool of Business and NYU School of Law, created theDirectors’ Institute to help directors stay current on theirlegal, fiduciary, and ethical responsibilities.

In a keynote dinner address opening the event,Treasury Secretary John Snow underscored the need forbalance in enforcing the Sarbanes-Oxley Act. “TheAmerican corporation has been and continues to be anextraordinary engine for economic development, innova-tion, and change. Sarbanes-Oxley was a much neededand timely tool for keeping that engine on track andrunning properly,” he said. “We need to make sure it isnot inadvertently applied in a way that cripples thatengine.”

The Directors’ Institute included four sessions onsuch topics as the relationship between the board andthe CEO; the governance role of the general counsel; theaudit committee and the board’s oversight of risk man-agement; and the director’s fiduciary duty of care, theSecurities and Exchange Commission, and judicialexpectations. It also featured expert panelists fromStern and NYU School of Law, the Securities andExchange Commission, and the Delaware SupremeCourt, as well as directors, chairmen, and CEOs of com-panies such as American Express, Ernst & Young, TheEstee Lauder Companies Inc., McKinsey & Co., andTIAA-CREF.

Citigroup CEO Charles Prince, who delivered thelunch keynote address, spoke about Citigroup’s efforts to

establish a better balance between short-term andlong-term thinking. Prince said rules are not enough toensure that employees comply with the law. Heexplained that for Citigroup, compliance and controlsserve as safety nets only, whereas common principlesand values should set the tone and behavior for theorganization’s nearly 300,000 employees. The compa-ny has begun to emphasize a principles-basedapproach to governance, creating a common visionaround shared responsibilities. In addition to establish-ing a Five Point Plan that systematically embeds thesevalues into its culture, Citigroup has developed initia-tives such as employee stock ownership and businesspractices committees that encourage employees tothink for the long-term.

In his welcoming remarks, William R. Berkley (BS’66), chairman and CEO of W.R. Berkley Corporation,vice chairman of the NYU Board of Trustees, andchairman of the NYU Stern Board of Overseers, intro-duced a theme that would recur throughout the event.Berkley cautioned boards not to react to the aggressiveenforcement environment by becoming risk averse.Martin Lipton, senior partner at Wachtell, Lipton,Rosen & Katz and chairman of NYU Board ofTrustees, led a panel discussion at which members dis-cussed whether the role of the CEO and chairmanshould be divided. Most panelists recommended thatindividual boards should be trusted to decide forthemselves.

William Allen, director of the NYU Center for Law& Business and Nusbaum Professor of Law andBusiness, shared his thoughts on the Directors’Institute: “As an educational institution, we have aresponsibility to debate and shape, in partnership withthe business community, the thinking that will furtherinform corporate governance reforms and help restoreinvestor confidence in the corporation.”

2 Sternbusiness

research on topics such as electromagnetic spectrum auc-tions to be used for wireless telecommunications, sharewareand adware pricing, competition among airlines, videogame platforms, and ATM networks.

These areas represent fertile ground for research. “Incontrast with non-network industries, in network industries,there are very significant inequalities in market shares andprices but not full monopoly – it is a winner-takes-mostworld, not a winner-takes-all,” said Professor Economides.“In network industries, competition is more ‘for the market’rather than ‘in the market.’”

Stern Professors John Asker, Adam Brandenburger, andParis Cleanthous and PhD student Christian Dezso madeshort presentations as discussants in the day’s events, andStern Professors Economides and Arun Sundararajanchaired the telecommunications and computer network ses-sions, respectively.

The NYU Center for Law & Business, a research centerof the Stern School of Business and the NYU School of Law,aims to enhance educational and research opportunities ofstudents, faculty, and practitioners interested in areas wherelaw, finance, and economics intersect.

CONFERENCE CALLS

The Networks, Electronic Commerce, andTelecommunications (NET) Institute, a non-profit devotedto research on network industries, in conjunction with theNYU Center for Law & Business, hosted its annual confer-ence at NYU Stern on April 1.

Nicholas Economides, professor of economics at Stern andexecutive director of the NET Institute, chaired the confer-ence, which showcased cutting-edge global research in a vari-ety of network industries – electronic commerce, telecommu-nications, the Internet, and “virtual networks.”

Professors at institutions including Stern, CarnegieMellon, George Washington University, London School ofEconomics, University of Chicago, University ofPennsylvania, and the University of Tokyo, presented

Sternbusiness 3

at Columbia University, saidthat Samuelson had taughthim the value of simple mod-els, and that he “helped clarifythinking, constructing modelsto provide better distinctionson previous work.”

Paul Krugman, professorof economics and internationalaffairs at Princeton Universityand an op-ed columnist forThe New York Times, discussed howSamuelson's open mindedness helpedhim realize that things we may finduncomfortable may be true. JeremySiegel, Russell E. Palmer Professor ofFinance at the Wharton School ofBusiness, noted that Samuelson, whoturned 90 last spring, also has a deeprespect for the knowledge of people whocame before him.

The commentary reflected on acommon theme. Samuelson is a greatmathematician and economic theoristwho is grounded in the real world, andwho has the capacity to regard his ownpositions critically as the world aroundhim changes.

Robert Shiller, Stanley B. ResorProfessor of Economics at Yale

University, related Samuelson's policiesof yesterday to one of today's hottesttopics – Social Security – saying thatPresident George W. Bush's SocialSecurity reform plan was inspired insome ways by Samuelson – althoughhe wishes it had gone further.

But not all the day's discussionrevolved around economic researchand public policy. Ryuzo Sato, C.V.Starr Professor of Economics anddirector of the Center for Japan-USBusiness and Economics at NYU Stern,who translated Samuelson'sFoundations of Economic Analysis text-book into Japanese, described howSamuelson boarded the wrong train inTokyo – without tickets, passport, orother belongings. Although the incident

left Sato in a “cold sweat,” he andSamuelson were happily reunited a fewhours later with the assistance of sev-eral helpful train conductors.

In sharing tips on winning a NobelPrize, Robert Merton, a Nobel laureateand John and Natty McArthur UniversityProfessor at Harvard Business School,joked, “It's simple. To win a Nobel Prize,you go to MIT, you go into Paul's office,and you listen.”

Alan Blinder, Gordon S.Rentschler Memorial Professor ofEconomics at Princeton, aptly conclud-ed the conversation by noting, “Therewill probably never again be anothereconomist with as much influence onour discipline as Paul Samuelson.”

NOBEL GATHERING

Economists often get criticized forequivocating. Fed up with advisers whoconstantly offered on-the-one-hand, on-the-other-hand arguments, PresidentHarry S. Truman famously proclaimed thathe wished for a one-armed economist.

But when a group of distinguishedeconomists gathered at NYU Stern onApril 8 to honor Nobel Laureate Paul A.Samuelson, their conclusions wereemphatic and unanimous. The notedeconomic theorist, professor, andauthor, currently in his 19th and finalyear as Shinsei Bank Visiting Professorat NYU Stern's Japan-US Center, hadsignificantly influenced their work – andtheir profession.

To honor Samuelson, NYU Stern'sJapan-US Center, which is celebratingits 20th anniversary this year, assem-bled a panel of distinguished econo-mists from leading universities. Allmembers of the group, which includedtwo Nobel Prize winners, had studiedwith Samuelson at the MassachusettsInstitute of Technology.

Joseph Stiglitz, a Nobel laureateand professor of economics and finance

Professor Rama Ramachandran (left), head of the Japan Center, welcomes panelists honoring Paul Samuelson.From left to right: Ryuzo Sato, Stephen Figlewski, NYU Stern professor of finance; Paul Krugman; Richard Sylla,Henry Kaufman Professor of the History of Financial Institutions and Markets at NYU Stern; and Robert Merton.

CURRENT ACCOUNTING EVENT

The Sarbanes-Oxley Act, which Congress passed in2002 in response to a cascade of corporate accountingscandals and bankruptcies, was the most far-reaching cor-porate governance legislation enacted in more than 50years. Its provisions include requirements that chief execu-tive officers sign off on corporate earnings and that amajority of the board of directors be independent.

One of the most important components of the act isSection 404, which requires companies to develop a systemof internal controls and then to issue annual reports attest-

Public Offerings

ing to the effectiveness of those controls. One year after theimplementation of Section 404, NYU Stern’s Vincent C. RossInstitute of Accounting Research convened leaders from aca-demia and from the investment, legal, and accounting indus-tries to discuss the impact of Section 404 – its costs, bene-fits, and impact on public companies, corporate governance,and consumer confidence. NYU Stern Accounting ProfessorSeymour Jones moderated the panel discussion.NYU Stern Accounting Professor Eli Bartov noted thatestablishing and maintaining adequate internal controlstructures and procedures for financial reporting is an enor-mously costly enterprise. But he wondered: “Will Section

Raymond Beier speaks about corporate governance; Abby Joseph Cohen addresses the audience; panel participants; Seymour Jones greets Abby Joseph Cohen.

4 Sternbusiness

NETWORK NEWS

At many academic meetings, net-working is one of the key activities. But ata workshop for doctoral students held byNYU Stern's Center for Digital EconomyResearch (CeDER) on June 15 through17, networking and the role of networkswas the dominant topic of discussion anddebate.

The workshop was attended by morethan 40 PhD candidates from a range ofuniversities who are interested in the eco-nomics of information technology (IT).Consisting of tutorials and informal dis-cussions led by prominent economics andIT scholars, the workshop was designedto improve the students' research skillsand to better connect them with the com-munity of IT economics scholars. Thesessions, which included topics such asbounded rationality, IT and organizations,and complex networks, featured expertsfrom Stern, INSEAD, Stanford University,

and University of California, Berkeley. In her opening remarks, Lee

Sproull, Stern’s vice dean of faculty andprofessor of information systems andmanagement, encouraged students toview the forum as an opportunity tostrengthen the worldwide community ofIT economics scholars.

Vasant Dhar, co-director for CeDERand professor of information systems atStern, said the forum was uniquebecause it brought together students whowould not otherwise realize that theybelong to the same research community.“IT economics has generated interestamong people in economics, informationtechnology, marketing, and sociology,”said Dhar.

In a tutorial on complex networks,workshop co-organizer ArunSundararajan, assistant professor ofinformation systems at Stern, explainedhow models of complex networks likethose used to study the route of trans-

mission of infectious diseases and thestructure of social networks can beapplied to IT economics research in anumber of ways. Workshop co-organizerand Stern Professor of Economics andInformation Systems Roy Radner dis-cussed the continuing importance ofunderstanding bounded rationality whenstudying IT economics. Stern EconomicsDepartment Chairman Luis Cabral sharedhis research on the importance of reputa-tion and trust between buyers and sellersin online markets and on mechanisms tostudy reputation in IT economics. Heargued that eBay would not be as suc-cessful if its users did not have a systemby which they could establish trustamong sellers and buyers.

University of California at BerkeleyProfessor Joseph Farrell's sessionexplored the models of standards forma-tion and unbundling and leverage. A for-mer chief economist of the FCC, Farrellexplained the three models of standards

formation: bandwagon, authority, andconsensus. A preceding panel on net-works featured a lively debate betweenFarrell and Nicholas Economides, pro-fessor of economics at Stern, on thesuccess of the Telecommunications Actof 1996.

Timothy Bresnahan, chair ofStanford University's economics depart-ment, and a former chief economist ofthe US Department of Justice AntitrustDivision, discussed the relationship of ITto growth and business cycles. In detail-ing the '90s boom and bubble,Bresnahan noted that IT led the growth,but wasn't accepted as quickly as initial-ly anticipated. Erik Brynjolfsson, theSchussel Professor at MIT and one ofBusinessWeek's EBiz 25 Visionaries,described the organizational changesessential for successful corporate ITinvestments, and drew a parallel betweenthe current IT revolution and the adop-tion of electricity.

404 prevent or even reduce deceptive behavior by top man-agement or financial statement fraud?”

Lynn Turner, former chief accountant at the Securitiesand Exchange Commission, acknowledged that the initialcosts of complying with 404 are steep. But he suggested theywill fall over time. What’s more, they’re a drop in the bucketwhen compared to the costs of financial accounting fraud.

Alan Annex, a partner at the New York law firmGreenberg Traurig, LLP, highlighted another benefit.Companies, who would rather be “more safe than sorry,”are reporting any and all accounting deficiencies – even ifthey are not considered material weaknesses.

Douglas Carmichael, chief auditor of the PublicCompany Accounting Oversight Board, discussed the histo-ry behind Section 404. He emphasized that while it wasestablished to reduce the probability of fraud, it can notentirely eliminate risk.

Mark Lilling, CPA, of Auditing Committee ConsultingTeam LLC, outlined Section 404’s requirements. AndRaymond Beier, a partner at PricewaterhouseCoopers, andThomas Knudsen, a partner at Ernst & Young, described

the effect of Section 404 on corporate governance. Therehas been greater involvement of audit committees andboards with respect to financial reporting and insuring thatthe numbers companies report are accurate. MartiSubrahmanyam, professor of finance and economics atNYU Stern, and a member of several corporate boards,noted that he had already seen the positive impact Section404 has had on corporate governance.

Abby Joseph Cohen, chief US portfolio strategist atGoldman, Sachs & Co., noted that Section 404 has helpedrestore consumer confidence. Most Goldman Sachs clients,she noted, said they saw immediate benefits to 404 –either because they discovered problems they were able tofix before they became larger problems, or because 404provided a spur to redesign their accounting systems.

In a sign that management of all types of companies aretaking Sarbanes-Oxley to heart, panelist James Feely,director and chief financial officer at TDI TransistorServices, discussed why TDI, a private company, was con-sidering complying with Sarbanes-Oxley now – in casemanagement decided to go public in the future.

MBA students, alumni, and professors,Figueredo offered a broad overview ofLiz Claiborne and its 40 brands, whichinclude Juicy Couture, Kenneth Cole,and DKNY Jeans, and described thecompany's global expansion – particu-larly in China.

A 1982 graduate of FairfieldUniversity, Figueredo joined LizClaiborne in 1984. After rising through a

FASHION FORWARDALUMNUS

New York City is the capital of manythings, among them, luxury retailing. As aresult, NYU Stern graduates frequentlydon't have to travel far from campus tomake their careers in this rapidly expand-ing field. Jorge Figueredo (MBA '95) hascome a long way since graduating fromNYU Stern, yet as president of LizClaiborne International, he works in mid-town, just a few miles from WashingtonSquare.

This spring, NYU Stern's new Luxuryand Retail Club welcomed Figueredoback to campus. At an event attended by

series of human resources posts, he wasnamed president of the international divi-sion in 1999.

During a question and answer ses-sion, Figueredo talked about the impor-tance of marketing in the retail industry.As part of an effort to cross-sell brands,the company each week reviews its toprevenue-generating products for syner-gies. He also cited specific examples of

top brands and their markets. The com-pany's Mexx store in Moscow, Russia,is one of its most profitable stores, forexample.

“Mr. Figueredo is a wonderfulexample of how MBA graduates canlead in retail,” said Jennifer Hong, vicepresident of marketing for the Luxuryand Retail Club. “By combining hisstrengths in finance, strategy, and mar-keting with his passion for this excitingindustry, he has helped to propel LizClaiborne into a $4 billion business.”

Sternbusiness 5

Jorge Figueredo joinsmembers of Stern'sLuxury and RetailClub: (from left)Thomas Jonchere(MBA '04 and LizClaiborne analyst), Yi-Hsian Huang, RonKlein, Figueredo,Sonali Palkhiwala,and Jennifer Hong.

Current Accounting Event continued

sternInTheCity

New York Media Rave about Rickshaw

“The dumplings themselves, showcasedin steamer baskets behind the spic-and-span kitchen's glass walls, are plumpand tender, adroitly made, and filledwith ingredients that are fresh andtasty…” New York Magazine

“It will serve five different dumplingsand was conceptualized by Kenny Lao, agraduate student at New YorkUniversity.” New York Times

“Rickshaw will change the way you lookat dumplings forever.” Gotham Magazine

“Chef Anita Lo has come up with fivealmost too-good-for-lunch dumplings…tofu-wrapped pork dumplings will thrillcarbophobes; mochi-wrapped chocolatedumplings will delight the rest of us.” Daily Candy, New York

Rickshaw Celebrity Patrons✷ Matthew Broderick and

Sarah Jessica Parker ✷ Linda Evangelista✷ Lucy Liu ✷ Diane Sawyer✷ Martha Stewart✷ B.D. Wong

From Mott Street to Main Street by Jessica Neville

“Chairman Mao is smiling down on this ‘zen-like’ dumpling spot that brings‘Mott Street to Main Street’…Patron’s only complaint, ‘I’m so full, where’s myRickshaw ride home.’”

This was the hypothetical Zagat’s restaurant review that Kenny Lao (MBA’04) used to pitch and win over the judges of NYU Stern’s 2004 MaximumExposure Business Plan Competition. With prize money, his MBA degree, andinvestor support in-hand, Kenny made his business dream operational. Heopened his first Rickshaw Dumpling Bar unit in New York City’s Chelsea neigh-borhood just one year later.

Zagat has already weighed in, citing “lines practically out the door at meal-times at this big, sleek newcomer indicate that Chelsea was in need of adumpling fix.” And with favorable reviews in The New York Times, New YorkMagazine, TimeOut New York, and others, an on-premise visit from tastemakerMartha Stewart to cook dumplings for the day, and a business that is alreadybeating projections, Rickshaw is off to an astounding start.

“We’ve really caught the imagination of the public with dumplings,”explained Lao, 28. “Dumplings aren’t something you need to learn how to love.We just brought a food people really like to a mainstream audience.”

But opening a new fast casual restaurant in the most competitive food city inthe United States is not as simple as it sounds. After all, in New York there areeateries on literally every block, and the restaurant industry is known for havinga high mortality rate. With restaurant consulting experience already under hisbelt, Lao recognized early on that to be successful, he needed to differentiatehimself. Getting his MBA was the fast-track way to do it.

“I had lived and worked in New York City for about five years and had start-ed making some great contacts,” said the native of Pasedena, CA. “I knew thatNYU Stern would give me not only an opportunity to get a world-class MBA,but also the chance to do so in the very city where the restaurant industry hasits heartbeat.”

For Lao, the Stern MBA experience began to pay off duringhis first week in the program in the fall of 2002 when he heardStern alumnus Andrew Stenzler (MBA ’94), founder and formerchairman and chief executive officer of the popular urban snack-ery Cosi, Inc., speak on campus. Driven by perseverance andentrepreneurial zeal, Lao persuaded Stenzler over lunch andseveral subsequent meetings that his Rickshaw concept wasviable, and today thanks him for inspiring a long-term visionfor size, scalability, and expansion in New York and beyond.And with Stenzler and other investors on board, Lao wasable to secure the imprimatur of a great chef, Anita Lo, of

continued on page 8

6 Sternbusiness

Kenny LaoPhoto by Lucy Schaeffer

Let Me Tell You…by Stephanie Sampiere

Most graduates of NYU Stern seescrapbooks as a good place to store nos-talgia-inducing photos from importantevents. But while thumbing throughscrapbooks, two recent Stern alumnaediscovered the seeds of a new business,“Let-Me-Tell-You,” a line of gift scrap-books and related celebration productsthat help women plan for and capturesignificant life milestones from birthdaysto graduations to weddings. And a Sternbusiness plan competition spurred them to turn itinto a reality.

Having made countless scrapbooks for friends’weddings, Karin Sloan (MBA ’99) and AmyGraiwer (MBA ’99), realized that there was anuntapped market for wedding gift scrapbooks.But both were busily pursuing finance-relatedcareers, Sloan as a turnaround and restruc-turing consultant at FTI Consulting, andGraiwer as an executive compensation expertat Merrill Lynch.

In 2003, however, Sloan approached Graiwerwith her idea of starting a scrapbooking business. “Atalmost 30 years-old, we had the confidence to try some-thing new,” Sloan said. “I don’t think we could havetaken the same risk at 25. We needed the years of workexperience behind us, and the ability to realize thatsometimes you don’t know everything, but that's OK,you figure it out.”

While still working their day jobs, the two traveledto gift trade shows and researched the industry afterhours. During their research, they discovered NYUStern’s Maximum Exposure Business Plan Competition,sponsored by The Berkley Center for EntrepreneurialStudies. The duo credits the competition with helpingthem develop a business model, hone the presentationskills necessary for generating business partners, andbuild a network. “The competition put us in contactwith other Stern alumni who helped by providingadvice and mentoring. We were even offered financialsupport,” said Graiwer.

In order to focus on the business while participatingin the six-month-long competition, the partners left theirjobs in November 2003 and January 2004. And the riskwas rewarded. In May 2004, Graiwer and Sloan won thecompetition’s first prize of $30,000 in seed money tosupport their new business concept. They used the fundsto trademark the Let-Me-Tell-You name, hire an illustra-tor, attend tradeshows, and supplement their businessneeds.

The victory did more than help pay expenses.“Everyone loves hearing that we won a business compe-tition,” said Sloan. “It takes us from the cute girls with acute idea, to professionals who have the credibility ofgoing to business school, executing on a plan, and win-ning a competition.”

continued on page 8

Let-Me-Tell-You co-founders Karin Sloan (left) and Amy Graiwer (right) and their first product,

“The Bride-to-Be Scrapbook.”

Sternbusiness 7

sternInTheCity

Since the competition, Let-Me-Tell-You has teamedup with EK Success, the country’s leading scrapbookingand creative consumer products company to launch itsfirst product. “The Bride-to-Be Scrapbook,” a weddingkeepsake gift book that friends and family personalizewith memories, wishes, and advice for their favoritebride, became available nationally in September 2005.And the line is already getting attention – JoyceWashnik included the book in her “Design, Decor &Demographic Trends” seminar at this year’s NationalStationery Show.

The company is now a bi-coastal business, withGraiwer working from Los Angeles and Sloan from NewYork. While working from different time zones presentsa challenge, they are grateful for the flexibility thatentrepreneurship provides and the benefits of their closepartnership.

In offering advice to potential business owners,Graiwer said, “Don’t be afraid to call on people youdon’t know. It’s amazing how open and helpful peopleare, especially when you are part of the same alumninetwork.”

Sloan has one final piece of advice. “Make sure youare having fun. Celebrate every little success becausethat is why you are doing this. And keep a scrapbook ofyour milestones.”

For more information on Let-Me-Tell-You, visitwww.let-me-tell-you.com; for more information on EKSuccess and where to find Let-Me-Tell-You products,visit www.eksuccess.com. ■

New York City’s highly-regarded Annisa. “People are very conscious of the quality of food

they’re eating these days. In urban areas, this speaks foritself. Having a chef like Anita gave Rickshaw immedi-ate validation,” Lao said. “Like any good businessschool student, I had a copy of my business plan in mybag when we met, and two weeks later, we were talkingdumpling flavors.” Patrons can have their dumplingssteamed or fried, with a salad, in noodle soup, or solo.An assortment of choices such as “Classic Pork andChinese Chive,” “Peking Duck,” “Vegetarian,” and evena low-carb option flavor the menu. And many find thedessert “Chocolate Soup Dumplings” of melted choco-late in a black sesame mochi wrapper a must-have.

Throughout his two years at Stern, Lao took advantageof every opportunity to hone his business concept. Hecredits Stern’s competition with giving him the impetus todevelop his first business plan at a high-caliber level.

“The amount of homework I had to do to prepare forthe presentation in the competition was extremely use-ful,” he reflects. “What this ended up doing was helpingme internalize all of the information I needed so I couldbe ready to convince someone to invest over coffee.”

As a business plan competition winner, Lao wasautomatically invited to become one of the first “incuba-tees” in Stern’s Incubator Program, which like the com-petition, is run by the School’s Berkley Center forEntrepreneurial Studies. The Incubator providedgrounding and office space while Rickshaw was in theconstruction phase.

Today, as an entrepreneur and manager, Lao relies ongood communication with his staff to get the job donewell. He recognizes that a strong team is critical, a themeStern stressed to him throughout his MBA experience.

“The hardest part for me is letting go, trusting mypeople to get us through the lunch rush,” said Lao. “Ifyou’re unable to let go, you haven’t created a companythat’s scalable. You’ve failed as an entrepreneur.”

What’s next for Rickshaw Dumpling Bar? An MTVdocumentary and a feature in Martha Stewart’s newdaytime show, “Martha,” are planned for the comingmonths. And Lao is already raising capital for eightpotential new units, with plans underway to open hissecond within the year.

“I wouldn’t have been able to do this if I wasn’t inNew York,” remarked Lao. “At the end of the day, youhave to take the lead and just do it.”

For a preview of the menu, visit www.rickshaw-dumplings.com ■

Interested in participating in Stern's Maximum

Exposure Business Plan Competition? All Stern

alumni are eligible. Contact Loretta Poole in The

Berkley Center at lpoole@stern.nyu.edu.

continued from page 6

continued from page 7

Sloan (left) and Graiwer (right) launch their new Scrapbook at the National Stationery Show.

8 Sternbusiness

1. What was the most useful course you took atStern?

I had an undergraduate degree in English, so Sternwas my first real exposure to business content. And inthat light, all the courses I took at Stern have beenincredibly useful. At the time, I was in the technologyfield, and the courses I took on relational databaseshad incredibly valuable direct applications for me.

2. Your thesis at Stern was about the NASDAQ.What did you conclude?

I concluded that as the NASDAQ Stock Marketbecame increasingly automated, the verbal interactionbetween traders during the day would become lessand less important, and the efficiency of the marketand the price discovery process that electronicsafforded would become more important. And I thinkwe’ve seen that play out.

3. Why does NASDAQ need to be in New York?

Our customers are here, and our first and foremostmission is to satisfy market participants. New York isthe global center for capital markets activity.

4. We've seen a good deal of consolidation. Are theretoo many exchanges and trading platforms in theUS?

There clearly will be two very large exchanges. Butthere’s room for many other competitive exchanges. Ifyou have a good handle on your technology costs andthe ability to manage order matching technology, youcan be successful in the US.

5. Convincing Google to list on the NASDAQ was amajor triumph. How did you persuade the hottestIPO of the last few years to become a NASDAQstock?

They didn’t see their IPO as a branding event. Andthey didn’t come here because other technology compa-nies like Yahoo!, Amazon, and eBay were here. Theyapproached the decision based on what would be themost efficient trading platform for their investors.

6. What skills/characteristics do you look for in newhires?

We always go for what I call the best available athlete.We understand that the job they hire into won’t be theone that they stay with for their entire career. So it’s theabilities and the desire to work that we’re looking for.Skills and experience, while important, are secondary.

7. What has been the most pleasant surprise in yourtenure?

We had to transform NASDAQ from an institution thatwas part of a regulatory body into a for-profit entitythat answers to investors in the public market, and toits own shareholders. The most pleasant surprise is thetrue willingness of my colleagues to embrace this trans-formation. We’ve moved along a lot faster and moresuccessfully than we would have assumed.

8. You’ve run four marathons. Is training for amarathon good training for being a CEO?

Yes. I certainly tell my colleagues that we’re engaged ina marathon, and that we have to be focused on themission over an extended period of time.

Sternbusiness 9

8QuestionsROBERT GREIFELD (MBA ’87), President & CEO of NASDAQ

ith real estate a booming industry in New York City and around the country, it isno surprise that MBA students are increasingly entering the field. Few, however,can boast of the prize that Sonny Bazbaz (MBA ’04) lays claim to: a dream jobin real estate. Bazbaz landed a coveted position at legendary Fisher Brothers

prior to graduation thanks to a unique relationship forged with Richard L. Fisher.Bazbaz has an eye for opportunity. When he graduated from the University of Texas with a

degree in business economics in 1998, Bazbaz thought he would follow the same path most ofhis peers were seeking: a job on Wall Street. But before interviewing with financial firms, heassisted his father, who owned a plastic packaging business based in Houston, by drawing up abusiness plan for a new project.

The Bazbaz family is from Mexico, and Sonny was born and lived there until the familymoved to Houston when he was seven. And because he was familiar with Mexico, he saw theneed for a similar packaging operation there. His father was so impressed with his son’s planthat he suggested that Sonny handle the project personally. Deciding that starting his own com-pany would provide a broad experience, Bazbaz accepted the challenge.

He moved to Monterrey and established Superbag de Mexico in 1998. He was involved in allaspects of getting the business off the ground – building warehouses, buying machinery, meetingpotential customers, and personally interviewing the first employees. Not one to tackle a chal-lenge half-heartedly, Bazbaz devoted all of his waking hours to the company, literally living inthe warehouse for the first nine months. Although this entailed daily altercations with snakesand scorpions, Bazbaz made the commitment because, “if I wanted the company to be success-ful, I had to be there 24 hours a day.”

All that hard work paid off. With the help of a large account in the early stages, Superbag deMexico soon established itself as a major player, supplying polyethylene bags for the groceryand retail business. The company enjoyed prosperity while Monterrey was undergoing a periodof economic expansion. Within two years, Bazbaz had repaid all debt involved in starting costs.As the number of clients rose, his duties shifted from project management to running the com-pany. And they still kept him busy from morning until night.

During his five years at Superbag de Mexico, Bazbaz discovered the hidden value in realestate. After a few years, economic conditions became less favorable for the company. Theexchange rate in Mexico shifted, raising operating costs. And as the demand for labor increasedrapidly in Monterrey, fueled in large part by a torrid economic expansion, higher labor costs cut

sternInTheCity

w

10 Sternbusiness

SINCE ARRIVING IN NEW YORK THREE YEARS AGO, SONNY BAZBAZ, BORNIN MEXICO AND RAISED IN TEXAS, HAS BECOME A TEACHING ASSISTANTAND VALUED EXECUTIVE FOR ONE OF THE CITY’S REAL ESTATE TITANS.

High riseBy Susan C. Walsh

Sternbusiness 11

into margins as well. But as his company’s profit margins fell, the value of its realestate surged. By 2002 the warehouses were more valuable than the company itself.This turn of events inadvertently sparked an interest in real estate, and Bazbazmade the decision to switch gears and start a new career. After training an MBAgraduate from Mexico to take over the reigns, he focused on the next phase in hislife.

With solid experience at Superbag de Mexico under his belt, Bazbaz felt confi-dent in his project management, operations, and construction skills. The realizationthat real estate is heavily driven by finance solidified his desire to get an MBA. Heset his sights on New York because “Manhattan is home to the kings of real estate,”and chose to attend NYU Stern. But he never imagined that he would be working asa student side by side with one of those kings.

Once on campus in the fall of 2002, Bazbaz became friendly with JeremyWiesen, associate professor of business law and accounting. Wiesen, in turn, isfriends with Richard L. Fisher, a senior partner at the Manhattan-based FisherBrothers, a multigenerational family business that is one of New York City’s preemi-nent builders and managers of commercial real estate.

Fisher had committed to teaching a real estate course at NYU Stern in the springof 2004. Professor Wiesen’s rave review of his student’s capabilities convincedFisher to appoint Bazbaz as his teaching assistant (TA). As Fisher puts it, Bazbazcame in “on clouds of glory.” And Bazbaz was eager to learn from a real estateexpert.

ew people possess the depth of knowledge about real estate that RichardFisher does. Founded in 1915 by Martin Fisher, his family’s firm owns,manages and successfully leases over 6 million feet to major corporate ten-ants. Fisher Brothers’ portfolio of office space includes Park Avenue Plaza,

299 Park Avenue, 1345 Avenue of the Americas, and 605 Third Avenue. The firm,in partnership with Morgan Stanley & Co., co-sponsors the City Investment Fund,an investment vehicle created to pursue opportunistic real estate investments withinthe five boroughs of New York City. And Richard Fisher is primarily responsible forreal estate acquisitions and finance for the Fisher Brothers portfolio, which hasmore than $4 billion in assets.

During a five month period, the teacher and the teacher’s assistant met once aweek to design the course that became Real Estate Finance. Now one of the mostpopular classes in the MBA program, the course emphasizes “real world” issues,and guest speakers are brought in to present case studies. With a roster thatincludes prominent real estate executives like Jerry Speyer, president and chief exec-utive officer of Tishman Speyer Properties, Larry Silverstein, president ofSilverstein Properties, Inc., and Sam Zell, chairman of Equity Group Investments,L.L.C., the course offers insider information about the New York City real estatemarket. Bazbaz believes that real estate professionals would “pay thousands of dol-lars for the chance to sit in on this course.” For their part, students jump at thechance to add Real Estate Finance to their schedule. “I would have felt lucky tosimply have [Fisher] as a guest lecturer for one class session,” says Dan Poehling(MBA ’05). “But to have the opportunity to learn from him for an entire semesterwas an invaluable experience.”

Fisher describes the course as “real world real estate in 12 weeks.” The courseculminates in a case study of Rockefeller Center. A four-week process, the casestudy attempts to replicate a real-world scenario in an acquisition where studentsmust negotiate, underwrite, and ultimately present a bid to “sellers.” The project,which Fisher refers to as the “jewel” of his course, includes a talk with the presidentof Rockefeller Center and a property tour. Fisher is refreshingly honest, openly dis-cussing his firm’s failed attempt to purchase the property in 2001. Fisher Brothers

The realization that realestate is heavily drivenby finance solidified hisdesire to get an MBA.He set his sights onNew York because“Manhattan is home tothe kings of real estate.”

F

12 Sternbusiness

Sonny Bazbaz (left) joins Richard Fisher (right) during theirclass' tour of Rockefeller Plaza.

was ultimately outbid by a partnership between Tishman Speyer and the Chicago-based Crown family. Fisher’s eagerness to invite Jerry Speyer to be a guest speakerin the class – and Speyer's willingness to accept – speaks volumes of the level ofprofessional respect he enjoys.

oday, Bazbaz has a lot on his plate. Before he graduated from NYU Stern,Fisher offered him a full time position in acquisitions and development atFisher Brothers. Although Bazbaz humbly says that Fisher “just poppedthe question,” Fisher says he realized what a tremendous asset Bazbaz

would be to the organization. Bazbaz, 30, does not have an official title – probablybecause he handles so many different tasks. He has responsibility for expandingFisher Brothers’ activities outside of the New York area and travels frequently toWashington, DC, South Florida, Boston, and Las Vegas. When not traveling,Bazbaz commutes from the Tribeca apartment he shares with his wife and 11-month old daughter to Fisher Brothers’ Park Avenue building. On any given dayhis responsibilities include sourcing opportunities, financial analysis, marketingstrategy, and project management.

The job description also includes one other non-negotiable task: Bazbaz had tocontinue working with Fisher on Real Estate Finance. Not that he minds. “I toldRichard, you can’t fire me from being a TA.” Bazbaz catches up with the course onweekends, grading papers and fielding phone calls and e-mails from students.Knowing that Fisher remains dedicated to the course even with his busy schedulestrengthens Bazbaz’s commitment. He enjoys staying connected to Stern, andbelieves that as a recent graduate, he is a good resource for students. Recognizinghow fortunate he was to find a mentor in Fisher, Bazbaz is happy to share his expe-rience with current students. “Understanding the [real estate] landscape can be achallenge without a guide,” he says.

Fisher cites “intellectual stimulation” as his reason for adding teaching duties tohis hectic schedule. He takes the course very seriously, and was intent on designinga rigorous curriculum. “There is a misconception in business schools that practicaladvice from the business world is always less rigorous an intellectual experiencethan the work of pure academicians,” said Professor Wiesen. “In Richard Fisher’scase this is not true because the quantitative and qualitative analysis he performsbefore committing significant sums of his own money and that of others is very rig-orous indeed. And that is why Stern students have fought to get into his course.”

espite the intellectual rigor, students should not enroll in the class think-ing that it will be a theoretical exercise. As Fisher says, “I don't evenknow what ‘theory’ is in real estate.” He warns students to avoid“paralysis through analysis,” an admonition Bazbaz has taken to heart.

“Quantitative analysis is, of course, useful and necessary in this industry,” he says.“But it is also about managing people and, ultimately, trusting your instincts.”

Bazbaz’s experience starting a company and now working at a top real estatefirm has convinced him that communication skills should not be underestimated.“There are a lot of ‘smart’ people in the city,” he says, but “street smarts” are oftenoverlooked in today’s market, where space is often leased before it is built. As aresult, Bazbaz believes that the essential skill for success is the ability to convey avision to others and promote that vision with confidence. He notes: “communica-tion is critical.”

When asked if he has any advice for current MBA students, Bazbaz emphasizestaking the initiative. “Don’t think anything will be handed to you. Start to hustle.You have to find opportunities for yourself.” At the same time, he stresses theimportance of acknowledging a powerful factor in life: luck. So far, looks like luckis on his side. ■

The job description alsoincludes one other non-negotiable task: Bazbazhad to continue workingwith Fisher on RealEstate Finance. Notthat he minds. “I toldRichard, you can't fireme from being a TA.”

T

D

Sternbusiness 13

Bazbaz (back row, second from right) and members of the Real Estate Finance class afterthey admired the views from high aboveRockefeller Plaza (above).

Jeffrey Kutler: When you joined theChicago Mercantile Exchange in 1989,you got a job there as an attorney. Didyou have any idea what you were in forover the next decade and a half?Craig Donohue: I had practiced corpo-rate securities law, and had become veryinterested in derivatives. But I had no ideawhat the Merc was. I thought it was just aplace where they traded cattle, hogs, andprobably pork bellies. As I got there, I real-ized it was actually this enormous institu-tion. In 2004 we did about $463 trillion offinancial trading. I knew that I had a lot ofopportunity there just because we weregrowing so rapidly. As time went by I real-ly felt I had the ability to take the Merc to adifferent level – to go beyond being amutual organization with a floor-basedtrading background.

JK: What happens in Chicago? What isthe comparative advantage?CD: Our distinctive advantage was our ori-gins and our understanding that we canfacilitate risk transfer in a way that is effi-cient and valuable to market participants. Itstarted with agricultural products. For thelast 150 years, people have been wantingto protect against the risk that there wouldbe too much supply of crops at the timethat they actually came to harvest. Westarted out trading butter and eggs onSouth Water Street. We actually had todeliver the butter and the eggs. And thenwe evolved into livestock. There was amajor innovation by Merc Chairman LeoMelamed in the 1970s where we took theconcepts of hedging and risk transfer thatfarmers and agricultural producers hadbeen using for decades and decided theyhad an application in financial instru-ments: foreign exchange, interest rates,Treasury notes, and bonds.

The other advantage is talent. We havethousands of people who grew up at theChicago Board of Trade, or the Merc, orthe Chicago Board of Options Exchange –

where the first equity options began totrade. And so there's a tremendous intel-lectual talent pool of people in Chicagowho understand how to trade derivatives.

JK: The Merc changed from a mutualorganization to a for-profit company andthen went public in December 2002. Whatdrove that decision?CD: In the 1990s, it was increasingly evi-dent to us that major winds of change weresweeping over financial markets.Technology had the potential to reallychange the way in which people trade ourproducts. Fundamentally the markets weregoing to be electronic. Consolidation andconcentration in the financial servicesworld was driving a need for enhanced effi-ciencies, a lower cost way of doing busi-ness. With deregulation, we had lower bar-riers to entry and new well-capitalizedcompetitors coming into the market. Werecognized that we could not competeeffectively as a mutual organization. Weneeded to be a more efficient, streamlinedorganization. We needed to find one unify-ing principle. For us, that was customer-focused decision-making and shareholdervalue metrics.

JK: Today, how much of the trading at theMerc is electronic?CD: Roughly 70 percent, up from 10 per-cent five years ago.

JK: Since the IPO, your stock has risenfrom $35 to over $200. What's driving thatgrowth?

CD: As an industry, we've spent 30 to 35years really raising people's awarenessabout the concepts of risk transfer andhedging and risk management. The prod-ucts we trade have become more main-stream because whole generations of peo-ple have gone through business curriculain which finance and derivatives and hedg-ing is a staple. Also, I think people havecome to expect the prudential use of deriv-atives for hedging and risk management.As a fiduciary today, you have an obliga-tion to intelligently use these products toprotect against adverse price fluctuationsthat impact the value of portfolio holdings.Obviously, electronic trading is a big partof it because it has the potential to expandaccess and distribution. But perhaps thesingle most important factor is the depth ofliquidity that we have and the low transac-tion and frictional costs. We trade more inthe first two weeks of the year than theNew York Stock Exchange will in an entireyear.

JK: Being a public entity now, how hasyour accountability changed? Do you, likeother CEOs, find Sarbanes-Oxley to be aburden?CD: We're a new public company. And Ithink the transparency and disclosureassociated with being a public company isa very, very good thing. Our whole busi-ness system is based on transparency. It'sa huge part of our success. And so I'll bethe last person to argue against trans-parency, even as it relates to accountingand internal risk management and financialcontrols.

JK: How do you make sure the Merc con-tinues to have the necessary human capital?

Craig Donohue is chief executiveofficer at the Chicago MercantileExchange, known as the Merc.Founded in 1898 as a not-for-profit corporation, the Mercbecame the first publicly tradedfinancial exchange in the UnitedStates in 2002. Today, it is thelargest futures exchange in thecountry, and the largest futuresclearinghouse in the world. Mr. Donohue, who joined theMerc in 1989 as a lawyer andheld a series of legal and mana-gerial posts before being namedCEO in January 2004, has playeda leading role in the Merc'stransformation. A graduate ofDrake University, he holds anMBA from Northwestern's KelloggGraduate School of Management,a JD from John Marshall LawSchool, and an LLM in financialservices regulation from ITTChicago Kent College of Law. In February, he appeared at NYU Stern to discuss the Merc'stransformation with students and faculty.

Mr. Donohue was interviewed byJeffrey Kutler, assisting manag-ing editor of Institutional Investormagazine.

LeadingIndicators

Craig Donohuechief executive officer

Chicago Mercantile Exchange

14 Sternbusiness

continued page 17

Bill Holstein: You grew up on afarm. Tell us about that and howyou got from there into this paththat you've chosen?Jim Quigley: If you were to cometo my conference room you'd findon one wall a beautiful picture of anAspen forest and on the other wall a

picture of the Great Lawn in Central Park.I'm from a small rural community, andthere were 92 people in my high schoolgraduating class. But most of my careerhas been spent in New York, and I reallydo think of myself very much as a NewYorker.

BH: Well, how did you enter the account-ing/auditing path? JQ: I'm a pragmatist. My father was aforester and his father was a forester and Ilove the outdoors. But in my freshmanyear I checked on the employment successof the graduating class of forestry majorsat Utah State University. Two of the 100were successful in obtaining jobs inforestry. The accounting majors weredoing much better. As someone who wasmarried and wanted to be able to providefor my family, I shifted into the school ofbusiness and into accounting. I haven'tlooked back.

BH: You worked your way up the ladderthe old fashioned way, by doing audits,right?JQ: The lion's share of my 31 years havebeen directed to serving clients. I spendtons of time, even today, speaking withand serving clients.

BH: And how was it that you got all theway to the top? JQ: The CEO is recommended to theBoard by a nominating committee, whichgot input from about 900 of our 2,600partners. The committee makes the recom-mendation and the partners elect you to a

four-year term. You can be re-elected onetime.

If a young recruit says he wants to be apartner, I ask them, “How about if we startwith you being a successful consultant?And then after you're a successful consult-ant, let's have you become a successfulsenior consultant.” And so on. I reallybelieve that I obtained the seat that I haveby working aggressively to try to succeedat each step in the process, not by trying toplot a course toward the corner office fromthe day I was recruited.

BH: This has been an intense period foraccounting, with all the corporate failuresand new legislation like Sarbanes-Oxley,enacted in 2002. Do you believe the cor-porate system was fundamentally rotten orit was just a few bad apples? JQ: I believe that the sustained expansionof the 1990s caused management, boards,perhaps even to some degree auditors, tostart to become a little complacent withtheir essential roles in our capital marketsprocess. It wasn't just a question of a fewbad apples. There were some fundamentalflaws in that corporate governance modelthat needed to be addressed. And thus wewere given Sarbanes-Oxley, the mostsweeping changes in our securities laws inthe last 75 years.

BH: What are the major elements ofchange you see?

Since June 2003, James H.

Quigley has served as a chief

executive officer of Deloitte &

Touche USA, the nation's second-

largest accounting firm. In more

than 30 years in the accounting

industry, Mr. Quigley, a graduate

of Utah State University, has man-

aged Deloitte's northeastern US

practice, led its national manufac-

turing practice, and served as

vice chairman. Mr. Quigley visited

Stern to discuss his career and

recent developments in the

accounting industry with

students and faculty.

Mr. Quigley was interviewed byBill Holstein, editor-in-chief ofChief Executive magazine.

James H. Quigleychief executive officer

Deloitte & Touche USA

JQ: We're now a government regulatedprofession after 105 years of self-regula-tion. Audit committees must compriseindependent directors. Management isrequired to certify, under penalty of law, theveracity of their financial disclosures. Andthen the last and very important and costlyrequirement was the requirement by man-agement to design systems so they couldproduce timely, reliable financial informa-tion and then document and test thosesystems. I believe strongly that the risk offraud in financial reporting has beenreduced as a result of all that has been lay-ered into this new model.

BH: What's your estimate of how muchmore time an American CEO is nowspending on regulatory and complianceissues versus five years ago?JQ: Because CEOs are subject to criminalpenalties built into Sarbanes-Oxley, you'reseeing a lot more time spent on that activi-ty. Companies have put in place disclosurecommittees, which review items thatshould be considered for inclusion in theirperiodic securities filings. When I sit in theaudit committee room and I watch thatCEO, he asks the leader of the disclosurecommittee to provide their report. And Ibelieve the efficacy, the transparency, andthe completeness of those financial disclo-sures has been enhanced as a result. Theamount of time that that executive is

Sternbusiness 15

continued page 17

Batia Wiesenfeld: What are the topthree qualities that led to your success atGE? And what personality and charactertraits do you see as being essential to themodern manager?Jack Welch: Without question, it's theunderstanding that the only way you win isto get great people around you. Youalways want to hire somebody smarterthan you are. Then, I think I really care alot about people. I love to see them flour-ish. To me, it's the most exciting part ofthe business. And then, I got lucky.

BW: What was the most difficult manage-rial problem you faced during your tenureas GE's CEO? JW: The early days. I took over a compa-ny that was perceived to be doing verywell and that was well respected. But itwas not right for its time. It had too muchbureaucracy – 430,000 employees doing$25 billion of business. We had 146 peo-ple in planning at corporate. Today we do$150 billion and we have 300,000employees. So it was not pleasant to be"Neutron Jack." It was not pleasant to haveto take out a lot of the overhead. IBM wentthrough the same thing, but 15 years later.It took 100,000-plus people out of thecompany, and it was a jolting experiencebecause they had promised lifetimeemployment. The hardest thing you'll everdo is to let people go.

BW: How did GE sustain conglomerationand actually thrive. What were you doing

differently than everybody else was doing?JW: I recognized that the core or the cen-ter had three real jobs: people develop-ment, the resource allocation of people anddollars, and the transfer of intellectual cap-ital between businesses. The conglomer-ates of the '60s were three-person head-quarters where somebody phoned in theresults quarterly. At GE we liked to call itintegrated diversity rather than a conglom-eration. At our quarterly meetings wewould not have somebody come in anddrone on about NBC or the airline busi-ness. They would come in with a genericidea that could be useful in every busi-ness. We developed leaders. And we didn'tsecond-guess people. We didn't worryabout picking the colors of refrigerators.

BW: What made it integrated?JW: When we had trouble with a compres-sor in appliances, we'd bring materials sci-entists from aircraft engines to fix it.Integration is using the strengths of thecompany to transfer intellect across allbusinesses, not having silos.

BW: GE is known for the concept of mar-ket leadership. If a business couldn't benumber one or two, you weren't interestedin it.JW: Clearly it's a lot better to be one ortwo. When you sneeze, number four andfive get pneumonia. This was a greatmantra to clean out the portfolio. It was acommunication tool to tell everybody:“Look, we're not going to carry weak busi-nesses.” But it ends up being stupid. Infinancial services to try and be number oneand number two is outrageous – the play-ing field is so large. And we carried itabout two steps too far. In the end, we hadpeople saying they were number one ortwo “in the market for brown chairs withcurved arms that were this big,” instead of“furniture” or “leather chairs.”

BW: How do you instill integrity in anorganization?JW: You do it through a series of process-es and an educational process whereyou're constantly putting people on theline for integrity tests. But it's beyond theimagination that you've got the only10,000 good people, or 200,000 goodpeople in the world. Arthur Andersen was agreat accounting firm. Then they decidedaccounting was boring, and they went intoconsulting. Now, the money was all beingbrought in by the consultants, the account-ants resented it, and they had no fabric left.Enron was a terrific pipeline company, firstclass. It got energy from Point A to Point Bvery well. They had coveralls and wrench-es to do that. Then they decided they couldtrade anything, and they had no systems inplace to deal with it. Companies like GE,DuPont, IBM – we've made every mistake.When I joined the company we had justcome off a price-fixing scandal. So thesescandals have to be dealt with and systemshave to be put in place to deal with them.

BW: So are you saying that there's nosuch thing as a culture of integrity, justsystems of integrity?JW: Of course there are cultures of integri-ty. I'm saying if you train people every sin-gle day and you're running tests on them,and you preach integrity every meeting, youwill develop a culture of integrity. But in theend, don't be naive enough to think300,000 people are perfect.

BW: How do you view the role of CEO aschanging, especially as it regards theboard of directors.JW: A couple of things have come out ofSarbanes-Oxley. One is the idea of inde-pendent directors. I'll give you two exam-ples of how stupid this idea is. If Coca-Cola put a poet or a musician, no offenseto either one, on the board, they'd be inde-pendent. Warren Buffett, who has billionsinvested in Coca-Cola and adds all kindsof wisdom, is not independent on the Cokeboard. Now, you tell me who's going tomake the biggest contribution to the com-pany's growth. Boards are there to makethe company win, to support the CEO and

Jack Welchformer chief executive officer

General Electric

Jack Welch, one of the best

known and most influential chief

executive officers of the 20th

century, began his career at

General Electric Company in

1960, and in 1981 became the

company's eighth chairman and

CEO. During his 20-year tenure

at the helm of GE, Welch

reshaped the massive company

and its culture, and increased

GE's market capitalization by an

astounding $400 billion. After

his retirement in 2001, Welch

launched his own firm, Jack

Welch, LLC, to advise a small

group of CEOs of Fortune 500

companies. In 2005, he pub-

lished the best-seller, Winning,

which he co-authored with his

wife, Suzy Welch.

In an April 19 appearance atNYU Stern, Welch discussedleadership and managementwith students and professors.Batia Wiesenfeld, Stern associ-ate professor of managementand organizations, moderatedthe discussion.

LeadingIndicators

16 Sternbusiness

look at the general strategy. Not to micro-manage the company. And what you'reseeing now is a lot of micromanaging byscared directors. We used to send ourboard out to the field three times a year bythemselves, visiting the businesses with-out us. They got a feel for what was hap-pening.

BW: What should MBA programs bedoing to prepare students for today'sbusiness world?JW: I think there's not enough emphasison what you're going to be doing whenyou graduate. You're not going to bestudying disruptive technologies, you'regoing to be dealing with people, promot-ing people, motivating them. I mean, I hada PhD in chemical engineering. After ayear at GE, I never saw a test tube again,thank God.

BW: What kind of advice do you have forpeople starting out? What do they have todo right in the first couple of years?JW: There's one piece of advice I'd giveyou. Over deliver – make your boss lookgood. It's as simple as that. And forget allthe other stuff about what you wear, howyou look, how you say hello. Always sur-prise them with more than they ask for,and your career will take care of itself.

BW: In your last book, you talked aboutdeep dive projects. And I was wonderingwhat role those had in terms of institu-tionalizing innovation and leading a largeconglomerate?JW: When you're a CEO, you don't havemuch, but you have a lot of power. In thebook, I used the example of our ultra-

sound business. It was a $50 million busi-ness, floundering around. I went in thereand I made the ultrasound project mything. It was in the back room of a manu-facturing place when I got there. We put inmoney to make it look pretty, and we madeit the place to be. I knew nothing aboutultrasound. But I knew about making it abig deal. Today ultrasound is a $1.7 billionbusiness; we're by far the market leader;all the good people gravitated to it. So aCEO can go in and put resources behindit. It's one of the luxuries of the job.

BW: Could you just say a few wordsabout how you think the emergence andinclusion of China and India in the marketwill change the world that we're going tosee in the coming decades?JW: We're going to see low-cost, intelli-gent labor coming at us as far as the eyecan see, and we have to move up the foodchain. But I see the cup is clearly half full,not half empty. I'd like to give you per-spective of what it was like to become CEOof GE in 1980. The prime rate was 22.5percent. Inflation was 14 percent.Unemployment was 12.5 percent. TheJapanese were going to take over every-thing in the US. Let's look at us today.Unemployment is at 5 percent. GDP isgrowing at 4 percent a quarter and hasbeen doing so for the last eight quarters.The prime rate is at four. These are greattimes. How many people have jobs here?We have entrepreneurs out building busi-nesses and creating niches. We have greatingenuity, and we've got a culture here thataccepts everybody from every land.■

CD: It's very hard for us to go out to themarket and hire people who know what aEurodollar interest rate contract is or whocan help us design weather derivatives.So we have a very strong culture of train-ing and mentorship and nurturing anddeveloping people. It's mostly an experi-ence-based process.

JK: How are you attacking globalizationin your marketplace and what is the roleof technology in that?CD: We have an open access system. Aslong as you have a guarantee to tradefrom a member clearing firm like GoldmanSachs or Morgan Stanley, anyone cantrade directly on our Globex platform.We've become more sophisticated at mar-keting our product on a global basis. Inthe past, we were not particularly good atidentifying the unique needs people havein China versus Frankfurt. Now, we hirelocal market experts. Also, since connec-tivity from various parts of the world canbe prohibitively expensive, part of ourstrategy recently has been introducingtelecommunications hub infrastructuresthroughout Europe and Asia, where weaggregate demand for long distance con-nectivity. We can reduce the cost ofmonthly connectivity for our customers byas much as 70 percent.

JK: There are some global highly elec-tronic competitors taking aim at you.Does it keep you up at night? CD: Some nights. Clearly we're in a verycompetitive environment. We have directhead-to-head competition. But we alsohave other kinds of less obvious competi-tion. People are very smart in this busi-ness. And there are a lot of different waysin which people can execute tradingstrategies. I like to think that we do morethan just focus on what's going to happentoday. We give a lot of thought to what'sgoing to happen six months from now,and five years from now. One of the keythings about the Merc is that we're notideological about anything, includingfloor-based systems. Our job is to satisfyclients. And if clients want to trade elec-tronically, well, then, let them trade elec-tronically at the Merc. ■

spending is significant. And I think that'shealthy.

BH: Some CEOs would say that thereforms are cascading so broadly throughthe organization that they're spending somuch time implementing and monitoringthem that it has taken away from the fun-damental challenge of taking risk in themarketplace. Do you agree?JQ: When I go around the country andtalk to CEOs, I ask them very specifically:“Are you doing something different from arisk management point of view or from aninvestment point of view than you were inthe past?” And the vast majority would saythat the new project opportunities, thebusiness acquisitions they would haveconsidered five years ago, they're consid-ering today. They're moving forward.

BH: When the government indictedArthur Andersen after the Enron scandal,a huge firm disappeared. Did that create ashortage of manpower in the industry?And has the profession cleaned itself upsince then?JQ: I'm not an Andersen apologist, andI'm not sure there was the need to 'cleanup' the entire profession. Are we perform-ing at a high level? Absolutely. Do we takeour professional responsibilities and ourcommitment to the public interest toheart? And are we executing in a way thatwe believe we earn that sacred trust andright and that high standard to whichwe're held? I believe the answer to that isyes. And we're working aggressively totry to be even more effective in executing.We've added 2,000 people to our auditteam in the past two years. We've spenttens of millions of dollars in training andour people have worked very, very hard toexecute this new layer of responsibilityimposed by Sarbanes-Oxley.

BH: And you said earlier that you wouldhire another thousand this afternoon ifyou find them.JQ: I would indeed. ■

Craig Donohue continued

Sternbusiness 17

James Quigley continued

Jack Welch (center) with Batia Wiesenfeld (left) and NYU Stern Dean Thomas F. Cooley (right).

Prospectus Yaacov Trope, professor of psy-

chology at NYU, has joined the SternSchool as a professor of marketingpsychology. A former Fulbright Fellow,Professor Trope studies the cognitive,motivational, and affective mecha-nisms that underlie social judgmentand decisions.

Professor Eitan Muller, whochaired the marketing department atthe Recanati Graduate School ofBusiness at Tel Aviv University, hasjoined Stern's marketing department.A prolific researcher, Professor Mullerinvestigates the managerial issues ofnew product development andreceived the 1990 Harold H. Maynardaward for his contribution to marketingtheory.

Daniel Cohen and ChristinePetrovits have joined the accountingdepartment as assistant professors.Professor Cohen received his doctoraldegree from the Kellogg School ofManagement at NorthwesternUniversity. He teaches financialaccounting and statement analysis andstudies financial reporting and disclo-

NYU Stern Welcomes New Faculty

A new group of scholars has joinedNYU Stern's faculty – seven new pro-fessors and two from NYU who are nowalso affiliated with the Stern School.Three are joining the marketing depart-ment; two each in accounting andfinance; and one new member is beingadded to the management and organi-zations and economics departments.

“We are fortunate to attract such anoutstanding group of scholars, whosedepth and breadth of experience willenhance the intellectual life of theSchool,” said Lee Sproull, vice dean offaculty. “In turn, they are becoming partof a stimulating academic community ina city that offers tremendous resourcesfor their work.”

Justin Kruger, an award-winningteacher and widely publishedresearcher, has joined the marketingdepartment as an associate professor.He teaches the psychology of consumerjudgment and decision-making, onearea of his research focus, to under-graduate, graduate, and PhD students.

sure, with an interest in the effects ofregulation on corporate governance.Professor Petrovits, a former KPMGauditor and PhD graduate of theUniversity of North Carolina, looks atthe effects of financial reporting infor-mation on capital markets. One of hercurrent projects investigates the initialreporting decisions made by incomingCEOs.

The finance department has alsoadded two assistant professors,Enrichetta Ravina and AlexeiTchistyi. A graduate of the KelloggSchool, Professor Ravina is currentlystudying the effect of social interactionsand behavioral biases on consumptionand borrowing decisions and on stockmarket investments. Professor Tchistyi,who recently received his doctoraldegree from Stanford Graduate Schoolof Business, has research interests inagency theory, security design and per-formance pricing in debt contracts, andasset pricing and credit ratings.

Robert Salomon has joined themanagement and organizations depart-ment after several years on the facultyof the Marshall School of Business at

the University of Southern California.Professor Salomon, who earned hisMA and PhD degrees from NYUStern, focuses his research on themanagement and economics of inter-national expansion. His first book,Learning from Exporting: NewInsights, New Perspectives, will bepublished next year by Edward ElgarPress.

Professor Alessandro Lizzerihas been a member of NYU'sGraduate School of Arts and Sciencefaculty for five years and now has anaffiliated appointment at NYU Stern inthe economics department. Hisresearch interests are wide-ranging,encompassing industrial organizationand political economy.

Also new to Stern is NYUProfessor William Baumol whohas an associated appointment. (Seearticle below).

For more information about thesenew faculty members, or Stern's otherfaculty and their research, please seethe faculty index on Stern's website,http://w4.stern.nyu.edu/faculty/facul-tyindex.cgi.

First Berkley Term Professor

Fabrizio Perri, associate professor of economics atNYU Stern, has been named the first Berkley TermProfessor in Economics and Business.

Funded by William R. Berkley (BS ’66), chairmanand CEO of W.R. Berkley Corporation, vice chairman ofthe NYU Board of Trustees, and chairman of the SternBoard of Overseers, these term professorships aredesigned to attract and retain the best young scholarsfrom around the world.

A 1992 graduate of Bocconi University in Milan,Italy, Professor Perri received his PhD in economics fromthe University of Pennsylvania in 1999. His researchconcentrates on international macroeconomics with aparticular focus on risk sharing. Professor Perri has pub-lished extensively in journals such as Econometrica andthe Journal of Economic Theory. He is a faculty researchfellow of the National Bureau of Economic Research,and senior economist in the research department of theMinneapolis Federal Reserve Bank.

The professorship, awarded for a three-year term,began on September 1, 2005.

The Berkley Center

On July 1, William J. Baumol was named AcademicDirector of the Berkley Center for Entrepreneurial Studiesand Harold Price Professor of Entrepreneurship andEconomics.

Baumol, a professor of economics at New York University,and professor emeritus and senior research economist atPrinceton University, is a giant in the study of entrepreneur-ship. “I’m delighted to have such an accomplished thinker asWill join the Stern faculty,” said NYU Stern Dean Thomas F.Cooley.

A member of the National Academy of Sciences, ProfessorBaumol is the author of several books – his most recent beingDownsizing America (co-authored with Alan S. Blinder ofPrinceton University and Edward N. Wolff of New YorkUniversity) – and more than 500 journal articles. ProfessorBaumol was awarded the 2005 International AntonioFeltrinelli Prize, Italy’s highest cultural and scientific award.

Alexander Ljungqvist, associate professor of finance atNYU Stern, has agreed to serve as the Center’s researchdirector, while Deputy Dean Russell Winer, William JoyceProfessor of Marketing, continues in his role as the Center’sacting director. 18 Sternbusiness

r e s e a r c h r o u n d u pLeif D. Nelson, NYU Stern assistant professor of

marketing, co-authored with Evan L. Morrison, professorof psychology at Stanford University, “The Symptoms ofResource Scarcity: Judgments of Food and FinancesInfluence Preferences for Potential Partners,” which waspublished in Psychological Science. The article exploresthe psychological reasons why men in cultures withscarce resources tend to prefer heavier women, whilemen in cultures with abundant resources prefer thinnerwomen.

Panagiotis G. Ipeirotis, assistant professor of infor-mation systems, co-authored with Alexandros Ntoulasand Junghoo Cho of the University of California at LosAngeles, and Luis Gravano, at Columbia University, apaper entitled, “Modeling and Managing ContentChanges in Text Databases,” which won an award for thebest paper at the 2005 International Conference of DataEngineering. The article details a study of how 152 realweb databases evolved over a period of 52 weeks.

Geeta Menon, chair of the marketing department,and Sucharita Chandran, of Boston University, co-wrote“When a Day Means More than a Year: Effects ofTemporal Framing on Judgments of Health Risk” for theJournal of Consumer Research. The article examines howpeople perceive health risks differently depending onhow one frames the timing in which people can get sick –i.e. every year 400,000 Americans die of smoking-relatedcancers; or every day, 3,000 teenagers start smoking.They conclude that every-day framing makes risksappear more concrete than every-year framing.

s h o r t t a k e sRobert Engle, Nobel Laureate and NYU Stern

Michael Armellino Professor of Finance, was one of72 new members elected to the National Academy ofSciences. Engle joins Roy Radner, NYU Stern profes-sor of economics and information systems, andThomas Sargent, W.R. Berkley Professor, a jointappointment by NYU’s Faculty of Arts and Scienceand the Stern School of Business, as members.

ITT Professor of Creative Management WilliamStarbuck received the Academy of Management’sDistinguished Scholarly Contributions Award at itsannual meeting in Hawaii in August. ProfessorStarbuck retired in 2005 after 20 years with NYUStern.

Edward Altman, Max L. Heine Professor ofFinance and Salomon Center Director of Research inFixed Income and Credit Markets, was named one ofthe “100 Most Influential People in Finance” in theJune 2005 issue of Treasury & Risk Management.

Luis Cabral, chair of the economics department,appeared in the CNBC documentary “The eBayEffect – Inside a Worldwide Obsession,” discussinghow eBay’s Feedback Forum “created the possibilityof trust within, essentially, a very large community ofanonymous traders.”

Sternbusiness 19

Faculty and Students NetNET Institute Grants

Six of the 23 summer researchgrants awarded by The NET Instituteto fund projects in network industrieswent to NYU Stern professors, PhDstudents, and graduate students.

The NET (Networks, ElectronicCommerce and Telecommunications)Institute is a non-profit institutiondevoted to research on areas such aswired and wireless networks, elec-tronic commerce, telecommunica-tions, and the Internet.

NYU Stern recipients included:

Miguel Campo (PhD student)for “The First Deal Might Be the Last:Building Long Term Relationships inthe Venture Capital Community.”

Anindya Ghose and ArunSundararajan, assistant professorsof information systems, for “Pricingand Product Line Strategies forSoftware: Evidence from E-CommercePanel Data.”

Anindya Ghose for “Used GoodTrade and Adverse Selection: ACross-Country Comparison ofElectronic Secondary Markets.”

Arun Sundararajan for “LocalNetwork Effects and Optimal NetworkAccess.”

Siva Viswanathan (PhD ‘02)of the Robert H. Smith School ofBusiness, University of Maryland, for“Quality, Uncertainty, and BiddingBehavior in Sponsored Search.”

Mingdi Xin (PhD student) andEvangelos Katsamakas (PhD‘04) of Fordham University, for “AnAnalysis of Enterprise Adoption ofOpen Source Software.”

20 Sternbusiness

With each passing year, 401(k) plans become more central to the retirement plans of American

workers. Are companies offering their employees the best possible choice of investment options?

By Edwin Elton, Martin J. Gruber, and Christopher R. Blake

he US system ofsaving for retire-ment has beentransformed inrecent decades.Companies have

moved away from offering defined-benefit plans and instead areincreasingly offering defined-contri-bution plans like 401(k). Today,

While a large amount of researchhas focused on participants’ invest-ment behavior, none has examinedthe way in which the choice ofinvestments offered affect the abilityof plan participants to constructdesirable portfolios. The lack ofresearch in this area is odd, giventhat an investor faced with an inap-propriate set of choices cannot con-

more than one third of all US work-ers are enrolled in 401(k) plans,which collectively hold more thanone trillion dollars in assets.

The value of any 401(k) pensionplan to any participant is determinedby two factors: the set of investmentchoices plan administrators choose tooffer to participants; and the set ofinvestments participants choose.

T h e B e s t - L a i d P l a n s

TIL

LUS

TRAT

ION

BY

BR

YAN

LE

ISTE

R

Sternbusiness 21

struct an efficient portfolio. There are two ways that the

choices offered can be inappropri-ate. A company can offer an insuffi-cient number and type of choices toallow the construction of desirableportfolios. And it can offer poor-per-forming investment choices of anygiven type. In theory, the first prob-lem could be alleviated if employeeshold funds outside the plan. But formore than 60 percent of plan partic-ipants, the 401(k) investments aretheir sole financial assets. And evenfor participants who hold otherfinancial assets, 401(k) plans arelikely to be the bulk of their savings.

In the best-case scenario, a com-pany should offer a sufficient set ofinvestment alternatives so that theinvestor can construct the same effi-cient frontier – a balance betweenreward and risk – that he or shewould obtain if there were choicesfrom a reasonable set of alternatives.We set out to examine how well com-panies are doing in trying to meetthat objective by gathering data,constructing a series of tests, andlooking at how a variety of factors –from the use of company stock in401(k) plans to the hiring of outsideconsultants – affect performance.

he 401(k) data we exam-ined was provided byMoody’s Investor Services,which surveys pension

plans offered by both for-profit andnon-profit entities. We identified680 401(k) plans that offered theirparticipants publicly availablemutual funds. Of those, 417 holdmutual funds with at least five yearsof monthly total returns. For each ofthese plans, we collected data on thereturns, names, and characteristicsof the mutual funds offered. Table 1shows the number of distinct invest-

economists Eugene Fama and KenFrench. All four indexes were takenfrom Wilshire Associates. For bonds,we combined a general bondindex, including governments andcorporates (the Lehman USGovernment/Credit index for thegeneral bond index), and a mort-gage-backed index (Lehman Fixed-Rate Mortgage-Backed Securitiesindex). In addition, we used theCredit Suisse First Boston High-Yield index for the high-yield bondindex. We also included the SalomonNon-US-Dollar World GovernmentBond index for international bondsand the MSCI EAFE index for inter-national stocks. Since returns on allmutual funds are computed afterexpenses, we deducted expensesfrom each of our indexes. We refer to

ment choices offeredby the plans. Themedian number ofofferings was eight,approximately 12 per-cent of the plansoffered four or fewerinvestment choices,and about 11 percentoffered 13 or moreinvestment alterna-tives. The most com-mon investment choice(offered by 97.4 per-cent of plans) was adomestic equity fund,followed by an alter-native such as a guar-anteed investmentcontract or moneymarket fund (86.8percent). Other com-mon offerings weredomestic bond funds(71.5 percent), domes-tic mixed bond andstock funds (80.6 per-cent), and international bond and/orstock funds (75.1 percent). Finally,22.9 percent of the 401(k) plansoffered company stock as an alterna-tive for their participants.

Adequate Choices?In order to determine if 401(k)

plans were offering their participantsappropriate investment choices, weneeded to hypothesize an adequateset of alternative investment choices.To do so, we drew on the field offinancial economics, where extensiveliterature discusses indexes that arenecessary and sufficient to capturethe relevant return characteristics fora range of investment choices. Forcommon stocks, we used four index-es of small and large value and smalland large growth as advocated by

— T A B L E 1 —

Number of PercentageInvestment Choices of Plans

1 2.21%

2 2.35%

3 3.09%

4 4.85%

5 8.97%

6 12.06%

7 12.06%

8 13.82%

9 11.76%

10 9.85%

11 5.59%

12 2.21%

13 2.50%

14 1.91%

15 1.18%

16 1.03%

17 or more 4.56%

PERCENTAGES OF 680 401(k) PLANS OFFERING DIFFERENT NUMBERS

OF INVESTMENT CHOICES

T

these eight indexes as“Research-Based,” or RBindexes.

To examine whether thechoices given investors allowconstruction of an efficientfrontier similar to thatobtained by the eight RBindexes, we drew from theliterature on spanning tests.These types of tests let usknow whether, given a risk-less rate, a particular set ofbenchmark assets is suffi-cient to generate the efficientfrontier, or whether includ-ing members of a second setof assets would improve theefficient frontier at a statisti-cally significant level. In ourspanning test, the bench-mark assets were chosenfrom the mutual fundsoffered by any plan, whilethe eight RB indexes werethe non-benchmark assets.The results of the tests areshown in Table 2. Plansholding four or fewer funds rarelyoffered a set of funds that span theeight RB indexes. For plans holdingsix or more funds, we found thatabout 60 percent of the plans offeredinvestment choices that span the rel-evant space for investors. Of course,the glass was also half empty: 40percent of the plans leave investorsunsatisfied. Finally, it is not untilplans offered 14 or more investmentchoices that virtually all plansoffered investment choices that spanthe space investors should be inter-ested in. Of the 417 plans, only 53percent spanned the space obtain-able from the eight RB indexes.

Does this lack of choice affectreturns? Yes. For the 249 plans thatdo not span the space, to have the

compared with relevantindexes. We computedalphas – a measure of howthe fund performs inde-pendent of the market –for 27 months followingthe date of our sample.The overwhelming evi-dence is that alpha is onaverage negative formutual funds. Thus a neg-ative alpha for the mutualfunds offered by 401(k)plans would not indicatethat the manager of theseplans selected funds thatperformed more poorlythan random selection. Toascertain whether man-agement was doing a goodjob of selecting funds, wesubtracted from the alphaof each chosen fund theaverage alpha from a ran-domly selected sample offunds from the same cate-gory. We labeled this dif-ference the “differential”

alpha. We found that although401(k) plan administrators selectedfunds with negative alpha, theyselected funds that had smaller neg-ative alphas than random selection.However, the average differentialalpha was significantly differentfrom zero for only one category –bond funds. Our results also showedthat the difference in performance isdue to the managers choosing fundswith lower expense ratios.

We know that there is a tendencyfor plan participants to place a dis-proportionate fraction of their planassets in company stock. On aver-age, we found that companies offer-ing company stock as an investmentchoice offered the same number ofmutual fund choices as those that do

same Sharpe ratio – a reward-to-vari-ability ratio – as the optimum portfo-lio comprising the eight RB indexes,average return would have to increaseby 2.18 percent per year. Thus,investors in 401(k) plans were sacri-ficing significant return because planadministrators offered an incompleteset of investment alternatives.

Adjusting for RiskWe also wondered whether man-

agement was selecting individualmutual funds that outperform ran-dom selection from similar types offunds. To determine this, we con-structed a model to measure per-formance. Mutual funds were dividedinto three types – stock, bond, andinternational – and their returns were

— T A B L E 2 —

SUFFICIENCY OF PLAN INVESTMENT CHOICESIN SPANNING EIGHT RB INDEXES

Number of Investment Choices in Plan

1 10 3

2 18 4

3 37 18

4 57 28

5 53 33

6 58 24

7 44 26

8 39 22

9 45 25

10 14 8

11 11 8

12 11 5

13 2 1

14 4 3

15 7 7

16 or more 7 6

Total 417 221

22 Sternbusiness

TotalNumber of Plans

Number of Plansthat Span (OfferSufficient Choices)

not. Our analysis also showed thatonly four more firms spanned thespace when company stock wasincluded. Furthermore, althoughthe inclusion of company stock ledto risk increasing, the risk was morethan offset by an increase in return.Considering the 401(k) plan as theparticipant’s sole financial asset, theinclusion of company stock in aplan seems to neither improve norharm the investor making intelli-gent 401(k) plan choices. However,since a plan participant’s laborincome may be highly correlatedwith the performance of the compa-ny stock, a portfolio including laborincome, 401(k) mutual funds andthe company stock may be signifi-cantly more risky than a portfolioexcluding the company stock.

Size MattersIn our sample, there was a wide

variation in the size of the plans.The average plan in the top 10 per-cent was over 300 times as large asthe average plan in the lower 10

workers have been asked to directand manage their own retirementsavings. This places the burden ofmaking smart decisions aboutwhether to invest, how much toinvest, and what to invest in,squarely on the shoulders ofemployees. And every year, compa-nies devote significant resources tomake sure employees have the nec-essary information to make appro-priate decisions. But our researchsuggests that for 401(k) plans tolive up to their full potential,employers have to devote time,attention, and resources to makesure that they are making intelligentdecisions as well. ■

EDWIN ELTON AND MARTIN J. GRUBERare Nomura Professors of Finance atNYU Stern. CHRISTOPHER BLAKE isprofessor of finance at Fordham University.

This article, the first to examine the rea-sonable choices offered to investors, isbased on the authors’ upcoming article inthe Journal of Public Economics.

percent. Many investors tend to thinkthat bigger is better. We set out toexamine whether this might be thecase when it comes to 401(k) plans.When we ran our tests, it turned outthere was a clear and statistically sig-nificant relationship between plansize and the number of investmentchoices offered. A higher percentageof larger plans also hired outsideconsultants and engaged in moresophisticated investment strategiesthan did smaller ones. Not surpris-ingly, large plans showed a strongertendency to include company stockin the plan than did small plans. Butit turns out that hiring outside con-sultants may not necessarily result inan improvement of offerings. Wefound that the use of outside consult-ants or sophisticated strategies didnot result in a significantly greaterlikelihood of the company offeringfund choices that spanned the invest-ment space.

To a degree, the 401(k) revolutionrepresents something of an experi-ment. For the first time, millions of

Table 3

— T A B L E 3 —

PLAN CHARACTERISTICS GROUPED BY PLAN ASSET SIZE DECILES

1 $ 2,124.579 4.42 13.16% 7.89% 13.16% 2.63%

2 $ 6,045.974 5.21 7.69% 7.69% 7.69% 5.13%

3 $ 10,857.308 6.21 10.26% 5.13% 15.38% 5.13%

4 $ 16,882.821 5.23 7.69% 20.51% 2.56% 12.82%

5 $ 24,754.590 6.08 12.82% 20.51% 7.69% 5.13%

6 $ 37,363.923 7.28 10.26% 17.95% 12.82% 23.08%

7 $ 57,851.154 6.72 17.95% 12.82% 7.69% 28.21%

8 $ 88,923.718 7.82 20.51% 38.46% 23.08% 7.69%

9 $173,890.667 7.85 28.21% 41.03% 15.38% 28.21%

10 $780,277.821 8.18 46.15% 46.15% 17.95% 20.51%

AveragePlan Asset Size Decile

Asset Size (Thousands)

Avg. Number of Investment Choices

Percentage of Plans that Use Sophisticated Strategies

Percentage of PlansOffering Company Stock asInvestment Choices

Percentage ofPlans that Vote Proxy

Percentage of Plans that Hire OutsideConsultants

Sternbusiness 23

E v e r w o n d e r w h y s o a p r e t a i l s f o r $ 1 . 9 9 i n s t e a d o f $ 2 . 0 0 ?Behind this prevalent feature of retail gimmickry lies some sound psychology.

By Manoj Thomas and Vicki Morwitz

t gas stations and atWal-Mart, on televi-sion infomercials or onmagazine subscriptionreply cards, it's com-mon for items to be

priced at $2.99 instead of $3.00, orat $99.99 instead of $100.00. Why?Can it be that economically rationalconsumers perceive a price endingin nine to be significantly lowerthan a price that is only one centhigher? This question has attractedresearchers’ attention since 1932,when Louise Bader and James P.Weinland investigated the topic inthe Journal of Retailing. And much

oped a conceptual framework thatdraws on the analog model ofnumerical cognition. Such a cogni-tive approach makes sense becauseit seems that the effect of a left digitchange – i.e., from 3 to 2 in theabove example – on magnitude per-ception is a consequence of the waythe human mind converts numericalsymbols to analog magnitudes onthe mental scale.

The analog model (also known asthe holistic model) of numericalcognition suggests that when peoplecompare two multi-digit numbers,they assess the numbers’ quantita-tive meaning by spontaneously

research – not to mention conven-tional wisdom – suggests that con-sumers do not respond to very smallprice changes.

But more recent research suggeststhat the last digit of a price can havea significant impact on firms’ rev-enues. One commonly cited explana-tion for the popularity of nine-end-ing prices is that consumers underes-timate their true magnitude. Forexample, if a product is priced at$2.99 rather than at $3.00, con-sumers might focus on the left digitand perceive the price to be closer to$2.00 than to $3.00. To investigatewhy that may be the case, we devel-

ASAVEDA PENNY SAVED

24 Sternbusiness

ILLU

STR

ATIO

N B

Y J

ULI

ETT

E B

OR

DA

mapping them onto an internal,analog magnitude scale. And thisconversion affects the precision ofthe numbers being encoded. Ourbasic proposition is that the effect ofprice ending on magnitude percep-tion occurs during this conversion.There are three effects that supportthis proposition: the left digit effect,the distance effect, and domaininvariance.

The Left Digit Effect. Lets say aconsumer is comparing the prices oftwo pens: a target pen priced at$3.00 and another pen priced at$4.00. When she automaticallyencodes these prices into mentalmagnitudes on an internal analogscale, the $3.00 price is likely to bemapped on to the lower endof this scale while $4.00 willbe mapped on to the relative-ly higher end of the scale. Butwhat if the target pen werepriced at $2.99? Even thoughpeople read three separatedigits in $2.99, these digitswould be represented as oneanalog quantity on the internalscale. And because we process datafrom left to right, the encoded mag-nitude of $2.99 could, at least insome situations, be significantlylower than that of $3.00. One possi-ble explanation for this left digiteffect is that encoding the magni-tude of a multi-digit number beginseven before we finish reading allthe digits, perhaps beyond con-sciousness. So we hypothesized(Hypothesis 1) that nine-endingprices will be perceived to be small-er than a price one cent higher onlyif the left-most digit changes to alower level (e.g., $3.00 to $2.99)but not if the left-most digit remainsunchanged (e.g. $3.60 to $3.59).

The Distance Effect. Before twonumbers – the price of a targetproduct and the price of a compari-

responses to nine-ending prices aresolely based on such images, thenthese effects should be confined tothe domain of prices. On the otherhand, if these effects are, at leastpartly, due to left-to-right process-ing, then they should be seen inother areas. So, we hypothesize(Hypothesis 3) that decreasing thedistance between the numbers beingcompared will increase the left digiteffect not only in the domain ofprices, but also in other types ofnine-ending numbers.

Pricing Pens We set out to test our hypotheses

through a series of tests in which weasked students to evaluate prices.

First, we asked 52 undergradu-ate students from a largeNortheastern university toexamine and evaluate pricesfor four pens: two ballpointpens and two fountain pens. Ineach category, one brand wasthe target and the other was thecomparison standard pen. Half

the participants saw nine-endingprices ($2.99 and $3.59) and halfsaw zero-ending prices ($3.00 and$3.60) for the target pens. The priceof the target ballpoint pen was cho-sen such that the price-endingmanipulation resulted in a nine-ending price with a lower dollar-digit ($3.00 vs. $2.99), while that ofthe target fountain pen was chosenso that the nine-ending manipula-tion did not affect the dollar-digit($3.60 vs. $3.59). The prices for thecomparison standards were alwaysheld constant at $4.00.

Participants were given a bookletwith advertisements for all fourpens with price, inclusive of deliverycharges. Participants then indicatedthe degree to which they agreed ordisagreed – on a five point scalefrom one equaling “strongly dis-

son standard product (e.g., a com-peting product) – can be compared,the numerical symbols must bemapped onto the internal analogscale. The closer the perceived dis-tance between the two analog mag-nitudes, the greater the difficulty indiscriminating between them – andthe more time it takes to comparethem. This phenomenon has beenlabeled the distance effect. A 1981study showed that when asked tojudge whether a given two digitnumber is higher or lower than 55,participants took significantly moretime to judge numbers in the 40-70range than in the 10-40 or 70-100ranges. So we hypothesize(Hypothesis 2) that a left digit

change caused by a nine ending priceis less likely to affect the price’s mag-nitude perception when the compar-ison standard is perceived to be farapart. Stated simply, $4.00 versus$5.00 is not quite the same as $3.99versus $5.00; but $4.00 versus$10.00 may not be perceptibly dif-ferent from $3.99 versus $10.00.

Domain Invariance. Pastresearch has often attributed thepopularity of nine-ending prices totried-and-true retailing practices.Based on a survey of publishedmaterial and informal conversationswith consumers and retailers, RobertSchindler of Rutgers University pro-posed a list of 14 meanings thatprice endings are likely to communi-cate to consumers, such as “lowprice,” “discount price,” or “lowquality.” But if consumers’ favorable

“Because we process data from left to

right, the encoded magnitude of $2.99

could, at least in some situations, be sig-

nificantly less than that of $3.00.”

Sternbusiness 25

agree” and five equaling “stronglyagree.” – with the following state-ment, “_____ pen’s price is high”for each brand and type of pen. Wefound that nine-endings increasedthe difference in perceived pricemagnitude between the zero- andthe nine-ending prices only whenthe dollar digit changed, supportingHypothesis 1 (See Figure 1).

Next, 63 undergraduate studentsfrom a large Northeastern universi-ty were asked to compare twobrands in each of three differentcategories of writing instruments:fountain pens, ballpoint pens, andpencils. Target brand price level wasmanipulated within subjects atthree different levels ($3.20 vs.$3.00 vs. $2.80); the price-endingmanipulation changed the left-mostdollar digit only when the price levelwas $3.00/$2.99. The comparisonstandard was $4.00 across condi-

ent measure of perceived price mag-nitude employed in the first study.

e manipulat-ed the targetbrand’s priceending ($3.99or $4.00) andthe comparison

standard’s price level ($2.00, $3.00,$5.00, or $6.00). The comparisonstandards were selected such thatthey were either $2.00 higher orlower or $1.00 higher or lower thanthe target price. For all levels ofcomparison standard, nine-endingtarget prices were perceived to havelower magnitude than zero-endingones. And when the distancebetween the target and the compar-ison standard was small, i.e. $1.00,there was a significant differencein the magnitude perceptions ofnine- and zero-ending prices. Butthere was no significant differencebetween these prices when the dis-tance was $2.00. The results of thisstudy are consistent with our asser-tion that the underestimationcaused by the left digit effect occursduring the magnitude encodingprocess.

Non-Price DomainsIn a third study, we examined the

process underlying the left digiteffect and also tested whether theleft digit effect manifests in non-price domains. Participants wereasked to judge whether a given threedigit number, between 1.00 and9.00, was lower or higher than 5.50.We predicted that participantswould take significantly more timeto make magnitude judgments whenthe target number was closer to5.50. More importantly, we alsoexamined how the response timesvaried for nine-ending numbers.

Sixteen numbers were chosen astarget numbers, half with nine- and

tions. Participantsindicated their mag-nitude perceptionsfor each brand byplacing an “X” onan uncalibrated 110millimeter long hor-izontal line anchoredat “low” and “high.”Again, the resultswere consistent withthe left digit effecthypothesis. Whenthe target level was$3.00, such that thenine-ending condi-tion (i.e., $2.99)resulted in a lowerdollar digit, then thenine ending pricewas perceived to besignificantly lower.However, when thetarget level was$2.80 or $3.20, thenine-ending price

had no effect.

Distance EffectIn a 1967 study, Stanford

University psychologists RobertMoyer and Thomas Landauer meas-ured the time participants took incomparing two Arabic numbers.They found that as the numeral dis-tance between them decreased, theresponse time for the comparisontask increased – a phenomenonwhich has come to be known as thedistance effect. The distance effectshould exacerbate the primacy effectof left digits. The closer the pricesbeing compared, the higher the cog-nitive load, and therefore the greaterthe error there would be in encodingtheir magnitudes. We set out to testthis hypothesis by asking 154 under-graduate students to evaluate twobrands of pens sold by an onlinecompany. We used the same depend-

3.0

2.0

1.0

2.652.612.76

2.07

W

26 Sternbusiness

— F I G U R E 1 —

PERCEIVED MAGNITUDE OF TARGET PRICE

LOWERING THE PRICE BY ONE CENT TO A NINE-ENDING PRICEAFFECTS MAGNITUDE PERCEPTION ONLY WHEN THE

LEFT DIGIT CHANGES

Nine-Ending Price Zero-Ending Price

EFFECT OF PRICE ENDING ON LEFT DIGIT

$2.99 $3.00Different Left Digits

$3.59 $3.60Same Left Digits

Pric

e M

agni

tud

e P

erce

ptio

n

half with zero-endings, rangingfrom 1.99 and 2.00, to 8.99 and9.00. Fifty-three undergraduatestudents from a large Northeasternuniversity were then asked to judgewhether a target number presentedon a computer screen was higher orlower than the comparison standard5.50. (The comparison standardwas not presented on the screen.)The computer recorded the timeparticipants took to click one of twobuttons labeled “HIGHER” and“LOWER” as the numbers flashedon the screen. Participants tookmore time to make comparisonswhen the target numbers were closeto the comparison standard. Fornumbers lower than 5.50, as themagnitude increased towards 5.50,the response latency (in millisec-onds) also increased. (See Figure2). For numbers higher than 5.50,the response latency systematically

change in left digit significantlyincreased the response time.

There’s more to the story of nine-ending digits. For example, it is thepsychological distance betweennumbers and not the nominal dis-tance that affects how they areprocessed, and the psychologicaldistance depends on the referenceframe. Say a person is comparingthree numbers. Whether the num-ber five is perceived to be high orlow will depend on whether thestimulus range is 0-6 or 4-10. Weconducted studies in which weasked study participants to comparethe quality rating of three products.And when the psychological dis-tance between the product’s ratingand the stimulus endpoints was low,the nine-ending effect was strong.

Sure it’s tempting to scoff at seem-ingly transparent strategies to price agallon of gasoline $2.99 instead of

$3.00, or a pair of jeans at$69.99 instead of $70.00. Butretailers and advertisers havealways known that there’s agreat deal of psychology involvedin marketing and pricing a prod-uct optimally. Some observersmay continue to think that apenny doesn’t make much of adifference to consumers who aremaking purchasing decisions.But because of the way humansprocess numeric information,sometimes a penny can be wortha lot more than one cent. ■

V I C K I M O RW I T Z is an NYUStern professor of marketing andthe Robert Stanksy FacultyResearch Fellow. MANOJ THOMASis a doctoral candidate in market-ing at NYU Stern.

This article is adapted from anarticle that appeared in the June2005 issue of the Journal ofConsumer Research.

decreased as the magnitudeincreased away from 5.50. Theseobservations suggest that the closerthe number to the comparison stan-dard, the greater the difficulty inmagnitude comparisons. More inter-esting was the significant interactionbetween distance and number end-ing. When the magnitudes of the tar-get numbers were four or lower, thennine-endings did not affect responsetimes. However as we predicted, inthe case of 4.99 versus 5.00, achange in left digit significantlyreduced the response time, and inthe case of 5.99 versus 6.00, a

“Retailers and advertisers havealways known that there’s a

great deal of psychologyinvolved in marketing and

pricing a product optimally.”

Sternbusiness 27

— F I G U R E 2 —

CHANGE IN LEFT DIGIT AFFECTS RESPONSE LATENCY ONLY WHENTHE DISTANCE FROM COMPARISON STANDARD IS SMALL

1100

1000

900

800

700

600Res

pon

se L

aten

cy in

Mill

isec

ond

s

2 3 4 5 6 7 8 9 MAGNITUDE LEVEL

Nine-Ending Numbers Zero-Ending Price

Note: The nine-ending numbers are 1.99, 2.99, 3.99, 4.99, 5.99, 6.99, 7.99, and 8.99.The corresponding zero-ending numbers are 2.00, 3.00, 4.00, 5.00, 6.00, 7.00, 8.00, and 9.00.These numbers were compared with 5.50.

n the many industries makingthe wrenching transition fromphysical to digital products –music, video, publishing – the

effective management of digitalrights is a crucial challenge.Increasingly, products once soldexclusively as tangible goods are nowavailable as pure digital goods.These digital goods have a numberof attractive properties for sellers.They’re much cheaper to produceand deliver, and they may includeelectronic features that enhance theuser experience.

But the process of transitiontoward digitizing products is uncer-tain, and currently incomplete. Thispresents sellers with difficult techno-logical and business decisions. Onthe one hand, most current salescontinue to be in the form of tangi-ble goods, and digital goods are seen

emergence of viable industry-specificplatforms like iTunes, which uses theFairPlay DRM technology to secure itsmusic. But effective DRM requires thestriking of a delicate balance. Aninsufficient level of digital rights canresult in the premature failure of adigital initiative, as illustrated by earlyemusic services. And granting digitalrights that are too extensive can leadto cannibalization of established salesof physical goods – or to widespreaddigital piracy, which can wipe out anascent digital industry. For example,the right to download (rather thanstream) digital audio files increasesthe desirability of purchasing legaldigital music. But it also increases thethreat of digital piracy over file-shar-ing networks. The right to print a dig-ital book encourages ebook adoption,but enables the creation of piratedPDF copies.

as imperfect substitutes for theirphysical counterparts. On the otherhand, technologically savvy cus-tomers are likely to view digitalproducts as being of higher value,and possibly as better substitutes.And most crucially, digital goods aresubject to piracy, which can affectdemand for both nascent digitalgoods and the corresponding physi-cal goods.

How can companies price digitalgoods in a way that both maximizesprofits and minimizes the incentivesfor piracy? How can they control thequality of digital goods and theextent to which their presence leadsto piracy? The answer lies in themanagement of the rights associatedwith digital goods.

Yes, the technological challenges ofdigital rights management (DRM) aregradually being addressed by the

I

D I G I TA L R I G H T S

W R O N G SAs old media transforms into new media, executives are grappling with how

best to manage the pricing and packaging of digital movies, music, and books –all while keeping piracy at bay. A new model offers some guidance on how to

approach this thorny and crucial challenge.

By Gal Oestreicher-Singer and Arun Sundararajan

&

28 Sternbusiness

s part of an effort to betterunderstand the role of dig-ital rights, we developedan economic model that

characterizes the value of digitalrights when products are sold bothembedded in tangible physical arti-facts and as pure digital goods, andwhen granting digital rights mayalso affect the extent of digital pira-cy. Then we tested it by examiningsales of one form of digital content:ebooks.

An Economic Model of Digital RightsWe analyze the decisions of a sell-

er who produces two versions of aproduct: a physical (tangible) goodand a digital good. Consumers arefamiliar with the tangible good andperceive it to be of a constant andwell-understood level of quality. Thequality of the digital good, on the

ing whatsoever, or can specify a fixednumber of pages that can be printedduring each time period. As a gener-al rule, granting a buyer a higherlevel of digital rights imposes nodirect costs on the seller and increas-es the value the buyer realizes fromthe digital good.

Of course, in addition to the legalphysical and digital versions, theremay be a pirated digital version ofthe good. And the quality of thepirated good is also determined bythe level to which the seller grantsdifferent digital rights to buyers ofthe digital good. Why? Because, aspreviously mentioned, increasing thelevel of rights granted to legal usersoften has an unintended conse-quence: it facilitates the creation andspreading of higher-quality piratedversions as well.

Our model, which is mapped out

other hand, is determined by thelevel to which the seller grants rightsto buyers of the digital goods – theright to print an ebook, to backup adownloaded video file, or to burnmusic CD’s, for example. The rangeof possible settings for each digitalright is determined by the DRM plat-form used by the seller and has pre-specified minimum and maximumlevels. Under Adobe’s DRM platformfor ebooks, for example, a seller canoffer unlimited printing, or no print-

A

Sternbusiness 29

“Sellers should focus on enhancing the

digital consumption experience and not

on trying to digitally recreate their

physical products.”

ILLUSTRATION BY STEVE DININNO

in Figure 1, posits that customersare heterogeneous along two dimen-sions. First, how much they valuedigital quality, or the granting ofdigital rights (represented by theparameter on the y axis). The higherthe value of y, the more the customervalues digital goods of fixed quality.The second dimension (the x axis)represents the customer's relativepreferences for tangible versus digi-tal goods. All else being equal, cus-tomers with a higher value of x placea higher value on the digital goodand a lower value on the physicalgood than a customer indexed by alower value of x.

To further capture diversity incustomer preferences for the tangiblegood, the digital good, and the pirat-ed good across industries, we use apreference diversity parameter t. Ahigher value of t indicates that, onaverage, customers vary more intheir relative preferences for the tan-gible and digital goods. We, there-fore, use this as a (inverse) measureof the technological sophistication ofthe seller’s target customers. Asshown in Figure 1, when piracy isn'tan issue, customers in the upper-shaded area prefer the digital goodto the tangible good, after account-ing for the price differences betweenthe two goods.

So, what happens to prices whencustomers choose between the tangi-ble good and the digital good in the

trying to digitally recreate theirphysical products. For example, theright to play one’s purchased digitalmusic files on multiple authorizedrendering devices (enhancing thedigital experience) is likely to have ahigher positive effect on pricing thanthe right to burn these music files ona CD (replicating the physical goodexperience). Additionally, the opti-mal price of a digital good shouldrise not only with the increase inprice and the quality of the tangiblegood, but also should rise along withthe difference in quality between thedigital good and the pirated good.

Evidence from the Ebook Industry Our economic model predicts that

if digital rights are assessed asbeing valuable by customers, butdon’t really affect the prevalence ofpiracy, they will have a positivedirect effect on quality and price.Correspondingly, if digital rights arenot assessed as being especially valu-able by customers of the digitalgood, but substantially increase thequality and availability of piratedsubstitutes, they will have a negativedirect effect on price and demand.

We set out to test those assump-tions by analyzing the prices anddigital rights of ebooks sold by a spe-cialty Web-based ebook retailer. Weconstructed hedonic price equationsfor these ebooks (similar to those

absence of piracy? The price cus-tomers are willing to pay for the dig-ital good (1) rises as the price of thetangible good rises; (2) rises as thequality of the digital good rises, andconsequently, as the level of each dig-ital right granted to its buyers rise;(3) and falls as the technologicalsophistication of its potential cus-tomer falls. Given this, if there is norisk of piracy, sellers should grantbuyers the maximum level of digitalrights possible. They have nothing tolose by doing so, since they can man-age cannibalization by their strategiccontrol over price. And offering thehighest level of quality provides theseller with maximum pricing power.

n practice, however, prettymuch every seller restricts therights of its digital goods. Why?Of course, it is because grantingunrestricted digital rights will

ultimately result in the increased andwidespread prevalence of free piratedgoods. When piracy enters the pic-ture, buyers thus choose betweenthree substitutable versions – the tan-gible good, the digital good, and thepirated good. And there will be agroup of technologically savvy con-sumers who are willing to find anduse pirated goods. The demand fortangible, digital, and pirated digitalgoods can be mapped as in Figure 2.The customers in the red region pre-fer to pirate the good, and the sellerloses these customers.

Note that in Figure 2, customerspurchasing the digital good are in theright upper portion of the customerspace. They place a high value ondigital rights, but also have a strongpreference for digital goods overphysical goods. This suggests thatdigital rights that enhance the digitalexperience of a good are likely tohave a more positive impact on sellervalue than those that allow buyerssimply to replicate the consumptionexperience they associate with aphysical good. In other words, sellersshould focus on enhancing the digitalconsumption experience and not on

— F I G U R E 1 —

SUMMARY OF DEMAND IN THE ABSENCE OF PIRACY

— F I G U R E 2 —

SUMMARY OF DEMAND IN THE PRESENCE OF PIRACY

Demand for the digital good

Demand for the tangible good

Demand for the tangible good

Demand for the digital good

Sales lostto piracy

y

y

x

x

I

30 Sternbusiness

used in constructing the consumerprice index). We analyzed books inthree categories that we believedwould have target customer sets withdifferent levels of technologicalsophistication: computers, philoso-phy, and science fiction. The small-est of these categories had 596ebooks in our sample.

Every ebook is available in theAdobe eBook format – the formatwhose DRM platform offers thewidest range of digital rights. Inaddition to its price and category,each ebook has five digital rightsassociated with it: printing, copying,expiry, lending, and reading aloud.The printing and copying rights havethree kinds of settings: unrestricted,none, and partial. And the partialrights allow for different levels ofvolume and frequency.

When we estimated the equation,the signs of the coefficients werequite striking. (See Table 1) Theyindicate that granting two of the fourdigital rights – copying and readingaloud – result in significant increas-es in ebook prices. However, granti-ng printing and lending rightsresult in significant (and substan-tial) decreases in prices. Moreover,this direction of change persists asone increases the level of printingand copying rights granted to buy-ers. In other words, the right to printebooks increases the value of piratedsubstitutes for books substantiallymore than it increases the value ofthe digital good. Based on our eco-nomic model, this has an intuitiveexplanation. Given that the set ofcustomers who purchase ebooks arethose whose tastes favor digitalgoods over physical goods, the abili-ty to create printed copies of theirebooks is unlikely to have much of apositive direct effect on ebook quali-ty. On the other hand, the PrintAllright facilitates the creation of near-perfect copies of many ebooks,which results in a negative differen-tial effect. Similarly, our results sug-gest that lending rights do not

more so in music and video than forebooks – choosing one's digital rightscarefully is crucial when balancingproduct value, cannibalization, andpiracy. Our research thus presentsnew evidence of the importance of aninformed and judicious choice of thedifferent digital rights permitted byone’s DRM platform, and it providesa simple framework for guidingmanagers in the growing number ofindustries that are being transformedby information technology.

Of course, this work is just afirst step. We have collected moredata over the last year, and we arecurrently carrying out more exten-sive empirical validation of our the-ory. And it’s likely that consumertastes and behavior will continue toevolve as more and more peoplebecome comfortable with buyingand using digital products. Thenext time we present our findings,perhaps they’ll be simultaneouslyavailable as a tangible good – i.e. ina magazine like this one – and as adigital product. ■

GAL OESTREICHER-SINGER is a doctoralcandidate and ARUN SUNDARARAJAN isan associate professor of informationsystems at NYU Stern.

This article is adapted from a paper pre-sented at the Twenty-Fifth InternationalConference on Information Systems,which won the award for Best OverallResearch Paper.

increase ebook quality significantly,but create high-quality free substi-tutes. Our data therefore confirmsthat, rather than easing the transi-tion, replicating the physical con-sumption experience can often simplylower a seller’s pricing power.

In contrast, copying rightsenhance the ebook digital experience.While copying may facilitate piracy,current copying rights are restrictedonly to text, and not to figures orimages; moreover, pirated versionscreated by copying text lose the type-setting and layout of the original. Ourresults indicate that the positivedirect effect that copying rights haveon ebook quality dominate any dif-ferential effect. As currently imple-mented, the read-aloud right does notmake pirating an ebook any easier ormore difficult, and, therefore, is like-ly to have both a positive direct effectand a positive differential effect.

he empirical results, whichsupport the predictions ofour model, suggest someimportant new guidelines

for managers in industries that areprogressively being digitized. In theabsence of piracy, digital rights arealways valuable through their directeffect on increasing the quality ofdigital goods. And any concerns relat-ing to the cannibalization of the salesof physical goods can be effectivelyaddressed by a strategic choice ofpricing. However, when the threat ofpiracy is real – and it is, perhaps

THE EFFECT OF DIGITAL RIGHTS ON EBOOK PRICES

Variable Coefficient Corresponding impact on price

CopyAll 0.560 *** (0.201) Increase of 75%

CopyPartial 0.219 ** (0.101) Increase of 24%

PrintAll –0.636 *** (0.188) Decrease of 47%

PrintPartial –0.208 * (0.115) Decrease of 19%

Lend –1.11 *** (0.105) Decrease of 67%

ReadAloud 0.461 *** (0.048) Increase of 59%

— T A B L E 1 —

T

Sternbusiness 31

F O U N D I NTRANSLATIONF O U N D I NTRANSLATION

ulture has a profoundinfluence on allaspects of behavior. Itdetermines how indi-viduals perceive andinterpret phenomena,

and the meaning they ascribe tomaterial goods and symbols.Cultural boundaries may also act as

barriers and impede the flow ofideas and communication. Butculture has long since ceased tobe the exclusive preserve ofanthropologists. In an increas-

ingly global economy, the recep-tiveness of ideas and products that

originate in other cultures in mar-kets around the world is a centralissue. And the failure to consider theimpact of cultural forces has beenbehind many mistakes made ininternational markets.

Culture’s impact varies depend-ing on the product. Power tools andheavy construction equipment havevery few cultural connotations, forexample. By contrast, food, clothing,and modes of artistic expression maybe strongly embedded in a particularculture, and differ markedly fromone culture to another. And individ-uals’ acceptance of such productsfrom other cultures depends in parton the compatibility of the productwith their own value and belief sys-tem. What’s more, individuals in a

C

32 Sternbusiness

ILLU

STR

ATIO

N B

Y D

OU

G P

AN

TON

particular culture may want to emu-late the life-style and behavior pat-terns of another culture. Think of howconsumers in other countries haveembraced American cultural icons likeMcDonald’s, Coca-Cola, and Levi’s.

Few studies have attempted toassess systematically the influence ofculture on acceptance of a culturallyembedded product. So we set out toexamine the extent to which both thecultural content of a product and thecontext (i.e. the country) in which it issold affects sales. We chose film, ahighly complex product that is rich incultural meaning. Films inevitablyreflect the view and visions of writers,actors, and directors, all of whom areinfluenced by the cultural context inwhich they operate. Further, each filmis unique and represents a new prod-uct offering. Best of all, sales data onmany films are available on a country-by-country basis, making success rel-atively easy to measure.

Exporting Culture The global film industry has come

to be dominated by US studios, andfilm entertainment represents a majorUS export. Of the 256 top grossingfilms of all time in terms of non-USbox office (gross revenue of $100 mil-lion or more), all but six wereAmerican. In 2002 the top five filmsin Germany, The UK, Australia,

developing models to predict boxoffice performance. And while bothdemonstrated that a film’s box officeperformance in the US is a strong pre-dictor of its success outside the US,neither examined how the culturalcontext in which films are releasedinfluences their success.

For the purposes of our study, webroke down culture into three differ-ent components: the intangible ele-ments or values and beliefs, thematerial aspects, and communicationand language. Each plays a role ininfluencing the success of US films inforeign markets and interacts to pro-vide a climate varying in the degreeof receptivity to US films. And eachgive rise to a hypothesis that we setout to test.

Understanding CultureValues and belief systems have

been widely used in assessing theimpact of cultural context on behav-ioral phenomena in cross-cultural psy-chology as well as management stud-ies. There is a rich tradition in theinternational business literature exam-ining the impact of national culturalvalues on foreign market entry, selec-tion of mode of entry, and new prod-uct development. In general, societieswith similar cultural values areexpected to exhibit more similarresponse patterns than those with dif-

Spain, Argentina, The Netherlands,Japan, South Korea, and China wereUS films.

In 2002, US theatrical release rev-enues were over $9.5 billion, and USstudios could expect to receive equiva-lent theatrical revenue from foreignmarkets. But the box office representsjust a small slice of the pie. Studiosgenerate revenue from multiple“windows” – pay-per view, DVDs,and broadcast television. The theatri-cal release window is the most critical,as it establishes the value of the film forsubsequent windows, and for licensing,merchandising, and related productssuch as books or theme park rides. Butin 2002, US theatrical revenue repre-sented only 9.7 percent of the total rev-enue studios received from key filmrelease windows.

In addition to their economicimportance, films play an importantrole in the transmission of cultural val-ues and mores. French films byFrancois Truffaut, Swedish films byIngmar Bergman, Italian films byFederico Fellini, and Japanese films byHayao Miyazaki all reflect the vision ofthe directors and the cultures that pro-duced them – just as surely as StevenSpielberg’s blockbusters are represen-tative of America.

To date, the studies that have exam-ined the performance of US films inforeign markets have focused on

By C. Samuel Craig, William H. Greene, and Susan P. Douglas

H o l l y w o o d m o v i e s a r e o n e o f A m e r i c a ’ s g r e a t e s t e x p o r t s . W h a t

c a n t h e p r e v a l e n c e o f t h e G o l d e n A r c h e s – a n d t h e a c c e p t a n c e o f

U S c u l t u r e g e n e r a l l y – i n f o r e i g n m a r k e t s t e l l u s a b o u t t h e

l i k e l i h o o d o f m o v i e p r o d u c e r s f i n d i n g c o m m e r c i a l g o l d o v e r s e a s ?

Sternbusiness 33

ferent values. So insofar as US filmsreflect US values, we hypothesize thatthe more culturally similar a countryis to the US, the more likely a US filmwill be successful at the box office inthat country.

The range and variety of materialgoods available in different culturesalso provide an important indicator oftheir receptivity and openness to prod-ucts from other cultures. Of course,countries vary in the extent to whichthey emulate a US lifestyle and useconsumer products that are seen asAmerican in origin. People in othercountries may also embrace otheraspects of US culture – whether it’srooting for golfer Tiger Woods or eatingfast food. Consequently, we hypothe-size that the higher the degree ofAmericanization in a country, the morelikely a US film is to be successfulthere.

Language is an important elementof culture. It provides a cohesive bondamong members of a shared languagegroup, and it can also establish amajor barrier between cultures. Withfilm, language is important not onlyfor effective understanding of thefilm’s content, but also because it is animportant component of culture. Innon-English-speaking countries filmsneed to be dubbed or subtitled, whichmay diminish their effectiveness andimpact. In some cases there may alsobe inconsistency between the scenarioand the language spoken, for examplewhen an American Western is dubbedinto Mandarin. More importantly, onemay expect speakers of the same lan-guage to have similar cultural beliefs,attitudes, and behavior patterns. Sowe hypothesize that US films are morelikely to be successful in English-speaking countries than in non-English speaking countries.

It is also important to consider howdifferent types of films will be receivedby different cultural groupings. At theextreme, Westerns are unmistakably

Internet Movie Data Base. (Table 1contains a listing of 12 of the gen-res. The 13th genre was crime.) Thesecond group measured countrycharacteristics – cultural distance,degree of Americanization, andlanguage. Cultural distance wasmeasured based on distance fromthe US on a composite index ofDutch management scholar GeertHofstede’s four value orientations:Individualism/Collectivism, PowerDistance, Uncertainty Avoidance, andMasculinity/Feminity. The degree ofAmericanization was assessed basedon the number of McDonald’s outletsper capita in each country. (There issome precedent for using the presenceof McDonald’s in novel ways. TheEconomist has found that the price ofBig Macs is a useful measure of cur-rency disparities and annually pub-lishes its Big Mac Index.) All thefilms save two – “Chocolat” and“Crouching Tiger, Hidden Dragon” –were originally released in English.

Golden ArchesThe results of our regression tests

can be seen in Table 1. What do theytell us? As we hypothesized, culturaldistance had a significant effect on theperformance of films. The coefficientwas negative (-0.157) and highly sig-nificant. Films released in countriesthat were culturally closer to the USwere more likely to perform better.Conversely, films released in countriesthat were more distant culturally fromthe US did not perform as well.

Films had higher per capita boxoffice receipts in countries that hadmore McDonald’s outlets per capita.The coefficient for the number ofMcDonald’s outlets per capita waspositive (0.0399) and highly signifi-cant. And when films were released inother English-speaking countries, TheUK and Australia, they performedbetter than when they were released innon-English speaking countries. Sevenof the genres had a significant impact

American. Comedy tends to be embed-ded in a particular culture and appre-ciation of a particular type of humor.Notions of romance and courtship varyconsiderably from culture to cultureand may not correspond to contempo-rary US mores. On the other hand, fan-tasy and science fiction are not neces-sarily anchored in any particular cul-ture, although members of a particularculture may exhibit preferences (or dis-like) for these genres. Since priorresearch on US films in foreign marketshas demonstrated that genre has animpact on a film’s performance in dif-ferent countries, we also set out todetermine how well different genrestranslate.

In order to examine these hypothe-ses, we developed a hierarchical regres-sion model specifying the impact ofboth film-level and country-level inde-pendent variables on box officereceipts. The dependent variable con-sisted of foreign box office receipts ineight different countries for the top 50US films between 1997 and 2002,compiled from Variety.com. (Toplace in the top 50, a film had tohave a minimum domestic gross rev-enue of approximately $50 million.)Corresponding data for the same filmswere obtained for the eight foreigncountries available on Variety.com(Australia, The UK, Austria, Germany,Argentina, Chile, Mexico, and Spain).These data were adjusted to per capitavalues and expressed as logs.

The independent variables consist-ed of two groups. The first group meas-ured film characteristics, such as USbox office revenue and film genre. Thefilm’s genre was obtained from the

“Films had higher per capita box office

receipts in countries that had more McDonald’s outlets per capita.”

34 Sternbusiness

on how films performed in foreigncountries. Action, Fantasy, Adventure,Animated, Mystery, and Horror allperformed significantly better in for-eign countries, while Family per-formed significantly worse. For theother five genres, the coefficients werenot significant.

The combined effect of culturaldistance and language suggested thatit would be useful to analyze the databy three language groupings: English,Spanish, and German. And here, the

through independent distributors inoverseas markets, enhanced knowl-edge of how a film is likely to performin a foreign market can strengthentheir bargaining position with inde-pendent distributors. For films that astudio distributes itself, the knowledgeof likely performance can help it effec-tively allocate promotional efforts. It isparticularly important to take intoaccount the popularity of differentgenres. In English-speaking countrieseight of the 12 genres enjoyed thesame degree of success as they did inthe US. Romance, Fantasy, andAnimated films were more likely to besuccessful. However, as in Germany,Drama was less likely to be successful.In Spanish-speaking countries, Comedyand Family were less likely to be suc-cessful, and Animated and Mysterywere more likely to be successful.

This research has broader implica-tions beyond film. After all, films arenot the only products laden with cul-tural content and symbolic meaning.Television shows, music, theater,dance, and opera are equally repletewith cultural content. In addition,products such as sports, games, andhousehold décor reflect strong cultur-al influences. Other products andbrands, such as Coca-Cola, Marlboro,sushi, futons, and fish and chips, areall seen as symbols of the culturefrom which they emanate. The resultsof our study suggest that for anexpanding range of products, the cul-tural context can be as important afactor to consider as price, design, ormanufacturing cost. ■

C. SAMUEL CRAIG is the Catherine andPeter Kellner Professor of Entrepre-neurship, Media, and Entertainment,WILLIAM H. GREENE is a professor ofeconomics, and SUSAN P. DOUGLASis the Paganelli-Bull Professor ofMarketing and International Businessat NYU Stern.

This research will be appearing in anupcoming issue of the Journal ofInternational Marketing.

genre effects revealed some importantdifferences that were not evident in theall-country analysis. Genre effects weremost pronounced in German-speakingcountries, with nine of the 12 genreshaving a significant effect. In English-speaking and Spanish-speaking coun-tries only four genres had an impact onperformance and only one of these,Animated, was common to both.

The findings have a number ofimplications for studio executives andfilm distributors. For studios that work

— T A B L E 1 —

ESTIMATED REGRESSIONS FOR LOG PER CAPITA BOX OFFICE,ALL COUNTRIES AND BY LANGUAGE GROUP

Note: Estimated standard errors are in parentheses * Indicates 95% significance level ** Indicates 99% significance level

Macs PerCapita

CulturalDistance

EnglishSpeaking

Drama

Romance

Comedy

Action

Fantasy

Adventure

Family

Animated

Thriller

Mystery

ScienceFiction

Horror

Sample Size

0.0399 0.070 0.0274 0.0329 0.238(0.0033)** (0.001)** (0.002)** (0.0031)** (0.017)**

-0.157(0.012)**

0.140(0.0593)**

-0.0933 -0.0832 -0.269 -0.260 -0.154(0.0919) (0.0933) (0.085)** (0.060)** (0.176)

0.177 0.171 0.362 0.770 -0.118(0.129) (0.132) (0.124)** (0.088)** (0.229)

-0.0942 -0.0927 0.0208 0.0362 -0.395(0.0901) (0.092) (0.084) (0.058) (0.171)**

0.179 0.185 0.132 0.303 0.0531(0.089)** (0.092)** (0.084) (0.058)** (0.171)

0.557 0.558 0.462 0.816 0.252(0.133)** (0.136)** (0.124)** (0.085)** (0.252)

0.197 0.204 0.0896 0.0356 0.139(0.107)* (0.109)* (0.101) (0.0682) (0.205)

-0.287 -0.189 -0.027 0.0216 -0.764(0.101)** (0.103)** (0.099) (0.0701) (0.189)**

0.281 0.284 0.168 -0.351 0.450(0.108)** (0.110)** (0.101)* (0.069)** (0.208)**

0.0827 0.081 -0.132 -0.202 0.172(0.113) (0.115) (0.107) (0.075)** (0.209)

0.685 0.679 0.256 1.176 0.803(0.201)** (0.207)** (0.185) (0.145)** (0.375)**

0.162 0.166 0.207 0.251 -0.0478(0.117) (0.119) (0.111) (0.076)** (0.228)

0.279 0.294 0.132 0.251 0.276(0.108)** (0.111)** (0.100) (0.026)** (0.206)

2198 2198 597 559 1042

All All English German Spanish

N o n r a n d o m Pa r a m e t e r s

Sternbusiness 35

Consulting with Care

This spring, the Volunteers of America (VOA), one of the nation's oldest andlargest faith-based human service organizations, hosted Stern Consulting Corps'(SCC) MBA interns at its corporate headquarters. VOA executives from finance,operations, and human resources offered students an in-depth view of the organi-zation and the challenges it faces in the not-for-profit world.

SCC and VOA intern Rifki Zable investigated development possibilities forlow-income housing and options for relocation of Bronx schools. She alsoresearched New York City locations for VOA's early learning centers for childrenwith disabilities. The goal was to find spaces that were comparable to the currentleases, but that could accommodate more children and better suit their needs. Inher final presentation, Zable evaluated the strengths and weaknesses of severaloptions available to VOA.

Joseph Auld, director of capital projects at VOA, said Zable's observationshave made a profound impact on the organization: "Her analysis of our presentlease structure, along with her spreadsheet models for the development of a newschool, are now being reviewed by our development team. Rifki's work will beexpounded upon and will ultimately be part of the development work towardsbuilding a $14 million, state-of-the-art, educational facility for children with learn-ing disabilities."

Zable described her experience at VOA as truly gratifying. “Working atVolunteers of America was an eye-opening experience. Getting exposure to theirexecutives during our visit to corporate headquarters really put the project Iworked on into context by seeing how it fit into the bigger picture.”

SCC programs enable Stern MBA students to put into practice the skills andknowledge they gain in the classroom to help revitalize small and minority-ownedbusinesses and benefit nonprofit organizations in New York City. Stern studentsgain invaluable consulting experience that is directly transferable to their futurecareers, as well as an opportunity to express their social consciousness and

sense of community involvement. To date, Stern has partnered with more than 75

New York City-based organizations, including Seedcoand the Clinton Foundation's Harlem Small

Business Initiative, and more than 250 SternMBA students have served as business con-

sultants through this program.

Stern Alum Graduates to Hollywood

Every year, thousands ofambitious young men andwomen audition for a ticketto Hollywood on “AmericanIdol.” Pamela Nemoto (BS'05) found her way toTinseltown by excelling in acontest with her writing –not her voice.

Nemoto bested 1,600fellow contestants in theVarietyCareers' “UltimateHollywood Agenda” contest,sponsored by Variety’s media

and entertainment job website.Entrants competed by submitting

resumes and answers to three enter-tainment-related questions. A panel of judges

from Variety selected Nemoto as the winner based on thecreativity and intelligence of her answers.

Nemoto, who graduated in January with a major in marketing and finance anda concentration in entertainment, media, and technology (EMT), chose to attendNYU Stern primarily because of the School's city location. “I was excited to live inNew York City and knew Stern could offer a lot of opportunities. I got the sense Icould open a lot of doors at Stern,” she noted.

Once she began taking classes in the EMT program, the doors opened wider.“Students in the EMT concentration are constantly exposed to people from theentertainment industry, through in-class speakers, guest seminars at Stern TischEntertainment Business Association (STEBA) student club events, and internshipopportunities,” she said. “This exposure, coupled with the concentration's dualbusiness/creative focus, enables students to feel more comfortable and knowl-edgeable when meeting with entertainment professionals outside of school.”

“I am excited and delighted that Pam, whom I know well from her participationin our classes and club activities, won this valuable opportunity,” said AlLieberman, executive director of the EMT program. “From our perspective, herselection was the next logical step from our courses in the EMT program at Stern:understanding the business, having a dream, and acting on it. We will be watchingher career success closely.”

As the winner, Nemoto will fly to Los Angeles and meet with entertainmentexecutives who work in film buying, her area of interest. She will also attend aHollywood event and dine with Variety and entertainment industry executives, where“I will definitely be putting my Stern, EMT, and STEBA experiences to good use,”she said. “And since the entertainment industry is especially volatile, it is alwaysinteresting to meet other professionals and hear their perspectives on the future ofentertainment.”

Beyond the learning and networking opportunities this contest has provided,Nemoto explained, “I’ve learned to explore as many opportunities as possible,regardless of how remote they may seem.”

Peer to Peer

36 Sternbusiness

Student Life in Washington Square and Beyond

ILLUSTRATIONS BY STEVEN SALERNO

sional development. Stern hasthe right ingredients to give usthe necessary knowledge, experi-ence, and research skills in ourchosen areas.”

The genius sisters thinkthey'll be done with school in twoyears, and then will work in cor-porate finance research. Theirhope is to attain academic posi-tions at the same top US busi-ness school, where they couldcollaborate on research in corpo-rate finance and financial eco-nomics.

Though they are working onseparate projects with Stern fac-ulty and have developed interestsin different topics within the samefield, Anjela said, “If there is anopportunity to create synergies from co-authoring work, we definitely won't shun it.She is my sister.”

“Well, it's not just that we're sisters and best friends,” chimed in Diana, “butwe've worked closely for a very long time, so we understand each other, and if wehave the opportunity for the both of us to contribute to the work that's being done,that's great.”

For now, the sisters live with their father in Greenwich Village and play tennisand badminton, go to the movies, and on walks through the park. When asked ifthey are interested in earning any other degrees after they receive their PhDs, Dianasmiled and answered, “Never say 'never.' But in the foreseeable future, I'd saythere's mostly going to be work and research in finance.”

Bon Voyage! Gute Reise!

Imagine tasting delectable schnitzel served in a medieval tavern; exploringworld famous collections of applied arts and Masterpiece paintings at theMuseum of Art History; and taking in a concert at theKursalon, where Johann Strauss performed some of hismost notable works. This year, NYU Stern students didjust that, stepping outside of the classroom to expandtheir intellect and cultural well-roundedness by touringVienna, Austria.

In January, select sophomores and seniors traveled toVienna and discovered its artistic and musical heritage aspart of the Stern Scholars Program. The Program taps topstudents in each class who have proven academicachievement and leadership potential and awards them an annual merit scholar-ship as well as access to a rich combination of seminars, executive lectures,international travel, community service, and social activities, all designed toshape students into sophisticated, global ambassadors and civic-minded busi-ness leaders. Past Scholars have also visited Prague and Paris.

Over the course of a week, the Scholars toured the staterooms of theSchonbrunn Palace, the summer palace of Maria Theresa and Kaiser Franz Josef;the monumental buildings of the Ring Strasse, including the Gothic town hall,

Parliament building, and State Opera House; and the Vienna Woods for a view ofthe ruins of the home of the Liechtenstein dynasty and Mayerling's hunting lodge.Scholars were also educated on 20th century Vienna by faculty at ViennaUniversity.

A highlight of the trip was catching a performance by theVienna Opera, noted Valerie Galinskaya, a Stern Scholar andjunior marketing and finance major who enjoyed Mozart's“The Magic Flute,” despite waiting in line for two hours to getstanding seats. But what Galinskaya valued most about hertrip to Vienna is the greater knowledge and appreciation ofarts and culture that international travel offers. “The Viennatrip enhanced my view of the world and gave me a broaderunderstanding of Europe and of Vienna's history and culture,”she said. “In the long run, it's going to make me a more well-

rounded person no matter what field in business I ultimately pursue.” Reflecting on the most striking cultural difference she noticed in Vienna,

Galinskaya pointed to an observably less hectic pace of life: “People wait patientlyat the street lights for the light to turn green before crossing the street, which as aNew Yorker, I found just absurd. The cross walk is an example of the high valueattached to order and organization in Vienna. The city's train system, the U-Bahn,is immaculate too. I remember a sign that said 'the next train will arrive in 1minute and 40 seconds,' and it literally came in 1 minute and 40 seconds.”

From Wunderkinds to Wonderwomen

Anjela and Diana Kniazeva, sisters who are 20 and 18 years old, respectively,recently became NYU Stern's youngest graduates to date. In May, the Russian sis-ters received master's degrees in financial economics. For each, the degree repre-sents the sixth college degree in seven years.

Their secret is an intensive, condensed educational program developed by theirmother, Yulia Kniazeva, a childhood-development expert and researcher at aMoscow university. She home-schooled the sisters in Russia, where they coveredelementary and high school subjects in five years, along with foreign languages,gymnastics, drawing, and classical dance.

After completing high school, the girls, then 12 and 10, enrolled in Russia'sFinance Academy, one of the country's top universities in finance and economics.Three years later, in 2000, they earned degrees in economics equivalent to bache-lor's and master's degrees, which were personally awarded by the RussianEducation Minister. A strong interest in corporate, financial, and banking law, nextled to them to complete a five-year full-time program in law at the Russian NewUniversity. Then it was on to Stanford University, where they both received master'sdegrees at the university's international policy studies program.

“In some of the classes at Stanford, the professors didn't even suspect that wewere younger than our peers,” Diana explained. “In one case, after the class wasover, we mentioned it in passing to the professor: 'There's just one curious thing webet you don't know about us.'”

As if five degrees each were not sufficient, Anjela and Diana went on to studyfinancial economics at NYU Stern, where they received their master's degrees inMay. They remain at Stern continuing their studies in pursuit of doctorates, on theirway to becoming the university's youngest PhD graduates.

“Stern is obviously one of the best business schools in the country and has atop PhD program,” Diana said when explaining why she moved across the globe tostudy in New York City. Anjela was quick to add, “The challenging and high-rankedprogram that Stern offers to doctoral students has been a great factor in our profes-

Sternbusiness 37

Valerie Galinskaya (second from right) and a groupof her fellow Stern Scholars visit the historicSchonbrunn Palace on their trip to Vienna, Austria.

Stern's youngest graduates: sisters Anjela (left)and Diana (right) Kniazeva.

1930sMargaret Charters Ross Thrailkill(MS '38) of Spokane, WA, served 10 yearson the Audit Committee of the Board ofDirectors for the Washington Water Power,an electric and gas utility. She was the firstwoman on the board in 89 years. She wasalso awarded the Whitman College WallaWalla Lifelong Achievement Sally RodgersAward.

1940sLeonard J. Smith (BS '39, MBA '40)of Los Angeles, CA, was honored as one oftwo living founders of the Society forHuman Resource Management at their 57thAnnual Conference, where they introducedtheir 200,000th member.

Stanley Turkel (BS '47) of Kew GardensHills, NY, published his first book, “Heroesof the American Reconstruction,” a historyof African-Americans in the 19th Centurypost-Civil War period.

Mort Reichek (BS '48) of MonroeTownship, NJ, retired in 1989 after servingas Washington Correspondent and SeniorEditor for BusinessWeek magazine for 31years. He has been listed in “Who's Who inAmerica” and has served as a freelance con-tributor to New York Times Magazine andBook Review, The New Republic, ColumbiaJournalism Review, New Leader Magazine,and others. He is currently married with twochildren and three grandchildren.

Roland Sigal (MS '48) of Allentown, PA,was awarded a doctorate in CommunityService by Cedar Crest College, Allentown,PA. He has been a Trustee at Cedar Crestfor 27 years.

Irwin Spivak (BS '49) of Palm Beach,FL, is the author of the Palm Beach Post'scolumn “Second Time Around.” He alsoteaches creative digital photography and thehistory of jazz at Florida Atlantic University,where he was voted “Professor of the Year”in 2003.

1950sCarl Steinhouse (BS '52) of Naples,FL, recently published his second book“Righteous and Courageous.” This bookand his first book, “Wallenberg is Here!,”published in 2002, are based on eventssurrounding the Holocaust.

Howard Stone (BS '57) of Palm BeachGardens, FL, authored the book “TooYoung to Retire,” a guide for individuals50 years old and older looking for waysto enrich their lives post-retirement. Hehas built a coaching practice on helpingother mature people discover their ownlater-life callings and passions.

Jerry L. Cohen (BS '53, MBA '59) ofNew York, NY, was named “Israel CancerResearch Fund (ICRF) 2004 Real EstateMan of the Year.” Cohen is a Partner withTishman Speyer Properties and serves onthe NYU Stern Board of Overseers. He isalso a Partner of the Yankee GlobalEnterprises and was previously Presidentof the New Jersey Nets.

Jack A. De Santis (BS '55) of StatenIsland, NY, has been elected as DirectorEmeritus of Northfield Savings Bank. Heis a CPA and has previously served as anadvisor to the Northfield Savings BankBoard of Directors.

Eugene Miller (MBA '59) of BocaRaton, FL, celebrated his 55th year as aprofessor. He has been an adjunct pro-fessor at NYU Stern, the GraduateBusiness School at Fordham,Northeastern Illinois University, andUniversity of Houston, and for the last 14years he has been Adjunct Professor andExecutive-in-Residence at the College ofBusiness at Florida Atlantic University inBoca Raton, Florida.

1960sCesar Navarette Sarino (MBA '60)of Mutinlupa City, Philippines, is the for-mer Secretary of the Department ofInterior and Local Government. He is cur-rently President of Government ServiceInsurance System and PresidentialAdviser for Southern Tagalog.

John Francis Dill (MBA '63) ofNaples, FL, was awarded the “AmericanMedical Publishers Association LifetimeAchievement Award” on March 13, for hiscontributions to the growth and develop-ment of medical publishers. Prior to hisretirement nine years ago, he wasChairman, CEO, and President of Mosby-Year Book Company.

John Hyde (MBA '63) of NorthHollywood, CA, has been appointed to theBoard of Directors of MainframeEntertainment, Canada's leading computergenerated animation production company.

Richard Berman (BS '64, MBA '73)of New York, NY, was named in January tothe Board of Directors for DyadicInternational Inc., a leading biotechnologycompany. Since 1980, he has been a pri-vate investor in real estate developmentand currently owns seven commercial oroffice properties in New York City. He isalso a Director of five other public com-panies and Chairman of two privatecompanies.

Peter J. Leveton (MBA '64) ofColumbine Valley, CO, was appointed CFOof Zynex Medical Holdings. He was previ-ously Vice President, Sales & Marketingwith Integrated Financial Systems. Zynexis a leading provider of therapeutic devicesfor patients with functional disabilities.

Rafael B. Buenaventura (MBA '67) ofMetro Manila, Philippines, was named“Management Man of the Year” from theManagement Association of thePhilippines. He is the Governor of theCentral Bank of the Philippines. Prior tohis appointment to the Central Bank, hehad a distinguished career in private com-mercial banking.

Martin Lippe (BS '67) of Fairfield,CT, was recently featured in The NewYork Times for his work as a forensicaccountant. He worked for the IRS for 27years in the criminal division beforeretiring in 1997 and starting his owninvestigative firm.

Farooq Kathwari (MBA '68) of NewRochelle, NY, is Chairman, President, andCEO of Ethan Allen Global Inc. He wasrecently featured in The New York Sundiscussing his plans to reinvent the EthanAllen company.

Jorge Irizarry (BS '69) of San Juan,Puerto Rico, has been named ExecutiveVice President of Financing at TheGovernment Development Bank, whichacts as financial adviser and conduitissuer for Puerto Rico.

Gary Pokrassa (BS '69) ofRonkonkoma, NY, has been appointed asCFO for Lakeland Industries Inc., a lead-ing manufacturer of industrial protectiveclothing.

1970sJohn R. Buran (BS '71, MBA '77) ofMassapequa, NY, has been namedPresident and CEO of Flushing FinancialCorporation upon the retirement of thecurrent officer. He joined FlushingFinancial Corporation as Executive VicePresident and COO in 2001 and wasnamed a Director in 2003.

George Zoffinger (MBA '71) ofSkillman, NJ, has been inducted as apublic member of Rutgers – The StateUniversity of New Jersey Board ofGovernors. He was nominated last yearby former Governor James E.McGreevey. His term on the board willbe six years. Zoffinger currently servesas President and CEO of the New JerseySports and Exposition Authority.

Andrew J. Barile (MBA '72) ofRancho Santa Fe, CA, has authored text-books on finite insurance, including “APractical Guide to FinancialReinsurance” and “A Practical Guide toFinite Risk Insurance and Reinsurance.”

Martin Cass (MBA '72) of PalmBeach Gardens, FL, recently opened anew office with his accounting firmCass, Levy & Leone L.C., in Stuart, FL.Cass, Levy & Leone is known for itsexpertise in partnership, corporate,estate, and international taxation. Cass

c l a s s n o t e s

38 Sternbusiness

also serves on the boards of the CancerAlliance of Health and Hope, AmericanCancer Society, and the Palm BeachCounty Jewish Federation.

Linda Fayne Levinson (MBA '72) ofSanta Monica, CA, was appointed toVendare Media's Board of Directors. Shemost recently was a Partner at GRPPartners where she served as Director ofseveral private companies that success-fully transitioned to public companies. Anine-year veteran of McKinsey &Company, she holds the distinction ofbeing the first woman elected a partner ofthe firm.

Richard Daly (BS '73) of Palo Alto,CA, was appointed to the Board ofDirectors for Aerogen Inc. He mostrecently was employed as CEO of VisibleGenetics Inc., from 1999 to 2002.

Sandra Lamb (MBA '73) of New York,NY, was recently named to the Board ofDirectors for Biomet Inc. She is currentlyPresident and CEO of Lamb Advisers,providing strategic management consult-ing services to nonprofit organizations.

Kevin M. Dunn (BS '75) of Bedford,NY, was named President and CEO ofGreat Lakes Chemical Corporation's sub-sidiary BioLab Inc., and CorporateExecutive Vice President of SpecialtyProducts. Prior to this role, he wasPresident of Playtex Products Inc.'sConsumer Products Division.

David Shedlarz (MBA '75) of NewYork, NY, has been appointed to ViceChairman on the newly formed PfizerExecutive Committee for Pfizer Inc.Shedlarz, who oversees operationsincluding finance, strategic planning,global sourcing, and information sys-tems, will also take on responsibility forPfizer Human Resources. With his pro-motion to Vice Chairman, he will end histenure as CFO, a position he has heldsince 1995. Shedlarz also serves on theNYU Stern Board of Overseers.

Steven J. Bensinger (BS '76) of NewYork, NY, was elected Executive VicePresident, CFO, Treasurer, andComptroller of American InternationalGroup Inc. (AIG).

Glenn M. Rogers (MBA '78) ofMontclair, NJ, was recently hired asCOO of Audible Inc.

Moshe Lifshitz (MBA '79) of RoslynHeights, NY, was appointed to serve onthe American Mobile DentalCorporation's Advisory Board. He iscurrently Managing Director of G&SMerchandising Corporation and hasserved in a variety of executive positionsat G&S over the past 30 years. Lifshitzis also the founder and Chairman of theBoard of Everyday Office Inc./EverydayPrint Inc., co-founder of YL VenturesLLC, and serves on the executive boardsof real estate companies includingRolling Hill.

Doug Young (MBA '79) of Los Gatos,CA, has been named President and CEOof the NeoMagic Corporation. He hasalso been appointed to the Board ofDirectors. Prior to this promotion,Young served as the company's VicePresident of Worldwide Sales.

1980sJack Abernethy (MBA '80) ofRidgewood, NJ, has been named CEO ofthe Fox Television Stations. In his newposition, he will oversee the 35 TV sta-tion group and Twentieth Television.

Jim Cracchiolo (BS '80, MBA '85)of Lynbrook, NY, has been named CEOof American Express Financial Advisorsonce it spins off from American Expressas an independent public company thisfall. He has been Chairman and CEO ofthe American Express FinancialAdvisors since 2000.

Peter Langerman (MBA '80) ofShort Hills, NJ, along with Bill Lippman(MBA '57), is leading the newly formedFranklin Value Group, a $50 billionumbrella for Franklin TempletonInvestments' Franklin and Mutual Seriesvalue investment products. In his newrole with Franklin Value Group, he willbe rejoining Mutual Series, where hehas 16 years of previous experience andwill serve as CEO and Chairman ofFranklin Mutual Advisers LLC.

Patricia McConnell runs theaccounting and taxation group inequity research at Bear, Stearns& Company Inc., where she is aSenior Managing Director. Forthe past 15 years, she has beennamed to Institutional Investor’s“All-America Research Team” offinancial analysts. Her groupprovides technical support toBear Stearns’ industry analysts

and to Bear Stearns’ clients in financial accounting andcorporate taxation. She often meets with institutionalclients, explaining and interpreting the accounting policiesand financial reporting of companies in which they invest.

McConnell received her MBA in finance from NYU Stern.While at Stern, Professor Lee Seidler, who also worked forBear Stearns, assisted McConnell in obtaining a position atthe company in 1974. Seidler, who left Stern to serve asSenior Managing Director for Bear Stearns, has served as alifelong mentor for McConnell.

As a woman, McConnell was in the distinct minority onWall Street in the 1970s. “Bear Stearns was willing to giveme a chance when many others were not. I was looking forsomeone to offer me the same opportunity they would any-one else, and they did,” explained McConnell. “There wereno other professional women in my department when Istarted, only the administrative assistants, who were calledsecretaries then.”

In an era when professionals frequently change posi-tions, companies, and careers, McConnell’s tenure at BearStearns is something of a rarity. She has stayed at the com-pany for 30 years because, “Bear Stearns has always beengood to me. They have been supportive of my career andgiven me the same opportunities they would have anyoneelse. We have an excellent relationship.”

A CPA, McConnell chairs the Corporate DisclosurePolicy Committee of CFA Institute (formerly AIMR). Sheconsiders her membership in the International AccountingStandards Board’s Standards Advisory Council to be herhighest professional achievement.

T h e T a x W o m a n

Sternbusiness 39

Patricia McConnell (MBA ’75)

Tom Jozefacki is the head ofRegional Bureaus at the GazetaWyborcza newspaper in Warsaw,Poland. He oversees the coun-try’s leading daily newspaper’s19 regional sections and itsonline initiatives. Previously, heworked in marketing and productdevelopment at NYTimes.comfor six years, and served in vari-ous marketing and advertisingpositions at Cain Associates andthe International AdvertisingAssociation. The breadth and

depth of Jozefacki’s experience has served him well in themedia business, an industry that is increasingly global andmulti-platform.

Happy in New York for 13 years and successful at TheNew York Times, Mr. Jozefacki had no plans to return to hisnative Poland. However, after being recruited by theGazeta Wyborcza, the choice was clear. “Gazeta Wyborczais the leading newspaper in Poland, an important emergingmedia market, and I was excited at the opportunity to playa leadership role in the organization,” explained Jozefacki.“Gazeta Wyborcza is trying to affect positive change inPoland. It is important for me to be involved with organi-zations whose values I share, which is what brought me toPoland and also why I chose NYU Stern for my businessdegree.”

In moving to Poland, Jozefacki took with him the edu-cation, skills, and experiences he gained in New York.Serving as head of a major national newspaper, his staff of500 is geographically widespread and diverse. He is honingthe attributes that would serve him well at any large andinfluential media company in the world. “I manage alltypes of personalities,” he remarked. “I have the opportu-nity to work with the intellectual journalists, the creativedesigners, the extroverted sales force, and everyone in-between on my team. It is my responsibility to learn whatmakes them each tick, motivate them, and bring out thebest they have to offer.”

“Good leadership is where the fun and results are in busi-ness,” he continued. “You have the resources to affect changewithin your organization and the opportunity to do so.”

“We live in very interesting times in a dynamic environ-ment,” said Jozefacki. “Open-minded people who are will-ing to see value in change are the ones who will succeed.There is no better school to prepare students to tackle thishead-on than NYU Stern.”

George J. Silver (BS '80, MBA '92)of New York, NY, was recently elected ajudge of the Civil Court, New York County.

Eric B. Weekes (MBA '81) of LakeMary, FL, has been appointed VicePresident and CFO at Embry-RiddleAeronautical University in Dayton Beach,FL. Previously, he served as Treasurer ofOGE Energy Corp., in Oklahoma City.

Cristina Schwarz (BS '82) ofGuttenberg, NJ, has been appointed VicePresident, Government and CommunityRelations for Univision Communications,the leading Spanish-language mediacompany in the United States.

Marc Belzberg (MBA '83) of Bronx,NY, is Chairman and CEO of e-Sims, asimulation software company, formerlyknown as Emultek. He also is CEO of ODFElectronics and was CEO of the nowdefunct Versaware, which convertedbooks into electronic versions on theInternet and CDs.

Ellen Breyer (MBA '83) ofMinneapolis, MN, is currently Presidentand CEO of Hazelden, and is the firstwoman to lead one of the world's topalcohol and drug addiction treatment andrecovery organizations. She also serveson the Boards of Directors for theMinnesota Book Center, Freedom FromHunger, and the National Association ofAddiction Treatment Providers.

Lauren Rich Fine (MBA '83) ofCleveland, OH, is an Equity Analyst forMerrill Lynch where she leads a NewYork-based team from her home office inCleveland. She was recently profiled inEditor & Publisher Magazine anddescribed as “perhaps the most influen-tial outside observer of the newspaperindustry.”

Michael E. Hess (MBA '83) ofBrooklyn, NY, has been nominated byPresident Bush to be AssistantAdministrator for the Bureau forDemocracy, Conflict and HumanitarianResponse at the United States Agency forInternational Development.

Anna Iacucci (BS '83, MBA '85) ofNew York, NY, joined Banc of AmericaSecurities in the firm's FinancialInstitutions corporate and investment

banking group. She will serve as thePrincipal and Global Head of theFinancial Institutions Group ratingsagency advisory team. Prior to joiningBanc of America, she served asExecutive Director of Credit RiskManagement and Advisory at GoldmanSachs International in London.

Barbara L. Rambo (MBA '83) ofNew York, NY, has been elected to theBoard of Directors for PG&ECorporation and for the utility unit ofPacific Gas and Electric Company. Sheis the CEO of Nietech Corporation, apayments technology company servingfinancial institutions and paymentprocessors.

William R. Allan (MBA '84) ofSchenectady, NY, has been namedPresident of Verizon Delaware by VerizonCommunications. He previously servedas Vice President of Regulatory Affairsfor Verizon New York, a position he heldsince 1995.

Frank J. Fanzilli (MBA '84) ofNorwalk, CT, was appointed to the Boardof Directors for Open SourceDevelopment Labs. He retired fromCredit Suisse First Boston as ManagingDirector in 2002. Fanzilli serves on theboard of public software companyInterwoven and on the boards of two pri-vate companies, CommVault andnLayers.

Kenneth E. Quinn (MS '84) ofMarietta, GA, has been appointed to theBoard of Directors and as CEO ofCitibank Canada. Prior to his appoint-ment, he was Market Manager for the USMidwest and South markets of theGlobal Relationship Bank.

Janet Avery (MBA '85) of New York,NY, is the founder and Chairperson ofthe Board of Directors of Vehicles Inc.She co-teaches a nonprofit managementclass at Baruch College, New York.

Charles Horne (MBA '85) ofWoodinville, WA, has been namedSenior Vice President and Controller ofSafeco.

Steven F. Kluger (MBA '87) ofAllendale, NJ, spoke at the VassarCollege President's Community

c l a s s n o t e s

P u s h i n g P a p e r s

40 Sternbusiness

Tom Jozefacki (MBA ’02)

Denis A. O'Connor (MBA '89) ofHamburg, NJ, has been appointedPresident and CEO of OmniCorderTechnologies Inc. He will also join thecompany's Board of Directors.

Joseph G. Schiavo (MBA '89) ofScotch Plains, NJ, has been promotedto Managing Director at The Bank ofNew York, where he leads the transfor-mation of the company's financialreporting processes. In this role, he

focuses on implementing a number ofleading practices across the bank'sfinance organization.

1990sKelly Mathieson (MBA '90) of NewYork, NY, is the Senior BusinessExecutive for J.P. Morgan Invest Inc.She is the President of the FinancialWomen's Association and a ManagingDirector at J.P. Morgan Chase. She was

recently featured in eFinancialNews dis-cussing her successful career path andhow networking inside and outside hercompany has been vital to this success.

John Gonsalves (MBA '91) ofEdison, NJ, was appointed as ManagingDirector at Gupton Marrs International.Prior to GMI, he was Vice President andPartner at Adventis, a hi-tech strategyconsultant firm.

Breakfast on April 7. He is President andCEO of GE Capital Markets Services andSenior Vice President of General ElectricCapital Services.

Ronald L. Mintz (MBA '87) ofBerwyn, PA, was recently named Principalof The Vanguard Group.

Bruce L. Pompan (MBA '87) ofStudio City, CA, has been appointed tothe Board of Directors for GeniusProducts Inc. He is a Managing Directorof Cappello Capital Corp. and hasadvised numerous growth companies infinancings, recapitalizations, and mergerand acquisition strategy.

Tim Herlihy (BS '88) of New York, NY,co-wrote the film “The Wedding Singer”with Adam Sandler. The film has beendeveloped as a Broadway show, set toopen in 2005. Herlihy wrote the adapta-tion of the screenplay and contributed twosongs to the score.

Laurie Rhodes (MBA '88) ofWoodside, NY, was recently featured inProfessional Photographer, which detailedher successful career transition from tele-vision executive to award-winning wed-ding photographer. Her images have beenpublished in The New York Times,Glamour, and Modern Bride Magazine,among others, and she was one of thewinners of the 2004 Photo District NewsTop Knots Fuji contest.

Y. David Scharf (BS '88) of New York,NY, was recently named to Crain's NewYork Business' “40 Under FortyExecutives to Watch” list. He has built areputation as a successful legal strategistand crisis manager for high profileclients, including Donald Trump andLeona Helmsley.

Margaret M. Smyth (MS '88) of NewYork, NY, has been appointed VicePresident and Chief Accounting Officer of3M. Prior to her appointment, Smyth wasa Senior Partner in the accounting firm ofDeloitte & Touche LLP.

Kathleen Corbet (MBA '89) of NewCanaan, CT, published an article entitled,“Credit Where Credit is Due,” in The WallStreet Journal, on May 31. She is thePresident of Standard & Poor's.

Sternbusiness 41

Carlos Menendez left Cuba 45 years ago. But after more thanthree decades in New York, the banker found his way back towhat many people regard as the closest thing to Cuba: Miami.

As Chairman of the Board of Intercredit Bank in Miami,Menendez oversees the operation of a community bank that holdsapproximately $443 million in assets and caters primarily to smalland medium-sized businesses. Previously, he spent 27 years atIrving Trust Company, where he started as a clerk in the LatinAmerican area and wound up running the Latin American Group.

Born in Havana in 1938, Menendez began his banking careeras a legal assistant in the largest bank in the country, BancoContinental Cubano. He was also working toward a law degree.

But when private universities were shut down after the advent of the Castro government,Menendez decided to leave Cuba.

In December, 1960, Menendez and his wife moved to New York City and asked forpolitical asylum. He supported himself with a number of clerical jobs until he joined IrvingTrust Company in 1963. “Leaving Cuba affected my life – period,” said Menendez.Because Cuba is much smaller than New York, he viewed his new home as a tremendousadventure. “New York City opened my horizons. There was a sense of satisfaction know-ing that I could make it in a tough place.”

After joining Irving Trust, Menendez began studying business at New York’s BaruchCollege, and later transferred to NYU Stern. “Business knowledge shaped my career, andStern was an excellent education,” noted Menendez. He has a fondness for his alma mater,and gave his daughter Marie a “gentle push” to attend Stern. Now a Senior Credit Officerat Moody’s, Marie earned both a BS (’83) and MBA (’85) at Stern.

Menendez left Irving Trust in 1990 to become CFO of Pacific International Services, anaffiliate of the Noboa Group. In 1991, he purchased a small local community bank forNoboa, which became Intercredit Bank. Although his heart is in New York, Menendezdecided to move to Miami to develop the bank. He considers his current work not only hisgreatest career challenge, but also his greatest triumph. “In a large organization like IrvingTrust, you are given a lot of support,” he said. “At a small bank, you are the support. It isnice to build something from the ground up.”

Menendez advises banking industry newcomers to trust their intuition. “The world haschanged. I was able to carve out a 27-year career at one institution. I can’t imagine some-one doing that today.”

B a n k i n g o n M i a m i

Carlos Menendez (BS ’71)

Quinten Stevens (MBA '91) of Darien,CT, was named Managing Director andhead of Wachovia Securities' EquityDivision, spearheading the bank's push tojoin the ranks of Wall Street's leadingequity firms.

Jill S. Krutnick (MBA '92) ofScarsdale, NY, has joined Warner MusicGroup as Senior Vice President, InvestorRelations and Corporate Development.Prior to joining Warner Music Group, shewas a Managing Director of US EquityResearch of Citigroup's Smith Barneywhere she covered entertainment andleisure industries.

Robert E. Massengill (MBA '92) ofMorristown, NJ, is Managing Director andco-founder of SES Advisors Inc., an ESOPadvisory firm with four East Coast offices.SES Advisors was recently selected as a“Philly 100” company, one ofPhiladelphia's fastest growing companies.

Manish Somaiya (BS '92) of New York,NY, has joined Banc of America SecuritiesLLC, as a Managing Director and SeniorHigh Yield Analyst, covering the industri-als, services, and aerospace and defensesectors.

Peggy Yu (MBA '92) of Jersey City, NJ,is founder and Co-president ofdangdang.com, the largest Chinese lan-guage online store of books, movies, andmusic.

Dr. Michael D. Jacobson (MBA '93)of Greensboro, NC, is currently lobbyingCongress to direct tax money for stem cellresearch. Dr. Jacobson, who hasParkinson's disease, is working with hislocal chapter of Hadassah, a Jewish serv-ice and educational organization, in thislobbying effort to support stem cellresearch used to fight the effects of dis-eases such as Parkinson's, multiple scle-rosis, and juvenile diabetes.

J. Stuart White III (MBA '93) ofHarrison, NY, has joined WachoviaSecurities as the Managing Director in theMergers and Acquisition practice.Previously, White was a Managing Directorin the Mergers and Acquisitions group atCIBC World Markets.

Michael A. Carrazza (MBA '94) ofDenver, CO, has co-founded BardCapital Partners LLC, a private equityinvestment company where he will serveas Managing Director.

James Fogarty (MBA '94) of Ardsley,NY, has concluded his role as interimCFO for Levi Strauss & Co. He and hisfirm, Alvarez & Marsal, were hired byLevi's as turnaround specialists to helpthe company cut costs and restructureits business.

Jeremy Miller (BS '94) of Metuchen,NJ, has recently launched Down, a newmagazine dedicated to Southern hip-hopmusic and culture. Prior to launching hismagazine, Miller spent 14 years as anexecutive with Source magazine.

Gerald V. Thomas (BS '94) of Atlanta,GA, has been named Partner at Alston &Bird LLP, in Atlanta, GA. He practices inthe federal income tax group, focusing oncorporate and partnership taxation.

Jason Hirschhorn (BS '95) of NewYork, NY, runs the digital music andmedia division of MTV Networks Group.He is responsible for all interactiveentertainment for MTV, MTV2, mtvU,VH1, VH1 Classic, CMT, ComedyCentral, and LogoTV.

Roland Marchand (MBA '95) of NewYork, NY, has been promoted to SeniorManaging Director at Bear Stearns.

Natalie Butto (MBA '96) of Seattle,WA, has joined the Starbucks Coffee

c l a s s n o t e s

The world may not be flat, as New York Times columnistThomas Friedman suggests. But according to Jorge Figueredo it isgetting smaller. “Understanding different cultures and how toconduct business on a global scale is critical in business today andespecially tomorrow,” he said. “My passion is managing businesson a global scale.”

As President of Liz Claiborne International, a position he hasheld since 1999, Jorge Figueredo is responsible for the sales, mar-keting, and merchandising of New York-based Liz Claiborne Inc.,brands in Asia, Canada, and Latin America. Liz Claiborne Inc.,distributes over 18 brands in these regions including LizClaiborne, Claiborne, Dana Buchman, Sigrid Olsen, Ellen Tracy,Lucky Brand Dungarees, Mexx, and Monet. He was previously

responsible for the company’s European operations. During Figueredo’s tenure, Liz Claiborne Inc.’s international business has grown from 5

to 25 percent of the company’s sales. He led the acquisition of Mexx Europe and MexxCanada, and has introduced a number of new brands into international markets, helpingto make the International division one of the fastest growing and dynamic areas of the com-pany over the past five years.

Before becoming President of the International division, Figueredo, who joined the com-pany in 1984 after graduating from Fairfield University in 1982, was the Senior VicePresident of Human Resources with responsibility for all human resource functions withinthe company. Working alongside the Chairman and CEO, he led the “people strategy” oftransforming Liz Claiborne into a high-performance culture.

“Having started a career in human resources, transitioning to an international, opera-tional role was something of a challenge,” he said. “Stern was the stepping stone thatallowed me to gain the business knowledge. Coupled with my practical experience, it gaveme the added credibility that I needed to make the switch.”

Figueredo has served as a member of the company’s Leadership and Executive Councilssince their inception in 1994, has been a Board Member of the Liz Claiborne Foundation,and was a Co-executive Sponsor of LizACTS, an employee involvement program.

“This business is an exciting place to be. I have always enjoyed the energy and pace ofthe fashion/retail industry and the opportunity to interact with consumers,” he said. “Overthe last 10 years, this industry has evolved into a more traditional professional environ-ment, attracting more business professionals and MBAs. The need for this group will con-tinue to grow as retail/fashion companies compete to be global players.”

G l o b a l R e t a i l G u r u

42 Sternbusiness

Jorge Figueredo (MBA ’95)

NEWSSEND US YOUR NEWSDo you have a new job or promotion? An award, honor, or achievement toshare? How about a marriage, new baby, or adoption? Let other alumni knowabout the things happening in your life.

Send us your news and photos online through Class Notes in SWAP - the SternWorldwide Alumni Platform - at www.stern.nyu.edu/Alumni or mail in thefollowing form, and we will publish it in an upcoming issue of STERNbusiness.

Name

Class Year(s) and Degree(s) from NYU Stern

Degree(s) from Other Institutions

Job Title

Company Name

Business Address

Home Address

Work Phone Home Phone

Preferred E-mail Address

Elizabeth J. Moran (MBA '98) ofMountain Lakes, NJ, has been elected tothe Board of Trustees for Roots & Wings,a New Jersey-based nonprofit that workswith foster care children. She has alsobeen elected to serve as Treasurer for theorganization.

Michael Taggart (MBA '98) of NewYork, NY, has been promoted toManaging Director of US Trust, a wealthmanagement company.

Hally Bayer (MBA '99) of Brooklyn,NY, was recently named Vice President,Promotion at Scholastic Book Clubs.

David Hernandez (MBA '99) of WestPalm Beach, FL, received the “HispanicEntrepreneur Award” from HispanicMagazine. He was chosen from a field ofover 200 candidates. Hernandez isChairman and CEO of the national retailelectricity provider, Liberty Power Corp.

2000sHalie O'Shea (MBA '00) ofPhiladelphia, PA, was named a Principalwith Turner Investment Partners, becom-

ing an equity stakeholder in the firm. Shejoined the firm in 2004 and is currently aSecurity Analyst/Portfolio Manager.

Bill Tan (BS '00) of Astoria, NY, isFounder and President of TranscendentInternational LLC. The company islaunching a suite of software applica-tions, named LanguageMate, to helpbridge the language gap in areas of healthcare and social service.

Tal Kimmel (MBA '01) of New York,NY, is Vice President in the InvestmentBanking Group for Stanford GroupCompany. He joined Stanford fromLehman Brothers where he advised com-panies in the media and telecommunica-tions sectors on private equity, M&A, andpublic equity transactions.

Geoffrey Morris (MBA '01) ofRidgefield, CT, is President of MorrisMedia Group, and has launched a secondregional, high-quality glossy bi-monthlymagazine. Bedford Magazine is a sub-scription-based lifestyle publication forthe people of Bedford, Pound Ridge, andKatonah, NY. It follows its successful sis-ter publication, Ridgefield Magazine,launched in Connecticut in 2003.

Cliff Seltzer (MBA '01) of Scarsdale,NY, was named Industry Leader for theSteel, Metals & Mining markets at GECommercial Finance, Commercial &Industrial Finance. In his new role at GE,he will be responsible for driving organ-ic growth in the steel, metals, and min-ing industries.

Matteo Gottardi (BS '04) of PineBrook, NJ, and Michael Leen (BS'04) of Warner Robins, GA, opened anew brand and retail store, Operations,in the Soho district of New York City.

Dr. Jeffrey Schor (MBA '04) of PortWashington, NY, is Director of thePediatric Emergency Department at NewYork Hospital Queens. He recentlyopened PM Pediatrics, a practice thatsees patients after hours.

Daniel R. Smith (MBA '04) of WhitePlains, NY, has been appointedExecutive Vice President and CFO ofPrincipia Partners. Prior to Principia, hewas Senior Vice President of Financeand Administration at Viewpoint.

Company as Director, Corporate Counsel,and has relocated to Seattle. Previously,she was Counsel and Assistant Secretaryat Tropicana Products Inc.

Stefan D'Annibale (MBA '96) of NewYork, NY, joined RBS Greenwich Capital,a leading fixed-income investment bank,as Managing Director.

Ronald W. Holt Jr. (MBA '96) ofPlantation, FL, travels around the world toselect stocks for the Harris InsightInternational Fund. He was recently pro-filed in Westchester County's The JournalNews for his work in recognizing superiorinvestment opportunities in global mar-kets.

H. Christopher DeCotiis (MBA '97)of Westfield, NJ, has been named toMilacron Inc.'s Board of Directors. Hecurrently serves as Vice President -Senior Credit Officer at the Royal Bank ofScotland in New York.

Victoria Chu Pao (MBA '97) of NewYork, NY, has been appointed President ofPlatts, The McGraw-Hill Companies'global energy information business.

News to Share with NYU Stern Classmates

Please send or fax this form to:

Sternbusiness 43

Office of Alumni AffairsNYU Stern School of Business44 West Fourth Street, Suite 10-160New York, NY 10012-1126Fax: 212-995-4515

Economic & Financial Problemscourse, was part of a cadre of Sternstalwarts with long tenures, such aseconomist Marcus Nadler, statisticsprofessor Ernest Kurnow, and DeanJoseph Taggart, who spearheadedthe creation of the full-time MBAprogram in the early 1960s.

Although he had never taken a

literature course as an undergradu-ate, Kavesh became interested inliterature in graduate school – “Iwrote a monograph 50 years agoabout businessmen in fiction,” herecalls. In the 1960s, he realizedthat many full-time students didn'thave much background in historyor literature. So he began to think

Poetry in MotionBy Daniel Gross

For nearly five decades, RobertKavesh, emeritus professor of eco-nomics and finance, has been inject-ing a little poetry into his economicscourses.

A Navy veteran andgraduate of New YorkUniversity’s undergraduateschool of business, Dr. Bob –as he asked students to callhim – received his PhD fromHarvard University. After abrief teaching stint atDartmouth College, hejoined the faculty of NYU’sgraduate school of businessin 1958.

The school was housed ina building adjacent toTrinity Church in lowerManhattan, on the site ofwhat is now Merrill Hall.The environment was spar-tan – there was no air con-ditioning – and sounds fil-tered in from the streetsbelow. There also wasn’tmuch in the way ofextracurricular activities.“Most of the students inthose days were male, and most wereveterans of World War II,” Kaveshrecalled. “The classes were all part-time, the students went to school atnight, and the conditions were verycrowded.” But, he adds, “it was ajoy to teach. The students appreciat-ed what you were doing.”

Kavesh, who taught the Current

44 Sternbusiness

of ways to inject small doses of lib-eral arts into the science of econom-ics. “I began to look for littlesnatches of poetry that might serveas a text for the lecture we weregoing to have,” he said.

And so he would kick off a ses-sion with a quote from Ezra Pound,or Lord Byron, or Carl Sandburg,

or songwriter Yip Harburg (afavorite was the lyrics fromHarburg’s 1931 classic,“Brother can you spare adime?”). While it helped drawstudents into the material, theuse of poetry had a more far-reaching effect. “Over the years,and this is what makes teachingfor me, I’ve had literally hun-dreds of comments from stu-dents who said they becameinterested in poetry or 19thcentury literature as a result ofthis,” he said.

After 47 years at Stern,Kavesh, who taught this sum-mer, continues to enjoy thesense of engagement that teach-ing can bring. “Right now, I’mimpressed by the fact that thestudents with whom I come intocontact seem to be concernedwith worldly affairs,” he said.But he also continues to be

gratified by their interest in a well-constructed verse. “Every so often,a former student sends me a line ortwo from a poem, and asks if I canrecognize it,” he said. “If I can, I’lle-mail them back.” ■

DANIEL GROSS is editor of STERNbusiness.

PastPerformance

Dr. Bob Kavesh circa 1960

OCTOBER 19 CEO Series: Janet Robinson, CEO of The New York Times Company4:30 p.m.; Cantor Boardroom, KMC, 11th Floor

28 Lifelong Learning Workshop: “Distressed Debt” featuring Professor Edward Altman8:30 a.m. - 1:30 p.m.; KMC

NOVEMBER 15 CEO Series: Mel Karmazin, CEO of Sirius Satellite Radio4:30 p.m.; Cantor Boardroom, KMC, 11th Floor

17 Author Lecture Series: John Bogle, Author of “The Battle for the Soul of Capitalism”6:30 - 9:00 p.m.; Schimmel Auditorium, Tisch Hall

DECEMBER 2 Alumni Regional Leaders Summit KMC

3 Alumni ConferenceTopics: “Globalization and Its Impact on the World Economy: Winners and Losers”10:00 a.m. - 3:30 p.m.; KMC

Fifth Annual Stern Alumni Ball8:00 p.m. - Midnight; The Museum of Modern Art

8 Committee of 200 Annual MBA SeminarKeynote speaker: Ann S. Moore, Chairman and CEO, Time Inc.

FEBRUARY 8 CEO Series: Susan Whiting, CEO of Nielsen Media Research4:30 p.m.; Cantor Boardroom, KMC, 11th Floor

MARCH 24 Citigroup Ethics and Leadership Conference

CALENDAR OF EVENTSFor the most up-to-date information on events, visit the Office of Alumni Affairs website at www.stern.nyu.edu/Alumni

or contact the Office at (212) 998-4040 or alumni@stern.nyu.edu.

U P C O M I N G E V E N T S

S T E R N A L U M N I P R O G R A M M I N G

“ N Y U I N Y O U R N E I G H B O R H O O D ”Reservations required. For complete information, visit the website at www.nyu.edu/Alumni.

NOVEMBER 9 Long Island, NY17 Los Angeles, CA29 Greenwich, CT

JANUARY 8 Los Angeles, CA

OCTOBER 6 First Thursday: Undergraduate Alumni Happy Hour – Welcome Class of 20056:00 - 9:00 p.m.; NYU Torch Club

NOVEMBER 3 First Thursday: Undergraduate Alumni Wine Tasting6:00 - 8:00 p.m.; Abbe-Bogen Faculty Lounge

10 MBA Alumni Happy Hour – Welcome Class of 20056:00 - 9:00 p.m.; NYU Torch Club

18 “The Future of Television: Beyond the Box – An Executive Forum”8:00 a.m. - 5:00 p.m.; Schimmel Auditorium, Tisch Hall; www.televisionconference.com

JANUARY 12 Reception for the January 2006 Graduates of the Langone Program6:00 - 8:00 p.m.; The Commons

FEBRUARY 2 First Thursday: Undergraduate Alumni – “Navigating Your Stern Alumni Network”6:00 - 8:00 p.m.

23 Sixth Annual Wine Tasting Hosted by Alumni of the Langone Program6:00 - 8:30 p.m.; The Commons

MARCH 2 First Thursday: Undergraduate Alumni – “How to Get Into a Top MBA Program”

14 MBA Alumni Networking Reception – “Navigating Your Stern Alumni Network”6:00 - 8:00 p.m.; Room 5-50, KMC

FEBRUARY 28 Albany, NYMARCH 23 San Francisco, CAAPRIL 1 St. Pete Beach, FL

S T E R N S T U D E N T C L U B C O N F E R E N C E S

OCTOBER 21 Association of Hispanic and Black Business Students (AHBBS) ConferenceNOVEMBER 4 Graduate Finance Association (GFA) Conference

11 Graduate Management Association (GMA) ConferenceFEBRUARY 3 Stern Women in Business (SWIB) Conference

10 Media and Entertainment Association (MEA) Conference24 Global Business Conference

MARCH 3 Association of Investment Management (AIM) Conference

Office of Public Affairs44 West Fourth Street, Suite 10-160 New York, NY 10012

NON-PROFIT ORG.U.S. POSTAGE

PaidNew York, NYpermit no.7931