Kim Beazley reflects on what it takes

Leadership lessons

GOVERNANCE, ETHICS AND OPTIONS

Examining the issues

25 BRILLIANT YEARS

AUSTRALIAN GRADUATE SCHOOL OF MANAGEMENT MAGAZINE ISSUE: 3 � 2002

AGSM

This issue of AGSM Magazine features

some of the excellent work being

done by the School’s students and academic staff, as well as news about how positively this

work is being recognised outside the School. Accreditation by the AACSB (see our story on

page 2) is a great step forward for the AGSM and a clear acknowledgment of the quality of

our faculty and MBA and MBA (Executive) programs.The School was ranked in the highest

band of Australian business schools in the recent rankings done by BOSS magazine. And the

Financial Times (UK) has just placed our MBA (Executive) program 14th in the world in its

global ranking of executive MBAs.

Formal recognition from accrediting agencies and the media is backed up by the informal

recognition that the AGSM gets in so many ways – seminars by prominent speakers such

as Kim Beazley, support from corporate leaders such as Chum Darvall (see his column on

page 32), and a steady stream of participants in our executive programs.The fundamental

basis for all of this recognition is, of course, the leading-edge research that is carried out

across the School and the ability of our academic staff to turn their research into

actionable insights for managers.Their efforts make possible events like this month’s

Alumni Conference and Reunion, which has brought together an excellent group

of academic and business leaders to debate business trends and challenges.

As we reflect on a year’s great work I look forward to talking with alumni and students in

person at Christmas drinks in all of the cities in which the AGSM teaches. Indeed, in order

to continue having an impact, the AGSM must steadily become more global, more virtual,

and – a seeming paradox – more personal. Increased interaction between the School and

the community at large continues to be among my highest priorities.

Finally, I want to congratulate Debra Maynard and her colleagues for another year of excellent

content and design in AGSM Magazine.The improved format of the magazine, now nearly two

years old, has been a great success, and from 2003 the magazine will move to four issues per

year. Please continue to submit your own news, as well as your ideas for future stories.

Best wishes for the holiday season.

DEAN’S MESSAGE

Professor Michael Vitale

Dean and director

Australian Graduate School of Management

AGSM Magazine is a publication for supporters of the AustralianGraduate School of Management, a School of both the University of New South Wales and the University of Sydney.

Publisher: professor Michael Vitale,AGSM dean

Editor: Debra Maynard

Design: Mayfly Graphics

Copy editor: Richard Podmore

Bush telegraphcorrespondent: Don Taylor

SEND Magazine contributions to: magazine@agsm.edu.au

Circulation enquiriesTel: (02) 9931 9240

AGSM contact points:

Media and communicationsTel: (02) 9931 9240

Alumni servicesTel: (02) 9931 9499/9284

Executive programsTel: (02) 9931 9333

MBA programsTel: (02) 9931 9412

Main switchboardTel: (02) 9931 9200

Web site: www.agsm.edu.au

Published for the AGSM by Debra Maynard & Associates Pty Ltd, 93 Bream StreetCoogee NSW 2034 Australia, Tel: (02) 9665 7182,Fax: (02) 9665 7186.

ISSN 1441-5437

Cover photo: Kim Beazley by Frank Lindner.

ISSUE: 3 � 2002

ContentsPAGE 16

NEWS2 Landmark accreditation

The AGSM has measured up to one of the world’smost rigorous standards for business educators.

2 World class The Financial Times (UK) has ranked the AGSM’s MBA (Executive) program in the top 15 in the world.

3 Elite training Professional rugby players gain access to AGSM programs.

4 Coaching servicesThe AGSM’s executive education experience now includes personal coaching services.

FEATURES6 Leadership lessons

Kim Beazley gives some personal and politicalinsights into what characterises good leadership.

9 Big ideasBudding entrepreneurs are turning to the AGSM.

10 Governance drifts off courseProfessors Chris Adam and Lex Donaldson examine the issues of corporate governance.

14 Personal journeys Putting business studies to the test.

16 Action on ethicsEffective self-regulation needs a commitment to ethical conduct, according to a new course on business ethics.

18 People leadershipWhat it takes to be an employer of choice.

RESEARCH15 The cost of share options

The AGSM’s Chongwoo Choe takes a look at how share options measure up.

22 Measuring customer satisfactionHow to get reliable results for less cost.

DEPARTMENTS2 Upfront

25 Books

26 Publications & papers

27 Faculty news28 Bush telegraph

30 Alumni at large

32 Corporatepartners

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Creating a highly adaptive

culture results in one team going to

the market.— Deloitte Touche

Tohmatsu’s Peter May. See full story

page 18.

Sea of collapse:PAGE 10

�

Copyright © AGSM 2002. All rights reserved. This publication may not, in whole or in part, be lent, copied, photocopied, reproduced, translated orreduced to any electronic medium or machine readable form without the express written permission of the publishers. While the publishers havetaken all reasonable precautions and make all reasonable efforts to ensure the accuracy of the material contained, articles express the personalopinion of the author and not necessarily that of the publishers or the AGSM.

T he AGSM is the firstbusiness school inAustralia to be awarded

international accreditation bythe Association to AdvanceCollegiate Schools of Business (AACSB).

The accreditation is asymbol of quality in world-class management education.It means the AGSM’s MBA,MBA (Executive) and PhDdegree programs havemeasured up to one of theworld’s most rigorousstandards for businesseducators.

Only a handful of businessschools outside NorthAmerica have attained AACSBaccreditation – 14 in Europe,four in Asia, three in Southand Central America and twoin the Middle East.

The AACSB is widelyregarded as the world’spremier independent agencyfor business administration

and accounting degreeprograms.

Based in St Louis, Missouri,it has devoted 86 years to theimprovement and promotionof management and businesseducation. It has more than800 institutional membersworldwide, of which 427 are accredited.

“This accreditation assuresour students of our commit-ment to providing world-classquality standards in manage-ment education that arerecognised and valued by thebusiness community,” saysprofessor Mike Vitale, dean.

“It means we are officiallyranked with schools likeWharton, Kellogg, LondonBusiness School and Stanfordfor the quality of our curricu-lum, faculty, teaching andresearch,”Vitale says.

While Australia is yet toestablish its own accreditationsystem, it is a move that was

recommended by the federalgovernment’s Enterprising Nation(Karpin) report in 1995.

Such a system would:“give Australian highereducation managementsuppliers a quality assuranceindicator, which will assist their efforts and begenerally informative to the domestic and exportmarkets,” the report recommended.

“In today’s competitivemarketplace, there is no doubtthat a degree from a quality-endorsed business school, likethe AGSM, ultimately makesgraduates more marketable,”says Vitale.

“It is particularly pleasingfor the AGSM to have achievedthis mark of quality in our25th anniversary year,” he says.

The accreditation processtook two years of preparationand work by the School andthe AACSB.

upfrontNEWS UPDATE

COVER STORYKim Beazley delivered theyear’s final LeadershipSpeaker Series presentationto a packed house at theAGSM’s Randwick campusin Sydney in late September,giving some personal andpolitical insights into whatcharacterises good leader-ship. He gave AGSMMagazine an exclusiveinterview, which is reportedon pages 6 to 9.

GOOD BOOKSThis month we introduce anew Books section (seepage 25) that features moreAGSM faculty members’recommendations andreviews. We would like toinclude book reviews fromalumni, advisory counciland board members. So ifthere’s a great book youwant to read and review,simply contact the editor,Debra Maynard, and AGSMMagazine will send you acopy of the book in returnfor a review. Our aim is totap into what’s on the mindsof our practitioners, profes-sors and lecturers when itcomes to good reading.

BRANCHING OUTDon’t miss the firstChristmas drinks hosted bythe AGSM’s alumnibranches across Australia.Alumni and MBA (Executive)students are invited tofunctions in Canberra,Melbourne, Adelaide, Perth,Brisbane and Sydney. Seepage 4 for dates andvenues.

KEEPING YOU IN TOUCH WITHWHAT’S GOING ON AT THE AGSM

Landmark accreditation

2 | AGSM I S S U E 3 • 2 0 0 2

The AGSM’s Dr Jane Craig (back left) and Paul Murnane, AGSM advisory council member (back right) worked with AACSBaccreditors (from left) Howard Thomas (dean, Warwick Business School, UK), Bruce Willison (dean, The Anderson School at UCLA, US) and John Kraft (dean, Warrington College of Business at the University of Florida, US).

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AGSM ranks in top tier

Australian business schooldirectors voted the AGSM’s

full-time MBA program thebest in the country in TheAustralian Financial Review BOSSmagazine’s inaugural businessschool survey in September.

Overall, the School ranked in the survey’s top band, alongwith Melbourne BusinessSchool and MacquarieGraduate School of Business.BOSS ranked a total of 24Australian business schools and placed them in four descending bands.

The BOSS survey is the first business school rankingconducted by a mainstreamAustralian business publicationsince The AFR discontinued itsannual business schoolrankings in 1998.� For the second year insuccession, the Financial Times

(UK) has placed the AGSM’sMBA (Executive) program inthe top 15 in the world.TheAGSM was ranked 14th in thepaper’s latest global ranking of executive MBAs, and it was the only Australianbusiness school to make it into the top 50.

Teamwork advice finds its targetThank you for your permissionto reprint your thought-provoking and informativearticle regarding team effec-tiveness (‘Team Works’ byDebra Maynard, Issue 2, 2002)in our own electronic clientnewsletter, Really Useful HR Stuff.The article succinctly pulledtogether the need to balanceconsideration of a broad rangeof issues such as teamcohesion, conflict resolutionand goal alignment, anddemonstrated their importance in achieving team effectiveness, rather than just task focus.

Very few tasks in theworkplace are completed inisolation and therefore requireinteraction with other teammembers, whether it is a structured team or merely agrouping of co-workers.Thus, total organisation-wideproductivity and effectivenessare, indeed, influenced byteam effectiveness.Thanks onceagain for providing a simpleyet effective article that wehope will help some of ourclients improve the effective-ness of their businesses.

KIM CRUICKSHANK,Employee Relations Officer, Employee Relations Strategies,North Sydney NSW

Letters are welcome. Please keep them short and include your full address and phone number for verification. E-mail: magazine@agsm.edu.auMail: The Editor, AGSM Magazine, Australian GraduateSchool of Management, UNSW, SYDNEY NSW 2052 Fax: (02) 9931 9539

Letters

www.agsm.edu.au AGSM | 3

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T he term ‘personal development’ has takenon new meaning for more than 200 eliteprofessional rugby union players who can

access the AGSM’s suite of business educationprograms as part of their career training.

An agreement between the AGSM and theRugby Union Players’Association (RUPA) wassigned last month, which means professionalplayers can choose to augment their career and education by studying the AGSM’s MBA(Executive) program or choosing from a rangeof executive programs.

The agreement is available to players as partof the RUPA Career Training Scheme, which isunderwritten by the Australian Rugby Union(ARU) at a cost of more than $500,000 a year.

Up to 113 players from the three state- andterritory-based professional teams – ACTBrumbies, NSW Waratahs and Queensland Reds – and approximately 90 up-and-comingacademy players are eligible.

AGSM principal and deputy director DrJohn Toohey says RUPA’s decision to make

AGSM its preferred education supplier was influenced by the School’s distinguishedreputation and its national and flexibleprograms.

“Professional sportspeople today have beenhampered in planning for their future careers by the intense demands of training, travel,performance and the ever-present prospect ofphysical injury,” says Toohey.

“This agreement is a positive step in thedevelopment of players’ future careers,”he says.

The agreement will see the AGSM and RUPA offering appropriate career developmentadvice to suit individual players, who canaccess the scheme throughout their playingcareers and up to three years after retirementfrom international or Super 12 competition.

Former Wallaby player Michael Brialcompleted his MBA (Executive) at the AGSM in 1998. Brial’s NSW Waratah team-mate and current Wallaby player BrendanCannon is also studying the same program.

Business theory to get workout

This agreement is a positive step inthe development of

players’ futurecareers.

BRENDAN CANNON

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In briefIn 2003 the AGSM’s Centre for Corporate Change will

bring several high-profile corporate leaders to Australiato participate in its new Leadership in Business corporatespeakers program.The objective of the series is to createa vibrant and interactive forum where Australianbusiness executives can discuss and debate the businesschallenges they face with corporate leaders.

New board member Full-time MBA student JamesRobertson (left) was elected to theAGSM board of directors by theAGSM student body in July. Jameshas a BEng from the University of New South Wales and worked as a consultant for Hagen & Cobefore coming to the AGSM.

Campus upgradeTo enhance the student study environment at theRandwick campus in Sydney, the AGSM is renovating.Thework, to be completed in time for class commencementin January, will upgrade four theatres, create new studyspaces in the library and add 10 new syndicate rooms.

PERSUASIVE (From left): MBA studentsRonan Gilhawley, Rebecca

Lindsey, Matthew Bruce andSamantha Roberts brought

the Deloitte Consulting Cup back to the AGSM afterbeating Melbourne Business

School in this annualdebating competition.

The AGSM team won a prize of $2000.

Last chance to network

The alumni branches around Australia are hostingChristmas functions for alumni and MBA (Executive)

students from late November to early December. Don’tmiss out on these end-of-year festivities.Dates and locations are as follows: 25 November, Adelaide (Stamford Plaza)26 November, Brisbane (Summit Restaurant)28 November, Sydney (No. 1 O’Connell Street)2 December, Canberra (The Boathouse by the Lake)3 December, Melbourne (Clifton and Associates)9 December, Perth (AGSM)

Tune in to Web video

The AGSM alumni association is trialling the use of the World Wide Web to make video footage of

speaker events available to alumni no matter where theyare located.

The first presentation to be video streamed is FujitsuCEO Phil Kerrigan speaking on ‘Post Nasdaq and dot comcollapse – what happens to careers in technology?’, whichwas hosted by the Melbourne alumni branch in September.

To view the presentation, go to:www.mytvworld.com.au/customertrial/fujitsu4.htm.You need Windows Media 7.0 (or higher) and the videoviews best at a transmission range of 28 to 120Kbps.For best picture quality, the recommended Windows media player screen size is no bigger than 320 x 240pixels. Please also check that your firewalls acceptstreaming. If you wish to offer feedback on the trial, e-mail: alumni@agsm.edu.au.

4 | AGSM I S S U E 3 • 2 0 0 2

LEADERSHIP SERIES Professor Mike Vitale, dean (right) andprofessor Robert Wood (left) met with Kim Beazley at the AGSM. See full story on page 6.

Getting the most out of executiveeducation is as much about

putting new knowledge and skillsinto practice as learning about them.That’s why the AGSM’s ExecutiveEducation group has launched alearning coaches program to helpexecutive education participantsachieve their goals.

It’s a value-added service forwhich participants or theircompanies can sign up, “to ensurethat the learning outcomes from a course are embedded back intochanged behaviour or activities inthe workplace,” says Ann Whyte,director of executive programs.

The new service was rolled outthis month with six experiencedcoaches appointed from the AGSM’salumni community. “I jumped atthe opportunity to get involved,”

says consultant Helen Williams(DPM ’99), “because it’s anexciting project.”

The amount of time learningcoaches spend with participantswill vary according to customers’individual needs, and the service isnegotiated prior to executiveprogram participation.

“It’s all about helping people toproblem-solve and to make surewhat they set out to achieve can bewitnessed in the organisation andrecorded in management perfor-mance processes,” says Whyte.

The first learning coachplacement was with TomagoAluminium, which this monthbought the service for two of itsexecutives as part of their participa-tion in the executive program,Managing People for Performance.

Achieve more with a learning coach

For your diary25November Use research to

focus on your customers’needs at Organisational Behaviour – Creating Service-orientedOrganisations – a Centre forCorporate Change research briefingby the AGSM’s Dr Marcus Groth,AGSM CBD campus, Level 6, No.1O’Connell Street, Sydney (sponsoredby Booz Allen Hamilton).

2–3 December Understand thebasics of managing people in

People Management, Little BayConference Centre (LBCC), Sydney.

2–12 December Thoroughlyunderstand the balanced

scorecard in this Time Saver Seriesprogram,The Performance DrivenOrganisation and the BalancedScorecard, (five mornings, 7–9am),CBD campus, Sydney.

4–6 December Hone your leader-ship techniques in Strategic

Leadership, LBCC, Sydney.

4–6 December Develop thecourage to influence others in

The Corporate Communicator,Randwick campus, Sydney.

5–6 December ProjectManagement focuses on

budgeting and quality managementtechniques, LBCC, Sydney.

9–11 December Become a more effective consultant

with Winning Consulting Skills,LBCC, Sydney.

12–13 December Develop your financial skills in

Finance for Non-financial Managers, Hong Kong.

2003

30January Professor Don Mooreof Carnegie-Mellon University

presents The Independence ofAdvisory Services – a Centre forCorporate Change research briefing,CBD campus, Sydney (sponsored byNM Rothschild and Sons).

2–7 February Develop newmanagerial skills in the six-day

residential General ManagerProgram, Randwick campus, Sydney.

6–7 February Learn more aboutleading-edge knowledge manage-

ment from local and internationalacademics and corporate leaders at theKnowledge Management Conference,hosted by the School of InformationTechnologies at the University ofSydney, the Carnegie-Bosch Instituteof Carnegie-Mellon and the AGSM’sCentre for Corporate Change.

24February and 10 MarchThe Manager as Coach is

an intensive program comprising two days over a fortnight, CBD campus, Sydney.

5–12 March Gain the skills toachieve better outcomes in

Contract and CommercialNegotiations (two half days),CBD campus, Sydney. ✪For more information on Centre for Corporate Change events, visit: www.ccc.agsm.edu.au, e-mail:annefi@agsm.edu.au or contact AnneFitzsimmons on: (02) 9931 9502. For details on any of the above executive programs, call client services on: (02) 9931 9333, or e-mail: enquiries@agsm.edu.au. For details on Hong Kong executiveprograms, call: (852) 2588 1725 or e-mail: contact@agsm.com.hk.

Supporting entrepreneurship

The Women Chiefs of EnterprisesInternational (WCEI) has created a new

scholarship for women to encourage entre-preneurship.Worth $6500, the scholarshipcomprises $5400 cash, $500 worth ofaccounting software and a $600 one-dayBrainpower seminar.

The scholarship will be awarded to astudent in her final year of the MBA(Executive), who will also be encouraged tonetwork with the WCEI’s invitation-onlymembership.

“We want to encourage thedevelopment of entrepreneurialwomen and we chose the AGSMthrough which to do that because itis one of the best MBAs in theworld and enrols a comparativelyhigh percentage of women,” saysLynn Wood, an AGSM alumnus andpresident-elect of WCEI’s NewSouth Wales division.

The WCEI is the first organisa-tion (outside the AGSM) to offer ascholarship exclusively to the MBA(Executive) program. Scholarshipcandidates need to demonstrateengagement or interest in entrepreneurialactivities, academic merit and leadership inenhancing the role of women in business.Applications close on 29 November.

Other new scholarships� Also new this year is the Andrew Thyne ReidScholarship created for an executive from thenot-for-profit sector who is studying the full-time MBA.Worth up to $25,000, the scholar-ship will support a highly talented personwho has demonstrated leadership in socialand community work.

The Thyne Reid Charitable Trusts werecreated by the late Andrew Thyne Reid in1944 and 1955.The Trusts encourage andsupport projects in the fields of education,social and community needs, medicine,science, creative arts and the environment.� The Adelaide alumni branch also decided toestablish a new scholarship this year – for anoutstanding South Australia-based entrant inthe Graduate Certificate of Management.Thescholarship is worth $5200 and the winnerwill be named the South Australian AlumniScholar for 2003.� The Sir Walter Scott Fund through theJames N. Kirby Foundation has offered a new$25,000 scholarship to a full-time MBAentrant who can demonstrate leadership andintegrity as well as credentials in teamwork.

The scholarshipwill go to a student

who will be encouraged tonetwork with

the WCEI’smembership.

www.agsm.edu.au AGSM | 5

THE WORD’S OUTIt’s all about getting yourmessage across when it comes to receiving MBAstudents’ best teacher awards. Dr Shayne Gary (left) and professor Lex Donaldson enjoyed the honour in term two.

6 | AGSM I S S U E 3 • 2 0 0 2

Ayear out from election defeat, theformer leader of the AustralianLabor Party, Kim Beazley, appearsrelaxed, tanned and jovial. But askhim about leadership and it’s clearthat the fires still burn within. For

Beazley, leadership means vision and strategicastuteness. It means operating according to coreprinciples in the long-term interests of the nationrather than short-term gain.And while Beazley’suniverse is political, his views have resonance ina business environment rocked by crises ofconfidence, executive greed and strategic myopia.

“What differentiates political leadership atthe national level from other forms of business,economic and social leadership does not lie in theway relationships are built, individuals arecajoled, encouraged, mentored or individuallyinspired,” he said in his address to the AGSM2002 Leadership Speaker Series in September.“The difference lies in the absolute requirementfor long-term strategy and vision for your societyand nation among national leaders.”

Compare this with Telstra chief executive,Ziggy Switkowski, recently downplaying hiscompany’s ability to forecast future financialresults: “It’s not clear that any of us have thecapability to look very far ahead with any sort ofconfidence ... so we certainly aren’t going to bemaking forward-looking statements for sometime to come, if ever.”

It may be that vision is out of fashion afteryears of boom-time hype, particularly intelecommunications. But for Beazley it remainsa defining characteristic of good leadershipand he has a word for those who don’t have bigideas: “coasters”.

To Beazley, visionary leaders have a strongsense of the future and the personal conviction toact in ways that may be out of step withconvention or public opinion. Coasters, on theother hand, have no driving vision. They lookbackwards, they manage and they maintain butthey don’t create future value, he says.

“National leaders can be politically successfuland coast.They can also do material damage tothe nation’s long-term interest and be temporarilyapplauded for it ... The presence of the time-serving and backward-looking has to be leavenedby the visionary and/or the strategically astute ifthe nation is to cohere, prosper and survive.”

Most in business could identify managerswho match one or other of Beazley’s profiles.Particularly when it comes to those who createnew areas of growth versus those who succeedthrough cost cutting, shakeups and other ‘quickwin’ techniques.

Still very much locked in party-politicalcombat, Beazley goes on to position successiveLabor leaders as visionaries and Liberal leaderJohn Howard as “one of those who coast in thecomfort zone”. His favourite Australian LaborParty leaders include Bob Hawke for his“chairman of the board” approach, Paul Keatingas the “ultimate conviction politician” and GoughWhitlam for the breadth of his reform agenda inthe 1970s.

Beazley also cites Abraham Lincoln for freeingAmerica’s slaves during the Civil War and, backin Australia, war-time prime minister John Curtinfor his ability to see the threat posed by theJapanese and subsequent responses. “Curtin’sstrategic sense, his understanding of Australia’sgeopolitical situation, his willingness to break

K I M B E A Z L E Y L E A R N T T H AT V I S I O N

A N D VA L U E S C A N B E A L I A B I L I T Y F O R

A P O L I T I C A L L E A D E R . Y E T H E I S

ADAMANT THAT GOOD LEADERSHIP AND

A NATION’S FUTURE DEPEND ON THEM.

LEADERSHIP LESSONSG R A N T BU T L E R* R E P O RT S .

You always go back to your values. You always go back to your vision of yourcountry. You always try to measure what

you do against those things.

8 | AGSM I S S U E 3 • 2 0 0 2

COVER STORY

foreign policy shibboleths and prejudice onnational government roles in the economy,made him the one-eyed man in the valley ofthe blind,” Beazley told the AGSM audience.

The centrepiece of his speech was in turna call for leadership on issues he believes arevital to Australia’s future happiness, sense ofsecurity and possibly even survival.

“Firstly, there is the need for a populationpolicy for Australia that incorporates withinit a return to a robust, welcoming attitude toimmigrants.

“Secondly, there is the need for theAustralian political leadership to embracethe ideas that we must be a knowledge nationwith all that means for the development of aculture of lifelong learning and skilling, cleversolutions for sustainable development inAustralia and growing innovative businesses.

“Thirdly, the national leadership mustnow carefully think through the issues ofthe Australian national interest in a [security]environment that has rapidly changed in thelast decade.”

Beazley has been engaged in questions ofleadership his entire life. His father, KimBeazley senior, was a federal parliamentarianfor more than 30 yearsand, as minister foreducation in the Whitlamgovernment, instrumen-tal to the creation of the AGSM. Kim juniorattended school in his home state of Western Australia beforebecoming a RhodesScholar at Oxford. Heholds a Masters in Artsand Philosophy andlectured in social andpolitical theory atMurdoch University. Tothis day, he is well-knownfor his love of history,particularly military.

A federal parliamentarian since 1980,Beazley has been a minister for aviation;defence; transport and communications;employment, education and training; andfinance. He was also deputy prime ministerbefore being elected opposition leader afterformer prime minister Paul Keating’sdevastating defeat in 1996. He returned to thebackbench after the Howard-led Coalitiondefeated Labor at the 2001 federal election,holding the marginal WA seat of Brand.

According to AGSM professor of

management, Robert Wood, who introducedBeazley at the Leadership Series, Beazley onceeven worked as a gravedigger to gain theunion ticket he needed to join his party’sstate executive.

With so many years of leadershipexperience, what advice would Beazley offerothers? “I think you just value people, that’sall,” he says. “The starting point with peopleis their ideas, the things that they want to putforward and think are important to achieve inlife.You absolutely have to listen to that ... itis the essence of democracy.You don’t lead bydictation, you lead by understanding.”

Beazley acknowledges that it’s often hardto reconcile the visionary and inclusiveapproaches, quoting an observation madeby Don Watson in his recent book aboutKeating: “We expect him to listen to us andyet to lead us, to obey our will and yet beleader enough to have a will of his own; toreflect our view and yet project his vision.”

The trick, says Beazley, is to express youragenda in simple language.

“The art of great political leadership oftenlies in reducing complexities to a simplephrase.We understand how that focuses an

electorate that hasbecome used to politicsin seven-second grabs onthe evening news. Whatis not understood is howthe same phrase anchorsits creator.”

This extends to the useof snappy statements ofmission and values withinbusinesses but Beazleybelieves companies needto know where their roleends and that of widersociety starts.

“I think people whoare in companies, whetherthey run them or work

for them, are entitled to an independentpolitical mind separate from the things they doin the workplace.The workplace is not the finalpoint of social organisation. In a democracy,the political process is.That’s why I’m alwaysloath to fit businesses into a political framebecause they are contributors to a wholesociety; they’re not the whole society.”

But Beazley can see a parallel betweenpolitics and business when it comes to howlong a leader can sustain and implement avision. He says that once political leaders finallyreach the level of prime minister they are

typically “out of steam” in four to five years.“I think there may well be a common

element to that for a CEO. In a large companya CEO has probably exhausted his capacity tooffer direction to it in a five-year period.” Headds that leaders need to realise that when inpower they “live off the intellectual fat”gained during opposition.

As busy chief executives know only toowell, there’s little time for quality readingor other abstract intellectual pursuits onceyou get to the top.According to Beazley, thebest way to regenerate the ideas bank is toreturn to core values and goals. “You alwaysgo back to your values.You always go back toyour vision of your country.You always try tomeasure what you do against those things.”

Introducing Beazley, professor Woodsaid the former opposition leaderdid not conform to the charismaticmodel of leadership that, at leastuntil the many recent corporatedisasters here and overseas, has been

held in high esteem.“A lot of the popular writings on leader-

ship equate the role of leadership with apersona that’s extremely confident,” saidWood. “There’s a certainty about complexissues that often degenerates into a simplifi-cation about debates, relies heavily onemotional appeals and puts the promotion ofideas above analysis.”

By contrast, he said, Beazley was able towork through complex issues without“grasping for quick conclusions” even underextreme pressure.This was illustrated by hisproposals for border security in response tothe Tampa affair that erupted during the 2001election, most of which were included inthe final piece of legislation adopted by thegovernment. In closing, Wood suggestedBeazley was: “A leader for our times but, atleast in terms of popular leadership theory,not a leader of our times”.

As a manager Beazley is reputedly relaxed,open and respectful. He has developed areputation for honesty, straightforwardness,integrity and intelligence. Indeed, it’s hard tofind a critical comment about Beazley and it’sarguable that it may be these qualities thatultimately cost him his bid for nationalleadership: he’s simply too nice.

Australia’s prime minister John Howardzeroed in on this with his infamous gibethat Beazley lacked the “ticker” to lead. Evenallies like Bob Hawke say he lacks the viciousstreak of other leaders. “You see some in

National leaders can be politically

successful and coast. They can also do material damage to the nation’s

long-term interest and be temporarily applauded for it.

www.agsm.edu.au AGSM | 9

FEATURE

The AGSM’s ConnectorBusiness PlanningCompetition has had arecord year, attracting

more than 200 students, entre-preneurs, scientists and inventors,who formed teams to pitch 52 newbusiness plans.

Teams were formed by MBAcandidates from the AGSM and bypostgraduate researchers and students fromthe University of New South Wales andUniversity of Sydney. Participants alsoincluded non-student entrepreneurs. Onlyone member of each team is required to bea student, which makes the competitionaccessible to business managers and othersworking or studying outside the AGSM andits parent universities.

One of the strengths of the competitionis that it brings together business and sciencein an atmosphere of new business creation.Ideas and technologies hailed from a widerange of university faculties this year,including medicine, commerce andeconomics, biology, law, engineering,information systems, architecture, computerscience and engineering and media.

The teams vied for $35,000 in prizemoney from Deutsche Bank – which makesit the richest student-run business planningcompetition in Australia. Other prizesincluded consulting services fromPricewaterhouseCoopers,Alchemy PartnersStrategy Consultants and Bluefire VentureCapital, as well as five Biz Net membershipsfrom Australian Technology Park.

PROFESSIONAL ADVICEThe main payoff for many of thecompetition participants is contact withventure capital professionals throughConnector workshops and networkingforums, and feedback from real investorson the viability of their business plans.

AGSM Connector forums and workshopsoffered practical skills and experience indeveloping business plans and preparingfor venture capital funding, as well as anopportunity to meet venture capital andincubator professionals.

This year’s competition alsointroduced a mentoring programthat gave teams access toindustry professionals for guid-ance on their business plans.

Mentor Phil Stockwell,principal of Alchemy Partners,

says: “I wanted to help the School tocontinue to develop its reputation in thearea of entrepreneurial pursuits”.

As an AGSM graduate (MBA ’94) andsomeone who works in the field oftechnology and innovation commercialisa-tion, Stockwell says: “You can’t learn how tobuild a business by reading a book and oneway to help people succeed in taking theirideas through to marketable and profitablebusinesses is to mentor them”.

David Nelson (MBA ’00) is anothermentor from the School’s alumnicommunity and a first-time judge of theBusiness Planning Competition this year.He is an investment associate with BluefireInnovation, an early-stage venture capitaland incubator division of the Bluefire Group.

His advice to teams serious about attractingfunding boils down to being able to demon-strate sound business credentials: “If there isa compelling business strategy wrappedaround a business idea, that’s one less layer ofrisk for investors to deal with,” he says.

Bluefire Innovation is currentlyincubating six early-stage businesses in theareas of software and IT services. “We arealways on the lookout for good ideas, andthis competition represents another channelfor us to gain insight into the ideas thatpeople are coming up with,” says Nelson.

“The AGSM and Connector are to becommended for helping to develop entre-preneurial skills and raise the profile ofinnovation on campus,” says Nelson.

Those activities have made it possible forBluefire – a new sponsor of the competition– to redirect its support of the School to anarea that is particularly relevant to it.

The winners of the competition wereannounced on 7 November. Read the fullstory in the next issue.

by Debra Maynard

Big ideaspolitics, on both sides, who really hate theiropponents,” Hawke told the ABC’s AustralianStory before the last election. “Kim hasn’t gotthe killer element to him.”

Beazley has a different take on his defeat –one that suggests that values and vision can bea liability. Just before the last election, Beazley’steam was forced to respond to crisis legislationprepared to deal with the electorally explosiveissue of refugees. At the time the politicallypopular choice was to support the first draftof the new laws to ensure the voting publicsaw Labor as strong on border protection.But Beazley and Labor felt the bill wasdraconian and they risked being seen towaiver by calling for amendments. Today,Beazley feels that he and the party were caughtout but is proud they remained true to theirvalues and earlier policy.

“We were caught out alright. [JohnHoward] threw across the table at me a pieceof legislation that was completely uncon-scionable.We opposed it and our vote wentdown. He came back to us about two weekslater with a piece of legislation that reflectedeach one of the points of criticism that wemade and we passed it ... But by then thedamage was done and the Australiancommunity thought we might not stand upfor protecting them.”

Beazley’s supporters speculate that therefugee crisis coupled with nervousness afterSeptember 11 were the two key factors thatrobbed Labor of victory. But even the bestleaders have to accept the hand that historydeals them. Beazley resigned as leader of theopposition on 22 November 2001. He saysthat sometimes the strongest act of a leader isto know when to step aside, and warns thereare few things more destructive than allowingan organisation to fight about personnelrather than policies.

“The truth of the matter is that two shotsat the top job are enough.A party develops anenormous loyalty around a leader ... [but]the best thing you can do is to allow theparty to make an adjustment without a catfightdeveloping underneath you between thosewho are loyalists and those who feel that thetime has come to move on. You yourselfdeclare that the time has come to move on.”

* Grant Butler is managing director of EditorGroup in Sydney (www.editor.com). He wasformerly a journalist with The AustralianFinancial Review and other publications.

FOOTNOTEThe Hon. Kim C. Beazley MP is currently thefederal member for the WA seat of Brand.

Budding entrepreneurs wanting to test their new ideas and technologies are turning to the AGSM.

Well before the Enroncollapse, the demise ofArthur Andersen and theexcesses of HIH, the philo-

sophical father of the market economy,AdamSmith, anticipated the problem of corporategovernance in volume 2 of his Wealth ofNations, published in 1776.

“The directors of such ‘joint-stock’companies, however, being the managersrather of other people’s money than theirown, it cannot be expected that they shouldwatch over it with the same anxiousvigilance with which the partners in aprivate partnership frequently watch overtheir own,” Smith wrote.

“Negligence and confusion alwaysprevail, more or less, in the management ofthe affairs of such a company.”

Smith’s words are indeed prophetic,because negligence and confusion is a goodsummary for the events of the past two years.

The US accounting scandals and thebehaviour of the boards of Australian firmssuch as HIH and One.Tel have created theperception of a crisis in corporate govern-ance which has produced a flurry ofresponses, both in Australia and overseas.

In the US, the recent Sarbanes-Oxley Actpassed by Congress commits the countryeven more strongly to its black letter law approach, while both the New York Stock Exchange and NASDAQ have issuedprinciples of governance reform.

In Australia, the Australian Stock Exchangehas created a new Corporate Governance

Council, partly under pressure from ASICchairman David Knott. Prime minister JohnHoward, listening to the public mood, says:“People think something has gone wrongand I think some people have been gettingaway with murder in corporate excess.”

Corporate governance, of course, is a lotmore complex than executives abusing theirexpense accounts or receiving overly-generous or undisclosed options packages.

At its core, corporate governance is aboutthe legal and organisational structures whichdetermine the way in which a company ismanaged, and from that flows just abouteverything else – from a firm’s acquisitionstrategy to its human resources policy.

OWNERSHIP AND CONTROLMBA students at the AGSM grappled with theissues of corporate governance at the firstIntegrative Program on the subject,presented recently by professors Chris Adamand Lex Donaldson.

The program began by looking at whycorporate governance has become such apressing, practical problem, tracing itshistory from the early days of capitalismwhen the owner managed the firm, to thecreation of joint stock companies in the19th century – which began the separationbetween the shareholder-owner and thehired manager, and remains at the core ofthe modern dilemma.

Add to that ‘stakeholder’ theory – whereemployees, suppliers and the communityat large also have a stake in the operation of T

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A crisis of confidence in corporate conduct has sparked calls for governance reform. Professors Lex Donaldson and Chris Adam examined the issues in the MBA classroom. Lachlan Colquhoun* reports.

Governance drifts off course in sea of collapse

10 | AGSM I S S U E 3 • 2 0 0 2

www.agsm.edu.au AGSM | 11

Hieronymus Bosch’s The Ship of Fools(c. 1490–1500) depicts a small ship driftingaimlessly, never reaching the harbour. Theship is representative of humanity and thewretched discomfort of human folly. The Ship of Fools is one of many Boschpaintings that depict humanity’s self-loveand the potential for ugliness within us.

the corporation – and there is a plethora ofusually competing interests to juggle.

“Most of the analysis starts with the so-called ‘agency theory’ where the manager isan agent and the outside owner is theprincipal,” says Donaldson.

“Much of the worry is about a largecorporation where most of the owners arethese dispersed shareholders who own but don’t control, and there are thesemanagers on the inside who control butdon’t really own.”

Response to these concerns has beentwo-fold: balance the interests of themanagers on the board with non-executive,independent directors who represent theshareholders, and attempt to align theinterests of the managers with that of thecompany through performance-linkedremuneration like share options.

The rationale, says Donaldson, was tomake the managers more like owners and sostem management excesses. But the optionsthemselves are now seen as managementexcesses.

The public backlash against managementexcesses, particularly the cost of options,has thrown more focus back on the role ofindependent board members who arepresumably there to keep executives incheck. But does stacking the board withnon-executive members actually improvecorporate governance, and does it improvethe operation of the company and safeguardshareholder’s interests?

“I’ve always believed that the best modelis one in which there are no executives onthe board because if you merge the interestsof management and the board you don’tget sufficient arm’s length,” says FrankConroy, former Westpac chief executive andnow a non-executive director of severalcompanies, including St. George Bank and Santos.

As a guest speaker on the corporategovernance program, he said independentnon-executive directors brought a “broad-based spread of knowledge” to companieswhich might otherwise be “mono-cultural”and closed off in their thinking.

“I have always believed that directorsshould be far more assertive in their

12 | AGSM I S S U E 3 • 2 0 0 2

questioning of management and absolutelyunforgiving if they find that managementhasn’t presented relevant and necessaryinformation,” he says.

DIRECTORS UNDER FIREDonaldson says some research challengesthe view that the non-executive board isthe best model: “Researchers have looked atthat and some have found evidencesupporting the view that there should bemore independent board members, butthere have also been studies1 that have foundexactly the opposite.

“One study2 found evidence of highercompany performance where the CEO wasalso the chairman of the board. In anotherstudy3 – which looked at Australianexamples – the more outside directors therewere on the board the worse the returns toshareholders,” says Donaldson.

“That latter finding was particularlyevident in cases where the outside directorshad connections with other businesses andeconomic entities, and that pattern reallygoes against conventional wisdom thatpowerful and experienced outsiders on theboard are the way to go.

“This is a concern that has beenexpressed about some members of the ColesMyer board over the years and still is now. Itis a perceived conflict of interest when a director also has other interests, such as being a supplier or is linked to acompetitor,” says Donaldson.

Does this then mean that the professionaldirector who serves on half a dozen boardsor more is a part of the problem too?

AGSM research4 has shown that havingmore external directors with links to externalentities can actually reduce the performanceof a company.This points to the failure of thewell-entrenched ‘cooptation theory’ thatpresumes benefits will flow fromexperienced business people recruited tomultiple boards.

Cooptation theory has been criticisedrecently to the extent that the AGSM hascoined a new term, ‘dys-cooptation’, toexplain why the theory hasn’t succeededin practice.

The complex web of relations betweenthe board of insurance company FAI, itseventual parent HIH and failed telco One.Telis a case in point. Rodney Adler’s contro-versial role as the vendor of FAI and then amember of the HIH board is the subject offurther study at the AGSM.

“Non-executive directors are there to

mediate between owners and managers, butwe have to ask if it is really working asintended,” says Adam.

Adam is also a company director, andhas sat on the board of ORIX Australia –the local subsidiary of the Japanese company– since late 1999.The Australian board hasnine members – three from the Japaneseparent company, three non-executiveAustralian directors and three local executivedirectors.

“Because the Australian business, whichincludes operations in New Zealand, has asingle owner, some of the communicationaspects of corporate governance aresimplified,” says Adam.

“For example, the annual general meetingis held with a very well-informedshareholder because there is almost dailycommunication of decisions or advice fromthe Australian company to its parent in Japan.

“On the other hand, we have complexitiesof accounting practices and fundsmanagement, because of the US listing, whendemands for information disclosure differfrom both Australian and Japanese practices.

“We tend to follow whichever practice ismost demanding in terms of disclosure –this is most often the US structure,” he says.

In addition to the regular board meetingsheld every second month, Adam says the

ORIX board undertakes the appropriategovernance subcommittee activities such asholding quarterly meetings of the auditcommittee (comprising non-executivedirectors) and annual meetings of theremuneration committee (also comprisingnon-executive directors).

“We believe it is very important for goodgovernance that the expected arm’s lengthprocesses of conformance review andstrategic oversight are actively conductedby the ORIX board,” says Adam.

Donaldson points out that in Australiasome of the more notorious examples ofcorporate excess have been in companieswhere the CEO is also the founding entrepreneur, such as Bond Corp, One.Teland HIH.

Although they were among some of ourlargest corporations, these companies hadnot evolved very much beyond the owner-manager stage when they ran into theproblems that destroyed them, along withthe wealth of the shareholders. Just becausea company is big doesn’t mean that itsapproach to corporate governance is mature.

“When you look into some of thosecases the CEO is not some sort of profes-sional manager who owns little or nothing,he’s often a founding entrepreneur whoowns a considerable amount of thecompany,” says Donaldson.

“So it’s a misdiagnosis to say the problemis purely and simply the separation ofownership and control.”

After participating in the corporategovernance program, MBA student RobinDurham is now doing a further study ofcorporate governance on the HIH case,alongside Donaldson and another student,Mark Baragwanath.

The aim of the study is to dig through

In September, Australianfederal treasurer PeterCostello announced a

corporate law reformprogram, known as CLERP 9(Corporate Law EconomicReform 9), to be introducedin parliament next year.Proposed reforms include:� top 500 corporations to

have audit committees� more power to the

Financial Reporting Councilto oversee audit standards

� listed firms to expenseshare options

� compulsory rotation ofauditors (but not audit

firms) every five years� penalties for executives

who receive excessiveremuneration from failedcompanies

� ASIC to have the power to police the changes and hand out fines of up to $1 million.

ASX rulesThe Australian StockExchange (ASX) supportsCLERP 9 and has formed aCorporate GovernanceCouncil which aims todevelop rules for ASX-listedcompanies to regulatecorporate practice in seven

key areas: � board composition and

independence of directors� competency of

directors� remuneration� related-party

transactions� integrity of reporting,

including consideration of audit committees

� risk management andcodes of ethics for seniormanagement

� shareholder participation.The ASX is aiming to producerecommendations by March 2003.

Reform agenda

People tend to favour moredisclosure and believe that if

companies’ annual reports providemore information then that’s the

answer, but it clearly isn’t.— Lex Donaldson

www.agsm.edu.au AGSM | 13

material such as transcripts from the currentRoyal Commission to determine to whatextent good corporate governance couldhave made a difference in preventing the $5 billion collapse.

GOVERNING COMPETINGINTERESTSOne of the main principles, according toDonaldson, is to: “focus on the companyrather than one group of people”.

“People say that the director has afiduciary responsibility and they translatethat to saying that the directors should putthe interests of the shareholders first. Butwhen this has come before some of thecourts in the US, the courts have taken a verydifferent view and said that the real respon-sibility of a director is primarily to thecompany, and the shareholders comesecond,” he says.

“So it’s the company as an ongoing entitywhich should be the focus, because if itdoes well then the shareholders will do wellover the long term, and I have a lot ofsympathy for that view.”

Adam’s view is that best practice: “has tobe closely linked to the legal structure of theorganisation.

“I don’t think companies should be freeagents to choose which way they want to gohere,” he says.

“I think part of the issue is that we run therisk of having boards focus too much onconforming. I’m a little reluctant to makeevery single company toe a specific line,which might be appropriate for large maturepublic companies with dozens of internalaccountants, but would kill a start-up,”says Adam.

HOW MUCH REGULATION?While the US has traditionally taken a rules-based approach, as evidenced by theSarbanes-Oxley reforms, Australia hasfavoured a principle-based approach whichrelies on companies doing the right thing.

Adam, for one, believes that the globalrules will eventually converge towards theUS model, but he is unsure whether that willresult in best practice.

Donaldson says: “I don’t really think thetrend towards more disclosure, for example,will work. I think it’s really weak and watery.

“People tend to favour more disclosureand believe that if companies’ annual reportsprovide more information then that’s theanswer, but it clearly isn’t.

“For example, knowing that the head of

FEATURE

The AGSM’semeritus chairmanJohn B. Reid AO*

calls for less regulatoryfervour and morereflective practices.While there is no doubt thatmany shareholders, creditorsand employees have sufferedmuch lately at the hands ofcompany directors, I believethat any government orregulator attempting to tryand improve this unhappysituation by means ofregulatory measures willenjoy, at best, limited success.

You cannot regulateagainst bad behaviour. Butyou can encourage andreward good behaviour.

So what are the attributesof a good company director?Chief among them, I believe,are courage and integrity.Possibly, how theseattributes manifestthemselves can be moreeasily measured than theattributes themselves.

However, I believe that agood company director, as arule of thumb, will have asolid commitment to aparticular set of standards

and values — probablyacquired when young andfurther embedded bypractical experience and thegood example of others.

A good company directorwill make a distinct contribu-tion to the style of a company.Evidence of his or herhonesty, integrity, experienceand courage will be apparentfrom the strategic moves acompany makes, whether inthe form of acquisitions,exploration or disposals, or inthe way a company communi-cates with its employees andshareholders.

A good director issomeone who understandsthe vital importance of theeffective management oftime as evidenced by thediligent reading of boardpapers, punctual and regularattendance at boardmeetings, and time set asidefor visits to companyoperations or held in reservefor unforeseen events.

A director does not changethe way he or she operates inthe world the moment he orshe enters a boardroom. Inessence, they are one andthe same.

Which brings me full circleto that most vital commodity:courage. A director’s moralbackbone will be of no use toanyone if he or she keeps hisor her own counsel when agrowing sense of unease, oreven some evidence, dictatesthat something within thecompany is awry. A boardmeeting is not a luncheonclub. Wilful deception orobfuscation cannot be glossedover, or side-stepped, in orderto preserve the niceties or asense of fellowship.

A good company director,drawing on a lifetime’sreserves of integrity andcourage, will know when thetime for difficult questionshas arrived. And he or she willknow that when the answersto those questions are lessthan satisfactory or contraryto the best interests of thecompany and its sharehold-ers, action must, as a matterof course, follow.

* John B. Reid is chairman of Business Management,TechStar and BestCareFoods. He was formerly a director of the formerBroken Hill Pty and QantasAirways among others.

a company was getting as much money ashe was wouldn’t tell you he was manipu-lating accounts and that the auditors werehelping him,” says Donaldson.

“It’s a question of raising directors’awareness of their responsibilities, and Ithink that is actually a better course tofollow,” adds Adam.

“The Australian Institute of CompanyDirectors has done an excellent job overthe years in building up an awareness, abody of material that can be made availablefor use, but I think we could do a littlemore in the way of encouraging. I hesitate tosay licensing, but I’m thinking of somethingin that direction where directors have todo a course and have some continuingeducation over time,” says Adam.

Lex Donaldson agrees, but points outthat even within professional bodies tryinghard to do the right thing there are biaseswhich can obscure the agenda.

“Directors’ groups talk about theimportance of the non-executive director,whereas professional management groupshighlight the importance of executives, andit all gets a little difficult,” he says.

“Its not wrong for them to do that but Ithink the best thing is to have dialogueamong all the different groups.

“That’s the process I’m involved with inmy work here at the AGSM, and I thinkthat’s really the best we can hope for at themoment.” ✪

* Lachlan Colquhoun is a freelance writer.

Matters of behaviour

FOOTNOTES1 Lex Donaldson and James H. Davis, ‘Stewardship theory or agency theory: CEO governance and

shareholder returns’, Australian Journal of Management, vol. 16, no. 1, pp. 49–64, Sydney, 1991; and Melinda Muth and Lex Donaldson: ‘Stewardship Theory and Board Structure: A ContingencyApproach’, Corporate Governance: An International Review, vol. 6, no. 1, pp. 2–28, January 1998.

2 Lex Donaldson and James H. Davis: ‘Stewardship theory or agency theory: CEO governance andshareholder returns’, Australian Journal of Management, vol. 16, no. 1, pp. 49–64, Sydney, 1991.

3 Melinda Muth and Lex Donaldson: ‘Stewardship theory and board structure: a contingencyapproach’, Corporate Governance: An International Review, vol. 6, no. 1, pp. 2–28, January 1998.

4 ibid.

14 | AGSM I S S U E 3 • 2 0 0 2

On the face of it, farmingand medical practice arenot professions youwould ordinarily associate

with MBA studies.But in the case of Andrew

McDonald, a farmer, and SamanthaRoberts, a medical doctor, both havesought the knowledge and skills ofmanagement education to take them tothe next level in their different fields.

McDonald completed his MBA(Executive) at the AGSM earlier thisyear, while Samantha is in her firstyear of the full-time MBA program.

Farming, Andrew says, is like anyother business under pressure tooperate more efficiently and toinnovate for survival. That’s why heconsidered it worthwhile to makethe 900 km round trip from his PineHill property near Forbes in centralNew South Wales to attend classes inSydney each week.

“In doing the MBA, my focus wasto improve the management of myfarming and grazing business rather than opt for the career change, whichtraditionally would be the motivation formany students,” he says.

McDonald and his wife Margaret own adiversified grain and grazing business thathas been in Margaret’s family for more thanfour generations. In the 1990s they boughtout other family members and now runthree properties comprising 5300 hectares.They employ five people and have investedmore than $1.5 million in plant, equipmentand beef cattle.

After clocking up more than 100,000km driving to and from classes over fouryears, Andrew says he’s had lots of time tothink about his studies and how to applywhat he’s learnt to his business.

In particular, he has been focusing onre-structuring his product mix, revisingproduction systems and cost structures, andadopting new technologies.

McDonald says his approach to farmmanagement has changed, particularly inthe areas of strategy (he won the Director’sPrize for Strategic Management in 2001)

and innovation. Some of the changes he’smade include ceasing unprofitable woolproduction and adopting cutting-edgetechnology to maximise production and efficiency.

“We have invested in precision plantingequipment, satellite guidance for tractors,yield monitoring for harvesters, soilmoisture detection using nuclear technology,and we have entered cooperative allianceswith similar businesses to allow greatlyincreased levels of professionalism,” he says.

After achieving a $2.5 million turnover in2001, McDonald says Pine Hill’s productionthis year will be greatly affected by thedevastating drought many farmers are facing.

“After completing the MBA (Executive)I fully realised that the farm’s competitiveadvantage is very much related to beingable to respond and adapt quickly to externalshocks such as drought. Professionalism,diversification and innovation are vital forthe business’s success,” he says.

DIFFERENT PATH For Samantha Roberts, thequest for transformationfrom a young doctorproviding medical care indepressed rural South Africato becoming a managementconsultant half a worldaway in Australia is still awork in progress.

In doing the MBA, Roberts is lookingfor “new ways of thinking and working”that her medical training lacked.

Born, raised and trained as a doctor inJohannesburg, Roberts began to see theshortcomings of her medical vocation whileworking as an intern at St. Mark’s hospital inLondon, UK, in 1999.

While her 12 months at St. Mark’s wereexciting, she felt constrained by the Britishmedical system. Roberts says she “never feltas though [she] could do anything differentthere [in the UK]” and opted to move toMelbourne with her husband in 2000.

After two years working in variousMelbourne hospitals Roberts becameincreasingly disillusioned.

“I just felt the whole culture of medicineand the way it is practised is really oldfashioned and narrow. Medicine fails to useall the knowledge of management that isavailable to it,” she says.

Roberts sees two options available to herafter completing her 18 months of study.She can either return to medicine as a seniormanager, with a view to applying herknowledge to reform antiquated or non-existent management practices. Or she can optto make the transformation to managementconsultant.

Before making that choice, Roberts plansto embark on a three-month studentexchange at Kellogg Business School in theUS, and complete a 10-week internship atMcKinsey & Co when she returns to Australia.

“The thing I’d really like to do in the longterm is not-for-profit work. I’d like to use mymedical training and knowledge of business[management] to work for an organisationthat’s doing great humanitarian work.” ✪

by Alan Valvasori

A Forbes farmer and South African doctor put business studies to the test.

Personal journeys to best practice

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Samantha Roberts.

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RESEARCH

In a climate of corporate collapse thathas exposed poor disclosure of the highcosts of executive pay, share options havebeen singled out as an instrument of

greed rather than a pay-for-performance tool.Admissions from high flyers like former

BHP Billiton CEO Paul Anderson of beingoverpaid, and millions of dollars of payouts tofailed executives, have fuelled investor angerover the potential true value of share optionsand the lack of disclosure to shareholders.

Controversy over the wealth representedby executive share options and the way inwhich options are treated for tax andaccounting purposes are not new, says theAGSM’s Dr Chongwoo Choe, who has beenconducting research for several years onexecutive wage contracts and the use of share options.

What is new, he says, is testimony thatour markets are not exactly behavingaccording to modern finance theory.“They’renot as efficient as we thought, at least in themedium term,” he says. And that calls intoquestion the market impact of share-basedperformance incentives.

“Modern finance theory suggests thatpeople are smart and will apply whateverinformation there is in the marketplace totheir trading behaviour, which in turn impliesthat the available information will be reflectedin the price of shares,” explains Choe.

The problem with that, he says, is thequestionable assumption that people are ableto calculate the true value of options, deductthat from company earnings and adjust theirinvestment behaviour accordingly.

Even if share options are footnoted inannual reports, it is almost impossible forregular investors to calculate their true costbecause of the complexity with which theyare offered and exercised, says Choe.

“It doesn’t seem to me that the marketcan properly calculate the true dilutionimpact of share options on companies’ netvalue. The problem is compounded whenoptions provide perverse incentives forcreative accounting, as we have beenwitnessing rather dramatically.

“Of course, the collapse of Enron and the problems we now face are proof that the efficient market hypothesis

has suffered a major blow,” says Choe.“In practice, I think options have been

used extensively in the past mainly because ofcash constraint.

“Companies that did not have enoughcash to pay a huge amount of money to hirehigh-flying executives, or firms which haddifficulty servicing their debt, used shareoptions as a ‘cheap’ way to promise wealth inthe future.

“Options really took off during the US’sSilicon Valley boom when start-up ITcompanies and venture capitalists promisedoptions in order to poach talented executives.

“Since companies were not required towrite the cost of options into their financialstatements they tended to view share optionsas a ‘free’ instrument to get the people theywanted. Of course, if you go to the trouble tocalculate the cost of those options, they arenot free at all,” says Choe.

Some financial controllers have arguedthat if options provide incentives that increasecompany value over and above the cost ofoptions (whatever they are) then there is nopoint in expensing options.

“But it’s a flawed argument because whywouldn’t the same apply to a cash bonus?”asks Choe. “In fact,Warren Buffet used to say:‘If options do not represent costs then whatthe heck are they?’”

INSTITUTIONALFRAMEWORKS Australia only startedrequiring companies toinclude executive shareoptions in their annualreports in 2000. “Thenext step,” says Choe,“is requiring companiesto deduct the cost ofoptions from theirearnings, but we stillhave a long way to gofor that to happen.”

In the US, theSarbanes-Oxley Act hasintroduced sweepingchanges to corporategovernance and dis-closure requirements in

The true cost of share options

the wake of the Enron debacle. Expensingoptions, however, is still up to the discretionof individual companies.

Choe says it is hard to find figures inAustralia on what percentage of the total valueof CEO compensation share options represent,but: “in the US the Federal Reserve Boardhas estimated how much corporate earningswould be reduced if options were expensed;it is something like two-and-a-half per cent ofearnings over the past five years or so”.

“Two years ago I thought share optionscould be a great pay-for-performanceinstrument because for the same dollar costshare options could generate more powerfulincentives than shares.

“But this is subject to the assumptionsthat the market is efficient and the room forcreative accounting is limited.

“What we are witnessing now is that theseassumptions need to be seriously questioned.With hindsight, it may not be a good idea tokeep using options unless the institutionalframeworks are changed,” says Choe.

The question now for companies is: cantraditional bonus schemes generate the sameincentives as share options?

“I don’t think it is difficult to achieve thatbecause before share options spread likewildfire companies successfully used long-

term incentive plans ortraditional bonusesbased on long-termperformance measures,”says Choe.“Some bonuses werestructured in the form of share appreciation rights, which success-fully linked the bonusesto share performance.”The difference, he says, is that the markethas little difficultycalculating the truevalue of a bonus. ✪

by Debra Maynard

* Dr Chongwoo Choe is a senior lecturer atthe AGSM. Next issue he analyses shareoption design.

The AGSM’s Chongwoo Choe* takes a look at how share options measure up.

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16 | AGSM I S S U E 3 • 2 0 0 2

Acrackdown on corporatemalpractice in the US hastriggered a debate about whetherAustralia’s corporate regulatory

system needs to grow teeth.To date, ethics inthe Australian marketplace have beengoverned by best-practice guidelines orprofessional codes of conduct. But thecollapse of companies such as One.Tel andHIH through corporate malfeasance hasprompted the prime minister, John Howard,to warn business of new regulations ifcorporate behaviour does not improve.

In the US, however, George W. Bush hasacted swiftly by signing the most sweepingcorporate governance and accountingregulations to be enacted since the 1930s.The US Congress has passed the PublicCompany Accounting Reform and InvestorProtection Act, the US Securities andExchange Commission has toughened itsrules, and the New York Stock Exchangeand NASDAQ have introduced moreprescriptive listing requirements.

Even before this, federal sentencingguidelines have made it risky for UScompanies not to have a code of ethics. UScourts can penalise companies that do nothave a code – they can send in officials todraw up a code for a traditional miscreantcompany and then bill it for the work.

By contrast, in Australia, business self-regulation is the traditional practice. Generalethical principles such as the ‘true and fair’requirement are observed in spirit ratherthan through the letter of the law. Butrevelations of malpractice in business over thepast 12 months are a fresh indication thatexisting measures are inadequate safeguardsagainst unethical behaviour.

Investment bodies and regulators such asthe Australian Stock Exchange, the AustralianSecurities and Investments Commission,

and the Business Council of Australiaare expected to come up with a setof best-practice standards forAustralian directors after holdinground table talks.

But the way forward is not clear-cut, according to AGSM professorof management, Bob Marks: “Thejury is still out on whether increasedlegislation and coding of behaviouror other measures such as changingexecutive incentive structures arethe answer to reducing rorting ofthe system.”

We do know, however, that peopleneed internal motivation to ensurethey act ethically, he says. “Thequestion is how to achieve that.”

In July, Marks taught the AGSM’sfirst MBA elective on business ethicstogether with associate professorDamian Grace, director of graduateethics programs with the Faculty ofArts and Social Sciences at theUniversity of New South Wales.

The course was a factor takeninto consideration by the Association toAdvance Collegiate Schools of Business,when it accredited the AGSM in Septemberthis year, as business ethics is consideredessential to achieving excellence inmanagement education.

The five-day intensive elective, whichwill be followed by another course inJanuary, was designed from scratch by theAGSM. It followed an elective IntegratedProgram, also taught in the full-time MBA,on corporate governance earlier this year.

The business ethics course includes 10 to 12 hours of lectures. In between,students split up into groups to thrash outresponses to questions and hypotheticalchallenges.

It’s time for action on ethics The ability of corporate Australia to engage in effective self-regulation needs a genuinecommitment to ethical conduct, according to a new AGSM course on business ethics. Helene Zampetakis* reports.

A checklist for ethical decision-making Those confronted with ethical dilemmas areadvised to step away from the situation toconsider it clearly. Professor Damian Gracesuggests posing the following questions:

� Have I defined the ethical issue properly in my decision?

� Have I given proper consideration to theavailable options?

� What values are expressed in my choice?What values am I sacrificing? Can I justify this sacrifice?

� Am I considering the wellbeing of other affected parties or only myself?

� Am I acting in accordance with the law and policy?

� What kind of person would take thedecision I am making? Can I live with this decision?

� Could I justify my decision if it were toappear on the front page of the morningpaper?

� Have I checked my decision with relevantpeers before taking it? If not, why not?

which has taken considerabletime and funding to bring tomarket.� You believe that you won’t besuccessful as a foreign firm inanother country unless you bribeofficials.� Your company’s offshoremanufacturing operation isendangering the local environ-ment but local authorities arewilling to turn a blind eye.� Your accountant assures yourboss that capitalising expenses isa Generally Accepted AccountingPrinciple. Your boss wants tocapitalise certain everydayexpenses to improve the bottomline ahead of profit reporting.

Most quandaries posed inbusiness are of this nature ratherthan simple questions of rightand wrong. But tools to addressthe more subtle ethical dilemmasare elusive.

The elective provides an arenafor students to experiment withsuch questions, define an issueand assess their responsibilitiesin relation to it.

Robin Durham, a student witha background as a generalmanager in the travel industry,said the course helped establishsome frameworks around thenotions of ethics and tools todeal with future dilemmas.

“I did a full afternoon onEnron, looking in part at the roleof whistleblowers and how theybecome outcasts and unemploy-

able – it was fascinating,” he says.“It’s quite easy to lose track of the impli-

cations of what you’re doing in business.From an economic standpoint, it’s commonto be guided by the view that the endjustifies the means.

“The course left me with the sense ofneeding to look at business from manydifferent perspectives – the social as wellas the economic,” says Durham.

Indeed, social responsibility has taken aback seat over the past decade or so. In thepublic sector, a range of legislation coversethics, such as the Public Management Act and the Protected Disclosures Act.In the private sector, far fewer protectivemechanisms exist.

www.agsm.edu.au AGSM | 17

“The issue for us was how to run a courseon ethics for adults whose consciences arealready fully developed,” says Marks.

“We don’t see our job as telling studentswhat is right or wrong but providing areaswhere there are shades of grey and gettingthem to think through and justify a responseto that.

“The course aims to help studentsdevelop a critical thought process byconsidering real life situations.”

Consider, for example, these hypotheticaldilemmas:� Private evidence arrives of increased riskto consumers of your company’s product,

FEATURE

Recently, however, organisations such asthe St James Ethics Centre in Sydney havegained prominence.

“There’s been a huge resurgence ofinterest in ethics,” says Marks.

The week the AGSM ran the ethicselective, there were two or three storieseach day in the press – including Enronand WorldCom – culminating with theresignation of the vice-chancellor of MonashUniversity, who was found to haveplagiarised parts of a book.

Grace notes that scandal has cut acrossmost professions recently, including thestandard bearers of ethics, the clergy.

“Given that there’s been a collapse ofthe traditional institutions through which welearnt about ethics, it may be that we justdon’t know [how to go forward],” he says.

Other factors have fed a climate of cavalierprofiteering. Marks cites the immense faithin the efficiency of unfettered markets thatstarted in the late 1970s with the privatisa-tion of government functions, led byMargaret Thatcher.

More recently, globalisation and socialchurn have diluted corporate loyalty, whilethe 13-year bull market fostered greed andcreated heroes out of overnight millionaires.

But post-September 11 uncertainty andcorporate collapses have ushered in a changein emphasis, with the public clamouringfor accountability.

Grace acknowledges that people aredisgusted, but says it is absurd to believe thatlegal scare tactics can work in the long termor that more regulation can be policed. Lawsare useful in setting minimum standards anda level playing field but there will always beways for unscrupulous people to find holesthey can wriggle through, he says.

More effective, advises Grace, is forindividuals to take responsibility for probity.

“Corporations must set out a realisticvision of their values, without setting the barso high that it becomes a formula forfailure,” he says.

Diligence, responsibility, accountability,honesty and integrity are the key drivers ofethics in business.

An implicit teaching in Marks’ andGrace’s course is that while you can’t writemoral particulars into ethical codes,managers can retain integrity by keeping aclose watch on their business, taking respon-sibility and owning up to their actions. ✪

* Helene Zampetakis is a freelance writer.

Professor Bob Marks (left) and associateprofessor Damian Grace.

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Travel retailer Flight Centre andprofessional services firm DeloitteTouche Tohmatsu would, on theface of it, appear to have little incommon. However, scratch the

surface of two of the best HR performers inAustralia – as judged by the Best Employers toWork for in Australia study, released earlier thisyear – and there are some surprising parallelsto the way they do business.

Flight Centre ranked number one andDeloitte number three in the large companycategory (more than 1000 staff) of thestudy, which was sponsored by HewittAssociates, the AGSM and the John FairfaxGroup. The study found that what distin-guished the top companies were anaccessible, involved and trusted CEO; peoplepractices that reinforced a compellingemployement offer; more investment intraining and development; a strong focus onculture and values; and more emphasis onrewarding employees and having fun.

The 2003 study is expected to attractwell over 150 companies and will include,for the first time, public sector organisa-tions. Companies are being surveyed thismonth and the AGSM’s professor RogerCollins will chair the judging in January.The results of the 2003 Best Employer study,which will once again rank the topemployers in Australia, will be publishedin March.

DEFINING CHARACTERISTICSAccording to Deloitte, its success as anemployer of choice is, in part, attributable toits strong focus on culture and values. Thecompany’s people and knowledge partner

People leadership

FEATURE

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Becoming and staying an employer of choice has a lot to do with getting your culture right.

BEST PRACTICE Professor Roger Collins(right) discusses HR challenges withDeloitte’s Peter May and Margaret Dreyer.

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Peter May says: “Creating a highly adaptiveculture that results in one team going to themarket is something I think we’ve done welland which drives employee engagement andperformance”.

May says the company pays a lot ofattention to how people behave in order toproduce results. Substantive cultural trans-formation at Deloitte was initiated by formerCEO Lynn Odland, then subsequentlyinvested in and led by current CEO DomenicMartino.The transformation created a systemcalled Signals in Action.The signals are corecompany values, such as ‘only recruitingthe best’, ‘talking straight’ and ‘play to win– think globally’ that inform how peoplebehave and how their performance ismeasured.

Turn over May’s business card and thecompany’s seven cultural values or signals areboldly listed. “Our internal values arecommunicated externally to declare publiclywho we are, and I think that’s a distinctdifference,” he says.

The signals are the fundamentalbehavioural platform for the organisationand form an integral part of Deloitte’sperformance management. “In fact, youcan’t emerge with a high performance rating without doing well on the signals,”says May.

He says the program has had an impacton staff retention rates, which increased byabout 10 per cent after its implementation.

Deloitte’s cultural values or signals are one of the main elements performanceis measured against.The others are thecompany’s business goals and its globalcompetency framework,which together give anoverall assessment.

“That means,” says Deloitte assuranceand advisory partner Margaret Dreyer, “thateven if a person performs well againstbudgets and global competency, they won’temerge with a high performance rating ifthey don’t ‘walk the talk’ or behaveaccording to the signals.”

Dreyer is one of 240 partners throughoutthe organisation with responsibility foradhering to and promoting the Signals toAction program, and that, she says, turns outto be a powerful enforcing influence acrossthe company.

What’s interesting about Deloitte’s focuson behavioural values, according to theAGSM’s Collins, is that it is an initiative not

just of the human resources function butone that is led by the partners. “The programis much more about leadership thanstructural controls,” he says.

A recent extension of the signals programis a signals leadership initiative in which asubstantial number of Deloitte’s partnershave participated.

“I think that’s innovative because client-focused professional services partnerswould normally be quite reluctant to investin that sort of learning and development,”says May.

“But at Deloitte, we think the only wayyou can really engage your people is byeffectively leading them – I don’t think youcan do it any other way,” he says.

One of things the Hewitt study measuredDeloitte and other employers on is flexibilityin people management. “At Deloitte wedon’t have any formal working hours, whichmeans our focus is on outcomes, notinputs,” says May. That means that thecompany leaves it up to its employees andpartners to navigate their personal andprofessional lives while meeting clientcommitments and work objectives.

In practice, says Dreyer, “all of us will pickup whatever the load may be to help eachother out from time to time”. She believesDeloitte’s flexible working arrangementsalso help the company to retain womencoming back from maternity leave.“That’s probably more so in the profes-sional services rather than administrativeareas because we have the technology to

support communication with clients, so it doesn’t really matter whether you’relooking after children or sitting in an office,says Dreyer.

Collins also has been impressed by howDeloitte has used communications, HR,marketing and leadership congruently as ashaping force in the organisation.

According to Collins, this is uniquebecause it integrates internal functions thatare often independent of one another.Such integration can strengthen the firm’sbrand and performance by signalling toboth clients and members the behavioursthat are promised and required to meetclient needs.

One of the aims of Deloitte’s focus onculture and values through its Signals inAction program has been to weave a threadthrough individuals to create a collective.“What that means, hopefully, is that whenpeople come into contact with Deloitte theyexperience a group of people who arealigned to the market and to clients in adistinctive way,” says May.

“The intended result is that it feels betterworking with Deloitte and that applies toboth our clients and our people – we wantthere to be a qualitative difference aboutbeing with the company.”

SOCIOLOGICAL APPROACHCollins agrees that one of the things thatdistinguishes Deloitte is a collective levelof effort – a sociological and anthropolog-ical approach.

“This is also characteristic of Flight Centrewhich organises its workforce into teamsand groups it calls families, villages andtribes, which is designed to encouragepeople to think and behave collectively tocreate consistent customer experiences,”says Collins.

According to Andrea Slingsby, FlightCentre’s global human resources manager:“One of the key philosophies or one of thelessons we’ve learnt has been to grow big bystaying small”.

Everyone in the company works in smallteams – for example, retail shops and otherbusiness units will have no more than eightpeople to create a family feeling of respect and

knowing one another.Shop groups socialise andwork with other shops inthe area to form a village,and villages are groupedtogether in tribes of about120 people. “Honouring

these anthropological groupings and buildingour corporate organisational structure aroundthem is how we succeed,” says Slingsby.

Like Deloitte, Flight Centre works hard atmaking cultural values stick. “Our philoso-phies such as equality and egalitarianismare not just something on a piece of paper onthe wall of the training room,” says Slingsby.

Share ownership is available to employeesat all levels of the company and employeesreceive perks based on performance ratherthan status, says Slingsby. “Our CEO, forexample, works in an office with eight otherpeople, like everyone else.

“For us, the way we set up the wholeorganisation is to make sure we are creating

Our philosophies such as equality and egalitarianism are not just something on a piece

of paper on the wall of the training room.

www.agsm.edu.au AGSM | 21

an environment where people feel respectedas individuals, where they respect others,where there is strong leadership, wherepeople have fun, where people are rewardedand recognised for what they do, wherethere are great career opportunities for them– and for us that’s the stuff that makes theorganisation tick,” she says.

Flight Centre has grown strongly since itfloated on the Australian Stock Exchange in1995, achieving a three-fold increase inshops and businesses to almost 1000 outlets.It has also expanded its business to the USand more recently Hong Kong. So, howdoes it translate its business model andmake it stick?

“We have incredibly detailed and decen-tralised communication systems at all levelsthroughout the organisation, which makesthe business model very transportable andsupportive of our philosophies and culture,”says Slingsby.

“At the cultural level we started most ofour overseas operations with people whohad grown up with the organisation; ourpeople do walk the talk and I think if youhave the right person setting up a newcountry the model replicates itself,” she says.

CORPORATISATION One of the factors that distinguishes FlightCentre’s people practices, according toSlingsby, is its decision three years ago tocorporatise its internal human resourcesfunction. “We decided that the generalistHR function wasn’t supporting the businessin the way it could so we split it into thespecific functions such as recruitment,learning and development and corporatehealth,” says Slingsby.

“We now operate our HR here as a set ofinternal businesses and they run exactly asthey would if they were external businessesproviding services to Flight Centre,” sheexplains.

“In particular, we have a level of account-ability going here within HR that I believeexists nowhere else in the world, because Ihave done a lot of research on it.

“While my recruiters have a 20 per centprofit share, 80 per cent of their incentivesare based on the company’s strategicbalanced scorecard outcomes for recruitment– and that means they receive incentivesbased on the retention rates of the peoplethey hire,” says Slingsby.

Flight Centre recruiters also receiveincentives based on the time it takes them tofill vacant positions and how successfullythey do that – what the company calls itsaverage daily vacancy KPI (key performanceindicator).

“We’ve really managed to get a fantasticalignment between the company’s strategicobjectives and the accountability ofindividuals in each of our HR-relatedbusinesses; we then use that to recognise andreward people,” explains Slingsby.

Flight Centre lost about one-third of its recruiters in the process of intro-ducing greater accountability, “but at theend of the day I wasn’t unhappy because the people we lost didn’t want to beaccountable for the results they wereproviding,” she says.

“My people are now running [HR]businesses that made $592,000 this yearcompared with a loss of $700,000 the yearbefore last.We’re providing better services ata better price than Flight Centre would get

COLLECTIVE EFFORT Flight Centre’s Andrea Slingsby.

elsewhere – and why would you have aninternal HR area if you can’t do that?”

Slingsby says the turnaround had nothingto do with putting up fees. “We realignedourselves with our internal customers, butwhen we first went ‘user pays’ our incomestarted drying up.

“That made the HR businesses startasking, ‘Well, hang on, why aren’t you usingus – why are you outsourcing yourexecutive recruitment?’”says Slingsby.

“And the answer was – because weweren’t meeting their needs internally, so ithas really made us refocus on what it isthat our internal clients need and to come upwith the goods in order to provide betterservices at a better price,” she says.

As a result, Flight Centre’s corporatisedHR businesses are now at a point whereSlingsby is starting to look at external oppor-tunities once 100 per cent internal marketshare is achieved. “The five-to 10-year visionis to perhaps supply HR services to otherbusinesses and certainly expand the range ofservices that we offer,” she says.

EMPLOYEE ENGAGEMENTAnother area of difference at Flight Centre,says Slingsby, is a policy of share ownership.“More than 80 per cent of our employeesown shares in the company, and I think thatis a huge factor in driving both engagementand performance because people have avested interest in the organisation.

“I think share ownership contributes topeople believing strongly in the vision of thecompany and wanting to be a part ofachieving it,” she says.

However, Flight Centre’s overall success inengaging its employees to the extent ofbeing rated the best employer in Australia bythe Hewitt study comes back to organisa-tional structure and culture, says Slingsby.“For example, if you put a share ownershipscheme into a traditional, hierarchicalcompany I don’t think you would get thesame result because you wouldn’t have theculture or the [employee] buy-in.”

It’s the whole package at Flight Centre,she says. Slingsby attributes the company’sbest employer status to a flat and leanstructure driving productivity thatemphasises how people are remunerated, theavailability of share ownership, thecompany’s philosophies and its leaders, andthe fact that there is a pervasive quality ofegalitarianism. ✪

by Debra MaynardPH

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Consider the customer satisfactionmeasurement methods of a largebank. It has 780 branches andsurveys 100 customers per branch

per quarter – that’s 78,000 customers persurvey at a cost of $500,000.

In an analysis of the bank’s survey data DrUjwal Kayande found that if the bankreduced the number of customers surveyedfrom 100 to 25 it could significantly reducethe cost of its quarterly surveys to $121,000.

He found that while there would be moreerrors in the measurement of satisfactionbecause fewer people would be surveyed, thedata indicated that reliability would only fallfrom 0.98 to 0.95 (on a scale of 0 to 1).

The important thing, says Kayande, is tounderstand the inherent variability of yourbranches, customers and survey questions inorder to get dependable responses. Onlythen can you achieve cost efficiency by usingyour understanding of marketplace variabilityto determine the minimum number ofcustomer responses you need to obtainreliable data.

“If a bank or retail chain is surveyingcustomer satisfaction to use for bench-marking itself against its competition or forbenchmarking its branches or retail outletsagainst one another, there are ways in whichyou can evaluate whether the survey is doinga good job,” says Kayande.

“Unfortunately, most companies will nottry to assess that. Instead, they implicitlyassume the data is indicative of the truthwhereas, in fact, the data can be subject to alot of measurement errors,” he says.

What Kayande’s work does is identify thecause and magnitude of errors (or unrelia-bility) in survey data so that companies can

ascertain whether the data means somethingsubstantial or just represents randomnumbers.

“If you are providing incentives to youremployees and to your branches or retailoutlets on the basis of customer responsesthat have a substantial error component, thatare ‘noisy’, then you can expect yourincentive scheme, your benchmarkingmethods to lead to employee dissatisfactionover time,” says Kayande.

WHAT GOES WRONG? Benchmarking typically produces data thatrepresents responses to customer satisfac-tion surveys that ask questions such as:‘Howwell do our staff help to make your bankingeasy?’ or ‘Do you perceive that we treat youwith respect?’. “What many companies fail todo,” says Kayande, “is recognise there aretypically a lot of errors that come from thefact that customers are not all the same.

“Now marketers might reasonably worryabout a marketing lecturer who says thefact that customers are different implies thedata is unreliable. However, there is anotherway to think about it.

“If all customers in the marketplace wereidentical then the number of customers youwould have to ask to get the answers wouldbe equal to exactly one, because if you askedone you’d know everybody’s answer.

“However, the interesting thing aboutthis world is that customers are not all thesame, which begs the question, ‘Well, howdifferent are they?’

“If they are all terribly different then youhave to ask every one of them a question,but if they are not all terribly different thenyou can ask just a few and get the answer you

want.What I am trying to point out is if theywere all the same and you asked only oneperson, you would have no errors in the data.If they were all very different and you askedonly one person, your information would beso unreliable there would be no meaning to it.

“What you have to do is go through aprocess of matching how different yourcustomers are to how many people youshould be surveying. This helps to reduce the unreliability to the greatest extentpossible and that’s what my work has beenall about,” says Kayande.

But there is another angle to it. It is notjust about minimising errors in customerresponse data.The other part of good surveydesign is about capturing the inherentvariability in the units (the branches orretail outlets) you are benchmarking – whatKayande calls a ‘signal’.

“If you start off with an assumption thatthese retail outlets are different – in terms ofsales and market share and other factors –but your survey data comes back indicatingthey are not actually different at all in termsof satisfaction, then you have a problem –because your benchmarking isn’t capturingthose things that make some outlets betterthan others on sales or share,” says Kayande.(See Figure 2: Concept of Reliability.)

ASKING THE RIGHT QUESTIONS“You have to try to design a survey in whichyour questions produce the largest possiblesignal [the best possible capture of theinherent variability between the units beingsurveyed] and the smallest error or unreli-ability in customers’ responses – that’s thecritical matching you have to go through,”says Kayande. IL

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Measuring customersatisfaction: how to getreliable results for less costOne of the tricks to achieving accurate and cost-effective customer satisfaction measurement for benchmarking is to understand the relationship between survey data reliability and efficiency. Debra Maynard talks to award-winning marketing lecturer Ujwal Kayande.*

www.agsm.edu.au AGSM | 23

RESEARCH

then you are wasting your timeand money.The whole point, saysKayande, of randomly selectingquestions from a pool of 50, isthat you can determine whichquestions are good and which arebad – and use the better ones forfuture surveys. “But, of course, thequestions you select all should beconceptually linked to customersatisfaction,” he says.

ACHIEVING EFFICIENCYIt is all about efficiency at the endof the day, says Kayande, and “youhave to match this thing calledreliability – which is how much ofa signal there is relative to howmuch error there is”. (See Figure1: Reliability and Efficiency).

“You have that, on the onehand, and then you have the costof doing the survey – which isdetermined by how many peopleyou survey, how many stores youinclude and how many questionsyou ask,” says Kayande.

The trick is to balance thesethings against each other. If a bench-marking exercise surveys too manycustomers the implicit assumptionis that the differences in customers

are large compared to differences betweenretail outlets (the signal). However, ifcustomers are not very different and a hugenumber of people are still being surveyedthen your benchmarking is not efficient andyou are wasting money. On the other hand,if customers are very different and, inaddition, very few people are being surveyed,the benchmarking outcome will be unreliablefor decision-making.

THE IMPORTANCE OF RANDOMSELECTION “Random selection is the way you candetermine the inherent variability that existsamong people, questions, retail outlets andoccasions,” says Kayande.

“Suppose you are conducting mysteryshopping at petrol stations and your mysteryshopper visits the petrol station only in themornings; that’s a problem because you can’tgeneralise the results [to your marketplace ofcustomers] because there hasn’t been a

“For example, suppose you have 1000retail outlets.You randomly select 20 or 50branches, randomly select customers withineach branch to understand how differentthose customers are, and randomly select20 questions from a pool of 50 that tap intocustomers’ satisfaction.

“This random selection allows you togeneralise to your 1000 outlets, millionsof customers and the 50 questions.You thenconduct a survey on these customers toassess how much of a signal this set of 20questions is giving you.

“If it is giving you a lot of signal relativeto the differences between customers thenyou are doing pretty well. But if it is givingyou a small signal relative to the differencesbetween customers, then your survey is

doing really badly, and you have to startrethinking your questions.

“For example, if you asked about whethera bank branch is clean or not when youknow that most of them are, in fact, prettyclean, then most of these branches wouldcome out with a similar score and whatthat means is your signal is going to beclose to zero.

“On the other hand, if you asked aquestion about friendliness when you knowthat few branches are, in fact, very friendly,you are going to find a lot of difference inthe data and that means there will be quitea bit of signal coming through,” he says.

Good, or dependable, survey design relieson an understanding that if you start askingquestions that generate little or no signal,

You have to do better, and a lot of companies are, in fact, not doing any better than tossing a coin from the data I’ve seen.

Ujwal Kayande.

24 | AGSM I S S U E 3 • 2 0 0 2

spread of measurement across the day.“If you randomise this then you are

much better off because you can generalise– you get an understanding of the inherentvariability, which you can’t if you specificallychoose certain times.Your survey responsesshould reflect the inherent variability acrossbranches or stores, among people, questionsand occasions,” he says.

SURVEY DESIGN CHECKLIST� Understand the purpose of doing acustomer satisfaction survey – this is critical.Many companies collect data but don’t knowwhat to do with it.� Use the data you have already collected todetermine what you should do in the future;this will make future data collection efficient.� Ask questions that find differences and,therefore, give you a better signal (orreflection of the inherent variability of theretail outlets, branches or other units you aresurveying).� Watch out for indications of high unreli-ability in your benchmarking data. If, over ayear, you find that stores drop in and out ofbeing good at customer satisfaction whenyou would expect a consistent pattern, thenyou need to reassess the number ofcustomers or range of stores being surveyed,or the type of questions you are asking.Another indicator of data unreliability wouldbe a situation where the stores which dowell at customer satisfaction are the ones thathave poorer sales.� Recognise that good survey design will, inmost instances, result in a correlationbetween satisfaction and sales over time. ✪

* Dr Ujwal Kayande is a senior lecturer inmarketing at the AGSM. He received theAmerican Marketing Association’s Donald R.Lehmann Award for best dissertation-basedarticle in Journal of Marketing Research orJournal of Marketing (1998), and he wasawarded Researcher of the Year by theAustralia New Zealand Marketing Academy(ANZMAC) in 2000. He is continuing to workwith Australian and US professors onimproving survey design methodology.

FOOTNOTE1 Lee J. Cronbach, ‘Co-efficient alpha and the

internal structure of tests’, Psychometrika, vol. 16, no. 3, pp. 297—334, 1951.

FURTHER READING1 Ujwal Kayande and Adam Finn, ‘Unmasking the

phantom: a psychometric assessment ofmystery shopping’, Journal of Retailing, vol. 75, no. 2, pp. 195—217, 1999.

2 Ujwal Kayande and Adam Finn, ‘Reliabilityassessment and optimisation of marketingmeasurement’, Journal of Marketing Research, vol. 34, no. 2, pp. 262—275, 1997.

FIGURE 2: “You can look at reliability as a ratio of the variance in the perceived performance ofoutlets being surveyed and variance in customers’ views plus random noise. If you score close to0 you are doing badly because your survey reflects no variance in outlets and the data has waytoo much noise. If you are close to 1, that means the variance in outlets is huge compared to thenoise. What you should be striving for if you want to make any decisions that actually impact onyour employees or your organisation is a ratio of at least 0.95. When the variance in outlets isequal to the variance in customer views (combined with random noise), reliability is equal to 0.5,which is really no better than tossing a coin for making important decisions based on the data.You have to do better, and a lot of companies are, in fact, not doing any better than tossing acoin from the data I’ve seen.” — Ujwal Kayande

FIGURE 1: The foundations of reliability theory were laid in 1951 by professor Lee J. Cronbach’sseminal work in psychometrics1 (the science of psychological measurement). Psychometrics hastraditionally focused on measuring the ability of students, whereas the focus here is onmeasuring the performance of retail outlets using customers as survey respondents. Therefore,the concept of reliability, as it is used in psychometrics, has to be adapted because the focus ofmeasurement is different.

www.agsm.edu.au AGSM | 25

books Welcome to the new books page — a Lifelong Learning initiative thatfeatures reviews and news of new business books. Browse therecommended section to learn what’s on the minds of AGSM facultywhen it comes to good reading.

HIGH PERFORMERS: HOW THE BEST COMPANIESFIND AND KEEP THEM by Leon Martel (Jossey-Bass,San Francisco 2002)

Author Leon Martel enjoys twogreat advantages. First, he is adiversely experienced researcherand manager in managementstudies. Second, he is a seniorfellow of The Conference Board,the pre-eminent New York-basedmeeting place and centre oflearning for senior businesspeople in the US, and in morerecent years for European, Asianand Australian business people.

High Performers is no meretheoretical study. It is the productof intense and detailed researchand draws its conclusions fromMartel’s extensive discussionswith leaders of American, Asianand European businesses.

And if much of what Martelhas to say might appear to becommonsense to experienced

Martel lists issues of concern and importance to employeesand shows that those companieswhich address these issues andconcerns experience a high

business people, it bearsrepeating. Given thatdramatic change appears tohave become the norm inmany businesses, theconcern for and care forpeople, and the valuesimplicit in that concern andcare, makes not only goodmoral sense but goodbusiness sense.

The unfortunate need to restate this truism isperhaps best exemplified by The Conference Board’s1999 study which revealedthat 656 CEOs of majorcorporations around theworld ranked “helpingemployees achieve work-life balance” as last on a listof 15 managementchallenges (equal with“community relations acrossmultiple regions”).

Throughout High Performers

degree of financial and corporatesuccess.

If this connection appears self-evident, the behaviour of some Australian companies – which seem comfortable inannouncing a proposed reductionin employees whilst almost in thesame breath trumpeting somenew acquisition or record profitperformance – would, regrettably,seem to deny it.

To Martel’s credit, High Performersdoes not set out to providesimple answers to managementproblems. Rather, it invites thereader to engage interactivelywith it as it tries to findreasonable outcomes andsolutions to generic problems.

By bringing together aformidable range of individualcorporate voices and experiences,High Performers will, I believe, bringlight to bear on issues familiar tomany Australian businesses.

THE CASH NEXUS: MONEYAND POWER IN THE MODERNWORLD, 1700–2000 by Niall Ferguson (Allen Lane 2001)

Professor of finance, Chris Adam,recommends this: “very readablehistory of financing innovations,which focuses on governmentactivities.

“Ferguson rejects a widely heldview that spontaneous financialinnovations such as new types ofgovernment bond issues, or theconcept of income tax, gave theopportunity for governments toexpand their activities withineconomies and across nations,”says Adam.

“He provides extensiveempirical evidence to support hiscase that the causation has beenin the other direction: nation

states that tried to grow,especially through militarymeans, became the creators offinancial innovations we accepttoday as regular governmentalfinancing devices.

“In short, warring activitydrove the need to create ideas liketaxes on income, perpetual debtinstruments, and (most recently)‘generational accounting’.

“Despite the apparentlydaunting content, the text iswritten in an energetic andengaging fashion, with manyfascinating sidelines into fiscalhistory,” says Adam.

NATURAL CAPITALISM by Hawken and Lovins (Little, Brown 1999)

Dr Marc Orlitzky, organisationalbehaviour lecturer, says this book:

“describes examples of four envi-ronmental strategies that willallow your company to reapsubstantial economic benefits”.

The four strategies are resourceproductivity, biomimicry, serviceand flow, and investment innatural capital.

“The book presents in-depth,case-based research on a widerange of organisations andindustries,” says Orlitzky.

“Former US President Bill Clinton once said about the book: ‘If you read it you will be convinced that whateveryou’re doing … you could make a lot of money by getting into alternative sources of energy and energyconservation … and this is a huge deal’.”

Recommended

Reviewed b y J O H N B . R E I D AO, AG S M E M E R I T U S C H A I R M A N

HOW ASIA ADVERTISES by Jim Aitchison (Wiley 2002)

Marketing lecturer Dr GianaEckhardt recommends this book to anyone interested inunderstanding, in a practical sense, how culture affectsmarketing strategies in Asia.

BRANDING IN ASIA: THECREATION, DEVELOPMENTAND MANAGEMENT OF ASIAN BRANDS FOR THE GLOBAL MARKET by Paul Temporal (Wiley 2001)

This book is also highlyrecommended by Eckhardt because:“the author discusses which brandmanagement techniques (typicallydeveloped with the US customer in mind) are applicable in Asia and which are not”. It also discusses how to manage a brandsuccessfully in Asia. ✪

26 | AGSM I S S U E 3 • 2 0 0 2

publications &papersPUBLISHED WORK AND RESEARCH PRESENTATIONS

BOOK CHAPTERS

M. Sinclair, N.Ashkanasy, M. Boyleand Dr Prithviraj Chattopadhyay,‘Determinants of intuitivedecision-making in management:the moderating role of affect’ in N.Ashkanasy, C. Hartel and W.Zerbe (eds), Managing Emotions in the Workplace, pp. 143–163, M.E.Sharpe, New York, 2002.Professor Murray Kemp and K.Shimomura, ‘A new approach tothe theory of international tradeunder increasing returns: the two-commodity case’, pp. 3–21, and ‘Asecond correspondence principle’,pp. 37–56, in A.D.Woodland (ed.),Economic Theory and International Trade:Essays in Honour of Murray C.Kemp,Edward Elgar, Cheltenham,UK, 2002.Professor Robert Marks, ‘Playinggames with genetic algorithms’ inShu-Heng Chen (ed.), EvolutionaryComputation in Economics and Finance,pp. 31–44, Physica-VerlagHeidelberg, New York, 2002.T.P. Hettmansperger, J.W. McKeanand professor Simon Sheather,‘Robust non-parametric methods’in A.E. Raftery, M.A.Tanner andM.T.Wells (eds.), Statistics in the 21stCentury, pp. 359–367, Chapmanand Hall/CRC, London, 2002.J.S. Gans, and Dr Robin Stonecash,‘The innovation and marketstructure in general equilibrium’in A.D.Woodland (ed.), EconomicTheory and International Trade: Essays inHonour of Murray C.Kemp, pp.181–191, Edward Elgar,Cheltenham, UK, 2002.

JOURNAL PUBLICATIONS

Professor Christopher Adam,review of Practical Applications ofApproximate Equations in Finance andEconomics by Manuel Tarrazo inEconomic Record, vol. 78, no. 241,pp. 243–244, June 2002.Professor Eddie Anderson and A.B.Philpott,‘Using supply functions foroffering generation into anelectricity market’, Operations Research,vol. 50, no. 3, pp. 477–489,May–June 2002.Professor Grahame Dowling,‘Customer relationshipmanagement: in B2C markets, often

less is more’, California ManagementReview, vol. 44, no. 3, pp. 87–104,Spring 2002.Dr Giana Eckhardt,‘Culture’s con-sequences: comparing values,behaviours, institutions and organisations across nations’,Australian Journal of Management, vol.27, no. 1, pp. 89–94, June 2002.Dr Elizabeth George and DrPrithviraj Chattopadhyay,‘Dodifferences matter? Understandingdemography-related effects inorganisations’, Australian Journal ofManagement, vol. 27, June 2002.Dr Markus Groth, B.M. Goldman,S.W. Gilliland and R.J. Bies,‘Commitment to legal claiming:influences of attributions, socialguidance, and organisationaltenure’, Journal of Applied Psychology,vol. 87, no. 4, pp. 781–788,August 2002.B.M. Goldman, S.S. Masterson, E.A.Locke, Dr Markus Groth and D.G.Jensen,‘Goal directedness andpersonal identity as correlates of lifeoutcomes’, Psychological Reports, vol.91, pp 153–166, 2002.S.Wood, professor Robert Kohn,T. Shively and W. Jiang,‘Modelselection in spline nonparametricregression’, Journal of the RoyalStatistical Society Series B – StatisticalMethodology, vol. 64,pp. 119–139, 2002.Dr Chris Lloyd,‘Semi parametricestimation of ROC curves based onbinomial regression modelling’,Australian and New Zealand Journal ofStatistics, vol. 44, no.1,pp. 901–999, 2002.Associate professor Sharon Parkerand M.A. Griffin,‘What is so badabout a little name calling? Negativeconsequences of gender harassmentfor overperformance demands anddistress’, Journal of Occupational HealthPsychology, vol. 7, no. 3, pp.195–210, July 2002.Associate professor Sharon Parker,M.A. Griffin, C. Sprigg and T.D.Wall,‘Effect of temporary contracts onperceived work characteristics andjob strain: a longitudinal study’,Personnel Psychology, vol. 55, no. 3, pp.689–719, 2002.Professor Thomas Powell,‘The Philosophy of Strategy’, Strategic

Management Journal, pp. 873–880,September 2002.Professor John Roberts and P.D.Morrison,‘Assessing marketstructure and company fit based onconsumer perceptions in dynamicinformation technology markets’,Journal of Business Research, vol. 55,pp. 679–686,August 2002.G. Clinch, associate professor BaljitSidhu and S. Sin,‘The usefulness ofdirect and indirect cash flowdisclosures’, Review of Accounting Studies,vol. 7, no. 3, 2002.P.Weill and professor MichaelVitale,‘What IT infrastructure capabilities are needed toimplement e-business models?’,MIS Quarterly Executive, vol. 1, no.1,pp. 17–34, March 2002.P.W.B.Atkins, professor RobertWood and P.J. Rutgers,‘The effectsof feedback format on dynamicdecision making’, OrganizationalBehaviour and Human Decision Processes,vol. 88, no. 2, pp. 587–604,July 2002.

REPORTS

G. Foster, R. Kasznik and associateprofessor Baljit Sidhu, The Pricing ofTechnology Stocks:A Global Perspective onAustralian Stocks,Australian StockExchange, Sydney, March 2002.

CONFERENCE PRESENTATIONS

PhD candidate Jennifer Adelstein,‘Mechanisms of control in a post-industrial corporation: a case studyfor a new assembly line’, presentedat the UNSW Sociology 2002Conference, September.Dr Chongwoo Choe, ‘Executivestock options and investmentchoice’, presented at the 2001Financial Management AssociationEuropean meeting, Paris, 30 Mayto 1 June, 2002; and ‘Leverage,volatility and executive stockoptions’, presented at theEconometric Society Australasianmeeting, Brisbane, 7–10 July 2002.Dr Prithviraj Chattopadhyay,Dr Elizabeth George and S. Lawrence, ‘Why does dissimilarity matter? Contrastingself-categorisation with

similarity-attraction’, presented atthe Academy of Managementmeeting, Denver, US,August 2002.PhD candidate Catherine Collinsand associate professor SharonParker, ‘Collective efficacy andteam performance: themoderating role of task interde-pendence and personality’,presented at a symposium chairedby Collins and Parker entitled‘Collective efficacy: new directionsfor predicting team effectiveness’at the Academy of Managementmeeting, Denver, US,August 2002.Dr Markus Groth: ‘Customercitizenship behaviour in Internetservice deliveries: a socialexchange perspective’; ‘Service per mouseclick: identifyingantecedents of customer co-production and citizenshipbehaviours’; and (with SherrySchneider and Barbara Gutek) ‘Theeffects of customer and serviceprovider gender on customer satisfaction: stereotype congruenceversus in-group bias’, presented at the Academy of Managementmeeting, Denver, US,August 2002.Dr Marc Orlitzky (with Diane L. Swanson), ‘Exploringindividual differences innormative myopia: executives’personality factors, paypreferences, and ethics of care’,Academy of Management meeting,Denver, US,August 2002.PhD candidate Doan Hoang Cau Thai and professor Eddie Anderson, ‘A co-evolution-ary approach to modelling the behaviour of participants in competitive electricity markets’, presented at the 2002IEEE Power Engineering SocietySummer Meeting, Chicago, US,21–27 July 2002.

CONFERENCE PROCEEDINGS

Dr Markus Groth, ‘Managingvirtual customers: examiningdifferent types of online customerbehaviour’, in Proceedings of the 11th AMA Frontiers inServices Conference, Maastricht,Netherlands, June 2002. ✪

www.agsm.edu.au AGSM | 27

International appointmentProfessor Robert Wood has been elected to the ExecutiveBoard of the InternationalAssociation of AppliedPsychologists (IAAP).The IAAP is the oldest internationalpsychology association and itsmembership includes leadingresearch scholars from Europe,the US, Asia, South America andAustralia.Wood has also beenappointed editor of the journal Applied Psychology:An International Review.

Police study wins $65,000The Sir Maurice Byers ResearchFellowship Program grantedsenior lecturer Dr Bob Westwood$65,000 mid-year to conduct atwo-year study on performanceindicators for New South Walespolice recruits.Working withWestwood on the study are AGSMprofessor Robert Wood andprofessor Murray Barrick from theGraduate School of Managementat Michigan State University.Thestudy is called ‘Predictors ofPerformance: Psychological

Testing and SubsequentPerformance of New South WalesPolice Service Recruits’.

New facultyDr Anna Gunnthorsdottir joinedthe AGSM last month as a seniorlecturer in general management,specialising in strategy anddecision-making underuncertainty. She completed herPhD in management at theUniversity of Arizona in 2001 andsubsequently worked there beforeher appointment to the AGSM. Herfirst degree is a BA in psychology

from the University of Iceland.Gunnthorsdottir’s research

interests reflect her diverseeducation: her work focuses onthe determinants of cooperation,defection and reciprocity, and onincentives that drive cooperationand strategy. She draws insightsfrom experimental game theoryas well as organisationalbehaviour, statistics and politicalscience. Her work has beenpublished in journals such as the Journal of Economic Psychology,Anthrozoos and Political Psychology. ✪

Statisticsleadership

It takes profound influenceand outstanding researchto gain election to

fellowship of the Institute ofMathematical Statistics. It isan achievement realised bythe AGSM’s professorRobert Kohn, who was madea fellow in July this year atthe IMS Annual Meeting inBanff, Canada.

Kohn has contributedinnovative and influentialresearch over more than 20 years in the fields ofmethodology in time series,nonparametric regression,Bayesian inference andstatistical computing. He “isone of the premier statisti-cians of our time,” saysRandy Eubank, professor of statistics at Texas A&M University.

Eubank says Kohn isarguably the world’sforemost authority on theKalman filter, which givesrecursion formulas forestimation and predictionusing a state space model.The filter enables quitegeneral models, which were previously intractable,

to be fitted to data.

“Until two years ago,”says Eubank, “it had neverseemed to me that therewas any imperative reasonto prefer Kalman filtermethods over the band-limited computingmethodology that I hadalways employed in my own research.

“However, I now standcorrected on this notionand, although I remain astaunch frequentist, I havejoined the ranks of theconverted in that I nowprefer the Kalman filter for the computation ofsmoothing splines andrelated estimators.

“I came to thisenlightened point of view byreading Robert’s wonderful1989 Biometrika article withAnsley on signal extraction,influence and cross-validation in state spacemodels,” he says.

In the early 1990s, Kohnwas one of the first researchscholars to recognise thatBayesian methodologycoupled with Markov ChainMonte Carlo simulationmethods could provide apowerful general approachto estimating complex

methods. Marketplace applications of Kohn’smethods include a real-time model he produced to predict wind speed indifferent parts of SydneyHarbour for the Sydney2000 Olympic Games.

“Robert Kohn is one oftoday’s most productive andinnovative statisticians; hismethods have consistentlyoutperformed the otherleading contenders and arenow the standards againstwhich new methods arecompared,” says Edward I.George, professor ofstatistics at The WhartonSchool, University ofPennsylvania. As such, saysGeorge, his work is “widely

considered to be the mostimportant in the field”.

According to professorPeter Hall of theMathematical SciencesInstitute at the AustralianNational University, Kohn“has also made major con-tributions to the statisticsprofession in Australia bytraining graduate studentsand directing the work ofone of the country’s leadinggroups of academic statisti-cians [at the AGSM]”.

Colleague professorSimon Sheather says Kohnis renowned “for hisgenerosity with ideas andtime, which has made theAGSM a richer place”. ✪

Professor Robert Kohn.

facultynews

28 | AGSM I S S U E 3 • 2 0 0 2

MBA

2001Nathan Perkins has movedfrom Leichhardt in Sydney toMelbourne’s Docklands.Contact: nathan_perkins@wm.national.com.au,Tel: (03) 9600 1078.

2000Philippe Vincent has moved fromthe role of channel marketingmanager to European channelmarketing manager with AMD inFrance. Contact:philippe.vincent@amd.com,Tel: (+33 1) 4975 1010.Bruce Bachenheimer marriedDoria Stetch in New York last June.Bruce is a vice-president at iQVenture Partners and was recentlyappointed an adjunct assistantprofessor at Pace University.He is teaching the undergraduatemanagement course, BusinessStrategy, as well as New VentureCreation and Entrepreneurship inthe MBA program. Last year, Brucetaught six different undergraduatecourses at other institutions andhopes to continue teaching. Plentyof pictures can still be found onwww.bachenheimer.com.Tom Richardson has left BainInternational to join DeloitteTouche Tohmatsu. Contact:trichardson@deloitte.com.au,Tel: (02) 9322 5360.Kenny Wong has moved from therole of account manager withCable & Wireless HKT to globalaccount manager with WorldComAsia Pacific. Contact:kenny.wong@wcom.com,Tel: (+852) 2233 6043.Sheng Yi Chen has relocated to China. Contact:csysh@hotmail.com.

1999Michael Jacobsen has taken up a new position as sales consultantwith Longridge Sarah HousingGroup. Contact: michail_jake@smartchat.com.au,Tel: (08) 8244 9111.

1998Simon Wong has left CitybrightProperty Consultancy Co. to joinCB Richard Ellis as propertymanager in Beijing, China,Tel: (+86 10) 6801 7994.Brian Kernick gave notice toKPMG and has moved back to Canada where he is involved in a hotel development project in Fort McMurray (northernAlberta). Brian would like to hear from alumni/staff visiting Alberta (Calgary or Banff).Contact: briankernick@yahoo.ca,Tel: (+1 403) 609 8623.

1997Tye Anthonisz has moved to theNew South Wales GovernmentDepartment of Public Works and Services as manager,portfolio management. Contact:tye.anthonisz@dpws.nsw.gov.au,Tel: (02) 9372 7348.Paul Li has left DNA after servingthe company for four years. Hehas joined interior design andarchitectural consultancy firmDavid Hudson and is based inShanghai.

1994Nicholas Stoian and his wife Tina and daughter Ariella relocatedto Bucharest, Romania in July this year.Paula O’Connell established herown recruitment company inAmsterdam earlier this year aftertwo years consulting in Europe foran international recruitment

company.The business specialisesin middle to senior marketingappointments for internationalcompanies who have set up in theNetherlands to target the Europeanmarket. See www.oconnell.nl.

1993Derek Myers has taken up a newposition in London as CEO ofiVentures. Contact:Derek.Myers@iventures.co.uk,Tel: (+44 20) 7002 3755.Subramaniam Vinod has leftSPARC Technology Business tojoin Sun Microsystems, Inc. inSan Francisco as a seniorproduct manager. Contact:sk.vinod@sun.com,Tel: (+1 650) 786 5155.

1992Jochen Bonitz has moved fromthe role of vice-president (e-commerce) with Air NewZealand/Ansett Australia toconsultant with Brisbane CityCouncil. Contact: jochen@zipworld.net,Tel: 0411 191 666.Eva-Marie Matiszik and partner,Russell Debney, are pleased toreport the birth of their baby boy,Sascha, on 12 August. Eva-Mariesays she will be taking a break fora little while from managementconsulting. She is glad to keep incontact with other managementconsulting MBA graduates whoare doing the same thing:Lisa Carlin (MBA ’97) and JulieAllan (nee Lonsdale) (MBA ’91).Dr Robert Lee has left DegussaDental (Hanau, Germany) afternine years to work for itscompetitor, Heraeus Kulzer,in New York, where he isresponsible for cosmetic dentistryproduct management andmarketing for the US andCanadian markets. Heraeus Kulzer is the third-largest dental

company in the world and part of the family-owned HeraeusHoldings conglomerate with a turnover of $US7 billion.Robert has already launched a new cosmetic filling materialcalled Venus (so-called for its“sexy positioning”). Robert has also worked in Sydney,Melbourne, Singapore,Tokyo and Frankfurt, but he says he still calls Australia home. Contact:Robert.Lee@hkius.com.

1990Terry Daubney has taken up anew position as consultant withSMS Management & Technology,Tel: (02) 6230 1211.Trish Donaldson has relocatedfrom Hamilton, Queensland,to Talking Rock, Georgia,US. Contact: trish@ mountainpowersports.com,Tel: (+1 706) 6365 222.

1989Scott Taylor has left Kimberley-Clarke Australia to join HutchisonTelecoms as general manager.Contact:staylor@hutchison.com.au,Tel: (02) 9964 4540.

1988Zach Tan is now living inSingapore. Contact:zach.tan@daimlerchrysler.com.

1987Morrison Carter has beenpromoted to president at BeckettGas Inc. Contact:mcarter@beckettcorp.com,Tel: (+1 440) 3531 300.

1986After six years as senior partner atMacquarie Marketing Group, PatMooney has decided to go back tohaving some fun with technology

bushtelegraphTHE AGSM ALUMNI BULLETIN BOARD

NEW FORMATWe have simplified the Bush Telegraph format, listing your news under program and year, starting with the degreeprograms, MBA and MBA (Executive), followed by the graduate diplomas, management certificates, PhD programand shorter premium certificates. Bush Telegraph is no longer split into AGSM, UNSW and USyd groups becausestudents and graduates, past and present, are all part of the amalgamated, enriched AGSM community (it is nowmore than three years since the AGSM merged with the University of Sydney’s Graduate School of Business).

www.agsm.edu.au AGSM | 29

as commercialisation manager forinformation and telecommunica-tions at CSIRO. He says he wouldlike to hear from alumni, and thatPat, Laura, Georgia and Roland areenjoying the bush setting inBerowra. Contact:patrick.mooney@csiro.au,Tel: (02) 9372 4604.Genevieve Vignes has taken up anew position as consultant withAnD Consulting Group. Contact:andconsulting@bigpond.com,Tel: (02) 9964 0663.Cindy Monical and family haverelocated to Colorado and startedtwo new businesses – oneimports unique Australianproducts into the US and theother is a small multimediacompany which creates personalvideos and DVDs. Contact:clmonical@adelphia.net.

MBA (EXECUTIVE)

2001Jennifer Meiselman has movedto Watertown, MA, US. Contact:jmeiselman@hotmail.com,Tel: (+1 617) 924 9133.Julia Cook has taken up a newposition as associate financialadviser with Merrill Lynch.Contact: julia_cook@ml.com,Tel: (02) 9225 6596.Geoff Cope has left Singtel Optusto join Dunn & BradstreetAustralia as national businessdevelopment manager. Contact:jgeoffcope@optusnet.com.au,Tel: 0411 114 426.

2000Vicki Doyle has been promotedto executive, customer strategy atthe Commonwealth Bank ofAustralia.Tel: (02) 9513 1077.Dixson Kwan is no longer livingin Chung-Ku, Seoul, havingrelocated to Hong Kong. Contact:dixson.kwan@prudential.com.hk.

1999Adam Benecke has moved to therole of sales and marketingmanager, Asia and Latin America,with ATLINKS Hong Kong.Contact: beneckea@atlinks.com,Tel: (+852) 2589 9707.

1998David Woodhouse reports hemarried “Ratih (who is anIndonesian geologist) on avolcano in Bali during a geologyconference”. David is nowassociate director, metals andmining division, at MacquarieBank in Sydney. Ratih is workingfor a company that monitorsvolcanic eruptions in Asia for theaviation industry. Contact:David.Woodhouse@macquarie.com.David’s best man was Mark Gell(also MBA Exec ’98), who is nowvice-president of external affairsand investor relations at OneSteel. Contact:gellm@onesteel.com.Other MBA Exec ’98s at theWoodhouse wedding wereNicola McIntyre, a seniorexecutive at the Gartner Group,nicola.mcintyre@gartner.com,and Richard Woods, vice-president of business operationsat Ansett Worldwide AviationServices, contact: Richard.Woods@ansettworldwide.com.Sue Robinson, who regretsmissing the wedding, is now at the New South Wales UrbanTaskforce – an industry grouprepresenting the propertydevelopment sector.Contact: suerobinson@ urbantaskforce.com.au.Tom Sloane has been in Athensfor the last few years working onthe Olympics.Tom had workedon the 2000 Sydney Olympics ina senior role after finishing hisMBA (Executive).Peter Tyrrell has arrived back inAustralia after a 16-month stintin the UK working for AMP,where he helped to consolidateinformation technology acrossseveral companies AMP hadacquired in the UK. He reports:“I’ve joined Aspect in Sydney(part of the Kaz Group) ascustomer service managerresponsible for developingAspect’s presence in the financialservices sector. Contact:peteratyrrell@hotmail.com,Tel: 0403 937 098.Peter Batchelor has moved from the role of investmentmanager with Ericsson EquityAlliances to director, innovations

and incentives with Ernst &Young. Contact: peter.batchelor@ernstyoung.com.au,Tel: (03) 9288 8385.

1997David Walton has moved fromWheelers Hill in Victoria to Hove, South Australia. Contact:waltod@hotmail.com,Tel: (08) 8296 0880.Simon Hickey is based in NewYork as CFO for Lend Lease RealEstate Solutions. He has had anongoing involvement with theWorld Trade Centre recoveryoperation as Bovis Lend Lease (adivision of Lend Lease Real EstateSolutions) was asked to help NewYork city to manage the site andlogistical challenges. Simon hashosted visits by prime ministerJohn Howard and Queenslandpremier Peter Beattie, and hasappeared on Australian televisionto talk about the cleanupoperations.Tel: (+1 212) 592 6807 or (+1917) 847 6002.In January 2002 Dr John Knightleft the Children’s Hospital inSydney, where he had been for 22years, to join the pharmaceuticalindustry. In August he waspromoted to senior director, globaldrug safety and surveillance atJohnson and Johnson pharmaceu-tical research and development. Hewill move to London with his wifeLindsay in January 2003.

1996After an extended courtship,Janelle Panton and Mark Beadonrecently celebrated their marriagein Janelle’s home town ofNarrabri. Janelle has been withE*TRADE Australia for the pastthree years, most recentlymanaging corporate projects.

GDM

1999Bob Smillie is presently CEO of the Shire of Wyndham, EastKimberley, which is the mostremote local government inWestern Australia with apopulation of 7000 people in anarea of 121,189 sq km. Located3200 km from Perth, the shire isthe home of the famous OrdRiver irrigation area and is a

booming tourist destination withthe soon-to-be-listed worldheritage site of the BungleBungles. Bob has been assistingthe Council with the recruitmentof senior managers and a CEOfollowing a period of high staffturnover in late 2001. Bob’s termwill finish following theappointment of a CEO, mostlikely in early 2003.

GCM/GMQ

1999Neill Wiffin has moved fromCastle Hill in New South Wales toBeaumaris, Melbourne. Contact:neill.wiffin@ baycorpadvantage.com,Tel: (03) 9589 2790.

1998Kimon Taliadoros has movedfrom North Bondi in Sydney toKew, Melbourne. Contact:kimon_taliadoros@hotmail.com.

1997James Brennan has leftPackmasters to join TynanMackenzie as senior relationshipmanager. Contact:jbrennan@syd.tynmack.com.au,Tel: (02) 9252 1021.

1994David Ebeling has moved from the role of manager with Telectronics to consultantwith Process ManagementInternational. Contact:djebeling@optusnet.com.au,Tel: (03) 9815 2815.

1993Sonny Mehta has taken up a newposition as director of purchasingwith Sagacious. Contact:sonny.mehta@sagacious.net.au,Tel: (02) 9283 0600.

GCCM

1999John Meyer has moved from therole of manager, business strategyand communications, to director,land information and buildingservices, with Planning and LandManagement. Contact:john.meyer@act.gov.au,Tel: (02) 6207 2644.

30 | AGSM I S S U E 3 • 2 0 0 2

MTM

1997Kim Stewart has left EmeryWorldwide to join Australian AirExpress as business developmentmanager – corporate,Tel: (02) 9582 1692.Group captain Warrick Paddonfinished up as commandant ofthe Air Force’s College at PointCook in June 2002 and headedoff to Harvard for a year. He isparticipating in a fellowshipprogram at the Kennedy Schoolof Government and invites anyalumni visiting Boston to get intouch. Contact:wspaddon@netspace.net.au.

SMDP/DPM

1998Ken McFarlane has returnedfrom East Timor, where he was anaid program adviser to the chiefengineer-director of the Waterand Sanitation Service. “Theobjective was to assist the newly-appointed East Timorese seniormanagers to come to grips withtheir roles in the new state waterauthority.The majority wereengineers with limitedmanagement experience.Theyhad never been in positions thathad any budget planning respon-sibilities. It was an extraordinaryexperience to be involved with agroup of people on such a steeplearning curve, and to haveassisted in developing theirinsights into the operation of anational water authority,” writesKen. He has now returned toCarlton, Melbourne where helives with his wife Jacky anddaughter Ruth.

1996Domenic Girolamo has taken upa new position as director,business implementation withXchanging in Farnborough, UK.Contact:dgirolamo@xchanging.com Tel: (+44 78) 7627 2172.

1981Paul Lavulo has joined MOSB(retail and wholesale trade) asmanaging director in Tonga.Contact: tplavulo@kalianet.toTel: (+676) 23597. ✪

ADVENTURERS Urs Koenig and his team-mates cycling across the US in the world’s longest bike race.

High performer Urs Koenig (MBA ’00), a

former skier for the SwissUniversity Ski Team and now aSeattle-based business coach,has another sporting talent –long-distance cycling. Hejoined three mates from theZurich-based Swiss AcademicSki Club to cycle across theUnited States in the 4800-kilometre non-stop 2002 RaceAcross America.

His team won secondplace in the four-rider teamdivision, clocking a time ofsix days, 10 hours and sevenminutes in what is theworld’s longest bike race.

Koenig says the team’s aimwas to: “enjoy a great adven-ture, ride 24 hours a dayaveraging 19 miles an hour,

and arrive in Florida with asmile on our faces with allfour riders crossing the finishline in the saddle (and not inthe support vehicles!)”.

Held each year in the US’ssummer, the race sees cyclistspedal around the clock for upto 15 days after starting inPortland, Oregon.The racecrosses the Rocky Mountainsand passes through theAmerican mid-west beforefinishing in Pensacola, Florida.

Koenig’s team covered the distance using a rotatingroster, based on a “28-hour day”. For each rider,that meant 21 hours of three-hour continuous shifts(comprising one hour on the bike and two hours in the pace van) followed by a seven-hour rest.

Despite mastering the ride without any majormishaps – not counting anearly wrong turn that saw the team lose time – the racewas undoubtedly brutal.

Reflecting on the feat,Koenig says: “The Race Across America reinforcedtwo main lessons I have learnt during my sports and professional career,including my MBA. First,in order to fire up a team and get people motivated,you need a big, inspiringvision that everyone identifies with 100 per cent. Second, there is nosubstitute for solid, hardwork and follow-through on each and every milestoneand goal you have set toachieve the vision.”

THE AGSM ALUMNI BULLETIN BOARDalumniat large

www.agsm.edu.au AGSM | 31

Taking PhDstudy tomarketFormer Australian Trade

Commissioner RichardGould (MBA ’85) began a voyage of discovery 10 years ago with an idea to develop a newmethodology for selectingthe most viable exportmarkets for companies.He applied the idea to PhD studies, which hecompleted in August thisyear, and set up his ownbusiness – InternationalMarket Selection.

“It began when I wasworking as an AustralianTrade Commissioner and acompany wanted me toselect the best country inwhich to sell its products.

“The problem was,

research methodology at thetime wasn’t sophisticatedenough to compare all ofthe world’s 230 potentialmarkets.We could onlyeffectively assess onecountry at a time, so a firmwould never know whetherit was picking the best of allthe possibilities,” he says.

So Richard undertook adoctorate on foreign marketselection methodology todetermine the decisionvariables and their weights.

“Most businesses choosean export country on thebasis of unsolicited ordersreceived from customers;others base their choice onfactors such as managementethnicity, holiday destina-tions, trade rumours and soon,” explains Richard.

“We need to optimisethe country choice becausesystematic country selection

will add about $200million per year here inAustralia through increasedsales, and reduced costs andrisks,” he says.

“The research collectedand tested all the influentialvariables indicated in theliterature to ascertain whatthings matter when makingan export market choice.”

Richard says his researchis the first to incorporatepsychological dimensionsin the assessment so thatforeign market selection is tailored to suit theabilities and desires of particular businesses.

“Statistics show thatdifferent companies selling the same productwill be successful indifferent countries,”says Richard. “One size (of country) does not fit all (firms).” ✪

A taste for learningIn the true spirit of advanced education, the AGSM alumni

Singapore branch held its third function for the year – ajoint wine tasting evening with Melbourne Business SchoolSingapore chapter and sponsored by JBWere.

Singapore branch president Samantha Mark (MBA Exec’00) reports that 45 alumni and friends learnt about theAustralian wine industry sector from JBWere’s visiting wineanalyst Paul Ryan, and gained some stimulating tasting tipsfrom Dr Tan, a local Singaporean wine connoisseur.

TRUE SPIRIT Singapore alumni enjoyed a taste of Australian wine:(from left) Charlie Koh (MBA ’97), Anthony Chew (MBA Exec ’95) andSamantha Mark (MBA Exec ’00).

MARKET SELECTOR Richard Gould.

TRIBUTE Senior Manager Development Program (SMDP) graduateRachael Hansom (left) dined with Kim Beazley at the LeadershipSpeaker Series dinner at the AGSM. She joined professor Mike Vitale,dean, his wife Susan Keyes-Pearce and other SMDP graduates andalumni in a toast to the former Australian Labor Party leader.

32 | AGSM I S S U E 3 • 2 0 0 2

and uses the study of art to engage disadvantaged and marginalised youth as students to enhance confidence and self-esteem and demonstrate vocationalpotential. Art produced by the students isexhibited and sold each year in the lobbyof Grosvenor Place, with Deutsche’s clientsand staff attending the event opening.Initially envisaged as a three-year program,it enters its sixth year in 2002,largely because the third stakeholders (Deutsche’s clients and staff) see the merit of the Artworks program and reinforce the partnership.

LASTING PARTNERSHIPSAnother example is BRL Hardy’s outstand-ing support of wetland restoration.WhenSir James Hardy, a BRL Hardy director,initially introduced the possibility ofsponsoring Landcare, the board was unsureof the merits. However, the creation of theBanrock Station label and its focus onwetlands and environmental sponsorship

created the opportunity for a lastingpartnership with Landcare.Today, BanrockStation sponsorship through Landcare hassupported Australian wetland initiativesfor over six years with projects in everyAustralian mainland state. A small contri-bution to wetlands restoration from eachbottle of Banrock Station has enlisted BRLHardy’s customers as the third stakeholder.The success of this concept throughLandcare has seen similar sponsorships inthe UK, the Netherlands, Sweden, Finland,Denmark, Norway, Canada, the US andNew Zealand.

The ability of non-profit organisationsto lock in long-term partnerships may behindered by an inability to understandcorporate long-term agendas. Conversely,some corporations appear to have a poorunderstanding of the benefits that canaccrue from relationships withcommunity organisations. Happily,some partnerships are self-evident and demonstrable success will encourage other partnerships to develop.

More radical approaches to fundingnon-profit organisations may take holdover time. For example, as Australiabecomes more litigious we may see somesettlements of difficult matters includedonations to community organisations aspart of the settlement conditions, therebycircuit-breaking otherwise intractablelegal situations.

The message is simple – carefulalignment of interests can create verylong-term relationships (beyond fiveyears). However, non-profit organisations,regardless of type, must help donor corporations find ways to include theirclients, staff or shareholders as stake-holders to achieve this longevity. ✪

* Chum Darvall was appointed CEO ofDeutsche Bank Australia and New Zealand in July 2002. Deutsche Bank sponsors theAGSM’s annual Business Planning Competitionand provides an MBA program scholarship topromote Australian women in management.

A STAKEHOLDER APPROACH TO PHILANTHROPYChum Darvall* proposes a model for aligning community and corporate interests that will not leave shareholders out in the cold.

CORPORATE PARTNERS

We have heard many times in recent years, from both government andcommunity leaders, about

the need for the corporate sector tobe more visible, more giving andmore involved in support ofcommunity service activities. It istrue that many important non-profitorganisations have lost governmentfunding (state or federal) for key projects in the past decade.But for the philanthropicallyinclined corporation the array oforganisations now seeking corporatesupport is bewildering. A general listwould include welfare, hospitals,theatre and opera, art and music,medical and scientific research,universities and schools and sport.

To oversimplify, while most peoplesee the need for greater corporategiving and endowment, the develop-ment of lasting partnerships can be elusive.The key to long-term partnerships is thesubtle alignment of interests; the inclusionof the corporation’s own stakeholders.

‘Pure’ corporate philanthropy has a shortlifespan, maybe one or two years, given thequite appropriate pressure on managementto focus on shareholder value creation.My proposition is that partnerships mustenrol third stakeholders, which couldinclude the clients, staff or shareholders of the corporate donor.A well-constructedpartnership between the corporate and non-profit sectors will yield a subtle ‘dividend’to the donor. Examples might includeperceived differentiation from competitors,staff involvement in community activity,brand awareness and publicity. If thirdstakeholders are enrolled in the effort thenthe partnership will have longevity farbeyond any initial expectation.

Deutsche Bank’s partnership withMission Australia in support of ‘Artworks’follows this pattern. Artworks is part ofMission Australia’s Creative Youth Initiative

CHUM DARVALL

Christmas functions in

a unique environment in

the heart of the CBD

Book now for your Christmas function at the AGSM’s CBD venue:

No. 1 O’Connell Street , Sydney.

Lunch or dinner for 20–50 people or a cocktail party for up to 150.

Dine inside or on our beautiful terrace.

State-of-the-art audio-visual and sound systems are included.

Please contact Vanda Cassim or Sacha Lunoe on: (02) 9931 9444 for

a customised quote.

For a virtual tour, visit : www.agsm.edu.au/cbd

If leadership is your aim, the AGSM’s Strategic

Leadership program will help you accomplish it .

The program, running from 4 to 6 December,

will be directed by Professor Sydney Finkelstein

from Amos Tuck School, Dartmouth College,

US. Professor Finkelstein is one of the world’s

foremost leadership experts.

Held in the beautiful surroundings of the Little

Bay Conference Centre in Sydney, this

program will also be an ideal opportunity

to network with experienced managers from

a variety of fields.

AGSM alumni will receive a 15 per cent discount

on fees for this highly recommended program.

FIGURE 1: AMBITION

Shine onFor a full program brochure please call: (02) 9931 9333,

e-mail: enquiries@agsm.edu.au or visit : www.agsm.edu.au

FINANCEDIRECTOR

Is this where you see yourself?

HRDIRECTOR

SALESDIRECTOR