Financial Risk Management at Goldman Sachs

Though a pessimist view by the Brit magazine, interesting article, especially the last statement.

On top of the world
Apr 27th 2006 From The Economist print edition

BY ANY measure, Goldman Sachs is a formidable company. The bank knocks the spots off its competitors, whether in pure “investment banking”, the traditional craft of underwriting and mergers and acquisitions in which it made its name, or in its new focus, trading for customers and its own account. Even compared with leaders in other industries, Goldman makes spectacular returns. Among its latest record-busting yardsticks was a 40% quarterly return on equity. The average pay-packet of its 24,000 staff last year was $520,000—and that includes a lot of assistants and secretaries.

This makes the bank an easy target for populist politicians and tabloid newspapers. The real reason why Goldman should matter to outsiders is not because it is a manufacturer of millionaires (good luck to it); but because it stands at the centre of a two-decade-long transformation of the financial markets and a new approach to risk.

Business risks that were once seen as a lumpy fact of life are now routinely sliced up and packaged into combinations that generally suit issuers and investors alike. At the heart of the change has been the development of huge markets in swaps, derivatives and other complex and often opaque instruments that allow the transfer of risk from one party to another. From small beginnings in 1987, the face value of contracts in interest-rate and currency derivatives is now more than $200 trillion—16 times America's GDP. A further $17 trillion is outstanding in (even newer) credit-default swaps, which allow bond investors to lay off the risk of issuers defaulting.
Led by Goldman, investment banks have innovated at a furious pace and changed the mix of their own businesses. They have taken on more risk as they have moved from more transparent markets, in which margins are slim, to more profitable portfolios of derivatives and direct private-equity investments. The face value of Goldman's derivatives exposure is more than $1 trillion, although the bank says that its net exposure, once you offset all its positions, is $58 billion, against shareholders' funds of $28 billion. The bankers' innovations have brought huge rewards to their industry. In the past decade it has garnered revenues of more than $125 billion, more than three times the level in the previous decade.

Simply the best
This huge new risk industry has produced gains for people far away from Wall Street and the City of London. Car companies have been able to hedge away many risks that once were seen as an incurable part of the business—and thus focus on what they do best. Pension funds have been able to shape their portfolios to fit their appetite for risk. Friction is bad for economies; the risk industry reduces it to all our benefits.

Yet the sheer size of the numbers involved does mean it is worth raising three questions. How exactly has Goldman and its industry achieved this? Can it be sustained? And what should happen if something goes wrong?
Like most of its rivals, Goldman is a difficult institution for outsiders to understand. Until 1999 it was a private partnership. With public ownership came greater reporting responsibilities, but precisely what Goldman is up to remains obscure. The bank likes to say that it still relies a lot on traditional investment banking, but Goldman's accounts show that its profits come increasingly from trading. The sharp-suited investment bankers act as a sales force for less-well-dressed colleagues who work out how to make money from swaps, options and direct investments.

Goldman was not the first to realise that new financial techniques had the potential to alter risk management for companies of all kinds. Bankers Trust, now part of Deutsche Bank, was arguably quickest off the mark. But once it joined the risk-management game, Goldman steadily accumulated market nous. It applied this by building a proprietary technology system, shunning the off-the-shelf products used by many of its competitors. People who have left Goldman say that this system is unmatched at rivals. One consequence is that Goldman seems confident that it can take more risks than its competitors do. Its trading revenues are the most volatile among big investment banks and it has the most days when it loses money. Overall, however, it makes the most money.

Inside the black box
But for how long? The market doubts the run of huge profits can last. Goldman's shares are valued less richly than those of competitors it so obviously outwits. Moreover, investment banks are less highly valued than less glamorous commercial banks and retail brokerage firms.

This could be because investors think Goldman will struggle to sustain the breakneck innovation that keeps it ahead of others. Goldman's ascendancy is already showing stresses—most recently the struggle to manage conflicts of interests across its business lines. Hank Paulson, Goldman's boss, recently chastised its London team of investment bankers for appearing too aggressive in their offers to buy companies, thereby threatening the bank's reputation for being an adviser. In

Japan, for just this reason, some of Goldman's M&A customers have deserted it for rivals.
These kerfuffles show that conflicts of interest can probably be solved by market pressure rather than intervention by regulators. A bigger problem for both investors and regulators has to do with risk itself. Outsiders—and perhaps even insiders—find it hard to judge whether Goldman's business is sustainably good or has thrived thanks to a dose of unsustainable good luck and skill. In addition, the very improvements in risk management that have spread risk far and wide make it harder to know where risk is concentrated or how risks might combine to threaten the system's overall health.

So far central banks have concluded that the system is more robust than it was. But the trading models that have propelled Goldman will be tested one day. At worst, the bank itself—or, more likely, a second-tier rival or a hedge fund—might fall into the kind of dramatic spiral that killed off Long-Term Capital Management (LTCM), a hedge fund, in the late 1990s. Financial markets have always been subject to crises.

Any crisis would affect Goldman, because it is so intertwined with the system. The bank says it keeps plenty of liquid reserves against the dread day. It might well profit from any crisis (it did from LTCM). But the chances are that some banks, somewhere, will get into serious trouble.
If that happens, the losses of any bank will be for its shareholders; they should not expect any bail-out. The wider question has to do with systemic risk. If the much vaunted systems do not work, then the central banks will have to step in (as the Federal Reserve did with LTCM). In the past, though, such collapses did less damage to the financial system than the regulatory over-reaction that followed them. If policymakers were to respond to the next crisis by ushering in a more conservative regime that severely limited financial risk-modelling and risk-management, the global economy would be the poorer for it. That is what should stick in people's minds when the day comes. Until then, why not do something too often forgotten? Love Goldman or hate it, you ought to admire it and the system it epitomises. And hang on tight

Steel Management from BW

This is an example of a co. as Solid and as Flexible as STEEL. An excellent B-School Case Study!

The Art Of Motivation
What you can learn from a company that treats workers like owners. Inside the surprising performance culture of steelmaker Nucor It was about 2 p.m. on Mar. 9 when three Nucor Corp. electricians got the call from their colleagues at the Hickman (Ark.) plant. It was bad news: Hickman's electrical grid had failed. For a minimill steelmaker like Nucor, which melts scrap steel from autos, dishwashers, mobile homes, and the like in an electric arc furnace to make new steel, there's little that could be worse. The trio immediately dropped what they were doing and headed out to the plant. Malcolm McDonald, an electrician from the Decatur (Ala.) mill, was in Indiana visiting another facility. He drove down, arriving at 9 o'clock that night. Les Hart and Bryson Trumble, from Nucor's facility in Hertford County, N.C., boarded a plane that landed in Memphis at 11 p.m. Then they drove two hours to the troubled plant.

No supervisor had asked them to make the trip, and no one had to. They went on their own. Camping out in the electrical substation with the Hickman staff, the team worked 20-hour shifts to get the plant up and running again in three days instead of the anticipated full week. There wasn't any direct financial incentive for them to blow their weekends, no extra money in their next paycheck, but for the company their contribution was huge. Hickman went on to post a first-quarter record for tons of steel shipped.

What's most amazing about this story is that at Nucor it's not considered particularly remarkable. "It could have easily been a Hickman operator going to help the Crawfordsville [Ind.] mill," says Executive Vice-President John J. Ferriola, who oversees the Hickman plant and seven others. "It happens daily."In an industry as Rust Belt as they come, Nucor has nurtured one of the most dynamic and engaged workforces around. The 11,300 nonunion employees at the Charlotte (N.C.) company don't see themselves as worker bees waiting for instructions from above. Nucor's flattened hierarchy and emphasis on pushing power to the front line lead its employees to adopt the mindset of owner-operators. It's a profitable formula: Nucor's 387% return to shareholders over the past five years handily beats almost all other companies in the Standard & Poor's 500-stock index, including New Economy icons Amazon.com, Starbucks, and eBay. And the company has become more profitable as it has grown: Margins, which were 7% in 2000, reached 10% last year.

Nucor gained renown in the late 1980s for its radical pay practices, which base the vast majority of most workers' income on their performance. An upstart nipping at the heels of the integrated steel giants, Nucor had a close-knit culture that was the natural outgrowth of its underdog identity. Legendary leader F. Kenneth Iverson's radical insight: that employees, even hourly clock-punchers, will make an extraordinary effort if you reward them richly, treat them with respect, and give them real power.

Nucor is an upstart no more, and the untold story of how it has clung to that core philosophy even as it has grown into the largest steel company in the U.S. is in many ways as compelling as the celebrated tale of its brash youth. Iverson retired in 1999. Under CEO Daniel R. DiMicco, a 23-year veteran, Nucor has snapped up 13 plants over the past five years while managing to instill its unique culture in all of the facilities it has bought, an achievement that makes him a more than worthy successor to Iverson.

Nucor's performance, propelled by a red-hot steel market, has been nothing less than sensational. It has grown into a company with 2005 sales of $12.7 billion, up from $4.6 billion when DiMicco took over in 2000. Last year net income was $1.3 billion, up from $311 million in 2000. In 2005 the company shipped more steel in the U.S. -- 20.7 million tons -- than any other company. "In terms of a business model," says Louis L. Schorsch, president and CEO of Nucor rival Mittal Steel USA, "They've won in this part of the world."

At Nucor the art of motivation is about an unblinking focus on the people on the front line of the business. It's about talking to them, listening to them, taking a risk on their ideas, and accepting the occasional failure. It's a culture built in part with symbolic gestures. Every year, for example, every single employee's name goes on the cover of the annual report. And, like Iverson before him, DiMicco flies commercial, manages without an executive parking space, and really does make the coffee in the office when he takes the last cup. Although he has an Ivy League pedigree, including degrees from Brown University and the University of Pennsylvania, DiMicco retains the plain-talking style of a guy raised in a middle-class family in Mt. Kisco, N.Y. Only 65 people -- yes, 65 -- work alongside him at headquarters.At times, workers and managers exhibit a level of passion for the company that can border on the bizarre. Executive Vice-President Joseph A. Rutkowski, an engineer who came up through the mills, speaks of Nucor as a "magic" place, representing the best of American rebelliousness. He says "we epitomize how people should think, should be." EVP Ferriola goes even further: "I consider myself an apostle" for the gospel of Ken Iverson. "After Christ died, people still spread the word. Our culture is a living thing. It will not die because we will not let it die, ever."
Strategic Highflier

Unusual? No Doubt. But Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, teaches Nucor as an example of outstanding strategic execution, placing it alongside highfliers such as JetBlue Airways and eBay. "My students say: 'I thought Nucor created steel.' And I say: 'No. Nucor creates knowledge."'At a time when many observers are busy hammering the final nail into the coffin of American heavy manufacturing, Nucor's business model is well worth considering. It raises the question of whether troubled companies such as General Motors (GM ) and Ford (F ) -- not to mention nonmanufacturers such as Delta Airlines (DALR ) or Verizon Communications (VZ ) -- could energize their workers by adopting some version of this plan. But Nucor's path is hard to follow. It requires managers to abandon the command-and-control model that has dominated American business for the better part of a century, trust their people, and do a much better job of sharing corporate wealth.

Money is where the rubber meets the road. Nucor's unusual pay system is the single most daring element of the company's model and the hardest for outsiders and acquired companies to embrace. An experienced steelworker at another company can easily earn $16 to $21 an hour. At Nucor the guarantee is closer to $10. A bonus tied to the production of defect-free steel by an employee's entire shift can triple the average steelworker's take-home pay.

With demand for steel scorching these days, payday has become a regular cause for celebration. Nucor gave out more than $220 million in profit sharing and bonuses to the rank and file in 2005. The average Nucor steelworker took home nearly $79,000 last year. Add to that a $2,000 one-time bonus to mark the company's record earnings and almost $18,000, on average, in profit sharing. Not only is good work rewarded, but bad work is penalized. Bonuses are calculated on every order and paid out every week. At the Berkeley mill in Huger, S.C., if workers make a bad batch of steel and catch it before it has moved on, they lose the bonus they otherwise would have made on that shipment. But if it gets to the customer, they lose three times that.

Managers don't just ask workers to put a big chunk of their pay at risk. Their own take-home depends heavily on results as well. Department managers typically get a base pay that's 75% to 90% of the market average. But in a great year that same manager might get a bonus of 75% or even 90%, based on the return on assets of the whole plant. "In average-to-bad years, we earn less than our peers in other companies. That's supposed to teach us that we don't want to be average or bad. We want to be good," says James M. Coblin, Nucor's vice-president for human resources.

Compared with other U.S. companies, pay disparities are modest at Nucor. Today, the typical CEO makes more than 400 times what a factory worker takes home. Last year, Nucor's chief executive collected a salary and bonus precisely 23 times that of his average steelworker (page 62). DiMicco did well by any reasonable standard, making some $2.3 million in salary and bonus (plus long-term pay equaling $4.9 million), but that's because Nucor is doing well. When things are bad, DiMicco suffers, too. In 2003, as the company was dealing with an industry downturn and barely squeaked out a profit, DiMicco made $1.4 million. He gets few stock options, and most of his restricted stock and other longer-term bonuses don't materialize if the company doesn't beat the competition and outpace a sample group of other high-performing companies for good measure. Paul Hodgson, senior research associate at the Corporate Library, an organization that researches corporate governance issues, and an expert in the field who rarely has anything good to say about CEO compensation, calls Nucor's system a "best practice." Adds Hodgson: "Not too many companies get my vote of approval."

Executive pay is geared toward team building. The bonus of a plant manager, a department manager's boss, depends on the entire corporation's return on equity. So there's no glory in winning at your own plant if the others are failing. When EVP Ferriola became general manager of Nucor's Vulcraft plant in Grapeland, Tex., in 1995, he remembers he wasn't in the job two days before he received calls from every other general manager in the Vulcraft division offering to help however they could. (Vulcraft manufactures the steel joists and decks that hold up the ceilings of shopping centers and other buildings.) "It wasn't idle politeness. I took them up on it," says Ferriola. And they wanted him to, he notes. "My performance impacted their paycheck."
This high-stakes teamwork can be the hardest thing for a newly acquired plant to get used to. David Hutchins, a frontline supervisor or "lead man" in the rolling mill at Nucor's first big acquisition, its Auburn (N.Y.) plant, describes the old way of thinking. The job of a rolling mill is to thin out the steel made in the hot mill furnace, preparing it to be cut into sheets. In the days before the Nucor acquisition, if the cutting backed up, Hutchins would just take a break. "We'd sit back, have a cup of coffee, and complain: 'Those guys stink,"' he says. "At Nucor, we're not 'you guys' and 'us guys.' It's all of us guys. Wherever the bottleneck is, we go there, and everyone works on it."

It took six months to convince Auburn workers that they would do better under Nucor's pay system. During that time the company paid people based on their old formula but posted what they would have received under Nucor's formula. Pretty soon the numbers became a powerful argument to switch. Hutchins saw his pay climb from $53,000 the year before the sale to $67,000 in 2001 and to $92,000 last year. "It's like I got a second job, and I'm doing the same one," he says. Today it has become standard procedure for a team of Nucor vets, including people who work on the plant floor, to visit with their counterparts in any acquisition. They explain the system eye to eye.

The payoff for Nucor? In Auburn's second year of Nucor operation, with fewer people and no substantial capital investment, the plant saw a 14% improvement in total shipments. Other acquisitions have seen big jumps in production as well. A mill bought in Tuscaloosa, Ala., went from 800,000 tons a year to 1.2 million with Nucor in just two years. A bar mill in Marion, Ohio, acquired last year, has already pushed annual production from 400,000 tons to 450,000.But to focus only on pay would be to miss something special about the culture Nucor has created. There's a healthy competition among facilities and even among shifts, balanced with a long history of cooperation and idea-sharing. Rick Ryan, the shipping department supervisor at the Auburn mill, has taken trips to study plants in Nebraska and South Carolina. Ryan had always used wood blocks as supports beneath the bundles of steel the plant produced. But after seeing other Nucor plants use steel blocks, he switched. Because they can be reused, Ryan figures the move saves $150,000 a year.Since there's always room for improvement, plant managers regularly set up contests for shifts to try to outdo one another on a set goal, generally related to safety, efficiency, or output. Ryan says Nucor's Utah plant is the benchmark these days. It is the most profitable, with the lowest costs per ton. "They've got everything down to a science," says Ryan admiringly. "It gives you something to shoot for."

In-House Entrepreneurs
As Nucor grows, existing facilities making products that overlap with those of acquired plants may need to find new businesses to branch into. So Nucor employees have to innovate themselves out of tough spots and into more profitable ones. The Crawfordsville plant is among those that have felt the squeeze. It's famous as the place that pioneered the commercialization of the thin-strip casting of steel that made it possible for minimills such as Nucor to compete with the industry's Old Guard. But Crawfordsville is not on a large waterway, a disadvantage at a time of high fuel costs. As Nucor's oldest sheet mill, it can't make sheets as wide as many of Nucor's other mills, including a giant plant in Decatur acquired in 2002.

So General Manager Ron Dickerson has focused more of Crawfordsville's output on types of steel that are harder to make, more profitable, and less threatened by imports. Now, Crawfordsville can make 160 different grades of steel. Those with a high carbon content, for example, are stronger and lighter and are particularly useful for steel ties for shipping and in car parts. It took a lot of work to figure out how to make this type of steel, which is prone to crack in mid-production, but workers agitated for the chance. They wanted more work for the plant so they could get more hours. Nucor's giant Berkeley mill has gone through a similar evolution, adding new machinery, including a $20 million vacuum degasser used for higher-margin ultraclean steels. The internal competition from Decatur "forced us to get better quicker," says Berkeley's general manager, Ladd Hall.Like many employees, Hall sometimes sounds like a walking advertisement for Nucor. Whisking a visitor out of his office and onto the factory floor, he mentions that he often walks through the plant on Saturday mornings at 5 or 6 a.m. to chat with the line workers before having breakfast with his children at 9 a.m. "I can give you all the rhetoric you want," says Ladd, "but the people in the mills, that's what makes it Nucor."

Starbucks on CBS 60 Minutes

This story is about an ordinary citizen who went from rags to riches. Besides, it also has some important management lessons!

To view the whole interview click here:

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At the Starbucks headquarters in Seattle, they don't drink coffee like you and me. Howard Schultz analyzes each slurp, as though he's letting you in on a secret.

"You taste that earthiness? Like a Bordeaux wine. That is pretty good," Schultz points out.

Here people called "coffee masters" talk about finding romance and passion in a cup like they were cream and sugar. Schultz has brewed up a coffee culture that's, sometimes, a little hard to swallow.

"One of our colleagues coined a phrase a long time ago and said, 'We're not in the business of filling bellies. We're in the business of filling souls,'" says Schultz.

"Oh now, come on," says Pelley. "No wait a minute. That's too … this is a company. This is a corporation. Come on."

"OK, it is a corporation," Schultz acknowledges.

"You're blowing smoke now," Pelley replies.

"No, I mean this is how we feel. You might say, 'OK, they're full of crap.' And you know, this is how we feel," says Schultz. "We're in the business of human connection and humanity, creating communities in a third place between home and work."

"I've got to tell you I've been kicking around your headquarters for the last couple of days and I'll admit if you'll let me use a different beverage metaphor … the people around here really seem to be drinking the Kool Aid, they really seem to be completely steeped, to use another beverage metaphor, in this philosophy bit," Pelley remarks.

"But it's not a cult, this is a corporation, it is a for-profit business. But our approach for 30-plus years has been unique and different, not better just different. Not better, just different," Schultz replies.

That approach created a market that didn't exist and a company that now doubles its sales every three years.

The company, Schultz says, currently has about 11,000 stores in 37 countries and they are opening an average of five stores per day.

"It's an unbelievable number to me to be honest with you," he says.

There really are Starbucks across the street from each other. They do that to cut down on the lines. Starbucks says it has 40 million customers a week and the company brews 227 million gallons of coffee a day.

The operation that feeds that monster is massive. At a roasting plant outside Seattle, green coffee beans are shipped in from 28 countries. This plant will go through up to two million pounds of beans in a week and there are four plants just like it. Starbucks has become so pervasive it, has spliced itself into the national DNA, being mentioned on programs such as Oprah, Jeopardy and even the Simpsons.

While Schultz acknowledges there is a bit of a Starbucks blowback, he doesn't think the company is crushing the life out of mom and pop coffee shops.

"We are so different and when people understand that, they welcome us," he says. "For example, first off, we created an industry that did not exist and in our wake, the momentum of Starbucks, so many local and regional companies and mom and pops have not only surfaced, but succeeded."


Still, Schultz has felt the wrath of anarchists, who trashed a Seattle store in an anti-globalization riot.

"There is a criticism, and you've heard it, that Starbucks is homogenizing the world; you're taking the culture out of places in China and Japan and Americanizing them," Pelley says.

Schultz says he has heard that and is not irritated by such criticism. He says "it's just off base."

"And when people say you're an evil empire bent on world domination, you say?" Pelley asks.

"I hate that. I hate that, but I realize you're always going to have critics," Schultz replies.

The original Starbucks opened in 1971 on Seattle's sea front. It was a small store with no big plans. "Starbuck" is the name of a character in the novel Moby Dick.

Schultz worked as an appliance salesman pushing coffee makers, when he stopped at Starbucks to make a sales call.

"When I walked in this store for the first time, I know this sounds really hokey, I knew I was home," Schultz says.

He quit his job and went to work in the store, which at the time was just selling beans and machines. Adding an espresso bar was his idea. A few years later, he was offered a chance to buy Starbucks, which by then had grown to six Seattle stores. He set out to find investors.

"If I came to you in 1987 and I said to you, 'Even though coffee consumption in America is down, I wanna build a company that was gonna sell coffee not in a porcelain cup, but in a paper cup, with Italian-saying words that no one could pronounce, for $3 a cup of coffee,' would you invest?" Schultz asks.

"Absolutely not," Pelley replies.

Schultz says Pelley would have had a lot of company. But had he invested $10,000 at the start, it would be worth more than $5 million today. How did Schultz do it? With marketing and salesmanship and even, he admits, a little hype.

"But please tell America and the rest of the world why the small drink is called the tall?" Pelley asks.

"Well, I think, you know, when you walk into a store, you don't wanna say, give me a small. You wanna say give me a tall. And, so, there's a little bit of marketing in there," Schultz explains.

Schultz likes to tell people that Starbucks is just a simple coffee company, but behind closed doors, there's a Starbucks laboratory inventing next year's drinks.

"It takes our beverages from the state of ideation to the actual development that you see going on right now," explains Jim Donald, the company's CEO, as he showed the 60 Minutes team around.

What is the state of ideation?

"State of ideation. Beverages have to be created. And they're created by looking at what trend is in say, the fashion industry, what color's hot right now," he explains.

They think green is hot and so they developed something called a "Green Tea Frappuccino." At Starbucks today, there are now 55,000 possible drink combinations.

"Cinnamon dolce latte. Vanilla white chocolate mocha? Caramel macchiato? Where does this stuff come from?" Pelley asks. "You're making this up."

"You walk into a retail store, whatever it is, and if there's a sense of entertainment and excitement and electricity, you wanna be there," Schultz says.

Starbucks is theater. That showmanship and salesmanship have made Schultz something close to a billionaire.

But that is something that he could never have imagined as a boy. Schultz grew up broke living in a public housing project in Brooklyn. There are bullet holes in the door leading to apartment 7G, in the building where he lived.


As a teen, Schultz says his dream was to get out. "It was, I never allowed myself to dream beyond that. I was afraid to dream beyond that."

Dreams, he told us, seemed futile after his father, Fred, was injured on the job.

"This is the hallway I walked down at the age of 7 and opened up that door and saw my father on a couch with a cast," Schultz recalls. "He broke his leg on the job. He was a delivery driver, picking up and delivering cloth diapers. Terrible job.

"When he fell on the job, he basically was turned loose. He was out of work. There was no hospitalization, no health insurance, no workman's compensation and we were done as a family and I saw the hopelessness, I saw the plight of a working class family, I saw the fracturing of the American dream first hand at the age of 7. That memory scarred me."

Schultz has organized his company around that memory. He provides health insurance to employees who work as little as 20 hours a week. He raised prices to do it. And now Starbucks spends more on health care than it does on coffee.

"What I've said to our own people is that we will not — you're never supposed to say never, but I said never — we will never turn our back on this benefit for our people," says Schultz.

When you pay $4 for coffee, you're funding Schultz's social agenda — the health care, stock options for employees and more. He even pays farmers higher than market rate for beans.

Schultz got out of the housing project but something about it never left him.

What was he thinking, visiting his old home?

"Just everything that's happened to me since standing here, how many times I walked through that door," he says. "I think there were many moments when people said, not to me directly, but I remember hearing things that, 'Don't aim too high.' Not my parents, but people. 'You're from Brooklyn, you're from the projects. Don't aim too high.' "

All these years later, Schultz is aiming to at least triple the number of stores to 30,000 worldwide. He thinks that China may be his biggest market and he has nearly 400 stores in the region already, including one in Beijing's Forbidden City.

What was once a coffee bar has become a marketing machine for an expanding entertainment business. It produces its own music and, this week, Starbucks opens its first movie. It's called "Akeelah and the Bee" as in spelling bee, a feel-good film about a poor kid who triumphs.

It's called "Akeelah and the Bee" as in spelling bee, a feel-good film about a poor kid who learns how to spell big words. Words like prestidigitation.

"Prestidigitation" means skill in pulling off illusions, like a magician. Howard Schultz admits there was more than a little sleight of hand in conjuring up Starbucks and turning the dullest, most common drink in America, into something mysterious.

100 Top MBA Employers for 2006

From CNN Money

Think of it as a popularity contest for companies. Each year, research firm Universum surveys MBA candidates on where they'd most like to work.

Here's the full list:

http://money.cnn.com/magazines/fortune/mba100/full_list/

Harvard's version of Christology

Apr 21st 2006 From Economist.com

Christology
EARLY in April Harvard Business School played host to Christo and Jeanne-Claude, renowned landscape artists whose most recent work involved hanging saffron-coloured drapes along the footpaths of New York’s Central Park. To the disappointment of some, the pair were not in Boston to wrap the iconic Baker Library in polypropylene fabric (as they did Berlin’s Reichstag in 1995). Rather, they were the guests (and subjects) of a first-year MBA course studying the artists’ self-financing business model.

In order to maintain complete control over their work, Christo and Jeanne-Claude shun potential sponsors and fund their projects by selling the preparatory studies, drawings and models that go into each venture. If extra money is needed, they sell their earlier work from the 1950s and 1960s. But with their projects costing upwards of $20m and growing in size, the complexity of their financial dealings is increasing. Most recently, with “The Gates”, their project in Central Park, the pair struggled to find a bank willing to open a multi-million dollar line of credit so they could pay their workers.

It is an unconventional business model, to be sure. But Josh Lerner, a professor at HBS and co-author of a case study on the creative couple, believes that students can learn a lot from their example. “There are a significant number of students who see themselves going into non-traditional entrepreneurial ventures, and for them it can be very instructive to see how one takes the entrepreneurial model and applies it to a non-traditional setting,” Mr Lerner told the Harvard Gazette.