Liveblogging the Great Depression: Lords of Finance

This post begins some commentaries on readings about the Great Depression.  Richard A. Mayo and I are conducting a year-long seminar to look at this complicated and overshadowing episode in economic history.  We will drill into readings that are classic and/or new.  I have decided to liveblog about these readings in order to give to our students some added perspective and criticism on the slant that writers take on the Great Depression—and on comments made in our seminar discussion.  This is not a Cliff’s Notes summary of what we read and discussed, but collects, rather, some ideas that rattle around in my mind.  I hope that our students (and any other readers) will find these reflections helpful.


The Great Depression vastly influences the way we think about business cycles (especially troughs), financial crises, and government intervention in markets.  And it represents a massive pivot in American politics as well, away from laissez-faire and toward socialization of risks and returns, centralization of economic policy-making, and the regulation of economic life.  Thus, mastery of the Great Depression is a very worthy goal for the development of MBA students.   As the generation with any personal memory of the Great Depression passes away, and as we approach the 10th anniversary of the Panic of 2008, now seems like the right time to help the rising generation make some meaning about it.   


On August 25th, the seminar commenced with a discussion of Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed.  Few books about central banking have gained the plaudits of this one.  It has figured among the “must-read” recommendations of prominent executives and critics.  And the book has taken some stiff criticism from Stephen Schuker (historian at UVA) for Ahamed’s neglect of important source material, or “of fiscal politics, evolving industrial structure, or the prerequisites for a growth-oriented entrepreneurial culture.”  Ahamed (a hedge-fund manager) might fairly be indicted for practicing history without a license.  Yet Lords of Finance remains a valuable portal into a multi-disciplinary study of the Great Depression for raising a number of important themes and stimulating critical thinking about that period of time.  Here are six such points:


1.      Financial and economic crises have long ancestry.   How far back in time must one go to tell the story of the Great Depression?  The popular view is that the story begins with the stock market crash of October, 1929: “greedy speculators created a bubble, which burst, and imposed economic hardship on everyone for ten years.”  But it’s not that simple.  Ahamed advances the view that the Great Depression had its origins in the First World War and especially the Versailles Treaty of 1919.  The developed economies exhausted themselves fighting and financing the war.  Reparations and the payment of war debts, combined with an ill-advised return to the gold standard created a brittle and unsustainable economic system.  This repeats an argument made by luminaries such as John Maynard Keynes and Herbert Hoover.  Therefore, if one is interested in getting to root causes of a financial crisis, one must look farther back in time than the obvious onset. 

2.      The cycle of debt-deflation is the foundational economic phenomenon of the Great Depression.  Debt-deflation entails a pernicious feedback spiral in which the pressure for repayment of debts triggers the effort to sell assets by debtors.  The effort to liquidate assets drives asset prices downward.  Declining prices (deflation) worsen the adequacy of collateral underpinning other credits in the economy, which triggers more pressure for repayment of debt and/or for demanding more collateral for loans—in other words, “the more the debtors pay, the more they owe.” [1]  The increased pressure triggers more liquidation of assets.  As the debt-deflation spiral worsens, economic output plummets, workers are laid off, and bankruptcies (corporate and personal) and social distress rise.  This stimulates hoarding of money, which worsens liquidity in the economy and threatens the stability of the financial system.  The debt-deflation spiral ends either with the return of confidence from some powerful surprise (such as government intervention through debtor relief or fiscal spending) or when no assets remain to be sold in the effort to liquidate debt obligations.  The theory of debt deflation was originally formulated by Irving Fisher in 1933, in response to the onset of the Great Depression.  Significantly, Fisher rejected the view that markets were generally and always in equilibrium.  In response, mainstream economists argued that deflation wasn’t so dangerous, since in Fisher’s model, value was merely transferred from debtors to creditors, with no impact on the overall economy.  But in 1995, Ben Bernanke (another student of deflation) counter-argued that a sufficiently severe debt deflation cycle would produce adverse effects on output and employment, both of which could produce depressions.  The deflationary process that caused so much hardship, especially in 1930-1934, spanned most sectors of the economy and appeared sporadically early in the 1920s, notably in agriculture.  Orthodox thinking held that deflation was a temporary adjustment following a period of inflation.  Yet economic history suggests that the US has sustained some extended periods of deflation.  Some sectors, such as agriculture, experienced deflation for much of the 1920s and 1930s.  Why might this be?  Maladroit monetary and fiscal policies are standard explanations.  An added candidate would be technological innovation.  Technological change is generally deflationary.  Alexander Field, in his book Great Leap Forward offers some evidence to suggest that the displacement of steam-based power by electro-motive power in American manufacturing during the 1920s had a depressing effect on prices.  Deflation is much in the minds of central bankers today: what are the parallels between the twenty-teens and the 1920s?    

3.      Determinism versus personal agency: shall we study economic leadership?  Ahamed could have focused his book on policies and larger trends.  But by focusing on four central bankers, Ahamed seems to argue for the significance of human agency in the unfolding of great events.  Economists don’t spend much effort studying individual leaders and instead focus on aggregate flows of money and resources.  Historians, on the other hand, don’t like to attribute big outcomes to the decisions of individuals because big outcomes have many causes and theories about free will and the “Great Man” of history are out of fashion.  Determinism flourishes in much of the writing about the Great Depression: because of pre-existing conditions, the economy was bound to collapse, regardless of what individuals might choose to do.  Yet it is important for us (at a professional school) to study the relation among individuals, their decisions, and the outcomes that follow as a way to learn about leadership.  By focusing on individuals in history, we better understand their motives and consequences of their choices, thus better informing our own choices going forward.  As much of the behavioral research in economic decision-making has shown, biases and preferences of individuals matter enormously—so do ideologies, incentives, and interests; for such reasons, the study of economic leadership is valuable.

4.      Keynes, the looming presence.  Nominally, Lords of Finance is about four central bankers.  But a fifth person, John Maynard Keynes, overshadows the episode.  From the start, he decried policies that ultimately led to catastrophe (his criticism of the Versailles Treaty, The Economic Consequences of the Peace, is worth reading in 2016—and I commend Margaret McMillan’s Paris 1919: Six Months the Changed the World).  Historians of the Great Depression generally cleave to Keynesian economics in their interpretation of the awful downward spiral of 1929-1934.  Perhaps this is with benefit of hindsight: Keynes’s General Theory of Employment, Interest, and Money was published in 1936 and reflected his critique of economic orthodoxy of the day, classical economics, which held that the cure of a depression was a process of “liquidation” like a cold or a case of the flu—and the risk of such a cure was deflation (see point 2, above).  It was in this regard that Keynes wrote, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”  The “defunct economists” and “academic scribblers” were the classical economists whom Keynes would eventually displace.  Keynes’s demand-side stimulus-oriented policy recommendations offered a provocative alternative.  Yet Keynes had less to say about possible structural barriers to economic recovery from a crisis.  The alternative narrative to Keynes, neoclassical economics, adds that supply side inflexibilities such as entrenched labor unions, “sticky wages,” heavy regulation, trade barriers, and the like can limit the speed of an economic recovery.  But as of the 1920s, the central bankers in Lords of Finance had little consciousness of either demand-side or supply-side narratives.  An important lesson of the that era is that economic and financial crises spawn new ideas.  I leave it for our students to surmise what new ideas are arising from the Global Financial Crisis and Great Recession.

5.      Author’s purpose.  The thrust of Lords of Finance is to explain why and how the axis of monetary orthodoxy shifted profoundly between 1919 and 1939.  Not a pretty process and one fraught with poor choices and inept actions.  I surmise that Ahamed wanted to offer a cautionary tale to current and future economic leaders.  Did he succeed in this?  Much as one may enjoy a good yarn, there is no thoughtful reading without criticism: Where were YOU persuaded?  Where not?

6.      History matters.  Henry Ford famously said, “History is bunk,” words that he later ate when, in penance, he established a wonderful museum of industrial history, Greenfield Village.  History matters for practical people as a way to make meaning about what is happening right now and how the future might unfold.  The Great Depression has cast a very long shadow.  At the nadir of the Global Financial Crisis, some pundits prophesied the onset of another Great Depression.  But things didn’t turn out exactly that way.  Why and how that happened will be an underlying topic in our seminar.  Suffice it to say, as Mark Twain said, “History doesn’t repeat itself, but it rhymes.” 


  1. Irving Fisher, (1933) pages 344-346. []
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Liveblogging “Financial Innovation” Week 2

This continues a running commentary that parallels a new course that I’ve started at Darden, “Financial Innovation: Opportunities and Problems.”  On August 29-30, we explored several important themes in articles by James Van Horne, Josh Lerner, Antoin Murphy, Robert Shiller, and Scott Frame and Lawrence White.  We studied the case history of John Law’s meteoric rise and fall in 1720 with the bursting of the Mississippi Bubble.  And on August 30th, we heard a presentation from Pascal Bouvier, a fintech venture capitalist.  What are we to make of all of this?

1.      “Revolutions” in financial innovation do occur, and should be assessed with caution.  At the close of class the previous week, we debated the extent to which the blockchain “revolution” was substance or hype.  James Van Horne took us back to 1985, when he described a recent wave of financial innovation and warned that it can lead to “excesses.”  The problem with frothy episodes of financial innovation is that they can advance meaningless and ephemeral new products and services, inflate bubbles in asset valuations, and promote outright frauds.  There are many cautionary examples in history; the story of John Law is an iconic example.  A financial genius, Law is credited with strengthening the concept of a central bank, organizing one of the earliest international trading conglomerates, commercializing the concept of financial options, organizing an options market, and arguing that shares in an enterprise were effectively another form of “money”—in the early 18th Century, any one of these would have been a big deal; altogether, they were “yuuuuge.”  And Law was a master practitioner of co-opting the state: with patronage from the King of France, he amassed monopolies on foreign trading rights in return for which he proposed to restructure the national debt of France.  Law’s problem was that some worthy ideas gave way to excess.        

2.      Momentum strategies always end in tears.  In order for Law to succeed with is audacious plan, he needed to raise more capital, and at higher share prices.  To justify higher share prices, Law extolled the promising growth of trade with the Mississippi Valley and other regions.  The buoyant expectations soon turned to speculation and then a massive bubble.  In the summer of 1720, investors awoke to the realization that real growth of trade with the Mississippi Valley or even real growth of the entire French economy would never warrant the lofty share values.  Thus, the bubble collapsed; John Law fled the country; and financial innovation in France was suppressed for decades.  Nevertheless, the model of momentum growth is a hardy weed in the business garden.  Examples such as Enron, Boston Chicken, and the dot-com bubble of 1998-2000 speak to its durability.  The following figure illustrates the “self-reinforcing cycle,” as systems analysts call it: each new infusion of capital fuels more growth, which justifies higher prices for the next infusion of capital.  But momentum growth strategies always fail because of declining returns to scale: eventually firms run out of enough promising assets necessary to justify the high growth expectations.  Stated alternatively, the Mississippi Company couldn’t grow indefinitely faster than France and its colonies without eventually owning it all!  The lesson for budding practitioners in law, business, and public policy: learn to recognize a momentum strategy and call it out.




3.      Who innovates?  John Law illustrates one other point: Financial innovation seems likely to come from the periphery, rather than the center, of a field; from entrants rather than incumbents.  The articles by Josh Lerner and by Frame and White helped to illustrate this.  In a world of only big firms and oligopolistic competition, it seemed that only big firms (incumbents) would have the capital and incentive to innovate—this was the thesis of Joseph Schumpeter, one of the great economists of the mid-20th Century.  Iconic examples such as Bell Labs (of AT&T) and Xerox PARC (of Xerox) seemed to prove Schumpeter’s thesis.  But thanks perhaps to deregulation and technological change, the pattern in the financial sector seems to be that players on the periphery innovate and that big, established incumbents imitate, quickly.   To be clear, “the periphery” means different things to different researchers.  Josh Lerner describes it as “small firms,” “less profitable firms,” “older, less leveraged firms located in regions with more financial innovations.”  Frame and White tell us that “the early issuers were those that tended to be higher risk and also tended to be banks and thrifts (which had relatively liquid assets that could be placed in over-collateralized special funding vehicles).”  The research suggests that the prominent incumbents in the financial sector are likely to be followers and adopters of innovations, whereas players closer to the periphery are likely to be the innovators.  John Law is an extreme example of the outsider-innovator: a Scotsman who fled to France from England, an alleged murderer, and a “gambling dandy” and bookmaker entrusted with the national fisc.  In obvious ways, Law is not a life example for students to follow.  So we looked at Bond Street, an online lender to small and medium-sized businesses, and asked why big banks aren’t imitating that model?  Students pointed to the tendency of big banks to emphasize economies of scale: make only big loans to big firms and watch those clients closely.  In short, John Law, Bond Street and academic research suggest that if you want to look for the source of innovation in finance, you should look toward the periphery. 

4.      Fintech is booming.  Perhaps the biggest illustration of innovation-from-the-periphery is the growing mass of fintech startups, some 18,000 of them in the world, according to Pascal Bouvier, a venture capitalist, CFA, Darden MBA (1992), and blogger in fintech.  We hosted Bouvier for a class session.  He quoted Marc Andreesen that “software is eating the world” and explained that “code is replacing what is done manually.”  Change in financial services has come slowly because of heavy regulation.  But the financial crisis of 2008 has opened the door to financial innovation.  Over the next 15 years this industry will reinvent itself, he says.  Because of innovations, he anticipates a big decline in employment in the financial services sector.  He noted that the charge on intermediating assets has been stable at 2% for more than a century and that the wave of innovation will drive this charge downward.  Incumbents seem to have a hard time innovating because of their corporate cultures that focus on “risk management” rather than “risk-taking.”  Venture capitalists invested several billions of dollars in fintech startups in 2015—Bouvier mentioned the payment systems segment as especially attractive.  It certainly seems as if the fintech field has momentum, but that may also be its problem (see point #2).

In the next few classes we turn from “who innovates” to “what motivates financial innovation”?  The discussions this week suggest that entrants/outsiders/players-on-the-periphery are better at seeing opportunities to innovate.  But what is it that they see?

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Liveblogging “Financial Innovation” Week 1

This begins a running commentary that parallels a new course that I’ve started at Darden, “Financial Innovation: Opportunities and Problems.”  On August 22nd, we kicked off the course, and developed themes.

1.      The huge range and breadth of “financial innovation.”  I took students through a number of fictional “elevator pitches” (short appeals for funding by entrepreneurs to investors) that illustrated the immensity of financial innovation today and in history.  The term, “financial innovation,” covers “financial engineering,” (a somewhat disfavored term these days) and “fintech,” uses digital technology, artificial intelligence, machine learning, blockchain technology and others to provide new financial products and services. Though we can try to “bucket” innovations in terms of new markets, new institutions, new instruments and new services, we confronted the fact that most innovations are idiosyncratic—they color outside the lines in ways that defy simple categorization.  The idiosyncrasy of financial innovation is both a curse and a blessing.  It brings forward interesting new products and services and makes the lives of individual and corporate consumers, financial institutions, regulators, entrants, and incumbents less certain and more interesting.

2.      Motivation to study financial innovation.  Students are showing increased interest in financial innovation as related to their studies and career interests.  “Fintech” is attracting entrepreneurs and venture capital in growing volumes.  Pundits assert that Bitcoin (and other cryptocurrencies) and the underlying blockchain technology will revolutionize finance.  The subject is relevant to the economy and society as an influence on the stability of the financial system.  And financial innovation retains a prominent place in current political and policy debates—a government report in 2011 accused financial innovation as a prominent cause of the Panic of 2008.  In 2009, former Fed Chairman, Paul Volcker, said, “The most important financial innovation that I have seen the past 20 years is the automatic teller machine…I have found very little evidence that vast amounts of innovation in financial markets in recent years has had a visible effect on the productivity of the economy  ((Paul Volcker, quoted in New York Post, December 13, 2009, accessed at ))  All of this warrants careful examination. 

3.      Current stuff and history.  This course turns to a blend of current topics and examples in history to illuminate financial innovation.  There are plenty of financial innovations in the current environment to fill a course.  But looking only at current events forsakes a grasp of consequences.  It is the longer-range outcomes of financial innovations that help you build a critical point of view about them.  Also, history grants the kind of perspective that can help you understand the future.  For instance, history shows that innovation tends to come from the periphery of finance, not the center; it seems to increase in times of social and political change rather than in quiescent periods; and it tends to be led by entrepreneurial visionaries rather than pushed by the general market.  Studying important financial innovations of the past can help you assess the present to anticipate opportunities and problems in financial innovations to come.

4.      What stimulates financial innovation?  This is a question with which we will deal throughout the semester.  Our discussion this week suggested that the business and economic context creates challenges and opportunities for financial innovators.  The innovators respond with proposals for new markets, institutions, products/services, instruments, technologies—and even government policies (both private- and public-sector financial entrepreneurs design these).  These innovations ultimately create outcomes for consumers, taxpayers, investors, issuers of securities, employment, the voting public, and the stability of the financial system.   Government policies interact significantly with financial innovation, either ex post, in the form of regulations of markets, institutions, and instruments, or ex ante, in the form of incentives or constraints to which innovators respond.  The course will aim to illuminate the interaction between financial innovations and government policies.




5.      Is the blockchain a genuine revolution-in-the-making, or just a lot of hype?  We explored blockchain technology and its potential application in financial innovations—our resource here was the book, Blockchain Revolution, by Tapscott and Tapscott.   And we read the foundational document by the mysterious Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System.”  The blockchain technology offers many appealing features: lower cost, faster speed, encryption, open source, greater privacy, and potentially increased systemic resilience.  And blockchain’s advocates argue that it will disrupt the financial sector profoundly, as well as other sectors such as transportation, energy, resource extraction, health care, retailing, record-keeping, and the “factory of things.”  But sober assessments (such as a critical piece by David Evans of University of Chicago) suggest that the blockchain won’t eliminate intermediaries, that Bitcoin is not a medium of exchange (it is an investment asset) and will have a volatile value with uncertain expectations, and that the evolution of blockchain technology depends on the adaptation of new systems of governance.  And finally, students (and I) admitted that the actual functioning of blockchain technology remains inaccessible to the businessperson—you need a grounding in computer science to really understand what is going on.  But do we need to master the technical functioning of the Internet in order to start an online business?

All of these themes warrant deeper consideration, which the balance of the course will explore.

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The Intern’s Expectations

Sidebar: Those interns who are in the home stretch and really hope to gain an offer might find some of my past advice helpful. Here are some suggestions I’ve given over years past to improve the odds of getting an offer:

  1. Actually ask for the job. Too many summer interns simply don’t “close the sale” (see this.)
  2. Become known. “Lean in,” in Sheryl Sandberg’s parlance. Too many summer interns lean back and fade out (see this.)
  3. Finish at a sprint; don’t coast to the end. Research suggests that the most recent perceptions are very influential to decision-makers. Even if you’re finished with your summer project, walk around and volunteer to help anyone else (see this.)
  4. Quell any sense of entitlement; you must earn the offer. In most settings, arrogance damages, rather than strengthens, career prospects (see this.)
  5. Even if the outcome doesn’t look good, exit gracefully. (see this.)
  6. Focus on finding a calling, not just a job. (see this.)

“It wasn’t what I expected,” said a second-year MBA student who had just returned from a summer internship. He was sitting in my office some years ago, and said, “I aspired to make a difference; to really show what I could do. Instead, what we got was warmed-over projects, company propaganda, and lots of social events. I mean, the company is okay, but if last summer is the kind of work they want me to do, should I accept their job offer?” This student clearly had one leg out the company’s door (if not more of his anatomy). His explanation seemed to beg for my confirmation. Thus, he was a bit surprised when I didn’t leap to his conclusion. I asked him four questions:

  1. Were your expectations reasonable?
    Students tend to set expectations based on hearsay from other students, or on the big decisions embedded in case studies. But frankly, a lot of the high-impact work in business is based on tedious foundation-building. Thomas Edison argued that genius is 1% inspiration and 99% perspiration. Anyway, I said to the student, “if you were CEO of that company, how would you have used a bunch of summer interns, all of whom knew little about the company to start with and some of whom might not return?”
  2. Why might the company have structured the internship as it did?
    Most companies use the summer internship as part of a sophisticated recruitment and selection process. The recruitment piece is that they want to inform the interns in an effort to create ambassadors for the company on school campuses in the coming year. And some companies try to give the interns a jolly time so that they will bring some enthusiasm to their peers. But more importantly, companies use the internship to vet the candidates on the company’s own turf. Does the intern work hard, bring something to the enterprise, and play well in the sandbox? If you thought no one was paying attention to you, think again. It doesn’t take a high-impact project to bring out the best (or worst) in people. No doubt, the Director of Campus Recruiting spent months scrambling to find useful work for all the interns—so I said, “have some empathy for him/her. Someday, you might find yourself in a similar position.”
  3. What’s the outlook for you, the company, and the economy?
    One can start with the assumption that one’s work last summer isn’t a perfect indication of the work that the company might have in store. Therefore, it is worth having a few long conversations with the folks there about what you’d be doing in the future. And any assessment of your own outlook should entail the question, “What’s the alternative?” At the start of the campus recruiting season the substitute to that company is anyone’s guess. And there is always uncertainty about the company and the economy. Take an investment point of view (you’ll be investing your time and effort in building the company): does this company have a good outlook? Would you buy stock in the company (if you had the money)? And whether the economy booms or busts, will this company be a good place to work?
  4. What did you learn about the people and the culture there?
    Just as the company was vetting you last summer, you’ve had an opportunity to vet the company, to get the kind of insights that are rarely possible in campus interviews. There’s a saying that “A-players hire A-players; B-players hire C-players.” Generally, one can trust A-players to use your talents well—did you see any A-players? And the word, “trust,” directs one to think about values and ethics: did the people you met resonate with your best values? Even if your summer work was rather drab, the opportunity to work with great people, with whose values you resonate, will probably turn out well.

My dominant advice to the student in my office was that late summer was probably too soon to decide. Big decisions require time to reflect. I didn’t confirm the student’s leanings—but my questions stimulated a check on his expectations.

There are other lessons here, worthy of longer treatment than I’ll give, regarding how to set expectations for yourself and others. As managers and leaders, we must set reasonable expectations and hold people (and ourselves) accountable. The operative word here is “reasonable.” The student’s expectations for summer work were a tad high. Two filters for the reasonableness of expectations are humility and gratitude—an exemplar in this regard is the cosmologist, Stephen Hawking, who was diagnosed with a degenerative disease when he was a young man. Hawking is a high performer in his field. And he confessed, “My expectations were reduced to zero when I was 21. Everything since then has been a bonus.” [1] I hope that my questions helped the student gain some humility and see a bonus in his summer internship.

  1. “The Science of Second-Guessing” New York Times Magazine interview, December 12, 2004. []
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In Memory of James R. Rubin


Our colleague and friend, James R. Rubin, passed away yesterday, saddening the Darden Community. He was a member of the Darden School faculty for some 25 years, teaching and writing in the area of management communications. He brought leadership to faculty teams and was a devoted teacher. Many knew him as a gentle and humble colleague; as one came to know him better, James shared a wry wit and a passion for written and oral expression. He reminded us that leadership is nothing without the ability to express ideas in a way that binds people together and mobilizes action. His passion resonated with students and changed lives. He was the first faculty recipient of the Frederick S. Morton Awards for Leadership in 1996, given at graduation to an outstanding student in leadership and to the faculty member who made the most significant contribution to that student’s life.

James touched his colleagues as well. Each of us has our own stories of the impact he made. Early in my years as Dean of Darden, I sought the benefit of James’s expertise in corporate branding, identity and reputation. I had been getting some unsolicited advice about how Darden needed to present itself as more of this and less of that. These people said that Darden needed a re-branding, a cosmetic makeover that, regardless of the veracity of the new brand, would create a wonderful new reality for the School: if you say it, everyone will believe it. To me, this advice sounded like baloney, but what did I know? I was just a Dean.

So I consulted James, whose expertise was in corporate identity. He responded with alacrity, walking into my office with a bulging three-ring binder of background material to read, and an oral briefing for me. The gist of his advice was that great corporate identities spring from deep values and strong competencies. Strong brands are built upon a bond of trust between the organization and its stakeholders: you say what you are going to do, and then you deliver on it. Therefore, James said that Darden should frame its brand around what it cares about and does well—and then should communicate that identity relentlessly. This advice got us on the right track, and after good work by teams of faculty, staff, students, and alumni, prompted solid expressions of our mission, vision, values, and norms, all of which became the foundation of Darden’s branding.  Ever since then, we’ve been hammering away on the message that Darden is about superb teaching and leadership development. Rankings, applications, student satisfaction, and fund-raising affirmed that this message was on-target. James helped us get the right orientation at the right time.

James leaves a lasting legacy of wisdom, student-centered teaching, and collegiality. He will be missed. We all extend our condolences to his wife, Jane Perry, his son, Edward, and family members.

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A Year in the Wilderness

“I went to the woods because I wished to live deliberately, to front only theimage of Henry David Thoreau essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived. I did not wish to live what was not life, living is so dear; nor did I wish to practise resignation, unless it was quite necessary. I wanted to live deep and suck out all the marrow of life, to live so sturdily and Spartan-like as to put to rout all that was not life, to cut a broad swath and shave close, to drive life into a corner, and reduce it to its lowest terms.”
Henry David Thoreau

Back in the 1960s, undergraduates who misbehaved or failed their courses could be “rusticated.” Brits used that term to mean suspension from school, to be sent out of the city or university community and into the countryside, the wilderness. There, by dint of hard labor and solitude, the prodigal person would come to one’s senses, straighten up, and fly right. Some students went to a real wilderness: climbing in the Himalayas or hiking the Inca trail. Or they found a wilderness of manual labor, working on construction jobs, in a factory, or as a deckhand on a ship. Others got drafted. And yet others took back-office jobs in a big city. And for the most part, they came back changed for the better. Being rusticated was about finding a new direction.

This past academic year, I was rusticated.

No, I didn’t flunk out of Darden. The custom at UVA is that when you leave the Dean’s Office, you take a year’s leave of absence. This helps the successor Dean get traction and helps the (now former) Dean get a different kind of traction. It’s a good policy. But it meant that I had to get out of Dodge.

The wilderness I chose was Boston, where I was a visiting professor at Harvard Business School. (I’m very grateful for Dean Nitin Nohria’s hospitality.) I did not teach, consult, or give speeches. I retired from a board. Instead of all the other stuff that a former Dean could do, I chose to become a student for a year. I attended a couple of courses and occasionally dropped in on classes of other great teachers. I read deeply, spending a third to a half of each day that way. I wrote (and edited) a lot, which is my way of sorting out my thoughts. And I reached out to economists, business professors, historians, political scientists, English professors, lawyers, and biomedics — they were all cordial and toughminded about my ideas.

Larry Summers and Bob Bruner
Larry Summers and Bob Bruner

For instance, Larry Summers, reputed to have strong opinions and fearless expression, was friendly; he invited me to some gatherings and generously gave me helpful advice on my work. My wife and I attended concerts, lectures, museums, and saw the Celtics, Patriots, and Red Sox-we discovered that Boston may be great for students but is even better when you have some spending money. The year was just packed with new ideas and experiences.

But without question, it was a year in the wilderness, a time to chart a new path. Friends ribbed me about the “vacation” I was taking, but it was some of the hardest work I’ve done. There is no guidebook; distractions abound; advice varies; and time flies. Pathfinding is lonely; dead-ends and naysayers sap enthusiasm. And just when you think you’ve nailed some new insight, you discover that someone else has already published it. Finally, I saw age-ism, typically subtle and sometimes blunt, but always doubting that anyone over a certain age has something left to add. For character-building, the intellectual wilderness of Boston easily rivals anything in Wild, The Jungle Book, or Thoreau’s woods.

Whether I really succeeded will be determined years from now. But objectively, my year in the wilderness was a very productive time. I wrote six papers and four case studies. I designed four new courses that I’ll teach at Darden next year. Most importantly, I’ve gone deep into three fields that will energize me for a long time to come: financial crises (their origins and consequences), financial innovation (how can we use it to make the world better?), and leadership attributes of the U.S. Presidents (what are they and why?) I look forward to bringing my discoveries back to UVA.

My year in the wilderness taught me that:

  • One chooses one’s wilderness — sure, you can get suspended from school or rusticated as a former Dean, but you can choose where to go next. You can even choose to rusticate yourself. Why wait for someone to tell you to hit the road or give you permission to go for a year?

  • Wildernesses are all around you. You don’t need to go very far — it could entail a change of place, of task, of routine, of social network, or of intellectual sphere. You can go totally (as I did) or partially (think about short retreats, online courses, and executive education programs). The range of choice is enormous.

  • You must plan to get to a genuine wilderness. It doesn’t just happen; your former life exerts an almost gravitational pull and distracts, if you let it. Professional transitions are excellent moments to go to the wilderness because of the break in current life that occurs.

  • Once in the wilderness, sample widely. Get out of your bubble. I’ve spoken with a number of CEOs who were rusticated: one studied for the Ph.D. in Art History in London before returning to lead one of the largest corporations in the world; a media CEO drove his camper van across the U.S. for a year eating at every BBQ joint he could find and listening to hundreds of radio stations–and returned to rejuvenate a radio broadcasting company; a brilliant neurosurgeon spends a month each year teaching at a clinic in Ethiopia and comes back renewed.

  • Ask: if you need structure (like courses and reading lists) then get it. But don’t wait for someone to tell you what to do. Figure it out for yourself. Running up and down a few blind alleys is an essential part of the experience.

  • “Live deliberately,” as Thoreau said; “front some essential facts.” Link your choice of wilderness and how to spend your time to some purpose. As I have said elsewhere, you must go where you believe you can do your best work. This entails having some sense of purpose or vision for what that best work will be.

For me, the best work I could have done this past year was to set a new course for myself. Now, it feels like I’m on the way.

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To Fight a Financial Crisis: What Should the President Do?

You are the U.S. President. After the hoopla of the inauguration, you settle into your work focused particularly on implementing your policy agenda, on which you were elected. The success of your campaign breeds triumphalism that energizes your work. Then, within weeks of your inauguration, a financial crisis hits. What should you do?

The Miller Center at University of Virginia focuses on the U.S. presidency and is conducting a series of seminars on the President’s first year, for which it has commissioned a range of essays on potential issues. (See: First Year 2017: Where the Next President Begins.) They asked me to write about the possibility of a financial crisis in the first year.

You can read my essay, “Grab hold of the levers,” here and a shorter version on Fortune’s web site, there. I won’t spoil the message by repeating it in this post. Suffice it to say that historical precedents suggest that financial crises and Presidents don’t mix well. And the difficult mixture happens more often than you’d guess. Eight of the 44 Presidents faced a major financial crisis in the first year of their first term, some at or within days of inauguration. Nearly half of the Presidents faced a major domestic financial crisis anywhere within their first term. And almost 60 percent faced a domestic or international crisis in their first term. In short, history suggests that the risk of a financial crisis is material. The President should prepare. My essay is about what it means to prepare.

I’ve blogged previously about the importance of studying history to the development of future leaders (see this and my annual lists of recommended readings, such as this). History is a powerful tool for framing one’s own experience and for anticipating what the future might hold. Confucius said, “Study the past if you would define the future.” Humans are naturally given to reasoning by historical analogy.

Yet reasoning by historical analogy warrants at least two cautions.

First, the historical experience of oneself or one’s community is usually so impressive as to assure that whatever happened WILL happen again (i.e., with high probability). In financial markets, this tendency to project the past into the future is shown to explain why investors tend to overshoot or undershoot in their pricing of assets—and why bubbles and panics occur. Amos Tversky and Daniel Kahneman described a bias or “heuristic” by which people project an outcome (incorrectly) based on a small sample. People tend to see patterns where none actually exist—this is especially true about patterns of prices in financial markets. This representativeness heuristic draws its power from the individual’s observation and past experience. Another phenomenon, conservatism, reflects the fact that people tend to be slow to change their beliefs in the face of conflicting evidence. Representativeness and conservatism can make a potent brew, by which as Andrei Shleifer wrote, people “[underreact] to individual pieces of information, but [overreact] to conspicuous patterns.” [1] Psychological biases are a more or less forgivable error and can be corrected by rigorous assessment of one’s assumptions.

Second, the less forgivable error is to tilt reasoning by historical analogy for some ulterior purpose, such as to justify an unjust war, to exalt a bogus nationality, to validate genocide, or to excuse theft. In her book, Dangerous Games: The Uses and Abuses of History, Margaret MacMillan writes,

Political and other leaders too often get away with misusing or abusing history for their own ends because the rest of us do not know enough to challenge them…Bad history tells only part of complex stories. It claims knowledge that it could not possibly have, as when, for example, it purports to give the unspoken thoughts of its characters…Bad history also makes sweeping generalizations for which there is not adequate evidence and ignores awkward facts that do not fit….Bad history ignores…nuances in favor of tales that belong to morality plays but do not help us to consider the past in all its complexity. The lessons such history teaches are too simple or simply wrong. That is why we need to learn how to evaluate it properly and to treat the claims made in its name with skepticism. [2]

These cautions are especially relevant to us in early 2016. Political candidates are wont to make passionate assertions about the past in support of aspired policies. Leaders in government and the financial services industry appeal to history (especially the recession of 1937-38) in support of various proposals to jump-start growth in the global economy right now. Today’s military tensions are compared to geopolitical pivot points in the past.

My advice: take a deep breath. Reasoning by historical analogy is useful in the way that scenario planning is useful: it illuminates the possibilities and dynamic dependencies; it invites critical evaluation of assumptions; and it can promote preparedness. And as long as you respect the two cautions (about biases and intentions) it can be fun.

Thus I offer my essay about how the President should address a financial crisis in the first year, in the spirit of Margaret MacMillan, who wrote:

History, by giving context and examples, helps when it comes to thinking about the present world. It aids in formulating questions, and without good questions it is difficult to begin to think in a coherent way at all. Knowledge of history suggests what sort of information might be needed to answer those questions. Experience teaches how to assess that information….What happened and why? The historian asks. History demands that we treat evidence seriously, especially when that evidence contradicts assumptions we have already made. Are witnesses telling the truth? How do we weigh one version against another? Have we been asking the right or the only questions? Historians go further and ask what a particular event, thought, or attitude signifies. How important is it? The answers in part will depend on what we in the present ask and what we think is important. History does not produce definitive answers for all time. It is a process. [3]

The Miller Center’s project, First Year 2017, is exactly that: a valuable process to generate penetrating questions by which all of us can set expectations for the new administration.

  1. See: Andrei Shleifer, Inefficient Markets, Oxford University Press, 2000, page 129. []
  2. Pages 36-37. []
  3. Page 167. []
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The Reading Leader: Recommended Books, 2015


“I just sit in my office and read all day.” Warren Buffett, Chairman, Berkshire Hathaway (he claims to spend 80% of his time reading.)


In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none. Zero. You’d be amazed at how much Warren reads — and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” — Charlie Munger, Vice-Chairman, Berkshire Hathaway.   [1]


Why these business leaders read so much is a wonderment to most people.  But to regular followers of this blog, the answers will come as no surprise.  This post is my annual exhortation to read books and my recommendation of some great books to read.  For years (see 2011, 2012, 2013, and 2014), I’ve contended that reading is a predicate to professional success.  Last year, I argued that reading builds leadership qualities: if you want to lead, you must read.  In other years, I’ve made the case that reading makes you a more interesting person and prepares you to deal with a broader array of challenges and opportunities. 


Today, I’ll offer an equally potent argument: reading spawns fresh ideas.  If you’re tired of stale thinking and/or thrashing around for a fresh perspective on things, then read.  Reading boosts new idea creation through two means, one obvious, and the other subtle. 


The obvious path is that reading may lead you directly to the idea you need.  Reading extends your own knowledge.  The real cost of access to a vast knowledge base has plummeted in the past few decades: check out the books, articles, websites, and blogs available online today.  But this path is likely to disappoint you more often than it helps: the answers to the problems you really want to solve rarely come straight out of a book.  Should I hire Jones?  Should I bet next year’s profits on the new gizmo coming out of R&D?  Should the company expand to Africa or Arkansas?  Trying to answer questions like these through reading is to treat reading like any other instrument of management, a means to an end—and it may take you into the shallowest part of the pond. lists millions of books in the management self-help field, most of which are banal and fruitless.


The less obvious path is to treat reading as an end in itself—and trust that it will reward you with surprising insights that are relevant to your problems at hand.  Reading stimulates your mind at two levels: the conscious (like the user interface of a computer that you interact with) and the subconscious (like the heavy computing that your laptop does in the “background.”)  Neurologists tell us that the brain devotes some 90% of its effort to work in the background, such as timing your heartbeats, coordinating movement, and trying to resolve dilemmas that matter to you.  Virtually everyone has had a “Eureka!” moment where a fresh idea simply came to mind—the tipping point of every Sherlock Holmes story entails one of these.  That moment could entail “connecting the dots” of a factual problem in some fresh way, detecting an inconsistency, reinterpreting someone’s meaning, or defining a problem in terms of a completely different metaphor (e.g., “This labor negotiation is like trying to bake bread without yeast.  Let’s get yeast going here!”)  Eureka moments are manifestations of the subconscious at work.  Reading simply stokes the subconscious with lots of fuel.  ((Other pursuits that stoke the subconscious are vacation travel, hobbies, music, sports, etc.)) 


The problem is that reading is easily cut under time pressures.  But cutting your reading ultimately starves your ability to generate fresh thinking.  Abraham Lincoln once said that if he had eight hours to cut down a tree, he would spend six of those eight sharpening the saw.  Thus it is with one’s mind.  The point of this post is to encourage you to boost your fresh thinking: read and read more.  Here is my approach, outlined in previous years:

·        Make reading a habit, like exercise.  Regularity helps to assert the priority of reading and to capture its benefits.  Irregular reading makes it hard to sustain the thread of an argument.  Losing the momentum of a story or argument is like losing one’s physical conditioning.  Even a little reading every day will set you up for fresh thinking.

·        Set aside a time and place to read every day.  Most frequent question: “Where do you find the time?” Answer: by making time every day; turn off the television; don’t surf the Web endlessly; learn to read on a stationary bike, bus, or subway—in these contexts, it is easy to find an hour or more per day to read. 

·        Carry something to read with you all the time.  On your tablet, have several books and magazine subscriptions going.  Airline flight delays? On hold for 45 minutes with the IT help line?  No problem: just pick up where you left off.

·        Get out of your comfort zone. Lots of business professionals focus exclusively on business self-help books and magazines in familiar areas. Big mistake. You’ll boost your resilience, creativity, and repertoire by going farther afield.

·        Don’t read junk. Focus on the good stuff.  The old socialist slogan, “You are what you eat” is relevant here: you are what you read. 

·        Talk with others about your reading. As Darden’s MBA students readily discover, you really don’t know something until you can tell others about it. You might even be so bold as to start a discussion group in which you can actively debate the writer’s point of view. Such a group worked marvelously for Benjamin Franklin.

·        Keep up with the news every day.  Follow at least one major daily newspaper and your local newspaper.  Among the majors, I recommend New York Times, Wall Street Journal, and Financial Times.

·        Follow some periodicals.  The really worthwhile journals give you chewy introductions to research, important trends, and fierce debates—all without the more intensive investment that a book requires.  I read The Economist cover-to-cover usually in one sitting on the day it arrives. And I browse through Foreign Affairs, Foreign Policy, American Historical Review, Journal of Finance, Journal of Financial Economics, Harvard Business Review, Atlantic, Wired, and New Yorker.  Usually there is at least one article in each edition that really jogs my thinking.

·        Keep one or more books going all the time.  In contrast to newspapers and periodicals, books are immersive: they develop some theme or argument more fully; they show more evidence; they develop nuance; and they enable you to think more critically along with the author. 


Here are some of the best books I’ve read over the past 12 months.  This is a longish list and does not cover everything I could suggest.  I finished some 75 books this year, most of which were pleasing in some particular way, but don’t merit recommendation to a broader audience.  The ones that follow deserve special attention and have my enthusiastic support. 


David Brooks’ The Road to Character is an inspiring reflection on the strong character attributes on which society depends, and how we might seek to deepen these attributes.  The problem, he says, is that we are self-centered.  Brooks writes that we should not organize our lives as with a business plan, motivated by personal wants and individual choices.  He says, “You don’t ask, What do I want from life?  You ask a different set of questions: What does life want from me?  What are my circumstances calling me to do?”  Brooks offers numerous examples from history of people who illustrate the road to character: Frances Perkins, Dwight Eisenhower, Dorothy Day, George C. Marshall, Bayard Rustin, George Eliot, St. Augustine, and Johnny Unitas—across this disparate group, Brooks weaves a brilliant thread of argument about character: strength of character is not given but is earned through personal struggle; it is inherently outward-focused, not inward-focused; and strong character is manifested in many ways.


Atul Gawande is professor of surgery at Harvard Medical School and a writer for the New Yorker.  I would encourage you to read anything of his that you can get your hands on.  This year, I read two of his books.  The Checklist Manifesto is nominally about surgical procedure but is really a meditation on how behavioral errors can override the very best training.  The lessons here are of great significance to business practitioners.  Gawande writes:

“We now live in the era of the super-specialist—of clinicians who have taken the time to practice at one narrow thing until they can do it better than anyone who hasn’t. Super-specialists have two advantages over ordinary specialists: greater knowledge of the details that matter and an ability to handle the complexities of the job. There are degrees of complexity, though, and intensive-care medicine has grown so far beyond ordinary complexity that avoiding daily mistakes is proving impossible even for our super-specialists. The I.C.U., with its spectacular successes and frequent failures, therefore poses a distinctive challenge: what do you do when expertise is not enough?”

Thus, he argues that where human health and welfare are at stake, even the loftiest professional should follow routines established by checklists.  But at the core of this book is a tension on which all business leaders should reflect: lofty professionals resist checklists as an insult to their mastery.  Gawande replies that fallibility, not mastery, is the issue.  In short, humans forget and overlook; checklists correct.


Gawande’s book, Being Mortal and What Matters in the End, addresses the modern irony of medicine, that by its very success in saving and prolonging life, it creates new ethical dilemmas for old age and the end of life.  The problem as Gawande points out, is the “medicalization” of old age.  At the core of medical ethics is the desire to save the patient, regardless of cost or later disability.  Gawande writes, “Arriving at an acceptance of one’s mortality and a clear understanding of the limits and the possibilities of medicine is a process, not an epiphany….The debate is about what mistakes we fear most—the mistake of prolonging suffering or the mistake of shortening valued life?”  Anyone contemplating instructions to put into his or her medical directive should read this book first. 


In 1938, Harvard commissioned a long-term study of 268 men from the graduating classes of 1938 to 1944.  The purpose was to “transcend medicine’s usual preoccupation with pathology and learn something instead about optimum health and potential and the conditions that promote them.”  This study has produced various reports and books over the years.  Now, George E. Vaillant’s 2012 book, Triumphs of Experience: The Men of the Harvard Grant Study, presents what is likely to be the summation of this extraordinary project as the subjects pass on.  Vaillant has been a leader of the study since 1966 and offers not only insights from the research, but also reflections on the challenges of sustaining such a massive project for so long.  Anyone interested in the subject of aging will find this book loaded with insights and examples.  My dominant takeaway from this study is that life choices really do presage one’s quality of life, particularly in the “senior years.”  We all benefit from such reminders: eat sensibly; don’t smoke; get regular exercise; stay mentally active; sustain relationships and make new friends; use alcohol just in moderation; nurture the next generation; save money for retirement and a rainy day; and promote a community—all of which pay big dividends as one ages.  And if these nostrums aren’t sufficiently motivating, then the numerous sobering case studies that Vaillant offers will prompt one to find a better style of life.


People who learn continuously through life will tend to be more successful than those who don’t–Carol Dweck’s Mindset: The New Psychology of Success is an extremely important book for those who care about the performance and development of leaders and organizations.  The research of my colleagues, Jeanne Liedtka and Ed Hess, has drawn inspiration from this book.  Dweck is a professor of psychology at Stanford; her book has grown to be a classic.  The essence of the book is in the contrasting nature of two frames of attitude and their radically different implications for human development and behavior.  Dweck calls these frames of attitude, “fixed mindset” and “growth mindset:”

“…believing that your qualities are carved in stone—the fixed mindset—creates an urgency to prove yourself over and over.  If you have only a certain amount of intelligence, a certain personality, and a certain moral character—well, then you’d better prove that you have a healthy dose of them….There’s another mindset in which these traits are not simply a hand you’re dealt and have to live with, always trying to convince yourself and others that you have a royal flush when you’re secretly worried it’s a pair of tens.  In this mindset, the hand you’re dealt is just the starting point for development.  This growth mindset is based on the belief that your basic qualities are things you can cultivate through your efforts. Although people may differ in every which way—in their initial talents and aptitudes, interests, or temperaments—everyone can change and grow through application and experience.”


One’s mindset and consciousness have a dynamic relationship with the brain.  Norman Doidge’s The Brain that Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science discusses the concept of neuroplasticity—the ability of the brain to reorganize itself by making new neural connections over time.  Norman Doidge, M.D. is a researcher and psychiatrist at Columbia University and University of Toronto.  Conventional thinking had it that damage to the brain through injury or disease is irreversible.  But Doidge presents research and numerous case examples to the contrary: the brain can rewire itself.  It is plastic. Not only does the brain change in predictable ways as we age (it gets smaller), but it also responds to intellectual and emotional stimuli.  Mental illness, such as depression, triggers adverse trends in the brain.  And a daily dose of math problems, reading, crossword puzzles, or other cognitive activity, can help to retard or forestall symptoms of dementia.  Neuroplasticity is a very important concept, to which this book is an excellent introduction for the lay person.


In 2015, one was struck by the news of rising suicide rates among military veterans.  And in a tight-knit university community, one sees the threat of suicide more plainly than elsewhere, perhaps. The book, Stay: A History of Suicides and the Philosophies Against it, by Jennifer Michael Hecht, is an eloquent moral argument against suicide.  The philosopher, David Hume, once argued that suicide was acceptable because it promoted the common good.  Yet, research shows the opposite: it damages those left behind.  The act of suicide loosens the grip of other despairing people and promotes imitators.  It damages friends and loved ones left behind.  And you owe it to your future self to live.  The New York Times columnist, David Brooks, wrote, “Suicides happen in clusters, with one person’s suicide influencing the other’s. If a parent commits suicide, his or her children are three times as likely to do so at some point in their lives… People in the act of committing suicide may feel isolated, but, in fact, they are deeply connected to those around. As Hecht put it, if you want your niece to make it through her dark nights, you have to make it through yours.”  Some years ago, I helped an acquaintance through such a dark night; thankfully, the intervention of many people succeeded.  I wish I had had this book at hand.  It gives not only words, but reasons and arguments, for saying “stay.”


The field of psycholinguistics tells us that there is a link between our sentiments on one hand, and the words we use on the other.  The book by Steven Pinker, The Stuff of Thought: Language as a Window into Human Nature, is a popular introduction to the nature of this link.  Pinker is a cognitive scientist at Harvard University, a leading authority in psycholinguistics.  Of the books recommended here, I found this one about the most challenging to read—not because the ideas are so hard, but because the narrative bounces across interesting examples at such velocity that one barely hangs on.  Yet I recommend the book as an anchor for understanding the emerging field of sentiment analysis, which uses big data analytic techniques to discern attitude shifts in social media and other sources.  Sentiment analysis depends on psycholinguistics for its validity.  In this regard, I found Chapter 7 to be helpful; there, Pinker discusses “the affective saturation of words,” their emotional coloring.  A classic example of affective saturation is a radio interview of Bertrand Russell in the 1950s in which he distinguished, “I am firm.” “You are obstinate.  “He is pigheaded.”  Each sentence is saturated with loaded feelings, of sharply different kinds.  Sentiment is also reflected in our use of metaphors (Chapter 5) and how we name children (Chapter 6).  If you want to understand sentiment analysis, big data, and social media, this book affords an intellectually stimulating introduction to its foundation, psycholinguistics. 


Over a decade ago, Stieg Larsson gained global acclaim by the publication of three mystery-thrillers about Lisbeth Salander, a sui generis character living on the fringe of Swedish society.  Larsson passed away unexpectedly in 2004, and with him, the hopes of his world-wide fans for more of the same.  Then along came David Lagercrantz in 2015 with The Girl in the Spider’s Web, a very good extension.  Lagercrantz sustains Lisbeth Salander as a remarkable heroine: “She was no hormone-fueled teenager, no idiot show-off looking for a kick.  She would only embark on such a bold venture because she was after something very specific, although it was true that once upon a time hacking had been more than just a tool for her.  During the worst moments of her childhood it had been her way of escaping, a way to make life feel a little less boxed in.  With the help of computers she could break through barriers which had been put in her way and experience periods of freedom. “


We are hearing populist sentiments in the run-up to the Presidential election in 11 months.   Robert Penn Warren’s All the King’s Men is a fictional narrative that evokes the story of Huey Long, Governor of Louisiana from 1928 to 1932 and U.S. Senator from 1932 until his assassination in 1935—and one of the iconic populists in U.S. history.  The book won the Pulitzer Prize and remains a classic to this day.  The character development, dialogue, and tableaus of the deep South are priceless.  And one learns something about populism.  Here’s a sample, from a point in the book at which the protagonist, Willie Stark, is being coached about giving a speech:

               “Maybe you try to tell ‘em too much.  It breaks down their brain cells.”

               “Looks like they’d want to hear about taxes, though,” he said.

               “You tell ‘em too much.  Just tell ‘em you’re gonna soak the fat boys and forget the rest of the tax stuff.”


As I stepped down from the Deanship, I took a kayaking trip in the Great Lakes with a son, and brought along Ernest Hemingway’s The Nick Adams Stories.  This collection is about the renewal a young man gains from outdoor life in Michigan.  Unlike the previous two recommended books, there is no trail of suspense or gripping climax in these stories.  These are literary tone-poems; what matters is the sense of a place conveyed in Hemingway’s imagery.  This is the kind of reading you must reflect upon—and to appreciate the depth and symbolism in these stories, you could draw on the very extensive commentary about them on the Web.  Hemingway evokes the beauty of the North Woods in prose that is his signature spare style: “He was watching the bottom of the spring where the sand rose in small spurts with the bubbling water.  There was a tin cup on a forked stick that was stuck in the gravel by the spring and Nick Adams looked at it and at the water rising and then flowing clear in its gravel bed beside the road.  He could see both ways on the road and he looked up the hill and then down to the dock and the lake, the wooded point across the bay and the open lake beyond where there were white caps running.  His back was against a big cedar tree and behind him there was a thick cedar swamp.”  I have been to such places in the Great Lakes region and can attest to the authenticity of his depiction.  But this collection of stories is more than a travelogue; it is a fictional testament to the wisdom of writers such as Henry David Thoreau, who wrote, “I went to the woods because I wished to live deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived.


Last summer, I joined a group of faculty who read and discussed Thomas Piketty’s Capital in the Twenty-First Century.  He prescribes government policy of massive wealth redistribution through a global wealth tax—the name, Capital, will evoke the title of Karl Marx’s famous work; such is Piketty’s intention.  Translated from French and written by an economist seeking to influence other economists and government policy makers, the general reader will encounter this as a dry and somewhat technical treatise.  Yet it is worth slogging through the volume because of the enormous influence it has gained in debates about economic inequality, and to discover along the way that its arguments are not bullet-proof.  Piketty ignores the impact of massive social transfer payments, and of investments in human capital.  The thoughtful person should be wiser and more informed about economic inequality and declining social mobility.  While Piketty’s book may not be the definitive treatise on the subject, it has so impressively shaped the debate that one cannot intelligently participate in the conversation without gaining an awareness of his arguments. 


Harry Frankfurt’s On Inequality is a stimulating companion to Piketty.  Frankfurt is a moral philosopher at Princeton.  This short (89 page) item argues contra Piketty that our primary goal should be to deal with poverty, not eradicate inequality.  Accordingly, Frankfurt’s government policy prescriptions are quite different.  Frankfurt writes,

“Economic inequality is not, as such, of any particular moral importance; and by the same token, economic inequality is not in itself morally objectionable.  From the point of view of morality, it is not important that everyone should have the same.  What is morally important is that each should have enough.


This past fall, Richard Mayo and I continued our reading seminar on business history, and concentrated on major financial crises.  Several good books emerged either in the seminar or in my reading parallel with it.

Ben Bernanke’s book, The Courage to Act, describes the Panic of 2008 from the vantage of one of the best-informed players, the Chairman of the U.S. Federal Reserve Board.  My dominant takeaways had to do with the large gap between economic theory and the practice of setting economic policy and with the challenges of leading during a crisis.  Bernanke gives the reader concise briefings on economic concepts along the way including Keynesianism, Monetarism, and neo-classical economics.  His own research as a young scholar figures significantly in how he tackled the crisis.  He argued that the disruption of flows of commercial credit during a banking crisis can greatly accelerate the downturn–accordingly, the role of a central bank in a crisis must be not only to promote financial stability but also restore normal flows of credit.  This proved nearly impossible in a financial system that had grown well beyond the regulatory reach of the Fed in 2008.    


Alan Greenspan’s The Map and the Territory 2.0: Risk, Human Nature, and the Future of Forecasting was first published in 2013 and then revised and republished in 2014 (hence the “2.0”).  It represents his take on the Global Financial Crisis.  Though he did not lead the Fed through the crisis, he was in charge during the housing bubble and remains one of the most trenchant observers on the entire episode.  This book is perhaps the most highly readable volume about the crisis, written for a general audience by a leading player.  It complements the writings of behavioral finance experts, who argue that behavior and bubbles are products of a kind of incentive-driven irrationality.  Greenspan contends that bubbles may now be detectable (hence the reference to the “Future of Forecasting”.)  And it represents a bit of a mea culpa for Greenspan, who has been one of the staunchest believers in market rationality.  Greenspan writes: “But now after the past several years of closely studying the manifestations of animal spirits during times of severe crisis, I have come around to the view that there is something more systematic about the way people behave irrationally, especially during periods of extreme economic stress, than I had previously contemplated….In a change of my perspective, I have recently come to appreciate that “[animal] spirits” do in fact display “consistencies” that can importantly enhance our ability to identify emerging asset price bubbles in equities, commodities, and exchange rates—and even to anticipate the economic consequences of their ultimate collapse and recovery.”


Perhaps the recurrence of financial crises in the United States is related to our choices about the structure of the financial industry and its regulation.  For instance, Canada has had no systemic banking crises since 1840, while the U.S. has had twelve.  Charles Calomiris and Stephen Haber’s Fragile by Design: The Political Origins of Banking Crises and Scarce Credit argues that the U.S. banking system is more fragile because of complex bargains struck between politicians, bankers, consumers, shareholders and others.  Bad bargains emerge because,

“it is difficult to coordinate opposition to any program that benefits few at the expense of many because of the transactions cost of political activity.  Second, taxpayers cannot easily identify the allocation of costs and benefits from bailouts, which is determined not be the courts but by a deposition insurance resolution authority within the government under opaque circumstances and ad hoc arrangements.  Third, because taxpayers are sometimes depositors, they may not be able to determine whether they are better or worse off as a result of the government’s intervention.”


While studying with students the Crash of 1929 and Great Depression, we reviewed the enormous wave of financial regulation enacted by the New Deal.  The conventional narrative is that these regulations fixed problems engendered by unregulated markets.  But Paul Mahoney’s Wasting a Crisis: Why Securities Regulation Fails offers a stunning alternative narrative founded on new research.  The New Deal’s regulations either fixed non-existent problems or enhanced the position of influential incumbents in markets at the expense of potential new entrants.  Mahoney (Dean of UVA’s School of Law) writes,

“Logically, regulation can have three different effects in varying combinations.  It can benefit society by solving informational or incentive problems that keep markets from functioning effectively.  It creates social costs because complying with regulations takes money and effort.  Finally, it creates private benefits because compliance costs are not uniform across firms.  Some firms can comply at lower cost; they profit relative to the rest.  The resulting private benefits give the winners an incentive to support socially detrimental legislation or shape regulations in ways that harm society.  Whether the public or just certain segments of the regulated industry are net beneficiaries in any given situation must be determined empirically.  That is the purpose of this book.”


After the Panic of 2008, Congress chartered the Financial Crisis Inquiry Report on the causes of the crisis.  The Commission, composed of five Democrats and four Republicans could not align on their conclusions.  The majority (Democrats) adopted the view that the crisis was caused by greed and mismanagement in the private sector.  The Republican minority offered an alternative narrative that pointed to government regulations and the perverse goals and incentives imposed by HUD and Congress on Fannie Mae and Freddie Mac.  Peter Wallison was a member of the inquiry commission and offers his book, Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again, as a detailed exposition of that alternative view. It is impressively documented and lends withering attacks on the majority.  In pursuit of nuanced differences between the two narratives, one could read in parallel the Financial Crisis Inquiry Report—I’ve done it though, I warn you that doing so will take a strong constitution.


Here’s a decade-long reading challenge for you: The Oxford History of the United States is a series of volumes prepared by leading historians and written in sufficiently great detail to capture the incredible process of development moving forward in parallel streams at any moment.  Each of the books is hefty and not for the faint of heart (hence the decade I mentioned).  I’ve read five of the eight volumes, but have seen enough to recommend enthusiastically the entire collection. 

This past year, I finished Robert Middlekauff, The Glorious Cause: The American Revolution 1763-1789, and Gordon Wood, Empire of Liberty: A History of the Early Republic, 1789-1815.  Though I have been an eager consumer of American history my entire life, it humbles me to reflect on what new stuff I learned in these books.  The dominant takeaway from the first two volumes in the series is that the founding of the Republic was quite a close-run thing.  And these histories show that pressing issues today extend their roots back 200 or more years in time. Thus, to get wise about today’s problems, study the past.


How leaders take charge when they assume the mantle of responsibility is an enduring question.  Anthony J. Badger’s FDR: The First Hundred Days, offers an iconic example.  Franklin D. Roosevelt was elected President in 1932, at the nadir of the Great Depression.  In a space of time so short that it defies imagination, he coaxed 15 major pieces of legislation through Congress, took the U.S. off the gold standard, and expanded the power of the President through executive orders.  FDR’s record of accomplishment became the benchmark against which all of his successors have been evaluated.  Badger wrote,

“Roosevelt gave indispensable assistance to many Americans in the summer of 1933. He instigated a regulatory regime for financial institutions that prevented a repeat of the Great Crash. He made a start on a massive program of investment in the physical infrastructure of the United States. What he had not found in 1933 was the magic key to economic recovery. But in the Hundred Days, Roosevelt demonstrated that a democracy need not be paralyzed in the face of economic catastrophe. He inspired a new generation of public servants for whom government service was an honorable, disinterested calling. They would enable the United States to survive the worst depression in the nation’s history with its democratic institutions intact and with enough social cohesion and government and productive capacity to fight a successful world war.”

Still, scholars have been mixed in their assessment of what FDR accomplished in the first hundred days.  Some elements of the program were ill-conceived, botched on execution, or invalidated by courts. 


FDR was elected in 1932 on a platform that by today’s standard would seem conservative: balance the budget, cut taxes, resist financial intervention, etc.  Some of his swing to the left of the political spectrum may have been intended to prevent defections of voters to populist candidates.  The populist threat to FDR is the focus of Alan Brinkley’s Voices of Protest: Huey Long, Father Coughlin, & the Great Depression.  The book presents extremely interesting profiles of populist sentiments during the depression, and of their advocates.  Brinkley wrote,

“For more than seven years, Huey Long wielded a control of the government of his native Louisiana so nearly total, so antithetical to many of the nation’s democratic traditions, that there was some justification for popular characterizations of him as a “dictator.”  Mention of his name decades later brings to mind a vision of ruthless, brutal power…Father Coughlin, for his part, became after 1938, in the last years of his public career, one of the nation’s most notorious extremists: an outspoken anti-Semite, a rabid anti-communist, a strident isolationist, and, increasingly, a cautious admirer of Benito Mussolini and Adolph Hitler.  Those who recall him almost invariably remember a man of hysterical passion and hatred, a harsh and embittered bigot.”

As the world deals with waves of immigrants and with slow recovery from the Global Financial Crisis, we see the appearance of new politicians and aspirants in the tradition of Long and Coughlin.   This book well complements Robert Penn Warren’s All the King’s Men, discussed above.

* * *

Last spring, I had the good fortune to join a group of 30 MBA students in a course to study the D-Day invasion of Normandy.  We toured the field and drew on the guidance of two senior instructors from the US Marine Corps University.  For me, the highlight of the extensive reading list for that course was Rick Atkinson’s The Guns at Last Light: The War in Western Europe 1944-1945.  As the memory of World War II fades, so does any recollection of the very fierce resistance by the Nazi army.  Indeed, some generals in 1944 thought that the war would be over by Christmas.  But the D-Day landing itself and then the drive through France, Belgium, Holland, and Germany were supremely challenging and demanded new leadership, materials, and organization.  Atkinson brings all of this to light through lively prose and a well-paced narrative.  This book is especially relevant to business practitioners, for the profiles and insights it offers on leadership styles and personalities of leading generals.  For instance, about George S. Patton:

“Instead, the allies would have to settle for the arrival on stage of a man described by a reporter as “a warring, roaring comet” and by a West Point classmate as a “pure-bred gamecock with brains.”  The first glimpse of Lieutenant General George S. Patton, Jr., for many soldiers came in Avranches, where he leaped from his jeep into an umbrella-covered police box and directed convoy traffic through a congested round-about for ninety minutes.  Assigned by Bradley to overseer VIII Corps’s drive south, Patton had helped shove seven divisions past Avranches in seventy-two hours, cigar smoldering as he snarled at occasional Luftwaffe marauders, “Those goddamned bastards, those rotten sons-of-bitches!  We’ll get them!”…When a subordinate called to report his position, Patton bellowed, “Hang up and keep going.”  In a Norman landscape of smashed vehicles, grass fires, and charred German bodies, he added, “Could anything be more magnificent?  Compared to war, all other forms of human endeavor shrink to insignificance.  God, how I love it.””

The Guns at Last Light is the third volume of Atkinson’s trilogy on the Second World War in Europe.  Based on the success of the third volume, I’ll have the first two volumes on my list of readings to come.


In closing, recall Charlie Munger’s message: “I have known no wise people…who didn’t read all the time—none.  Zero.  Therefore, go and do.  Read books.  Read widely.  It will make you a better leader and a more interesting person.  And it will fuel fresh thinking.  If my recommended books don’t resonate with you, check out these other lists from Bill Gates, Warren Buffett, Elon Musk, New York Times, Wall Street Journal, New Republic, or others you might turn up on the Web. 


And best wishes to you and your loved ones for the holidays and the New Year.






  1. These quotations were presented in Amanda Tipton, “The Transformative Effects of Reading,” []
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On Exams: “Why don’t we just TELL them what they need to know?”

It’s that time of year: mid-term exams. Anxiety is in the air, for students and for faculty. In the exam results, the teacher sees what didn’t get learned, and confronts the possibility of his or her incompetence. At case method business schools, some teachers (and some students) are prone to ask, “Why don’t we (they) just tell them (us) what they (we) need to know?”

This delicious question gets to the heart of the case method and to the larger point of graduate business education (or in fact ANY education.) Some fairly exercised people have pitched this question to me over the years. Telling students what they need to know is probably a more efficient use of the teacher’s time. The alternative is asking, guiding the students through questions to arrive at an understanding of insights they need to gain. Four reasons explain why it is better to ask than tell:

1. Simply “telling” is incomplete and a low return on the students’ investment of time, effort, and money. “Telling” surely conveys names, dates, formulas, mechanics—the stuff of knowledge. One needs to master knowledge as a foundation for life. But a great university education entails much more than knowledge: it should also include the acquisition of skills and growth in wisdom. One gains skills and wisdom better through experiential learning than by being talked at.

2. Asking promotes meaning. We’ve all had the experience of intensive memorization (or cramming for an exam), followed by equally rapid forgetting of what was memorized. Research suggests that we forget because we’ve absorbed someone else’s structure of knowledge, one that has little or no meaning to the learner. The lessons are only permanently learned when knowledge is reframed in ways that are meaningful to the learner. In blunt terms, “Figure it out for yourself!” is excellent advice because it implies that you will cast someone else’s knowledge in ways that make sense to you (whether you like the ideas or not.) The case method is tremendous because you learn best that which you teach yourself.

3. Asking—not telling—better approximates the real world. Every case study is an exercise in confronting the ambiguity of life. Data are abundant, but often conflicting or inconsistent. Distractions are plenty. The stated problem may not be the real problem. And so on. Across hundreds of case studies, one develops a method for getting to the heart of the matter. This is excellent preparation for professional life.

4. Asking—not telling—models for others some attributes of leadership. You can train people to be order-takers by relentlessly telling them what to think and how to think. Alternatively, you can train people to lead from where they are by asking them to identify problems, frame a vision and strategy for dealing with those problems, enlist others, and develop a bias for action. Case teaching empowers the learners, and indeed, delegates responsibility to them. Elsewhere, I have argued that you can actually manage a company the way we teach by the case method—by asking, not telling. No manager is all-knowing. Senior leaders need employees up and down the organization to figure things out for themselves, to lead from where they are. Asking questions—not telling—helps to train others to take action.

What does asking, not telling, imply about exams?

The faculty should develop exams with a view to exercising the strengths of case learning. A great exam: is a case study; has a protagonist (a decision-maker) who faces a dilemma and has something at stake in the outcome; raises some urgency to the dilemma so that the decision-maker cannot just kick the can down the road (i.e. by hiring a consultant to figure things out); should require action and recommendations; should offer information sufficient for the student to display mastery in terms of knowledge, skills, and wisdom; should be constructively ambiguous and have no single “right” answer (but lots of wrong ones); should be do-able in the allotted exam time; and should be gradable in reasonable time.  Finding a case that meets all of these criteria is a tall order.  Mother never said it would be easy.

To students, I would say that if your instructor follows my advice, the best preparation is as follows:

1. Find a place free of distractions to think and write. If the case is loaded with constructive ambiguity, some of the most important decisions you will make during the exam entail where not to go. The ambiguities in the case may be tantalizing and distracting. You don’t need more distractions from outside the case. If you are a variety-seeker or one whose mind is prone to wander, get rid of everything in your environment that invites you to wander.

2. Get in the “zone.” Ideally, you would find a sense of flow or total engagement with the case. A little anxiety or sense of pressure is OK if not good, but too much will get you out of the zone. Just remember that your teacher is likely to give you a challenge that you have seen before. If you’ve kept up with your case preparation through the course, you should be able to recognize the core problem in the case and envision a way through it. The “zone” is a place where you feel that you’ve been before and have some confidence and even enjoyment in working through the case. A good night’s sleep helps to get in the zone, as does some sensible nutrition.

3. Address the question or problem in the case. Many case teachers will give you explicit exam questions to address. Answer them. The commonest distraction of an exam-taker is to get too wrapped-up in the elegance of some calculation and to ignore its implications. Based on your analysis, what does the protagonist need to know or do? Make a recommendation! To do so is to show that you can move from book-learning to “useful knowledge” (as Thomas Jefferson put it) and from analysis to wisdom.

4. Write about what leaves you uneasy. Perhaps the case invited you to make some heroic assumptions that seem unrealistic. This should raise red flags for you. And indeed, it may be the real problem in the case. Your ability to discuss uncertainties and risk will demonstrate a more sophisticated view of the dilemma. The ability to think critically about facts, analysis, and one’s own recommendations really separates the top performers from the rest.

5. Balance your allocation of time between analysis and writing. Setting a target or timer, helps to prevent becoming so enamored of your analysis that you forget to write about it.

6. If you run out of time, let the reader know where you would go next in your analysis and discussion. This “road map” dispels any impression that you’re just floundering and builds confidence in the teacher’s mind that you know what you are doing. And don’t get frantic if you’re running out of time. You aren’t alone; a number of your classmates will run out of time too. Stay calm and in the zone.

7. Work independently. Absolutely abide by the rules and honor code. The spirit of an exam is to demonstrate that you can “figure things out for yourself.” Respect the spirit and letter.

8. And keep some perspective: it’s just an exam, not a judgment about your life. Jack Ma, the founder and Executive Chairman of Alibaba Group wrote, “I flunked my exam for university two times before I was accepted by what was considered my city’s worst university, Hangzhou Teachers University. I was studying to be a high school English teacher. In my university, I was elected student chairman and later became chairman of the city’s Students Federation.” Jack Ma failed a couple of exams but arguably succeeded in his career.

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In the absence of “right” answers

“It’s an umpire’s convention. Three umpires are standing aside, conversing. The first umpire, the most junior, says, “Baseball, nuthin’ but balls and strikes. I calls ‘em as I sees ‘em.” After a pause, the umpire with somewhat more experience, says, “Baseball, nuthin’ but balls and strikes. I calls ‘em as they are.” Finally, the senior umpire says, “Baseball, nuthin’ but balls and strikes. They ain’t nuthin’ till I calls ‘em.”“  [1]

This is a seemingly stupid disagreement over terminology, yet like much of baseball, it contains subtleties over which one can hear even philosophers argue. The fact is that reasonable people can disagree. The story illustrates the imponderable interactions of perception, definition, and choice. Different umpires will see the same pitch differently. And a study just out says that umpires call a pitch incorrectly about 10% of the time. Thanks to video cameras and digital recording, we now know that umpires aren’t infallible—after 169 years of baseball, this can’t be a surprise. And thanks to rather vivid photographs, we see how angry players can be with the judgments of the umpires.

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So too for general managers and leaders in all enterprises. On the most important kinds of questions, there are no answers in the back of the book that affirm what one should do. And the odds are nontrivial that you’ll be wrong in your judgment. What should the leader do about this? More immediately, what should the b-school professor or the MBA student who faces mid-term exams take from this?

The first lesson should regard how to look at managerial dilemmas.  One ought to wisdom and exercise students’ ability to act in a bewildering world. The real world is messy. Information is incomplete, arrives late, or is reported with error. The motivations of counterparties are ambiguous. Resources often fall short. Concepts that B-schools teach have immense practicality for sorting out the issues facing managers, assessing alternatives, weighing ethical dilemmas, recognizing moral hazards, and illuminating the effects of any particular choice. As one of the iconic professors in operations research, Russell Ackoff, once wrote, “Managers are not confronted with problems that are independent of each other, but with dynamic situations that consist of complex systems of changing problems that interact with each other. I call such situations messes …Managers do not solve problems: they manage messes.”  [2]

Messes present very murky decision problems. Over many years, students have learned that there are very few single ‘right’ answers in business—but there are lots and lots of wrong ones. The job as a student is to learn to parse the two. At least the following three questions can get you to the root of most dilemmas and start you down a good path:

1. What’s your purpose? The old saying is, “if you don’t know where you’re going, any road will take you there.” The absence of single ‘right’ answers does not mean that anything goes. Begin with clarity about your mission, vision, and values. Stick to those, and you are probably halfway through the dilemma. This addresses the second umpire’s statement “I calls ‘em as they are”—this is all about definition of standards. What is important to you and your enterprise?

2. What’s your context? You might not have all the information about your situation that you’d like to have, but do you have what you need? If the decision is important enough, do not be shy about pestering people to give you more clarity about your setting. SWOT analysis (strengths, weaknesses, opportunities, threats) is one time-worn way to flesh out what you know. This kind of work might also reveal that the dilemma as presented is incomplete: rather than two alternatives, there may be many. One source of error in judgment is to make yes/no decisions when in reality you have a host of possible either/or choices. Clarity about your context addresses the issue of perception, the first umpire’s statement—if you “calls ‘em as you sees ‘em,” you want to make sure that you’re seeing properly.

3. What do your answers to the first two questions imply for your strategy? Most managerial dilemmas are tactical in nature. As tempting as it may be, it’s always dangerous to let tactical decisions define your strategy. You must have in mind a general path forward, even at the risk of closing some doors (or opening others). To choose a strategy is to be the third umpire: “They ain’t nuthin’ till I calls ‘em.”

With the passing of years, one accumulates instincts for parsing out the wrong answers from the rest—such instincts can be costly to acquire. Walter Wriston used to say that “Good judgment comes from experience; experience comes from bad judgment.”

The poet, Carl Sandburg, was a baseball fanatic. He wrote, “The inexplicable is all around us. So is the incomprehensible. So is the unintelligible. Interviewing Babe Ruth in 1928, I put it to him “People come and ask what’s your system for hitting home runs—that so?” “Yes,” said the Babe, “and all I can tell ‘em is I pick a good one and sock it. I get back to the dugout and they ask me what it was I hit and I tell `em I don’t know except it looked good.”” [3] — Carl Sandburg marveled at Babe Ruth’s inexplicable, incomprehensible, and unintelligible instincts, he skipped any mention of Ruth’s years of practice and climb to fame.

Where B-schools can make a difference in the development of leaders is by accelerating the acquisition of those instincts. In the case method of learning, each case is a rehearsal for some dilemma to come. B-schools help the future Babe Ruths of business make the incomprehensible comprehensible, and thus sharpen their wisdom for good decisions.

  1. Michael Levin, “Cultural Truth and Ethnographic Consequences,” Culture, 1991, vol 11, page 94. []
  2. Russell Ackoff, “The Future of Operational Research is Past,” Journal of Operational Research Society, 30, 1 (Pergamon Press, Ltd., 1979): 93-104. []
  3. Carl Sandburg, “Notes for Preface,” in Harvest Poems (New York: Harcourt Brace Jovanovich, 1960), p.11. []
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