Wednesday, 31 March 2010

Negotiating Styles


Are you the shark or are you the fox?

Have you let down you inner box?

There is one party, and one party alone,

That can vindicate your lonely soul.

Step in, step out.

And let there be no doubt.

That in agreement we find ourselves,

But in discord there is nothing else.

A man whose job was to negotiate the price of fate,

And who had spread love without debate,

Was found dead.


300 AD but possibly undated.

Reach agreement! Or else perish alive,

Not to negotiate is to take a long, lonely, dive,

“Believe me!” a tough man says, “this is my last offer”,

But the only tough negotiator is La Mort,

And there cannot be anything tougher.

Magic wounds, early concessions,

Not to make any is a hard learned lesson,

But in the world of business,

Just like in the world of love,

Not to give in,

Is a price above.

Step in, step out.

And let there be no doubt,

That it is together that the wound magically heals.

That I will never,


The way for you I feel.

Friday, 26 March 2010

Financial Ethics as a Way to Clean up Toxic Culture

As Justin Fox put it, "in the 1980s, investment banks, encouraged by regulators, began a transformation from stodgy, tradition-bound institutions to restless, relentless seekers of profit. Some of that change was good but, ultimately, it gave us a few powerful, global companies bound by no clear standards of behaviour, where appalling conflicts of interest were accepted and pay practices encouraged the most greedy, short-sighted thinking imaginable. The culture was toxic."

The toxicity Fox describes arguably led to the recent Great Recession, and it seems that it could happen again. The financial agents of this catastrophe (investment bankers, traders etc) argue that the economy has merely suffered an accident - and thus the status quo ante ought to be reinstated sooner than later. That's a clever metaphor. Arguably, they want to preserve how things worked for them, the systems, the rules, the loopholes and carry on doing the very thing that led us to a financial apocalypse.

It is comforting to know that a number of changes are underway. Reforming regulatory agencies and boosting regulation are two common options employed by many nations across the world.

But perhaps we're missing the point.

When criminals get tougher, our natural reaction is to increase the police force, provide the latter with more weapons and improve detection mechanisms. Flood our streets with CCTV cameras and erode our civil liberties. But those responses don't always usually work. Surely a more efficient response would be to tackle the root of crime: human behaviour. And arguably education is the optimal weapon to achieve that objective.

Business education ought therefore to play a greater role in the regulation of the markets. But you might say hey! That has already been done! Indeed, many MBA programmes already include compulsory "Business Ethics" modules covering topics such as CSR and environmental ethics. But that also misses the point. Ethics should not be an isolated topic or module - it should be pervasive across all modules. Ethics should be instilled systematically across all fields of business studies - not a single module where you cram most of the material 1 week before the exam and then forget about it for the remainder of your professional life. Alternatively, business schools and economics faculties should seriously consider including a "Financial Ethics" course in their curriculae. By educating the minds of the world's future financial agents we may perhaps change their behaviour and attitutude towards risk - and thus prevent another catastrophe from occuring.

A quote from the Nei Jing (an ancient Chinese medical text that forms much of the basis of Traditional Chinese Medicine) sums it up well:

"The sages of antiquity did not treat those who were already sick, but those who were not sick... When a disease has already broken out and is only then treated, would that not be just as late as to wait for thirst before digging a well, or to wait to go into battle before casting weapons?"

Education is one of the most powerful tools we hold in order to prevent another man-made financial disaster. Institutions of Higher Education ought to take a leading role in ensuring that such an event doesn't happen again - a "don't follow the path, set the trail" approach.

Wednesday, 17 March 2010

Crisis - what crisis?

Let's not forget that the financial crisis is minuscule compared to the crisis endured everyday by billions of people living in poverty, disease and oppression.

The Cardinal Principles of Negotiation

1. Argue over interests, not positions.

2. Consider all options.

3. Use objective standards.

4. Be soft on the people but tough on the problem.

For a more detailed overview of these principles, click here.

Monday, 15 March 2010

Saudi Oil and Pirates

In November 2008, Somali pirates hijacked a supertanker hundreds of miles off the Horn of Africa, seizing the Saudi-owned ship loaded with crude oil.

Despite a number of military efforts to tackle the situation, systematic maritime piracy is growing. The lack of adequate legal instruments only exarcebates the problem.

It is fair to say that no significant international solution has been achieved. At domestic levels, countries have tried to create solutions in the best way possible.

The Kingdom of Saudi Arabia signed a major maritime code of conduct (the "Djibouti Code") that calls for a revision of national legislation to criminalize sea piracy.

The signing of this agreement is significant in view of the fact that the Kingdom is the world's main oil exporting country. Saudi Arabia's economy is essentially petroleum-based; roughly 75% of budget revenues and 90% of export earnings come from the oil industry. The oil industry comprises about 45% of Saudi Arabia's GDP.

95% of Saudi imports and exports pass through the Kingdom's seaports while sailing across the waters of different countries where pirates are active.

Although the Kingdom's move is to be welcomed, the wider duality of - uncoordinated - responses to piracy (domestic and international) is to be viewed with suspicion. The international nature of commerce requires a centralised and coordinated prophylactic solution to the problem - not mere scattered (and divergent) domestic criminal provisions.

The Code of Conduct only requires signatories to co-operate to the fullest possible extent in the repression of piracy and armed robbery against ships, with a view towards sharing and reporting relevant information through a system of national focal points and information centres. Each signatory intends to review its national legislation with a view towards ensuring that there are laws in place to criminalize piracy and armed robbery against ships, and adequate guidelines for the exercise of jurisdiction, conduct of investigations, and prosecutions of alleged offenders.

The Code retains some of the shortcomings of the UNCLOS definition of piracy.

The Code is a regional cooperation agreement. It appears to have no real teeth. Or if it does, it will experience many teething problems before it can ever bite.

We have dealt with maritime piracy from a bottom (domestic) up (international) approach. This method is clearly not working. What we really need is an authoritative top-down solution: the promulgation of an international treaty to be implemented in domestic legislatures. The Djibouti Code marks an important shift towards the right direction. But it lacks the strength needed to address a critical issue in international commerce.

Thursday, 11 March 2010

Eike the Spartan and How to make $100 billion in 10 years

Following the crisis, the richest people in the world have probably gotten poorer, just like the rest of us. But they are by no means poor. Eike Batista is a Brazilian entrepreneur that made most of his fortune in the mining sector. Batista rose to the top 10 of Forbes magazine’s billionaires list this week for the first time as his fortune soared to $27 billion. In 2009, the magazine ranked him as the 61st richest man in the world. He is now ranked 8th. And the man intends to become the richest by making $100bn in the next 10 years. How? I'm not quite sure. And apologies if the title misled you to believe that I would set out a cunning plan on "how to make you
$100bn richer in the next 10 years."

But such performance by Batista illustrates Brazil's potential in the global arena. It sets a good precedent and works as a strong indicator of the country's growth in the years to come. However, Brazil must continue its investment in infrastructure, energy and education. It must also keep an eye on its interest rates. The upcoming presidential elections will provide the world with a political laboratory to study the resilience of the Brazilian markets, and above all, to test the core policies of the next president.

Once characterised as a sleeping giant, Brazil's horizon is now relatively clear. The global political "axis of power" has flipped. A new world economic order is emerging. What role will the US play in the novus modus operandi? I haven't formed an opinion yet, but Eike seems to have a pretty good answer: "[the US is] now heavily indebted like Brazil was before. [It has] to be a little bit more Spartan. In the last 20 years [the US] has focused too much on banking and finance. The best students went to banks or law firms. Where are the engineers?"

Monday, 1 March 2010

News Update: Strong Brazilian Performance - but Vale should be careful in China

On Vale in China:

  • The Chinese steel company Hebei Iron and Steel Group has made a request to the Chinese Trade Department that Vale limit its distribution operations in some parts of the Chinese territory. No good for Vale.

On Brazilian Equity Firms:

  • Buyout firms are poised to spend $9 billion in Brazil on everything from infrastructure to oil exploration as the economy recovers from a recession.

On Renova’s IPO:

  • Renova Energia SA, a Brazilian renewable energy company, said it may raise as much as 867.9 million reais ($480 million) in an IPO.

On Brazil’s Trade Surplus:

  • Brazil posted a $394 million trade surplus last month after a deficit in January as exports rose more than imports. This is good as it means that we’re selling more than we’re buying.