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G100 Network Notebook | January 2014

What is the New Approach to Activist Investors?

Engagement by directors and executives to avoid costly boardroom battles, says The Wall Street Journal in this noteworthy piece, citing ISS data that reveals activist shareholders in 2013 won or settled for a board seat in 66% of all proxy fights, a 22% jump from 2012. Watch this trend in 2014, suggests a complimentary article from The New York Times that more clearly defines a positive attitude shift among investors, many of whom now regard activist shareholders as key change agents for business.

Pershing Square’s biggest activist bet yet, underscores how things have changed for activists. In August, three months after Pershing Square took the industrial gases group a $2.2 billion stake in Air Products and Chemicals, John E. McGlade, Air Products’ chief executive and chairman, announced his retirement. The board also ceded two directorships to Pershing Square.

MINT and Emerging Markets

Last fall, we heard why a series of structural reforms likely make Mexico – compared to other emerging markets – the best poised for growth. That is one takeaway in this year’s emerging market forecast from Goldman asset manager Jim O’Neill, who maps out the challenges and opportunities in Mexico, Indonesia, Nigeria, and Turkey. An excerpt:

In Mexico, I was all set to be disappointed, as expectations are so high, but the young president and his equally young colleagues are full of determination to change the place. If you thought Maggie Thatcher stood for serious reforms, these guys make her seem like a kitten. They are reforming everything from education, energy and fiscal policy to the institution of government itself.

The Decline of Military CEOs

New, thought provoking research suggests CEOs with military experience perform better during industry crises, are less likely to be associated with fraud, and are more conservative investors. The bad news? The number of military CEOs has dropped from 59% in 1980 to 6.2% in 2006, say researchers, who warn that MBAs may not sufficiently fill the void of leadership quality.

We find that CEOs with a military background tend to perform better during periods of industry distress, as evident by higher market-to-book ratio. Thus, the management style of CEOs who served in the military seems to be more resilient to crisis and fraud in ways that do not seem to be provided to the same extent by academic programs in business schools.

For a different take, consider this recently discovered, 1939 interview with Winston Churchill. A graduate of the Royal Military College, Churchill, unlike members of his own party, saw the need for British rearmament in the face of rising Fascism.

How Rare is Top Leadership Talent?

Federal Reserve Chairman Janet Yellen is married to an economist who won the Nobel prize. President Obama has appointed Stanley Fisher as Vice Chair of the Fed after he served in the highly respected post as governor of the Bank of Israel. And last year, the head of the Bank of Canada was appointed to the head of the Bank of England. Alex Tarbok asks: Is the circle of top economic leadership really that small? In a thoughtful post, he argues that a similar trend exists among CEO talent; boards discover a narrow pipeline. Tarbok believes that getting the right person at the top really makes a difference.

Small differences in quality at the top have a greater impact the larger the firm, the market, or the economy. How many truly great decisions did Bill Gates make at Microsoft (compared to another plausible CEO)? I would guess that fewer than 10 decisions made billions of dollars of difference.

What’s Next for Digital Currency?

The Chicago Federal Reserve has published the best primer on bitcoins. Author François Velde writes:

Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves.

For more on this, check out Bloomberg Businessweek’s great cover story on the “arms race” to mine bitcoins that will likely result in the development of faster processing chips.

Should GMO Labeling Be Required?

A convincing defense of genetically engineered products from Henry Miller, a molecular biologist at the Hoover Institution, explores some of the costs associated with our collective misunderstanding of this technology.

Labeling foods derived from GMOs, as some have proposed, implies a meaningful difference where none exists – an issue that even regulators have acknowledged. Humans have been engaging in “genetic modification” through selection and hybridization for millennia.

For a more biting critique of the anti-GMO movement, see this article in Wired that calls General Mill’s decision to remove GMOs from Cheerios a “shrewd” business tactic to “exploit consumer fears” over GMO safety. Meanwhile, The New York Times has published an excellent report on the strange and surprising politics behind the GMO debate.

Bridging the U.S. Digital Divide

This is the ambitious goal of a new partnership between Khan Academy and Comcast that will feature Sal Khan’s online educational videos to promote low-cost broadband access. A report by TechCrunch, which notes how Khan will develop his platform with Comcast’s investment, adds:

30% of Americans currently don’t have broadband Internet access. The program is designed to convince families that the Internet is critical to their economic success, with Khan Academy as the poster child for how the web can improve lives. … Comcast EVP David Cohen concluded that while Google’s Project Loon and Facebook’s Internet.org accessibility initiatives are focused abroad, there’s plenty to do at home and as a broadband provider, it’s Comcast’s responsibility.

eBay and Digital Storefronts: CEO John Donahoe

eBay continues to innovate the retail space, this time with digital storefronts – large touchscreens that allow customers to browse for merchandise which can be purchased via their smartphone. The connected glass technology, which eBay is patenting, “doesn’t require a square-footage retail space,” so retailers can “have a presence in areas with heavy foot traffic, where a square-footage retail space wouldn’t be possible or affordable,” like on a bus or in an airport, an eBay VP tells Investor’s Business Daily.

Insights to Boost Productivity

The NeuroLeadership Institute’s David Rock unveils top research findings to boost effectiveness in 2014. He highlights several interesting discoveries that define why open office plans, inadequate sleep, and multitasking hamper productivity. For example:

[University of Utah] found that individuals engaged in multitasking not because they felt they were accomplishing things efficiently, but because they were less able to block out distractions and focus on a single task. … Ironically, the 25% that scored highest on the multitasking test tended not to multitask at all, which allowed them to lend greater focus on the problem at hand. The irony here is that if you want to be good at multi-tasking, don’t do it very often.