Daily Archives: June 10, 2016

Boards Will Never Be Any Good at Policing Executives

By Justin Fox – Here’s a subversive suggestion. Maybe boards are never going to be any good at keeping executives from betraying shareholders, messing up corporations and breaking laws. We should just accept that, stop beating boards up for it and move on.

What are board members good for? Well, according to Steven Boivie, Michael K. Bednar, Ruth V. Aguilera and Joel L. Andrus, they provide “access to resources like advice, counsel, knowledge of external events and/or influence with external stakeholders.”

They also play a crucial decision-making role during “punctuated events” — crises, basically — such as management transitions, accounting scandals and “other internal and external shocks that increase the uncertainty in which a firm operates.”

The board-as-monitor view is part of an intellectual framework descended from a 1976 paper by economists Michael Jensen and William Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” The gist is that executives are agents acting on behalf of a corporation’s owners, and the central challenge of the corporation is getting those agents to do their duty. more> http://goo.gl/O8APgN


How to Manage $2 Trillion If You’re New at It

By Barry Ritholtz – Before the Saudis start putting that enormous pile of money to work, they may want to take a moment to consider a few items related to costs and performance of the new fund. Given the size of that portfolio, likely to be the world’s largest, a few basis points lost here or there may not seem like something to be too concerned about.

But those small crumbs might add up over time to many billions of dollars.

All of the academic data overwhelmingly demonstrates that costs are the single biggest drag on returns. They are also the item over which investors have the greatest control. It is tempting to ignore them. That would be a huge mistake. It is precisely why watching costs very closely from the very beginning is so important.

Look at how Vanguard Group manages its own operations for a good example of what to do.

The financial industry has spent decades creating complexity in investment products, but this serves a purpose of little relevance to a giant sovereign fund. Simple, transparent and low cost are what will serve this fund the best.

It will be interesting to see if this huge new fund can avoid many of the errors that seem to trip up existing pensions and endowments. Based on its opening gambit — the Uber investment — I have some doubts. more> http://goo.gl/YpzJOz


Updates from GE

Land Of Silk And Lasers: Bespoke 3D Printing Factory Thrives in Italy’s Fashion Heartland
By Tomas Kellner – For decades, fabric factories on the shores of Italy’s Lake Como kept the fashion houses of Milan resplendent in silk. Today, a new kind of manufacturing in the fashion heartland is spinning up parts for gas turbines that move oil and gas through pipelines and generate electricity.

Equipped with industrial-grade 3D printers and computer-controlled mobile robots, the factory is aspiring to become one of the most advanced industrial plants anywhere in the world. “This is a small place, but it can do some amazing things,” says Davide Marrani, general manufacturing manager for turbomachinery at GE Oil & Gas, the GE business that built it.

The plant, located in the small town of Talamona, uses laser-powered printers called direct metal laser melting (DMLM) machines to make swirlers, small but crucial components of the combustor — the part that burns a mixture of fuel and air and powers the turbine.

A swirler looks like a small wheel, some 4 inches in diameter, with blades on the inside that push the fuel mix into the burner. Though it looks simple, its design is exceedingly complex. Small changes in the shape of the blades can bring large fuel savings, so engineers are constantly optimizing the designs. more> http://goo.gl/1TpcZd

One American Political Party Works

By Francis Wilkinson – In a few weeks, at the Democratic convention in Philadelphia, he will symbolically hand over leadership of the party, as well.

This transition is structured, anticipated, consistent, orderly and boring. Which is one way of saying that the Democratic Party is a coherent, well-functioning political institution that bears little resemblance to the cascading disasters that define the Republican Party and yielded Donald Trump as its likely presidential nominee.

The Democrats just concluded a presidential primary that Obama called “hard fought.” That’s a nice pat on Senator Bernie Sanders’s back, and it may have seemed that way, but it’s not really true.

Clinton’s attacks on Sanders were relatively soft, as his were in turn. Sanders criticized Clinton’s ethics, but never so aggressively to inflict lasting damage.

The party’s emerging leader moved to incorporate views, and quell dissatisfaction, from a sizable minority of the party, including many newcomers, without a sharp change in direction that would risk the party’s chances in November. more> http://goo.gl/Bl5kAE