Category: Faculty in the News
Executive-in-Residence Mark Williams presented his top-10 risks associated with Bitcoin during the Virtual Currencies: Regulatory and Legal Challenges of New Peer-to-Peer Technologies in Financial Services panel at the 2014 World Bank Conference.
His top-10 risks include:
- Bitcoin is not legal tender
- Extreme Price Risk
- Extreme Price Risk Can Quickly Erase Company Profit Margins
- Bitcoin is a Hyper Asset Bubble in the Process of Deflating
- Growing Concentration and Bankruptcy Risk to Financial Middleman
- Bitcoin Exchange Bankruptcy Risk
- Bitcoin Use Can Trigger Significant Tax Risk
- Transactional Fraud Risk – Double Spending
- Significant Consumer Protection Risk
- Sovereign Attack Risk
The aim of the panel, according to the session abstract, was to contribute to reaching a common understanding of the major legal, supervisory, regulatory, and policy challenges related to virtual currencies.
Williams has shared his expertise on Bitcoin during congressional testimony in April 2014, which led to an invitation to speak at the World Bank Conference. “It is a great honor to be asked to speak,” he said in an email.
Williams is a risk management practitioner and academic with two decades of experience. Since 2002, he has been on the Finance & Economics Faculty at Boston University and currently holds the academic rank of Executive-in-Residence/Master Lecturer. Prior to teaching, he worked as a senior trading floor executive, a bank trust officer and as a bank examiner for the Federal Reserve Bank. He is particularly experienced relating to risk management in the energy trading, banking industry and derivative matters involving the capital markets. In addition to his teaching duties at the graduate as well as undergraduate level, his expertise is called on frequently by national media. He has also been a guest columnist for Forbes.com, Reuters.com and the Boston Globe. In 2010 he published Uncontrolled Risk (McGraw Hill), a book examining the root causes of the financial crisis and the rise and fall of investment banking giant Lehman Brothers. Outside of academics, he conducts risk management seminars, has provided consulting for various Fortune 500 companies, and is a senior advisor at the Brattle Group. On several occasions, he has also been an expert witness in various corporate cases involving risk management matters.
Article references Buffa’s work on fund manager contracts and equilibrium asset prices
Assistant Professor of Finance Andrea Buffa is cited in The Economist for his new paper on asset management contracts and equilibrium prices. Co-written with Dimitri Vayanos and Paul Woolley of the London School of Economics, Buffa’s paper sheds light on the “low beta anomaly” in markets that The Economist believes is a result of how investors choose fund managers.
“Most financial assets these days are not held directly by investors but by professional fund managers on their behalf,” the article states. “And that separation may explain a couple of big anomalies that undermine belief in the efficiency of markets.”
One of those anomalies, according to The Economist, is that greater risk demands greater reward. In practice, this old rule of thumb doesn’t hold up: less volatile (low beta) stocks have offered far higher returns than the theory would suggest. Buffa and his coauthors provide reasoning that explains this “low beta anomaly.”
The Economist references their findings:
Investors judge fund managers by how successful they are relative to their peers, and to benchmarks such as the S&P 500 index. They reward “star” managers who have been successful in the past, giving them new funds to manage and taking money away from poor performers. This new money will be invested in the stocks the managers concerned favour, which are highly likely to be those that have recently performed well (that is why the managers are stars). Such shares will therefore continue to rise in price, which helps explain the momentum effect.
But fund managers also need to worry about underperforming the benchmark, since that will cause them to lose clients. The greatest risk is to have an underweight position in a big company that is rapidly rising in price (5% of the portfolio in a stock that is 10% of the index, for example). If such a stock rises (perhaps because of good news such as higher-than-expected profits), the distance from the benchmark grows. So underperforming fund managers will be under pressure to increase their holdings in such stocks, even if they consider them overvalued (this happened during the dotcom boom).
There are lessons to be learned from this “business tragedy”
In “POV,” BU Today‘s opinion page that provides timely commentaries from students, faculty, and staff on a variety of issues, James Post, Professor Emeritus and John F. Smith, Jr. Professor in Management, puts the brakes on using the word “victory” to describe the long-awaited outcome of the Market Basket feud. The only winners here are the advisers and lawyers who negotiated the deal, according to Post.
Excerpts from BU Today:
The world loves stories of “the good” overcoming “the bad,” perhaps because they are so infrequent. Such a story played out this summer in New England, with the near-collapse of the Market Basket grocery store chain. The family feud between two ownership factions of the multibillion dollar enterprise embroiled 71 stores, 25,000 employees (“associates”), hundreds of suppliers, and thousands of customers in Massachusetts and New Hampshire. A massive employee walkout and demonstrations in support of fired CEO Arthur T. (“Artie T.”) Demoulas galvanized public interest and media attention.
As stories hit the media, even candidates for political office pledged either to intervene or stay out of such disputes. Massachusetts Governor Deval Patrick hesitated at first, but eventually joined New Hampshire Governor Maggie Hassan to broker a deal that took agonizing days to finalize.
After more than 40 days of protests, the parties finally reached “yes.” Boston Globe columnist Shirley Leung hailed it as “People Win Over Profit. For Once.”
I say, not so fast.
The agreement of Arthur S. to sell all of his family’s shares to Artie T. may not be the panacea employees and customers are hoping for. Indeed, the Market Basket “victory” may prove to be an illusion.
Market Basket is a business tragedy (Greek or Shakespearean) that stirs the imagination and offers a number of important lessons. There are apparent heroes and villains—Arthur T. Demoulas and Arthur S. Demoulas, respectively. There is intrigue: Why did sister-in-law Rafaela Evans switch allegiance from the “Good Arthur” to the “Bad Arthur,” thereby shifting power in this most recent battle in the continuing “War of the Arthurs”? There is a cast of courtiers, knaves, and advisors who chant homilies of advice, express rage, and otherwise make crowd noise. And, there are lessons to be drawn from the bloodletting.
Read the full piece on BU Today.
Obama taps Weil to lead Wage and Hour Division
Excerpts from BU Today:
In his new job as administrator of the US Department of Labor’s Wage and Hour Division, David Weil will be responsible for enforcing laws designed to protect the nation’s workers. Weil, an expert in labor market policy and industrial and labor relations, and the Peter and Deborah Wexler Professor in Management, was recently confirmed by the US Senate to lead the US Department of Labor’s Wage and Hour Division.
In his new role, Weil will oversee a division that ensures American workers are adequately compensated for the work they do by being paid the minimum wage and required overtime compensation. The division also protects responsible employers from competition with companies that do not comply with federal wage and hour requirements by enforcing the Fair Labor Standards Act, which is also responsible for regulating child labor. Weil will also be in charge of overseeing compliance with the Family and Medical Leave Act, wage garnishment provisions of the Consumer Credit Protection Act, and employment standards and worker protections as provided in several immigration-related statutes.
Nominated to the post by President Obama last September, Weil was confirmed by a 51-42 vote by the US Senate in late April and sworn in on May 5. He says he was “incredibly honored” by his confirmation.
“The laws that the Wage and Hour Division administers cover about 135 million workers, and so we have to think about how we use our resources and tools to make laws happen in practice,” said Weil, during a recent phone interview from his new office in Washington, DC. “We have to figure out how do we use our outreach to the public, our tools of enforcement, and how do we educate workers on what their rights are under the laws, as well teach employers what their duties are?”
Since arriving at BU in 1992, Weil, a professor of markets, public policy, and law, has been the recipient of SMG’s Broderick Prize in Research and Broderick Prize for Teaching, as well as the Shingo Prize for Research on Manufacturing Innovations. He was chosen as SMG’s Best MBA Instructor of the Year in 2011 and 2012. He has been the codirector and a senior research fellow at the Transparency Policy Project at the Ash Institute at the Harvard Kennedy School since 2002 and a research fellow at Harvard Law School’s Labor and Worklife Program since 1987.
If you fall asleep in Jack McCarthy’s class it won’t be for long – a saxophone riff or blaring trumpet will jolt you awake soon. No, having a jazz ensemble in class is not a professor’s revenge on dozing students. That ensemble is here to illustrate how improvisation, creativity, and shared leadership create high-performing teams on the stage or in the office.
For the past six years, McCarthy, SMG professor of organizational behavior, has been part of an interdisciplinary groundswell between the arts and business. Employers are looking for collaborative people who can improvise – core skills many actors and musicians have and businesses could use more of. Business schools are catching on and offering courses that incorporate the creative process from acting, drawing, or music into the standard lecture format, writes Rebecca Knight in a Financial Times article featuring Professor McCarthy’s class.
“In jazz, there are chords and notes but the performance requires improvisations: the musicians play off each other and play off the audience,” according to McCarthy’s Financial Times commentary. “That’s a metaphor for the work we do today in organizations. Yes, there are structures for how we get things done but to truly be creative and extend ourselves in business today, we need to build from and with others in the ways that jazz musicians do.”
Sharing his innovative course with the BU community at the 2012 Instructional Innovation Conference, Professor McCarthy advocated for variety and balance in classroom formats. “ When you have students engaged, and when you have creative examples from different domains,” he said, “you’re much more likely to tap into diverse learners and diverse learning styles.”
Read the full Financial Times article.
Read BU Today’s coverage of the 2012 Instructional Innovation Conference.
General Motors and Malaysia Airlines both find themselves in the midst of a corporate crisis. Mary Barra, GM’s recently appointed chief executive, is faced with a dozen accident victims from faulty compact cars, while Ahmad Jauhari Yahya, chief executive of Malaysia Airlines, handles the 239 presumed victims of missing flight MH370. Responding to the death of customers is no simple task, but Ms. Barra is giving Mr. Ahmad a lesson in crisis control, writes John Gapper in the Financial Times.
As Mr. Ahmad and the Malaysian government scrambled to get their story straight and declare who was in charge, Ms. Barra stepped up and took personal responsibility, admitting that GM was to blame for the ignition flaw. Ms. Barra is at an advantage, Gapper says, because she has certainty—the GM deaths had a clear cause—but her response illustrates an “evident gulf in personality and skill” between the two CEOs.
Unlike Mr. Ahmad, Ms. Barra wasted no time in taking the lead. She took control before the public could tell the story, which Shuba Srinivasan, professor of marketing at Boston University School of Management, says was the key to GM’s effective reaction.
“If you do not communicate clearly and often, someone else will do it for you,” Srinivasan tells Gapper. “By taking a personal stand, she changed the narrative from the product recall to how she was handling it.”
Read the full piece here.
In the real world, Kant can’t help (but here’s what does)
Kabrina Chang understands that no amount exposure to the subject of ethics will deter future Bernie Madoffs. Businesspeople aren’t likely to draw on some long-ago class for guidance, she admits. But Chang also understands that in order to produce socially responsible leaders, ethics must hold a place in management education.
The assistant professor of business law and ethics writes in Bloomberg Businessweek that a more comprehensive approach to the subject of ethics must be taken—an approach that doesn’t attempt to turn students into moralists like Kant, but one that gives students practical techniques for resisting pressure. Chang spotlights the School’s own approach to integrating ethics into education:
Our focus at Boston University School of Management is not to provide the final word on right and wrong. Nor are we trying to turn students into moral philosophers, though they are exposed to the major schools of ethical reasoning from Aristotle to Kant to Jeremey Bentham and John Rawls. What we are trying to do is provide undergraduate and graduate students with ethical frameworks they can use in decision-making—the tools needed to recognize and consider the ethical dimensions of decisions—just as we provide them with the tools for doing strategy or finance.
The first management class all undergraduates must take is Business, Society, and Ethics, where they initially encounter ethical frameworks in the context of global management and the complicated analysis necessary for making appropriate decisions. An ethical framework is a decision-making model. For example, Bentham’s Utilitarianism tells us to make decisions that benefit the greatest good.
We are looking at how best to integrate ethics into all required courses. Specific business disciplines will immerse students in the kinds of dilemmas that are likely to arise. For example, in marketing classes students may be asked to decide how to market a snack product for children as all-natural when it is actually not healthy because it is high in sugar. Though many professors have explored ethics in these classes, the approach has been uncoordinated. We believe that the consistency provided by common decision-making tools and language will create an indelible educational experience.
Read the full piece here.
Fournier outlines steps to getting more value out of social media brand-chatter
Last month, Susan Fournier, Questrom Professor in Management and professor of marketing, advised marketers in the Harvard Business Review: Think like an anthropologist. Instead of breaking down big data into percentages and meaningless numbers, tap into social media chatter to get a real glimpse into how consumers are living and thinking. A single comment or photo posted about a company’s product can impact its consumer knowledge and its profitability—don’t ignore it.
In a follow-up to her piece on this anthropological approach to big data, Fournier, once again in collaboration with Bob Rietveld, managing director and cofounder of Oxyme, delves deeper into the value of social listening and offers further instruction: Think like a market researcher. The information gained from social listening can be as robust a source of strategic inspiration as any must-have diagnostics on the dashboard, the pair writes. Not to mention, social listening is inexpensive and efficient, because surveying is unnecessary: unsolicited comments from consumers are already out there, awaiting analysis.
Fournier and Rietveld outline four steps to getting more value out of social media brand-chatter:
Make sure the quality of your social-listening data is good.
Like all data, the information you glean from social media should be subject to market-research protocols for reliability and validity. Ask the same kinds of tough questions you’d ask about any research project. Are the data drawn from the entire social-media landscape? Is the sampling of comments statistically sound? Is the system of data classification, in terms of topics, themes, and sentiments, accurate? Does your automated coding allow for idiomatic meanings, as in “This brand is the s—t”? The insights you get from social media are only as good as the data set you create.
Don’t make your social-media data stand alone.
Information from social listening must be correlated with other streams of data that the company is using. For example, in an analysis we performed for a transport company, we found that complaints shared on daily Twitter feeds tracked 90% with the content of customer-service comments registered by phone or mail. Linkages like this go a long way toward speeding the adoption of social-media data as a valid strategic-insight source.
Think about “impact” and not just ROI.
Marketing managers tend to take too narrow a view of social listening, seeing it merely as a way to measure the return on investment of specific marketing campaigns. For example, an electric-toothbrush maker that had launched a campaign to woo “non-electric” brushers was dismayed to learn that the resulting burst of social-media activity came mostly from existing users. It branded the campaign a flop and moved on.
In so doing, the company overlooked the value of what it had found on social-media sites. Users were sharing positive stories, advocating electric brushing, and in some cases expressing their love of the company’s brand. The company was getting a rare unfiltered look at how consumers were living the impact of the company’s strategies and brands.
Be sure your social-listening analyses make their way out of the marketing-research department
and into the wider organization, including leadership circles. Don’t let the information stay bottled up in the departments that collected and “own” the data. That means establishing a common analytical currency and language throughout the company so that managers can take action and be held accountable. One company we worked with created a Center for Digital Excellence to coordinate data on a vast brand portfolio. The company tied the digital indicators to bonus compensations, signaling C-level commitment to the program. It’s that kind of high-level integration that enables companies to focus efforts and resources effectively, creating value for the firm.
View the full piece here.
Real value is created through meaningful innovation and adoption—not from smoke and mirror deception
Mark T. Williams, Boston University School of Management executive-in-residence and master lecturer of finance, warns against the peer-to-peer electronic payment network Bitcoin in a wide range of media commentary, arguing that investors across the globe should steer clear of this “dangerous speculative bubble” and its “get-rich-quick mindset.”
Excerpts from Williams’s commentary for WBUR (Dec. 5, 2013):
Bitcoin is not a futuristic currency but a speculative mania. Greed is pushing prices skyward but fear will quickly bring those same prices crashing back to earth. Investors need to separate the promising technological innovation of digital currency from the Bitcoin Ponzi scheme that will harm those that fail to exit before the bottom falls out.
Bitcoin is another example of “market innovation” that deserves closer scrutiny from the Securities and Exchange Commission. SEC Chairman Mary Jo White has said virtual currency itself may not be considered a “security,” but interest issued or returns gained by it likely would be and therefore subject to regulation. Federal Reserve Chairman Ben Bernanke told Congress that the Fed “does not necessarily have authority to directly supervise or regulate these innovations.” And the Justice Department says Bitcoin is legal, but that doesn’t mean it is adequately market tested, investment safe and ready to be a global currency.
Bitcoin is not a currency with intrinsic value but a hyper bubble fueled by a get-rich-quick mindset.
Excerpts from The Washington Post blog “The Switch” (Dec. 10. 2013):
In recent weeks, some Bitcoin critics have been rethinking their initial Bitcoin skepticism. But others are as convinced as ever that the cryptocurrency is doomed. One of the harshest critics is Mark Williams, who teaches finance at the Boston University School of Management. He predicts that in the first half of 2014, bitcoins will lose almost 99 percent of their value, falling below $10.
Timothy B. Lee: What informs your thinking about the future of Bitcoin?
Mark Williams: I used to be the senior vice president of a commodity trading firm in Boston. I’m very familiar with commodity prices with high volatility. For example, energy prices would have swings of 400 to 500 percent in a year. That’s significant price movement.
But Bitcoin is in a universe of its own. Right now Bitcoin is looking at price movements as high as 8000 percent since January. It moved from $13 per bitcoin to a high of $1200. So what we see then is considerable risk associated with Bitcoin.
At least with a commodity like power, natural gas or oil, there’s an underlying value. That product can be used for something. With Bitcoin, it’s a virtual commodity, so there’s no backing. In essence, Bitcoin is worth something as long as you or I are willing to sell things for it. But if you say I’d rather have $1,000 than a bitcoin, Bitcoin is going to drop like a rock.
Excerpt from Williams’s interview on “Bitcoin’s future in Europe and the US” for The Voice of Russia (Dec. 20, 2013):
Bitcoin…has too much movement to be used as a medium of exchange….With any currency, you have to have trust in that currency, and you have to have stability….In the last two weeks, we’ve seen a drop of almost 50%. It’s almost like a roller-coaster out of control.
The CEO need not worry about what she posts online—but you do
Businesswoman Randi Zuckerberg, sister of Facebook founder Mark Zuckerberg, is advising professionals to stop pretending that they can separate their personal life from their work life and simply share it all on social networks. Easy for you to say, Boston University School of Management assistant professor of business law and ethics Kabrina Chang tells the founder and CEO of Zuckerberg Media. Could Ms. Zuckerberg potentially lose customers or respect because of something she posted online? Of course. But could she get fired for it? No way. That’s the difference between Ms. Zuckerberg and the general workforce, and that’s where Chang steps in to ask: Should we take Ms. Zuckerberg’s advice? Advice that’s given from a “lofty perch”?
The fact is that the vast majority of the workforce could get fired for what they post online. My research shows that not only are employers looking at what we do online, but they are also using that information in job decisions.
Is that fair? Maybe. Maybe Not. But it’s the workplace reality in this Internet and smartphone age. Is it legal? Usually. Courts in general treat online activities as if they were taking place in person. So that photo of you holding your gun and a beer, or crossing the marathon finish line, or of your darling’s First Communion or Bat Mitzvah are fair game. While there are federal and state discrimination and disability laws prohibiting using certain protected categories in any employment decision, once someone sees a picture it’s hard to disentangle that image from other qualifying factors.
There are some laws that can help employees. For example, the Stored Communications Act bars unauthorized access to stored electronic communications. This might be useful if someone surreptitiously uses your password to look at your Facebook page, but it won’t help when your Facebook friend at work shares your photo with the boss.
Progress has been made to address the growing trend of employers asking job applicants and employees for their Facebook passwords. Thirteen states have passed laws prohibiting employers from asking for this information. This signals to me a public need for protection and the fact that at least some employees are unwilling to share all of the details of their personal lives with their bosses.
Read the full piece here.