Business Case Studies, Executive Interviews, David Conklin on Government and Business

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Executive Interviews: Interview with David Conklin on Government and Business
January 2010 - By Dr. Nagendra V Chowdary

David Conklin
David Conklin, is a professor at the Richard Ivey School of Business

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    American taxpayers have become shareholders in AIG, GM, and so forth. What’s the exit strategy?
    The ideal exit strategy will be to sell the shares when they have regained much higher values, and I believe that this is quite likely. Governments have been involved in privatization programs for decades, and one can see the exit strategy as a privatization. A real fear is that the failures of government ownership and operation may retard the recovery of these firms, and I share that worry. At this point, governments have become the owners and managers of these firms – with control over strategic decisions that will shape these firms for decades to come.

     Regulatory reform will mean higher capital requirements for financial institutions. Won’t that limit GDP growth?
    Yes, and the various other regulatory reforms will as well. Of course, the self-inflicted damage by these institutions is another factor that will limit growth. And the damage to economies and their businesses cannot be reversed quickly. So growth will be very slow to reach former levels, and unemployment will persist. A deeper question is whether the higher capital requirements will cause a shift in lending and borrowing to non-banks to an even greater degree and to countries with lax regulations. This is a far greater danger in the long term.

    far greater danger in the long term. Instead of attempting to regulate using a patchwork of agencies, is it time for BrettonWoods II, i.e., should there be a new and powerful overarching body (as suggested by UK Prime Minister, Gordon Brown) controlling, monitoring and regulating the international capital flows?
    Yes. But the disagreements over the structure and responsibilities and powers of such a global agency will mean that its creation will be delayed for a very long time. Realistically, we may hope for a process of creation and gradual expansion of the role of such an institution.

    The aim of economic regulation should be the same in all sectors: to facilitate fair competition among players or, where natural monopolies exist, to ensure fair pricing and service levels. Greater competition means stronger productivity growth, which in turn means a faster-growing economy and more wealth to share. Yet governments everywhere struggle to get regulation right. Unfortunately, regulation often has a negative effect. What can governments do to get it right?
    Professors in business schools have a responsibility to participate actively in this debate. Unfortunately, we are in new territory here. Further, regulators have serious problems in the process of regulating, as I have emphasized. So this debate will continue for decades.
    It is necessary to see the regulatory process as experimental. Occasionally, we may see a major newpiece of legislation like Sarbanes- Oxley that attempts to limit fraud by demanding more extensive transparency and accountability. But even here it is necessary to wait and see the unintended consequences of such dramatic changes.

     Should boards view the current crisis as an opportunity to review the way they function. During tough times – and they haven’t been this – and they haven’t been this tough for generations – directors are supposed to ask difficult questions about their companies. Yet they rarely ask hard questions about themselves, such as, “Are we the right people, asking the right questions, providing the right sort of leadership, challenging management in the most productive ways?” A healthy selfassessment can go a long way toward improving a company’s performance. What kind of reassessment do you suggest for the boards and their directors?
    Yes, absolutely. This is a time when directors must take on greatly expanded roles in policing what is happening within the firm, especially within financial institutions. Here, again, professors in business schools must take a leadership position in analyzing and evaluating possible changes. The subject is extremely complex and again the answers will not come quickly or with much certainty.

    What are the major global trends that businesses should be thinking about? Do you envision new approaches to management and new ways of interacting?
    I have just written a book on this subject. It will be published by Sage in the spring of 2010 and is entitled The Global Environment of Business: New Paradigms for International Management. I find this to be a very exciting subject of great importance to both businesses and business schools.

    What specific three measures do you suggest to ensure that such crises do not recur? To what extent should the government intervene in business to check immoral behavior of executives and / or entrepreneurs?
    I As I have indicated, I believe that business cycles will recur in free market economies. I also fear that legal frauds will recur as a result of human nature and the complexity of modern financial instruments. Consequently, we have to operate in a far more dangerous world than existed in the past. Nevertheless, we must note that there are significant differences among nations in regard to these dangers. The world leader, the US, has a national culture that encourages individual freedom, and this slips easily into individual license to maximize one’s personal gain without consideration for the impacts on others. Some other nations, and I think of my nation, Canada, rest on concepts like “peace, order and good government” – and so not surprisingly Canada has not been hurt as severely by the financial crisis. I do think that the subject of ethics in business has become increasingly important. Firms have to consider the creation and inculcation of codes of ethics. New legislation such as Sarbanes-Oxley may be able to change reporting for the better, and may be able to make legal frauds illegal. Governments may be able to prosecute individuals who violate the new laws. Finally, it is important to emphasize that there will be a cost to creating new regulations that are necessary to apprehend the inappropriate actions of only a few. These costs will become apparent only with the passage of time, and so we must pursue this subject with ongoing diligence.

The Interview was conducted by Dr. Nagendra V Chowdary, Consulting Editor, Effective Executive and Dean, IBSCDC, Hyderabad.

This Interview was originally published in Effective Executive, IUP, January 2010.

Copyright © January 2010, IBSCDC No part of this publication may be copied, reproduced or distributed, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or medium – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IBSCDC.

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