THE WEEK OF MAY 4, 2009

LEADERSHIP. LEARNING. TECHNOLOGY BUSINESS

Getting corporate sponsorship right

This is still a good tool to get your message across to consumers

The art of managing your boss

Be in the head honchos good books if you want job satisfaction, security

Jim Rogers shows his softer side

Adventure capitalists book offers lessons on life and investing

MARKED TO VALUE
Changes to fair-value accounting rules to tackle volatility have eased mark-to-market measures. But is it open to mark-to-imagination? PricewaterhouseCoopers explains the issues and what investors could expect.
Keith Stephenson, governance, risk & compliance leader for Asia Pacific at PricewaterhouseCoopers

MW2 THEEDGE SINGAPORE

| MAY 4, 2009

managementissues
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REGIONAL GENERAL MANAGER

| BY AUDRINA GAN |

Getting corporate sponsorship right

inding sponsors in a recession will likely be tough going for many event organisers and smallto medium-sized companies. After reaching a high during the Beijing 2008 Olympics, where a record US$43.5 billion ($62.26 billion) was spent worldwide to secure the event sponsorship rights, the numbers will plummet this year, says Professor Pascale Quester, executive dean of The University of Adelaide. Companies that have been sponsors for a long time are likely to continue doing so although they might reduce sponsorships or cut back on advertising. Coca-Cola has been a sponsor of the Olympics for a century and its not going to stop now though they might not take up new sponsorships, says Quester, whose area of expertise includes advertising, branding, sponsorship and consumer behaviour. The events, sports and art organisations that are going to suffer the most are the smaller-sized ones. The large event organisers or corporations that deliver millions of audiences and high ratings on television will continue to do well. As the economies of many countries contract, companies will have less money if any at all to underwrite events. But even against such a grim backdrop, corporations should not eliminate corporate sponsorships even as they seek to rein in expenditure. Sponsorship enables an emotional transfer. People watching the Olympics will experience a bundle of emotions they get excited, sad, happy and proud. All of that is going to be associated with your brand. That is what makes it so powerful because you are able to engage people at that level, Quester explains. The companies that are cutting back on sponsorships are probably spending money unwisely anyway. Often, people make decisions to match what others are doing. A lot of people get into sponsorships because they see their competitors doing it. And they probably never bother to evaluate the sponsorship, she adds. In an interview with M@W, Quester talks about some hits and misses in corporate sponsorship and shares insights on how companies could leverage on branding and corporate social responsibility during the recession. M@W: How does one measure the effectiveness of a sponsorship? Quester: Unfortunately, people tend to compare a sponsorship outreach with what they would have paid to have the same exposure through advertising. I met the organisers of the French Open tennis tournament when I went to Paris. They told the sponsor how many seconds the logo of the rm has been on television and went on to say it would have cost the sponsor a certain amount if it had bought the media through an advertising campaign. I think that is a bad move. Sponsorship is not about how often people see the logo on television. Its about how effective it has been in engaging consumers and making them prefer your brand. If consumers can make sense of the sponsorship, they not only remember it well, they also take it home. Thats very positive in terms of creating a change in attitude. An electronics company or a watchmaker would want to sponsor a track and eld event. That makes a lot of sense because its all about measuring

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REGIONAL SENIOR MANAGER

time. A petroleum company being a sponsor in Formula One or other motor racing events also makes a lot of sense. So people will not question it. But there are other things, which are not so obvious. If you are a car company that has put a lot of effort into design, you might want to sponsor modern dance theatre because its all about design and the look of things. The way you build this story is not that obvious, so, youve got to then explain to consumer why you chose to sponsor the modern dance theatre. If the rationale behind the sponsorship is not clear or makes little sense, consumers will forget about it or think somebody else that makes more sense is the sponsor. A lot of people in Australia thought Qantas was the sponsor of the Sydney Olympics because it is the national carrier. But Ansett was the sponsor and nobody knew about it.

not doing it to just cultivate a relationship with Carrefour. The main reason is because the more products they produce, the marginal cost of the products carrying their brands will decrease. And, they will still recover their cost on the non-branded products. So, if you have a product that has economies of scale, which is the case of most grocery products, it is in your best interest to produce a generic product that retailers can put their names on because it will drive down the unit cost and drive up your unit margin.

Quester: The problem with a sponsorship is that you dont control the message

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So, companies need to gure out the motivation behind the sponsorships? The problem with a sponsorship is that you dont control the message. During the Tour de France [bicycle race] last summer, a cyclist in the team sponsored by French bank Crdit Agricole was found to be in possession of drugs. Its of course not good for a bank to be associated with cheaters, but at the same time the bank has been associated with the race for 50 years. So, its a really difcult [situation to be in] and the bank cannot say that biking is now a race that has become so corrupted with drugs that it doesnt want to be part of it anymore. When I talked to the bank, it said it has been a sponsor [in the Tour de France] for 50 years and it wants to be in there during the good and tough times. From the consumers viewpoint, however, it has been a sponsor in a not very fair competition so what does it say about the bank? So thats the risk in sponsorship. But in an advertising campaign, you control what people see and hear. The downside is people dont necessarily want to believe in the message because you are in control of it. Can companies reach out to consumers effectively if they sponsor a relevant mega event? Many global companies saw the Beijing Olympics sponsorship as a way to get instant recognition. It worked for some. After spending massive amounts of money, Coca-Cola was recognised as a sponsor by about 40% of the Chinese consumers that we have interviewed. China Mengniu Dairy also beneted from the Beijing Olympics even though it was not a sponsor. It used a lot of athletes in its advertising. So, companies are going to rethink about whether they should reach out to consumers through sponsorships or how they can do it smarter by not investing the money and still be able to get the benets. If you are a fast-moving consumer goods (FMCG) conglomerate like Procter & Gamble where each of your product categories is probably witness-

ing different business growth now, how should you approach branding? These companies would continue to have strong branding but they would also need to look at the proliferation of brands. These rms even encourage competing brands just to keep everyone on their toes. Sometimes, they have two or three brands in the same product segment. I think theres going to be some serious thinking about why you would want to have more than one brand in the same segment. So, theres going to be some rationalisation in some of the multi-brand strategies of the large conglomerates. But they would invest more in those brands that they keep. How should companies that want to penetrate emerging markets get around branding? Due to the lower incomes in these countries, cheaper alternatives may have to be introduced to match affordability. One possibility is to have several brands. There are two strategies. If you are a prestige brand in your home market, I dont think you want to have a cheap product with the same brand in the emerging markets. So, what you can do now is to create another brand and sell the product with another name for a cheaper price. You can probably also sell the more expensive product with your brand on it in that market too. Take India. There are about 750 million poor people but there are 200 million of quite wealthy people. And there are a handful of very rich people. So, you can have a very exclusive brand and a cheaper brand, which could be exactly the same product but doesnt carry your name. In such instances, people are not buying the product but the image of the brand. Which are some of the companies that have done well in this area? A lot of companies are not only doing multi-branding, they are also producing a lot of stuff that have no brands on it. A lot of unbranded products in Carrefour are actually produced by the branded manufacturers. These products are sold to Carrefour at a lower price and Carrefour puts its own stamp on it. They are

How should companies x their image if there has been a major scandal or breach of ethics? It is best to protect yourself by building a goodwill buffer before the crisis happens. Thats called corporate social responsibility. If companies have been working on their corporate social responsibility prole, the crisis, should they encounter it, would be less severe and less prolonged. If you plant trees, x a river or help disabled people before a crisis, when dangerous chemicals are found in your toys or factories or whatever, the fact that you have already done something good would be counted in your favour. On the other hand, if you only start doing good deeds after a crisis has happened, people will be cynical and think you are trying to get away from your responsibility. However, there are not a lot of consumers who are sufciently disciplined to boycott a brand when something goes wrong. The French are not good with such boycotts but the Germans and Dutch are very good at doing so. Nestl was found to have breached the WHO code regulating the marketing of breast milk substitutes as it gave away free milk samples to hospitals. It has hurt the company following a strong boycott against Nestl. But Nestl as a brand did not die. And the company continued to engage in similar unethical practices. How can companies stay nimble so that they can react to the new business landscape as we come out of the recession? Some companies have made the gamble that they have to reduce themselves to the absolute minimum to survive. They shed staff and try to concentrate everyone at the headquarters. Others have tried to retain their staff and are willing to go into decit and sell some assets. These companies hope to be able to start with full energy again when the crisis is over. There are some industries where the skills of the workforce are so important that if you let them go, you may not be able to capture the same quality of staff. In Australia, we have seen universities that have been hurt by the crisis and the temptation is to put people on the dole. Sure, you save the bottom line in the short term but you will be in dire straits after the crisis. If you are in an industry where the qualications and knowledge of the staff is important, you dont want E to let them go.

SAMUEL ISAAC CHUA/THE EDGE SINGAPORE

THEEDGE SINGAPORE | MAY 4, 2009 MW3

managementissues

| BY STEPHEN CHOO |

The art of managing your boss in a downturn

alking about the art of managing your boss may sound like an invitation to take part in corporate politicking and brown-nosing. Its not. In the current downturn, this is really about negotiating a win-win situation with your manager to benet your career, his team and your organisation. Your work environment is very much determined by your boss, whether he is conscious of it or not. From our extensive employee research, leadership has often been found as the No 1 driver of employee engagement and retention. And, most importantly, leadership also has a direct impact on how well you do your job. So, knowing your boss leadership style is a start to working better with him. Hay Group has identied six leadership styles that apply all over the world visionary, afliative, coaching, directive, participative and pace-setting.

in times of crisis and stress. Herein lies the problem a leadership style that worked during an economic boom might fail miserably during a recession. Visionary This is the classic rock-star CEO. Virgin Atlantics charismatic Richard Branson springs to mind. He sets the big picture and sees his role as moving the team towards a shared vision. As he views selling his long-term vision as key to success, he will take time to explain the whys. To work successfully with a visionary, dont irritate him by trying to give him a vision. A visionary leader sees scoping and conveying the big picture as his job; he doesnt want, or expect, you to do the same thing. To impress a visionary leader, let him know you understand his vision and what you will do to realise it. Such leaders usually lack attention to detail, so it is your job to see to the nuts and bolts. Afliative This leader is most concerned with creating harmony, promoting friendly relations and tends to avoid performance-related confrontations. A collaborative leader, he is most likely to ask how are you? and mean it. Such leaders generate a lot of goodwill because they dont mind rolling up their sleeves and pitching in on the shop oor. However, their need for harmony may get in the way of making tough decisions. So, if there is bad news to be broken, try and use external sources of information like customer satisfaction

or employee engagement surveys to help support your case. Coaching Such a leader focuses on the longterm professional development of employees. He helps you identify your strengths and weaknesses, encourages you to establish long-term goals and provides instructions and feedback on achieving them. By all accounts, AirAsias Tony Fernandes displays an excellent coaching style. If you are looking for a boss to help develop your career, this is a dream leader to work for. If you are just working for a pay cheque and are looking for someone to tell you what to do, this is not the boss for you. To work successfully with this leader, you will need to know what your career goals are and be able to take feedback in a positive spirit. Directive This type of leader needs no introduction weve all met them before. Intent on getting immediate compliance, they issue a lot of directives, rely on negative corrective feedback and motivate by stating the negative consequences. This style is useful for getting organisations out of a crisis situation. But, if it continues into an upturn, you will see high performers walking out the door at the rst opportunity. When working for such a leader, dont suggest different ways of doing things directive leaders are looking for your compliance, not your ideas. As they are uncomfortable delegating tasks because they dont trust others

to get it right, start by proving that you can do exactly what is asked of you. Keep them in the loop throughout the process; double-check that you are delivering what they want, when they want it and in the right format. Once you have earned their trust, you might get a little more freedom to do things your way. Participative A democratic leader who focuses on building commitment and generating new ideas, he typically invites employees to develop directions for themselves and the company. There are usually many meetings to listen to employees views. Banyan Trees Ho Kwon Ping is an excellent example of this style. If you are achievement-oriented, working with such a boss can be frustrating because all you really want is to be left alone to get things done and not attend meetings about what you think should happen next. The best way to annoy a participative leader is to be overtly negative about the democratic process, for example, by outright refusal to attend meetings, or attending them with ill grace. So, be aware of your actions and body language. Pace-setting Such a leader sets high standards of excellence, is apprehensive about delegating and has little sympathy for poor performance. Usually leading by example, he will take away jobs if high performance is not forthcoming. However, what is more often the case is that complex jobs are not delegated at all pace-setting

leaders often assume that the best way to get such jobs done quickly and to their satisfaction is to do it themselves. Margaret Thatcher and Steve Jobs are prime examples of such leaders. With such bosses, dont suggest that you need more meetings. Dont ask a lot of questions about why youre doing things and how they t into the big picture. They expect you to get the picture automatically. The key is to earn their trust quickly by turning in consistently excellent work. This is not a leader with whom you want to be modest so take on extra work to show that you are capable. But, do be aware that working for such leaders can wreak havoc on worklife balance and lead to exhaustion and burnout in the long run.

Right style, right occasion

In this current economic downturn, we will be seeing more directive and pace-setting styles of leadership as companies ght for survival. This is natural. Before you start updating your rsum, ask yourself if your boss has been able to use the right leadership style in the right context in the past. If he has, chances are you are better off staying put. If not, its time to manage your career rather E than your boss! Dr Stephen Choo is regional director, Southeast Asia, Hay Group Insight, the employee and customer survey division of Hay Group, a global management and consulting rm that works with leaders to transform strategy into reality

Different leadership styles

There is no one best style of leadership each has its strengths and limitations and is appropriate in certain situations. For instance, the directive approach is useful in getting an organisation through a crisis but will stie initiative and innovation in good times. The afliative style is most suitable for dealing with emotional situations, like with employees facing retrenchment. Most effective leaders are adept at all six leadership styles and can switch from one to another depending on the circumstances. But, typically, a manager will go back to the style he is most comfortable with, especially

humanresources

| BY SVENJA ODONNELL & MARK DEEN |

London bankers look for exits after last straw tax hike

emetris Efstathiou, a hedge-fund trader and a Londoner for two decades, listened on April 22 to Chancellor of the Exchequer Alistair Darling outline a plan to raise taxes on high earners. Then he decided to leave the UK. There is no reason for me to stay here anymore, says Efstathiou, a 38-year-old Cypriot who moved to London in 1990. This tax increase is the last straw. This government is no longer interested in the City. Prime Minister Gordon Browns proposal to boost the tax rate to 50% from 40% on income above 150,000 ($325,700) pushed headlines about class warfare onto the front pages of the capitals newspapers. It also prompted predictions from business groups that it would undermine the UKs competitiveness and lead to an exodus of nancial talent. The income-tax change, set to take effect next year, would give the UK a higher top rate than Spain, Italy, Germany, France and the US, according to KPMG, the accounting rm. Among the 30 members of the Organisation for Economic Cooperation and Development, the country would jump to seventh from 19th in the rankings of tax rates, accounting rm Ernst & Young says. The initiative is part of the governments efforts to contain a planned budget decit of 12.4% of GDP, the UKs biggest in peacetime.

The Treasury expects the tax to raise about 2.2 billion next year when government borrowing will be 173 billion. Darlings budget calls for 703 billion of decits in the ve years through April 2014.

How increase works

Under the new rates, a banker making 350,000 would pay 160,000 in income-tax and national-insurance contributions, according to a government online tax calculator. Thats 22,600 more than the current amount and doesnt include the elimination of tax relief on the rst 6,000 of earnings and the reduction of breaks for pension contributions that Darling is also introducing. About 350,000 people in the UK earn more than 150,000 annually, according to the London-based Institute for Fiscal Studies. About 750,000 make more than 100,000, and their taxes will also increase after the government scrapped a personal tax-free allowance. There is a populist side to this message: Lets over-tax the rich, says French-born Philippe Houchois, 45, an analyst in London for Zurich-based UBS AG. The state is encouraging this anger against banks, against the nancial sector. The proposal, part of the 2010 budget, is likely to go ahead after Conservative Party leader David Cameron said on April 24 that

reversing the 50% rate wasnt a priority. About 57% of Britons have a positive view of the plan, a Populus Ltd poll published the same day showed. Populus surveyed 518 adults after the April 22 budget speech. Brown isnt without supporters in the nance industry. We do have a major crisis, says Bill Blain, a bond broker at KNG Securities LLP in London. Taxes do need to rise. People in that bracket do need to pay. Fleeing bankers may nd that taxes are also going up elsewhere. President Barack Obama wants to let the top two US tax brackets increase to 36% and 39.6% from 33% and 35%. The top US rate kicks in at US$372,950 ($557,066).

Lower taxes elsewhere

Countries such as Singapore, where the top rate is 20%, and Switzerland have lower taxes. A single banker living in London and earning 350,000 would pay about 40,000 more under the new system than he would in Zurich, according to UK and Swiss government gures. The move reverses policies dating from former Prime Minister Tony Blairs election in 1997 that rejected income-tax increases and encouraged wealth creation. With the UK facing its worst recession since World War II, Brown, who has trailed in every opinion poll against the opposition Conserva-

tive Party since January 2008, is seeking to tap into popular anger over the nancial crisis. He defended the tax increase, saying on April 23 that the UKs highest earners must pay more to support programmes that help the poor. The City of London Corp, an organisation that oversees the nancial district, KPMG tax advisers and the Centre for Economics and Business Research in London say the governments shift will chase away talent. If they are losing half of their top-end earnings, entrepreneurs, foreign workers and anyone else who can choose where they work are likely to think twice before making the UK their base, says Carolyn Steppler, associate partner in personal tax at KPMG in London. Instant post-budget reaction already indicates that many high earners will be wondering whether to leave these shores. Browns government has also lifted capitalgains taxes, affecting entrepreneurs and privateequity moguls, and ended a programme under which foreigners residing in the UK didnt have to pay tax on overseas earnings. People see a recovery in 2010, and there are other attractive countries, says Efstathiou, the Cypriot hedge-fund trader. I could go to Switzerland, or Cyprus. I could even go to Asia. Staying in Britain, you end up giving the government more than what youre going to E keep. Bloomberg LP

MW4 THEEDGE SINGAPORE

| MAY 4, 2009

COVERSTORY
SAMUEL ISAAC CHUA/THE EDGE SINGAPORE

| BY KANG WAN CHERN |

Stephenson: The biggest challenge faced by companies is that they simply dont know what good governance or strong governance looks like

MARKED TO VALUE
Changes to fair-value accounting rules to tackle volatility have eased mark-to-market measures. But is it open to mark-to-imagination? PricewaterhouseCoopers explains the issues and what investors could expect.

hen Lehman Brothers collapsed in September last year, it wasnt because it didnt have a viable business model. On the contrary, the US-investment bank had expanded its business over the years to include a larger assetmanagement arm and had gained a strong reputation in the bond market. But it suffered severe losses, fed by its weak, real estate-heavy balance sheet. And as the credit crisis unfolded, it faced issues of condence when investors took their assets out of Lehman, it was unable to raise muchneeded capital to offset its losses. While its demise was hotly debated, Lehman found itself in a desperate race to solve the toxic real estate problem amid prevailing fairvalue accounting standards, which required it to write down billions in securitised-asset value. Others who dabbled in complex nancial instruments faced similar

woes. At American International Group (AIG), the insurance giant was forced to write down US$4.88 billion ($7.19 billion) worth of assets in compliance with fair-value accounting requirements. Only an US$85 billion bailout from the government kept it aoat in the end. Essentially, fair-value accounting requires companies to report balance sheet items at current prices instead of historical cost to reect market conditions. As investors sell off mortgage-related securities in droves and as foreclosures soar to record levels, the demand for such assets have tumbled, forcing a reduction or write down in their value on the balance sheets of the banks that hold them. The basis for fair-value is that it gives users of a companys nancial statements more transparency regarding the health of a company, Keith Stephenson, governance, risk & compliance leader for Asia Pacic at

PricewaterhouseCoopers (PwC) tells Management@Work. However, with the market being as volatile as it is, companies could end up incurring more losses than necessary by writing down the value of some assets that could be worth more, a bit later. But by then, it could be too late to revive the losses, he adds. Indeed, whether fair-value accounting has increased transparency or led to questionable valuations is debatable. One of the main shortcomings is that it is difcult to distinguish the results of a company that is arising from operations from those arising from market fair-value changes. Sometimes, a property investment company may turn in sterling results that are not entirely attributable to its operations. The results could have been affected by an overall bullishness derived from buoyant market conditions which have boosted the fair values of investment properties, says Yeoh Oon Jin, Singapore assurance leader of PwC.

Strong governance framework

On April 2, the Financial Accounting Standards Board (FASB) voted to relax fair-value accounting after pressure from US lawmakers and nancial companies including Citigroup and Wells Fargo claimed that the standard was useless while markets were frozen. The approved changes will allow companies to gauge the value of certain investments on their books instead of marking them against the market, which has been more volatile than ever. Economists suggest the move could result in signicant write-ups and boost in earnings. Companies may apply the changes to 1Q2009 results. The added exibility in estimating asset values could help to lubricate the credit markets by encouraging banks to lend normally again. A breakdown in trust between banks was partly based on concerns about whether nancial rms had realistically valued complex and illiquid products sitting

on their balance sheets. On the other hand, relaxed accounting rules could increase the risk of fraud. Inating the value of assets on its balance sheet to boost credit ratings to reect higher income proved to be energy giant Enrons undoing. Yeoh of PwC however, reckons that fraud risks would still be present with mark-to-market accounting standards. I would think that in an environment where companies or individuals are faced with increased pressure to meet performance targets, fraud risks would generally increase, he says. That temptation to manipulate asset valuations has cast the spotlight on corporate governance the customs, policies and processes affecting the way a company is controlled. This includes risk management, internal controls, board balance as well as going concern reporting. Companies are focusing a lot more on corporate governance these days, Stephenson says. In the current

THEEDGE SINGAPORE | MAY 4, 2009 MW5

I would think that in an environment where companies or individuals are faced with increased pressure to meet performance targets, fraud risks would generally increase Yeoh
climate, people are going to be scrutinising annual reports for adequate corporate governance disclosures more than ever. The Singapore Exchange, for example, dedicated almost 60 pages of its FY2008 annual report to the meticulous listing of corporate governance. With the global economy well into its worst post-war recession, the role of corporate governance remains a key factor in the success of company. So, investing in a sound corporate governance structure is important to avoid the damaging repercussions of fraud caused by the lack of proper control. The biggest challenge faced by companies is that they simply dont know what good governance or in this case strong governance looks like, Stephenson explains. From a corporate governance point of view, in areas where signicant judgment, assumptions and estimations are made, the directors, especially the non-executive directors and audit committee members, have to recognise that they have a duty to evaluate them and be comfortable that they are defensible and reasonable, as compared to the business, industry and overall market condition, adds Yeoh. According to the Governance and Transparency Index (GTI), Singapore Telecommunications (SingTel) has the best corporate governance policies in the country. The index ranks 677 Mainboard-listed companies based on their governance standards, nancial transparency and investor relations. The index also revealed that SingTels corporate governance framework included ensuring independence of the board and full disclosure of directors fees. It also put in place a highly qualied audit committee and implements stringent internal control measures. The other four companies with the best governance policies in the survey were SMRT Corp, Keppel Telecommunications and Transport, Singapore Exchange and Keppel Corp.

Demand for accounting services remain strong amid turmoil

They say an accounting rm never runs out of business. Boom or bust, rain or shine, rms need their books audited, taxes have to be paid, and mergers and acquisitions have no seasonality. Meanwhile, corporate-governance and risk-management services have become quite popular. PricewaterhouseCoopers (PwC), one of the worlds largest accounting service rms, has certainly been kept busy by the fallout in nancial markets. As accounting standards are loosened and market volatility persists, investors are increasingly concerned about the accuracy of company annual reports -- the most important source of information they require for decision making. Investors are now demanding greater reliability, more oversight and clear evidence of internal controls. These needs have increased PwCs relevance among companies listed on global bourses. The rm provides a stable of audit and assurance services tailored to private and public businesses in different industries. The services include nancial statement audit, regulatory compliance and Sarbanes-Oxley reporting. PwC also provides a wide range of deal and business advisory services, based on specic client issues. Under deal advisory, it services companies that are about to list on foreign exchanges as well as mergers between companies or structuring deals on behalf of companies about to undergo acquisition. Through its business advisory services arm, PwC aims to help its customers improve their internal risk-management and corporategovernance structures. Knowing what to do when things go wrong is just as important as preventing and detecting any wrongdoing whether by mistake or intent, says Keith Stephenson, an advisory partner from PwC. It is therefore important that the organisation understands its risks, be it strategic or process-related, have a sound control environment, robust internal controls, and be alert to what needs to be done when a fraud occurs and/or when a dispute arises. Proactive organisations need to be able to seize control in such situations and react. The rm also provides tax compliance services and advisory support on complex tax matters including determining the taxes arising from mergers and acquisitions, transfer pricing transactions and international tax. PwC is still hiring senior managers and managers for areas like business development, insurance advisory and regulatory advisory while many other businesses have reduced headcount to slash costs. It has an employee base exceeding 155,000 people in 153 countries. In Singapore, where the rm operates with Hong Kong and China on a combined basis, it has workforce of 13,000. The other three major accounting rms with operations in Singapore are KPMG, Ernst & Young, and Deloitte.

Managing risks
One of the key pillars to a strong corporate governance framework is effective risk management, Stephenson says. Some of the most prominent companies that have led the way in nance and other industries were ill-prepared for unforeseen events including climate change, energy supply volatility, the ongoing credit crunch and even directors remuneration. The payment of US$165 million in bonuses to AIG executives last month caused an international outrage, leading to a pledge by US President Barack Obama to recoup the money paid. A strong corporate governance framework enables a company to be risk resilient so that it can tackle the future with condence, Stephenson says. This means a company will frame its business in risk terms so that it can put the right focus on the right priorities, create the environment to make this happen and ensure the people in the organisation are equipped with the skills they need to make sure that change counts. Indeed, understanding the potential risks to a companys business, including unforeseen events like the swine u scare, is key to survival. The subprime crisis that spiralled into a credit crunch and sparked off a global nancial tsunami is another one of

those damaging unforeseen events. Even Bear Stearns, once famous for its risk-management acumen, was forced to its knees as the rm lugged more toxic real estate debt than it could withstand. Often, post-mortems of crisis and risk management in the wake of such events reveal a lack of preparedness and effective response among organisations. Its important for companies to constantly review their risk-management processes and resource allocation to ensure that risks are identied early and avoided, says Stephenson. Some telltale signs that a companys existing governance could be in need of an overhaul are continued out performance of the market, high staff turnover at senior management

levels, the lack of an internal audit or risk committee and ballooning recoverables, says Stephenson. Apart from managing systemic risks, a proper governance structure can also play a big part in deterring fraud. Last month, Catalist-listed education provider Oriental Century said in a statement that the companys balances of RMB126 million ($27.24 million) reported on the balance sheet as at Dec 31, 2008, were substantially inated and its CEO Wang Yuean had diverted unspecied cash sums to an interested party. Orientals auditors had earlier informed the chief nancial ofcer that it had difculties reconrming the bank balances and expressed concerns over the authenticity of the bank conrmation. The CFO then
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indicated that he had serious doubts about the bank balances. At Fibrechem Technologies, auditors of the chemical bre maker say they encountered difculties nalising the audit of the companys trade receivables and cash balances. Fibrechems CEO James Shang has since resigned from his position. According to the GTI survey results, Oriental and Fibrechem ranked the lowest in terms of corporate governance.

Accounting rms still relevant

While auditors are responsible for determining the level of efciency in the operations of a business and the veracity of its nancial records, Stephenson says there is a limit to the auditors ability to detect fraud. The responsibility lies with the management of the company and the structures in place to prevent them from committing fraudulent acts, he says. If the management intentionally withholds information during an audit, for example, then the auditor cannot be held responsible for any subsequent fraud. Quite often, fraud occurs because there is collusion in an organisation, and that is almost impossible to detect from an audit. It is important to remember that an audit is not a certicate of anti-fraud; it also boils down to the morals of the individuals. Whatever the case, theres no doubt that accounting rms like PwC will remain relevant despite the nancial wreckage, especially after red ags were raised over the accounting irregularities at several S-chips listed on the Mainboard. With his area of expertise increasingly in demand these days, Stephenson has his work cut out for him. When I rst got involved in this line, I thought I could retire quietly after 20 years, says Stephenson. These days, Im standing in front of a board talking about corporate governance E issues half the time.

According to the Governance and Transparency Index, SingTel has the best corporate governance policies in the country

MW6 THEEDGE SINGAPORE

| MAY 4, 2009

managementissues
A sales representative talks to a customer in the at-panel TV section of a Best Buy store in Orem, Utah. Best Buy has 900 US stores and is the nations largest electronics seller.
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Best Buy vs Wal-Mart: Is there room for both, and others?

s this a David versus Goliath battle, or should it be more of a truce in an industry where, rather than one foe slaying the other, there is space for both adversaries to co-exist? With the demise of electronics retailer Circuit City, Best Buy and Wal-Mart Stores are ramping up their struggle to capture added share of the consumer electronics market. Best Buy, the nations largest speciality electronics retailer, is positioning itself as the provider of quality service and sales help to consumers who are often bafed by high-tech merchandise. The company is focusing on more high-end products and new interactive features to differentiate itself from the big-box atmosphere at Wal-Mart. Wal-Mart, the worlds largest retailer, is using its dominance in the global marketplace across all retail categories to position itself as the low-price option in consumer electronics. The chain also has massive reach with consumers. More than 800 million people a year visit a WalMart store to buy everything from groceries to sweatpants and gasoline. In whats seen as an attempt to compete with Best Buy, the chain is adding a new emphasis on electronics, including big-screen TVs and Apple iPods. Wharton faculty and industry analysts say instead of ghting to the death, both stores can co-exist if they follow clearly dened strategies focusing on service and price. The good thing is, the consumer electronics market is big enough that one doesnt have to grow at the expense of the other. They can nd their own space in the marketplace and prosper together, says Wharton marketing professor John Zhang. He and other Wharton faculty predict that Best Buy is likely to gain the biggest share of sales left behind following Circuit Citys liquidation in March. After 60 years in business, the Richmond, Virginia-based retailer, which peaked with 700 stores and sales of roughly US$10 billion ($14.9 billion), became a casualty of the current recession and competition from Best Buy, Wal-Mart and others. Best Buy, which announced surprisingly strong full-year sales of US$45 billion in March, has 900 US stores and is the nations largest electronics seller, according to market research rm NPD. Wal-Mart, with total sales of more

than US$400 billion, does not release gures for individual categories, but NPD estimates that last year it was second to Best Buy in consumer electronics sales, followed by Dell, Circuit City and Apple. Wharton marketing professor David Reibstein suggests that the key to Best Buys strategy is offering customers knowledgeable service from a youthful, somewhat geeky sales force identied by their bright blue shirts. He imagines how a consumer confused about whether to buy an LCD or plasma screen TV would approach the purchase: Would I go to Wal-Mart or Best Buy? The answer no doubt about it is Best Buy. Best Buy has the personnel who [can] help advise me. Some customers, he says, may have the product knowledge to feel condent about buying electronics off the shelf at Wal-Mart. But, for those who do not buy new electronics frequently, the purchase is viewed as expensive and risky. Its critical to get the right item; for [those people], it turns out that Best Buy is the only real option, says Reibstein. Another key element of Best Buys strategy is that it will install some of todays more complex electronics systems. For the person who is risk-averse, the depth of knowledge and the Geek Squad format at Best Buy is a really important component. Jagmohan S Raju, another Wharton marketing professor, points out that Best Buy warranties are another way to comfort nervous buyers, although he says consumers generally pay more for that protection than the risk of a product failure justies. In an interview with The Wall Street Journal on March 16, Best Buys incoming CEO, Brian Dunn, who started there as a salesman, said the key to his companys success will be engaging the customer. We want our stores to morph into a series of experiences. To do that, you have to go where the rubber meets the road, the sales oor.

Advantage, Wal-Mart
Wal-Marts strong suit is its highly efcient operations and supply-chain systems, along with an extraordinary customer reach that allows the mass merchandiser to compete effectively in nearly every retail category.

Zhang notes that an emphasis on service over price led to the demise of Tweeter, the high-end electronics retailer whose 94 stores closed in December. Tweeter lost ground to Best Buy because, Zhang says, electronics technology tends to become commoditised over time, and consumers were unwilling to pay a premium for Tweeter. The same dynamic could work against Best Buy in its bid to compete with Wal-Mart. For a consumer buying a new TV set, the big issue is simply size, not the differences in technology that are hard to detect to the untrained eye, Zhang adds. Given that most of the technology is more or less standardised, people will look for price. In that case, WalMarts scale and its ability to negotiate sharp prices from its vendors will allow it to pass along substantial savings to shoppers. If I were Best Buy, I would be a little bit scared, given that Wal-Mart is moving in a big way into consumer electronics. Wal-Mart has the scale and a huge customer base. The consumer electronics market is uid, with consumers typically visiting two or three stores before making a purchase, according to Zhang. As a result, price becomes a key consideration. Even though Wal-Marts price is not always lowest, Zhang notes, most consumers perceive that to be the case, thereby making Wal-Mart the choice for price-conscious consumers, particularly during the current economic downturn. To compete against Wal-Mart, Zhang advises Best Buy to provide a different product mix than its discount competitor. For example, Best Buy could develop multiple versions of products with manufacturers that are just slightly different; in that way, their model numbers could not be directly compared with those at Wal-Mart by shoppers online. Meanwhile, he notes, Wal-Mart carries considerable sway with manufacturers because it can offer oor space for myriad products. For example, Wal-Mart can offer space to LG for consumer electronics, but also many models of LGs home appliances and computers. As leverage, Wal-Mart can say, I will let you sell other products if you give me a better deal on the electronics. Best Buy should try to avoid the common

retailing mistake of making its stores totally uniform, says Zhang. In addition, he suggests, Best Buy should make the most of its low-price guarantee, which provides peace of mind to consumers most concerned with price. At the same time, the guarantee would not have a major impact on margins because, in practice, only about 15% of shoppers actually make an effort to nd a lower price elsewhere. Wal-Mart, for its part, could become even stronger if it began to develop better relationships with customers, says Zhang. The company falls short in developing these connections because it does not emphasise loyalty programmes. For example, Wal-Mart could offer points for purchases of groceries and other necessities that could then be put towards big-ticket consumer electronics. Wal-Mart has a lot of touch points with the consumer and could leverage the other products in the store, says Zhang.

Buying from the Blue Shirts

Raju also points out that the fate of all electronics retailers is often tied to the product-development cycle in the industry. Best Buy, he says, rose to its current position largely on sales of the DVD player which, in its early days, was a breakthrough product that initially cost up to US$800. Now, they are banking on wide-screen TVs. They rely on innovation from the industry, [which brings] people into their stores. Thats what makes their business thrive. According to Wharton faculty, GPS systems are a current business driver, while low-priced, lightweight netbooks and reading devices, similar to the Kindle, are potential big sellers in the future. David Schick, a managing director at Stifel Nicolaus Equity Research, who follows Best Buy, says the last major product at-panel TVs will continue to become commoditised through 2010. He predicts the next revolutionary technology will be 3DTV, which is still about ve years away. Schick points out that while Best Buy and Wal-Mart are the leaders in consumer electronics retailing, Target, Costco, BJs Wholesale and online retailer Amazon are also competitors in the consumer electronics market. The truth is, the bulk of retail is outside the channel. E Knowledge@Wharton

THEEDGE SINGAPORE | MAY 4, 2009 MW7

readinglist

| BY JAMES PRESSLEY |

Jim Rogers bares secrets of investing

im Rogers has three hot tips for investors: Question everything, never follow the crowd, and beware of boys! Rogers is the bow-tied adventure capitalist who co-founded Quantum Fund with George Soros. He made enough money to retire at 37, then toured the globe on a motorcycle. Now 66, Rogers is exploring the uncharted territory of fatherhood for the rst time. In A Gift to My Children, he distills the lessons of his investing life into an open letter to his daughters Happy (born in 2003) and Baby Bee (who joined the family last year). The result is a zippy if uneven booklet of fatherly advice from a man who long scoffed at parenthood. The oldest of ve boys, Rogers spent a lot of time looking after his siblings and saw what a burden it was, he says. He only changed his mind about kids, it seems, after meeting a Southern belle named Paige Parker and taking her on another jaunt around the globe, this time in a four-wheel-drive Mercedes-Benz. Funny how a young bride can change a guy. Rogerss helpful hints on how to lead a rich life in both senses of the adjective run from the predictable (be true to yourself) to the passionate (go see the world!) to the downright goofy (use the toilet before setting out on a long drive). The diaper set does make you focus on human plumbing. Underpinning these sometimes corny pointers is the straight talk of a man who grew up in rural Alabama, made his rst money collecting empty soda bottles at a local baseball eld and emerged from Yale and Oxford with his folksy demeanour intact.

travel exploits or specic investing advice, though he throws in snatches of both. He recalls trips through war zones in Angola and Sudan, the time he was served snake for dinner (butchered before his eyes, yuck), and the day he bought a diamond from smugglers in Namibia. They said it was worth US$70,000; he haggled the price down to US$500. The gem turned out to be a glass bead. So much for all the years he has advised people to invest only in what they know, he says. Much of Rogers advice will be familiar to anyone who wants to get ahead. Be a self-starter, think for yourself and pursue something youre passionate about. Do your own research and pay attention to details, however trivial they seem. This sounds easy, but isnt. His idea of due diligence involves reading every nancial statement a company publishes, including the notes. Next step: Verify the statements. Talk to customers, suppliers, competitors and anyone else who might affect the company, he says.

Cold beer
His plans for his daughters are so ambitious that Im not sure whether to envy or pity them. They should learn philosophy, history and languages yet temper this education with travel aimed at seeing how different people live. Rogers has already started their education by moving his family to Singapore, where a Chinese governess talks to the girls in Mandarin. About the only Chinese he knows is cold beer, he jokes. Travel guides your investments, he says: His time in Russia, for example, has convinced him that an investor can prot there only if hes in cahoots with the criminal element. This is one reason hes so bullish on commodities. There is simply no way that we can expect an increased
Jim Rogers. A Gift to My Children: A Fathers Lessons for Life and Investing. Random House in the US. 85 pages. Wiley in Europe. 112 pages

Snakes and diamonds

Unlike Rogerss previous books, this volume doesnt dwell on his

supply of raw materials from there anytime soon, he writes. Much of his advice will resonate with parents. His daughters shouldnt get married until they are at least 28 and should avoid having drinks let alone dinner alone with the boss. They should also heed this sound principle for dealing with boys: They need you more than you need them. E As a father, I couldnt agree more. Bloomberg LP

Tale of a rainmaker
Being a paperboy is a tough job. But as young New Englander Rain discovered, it is also a good job that allows one to learn the essence of running a business. Indeed, many prominent business gures from Warren Buffet to General Electrics CEO Jack Welch once peddled newspapers during their teens. With some guidance and insights from his father who pointed him to the job, Rain impresses his future boss Mr DMichaels at The Gazette during the job interview by doing some extra-credit preparation. By asking what his neighbours want in a newspaper delivery service, Rain was able to explain the aws and propose remedies to improve efciency while presenting his employer with a new business opportunity. Along the way, he grasps the ABCs of how to create an exit strategy, valuation, negotiation and innovation all of which are the fundamentals to conducting a successful business. Jeffrey J Fox. Rain: What a Paperboy Learned About Business. John Wiley & Sons (Asia) Pte Ltd. 194 pages.

Behavioural economics
Why do people buy stocks before Christmas? Why does Mars prefer to buy stocks and Venus bonds? Do homeowners change residence less often than renters? In this book, more than 50 psychological experiments are conducted by scientists to illustrate how investment decisions are often inuenced by gender differences and various market environments. For instance, a bias towards locality can lead someone to purchase stocks of a particular company in the area he frequents. Young people prefer to buy GAP stocks while older folks would rather scoop up shares of Herms due to bias on familiarity. At times, personal characteristics and education can also impact our nancial decisions. Mickael Mangot. 50 Psychological Experiments for Investors. John Wiley
& Sons (Asia) Pte Ltd. 139 pages.

Tracking the Asian footprint

For an executive to function and succeed in a new industry, one must be able to generalise past experiences and transfer them into the new context. The ability to extract knowledge and perspective to tackle new problems in different situations involves conceptualisation skills. In such instances, analytical skills are not enough. Many managers often nd it difcult to make decisions within new environmental contexts. In East Asia, however, companies often successfully diversify into new businesses. Hong Kong tycoon Li Ka-Shing, for example, has successfully diversied from a plastic-owermaking business in the 1960s into a multi-billion property empire. Successful overseas Chinese executives are often able to see the big picture and intuitively differentiate the winners from the losers. The above conclusions and more are drawn from a series of in-depth interviews conducted by the authors with elusive overseas Chinese CEOs including Stephen Riady, Victor Fung and Li. As readers glean information on how and why overseas Chinese were able to gain business dominance in the region despite the rumbles of the Asian nancial crisis and SARS, the book also examines the role of Asian business leaders and their management practices in the wake of the global nancial meltdown. George T Haley, Usha C V Haley and Chin Tiong Tan. New Asian Emperors: The Business Strategies of The Overseas Chinese. John Wiley & Sons
(Asia) Pte Ltd. 243 pages.

Value investments in water infrastructure

Driven by a substantial increase in its value, the water industry is already the third-largest business in the world after electricity generation and oil and gas production activities. Author Steve Hoffman is one of the rst investors to recognise the commercial value of water. He reveals the long-term investment opportunities behind the water business and how investors could prot from it. Although some of the topics on the types of water treatment processes and equipment are written with a technical slant, Hoffman tosses up some interesting views on whether water stocks should be regarded as an asset class and if this scarce resource that we consume everyday would ever be analogous to oil. Steve Hoffman. Planet Water: Investing in the Worlds Most Valuable Resource. John Wiley & Sons (Asia) Pte Ltd. 352 pages.

MW8 THEEDGE SINGAPORE

| MAY 4, 2009

T oos toys
for the manager
Wear your mobile music
Sony Singapore expands its Walkman collection with the new Walkman W series MP3 player, NWZ-W202. Introducing a revolutionary wearable style, the new W series boasts a wireless headphone design with music playback capability, setting consumers free from tangled wires and allowing them to enjoy their music in a fresh new way. Available in ve striking colours, the compact, foldable W series is trendy and portable for everyday use. Users who enjoy listening to music while exercising or engaging in an active lifestyle will nd the W series indispensable. It also offers innovative features such as ZAPPINTM navigation, which plays just the main chorus of each song in the music library. This feature allows users to scan their playlists for the desired song by simply listening, without having to view a display screen to navigate through tracks.

New smart handhelds

The smart handheld devices by Acer the F900 and the M900 are now available in Singapore. Developed to give total control over web browsing on the go, the F900 has a new easy-to-use touch keyboard and can display more information on-screen to offer a superior browsing experience. For those who need access to email and les at all times, the M900 allows access to all contacts and les through synchronisation with a notebook or desktop computer. An embedded biometric ngerprint sensor secures the device and simplies password maintenance.

Smaller desktops for lower cost

Lenovos new ThinkCentre A58 aims to bring small- to medium-sized business customers secure and affordable desktop technology in a new design, while the ThinkCentre M58e provides the technologies and green features that mid-market and large companies need to stay productive and efcient. The new desktops provide the security businesses require, along with features such as a ngerprint reader on optional Lenovo keyboards for easy password management, input and output port disablement to help protect against external threats, and a chassis intrusion switch to help detect tampering.

An enhanced home entertainment experience

The new BD370 Blu-ray player by LG Electronics brings favourite Internet contents directly into the living room. It supports BD Live, which enables users to connect to the Internet and download movie trailers, subtitles and other useful data. BD Live will also enable users to stream online media from YouTube with high-speed Internet access and also enjoy multi-player interactive games and quizzes. Apart from its enhanced online capabilities, the LG BD370 also delivers stunning images with deep and vivid colour, thanks to its HDMI 1.3 connections. This helps ensure that curves are smooth, details are sharp and colours are free from banding.

internettime

| BY OON YEOH |

Who dares, wins on Facebook

ately, Ive been writing about ways people can do business networking via social media outlets like Facebook and Twitter. Ive also written about how companies can leverage these networks to do branding, promotion and marketing. For illustration purposes, I used my own experience as examples (that is, how I do business networking and incorporated social media into theedgemalaysia.com website). This week, I can tell you about how one company in Malaysia uses Facebook to great effect in promoting brand awareness. The company involved is SAS. If the first thought that comes to mind is Scandinavian Airlines, then you can appreciate the challenges facing Jeanisha Wan, marketing manager at this business intelligence software and predictive analytics company. Business intelligence involves traditional querying and reporting while predictive analytics help companies make proactive, forward-looking decisions. This is so they can go beyond asking what happened? to what next? SAS is the market leader globally

and locally (34% market share in Malaysia, according to IDC last year) for this sector. It has 52 offices around the world. Its clients in Malaysia include most of the local banks, big retailers like Parkson and Tesco, government ministries (finance, and ministry of science, technology and innovation), various hospitals and the local leading telco, Maxis. Yet, few people have heard of SAS (the software company, not the airline). So, the company last year decided to run some online ads on the websites of The Star and the New Straits Times. As a personal experiment, Wan posted on her Facebook status message a teaser for an ad, which contained a picture of a rabbit. Jeanisha wonders if anyone can see the bunny at thestar.com.my was the simple message she posted. The results were amazing, she says. We found that people were curious enough to want to know whether they could see the mysterious bunny on The Star and NST homepages. Via Google Analytics, we were able to trace that the person went from the

link on Facebook to the bunny advert on the respective newspapers sites, then to SASs homepage! That was when Wan first got a glimpse of the power of tapping her own social network. She then decided to take it a step further and tap the social network of her colleagues as well. She came up with an unorthodox marketing and branding campaign that involved no advertising at all. We launched an online quiz on human aspects of analytics and asked all the staff to post teasers on their Facebook statuses, she says. Participation was, of course, voluntary but to motivate them, a prize was set aside for the staff who got the highest number of friends to take the quiz. All in, about half the 100 or so staff members took part in this programme. The number of click-throughs generated by the Facebook initiative was slightly over 1,000. Given that the paid ads in The Star and NST generated about 1,800 and 1,900 respectively, the free Facebook campaign is a big success.

Whats great is that the staff were all excited about being involved in helping to promote the companys brand in a fun and unusual way, says Wan. And we even got one of our clients involved, as they donated the prize.

Objectives
External branding to man on the street; Raise mindshare of SAS as a brand name; and Top-of-mind recall: Equate SAS with business analytics.

Benets of this approach

Low-cost campaign; Garner participation from staff and even clients; and Ability to target staffs peers outside the company.

Methodology
Post online quiz on SAS website; Get staff to promote quiz on their Facebook (or Twitter, which Wan has just started using); and Track click-throughs to measure effectiveness.

The marketing experiment generated so much buzz that it caught the attention of the HQ and a case study based on it will be presented as a best practice in this years SAS Global Online Marketing Summit in Heidelberg, Germany in June. This is what the companys global online marketing manager wrote to Wan: This is by far the best practice among all offices this year. And experience shows that the summit is only the beginning; the most successful and repeatable best practices will usually also be featured at other marketing manager meetings thus providing you with even more visibility than you already have. When looking at Wans unorthodox marketing experiment, I cant help but think of the motto of another SAS (Britains Special Air Service) E Who Dares Wins. Oon Yeoh is editor for new media at The Edge Malaysia. His new-media musings can be found at ftwmedia. wordpress.com.