February 2009 Archives

Fiasco author Thomas E. Ricks is gaining positive media reviews for his new book The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006-2008 (Penguin Press, New York, 2009). The Washington Post has published excerpts; NYT and LA Times have reviews here and here. Ricks joins my list of journalists and open source intelligence researchers who are exem

The reviews suggest Ricks has uncovered lots of rich insights from his reportage on how Petraeus changed US counterinsurgency doctrines in Iraq and Afghanistan, and its policy framework in the Bush administration. Petraeus was informed about Vietnam's counterinsurgency lessons through his PhD studies at Princeton, completed in 1987. He also chose several foreign-born advisors with subject matter expertise such as Australian Lt. Col. David Kilcullen. Finally, Petraeus cultivated several allies in military and policy circles who led a counter-response to convince the Bush administration to re-evaluate its policies. American Enterprise Institute resident scholar Frederick W. Kagan was a prominent warrior-scholar in the successful counter-response. So, timing, an institutional track record, a team of advisor-experts and coordination with co-journeyers was vital to Petraeus's successful case for policy and doctrine change.
The global financial crisis has refocused commentators on the life of intellectual/vipra John Maynard Keynes. Hedge fund manager Barton Biggs devotes the closing chapter of a recent book to Keynes' aesthetics, investment style and economic influence. Ex-World Bank investment manager Liaquat Ahamed zeroes in on how Keynes became so influential in the first chapter of his new book Lords of Finance: The Bankers Who Broke The World (Penguin Press, New York, 2009):

As I began writing of these four central bankers and the role each played in setting the world on the path toward the Great Depression, another figure kept appearing, almost intruding into the scene: John Maynard Keynes, the greatest economist of his generation, though only thirty-six when he first appears in 1919. During every act of the drama so painfully being played out, he refused to keep quiet, insisting on at least one monologue even if it was from offstage. Unlike the others, he was not a decision maker. In those years, he was simply an independent observer, a commentator. But at every twist and turn of the plot, there he was holding forth from the wings, with his irreverent and playful wit, his luminous and constantly questioning intellect, and above all his remarkable ability to be right.

Keynes proved to be a useful counterpoint to the other four in the story that follows. They were all great lords of finance, standard-bearers of an orthodoxy that seemed to imprison them. By contrast, Keynes was a gadfly, a Cambridge don, a self-made millionaire, a publisher, journalist, and best-selling author who was breaking free from the paralyzing consensus that would lead to such disaster. Though only a decade younger than the four grandees, he might have been born into an entirely different generation.

Ahamed offers several lessons here on self-mastery strategies for intellectuals/vipra who desire to influence the objective universe. Keynes mastered a repertoire of roles which developed his intellectual strengths through a boostrap process. Although an establishment outsider, Keynes influenced the frames and contexts of economic decision-makers and political leaders, and in doing so, created the Keynesian school of economics.

Keynes used luck, timing and dramatic situational contexts such as the Treaty of Versailles negotiations in 1919 and the Great Depression in 1929-33 to protest against the establishment, create a reputation for asking difficult questions, and to envision solutions. Through each of these exogenous shocks he used his repertoire to gain influence and public notoriety, despite financial and health setbacks. From his initial antinomian commentary, Keynes' scale and scope of his solution design expanded to its zenith: the co-design of the Bretton Woods system for international fixed exchange rate and monetary policy management, which lasted from 1944 to the Nixon Shock in 1971.

For consultants and foresight practitioners who wish to cast their influence into the world, Keynes' career path and strategies illustrates one model of how to achieve this.
Social-democrat economist John Quiggin fires an interesting salvo in the journalist-blogger debate: ethics and journalistic practices are perhaps the key distinction between the two.

Watching the hostility between 'old media' journalists and some Web 2.0 bloggers is often like watching Muzafer Sherif's Robbers Cave experiment. For bloggers, traditional journalists are constrained by objectivity, news values and institutional power, and traffic in biased op-ed columns and lightly rewritten corporate press releases. For journalists, bloggers don't understand the norms and practices of the craft, don't navigate the institutional shadow network, and vary greatly in the quality of their analytical insights. The two clashing stereotypes fuel a circular debate, which like Sherif's experiment, may only change when a frame-changing exogenous threat is introduced.

For me, Quiggin makes three key points: (1) journalists have a socially recognised role to "pick up the phone" and talk to strangers; (2) journalists may select material from their interviews into a story and do not have to report everything; and (3) journalists have "a formal code of ethics and a set of informal conventions" to do this whilst bloggers do not. In doing so, I believe Quiggin adopts a middleground position similar to Terry Flew, Barry Saunders, Jason Wilson (from their YouDecide2007 project) and my own thoughts on citizen journalism, with some new insights.

My personal experience of Quiggin's first point is that their role can empower journalists with Freedom to talk with anyone, and to view a situation through different, iterative stances. As I discovered during a 1994 student journalism stint and 1995 coverage of Noam Chomsky's Australian lecture tour, this is a great shock: in the right situation, people can tell you anything, and you can also become a a participant-observer who is now inside the unfolding events. It's a little like Jim Carrey's character in the romantic comedy film Yes Man (2008): you 'forget' the self-limitations of yourself and act beyond normal social conventions.  As Quiggin observes, few people can ask questions of strangers and expect to get revelatory answers.

This approach reaches its zenith in New Journalism as a methodology and repertoire of practices in three ways. First, the journalist may create the "story" through a catalytic, influential effect on the external environment. Second, the journalist can become part of the "story" through capturing their subjective consciousness, and trying to capture a similar stance from the other participants through internal dialogue, scene reconstructions and other techniques. Third, the journalist has more freedom in convention, methodology and practice, such as using fiction techniques in a non-fiction profile. At its core, New Journalism fuses autoethnography, anthropology and acting, which are facets that a blog publishing system might not capture.

Quiggin's second observation is a major flashpoint in the debate: how journalists hone a story and select the facts to report. Bloggers turn to critical media studies for many of their arguments: objective news values, op-ed columnists and other biased sources, institutional forces, and a conservative implementation of web publishing capabilities. In turn, journalists point to the chatter/noise factor in blogs: they may be alternatives to op-ed columnists and newswire press releases yet do not yet replace areas that are resource-heavy and have mature practices, notably investigative journalism. Bloggers counterargue they have more freedom to use nonlinear narrative styles and to publish the raw sources. Perhaps one of the lessons from YouDecide2007 and AssignmentZero was that the editorial decision process to hone and select material is more nuanced in practice than Twitter's role as a first responder in disasters and emergencies.

How do journalists navigate such decision processes? Journalists have discipline-based norms, practices and ethics as barometers. This acts as a check and balance within newsroom culture and its role only becomes clear in a go/no-go decision where the editor has to weigh up the competing interests of different stakeholders and the potential outcomes of publication. In contrast, many bloggers appear to be driven by normative-based anchors (Web 2.0 compared with institutional journalism) and commons-based advocacy (education, sustainability, future generations). But belief alone in noosphere politics and networks may not be enough to surmount the different manifestations of power. If bloggers want to influence the objective universe they can learn much from journalist ethics and strategic nonviolence.

Wikinvest

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Parker Conrad and Michael Sha launched Wikinvest in 2006 to gather user-generated security analysis. The project collates wiki profiles on investment concepts, fundamental analysis of companies and technical analysis of market price movements. It also appeals to MBA students with sections on personal investing, investment concepts and funds management. Conrad and Sha have graduated from Harvard dorm day traders to Web 2.0 knowledge entrepreneurs.

Claire Cain Miller's New York Times profile makes the obligatory link with Wikipedia, the online encyclopedia. Conrad and Sha go into some detail of their verification process for data and public sources. Actually, the wiki has some specific applications for the pooling or crowdsourcing of investor insights. Sell-side analysts in the research departments of investment banks can have dual allegiances if the underwriting departments incentivise their research products to drive sales revenues. The best will gravitate to portfolio managers, dynamic asset allocation and hedge funds that use event/risk arbitrage and short-sell strategies. An investor wiki could provide a counterbalance to these influences through a broader snapshot of investor sentiment, and strategies to delimit analyst biases and groupthink. A side-effect however is that investor views are more likely to converge to a mean, and the market efficiencies may thwart value investing strategies that require information asymmetries.

In fact, the Wikipedia analogy has some limitations because analysts, traders and portfolio managers all structure and use market information in different ways to online encyclopedias. This was one of wiki creator Ward Cunningham's insights when he devised the Portland Patterns Repository in 1995: the value of a repository to capture domain knowledge and processes, and to codify them from tacit to explicit form using a methodology such as design patterns or object oriented programming structures. If it stays within Wikimedia's online encyclopedia model then Wikinvest will be suited to fundamental analysis and introductory investing topics. However, it could evolve into a different form if it adopts insights from behavioural finance and tactical asset allocation into the wiki process. These areas augment Cunningham's original schema with strategies to deal explicitly with how information quality and source selection can affect investor decisions, judgment and verification. Even these vary depending on the end-user, their self-awareness, the intended contexts of use, and what potential outcomes may occur (a normative stance on the superiority of user-generated content over 'traditional' media is not sufficient alone to address the concerns that these processes are meant to anticipate and solve). The pressure to change and evolve may come from sell-side brokerages which now use Wikinvest as a cost-efficient data source for market commentaries. Alternatively, it may come from Wikinvest's end-users as the wiki gains more public prominence, and attracts a range of investor styles with knowledge of asset classes, inter-market volatilities and global dynamics. If this occurs then Wikinvest and other wikis could have a pivotal role in the democratisation of finance beyond London, New York and Chicago.

Just don't be surprised if Icahn Reports maven Carl Icahn (video) launches a wiki raid.
Hollywood recently honoured Steven Spielberg with a two-hour retrospective on his 40-year career as a film director and producer. FT's Matthew Garrahan reports however that the celebrations may be shortlived: Spielberg cannot raise debt capital for his independent film company DreamWorks after talks failed with HBO and NBC Universal.

DreamWorks has endured a difficult 14-year history. Spielberg co-founded the film studio as DreamWorks SKG in 1994 with music mogul David Geffen and Jeffrey Katzenberg who had just left Disney after a high-profile battle with Michael Eisner. Spielberg envisioned DreamWorks SKG as a 21st century successor to United Artists whilst Geffen and Katzenberg wanted their independence from the Hollywood establishment. However since 2004 the trio have rolled back their original vision and relied instead on the divestiture of the DreamWorks Animation division and distribution deals. They sold the studio to Viacom in 2005 partly because Geffen wanted an exit strategy from a daily operations role. Spielberg announced a $US1.5bn deal for independent films in September 2008 with India's Reliance ADA Group which specialised in Bollywood films. The announcement was a world is flat moment worthy of Thomas Friedman: would India invade Hollywood as Japan's Sony had done with its acquisitions of CBS Records (1987) and Columbia Pictures Entertainment (1989)? But as Garrahan notes, Reliance ADA Group's funding of Spielberg's independent vision was contingent on debt finance and distribution deals from other funding sources, which have now ended the negotiations.

There are several reasons for this outcome apart from the global financial crisis. Just before he announced the Reliance ADA Group deal industry analysts suggested that Spielberg had priced himself out of the United States market. Jeffrey Katzenberg's attention is elsewhere: a charm offensive to raise the investor profile of DreamWorks Animation and its 3D releases. NBC Universal, HBO and other funding sources have their own reasons to be wary of DreamWorks: the fledgling studio was too early on digital television in the dotcom era, Geffen and Katzenberg adopted hardball negotiation tactics on earlier distribution deals which make a repeat game difficult. The ancillary and complementary markets in cable television, DVD and Blu-Ray sales face a volatile near-term future. Collectively, these factors may weaken Spielberg's negotiation stance as the global financial crisis closes off other funding sources.

To have different negotiation options Spielberg may need to alter his game plan and overcome two barriers.

First, DreamWorks never developed the economies of scale and leverage to achieve Spielberg's strategic vision as an independent studio. It overestimated demand for its Shrek and Transformers franchises and made money instead on mid-level romantic comedies and animation films. DreamWorks faced firm-specific risks from distribution partners which it hedged using ancillary and complementary markets to control revenue forecasts. Instead of the prohibitive cost structures of a studio Spielberg could model an independent DreamWorks on a smaller vision: Francis Ford Coppola's Zoetrope and Harvey Weinstein's Weinstein Company.

Second, Spielberg could look at other options to raise capital. He could follow David Bowie's example of asset-based Bowie Bonds and underwrite the films through commercial bonds on the future revenues of individual films or a production slate portfolio. Commercial paper may be an option as the global finance crisis recedes. A far more disruptive strategy would be if Spielberg adopted a microfinance model that would enable a broader range of investors to participate than the traditional debt and equity markets. DreamWorks' legacy would then surpass the Hollywood studio system to encompass the bottom billion's dreams of financial independence.

J6M Returns

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At the nadir of the 2000-01 dotcom crash I worked for an Internet news portal that a high-profile US interactive consulting firm had acquired. As the stock price dramatically plummeted the firm's employees apparently left irate messages on the CEO's mobile phone and debated the merits of an (in)famous investor conference call. After a deathwatch period the ex-CEO formed a holding company, hit the university lecture circuit, launched a new company, and is now an inhouse entrepreneur at a venture capital fund. The company was Razorfish, the CEO/entrepreneur is Jeff Dachis, who now works with Austin Ventures.

Jo Johnson's Financial Times interview with Jean-Marie Messier (aka J6M) the fallen ex-CEO of French entertainment conglomerate Vivendi SA (Google Finance stock price) prompted me to follow Dachis's Twitter page. Dachis and J6M offer many lessons on how smart executives can make mistakes, survive the deathwatch period, and fire back. Both faced learning/experience curves as young, ambitious CEOs and grew their global footprint through acquisitions of smaller firms. Both gambled on bold Web 1.0 visions of digital ecosystems in which the acquisitions promised deal synergies. When the gambles failed they became media targets for value destruction which made the deal synergies a mirage: Johnson and Le Monde journalist Martine Orange pilloried J6M in their book The Man Who Tried to Buy the World (Portfolio, New York, 2003).  Just over five years later, J6M is frank with his former nemesis on his survival instinct: "The real motivation is to be alive, to restart, to kick yourself and stand up again."

Johnson believes many of J6M's decisions are gambits to resurrect his reputation on his own terms. He's reached out to financial media journalists who took him to task for Vivendi's hypergrowth. He's a longtime confidante and advisor to French president Niolas Sarkozy. He's joined George Soros, Paul Krugman, Robert Shiller and many others in writing a book on the global financial crisis. But perhaps J6M's smartest move like Dachis was to leverage his core skillset to create value, in a more favourable setting without the pressure of being a public company CEO. J6M founded Messier Partners in 2002 as a 20-person investment advisory boutique with offices in New York, Paris and London that provides cross-border M&A, divestitures and capital raising services (Forbes & International Herald Tribune coverage). Like many boutiques it leverages Messier's name, personal network and a cadre of young analysts whilst keeping a low profile: when I checked, the firm doesn't have a current public website for its Internet domain name and its Internet Archive cache returns errors. You'll have to settle for the boutique's LinkedIn page, BusinessWeek profile and Jobs-Salary.com data.

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