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Yale Insights

Articles from the Yale School of Management Insights

Why Leaders Need to Care about Diversity

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Video of Eileen Murray, Bridgewater

The numbers tell the story of the challenge. While 90% of financial services firms claim to value diversity, “women still represent fewer than one in five positions in the financial-services C-suite,” according to a survey by McKinsey. The New York Times reported that “less than 10% of United States portfolio managers at mutual funds and exchange-traded funds are women.” A study by Oliver Wyman said that if trends continue, women will reach 30% of executive committees in financial services…by 2048. 

Eileen Murray, co-CEO of Bridgewater Associates, has watched the slow evolution of the industry over the course of her career, and says, “I know where we are. I know our reality. Now how do we change that and make the reality something that we’d all be proud of?”

Murray argues that it is essential for the most senior leaders in a firm to make diversity a priority. “If top leaders don’t make it a priority, it won’t get the kind of action and traction it needs,” she says. “The leaders need to be there through innovative change, in my opinion, to basically work through the challenges and difficulties.”

And those leaders need to think hard about how to weave diversity into the strategy of the firm and the incentives of all its employees. “Start to remunerate them for it. If you incentivize people, they figure out a way to get through obstacles. They figure out a way to get what seems impossible done,” says Murray.

Murray spoke with Yale Insights about the benefits that accrue to organizations that can support true diversity.

Q: You’ve made it a priority to address diversity and inclusion at Bridgewater. Could you tell me a little bit about why it’s an important issue for you?

When I first graduated in 1980, I think 0.5% of senior executives in financial services were women. And at the time, I thought, “Oh, that’ll be easy to fix. In 10 years, 15 years we’ll be at 50%.” We’re at 17% today, and I don’t know whether to cry or do the happy dance. It’s great progress, but it really isn’t enough.

I grew up in a housing project. There were people from all over the place—Cuba, Tanzania, Italy, Greece. I feel fortunate to have been around that much diversity. But at the time I didn’t realize that it was unusual to experience the cooking, dance, music, weddings, and funerals of so many different cultures. I attribute a lot of my own personal success to ensuring that I’m around people who think differently from me.

When I started working, quite candidly, I didn’t understand, initially, that diversity was an issue or that inclusion was an issue. As I became more senior, I thought, “My God, what a terrible way to lose so much richness in thinking.” Back in the late ’80s and early ’90s, there were concerns about whether you can make the business case for diversity. Fortunately, today we’re past that.

I’m focused on diversity now, first and foremost, because it’s right that people get equal opportunities based upon capability, not upon the color of their skin or their gender or what religion they practice or anything else. 

Secondly, I think as a business matter the value of diversity has been proven. Studies have demonstrated that diverse populations produce much more innovation and much more change. In this fast-paced technological age that we live in, how important is that?

So, when I step back and say, “If that’s true, why are these statistics what they are?” it’s disappointing. I’m disappointed in where we are at Bridgewater. I’m disappointed in where we are in financial services. I’m disappointed in where we are, period, full stop. We have to continue to work on ways to get people to open their minds to the value of diversity. 

Q: What are some of the factors that make it hard to increase diversity?

Initially, there wasn’t a business case for diversity. Early on in my career people would look at women and worry that they would get off the career path if they had kids, as opposed to looking at the rich experience they could bring back from time away.

For example, in 1985 three of the people on my team worked from home. I got a call from HR, and they said this isn’t our policy. I said, “I’m sorry, but you better make it the policy, because otherwise I don’t know how we’re going to get the work done.”

The obstacles were the status quo: This isn’t how things are done. The challenge was really getting people to open their minds and recognize their unconscious biases. We all have unconscious biases. People who are highly educated and very intelligent, like the people I’m very fortunate to work with, don’t always feel comfortable acknowledging them. 

Understanding what the unconscious biases are and their negative impact on our businesses and our society has been an obstacle. I see a lot of change happening in that regard.

Q: Based on your anecdote from 1985, it sounds like there’s a need for people in leadership positions to take a stand for changing the status quo.

In 1985 I wasn’t in a big leadership position, but enough of one to have done something on a very small scale. In my career, I’ve done a lot of things where, instead of asking for permission, I’ve asked for forgiveness. I think innovation requires that.

For larger-scale change, senior people have to make it a priority. At Bridgewater, diversity is a very big priority for me and for David McCormick, my co-CEO. When I was at Morgan Stanley, it was a huge objective for John Mack. If top leaders don’t make it a priority, it won’t get the kind of action and traction it needs.

A lot of people think the leader does the strategy and everybody else does the doing. The leaders need to be there through innovative change, in my opinion, to basically work through the challenges and difficulties.

I also believe it’s really important to make people accountable and responsible for the long-term, strategic initiative of diversity. Start to remunerate them for it. If you incentivize people, they figure out a way to get through obstacles. They figure out a way to get what seems impossible done. 

Leaders, if they want to have the best talent on the globe, are going to have to deal with diversity much the same way they deal with any other issue that’s critically important to their strategic agenda and future.

Q: Can you tell us about any of the initiatives you’ve undertaken at Bridgewater, and say something about how you measure success in this area?

We look at it as talent acquisition and then talent development. Hiring people is the easy part in some ways. The more important part is, how do you develop your people? Are you developing people as cohorts or are you really looking at the individual? 

If you look at the individual, and I think you can do this systematically, everybody has different strengths and weaknesses. How are you, as an organization, understanding that about your employees and providing them with the developmental experiences that they need?

There’s a lot more we need to do on the development side. How does one person fit into a particular group? What are their particular challenges? What do they need to work on? Can we help them get a needed capability or skill? At Bridgewater we have a system of basically, on a meeting-to-meeting basis, evaluating each other. We pull that together to say, “Okay, what is the full picture of this person?”

One particular incident does not make a pattern, but when you see a pattern over many, many people you probably have something there. OK, now let’s look at that. You may not be so good at this, but could you be good at it? Do you want to be good at it? What will it mean for you? What kind of experiences do we need to put you into? What kind of external training might you need?

The development piece is what excites me and gives me passion. When I was the treasurer and controller at Morgan Stanley, I worked with Dick Fisher, who was the CEO at the time. It was like working for a benevolent king. He knew everything. He knew everybody. He did a tremendous job with development.

I remember arriving at a meeting and he said, “OK, you’re going to talk.” It was in front of 300 investors. He said, “Don’t worry. I’ll be right here.” I was fine until I started seeing the people in the audience, their levels. Then I started losing it, to tell you the truth. He picked it back up. When we left the meeting, he said, “You did great until you started to think about who was in the audience versus what were you delivering.” 

Over a succession of maybe 10 of these meetings, he made me so much better at what I was doing through his coaching. Putting me on the field. And not letting me die out there, stepping in when I needed it.

I think that’s so important for development, and I think a lot of times managers and leaders don’t really think through, what is the game plan for me to make you the most valuable player you can be? 

Q: It sounds like you have to keep applying a lot of energy and always be checking whether you’re making progress and why you’re doing something the way you are.

We’re not where we want to be, so we have to constantly evaluate why that is. So, when people say to me, “Do you have 50% women at Bridgewater?” No, I don’t. Should I have 50% or 30% or 40%? What skill set am I going after? If I can’t get that skill set how do I manufacture that skill set?

How do we keep learning? Keep evolving our thinking? Keep bringing people in that might think differently? Here’s what I don’t want to do though. I don’t want to sit around and be negative about things. I want to say, “OK, what can we do to change this?” I know where we are. I know our reality. Now how do we change that and make the reality something that we’d all be proud of?

Q: Talk about what it’s like to have people who think differently and approach problems from different perspectives.

I believe you get better answers when you’re working with a diverse group of people. It is more challenging in the short term, to the extent that you’re dealing with people who think differently from you, to get the relationships to the point where you all trust each other enough to go through the pros and cons of a given decision. That development takes a lot of time.

But, in the end, I think you get dramatically better answers. I have to admit there have been days where I’ve gone home and said, “Oh, my God. I don’t know if I can go through one more of these discussions.” It’s hard. It’s hard to go into a room and openly and honestly hear other people’s perspectives. It’s hard to be vulnerable and recognize I might be wrong. But that vulnerability is really a strength. 

I’ve seen a lot of people who tend to surround themselves with people that are just like them, think like them. If you look at those people through their careers versus people who surround themselves with people who think dramatically differently and really take that input in, I believe you see the difference between mediocrity and success.

Q: What becomes possible when you have a team of diverse perspectives?

People tend to focus on how things have always been done. When you bring a different group of people together, you start to create something that’s never been there before. You’re taking a risk, but if you don’t take risks I don’t know how you’re going to make money through time. 

I’ve done a number of transactions in my career that quite candidly had people asking, “Why are you doing this? Nobody is doing it this way.” Well, I’m doing this because after having people who think differently express themselves, after having conversations about why we listened to this person versus that person, and conversations about why we might go one way versus another, I can look at it and see it’s clearly the right thing to do.

Despite Job Losses, U.S. Benefitted from Surge of Trade with China

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In 2000, the U.S. Congress granted Permanent Normal Trade Relations to China, and China joined the World Trade Organization. Over the next seven years,  Chinese imports to the United States more than doubled, with notable increases in electronics, textiles, machinery, and furniture. During that period, manufacturing employment in the United States dropped sharply, and research has linked those job losses to increased imports from China. 

But the job losses in manufacturing don’t tell the whole story. Ripple effects on other sectors—some of them positive—have received less attention.

While trade is generally thought to bring benefits, “those gains are not uniform,” says Lorenzo Caliendo, a professor of economics at Yale SOM. “Can we identify the losers and winners?”

In a study published recently in Econometrica, Caliendo and his collaborators investigated these indirect effects. The researchers found that while the China trade shock did depress manufacturing jobs in the United States, other sectors such as construction and services benefited from access to labor and cheaper intermediate goods. Overall, U.S. welfare increased. But the gains took several years to materialize, and some regions were hit harder than others, highlighting the need for ways to ameliorate the transition.

“The bottom line is that our research finds uneven gains from trade,” Caliendo says. “This calls for the study of policies that are able to be more inclusive.”

Read the study: “Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock”

Caliendo worked with Maximiliano Dvorkin of the Federal Reserve Bank of St. Louis and Fernando Parro of Penn State University to model the processes involved in the trade shock. The model was guided by data on labor markets, trade, and production from sources such as the World Input-Output Database, the Commodity Flow Survey, and the U.S. Bureau of Economic Analysis.

The team then investigated the impact of the China trade shock—the fraction of American jobs in manufacturing, which have been declining for decades, that is due to China’s trade expansion and not to factors such as automation and the expansion of other sectors.  In their empirical analysis, the researchers estimated that 550,000 of the 3.5 million manufacturing jobs lost from 2000 to 2007 were due to the shock.

But the share of jobs in services, construction, and wholesale and retail rose, likely for two reasons. The first was that people who were forced out of manufacturing turned to those sectors for work. The second was that those industries benefited from buying cheap goods from China. For example, a clothing company might have obtained less expensive textiles.

Overall, the team estimates, American consumers’ purchasing power—which accounts for both changes in income and the prices of goods—rose by 0.2%. “At the end of the day, the China trade shock generated an improvement in average welfare for the U.S. economy,” Caliendo says.

But the development wasn’t uniformly positive. For one thing, benefits didn’t appear right away. “It takes time for the process of adjustment,” he says. Increases in services and construction jobs, for instance, took about a decade from the beginning of the shock to fully materialize.

And some regions were worse off than others. In absolute numbers, many manufacturing job losses occurred in California and Texas because they have large populations and substantial computer and electronics industries. But relative to the regional share of U.S. employees, states such as South Carolina, Mississippi, and Kentucky suffered the most because their economies rely heavily on manufacturing. “The impact of trade across regions is very heterogeneous,” Caliendo says.

The trade war between the U.S. and China  will likely have the opposite net effect as the 2000-07 trade shock. “While increasing tariffs might benefit some, on average we’re all going to be worse off.”

The model did not include the entry or exit of firms from the U.S. economy. But Caliendo is now investigating the impact of the shock on those processes—for instance, whether foreign firms came to the U.S. or American firms added or removed offices across the country.

He also is analyzing the current trade war between the U.S. and China, which he says will likely have the opposite net effect as the 2000-07 trade shock. “While increasing tariffs might benefit some, on average we’re all going to be worse off,” he says.

Increased trade does bring overall gains, Caliendo says, but policymakers need to take action to spread the benefits more evenly across sectors, regions, and workers. “That’s the key, not to leave anyone behind,” he says.

Three Questions: Gal Zauberman on the Psychology of Taking Vacation Photos

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Women taking selfies in a field of sunflowers

What is your advice about taking photos when you travel? Does snapping pictures distract you from actually experiencing your vacation?

One of our core findings is that engaging in photo-taking during a positive experience increases your engagement with your surroundings. That engagement leads you to more positive experiences.

We have a study that’s one of my favorites: We rented a double-decker bus, hired a professional tour guide, and took people on tours of Philadelphia. We ran these eight times a day, every hour. Half the time people had the ability to use cameras, half they did not, and we checked at the end how much they enjoyed it, would they recommend this experience, and so on. What we see is that having a camera makes you more engaged, and that engagement leads you to have a more pleasurable experience.

Think of going out and deciding to go on a hike and take photos. You need to scan your environment to know what is photo-worthy. Then, once you find something that you think is worth taking a photo of, you need to think about how exactly that photo should look. It’s a series of visual engagements with your surroundings, and that makes you more focused and more engaged with your surroundings.    

In another paper that we published, we looked at what photo-taking during an experience will do to your memory later on of that experience. Will you remember worse or better? 

I’m very fond of controlled field studies. So we took participants to an archeology museum, to a particular gallery so we knew what they would see, we told them which order to go, but we also created an audio guide in which they needed to wear headphones. We knew exactly what they saw and what they heard at any particular time. Half the people were asked to take photos, and half were doing it without taking photos. Then we gave them a test in which they needed to recognize objects they’d seen and identify facts they’d heard to be either correct or incorrect. And generally what we find is that photo-taking increases your visual memory and decreases your memory for what you heard. So it’s not that you remember everything better; you just remember what you saw better. 

Does sharing photos on social media make an experience more enjoyable?

Our research shows that when you take photos with the intention of sharing them, it actually reduces your enjoyment compared to taking photos for yourself. So what I do tell people is, as you’re taking photos, don’t take that photo with the intention to share with your friends. Take photos that you think are interesting, that capture something. 

Thinking of others as you’re having the experience creates what we call heightened self-presentational concerns. It makes you self-conscious: Is my experience good enough? Is what I’m eating fascinating enough? Will my life seem wonderful compared to my friends? So you’re focusing more on that and then it diminishes your own experience. I don’t think of sharing at all during my hike. Once I see the set of photos I can say, “Oh, that will be something worth sharing.”

We have a set of data where we ask people to go and take photos during their Christmas break with the intention to either share with others or take it for themselves. When they take photos to share with others, they tend to be more posed versus authentic. They display more of what we call event-relevant material. They tend to have more Christmas-like things—more trees, more stockings, more gifts. If it’s summer at the beach, it will be much more waves and ice cream. If you come to visit Yale, it will be the iconic Yale elements, not what you connected to potentially on an individual level. 

Does the research say anything about what to do with all those photos so they’re actually useful? 

There are more photos being taken every day than were taken through the first hundred years of cameras. We can come back from a weekend with 3,000 photos, and my parents did not have that over their entire life. My parents had a photo from their wedding, a photo from graduation, a few photos of working outside of their home, but they didn’t have a photo of going to lunch with a colleague. That is not something you document. So now your documentation for you and for your children, your grandchildren, and your great-grandchildren totally changes. 

How does that accumulation of photographing almost every aspect of your life make you remember your life? What we are focusing on now is what we call the psychology of curation—how people engage in curating their photos and what it means for them as they’re moving forward. Sometime our goals during curation will not match what we think we want. My parents might’ve thought that the best thing for me is to see a posed photo with family at the wedding. Actually the most important thing for me was that my parents worked on the farm and were lifting boxes. That is a lot more authentic. It’s a lot more reflective of who they are.  My mother and my father sitting drinking tea outside is much more impactful than, again, a posed picture. Because it tells a story. And the authentic moments tell much better stories than the posed ones.

Study Finally Reveals How Many Cooks It Takes to Spoil the Broth 

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Chefs cooking together

By Dylan Walsh

Ed Sheeran, the 28-year-old British pop star, released his fourth studio album in July. No.6 Collaboration Project, true to its name, boasts a lot of collaborators: Khalid, Cardi B, Justin Bieber, 50 Cent, Eminem, Bruno Mars, Ella Mai, and on and on—a total of 22 guest artists are featured on the 15 tracks.

As No.6 debuted at the top of the Billboard charts, reviewers were wondering about the expansive cast of characters: “There’s something gratuitous about the guest list, no?” wrote Jon Caramanica in the New York Times. “It smacks of dilettantism. Flashiness.” Pitchfork described the album as “guest-laden,” while Rolling Stone went with “guest-heavy.” For Sheeran, the album was a chance to demonstrate his fluency in a variety of pop styles, but the reviewers were skeptical before they heard a note.

If there can be too many cooks in the kitchen, can there be too many artists on an album? How much collaboration feels like too much of a good thing? It’s a question that is increasingly relevant to businesses, since many companies are marketing their products by raising the curtain on the creative process that spawned them.

“More and more frequently, companies are looking to talk about the creation story of their products,” says Taly Reich, an associate professor of marketing at Yale SOM. “This forces consideration of what exactly you should communicate to your consumers.” 

A recent article, itself the product of collaboration between eight scholars—Reich, Sam Maglio, Odelia Wong, Cristina Rabaglia, Evan Polman, Julie Huang, Hal Hershfield, and Sean Lane—begins to tease apart this question by studying how people perceive collaborative efforts of different sizes. Published in Social Psychological and Personality Science, the article reveals empirical support for the notion of “too much of a good thing.”

Read the study: “Perceptions of Collaborations: How Many Cooks Seem to Spoil the Broth?”

In one of the studies, participants were randomized into one of three groups and asked how likely they were to purchase a new athletic shoe. One group was told that a single designer created the shoe. The other groups learned that either three or nine designers were involved. Ultimately, participants who were told that three designers collaborated on the shoe were more likely to consider a purchase than participants in either of the other groups. (There was no difference in purchase likelihood between the one- and nine-designer conditions.)

While the aforementioned study looked at purchase intent, a second probed actual consumer experience. Told they were part of a taste test for a new product at a local bakery, participants were given a cookie ostensibly baked by one person, four people, or eight people. The cookie baked by four people, participants said, tasted better than the cookie baked by one person, and marginally better than the cookie baked by eight. Some collaboration proved beneficial, but, as the authors put it, past a certain threshold “increasing collaboration did not make for an increasingly tasty cookie.” 

“To me, what’s interesting is that there is a kind of sweet middle spot when it comes to collaboration,” Reich says. “Sure, there are instances where one creator is better, but in other instances it’s not a simple truth that more is merrier.” Related experiments show that this “sweet spot” is, at least in part, tied to task complexity. When people think something is complex, they believe that more collaborators lead to better outcomes, at least up to a certain point. Beyond that point, impressions tilt the other way and more partners can detract from the quality of results.

For companies, the first lesson is that it’s important to know whether consumers hold different ideas than they do about how many people should be involved in creating a product.

“This is an important question,” Reich says, “as it not only affects the perceived quality of a product, but whether or not consumers want to buy something in the first place.”

For Top Venture Capital Firms, Success Breeds Success

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Illustration of people climbing ladders starting at different levels in the sky

Video of Olav Sorenson

Read any of the many “best of” lists on venture capital and a handful of names will pop up again and again (and year after year): Sequoia, Kleiner Perkins, Benchmark Capital, Accel Partners, Tiger Capital. These are the firms that lead funding rounds for Silicon Valley unicorns, where partners become legends for inking deals with Facebook, Google, or Uber before most people had ever heard of them. When startup founders begin looking around for investors, they dream of landing one of these firms. 

In recent years, big VC firms have been getting even bigger. Top firms gobble up more and more of available capital, leading to lean times for the “middle market.” Why? In a new study, Olav Sorenson, Frederick Frank ‘54 and Mary C. Tanner Professor of Management at Yale SOM, Ramana Nanda of Harvard University, and Sampsa Samil of the University of Navarra, find that the success rates of top firms flow from access to the best startups that is not available to newer or less prestigious firms. “There are a certain number of deals out there where you can just sort of see it —this is something that’s likely to succeed,” Sorensen says. “The problem is that everyone can see that. Everybody wants to invest in those deals. The ones that are able to make that investment are those that have a strong enough reputation that the entrepreneurs actually want them involved.”

If access is the key to a string of successes, what does a firm need to do to get to that point? Often one big deal is enough to establish a reputation as savvy investors. And how does a VC firm find such a startup? According to Sorenson, you need good luck. “That first fund ends up being almost a roll of the dice,” he says. “You take some chances on some really high-risk ventures. You hope that a couple of them pay off. If they do, then you start to develop this reputation. Then you’re able to get into the more attractive deals.”

In an interview with Yale Insights, Sorenson described what the findings mean for up-and-coming investors, fledgling entrepreneurs, and the industry as a whole.
 

How much of a crapshoot is venture capital investing?

There’s lots of uncertainty around startups. There’s uncertainty on multiple levels. Will the product or technology work out? Will consumers want to buy it? Are they going to want to buy it for a price that you can make money at? Then there’s even a bunch of uncertainty about the team and whether or not they can successfully build an organization. For a venture capitalist, how do you pick the right investments? Statistically, they don’t do that great—only one or two out of every 10 investments. But some of those investments are successful enough that across a portfolio of companies, a venture capital firm can still make money.

Do venture capital investors who make one successful investment tend to continue to succeed? 

If we were looking at mutual fund managers, there’s a general mantra that past performance does not guarantee future returns. Statistically that’s true. If you look at people that have been high performers in the past, they have almost no better chance than just random selection of doing well in the next period. But venture capital is different. In venture capital, if you look at the firms that were the top performers in the last say, five years, they’re highly likely to be the top performers in the next five years.

What’s the conventional wisdom about why this is the case?

People have debates about it. I would say the overwhelming interpretation has been that these guys understand how to select either the right people, the right entrepreneurs, or the right technologies. They’re making better bets than everyone else. One of the things that we were looking at in this recent paper is what exactly explains this sort of persistence and performance. 

What did you learn about why?

First we documented that this is true, that firms that did well in one period are likely to do well the next period. Then we asked what might account for this persistence. Is it because they’re able to pick the right companies? Our answer is no. Is it because they’re able to pick the right industries? The answer is yes initially, but nobody seems to be able to pick the right industry twice in a row. Is it because they’re able to advise the company better? It looks like the answer is no. Then we go through and say, “Well, what does predict it?” What we find is that the big VCs are more likely to invest in syndicated investments, and later-stage investments, and in larger investments. Those are all situations in which there’s typically less risk and less uncertainty. But those are also deals that are hard to get into because everybody understands that there’s less risk and less uncertainty. The basic message is that the persistence comes from the ability to get access to deal flow.

Our explanation is that this has to do essentially with the status of the venture capitalist. Venture capitalists that have a good reputation are able to invest in the attractive deals that everyone would like to invest in. There are a certain number of deals out there where you can just sort of see it. This is something that’s likely to succeed. The problem is that everyone can see that. Everybody wants to invest in those deals. The ones that are able to make that investment are those that have a strong enough reputation that the entrepreneurs actually want them involved.

Where does that status come from?

To get started you need to get some successful investments so that you can develop a reputation, so that you’re able to get into these deals that everyone would like to get into. What that means is that the first fund ends up being almost a roll of the dice. You take some chances on some really high-risk ventures. You hope that you get lucky and a couple of them pay off. If they do, then you start to develop this reputation. Then you’re able to get into the more attractive deals.

How do the investors themselves see this? 

There’s certainly a number of VCs that think, “Some of us are really smart. The reason why we’re successful is that we’re smarter than the other VCs.” That’s certainly a sizable set. When we go out and talk with VCs about this, they often aren’t surprised by our explanation, because there’s a number who recognize that one of the most important things is what they would call getting access to deal flow. To a large extent, I think the practicing VCs would agree that this is a crucial aspect of performance, even if they also think that they’re smart people, and they probably are, and that that contributes to their success.

“High-status VCs tend to offer less attractive terms. In exchange for the same amount of money, they’re going to expect a larger proportion of ownership in the company.”

If the first win is dumb luck and subsequent successes flow from that one, does that change the approach that VC investors should take?

It does suggest that what a new VC might want to do is really kind of swing for the fences. If you’re trying to take sure bets, or at least relatively low-risk investments, then you might have some success in terms of your overall average return, but you won’t have these kind of really well publicized, highly visible successes that seem to be what are responsible for establishing the reputations that get other entrepreneurs to want you as investor. It does suggest an approach where, well, I’m going to try taking some really big bets. If they go well, I could potentially be set up for my next fund. But if not, I probably don’t have a future in the industry.

Should it say something to entrepreneurs about how they should approach getting the venture capital?

We know that entrepreneurs tend to go with the VC with the better reputation. That may be the right thing for them to do because there’s an aspect in which it acts as a signal that creates a type of coordinating equilibrium. It makes it easier to attract other investors. 

Another thing that entrepreneurs care about is getting the right employees. If you see a highly reputable venture capitalist investing in a company, that then makes it easier for you to attract the best talent. So there’s this sense in which there can always be a self-confirming aspect to getting these investments from VCs that have a strong reputation. I think there are limits to how much you should be willing to pay for that.

One of the other things that we know is that the high-status VCs tend to offer less attractive terms. In exchange for the same amount of money, they’re going to expect a larger proportion of ownership in the company. So entrepreneurs really need to think about it. If they’re going to have to pay a big price for that status, they might be better off working with the less well-known investor.

So are there times when it makes sense to go with a newer VC fund with less of a track record?

We know from researchers at Cal Tech that reputations in venture capital are often not firm level. They’re at the level of an individual partner. It’s not enough to get money from Kleiner Perkins. Who is the lead partner within Kleiner Perkins that would sit on your board and be most involved with the company? If it’s John Doerr, that’s fantastic. It’s a strong signal. But if it’s some junior partner who just got promoted, you might be better off moving with a younger, less reputable firm. 

How has venture capital changed in the last decade or two? 

The venture capital industry as a whole in the U.S. just hit a new record. In fact the 2018 investments exceeded the 2000 investments for the first time. For the first time since the end of the internet boom, we’re seeing a new surge in venture capital. The distribution of that looks quite different. What we’re seeing increasingly is very large investments in later stage companies, companies that already have high valuations, are already quite successful. Think Uber or Lyft, these large companies that have billions of dollars already in revenue.

We’ve actually seen a decline over the last four to five years in the number of early-stage companies. There’s also been a decline in the number of new VC funds that are focused on the early stage. I think what’s happening is that these dynamics are making it more and more attractive for investors to focus on the later stage, at least in the short run. But the problem is that later stage depends on a pipeline that’s coming from these investments in the very earliest, youngest companies. It will take a few years before that starts to affect the industry as a whole. I think that this paucity of early stage investment, and the entry barrier associated with not having a reputation, mean that we may see a decline in the companies that are available for later-stage venture capital in another three, four, or five years.

What’s the State of Cybersecurity?

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An illustration of a spy on a computer screen

Video of Thomas Glocer, Thomson Reuters: What’s the State of Cybersecurity?

Thomas Glocer, a 1984 graduate of Yale Law School, has been helping to fend off cyber attacks for nearly two decades. As the CEO of Thomson Reuters from 2001 through 2011, his firm’s trading platforms were a target that needed to be secured. His fascination with the multi-faceted demands of cybersecurity grew while chairing the committee responsible for technology on Morgan Stanley’s board of directors. Today, Glocer is the co-founder and executive chairman of the cyber defense firm BlueVoyant. In a conversation with Yale Insights, he discussed cybersecurity, and its limits, as well as a radically new model for privacy and protection of the data we all create as participants in today’s digital world. 

Q: How did you get into cyber defense?

Cyber defense brings together issues that interest me—compelling technological challenges and a geopolitical overlay where foreign-state actors might want to compromise not only government and military systems but financial services, the power grid, etc. 

When I ran Thomson Reuters from 2001 to 2011, we were subject to significant amounts of electronic probing, in part because of the electronic trading systems we operated in foreign currency and fixed income. As a result, I fell in with a group of, call it, concerned cyber warriors who were worried that the nation’s banking system wasn’t adequately protected. 

Later, on the Morgan Stanley board, I chaired the operations and technology committee, which was responsible for oversight on cyber defense. I thought cyber defense would be a good area to start a new company. I launched BlueVoyant with Jim Rosenthal, who had been the COO at Morgan Stanley and directly responsible for cyber as well as all the rest of the tech work at Morgan Stanley. I’m BlueVoyant’s executive chairman, and Jim is the chief executive.

Q: What does the company do?

The company does three main things: threat intelligence, managed security, and proactive professional services.

Threat intelligence provides actionable early warnings about the bad things that are out there. That’s typically for larger companies that have a security operation that will know what to do with the information. 

The managed security service is typically for companies that haven’t invested tens of millions of dollars to build their own cyber defense operation; they can hire us to provide it. We can build and monitor a security stack. 

The third piece is cyber forensics and incident response services. Whatever happens, we can do something about it, either remediating remotely or sending in human beings. 

Because of my background and Jim’s, we work a lot with financial services. But we have customers across pretty much every industry because, unfortunately, everybody is subject to hack or attack. I wouldn’t have thought Sony Pictures was at a big risk of cyberattack. But obviously they were and a very crippling one.

Q: How well prepared is financial services at this point?

In my view, financial services overall is quite well defended. The bigger firms themselves recognized relatively early what the threats were. They typically have very good technology operations and spend a lot of money. The threat, I think, is more in the medium and smaller size institutions—the savings and loans, the community banks—that just can’t spend that amount of money but still have assets that are attractive to the bad guys.

Q: What are the key threats?

I am told by the people who know that if, for example, the U.S. or the Russians or the Israelis really want to be in your network, they will be in your network. You won’t know it until something bad happens. And something bad may never happen. They may just be there to be prepared or to look at your information. 

We don’t purport to stop those highest-level, most-advanced, persistent threats out of a cluster of governments with the most advanced cyber capabilities. But we can stop a lot of other things, including second- and third-tier nation states and criminals who unfortunately now have, not only their own tools, but some of the tool sets that nation states develop that have been released through earlier hacks. There’s a famous NSA tool set out there.

These days you can go on the dark web and, in effect, rent a very high-quality attack platform. You don’t even have to be able to develop malicious code yourself; it’s all there for hire. There’s quite an underworld ecosystem.

Q: How do you keep up with the ever-evolving threats?

Well, it takes a fair amount of ongoing research efforts. The way our threat intelligence works at BlueVoyant is we own multiple data sets. We see something like three million events a second as they occur out in the internet. If you run these electronic events, this internet traffic, through the right big data analytics, folks who know what to look for can pick up the very subtle signals of, for example, a command-and-control cluster being formed or the early moves for an attack. 

What everybody wants is time. It’s the most critical factor. Everybody says, “Give me warning. Let me do something. Let me add a malicious IP address to my blacklist on the firewall before it gets through. Let me cordon off a section of my network.”

“Maybe you’ve done a decent job securing your own infrastructure; how secure are your vendors’? How do you evaluate that?”

Q: How did you decide where to focus the company?

The good news for business and for society is there are a lot of cyber defense companies. Thanks to some of the older, larger established players pretty much everyone has a firewall and anti-virus software. As the threats became more significant, others have founded companies to offer additional tools like predictive analytics that run over network traffic or software devices, things like honeypots or watering holes which can attract traffic that you can then either analyze or isolate.

We studied the market and identified a number of opportunities where we saw a product-market fit. One was advanced threat analytics, especially third-party vendor vulnerabilities. On my way up here, I passed a room that had a class on supply chain management going on inside. Supply chain management has meant one thing for a long time, but increasingly it should also refer to the chain of vendors that have points of digital entry into your company. 

For some companies that’s tens of thousands of vendors. Maybe you’ve done a decent job securing your own infrastructure; how secure are your vendors’? How do you evaluate that? That’s a service we offer. We saw a real opportunity in that threat intelligence, so we aligned a good part of our operation around it. I could tell a similar story about our managed security service.

Q: Thinking about vulnerabilities of the average person, should we be more concerned about our data getting hacked or everything we implicitly share with Facebook and all the other tech giants?

It’s an interesting question. I’m not a conspiracy theorist but I would worry more about Facebook, Twitter, Instagram, etc. I think what happened, certainly in the U.S. but across many countries, is before people realized some of the darker uses that their information could be put to, the convenience and attraction and above all the initially free price tag of using many of these services meant that we essentially clicked away permission like sleep walkers. Often, we grant very significant data accumulation.

I think the average person can’t begin to understand the sheer enormity of the information that’s collected—every like, every click, every single website you’ve been to in order and your geo-fence location when you visited each site. All of that is recorded and owned not by you but by the variety of services that you use. And while each data point in and of itself seems pretty harmless, taken as a whole and running some decent data science across it, you can find out some really surprising and very personal things that you probably wouldn’t want to have get out there.

Q: I think people worry about privacy, but they’re not sure exactly why. Should we be worried about the intentions of the big tech companies? 

I guess I have the shortcoming of knowing a lot of these people personally. I don’t believe that Mark Zuckerberg or Sheryl Sandberg or the folks at Twitter set out on an evil conspiracy to deprive us of our privacy. Ditto for Google, which is an enormous store of data. These are thoughtful, and in general, well-meaning people. They are also leading enormous, profit-making, public companies, and they typically monetize through selling advertising against that data. 

The extent and uses of the data have never been an explicit contract with the users of the services. So, I don’t think one has to posit any evil intent to understand that as businesses get larger and larger, it can move beyond leaders’ ability to personally control and police all the uses of the platform.

Q: You wrote a blog post proposing an alternative model for data management. Could you explain the idea?

There’s a fair amount of thought leadership around the edges of technology, philosophy, and government on the question of, “Whose data is it anyway?” One idea is to flip the model completely. Imagine if you held a digital vault, on your phone, let’s say, or secured in the cloud, and that vault contained your entire browsing history, your pictures, your entire location history—all of your various electronic bread crumbs organized into different collections or time series of data. 

Because you control your vault, Google, Facebook, Instagram, or Twitter might come to you and offer to pay twelve cents every month for your browsing history. Somebody else is training up an AI and they’d like access to every photo you keep in online photo services, so they offer to pay for it. 

It’s a model where you control the data and providing it to companies requires a much more explicit authorization. You’d probably only be receiving micro-payments, so you might just decide, “Well, actually I’d rather keep things private.” 

It’s sort of cool to find out where your great-great-grandfather came from, but maybe you’d rather not have your genome sitting up in the cloud. Did you agree to your genetic sequencing being sold to an insurance company or not? Can that data be used to catch a serial killer? It’s great that a serial killer was caught, but it is also an unforeseen use which made a lot of people concerned about who can access that data.

We’ve gotten to this point with little fanfare about who owns our data and how technology can be applied to it. We may need to have more of a discussion and make some more intentional choices. 

Q: Is it still hypothetical or are we hitting a tipping point?

Well, I think the last U.S. presidential election and the things that have been coming out in the congressional hearings suggest they are more than hypothetical. I also think we are pretty clearly moving in the direction of legislation which will affect the platforms. 

The UK has developed far-reaching legislation that would put the burden on the platforms to essentially police hate speech and the like on the platforms. And with respect to privacy, a California law went into effect which mimics the EU’s GDPR legislation on data management and privacy. 

I think we will only see more of this as people understand how much they’ve given away.

WeWork: What, We Worry?

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A WeWork location in Shanghai. Photo: Jackal Pan/VCG via Getty Images.

This commentary originally appeared in Chief Executive. 

Next month the iconic satirical Mad magazine prints its last new issue. The infamous motto of its fictitious mascot, the grinning Alfred E. Neuman, was “What, me worry?” When it comes to WeWork founder Adam Neumann, perhaps a distant cousin, the question should be “What, we worry?”

And there is more and more to worry about, starting with the news this week that Neumann has sold more than $700 million of his ownership pre-IPO, indicating a lack of faith in his own company while he prepares to hawk it to new investors. Surely founders, like other people, have expenses related to family vacations, home upkeep, kids, cars, and college loans. But those minimal lifestyle maintenance costs don’t seem to be the motive here. TechCrunch reported that Neumann has comfortably spent $80 million on his six homes, including his 13,000-square-foot San Francisco crash pad complete with a guitar-shaped room.

This nine-year-old co-working startup has a pumped-up valuation, somehow, of $47 billion. The Wall Street Journal questioned this lush valuation as Neumann tried to distance himself from Uber’s IPO collapse this spring. Eyebrows were raised earlier this year when the Journal questioned a potential conflict of interest, with Neumann earning of millions of dollars as landlord and serving as an owner of many of the buildings that WeWorks leased. This was not fully disclosed to equity investors, the Journal reported.

Research by Noam Wasserman in his book The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, has shown that founder-led companies outperform matched non-founder-led enterprises given their dedication to an insurgent mission and their owner mindset. This is why legendary founders such as Bernard Marcus of The Home Depot, Michael Dell of Dell Technologies, Bill Gates of Microsoft, and others retained their ownership, especially pre-IPO. Contrast that with the founders of Groupon and Zinga, who massively sold out pre-IPO.

“Strip away the barn-wood interiors, bean bags, and espresso bars, and Neumann’s empire looks a lot like…a lot of other real estate companies.”

So, what could Neumann know that has him worried about his own investment in WeWork? Well, for one thing, they’re losing more than $2 billion a year—that’s $120,000 of losses every hour of every day.  WeWork is in 36 countries and is the largest landlord in New York, San Francisco, and Washington D.C. But are those high-cost leases a good thing in a downturn? Its competitor, IWG, formally Regus. was forced into bankruptcy in the 2003 market downturn with a similar model. (Andrew Ross Sorkin of the New York Times has questioned whether WeWork is too big to fail.)

Meanwhile, speaking of similar models—what is unique here? Neumann is hardly Mark Zuckerberg or Elon Musk, who, despite their own larger-than-life personas, do at least have unique, disruptive technologies. Strip away the barn-wood interiors, bean bags, and espresso bars, and Neumann’s empire looks a lot like…a lot of other real estate companies.

New, fast-growing entrants like New York’s Knowtel, Serve Corp of Australia, and Mindspace—not to mention the far more global IWG—are genuine competitive threats. IWG, for example, is in 70 more countries than WeWork, and twice as many cities (250 to WeWork’s 124). Oh, and IWG actually makes money—while also providing a wider array of offerings like serviced offices, virtual offices, meeting rooms.

Yes, Neumann is certainly charismatic, regaling students recently at a college commencement with tales of playboy years “hitting on every girl in the city.” But as he cashes out ahead of his own IPO, many should worry whether WeWorks really works—for anyone beyond its founder.

The Man Is the Brand

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Stuart Weitzman with his diamond-studded “Retro Rose” shoe in 2008. Photo: Toby Canham/Getty Images.

Video of Stuart Weitzman: The Man Is the Brand

How could the luxury shoe company Stuart Weitzman, founded by the designer and corporate leader of the same name, be called anything else? The man is the key to the brand. 

A few key points in Weitzman’s career to date: learning the trade from his shoe-designer father, Seymour; attending the Wharton School at the University of Pennsylvania; creating a pair of sandals adorned with 464 diamonds (worn by Laura Harring) for the 2002 Academy Awards; selling the company to Coach—now known as Tapestry—for $574 million in 2015 and staying on as chief designer.  

How does a company balance the creativity of its founder and the strategic thinking of its CEO—when the two roles are held by the same person? How does a brand so closely identified with a single individual live on past his retirement?

To find out, Yale Insights did some shoe-leather reporting.
 

How does Stuart Weitzman, the brand, fit into the history of shoes?

I am pretty proud of my role in the shoe industry. There are several things that I did that hadn’t been done before. One of them is to make fabulous-looking bridal shoes. That’s how I started my business. Every brand looks for a niche. You’ve got a lot of people ahead of you, and it’s hard to knock them off their blocks, so you have to find your way, and I didn’t see wonderful bridal shoes. In fact, I believed—maybe not true, but it was in my mind—that the long gowns were made to hide those awful shoes that girls wore. They looked like acetate satin, you know? They glowed in the dark. 

And I made a series of lace shoes, beautiful lace shoes, out of Swiss lace. It was actually a shoe that got me my first design award as accessory of the bridal industry. And that changed the face, or, I should say, the sole, of footwear for brides. Today, girls pay as much attention to the shoe as the dress.

So, that’s one of my marks. The other is what’s called the Shoe Cam. The little corner of the TV screen that focuses on the shoes, on the red carpet, particularly. I created a shoe called—it was nicknamed by the press, “the million-dollar sandal,” in 2002, as an attempt to get the press to pay attention to footwear. And that shoe sure did it. Joan Rivers grabbed the actress, Laura Harring, who was wearing it, and pulled her foot up to the camera and said, “Everybody wants to see Stuart Weitzman’s million-dollar sandal.” And from then on, all interviewers began to ask, not just about the hair and the jewelry and the dress, but, “Whose shoes are you wearing?” 

How does today’s luxury market look from your perspective? 

You have to think of luxury products for what they really are. They’re like a religion. There’s a passion about them. They are, by definition, and by experience, wonderfully made products, and that used to be all they needed to be. Today, it’s not all that they need to be. You have to create a desire for them, a scarcity for them. And their projections are much greater than the normal growth of the fashion industry.

I think that’s because people aspire to own them. And all these copies you see, sometimes, on street corners, especially in cities like New York, where you see the Vuitton bag copies, and Gucci bag copies, and others, the companies could close that down, but it’s free advertising. I mean, the girl who can’t afford a $2,000 bag and gets one for $150, wants the $2,000 bag, and hopefully enough of them, someday, will be able to afford it. Because there’s a faith factor. That’s why I said it’s like a religion, and I don’t see it going anywhere but up, at this moment. I’ve never predicted more than five to seven, eight years out, but I don’t have any negative thoughts on where luxury’s going for that period of time.

So your company’s not cracking down too hard on knockoff shoes?

If I weren’t copied I think I’d have a problem, you know? I look at it as a compliment. And then I protect my customers against it, so if a store that sells $30 shoes has a copy, or a store that sells $500 shoes have a copy, I don’t care about the $30 shoe store, but I may care about the $500 shoe store. So we pick and choose in that regard.

How important is customer loyalty to your business? Is the brand about a philosophy that you share with your customers? 

Well, the reason we all try to build a brand is to separate ourselves from our competitors. We try to build barriers that separate us from them, and of course a strong brand is the best barrier you can build among others. That brand, we hope, gets into the minds of people who buy our shoes, and generally we keep our customer because one of the strongest elements of our DNA is the fit and the comfort of our footwear. Which has been a surprising characteristic for fashion shoes. Usually it was, “I’ll suffer a little bit,” you know? But women are different today. They think for themselves; no one’s strapping them into a girdle, or into garter belts or all the stuff that’s history, that men created but women really never wanted, and the same thing with footwear. Women want shoes that feel good. There are lots of them who love shoes that look great. Certainly when you see it on the shelf in a store, you don’t know how comfortable it is. You pick it up because it looks good. But then if it feels good, we have a customer, maybe for a long time.

She may not like what we’ve made that following season, but she’ll give us the first look because she’s a customer of ours, and it’s our job to make sure we know what she’ll like, and give her some of that.

You’ve gone though some transitions with ownership and expanding the company. How do you maintain your company’s values?

I’ve had some unusual circumstances in the final sale of the Stuart Weitzman company. First is, I have no family who was interested in continuing with it, so that made it obligatory to find a final home. The first one that I found decided that it was worth more selling off all its assets than continuing to run itself. That was the Jones Group. And actually, they did get more, per share, by liquidating, than they did by being valued by the public on the New York Stock Exchange. So after that sale, I found myself running a company that I hadn’t yet placed in its final home. 

The Coach organization, which was re-named Tapestry, is the company that bought it, and that’s where it sits today. Now, I recognize that they bought Stuart Weitzman, the company, and the brand, both. And they saw a potential in it to be more than a shoe brand. And they recognized the golden goose is the shoes. So they insisted, and I did too, it was a mutual agreement in that regard, to stay on for two years, help hire the team that would replace me and a few other key people who would be retiring with me, and try to maintain the DNA of Stuart Weitzman. Its look, its freshness, its contemporary nature, its fit, its comfort, and its cool factor with the celebrities. All of those things that made us what we became. So by leaving them that kind of staff, and bringing in people who we saw could be that way, we’d give it the best shot to become a bigger and better business.

“When you’re in fashion, you have to be a student of what fashion has always been. You never know where the idea’s going to come from. And you never limit your thinking to what you did last year.”

Maybe they can add factors that I wasn’t interested in doing, like other products. And maybe they can add more retail because Coach, with their thousands of stores, has a clout that I wouldn’t have, in malls and other locations. Maybe all of those advantages that they carry on the corporate side melded with the ones on the entrepreneurial side, to make a better company. That’s our hope, and that’s our goal.

Do you have to put on a different pair of glasses as chief designer than as CEO? 

I think I was a bit fortunate, because you don’t see much of this, being the business head of the company and the creative director head of the company. Usually the creative side is one aspect of the business, and then there’s a partner or director of the business side. I was both because I didn’t plan to be a shoe designer. I planned to go to Wall Street, and I studied business at the Wharton School with that in mind. But I ended up working at my hobby, so I brought the business mindset with me. 

When I would create a shoe, I first thought of the aesthetics, but immediately the business side of that shoe came into play. Did I need to make it more commercial or more revolutionary? Depending on whether I thought it had real long legs. And that was an advantage, and I never needed a committee to decide upon that. Usually, in committees of that sort, the creative side fights the business side because they want purity of design—which I do, and did, whenever I would start a project with footwear, a series of shoes, for example—but in the end, the business side made the final choice, and there was never an argument. 

And I know I made more money because I was able to do it that way, but I also know I made a better product because I was able to do it that way.

Do you think that the business environment has benefited from the conversation about work-life balance? 

When I was at the Wharton School, there was one course that we had to take. None of us liked taking it, we couldn’t understand why we had to take this course on sociology, but the professor was eccentric, and, supposedly, incredibly interesting, and we went in with that in mind, not really expecting to get any more out of it than some good humor. His name was E. Digby Baltzell. I remember a lesson that he gave us in class, and I have thought about it so many times. I’ve even told it to students when I’ve spoken to them. He brought out a jug from under his desk one day, filled with golf balls. Almost filled with golf balls. And he called up a fellow from his seat, and he said, “Would you say this jug is full, or not full?” He said, “Well it’s not yet full.” And he brought a little bucket and he said, “Why don’t you fill it up? No, no. I mean really fill it up. Stuff them in there. And you’re going to have to put the top on, so get them in there!” And he filled the darn thing up, and he said, “You satisfied now?” And the class nodded, yeah.

He unscrewed the top, put it on the table, took a pitcher of sand from under his desk, and he put sand in it. And obviously the sand went in between the openings of the round balls. And now it was finally full. We were unsure what his point was at that time, other than he was humoring us. Now we were sure it was full, but then he pulled out a pitcher of water. And he filled it up, finally, with the water. And he said to us, “Your golf balls are your work, and they’re going to fill up most of the time of your life, and the sand, that’s probably your friends and your hobbies, and your sports, and without that, your jug isn’t full. The water, though, is your family, and all your other relatives that are close to you, and even your best friends, and that’s what will make your life full.”

How do you keep reinventing the black pump year after year?

Well, first of all, I’ve never worn blinkers in my design career. A black pump is more than a black pump. Maybe this winter it’s a black boot. Maybe next summer it’s a black ballet flat. And maybe it’s a black two-inch heel, or three-inch heel pump. 

I have always recognized the black pump as something that should be in a woman’s wardrobe, but it doesn’t always have to look like a low-cut shoe covering just the edges of your toes, and going back with nothing over the instep. When someone says to me, “My God, that gladiator sandal was so hot,” we would say, “What are we going to do to replace it?” And my two designers would start drawing new versions of the gladiator sandal, and I tore them up. I said “No, something will replace it, but it’s not going to be a gladiator sandal. Whatever that girl had to have in that gladiator, you’ve got to figure out what she’s got to have in something else. Maybe it’s a sneaker. “So you reinvent these things by looking outside of the box they were originally in. 

How has traditional design influenced you? 

Our collection is, let’s say, 70% evolutionary, and 30% revolutionary. And of course without the revolutionary designs you’re never in the fashion business. We draw upon history—a moccasin is a moccasin, but we can change it. Maybe this season silver is a hot color; we may make it in silver. We make it look modern, not like a retro shoe, but we draw upon the retro. 

Last year in New York City, at the New York Historical Society Museum, there was a fabulous exhibit on more than 110 antique shoes that are part of my collection. And every shoe was collected with the idea of its history. Why was that shoe made that way? And years ago, shoes were made according to your social status. Who you were in the court, or in society. You couldn’t wear something if perhaps a royal person was wearing it, or if the royal person was a higher level than you on the scale of royalty. And these shoes tell that story, from the 1700s to the Roaring Twenties, let’s say. Including suffrage shoes, that high-button boot that women wore when they decided to raise their skirts off the ground, but they weren’t yet ready to show all their ankles, so that high-button shoe came into play. I draw upon that. In fact, the high-button shoe, remade in a modern way, was one of our best-selling shoes about 10 years ago. So those things are important. When you’re in fashion, you have to be a student of what fashion has always been. You never know where the idea’s going to come from. And you never limit your thinking to what you did last year.

What did you think about Susan Sarandon wearing your thigh-high red boots at a film premiere?  They looked great, but some of the media thought they weren’t age-appropriate.

Let me tell you about the thigh-high boot. That is one of my great accomplishments, for me and for the shoe industry. Until we did it the right way, and publicized it, that boot was worn by the girls on the street corner. Think Pretty Woman. “Now, what girl,” I thought, “do I know is going to wear that boot?” 

And it took me almost 15 years to figure out the changes to make in that boot so that Susan Sarandon would want to wear it. And every other girl on the planet, by the way. Why? I changed it into a piece of clothing. I made it stretchy, tight-fitting, hugging the leg like a pair of leggings. I took the pointed toe off and I put a round toe on. I took the stiletto heel off, and put a strong heel on. And then I put it on Kate Moss. That was it. It became the biggest boot in the shoe industry, and the most copied item for the last three or four years.

So, about Susan wearing it in red? I heard someone very close to me say, “I wish I could pull off that boot like Susan Sarandon did!” And I think that woman is older than Susan Sarandon. I think this shows that an idea about which one is passionate shouldn’t be abandoned because its development is not immediate or easy. If you believe in it, then it will be worth the effort and the wait.

Three Questions: Prof. Vahideh Manshadi on Improving Kidney Donation

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A car with a request for help finding a kidney written on the rear windshield

What do you see as the biggest obstacles to maximizing kidney donation in the U.S.?

First, incentivizing more donations (both live and deceased.) For live donors, this would entail helping them with the costs they incur through the donation process (travel, lost wages, etc.). As for deceased donation, 95% of U.S. adult population supports organ donation but only 58% are registered as donors. The challenge is how to increase the number of organ donors. 

Second, effectively utilizing the donated organs. According to a report from the Bridgespan Group, “there are approximately 28,000 additional available organs each year from deceased donors that do not get procured or transplanted due to breakdowns in the current system.” 

Do these executive orders and regulations address those issues? Is the federal government well positioned to make a difference?

It seems so. The executive order facilitates financial support for live donors by relaxing some of the constraints currently in place on who qualifies for such assistance. Further, it takes positive steps toward improving the performance of Organ Procurement Organizations (OPOs) by creating a new performance metric to be reported by OPOs. 

What’s one policy change that you would make to improve this system?

Certain policies can impact the chance that people become organ donors. For example, studies suggest that countries that have opt-out systems (in which being an organ donor is the default) have more available donated organs. Currently, the U.S. has an “opt-in” system.

Why ‘Breaking Up’ Big Tech Probably Won’t Work

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A jigsaw puzzle with the logos of Amazon, Apple, Google, and Facebook

This commentary originally appeared in the Washington Post. 

There has been a lot of talk all year about restraining big tech—but very little action. That seemed to change a few days ago when the Federal Trade Commission slapped Facebook with a $5 billion fine. And there are promises of more to come, if not from the FTC, then perhaps from some other part of the federal government. Overseas, the specter of other action, from other capitals, also looms.

In this anti-big tech moment, the slogan “break them up” is simple, catchy and has been adopted by some politicians and other observers to capture the emotion of the era. Unfortunately, “breaking up” large tech platforms is often not a good solution to the economic harms created by large firms in this sector. There are usually more effective ways to create competition.

The break-them-up sloganeering fails to recognize that “big” is not, under the law, an antitrust violation. New products can achieve huge market share because consumers love them: consider Rollerblade’s dominance in the inline-skating market in the late 1980s, AOL’s high share of internet access in the 1990s, or how Apple owned the tablet market in 2011. If a product gets a big share because it is good and popular—but its maker has not behaved anti-competitively toward its rivals—it has not violated our antitrust laws. Without new laws giving the government the power to take a different approach, Washington cannot just break up big tech, or any company, solely because it is large or has a high market share.

Which means antitrust enforcers must determine whether, and exactly how, each tech platform violated U.S. antitrust laws. And because these platforms have totally different business models, with different degrees of market share—Google runs ad-supported search and content, Apple sells devices, Amazon engages in e-commerce, Facebook runs ad-supported social media—one would expect the tactics that might work to suppress rivals would be very different for each company.

An agency should analyze each platform individually and determine whether it acted in a way that was anticompetitive. Public information already sheds light on some possibilities for such an antitrust case. Perhaps (as a Facebook executive said) an independent Instagram would have become a serious competitor to Facebook. The Clayton Act permits the FTC to bring a case against Facebook after the fact for anticompetitive acquisitions that lessened competition. If the government were to win such a case, it would then be enabled to impose a remedy to restore the lost competition.

“What if a consumer could port her shopping data from Amazon.com to Jet.com with a few clicks? Data portability could allow new competitors to attract customers more easily.”

That bring us to the second question: Will a breakup prompt a remedy that will increase competition? In the old days of the Standard Oil monopoly, enforcers often broke up large entities by geography. But there is no sense in which it’s useful to a have a search engine or social network for a small section of the country. Rather, an agency must think carefully about the source of each platform’s market power and figure out what remedy—antitrust or otherwise —would create competition in that market. If used indiscriminately, a breakup can actually harm consumers and workers and reduce innovation.

Simply divesting Instagram from Facebook is unlikely to work. For one thing, everyone wants to be on the same site as their friends, so a divested division with no links to Facebook would likely lose its customers quickly—back to Facebook.

Secondly, Facebook began integrating the back ends of Instagram and WhatsApp in January 2019. By the time any antitrust verdict is rendered, there will be one coherent Facebook and no divisions to divest. However, competition could be restored by requiring that Facebook enable open interconnection between itself and any new market entrant. As a result of the interconnection, a consumer could switch to a new social media platform based on a better user experience or privacy, without sacrificing the connection to other Facebook and Instagram friends. Mandatory interconnection would largely defeat the strong network effects that protect incumbent platforms. Facebook could be required to facilitate interconnections for a period of time long enough to give competition a chance to take hold.

Third, and more generally, the government can go beyond antitrust and increase competition by establishing a more muscular regulator to level the playing field between incumbents and entrants. Regulations that lower entry barriers will help reduce the entrenched market power of dominant platforms. Today it is very difficult for a consumer to switch platform providers because her data are not under her control. What if a consumer could port her shopping data from Amazon.com to Jet.com with a few clicks? Or her favorite playlists between Spotify and Pandora? Data portability could allow new competitors to attract customers more easily.

Finally, a regulator could establish open standards for micro-payments from digital businesses to consumers. Platforms would then have to compete not just on quality but also on price—by paying consumers to use their search engines or social media sites. Regulations such as these and others could erode barriers to entry and give more opportunities for competition to manifest itself to the benefit of consumers.

Just “break them up” is an oversimplified sound bite, not a real policy that would restore competition in digital markets and benefit consumers.

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