Topic: Thomas Cooley on Finding Success in a Downturn
Cooley: I’m Thomas Cooley. I’m the Dean of the Stern School of Business at New York University. I’m also a professor of economics.
Question: Is there a bright future for business school graduates?
Cooley: Well, I think there’re going to be a lot of new opportunities in other sectors, where we see people being interested in entrepreneurship so there’s a greater emphasis on wanting to create new businesses, new business models. There is a lot of interest among our students in social entrepreneurship. It’s really an interesting generational shift that’s occurred. And we see more people who want to do well and do good at the same time. There are going to be jobs on Wall Street. There’ll be different jobs. They won’t be as highly compensated. But there’s always going to be a demand for people to manage assets, to restructure businesses, to negotiate mergers and acquisitions. So our students, if they have a passion for it, are still going to seek jobs in finance. And they’re well-aware of the fact that this crisis is going to have on their economic prospects but they still see that as an interesting industry to work in. And… You know, I think the number of jobs in the compensation will shrink but they’ll still be there. The other thing that’s… that interest a lot of people nowadays is media and technology. I think, it’s very difficult to tell how the media industry is going to evolve. It’s clear that it’s going through a crisis of its own, of its very own making in some sense and… But a lot of our students see real opportunities on the other side of that. So it’s an interesting… an interesting evolutionary time.
Question: How should entrepreneurs approach the new economic realities?
Cooley: It’s a very different environment. And the, you know, the search for seed money and seed financing and that sort of thing are more difficult than an environment like this. People are more sensitive to risk. At the same time, I think it’s a time of opportunity because it’s a time when emerging businesses, firms that have a good business model can acquire talent, can find more people willing to take on some career risk in order to pursue an idea and really put in the sweat equity that’s required to succeed in an entrepreneurial venture. So, I think in… You know, that’s the upside of it. That there’s more talent available, who are willing to take those kinds of risks and they see the risk reward tradeoff as being a good one at this point in time, better than it would be when the alternative is some enormously paying job at an investment bank.
Question: Where are the greatest opportunities?
Cooley: Well, I… I think the most exciting opportunities are… that… I mean, the most exciting business plan that I’ve seen are people who are really looking at taking advantage of the opportunities and alternative energy and green technologies. Also in the healthcare field, I think there’s an enormous amount of entrepreneurial enthusiasm about improving the healthcare system and the healthcare delivery system and finding new technologies for managing and delivering healthcare. The interesting thing is that these are all… that these are all things that reflect priorities that we have set out as a nation. And they are, in some sense, very underdeveloped sectors that are… that haven’t been invested in to the extent that other sectors have. Probably far too much creative energy went into the world of financial innovation not enough into, you know, healthcare innovation and alternative energy innovation. So I think we’re going to see some very exciting developments in those areas.
Question: What are the biggest mistakes leaders make in a crisis?
Cooley: People tend to discount the possibilities of extreme events. And so, just as a few years ago, people were probably way too shortsighted in how they thought about developments and finance and real estate. You know, now, there’s probably a tendency to be a bit too shortsighted about the problems that are created by the current downturn. Right now, I think that people have to understand that as bad as this recession is and will be for a little while, it will end and we’ll come out of it and that… that represents an opportunity. I’ll give you an example of this. There’s a phenomenon in economics that people talked about, called the great moderation. Ben Bernanke, the chairman of the Fed, wrote about the great moderation. And the phenomenon is this, that beginning in the early 1980s, the volatility of the economy and economies throughout the developed world decrease so they didn’t fluctuate as much. And after 20 years, we began to sort of study this as a phenomenon. Is it due to innovation? That’s one theory. Was it due to better central banking? That was another. But a third possibility is that we just had 20 years of pretty good luck. But once people built in to their expectations that lack of volatility, you know, even the recessions we had in that period were relatively mild and short-live. So I think that people began to discount risk way too much. They did not understand or did not want to face the reality of what the risks are. What is the risk of giving somebody a mortgage that they can’t afford on hope that the house is going to appreciate in value? But it’s a mistake that… that’s… that made over and over and people tend to forget about it.
Question: How should leaders communicate bad news?
Cooley: It’s certainly true that if business leaders convey truthfully, all the things that they were worried about, it might have the effect of a self-fulfilling prophecy. But what is true… what’s striking to me about the current situation, the current business environment is how few business leaders have stood up and stood out as principled, articulate spokesmen… spokespeople for what policy should do, for what businesses should do. There are no business leaders. In the panic of 1907, it was J.P Morgan who rushed to the rescue of the financial system in the US economy. And there is no one with that kind of clout in the modern world, no one even willing to stand up and speak out very much. It’s been astonishing how silent business leaders are.
Discuss
Teddy Stern on May 21, 2009, 10:15 PM
It’s often said that the greatest opportunities are when things seems most grim. I think it was Carnegie who said that the best time to invest is literally at the steppest point of the downturn — as that’s the time just before it starts to turn upwards.
If only companies had the courage to act on this!
Billy Gonzalez on May 27, 2009, 11:01 PM
I agee with this. And guess what? I’m graduating from Wharton this week. So thanks for the insight.
I’ve been offered (and accepted) a big job (can’t mention where) but this series inspired me.
What I wonder, is do these companies get, that it is my generation (well 15-20 years above, and somewhat similar below) that will be buying in the coming years? It still seems that the older generations are the focus.
Staci Collier on June 3, 2009, 12:02 PM
“On the heels of death, life springs forth. . .” It’s part of the natural cycle – and everything follows cycles.
I agree with Teddy. If people, businesses and companies had the courage to face their fears and take action during times of high risk they may just realize the great potential in doing so.
Besides, if you think about it logically, it just makes good sense. Invest during the lows and collect during the highs. If you get in on the ground floor . . . the only place to go is up.
Catherine Sandt on June 3, 2009, 5:57 PM
I don’t understand how you can defend the current business school structure — clearly they need to implement some new component that deals more explicitly with corporate responsibility.
Joe Smith on June 10, 2009, 2:19 PM
Many business schools have adopted such poliices. For instance, in the NY Times last week, there was an article about HBS students taking a pledge to be ethical and honorable in business. Columbia B school students have been doing this for some time. A more pertinent issue is whether or not ethics can really be taught. Can they?
Cordt Akers on June 10, 2009, 6:09 PM
A great observation was made by Cooley when he spoke briefly about the many the high-risk mortgages being given out in the past decade. I used to see ads for multi-million dollar homes and hear about the bidding wars people went through to buy them. I always wondered “Where are these people getting all this money from?” Now I know. They didn’t have it. The current high foreclosure rate is proving this. On a human level, I feel that we now need to help these people- we have that responsibility as a caring, compassionate people. I’m just wondering what the lenders where thinking when they made these loans. Were they aware of what might happen? Government will have to be more involved in the future to be sure this does not happen again.
William Castle on June 11, 2009, 6:06 PM
Does the suggestion that business school students in new companies falls into line with the comments of other people from similar videos. It is interesting that the hiring process out of business schools is almost like a zero sum game: the bigger companies don’t have the funding to hire new graduates and so the new graduates – people willing to work hard, and potentially change the industry – go to new ventures… which go about to look to change the industry. Wouldn’t large, estabilish firms be better off hiring these new graduates and attempt to change the industry from within?
Bradley Talbot on June 11, 2009, 7:30 PM
Congrats to Billy Gonzales for graduating! That is a terrific accomplishment.
I think that most of the big companies out there do tend to focus on the older demographic as that is what most of their work force is populated with. The younger, more nimble, more future focused firms tend to focus on younger trends. Who knows? The Fortune 500 is vastly different than it was a generation ago – and new companies who see the trends correctly and that serve the younger demographic are likely to take the place of those listed there today.
Jonothan Livingston on June 11, 2009, 11:43 PM
In repsonse to Catherine’s comment about corporate responsibility I recently read in the New York Times that Harvard instituted a new MBA Oath for students to take. Columbia or Wharton had one too, I think the article mentioned.
After all of the negative press that business schools have been getting lately, I think that they realize some of the changes that are necessary.
Maria Garcia-Reyes on June 12, 2009, 11:51 AM
I was struck by Cooley’s observation that there are no business leaders. There are plenty of business leaders in the modern world – it is just that there are no figures which have industry monopolies in the way that the robber barrons did. And honestly that is a good thing.
And I would not say that business leaders have been silent at all. All of the leaders of the top ten banks were quite vocal when they testified in front of congress. I heard that a good number of them have been giving graduation speeches as well.
What I think that Cooley was trying to say is that no one single person is going to be able to put a quick fix to things – or play a major role with government to do so. But that is due to the fact that the problem is so large and wealth and power are more evenly distributed.
Maria Garcia-Reyes on June 12, 2009, 11:52 AM
I was struck by Cooley’s observation that there are no business leaders. There are plenty of business leaders in the modern world – it is just that there are no figures which have industry monopolies in the way that the robber barrons did. And honestly that is a good thing.
And I would not say that business leaders have been silent at all. All of the leaders of the top ten banks were quite vocal when they testified in front of congress. I heard that a good number of them have been giving graduation speeches as well.
What I think that Cooley was trying to say is that no one single person is going to be able to put a quick fix to things – or play a major role with government to do so. But that is due to the fact that the problem is so large and wealth and power are more evenly distributed.
Callum Fitzpatrick on June 12, 2009, 1:57 PM
I’m not convinced that ethics can be taught in schools. Rather, I beleive that they are instilled at a much, much younger age by important people in your life – most notably your parents. By the time people are in business school all they can really learn is what happens if they do go and break the rules.
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