Global Financial Centres Index
Monday, March 29, 2010
Currency crisis likely to cripple global markets: Expert
MUMBAI: Even as the global economic meltdown is beginning to fade, the world might be in for
another crisis — a currency crisis, an expert has warned.
“The next biggest problem may be a currency crisis. It is a possibility that the next crisis awaiting
the world is a currency crisis,” renowned currency expert and Non-Executive Director of Elara
Capital, Mr Avinash Persaud, told PTI here.
He is the Chairman of Intelligence Capital, a company that advises the governments of many G-20
countries on managing their finances, and an expert member of the UK Government’s Treasury
Group.
The fiscal crisis brought about an increased burden on monetary policy and different countries met
it in different ways, he said.
“The US and the UK have no other option other than having weak currencies. In fact, the US has
a dollar de-valuation policy,” he said.
“India actually manages its currency (rupee) against the dollar. Now the country is using a basket
of currencies. In fact, we would want to limit the dollar problems. We don’t want to import dollar
problems — the RBI is trying to avoid that. It’s sensibl e,” he said.
According to Mr Persaud, the only source of growth is to have a weak currency.
While commenting on the European fiscal crisis which almost overwhelmed Greece, he said that
the consequence of a collapse would have been very grave.
“The Greek problem has now spread to Spain and Portugal. The European Union is now engaged
in trying to save these two countries. The European political directorate is fully conscious about
the consequences. They are trying to limit the problem. But whil e containing this problem a
currency crisis might erupt,” he warned.
However, the present crisis in Europe may turn out to be a blessing in disguise for the emerging
economies. “The fiscal problems in the US, the UK and Greece means there will be a lot of
liquidity in the system. This liquidity will lift countries with re al assets. It will be good for the
emerging economies like India,” Mr Persaud said.
another crisis — a currency crisis, an expert has warned.
“The next biggest problem may be a currency crisis. It is a possibility that the next crisis awaiting
the world is a currency crisis,” renowned currency expert and Non-Executive Director of Elara
Capital, Mr Avinash Persaud, told PTI here.
He is the Chairman of Intelligence Capital, a company that advises the governments of many G-20
countries on managing their finances, and an expert member of the UK Government’s Treasury
Group.
The fiscal crisis brought about an increased burden on monetary policy and different countries met
it in different ways, he said.
“The US and the UK have no other option other than having weak currencies. In fact, the US has
a dollar de-valuation policy,” he said.
“India actually manages its currency (rupee) against the dollar. Now the country is using a basket
of currencies. In fact, we would want to limit the dollar problems. We don’t want to import dollar
problems — the RBI is trying to avoid that. It’s sensibl e,” he said.
According to Mr Persaud, the only source of growth is to have a weak currency.
While commenting on the European fiscal crisis which almost overwhelmed Greece, he said that
the consequence of a collapse would have been very grave.
“The Greek problem has now spread to Spain and Portugal. The European Union is now engaged
in trying to save these two countries. The European political directorate is fully conscious about
the consequences. They are trying to limit the problem. But whil e containing this problem a
currency crisis might erupt,” he warned.
However, the present crisis in Europe may turn out to be a blessing in disguise for the emerging
economies. “The fiscal problems in the US, the UK and Greece means there will be a lot of
liquidity in the system. This liquidity will lift countries with re al assets. It will be good for the
emerging economies like India,” Mr Persaud said.
Tuesday, March 16, 2010
Conserving capital in options trading
There has been discernible investor interest in options trading in recent times. One reason for the rising interest is the volatility in the stock market; higher volatility makes options more valuable. The problem, however, is that most options expire worthless, leading to loss in capital. How then should investor gainfully use options trading in a portfolio framework?
This article explains the risks associated with options trading. It then discusses why investors should define risk budgets to contain such risks. It then shows how such budgets along with risk management rules help conserve investment capital.
Options carry asymmetric payoffs. The maximum loss for a call option buyer is the premium paid; the maximum profit is unlimited. For put buyers, the maximum loss is the premium paid; the maximum profit is high.
The problem, however, is that options are wasting assets. That is, they have finite life and rapidly lose value if the underlying does not move in the required direction.
Suppose an investor buys the Nifty 4,900 call option on February 12 when the underlying index is at 4,830. The option at 25 per cent volatility will be worth Rs 64. If the underlying does not move for a week, the option will decline to Rs 39. And if the underlying instead declines to 4,750 after a week, the option would be worth only Rs 18. The option rapidly loses value because of time decay; with each passing day, the option has less time to generate gains before expiry.
The option also loses value due to volatility; decline in volatility leads to fall in option value. If the Nifty index stays at 4,830 for a week but volatility declines to 15 per cent, the Nifty 4,900 call will fall to Rs 3.
Time decay and volatility factors explain why most options expire worthless every month.
The strategy then should be to conserve capital. Otherwise, investors would exhaust investment capital every month with each expiring option.
Risk budget
It is, hence, important to define a risk budget. That is, the investor should define the investment capital allocated for options trading. And then frame risk management rules to prevent losses due to time decay and volatility factors.
Risk budget, for instance, can be allocating 5 per cent of the total portfolio to the options market. Suppose the total investment portfolio is Rs 25 lakh. The allocation to options trading would then be Rs 1.25 lakh.
Just allocating risk capital does not help. An investor buying option contracts will lose sizable capital in several months if options she buys expire worthless. That is why the two per cent risk management rule is important. This rule requires that the investor should not expose more than 2 per cent of the options risk capital to each trade.
Suppose an investor buys one contract of the 4,900 call option for Rs 64 for a total outlay of Rs 3,200 (Rs 64 times 50). Two per cent of the options risk budget of Rs 1.25 lakh is Rs 2,500. The investor, therefore, cannot risk more than Rs 2,500 in this trade. Given the contract size of 50, this translates into a maximum loss of Rs 50 per option. So, the investor has to close the position if the 4,900 call declines to Rs 14 (Rs 64 less Rs 50). The next trade will carry lower risk because the risk capital will be Rs 1.25 lakh less the loss of the previous trade. This rule forces the investor to engage in only one trade at a time.
Conclusion
Options, because of asymmetric payoff, fit well within the satellite portfolio in a core-satellite framework. Time decay and volatility factors, however, lead to frequent small losses and infrequent large gains. Risk budget, therefore, helps investors stretch their investment capital despite the likelihood of options expiring worthless.
This article explains the risks associated with options trading. It then discusses why investors should define risk budgets to contain such risks. It then shows how such budgets along with risk management rules help conserve investment capital.
Options carry asymmetric payoffs. The maximum loss for a call option buyer is the premium paid; the maximum profit is unlimited. For put buyers, the maximum loss is the premium paid; the maximum profit is high.
The problem, however, is that options are wasting assets. That is, they have finite life and rapidly lose value if the underlying does not move in the required direction.
Suppose an investor buys the Nifty 4,900 call option on February 12 when the underlying index is at 4,830. The option at 25 per cent volatility will be worth Rs 64. If the underlying does not move for a week, the option will decline to Rs 39. And if the underlying instead declines to 4,750 after a week, the option would be worth only Rs 18. The option rapidly loses value because of time decay; with each passing day, the option has less time to generate gains before expiry.
The option also loses value due to volatility; decline in volatility leads to fall in option value. If the Nifty index stays at 4,830 for a week but volatility declines to 15 per cent, the Nifty 4,900 call will fall to Rs 3.
Time decay and volatility factors explain why most options expire worthless every month.
The strategy then should be to conserve capital. Otherwise, investors would exhaust investment capital every month with each expiring option.
Risk budget
It is, hence, important to define a risk budget. That is, the investor should define the investment capital allocated for options trading. And then frame risk management rules to prevent losses due to time decay and volatility factors.
Risk budget, for instance, can be allocating 5 per cent of the total portfolio to the options market. Suppose the total investment portfolio is Rs 25 lakh. The allocation to options trading would then be Rs 1.25 lakh.
Just allocating risk capital does not help. An investor buying option contracts will lose sizable capital in several months if options she buys expire worthless. That is why the two per cent risk management rule is important. This rule requires that the investor should not expose more than 2 per cent of the options risk capital to each trade.
Suppose an investor buys one contract of the 4,900 call option for Rs 64 for a total outlay of Rs 3,200 (Rs 64 times 50). Two per cent of the options risk budget of Rs 1.25 lakh is Rs 2,500. The investor, therefore, cannot risk more than Rs 2,500 in this trade. Given the contract size of 50, this translates into a maximum loss of Rs 50 per option. So, the investor has to close the position if the 4,900 call declines to Rs 14 (Rs 64 less Rs 50). The next trade will carry lower risk because the risk capital will be Rs 1.25 lakh less the loss of the previous trade. This rule forces the investor to engage in only one trade at a time.
Conclusion
Options, because of asymmetric payoff, fit well within the satellite portfolio in a core-satellite framework. Time decay and volatility factors, however, lead to frequent small losses and infrequent large gains. Risk budget, therefore, helps investors stretch their investment capital despite the likelihood of options expiring worthless.
‘The New Normal' for business
Over the year several commentators have referred to “The New Normal”. The term was first introduced by Mr Mohammed El-Erian, CIO of Pimco, the bond asset manager, and has triggered a debate among economists on what it implies for economies in the long term.
What does the New Normal mean? Before the financial crisis struck in August 2007, the world was used to robust economic growth numbers that were upwards of 3 per cent year on year, and a labour market that was close to full employment. The private sector was flourishing and benefited from a world that had become more interconnected, with all the attendant benefits of increased trade and final consumption. Governments were able to lure voters with tax cuts.
Following the financial market crash and subsequent global recession of 2007-2009, all this has come to an end. It appears that the world will have to adjust to a new equilibrium that features more regulation, higher taxes, less leverage, lower growth and higher unemployment. This is the New Normal.
END OF AN ERA
There are a number of valid reasons why it may be hard to return to the “Old Normal” for the next 10, or possibly 20, years.
The era of cheap credit, which was the fuel of the economic growth engine, is definitely behind us. The shadow banking system that helped sustain it has collapsed, and quite rightly regulators are looking at ways to shut that door for good. Of course, markets move in cycles, and there will be a point in the future when banks will be able to loosen their credit standards. But this will take time.
The first phase of deleveraging in the banking sector is over. This was an abrupt and disruptive one. Now the second phase has begun, and this one should be more orderly. Nevertheless, continuing write-downs in residential property, commercial real estate and credit cards will force banks to deleverage their balance sheets still further. This means that in the years ahead the supply of credit will be limited, and this will impact economic growth.
Then, there is the global imbalance of Asian and oil-exporting countries using their large trade surpluses to fund American consumers' debt-financed spending. Although fundamentally so far nothing has been done about this problem, recent rhetoric from the BRIC countries (Brazil-Russia-India-China) suggests that there is growing caution about continuing to invest in US sovereign paper.
This would impact the US economy's ability to finance its household deficits. (Actually, this rhetoric seems to be just that: if these, and other countries such as Russia that have also spoken of this issue -- stop buying US debt -- where are they going to park their export surpluses?)
The Old Normal was based upon a model where the rest of the world was producing cheap products to satisfy US consumerism and in return received US fixed income paper. In the long-term the solution to this problem is for consumers in emerging market economies to start buying what that they produce. But this is not going to happen immediately, and therefore growth will be at a much lower pace.
IMPACT ON INDUSTRY
After the Lehman collapse the private economy imploded and governments all over the world had to implement rescue packages for their banks and wider economies. In addition to the banking sector, the manufacturing industry received state aid as well. For example, the US car industry was virtually nationalised. Other industries received similar such assistance, and these stimulus packages are still in place.
Withdrawing these incentives may trigger another fallout. This is the problem with state aid and protected industries: the sector gets used to this aid and becomes unviable as a profitable stand-alone entity. As Pimco CEO Bill Gross has said, the invisible hand of Adam Smith has been replaced by the visible hand of the public sector.
The US housing market is a crucial cylinder in the economic growth engine. After the collapse of the dot.com bubble the American consumer used housing rather than the stock market to raise funds to maintain spending, via several creative refinancing techniques. As a consequence, homeownership rose to approximately 70 per cent in the US. We now know that many housebuyers didn't really qualify for the mortgage loan they entered into, applying prudential standards.
Under the New Normal, homeownership will drop again to pre-housing bubble levels of around 65 per cent. This suggests that the sector can no longer be a driving force for economic growth.
LOWER DEFICITS AND GROWTH
The gigantic stimulus and rescue packages undertaken by governments across the world have derailed public finances; there is concern over how governments will stabilise borrowing. This environment of constrained borrowing and government budget cuts will peg back growth.
This New Normal is a distinct possibility. As such, the market environment is one where the US dollar will face serious difficulties and above-average growth will come only from the new economies in Asia and possibly the oil-exporters.
Therefore, investors need to modify their world view to take this into account.
What does the New Normal mean? Before the financial crisis struck in August 2007, the world was used to robust economic growth numbers that were upwards of 3 per cent year on year, and a labour market that was close to full employment. The private sector was flourishing and benefited from a world that had become more interconnected, with all the attendant benefits of increased trade and final consumption. Governments were able to lure voters with tax cuts.
Following the financial market crash and subsequent global recession of 2007-2009, all this has come to an end. It appears that the world will have to adjust to a new equilibrium that features more regulation, higher taxes, less leverage, lower growth and higher unemployment. This is the New Normal.
END OF AN ERA
There are a number of valid reasons why it may be hard to return to the “Old Normal” for the next 10, or possibly 20, years.
The era of cheap credit, which was the fuel of the economic growth engine, is definitely behind us. The shadow banking system that helped sustain it has collapsed, and quite rightly regulators are looking at ways to shut that door for good. Of course, markets move in cycles, and there will be a point in the future when banks will be able to loosen their credit standards. But this will take time.
The first phase of deleveraging in the banking sector is over. This was an abrupt and disruptive one. Now the second phase has begun, and this one should be more orderly. Nevertheless, continuing write-downs in residential property, commercial real estate and credit cards will force banks to deleverage their balance sheets still further. This means that in the years ahead the supply of credit will be limited, and this will impact economic growth.
Then, there is the global imbalance of Asian and oil-exporting countries using their large trade surpluses to fund American consumers' debt-financed spending. Although fundamentally so far nothing has been done about this problem, recent rhetoric from the BRIC countries (Brazil-Russia-India-China) suggests that there is growing caution about continuing to invest in US sovereign paper.
This would impact the US economy's ability to finance its household deficits. (Actually, this rhetoric seems to be just that: if these, and other countries such as Russia that have also spoken of this issue -- stop buying US debt -- where are they going to park their export surpluses?)
The Old Normal was based upon a model where the rest of the world was producing cheap products to satisfy US consumerism and in return received US fixed income paper. In the long-term the solution to this problem is for consumers in emerging market economies to start buying what that they produce. But this is not going to happen immediately, and therefore growth will be at a much lower pace.
IMPACT ON INDUSTRY
After the Lehman collapse the private economy imploded and governments all over the world had to implement rescue packages for their banks and wider economies. In addition to the banking sector, the manufacturing industry received state aid as well. For example, the US car industry was virtually nationalised. Other industries received similar such assistance, and these stimulus packages are still in place.
Withdrawing these incentives may trigger another fallout. This is the problem with state aid and protected industries: the sector gets used to this aid and becomes unviable as a profitable stand-alone entity. As Pimco CEO Bill Gross has said, the invisible hand of Adam Smith has been replaced by the visible hand of the public sector.
The US housing market is a crucial cylinder in the economic growth engine. After the collapse of the dot.com bubble the American consumer used housing rather than the stock market to raise funds to maintain spending, via several creative refinancing techniques. As a consequence, homeownership rose to approximately 70 per cent in the US. We now know that many housebuyers didn't really qualify for the mortgage loan they entered into, applying prudential standards.
Under the New Normal, homeownership will drop again to pre-housing bubble levels of around 65 per cent. This suggests that the sector can no longer be a driving force for economic growth.
LOWER DEFICITS AND GROWTH
The gigantic stimulus and rescue packages undertaken by governments across the world have derailed public finances; there is concern over how governments will stabilise borrowing. This environment of constrained borrowing and government budget cuts will peg back growth.
This New Normal is a distinct possibility. As such, the market environment is one where the US dollar will face serious difficulties and above-average growth will come only from the new economies in Asia and possibly the oil-exporters.
Therefore, investors need to modify their world view to take this into account.
Life : A Speech by Bryan Dyson
If you need any words of encouragement. Here’s a speech I recently came across that resonates with me on what “balance” really means in life. Hope it does for your as well…
Imagine life as a game in which you are juggling some five balls in the air. You name them - work, family, health, friends and spirit and you’re keeping all of these in the air. You will soon understand that work is a rubber ball. If you drop it, it will bounce back. But the other four balls - family, health, friends and spirit - are made of glass. If you drop one of these, they will be irrevocably scuffed, marked, nicked, damaged or even shattered. They will never be the same.
You must understand that and strive for balance in your life.
How?
Don’t undermine your worth by comparing yourself with others. It is because we are different that each of us is special.
Don’t set your goals by what other people deem important. Only you know what is best for you.
Don’t take for granted the things closest to your heart. Cling to them as they would your life, for without them, life is meaningless.
Don’t let your life slip through your fingers by living in the past or for the future.
By living your life one day at a time, you live ALL the days of your life.
Don’t give up when you still have something to give. Nothing is really over until the moment you stop trying.
Don’t be afraid to admit that you are less than perfect. It is this fragile thread that binds us to each together.
Don’t be afraid to encounter risks. It is by taking chances that we learn how to be brave.
Don’t shut love out of your life by saying it’s impossible to find time. The quickest way to receive love is to give; the fastest way to lose love is to hold it too tightly; and the best way to keep love is to give it wings.
Don’t run through life so fast that you forget not only where you’ve been, but also where you are going.
Don’t forget, a person’s greatest emotional need is to feel appreciated.
Don’t be afraid to learn. Knowledge is weightless, a treasure you can always carry easily.
Don’t use time or words carelessly. Neither can be retrieved.
Life is not a race, but a journey to be savored each step of the way.
Imagine life as a game in which you are juggling some five balls in the air. You name them - work, family, health, friends and spirit and you’re keeping all of these in the air. You will soon understand that work is a rubber ball. If you drop it, it will bounce back. But the other four balls - family, health, friends and spirit - are made of glass. If you drop one of these, they will be irrevocably scuffed, marked, nicked, damaged or even shattered. They will never be the same.
You must understand that and strive for balance in your life.
How?
Don’t undermine your worth by comparing yourself with others. It is because we are different that each of us is special.
Don’t set your goals by what other people deem important. Only you know what is best for you.
Don’t take for granted the things closest to your heart. Cling to them as they would your life, for without them, life is meaningless.
Don’t let your life slip through your fingers by living in the past or for the future.
By living your life one day at a time, you live ALL the days of your life.
Don’t give up when you still have something to give. Nothing is really over until the moment you stop trying.
Don’t be afraid to admit that you are less than perfect. It is this fragile thread that binds us to each together.
Don’t be afraid to encounter risks. It is by taking chances that we learn how to be brave.
Don’t shut love out of your life by saying it’s impossible to find time. The quickest way to receive love is to give; the fastest way to lose love is to hold it too tightly; and the best way to keep love is to give it wings.
Don’t run through life so fast that you forget not only where you’ve been, but also where you are going.
Don’t forget, a person’s greatest emotional need is to feel appreciated.
Don’t be afraid to learn. Knowledge is weightless, a treasure you can always carry easily.
Don’t use time or words carelessly. Neither can be retrieved.
Life is not a race, but a journey to be savored each step of the way.
Graduation Day Speech by Indira Nooyi
Similar to the speech I posted about Bryan Dyson. Here’s a motivational speech given by Indra Nooyi, president and CFO of PepsiCo ( PEP ), at the Columbia University Business School graduation ceremonies on May 15. A little long, but definitely worth the inspirational read it delivers.
Good evening, everyone.
Dean Hubbard, distinguished faculty, honored graduates, relieved parents, family, and friends, it’s a distinct pleasure to be in New York City this evening to celebrate the biggest milestone to date in the lives of you, the young men and women before us: your graduation from Columbia University Business School.
It may surprise you, graduates, but as big a night as this is for you, it’s an even bigger night for your parents. They may look calm and collected as they sit in the audience, but deep inside they’re doing cartwheels, dancing the Macarena, and practically speaking in tongues, they’re so excited. This is what happens when parents anticipate that their bank accounts will soon rehydrate after being bone-dry for two years. So, for everyone here this evening, it’s a very special occasion. And I’m delighted to share it with you.
I am keenly aware that graduates traditionally refer to our time together this evening as the calm before the storm. Some graduates — perhaps those who minored in self-awareness — refer to the commencement address as “the snooze before the booze.” However you describe my comments this evening, please know that I understand. It wasn’t that long ago that I was in your place. And I remember the day well. I knew that I owed my parents — my financial benefactors — this opportunity to revel in our mutual accomplishment. Yet, as the guy at the podium droned on about values, goals, and how to make my dreams take flight, I remember desperately checking and rechecking my watch. I thought, “I deserve to party, and this codger’s cramping my style!”
In one of life’s true ironies, I am now that codger. Well…I’m the female equivalent. A codg-ette, I guess. And I now understand that values, goals, and how to make dreams take flight, really are important. So being a firm believer that hindsight is one of life’s greatest teachers, allow me to make belated amends.
To that distinguished, erudite, and absolutely brilliant man whom I silently dissed many years ago: mea culpa. Big, BIG mea culpa!
This evening, graduates, I want to share a few thoughts about a topic that should be near and dear to your hearts: the world of global business. But, I’m going to present this topic in a way that you probably haven’t considered before. I’m going to take a look at how the United States is often perceived in global business, what causes this perception, and what we can do about it. To help me, I’m going to make use of a model.
To begin, I’d like you to consider your hand. That’s right: your hand.
Other than the fact that mine desperately needs a manicure, it’s a pretty typical hand. But, what I want you to notice, in particular, is that the five fingers are not the same. One is short and thick, one tiny, and the other three are different as well. And yet, as in perhaps no other part of our bodies, the fingers work in harmony without us even thinking about them individually. Whether we attempt to grasp a dime on a slick, marble surface, a child’s arm as we cross the street, or a financial report, we don’t consciously say, “OK, move these fingers here, raise this one, turn this one under, now clamp together. Got it!” We just think about what we want to do and it happens. Our fingers — as different as they are — coexist to create a critically important whole.
This unique way of looking at my hand was just one result of hot summer evenings in my childhood home in Madras, India. My mother, sister, and I would sit at our kitchen table and — for lack of a better phrase — think big thoughts. One of those thoughts was this difference in our fingers and how, despite their differences, they worked together to create a wonderful tool.
As I grew up and started to study geography, I remember being told that the five fingers can be thought of as the five major continents: Europe, Asia, Africa, and North and South America. Now, let me issue a profound apology to both Australia and Antarctica. I bear neither of these continents any ill will. It’s just that we humans have only five fingers on each hand, so my analogy doesn’t work with seven continents.
Clearly, the point of my story is more important than geographical accuracy!
First, let’s consider our little finger. Think of this finger as Africa. Africa is the little finger not because of Africa’s size, but because of its place on the world’s stage. From an economic standpoint, Africa has yet to catch up with her sister continents. And yet, when our little finger hurts, it affects the whole hand.
Our thumb is Asia: strong, powerful, and ready to assert herself as a major player on the world’s economic stage.
Our index, or pointer finger, is Europe. Europe is the cradle of democracy and pointed the way for western civilization and the laws we use in conducting global business.
The ring finger is South America, including Latin America. Is this appropriate, or what? The ring finger symbolizes love and commitment to another person. Both Latin and South America are hot, passionate, and filled with the sensuous beats of the mambo, samba, and tango: three dances that — if done right — can almost guarantee you and your partner will be buying furniture together.
This analogy of the five fingers as the five major continents leaves the long, middle finger for North America, and, in particular, the United States. As the longest of the fingers, it really stands out. The middle finger anchors every function that the hand performs and is the key to all of the fingers working together efficiently and effectively. This is a really good thing, and has given the U.S. a leg up in global business since the end of World War I.
However, if used inappropriately — just like the U.S. itself — the middle finger can convey a negative message and get us in trouble. You know what I’m talking about. In fact, I suspect you’re hoping that I’ll demonstrate what I mean. And trust me, I’m not looking for volunteers to model.
Discretion being the better part of valor…I think I’ll pass.
What is most crucial to my analogy of the five fingers as the five major continents, is that each of us in the U.S. — the long middle finger — must be careful that when we extend our arm in either a business or political sense, we take pains to assure we are giving a hand…not the finger. Sometimes this is very difficult. Because the U.S. — the middle finger — sticks out so much, we can send the wrong message unintentionally.
Unfortunately, I think this is how the rest of the world looks at the U.S. right now. Not as part of the hand — giving strength and purpose to the rest of the fingers — but, instead, scratching our nose and sending a far different signal.
I’d challenge each of you to think about how critically important it is for every finger on your hand to rise and bend together. You cannot simply “allow” the other four fingers to rise only when you want them to. If you’ve ever even tried to do that, you know how clumsy and uncoordinated it is.
My point here is that it’s not enough just to understand that the other fingers coexist. We’ve got to consciously and actively ensure that every one of them stands tall together, or that they bend together when needed.
Today, as each of you ends one chapter in your young lives and begins another, I want you to consider how you will conduct your business careers so that the other continents see you extending a hand…not the finger. Graduates, it’s not that hard. You can change and shape the attitudes and opinions of the other fingers — the other continents and their peoples — by simply ascribing positive intent to all your international business transactions. If you fail, or if you are careless, here’s a perfect example of what can happen:
A U.S. businesswoman was recently in Beijing, China, on an international training assignment for a luxury hotel chain. The chain was rebranding an older Beijing hotel. As such, the toilets in the hotel had yet to be upgraded. There were no porcelain commodes, just holes in the floor. Until recently, this was the standard procedure in China.
Now, 8,000 miles removed from the scene, you and I — and most Americans — can shake our heads and giggle at the physical contortions and delicate motor skills necessary to make the best of this situation. We’re simply not used to it. But to loudly and insultingly verbalize these feelings onsite, in front of the employees and guests of the host country, is bush league. And yet, that’s exactly what this woman observed.
In the hotel’s bar, the woman overheard a group of five American businessmen loudly making fun of the hotel’s lavatory facilities. As the drinks flowed, the crass and vulgar comments grew louder, and actually took on an angry, jingoistic tone. While these Americans couldn’t speak a word of Chinese, their Chinese hosts spoke English very well, and understood every word the men were saying.
And we wonder why the world views many Americans as boorish and culturally insensitive. This incident should make it abundantly clear. These men were not giving China a hand. They were giving China the finger. This finger was red, white, and blue, and had “the United States” stamped all over it.
Graduates, it pains me greatly that this view of America persists. Although I’m a daughter of India, I’m an American businesswoman. My family and I are citizens of this great country.
This land we call home is a most loving and ever-giving nation — a Promised Land that we love dearly in return. And it represents a true force that, if used for good, can steady the hand — along with global economies and cultures.
Yet to see us frequently stub our fingers on the international business and political stage is deeply troubling. Truth be told, the behaviors of a few sully the perception for all of us. And we know how often perception is mistaken for reality.
We can do better. We should do better. With your help, with your empathy, with your positive intent as representatives of the U.S. in global business, we will do better. Now, as never before, it’s important that we give the world a hand…not the finger.
In conclusion, graduates, I want to return to my introductory comments this evening. I observed that as big a night as this is for you, it’s an even bigger night for your parents. I ascribed their happiness to looking forward to a few more “George Washingtons” in their bank accounts. While this is certainly true, there is another reason.
Each of your parents believes that their hard work has paid off. Finally! They believe that maybe — just maybe — they have raised and nurtured the next Jack Welch, Meg Whitman, or Patricia Russo.
Don’t disappoint them. Don’t disappoint your companies. And don’t disappoint yourselves.
As you begin your business careers, and as you travel throughout the world to assure America’s continued global economic leadership, remember your hand. And remember to do your part to influence perception.
Remember that the middle finger — the United States — always stands out. If you’re smart, if you exhibit emotional intelligence as well as academic intelligence, if you ascribe positive intent to all your actions on the international business stage, this can be a great advantage. But if you aren’t careful — if you stomp around in a tone-deaf fog like the ignoramus in Beijing — it will also get you in trouble. And when it does, you will have only yourself to blame.
Graduates, as you aggressively compete on the international business stage, understand that the five major continents and their peoples — the five fingers of your hand — each have their own strengths and their own contributions to make. Just as each of your fingers must coexist to create a critically important tool, each of the five major continents must also coexist to create a world in balance. You, as an American businessperson, will either contribute to or take away from, this balance.
So remember, when you extend your arm to colleagues and peoples from other countries, make sure that you’re giving a hand, not the finger. You will help your country, your company, and yourself, more than you will ever know.
Thank you very much.
Good evening, everyone.
Dean Hubbard, distinguished faculty, honored graduates, relieved parents, family, and friends, it’s a distinct pleasure to be in New York City this evening to celebrate the biggest milestone to date in the lives of you, the young men and women before us: your graduation from Columbia University Business School.
It may surprise you, graduates, but as big a night as this is for you, it’s an even bigger night for your parents. They may look calm and collected as they sit in the audience, but deep inside they’re doing cartwheels, dancing the Macarena, and practically speaking in tongues, they’re so excited. This is what happens when parents anticipate that their bank accounts will soon rehydrate after being bone-dry for two years. So, for everyone here this evening, it’s a very special occasion. And I’m delighted to share it with you.
I am keenly aware that graduates traditionally refer to our time together this evening as the calm before the storm. Some graduates — perhaps those who minored in self-awareness — refer to the commencement address as “the snooze before the booze.” However you describe my comments this evening, please know that I understand. It wasn’t that long ago that I was in your place. And I remember the day well. I knew that I owed my parents — my financial benefactors — this opportunity to revel in our mutual accomplishment. Yet, as the guy at the podium droned on about values, goals, and how to make my dreams take flight, I remember desperately checking and rechecking my watch. I thought, “I deserve to party, and this codger’s cramping my style!”
In one of life’s true ironies, I am now that codger. Well…I’m the female equivalent. A codg-ette, I guess. And I now understand that values, goals, and how to make dreams take flight, really are important. So being a firm believer that hindsight is one of life’s greatest teachers, allow me to make belated amends.
To that distinguished, erudite, and absolutely brilliant man whom I silently dissed many years ago: mea culpa. Big, BIG mea culpa!
This evening, graduates, I want to share a few thoughts about a topic that should be near and dear to your hearts: the world of global business. But, I’m going to present this topic in a way that you probably haven’t considered before. I’m going to take a look at how the United States is often perceived in global business, what causes this perception, and what we can do about it. To help me, I’m going to make use of a model.
To begin, I’d like you to consider your hand. That’s right: your hand.
Other than the fact that mine desperately needs a manicure, it’s a pretty typical hand. But, what I want you to notice, in particular, is that the five fingers are not the same. One is short and thick, one tiny, and the other three are different as well. And yet, as in perhaps no other part of our bodies, the fingers work in harmony without us even thinking about them individually. Whether we attempt to grasp a dime on a slick, marble surface, a child’s arm as we cross the street, or a financial report, we don’t consciously say, “OK, move these fingers here, raise this one, turn this one under, now clamp together. Got it!” We just think about what we want to do and it happens. Our fingers — as different as they are — coexist to create a critically important whole.
This unique way of looking at my hand was just one result of hot summer evenings in my childhood home in Madras, India. My mother, sister, and I would sit at our kitchen table and — for lack of a better phrase — think big thoughts. One of those thoughts was this difference in our fingers and how, despite their differences, they worked together to create a wonderful tool.
As I grew up and started to study geography, I remember being told that the five fingers can be thought of as the five major continents: Europe, Asia, Africa, and North and South America. Now, let me issue a profound apology to both Australia and Antarctica. I bear neither of these continents any ill will. It’s just that we humans have only five fingers on each hand, so my analogy doesn’t work with seven continents.
Clearly, the point of my story is more important than geographical accuracy!
First, let’s consider our little finger. Think of this finger as Africa. Africa is the little finger not because of Africa’s size, but because of its place on the world’s stage. From an economic standpoint, Africa has yet to catch up with her sister continents. And yet, when our little finger hurts, it affects the whole hand.
Our thumb is Asia: strong, powerful, and ready to assert herself as a major player on the world’s economic stage.
Our index, or pointer finger, is Europe. Europe is the cradle of democracy and pointed the way for western civilization and the laws we use in conducting global business.
The ring finger is South America, including Latin America. Is this appropriate, or what? The ring finger symbolizes love and commitment to another person. Both Latin and South America are hot, passionate, and filled with the sensuous beats of the mambo, samba, and tango: three dances that — if done right — can almost guarantee you and your partner will be buying furniture together.
This analogy of the five fingers as the five major continents leaves the long, middle finger for North America, and, in particular, the United States. As the longest of the fingers, it really stands out. The middle finger anchors every function that the hand performs and is the key to all of the fingers working together efficiently and effectively. This is a really good thing, and has given the U.S. a leg up in global business since the end of World War I.
However, if used inappropriately — just like the U.S. itself — the middle finger can convey a negative message and get us in trouble. You know what I’m talking about. In fact, I suspect you’re hoping that I’ll demonstrate what I mean. And trust me, I’m not looking for volunteers to model.
Discretion being the better part of valor…I think I’ll pass.
What is most crucial to my analogy of the five fingers as the five major continents, is that each of us in the U.S. — the long middle finger — must be careful that when we extend our arm in either a business or political sense, we take pains to assure we are giving a hand…not the finger. Sometimes this is very difficult. Because the U.S. — the middle finger — sticks out so much, we can send the wrong message unintentionally.
Unfortunately, I think this is how the rest of the world looks at the U.S. right now. Not as part of the hand — giving strength and purpose to the rest of the fingers — but, instead, scratching our nose and sending a far different signal.
I’d challenge each of you to think about how critically important it is for every finger on your hand to rise and bend together. You cannot simply “allow” the other four fingers to rise only when you want them to. If you’ve ever even tried to do that, you know how clumsy and uncoordinated it is.
My point here is that it’s not enough just to understand that the other fingers coexist. We’ve got to consciously and actively ensure that every one of them stands tall together, or that they bend together when needed.
Today, as each of you ends one chapter in your young lives and begins another, I want you to consider how you will conduct your business careers so that the other continents see you extending a hand…not the finger. Graduates, it’s not that hard. You can change and shape the attitudes and opinions of the other fingers — the other continents and their peoples — by simply ascribing positive intent to all your international business transactions. If you fail, or if you are careless, here’s a perfect example of what can happen:
A U.S. businesswoman was recently in Beijing, China, on an international training assignment for a luxury hotel chain. The chain was rebranding an older Beijing hotel. As such, the toilets in the hotel had yet to be upgraded. There were no porcelain commodes, just holes in the floor. Until recently, this was the standard procedure in China.
Now, 8,000 miles removed from the scene, you and I — and most Americans — can shake our heads and giggle at the physical contortions and delicate motor skills necessary to make the best of this situation. We’re simply not used to it. But to loudly and insultingly verbalize these feelings onsite, in front of the employees and guests of the host country, is bush league. And yet, that’s exactly what this woman observed.
In the hotel’s bar, the woman overheard a group of five American businessmen loudly making fun of the hotel’s lavatory facilities. As the drinks flowed, the crass and vulgar comments grew louder, and actually took on an angry, jingoistic tone. While these Americans couldn’t speak a word of Chinese, their Chinese hosts spoke English very well, and understood every word the men were saying.
And we wonder why the world views many Americans as boorish and culturally insensitive. This incident should make it abundantly clear. These men were not giving China a hand. They were giving China the finger. This finger was red, white, and blue, and had “the United States” stamped all over it.
Graduates, it pains me greatly that this view of America persists. Although I’m a daughter of India, I’m an American businesswoman. My family and I are citizens of this great country.
This land we call home is a most loving and ever-giving nation — a Promised Land that we love dearly in return. And it represents a true force that, if used for good, can steady the hand — along with global economies and cultures.
Yet to see us frequently stub our fingers on the international business and political stage is deeply troubling. Truth be told, the behaviors of a few sully the perception for all of us. And we know how often perception is mistaken for reality.
We can do better. We should do better. With your help, with your empathy, with your positive intent as representatives of the U.S. in global business, we will do better. Now, as never before, it’s important that we give the world a hand…not the finger.
In conclusion, graduates, I want to return to my introductory comments this evening. I observed that as big a night as this is for you, it’s an even bigger night for your parents. I ascribed their happiness to looking forward to a few more “George Washingtons” in their bank accounts. While this is certainly true, there is another reason.
Each of your parents believes that their hard work has paid off. Finally! They believe that maybe — just maybe — they have raised and nurtured the next Jack Welch, Meg Whitman, or Patricia Russo.
Don’t disappoint them. Don’t disappoint your companies. And don’t disappoint yourselves.
As you begin your business careers, and as you travel throughout the world to assure America’s continued global economic leadership, remember your hand. And remember to do your part to influence perception.
Remember that the middle finger — the United States — always stands out. If you’re smart, if you exhibit emotional intelligence as well as academic intelligence, if you ascribe positive intent to all your actions on the international business stage, this can be a great advantage. But if you aren’t careful — if you stomp around in a tone-deaf fog like the ignoramus in Beijing — it will also get you in trouble. And when it does, you will have only yourself to blame.
Graduates, as you aggressively compete on the international business stage, understand that the five major continents and their peoples — the five fingers of your hand — each have their own strengths and their own contributions to make. Just as each of your fingers must coexist to create a critically important tool, each of the five major continents must also coexist to create a world in balance. You, as an American businessperson, will either contribute to or take away from, this balance.
So remember, when you extend your arm to colleagues and peoples from other countries, make sure that you’re giving a hand, not the finger. You will help your country, your company, and yourself, more than you will ever know.
Thank you very much.
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