Welcome to Professor Pick. Business school teachers will provide weekly curated FT article selections to connect classrooms to current events and develop critical thinking for students.
Read all submissions at www.ft.com/bschoolpicks. Save this link in Maft and receive an email alerting you with each new edition. Search for tags for related topics to describe educational points. Encourage students to participate in the discussion in the comments section below the article.
Comments or contributions? Please contact Profpicks@ft.com
Financial management, investment
The great demolition of Europe from US stocks is just beginning
Tags: portfolio, diversification, investment, global asset allocation.
Summary: European stock markets have surpassed US counterparts so far this year. This is partly due to the flow of global funds. European investors in particular have diverted US investments into the home market.
According to diversification theory, the US stock market was long overweight in the global investment portfolio compared to global capitalization. This trend appears to be reversed as investors revive their quotas. However, the underlying reason is unknown. Active investment managers may be chasing better returns in anticipation of increased European growth and a more trained implementation of passive investments that replicate the weight of market value in each country.
Classroom Application: This article sets out interesting contexts for the discussion of global asset allocation under diversification theory, and real-world frictions and challenges to theory.
question:
We investigate the market value of the US and European stock markets. Identify the approximate weight of equity investments in the US and Europe. If investors diversify their investments along the global capitalization, what will the direction of capital flows and the size of fund flows?
How do currency exchange rates play a role in balancing weight? Can this explain the recent unstable currency market?
Is it a flow of funds triggered by the expectations of increased European growth, or are you reverting to theory and practicing diversification by assigning assets according to value weights globally?
Behavioral finance has what is called “home bias.” Do you think this is behind the recent European funding that has returned to Europe?
Zhun Liu, Senior Teaching Fellow at Warwick Business School
Audit, white-collar crime
Credit Switzerland to pay $51.1 million rather than helping wealthy Americans hide more than $4 billion
Tags: financial crime, financial fraud, whistleblowing, credit Swiss, UBS, tax evasion
Summary: UBS bankers are said to travel to the US 3,800 times a year to meet clients on offshore accounts and are trained in counter surveillance techniques to avoid detection by the FBI. Credit Suisse has been accused of deliberately eliminating many US taxpayers, forged IRS forms, and narrowly defining “Americans” to advise US clients to withdraw less than $10,000 at a time to avoid triggering automatic alerts.
Decades ago, US authorities identified offshore tax emissions as a problem with hundreds of millions of dollars, and ostensibly took steps to limit the use of tax havens. But the world may not have jurisdiction to provide less transparency than Delaware businesses can use.
Classroom Applications: Auditors and rating agencies have little incentive to deal with fraud, despite the fact that it is to help investors and regulators understand what is happening within those companies. They are hired by executives and paid by businesses, creating conflicts with the public interest.
For some psychologists, crime is attributed to psychological abnormalities. Others attribute it to stress and hub arrogance. Some argue that it is merely a result of excessive desire or ambition. Encouraging classroom discussions helps students gain a broader understanding of how management intuition motivates fraudulent behaviors that lead to the use of malicious and false means.
question:
Few people embark on a new career with the intention of leaving a major business school, causing harm, or committing white-collar crimes. What motivates them to take this route? Nature or nurturing? Logic or intuition?
Has the appointment of Chairman Ursu Rohner fundamentally changed Credit Suisse’s plan to deal with regulators? How effective was his strategy of fighting litigators rather than choosing an early settlement?
The so-called “exit project” failed miserably when Credit Suisse finally decided to get out of the business that helps clients avoid paying taxes. Why is that so?
The FT article explains how Credit Suisse’s misconduct violated a 2014 judicial agreement that hit the US Department of Justice and banks. How can regulators detect (and better prevent) such cases before they begin to hurt society?
What measures can we adopt to protect whistleblowers who are still facing major uncertainty, harsh treatments and harsh dilemmas?
The new Corporate Transparency Act 2024 requires businesses to submit to federal authorities the names of key beneficial owners and the administrators of all U.S. companies. How effective is this regulation?
Krishnan Ranganathan, guest faculty of Indian business schools
Sustainability, Marketing
Corporate buyers still fall under the green marketing puff, research finds
Tags: Corporate sustainability, green marketing, green washing, business to business
Summary: A new study reveals that EU corporate purchasing managers are just as susceptible to greenwashing as retail consumers, and often support products that contain flashy but uncertified environmental claims. Despite being willing to pay substantial premiums for “green” products, many managers seem unable to distinguish between reliable sustainability claims. The findings point to the need for stronger regulations such as clearer certification standards, better procurement training, and the coming-of-day EU Green Billing Directive.
Classroom Application: This article presents the great opportunity for business and marketing students to discuss drivers and the negative implications of being influenced by greenwashing practices as business customers. It also provides the opportunity to engage in role-playing of potential simulations.
For example, students can be divided into procurement and marketing teams. Marketing teams are provided with mock products, some with certified sustainability claims, while others have uncertified “green” languages. The procurement team then selects the product and justifies the decision. Finally, the professor will clarify which claims have been demonstrated and encourage discussions on these questions.
question:
Why do you think that the “green” language impacts more than independent authentication, corporate buyers have been affected?
What are the risks for businesses that are based on procurement decisions based on untested sustainability claims?
How does Ecolaibel’s spread affect the reliability of legitimate certifications?
How can internal green marketing training help procurement professionals make more informed decisions about sustainability claims?
Do you think the EU’s Green Claims Directive is effective in reducing green washing? Why or why?
How does corporate buyers’ skepticism about environmental claims of products affect the company’s environmental performance?
Karolos Papadas, Associate Professor at York University
finance
Our stocks will end higher after Trump eases concerns about independence
Discipline: Finance, International Entrepreneurship, International Strategy
Tags: Federal Reserve Bank, US Stock Market, Monetary Policy, Investor Trust
Summary: After President Donald Trump relieved investors that he had no intention of firing Federal Reserve Chairman Jay Powell, investor concerns over central bank independence settled, causing the US stock market to surge. This promise came after the turbulence of the market, brought about by fear of possible political interference in monetary policy. This experience highlights how important it is for political leaders to communicate clearly about economic governance, and how sensitive financial markets are to opinions about central bank authorities.
Classroom Application: This article can be used in classrooms to discuss broader issues such as the independence of the US Federal Reserve Bank, the political influence of monetary policy, and how markets respond to political statements. Additionally, it can be used as a catalyst for leadership, checking and balance of various federal branches, ethics, and historical precedents of Fed independence.
question:
How does the idea of central bank independence affect market stability and investor trust? What happens if this independence is compromised?
How can economic decisions be affected by political pressure on financial authorities? Talk about balancing central bank autonomy and democratic accountability
What causes the market to respond so strongly to political leadership’s declaration of monetary policy? Find out how such declarations affect financial markets
Assess how important it is for political and financial leaders to communicate clearly and consistently to maintain economic stability. How can misunderstandings increase market volatility?
Talk about the moral consequences of politicians trying to shake or fire central bank employees. Which governance frameworks are in place to stop these types of incidents? Are they appropriate?
Case Discussion Positioning: According to a March article, the Fed will likely need to cut US growth forecasts, partly due to President Trump’s policies. Kevin Worsh is a Trump ally and a former Fed governor. He may also be the candidate to take over Chairman Powell. The Fed remains ready and can stabilize the market when needed. According to an April article, the legal route to removing Fed chairs remains unclear.
Gregory Stoller, Master Lecturer, Boston University Questrom Business School
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