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| COURSE CONNECTOR |
| ARTICLE SUMMARIES AND QUESTIONS |
| "A Meditation on Risk," pp. 50-62: One of the biggest lessons to be learned in the wake of Hurricane Katrina is the importance of risk management. As serious questions emerge about why more wasn't done to fortify New Orleans' levee system before the catastrophe, and why local and federal governing bodies didn't respond more quickly in the aftermath of the disastrous storm, authorities would do well to study how others have managed risk and dealt with crises in similar situations. In the Netherlands, where people were shocked to learn that Americans had accepted a one-in-200 chance of New Orleans flooding, Dutch law dictates that the country's sea defenses be capable of turning back all but a once-in-10,000-years storm. Indeed, a simple cost-benefit analysis certainly supports the case for spending up to $500 million per year on adequate preparation vs. $100 billion for cleaning and rebuilding. Back in the States, well-run corporations like Home Depot started mobilizing for Katrina's impact several days before it slammed into the Gulf Coast. The day after the storm hit, all but ten of Home Depot's 33 stores in the regions hit hardest by Katrina were open for business, offering much-needed supplies and the even more precious commodities of electricity (thanks to electrical generators) and a sense of normalcy.
Students will analyze how businesses, governments, and individuals cope with the realities of risk, uncertainty, and crisis. Discussion Questions:
" 'The Only Lifeline Was the Wal-Mart,' " pp. 74-80: Wal-Mart has had its share of public relations disasters, but the company's image just might get a boost from its handling of the natural disaster known as Hurricane Katrina. At the urging of CEO Lee Scott, Wal-Mart's truckers hauled $3 million of supplies into the storm-ravaged zone, arriving days before the Federal Emergency Management Agency (FEMA) in many cases. The company also contributed $17 million in cash to relief efforts. Wal-Mart's employees stepped up, too — volunteering to hand out supplies, create makeshift shelters, fend off looters, and even help locate and reunite missing family members. According to Jefferson Parish, La., Sheriff Harry Lee, "If the federal government would have responded as quickly as Wal-Mart, we could have saved more lives." So how did Wal-Mart succeed where FEMA failed? For one thing, Wal-Mart has a first-class Emergency Operations Center that began preparing for the storm a week in advance by stocking local stores with the most-needed supplies, including bottled water, flashlights, generators, and tarps, and addressing the needs of store managers. But Wal-Mart has something else, too — the three guiding principles of its late founder, Sam Walton: Respect the individual, serve the customer, and strive for excellence. For once, even Wal-Mart's army of detractors can't argue with the fact that the company lived up to those precepts. This article shows how business practices that truly revolve around serving customers' needs can be the best form of public relations. Discussion Questions:
"The Truth About Oil," pp. 102-111: The talk of travelers this summer was rising gas prices, and as we move into autumn, prices don't seem to be falling with the leaves. This has left many Americans angry, but not necessarily for the right reasons. First of all, while the magnates of Big Oil are certainly raking in the profits, they're not the ones setting the sky-high prices — the markets are. Hedge funds aren't to blame, either. They account for less than 3% of volume in oil futures. Besides, fear of a dwindling supply drives oil prices harder than speculation. That fear itself may be misguided. While oil is not a renewable resource, economists expect that high fuel prices will spur oil companies to dig deeper and farther afield for oil, eventually leading to larger supplies and cheaper prices. In fact, the Department of Energy projects that worldwide refining capacity will increase 61% over the next 20 years in plenty of markets that will be more than happy to supply gasoline and other refined petroleum products to the U.S. Should the government intervene in the interim? It depends on whom you talk to, but the last time the federal government imposed price controls in the 1970s, the end result was shortages, gas lines, and little change in prices. Students will see how myths about the current oil pinch have Americans directing their ire at the wrong targets. Discussion Questions:
"Harvard vs. Yale: The Money Game," pp. 155-165: The Harvard-Yale football rivalry is a 130-year tradition, but as it turns out, the prestigious universities don't just compete on the gridiron. The schools also battle for the best endowment. Harvard's, overseen by Jack R. Meyer since 1990, is larger, with a value of $22 billion, but Yale's $15 billion endowment, managed for two decades by David F. Swensen, has the best returns (up 16.1% a year, while the S&P 500 index gained 12.3%). Meyer and Swensen are distinguished for not only their brilliance in investing, but also their once-revolutionary willingness to branch into different types of assets that don't move in sync with U.S. stocks. That strategy has delivered both blowout returns and lower volatility; the endowments even gained during the three-year period following the crash of 2000 — Harvard's by 9% and Yale's by a whopping 20%. Yet, while they've enjoyed much of the same success, Meyer and Swensen work in completely different environments. Meyer has run Harvard's money as a huge in-house hedge fund, but entanglements with Harvard president Larry Summers over salary and management issues have led to his decision to leave the university to launch his own hedge fund. Swensen, meanwhile, is staying put in the cozy, collegial surroundings at Yale, where he makes far less money than he would on Wall Street but enjoys what he calls a "balanced life." In this article, students will compare the investment decisions of two giants of money management. Discussion Questions:
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