÷ EXPERTISE

Geert DEMUIJNCKPROFESSOR IN THE HUMAN RESOURCES,MARKETS & CULTURE DEPARTMENT

÷ EDITORIAL

Not a day goes by without someoneasking me about the changes being made

in Group curricula in reaction to the current economiccrisis. My first answer is always that teaching managementskills in a business school like EDHEC is of equalimportance whether times are good or bad. EDHEC has a long-term approach because we prepareyoung people for a life-long career. We provide them with the bases, fundamentals, and critical mindsetthey will need in order to objectively analyze andunderstand the various situations they will have to face. This is the purpose of the curricular reforms we began more than two years ago.

My second answer is that the current crisis is a real-lifetest of the quality of our students and of ourselves. It should encourage our outstanding, rigorously selectedstudents to be even more demanding of themselves in their academic work and their company internships.

For EDHEC, the current crisis will strengthen ourrequirement for pedagogical excellence and for pertinencein the research we carry out for the business world.Teaching fundamentals such as economics will bedeveloped, as well as courses on management control,accounting, and the role of the State. Last but not least,the crisis provides an excellent opportunity for all ourstudents to develop their sense of innovation.

Olivier OgerDean, EDHEC Business School

The concept of Corporate Social Responsibility (CSR) is now used more frequentlythan the more general concept of ethics to refer to the specific social as well asenvironmental responsibilities ascribed to companies. The concept should be handledwith care, however, and these responsibilities basically remain moral. In terms ofimage, doing what you say you do is essential. Saying why you do it is a more sensitiveissue. Geert Demuijnck, professor at EDHEC, explains why.

EDHECINNOVATION

MANAGEMENTWINTER 2009 For talented people

THINKINGABOUT THE FUTURELAURENT FREIXE (Edhec 1985)Executive Vice President for Europe. Member of the Executive Committee

www.edhec.com

The Price of Excellence

÷ TEACHING & LEARNING

TEACHING & LEARNING

EDHEC MASTER IN MANAGEMENTOriginality to develop exceptional students.STUDENT’S EXPERIENCELuigi Isoletti is enthusiasticabout his experience with theTI&CD.PhD IN FINANCE: A SUCCESS STORYThe newly created EDHEC PhDprogramme has been a greatsuccess.EQUAL OPPORTUNITYTo give an additional chance to reach higher education.

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RESEARCH

EXPERTISE

INVESTOR ACCOUNTABILITYEDHEC’s Remedies for the crisis.

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GEERT DEMUIJNCK Ethics: doing what you say you do!

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SUCCEEDING

THINKING ABOUT THE FUTURELaurent Freixe, Edhec 1985,Zone Director for Europe.Member of the Group ExecutiveCommittee at the Nestlé Group.

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INNOVATEAN ECOLOGICAL CAMPUS The 2006-2010 EDHECdevelopment plan will finishstrong.

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÷ SUMMARY

no.21W I N T E R 2 0 0 9

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THE NEW SYLLABUS of the EDHEC Master in Management will makeEDHEC the favorite school for European companies and students. Designed tomeet the current and future requirements of the corporate sector, backed bythe expertise of our research departments, it is unique in the world of FrenchBusiness Schools.

EDHECMaster in Management:

The new EDHEC Master in Management pro-gram offers future business leaders and execu-tives the most innovative training available onthe market.Companies have long been the key partners ofthe school, and the new EDHEC Master inManagement curriculum has been designedand constructed with their needs in mind.Courses focus on four key points, all exclu-sive to EDHEC:• Learning in preparatory school in Bachelor

1 and 2 is completed.• Master’s Degree courses are taught exclusi-

vely in English.• Graduates are awarded a double diploma,

the EDHEC Master in Management andMaster of Science (M.Sc.).

• All students have access to the TalentIdentification & Career DevelopmentProgram (TI&CD), a program unique of itskind in France for the identification anddevel opment of student potential,

One undergraduate year to developstudent assets Much is learnt during the years spent preparingfor business school, a period when studentsbecome deeply involved in a personal projectwhich enables them to acquire work habitsand capabilities. They learn how to surpassformer limits to ensure their success in busi-ness school entrance exams. The final Bachelor year, spent on our Lillecampus, puts these years into perspective anddevelops existing assets while at the sametime preparing students for their first careerchoice. It provides students with a new perspec -tive built on previously acquired knowledgeand strong work habits, and allows them todevelop a solid grounding in the fundamen-tals of management science. Mathematics,micro- and macroeconomics are thereforetaught not in a purely conceptual manner but asthe keys to understanding finance, marketing andother disciplines with which the student willbecome intimately familiar during graduate

coursework.Students are awarded a Bachelor’s Certificate atthe end of their first year which demonstratestheir ability to understand the economy andglobal developments.

“All in English” for total international skills The two years of Master’s coursework aretaught exclusively in English; an undeniable'plus' for students planning on leading trans-national and multicultural projects and teams.

In addition, EDHEC students have numerousprofessional internship and academic exchangeoptions with our prestigious partners, enablingthem to develop a very strong internationalprofile, which can be further accentuated byselecting the Intercontinental Track.

A double diploma The new architecture of the EDHEC Master inManagement program has two goals:

Originality to develop exceptional students

INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 2009

Two tracks

During their Bachelor 3 year,students receive time andinformation enabling them to selectbetween two concentrations fortheir Master's degree: The Business Management (BM)track for students attracted bystrategy, consulting, humanresource management, marketing,communication, law, supply chainmanagement andentrepreneurship. The Financial Economics (FE)track, which targets those seekingcareers in finance and auditing (of companies and markets).

TEACHING & LEARNING ÷

03

....

- To provide students with comprehensiveskills including flexibility and managerial abi-lity, which facilitate access to high-rankingpositions. These skills are acquired throughthe EDHEC Master in Management degree.

- To offer students the specialized knowledgerequired to embrace fully the career of their

choice. This knowledge – a set of operationalskills with a high degree of technicality – isacquired in the second year of the Master’scourse within the framework of the Master ofScience (M.Sc.). This year can be spent at theEDHEC or studying abroad, providing an ab-solute guarantee of the best possible trainingin each student's chosen field.

A unique career development program, the TI&CD For years, the EDHEC has developed the ma-nagerial skills of its students with the philoso-phy that leadership can be learned. By creating the Talent identification & CareerDevelopment Program (TI&CD), EDHEChas taken this approach one step further by

After graduatingfrom Bocconi Uni -ver sity in Milan witha BBA, Luigi Isolettidecided to continuehis studies with aMaster of Science infinance (M.Sc.) atthe EDHEC Nicecampus.As a student, Luigican take advantageof the TI&CD pro-gramme, and inOctober 2008 hebegan the first stage,Talent Identification. Luigi agreed to shareone memorable daywith us.

After assuming the role of a microchip pur-chaser for a Japanese mobile phone manufac-turer, Luigi underwent a series of interviewsduring which all his skills were assessed. Hewill now be able to improve his leadershipskills through the Career Development pro-gramme. Luigi is delighted by the coach thathe selected and has begun planning his careerunder their guidance.But we’ll let him tell us for himself...

nnovation & Management: Whatwould you like to share with your fellowstudents, or prospective students,

about your experience with the CareerDevelopment approach that we have implemented at Edhec?  Luigi Isoletti: ’ I am happy to relate howvaluable this whole TI&CD process has beenfor me, as a second year Master student, regis-tered in the Finance track towards the M.Sc.Finance degree. I came here after an honors BBA degree fromBocconi University in Milan with a careerambition in Finance. The TI&CD process isstill very much alive in my memory, as I wentthrough the assessment phase very recently, inOctober. This all-day testing event was quite a

challenge and an eye-opener.

How does it work, concretely?L.I.: ’ First there was the case-study. Everyparticipating student was required to evaluatea well-defined business situation and presentfindings and recommended actions on specificissues in the case. Mine had to do with theselection of a critical supplier in the field ofleading edge mobile communications, on behalfof a Japanese chip manufacturer.

How did you work this one out?L.I.: ’ I figured that the managerial exerciseconsisted in embracing the role of the deci-sion maker, with management, human andcultural considerations. I felt that the economicarguments had to be framed within the specificcultural setting in order to be convincingbeyond the mere numbers.

What kind of pressure did you feel?L.I.: ’ That of a real situation, not just atheoretical exercise with computations andlogical argumentation. The interesting partwas that I sensed that the discussion with themanager (facilitator) could go in all possibledirections; I was free to drive the presentationwhere I felt it useful, according to my analysisand options, in a dynamic way. A real learningexperience!

Would you do anything differently if youhad the chance?L.I.: ’ I am not sure, that approach seemedappropriate. Maybe I would spend a littlemore time presenting the outcomes that I didn’tfavour and why, to give more weight to theretained proposal. But globally, I am satisfiedwith the result of the assessment I received.

What happened next?L.I.: ’ Personal one on one interviews. Thefocus was three-fold: Leadership, Team spiritand Problem solving. I scored fairly well onthe last two, the assessment pointed out to theneed for me to work on leadership skills,which prompted me to enrol in a leadershipseminar. Better to find this out early in theprogram, right?

Did you move straight to the “In-tray”exercise from there?L.I.: ’ That’s right, and not an easy one as I

didn’t know what to expect at the time. I dis-covered that the ability to deal with the flowof business issues cannot be improvised. Inaddition, it confirmed my expectation that estab -lishing priorities and delegating under timeconstraints are both critical skills for managerialefficiency.

How would you describe this experienceto future candidates?L.I.: ’ Kind of a time travel? I felt projectedinto a more senior management role, yet theprojection felt realistic. This also confirmed myperception of managerial life, and the ensuingassessment was worthwhile in that respect.

How do you intend to use your "ProgramDevelopment File"?L.I.: ’ To be honest, I’ve only seen it once,and only partially. I am waiting for on-lineaccess to the complete version before my nextcareer coaching appointment. But based onwhat I have seen, I have already started plan-ning a career path with well-defined stepsstarting July 2009 when I join Morgan StanleyLondon as a Graduate analyst.

How is your relationship with your coach?L.I.: ’ Very fruitful, perhaps because I hadthe possibility to select my coach knowingthat we had common industry interests. Infact, I already see great value in her supervi-sion of my industry sector research followingmy Summer Internship experience inBanking. Whether I actually make use of thisknowledge or not, I am honing my skills inthe process of industry discovery.

It looks like the whole EDHEC philosophyis making sense to you.L.I.: ’ Very much so. It is key that my coachhas access to my TI&CD file and relates it tomy career goals. Her coaching gives me addedconfidence to reach my goals, from gradua-tion to on-going career growth.

In conclusion, can you help us summarize these benefits for prospectiveor incoming students?L.I.: ’ Yes of course, in my view, EDHEC hasprovided me with the framework to exploreand confirm my career focus, with the tools toperfect the skills required to join the bankingand finance world upon graduation.

One student’s experience

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INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 200904

÷ TEACHING & LEARNING

EDHECMaster in Management

.... integrating, at each stage of the course, the“soft skills” culture most sought by compa-nies. The program thus fulfils companies’needs in international skills and prepares stu-dents for the demands of the globalized recruit -ment market. Exclusive to EDHEC, the TI&CD is a trulyground-breaking program based upon asound concept and a three-step process.

The concept: Guide students at all stages of the course inthe establishment of their professional projectand develop all skills required by the largestinternational companies for their high-poten-tial employees. These skills are evaluatedupon entry into the Graduate Programs duringsessions at the assessment center.

Three stages:• Knowledge of the business world: duringtheir Bachelor studies, students discover thebusiness world, the various branches of indus tryand different executive professions. By attendingpresentations and meetings with professionals,they begin to develop their career plans andorient their choices by selecting the BM or FEconcentration. • Talent Identification: at the beginning ofthe Master’s degree, students are assessed atthe assessment center using the same criteria

as those used by recruitment officers, and aresubjected to the same battery of tests as thoseused in an international recruitment process.The day begins with online tests. Then, the“virtual candidate” carries out two series ofinterviews before finishing with a forty-fiveminute “in-tray” exercise.

Students are assessed on the ten key skills ofthe “EDHEC Grid”, established after a studyof over 100 graduate programs. A ProfileDevelopment File (PDF) is then establishedunderlining the strong points to consolidateand the gaps to be filled.

• Career Development: following the TalentIdentification, the student enters the personal -ized career development program. Guided bya coach, students take part in Skills Work shopswhere they carry out exercises designed toenhance self-awareness and to help themprogress. The entire process is supported bythe PDF, a robust and innovative guidancetool storing all information relating to careerdevelopment which students share with theironline coaches. Thanks to Career Develop -ment, students cultivate the most sought-afterskills which upon leaving the TI&CD willenable them to successfully navigate the mostdemanding of recruiting processes, thusopening the doors to the most prestigious ofcompanies.

This is at the EDHEC... and nowhere else-where! �

The EDHEC skill grid

Skills are divided into threeclusters

People cluster • Leadership• Teamwork• Interpersonal Awareness / People

Skills• Communication Skills

Fundamentals & knowledgecluster • Technical & Business Knowledge• Analytical Skills• Results Orientation & DriveSelf cluster • Ability to Learn & Grow (online,

academic performance)• Creativity & Innovation • Self-awareness / Management /

Personal Effectiveness

he EDHEC PhD in Finance (see Inno vation& Management no. 19 June 2008) preparescandidates for academic careers at top re-

search institutions and positions with the highestlevel of responsibility in the finance industry.In three years of study, students gain theknowledge and scientific tools required to lead

to research projects resulting in significantinnovations in the world of finance.

The programme’s residential and executivetracks, coursework, thesis direction, andfinan cing options are adapted to suit theneeds of each candidate, making the PhD an

ideal choice for young graduates and expe-rienced professionals alike.Students on the residential track enter thePhD in Finance programme with a view tojoin top academic and research institutions;they become EDHEC employees and work at

PhD in Finance:a success story

THE NEWLY CREATED EDHEC PhD programme infinance has been a great success. Seventeen PhD stu -dents from sixteen different countries, selected among ahundred applicants, began courses at the Nice campus inOctober 2008.

T....

(to be continued on page 06)

TEACHING & LEARNING ÷

05

Ronald Kafo, Research Assistant,EDHEC Risk and Asset ManagementResearch Centre, Cameroonian, 23 years old

I attended primary and secondaryschool in Cameroun before enteringan engineering school preparatorycourse in Tunisia through a France/ -Tunisia scholarship programme.

Follow entrance exams, I was accepted into the PolytechnicSchool of Tunisia. After a first year and more entrance exams, I transferred to the Polytechnic School of Paris and completedby Bachelor’s studies. In my second year as a master student atthe Polytechnic School, I selected the Economics and FinancialMathematics track. I chose to carry out my graduate internshipat the EDHEC Risk and Asset Management Research Centrebecause I would like to work in research and the specialisationsof the centre correspond closely with my interests; I was alsohighly attracted by the possibility of continuing my work within the framework of a doctoral programme, which led meto apply to the PhD in Finance programme.

… My objective is to serve as a liaison between the academiccommunity and the professional world; innovation plays

a central role in our economic system and I would like to innovate and train the innovators at the same time. I find itparticularly relevant that the programme combines two typesof students. Candidates from the executive track bring a wealthof professional experience; their contributions provide us witha better understanding of the connections between scientificresearch and industry practices and help those with less experience gain a clearer idea of the questions that actuallyarise on the market. The networking dimension should not be neglected either. The composition of our class allows you to build a solid and effective network for access to knowledgeand data, as for career opportunities.

The majority of my work (in EDHEC-Risk) relates to the construction of new forms of equity indexes with a view to portfolio optimisation – we work on the assumption of a strong link between total volatility and expected return,which runs counter to the orthodox model. Currently, I carry out empirical work on the components of 8 majorinternational indexes (S&P500, Nikkei 225, etc.) which requires programming using MathLab.

This is my first work experience and the mindset is very differentfrom that of my studies! I am working on a concrete problemand my work brings added value to the organisation; it is highlymotivating and I do not mind staying late at the office when wehave a deadline to meet. Working for the centre also enablesme to become aware of my weak points, to identify what I mustlearn to make progress, and to make a clear distinction between whatever is essential and that which is secondary. �

Student’s experience:

Rehan Syed, Head of PortfolioManagement, ABN AMRO MiddleEast (UAE), American, 41.

Could you give us a brief job description and tell us about youracademic background ? I work as the head of portfolio mana-gement for the private bank of ABNAMRO Middle East serving high-

net-worth families and small institutions in the middle-eastand the greater region. I am based in Dubai. I have an undergraduate degree in Mathematics and Computer Science(from OWU) and an MBA (from UC Berkeley).

Why are you pursuing the PhD in Finance? My motivation is three-fold: (1) to deepen my skill set within my current job function; (2) to get acquainted with the state-of-the art in investment management and be in a position to apply it to improve the waywe work; (3) to enhance my career by positioning closer to the cutting-edge of knowledge and practices.

Why not go for a master’s degree? First of, I and most other PhD students already have a Master’sdegree, so this goes well beyond. With the PhD, you really getan edge by learning about the latest research in the field-yearsbefore it filters down into textbooks-and contributing to it with professors and peers. The research skills you develop can be used throughout your professional life to allow you to stayabreast of future financial innovations and possibly play a partin these.

Why choose EDHEC Business School? First, I do not see EDHEC as a business school rather than as a finance school due to its excellence in asset management –this is the perfect fit with what I want to do. Second, the uniquestructure of the programme allows executives to participateand concentrate on issues which are of high relevance to business when other PhD programmes are about training people for academic jobs. Third, EDHEC has assembledan admirable faculty roll of top-tier experts which are equallyrespected by academia and industry – it’s very motivating to learn from and work with top-notch and credible people. I had been looking for such a programme for four years and was delighted to learn about it. �

PhD in Finance: a success story

....

÷ TEACHING & LEARNING

INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 200906

romoting diversity is a major concern at EDHEC.It is in this context that, within the frame-

work of the Cordées de la réussite operationlaunched by the French Ministry for HigherEducation and Research and the FrenchSecretariat of State for Housing and UrbanAffairs, EDHEC established an Equal opportunityinitiative with two public high schools in Nice.The goal of the program is “to find a way for high-school pupils who have never even imagined attendinguniversity to see this as a quite normal option forthem to consider” explains Jean-Louis Turrière,Director of Student Life, EDHEC Nice campus.The initiative, which targets high-school studentsfrom the Ariane, Bon Voyage, and Moulin neigh-borhoods attending Guillaume Apollinaire HighSchool and Thierry Maulnier High School, com-prises three components.An “awareness” component provides a generalpresentation of university studies and the oppor-tunities offered by EDHEC Business School.An “access to higher education” componentStudents following the initiative will have theirGraduate School entrance exam fee waived andwill be entitled to scholarship funding once ac-cepted on one of the School’s programs.To give sixth-year students a good chance of pas-sing the competitive PASS exams for entrance toESPEME, six ESPEME students, under the gui-dance of two EDHEC professors, will coach high

school students in their last two years of schooling.“We will even try,” adds Jean-Louis Turrière, “to getseveral local companies on board in order to offerover fifteen scholarships!” An “excellence” component aims to draw stu-dents to graduate school preparatory courses, in-dependently of whether they are seeking to conti-nue their studies in literary, scientific, economicor business-oriented fields. This tutorship will beled by two EDHEC students. This intergenerational help and support fullycomply with EDHEC values! �

Equalopportunity

GIVING high school students from the most underprivileged neighborhoods anadditional path to higher education is the underlying principle of the equalopportunity convention, signed on November 27, 2008 between EDHEC BusinessSchool, the Alpes Maritimes department Council and the Nice Regional EducationAuthority.

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one of its research centres while pur-suing their studies. Those on theexecutive track are seeking to struc-ture and expand their professionalexpertise to prepare for high-levelpositions in the financial industry;they are able to participate in the pro-gramme without interrupting theircareers since courses are deliveredover a limited num ber of blockweeks and the programme reliesupon e-learning tools.The launch of the PhD was so suc-cessful that the Executive track,which was not to be opened untilOctober 2009, was moved up a year.

The twelve Executive track partici-pants have an average of 15 years ofexperience and come from elevendifferent countries. Half hold gener -al and business unit managementpositions; the other half is made upof portfolio managers, consultantsand senior research analysts. They aregraduates from well-known insti -tutions such as the University ofCalifornia-Berkeley, the Universityof Chicago, Columbia University,EDHEC Business School, the IndianInstitute of Technology, the LondonSchool of Economics, NationalUniversity of Singapore, and ZhongShan University.

The five residential track studentsare 28 years old on average andcome from Africa (Cameroon), LatinAmerica (Colombia), Asia (Thai land),and Europe (Germany, Uni tedKingdom).

The research proposals submittedby the candidates demonstratetheir outstanding qualities. The pro-posed topics are as diverse as de-rivatives-based portfolio manage-ment, the construction of indices andbenchmarks, taking into account un-certainty and statistical noise whenbuilding a portfolio, the integrationof alternative classes and strategiesinto asset allocation, the evaluation ofexotic products, asset/liability manage-ment, dynamic allocation, behaviouralfinance and macroeconomic analysisof financial markets. �

PhD in Finance: a success story

....

November 27th, 2008. Sirs Philippe Jourdan (Nice rectorat), Christian Estrosi (Deputy and Mayor of Nice) and Olivier Oger sign convention “equal opportunity”.

The “Cordées de la réussite”The “Cordées de la réussite” (Roped partiesclimbing to success) are partnerships, set upbetween one or more higher education institutions(graduate schools, universities), and secondaryschools, in order to take another step towardequal opportunity for youth with regard to entryinto higher education. The “Head” of the “cordée”(roped party) is always a higher educationinstitution, which can lead several “cordées” withvarious middle and high schools. Solidarity isformed between the head of the“cordée” studentsand the secondary school students fromunderprivileged backgrounds.

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INNOVATE ÷

here is no business to be done on adead planet”.The EDHEC wholeheartedly endorses

this statement by David Brower (1912-2000),the founding director of the Sierra Club, andfounder of Friends of the Earth. The site forthe new Lille-Metropolis InternationalCampus was selected and designed with theplanet in mind.

“The architecture firm was selected because theirproject found a way to construct the new buildingswithout cutting down the one-hundred- and three-hundred-year-old trees which account for much ofthe beauty of this exceptional park” explainsThierry Vandermolen, Director of Operationsof EDHEC Business School.

These new buildings, to be used for teachingand sport, will be certified both HQE (HighEnvironmental Quality) and Pilot HQErespectively; since no standard exists yet forathletic facilities, the EDHEC is helping towrite tomorrow’s standard.

In these superb facilities which open onto ancharming park, students will be able to takeadvantage of the extended range of servicesthey can expect from a top school, such as thegorgeous new lecture halls, auditoriums, andclassrooms, sports facilities including a swim-ming pool, a gymnasium in an attractive setting,

Campus 2010:Exceptional architecture enablesteaching to excel

THE 2006-2010 EDHEC DEVELOPMENT PLAN will finish strong withtwo major events: the opening of the new Lille-Métropole International Campus,a model of ecological integration, and the inauguration of a new building on theNice International Campus. These two campuses will bring EDHEC on par withthe highest European standards.

‘‘T

Nice Campus: a new building will inaugurate in 2010.

The new Lille-Métropole International Campus: sights of architect.

HQE STANDARD

The HQE standard comprises fourteenindicators concerning eco-construction,the eco-management, comfort and health.The goal of the standard is to ensure the environmental quality of the buildingsand the minimization of harmful effectson the environment during construction.By becoming certified, the campus willremain completely open to its economicand social environment and will ensuretotal protection of its extraordinary natural environment.

quality dining halls, spaces for relaxing andhousing as well as multimedia equipmentmeeting the highest international standards.

2010 will be a momentous year for the Nicecampus, which will inaugurate a new 3,500sq. m. building offering top-of-the-line servicesto students, professors and researchers includinga new recreational room, a new cafeteria and anextension to the lecture halls and conferencerooms… While waiting for another buildingscheduled for 2013! �

08 INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 2009

mong those “officially” responsiblefor the crisis are the “speculators”,

a term with negative connotations thatmay be worth rehabilitating. Etymologically, speculators are thosewho watch. In the 18th century, astrono mers held this title. To speculate it is to anticipate andvisualize. Spinoza, Kant, Bergson werespeculators.Philosophy, in a sense the noblest formof thought, is pure speculation. In the financial world, speculationmeans foreseeing global, company,stock, and index developments.Speculators make a profit on correctpredictions and pay dearly if they slip up.Trying to hold speculators responsible –they are never criticized for increasingpredictions – for the stock marketcollapse is like accusing a barometer ofcausing a storm.

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Speculators

hile the subprime crisis took over a yearto wreak havoc worldwide, EDHEC resear -chers pointed out the real cause of the crisis

as early as August 2007. Even better, they an-nounced the catastrophic consequences (thatwould end up having lasting effects, initially on themarkets then on the real economy) of the regula-tory tools set up by the various financial authori-ties concerned, including the central banks, marketand prudential regulators, etc. Today, the crisis has become global and EDHECresearchers are lighting the path to be followedin order to avoid regulations which exacerbaterather than correct economic cycles.

An early warning In a Position paper written in summer 2007,Noël Amenc, Director of Research and Develop -ment at EDHEC Business School, drew three les-sons from the subprime crisis. In his argument,

he correctly pre-dicted that “thefinancial indus-try will attemptto skirt theserules throughrisky financialengineering.This summer’scrisis is but anearly warning”. Noël Amenc wasstressing that fi-nancial institu-tions were likelyto offer productswith low meanrisk (volatility)and high returnsby exploitingilliquidity and

counterparty risks not covered by existing regu-lations.

In fact, it was the banks – the most “regulated”institutions on the market – which were at theorigin of the crisis because of their excessivelylarge positions on securitized debt funds, littlepenalized in terms of capital requirements byprudential regulation, and which became insolvent

when the value of these instruments shot downand liquidity dried up.

One year before the crisis came to a head, EDHEChad drawn foretelling conclusions about the situ-ation.

The first conclusion was that as far as legislationis concerned, sometimes less is more. Whileleading investors to believe – despite the fact thatthey didn’t have the required means – that thebattery of applicable regulations kept the marketsafe, the regulatory authorities pushed the majorplayers towards irresponsibility. They encour-aged them to divert from their “core business” –assessing risk – and therefore called into ques-tion the trade-off between risk and profitabilitywhich forms the foundation of our economies.

The second conclusion was that the reaction ofthe authorities to the crisis, which advocated addi -tional regulation, could only further acceleratethis tendency by “artificially” securing the market.Requesting and obtaining interest rate cuts fromcentral banks did nothing but encourage otherirresponsible behavior. The flawed reaction tothe last crisis did nothing but lay the ground-work for the current one.

A globalized crisisThe financial crisis is here. Its build-up playedout in four phases: • A long gestation period. When the “dot-com

bubble” burst in 2002, the U.S. Federal Reservepracticed a policy of very low rates, generatinga strong surge of liquidity and supporting theuse of leverage by players in a rising market.

The American banks, stimulated by this “easymoney”, raced to hand out variable-rate mort-gages. There was no connection between therates granted and the ability of borrowers to payback their loans, instead rates were based on thevalue of the good whose growth was assumed tobe indefinite. However, in order to sustain the returns on theircapital, lending banks yielded these holdings tospecialized investors who proceeded to securitizethem into “structured products”, combining thishigh-risk credit with other types of assets. Thisfinancial engineering was encouraged by soaring

real estate prices and the low rates that enableleverage.• Another bubble bursts. This time, the burst

was caused by the rise in the variable rates ofmortgages triggered by the rise in FederalReserve rates. Debtors saw the terms of theirloans increase and stopped repayment. Thishad the following consequences: the collapseof the real estate market brought on by the saleof the goods guaranteeing the debt securities aswell as by the sale of the securities associatedwith these mortgages.

• A serious illiquidity problem emerges. Infact, the banks had to return the securitizedproducts to their accounts, and a growing feel-ing of distrust permeated relations betweenpartners on the interbank market

• The credit crunch. The logical consequence ofthe lack of liquidities and the loss of confi-dence.

Compared to previous crises, the current onestands out because of its universality and the un-precedented amounts of assets which have dis-appeared. 1,400 billion dollars have already dis-appeared; 12,000 billion more could be lost ifthe entire American mortgage-backed securitymarket collapsed. As a result, credit is contracting and global defla-tion is being accelerated by the pessimistic atti-tude of investors and the consumers.

Regulation resulting in accountabilityAccording to EDHEC researchers, regulatory sys-tems will have to be completely overturned in orderto return investors to their foremost responsibility,

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REGULATION! Its inefficiency is at the core of attempts to explain thecurrent financial crisis, which EDHEC Business School predicted over a yearago by demonstrating how the excess of regulations could lead to disaster.The writing is on the wall, and there is only one remedy: holding investorsaccountable for their actions.

Investoraccountability

÷ RESEARCH

09

RESEARCH ÷

risk assessment. The weak regulation currently inplace concerning transparency certainly managesto avoid medium-sized risks, but it leads to theimplementation of financial mechanisms whichcannot avoid major systemic risk.

At a time when consensus is growing as to theneed to rethink regulation and a new wave ofState interventionism is occurring, the solutionsproposed vary greatly. EDHEC has therefore cho-sen to take a clear position.

In two recently published “position papers”, thefirst drafted by Lionel Escaffre, PhilippeFoulquier and Philippe Touron, and the secondby Samuel Sender, EDHEC made its viewsknown on two controversial subjects:

• Fair value.• The deficiencies of regulation.

Unfair value?The goal of accountancy is to determine themost exact value of the company. It is this “fairvalue” which, over the past few years, has come toreplace “historical value” and, in order to estab-lish the true assets of the company, takes into ac-count the actual value of its assets and not sim-ply that of their acquisition. This representsprogress in terms of transparency since the oldsystem only allowed the determination, exclud-ing the singular case of “balance sheet reassess-ments”, of losses in value by estimating liabilities,but to in no case the appearance of capital gainswhich had not yet been realized.

Questions havebeen raised aboutfair value becauseof the fact that it isprocyclical, mean-ing that it tends toaccentuate, in oneway or another, theslope of the busi-ness cycle curve.Fair value tends,for example, todrop the balance

sheet of banks into the red and consequently toreduce their credit offer.

Is it truly necessary to prohibit fair value, just asthe IASB(1) previously authorized under pressurefrom the European Commission?

No, say Lionel Escaffre, Philippe Foulquier andPhilippe Touron, who prove that the debate hasfocused on the wrong issues.This is firstly because the role of accountancy ispurely informative and in no way prudential.Accountants enable business leaders to chart theirrisks and thus to optimize management; return-ing to historical value would prevent calculationof risk and would only offer blind decision-mak-ing. It is clear that assessment methods can andmust be improved, and it is possible for theirprocyclical nature to be attenuated. However,

this attenuation will have negative consequencesand will prolong the crisis and exacerbate the cri-sis of confidence in the financial information that,with the credit agency debacle, is at the root ofthe banking and financial crisis. Secondly, account-ants must not be asked to replace existing toolswith those used by prudential regul ators. It is therole of these organizations to deter mine, for ex-ample, if a bank must increase its own capital orreduce its activity, in the event that its balancesheet posts negative results brought on by thedepreciation of certain assets, by modifying sol-vency requirements to reflect the current eco-nomic situation.

The role of fair value is to enable decision makerswithin and outside the company to take decisionswith full knowledge of the facts and to assessrisks – an essential responsibility of leaders andinvestors which must be restored and not devalued.

Changing the rules of regulationIn fact, it is the rules of regulation that must bechanged. Current rules are heavily procyclical.Banks are required to maintain a minimum ratio,the solvency ratio, between their own capital anddistributed credit. Since the banks’ own equityhas been greatly decreased by the losses theyhave suffered, they are obliged to decrease creditto companies and individuals to make up thedifference.

In a position paper entitled “Banking: Why doesregulation alone not suffice? Why must govern-ments intervene?” Samuel Sanders proposes tobreak this vicious circle by modifying existingregulations along the lines of those that governinsurance companies, with target and minimumcapital requirement ratios.

The idea would be to make the solvency targetratio a variable amount. At a high level duringeconomic booms, it would force banks to accu-mulate capital; a medium level would be set forsteady conditions, and it would be greatly low-ered in times of crisis to enable banks to con-tinue offering credit. This system would act as a

genuine shock ab-sorber, mitigatingthe risks relating toeconomic trends!The ratio would, ofcourse, always haveto be higher thanthe minimum re-quirement in orderto guarantee thatbanks do not be-come bankrupt.

To sum up, it isclear that regula-

tion is the primary cause of the crisis. By creatinga regulatory environment which eliminated“medium” risk, while leaving the door open tomajor systemic risk, regulatory institutions arelargely accountable for the disaster. �

A new Research Chair at EDHEC

The EDHEC Risk and AssetManagement Research Centre andORTEC Finance have combined to create a new research chair inprivate asset/liability management. The chair, overseen by anORTEC/EDHEC committee, willestablish a three-year researchprogram aiming to apply methodologyfrom asset/liability management to private wealth.First-year research will focus on the superiority of this approach, andspecial attention will be given to Life Cycle allocation, a topic whichhas been developed in academicliterature over the past ten years. Research planned for the three-yearperiod:• Examination of the weak points of

current practices in private wealthmanagement compared to bestpractices in private asset/liabilitymanagement.

• Consequences of the high levels of inflation for asset/liabilitymanage ment applied to privatewealth, as well as general inflation(global price index) and individualcases such as the exposure toinflation of people with very high net private wealth.

(1). International Accounting Standards Board.Organization which drafts and publishesinternational accounting standards for thepresentation of financial statements.

nnovation & Management:You have just assumed responsibilityfor Nestlé's European operations.

What does your position entail? Laurent Freixe: ’ I am indeed the ZoneDirector for Europe, an area which extendsfrom Ireland to Russia, Central Asia and theCaucasus. We manage 28 billion Swiss Francsof sales turnover (18.16 billion euros), 80,000people and 150 plants. As the head of this Zonefor Nestlé, my job is to develop teams, definepriorities and energise internal and externalgrowth projects and strategies, manage portfo-lios of product categories…

This Zone includes many emerging countries,within and outside the European Union, suchas Hungary, Russia and Ukraine. Our objec-tive is to realise our full potential in thesecountries, which is much higher than average.My role is therefore to build and set up strate-gies which will enable us to grow along withthese countries through tailor-made strategiesaccompanied by an active investment policyfor new plants and the acquisition of existingcompanies.

You are already very familiar with the French, Hungarian and Spanish markets...L.F.: ’ Yes, but I still have much to learnabout some of the others so that I can takedecisions concerning overall strategies andto strike a balance.

You also became member of the Group Executive Committee. How has theeconomic crisis affected Nestlé?L.F.: ’ It has not affected us. Our last pub-lished quarterly results show an improve-ment on past figures and we are continuingto follow our charted trajectory. The shareprice has held better than the industry aver-age. This performance is undoubtedly related to

our specific position in the industry, focusedon health and wellbeing, and the relative weightof emerging countries in our turnover. Whatinvestors value is the consistency of our results,the clear-sightedness of our strategy, andthe management continuity. When timesget tough, they turn to our well-projectedtrajectory and clarity. The Nestlé Modelmakes our shares a mainstay of defensiveinvesting.

÷ SUCCEEDING

Thinkingabout the future

I

LAURENT FREIXE, EDHEC 1985, recently took the reins of the Zone Europeat the Nestlé Group, which extends from Ireland to Vladivostok. He is now amember of the Group Executive Committee, a 12-person body compri singeight different nationalities. Two thirds of the members have spent their entirecareer inside the company, guaranteeing a strong organizational cultureemphasizing the principal values of strategic clarity and the anticipation offuture developments.

10 INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 2009

We certainly expect a difficult economic cli-mate, but we believe that our results dependmore on our strategies and actions, and thatwe have sufficient leeway to continue in theyears to come to deliver the Nestlé modelwith profitable growth.

How would you describe this model? L.F.: ’ The Nestlé model consists in gener -ating sustainable and profitable growth and

11

SUCCEEDING ÷

tion of our values and leadership principles.The Management walks the talk and is inperma nent contact with young talents. OurInternational Training Programs contribute aswell to fostering our values.

Recruitment is primarily carried out at the locallevel because of our decentralized nature.We prefer to recruit beginners – with excep-tions for some more experienced people – forwhom we open up long-term prospects. Wefavour applicants with a vision for the futureand real leadership potential. We assess appli-cants using our own competences model.

To help employees reach their potential andensure that the best remain at Nestlé, we makeevery effort to increase their capabilities usinga competence development model designedin-house which strongly emphasises leader-ship culture.

As a result of these recruitment and trainingpolicies, people remain committed to Nestléin the long term. I am living proof of this, asare two thirds of the leaders who comprise theExecutive Committee.

With regards to tools and procedures, ourmanagers have powerful information systemswhich, in our decentralized set up, enablethem to act as entrepreneurs on the marketinstead of implementers. Nestlé values areperpetually disseminated using internal com-munication tools, which also inform employ-ees about objective and strategy.

Nestlé recruitment and training procedures strangely remind me of the “Talent Identification & CareerDevelopment Program” set up in the new program design at EDHEC. Haveyou taken note of this new design, and ifso what do you think about it? L.F.: ’ What I do know seems quite attrac-tive: The decision to teach exclusively in Englishfrom the second year onwards seems com-pletely fundamental, because that will createperfectly “fluid” students and executives, anessential quality in our increasingly globalworld.

The innovate aspects of the TI&CD also seemvery relevant to me. It makes sense for a busi-ness school such as the EDHEC to developtalents by using the same grids as the world’slargest companies.

As all that will take place on a new, particu-larly attractive campus, I will be increasinglyproud to serve as a flag-bearer for EDHEC.And for Nestlé, of course! �

Career highlightsLaurent Freixe has spent his whole career with the Nestlé Group.

1986: Hired at Nestlé France, then calledSOPAD. Began working in sales, then market research before becoming product manager in various domains.

developing our leadership, while guaranteeingthe most efficient management of our capital.Four points seem essential to me. Our globalpresence and our multiculturalism, our per-petual efforts to innovate, our long-term man-agement which gives us very strong visibilityand the quality of our Human Resources,which forges our identity.

Tell me about the multiculturalism of Nestlé… L.F.: ’ It is easy to see. We are present in allthe countries of the world, and have been inChina since the end of the 19th century. Aboutsixty different nationalities can be found at theinternational head office. In the ExecutiveCommittee, which comprises only twelvepeople, eight nationalities are represented.Diversity is essential due to our time globalpresence and to the strongly local and culturalnature of our products.

You mentioned highly innovative products... L.F.: ’ Absolutely. Innovation is fundamen-tal. Those who do not move forward moveback. The desire to always go one step furthermust be omnipresent, and we are alwaysmoving. This vision is central to product devel -opment, but it also must exist in manage-ment. The Business Planning approach atNestlé involves constant innovation andreno vation.

The famous long-term management… L.F. : ’ Yes. One of Nestlé’s strong points isthe ability to anticipate, foresee and plan forthe long term and strike a balance with theshort term.

What makes us so visible is our sliding long-term plan with three- and ten-year deadlines.Ten years, it's where we want to go. How wewant to transform the company. Three years isthe required planning horizon for the man-agement of our investments and our key busi-ness initiatives.

Last but not least there is short-term planning,which enables us to manage the present inorder to deliver results. But we never sacrificethe long term for the short term. Our processrequires thinking and planning for the future,because our role as industry leader is to alwaysbe ahead of the game – an imperative funda-mental to our culture.

How do you create this culture and howdo you bring Nestlé's human resourceson board? L.F.: ’ We have rigorous recruitment andtraining policies, and an efficient communica-

1991: Group Leader then marketing director of the "frozen" branch at Findus.

1999: Head of the nutrition division (whichincludes baby food and clinical nutrition) at Nestlé France.

2003: Head of Nestlé Hungary.

2006: Chairman of the Spanish and Portuguese subsidiary companies, Head of the Iberian region.

2008: Executive Vice President for Europe.Member of the Executive Committee.

INNOVATION & MANAGEMENT • EDHEC NEWSLETTER • WINTER 200912

PROFESSOR IN THE HUMAN RESOURCES, MARKETS & CULTURE DEPARTMENT

Geert Demuijnck

ith respect to its social environment,a company has four kinds of moral

duties of decreasing importance: that ofmaking profit, which conditions its survival;that of respecting the law; that of assumingits social and environmental responsibilities;and, if possible, that of being philan thropic(patronage). The first two are genuine obligations. Thetwo thereafter are voluntary commitments.The last merely aims to improve the corpo-rate image. CSR can also improve the corpo -rate image, especially, and paradoxically,when it is not designed solely for the purposesof image but is genuinely taken seriously. For the company, therefore, implementing acoherent CSR policy is just an option. Onthe other hand, we observe that legislativeregulations, such as prohibiting any form ofdiscrimination, employing disabled staff orcomplying with environmental standards,are in practice only really effective if embed-ded in a corporate culture with strong ethi-cal standards.

An economic challengeBefore implementing a genuine CSR strategy,company managers need to understand thatthe resulting economic impact is not easilymeasurable. This is because, although in the long termlaunching and complying with a CSR pol-icy can considerably improve a company’simage and the motivation of its humancapital, initially it is bound to generate cer-tain costs.Reducing a company’s carbon footprint can

certainly prove advantageous in the longterm, but it may be expensive at first,Cutting out certain Asian suppliers whichdo not respect the ILO norms is expensive.Even setting up non-discriminatory recruit-ment and training policies can make a dentin the corporate budget. These are immedi-ately measurable costs. At present it is impossible to prove the posi-tive economic effects of the implementationof a CSR policy, just as it is impossible toprove the opposite. The financial outcomeof this inevitably long-term policy can onlybe assessed over time. On the other hand, announcing the intro-duction of a CSR policy without putting itinto practice can have a catastrophic im-pact on the brand and immediately lead tosubstantial losses: a scandal will do moreharm to a company that was reputed to beexemplary beforehand.

The difference between “saying” and “doing” There are 2 aspects to a CSR policy: The internal aspect consists of evaluatingthe company’s position with respect to eachCSR issue and introducing the new behav-iour patterns or processes it requires. The external aspect consists of effectivelycommunicating the company’s policy. Experience has shown that companiesshould not communicate the results oftheir self-assessment or should be verycareful about how they communicatethem. Highlighting a weak point that thecompany intends to correct, systematicallydamages its image. Apart from a few rare ex-ceptions, the media will inevitably focusmore on the weakness detected than on themeans introduced to correct it.

W

÷ EXPERTISE Ethics: Doing what you say you doHighly newsworthy in the last twenty years or so, corporate ethics has become a more operational concept since it changed its name.Seemingly more disconnected from any philosophical or religious basis,Corporate Social Responsibility is today an important social issue and the strategical aim of business leaders.

On the other hand, information about theprocesses introduced by the company tosatisfy its CSR aims and ambitions helps toconstruct an image that is subsequently con-veyed by the media and is highly appreciatedby the public.

Codes and Committees The successful implementation of CSR initia-tives initially depends on the chief executive’sdetermination to make them work. This isindispensable. It involves assigning responsibility to a man-ager or a committee tasked with assessing thecompany’s performance with respect to spe-cific points regarding the various stakeholders,carrying out audits and setting out objectivesand means. Finally an ethical code needs to be drafted.The advantages of this measure can be feltboth inside and outside the company. With respect to the outside, these codes provethat the company has taken CSR require-ments into account, helping improve its im-age and therefore its impact. In-house, the code should be considered as aset of guidelines that every member of staffmust adhere to. It will serve as a reference fordecision-makers having to arbitrate betweenoccasionally contradictory objectives such asmaximizing profit margins on the one handand avoiding certain high risk suppliers onthe other. Finally, it is essential to design a regular moni -toring system for the CSR policy once it is inplace. Spurred on by the media spotlight on the com-pany’s image, its leaders should endeavour toensure that the corporate image correlateswith the reality, creating, at the end of theday, a positive virtuous circle! �

Editor in chief Olivier OGER Design & realisation Relations & Stratégie Photos EDHEC Contact marianne.boulanger@edhec.edu

www.edhec.com

LILLE > Tel. +33 (0)3 20 15 45 00NICE > Tel. +33 (0)4 93 18 99 66 PARIS > Tel. +33 (0)1 53 32 76 30LONDON > londonoffice@edhec.edu