Strategy Op. Ed.

Movies, writers on strike, world labor markets

Variety, the daily entertainment journal, has as it lead story for today, "Will producers turn to U.K. writers?". With the Writers Guild of America on strike and t.v. production slogging to a close (this is the kind of infelicitious phrase Variety writers love), producers in Hollywood are about to remind us that Karl Marx was on to something when he said "workers of the world unite".

But hold on, before Hollywood goes hiring Brits there is a Writers Guild of Great Britain to think about. What does the WGGB have to say? Variety reports: "We are contacting the major U.K. broadcasters and producers, and the U.K. Film Council, asking them not to dump U.K. material into the U.S. market and not to dress up American projects to look as though they are British," said general secretary Bernie Corbett. "Strike-breaking would at best be a short-term payday but would have a devastating long-term effect on a writer's U.S. career."

Sounds easy enough. Respect the rules, and the writers will win the day. Well not so fast. Sony, Universal, etc. have production subsidiaries in England, and their productions are non-WGA, even though the projects may be written by British members of the U.S. WGA. This, and a dozen other loopholes in union contracts mean that projects can go ahead in London and other parts of the world.

We ought not to be surprised about messy rules. The World Trade Organization's "Doha Round" trade talks are entering into its 7th year of futility, mostly because buying and selling of intellectual property is not like trading soy beans. If we can't figure out patent protection for pharmaceuticals, what makes anyone think we can figure out movie and television production?

Does this mean that we are all going to be watching movies and television shows written by witty Brits?

'Fraid not, mate. While the WGA strike may turn out to be the opportunity some British fellow has been waiting for years, frankly I am not too worried for the WGA. Few of the Brit blokes have the slightest chance of even writing for the U.S. version of the British hit "Office". The calculus is not difficult. You can sell "Made in China" rag dolls, but topical t.v. comedy, like town politics, needs to be made locally, even if later on its sells globablly. "The Office", which shut down production this week in the U.S. will stay shut down unless the "scabs" the studios find over in London are some very talented American expatriates.

Thought we can expect to find a few more big budget movies produced via G.B. and other global film centers, the biggest employer of writers, television, can not go abroad. In Hollywood and New York, they are stuck with the American idiom. Our language was invented on the other side of the Atlantic, but the buck long ago washed onto the New England shores and made its road-movie journey out to L.A.

The drama on the Hollywood studio lots may go on for some time yet, providing fun and anecdotes -- stories of Teamsters, the famous out at 5 am on picket lines, and so on. And in the mayhem, Hollywood will lose several hundred million before the town's social structure is back in place.

But this little psycho-drama is nothing compared to what is coming from across two oceans to L.A.'s west. Within a decade, we can expect Bollywood to compete in the mega-project Blockbuster market. Bollywood may even start buying Hollywood stars. Just imagine. Tom Cruise gets dumped by Sumner Redstone, and instead of killing his resuscitated United Artists by making serious movies, he goes off to India to find enlightenment.

Mr. Murdoch and the Journal

The New York Times’ Sunday, June 10th, 2007 editorial begins with a truism -- "Editorial pages generally do not compliment the competition" -- and ends with a plea to the Mr. Murdoch not to undo the Wall Street Journal.

We all know the basic argument: Murdoch will take the Journal and gut its vaunted editorial independence and journalistic professionalism. Accordingly, the Bancroft family, who have systematically destroyed value for shareholders in the 21st century, are obligated to reject Murdoch's $5 billion and to save the institution of the Journal, qua Journal.

In fact this is the current Wall Street Journal management has used Journal's editoial page to make the selfsame argument, leading to the rather strange set of circumstances by which the editorial pages of the two most influential U.S. newspapers, inveterate opponents and competitors, coincide. And so we have one of those rare ecumenical moments where competitors agree on institutional purpose.

For we strategists, negotiating between value creation and institutional objectives remains the great unsolved challenge. Where ethics and social responsibility is involved the response is relatively easy: Do the right thing. But the Journal’s social contribution consists in giving voice to a particular economic and political ideology and doing it better than anyone else; while of great social value, it is not a social obligation. People like me depend on the Journal (and the Times) to give us the news and opinion straight and don't mind paying for it. The question is whether there are enough us and enough profit to make it worthwhile for these newspapers to continue doing things as they have decades.

The Times and The Journal are businesses, not public goods. Their shareholders are free to decide if they wish to maximize their wealth by selling the brands to those, like Mr. Murdoch, who are likely to change editorial and journalistic policy in the pursuit of value creation. The same shareholders are also free, as both the Journal and the Times have asked in their editorial pages, to risk economic value for more "institutional value". I like to call such companies "maintenance-for-profit" companies in that they defend an institutional position though it may reduce economic rents. This differs from social entrepreneurship, which consists of setting up companies whose mission is to solve clearly defined social problems while also turning a profit for owners. The Times and The Journal do not engage in social entrepreneurship. Rather over the course of time, they have acquired the institutional role of "defenders of the faith" and we are loath to lose their voices.

Customers like me recognize that the Journal brand might create greater economic value if it abandoned its its editorial voice and the commercial constraints that defending that voice require, and that media magnates like Rupert Murdoch are skilled at squeezing out economic value by repositioning brands to broader segments. Snobs like me consider this vulgarization, and end up screaming that the product has been destroyed. A Schumpeterian would be more likely to call it creative destruction. But as all of us have a right to decide what to do with our money, I am hoping that the Bancrofts consider themselves rich enough, and institutionally committed enough, not to need Mr. Murdoch’s billions. My world, if not the world itself, will be a better place for it.

Corporate Identity: Love Our Company and We Will Take You to the Promised Land

As luck would have it, just as Endesa was losing its status as Spain's flagship among the world's largest energy companies, Iberdrola bought Scottish Power and leaped to #5 in the world.

To celebrate its new status as one of the world's mega-multinationals, Iberdrola has launched a corporate identity campaign, extolling the virtues of size and international presence. The television ads run against the backdrop of Iberdrola printed large on the sail of El Desafío Español, semfinalist in the America's Cup. It's all rather majestic ... and here too luck has played its role. The decision to sponsor El Desafío Español was taken years before the takeover, at a time when not many would have bet on the Spanish team reaching the semi-finals.

As for the ad campaign itself, Iberdrola's ad is remarkably similar to Endesa's ambitious "All You Need Is Love" campaign. I'll turn to the two advertising blitzes in a moment, but first a few remarks on corporate identity advertising.

Often corporate identity advertising is done to defend the company against some dangerous weakness, with the company proclaiming to be exactly the opposite of what it is suspected of being. For me, the most striking example is Dow Chemical's launching in 1985 of its "Dow Lets You Do Great Things" campaign to counterattack the company's awful reputation for having provided the U.S. Armed Forces with napalm during the Vietnam War. For those of you don't remember Dow and napalm, I am sure that you will recall Robert Duvall's famous line in Apocalypse Now, "I love the smell of napalm in the morning."

During the Vietnam War, Dow was truly reviled. The company was target of demonstrations on college campuses all over the United States, When I was 16, my college interview at the University of Pennsylvania had to be delayed because of a demonstration against Dow Chemical recruiting on campus.

The demonstrations did not stop Dow from continuing to manufacture napalm and Agent Orange throughout the war. The effect, however, on Dow's reputation was so severe and lasting that the company had to wait a whole decade after the end of the war to go ahead with its clean-up corporate identity campaign.

Dow ran the ad campaign year after year. The company's diligence was rewarded. More than a decade later, when I was finishing up my MBA at New  York University, a couple of classmates mentioned that they were interviewing with Dow Chemical. I recounted my college interview experience. I was a bit taken aback by their response. Though they recalled napalm, Agent Orange, and knew about the breast implant lawsuits against Dow Corning, they still had a positive view of Dow as a market leader and innovator.   

I had to give Dow credit. Years of persistent, upbeat, we help make the world a better place advertising had done its job. In fact, Dow was so pleased with the results, that the company became one of the first to make being green and CSR an integral part of its strategy. Dow's most recent campaign, launched in 2006, is "The Human Element", proclaims Dow's vision of addressing some of the most pressing economic, social and environmental concerns facing the global community in the coming decade."

For those of you who are concerned that this might just be opportunism, it turns out that pledging to be socially responsible does have at least one, important positive effect. Employees and NGOs end up expecting firms to live up to their rhetoric, and when they stray, as was the case with BP, the response can be brutal.

Well-desigend corporate identity programs work. What, then, about Endesa and Iberdrola. On several occasions, I have written about how amused I was by the Endesa's use of the Beatles' "All You Need Is Love" in their ads, as if somehow management knew that without the "love" of Spaniards, the company would get taken away from them. Intuitively, management understood that there was no imperative demanding the continued existence of Endesa. Apparently, no very many of us are convinced that the world is like to be better or worse because of Endesa.

Iberdrola's message is nearly a photocopy of Endesa's. Once again, no one, other than the Spanish government, which wants to have its big multinationals, seems to really care. With all the attention focused on the Spanish government's attempt to keep Endesa, Iberdrola's apotheosis has gone almost unnoticied. In their ad, then, you can sense a yearning for attention. Once again, the music gives it all away. This time it's Carly Simon's "Let the River Run", her version of the traditional "The NewJerusalem".

"The New Jerusalem" was the theme song for Working Girl, a charming Harrison Ford - Melanie Griffith "Dr. Doolittle" retelling, directed by the astute Mke Nichols. As the movie closes, Melanie Griffith, having achieved her aim: the transmorgrification from secretary to boss substantiated by being given an office. And the music kicks. It's upbeat, just a few happy notes to the words of

Let the river run,
Let all the dreamers
Wake the nation.
Come, the new jerusalem.

But the New Jerusalem may not be all it's cracked up to be. While Melanie Griffith's Tess luxuriates in her office, the camera pulls back and back and back to reveal hundreds and thousands of tiny squares windows all exactly alike, thousands of identical dot-sized new Jerusalems, no more substantive than the firms that go by names like Endesa, Iberdrola, e.on, Chrysler, companies with no meaningful institutional legacy, firm that will be bought, sold, privatized like Chrysler or taken public, firms that talk of their proud history, their commitment to same values everyone else is committed to  ... when in fact most companies are simply a collection of assets and activities designed to create economic value.

This is not all bad. Once we get rid of the idea that firms should be created to make the world a better place, we are free to judge the actions of those who are running firms now without the safety net of a proud corporate legacy. There is no fall back position, no appeal to what "the founders has in mind". Management is responsible for its success and failures, both economic and social.

There is no compelling reason to keep Endesa, Iberdrola, or Chrysler for that matter, alive. All we need are firms and management that innovate, create wealth, and behave responsibly. We don't need to love Endesa and we don't need Iberdrola to lead us to the New Jerusalem. Perhaps we could do with less corporate identity and lot more managerial integrity.

Government Regulation and the Competitive Advantage of Nations

As the United States has retreated on regulation, so has the competitive advantage of U.S. companies world-wide.

This sounds paradoxical. How could government regulation, which is said to strangle innovation, be the source of national competitive advantage? Adam Smith would think I'd lost my mind, and Milton Friedman, would send me back for remedial Economics 101 (of course, I'd have to buy the latest edition of his famous textbook).

Here's how it works. Just as countries lose competitiveness for having too much corruption, countries can gain competitiveness by providing for capital a secure environment in which to invest and may provide incentives for innovating, especially as regards environmental and safety and health standards.

When government regulation is done right, it provides the solid rules for how to play the game. Which brings me to Sarbanes-Oxley. As companies complain about the onerous paperwork, capital continues to pour in to the New York Stock Exchange (NYSE), and foreign company listings grow. Sarbanes, however, is only one of many "annoyances". Companies have to meet tough reporting and corporate governance requirements, and, maybe even worse, also put with getting sued in the United States.

Two examples involving Spanish firms listing on the NYSE. When E.On screamed that Acciona and Enel were playing dirty, they sued in the United States. Several years earlier, Terra investors got mad at Telefonica for allegedly destroying Terra's share value, the investors sued In New York as well. Believe it or not, this is actually good for the NYSE. The NYSE's competitive advantage is not that it knows how to run a market -- much of that is technology -- but rather its collaboration with the secure and fair trading environment that the legal system guarantees.

This guarantee in New York is provided by the U.S. Attorney's Office for the Southern District of New York (see "Endesa, E.On, The Southern District Court of New York ... and Rudolph Giuliani"), traditionally an activist court that has defended investor rights and also gone after Wall Street malfeasance with great conviction. For this reason, not just civil liberties and fair elections come under attack when the President of the United States plays games with U.S. attorneys, doing business becomes also become more difficult as investors lose confidence.

Regulation, done right, could also help us get pharmaceutical business out of the courts and out of the newspapers. Not a day seems to pass without some ugly link up between drugs companies, doctors, and the government coming to light. The current spotlight is on legal kick-backs, cash payments that doctors receive from drug companies for prescribing medication that often receives government subsidies. (See the current series in The New York Times.) Proper regulation would stop this, and provide two important benefits. One, billions of taxpayer money could be saved; and, two, drug companies would no longer be able to earn billions on drugs that in some cases are not superior to previous medications. When FDA regulation worked better, before 25% of testing was actually paid for by pharmaceutical companies, innovation was spurred by a respectful and healthy tension between those responsible to bring new drugs to market and those responsible to make sure that they were safe and administered correctly.

This, as well, the Bush Administration has undone, invoking the usual litany of regulation is bad for business, when in fact all they have done is substitute good regulation for bad regulation, often under the euphemism of privatization. Much of this so-called privatization is nothing more than government subsidy scams. A stunningly well-executed example, is the U.S. government guaranteed student loan program which outsources loan grants to private companies. Here's how the deal worked. With the government assuming the risk, companies sprung up (many of them run by former government officials) that tied up deals with universities that gave them access to their students; in turn, the universities received money from the loan companies and university student loan officials ended up as consultants to these companies, or even on the boards of directors. $100 millions have been made at the expense of taxpayers in a close to no-risk business.

Stopping corruption is something almost everyone with agree is good, but I still need to convince you that regulation can be good for business. The NYSE is nice example, but you might argue that it is not really a business, but more a piece of the institutional framework required to do business. Fortunately, I have a really good example of an industry that missed out on the chance to win in the world marketplace through regulation; the American automobile industry.

Comfortable in its mediocrity, the industry blocked any attempt to regulate mileage and environmental standards. Without fail they made the same argument over and over; stricter standard would make cars more expensive and hurt consumers. This was, and still is, nonsense. The payback both for consumers would have come in cheaper gas and maybe even lower insurance costs; the payback for society in avoiding negative externalities -- pollution and injury -- would have been in the billions as well. The price that the industry paid for not wanting to innovate to meet social needs was losing out to the Japanese.

Government regulation has two purposes. One is to protect us from harm by making life difficult for the bad guys. The other is to provide the right environment for the good guys who bring us useful innovation and improve our lives.

Fuqua and Ethics: It's just business, it's personal

Following yesterday's post, I received several mails asking me what I think Fuqua should have done, including a couple that asked me if were condoning cheating. I do not, and never will, condone cheating. My objective in yesterday's, and today's, post is to defend the role of education in helping students to learn and to succeed in life. A cheating scandal is a failure for everyone -- the students, the professor, and the institution.

Given the exemplary way in which Fuqua has managed the case, I have every reason to believe that the school's decision was fair. This does not, however, mean that I should not question the utility of Fuqua's honor code and the use of take home exams. As I have argued, I am concerned that the circumstances may have been propitious for cheating. As a professor, I try to make it as difficult as possible to cheat on exams. I use multiple exams, remind students frequently that the penalties for cheating at IE Business School can be severe, including explusion, and I tell students that I take cheating as a personal affront.

Perhaps making the issue personal, and not just business, is taking things too far, but I consider myself ethically responsible for making cheating difficult. I also believe that I must address the ethical issues of business decision-making in every course. I do this not just for the students, but also to feel good about myself. Ethics is inevitably personal, precisely because our individual ethical decisions are values-based rather than fact-based. When we make ethical decisions, each of us moved by our understanding of what is right and wrong, often with little time or opportunity to make cool, clear-headed judgments. Customarily, only when we seek to judge ethical conduct we do truly analyze the facts.

My job as a professor is to try to create an environment in which those who wish to behave ethically feel supported, and where the possibilities of unethical behavior are few.The goal is to reward ethical behavior, not to find the bad guys and punish them. By doing so, we provide the circumstances by which students feel secure doing the right thing and ineteriorize ethical behavior as the norm.

John Browne, Bill Clinton and Middle-Aged Men Who Lie

Sir John Browne resigned yesterday as CEO of BP, two months ahead of schedule, following the publication in The Daily Mail, a British tabloid, of details of his affair with Jeff Chevalier. The whole business is both comic and mean.

We should keep in mind that John Browne did not lose his job as CEO of BP because of his affair with Chevalier. Browne was already set to step down in July due to a disasterous oil leak and an explosion in a Texas City refinery that killed 15 and exposed serious safety difficencies at BP. The company that Browne had rechristened "Beyond Petroleum", "the green energy company", had tripped up on badly managed cost-cutting designed to maintain profitability. Green and oil, it turns out, is a mix that requires major sustained investment that may not bring short-term profits.

Browne's personal life was never an issue during 40 years at BP. Even at the worst moments in the Chevalier affair, BP treated John Browne well. When the accusations of misbehavior were brought to BP's Board of Directors earlier this year, the board took its time, investigated the charges, and found that "the allegations of misuse of company assets and resources were unfounded or insubstantive."

It sounds good up until last word "insubstantive". Who uses such a word?  On reading the BP Board's statement of support for Browne, I re-read the word again and again. And then it dawned on me. The choice of the word was positivley Clintonesque. We all remember Mr. Clinton arguing in the Monica Lewinsky case that he "never had sex" with "that women", though when faced with evidence he did admit to having "physical contact". The physical contact was sufficiently substantive to warrant being called sex by everyone else other Mr. Clinton, whose definition of sex seemed to find its derivation in teenage debates over what constitutes a virgin. In my mind's eye, I imagined  Clinton describing his relationship with Monica Lewinsky as insubstantive.

Insubstantive is a wonderful word. In legal language, or in the quasi-legal sense as it is being used by BP's Board, it describes actions that fall into a class of behaviors potentially in violation of the law, but that are so trivial or unimportant as not to transgress the intention of the law. (Property law does specify permissible insubstantive changes, but that's not at issue in this case.)

Legalese aside, frequently company ethics codes include substantive prohibitions of the use of company property as well as other rules on personal behavior. Apparently, BP's Board decided that Browne had violated neither legal nor ethical codes in permitting Chevalier to use a company computer or telephone; nor did they find censorable sending a package to Chevalier using a company employee, or being invited to come along to company dinners and trips, etc.

In the world of privilege, it is not always clear when insubstantive transmigrates into substantive, though in recent years more than one CEO has lost his job for using company contractors for private benefit, expensive junkets with spouse or girl/boy friend, etc. In his own defense, Browne insists that he did nothing wrong, and as far as I can tell from the evidence, Browne's alleged misuse of company resources is small potatoes. (This does not mean that I approve, only that I know the difference between the Browne's alleged abuses and back-dating stop options.)

Insubstantive is also a grammatical term for nouns that are not material. Happiness, for example, is the classic insubstantive noun. It has no weight, though it is, with life and liberty, an inalienable right that we all wish to pursue. Choosing one's partner is a large part of that pursuit. BP had no problem with Browne's choice, though I suspect that some questioned Sir John Browne's judgment in selecting a man 30 years younger than he and of comparatively modest means.

When Browne and Chevalier parted ways, Browne paid for his ex's apartment in Toronto for a year, before Chevalier was offended by the paltry pay-off. He felt he deserved something akin to the legal safeguards of an ex-spouse, and he went to The Daily Mail looking for substantive compensation.

In denying Chevalier the opportunity to maintain the opulent lifestyle that had together, Browne demonstrated the same lack of understanding Clinton displayed when he thought that Monica Lewinsky would settle for a roll in the hay (in fact, a cramped space under a desk) instead of the recognition she expected for having been the President's "muse". Even without Linda Tripp taping her conversations with Lewinsky, it is easy to imagine the affair going public. After all, there was the substantive evidence of the blue dress. I will spare you the details.

And so in January, the impoverished Chevalier approached The Daily Mail to sell them the story of his four year relationship with Browne. Browne went to court to stop publication. Unfortunately, this required Browne to lie to the judge about Chevalier; inevitably the judge figured it out, exposed Browne as a liar, and The Daily Mail was permitted to publish the damning news.

Yesterday, in a public statement Browne admitted to lying, though only about insubstantive things like where he met Chevalier, saying he did so out of embarrassment. As The Daily Mail reported, "Lord Browne said he met Mr Chevalier by chance while exercising in Battersea Park, but according to one report today they met through a male escort agency website, suitedandbooted.com.

Which brings us back to the Clinton analogy. Like Browne, Clinton lied about his relationship with Monica Lewinsky to avoid embarrassment. He lied on national television and in legal depositions and before the U.S. Congress. Clinton and Browne both lied for the same reasons -- embarrassment. Of course, they were both afraid of what the revelations might do to their reputations, but most of all they were ashamed of what they had done. It was embarrassment that turned them into such bad liars.

In the case of Bill Clinton, it was my firm belief that he should have sìmply refused to respond to questions about his personal life. Even when it was clear that Linda Tripp had the tapes and there was no denying that he lied, he should have said: "Of course I lied about Ms. Lewinsky. What sane man goes on national television and declares he has cheated on his wife?" That might have been the end of it, but embarrassed and confused Clinton ended up wallowing in public penance.

We ought not to expect more from Sir John Browne. Imagine the respected CEO of British Petroleum telling a judge that he met the man of his dreams through a gay escort service. This was too much for Browne, and so he lied to avoid the awful embarrassment of this becoming public.

But unlike Clinton, whose lover was moved by the insubstantive, Browne had an easy out; Chevalier just wanted to feel the weight of money. All Browne had to do was offer Jeff Chevalier a separation agreement of a couple of million pounds, non-disclosure included. Aside from having saved himself the embarrassment and the legal hassles, he would be set to collect 30,000,000 pounds at his July retirement which he now will not get. I am afraid that I simply don't know why Browne did not buy off Chevalier.

On that sorry note, we might ask ourselves what lessons can be learned from all this? Unfortunately, there is not much that is new here. There will always be powerful middle-aged men who are fools about sex and youth. If they are lucky, the lack of judgment does no harm and appetites are satisfied, but when you have the kind of power Clinton and Browne exercised, not knowing what the object of your desire really wants can be a very dangerous mistake.

Telefonica Controls Telecom Italia

Surprise, surprise. Telefonica now controls Telecom Italia. With its new stake in Olympia, the consortium that includes Mediobanca, Generali, Intesa Sanpaolo and Benetton, Telefonica will enjoy two seats on Telecom Italia's Board of Directors In the new company. Telefónica will also, according to the company's press release will also have the right of first refusal of on the sale of shares, as well as veto rights in certain decisions related to share ownership changes, divididend policyand divestitures." Telefonica will also be required to maintain a strict separation between management of Telefonica and Telecom Italian.

To make the mess as simple as possible, Telefonica is the largest shareholder in Olympia, which is the largest shareholder in Telecom Italia, and Telefonica is the only Olympia member that knows anything about Telecoms. It the perfect deal. As for possible opposition from the Italian government ... Forget it! Paolo Gentiloni, Italy's communications minister, declared that he was delighted with Telefonica's investment great just minutes after the official announcement was made.

Recently Telecom Italia, the fith largest European telecom, had been pursued by AT&T and France Telecom, with the French dropping plans to buy into Telecom Italia just last week. France Telecom's excuse for dropping out of the running was that they did not think that mega-takeovers were the way to build a great company. Fighting against what governments want probably is not the best way either, so we can't fault the French for pulling back, especially when it was clear that Telefonica was the government favorite.

Telefonica's triumph is perfectly consistent with the Mediterranean strategy developed by Zapatero and Prodi, and is widely seen as tit-for-tat for permitting Enel's takeover of Endesa. In line with the "progressive" Mediterranean political world view, we can expect Enel some time next year to invite Endesa's President, Manuel Pizarro, who has strong links to Spain's opposition Partido Popular, to leave in favor of someone closer to Spain's President José Luis Rodríguez Zapatero.

For all this non-market shenanigans, what really matters is how consumers and shareholders will be effected. In this case, probably not all that much. To start with, there is no particular reason to believe that consumers will benefit from Telefonica's incursion into Italy. Fortunately, there is no reason to believe that consumers will be hurt either. On the one hand, It is doubtful that Telefonica's two board members will inspire Telecom Italia to provide breathtaking new services and much greater efficiency; on the other hand, as digital information is limitless, unlike fossil fuel, and switching costs are low, Telecom Italia customers don't have to worry nearly as much about price increases as Endesa customers. We ought not to forget that Endesa's new owners have to make up somehow for paying double the September 2005 share price.

As for Telefonica itself, both top managment and the Spanish government could not be happier. Telefonica's market capitalization makes it the world's fifth largest telecom and Europe's "largest integrated operator"; the Spanish government has no intention of losing Telefonica to anyone, at anytime. Similarly, there is little chance that the Spanish government would look favorably on a possible takeover of BBVA or Santander. I think it would be fair to argue that no other country in Europe is as committed as Spain to building its multinationals. This is, perhaps, a reflection of Spain's recent rise to the ranks of the big players and the pride that is taken in being the market leader in Latin America in banking, telecom and energy, as well as an emerging player in Europe. More than once, I have seen Spaniards point with pride to a Zara store on the main shopping street of a European capital. After suffering post-Civil War poverty and 40 years of dictatorship, Spaniards understand all too well what it means to have and to have not.

A footnote. Last year, the Benetton family tried to sell Autostrade to Abertis, but Prodi put a stop to the takeover his first week in office. There is talk that the takeover may be revived.

Endesa Epilogue

In his testimony before the Spanish Congress, the resigning President of the CNMV (the Spanish SEC), Manuel Conthe, accused the economic advisors of Spain's President, José Luis Rodríguez Zapatero, and the Vice-President of the CNMV, Carlos Arenillas, of intervening in the takeover process in favor of Enel-Acciona, prejudicing the interests of E.ON.

Few doubt that there was interference; after all, the fascinating Endesa melodrama began with the takeover bid by Gas Natural. The hostile bid was promoted by the Spanish government in September 2005 and defended by President Rodríguez Zapatero in the name of building a "national energy champion" in a frontal attack on EU competition policy.

Government intervention is neither surprising or new in takeover bids in "strategic" industries; such behavior has become a standard feature of industrial policy throughout the world. But the Endesa case is different. For a year and a half, the battle has been played out on the front pages of the Spanish newspapers and on the national television news. Why did this happen when, in fact, most people never did understand what was going on nor care who owns Endesa?

For Spain's two leading political parties, the Endesa takeover was a centerpiece in a battle over their respective political agendas. PSOE, the ruling party, thrust Endesa into the controversy over regional rights by bringing Endesa into play in the middle of the negotiation over the Automous Region of Catalonia Statutes. The takeover was clearly part of the package to get in support of the Statutes promoted by PSOE. The Partido Popular, opposed to the Statues, took advantage of PSOE's clumsy handling of the Gas Natural bid to attack PSOE's interventionism. To be fair, Partido Popular was as disingenious as PSOE. No one actually believes they really wanted Endesa to be sold to the German E.ON rather than remain Spanish; their is ample evidence of Partido Popular interventionism defending Spanish MNEs during the Aznar Administration. In short, the Spanish public had to put with up its two leading political parties fighting it over Endesa as if who owned the company was as important a public issue as education, crime or immigration.

In the end, the only ones who have benefitted from the whole mess are those Endesa stockholders who sold their shares during the last 18 months, and observers like me who have had fun writing about it. As I have argued on more than one occasion, the real losers are Acciona and Enel shareholders (including the Italian public that owns 30% of Enel via its government) who have probably paid too much for Endesa, and consumers who will undoubtedly pay higher energy fees.

From the beginning of the takeover process, my opposition has been based on my belief that consumers will be hurt. We should not be shy in reminding the parties involved that competition policy is about protecting consumers.

VIACOM, Don Imus, profits and Non-market Strategy

Sumner Redstone, CEO of VIACOM, fired Don Imus, the popular radio show host, because numerous advertisers dumped Imus's show in response to the public uproar over his racist trashing of the Rutger's University women's basketball team.

14 years earlier, in 1993, during attacks on MTV's Beavis and Butthead for allegedly promoting violent and anti-social behavior in children, Redstone remarked that MTV was "not his cup of tea", but defended the show and the network.

What was the difference? Following the controversy, MTV's ratings went up, and when advertisers threatened to drop the show, executives were untroubled. What really mattered to Redstone was defending the MTV franchise, the most profitable unit of the VIACOM media empire, that came to include Paramount, Blockbuster Video, Neopets, The Comedy Channel, Dreamworks, as well as CBS television and radio (recently spun off as an independent company).

Imus, who has made a living mixing insults, popular culture and serious interviews, picked on the wrong target; Rutger's University defended its championship women's basketball team with strong support from the public and the media, including VIACOM's sister media units. But what did Imus in of course was not the public outcry, but advertisers dropping the show.

Redstone, as media and entertainment CEO, could not be expected to be concerned about what we call traditionally have called corporate social responsibility. If he were, he would have acted long ago to all sorts of offensive entertainment products, starting with the far more incendiary lyrics of contemporary rap and hip-hop and violent and misogynist video games. The reason VIACOM, SONY, TIME WARNER and the rest have done nothing is quite simple: market segmentation. The buyers of anti-social media content buy the content precisely for this reason, while objecting stakeholders have failed to hurt the media giants financially.

Redstone, now in his 80's, has pursued standard business practice in the media and entertainment industry. Following the Janet Jackson and Justin Timberlake Superbowl incident, VIACOM gladly paid the Federal Communications Commission fines and went about business as usual. Business as usual means that as long as a media product sells and the stakeholders who object can't hurt you, there is nothing to worry about. When necessary, the industry defends its practices as free speech. On the other hand, the industry has always been ready to abandon free speech in the name of corporate social responsibility when stakeholders threaten the bottom line.

As bad as its sounds, It is possible that this arrangement is better than the alternatives. After each alleged media offense, negotiations with stakeholders are carried out in television and print media (much of it owned by the "alleged perpretator") and pragmatic economic decisions are taken. This is the essence of non-market strategy. Pragmatic non-market strategy decisions are probably preferible to self-censorship. Making decisions based on the strategic impact of non-market events is surely better than trying to satisfy the demands of all stakeholders.

Being socially responsible in the production and sale of cultural goods is far more difficult to evaluate than for standard consumer goods. If this is so, what then is socially responsible behavior for firms like VIACOM? Their responsibility is twofold: 1) provide plurality of content; and 2) as owners of broadcast media, provide an equally plural forum for public negotation among the stakeholders. Beyond that, responsible behavior means following a coherent non-market strategy that is fully integrated with the market strategy.

There are quite a few academics who disagree with me. They want companies to make the world a better place. Social entrepreneurs claim this motivation. That's fine by me, but it does not mean that all companies must follow suit. Making products and providing services that consumers want is socially responsible as well. Leaving the moral development of the citizenry to other social institutions is probably the best course for most companies.