A Salomon Smith   ,CAST STUDY  solution

Reail the following paragraphs and ansuer the 20 questions giztm at the end

. Strategies to Gain New Business at Wall Street Investment Banking Firms: Ethical or Unethical ?
A Salomon Smith Barney (a subsidiary of Citigroup), Credit Suisse First Boston (CSFB) and Goldman Sachs (three of the world's most prominent investment banking companies), part of the strategy for securing the investmentbanking business of large corporate clients (to handle the sale of new stock issues or new bond issues or J . 20 advise on mergers and acquisitions) involved (1) hyping the stocks of companies that were actual or prospective customers of their investment banking services, and (2) allocating hard-to-get shares of hot new Initial public Offerings (IPOs) to select Exeiutives and Directors of existing and potential client companies, who then made millions of dollars in profits when the stocks went up once public trading began. Former WorldCom CEO Bernie Ebbers reportedly made more than $1t million in trading profits over a four-year period on shares of IPOs received from Salomon Smith Barney; Salomon served as WorldCom,s investment banker on a variety of deals durin$ this period. Jack Grubman, Salomon,s top_paid research analyst at the time, enthusiastically touted WorldCom stock and was regarded as the company's biggest cheerleader on Wall Street. To help draw.in business from new or existing corporate clients, CSFB established brokerage accounts for corporate executives who steered their company,s investment banking business to CSFB. Apparently, CSFB,s strategy for acquiring more business involved promising the CEO and/or CFO of companies about to go public for the first time or needing to issue new long-term bonds that if CSFB was chosen to handle their company,s new initial public offering of common stock or a new bond issue, then CSFB would ensure they would be allocated shares at the initial offering price of all subsequent IPOs in which CSFB was a participant' During Tggg-2000, it was cornmon for the stock of a hot new IPO to rise 100 to 500 percent above the initiaL of offering price in the first few days or weeks of public trading; the shares allocated to these executives were then sold for a tidy profit over the initial offering price. According tg investigative sources, CSFB increased the number of companies whose executives were allowed to participate in its IPO offerings ftom26 companies in ]anuary 1999 to 160 companies in early 2000; executives received anywhere from 200 to 1,000 shares each of evQrY IPO in which CSFB was a participant in 2000. CSFB's accounts for these executives reportedly generated profits of about $80 million for the participants. Apparently, it was CSFB's practice to curtail access to IPOs for some executives if their companies didrf t come through with additional securities business for CSFB or if CSFB concluded that other securities offerings by these companies would be unlikely. Goldman Sachs also used an IPO-allocation scheme to attract investment banking business, giving shares to executives at 21 companiesamong the participants wete the CEOs of eBay, Yahoo, and Ford Motor Company. EBay's CEO 7. 20 was a participant in over 100 IPOs managed by Goldman during the L996-2000 period and was on Goldman's board of directors part of this time; eBay paid Goldman Sachs $8 milhon in fees for services during tllre L996-2001 period.

QUESTIONS TO CONSIDER.

(a) If you were a top executive at Salomon Smith Barney CSFB, or Goldman Sachs. How would you justify your company's actions ?

(b) Would you want to step forward and take credit for having been a part of the group who designed or approved of the strategy foriaining new business at any of these three firms ?

7. Read the illustration giaenbelout and answer the questions at the end

, Interactive innovation in the enetgy industry jacquier-
Roux and Bourgoois (2002) investigated innovation. activity in the energy production industries and found that in the period between 1985 and t998, paradoxically, as the R&D spending of the main oil and electricity production companies went down, there was a simultaneous overall increase in the production of knowledge in these sectors (measured in terms of number of patents granted). This was explained by the change in these sectors towards more interactivebased innovation processes, where the level of collaboration in innovation activity between the main oil and electricity production companies and equipment suppliers increase markedly. During the period examined significant changes had occurred in these sectors which encouraged the main producers to reduce their R&D spending. Primarily, deregulation and privatization, combined with a process of globahzation in these industrial sectors, significantly increased the pressure on the main oil and electricity production companies to focus on short-term economic performance, which encouraged them to reduce their levels of R&D spending. Simultaneously, these companies started developing innovation partnerships with equipment suppliers as a way to sustain their R&D efforts and outputs. Prior to this, the main oil and electricity production companies had undertaken virtually all their R&D activity totally in-house. Thus the strategy change undertaken by the main oil and electricity production companies resulted in the level of interaction between users and suppliers during innovation activities increasing significantly, and with equipment suppliers playing a greater role in such activities than had historically been traditional. These changes were visible in the evolving number of patents granted to these companies, with the patent activity of the main oil and electricity production companies declining, while the number of patents granted to equipment suppliers increased significantly. While these changes gave equipment suppliers a more important role in innovation activities a power asymmetry still existed which favoured the main oil and electricity producers. This was related to both their size (they were typically large multinational companies), and also their ability to be able to switch their business to different equipment suppliers if so desired.

(a) What diverse factors in your opinion are most important in making innovation process more interdctive ?

(b) Explairl what kind of asymmetry exist in theinnovation practices followed by energy industrv. –o