十 A MOLE: Shriver had studied and Formertop CIAlawyer RObert Eatinger recalls country, the CIA has tO train more Of its analysts worked in China before applying tO an intense interest at the agency in uncovering on China 仕 om scratch, starting with language the CIA. During a suspected Chinese moles around the time he courses, adds Wilder, wh0 served as the top Asia polygraph test in 2010 , he grew so was retiring in 2015. I don t remember whether expert in the George W. Bush White House. lt can nervous he with- it was the last one, tWO or three years that I knew take a year Of intensive daily classes tO master drew his applica- Of it," he says. He and other CIA veterans con- 1 れ ore than rudimentary Mandarin or Cantonese, tion on the spot. sulted by N どル“た declined to talk more specif- just tWO Of the dozen main tongues on the maln- ically about particular cases. land , many of which are mutually unintelligible. "The problem with those stones is there's CIA spokesman Dean Boyd concedes that always a rumor, a top former CIA offcial says. those applicants whose associations and travels I think there's always worries that someone s pose elevated risks receive elevated scrutiny. gotten through the system, but l'm not really But he says the CIA "has hired and continues to aware that there is a specific hunt going on at this hire such individuals if they meet our security point. ” The CIA does not comment on such sensi- standards. tive matters. MOle hunts are carried out by a very That is a truism, according to other top former small group Of counterintelligence specialists 。 in intelligence offcials : The C IA continue s t0 hire large measure because Of the dangers tO reputa- applicants whO've spent time in China—at least tions and that sort ofthing," says the former CIA those who've withstood a security check that offcial. "lt's kept very, very qulet ・ can take tWO years. But the critics stand by their But the Shriver case gave the security folks a assertions that the agency's heightened security big concern about the targeting Of American stu- s ensitivity tO applicants with multiple visits tO dents in China," says Dennis wilder, the CIA's China has also cost it high-quality talent.'lfyou deputy assistant director for East Asia and the have that on your background, your resume is just pacific from 2015 t0 2016. And today "there's a tossed ⅲ the trash, because they are SO paranoid far greater scrutiny ofanyone whO has spent time about MSS penetration and co-opting students," a in China as a stude nt , p articularly on the lon- former senior CIA intelligence analyst tells Ⅳどル - ルた on condition ofanonymity. ge r-term programs. AS a result, he says, the CIA'S recruitment Of some 0f its best-qualified applicants has stalled. AMERICAN SEDUCTION And that has damaged the agency's ability to For decades, the MSS, China's intelligence understand what's going on inside China.When it agency, primarily targeted Chinese-Americans, shunts applicants who have traveled widely in the especially those working in the defense and intel- NEWSWEEK 14 APRlL14, 2017
merits Of shareholder capitalism. And it continued tO deliver pseudo-intellectual capital that practi- tioners could use tO justify their decisions. ln the 1980S , HBS had abandoned its mission of trying t0 educate an enlightened managerial class. lnstead, it threw its 10t in with Wall Street as it was dismantling the edifice of American industry HBS had helped build. HBS had nurtured the professional manager from his birth and then helped to kill him. The malll way it did so was by endorsing the innocuously named principal-agent theory pop- ularized by Friedman. While much ofthe faculty of HBS was still trying to figure out how to help Amer- 1Can management resurrect itS reputation and itS fortunes as the 1980S began, MichaelJensen, then a professor at the University Of Rochester's business school steeped in the University of Chicago's free market tradition, was making sure the good name of managers stayed buried. Along with William Meckling, the dean of Rochester's business school (and a graduate student 0f Friedman's), Jensen wrote a 1976 paper that would change everything. ln "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure," he laid the groundwork for the most radical change in the hierarchy Of power ln corporate America since the robber barons gave way tO professional managers. Arguing that managers had become t00 entrenched and lacked discipline and accountability, Jensen and Meckling posited that investors were more trust- worthy than managers as custodians Of the Amencan corporation. Managers weren t going tO voluntarily reform, they said, so the system had to be adjusted so that they would be forced to do so. No longer would they be their own judge, or be judged by a jury they had picked, that is, their board. The market was henceforth to be judge, ] ury and executioner. Until Jensen came along, executive paywas largely tied t0 company size—the highest-paid CEOs ran the THE TROUGH SHALL SETYOU FREE: MiIton Friedman was the godfather Of a new kind Of business leader- ship, one that deemed mo 「 virtue immoral when it doesn't serve the bottom line. NEWSWEEK 38 APR 比 14 , 2017
、第 LULLiA 0 0 彙解ー A い、 OA 20 第な の , るーい感 : 物ー毛をⅸ心 E32 ・ 90 丿化 A BLOOD MONEY: LuiIIia van Lanen was SO embar- rassed that she couldn't a 0 「 d her heart medicine that she lied to her doc- tO 「 about taking it. That sounds very complicated. lt's really complicated. purchasing prescription DETERMING THE drugs is different from other kinds 0f purchas- PRICE OF A NEW ing. When you buy a car, you are the deci- DRUG IS BOTH Slon-maker. You are the customer, you choose what car you want, and it's up tO you whether SCIENCE AND ART. or not you want tO pay whatever it costs. You go t0 a dealership and buy a car. With pharmaceu- ticals, the customer—the patient—is rarely the decision-maker. Usually, the physician makes And there are bad actors, which we have heard the decisions. And the patient doesn t pay the cost directly either. The patients aren t usually a great deal about recently. Drug pnces are lncre asing a stronomic ally without explanation. writing the check. There may be a copay or com- List prices are set extraordinarily high. l'm going surance, but the maJority Of the cost is usually tO be focusing on the good actors. covered by the insurer. Determining the price 0f a new drug is b0th sclence and art. SO many different elements UnIess the individual has an insurance plan must be considered, and there's no formula. AII with a high deductible on prescription drugs the different factors must be weighed. The clin- 0 「 no insurance coverage at all. ical value is the most important aspect. ls this Corre ct. drug helping people- live longer? ls it helping them live better? AISO, hOW does it compare tO HOW does a pharmaceutical company deter- competitors? Are there competitors? Will payers mine an appropriate list price f0 「 a drug? pay for the drug? Can patients afford the copay? Before diving into this explanation, I think it's What is the average copay for a patient? What im ortant tO em hasize that there are a lOt Of are othe r rugs pnce good actors in the pharmaceutic al industry. ln company have tO give in government-mandated my experience, most people in this field want tO discounts, such as the 340B clause in Medicaid? innovate and create drugs that benefit patients. NEWSWEEK 51 APR 比 14 , 2017
tradition at HBS which could have said that this isn't the way business should be operating, lnstead, they Just went with the flow. They kowtowed t0 Jensen. The Pretense of KnowIedge IN 2004 , again with Murphy, Jensen wrote, Remu- neration:Where We've Been, HOW We Got tO Here, What Are the Problems, and How to Fix Them. ” lt wasn t that anybody was looking to Jensen for solu- tions to the problems he'd played a large part in creat- ing, but consider his quandary: Just a decade before, he was the man with all the answers. By 2004 , no one had any more questions for him; hiS ideas were bankrupt. So he asked them of himself. "Two hun- dred years ofwork in economics and finance implies that in the absence Of externalities and monopoly, he thundered, "SOCial welfare iS maxlmized When each firm in an economy maxmmzes itS tOtal market value. ” lgnoring the gaping holes in the remark— those externalities ” include, say, pollution that companies end up shirking responsibility for, or the crumbling 0f a community when a CEO closes a factory simply t0 Jtuce share price—the "implied" mcrease social welfare was just that: implied. Jensen's thesis was given its final kick out the door when Ghoshal at the London Business School laid out a comprehensive rejecfion Of agency theory. He began by dismantling Frie dman's—and by extension, Jensen s—argument that shareholders are the "own- ers" 0f a company. They're not, at least if by own one means it in the way one can own a car or an iPhone. We... know that the value a company creates IS produced through a combination ofresources con- tributed by different constituencies, ” GhoshaI wrote. If the value cre ation is achieved by combining the resources of both employees and shareholders, why should the value distribution favor only the latter?" Why not adjust the model? Because it's nice and neat. what's more, it's probably beyond the capabil- ity Of economists tO come up With the mathematics that describe how human organization, with all its complexities, really works. 'such a theory would not readily yield sharp, testable proposition, nor would it provide simple, reductionist prescnptions, ” observe d GhoshaI. "with such a premise, the pretense of knowle dge could not be prote cte d. Busine ss could not be treated as a science, and we would have to fall back on the wisdom ofcommon sense. ln recent years, Jensen has been on a futile quest to alter his legacy ・ "ONTHEFACEOF He showed his kinder, gentler side ⅲ 圧 SHAREHOLDER 2011 with his paper "Putting lntegrity IntO Finance. ” Along with co-author VALUEISTHE DUMBEST Werner Erhard (the creator of the IDEAINTHEWORLD. " Erhard Seminars Traming move- N E W S W E E K 44 A P R 比 14 , 2 017 第 : い ment), Jensen claimed tO have revealed heretofore unrecognized critical factor ofproduction. ” That fac- tor? lntegnty. Jensen claimed tO Offer "an actionable p athway t0 incre asmg integnty and conclude d that mtegrity thus becomes a necessary (but not suff- cient) condition for value maxmizatlon and for a great life. " There may be no better evidence for the pitfalls ofthe tenure system than this. What did MichaeI Jensen achieve, in the end? He helped a generation 0f busine s speople lower its opin- ion ofitselfand give in tO its baser motlves. For all his economic equations and insistence on the te stability and refutability ofthe logic ofhis opinion—and it was Just that, an opinion— he released CE O s , institutional investors and Wall Streeters from the obligation of considering anything but their own narrow wants and ne e dS. Management adopted those parts 0f agency theory that suited their needs and ignored the rest.
BIG SI-I()TS 0 SOUTH SUDAN Bentiu, South Sudan—As famine strikes the reglon, a woman and her children rest in the pediatric ward 0f a Doctors Without Borders hospital on March 23. Famine and starvation are threatening over 20 million people across South Sudan, Soma- lia and Nigeria. "we are facing the largest humanitarian cr1SlS since the creation Of the United Nations, し N. Emergency Relief Coordinator Stephen O'Brien tOld the Security Council on March 10. "We need $ 4.4 billion by July, and that's a detailed cost, not a negotiating number. " SIEGFRIED MODOLA
LEHMAN just have tO see what happens. A course grounded in agency theory that Jensen developed at HBS—The Coordination and Contr01 of Markets and Organizations—was designed to make stude nts more 。 tougwmifidéd'"åiüshift them from the "stakeholder model" oforganizational pur- pose. lt became one Ofthe most popular electives at the school. Agency theory wasn't new, but Jensen s resurrected form Of it provided academic Justifica- tion for the takeover movement, and HBS provided its revolutionary soldiers. Ethics-Free MBAs IN A 1994 paper Jensen wrote with Meckling, "The Nature Of Man, ” he cited the story 0f George Ber- nard Shaw asking an actress if she would sleep with him for a million dollars. When she agreed, he changed his 0 飛 r t0 $ 10 , t0 which she responded with outrage, asking him what kind of woman he thought she was. His reply: we've already estab- lished that. Now we re just haggling about the price. " The authors then concluded that we re all whores. "Like it or not, individuals are willing tO sacrifice a little Of almost anything we care tO name, even reputation or morality, for a suffciently large quantity ofother desired things. The solution they offered was premised on this cynical view Of man and, having started from the assumption that we are all whores, they naturally ended up with prescriptions for making us well- behaved whores. "Unlike theories in the physical sciences, wrote Sumantra Ghoshal, a professor at the London Business Sch001, in his 2005 paper, "Bad Management Theories Are Destroying GOOd Man- agement Practice,' 0 theories in the SOCial sciences tend to be sel んⅲⅡ ing.... This is precisely what has happened over the last several decades, converting our collective pesslnusm about managers intO real- ized pathologies ln management behaviors. ln other words, if everybody assumes you re a whore, you might as well grab as much money as possible while you're still in demand. [By] prop- agating ideologically inspired amoral theories, business schools have actively freed their students from any sense ofmoral responsibility," concluded Ghoshal. Managers were not tO be trusted; share- holders were. lt was one Of the most remarkable about-faces in the history ofeducation. And by hir- ng JensenyHBS threw its 10t in with the cynics ・ Graduates 0f HBS had always been drawn to finance, but ⅲ the ・ 'HYPOCRISY IS 1980S they began heading t0 Wall VES=Stre etand privateequityfirms ・ VIRTUOUSW droves. Whereas ⅲ 1965 only 11 THE BOTTOM 凵 NE. " percent 0f HBS MBAs entered 十 NO, BRO: Lehman B 「 os. was one Of the few errant firms that were allowed tO go under during the 2008 crisis. Most of the other big money folks got some form Of bailout 0 「 dispensation. largest companies. But the unproductive diversifica- tion Of the conglomerate era had resulted in excess capacity, flat or declining profits, and stagnant share prices. As a result, the DOW Jones lndustrial Average was basically flat from the mid-1960s through the early 1980S. That excess capacity played a large part in what Jensen called the "capital market restructur- ing revolution Of the 1980S. ' ' Companies sitting on large piles 0f cash—and there were many, because executives back then were loath tO return money tO shareholders—suddenly became the target of hos- tile acquirers. The age Of investor capitalism began, and its heroes were not CEOS but corporate raiders like Carl lcahn and T. Boone Pickens. A wave Of deregulation then created the active market for corporate control, with the new beliefthat the shareholder was supreme , absolving managers 0f responsibility to any "stakeholder"—employees, communities, society itself—except shareholders. The bottom line was all that mattered. John McArthur, then dean 0f HBS, liked Jen- sen s message and invited him tO HBS as a visiting professor in 1984. ln a 1999 vanity project about McArthur's tenure, T ん加〃 al 〃 Capi / - なら HBS trotted out a rationale for hiring him: Jen- sen had been interested in testing his unorthodox ideas against the experiences Of practitioners and had agreed t0 come t0 HBS on a temporary basis tO get increased access tO high-level decision mak- ers in business. ' Hogwash3ßTheory Of the Firm" ー was testable only in thesensethat Keynesian eco nomics IS testable, or a theory Of whether a hurricane might sweep beachfront houses out tO sea is testable—you can debate the issues until you're blue in the face, but at some point, you NEWSWEEK 39 APR に 14. 2017
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N E W W 0 R L D / D R U G S PICK A NUMBER, ANY NUMBER An insider explains how U. S. prescription drug prices are set THE U. S. SPENDS more than any Other high- lncome country on health care, and prescnp- tion drugs account for about 17 percent Of a11 health care spending. President Donald Trump has vowed tO lower drug prices but has not yet proposed any concrete approach for doing SO ・ There was no mention ofthe issue in the Ameri- can Health Care Act proposed by House Repub- licans in March. More than $ 370 billion per year is spent on pre- scnption drugs ⅲ the United States, exceeding all Other countries. Pharmaceutical companie S Often justify the cost Of drugs as necessary tO support the research and development—the R&D—0f innovative tre atments. lfwe want cure S for devas- tating diseases, they say, we have t0 pay for them. But that explanation is dispute d. Research by the Tufts Center for the Study of Drug Development put the cost of developing a new drug at $ 2.6 billion. That research was sup- ported by the pharmaceutical industry, however, and the estimate has been questioned. ShefaIi Shah has spent more than 15 years helping pharmaceutical companies navigate issues surrounding the COSt Of new medications. TO pinpoint the magic d011ar amount for a medication, she has worked with biotech giants like Genentech, small biotechs bringing their first products to market and external consulting companies. Now an independent adviser, Shah spoke with Ⅳビル 5 ルた about drug prices: where they come from, who negotiates them and how they got so incredibly complicated. NEWSWEEK: What is the difference between pricing and reimbursement? Pricing and reimbursement are entangled SHAH: tO some extent. Drugs may ultimately have sev- eral different prices, but the first one is the list price, which comes from the manufacturer. The list price is not necessarily the price that most people pay. ln some cases, hardly anyone pays it. But the list price serves as the basis for many subsequent calculations. Reimbursement iS the amount the insurer pays for the drug, whether it's a private insurer, Medicare or Medicaid. Typically, depending on the type 0f drug, the insurer pays the physician directly, the drug manufacturer or an intermedi- ary, such as a pharmacy benefit manager. The PBM pays a heavily discounted price. Physicians buying the drug directly also receive a discount. So do wholesalers. None of these entities pays the list price. What drugs do physicians purchase, and from whom dO they purchase? Typically, the drugs purchased by physicians are those that must be given by infusion. But physi- C1an s usually make the se purchase s through an intermediary—a PBM or a wholesaler such as McKesson or Cardinal Health. These compa- nies buy the drugs from the manufacturer, and the physician buys it from the intermediary. The physician then administers the drug to the patient in the Offce, bills the insurer and is then reimburs e d by the in sure r. BY 」 ESSICA WAPNER 当 @jessicawapner N E W S W E E K 50 A p R に 14 , 2 017
3 十 MARKET LAID BARE: Two tenets espoused by HBS, the primacy Of shareholder value and unrestricted compensation Of CEOS, set up a frenzied market that almost crashed the world economy in 2008. Lazonick was known tO be a critic Of Jensen S ideas on shareholder value, but a critic in the aca- demic sense—you sat across from each Other on a podium during a seminar, or you traded barbs in the gentlemanly forum 0f academic Journals. N0t this time. S ome sp arks flew during the s eminar, Lazonick recalls. Jensen was king 0f the hill, and he objected t0 me … daring t0 question him. He was livid that he had been set up in front of all his colleagues t0 be critiqued by an outsider. He t01d [HBS professor Thomas] McCraw not to invite me back, and I wasn't … for another 17 years. And keep in mind that the year before that, I had been president of the Busmess History Confer- IFEVERYB 〇 DYASSUMES e nc e.A-å avemoQoub Üab out YOU'REAWHORE,YOU MIGHT it, the most powerful man at HBS in the early 1990S was ASWELLGRABAS MUCH Michael ensen.... He was much mo re e ngage d with stu- dents, those students were all Y 〇 U'RESTIL 凵 N DEMAND. going t0 Wall Street, and Wall Street firms were all sending money back to HBS. The net effect of it all was that agency theory ren- dered business history irrelevant. Lazonick thinks his experience shows intellectual cowardice. "Almost immediately after they hired [Jensen] , shareholder value ideology quickly t00k a dominant position at HBS, even though, from their own experience, the vast maJority Of faculty mem- bers did not believe it. But there was absolutely zero critique. Even from those wh0 should have known better... there wasn t a peep. lt's quite sad. "B0th [Harvard President] Derek B0k and [HBS D e an] John McArthur should have known b etter, but they went out Of their way to recruit Jensen, says Lazonick. "I asked a member ofthe faculty wh0 is actually still there about it, and he said that McAr- thur thought th at's where th e money was, and hiring Jensen would bring in donations 仕 om Wall street. ” Lazonick saves hiS greater condemnatiorvTorAhos HBS who should have stopped the rise 0fJensen. "They had a NEWSWEEK 43 APR 比 14 , 2017
P A N A M A SPYTALK C H I N A IRAQ A F G H A N I S T A N P 0 L 工 T I C S S Y R I A CHINA CHECKERS As BeiJing expands its efforts to moles have dug their way into Langley recruit CIA spies, some fear Chinese GLENN DUFFIE Shriver looked like an ideal CIA recruit. Gregarious and athletic, the 28 -ye ar- 01d from Michigan had been a good student with strong intere sts in world affairs and fore ign lan- guages since childhood. What made him even more attractlve as a prospective CIA employee, however, was that he had studied and worked in China and was fluent in Mandarin. But when CIA investigators began digging deeper intO his expenences in China, they began t0 suspect that he had been dispatched by BeiJing s spymasters. Under questioning during his pre-employment polygraph test in 2010 , he grew so nervous that he withdrew his appli- cation on the spot and virtually bolted from the r001 れ according tO subsequent accounts. Months later, as he was boarding a plane t0 leave the U. S. , he was arrested by the FBI and charged with trying t0 infiltrate the CIA as a Chinese mole. He was sentenced by a federal court in Virginia tO four years ln prison. T0day, the Shrive r case is still rattling the CIA, N E W S W E E K according t0 sources with deep familianty with the spy agency's China coverage. while Beijing s premier espionage service, the Ministry Of State Security, or MSS, had previously focused on pen- etrating U. S. security by seducing or blackmailing Chinese-Amencans, the Shriver case showed a new and daring attempt tO recruit students from Norman Rockwell's America. The arrest on March 28 Of a State Department employee, Candace Marie Claiborne, on charges 0f lying t0 the FBI about her contacts with Chi- nese intelligence agents will only add t0 what one former CIA offcial calls paranoia ” about Bei- jmg s espionage offensive. Ayear or two ag0' [the CIA] went through a very big mole scare because very high-level [Chinese] sources were getting wrapped up," a former senior U. S. intelligence analyst tells N どル asking not t0 be quoted by name on such a sensitlve subject. "Once that started t0 happen, they felt that there was some- thing internal, and that's whe n they started re ally clamping down on whom they were hiring ・ 12 A P R 比 14 , 2 017 BY JEFF STEIN 当 @SpyTalke r