、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

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

N E W W 0 R L D / A I A NEW LEASH ON LIFE Some of the best minds of our generation came tO the U. N. tO decide whether AI will turn humans into pets IN A ROOM at the United Nations overlooking New York's East River, at a table as long as a ten- nis court, around 70 Of the best minds in artificial intelligence recently ate a sea bass dinner and could not agre e on the impact OfAI and robots. This is perhaps the most vexing challenge of AI. There's a great deal of agreement around the notion that humans are cre ating a ge nie unlike any that's poofed out of a bottle so far—yet no consensus on what that genie will dO for us. Or to us. Will AI robots gobble all our j obs and re n- der us their pets? Tesla CEO EIon Musk thinks so. He Just announced his new company, Neuralink, which will explore adding AI-programmed chips tO brains SO people don't become little more than pe sky annoyances tO thinking machine s. At the し N. forum, organized by AI investor Mark Minevich, IPsoft CEO Chetan Dube said AI will have 10 times the impact of any technol- ogy in history in one-fifth the time. He threw around figures in the hundreds oftrillions ofdol- lars when talking about AI's effect on the global economy. The gathered AI chiefs from compa- nies such as Faceb00k, Google, IBM, Airbnb and Samsung nodded their heads. ls such lightning-fast change g00 譱 who knows? Even IPsoft's stated mission sounds like a double-edged ax. The company's website says it wants 。 to power the world with intelligent sys- tems, eliminate routine work and free human talent tO focus on creating value through innova- tion. ” That no doubt sounds awesome to a CEO. To a huge chunk of the population, though, it could come across as happy-speak for a pink slip. Apparently, if you re getting paid a regular wage tO dO "routine work,' you're about to get "freed" 仕 om that tedious job ofyours, and then you had better 。 innovate" ifyou want tO, you know, eat. The folks from IBM talked about how its Wat- son AI will help doctors sift through much more information when diagnosmg p atle nts, and it WIII constantly le arn from all the data, so its thinking will improve. But won t the AI start to do a better jOb than doctors and make the humans unneces- sary? No, the IBMers said. The AI will improve the doctors, so they can help us all be healthier. Hedge fund guys said robottrading systemswill make better investing decisions faster, lmprovlng returns. They didn't seem t00 worried about their caree rs , even though some hedge fund s guided solely by AI are already outperforming human hedge fund managers. Yann LeCun, Facebook's AI chief and one ofthe most respected AI practi- tioners, says AI will be used t0 discover and help eliminate biases and bring people together—yet for now, AI gets accused of uncovenng our indi- vidual biases and servlng up content that con- firms and hardens them, the reby making half the country mad at the other half. Grete Faremo, executive director ofthe United Nations Off1ce for project Services, beseeched te chnologists tO slow down a bit and make sure BY KEVIN MANEY 当 @kmaney NEWSW ・ EEK 48 APR 比 14 , 2017

十 IVY DRIP: "The most powerful man at HBS in the early 1990S was MichaeI 」 ense ル ... Those students were all going to WaII Street, and WaII Street firms were all sending money back to HBS. " that tippe mvestigators 0 圧 to LeV1ne. A num er 0 HBS graduates were ensnared in the ensuing inves- tigation, including Siegel, paul Bilzerian ( ' 77 ) and lra Sokolow ( ' 81 ). Fred Joseph ( ' 63 ) was CEO of DrexeI during this scandal, although he denied any involvement in the insider trading schemes and claimed he was only guilty 0f "surprising naiveté. " The feds bought that, and the Securities and Exchange Commiss10n merely reprimanded him for failing to properly supervise his star employee. ln a 2005 interview with The N ビル剏 en - sen discussed the propensity Of execufives tO be overly optmistic about forecasts that support lofty share pnces. 。 [lf] executives would present the mar- ket with realistic numbers rather than overoptlmistic expectations, the stock price would stay realistic. But I admit, we scholars don't yet know the real answer to how to make this happen. ” That's called ethics, and Jensen is right: Harvard Business SchOOl doesn t know how to teach ethics as well as it knows how to teach financial e ngineenng , and it never will. ln 2003 , the Harvard Business Sch001 added a Leadership and Corporate Accountability course that sounds like a direct repudiation Of Jensen: decisions that involve responsibilities tO each Of a company S core constltuencles—mvestors, custom- ers, employees, suppliers, and the public, ” with dis- cusslons on insider trading rules, the fall Of Enron, human character, employee responsibilities, labor laws, corporate citizenship, socially responsible investing and serving the public interest. But in this, its influence is akin tO pushing on a string, because Michael Jensen helped create a Franken- stein monster no one knows hOW tO kill. ロ A REPORTING NOTE: Whenl began researching The Golden Passport, from which this excerpt derives,l asked the Harvard Business Schoolif it would be interested in making administrators and faculty available for interviews or providing access t0 the school's extensive historical collection. TO my surprise, HBS tO 旧 me that it had zero interest in engaging with me, and would not make a single person at the schoolavailable for an interview, from the dean on down. HBS did offer to make histori- cal material available to me on an ad hoc basis, except fO 「 any material from the past 50 years—something thatl could getmyself, thanks tO the internet.l asked on a handful Of occasions over the next three-plus years iftheyd changedtheir mind, and when ー went back tO them one finaltime, they declined again. GOLDENPASSPORT. COPYRIGH 02017BYDUFFMCDONALD. REPRINTED HEREWITH PERMISSION OFHARPER BUSINESS,AN IMPRINTOF HARPERCOLLINS PUBLISHERS. 0 American managers loaded their companies With debt, per Jensen, they started paying themselves in equity and options, per Jensen, and they did every- thing they could t0 juice the value of that equity ・ And in doing SO, they sacrificed long-term value for short-term gain, Often engaging in outright fraud tO bring it about. Here's one thing Jensen didn't talk about much when he talked about the wondrous world of hos- tile takeovers: the insider trading it unleashed. Those crlmes first came to light ⅲ 1986 , when Dennis Levine Of Drexel Burnham Lambert was arrested, accused of making $ 12.6 million from insider trading and charged 'with -obstructing Jus- tic &and ー atte mptiwto¯d e stroy•ecords=L evin implicated lvan Boesky, an arbitrageur, whO then implicated Martin SiegeI (HBS ' 71 ) , formerly of Kidder Peabod but then workin for Drexel Burn- ham Lambert. And here's a fun fact for your next cocktail party: lt was insider trading in the shares of Enron, which Michael Milken had helped finance, 45 N E W S W E E K A P R 比 14 , 2 017

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