TIME

How to Ace the Most Important Part of Your Job Interview

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Anna Parini

You're a perfect fit for the job. But that doesn't mean you're definitely going to get it

We’ve all been there. You aced the job interview and your credentials are a perfect fit for the position. Now comes the hard part – the ‘beer test’ or the personality test, a casual chat over drinks or dinner meant to determine how well you will fit with an organization on a personal level. Since your resume can’t really capture what kind of person you are, both you and the interviewer are walking into an unknown situation with unpredictable results.

But despite the dangers of the process, it’s possible to pass the test with flying colors if you recognize the priorities of your potential employer and the questions they are really trying to answer:

What else are you good at other than work?

This may seem irrelevant to the job but it’s not. While serving on the board of a mid-sized radio group, I was tasked with identifying and hiring a new Chief Operating Officer. The leading candidate was a long-time consultant for media companies who checked all the technical boxes for the job. However, learning about her passion for composing music in her spare time and sailing gave me a sense of a well-rounded person who could not only manage the firm’s logistical operations but also liaison with the quirky radio personalities that were our bread and butter.

She got the job and was extremely successful at securing popular new radio hosts for us, many of whom enjoyed discussing her music with her more than audience ratings. She also organized a sailing outing for the firm, which was a hit with the employees. Revealing your outside interests can help your interviewer see the three-dimensional person you are and (maybe) tap into some of your hidden talents.

Are you socially adept?

There are two aspects to this. Some very smart and capable people are bad at social interaction. In some professions, such as medical research or back-office accounting, that might not matter. But in other jobs, such as in marketing, sales, or even general management, social skills are extremely important and can determine your ability to do your job. How well you engage with your interviewer during a beer test will show him or her how good you are at interpersonal communication.

In addition, your future employer may be trying to gauge if you know how to socialize with a work colleague, which is not necessarily the same as with your friends. When spending time with a colleague, you need to be aware of personal boundaries that would be dangerous to breach. You may not, for example, want to discuss the subject of dating, which a colleague might consider intrusive and which could cause problems in the work environment later. It also opens up the company to lawsuits.

Being friends with your co-workers without being too friendly isn’t easy but essential, especially in smaller organizations where socializing is inevitable. Too much closeness can lead to awkwardness, misunderstandings, and office gossip. When confronted with this type of challenge, your best bet is to show your acumen by using it – chat engagingly but casually, avoid sensitive topics, and show your interviewer that you know how to have a good time within boundaries.

Are you Dr. Jekyll or Mr. Hyde?

In vino veritas as the saying goes. In wine (or beer) there is truth. This is probably the single most important reason for employers to want to meet a candidate socially. We all put on our best face during official interviews, but from an employer’s standpoint that can be a problem. After all, no one wants to hire the polished Dr. Jekyll and wind up with the wild Mr. Hyde instead – especially in the age of social media where that picture of you dancing on a table with your shirt off can go viral.

A social outing tends to entice people to let their guard down. That’s totally fine, as long as you don’t let it too far down and maintain the same decorum you would with anyone you respect. Another vital thing to remember is that just because it’s called a beer test doesn’t mean that you have to overload on the beer. Whenever you’re around co-workers, it’s always best to moderate your drinking, and this is something a smart interviewer will watch for.

And if you’re a party animal who just can’t help himself, and manage to offend your potential employer with your behavior, then you may be better off working at a different company or in another profession.

Why do you really want the job?

When interviewing analyst candidates during my investment banking days, I would routinely receive canned answers to this question, but what I was really looking for was that spark of honesty that gave me confidence the candidate was truly motivated to work at the firm and would go that extra mile for his or her job.

In a beer test, the logic is that without the pressure of being in an interview room, a candidate will feel more comfortable giving a heartfelt answer to the question. If you’re in this position, keep in mind that there isn’t one ‘right’ answer. In some cases, the fact that you want to use the job as a stepping stone to some other career in the distant future is perfectly acceptable – as long as it’s clear to the employer that you’ve really thought about it and have a convincing motivation to excel at the job.

The problem arises when you really don’t have a compelling reason for wanting the job except for being unemployed at the time. If all you want is a paycheck and the job you’re interviewing for requires deep commitment, then the job may not be right for you. That’s a reason to take a step back, be honest with yourself as well as your future employer, and decide if you have a better reason for taking that job.

Great employees flourish in great jobs, but only if the two are compatible. The beer test is designed to determine this very intangible.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.

TIME

5 Rules for Recruiting Great Talent

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In a competitive marketplace, companies should follow these 5 rules to acquire, and keep, talented employees

No matter how strong your value proposition for customers, the primary driver for your business’ long term growth will always be your people. Smart people create great products and provide topnotch service to clients, which can generate strong profits for your company.

But recruiting and holding on to talent is not easy. Good employees are scarce in number but high in demand, which makes it necessary for companies to structure their business around talent and provide an environment that enables those employees to thrive.

Here are 5 ways in which businesses can accomplish this:

Allow employees to “play”

Companies like Apple (AAPL) and Google (GOOG) are well known for hiring smart people and then allowing them to express their creativity, experiment with new ideas, and (to some extent) define their own roles. This keeps the pipeline of these companies filled with cutting edge products and helps maintain their lead in the market.

More importantly, this principle can be applied in other sectors as well. Retail, food, healthcare, and even financial services businesses can benefit from encouraging their employees to think outside the box instead of regimenting them. Not only does this align talents with business models but gives employees a true sense of ownership in the enterprise and keeps companies evolving.

Look for mavericks, not drones

Businesses should ask themselves whether it’s more important to have mavericks that challenge their company to improve or drones that add little value beyond simple execution? The most talented employees will sometimes defy the status quo but that is essential in a competitive marketplace where disruption is commonplace and business models can become obsolete overnight. Those mavericks might annoy you occasionally and be hard to control, but they may also save your business and help it reach great heights.

There are, of course, basic administrative tasks which need to be performed in a strict framework, but other aspects of a business, such as product development, marketing, customer acquisition, and even senior management, can benefit from throwing away the rule book and tapping into the unique strengths and insights of contrarian employees.

Pay employees above market

The problem with market pay scales is that they are based on the average pay for any given function instead of for the highest performers. Yet these outliers are exactly the people you want to hire. So if you pay people according to the market, you’re unlikely to attract those outliers who expect (and deserve) more than their peers. Market rates may be appropriate for lower level jobs that involve little specialized knowledge or skill, but above that level it is advisable to pay well above market in order to attract the best talent.

This might seem obvious but the temptation to secure talent as cheaply as possible is strong and can easily lead to pay inertia, and by extension, performance inertia, at companies. If businesses really want to outperform, they first need to compensate their people appropriately.

Embrace your employees’ personalities

Today’s workforce, comprised primarily of millennials, is nothing if not individual and quirky. A one-size-fits-all culture in a company will produce one-size-fits-all results. Outlier employees often require, and even demand, an outlier culture and freedom. Companies that allow employees to express their natural personality are more likely to attract and retain talent, and obtain the best work product from them.

This can range from simple things like flexible work schedules and allowing employees to design their own workspace, whether it be a private office or a cubicle, to more complex aspects like work styles. For example, some people are great at problem solving or communicating ideas over email (or generally in writing) but falter when forced to do it in person. Smart businesses will recognize this quirk in such employees and rather than penalizing them for it, adapt their own expectations to achieve performance.

Respect personal privacy

In an era of declining personal privacy, businesses can stand out by refusing to pry into their employees’ private lives, especially on social media. Don’t force your employees to friend you on Facebook or follow them on Twitter. It’s perfectly reasonable to have a company policy that requires employees to be responsible in their social media posts but following them actively could turn off (and turn away) the most promising candidates.

Also, by allowing workers to lead their private lives the way they want to, you are supporting their personal happiness, which inspires loyalty and can promote productivity in their work lives as well. This relates to the point above that the more talented a person, the greater their need for independence in order to realize their potential.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.

TIME Business School

5 Things You Can’t Learn in Business School

Howard HBCU
Jonathan Ernst—Reuters Graduates celebrate during the 2014 graduation ceremonies at Howard University, a well-known HBCU, in Washington on May 10, 2014.

An MBA will help your career but some skills you need to learn outside campus

Let me start by saying that I have an MBA and am proud of my alma mater. Business schools provide a valuable education and professional network, but there are some skills they can’t always cultivate:

  1. Ethics. Teaching ethics as a course is difficult to begin with. As a result, business schools often focus on how ethical behavior can help companies improve their profits, which makes sense. But while honest business practices are definitely essential to the well-being of a company, real ethics require taking the profit motive out of the equation in order to be genuine. Outside of the MBA program, students themselves need to recognize that ethical behavior is its own reward instead of a cost-benefit equation.
  1. Humility. Business schools, especially those that turn out high-octane bankers and executives, can fail to balance the confidence that they inculcate in their graduates with humility. This breeds arrogance, which can harm businesses. Like ethics, humility is challenging to teach in a classroom, but the result of ambitious people exerting authority in organizations without recognizing their limitations can be disastrous. MBA programs could do more but companies themselves are better positioned to address this issue; they can engender humility by putting employees through the paces and emphasizing self-awareness before giving them more control.
  1. Diplomacy. The ability to navigate volatile situations or people at work, to negotiate with your peers or boss without creating an argument, and lead an organization without resorting to a draconian management style is an invaluable asset. In its simplest form diplomacy is tact, in a deeper form, true empathy with others. This can enable you to disagree with your co-workers or build consensus with minimum friction and maximum effect. But since this is more an art than a professional skill, business school students should make an effort to learn it outside. Today’s workplace, populated by millennials who demand more respect and empathy from companies than previous generations, requires diplomacy more than ever.
  1. Deconstructive thinking. Deconstructive thinking is about breaking a business situation into its component parts and reassembling it in an optimized fashion. For example, the CEO of a bakery chain looking to enter a new market might modify his company’s supply chain so that he can deliver bread to retailers from the closest distribution points, thereby minimizing transport costs and ensuring freshness of the product. Lengthy analysis can lead to the same result but the real skill is in being able to rapidly see the full picture with all its intricacies, and adapt. An MBA can help develop this faculty only partially; most of it comes from prolonged work experience.
  1. Judgement. The modern business world, with its heavy and fast-paced workload, requires constant prioritizing and the aptitude to differentiate between the important and the irrelevant. Yet many business school graduates enter the workforce seemingly without the judgment to do effective triage. The likely reason is an overemphasis on ‘productivity’ instead of ‘efficiency’. Think of it as working hard rather than working smart. MBA programs, probably responding to the rigorous demands of today’s job market, are more concerned with developing reliable workhorses than in cultivating thoughtfulness in how those people perform their jobs. But students can pick this up on their own by asking the simple question: ‘what’s really important?’

As business schools increasingly require prior work experience for new students, you may gain some of the above skills through interaction with your peers, and an MBA will still help you further your career. But recognizing the limits of a classroom education is also important for rounding out your professional skill set and setting you on the path to success.

Sanjay Sanghoee has an MBA from Columbia Business School. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, and at hedge fund Ramius Capital.

Read next: 10 Resume Mistakes That Can Cost You a Job

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TIME medecine

The Unintended Side Effect of Lower Drug Prices

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Trends in the pharmaceutical sector could bring down drug prices but harm the development of new medicines

As public pressure mounts on drug makers to lower prices, both the private sector and the FDA are looking for solutions. At the same time, expiring patents are forcing big drug makers to explore new avenues of growth. While these factors could benefit patients, they could also inadvertently compromise the development of miracle drugs that save millions of lives.

In a recent survey of pharmaceutical industry executives, 43% support the idea of the FDA taking the economic value of drugs into account in the approval process. Insurance companies already require drug makers to demonstrate such value and European regulators factor in economic benefits into their analysis. But scrutiny by the FDA could make a big difference to which medicines make their way to the market and impact how R&D is conducted at drug companies.

First, a drug that cures a type of cancer might cost billions of dollars to develop whereas a drug that cures a minor affliction could be much cheaper to create. Complex medicines that treat the most serious diseases naturally require more clinical trials, longer testing periods, greater expense, and opportunity cost (the returns that investors could get by putting the money to work elsewhere).

In this scenario, if the FDA were to focus on cost-effectiveness, the life-saving cancer drug might not get approved whereas the cheaper, but minor, drug would. Since the cost of failure is high, this could discourage pharmaceutical companies from devoting resources to medicines that are expensive to produce, even if they are crucially important to society.

The unreliability of cost estimates exacerbates this. While a new study by the Tufts Center pegs the average cost of developing and getting a new drug approved at $2.6 billion, estimates from the Federal Trade Commission and the private sector range from $521 million to $5 billion, according to the Washington Post. This could be due to different interpretations of the opportunity cost as well as the allocation of research tax credits across a drug maker’s portfolio of products.

What this implies is that the process of assessing the economic value of a new drug could be extremely complicated, subjective, and possibly lead to the wrong results; in turn, such uncertainty could have a chilling effect on innovation.

Another issue is the direction that drug makers seem to be going in.

Pfizer (PFE), the world’s largest pharmaceutical company, recently announced the $17 billion purchase of Hospira, a company that makes generic medicines for hospitals and copycats of biotech proteins such as Amgen’s Enbrel. This comes on the heels of patent expirations of major drugs like Lipitor that have made Pfizer a very rich company and a household name. Analysts speculate that the new acquisition is a move by the company towards the generics business in order to make up for the loss of valuable patents on branded medicines.

This “patent cliff”, as it is called, is not unique to Pfizer. Other major drug makers like Eli Lilly (LLY) and Bristol-Myers Squibb (BMY) are all dealing with patent expirations, which reportedly can dent the sale of brand name medicines by 90% and move people towards cheaper generics. In addition, pharmacists and doctors are 80% more likely to prescribe generics in today’s cost-conscious environment.

This means that Pfizer will probably continue to widen its portfolio of generics to bolster profits and that other pharmaceutical giants will follow. This may be good news for their stockholders but it’s bad news for the development of new medicines, which require original R&D by the drug companies.

There is no doubt that drug prices are way too high. Cancer drugs, for example, can cost up to $100,000 a patient per year. At the same time, less than 3% of patients use specialized drugs while 50% of drug payments go to that segment. Drug makers must find ways to reduce these costs without lowering the standards of testing required to ensure the safety of patients. The solution may be new technologies and process improvements that make R&D more cost-efficient, according to a report by Deloitte, or perhaps the development of powerful biologic drugs to replace traditional medicines.

But whatever the ultimate answer, it’s important to recognize that miracle drugs, which have revolutionized medicine in the past, are critical to our future well-being. Even medicines that are expensive to produce and too costly for current patients eventually fall in price and give birth to generics, which can benefit future generations. Without that original R&D, those drugs (and cures) might never exist.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School. Sanjay does not hold any investments in pharmaceutical companies, including Pfizer, Eli Lilly, and Bristol-Myers Squibb.

TIME Careers & Workplace

How to Disagree With Your Boss and Still Get Ahead

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Disagreeing with your boss in the right way can benefit your organization as well as your career

The fear of disagreeing with authority is universal. It exists in life, and certainly in the regimented corporate workplace. While millennials are arguably more willing to express their opinions to a superior, most workers still remain shy – to the detriment of their career progress.

The fact is that it is not only possible to disagree with your boss without endangering your job, but the willingness to do so could put you on the fast track to professional success. What we tend to forget is that most managers benefit from having their employees provide constructive feedback and contribute original ideas. It can help the managers do their own job more effectively and easily.

The key lies in why and how that disagreement is communicated. Here are 5 tips that can help you navigate those waters successfully:

  1. Make sure you are disagreeing for the right reason. Too often, we disagree to compensate for our own lack of authority, without a good reason or an end goal in mind. That’s a serious mistake since it can compromise your professional credibility with your boss. It’s also just annoying. Disagreements that have a valid context and add real value, on the other hand, can be a big plus.
  2. Disagreeing is not about arguing but making an argument. Anyone who argues routinely with their boss is likely to be eventually fired. But a worker who frames her disagreement as a logical and thoughtful argument in favor of a better approach to a situation or a new idea will be heard gladly, and win serious points with the boss. Avoid attacking other people’s views or complaining and focus instead on making your own constructive points.
  3. Do your homework. Nothing irks a manager more than a worker who insists on sharing his opinion but hasn’t done the research to support and stress test his argument. It shows intellectual laziness on the part of the worker and fails to provide the manager with the tools to evaluate the input. Think about it. If you don’t do your homework, you are effectively forcing your boss to do it for you. Could that ever be a good idea?
  4. Be passionate but not emotional. Arguments are more convincing when they are delivered with passion. The listener needs to feel that you genuinely care about your suggestions, believe in your perspective, and are willing to take ownership of it. But that doesn’t need to involve an excess of emotion, which can make you look hysterical and your boss feel pressured. A clear, confident, and calm presentation will have the best impact.
  5. Speak in the same language as your boss. Some people are extremely data-driven whereas others are more intuitive. Knowing your boss’ personality will help you relate better and communicate your argument more effectively. Put yourself in your boss’ shoes. If you think in numbers, then a numerical argument might persuade you of a different viewpoint whereas a purely gut-based presentation will meet with instant skepticism.

To summarize, don’t be afraid to disagree with your boss. Alternative views and good ideas can benefit your organization as well as your own career. Just follow these guidelines to do it the right way.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.

TIME China

Why China Is Nervous About Its Role in the World

Hong Kong based Vietnamese demonstrators carry Vietnam's flag during a protest against China's territory claim in Hong Kong
TYRONE SIU—REUTERS Hong Kong based Vietnamese demonstrators carry Vietnam's flag during a protest against China's territory claim in Hong Kong May 25, 2014. Around 200 people marched on Sunday to declare Paracel Islands belong to Vietnam. REUTERS/Tyrone Siu (CHINA - Tags: POLITICS CIVIL UNREST TPX IMAGES OF THE DAY)

China’s fear of closer ties between the U.S. and India may indicate growing economic problems at home

In the wake of President Obama’s historic trip to India, China issued an unsolicited and perplexing statement downplaying the relevance of the visit. As the White House pointed out in response, the only thing significant about China’s statement was the fact that the Asian nation felt the need to make it in the first place.

The rivalry between China and India for economic power and strategic control in Asia is longstanding and is likely to continue into the foreseeable future. But China’s taunt is not necessarily a sign of its hostility towards India but an inadvertent admission of its declining supremacy in the region.

China, once an accepted economic and military juggernaut and the darling of investors the world over, is now facing both economic and strategic challenges which could slow down its progress.

First, China’s economy seems to be shrinking. With industrial activity trending down and interest rate cuts yet to produce results, it’s looking likely that China’s meteoric economic rise may have peaked and, according to a report from the Conference Board, could lead to a 4% GDP growth rate in the future, which is considerably lower than in previous decades. Further problems plaguing China include a debt overhang, a real estate bubble, lack of competition, and an old-world industrial economy instead of a more modern information economy such as that of the U.S.

In addition, India’s economic growth is predicted to outpace China’s by 2016, according to the International Monetary Fund, a fact that doesn’t bode well for China’s dominance of Asia. That’s not to say that China will cease to be an economic power but that it may not be able to exert the same clout on the world stage that it once did.

Another major shift could be in China’s ability to use the specter of its military might to secure favorable trade terms with other nations. That specter, even as it grows, could be undermined by higher defense spending by India and Japan (aided by the U.S.), who are eager to contain China. At the same time, China can’t bank on Russia for support since the latter is facing its own crisis from low oil prices and economic sanctions. This could leave China isolated and weaken its position with trading partners.

Finally, there is the democracy factor. The recent protests in Hong Kong were an indication of the tenuousness of China’s draconian control over its people, and possibly of political upheaval to come.

In economic terms, this means that although China has done a fairly good job of balancing free market principles with state run control, the desire of citizens for democracy could force China to relax regulatory control over businesses, embrace labor reform, and truly open its markets in the not-too-distant future. That’s good news for investors but depends heavily on the reaction of the Chinese government, whose response to pro-democracy forces could be unpredictable and severe. Also, a sudden rise in labor costs due to free market forces could in itself disrupt the economic ecosystem in China, and have a negative impact on both domestic and foreign companies that rely on the labor pool.

Given this context, it becomes easier to understand just why China is nervous about closer ties developing between the world’s two largest democracies, the U.S. and India, and why global investors should be wary of the Chinese economic miracle. For sure, China will continue to be an influential player and has demonstrated resilience in the face of difficulties before, but investors looking to make money from the region should still temper their enthusiasm with a realistic assessment of where the nation is now.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.

TIME Companies

The Biggest Problem American Business Is Facing in 2015

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Elizabeth Renstrom for TIME

In order to remain competitive on the world stage, America’s top companies need to take the lead in addressing economic inequality

As 2015 progresses, an improving U.S. economy should buoy markets and provide hope for the business sector. However, before we pop the champagne, it is worth remembering that the past year has also been a turbulent one. Economic inequality continues to widen and worker strikes, once rare, are now increasing in frequency.

The reality is that despite gains in profitability and shareholder value, American businesses could experience a serious labor problem in the near future, and the sooner it is addressed it, the better.

Broadly speaking, there are three factors working against the U.S. right now. The first is an aging population, which not only threatens to burden the system with greater costs in terms of social benefits and pensions, but also a shortage of younger people to fill jobs. Exacerbating this is the fact that the working age population in the future, composed of millennials (and their successors) will require better work benefits, including flexible schedules, higher pay, and room for creativity, in order to feel motivated – a phenomenon that will make it more difficult for companies to secure and retain talent.

By contrast, China and India have vast untapped labor pools, and 65% of India’s population is currently 35 or under, ensuring a young and dynamic labor force for decades to come. This has historically benefited the U.S. through cheap labor, but that could change as these economies become stronger and wage levels rise in response. In addition, Chinese and Indian companies have themselves begun to compete aggressively in the global arena with the workforce behind them to support it, which could put their American counterparts at a disadvantage.

The combination of these factors and a growing perception amongst low and middle income workers of economic unfairness could lead to a crisis of worker availability and competitiveness for U.S. companies within the next few decades unless employers can reach a balance between profitability and compensation that will motivate workers. This is particularly important in the arenas of fast food and retail, which require a large labor force but where wage levels are typically low and a source of escalating friction between companies and their employees, but could effect other sectors as well.

Unfortunately, we keep looking towards the government for a solution, which is a mistake. In today’s hyper-partisan environment of Capitol Hill, compromise on a politically charged issue like wages on which Democrats and Republicans fundamentally disagree is nearly impossible. Moreover, the idea of taxing our way to economic equality, advanced by economists like Thomas Piketty and even Microsoft founder Bill Gates, is unrealistic. Even if it was politically feasible, additional taxation would do little to bridge the gap between employers and workers.

That can only be accomplished by a concerted effort to understand and address the needs of workers by companies themselves, and requires the participation of our most influential business leaders.

For too long, the debate over fair wages has remained stuck in the quagmire of ideology (on both sides), but what is really required is the recognition by the CEOs who run our major corporations of the direct link between worker compensation and the future profitability of their businesses. The reason this is so critical is that our biggest companies set wage levels in their sectors and so only through their participation can a true market-driven solution be found to this pressing problem.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School. Follow him on Twitter @sanghoee

TIME Fast Food

Outrage Over Burger King’s Merger Is Totally Misdirected

A sign stands outside a Burger King restaurant on Nov. 1, 2006 in San Francisco.
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The bottom line is it's a solid deal

Outrage is a useful tool in a democracy, but not when it’s directed at the wrong target or ignores the facts. As the criticism of Burger King’s so-called ‘tax inversion’ deal with Canadian fast-casual restaurant and coffee chain Tim Hortons heats up in the political arena, several facts are being blatantly ignored. While it may be ideologically satisfying to label the merger as being unpatriotic because it will deprive the U.S. Treasury of tax dollars, it is also an overblown criticism.

Consider how shareholders of public corporations get taxed. Unlike investors in private companies who get taxed once on their pass-through income, public investors get a double hit.

To take a simple example, for every dollar that a public company makes in income, it has to pay 35% in federal income taxes as well as more in state and local taxes – let’s call it another 5%. The remaining 60 cents are then distributed as dividends to shareholders. Of that 60 cents, the shareholders now have to pay personal taxes in the average range of 20% to 39.6% depending on how long they have held the stock. Again, taking state and local taxes into account, in aggregate then, most shareholders pay somewhere between 55% and 67% in taxes on their investment in a public company.

This analysis, of course, ignores tax loopholes that large public companies are able to take advantage of but such loopholes rarely yield more than a 5-10% benefit, which still leaves shareholders paying an average of 50% in taxes.

Even those who believe in progressive taxation would be hard pressed to agree with this tax scheme. True, shareholders may also achieve gains through the appreciation of their stock, which is not taxed twice, but that is meant to be a bonus to incentivize people to invest, not to be an offset against dividend income. The latter could make tax incentives for investing a zero-sum game, which makes no sense.

From a political standpoint, it may be beneficial to demand that American companies not repatriate abroad for tax reasons, but the merger of Burger King with Tim Hortons has a lot more to do with the tight margins in the burger joint business and the more robust margins in the fast-casual restaurant and coffee chain trades. As Burger King struggles with hyper competition from McDonalds, Chipotle, and Starbucks, it needs to explore expansionary opportunities. The fact that Tim Hortons happens to be in Canada – in this case, at least – is incidental.

Moreover, the likely tax savings for Burger King by a tax inversion would only be around $3.4 million this year, given that Canada’s total corporate tax rate is 26.5% and Burger King paid an actual tax rate of only 27.5% last year, which would not be a lot for a company with more than $1 billion in top-line revenues and $340 million in profits on a run-rate basis for 2014. To put it another way, If the management of Burger King agreed to an $11 billion merger simply because of $3.4 million of cost savings, it would be bad management indeed. However, that is not the case here and all signs, when rationally examined, point to the fact that this deal is important for Burger King’s future growth, which will also benefit its employees, shareholders, and customers.

Questioning mergers based on anti-competitive factors is fine, but questioning the wisdom of patently good corporate deals simply because there are ancillary tax benefits is silly. It distracts from larger issues like labor relations and the pressures of global competition on the American economy, while doing nothing to benefit the discussion about tax reform.

This particular example has no real meat, except perhaps in the press.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.

TIME mergers

Mega-Mergers Are Killing Innovation

The latest mega-merger in the telecommunications sector, that of AT&T and DirecTV, would be the fourth largest in history, and it comes only months after the nation’s largest cable operator Comcast announced that it was buying Time Warner Cable, the second largest cable operator. Nor is telecommunications the only sector to see such acquisitiveness. Microsoft purchased the devices and services business of Nokia for $7.2 billion late last year, Google snapped up Nest for $3.2 billion in January, and Facebook bought WhatsApp for $19 billion in February.

Such consolidation can be good for consumers as bigger companies have the resources to innovate and provide new products and services which might otherwise never materialize. However, the vertical integration of the telecommunications and technology sectors can also restrict innovation due to decreased competition and the limitation of research to specific technologies that support existing business lines.

Take, for example, the acquisition of WhatsApp. Facebook’s primary reason for acquiring the company is to utilize the chat technology on its social media platform to bolster its existing messaging application, which currently lags WhatsApp in the smartphone market. Beyond that, Facebook will no doubt try to leverage WhatsApp’s own user base, currently more than half a billion, to promote its social media offering. But either way, the integration of Facebook with WhatsApp is the main goal and driver of value instead of some trailblazing technological development in the chat space itself.

Similarly, Comcast’s acquisition of Time Warner Cable enables the company to enter complementary markets without actually having to build new infrastructure in those markets or to innovate in any way. Such plug-and-play growth engenders laziness and deprives the U.S. of necessary infrastructure improvement and development. The U.S. is currently ranked a pitiable 35th in the world in broadband capacity according to the World Economic Forum, with even smaller nations outpacing us in cutting edge telecommunications.

Even when it comes to ‘pure’ or fundamental science that can form the basis of future technology, the relentless drive for commercialization limits its destiny to whatever fuels profits in the short term and can impede future research that does not support that. True, third parties could conduct research for other applications but the ironclad patents that major corporations hold on their technology can make such efforts unprofitable. In other words, the acquisition of promising technologies by major corporations can actually limit them by forcing them along proscribed lines in the future.

Some of the greatest scientific discoveries that have fueled mankind’s advancement were made in the vacuum of human curiosity without the profit motive that has now become the norm. Today, unless the process of discovery is sponsored by some major corporation or has an obvious application to industry at the outset, there is little motive to pursue it. Even research institutions, which have historically been neutral havens for such discoveries, now require corporate money to survive and are bound by corporate rules. This is a loss for the spirit of innovation that drives human achievement.

That is not to say that all acquisitions are bad or that our biggest companies don’t move us forward technologically, but if the pace of consolidation by major players continues, it could shrink the playing field to such a degree that innovation will become the sole domain of a handful of companies who, for the most part, will only finance targeted research that promotes their own bottom line, and use patents to prevent others from advancing that technology in other directions. That may be a win for commerce but not necessarily for the type of unexpected discoveries that could improve our world in the future.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.

TIME Federal Reserve

Even If Janet Yellen Is Wrong About the Economy, She Is Right About Fed Policy

Janet Yellen makes her first appearance before Congress as the chair of the Federal Reserve
J.M. Eddin—MCT/Getty Images

Janet Yellen’s first testimony on Capitol Hill was a resounding success. She was poised, confident in her decisions, and clear about her intentions at the Federal Reserve. But it was not so much what she said as what was behind it that makes it a tour-de-force performance and shows us that our monetary policy is in the hands of a capable leader.

After some initial tumult, the market has come to accept the scaling back of the Fed’s bond-buying program and can even see the many benefits of a taper: higher interest rates will discourage excessive borrowing, prevent the formation of new asset bubbles, and stabilize our economic growth at a realistic level that is fueled by real value creation and not the availability of cheap money.

Of course, if the economy really is weaker than anticipated – as the recent jobs report, which showed that only 113,000 jobs were added to the US economy in January, might indicate, then the contraction of money supply could slow down the recovery and reverse the trend of declining unemployment. In her testimony, Yellen expressed confidence about the economy but acknowledged that unemployment is still high and that a large number of people have been unemployed for an extended period of time.

And yet she opted to stick with the taper. There are two very good reasons for this.

What Yellen recognizes is that the most powerful tool in the Fed’s toolbox is its credibility. In order for monetary policy to work at all, it is imperative that the markets believe what the Chairman of the Fed says, and be able to rely on the guidance that the Fed gives to price securities. Any wavering by the Fed can lead to mispricing of both stocks and bonds and create volatility. That is precisely what happened late last year when Yellen’s predecessor, Ben Bernanke, flip-flopped on the taper. He first indicated that he would and then, after the markets plummeted, changed his mind. It led to immense confusion, which was probably good for day traders and arbitrageurs, but a disaster for regular investors, who require visibility and reliability.

Yellen knows that even if she has to reverse course later this year, she is better off doing it in response to undeniable market conditions (when a reversal will be expected anyway) than doing it on a whim now, which would damage the Fed’s credibility in the eyes of investors and make its future guidance ineffective.

A sudden easing of monetary policy now would also cause over-exuberance in the stock market as the anticipation of cheaper capital fuels a buying spree, and create a bubble. Moreover, a drop in interest rates will not automatically spur lending by banks, who were hesitant to lend even in 2013 when the Fed stimulus was in full swing. This casts serious doubt on whether our economy, and consequently the job market, would actually benefit from a reversal of the Fed’s taper at all.

Only time will tell whether Yellen’s assessment of the current state of our economy is correct, but she is definitely right about policy.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator, and has an MBA from Columbia Business School. He is also the author of two thriller novels.

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