Quarter 1, 1998

fallout from asia

Jane Little's "Anatomy of a Currency Crisis" (Fall 1997) explored the impact of the East Asian crisis on New England. As directors of a program that assists qualified Indonesian students at U.S. universities in gaining practical experience prior to returning home, we have seen the consequences firsthand. Students are geting less funding from home, reducing their spending, and adjusting their academic programs. And Indonesian businesses are now less likely to hire these skilled candidates.

Yet, the crisis presents an opportunity for a "win/win" initiative. U.S. high-tech firms have reported a scarcity of prospective employees. Temporary hiring of foreign students on co-op placements (three to six months) or practical training (up to 12 months) would alleviate the labor shortage and the students' plight in the short run. Long term, it would help Indonesia in its recovery and development. Indonesian students have a 95 percent return rate to home. After acquiring experience with U.S. firms, students would return better prepared to keep their country tied to the global economy.

Prof. Leonard Zion, Program Director
Ketty Munaf Rosenfeld, Asst. Director
Northeastern University
Boston, MA

Jane Little's article is timely for New England vendors who supply technology, electronics, computers, and expertise to the Asean-4. Some vendors, anxious to obtain market share in these economies, did not use letters of credit or insure receivables. Competition was so keen that vendors contracted in local currencies ("pegged" to the U.S. dollar). And some "forgot" that they were dealing with different cultures, accounting standards, and legal systems.

In Indonesia, for example, existing U.S. judgments are not enforceable by statute. Contracts with a U.S. choice of law are not enforced. In Thailand, the procedure to sue is very cumbersome. There is no discovery prior to trial, no pre-judgment attachments, and no interest. Collection can be equally difficult, and American-style bankruptcy is not the answer. In Korea, almost 14,000 companies (including eight conglomerates) went bankrupt in 1997. They were supposed to reorganize within twelve months, but there are only four judges in Seoul to officiate. The Philippines has good bankruptcy laws which are rarely used because creditors have little faith in the process. U.S. businesses need to return to basic tools for risk management and to retain a local lawyer to protect and enforce their interests.

Paul P. Daley, Esq.
Hale and Dorr LLP
Boston, MA

who's minding the board?

I was pleased with the attention Jane Katz gave corporate governance in, "Who Should Be In Charge?" (Fall 1997). As a New Englander, I believe in supporting what works. Strong boards enhance shareholder-and stakeholder-value. As Sir Colin Marshall, Chairman of British Airways argued in Directorship, strong boards not only assure customers of high "business standards and moral ethics," but also improve employee morale, which shows up in better service and products.

Katz correctly identifies many drivers of the current interest in governance, but I would add individual investors. As Americans increasingly take charge of their retirement funds, they have become curious about the boards and management of companies in which their nest eggs are invested. In the current euphoric market, investors must be pleased. But, who will take the blame when the market sours? Boards will likely come under even more intrusive scrutiny, and not by investors alone, but also by regulators and politicians. Only the strongest boards will prevail.

Russell S. Reynolds, Jr., Chairman
Directorship, Inc.
Greenwich, CT

a modest proposal

In "How Will We Support Ourselves When We Grow Old?" (Fall 1997), Steven Sass does an excellent job of separating out the minimum benefit goals of Social Security from the inherent risks associated with promises above that level. I would like to mention perhaps the major societal risk that is often ignored: that our budget becomes so locked into past promises that government grows increasingly unresponsive to new needs and societal demands.

Under current law, Social Security, Medicare, and a few other programs continue to grow much faster than the economy. Many reform proposals, both those that call for "privatization" and those that try to conserve the current system, try to maintain that growth rate primarily through portfolio reallocations. Other government programs, such as education and the environment, are kept on a slower growth path or are left to fight for an increasingly smaller piece of the pie.

Often, we can reduce the risks for one set of programs only if we increase the risk for others. Few would claim that getting an 18th or 20th year of guaranteed retirement, or automatically increasing real Social Security and Medicare benefits in every generation, is the nation's most urgent priority. Nor do most feel compelled to determine everything government should do for tomorrow's citizens. In effect, they make a strong case for reform based on a modest set of "doable" promises to which discretionary changes could be made later, as future priorities dictate.

Eugene Steuerle, Senior Fellow
The Urban Institute
Washington, D.C.

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