Mays Impacts

Bootlegged concert recordings, undocumented immigrants building houses in the U.S., New York City street vendors selling designer knock-offs—these are examples of a largely unexamined economic activity, the informal economy. These economic activities are considered illegal yet still viewed as socially acceptable or legitimate by some substantial segment of society.

Because nearly nine percent of the GDP of the United States (and perhaps more than 60 percent in some African and South American countries) is involved in the informal economy, it is a topic worth exploring, says Duane Ireland, Distinguished Professor of Management and Conn Chair in New Ventures Leadership. He and two Mays colleagues (David Sirmon and Laszlo Tihanyi) and Justin Webb (a recent graduate of the Mays Ph.D. program who is now at Oklahoma State University) have examined how the informal economy works and the reasons some ventures thrive, despite barriers of legality and legitimacy.

The illegality of bootleg DVDs in most countries has not prevented them from becoming a significant source of income for many entrepreneurs willing to take the risk of operating in an informal economy.

The cornerstone of their research is a matrix for categorizing entrepreneurial activities based upon legality and legitimacy. While some entrepreneurial activities in the informal economy are considered illegal yet legitimate (e.g., the sale of counterfeit products or use of undocumented workers as labor to build a home), other entrepreneurial activities fit different classifications of legality and legitimacy. For example, tobacco-based and adult-oriented products in the United States are legal yet considered illegitimate by large societal groups.

In contrast, illegal drugs and human trafficking are considered illegitimate by the overarching society. Distinguishing among different classifications of legality and legitimacy is important to understanding the mechanisms through which these entrepreneurial activities are able to exist, grow, and be sustained even while occurring outside of the law.

Ireland says one aspect that he finds fascinating is how a business can move between categories over time, due to the intentional actions of the business or due to shifts in the definitions of legality and legitimacy. Take for instance, alcohol sales in the United States in the 1920s during prohibition. Though it was illegal, speakeasies and bootlegged liquor became quite commonplace and legitimate. Then in 1933, the industry once again was legalized. This is a great example of the fluid nature of the boundaries in this area.

In a similar vein, the production of marijuana is an example of the porous nature of the matrix, as it is moving from illegal and illegitimate in the United States to illegal but legitimate, or legal but illegitimate, depending on some groups’ norms, values, and beliefs and various state and local laws.

Another example is Napster ten years ago and Youtube.com during its initial operations. It was alleged that Napster allowed users to violate copyright laws by sharing audio files freely. The online service was hugely successful from 1999 to 2001 when it was shut down due to issues of legality. At least initially, similar allegations suggest that Youtube violated copyright laws by not removing items from its site that were posted by individuals who did not have permission from the owners of the postings. However, for some large groups and with an increasing expectation of free content on the Internet, Youtube is still seen as legitimate, despite the fact that some postings may not be legal with respect to copyright laws.

The paper “You say illegal, I say legitimate: entrepreneurship in the informal economy,” appeared in Academy of Management Review in 2009 and was a finalist for best paper that year.

“I always wanted to give something back to A&M, because I felt like A&M has given so much to me,” says Robert Willen ’87. “My degree gave me an advantage.” Willen hopes to pass on that advantage to other Aggies. He and his wife Missy recently committed to a gift of $25,000, establishing an endowed scholarship fund for students at Mays.

“As someone who worked his way through college, I specifically wanted to give something that would help out a business student,” said Willen, who earned a degree in accounting. “I went from A&M to KPMG Marwick…which was the biggest firm at that time, and I realized very quickly that I was competitive with kids from other schools.”

He’s held several positions in accounting and oil and gas, and also consulted independently. Today he is the COO of Momentum Operating Co. Inc., an oil and gas company headquartered in Albany, Texas.

In addition to his work at Momentum, he is involved in the local community. Currently he is an advisory board member for the First National Bank of Albany and the Abilene A&M Club. Formerly, he was an Albany Independent School District trustee, a board member of the local stock show, and the president of the softball association.

Robert and Missy have two children, Lauren (21), and Lexa (17) who hopes to attend A&M.

“[College] was a very positive experience for me. I love A&M,” said Willen.

“The Willens’ most generous gift to our school will provide deserving students with the opportunity for a world-class education,” said Dean Jerry Strawser. “We are truly fortunate that people such as Robert and Missy are investing in the outstanding young people who study at Mays.”

Toward the end of their relationship, Enron was paying nearly $50 million each year to Arthur Andersen for services, including both internal and external audit functions. Did the risk of losing such a large client lead to the ethical compromises that Andersen was willing to make in colluding in the enormous fraud scandal that eventually brought down both firms?

Sharp

Yes, said analysts, who recommended internal and external audit functions in public companies be split between firms to prevent economic bonding and cooperation in fraud. Created soon after, the Sarbanes-Oxley Act prohibited external audit firms of public companies from having any involvement in the internal audit function. However, research from Nathan Sharp, assistant professor of accounting, suggests this move may have been a mistake.

Sharp and colleagues investigated companies in the pre-SOX era to determine if companies that outsourced or co-sourced internal audit work to their external auditor had a higher risk of misleading or fraudulent external financial reporting. The result? This relationship actually lowered accounting risk.

The reason is simple. When a single firm is involved in both audits, it’s harder for fraud to go undetected, as there is greater communication between both audit teams. Knowledge spillover occurs because the internal audit team provides insights into the company that an external audit team might miss. This information sharing is less likely to happen when the teams are from competing firms or when the internal audit function is kept entirely in-house.

There is much debate about this topic says Sharp, and he and his colleagues are not suggesting SOX be changed. However, if you talk to public accounting firms, the opinions are clear: It’s good sense to make it easier to share information between internal and external audit teams to create the most complete financial snapshot of a company.

Sharp’s article, “Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes-Oxley Get It Wrong?” coauthored with Doug Prawitt and David Wood, is currently under review at Contemporary Accounting Review.

Big changes are coming for the U.S. energy industry. As energy professionals grapple with new regulations and changing consumer demands, questions abound: Can the US economy afford to implement a carbon tax to level the playing field for more costly cleaner burning fuels? How will new regulation and safety requirements impact the energy industry? Should use of a mix of fuels, including renewables, be mandated for all consumers in the U.S.?

Jim Griffin (right), director of the Mosbacher Institute for Trade, Economics and Public Policy, speaks at the Nov. 1 discussion panel hosted by the institute and Mays Business School.

These were some of the topics discussed at a recent event hosted by the Full-Time and Executive MBA Programs at Mays and the Mosbacher Institute for Trade, Economics and Public Policy at the Bush School of Government and Public Service. The panel discussion, titled “The Future of Energy: Unraveling the economic impacts of energy policy,” was held on November 1, and featured experts from industry and academia.

More than 300 professionals attended the event. Seating was limited. If you missed out on attending the event live, you can still hear what the experts had to say. Videos for the event are available at mays.tamu.edu/energy.

What would happen if the hustle of the entrepreneurial spirit were brought to the philanthropic world? What if every non-profit organization had a for-profit business to sustain it?

What would happen if the passionate and the called gave no thought to whether they have the financial support needed to continue their work?

What if there was a truly sustainable model to create a lasting impact in the neediest communities?

Gowalla development executive Andy Ellwood ’04 is a big believer in the power of corporate philanthropy.

These are the questions Andy Ellwood ’04 wants to explore. As the business development executive at Gowalla, the location-based social experience service, Ellwood wants greater collaboration between nonprofits and corporate entities, creating sustainable wealth that supports both.

This idea was born when he was working as a sales executive for a private jet company. In his interactions with high net-worth individuals, he frequently heard them lament, though they wanted to support good causes, the ROI was low—that the money they gave was not utilized as efficiently.

This conundrum intrigued him. Generally the brightest minds in business don’t work for non-profits. What if he could help bridge that gap, injecting his entrepreneurial know-how into social causes?

His favorite example of this happened a few months ago in August 2010. It was one of his first big projects at Gowalla, a union between his company, AT&T and TOMS Shoes. Perhaps you’ve heard of TOMS. Slipper-like canvas shoes, they are replacing flip-flops as the footwear of choice on college campuses. When you buy a pair, a pair is given away to children in need. TOMS Shoes was approaching the milestone of its millionth pair of donated shoes. AT&T, a major supporter of TOMS, wanted to capitalize on the celebration.

The promotion worked like this: Gowalla users could “check in” at any place where shoes or cell phones were sold. Doing so would enter them in drawings for TOMS, AT&T smartphones and netbooks, and the grand prize, a trip for two to Argentina to participate in the “shoe drop” when the millionth pair of TOMS would be given away. Gowalla users could get a feel for the history of TOMS Shoes by taking a “trip”, checking in at sites significant to the company (such as the first store where they were sold) and collecting “pins”, like stamps on a virtual passport.

The promotion raised sales for AT&T and TOMS, and awareness for their global philanthropic work. Thousands of kids in Misiones, Argentina, received new, high quality shoes—perhaps for the very first time in their lives. By every metric, this was successful.

“We need more companies that understand the opportunity for impact that they have, not just in one time “check it off the list’ charitable contributions, but with a true understanding and integration into the very soul (or in this case sole) of their company’s mission,” Ellwood wrote in a blog post about the event.

“You’ve got to look honestly at your work and see where there’s an opportunity to improve, to make the business better.”

While not every partnership Ellwood forges between Gowalla and other companies (such as CNN, the NBA, NASA and Whole Foods) has a philanthropic spin, Ellwood’s personal tagline is “connecting good people with great opportunities.” This includes giving a “philanthropreneur” flavor to every project possible. “The more I talk about it, the more energized I get. What if we led with entrepreneurs and followed with clean water, education, and healthcare?” This model would turn donations into true investments, so that a donor could give one time and make a difference perpetually as the business continues to grow.

Ellwood will keep developing this idea as he grows his own entrepreneurial toolkit by building Gowalla, which launched in 2009. Since then, the company has grown to 27 employees (he was the eighth hire) and 600,000 users. In his experience there are three defining characteristics of an entrepreneur: persistence, hustle, and self-coaching. He would know. He started his first business at the age of 12—a business that he sold and that is still in operation today.

“The most successful entrepreneurs I know stick to it no matter what,” he says. That means no expectation of vacations or working from 9-to-5. Work and life are fully integrated.

It can be lonely if you’re the sole employee. There are no coworkers to celebrate successes or commiserate setbacks. No one to give feedback on your performance. Here self-coaching is invaluable.

“You’ve got to look honestly at your work and see where there’s an opportunity to improve, to make the business better.”

What happens when you put those concepts to work philanthropically? You improve your business—and you improve the world.

See more at andyellwood.com, or go with him on Gowalla at gowalla.com/andyellwood.

In September, shoes clicked, cameras flashed, and editors critiqued Spring 2011 fashion collections in cities like New York, Paris, Milan, and… Bryan/College Station?

Thanks to the passion of Mays marketing graduate student Paige Melvin ’09, Bryan/College Station did join the ranks of the world’s most fashionable cities through the event Fashion Week B/CS.

The event resulted in not only heightened awareness for fashion and the arts in the area, but also a tangible gift to the community: Melvin donated the $3,572 of proceeds to local nonprofits Carpool, Habitat for Humanity and the Brazos Valley Community Action Agency.

Though Melvin does not have a background in fashion (she holds an undergraduate degree in international affairs and a minor in business from Mays) she said that she “is a huge fan of what some of the young designers are doing with their businesses… To me, fashion isn’t just about clothes, it is about a movement of a culture.”

“I think being able to see what someone is wearing or doing, and then bring that back to a business level…is a great skill,” says Melvin. “Working with young designers and community leaders definitely helps hone that skill, and it is something you can stretch across fashion and the arts, but also into finance, corporate cultures, and more.”

Fashion Week B/CS ran from September 20- 25, featuring a different imaginative event each night to showcase local talent, such as a hair show with an Alice in Wonderland theme. The mission was to create an atmosphere where community members could interact, enjoy the arts, and support local businesses. Events were free, with VIP seating available for a premium.

Many A&M students modeled and volunteered behind-the-scenes.

Though the looks of Vera Wang, Marc Jacobs, and Karl Lagerfeld were not on the B/CS runways — they were too busy in New York City at the time — local artists buzzed about Fashion Week BCS, enthusiastic to show their creations. From tee shirt designers, to hairstylists, to burgeoning couturists, these fashion enthusiasts participated in a venture unique to this area. As they were gaining exposure and experience in Fashion B/CS, they were also able to give back in a big way.

A host of local businesses recognized Melvin’s passion and belief in the mission of the project and provided her with logistical and financial support. More than $40,000, mostly in-kind donations, was given, including all event space.

Melvin was pleased with the community support. Immediately after the final fashion show on Saturday night, she said, “It was so much bigger and better than I could have ever imagined.”

Melvin goals for next year surpass this year’s. She hopes to give away more money and to set up a foundation for youth arts education programs.
“I do hope that it becomes an annual event. Having been through the steep learning curve of this year, there are definitely little things I’d like change, but overall, I think everything was fantastic, and with growth all things will come.”

Melvin gave credit to two Mays faculty members for equipping her with the skills necessary to pull off an event of this magnitude. Entrepreneurship classes with Mays management faculty Richard Lester and Brett Gilbert encouraged her to push her limits and be creative. “Having professors place the emphasis on the process and not the main objective…it enables you to push past your comfort zone and work on the idea rather than the grade,” she said. “A&M does a great job of pushing you to see opportunities.”

From oilfield trucking, to financial services, to mini-storage, and now construction and small business ownership, Kenneth Neatherlin ’86 has earned diverse business know-how.

His best advice? It all comes down to this: Figure out what your talent is. Then, play to your strengths.

“The smartest thing you can go do,” Kenneth Neatherlin ’86 told Mays students, “is work for a big company and let them pay to train you.” (view more photos)

Neatherlin came to A&M without a clear understanding of what his talents or strengths were. “Basically, I came to A&M wanting to be a vet and took my first biology class and thought, “Something is wrong here,'” he says. After that semester, Neatherlin entered an oil field trucking business in partnership with his brother, and, as he puts it, they, “had a good ride.” After three years in the business, he had figured out what his interests and talents were, and returned to A&M to pursue them.

Neatherlin focused his greatest efforts on his strengths. “I was excellent in finance and accounting, but I was horrendous in English and science…My attitude was that I would do my best, but hopefully one day I would be able to hire someone to do that for me.” The strategy proved successful.

After graduation, he took a job at Merrill Lynch.

Strategic foundations

The job at Merrill Lynch was a strategic move. “The smartest thing you can go do is work for a big company and let them pay to train you,” he advised. He used the company as a learning laboratory.

An itch for entrepreneurship and interest in building structures motivated Neatherlin to spend some of his time at Merrill studying a customer whose financial and business strategies he thought might be useful to him personally. He learned all he could from the client, while devising a business plan of his own.

Neatherlin eventually left Merrill Lynch, and went on to several entrepreneurial experiments and successes. Through the duration, he has stuck to the same basic strategy: know your strengths, admit your weaknesses, and hire others who can fill in those weaknesses.

Neatherlin’s current venture, Ground Force Building Systems, is a success in large part because he has built a team that utilizes everyone’s strengths. From computer geniuses with few people skills, to grab-the-bull-by-the-horns bankers, to his calm, even-tempered partner, Jim Jackson, Neatherlin knows what components make the gears turn.

Jackson’s thoughtful personality nicely complements Neatherlin’s self description as the risk-taker — “the guy who will jump off a bridge without really thinking about it.”

The duo have formulated and financed an innovative and patent-protected product: buildings “that combine the advantages of modular and site-built construction without any of the disadvantages.” Moveable/permanent buildings might seem contradictory, but Neatherlin himself says that he has a passion for tasks that seem unfeasible.

With his zeal for risk-taking and business development, supported by a strategically selected team, Neatherlin is building more than homes and office space—he’s building a highly successful company.