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Dean’s Quarterly
In Perspective
This moment in history marks one of the most challenging economic crises our country has ever faced. The events taking place today are reshaping the banking and investment world as we know it and a new financial landscape will emerge. Here at the Merage School, as the situation unfolds, we find ourselves helping to put the economic disorder in context, working to deliver superior management education, and teaching our students and our corporate partners how to sustain profitable growth in any market.
     So, it’s no surprise that even if most financial and economic indicators are headed down, the Merage School continues to move forward. Our applications are up. The professional and academic quality of our students once again has exceeded my already high standards. Our outlook remains optimistic and determined as we focus on developing the innovative and world-class leaders of tomorrow.
Dean Andy Policano

The Paul Merage School of Business welcomed its first undergraduates this fall with approximately 100 freshmen business majors joining MBA students at the Merage campus. Another 50 students, who have changed majors or are transferring, have been selected to join the school at the junior level in Fall of 2010.
     No surprise, the Merage majors have the highest entering mean GPA of all schools on the UC Irvine campus:

Mean GPA for entering freshmen (enrolled):
Merage School
UC Irvine
4.03
3.81
     The incoming Business Administration majors also have impressive SAT scores, second only to the Information and Computer Science (ICS) majors:

Mean SAT Reasoning Scores for entering freshmen (enrolled):
ICS
Merage School
UC Irvine
1831
1817
1740
     The Merage School’s first group of undergraduates is impressive and includes students with a wide array of academic, service and athletic awards. Among them is Karen Zhou, the nationally ranked figure skater who is preparing to participate in the 2010 Olympics!
Unprecedented Times: Or Are They?
An Economic Commentary by Dean Andrew J. Policano
These are unprecedented times. Or are they? Consider the following description of the overall environment we are experiencing in late 2008:
A Republican is in the White House.War is fresh on everyone’s mind. Immigration is fueling dramatic changes in society. New technologies are changing people’s everyday lives. Business consolidators and their Wall Street advisors are creating large new combinations through mergers and acquisitions, while the government is investigating and prosecuting prominent executives. The public’s attitude toward business leaders is largely negative. The government itself is becoming more intrusive. Much of this is stimulated by an expansion that involved borrowers and creditors overreaching in their use of debt lowering the margin of safety in the financial system.
    Does this paragraph portray an accurate description of what we Americans are observing right now? You would probably agree that is does. However this paragraph is actually adapted from a description of the Banking Panic of 1907 (see Robert F. Bruner and Sean D. Carr entitled The Panic of 1907: Lessons Learned from the Market’s Perfect Storm). In fact, not only did a similar set of circumstances occur in 1907, but between 1814 to today, the U.S. economy has experienced no less than 14 different episodes of banking panics.


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ONGOING
MBA Programs Information Sessions
invite prospective students for full-time, fully employed and executive MBA programs starting in both spring and fall of 2009.
FALL SESSION STILL OPEN; SPRING SESSION BEGINS FEBRUARY 2009
MBA Update Executive Education Program
for any businessperson wanting to sharpen their management skills and enhance their careers.
NOVEMBER 17, 2008
The Paul Merage School of Business and the Orange County Business Council present Global Business Strategies Conference: Assess the Risks and Rewards of a Global Footprint
Distinguished Speakers Series
NOVEMBER 18, 2008

featuring Greg Creed, President & Chief Concept Officer at Taco Bell
FEBRUARY 10, 2009
featuring Alex Livanos, Corporate Vice President & President of Space Technology at Northrop Grumman
FEBRUARY 19 & 20, 2009
2009 Health Care Forecast Conference
attracts a world-wide audience and the nation’s top analysts in the industry.
MARCH 19 & 21, 2009
Exiting Your Business – Options in Today’s Economy
presented by the Center for Investment and Wealth Management
Global Business
The Paul Merage School of Business at UC Irvine and the Orange County Business Council are proud to present – Global Business Strategies Conference: Navigating Today’s Economic Challenges. This global business conference draws together many of Orange County’s top business leaders to discuss such topics as The Seismic Shift in Global Consumerism; operational challenges, supply chain, risk management and security; Global Public Private Partnerships; and Orange County’s Global Influence. Attendees learn how to anticipate changes in the global market and stay ahead of the competition, sustain business growth in an economic downturn, access capital through government programs to expand their business, and understand the influence of Orange County in the global economy.
    The conference takes place Monday, November 17 at the Irvine Marriott Hotel with a private reception to follow. Tickets are $250 per person and include lunch. OCBC and UC Irvine members can purchase tickets for $200, Enter discount code PMGlobal at registration. Visit merage.uci.edu/go/global.
Real Estate
Subprime Lending Not Main Trigger of Real Estate Bubble
Merage School study points to 2003 credit market shift as key reason for runup in home prices.
Kerry Vandell
Critics often point to subprime mortgage lending – the funding of home loans to borrowers with less-than-perfect credit – as the culprit in the unsustainable boom in U.S. home prices that eventually derailed the real estate and mortgage markets.
    But widely publicized new research led by Professor Kerry Vandell, Director of the Merage School’s Center for Real Estate suggests subprime loan products themselves may not be the primary cause of U.S. home prices’ rise and fall.
    Instead, the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae and Freddie Mac from the credit market and their replacement by aggressive, private mortgage securities issuers in late 2003 had a significant impact on home prices and was more responsible than subprime lending for the drastic price runup that peaked in early 2006, according to the study.
Business Leaders Find Success Strategies in Innovation Knowledgebase
To get the right answer, it is first necessary to ask the right question. But what if you don’t know what question to ask?
    The Don Beall Center for Innovation and Entrepreneurship has created a new web-based resource called the Innovation@Merage Knowledgebase for executives seeking to formulate the right questions, and ultimately the right answers, as to how their organizations can sustain competitive advantage through continuous business innovation.
    Focused on serving the needs of C-level executives, the Innovation Knowledgebase is a collection of the most influential, “best of breed” articles, opinions and academic research available on the subject of corporate innovation; pre-selected and reviewed by a team of Merage School PhD candidates under the leadership of Dr.Christine Beckman. It also features a blog that focuses on more timely elements of innovation today. The objective of the Innovation Knowledgebase is to

Learn more at: merage.uci.edu/go/Innovation

Knowledgebase
create a single location where the best thinking from around the world in the area of corporate innovation can be easily searched by topic and industry.
Merage School Debuts Innovative Interactive Website
Merage School Website The mandate was clear: renovate the Merage School’s website to better portray the sense of innovation and excitement that is the Merage School today. In collaboration with WebAdvanced, a web development firm founded by UC Irvine alumni, the new home page uses the latest technologies to present a vibrant introduction to the School. Improved navigationand a more interactive environment highlight the Merage School’s thematic approach to teaching sustained business growth through strategic innovation, supported by analytical decision-making, information technology and collaborative execution.
Fully-Employed MBA Program Ranked 8th Nationally
The incoming Merage School FEMBA Class of 2011 is one of the best ever as measured by academic background and qualifications, professional experience, and interpersonal skills. Out of 288 applicants, the school is welcoming 118 new students, Fully Employed
a 16% increase over 2007. And, it’s not just the number of students that is increasing. These new students have an average GMAT score of 617, a full 30 points higher than last year’s incoming class.
    Professional experience is also on the rise as 47% of our new students hold management or supervisory level jobs, a 30% increase over last year. The diverse set of industries the students represent also enhances the learning experience for all students. Drawing on industries including manufacturing, entertainment, government, aerospace, real estate, financial services, software, and health care, Merage students gain insight from all areas of business.
Alumni Success Pays Dividends in More Ways Than One
David Young
David Young
A few short years after completing his MBA at The Paul Merage School of Business, David Young, CFA, joined PIMCO, one of the world’s leading money management companies. As head of account management in PIMCO’s London office, he was responsible for building a team of relationship managers and helping to grow the client base ten-fold. Following his seven-year stint in London, Young returned to the U.S. to his current role as executive vice - president and account manager in the firm’s Newport Beach office. There he has been instrumental in bringing the skills and experience learned off shore to
his colleagues in the U.S.
    Young credits his success to hard work, his passion for economics and investment management, listening and teaching skills, and his focus on client service. He also credits the education he received from the Merage School and his involvement with the Dean’s Leadership Circle (DLC).
    “My understanding of strategic in-novation and the analytical decisionmaking skills that were enhanced through the Merage School MBA program have served me well. My education, coupled with my 20 years of financial investment experience, has enabled me to continue to grow and adapt to a variety of markets and cultures, and navigate the ever changing landscape of global capital markets".
    “While I received my MBA nearly 18 years ago, the impact of my experience is still strong and continues to build as I maintain my involvement with the school. Staying close to the university environment is stimulating and reminds me of the importance to keep learning. It also provides a unique networking opportunity and has enabled me to make new connections and re-acquaint myself with other alums. For PIMCO, my association with the Merage School enables the company to remain top of mind with campus recruiters and gives us access to some of the best talent coming out of graduate school today.”
    A staunch supporter and charter member of the Merage School’s DLC program, Young recently made a $25,000 pledge, becoming one of the program’s lead donors. The Dean’s Leadership Circle is the premier alumni support group of The Paul Merage School of Business. Established in 2005 by Dean Andy Policano, the prestigious group of business leaders has raised over $1M in pledges, with more than 330 dedicated members. This funding has allowed the Merage School to secure business faculty in addition to technology and classroom improvements to enhance the student experience.
    “My commitment to the Merage School is a reflection of my respect for the school’s tremendous finance and investment faculty. I would like to see the school increase its focus on these areas, enhancing the reputation of the outstanding finance program they have built.” As an expression of this respect and commitment, Young has accepted the invitation become a visiting faculty member, teaching Bonds and Fixed Income at the Merage School this Winter quarter.
Exiting Your Business – Options in Today’s Economy
Presented by the Center for Investment and Wealth Management, the Exiting Your Business Conference will take place next March. Join in as current and former business owners discuss real world experiences, learn about changes in business valuation in today’s marketplace and the steps you must know to lead your business to a successful exit.
    This conference, specially designed for $4 million to $50+ million business owners, is offered through the Merage School’s Executive
Exiting Your Business
Education program. Visit merage.uci.edu/go/EducationalSeries.
RESEARCH Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod
By Greg Linden, Jason Dedrick and Kenneth L. Kraemer - Personal Computing Industry Center, UC Irvine
iPod Globalization is a contentious issue in the current political debate. To shed some light on the subject, a group of researchers from UC Irvine’s Paul Merage School of Business took a look at one of the most global of all industries, the production of computers and peripherals.
    Using the iPod as an example of a recent innovation in this industry, the research indicates nearly twice as many jobs are supported offshore as in the U.S., yet wages paid in the U.S. are over twice as much as
those paid overseas. The most important factor is that Apple keeps most of its R&D, marketing, top management and corporate support functions in the U.S., creating over 5,800 professional and engineering jobs for U.S. workers that can be attributed to the success of the iPod. The iPod also supports thousands of U.S. non-professional jobs, mostly in retail.

Merage on the Move

Dr. Rajeev Tyagi has been appointed Senior Associate Dean at the Merage School. In this critical role, Tyagi will guide and advise the School in academic and strategic planning areas. A faculty member since 1996, Tyagi’s three-year term will take effect July 1, 2008.

Chancellor’s Professor Imran Currim has been appointed Associate Dean of Masters Programs for the Merage School, effective July 1, 2008. In this newly created position, Currim will oversee vision, strategy, curriculum and academic matters for all masters programs in the Merage School including the Full Time MBA, Fully-Employed MBA, Executive MBA and Health Care Executive MBA programs.

Dr. Leonard Lane has been appointed Senior Assistant Dean, MBA Programs at the Merage School. In the newly created position, Lane will work with the Associate Dean of Masters Programs and the Assistant Deans and Directors of each Masters Program to develop and deliver program goals and ensure consistency with the School’s overall mission, vision, and strategies.

Sandra Findly has been named Director of the Dean’s Leadership Circle (DLC). The DLC is the fastest growing support group at the Merage School with more than 330 members. Findly, who had been managing the group along with her role as Director of Alumni Relations and Annual Giving, will now be solely dedicated to the DLC program.

Tony Hansford has been promoted to Assistant Dean of the Fully-Employed MBA Program (FEMBA). The FEMBA Program contributes significantly to the School's mission and is a market leader in a competitive southern California Fully-Employed MBA marketplace.

Jon Masciana has been promoted to Director of Fully-Employed MBA (FEMBA) Recruitment and Admissions where he will be responsible for the continued success of the FEMBA marketing, recruitment and admissions program.


New Faculty – The Great Just Got Better
Merage School adds seven new talented faculty members, adding to an already impressive teaching force.
Lucile Faurel Lucile Faurel joined The Paul Merage School of Business as an Assistant Professor of Accounting. Her teaching interests involve financial statement analysis, mergers and acquisitions, and financial accounting and reporting.
Sreya Kolay Sreya Kolay joined The Paul Merage School of Business as Assistant Professor of Marketing. As a member of the faculty she teaches core courses in the MBA curriculum including Intro to Marketing.
Alexander Nekrasov Alexander Nekrasov joined the Merage School as an Assistant Professor of Accounting. As a faculty member of the business school, he teaches financial statement analysis in the MBA program and a PhD accounting research seminar.
Christopher G. Schwartz Christopher G. Schwarz joined The Paul Merage School of Business as an Assistant Professor of Finance. As a member of the Merage School faculty, he will teach courses on Managerial Finance and Multinational Finance.
Professor Shivendu Professor Shivendu was appointed Assistant Professor of Information Systems for The Paul Merage School of Business. As a member of the Merage School faculty, Professor Shivendu teaches core courses in the MBA curriculum including Information Technology for Management.
Denis Trapido Denis Trapido is a faculty member of The Paul Merage School of Business, where he serves as an Assistant Professor of Organization and Management. In the Winter quarter of 2009, he will be teaching Organizational Analysis for Management in the full-time MBA program and Managing Organizational Behavior in the undergraduate program.
Yu Zhang Yu Zhang joined The Paul Merage School of Business as an Assistant Professor of Strategy. He will teach the MBA residential program in September 2008 and the Strategy core course next Spring.
Merage Doctoral Grad is Recipient of 2008 Heizer Award for Best Dissertation
Jennifer L. Woolley, PhD ’07, a Merage doctoral program graduate, was awarded the 2008 Heizer Award for Best Dissertation by the Entrepreneur Division of the Academy of Management. After being short-listed with four other dissertations, Woolley’s work titled, “Understanding Organizational Community Creation: The Nanotechnology Community,” was selected for the award.
    The principal focus of the Heizer Award is on research that deals with the founding, financing, management, growth, and development of high potential new ventures, with venture capital investing, or with corporate
Jennifer Woolley
entrepreneurship. The award was established to recognize and honor outstanding doctoral research in the area of New Enterprise Development.
Leading Business Schools Explore Merage Career Suite:
Career Training Modules Unique in Industry
Career Suite A groundbreaking new effort to develop and market the Merage suite of career management training modules, known as MBA Career Power™, has been launched at the Merage School. Nan Stothard, senior associate director of the Merage School MBA Career Center, and MBA Career Center Executive Director Tom Kozicki are leading this new approach to career planning.
    A dynamic set of training modules, MBA Career Power is designed
to help students develop an individual career marketing plan. The program provides students with a sophisticated base of knowledge and skills, including the development of an individual career marketing plan that offers advantages to students and universities alike. Because the program is online and self-paced, students can progress on their own schedule. No time is wasted on elements of career planning that may already be familiar. For universities, when students come in for career counseling and placement with this program under their belts, facilitators can assume a baseline of knowledge, saving considerable time and resources.
The Business of Building for the Future
To enhance the delivery of our high quality programs, compete with peer institutions, and continue to attract and retain the highest quality faculty and students, Dean Andy Policano set his sites on the development of a new building – the first new building to be built for the School since 1989.
    With AC Martin as the program architect, for the new multi-story, 80,000 square-foot structure. Led by Assistant Dean John Clarke, the development team has completed the programming segment of the planning process and the project is now transitioning into the design/build phase. Funded with state money and $20 million in gifts, the $55 million building is expected to be complete by 2012.
    This new facility reflects the Merage School’s emphasis on innovation
Building Building
and outreach to the business community. It will house a 300-seat auditorium, high tech classrooms, a laptop computer lab, career resource library, conference and group study facilities, colloquia and interview rooms, food service, and a multi-use reception area.
    For information and naming opportunities, contact Donna Mumford at dmumford@uci.edu or 949.824.6418.
Green is Great, But Merage Goes for Gold, Too
Merage leads the way in environmentally sustainable construction
Green Building What do the Beijing Olympic Village, the rebuilt tower at 7 World Trade Center in New York, and the new Merage building all have in common? Not only are they certified “green” projects, they’re also solid “gold.”
    While already a solid leader in sustainable construction, the Merage building team is seeking LEED Gold certification, which is one of the highest ranks among “green” buildings.
    Planning for the $60 million, 80,000 square foot Merage building project is already in process, in full compliance with some of the strictest environmental guidelines in the world. The criteria, known as LEED
(Leadership in Energy and Environmental Design), is a third party rating system administered by the non-profit US Green Building Council. The LEED system rates construction projects in key ecological areas such as energy efficiency, materials choices, and indoor environmental quality.
Dual Law/Business Degree Program Set to Debut
UC Irvine’s School of Law and The Paul Merage School of Business are planning to offer a dual degree program offering graduate students the opportunity to earn a juris doctor and a master’s in business administration simultaneously.
    The four- to five-year program answers a demand in the marketplace for employees with a combination of legal and business knowledge and gives students an opportunity to pursue careers as attorneys, business executives or both. The knowledge of how to handle corporate lawsuits and business issues such as incorporation and, mergers and acquisitions
Law
is priceless in today’s fast-paced business environment.
    The program is still in the early phases of development. However, the process of raising significant scholarship money is already underway in an effort to offer full-tuition scholarships to a majority of students for the founding class.
Unprecedented Times
continued from top of the page
Capitol Building     Our current financial crisis is really nothing new but it is different from previous episodes in several important ways. For a number of reasons, primarily due to a decreasing regulatory environment and the rise of new derivatives that were inaccurately priced, the impact of this crisis on the global financial system is significantly greater than in previous panics. But the effect on the macroeconomy, while
painful, will be much less than experienced in the past and certainly much less than what occurred during The Great Depression. Thanks to massive global macroeconomic policy reaction as well as a number of normal safeguards in the U.S. economic system, the unemployment rate, rather than peaking at 25% of the labor force, as it did during the Depression, is likely to hit no higher than 8.0 – 8.5% in the U.S.
    Right now, under current policies the global economy faces two critical challenges: first, there is a widespread lack of confidence and second, a lack of liquidity. Much analysis has been done of these periods; in fact Ben Bernanke himself has studied financial crises and The Great Depression in great detail. The basic lesson learned is that when people need more liquidity, the Fed should give it to them. Simple enough, but the Fed doesn’t drop cash from the sky, although it is likely that right now Bernanke wishes he could. Rather, the Fed traditionally adds liquidity to the economy through open market operations whereby it buys bonds from banks and provides cash in exchange. Banks then lend this cash to both businesses and consumers who increase spending and boost the economy. The problem currently is that banks are reluctant to lend due to very shaky balance sheets and a bleak economic outlook. Rather, they are building their cash position to restore capital adequacy ratios that deteriorated due to poorly performing assets on their balance sheets. Thus, while the Fed has been willingly providing cash to the banking system, the corresponding boost to lending has not yet occurred.
    The inappropriately named “Bail Out Program” evolved as an attempt to remove poorly performing assets from bank balance sheets and allow loans to once again flow freely. While $700 billion is certainly a large number, life (and economics) is always a relative game. Estimates of one of the most significant classes of assets in trouble (credit default swaps) are in the range of dozens of trillions of dollars. The intent, rather than to solve the entire liquidity shortfall, is first to restore confidence. Still, many lenders will continue to increase reserves rather than lend. Rather than removing bad assets, the Treasury has recognized it can have a much more significant impact by adding equity, taking an ownership position in banks and increasing capital adequacy ratios directly. In addition to freeing funds for loans, as an owner, the government can encourage additional lending. Over time U.S. Treasury and Fed actions combined with global central bank infusions should increase liquidity and restore well-functioning credit markets.
    When will the market bottom and what strategy should individual investors follow? Bear markets historically tend to settle at roughly 30% below the market’s previous high. We have already hit the 30% market in both the Dow and the S&P indexes. Now, some math. If you have lost 30% (so every $1 is now worth 70 cents) you will need about a 43% return on that 70 cents to get back to your original $1. How should you allocate your portfolio to do so?
    In money market funds you might take as long as 12 – 15 years to earn 43%; in bonds maybe 7 – 10 years. With equities that have historically averaged 8% returns, the time to recover your losses would be substantially less. As always, diversification is a must; how aggressive you are depends on your attitude toward risk.
    While the U.S. economy will certainly survive the current financial morass, the long-term outlook is not nearly as bright as the period of prosperity that existed during the 1990s. Rather, long-term growth in the U.S. is likely to be slower and inflation and interest rates are likely to be higher during the next decade than in the past ten to twenty years.
    One of the major issues challenging President-elect Obama is that the U.S. debt currently exceeds $9 trillion without including the impact of a significant future shortfall in both the Social Security System and Medicare. The consequence is that over the next decade, we must all face the following realities:
  • The growth in government spending must slow (by much more than “earmarks”);
  • Income taxes must rise;
  • Social Security benefits must fall and/or Social Security taxes must rise, and;
  • Medicare benefits must fall and/or taxes rise.
So how can President-elect Obama soften the effects of these realities?
Tax cuts alone are not the answer. Households are unlikely to spend right now and spending is what the economy needs to rebound from the current recession. In a capitalistic economy, two critical roles that the government must take on are to act as first, the lender of last resort (as the Fed and the Treasury are now doing) and second, the spender of last resort. When consumers are reluctant to spend, the government must spend — but it must spend wisely. Now is the time to enact a “new” New Deal. President- elect Obama’s plan, in fact, includes several facets of such a plan. What is necessary is a significant government investment in infrastructure and research; roads, high speed rail, energy, education, communication, research in new and emerging areas of science and technology and other areas that over time provide opportunities for businesses to flourish, for the creation of higher paying jobs and for the development of innovations that continually support sustainable growth.
    These investments and the easing of liquidity along with the resulting effects on growth will take time. So, how should individuals best prepare?
    First, as always, diversify your portfolio based on your attitude toward risk and the time until retirement. Too safe a position will imply that you will miss excellent opportunities that are available right now in stocks that are considerably undervalued. At the same time, be careful not to absorb more risk than you can tolerate — emerging stock markets, for example, can and have fluctuated by 40% or more each year. As one smart investor once said, “You can either eat well or sleep well.”
    Second, increase your savings as appropriate based on a smaller than expected Social Security benefit, a higher cost of long-term health care and slower income growth.
    Third, expect a broad market recovery but think carefully about which sectors may be long-term growth candidates.
    Finally, always be a student of history. The fact that the world economy repeats cycles over and over again provides ample credence to this well known observation by Edmund Burke: “Those who don’t know history are destined to repeat it.”
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