In the 1970s a revolution occurred in the field of corporate strategy. A boom in mergers and acquisitions launched new professions in M&A banking, M&A law, and strategy consulting, and companies started to focus on owning businesses in which they had a competitive advantage. At the same time, another revolution occurred in how financial services companies understood, bought, and sold risk-described in the authors' companion article in this issue, "The New Arsenal of Risk Management." Now these two revolutions are coming together to trigger a third in the corporate approach to risk management. Engineering and dynamically managing a company's risk portfolio has become the organizing principle for strategic choice. When companies focus on the risks for which they are naturally advantaged, they can typically support higher debt levels and save on operating costs. McKinsey's Buehler, Freeman, and Hulme describe five steps to help corporate managers adjust to the third revolution: 1) Identify and understand your major risks; 2) decide which risks are natural; 3) determine your capacity and appetite for risk; 4) embed risk in all decisions and processes, including investment, commercial, financial, and operational; and 5) align governance and organization around risk. TXU is one company that has already successfully adapted. Following the 2002 deregulation of wholesale and retail electricity markets in the U.S. state of Texas, TXU embarked on an ambitious risk-return restructuring program that relied on sophisticated risk-management tools to quantify its risk capacity. The program led to share price increases that created more than $32 billion in value before the company was taken private in the largest leveraged buyout in history.

As the economy softens, corporate downsizing appears almost inevitable. Don't panic yet, though. While layoff decisions might seem beyond your control, there's plenty you can do to make sure you retain your job. In this article, Banks, a former HR executive at Chase Manhattan and FleetBoston Financial, and Coutu, an HBR senior editor and former affiliate scholar at the Boston Psychoanalytic Society and Institute, describe how to improve your chances of survival. It's mostly a matter of coolheaded planning, they observe. When cuts loom, the first thing to do is act like a survivor. Be confident and cheerful. Research shows that congeniality trumps competence when push comes to shove. Look to the future by focusing on customers, for without them, no one will have work. Survivors also tend to be versatile; tight budgets demand managers who can wear several hats, so start demonstrating what other capabilities you can offer. If you're, say, a manager who once worked as a teacher, take on a training role. Remember to be a good corporate citizen: Participation matters now more than ever. It isn't the time to behave as if work is beneath you or to argue for a new title. When one executive's department was folded under the management of a less-experienced colleague, she swallowed her pride and wholeheartedly supported the new hierarchy. Her superiors noticed her commitment and eventually rewarded her with a prestigious appointment. It's also important to offer leaders hope and realistic solutions. Energize your colleagues around change, like the VP of learning at a firm undergoing major staff reductions did. He organized a humorous in-house radio show that revived spirits and helped management communicate with employees-and ended up with a promotion.

The combination of the gigantic American trade deficit and the price of oil at more than $125 per barrel (at press time) has created an attendant pool of financial liquidity among oil exporters in the Gulf. And this era of petrodollar surpluses is markedly different from the last one. In the 1970s, the member states of the Gulf Cooperation Council (GCC)--Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates--outsourced the management of their petrodollars to American and UK bankers. This time around, they have adopted active investment and development strategies: They are investing heavily in large Western organizations as well as in emerging markets in Africa and India. They are spending lavishly at home to establish institutional infrastructures, to create free-trade zones for manufacturing and services, and to build recreational facilities that will attract businesses, skilled knowledge workers, and tourists. These moves are destined to have long-run effects not just on their local economies but also on regional and international trading, argue Harvard Business School's Abdelal, Khan, and Khanna. In fact, the authors say, the actions of the GCC states are pulling the Gulf closer than it has ever been to the center of the international financial system. In this article, the authors consider how oil exporters' new investment strategies and interests over the next decades will affect the economic landscape in the West, reshape nearby markets in the Middle East, and dramatically reconfigure the GCC home environment itself.

Since the mid-1990s, management-metaphor boutique Serendipity Associates (SA) has been offering clients sizzling similes and snappy sound bites. But the head of SA, Barton Brady, gets word that someone is now poaching in his territory. It's the low-rent operation Tropes R Us, which has started offshoring production to Ireland and will soon flood the market with high-quality, low-cost metaphors. Does this move confirm Brady's fear that the U.S. is losing its competitive edge in right-brain work? Four experts comment on this fictional case study in R0809A and R0809Z. Daniel H. Pink, an author and consultant, says SA should move to higher ground--to find new ways to differentiate itself on the basis of right-brain capabilities that will be difficult to offshore. Doing this, he writes, requires an education system that nurtures creativity. John Chuang, CEO of talent consulting firm Aquent, writes that Brady could rally U.S. citizens to protest the country's current immigration policy, which makes it difficult for companies to import top talent. Brady should also broaden the definition of SA's business. Richard Phelps, a human resource executive at PricewaterhouseCoopers, argues that contrary to the prevailing view of many in the West, workers in emerging economies are equal to the demands of creative work. SA should assemble the best right brains on the planet and either hire them or contract with them to represent the SA brand. Charlie Wrench, the CEO of brand and design consulting firm Landor Associates, advises Brady not to worry about his country--which Wrench believes will continue to attract a disproportionate share of the world's creative talent--but about his multinational clients, who need service providers to display a powerful combination of right-brain and left-brain skills.

Since the mid-1990s, management-metaphor boutique Serendipity Associates (SA) has been offering clients sizzling similes and snappy sound bites. But the head of SA, Barton Brady, gets word that someone is now poaching in his territory. It's the low-rent operation Tropes R Us, which has started offshoring production to Ireland and will soon flood the market with high-quality, low-cost metaphors. Does this move confirm Brady's fear that the U.S. is losing its competitive edge in right-brain work? Four experts comment on this fictional case study in R0809A and R0809Z. Daniel H. Pink, an author and consultant, says SA should move to higher ground--to find new ways to differentiate itself on the basis of right-brain capabilities that will be difficult to offshore. Doing this, he writes, requires an education system that nurtures creativity. John Chuang, CEO of talent consulting firm Aquent, writes that Brady could rally U.S. citizens to protest the country's current immigration policy, which makes it difficult for companies to import top talent. Brady should also broaden the definition of SA's business. Richard Phelps, a human resource executive at PricewaterhouseCoopers, argues that contrary to the prevailing view of many in the West, workers in emerging economies are equal to the demands of creative work. SA should assemble the best right brains on the planet and either hire them or contract with them to represent the SA brand. Charlie Wrench, the CEO of brand and design consulting firm Landor Associates, advises Brady not to worry about his country--which Wrench believes will continue to attract a disproportionate share of the world's creative talent--but about his multinational clients, who need service providers to display a powerful combination of right-brain and left-brain skills.

Since the mid-1990s, management-metaphor boutique Serendipity Associates (SA) has been offering clients sizzling similes and snappy sound bites. But the head of SA, Barton Brady, gets word that someone is now poaching in his territory. It's the low-rent operation Tropes R Us, which has started offshoring production to Ireland and will soon flood the market with high-quality, low-cost metaphors. Does this move confirm Brady's fear that the U.S. is losing its competitive edge in right-brain work? Four experts comment on this fictional case study in R0809A and R0809Z. Daniel H. Pink, an author and consultant, says SA should move to higher ground--to find new ways to differentiate itself on the basis of right-brain capabilities that will be difficult to offshore. Doing this, he writes, requires an education system that nurtures creativity. John Chuang, CEO of talent consulting firm Aquent, writes that Brady could rally U.S. citizens to protest the country's current immigration policy, which makes it difficult for companies to import top talent. Brady should also broaden the definition of SA's business. Richard Phelps, a human resource executive at PricewaterhouseCoopers, argues that contrary to the prevailing view of many in the West, workers in emerging economies are equal to the demands of creative work. SA should assemble the best right brains on the planet and either hire them or contract with them to represent the SA brand. Charlie Wrench, the CEO of brand and design consulting firm Landor Associates, advises Brady not to worry about his country--which Wrench believes will continue to attract a disproportionate share of the world's creative talent--but about his multinational clients, who need service providers to display a powerful combination of right-brain and left-brain skills.

The information that top managers receive is rarely unfiltered. Unpopular opinions are censored. Partisan views are veiled as objective arguments. Honest mistakes are made. The manager is then left to sort it all out and come to a wise conclusion. Few people know how to get an accurate read on a situation like documentarian Errol Morris. He is the award-winning director of such films as The Thin Blue Line and this year's Standard Operating Procedure, an exploration of the elusive truth behind the infamous photographs taken at Abu Ghraib prison. The Guardian has ranked him among the world's top 10 directors, crediting him with "a forensic mind" and "a painter's eye." In this article, Morris talks with HBR's Lisa Burrell about how he sorts through ambiguous evidence and contradictory views to arrive at the real story. "I don't believe in the postmodern notion that there are different kinds of truth," he says. "There is one objective reality, period." Getting to it requires keeping your mind open to all kinds of evidence- not just the parts that fit with your first impressions or developing opinions-and, often, far more investigation than one would think. If finding the truth is a matter of perseverance, convincing people of it is something of an art, one with which Morris has had much experience not only as a documentarian but also as a highly sought-after director of TV ads for companies like Apple, Citibank, Adidas, and Toyota. He holds up John Kerry's 2004 bid for the U.S. presidency as a cautionary tale: Kerry struck voters as inauthentic when he emphasized only his military service and failed to account for his subsequent war protest. Morris would have liked to interview him speaking in his own words-natural, unscripted material-so that his humanity, which seemed to get lost in the campaign, could emerge.

For three months this spring, HBR Green hosted a six-part series of online commentary and discussion exploring best practices and new thinking in green business strategy. Leaders of the business world-including Brian Walker, CEO of Herman Miller; Judith Samuelson, an executive director at the Aspen Institute; and Stuart Rose, chief executive of Marks & Spencer-asked provocative questions about how environmental issues are affecting key corporate disciplines: operations, corporate governance, marketing, ethics, leadership, and supply chain management. Featured contributors and readers from around the globe-executives of companies large and small, consultants, heads of utilities, academics-answered with robust and lively commentaries. Their contributions taught us that in marketing green products, companies must not lose sight of the basic reasons consumers buy them in the first place; that products that are green from the ground up have fundamentally different economics and markets from products that start dirty and are cleaned up by reengineered processes; that global pooling and exchange of technology are vital to cleaning up supply chains and reducing worldwide greenhouse gas emissions; that going green requires a sustained and unified effort from a diverse set of companies, customers, suppliers, workers, nonprofits, governments, and NGOs. And, as the highlights collected in this special section reveal, no company, industry, or executive will remain untouched.

Many people believe that good ideas are rarer and more valuable than good people. Ed Catmull, president of Pixar and Disney Animation Studios, couldn't disagree more. That notion, he says, is rooted in a misguided view of creativity that exaggerates the importance of the initial idea in developing an original product. And it reflects a profound misunderstanding of how to manage the large risks inherent in producing breakthroughs. In filmmaking and many other kinds of complex product development, creativity involves a large number of people from different disciplines working effectively together to solve a great many inherently unforeseeable problems. The trick to fostering collective creativity, Catmull says, is threefold: Place the creative authority for product development firmly in the hands of the project leaders (as opposed to corporate executives); build a culture and processes that encourage people to share their work-in-progress and support one another as peers; and dismantle the natural barriers that divide disciplines. Mindful of the rise and fall of so many tech companies, Catmull has also sought ways to continually challenge Pixar's assumptions and search for the flaws that could destroy its culture. Clear values, constant communication, routine postmortems, and the regular injection of outsiders who will challenge the status quo are necessary but not enough to stay on the rails. Strong leadership is essential to make sure people don't pay lip service to those standards. For example, Catmull comes to the orientation sessions for all new hires, where he talks about the mistakes Pixar has made so people don't assume that just because the company is successful, everything it does is right.

A decade ago in these pages, Goleman published his highly influential article on emotional intelligence and leadership. Now he, a co-chair of the Consortium for Research on Emotional Intelligence in Organizations, and Boyatzis, a professor at Case Western, extend Goleman's original concept using emerging research about what happens in the brain when people interact. Social intelligence, they say, is a set of interpersonal competencies, built on specific neural circuits, that inspire people to be effective. The authors describe how the brain's mirror neurons enable a person to reproduce the emotions she detects in others and, thereby, have an instant sense of shared experience. Organizational studies document this phenomenon in contexts ranging from face-to-face performance reviews to the daily personal interactions that help a leader retain prized talent. Other social neurons include spindle cells, which allow leaders to quickly choose the best way to respond to someone, and oscillators, which synchronize people's physical movements. Great leaders, the authors believe, are those whose behaviors powerfully leverage this complex system of brain interconnectedness. In a handy chart, the authors share their approach to assessing seven competencies that distinguish socially intelligent from socially unintelligent leaders. Their specific advice to leaders who need to strengthen their social circuitry: Work hard at altering your behavior. They share an example of an executive who became socially smarter by embracing a change program that comprised a 360-degree evaluation, intensive coaching by an organizational psychologist, and long-term collaboration with a mentor. The results: stronger relationships with higher-ups and subordinates, better performance of her unit, and a big promotion.

What causes companies to fail spectacularly? A recent study of 750 of the biggest U.S. business disasters of the past 25 years reveals that seven popular but risky strategies are often to blame. Drawing on that extensive research, Carroll, a journalist, and Mui, a fellow at Diamond Management & Technology Consultants, describe seven sirens that lure companies onto the rocks. One is the synergy mirage-hoped-for but non-existent merger synergies. Group disability insurer Unum unwittingly pursued these when it acquired individual disability insurer Provident, assuming the units could cross-sell each other's products. It turns out they had entirely different sales models and customers. Pseudo-adjacencies also lead companies astray, as school bus operator Laidlaw learned when it spent billions on a move into ambulance services. The firm expected its logistics expertise to carry over but discovered ambulances were not a transportation business but a highly regulated health care business demanding skills it sorely lacked. Faulty financial engineering, stubbornly staying the course, bets on the wrong technology, and rushing to consolidate are all dangerous, too, as Conseco, Kodak, Motorola, and Ames can attest. And a rollup of almost any kind is a high-wire act in which a slight market downturn is all it takes to finish you off. If the executives at these companies had taken a closer look at history, they might have avoided billions in losses. But even experienced teams can fall into these traps. The best way to safeguard your company against them is to institute a formal strategy review by a devil's advocate panel not involved in strategy development. Its members must have license to ask tough questions, say the authors, who offer guidelines to help panels focus on facts, test assumptions, and bring to light flaws in the strategy that could lead to costly blunders.

The global banking system is facing a severe liquidity crisis: In the first half of 2008, major financial institutions wrote off nearly $400 billion, causing banks around the world to initiate emergency measures. Similar crises have occurred within recent memory: Think of S&Ls, the dot-com bust, and Enron. Risk is, quite simply, a fact of corporate life-but because risk-management research has increasingly emphasized mathematical modeling, managers may find it incomprehensible and thus shy away from powerful tools and markets for creating value. Buehler, Freeman, and Hulme, all with McKinsey, describe the evolution of risk management since the 1970s, show how new markets have changed the landscape in both financial services and the energy sector, and explain what it takes to compete in the current environment. To demonstrate how significant a factor risk can be when incorporated into strategy and organization, they take the case of Goldman Sachs-which, despite its reliance on highly volatile trading revenues, has so far avoided the big write-offs that have afflicted its leading competitors. The authors believe that this is because Goldman takes the antithesis of the typical corporate approach-its culture embraces rather than avoids risk. And, they say, Goldman very efficiently employs all four of the following factors: quantitative professionals, strong oversight, partnership investment, and a clear statement of business principles, with emphasis on preserving the company's reputation. Staying on the sidelines of risk management may have shielded some companies from crisis, but it has also prevented them from growing as quickly as they might have. In their companion article, "Owning the Right Risks," the authors outline a process that will enable executives in any company to incorporate risk into their strategic decision making.

The focus on intellectual capital and other 'intangible' assets that has emerged in recent years is opening up a series of questions with profound implications for business leaders, policy makers, accounting professionals and economists. Mastering value creation in the knowledge economy demands an appreciation for the pivotal role of intangible capital and a thorough understanding of network dynamics. Around the world, people are engaged in a struggle to reframe business and economics in an environment of global interdependency, environmental concerns and larger societal responsibility. Analyzing a value network involves addressing three basic sets of questions, she says, which can allow an organization to come to terms with how intangible assets are set into motion within unique configurations of roles, relationships, interactions and resources in value conversion networks.

The authors show that the evaluation of financial statements and the subsequent judgment of whether or not to invest in a company is fraught with emotions, heuristics and physiological responses. They describe three particular aspects of financial statements that have been proven to affect the reader's view of a firm, and show that the judgment of whether or not to invest in a firm is far from the cold-and-calculated process that it has always been imagined (and taught) to be.

In this interview, Rotman Capital Markets Institute Director Paul Halpern discusses the state of Canadian capital markets, the current challenges they face, and what to expect as we move forward. Along the way he touches on dual-class shares, the 'rules-based approach' vs. the principles-based approach, and areas where Canada can attempt to build competitive advantage versus other small global capital markets.

A positive reputation is arguably the most valuable 'intangible asset' that a firm can possess. The authors describe how reputations form within different stakeholder categories and why individual stakeholders within a group may not have identical attitudes toward a firm, despite the fact that they have the same kinds of interests in it. They describe four important categories of 'signals' that firms need to consider in order to enhance their reputation, including categorical cues; individuated information processing; credibility; and reputational stickiness.

In this article, the authors -- both of McKinsey & Company -- propose a bold idea: that organizations everywhere should completely redesign their internal financial performance measurements for the digital age. The time has come, they argue, for organizations to take measure of the real engines of wealth creation in the 21st century: the knowledge, relationships, reputations and other 'intangibles' created by talented people. Companies create wealth by converting these raw intangibles into the institutional skills, patents, brands, software, customer bases, intellectual capital and networks that increase profits per employee and returns on invested capital. The authors show how intangibles are true 'capital' in the sense that they produce real cash returns, and how a firm can get started in changing its systems to reflect the realities of modern wealth creation. The article is an excerpt from the authors' book, Mobilizing Minds: Creating Wealth from Talent in the 21st Century Organization (McGraw-Hill, 2007).

From giant pension funds to small retail investors, capital has increasingly lost its patience with talent, whether it be CEOs, fund managers, lawyers, investment bankers, athletes or actors. The fact is, capital is no longer the undisputed 'scarce resource' of the economy, and accordingly, its power over talent will continue to dramatically wane. Talent, meanwhile, is busy 'flexing its muscles' in a wide variety of industries, demanding huge paybacks. The author describes four tactics that talent can use to benefit from this scenario, and while It will not be a pleasant time for capital in the near term, he describes four defenses that capital can use to protect itself from greedy talent.

World financial assets are growing faster than the world economy. Confronting that and other modern realities of global finance requires more than regulatory reform: It calls for deeper thinking about new private and public international players and markets.

After 180 years of competitive rowing, the Cambridge University Boat Club has a tried-and-true method for assembling teams: It tests different athletes in different combinations to identify not just the best rowers, but the best groupings of them. Try taking a page from that playbook as you put together your next high-performance business team.