Power Sheet - February 17, 2016

By Geoff Colvin and Ryan Derousseau
February 17, 2016

For leaders and aspiring leaders in any field, I highly recommend a new article by Richard O. Lempert, an emeritus professor at the University of Michigan Law School. In it, he uses game theory to analyze the strategic choices available to President Obama and Senate Republicans as they battle over how the post-Scalia vacancy on the Supreme Court will be filled. It’s fascinating in itself, and it’s a reminder of how particularly valuable the discipline of game theory can be to any leader.

For example, here is Lempert’s dissection of one of Obama’s options, nominating a “responsible moderate” such as Merrick Garland, Chief Judge of the D.C. Circuit, a Clinton appointee:

“If Obama chooses to nominate a moderate, there is a chance that despite the Republican leadership’s expression of intransigence, the nominee would be confirmed. The situation is akin to what in game theory is called a “minimax” solution; each side minimizes the maximum loss it will suffer. Democrats see the appointment of a Justice who appears more of a centrist than they would like, but avoid the possibility of a Scalia-like replacement should a Republican win in November. Republicans see the same thing in reverse. They would prefer a much more conservative nominee, but they avoid the risk of a Justice who might side with the Court’s liberals regardless of the issue or even pull them to the left. The business community in particular might prefer the certain appointment of a Justice who could be counted on to consider and understand their side of the story before deciding, rather than risk the appointment of a Justice who shared Senator Sanders’s vision of rapacious corporations or who satisfied Clinton’s need to court the Democratic left in preparation for a second-term election.”

And this is only the beginning, Lempert discusses other factors in the “moderate” option and examines the likely dynamics of other options the president might consider.

Many leaders probably feel they use game theory all the time, even if they’ve never been schooled in it, and that is undoubtedly true. Anticipating someone’s response to our move, and then how we might respond, and what they might do next, etc., is in the very nature of human interaction. But game theory is a rich field that has been developed far beyond what most of us would imagine; many economists have won the Nobel Prize at least in part for contributions to game theory, most notably John F. Nash Jr., who won in 1994.

I can’t resist mentioning the role of two former Fortune writers in making the world more aware of game theory. Sylvia Nasar wrote A Beautiful Mind, the bestselling biography of Nash that was made into an Oscar-winning movie. And John McDonald first explained game theory to the world in a series of landmark articles in the 1950s. From that work he produced a classic little book called Strategy in Poker, Business, and War. It’s still in print, and I recommend it, along with Sylvia’s wonderful book, to anyone who hasn’t read them.

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What We're Reading Today

Apple will fight unlocking iPhone for authorities 

CEO Tim Cook announced that Apple will appeal a Calif. judge’s order to unlock the iPhone of San Bernardino shooter Syed Farook. Authorities have asked Apple to unlock the phone by adding software that would circumvent its security features. Cook says Apple hasn’t created such software and it would be too dangerous to do so. TechCrunch

Mechanics reject United Airlines offer… 

…leading to speculation that a strike is in the offing. More than 93% of mechanics voted against the deal and Teamsters President James Hoffa says they will petition the U.S. National Mediation Board for the right to cease talks and go on strike. The airline has worked since 2010 to come to terms with the technicians following United’s merger with Continental. A strike could occur as CEO Oscar Munoz recovers from a heart transplant. Fortune

Iran has no plans to limit oil supply

OPEC representatives want to persuade Iran to join efforts in curbing oil supply from January levels. But Iran’s OPEC envoy Mehdi Asali said Wed. it’s not going to do so until it reaches the production levels it held prior to sanctions placed on the country for its nuclear program. Sanctions were lifted last month. Reuters

U.S., Cuba sign deal to reopen air travel

U.S. Transportation Secretary Anthony Foxx made the plan official with Cuban Transportation Minister Adel Yzquierdo Rodriguez. It restores air traffic between the two countries for the first time in five decades. American carriers have already begun filing for the 110 U.S.-Cuba flights available each day. It’s a momentous victory for President Barack Obama, who wants to build trade and strengthen ties between the U.S. and Cuba before leaving office. ABC News


Building a Better Leader

Younger CEOs tend to perform better than older ones…

…but length of tenure trumps age almost every time. Harvard Business Review

Labor leaders step up tech efforts

They’re using apps and social media to connect hourly employees at large organizations, like Walmart. Fortune

Why are entrepreneurs really bad employees?

Maybe they aren’t. Maybe organizations are simply bad at managing budding entrepreneurs. Quartz


Battle Lines Drawn

Obama challenges Republicans over Scalia replacement

The president stated that the “Constitution is pretty clear about what is supposed to happen now,” referring to the process to replace the recently deceased Justice Antonin Scalia. While Senate Majority Leader Mitch McConnell has said he would not hold hearings for any Obama nominee, Chairman of the Judiciary Committee Charles Grassley (R-Iowa) says it will depend on the pick. NYT

New Fed head of Minneapolis: Break up the banks 

Neel Kashkari, who helped lead the government bailout of the financial industry, has stepped into his new role running the Federal Reserve Bank of Minneapolis. In his first speech, he urged Congress to take further steps beyond Dodd-Frank to regulate Wall Street and break up some banks in order to avoid future bailouts. He argues that some banks are still ‘too big to fail,’ creating a significant risk to the U.S. economy. Fortune

China deploys missiles in South China Sea

The missiles landed on an island in the Paracel chain, a disputed stretch of land in the South China Sea. The launch occurred as President Obama finished remarks calling for the end of militarization efforts in the disputed region while speaking with Southeast Asian leaders. CNN


Up or Out

Hyundai Motor has named Choi Byeong-cheol as CFO. WSJ

Birchbox founder Hayley Barna will join First Round Capital as a venture partner. Fortune


Fortune Reads and Videos

Berkshire Hathaway will live stream its shareholders meeting 

The public can watch for the first time while Warren Buffett and Vice Chairman Charlie Munger take questions from shareholders. Fortune

Oreo makers file discrimination lawsuit against Mondelez

The complaint comes as Mondelez begins layoffs at a Nabisco plant in Chicago. Fortune

Spotify to reach 30 million paid users… 

…in the next three months. Apple Music has 10 million paid users six months after its launch. Fortune

Should Alphabet buy AIG?

It’s a moonshot, but some analysts say it would be a great buy. Fortune


Today's Quote

“We know markets make mistakes; that is unavoidable in an innovative economy. But these mistakes cannot be allowed to endanger the rest of the country. When roughly 1,000 savings and loans failed in the late 1980s, there was no risk of an economic collapse. When the technology bubble burst in 2000, it was very painful for Silicon Valley and for technology investors, but it did not represent a systemic risk to our economy. Large banks must similarly be able to make mistakes—even very big mistakes—without requiring taxpayer bailouts and without triggering widespread economic damage. That must be our goal.” —Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, speaking about breaking up banks. Federal Reserve Bank of Minneapolis

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