Business school professors’ picks

Welcome to professors’ picks, offering a weekly curated selection of FT articles by and for business school faculty to connect classrooms to current events and to develop students’ critical thinking.

Read all submissions at www.ft.com/bschoolpicks. Save this link in myFT to receive emails alerting you to each new edition. Search the tags for relevant topics to illustrate teaching points. Encourage students to join the debate in the comments section beneath the article.

Comments or contributions? Get in touch at [email protected] 

Professors’ picks will now take a holiday break until late August.

Strategy

Elon Musk to prioritise Tesla over White House role as profits slump

Tags: Corporate strategy, competitive interactions, strategy and technology, business ecosystems, sustainable advantage

Summary: Tesla suffered significant setbacks in the first quarter of 2025, with deliveries falling by 13 per cent, revenues by nine per cent and operating margin declining from 5.5 to 2.1 per cent. These setbacks resulted from Elon Musk’s reduced attention to Tesla and from his engagement in politics leading to protests at Tesla’s showrooms. Musk aims to refocus his attention on Tesla after leaving the Trump administration, and plans to reduce Tesla’s dependence on supplies from China, promote the recently upgraded Model Y and make self-driving “Cybercabs” a runaway success that will significantly enhance Tesla’s future performance.

Classroom application: This article highlights the tensions between politics and strategy and the CEO’s activities as a company’s resource and potential liability.

Questions:

• How can Tesla and Elon Musk balance political activities with market strategies to achieve long-term, sustainable competitive advantage?

• Given that Tesla has focused on a different self-driving technology from its competitors (emphasising cameras and AI while avoiding expensive equipment), how do you assess their prospects of making self-driving “Cybercabs” a runaway success?

• Tesla has a history of overpromising future products and thereby generating a buzz in the market and among shareholders. Will this approach continue to succeed in the future?

• Tesla has a long-standing vision of being a one-stop shop for clean energy. How will trade conflicts and tariffs influence this vision and corresponding strategy?

• Tesla — like Apple — is deeply involved with both China and the US on the supply side and demand side. How should the company develop its ecosystem strategy under these conditions?

Hossam Zeitoun, Reader, Warwick Business School

Risk Management

Federal Reserve unveils plans to reduce capital rules imposed after 2008 crisis

Tags: Regulations, Basel, Banking reforms, bank failures, Leverage Ratio

Summary: The rewrite of Supplementary Leverage Ratio (SLR) rules marks the first major win for US banks under Trump’s deregulatory agenda. Banks are poised to win back leverage capacity. The question is how much?

The Basel Committee on Banking Supervision set the leverage ratio at a minimum of 3 per cent. The numerator is the bank’s tier one capital, while the denominator is essentially the total assets of the bank. If this number looked embarrassingly low, it was because it is.

Until now, the eight US “global systemically important banks” were subject to an enhanced SLR of 5 per cent, rather than the 3 per cent applicable to other large banks. The June 25 proposal discards the fixed 2 per cent buffer and replaces it with a variable add-on equal to half the bank’s surcharge under Basel’s Method 1 framework. That would bring it in line with the biggest European, Canadian, and Japanese banks.

Classroom application: The discussion can focus on why and how regulators have long wished to limit banks’ reckless use of leverage by requiring them to maintain minimum levels of their own equity capital. They have largely followed a two-pronged approach: a “risk-weighted” approach with variable capital requirement based on the “perceived” riskiness of its various assets; and a “leverage ratio” as an overarching constraint on its use of borrowed money.

Having a broad understanding of how these twin measures operate in tandem and how the recent Moody’s downgrade of US sovereign debt (indicating massive, growing fiscal deficits and fading attractiveness of the dollar as a reserve asset) offer a plausible scenario of a future disruption in timely payments to US debtholders.

Questions:

• What are the drawbacks of the “risk-based” approach? How do banks misuse it?

• How is the leverage ratio superior to the “risk-weighted” approach? How does its “bluntness” prevent banks from “gaming” it?

• Are banks right when they complain that the leverage ratio requires them to keep aside more equity capital than the risk-based rules, thus becoming a binding constraint?

• Is the leverage ratio counter-productive since it “punishes” banks for holding zero and low-risk assets like US Treasuries?

• Will the proposed rule achieve the desired goal of strengthening the resiliency of the US Treasury market?

• Are US Treasuries really “zero risk”? Some fear that the new rule will redirect capital away from the private sector into public coffers and incentivise banks to move their assets into T-bills or keep them idly in Fed accounts offering easy gains rather than stimulating credit to support economic growth. Do you agree?

• Will the proposed central clearing of Treasuries improve the resilience of the Treasury market?

Krishnan Ranganathan, Guest faculty at Indian business schools

Got feedback on professors’ picks or willing to contribute? Get in touch at [email protected] or add your selected articles and questions in the comments below.