June 19, 2007
Better Deeds
Over the past several years, America's best run non-profit housing organizations have dramatically outperformed the subprime lenders in serving financially-strapped folks seeking to buy or refinance a home. Many of these stellar performers, though, struggle from year to year to ensure they have the financial wherewithal to continue their efforts -- and few, if any, have been rewarded with the capital to expand. There's no real reason -- other than the always potent cocktail of ignorance and greed -- that capital markets cannot work with nonprofit housing organizations. The fact that otherwise sophisticated folks do a double take at this suggestion merely confirms the extraordinary level of self-interest and distorted language that now pervade our culture. Remember this: mortgages are forms of debt. Not equity. Non-profit lenders can produce debt instruments just like for profit lenders. What happens to those debt instruments down the road -- that is, how they get converted into equity like forms -- is not limited or constrained by the tax status of the initial lender. As I explain further in Slate, however, the quality of the mortgage evidently is affected by the tax status of the lender. America's nonprofits produce much better deeds than the the subprime lenders. Much better. Delinquency rates for the nonprofits run between 1 in 20 to 1 in 50. For the subprimes? 1 in 5 and rising.
Posted by Doug Smith at 02:07 PM | PermalinkMarch 19, 2007
Memo To Journalists: Move From Reporting Ideology to Reporting On Problem Solving
There are many explanations for the flight over the past decade or so of journalists toward reporting about ideology. Among them, of course, is the chicken-and-egg spiral whereby political discourse shifts to 'either/or', 'on/off', 'my way or the highway' presentation and appeal that, in turn, influences journalists to report about the horse race of 'which ideology is winning' that, then, encourages and reinforces the thread bare 'either/or-ism' of the political discourse. In addition, though, are many, many other factors too numerous to list in this post. But, just to illustrate; there's also the incredible, geometric expansion of subject matter, the traumatic shifts in the economic and other realities of journalism and news businesses in this new information/web age of ours, and the rapid drift toward celebrity as a means of competition both for journalists' own careers and for the businesses that employ them. In response to all of these are some clear patterns of how journalists now practice their craft. One, for example, is what I call 'press release' journalism: simply printing the press releases of others and calling it reporting. (My far too subtle intended irony here has to do with the interpretation where journalists 'press the release button --that is, release themselves from their best values and aspirations to actually inform us -- which would take some work -- instead of merely being parrots.)
It's been years now since we've all learned to expect and experience the 'he said, she said' form of what passes for jounalistic balance in this new world of press release journalism. No matter how outrageous any ideological position, the minimal obligation of journalists seems to be met by merely including any comment from anyone who opposes that position. Among the many ways this hollows out journalism, much like termites eat away at a house, is that it eliminates any threshold of accuracy. So long as someone can be quoted, it matters not that the quoted statement is devoid of any fact. We've seen this time and again with regard to Valerie Plame's job status as a covert agent. We see it time and again with regard to creationism, the WMD lies that led to the Iraq disaster, the either/or journalism about No Child Left Behind and more.
Put differently, in a world and culture that spins out of control toward politicizing everything into a black-and-white loyalty test regarding ideology and identity, there becomes no room left for actual problem solving -- for actually trying to do anything about anything. Karl Rove triumphs. All journalists are branded as right v left or, more likely, supporters of Bush and the Republicans versus supporters of the 'left', the 'Democrats, of 'Satan' and of our 'enemies'.
Note again, please, how easy this makes the job of a journalist. The articles basically write themselves. And, the obligation to actually think for one self and to learn about the issues disappears.
None of which is to say that this description matches the best aspirations, the real concerns, the private lives or the truly professional best efforts of most journalists. From my experience, most journalists I know would prefer a better, more constructive way of moving forward into the 21st century. And, I'm guessing, most journalists I don't know would too.
We're dealing with issues of profound change. And, among them, are the challenges of shifting course within the context of jobs and organizations. That's very hard. At a minimum it entails taking risks to do things differently -- risks that affect job security, friendships within the organization, and sense of self. In most organizations, the 'either/or' aspects of our culture can rapidly become 'either/or' loyalty tests or career risks -- perhaps because they really are; or, more likely, perhaps because there is a perception that the "CEO" will come down hard on any risk takers. (Such perceptions, by the way, are as often mistaken as they are correct.)
Changing 'the way we do things around here' within any organization is very difficult. It is one explanation for why new entrants often take market share away from existing players -- at least until the existing players get the message and begin to recast themselves accordingly.
This is now happening in journalism. New players -- blogs, crowdsourcing journalism, citizen journalism, user generated content and more -- are moving quickly and independently toward taking advantage of a core new reality: the essential 'many-to-many' nature of our webbified world.
News organizations that, over the decades stretching from the 1970s to early 2000s, adjusted and grew based on a 'one-to-many' world, today have decades of skills, instincts, processes and economics that don't fit a 'many-to-many' world. This was shocking news to most of these organizations -- and, for the most part, even a year or so ago, most were in denial. Now, across this country, news businesses are rapidly moving from denial to doing something about it.
As they do, I've got a recommendation. Put a stop to 'press release' journalism. Put a stop to reporting about the horse race between a well defined ideology (Rovian Republicanism) and the assumed ideology in opposition (which, by the way, as every single one of us knows is and has also been defined by Rove).
Put a stop to this. And, instead, start to explore and learn journalism oriented to reporting about 'problem solving' -- that is, journalism that seeks to report on and inform people about options worth considering for how to move forward against the many challenges we face as a people.
In this 'problem solving' journalism, there will be no 'totally right answers'. Rather, there will be approaches that 'work sometimes'. And the job of journalists will be to help us figure out when various solutions work and when they don't. (And, yes, also what those promoting any solution have to gain personally -- that is, sources of self-interest that might or might not reach beyond objectivity.)
To take just one example, consider charter schools. Charter schools really do work sometimes. And, at other times they do not work. And, yet still in other situations, charter schools can exacerbate and make worse various ills. In a world where journalists report on education, they'll help us distinguish among the three cases -- unlike today where far too many articles one reads basically present a 'balance' between those who claim, "Charter schools are right!' and "Charter schools are wrong!"
Posted by Doug Smith at 01:41 PM | PermalinkFebruary 01, 2007
Take Advantage of Market Failure In Energy!
Okay folks. Here's your opportunity to make some money and contribute to the sustainability of the planet for future generations -- all by taking advantage of a market failure in today's energy industry.
Here's the situation, which you can read more about in one of the best new blogs on finance, markets and capitalism (www.nakedcapitalism.com): Deregulated electricity markets shift pricing out of the hands of regulators and into the lap of the industry's marginal cost supplier.
That's a mouthful. Why? Because folks like you and me and Aunt Sally do not factor price into whether we flip the switch when we get home at night. Our demand for electricity is impervious to price (the technical word: inelastic).
Price, then, will reflect the profit requirements of that supplier whose energy sits out the outer limit of total demand (i.e. the marginal cost of the 'last' supplier). Of course, other, lower cost suppliers could charge less in theory. But, absent regulation, why would they?
So, how is the price set by this 'last supplier'? Based on the supplier's profit appetites that sit on top of that supplier's costs. And what would be that supplier's costs? The amortized cost of the investment to build the plant plus the operating costs to run it.
Well, it turns out that it's easier to gain financial backing (i.e. capital investment) to build plants that have lower up front investment costs and higher operating costs. That means investors and capitalists make a nice profit by getting a return on lower investment tied to higher ongoing prices for consumers.
Consumers, folks. As in you and me and Aunt Sally.
Of course, it's also possible that you or your Aunty Sally may have the kind of megabucks to get in on the investment side of this game - and the contacts and relationships to be invited into the game. In which case, you'd have to check to see if your energy costs to run your home (or, more likely, your many homes since you're very rich) are adequately offset by the return on investment you get.
Now, what to do about it?
Well, it is in the planet's interest -- in the interest of protecting our precious earth for our children and their children and so on -- to replace the irrationality of this market failure with a market success. Instead of subsidizing capital through government action (note well: deregulation is an act of government!) which, in turn, causes higher energy prices (reread the above) -- and, if you go to the link -- also causes geopolitical instability as well as environmental degradation -- it would be great to find a market mechanism to correct for all this.
How? Well by finding a way to invest in something that has lower operating costs.
What would that be?
Renewable energy sources.
But, they have higher up front investment requirements.
Yes. And, that's where the opportunity comes in.
Listen up Goldman Sachs and pals. Here's what you do. You create an investment security for the broad public that combines up front capital with ongoing price reduction. In exchange for the capital that will go to build higher cost renewable-type plants, the investor gets a claim on the lower ongoing prices promised from that source of electricity. And, Goldman Sachs, if you're really clever and have any good government connections, you throw in some kind of investment credit to the total package.
Come on, now, all you financiers and capitalists. Let's get going.
(PS: Are there a variety of obstacles and details to work out? Yes. And that's why folks at Goldman and elsewhere get paid the big bucks.)
November 25, 2006
Day Of Reckoning
The United States remains one of the rare -- and certainly the largest -- pharmacuetical markets where government has refused to step in to curb pricing and other practices. Defenders of these practices point to the ideological instruction of shareholder value extremism: we must have free markets in which companies use profits and capital to innovate through research and development that, in turn, bring us ever new and more effective pharmaceuticals. The problem, of course, is when any single answer -- in this case profits and shareholder value -- is repeatedly used like a catechism without reference to it's actual, fact based effects, even the constructive aspects become emptied of all reason, all possibility.
Should we construct our affairs so that pharmaceutical companies make profits and offer an attractive return to those who provide them capital?
Yes.
Yes.
Yes.
Should we construct our affairs so that pharmaceutical companies drive profitability through kick-back like rewards to doctors who promote their high priced drugs, research and development trials conducted without oversight by independent agencies with sufficient resources to maintain objectivity, campaign funding provided to politicians (who declare themselves anti-science) in exchange for extending legalized monopolies needed to support high prices, product development processes that favor marginal advances on existing drugs over fundamentally new drugs (including life-style drugs instead of life-saving drugs), marketing and advertising campaigns that draw attention toward life-style and away from real need, and, finally, legislation that sets up complexly regulated distribution of drugs to older folks who neither themselves (nor their adult children) can even ever hope to understand -- and all because each and every one of these practices and more help pharmaceutical companies do in the United States what they cannot do elsewhere: make unsustainable profits?
Should we continue to allow all of these usurious and unethical practices?
No.
The free market crowd of zealots have become so detached from the facts on the ground about how markets actually operate that it comes as no surprise that Big Pharma is gearing up to fight against allowing for the free market importation of lower priced drugs from Canada.
Here's the problem. If you're an executive in a Big Pharma company, you know that the United States market is your last, best hope for sustaining unethcially high prices and shareholder value. Why? Because other markets are now 'off limits' to such practices because the governments in those marekts have chosen to blend their concern for Big Pharma profitability with their concern for the health and well being of all of their citizens (not just the top 10%).
For the red meat eating ideologues out there, please re-read: these governments blend their concern for profits and people. Blend. They do not prevent or advocate or wish that Big Pharma become indigent groups operating at unsustainable losses.
No. They wish for and hope and listen to reason to help Big Pharma and all private sector companies make profits -- reasonable and sustainable profits. Because that's how markets work.
But, these other governments -- unlike the government of the United States -- have said "No" to single answer, shareholder value extremisim. They know that this form of extortion is no more sustainable than continual, persistent losses.
So, if you're a Big Pharma exec and you look at the markets around the world and you see that, for the most part, your profits will be hemmed in except for one -- the US -- then what do you do?
You put the peddle to the metal in the US and do whatever it takes to drive as much profitablity as possible out of this last 'frontier'. Do the math! If you have 10 markets and 9 of them -- at best -- would produce, say, 10% return on investment while your financial markets are 'demanding' you maintain 25% in total -- then you better get a heckuva lot higher profitability out of that 10th market if you hope to make the total performance meet these expectations.
So, when a mid-term election shifts Congress from R to D, and the D group knows there's not much reality left to what we used to refer to as 'middle class' -- quick fact: the top 1% in this nation have 40% of the assets and they can definitely afford the high prices of Big Pharma's US market drugs while the lowest 60% of families have 1% of the assets and cannot -- and this D group identifies the free market idea of importing lower priced drugs -- well then the 'free market' Rs and their Big Pharma paymasters are going to go to work quickly to ensure that free market thinking like the D's offer do not imperil the 'free market' profits of the status quo.
November 19, 2006
Invest Today In A Free Press
How would you like to invest in the growth of an independent press? Well, go to the Media Development Loan Fund today and you can do just that by putting your money in a safe, low yield bond.
Over the past decade, MDLF has provided low-cost financing and technical assistance (learning related to financing, distribution, business planning, etc) to more than 50 independent media companies -- radio, TV, newspaper, internet and more -- in nearly a score of nations in Asia, Latin America, Africa, Central Europe, Russia and elsewhere that are transitioning toward the possibilities of democracy.
MDLF provide both low cost loans as well as takes equity stakes. They, in turn, use innovative instruments to gather the capital needed for their important work. In particular, with the participation of major financial institutions, MDLF offer investors low interest returns (e.g. up to 3%) in safe bonds -- what they call 'social bonds'. In effect, you can invest in press freedom around the world.
Posted by Doug Smith at 01:33 PM | PermalinkNovember 14, 2006
Market Magic
See my article in Slate about how we can use the idea of "dynamic deductibility" to create a new kind of security around the right to trade the timing and size of a charitable deduction -- and, thereby, foster a real capital market for non-profits.
Posted by Doug Smith at 01:40 PM | PermalinkNovember 12, 2006
Six Sigma Upside Down
Six Sigma programs have been a common aspect of the quality movement that swept industry over that past twenty years. Among the key principles of these programs are (1) all work can be described in terms of step-by-step processes; (2) there are always 'customers' of these processes (that is, people, whether inside a company or, more traditionally, beyond it like real customers) who receive the benefits of the work at hand; (3) defects or errors matter to these customers; (4) data can be kept about such defects; (5) a variety of problem solving and improvement efforts can be made to continuously root out the causes and eliminate such defects; and, (6) those involved will do better if continuously challenged to reduce the number of defects.
Six Sigma itself is a statistical notion conveying that there will be less than 3.4 errors or defects for every milllion opportunities. This is a steep mountain to climb. Still, as an aspiration, it has vastly improved the quality of work over many years now -- especially when combined or driven through an expectation of continuing reducing the number or incidence of errors at some rate (e.g. every year cut defects by 70% or 90% or some other goal).
The six sigma statistic crossed my mind while reading about the track record of the federal and state Road Home program designed to help Katrina victims with the money needed to repair or replace damaged homes. Whether organizations are governmental or private sector, one doesn't expect six sigma performance in an effort only 14 months old. 3.4 four errors out of a million opportunities would be too high a bar.
Still, it came as a bit of surprise that, in a process essentially aimed at providing money to needy homeowners, the pace at getting it wrong would be so wildly at odds with six sigma. Indeed, the numbers turn six sigma on its head. Instead of getting it wrong 3.4 times out of million, this program has gotten it right only 22 times out of 79,000.
Only 22 home owners have actually received cash -- out of nearly 79,000 who have applied.
In six sigma upside down terms, this translates as "of every million opportunities to get it right, those doing the work in the Road Home program succeeded 278 times."
So, here's a suggestion to the Road Home program:
Invite all who have applied to the program to a football stadium. Ask them to use their application as their ticket to get in. Take the $7.5 billion allocated to the program, divide it up by the projected number of those in attendance, put that amount in a cashier's check on the stadium seats, provide some entertainment and call it a day.
Will there be defects?
Will there, for example, be folks who spend the money on something other than home repair or rebuilding? Will there be folks who shouldn't get the money? Will people get the wrong amount of money?
Yes.
But, here's my guess: The number of defects will be far lower than the current rate of getting it wrong at a pace of 999,732 times out of a million.
November 11, 2006
Note To Joe Nocera: Almost There
Joe Nocera of the The NY Times visited the annual Corporate Social Responsibility conference this past week and came away dazzled by the paradoxes. The contradictions would have been hard to miss. For example, what must Joe have wondered as he spoke to Exxon Mobil's and Chevron's corporate social responsibility representative the week following the Stern Report catalogue of the catastrophic risks of continuing to treat environmental damage as an externality. Ditto for Pfizer's 'do-gooder' who, as a person undoubtedly seeks to better human kind and cannot be held individually accountable for his company's maniacal focus on bottom line practices such as kick-back like rewards for doctors who push Pfizer products, research and development trials conducted without objective oversight, campaign funding to politicians who support extending legalized monopoly, product development efforts aimed at minor improvements over fundamental innovation, and marketing campaigns that draw attention away from health risks while misleading consumers about the actual costs of new drugs.
Ditto for Ford Motor Company -- whose advertising mantras for years and years (e.g. "No Boundaries") use the imagery of pristine environmental experiences to push gas guzzling SUVs. Or, how about General Electric? Having fouled the Hudson River for decades, GE poured tens millions of dollars into delaying court-ordered cleanup and miselading the public about it's actions because, from a shareholder point of view, the costs incurred in delay outweighed the costs of the clean up. McDonalds? The same week it's representative chatted about the company's sense of social responsibilty at the NY City confab, McDonalds was also funding the effort to fight a NY City ordinance banning transfats.
The list could go on. Joe could not avoid the paradoxes. When, for example, the McDonald's rep claimed corporate social responsibility is "core to the way we do business", Joe noted: "You could wonder about that."
Nocera picked up this theme again in his conclusion. Having ceaselessly breathed in paradox and contradiction, Joe opined that for companies to become substantively responsible -- as opposed to PR-oriented "responsible" -- would demand all responsible values become core to those companies' business models.
Hurrah for Joe! He is dead on correct. Now, Joe, go back, re-read and re-think this declarative statement you make earlier in the article:
"Do shareholders come first -- above other stakeholders (another favorite buzzword at the conference... encompassing customers, employees, activists and so on)? Of course."
Joe, Joe, Joe. There can never -- never -- be fundamental change to the core business models if shareholders come first and their concerns are the trump card of any discussion. Never.
But, Joe, listen up carefully. This last comment does not reflect today's either/or orthodoxy. The orthodoxy embedded in your all-too-facile "of course". The orthodoxy that insists that either the shareholder comes first. Or the shareholder comes last.
No. The shareholder cannot come last. We saw a long run of the poor consequences from the 1950s through the 1980s of what happens when the shareholder came last. We must pursue shareholder value. We must celebrate shareholder value.
But we must not make shareholder value the trump card of all human affairs conducted by business -- especially if we, as I think we should, choose capitalism as an essential philosophy for the well being of the planet.
Joe, if you are to help us change the core business models then you've got to erase your robocall "Of course" about the primacy of shareholder value. You've got to think again and somehow, some way discover the more profound declaration that the shareholder, like other core constituencies, must abide in equivalency of importance. The shareholder does not come first. Nor does the customer come first. Nor does the employee come first.
The shareholder does not come last. Nor does the customer come last. Nor does the employee come last.
Sustainable and ethical corporations must shift their core business models to this formulation: "Shareholders provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who..... and on and on."
That is an ethical and sustainable scorecard. And it reflects this unprecedented and undeniable fact of the 21st century human condition: we live in a world of markets, networks, organizations, friends and families in which our organizations are the new communities that determine the fate of our planet. Our primary ethical challenge can only be met when organizations reintegrate our legitimate concern for value with our equally legitimate concern for other values. Failing this, our most dominant organizations -- for-profit enterprises -- will continue putting value first and, thereby, continue propelling our global society toward social, environmental, political and economic disasters.
Joe, consider only this illogical aspect of your all-too-easy-and-orthodox "of course": Who are these shareholders who come first? I'm imagining you are a shareholder. But, let me ask this, are you a customer? Are you an employee?
Put differently, does Joe Nocera the human being come first? Or, do your concerns only matter to the extent that you happen to own stock in one more enterprises?
Should we put one of our dominant shared roles (investor) above the other dominant shared roles of our new age of human kind (employee, customer, family member, friend)? And where does that leave the extraordinary number of folks on this planet who are not investors?
Joe, if we wish to take your constructive insight about changing core business models as an essential condition to the fate of this planet, then we must move beyond either/or-ism to both/and. We must not elevate any role to trump card status while also avoiding subordinating any role as a last concern.
We must learn to practice the new golden rule: "As employees do unto others as customers, investors, family members and friends what we would have them do as employees to us as customers, investors, family members and friends."
When the employees and executives of Chevron, Exxon Mobil, Pfizer, Ford, General Electric and McDonalds begin practicing this golden rule in earnest, we'll all witness social responsibility (as well as environmental, medical, legal, political, technical, family, spiritual and economic responsibility) blended into the daily lives of those who make, sell, distribute and service the many good things we depend on for leading our lives.
We will experience and have good things to have that are truly 'good'.
Posted by Doug Smith at 12:44 PM | PermalinkOctober 01, 2006
Value versus Values
From Der Spiegel in Germany:
"In its report on Afghanistan, CorpWatch - a U.S.-based corporate watchdog - concluded that the companies were more interested in making money than helping the people. Thousands of foreign experts have been dispatched to Afghanistan.
The consulting firms in Kabul have been given multi-million-dollar budgets from their governments to establish a central bank and three ministries: Finance, Justice and Commerce. They have also been tasked with slowing poppy cultivation and finding alternative sources of income for the farmers. Their remit further extends to building schools, roads and hospitals.
{snip}
American taxpayers would be stunned to hear where their tax dollars were actually going, the CorpWatch report says: beyond being wasted on failed projects, it helped pay for "contractors' prostitutes and imported cheeses." The CorpWatch investigators spent months monitoring the flow of international funds and concluded that business-savvy representatives of donor nations rather than Afghans were the real beneficiaries.
The U.S. government lavished $150 million on the private security firm DynCorp. Its mission: to close down Afghanistan's poppy fields. Ninety Americans and 550 Afghans set about the task. The result: thousands of extremely irate farmers who - despite having their crops destroyed - were denied realistic compensation.
The Rendon Group from Washington, D.C. was charged with winning public support for the United States and its military in Afghanistan. According to CorpWatch, the PR firm - which reportedly has close ties to the Bush administration - has received contracts worth more than $56 million since September 11, 2001. It has failed miserably in Afghanistan: never before have the Americans and their allies been as unpopular as they are today.
The euphoria that greeted Americans in Kabul on Nov. 13, 2001 has long been replaced by suspicion. Today many Afghans regard the erstwhile liberators as occupiers."
All of which begs these questions:
What do the people who work at these companies really stand for?
What do the people who work in the government organizations that hire these companies really stand for?
September 02, 2006
The Size Of The Pie And The Share Of The Pie
For those who have the courage and wisdom to pay attention, among the most important contributions of the now decades-old quality movement in the contemporary business world is it's demonstration of 'both/and' thinking and acting. When people adopt and pursue shared purposes built on 'both/and' principles, they identify and articulate two or more objectives that are in constant tension with one another. For example, within the broader field of quality, an organization might pursue both fewer errors or defects and faster speed of delivery. These two objectives struggle with one another. A group pursuing only speed has an easier, less constrained set of solutions than the group pursuing both speed and fewer defects because the former can simply speed things up and accept more errors.
The benefits of both/and approaches, though, go far deeper than the stated objectives themselves because they support and promote effort that is more fully human -- more challenging and, therefore, more creative and more fulfilling. While elitists might disdain the deeper meaning within the work of a team of folks at the front lines of a company pursuing both speed and fewer defects, the people on the team itself will and do report that with success comes the experience of both deeper affiliation and deeper meaning. No, such folks do not equate either the affiliation or meaning with the poet's truth or beauty -- but they do know and sense the importance of collaborating with other human beings on something that matters. As Marlow in The Heart of Darkness admiringly, respectfully says of the man who helps him guide the boat up the river, these folks do work, they do something.
And they do it together, fully challenged by both/and realities of human existence.
Our planet is beset by powerful men and women who ignore the way of both/and humanity in favor of single goals and single answers. In this, they pursue self-interest over shared interest and personal power and wealth over shared purpose and the rule of law. In contemporary geopolitics, we see this abhorrent, destructive self-interestedness in the form of powerful governmental, corporate and media officials who claim truth stripped of reason as a shield to their own pitiful failure to embrace the opportunity for a more fully human experience given to them at birth. They love single answers because they are the easy road to self-enrichment. They eschew both/and because, down that road, lies shared struggle and shared responsibility.
In economics and business, we see this single answer extremism primarily in the form of our age's deep and widespread acceptance of shareholder value as the trump card for business performance. The primacy of shareholder value is today as widely shared as the belief in motherhood. And, yet, unlike motherhood, the beliefs and behaviors of shareholder value extremism march us toward and over the cliff of despair and destruction every single day. Whether it is exploding mortgages, layoffs, deteriorating benefits, moves to privatize social security, ongoing environmental destruction, decades-old erosion of real wages, poverty that is hidden by false statistics, rising obesity and eating disorders, failure to equate energy policy with national security -- etc, etc, etc -- the either/or thinking and action of single answers have now endangered our planet and put the futures of our children and their children at grave risk.
The Philistine plutocrats admonish us to either accept the primacy of shareholder value or destroy our markets, our business prospects, our jobs and our country. That is the 'either/or' proposition that has an iron grip on our society today.
And, it is the either/or proposition that has propped up the irresponsible, self-interested officials in government, corporations and media who have spent the last three decades promoting the false notion that the 'size of the pie' -- the size and growth of GDP -- somehow exists in isolation from the 'share of the pie' -- the distribution of income and wealth. Both matter.
Both matter to the aspiration embedded in our national heritage known as 'liberty and justice for all'.
Not for some. For all.
Not just for the top 1% who now control more than 40% of our wealth.
For all.
Not just for the top 20% who control more than 80% of wealth.
For all.
"For all" includes the bottom 40% who actually have less than 2% of our society's wealth.
For all.
Just like the quality team who challenge themselves to be more fully human by tackling both speed and fewer errors, all of us -- every day we wake up -- have the choice to demand of ourselves and those who would claim to lead us that we commit our resources, our capabilities, our hearts, our minds and our guts to building a society that aspires to both a larger pie and a just distribution of that pie.
We cannot and will not find our way to this 'both/and' pursuit of happiness, though, until we once again adopt belief and behavior that demonstrably care about people beyond ourselves. Nor until we -- and especially the 'we's' of organizations -- explicitly evict shareholder value extremism from our midst. We must not condemn shareholder value itself -- only the tenets by which it is made a golden idol, a trump card of either/or-ism whose shininess blinds us to the corrosive reality with which it destroys our common humanity -- including, importantly, the humanity of those who practice and espouse it.
Let us now -- right this moment -- turn our eyes toward both the size of the pie and the share of the pie. And let us do that work together.
Because the clock is ticking. And our children our crying out for us -- their elders -- to take shared responsibility for creating a safer, saner and more sustainable future.
For all.
Posted by Doug Smith at 01:30 PM | PermalinkAugust 19, 2006
Planning For The 20th Century
Evidently, officials at Ford -- the company that yesterday announced drastic cuts in auto production -- have been working hard over the past several years planning for success in the 20th century through betting on cheap interest rates and low gasoline prices to support a product line featuring SUVs. We are, of course, smack in the middle of 2006. But, on Friday, Ford officials contended that "no one in the industry could have anticipated that gasoline prices would remain so high".
No one.
In the industry.
Or, did they mean, "No one at Ford"?
Actually, no one ought to be surprised by the Ford production cuts. They are a natural consequence of me too, inside the boxplanning aimed squarely at solving strategic problems defined through the rear view mirror.
The auto industry has been aware of the core dimensions of the shifting strategic landscape for well over a decade -- arguably two decades. These shifts are profound. They inevitably call for a fundamentally different business model -- one that demands innovation and deep, behavior and skill change. Those, in turn, have always -- always -- meant that the solutions would require trading off today's profits, shareholder value, jobs, benefits and salaries (both union and executives) for tomorrow's sustainability.
Those at Ford, GM and elsewhere have confronted the question, "Are we willing to take real risks -- risks that might upset the financial markets, the unions and our executives?"
"Or, can we somehow find a way toward a viable future through luck and incremental, deck-chair (I mean, parking spot) rearranging?"
These are not easy questions. The executives, unions and other decision makers deserve our sympathy for the difficulty they find themselves in. But in choosing the incrementalist approach, those involved have wreaked real world damage on tens of thousands of families and, in part, they have done so out of obeisance to shareholder value fundamentalism.
They have picked short term value over a blended values approach that includes, but does not worship as false idol, value itself.
August 17, 2006
Exploding Mortgages V
From Billmon writing about the housing bubble:
"But what makes things different -- and potentially more exciting -- this time around are the gaudy new financing gimmicks Kevin mentions: no money down loans, interest-only mortgages, ARMs that reset to truly usurious rates, etc. If and when these loans blow up, and they will, it could leave many home "owners" with no alternative but to sell and sell quickly -- or simply mail the keys back to the bank."
Who is responsible for this situation?
In our popular culture, the responsibility will get placed largely on the customer - on individuals who signed up for exploding mortgages.
Caveat emptor -- buyer beware -- has a long and important history and some of the responsibility always should lie with the customer.
But in a world where place still fostered shared values, individuals were much more likely to be bouyed in their choices by the shared wisdom of extended yet present family and neighbors who lived nearby and participated meaningfully in their shared lives. Folks would not let folks sign up for exploding mortgages.
Most of us no longer live in a world of places. We live in a world of markets, networks, organizations, friends and family. In this new world, an extraordinary amount of responsibility for the safety, sanity and sustainability of our society rests with organizations -- because organizations are where we come together for an experience of community -- of thick we's -- that allow us to ask and answer: What difference do we wish to make -- together -- to the world we live in?
Our long history of markets in a world of places does not always serve us best in answering this. The singularity of the profit motive arose in a world of places because place itself fostered shared values that moderated the effects of businesses operating out of self-interest. Today, our most prevalent shared values - that is, predictable patterns of belief and behavior -- happen because of markets, networks and organizations -- not places. Of these, organizations are the most important: they set the tone of what matters, of what we really stand for.
While undertandable from a standpoint of history, what most private sector organizations really stand for is profit. But, that is neither sustainable nor sufficient in our new world. It has led, for example, to widespread and entrenched shareholder value fundamentalism every bit as virulent as religious fundamentalism. That, in turn, leads to financial institutions, realtors, mortgage brokers, speculators and others who -- as thick we's -- make it their shared purpose to build profits and shareholder value at any cost without regard for other values.
That, in turn, leads to exploding mortgages.
Responsibiity? Customers? Yes, somewhat.
The core responsibility lies however with the folks who show up to work every day in companies that create and sell exploding mortgages. And until a critical mass of employees and executives of those companies figure out they are responsible for the horrendous things happening to their 'customers' -- and their customers' families and children -- we will continue to move blindly and recklessly through a world we refuse to take responsibility for.
Posted by Doug Smith at 11:25 AM | PermalinkJuly 15, 2006
Exploding Mortgages, IV
According to this NY Times' article, the share of interest-only mortgages jumped from ten percent of new mortgages in 2003 to over 25% in 2005. In addition, a different variant of exploding mortgage -- called payment option adjustable -- represented nearly 16% of new mortgages in 2005. In total, 42% of new mortgages in 2005 had explosive potential -- that is, could blow up if the borrowers found themselves in any of the following situations: (1) rising interest rates that triggered significant increases in monthly carrying costs beyond the income capacity of the borrower (and this goes for the mortgage as well as credit card debt); (2) falling home prices that trigger similar problems or make refinancing out of the question; (3) increases in other costs such as gasoline, health insurance or home heating which force the borrower to make tough choices; (4) loss of job which, if the borrower is actually a couple who premised affordability on two incomes could mean unaffordability if either spouse loses a job; or, (5) illness that either puts the borrower out of work for too long or means a spike in uninsured or underinsured medical costs (which might arise if either the borrower or any other family member gets sick).
These are just some of the risks facing 42% of the borrowers who got exploding mortgages in 2005.
Executives in the mortgage industry who are quoted in the article, however, are not concerned. "It offers an opportunity," said Brad Brunts of CitiMortage, a Citigroup unit. According to Freddie Mac -- the giant mortgage packager that has been under a cloud for years for unethical practices -- the exploding mortgages offer a bonanza opportunity for Mr. Brunts and his professional colleagues to refinance existing mortgages -- to, in effect, wring yet more profits out of financial arrangements already unaffordable to borrowers.
Exploding mortgages were predatory by luring people into unaffordable situations. Now millions of families may lose their homes -- or be forced to drop critical expenditures such as medical or dental help or heating during winter. Millions of families. But it's not likely that many of them sit in the top 20% of society. Instead, the top 20% hold the paper - they are, directly or indirectly, the ones providing the capital and, because the top 20% hold more than 80% of the assets, we know that the capital markets in the US have huge capacity to ride out the difficulties through refinancing and streching out payments before declaring bad debt not to mention capacity to profitably write-off a lot of debt.
The current way markets work, then, favors the holders of capital at the expense of millions who cannot afford the exploding mortgates threatening their futures. One might, in theory, consider turning to courts for redress. But, such efforts to rectify predatory practices have fallen very short. Ameriquest, for example, suffered a mere few hundred bucks per bad mortgage in a settlement aimed at its unethical practices. Road kill.
So, if you're like Mr. Brunts, you look at the more than $1 trillion of likely business that will get re-financed over the next two years and see bonuses and commisions, not misery. In his lack of concern, Mr. Brunts is joined by the head of the National Association of Realtors - you know, the folks bringing you the recent wave of commercials about how comforting it is to have a broker you can trust.
As the Times article notes, "Mr. Brunts says only a minority of mortgage holders will face real problems."
Statistically, of course, 'minority' can mean any percentage less than 50. Linguistically - and culturally -- however, when a person says, "only a minorty....', the rest of us are supposed to hear: 'very minor problem that won't affect you."
In other words, 'tsk tsk... let's just move on'.
Posted by Doug Smith at 02:59 PM | PermalinkJune 18, 2006
Blind Ambition
Pharmaceutical companies invest a lot of money in the research and development of new drugs. That's true. And, it is also true that the past decade or so has seen a dramatic rise in the dollars they spend on marketing drugs, making small tweaks to existing drugs in order to extend their patents, contributing money to officials who have legislative oversight of patent laws, developing relationships with doctors who are in a position to review and promote drugs, and instituting legal action to protect patents and other measures needed to protect their drugs.
Unfortunately, Big Pharma too often also report money spent on these latter efforts as part of the 'investment needed for new drugs' -- thereby, overstating such investments. Meanwhile, company after company have also drunk deeply from the well of shareholder value extremism -- the ideology that dictates that the single, maniacal objective of all the people who work in these companies is the creation of shareholder value, mainly through making profits their singular obsession.
Do people who work in Big Pharma care about the health and well being of others? Yes, of course. Do those values hold equivalent concern and weight as the pursuit of profits and shareholder value? No. Not if we look to the actual behavior of Big Pharma companies -- of which, this latest effort from Genentech to block the use of one of it's existting drugs that can help prevent blindness by substituting that cure with one that is one hundred times higher in price in order to insure profits is but the latest example. One hundred times. Not ten times higher. One hundred.
One imagines there are debates among the thick we's who work at companies like Genentech. It's frankly unimaginabe that 100% of the executives and employees agree with the extortionate policy that seems to be emerging here.
Still, when every single one of those executives and employees sit down to dinner tonight, they will need to explain to their families and friends why, at Genentech, the pursuit of value trumps the pursuit of all values -- including but not limited to profits -- in how they -- the thick we of Genentech -- define and pursue their common good.
Posted by Doug Smith at 12:49 PM | PermalinkJune 05, 2006
Value Madness
The fixed and seemingly inviolate obsession with shareholder value might -- might -- now deny government agencies the information needed to prepare for hurricanes. Again, I say might. According to this article, a supercomputer's forecasting methodology created by government funded scientists at Florida State University (I repeat: State university - as in a government entity) has been licensed by that State university to a private company, Weather Predict. According to the licensing agreement, Florida State scientists are not permitted -- yet -- to provide forecasts to any agency without permission from Weather Predict.
The article points out that the supercomputer has among the best track records in accurately forecasting hurricanes.
The article also mentions that Weather Predict's CEO assures one and all that, of course, nothing will get in the way of helping out government agencies during the hurricane season; and, that his company is currently working on making sure such arrangements are in place.
So, let's recount:
Government money funds employees of a government institution (Florida State) to create a supercomputer that accurately forecasts hurricanes.
The institution sells this know how to a private sector company.
The private sector company now sits between the use of the computer and the well being of folks who live in the United States of America.
Those folks are citizens and taxpayers -- whose money funded the invention.
Weather Predict's CEO promises 'to work it all out".
One can imagine a State University licensing technology to the private sector - both to take advantage of it's own advancements as well as to encourage market-based uses of weather prediction. No problem.
But, it's absurd that the licensing agreement fails to limit the license itself to a range of uses that are free and clear of any need of the forecasts for the public good.
And, having failed at incorporating such language in the contract, it is absurd that the issue of protecting the public use of forecasts made by a supercomputer created out of public money is still up for negotiation.
Weather Predict is now endangering millions of lives as it tinkers with how best to make a profit.
This all might work out. Let us hope so. But it is absurd -- it is immoral -- that the situation even exists.
Posted by Doug Smith at 12:30 PM | PermalinkJune 04, 2006
Not One Ounce Of Prevention
Today's LA Times has a well written article about the shortage of doctors in the US, including succinct explanations of why the shortage has happened, some of the consequences we can expect and what it will take to remedy.
As I say, it is a well written and concise article. And, because of that, it illustrates a profound problem: The incredible difficulty folks have in thinking comprehensively and out-of-the-box.
Read the article and you will come away with this conclusion: Medical difficulties stemming from too few doctors are best and (only) cured through more doctors.
Quickly now: We need more doctors (and nurses and other health care providers).
But, the arithmetic in this is stultifying. It's all about solving problems of quantity with quantity. Not one word about 'thinking differently" about how to approach health care.
Not one word, for example, about what medical schools teach doctors about the challenges of health care in a world of markets, networks and organizations. For example: What about epidemiology, public health and prevention?
How can doctors, nurses and other health care providers change the ratio of inputs and resources from 'too heavily weighted toward curing those who are sick" to a better blend of 'prevention and cure'?
In a world of markets, productivity is critical to sustainability. Input/output relationships matter a lot. But if our public discourse is limited to arithmetic relationships -- that is, to increase outputs, limit your solutions to increasing the same amount of inputs -- we are left only with the same rate of productivity. Want more cures? Get more doctors!!
If we are to shift the ratio of productivity, we must find better uses and approaches to the inputs. And that means we should be focusing tremendous effort and creativity on what medical schools and others teach and think about prevention, early detection, low-tech interventions and an incredible variety of other means toward building a healthier society.
Posted by Doug Smith at 12:09 PM | PermalinkMay 28, 2006
Government Secrecy Gone Wild: The SEC
Among the most cherished and powerful market principles is the direct relationship between the free flow of information and market efficiency. In our networked economy, of course, this is even more pertinent. The more information that flows, the more powerfully and quickly the markets can adjust. If one or more organizations gain control over information flow, trouble follows (e.g. see today's earlier post of about the flow of information around the widely shared but false idea of 'authenticity' in our political markets).
Those who favor openness and free flow of information also believe the same is the best possible policy for countering the ill effects of dis-information. That is, when one 'let's it all flow" the odds improve that markets will more quickly and effectively adjust to bad or false information.
But, of course, those who currently rule instead of govern our nation have a strong, predictable set of beliefs and behaviours -- strong shared values -- that opt for secrecy over openness, and controlled/trumped up misinformation over the free flow of information.
It now looks like their diseased values have spread to the SEC.
Earlier this week, a jury returned guilty verdicts against two of the architects of the Enron scandals. In a subsequent letter, Chris Cox, the current head of the SEC congratulated the agency for their hard work and persistence in helping with the prosecution. Too bad that Cox's new secrecy policy at the SEC -- the policy of nondisclosure by that federal agency most iconically associated with the idea of disclosure -- is but one more brick in a growing wall separating our government from competence and sanity.
Have Chris Cox and his lawyers lost their minds? The basic point of disclosure laws and practices is to help the markets react and adjust as quickly and as efficiently as possible to 'news' -- especially news of possible wrongdoing. Had Cox's wrong-end-of-the-telescope policy been in place in late 2001, the SEC would have blocked -- not disclosed -- information about the Enron investigations Cox now so proudly celebrates -- and, in doing so, would have left tens of thousands of investors in the dark about what was emerging as a major scandal.
Yes. That's right. The financial markets would not have been given the earliest possible moment to begin adjusting for the Enron malfeasance -- and those same tens of thousands of investors would have held on longer -- only to have been burned worse before the word came out.
Your job Chris is to help faciliate large, effective, and efficient capital markets. That's job No. 1.
Your job is not primarily to 'get scalps', build your resume of successful prosecutions, and along the way harm investors.
Start doing your job.
Posted by Doug Smith at 04:25 PM | PermalinkMay 19, 2006
Exploding Mortgages, III
Recently, the National Association of Realtors has run a series of TV ads promoting their brokers' ethics. The ads portray a series of sociodemographically diverse folks giving heart felt testimonials describing how lucky and fortunate and, well, down right life saving was the help and assistance they received from their real estate brokers whose -- well, golly, -- whose ethics saved the homeowners from any number of traps, illusions and pitfalls.
The brand promise here, of course, bears only a random relationship to the brand delivery, at least as experienced by millions of folks who now have exploding mortgages and homes they cannot and never could afford. Are there ethical real estate brokers to be found in the United States? Of course there are. But, have this nation's housing markets experienced the depradations of 'make a buck for me' real estate brokers, mortgage borkers, housing developers, predatory lenders and -- even so-called non-profit financial counselors?
Yes. For example, see this, this and this. And, for the latest update see this.
Beyond the contexts of friends and family, we live our lives in markets, networks and organizations. The organizations in those markets -- like the National Association of Realtors, the local realtor down the block, the bank, the mortgage company, the credit card company, the US Congress (see Bankruptcy Act), Fannie Mae, Freddie Mac, Citigroup, Ameriquest and on and on and on and on -- choose how to position what they really stand for in terms of brand promise as well as the extent to which the products and services they deliver match those promises.
That our life experiences with the gap between brand promise and brand delivery have taught us to be skeptical is not a surprise. Some exaggeration is a built-in corollary of the constraints posed by 30 second ads, billboards and banners. Of course there is exaggeration because companies must choose what to emphasize.
But, exaggeration need not be immoral, unethical and damaging to others. Exaggeration -- even the need to competitively exaggerate in markets -- need not be a mandated corollary of societal suicide.
The horse of unethical, sharp practices has long since left the barn of the last half decade in the housing markets. Tens of millions of folks -- of families with children, of the elderly, of young individuals and couples struggling to live what used to pass in reality not just commercials as the American Dream -- confront serious housing affordability problems -- and far too many realtors who are members of the National Association of Realtors responded to the real, human needs of these people by pushing them into higher priced homes with exploding mortgages so that the realtors could make more and higher commisions. Me. Not both me and we.
It's a sickness. A sickness infecting souls that have lost the capacity to blend concern for money and profits with concern for other values -- and to do so in real time, not hindsight; in today's real estate transaction, not on TV in some commercial.
Hey, the pursuit of profits in markets has showered humanity with untold benefits. Let us rightly celebrate the power of markets to make lives better. But, let's stop killing the life enhancing, life giving power of markets by deluding ourselves that self-interest starts and stops with profits. It does not. Adam Smith's famous butcher, baker and candlesttick maker were also interested in -- and guided by -- the values they shared with other folks with whom they were fated to live their lives. Were there butchers who sold rotten meat? Yes. But, did a majority, even a plurality, of butchers as a matter of policy and routine harm their customers -- their neighbors -- by selling hurtful products at unaffordable prices? No. And there's nothing in The Wealth of Nations -- or any economic theory or practice since then -- that suggests this is a desirable characteristic if it dominates and dictates the course and conduct of commerce. This sort of unethical conduct is meant to be a regrettable, if predictable, by product. An exception. Not the rule.
Over the past five to ten years, sharp practices in the over heated housing markets, though, have become more than exceptions. And, no amount of after-the-fact horse pucky from the National Association of Realtors waxing on about the wonderfulness of their members can hide the consequences of financial rape perpetrated by realtors who, in turn, have been abetted by other 'thick we's' known as financial service institutions, law firms, Congress, housing devleopers and so on.
The widespread habit of showing up to work from 9-to-5 and allowing our legitimate concern for value to trump our equally legitmate concern for other values (e.g. shared prosperity, family, liberty and justice for all) has infected not only the body economic -- but also the body politic. It must stop. Not by turning our backs on profits, money, wealth building and winning. But, rather, by each and every one of our thick we's -- especially the thick we's of organizations where we work -- asking and answering how the organization's particular vision, strategy and common good contributes to the greater good of our society and our planet. And, then translating the answers into performance -- into a blended, ethical scorecard that converts promise into results.
Yes, we must turn away from those, like Grover Norquist, Karl Rove and their cabal, who -- in their own maniacal pursuit of winning and value -- have fostered a popular culture that hates government and, thereby puts folks in charge of governmental organizations -- governmental thick we's -- who, it logically follows, cause those thick we's to be self-hating.
We must restore a proper and legitimate role for governmental thick we's. And that means we must learn all over again that there are situations and contexts in which government regulation -- yes regulation -- is proper and needed.
But, in a world of markets, networks, organizations, friends and families, law and regulation are necessary but not sufficient. We cannot foster a safe, sane and sustainable planet for our children and their children if we don't take shared responsibility for doing so. And, yes, that means acting individually as friends, family members, customers and investors in ways that account for more than 'me'. But, again, such is necessary, not sufficient.
The critical crucible in our new world in which we can and must take shared responsibility is the organization. Unless and until we act there to ensure a sustainable blend of value and values -- unless and until we act to ensure that our brand promise as well as our brand delivery -- honor all that is right and just including but not limited to profits, we will continue to march in darkness toward the precipice.
And, our shame will mount and we will occasionally be so shocked when we look back over our shoulders at the wreckage of human lives in our wake that, in mock preservation of our souls, we'll hire writers, directors, camera folks and actors to create the image of what can only be best described as nostalgia for our better selves.
The time has arrived for before-the-fact vision, strategies, products and services that blend all values.
And those who must -- indeed, the only ones who can -- make this happen are ourselves in our shared roles as employees and executives in the thick we's we call companies, agencies, firms and organizations that have the whip hand of the planet.
If you think for one second that what you and your colleagues at work do is "just business", then you are continuing to sleep walk toward the destruction of the planet by missing the opportunity every single day of your working lives to make a difference with others by creating and implementing businesses that are just.
And, you can start today.
May 13, 2006
Letter To Billmon About Leviathan
Dear Billmon,
Thank you for Leviathan. The picture painted of an already-happening police state is a dark one -- yet one I fear millions of us might sleep walk to and through unless we wake up to the new realities and responsibilities of living in the world of markets, networks, organizations, friends and families described in On Value and Values: Thinking Differently About We In An Age Of Me.
We can save our nation and the world from the nightmare of Leviathan. But, first, we need to identify who 'we' are -- or, rather, when we are a 'thick we' versus a 'thin we'. The fate of our nation lies with choices made by 'thick we's' as well as 'thin we's". But right now, the choices discussed in popular culture's democracy topic lie mainly with the 'thin we's' -- the we's such as NASCAR dads et al shaped by common interests expressed in markets as opposed to thick we's shaped by actual shared fates and shared purposes for which those in the 'thick we' must hold themselves mutually accountable for implementation. "Thin we's" elect folks (e.g. Bush v. Kerry); 'thin we's' consume things (e.g. hybrids v. Hummers); 'thin we's' -- in roles as consumers and voters and investors -- are courted by thick we's competing in markets and networks.
'Thin we's' matter -- a lot. We cannot shift and evolve without shifts and evolution in thin we's. But, thin we's are not in some sense real we's. Unlike organizations, friends and families, thin we's are more like collectivities of me's. Thin we's never hold themselves accountable as we's for choices. Rather, and this is key, thin we's look to thick we's -- to organizations -- to implement the choices for them and to deal with the consequences of those choices. Thin we's elect officials; thin we's buy cars or computers or cereal; thin we's invest in companies. But it's thick we's who must implement the full range of implications of those choices.
Today, our most powerful thick we's are organizations, not towns or neighborhoods. That is different from the time of Hobbes, from the time of Jefferson.... indeed, from the time of Eisenhower when he warned of the military-industrial complex -- when he foreshadowed a powerful and scary upshot of the transition from a world of place-based thick we's (towns, neighborhoods) to organization-based thick we's in a world of markets, networks, organizations, friends and families.
Even Ike could not have had more than a foreshadowing about what happens when networks are thrown into the mix with markets and organizations -- when the strategies of organizations seeking to grow/thrive in the context of markets (including, what Schumpeter described as our political markets) get wired up in networks. Perhaps, the picture you paint in Leviathan would not have surprised Ike -- but he would not have conceived that the reality might have happened in quite this way or with what a friend describes as quite this 'gradual suddenness'.
Today, the most powerful and dangerous thick we's in our nation -- those private sector corporations led by shareholder value fundamentalists, government organizations led by Bush Administration power fundamentalists, and those fundamentalist Christian churches being led by satanists instead of Christians -- are indeed making choices that can lead to the Leviathan nightmare. But, note that such choices are being made far more hierarchically then democratically within the thick we's themselves. The choices jeopardizing our society are coming from the top of such thick we's and they are being made in secret.
That, however, is neither fated nor required by how organizations should or must work. All organizations -- just like all societies -- even Hobbesian ones -- blend hierarchy and democracy. Always. Hobbes' blend was 99.9 parts hierarchy and .1 democracy. But, let's remember that even the fearful Hobbes permitted people to undo the government through revolt.
If you look at choices that matter where you work -- where ever that may be -- the blend is not 99.9 hieararchy to .1 democracy. It may, in your view balance more toward hierarchy. However, having advised/consulted to hundreds of organizations in close to fifty different industries over more than a quarter of century, I observe that the blend has shifted toward more democracy. The challenges of competition demand it. Indeed, the challenges of implementation and performance demand it.
One of the great failures of the Bush Administration comes from the shared beliefs and behaviors of Bush, Rumsfeld, Cheney and others who simply and stunningly have not had executive experience in this new world where organizations cannot succeed with 99H/1D approaches. While I personally believe far too many critical choices in organizations are still made far too hierarchically and secretly, I cannot from personal experience or observation point to a single top management group of a successful company on the planet who continue to use 1970s H/D mixes to meet the needs of 21st century performance. Not one. Instead, what I read/observe daily about the Bush administration and, consequently, what we all read daily about the trail of failure and incompetence that follows in the wake of their outdated 99H/1D bet on hierarchy. (Indeed, I believe we can bet that the only effective part of the Bush Administration -- the part run by Rove for the past many years -- uses a different blend of H and D. Why? Because that Rovian part is focused on actually solving real problems against which they have to hold themselves accountable for actual -- not made-up -- performance.)
The shift in corporations, non-profits and the hinterlands of government enterprises not yet infected with the Bush approach has not gone to .1 H/99.9D. I'm not saying that. Nor do I believe such an extreme imbalance in the direction of democracy is more promising than Hobbes. Not even the Athenians had 99.9D/.1H. But, the shift is on -- especially with regard to issues such as quality, customer orientation, front-line problem solving and so forth. What has not happened, however, is a shift toward a more blended approach on issues that cut to the heart of what a corporation stands for and how the vision/mission/strategy of the corporation -- the common good of that particular thick we - contributes to the greater good of the planet. There we continue to see hierarchy and secrecy -- we see after the fact attempts at 'buy in' instead of before the fact inclusiveness and shared problem solving. One can be dead certain, for example, that the phone companies did not widely discuss and debate within their respective thick we's the choice about whether to hand over the phone records to NSA. (And, no surprise, we may now see that those executives have condemned their employees, their investors and their customers in ways that a more open, better blended democratic and hierarchical process would have avoided.)
You rightly worry in Leviathan about the profound effects of habits formed in organizations where, in our roles as executives and employees, we make assumptions about the values and purposes associated with nanny networks, security cameras, political speech and so forth. OnVVS points out that our most predictable beliefs and behaviors (which I equate with our actual values as opposed to just abstract ones) derive from a blend of relationships, roles and ideas. All these sources of shared values most powerfully reinforce each other when we are part of a thick we who share meaningful parts of fates and purposes together -- friends and family to be sure -- but, in our 21st century, the context beyond friend and family most present in our lives is that of organization.
Organizations -- again, not limited to work organizations and not limited to private sector either -- are where we interact persistently with other folks beyond friends and family. The habits of belief and behavior we form in organizations are reinforced by relationships there, roles there (e.g. boss/subordinate; marketing v. engineering; team problem solving vs boss/subordinate problem solving) and ideas there (vision, mission, strategy, brand... things like 'shareholder value' and 'the customer is always right' .... indeed, the entire concept of 'corporate values'). What you note as your greatest worry -- point five in Leviathan at the bottom of the section 'Mining Disaster' about the replication of behavior and values found in corporate America -- is one of the core pivot points and generative experience bases in our lives in markets, networks, organizations, friends and families. DeTocqueville reported on the power and potential of replication of behavior and values found in small towns. OnVVs argues that, for tens upon tens of millions of us, small towns are not our thick we's. Organizations are. And, only when we learn to take responsibility together for the choices of our organizations and how those choices contribute to the greater good, will we move and evolve forward. Only then will we revitalize how best to use the inheritance and legacy of the Founders in our dramatically differently structured lives and world. Only then will we migrate and revitalize our democracy where we actually live together with other folks (organizations) instead of only where we make consumption choices (markets).
Yes, we might stumble forward. We might continue our deep seated beliefs and behaviors that have us act as if what happens at work is 'only business' and that somehow we can offset the consequences we cause in pursuit of profits and shareholder value as the obsessive, singular trump card concern by somehow acting righteously as consumers or investors .... that we can somehow in our individual roles oppose our actions as 'me's' and thin we's in ways that effectively counter the unbelievably stronger array of resources and power of our thick we's.
But, we cannot leave a safe, sane and sustainable planet for our kids and their kids if we continue to travel down this path and confuse the pursuit of happiness with the pursuit of value over values. We cannot solve the problems of, say, rampant obesity, unaffordable housing, predatory lending, gasoline/oil addictions, environmental depredation, the attack on science -- or government spying -- unless we take a stand inside the organizations where we work that have something to say and do on these matters.
Nor can we sustainably respond to these challenges if we abandon value. Value matters. But, until our brands, strategies, missions, products and services bake equivalent concern for all values, including value, into the common good of our thick we's, we will continue to walk the dark path forward. If we fail to take responsibility for the thick we's in our lives and mindlessly perpetuate allowing secretive, overly hierarchical approaches to reinforce a path we seemingly are on today, then surely the Leviathan follows.
But there's nothing written by Hobbes or anyone else for that matter that says or mandates, "This must be so."
We can act differently. We must. As Gandhi said, 'We must be the change we wish to bring about." In part, that means let's do what we can as "me's" and "thin we's" to elect a president -- and a Senator and a Congressperson and a Governor and a state, county or local legislator -- who have the vision and courage to see this new world we live in and lead us to a more promising future for our children and grandchildren. But, as per Gandhi, we cannot hope to find that path through merely replacing Bush and friends with different and competent leaders who, while benevolent, continue to bet on unsustainable blends of hierarchy and democracy -- or on a concern for value that remains dis-integrated from a concern for values. I can imagine a president who is the leader needed. When I do, I also imagine that she or he reminds us that we are responsible for the future of this planet -- and that our responsibility exists both in choices we make as consumers, voters, investors and other "me or I" roles -- but, especially in and as part of our thick we's. For it's in those we's that the resources, knowledge, information and motivation is most powerful. A president or any leader can show us this path forward. But, we -- as thick we's -- must walk it -- must make and implement and take full responsibility for choices together. It is in our real, every day thick we's -- the thick we's of where we work, learn, play and pray - that we face the choices that will determine the fate of the planet.
And, it's there we can turn things around. The thick we's of auto companies can drop Hummers in favor of hybrids -- if they have the courage to blend concern for value with concern for values. The thick we's of food companies can reverse how their products and advertising and marketing contribute to obesity and other eating disorders. The thick we's of Homeland Security, the FBI, the IRS and others can stand up and say, "Our job is to govern, not to rule with the iron grip demanded to reelect Bush and the ideologues of Bush forever more."
All this is possible -- if thick we's learn and even demand healthier blends of hierarchy and democracy in how they govern themselves.
But, that is most likely to happen when we learn first to 'think differently about we' and about our responsibility to blend our legitimate concern for value with our equally legitimate concern for values.
Posted by Doug Smith at 04:36 PM | PermalinkApril 18, 2006
Health Care and Ideology
Part of our cultural orthodoxy hates government and loves the market. It typifies the all-or-nothing, either/or-ism of our times. For the Republican Right Wing, this means: Thumbs up to markets; thumbs down to government. (It only means that in their advertising. In real life, the Republican Government of Bush and pals have piled up the largest government spending and deficits ever. And, they happily savage the rule of law in favor of a government that knows no bounds.)
But, in the orthodoxy, the talking points and the assumptions always begin with market idolatry and government-bashing. We will not find a path out of this darkness without adopting a both/and view -- without seeing when and why markets work best and when and why governments work best and, most importantly, how markets and governments can collaborate to achieve optimal and sustainable solutions.
Health care provides a prime exhibit for our 'head in the sands, either/or' approach. Today, health care . Like so much else in contemporary life, health care is increasingly a haves vs. have nots affair. Those who can afford insurance and those who qualify for government help versus those who fall out of both buckets.
Chaos reigns. But, instead of sincerely tackling this grave and complex challenge, those who claim to be leaders instead demagogue about markets vs. government. Unfortunately for the orthodoxy, however, the private markets idolators are increasingly pushing a fiction. Consider only this: Overhead and other costs not spent on direct care account for 13% of the expenses of private sector insurers and only 2% for Medicare. Government is over 600% more efficient and effective than markets!
Why? Well, one reason has to do with the ideology of shareholder value fundamentalism. Instead of seeking sustainable returns that benefit shareholders, customers and employees in some reasonably blended fashion, the shareholder value radicals pursue profits and only profits in order to satisfy expectations of financial markets that, not coincidentally, they themselves shape. It's a self-fulfilling prophecy of doom: we must have more profits because the financial markets -- that is, ourselves, say we must have more profits.
So, how does a private insurer insure steady and growing profits in health insurance? Well, by combining steady increases in premiums with steady increases in costs used to screen out unhealthy people as well as fight off claims from all people. Why do private sector health insurers spend 13% of their budgets on things that don't make us healthier? Because private health insurers are more in the business of making profits than the business of insuring people.
Medicare doesn't have this motivation. And, under the assault of the 'we hate goverment' crowd, Medicare has had decades of pressure to reduce any costs that cannot be linked to direct benefits. Which -- in the both/and spirit -- is both a good thing -- and also a bad thing in that such pressures have probably also led to reducing coverage that might be needed.
In any event, the orthodoxy celebrates markets for their efficiency -- yet also fuels the capital markets ideology of shareholder value fundamentalism that, in turn, drives up administrative costs of private insurers more bent on financial results than insurance results.
But, there's more. Our capital markets also support the market for corporate control. One way of gaining more leverage over the bottom line is through market consolidation. Healthy market competition disappears when markets are so concentrated that either monopoly or oligopoly power sits in the hands of too few. Which, of course, is just what has happened among .
And so how are you feeling right now? Have you been reading along and thinking to yourself, 'this is a severe criticism of markets and celebration of government?" I hope not. I'm not contending that either markets or governments are the single answer. Instead, I'm suggesting that our nation faces a health care crisis of great complexity. We can solve it. But, to do so, we must understand and deploy markets when they work best and government solutions when they work best. None of which will happen so long as the conversation remains one of our typical screaming matches.
Posted by Doug Smith at 03:44 PM | PermalinkApril 17, 2006
Principle of Disagreement
Edward Rothstein of the The NY Times has a wonderful summary and set of reflections about a recent Yale conference on strong leadership versus the popular will. Here's my letter to him:
Dear Mr. Rothstein,
Thank you for the excellent report from the recent Yale conference about leadership and democracy. There is a strand -- a view -- that may not have been fully revealed at the conference; namely, that all human societies find some blend of hierarchy and democracy in how they govern or manage themselves. Sometimes that blend balances toward one or the other -- but there's always both at work. The discussion about strong leadership - about lions and eagles -- sounds like it reflected the uses of hierarchy which, as your fine article pointed out, might be 'good' or 'bad' -- the same as democracy.
Perhaps most critical, though, is your point near the bottom about the principle of disagreement. Think of this in terms of beliefs, behaviors, and attitude -- and ask yourself, from what sources do those beliefs, behaviors and attitudes spring so that they become a predictable set of values? How does it happen that a principle of disagreement exists in real life, not just in democractic/hierarchical theory?
(And, quick note: hierarchy itself cannot work well in the absence of some 'principle of disagreement'. See, for example, the recent Time magazine piece by the retired general who points out that officers owe their duty to the Constitution. In other words, even within the hierarchy of the military, there is a source for legitimate disagreement.)
There are a variety of well established sources for what makes human belief and behavior predictable -- that is, how it might happen that a principle of disagreement becomes habit. In addition to genetics (e.g. evolutionary psychology), human relationships, shared roles and status and shared ideas all shape values.
Those who attended the conference, like your readers, cannot answer your profound questions about the principle of disagreement and virtue without taking a deep breath and 'seeing' that these sources of shared values have radically altered as a result of how we live our lives today (versus how the folks who were discussed -- Lincoln, Hitler, and so forth -- lived theirs).
They -- and importantly those who followed their leads -- lived out lives mostly in contexts of place: of neighborhood and town and among friends and family so determined. Not all. Not 100%. But mostly. And, the values they predictably shared (e.g. a principle of disgreement; the blend of hierarchy and democracy in problem-solving and government) happened as a consequence of the human relationships, roles, status and ideas they shared because of place. In this sense, place operated like a forge whose heat forced folks to share values so that they could co-exist and achieve what mattered to them.
We don't. We live in markets, networks, organizations, friends and family. Our shared values derive from relationships that happen in these contexts (e.g. the folks we interact with at work often shape our values more than neighbors whose names we might not even know), from the strong shared roles of customer, employee and investor, and from ideas that spread because of markets and networks. For example, unlike our ancestors whose place-based ignorance stemmed from an absence of new ideas, our ignorance comes from too many ideas and the lack of information about which are accurate and useful (see, e.g., the widely shared idea of 'WMD' a few years back - the use of a powerful idea in our new contexts of markets and networks by leaders more bent on hierarchy than democracy -- importantly, even within their own organizations, let alone the nation.).
One of the predictable patterns of belief, behavior and attitude in our new world of markets, etc. is 'either/or-ism': the all-or-nothing, on-off, 'red' versus 'blue' pattern that so quickly turns any interesting question into declarations instead of real debates. This is not a healthy sign for any real principle of disagreement.
And, yet, if we examine our life in organizations, we find that the blend of hierarchy and democracy quite often offers a healthier support for the principle of disagreement than our life in markets. Markets aren't very promising contexts in which to disagree in constructive ways. We make choices in markets (Pepsi v. Coke; Republican v. Democrat; and so forth). But, even when we vociferously support our choices, we are not engaged in either real debate or real dissent. We are more likely acting out our role as consumers (or investors) in an unbelievable large context (markets) where our voices aren't actually heard in the manner of dissent or problem solving about truly shared purposes so much as feedback to those selling us ideas and products.
This behavior in markets is useful. It does provide feedback. But we should not confuse it with the principle of disagreement in the context of family, among friends or in organizations. It is in those contexts where our roles, relationships and ideas must blend to help us make choices that actually go beyond consumption to some form of the 'common good' -- that is, toward the identification and implementation of shared purposes that matter to our lives together with other people we actually know and care about.
This is why the blend of hierarchy and democracy -- and the presence or absence of leaders who interact with followers in testing the limits of both -- matters much more in organizations than markets.
When I look at organizations that are even reasonably succeeding in today's chaotic world, I tend to see a principle of disagreement that is healthy and predictable. When I look at organizations that are failing (e.g. the Bush White House), I do not see this.
Your excellent article is profoundly important in it's note about the essential nature of a principle of disagreement. Now, let's hope that more and more of our colleagues and others will start connecting the dots of where, why and how such a principle thrives versus does not -- and why it matters to the safety, sanity and sustainability of the planet.
Posted by Doug Smith at 02:24 PM | PermalinkApril 13, 2006
The Dangerous Union
Today's most dangerous union has no meeting or hiring hall, no dues, no plans for strikes and no formal organization or name. There are no workers in this union. There are folks who work. But neither their self image nor the image of them held by others would translate through the word 'workers'.
Today's most dangerous union is small relative to population as a whole. Only one in ten families have full-fledged membership -- although another ten to fifteen percent of families hope that one day they'll gain admission.
Today's most dangerous union embraces all faiths, ethnic groups, genders and sexual orientations. It welcomes those who detest as well as love their fellow human beings, those who are hard headed and hard hearted as well as softies.
Today's most dangerous union dominates every industry and sector. They rule and control markets and governments. They need not issue threats or decrees or five year plans. Their shared ideas and shared values are as predictable as night following day. They are the orthodoxy of our times.
Today's most dangerous union includes folks from all walks of life, all kind of jobs and titles, all manner of hobbies and skills and predilections.
Today's most dangerous union has all manner of diversity and, at the same time, one unyielding answer to all of life's most pressing questions: Shareholder value fundamentalism.
The single answer now destroying our nation and our planet -- not to mention sustainable shareholder value itself.
Posted by Doug Smith at 04:27 PM | PermalinkApril 09, 2006
The Shared Idea Of Transparency
All values, including financial and economic value, reflect patterns of belief and behavior. Think, for example, about pricing. Yes, pricing derives from some balancing of costs incurred, competition and some sense of what the item in question is worth to those who might buy it. All three, though: cost, competition, worth to the customer --- mirror belief and behavior, both rational and irrational.
So, what makes for predictable patterns of belief and behavior? Some of this is found in our DNA. In addition, though, we learn or pattern our belief and behavior through how each of us individually respond to what happens in our relationships with others, the roles we play in our lives (e.g. employee or parent), and in the ideas we absorb and act on. My guess, for example, is that the other day when audience members booed a man who told President Bush he was ashamed of Bush and Bush's policies, those audience members responded through some mix of shared ideas having to do with respect for the office of president -- as well as the ideas that undoubtedly helped select them for audience participation -- that is, the ideas the Bush Administration has used for more than five years to ensure that the president only speaks to supporters so that the television images portray unified enthusiasm.
The shared idea of Truth -- with a capital T -- has done much damage the American body politic ever since the Republican Party embraced Truth Seekers in it's big tent. Like most aspects of contemporary Republicanism, this has gone from bad to worse during the Bush years. Bush himself is said to have the 'black vs. white' world view of many recovering alcoholics -- the predictable belief and behavior to cast all issues and questions and policy choices in stark contrasts. That, of course, fits the shared idea of Truth strongly held by Truth Seekers. And, it means that Truth Seekers will vote disproportionately for a Truth Seeking Republican Party.
It also means that folks angered or dispirited by the the dangerous and already incurred consequences of a government of Truth Seekers (e.g. preemptive wars, the Unitary Executive, Terry Schiavo.... the Rule of Truth instead of the Rule of Law) pattern their belief and behavior around being anti-Truth Seekers. The stark contrasts becomes us v. them. And so, our nation's culture wars slip into a Cold Civil War.
Finding our way out from this suicidal pattern will rest on many things, including luck. But one sure part of any sane path forward will be to drop the shared idea of Truth in favor of shared ideas of accuracy and transparency. Enough with whether every single thing said or done is the Truth. How about putting serious resources behind making sure folks know whether X or Y or Z is accurately described and are transparent.
Consider, say, the federal budget. Is it transparent? No. The full cost of the Bush wars are not included in the budget. Tens of billions are provided under additional appropriations. How about the number of troops and other personnel in Iraq? Not transparent. Tens of thousands of defense contractors have folks in Iraq. They are not counted. Neither of these are about the Truth. As Joe Friday said on Dragnet: "Just the facts, maam."
How about executive compensation? Is it transparent? No. How about net pension liabilities? No. How about unemployment figures? No. How about poverty? No. How about the information we need to judge the future of Social Security? No. Do we get to see and read legislation in any kind of remotely reasonable time frame before it is voted on by legislative bodies? No.
Do our elected representatives even get to see such legislation? No. It is now standard practice for the ruling party to schedule votes past midnight while actually making the legislation -- often hundreds, even thousand of pages -- available for perusal only hours before the vote. This, for example, was what happened with the disastrous prescription drug law.
Speaking of which. Were the projected costs of that law accurate or transparent? No. And the Bush official who hoped to fix that got fired.
Why? Why the lack of dedication to accuracy and transparency?
Because our popular culture has a much stronger, more predictable set of beliefs and behaviors dedicated to the shared idea of Truth and Truth Seeking.
And, it is destroying us.
Posted by Doug Smith at 12:33 PM | PermalinkApril 04, 2006
Blended Values Strategies in Food
Shareholder value fundamentalists maintain that a maniacal focus on profits is and should be the central focus of all private sector enterprise. Their credo trumps all questions of family, social, political, environmental, technological, medical, legal and other issues of values with the single question: will it promote or detract from financial/economic value?
Theirs is a fundamentalism every bit as destructive of the planet as any religious or other form of 'single answer' ideology.
Not only does this extremisim hollow out and threaten the sustainability of humane society, it also inevitably undercuts shareholder value itself. Only blended values strategies can save shareholder value from these extremists -- whose ideology, unfortunately, pervades executive suites and boardrooms across the globe.
The absurdity of shareholder value fundamentalism is well captured in this item from the BBC. Here's the sub-headline: "Many of the world's 25 biggest food firms only pay lip service to their duty to help fight the global diet crisis, a report on the issue says."
Obesity and other eating disorders are at crisis proportions in many areas and among many groups. Ought food companies care about the health of customers? All of us -- and them -- would quickly agree that food companies ought not put poison in their product. But in our shareholder value fundamentalist culture, the only thing food companies ought not do is 'break a law' (and, it's fair to report that even then, the too often ruling ethic is 'don't get caught breaking a law'). Anything goes so long as it adds to the bottom line.
All private sector enterprises must have a positive bottom line. All private sector enterprises MUST generate returns for those who provide capital. Shareholder value is essential. But shareholder value fundamentalism is a sociopathic ideology that ought not be confused with the necessary idea that return on capital provided is critical.
Laws prohibit poison in food. But only ethics embraced by executives and employees of food companies -- that are strong, predictable shared values about 'how we do things around here' -- can ever turn around this situation where major food companies endanger the health of us and our children through 'poison by other means'.
If you work at a food company -- or if you know anyone who does -- ask yourself or them, "Is this what you stand for? Selling food that is unhealthy? Are those the predictable beliefs and behaviors -- shared values -- that you want your children to remember you stood for?"
Posted by Doug Smith at 02:15 PM | PermalinkMarch 27, 2006
Secretary Snow's Star System
As noted last week, Secretary of the Treasury John Snow is out on the circuit hawking his boss's wares. Just ask him and he'll pull open one side of his tailored overcoat and show just how great the economy is doing as a direct result of tax cuts, unprecedented spending and deficits, and federal subsidies-and-rule-making for oil and energy companies, pharmaceutical companies, defense contractors, financial service companies, communications and media companies -- pretty much any private sector company..... and, of course, nonprofit organizations that promote Christianity of the 'complete faith, no works' kind. You know, the kind with a litmus test of being reborn in biblical literalism while staying as far as possible from Christ's message of acts of forgiveness, tolerance and charity.
One of the latest steps taken by the Rebulican right wing employing Snow is to throw gasoline onto the already raging fire known as the pension fund crisis. Several decades ago, millions of workers in the U.S. depended on pensions that were funded by the companies for whom they worked. It was part of the 'deal'. In the bubble years, many companies' pensions soared because of the stock market -- and, a number of questionable practices sprung up like putting all of the pension assets in the company's own stock (violation of Rule #1 -- diversification -- that every single one of those pension managers would advise their parents and children to follow). With the growth-on-paper of pension assets, companies also got lazy about actually funding future pension liabilities with cash and other hard assets.
Then, the bubble burst. And, the Bush Administration came into office. By the middle of Bush's first term, nearly all private sector pensions were underfunded. That means, they did not have the assets to meet liabilities. The federal agency responsible for monitoring and serving as insurer -- the Pension Benefit Guaranty Corporation -- was also underfunded, especially after it got hit by the airline bankruptcies.
A competent group of federal officials from the executive, legislative and agency parts of the government would have looked at the balance sheets and taken steps to restore -- well -- balance. But the Bush Administration -- and their handmaidens and sponsors that rule the Republican Party -- have instead chosen the novel approach of inviting companies to decrease -- not increase -- how and if they fund pensions.
This is very good news for shareholders. At least in the short term. Of course, like all policies of shareholder value fundamentalism -- the ideology that makes "what does this do for next quarter's earnings?" the single test for every question, large and small -- this latest piece of incompetence will, soon enough, destroy shareholder value along with, of course, the security of tens of millions of workers who thought they could depend on funded pensions to see them through the years ahead.
It is a travesty of incompetence. Put ideals to one side. My father was a Republican. I learned from him the ideals -- the values -- of fiscal responsibility and of the responsibilities in a free market economy that must be exercised by owners. Those are values. Those are ideals. And, those are evidently now viewed by these Republican rulers -- well, to paraphrase what the Attorney General once said about the Geneva Conventions -- they are evidently 'quaint'.
It's not that Snow will be without a pitch. The ideology, we know and hear daily, is all about individualism and individual risk taking in free and open markets. Bracing stuff. Every single one of us is out there on our own to make or break it -- that's freedom. Stop the "Nanny State". Stop the "Nanny corporation." It's all about an ideological view of "me" and "I". The value of living in completely free and competitive markets and having the opportunity to make it on your own. That's what America is. Of course, we should permit corporations to stop funding pensions. If millions of individualists out there cut a deal with their employers that, in part, were based on pension expectations, then, well, then let's correct for those individuals' misunderstanding of what individualism and true freedom are all about. Let's set them free from the freedom-killing possibility that they might have income disconnected from any current labor. True freedom is the right to go out there, compete, and make money based on the labor you put in each day. Pensions? Sure, make that an investment choice for yourself. But, grow up and get free. Don't expect any free lunch from others who are working hard just to make it on their own. Really, a company should not even be allowed to promise future income streams for past work. It ought to be against the law if we want to have a competely free marketplance!
Unless, of course, the company is dealing with senior executives. Then the idea of providing future money -- in rather large amounts -- for past as opposed to current effort is an effective form of executive compensation in John Snow's star system.
The blend of arrogance and incompetence in folks like the affable John Snow leads, of course, to stories like this -- only one of zillions of similar stories that are part of our economy's -- of our society's -- overall narrative by and in which folks who do not do their jobs get million dollar send offs while folks who have and/or continue to do their jobs get stripped of financial security -- all in the name of 'shareholder value fundamentalism'.
In the slick Snow sales pitch, the stars in the star system take no individual risk on actually being paid for real performance yet get plenty of individual reward while the 'non-stars' risking their financial security every single day on performance receive little actual reward for their effort. No wonder 80% of the workforce still makes basically the same pay they did when Bush took office. And, job insecurity being what it has been, it's also no surprise that the average family income is less now than in January 2001. Meanwhile, with dramatic increases in consumer debt (both credit card and home equity related), American families face precarious financial futures. To all of which, we can now add increasingly value-less pension promises under the individual-risk-loving-for-all-individuals-except-CEOs policies, practices and, again, sheer incompetence of the Bush Administration.
Posted by Doug Smith at 01:00 PM | PermalinkMarch 24, 2006
Brand Is As Brand Does
Throughout history, human beings have deployed pattern recognition skills to 'read' situations and make choices. Our most distant ancestors read the signs in things ranging from scat to stars. We use brands. Unlike them, we live in markets, not wildernesses. We do not hunt. We shop. Like them, though, we must rely on the evidence before our eyes to make choices -- and core to many of these choices are brands.
Brands go far beyond mere logos. Brand communicates what a company promises -- what it stands for across a spectrum of values only one of which has to do with 'value for money'. Quality, speed, reliability, integrity, feature, function, customer orientation, how employees are treated, whether shareholders come first -- these are the more straight forward promises made by brands. In addition, though, are many subtler values: concern for family, political and ideological orientation, environmental, technological, legal, medical and other beliefs and behaviors are there to be read in brands, if we only ask ourselves to take a moment to ask.
Brands increasingly explain much of competitive success. In the overheated equity markets -- markets that routinely have earnings per share far exceeding historical averages -- some argue that brand accounts for more than half the value. Brand, like 'human capital', intellectual property, core competences and other key factors for success in our new world of markets, networks, organizations, friends and family is an intangible asset. It does not trace it's value to land or machinery or other hard assets one can touch, see, smell or taste.
Instead, brand is the upshot of three related human actions: promising, delivering and experiencing. Employees (a category that includes executives) promise and deliver. Customers (and investors who are not actively involved in companies) experience. Most of us have yet to catch up with the latter two of these activities: delivery and experience. Because we are bombarded with logos and symbols and promises, we tend too rarely to look beyond the promising to the delivery and experience.
That is, until the experience is entirely out of line with the promise. Then we connect the dots. If it's a negative experience (e.g. a salesperson whose pitch is complete hooey), our reaction could be just a shake of the head -- but it's a shake of the head that spells 'never again' for the company and it's employees. Or, we could go into a kind of rage and take steps to make that "never again" apply to as many of our friends as we can reach.
If the deviation is positive, the reverse is also true. Marketing gurus love this phenomenon. It's why 'delight the customer' is a widespread shared idea within marketing circles. Under promise and over deliver. Do that and your customers will be delighted in their experience of your brand. In turn, they will become loyal customers (the most profitable of all) and are also likely to 'spread the word'.
The middle verb in all this is: brand delivery. Organizations should be careful about what they choose to promise. But, promises, especially promises in our cluttered world of logos, advertising, PR, sales pitches, word of mouth and more -- while actually a complicated choice -- are the lesser of the two verbs within the direct control of employees and executives. Delivery against those promises is far more complicated because it demands the effort of an entire organization be seen and acted upon in a way that causes many people -- including, increasingly, people in organizations like distributors or retailer or others who are not part of the same organization -- to actually act in ways that are consistent with the promises. This demands careful and self-conscious coordination. It is one big reason, for example, that I strongly believe the 'division of labor' mantra about organizations is a fundamental misconception in our new world. Yes, organizations divide labor. But, the primary function of organizations is to integrate labor, not divide it.
Brand delivery is brutally difficult to get right. Among the many routine failures most of us experience often is the 'apology' from one part of an organization for the screw ups of another part. We get the wrong items in the mail, call customer service and are told, "I'm sorry" in a way that connotes "But I am not taking any responsibilty for their mistake." The 'their' refers to another employee or division or part of the same company. This admission immediately tells us the person on the phone fails to grasp this about his or her organization: it's a community he or she is a member of. It's a "we' of whom he or she is a part. It is not an "I" and a "they".
Recently, many media organizations have struggled with what their brands stand for in terms of promise and delivery of news. One that hasn't struggled is Fox News. The irony of their promise -- 'fair and balanced' -- is, of course, that all of us know the real promise is "actively promote the right wing dominance of the United States". And, they deliver consistently against that promise. We know their brand. And our experience rarely disappoints. We are not surprised to learn, for example, that Dick Cheney instructs his employees to make sure all TVs are tuned to Fox News whereever he stays. We are not surprised that when he chose to go on TV to explain how he came to shoot a friend in the face, he chose to do so on Fox.
Some folks, like Cheney, are loyal customers of Fox because of this consistency across brand promise, delivery and experience. Others detest Fox for the same set of reasons. Regardless of camp, though, it's important to understand that Fox does have a mission and strategy and brand that is clear -- and that, as an organization, they deliver an experience consistent with all that. Shared beliefs and behaviors at Fox -- shared values -- are highly predictable (regardless of whether any of us might also deem them good, bad or in between.)
By comparison, to take just one example, The Washington Post struggles. It is difficult for us to quickly and accurately describe the brand promise of the Post. And that makes it difficult for folks who work at the Post to clearly understand how they need to work together to deliver. Naturally, this leaves readers and others guessing about how their 'experiences' of the Post's brand match up with the intended brand promises.
Unlike with Fox, customers are confused. Among many implications, is this: individual customers are likely to 'impute' promises to the Post brand. For example, people who believe in a 'liberal media' look for any delivery of news by the Post to reinforce this belief -- reinforce how these customers define their experience of the Post's offerings. For such folks, the brouhaha over Daniel Froomkin's blog was a tautology: The Post is part of the liberal media. Froomkin is a liberal. The Post is biased toward liberals.
Others who lament a bygone day when the Post seemed to be an organization grounded in journalistic values dedicated to facts, openness, challenging those in power and so on, now look with equally juandiced eyes at any peccadillo by the Post that reinforces the company's fall from grace. The writings of Post employees are scrutinized for lack of perspective, lack of facts, lack of challenging power -- any indicia that point to a right wing drift and a loss of the journalistic soul.
These are the ends of the spectrum. But what of more moderate customers? How might they respond when, for example, the Post -- in the name of 'balance' -- hires a Bush political operative without any common journalistic credentials and a history of plagiarism to join the blogging at the Post's website?
What is the moderate customer's experience about the Post's brand in this action by the Post? Frustration, of course. It feels like being pushed to an either/or choice to align with one of the extreme groups. Red state. Blue state. Liberal media. Corporate media. Choices that are less about journalism than about propaganda.
Such are implications about our experience of the Post brand at the level of abstract ideals and ideas. Let's look for a moment, though, at more routine matters in our experience. A friend, upset by the Post's hiring of this political operative, wrote an email to the Post's ombudsperson, Deborah Howell.
Here is the response:
"Deborah Howell, ombudsman for The Washington Post asked me to pass this on
to you. The website, washingtonpost.com, hired blogger Ben Domenech. The Washington
Post did not hire him. The newspaper and the website are under different
management. If you wish to complain to the website, write to its editor, Jim Brady."
My friend, using the email given for Brady, sent the same letter of concern to Brady.
Here's the response:
"Deborah Howell, ombudsman for The Washington Post asked me to pass this on
to you. The website, washingtonpost.com, hired blogger Ben Domenech. The Washington
Post did not hire him. The newspaper and the website are under different
management. If you wish to complain to the website, write to its editor, Jim Brady."
(Yes. The exact same, automatic reply.)
What do you draw from this about the customer experience of the Post brand? About the clarity of the Post's brand promises? About the sense of "we" at the Post regarding what the company stands for? About the effectiveness with which employees in different parts of the company coordinate in ways that are consistent with their brand promises? About the values - the beliefs and behaviors -- regarding respect and concern for customers that guide the Post's brand promises and brand delivery?
Does this anecdote give you confidence that the Washington Post is on an effective path toward figuring out what the promises it wishes to make, how best to deliver them and what it wishes customers to experience when they choose the Post brand?
Posted by Doug Smith at 12:37 PM | Permalink | TrackBacks (1)March 22, 2006
Snow Job
Earlier this week, the Wall Street Journal reported that Treasury Secretary John Snow maintains the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more-productive people. For example, Snow said, "In an aggregate sense, it reflects the marginal productivity of CEOs. Do I trust the market for CEOs to work efficiently? Yes. Until we can find a better way to compensate CEOs, I'm going to trust the marketplace."
Recall for a moment that after Paul O'Neill resigned at the end of 2002, we learned that O'Neill had a habit irritating to the Bush Cabinet: he didn't always agree with the Party. Among other things, he was not a favorite on Wall Street because O'Neill worried that the reckless fiscal policies of the Bush Administration were, well, reckless. Tax cuts were favored on Wall Street. O'Neill wasn't.
Much was said at the time that the primary reason for selecting Snow as O'Neill's replacement reflected a strong belief that Snow could and would do a better job selling the Bush tax cuts.
O'Neill must have seen his job as that of a Secretary of the Treasury of The United States of America -- a job traditionally associated with leading the effort to tackle problems of significant economic consequence. Snow, we must surmise, sees his job as a salesperson.
Skilled sales folks understand that their job is to sell. The best among them focus on communicating effectively with those whom they are trying to sell and, in doing so, sticking to pitches that are grounded in something resembling the reality -- the actual feature, function and performance-- of what they are selling. Slick sales people succeed in selling us what we come to regret because the pitch is not grounded in any kind of reality. It turns out to be hooey.
(For the moment, please note that effective sales people whose pitches are linked to reality still might exaggerate and flatter and do all kind of things that help with their effectiveness. But what they sell us is not hooey.)
So, re-read Snow's sales pitch about CEO's and efficient markets and productivity in light of these additional perspectives:
Exhibit 1: The Growth of Executive Pay by Bebchuk and Grinstein: " This paper examines both empirically and theoretically the growth of U.S. executive pay during the period 1993-2003. During this period, pay has grown much beyond the increase that could be explained by changes in firm size, performance and industry classification. Had the relationship of compensation to size, performance and industry classification remained the same in 2003 as it was in 1993, mean compensation in 2003 would have been only about half of its actual size."
Exhibit 2: Stock Options: The Backdating Games: "Following a yearlong investigation, it appears the Securities and Exchange Commission is finally beginning to crack down on companies with questionable policies governing stock-option grants.... The commission apparently became interested in the topic when academic research showed that the share price of scores of companies dropped just prior to the granting of options. The research also indicated that — surprise, surprise — share prices often rose immediately after the pricing of options."
Exhibit 3: Privileged Class: " Part of the problem, experts say, is the way executive compensation packages are determined. At public companies, the board has a compensation committee, which often is composed of peer executives from other corporations. Those committees hire compensation consultants who study what similar companies pay their executives. The committee members and the consultant have an incentive to see compensation increase, experts say. "What goes around comes around and somebody in turn is going to take care of them," said David Theobald, chief executive of Netshare, a Novato, Calif.-based Web site for people who earn more than $100,000 a year. "It's a vicious circle. ... The consultant is always going to put his best foot forward and more often than not, he's going to make it seem like it's justified. It's absolutely absurd."
Exhibit 4: Berkshire Hathaway Chairman Warren Buffett Letter to Shareholders in current Annual Report: "Too often, executive compensation in the U.S. is ridiculously out of line with performance."
Does the market for CEO pay work efficiently? As Snow says, 'yes' -- if by efficiency we mean, from the perspective of CEOs, a very predictable annual pay raise that is quite handsome.
Does the CEO pay market work effectively? That is, does it reflect 'fair pay for fair performance'?
No. And anyone trying to sell you that is selling you hooey.
March 20, 2006
No Good Deed Goes Unpunished
Today's Slate asks, "Is Whole Foods Wholesome?" and follows up with this subtitle: "The Dark Secrets Of The Organic-Food Movement."
Here's what the article tells us about Whole Foods:
Pluses:
"There's plenty that's praiseworthy."
The chairman of the company is dedicated to proving business can be ethical, socially responsible and profitable. One way the company achieves this objective is through marketing organic food to better off folks and charging premium prices.
Whole Foods is dedicated to environmental sustainability.
Whole Foods pays employees living wages, provides good benefits and has a rule that the top executive cannot make more than 14 times the wages of front line workers (Note: The vast majority of companies pay top executives more than 300-to-1 -- and, thereby, reinforce and widen the already Grand Canyon gap separating the bottom 60 percent of households from the top 1%).
Whole Foods is purchasing wind energy.
Whole Foods provides information to customers inside the store with regard to energy cost savings of farming organically.
Whole Foods provides information to customers inside the store that says purchasing organic foods is supportive of small, family farms.
Through the growth of it's business (and related steps), Whole Foods and others have caused a growth in the number of large agribusinesses who now grow organic food. (Note: And, thereby, the share of organic versus non-organic food in the total market.)
Negatives:
During the summer season when locally grown tomatoes are availabe in New York, the Manhattan based Whole Food Stores sells organically grown tomatoes from Chile. The total energy costs of the Chile tomatoes during that season would be greater than the total energy costs from the New York area.
Whole Foods deals mostly with large agribusinesses that grow organic food. Whole Foods does not give the majority -- or even a large minority -- of it's business to small, family farms. Nonetheless, Whole Foods misleadingly places pictures of small, family farmers next to produce grown by larger, organic agribusinesses.
Whole Foods premium pricing puts organic food out of reach for many customers from lower economic brackets.
Following this last point, Slate points out that now Wal-Mart is considering getting into organic food -- a step that would increase the benefits of organic farming to many more people and the planet as a whole. That would be terrific. An innovation started at the 'high end' of the market makes it's way down and, thereby, increases the total 'share of market' for organic farming.
Now, if Wal-Mart would also mimic Whole Foods' policies on living wages, benefits and the ratio of top exectuive pay to front line worker pay, the vision of Whole Foods' chairman would have made an even bigger and positive difference to the world. What a great thing that would be!
And, not coincidentlly, Whole Foods should also revisit it's commitment to small, family farms and stop misleading consumers about the source of its produce. That, too, would be great!
Of course, the odds that the Slate article will induce either Wal-Mart or Whole Foods to take such steps is made smaller by the article itself. "Dark Secrets"? Not Wholesome? It's the kind of overheated, immature journalism that fails to enlighten while only retarding lofty aspirations more than advancing them. (Indeed, a friend who read the Slate piece emailed me that he was now quite worried about the integrity of Whole Foods -- probably just the kind of reaction that Slate hoped for. Namely, one that bred anxiety toward Whole Foods rather than anything remotely constructive in continuing the 'organic food movement.")
It also betrays some ignorance. Should Whole Foods take steps to work with local organic farmers in New York? Yes!! But, the author of the article seems wholly ignorant of the minimum demands of commercial relationships as well as 'apples to apples' accounting. To induce large (or small) farmers to switch to organic, Whole Foods must promise to purchase in volume. It cannot 'just show up' on various days in various parts of the year and say, "Hey if you have organic, I'd like to buy it from you!" Both buyer and seller must focus on the entire economic package -- and the larger the package -- the more comprehensive and continuous it is - the more likely each will commit to the necessary shifts required to move toward organic.
Cherry-picking a part of the year, as the author does in making the energy cost comparison of summer tomatoes from New Jersey versus summer tomatoes from Chile is, as the author likes to write, 'technically correct". Fine. But, perhaps it would have been more enlightening for the author to also share the 'full year' energy audit. That is, the energy costs for Chile tomatoes versus local only. A problem of course is that local New Jersey tomatoes are only availabe in summer -- unless grown in greenhouses -- and then, if greenhouse grown, the full energy audit would be higher.
Should Whole Foods find ways to support New Jersey small farmers and also tap into local, in season tomatoes? Yes! By all means. But the current facts as presented in this overheated piece from Slate are, well, overheated.
Dark secrets?
Hardly.
A more accurate title for the article might have been this: "Whole Foods Is Not Perfect."
And, the subtitle might have been: "One Store In Manhattan Has Misleading Posters."
Of course, the 'dark secret' of this kind of journalism is that such headlines don't attract many readers. Much better to have misleading headlines.
March 09, 2006
Knight-Ridder And Sustainable Strategy
Knight-Ridder and it's chain of newspaper and media businesses is up for sale. Here are three stories about the finalists in the bidding -- one story from Editor & Publisher, one from the NY Times, and one from the Minneapolis Star Tribune.
I recommend reading all three. Before you do, however, let's review some basics of business strategy and performance.
First, among the various strategic choices that businesses must make are those that determine what blend of cost versus customer value will sit beneath the strategy. Put in it's extreme, will the strategy be cost based? Or, grounded in the value delivered to customers? All businesses must deliver both of course: cost and value. But, often the blend tips in favor of one or the other. So, read about the three bidders for KR and reach your own conclusion about the degree to which the strategy of each will ground itself in cost versus value.
Second, it is commonly accepted that busineses have multiple stakeholders -- most particularly, customers, shareholders and employees. The best, most sustainable businesses balance and blend concern for each in the strategies pursued. Still, many businesses run on the extremist creed of shareholder value fundamentalism -- a creed that goes beyond a healthy concern for delivering shareholder value to an obsession about shareholders that crowds out concern for customers and employees.
Read the three articles. And reflect for yourself on the relative concern each bidder has for shareholders , employees and customers.
Posted by Doug Smith at 03:13 PM | PermalinkMarch 05, 2006
Did You Say Non-Profit Capitalists?
Yes.
And you can meet Pacific Community Ventures by visiting not only their website, but also the websites of dozens of businesses benefiting from PCV's investment, advice and other resources. PCV focuses on businesses that offer good wages and benefits plus skill and asset building to folks who live in low and moderate income parts of California. They sometimes invest -- and they always provide resources, including advisory help from seasoned business professionals seeking to make a difference. Perhaps most critically, PCV sets, evaluates and achieves impressive goals regarding both the financial and non-financial aspects of how their portfolio businesses -- including the employees of those businesses -- are doing.
PCV offers a wonderful example of using performance to drive change. And, as indicated by the title to this post, PCV demonstrates that, while profits -- or put more specifically, positive cash flow -- is essential to the life blood of any business, there is no requirement that all businesses be 'for profit'.
None. Hundreds of years of culture -- reinforced by our transition into a world of markets, networks, organizations, friends and families -- have embedded this orthodoxy: 'business = for profit'.
It is inaccurate. Business = sustainable cash flow? Yes.
But the choice about the form of any business -- for profit or not for profit -- is a separate matter. The businesses PCV invests in are for profit. For them, cash flow must cover the costs associated with each respective business's goals of delivering great products and services to customers and providing attractive wages, benefits, skills and opportunities to employees as well as generating profits for owners. For the entity PCV, on the other hand, there is no profit component to be covered by cash. This is the key distinction. PCV is non-profit. The businesses it supports are for profit. Both need sustainable cash flow. But, unlike the businesses it promotes for the good of low and moderate income areas, PCV does not require cash to fund profits for itself.
Most of us are familiar with non profit businesses that provide goods and services. Pacific Community Ventures is a business that connects the capital markets to the goods and services markets. PCV invests in for profit businesses that benefit folks in low and moderate income areas. It does so by providing for profit enterprises both money capital and human capital. PCV is impressively successful. And, by all indications, sustainable.
And it is a not for profit. It chooses to invest in for profit businesses. But PCV itself is a not for profit captialist.
Posted by Doug Smith at 12:58 PM | PermalinkMarch 03, 2006
Viral Bankruptcy Update
Dana Corp, the huge auto and truck part maker, has filed for Chapter 11 in the latest spread of the viral bankruptcy begun by Delphi last autumn.
Posted by Doug Smith at 04:57 PM | PermalinkMarch 02, 2006
Carnival Puts Profits First In Katrina Response
comes today that Jeb Bush helped Carnival Cruise Lines grab a lucrative contract to send three of its ships to New Orleans in the wake of Katrina. Carnival executive Ric Cooper has given tens of thousands of dollars to Jeb Bush's Florida Republicans and George W. Bush's GOP too. Jeb, of course, has high level access. He can, and did, email directly to Mike Brown of FEMA to seal the deal.
Corruption? Or, a corporation reaching out to help those in need in a crisis and a 'can do' Governor and FEMA director cutting through read tape?
Those are the red vs. blue political questions. Let's focus, though, on the first part of the second question: a corporation reaching out to help those in need.
Here's what a Carnival spokeswoman says about Carnival's civic spirit in a time of crisis: "The ships have played an effective and critical role in housing and feeding thousands of people who desparately needed help and we are extremely gratified to have been there for them."
My hunch is that this description is not far from accurate. People did need help. Those who work for Carnival must feel good about having provided it.
So, is this a case of a corporation putting the needs of the nation above profits -- of reaching out in a time of crisis to do the 'right thing'?
Well, the article goes on to mention "Carnival officials have defended the deal, saying the company will not make extra profit because the $236 million price covers the revenue it would normally receive for up to 120,000 passengers it could book."
Let's look at the fine print and the facts. A catastrophe of Category 5 proportions hits the Gulf Coast and cripples it. How many passengers who had already booked cruises canceled? How many of the 'up to 120,000' who would normally book postponed such plans? Put differently, what would Carnival's actual cruise revenues have been had they not sent the ships to New Orleans?
Next, note the phrase "will not make extra profit". As just suggested, actually Carnival probably did make extra profit when the comparison is between the actual revenues if they had kept the ships for cruise use versus the actual revenues gained by sending them to the Gulf.
Morever, there is a qualitative issue raised by 'will not make extra profit'. A devastating hurricane strikes and hundreds of thousands of people's lives are put at risk. Tens of thousands of other Americans reach into their pockets to provide money and other assistance. That is charity. Stories also circulated about businesses providing support without compensation. That is charity.
A business that provides support at it's normal profit margin is not charity. It's an exercise in putting profits first.
Let's replay the tape. Katrina hits. Jeb Bush contacts Carnival or the reverse. Carnival immediately volunteers three cruise ships -- at cost. Red tape is cut. The ships get there and people are helped.
Okay, let's replay it this way. Ditto on the contact. But this time Carnival says, "We'll send the ships and cut our normal profit margin by X%."
Either way, Carnival does 'the right thing'.
What Carnival did, though, was to extract maximum value from a revenue generating opportunity. Values in the sense of reaching out and doing the right thing were merely a by-product. They played no determinative role in this decision. Carnival probably reaped extra profit because they would not have had 120,000 normal passengers. They charged the Government full price. And, the bonus was, they were able to make 'we were there to help" claims for their brand.
Any way you look at it, Carnival did not do the fully right thing.
And, among other things, here's why it matters -- profoundly. An effective and efficient government should have competitive bidding. Indeed, effective and efficient private sector companies have competitive bidding. It just makes sense. However, in a time of crisis, bidding processes that make routine sense might impede responsiveness. Moving quick counts. Any effort consistent with speed that captures the spirit of competitive bidding is great. But, with Katrina-like disasters, all of us would hope that speed of response rises in importance -- and we would expect people who care enough to send help would move quickly and do the right thing in abiding by the spirit of effective and efficient decision making.
Put differently, we must rely on the good judgement and the values of those in a position to act.
When such players abuse that trust -- when they line their pockets and take full financial advantage -- the reaction will likely include this: further government restrictions on such decisions, even in a time of crisis.
And that means when the next crisis hits, our collective response will be worse, not better because players like Carnival and their executive Ric Cooper who undoubtedly have spent decades decrying government red tape and bureaucracy got a golden opportunity to demonstrate the power of the spirit of the rules instead of the letter of the rules and saw and seized the 'gold' by putting their self interest above interest in others.
February 28, 2006
Blended Values Strategies
Blended values strategies are choices about all the usual aspects of strategy -- but with a twist: neither the pursuit of value (money, profits, winning, wealth) nor the pursuit of other values (social, family, political, technological, environmental, spiritual, creative, legal or medical) is the trump card for all critical (or even non critical) decisions. In blended values strategies, the organization -- the business -- constructs a narrative of successful performance by and through which all key stakeholders both gain from and contribute to the success and happiness of the other stakeholders.
Blended values strategies do not put the interests of any constituency first. Businesses that identify and pursue blended values strategies do not allow 'shareholder value' to trump all other concerns. Nor do such strategies make 'the customer king', or operate to the exclusive benefit of executives and employees.
Rather, the narrative of sustainable success is an interative one that stretches out into the foreseeable future -- telling a story by which shareholders provide opportunities to the people of the enterprise and their partners to provide value and values to customers who generate returns to shareholders who provide opportunities to the people of the enterprise and their partners.... and on and on and on.
Each link in this story is ornamented with SMART outcome-based goals by which those involved know the answer to this key question: "How would we or anyone know we had succeeded with this blended values strategy?"
For shareholders, yes, those SMART outcomes will include share price, profits, market share, brand equity and more. For customers or beneficiaries, those SMART outcomes would speak to quality, speed, loyalty, share, innovation and more. And, for the people of the enterprise and their partners, the SMART outcomes would reflect success at skills, opportunities, and values as well as dollars -- whether direct or in terms of benefits.
Blended values strategies are intentionally win/win for all stakeholders. They are not 'put up' jobs that talk the talk about how 'employees are our most important assets' and 'the customer comes first', but, in the end, only walk the walk of 'shareholder value and executive compensation'.
Posted by Doug Smith at 08:39 PM | Permalink | TrackBacks (2)February 24, 2006
Thresholds Of Decency
In our complex 21st century, tens of millions of us experience what has traditionally been meant by the word community in the organizations where we work. It is in that context that we depend on other people we know for critical aspects of our lives: security, affiliation, meaning, and more. Each day we go to work, there are co-workers who will do much to influence our health, well being and future. And, these co-workers are not limited to close friends or family. They have little relationship to us other than the purposes we share with them that are related to the purposes of the organization where we work with them.
In too many organizations, the shared purposes reflect a bias toward value (profits, money, winning) over other values (family, social, environmental, spiritual, political and so forth). Value is the trump card. If a decision will increase profits and shareholder wealth, the odds are that decision will get made. Indeed, this is a profoundly powerful description of the shared beliefs and behaviors in our organizations -- of the 'way we do things around here'.
Consequently, news that employees calling themselves scientists doctored information about health risks in order to gain profit making opportunities for their companies come as no surprise. In our world of value trumping values, this is 'dog bites man' -- not the reverse. It's common place. It's not really news in the sense of surprise. It's predictable.
Tomorrow, though, when you go to work, ask yourself: In this community you know as your organization, is there any threshold of decency below which you -- the thick we of your organization who share fates -- will not allow value to trump values? For example, if sickness and death of some of your co-workers are a potential consequence of profit making choices, does that sit above or below the threshold of decency?
Posted by Doug Smith at 01:02 PM | PermalinkFebruary 22, 2006
Buy Clean Energy for $29.95
TerraPass is a wonderful idea. You can go to the website and, after calculating the emissions from your car or truck, purchase clean energy offsets for as little as $29.95. And, yes, nothing prevents you from purchasing clean energy well in excess of your car's emissions.
According to the website, TerraPass customers have helped reduce over 50 million pounds of carbon dioxide pollution through funding clean energy projects. I couldn't find the associated dollar amount on the site. But, through reasonable estimating, it looks like TerraPass customers have ponied up nearly a quarter million dollars. Pretty impressive for a website that -- one guesses -- has but microscopic brand recognition.
Which means, of course, you can help in at least three ways. First, buy some clean energy offsets. Second, email and otherwise create the word of mouth needed to make TerraPass a household name. Third, and perhaps most critical, set a goal and achieve it.
In Make Success Measurable, I write about performance being the primary objective of change, not change. Setting outcome-based goals is central to performance-driven change. For example, you might set this goal: "Within one month, purchase TerraPass clean energy and get at least five others to do so as well."
Easy to measure results. And, if you did this -- and encouraged those you know to do so as well -- TerraPass would soon enough have much more than a quarter million dollars on hand to invest and support clean energy.
Posted by Doug Smith at 01:25 PM | PermalinkFebruary 20, 2006
Performance Madness At Ford
Here's an astonishing factoid from Laurence Haughton:
"In 2005 Ford executives spent over 4.4 million management days tracking and assessing their company’s performance. That’s just short of 100 days per manager on average, over 19 work weeks looking at how everyone in every department was doing and creating new plans to hit budget. And if you add it up over the last 5 years Ford has invested some $6 billion dollars and some 21 million person days in the same activity – reviewing performance and generating new plans."
I do not know the source of Mr. Haughton's numbers. But, let's accept them for a moment and explore the implications. For example, don't just think about the managers. Think too about the time, attention, effort and cost put into preparing for meetings with managers about performance at Ford. If we imagine for every managerial hour there are, say, four non-managerial preparation and attendance person-hours, then a total of 21 million person days were spent at Ford tracking and assessing performance in 2005.
Assume that, with holidays, sick days and vacation, an average person at Ford works 240 days per year. That means Ford deploys 87,000 full time equivalent folks each year tracking and assessing performance and generating new plans for performance.
According to a recent article, Ford has about 300,000 employees worldwide.
So, if Laurence Haughton -- and the assumption about non-manager prep time and effort -- are correct, 29% of the company's work force spends their time focused on reporting about and planning for performance -- instead of, say, performing.
Ford badly needs to change. And, a focus on performance is the surest path to successful change. But constant, overweening attention to metrics and plans do not necessarily equate with a focus on performance.
Say, for example, you wish to lose weight. You set a goal and you'll do well to review your progress against that goal regularly.
But, let's ask this: Would it make sense for you to spend 29% of your weight reduction effort reviewing how're you doing and only 71% actually exercising, eating less and eating more wisely?
Folks often seek to lose weight to reduce the stress in their lives. My hunch is spending 29% of the time worrying over weight loss results would add more stress and reduce less weight than the reverse.
Sure, Ford must set goals and monitor performance.
But 29% of resources stressing out over measuring, reviewing and planning for performance?
29%?
That is not performance -- it's performance madness.
Posted by Doug Smith at 05:58 PM | PermalinkFebruary 19, 2006
Rearranging Parking Spots At Ford
A few weeks back, on the heels of announcing the loss of tens of thousands of jobs, Ford Motor Company sought to build enthusiasm for it's future by announcing that only Ford-driving employees would be permitted to park near the plants where they work. Hey, you might not have much job security. But, if you buy our products, we'll give you preferential parking.
Now we learn that employees making the Ford choice will also need to trade off the great parking benefit with the potential that, should they become paraplegiacs in a rollover accident, they will be barred from suing Ford by a new federal regulation prohibiting such lawsuits -- an anti-consumer regulation their employer supports.
Earlier posts have pointed out that American auto executives seem transfixed by cost-obsessed strategies for success. Problem is that customers respond to both costs and value. It's no surprise that Ford and GM are smiling at the new regulation. It promises more cost reductions. It may leave customers in wheelchairs; but, it seems, when given a choice between cost and value, the automakers pick cost regardless of the ethical, legal, and -- get this: competitive - concerns that all demand opposition to this atrocious regulation, not support for it.
There is an alternative. A strategy grounded in attending to both cost and value. A strategy that works. Just ask Toyota. For it to work, though, the necessary practices -- including the values demanded -- must characterize all the employees of an auto company as well as their suppliers and dealers. The focus on an integrated concern for both cost and value must permeate the executives -- not just the employees in selected departments -- regardless of where they are allowed to park.
Posted by Doug Smith at 02:11 PM | PermalinkFebruary 17, 2006
Back Story to Next Year's 24
This week's New Yorker has a wonderful review of TV's long running show 24 and it's protagonist Jack Bauer. As fans know, each season, Bauer, with others, defeats terrorists bent on havoc and do so over the course of a single day divided into 24 TV shows, one for each hour (actually, as the NYer points out, closer to 44 minutes to allow for commercials).
Here is a potential blockbuster story for 24's producers to consider for next year's show:
Once some terror alert surfaces for Jack's consideration, we see his colleagues Chloe and/or Edgar quickly use Google video to find footage of David Sanborn, a powerful Treasury executive nodding approval to a staffer who works for the Committee on Foreign Investments, indicating Sanborn's support for what turns out to be a unanimous vote by the Committee in favor of turning over the safety and security operations of several major East Coast U.S. ports to DPW, a company owned by the United Arab Emirates.
Quick cut to a Democratic Senator expressing concern that these ports, already among the major facilities most vulnerable to terrorist attack, might further be endangered by this sale.
Quick flashback to Sanborn as head of operations at DPW, the job he held before taking the job at Treasury.
Quick cut to the current head of port operations for DPW as he (or she) briefs a new employee about the key tasks of integrating the management of the new East Coast ports into DPW's worldwide efforts. (Note to producers, writers and directors: This new employee will turn out to be a key character in next season's show -- someone Jack Bauer will be very concerned about.)
Quick cut to a dinner attended by Sanborn and his current boss, Jack Snow, the Secretary of the Treasury. At the dinner, Snow asks Sanborn about an earlier sale of several other ports to DPW by CSX, the company Snow ran before he became Secretary. Sanborn warmly smiles and tells Snow that the CSX sale was a win/win for the shareholders of all the companies concerned; and, he assures Snow the current deal will work out just as well.
Back to Bauer.
What do you think? Good TV? Would the verisimilitude of seeing real people like Sanborn and Snow help with the believability of the plot? How about if the two deals -- the sale of port operations by CSX as well as the one involving east coast ports -- were real? What if the Committee really did give unanimous consent to the deal?
Who knows? Maybe it could all really happen.
Posted by Doug Smith at 07:50 PM | Permalink | TrackBacks (2)Education and America's Future
Jefferson, like many of the Founders, pinned the fate of American democracy on an educated public. Here is one of his lesser known comments, taken from a letter to John Adams: "I have great hope that some patriotic spirit will... call it up and make education the keystone of the arch of our government."
This week, just such patriotic spirits have launched an to fulfill Jefferson's wish by amending the Constitution to guarantee the right to a high quality education to all American students. Other nations have such a right -- but, more than two centuries after Jefferson, America does not.
I'm glad to be working with the folks at who seek to give voice to students across America in matters that affect their -- and our nation's -- future.
And, I encourage readers to go to their -- both to sign the petition if young enough and support the effort if you are older.
Posted by Doug Smith at 03:38 PM | PermalinkFebruary 16, 2006
Headline: Some Shareholders Motivated By Self-Interest
The passion for uniformity sometimes induces otherwise sane folks to utter astonishing words. Or so it seems with these comments captured in an article at Institutional Investor about shareholder friendly corporations.
First, the author of the article:
"The presence of some unsatisfied owners at companies otherwise deemed the most friendly to shareholders highlights a growing concern among some institutional investors about the new wave of shareholder activists. There is no one-size-fits-all approach to governance that will ensure that a company is seen as shareholder-friendly, they caution. Although activists may be serving the greater good by drawing attention to corporate performance and governance, they may also prove to be more concerned about their own interests than with broader reforms."
Then an investment officer at Oppenheimer:
"There is a risk that some investors can become self-serving when they talk about governance. I don't think it's particularly shareholder-friendly if, for instance, a company does something at the insistence of the bondholders that disadvantages stockholders or that sacrifices long-term growth for short-term returns."
Then a law school professor:
"These folks are not interested in do-good reforms. Their goal is to make money."
So, let's recap. There's a growing concern among institutional investors about other investors who pursue their self-interest above the greater good. These might include bond holders whose self-interest differs from stockholders. Perhaps most troubling are those sharehoders who have a goal of making money.
From which, we learn that, evidently, money making forms no part of the goal of institutional investors, unless of course those institutional investors hold bonds instead of stocks -- or, perhaps those institutional investors represent or join in with other investors who are pursuing self-interest.
Sound confusing? Well, then, imagine the difficulties in trying to gain a ranking in Institutional Investor's survey of 'shareholder friendly' corporations. All of which recalls Rodney King's famous words put in this different context: "Come on, shareholders. Can't we all just get along?"
February 08, 2006
Removing The Deck Chairs From The Titanic
That's what is happening at General Motors. Having cast tens of thousands of families into financial jeopardy, eliminated tens of thousands of jobs, shuttered plants across the country, and reduced health and other benefits for current and prior employess, the weakened auto giant yesterday announced a cut in dividends for shareholders as well as reductions in pay for senior executives and board members. All of which keeps GM steadily on course for disaster. Yes, they've gone beyond rearranging the deck chairs. But, tossing chairs off the sinking ship won't save this ship from sinking.
GM sells cars to customers. That means the company must attend to both the price of those cars and their value. For any market segment -- young people, folks interested in saving the planet, muscle-boys who love power, and so forth -- the prospective auto buyers and leasers weigh feature and function and image against price. Low prices are critically important and lowered costs provide the chance to sustain them. But, value matters too.
Consider Toyota, rapidly overtaking GM as the number 1 auto maker in the world. Toyota moved aggressively several years ago to ensure they were not reliant on a product line up heavy with gas guzzling SUVs. GM didn't. Toyota invested in hybrids. GM didn't. Toyota created and put heft behind cars designed for young adults. GM didn't. Toyota also managed it's costs. Better than GM. But, the key here is that Toyota looked at both sides of the consumer value proposition. GM stayed strictly inside the box on value -- SUV, SUV, SUV, SUV -- and moved slowly on costs. Now, GM is betting strictly on costs.
It still doesn't 'get it' when it comes to the value side of it's products. As previously noted, GM invested heavily in product design and manufacturing flexibility -- that is, the capacity to move quicker to provide new products. It can now bring 15 new products to market quicker than ever before. And, what are the deck chair managers doing with this flexibility. 13 of the new products will be re-designs of full size SUVS.
13 out of 15 are bets on the past.
It's no surprise then that Toyota made billions in 2005 while GM lost billions. Or, that Toyota's market capitalization -- the value shareholders put on the future health and well being of a company -- is $188 billion or 14 times higher than GM's.
If you were a bright, enthusiastic car designer, which company would you want to work for? If you had the talent and energy to have a choice in life about jobs and loved automobiles, where would you want to work?
To be sustainable, any company's performance must deliver value to targeted customers who generate returns to shareholders who provide opportunities to the people of the enterprise who deilver value to cusotmers.... and on and on and on. This cycle of reinforcing performance can be positive (like Toyota's). Or negative. At GM, the board of directors and the executives think they can cost cut their way to prosperity. It won't work. They might be able to toss some chairs off the ship. But, this ship -- the ship they captain -- is sinking.
Posted by Doug Smith at 01:51 PM | Permalink | TrackBacks (1)January 30, 2006
Winning Product Strategy: Taking Responsibility
In late 1982, we all learned the hard way about the profound reach of bad products in a world of markets, networks, organizations, friends and families with the discovery that someone had laced Tylenol with cyanide. We also got a classic lesson in social responsibility. From their instantaneous decision to cooperate with law enforcement and media to their famous full recall of Tylenol, Johnson & Johnson established themselves as the standard for how to put the health and well being of customers and society ahead of nearer-term concerns for the bottom line.
In J&J's case, the inherent danger was obvious: how best to respond to poisoned pills already in stores and homes. Putting the public first was both admirable and effective. And, I think, it offers companies an insight into winning strategies that are more forward and proactive. No need to wait for things to go wrong. Make 'taking full responsibility" sit at the heart of your product strategy and you'll win in a world so entirely dependent on products and services for life itself.
As described in On Value and Values, "Products, services and markets overlay all aspects of life. Every human activity can be enhanced or eliminated by good things to have provided through products and services..... This transforms the meaning of products and services beyond our inherited understanding. For example, the air we breathe swirls with winds stirred by markets, networks and organizations trading in pollution rights, or heating and cooling the great indoors. Water? It is bottled and branded, regulated and managed, and bought and sold in all three natural states. The same holds for earth and fire -- and other substances nominated over the centuries by philosphers and scientists as the primary materials of reality..... When everything is or might be a product or service, the idea of markets -- the meaning of what markets are -- encompasses life itself."
Today, all aspects of our lives are mediated and experienced through products and services. That is our new reality. Now, we must find a way to ensure our lives -- and the products and services that make our lives possible and worth living -- are fully good. This challenge cannot be met if our understanding of social responsibility begins only with the discovery of bad products. We must build in the good up front -- and that means as employees, we must act to ensure that our products, our services and our brands blend our concern for value with our concern for values. We must take this responsibility because our customers depend on us to do so.
Employees and executives that embrace such blended values strategies -- that ground their market strategy in taking responsibility for value and values -- will win in the 21st century. Why? Because while we are employees and executives in the organizations where we work, we are customers of all other organziations. When we learn to act as employees on blended values strategies, we take the lead in doing unto others -- as customers -- what we would want them as employees to do unto us when we are customers.
Posted by Doug Smith at 03:44 PM | PermalinkJanuary 29, 2006
Beggar Is Better
The path to a growing, robust economy is through impoverishing workers, according to Eduardo Porter of the New York Times. You see, here's the skinny: Unions have been too successful. Private-sector union members, on average, make 23% more than non-union employees. This, in turn, means that unionized companies -- such as Ford and GM -- operate at a severe competitive disadvantage. Porter must believe this is the sole disadvantage explaining why these auto giants have announced layoffs of 60,000 workers in the past few months. Porter doesn't seem to think product strategy, distribution channels, shareholder value demands from the financial markets, executive compensation, or anything else is worth throwing into the mix of any explanation about the failures of these companies. Or, at least if he is thinking such things, his editors have deleted such musings.
You see it's that 23% advantage that's killing competitiveness. The path to business success, by this logic, lies in reducing the wages of workers (and, of course, it also lies in reducing health and other benefits). Beggar thy workers! That's the answer!
It's an answer and strategy that has characterized the US economy for decades. Real wages have steadily declined for more than thirty years. Meanwhile, folks at the top of the heap are doing better and better. Since we're looking at car companies, let's consider Michigan. In the past 20 years, families in the bottom 60% of the population have seen their incomes rise a total of, at most, 26% -- or at best just over 1% per year. Those in the top 5% in Michigan -- the auto executives and other well-to-do who guide the economy -- have seen their incomes double -- rise by a total of over 100%; or, straightlining for simplicity, by 5% per year. Put in dollar terms, the lowest sixty percent of families have gotten pay raises of between $165 and $2200 per year while the top folks have seen their incomes rise by over $4800 per year for 20 straight years.
The same pattern pertains in other states. And, according to a spokesperson for New York's Business Council, this is a great thing because the wealthy pay 'huge sums in taxes' enabling New York State to have generous social services for the poor.
So, here's the strategy: Beggar workers so that companies can be competitive so that the executives and shareholders of those companies can continue doubling their incomes every twenty years so that those folks can pay 'huge taxes' to support government social services needed to respond to poverty which, of course, will be rising rapidly as we make sure that workers continue to see their incomes remain flat to declining and any health and other benefits disappear.
To Eduardo Porter and the editors at The New York Times this is as good as a glory road to national health and prosperity. And, it's all down to the the success of the American Union movement.
Posted by Doug Smith at 01:55 PM | PermalinkJanuary 24, 2006
Exploding Mortgages, II
Exploding mortgages are back in the news. Ameriquest, the huge finance company whose website comforts potential borrowers with promises of 'personal attention' needed to help with the 'lonely process' of getting a mortgage was evidently providing 'stalker-like' personal attention and has now agreed to roll back its aggressive practices -- practices that left many of its customers with exploding mortgages. Customers like 69-year old Carolyn Pittman, a widow with a heart problem who has difficulty reading and who, apparently, succumbed to Ameriquest's high pressure sales practices and took a mortgage that overvalued her home and was padded with illegal fees. Her Ameriquest mortgage exploded. She now faces foreclosure and the loss of her home and equity. Under the terms of this settlement, if she were to accept it, Ms. Pittman would get a few hundred bucks.
Showing some of that 'personal attention', an Ameriquest spokesperson said of Ms. Pittman, "Her story is unfortunate." The head of Ameriquest, in contrast, merely expressed 'regret' that thousands of customers got exploding mortgages because of the unethical sales practices that Ameriquest now promises to change. At a few hundred bucks per victim, it's a sweet deal for the company that has become a household brand name through it's TV and other advertising in support of the "American Dream". Through the predatory practices, fees and rates it has charged folks like Ms. Pittman, Ameriquest has made claims for values ("American Dream") while keeping its eye on value -- on profits, winning and generating wealth for it's executives and shareholders on the backs of 69-year old widows with heart problems and difficulties reading.
Indeed, one might ask all the employees of Ameriquest -- the thick we who share fates with one another and, thereby, whose character as human beings highly correlates with the character of Ameriquest's brand -- 'what do you stand for?" And, if you stand for helping all people achieve the American Dream, then why did you use predatory practices, fees and rates to provide folks with exploding mortgages? And, as the ill effects of these practices became more known to you, why did it take the efforts of 49 states to bring about the changes you've just announced with this settlement.
There's a word for the damage done in our new world of markets, networks and organizations by this kind of extreme, fundamental dedication to value without values (or, the reverse): terrorism.
Posted by Doug Smith at 08:56 PM | Permalink | TrackBacks (3)January 18, 2006
Exploding Mortgages
A survey just out from the National Association of Realtors tells us that 43% of first time-home buyers put no money down. None. Nada. Zilch. 43%. Not 23%. Not 10%. Not 5%. 43%. More than 4 out of ten.
How? Well, as housing prices have escalated during the real estate bubble, the real estate and financing industries have accomodated the unsustainable inflation through a creative range of mortgages that put all the pain 'down the road' -- in a distant future that first-time (indeed, many repeat) buyers -- dreaming of owing a home or making a killing in real estate investing -- easily overlook. Risks? Well, of course there are risks. "But if you... or if I.... don't get in on the action now, beware!"
The self-interest of mortgage brokers and real estate agents motivates them to 'help out' these first-time buyers. It's how these professionals make their money. That is not bad and it is not evil. It's human nature.
Still, the future of 43% of those purchasing homes for the first time is a precarious one. The dream can easily turn to nightmare if (1) rates rise in their adjustable mortgages; (2) home prices fall; (3) jobs are lost; (4) some one gets sick; (5) credit card debt pushes the home owner into bankruptcy; or, (6) any combination of the above.
A core principle of leadership in our new world of markets, networks, organizations, friends and families demands that concern for value be blended with concern for values such as family, social, political, sustainability and more. Leaders must see the whole of their lives. They must stop the dangerous practice of leading one way from 9-to-5 when they are at work 'making a living' and another way the rest of the day when they are at home or play or in church 'just living'.
The President of the National Association of Realtors is choosing to split his concern for value and values when he says he is not worried that 43% of first-time home buyers put no money down. "If the number was higher than that, I'd be concerned."
And how much higher would that be? 44%? 100%?
Posted by Doug Smith at 02:00 PM | Permalink | TrackBacks (3)January 16, 2006
Martin Luther King Jr.
As we reflect on the birth, life and dream of Martin Luther King Jr., let's commit ourselves to having the courage to be the change we wish to bring about. Only adults can take responsibility for their own change. No one else can do it for us. If we wish to find leaders who care about building a better future for our children and the planet, then we must find a way to exert that leadership ourselves. If we wish to continue the great democratic project begun in 1776, then we must commit ourselves to democracy itself because it is simply not possible to build and support democracy with anti-democratic methods. If we wish to commit ourselves to the rule of law, then we must do so through respecting law above person because it is simply not possible to adhere to law without adhering to principles -- even when those principles require taking action against people whose self-interest and ideology seek to destroy the law instead of uphold it. If we wish to do well and do good at the same time, then we must act to heal the breach between our legitimate concern for value and our legitimate concern for values. We must cease forever our illusory notion that we can somehow make value (profits, wealth and winning) the trump card for all serious questions. We must stop the madness of shareholder value fundamentalism terrorizing our new world of markets, networks, organizations, friends and families. We must not repeat the errors of radical, anti-value revolutionaries. We must not succumb to the temptation to destroy the value that has and can bestow material well being. But we must move past our obsession with value and reintegrate value the singular as a healthy, sane and sustainable conern in the house of values the plural. We must save value from itself by humanizing it with the better part of our natures. And, we must do this as employees, customers, investors, networkers, family members and friends. We must do this. No one else will do it for us.
Posted by Doug Smith at 01:34 PM | PermalinkJanuary 14, 2006
Wal-Mart For NeoLibs
NeoLibs (or, if you prefer NeoProgressives) such as Matt Yglesias, Jonathan Cohn and Ezra Klein are troubled about this week's news that the Maryland legistlature shot down a veto by their Governor and passed legislation requiring Wal-Mart to pony up more health benefits for Wal-Mart employees. The NeoLibs argue workers would be much better off if liberals, progressives and others sought an alliance with Wal-Mart allowing Wal-Mart to continue its current meager benefits practices in exchange for Wal-Mart helping to get federal action for things like universal health care. Look, these NeoLIbs say, we live in a Darwinian world where corporations spend "98 percent of their effort maximizing profits and share prices". Let's be real, let's be tough guys and let's cut a pragmatic deal with the Wal-Marts that let them continue to profit maximize while they help us get federal legislation to overcome the effects of their profit maximizing ways (in this case, the effects of having workers with low wages and little to no benefits).
All of which qualifies Klein and pals for a Wolfowitz award for Naive Pragmatism -- those proposals in which reality exists only as a subset of fantasy.
The world we actually live in -- as opposed to the Naive Pragmatic world of Washington parlor policy -- is one of markets, networks, organizations, friends and families. In this world, organizations are the most powerful crucible for experiencing community (thick we's) whose common good for all involved contributes to the greater good of society -- for finding non-governmental approaches to fairness, justice and equity among other things. If we can find approaches that work inside organizations, we ought to be looking for them. But that begins with this: Shareholder value fundamentalism is as dangerous to the stability and sustainability of our new world of markets, networks and organizations as is any religious fundamentalism.
The NeoLibs like to sound tough with their acknowledgement and agreement about profit maximization. But, like Wolfowitz, they evidently have little real world experience in such organizations. They have a single answer to all problems: let the corporations profit maximize and turn to government to fix the problems created. This logic is profoundly flawed.
Start, for example, with this proposition: when seeking solutions to problems, identify and address the root causes of those problems. Extreme profit maximization -- single answer fundamentalism -- is a root cause of the lack of health care for folks who work at Wal-Mart. Proposing to solve this by reinforcing the practice of extreme profit maximization -- the root cause of the problem in the first place -- makes no sense. It's like trying to fix all manufacturing quality problems by inspecting finished products as opposed to building in quality at each step along the way. (Another root cause, of course, is a government policy grounded in extreme individualism, in putting all risks and rewards on an individualistic basis instead of blending in policy promoting shared risks and shared rewards. In criticizing the NeoLib recommendation to align themselves with extreme profit maximizers, I'm not suggesting that complex challenges such as fair and just access to health care is entirely solvable without a government willing to re-balance "me" and "we". But, even then, any effective government policy would acknowledge that, in our new world, the most real 'we's' beyond friends and family are found in organizations -- not places we call towns and neighborhoods.)
Solving problems by addressing root causes of problems ought to be a straightforward enough concept. At a more conceptual level is this: No corporation -- indeed no organization of any kind, whether for profit, non-profit or governmental -- can sustain performance without having that performance benefit all those who matter to the enterprise: supporters/shareholders, employees/exectuives, and customers/beneficiaries. "Performance" is the measurable evidence of an organization's common good -- the mission, vision, strategy and so forth by which the organization seeks and achieves what's needed by the organization's supporters/shareholders, employees/executives, and customers/beneficiaries.
In the NeoLib fantasy, there is only one constituency: shareholders. Which, of course, begs this question: "Hey, why stop at benefits? Why not encourage Wal-Mart to lower wages, convert all jobs to no more than two years in length, and, while we're at it, lock employees in at night and turn off the time clock?"
If profit maximization is the single answer to all important questions, then there are no limits to what we -- as a matter of public policy -- permit profit seeking firms.
Sustainable organization performance demands balancing and blending the interests and benefits of shareholders, employees and customers. That's pretty much standard among folks in the private sector who spend far less time in Washington DC cocktail parties than the Neo folks, whether NeoCons, NeoLibs or NeoProgressives.
That crowd, however, is comfortable with policy recommendations, like this instance, that leave the real human beings who work at Wal-Mart struggling in poverty and ill-health while (1) Wal-Mart continues to generate unsustainable profits for executives and shareholders; and, (2) some theoretical set of forces are working their way toward federal legislation and the implementation of that legislation that supposedly will -- in a very distant future -- bring relief to these workers and their families.
At it's core, the NeoLib fantasy suffers from the same phenomena as the NeoCon fantasy: utter disregard for real people, real facts and real time.
January 10, 2006
The Shadow Of The Leader
In one of Aesop's fables, a political leader accuses his shadow of bad values only to be confronted by the shadow about the leader's own failings. In short, the shadow wants nothing to do with the leader. The shadow is ashamed of the leader.
Leaders -- whether political leaders or organizational leaders -- cast shadows. "The shadow of the leader" is evocative language used to describe how a leader's choices, actions, style and values dramatically influence those same things in the organization -- or the nation -- as a whole. As the Aesop fable implies, though, the word 'shadow' is not pejorative. Because leaders are human, their choices and values inevitably bring a mix of good, bad and inbetween. The key question about what kind of shadow is cast by the leader has to do with the overall effects the leader has on the political body or the organization.
Consider, for example, MIke Brown, the recently departed head of FEMA. What shadow did he cast on FEMA? Hurricane Katrina cast Brown's shadow in dramatic relief -- and the incompetence surfaced suggests that Brown's shadow was far more destructive than constructive.
Consider, as another example, Tom DeLay and the Republican majority in the House of Representatives? What kind of shadow did DeLay cast? Based on recent legal indictments (among other things), it would seem DeLay's values were very dark and negative -- just the kind of effect that the 'shadow' in Aesop's fable is running away from. DeLay's leadership evokes yet another phrase often used to convey the effects and influence of bad leaders on those they lead: the fish rots from the head.
Now, consider leaders in your organization. What kind of shadow do they cast? How do their choices, actions, beliefs, behaviors, and values add up? Would their shadows, if given the chance, cut and run? Or, would the shadows - on balance -- gladly continue walking together with the leader toward some best future for the organization being led?
Posted by Doug Smith at 03:02 PM | Permalink | TrackBacks (2)December 20, 2005
Kong Attacks Financial Markets!
Dateline Wall Street: King Kong has broken free from theaters nationwide to attack the transparency and integrity of financial markets!! Cleverly dressed in the guise of unfunded pension and other benefit liabilities, Kong has eviscerated the credibility of the balance sheets of hundreds of the nation's largest companies. The crisis seems to have unfolded with startling speed. What may have been minor adjustment errors when Kong was first brought to America now amount to nearly $450 billion!! Said one analyst, "This devastates the S&P 500." But while investors and others reel from Kong's rampage, those at the Financial Accounting Standards Board responsible for getting Kong back under control seem dazed, like deer in the headlights. "This is very political and complicated," said one spokesperson who sought even greater anonymity than is usually accorded accountants as their professional due. "We're going to need several years to work this out."
Several years? Haven't they seen the movie?
***********************************************************************************************************
More than half the households in America own equities. And way more than half have folks who are employed, with millions of these employees working for companies that have contracted with them to provide pension and other benefit coverage.
Our world of markets, networks, organizations, friends and families is so complicated that probably only a small fraction of people in investor households know that hundreds of publicly held companies now have pension liabilities that outstrip pension assets by just under $300 billion, or that other benefit obligations (e.g. health and prescription drugs) outstrip other benefit assets by nearly $150 billion.
$450 billion of obligations that are not funded. That's a lot of money. For example, it is the same amount just approved for the 2006 defence budget. And, according to Standard & Poor's, it equals a fifth of the tangible book value and 70% of the 2005 earnings of the S&P 500.
No wonder the Financial Accounting Standards Board (FASB) is hard at work trying to figure out how to handle this in a way that helps investors and others get the information needed to make judgments about the economic and financial well being of companies.
FASB will not, of course, require companies to make any radical adjustments. There won't be a new rule demanding an immediate write-off against earnings. Still, one wonders what 'transparency and integrity of financial markets' means when companies have had and will likely continue to have so many ways to miscast their degree of control over these King Kong liabilities. Just one example from S&P: "These evaluations derive from current estimates of what returns and interest rates will amount to over decades. Agreeing on the current Q4 2005 estimate poses quite a challenge -- estimating Q4 of 2035 would appear to be far less of a science."
30 years. Company accountants must consider all the factors that might happen over thirty years in determing the current value of liabilities. Really, now, let's get ourselves some perspective. Even those many, many, many accountants who do their professional and personal best are merely guessing. And, we know too well that plenty of accountants -- and chief executives and chief financial officers -- 'manage financial statements'. For them, "30 years" is an open invitation to "make it up!" (And, by the way, it's also an open invitation to prosecutors with personal agendas to go after even well intended chief exeuctives and chief financial officers under Sarbanes-Oxley).
So, stakeholders beware! Whether you are an investor or an employee with an interest in any of these companies, beware! And be prepared. The odds are that the obligations will be re-written and reduced, the generally accepted accounting approaches will be 'smoothed and managed' to minimize the financial reporting strain, and the real story underlying all of this -- the nation's broken system of sharing the risks and costs of health care and old age -- will continue to go untended or made worse through radically increasing the individualization instead of sharing of such risks.
December 17, 2005
The Five-Step Shuffle
According to a new study cited by Christian Sarkar, it is more important than ever for Chief Financial Officers to:
(1) focus on delivering against growth and earnings commitments expected by financial markets that punish missed commitments while also
(2) complying with the morass of rules and regulations imposed by an angry Congress seeking to get re-elected by 'doing something/anything' to protect the integrity of
(3) demanding and punishing financial markets who, it will be recalled, were
(4) reeling from illegal and unethical behavior of -- well,
(5) Chief Financial Officers and others obsessively focused on delivering against growth and earnings commitments demanded by financial markets that punished them for missing such commitments.
Got that?
No wonder Reuters reports "CFOs too bogged down to focus on strategy."
Posted by Doug Smith at 04:58 PM | PermalinkDecember 16, 2005
Be A Global Capitalist For $25
Absent the nightmarish destruction of the Internet (which, according to Legal Affairs is a concern to take seriously), globalization is as much a condition -- a force at work -- in our 21st century world of markets, networks, organizations, friends and family as gravity. Such forces drive the good, the bad and all in between depending on our shared purposes and shared values -- as seen in the wikipedia entry on globalization. It describes manipulation by mass media, controlling governments and multi-national corporations as well as growing possibilities for mutual understanding and friendship.
As with so much in our battle of value against values, globalization seems inclined toward the negative when it comes to matters of capital and profits, inclined toward the positive when it comes to matters of family, friendship, shared understanding and shared fates.
All of which makes Kiva -- a peer-to-peer microfinance organization launched by Matthew and Jessica Flannery -- worth noting. The Flannerys have blended a concern for value with a concern for values by integrating the economic as well as the personal possibilities in globalization. Through Kiva, you -- yes, you -- can be a global capitalist. You can lend money to entrepreneurs living continents away and, through the wonders of the Net, stay in contact as they use your loan to make life better for themselves, their families and their communities.
And you can do this for as little as $25.
The Flannerys have brought microfinance to your home computer. Microfinance is a worldwide industry built on an ancient notion: commercial lending to business. Only, as the name suggests, the loans are tiny. Experts estimate that as many as 30 million 'microentrepreneurs' have launched and grown businesses with the help of tiny loans. In world of 6 billion people -- the vast majority of whom are poor -- 30 million, while impressive, is just the tip of the iceberg.
Moreover, microfinance is profitable. Given the huge size of the market as well as the attractive economics, it is no surprise that the number and size of microfinance loan funds is growing rapidly -- and that giants like Citibank are now in the field.
Neither Citibank nor large non-profit players, however, are likely to give you the chance to be a global capitalist. So, go sign up at Kiva. And the next time the International Monetary Fund or World Bank comes to town, get a seat inside the room instead of throwing rocks in the streets.
Globalizaiton is a force. How do you want to shape it?
December 12, 2005
Visibly Poor Performance
Harrisineractive has just published it's 2005 Survey of the "Reputation Quotient" for the sixty most visible companies in America. The top company, Johnson&Johnson, received a "B" grade (albeit just barely: J&J got a numerical score of 80%).
Of the rest of the top 60:
27 got a "C"
24 got a "D"
8 got an "F"
Overall, not much movement when compared with the 2004 results
A Zero
B Zero
C 31
D 19
F 10
In today's irrational financial markets, 'intangible assets' such as brand often account for significant parts of a company's overall market value. The vast majority of these 'most visible 60' have large market capitalizations. Leaving us to ask, "Does reputation have anything -- anything -- to do with brand?"
We know that extreme reputational damage -- Enron -- can link to brand and market capitalization. But, it must really be only at the extremes. Because when not a single one of the most visible companies merits an "A" grade and, in fact, nearly all get "C's" and "D's", what Harrisinteractive is measuring must not have much to do with how folks pick and choose stocks.
Put differently, folks out there are deeply worried about the mediocre to lousy reputations of these visible companies. But, when it comes to their IRAs or other stock holdings, they must just be 'holding their noses".
Suggestion: next time your at the dinner table with your kids, explain this to them (and to yourselves).
Posted by Doug Smith at 06:51 PM | PermalinkPerformance, Problem Solving and Gender Stereotypes
Does the performance of your organization depend on excellent problem solving?
Does the performance of your organization depend on men and women solving problems?
What do you mean by 'problem solving'? What kind of problems does your organization need to solve?
What percentage of those problems are not really problems at all? That is, they are situations for which answers are readily available and simply in need of quick, crisp and efficient ways of 'taking charge'?
What percentage of those problems are actually problems -- that is, challenges for which no one in your organization has any current easy answer?
When you think about these real problems, how many of them are purely technical in nature? That is, how many are like jigsaw puzzles requiring that you figure out a set of technical, mechanical, or otherwise physical pieces and assemble them?
How many of your problems are purely social or are 'sociotechnical'? That is, how many are both about figuring out some objective set of pieces to a puzzle but then also figuring out how to get people within your organization (and possibly beyond -- alliances/customers/and so forth) to 'make it happen'? How much of getting folks to 'make it happen' demands figuring out how to take care of the interests, skills, readiness, reluctance and other human attributes that often spell the difference between a problem solved on paper and one solved in reality?
Think about these questions as you read the latest report from Catalyst about how organizations across the country continue to shoot themselves in the foot by using 'either/or' stereotypes about men and women who, truth and every day reality be told, are BOTH needed to move toward any organization's best future performance.
Or, perhaps you disagree. Perhaps you believe in your soul that your organization can best move forward to solve its most complicated and critical problems by relying disproportionately on male leaders or female leaders?
If so, go ahead and hang a sign on the door that says, "Here at XYZ Corporation, we know that our best future depends on male problem solvers." Or, if you answered with the other gender, "Here at ABC Corporation, we know that our best future depends on female problem solvers."
If, on the other hand, you believe your best future depends on men and women and women and men both leading and collaborating and collaborating and leading in finding and implementing the best solutions to your most critical problems, then perhaps you'd better start acting like you believe it.
December 08, 2005
Ford to GM: Me Too!!
According to the Boston Globe, bad strategy and thinking inside the box catch up with Ford:
"Ford Motor Co. is reportedly considering the elimination of 30,000 salaried jobs and the closing of 10 North American factories. The news follows colossal job cuts and plant closings disclosed last month by General Motors Corp.
Both companies are hamstrung by costly health and pension benefits, excess production capability, increasing foreign competition, and reliance over the past decade on highly profitable SUV and pickup truck sales, which have been slumping because of rising gas prices."
Posted by Doug Smith at 12:20 PM | Permalink | TrackBacks (1)December 05, 2005
The Values Bubble In Real Estate
Today's Los Angeles Times reports that the incidence and variety of mortgage fraud is increasing as rapidly as insurgencies in Iraq. It's a good introduction to what happens when an 'anything goes' profit motive is given a field day by political forces who claim the 'only good regulation is no regulation'.
Mid-way through the article, Eric Von der Porten, a Silicon valley mortgage banker laments, "Is it suddenly okay to hoodwink national banks and government-sponsored mortgage companies?"
Memo to Eric: There's nothing sudden about this at all!
For more than thirty years, our nation has embarked upon an all-or-nothing adventure in hating government. Starting with the Reagan administration, the governing philosophy has assumed that regulation and government are bad. That trend began rationally -- for too many decades those in power operated as if Total Regulation was the single answer. Now our dominant single answer is, No Regulation.
There is a lot of possibility, of course, between No Regulation versus Total Regulation. Most markets work best when there are some agreed upon rules. Often, those rules are easiest and most practicable to install and enforce if done by some third party. Sometimes, those third parties can be private sector, non-institutional government organizations (for example, professional sports leagues that set and adjust rules). More often in the history of human beings, though, the third parties have been governments.
When done well, rules and regulations set predictable behaviors -- values about fairness and approach -- that provide all who participate some predictability they can rely upon. That kind of predictability in values also arise among small numbers of people who persistently interact -- say in families or teams. When the context rises to zillions upon zillions of folks interacting over markets and networks, however, a government that sets, enforces and updates rules and regulations can spell the difference between orderly markets and Hobbesian, anything goes markets. (And, again, let's be clear: a regime of Total Regulation provides order but kills all vitality and innovation while simulataneously increasing costs to unsustainable levels).
So, here we are: We live in a world of markets, networks, organizations, friends and families. We live in a world where the costs of 'either/or' approaches -- either No Regulation or Total Regulation - become increasingly unsustainable. And, we live in a world where our politics is currently dominated by a discourse of either/or-ism.
That we are experiencing a 'value' bubble in real estate is not new news. But, as this artlcle points out, we also are suffering through a 'values' bubble -- inflationary expectations that somehow, someway individuals and companies left entirely to their own devices will routinely do the 'right thing' because -- now listen carefully -- because it is in their self-interest. This is the governing orthodoxy. Markets are the only solution to every problem. Self-interest is what makes markets work. Therefore, sayeth Socrates, Self-interest is the only solution to every problem.
Evidently, unbridled self-interest is not a full solution to orderly real estate markets that produce the greater good.
Posted by Doug Smith at 01:32 PM | PermalinkDecember 02, 2005
When Bad Things Happen To Bad Strategies
Crafting (and especially implementing) good strategies in our chaotic, fast changing 21st century world of markets, networks and organizations is tough work. It's why the folks who head organizations get paid the big bucks. Still, even a Forest Gump could glimpse this about strategy: somehow you've got to make sure that you direct your company's resources and talent at providing customers what they need at a price that keeps your resources and talent in business. It's a 'both/and' challenge -- one of matching answers to internal questions (who are we and what do we need to be good at?) with responses to external questions (where's this market headed and what does that tell us?).
As noted in a previous post, GM recently confirmed it would be firing 30,000 employees and shuttering a dozen auto plants. That's 30,000 familes who will not see 2006 as a happy new year. I also noted that GM's own press releases indicated the giant auto maker was investing in the flexibility to be more responsive to customer needs by putting itself in a position to create 15 entirely new cars/trucks each year -- and then promptly announced they'd use this new found capability to produce 'more than a dozen' brand new versions of gas guzzling SUVs, large cars and large trucks.
Do the math. "More than a dozen" out of 15 leaves somewhere between zero to two alternative offerings to the marketplace.
30,000 employees and their families (and the local economies of where they live) have been put on the altar of GM's future for this strategy.
So, here's a couple of updates on GM's strategy:
GM's November sales were off nearly 8% from a year earlier -- helping to drag US automakers' total share of the US market down to historic lows. The Japanese, who have led in the production and sale of hybrids and other smaller vehicles, picked up most of the gain.
GM's response?
First, to announce a 'red tag' sale in which buyers of it's largest SUVs will get as much as $10,000 off the purchase price. Excuse me? Why is GM directing it's new found flexibility for entirely new and different vehicles at producing new versions of SUVs that it's got to put 'red tags' on in order to sell? Does that make sense to you?
Second, to shutter part of GM's most famous auto plant -- the Saturn plant in Spring Hill, Tennessee where, some decades ago, GM was going to re-invent the auto industry with a bet on small, quality cars made and sold differently.
As Gump says, "Stupid is as stupid does."
Performance in our crazy world is helped through learning from others. Suggestion: Take a look at how your organization's resources and talents line up against the evolving picture of customer needs. Then evaluate your efforts against a "NOT GM" scale. The better you do -- the more your strategy is unlike GM's -- the better your organization's future and performance is likely to be.
Posted by Doug Smith at 12:39 PM | Permalink | TrackBacks (2)November 23, 2005
Recommendation to Harris Poll: Use Grades Not Numbers
For several years, Harrisinteractive of the Harris polling company has done an annual survey of the 'reputation quotient' of what it calls the 60 'most visible' companies. The survey asks respondents to evaluate companies against 20 attributes ranging from social responsibility to financial performance to product quality. Each of the twenty can earn a top score of 7 and a low of 1.
To calculate the final scores, Harrisinteractive sums each company's average on the 20 attributes and divides by 140 -- then converts the score to a percentage.
It's like taking a test where your maximum possible score is 140 -- only the teacher chooses to grade you by a percentage.
Thus, Microsoft's average in 2004 was 109.2 out of 140 -- for a 78% score. The top ranked company in 2004, Johnson&Johnson, received a 79.81% score; the lowest, Enron, a 29.03%.
While Harrisinteractive provides a link to a pdf file explaining its methodology, it doesn't really say much about what the rankings or scores mean on the webpage presenting the results. Basically, Harrisinteractive says, "Here are the 60 most visible companies in America" -- and then provides a table with rank order on the left and a score on the right.
It would seem Harrisinteractive is losing an opportunity to clearly communicate. The company believes 'reputation management' is important. It offers polling and other services to help clients do a better job at reputation management (and, the survey must be a marketing tool for building business). It makes sense, then, that Harrisinteractive would want a visitor to its webpage to undertand what the scores mean.
Here's a suggestion. Explain that the scores are based on a percentage with 100% as the best possible. Then, show the scores and convert them to the well-understood letter grade all of us undertand from school.
Thus, the top ranked company, Johnson&Johnson, received a 79.81% or C+. The lowest, Enron, received a 29.03%, or F.
Viewed this way, we could quickly undertand that Americans rate the reputations of the sixty most visible companies as follows:
A: None of the companies.
B: None of the companies.
C: 31 of the companies.
D: 19 of the companies.
F: 10 of the companies.
That's a picture that should generate business for Harrisinteractive!
Posted by Doug Smith at 01:56 PM | Permalink | Comments (1) | TrackBacks (2)November 22, 2005
Malicious Music From Sony
The Attorney General of Texas has sued Sony BMG for the aggressive use of 'rootkits' as an anti-piracy tool. The Electronic Frontier Foundation also has sued Sony in a separate matter. Wikipedia describes rootkits as software that "helps an intruder maintain access to a system without the user's knowledge". If that strikes a bad note, it's because rootkits are deployed by creators of viruses and worms in their war against computer users. Rootkits are malicious.
Now we need to ask, "Whose side of this war is Sony on?"
Just think about this for a second. Under what circumstances does it make any sense whatsoever for a maker and distributer of entertainment to be slipping software into your computer that is specifically designed to go undetected?
Rootkits, by the way, are extraordinarily difficult to eliminate once they get into your computer. Under the banner of its vaunted brand, Sony has now snuck a destructive piece of software into the computers of folks who assumed they could trust that "Sony" meant, at a minimum, that when you bought a music CD, you were buying music -- and just music.
Why has Sony, a company that recently won the Harris poll for most respected brand for the sixth year in a row, stooped to the use of rootkits to advance the company's view of copyright protection? Were the executives at Sony building shareholder value? Were they treating the 'customer like king'? Were they providing an exciting, promising environment of creativity and opportunity for their employees?
Sony is locked in a titantic battle over how to continue to make money in a music business utterly transformed by digital technology. But, 'by any means necessary' is not a good answer to any of the tough questions facing the music giant.
What do the folks at Sony music really stand for?
November 21, 2005
Thinking Inside The Box At GM
Today, General Motors it would eliminate 30,000 manufacturing jobs through a series of plant closings. That's 9% of the people who work at GM (325,000) and a much higher percentage of manufacturing jobs. This is a tragic development for thousands of families and communities. And, yes, we know that it is also a move aimed at making GM more competitve over the long haul. Both statements are true.
The job cuts come on top of the recently announced deal with the United Auto Workers that reduced GM's health expenses. Together, the two actions will lighten GM's costs by billions a year -- a key to reversing the $4 billion GM has lost in the first nine months of 2005 as well as positioning the auto giant to be more competitve going forward.
All businesses attend to both cost and value in efforts to succeed. With today's announcement, GM has taken a radical step in reducing costs. With this and the health care deal, the attention should now shift to the revenue side of the equation.
What is GM doing to design, build, sell and service great cars that meet the needs of today's customers?
A quick look at the November 21st press release describing GM's turnaround plan fails to build much confidence. (Click here and then choose "Four Point Turnaround Plan"). According to this news release, GM claims to be pursuing an 'aggressive product assault on all vehicle segments', in part by investing the capital required to permit GM to bring '15 all new vehicles' to the market every year.
Let's assume for the moment that 15 is a satisfactory number of all-new vehicles. What's GM planning to do with that capacity as it moves to meet the shifting realities and tastes of customers, especially customers who are beginning to sour on gas guzzling SUVs and other large vehicles?
Well, according to the same news release, GM will unveil 'more than a dozen all new versions of its full size SUVS." Yes, GM indicates that in 'late 2007", it plans to add a new hybrid to the market. (And, oh by the way, GM will also in 2007 roll out an entire new line up of full size pickups).
In response to the radical job cuts, the UAW commented, "Workers have no control over GM's capital investment, product development, design, marketing and advertising decisions. But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others."
Yes, the UAW took advantage of its sweet heart deal with GM for decades -- and thereby added to the cost burdens currently disadvantaging all the human beings -- executives and union members alike -- who are involved. Still, there is an important point to the UAW remark: GM's non-unionized employees have much more say over product selection than do the union workers.
Unfortunately, it would appear that those making product choices at GM are stuck 'inside the box'. There's advantage to be gained with cost reductions, capital investment and manufacturing flexibility. It will be a shame if GM throws it all away by merely using the new found capacity to continue building giant, gas guzzling cars and trucks that fail to meet the needs of early 21st century consumers.
Today, GM has indicated it is willing to make tough, radical choices. Well, how about this: Challenge yourselves to radically increase both the number and the speed with which you bring hybrids to market. And, while you're doing that, be as willing to scrap big, gas guzzling SUV, large models and pickups as you are willing to scrap manufacturing jobs.
Posted by Doug Smith at 07:46 PM | Permalink | TrackBacks (3)November 20, 2005
Edelman's Opportunity At Wal-Mart
Wal-Mart has hired Richard Edelman's firm to lead the giant retailer's public relations response to the intensifying debate over Wal-Mart's values and practices. This is a wonderful opportunity for Edelman and those who work in his firm to put into practice Edelman's own values about the responsibilities of public relations professionals in our complex 21st century. According to an Edelman post in November 2004, , PR firms should avoid the 'anything goes' standard of lawyers of claiming that since all deserve representation, firms can take on any client regardless of that client's character and values. He believes PR firms should have a higher standard on who are represented and what is said on their behalf. In addition, he believes in full transparency of work methods. "It is more than what you say. It is how you say it that matters." Finally, Edelman writes of how important it is for PR firms to have a seat in the highest councils of companies in order to ensure that these high principles are adopted and applied.
His firm now has an extraordinay chance to live these values. As we know, Wal-Mart increasingly means controversy in a manner not unlike Iraq or tax cuts or Supreme Court nominees. What the Wal-Mart brand stands for -- every day low prices, low wages, employees with benefits, government subsidy of employees without sufficient benefits,local business erosion, keeping inflation low -- is subject to many claims.
Edelman must have decided that Wal-Mart was a worthy client deserving of the very best in PR help - that is, that Wal-Mart met his first principled test on 'whom to represent'. Now, on a daily basis, those who are working on the Wal-Mart account have the chance to apply the rule on what is said and how it is said.
One suggestion: In choosing how to counter various anti-Wal-Mart assertions, challenge Wal-Mart's highest executives to adopt a policy of acknowledging what is reasonable in those claims.
For example, avoid limiting yourself to writing only this on the Wal-Mart website:
"As of today, 620,000 associates have signed up for health insurance coverage in a Wal-Mart sponsored plan."
Why not present this information about the 620,000 associates while also explaining how many of them went beyond signing up for benefits to actually receiving them. Then note that hundreds of thousands of Wal-Mart associates do not have health insurance. Go on to explain Wal-Mart's position regarding associate health insurance as well as government subsidy. Provide readers of the website an understanding of Wal-Mart's objectives in this area and what the company is doing to pursue these objectives. For example, in choosing how to say what steps Wal-Mart is taking, include the Susan Chambers' memo that has recently been completed regarding an approach to benefits at Wal-Mart being recommended to Wal-Mart's Board of Directors.
It is important and undertandable that a PR firm hired by Wal-Mart should present Wal-Mart's side of the story. It is also important -- both for Wal-Mart and for Richard Edelman - to insure that the public debate and discussion of the challenges Wal-Mart faces are conducted with high standards that Edelman would have all in the PR field apply. Bending over backwards to insure that Wal-Mart's side of the story is presented in a manner that encourages real debate, real discussion and real problem-solving will be the highest, best testimony to Edelman and his firm.
Let's wish him and his firm well as they move to the higher ground.
November 11, 2005
Soul Searching At NY Times
If I'm understanding this correctly, the publisher of the NY Times has said the Judith Miller affair is minor when contrasted with the Jayson Blair affair. Among other things, Blair plagiarized his way through the ranks and, at some point along the way, did so without sufficient oversight from management. These failings put in question all that the Times -- and the thick we who work there -- stood for. Miller, in comparison, used her position to promote a war and the political careers of those who wanted it. Along the way, she lied to her colleagues, hoodwinked her publisher, reported fiction instead of facts, took the Times's honor to jail on false pretenses -- and did untold damage to her nation.
Both are disgraceful. And, while much worthwhile discussion might arise from contrasting the two for lessons learned, there is one unavoidable reason why I think the Miller affair is worse for the NY Times: it came second.
It came after folks at the Times spent untold resources and energy rooting out the causes of journalistic and management misbehavior and declared to the world not only what the NYTImes stood for - but any number of serious steps being taken to live up to those values.
And, all the while people at the Times were working hard to reform while also proclaiming revitalized virtue, Judith Miller -- acting as 'star' reporter without adequate management oversight -- was eating away and violating the soul and the heritage of the company.
November 07, 2005
Focusing Energy At Chevron
Chevron has invited a handful of experts as well as the general public to join a discussion about the planet's energy future.
We should applaud this effort. Wherever the effort sits on the spectrum of 'toe in the water/public relations' to 'serious inquiry", it does allow for discussion -- perhaps most importantly among the employees and executives of Chevron (the 'thick we' so well positioned to do something about how Chevron's actual strategy creates a best future for the planet).
In saying, this, though we also need to pay attention to how Chevron sets up the dialogue because how a problem is defined contributes critically to the effectiveness of problem solving itself. As the old Yankee once said, "Well's begun is half done."
The current question is posed like this: Who should be primarily responsible for ensuring we conserve more energy -- governments, businesses or market forces?
Look, this is obviously an important question and can support a healthy debate. But it is also defective in a serious way because of the use of 'primarily'. That word -- indeed, even the question without that word -- sets up an 'either/or' debate. But, no one can solve the complicated energy challenges we face with either/or approaches. We need both/and thinking and problem solving.
The debate would be richer and more pragmatic if the question posed were this: "How can business, government and non-governemental organizations work together to ensure we conserve more energy? And, how would any of us know such efforts were successful?"
November 01, 2005
Big Pharma and Bird Flu: A proposed deal
Three weeks ago, executives from several major pharmaceutical companies sat down with President Bush to exchange ideas on how best to prepare for a possible bird flu pandemic.
As noted previously, much of the pandemic possibility lies in a race between mutation of the bird flu and finding and distributing effective antidotes. Big Pharma told Bush they are reticent to invest in antidote development in the absence of laws holding them harmless from liability lawsuits and damages from people who get shots and either die or get seriously ill nonetheless.
So, how about this deal? The Bush Administration and Congress agree to quickly pass such laws in return for Big Pharma agreeing to forego patent protection in the case of bird flu antidotes as well as proactively sharing all advances among themselves and with other companies and nations around the world.
This is a win/win for everyone. Congress and the Administration can act quickly to protect all of us -- thereby avoiding the nightmare of a Katrina re-run. Moreover, it would be the kind of real collaboration most folks long to see from Washington. And, Big Pharma can move quickly into action with all their talent, expertise and knowledge in a way that would also help them diminish claims that their sole interest lies in profits.
Posted by Doug Smith at 06:34 PM | PermalinkOctober 29, 2005
Brand Update: Red Cross
The Washington Post has an update on how the post-Katrina, post-Rita brand experience of the Red Cross matched the brand promise. As noted in an earlier post, the Red Cross crossed up its donor after 9/11 in failing to warn folks in advance that some of the funds would be stashed away for other purposes. The charity was so determined to avoid a repetition that they announced to the world post-Katrina they would be spending every single dollar received on Katrina. One concern, raised in the post, had to do with the effect of this overly literal reaction to the earlier difficulty on the full nature of Katrina's aftermath: namely, that the people of the Gulf coast need both immediate response/relief as well medium to longer term rebuilding help. The Red Cross -- the best branded charity in the field -- would have access to the most money. And it would have been wonderful if the Red Cross had annouced publicly its intention to raise funds that would, in turn, be provided to strategic partners better positioned to provide rebuliding assistance.
Instead, we got the 'we'll spend every dime on immediate relief' because, in what sounds almost like a petulant child, 'you slapped our hands the last time for trying to save for another rainy day'. The problems for the Red Cross's brand and mission here were two fold: poor communications and poor self-understanding of limitations.
Now, we learn that the Red Cross claims it is $340 million short in funds needed for Katrina and Rita. In addition, Congress is readying itself for a 'look see' at how the Red Cross responded. Other relief and rebuilding organizations are angry about imperious Red Cross attitudes. And, it's alleged that if you lived in the Gulf Coast and were African-American, the Red Cross wasn't quite as likely to respond as if you were Caucasian American.
So, here we go again. America's best branded, iconic relief organization is about to take another hit to its brand. Will the charity have some reasonable explanations. Yes! Let us not forget the extraordinary scale and propotion of Katrina. And, at the same time, will the Red Cross pass 'the test' on having delivered on its brand promise through open communications, good partnering and effective operations?
Well, based on the gathering storm reported in the WP, the answer there looks like it will speak from two camps: Those in the Red Cross will say, "Yes". Those beyond the Red Cross in the media, African-American citizens of the Gulf Coast, other non-profit organizations needing to respond and rebuild -- and certainly some governmental organization including Congress -- will say "No".
At the end of the article, an expert in non-profits calls from more openness. "What happens if you don't is that you live off your myth and you conceal your problems. They are an organization obsessed by its own myth."
Myth. Brand. Promise. Delivery.
At the Red Cross, these are critical words. And when it comes to disasters, the folks at the Red Cross must know deeply and wisely what these words mean. And why.
Otherwise, we will continue to see 'disasters' following disasters at the Red Cross.
Posted by Doug Smith at 03:04 PM | PermalinkOctober 26, 2005
Where To Pump Big Oil Profits?
The LA Times reports that Big Oil projects earnings of nearly $100 billion - both this year and next. Like any business, these companies must now choose what to do with the money. Here are the choices laid out in the article:
1. Invest in more production, refineries and distribution
2. Slap the industry with a windfall tax
3. Mandate the industry put money into alternative energy research
4. Reward shareholders with dividends and stock buy-backs
5. Diversify by going into non-energy related businesses
6. Consumer rebates
This is a reasonably full list. Note, however, the language, especially "slap" and "mandate". Each of these options get described in terms of Congress forcing the industry to take steps, as opposed to the industry taking such action itself. In addition, it's worth noting that the alternative energy suggestion is phrased in terms of research instead of results. It's a tentative exploration instead of a commitment to outcome-based goals.
It is doubtful Congress would take such action. Still, if they did -- or if the industry were to find some way to work together like the semiconductor industry did so successfully with Sematech -- each effort would have dramatically increased odds of success if they focused on results instead of activities. Performance is the primary objective of change, not change. Any effort to find a blended, more sustainable approach to energy would benefit tremendously by first setting a goal such as: "By 2010, at least 20% of energy uses come from alternative sources."
If Congress were to mandate (and follow through) on that, this industry -- filled with dedicated, talented and creative people -- would deliver. If Big Oil were to use a healthy chunk of their profits to create their own 'Sematech" with this kind of outcome-based goal, they'd succeed.
And, when they did, all of us -- and all of our children and grandchildren -- would be better off.
Posted by Doug Smith at 12:23 PM | PermalinkOctober 24, 2005
Dynamic Deductibility
The Chronicle of Philanthropy is out with their 2004 rankings of the Philanthropy 400. No, this is not a version of the Forbes 400. It doesn't tell you how the 400 wealthiest people in the world use their money for something other than consumption and further enrichment. Rather, the Philanthropy 400 reports the annual donations received by the 400 largest charities. In 2004, those gifts totaled $53.9 billion -- roughly 25% of the $248.5 billion the American Association of Fundraising Counsel estimates was raised by America's more than one million non-profits.
The United States has a $12.4 trillion economy. $250 billion in charity represents 2% of that amount. Meanwhile, assuming that there are at least 1,000,400 non-profits, these numbers mean that roughly 1.5% (three quarters) go to a million organizations. In dollar terms, that means the typcial non-profit takes in about $187,000 a year.
At wage, benefit and support (i.e. rent plus some overhead) levels of, say, $40,000 per person -- a number I think is actually too low -- this means the typical non-profit is a tiny (and struggling) team of four or so folks trying to respond to needs ranging from social services to education to arts to health and so forth.
Put differently, the non-profit sector is characterized by complexity at small size.
According to wikipedia, stock market capitalization is roughly equal to GDP of $12.4 trillion (and that only reflects publicly traded equities -- wikipedia estimates the size of all equities is maybe double, or $25 trillion).
Equities, of course, represent only part of the capital markets. Still, these number provide some sense of the tremendous lift that could happen if we could find some way to link non-profits to the capital markets -- other than through 'annual giving'.
In On Value and Values, I propose 'dynamic deductibility' as an avenue to link the non-profit sector to the wonderful engine of efficient capital markets.
Here's a snapshot of how it works: Non-profits would have the option of issuing 'dynamically deductible units' ("DDUs"). Purchasers of DDUs would not deduct the money in the year they provided the money -- but, instead, hold the DDUs for a later trade in the market for DDUs. Holders of DDUs would take their deductions in the year they sold the DDUs.
For example, you purchased 100 DDUs from Charity X at $25 per DDU this year (2005). You would not deduct the $2500 this year. Instead you would hold the DDUs. Say you sold all 100 DDUs in 2007 for $32 per DDU. In that year, you could deduct $3200 (minus any charge for 'capital gains').
2% of GDP is a pitifully small amount of resources with which to tackle the tremendous challenges that the non-profit sector now confronts. This is made all the more difficult by a non-profit industry structure that is way too complex and filled with far too many 'tiny' players. (All industries benefit from 'tiny' players -- my point is not to denigrate small size. Rather, it is to point out that all industries also benefit from structures that also have large players in representive numbers and scope -- something mostly lacking in non-profit industries).
Yes, by all means, let's do whatever we can to encourage Americans to give more -- to raise the 2%, say, to 2.5% or 3%. But, even at those levels, we'd still face a non-profit sector overmatched by the challenges and expectations confronting it.
We need to fix this. And a powerful way to do so is to link our incredibly large and productive capital markets to organizations who only need capital to grow. 'Dynamically deductible units" -- or other proposals in this vein -- can do this. And, in the process, make us all better off.
Posted by Doug Smith at 04:49 PM | PermalinkOctober 23, 2005
Ben & Jerry's Redux
Many who admired Ben & Jerry's iconic status as a socially responsible company worried about the dilutive effect of Unilever's acquisition of the ice cream maker in 2000. And not without reason. According to current CEO Walt Freese, the company under Unilever softened its commitment to continuing the efforts of its founders. There's a lesson in this about corporate social responsibility (which we'll return to below). But, in addition, there's a profound lesson about brand.
If most people knew one thing about Ben & Jerry's brand it was this: the mission and the company were not just about crazily named ice cream. The brand stood for both making good ice cream and taking action to improve the lives of people.
When Unilever went 'soft' on Ben & Jerry's social mission, they also turned their backs on one of their own core competencies: branding. They jeopardized the soul of Ben & Jerry's brand. So, CEO Freese's decision to embark on a $5 million dollar campaign to save small family farms is both good corporate social policy and good corporate economic policy. It is Ben & Jerry's redux -- a return to what the company stands for.
From it's beginning, Ben & Jerry's brand -- like it's mission -- stood for both the pursuit of value and the pursuit of values. The two were intertwined; each contributing to the success or failure of the other. Like many other businesses facing growth and competition, Ben & Jerry's stumbled. Eventually, the company reached a point of mediocrity -- but it was mediocre performance with regard to both value and values. The failures on both fronts reinforced each other -- just as the earlier successes had done.
The orthodox business press (those who worship shareholder value as if it were an idol), jumped on the failure as evidence that Darwinian concern for profits is the one true path. Celebrations must have ensued when Unilever took over the troubled company.
Based on Freese's announcements, these celebrations were premature. But, there's yet another and deeper lesson in all this: It is a heck of a lot easier to reestablish a brand that stood for integrating value and values than to change 'value-only' brands into more sustainable promises and experiences.
Unilever has hundreds of brands for products it makes and distributes around the world. As our interconnected globe of markets, networks and organizations spirals into ever increasing complexity and messiness where social, environmental, political, technological, religious, medical, and legal challenges cannot be disentangled from economic ones, Unilever -- like all enterprises -- must find its way to an integrated concern for value and values.
This goes beyond the profoundly unethical so-called balanced scorecard -- the wolf in sheep's clothing that justifies concern for values only if it promotes shareholder value. Instead, drawing from the heritage of Eastern philosophy, we must learn to see and act on our legitimate concern for profits with our equally legitimate concern for all human values. Each -- like the original vision of Ben & Jerry's -- must serve the other in reinforcing ways. This is not the one-way street of the balanced scorecard (concern for employees and customers okayed as long as shareholders benefit). The ethical scorecard demands that the pursuit of value serve the pursuit of values that serves the pursuit of value that serves the pursuit of values.... and on and on.
It's extraordinarily difficult and complicated to turn a behemoth of Unilever's size away from 'profits and value only' to a more sustainable approach. The sheer number of issues they are tackling is mind boggling. The challenge they've set to find some coherent and transparent way to set goals and evaluate progress is daunting. (And, as can been seen in their 'five year record', they have yet to wrap their minds around the true integration of the financial with the non-financial).
Still, kudos to the employees (including executives) of Unilever. They've given deep thought to the challenges ahead. They have publicly declared their intention and commitment. And, with enough focus on performance -- real outcome-based goals that integrate concern for value with concern for values -- they have a real chance to get where Ben & Jerry's was at the beginning: a brand that stands for the fully human enterprise.
Posted by Doug Smith at 01:28 PM | Permalink | TrackBacks (1)October 20, 2005
Dead End Giving
We've all heard about the 'gift that keeps on giving' -- an aspiration that connects sustainability with charity. This is particularly important in a world of markets, networks, organizations, friends and family because (1) organizations use charitable resources to achieve chosen ends; and, (2) all organizations are businesses -- that is, have some kind of focused set of services or products that depend on continually generating as well as using resources.
Put differently, gone are the days when most charity went from individuals to individuals. Instead, our charitable gifts go to organizations -- intervening businesses whose purpose is to provide assistance and help to individuals.
And that means we who give must pay attention to the sustainability and performance of the business of those charities we favor. We must think of ourselves, at least in part, as investors in those businesses.
All of which makes the following anecdote troublesome. An extremely wealthy person recently chose to gather other wealthy people to hear from a variety of experts about philanthropy. As initially designed, one panel was to cover 'social investing' -- an entire field of thought that specifically connects investment thinking with organizations who 'do good'.
Yesterday, I learned that the panel had been cancelled by the wealthy sponsor who declared, "There is nothing about so-called social investing that is remotely connected to philanthropy."
We need to celebrate all -- rich and poor -- who give charity. Let us then stand up and applaud this wealthy person for the initiative behind this gathering. It is a good thing.
And, let us hope that the conference sponsor will hear and learn more about 'gifts that keep on giving' because the same investment thinking that made this person's wealth can and do make charitable organizations more sustainable.
Posted by Doug Smith at 02:13 PM | PermalinkOctober 19, 2005
Shareholder Values at Roche
As of today, scientists know two things about avian influenza ( the 'bird flu"). First, that the disease is deadly. Second, that transmission from birds to humans is rare. In the dice game of mutation, however, both characteristics could change. Humans might become vulnerable to birds. The disease might become less deadly.
Mutation at this biological level happens lightening fast. Both shifts could very well happen over the course of this autumn and winter. All of which means we need to pay attention to the pace and effectiveness of the other mutating phenonmenon -- human kind's medical response as determined by markets, governments, networks and organizations.
Looking over the past several decades, we can find much to give us confidence here. There is a nearly vertical growth curve in indicators of scientific advance (patents, scholarly articles, technological advances, etc). And, still, we must remind ourselves that we are human. There is that other part of the picture: greed, selfishness, fear, bigotry and so on. There is the track record of governments that have not distinguished themselves in terms of performance that matters such as planning, preparedness, fairness, coordination and so forth.
And, there is the profit motive -- the celebrated engine of bringing good things to life. Good things like Tamiflu, the patented pharmaceutical owned by Roche. Big Pharma has not distinguished itself over the past several years in adhering to the Hippocratic Oath, that, among other things, demands all health professionals to 'keep the sick from harm and injustice'.
Roche, like other big pharmaceutical companies, has recently written a caveat into this oath: so long as they can pay, we can make profits and we can preserve our patent rights.
All of which means Roche's reversal of its announcement last week that it would remain the sole manufacturer of Tamiflu is good news on two counts: (1) that Roche will now consider licensing others; and, (2) the speed of the change.
One week. That's much, much faster than any similar shift has happened with those pharmaceutical companies who have refused to sell anti-viral AIDS patented medicines to impoverished peoples. It is, as the management gurus like to say, a dramatic improvement in cycle time.
At least two potential causes are known. Kofi Annan has put pressure on Roche. And, Cipla, an Indian pharmaceutical company announced it is nearing readiness to distribute an un-patented version of Tamiflu. Put differently, we can see both governments (the UN) and markets (competition from Cipla) at work in the 'mutating phenomenon" that will determine human response.
Both are good news. Now, let's ask Roche and it's shareholders (as well as employees): At what profit margins will you license Tamiflu? Will you use 'quality requirements" according to the Hippocratic Oath, or as a smokescreen for restricting distribution?
Put differently, what do you stand for? What are your values?
Posted by Doug Smith at 12:17 PM | PermalinkOctober 18, 2005
Ignorance at The Economist
Over the years since 9/11, The Economist has run a series of commentaries on globalization, corporate responsibility and the common good under such titles as "Profits over people", "Globalization and its critics", "The good company", and "Profits and the public good". The pieces are clearly written and worth reading -- if you're interested in a refresher course on the best available thinking about 19th century economics.
Those of us who struggle with 21st century realities, however, need access to better and different thinking. It's been more than 230 years since Adam Smith wrote about the power of self interest to motivate his local butcher, brewer and baker. Today, the vast majority of those who read The Economist, like the rest of us, get our dinner from 'farm through food' chains that stretch across the globe and run through thousands of corporations. "Self interest" continues to matter tremendously. But, the 'self' in the phrase is no longer traceable to a local baker or butcher. It's just more complicated than that.
Continuing to preach -- and the tone in these pieces could easily come from a pulpit - about the wondrous power of the profit orientation to bring good things to life has all the superficial appeal of an idiot savant. Yes, there is wisdom. Profits and the profit orientation in markets matters to the health and well being of the globe.
But, note to The Economist: we already know that.
How about taking the risk to learn something new -- something that can actually help the rest of us make choices in dealing with complex current reality?
Posted by Doug Smith at 12:01 PM | PermalinkOctober 11, 2005
Delphi's Viral Bankruptcy
Two centuries from now Robert Miller, the CEO who took Delphi Corp into Chapter 11 last Saturday, will be as little remembered as Ebenezer Monroe -- the farmer who may have fired ‘the shot heard round the world’ on Lexington green in 1775.
Miller’s filing, though, has already ricocheted across the planet. In just a few days, the Delphi bankruptcy reached into and shook up the lives of hundreds of thousands of people. Tens of thousands of United Auto Workers (current and retired) –- and their families -- awoke Sunday to the possibility of strikes, radically reduced wages and benefits, lost jobs and diminshed or eliminated pensions. Eventually, some will follow Delphi to bankruptcy court.
Thousands of auto parts suppliers (hundreds who sell to Delphi) are already revisiting options that include fire sales, mergers, closing down and, yes, bankruptcy. Tens of thousands of people work for these copmanies. They, too, heard Miller’s filing. Tonyia Young worries her employer Guide Corp. will match the steep wage and benefit cuts planned at Delphi. Tonyia will undoubtedly witness some in her position follow Delphi into bankruptcy.
Men and women who run small businesses near Delphi and other affected companies could hear the “bang!” of Miller’s court action, too. Said Mary Mosley, owner of the Lighthouse Bakery and Deli about a mile from a Delphi plant: "It's scary because a lot of businesses are connected to Delphi. It makes a big difference."
Some of these merchants will follow Delphi into bankruptcy.
What to Mary and Toniya were anxious murmurs must have been a sonic boom to people at GM. It’s not just the $1.2 billion Delphi owes GM. Far worse are these twin threats: (1) Any disruption in Delphi operations could shutter GM plants heavily dependent on Delphi parts; and, (2) GM might have to reassume $11 billion of liabilities it had hoped to shed when it spun Delphi off six years ago.
By Monday, GM stock had plummeted and some openly speculated on what was once unimaginable: That GM might follow Delphi into bankruptcy.
Not everyone rose to cold gruel for Sunday breakfast. Chinese auto parts manufacturers whose business has tripled since 2001 are looking at the kind of sustained growth that, fifty years ago, prompted the head of GM to brag, “What’s good for General Motors is good for the country.” European auto parts suppliers who've done a better job of implementing strategy than Delphi see opportunities to pick up assets and become stronger. And, many investors think the tea leaves finally point to the kind of industrial restructuring that can make them rich (or richer).
Unlike these potential winners from Delphi's bankruptcy, the thousands of workers, families, businesses, merchants and others who stand to lose will see the viral contagion pile trouble upon trouble onto the quality of their lives in the places they reside: personal and business bankruptcies, divorces, worsening drug and alcohol abuse, broken local government budgets, deteriorating services, a sense of isolation and despair.
In 1775, people like Ebenezer Monroe shared fates with others because of the places they lived together. People from other places were unwelcome if they brought trouble with them. We don't live in a world of places anymore. Instead, ours is a world of markets, networks, and organizations. In our new world, place is contained by - and is subject to -- business, not the reverse.
And, so it is that CEO Miller's message heard round the world is quite the opposite of what echoed from Ebenezer Monroe's musket. Monroe exclaimed to the British, "Take your business out of my place!" Miller of Delphi proclaims to all adversely affected by his Chapter 11 filing, "Take the problems of your places out of my business.”
October 09, 2005
Suggested Reading
A few weeks back in a post entitled Downsizing Journalism, I commented on the suicidal effects that cost-focused strategies have on newspapers: cost reductions in the face of declining circulation reach into the newsroom which, eventually, reduces the quality of the news which leads to declining circulation and more cost reductions.
There are three parts to the phrase "newspaper business": (1) news; (2) paper; and, (3) business. With the rise of the Internet -- and shifting habits of younger people -- paper has emerged as a very expensive form of distributing news. Put differently, paper drives a wedge between part one (news) and part three (business).
This is not trivial. And, that's why every executive and employee in newspaper organizations (and anyone else who cares about this topic) should read Ken Auletta's article in the October 10, 2005 issue of The New Yorker. (Sorry: The magazine, at least as of today, chose not to post the article on its website).
Auletta uses the recent resignation of the Los Angeles Times' editor as a focal point to explore the fundamental problems facing newspapers. He has done a masterful job of presenting in clear and compelling ways the tensions between the Los Angeles Times' editors' desires to be a world class newspaper versus the coporate headquarters' desire to deliver steady growth and earnings from the newspaper business.
The title of Auletta's article is "Fault Line". It's brilliant. Not only because he so clearly lays out the inherent tension between striving for quality news versus meeting bottom line expectations - but also because, as happens too often in organizations facing profound change, the leaders from both sides fell too easily into a game of finding fault - the 'we/they' battles that never produce win/win strategies for change. Never.
Auletta has done something else in this article. He has provided journalists an example of excellent journalism. He has done a careful job of reporting both sides of this story. He has not pulled punches; but, neither has he taken cheap shots. He has succeeded in portraying all the players as human beings trying to do their jobs in a tough situation. In other words, he has shown respect to the people in his story and, thereby, shown respect to the readers of his story.
The Los Angeles Times can achieve both aspirations: (1) world class news; and, (2) profits and growth. But it cannot succeed if either goal trumps the other. Auletta's piece -- if carefully read and used -- can help the people of the Los Angeles Times find their best future together. Indeed, it can help all people in newspaper businesses convert the 'paper' wedge pitting 'news' against 'business' into a clarion call for shared collaboration and creativity required to deliver both high quality 'news' and high quality 'business'. Both/and. Not either/or.
Posted by Doug Smith at 01:46 PM | PermalinkOctober 05, 2005
Budgetary Sleight of Hand
Yesterday's post about the $300 million of Katrina donations by businesses triggered this anecdote from a friend who leads a non-profit housing group in Minnesota. He was on the phone last week with a few companies that have consistently supported his organization. And, he was told, "Don't expect the same -- if any -- financial support this year. We've given to Katrina."
These corporations, like many, may have budgetary limits for giving. That makes sense. Gifts are like any other item (e.g. inventory, salaries, new product development and so on). Good business practice demands careful attention to how resources are allocated. Among other things, that means budgeting and planning.
Yet, the question still arises whether -- in a crisis like Katrina -- sticking to the budget is the wisest choice. The most chilling words my friend heard were 'if any". Non-profit organizations are especially dependent on consistency in gifts -- it's one of the rare sources enabling them to do planning and budgeting. Pulling the plug is, therefore, particularly damaging.
Katrina was a huge catastrophe. For businesses truly affected -- like those in the Gulf Coast -- it means severe adjustments to every single item in budgets. But for those not affected, the shifting of gifts from one beneficiary (my friend) to another (Katrina) without increasing the budget for gifts is a cruel sleight of hand. It will look good on the corporate website and PR ("We gave $$$$ to Katrina.") But the public and investors are not likely to understand the corollary ("We didn't give $$$ as we always have to the following organizations...).
It also raises this question about value and values: If a corporation not directly affected by Katrina doesn't raise the budget for giving, have they actually given?
Posted by Doug Smith at 11:36 AM | PermalinkOctober 01, 2005
Plato to Red Cross: Know Thy Brand
In Katrina’s wake, folks at the American Red Cross might want to sneak a peek at this snippet from Plato’s Alcibiades:
SOCRATES: But should we ever have known what art makes a shoe better, if we did not know a shoe?
ALCIBIADES: Impossible.
SOCRATES: Nor should we know what art makes a ring better, if we did not know a ring?
ALCIBIADES: That is true.
SOCRATES: And can we ever know what art makes a man better, if we do not know what we are ourselves?
ALCIBIADES: Impossible.
SOCRATES: And can we ever know what art makes our organization’s brand better, if we do not know our brand?
ALCIBIADES: Now, you’ve lost me Socrates. What the heck is a brand?
Unlike 26 centuries ago when Socrates and Alcibiades chatted, brands are an essential element in our 21st century world of markets, networks, organizations, friends and families. Among the many reasons: human beings depend on pattern recognition to make quick judgments. Bu in our new world, we don’t look for footprints, broken twigs and scat in the woods. We look for brands.
Katrina devastates the Gulf Coast. We want to help. “Red Cross” comes to mind.
It is no surprise that as of this week, Katrina donations to the Red Cross neared the $1 billion mark – more than double the total amount donated to all other charities combined.
Put differently, Red Cross’s powerful brand helps explain its overwhelming market share in disaster relief.
Disaster relief. That sits at the heart of the Red Cross brand. And, it’s why a review of Plato’s Alcibiades dialogue should be high on the ‘to do’ list for leaders of the Red Cross – because it could help them find the limits of what their brand stands for and avoid, once again, incurring the displeasure of their donors.
First, a quick look back to 9/11. $1.1 billion flowed into the Red Cross – but, the organization chose to shift $200 billion to ‘future crises’. People had given for the 9/11 crisis – not ‘future crises’. People were upset. The Red Cross – and it’s vaunted brand – took a hit.
Only, in that case, the hit came from a communications failure – not a failure to know thy brand. In shifting $200 billion to future crises, the Red Cross stuck to it’s mission and brand and what it is excellent at doing. It should have been more forthcoming with the donating public about this. But it did not move ‘off brand’.
Burned by 9/11 criticism, now the Red Cross may be headed toward a different and more subtle mistake – spending all the money on disaster relief even in the face of profound needs for rebuilding and other ‘second phase’ efforts.
Part of ‘knowing thy brand’ is also knowing what your brand does not stand for – what your organization is not particularly good at. The Red Cross is as good as they come at disaster relief. But, the Red Cross lacks the institutional skills, experiences and traditions at ‘second phase’ recovery – the longer term, tougher job of helping people put their lives and communities back together.
Who is good at that? Ask yourself what brand pops to mind? Probably, you’ll have a tough time. But, leaders at the Red Cross have answers to this question because they'be been through this many times and have long standing business realtionships with organizations who do provide 'second phase' support.
In Katrina’s aftermath, 'second phase' support creates a huge dilemma for the Gulf Coast and for the Red Cross. There are no ‘brands’ – organizations well known to the donating public for medium-to-longer term community and economic development. But, that task is sorely needed and one fact stands out: The Red Cross now has huge monetary resources with which to find and partner with organizations that can take on ‘second phase’ rebuilding.
Will they do it? We hope so. Let’s note, though, Red Cross' leadership face some tough choices:
First, to avoid the miscues of 9/11, they would need to mount a communications effort explaining why they believe these uses of donations are consistent with meeting the Katrina disaster.
Second, they’d need to move quickly in identifying and partnering with reputable ‘second phase’ organizations.
Third, they’d need to look deep into their ‘brand souls’ – to practice Plato’s dictum – and acknowledge to themselves and the world what they are good at and what they are not good at.
Posted by Doug Smith at 01:34 PM | PermalinkSeptember 28, 2005
Downsizing Journalism
It’s like a scene from The Godfather – the staccato, serial elimination of the enemy’s key players in a single moment. Only, according to the Columbia Journalism Review, the enemy are journalists and those doing the firing are their media bosses.
In less than two months of carnage in the newsroom, media companies have put big numbers of journalists out on the street: 45 at The New York Times, 35 at The Boston Globe, 25 at The Philadelphia Daily News, 75 at The Philadelphia Inquirer, 52 at The San Jose Mercury News, and 100 at Newsday. Similar efforts are apparently underway at The Los Angeles Times and San Francisco Chronicle.
Jon Friedman at Dow Jones’ MarketWatch writes, “This is a scary time to be a journalist.”
Not to mention other employees – hundreds of them are also getting pink slips along with the journalists.
Friedman says Wall Street is to blame – claiming that media companies’ fear of failure to achieve profit expectations drive the cost cutting moves. Susie Madrak atSuburban Guerilla agrees and also adds that a serious decline in professionalism and the quality of the product explain the mass layoffs.
In other words, these events at newspapers across the nation are raising questions about performance – what does it mean, who benefits from it, and what are the best strategies and approaches for delivering it.
We have a deep problem in this country. With the predictability of Pavlov’s dog, we equate performance with the bottom line – with profits and shareholder value and winning. When, in a business context, we say “performance’, this is what we mean: financial performance and only financial performance.
Yes, over the past few decades, popular frameworks like the balanced scorecard have taught us to quickly mention other constituencies beyond top management and shareholders: customers, employees, communities and so forth. But, as actually practiced, the Balanced Scorecard is not balanced. It is an important contribution for which we all should be thankful. But it has become a deeply flawed approach that, when all is said and done, merely reinforces our maniacal obsession with profits and shareholder value. Customers? Yes. Pay attention to them. Why? Because they are the means to deliver profits and shareholder value. Employees? Yes. Pay attention to them. Why? Because they are the means to delivering good customer experiences that deliver profits and shareholder value.
Profits and shareholder value are essential to success in a market economy. No one can argue with that. But – and here’s what’s leading to the mass firings of employees at newspapers – when businesses make shareholder value the “be all/end all” of everything they do, they undercut the very value they mistakenly think they’re creating.
Simple math explains this. How much profits are enough? Answer in our capital markets: No profit margin is too high. How many consecutive periods of compounded profit growth is enough. Answer in our capital markets: There’s no such thing as too many.
Well, start with whatever level of profits you want. Now, to satisfy the endless demand for shareholder value (not to mention management compensation and reward) make the profit margin higher and higher and higher. Now, pick an actually number. Say, $10 million in annual profits. And grow it at some rate every accounting period into the endless future.
You can’t. But the pressures to do this very thing lead to many observable phenomena. When performance means profits and shareholder value exclusively, performance itself is not tethered by any other dimension of reality. If floats, like a helium balloon – only no one is actually holding a string. It’s an illusion.
In newspapers, the untethered drive for profits to satisfy shareholders produce editorial practices that, to cut costs and curry favor, print the press releases of those they are supposedly monitoring and call it ‘reporting’, journalists who, to advance careers, stop questioning and challenging those with power in our society, and advertising and circulation folks who push beyond the edge of the envelope in ethical practices.
When it comes to the ‘news’ in ‘newspapers’, the product is cheapened, thinned out, spun dry. The strategy for news becomes what business gurus call ‘cost focused’ instead of ‘value focused’. And, that’s a death knell – at least for news. Because, while technology and other factors can help papers manage costs, reporting, fact checking, gathering multiple sources, weighing wisdom and judgment and all that goes into ethical and professional journalism is not, at the end of the day, a cost-driven business.
Media companies and newspapers have other lines of business that might lend themselves to cost-driven approaches (although, most strategists agree that both cost and value are always part of the equation). The New York Times, for example, recently described multiple strategies for growth.
But newspapers seem to have herded themselves to cost-focused strategies when it comes to the news. And, a close reading of the Times’ strategy presentation reveals the damage: ‘circulation is soft’. Why? Because as long as they call themselves newspapers, these offerings must deliver news as part of the product.
The last few months have been brutal on journalists and other employees. But the carnage won’t stop until the journalists and their colleagues from top to bottom figure out how to articulate and pursue performance that matters to all they serve in sustainable and reinforcing ways. The Godfather’s carnage is the tale of turf wars between rival organizations. It’s about serial homicide and assassination. What’s happening in America’s leading papers, though, is a tale of organizations at war with themselves. It’s not homicide.
It’s suicide.
