Stimulus Shmimulus

Now that the federal government has committed to spending no less than $850 billion (the $700b plus the earmarks plus the earlier tax stimulus package) on trying to dig us out of a hole, isn't it time for some common-sense economic intervention? For two years some of us (including Tom Friedman for example) have been advocating in favor of a Rooseveltian, WPA program that would help with the REAL issues: jobs, updates of infrastructure, generating trust in the government and the future.

There are countless federal and state-wide projects that have been languishing and will continue to do so as funding is cut to accommodate wars, purchases of questionable mortgages, bailouts of the AIGs of the world and so forth. At the same time, the unemployment rate, currently at 6% will continue to rise. (Let's not forget that the 6% only counts those receiving unemployment compensation. For all of the independent contractors whose businesses had dried up and those who have used up their unemployment insurance, they no longer are counted in that 6%.) It's worse than it looks, and getting worse yet.

What would turn the tide? JOBS! People who are unemployed do not spend. They do not pay income taxes. They don't make good on debt. So the cycle is vicious. As their morale drops so does the revenue that the government at every level collects because low incomes mean low taxes. And no spending means no sales tax revenue. If we are going to "spend money to make money" (the hidden premise behind all of the bailouts and interventions) we should spend it on creating jobs.

Let's take $100 Billion and put it toward construction projects to update bridges, expand airport runways, enhance rails for the railroads, build solar and wind energy centers, retrofit economically inefficient power plants, repair prisons and schools and so forth. These aren't makeshift jobs, they are the stuff that government ought to be underwriting on a perpetual basis. This kind of expenditure is guaranteed to give back. It employs people in real jobs that produce real results. The income the people receive is paid back in part through direct income tax revenue. It is further paid back through indirect tax revenue (the sales tax people pay when they spend their earned income), it underpins strength in our banking institutions as mortgages get paid in higher numbers and people bank their savings for the future. It generates faith in a better tomorrow which will stem the tide of investors jumping ship and killing the equity markets.

This is not a new idea. Roosevelt had it and Congress enacted it in 1932. If we can't learn from history we are doomed to repeat it. This is a case where something was done right and we are unwilling to learn that lesson. Are we destined to relive the depression that gave rise to the WPA? We have an opportunity to avert that eventuality, if only our leaders could see the picture from multiple dimensions. Yes, save Wall Street -- but Main Street doesn't need tax incentives or other roundabout and postponed gifts, it needs the therapy of work and the the injection of pride that comes from earning one's own way.

Should You Pay-Off an Embezzler?

Wal-mart former executive Caughlin admitted to embezzling money from Wal-Mart for his hunting hobby -- some for the lodge, some for his dogs and a bit for liquor and beer. He did this while still in the role of protege to the iconic Sam Walton. Wal-Mart tried to deny him his $17m retirement package but Caughlin sued in Bentonville -- AND WON!!!

Coughlin then counter-sued for emotional distress. (Yes, really. You can't make up this stuff.)

Finally, the Arkansas Supreme Court said that Wal-Mart need only pay a meager $6.75m to Coughlin. Meanwhile, Coughlin is staying home on prolonged house arrest.

I am SO glad I don't own Wal-Mart stock. As ludicrous litigation and upside-down executive pay goes, this deserves an award.

More ranting about this on todays's AmieDeveroLive show. Use the widget at the left to find the show and listen!

Radio Show Starts Wednesday August 13th, 10:00 AM EDT

Tune into Amie Devero Live on www.nowlive.com to hear the first live broadcast of the Internet radio show. If you can't make the live time, download the podcast available one hour after air time!
The guest for this show will be Francis Wade, President of Framework Consulting and Amie's former business partner. We'll be talking about the impetus for the Powered by Principle approach and about Francis' work in corporate culture.

Sub-Prime Securitization Hits Main Street

Up to this point the victims of the sub-prime fiasco have been somewhat culpable in their own destiny. For example, there are those who borrowed money with terms that would ultimately come back to haunt them -- and who did so to get funds they otherwise couldn't have borrowed. While its impact is horrific, there is a tiny iota of justice in the scenario. After all, if it looks too good to be true....

Another set of victims were big funds and their investors, those that have primarily institutional backing. Investors like those should have done proper due diligence and learned how risky a foundation the funds were built upon. Again, the victims are not blameless.

But a new set of victims is emerging, and these are truly without blame or responsibility. Elderly people, hoping to preserve or modestly grow their nest eggs were counseled by their advisers to invest in "conservative" funds. The advisers in question? Morgan Keegan, the Memphis brokers.

Now, those funds have lost up to 86% of value, depleting nest eggs and the life savings of those who can never recover because they simply won't live that long. Sadly, many of the victims reside in my own state, Florida, and some live within miles of my own mother. Who should have protected these people? Their adviser for a start; that is, the very people who led them to this financial slaughter. Have we come to the point where we need to hire forensic accountants to second guess the recommendations of our financial planners? Who can we trust both to have done his homework, and to tell us the truth about what they found out? Perhaps we have entered the age of Caveat Emptor run amok -- a scenario in which no one can be trusted -- not even those who's very job description is "trustworthy and wise adviser". In a world like this, one would not entrust a confession to a priest.

Nursing Homes Apply Profit-Over-Patients Principle

Remember the dumping of mental patients? Well, the new trend is nursing homes dumping long-term or difficult patients. This trend is a function of several conditions unique to the nursing home/medical industry. Apparently, when patients come out of a 3 or more day hospital stay into a nursing home, their stay is financed by Medicare or private insurance. Medicare pays the nursing home fairly well, as does private insurance. Fast-forward 6 weeks or 6 months and the landscape has changed. The patient has now exceeded the coverage of Medicare or has used up his insurance coverage and so now must be paid for through Medicaid. Medicaid pays about half of the daily rate that Medicare pays.

There are a lot of ways that nursing homes could address this. And there are lots of better ways that nursing homes (the guilty ones) could deal with this. They could lobby for changes in their States. They could establish special wards for Medicaid patients that generate unusual savings through economies of scale. They could create a mass PR campaign to expose the inequity and heartlessness of this system. But what some of them are doing is finding sneaky, marginally legal ways to oust their burdensome patients.

Their methods are clever. The law prohibits simply dumping the patient on the sidewalk (as does basic humanity), and it also precludes evicting patients except under certain circumstances. But, as i said, they're clever. Since they are allowed to evict patients if they close down (as in, go out of business), they have been known to stage a "closing" by locking up for refurbishment or something else. Once a patient is out, there is no penalty against refusal to readmit. (Well, the courts might not allow it, if only more cases were brought to court).

Another insidious way to exile the elderly pests is to admit them to a hospital for a real or exaggerated illness. Once there, again, readmittance is denied.

Money isn't the only rationale for this deplorable behavior. Patients can become difficult, less cooperative, messier or more care-consuming. That's the nature of aging. None of us is going to escape this problem without dying early. So since you too will one day be a victim, shouldn't you care about this? Ironically, of course the same holds true for nursing home administrators. What principles are at play for those administrators as they make these choices? That's clear: The quest for profit and sometimes, pure laziness.

If you have a parent, an aging friend or are approaching your own geriatric years, this is something to note. Start considering how you will deal with efforts of a nursing home to displace your loved one or yourself. How will you argue for your right to care? Without a government that is more invested in compassion that tax-cuts, and without a change in the health insurance system or the way that nursing homes are compensated, you will likely face this dilemma. It would be useful to consider, from the standpoint of a nursing home that is genuinely committed to the principle of patient care, how they can transcend these conditions. How can a nursing home strategize to be profitable, but also maintain patients who may be a financial losing propositions or who make a massive demand of resources?

Whoever solves this problem will be making a difference for millions of people, including you and me.

How Do You Vet Your SR Fund Manager?

Pax Management Group has been fined $500,000 by the SEC for having failed to properly vet its investment for being socially responsible, as promised. As a result, it made investments in companies that fail to meet its own criteria. The one thing that is good in all this is that Pax has not attempted to make excuses. Unfortunately, they also "haven't admitted guilt". But CEO Joseph F. Keefe has claimed they are doing a top-to-bottom review of practices to correct this problem for the future, and have already made significant improvements.

Perhaps the more interesting dilemma here stems from the way that they violated their principles. Amongst the offensive securities purchased are: Anadarko Petroleum Corp., an oil and natural-gas exploration company; Darden Restaurants Inc., which operates a chain with its own micro-brewed beer; and Jacobs Engineering Group Inc., a defense contractor. Why are these problematic? Because amongst the industries that Pax promises to avoid are those that engage in military contracts and tobacco commerce. But the lines are very broad strokes indeed: Here is a piece from the Pax Sustainable-Investing Overview brochure:





As you can see -- (well, it's kind of small. You may need to have a younger friend read it to you) -- the criteria are pretty loosy-goosy. Besides, in the world of consolidation and massive multi-national conglomeration, how do you escape the ultimate deconstruction of your investments into being offensive in a minimum number of degrees of separation?

Choose whatever "blue chip" security you like, and in a game not unlike the famous Kevin Bacon parlor game, in fewer than 6 degree of separation you can connect it, intimately, to guns, tobacco, human rights offenses and the like. Go ahead, try it!

Take, for example, IBM: What do you know, IBM owns oil refineries and oil "exploration" companies! Now, I wonder, do you think all that oil exploration is here, in the so-called FREE world, safe from the control of foreign oil? Doubtful.

Okay, what about, say, General Electric? What d'ya know, GE provides engines to the military. And so forth.

These are weak cases, easily found and so not as bad as one might expect. But dig deeper and you'll find those connections. So is it even possible to stay "clean"? Doubtful. But it's nice to think that people are trying, even if only for the sake of window-dressing. Right?

Here's Some Evidence That Change is Possible and Really Happens.

Having been in last place amongst major airlines for on-time performance, US Airways was a sort of pariah amongst fliers in the know. When your brand is that beleagured, in some ways there's no where to go but up.
Instead of mere incremental change though, US Airways has taken its dire performance and turned it on its head. Through a text-book example of strategic goal-setting, planning, operational improvement and some simple but effective ingenuity, they have taken over 1st place.
Southwest Airlines, the usually unbeatable rival, has been dethroned. The systematic approach to making these changes is a great object lesson in the massive strength of lots of small changes made at once, and consistently performed. No single step is Earth-shattering -- but neither was any circumstance used as an excuse for failure. Weather problems that plague the mid-west could have been an impediment -- so could the fuel prices that have forced flight cancellations. But Robert Isom, COO, never relented in his focus on turnaround, nor did he allow the entire organization to fall off the track. Instead, every instant of the chain from conception to flight was assessed, and each moment that could possibly be addressed was transformed from a moment of peril into a positive moment of truth. For detail read the article in the Wall Street Journal. Then extract any of a thousand lessons from this tale to use in your own life or organization's path toward being a high-performance, strategy-focused force of nature.

When Offshored Customer Service Sucks, Stock Value Drops. Shocking!

The WSJ report “How Offshore Outsourcing Affects Customer Satisfaction” states customer satisfaction drops when outsourced and off-shored customer service is implemented. They then cite reasons for that drop in happiness. I was bemused that these findings are seen as a “discovery”. It ought to be obvious that whenever an organization cedes control of the treatment of its customers to anyone, even an internal employee, things will go awry.

The same principles that make internal customer service work ought to be applied to outsourced or off-shored service. For example, most department store customer service lacks for the same reasons that the authors cite as causing deficiency in off-shored service: lack of training, lack of authority, lack of information. The contrast that proves the rule is an organization like Nordstrom. For them to deliver on the promise of their customer service they have multiple structures in place to encourage their employees to err on the side of great service, as well as granting sufficient authority to them so that they have the freedom to make those right choices. Go to any of their competitors and try to return an item and the violations of these principles are readily apparent. Returns are handled in a centralized location. Only certain employees (managers) have the authority to accept returns. The conditions under which returns are accepted are strict, making the entire process onerous. The limitations on authority make it a gauntlet. Remove those restriction, add a great deal of training on both operations and the logic and principles that underlies decision-making, and voila, customers have a good experience – a positive “moment of truth”.

These same kinds of problems are ubiquitous, both in internal customer interactions and those that take place via outsourced or off-shored employees. Organizations that want to avoid falling prey to the drop in customer satisfaction – a drop that obviously is causally related to a drop in stock value – need to be vigilant about maintaining a deep level of empathy for their customers’ experiences, and ensuring that they remain positive through their policies, procedures, training and control of the behavior of those acting on their behalf. Keeping it in-house is no guarantee of excellence. Off-shoring or out-sourcing is no guarantee of inferiority. Both are subject to the commitment and vigilance of the organization whose reputation and value perception is at stake.

So Who Is For This Campaign Finance Reform Thing? Not the Presidential Candidates.

So -- how about both presidential candidates de facto opting out of the campaign finance legislation that McCain co-wrote and Obama supports? Today we hear of McCain's benefiting from the back-handed slippery antics of fellow Republicans. Basically, State Governor's Association campaigns are able to collect unlimited funds that they promote as helping McCain's bid. McCain's campaign is adamant that they don't benefit and that they don't advocate the Governors Association representatives claiming otherwise. That's pretty hard to swallow. Clearly, unlimited funding of Republican interests in a State can't help but reflect back on McCain -- even just in the form of photo ops. But, as the campaign is keen to point out, they're not breaking any law.

And we all know about Obama's broken promise to use federal funding. His excuse? The campaign finance system is broken. Until it's fixed he's forced to receive private funding.

Both candidates follow the letter of the law -- neither the spirit. So much for being Principle-Powered.

It makes it hard for a simple girl like me to distinguish them from each other.

Although it makes it very simple to tell which one is the real deal.

Neither.

Starbucks' Strategy U-Turn

For many years now Starbucks has been lauded as the example of strategy that disproves the notion that close proximity of company-stores cannibalize each other's business. In fact, there are lots of management articles claiming that the seemingly epidemic-like proliferation of new Starbucks shops was proof that the market was "unsaturate-able".

"It is simple: saturate the market. The accepted business model at the time was to spread out the location of your chain outlets so as not to cut the profits of one store from another. Typically, stores would place their retail outlets in locations based on demographics, traffic patterns, the location of competitors as well as the location of its own stores. However, the Starbucks strategy went against the grain. Instead of following the trend, CEO Howard Schultz had a different idea. He decided that the Starbucks strategy would be to blanket an area completely.

Instead of worrying about stores eating up each other’s business, the Starbucks strategy focused on heavily increasing the foot traffic in one specific part of town. Not only would this cut down on the company’s delivery and management times, but also it would shorten the waiting lines for customers at each individual store and hopefully increase overall traffic. Schultz knew that his Starbucks strategy was a risk, but it was one he was willing to take.

In the end, the unique Starbucks strategy paid off. Clustering its stores in one area helped Starbucks quickly achieve market dominance. With over 20 million regular customers per week, no other American retailer can claim a higher frequency of visiting customers. Since the company went public, sales have risen roughly 20% each year. Even when the rest of the economy seems to be in a slump, loyal patrons keep returning to Starbucks for their regular cup of Joe. " (click here for full article)

If you, like me, were one of the doubters, you should feel vindicated. Starbucks is joining the legions of companies laying off employees -- 12,000 of them -- and closing 600 under-performing stores. Why? Well, it turns out that people are not as lazy as once believed, and stores across the street from each other share some of their customer base with each other. That means that a new shop doesn't earn its keep through the creation of a whole new marketplace.

Apart from the gloating opportunity that this is, there is a strategy lesson to be learned. The assumption that endless growth would ultimately saturate the market -- coupled to the belief that the saturation point was far off in the distant future -- underpinned the entire Starbucks strategy. That assumption also had an ancillary piece: that competitors would be squeezed or locked out by virtue of the seamless net of Starbucks shops. Neither assumption turns out to be true. The first for reasons already stated, and as for the second, the competitors continue to come. None can take away Starbucks' ownership of the space, but they certainly eat away at its dominance.

It's sad that Starbucks has taken so long to realize its error, and that so many will suffer as a result, they are demonstrating the notion of scientific strategizing. When the cause and effect relationship isn't borne out by the numbers (albeit by virtue of lagging indicators which come a bit late to avert disaster) the hypothesis must be reexamined. The reexamination was what the plunging stock prices were suggesting. At last, the advice has been heeded.

Thanks for the object lesson Starbucks!

Florida Goes After BoA Now That They Own Countrywide

Now that they own Countrywide, The Attorney General of Florida is hitting deeper pockets the day after the Bank of America acquired Countrywide (and all of its liabilities).

This is just another in a spate of suits against Countrywide for unfair practices as it spread the gospel of easy home ownership. But new revelations are emerging in this case -- revelations that go to the heart of being Powered by Principle. Amongst the accusations stated within the suit are claims that Countrywide "threatened to fire its own underwriters if they tried to verify the ability of borrowers to pay". Even when it was perfectly obvious that the borrower would be over-extended, and when conventional (and even extraordinary) standards for loan to income ratios were exceeded, Countrywide personnel rubber-stamped the loans.

What principles were expressed here? Certainly, quick revenue (and higher revenue gained from more predatory loans) was one concern. But where were the concerns about risk management, long-term shareholder value, customer service or any of the other stakeholder claims one would expect?

Sub-Prime Redux

California Attorney General and some other heavy hitting States are suing Countrywide and its President (Sambol) and CEO (Mozilo) for deceptive practices. That's better than the senate did. I guess the State Attorneys don't campaign as hard as the Congress, and therefore sell their souls to their supporters.

________________

Related but different. A new book by a reformed sub-prime lender offers some very astute ideas for real reform. The author, Richard Bitner, provides a laundry list of deceptive practices, which could double as a how-to guide of course. Amongst his suggestions are:

- Require people who have regular salary income to document it with pay stubs and tax forms. "Stated-income" loans should be used only for self-employed people with fluctuating incomes and only for those who show that they have good savings.

- Require brokers to disclose from the start – to the borrower – how much compensation they will get from arranging a loan. This makes the brokers' tendency toward more self-serving loan recommendations transparent.

I still stand by my suggestion from back in February: Brokers should be required to disclose the actual payment that will result from interest fluctuations (the worst case scenario and those along the way to the nadir). This should be clear and simple -- not the buried gobbledygook that shows up in the Truth in Lending form.

Rules or Principles?

The Wall Street Journal poses the question with regard to regulating the financial industry. It's clear that principles grant more potential for good decision-making. However, rules have a place too. There are some actions that ought simply to be prohibited. But principles are better at capturing the spirit of the law--rather than its technical fact.
What's interesting is that, in the article, the advocate for principle-based regulation argues in black and white terms--as though a blend is not a feasible option. That sounds rather like the very problem with rule-based regulation -- it leaves no room for nuance. Irony reigns supreme.

How Starbucks is Learning

Starbucks uses the web to glean the input of customers. Anyone who knows me knows my general dislike for Starbucks. But they are getting this right by using technology as a way to connect to customers, and actively seeking opportunities to improve their performance. The next step for a principle-Powered organization is the use of similar technology internally to find core values violations in policy, procedures, culture, operations and management. But as a starting point, this is noteworthy.
There is more about it at this AP link:

FAA Acts as an Object Lesson in How NOT to be Powered by Principle

Read the whole sordid tale of the Southwest inspection lapse and you will discover a troubling reality within our national air traffic safety infrastructure. For whatever Southwest did or did not do, and however fair or unfair you believe the penalty to be, it pales into insignificance compared to what is now known about the FAA's lack of transparency and meticulousness.

According the the Wall Street Journal there has been a huge history of FAA leadership stifling subordinates' reports of problems. It was bad enough when the whistle-blowers at Enron were thwarted and shut up, but when we are dealing with a Federal agency charged with airplane safety it becomes more than just an economic issue.

One of the main tenets of being Principle-Powered is the quest for violations of values that can be discovered as a way to improve performance, ethics, operations and value production. To do that, there needs to be more than a mere openness for subordinates to report issues--there needs to be an active, cultural DEMAND for that input.

The fact that the middle managers within the FAA were told by their bosses "not to worry about it", or were simply poo-pooed (or completely lied to or ignored) points to a profound negligence in exercising the mission with which the agency is charged. This revelation of crone-ism and deliberate avoidance of issues makes me wonder what else they have suppressed and whether I should worry about it next time I fly. While flying still remains the statistically safest form of transportation, it wouldn't take an awful lot of crashes to reverse that statistic. Also, the fear that these revelations have catalyzed in the flying public certainly isn't helping our stagnant economy.

Maybe Congress ought to conduct hearings about this instead of wasting our national time and budget on dealing with baseball players and steroids. Your thoughts?

March 29th, 2008 Aflac Compensation Vote

Aflac Compensation Vote
Aflac, the insurance company with the spokesduck, is putting its executive compensation plan before stockholders for their approval. While the vote is non-binding, they have taken the perspective that it is morally binding. Aflac consistently out-performs the market (by a lot), and the leaders could certainly justify outrageous packages -- but they have chosen instead to remain transparent and accountable.


This is a real example of Principle-Power in action. The principle in greatest prominence here? "Build better value for our shareholders". More public companies should consider having this as a core value and addressing it similarly.


In a cultural shift, CEO Dan Amos appeared on the NBC Today Show, perhaps the most un-business-oriented television show on the air, proving the uniqueness of this move. He went on the record saying that if the shareholders objected to the compensation committee's recommendation then Aflac would reexamine and change its practices. Talk about putting your money where your mouth is!


Below is an excerpt from Aflac's website. Read the corporate announcement by clicking here.



Our Philosophy
Mission
To combineinnovative strategic marketing with quality products and services atcompetitive prices to provide the best insurance value for consumers.
Guiding Principles

* Offer quality products and services at competitive prices and use new technology to better serve our policyholders.
* Build better value for our shareholders.
* Supply quality service for our agents.
* Provide an enriching and rewarding workplace for our employees.

March 15th, 2008 Fuel prices and Plane Fares

Fuel prices and Plane Fares
If you've purchased a plane ticket lately you may have noticed the same inconsistency that I did. Why is it that the cheapest tickets are those that take the most circuitous route, thereby using the greatest amount of fuel? Understandably, one pays for convenience, and non-stop flights are more convenient. But still, there is a gross disconnect between the airlines' lament over fuel prices, and their using them to justify increased fares, and their irresponsible wastage when creating crazily roundabout routes.

Case and point: On a recent trip to London I saved $800 US (at least) by purchasing a ticket that required three stops. But consider that the total distance from start to London was 5000 if flown directly. Instead, I flew 1200 miles west, and then 6200 miles east, adding 2400 miles (at least) to the trip. if amortized across the many people who also purchased this "cut-rate" ticket, the amount of wasted fuel numbers in the hundreds of thousands of liters.

How can this pricing structure be justified (or this route--EVER)?

Jan. 27th, 2008 Shallow Diversity Training Fails

It took a study to figure out that superficial training fails to change attitudes and culture?? Diversity training works in a context of strategic alignment and Principle-Power. But most training (like most core values) is shallow--intended to cover up a problem rather than transform a condition.

This seems like an apprpriate article for MLK Day -- the revelation that tolerance of diversity stems from a context, NOT from learning catch-phrases and taboo vocabulary. Real organizational culture transformation goes from top to bottom and through every layer of an organization. It requires being Powered by Principle, and constant vigilance in the quest for violations that can be corrected.

Jan. 15th, 2008 Uh Oh-- Is Home Depot Telling the Whole Truth???

Well--I may have to eat my words on this one. I've heard clarification from a whole lot of Home Depot employees all over the country. Apparently, in stores that are doing less that are doing under $35m, the night crews are not being moved, they are effectively being phased out. IMAs (orderers are being eliminated) and offered other positions. But those new positions are often part-time, a significant sacrifice for long-term full-time employees.
The same kind of not-so-subtle tactic to force attrition is being used on night crew personnel in smaller stores. They are being offered insufficient hours to replace their income.
I'm waiting to hear what benefits they lose in that transition.
This is only a problem because of the smokescreen that yesterday's announcement. Layoffs are legitimate in hard times -- lying about them is not.

Jan. 15th, 2008 Home Depot Claims to Avoid Layoffs

"Home Depot Inc. plans to reassign overnight-shift employees to days at its lower volume stores, a change that puts more workers on the sales floor without raising costs."
Home Depot avoids layoffs and redeploys night workers instead. CEO Blake deserves real kudos for taking the Principle-Powered road to re-building the belabored company's famed customer service. This shows real strategic thought and creativity!

Jan. 10t, 2008 Sears Spyware

Check out this story. Sears installs spyware on your computer when you join its seemingly innocuous "community". That they do it is less problematic than the effort they expend in making sure NOT to tell you that's what they are going to do. One key characteristic of being Powered by Principle is transparency. If they gave consumers a real choice before beginning to spy on their web activity it would be fair play. This isn't. And it is unbecoming on Sears!

Dec. 27th, 2007 Buffett's Marmon Deal

Buffett's Marmon Deal
Demonstrating his customary Principle-Power, Warren Buffett has purchased an organization that is itself, Powered by Principle. For anyone who thinks that principles can not endure multinational diversification and demand for profit, one has only to explore the Marmon Group and its guiding principles--plus their stellar financials. I highly recommend looking at their site, and exploring some of their many holdings to see how the quest for long term viability through principled leadership produces extraordinary and sustained growth and earnings.


What this demonstrates is that through true alignment, from the top with the Board of Directors, throughout an entire organization (even if it is hundreds of unique companies), principles can thrive and dictate decision-making.

Dec. 18th, 2007 Federal Reserve Tries to Avert Future Sub-Primes Fiascos

Inevitably, when the government begins to try to fix something, it gets it not quite right. It's hard to tell what went awry here, since presumably, the Fed isn't subject to the political forces that dictate to Congress.
In the regulation put forth today, many aspects of lax and predatory lending are addressed. But the one that would have made the biggest difference is left out. Ultimately, the real sub-prime debacle hasn't hit yet but is imminent with rate increases. Instead of addressing that, the Fed addressed all of the problems that are the source of the spate of foreclosures already underway. Effectively, those would all have been averted by mortgage bankers simply following basic accounting principle, like verifying income and analyzing borrower's budgets before closing the deal. Since that is the obvious, easy stuff to solve, the Fed addressed that.
But the real problem is the bait and switch aspect of these loans. By offering low introductory rates, borrowers are lured by a false sense of affordability. What the lenders fail to do is walk the borrower through the "worst case scenario" possibility--what that payment will be should the rates adjust to their maximal level. That is anathema to all sales people, and borrowers who are in the sub-prime category are, by definition, not financially conservative or perhaps savvy.
The Fed paid lip service to this issue by attacking the advertisement of low introductory rates. But the problem resides in the guiding principles of the lender or lender's agent. Caring for a customer's eventual solvency is different from simply closing the deal. It requires adherence to a different set of values, one that treasures the delivery of truly sustainable loans over the immediacy of origination fees and mortgage commissions.

Dec 1, 2007 Verizon Wireless's Next Good Move

Verizon Wireless made a second announcement that it will begin development of a next generation network beyond its current technology, CDMA. The great think about this is the degree to which it is an acknowledgment on Verizon's part that we are in a global community and people are transient--so their technology needs to be flexible. CDMA sis incompatible with GSM, the prevailing worldwide standard. The next generation that Verizon is developing would correct that. This announcement, coupled to their announcement days earlier that they will allow any cell phone to be used on their network signals a massive advance beyond their competitors. While in the short-term the release of their customers from the need to by proprietary technology may be frightening, ultimately it is a principle-powered gift to consumers that will engender loyalty. The same can be said of creating a means for their network to be used by others and their own customers worldwide.

Dec 1, 2007 Verizon Wireless Thinks Clearly!

This week Verizon Wireless made two announcements that signal really well-aligned strategic thinking and longer vision than is normally associated with the mentality of publicly traded companies. They will begin opening their network for use by any telephone that a customer has . This allows for far greater hardware choice for consumers, and the potential for more innovation technologically. It's a brave and pioneering move in the US since all the other carriers are continuing to hamstring consumers by requiring purchase of their phones from the carrier. Only in the US is that done--the rest of the world can switch between networks or carriers by exchanging SIM cards. That gives them more hardware choice and more competition.

Along with the allowance of hardware on their network, they also plan to provide the source code for their network. That will create a forum for innovation beyond what the major electronics companies may be generating. New ideas can then be tried out and tested on the Verizon network, and the resulting innovations can be ready for market faster.

As a Verizon Wireless customer I'm delighted. If I was questioning my desire to remain with Verizon (for example, if I wanted to get an iPhone--which only work on At&T Cingular--a curious inversion of the US carrier lockout) those leanings are allayed.

Can technology security be enhanced through Principle Power?

In the Wall Street Journal Technology Blog, Ben Worthen suggests that workers who are sloppy with data and other technology security may not understand its worth. His analogy is great: If someone handed you a suitcase and told you it had $2million dollars in cash inside it--and asked you to guard it, you would do so with enormous vigilance. That's because you understand what $2m is worth.

Of course, if the same person asked you to guard a box of (say) comic books, you might exert less vigilance. If the box of comics were stolen, it might amaze you to learn it was worth more than $2m, as the contents were rare collectibles.

To quote Worthen
The perception problem: When workers lose a computer disk or a portable storage device such as a USB memory stick, they seem to look at the $20 it will cost to replace the device, not the value of the data inside it. (It’s like valuing that theoretical $10 million shipment by the cost of the briefcase and not by the cash inside.) “There’s a real disconnect between the perceived value and the real value of information,” says Larry Ponemon, chairman of the Ponemon Institute, a privacy think tank. “The rank and file employee still doesn’t seem to get it.”
You could say the same about myriad aspects of organizational reality--most obviously, strategy and core values. Employees fail to perform certain aspects of their jobs well because the don't understand the cost of those lapses. When the cashier at a retail outlet appears dead on her feet, and stares at you with listless eyes as she robotically says "have a nice day", she is only concerned with her next break. If asked about the consequences of that performance, she might expand her perspective to include your personal experience and even her own evaluation. But the more reaching problem of your dissatisfaction and how prolific you are likely to be in complaining to your sphere of influence--and the damage that can cause when multiplied by lots of robotic cashiers and complaining customers--that cost is beyond her understanding.
Alignment of core values an strategy has the same critical impact as securing data. Breaking the bond with a customer by delivering sup-par products or service does not differ from lapses in security that place personal information at risk. Any difference between the two is but a matter of degree, not essence.

Nov. 7, 2007 Mortgage Reform Act--Trying to Solve the World's Ills With Rules

To learn about this bill, The Mortgage Reform and Anti-Predatory Lending Act, read the Bloodhound Blog, or the House of Representative's Committee on Financial Services publication of the bill itself.

As usual, Congress has reacted to a problem by trying to solve retroactive bad behavior with new and complicated legislation. Whenever there is some systemic issue that no one can fix instantly, our leaders' reaction is to try to fix it with a new law. I guess the thinking is that if we circumscribe enough of what is "bad behavior" what will be left will be the right behavior. It's a persistent sociological fallacy that always fails. Our history is littered with failure of such laws to fundamentally change behavior.

Having said that, the industry surrounding the sub-prime mortgage fiasco ought to create structural parameters that would dissuade the kind of predatory selling that the mortgage industry succumbed to. Unfortunately for Congress, the culprits are spread across a huge field, ranging from individual mortgage brokers to banks that sell their paper (and with it their responsibility) to securitization as a means to finance lending, and finally, to the securities market itself which drives the whole complex mess.

The law, like all such laws, creates as many problems as it solves. The onus of determining whether a particular loan is appropriate is shifted --but it's not clear exactly who it is shifted to. This is pretty muddy. If a broker sells the mortgage, but the paper is written by a bank, who holds the responsibility? And if a borrower, for whatever reason, defaults on his loan, who's to say whether that is due to the inappropriateness of the loan or the borrower's irresponsibility or an unavoidable change in circumstances? Stuart Saft of The Wall Street Journal correctly points out that this law opens to door to lawsuits preceding or following every foreclosure. Will each and every attempt by a bank to foreclose now require a test for liability litigation? And if the criteria for lending become so restrictive asto leave every mortgageopen to litigation upon default (or even, just when the borrower finds it hard to pay) who would lend anyway?

Another peculiarity of the bill, and one that seems a bit far-reaching given the stated purpose of the law, is that it extends protection to renters in foreclosable properties. Imagine you are a lender holding the paper on a rental property. If the mortgage goes into default but the property is let, the foreclosure proceedings are trumped by the renter's tenancy. This is a potentially mischievous means for defaulting borrowers to cover themselves, but also, even in the most ordinary of circumstances, a potential minefield for lenders. It foretells lots of restrictive lending in which borrowers sign away their rights to rent out their property, not to mention their rights to litigate under the act itself (think about the work-arounds that vendors have found to lock in buyers from exercising their 3 day right of rescission).

There is lots more to uncover in this bill regarding its unintended consequences. But the deeper point from the perspective of the PxP approach is that it is wrongheaded. Core values can't be legislated through rules, because, as we've seen in this exploration, rules engender loopholes to those who aim to violate them. Better yet would be the self-policing of the industry by each component piece. The mortgage industry ought to have a strict code of core values that attaches to licensure. That code ought to imbue brokers with concern for repayment--instead of just the incentive of commissions to get people into loans, even if the first period of interest adjustment is sure to be bank-breaking for the borrower.

The HR Bill does address one issue that needs tackling, albeit in some clearer way.Securitization allows for a great distance between the borrower and those who ultimately hold the paper. There needs to be some way to maintain responsibility throughout the process so that banks, even though they sell off the paper, are still accountable for the fiduciary strength of their lending. Likewise with mortgage brokers and with investment backs that generate and sell securities. And finally, are those who purchase mortgage securitiezs to be held responsible for the quality of the risk assessment in the mortgages that make up their investment instrument? That's a very long arm of responsibility indeed. How would investors assess that? It would require a great deal more documentation and disclosure on the quality of the loans and the criteria used in making them. But that exploration may be best left to another blogger on another day!

Nov. 8, 2007 Oprah Could Have Averted Scandal

One of the biggest laments of those following the Oprah School scandal is that Oprah should have opened a school here, in the US, where she could watch things. That is ridiculous as a solution. If having to be present was a prerequisite for being able to have one's business (or organization) be Powered by Principle, or even just ethical, than multi-nationals would all be dismal failures in every way. But that isn't the case. The problem isn't that Oprah wasn't there. The problem was that there was way too little alignment between the principles underlying the school (Oprah's personal values may, in fact, have been all there was) and the actual, moment-by-moment operation of the school.

There are lots of aspects to this problem. The first, and most important, is that Oprah's personal values, while laudable, are probably not sufficient to act as a core values list for the institution. The school needs its own set of core values, both those that are fundamental to anything Oprah cares about, and those which were essential for the particular mission to get accomplished. While I don't know for sure, I suspect that there was not work like that done, since Oprah is so powerful, and her "brand" would have been seen as a clear enough statement of principles.

Along with a complete and relevant set of principles, the school needed top to bottom alignment with those values--not just cheer-leading and self-congratulations. Those values should have been completely woven throughout the hiring, training, compensation, teaching approach methods, performance reviews and evensome feedback mechanism that might have given early warning of the abusive behavior. These structural elements are always vital, but they become even more crucial when the founder and "heart of the enterprise" is remotely located. Counting on the sentimentality and inspiration that the school's creation generated is a naive move. But one can understand how Oprah chose to do it that way. She runs a very successful enterprise here, in the US. Of course, she is here, evangelizing, modeling, correcting and managing all the time. Plus, she probably has lots of appropriate structure in Harpo Productions--structure that encourages the right choices and level of excellence she demands.

The key for the school is not just replacing the people--even if the new batch has no one of abusive tendencies. Corruption and the gravitation toward mediocrity areintegraltendencies in most organizations and in many people. They get corrected through structure, reinforcement, self-criticism, improvement and the understanding that being Powered by Principle is always just a moment away from the next violation. Having that humility and vigilance on the ground, in Africa, is what was and is needed.