Wednesday, August 12, 2009
The Protesters
Have you been following these protesters who are attending the health care town hall meetings? They had one of the guys on MSNBC this morning...on Dylan Ratigan's Morning Meeting show. Craig Miller was his name. He was completely incapable of forming a sentence or answering any of the questions that were asked of him. It was not only embarrassing it was completely ridiculous. His complaint was that the President has "violated his oath of office".....never mind that he wouldn't be able to recite the oath of office if he had a gun to his head, nor could he give any example of how or why he thought the President violated his oath. This whole thing is getting insane folks. People carrying guns to town hall meetings? Protesting a bill that doesn't exist, and making proclamations about that bill that are completely untrue? We need to get our heads right!
Wednesday, August 5, 2009
DC's "GREAT" Restuarant designers....
I read something today that said if you want to really be a blogger you need to do more than 1 post a day...who has time for that??? Anyway, I'm going to try to do a little better. And now I have an idea how. I'm going to blend one of my favorite activities, eating out, with something I know a lot about, restaurant design. I'm going to start an informal design critique column of Washington restaurants. OK, first, I want to apologize yo all of my friends in the business who DO know what they're doing and say I'm sorry for the heat you'll probably get for know me after this series gets going. (KR, SP, FB...just tell people that you don't really know me and we weren't really Friends..)
OK, so I was reading Capital File or some such nonsense this week....No wait, It was DC / Modern Luxury Magazine. And they had an article about some guy they named "Peter The Great". A guy from CORE no less who now thinks he's a restaurant designer. These guys must have great PR machines but I'm gonna try to put an end to the party. The party where people who have no idea about how to design a restaurant are lauded as GREAT restaurant designers. They do places that look great, and bartenders, servers and busboys hate because they are so impossible to work. Impossible because 99% of these Great designers have never worked a single shift in a joint so they have no idea how to make things work. They show the owners...who mostly have also long forgotten what its like to work a shift... a bunch of pretty pictures, the owners give them enough money so that a trained monkey could make the place look good...(I'm not saying that Peter or A&D are trained monkeys....really....I'm not....seriously you guys I'm not saying that) and then they proceed to waste that money on stuff that mostly doesn't help the place be successful and often gets in the way. Now I'm not saying design isn't important, you know I think it is, but so is function!!! So anyway, stay tuned. I won't be able to do this everyday of course since I'm mostly in NY now but I'll have my note pad with me on my next DC trip and I'll expose all these emperor's and their new clothes.
OK, so I was reading Capital File or some such nonsense this week....No wait, It was DC / Modern Luxury Magazine. And they had an article about some guy they named "Peter The Great". A guy from CORE no less who now thinks he's a restaurant designer. These guys must have great PR machines but I'm gonna try to put an end to the party. The party where people who have no idea about how to design a restaurant are lauded as GREAT restaurant designers. They do places that look great, and bartenders, servers and busboys hate because they are so impossible to work. Impossible because 99% of these Great designers have never worked a single shift in a joint so they have no idea how to make things work. They show the owners...who mostly have also long forgotten what its like to work a shift... a bunch of pretty pictures, the owners give them enough money so that a trained monkey could make the place look good...(I'm not saying that Peter or A&D are trained monkeys....really....I'm not....seriously you guys I'm not saying that) and then they proceed to waste that money on stuff that mostly doesn't help the place be successful and often gets in the way. Now I'm not saying design isn't important, you know I think it is, but so is function!!! So anyway, stay tuned. I won't be able to do this everyday of course since I'm mostly in NY now but I'll have my note pad with me on my next DC trip and I'll expose all these emperor's and their new clothes.
Thursday, July 9, 2009
The Dangers of Fannie Mae Health Care??? (Or Why conservatives think scare tactics work better than studying and understanding the issues...)
I’ve been writing this post for a long time…not because I wasn’t sure what I wanted to say, but because there’s a lot to say, I’m lazy so I haven’t worked on it as fast as I could have and most importantly because I really thought the issue would be settled by now…it’s so straight forward that I can’t believe how it’s getting bogged down. Anyway, so here it is.
So a few weeks ago a guy by the name of John E. Calfee from the conservative think tank The American Enterprise Institute wrote an opinion piece in the WSJ titled: The Dangers of Fannie Mae Health Care. The article was supposed to be an indictment of President Obama's desire to have a "public plan" option as part of his health care reform efforts and like all good conservatives Mr. Calfee it would seem dogmatically believes in smaller government...whether it serves the purposes of society or not, and therefore looks at all proposed government programs with a leery eye. To be honest, that's probably a good thing. Our system is about debate and finding answers to the issues that keep us from enjoying life, liberty and the pursuit or happiness (Or the Good Society) and a strong and reasoned opposition party is critical to achieving this goal. The problem I have with the ideologues in Washington (I don't know that Mr. Calfee is one but I'll assume based on what he wrote that he is) is that they are often blinded by their ideology from seeing any good solution that doesn't fit within their world view. As you'll see from this post I think this happens on both side of the debate.
According to Mr. Calfee the administration has said we need a public plan in order to give people a competitive option to private insurance plans. He states that the administration claims this public option will offer needed competition, save money through low administrative costs and zero profits, realize greater economies of scale and allow for superior negotiations in the prices of medical services and technology.
Let's for the moment take Mr. Calfee at his word and accept that these are the basic arguments the administration is putting forth in favor of the public plan. He dismissed the first three arguments as bogus and the 4th as half bogus and the most dangerous. Actually I believe he sort of has it right for the first three arguments (look here: http://online.wsj.com/article/SB124597297859757163.html to see his reasons).
In fact I have a big problem with the fact that the administration even puts this idea in those terms. Yes, if you are a supporter of bigger government in some instances to help solve civil problems you might look at those arguments and find them reasonable and sort of middle of the road right? If they are all true who could argue with them? And I think that sometimes our politicians try to put things in the terms that they think people will find easiest to swallow instead of dealing with the real, hard and messy truths that need to be addressed. In my mind this isn't just about competition and saving money. Although we must deal with the cost of health care and the cost of insurance, just as large and equally as pressing is the issue of access to insurance in the first place.
In my estimation the public plan is needed to get coverage to those people who might otherwise not have coverage. That’s an important issue. In the interest of protecting shareholders and not in the interest of making sure everyone has access to health care, insurance companies are sometimes (I dare say often) overly cautious in terms of who they will provide coverage to. This is most often about pre-existing conditions and not about the ability to pay. Which to me has always been extremely silly. I need insurance because I may need to go to the doctor and insurance helps me pay for those costs. If I have a pre-existing condition I and the insurance companies already KNOW I have to go to the doctor and they can probably get a pretty good handle, based on my medical records of how much that’s likely to cost them over time (isn’t that why they spend all that money on actuaries?).
Now the comparison that Mr. Calfee makes between the public plan option and Fannie Mae is that Fannie Mae moved away from an entity that could help undeserved customers, who are often discriminated against and treated unfairly by mortgage companies, get mortgages, into an entity used to fulfill the philosophical position that everyone has the “right” to own a home. And that if we have a public plan it will quickly become a type of entitlement with poor risk management techniques, allowing everyone to have subsidized health care and in the process bankrupting the country. Now of course Fannie Mae should simply have provided for everyone who could afford to pay a reasonable mortgage, based on his or her income and willingness to accept the responsibility of indebtedness. Everyone doesn't have the "right" to own a home if they aren't willing to take on the responsibility of earning that right.
I suppose opponents of the public plans could say that this could happen here and that these plans could turn into health care entitlements destined to blow up and swallow up more taxpayer resources when outlays exceed the participant’s ability to pay premiums. The only problem with this is that I believe having access to a doctor is much more of a right than having the ability to own a home and that in a nation with the financial resources that we possess, that we all help generate as workers, consumers and financiers, we do have a responsibility to provide insurance coverage to those who are either less fortunate than us or legally shut out of the system due to a lack of moral leadership at the private insurance companies.
Sure, there’s plenty of competition for the most favorable customers and large businesses. The problem is that all of the insurance companies have the same or similar models for those people who they feel aren’t worth the potential costs of insuring. And if this is the additional “risk” that Mr. Calfee assumes that could be taken on by public plans if they had a government subsidy well then that’s a good thing.
Mr. Calfee finally attacks the administrations claim that the public plan option will lead to an organization that will be a superior negotiator of prices for medical services and technology. Mr. Calfee claims this would be a disaster of calamitous proportions because with the governments subsidy of the public plan in place, it will drive prices down to the point where everyone moves to the public plan, like happened with Fannie and Freddie (oh wait, that didn't happen...ok, let's not get bogged down with facts), private plans would all go out of business thus creating a single buyer of health care services (or a monopsony), resulting in diminished profits for pharmaceutical companies who would naturally abandon R&D investments which are essential to our health care system. The only problem with this is that if you know anything about US monopsonies and innovation there's really no evidence that any of this would actually happen.
First of all the fix for a runaway public plan is pretty easy if you focus in on what it's really needed for. You limit the ability to go onto the public plan to those who are priced out of traditional coverage because of income and / or pre-existing conditions. Period. This solves the stupid argument that all employers will dump their private plans and force everyone to go on the public plan. Let's not even talk about how incredibly silly that notion is in the first place...just like private mortgage companies didn't go away, neither would private insurance companies, but never mind. Design the plan correctly and this won't be a problem.
But putting that aside, let me address Mr. Calfee's claims about monopsony power and innovation. Do we have any models to look at here in the US to understand what monopsony power does to prices, profits and innovation? Well I know of one monopsony agency in the US Government. This agency accounts for 21% of USG Discretionary spending (2nd largest expenditure), there is no other US Based buyer for what this agency purchases. (By definition, a monopsony; single buyer many sellers.) Does this arrangement drive down prices? Sure, to the level that most CEOs of the sellers would probably concede are reasonable based on the scale of what they can sell and the amount of dollars at stake. Are these companies profitable? While I haven't researched comparative profits for these companies and other companies of the same scale in other arenas, I can tell you from personal experience that the shareholders and executives in these companies aren't at a loss for financial resources. And what about innovation and R&D? Given short shrift in these companies because of the buying power of the single purchaser? In fact many of these companies are among the most technologically advanced and innovative in the world..in ANY Industry. I'm of course talking about that single buyer Mr. Robert Gates over at the Pentagon. (I'll post another memo about why this is...why companies innovate, even in a monopsony type relationship.)
If we get a public plan and those 18MM - 50MM uncovered Americans start paying premiums, perhaps big pharma shareholders will have to accept a smaller percentage profit on a much larger pie? As I said, If designed properly I don't even see that happening. Or perhaps if we as a society decide that coverage is important, then we shareholders will have to adjust our notion of what profit percentage is acceptable in the pharma industry, based on lower prices, lower profits and stable R&D expenditures that come as a result of this monopsony.) Although again if the public plans are created correctly the likelihood of this monopsony manifesting itself are really slim and none. The right way is:
Subsidize the public plan if needed, base eligibility on the ability to pay and / or prior rejection due to an existing condition. Those who are being priced out of the market or who have been shut out of the market by the private insurer’s would be eligible for coverage. This way everyone would not be “entitled” to public health insurance, only those who need it for financial or “risk” based reasons. Monopsony avoided, uninsured insured, increased sales for big Pharma, R&D profits left in tact. Sounds simple I know…isn’t that a good thing?
I feel like I could have spent a lot more time on this and been a lot more thorough but if you disagree or have questions, send them along and I'll respond. But the bottom line is, this is pretty simple; the chicken Little argument are pure bullshit, The sky won't fall if we implement a public plan correctly. We need to add competition that is ethical to drive down prices and we need to make sure everyone in the US can afford health insurance. In the immortal words of Kevin Bacon, "These are the facts of the case, and they are undisputed."
So a few weeks ago a guy by the name of John E. Calfee from the conservative think tank The American Enterprise Institute wrote an opinion piece in the WSJ titled: The Dangers of Fannie Mae Health Care. The article was supposed to be an indictment of President Obama's desire to have a "public plan" option as part of his health care reform efforts and like all good conservatives Mr. Calfee it would seem dogmatically believes in smaller government...whether it serves the purposes of society or not, and therefore looks at all proposed government programs with a leery eye. To be honest, that's probably a good thing. Our system is about debate and finding answers to the issues that keep us from enjoying life, liberty and the pursuit or happiness (Or the Good Society) and a strong and reasoned opposition party is critical to achieving this goal. The problem I have with the ideologues in Washington (I don't know that Mr. Calfee is one but I'll assume based on what he wrote that he is) is that they are often blinded by their ideology from seeing any good solution that doesn't fit within their world view. As you'll see from this post I think this happens on both side of the debate.
According to Mr. Calfee the administration has said we need a public plan in order to give people a competitive option to private insurance plans. He states that the administration claims this public option will offer needed competition, save money through low administrative costs and zero profits, realize greater economies of scale and allow for superior negotiations in the prices of medical services and technology.
Let's for the moment take Mr. Calfee at his word and accept that these are the basic arguments the administration is putting forth in favor of the public plan. He dismissed the first three arguments as bogus and the 4th as half bogus and the most dangerous. Actually I believe he sort of has it right for the first three arguments (look here: http://online.wsj.com/article/SB124597297859757163.html to see his reasons).
In fact I have a big problem with the fact that the administration even puts this idea in those terms. Yes, if you are a supporter of bigger government in some instances to help solve civil problems you might look at those arguments and find them reasonable and sort of middle of the road right? If they are all true who could argue with them? And I think that sometimes our politicians try to put things in the terms that they think people will find easiest to swallow instead of dealing with the real, hard and messy truths that need to be addressed. In my mind this isn't just about competition and saving money. Although we must deal with the cost of health care and the cost of insurance, just as large and equally as pressing is the issue of access to insurance in the first place.
In my estimation the public plan is needed to get coverage to those people who might otherwise not have coverage. That’s an important issue. In the interest of protecting shareholders and not in the interest of making sure everyone has access to health care, insurance companies are sometimes (I dare say often) overly cautious in terms of who they will provide coverage to. This is most often about pre-existing conditions and not about the ability to pay. Which to me has always been extremely silly. I need insurance because I may need to go to the doctor and insurance helps me pay for those costs. If I have a pre-existing condition I and the insurance companies already KNOW I have to go to the doctor and they can probably get a pretty good handle, based on my medical records of how much that’s likely to cost them over time (isn’t that why they spend all that money on actuaries?).
Now the comparison that Mr. Calfee makes between the public plan option and Fannie Mae is that Fannie Mae moved away from an entity that could help undeserved customers, who are often discriminated against and treated unfairly by mortgage companies, get mortgages, into an entity used to fulfill the philosophical position that everyone has the “right” to own a home. And that if we have a public plan it will quickly become a type of entitlement with poor risk management techniques, allowing everyone to have subsidized health care and in the process bankrupting the country. Now of course Fannie Mae should simply have provided for everyone who could afford to pay a reasonable mortgage, based on his or her income and willingness to accept the responsibility of indebtedness. Everyone doesn't have the "right" to own a home if they aren't willing to take on the responsibility of earning that right.
I suppose opponents of the public plans could say that this could happen here and that these plans could turn into health care entitlements destined to blow up and swallow up more taxpayer resources when outlays exceed the participant’s ability to pay premiums. The only problem with this is that I believe having access to a doctor is much more of a right than having the ability to own a home and that in a nation with the financial resources that we possess, that we all help generate as workers, consumers and financiers, we do have a responsibility to provide insurance coverage to those who are either less fortunate than us or legally shut out of the system due to a lack of moral leadership at the private insurance companies.
Sure, there’s plenty of competition for the most favorable customers and large businesses. The problem is that all of the insurance companies have the same or similar models for those people who they feel aren’t worth the potential costs of insuring. And if this is the additional “risk” that Mr. Calfee assumes that could be taken on by public plans if they had a government subsidy well then that’s a good thing.
Mr. Calfee finally attacks the administrations claim that the public plan option will lead to an organization that will be a superior negotiator of prices for medical services and technology. Mr. Calfee claims this would be a disaster of calamitous proportions because with the governments subsidy of the public plan in place, it will drive prices down to the point where everyone moves to the public plan, like happened with Fannie and Freddie (oh wait, that didn't happen...ok, let's not get bogged down with facts), private plans would all go out of business thus creating a single buyer of health care services (or a monopsony), resulting in diminished profits for pharmaceutical companies who would naturally abandon R&D investments which are essential to our health care system. The only problem with this is that if you know anything about US monopsonies and innovation there's really no evidence that any of this would actually happen.
First of all the fix for a runaway public plan is pretty easy if you focus in on what it's really needed for. You limit the ability to go onto the public plan to those who are priced out of traditional coverage because of income and / or pre-existing conditions. Period. This solves the stupid argument that all employers will dump their private plans and force everyone to go on the public plan. Let's not even talk about how incredibly silly that notion is in the first place...just like private mortgage companies didn't go away, neither would private insurance companies, but never mind. Design the plan correctly and this won't be a problem.
But putting that aside, let me address Mr. Calfee's claims about monopsony power and innovation. Do we have any models to look at here in the US to understand what monopsony power does to prices, profits and innovation? Well I know of one monopsony agency in the US Government. This agency accounts for 21% of USG Discretionary spending (2nd largest expenditure), there is no other US Based buyer for what this agency purchases. (By definition, a monopsony; single buyer many sellers.) Does this arrangement drive down prices? Sure, to the level that most CEOs of the sellers would probably concede are reasonable based on the scale of what they can sell and the amount of dollars at stake. Are these companies profitable? While I haven't researched comparative profits for these companies and other companies of the same scale in other arenas, I can tell you from personal experience that the shareholders and executives in these companies aren't at a loss for financial resources. And what about innovation and R&D? Given short shrift in these companies because of the buying power of the single purchaser? In fact many of these companies are among the most technologically advanced and innovative in the world..in ANY Industry. I'm of course talking about that single buyer Mr. Robert Gates over at the Pentagon. (I'll post another memo about why this is...why companies innovate, even in a monopsony type relationship.)
If we get a public plan and those 18MM - 50MM uncovered Americans start paying premiums, perhaps big pharma shareholders will have to accept a smaller percentage profit on a much larger pie? As I said, If designed properly I don't even see that happening. Or perhaps if we as a society decide that coverage is important, then we shareholders will have to adjust our notion of what profit percentage is acceptable in the pharma industry, based on lower prices, lower profits and stable R&D expenditures that come as a result of this monopsony.) Although again if the public plans are created correctly the likelihood of this monopsony manifesting itself are really slim and none. The right way is:
Subsidize the public plan if needed, base eligibility on the ability to pay and / or prior rejection due to an existing condition. Those who are being priced out of the market or who have been shut out of the market by the private insurer’s would be eligible for coverage. This way everyone would not be “entitled” to public health insurance, only those who need it for financial or “risk” based reasons. Monopsony avoided, uninsured insured, increased sales for big Pharma, R&D profits left in tact. Sounds simple I know…isn’t that a good thing?
I feel like I could have spent a lot more time on this and been a lot more thorough but if you disagree or have questions, send them along and I'll respond. But the bottom line is, this is pretty simple; the chicken Little argument are pure bullshit, The sky won't fall if we implement a public plan correctly. We need to add competition that is ethical to drive down prices and we need to make sure everyone in the US can afford health insurance. In the immortal words of Kevin Bacon, "These are the facts of the case, and they are undisputed."
Thursday, June 18, 2009
Fox News Vol. 1
OK, just little things tonight. I haven't watched Fox News in a while...been busy washing my hair. But in the tradition of keeping your enemies close I watched the end of the O'Reilly Factor tonight..actually watching it right now. Neil Cavuto is on. He says he's never mocked or made snide remarks about President Obama. Says he was "slighted" because the President did not come on his show. Says that Fox News has been completely fair to The President....no seriously people, how could I make this shit up, this is what he's saying. When did Fucking NEIL CAVUTO get important enough to be "slighted"? How about he's the President of the United States and doesn't have the time time fuck around with a half-witted reporter who can barely spell economics? I really would like to get these guys in and alley and beat the crap out of them. I mean I don't like everything The President has come up with? Who the hell does? But these guys are just clowns and need to be handed a beatin'....ok, that's it for now. I got better things to do.
Oh yeah..Megyn Kelly got her JD from Albany Law School...come on...do I REALLY need to tell you why that's funny???
Oh yeah..Megyn Kelly got her JD from Albany Law School...come on...do I REALLY need to tell you why that's funny???
The Real Housewives ROCK!!!
OK, I haven't really had much to say lately but I'm sitting here watching my new favorite show, The Real Housewives of New Jersey...Are you kidding me? This is better than 24 and True Blood combined!! I mean expect for the older fat broad, who really does have it all together and is the only female on the show with any brains, the rest of them are worst than stupid. And you know if you take stupid, no class and put some cameras in the room??? Now that's a good time!!!
Oh and by the way, most of the kids on the show are so much more mature than the grown ups...now! Unfortunately they're all going to grow up in Jersey with those lunatics...poor kids!!
.......but Danielle is really hot though...so maybe it doesn't matter.
Oh and by the way, most of the kids on the show are so much more mature than the grown ups...now! Unfortunately they're all going to grow up in Jersey with those lunatics...poor kids!!
.......but Danielle is really hot though...so maybe it doesn't matter.
Wednesday, May 20, 2009
What's the real issue with executive compensation
There’s a great article in the WSJ from May 20th on executive compensation: (Shell Investors Revolt Over Executive Pay Plan; Marketplace page B1). The article though well written misses the core issue about the importance of the executive compensation debate. Let me tell you, it ain’t about the money! It’s about the effect that Board and executive behavior has on the health and performance of these organizations.
Apparently Shell’s Board approved a plan where the C-Suite executives would get performance-based share compensation if Shell “placed in the top 3 of its peers in a ranking of total shareholder return, based on share price and dividend payouts”. Now there are always two issues when it comes to executive comp. One issue is plan design; does it inspire the proper behaviors in order to insure the long-term health of the company. And the second is execution. So for arguments sake let’s say I agree with the design. So, that’s the plan? OK, fair enough. it’s a goal, and they agreed to it so they all, including shareholders should have to live with the outcomes. Well Shell came in 4th. And the remuneration committee promptly changed the rules, using their “discretion” to award the shares anyway. Their rationale: “Well we only came in 4th by a little bit and the ranking, metrics we devised, didn’t really reflect our performance.” There are so many things wrong with this that I almost don’t know where to begin (But as my business partners will tell you, that never stopped me before)…lets put aside for a moment that the Board has admitted by this action and their statements that they have no idea how to set effective targets or devise metrics that would “reflect” actual performance. Lets instead talk about how this would work on a day-to-day basis and what it means for corporate health and performance. In even a moderately sophisticated performance and compensation plan regime, these metrics, share price and dividend payments, would need to be tied to the operational activities that the executives felt would best move them in a positive direction. Then each successive level of management, middle management, division chiefs, team leaders and line employees would be given their own goals so that there behaviors and actions would be best directed to execute those operational activities. If the management team is smart they have shared these top levels goals with everyone in the organization, and then tied ALL discretionary compensation to the superior achievement of those operational activities at each level. This is how we achieve what Dr. Jeff Pfeffer at Stanford University calls “alignment”. It’s how the guy sweeping the floors in the Albuquerque plant knows why he’s doing it and how cleans floors eventually tie back to total shareholder return. Once we all know what to do, why we’re doing it and what’s in it for me if I do a good job at it, then executives can ask us to run through that last brick wall or take that last hill and know we’ll do it because we understand. In fact this understanding is what drives employees to do it on their own, to exert discretionary effort, so that the organization succeeds.
So, what has Shell wrought for the future of the organization?
Well lets say that the executives, believing that they truly deserve this compensation (WTF?) actually do the “right thing” and pay the other members of the team and on down the line, their promised discretionary compensation as well. What happens next year when my manager asks me to stay late on Friday when I really would rather go drinking? If the goals are not really “goals”, they’re just sort of guidelines and if we get “close enough” we’ll all get paid anyway? I’ll see you at the bar at 5:02, if I hustle maybe 4:59! I like working here, I’ll do what I can, but I’m not going to bust my butt on a consistent basis if I’m going to get paid no matter what.
Now, let’s say the executives do what most executive teams do: Yes, as the CEO I got paid because, well, I’m a genius. But you dumb bastards down in the bowels cost us to come in 4th and heads are gonna roll because we can’t afford to be 4th!! How quickly do you think it takes employees to understand that the management speeches about teamwork, going the extra mile, all pulling together for one goal, etc, etc, are all about one thing? Making sure that executive gets paid no matter what happens to the worker bees. And not to overstate the obvious but what now happens to loyalty, morale and productivity? (Turnover, profits and innovation?)
What has Shell wrought? Classic, lose-lose.
As a CEO for 20 years this type of behavior infuriates me.
Apparently Shell’s Board approved a plan where the C-Suite executives would get performance-based share compensation if Shell “placed in the top 3 of its peers in a ranking of total shareholder return, based on share price and dividend payouts”. Now there are always two issues when it comes to executive comp. One issue is plan design; does it inspire the proper behaviors in order to insure the long-term health of the company. And the second is execution. So for arguments sake let’s say I agree with the design. So, that’s the plan? OK, fair enough. it’s a goal, and they agreed to it so they all, including shareholders should have to live with the outcomes. Well Shell came in 4th. And the remuneration committee promptly changed the rules, using their “discretion” to award the shares anyway. Their rationale: “Well we only came in 4th by a little bit and the ranking, metrics we devised, didn’t really reflect our performance.” There are so many things wrong with this that I almost don’t know where to begin (But as my business partners will tell you, that never stopped me before)…lets put aside for a moment that the Board has admitted by this action and their statements that they have no idea how to set effective targets or devise metrics that would “reflect” actual performance. Lets instead talk about how this would work on a day-to-day basis and what it means for corporate health and performance. In even a moderately sophisticated performance and compensation plan regime, these metrics, share price and dividend payments, would need to be tied to the operational activities that the executives felt would best move them in a positive direction. Then each successive level of management, middle management, division chiefs, team leaders and line employees would be given their own goals so that there behaviors and actions would be best directed to execute those operational activities. If the management team is smart they have shared these top levels goals with everyone in the organization, and then tied ALL discretionary compensation to the superior achievement of those operational activities at each level. This is how we achieve what Dr. Jeff Pfeffer at Stanford University calls “alignment”. It’s how the guy sweeping the floors in the Albuquerque plant knows why he’s doing it and how cleans floors eventually tie back to total shareholder return. Once we all know what to do, why we’re doing it and what’s in it for me if I do a good job at it, then executives can ask us to run through that last brick wall or take that last hill and know we’ll do it because we understand. In fact this understanding is what drives employees to do it on their own, to exert discretionary effort, so that the organization succeeds.
So, what has Shell wrought for the future of the organization?
Well lets say that the executives, believing that they truly deserve this compensation (WTF?) actually do the “right thing” and pay the other members of the team and on down the line, their promised discretionary compensation as well. What happens next year when my manager asks me to stay late on Friday when I really would rather go drinking? If the goals are not really “goals”, they’re just sort of guidelines and if we get “close enough” we’ll all get paid anyway? I’ll see you at the bar at 5:02, if I hustle maybe 4:59! I like working here, I’ll do what I can, but I’m not going to bust my butt on a consistent basis if I’m going to get paid no matter what.
Now, let’s say the executives do what most executive teams do: Yes, as the CEO I got paid because, well, I’m a genius. But you dumb bastards down in the bowels cost us to come in 4th and heads are gonna roll because we can’t afford to be 4th!! How quickly do you think it takes employees to understand that the management speeches about teamwork, going the extra mile, all pulling together for one goal, etc, etc, are all about one thing? Making sure that executive gets paid no matter what happens to the worker bees. And not to overstate the obvious but what now happens to loyalty, morale and productivity? (Turnover, profits and innovation?)
What has Shell wrought? Classic, lose-lose.
As a CEO for 20 years this type of behavior infuriates me.
Saturday, May 9, 2009
For Monika
My friend Monika took me up on the "just ask" part of my profile and wants to know what makes me the happiest after all of my life experiences.
OK, here goes: I'm a romantic; I LOVE my friends and family and get more joy than almost anything when I'm just with them, no agenda, just enjoying each other. As you'll see I said "almost anything" because other than just being with my friends and family there is one thing that makes me the most happy: I am addicted to love! I'm addicted in a way that is almost hard to describe. People often wonder and ask why I've never been married. I used to say it was because I've never found the right woman, but I've come to know that this isn't true. I may have found the right woman many times over...I certainly did find her 4 years ago. But even in the story of that love, which went wrong there are parts of my true happiness. I simply don't understand how love ends. How someone can love you and then a day later, or a week later or a month later or 10 years later, after knowing all there is to know about you, decide that you aren't a good person, decide that their love and affection was misplaced. I know, events happen and sometimes people do things that are seemingly unforgivable. But those events seem so few and far between to me. Not as frequent as we'd make then in today's world. I know I'm rambling right now but the fact is I don't think most people understand the meaning of the word LOVE. "I love you but not if you spend too much money."..."I love you but not if you've ever been with another woman."... "I love you, but I just can't be with you"..."I love you but this person is better for me."..."I'll always love you but goodbye."...too me most people have no clue what love really means. I think I do...and maybe I'm wrong. I love beauty, friends, family, and I love the idea of love and it makes me happy. I just wonder if I'll ever meet anyone who understands it the way I do? I think you meet people and you have a connection with them and if that connection turns into or equals love, you can't just throw that person aside for someone who makes more money or who seems more "stable" or who "understands" you better. All the details are bullshit if you have real love!!! They'll happen or they won't but real love transcends the day-to-day. It drives a stake in your heart and pulls you to that person. even when you know it's wrong you can't help yourself.
Anyway, this sounds more like what makes me unhappy....My life is about beauty, knowledge, loyalty, friendship, family and Love!
That's for you Monika!!
OK, here goes: I'm a romantic; I LOVE my friends and family and get more joy than almost anything when I'm just with them, no agenda, just enjoying each other. As you'll see I said "almost anything" because other than just being with my friends and family there is one thing that makes me the most happy: I am addicted to love! I'm addicted in a way that is almost hard to describe. People often wonder and ask why I've never been married. I used to say it was because I've never found the right woman, but I've come to know that this isn't true. I may have found the right woman many times over...I certainly did find her 4 years ago. But even in the story of that love, which went wrong there are parts of my true happiness. I simply don't understand how love ends. How someone can love you and then a day later, or a week later or a month later or 10 years later, after knowing all there is to know about you, decide that you aren't a good person, decide that their love and affection was misplaced. I know, events happen and sometimes people do things that are seemingly unforgivable. But those events seem so few and far between to me. Not as frequent as we'd make then in today's world. I know I'm rambling right now but the fact is I don't think most people understand the meaning of the word LOVE. "I love you but not if you spend too much money."..."I love you but not if you've ever been with another woman."... "I love you, but I just can't be with you"..."I love you but this person is better for me."..."I'll always love you but goodbye."...too me most people have no clue what love really means. I think I do...and maybe I'm wrong. I love beauty, friends, family, and I love the idea of love and it makes me happy. I just wonder if I'll ever meet anyone who understands it the way I do? I think you meet people and you have a connection with them and if that connection turns into or equals love, you can't just throw that person aside for someone who makes more money or who seems more "stable" or who "understands" you better. All the details are bullshit if you have real love!!! They'll happen or they won't but real love transcends the day-to-day. It drives a stake in your heart and pulls you to that person. even when you know it's wrong you can't help yourself.
Anyway, this sounds more like what makes me unhappy....My life is about beauty, knowledge, loyalty, friendship, family and Love!
That's for you Monika!!
In Defense of Marriage...
OK, so this stupid twit Miss California now says she will continue to do "whatever it takes to protect marriage"....???
OK, maybe someone who reads this can explain it to me...If I was married, and my two gay next door neighbors then got married...what happens next? Does my marriage magically just dissolve right before my very eyes? Or maybe everyone in my neighborhood who is married to someone from the opposite sex decides that since the gays are now married they are all going to get divorces?? I need to know how this works. Families are good for society and marriage is a good thing for families so if letting gays get married is going to automatically make all other marriages null and void or make everyone who was thinking about getting married change their minds...
OK, this is even too stupid for satire.
OK, maybe someone who reads this can explain it to me...If I was married, and my two gay next door neighbors then got married...what happens next? Does my marriage magically just dissolve right before my very eyes? Or maybe everyone in my neighborhood who is married to someone from the opposite sex decides that since the gays are now married they are all going to get divorces?? I need to know how this works. Families are good for society and marriage is a good thing for families so if letting gays get married is going to automatically make all other marriages null and void or make everyone who was thinking about getting married change their minds...
OK, this is even too stupid for satire.
Thursday, May 7, 2009
I Hate Anthony Bourdain
I hate Anthony Bourdain. OK, I don't really hate him, hell I don't even know him. I think he'd be fun to hang out with. A little full of himself probably but good fun I'd imagine. He drops a lot of names so we could get out "celebrity" on! What I hate is that he wrote a book like Kitchen Confidential before I had the balls or the better yet the focus to write it on my own. He's probably a better writer than I am, but he ain't got any better stories than I do! As many of you probably know I was in the restaurant business for more than 20 years. Started when I was 16 as a "busboy" at a bar called the Parrot in Bayport Long Island. It was a long time ago and I think I was working there with my friend Frank Massa...maybe his older brother worked there...I don't even think we got paid, but I learned how to carry 9 beer mugs in one hand.
I guess I hate him because he's an innovator. Sometimes when you see innovation it seems so simple. You say, "shit, I coulda done that! He's making money off that bullshit?" Its crazy! I'm thinking of this because I've been reading another of his books called The Nasty Bits. It's just a series of essays that he's published in news papers and magazines but they're all along the same lines, talking about the crazy situations, incredible hard work and insane people you come in contact with when you work in the "hospitality industry." I think he seriously overstates this concept of kitchen guys as this rouge band of tough guys with questionable morals...(ok, maybe the questionable morals part is true) that no one else understands and everyone is afraid of. That's all pretty much bullshit. I never met a chef that intimidated me. (except Mike Soper who's the scariest man with one leg and Ann Cashion who intimidates me with her sheer talent!). Maybe I should have been intimidated by some, I'm not that smart. But in general chefs are just like everybody else, some tough guys, some..not so tough. But it is true that all of us in that industry do share a kind of brotherhood which is hard to describe. To this day my best friends, my best clients and all of my loves have been people who I either worked behind the bar with, met in the restaurant, who worked in the industry in the past or I admired their work at another restaurant. Chefs have a hard life, but so do waiters and hostesses and busboys and bartenders. Maybe one reason I feel less than impressed though thoroughly entertained with his stories of toil and debauchery is that I've done probably the only other job that's at least as hard as being a chef. Designing an building restaurants for chefs...most chefs don't know anything about opening or running a business. Then they hire people who do to help them and ignore them because they're so damned arrogant. I never fret over restaurants that close becasue they probably shouldn't have been open in the first place. Running a restaurant is tedious and mind-nummingly difficult work. Building and opening restaurants is terrifying and more intense than anything I've ever done. Everyday you stare disaster in the face, and not just the "I'm in the weeds, dinners are pissed off, we're out of shell steak" types of disasters; we're talking about decisions that could cost your client hundreds of thousands of dollars tomorrow type disasters!!! (Like "hey, is this $2MM building we just finished 3' too close to the highway?" or like this discussion I once had with a fire marhsall; :"yes I know your owner as spent over $500K on this opening party tonight but if that elevator call button isn't fixed in 10 minutes you're not getting an occupancy permit until I get back from vacation next week"). I guess at the end of the day it's this kind of madness, and our love of it which keeps those of us in the hospitality business tied together like a family. Like my friend Marilu Munoz said to me last night, "you hate Bourdain? I think I love him"...I guess he's ok. He's family!
I guess I hate him because he's an innovator. Sometimes when you see innovation it seems so simple. You say, "shit, I coulda done that! He's making money off that bullshit?" Its crazy! I'm thinking of this because I've been reading another of his books called The Nasty Bits. It's just a series of essays that he's published in news papers and magazines but they're all along the same lines, talking about the crazy situations, incredible hard work and insane people you come in contact with when you work in the "hospitality industry." I think he seriously overstates this concept of kitchen guys as this rouge band of tough guys with questionable morals...(ok, maybe the questionable morals part is true) that no one else understands and everyone is afraid of. That's all pretty much bullshit. I never met a chef that intimidated me. (except Mike Soper who's the scariest man with one leg and Ann Cashion who intimidates me with her sheer talent!). Maybe I should have been intimidated by some, I'm not that smart. But in general chefs are just like everybody else, some tough guys, some..not so tough. But it is true that all of us in that industry do share a kind of brotherhood which is hard to describe. To this day my best friends, my best clients and all of my loves have been people who I either worked behind the bar with, met in the restaurant, who worked in the industry in the past or I admired their work at another restaurant. Chefs have a hard life, but so do waiters and hostesses and busboys and bartenders. Maybe one reason I feel less than impressed though thoroughly entertained with his stories of toil and debauchery is that I've done probably the only other job that's at least as hard as being a chef. Designing an building restaurants for chefs...most chefs don't know anything about opening or running a business. Then they hire people who do to help them and ignore them because they're so damned arrogant. I never fret over restaurants that close becasue they probably shouldn't have been open in the first place. Running a restaurant is tedious and mind-nummingly difficult work. Building and opening restaurants is terrifying and more intense than anything I've ever done. Everyday you stare disaster in the face, and not just the "I'm in the weeds, dinners are pissed off, we're out of shell steak" types of disasters; we're talking about decisions that could cost your client hundreds of thousands of dollars tomorrow type disasters!!! (Like "hey, is this $2MM building we just finished 3' too close to the highway?" or like this discussion I once had with a fire marhsall; :"yes I know your owner as spent over $500K on this opening party tonight but if that elevator call button isn't fixed in 10 minutes you're not getting an occupancy permit until I get back from vacation next week"). I guess at the end of the day it's this kind of madness, and our love of it which keeps those of us in the hospitality business tied together like a family. Like my friend Marilu Munoz said to me last night, "you hate Bourdain? I think I love him"...I guess he's ok. He's family!
Wednesday, April 29, 2009
How do you become a celebrity...#1
Am I the only man in America who thinks Omarosa "4 names" is really not attractive???
Tuesday, April 7, 2009
Learning from The Donald
So, yes...I do watch The Celebrity Apprentice...oh, shut up it's just entertainment! And yes I know the show is played out and nobody watches it anymore much less blogs about it. But this weeks' episode made me think about how business is done in the real world so...here's my two cents.
For those of you who didn't watch (haa..) the teams were tasked by The Donald and executives from the All detergent Company to create a "viral" video for the web. Clint Black's team did what may have been the worst single production in the history of advertisement. It was so bad that it's not even worth the time it would take to make fun of it. Essentially the guy uses All to jerk-off so he doesn't have to sleep with his super hot wife..WTF?? Melissa's team on the other hand did something extremely funny and worthy of passing along to your friends. Jesse James, being washed by a bunch of midgets (YES!!! MIDGETS you PC A-holes!!) dressed up like Little bottles of All Small and Mighty, and then getting pissed off about being exploited at the end of the video. It was edgy, funny, a little off..everything that makes people say "OMG you have to see this fucking video, it's hysterical", and sending it along to friends. The two stuffed shirt All executives who wouldn't know viral if it fell out of the sky and crawled up their pants thought both videos missed the mark of responding to their demographic of 25 year old women who happen to be mom's. (I guess you lose your edge at 25 if you have kids??)
The Donald promptly fired one person from each team, neither of which firing had anything to do with the performance of that person (Khloe and T-Boz) in creating the video. (There's a way to really get the most out of your employees, fire people for the equivalent of not liking their hairstyle!). Anyway, so here's my problem with all of this; not withstanding that Donny Deutsch would probably disagree with what I'm going to say, corporations make this mistake all the time; they look at popular and emergent culture to see what's happening in the real world and they try to co-opt messages or techniques on the edge to give their products more street-cred. "You know what we need to sell more All? Some of that 'Viral' stuff! Let's go buy us some of that!" This was set up to be a failure from the very beginning. Corporate America always wants cool, hip or edgy without taking the risks that are required to really get there. So they try to institutionalize the cool, hip or edgy thing, without understanding it or, if you ask me understanding their customers. Yes that's right I think most companies have a very poor handle on what their customers really want and I'll debate ANYONE on that issue.
So, when Melissa produces a really funny, slightly-to- moderately outrageous video that could become viral, those who don't understand what viral means, fall back on what they do know, traditional advertising methodologies and kill the project. This happens all the time in the real world to the tune of millions of wasted dollars. Trump just exploited All's stupidity for his own benefit..(Which is why I think he's a mad genius!).
The whole thing then crashed and burned into an absurd comedy of incompetence and self-serving bullshit. Not a way to run a business. Melissa had a great product and she knew it but she was unwilling to stand up for it and truly accept responsibility: Note to Apprentice competitors; In the real world accepting responsibility doesn't mean just saying it was my fault, it means also suffering the consequences of responsibility and not letting your team take the fall for your decisions. Melissa should not have brought anyone into the boardroom with her. She should have stood up for her work and her team and convinced Donald to fire two people from Clint's team. That would have been really simple for The Donald: Clint simply had to go and the fact that he didn't is a clear lack of leadership on Donald's part. In fact, Clint's project management skills were so non-existent and the product so completely awful, he's the ONLY one that should have been fired this time around. Firing Khloe because she was absent due to her DUI conviction? I know, The Donald is holier than all of us but that's the kind of shit that gets you sued in the real world. OK, I've even bored myself with this entry!..see ya later!
For those of you who didn't watch (haa..) the teams were tasked by The Donald and executives from the All detergent Company to create a "viral" video for the web. Clint Black's team did what may have been the worst single production in the history of advertisement. It was so bad that it's not even worth the time it would take to make fun of it. Essentially the guy uses All to jerk-off so he doesn't have to sleep with his super hot wife..WTF?? Melissa's team on the other hand did something extremely funny and worthy of passing along to your friends. Jesse James, being washed by a bunch of midgets (YES!!! MIDGETS you PC A-holes!!) dressed up like Little bottles of All Small and Mighty, and then getting pissed off about being exploited at the end of the video. It was edgy, funny, a little off..everything that makes people say "OMG you have to see this fucking video, it's hysterical", and sending it along to friends. The two stuffed shirt All executives who wouldn't know viral if it fell out of the sky and crawled up their pants thought both videos missed the mark of responding to their demographic of 25 year old women who happen to be mom's. (I guess you lose your edge at 25 if you have kids??)
The Donald promptly fired one person from each team, neither of which firing had anything to do with the performance of that person (Khloe and T-Boz) in creating the video. (There's a way to really get the most out of your employees, fire people for the equivalent of not liking their hairstyle!). Anyway, so here's my problem with all of this; not withstanding that Donny Deutsch would probably disagree with what I'm going to say, corporations make this mistake all the time; they look at popular and emergent culture to see what's happening in the real world and they try to co-opt messages or techniques on the edge to give their products more street-cred. "You know what we need to sell more All? Some of that 'Viral' stuff! Let's go buy us some of that!" This was set up to be a failure from the very beginning. Corporate America always wants cool, hip or edgy without taking the risks that are required to really get there. So they try to institutionalize the cool, hip or edgy thing, without understanding it or, if you ask me understanding their customers. Yes that's right I think most companies have a very poor handle on what their customers really want and I'll debate ANYONE on that issue.
So, when Melissa produces a really funny, slightly-to- moderately outrageous video that could become viral, those who don't understand what viral means, fall back on what they do know, traditional advertising methodologies and kill the project. This happens all the time in the real world to the tune of millions of wasted dollars. Trump just exploited All's stupidity for his own benefit..(Which is why I think he's a mad genius!).
The whole thing then crashed and burned into an absurd comedy of incompetence and self-serving bullshit. Not a way to run a business. Melissa had a great product and she knew it but she was unwilling to stand up for it and truly accept responsibility: Note to Apprentice competitors; In the real world accepting responsibility doesn't mean just saying it was my fault, it means also suffering the consequences of responsibility and not letting your team take the fall for your decisions. Melissa should not have brought anyone into the boardroom with her. She should have stood up for her work and her team and convinced Donald to fire two people from Clint's team. That would have been really simple for The Donald: Clint simply had to go and the fact that he didn't is a clear lack of leadership on Donald's part. In fact, Clint's project management skills were so non-existent and the product so completely awful, he's the ONLY one that should have been fired this time around. Firing Khloe because she was absent due to her DUI conviction? I know, The Donald is holier than all of us but that's the kind of shit that gets you sued in the real world. OK, I've even bored myself with this entry!..see ya later!
Friday, March 27, 2009
The cure to financial shenanigans
So, I’m riding the train heading back to The City from Washington. I was in town helping a friend with a lawsuit…(more on that later…maybe). I’m reading in the current issue of New York Magazine about Meredith Whitney and her new financial research and advisory firm. For those of you who don’t know, Meredith was formerly an analyst with Oppenheimer & Co. In 2007 she was one of the first analysts to call the beginning of the financial services industry meltdown due to the problems banks were going to need to address as a result of the sub-prime mortgage debacle. I don’t know Meredith personally but from what I’ve seen one TV and read of her work, I think she’s really smart and obviously ambitious. And as always I’m a huge fan of people starting their own businesses. One thing she wants to do with her new firm is advise banks on restructuring and acquisitions. And, herein lies the problem for me. Let me explain by positing a theory for you: I’m going to suggest to you something that will seem like common sense after you’ve read it but as the next few minutes pass (as you read on) I want you to think back to this time and try to remember if you “knew” this as a basic truth.
I’m going to suggest that the foundational problems we’re facing with the collapse of our financial institutions, have very little to do with the nature of financial transactions, balance sheet health, leverage ratios and AAA ratings on securitized mortgage products. These tactical outcomes that lead to the technical depletion of wealth and technical collapse of the credit markets were the results of cultural deficiencies inside the banks and financial institutions. Some (not all) players inside these institutions are perpetuating a culture of greed that has long been and is now the staple and measure of Wall Street success. The mindset of “increasing shareholder value” is one that infects these organizations with a cultural myopia that has proved to be deadly. I think Meredith Whitney is probably a brilliant financial analyst. And I would also bet that what she knows about transforming organizational cultures could roll around in a thimble for a year. The future of the financial service industry won’t be written by those you can best analyze a balance sheet. It will be written by those who understand that a new mindset, one that tends to the needs of a broad range of stakeholders (customers, employees, community, partners..), will lead us away from a culture of greed towards a culture of caring that actually creates real and sustainable wealth for everyone involved.
Now don’t get me wrong, this isn’t a Meredith Whitney trash piece. I think she’s dead on about some of the tactical things that need to happen to get this economy back on track. She’s right about giving regional banks more capital so they can pick up the slack on lending and she’s right about how the big banks need to sell of assets and retrench. But what needs to happen strategically is that our commercial institutions, banks and service companies, manufacturers and technology companies, all need to get out of the quarter-to-quarter, shareholder value mindset (as Jack Welsh says, this is not a strategy) and move towards a real business strategy of caring for the needs of all stakeholders as a means for creating long-term, sustainable value. Mergers, acquisitions, restructurings don’t fail or succeed because the financial engineering piece of the equation was executed correctly, they fail because of the marriage of incompatible cultures or because of the lack of a real organizational strategy. Successful strategies, the strategies that will thrive in the future, are those that recognize that the true path to sustainable value lies in engaging and inspiring employees to put customers needs above all; in developing win-win partnerships with suppliers and not treating them as indentured servants; in contributing to your local communities who give you “public license” to operate. The companies that operate like this will not only return excellent value to shareholders but because of their stakeholder mindset they are infinitely less likely to engage in the financial shenanigans that got us into this mess in the first place.
I’m going to suggest that the foundational problems we’re facing with the collapse of our financial institutions, have very little to do with the nature of financial transactions, balance sheet health, leverage ratios and AAA ratings on securitized mortgage products. These tactical outcomes that lead to the technical depletion of wealth and technical collapse of the credit markets were the results of cultural deficiencies inside the banks and financial institutions. Some (not all) players inside these institutions are perpetuating a culture of greed that has long been and is now the staple and measure of Wall Street success. The mindset of “increasing shareholder value” is one that infects these organizations with a cultural myopia that has proved to be deadly. I think Meredith Whitney is probably a brilliant financial analyst. And I would also bet that what she knows about transforming organizational cultures could roll around in a thimble for a year. The future of the financial service industry won’t be written by those you can best analyze a balance sheet. It will be written by those who understand that a new mindset, one that tends to the needs of a broad range of stakeholders (customers, employees, community, partners..), will lead us away from a culture of greed towards a culture of caring that actually creates real and sustainable wealth for everyone involved.
Now don’t get me wrong, this isn’t a Meredith Whitney trash piece. I think she’s dead on about some of the tactical things that need to happen to get this economy back on track. She’s right about giving regional banks more capital so they can pick up the slack on lending and she’s right about how the big banks need to sell of assets and retrench. But what needs to happen strategically is that our commercial institutions, banks and service companies, manufacturers and technology companies, all need to get out of the quarter-to-quarter, shareholder value mindset (as Jack Welsh says, this is not a strategy) and move towards a real business strategy of caring for the needs of all stakeholders as a means for creating long-term, sustainable value. Mergers, acquisitions, restructurings don’t fail or succeed because the financial engineering piece of the equation was executed correctly, they fail because of the marriage of incompatible cultures or because of the lack of a real organizational strategy. Successful strategies, the strategies that will thrive in the future, are those that recognize that the true path to sustainable value lies in engaging and inspiring employees to put customers needs above all; in developing win-win partnerships with suppliers and not treating them as indentured servants; in contributing to your local communities who give you “public license” to operate. The companies that operate like this will not only return excellent value to shareholders but because of their stakeholder mindset they are infinitely less likely to engage in the financial shenanigans that got us into this mess in the first place.
Wednesday, March 18, 2009
AIG bonuses
So, the AIG Bonuses...are you mad? I'm mad. I could ruin a company with the best of 'em. Will I get paid a couple million if I do? Not likely. So yeah, I see why people get angry about it. But in the big picture I wonder both how much that money really matters and more importantly, what the hell did we expect? Look I don't know if any of those folks that got the bonuses deserved them or not, but in the larger scheme $165MM in bonuses is nothing compared to the Billions that AIG the company received. That's where my outrage lies. First of all there's this fallacy of systemic risk. If you read Peter Wallison's piece in the WSJ yesterday (if not, here it is: http://online.wsj.com/article/SB123725470200650641.html) You'll start to realize how little the government, and the electorate for that matter, really understands here. The sub prime market had put the financial system in shambles long before we started these bailouts. In fact if you believe what Peter says (and I do) you'll recognize that it was the failure of the system that brought AIG, Lehman and Bear to their knees, not so much the other way around. Yes the stupidity they all showed by creating securities without having any idea about the value of the underlying products (read: mortgages...you see they forget about customers) that certainly precipitated the collapse of the system, but letting them fail was not going to bring Armageddon. Armageddon was already upon us. Secondly, what the hell did people expect AIG to do with the money if not pay compensation to keep people working (arguably for most organizations compensation is one of the top 2 or 3 expenses so if you give me money, obviously I'm using it to pay the people who make the place run), and if not to pay counter-parties? I mean the entire IDEA of systemic risk is: If I fail, I'm connected or indebted to so many other players that I won't be able to pay, so they'll fail too and the system will crash...am I right? So why now is the WSJ, Congress and Joe six-pack so appalled that some of this money would indeed flow to those counter-parties? I ain't no economist (my partner is) but what the hell people? We're getting just what we asked for. If we'd just let capitalism work in the first place, let the bad performers fail and the good guys flourish, we wouldn't be talking about any of this.
How about this...all you small business people out there (woman owned small businesses employ more people than the entire Fortune 500 combined) what could you have done with a cash injection of $1BB? how many jobs would you have created? How many innovative products would you have designed? How many of you would have developed a better, faster, cheaper, leaner, more profitable insurance company business model than AIG?
Just food for thought.
JC
How about this...all you small business people out there (woman owned small businesses employ more people than the entire Fortune 500 combined) what could you have done with a cash injection of $1BB? how many jobs would you have created? How many innovative products would you have designed? How many of you would have developed a better, faster, cheaper, leaner, more profitable insurance company business model than AIG?
Just food for thought.
JC
OK, hi everybody. First of all sorry it's been such a long time between posts. And now I have to start all over again since I can't remember my old password and the system google has set up to retrieve it doesn't work, (yeah I know they'll claim user error but trust me I know what I'm doing and it's screwed up!). So I'll try to recover the old posts from Cherry Pickin' and archive them here if I can. For now, stay tuned about my ideas about life. I wonder if NY will change me....not a chance! I'm going to talk about these AIG bonuses in a minute.
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