The Politics of Endearment:

My friends David Wolfe and Raj Sisodia gave me the honor of working with them on the recent book Firms of Endearment, How World Class Companies Profit from Passion and Purpose. The experience of working with these two extremely intelligent writers has influenced the way I look at the world. Much of progress is counter-intuitive. How do companies provide outsized returns for shareholders? Focus on long-term relationships with stakeholders not on “increasing shareholder value”. I was thinking of this notion of what David and Raj call Ironic Management (which is loosely defined as doing the opposite of the conventional wisdom as a way to success), this morning as I got my weekly dose of Meet the Press. David Gregory smirked at Valerie Jarrett as she suggested the President meant it when he said he doesn’t think about Sarah Palin. That he actually thinks about what the American people need and not about his next election. Smirk if you will, but please try to pay attention here: Successful politicians are those who, at least are able to convince the electorate that politics is not the important thing. Take care of the people, make their lives better, tell them how you did it and forget about the politics…the politics will then take care of themselves. Put another way, the only person worthy of the job of President is the one who can convince us that he or she really doesn’t want the job…those who will be willing to commit “political suicide” in order to do what they truly believe is right for the country.

The Irony of it all

All the talk about how the recent election outcome is going to be good for business (in addition to an article in the NY Post today by Charles Gasparino) got me thinking today about what's really happening here. Why people think republicans are pro-business when the stats always show that business prospers under democratic rule? Why republicans hold onto this disproved and antiquated notion that tax cuts are a silver bullet to job creation? (I've been a CEO for more than 20 years and I never hired a single person because tax policy was going to give me an extra $1000 in my next paycheck...so don't get me started on the Bush tax cuts..)

Anyway...here's something people don't understand about business: Everybody is saying business will now start investing because the republicans will curtail all of the liberal spending and anti-business policies, the "lurch left" on economic issues will come to an end. But here is a guarantee that I will make: In the next few months as "business" starts to invest again there will emerge some very clear winners; they will be the businesses who didn't buy into this idea that the President's policies were going to "ruin" the country, they will be the ones that were not focused on politics but focused on their customers. They will be the ones who have continued to invest in innovation, employee engagement, customer support, helping suppliers and bolstering their communities not despite or because of what the President did, but without regard to Washington. They have, as they always have done, focused on delivering value to their core stakeholders as a way of driving shareholder value. These companies will destroy their competition in the coming months, as they have been doing consistently even during the recession, because they weren't using politics and a temporary downturn in the economy (and it's ALWAYS temporary) as an excuse to horde cash for their executives, layoff workers or unnecessarily tighten loan standards. They were serving customers and preparing for the next business cycle...not screaming about how the sky is was falling because people who make $250,000 or more might have to pay a few percentage points more in taxes or because their hourly employees were now going to have better access to health care. The emperors that you see on CNBC-including the king himself, Jack Welch-have no clothes. The ironic thing is that all of these businessmen that have been spouting off against the "leftward lurch" have in my mind been blinded to the thing they always rail against: business as an un-impassioned and rationale pursuit. These titans of commerce who are the first to tell you "it's not personal, it's just business" (most stupid comment ever...but that's for another post) not only have let their politics get in the way of understanding what needed to happen with their businesses, they've done so to what will eventually be the detriment of their shareholders. As they were pushing their political agendas and cloaking it in the guise of "just what's good for business" some others were simply going about their business, tending to their relationships, spending on the things that matter and they are now poised to reap the benefits that will come as the economy expands. Mark my words on this, the spoils in this next cycle will clearly go to those companies who continued to invest, continued to train employees, not the ones who cut staff to the bone in order to bolster quarterly earnings or those who spent their time fighting with the White House instead of listening to their customers.

Politics and the Good Society

James O'toole of the Aspen Institute wrote a book called: "The Executives Compass: Business and the Good Society". In the book he lays out ideas about how we need to balance Liberty and Equality, Efficiency and Community in order to have a society that is both free and provides equality of opportunity, one in which take advantage of the benefits of efficient markets while also understanding and tending to the needs of community. The problem with republicans and conservatives is that given the choice they see the world as a zero sum game as as such always err on the side of Liberty and Efficiency to the detriment of Equality and Community. The world is not a zero sum world. The problems we face require more innovative thinking about how we manage the polarity of these ideals that are seemingly or some times actually at odds with each other. Republicans put forth that Liberty and Efficiency will always prevail because if you are freely unconstrained to pursue your own best interests we will all benefit. Of course we see by financial meltdowns and Bernie Madoff's and Enrons and Worldcoms and unjust wars and disparities in sentencing and gay bashing, etc, etc. that this is not always true. We must be ever vigilant about how our actions impact the broader community, especially those who have less of a voice in the system. We must be ever vigilant that Liberty is not purely the province of the wealthy and connected but that we provide equality of opportunity, through education, access to financing, pay and job equality, to everyone. This is how we get to the good society.

This I Believe

Yeah I know....been away for a while...here's some food for thought:



I believe that capitalism and free markets are the single best way to world wide prosperity and freedom.

I also believe that free markets need to be regulated vigorously because some businessmen will take advantage of the system and until Wall Street rewards ethical behavior, which now it doesn't, government intervention is essential.

I believe if we're going to have a government that tends to those things which we need to have tended to in the aggregate as a society that we all need to pay our fair share so that government has the resources to do that. And as such, small or big government is a futile discussion. We need to make real and hard specific choices about what government MUST do and what can be left to the market. BIg Government vs. Small Government is a fabricated and irrelevant debate, like abortion....we all would like a smaller government IF that smaller government could provide the things that we all need. (IE we all hate abortion but I have no right to tell my neighbor what to do with her body).

I believe since we have a private education system that forces individuals to pay for their education, especially in areas of public health, they have a right to demand adequate payment for having paid for that education and we as a society have an obligation to help all of our citizens have access to those educated providers.

I believe only those who work for it and can actually afford it however have a "right" to own a home.

I believe that we have an obligation to maintain our natural resources for future generations...no matter the cost. The Tragedy of the Commons is real and we must deal with this polarity.

I believe we have an obligation to provide all of our citizens with a basic level of education, no matter their financial standing.

I believe our justice system should treat everyone the same no matter their race, religion or economic standing.

I believe that civil society depends on us acknowledging that we're in this together and some people are in circumstances that require the rest of us to give them assistance and that government has a primary role and seeing that this will happen because it requires in many cases a centralized effort.

More later...

The Wall Street Earnings Game

OK, I know I’ve been at this for three years now, but this morning I finally figured out Wall Street. It’s not a pretty picture.

In some ways this whole thing of Wall Street and earnings calls is like a self-made gambling parlor. I was watching CNBC this past Thursday morning and they did a lead-in about the upcoming earnings story about Wal-Mart. Wal-Mart had a “beat” this morning meaning it’s earnings per share were better than the analysts had estimated, but “the street” is unhappy with soft guidance and weak same store sales. Now if you listen to Wall Street analysts, that all actually means something. And if you have money on Wall Street it I suppose it does. Analysts will lower expectations for the company, investment managers will sell the stock and therefore when there are more sellers than buyers the price will go down, temporarily. But if you just a regular investor, someone who’s not doing this for a living but just trying to invest in good companies in hopes of building some wealth what should you be looking for when you invest in a company? And what should the price of the stock tell you? Seemingly you’re buying stock in a company because you believe that company will be successful in the future, they will continue to grow and be profitable and if they do, then the future cash flow of the company will make it more valuable and therefore at some point you, or your children, or your estate can sell the stock for more than you bought it for. This will increase your own cash flow and allow you to do other things that you’d like to do with that money…like build a house or go on vacation. All that makes sense right? So the question them becomes, how do you determine if Wal-Mart will continue to grow, continue to be successful, profitable and generate cash flows in the future that will justify you asking for a higher price for the stock than that at which you bought it? Now I’ve had the benefit of running a few businesses so maybe I have more information than most people on Wall Street, but if I were still a CEO, I can tell you for certain that the fact that my quarterly earnings per share were higher than, lower than or equal to an average set by a group of guys who aren’t inside my business gives you as an investor absolutely zero understanding of the future prospects of my company. In business, things change everyday and the relationships that most large businesses have to navigate and manage are so complex (and the outcomes of those relationships can takes years to manifest themselves) that quarterly earnings tell you at most about (I’ll be generous) 20% of the story. Now add to that “soft guidance” for next quarter (which is again an earnings number) and same store sales, which I admit is a valuable metric in the retail arena. But again, what are you trying to understand? The Future potential of the company to generate excess cash flow (that which is in excess of what could be expected just from keeping up with the general economy). So is the guidance valuable? Well maybe…if you, your kids or your estate need to sell the stock within the next quarter then this is a very valuable thing to know. If however, you’re “investing” for some future longer than 3 months…next quarter’s guidance is a pretty useless number. If Warren Buffet’s ownership threshold is FOREVER…what the hell does he care about next quarter’s guidance? And what about same store sales? Well obviously if you own an asset and you can understand if that asset will be increasing or decreasing in value over the period when you own it, that would be a good thing. So the obsession with same store sales would lead you to believe if a company has one quarter when sales this period were lower than last, you should assume that this will continue on into the future without fail…does that make sense to anyone? The problem with Wall Street is that most of the people who work here first have never actually run a business and second have generally become very lazy. I’d submit that, again, unless you are a “trader” and don’t intend to hold the stock for more than a few hours or days and certainly not more than a few months, then there are a lot of other things you need to know if you want to understand whether or not the companies you own will be successful in the future…like how do employees feel about working there? Are they productive? Are they willing to give discretionary effort for the company? Do they know their jobs well enough so that when they do give that effort it is effective? Are customers loyal such that they will keep coming back year-after-year and be willing to pay a premium for the company’s products? What risks does the company face in the future? What is the corporate culture like? Is it one that focuses on caring and quality and innovation such that it will foster new products, make sure those products are always safe for consumers…because they really care? Will it stop them from treating customers in a ham-handed fashion when things do go wrong and keep them away from any financial shenanigans? How do the communities where the company operates feel about the company? Is it a welcomed neighbor or will it have to fight lengthy and expensive legal and civil battles simply to find places to do business? How do they recruit and hire new talent? By the way, if you run a business, these are the issues that really concern you, not quarterly earnings. The problem with all of this stuff is that it’s really difficult to find out and understand…and if you’re lazy, well you’d rather just pick something easy and use that as a metric instead of doing all of this work.

The amazing thing is that all of this laziness has led to a lot of people making a pot full of money. You see these guys have done something ingenious: They’ve created a framework which has nothing to do with the real value of the companies they aim to judge, they’ve agreed that this framework will be the basis of setting prices, then they’ve told the public a different story so they can fund the entire scheme with other peoples’ money. This is why you often hear Wall Street professionals saying that the system is rigged against the “little guy” meaning the retail investor. It’s all like an agreement that they’ve made amongst themselves. Quarterly earnings don’t really matter, but if we Wall Streeter’s all decide they matter, then we can trade in and out of companies as if they do, then prices will move and we’ll make money. Retail investors can’t do that. They have other jobs to do. That system only works for you if you trade stocks all the time, all day long as a professional. It’s like they’ve told the public “buy equity in quality companies and you’ll make money” then they set up the system so that making money has nothing to do with the quality of the company, only with the short-term price changes driven by the irrelevant metrics that they’ve created.

Just my two cents but time for things to change on Wall Street if you ask me.

Financial mess...redux

This is an old post that…I forgot to post!!! But I’m working on a book chapter about some of these issues so I thought I’d put this up now anyway just as food for thought.

I think it was on the CNBC show “Meeting of the Minds: The Future of Capitalism” which aired in May of 2009…but don’t hold me to this, but anyway, on that program, Larry Fink the CEO of BlackRock said that we got into this financial mess because we had a society that believed in housing. Now when I was watching the show I remember thinking to myself; “that’s just a lie!” But to say that may be a little to simplistic. The truth seems to me to be a bit more nuanced shall we say. I think we got into this mess because greedy mortgage bankers lent money to people who couldn’t afford to borrow that money. Bankers and money managers on Wall Street packaged those mortgages into securities without having the slightest understanding about the health of the underlying assets (CUSTOMERS) and ratings agencies were complicit in the entire scheme through an evident and obvious conflict of interest because they were being paid from the wrong side of the equation. What bothers me most about where we are is that the people who were responsible for this don’t want to take on any of that responsibility. If they don’t, if they’re able to deflect the blame and say that it was the low interest rates promulgated by the Fed or that it was all because the democrats were pushing home ownership for everyone, I’m afraid we’ll miss the real cause and be doomed to repeat this episode just with some other product. We are were we are because of greed, coupled with a lack of transparency, exacerbated by laws that made it easy to do, leveraged up by a ridiculously inadequate regulatory system, underpinned by a short term mentality that encourages making as much money as you can as fast as possible and bolstered by a long standing acceptance of the separation of commercial institutions from a responsibility for contributing to civil society in all of their day-to-day activities. “Market fundamentalists” want us to believe that “It’s business, it’s not personal.” But I’d like to suggest that if we had even a little more humanity in our businesses today we could have avoided a lot of this mess…just a thought.

Apple Cars...

My friend KstreetKate (http://www.kstreetkate.net/) twittered this morning about this entry on the Huffington Post. What if Apple Designed Cars? I didn't read Bono's Op-Ed in the Times about this but this is an old idea. In many forms it has been floating around the deisgn and progressive business community for years. It probably takes someone like Bono to give the idea the traction it needs but I can tell you we've always thought this was such an obvious fix that it had to just be more retardedness (is that a word?) by the US car industry that kept it from getting done. Say all you want about safety, gas mileage and all the other reasons that people will TELL you that they bought a car. As when we used to do customer value research, there are always two stories; the one that consumers tell you because they think its what they should be saying, and the real story. US cars are simply ugly, not sexy, not interesting; that's why no one buys them. Why wouldn't Detroit just outsource the design work to Ideo or Imagination? It's so obvious that we all just figured they'd thought of it and then convinced themselves it wouldn't work because they had all the talent they needed in-house...(NOT). Anyway, I hope someone with half a brain in Detroit....might be asking a lot...read this and what Bono had to say and does something about it. Jobs are created by smart creative people, not by people who think they know everything and can't possibly learn from someone outside of their organization.