Nik's Laws: Don't Arm your Future Enemy

Hey world (and Barack and the useless heap of Congress) are you listening?

Yeah, What HE Said: Obama on Israel and Palestine

Per the Guardian:

"In what was billed as the most important public speech ever made by an American leader on the issue, Obama delivered a tough message to Israel."

Which basically was :

"Put yourself in their shoes - look at the world through their eyes. "

Which is what I've tried to advocate in countless debates on the issue. Understand your opponent's motivation. Find common ground. What seems self-evident to me, and I dare say most Americans, is all too frequently mocked and dismissed as psychobabble by people close to the issue. This makes me struggle to put myself in their shoes. I just don't get it. Mutually-assured misery seems like the least-best alternative, yet it is the de-facto choice by virtue of inaction. 

Obama is just as guilty as the leaders in the region and the lobbyists on the Hill. As I argued in a prior blog, lack of leadership is akin to murder in this situation. 

"Hey Bibi, Hill, Abu! Hey nationalists! Hey settlers! Hey martyrs! Hey donors-to-the-cause! Hey talking heads! You're all wrong. You're all culpable. You're all criminally negligent. Let history reflect that as your true legacy."

Perhaps he finally read my blog, because what Obama said this week was real leadership:

"You can be the generation that permanently secures the Zionist dream, or you can face growing challenges to its future … The only way for Israel to endure and thrive as a Jewish and democratic state is through the realisation of an independent and viable Palestine ... Israelis must recognise that continued settlement activity is counterproductive to the cause of peace"

Leadership is being a first-mover on public sentiment

20 years from now, when Washington is dominated by a Hispanic agenda, Romney will wonder why he didn't put the Republicans squarely in front of that movement by uttering one word: "amnesty."

That he failed that assignment is proof enough he was unqualified to be president. As long as the Republicans insist on backing milktoast candidates hamstrung by idealistic, arrogant, and ignorant agendas, the Democrats will own the new Washington. 

What Will Tomorrow Bring: Retro Fashion in Organizations

The organization, whether group, tribe, team, corporation, or government represents the ugly, bloody edge of our evolution as social animals. It's complicated ... and we're not NEARLY done yet. Perhaps a few millennia down the pike we will get it right.

At the moment, I feel safe in saying that we are all collectively burnt and battered into pessimism about our ability to get it right. Look left. Look right. Share your booze with your neighbor. Their loosened lips will start to tell you how anti-government, anti-bank, anti-corporate, or anti-politics they are. 

I can't purport to foresee the best master plan. But I am an organization-man. Based on daily frustrations, I can highlight a few very very VERY simple things which will ever-so-slightly evolve us. These things were once fashionable in organizations, but have gone out of style. It's time to go retro.

• Meeting agendas and minutes
• Documentation of decision taken and justification thereof
• Reading materials prior to meetings
• Discussing and understanding issues prior to meetings
• Taking time to give the context of a discussion beforehand
• Following up on your OWN To Dos
• Speaking in simple sentences which directly respond to the question at hand
• Making decisions based on informed analysis and then EXPLAINING your decision-drivers to anyone who will listen. Rinse and repeat until you have consensus.
• Saying you were wrong. And knowing why.
• Building objective business cases for investments
• Viewing man/hours as a valuable asset you are investing
• Overtly recognizing and funding innovation time at all levels (except at Google, of course)
• Having a secretary to keep the high-priced execs from spending hours formatting documents and finding conference rooms for meetings. (talk about inefficient division of labor)

Follow Up 2: Less is More

The lead story in the August 6, 2011 Economist minces no words in their opinion of US politicians' "current uselessness" which the paper fears will be responsible for a double-dip recession. They specifically highlight the negative impact of the growing US governmental unpredictability:

Any hard decisionshave been given to a commission--a cop-out that condemns workers and firms to more crippling uncertainty about how the country's fiscal mess will be tackled. Would you build a factory today if you knew that taxes had to rise eventually, but had no idea which ones?

Worse, the poisonous politics of the past few weeks have created new sorts of uncertainty.

This was precisely my message in a January 2010, blog post:

Risk is equivalent to unpredictability. The more able one is to predict the future, the lower the risk and the more confidently one can make moves today which create a nice return tomorrow. Conversely, when the rules of the game may significantly change tomorrow or next year, risk is dramatically increased. This raises the risk-vs-reward bar such that fewer investment options are viable.

Its no wonder that corporations and banks are choosing to sit on "piles of cash" instead of launching big, strategic, long-term investments which would support long-term and largely high-skilled job creation ... and hopefully long-term profitability for the investors.

No, US federal policy currently discourages that type of thing. More precisely, it forces such investment offshore. When US businesses choose to NOT use their cash for investment in their own commercial projects, they must find something else to do with the cash. People say that Apple has umpteen-hundred-billion dollars "in the bank" but more accurately, Apple has this cash invested in non-apple projects in that Apple owns shares, CDs, bonds, and IOUs from other banks and companies who are not subject to the unpredictability and caprice of the US government.

As my blog post continued:

Governments can increase or decrease this risk. Those with the discipline to stick to a stable, sensible, transparent industrial policy over a long period build tremendous "trust equity" with investors ... Ideas become businesses become economic value ...Unfortunately, being based entirely on intangibles (consensus expectations), this trust equity is a very fragile thing. Governments can quickly sabotage themselves, their economies, and thus their citizens by giving off even the whiff of erratic or ill-advised behavior.

 The current lot in Washington reek of it. Like Renaissance French nobility, they slather themselves in ever-increasing amounts of perfume to cover it up, but the flies still swarm. Here's David Brooks:

"If you ask people, 'why aren't you investing? Why aren't you lending?' it all comes down to uncertainty ... If bankers and entrepreneurs don't have any sense of certainty, they're just not going to invest ... We've not only got this economic problem, but its compounded by a psychological problem, magnified by the fact that distrust of institutions is at its highest level in history." - David Brooks, Meet the Press 1/31/2010

The answer? Of course, it's complicated but a good start is in the title of this blog. The Economist is concerned that immediate fiscal austerity would thrust the economy deeper into trouble. They suggest that we wait a bit. They're half right. I'd listen to Greenspan, who has been a long proponent of using the economic power of "signalling." Without changing a single regulation or appropriation today, the government can clearly communicate what changes are coming when. If the message is credible, people will respond as though the change had happened today. Markets will rapidly price in the new information, and the trajectory of the whole economy will shift.

IF the government's message is credible. This is the rub, given the extent to which Washington has squandered that intangible "trust equity." Given this situation, I'd suggest Obama and Congress see a psychologist ... to better understand how to psychologically build trust in a population.

I'd suggest follow-though is key.

Taking Care of the Heroes

Football is valuable entertainment. Add up the value of the NFL teams: $30 billion according to Forbes to get one measure of just how valuable it is. A hundred bucks for every man, woman, and child in the US.

We love to play and watch it more when we can build (indirect) relationships with it by following our favorite teams, coaches, and players.

We love it more when we can build community with other fans around said relationships.

We love it more when it's exciting (meaning the competition is close and the outcome uncertain).

We love it more when it reminds us of humanity's higher nature. We can't stop talking about players who achieve super-human heroic feats, or coaches who execute strategies to snatch victory from the clutches of defeat.

We love it more when it makes us feel like winners.

We love it less when it is unjust.

We love it less when it is boring.

We love it less when it is inhumane.

We love it less when we lose connection to players or teams.

Sooooo.....

A good way to kill the sport would be to remove the best available (and best-known) players. Heroes: gone. Relationships: severed. Excitement: weak.

Another good way would be to have no rules or penalties. Justice: betrayed. Heroes: broken. Participation: discouraged. Humanity: degraded.

Yet another good way would be to have too many rules and penalties. Action: mundane. Risks: not taken. Super-humans: enfeebled. Results: predictable.

Helmet-to helmet, launching, spearing, intimidating, crushing hits are designed not to stop the opponent, but to intimidate him. Tru dat, but they also damage him, sometimes permanently. They prevent him from being his best.

For some they may be fun to watch or commit, but they are a net negative to the value of the sport and that's the best reason I can think of to stop them. Football is nothing without it's heroes. We have to let them show off ... but not at the expense of knocking other heroes out of the game. That's exactly what no-holds-barred hits do ... in more ways than one. They can injure, sure. They also can cause a receiver to muff a catch because they're too busy worrying about what semi truck is coming their way. The long-term effects (ALS, etc) might even cause some smart-and-athletic dudes to avoid college and pro ball altogether.

On top of that, menacing hits call attention to the embarrassing base nature of the hitters. These are not heroes. Their lack of humanity exposes that.

Joe Pa agrees:

"I've been saying for 15 years, we ought to get rid of the face mask," Paterno said this week. "I think, then, you go back to shoulder blocking, shoulder tackling, and you wouldn't have all those 'heroes' out there."

I'm not convinced that he's found the best solution, but his point is that these guys are just doing what they can get away with. Whether pain, fines, suspension, or legal proceedings provide the disincentive, the point is that these guys will figure it out. It's unacceptable to cream kickers and QBs (Favre aside). Players have somehow figured out how to avoid those hits. It should be unacceptable to demolish receivers, too. Egregious hits are not required. They are not unavoidable. They're not the result of confusing rules. They're not a necessary part of the psychological game. They're not the natural result of younger quarterbacks. That's all ridiculous. They are an embarrassing lack of discipline on the part of the aggressor, exploiting a loophole in the rules. The loophole should be closed and enforcement should be strict. Players will figure out how to comply ... or they're not the kind of players we want in the game.

Talking People to Death

From this week's NY Times:

"[Netanyahu's offer to freeze colonization of contested Palestinian territories] was aimed either at keeping talks with the Palestinians alive and his right-wing coalition partners in check, or at seeking to shift the burden of failure to the Palestinians and escape blame should the talks wither and die. - NY Times 10/12/10

They said "should" but clearly they meant "when." Why the hell did they re-start colonization anyway?? Oh, yeah, so they could offer to stop ... again.

This, to me, summarizes the whole problem. The involved parties, including the Israeli, Palestinian, and US governments as well as the Jewish diaspora, the militant mullahs, the Syrian and Iranian militaries, the arab-royals, the money-siphoning nonprofit organizations, and all the other agents provocateurs have no intention of saving the patient. They just want to make sure they're not blamed for it's death.

Lest they forget among all their strategic positioning (in soft chairs at fancy resort hotels), ego-stroking (whilst sipping tea on private jet they didn't pay for), and diplomatically chortling (while enjoying 5-star cuisine on finer china), there are people dying because of their delays. Some of those people are starving in camps. Others are getting blown to bits during their daily commute. Others are so hopeless and angry about their future that they're letting Bin Laden's clowns whip them into homicidal/suicidal furies. Others still are dying atop Humvees.

Yet everyone just continues talking. One step left, then one step right. Never moving forward lest they accidentally resolve the issue and lose their relevance. If that happened, who would pay for their fancy limos and massive security detail? Who would fund their next European vacation?

Hey Bibi, Hill, Abu! Hey nationalists! Hey settlers! Hey martyrs! Hey donors-to-the-cause! Hey talking heads! You're all wrong. You're all culpable. You're all criminally negligent. Let history reflect that as your true legacy.

Follow Up: I Keep Waiting for Somone to Say "Joke"

Stuff ain't cool unless it's secretive. See how it worked for Nixon? He was about as un-cool as they come until ... well, you know.

In that vein, the Nobel Peace Price nominees are kept secret for 50 years in order to avoid offending anyone ... and to respect Alfred's will, in which he ordered that the Peace Prize be the "coolest" of all prizes offered.

So we'll never know which deserving candidates really got snookered in this year's run-off for said prize. In lieu, more than one reader/friend (you know who you are) has suggested I come up with my own list. I'd never be so presumptuous as to assume I knew better ;-) but here are just a few names I might have offered if asked:

The US Military - How many lives HAS the US Military saved? Seriously, folks, is there any other entity on the planet who has actually DONE more to quell conflict? Every life is valuable - everyone is someone's son or mom. These guys are the only group on the planet willing to make the REALLY tough decisions about life - their own and those of others. If this is too big a group for ya, pick the current leaders - Gates, McChrystal, Mullen.

Ronald Reagan - Jeez, where to begin. Not only did he take the first steps to de-escalate the Cold War, he finished the job he started. He understood this had to be done from a position of power. Along the way, he left us with guiding principles that serve us well even today. "Trust but verify" would get us a lot further along with the Evil Leaders League than sending the Clinton twins for photo-ops.

The faceless, nameless, and thankless who dedicate their lives selflessly to promote peace one person at a time - Each of us knows one, but no one can see them all.

SOS Children’s Villages - In their own words, the "world's largest charity dedicated to orphaned and abandoned children"

Morgan Tsvangirai - Pick your metaphor. He put his life on the line. He went all-in. He took a leap of faith. He spoke truth to hideous power. He stood toe to toe ... and continues to do so in the most peaceful, calm manner possible.

Mordechai Vanunu - On a one-man lifelong crusade against military escalation.

Japan - For quietly fostering over 50 years of peace in Asia

Romeo Dallaire - Betcha don't know this one. Look 'em up.

Bono - If you don't know this one, your name must be Osama.

Wei Jingsheng - Oft mentioned as a candidate, and for good reason. Standing up to the People is beyond ballzy.

Helmut Kohl - Yeah, really. How quickly we forget. He accumulated and then spent incredible political capital to see through the peaceful reunification of a nation. Who'd have thought a commie police state could be turned into a beacon of democracy and capitalism in a mere decade? Who'd have thought West Germans could be convinced to effectively donate a quarter of their income for a decade or more to fund the reconstruction of the rusty East

Gerry Adams, Martin McGuinness, Ian Paisley, Hugh Smyth, Tony Blair, and Bertie Ahern - One of the world's best examples of conflict resolution, de-escalation, de-militarization, empowerment, and legitimization. They dealt with an incredibly sticky wicket with patience and trust from the grassroots up. In a scary world, they proved that, at least in some cases, there IS a way out of terrorism ... err ... I mean 'troubles.'

Gates Foundation - I'll never understand why anyone considers it novel or controversial that development creates stability creates wealth creates peace. There are too many examples to list, yet the Gates foundations is one of the few major benefactors attempting to take whole economies from zero to a stable platform for development in order to facilitate true wealth (and thus peace) creation.

Safaricom, the M-PESA, and the Safaricom Foundation - Along the lines of the above, these guys are establishing the factors of development in order to let poverty-stricken people bootstrap themselves.

The 150 (and counting) Russian Journalists murdered for speaking truth to power

OFAC - Struggling, albeit bureaucratically, but fairly successfully to cut off the lifeblood of conflict.

Rodrigo Lara Bonilla - Colombian Minister of Justice who sacrificed his life in the fight against the collapse of his country into a cartel-owned narco-state.

Virgilio Barco Vargas, César Gaviria - Colombian politicians at a time when that was a decidedly ill-advised career choice.

So Long, and Thanks for all the Fish, Janet

Thanks Big J, I feel better already:

SPIEGEL: Madame Secretary, in your first testimony to the US Congress as Homeland Security Secretary you never mentioned the word “terrorism.” Does Islamist terrorism suddenly no longer pose a threat to your country?

Napolitano: Of course it does. I presume there is always a threat from terrorism. In my speech, although I did not use the word “terrorism,” I referred to “man-caused” disasters. That is perhaps only a nuance, but it demonstrates that we want to move away from the politics of fear toward a policy of being prepared for all risks that can occur.

Okay, if combating terrorism isn't sexy enough for her undivided attention, well then she better get busy on all those trendy new topics she's just bitten off. Here's Time Mag's latest (2007) Top-10 list of those man-caused disasters she'll be busy saving us from:

#1. Global Warming
#2. Brazil Plane Crash
#3. Southern California Forest Fires
#4. Yangtze River Dolphin Extinction
#5. Minneapolis Bridge Collapse
#6. Utah Mine Collapse
#7. North Korea Oil Pipe Explosion
#8. Siberia Mine Explosion
#9. Mozambique Munitions Explosion (huh?)
#10. Congo Train Derailment

I can see it now ... as a trendy ... um I mean goodwill ... gesture, we can send a US Coast Guard flotilla to babysit all those "functionally extinct" River Dolphins. As she'd know if she were properly versed in her Douglas Adams lit, the dolphins are gonna be fine. Humans are the ones in need of saving.

Then again, if people in general were properly versed in Douglas Adams lit, they'd better understand lot of things.



But I digress. Call me old-fashioned but I woulda thought these at least deserved a mention in Time's list:

-Zimbabwe ("The collapse of Zimbabwe’s health system in 2008 is unprecedented in scale and scope ... as of December 2008, there were no functioning critical care beds in the public sector in Zimbabwe." )

-Terrorism (Over 2500 dead in 2007 attacks alone)

- Assassination (for example, Rafik Hariri in 2005, Benazir Bhutto in 2007, João Bernardo Vieira in 2009)

- Collapse of Pakistan (no, this didn't start in 2009, or in 2007)

- Deforestation and Biodiversity Collapse (Governments across South America and Africa turn a blind eye to the rape o the Amazon and Congo river basins. On the bright side it seems to be slowing there. The same cannot be said for Chinese and Southeast Asian decimation)

(chart source: mongabay.com)

- Genocide and war in lawless Sudan and Somalia

- Nuclear proliferation (particularly thanks to this "winner" who recently walked free)

- Oh yeah ... let's not forget the Evil Leaders League and their disregard of human rights and consequent deepening of poverty and hopelessness across nearly half the world's population and two-thirds of the alphabet ... from Afghanistan's Taliban to Congo's ... everybody ... to Iran's Ah-(throat-clearing noise)-madi-nejad to Russia's leader-whose-name-be-not-spoken-lest-I-end-up-in-a-gulag to the al-Saud plunderers of Arabia to Zimbabwe's Moogie. If properly provoked, I might even add the UN to the list, guilty of sitting idly by while this all continues year after year.

Having Vision but Flying Blind

They're misunderstood, if not neglected entirely. They're maligned. They're abused. They each need to be adopted ... by all of us.

I won't be so bold as to say whether Obama or I first sweetened to this set of keys. Clearly, however, we've all been burned by their absence. At least the new administration is trying them out. And I don't mean vision, itself.

You see, having vision is a great thing. Quite rare is the fortitude to choose the right path in spite of the fear mongers, detractors, and wailing interest groups. More rare, however ... in fact, nearly extinct these days ... is successful execution. My recent blog bemoaned and pondered the failings of the US over the past few years. To me, these were seldom from lack of vision, skill, or will. The ideas were sound. The people were smart. But despite having vision coming out of all orifices, they were flying completely blind. Calamity came from complete failures of execution.

Utter failures of execution. On many levels.

It is thus nice to begin to see ghosted hints and hear soft whispering breezes indicating that some people in corporate and political America "get it." It's early days, and this blog will have many follow-ups, but let me describe what's on my radar so far:

A focus on communication.

• Conveying the right message. One side effect of our current info overload is that people have become amazingly good at hearing. People hear more than just the words spoken and can quickly identify the message being conveyed. Too often, Bush administration representatives were speaking about one thing (terrorists in Guantanimo, for example) but projecting a message about something entirely else (caginess from a deep mistrust of the current justice system or the public stomach). It is critical that speakers determine, memorize, and deeply understand the message they're trying to convey. This doesn't mean memorizing a speech and presenting it deer-in-headlights style. It means knowing the message well enough to convey it while sounding like a real person. This builds trust. So does consistency. For an administration, the SAME message needs to be broadcast via multiple channels. It needs to be immutable in its repetition. And the message needs to be right. It needs to be strategic. In the corporate world, for example, the message should convey a specific brand identity and aspiration.
  
• Closely related is Selling the value proposition. Yes, this is Corporate Newspeak. Said in plain English, this means that communicators need to really understand the relative benefits of what they're advocating. This needs to be incorporated into their message every time they communicate. To say it even more simply: sell, sell, sell.
  
• Communication isn't a one-way street. Listening actively to feedback is not optional. It is a diferentiator between failure and success. Actively means listening to and understanding everything they say, literally and in terms of message. It means checking your understanding "So your main goal is X because Y?" It means accepting things that don't sync with your view or message. Once understood and accepted, communicators must be willing to do the unthinkable: incorporate their message into their own, either by responding or by absorbing.
  
• Taking another step back, though, communicators need to make damn sure they've got the right vision as well as message. They can blunder through it; they can be lucky enough to be in the right place at the right time; OR they can do it the right way by investing in information. They must collect, standardize, and analyze data. They must ensure their people AND their audience are properly educated on the issues. They must be brave enough to risk some time and money in skunkworks which may yield nothing, may yield something that doesn't fit with their current vision.

A focus on accountability.

• You cannot have accountability unless you know what your goals are
  
• Then you must identify what the measurements of success should be
  
• Then you must measure what the current state is. Now. With all it's warts.
  
• Finally you need to build the right incentive programs. You need to test your carrots and sticks for perverse incentives.

Surmounting Surmounted Stature

At this very moment, at least a billion people (myself included) must be wondering what the hell happened to the US over the past fear years. Our global preeminence economically, politically, and militarily seems less impressive and less assured today. Of those billion people, sadly, many simply blame one man. The US President is powerful, but he's not all that and a bag of chips. Other people, even more sadly, blame the overall US way of life: our culture, our youth and exuberance, our taste for risk, our ADD, our wealth, our celebsessions, our fast food.

To me, it's adolescent logic to argue that our strengths are our greatest weakness.

The perception that the US has fallen is exaggerated by half, but clearly execution failures, spectacular to mundane, are all too pervasive. Have we just gone pear-shaped? Tits over tea kettle? Lost our mmmmmojo?

One theory is that the rate of failure is unchanged, but in this age of information, they are spectacularized whereas century ago they would have been squelched.

Another theory is that the US has run out of easy wins. Once, oil literally oozed out of the ground in downtown LA. Now, we install rigs in the harshest of locations and must poke miles down into the earth ... or just deal with the Devil. When electricity was first harnessed, options for exploitation were limitless. Gains were huge. Now we must conserve. Innovation used to happen in leaps and bounds as we thought up brand new things. Now it's a slow climb up a steep mountain, figuring out how to do the same old things incrementally cheaper, faster, better.

Or perhaps a social evolution theory applies: Humanity was once, by necessity, survivalistic, decisive, ends-justify-means, hunter-killer, red meat, Western, wanderlust, and masculine. With innovation and social organization, that necessity has abated, being replaced by new imperatives: collaborative, change-averse, risk-averse, non-confrontational, agrarian, vegan, Asian and emasculated. We've evolved (socially) to a point where we believe that our best chance for survival lies not with our individual abilities, but is tied to our capability to integrate within, and enjoy the shared bounty of a larger society. In order to push the whole society to produce and achieve, each member must first endure the necessary overhead of "connecting" with the other members. To "connect" one must spend time communicating, documenting, justifying, persuading, organizing, planning, coordinating, motivating. I'll lump these societal requisites together under the term "connecting."

As the theory goes, people now focus so much on "connecting" that they run out of time to actually produce. This sea change in the way of getting things done (or not) causes a black hole which swallows great people, ideas, laws, and businesses before they can create anything of value.

If you don't like that theory, you could just say that we've just become rich, fat, and lazy. In his case, you must conclude that, just as the Romans, the Akkadians, the Hun, the Mali, the Egyptians, the Ottomans, the Spanish, and the English, so will the American empire fall.

Alternatively, you could decide that we've consolidated power in the hands of a few, and left hoi polloi impotent to look after their own best interests.

Or you could conclude that the human brain has found information overload, that life is just too fast, and that we've thus become irrational and random our their decisions.

It doesn't much matter which justification you prefer. What I would like to figure out is where we go from here!

Follow Up 2: Idle Shareholders

Jinx!

Apparently, at the exact same time I was blogging about irresponsible boards, Carl Icahn was on Fast Money echoing my comments, right down to my "fox in the henhouse" allusion. The video is here. For the record, I first said this about corporate execs back in July. Also for the record, I'm sure he's been saying it since before I was born. It's just nice to be in good company!

In a nutshell, Icahn doesn’t feel corporate management is properly held accountable for their actions. And going forward, he’s determined to see that they are. "It's like asking the proverbial fox to guard the henhouse," he said. Ichan said he is starting a cause called the United Shareholders of America to fight in Washington to change the rules on how corporate management in America operates.
- Unintended Consequences, Recap of CNBC's Fast Money, Seeking Alpha Blog 10/6/08

Follow Up: Idle Shareholders

Way back in July when the financial crisis was just a dull, irritating hum, I wrote a blog to explain the biggest reason why big corporations go afoul. In short, I argued that CEO foxes are left to guard the corporate hen house by absentee owners (shareholders) and their surrogates (fund managers).

I promised to be back with some suggested cures for this corporate cancer. So here I am ... with a new buddy.

Governance Guru Nell Minow talked to Congress about Lehman today. After watching the proceedings, I'm certain they brought her in to lend a sliver of credibility to their populist attack on executive compensation, but she slyly took the opportunity to point the finger a different direction:

the board was too old, had served too long, was too out of touch with massive changes in the industry, had too little of their own net worth at risk, and was too compromised for rigorous independent oversight

I couldn't have told the story better myself. Therein lies the problem and the cure for the cancer. The Board are the ultimate representatives of shareholders, and they are just as guilty of negligence as absentee shareholders. If leverage over CEOs can be had, the Board is the vehicle. The trick is to fix their incentives in order to align with shareholders at large.

A Board seat is a position of honor and prestige. Unfortunately, some members are after these alone, and only grudgingly accept the duties of representing shareholders. Some don't even bother to pretend they care. They usually get nominated because they are famous or connected, not because they are qualified. To align the Board's interests with the interests of us shareholders, we must flex our public opinion muscle by pressuring ALL corporations to implement some game rules.

• Corporations must finally figure out what Governance really means. I'll devote an upcoming blog to this one soon. As an amuse-bouche, I offer the Washington Post's 2006 corporate governance primer.
  
• Boards must meet monthly. Each committee must meet twice monthly or more. Repeated truancy must be rewarded with expulsion. If this is too burdensome to fit into one's social calendar ... well, board seats are not for everyone.
  
• Executives must not sit on their own boards. Period. They can submit proposals. They can submit reports. They can visit when invited.
  
• In the interest of combatting boardroom ADHD, board members should focus on one organization in most cases.
  
• Board members must "buy in" just like a poker table. And the stakes must be enough to make it interesting to them. Explicitly, shareholders must invest a significant share (25% might be a good guideline) of their net worth in the company's common stock or unsecured debt. Furthermore, they must agree to sell deeply underwater puts with expiry at least 5 years out. These must be rolled each year they are on the board, such that they continue to be in force for 5 years after departure from the board. Again, if this sounds too harsh ... NEXT. I can already hear people calling me elitist, "if seats are bought, only the rich will have them." To that I counter that anyone should be able to get on the board if enough shareholders are willing to "sponsor" them. But then it's up to those shareholders to actively police their representative.
  
• Board members must be able to demonstrate a germane area of expertise. For some it might be accounting, for others economics, for others management, for others past experience in the industry. If their only claims to fame are money and ... well ... fame ... NEXT. This should be policed by the owners. Here's a million dollar idea for someone: set up a board member rating agency. Nell's group The Company Library is a good start, but focuses on the enterprise as a whole, not specific board members. Additionally, their soup-to-nuts prosaic appoach is a bit much. My advice (to them or their start-up challengers): keep it simple: A through F based on pre-determined and public criteria.

This is just a starter kit. I'm sure Nell and the other Governance-ators have their own hats to throw in the ring. Go ahead, new buddies-o-mine!

What Will Tomorrow Bring: Black Ink for Everyone!

Putting my conspiracist hat on...

Isn't RTC2 (aka TARP) shaping up like a back-door SWF ... only on borrowed money, since that's the new American way?
Aww, you shouldn't have. I always wanted the US to have a SWF! And this one's a bee-ute!

Perhaps this is just a big surprise present to future generations ... kinda like how High School seniors give the school a parting gift before graduation. Just think ... Paulson, in all his wisdom, and with his near-zero cost of capital, buys up major chunks of US assets.

He lets them ripen.

He sells them for twice the purchase price. He pays off the national debt, puts Social Security on sound footing, and even has left-overs for Obama's gazillion-dollar social and healthcare programs.


Merry Christmas, 2058!

Idle Shareholders

"How can we have these levels of fiction in financials after Sarbanes-Oxley? How do people get away with this? How do they live with themselves?" - Jim Cramer getting emotional about the mortgage investment insurance industry 8/5/07

Readers note: I apologize in advance for the length of this one. A lot of background is necessary in order to fully deliver the punch line. Bear with me. It's important.

The mass-market emergence of Mutual Funds democratized equities. Suddenly everyone was in the market. This influx of funds automatically pushed up prices of just about every equity. Over time, the continued influx of dollars was largely counterbalanced by a tidal wave of new equity issuance which continues to this day.

The results? We have the biggest, deepest, most liquid equity markets on the planet. They're far more resilient than they were a few decades ago. A huge percentage of Americans experience the wealth creation of owning a little slice piece of American ingenuity, yet their downside risk is limited by the portfolio effects of the funds.

Super-duper, but not without negative side-effects.

Let's roll back the clock to the heady days of industrialization 100 years ago. Back then, and for the first half of the 20th century, it was quite common for a corporation's stock to be held by a few powerful shareholders. Nutty Howard Hughes held nearly all the stock of Hughes Aircraft, TWA, and other firms. John D.Rockefeller and his descendants owned the majority of Standard Oil. HJ Heinz owned and ran the eponymous company. These people's lives, reputations, and fortunes were inexorably inter-twined with the companies they owned. As such, if something started to smell funny at any of these concerns, the primary owner had a very clear interest in stepping in to set it straight.

Fast forward to today. In many industrializing nations, that ownership structure still predominates, but here in the US, financial engineering (especially funds) and competition-driven conglomeration have torn this cozy relationship apart. Who's GE's biggest shareholder? It changes frequently, but all the top 5 are funds, none of which owns more than 10% of the company. Same thing at Google, Heinz, and most others you can think of.

These funds are run by a fund manager who's sole goal is to maximize his own compensation. He (or she) typically gets his (or her) Scooby Snacks by maximizing the per-share market value of the fund, usually measured comparatively (when his fund's share price grows faster than some standard index like the S&P 500). If, on the other hand, the fund has a bad quarter or two, it's a piece of cake for investors to switch their money to another fund. If too many people leave the fund, it gets closed and the FM is likely out of a job for a long while. Who wants to hire a loser?

Each fund has rules, but generally, for the above reasons, the FM has a strong incentive to move in and out of stocks rapidly based on the latest news, forecasts and earnings reports, lest he end up holding the bag (of a stock in meltdown due to some headline). Buy-and-hold is a tough proposition. Patience is in very short supply. FMs just can't afford to stop watching every market twitch and rumor long enough to really partner with, police, or even deeply understand companies they own.

A whole sea of Wall Street analysts make a comfy living supposedly "getting inside the heads" of companies and then reporting out their insights and secrets. I say supposedly because they, like the FMs really only have one interest: near-term stock price movements ... and only one avenue of predicting them: Quarterly Earnings. Earnings. Earnings!

Here's a hint for them: earnings are not the end-all, be-all indicator of a company's health and prospects.

Of course, there are still some family-run businesses that aren't subject to this. There are some value-investors (Buffet comes to mind) who believe in extremely long investment horizons. There are activist investors and private equity houses which take an (often overbearingly) active role in management. There are so-called "responsible" funds. But beneath the clamor of these is a vast ocean of shareholder indifference.

Yesteryear's shareholders were often active members of the board of directors. These guys insisted on voting on any significant business decision. They were tightwads always; clubby when possible; ballsy when needed; patient in the face of adversity.

By contrast, today's impatient FMs don't even sit on the board, nor do the owners of the fund's shares. Instead, they vote with their feet (by selling) ... or not at all.

Granted, every one of today's S&P 500 companies is a lot more complex than the biggest company was 50 years ago. A member of the board of directors today would have to be extremely experienced in the industry, highly astute, and have no other preoccupations in his life in order to be as deeply informed and involved in the decision-making as people were "back in the day." This just doesn't happen. Board members suffer from info overload just as you and I do. Most have corporate ADHD as a result. Few, if any see fit to invest in a staff of analysts who could keep them informed enough to be deeply involved.

Even if an issue is put to a shareholder vote, the common shareholder (either direct or via mutual fund) has no idea what's going on and thus votes randomly ... or more often, doesn't vote at all, in effect deferring to the execs. Moreover, most modern CEOs insist on a privileged seat on the board, total control of the "messaging" to the board, as well as broad-ranging control over the business.

What's wrong with that, you may ask. Execs are all Harvard-educated, Mensa members who have no need to sleep ... right? Who better to make decisions for the company? Doesn't every army need a strong general? Well, a modern exec can anticipate spending less than 5 years at any single job or company. In that time, he has to milk out every cent of compensation he can, because there's a decent chance something ugly will happen to the company on his watch. The analysts will wail. The fund managers will flee. The share price will tank. The exec will lose his job. Once that happens, his future job prospects are shaky at best. Even if he retains his job, he'll be in for a tough road fighting for the uncertain future of a company that's on the ropes. Often his best financial and career move is to step off that painfully slow local train in favor of an approaching express. Moreover, these days you have to be a salesman of eternal optimism to qualify for the job. In that context, preventing said unlikely but nasty event seems to be unworthy of a CEO's time. (P.S. these dudes are lightening rods for corporate ADHD. I ran across a good podcast on the subject here).

Clearly, the interests of the execs are not perfectly aligned with those of the company. The interests of the shareholders are not perfectly aligned with those of the company. Even the employees are not in it for life. Something goes wrong? Everyone jumps ship.

Perfect capitalism theory might argue that this is better. Schumpeter's creative destruction ensures that capital naturally flees a sinking ship in search of maximum returns elsewhere, ensuring that dysfunctional enterprises wither away.

Then there's the reality: Since the execs play fox, hen, farmer, hunter, butcher, chef, and diner, there are no checks or balances. In short, they run amok with remarkable frequency. This isn't to suggest that all execs are fraudsters (well, some are) or even that they're grossly incompetent (well, some are) and only hold on to their job through political connections (well, some do). No, what it means is that they are just as human and infallible as the rest of us. They generally respond to the incentive structure they face ... and sometimes they just respond irrationally. Absent a strong incentive to care about the long-term success of the company, they don't bother to.

As a result you have a culture of negligence in nearly every public company in the country. Books get cooked. Decision-making gets farmed out to lawyers (often with no business acumen). Long-term problems go untended to and fester. Capital projects go underfunded or interminably postponed. Opportunities pass unexploited. Short-sighted incentives create unanticipatedly adverse results. People end up wasting a ton of time playing political games and mis-communicating. Good employees are not properly developed but rather are promoted to their level of incompetence and fall victim to the Peter principle.

You get the picture: companies never buckle down and deal with their tough, long-term issues. Everyone from employee to CEO to Board to investor to competitor to banker to media, even to politician sees the problems and the impending consequences, but nobody seems to have the power or muster (read: incentive) to avert disaster.

The endgame is that once-titans like MCI and Bear Stearns implode when we least expect it. The execs jump out the nearest window with their golden parachutes on. Employees get canned. Those absentee FMs and mutual fund investors (like you and me) unlucky to have been holding the stock when the music stopped ... they get burned.

Meanwhile, the mass-irritainment talking heads whip up public fervor; the politicians talk and try (but fail) to legislate the problem away (like SOX); the public gets a bad taste for corporate America; the whole economy is dragged down by a million tiny inefficiencies.

On the bright side, American corporations have ample opportunity to grow more productive and resilient by remedying these ills. Could someone figure out a better way to run these businesses, it could spark the next virtuous cycle of equity gains and investor confidence.

And there's the challenge. Any ideas? Stay tuned for mine!

Cartoon credit: www.cartoonistgroup.com

Lesser of Two Evils

Morgan Tsvangirai is no stranger to jails, nor threats. Perhaps he had finally got in over his head. Perhaps he couldn't take anymore. Without question, he did not choose his calling. Did not want it. No one would. He was chosen by fate. He was carried on a tide of a million unanticipated events into a position as the only viable alternative to Zimbabwe's current monster. To carry that torch for this long, only to extinguish it at the last moment nearly smacks of conspiracy. What better way for Mugabe to ensure victory than to stage a tight, energetic race only to have his only opponent step down at the last moment, too late for anyone else to step in and challenge his tyranical rule?

Mugabe should rot slowly and painfully in hell for what he has done to the country and people of Zimbabwe.

I recognize that most of the Starbucks-sipping world has been numbed to the human tragedy of violence by Hollywood and distracted from true crises by CNN (they should be ashamed of devoting even a second of airtime to the ridiculous "pregnancy pact"!) I know most prefer enemy-less wars and pain-less struggles. Africa is not for those people. Zimbabwe is a truly inconvenient truth. They should not look at what happens when the verneer of civilization is chipped away and raw, desperate, animalistic instinct takes over.

http://www.anglican-information-archive.org/post%20election%20zim.pdf



To become a hero in Africa requires that people fight on that level. I don't mean civil war. I don't mean humanitarian atrocities. Nor childish Israel/Gaza-style tit-for-tat. I mean that the fight is going to be ugly. I mean that temporary pain must be endured to find long-term salvation. I mean that when opportunities come, they must be taken. I, unfortunately, mean that the means must be justified by their ends alone. People must be inspired. Courage must be found.

It appears Morgan Tsvangirai is no Benazir Bhutto.


Video credit: Times Online / timesonline.co.uk

East is the new West (not what you think!)

... or "If Sarkoszy was my man, then Merkel is my gal! ... And Tusk is my bro for life!"


During the recent French presidential election, I took time to back Nicolas Sarkozy. What a neat guy: pro-capitalism, particularly pro-business (vs. the typical french reliance on government) and willing to stick his neck out like the pro-American cowboy-wannabe that he is. Finally, a president of France who embodies the word suave!

Then there's Angela Merkel quietly but bravely trodding the same trail that Nick-o is on. Pro-american (or at least less anti- than most continental politicians); pro-business and willing to fight some hard fights vs. the traditionally german paralyzing social-protectionism. I have to apologize to her for neglecting to give her an equal shout-out.



While I'm in the mood to genuflect, I should also give a belated nod to Donald Tusk, Polish PM. This guys is strong-like-bear enough to get elected even (sarcastic gasp!) with straight talk and a pro-growth, low-tax, pro-privatization, pro-decentralization (or even lessened state intervention), increased civil liberties platform.



Sarkozy's parents fled communist dictatorship in Hungary in 1944. Merkel, herself, grew up in the oppression of East Germany. Tusk braved the secret police for decades as a member of the (at the time illegal) Solidarity party, personally fighting for the freedoms he now can protect.

Lesson for today: It's no coincidence to me that those who have seen the evils which accompany collectivism are some of the most staunch supporters of the individual's right to act without government intervention. At least somebody understands. East is the new West. Once bit, twice shy.

Yo Burma ... I mean China ... Err Russia ...

"One who is at first excessively brutal and then fears the masses is the pinnacle of stupidity." Sun Tzu, The Art of War, Ch. 9

Talk amongst yourselves ...

Politics is bad.
Leadership is good.

What about personal politics?

Tough decisions take undying support in order to survive implementation. Strong support comes from a consensus of true believers.

How do we grow consensus, in governement, in business, as well as in our personal lives?

I put forth: one at a time.

Happy Reagan Day!

Ronald Reagan, our 40th president was born on this day in 1911. In this election year, whatever one's positions or parties, what's clearly needed of the next Prez is back-to-basics leadership. Understand your values deeply. Believe in them steadfastly, but not blindly. Follow them courageously. Communicate them tirelessly. Engage (or re-engage) your fellow Americans ... and the rest of the world. Make it clear that they are responsible for themselves first and foremost. The next president, no less than every other American, needs to live and act with dignity as the best way of communicating their values. Rather than spending your their breath telling us how Reaganesque they are or aren't, I wish the candidates would just quiet down and listen to him... "Management is doing things right. Leadership is doing the right things." "There are no easy answers but there are simple answers. We must have the courage to do what we know is morally right" "when people have the right to make decisions as close to home as possible, they usually make the right decisions." "We must reject the idea that every time a law's broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions" "If we love our country, we should also love our countrymen." "Freedom is something that cannot be passed on in the blood stream, or genetically. And it's never more than one generation away from extinction. Every generation has to learn how to protect and defend it" "I know in my heart that man is good. That what is right will always eventually triumph. And there's purpose and worth to each and every life" And, if you happen to be philosophically aligned with him, you might remind yourself: "Government is not the solution to our problem. Government is the problem … Government does not solve problems; it subsidizes them ... I don't believe in a government that protects us from ourselves ... Concentrated power has always been the enemy of liberty" "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'" "Sometimes I think that government fits that old-fashioned definition of a baby: An alimentary canal with an appetite at one end and no sense of responsibility at the other" "Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." "growth, prosperity and ultimately human fulfillment, are created from the bottom up, not the government down" "Millions of individuals making their own decisions in the marketplace will always allocate resources better than any centralized government planning process" "there has been a fourth branch added to the traditional three: a vast federal bureaucracy that's now being imitated in too many states and too many cities, a bureaucracy of enormous power which determines policy to a greater extent than any of us realize, very possibly to a greater extent than our own elected representatives. And it can't be removed from office by our votes" "Government always finds a need for whatever money it gets"