Getting the Most out of Education

Last week, on TED Conversations, (look it up and thank me later) the question was posed:

Should public schools in the United States eliminate the traditional A to F grading scale? And if so, what assessment do we replace it with?

YES YES YES it should be replaced.

We should instill some standards of quality in the culture of our too-often-lackadaisical education system. There should only be one acceptable grade: "A"

If a student does not perform up to an "A" grade, they should have to repeat, repeat, repeat the test/paper/project/class until they can DEMONSTRATE competency.

No more pushing kids along just because the class schedule dictates. One of the most common curriculum structures is to progressively introduce new concepts which are built on previously-introduced concepts. A student who demonstrates an inadequate command of a concept gains little by getting a "D" or "F" and then continuing on with the class to the next concept. This is REALLY how we leave children behind.

What Will Tomorrow Bring: Financial Utilities

The story of the financial industry is a breathless one. With all that money sloshing around, smart people know that there is profit to be made. Unfortunately, due to that same money (=liquidity) and profit potential, financial products and services get commoditized very quickly. Competitive advantage is fleeting. It's textbook hyper-competition. Constant, hostile, explosive innovation is necessary to survive.

Unfortunately, that also leads smart, sensible people to do horrifically stupid, risky, nonsensical things which relieve immediate (financial or political) pressures but which have been entirely "un-thunk" in terms of their end-state consequences.

Hyper-competition also intrinsically conflicts with hyper-regulation.

Last year I predicted that the weight of new regulations (written and unwritten), political instability, and economic realities would force financial institutions to give up their for-profit status to become utilities:

Financial Institutions will once again be lobotomized. Divided into two classes:
- Utilities (aka retail banking)
- Casinos (aka everything else)

"Utilities" are done for as a for-profit enterprise. Just like Amtrack and Con Ed, they will require permanent and heavy subsidy verging on nationalization to survive the tonnage of regulations which will be piled on.

Evidence continues to pour in to support this including:

• More than 8,000 entries in the OCC's list of sanctions here. They are just one of a half-dozen governmental agencies which take enforcement actions against banks
• 111 bank collapses in the past 12 months per the FDIC's Bank Failure website. Twenty-six banks collapsed between 2000 and the end of 2007
  
• Voluntary closure of a regional bank this week "in an extreme example of the frustration felt by many bankers as regulators toughen their oversight of the nation's financial institutions"
• According to a Marakon report (source of the chart above), "only four US banks, or 10% of banking equity capital, are expected to generate returns above the cost of equity; a staggering 90% of banking capital is not performing"

But you ain't seen nothing yet. The above are mostly smaller institutions. The financial titans (Titanics?) are better at fighting and delaying, but trust me they are also bending under the weight. Their stock prices are beginning to reflect it.

UCSD professor Frank Partnoy yesterday published his opinion in the Financial Times with a piece titled "The coming world of smaller banks." He highlights not only the unavoidable reductions in share prices and headcounts, but more damningly, the unavoidable extinction (or drastic evolution) of the standard banking business model:

If all of the world’s major banks had failed during 2007-08, and regulators had permitted Apple, Facebook, Google and Microsoft to take over the economy’s capital allocation function, how would employment numbers have changed? Surely any neo-bank would hire smart lenders, traders, analysts and advisers, the people who have the strongest relationships with, and knowledge of, the institutions that demand or supply capital. But would they have hired all of them? Half? How many people would a new bank really need? Hedge funds take on traditional bank functions with a fraction of the employees.

He concludes:

[Banks] will occupy a smaller place in the economy and they will be less profitable. In a decade, there will be fewer professionals working on Wall Street than there are today.

If I map his comments onto my own, it becomes clear where the job losses will be. The "Financial Utilities" will be characterized by a low-skill, low-innovation, low-margin, high-volume business model. Since capital and information are almost entirely digital these days, there is nary a barrier to massive automation. The remaining jobs will be the folks keeping the computers humming and the 'relationship' people in high-touch areas like customer complaints and regulatory relations.

Corporate Newspeak 5

Kangaroo Manager: (n) A manager or executive who improves their job title, reputation, and compensation by hopping from company to company every 1 to 2 years. Through this pattern of activity, individuals avoid remaining in any position long enough to be held accountable for the results of their decisions and thus entirely obfuscate their track record. This is in contrast to the frequently maligned "traditional manager" strategy of improving title, reputation, and compensation via a consistent stream of successful accomplishments and recognitions.
Also: Up-and-Comer, Executive Material, Chosen One, Fast Tracker.

Critical: (adj) Belonging to the class of things which encompasses everything in the known universe.

Gaps: (n) Fuck-ups.
Also: Pain Points, Failures.
Note: the singular form exists only hypothetically.

Deferred: (adj) Belonging to the class of actions and events which will never happen. Not in a billion years.
Usage: "Phase 1 of the project has been deferred so resources can focus on the pain points of Phase 3 while planning activities for Phases 2 and 5 continue."

Legacy: (adj) A euphemism for the class of people, processes, technologies, and decisions which existed prior to a merger, for which nobody (even those originally involved and still present) currently takes responsibility, and on which any current pain points can be blamed. Contrast with "Kangaroo Managers."
Also: Heritage.

Efficiencies: (n) The class of actions and decisions which is characterized by either self-evidence or abolishment of business controls, people, and/or processes put in place previously to address a pain point which occurred prior to the tenure of the current decision-maker(s). Typically used to justify destructive or risky decisions made by Kangaroo or Pelican Managers.
Also: Short Cuts.
Note: the singular form exists only hypothetically.

Metrics: (n) A mystery-meat confab of general goals, explicit targets, a methodology for computing performance relative to those goals and targets, the act of computing, and the current result of those computations for a given individual or group. Contrast with "carrots."
Note: in typical usage, the speaker is referring to only a subset of the above concepts, but desires to remain ambiguous about which.

Good Progress: (n) A euphemism for activities which are behind schedule or below desired metrics. Used in order to distract from said deficiency.

Aligned to: (adj) Perceived to be at least partially in compliance with a strategy and/or policy which is too vague, contradictory, or nonsensical to be followed literally.

Day-to-Day: (n) Metonymy (look it up, people) representing the class of actions and events necessary to actually run a business but which are too boring, unpleasant, and/or complicated for executives to trifle with or comprehend.
Also: in the weeds, on the ground, in the trenches

Operations: (noun) Doers. Usually abbreviated "ops." Often carries a negative connotaion of someone who is too obsessed with making a business function to comprehend strategy, policy, and "the big picture."
Also: little people
Usage: "The execs have established the strategy and laid out governance. Finance is tracking the metrics. And the little people in Ops are in the trenches handling the day-to-day."

Established: (v) Decided by default without any human effort by those responsible for the decision, often by the most junior staff involved due to a vacuum of action by the designated leadership.
Usage: "The Board have established a framework of critical metrics and governance which will prevent such a crisis in the future."
Note: can only be used in the past-participle tense (look it up, people).

So What I'm Hearing You Say...: (ic) You're clearly wrong and I wish you had said ...

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.

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!

残奥会倒计时一周年晚会 刘德华演唱 ... Inharmonious, Even in Chinese

My second-ever blog post talked about what I thought was wrong and right with China. Eighteen months later I visited the country for the first time and posted a follow-up blog based on what I saw.

Now, more than 3 and a half years later, they've made incredible and undeniable progress, as we all knew they would ... It's the old "damn the torpedoes, full steam ahead!" Unfortunately, those torpedoes are bigger, more numerous, and closer than ever before. Every day, with every move, a few more torpedoes crash into the Chinese hull. From time to time, they wander into storms and scrape reefs, but for now their charge is relentless, most visibly over the upcoming weeks as we all watch their Olympics. We will ooh! and aah! and some will whisper "they've beat us!"

But hold! Each impact, scrape, and squall takes its toll. We need look no further than Newtonian Law (applied to Economics) to know that SS China's rate of progress necessarily and permanently slows every time it runs across resistance. Each battle scar makes the craft slightly less hydro-dynamic. At some point, the Chinese people will tire of the turbulence and demand a smoother ride. Eventually, they'll realize that they need to modernize and reinforce their craft to make it long-lasting. All of these will inevitably slow their progress.

At the end of this blog, you'll find a table of the main torpedoes currently in the water and pinging. I list what's wrong and what's right with their response to each over the last few years.

As I've said before, it will take China a hundred years to fully recover from their current barrage-laden charge, to repair and upgrade their craft, and to find the safe, stable, deep and open waters where "We" (the US, Japan, and Europe) spend most of our time. We've been through the gauntlet already. We've forged much new territory and it has never been a smooth ride. Today, our people want a cautious hand at the wheel in order to foresee and prevent disturbances. We want a sure financial return on our investment. Plus, we want low costs (financial, political, ecological, and human). All of which explain why we no longer have China's appetite for showing off.

Chinese may think they can "control" their way to a permanently elevated cruise speed. Millions of ex-Communist technocrats have found that they can apply old Marx and Engels to a concept very de rigeur in Western business: performance metrics and control. This has been employed to tremendous fanfare in preparation for the Olympics ... and also to impressive effect. Today, those directing the Chinese economic ship are not in it for the money, but for the power and the growth.

At some point the populace will demand a bigger and more assured share of the spoils. Maybe even a say in how things are done. Someday, China's government will have to start listening to their people and considering the human side of their choices ... So far, they've shown their tone-deafness in this area. No wonder: these are "softer" criteria. It's tough to measure, control, and set targets for national unity or happiness. ISO has no international standard for maximization of human potential ... yet these are all critical once the voice of the people must be considered.

What are these soft criteria? I'm giving a stratospheric view of very human-level concepts. Let's swoop down and get a little more concrete with a few very human tales:

• Wu Ping and the Nail House: The story of a government-anointed real estate developer's battle against a peasant family for their hovel and land, complete with scandal and standoff. It ends with a wrecking ball for the hovel and a phantom payment for the peasants. Phantom because they mysteriously disappear before the money can be paid.


• The Journalists, the Censors, and the Spies: Before they even arrived, foreign journalists had something to gripe about. It came to light that China (with the complicity of the IOC) would be censoring their Internet connections, in contradiction to earlier promises. More insidious, perhaps, is the US Government's warning that visitors should avoid taking their cell phones and laptops to the games to avoid the risk that their devices might get infected with government-sponsored invisible spyware.
  
• China's Special Woebegone Games: (finally, an explanation of the blog's title!) The stereotype is that disabled people in China are hidden to avoid shame. There is no ADA in China. Worldwide, Paralympic athletes will take every opportunity to tell you they want no special treatment. Their event is about self-sufficient, highly trained athletes in ruthless head-to-head competition. It is NOT about creating a fantasy land of love and self-esteem where everyone is a winner. That's the Special Olympics. Which is why they're none too excited about the Chinese Paralympic Committee's official theme song "Everyone is Number One" ("残奥会倒计时一周年晚会 刘德华演唱"). Not to mention they've one-upped our cultural icon Garrison Keillor's Woebegone Effect ("Welcome to Lake Woebegone where ... all the children are above average.")

Torpedoes in the Water!!

If I were captain of SS China, these are the issues I'd be losing sleep over: