Is Greed Good?

The other day I wrote about the importance of teaching business ethics, and received two very good comments. One of the comments came from a very old (not his age) and dear friend of mine. He wrote:

A definition I’ve heard and like is: managers do things right; leaders do the right thing (related to your question!) Simplistic, but I believe it to be true. Do we need managers, absolutely! Do we need leaders who can manage, again: yes that usually goes hand-in-hand. So, how do we (you as a professor) not only teach, but also instill a hunger in young men and women to become leaders and then impart that knowledge and understanding of what it means to be a leader?
We need leaders, but these leaders need to be ethical individuals that can lead our organizations to higher levels of performance in the age of hyper-competition. Typically when I teach about leadership in my classes I focus on the moral characteristic of leadership. For people to follow leaders they must see a rightness in what the leader is trying to get the follower to see. This does not mean that the leader is perfect, that is unless we are talking about Jesus Christ, but it means that the vision communicated by the leader is one that others can grab onto and make their own. It becomes shared because of its morality.

Today’s Wall Street Journal demonstrated the importance of recognizing right and wrong in the area of leadership. The article I read was entitled “Insider Targets Expanding.” It appears that the FBI is building cases on over 200 people. These individuals may be guilty of insider trading. However, at least 120 of them will probably be prosecuted. This has shaken the financial world, as it should.

What really drew my attention was a quote attributed to Michael Douglas, the actor. The FBI has developed a public service announcement alerting us to the reality that insider trading is a crime. Michael Douglas played Gordon Gekko in the movie Wall Street, where his famous line, which is still quoted today, is “the point is that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.” However, this is not the quote that drew my attention.

What really concerned me was a comment that was made concerning Douglas. Wall Street professionals will stop Michael Douglas on the street and tell him that they admire Gordon Gekko and his values. This concerns me. Douglas is said to have stated, “Where are the values? What are people thinking when I’m hailed as a hero in that role?”

Many colleges and universities teach business ethics as a required course. Can you imagine what would be happening if they didn’t? Greed is nothing new, it has been in existence since the fall of mankind. The fact is professors need to continue to warn their students that greed is not good, but it will end up in a prison sentence. Just ask Bernie Madoff what greed did for him.

We need to teach business ethics, and we need to train leaders who understand the difference between right and wrong, not just doing things right, but doing the right things.

And that is my thought for the day!

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Business Ethics

It seems to me that any school that teaches business should have an ethics class. What I mean by this is a business class that focuses on Business Ethics. This would be a class that using compelling analysis focused on several different layers of organizational interaction.

How does an individual behave in the context of an organization? As a manager how should I treat my employees? Should I make decisions that hurt people? What decision mechanisms should a manager use to make not only an economically sound decision, but also a decision that supports human dignity?

What about at the organizational level? What does it mean for a company to be social responsible? Is it right for a company to dump waste into water ways? It is right for a company to downsize?

What about Capitalism as a worldview? Is a centralized economy more humane? Or can the efficiencies of a market system be used for the betterment of humanity, or the bigger question may be should profit be used for human causes or given to its owners?

I for one think that an academic program that teaches business should be required to discuss these things. Business students should have their desires for success challenged in a manner that prepares them for the dilemmas they will face in the world of commerce.

Maybe I am all wet, maybe Business Administration is just about the quantitative side of business, but I don’t think so.

And that is my very short thought for the day!

Education And The 1%

Why does one go to college? Although I dropped out of college in the 60’s, but finished as an adult, I do remember having that conversation with my parents about what I should major in. I wanted to major in history, but they wanted me to become a doctor. My Dad insisted that I take Latin in High School to prepare for a future medical career. My current experience with traditionally aged students indicates that each parent has a similar discussion with their children about what degree to earn. The focus of the dialogue is always around salary. Can the student make a living wage with the degree they are seeking.

Our cultural norms embrace productive wage earners, but does not embrace a 1% mentality. This was illustrated in a BusinessWeek article entitled “Meet the Man Whose Job is Defending the 1%.” The article starts by saying, “Steve Judge might as well have a kick me sign pinned to the backside of his nicely tailored trousers.” The reason for this is the fact that “he’s the head cheerleader for some of the nation’s richest – and, at the moment, least popular- people.” This is due to the ability of the 1% to pay less taxes than those of us who are considered the middle class.

Although a discussion would be interesting dealing with the subject about the taxes the1% pay, that is not where I want to focus my blog today. It is about the role of education in our society. Today’s Wall Street Journal looked at the relationship of a college education and the 1% in an article entitled “Should Colleges Be Factories for the 1%?” The article starts with stating the obvious. Students that graduate from Ivy League schools earn more money. Whether it is due to the level of education the student receives, connections the schools have with commerce, or contacts with other students and their parents, the fact is the 1% usually comes from those elite schools.

The article does ask a very important question. “Is a college that produces bankers and business people better than one that produces teachers and musicians because graduates of the former are likely to make more money?” This obviously leads to ask why a student chooses a particular college? Is it because the college will give the student a well rounded liberal education, or is it because the student will be able to get a good job after graduating? The realistic answer is probably a little of both.

The fact is we cannot let education be reduced to just a paycheck. If we reduce academia to financial results, then we eliminate the need to study humanities, philosophy, music, and fine arts. We would do this because those disciplines do not provide the highest salaries for graduates. Also, if we reduce colleges to the level of trade schools, not that trade schools are bad, then we will create bragging rights for colleges and universities that can boast of the highest paid grads. We eliminate thinking and reduce education to filling in cells on a spread sheet.

The phrase used by Mamlet and VanDeVelde, who wrote the article in the WSJ, to describe this phenomenon is mutual fund. Ranking colleges based on narrow financial performance “turns colleges into mutual funds,” that will payout over a lifetime. Don’t get me wrong, we need to think about what vocation we are planning to pursue, I am just saying that if we reduce education to the future paycheck one receives we eliminate the broad benefit to society that varied educational offerings can give. It is not just about a paycheck it is about the ability to think and make a difference in this world.

And that is my thought for the day!

Is Any CEO Worth $189,000 Per Hour?

All of us would recognize that CEO’s are well paid. We are fortunate to be able to see what publicly traded companies pay their leaders. However, sometimes I don’t think we really understand the enormity of the issue. Of course we complain when a CEO, like Robert Nardelli, does a horrible job, is fired, but is paid a huge amount of money to leave the company. Nardelli was paid $249 million to leave Home Depot. However, Nardelli’s fiasco is just the tip of the iceberg.

There is a famous quip that that draws a similarity between God and Larry Ellison. The saying goes that the only difference between God and Larry Ellison is that God does not think He is Larry. The implication obviously is that Ellison thinks he is God’s gift to the wart hog, but when we view how much CEO’s have made over time, it is hard to grasp why a company would need to pay a leader that much money. Tim Cook, current CEO of Apple, will be paid $378 Million during his first year on the job. As much as that sounds, when you start looking at the amount other CEO’s have made over the last ten years we can see the depth of the problem.

The top four compensation earners sorted value are as follows. Larry Ellison, CEO of Oracle, has been paid $1.8 Billion over ten years. To be fair, this is not just a cash wage, there are other characteristics associated with executive compensation. Still, $1.8 Billion over ten years, who is worth that amount? How about Barry Diller of Expedia? He has been paid $1.14 Billion. At that rate of compensation, you would think he would not want to kill off William Shatner as a advertising spokesperson. In third place we find the CEO of Occidental, a petroleum firm. Ray Irani has been paid a paltry $857 Million. Steven Jobs could apply for unemployment with what he has made over the last ten years, about $749 Million. Notice that all of these individuals are men.

What makes these individuals worth this much money? An economic term usually applied in this scenario is comparable worth. How much revenue is associated with a particular activity, and what is the skill required to accomplish said activity? Take a person like Kobe Bryant. Why does he get a huge wage? He has a skill that very few people in the world have, he can shoot a basketball like no one else can. The principle applies to CEOs, or so the argument goes. If a CEO, like Ellison, creates value then they should be compensated. The antithesis of this is a person like Nardelli where compensation is not linked to performance. In fact, he was paid to leave. This is an issue.

The principle-agent problem has been discussed for decades. The principle, owner, and the agent, manager, are both looking to maximize self-interest. Due to this reality there are problems that occur. Managers stack the books if you will to make organizational performance look strong in the short run, thus leading to higher compensation. The principle is happy in the short run because there are big returns on equity. Stock value could also be growing which means owners are more wealthy. Looking at this as a technical business decision it is not a problem. However, if we look at this as a system we need to question the validity of these huge salaries. Asian CEO’s are not compensated as well as western ones. Is that problematic?

Asian companies provide returns to owners just like US companies, but Asian CEO’s receive less compensation than their western counterparts. Is the difficulty cultural. Do western CEO’s expect much more, and with the owners willing to pay the exorbitant wage, they receive the higher levels of compensation? What does this do to our societal system? Does it help or undermine the social capital required to maintain a civil society?

I am not a proponent of a maximum wage. I do think that would be detrimental to the innovation required to maintain world leadership. However, I do think we are paying CEOs too much money, which is a principle-agent issue. The employees aren’t the problem here, it is the owners. They think that if they pay these executive leaders huge levels of compensation, they will get a large return, and it is all about a return on our investment, as it should be. But when does this expectation evolve into greed. And that my friends is counterproductive. Ellison may think he is God, but he will learn otherwise eventually.

What should we do? Lower CEO wages? I think owners should be more realistic in their pay scales, yes. I also think owners should tie actual performance to compensation levels, which I imagine they do. There would need to be some ratio of short and learn term results, not just gaining back something that was lost. However, I would hope these CEOs that are getting these huge wages are willing to give something back to the community. Remember, to whom much is given much is required.

And that is my thought for the day!

Rethinking Business Education

Yesterday was an incredible day. Every year the college has Scholarship Day. This is where prospective students visit Warner Pacific and interview for various scholarships the college offers. For the last three years I have been a part of several interview teams who have the responsibility to award at least four of these scholarships. The students that are interviewed put forth their best effort while competing for these awards. I have met some incredible young people.

Yesterday during lunch I met a couple of the parents of these students who had many questions about the business program at WPC. I had so much fun talking about where the program is now and where I think it should go in the future. The vision of where I think this program should go is continually being clarified by the books and articles I am currently reading.

This morning’s Columbian had a wonderful article discussing how Colleges are nurturing Gen Z Entrepreneurs. The article described how Duke University, and others,  are using generational characteristics to ensure the business program is training its students to be successful in the workplace when graduating from college. Gen Z is the generation born between 1990 and 2002. “This is a generation that wants to contribute their ideas to organizations from day 1.” Recognizing these characteristics have caused Duke, N.C. State, and UNC to include Entrepreneurship programs as a part of their curriculum. Using simulation software students are getting real world experience in the common rooms of the college. This is very cool.

However, there is more to this than meets the eye. Roger Martin, not me but the guy in Toronto, is recognized as one of the world’s top business thinkers. He has a very interesting take on what business education should entail. He has based his ideas on the modern business organization.

“Today’s business organization, and no doubt tomorrow’s as well, is therefore likely to be more variegated than the old corporate structures.” This is a quote from the book “Rethinking Undergraduate Business Education.” This section of the book is arguing that although organizations “may include a skeletal form of the old corporate structure”, in the future it will “become more flexible through the greater role of finance and the strategic acuity.” The phrase strategic acuity is what captured my attention. This phrase substantiates the historical need for basic business acumen in the areas of accounting, finance, marketing, and management. However, the phrase also drives us to conclude that “the decisive factor is arguably management’s ability to cultivate effective teams and networks of expertise whose members come to share an understanding of collective purpose and develop ways of learning from their experience.”

Roger Martin believes that integrative thinking is the “sort of mind and disposition that succeeds” in this new environment. Instead of just focusing on “one-track” solutions to problems and tradeoffs between strategies, the new leader is required to have the skill necessary to recognize “patterns, connections, and relationships,” of the issues affecting the organization. This sounds like systems thinking to me.

As a result of this modern generative order, what should undergraduate business education look like? There needs to be a strong emphasis on the historical elements of business. This means accounting, finance, marketing, economics, and management should be the backbone of any business program. However, there also needs to be an emphasis on teams, competition, poise, enthusiasm, and preparedness. There should be some type of comprehensive and congruent element that is consistent throughout the whole program. The question of what do we want our students to know when they leave the school, and what business skills should they have should be answered by the team of faculty required to accomplish the education and preparation of these students. Santa Clara University has a semester long simulation entitled Mike’s Bikes, “that engages students in a complex, interactive, Web-based game similar to the experience of operating a chain of bicycle sales-and-repair shops.” Working in teams, and in a safe environment, students learn how to run a business. This sounds like an excellent way of teaching students team work, enthusiasm, while preparing them for the challenges of the twenty-first century.

However, I agree with the writer of “Rethinking” when they say this deep but narrow application is insufficient. Business is a discipline best taught in a liberal arts environment. Due to the fact that students are required to take religion, social science and humanities classes to receive a liberal education will help the student to see the bigger picture. In other words, there is a recognition that technical skills are not the only element that leads to success in this new environment. Business operates within the realm of government, culture, and social contexts. This means that business deals with not not only economic decisions, but also human ones. In other words, not only should we be training our students on how to do accounting, but we need to educate them about why we do accounting and how does accounting get done within the realm of a social organization. In other words we need to educate the student on how to think. This means additional courses such as “Leadership, entrepreneurship, business ethics, and business law.”

Business Education is so much bigger than problem solving and making money. It is an integrated endeavor that amalgamates many different academic disciplines, which is why I love teaching business.

And that is my thought for the day!

 

A Pensive Day

I am sorry to bore you with the mundane details about my life, but today is one of those days that I am thinking about who I am and where I am going. What motivated me to go down this road is the echocardiogram that I experienced yesterday. I had one last year after my physical, but this year just before my physical. When I received the message from my doctor that I needed to have another one I wondered why? Bill, the technician that performed the procedure, told me that I have a “slightly dilated ascending aorta.” Sounds serious doesn’t it? The fact is they just want to keep an eye on it.

Needless to say at 61 years old, this event has initiated a process of thinking that I find exciting. I have now lived longer than my father. He died of smoking induced cancer when he was 61. In contrast I think I am in pretty good shape. I work out several times a week, and try to play golf once a week, at least during the winter. During the summer I usually play three to four times per week. But it is the other part of my life that I wonder about. Where do I go from here? What do I want to do from this point on? If I live to 90 two-thirds of my life is complete, so where do I go from here?

I read something this morning in the book “Falling Upward: A Spirituality for the Two Halves of Life”  that has, along with my echo, initiated this meditation. “Life is not, nor ever has been, a straight line forward.” Rohr is discussing Miguel de Unamuno who in his writings about the western concept of progress argues that our western beliefs are not what scripture teaches. Scripture does not teach that we are on a linear path to a successful life absent of tragedy. In fact it is through the process of “loss and renewal, death and resurrection, chaos and healing at the same time” that we experience life. Life is a “collision of opposites.”

During a conversation with Dr. Andrea Cook I mentioned that I am in a completely different place in my life than where I expected to be. When I was a young man I would never have thought that I would be a college professor, but here I am. I never thought I would be divorced and remarried, with five kids and eight grand kids. I have a good relationship with some of my kids and some I don’t. I would not have chosen this road, but here I am. Rhor describes the process of God’s providence as adjusting “to human disorder and failure.” He goes on to say, “Every time God forgives us, God is saying that God’s own rules do not matter as much as the relationship that God wants to create with us.” It is that relationship that defines and provides the progress of life.

Rohr uses the Greek language to illustrate a truth that has guided me but will guide me for the rest of my life, however long that is. “Did you know that the Greek word for tragedy means ‘goat story?’ The Odyssey is a primal goat story, where poor Odysseus keeps going forward and backward, up and down – but mostly down – all the way home to Ithaca.” My first life was just like that, going forward and backward, trying to get home.

If I am blessed with thirty more years I intend to follow up the hills and down the hills, into the valleys, and onto the mountain tops, wherever God leads me. I hope to write several books, articles, and travel. Although I don’t have a bucket list now, I intend on creating one. I want to be a better teacher, writer, husband, father, and grand father. I also want to be a better friend. There is so much to do in life, but to think it leads to a tragedy free perfection is counter productive.

As the old saying states, I will do my best, and commit the rest.

And that is my thought for the day!

Congress And The FDA

I have been trying to stay away from attacking the easy target of our do nothing congress, but I just can’t help myself. The reason I feel a sick need to kick this organization while it is down is the impact it is having on our ability as a country to maintain our leadership position in the world. If our elected officials can’t learn how to work together and deal with our complicated problems, then we are destined to become France. There was another indication of this in the Wall Street Journal this morning.

Although William McGurn’s article about the do-nothing Senate was interesting, it was the article on the FDA that really intrigued me. Because of inaction and conflict we are sacrificing our leadership in the area of medical innovation, at least according to Andrew von Eschenbach. Andrew, which I will use because I don’t want to type out Eschenbach multiple times, starts his article with “We stand on the cusp of a revolution in health care. Advances in molecular medicine will allow us to develop powerful new treatments that can cure or even prevent diseases like Alzheimer’s and cancer. Tomorrow’s high tech cures can also slash health-care costs and eliminate ineffective treatments.” Pretty exciting stuff.

Now comes the problem. The government agency responsible for monitoring medical innovation is the Food and Drug Administration. “The FDA is the regulatory gatekeeper for every drug and medical device sold in the U.S.” The issue involves the FDA’s ability to review new medical products in a timely manner. The head of the FDA, Margret Hamburg stated, “The FDA is relying on 20th century regulatory science to evaluate 21st century medical products.” Add to this the complicated nature, and rare “unanticipated side-effects” of new drugs, and clinical trials are running 70% longer than in the past. This means the cost of developing new drugs is increasing which is discouraging investment in “much needed new therapies for conditions like obesity, diabetes and heart disease.”

Because the FDA does not have the resources to create more accurate and faster evaluation systems (and if it takes congress years to approve permanent funding for the FAA how long will it take to approve any additions or increases in FDA budgeting), “Other countries such as Israel, Singapore, and China are already preparing to leapfrog the United States for leadership of the global life-sciences industry.”

Why should we care about this? Who cares if we are a leader in medical innovation? Right now the U.S. Biomedical industry “employs 1.2 million people directly and over 5 million people throughout its supply chain.” This is a lot of people and a lot of wages. In 2009 the revenue generated by this industry was around $519 billion, with U.S.-based companies producing about 60% of the world’s new drugs. CEOs in this industry believe that if the U.S. is replaced as Bio-medical leader another country could recreate the ecosystem that has given us hegemony, initiating a mass exodus of the brain power that has help us move to the trendsetter position. This will lead to a loss of jobs and research and development dollars.

Congress has had an effect on the FDA. Due to Congress’s willingness to expand FDA responsibility the organization’s decision power affects 25 cents of every consumer dollar spent. I understand that human safety is important, but if congress is giving the organization responsibility, but not giving it the tools needed to be successful, then Houston we have a problem.

We have some smart people in this country, and this human capital needs to be used to create innovative ways of evaluating breakthrough technologies. “If a company can grow cells that repair the retina in a lab, patients who have been blinded by macular degeneration shouldn’t have to wait years while the FDA asks the company to complete laborious clinical trials proving efficacy.” Congress lead or get out of the way. So our smart people can make a difference.

And that is my thought for the day!