Ethics and Business and Government

So often we hear about dishonesty in ethics in business and government. We hear of Democratic Senators and Congressmen who will not listen to you unless you donate money to their campaigns and this goes for citizens and business people alike. It is no wonder that many business people fund political contributions.

It is also no wonder with such a system that Congressmen go beyond the call of duty of listening and intervene in business activity and help one business over another in the competitive market place. Indeed but really didn’t Adam Smith warn us of such? If you own a company and want to move ahead faster, just support your Senator or Congressman and have them call up an bureaucracy or Regulatory body to disrupt your competition. Sure this has been going on for 100s of years.

Pretty sickening to think we stand for free markets and true Capitalism. It works if it is allowed to work. Ayn Rand is right, Marx is wrong and the politics of this nation are an absurd way to run the human race. If you want your business to grow and go to the next level you have to pay to play and that means interacting with the dishonesty of the Democrats in Congress and the Senate. That is just the way it is and there is nothing you can do about it but deal with the scum of the Earth to protect your business. Consider this in 2006.

Family Business and the Economic Downturn

Recession, stagflation, deflation, inflation, and even depression are words used to describe the current economic conditions. While it is too soon to properly define our economic times, we are clearly in the midst of a significant downturn in the United States that will affect economies and citizens around the world.

Indicators of the distressed economy include a sharp drop in housing prices, a credit crunch due to the subprime mortgage debacle, rising unemployment, rapidly increasing oil prices, the falling value of the dollar, large trade imbalances, and expanding price inflation. Just in case you need to pile on more, a prolonged and unpopular war and a pivotal presidential election amplify uncertainty in the U.S. Together these factors suggest a prolonged economic downturn (feel free to say recession if you must) throughout 2008, with a full recovery that might not be completed until late 2010. Furthermore, the United Nations warned in a January 2008 report that this economic crisis will reach throughout the world. The U.N. urges governments and central banks everywhere to work together and not react as if this is simply a U.S. problem. As the most active capital market with the dominant currency, the U.S. economy affects developing countries as well as the economic giants. According to the U.N., the economic crisis will have far-reaching social and political consequences that may even affect the vibrant economies of China, India, Brazil, and Russia.

As the economists, policy makers, and television pundits debate the duration and implications of the slowdown, our concern is how the slowdown affects family businesses. Conventional thought is that economic conditions such as recessions are devastating to family businesses. This assumption is partially correct in that family businesses in industries most affected by the downturn (e.g., housing-related industries, real estate, financial services, luxury retailers, and durable goods producers and sellers) will face dramatic decreases in demand and/or changes in consumer preferences. Other family businesses that have been able to survive in strong economic times with weak strategic planning, financial management, and governance infrastructure will find that their lack of discipline will lead to failure in tougher times.

Businesses where poor family dynamics are present also suffer in difficult economic times, which tend to exacerbate ongoing family conflict. Imagine, for example, a business run by one sibling or cousin whose relatives are not engaged in the business. If this group does not get along well, there will be a tendency to blame the relative in charge for poor financial performance even if the situation is outside of the leader’s control. Despite all these challenges to family businesses, economic hardships historically have been the greatest time of development, growth, and opportunity for family businesses. Family businesses tend to be more responsive and flexible than non-family counterparts, and their long-term outlook, willingness to invest, and commitment to building a legacy allow them to make the most of the opportunities presented in the marketplace of failed competitors and shifting consumer preferences.

In addition, recovery periods often serve as the birthplace for new family businesses. In the U.S., the development of new businesses historically increases during an economic crisis or during the recovery period. This happened in the postwar years 1946-1955, 1980-1987, and 1993-1999. While circumstances are different for each crisis, the fact is that newly found “necessity entrepreneurs” choose to be business owners and many create highly effective first-generation entrepreneurial family businesses.

Perhaps the greatest challenge to family businesses is how well their managers, directors, and owners, most of whom have never led a business during a sustained economic downturn, lead their businesses during tough economic conditions. From 1990 until 2007, there have been only two recessions, from July 1990 to March 1991 and March 2001 to November 2001. In each case, the economy suffered for only eight months before a turnaround occurred. We would need to look all the way back to July 1981 to November 1982 and November 1973 to March 1975 to find a downturn of more than a year in duration. The likelihood that a family business will have a team of managers, owners, and directors with experience to handle such times is becoming more remote each day.

Furthermore, even an experienced team may not be able to help, as the type of recession forecasted will be more complicated and dynamic than we have ever seen before. The question remains-will today’s family business leaders be successful in navigating these complexities? One concern is that our extended economic boom has led to tremendous wealth creation and management success, which has in some cases, fostered bad habits for management, unreasonable expectations for shareholders, and overconfident business leaders. Success often leads to complacency. When businesses begin to fail, reactive business patterns such as hunkering down and broadly cutting costs without regard for circumstances can be disastrous. In many cases, the best strategy may be investing in moderate-risk opportunities.

The picture painted in nearly every media outlet does not look too bright for the economy. Does that mean that we should just throw up our hands and give up? Certainly not.

Key drivers of capitalism are the expectations and attitudes of consumers and producers. Family business owners routinely indicate optimism in their businesses. One example is the 2007 Family to Family Survey, which indicated that 87% of family business leaders were highly optimistic over the next five years regarding their success. As late as January 2008, a National Federation of Independent Business survey found that while business owners are preparing for changes brought by a slowing economy, they are still cautiously optimistic about the future of their own business success. The problem now is that consumer confidence is fading and traditional government responses such as economic stimulus packages and central bank adjustments might not have the same impact as in the past. This highlights how different our economic environment is today and demonstrates the uncertainties that exist as to how to best manage the family business to ensure long-term survival.

Parkinson’s Law and the Peter Principle: Understanding Business and Politics Using Business Axioms

What business axiom or management principle have you discovered to help you live better, work smarter, or to understand organizations in a way that is unique, funny or provides that rare but special “ah ha” moment?

An example of a well known business axiom is the famous “Peter Principle” (1) that states: “People rise to their level of incompetence.” Explaining how incompetent people can achieve executive and high level political positions without any management or leadership skills provides some understanding to why so many businesses and governments may fail. There are many corollaries to this intriguing concept that may explain government and business poor performance. Perhaps major decisions also rise to their level of incompetence. That is, the more critical a decision, the more probable is that it will be taken away from the people with expertise and be decided either in a steering committee (to avoid any accountability) or at the C-Suite or government cabinet level where truly awful decisions are sometimes rendered out of ignorance. While this principle is meant to foster discussion about the follies of some bureaucracies, all of us can relate to those major business blunders caused by executives who thought they knew better. Remember new Coke, the Edsel and the infamous business failures at Enron, Arthur Anderson, Lehman Bros. and Bear Sterns? Government failures are even more common as evidenced by the Arab Spring uprisings and most of Europe facing serious budget deficits and even a European Union currency collapse.

Talking to a high level bureaucrat who was going to announce the immediate closure of a major call center, I replied that determining its future call distribution would be critical as this location had nearly 400 staff at work. He responded that I was incorrect and that no one was working there. Stunned by his lack of knowledge, I replied that I had just returned from a visit last week, and that we had over 400 active staff conducting business there. A bureaucrat located remotely and especially at headquarters can be very dangerous to sound decision-making!

My personal favorite business axiom is Parkinson’s Law, written by C. Northcote Parkinson (2) in 1954: “Work expands to the time available.” It is the only management principle I can remember with clarity from my four collegiate years of study in administration because I have experienced the relationship between work and time is both elastic and unpredictable. It is an irreverent but insightful view on how workload is not proportional to staffing within bureaucratic organizations. It reminds us that in our world, one must understand human behavior, embrace humor and recognize a tendency by people to make foolish decisions especially when emotions take control from basic common sense.

All students recognize the value of Parkinson’s Law. It is critical to determine how much time a task will take or it will naturally expand to two, three or more times the actual amount of time needed. As students we quickly learned this fact after laboring several days on an essay while as seniors, we would start a project two hours before the deadline with surprisingly positive results. While this work-time relationship is well known, fewer people are applying it to their organizations. Most business schools, businesses and certainly nearly all governments have forgotten the importance of the work time relationship. One only has to look at the state of governments across the globe to recognize that the tendency to grow bureaucracies is fundamental as growth ignores any workload or reason. Greece currently faces serious financial ruin because its expanding public bureaucracy became unsustainable. Thus a competent bureaucrat is not rewarded when he keeps quiet and works to cut staff, but is expected to continue to operate regardless of workload increases. The incompetent bureaucrat cannot accomplish anything but a poor record, but his constant complaints inevitably bring forth additional staff. He continues to complain and soon he is managing a department double the size of the competent bureau chief down the hall. The bureaucratic nature of the local department of motor vehicles demonstrates how work expands to the time available as these organizations despite years of practice and computer conversions and upgrades still demonstrate a total lack of logic and efficiency. Their avoidance of any level of customer service is legendary.

Another more serious and insidious example of Parkinson’s Law’s is the bureaucrat’s tendency to cause complexity. Take the process of how America’s laws are codified and regulated. Whether it is the new health care law now under review for its constitutionality, the new Dodd-Frank banking law and its thousands of pages of regulations, or the proposed changes to the enormously complex tax code, the means to create law in America has become the epitome of bureaucracy and unintended consequences. It does explain why there are so many lawyers and accountants and how American society creates sufficient work to keep them all employed on administering laws much too complex for the public to comprehend.

Generating complexity in government is probably due to the number of lawmakers who must find something to do with their time. Instead of seeking ways to simplify work, it seems they want to pass more laws and make life even more complicated.

Parkinson’s Law explains why the two of the most basic of government functions, the collection of taxes and the provision of public health care continues to become even more complex and expensive. Just try to explain to a European how American’s calculate their taxes or how to select an employee health care plan. After two hours with my Belgium daughter-in-law trying to select a health plan and explain income taxes, it was clear that our systems are indeed irrational.

To reduce a government agency, simplify our tax code or make health care more manageable will supposedly cause a calamity of epic proportions. The austerity plans in Europe and now occurring at local and state governments is yet to be embraced by our federal government that seems to always find a reason to ignore its committee recommendations and defer decisions by kicking the most difficult and important issues down the road. This ability to ignore responsibility is probably why there is friction between American business and government. In most societies the sovereign bureaucracy joins and supports business. In America there is a distrust of government going back to the Revolutionary War and our protection of individual liberties. Government work also has different incentives. Civil servants are not supposed to be resource efficient, but expected to spend all the money in their budgets or face a draconian cut in next year’s funding and resources. Government growth demands more revenue to operate so higher taxes are needed. Business firms seek profits so work diligently to avoid taxes and focus on efficiencies and cost cutting so the two institutions’ goals are traditionally at opposite poles. The incredible growth in global, federal, state and local governments and their excessive spending demonstrates Parkinson’s thesis that bureaucracies and agencies will proliferate even if they no longer have a reason to exist.

We find many examples of the Peter Principle and/or Parkinson Law in our business and governmental experience. Many hope for some easy solution to the growth of inefficient government and society’s complexity. Perhaps if Congress would pass a law that stated all laws and regulations should be limited to one page, we could start untangling the complexity in our health care system and tax code. Of course the lobbyists, departments and the stakeholders who benefit from such inefficiencies would prohibit any movement toward simplicity.

The hope that technology would resolve the bureaucratic problems just makes it easier to “cut and paste” more information into the process so that all laws and compliance take more pages to argue a simple point. The environmental impact report, for example, of a new football stadium in Los Angeles was over 10,000 pages and cost $27 million to produce. It is interesting that the original Los Angeles Coliseum was built in 1923 for only $950,000. Here is one more example of a regulatory process without restraint or reasonable limits. The typical LA resident will probably not be able to afford to attend the game when football returns to LA in 2020, 2030 or…

The cost of future football in Los Angeles is insignificant, however, compared to the waste and cost of administering American complex tax code or managing our fragmented and complex health care system. Unfortunately such complexity in health care shifts the burden to the people most at risk without the knowledge to navigate and find optimal care: The uninsured, the elderly, the sick, the poor and the children. The tragedy of a systematic, fragmented and profoundly uncoordinated health care system is that the quality of care is seriously degraded and uneven. We are notified by letter that our doctor will no longer accept our PPO health insurance, cannot use the local hospital, that the lab is not an approved provider and that our premiums have increased again.

The impact of the complex tax code may not be as severe to a citizen’s health, but it certainly creates unnecessary fiscal stress to a people and a country already unable to live within its means. Each year it seems we have more uncertainty, more interaction with our tax accountants, the state tax authorities and IRS as they add more complex rules to the process. Managing our financial life has become more difficult, and the ultimate result is more stress and doubt. So stay healthy so you will have the time and energy to calculate and pay your taxes! Just remember Parkinson Law and don’t start preparing your taxes too soon or you will waste several weeks of time better spent exercising and staying healthy.

References:
1. Peter, Laurence J.; Hill, Raymond (1969). The Peter Principle: Why Things Always go Wrong. New York: William Morrow and Company.
2. Parkinson, C. Northcote; (1954). Parkinson’s Law and Other Studies in Administration, Boston: Houghton Mifflin Company.

Start Your Own Business and Why Not Supply the Government?

Do you know that the every year all levels of government purchase billions of dollars of dollars worth of goods and services from the private sector? Today, there are thousands of firms whose sole purpose is to supply the government. There are hundred of thousands of jobs that indirectly depend on government contracts.

Over the last 2 years, thousands of people have lost their jobs, businesses and livelihoods due to the harsh recession. Many of these people have become so distressed as they have found no other way to earn a decent income to pay their mortgages and bills. Some have gone back to school and retrained themselves and others have become entrepreneurs and found novel ways of earning income.

There are excellent opportunities available to supply the 3 levels of government. And the most interesting fact is that the government is looking for people like you and me to supply it. You can do this from home. All you need is time, a internet connection, very little capital and a determination to succeed!

The government has made it fair and relatively easy to supply it. Gone are the days when you had to bribe an official in a department to get a contract to supply. The whole tendering process has become very transparent so that those unwanted practices do not happen anymore.

If you have the will to succeed and persevere you will ultimately win. This is an important quality to have because you can get all fired up, and then when you start going through the tendering process, you may feel disheartened and inadequate. There has to be systems and checks in place so that unscrupulous individuals don’t end up supplying the wrong items, resulting in the government wasting its resources.

There is a lot of valuable information available on the internet to show you how the process works. Subscribe to the government publications, as most of them are free and will explain in detail the steps and resources required.

Ethics and Fraudulent Behavior in Business and Government

When it comes to fraudulent behavior, the most fraudulent behavior I’ve seen has come from government agencies, and the revolving door. Everything from defense contractors and former military to regulatory agency employees going into private sector as attorneys or on the other side. Let’s talk about some events in the news in past years and cite some examples of fraudulent behavior, sometimes done in search of righting a wrong, even though I think we’ve all heard the saying; “two wrongs don’t make a right.” Okay so, let’s talk shall we?

Do you remember that HP problem they had where they hired a private investigation firm to track cell phone calls – that is very common still. HP might have had good reason, but they overstepped their bounds, and they paid for it dearly with regards to their brand and reputation. No, it was not as bad as Murdoch’s tabloid, what a horrible mess that was and it took down the paper (so what right, it was only a tabloid). True, but it tarnished his media empire something horribly.

This should remind business people to play it smart and if you need to get information, hire a competent investigation service, but watch them closely. Corporations are sketchy when it comes to such things and are probably not even completely sure of the rules thus, they need to be able to trust the investigation and background firm.

How about a government scandal a mess, remember when the Secret Service got into it with the hookers incident in a Latin American country? Ouch. I wonder if that’s why they hired a new lady to head up the agency, heads had to roll, and things had to blow over and out of the media for a while as they made that transition, talk about a black eye on a normally stellar agency, ouch.

Sometimes companies find serious problems in their ranks, as employees are involved. The drug bust issue is huge, companies want to cooperate but the authorities want to PR their arrests, either way the company loses its branding image. So often we see pharmaceuticals going out the back of medical facilities, managers as drug dealers at franchised and chain store outlets.

One problem now is if you do back ground checks you can often get sued for employment lawsuits. That makes it even more difficult to stay away from lawsuits and regulatory or enforcement problems down the road. Some companies hire an outside firm might get around some of those employment lawsuits. Please consider all this and think on it.