cope is not a force of action

are ethics the same internationally?

2008-08-09T21:16:00.000-07:00

If you want to be bored at a conference, walk into a session on cultural differences on international teams. God knows why these are uniformly dull as toast, when the reality of working across boundaries is an intellectual minefield.

Take ethics. My friend James Balassone of the Markkula Center for Applied Ethics at Santa Clara University tells me that ethics are the same internationally -- what differs from country to country is culture. So when you're talking about whether you should turn your friend into the police for running over a pedestrian, you know, regardless of what country you live in, what's right and wrong. The difference in how the question is addressed is only your relationship with police, and how they were seen in your country, as you grew up.

I posed this argument to my friend SoonKheng Khor of Malaysia, and he called bullshit. SK says it doesn't matter whether the differences are ethical or cultural -- what matters is how we behave, and that culture is the excuse for a lot of bad behavior. It's said that there is only one reason why you bribe a police officer in Nigeria, and you don't bribe a police officer in Canada. In Nigeria, it costs a lot less to bribe a police officer -- it's affordable. In Canada, it not only would be very expensive to bribe a police officer, as they make a good income, but the costs of getting it wrong would be very high, as there is a high likelihood that you will get in trouble for trying to bribe a police officer. In Nigeria, perhaps you might get into more trouble if you DON'T try to bribe the police officer.

I often wonder what I would do in that situation. I heard today an interview today with Jeffrey Swartz, the President of Timberland, a US shoemaker. He said he has an absolute rule when it comes to the amount of time a worker can work a week. Even in less developed countries, even in their busy season, no worker is allowed to work more than 60 hours. Workers in poor countries complain, because they want to work more, in order to get more overtime. Hopefully, he uses that as an excuse to bump up the pay for those workers.

But it made me wonder. Timberland's 60-hour rule reminded me of this posting from a cook I came across a couple weeks ago. In France, no one can work more than 39 hours. But restaurants require much longer hours of work. So he works 50 hours of work every week, but he is only paid for 39, and only 39 are reported to the government. The difference is "supplemental." How does Swartz certain that in none of Timberland's factories, people are being told they need to work many more hours, but can only report 60? The answer is auditing, and it sounds like they try to do a lot there. While compliance is certainly a challenge, Timberland's declaration and commitment reflects an intent and a culture which can cross boundaries. Now that's progress.

what i'd do with a million dollars

2008-07-31T15:53:00.000-07:00

Back when I lived in Indiana, we young wage slaves used to pool our money a couple times a year to buy a bunch of state lottery tickets. This always led to the inevitable daydreaming: "What would you do with a million dollars?" First, of course, everyone would quit their jobs. Then they'd travel the world, buy a boat and live on it, live the life they've always dreamed, but was always just out of grasp.

I guess that's why I'm always stunned by embezzlers, senators and other bandits caught stealing money that doesn't belong to them.

EVERYONE spends their ill-gotten gains on granite countertops, a new deck, new cabinets.

Really? You've just made a very bold move and there's no turning back -- you've committed a crime and your life is on the line -- and the reason you did it is to redecorate your kitchen?

When I lived in Dayton in the late 80's, we used to all joke about "the house that NCR built." The story was, this couple both worked for NCR, and one of them (the man, if I recall correctly) began to embezzle money from the company. Over the years, the couple stopped getting along, so they built a wall down the center of their property, each building out their side to an elaborate mansion, but with separate entrances and exits. None of this was apparent from the street -- it looked like a normal home. The woman wouldn't divorce him, as she wanted the ill-gotten gains, and he had to keep supporting her or she'd turn him in. Eventually, they both went to prison, and that's when the world discovered the segregated house.

Wow. People really lose their imagination as they get older.

Explaining Milton Friedman on Corporate Social Responsibility

2008-07-11T17:17:00.000-07:00

Brad DeLong had a recent post on how he thinks Milton Friedman's take on Corporate Social Responsibility is bunk.

He says, among other things, that "If customers don't want to pay higher prices and so buy from corporations that pursue social responsibility, they are (as long as product markets are competitive) free to do so at their option." The unfortunate reality of CSR is that for the most part, if given the choice, most people want CSR, but only if there is no cost to themselves.

In Supercapitalism, Robert Reich points out, even for such a simple and clearly beneficial issue as dolphin-safe tuna, customers vote only with their pocketbooks. J. W. Connolly, former president of Heinz U.S.A., which was the parent company of StarKist, explains that “consumers wanted a dolphin-safe product,” but “if there was a dolphin-safe can of tuna next to a regular can, people chose the cheaper product. Even if the difference was a penny.”

Where Brad missed the issue was not due to consumer choice, but rather a misunderstanding of Friedman's core argument. Friedman posed that an employee has direct responsibility to his employers, to make as much money as possible while conforming to the basic rules of society. If a company spends money on reducing pollution, for example, below the level required by law, it’s not his money he’s spending. He’s spending the shareholder’s money. The employee is no longer acting as an agent of the stockholders or customers, if he spends the money in a different way than they would have spent it.

One of the commenters noted that Friedman's argument meant that if a company is dumping waste into the stream, polluting it and killing the fish, it has a moral obligation to keep doing so. He's right, within certain parameters. If there was no chance that the company would be fined, would receive bad PR, or otherwise have negative financial consequences, then yes, they should continue dumping in the river, according to Friedman. There are still some countries where this is the case, but that number shrinks every year.

If a company was not created on the basis of maximizing return to investors, but had instead a different commitment, such as Smith and Hawken or REI, where investors know at the outset that social and environmental concerns will be built into company operations, then that company has a different contract with its shareholders, and there's no chance of social efforts causing a breach of contract with the investing community.

But times are changing. Investors are expecting less in the way of "bad behavior" by corporations, and most no longer want to see negative articles about sweatshop labor, bribery and extortion in the companies they love. As the requirements of the shareholders change, then the company must change to stay in line with investor expectations. Some companies, such as GE with their "Ecomagination" initiative, have used CSR as a way of staying ahead of changing shareholder requirements, but they end up having to sell their efforts to shareholders by describing long term capital returns on CSR.

you almost feel sorry for Henry Paulson....

2008-07-11T16:10:00.000-07:00

In one speech yesterday, Hank Paulson talks about how Americans have come to expect the Federal Reserve to step in to avert a crisis, but then complains that the Fed does not have the clear statutory authority to do this. To resolve this gap, he's requesting that we give Federal Reserve the authority to access necessary information from complex financial institutions - whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution - and the tools to intervene to mitigate systemic risk in advance of a crisis. Why is this only coming to light now? Why was he not demanding such reform months ago, if it's really the right way forward?

Okay, so Henry thinks we need to be able to bail out financial institutions, and the Fed needs more transparency in order to do that right. Now that financial risk is hitting panic level, he wants the Fed to be able to access data in financial institutions, so the Fed can step in to avert a crisis. But in the next breath, he says that financial institutions must be allowed to fail. Is it any wonder the market's having trouble reading his signals?

However, when financial institutions are protected from the negative impacts of risk, that will only encourage further risky behavior. Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."

The Bush administration needs to show some leadership in this issue, as there is a need for swift action, and that requires everyone at least pointing in the same direction....

Strategic adaptive planning in the US military, or "a study in banging one's head against the wall"

2008-06-28T16:14:00.000-07:00

When I was a child, I received a piano as a gift from an elderly neighbor. I was excited to begin playing, but my mother told me she wouldn't pay for lessons until I demonstrated a commitment to the piano by playing it regularly. But every time I sat down to try to play, she would tell me to stop pointlessly plinking on the piano.

This comes to mind when I reflect on the state of our military today. Many critical business processes, from strategic planning to project management, have come from the Department of Defense. However, when business adopts a military practice, it gets changed and morphed to meet business objectives, and before long becomes an iterative, adaptive process. Meanwhile, the military languishes with processes that don't adapt to new realities.

Paul Masson gave a great illustration of this issue with Col. Ed Hatch of the USAF.

A few decades ago, the US' only enemy, for the most part, was the Soviet Union. In much the same way that corporations could make twenty year strategic plans, because their markets weren't expected to change much, the military historically takes 18-24 months to develop contingency plans, which then sit on a shelf and don't change when conditions change. This made sense before the proliferation of nuclear weapons in the hands of tiny despots all over the world. After spending so much time developing contingency plans, if there was a crisis, the contingency plan wasn't implemented, but a whole new crisis plan was planned and executed, as the contingency plan was too far out of date to be useful. Not only is the process too long, but the strategic plans across governmental and military units were never coordinated, causing tremendous confusion, inefficiency and conflict. How do you manage strategic planning across 4 armed forces and a NATO alliance?

The military is addressing this problem by transitioning to what they term an Adaptive Planning and Execution System (APEX). This system would create continuous, living plans, rather than fixed contingency plans, augmented with crisis plans.

So today, a national security strategy is developed with each new administration. (This replaces the simpler defense plans of decades past.) From that is developed a national military strategy. The national military strategy needs to be translated down to 69 individual strategic plans for different sectors of the military. Sectors can be geographical, such as Europe or South America, or functional, such as transportation and joint forces, and of course, four are the Army, Navy, Air Force and Marines -- who have all the money and power and ability to get things done.

It's funny, having worked exclusively in the private sector, some things that seem obvious to me are brand new concepts to the military. In talking to Paul, he was concerned about the fact that they hadn't developed risk management and disaster recovery into their strategic planning. When I told him that those aren't strategic issues, per se, but operational control issues, he said that such delineation never takes place in the military, and if it's not in the plan it's not going to get addressed. Wow. They have a long way to go. It's great that portions of the military are reaching out to the private sector, trying to figure out what they can learn, and how they can perform adaptive planning better.

But they have barriers I could never imagine. When they start to implement a new idea, and begin working through the initial plan, a defense contractor will try to get the partially developed plan, take it up the chain of command, have it decreed ineffective and incomplete, and get it shut down. Defense contractors look at outreach to the private sector as a threat to their livelihood, and will do whatever they can to either control it or kill it. Col. Hatch spoke of situations where he's had to bury a contract, so that defense contractors wouldn't find out about it. One defense contractor found out about it, and secretly bought up all the IP, so the project couldn't move forward without the defense contractor. This happens ALL the time. Whenever they identify a solution in the private sector, a defense contractor tries to shut down the innovation. While Col. Hatch likes working with private industry, who don't have skin in the game, or a vested interest in a particular solution, defense contractors are not impartial. Defense contractors think anyone in private industry DOES have skin in the game, because private industry doesn't guarantee that money is going to the defense contractor.

Efforts to modernize the military's strategic planning are continuing, but the barriers are almost unfathomably huge.

I never did get piano lessons, and my folks eventually sold the instrument -- no one had ever learned to play it. I hope things work out better for our military.

fear and loathing in business ethics

2008-06-15T11:20:00.000-07:00

When I presented at the PMI Global Congress in Malta about Corporate Social Responsibility, an American from a large insurance firm posed a question.

"I like your ideas about integrating CSR into corporate strategy, and evaluating projects not just for risks to schedule and costs, but also looking at ethical and social risks. I want to take these ideas back to my company and implement them. But what happens if I talk to my boss, and he doesn't like the idea? What then?"

"Well," I said, "Ultimately you need to determine where your priorities are. If you think this is a good idea for your firm, and will ultimately change how your company does business for the better, as well as preserve its reputation, it may be in your best interest to talk to others within the company, to circulate the ideas and see if they can get traction."

He laughed. "I need your business card! If I do that and lose my job, I'M CALLING YOU!"

It's sad when people are afraid to speak up, especially when what they have to share isn't bad news about their project or budget, but rather a good idea on how they can make their company better. But more than sad, it represents a risk to the company's ethical culture.

Marianne Jennings of the Makkula Center of Applied Ethics believes that to front-line employees, the line between right and wrong is very bright. Something happens to people as they climb up through management. The bright line seems to fade. The challenge is getting information about ethical breeches from the front line up to the right people who will take action. Too often, fear and silence thwart those efforts.

Are these fears unfounded?

According to the journal Strategic Finance ,

Based on the total failure of whistleblowers to obtain protection from discrimination under the provisions of SOX Section 806, perhaps employees still have good reason to fear retaliation. Of the nearly 1,000 complaints filed under SOX 806 in the five years since its enactment, not one person has survived the appeal process and won his/her case.

I guess not.

The problem with the triple bottom line: Corporate Social Responsibility reporting

2008-06-13T12:56:00.001-07:00

In the world of CSR and business ethics, "triple bottom line" is the idea that a company should measure their success not just financially, but on three axis -- financial, social and environmental.

The truth is, there is no quantitative measure -- no way to evaluate what my "triple bottom line" is. Even the concept of the "triple bottom line" is deceiving. It implies that social and environmental results can actually have a bottom line, a measure that a company can evaluate themselves and others against. I'm sure that using that term helps some executives get through the feeling that CSR activities are only warm and fuzzy, with no real end result for the corporation.

This article from Business Ethics gets to the core of the issue.

So we might reasonably ask of firms like The Body Shop, or British Telecom, or Dow Chemical – all companies that have claimed to believe in the 3BL – what their social bottom line actually was last year. But just posing this question conjures up visions of Douglas Adams’s comic tour de force, The Hitchhiker’s Guide to the Galaxy, in which the greatest of all computers is asked to come up with an answer to “the great question of Life, the Universe and Everything”. That answer, which takes seven-and-a-half million years to calculate, is “42”. At least part of the charm in this Hitchhiker shtick is that “42” seems wrong not because it arrives at the wrong number, but because it is ridiculous to think that the answer to such a question could be expressed numerically or even just with one word (especially a dangling adjective – 42 what?).

The paper further poses that if I make a promise and keep it, I am seen as ethical. But if I make ten promises and keep them, I am not seen as more ethical than when I only made and kept one promise. Flattening multidimensional ethical issues for the purpose of measuring is bound to create some errors.

But I disagree with the paper in his conclusion that there's no point in trying. Is the jargon of "triple bottom line" misleading? Absolutely! Is the current state for measuring a company's commitment and effectiveness in this area defective? Absolutely! Has the concept of Corporate Social Responsibility been hijacked by PR departments who only address CSR issues as part of a marketing portfolio? You know the answer -- Absolutely!

The idea of the triple bottom line has significant potential. It took generations for us to develop effective and thorough financial reporting rules and guidelines, and they are still being undermined by creative accountants. We've only just started incorporating social and environmental ideals into corporate performance -- it will take several years before the first rudimentary reporting standards begin to emerge. I have no doubt that our largest audit firms are energetically exploring this new market opportunity.... = )

How do you measure corporate social responsibility?

2008-06-12T14:37:00.000-07:00

No one really knows yet how to measure corporate social responsibility.

Every month, a new report is issued which lists the most socially responsible companies. McDonalds is listed as one of the top companies, due to their work in the environment. (What about the fact that their very existence causes obesity?) Wal*Mart is listed in another as well, due to their focus on zero waste. (What about their low wages?)

The dichotomy is inescapable. Every company is good in some ways, bad in others. So in my CSR report, I highlight the areas we've improved, and where we might be doing better than our competitors. This year I talk about labor relations in Nigeria, next year I talk about labor improvements in Ghana. Does that mean conditions in Nigeria are the same, or is Nigeria's absence from the report indicative of the fact that there's something to hide?

How can an independent party ever hope to evaluate whether a company is "good" or "bad?" And is there even such a concept? You know how in the US legal system, if a person commits a crime, he can be let off the hook because he is criminally insane, or incapable of determining right from wrong. Corporations are criminally insane. You can't think of a corporation as good or bad, right or wrong, because the corporation isn't a human, with the ability to discern the difference. So okay, the corporations aren't good or bad, but the leaders are. Well, that doesn't make sense either.

If a government wants to change the way a company does business, to make all companies "good" companies, it would change the current rules. Without laws in place that determine what every company has to follow, the least socially responsible will have the greatest competitive advantage. In 1993, Levi Strauss phased out production in China because of concerns about its human rights record. In 1998, they reversed their policy, as they were losing out in the competitive game.

Don't get me wrong. I'm thrilled when I see a company out in front of an issue, as they can guide legislation. I just don't think that CSR alone is the whole answer. Yes, it's easier to lobby a company for change than to drive change through our political system. But we don't accept workarounds in our professional life -- isn't this more important?

corporate social responsibility and the project manager

2008-03-03T20:05:00.000-08:00

Corporations, and the society they operate in, are already intertwined -- companies affect society through the activities they do every day. A society needs corporations to give people employment and infrastructure, and corporations need a healthy society to provide a capable workforce. While society looks in many cases to the corporate world rather than government for the provision of employment and infrastructure (not to mention goods and services), it is only a healthy society that can create the kind of productive workers that every corporation seeks to hire.

Companies exist to create prosperity. Society in turn decides what limits to impose on how companies behave, and thus we have laws to protect the common good. Corporate social responsibility tries to bridge the gap between what laws are in place and enforced, and basic fundamentals of good business practice, such as avoidance of exploitative practices, and complete transparency.

In the same way that social responsibility is not solely the government’s job, corporate social responsibility is not only the task of a company's senior executive. Project managers are instrumental in achieving strategic goals, as they hold the path to execution. In this way, they can play a pivotal role in corporate social responsibility. Being familiar with the details of day-to-day operations and execution, the manager is in a position to perceive and analyze socially relevant issues and situations that may not be obvious to senior management. The manager knows from firsthand experience that norms and laws, culture and traditions may render a project very different in execution and outcome from what it is in other countries, including his company’s home country.

The experienced project manager brings discipline in risk assessment and mitigation, which can be used to identify social risks that might go unnoticed by top leadership. For example, your company may not uphold norms of behavior in developing countries, arguing instead that they operate within the local laws of the countries in which they are working. You will be in the position to see that disconnect more vividly than a distant executive, and will be able to escalate discrepancies between the minimum the law requires and what’s appropriate for the community, before it turns into a crisis for the company’s operation or reputation. Don’t assume that company executives are aware of the social ramifications of a project – it’s the manager’s responsibility to ensure these issues are raised appropriately. The data a manager provides his leadership can help them make bold decisions, to go beyond what the law requires in developing ethical business practices.

For example, Levi Strauss and Company has a strict policy against underage workers. But when they discovered that two factories in Bangladesh had workers under the age of 15, executives in the US didn’t just shut down the factories or demand the workers be fired. Instead, the managers in the field looked into the problem, and they recognized that in Bangladesh, families rely on the money brought in from a child worker to survive. So they helped come up with a creative solution. The children who were already employed could remain, but the factory had to support their education, sending them to a local school, even hiring a teacher if there were no local schools nearby. That way, the company could ensure the children were getting proper education, while not driving families into poverty. Ultimately, such actions set the standard for other local factories, raising the bar throughout the society.

How can you evaluate risks around corporate social responsibility? You can rank social issues when you rank all other risks to project success, by probability and impact. What is the likelihood a social, environmental or ethical issue will arise in this project? What is the potential impact, not just to the project, but also to the community or the company at large? Never forget that you are your company. If you want your company to be ethical and do the right thing, be sure to model that behavior yourself.

Pharmacanomics - the ethics and economics of drug development

2008-01-28T23:00:00.000-08:00

It's fascinating how investor pressure has changed the behavior of pharmaceutical companies. They're not alone, of course, but we like to think of medical firms as being a bit more altruistic than most. I remember when I thought it was noble that a firm would go after "previously unmet medical needs." It wasn't until I talked to a pricing specialist at such a highly successful firm that I realized that's not nobility, that's a competitive advantage, and one which allows the company to price their goods as high as possible.

We saw this a few years ago, with the shortage of flu vaccines. Suddenly it was painfully obvious that very few companies made drugs that had such small profit margins.

We see it again today with news that fewer antibiotics are now in the pipeline. New antibiotics are harder to develop, and they aren't the blockbuster that investors are looking for.

"Drugs that treat chronic conditions such as heart disease, arthritis and diabetes must be taken for a lifetime. A good antibiotic can clear an infection in a week to 10 days. With the cost of developing new drugs ranging between $110 million and $800 million, cautious investors are putting their money into research that promises the biggest payout."

So what about the argument that companies need blockbusters, and they have to charge huge prices in order to better fund drug development? Most early-stage drug discovery takes place in universities and research institutions, not pharmaceutical firms. What's more, a study published earlier this year in the journal PLoS Medicine found that US pharmaceutical companies are spending twice as much on marketing as they are spending on the research and development of new drugs. While $57.5 billion was spent on drug promotion in 2004, only $31.5 billion dollars was spent on industrial research and development.

These same economics also prevent drug companies from sharing their product with sick people in developing countries. As an investor, I want the highest return for my money. As a citizen, I want drug companies to do the right thing for their consumers and society. Unfortunately, there are penalties for not giving me the highest return, but there are no penalties for not doing the right thing for society. Which has the greater pull?

Cityphilia

2008-01-24T20:33:00.000-08:00

I found this article to be a fascinating (if rambling) study of how financial deregulation has contributed to deteriorating societal values. It's easy to fall into the habit of seeing each new scandal, each new corporate misfortune as an aberration, rather than seeing indications that we're overdue for reform and regulation in the banking sector.

Oh, wait! Maybe we can just cut rates again and drive up confidence, right? Right?

Why is Corporate Social Responsibility so hard?

2008-01-22T15:33:00.000-08:00

35 years ago, Milton Friedman observed that Corporate Social Responsibility might ultimately pit corporate goals against social goals. "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In his view, CSR creates impediments in the running of business and can make for confusion about the true goals of the firm. With growth in the complexity of business and concerns about sustainability, there may be conflict between the enhancement of a company’s long-term profitability and its contribution to the public good.

The situation is often exacerbated by the apparent lack of rewards in following a CSR strategy. For example, Wal*Mart is rewarded by the market for cutting costs; Costco, which offers better insurance and benefits to its workers, is penalized by the market for not cutting costs as well, and therefore not being as profitable as Wal*Mart.

I started reading Robert Reich's new book, "Supercapitalism," with the sole intention to get myself annoyed. I had read in an Economist article that he trashes the concept of CSR, saying that that companies getting involved in socially responsible behavior was nothing but a dangerous distraction. However, his argument is more complicated than that. He argues that companies who don’t embrace the principles of Corporate Social Responsibility are neither brutally insensitive nor ruthlessly greedy. “They’re doing what they’re supposed to do, according to the current rules of the game – giving their customers good deals and thereby maximizing the returns to their investors.” Just as games require rules to define fair play, the economy relies on government to set the economic ground rules. If government wanted to change the way Wal*Mart does business, it would change the current rules – making it easier for employees to unionize, to get health insurance and pensions, and to grant a living wage.

Reich's book, so far, is one of the best I've read in years. No one wants to hear that CSR is ineffective, and the wrong answer to the problem. Like providing evidence that microfinance doesn't work, it's not the kind of conversation that gets you popular at cocktail parties. He gives a clear account of how democracy and capitalism have become decoupled, and maybe were never really an item in the first place. Why should companies be thought of as exceptionally good citizens if they treat their workers well, if they adopt sustainable practices, if they don't actively destroy society with their supply chain? The very fact that we find these actions exceptional is indicative of the fact that the wheels have fallen off our capitalist system. What is needed is, instead of a feel-good band-aid, massive reform.

how to perform strategic planning for a non-profit

2008-01-01T06:55:00.000-08:00

I received a few more questions in response to my last post on how to get started in strategic planning if you have limited experience. I have a few resources that I would recommend. This book is a facilitator's guide to conducting strategic planning. Several of the exercises I did with my organization's strategic planning team I took directly from this book. It has great exercises to help you come up with a concrete vision for your organization, for example.

This other book is really useful to help you figure out how to implement Balanced Scorecard in a non-profit environment. It's not just a fad, a newer way of doing strategic planning -- it's the only tool I've come across which really ties strategy to execution, and helps you come up with targets so you know where you're going, how to get there, and when you've accomplished your goal. The book focuses more on governments than non-profits, but it's still useful in figuring out how to apply a business-oriented strategic measurement system to an organization whose ultimate goal isn't to make a ton of money.

A friend suggested that I offer a jumpstart workshop to help get organizations off and running on these concepts. It's an interesting idea, and could be a lot of fun.

So the excruciatingly short version of what strategic planning for a non-profit looks like:

1. Figure out what business you're in.
2. Identify, as clearly as possible, what your future looks like. This one is harder than it looks. It requires talking to your members, understanding a couple scenarios about how the environment will change in the future, and determine how to change to help your members adapt to that new environment.
3. Break that vision into components, in much the same way that you'd break a project down into a work breakdown structure. In what areas do we need to improve in order to achieve our vision?
4. Determine strategies in each of those component areas. For example, if you have a group around improving how you work with volunteers, you may have a couple strategies to help you get there, like developing a volunteer lifecycle, and developing strategic competencies in the board.
5. Now it's starting to look more manageable. For each strategy, create projects to help you achieve the goal. Determine a target, or how you know you will have that strategy addressed. Targets don't need to be too detailed -- it's just how you ultimately know you hit the mark. So for our volunteer example, your target might be increasing your number of volunteers by three times, etc.
6. Throughout the process, communicate and iterate. Now you have more of a purpose for meetings, and folks should get more excited -- they can see that they're progressing towards a real, important goal, instead of just performing operational tasks.

Does that start to address the question? It's still a bit of a longer view, so it doesn't get into the details of how to perform each step. I think that's the book that I need to get started on one of these days. = )

Happy New Year!

developing strategic thought

2007-12-30T19:30:00.000-08:00

I've been asked by a few organizations lately to help them develop strategic competencies among their staff. Thinking about strategy can be difficult -- thinking about strategic thinking makes my head hurt!

It's hard to talk about developing a muscle you've never used before, or that you have little opportunity to use. For Christmas, I bought my fiance a video game console (a Wii) which includes a tennis game. Alex was very good at tennis while he was growing up, playing at several competitive levels. I've never played tennis, though, and learning to play with him on the video game is extremely frustrating. It's only through repetitive use and practice that I'm starting to get better at it.

Developing strategic thought is much the same way. Most directors and executives are experts at thinking operationally. We've been rewarded all our lives on short-term thinking. Taking the long view is a luxury we don't usually have, and it's easy to get frustrated, because the world is changing so quickly, and how can I hope to predict which direction it will move in?

Whatever our level of experience or competence, we can all build our capacity for strategic thought, just by practice and motivation. We can work on scenario development (to describe changes in the environment) and visioning exercises (to determine how to change the organization to address those changes). Study after study shows that executives and directors who are responsible for strategy are secretly in a panic, unsure of what they're doing, and afraid they'll be found out by their organizations, or that they'll fail from their lack of critical knowledge in this area.

Those of us who are entrepreneurs recognize that strategic thinking is the tool which can give us significant competitive advantage. Those of us who work for large corporations express frustration that we are "stuck" doing tactical work, when we want a chance to lead at a higher level.

Beckhard and Pritchard said, way back in 1992:

A paradox of today's world is the increasing need for leadership to become involved with creating an organization that is actively moving towards its potential while, at the same time, solving todays crisis or emergency. Since often the 'urgent drives out the important,' the organization's 'becoming' is forced to wait its turn. It is our contention that organizations wishing to be top competitors in the years ahead must move the effort 'to become' to the head of the line.

The best way to develop strategic competencies is to help you learn how to use that muscle within a non-profit organization you care about. We can help set directions for our organizations -- where are we headed, why, and how will we get there? How can we change our organization to make it valuable both to its external environment and to itself, leading to sustainable organizational success? Non-profits, almost without exception, all need help with strategic planning. What better way to learn than working your way through it with a supportive group who desperately needs your help?

Of course, just having motivation isn't the whole answer -- strategic planning, as a discipline, has grown up a lot, and tying execution to strategy is not just a possibility, but a business imperative! So first review these resources, so you are better prepared to help. Consider this a very short (but top of the line) crash course on strategic thought.

What is Strategy?, by Michael Porter
Jim Collins on vision and values
Kaplan and Norton's excellent series of articles on Balanced Scorecard, the best thing to happen to strategic planning in the past fifty years.

Now get out there and change the world!

a step towards investor transparency by the SEC

2007-12-29T10:21:00.000-08:00

The SEC just released the first online tool which allows individuals to easily compare executive pay among top American companies. This is the first demonstration of how it will use XBRL-tagged data.

"Gone are the complicated data expeditions that forced investors to hunt through financial statements, footnotes, proxy statements, and other disclosure documents to figure out how much a company pays its top executives. Through its new rules and the power of interactive data, the SEC has transformed the landscape of compensation disclosure. The result is quicker and better analysis, and better-informed shareholders."
-- SEC Chairman Christopher Cox

This is long overdue. Congrats to the SEC for having the foresight and persistence to get this done.

why large scale transformation projects are a waste of time and money

2007-08-13T22:03:00.000-07:00

Several months back, I was approached by a large utility who needed a consultant to head up a large scale transformation. They are in the midst of a multi-year effort to transform every aspect of how they deliver power to consumers. Hundreds of consultants and millions of dollars had already been expended on the effort, with no end in sight. Consultants who had already been sucked into the Borg expressed satisfaction of being fully committed on a lucrative project for at least another 18 months.

Ugh.

While I respect the budget which can support such an effort, it's hard to imagine less appealing work. I went into consulting because I love to do the impossible, and in theory, this would be my dream job. Can't get much more impossible than this! But there's a huge difference between turning around an organization and a project which is structurally designed to fail.

When I started consulting, I definitely fell into the trap of, "the consultant prepares recommendations and writes a report; it's the client's job to act on that report." However, for me, it only took one incident of management putting aside my hard-won recommendations to realize that was a faulty plan. I like to fix organizations much more than I like to produce pretty reports. It's amusing to me that this is still a contentious issue amongst consultants, and that there remains a caste system within consulting. Those who produce strategic insight are much more valuable than those who execute. However, this ignores the fact that brilliant strategic insight kept within a binder is completely worthless, that execution is the only way that change actually happens within an organization.

Choosing to execute does not mean a consultant is acting tactically instead of strategically. As Richard Rumelt noted in a recent McKinsey article,

The second path (to substantially higher performance) is to exploit some change in your environment—in technology, consumer tastes, laws, resource prices, or competitive behavior—and ride that change with quickness and skill.

This is the path to excellence that most consultants attempt to take. But ending your responsibility at the report -- not being accountable for client failure or success -- is ethically irresponsible, and just bad consulting. Most of the reason that large scale utility transformation project is so painful is that utilities are desperately in need of overhaul and massive improvement. However, the right way to attack that isn't creating a multi-year, multimillion dollar blockbuster project, but rather implementing meaningful, productive, rapid-results projects. Initial projects should pay off and help to fund additional work, allowing the improvement effort to pay off early and often, and building momentum for the changes to come.

why acting ethically is so difficult

2007-07-29T23:08:00.000-07:00

"So you knew the right thing to do, yet you failed to act. Why was that?"
"I was afraid I'd lose my job."

I've had the above conversation dozens of times, and it's always frustrated and confused me. Why would you want to keep a job which forces you to behave contrary to your beliefs? Even worse, in most of these situations, the risk of losing the job is only in the mind of the person who's afraid to ask. So where does this horrible fear come from?

Juliet Schor, a sociology researcher at Boston College, claims that between 1969 and 2000, labor productivity per hour increased about 80%. Did we use that productivity gain to work fewer hours? No, we're instead working longer hours, and buying houses that are 50% larger, buying expensive cars and consuming at an aggressive rate. Americans get fewer vacation days than other developed countries, yet most Americans don't use them, and increasing numbers of those who do bring their laptops and Blackberries with them. Americans are overworked and stressed, and at the end of the day, they're too tired to do anything but watch television and shop.

All that shopping, all that consumption, leads to ever-increasing debt loads. We take for granted that we need a bigger car, a bigger house, an updated kitchen, more stuff. We never stop to think that perhaps we have enough. So our savings rate as a nation continues to decline, and families have less and less of a cushion for when things go wrong.

Things like... losing my job.

So working longer hours leads to spending more, which leads to greater fear of losing my job. While I've looked at this issue as a purely economic one, and an individual choice (and individual loss), the answer is much more insidious, much more damaging to our culture, our companies and our society. Living to the end of my income makes me a less responsible employee, a less accountable manager, someone who looks the other way rather than standing up for what I believe in. We're not just causing our own families stress with poor financial behavior. We're hurting our companies, our teams, our shareholders and our partners by looking the other way when wrongdoing occurs.

It's time to stop saying, "I wish I could have done something," and take responsibility, even if it means potentially losing our jobs. If a company would fire someone for uncovering unethical or illegal behavior, think of what working for a company like that can do to your heart, to your love of your work, and to the quality of the work you are going to produce.

The solution is moving away from short-term, reactionary behavior, in order to have the flexibility to act according to your own ethical guidelines. Long-term planning and thinking helps both your career and your organization. Do you have three to six months' pay saved up in case you lose your job? If not, you risk compromising what you believe in.

the social contract of business

2007-05-01T12:37:00.000-07:00

In a recent McKinsey interview, social scientist Daniel Yankelovich discusses business' social contract.

In this article, Yankelovich discusses how there has been a recent seismic shift from Milton Friedman's argument against a corporation’s broader engagement with society, and towards a more pragmatic approach, incorporating public good.

Yankelovich seems to support the recent Economist article, in which it argued that every corporate strategy had to pass two tests—does it enhance the company’s long-term profitability, and does it serve the public good? However, this approach creates two divergent goals, and reconciliation of these can be close to impossible.

So putting away that article for a minute, the only disparity between the two goals is the definition of "long term." Financial success is merely society's way of telling an organization, "You create a product or service that serves a need so well, it's worth our money for you to provide it." Organizations focused on quarterly returns can easily miss this correlation, but a true long term focus will incorporate many things: market opportunities, growth and yes, the public good. A company following good governance practices looks not only at the immediate financial return, but also at the risk to the business of not watching the environmental impact or worker welfare.

Organizations have slowly adopted risk management procedures at the project level, such as hedging our bets by betting on two technologies simultaneously. Why not also take such a serious approach to strategic risk? Firms with positive reputations attract better people. Actively managing strategic risk, and the company's reputation, is a critically overlooked element of business.

Taking such a dynamic approach doesn't just mean having a quick and efficient reaction to disasters, whether they are backdating options or an environmental catastrophe, but creating the environment where issues like that are less likely to occur in the first place.

Yes, there are business impacts to creating such a positive, sustainable working environment. It's a lot cheaper to conform to China's norms for pollution and worker safety than it is to treat the country as we would a developed nation -- we're losing our competitive advantage and why we expanded here to begin with! However, what really happens when we play along with the looser norms of less developed nations? When you remove societal rules and expectations, you create an environment where fraud and corruption can thrive, including in ways the corporation could have never expected.

An interesting example of this is the United Nations. In order to be politically neutral, the UN has been unable to create rules that would not be honored in member countries. For example, if you're an employee of the United Nations in a same-sex relationship, can you marry your partner? The UN rules state that they will honor a same-sex marriage if the countries that both persons are from honor same-sex partnerships. While understandable from an expediency standpoint, it's absurd. So when you have UN employees and contractors working in developing nations, adhering to local laws, standards and norms, you can end up with a shocking level of fraud, sexual offenses and other atrocities. The UN, like corporations and other entities, needs to hold themselves to a higher standard.

It's a lot like governance in general. If I do the minimum I have to do to pass a law, I will go into a tailspin every time there is a new law enacted, or a new interpretation of an existing law. But if I take into account the reasons for the law -- honest and fair business practices, transparency, etc -- I won't have to revise my processes for every new law. This approach ensures that the organization has a strong framework for doing the right thing, and helps simplify decision making. It's also much more cost effective than engaging creative lawyers and PR firms to extricate the firm out of trauma after trauma, and trying creative accounting to get out of the ensuing stock price collapse!

financial regulation, the invisible hand, and the only real answer to corporate accountability

2007-04-20T13:28:00.000-07:00

Ben Bernanke, Chairman of the Board of Governors of the US Federal Reserve System, recently gave a speech at the New York University Law School.

His basic message is we can't count on market forces to help control risk in the financial sector, whether you're talking about commercial banks or hedge funds. Ideally, creditors and investors would want to protect their investments, so therefore would exert a lot of pressure on organizations to take prudent risks and capitalize appropriately. However, I know that my bank won't go out of business, because it's FDIC insured (and Uncle Sam won't let a big bank fail), so why should I monitor them closely?

Bernanke doesn't carry this argument forward, but modern financial instruments, such as mutual funds, index funds, etc., offer not just a diversified portfolio, but also make it so I as a personal investor don't have a vested interest in the controls of any one organization. As my fortunes rise and fall not based on one particular organization in my portfolio, but how my asset manager has allocated my resources, I have less interest any one organization (except, perhaps, Charles Schwab). While creditors and depositors may have been activists in an earlier time, when they were fewer and had relatively more money, that incentive, and relative power, has disappeared.

So if my creditors and depositors no longer have a reason to monitor my actions, there is no economic penalty for undercapitalization or taking inappropriate risks. Wow, so if there's no downside, why wouldn't I take excessive risks, hoping for an excessive reward?

With this situation, many turn to regulation. But you also can't count on regulation to drive accountability. Bernanke goes on to say that government regulation exacerbates the issue, as creditors believe that government oversight means they don't have to monitor banks.

He proposes that risk is best addressed by a hybrid approach between regulation and market forces. For example, having regulation that requires minimum capital requirements, or the transparency requirements which are the driver for Basel II.

Regulation is such a weak instrument, however, as it's only effective when an organization buys into the reason for the legal requirements. However, organizations don't even achieve their OWN strategic objectives, because they always end up distracted by the budget. When the budget is the key factor in regulatory compliance, you end up hearing, "What's the minimum we have to do to pass the audit?" That approach only brings bureaucracy, inefficient processes, and heightened expenses when the next regulation comes along and the process has to be patched once again. Few organizations can keep their eye on the ball, thinking, how does this help our transparency or reduce our risk?

Ultimately, organizations are filled with people who don't want to do any more work than they have to. A combination of selfish capitalism and a maze of regulations can create the appearance of financial stability and reduced fraud, but it's foolish to believe that they can actually create a positive financial environment. Of course, he needs to pretend that we have sufficient controls, to avoid a loss of confidence in the markets. So it will last until the next profound case of investor fraud. Then we'll all talk about a few bad apples.....

Risk is only controlled within the organization. The company needs to have a positive intent, and create a culture of transparency and ethical behavior. Auditors talk about how difficult it is to test entity level controls such as "tone at the top." But nothing influences the direction and actions of a company like its leadership. The only truly lasting effect of any regulation is greater involvement by corporate boards -- more accountability by senior leadership. When the markets are primarily focused on short term gains, who is going to preserve the integrity of the institution? It has to be the board.

Global Institute for Tomorrow

2007-02-06T02:48:00.000-08:00

This week in Hong Kong, I was fortunate to meet Chandran Nair, Chairman of Global Institute For Tomorrow, a Hong Kong based think tank. Nair's goals are broad, weighing the role of business in society, governance and ethics, and leadership development from an Asian point of view.

The Asian perspective of his organization is critical to his mission. While Asia has 75% of the world's poverty, there are no effective institutions for ensuring the wealth of the commons, such as clean oceans and air. While companies give lip service to corporate social responsibility programs, the problems are much deeper than a company's public relations exercise. Companies exist to create prosperity. Society in turn decides what limits to impose on how companies behave and thus we have laws to protect the common good. Most of Asia has reached the stage where good laws are in place, but poor enforcement exists for those laws. Much of that has its roots in corruption and weak institutions, and poor governance perpetuates poverty.

Corporate social responsibility programs are useless in Asia, until basic fundamentals are met, such as obedience to local laws, avoidance of exploitative practices, and complete transparency.

I found his comments to be a strong change from the utopian feeling in Silicon Valley that the knowledge commons is as important as the ocean -- the ability to preserve each hinges on the preservation of the other. Nair thinks it's ludicrous that someone should have mobile phones but no toilets, as is common in parts of Asia. The Valley places an idealistic emphasis on access to information as an escape from poverty, but until basic needs are met, access to information brings only futility. Upon reflection, it's much easier to get a mobile than a sewer system -- all it takes is a corporation, not good government.

The problems are not a lack of capital. For example, Nair believes that basic education for all can be obtained $6b, and the US spends $8b on cosmetics but the problems are not really financial -- they're governance. (No, unfortunately he didn't give a resource for that remarkable statistic.)

In Asia, it's easy to see corporations destroying communities in pursuit of economic expansion. The sense of urgent market opportunity, combined with the fact that professionals are disconnected from the world and feel the problem is too big for me to make a difference, leads to a lack of accountability. The education system in Asia (and who am I kidding -- the rest of the world, too) pushes technical skills and breeds arrogance. Social responsibility and ethics have not been successfully integrated into a curriculum of business and market leadership.

It's particularly painful when the problem is so clear, and the bar is so low. Many corporations operate in grey areas where it's difficult to get caught abusing the community for economic gain. This can happen in areas as diverse as polluting, violating worker safety regulations, or evading tax under the name of transfer pricing.

Before organizations in developing nations get on the corporate social responsibility bandwagon, an earlier mark must be met. In Nair's words, "This is what we do as a business, how we do it, and this is where we meet every law of the land every day and everywhere we operate. And where we do not, this is what we are doing to improve our performance. And where we do not agree with certain laws, here is where we're lobbying to change them or working with regulators and civil society to find a happy medium. It's okay for companies to say that they're lobbying against a law. If it is a legal effort, then be open about it."

As Asia leapfrogs over so many technological and economic developments, it's critical that they don't skip regulatory compliance and accountability on their way to corporate social responsibility, or the gains will be hollow.

"Competition need not be the death of humility."

Presentation in Hong Kong

2007-02-03T23:57:00.000-08:00

I just returned from PMI Global Congress Asia Pacific in Hong Kong. Slides from my presentation on aligning operations with organizational strategy here.

One thing came up that I didn't expect. When I talk about aligning with strategy, one of the first things I do is talk about what constitutes a strategy, as it's an often misused term. Normally, after a talk, people come up to me and tell me that they realized that their organization's strategy isn't one, and ask for advice on how to deal with that issue.

In Asia, however, the question was very different. Several people approached me from different organizations, letting me know that their company's issue wasn't an ill-defined or poor strategy, but rather their company didn't have a strategy at all, and senior leadership didn't understand why one was needed. Many of these organizations were in markets with little or no competition, such as a state-owned enterprise or a monopoly.

As Ted Levitt noted in his seminal work, Marketing Myopia,"If thinking is an intellectual response to a problem, then the absence of a problem leads to the absence of thinking." It's exciting to see people in organizations without competitors thinking about strategy, but wow, what a tough job!

strategy and society

2007-01-08T19:16:00.000-08:00

Last year, I met a woman who has one of the toughest jobs on the planet. Nancy Brennan Lund is SVP of Marketing for Philips Morris, and is responsible for cigarette marketing in the US. Unlike the machinations of the merchants of death from Thank You For Smoking, Nancy has a delicate balancing act. Her message:

If you are a young person, don't smoke.
If you are trying to quit, let me help you quit.
But if you're going to smoke anyway, then buy your smokes from me, not my competitors!

This tension (buy my product / don't buy my product) reminds me of how social responsibility has been addressed by corporations for decades. Companies have been told by their shareholders, activists and communities that they need to use their power, money and influence to perform social good. However, generic social responsibility programs (normally spearheaded by HR, public and media relations) can cause a basic tension with the reason the corporation is in business, as they do not further the organization's mission and goals. For this reason, when cash flow tightens or leadership changes, corporate social responsibility programs can be the first to go.

Finally, some sensible voices are emerging. In the December Harvard Business Review, Michael Porter and Mark Kramer make the case that successful corporations need a healthy society, and a healthy society needs successful companies. If I want a strong workforce, it's important that my community have strong education, health care, and other factors which contribute to productive employees. In addition, a society needs businesses to create jobs and wealth, provide taxes, and to increase social conditions. A company is not in conflict with society, they are in a state of mutual interdependence.

It is that approach which allows an organization to develop the right kind of corporate social responsibility. Rather than implement a generic program which has no bearing on an organization's mission, or impact on society, a company should select issues which intersect with its core business.

Aligning with the impacts and drivers of your business means, if you're the Gap, working on improving working conditions. This activity helps to reduce some of the negative social impact of Gap's value chain. While working to reduce AIDS and HIV in Africa is obviously a worthwhile cause, its connection to the company's goals are tenuous at best.

A recent McKinsey study noted that companies must see social and political dimensions not just as areas for damage control, but also as opportunities. What are the social influences on the company's competitive context? A software company who wants to hire more women engineers would be willing to fund and support a school for women engineers.

From a risk avoidance perspective, McDonalds helps the environment by reducing their packaging waste. Toyota develops an environmentally conscious automobile, the Prius, as a strategic opportunity. In both cases, these corporate social responsibility efforts are sustainable, because they further the organization's goals, and are financially as well as socially prudent.

Of course, this approach is also not without risk. In an article about hedging political risk in China, Eurasia chief Ian Bremmer discusses potential issues with investing in education and local charities in communities where a company employs foreign workers:

If a company claims to espouse social responsibility but does not follow through, such rhetoric will backfire. What's more, Chinese communities are sensitive to what they perceive as corporate efforts to change their country according to Western prescriptions.

Corporations cannot solve all the world's problems. By figuring out which societal problems a company is best equipped to resolve, and which will further the goals of the corporation, a sustainable solution will be found.

reality based

2007-01-02T13:38:00.000-08:00

The constant refrain in the Valley is, "The bubble is back." It's not.

for hire

2006-12-30T23:00:00.000-08:00

I'm looking for a new job. I'm free, and if you're the right company in the Bay Area, someplace that needs serious change and a seasoned leader to head it up, we should talk.

Because I'm President of the SF chapter of PMI, people who don't know me well often assume I'm a project manager. While I haven't done strict project management in a number of years, I find that project management fundamentals really enhance activities which don't normally have that level of rigor, such aligning operations to business strategy, and strengthening operational effectiveness, which is why I choose to lead such a great organization.

The size of my target company is not as important as the impact I'd like to have on it. I've worked in companies of every size, in multiple industries, in most organizational functions. I'd like to continue the kind of work I've been focused on lately -- strategic alignment and operational efficiency, in either a growth or turnaround situation. In most companies that will be a COO or CIO function, centered on operations management, business growth and delivering financial results.

Take a peek at my resume and let me know if I can help you out.

you only hurt the ones you love (or, the joy of strategic planning)

2006-12-30T19:50:00.000-08:00

Successful leaders don't start out asking, "What do I want to do?" They ask, "What needs to be done?"
- Peter Drucker

Since most organizations state that strategic planning is one of the most critical things they do, why do they do it so badly?

McKinsey just published a survey of how strategic planning is performed by 796 corporations worldwide, each with revenues of at least $500 million. Of these, only 23% stated that they follow a formal strategic planning process. Not too surprisingly, those that do follow a formal process are much happier with how strategy is developed in their organizations.

But of course a formal process isn't enough. Too many organizations have a simplified notion of how to conduct strategic planning. "How about we do a SWOT analysis and then talk about our how our pet projects fit in?"

The key complaint is that the company needs to align more with the strategic plan, and the follow up is always that there needs to be a method to monitor progress against the plan. For a function that is seen as critical to the organization, why are strategic planning activities still so immature?

As Cokins noted, employees can only implement a strategy when they clearly understand it, and their role in achieving the company’s strategic objectives. Organizations are composed of strategic business units, departments or functional areas. What those groups do, what projects they undertake, compose the organization’s strategy, not the words on a strategic planning document.

At many companies, strategy is a highly abstract concept, and is not something that can be easily communicated or translated into action. But without a clear sense of where the company is headed and why, lower levels in the organization cannot put in place executable plans. In short, the link between strategy and performance can’t be drawn because the strategy itself is not sufficiently concrete.

Strategic planning cannot exist in a vacuum. Yes, let's define Mission, Values and the Vision of where we want to be. But that Vision needs to be backed up with strategic objectives, target measurements (with milestones) and projects which directly address those objectives. The organization must have transparency from the Vision to the initiatives it undertakes in each department, and each objective should be wholly addressed by the measures behind it. The goal is to create a culture where everyone understands the strategic vision, works on projects to achieve that vision, and the company moves forward.

However, successful implementation of a mature strategic planning process requires an open conversation between executive management and functional management about strategy. As projects are undertaken, tactical leaders need to share their measured results with senior managers, who must assess failures or successes appropriately. Did the outcome prove that the strategy set by the organization will lead to growth? Or does the strategy, and supporting activities, need to be reviewed and revised? Organizations where executives are accustomed to setting direction, but not accustomed to getting feedback on the results, will require a different mindset about the role of strategy in the organization. You might notice from the McKinsey survey -- C-Level executives have a much rosier assessment of how strategic planning is working than those working under them. Definitely a sign that an open conversation isn't taking place!