Bob MacDonald on Business

Sage Advice on Insurance and Financial Services from the Perennial Maverick

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America Needs a Successful Business Leader to Solve the Problems … Or do We?

January 23rd, 2012 · Business Management

The way to save America is to run it like a business (and other myths)

Since the foundation for the dynamic growth of the American economy has always been based on individual entrepreneurial capitalism, it would seem logical, when the system is challenged and needs a spark to reignite growth, to turn to a successful capitalist and entrepreneur as a leader to fix the problem. After all, who better to lead the economy out of the wilderness than one who understands how business operates and grows and has been successful in harnessing these forces? Indeed, Mitt Romney is predicating his qualification to be president almost exclusively on the fact that he has, according to his campaign literature, spent “25 years in private business, building companies, creating jobs . . . he is the only candidate with the knowledge and business experience to get the economy growing again.”

It is an alluring and tempting argument.

Yet it is interesting to note that during the 230 years of American history, scores of entrepreneurial individuals have built immensely successful corporate empires that became the drivers of the greatest economic growth in the history of the world. But power and prominence in American society; none of them was ever elected president.

The Business of Businessmen is Business

America has elected 44 men to be President. There have been lawyers (far too many), soldiers, farmers, teachers, career politicians and even one actor, but not one was a successful corporate capitalist. And it is not as if there is a shortage of potential candidates who would seem to fit the bill to be president.

The list of great American capitalists is too long to list fully here, but we all know of many: Henry Ford, John D. Rockefeller,Andrew Carnegie, J.P. Morgan, Thomas Edison, John J. Astor, E.H. Harriman, Cornelius Vanderbilt, William Hearst, Andrew Mellon, Warren Buffet, Sam Walton, Steve Jobs and Bill Gates.

All of these individuals – and hundreds of others like them – built and operated various businesses and enterprises. Despite their business diversity, they share two things in common: They all became eminently successful in a way that influenced the very structure and success of America, a success that brought businessmen like Rockefeller (at left) both unfathomable wealth and high prominence in society. The other thing they had in common is that none of them were ever elected president.

Without a doubt, all of these individuals were exceptional leaders, possessing unique vision and perspective. They knew how businesses functioned, and how they grew and most importantly, how businesses create wealth. And yet, in over two centuries – during economic times even more tumultuous than now – the country never once looked to any of them for national leadership.

Mitt Romney’s Point of Presidential Departure

Mitt Romney would have us believe that this is an historical oversight that is long overdue to be corrected. He argues that the economic situation in the country is so dire that the only way out is to elect a successful businessman (c’est moi, who else?) to lead the country. Unfortunately, history – the reality of government and the world we live in – does not support his theory. It may be that Romney could be a successful president, but if so, it would be despite, not because of his business experience.

There are those who sincerely argue and believe that government should be run as a business, but the reality is that government – any government – is not intended to be a business. A government run as a business will fail because the objectives of government are distinctly different from the objectives of business. The purpose of government is to be passionate about the welfare of all its people; the objective of business is to be passionate about the welfare of its shareholders. The leadership mentality needed to make government function properly is the antithesis of the leadership temperament needed to run a business; and visa-versa when it comes to business.

And there are other meaningful differences. The power and structure in government is bottom-up where needs and actions of the many filter up through a series of checks and balances, shared power, and divergent interests (e.g., the needs of the young contrasted with the needs of the old, and compromise). Conversely, the power and structure in business is top-down: direction, decisions and actions are dictated, not debated. A CEO in business has the focused, specific power granted by the few (shareholders) to set priorities, make decisions, implement plans and direct the actions of all others; all with the single objective of profit for shareholders.

The favored attributes of a CEO are laser focus on specific actions to increase profits, efficient input-output analysis, decisive decision making and an impatience to get things done that translates into a sense of urgency. And it is fair to judge the CEO on this basis, because the power to act in this way is vested in the CEO. The favored attributes of a government leader are a focus on the broad ideology of the purpose of government, the patience to hear the views of many, the ability to cajole diverse centers of power to coalesce to take action and the skill to build broad coalitions that are willing to work together for the benefit of the many, not the few. And it is fair to judge the government leader on this basis because the power to govern comes from the broad base below, not the few at the top.

Put in simple terms, the CEO makes decisions based not on ideology, but on a dispassionately sterile, unemotional input-output of facts and figures for the purpose of increasing profits, while the government leader makes decisions based on a broader passionate ideology of the purpose of government to serve the needs its people. The best example of this contrasting style of leadership in government can be seen in the differences between the approaches of Jimmy Carter and Ronald Reagan. Carter, a trained nuclear engineer, clearly approached leadership decisions in business style, based on a facts and figures, input-output; and then became frustrated because the people seemed to be trapped in a “malaise.” Reagan, on the other hand, had no interest in making decisions based on factual input and output; he was clearly an ideologue who communicated and stuck to his core belief as to the purpose of government. It is clear which approach worked best as a government leader.

Whither Thou Goest, Mitt?

Mitt Romney may be the best example as to why it has been difficult for a successful business leader to be elected president. Romney’s entire approach to being elected president reeks with the business approach to leadership. He receives high marks for the structure and organization of his campaign. The media constantly is contrasting the Romney “well-oiled campaign machine” against the “caravans of confusion” that seem to plague the efforts of his Republican opponents. With his willingness to blithely change positions on core issues, i.e. abortion, Romney demonstrates the businessman’s ability to focus on the ultimate objective, rather than be hung-up with ideology. Of course, the main criticism of Romney has been his inability to “connect with the people.” He says the things (he thinks) the people want to hear, but not with a passion that motivates people to believe. When Romney does try to be “touchy-feely” and passionate, i.e. reciting “America the Beautiful” in a speech, he comes across as phony.

This is not to criticize Romney; he is bright, honest, smooth, polished and clearly a very successful businessman in his brand of capitalism. But it does expose his background and training, which is sympathetic to results, not people. For better or worse, the American voter has consistently elected leaders whom they feel are concerned about them and with whom they can “feel” a connection. This is really the most significant challenge for Romney, just as it has been for other business leaders in the past.

And the Moral of the Story …

To say that a successful businessman does not have the temperament to be president, does not mean that government should be inefficient, wasteful and ineffective; or that it should be fiscally irresponsible by spending more than the revenue it collects. It is intriguing to believe (hope) that when a government has become inefficient, wasteful and is sinking deep in debt that the answer is to turn to a successful business man who has experience at downsizing, slash-and-burn, cut expenses at all costs, as a way out of the problem. And Mitt Romney is certainly the best option available.

However, we are electing a president, not a dictator. Romney’s strengths fit perfectly in the world of business, but what are strengths in business become a liability in government. The CEO can command while the president must cajole. The CEO can provide goods and services insofar as it is profitable to do so. By the nature of this approach, it means that a significant number of the people are excluded from receiving these goods and services. Whereas a government is charged with providing goods and services that are determined to be the right of all to possess. Achieving this balance in government – where all are entitled to the goods and services of government – calls for a completely different decision making process than one used in a business for profit.

A business can be successful only if it is structured and led with the single focus of producing profit and doing the most for the fewest. A government can be successful only if it is structured and led with the single focus of providing for the many, rather than the few.

 

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Romney is Getting Bum Rap for His Brand of Capitalism

January 16th, 2012 · Business Management, Politics and Politicians Gone Awry

After all, he is just doing what his kind do and doing it very well

Shame on those traitorous Republicans who have the audacious temerity to disparage Mitt Romney for his workaday career as a successful leveraged-buyout capitalist. Don’t these mendacious munchkins of political skullduggery realize that their unremitting bombasts and assaults on the source of Romney’s wealth threaten to expose the very core philosophy of the Republican Party to scorn? After all, if the Republican Party can’t unite to speak for and defend the wealthy, then who, for God’s sakes, will?

Instead of attempting to eviscerate Romney, they should be celebrating the fact that — despite being forced to start his capitalist career with a measly inheritance of only a few million dollars — he has been able to build it into hundreds of millions in personal wealth. Isn’t that what the American brand of capitalism is all about?

Thank goodness stalwart Republican leaders like John McCain, Mike Huckabee and Rudy Giuliani have the courage to answer that question, and come to the defense of Romney and their party.

Never mind that in the book Game Change, all three of them were exposed for standing at the urinals in a men’s room during a break in a 2008 Republican debate laughing and mocking Romney as a phony, only to discover that he was in one of the stalls. Now they have taken it in their hands to defend him. (It is interesting that Sarah Palin has not taken up the defense of Romney, but then again, she was not in the men’s room.)

Faint Praise Goes a Long Way

In a recent CBS News television interview, McCain, the party’s 2008 nominee, said that the Bain Capital firm, where Romney worked as its chief executive, profited from businesses that ultimately didn’t succeed “perhaps more than they should have in a fair and equal world.” McCain also claimed that attacks from Romney’s challengers, like former House Speaker Newt Gingrich and Texas Gov. Rick Perry, go against Republican principles. McCain seemed to be making the point that creating “a fair and equal world” was not a concern of Romney or an objective of Republican principles.

In the CBS interview McCain specifically stated, “These attacks on Bain Capital is really kind of anathema to everything that we believe in. We believe in job creation, and the record of Bain Capital is to take companies that would otherwise fail and restore them to some kind of viability, and sometimes that doesn’t work, but, you know, when it always works it is a thing called communism, where you keep everybody in business.”

McCain scored a double-bagger here: He not only defended Romney, but at the same time was able in insinuate that anyone who did attack Romney was probably a Communist.

But wait a minute. Aren’t you the same McCain who, in 2008, said Romney was “more of a manager than a leader”? And the McCain who told The New York Times, “As head of his investment company he presided over the acquisition of companies that laid-off thousands of workers.” For sure you severely chastised your former campaign manager Rick Davis who, referring to Romney, told the Boston Globe, “He learned politics and economics from being a venture capitalist, where you go and buy companies, you strip away the jobs and you resell them. And if that’s what his experience has been to be able to lead our economy, I’d really raise questions.”

But you really have to get in line if you’re a Republican looking to bravely face the hostile fire of those attacking Romney. Mike Huckabee was there, too. He emailed his list of supporters (all six of them) the following, “…It’s surprising to see so many Republicans embrace that left wing argument (there are those damn Commies again) against capitalism.” He turned up the heat on the Republican malcontents when he went on to explain the motivation and logic of Romney’s actions as the implementation of “creative destruction.” This is like where you go in and destroy a company in order to “save” it to create wealth – especially for you and your partners. Huckabee wrote, “It’s terrible for the workers who lose their jobs, and nobody likes to see viable companies looted and destroyed. But if downsizing can turn around a failing company, then at least it prevents all the jobs from being lost and it sets up a stronger company that can grow and start rehiring.”

Clearly Romney needs more friends like Huckabee whose comments seem more like “friendly fire” than anything else. To justify “looting and destroying viable companies” in the name of “turn around” and taking out huge profits in the process is damning with faint praise. Of course these comments come from a guy who once quipped, “Romney looks like the guy who fires you, not the guy who hires you.”

The other member of this trifecta of Romney defenders is the pugnacious and ubiquitous Rudy Giuliani. (No man has ever so successfully turned a national disaster into such an enduring cottage industry.) Rushing quickly to appear on “Fox and Friends” with the sanctimonious seriousness of a mortician at a train wreck, he indignantly said that he was “shocked” by the actions of Gingrich and Perry. Barely able to contain his burning rage, Giuliani blurted out, “I’m outraged…it’s ignorant, dumb. It’s building something we should be fighting in America – ignorance of the economic system.” With that off his chest, Giuliani goes on to describe Romney as the candidate he was least likely to endorse, but that is beside the point; what we are doing here is protecting capitalism and the basic principles of the Republican Party.

For his part, Romney has offered the succinct defense that these attackers are simply “filled with envy.”

Romney’s Attackers Just Don’t Get It

Clearly the Republicans attacking Romney don’t understand that capitalism – like life itself – is not always pretty. Capitalism is like the food-chain of life, with a distinct pecking order and different responsibilities to keep the system functioning. Romney understands this and is playing his part well.

In life, each species plays a role in the overall continuation of life; the same is true in capitalism. One the most important roles is that of a scavenger. In the ecosystem of life, scavengers are animals or fish that survive and feed on other dead or injured animals or fish. These scavengers are not usually held in high esteem, but they do have a job to do: they clean the earth of organic garbage. The lion is held in esteem as the majestic king of the jungle, while the vulture is seen as an ugly and repulsive scavenger. (Ask a child in school if they had to be an animal: Would they rather be a lion or vulture?) But the vulture is important; they don’t do anything except constantly lurk and hover above the fray looking for the opportunity to clean up the mess left by the work of the lion. But can you imagine how messy things would be if we didn’t have vultures and other scavengers to keep the earth clean of organic garbage?

The ecosystem of capitalism is structured and functions in much the same way. There are those who innovate, create, build and spread wealth. They become the kings of capitalism that make it work for the broad benefit of all. But sometimes they make a mess and when they do then there is a need for a scavenger to clean up the garbage of capitalism. Those who fill this important role become the “vulture capitalists” of capitalism. These vulture capitalists are not held in high esteem because they don’t invent or make anything and don’t add any real new value, but they perform a critical function in the preservation of capitalism. Like other scavengers, they survive and prosper by feeding at the pickings of injured or failed companies.

Sure, these vulture capitalists can be fodder for criticism. Ask any business student if they had a choice of being like: Bill Gates, Steve Jobs and Mark Zuckerberg or Carl Icahn, Irwin Jacobs and Kirk Kerkorian? All of these men established records as successful and wealthy capitalists, but it is pretty evident who the top three picks would be. The first three are the obvious lions of capitalism, while the other three (“The Raider,” “The Liquidator” and “Mr. Rifle Right”) were the vultures of capitalism.

All have the right to make a choice as to the part they want to play in practicing the art of capitalism. It is just not right or fair to pick on Romney for making the decision to become a scavenger of capitalism. He made the decision to become a vulture capitalist and he has done a damn fine job being one.

Of course, it does lead to one final question: When picking a president to lead the nation; to provide vision, to build, to create and to have concern for all, do we want a lion or a vulture?

And the Moral of the Story …

The members of the Republican Party have a right to be outraged – indeed all of us should be – over these virulent attacks on Romney as a vulture capitalist. The massive wealth Romney has been able to amass scavenging among the organic garbage of capitalism proves he is among the best vulture capitalists around and all should give him due credit. After all, while very few of us would want to have a vulture as a pet, nevertheless vultures are people too and they should have the right to do what they do without being mocked by those who have nothing but envy.

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Are Entitlement and Opportunity Mutually Exclusive to Effective Government

January 9th, 2012 · Business Management, Politics and Politicians Gone Awry

Some suggest that entitlement and opportunity don’t go together, but the reality is that one is not possible without the other.

The central issue and turning point in every presidential election since 1956 has been — for better or worse – the current state and future of the American economy. Not surprisingly, the campaign of 2012 is certain to follow that tradition.

As the Republicans scuffle their way through a messy family fight to determine their nominee, it has become apparent that no matter who emerges to battle President Obama, the imagined path to victory – for both parties – is to cast the options for American economic growth in euphemistic “either or” propositions.

Mitt Romney, the odds-on favorite to become the Republican presidential nominee, has capitalized on binary, black vs. white characterizations, as a choice  between “A government of entitlement or a government of opportunity.” This is a catchy bit of election sloganeering, but it is misleading and dangerously simplistic.

But Romney isn’t alone in this superficial campaign branding. President Obama is clearly showing that his campaign will be predicated on protecting and preserving the middle class. That’s classic Democratic shorthand for a society that protects the government programs that it believes will sustain a strong, viable middle-class is necessary for long-term economic success. I think that’s spelled e-n-t-i-t-l-e-m-e-n-t-s.

So Which is the Holy Grail? Entitlements or Opportunity? 

Voters making that important decision should first recognize that the terms “entitlement” and “opportunity” are heavily polluted; they’re being used as “code words” by politicians who invoke them to illicit a guttural response from a receptive audience, rather than a reasoned response from intelligent voters.

When Romney throws out the phrase “entitlement government” he wants people to believe that Obama seeks to take money (taxes) from the wealthy and distribute it to those who are not entitled to receive it. (This is a not-too-thinly veiled characterization of Obama as a Socialist.) When Obama uses the concept of entitlement he is coming from the belief that government has a responsibility to do for those what they can’t do for themselves. Both viewpoints are wide of the mark, and they are just as inaccurate when address economic opportunity.

When Romney speaks of offering “a government of opportunity,” his pandering message is that any act of government in the business segment, i.e. regulation and taxes, by its nature inhibits opportunity for all. On the other hand, Obama sees opportunity as something that is to be created and preserved by the actions of government. As with most emotional political debates, each side relies on an element of truth, but taken as a whole, their arguments are muddled and out of touch with reality.

Please, Just for Once, Get Real

It is unfortunate for the future of America that neither of the candidates will have the courage to argue that “entitlement” and “opportunity” are not mutually exclusive and that both are needed to create an environment for sound economic growth. Accordingly, the debate should center on specific steps to be taken in order to balance entitlement and opportunity in a way that will assure broad-based, equitable success. After all, when the history of American economic growth is examined, it is obvious that the most significant and broad-based growth has been achieved when entitlement and opportunity are balanced. Likewise, when government is canted in either the direction of entitlement or opportunity, growth has become unbalanced and stunted.

When examined objectively, Romney’s bastardization of the concept of “government entitlement” is not only disingenuous and dishonest, it is demagoguery at its worst. Romney appeals to the most base and ignoble of voter instincts; that people are receiving benefits from the government that they are not entitled to and that “the rest of us have to pay for this largesse.” In this characterization he includes “entitlement programs” such as Social Security, Medicare, Medicaid and other government benefit programs.

Entitlements Have Helped Create a Stronger, more Vibrant America

Since every worker pays into the Social Security program over their entire working lives, shouldn’t they be “entitled” to receive the promised benefits when they retire? Medicare is another “entitlement program.” Again, every working person – via payroll taxes – contributes to the program their entire life, including after retirement. Shouldn’t this entitle them to receive the medical benefits promised?

One of the largest government “entitlement programs” started with the implementation of the Servicemen’s Readjustment Act – referred to as the G.I. Bill – passed in 1944 and still in effect today. This program entitled veterans to receive government grants for college and vocational education. It also provided many different types of loans for returning veterans to buy homes, and start businesses and farms. During the ensuing years the program has come to include other veteran benefit programs created to assist veterans of subsequent wars as well as peacetime service. The government (taxpayers) covered the cost of this program; so does that mean the veterans are not entitled to receive these benefits?

The reality is that the entitlements of the G.I. Bill stimulated the economy after World War II and created “opportunity” for hundreds of thousands of veterans to receive a college education, buy a home and start a business. Who among us does not have a grandfather, father or even ourselves who have benefited from this entitlement program?

The American Way

But the concept of an “entitlement government” goes far beyond financial issues to include basic human rights—rights for which we depend on government to protect. Those who argue against an “entitlement government” really suggest that all citizens are not entitled to receive certain benefits and rights from the government. But aren’t all citizens entitled to a basic education, to know the food they consume is safe, to basic health care, to equal protection under the law; and are they not entitled to protection against predatory business practices? Doesn’t government guarantee that our rights are not denied because of race, gender, sexual orientation, or disability? Are these the fundamental entitlements that Romney claims “corrupt the American spirit”?

When it comes to the idea of creating a “government of opportunity,” there can be the same transposition of the meaning of opportunity. Does a “government of opportunity” mean a completely hands-off government that allows a laissez faire environment where it is every man for himself, the survival of the fittest and buyer beware? Or does it mean that a government of opportunity is one that proactively insures that everyone is entitled to the same equal opportunity to fail or succeed?

From its inception, the American government has had a history of partnering, of supporting and creating an environment that encourages broad-based economic opportunity. Government has been involved and instrumental in the development of every industrial and technological advance that has resulted in the economic success of this country, and it should continue to be.

The fatal fallacy in today’s political debate over the role of an “opportunity government” is that it is obsessed with saving the past, when it should be fixated on creating a more viable economic future. Opportunity is not defined as eliminating regulations and taxes or passing out billions of dollars of bailout money in an effort to save dying industries. These ideas are at best just tinkering around the edges. What is needed, but is not being debated today, is how the government can participate in the gestation of a new type of economic opportunity that will create the jobs of the future.

For example, virtually everyone accepts that developing technologies to create abundant, cheap, clean and reliable energy is the great global need and opportunity for of future. The country that can develop this energy technology will enhance its own energy and national security, while creating millions of jobs for its own economy. As our government did in the development of manufacturing, steel, railroads, transportation and technology itself, it should focus on exploiting this opportunity. And, as it has in the past, this opportunity should be balanced in a way that offers all its citizens freedom, economic security, growth and human fulfillment. We are entitled to no less.

And the Moral of the Story …

The next time some pandering politician suggests that our choice in government is one of either entitlement or opportunity, know that this person does not understand how our government has worked most effectively in the past or that they are being blatantly disingenuous and dishonest. Either or options always appear simple and clean on the surface, but the reality is that life and the function of government is much more complex.

The American government has always been most effective when it has carefully balanced the entitlements of its citizens with the opportunity of economic achievement. It is this philosophy that enabled America to achieve the longevity and success it has as a nation and it is the notion that will continue to do so in the future.

 

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