Bob MacDonald on Business

Sage Advice on Insurance and Financial Services from the Perennial Maverick

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The Morons and the Mosque

August 30th, 2010 · Business Ethics, Business Management

How Weak Political Leaders Use Fear to Fan the Flames of Bigotry

I have been reticent to write about this whole New York “hallowed ground” mosque issue, because it is such phony issue. My belief has been that it would succumb to the weight of its own dimwitted stupidity, but I guess I was wrong.

In reality, the issue is not anti-Muslim, it is anti-American. The idea of blocking the development of a mosque (actually, it isn’t even a mosque, but a Muslim cultural center) in the area of the 911 attacks is the very antithesis of what America has been and should be about. It is the wrong message to send to our friends, let alone our enemies.

However, the way some of the “leaders” in this country have taken up the mosque issue deserves some examination because it provides a good learning lesson about life and business. Those boneheaded, moronic leaders who claim a Muslim center should not be allowed in the general area of ground-zero “out of respect for those killed in the 911 attacks” are making a cynical appeal to the dark side of fear and bigotry.

Fear is the weapon of last resort used by weak, unimaginative leaders. In fact, using fear as a leadership technique is the debasement of leadership itself. Fear is what you invoke in your  enemies (and competitors), not those you seek to lead. Anyone who seeks to use fear to establish credibility as a leader is deserving of only one thought – loathing! Leadership based on fear is a folly that always ends in failure.

Strong leaders, on the other hand, thoughtfully work to alleviate the apprehensions of followers since they realize that fear brings paralysis to performance. Fear confuses, it does not clarify. Fear narrows the vision of those affected and that inhibits solutions to broader issues. As Franklin Roosevelt, one of the great leaders of the 20th century noted in his first inaugural address to a panicked nation in the grips of a great depression, “The only thing we have to fear is fear itself – nameless, unreasoning, unjustified, terror which paralyzes needed efforts to convert retreat into advance.”

I don’t want to dwell on the mosque issue, except to point out that those moronic, political leaders who incite fear and paranoia for personal political gain make a mockery of America’s Constitutional (and First Amendment) promises of religious freedom and tolerance:

“We hold these truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness….”

Certainly, we must respect the feelings and emotions of those who lost loved ones in the 911 attacks, but we should not do so by sinking to the mindless inhumanity of the attackers. Let’s not forget that not only were Christians killed in the attacks, but so too were Jews, Hindus and yes, Muslims. For political leaders to focus fear on one faith not only violates the principles upon which America was founded, but gives credibility to those in the world who seek to paint America as anti-Muslim.

Wordsworth wrote, “What is fear but voices empty? Whispering harm where harm is not. And deluding the unwary, till the fatal bolt is shot!”

It is discouraging to see that rather than seizing upon the opportunity to show the world that America is safe, secure and strong in its belief of tolerance for diversity of belief, many of our political leaders stoop to fear mongering; only to satisfy their own self-serving, cynical ambitions. So, what else is new?

And the Moral of the Story …

It is bad enough that we have to deal with this type of shallow and superficial leadership from our politicians, but it’s even more devastating because it has direct parallels in business; maybe even your business where you have to deal with it directly in your career.

There are far too many business leaders who believe that fear and intimidation are effective tools of management. They rely on these primordial instincts in an attempt to bully their employees into following their dictates, rather than building compassion and parallel interests to earn their loyalty. These leaders think of fear as motivation. But what they fail to realize is that employees can be led to a destination, but they can’t be sent. Worse yet, fear is contagious; it spreads like wildfire through businesses. Soon, fearful employees become unhappy employees who do only what has to be done, not what needs to be done. This is the path to ultimate disaster and business failure.

If you work for one of these fearful and intimidating leaders, it is important to recognize that such a philosophy is the refuge of the insecure and weak. There is no reason for you to fear such weakness. The reality is that those who use fear as a tool do so because they are manifesting their own insecurities. As Frank Herbert, the critically acclaimed American author has written, “I must not fear. Fear is a mind-killer. Fear is the little death that brings total obliteration. Where fear has gone there will be nothing. Only I will remain.” That’s not a bad philosophy for all of us.

From those political leaders who have shown their insecurity and lack of any real character, we should take a lesson of what not to be. As a strong leader the only fear we should fear is that we fall into the trap of feeling the need to use fear to lead.  And, that would be a moronic thing to do!

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What is Really Wrong with the Economy?

August 22nd, 2010 · Business Ethics, Business Management

The “Hair of the Dog” is Delaying our Economic Recovery

Have you ever been out on the town and had way too much to drink? So much so that when (if) you wake up the next morning you feel so bad that no matter what you do, it seems the only way you will ever get better is to die? Well, that is what happened to our economy. The reality is that there is nothing wrong with the economy. It is simply temporarily reacting to the overindulgent abuses we’ve heaped upon it through our irrational misbehavior.

Don’t get me wrong, drinking alcohol is not a bad thing. Doctors even suggest that moderate consumption of alcohol (especially red wine) can be good for one’s health. But drinking too much can often be a problem. That is the reason why regulators require alcohol companies to put “drink responsibly” in all their ads. If we were to follow that rule and drink responsibly (we may not have as much short-term fun), we would never have to deal with the pain of the dreaded hangover.

If those who impact our economy – business, government and consumers – had been constantly warned to “act responsibly,” our economy would not be suffering the painful hangover it is now. But unfortunately the hedonistic message was to “party”—not to be responsible.

In the aftermath of acting irresponsibly — both fiscally and drinking immoderately — we are tempted to speed the return to normalcy by a shot of the “hair of the dog.” In a drinker’s parlance, that means consuming alcohol (typically a Bloody Mary) to reduce the pain of a hangover. For politicians, the superstition is to pump money into the economy to make things feel better. In either case, however, the result is more wishful thinking than established fact.

Economics 101

The cardinal rule among economists is that availability of capital is essential to the growth of an economy, and in difficult times, some reasonable amount of capital infused into the economy can jump-start and stimulate a recovery. Politicians, who need a strong economy to maintain they place and power, are only too happy to follow this rule. The problem is that in perilous times, such as the current recession, politicians often become drunk with power, and they can infuse to excess.

For most of our economic history the vehicle used to infuse capital for growth or to withdraw capital from an overheated economy has been the tax system. The theory was that reducing taxes would leave capital in the private sector that would be used to stimulate the economy. The belief was that, even with lower tax rates, the new growth would create revenues sufficient for government to cover the cost of the tax cuts. By the same token, it was believed that when the economy was overheated to an extent that caused damaging inflation, the solution was to withdraw capital – through higher taxes or increased interest rates – from the economy.

The first actions of Presidents Kennedy and Reagan – a Democrat and a Republican – both of whom entered office with the economy in the doldrums was to push for tax cuts. When Richard Nixon was in office he sought to control an unstable economy by raising taxes. President Carter attempted to control runaway inflation by allowing interest rates to rise to over 18 percent. To some extent, each of these actions achieved its objectives.

Then came the 1990s and the new millennium when the politicians came to believe that if a little capital infused into the economy stimulates growth, then a lot of cheap capital could produce boom times forever. This worked for awhile, but the “dot-com” crash of 2000 should have been the canary in the coal mine. It was, but we didn’t listen.

In an attempt to continue the party time attitude, the Bush administration, with the complicity of Congress, pushed through the largest tax cut in our history and reduced the cost of capital to virtually zero. (Worse, at the same time huge amounts of capital were being artificially pumped into the economy by the costs of two wars.) For a while these actions certainly created party time for the economy. But just as too much booze turns party time into pain time, so too the actions of government to make too much cheap capital available turned good times into bad times.

The actions of government allowed – indeed encouraged – businesses and consumers to take irrational actions that could not be supported by the reality of the core economy. In essence, the good times were on borrowed time, because they were supported by borrowed money. Companies and consumers went into hyper growth and consumption, not because of capital they had earned or saved, but on borrowed money. Banks made irrational loans because the government continued to dump virtually free money into the system and in many cases even guaranteed the loans. Companies made irrational investments because they lost respect for the value and cost of real capital. Consumers made irrational purchases because of the assumption that their investments (401K) and the “equity” in what they buy (homes) will multiply ad infinitum. The party had to and did end. And just as binge drinking leads to a painful aftermath, we now know that binge borrowing does the same.

The Politicians Continue to Chugalug

Companies and consumers seemed to have learned their lesson, but unfortunately the government has not and that is the real reason we continue to be mired in a sluggish economy.

A hangover is debilitating and painful, but in time our body will recover. That is, unless we continue to indulge in the same things that made us sick in the first place. When the party came to an end, the reaction was not to let the economy heal itself, but to bail out the most egregious offenders and to pump more capital (aka, stimulus) into the system. This action dulled the pain of the hangover, but is a short-term solution that does not repair the core of the economy.

People are worried about the value of homes. They are wishing and waiting for them to return to what they were before. The have a long wait. Today’s values are real. The “values” of yesterday were artificial. The fact is the value of today’s homes are substantially higher than they were 15 yrs ago. If the economy had been allowed to naturally support itself and grow organically, we would be more than satisfied with today’s values. It is like the old story of the guy or gal we met in a bar who seemed so attractive when viewed through beer-goggles, but are what they are in the bright light of reality.

The same story is true for all elements of our economy. Instead of the business and government stimulating real growth through innovation and creativity, i.e. alternative sources of energy, government, business and consumers took the easy path to short term fun and now we are all paying the price.

And the Moral of the Story …

We’re not all are paying the same price. The important moral to learn in this economic calamity is not the price paid by those companies and consumers who have failed, but rather those who have survived and even thrived. The bulk of the companies and consumers who are suffering now are getting what they deserve. (The sad story should be reserved for those who have been harmed through no fault of their own.)

It you look at companies and consumers who have survived – even done well – in this economy they are those who did not fall prey to the excesses of the times. They did not take risks that could not be managed. For the most part, they financed their operations and growth with retained earning and reasonable leverage. They did not make loans to consumers with questionable credit. They did not buy a home they did not need or could not afford, simply because they could. They did not drain the equity in their home to buy things they did not need. They did not borrow money to make money.

In short, they didn’t over indulge. They acted responsibly. It is a good lesson for us to learn. There is nothing wrong with our economy that a little “rational exuberance” won’t cure.

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Live in the Past and be Lost in the Future

August 16th, 2010 · Blog, Business Ethics, Business Management

How Bureaucracy Sabotages Corporate Success and What You Can do to Avoid It

The most deleterious inhibitor of consistent achievement by an organization is an entrenched bureaucratic culture. Like a creeping malaise that builds and strengthens over time, bureaucratic management, with its insincere, insecure, incompetent and incoherent actions, creates an unhealthy and unhappy work environment that consistently destroys corporate value and disrespects the worth of the individual.

It is unfortunate – but true – that bureaucracy starts small but once it has tainted the culture of an organization, it begins to erode and decline into the depths of failure.  There is little likelihood it will stop until the very soul and success of the company has been destroyed.

The ruinous results permeate every fabric of the business. Bureaucracy suffocates innovation, challenge and change, but perhaps surprisingly, that is its purpose. Whereas the entrepreneurial culture is designed to seek out and challenge the future, the bureaucracy is meant to preserve and protect the past. And, it does so with a malignant vengeance.

In the Beginning . . .

When a company has achieved success, it is natural to want to preserve that success. But the problem is that success, like fame, can be fleeting. The fallacy of bureaucracy is its belief that the environment in which success was achieved can be bottled and frozen in time. But, of course, that is not the case. Success is maintained by responding to constantly shifting conditions and facing new challenges. That’s where bureaucracy loses it way. Its objective is to maintain the status quo, a feat akin to stopping the march of time.

For a young organization, the desire to achieve success is so all encompassing that when it is achieved, the desire to protect it is difficult to resist and this may unwittingly plant the seeds of bureaucracy. Once they are sown, they grow like a smothering buckthorn, producing results that are the opposite of what was intended. Protecting the past imperils the future.

The ability to maintain the success of an organization is more challenging than achieving success in the first place, but it is possible. To do so, the leaders of an organization must take a different approach to the future. To do this the leaders must re-define the definition of “success.” The mentality of the leaders must be that the real objective of the organization is constant and consistent achievement. Success should not be viewed as the objective, but simply the score card for what has been achieved.

Focusing on constant achievement forces the organization to be responsive to change and, in fact, seek it out. There is no room for bureaucracy in such an organization because it is designed to preserve what has been already been achieved, not support new milestones yet to be accomplished. Seeking constant and consistent achievement recognizes that if you are not making history, you are history.

The Entrepreneurial Culture is Everything

It has always been my belief that the success of an organization is ultimately determined by the type of culture and environment in which employees work. Companies that remain vibrant over time create a culture that stimulates, recognizes and rewards employee effort and permeates the entire organization. But here’s the sticky wicket: the culture of an organization is itself, defined and determined by the beliefs and actions of executives at the top of the organization. Success is from the bottom up, but culture is established from the top down.

If the objective of management is to preserve success achieved, this often means an environment that is negative and resistant to any change. Employees working in such an organization often become downtrodden and unmotivated.

As Daniel Boorstin wrote in his book The Discoverers (Random House, 1983) “The great obstacle to discovering the shape of the earth, the continents, and the ocean was not ignorance, but the illusion of knowledge.” Bureaucratic managers who create and preside over a negative corporate culture fail to discover the value of a positive entrepreneurial culture, because of the illusion that what they are doing is the way it should be done.

Examine any company with a negative corporate culture and you will find a bureaucratic management style based on systems and procedures, not performance and progress. The difference between a healthy work environment and a bureaucratic one comes down to the “mindset” of those charged with managing the company. The bureaucratic manager has a “fixed mindset,” believing there is only one way to achieve results. Their aim is to make any alternative or creative thinking as unrequited as an Orwellian “thoughtcrime.”

Bureaucratic managers feel safe and secure with system and procedure. They believe it is easier to preserve success by following a rigid system or set procedure than it is to deal with the vicissitudes of seeking performance and progress. They may be right, but history shows that a fixed mindset in business as to the way things are and should be is a sure path to decline and failure. It was Leon Tolstoy who said (1856), “The people who bind themselves to systems are those who are unable to encompass the whole truth and try to catch it by the tail; a system is like the tail of truth, but truth is like a lizard; it leaves its tail in your fingers and runs away knowing full well that it will grow a new one in a twinkling.”

And the Moral of the Story …

When the success of an organization is defined by what has been accomplished, instead of what can be accomplished, the door is open for bureaucracy to take hold. The only way to defend against bureaucracy and its crippling impact on the performance of an organization is to re-define success.

Success should not be viewed as a place in time or a fixed target, that once achieved is to be defended to the death. Success should be defined as a constant and consistent effort to achieve. Success must be something to build on, not rest on. If such is the attitude and approach of leaders then a culture of achievement will be built and maintained. Bureaucracy will be banished and ultimate and lasting success achieved.

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