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January 2010

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EthixBiz Buzz
Ask Dr. EthixBiz: Move Your Money
EthixBiz Review: Ahead of the Curve: Two Years at HBS
Gill's Benchmark Ethics: Do the Right Thing
Tell Dr. EthixBiz About Health Care: Responses to the Buzz item on Health Care Costs

EthixBiz Buzz

Dr. EthixBiz On the Loose

• Jan 20: American Society for Quality
• Feb 19: Richmond Rotary Club
• Feb 23: Institute for Managerial Accounting

Anastasia Kelly: You Go Girl!
Did you notice in the NY Times and WS Journal that AIG's general counsel Anastasia Kelly left the company last month in protest against the government's attempts to curb her (and others') executive pay? She collected some $2.8 million in severance pay on her way out the door after her three year stint helping lead AIG into its pit where only a bailout of $182.5 billion by US taxpayers could save the company. For several years now she has also collected about $150,000 per year for serving on the board of directors for Owens-Illinois. Rough life. Impressive personal values and ethics!

A.I.G. Bailout Update
Independent research firm Sanford C. Bernstein reported last month that AIG has a shortfall (previously denied by AIG leaders) of $11.9 billion in reserves supposed to be set aside to pay claims in its property and casualty business. Observers, including the government, are now acknowledging that AIG may never be able to repay all the $billions it owes to taxpayers. Report author Todd Bault pointed out that while AIG failed here, the claims-paying reserves of other insurance companies have been growing. (NYTimes, 1 Dec 09). AIG did manage to set aside enough cash to pay its executive salaries, bonuses, and severance payments, of course. Industry leaders in that one arena at least.

Guy Hands On Executive Comp & Globalization
Guy Hands, founder of buyout firm Terra Firma Capital Partners focused his annual end-of-year letter to investors on two topics this year. First, on executive compensation practices for bankers: "It cannot be right to continue with a system which allows risk to be taken in the knowledge that if things go right, bankers will take on average 60% - 80% of the profits genthrough compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs. As the Governor of the Bank of England's December Financial Stability Report put it: ‘If discretionary distributions had been 20% lower per year between 2000 and 2008, banks would have generated around 83.2 billion euros of additional capital --- more than provided by the public sector during the crisis."

Second, on the impact of globalization: "We need to question the accepted wisdom that a truly global market benefits all citizens in western developed nations. Indeed, I suspect we will, in time, see globalization as the driver that delivered a massive transfer of economic power from the west to the east. Over the long term it will result in an ever growing class of permanent poor being created in the west. I also suspect new graduates will find it increasingly difficult to get the jobs for which they are qualified. It is the young and the poor who will pay the cost of global human resources competition." (WSJournal, 30 Dec 09).

Exciting New Health Insurance Provider
SeeChange Health (www.seechangehealth.com ) is a brand new company on the scene. They offer "value-based plans" which reduce health care costs by encouraging individuals to play an active role in the management of their health. SeeChange offers "benefit plans with financial incentives, such as reduced co-pays and lower deductibles, to encourage adherence to recommended preventive care and condition specific actions. Preventive health actions are assigned and tracked at an individual level. Individuals with disease states such as pre-diabetes, diabetes, asthma, and heart disease receive specific compliance requirements based on their medical condition." Let's hope they are successful and that hundreds of other creative, entrepreneurial efforts spring up.

Buy the Book It's About Excellence: Building Ethically Healthy Organizations

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Ask Dr. EthixBiz

Move Your Money

Dear Dr. EthixBiz:

I have to blow off some steam somewhere so you get it. I am so angry about the big bonuses the banking executives are awarding themselves even after so many of them were in charge as the banking collapse took place last year and all the bailout money was necessary. I have read in your EthixBizine about the Toyota executives and also those at places like Whole Foods, Costco, and Southwest Airlines who show restraint even when their companies are doing pretty well. What is Obama's "pay czar" doing anyway? So many people like me in the banking industry have been laid off or taken salary and benefit cuts. I worked hard and performed well for my bank for years. To watch my old bank struggle, to think that I and my colleagues could have helped rebuild it, and now to read about our CEO's bonus --- I could go crazy.

- Really Ticked Off

Dear RTO -

I can relate. My own wife got laid off a year ago by one of the troubled giant banks after decades of great service to her employer. It seems that Obama's pay czar Kenneth Feinberg has been trying to reign in executive compensation at the companies which have received "exceptional assistance" from the government (i.e., TARP funds). AIG has been especially resisting Feinberg's limits and gotten around them with $165 million in "executive retention" payments last March, with another $198 million scheduled for this coming March. Twelve out of the top twenty-five execs at AIG have quit over this unacceptable pay! And we have seen several of the big banks scramble to pay back the TARP funds early so they can not miss a beat on their uncontrolled executive payouts.

RTO, you have three weapons: your vote, your voice, and your money. That's about it. Give your vote only to politicians who represent your values and policy preferences. Raise your voice among your friends, colleagues, neighbors, and family to increase people's awareness and persuade them to join you in supporting a better way. And finally, move your money to banks and merchants who practice the ethics and policies you believe in. Try to lobby your church, your club, your employer, your city to also close any accounts with the businesses you do not believe in and push them to do their banking and other business with ethical, responsible companies. Don't sell out on this for the sake of convenience. This is the free market: give your money only to companies whose products, practices, and values you believe in.

--Dr. EthixBiz

Remember: Everybody has a right to "Ask Dr. EthixBiz."
Send your questions and hard cases to zine@ethixbiz.com

The EthixBiz Review

Dr. EthixBiz strongly recommends that all business managers and leaders commit to reading one book per month throughout their careers. New material, classics, novels, histories . . . read something that broadens and deepens your thinking.

Ahead of the Curve: Two Years at Harvard Business School

By Philip Delves Broughton (Penguin, 2008)

Philip Delves Broughton attended Harvard Business School for two years, from 2004 to 2006. What he has done since graduating with his MBA is a mix of journalism and modest entrepreneurship if I understand correctly from his web site (www.philipdelvesbroughton.com ). What he did before the MBA was be born in Bangladesh to Church of England missionaries, be raised in the UK and graduate from Oxford, and work as a journalist for ten years, including a nice gig as Paris bureau-chief for The Daily Telegraph.

Broughton was one of about 900 entering HBS MBA students in fall 2004 (out of 7000 or so applicants). Ahead of the Curve is a wonderfully-written account and interpretation of the experience. So many big business leaders (like Enron's Jeff Skilling) and even political leaders (like President George W. Bush) have been Harvard MBAs. Broughton had a wife, Margret, and, by the time he finished, two small children during the experience. The two years cost him about $175,000. In the big job search at the end, Broughton failed to connect in the usual HBS way with a high paying finance, technology, or business leadership position but he seems to believe the experience was worth it nonetheless.

Broughton gives great descriptions of the diverse international group of students in his class, most of them incredibly driven and ambitious. He describes the curriculum --- challenging financial material, case study methods throughout, first year core, foundational courses, second year elective specializations. His accounts of faculty member personalities, styles, and contributions are wonderful. I especially enjoyed reading about what he calls the "guru" --- strategy expert Michael Porter. Porter's course showed Broughton "that business was not the sole driver of a society and that it was possible to come out the other side, to have an MBA, to put competition at the center of one's beliefs, and yet not be a completely heartless scumbag" (p. 214).

It was interesting to get Broughton's take on the way the Myers-Briggs Temperament Analysis was used along with a personal development exercise called "My Reflected Best Self." Some insight accompanied by modest groaning, chafing, and skepticism.

Broughton's writing is sometimes pretty hilarious: "The company presentations on campus slid me into an even deeper funk. The low point was a presentation by a big publishing company from New York, led by a large woman in a blousy suit emblazoned with orange flowers. She had the complexion of a forty-a-day smoker and a sour smile, and spoke in such a stilted corporate way that I imagined her getting home each day and unleashing her frustration with a string of violent expletives and punches to the kitchen wall.

‘We are passionate about our work,' she said in a listless monotone. ‘Passion affects everything we do.' The fruits of this passion were laid out on a table before us: financial information, educational and business books, some of the most sleep-inducing magazine titles I had ever seen" (p. 211).

Broughton concludes with some personal reflections and recommendations on MBA education. Visit his web site to browse through his substantial collection of reviews in all the major publications. It's a great story about a great and influential institution --- but by no means the only or the best way to get a good MBA education.

—David W. Gill

Gill's Benchmark Ethics

Do the Right Thing: The Fifth Trait of a Healthy Culture

An insatiable hunger for both "doing the right thing" & "doing things right."

Benchmark Ethics is taking ten months to describe ten basic characteristics --- "core values" --- of healthy corporate cultures. The fifth characteristic or value is the unbreakable habit, the unquenchable desire, the ironclad resolve to do the right thing and to do it right.

This fifth characteristic shares the passion and activism of the first one, "loyalty." Loyalty was about passion and tenacity vis-à-vis the core mission, vision, and team. What the fifth trait adds is a passion to do the right specific things in pursuit of that mission and vision. Everything we do, we want to do it because it counts, because it is right. And we want to do these things in the right way --- with excellence and ethics.

The second, third, and fourth values, the ones between "loyalty" and "do the right thing" may feel more passive but it is best to think of them as "preparatory" for doing the right thing. Openness, responsibility, and freedom are the three core values that create the capacity in our organization to best see what really are the right things to do, what really are excellent and ethical. Without openness/teachability, responsibility/accountability, and freedom, we cannot figure out, we cannot see, the right way to do the right things.

Ethics and Excellence Go Together

The classical term "justice" (Greek, dikaiosyne), much like the term "virtue" (Greek, arête), suggests both "doing the right thing" and "doing it right," both the "ethics" side and the "excellence" side. This is a close, intimate combination, best not seen as two different concepts on our list. From this perspective excellence (in the sense of high quality) is a moral/ethical imperative — and ethical integrity/virtue is a core aspect of all individual and organizational excellence. You really can't have one without the other.

You can score 100 on an examination (excellent!) --- but if you cheated (unethical!) to achieve that result, it is no longer excellent. You can set the standard for excellence and quality in a product --- but if customers are harmed or mistreated, or the natural environment is plundered or polluted in the process, the whole thing no longer represents true excellence.

On the other hand you can show real care and concern for a boss or customer (nice ethics!) --- but if you fail to deliver the quality of service or product promised, your ethics (not just your excellence) is compromised.

Do you see why the two have classically, traditionally gone together as an inseparable combination? Why did we ever think they could be separated?

Detailing Out What is Right

This cultural trait or core value really stands at the heart of any great business. It is about how we spend our time, what we do, what we focus our detailed attention on throughout our day on the job. Why do we want to be teachable, responsible, and free? So we can figure out and carry out the right things, the things that will be critical in helping us fulfill our mission and vision.

This can't just be a characteristic and a passion of top management, though it must start there. It needs to be embedded throughout the organization. Leaders need to talk it and walk it themselves. They need to describe it, recognize it, praise it, and reward it if they want everyone to buy into this habit. And when any member of the team, no matter what their role or title, has a suggestion on how we can do things even better than we do at present, they need to be heard and rewarded.

Don't you love the way Toyota is so committed to excellence throughout their organization that any employee can (and must) pull the cord and stop the assembly line if they see a defect. Toyota creates a culture, a team, with a passion for superior quality at every point.

What is the right way, the best way, the ethical way to do marketing, or research, or sales, or design, or testing? It is the practitioners and veterans in each of those practice specialties that know best. It is in motivating, unleashing, and rewarding their passion to do the right thing the right way in their specialty area that the whole company will take things to the next level in the industry.

Mediocrity Is Easy

Mediocrity is easy; excellence is hard work, and there are many temptations for short-cuts. But a deeply engrained habit of searching for excellence and high ethics always inspires, both inside and outside an organization.

Harris & Associates (Concord CA) captures this double message in its six core values by making "integrity" their first value and "quality" their second. These are synonyms for "ethics" and "excellence." Starbucks is another company making both ethics and excellence core values in the culture. Cisco, Chevron, HP, Trader Joe's, In-N-Out Burger, Costco . . . the list is long: these are businesses that are excellence leaders and ethics leaders at the same time. Nobody, no company, is perfect, including these companies. But these companies care about it. They and their leaders have a simultaneous passion for excellence and for ethics.

It starts with a leadership that is not satisfied with second-best quality or compromised ethics. This is where we can let our perfectionist streak run wild. We aim as high as possible and go for it.

-David W. Gill

© 2010 David W. Gill.

Print Version

Responses to the Buzz item on Health Care Costs
(EthixBizine, December 2009)

Some day Dr. EthixBiz will have time to create and tend a blog but for now here are three interesting responses to my suggestion that some entrepreneur might be able to match European per capita health care coverage costs (much less than US per capita costs) by offering European style/level of health care in the US market. I called it "EuroCare." Thanks to Michael, John, and Neil (below) for good ideas.

Michael Jeffery:

I enjoyed the concise facts about health care in the US. My limited "encounter" working in the Health Care industry illuminated how structurally broken it is.  I don't have answers, just observations. The current system only pays providers based on "services" delivered.  For example, if you're a provider (doctor, nurse, clinician, etc.) and find innovative ways to keep people healthy thus avoiding costly care and suffering (as Ben Franklin said "an ounce of prevention is worth a pound of cure"), you don't get paid. This is the "what you don't provide, you don't get paid for" model.

Another, is the sophisticated "pass-the-buck" model where everyone eventually gets care (unfortunately sometimes later, which increases the cost/suffering), but if they can't pay, the costs are allocated to others creating a shell game the consumer (and providers) can't figure out the true costs of care. I wouldn't be surprised if the costs of the middle layers in the health care value chain represent 25-40% of the total cost per person in the US. The current health care reform in congress doesn't address the value chain or payment model, which understandably is scarier because it represents fundamental change for the whole health care industry.

John Adeney:

Your statistics on health care are interesting and I agree that in Germany we do have one of the best health care systems. And like everywhere they are also fighting with costs. One hidden cost in our health care, however, is education. The US doctor pays for his education and comes out with a huge debt. This debt then has to be paid for by the patients. The German doctor gets educated for free. Does the cost of education then show up as part of the German health care costs? To be fair to any system of health insurance in the US, there would have to be something extra in the budget to get the doctors out of debt after they start practice.

Also it would be interesting to see the statistics in the US divided up into middle class and above and lower middle and below. I sort of suspect that things look pretty good for the middle and upper part of the society and pretty dramatically bad for the lower part of the society. (and how does drug abuse affect it all?) The problem will be that the upper part of the society will not want to give up their superior position in order to improve the lot of the lower part of society which they consider, in part, to be criminal. The German society is in general more flat and somewhat more homogeneous and it is therefore easier to provide good care for (almost) all.

So, I am a little bit afraid that "EuroCare" might not be so easy. However it is also not such a bad idea.

Neil Pecha:

Europe and Canada have less immigration and therefore less high-risk babies--this is a contributor to better outcomes. As for life expectancy, more food, less exercise, and higher stress is decreasing American's life expectancy by 1-3 yrs. The best comparison for life expectancy between Europe and the US is to use the life expectancy of US whites (while that may not be politically correct, the fact is US whites better mirror the situation in Europe -- the whole apples-to-apples comparison thing). It happened to be 78.3 in 2002 according to the CDC, the same as the much ballyhooed and long lived Japanese and longer by several years during that year. Might be good to get the stats from the more recent years and evaluate. Unsure where exactly the numbers are.

Americans consider it a right to frivolously sue for malpractice.  This is a problem with the legal system here, as well as the culture, not the health system.  How much does this drive up costs?  I don't know for sure, but I bet it is in the neighborhood of 20% or so.  I'm sure many people have tried to figure it out, but it is impossible to calculate the hidden cost of fear from the medical practitioner.

The cost of meds is higher here, a result of patent protection law.  I have mixed feelings about the US pharmaceutical companies, but Americans are paying real money via health expenses to real companies that develop some 90% of all the new drugs in the world, which take advantage of all this hard work.  Is this registered as a health cost?  You bet.  Is it good for the world?  You bet.  There's another 10-15%, probably.

The crude barometer of life expectancy as a measure of a system's success is incapable of measuring the quality of those lives.  Such as, how long does one wait in these countries for a hip replacement or a cataract surgery?  There is real suffering going on there.  Not life threatening, but suffering nonetheless. Can't measure it.

Finally, where does the best medical research in the world occur?  Yup, the US.  What helps drive it?   Indirect expenses for medical care.  Think about university med centers.  Free, or minimal reimbursements, for the indigent.  Cost passed on to paying companies then to consumers via higher insurance rates.  The money made pays for the docs to do research.

When you total up all the extra expenses to care for Americans, it probably comes in pretty close to these numbers.  If it is higher, the rest of the world should thank us for improving the health of humans all over the globe.

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