All Posts in Business Ethics

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Scary news this week.

No, not Ebola, although that’s scary enough. Ebola, while extraordinarily lethal, is, fortunately, not particularly contagious when compared to other viruses.

Not that Ebola should be trivialized. Somewhere between “there’s always something” and panic in the streets is a reasonable reaction. I’m concerned, not that there’s anything I can do about it.

Anyway, the most likely outcome of the Ebola outbreak will be large-scale tragedy that mostly happens to Other People Far Away From Here.

The outcome of this week’s scary news, in contrast, affects us all every day.

The scary news? According to Bloomberg’s Lu Wang and Callie Bost, in the aggregate the companies that make up the S&P 500 are going to spend 95% of their earnings on dividends and stock buy-backs.

By itself, this statistic is less dire, or at a minimum more ambiguous than most analysts make it out to be.

Areas companies “should” spend their money (should being as much a moral as business proposition) such as labor, R&D and preventive maintenance, are pre-tax expenses. Dividends and buy-backs, in contrast, are after-tax expenses and aren’t deductible.

Which means it isn’t really proper to think of these as competing for the same funds. If a company were to reinvest more in its future (pre-tax) that would affect how much money is left in this-year profits to use for buybacks and dividends, but wouldn’t affect what percent of profits get used this way.

It would just make the amount that percentage translates to smaller.

Move along folks. There’s no story here. Or there wouldn’t be were it not for two factors: (1) Executives make spending decisions with an eye to how much will be left to fund buy-backs and dividends; and (2 … and this is the scary one) this year, companies aren’t just returning profits to their shareholders. As reported in Bloomberg, “Cash returned to shareholders exceeded profits in the first quarter for the first time since 2009.”

In short: Investments in what analysts delicately describe as “financial engineering” are up, capital investments are down.

The verdict: If this is the best use for cash the folks running the S&P 500 can come up with, it means they can’t figure out how to use the money to grow their businesses.

Which is, when you come right down to it, pathetic.

Only … for many of KJR’s readers and subscribers, they is we.

Yes, I’m sorry to report that it’s mirror-gazing time again in KJR County, because …

You might recall reading in this space from time to time that part of your job as an IT leader … and part of IT’s job as an organization … is to provide technology leadership.

Now I’m the first to say (or at least, close to the head of the line) this isn’t limited to tactical, hard-dollar, short-term ROI opportunities. The most critical dimension of technology leadership is identifying competitive threats and opportunities and recommending a course of action to deal with them.

The most critical dimension, not the only dimension.

Which leads to this question: When was the last time you or another member of your team sat down, one-on-one, with a business executive or manager to discuss what he/she wants to do differently and better?

There’s little question, some of the buy-back-and-dividends vs capital investment decision-making is pure, lazy opportunism. Buy-backs in particular are a cheap trick to prop up the price of a share of stock and nothing more. Directing cash in this direction when such niggling details as preventive maintenance are underfunded is ridiculously short-sighted, akin to making sure your wine cellar is well-stocked when your car needs its oil changed.

But in here is also an opportunity. Boards of directors approve buy-backs when, as already noted, they don’t have higher-return alternatives for investing the company’s spare cash.

It’s an opportunity because it tells us these boards have cash and need places to invest it, which might mean they’re open to suggestions from the company’s top executives.

Which might mean the company’s top executives are open to suggestions themselves.

The word is “might,” because if a company suffers from a paucity of investment possibilities it also might mean the company culture discourages employees at all levels from looking for and suggesting possibilities for improvement.

Now culture flows from the top, so if your company lacks a culture of innovation the CEO is probably the source of the lack.

But what do you have to lose by trying?

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|In: Business Ethics|Last Updated:

I have just one question about Microsoft CEO Satya Nadella’s comments regarding women’s compensation: Did he deserve all the outrage?

Let’s start with his actual words:

Maria Klawe: What do you advise women who are interested in advancing their careers but they’re not comfortable with putting themselves up for promotions or advanced opportunities?

Satya Nadella: The thing that perhaps most  influenced me in terms of how you look at the journey or a career…There was this guy whose name is Mike Naples who was President of Microsoft when I joined, and he has this saying that all HR systems are long-term efficient, short-term inefficient.

And I thought that phrase just captured it. Which is…it’s not really about asking for the raise but knowing and having faith that the system will actually give you the right raises as you go long.

And that I think might be one of the additional “superpowers,” that quite frankly, women who don’t ask for a raise have. Because that’s good karma. It will come back. Somebody’s going to know that’s the kind of person I want to trust. That’s the kind of person that I want to give more responsibility to.

And in the long-term efficiency, things catch up. And I wonder whether taking the long-term approach helps solve for “Am I getting paid right?” Am I getting rewarded right?” The reality is the best work is not followed with your best rewards. Your best work then has impact, people recognize it, and then you get the rewards. And you somehow have to think that through.”

Opinion: The problem here isn’t that Nadella is insensitive to women’s realities. It’s that he’s insensitive to how things happen here on the planet I like to call “earth.”

The problem, that is, is that this isn’t how things actually work.

When an employee, male or female, does great work and that great work has impact, that doesn’t mean anyone in management will even know which employee deserves the credit.

Credit-stealing is routine in American business. Worse, or perhaps better, great work and impact are usually produced by a team. Balancing the importance of valuing team effort with the varying contributions of different team members is quite a difficult feat.

Also, Nadella seems to be implying that promotions and raises come from doing something that has a strong positive impact. I sure hope not. That’s what bonuses are for. Employers should give employees raises when they’re worth more in the employment marketplace, and promotions when they’re capable of a more responsible and valuable job.

What happens instead: When companies underpay employees the result is a short-term increase in profitability. And as accounting systems don’t have any way to represent the loss of talented employees on financial statements, the whole system is tilted in this direction.

The result: In the vast majority of corporations, employees don’t get what they deserve, they get what they negotiate, just like the ad in the in-flight magazines tells you.

Nardella’s response was, in many respects, thoughtful. The problem was that he failed to include something critical, namely, useful advice for the world as it actually is. A far better response would have been:

The situation for women at Microsoft … and at any other company, but I only have influence over Microsoft … should be exactly like the situation for male employees. What we’re striving for is that no employee should ever have to ask for a raise or promotion. We want every employee to be in a position they can succeed in, and that provides them with opportunities to achieve and grow. And we want to pay every employee what he or she is truly worth.

If we’re failing to do that for any employee, that employee should make her … or his … case and we should listen and make an objective judgment. We should give that employee a raise or promotion if one is warranted, and an honest response either way.

As a general rule, in U.S. businesses at least, men are better at negotiating these things than women. Worse, it’s considered okay for men to negotiate such things, much more so than for women who do the exact same thing.

And as the big three when it comes to compensation de-motivators are arrogance, disrespect and unfairness, it’s unsurprising that women, more than men, are likely to find their compensation de-motivating.

Were Mr. Nardella’s words disrespectful to women? I don’t think so. They were worse than that.

They were terrible advice.

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