All Posts in Business Ethics

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Let’s clear something up: Submitting a ManagementSpeak to KJR isn’t whistleblowing. What the two have in common: If the manager you’re quoting catches on and figures out you were the source, you might be in for some personal discomfort.

What they don’t have in common: Congress has passed no laws protecting ManagementSpeak submitters from retaliation.

Send in what you hear anyway.

Speaking of whistleblowers, the estimable Randy Cassingham, who also writes and publishes This is True — a weekly compendium of strange happenings from headlines around the world — told of the recently deceased Shuping Wang in his Honorary Unsubscribe.

In the 1990s, Wang discovered that the Chinese government’s methods for managing its blood supply promoted the spread of blood-borne pathogens; her tests showed contamination rates of 83% for Hepatitis C alone.

Wang attempted to bring the problem to the attention of her management, and when that had no impact tried jumping a level, with predictable results: Dr. Wang’s research was stopped and one official bashed both her and her equipment with a club.

If you’re interested in the full story I encourage you to click the link. If you’re interested in how it relates to you and the organization you work in, read on.

In your career, you’ll run across all sorts of, shall we say, opportunities to improve how things get done around here. Not improving how you and your organization do things, but how other managers and their organizations do whatever they do to accomplish whatever they’re supposed to accomplish.

Some of these will be true opportunities. But some might be opportunities in the sense of the drivelous “there’s no such thing as a problem, only an opportunity.”

The problems probably won’t be as dire as actively spreading fatal diseases. So let’s be less dramatic about it and imagine you’ve discovered a data breach. It hasn’t exposed millions of customers’ credit card information yet … just a few thousand thus far … but the risk of larger losses is, in your estimation, quite real.

You figure your employer will want to eliminate this risk, so you send an email to the managers in the company’s org chart most likely to be in a position to do so, explaining the breach, its root cause, and suggestions as to what a solution might look like.

And … nothing happens, other than your receiving a pro forma email thanking you for being so conscientious.

The question: Why do organizations as diverse as the Chinese government and sadly not atypical large corporations do their best to ignore problems like these instead of fixing them?

Start here: Organizations don’t “ignore” problems, any more than they might be “greedy” or “evil.”

Ascribing these behaviors and motivations to the organization means something quite different from ascribing them to, say, human beings of the Homo sapiens persuasion.

Humans might and often do ignore problems and act greedily. Depending on how a person’s attitudes and behavior stack up against your moral code you might run across the occasional evil villain as well.

But an organization isn’t just like a human being only bigger. It’s different. If an organization appears to ignore a problem, what this means is that its systems and practices aren’t designed to accommodate reporting problems and fixing them.

In many cases organizations are inadvertently (?) designed to conceal, compartmentalize, and in some cases cause problems, as when fixing one would cause a manager’s P&L to go negative, creating one would make it shine, and everyone from the top on down manages to the numbers.

Compounding the metaphorical felony is that someone’s name is on the problem and the practices that led to it. If fixing it would be embarrassing and expensive, well, raises, bonuses, and promotions don’t go to managers who own embarrassing and expensive situations, so relying on luck can be quite appealing.

That’s especially true in the many organizations that consider identifying whose name is on a problem and “holding them accountable” (ManagementSpeak for “punishing them”) to be the essence of root cause analysis.

While it might seem logical that the company would want to fix a problem while it’s still small and manageable, companies don’t want anything. What’s good for the organization doesn’t matter unless it’s good for someone important in the organization.

So when something needs fixing, the first step is asking who, if anyone, will benefit from fixing it.

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|In: Business Ethics|Last Updated:

It’s about more than just shareholders! Business writers are excited! Bernie Sanders supporters are gratified! Long-time members of the KJR community are wondering (1) why this is even news, and (2) how could so many commentators all miss the point so completely?

The subject is the Business Roundtable’s discovery that creating shareholder value is too cramped a metric to tell the whole story. It’s breathing new life into the ancient mantra that businesses need to create value for all their other constituencies as well — the communities in which they do business, their employees, suppliers, and even (gasp!) their customers.

The discovery fits nicely into the developing narrative that capitalism, in its unfettered, laissez faire form, often creates damage that ranges from minor inconvenience to monstrous harm and injustice.

So let’s congratulate the Business Roundtable for trying to soften the impact of the emerging backlash — for modifying its allegiance to the newly unpopular proposition that pure-play economic theory automagically defines good public policy.

But ethics predicated on fear of punishment isn’t ethics at all. To the extent this is all an attempt to placate those who see capitalism as a system that mostly looks out for someone else’s best interests, it’s a shallow and fragile change.

What matters more, as was first pointed out in this space seventeen years ago, there are bigger reasons for CEOs to reject such a puerile and shallow fiduciary philosophy as the pursuit of shareholder value.

It’s like this: Shareholder value, which is EconomistSpeak for making the price of a share of stock increase, is a poor predictor of future performance. Heck, it doesn’t even reliably describe current performance.

Why? you might ask. Answering a question with a question I might ask you in return, what does reliably describe current performance and accurately predict future performance?

Well, you might answer, steps that increase a company’s competitiveness in the marketplace are what describe current performance and accurately predict future performance. Steps like developing superior products; instituting efficiencies that let the company sell its products for less; making doing business with the company in question more convenient. Steps like that.

The steps companies have been taking to increase shareholder value aren’t just different from what it takes to be more competitive. They interfere.

Take, for example, the popular practice of using cash assets, often supplemented with borrowed money, to buy back stock. The theory is that the same assets, divided by fewer shares of outstanding stock, result in the remaining shares being more valuable.

Which they would be if the CEO and board of directors were to immediately liquidate the company. Otherwise, all buybacks do is make this money unavailable for such trivialities as product improvement and customer care.

Debt-funded stock buybacks might be the most egregious paean to the shareholder value theory of business governance, but it’s hardly the most prevalent, or the most banal. That award goes to the constellation of practices focused on artificially deferring profitable expenditures so as to “make the numbers.”

And by profitable expenditure I mean all expenditures, because any expenditure that isn’t a profitable one shouldn’t be deferred. It should be eliminated on the grounds that why would you do anything else?

For example: You need to hire a systems administrator. There are only two possibilities: The company will, in the long term, be more profitable because IT has filled this position, or it will be less profitable. If it will be more profitable, deferring the expenditure defers profit.

Imagined conversation between the CEO and board of directors:

Board: We understand you deferred some profit this quarter.

CEO: (Proudly) that’s right! And we’ve identified lots more profit we can defer in future quarters!

Board: What the hell is wrong with you?

Real-world board: Great job! Keep it up!

Much of the problem, as should be evident, is that cost reduction is easy to measure. Just about all other value creators are not. Deferring a hire, or an equipment purchase, or what-have-you reduces expenditures in easy to recognize ways. The benefits resulting from having enough staff with the right skills and equipment to do the work is, in contrast, easy to understand in principle, but devilishly hard to measure.

And as we’ve all had the tiresome mantra drilled into our heads that anything we can’t measure we can’t manage, the results are as easy to predict as they are hard to avoid.

Which leads to this conclusion: The Business Roundtable has taken a correct step.

It’s for the wrong reason, but at least it’s a step.

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