Dear A.I.G., I Quit!

Poor Jake!

An A.I.G. EVP vented on the New York Times opinion page today (3.25.09). Jake DeSantis is quitting because he has been betrayed by the company that has paid him to make money for them trading “Commodities, Energy, (and) Derivatives” according to his public profile on the professional social media site, LinkedIn. Now A.I.G. (and most of the rest of us) expect him to give back the +/- million buck bonus he was paid earlier this month.

Jake says it’s unfair that A.I.G. is reneging on the deal they promised him. That the division where he labored 10-14 hours a day was not responsible for the “credit swaps” that sent A.I.G. reeling. That he had agreed to work for $1 a year on the belief that he would be rewarded for his effort with the big bonus in question. It was a deal, a “contract in writing,” and he should get to keep his money. So there!

Jake says, “I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.” Jake graduated from M.I.T. S.M., Materials Science in 1992. His thesis? "Chemical Vapor Deposition of Iridium and Rhodium from Organometallic Precursors conducted at the Los Alamos National Laboratory”, where he was an intern.

Bright guy, most of us can’t pronounce that stuff let alone understand what it is about. So where did this scientific genius head? To the Union Bank of Switzerland (UBS) where he worked in “Equity derivatives trading.” Isn’t that what’s being called “toxic” these days? After six years at UBS he moved to A.I.G.. Over the last eleven years Jake made a lot of money.

He says, “I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.”

Hard work? Actually most would argue that commodity and derivative trading during the boom years that Jake has been at it, was a piece of cake. If -as he says- he and his fellows have been overpaid, why did it not occur to him earlier that the retention contracts he and others signed to hang in there and try to salvage the company that has made him rich were wrong? Is he saying that the sailors on a sinking ship should be given a contract assuring them of a big pay check before they agree to help to bail it out? Just because the hole in the bottom of the ship is in the bow doesn’t relieve those in the stern from the need to help save the ship.

That’s what it’s all about, Jake. If the American people -few of whom are as privileged as you- are going to throw billions of their hard earned dollars into saving your company, shouldn’t you be willing to work for a $1 a year and live off the fat of the land (all the money you made in the last eleven years) for a couple years to help save the company that has been so good to you? When little folks all over the country are being asked to give up part of their earnings, why are you whining all the way back to your luxury life?

Where is the moral compass that allows your vindictive plan to be sure that the company that put you where you are and/or the taxpayers who are trying to save the company do not get one cent of the bonus that you are giving up. Where would you be if A.I.G. had been allowed to fail? There would be no bonus. Nor would there be most of the other goodies that assure that you and yours will live comfortably for the rest of your lives.

You stepped off the ethical high ground when it even crossed your mind that you should be paid to do the right thing. Maybe you didn't lose any money for your company but you are a loser Jake!

The Thinker

Today my friend and colleague Chris Dunstan introduced me to Nick Bostrom. Professor Bostrom's thinking makes my hair ache. He functions at a level that I can only imagine. Yet he lays out his thoughts in verbiage that reads as easy as a summer breeze.

This fable that Chris shared with me is particularly resonant as I progress through the final year of my eighth decade. Enjoy:
http://www.nickbostrom.com/fable/dragon.html

If you are intrigued with his thinking try his website:
http://www.nickbostrom.com/

If you can advance his agenda, you might want to think about it.

The Wages Of Trust

In less than forty-eight hours two of the most breathtaking ethical breaches in memory popped up in the news. Last Wednesday evening (12/10/08) legendary Wall Streeter Bernard Madoff reportedly met with two of his key executives and told them his money-management business was “all just one big lie;” “basically, a giant Ponzi scheme.” The senior employees understood him to be saying that he had for years been paying returns to investors out of the cash received from other investors. In that conversation, Madoff said, “he was ‘finished,’ that he had ‘absolutely nothing.’ ”

The next morning he was arrested by federal agents accused of fraud, a multibillion-dollar scheme — $50 billion by Madoff’s own estimate. Wealthy people found themselves broke; charitable organizations, colleges and universities learned that their endowments were diminished or gone. No one knows how long this elegant con man had been bilking his clients. His firm had been in business almost fifty years.

Over the weekend another jaw dropping story emerged. A high flying lawyer, Marc Dreier, popped up in the news. Seems the wheels have been falling off his practice over the last couple months. Dreier set up his own firm a dozen years ago. He soon had several branch offices and was able to attract lawyers from the top of the talent pool with lavish financial deals. Flashy is the only way to describe the firm and its founder.

Dreier is said to have used his connections with clients to bilk outside investors by issuing phony promissory notes. Is that gutsy or what? To keep the scheme afloat he was paying interest on the notes, perhaps from cash coming in from new investors, another Ponzi scheme. One of his clients began to smell a rat after Dreier showed up with a group of people in their conference room for a meeting that nobody in the company knew about. The light dawned when the company’s CEO got a phone call asking about the firm’s promissory notes Dreier was offering. Fake notes as it turned out.

Earlier this month Dreier showed up in the offices of a public service pension fund, again with a group of potential investors. However, a savvy receptionist cut him off on his way to the conference room and called the cops. Dreier ended up in the slammer. Even then he was still squirming and managed to grab $10 million from a client’s escrow fund. Now it turns out that most of the firm’s escrow funds are empty.

Compared to Bernie Madoff’s huge $50 billion rip-off, Marc Dreier’s deals that add up to a few hundred million seem like peanuts. It’s not the size of their deals that lines these con men up beside each other, it’s the trust relationships they preyed on and betrayed. We are way beyond the ethics realm and into bizarre criminal behavior. However Madoff and Drier played on the vital ingredient of ethical behavior: “trust.” Do their actions damage the vast majority of us who strive for an ethical climate? You bet!

But honest folks should have no fear of these deals. There was good reason to doubt both Madoff and Dreier. In Madoff’s case it was the age old rule, “If it sounds too good to be true, it probably isn’t.” Many in the financial world were onto Madoff years ago and refused to buy into his deals for that very reason; the returns he promised were too good to be true.

In Dreier’s case it was the seller who was out of place. Lawyers have many important roles, but hawking financial instruments is not one of them. It’s pretty safe to say, “Never allow lawyers to be involved in business decisions, especially where money is involved.” They can advise if something is within the law, or suggest wording, but they are notoriously bad business people and just don’t have any business in business.

Am I blaming the victims of these con men? Yes! While those who were led into Madoff’s deals by financial pros may deserve a little slack, they still should have paid more attention to the deals. And anyone who buys a financial instrument from a lawyer should know that it may not be worth the paper it’s printed on.

Beware “Blind” trust.

Cognitive Dissidence

Impact Analysis is a by-monthly newsletter published by Manzella Trade Communications (www.ManzellaTrade.com). It is private labeled by a number of World Trade Centers and Chambers of Commerce in the United States. My ethical business model message was published in its November/December 2008 issue.

Guarding Our Most Valuable Asset

Nothing is as valuable as reputation. And yet we see corporate reputations squandered daily. In truth most companies and most people spend every day trying to do the right thing and protect their reputation. Very few set out to do anything less. So how does it happen?

In a variety of ways but mostly a little bit at a time. I call it the “Paper Clip Slip.” Anyone who hasn’t walked off with a company owned paper clip hasn’t ever worked with paper clips. The problem comes when it grows to a box of paper clips, or pencils, or something else.

The process we use to justify this petty larceny is called Cognitive Dissidence. It’s a very valuable human trait that we would be whimpering wrecks without. After we choose between the alternatives we need to move on. We all know people who agonize over every choice and are filled with doubts, sometimes for days. Cognitive Dissidence is the mental function that tells us we made the right choice and we become more convinced every hour that the other options would not have been as good.

The problem comes when we have too much of this trait. We begin to justify our actions no matter how outrageous. Actually, excessive Cognitive Dissidence is often admired in the C-Suite. A decisive executive can be a real asset to any organization. However, the same strong leader can steer the ship into treacherous waters sure that they are on course to success. And when things don’t look too good it is easy for them to justify actions that threaten the reputation of the company. When it goes sour they say, “I did what I had to do.”

Others come into corporate life with a distorted view of what you have to do. They believe that you have to do what it takes to win in a dog-eat-dog climate. Where do these people, some of them the best and brightest of our youngsters, get this idea? That’s easy! Good news is not news, so almost everything they see and hear in the media involves the baddies. And it’s not just the news media. Books, movies, TV shows, it’s all about the interesting nasty stuff, in business and in life.

Doing the right thing is not always easy. Sometimes it’s not even clear what the right thing is. We face hard choices everyday. What is clear is that an ethical business model is the best choice. The research shows that companies that put the best interest of their stakeholders first –their customers, their employees, their suppliers, their communities, the environment, and finally their shareholders and lenders– win in every way.

Why shareholders last? Because if you take care of the others, profits will take care of themselves. Do ethics driven businesses always win? Of course not. But if all things are equal these companies will do better every time, and they are a lot more fun to work for, and a lot more fun to run.

Original Thinking

My friend Brian Lee Crowley has one of the most brilliant minds on the planet. He consistently puts his finger on solutions, often those no one else even thinks of. Brian and Dori Segal have come up with and incredibly simple and powerful plan to help kick-start our economy.

This OPED has been sent to the 100 largest newspapers in the United States. Be sure the paper in your community has considered it. Send a copy to members of your Congressional Delegation.

These thoughts on solving the housing and other economic issues are as practical as they are original. That’s probably why no one will move on them, let’s hope I’m wrong.

Bill
---------------
Rebuild Housing
Through Immigration
By Dori Segal and Brian Lee Crowley
10/28/08

Desperate times call for innovative measures. Treasury Secretary Hank Paulson has already had to expand his focus from a flawed plan to buy toxic securities to one focused on taking equity stakes in financial institutions. Politicians in Washington would be well-advised to engage in a similar rethink about one of this election cycle’s whipping boys: immigration. Why? Because America’s attractiveness to the world’s best and brightest means we can put them to work solving the current crisis without vital companies falling into the hands of worrisome sovereign wealth funds or turning the US government into a major shareholder. All that is required in exchange is a chance to be part of the American dream.

America should immediately offer fast-track immigration to foreigners willing to do two things. First, they must buy a house in the United States worth a minimum of $200,000 or with a minimum area of 2000 square feet, paying cash up front. Second, they must place a further $250,000 in a government-insured account with a US financial institution or spend $250,000 to create a business in the US employing a minimum of three US citizens.

The need is immediate and urgent, so upfront entry requirements should be stripped to the bare minimum. In exchange for documented proof of health status, absence of a criminal record and the recommendation of a financial institution, major employer or government agency in their home country, they should automatically be granted a green card, good for three years, during which the US government would be able to do fuller due diligence on these prospective citizens and their documentation. Their green card should automatically become permanent if the authorities cannot prove terrorist connections or fraudulent claims in the entry documents.

During this time these newcomers would not be allowed to sell or mortgage their new home. The only grounds on which they would be allowed to withdraw money from their account would be if they failed to find a job, in which case they would be entitled to withdraw a maximum of $50,000 a year, ample to live comfortably when you don’t have a mortgage to pay. They would not be eligible for welfare and so could not fall on the public charge, guaranteeing that they are adding significant consumption to their local community at no cost to taxpayers.

Suppose that one million new immigrants (less than one third of one percent of the population) responded to this opportunity. Unlike most foreign investors, these are people who will be making the ultimate commitment to America, choosing to live there, bringing significant capital with them and ultimately becoming citizens. These one million new investors would put $200-billion into the housing market immediately, soaking up excess supply without drawing on the strained balance sheets of financial institutions.

The supply of unsold homes is now the equivalent of nearly a year’s demand, more than twice the normal level. Average prices are down around the $200,000 mark and still falling. A flood of people with ready money looking to buy at the $200,000 level would help the market to find its bottom and reverse the trend, while reducing the risk of defaults and non-performing assets on financial institution balance sheets. By allowing homes of 2000 square feet and more to qualify regardless of price, these immigrants would be especially attracted to areas where the housing collapse has been more severe, and where their investment would do the most to help the market turn the corner.

In the same vein, one million new immigrants placing $250,000 each into financial institutions would fill those institutions’ coffers to the tune of a further $250-billion — as much as the equity injection now being bruited in Washington, but without the risk associated with politicians’ being tempted to use their newfound ownership stake to mix politics with business. Those that chose instead to invest in their own business and employ Americans would both help to alleviate rising concern about unemployment and to improve the unfairly tarnished image of immigrants.

The target of one million such immigrants is not unreasonable. The draw of American opportunity is such that many families and communities would band together to amass the needed capital for one of their number as has so often happened in the past. Those who have the capital in hand would be a self-selecting group of high value immigrants bringing with them valuable skills and business acumen.

America’s strength has always been in its openness. That openness — to ideas, capital and above all people—has always been richly rewarded. Now the rest of the world offers America once again the opportunity to renew and refresh itself by drawing in a wave of dynamic and motivated new potential citizens who ask for nothing better than a chance to buy a share of the American dream.

Dori Segal, a dual Israeli-US citizen, is CEO of First Capital Realty in Toronto.
Brian Lee Crowley is President of AIMS, a public policy think tank.

He's Back,,

I spent three days in NY City, mostly as a speaker at the Public Relations Summit. It was a great conference and I found it stimulating. I was interviewed by one of the editors of the PR Journal, Bull Dog Reporter. He included my comments along with four other presenters. The piece is well written and reflective of the state of the Discipline at this tumultuous moment in time. And, anytime you get mentioned in the same piece with Warren Buffett, it's flattering if unwarranted.

October 9, 2008
PR Agency Execs:

Ratchet Up in a Down Economy

By Frank Zeccola, Senior Editor

Last week, as Wall Street and Main Street frantically reacted and responded to the financial crisis, Warren Buffett gave a key piece of advice to investors and business owners while speaking with Charlie Rose: "You want to be greedy when others are fearful," Buffett told Rose. This may seem counterintuitive at first glance—but if you're willing to take the risk, it will pay off when the market rebounds, Buffet asserts.

As the crisis enters its second week, PR agency experts are starting to think like Buffett. At the PR Agency Management '08 Summit (PRAMS) last week in New York, hundreds of PR agency executives met to discuss a number of challenges and opportunities in the agency game right now. No doubt, the biggest thing on everyone's mind was how to succeed in the financial crisis. Not surprisingly, advice from keynoters and speakers at PRAMS echoed Buffett: "It's obvious but scary: Do what others are not doing," said Steve Cody, managing founder and partner of Peppercom. "Instead of taking the ostrich route and sticking your head in the sand, you have to be proactive and speak on behalf of the PR profession."

The take home: "My biggest piece of advice is to spend in a down economy," Cody said. "The smartest thing you can do right now is to be out there talking about PR and evangelizing the industry by writing bylined articles, blog posts and other outreach. There will be less clutter—and an opportunity for you to show that companies should invest in PR."

The lesson is simple: Do what you do best. Get out there and promote your agency and the PR industry as a whole. In a down economy, you now have to spend on your most important aspect and strength—yourself, as a marketer and a communicator. Take time to focus on your staff and market your agency as thought and opinion leaders. Use all the tools available—from traditional mediums like speaking And that's just the beginning. Here are more in-depth tips for winning in a losing economy from the Buffetts of PR management:

1. Refocus on your staff: Inspire opinion and thought leadership. "Don't take your eye off of what's most important: Your staff," says Mark Raper, chairman/CEO of CRT/tanaka. "Smart PR professionals strengthen their relationships with their top performers—especially during times when business is slow. Know who your opinion leaders are and what they do best. Figure out who your up-and-coming leaders are—and task them to get out there and make a name for the agency."

The key is effective time management: "There's no such thing as invaluable time, even if it's not billable," Raper adds. "You have to be more aggressive in marketing yourself and recruiting clients. Be prepared to tighten your belt—but avoid cutting on marketing yourself. If you don't market yourself, you will lose in any economic environment."

Keep in mind: "At the same time, it's important to take the time to get to know your own clients better." Raper also outlines non-staff cutting ways to get through the downturn: "For example, this year we're looking at scaling back on our big annual retreat by 20 percent," he says. "We're also looking to switch out a percent of IT costs and other operational things."

2. Market into the recession. "During any economic downturn—whether it was the dotcom bust or any other recession—PR agencies have grown," says Darryl Salerno, president of Second Quadrant Solutions. "The reason is that about 30 to 35 percent of clients will change hands. That means that someone has to win back one-third of all business—which is in the billions of dollars. Avoid the temptation to be overly timid—and market into the recession. Enter awards programs. Publicize events. Write op-ed pieces and engage in thought-leadership campaigns. Develop as many relationships as you can and get out there and network. Now is the time to treat your own agency as your number-one client. Allocate resources to marketing yourself, and if you do it right, you can grab a piece of those billions of dollars that will change hands."

3. Embark on consumer education campaigns. "Once the dust settles, there will be a real need to educate consumers about what just happened in the financial industry," Salerno says. "It was a crisis of consumer confidence, and the upside now is that there will be an opportunity to take the lead on improving consumer confidence. We will need to embark on a campaign of education and explanation in terms of some of the misunderstandings that happened."

4. Take every opportunity to sell yourself in every available medium. "Now is the time to practice what you preach," says T.J. Walker, CEO of Media Training Worldwide. "You have to be out promoting yourself during any spare second that's not full of billable hours. Take on your number-one pro bono client: You. Hit every opportunity to speak at a Chamber of Commerce event or Rotary Club. And take advantage of social media. How many PR firms have active blogs with daily content? How many firms are producing daily video? Learn about and use all the new technologies we love reading about. Don't sit around and commiserate. Instead of talking about writing the great American PR manual, do it. The highest priced PR pros have a deep and thorough expertise. But you're not an expert unless you write, speak and talk about the subject in every medium and in front of every audience."

5. Avoid the Ken Lay Effect: Work with the best—and don't be afraid to fire unworthy and dishonest clients. "We don't have to work with the Ken Lays of the world—and we should only represent worthy clients," says Bill McKibben, senior counsel, The Great Lakes Group and author of Play Nice, Make Money. "Why would you want to do anything else? Why represent people who want you to lie, mislead and misrepresent?"

McKibben admits that there's no surefire way to spot potential "Ken Lays" in initial client meetings. However, he stresses that you have to be willing to ditch dishonest and unworthy clients as soon as you realize that you're dealing with them: "It then becomes a fire-the-client situation," he says.

While you will lose out on business in the short term, "Future clients will respect you more—and pay you more," he says. "And you will get a seat at the table. Would you rather be the trusted advisor of the CEO, or a press release pusher?" he asks rhetorically. The key is honesty: "There's never been a time that's called for more candor," he says. In the current economic environment, "The public is desperate for people and companies to tell the truth."

6. Manage client legal and ethical expectations: Put ethics back in the hands of communicators. "In too many companies, ethics and compliance are in the same hands: The law department," McKibben says. "The problem with this kind of corporate structure is that, while lawyers know where the legal line is, the ethical line is someplace else entirely." As a communications professional, you have to act as the "canary in the coalmine," he says. "Your job is to sit in on the board of directors' meetings and be out among the public to sniff out anything that could potentially cross the ethical line. We have to be the first to smell and see a scandal. That's why ethics must be in the hands of communicators and not lawyers." He points to the HP corporate board scandal as evidence. "HP had lawyers covering ethics," he says. The result was that, "They didn't draw the ethical line correctly."

Simon Says

Ethics is not a game

Remember the kid’s game Simon Says? The idea was to get the players to respond to a command, but only if the command was preceded by the phrase, “Simon Says.” If you goofed you were out. A fun game and a good way for kids to develop disciplined response skills. It is not, however, a game that belongs in business.

According to media reports it appears that Spherion, the temporary staffing company, acted within the law in denying the widow of one of their employees the benefits she –and her late husband– believed she was due. When Thomas Amschwand was dying of cancer he was naturally concerned that the life insurance benefits that he had been paying for were in order. He dotted all the “i’s” and crossed all the “t’s”. At least those he knew about.

But when his widow tried to collect the $426,000 Amschwand believed he had when he died at 30, she discovered that there was a “Simon Says” that nobody had told them about. It seems that Spherion had switched insurance companies while Amschwand was fighting cancer, and for his insurance to be valid, he had to come into the office for at least one day. Sick as he was he would certainly have met that requirement, ridiculous as it appears.

Seven years later his widow’s options were used up when the Supreme Court refused to review the lower courts who had followed the law and denied her claim. Actually there was nothing the courts could do. Spherion had every legal right to do what they did.

Reading their brief code of ethics it becomes clear that they have no understanding of the meaning of the word. It was obviously drawn up by their legal minions who are trained to look for the edge of the law. Doing the right thing never crosses their minds. So far as they are concerned anything you can get away with is OK. While that’s fine in fulfilling their responsibility to provide counsel to even the worst criminal, it has no place in the world of ethics.

It is perfectly legal but totally unconscionable to throw this kind of Simon Says requirement into the last days of a colleague. Adding insult to injury, Spherion gave back the premiums paid prior to his death. My guess is that by the time they paid their legal bills to take this case all the way up to the Supreme Court, Spherion didn’t save much.

But that isn’t all they will pay. Who would want to work for a smarmy company like that? I would lay odds that all of their best people are on the hunt for a job. The cost in productivity and efficiency for a company of their size will be in the tens of millions of dollars. What customer would want to deal with someone who might be looking for a way to rip you off within the law?

Simon Says, ethics pays off on the bottom line. Anybody should jump at that.