Corporate Responsibility

Business and Society: Taking Responsibility

This is not going to be a long post, because you know what you need to do and what your responsibilities are - both as part of business and part of society.

Recently, I was asked to update a White Paper I wrote a few years ago for the Chartered Institute of Management Accountants on corporate reputation. Part of what I was asked to update are the case studies - and that got me looking closely at what had changed in the years since I first wrote the thing. And that got me looking at Goldman Sachs.

Did you know that within a month period Lloyd Blankfein, Goldman's CEO, gave an interview where he explained that people were going to have to lower their expectations of the government help they receive (everything from Medicare and Social Security to Veteran's benefits, Disability and Food Stamps) because the Government simply can't afford it and made the decision to pay his executives their 2012 bonuses a month early so that they would miss the tax increase that was occurring as of January 1, 2013?

The optics of the decision were bad enough.

It's the fact that he preceded it by telling those who can't afford multi-million dollar homes, let alone multi-thousand dollar suits, that they have to change their expectations...because people like him were going to make decisions making sure that others' living expenses couldn't be met...that makes it worse.

Because it didn't matter. Not to him and not to his company.

That has to stop. Business leaders - at all levels from micros- and SMBs to multi-nationals - in all industries and sectors need to recognize that they have a greater responsibility to society than just making their businesses a success.

That shareholders are societal stakeholders, too - and that the other stakeholders who don't hold shares are directly and immediately impacted by the financial and other decisions that executives and board members make.

There's nothing wrong with making money. In fact, there's nothing wrong with making lots of money if that's what you want to do.

But this is more. This is a business industry-driven social change that looks beyond the next day's profits or next quarter's analyst meeting and recognizes that there really is such a thing as a greater good that business - more than any other entity - is designed to achieve.

Do that. Look at the decisions you make - from employee benefits to environmental impact and beyond - to see exactly what impact you and your business are making on your world every day.

Then make it better.
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Reputation: Why It Matters and How You Can Manage It (CIMA original version - I'll let you know when the update is live)
Reputation and Profits: The "Good Corporate Citizenship" Question (llk)

Deming, Health Insurers and the Myth of Scarcity

There's an absolutely riveting article about the record-breaking profits health insurers are making - even as they increase premiums to their customers by double digits.

How are they achieving these incredible financial feats?  Not only is it because of the usurious fees (with ever-increasing deductibles) they charge, but they are also benefiting from the economic downturn.

People keep paying their premiums, but because of those ever-increasing deductibles - now ranging from $2-4K per year - patients are not going to the doctor.  Or having necessary tests.  Or treatment.

Like for cancer.

Because, in this economy, when so many are one paycheck (at most) away from destitution, going to a doctor is a choice.  After all, you may need that money to pay for an unjustifiably priced gallon of gas so that you can get to work.

Unjustified, that is, if you're anyone other than an oil company.

It's gotten to the point that even the shareholders don't feel as strongly as before about the levels of profits the companies they invest in are making.  Even if they receive dividends.

Because, just as the politicians are so disconnected from what's going on along Main Street - or in people's homes - CEOs have lost sight of the fact that their companies are there to serve a greater purpose than simply for the few who own shares.

Or to fill their own pockets.

No matter the product or price point, they're supposed to be contributing to the betterment of society by improving quality of life.  Of everyone's life.

I'm a capitalist to the core.  I want everyone to make money.  I want those who strive - whether minimally or maximally - to proportionately benefit from the work they do and be able to buy what they want.

But I don't believe in exclusivity.  Not when the exclusionary policies and actions on the parts of CEOs and their corporations lead to desperation, disease - and death.

When did corporations lose any semblance of having a clue?

It's more than a Gordon Gekko.  It's not just that "greed is good."

It's that greed - impossible levels of personal and corporate greed - have become standard operating procedure.

It's unconscionable.  Those CEOs, speculators and others pursuing that strategy should be ashamed.

And, frankly, while I applaud the actions of Bill Gates, Warren Buffett and others in the billionaires' club for giving their money to charity - they left it awfully late.

And it's still not enough.

Deming, the management theorist who is the father of what we now call "Lean" and "Six Sigma" (among others), always said that there was no scarcity.  That scarcity is a myth.

That we create scarcity by creating management and corporate systems that either don't access the capabilities of our employees or adequately and fairly share the benefits of what those employees have achieved on behalf of their employer.

Or both.

He was right.  And now it's worse.

Because the health insurers are only one of, literally, a world of corporations that are making, literally, incredible profits.  With war chests of money that analysts and investors are starting to worry are getting too big.

And with speculators who drive prices of commodities up so high that they have to drive their own correction because the public responds by not buying.

What's their justification?  They're afraid - yes, afraid - that things might get worse.  Later.  At some point in the future.  Possibly.

Cowards.

It's time for executives to wake up and smell the coffee.  (I'm being very, very polite here.)

It's time for them to think about the context within which they and their organizations exist.

Everything is not about you and how much you and your cronies make.  Nor is it about "satisfying the shareholders" as you so conveniently excuse your actions.

It's about whether you're willing to do more than do well.  It's whether you're also willing to do good.  On everyone's behalf.

It's time to start.  Now.

Resource:

Health Insurers Make Record Profits as Many Postpone Care (NYT)

Goldman, Facebook and the SEC - Too Big to Care

The one thing you always know about Goldman Sachs is that they know exactly what they're doing.  Every step of the way.

They can say "unintended consequences" when they talk about their highly sophisticated ways of slicing and dicing bad debt and selling it off as credit default swaps.  They can even say "but it's our money" when they get 100 cents on the dollar from AIG when the US Government has just bailed out both AIG and Goldman.

They'll always have a reason - careful and considered - for what they do.  Or they just won't answer at all.  Because they don't have to.  Nothing substantive happens to them if they don't.

Even when they have to pay the US Government $550m in fines for their actions.  It's an easy out and a drop in their particular financial bucket.

And that's the real lesson of Goldman in this economic circus.  It's not just that they were considered "too big to fail."  It's that they believe they're too big to care.


That has to be at the foundation of their decision to create a special fund for their corporate and wealthy clients to buy another $1.5bn in Facebook...now valued at $50bn, because of Goldman's investment of $375m.

Why?  Because with the new SEC rules, there are a limited number of individual investors who are allowed to hold shares in a privately held company before it is required to go public.  By creating this new version of a special vehicle (one of Goldman's clear specialties), they end-run the rule and the SEC.  After all, if they are the ones managing the deal, it's only one investor.  Right?  Just Goldman.  It doesn't matter how many individuals are part of the fund.

Yeah, right.  And that doesn't even touch the way they ignored the Volcker Rule limiting their use of proprietary investments they can make with their own money.

Not long ago I wrote a paper for the Chartered Institute of Management Accountants on corporate reputations - why they're important and what to do about them.  (You can get a free pdf download of the report and see my launch event here.)  In it was a case study on Goldman Sachs - but, unlike the other case studies, the editors at CIMA were uncomfortable with the introductory quotation I wanted to include.  They were concerned that it would be too inflammatory for the readers.

They were the editors so, even though I protested, the quote was out.  Well, folks, here it is for your reading pleasure:
“Boy, that Timberwolf was one shitty deal” How much of that “shitty deal” did you sell to your clients after June 22, 2007?...You didn’t tell them that you thought it was a “shitty deal.”'
That comment came from Senator Carl Levin on the 27th of April 2010 during the Senate Hearings regarding Goldman Sachs' role in the economic crisis.  The "shitty deal" he's talking about - and where that reference comes from - was an internal Goldman memo.  The person he was questioning (who, at best, avoided and, at worst, obfuscated in his replies) was Daniel Sparks, Goldman's former Mortgage Department head.

So, the deal that was quoted was done in 2007.  The crash came in 2008.  The hearings were in 2010.  It's January 2011.  Nothing has changed.  Evidently because Goldman can't see any reason they have to.

And that's the saddest part of this whole thing.  Because Goldman, historically, was a truly excellent organization.  It had ethics and, because it was a partnership, there was a clear impact on the partners when the organization did something "wrong."

Since changing their business model and having gone public, the whole concept of ethics, integrity or (for pure fantasy sake) corporate social responsibility were thrown out the window.

The arguments regarding whether and to what extent regulators should become involved will continue in every country - because every business and industry wants to protect itself from being "over-regulated."

But when an industry - or organization - continues to show its contempt for the regulators, the government and the larger population that are supposed to be protected by those regulations, then it's time to say, go ahead.  You want to do shitty deals?  You want to spit in the face of the regulations - softened though they were - while you keep building your fancy vehicles to hide and cheat and steal?

You just go ahead and do that little thing.  Because we're going to come at you with everything we've got - limited as it might be.  Moreover, when the bottom falls out - which it will - we won't be there to catch you.  Not this time.  Not ever again.

Let some other financial institution that hasn't been playing fast and loose with the system benefit.

Goldman isn't inviolate.  It doesn't live in a bubble - unless our politicians and regulators allow it to live there.

Moreover, Goldman isn't the only one of its kind, nor is its particular brand of toxicity limited to the US. Every country's got them.

As business leaders, you choose with whom you do business and how.  You determine - by voting with your feet and your funds - which organizations have to live up to the same standards as you...whether because you hold yourself to them or because you have more respect for the system than this particular financial institution.

Whether it's a Goldman or any other entity, be careful who you do business with.  After all, you can just as easily find yourself on the "shitty" side of the deal as anyone else.  Even if you're convinced they would never do that to you.

Clearly, they will.

BP and Corporate Responsibility: Avoiding Present and Future Tragedy.

What's going on in the Gulf right now is a tragedy.  There are few other ways to describe it.

It's a tragedy because of the human lives that were lost and the lifelong grief that the families and friends of those who died will endure.

It's a tragedy because of the devastating impact it is having - and will continue to have for years - on the environment into which the oil is spilling.  The death it brings and suffering it is and will continue to have on the animal, bird and plant life - due not only to the spill but to the actions being taken to address it - is incalculable in any currency.

It's a tragedy because of the livelihoods of those who live in all the areas impacted.  Generations of fishermen for food and sport, the associated industries - from hotels in the vicinity to manufacturers of parts for fishing boats that may never be needed again, the many and varied members of the supply chains that have supported the movement of the fresh food caught to the worldwide audiences who enjoyed them.  All and more will suffer for years to come.

And it is most of all a tragedy because it was avoidable.

We do not know the full facts, yet, of what led up to the blowout preventer's failure.  While that is and will be important, what's far more important is what the now consistent drip, drip, drip of information that is coming to light means for corporations and the governments who regulate them.

Each time Tony Hayward, BP's Chief Executive, makes another statement, the trust and belief in everything from business success to corporate R&D is eroded that bit further in the public's mind.  Globally.

Worse, deservedly.

As statements such as his financial breakdown to BP shareholders reporting the very small percentage of the cost of the Gulf Spill to date on the company's profits are made public to a much wider audience, the lack of care that is perceived for the human race and the planet becomes palpable in the public's mind.

BP, like Enron and others, become the name-brand entities that neither can nor should be trusted.  They become the public watchword for how corporations aren't simply uncaring.  They are destructive and dangerous.

From an organizational perspective, this has incredibly and increasingly large implications.

Those internal memoranda and reports as well as the witness testimony being provided in the early-stage hearings simply dig a deeper and deeper hole into which BP, Halliburton, TransOcean and Cameron are falling in the public's mind.  And as they should also in each and every corporation's mind.

Because those data show a continued focus on cost and time.  Not on safety and care.  The arguments and pressures that are reported - within and across the organizations involved - make a compelling case for profit.  Not safety.  The deals cut and pressures put to bear - even on regulatory agencies, which, on many more human levels, deserve distrust and contempt - show that speed was the thing.  The fastest speed to profits.

Back to the corporations, they made promises to regulators which those same companies involved now seem to be saying - and demonstrating - couldn't be kept.  Even whether the disaster-recovery plans that were put forward in case of an emergency were adequate or workable weren't known to be workable.

In effect, prior to drilling, 200 feet was the same as 5,000 feet.  Now that a disaster is in play, there's a really, really big difference between 200 feet and 5,000 feet.

Somehow that wasn't the case just a few months earlier.

But we have what we have - and it becomes a lesson to executives, if you're paying attention.

Pay attention - because on everything from a smaller to a same scale, this can happen to you.

First and foremost:  Never put profits before safety.

That means that, no matter what your organization does, you make sure that policies and procedures in place are designed to ensure the safety of your employees and of the end-users.  Then you make sure that those policies are enforced.  Always and consistently.

Think about it.  From Toyota having to recover its reputation as the highest quality automobile manufacturer to Chinese manufacturers of toys and toothpaste to BP and its now much-publicized "safety" record of deaths in their operations, more time, money and reputation (the three most valuable corporate currencies) is spent on the fix after the fact than would ever have to be spent if the problems had been addressed from the first - when they were identified.

As well, the fix isn't a fix in the eyes of the public.  Toyota will always have a question mark over its name now.  Chinese manufacturers are actively distrusted.  And BP is becoming known as a death-trap for employees and the planet.

That's not going to go away.  In fact, every time any industry in the same sector does something wrong, these examples - and more - will be brought up again and again.

Second:  Suspend disbelief and plan accordingly.

Ninety-seven percent (yes, that's 97%) of what happens in an organization is predictable.  It may not be what you want but you can predict it.

That means that there is only 3% that you can't imagine ever happening.

What that also means is that, because there have been oil spills and drilling disasters in the past, the Deepwater Horizon disaster was part of the 97%.  It was predictable.

Even the failure of the blowout preventer was predictable.  After all, they, too, had failed in the past.

As an executive - and with your executive and management team at all levels - you have to look at what is to determine what can be.  You may not like it, but it's predictable.  And that means that, sooner or later, it's going to happen.

The only 3% component of this disaster is, possibly, its extent.  Possibly not.  After all, BP knew what the oil reservoir was that it was drilling into.  Their scientists also knew the pressures and temperatures at which the drilling would be taking place.

All of that was known prior to any of the consequences that are now in play.  That means that the disaster recovery plans were knowingly inadequate too.  And that's a corporate decision.

Third:  Take the hit.

If your organization does something wrong - from a mistakenly filled order to creating a human and environmental disaster - own up to it.  Not just in pretty words - but, consistently, in your actions as well.

BP seemingly continues to try to game the system for its own and its shareholders' purposes.  From using a dispersant known to be illegal for use in the company's home country to requesting a specific judge to oversee all the future cases brought against the company to trying to settle the early and current cases out of court as quickly as possible, all it looks like is that - even while Hayward continues to say that it's BP's responsibility and it is taking all the actions it can to stop the leak - behind the scenes, all he's trying to do is do further damage to and cheat the people most impacted by his company's actions.

If, on the other hand, you take the hit and own up, customers know that when something goes wrong, you're on their side to fix it.  That has a value far beyond any immediate or mid-term gains - because rather than being remembered for what you did wrong, your organization will have the invaluable reputation for one that is committed to making things right.

Which brings me to the fourth lesson - and it is a personal one.

Think about your legacy.

Within and outside your organization - public or private sector - you're going to be remembered for what you do.  It doesn't matter whether it's wholly internal or splashed all over the online and other media.

Did you keep your word?  Were you fair?  Did you bring an integrity to everything within the organization?  Do the people whose lives you touched - within and without - think well of the organization you led because of your leadership?

Corporate responsibility sounds like a typical "blah-blah-blah."  It's not.  It's all about you, who you are and what you stand for.

CEOs, of course, have a responsibility to their shareholders.  But as a corporate leader, executives and managers at every level have a greater responsibility.  That's to the much broader defined population your organization and its products and services touches.

So, when you think corporate responsibility, think your responsibility and legacy.  Think about what your kids would think of you - knowing everything there is to know.  Then think about how you want them to think about you:  honest, trustworthy, thoughtful of others and others' needs.

There's no reason that can't be your corporate legacy.  It can.  But to get there, you have to actively and conscientiously lead your organization there - every step of the way.