Driving blind

Here’s another good Seth Godin blog post (in its entirety):

Confusing loyalty with silence

Some organizations demand total fealty, and often that means never questioning those in authority.

Those organizations are ultimately doomed.

Respectfully challenging the status quo, combined with relentlessly iterating new ideas is the hallmark of the vibrant tribe.

I’ve worked with leaders who claim they wanted you to challenge them, but beware. While I believe many of them meant it when they said it, when they were actually challenged it was a different story and typically a career-limiting move for the challenger.

I would also add that my experience lines up with Seth’s observation. Those who demanded fealty were doomed.

This is not surprising. As I’ve mentioned before, all problems can be traced to a problem in feedback. Leaders who are not genuinely open to challenge are not open to feedback. It’s like they are driving a bus without the feedback of the seeing the road. Of course, they will eventually drive into the ditch.

Experience Matters

I strongly agree with what Thomas Sowell wrote in his recent column, The Need to Explain:

The most successful Republican presidential candidate of the past half century– Ronald Reagan, who was elected and reelected with landslide victories– bore little resemblance to the moderate candidates that Republican conventional wisdom depicts as the key to victory, even though most of these moderate candidates have in fact gone down to defeat.

One of the biggest differences between Reagan and these latter-day losers was that Reagan paid great attention to explaining his policies and values. He was called “the great communicator,” but much more than a gift for words was involved. The issues that defined Reagan’s vision were things he had thought about, written about and debated for years before he reached the White House.

I think that we’ve been missing a sorting out process to find folks like Reagan.

It took Reagan decades to hone his communication skills, develop an understanding of the material and learn how to communicate it so that it made sense to people.

One example of this is the book, Reagan: In His Own Hand. This is a collection of the scripts that Ronald Reagan wrote himself for 5-minute long weekly radio addresses syndicated in the 1970s. The book shows the edits Reagan made to his text as he deliberately crafted each address to be easily grasped, memorable and meaningful for the folks listening.

I recommend reading the book. Many of the addresses are instructive still today. I learned a great deal about economics, domestic policy and foreign policy from it. As a lad, I trusted the garbage the media fed me about Reagan not being the brightest bulb, however what I read in this book made me realize I was wrong to have trust them.

Reagan’s writings were deeper, yet easier to understand, than anything that I had heard or read from the media. Reagan’s communication skills still remind me of this quote:

I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity. -Oliver Wendell Holmes, Jr., Supreme Court Justice, 1902 – 1932

After reading Reagan’s scripts, I realized that the media — and much of the world — exists in the simplicity on this side of complexity, while Reagan was on the other side. The media simply couldn’t fathom it.

Our political processes do not favor folks like Reagan. They favor folks like Barack Obama and Mitt Romney. Sowell continues in his column:

One of the secrets of Barack Obama’s success is his ability to say things that will sound both plausible and inspiring to uninformed people, even when they sound ridiculous to people who know the facts.

Questions for Presidential Candidates

Below are some questions I would like our Presidential candidates to answer. I’ve pulled some of them from posts in my blog category, “Questions for Politicians“.

If you are a reporter who will have the chance to ask the candidates questions, please feel free to steal these.

If elected, you will take an oath to preserve, protect and defend the Constitution of the United States of America. Please describe what that means to you.

What does ‘freedom’ mean to you?

What process, or processes, are legitimate ways to change the Constitution and the scope of government?

Where does Congress derive its power to pass legislation?

Do you believe the powers of Congress are specific or do you believe Congress can pass any law it sees fit? Why?

Can you provide two examples of where you think the Federal government has exceeded its power in the past and why you think this?

Why do you think that the U.S. is the wealthiest country ever?

What criteria should be used to evaluate spending taxpayers’ money?

What criteria should be used to evaluate existing spending programs? Please provide an example of an existing spending program and the criteria you would use to evaluate its effectiveness.

Do you know what the knowledge problem is? Do you believe it’s real or imagined?

Can you explain how you believe wealth is created?

Good innovation model at Coke

In a September 22 HBR Ideacast (Harvard Business Review’s podcast), Coca-Cola CEO, Muhtar Kent, says this as a side note about innovation at Coke:

…for us, innovation is not only inside the four walls of the company.  We have incubation projects [in] many parts of the world, because we think that the Coca-Cola company and system is too big to have embryonic ides flourish.

So, we have outside [projects], in parts of the world, innovation/incubation projects.

I’ve seen my share of embryonic ideas die.  Some even showed promise.  With some adaptive business folks in charge, they may have grown into something.

But, inside a big company, there are many reasons to say no.  Arnold Kling and Nick Schulz wrote about this in their book, From Poverty to Prosperity, which I wrote about here:

Corporate decisions are made by committees.  In a typical committee, no individual has the power to say “yes” to a new project.  On the other hand, almost every member of a committee has the power to veto a new project.

Observers of organizational behavior have noted that in committees one is more likely to be regarded as intelligent and a good team player by one’s peers by arguing against a new idea than by arguing in favor of it.  Middle managers who fight for new ideas are regarded as troublemakers, even if they succeed in convincing corporations to undertake the projects they propose.

I’ve seen this in action.  For example, I’ve seen projects killed that threatened a powerful leader’s turf (of course, that’s not the reason they made passionate pleas against the project).  Or because the project was a pet idea of previous leadership.  Or, the project didn’t fit into some arbitrary slogan the leader had for running the company (e.g. “We’re in the widget business, not the gidget business”).  I’ve also seen these shutdown just due to impatience.

Because of this, I recommend that companies do just as Coke does, separate innovation from the bureaucratic organization.  In reality, it’s hard to put any new project out of the reach of meddling bureaucrats.

Ultimately, it takes the realization by leadership that few of these projects will succeed, that none will add significantly to next quarter’s earnings (think more like 5 to 10 years) and, most importantly, leadership needs to protect these external projects from the meddling bureaucrats.

‘…a devalued government’

Peter Schiff explains it well (HT: Carpe Diem) in his testimony before the Congress on Jobs Committee:

In fact, some of what he said is very reminiscent of this most excellent video of Daniel Hannan from 2 years ago, dressing down then British Prime Minister for trying to spend his way out of the recession:

It may be hard to believe after watching the video, but Hannan supported Obama and still supported him through the first stimulus package.  I wonder if he has changed his mind? What he says at about the 2 minute mark would aptly apply to Obama’s latest jobs bill proposal.

Prime Minister, you cannot carry on forever squeezing the productive bit of the economy, in order to fund an unprecedented engorgement of the unproductive bit.  You cannot spend your way out of recession or borrow your way out of debt.  You know and we know and you know that we know that its nonsense.

Addendum:  At the 12:35 mark of the first video, Schiff asks a question that I like to ask my liberal friends who want to raise taxes on the rich:

What percentage of my income do you think would be fair to take?

The hemming and hawing that goes on after that is priceless.  No answer was given.  Just airs of indignity, which often masquerades as argument, to shame Schiff for asking such a question.

Like Schiff, I’d like to know.  I want anyone who would like to raise taxes to tell me what they want to raise it to.  That way when we get there and we won’t have to keep hearing that we should pay more.  When they run out of our money, we can remind that they told us that X% would be enough so they now need to figure out how to get spending under control.

A source of our stagnation?

Does anyone disagree with what Rep. Ryan has to say in this video (HT: W.E. Heasley)?

 

46 seconds in Ryan nails it:

Every dollar that companies spend lobbying for a better tax deal, is a dollar they are not spending making a better product.

The graphic at 1:17 is telling.  The U.S. ranks second behind Japan in combined federal, state and local corporate tax rate of 39.2%.  Japan has been stagnant since the late 80s.

Most folks don’t understand that they pay corporate taxes.  They see that as a tax on the wealthy.

But, most of us own corporations through our retirement and investment accounts.  Here’s a simple way to estimate the amount of corporate taxes that are paid on your behalf each year.

Find the total value of your retirement and investment accounts.  Multiply that by 2% and 4%.  That’ll give you a rough ballpark low and high range of the corporate taxes that you pay.

So, someone with $250,000 in investments will pay between $5,000 and $10,000 in corporate taxes. This is a tax that most investors never realize they pay.

Add that to the income and payroll taxes that you pay directly (and are paid on your behalf by your employer) and you’ll get a better sense for how much total tax paid you paid.

A lower corporate tax rate will help everybody.

I’m a skeptic about most politicians, but I like what Ryan says here.

Leadership

Thanks to my brother for sending me the link to Ken Robinson on the Principles of Creative Leadership on the Fast Company website.  The best piece of it:

The role of a creative leader is not to have all the ideas; it’s to create a culture where everyone can have ideas and feel that they’re valued. So it’s much more about creating climates. I think it’s a big shift for a lot of people.

I found the rest of the article somewhat vague.  But I agree with this paragraph.  Leaders of many organizations — government, companies, non-profits, clubs, charity events, etc. — could benefit from learning this.

Leaders often mistakenly believe their role is to come up with the new ideas to move their organization forward.  They believe they need to chart a course.  The followers don’t help, they also often believe this.  It’s tempting to try to be the hero and to expect leaders to try to be heroes.

But it is also ineffective and risky.  Certainly, it appears to have worked in a few circumstances.  Steve Jobs pops to mind.  But, I would be willing to bet that there are some unsung heroes even in his success stories.

It’s not ineffective and risky for leaders to come up with new ideas.  It’s ineffective and risky when its only their ideas that get attention and organizational resources for several reasons.

Why?  Because so many successes are the result of accidental experiments.  Somebody’s track record isn’t necessarily a good predictor of their future success.  The folks who do have a good number of successes probably have more trials and failures as well.

The reason why this leadership style isn’t prevalent is because few people believe this.

I think back to this and this post on Felix Dennis, publisher and billionaire.  He has come up with a number profitable ideas in his day.  But, the true secret to his success is how he has harnessed the ideas of others.

Buffett’s Business Leadership

While I’m not a big fan of Warren Buffett’s thoughts on government and social policy, I do admire his business savvy.  His results are tough to argue with.

Here’s Buffett’s leadership styles in one simple paragraph from the latest Berkshire Hathaway Letter to Shareholders:

At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years (it’s reproduced on pages 104-105) and call me when they wish. And their wishes do differ: There are managers to whom I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me.

He doesn’t seem all too interested in hiring for a specific set of credentials – other than business management ability:

Berkshire’s CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.

And he relies strongly on the incentives of ownership:

…the directors who represent you think and act like owners. They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than $3 billion. Our directors, therefore, monitor Berkshire’s actions and results with keen interest and an owner’s eye. You and I are lucky to have them as stewards.

This same owner-orientation prevails among our managers. In many cases, these are people who have sought out Berkshire as an acquirer for a business that they and their families have long owned. They came to us with an owner’s mindset, and we provide an environment that encourages them to retain it. Having managers who love their businesses is no small advantage.

Cultures self-propagate. Winston Churchill once said, “You shape your houses and then they shape you.” That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. (As one wag put it, “You know you’re no longer CEO when you get in the back seat of your car and it doesn’t move.”) At Berkshire’s “World Headquarters” our annual rent is $270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunch room, high-tech equipment – you name it – totals $301,363. As long as Charlie and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

Felix Dennis Tidbits

Here are a few final bookmarks from Felix Dennis’s How to Get Rich.  I highly recommend the book, even if you don’t wish to get rich.  It’s easy to read and contains a lot of wisdom that can help you in various parts of your life.

On luck, first-mover myth and tunnel vision (p. 142):

The only truth about luck, good or bad, is that it will change.  The law of averages virtually guarantees it.  And here, I think, is one difference that separates me from my “unlucky” friend, whom I shall call Albert.

By moving so adroitly and so swiftly from one thing to the next, Albert does not place himself in the way of luck.  He is too much in love with the green, green grass just over the hill.

Then again, Albert is more intelligent than I am.  But there is a downside to all this intelligence and imagination.  He thinks a little too much before he acts.  He weighs the options too carefully. He is capable of imagining defeat.

So while he is clever enough to want to minimize his risk by switching to yet another new and uncontested marketplace, he leads himself into uncertainty. And into error.

Uncontested markets are usually uncontested for a reason. Nature abhors a vacuum and if no one else is contesting a market, it may well be that no such market exists.

There are other differences between Albert and me.  He is a great believer in partnering and share options and employee profit participation.  …in Albert’s case, this division of the spoils is undertaken in the minutest detail, long before there are any profits whatever to share.  Albert believes they encourage his coworkers. But such arrangements are immensely time-consuming and a distraction from the tunnel vision necessary to become rich in the first place.

On negotiation and politics (p. 149):

If you are overly fond of haggling, my advice is that you quit thinking about making money the old-fashioned way and consider becoming a politician instead.  That way you can rob and plunder your fellow citizens year after year without risking your own financial security or capital–you bastard. (By the way, please get used to people thinking of you as a bastard.  After all, it’s what nearly everyone thinks of politicians, except themselves).

On management (p. 150):

All great companies, all well-run organizations, need great managers and great staff.  That much, at least, is pretty obvious.  You forget it at your peril.

But the acquisition of of managers who can bring a sense of mission to even mundane tasks, who can identify potential candidates, nurture late bloomers, fire dullards and whiners and adapt to changing circumstances–that searching, identifying and nurturing is not about negotiating.  It’s about setting an example of true meritocracy in a company where nepotism hasn’t a chance and where those who wish to succeed are given every opportunity and encouragement to do so.

The clash of two systems

The video linked to in this post of New Jersey Governor Christie sparring with Diane Sawyer is a good illustration of what Arnold Kling writes about in this Econlog blog post, Two Systems.

Christie speaks from a perspective of System A where status is obtained by market acceptance, it’s retained by competing and enforced by choice (by market participants).

Sawyer defends from the perspective of System B, where status is obtained from credentials, it’s retained by tenure and enforced by authority figures.

I believe the primary source of the clash that occurs between these two systems comes from the differences in preference between the market participants and authority figures.

In this example, Christie and Sawyer discuss teachers.

Authority figures in education — such as teacher union leaders and their cronies in education administration and government — believe that college degrees (credentials) and tenure are the important factors in determining which teachers to hire and retain.

The market participants — parents of school age children — however do not give these preferences much consideration.  Rather they tend to rely on the reputations of schools and teachers and their own experiences with those teachers (e.g. do my kids appear to be progressing or not?).

The underlying and incorrect assumption made by authority figures is that they know better than the market participants and they seek to override their preferences.

I’ve seen authority figures in private organizations suffer from this same underlying and incorrect assumption with disastrous results.

One thing authority figures that produce good market results get right is that don’t let their own personal preferences override those of the markets they’re serving.  In fact, they build their organizations around meeting the preferences of the market participants.