Co-ops and employee-ownership

These two forms of business organization are interesting since they align two of the three main stakeholders of organizations.

REI Co-op is a retail co-op that sells outdoor recreation equipment. I am a co-op “member”. I paid a $20 one time fee for the honor.

I receive my dividend each year in the form of product discounts that add up to 10% on what I spent the previous year.

The co-op aligns the interests of the customer and owner, because they are the same people. Customers want good quality products and services and good prices.

As owners, though, we also want the co-op to stay in business so we can keep buying good stuff, so we don’t want prices to be too cheap, or else the quality we desire as a customer may be sacrificed.

Because of this co-op customers may more aware that reasonable prices (rather than rock-bottom prices) serve their interests than customers of other types of organizations.

Credit unions are similar. They are essentially banks owned by the bank’s customers.

One of my parents worked for an employee-owned company.

Employee ownership aligns the interests of the employees and owners, because they are the same people.

The employees want to be paid well and also want the product quality and prices to be reasonable so the business will continue to do well.

Employee-owners may be a bit more aware of where their paychecks come from than employees of other types of organizations.

I wonder why these types of business organizations aren’t more common.

What if the union bought GM? Instead of having to bargain with management about compensation, they could pay themselves what they want.

Or, how about a streaming service owned by it’s members? What would that look like? Could that compete with Netflix?


Idea for Hostess Union Workers

Buy your employer.

That way you can run it however you like and pay yourselves what you like. You’d have nobody to negotiate with but yourselves.

Also:  I’d be willing to bet $20 that we will be able to buy freshly made Twinkies a year from now. Any takers? I don’t see an Intrade market on this.

Also #2: I’m surprised we’ve made it this far without any calls for government to step in and bail Hostess out to save 18,500 jobs.

Are auto workers are more deserving of being bailed out than cupcake workers? Are we more willing to see what really happens in bankruptcy this time?

Someone doing their job


I enjoyed McGurn’s opinion piece in the Wall Street Journal today, …Lehrer Got it Right.

Despite all-around criticism that last week’s Presidential debate moderator ‘let things get out of control’, McGurn described Lehrer’s response to the criticism.

“I’ve always said this and finally I had a chance to demonstrate it,” he told Politico. “The moderator should be seen little and heard even less.”

He followed up Monday on radio’s “Imus in the Morning,” saying he wasn’t in the least “apologetic” for how things went. In particular Mr. Lehrer insisted that it wasn’t his job to challenge Mr. Romney on issues favored by the cognoscenti…

“If somebody was going to challenge Romney about the 47%,” Mr. Lehrer said, “it was going to have to be . . . the president and vice versa. They were there to do the challenging.” What a novel idea: Instead of leaving it to the press to decide what issues take priority, let the candidates choose and go at it.





And that resulted in…what??

I enjoyed this Forbes column from Jerry Bowers.  I’ve had experiences similar to the one he describes here:

Several months ago I was on the phone with the managers of a very, very large international bond fund. They wanted me to support the recommendation of the staff of an investment committee, on which I sit, to put a lot of money under their care. Their performance had been poor lately, but as a long-term investor, I didn’t hold that against them. I wanted to know how they thought, especially about risk.

But no matter what question I asked them about their way of thinking they always seemed to give an answer in terms of the intelligence, resume, or academic qualifications of their analysts. So and so studied under Barry Eichengreen at UCLA;  this guy has been analyzing bonds for X years; this other guy has lived in South America analyzing bonds for his whole career, etc. Well that’s nice. Smart is better than dumb, but right is better than smart, and right is largely a matter of fundamental principles.

I have one nit.  Smart isn’t always better than dumb.

But I like the story because I’m amazed by how often we put a premium on “smart” over actual results.

I’ve heard pitches from business consultants who tell me how smart their consultants are. They graduated from [insert top-tier business school name here] and have worked on projects at [insert Fortune 500 company names here].

Ask them to describe the tangible results they have produced and they’ll again point at their degree and list projects they worked on.

Then I ask, And those projects resulted in…??

Blank stares.

What do you mean?

I mean, can you tell me if the projects you worked on increased that company’s stock price?  Did it cause more customers to want to buy their products?  Did those projects improve profitability?  Are those companies still following your advice?  Have they asked you back or made you any job offers? 

The response to that is usually, Well, we can’t discuss specific outcomes of our other clients.  That’s proprietary and confidential.  But, I can assure you, we are the best and the brightest.  Then, they’ll usually try to throw a jab at my intelligence for asking such questions.  Besides, we can’t really measure the impact, for sure.

Unfortunately, their standard “we’re smart” pitch must work well enough to keep the work coming without having to demonstrate their actual results.  That’s too bad.  So, I was happy that Jerry Bowers didn’t buy it.

Business consulting and bond funds isn’t the only place the “I’m smart” pitch seems to make up for lack of results.   We often vote for “smart” candidates in elections.  We defer to the “smart” guys in the papers for political and economic opinions.  A few years back, we trusted those smart quants to reduce the risk of lending money to folks with bad credit histories.

When you hire a plumber or electrician you usually don’t care how “smart” the person is.  You don’t want the plumber to “figure it out” on your dime.  You expect a plumber to know because he has fixed the same problem hundreds of times before with good results.

We could avoid a lot of messes by putting more weight on actual results and less weight on how “smart” we think people are.

The my-s**t-don’t-stink crisis

In his book, The Secret Knowledge, David Mamet gives a brief and apt explanation of the economic term moral hazard, which played a key role in causing the financial crisis.

This is from a footnote on page 187 (emphasis added):

Is it not evident that any organization believing itself to be “too big to fail,” will more likely, indeed, inevitably make disastrous decisions? Why should it not–it is Too Big to Fail.

We all know people who (and perhaps have experienced this of ourselves), at one time or another, began to believe that their own s**t did not stink.  And we all know how that story ended.  Not well.

Our last financial crises could be called the my-s**t-don’t-stink crisis.

Also, we should remember how those stories end whenever our “experts”, politicians and economists tell us that such-and-such an industry or company is too important and cannot be allowed to fail (though it usually already has, and few people recognize it yet).

Ben Stein wants the rich to pay more taxes

I listened to the podcast of the April 20 Ben Stein interview on the Dennis Miller Radio Show while mowing the lawn last weekend.  It’s worth a listen.

Ben Stein said that he doesn’t see any way to fix the budget deficit other than raising taxes on the rich.

Here’s my paraphrasing of his comments:

The folks I live near who have three Bentleys and homes here and in Monaco have enough.  It’s not going to hurt them to pay more taxes.  I don’t see what else we can do.  The deficit is an emergency. I remember when tax rates were 90% and everyone had a smile on their face.  The deficit has gotten worse since Bush’s tax cuts and we need to fix that.  It’s a matter of arithmetic.  I don’t know where else the money is going to come from, without big changes in the structure of our government and how it spends money — and that’s not feasible.

Miller made some good points in rebuttal.

He said raising taxes on the wealthy will cause them to shift their activities to avoid paying those higher taxes.  Thomas Sowell explained that well recently on Fox Business.

Miller also expressed his difficulty with expecting the rich to bail out the reckless spending of politicians and that doing so would only lead to more reckless spending and deeper deficits.

He believes a fundamental reduction in government spending is in order and he doesn’t want to be beholden to Stein’s nostalgia (for the days of 90% tax rates).

All good points, but Stein kept asking, “But then, where’s the money going to come from?

I think Miller’s best point for those who support raising tax rates is that it would lead to more government spending.  The problem has never been revenue.

The cause of the deficit has always been politicians who cannot restrain spending to revenue. Even after Bush’s tax cuts and a bad economy, the Federal government collected $300 billion more revenue in 2010 than in 2000, while it spent $1.8 trillion more (source – first table).

This problem may be caused by voters who do not wish politicians to restrain spending. Which in turn might be caused by disproportionate shares of government being paid by a small groups of voters.  If everyone had to pay a fairer share of government — even as a percent of their income — they might be more interested in holding politicians accountable to spending.

The Fatal Conceit in Organizations

If you find yourself justifying  centralized decision-making in your organization, especially when you have decision-makers who you will be overriding, you should consider three things.

1) You may have the fatal conceit.

2) You have hired the wrong people.

3) It is not likely to end well for you.

Well Said

In this morning’s Wall Street Journal Opinion, Emilio Karim Dabul writes about NPR’s Taxpayer-Funded Intolerance.  Dabul begins with some refreshing honesty:

As an Arab-American of Muslim descent, I am not offended by this because in all honesty I have had the same reaction in similar circumstances. In Berlin a couple of years ago, my flight was delayed because, we were told, one of the passengers, who was in a wheelchair, needed extra assistance. When she finally was brought into the waiting area, she was covered from head to toe in traditional Muslim dress and only her eyes were visible. What happened? I grew nervous. I got on the plane just the same, but with trepidation.

Was my response rational? Yes and no.

Then he addresses a common criticism of Juan Williams’ comment.

It was not Muslims in traditional garb who hijacked those planes on 9/11, and it certainly was not Muslim women in veils and wheelchairs. If anything, an Islamist terrorist wants to blend in, not stand out.

However, it was not a traditional sort of terrorist attack I feared in this case, but perhaps something unexpected: a traditional Muslim woman in a veil, confined to a wheelchair, who was loaded with explosives.

That may make me guilty of an overactive imagination, but perhaps not.

I mention all this for one main reason. I grew up surrounded by Islamic culture, went to Islamic events, and was used to seeing women in traditional Muslim clothing, and yet when that woman appeared at the Berlin airport, I was scared.

Then he puts Williams’ comment into perspective:

That’s all Mr. Williams was saying. He didn’t say that they should be removed from the plane, treated differently, or anything close to that. He simply said he got nervous. And for that, he was fired.

Then he throws in this reality check:

The reality is that when Muslims cease to be the main perpetrators of terrorism in the world, such fears about traditional garb are bound to vanish. Until such time, the anxiety will remain. In the long run, it’s what we do with such fears that matters, not that we have them.

Here I think Dabul identifies the root cause of Williams feelings.  The root cause is the behavior of some in an easily identifiable group, not bigotry.  Rather than expecting folks like Williams to modify who makes him nervous, we should first expect the folks that caused his nervousness to change.

Sowell Agrees on Barney Frank

Thomas Sowell wrote two columns this week about Barney Frank, the politicians’ politician.

From the first:

Barney Frank is a master of rhetoric, who does not let the facts cramp his style.

Barney Frank was all over the media, pointing the finger of blame at everybody else. When financial analyst Maria Bartiromo asked Congressman Frank who was responsible for the financial crisis, he said, “right-wing Republicans.” It so happens that conservatives were the loudest critics who had warned for years against the policies that Barney Frank pushed, but why let facts get in the way?

Ms. Bartiromo did not just accept whatever Barney Frank said. She said: “With all due respect, congressman, I saw videotapes of you saying in the past: ‘Oh, let’s open up the lending. The housing market is fine.'” His reply? “No, you didn’t see any such tapes.”

“I did. I saw them on TV,” she said. But Barney Frank did not budge. He understood that a good offense is the best defense. He also understands that rewriting history this election year is his best bet for keeping his long political career alive.

Good for Maria for not backing down.  This if from the second Sowell column:

Politicians who say we need more regulation almost never mean regulation in the sense of impartially enforcing explicit rules, such as the accounting rules that Fannie Mae was violating to cover up its own risks. They mean regulation with arbitrary powers, such as those under the Community Reinvestment Act, which enable regulators to carry out the agendas that politicians give them.

In other words, they pull the wool over our eyes by making us believe that their power grabs are for our own good. This paragraph reminded me of Arnold Klilng’s first question on this blog post.

if the problem was that we deregulated too much over the past 20 years, then why doesn’t the bill [financial regulation] simply reset regulations to what they were 20 years ago? or 30 years ago?


McDonald’s Provides a Good Business Education

Paul Facella writes in his book, Everything I Know About Business I Learned At McDonald’s (p. 85):

As Bill Cosby said in his commencement address to Cheyney University’s Class of 2007, workers at McDonald’s pick up many skills.  “If I’m flipping burgers,” Cosby noted, “I’m not flipping burger for the rest of my life.  I’m learning to become a manager.  And I’m not the manager forever because I’m learning to become the regional manager.”  Cosby accurately depicted opportunities at McDonald’s–for those, it should be stressed, who adhere to McDonald’s rigorous standards.

That passage brought back more than a few discussions I’ve had over the years about “burger flipping jobs.”  Usually, the reference was made by discussion partners as if they were dead-end, low pay hopeless jobs.

One of the best managers I’ve had the opportunity to work for is a former McDonald’s burger flipper.

The author, Paul Facella, started working with McDonald’s at 16 and rose to become a regional vice-president for the company and judging from his writings, he enjoyed it and found it greatly fulfilling.

Just a few pages earlier (p. 77), Facella wrote about the pride of burger flipping:

I worked my way to grill person, the key position, after many months and had a pretty good knack for speed and dexterity, always striving to perform up to the standards expected of me.  Coworkers and I raced to see who was the fastest at flipping burgers and putting patties on the grill.  I could usually hold my own.  But the more important contests were sales.  We strove to break any record…hourly, daily, or weekly.  There was a bonus if you worked during that time period.  And we broke records. Our store became one of the top sales restaurants in the area, and we got quite good at keeping the lines down and increasing sales.   It was also important in the status of your crew if you worked the record hour on your station. We fought to be there when the big crowds gathered for a chance to break the record on our shift.


It sounds like a burger flippers learned to see the big picture.  They knew their efforts contributed to keeping lines moving quickly, which helped keep customers satisfied and their store break sales records.   As Cosby said, they’re learning to be the manager.  And they took pride in their work.  Imagine that.