Projection for next year

Watching a news program last night, I heard a commentator call China the "Capitalist of the Year." There is little doubt that this might be true given that in a worldwide recession, China is projected to grow (economically) 9% in 2010. More interesting is the feeling of hope in a country that under Mao and up to the 1980s suffered devastingly poverty under the planned economies of the government.

The difference is certainly the integration of capitalism, which has jump started the growth. But they still live under a very centralized communist regime that is politically autocratic. The image of Tiannemen Square in 1989 is still vivid for many. The government still routinely suppresses information and news (such as, pictures of the famous Tiannemen Square incident).

Yet, a greater number of Chinese are as well off and hopeful as ever because of the freedom that economic capitalism causes. The engine of business, in fact, can be more liberating than all the political freedoms we associate with democracies around the world. Admittedly, democracy is preferable to dictatorship, but the former without a robust market economy can be less appealing than an autocratic regime that employs a thriving, market-based economy. It is popular to decry the faults of the market, but despite these faults (and there are some), it is still better than the alternatives. Ask China.

Taking Risks

In the throes of this current recession (or jobless recovery, if you like) the operative work is risk. In the case of the sub-prime meltdown excessive risk was the culprit that contributed heavily to the current crisis. Yet, it is the risk takers that make our economy go. This past Friday, our Executive MBA class had the pleasure of hearing Adam Bold, CEO of The Mutual Fund Store, tell his story.

You see Bold traded in a secure job in the financial field to try out his idea of starting a mutual fund business that served customers other investment firms mostly ignored. And in 13 years he has built a successful company of about 350 employees. His story was inspiring to our students because he talked about personal risk and the burden of leadership. The consequence of his "risky" move has been to provide a significant number of quality jobs in this area, St. Louis, and beyond. Furthermore, he is building a business that he hopes will live beyond him -- something very difficult for many entrepreneurs to do.

The name fits Mr. Bold well. I wish him well -- and am glad for the risk-takers.

Medical Tourism

My colleague Dr. Martin Stack teaches among other things international business and has particular expertise in how healthcare is reaching into international markets in ways that might be surprising. Yesterday he taught on this very subject to our Executive Fellows class and coincidentally the WSJ had a front page feature (The Henry Ford of Heart Surgery) on a surgeon, trained in London, who has taken his practice back to India and has built a practice serving hundreds of people who otherwise couldn't afford heart surgeries.

This video does a good job of explaining how it works.

What interests me is how this happened as it seems like another example of business entrepreneurship. Dr. Shetty saw a gaping need in India (and other developing countries) of people needing surgeries but not affording it under normal business models. So he changed the business model to adopt the same "innovations" that Henry Ford did over a hundred years ago. He created a large hospital (and is looking to expand) employing over 40 surgeons allowing them to create scale efficiencies on the various high tech equipment needed. Size also allowed the hospital to negotiate great deals on supplies and equipment -- right now they do 12% of the cardiac surgeries in all of India. As Dr. Shetty says, "What health care needs is process innovation, not product innovation."

The pricing is strategic as well. Poor nationals who are in the State insurance system are charged only $1,200 for a heart procedure -- less that the $1,500 needed to break even. Since these are 30% of their patients; they make it up on the rest where they charge $2,400.

Quality seems to be quite good -- in part because the surgeons are well trained (usually in the U.S. or Europe) and very experienced as they do many more surgeries in a week than those in the States. A good test of quality is that now more Americans looking to save money are travelling to Bangalore to get bypass surgery. So now this business model could disrupt health care in developed countries.

Wine Tasting

Among the many things that confuse me are pizza menus (too many choices) and wine lists (arcane literature). Last week I decided instead of buying one bottle of wine I would buy two so I could compare and learn what was good. Anyway, many wine drinkers have favorite brands of wine; wine connoisseurs have real expensive favorite wines. Yet, an article today (WSJ, "A hint of hype, A taste of illusion") casts doubt on the idea that wine tastes can be objectively discerned -- some wines brag of having 8 different flavors. In fact, it is very difficult for even experts to evaluate wine tastes or accurately discern flavors.

The wine industry has its own rating system for the taste of wines. In addition, high stakes taste testing contests are held frequently with some wineries spending over $1 million dollars trying to win or "medal" in at least one of these. The problem is that there is a lot of evidence that wine testing suffers from poor reliability; for example, a medal winning wine is as likely to be a bad loser in another contest, even one with the same expert taste testers! Empirical tests where the taste tester does not know the actual wine brand confirm their is little objective basis for wine tastes.

A few decades ago, Pepsi took on Coca Cola by sponsoring a number of taste tests that showed consumers preferred Pepsi over Coke. Well, in the 1980s Coca Cola got spooked and started believing the taste tests and decided to change their formula in order to compete with Pepsi, coming up with New Coke. Well, its loyal drinkers reacted swiftly -- it was unAmerican to do that. It didn't take long for Coca Cola executives to reverse course and bring back the old drink (Coke Classic).

You see it was not about the taste; Coke learned quickly they were selling an experience. Taste is a subjective thing. The consumer brings all kinds or perceptions and attitudes to the tasting. Changing the formula was changing the experience -- the consumers determine the taste.

So back to wine . . . since my wife and I are amateur wine drinkers and I struggle deciding among the MANY choices on the shelf, I simply have to convince myself that that $5.99 bottle of Beringer Merlot or White Zinfidel is simply exquisite. And I would be right . . . as long a my wife agrees, that is.

Rockhurst Volleyball

This fall my seventh grader played on her school volleyball team. Having never played before she had a steep learning curve and I suggested we go see the Hawks play a home game. Of course life got busy and it wasn't until this morning that my daughter piped up about seeing a game . . . and by the way they were playing their last home game today.

Anyway, we went and had quite a treat. First, this was volleyball the way it is supposed to be played-- pass, set, and spike (and lots of blocks and digs). The games were highly competitive and the first game (Rockhurst won 31-29) was tremendous (click here for recap). Looking at the program, it looks like the team, even though they lost this match, could be quite good next year -- lots of sophomores and juniors on the team. My daughter was quite impressed -- she is already planning on attending more matches next year.

Anyway, I came away with two revelations (in addition to figuring out how the Libero position works). First Rockhurst is blessed with some really good coaches. I knew about my friend and colleague Tony Tocco who is the winningest collegiate soccer coach in the country. But I did not know about Tracy Rietzke, the Rockhurst volleyball coach. His record after 21 years is impressive and I suspect he is like Coach Tocco and many other Rockhurst coaches -- he just loves the game and the people he coaches. They practice excellence in virtual anonymity. We are lucky to have them.

Which leads me to the second revelation -- one I am a bit ashamed of. This was the first sporting event I attended (except in passing by). When entering the arena I did not even know how much it would cost for admission. Nearly 15 years at Rockhurst and I have been very busy working my discipline, teaching my classes, and serving my School in a variety of ways; I have had soccer, basketball, basebally, and volleyball players in my classes. It is easy to get busy with our lives, but it is nice to get surprised even if it happens in your own backyard.

I'll take the Job

I am trading my current position of university professor for an executive job for a large public company. The government paymaster has rendered a ruling to limit top executive pay to $500K -- a significant downgrade from the millions usually promised to these executives through pay packages negotiated with boards (who are supposed to speak for the stockholders).

You see I have a chance now, because all those experienced and qualified top executives are fleeing to greener pastures not hamstrung by the arbitrary hand of government. Why, it is naturally beneath them to work for so little. And they will leave a huge vacuum -- how can we find anyone as good?

The argument for $20 million salaries is that this is the only incentive that will drive top performance. Really? For us regular workers it has been shown time and time again that money is not an incentive to high performance (though it is often accepted to be true). Why should it be any different for top executives. As Wall Street Journal columnist Brett Arends asserts, where is all the great performance from these companies and their executive leaders? In the first place the executives being limited worked for companies in hock with the government anyway.

In fact, there is little evidence that stock options and other perks given to executives pay off for shareholders. Here is the conclusion from one study cited in Arends article: "CEOs' personal use of company aircraft is associated with severe and significant under-performance of their employers' stocks. Firms that permit personal aircraft use by the CEO under-perform market benchmarks by about 4 percent or 400 basis point per year, after controlling for a standard range of risk, size and other factors."

I will accept the airplane privileges and will accept a piddling salary of $500,000 for the chance to outperform the returns of most of these companies. The bar isn't all that high.

Chris Lowney

I was in San Diego at a national conference and had the pleasure of listening for the first time to author Chris Lowney. This former Jesuit Seminarian, successful financier at J.P. Morgan, and now author is a stellar spokesman for Jesuit values - and how to bring them into the business world.





Lowney was at Rockhurst this summer for the annual CBJE and, I am told, spoke even more eloquently on these Jesuit values. He is now an author and written 3 successful books, the first called Heroic Leadership speaks of the sustained 450+ achievement of the Jesuits.





In his speech yesterday, Lowney suggested that people (including business people) should give themselves the time to stop and consider these three questions:

1. Why are you grateful today?


2. What objective or personal issue do you want to focus on these days?


3. Reviewing the last few hours, what lesson can you take away to help you in the next few hours?

I think my Jesuit colleagues in the audience understood the message better than others, but it is a message worth repeating.

Leading like a Goose

I have the great pleasure of working Saturdays for our Executive MBA program -- okay it is not that great working on Saturday! Still, the students in the program are excellent and committed to learning business acumen and learning how to be better leaders. For the 2011 cohort, Father Curran introduced the students to notion of leadership. And he brought a prop -- the centerpiece on the game board pictured here.

Two interesting points about the Goose. First, it is a great leadership analog as the goose represents a leadership model not often followed. You see when geese fly -- their major work activity -- they do so in V formation AND they share the lead. Thus, the burden of leadership does not fall just on one goose (unlike say the head buffalo who determines whether the herd moves or does not). The formation (think system) also allows for maximum efficiency.

Second, this goose has a special Jesuit heritage as you might notice the collar. Thus, one more significant link of Rockhurst and leadership.

Famous Rocks

Last week, Rockhurst hosted a reception for a former dean of the Helzberg School. I was delighted to finally meet a man I had heard a lot about--Father Nick Rashford. Among other things Rashford founded the Executive Fellows program back in 1978. Several of the graduates who he taught or interacted with were at the reception to pay tribute to someone they thought quite a bit about.

While Father Rashford's accomplishments go well beyond Rockhurst (he went on to a long tenure as President of St. Joe University), it is worth noting the legacy he left here at Rockhurst. The Fellows program now has about 800 alums and many of them have gone on to distinguished business careers. These graduates have had impact on thousands of people that work with and for them. Further, I know Rashford had an impact on the faculty he worked with and hired; some of those faculty have been instrumental in furthering management education and development in consulting and professional roles outside the fellows -- impacting thousands more lives.

Father Rashford, thanks for the legacy you built all those years ago.

They know how to move you in

Okay, I need to quickly catch up with the new school year. At the VERY beginning of this year I had my first experience with college move-in -- as a dad. A college is a big enterprise, but I now have a greater appreciation for how well the College does this function (You could say it is one of their core functions, which is easily missed by academics like me who think narrowly about their subject and knowledge acquisition). Such a convergence of people, objects, and things (on a hot day) seems like a recipe for chaos -- but it all worked quite smoothly even for someone doing it for the first time. You see, the university understands the import of this event and is well armed with volunteers and personnel to help at every step.

Of course, it is the parents who need it (support) most as they deal with the combined emotions of relief and fear . . . the kids dive right in. And even though I have the "advantage" of working on campus and not all that far from my student as other parents (though I doubt we cross paths that much with my perch "way over" in Conway Hall -- like other parents I suppose I will depend on her cell phone to let me know how she is doing), I felt a lot more relief than anything. I did, however, leave with the thought of her giving up a nice comfortable room at home for the smaller dorm room with bunk beds or a loft . . . I guess I have simply gotten old and lost my desire for adventure.

Economics and Ethics

The beginning of August nears and time to gear up for Fall classes. This is also a time I get to read more of the news. One story floating out there is the New Jersey corruption case that snared several public officials and even some Rabbis. The interesting part of the case (yes, political corruption has become too common to be interesting) is the black market that has developed for kidneys. It seems that we have a simple supply and demand problem – a growing demand for transplanted kidneys and a paltry supply. As usual, laws on the books have helped create the black market rather than make it easier for getting needed kidneys.

But this is one is a tough issue from an ethical point – do we want to create business markets for human organs? Should people be compensated for giving away their kidneys? Even a market person like me sees problems with this. I like the idea of good Samaritans donating, rather than this become a mercenary trade.

Yet, because demand has grown out of step with supply (or if supply has been artificially depressed), a potentially bigger problem has developed—a black market for organ trafficking. Consider that the demand for organs is very inelastic regarding price: those that need an organ transplant will be willing to pay just about anything as described by a Dr. Satel, who herself received a kidney transplant. Dr. Satel said had not a friend stepped up to donate her kidney she would have been desperate enough to pay the six-figure amount in the black market.

This might be a good current event for an economics class – or ethics (or at least a good report for a student to write about!). Honestly, I don’t know what the right answer is on this one. Dr. Satel makes a case of compensating organ donors but how do you set a price on something that is priceless?

Democracy and economic freedom

My colleagues Dr's. Stack and Gartland recommended the book The Elephant and the Dragon, which does a nice job of explaining the impact of globalization for the two fastest growing economies of China and India. The book along with current events in Honduras point to the impotence of democracy unless there is also functioning economy.

As pointed out in the book China and India have grown because global economic forces that have driven companies to source manufacturing and services to these countries which have a capable supply. They have done it with two very different political structures as China is extremely autocratic, a communist regime, and India democratic. Although autocratic, China's leaders have opened up much of the economy to be capitalistic, which has created enormous growth and significantly increased the wealth of its citizens--though MANY still live on a pittance the pittance has grown and created a consuming class that has also fueled the growth.

This raises the question of what is more important: political freedom or economic freedom? It is assumed that these are tied together but China has shown not necessarily. Their regime is still in many ways VERY repressive (right now they are trying to enforce a rule that all computers have censoring software on them so the government can monitor what people are doing on the Internet). But the country has made great strides since the Mao regime crippled the economy from the 1950s to the 1970s (Mao died in 1976). Ironically, the centralized control has made it easier to institute economic reforms. India's growth has been much slower than it might because of the inefficiency of their democratic government.

In fact, even with few political rights, people can improve their lots greatly if they have some type of economic freedom. Early in the 20th Century, American Jews faced lots of discrimination and were largely unrepresented in government office. Yet, because they had some freedom to pursue careers in law, medicine, and business many Jews were able to achieve success.

On the other hand democratic regimes like Honduras struggle because they cannot establish an effective economy. Reportedly, 50% of Honduras people live in abject poverty and many more in poverty. This condition leads to democratically elected leaders seeking power grabs (ala Hugo Chavez), which seems to have taken place here (though there are different opinions on who is at fault). Democracy is easily taken for granted by Americans, but the one thing that is essential to making it work is that there are economic freedoms with some form of market mechanism underlying those freedoms.

More Operation Breakthrough

As a follow up to my last post on Operation Breakthrough and our Executive Fellows, here is an article in today's KC Star featuring our MBA graduate who is working on helping change law to help low income working mothers.

Getting laws changed or enacted take a long time and the work by Audrey Johanns and her Fellows group have got the ball rolling in this difficult process. Somewhere near the capitol building (pictured to the right) is Audrey's Cafe.

Giving to Operation Breakthrough

On Friday, our Executive Fellows class spent the afternoon at Operation Breakthrough, a safe haven for 670 under-privileged kids that live in our city. Seeing the place and hearing its leader, Sister Berta, is somewhat transformative for those of us who rarely experience the challenges these kids (and their parents) face.

What I also learned from our session is how much our executive MBA students and faculty have already contributed to this Kansas City organization. First, 2001 Executive Fellow alum Gary DeRigne has been an essential liaison and adjunct professor in leading student consulting projects. We some of the fruits of these projects on our visits -- e.g., a fellows team a couple of years ago created career information graphics that are still prominently displayed in the room where teens hang out.

Second, two fellows students who graduated last month took the time to come and present the projects their teams worked on this past year. And they were significant projects:

• Audrey who operates a cafe across the street from the Capitol building in Jefferson City made the 2-hour drive to talk about the political action project her team led this past year. She reported that progress had been made on a bill that impacts poor families and child care but that the job had not been completed.


• Jeff talked about how his team's project led to the creation of 4 summer internships at KCP&L this summer. That is, 4 teens affiliated with Operation Breakthrough's services now are working this summer to gain real work experience (and these are paying jobs).


• We also learned of the other projects done this past year by our fellows students.

It is a wonderful cause -- Gary, Audrey, and Jeff came entirely because of their commitment to the cause -- and I salute all our students over the years who have contributed. Sister Berta told me on Friday we should monetize these contributions. Maybe she was exaggerating that it was probably worth $250,000 . . . but whatever the cost it was worth it.

Greenland Up?

The late management guru, Peter Drucker, wrote that we know only two things about the future:

• It cannot be known.


• It will be different from what exists now and from what we now expect.

In business this is evident all the time. Three years ago, Dell was sitting pretty as its main competitor H-P was trying to recover from a messy "divorce" from its CEO and tyring to figure out how to overcome a disadvantageous cost position. Today, Dell is trying to figure out how to come out from under weakening demand in a mature PC business and changing consumer preferences for buying those computers (one that actually has favored H-P). Business Week reports Dell is now desparately looking to acquire companies that can get it into new growth businesses.

Drucker's statement works for economies and countries as well. It was a great irony to learn (sometime in my youth or adulthood) that despite their names and their latitudes, Iceland was a land of opportunity while Greenland was a desolate mass of ice. Reagan and Gorbachev held their famous summit in Reykjavik, Iceland (Greenland was never an option). Iceland was home to many banks and the climate is considered quite balmy compared to other northern exposures.

Yet, today The Business Week asks if Greenland is now the "next emerging economy"? Ruled by Denmark, the large island is about to be granted a right to self-government for the 56,000 people that live there (mostly native inuits). It seems Greenland has some resources of value today -- swift rivers (translated to hydroelectric power) and lead and zinc. The low power costs are important to businesses like computer storage companies who must store servers in cool, regulated places. Conversely, Iceland has suffered mightily from the financial meltdown . . . Even for countries fortunes change because the future always changes.

Ironically, Greenland's surge will be further helped by global warming; as ice melts, rivers run faster and now-covered resources (i.e., lead and zinc) become accessible. I suspect our race to reverse global warming effects will have all kinds of consequences--intended and unintended.

GM Bail Out

It seems we live in extraordinary times when the government takes on a 70% ownership of a for-profit enterprise. Actually, there is lots of precedent for government intervention from all administrations. Reagan "bailed out" Harley Davidson by giving them loans and favorable tariffs.

Taking on such a large equity stake, however, creates added potential problems related to simple management principle of allocating resources. Companies operate with limited resources -- they must make choices and prioritize. Very effective units within companies (or even whole companies) often pardoxically succeed BECAUSE they have fewer resources. Japanese auto companies in the 1950s could not compete with Detroit's vast production lines that took up lots of space (not available in the island country) forcing them to create lean manufacturing, which turned out be a great innovation and advantage.

Now consider a small unit inside a company. If it is managed well, someone has line authority of this unit with some kind of budget. And the good managers figure out how to get results with the resources they have. (Several baseball teams over the last twelve years have proven that they can win with significantly less money than some of their competition because they are more resourceful and innovative.) Now imagine the CEO parachuting in to run a unit -- he or she will most likely put more resources to bear not necessarily because they are needed (many times they are because the unit is being starved) but because he or she can do it. They just have easier access to people, cash budgets, etc. They have power, which includes easier access to resources.

Now consider President Obama and Congress (and every other VIP who will assert ownership) and the irresistable tempation to meddle and eventually pouring more resources to the problems rather than manage it. Forget the many unintended diasasters to the market by having a government player using policy and pusestrings to create market winners, the fundamental problem is that it will be too easy to throw $$ at problems that need to be managed with innovative ideas.

And here is one person's rendition of other unintended consequeces, as well.

Best place to Work?

As you know, Google has had tremendous success over the last several years, becoming a huge enterprise on the strength of its primary internet search business. A colleague sent me some pictures of some of the perks Google employees enjoy in their workplace. They have areas where professional masseurs work, pool tables for relaxation, exotic cafeterias or as pictured above relaxation rooms with massage chairs in the ambience of stocked aquariams.

If that doesn't get you excited, how about private cabin areas for you to sneak away to take care of personal affairs . . . pictured to the right.

It actually, looks a little creepy to me and signals for sure a bit of hubris that so often takes hold of successful companies. Nearly always, however, these companies eventually find themselves struggling to control costs in the face of increasing competition, leading to layoffs . . . and these perks won't seem so neat when you are out of a job. In fact, Google may eventually have to repurpose another nifty perk -- slides for quick access to different floors -- so that those laid off can slide right out the door!

Dueling Speeches

Yesterday was an almost historic day in that two heavyweights in terms of stature "debated" the issue of counter-terroism policy -- Obama vs. Cheney. I won't get into who won, which is mostly dependent on one's ideological persuasion, but I found interesting one part of the argument taken up by both men and it reveals the inherent weakness of political solutions.

Having watched parts of Obama's speech and read the transcript of Cheney's, I think Gerald Seib of the WSJ identified the most interesting contrast of the two approaches ("Two Approaches on Gitmo, No Middle Ground"). As Seib notes, Obama made a clear attempt to strike a middle ground and Cheney was very clear that on this issue such a posture is foolish. Specifically, Cheney said, "The administration seems to pride itself on searching for some kind of middle ground in policies addressing terrorism," he said. "They may take comfort in hearing disagreement from opposite ends of the spectrum....But in the fight against terrorism, there is no middle ground. And half-measures keep you half-exposed."

It is quite natural for the sitting president to try and take a middle ground -- he is trying to appeal to the greatest number of voters and he must work in a political process. Yet, Cheney's criticism gets at the heart of the real weakness of compromise. Compromise always leads to sub-optimal solutions. That is why when new legislation is passed some of those that sign onto the bill admit it is not perfect. In business, executives don't have to sub-optimize; that is, they can pursue policies that create "win" situations rather than "win/win." I can't imagine Steve Jobs at Apple, setting competitive policy with any other intention than "winning" against its competitors.

The Bush administration got excoriated for pushing the envelope on counter-terrorism policy in part because they seemed to obfuscate the purposes and the details. It is clear the reason they did this--often to their own disadvantage--is that they were trying to play a "win" strategy while presenting it in a political context, which demands "win/win" or compromise.

It's a worthwhile question: Should we (the U.S.) compromise or stake out a middle ground on the issue safety from terrorism? Should politicians try to act like they are operating a business? Can they? Finally, should we in wars provide Executives the power to execute strategies that bypass inherent weakness of compromise?

Finding Business Wisdom

CEOs of large corporations get a lot of play in the business press. People like Jack Welch, former head of General Electric, have become iconic; others like Ken Lay or Bernie Ebbers infamous. Most recently, the CEOs of the automobile manufacturers have been in the news trying to save their companies. Based on this interview with an unknown car dealer named Jack Fitzgerald, Congress (since we now own GM) would be well advised to listen to people with better knowledge of the business.

Fitzgerald owns 5 Chrysler dealerships and notes the commandment that "thou shalt never dis the manufacturer" but plows right into doing just that. You will learn more about the industry in his 5 minutes than most full-length articles. Here are some of his gems:

• Dealerships are not overhead to the car companies -- the dealerships are independently owned (usually based on personal borrowings of the dealer owner). Even without selling any cars, the manufacturer makes money on the dealership just through fees.
• There are in the neighborhood of 100 million GM and Chrysler cars on the road. While new car sales are down and killing the company, there are still a lot of used cars sold. Dealerships are still the ones to service them. There are more cars on the road today (150 million), not less.
• When Fitzgerald bought his first Chrysler dealership, 23% of the recommended cars by Consumer Reports were Chrysler. Today it is 6%. The number for GM: 44% and 8%, respectively. Fitzgerald rolls these numbers out without notes or thought -- he simply knows them.
• His prescription for the business: We have 100 million cars out there and we need to take care of them and have something of quality to offer them for a new car.

I will bet that President Obama has no one on his staff as smart about the automobile business as Jack Fitzgerald. The more credentialed suspects likely to congregate in government circles might want to listen to Mr. Fitzgerald.

Confidence in the Product

I have been away for a few weeks recovering from surgery that has affected my ability to sit down -- and type a blog.

One way to advertise your product is to use it. I have always been troubled by politicians that promote and encourage public schools only to send their children to private ones. Such action is an admission that the product they are peddling is not all that good.

As the school year is down to the last few days, I must share my use of the product I am part of -- a Rockhurst eduction. My daughter has just completed her freshman year (literally just finished an hour ago) and I have re-learned some things I should have already known.

First, faculty in a variety of departments -- science, math, psychology, English, communication, history, and theology -- have been excellent. This year I have become a silent admirer of the work of Dr. Kovich, Dr. Felzien, Dr. Shorter, Dr. Bicek, Dr. Madison, Dr. Samonte, Dr. Miller et al. They know their subjects, but are focused on students first.

Second, there are organizations and support systems for students to find how they fit. Dr. Martin's work with the Honors Program is one example. Even though my daughter commuted this year -- which can be disconnecting -- she was able to plug into important campus supports as they were needed.

I am gratified that she enjoys going to school where her father works -- probably her feeling is in part because she knows she won't take any of my courses.

Are Pirates Bussinessmen?

Until recently, I thought of high seas pirates as a fiction or at least gone the way of the dinosaurs. This week's drama of an American ship's captain taken hostage by so-called pirates off the coast of Somali made the pirate thing quite real. Most interesting to me were experts calling these Somali pirates businesspeople, in it for the money and not for religious or political purposes. Could this be so -- or does such a comparison do injustice to real business concerns?

If these Somali pirates are an analogue to those Barbary Pirates 200 years ago (see this very interesting article by Jeffrey Gettleman), then you can make a case they do operate a business. First, Piratry did have a simple and effective business model. They offered their services to corrupt governments who provided them safe haven in exchange for a percentage of rich ransoms collected (called "tribute" back in the day). Pirates offered sailing ships an offer they couldn't refuse -- safe passage in exchange for a tribute. Pirates did not harm their hostages as long as they complied; a live hostage was an asset. Indeed, some in the current crisis have noted that the modern day Pirates will act in the best interest of their pocketbook. Also, the pirate entities actually had ambassadors representing in places like the U.S. and France. It makes me think of Robin Hood operating in Sherwood Forest, terrorizing rich travelers to guarantee their safe passage.

There are some rich ironies. First, while Robin Hood's band did terrorize otherwise innocent travelers, they did give back to the mostly poorer townspeople, and not the government under Prince John and the sheriff. These pirates raided a ship supplying needy people in order to line the pockets of corrupt government officials. Second, the U.S. ship coming to the rescue of the American captain was the U.S. Bainbridge, named after one William Bainbridge who was captured by Barbary Coast pirates in early 1800s and later was a hero in the War of 1812. A couple of centuries later I guess he finally got a measure of revenge.

All businesses eventually decline. First, will ships avoid the Somali seas? Different routes might become a substitute. If the pirates try to expand their operations then other nations will likely have to become stronger in their resposne (even more than what the U.S. did in rescuing the captain). Competition up to now has been weak, but it will get stronger as the Pirates become more successful (competition always follows success). According to Gettleman's article the Barbary Pirates' own hubris led to their demise. After today, with the re-capture of Captain Phillips by Navy seals, it looks like the Pirate business model has now taken 3 bullet holes.

Will Donald Trump Bolt NY?

One of the important tasks for companies that want to survive over the long term is to find new revenue sources. Unfortunately, many companies don't do this well. Sometimes they create one too many line extensions of an existing product. Consumers are pretty savvy and can judge when a line extension simply seeks to profit from the brand rather than offer something new. Some old line businesses are now openly seeking new revenues, such as newspapers where the Internet has changed the way people consume news -- and marginalized the importance of the presses that print news.

Government is no less creative at finding new revenue. The difference is that government doesn't create anything, it simply taxes those that do (or have the income to do so). States like companies have bottom lines they must face and those states are coming up with all kinds of creative ways to generate new revenue streams. New York is contemplating a millionaires tax to boost their paltry bottom line. This is a special tax for those making a million dollars -- only it turns out that the tax can kick in on an income as low as $300,000. The good news is that makes more people millionaires (effectively narrowing the income gap!).

When bad business ideas fail, the investment is lost and shareholders will probably suffer at least some. When politicians get creative on creating revenue unintended consequences are usually the result. For New York, increasing the tax on millionaires will likely chase some of them out of Dodge. You see, states operate in a market as well and it should not be hard for other states to offer these rich people a more hospitable home. Would Donald Trump shop his taxes and leave New York? Don't know if you could live with celebrity, but . . .

Does Julia Roberts want to Put a Ceiling on Pay?

An interesting survey shows that 30% of Americans say yes to the following question: "Do you think the government should limit the amount of money that companies NOT taking federal funds pay their executives?" Now admittedly over 60% said no, but still curious that a good number people think government should meddle in how people in private companies are paid.

This makes me wonder if others should have limits on how much they make. Consider the top stars of Hollywood for example. Routinely, stars like Denzel Washington, Jim Carey, Nicholas Cage, and Julia Roberts get what are called "first-dollar gross" deals where they get a percentage of every dollar of the movie's gross receipts. And this is guaranteed regardless of how well the movie does! For his role in "Meet Dave," Eddie Murphy earned a nice payday even though the movie lost nearly $70 million!). Now studios are "wising-up" and offerring only what are called "back-end" deals where the star gets a percentage only after the movie covers its costs.

This begs the question: "Why are studios so dumb for making these first-dollar deals?" To boil it down to basic Econ 101 -- it's the market. If a studio wants to have a big hit, they need to have mass appeal, thus the desire for a big headliner to help the draw. In addition, studios are relying more and more on international sales to drive their overall take--and these markets are even more dependent on known stars on the billing. Now add the supply component. Before the last year, so many movies were being made, top stars had options on the films they did. This further degraded the studio bargaining position.

Now it seems the supply and demand environment has changed. First, financing sources (usually from Wall Street) have dried up because of the financial crisis. This has caused studios to scale back on production, which has decreased the supply of movies for top actors to choose from. So now the studios have more leverage with these actors to get friedlier deals. Some actor agents lament that lucrative first-dollar deals may go the way of the dinasoar.

CEO salaries are too high on most objective measures -- and all subjective ones. Often critics of CEO pay point to the differential with other employees in the firm (e.g., they make 75 times of lower level employees); that differential is as great or greater in Hollywood as some stars make more than $30 million for one film (talk about bulging the gap between the and have-nots!). Yet, understanding the underlying market forces helps explain some of the behaviors.

The Honors Program

I had the honor of attending the induction ceremony for new Honors Program members. While I have sponsored a couple of honors options with students, I didn't quite understand the program as well as I do now. Dr. Dan Martin is director of the program and showed a film (produced by a former honor's student) that explained the reason for such a program. The Honors program provides a way for students to challenge themselves beyond the regular curriculum--not unlike other areas like atheletics, art or other extracurricular organizations. Dr. Saz Madison, professor of psychology also spoke at the ceremony; he is a former Rockhurst graduate and was an Honors student. Dr. Madison is a great role model for the kind of people this program can produce. Also at the cermony were several faculty, many of whom teach honors courses like Dr. Kovich and Dr. Sturgill. Congratulations to all 37 new Honors students and I hope they all challenge themselves to do things even they didn't imagine.

AIG -- Defending the Undefendable

The outrage of AIG's (the insurance giant that is now 80% owned by taxpayers) recent $165 million bonus payout is quite understandable. First, the people receiving the bonuses included executives and traders from the derivatives division--the one that led to the company needing a government bailout. John Q. Public doesn't mind when people are rewarded for getting results, but see unfairness when they get rewarded for messing up the livelihoods of others. Second, the government, who now mostly owns the company let it happen--and did so even as they were negotiating a second $30 million bailout just a few weeks ago.

The PR blunder of the bonuses is immense and no less than Peter Drucker predicted such reactions years ago. In writing about the professional manager, who acts as an agent for the firm, Drucker claims their first edict of responsibility was to not knowingly do harm. He then said that there are some issues that are very harmful even if they are done unwittingly. First among these sins is executive compensation. Drucker reasons that excessive compensation schemes (e.g., large bonuses) does harm because of the perception of inequality it creates. This perception is exaggerated, but it puts the company on the defensive, just as the AIG CEO is now explaining to Congress how this $165 million fiasco happened. It sounds like it went badly for Mr. Liddy.

So how can we defend the undefendable (i.e., AIG executives)? Well my colleague, Turner White asked his students a very good question: "Why would AIG pay the bonuses?" The pile on answer is arrogance and/or greed. But there is another answer that makes sense: fulfillment of contracts. Even if Mr. Liddy (and his board who in this case was the President and Congress) hated the idea of the bonuses they felt some compunction based on meeting contractual law. In fact business fundamentally one of an infinite number of transactions and these are governed not only by the honest dealings of the parties involved but by the rule of the law. While bad decision were made all around on this deal, it is as likely the actual commission of the bonus bonanza was a case of feeling compelled to follow the law.

Focus, Focus, . . .

As I and my student enjoy this spring break, I get to catch up on some reading. In the news I notice the theme of not overreaching and trying to do too much. This morning, eBay makes the front page of the Wall Street Journal (usually when companies make the first page it is for the wrong reasons). eBay has been struggling lately because consumer preferences have changed and becasue, according to the article, eBay has strayed from its roots of being an online marketplace for used and clearance stuff. Over the last few years, eBay has tried to expand into retailing and internet telephony only to see this be a drain on profits.

Politically, President Obama is facing his own crisis of overreach. In the last week high profile business leaders and supporters such as Warren Buffett and Andrew Grove have made this exact point. Buffet says "Job 1 is to win the war, the economic war. Job 2 is to win the economic war — and Job 3 . . ." Grove in a more academic tone (he is a successful businessman who likes to play professor) says to change things one at a time--and fixing the financial crisis comes first. The message as today's article from Time suggests is that Obama is trying to do too much; better to focus on just a few things. Of course Obama has the challenge of trying to placate numerous interest groups who helped elect him.

Which leads me to myself -- I have too many things on my to do list this week from too many different realms such as grading for my courses, scholarly writing, tasks I can't put off any longer, taking care of family obligations like getting passports done for my family (and figuring out how to get the pictures the right size for the application!!). Of course, eBay can sell off its extraneous assets but not so easy to get rid of these tasks except to do them. But I am not complaining -- it is spring break.

Dr. Wheeler

A week ago Friday I had the pleasure to interview students for the our annaul competitive scholars event. It was a pleasure because every one of the 14 students I saw were top notch and I was very glad they were considering Rockhurst.

It was also my pleasure because I was able to work with Dr. James Wheeler. In our interviews everyone introduced themselves including the fauclty interviewers. I told the students as way of introduction I had been with Rockhurst for nearly 15 years . . . Dr. Wheeler, silent on the subject at first, finally fessed that he had been at Rockhurst for 53 years. I knew Dr. Wheeler a bit but that number still startled me.

Anyway, Dr. Wheeler is still great with these MUCH younger students. He asked questions about what these kids were passionate about -- one girl gave a moving account of why exactly she wanted to go into nursing. Come to find out he received the 2nd Ph.D. at UMKC for Chemistry. And he still loves teaching. The fact that he has been here so long is not that relevant to him -- but working with students certainly is.

Markets are Partisan -- and that is Good

It is a given that people dislike partisanship and President Obama won the election partly on the platform of moving county into a post-partisanship age. In his first significant legislative bill, he did not succeed in overcoming a partisan result – the bill was passed on a nearly straight party basis. Jay Cost, however, makes an interesting case against bipartisanship in Three Cheers for Partisanship! Briefly, Cost asserts that partisanship is a result of real differences in people’s views of things and that it is what gives political parties any useful identity. A majority of people are not well informed on the nuances of issues, but they do affiliate with a party based on its brand identity. Bipartisanship blurs this brand identity and is likely to confuse people on the different world views.

This rings true when you apply to business. In a “partisan” market, products vie for positions based on differences. It is these differences (often embedded in brand images, but also having real attributes) that help consumers choose. When choices become indistinct within some product category (or market) the consumer is put in a tough position. First, consumers are typically not well-informed on many products they buy. The positioning and branding of these companies (and products) help consumers make choices on all kinds of products. Without these distinctions made, imagine how hard it is to decide on the thousands of product (and service) choices made each year (I do this everytime I am in Costco!). Our minds would not only be confused but overwhelmed.

In cognitive psychology parlance, these brands help form schemas in our brains to allow us to make much quicker (but not always correct) decisions. In fact, the classic marketing book by Al Ries and Jack Trout says it all in the title—Positioning: The Battle for Your Mind.

Partisanship and Markets are both taking their lumps these days -- but there is another side that should be considered.

Vancouver

I am writing from Vancouver, Canada -- spending 3 days facilitating a leadership training course for Electronic Arts managers. Being in Canada you would expect it to be cold -- and it is. Funny thing though is that Vancouver is usually not this cold -- so the natives say. In fact, we got a little snow today and the traffic got crazy, making Kansas City not look quite so bad on the driving in bad weather front. Actually, Vancouver is only a couple hours from Seattle and has similar weather.

The trip is the first stamp on my passport, but the experience has not been that inspiring. Spent 2 hours trying get past the border. First we waited over 30 minutes just to get to an agent, then were swooped into the building to be interrogated by a border guard. Interesting interrogation: "Why you coming to Canada?" . . . "What do you do that a Candadian company cannot do?" . . . and so on. Found out we needed special work permits to enter the country. They spent over an hour determining this. I think it would have been easier to simply visit a friend!

Rockhurst will look good when I am back on Friday.

Catch me if you Can . . .

This past week was pretty much a lost one for me -- I spent it at home sick. I did have a chance, however, to see the movie, Catch me if you can, based on the story of Frank Abagnale a convicted con artist.

The movie is about the relationship between the con artist, with DiCaprio playing Frank Abagnale, and FBI agent Carl Hanratty (played by Hanks). I was especially interested in Hanks' character as he spends much of the movie just missing out on catching his man (who by the way was only 16 when he started his schemes). The movie had Handratty withstanding every abuse possible from the sleight of hand of Abagnale, yet also shows leadership in the way the FBI agent tries to get the con man to change his thinking. For example, one late scene has Abagnale, after being given the opportunity to trade his jail cell to work for the FBI, reverting back to his old ways and leaving town as a bogus pilot. Handratty is there and confronts the young man but does not stop Abagnale. My conclusion was that Handratty was trying to get Abagnale to make the choice to come back -- it had to be Frank's choice, not imposed by authority.

So I was interested to learn more about this Carl Handratty character. But there is no Carl Handratty, though his character is largely based on that of FBI agent Joe Shaye.

In fact, director Steven Speilberg probably changed the name because of license they took in creating the character. There was no one agent focused on Abagnale, but a whole team. The Handratty character was created to tell us about Abagnale. Actually, the decision by Speilberg makes sense because it is his job to tell a story -- otherwise it is a documentary.

Still, I came up empty, and a little disappointed, in my search for that true, unconventional leader. Beware of those words "based on a true story."

Friends of Rockhurst

While the Chiefs were making news yesterday about their coaching situation, coincidentally a former Chief came to speak to our Executive Fellows class. A couple of months ago I had the pleasure of being introduced to Dennis Watley, former Executive Vice President of the Chiefs. Mr. Watley not only agreed to come in a talk to our class, but is interested in sharing his experience and expertise with our undergraduate students as well.

Anyway, Watley told our group how he worked his way from a bookkeeping job to an executive job with his first employer, National Steel. Among his stories, were these gems:

• Watley learned the business through sales--and he learned by the seat of his pants. In telling us about his most important mentors, he shared a story about one of them, Bob Marlow. One of Watley's sale prospects, a steel user, had refused to buy steel after several visits and in the final visit had basically kicked Dennis out of his office telling him not to come back. Several weeks later Marlow, Watley's boss, joined him on his sales route. When Watley did not stop at the shop where he had been unwelcome, Marlow asked why. "He's a jerk and has told me he won't do business with me." Marlow insisted they go anyway. The client was suddenly nice and became one of Watley's best clients. Turns out that client was simply testing Watley to see if he was serious about selling -- seeing if he would persist . . . those are the people he wanted have buying relationships with.
• Watley told us about the different between buyers and shoppers. In his business of steel, he had to appeal to buyers -- who tend to know what they want. Early on, Watley would try to sell and actually lost some orders when after a buyer made an order the young salesman tried to sell more stuff.
• Finally, he talked about hiring and to be hopeful that if you hire a stupid person they don't have a lot of energy. Of course he knows to look for a Rockhurst graduates to avoid this problem.

Didn't have time to talk a lot about his work with the Chiefs -- but he did remind us that if we think things look bad right now for the team, they were even bleaker in 1988 when he came on board to be V.P. of Sales and marketing . . . when he started they had a season ticket base of only 23,000. I am thankful for the many friends of Rockhurst who like Dennis who are willing to come in and share their experiences and wisdom.

A New Year and Change

How aligned are the stars . . . Monday we celebrated MLK as we prepare to inaugurate the first African-American president on Tuesday . . . Wednesday begins the new semester. Okay, the last is pretty routine but it seems like a long winter break and I trust students are anxious and ready to crack those textbooks again.

One thing on change -- the theme of the Obama campaign. Restlessness with the economy will give this president a lot of latitude to effect changes and one of them is apparently to create more bipartisanship. In vague, general terms bipartisanship is a universal good (like peace); but in practice it will be interesting to see if Obama has more luck than George Bush. For some bipartisanship means compromise, but often in practice it means that people with philosophical differences should agree against their principles. In its worst form, bipartisanship represents squelching debate and skepticism on important issues.

Good luck to President Obama and looking to see if he can achieve bipartisanship while allowing honest debate. And good luck to students -- get ready to hit the books tomorrow!

Corporate Ethics

Another day and another corruption scandal -- this time the Mayor of Baltimore. I bring this up for two reasons.

First, it was reported somewhere that Ms. Dixon primarily ran on an ethics platform. Now in politics that hardly makes her an exception of someone in conflict with their campaign rhetoric, but it does parallel the challenges faced in the business arena where corporate social responsibility has become such a big issue for most corporate executives. Reading most company websites you will be regaled with the "proactive" steps being taken by the company to address ethical practices, global warming, and any number of other social concerns. In fact, some CEOs take on personas more in line with political saviors than businesspeople. Yet, the cynic is not far away as these executives and their companies fall short of their stated ideals. It makes me wonder if all the focus on CSR has really made things better in corporate America . . . here is an article that examines this idea.

Secondly, there is a difference between the goals of politicians and those of company executives -- or there should be. While both have responsibilities for a number of stakeholders, the latter still must adhere to some clear measurables related to earning profit, attracting customers, etc. These common aims are often explicit. Political action is related to common goods -- while these may be explicitly such as remedies to poverty, they seldom have clear measures or clear actions. In fact, seeking a common good always involves compromise and will harm some interests (redistribution is one action against poverty with both intended and unintended consequences).

Perhaps Sheila Dixon will survive these corruption charges; if she was executive of company and caught stealing she would be fired. Of course, if she were an executive she would probably get a golden parachute of a few million dollars upon being fired! Rockhurst graduates will have, I trust, an appreciation for the responsibilities that come with both political and corporate power.

Can this man get RESPECT?

They say truth is stranger than fiction . . . and such is the Illinois senatorial soap opera. The irony is stark as the new phase unfolds with the politics of race coming into play even as we have just elected the first African-American president. To recap, the defamed governor, Rod Blogovich (defamed because he has been indicted by FBI who allegedly caught the governor red-handed trying to sell the open seat), has just named a career Illinois politician named Roland Burris to take the now vacant Obama senate seat. The pick has created at least two schools of thought in the democratic party:

• Those that don't want to honor the pick nor seat Mr. Burris in the senate. This list is long of state officials and democractic senate leaders who see Blagovich too tainted to make any credible pick, regardless of the credentials of Mr. Burris or anyone else. Senate majority leader Harry Reid has said the senate will not seat anyone chosen by Blagovich. Even Reverend Al Sharpton is reluctant to endorse Mr. Burris, stating, "As much as I would like there to be a black in the Senate, we should not turn around and impose any kind of racial litmus test." Those in this camp see two options: conduct an open election or impeach the governor and let the lieutenant governor appoint the next senator.


• A number of black leaders who see the justice of replacing President-elect Obama with another African-American. Bobby Rush, a former black Chicago congressman evoked past times of discrimination and stated clearly that an all white senate was unjust. The 71-year old Mr. Burris is qualified in no less important way than he was black.

My question: Can Mr. Burris be really given a fair chance if he is indeed seated as the Illinois senator? Qualification is a subjective concept. By all accounts Mr. Burris is qualified and is not tainted by the Blagovich scandal. My guess is that Burris cannot win in this situation (in terms of respect). Consider a few recent examples:

• George Bush squeaks out a disputed victory in 2000. Whether he won fair and square is irrelevant -- perception was that the process was not fair. Sure his Iraq policy was controversial, but some never saw him as legitimate.


• Sarah Palin is selected as V.P. in 2008. While a good argument could be made that her experience was credible, her pick was tainted somewhat by the perception of a flawed process. Many people believe that she was a hasty, unvetted choice by McCain and conclusions were drawn about her based on this perception. Even a number of republicans bought into the idea of an inadequate candidate (some vowing to vote for Obama who had less executive experience but who had been vetted in a reputable process).

Roland Norris was appointed on Tuesday and already we hear reports about him that are unflattering. David Broder of the Washington Post basically gives Burris at best a backhanded compliment, calling him a nice man who hit his political ceiling long ago. Chicago writer Steve Chapman is more blunt calling Norris an "empty suit." You see justice is embedded in processes not results. Bringing blacks into the senate is a worthy goal, but ensuring the integrity of the process is more important. That is what makes Obama's feat so compelling--he did it within the bounds of a fair process, absorbing the flack of political fire and benefitting from some political luck (all a part of the process), but gaining no apparent assistance from powers purporting to serve just ends by subverting fair processes.

I trust 2009 will continue the interesting theater.