Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985. Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand. She attended the University of Michigan and Wayne State University.
An assembly line is a good example of a system engineered for efficiency. It is a system that relies on every part functioning with precision and timing. The humorous commercial above uses a series of production line mess-ups to illustrate a common reaction to problem situations: scapegoating. The pun involving the real-life goat makes for visual humor.
The advertiser differentiates themselves from this practice of looking for someone to blame when things go wrong. It is a gentle lesson in good management as well as an amusing plug for the advertiser, positioning itself on the "high road" ethically.
Source: Geico commercial linked above, viewed during the USA-Germany FIFA Women's World cup match on FoxSports.
Takata Corporation, the Japanese airbag and auto parts company, is now apologizing for the deaths and injuries their defective air bags have caused. They have agreed, after several months of negotiations, to expand the recall of autos containing their defective airbag inflaters. These inflaters were installed in over 35 million automobiles worldwide, and affected cars made by 11 companies. The inflater in the air bag is prone to exploding with excessive force, sending shards of metal into car occupants. This defect, so far, has been responsible for over 100 injuries at at least eight deaths.
According to Car and Driver, Takata's internal investigation pinpointed production errors: "propellant chemicals were mishandled and improperly stored during assembly." Additionally, other investigations have turned up excessive quality control problems, including rust, bad welds and chewing gum.
Previously, Takata officials claimed that a broad recall was not necessary, as they believed that the product was "only" defective in humid climates. At this point, however, the CEO, Shigehisa Takada, has personally apologized in a public statement:
Sources: "Takata chief apologizes for airbag problems," by Jonathan Sobel, the New York Times, June 25, 2015.
"Massive Takata Airbag Recall: Everything You Need to Know, Including Full List of Affected Vehicles," by Clifford Atiyeh and Rusty Blackwell, Car and Driver, June 26, 2015."Takata VP apologizes to U.S. Senate, says national air bag recall not necessary," by Stephen Tschida, the Associated Press via ABC7News on Twitter, November 20, 2014.
The storyline of "My Fair Lady" is pretty classic: One aristocratic Englishman challenges another (a phoneticist) to take a lower class flower girl (Eliza Doolittle) and train her to speak English in a way that she is mistaken for an aristocrat herself at a formal international ball. Professor Higgins corrects Eliza's accent and grammar so that she miraculously appears to be educated, smart and sophisticated.
Of course, written communication is much more important in modern business than preparing for an annual ball. Nevertheless, when rushing to complete emails and texts, it is easy to skip the "proofreading" step. Communication goes public that can make the sender appear to be uneducated or not very smart. A person's whole reputation can be ruined in a 140 character tweet.
Here are some of the most common mistakes (most of them involve homophones), as reported in the Business Insider:
Read the article linked below for some examples used in sentences.
Another frequent mistake made on business papers involves the use of the word "loose" instead of the word "lose." A student will sometimes say, "He was afraid he would loose his job" when he means, "He was afraid he would lose his job."
Learning to use the right word is an important business skill. You can't sell a product if you fail to "sell yourself" as a well-educated person.
Source: "9 Grammatical Mistakes that Instantly Reveal People's Ignorance," by Christina Sterbenz, the Business Insider, May 8, 2014.
Let's look again at the Kohlberg stages, and try to apply them to some of the scenarios we might encounter in the business world. A quick reminder of the stages:
At this point, you might want to re-read the saga of Lee Siegel, who defaulted on his student loans. Here is how the stages might apply to him.
Here are how Kohlberg's stages might apply to other situations:
Rationalizing behavior (especially "doing nothing") by hoping it represents a higher stage is a common error when applying stages to ethical dilemmas.
Sources: "Defaulting on Student Loans," by Teri Bernstein, Cengage Know Now blog, June 18, 2015.
"Judging, part one..." ibid., June 19, 2015.
"Examples of unethical behavior in the workplace," by Victoria Duff, Houston Chronicle, 2015.
The California Labor Commission ruled this week that one particular individual, Barbara Ann Berwick, who drove for Uber is an "employee" rather than an "independent contractor." The ruling technically affects just one individual, only applies in California,and Uber is appealing the ruling. However, there is also a class action suit in the works that is pressing for the same result.
For the driver, there are both advantages and disadvantages to the "independent contractor" designation. But for corporations such as Uber, the disadvantages of the "employee" designation far outweigh those of "independent contractors." The issues involve, among other factors:
The case points up the limitations of current Federal labor law with respect to the "sharing economy." These workers work when they want to, without a boss, but they only have one "client," (e.g. Uber), and that client controls the platform where all earning opportunities are distributed. The WSJ article outlines some arguments in favor of a new designation in labor law: the dependent contractor.
Sources: "California Labor Commission rules an Uber driver is an employee, which could clobber the $50 billion company," by Alyson Shontell, the Business Insider, June 17, 2015.
"Sharing economy gets a wake-up call with Uber ruling," by Tracey Lien, Tiffany Hsu and Daina Solomon, the Los Angeles Times, June 19, 2015."Dependent Contractor: On-demand workers need protections, some argue," by Lauren Weber, the Wall Street Journal, January 28, 2015.
How can we make rational judgments about ethically questionable behavior in others?
In my last post, I wrote about Lee Siegel, the writer who defaulted on his student loans. I linked to sources where some strong opinions and judgments about Mr. Siegel's actions were voiced. For the most part, the opinions were voiced without reference to ethical value systems. The "discussions" devolved into shouting matches--not exactly ideal business behavior.
To be an independent thinker analyzing business issues, several skills must be cultivated. These include being able:
Lawrence Kohlberg developed a simple system for evaluating the ability to analyze ethical issues. It is based on Piaget's developmental psychology work.
YouTube GoAnimate: NOTE! the author doesn't start using the board until 3 minutes in.
To clarify the concepts addressed in the video:
Here are the 6 stages, divided into Kohlberg's 3 levels, and summarized with a business bent:
Level 1 - Pre-conventional morality:
Stage 1: Obedience and Punishment Orientation.
Stage 2: Individualism and Exchange.
Level 2 - Conventional morality (where most adults in a society are capable of functioning)--These represent the internalized standards of adult role models demonstrating normative societal standards.
Stage 3: Cultivation of Interpersonal Relationships.
Stage 4. Maintaining the Social Order. Willingness to obey laws and other societal rules (even if one is personally inconvenienced), in order to honor the wider rules of society and avoid guilt.
Level 3 - Post-conventional morality: Only 10-15% of the population are capable of the abstract thinking necessary for Stage 5 or 6. Only this minority think through ethical principles themselves, thinking beyond the societal norms when they conflict with the rights of the individual. Most people take their moral views from those around them (Stage 4).
Stage 5: "Social Contract and Individual rights": This phrase is Kohlberg's, and it is often misunderstood. It speaks to respecting the rights of individuals, especially when laws conflict with those rights, rather than just following the "social contract," which is Stage 4.
Stage 6. Universal Principles. This stage of behavior applies the universal principles of human rights, justice and equality.
Next week, in another blog, we will identify some ethical dilemmas and apply these principles to the behaviors of others and ourselves.
Sources: "Defaulting on Student Loans," by Teri Bernstein, Cengage Know Now blog, June 18, 2015.
"Kohlberg Stages of Morality," http://www.simplypsychology.org/kohlberg.html
Follow up: Think about what Stages would apply to the following behaviors:
YouTube report by the Young Turks
The Rand Corporation has completed a study analyzing and projecting the economic costs of war vs. peace in the Middle East. They developed these five scenarios and compared each of them to a continuation of the present situation, where the "continuing impasse...evolves in accordance with present trends.":
Rand's analyst group projected the results to the economy for both Israelis and Palestinians over a 10 year period, under each of the scenarios. From the Rand Corporation website, these were the seven key results of their analysis:
In other words, the business and individual economic situations of both Israelis and Palestinians would profoundly benefit from a stable, two-party peace agreement.
But since such a solution is not unfolding, it may be because there are powerful entities that are profiting from the current situation. I wonder if Rand Corporation has any data suggesting who those entities might be, and how they might be convinced to surrender their power to the greater good for the greatest number...
Sources: "Accounting for the Benefits of Peace," op-ed piece in the New York Times, June 12, 2015. "The Costs of the Israeli-Palistinian Conflict," the Rand Corporation, June 2015.
It is job-hunting season, and almost everyone could use some pointers. There are several exaggerated videos of "job interviews gone awry" available on YouTube. The video above is one of them--enjoy and learn.
Nevertheless, it is often the subtle behaviors in an interview that get you hired...or not called back. The article linked below addresses some attributes that an interviewees might consider as they ponder possible responses.
Source: "5 tips for spotting a bad candidate who looked perfect on paper," by April Starbuccker, The Muse on Mashable, June 5, 2015.
graphic from the Hodar Report
Stock buyback plans are at an "all time high," according to the NYT. What is a stock buyback, and why would a company do this, if the purpose of issuing stock anyway is to raise money to grow the business?
A stock buyback occurs when a company repurchases some of its issued stock, usually common stock, from the existing shareholders. The reason a company might decide to buy back stock could include wanting to:
Several companies have announced buyback plans this year, including:
This usually works out to the benefit of the remaining stockholders...except when all of the repurchased stock is sold to employees at a bargain price as part of a compensation package. This means that the cash used to buy back the stock is more than the cash raised from the re-issuance. In turn, the reduced cash means that there is a reduction in the total equity of the company, which translates into less book value per share. Qualcomm shareholders have experienced this problem.
Source: "Buybacks That Hurt Shareholders," by Gretchen Morgenson, the New York Times, June 5, 2015.
Quiksilver, the maker of surf wear and related goods, recently fired CEO Andy Mooney. When a CEO is hired and fired, it is a decision made by the board of directors of the company.
However, in this case, not all of the board members were included in the discussion and the vote. The male directors and the board chairman decided that director Liz Dolan should not be a part of this decision because both Ms. Dolan and Andy Mooney had worked for Nike at the same time.
Liz Dolan resigned from the Quiksilver board as a result. As a director, she had a fiduciary responsibility to the stockholders. She did not feel as though she could uphold her responsibilities if she was intentionally excluded from critically important decisions.
The Wall Street Journal chose to describe this "resignation on principle" as a "spat," a word usually used to describe "minor bickering." Liz Dolan had an opinion about this:
"I am not psyched that the Wall Street Journal called my resignation from the Board of Directors of a publicly traded company over a major corporate governance issue a "spat", but I am glad that they covered it. Please read the news with an eye for the gender bias code. I promise to give you more of the story on Sunday's Satellite Sisters show. PS: Is "spat" ever used to describe a disagreement among men?" ....Liz Dolan, on her Satellite Sisters Facebook page
Source: "Quiksilver Director Exits Amid Spat," by JoAnn S. Lublin, Wall Street Journal, June 4, 2015.Follow up:
cartoon from the article linked below
The Dodd-Frank Act (2010) is a wide-ranging piece of legislation that attempts to regulate investment banking and other financial transactions by monitoring financial markets. For example, Dodd-Frank:
Because the Act tries to take power away from big banks and corporations who want to handle financial transactions without "big, bad government" looking over their shoulder, it is common knowledge that Wall Street is against Dodd-Frank. But rather than lobbying to repeal it outright, it seems to some observers that Wall Street lobbyists are trying to dismantle it from the inside out.
Here is how and why that strategy is working: the law is still a work-in-progress. It was passed, but many of the rules and procedures for IMPLEMENTING the law are still being ironed out. By arguing about every little detail--trying to add language that can be twisted to mean something different from the intent of the original law--lobbyists are trying to slowly undermine the effectiveness of Dodd-Frank. In the words of Adam Davidson in the NYT:
"We can see it too in the numerous lawsuits filed by banks, financial-services companies and their advocates, which seem designed to lull anybody who mistakenly happened upon them to sleep. They call for subtle changes in the rule-making process, demand redefinition of financial instruments and in myriad other ways seek to change the letter of the law so as to alter its spirit."
Not many of us truly understand what modern-day banks do. We think of the banks like the savings and loan in the holiday classic film "It's A Wonderful Life," where real goods and services were offered. In this "commercial bank" model, banks earned money by lending folks money for mortgages and other long term assets. Before the repeal of the Glass-Steagall Act in the 1990's, the banks at which regular citizens did their personal banking operated on this model. Davidson explains it nicely:
"Banks, at their best, perform a sort of financial magic. Consumers put their little bits of extra money in a savings account, expecting to be able to remove it whenever they’d like. Borrowers, though, often want to take out loans for years, even decades, to fund new businesses or buy homes. The fundamental role of banks is to transform short-term deposits into long-term debt. That is called financial intermediation and, without it, a modern economy ceases to function. (This is what the Treasury Department was seeking to avoid in 2008, by bailing out so many banks.)"
However, the big money is in investment banking, and now most of our local banks have been bought up by banks that derive most of their income as "investment banks" rather than "commercial banks." The "investment bank" model earns its money by using what Adam Davidson refers to in his article as the "Rent model" or "rent-seeking" model:
“'Rent,' in the economic sense, refers broadly to any excess benefits that people and businesses receive simply because they have power over something that others need. Patents are a form of rent, as are cable-TV monopolies."
For banks, this means that borrowing huge sums of money to structure mergers and acquisitions of big corporations creates a situation that cannot fail without thousands of individuals being affected. The government knows this, and--to protect citizens--feels compelled to rescue the banks financially. Banks seek out these situations where they have this unfair power ("rent-seeking"). In this arena, they have the best of all possible financial worlds: reward without risk. They can reap the excess profits that high risk borrowing can yield...and they don't have the risks of loss because they are in this special place where they are the "only game in town."
Adam Davidson continues:
"But the banks know we need them, and they use that fact to take more than they deserve. Banks — especially when they become large and complex — are at once essential and destructive, beneficial and insidious."
Those who are working to undermine Dodd-Frank Act are seeking to let banks continue to operate in this way. Davidson suggests that different, clear legislation will be needed to do what Dodd-Frank was intended to do.
Source: "Wall Street Is Using the Power of Dodd-Frank Against Itself," by Adam Davidson, the New York Times Magazine, May 31, 2015.
"Future of Gaming: the rise of eSports confirms we are in the age of the professional gamer"This was the title of a supplement that was in today's paper...the Los Angeles Times...not The Onion (a satirical paper), and I found it both intriguing and baffling. As I surfed the internet to locate the online versions of the articles within the supplement, I ran across Seth Abner (a.k.a. "Scumperjumper"), who is featured in the video above.
Seth is a 19-year-old professional gamer, with more than 600,000 followers on Twitter, over a million subscribers on YouTube, and a six-figure annual income from gaming. He brings entrepreneurial marketing and business management skills to his otherwise totally fun career.
Aside from finding out about the reality of a career as a professional gamer, I discovered that the real publisher of that supplement section was not the Los Angeles Times--it was an international and marketing firm called Mediaplanet. In the 18-page supplement for some client (presumably a video game consortium), Mediaplanet created content (which looked like newspaper articles) on custom game controllers, on other hardware associated with video games, on various careers in the industry, and on expos (video game conferences). Embedded among these articles were more traditionally identifiable ads. All in all, it was quite an informative package--but it only delivered information agreed to by the client Mediaplanet was serving.
Gathering any information from news sources requires a "critical thinking" filter to weigh the quality of the information obtained. So I learned some new things, but I also recognize that I probably did not get the whole story...on Seth Abner or on any of the gaming topics.
Sources: "Be Aware: Can professional gaming be a legitimate career path?" by Sean H, Hubpages.com, May 4, 2015."The Road to Professional Gaming," by Lauren Demith Chung, Mediaplanet supplement to the Los Angeles Times, June 6, 2015.You Tube, January 20, 2015.Follow up: