Friday, 22 April 2016

5% Too many

How would you react if you knew that the airline you chose sported a safe landing percentage of 96%?  Before you answer let me remind you that there are about 100,000 flights per day worldwide.

Or how would you feel if your doctor's diagnosis was accurate 96 times out of 100?  You would likely not book Monday morning or Friday afternoon appointments...

If the bridge you were about to cross had a sign that said "...the engineer for this bridge graduated in the 85th percentile..." you might be tempted to look at the car behind you and say '...after you, please...'

Our desire is that performance in these fields is 100%.  But recognizing that these are all skills based situations, we know that perfection is simply not attainable.  Best effort is what we hope for, along with a little luck.

But how do our expectations change when it is a matter of character and not competency?  Don't we rightly expect more?

What, then,  are we to make of the results of a recent Ernst & Young survey that indicated that 95% of Canadian CEO's and CFO's responded that they would adhere to behavior that was legally, morally and ethically responsible.  This includes properly reporting revenue and expenses; not engaging in brides or other types of corruption; and not turning a blind eye to activities like child labor. (Apparently Canada scored very high in this survey.)

Wow, one out of twenty confesses that they would cheat in order to gain an advantage or to make performance look better than it is.  It strikes me that the number may be low because these are people admitting, in an anonymous survey, to a willingness to cheat.  How many others had their fingers crossed as they answered the question...

The reality is that there is NO ROOM for a failure of ethics in the Boardroom.  There cannot be ethics  that you exercise based on circumstances or the behavior of a competitor or the need/desire to secure a contract.  And yet 1 in 20 thinks it is OK.

Don't take the sting out of that by asserting some greater good can come out of it; that the order keeps many employed or that others were offering bribes too. Once Pandora's Box has been opened, literally all hell has broken loose.

In some jurisdictions it is considered acceptable to turn a blind eye; to grease the palm; to endorse corruption,  But none of that makes it RIGHT.

As leaders, we have an individual and a collective responsibility to always do that which is legally, morally and ethically correct.  'Situational ethics' cannot find a safe harbour in our behavior because 'situational ethics' is the same as no ethics.

Five percent of Canadian boardrooms apparently think otherwise.  Let's expose them for what they are...CHEATERS.  

Thursday, 14 April 2016

Hold your nose!

I am an unapologetic capitalist.  Capitalism in a democracy works, in a perfect world.  And short of a benevolent dictator, it is likely the best we can expect. To that end I subscribe to wealth creation as a viable motivator.

I have no opposition to inventive, creative, risky and unique initiatives.  To be certain, these are the types of activities that propel us...usually forward but sometimes not.  I applaud those who are willing to fail in the attempts to succeed.

What I despise are those who use other peoples capital - be it financial, emotional or time -in vainglorious efforts because these people care not about the consequences.  And there are always consequences.  Sadly, the net seldom catches all the innocents who fall while perpetrators somehow push the eject button and parachute to safety before the crash.

Just this week Goldman Sacks agreed to a penalty in excess of  $5 billion US for trading activities in the period of 2005-2007.  Further costs will increase their payout to over $6 billion.  In so doing they join a celebrated list of offenders that include J.P. Morgan Chase ($13 billion); Bank of America ($16 billion); Citibank ($7 billion) and Morgan Stanley ($3.2 billion).  Their collective activities provided significant fuel for the fire that continues to smolder in the world economy.

Yet despite these record payouts, NOT ONE SINGLE PERSON WAS HELD ACCOUNTABLE and none face any prosecution.  None have repaid obscene bonuses earned from these despicable actions. They all pushed the eject button in time.

As a partial consequence, for almost a decade we have been mired in a period of global  economic stagnation. Politicians, bureaucrats and economists have not been able to find the formula to remedy matters.  And now we have the Panama Papers which outline the economy of the super-rich and offer insights to their tax avoidance activities.  Some estimates suggest that the amount of money hidden away in these 'off-shore' tax havens may reach as high as $37 trillion.  That is an unfathomable amount.  Here it is expressed in numerical fashion.


Even if this figure is high by some multiple (it could just as easily be low because the law firm exposed by the papers is only the fourth largest provider of these tax havens), it is an obscene amount. For purposes of context consider that the global Gross Domestic Product is estimated to be about $75 trillion.  So the money hidden may represent half of global GDP.

Keep in mind two important facts about this amount.  The first is that this is the amount that is HIDDEN.  It does not include the amounts that the account holders publicly declare. These are individuals whose wealth exceeds the requirements of any person over several lifetimes. Regardless, they are fully capable of paying taxes without impinging on their ability to maintain their lifestyles. The other account holders are crooks.

Secondly, these funds are not working towards global economic activity, apart from the lawyers and bankers who administrate these funds.  Were it otherwise we would see their contributions and they would be more likely subject to proper tax consideration. The reality is that these funds are in excess of the needs of the account holders and thus can afford to sit in relative dormancy.

It is impossible to determine what impact the tax on these funds would have on health, education or infrastructure spending.  Suffice to say that it would be significant...

My takeaway from these two issues?

Our problem is not one of wealth creation so much as it is a problem of wealth distribution.  For every public figure like Bill Gates or Warren Buffet who are openly declaring their wealth and treating it as a public asset, there are tens or hundreds of thousands who refuse to acknowledge their responsibility to return to society that which is due.

In some perverted way they feel entitled to the funds in their possession while ignoring the fact that their wealth has simply been the accumulated transfer of the 'wealth' from millions - perhaps billions - of every day citizens. We are those who have transferred money from our pockets to the pockets of these super rich simply through the purchase of some every day staple of life, be it bread, rice, fuel or some other necessity that flows upward to those who own the conglomerates.

Trickle down economics is just a fantasy.  The super rich do not spend more because they have more. They simply accumulate  more. The truth is that economies grow when the least of us is able to make purchases because these funds naturally flow upward.

Consider, when a car company invests in a new plant that creates 1000 new jobs, economists suggest that the actual impact is the creation of an additional 5000-6000 jobs.  There is a 'multiplier' effect due to all the other products and services that are needed to support the new plant.

What then if only half of that $37 trillion was repatriated in the form of tax and used to assist the least of those in society; we would be injecting as much as 20%  more into the global GDP.   The multiplier effect would drive that impact in a staggering way.  And the primary beneficiaries would be the super wealthy because they already own the majority positions in the companies which grow or manufacture the goods that will be purchased.

We have enough wealth, just as we have enough food and water,  It is a matter of fairness and distribution.

Our leadership at both a political level and at a corporate level continue to fail us.  They have led us into recession because of greed, plain and simple.  Truthfully it is an oxymoron to call them leaders.  In reality they are self-serving expensive suits.

And here is the real catch-22.  Other CEO's should be publicly condemning the actions of these Wall Street cheaters.  But to do so means disrupting the 'old boys club', potentially making it more difficult to access funds when they are needed for mergers, acquisitions or other purposes.

Politicians are wary to upset the off-shore apple cart because these account holders are also the largest contributors to their election campaigns.  Remember too that it was the politicians who established the governance that allows these tax avoidance schemes to exist in the first place and revelations suggest that many of them are profiting from the schemes themselves.

As an authentic leader it is not enough to be ``legal``.  You must also pass the ethical and moral smell test.

And these all stink!