The Philosopher CEO

In my group at work, we have been accused of having a group of philosophers and a group of doers. This is typically mentioned with some serious disgust. As if having a group of people thinking about how the business is run is a bad thing. I think part of it stems from the idea that this means that they aren’t doing anything productive or value added for the company. The perception is incorrect of course. The “philosophers” are actually a process improvement methodology team that provides course development, course training, mentoring for Lean Six Sigma certification, continual guidance for projects in flight and manages projects themselves. There are only two of them. That’s a tall order to be honest.

But the idea of a philosophy group really got me thinking. Would it be a bad thing to have a group that looks at the ethical, moral or sustainable behavior of the company? I lump sustainability in with the morality and ethical question, because in a lot of ways sustainability is not looking to be a social issue and is another way of looking at the ethics of recycling and energy usage. I’ve talked about morality and MBA’s specifically in my last post. Singling out the MBA crowd might not have been the fair as there is no reason why engineers couldn’t behave in unethical ways, there’s no requirement for engineers to take ethics courses.

Why does this matter? Well, we’ve seen a huge number of seemingly unethical choices coming out of companies. In some cases they may have been selected in a harmless way. For example the new MacBook Pros have a glued on battery, the choice may have been made to reduce the amount of time it takes to secure the battery. Putting a fast acting glue on the battery may have accomplished this, while screwing in the battery would take more time. This selection could have been made without the consideration of the repairability or replacability for components within the laptop. However, since this is Apple I’m talking about here, I find this unlikely. The next question would be, was this choice unethical? From a sustainability perspective it could be construed in that manner, which iFixit does do just that. The computer also lost its environmental certification by using the glue and some of the other design characteristics. This design also continues with Apple’s decisions to make it more difficult to upgrade or do anything with their product once you’ve bought. This increases the number of times you have to purchase their products and exasperates the throwaway culture of many other products.

Consumers are also starting to become more aware of the unethical behavior of companies. We’ve seen this with the recent banking scandals, we’ve seen this with the investigation into Foxconn and we’re likely to see it moving forward in other sectors. We’re starting to hear about more unethical behavior in the ag industries, in regard to their treatment of animals or in the case of Monsanto basically suing farmers when seeds of their crops land in their field. The increase in consumer awareness through the increased usage of social media and other social networking tools is going to significantly increase both information and disinformation about these topics.

It is likely that there will be an increase in the number of watch dog organizations in existence and more reliance on government agencies, like the Consumer Protection agency in the US now. The banks have argued for a long time that these regulations are unnecessary as they can regulate themselves. We do know that profit pressures can prevent ethical behavior and encourage unethical behavior. Perhaps it’s time that every organization has an Internal Affairs organization similar to what the police have. I do not believe that these organizations are perfect and can become corrupt (or have the appearance of being corrupt), but I think that they can be useful.

Penn State is going to have to set up an organization like this. I think for the University this was going to be required for them to even have a chance at ever regaining their credibility. The records for that group need to be wide open for everyone to view. I think this type of office needs to be in any publicly traded company. It will ensure greater transparency, allow watch dog groups and consumers to choose the actual ethical companies and these groups would be auditable. This could be a certification process similar to ISO9001 (a manufacturing document control quality system), where the members of the team are given ethics training in a wide range of topics including morality and then are expected to train the employees of the company, CEO included.

By creating organizations such as this, companies can greatly clarify how their behavior is ethical and moral. Once several large companies create agencies like this other companies will be shamed into doing it as well. Thus increasing the number of Philosopher CEOs out there.

Colorado, guns and society

Horrible tragedy has struck Colorado. We still don’t understand what caused this man to do this. This is also the second piece on mass killings and guns that I’ve written in the past year, the Norway tragedy was only a year ago. There was some discussion after that about the ease of access of weapons in the US, but with the alleged gunman in Colorado using an AR-15 there most certainly will be discussions of re-instating the assault rifle ban that lapsed early in the Obama administration.

Let’s first take a look at some of the history of the US before moving onto anything else. The Right to Bear Arms comes from the bill of rights amended to the constitution of the United States. The reason the founding fathers created these rights stems from the injustices the colonies experienced under British rule. Preventing gun ownership caused hardships for the colonists as they were fighting with the Indians, protecting their live stock and hunting for food. Distances were much greater at the time, so you needed to be able to fend for yourselves. The founding fathers also were revolutionaries, obviously, as they had just overthrown Britain. Jefferson, in particular felt that the citizens had the right to overthrow their own government. The ability to overthrow the government is predicated on the ability to fight against the government. The right to bear arms is paramount to this capability, hence it is an essential right in our Constitution.


A lot has changed in the past 200+ years. Weapons technology is at a level that our founding fathers never imagined. Our explosives are smaller and more powerful than theirs. The sheer number of people would be mind boogling to them, as we have stadiums that can hold more people than all the population of Philly in 1776 and Houston has nearly as many people in the city as all of the 13 colonies did in 1776. The amount of damage we can inflict and the number of people that can be impacted as exponentially increased.


What has not kept up with our ability to kill and our population are our institutions. Organizations like the NRA push for looser and looser gun laws as they feel that is an unalienable right. However, they do not take on issues that lead to increases in gun violence such as prohibition of drugs (increases violence) or mental health concerns. In the United States we look at mental health issues as something to be kept quiet and to have a mental disease is to be stigmatized. These prevent people that require help from seeking the help that they need. Plus, the cost of mental health care is extremely expensive. In many cases insurance companies don’t want to pay for the cost of seeing a psychiatrist or will limit the amount of treatment a person can receive. Addressing the actual problem will do more for protecting gun ownership rights than any glib quote such as “You can take my gun from my cold dead hands” we need to understand the underlying root cause of the massacre and fix that. 


The other concern that we should all have in regard to controlling weaponry is the importance of having access to weapons when overthrowing a dictator. In the past 2 years we’ve seen many types of revolutions. Ranging from the completely peaceful to the extremely violent in Libya and Syria. In each country access to foreign weapons are making the difference for the rebels, but for the rebels to even reach the point where the international community stepped in to help them, required weapons to start the civil war. Whether we like it or not, that is the reason why the founders included the right to bear arms in our constitution. 


What we need to do as a society is to look at where our values stand. Do we feel that we should treat addiction like a crime, or like a mental health epidemic? The need for gun ownership can drop once drug issues can be dealt within our legal system instead of requiring extralegal remedies, such as killing the person that is taking your turf. Looking at how we deal with bullying and other mental health issues can prevent another Columbine or Aurora from happening again. I’m going to close this post with an interview with Marilyn Manson in Bowling for Columbine. Regardless of what you think about the man himself, or his shock rock, he is an extremely articulate speaker and asks us to look in the mirror when these tragedies happen. Our society causes them, our society can fix them.


MBAs, Ethics and Morals

Yesterday on Facebook I started quite the little discussion after posting a discussion about MBA education based on an article on Bloomberg. The author of the article, a professor at the University of Chicago Booth School of Business. Essentially the article argues that the method used to discuss ethics results in amoral education. What this is saying isn’t that they are teaching a lack of morality, it’s that they aren’t teaching the actual moral result of these choices in a way that makes it clear that one option is moral while the other is not.   Without explicitly stating which option is moral or immoral, it can create ambiguity (we know that business people hate uncertainty) and the illusion that either one of the options could be moral.

Why does this cause a problem? First, not many people actually have any education in ethics to begin with. If someone put together a list of 8 must take classes ethics would be somewhere around 100. Ethics courses aren’t easy and they make you really look at how you think about things, figure out why you think that way and try to make you change the way you think. They aren’t always successful, but ethical thinking is like critical thinking, the more exposure you have to it the more you are able to practice it. The second reason why this is a problem, is that many people going into business school may have less scruples, be willing to take advantage of people or are amoral. Not everyone is, but we know from research that business leaders tend to have personality traits of psychopaths. We also know that in games like prisoner’s dilemma business leaders act the most ruthless (same goes for economists). The only question is the direction of causality. Does business school create these types of people, does it exacerbate these personality types or do these people go into business already behaving in these manners? I don’t know the answer to that question.

While I was in the Netherlands I listened to a seminar that discussed the way that ethics is taught within the Dutch military. All new recruits must go through ethics courses and then every so many years they are required to recertify on the ethics course. The goal is to bring in new officers with a sense of ethical norms that can prevent atrocities and allow officers to do the right thing when they need to. Of course the military believes there is a fine line between creating a thinking solider and a solider that ends up in analysis paralysis because they are going through too many ethical situations in their mind. The goal of the education is to ingrain many of these ethical situations so reaction is more instinctual even for the ethical choice.

I believe that there is a similar balance that needs to be considered in business. What are the social norms for ethical behavior in many institutions? Well, I think that this really does depend on the institution and the environment that they are in. I think there are no ethical norms within the big banks, which has been played out over and over again with the sub prime, then LIBOR and now HSBC’s money laundering. Perhaps the ethics are there, it’s just considered ethical to make as much money as you can without getting caught doing something that is obviously screwing someone over. The question becomes, can a truly ethical MBA graduate come into an environment and succeed? I think that they will be able to do well compared to your average person, but they will quickly be out shined by their unethical colleagues.  These are businessmen, they understand incentives well, so they will adjust their behavior based on their incentives. This is a normal and rational thing to do.

Are there ways to instill more ethical behavior at companies? I think there are ways. Some are through legal changes, which lower the bar for what is considered a crime when it comes to fraud and unethical behavior. This would either drive the behavior more underground (likely) or change some of it. Other ways would be through forcing a cultural norm where these companies are punished through lack of investment and loss of business. This one has a coordination issue. Many people have no qualms about ethical issues that would use a service like this. Additionally, the sheer number of firms behaving unethically makes it unrealistic for a person to buy ethically made products. I wrote about this at the Urban Times, noting that Apple is being singled out when the entire industry behaves in this manner.

Ethics needs to be taught at many different levels, it encourages critical thinking and self reflection. Developing ethical leaders in all respects of business and politics should be a goal of all universities. However, ethics courses are being cut and many people just don’t see the value in them.

You always have a choice

The phrase “You always have a choice” is extremely prevalent in super hero movies. Ranging from Batman Begins to Spiderman 3 to Wolverine. In whatever situation you’re in, you can do the right thing do the wrong thing or through brute force come up with an alternative that you can force to occur. This really epitomizes the rugged individual and the ideal American to some extent. No matter how down on your luck you always have the choice to be or do something better. The GOP really pushes for this, where many of the candidates argue that they were self made men. I think this is also the root cause for a typical response to the 99% protesters (or someone asking for an increase in minimum wage) – “Get a job.” If the choices are get a job, or not work, the C -brute force response now is – “start your own company” or “make your own job.”

Before, you assume I’m just bashing the GOP, this also comes from the left. The environmental movement also assumes this is possible in regard to personal behavior and reducing your carbon footprint. In many cases they assume that it’s easy for people to change their behavior, because they want to protect the environment. If we wanted to we could drive less, we could buy the less impactful light bulb, we could turn off our computers at night, etc, but people are lazy or don’t care.

So, are the GOP and environmentalists right? We’re all lazy and don’t want to make the right choices? That we don’t want to work or that we don’t want to do what’s right for the environment? I think that for the most part neither is true. You will find freeloaders or people that protest saving electricity by turning on as many lights as possible. However, most people don’t behave that way. So what’s the problem? Why do we have uneven unemployment in some areas, why don’t we all work to save the environment?

It goes back the the choices we can make. One of the big assumptions in economics is that the work force is mobile, that when there’s unemployment in one part of the country people move to where the work is. However, we saw that in the US that isn’t true with this recession. The only people moving were migrant workers which may have been illegal. Why? Why wouldn’t someone with no job in California move to another state to find a job? Well some of it comes down to their ability to move. If they own a house and the choice is to lose everything end up in deeper debt because selling your house (if you could sell it) would leave you hundreds of thousands of dollars in the hole with nothing to show for it, do you really have a choice?

In this way our choices are bounded by our situations. A woman may want to drive less because she wants to do what’s best for the environment, but she has a difficult choice. Move closer to work so she could walk and take her children out of a great school and move them into a lower quality school. I think it’s a no brainer which one she would choose. However, let’s say that the schools are the same, her children may not want to move because they’d have to make all new friends. The gains would be very minimal. There are a lot of costs to moving closer to work even if everything else would stay the same. This case also assumes that there’s only one driver. In many cases this choice would involve two people and the trade offs for one driving farther could complete negate the benefits of moving.

Unfortunately, I don’t believe that we are able to make whatever choices we want. Our choices are constrained by the circumstances we live in. There are ways to work around these constraints to improve our ability to make choices, but that is not easy and certainly not free. When we make policies that impact choices and make assumptions about people’s ability to make choices we need to be aware of these constraints and work to remove them.

Cash reserves, risks and innovation

In my last post I discussed the large cash reserves that companies have been holding since the 2007 recession. As I mentioned there are several reasons for this, some of it has to do with lack of R&D investment. R&D is an expensive investment. This requires both train scientists and equipment to conduct the research. In addition there are extra requirements for technicians and other employees to support the R&D effort. This isn’t cheap. As we can see in the bottom half of the chart all types of research funding has decreased recently.

R&D is not a certain thing by any stretch of the imagination. This is why companies are paring with universities to share the burden of R&D. Universities are doing much of the basic and applied research, while industry is developing it into product. This is where the money is and the greatest amount of certainty. You can’t really blame companies for this, but they need to work to develop their own technologies regardless of the work being performed at universities. To compensate many companies do engage in corporate venturing. This is where they fund a start up to conduct research and get a product to a certain position and possibly buy that company after a certain maturity point, set up an exclusive license or license the technology once it’s mature. This reduces the large company’s risk exposure.


The final piece that has increased since the late 80’s has been the amount of litigation due to patent infringement. In 2011 the amount of money spent on patent litigation was $29 Billion. That is a lot of money. That’s a quarter of the money that Apple has in it’s reserves. We also know that Apple is one of the largest spenders on litigation. I know there are a lot of Apple lovers out there, but they could have invested that money into more products and reduced their risk of a flop with the next iPhone. We all know that iOS6 was a major disappointment for many people, spreading their revenue stream into more sources with some cool research could mitigate any fall out from that or if iOS7 is more of the same. 


Litigation is such an outsized risk because it can lead to your entire firm being shut down by a non-producing entity. This reduces the incentives for innovation and increases the incentives for hoarding cash.

Business Cash Reserves and Innovation

I found an article on MarketWatch that discussed the fact that the private sector is, in fact, doing just fine. As the author mentioned, this didn’t go over very well whenever Obama mentioned it a few weeks ago. However, he’s right. Companies as a whole are doing extraordinarily well (see graph below), but normal people aren’t seeing it. I’ve discussed this before in a Future of Employment post.

As you can see from the graph Corporate profits are at an all time high. We also know that investments are still occurring in new equipment. We know from the numbers that companies aren’t hiring. I think that the GOP would argue that this is because of regulation uncertainty, which they are contributing to. From what I’ve seen the Democrats don’t really have any sort of good explanation for the lack of hiring. The author of the MarketWatch article claims that companies aren’t spending money on new employees because they are returning most of it to stock holders through dividends or stock buybacks. The data supports this perspective to some extent. Part of it could be the fact that many companies are automating, outsourcing and offshoring all contribute to some level or another.

I think that it’s a combination of these factors plus one other factor. This was added as something as a throw away at the end of the article, but it really stuck with me. “Corporations may be intensely profitable, but they have no profitable ideas about what to do with the vast sums they earn.” This comment is extremely important, especially when you couple that with the article that the Washington Post just published about the difficulty of PhDs finding jobs. 


These researchers are the core of the future for innovation at companies. If companies aren’t hiring these scientists, despite the fact that many claim there are skill gaps, then they are unlikely to innovate moving forward. My old roommate in the Netherlands, Brian, told me that the Holst Centre where he worked created 3 jobs for every employee at their research center. I’ve seen similar numbers in one of my courses as well. 


In this case the trickle down effect actually works. You hire researchers and they need to have technicians building equipment, which needs to order parts and raw materials to build those components. Which requires additional labor elsewhere. While 3 for 1 may not seem like the greatest ratio, those other workers typically make good money and will end up spending money elsewhere.

Innovation drives the economy. Companies need to look at how they manage risk, especially if they are sitting on huge reserves of cash. Putting more money into research for their field can lead to huge disruptions in technology and could lead to an increase in market share.

I will talk more about these risks in my next blog.

Europe in the Driver’s Seat

Today I woke up to wonderful news. CERN has discovered the Higgs Boson particle, the so called “God” particle and the EU parliament has voted against ACTA. This is a great day for science and for freedom of expression.

What do these mean? Well, the Higgs particle is supposed to be the particle that gives everything else mass. It is the actual building block that everything in our universe is supposedly built upon. Why do I say supposedly? Well, the discovery is with a 5 sigma confidence. This is a really good, but in many cases they like to have 9 sigma. What does that mean in layman’s terms? So most testing is looking for a probability of less than 5% that this could happen by pure happenstance, or random error. This means that 95% of your data bear out the test your trying to answer. This happens around 2 sigma where sigma represents a standard deviation. Most products are made with safety specifications around 2 sigma, maybe three sigma (99.73%). The values that we’re talking about are so high, that you’re starting to get into the range of lottery winning (or plane accidents for that matter) likelihood for 5 or 9 sigma. With such high confidence you actually start to run into a greater likelihood of missing the actual signal than for it to not actually be there. You are being so strict on your data requirements that something that actually is the real signal is ignored by your data set.

Does this change my daily life? No not at all. We won’t be able to do anything functional at this level for more than a century if ever. We’re still working on the results of Einstein’s theories and how to apply them. We haven’t really gotten quantum computing working or any of the other cool things we’re working on (teleporting light and particles for example). However, it does give us a greater understanding of how the universe works and we’ve had to develop a lot of new technologies to detect these particles. The technologies could be very useful in the future for completely unrelated applications.

ACTA is a very different story. I’ve talked about it in the past and mentioned how much of a risk it was to the openness of the internet and to our society as a whole. The largest political body in Europe has decided to reject ACTA. The vote wasn’t even remotely close. Our hard work has paid off and the treaty is effectively dead. In the US it hasn’t been ratified by the Legislative branch and is really only going to be between the US and Morocco, which really isn’t going to be very effective. This is fantastic news and I’m extremely excited about this.

Unfortunately, we can’t just take a break, we have to keep working on the main reason why these laws are even brought up for vote in the first place. The USTR is currently negotiating the TPP which is starting to be viewed in a similar fashion as ACTA. I believe that we’re on the right path for stopping these types of legislation and treaties.

Way to go Europe in two major things.