Monday, March 30, 2009

Women Building California

Make note of it: the Women Building California conference -- for women interesting in the trades and construction professions -- will be held May 2-3, 2009 at the Los Angeles Marriott Downtown Hotel (333 South Figueroa Street, LA). See: the brochure from Tradewomen Inc. at

How can women trades and contract professionals compete effectively in this marketplace? Is it just a case of women marching with placards that say, "Give us the jobs?" or "We want [fill in the blank]." Or, is something else needed?

They used to say there are three ways to compete as an entrepreneur: on price, on speed, or on quality. Choose any two.

Should women cut their prices to get the jobs? Should women under-bid the competition and the prevailing wage levels as a strategy to win new clients? Over the long term, that will be destructive. Women already grossly under-price themselves in the marketplace. Women discount their wage bids by about 25 cents on every dollar. In a down market, there is even less margin with which to play.

Instead, women should be sure they cover all costs. They can actually be better at identifying all of the real component costs of production and presenting those clearly and honestly to clients. Women can be really good at searching out opportunities for economies of scale or efficiencies in production. Trade and contracting professionals today have become conditioned to grossing-up and aggregating costs, bundling everything together in one "trust me!" estimate. Women can compete by adopting a more transparent strategy: disclosing true costs and taking appropriate mark-ups where they add real value.

Should women say they can do a job faster? Can they go head to head with brute strength? Or should women finesse speed through efficiencies?

Women can compete by doing a better job of work site preparation, job scheduling, team performance, and final turnover. Rather that cut corners to speed things up, women can cut real waste that has resulting in cold hard cash outlays by the client. Women can cut duplication, reduce pilferage, and eliminate other inefficiencies that nickel and dime the customer. Trade and contracting professionals today have become good at the "take it or leave it" bid strategy. They come in with one bid, and later jack the charges up by hiding job inefficiencies and incompetence. Women can compete by keeping customers informed, in control, aware of actual costs, and by managing operations effectively.

Speed is a relative thing and a function of the customer’s expectations. Fortunately, women are competing against tradesmen and contractors who are notoriously bad at multi-tasking. We call these "the scheduling impaired." Many tradesmen and contractors today act as if they do not care if they ever do business again with a client.

Women can compete effectively by building a strong, trusted relationship with clients. A client who speaks positively about a job experience provides the most powerful marketing possible.

Delivering a quality product or service is a matter of doing what the customer thought was going to happen, at the price and at the pace the client expected. Quality also includes consideration of maintenance over the long term. Tradesmen and contractors undervalue the total operating costs which the client will incur. Women have a long track record of living with the results and taking care of the final product.

Women can avail themselves, today, of more energy efficient design and construction standards and methodologies. Clean building techniques and technologies can provide customers with energy savings in operating costs and reduce the outlays required by replacement. Women can be early adopters of these emerging technologies and educate themselves in how to implement them, providing a unique competitive edge.

There are a host of other costs of doing business which have raised the barriers to entry for women as newcomers to the trades and contracting professions. More taxes, higher bonding requirements, increased insurance mandates, reasonable wage expectations for employees all together add up to significant operational overhead for new entrants. Today, many tradesmen and contracting professionals take shortcuts and operate shoe-string, cut-rate operations, short-changing society by not paying their mandated fair share.

It’s a tough balancing act, but if women can manage their business as a complete and professional entity, covering all legitimate costs and addressing all legitimate regulatory requirements, then customers will benefit from having a complete business partner, not simply a fly-by-night marginal operation. The requirement is that customers, both public agencies and private sector, understand that when some tradesmen and contractors are allowed to get away with not paying their due, then we all pay the bill in the long term. As a marketing strategy, women can show they are positive community citizens by affirming their support for "playing by all the rules" of the profession.

So, women can compete on price, speed and quality -– all three at once. All they have to do is be sure they "think like a customer." Which is exactly what they have experience doing.

Friday, March 27, 2009

Passion Is Not Enough

If you’re a woman in business, you’ll be inundated with advertisements from conference organizers, marketers, and entrepreneurial advocates inviting you to hear speakers talk to you about,

"Find Your Passion!"

If you were a man, you’d never experience such patronizing superficial advice. Instead, you’d be told how to write a solid business plan, deliver a powerful and persuasive elevator speech, focus on the core value of your product or service in the competitive marketplace, and satisfy high-value niche market demand. But, if you’re a woman, "finding your passion" somehow should make miracles occur.

Any real woman who is in the marketplace as an economic participant knows that passion is not enough. Why do women keep getting this hype, anyway? Why do hordes of women business wannabees hunger and thirst after this superficial tripe? Because, for the most part, that is all that is out there. . . for women.

First Lady of California, Maria Shriver, fosters this advice in her annual Governor’s Women’s Conference, that bling-fest dedicated not to the development of real and substantial business skills, but to the constant marketing of jewelry, g-string undergarments, and environmentally-sensitive recycled t-shirts. Passion drives the search for yet another magic potion to hide wrinkles and thereby miraculously raise women’s incomes from near-subsistence levels.

Women have been conditioned to be consumers from the time they could recognize the difference between the colors blue and pink. Little boys are conditioned in team sports and learn how to reach their personal best through merit badges and training. Little girls are taught to sell cookies. Or worse, little girls are taught to manipulate their parents into selling cookies for them at their places of employment. Today, teachers program boys and girls to hype magazine subscription sales in school fundraisers, incenting the kids through -– you guessed it -– selling t-shirts emblazoned with their favorite product-placement cartoon playmates.

Oprah Winfrey invests in girls’ leadership, not in the hardtack world of Cleveland or Peoria, but out in some remote African town where she can tell them to paint themselves pretty with mascara and make-up so they too can "feel the passion!" It’s easier to sell a new face job than it is to educate a young girl how to take on a leadership role in her community.

On the recent 50th Anniversary of the Barbie Doll, a Wall Street Journalist reminisced about when she was a young girl hungering for her very first Barbie: blonde, skinny, perfect. The journalist reminded us what it was really like back then. She divided her girl friends into three groups: (1) Those who could afford to buy, and to look, dress, and act Just Like Barbie. (2) Those, like herself, who wanted to be just like those girls. And (3) an amorphous group, whom she dismissed with the disparaging comment that "they didn’t want Barbie Dolls." Ah yes, in other words, those other girls were not consumption-driven "like us," so they must have been sub-human. They probably wanted to read books (ugh!), study (yech!) or associate with people who were not driven by the marketplace (how DARE they???).

And we wonder why so many women persist in the belief that consumption, spending, and shopping constitute viable entrepreneurial business-building activities. That’s what they can be "passionate" about. But passion isn’t enough when the money runs out.

Wednesday, March 25, 2009

Adam Smith Again

The concepts of "sympathy" or "empathy" establishe the foundation on which transactions occur in our capital markets. Adam Smith was right. Sympathy is the mirror image of trust: the sense or knowledge of how another person would value the deal. Trust is an essential pre-requisite to a negotiated economic contract or trade. The fact that "there is no trust among bankers" today affirms that the underlying problem is not the quality of the assets, but rather the quality of the asses behind the assets.

Let us revisit "self-interest" vs. "greed." "Self-interest" is essential to a negotiated contract for the best possible or mutually-beneficial salary, commission, or bonus for a top performer. Good people earn a real return for good results. On the other hand, "greed" is more a case of what can you take. As we saw with the AIG Financial Products unit, some executives knew they could extract huge payouts from a morally- if not financially-bankrupt company because those same individuals created contractual instruments that stated: "If I leave, every contract with my name on it becomes re-negotiable at current market conditions." Who would not agree to pay exorbitant sums in order to avoid facing that "mark-to-market" disaster?

If compensation is performance-based, generally we want results rather than to be "held hostage by the short hairs." "Pay-to-play" has taken on new and huge consequences in this marketplace. Who, in their right mind, would ever want to do business with that person again?

Too often we hear men in business conundrums tell us, desperately: "What will it cost me to get rid of this mess?" As a result, we keep putting the U.S. economy into these deep muddy sink-holes whenever businessmen, with no conscience, take short-cuts to achieve maximum personal benefit at the expense of others with whom they hold no sympathy or empathy.

Adam Smith’s "other treatise," (The Theory of Moral Sentiments) said that man cared about how his peers might assess and evaluate his behavior, his actions, and himself as a person. Man would exhibit self-control and self-restraint and would avoid acting in a manner that might bring down upon him the adverse judgment of those others whom he respected.

If economic man negotiated without sympathy or regard for the other party in a business deal, then he would be negotiating for a winner-takes-everything contract rather than search for a mutually-beneficial deal or price reflecting the true value perceived by both buyer and seller. Economic man would not stay in business very long with a reputation for always taking his economic partners to the cleaners. The marketplace soon would learn to not trust him, and he would not remain in business.

Likewise, too much sympathy would result from economic man "giving away the store" by being too willing to sacrifice his own vital economic interests in the deal-making. Economic man would soon go out of business as being generous to a fault.

The viability of the capital marketplace depends on trust and mutually-negotiated agreements as to what the final value should be. What is the resolution that will benefit all parties concerned: now and tomorrow? Is that so difficult a concept with which to sympathize?

Friday, March 20, 2009

I Don’t Like Czars

I really don’t like czars or tsars or shahs -- at least not in the American capital marketplace. They remind me of monopolists: those leaders who grab too much power or (worse) megalomaniacs who are given, voluntarily, too much authority with too little oversight, checks or balances. Why do we think the American capital marketplace needs a car czar or a credit tsar?

Czars are the kind of people who neither get enough information to make a sound decision nor provide enough transparency or disclosure for the rest of the marketplace to be able to make good pricing, valuation, or survival choices. Tsars are bottlenecks.

I don’t like emperors, either. My aversion must come from watching too many PBS specials of the leader of Japan during World War II, reviewing all the correspondence from his constituency about what a wonderful job everyone thought he was doing. Except those letters were typed out by the hordes of drones in the military who were told to write the glowing accolades so the military leaders could keep their money and manpower flowing in support of their aggression. Both Washington and Eisenhower warned us of the dangers of the "rule of the industrial/military complex."

I don’t like the idea of lemmings holding little red books of sayings from a master leader. I’m not one to chant with hordes in unison about the divine inspiration of one meager human being.

I don’t like watching religious power grabbers or their protective guards who tromp through my personal rights and freedoms, telling me what I should or should not wear or what they think I should think.

I didn’t like reading about how the president and vice president of the United States, with the help of their scribes in the Attorney General’s Office, believed that the democratically-elected temporary leader of this nation possessed near divine powers.

I don’t like car czars because I don’t believe one man knows enough to decide what’s best for the entire automotive industry. I don’t like insurance czars because I saw what Hank Greenberg did with AIG. I don’t like bailout czars because Hank Paulson didn’t know how to control markets any better than Alan Greenspan, Ben Bernanke, Timothy Geithner or Lawrence Summers. And I sure as anything don’t like media czars -- whether he be Rush Limbaugh or she be Anne Coulter -- because they have nothing at stake when they yell FIRE in this already panicy crowded room. Their only currency is words, while the rest of us are trying to protect our assets for both our future years and that of our families.

Give me someone, in today’s marketplace of money and ideas, who cares about the consequences of his or her actions and words. Give me someone who will roll up his or her sleeves and do the hard work of renegotiating and modifying real mortgage loans. Find me the financial person inside banks or swaps parlors who will paw through the files to find the real ownership and the remaining value of derivatives, obligations, and assets –- not just the bonus candy.

Don’t give me any more superstars or ego maniacs who wax poetic, strumming a nostalgic memory about "the good ol’ Resolution Trust days." I was there. Those days were not good, nor trust-building, nor did the RTC resolve anything. Those days represent the biggest write-down of financial value and the largest forced fire-sale of bank assets to the merger-and-acquisition-crowd in the history of American finance -- so far.

The idea that a czar could have value in the U.S. capital marketplace is wishful thinking at the most adolescent level. It is, to paraphrase H.L. Mencken, a simple solution to a complex problem. And it is wrong.

The belief in czars is the contemporary equivalent of "Father Knows Best" -– the hope that magic could happen if we would all just think positive thoughts and sprinkle fairy dust on our problems. Kiss the frog. Await the prince’s kiss. It’s all a childish desire for easy solutions. It is a false trust that we can no longer afford in our very adult 21st century world.

Sunday, March 15, 2009

Is Greed Good?

In the 1987 film, Wall Street, Gordon Gekko (played by Michael Douglas) addressed the Teldar Paper stockholders with the now famous tirade:

"I am not a destroyer of companies. I am a liberator of them!...
Greed -- for lack of a better word -- is good.
Greed is right.
Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind."

The only trouble is that Mr. Gekko suffered from "lack of a better word." That better word is "self-interest."

The difference between "self-interest" and "greed" is when the airplane is careening out of control towards the ocean below, a "self-interested" individual would put the oxygen mask on herself, first, in order to remain conscious and be able to assist others in her immediate area to do likewise and prepare themselves and herself for a very rough landing. A "greedy" individual would be the one grabbing all of the oxygen masks within his reach, precluding everyone else from pursueing their best opportunity for survival. He would take every and all possible step to guarantee that he alone survived. That is the difference.

Adam Smith knew the difference, too.

Adam Smith, Scottish economist and moral philosopher, wrote An Inquiry into the Nature and Causes of the Wealth of Nations (March 9, 1776), the seminal work that earned him the reputation as the "father of modern economics." The Wealth of Nations explored the concept of the division of labor, how workers developed unique skills or how countries developed different products, each of which could be exchanged or traded in the marketplace with others. Smith argued that it was "self-interest" that drove humans into the marketplace in search of appropriate pricing or valuation of their goods and services. He believed in a "meritocracy:" where people, when left to themselves without undue external pressures or controls, naturally would strive to better themselves and their fellow men/women. That is not greed.

What most people don’t know is that 17 years earlier, Smith wrote another treatise, The Theory of Moral Sentiments (1759), which provided the philosophical and ethical foundation for capitalism as developed later in Wealth of Nations. We cannot understand capitalism unless we first understand Smith’s ethical statements. It is this first tome that is much more in harmony with the thinking processes of many women business leaders.

In The Theory of Moral Sentiments, Smith first spoke of an "invisible hand" in describing the apparent (almost accidental) benefits that accrue to society as a consequence of people behaving in their own "self-interest". Even more important is his discussion about how social relationships engender the human conscience. The Theory of Moral Sentiments describes human beings as being both and "simultaneously self-regarding and other-regarding."

That does not sound like greed.

Smith observed that humans have a strong and natural tendency to feel "sympathy:" the ability to care about the well-being and the opinions of others. His theory of sympathy held that humans become aware of themselves as individuals and of the morality of their own behavior by observing the actions and behavior of others. In other words, a human cares what other people think of him and his actions.

If we observe the fortune or misfortune of another person (or even if we simply learn about the situation of another person, second hand), we empathize with that other person -– we have the capacity to feel as if we were the other person and to experience either the positive or the negative state.

We also judge the opinions of others as correct or incorrect based on our assessment of whether or not they agree with our own opinions. People judge the consequences of one's actions and determine whether one is "just or unjust" in committing those actions.

People also judge the sentiments surrounding the actions of others. We sympathize with another person when he or she experiences either small joys or great grief. Small grief will generate a small measure of sympathy. But great joy or good fortune very likely will generate envy and social disapproval: engendering "jealousy in those he overtakes, or any envy in those he leaves behind." Conscience and sympathy inform us when "too much is too much."

"How selfish soever man may be supposed, there are evidently some principles in
his nature, which interest him in the fortune of others, and render their happiness
necessary to him, though he derives nothing from it except the pleasure of seeing
it." The Theory of Moral Sentiments (1759; 1976, 9)

Perhaps it is the pleasure of seeing another's fortune and happiness, or perhaps it is the golden rule. There might be a limit to what economic man (or woman) perceives that he/she could gain from the marketplace. It is our conscience (our ability to empathize with others) which informs us exactly how far one might reach before it becomes over-reaching.

It is our conscience that knows what is in our best "self-interest." Perhaps it is the absence of conscience, or a decision to ignore conscience, that produces "greed."

Tuesday, March 10, 2009

A Flawed Business Model

There are a whole slew of business articles these days along the same lines as Eric Dinallo’s recent Wall Street Journal opinion piece, “Buyers Should Pay for Bond Ratings” (WSJ, p. A11, March 3, 2009). Mr. Dinallo is New York’s state insurance superintendent. His premise is very familiar in this marketplace where "it’s not my fault" seems to rule. Mr. Dinallo said:

"The failure of [ratings agencies] is not rooted in a lack of talent or insight, but rather in a fundamentally flawed business model."

Yeah, right, and the reason Pete Rose was suckered into betting on sports teams was not because of his "lack of talent or insight," but rather due to a "fundamentally flawed Major League Sports business model."

Instead of the phrase 'ratings agencies' in this article, you could just as easily substitute stock analysis, special investment vehicles, credit derivative obligations, swaps, short sales, corporate bonus structures, executive performance compensation, accountants, auditors, or stock options. Problems in all of these financial arenas are due to "a fundamentally flawed incentive system," aren’t they?

Frankly, that fundamentally flawed business model is beginning to look an awful lot like the entire capitalist market system. Is that what Mr. Dinallo believes should be tossed out the window?

Mr. Dinallo describes the "problem" of the ratings agencies as the "issuer pays" conundrum, which means that those who come up with all of the fancy securities, and thereby create the underlying security risk, are the ones who bear the financial burden of the "objective evaluation" -- the ratings of those securities by third party ratings agencies.

Investment brokers (which have all been converted to federally-supervised bank holding companies) used to pay for the ratings of the securities that they created and packaged. There are only 3 major U.S. ratings agencies, and 7 "nationally-recognized statistical ratings organizations," (NRSRO) all of whom now also come under the regulatory oversight of the SEC. Essentially, the SEC mandates that ratings agencies score securities so that the investing public has some objective evaluation of the true and underlying value and risks. Now that regulated investment brokers cannot dictate terms to regulated ratings agencies, only now do we hear the hue and cry that the "issuer pays" business model is flawed.

What is so very interesting is that a 10 month examination of the nationally recognized statistical ratings organizations by the SEC recently found pervasive conflicts of interest; predatory, unfair, abusive, or coercive practices. Now that the NRSROs are coming under the tougher oversight of new rules and regulations -- including greater public disclosure, retention of records, the production of regular financial reports, mandatory procedures to handle material non-public data, and avoidance/management of conflicts of interest -– only NOW do we hear the claim that the "issuer pays" business model is flawed.

There was never any "lack of talent or insight" when the investment community could manipulate the ratings agencies to their hearts’ content, getting just the right number of As out of that perfectly tuned business model called the in-the-sack-with-us world of ratings agencies cum security analysts.

Mr. Dinallo’s "solution" is to change the current payment system, the subsidy of ratings agencies, from the supply side to the demand side. The fees or charges for an objective evaluation of securities should be relocated to the buyers. He believes we will clean up the cesspool of NRSRO behavior by simply transferring the financial burden to the securities buyers. It really escapes me how he believes that the buyers miraculously will be able to change the patently "flawed business model" of ratings agencies behaving badly in bed with former investment bankers/brokers also behaving badly. What he’s really saying is that if the ratings agencies have to prove they are fair and objective, then nobody on Wall Street will be willing to pay for a securities rating. That suggests that the sell side believed they were paying for something other than a fair and objective assessment.

Let’s assume by magic wand we transfer the fees from Goldman Sachs or JP Morgan to Mr. and Mrs. Pension-Holder or to Municipal Pension Fund. But, we don’t increase competition: let’s keep the same 3 or 7 NRSROs and just trust that they will clean up their act. Now, GS and JPM get to issue their same esoteric securities, but the consumer side gets to pay the overhead.

When the financial markets go into another spinout, and the buy side gets very nervous about credit and their holding, again, guess what they won’t do? They won’t buy securities, and they certainly won’t pay for ratings -– objective or not. The market will freeze up faster and much more harshly because the buy side will stop buying.

What we (and Mr. Dinallo) keep forgetting is the fundamental economic concept that the appropriate market price is reached through arms' length negotiations between two honest economic actors trying to find a mutually beneficial reflection of underlying perceived value.

In other words, price is not the extortion that one party could exact from another, na├»ve, uninformed, victim in the marketplace -– some participant over whom one party has gained leverage through fraud, duplicity, predatory behavior, among other illegal and unregulated means. Really, Mr. Dinallo -– extortion is not a good mechanism for finding a long term price in the marketplace. Competition is a better mechanism, but you cannot control competition as Wall Street has tried to control securities analysts and ratings agencies.

Please save me from hearing one more banker state, with a straight face, that "we failed to provide the right incentives to executives," so naturally economic actors were motivated to participate in fraud and deception to gain excessive compensation and perks.

"They made me do it! It wasn’t my fault. It was a 'flawed business model.'"

Sure it was.

Thursday, March 5, 2009

Powder Puff Questions

Why DO women keep asking the powder puff questions? What explains this common phenomenon whenever a woman of competence stands before a gaggle of girls? A researcher might pose alternative hypotheses, then test them against the evidence, in order to learn what diagnosis or answer might validly result. One possible hypothesis might be:

H0: Women ask the powder puff questions because they perceive the questions have not yet been answered to their satisfaction, thus women are searching for "the right answer" or information.

It would seem that the 1,000 women’s magazines that clog American newsstands, all posing and "answering" these same career, family, and husband questions, apparently do not accomplish the task. The magazines’ tests, lists, surveys, advice columns, and how-to articles apparently are not satisfy women’s concerns. The countless TV shows, networks, and web-sites promising women "the answers to all your questions" also fail to accomplish their stated objectives. Oprah Winfrey’s incessant hours of heart-rending interviews, her magazines, her programs all do not adequately answer women’s questions. Nor has Martha Stewart’s "omni-present" media empire satisfied women that they will find answers in her magazines, her advice, her shows, or all her personal appearances. Women still are so unsatisfied that they believe the same powder puff questions should be asked of Presidential candidate, Secretary of State, former First Lady Hillary Clinton.

It is astonishing, really. One wonders why their mothers or grandmothers neglected to teach them anything. Perhaps, today’s women simply chose not to listen to the advice of their forbearers. This generation of women opted to toss out "home economics" which once was the mechanism for conveying knowledge and information from prior generations of women on to the next. Contemporary women opted for the wisdom of magazines, television, and info-mmercials over the sage advice that might have been provided through their own families or the educational system. So, "our daughter knew best," but now she is constantly asking any woman she meets, online or offline, "how do I do it?"

Does the data support the hypothesis that the answers have not been provided? Or does the data suggest that a host of answers have been provided, yet they are not the answers women would like to hear? This raises the possibility of a second hypothesis.

H1: Women ask the powder puff questions because they get greater satisfaction from asking the question than pursuing the answer. Women prefer to focus the dialog on the common denominator of family, children, and spouses where they can maintain a sense of control over "household" and "personal" issues.

Some women prefer to retain center stage by keeping the conversation focused on "home." Rather than encounter the challenges of an uncertain world or the demands of knowing and learning how to manage those risks, some women insist on bringing the questions down to the kitchen and bedroom where they feel most comfortable. This is a variation on the "dead-even rule:" where low self-esteem women downgrade the merits and accomplishments of achieving women in order to "bring them down" to the level of the women who doubt themselves.

Focusing on the families of women in leadership such as Hillary Clinton affords the questioner the opportunity to raise doubts about the loyalty of Mrs. Clinton’s husband and her ability to keep her husband’s attention. The logic goes something like this: "If uppity, achieving women can be found to have chinks in their aprons, then weaker, uncertain women will have an excuse for 'not following in her footsteps.'"

It’s easier and more fun to doubt the successful woman, thereby avoiding the requirement that a woman strive for accomplishment. To achieve, a woman might become vulnerable to the same personal failings and losses as they allegedly "found" in the woman of achievement. You, too, could risk "losing the love of your husband" if you tried to succeed outside of the holy nest.

In the minds of some fearful women, it is better to never strive or risk facing the possibility of failure. The prospects of learning from challenging experiences are too remote for their appreciation. Some women believe it is safer to talk only of household, children, charities, sacrifice, and family things. Financial literacy requires not only math, but personal responsibility and self-management of financial choices. If some women succeed in bringing everyone else down to their level of populist concerns, then they will never have to face the challenge of other bigger issues, up at that foreign level of their full emotional and intellectual potential.

The power-puff questions come more from those who want to ensure that the dialog stays right where they feel safe and comfortable: right at home in The Little Girls' Room.