Friday, September 25, 2009

Why I Don’t Like Czars

Kenneth Feinberg, attorney with the law firm, Feinberg Rozen LLC which specializes in mediation and arbitration (http://www.feinbergrozen.com/), was appointed "pay czar" by President Obama in June to decide compensation packages for the highest-paid personnel at the seven companies that received U.S. government bailouts.

Mr. Feinberg apparently has "a team of 15 people" to review pay data submitted by major firms that needed extraordinary assistance, (including Citigroup Inc, Bank of America Corp, and American International Group Inc.). They reportedly are "using formulas and data analysis to determine executive compensation" rather than relying on pay caps.

There is no question about Mr. Feinberg’s credentials as an attorney and mediator: he was special master of the September 11th victims' fund, administered funds for victims of the Virginia Tech shootings and Vietnam-era Agent Orange poisonings. But, is this situation really comparable to any of those? Why is Mr. Feinberg operating as his own un-legislated Resolution Trust Corporation?

Who are the 15 wise men (and maybe women) who get special access to pay data that none of us taxpayers, customers or shareholders get to review during our assessments of the competence of those corporations, their board members or their compensation committee members?

Why is Mr. Feinberg the only person on the planet, apparently, with the wisdom to come up with data analysis and formulae to assess the appropriateness of executive compensation?

Why is his magic more powerful than the potions whipped up by the people at Nationally Recognized Statistical Rating Organizations (NRSRO)? Should Mr. Feinberg register himself and his team as an NRSRO?

What on earth ever happened to the promises of transparency and disclosure about executive compensation from our friends at Financial Stability DOT Gov?

Why is it that this compensation wizard gets to hit the speakers’ circuit and get paid to talk about his personal, isolated interpretation of compensation rights or wrongs at companies that required us poor citizens to dole out "extraordinary assistance."

Mr. Feinberg currently is scheduled to appear at about 8 public (and private) speaking events over the next couple of months. Frankly, I don’t want him to get one red cent privately from corporations or associations before he appears before the Congressional Oversight Panel (cop.senate.gov) and explains to me the magic of his "formulae" compared to the mystery of the mathematical models that were used by those same people to get us into this mess in the beginning.

Thursday, September 17, 2009

Financial Crisis Inquiry Commission

Among the many working groups, agencies and commissions charges with assessing blame for the latest financial imbroglio is: The Financial Crisis Inquiry Commission (FCIC). It is worth watching how this commission performs.

Phil Angelides (former California state treasurer and the 2006 Democratic nominee for California governor) was named as Chairman of the Commission. Other members include:

Democrats:
  • Byron Georgiou, a lawyer with a major securities litigation firm and a business owner

  • Brooksley Born, a former financial regulator (CFTC) under President Bill Clinton who was an early and vocal proponent for derivatives regulation in the 1990s

  • Bob Graham, a Florida Democratic Senator

  • Heather Murren, a retired managing director at investment bank Merrill Lynch; and

  • John W. Thompson, chairman of Symantec Corp., a business-software provider.


  • Republicans:
  • Bill Thomas, a former chairman of the House Ways and Means Committee and a conservative, pro-business lawmaker

  • Douglas Holtz-Eakin, a conservative economic adviser to Republican Sen. John McCain of Arizona during last year's presidential campaign

  • Keith Hennesey, former director of the Bush White House's National Economic Council (also see his invitation to provide input to the FCIC at: his blog) and

  • Peter Wallison, a director at the American Enterprise Institute, a conservative think tank.


  • See the July 16, 2009 NY Times article.

    The Commission held its first public meeting September 17, 2009 and named Thomas Greene as Executive Director. Greene was Chief Assistant Attorney General and head of the Public Rights Division of the California Attorney General’s Office.

    The enabling legislation was The Fraud Enforcement and Recovery Act of 2009, or FERA, (Pub.Law 111-21, 123 Stat. 1617, S. 386) signed May 20, 2009 which takes a number of steps to enhance criminal enforcement of federal fraud laws, especially regarding financial institutions, mortgage fraud, and securities or commodities fraud.

    Section 5 of the Act creates a legislative commission, with each house of the Congress represented by three members appointed by the majority party and two members appointed by the minority, none of whom may be employees of the Federal government or any state or local government. The charter of the FCIC provides a shopping list of the possible sources of the recent financial disaster and bailout.

    The purpose of the Commission is

    (1) "to examine the causes, domestic and global, of the current financial and economic crisis in the United States. Specifically the role of ---" the following (22) possible causes:

    (A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
    (B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
    (C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
    (D) monetary policy and the availability and terms of credit;
    (E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
    (F) tax treatment of financial products and investments;
    (G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
    (H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
    (I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
    (J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
    (K) the concept that certain institutions are ‘‘too-big-to- fail’’ and its impact on market expectations;
    (L) corporate governance, including the impact of company conversions from partnerships to corporations;
    (M) compensation structures;
    (N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
    (O) the legal and regulatory structure of the United States housing market;
    (P) derivatives and unregulated financial products and practices, including credit default swaps;
    (Q) short-selling;
    (R) financial institution reliance on numerical models, including risk models and credit ratings;
    (S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
    (T) the legal and regulatory structure governing investor and mortgagor protection;
    (U) financial institutions and government-sponsored enterprises; and
    (V) the quality of due diligence undertaken by financial institutions;

    (2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;

    (3) to submit a report under subsection [by December 15, 2010] (h);

    (4) to refer to the Attorney General of the United States and any appropriate State attorney general any person that the Commission finds may have violated the laws of the United States in relation to such crisis; and

    (5) to build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of the Committee on Banking, Housing, and Urban Affairs of the Senate, the Committee on Financial Services of the House of Representatives, other congressional committees, the Government Accountability Office, other legislative panels, and any other department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States (to the fullest extent permitted by law) with respect to the current financial and economic crisis.

    A Very Wise Justice

    Do corporations have the same rights as human beings? How could that be if they are creations of state law and judges’ opinions, asked the newest member of the U.S. Supreme Court, Justice Sotomayor? If corporations have a right of free speech, do they also have other inherent rights -- of vote, of assembly, of the right to bear arms? How far down that slippery slope do judges want to travel?

    If corporations have the same rights, do they have the same responsibilities and liabilities as human beings? If a corporate marketing arm creates a political movie, which perchance steps over the line to slander or defamation of character, do the corporate individuals have a liability as a human being would? If that liability includes a financial penalty, would the corporate individuals take the financial hit or would shareholders be held accountable for the offending behavior? Can a human being separate out its responsibility as a corporate entity can? Can a human being hold someone else liable for the adverse impact of his or her actions?

    Interesting questions from a very wise Justice. Finally.

    See the article: "Sotomayor Issues Challenge to a Century of Corporate Law" at WSJ September 17, 2009.

    Wednesday, September 16, 2009

    The MIND Research Institute

    The MIND Research Institute of Santa Ana, CA has developed software educational products, based on neuroscience research, to teach math based on spatial-temporal reasoning -– "thinking in pictures" as co-founder and chief technology officer, Dr. Matthew Peterson would say. For those of us who have been learning how to use web-based technology through the Teach Yourself –- Visually series of books over the past 10 years know exactly why this program is succeeding. It’s natural!

    Dr. Peterson co-developed the teaching products with Dr. Gordon Shaw, who founded the Institute in 1998, and whose 30 years of scientific research at the University of California, Irvine, CA provided the foundation for their revolutionary Math+Music curricula. Dr. Shaw’s vision was to teach "all kids, regardless of cultural and socio-economic background, how to think, reason and create mathematically." Dr. Shaw passed away in April 2005.

    According to a recent LA Times article, the Orange County Department of Education and members of the private sector raised $1.1 million to use the product at 64 elementary and middle schools with 15,000 students. That comes to about $73 per student. The results were a 12% increase in math proficiency compared to an average of only 4.5% improvement statewide.

    "Innovative math program boosts scores at O.C. schools" by Seema Mehta, Los Angeles Times, September 15, 2009

    LA Times.com.

    MIND Institute press release.

    Friday, September 11, 2009

    Forum for Corporate Directors Orange County

    The following women corporate directors have been added to the FCD-OC Hall of Fame over the past thirteen years. Do you know who these women are? Some of them represent the finest corporate directors U.S. business would ever want to have on their boards. And, now, one is an Ambassador to Argentina. Outstanding, yes?

    2009 - HARRIETT M. WIEDER - Chairman’s Award
    2008 – BARBARA ALEXANDER - Corporate Governance
    2008 - JEANNE JACKSON - Corporate Leadership and Service
    2007 - LINDA FAYNE LEVINSON - Corporate Leadership and Service
    2006 - JANET DAVIDSON, Corporate Citizenship – which one?
    2005 - VILMA S. MARTINEZ, ESQ, for Companies in Transition
    2002 - BETSY SANDERS, The Sanders Partnership
    2001 - KIMBERLY CRIPE, CEO/President, CHOC Hospital
    1999 - CAROL MILTNER, Global Distribution Council
    1997 - KATHRYN BRAUN, Western Digital
    1996 - JULIE NEWCOMB HILL, Hiram-Hill Development

    Thursday, September 10, 2009

    Working Together?

    Cisco CEO John Chambers is on target when he says Internet 2.0 will be defined by pervasive video and collaboration tools. But I’m not sure social networking has evolved to the point of being an effective collaboration vehicle. Collaboration is an interesting word: co: together, labor: to work. The act of working together. Not playing together. Not socializing. Not even networking. Rather, working together.

    I receive countless requests to become a buddy or a contact on a host of social networking tools: IM, LinkedIn, MySpace, Facebook, Twitter. I’m sure they want me as a contact only because they believe they can use me to get to the women in leadership about whom I’ve written in my book, Outstanding in their Field: How Women Corporate Directors Succeed. That’s a pretty sad thought: they don’t want to associate with me. Rather they want me to make it possible for them to associate with others.

    Not too likely. Why? Would a newspaper journalist give away his/her sources? Would a company executive give away his/her client list? Would any professional delight in exposing his/her priority contacts to the unfettered public adulation of social paparazzi? Would you make your personal contact list available to anyone who requested it?

    The questions need to be answered: Why do you want to connect to me? Why are you networking with me? What do you want from me? What is the benefit in our associating with each other? Why would I want to go into this public space with you?

    Because it’s cool, I’m told. Because everyone is doing it, they say. Because it’s so easy. Because I asked you. Because if you don’t, then you must be old. Because I want your business for my business. Because I want your clients for my clients. Because I don’t want to work as hard as you did to accomplish what you did. Because, if you don’t do what I ask, then I’ll tell all my friends that you’re a snob. Because you need me, because I’m part of the next generation. Because mentoring is such a good thing. Because you SHOULD.

    Why would I want to help you succeed? Certainly, it is not because I’m easily intimidated into taking action or making choices. If you want me to help you succeed, then there must be some sort of positive reflection on me -– some benefit to me. When I provided the opportunity for women in leadership to participate in this book, to be interviewed, they had to feel confident that this would benefit them and the things they valued. It could not simply be something that benefited me. I had to allow them to see what I was doing, read what I had researched, see the questions I wanted to ask, and enable them to phrase their answers in words they would find acceptable. In fact, they had to be more impressed with my efforts and the value I was attempting to create than I was impressed by them. Which, believe me, is saying a great deal.

    Somewhere along the way we changed the concept of "mentoring" from something that was given by choice on the part of the individual with the experience and the value into something else that is presumed to be entitled by birth on the part of the individual who has yet to prove him/herself. Today, we are told by no less than our President and our First Lady that we MUST volunteer in service just about everywhere -– in our communities, to our government, to our schools and places of faith. We must give everything of ourselves.

    But, who cares? Who values what is being given if we merely expect this of everyone? Are we able to distinguish anymore between the individual with value who chooses, consciously, to invest in those whom she/he deems worthy of the venture versus everyone else, value or otherwise, who chooses lemming-like to follow the dictates of a commander in chief and his coterie? If everyone gives out of guilt, then how do we determine if what is being given is of value? Or -– even more importantly -– how do we know if the recipient knows how to value that which has been given?

    John Chambers has some interesting and powerful "rules" which guide his business strategies. He chooses technology based on whether it has the capacity to drive productivity. He also believes in strict, ruthless control over costs. Tough! He has a "playbook" by which he runs his businesses. They are the same rules that guide our "working together":

    1. Be realistic -– guage the challenges created by the economy and challenges which are self-inflicted.

    2. Assess your situation -- ask how long a downturn will last and how deep it will be.

    3. Get ready for the upturn.

    4. Get closer to your customers.

    5. Watch the stockmarket to track trends.

    6. Always have more cash, not less.

    7. Be aggressive –- organize yourself to be positioned to compete.

    Good advice for these times: HOW we can work together.

    Saturday, September 5, 2009

    Work Family Balance

    I have been impressed by the work and research of Dr. Anna Fels since reading her book, Necessary Dreams: Ambition in Women's Changing Lives, which I reviewed in my blog, back in March 2005: See my review.

    My own book, Outstanding in their Field: How Women Corporate Directors Succeed (Praeger: June 2009) is an attempt to do exactly what she suggested in your book: give women the recognition and credit that they so rightly have earned.

    Many women ask questions about "work family balance" in my speaking events, even though my focus is on governance and leadership. Therefore, I’ve had to deal with the same issues that Dr. Fels addressed. The following are some preliminary thoughts.

    Recently, Dr. Fels appeared in a video presentation on Gender Parity at the World Bank. Gender Parity.

    She noted that, "At the World Bank, many programs have been established in an effort to accommodate families: leave with pay, 'flex' time, and a flexible policy toward paternity leave." Yet despite these programs, only 2% of women avail themselves to these options. "This is particularly striking given that 50% of new hires range from age 35 and below, prime childbearing years," Dr. Fels said. She also noted that "the average age of a female staff member at the birth of her first child is 37."

    One questioner in her audience recognized that there is a divergence between the wishful thinking that women, human resources professionals, and gender studies researchers have about work-family balance programs in the workplace vs. the reality of what actually is working there, which is essentially nothing.

    We keep pointing to "enlightened real leaders" among a few rich companies capable of offering "company store" solutions such as on-site day care, paternity leave, flexible time, etc. Some companies that implement such programs, like Lehman Brothers, also have a tendency to fail and/or eliminate them during times of financial or economic distress. These realities suggest that we have not yet created solutions with a sufficiently well-founded economic foundation that they can endure over the long term or win market share.

    One explanation for the discouraging results is a persistence of barriers and prejudices. "If only women were treated equally." For example, some behaviors are considered ok for men, but women are treated differently. Ironically, such prejudices about women are sustained BY women as much as men. We saw an extensive dialog and debate about Harvard Professor Gates v. Officer Crowley on the subject of race relations, but there seldom is any meaningful dialog confronting prejudices about women. We permit a massive amount of female socialization and conditioning to persist appears in magazines, television and radio. Women often do not challenge their own negative self-portrayal as supportive little woman or other prejudicial images.

    If family-friendly programs, like those at the World Bank, are so highly valued by women, then why do only 2% of eligible women participate? Women would appear to be valuing the alternatives more, whether they want to admit it or not. It’s equally possible that women do not understand how they are evaluating or valuing the options.

    Women like what they see in male career trajectories and want those benefits. AND they also want the ability to participate in family-friendly programs. But these are two mutually exclusive choices. This is the divergence of wishful thinking vs. reality.

    What are some indicators of the "wishful thinking" nature of family-friendly programs?

    The argument that "it's everybody's issue" suggests that if “everyone played nice,” then somehow competition would go away. Yet, we know that when one company or one woman chooses the family friendly option, there is a price or competitive edge to pay.

    The argument that "the workplace" or "society" is the only way to provide viable solutions for individual families creates expectations that are unrealistic in today’s highly disaggregated society. These are huge programmatic expectations that "someone else will take care of" the consequences of individual personal choices and decisions.

    The argument that the nuclear family is the core of society, today, statistically is an anomaly and essentially an urban myth in a contemporary economy where only 3-7% of the US population represents the "traditional nuclear family." That mythical portrayal of "the nuclear family" abounds, however, throughout 150% of the media’s representation of the US population. Women want to believe that it exists in spite of evidence to the contrary.

    The argument that "gender parity" will not exist until children and men change, first, passes the responsibilities on to others. When women have two jobs (work and family) while men have only one, the result is that children thrive, husbands thrive, but the women are miserable. Why would women persist in behavior that is NOT in their own self-interest? The imbalance in the supply-demand relationship of dependent care is sustained by miserable women: why do women accept this situation? It would appear that women gain some substantial psychic benefit from the imbalanced situation. Alternatively, women are not yet feeling enough of the negative disincentives that would induce them to push for change.

    Women are setting up impossible goals for the workplace, for men, and for "society and culture."

    Women are expecting "others" to do all the changing:

  • Create a culture that proves it believes in integrating work-life policies.
  • Make the men participate in paternal leave.
  • Create a culture that values family.
  • Men in high visibility positions should also participate.
  • Organizations must....

    Why do women buy into the argument that they alone are supposed to do the balancing act? The change in their work-family experience, which brought them to this point, has been very slow and imperceptible. We have experienced a slow, steady disappearance of community support infrastructure that used to help with child-care. Why would women be the "only ones who care?"

    Women are looking to the richest, closest source of solutions: the corporate workplace community is the most robust one that can possibly replace the traditional community support systems. Women argue that the workplace is the one most able to deliver possible solutions. Women do not have a long track-record of constructing viable alternative "business-based" solutions to family-oriented problems, on their own, in the entrepreneurial marketplace.

    Women tend to lump all care-giver problems together, overwhelming business resources: child-care, health-care, and elder-care. Add to this, the other workforce issues, such as relational aggression of women-to-women, salary differentials, male prejudice, male bonding, differentials of communications, etc. Sometimes, the bills of particulars appear to be never ending. Should business resolve all of the problems women say they face?

    Anna Fels suggests a menu of options to better integrate family and work activities. She presumes that companies would be willing to pay for these programs, and that men and women would be willing to pay (in the form of adjustments to compensation) to have them available.

    A Menu of Options (and some unaddressed consequences).

    1. Available housing near place of work; reduce commuting. Work and family separation in space and geography doesn't fit with two working member family. (Puts companies in the business of providing housing proximate to work.)

    2. Day care for employees. (Puts companies in the business of providing child care.)

    3. Rooms on-site for sick kids; near parents’ worksite. (Puts companies in the business of providing on-site health care.)

    4. Having pediatricians/doctors nearby or on site. (Puts companies at liability for medical support.)

    5. Creation of schools on-site; public schools near work places. (Puts companies and school traffic in close proximity.)

    6. Oxygen (Women's Network) allows workers to bring in babies, children, dogs into the workplace. (Puts other employees in a position of not having in-work benefits; differential employment treatment.)

    7. Expanding men's role in childcare. Women presume that "men will never agree to do more for childcare." Yet, women persist in the argument that "men must change first."

    Perhaps if women would cease holding stereotypical gender preconceptions about men, first, then men might respond differently -– which is actually suggested by the research. For example, in the absence of a mothers’ female kin, men respond to familial needs and fathers compensate by doing 20 times more caretaking. Reluctant fathers who have no choice but to raise children are serious homemakers and very good nurturers. Care is a fungible commodity. Men and women are flexibly opportunistic.

    The failure of family-friendly programs often is attributed to an inability of businesses and business people to be able to "manage" the disparate demands that result from bringing family into the workplace. Why don’t we focus on improving the management side of the workplace issues? And why don’t we also focus on improving the management side of the family entity as a basic business unit?

    Do women fully understand the impact of their proposals on the companies and other workers?

  • How do workers manage remote or flexible work schedules?
  • How do workers divide their attentions between personal concerns (children) and professional concerns (the job).
  • How do workers gain the experience of travel and exposure to other distant cultures while staying at home?
  • Does teleconferencing provide the same quality of experience handling remote work challenges?
  • How well do we train workers to manage remote work?
  • How effectively do we manage the quantity and quality of work content?
  • Why are workers investing in 60-80 hour weeks/12 hour days? Does management know the content of their workers days today?
  • Does business know the value of output from meeting time? Is it worth the investment?
  • How effectively does management handle conflict: women to women, men to women, manager to subordinate?
  • How effectively does management coordinate people from different backgrounds, motivations, generations and experiences in the workplace?
  • Do companies and employees suffer competitively by instituting family-friendly programs?

    What is also interesting is that the "pent up demand" that supposedly exists (wait lists of 400 families, 3 years or more for on-site corporate day care facilities) has not been addressed by any entrepreneurial business solution or consortia of small businesses providing such services as collectives of entrepreneurs. Perhaps because we only focus on the wishful thinking that "if only everyone would work together" to solve the problems that women perceive to be important, we might be missing out on many other viable business options. To the hammer, every problem appears to be a nail.

    We appear unable to conceptualize solutions that are market-based: naively hoping for solutions that are fully subsidized by government or rich corporations. If women had a better appreciation of the economics, costs, benefits and tradeoffs of the solutions they propose, perhaps they might consider creating alternative small businesses that could thrive and endure more successfully than token and temporal public policy programs or expensive company-store solutions that simply pass the costs incurred onto unsuspecting consumers.

    The issues certainly are not simple. My goal is to simply begin to address them from some new perspectives.