Short-term Measurement, Si: Short-Term Management, Non

/2 Comments/in /by

When I talk to audiences about Trust-based Selling®, I have found that the number one response is:

"This is all nice, and I personally believe it—but you need to talk to my boss and my boss’s boss. Things around here are just too short-term—and this is where I live. I cannot afford to ignore the demands for short-term performance; that’s my quota, those are the norms, I don’t have the luxury of building this nice long-term trust. "

Read on to hear my take. But first, here’s Starbucks CEO Howard Shultz’s perspective on short-term vs long-term strategy.

Schultz is the returning CEO of Starbucks. Returning, that is, to take over from Jim Donald, the ex-Walmart executive who succeeded Schultz a few years ago.

Starbucks, in the eyes of its employees and many stockholders, has faltered—its stock price down 55% since May 2006, its original coffee-house focus lost in a modern management obsession with cross-selling, efficiencies, and relentless incremental improvement.

Schultz has set about refocusing on coffee. Bye-bye efficient mechanical espresso dispensers, teddy-bears, cluttered counters, and breakfast sandwiches. Back to basics: trained baristas talking to customers, soft chairs, coffee.

But—most telling of all—Schultz says he’s going to stop reporting same-store sales to Wall Street.

In retailing, that is heresy. It’s what every analyst wants, and assumes they’ll “obviously” get.

Why’s Schultz doing this?

Because he doesn’t want Wall Street or his employees falling for the business fallacy of our era: the belief that you can’t manage what you don’t measure, and the more fine-tuned the metric, the more powerful the management you can bring to bear.

This is hooey, and Schultz knows it. Steering the car by short-term rear-view-mirror metrics has a way of making people lose sight. They end up managing the numbers for the sake of…the numbers. Yet Schultz also knows everyone believes this stuff. So he’s making everyone go cold turkey on metrics to enforce the idea that, as he puts it:

Long-term value for the shareholder can only be achieved if you create long-term value for the customer and your people.

He is so, so right.

There is nothing wrong with short-term metrics per se; what’s wrong is assuming that they demand short-term management. In fact, the best short-term performance comes from long-term management, executed consistently.

What would you rather invest in—a company that consistently urges its salespeople to get customers to buy in this quarter, to juice numbers up; or a company that consistently acts in the best interests of customers, without focusing on which quarter the P&L comes home to roost?

Here’s the reaction of distinguished Yale School of Management professor Jeffrey Sonnenfeld’s reaction to Howard Schultz’s strategy for Starbucks:

“Howard is a brilliant visionary and a genuinely compassionate human being, but he runs the danger of being trapped by his past…Entrepreneurs sometimes don’t grow with the business. You shouldn’t pretend the model can’t keep evolving.”

Well, I have a lot of regard for Sonnenfeld, and of course the future will reveal whether he’s right or I am—whether this is a case of focus on long-term values or a case of arrested development. In the meantime, I have two words for him:

 

Steve Jobs

You know, the guy who blew away the suit from Pepsi who came in to “professionalize” Apple after Jobs the entrepreneur had outgrown his baby. Anyone who invested in Apple at the time of Jobs redux is now wealthy.

Because it depends what you’re evolving. If you’re evolving the Frappucino, well, OK. But if that evolution is costing you in terms of values about long-term focus on employees and customers, then “evolution” is a fraud. It’s the short-term disease again, masquerading as "value."

Success is not a series of quarters strung together in sequence. It’s a long-term story divisible into quarters, with the same principles tying them together.

My answer to those who say, “Hey, I gotta hit the quotas, what can I do?” is as follows:

  1. Who owns your career? And if it’s not you, why’d you give it away?

  2. Make a 6-month deal with your boss—let me ride this trust thing for just 6 months, and then you can start hounding me on the metrics.

In 6 months, you won’t lose much—if anything at all—and you’ll begin to see big results.

You also might be surprised how much your boss roots for you.

And if (s)he won’t do it, well, that’s valuable information for you too.

Web Trust 2.0 vs Web Trust 3.0

/2 Comments/in /by

Thought leaders John Sviokla and David Pogue both posted thoughtful pieces about the role of trust in a wired, Web 2.0 world.

Pogue—technology columnist for the NYTimes—writes about the positive impact of (intelligently-moderated) blogging on the reputation of the blogging host.   Sviolka, Vice Chairman of Diamond Management & Technology Consultants, writes about The Madness of Crowds, focusing on the dynamics of reputation systems, and how the web enhances them.

They’re both talking about the web as a means of enhancing one’s reputation—but they emphasize very different parts of trust. Who’s right?

They both are, of course, but I’d say Sviokla focuses on what I’ll call Web 2.0 trust; Pogue is talking about Web 3.0 trust.

Sviokla’s subject matter is eBay, Amazon, and Motley Fool’s Caps. He sees these as more powerful in trust-creation than blogs, because, as he puts it:

The problem with Wikipedia, and blogs, and user generated content is that many of them don’t have a strong reputation management process. Put another way, any idiot can have an opinion. The most important thing is does the person who is giving an opinion have a good reputation? Is that reputation attached to his or her opinion? Does the person own the downside risk of the adverse effects of their opinion?

Sounds good, right? Though, as whimsically pointed out in Trust Isn’t Transitive by Peter N Biddle, just because someone can fly a 747 doesn’t mean they can be trusted to carry a handgun. And though I might buy a book from someone with a good reputation rating on Amazon, that doesn’t mean I’d introduce them to my daughter.

That’s where Pogue and Web 3.0 trust come on. Notwithstanding Sviokla’s critique that blogs are unmeasurable and don’t hold people accountable, they perversely have the wonderful ability to humanize. That’s exactly what people are—unmeasurable and hard to hold accountable. And a significant part of how we come to trust them is related to how much we come to know about them—in precisely those hard to measure and slippery ways.

As Pogue points out, when Microsoft lets employees blog, you suddenly see the human side of the firm, and the “Dark Side” gets a little lighter.

In my terminology (the Trust Equation—Credibility plus Reliability plus Intimacy, all divided by Self-Orientation), Sviokla is heavily defining “trust” in terms of reliability. Pogue is emphasizing the intimacy component—not on blogs alone, but in moderated commented blogs—Diablogs.

The intimacy factor is inherently richer, because intimacy is where risk enters the trust equation. People and firms take calculated risks in blogging: how much to moderate, how much to reveal, how close to the edge to get, how one makes those judgments; all these things tell us a lot about the writer, the blog editor, and the firm. Reliabilty says something very deep—but not nearly as broad.

Intimacy also gives us the bandwidth of exposure to assess other’s self-orientation. Are they in it for themselves? Or do they seem to care about me? And self-orientation, I argue, is the single biggest factor affecting how we assess the trustworthiness of another.

Does Google really mean it when they say they “Do no Evil?” The answer won’t be found in Sviokla’s reputation management systems. It will be found in Google’s willingness to let its people speak, from the heart, about what they think. And, seeing their hearts, we will know the judgment to make about whether to trust them.

Not just for book buying, but for introductions to daughters and the like.

Trust Based Selling in the Real World Case Study Number 42

/0 Comments/in /by

 

When the Beatles sang that in the end, the love you take is equal to the love you make, they could have been singing about software development consultant Andrés Taylor.

Andrés describes himself this way:

"I am Andrés Taylor. I’m one of the founders of blueplane, a consulting firm specializing in helping software teams produce better code more reliably. I write mostly about the soft arts of team work."

He wrote some nice things about my book Trust-Based Selling. But what really grabbed my attention was his story of a recent sale.

Andrés mainly a technology person—not a sales guy at all. So it was with great trepidation that he responded to a customer’s request for a reference by putting the customer in touch with a past customer.

He got the old customer to visit the new-customer on the new customer’s premises; they got on well, and eventually Andrés got the feeling that maybe he should just leave the room. And he did. Abandoned the customer in the middle of the sales call. Didn’t do a close. Didn’t ask for the sale. Just left him with an old customer.

And of course, a happy ending ensued.

Read the post itself, it’s worth the click-through.

Here’s my take on what he did right:

  1. His decision to allow other users in tapped one of the strongest sources of trust: testimonials from others.
  2. His decision to use old-client as a case example is part of selling by doing, not selling by telling: giving a practical demo.
  3. His decision to let the old client client speak for himself—to the extent of leaving the room—visibly demonstrated:
  • his detachment from trying to control;
  • the fact that he wasn’t trying to control old-client;
  • his confidence in old-client’s probable answer;
  • his confidence in his own services’ abilities to speak for themselves through others.

 

But what really tells me that Andrés “gets it” is this statement in his post:

“My very explicit goal for every meeting I have is to listen to what they say, and try to find something that is a problem for them. If I can, I try to share some experience or knowledge with the person, that might help them with whatever they are having a problem with.”

That’s Trust-Based Selling at work. Trusting that in the not-too-long run, doing right by your customers ends up doing well for yourself.

And that’s not a Beatle song, that’s a business model.

Well, maybe both.

Bear Stearns, Enron, and Some Confusion About Trust

/3 Comments/in /by

Is there such a thing as an inherently trust-based business? Houston Attorney Tom Kirkendall, who writes a blog called Houston’s Clear Thinkers, seems to think so.

In a provocatively titled post called That Pesky Trust-based Business Model, Kirkendall writes:

"The fact of the matter is that Enron was — and Bear Stearns and AIG are — trust-based businesses that fundamentally depend on the trust of the markets to sustain their value. Once that trust is lost, such companies lose value quickly and dramatically. "

I’m not so sure about that. Presumably he means most financial businesses are leveraged—they lend out, or put to work, considerably more money than their base capital. And as long as people trust them, it works If they lose that trust, well, that’s when you get a run on the bank. That’s what I understand Mr. Kirkendall to mean, anyway.

But try shouting "roaches!" in a restaurant. What happens to Wendy’s stock price if someone finds a finger in a bowl of chili? What happens to a pharmaceutical company if someone finds a tainted pill bottle? What happens to a toy company if it’s found to have imported toys made of hazardous materials? What happens to a securities-rating agency when AAA-rated securities turn to junk in months?

I haven’t thought this through fully yet, but the idea that some businesses may be structurally more "trust-based" may be a distinction without a difference—or at least one of degree only.

What is clear to me is that all businesses can be run in a trustworthy manner—or not.

For example, when the CEO of Bear Stearns, Alan Schwartz, said on CNBC on the morning of March 12 that the firm’s liquidity was fine, a Bear Stearns shareholder might reasonably “trust” that the firm wouldn’t lose billions and implode in about four days.

Oopsie.

Back to Kirkendall, who goes on to say:

Although unfortunate for the owners of such companies, such a dramatic loss of wealth does not necessarily mean that any criminal conduct caused or was even involved in the loss. Rather, such loss is simply one of the risks of investing in a company based on a trust-based business model.

Granted criminality is not the only warranted deduction. There is also venality that hasn’t been outlawed. And, most common of all, garden-variety incompetence with its handmaiden hubris.

Here’s what mega-investor Saudi Prince Alwaleed had to say just a few months ago about former CEO Chuck Prince’s similar situation at Citibank:

You cannot come to the public and say that this normalization is expected in the fourth quarter and then three weeks later, not three months later, you come and say there is an $11 billion writeoff. This is unacceptable. That’s when the events changed completely. My backing was withdrawn dramatically.

You should never commit to something that you can’t deliver. Never…I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely.

Both CEOs Prince and Schwartz said one thing, clearly and confidently—and were very quickly proven either liars or incompetents. Schwartz just got there a lot faster.

Alwaleed considers this patently unacceptable. Kirkendall considers it “simply one of the risks.”

But where is Kirkendall going with all this?

The sooner we all recognize and understand this risk — and avoid the mainstream media’s promotion of myths about them — the quicker we can put a stop to injustices such as this while advancing the discussion of how best to hedge the risk of such potential losses.

I’ll save you the trouble of clicking through the links. The “myths” he is talking about are that "myth" that Enron was about criminal behavior, rather than prosecutorial misconduct. Enron investors could have and should have shorted Enron (true enough). Kirkendall seems to think this is all part of a conspiracy, that Skilling has been unfairly demonized. He says, “I continue to hope that Jeff Skilling’s unjust conviction and sentence are reversed on appeal, not only for his and his family’s benefit, but also for ours.”

O-kay. That’s one view. Here’s another, from someone with standing:

Jeff was indeed the "smartest guy in the room" and a micro-manager to boot—which certainly made it clear to me that the idea that he was unaware of details of his subordinates’ affairs was utterly absurd. Likewise the idea that he was ignorant of the shades of gray and then black concerning the border between legal and illegal market manipulation insults his intelligence. So I guess I conclude "beyond a shadow of a doubt" that the prosecutors and the jury got it right.

That’s by Tom Peters. Tom knew Skilling because he worked with him. Read Tom Peter’s full post on Skilling, Lay and Enron here. It’s enlightening not just about Enron and ethics, but about what a real trust-based business looks like. Tom believes in Cowboy Capitalism. He also believes that those in charge bear some responsibility to those who entrust them with their money. Tom Peters, in my book, does Clear Thinking.

It strikes me as disingenuous at best to describe some business models as "trust-based," and to then use that as a facade for an argument against the accountability of those who are chosen precisely for their ability to navigate treacherous waters and who are paid handsomely for their doing so. If there is no line to cross, then there is no such thing as ethical behavior. And if there is a line, someone’s likely to try crossing it. C’est la vie.

The key issue isn’t whether a business model is "trust-based." It’s whether we can put our trust in the people running the business.

Customer Service Showdown: The Cable Company vs the DMV

/21 Comments/in /by

The stories you are about to read are true. Only the names have been changed to protect the innocent.

Wait a minute—there are no innocents! Let’s name names. It’s the New Jersey Department of Motor Vehicles vs. Comcast Cable.

And believe it or not, one of these is a wildly positive story about customer service. The other, of course, is not (lightning doesn’t strike twice in the same place, especially if that place is New Jersey).

Your mission, should you decide to accept it, is to guess which story is which.

First, the disaster story—courtesy of my friend Judy.

Judy called XYZ about a common transaction. “Sure,” they said, “here’s what you need to bring, and we’ll take care of you.”

She gets there: “What? Who told you that! You need to go back home and bring the other thing.”

She returns. “You can’t do this, your ex-husband’s name is on the records. We need a copy of the twelve-year old divorce decree, plus his signature on a form. We don’t have that form, but we’ll fax it to you.”

Days later. “Who told you we could fax that to you? We can only mail it.”

More days. “We need to confirm your social security number.” She gives it to them. “Sorry, we can’t match it; we don’t have records of your social security number.” “Then what were you going to match it to?!" Judy asks.  We have entered Kafka-land some time ago.

At last, Judy leaves with the desired outcome. It turns out to be wrong.

On returning yet again, it’s, “well, who in the hell gave you that? It’s obviously wrong. Hey lady stop screaming—no need to take out your personal problems on us!”

OK, that was—drumroll—the Cable Company!  Comcast of West Orange, Essex County, New Jersey.

And that means—yes, people, believe it or not—the raging success story is the New Jersey DMV. Lately renamed the  Motor Vehicle Commission. 

I visited the Morristown office recently to register a new (actually used) car and change my address. I walk in at noon. The parking lot is full. I dread what is about to happen to my afternoon. 

But no; the lines are short—very short—and moving. I’m aggressively approached by someone who looks me in the eye. “Waddya here for, how can we help yez?”

“I want to register a car, and do a change of address,” I say. No hesitation. “Great, come on over here, let’s kill ‘em both off at once,” she says.

And she proceeds to do just that. She gave me practical advice: “If you don’t mind camping on a phone to Trenton for 10 minutes, it’ll save you a whole lot of time later—I’ll get you a chair. Meanwhile, I can download this part and fill it in for you.”

An elderly woman came in with an oxygen tube and a walker. An employee briskly walked her to the ladies room, then on her return, firmly asked someone else to move down to the next chair to make room.

A man with an accent said he was foreign born but naturalized years ago, and was worried sick about getting some documentation. An employee talked to him intently for 5 minutes; he ended up saying, “Oh, thank you so much, I am so relieved to find someone to help me with this, thank you.”

A woman next to me said, “I can’t believe how much better this place is than the department store I was just in.”

I sought out the office head before leaving to congratulate him on how different this office felt than others, and how much better than it used to be. “Yeah, we’ve got a pretty good team here,” he said, waving at his staff of eight or so.

Now, here’s the punch line. Which office do you think has bulletproof glass in front of the service windows?

Answer: the one who needs it.

Real World Trust-Based Selling: Case Study 10

/9 Comments/in /by

A few months ago I converted from Windows to Apple. It hasn’t gotten all that much easier than the last time I did this, about ten years ago. In particular, there are some nasty complications with Outlook, Blackberries and virtual drives.

In the midst of searching bulletin boards for solutions, someone mentioned a product called Crossover, by a company called Codeweavers. It sounded like it could solve my problem.

I looked it up and fired off an email to their support email address. When your computer is misbehaving, the desire for instant gratification is great; but it was SuperBowl Sunday afternoon—not propitious timing.

So imagine my surprise when I heard back from their VP of Sales in just a few hours. Not only that, but his email was literate, specific, directly responsive to my questions, and offered valuable perspectives.

He confirmed my fears in one area, offered a direction for a solution, and took care to specifically point out his own bias and company’s interest in the matter.

Bias? I didn’t care. Here’s someone for the first time in a week who clearly understands where I’m coming from, echoes my frustration, adds detail to the symptoms and the diagnostic of what my problem is, and outlines possible solutions for me. And all this on Superbowl Sunday? Gimme more!

And he did. We exchanged a couple more emails that same day, and more the following week. He was consistently helpful, including being very open about the limitations of the solution his company could provide. He offered perspective; he also offered up some customized service that he could offer in my case.

He was unfailingly polite and focused on my needs, even at the point when I reluctantly concluded that for my very specific case, I was going to choose a different solution—for now. It wasn’t his product’s fault, he was hamstrung by a compatibility issue with RIM, Apple and Microsoft.

What did this gentleman get out of our interchange? After all, he didn’t get the sale. I asked him that question, after thanking him for his (very big) help. And here’s what he had to say:

I truly believe that a salesperson’s best attribute is his or her’s ability to connect and build meaningful relationships with each and every person he/she meets. I’d much rather be viewed by clients and prospects alike as someone committed to them and their needs then someone committed to my company and my needs.

Here’s a real-life case of living the trust-based selling principles.

How’s his business doing? I don’t know. The product looks sharp and the company industrious. But that’s not why I know I’ll seek him out again, why I’ll stay in touch to see how his product evolves. It’s because he was so helpful to me in the first place.

And in the meantime, I’ll give him some well-deserved free publicity through this blog. Interested in running popular Windows programs like Outlook on your Mac? Call Codeweavers.

That’s not a plug—that’s helping out someone because they helped me out.

And that’s how it works.

Great Moments in Self-Regulation: Financial Planners and CFP Board

/1 Comment/in /by

If you’re the US Portland Cement Association, your mission may have a lot to do with research, government relations, and promotion of your industry. No problem; that sounds perfectly appropriate.

If, on the other hand, you’re the American Medical Association, society wants much more than industry self-promotion. We want to see a commitment to ethics and to the good of patients—not just doctors. And if your industry doesn’t show self-restraint, society will regulate you. (Most recent case: mortgage brokers).

Where does financial planning fall in this spectrum? Is it like cement, where we are pretty much OK with an agenda largely about industry self-promotion? Or is it like medicine, where we consider ethical and professional standards and a focus on end-users to be of high importance?

That’s been a debate for the Certified Financial Planner Board of Standards for several years now, culminating in a new set of ethical standards to take effect this July. To grossly over-summarize, the issue is the extent to which the CFP (Certified Financial Planner) designation is a credential (hence a marketing tool) or an indication of fiduciary responsibility (hence also an ethical and professional obligation). Read some fascinating and rich dialogue from the CFP Board’s open discussion on the significance of the CFP designation here.

Basically, the Board leaned further in the direction of fiduciary responsibility over time (“further” is of course a relative term, as we’ll see).

A small indication of this direction was the CFB Board’s unanimous decision to “increase safeguards to the public through clear accountability, increased transparency and public representation on the [Disciplinary and Ethics] Commission.” The DEC is a volunteer group of CFPs who hear disciplinary complaints brought against other CFPs. The proposal added some professional CFP Board staff to the disciplinary commission.

Well, I don’t know how you could have missed it, but that move brought down holy hell. Two days before the announcement, this headline appeared: Mass Resignation at CFP Board Unit . Five of nine Disciplinary and Ethics Commission members quit, saying the Board decision “compromised the peer review process.” One member likened it to seating the prosecutor on the judicial bench.

My goodness, sakes alive! Who knew such evil was afoot!

OK, now, for once, I’m going to insert some real data into this blog—not just opinion.

Four years ago, my financial planner lost track of some of my money. Long story short, I ended up suing him and filing a complaint with the CFP—which I’m assuming went to the aforesaid Disciplinary and Ethics Commission. The letter back said since I was suing him, they’d do nothing—which implied, to me at least, a court decision would carry some weight with them.

Three years later, my (by then ex-) planner was finally convicted of professional malpractice by a jury. I then sent a copy of the court decree to the CFP Board and asked them if his having been found guilty was a concern to them, and if so, what sanctions might apply?

After 6 weeks of silence, here’s what I received in the mail—in its entirety, minus the names:

Please be advised that the CFP Board carefully reviewed the grievance you filed. CFP Board has reviewed this matter according to the Disciplinary Rules and Procedures, and, in light of the Code of Ethics and Professional Responsibility and Financial Planning Practice Standards, it has taken appropriate action.

As you know, CFP Board is only able to discipline those individuals who have been found in violation of the Code of Ethics and Professional Responsibility, Financial Planning Practice Standards and/or Disciplinary Rules and Procedures. If violations are found, CFP certificant may receive any one of several forms of discipline ranging from a private censure, in the least serious cases, to permanent revocation of the CFP certificant’s right to use the CFP marks, in the most serious cases. CFP Board’s Disciplinary Rules and Procedures contains confidentiality provisions that limit the amount of information CFP Board can make public regarding private censures or cases that are dismissed. This letter contains all the public information available regarding your grievance.

CPF Board appreciates your bringing this matter to our attention. Because of the willingness of the public to provide CFP Board with this type of information, we are better able to protect the public. Thank you for the time and attention you gave to this matter.

Sincerely,
[name ]
Paralegal, Professional Review

I kid you not about the paralegal signature. Take that, judge jury and court system. I, Paralegal, am telling you that we’ve got it all under control. Trust us. Contrary to any misunderstanding you may have entertained, we don’t answer to the courts—the courts’ rulings are subordinate to ours. And we don’t have to tell you what those rulings are; and we choose not to. But they were just. Trust me.

I suspect the same cement-head mentality behind that decision informed the thinking of those who resigned en masse at the “threat” of bringing in outsiders who might “taint” their process.

If the cops can handle civilian review boards;,if the US Army can handle reporters in the heat of battle;,don’t you think financial planners ought to be able to let a CFP Board professional staff person into a disciplinary committee hearing on ethics?

I applaud any effort by the leadership of the CFP Board to let some sunshine into this committee’s circle-the-wagons view of self-regulation. Throw some bleach in while you’re at it.

Beware any ethics group who says “just trust me” when it comes to decisions ostensibly made on your behalf. Sunshine is still the best disinfectant.

Review of Rules to Break and Laws to Follow by Peppers and Rogers

/0 Comments/in /by

Don Peppers and Martha Rogers have a new book out called Rules to Break and Laws to Follow.

Peppers and Rogers are delightful, brisk, witty and solid business thinkers. Best known for their One to One concept (OtO Future, OtO Manager, OtO Fieldbook), they deserve to be equally well known for their recent work in Return on Customer, and this book.

Don and Martha demonstrate their reliably good instincts around themes like trust, collaboration, values-driven management, and culture. They inhabit that slightly rarefied territory where new age management meets—and greets—old world success in the competitive marketplace. Left wing capitalism is the vibe it gives off, without compromising either, and I kind of like that.

Your mileage may vary, but what I find most interesting about their contribution is the stark, precise analysis it gives of just what’s wrong with short-term management, Wall Street financial analysis, and the modern-day obsession with profitability as the ultimate metric.

Their critique is not based on disempowerment, or cronyism, or the corruption of the soul. It’s how those practices manage to destroy shareholder value, pure and simple.

The (grossly) over-simplified logic is this. In a connected, small world, the supply of capital is greater than the supply of customers. Yet companies will fund programs that chew up customers to supply a higher return on capital, even while they reject programs that chew up capital to supply a higher return on customer. If customers are ultimately the scarce resource, then why over-weight return on capital? The shorter the long-run, the sooner the long-term results are going to show up on the short-term income statement.

The more corporations are willing to focus on annual and quarterly profit, the more likely they are to churn customers. Churning customers destroys loyalty, thereby raising customer acquisition and maintenance costs, thereby lowering long-term profitability.

The authors use simple math and real-life corporate examples to highlight the destructive financial results of focusing too much on the short term.

Their analysis is neither facile, nor squishy.

I remember a century or so ago studying in business school the idea of “quality of earnings.” In one case, we saw equivalent earnings (i.e., the bottom line of the income statement as a percent of revenue or of various measures of capital) from GE and from Westinghouse. But in terms of quality of earnings—basically the presence or absence of long-term, sustainable, repeatable, customer-nurturing behaviors—GE’s earnings per share were far superior. And it was reflected in share prices. (Not to mention continued existence: the saga of Westinghouse makes for interesting reading in corporate history).

This is a macro-level example of what I encounter in my seminars at an individual and micro-level: how do you do the “right” thing when all the “powers that be” around you are focused on the short-term?

The answer at the micro-level is to play your own game, live your own life, cultivate your own reputation—don’t let others do it for you. Unless you’re a year away from retirement and don’t care about your reputation, then focus on relationships, reputation, and the nurturing of customer relationships. For an individual, the best short-term results come not from short-term management, but from continuous execution of a long-term program.

The answer at the macro-level is the same. You’ll run a better company, produce better earnings, and be a better investor if you focus on the long term, and watch the short-term results take care of themselves. Warren Buffet would be a good example of this strategy, as is Apple, Starbucks, or a host of companies who know the value of values, not just the cost of capital.

Congrats to Don and Martha for a very refreshing presentation of a very solid concept.

Trust Me, I am Elliot Spitzer

/6 Comments/in /by

In the United States just now, the nation’s attention has been briefly diverted from Clinton, Obama and Britney to its latest sex scandal, courtesy of New York State governor Eliot Spitzer.

Let’s get past the late-night talk show punch lines and juicy details. It’s not the details that are fascinating, it’s who they are happening to. So, what is it that makes all-Spitzer-all-the-time so compelling, at least for this 15 minutes?

Two things. The first is hypocrisy. The two most trust-destroying words one can say are, “trust me.” Because—unless it’s said to a child who needs rescuing from a burning bridge—it reeks of self-interest. And trust is supposed to be free of such things. We trust others precisely because we believe they have our interests at heart. To demand such a thing (via the imperative voice) is counter to the nature of the thing being demanded. (Variations include “love me or I’ll hate you,” and “the beatings will continue until morale improves”).

Hypocrites are those who invite the trust-test, and who then are seen to fail. They bring it on themselves. A Ted Haggard, a Jimmy Swaggart—these are “men of god” who preach against various sins. When they are found to be guilty of the same sins, it’s big news. As it is with Spitzer, who declaimed against illegality in tones we normally associate with the religious.

Hypocrisy is related to integrity. Integrity means “whole,” as in consistency, completeness, of one integral piece. Hypocrisy is about saying one thing and doing another. It is brokenness plus brazenness—it is “trust me” writ large on the political stage, reminiscent of Gary Hart’s invitation to check up on him. We did, and he failed.

But there’s an issue beyond integrity that Spitzer’s case brings to mind. It is the occasional tragi-comic split between the human brain and the human heart. It is the way of the law vs. the way of the polis—politics in the good sense of the word. When those two clash—it’s must-see TV.

Herman Melville’s other great book was Billy Budd; the tale of a naïve innocent, who in a moment of passion did a good thing—which turned out to have horrible consequences. Like Huck Finn from later in the same century, Billy Budd was willing to lead society’s charge against himself—to accept the punishment that society would mete out based on the consequences of his actions.

The power of the two portrayals is that we see the contradiction between the desire for the rule of law, and the absurd cases where that desire falls miserably short of what we know to be right in some broader, human sense.

Spitzer uttered the tersest of statements: “"I have acted in a way that violated the obligations to my family and that violate my, or any, sense of right and wrong. I have disappointed and failed to live up to the standard that I expect of myself."

Contrast that with Andy Pettite’s statement recently about his involvement in steroid usage in baseball. The truth shall set you free, said Pettite. “I’ve made some mistakes, and I’ve admitted to them. However people want to handle that, that’s how they handle it. I can’t change everybody’s opinion or what they’re going to think of me and how they’re going feel about me.”

Pettite is no longer in the news because he integrated his personal statement with the law. He’ll accept whatever comes down the pike, from the law and from public opinion. Conflict over. As his teammate Joe Girardi said, “”With Andy, you pretty much know how he’s doing.”

Not so with Spitzer. As I write this, Spitzer is approaching 48 hours holed up in his 5th Avenue apartment, apparently trying to figure out his legal options.

His legal options. Indeed.

His training as a lawyer is serving him badly. The big issue facing him is not legal—the Mann act, money laundering et al. It is whether or not yet another public figure can sort out how to integrate the life of the law (the brain) with the law of the heart (politics, morality, public life).

So far, he’s flunking that test miserably.

Blawg Review #150: Updated!

/4 Comments/in /by

UPDATE
This piece from today’s Wall Street Journal Law Blog post by Dan Slater about the 60 Minutes story on legal ethics broke after the Blawg Review went up, but I think it’s important enough that it deserves a place in the review, alongside Howard Bashman’s original post. The commentary makes for relevant and compelling reading.

Welcome to this week’s presentation of Blawg Review, the 150th issue of the blog carnival for everyone interested in law.

I was introduced to blog carnivals by my friend and colleague David Maister, one of the co-authors of The Trusted Advisor book. David hosted Blawg Review #76 and #131 and agreed with me that a “carnival of trust” would be interesting as well and, hopefully, just as popular.

The famously anonymous editor of Blawg Review most graciously offered his experience to me as a mentor during the early development of the Carnival of Trust. I hosted the first two editions here on Trust Matters. My new blog carnival mentor at Blawg Review hosted the third. Since then, the Carnival of Trust has been hosted by David Maister, Steve Cranford, John Crickett, Ford Harding, Michelle Golden, and Duncan Bucknell. So, it’s with a debt of gratitude to lawyers who blog that I’m pleased to be hosting Blawg Review #150 on Trust Matters this week.

All lawyers, whatever their specialties in law, strive to be trusted advisors. In books, articles, and posts on this blog, I’ve written extensively on matters of trust, including topics of special interest to lawyers. I encourage those of you new to my site to explore my resources on building trust.

Disclaimer: this issue of Blawg Review includes subjects of interest to everyone, not only lawyers! While I’m not an attorney, I’ve discovered many interesting and helpful blog posts by lawyers, which I’m pleased to present in this Blawg Review #150. So here we go.

Raymond Ward has an excellent quotation from George Orwell advocating clear language. I might add that speaking and writing clearly and without jargon goes a long way to establish trust.

Sheryl Sisk Schelin posts Seven Days of Inspiration, which reviews non-legal websites that are among her favorites.

Kevin O’Keefe shows us nine ways to find the top legal blog in niches. Tip: it works for niches outside the law just as well.

Marc Randazza considers a proposal for the “Internet Notary” to harness the power of the free market to correct irregularities in the marketplace of ideas.

Jeremy Phillips couldn’t bring himself to write up the latest chapter in the litigation saga concerning the “Budweiser” name, so he solicited a few “buds” to compose Budweiser-themed haikus.

Those who appreciate real haiku will not want to miss this retired antitrust lawyer, David Giacalone, who writes snowjob: lessons from the other big vote.

Jim Chen revisits a previous topic and suggests again that law schools should do more to teach commercial law. Who could argue with that? Find out.

Gordon Smith discussed whether college-bound athletes can sue over rescinded scholarship offers. A good test of commonsense vs. the law, or so it seemed to me.

In the California gay marriage case, Dale Carpenter doubts the court will find for its advocates.

Mike Masnick, Tim Armstrong, and Kevin Donovan all discuss whether the decline of Digital Rights Management diminished the authority of the DMCA.

Eugene Volokh had another strong week with posts concerning the imposition of women-only hours at Harvard’s athletic facilities and a California court’s attack on home-schooling.

Kip Esquire takes the libertarian view on the ruling of the California Court: No Right to Homeschool.

Kevin Underhill nicely captures the comedy and pathos in a dramatic doughnut-related crime in Oregon this week. Some lawyers specialize in droll humor, and I love ‘em. Kevin is one.

Scott Greenfield says Some Alternatives to Sentencing Are Just Plain Bad.

Casey lives on Capitol Hill in Washington, D.C. He is a law student and works in politics; his name has been changed to protect his identity in this case. His story about what it’s like to spend five grim days in the D.C. jail is awful, but other inmates from the DC Jail could tell worse. “Casey” raises some pretty big social issues in a compelling way.

E.L. Lipman mourns the loss of a mentor-in-chief, William F. Buckley, Jr.

Judah Zuger at Changing the Court, a chronicle of how a group of planners and practitioners are attempting to change the Bronx court system’s approach to low-level criminal offending, tells a heartwarming story about youth giving back to youth.

“I’ve always loved the Billboard Liberation Front’s unique brand of civil disobedience, but this time they’ve outdone themselves,” writes Kevin Jon Heller. Comments ensue.

Eric Turkewitz reports that Allstate Slammed With RICO Charge Over Sham Medical Exams, and A Doctor, Sued In Insurance Company RICO Suit, Responds To The Charge anonymously in the next post.

Jaya Ramji-Nogales discusses Renting a Womb: Outsourcing’s Next Frontier.

Douglas McNabb reports that the Untied Arab Emirates passed a law against human trafficking.

Peter Black links to a video that explains Twitter to those who don’t get it.

Barry Barnett tells a story of “Settlement Negotiations on Trial”.

Stewart Weltman gives the counter-argument to the leverage-is-good law firm model in a post he titles “News Flash – A Legal Consultant Gets It All Wrong When It Comes To How Lawyers Can Best Serve Their Clients“. Know what? He’s dead right.

Holden Oliver quotes the firm’s name partner, Dan Hull, who advises “Watch your clients’ money like it’s yours.”

Dan Solove considers Facebooks banishment of David Lat and due process. Who owns the right to social rights in privately held social networks?

Deven Desai asks Who Owns Your Emails, Blog Posts, or Facebook Pages? How About You?

William reports on a Night out on the town for Ricky Raccoon.

Ricky Gervais Inspires Copyright Opinion is discussed at length in an excellent blog post by William Patry, Google’s Senior Copyright Counsel. He quotes a fine judge, who has this description about the putative inclusion of IP within some corporate training materials: “They are aggressively vapid; hundreds of pages filled with generalizations, platitudes, and observations of the obvious.” Yup, that would be pretty right.

John Wallbillich looks under the covers of Legal Directories: Insight or Indulgence? Are Legal Directories the equivalent of the Yellow Pages? Or are they high-touch opportunities or competitive differentiation?

“Apparently there is a national movement supporting the rights of students to pack heat on college campuses,” writes Dan Filler.

Howard Bashman reports on a “26-Year Secret Kept Innocent Man In Prison; Lawyers Tell 60 Minutes They Were Legally Bound From Revealing Secret” .

Jim Maule writes with authority about Using Taxation for Non-Tax Purposes. You’ve heard this argument before—but not with this data.

Brenda Cossman considers when government funding becomes censorship.

Duncan Bucknell, who’s hosting the March 2008 Carnival of Trust, has this week’s roundup of IP Think Tank Global Week in Review.

R. David Donoghue at the Chicago IP Litiation Blog, which will host the May editon of the Carnival of Trust, has More on Toy Trains: Should Derivative Works be Registerable Without Permission?

Brett Trout looks at Patent Lawyer Porn.

Non-traditional lawyer Steve Cranford makes the case that “Committees Can Kill Even the Greatest Idea” is one of the Laws of Branding.

Former GC Anita Campbell, discusses Why A Positive Mental Attitude Matters During Recession.

Bruce MacEwen at Adam Smith, Esq. considers the problem of attrition at law firms: is it process or passion?

“So now comes the test. You’re a professional firm, with a variety of practice areas or target industries. Due to turmoil in the markets, business is down (or is forecast to be down) in one or more of our major areas. What do you do?” asks David Maister. You know the answer: now try to defend it.

Thanks to everyone who submitted or recommended posts for Blawg Review #150, especially to Colin Samuels and Diane Levin, who each sent me several recommendations but not their own excellent posts that I’ve cleverly hidden in the links to their names. A special thanks to the selfless editor of Blawg Review, whoever he is, for all the help and guidance with this and the Carnival of Trust.

Blawg Review has information about next week’s host, and instructions how to get your blog posts reviewed in upcoming issues.