THE SAUDI FLAW

We blame the Islamic Arab world – and in particular the Kingdom of Saudi Arabia – for denying a good part of its population, the women, an equal role in building the future of their countries and we wonder how in this day and age a nation can prosper if it leaves a large percentage of its population on the sideline.

The answer is more likely than not that it cannot prosper under those conditions. It can stay afloat for a while, particularly if the nation is a hydrocarbon rich country that can generate wealth by exploiting its natural resources. But it is unlikely that it can reach its full potential if not the whole population is engaged in the nations building process.

In the USA we don’t have that problem. Or do we?

Warren Buffett just recently made a case* for women to shatter what- he believes- are mostly self-imposed limitations on themselves. He blames these limitations on lingering after effects of centuries of institutional inequality between men and women. There is more than symbolism in the fact that our Declaration of Independence declares “all men are created equal”.

Warren Buffet writes: “The closer that America comes to fully employing the talents of its citizens, the greater its output of goods and services will be.”

Arguably, the contribution of women in our society can be enhanced by removing any and all remaining vestiges of a time we should finally leave behind. This is particularly the case with women’s opportunities at the top levels of business and government, where women remain significantly underrepresented in spite of great progress over the last decades. But there is a whole other segment of our population that we should focus on if we believe that “running on all cylinders” is a prerequisite for success in the race to the top of nations. And this segment is by and large equally divided between men and women.

First of all, we need to realize that nobody counts the number of people employed in the USA. The Federal government through the Department of Labor makes an effort (not very successful) to measure the unemployment rate, but what would be really interesting to know is the number of people who are employed (and by deduction, the number of people who are left out of the labor process).

Isn’t it somewhat befuddling that our government cannot tell us what percentage of the population is engaged in the labor process? And, therewith, the percentage of the population that is not?

The Bureau of Labor Statistics measures a metric that it calls the “Labor Participation Rate”, which stood in April of 2013 at 63.3%. This statistic measures the number of people in the labor force that is either working or actively looking for a job as a percentage of the civilian population aged 16 and older.

It also measures a metric that it calls the “Employment-Population Ratio”, which stood in April of 2013 at 58.6%. This statistic measures the proportion of the civilian noninstitutional population aged 16 years and over that is employed. It includes people who are under-employed in terms of the time they get paid for or in terms of the level of work they are asked to perform.

Thus it appears that also in our country close to half of the population is left out of the labor process. Some percentage of this “unengaged” population is either below working age, retired with no intent to get re-engaged or studying full time.

The bottom-line is that the Federal Government cannot tell us with any degree of precision what percentage of the work-eligible and work-capable population is actually disengaged from the labor process and thus not participating in the growth of our economy and the strengthening of our nation. But we can come at it from another angle:

We know from the Census that the USA has a population of about 314 million, that about 74 million are below age 18 and about 42 million are over the age of 65. Since some unknown percentage of these age-groups are employed (let’s assume 10% of this populus), it follows that our labor pool would be approximately 210 million.

We know that in April of 2013 we had

·         11.7 million unemployed

·         14 million on disability (a staggering number!)

·         2.3 million in prison (a staggering number!)

·         7.6 million involuntary Part Time

·         2.3 million marginally attached

These 5 categories add up to 37.9 million people in the USA that would theoretically qualify for the workforce but are either unemployed or underemployed. That represents 18% of the labor pool. Arguably, this number is a more accurate measurement of disengagement of the labor process than the unemployment rate of 7.5%.

Warren Buffet, in his interview in Fortune, states: “No manager operates his or her plants at 80% efficiency when steps could be taken that would increase output”. We point the finger at the Islamic Arab world for running their nations at 50% efficiency by denying women the right to participate. But we should not be blind to the fact that we run America at much less than 100% of its horse-power.

If America wants to stay on top in the race of nations, it will have to find a way to run on all cylinders and get a much larger part of the labor pool, men and women, engaged in supporting its economic growth and development.

*In the May 20 issue of Fortune

ON LEADERSHIP

Leadership is hardly a topic to be dealt with in a column for a blog or a magazine, because it has so many aspects, but it is too important to success in business to ignore it. It is also a near inexhaustible theme for writing, because the world offers so many examples of leadership that are worth studying, because they are inspirational and worth following.

In all of my attentiveness to samples of leadership that I have seen, heard or read about, one stands out as a model that is near impossible to replicate. Like a world record that may never be broken or Cal Ripken’s string of 2,632 consecutive baseball games played. Part of the improbability of surpassing my top pick of leadership lies in the fact that it happened almost a century ago and at the other end of the world. The principles of leadership, though, are unaffected by time and location and the model could be replicated given the same degree of determination, discipline and persistence exhibited by Ernest Shackleton in his ill-fated Antarctic expedition in 1914-1916.

The story of Sir Ernest Shackleton’s expedition on board the Endurance is too long and nuanced to be repeated here, but is worth reading. The authoritative book on the expedition, with exceptional pictures taken by Frank Hurley – one of the crew members – is written by Caroline Alexander under the title “The Endurance” and was published in 1999 by Knopf.

The reason why it should be studied by believers in the value of leadership is because it exemplifies leadership of the highest purity of purpose: When the expedition vessel Endurance got trapped in pack-ice in the Antarctic summer of 1914 and ultimately broke up nine months later– killing the expedition’s mission – Shackleton shifted his pursuit from being the first person to cross the Antarctic continent on foot to the single purpose of bringing every member of his 27 crew home to safety. He must have known that this was an odds-defying feat, if he could pull it off.

Having lost, with his ship, his shelter and most of his stores he had to improvise every move he made on his way to a safe return to civilization, which his team ultimately made in September of 1916. His major challenges were time (more than 2 years of hunger, disease, frostbite and deprivation), distance (thousands of miles of drifting and floating) and weather (two Antarctic winters).

After the break-up of the Endurance and having camped out on drift ice for six months, the crew made it - with two salvaged open life-boats - in 15 days to the uninhabited Elephant Island. It was now April 1916 with another winter approaching. On this barren, desolate island Shackleton left most of his team behind to try to reach in one of the open life boats -with 5 crew members and without proper navigational instruments - the nearest whaling station on South Georgia Island 650 nautical miles away. Risking the good chance of getting lost in the huge expanse of the Antarctic Ocean, which would have doomed every one of the 27 members of the expedition. He got there in 16 days through some of the worst weather and seas imaginable and was able to arrange a vessel to pick up the expedition members who were left behind on Elephant Island. Shackleton himself captained the vessel that picked up the castaways on August 30 of 1916.

The elements of Shackleton’s leadership are unmistakable from just the outline of this story. They come vividly to life if you read the blow by blow account of the expedition as written by Caroline Alexander:

•          To place the safety of the crew ahead of his personal ambition as an explorer
•          To acknowledge defeat when the Endurance was lost and timely switch the mission at hand
•          To never relinquish the responsibility for making the tough decisions
•          To never ask something from members of his team he was not willing to do himself
•          To maintain discipline among a team of 27 individuals, each with a different appreciation of the   situation they were in and constantly confronted with life-threatening conditions
•          To never lose faith and give up on his mission in spite of near insurmountable adversity
•          To completely succeed in the (revised) mission

What makes this showcase of leadership so exceptional – and most likely not to be surpassed – is that the mission was achieved without any of the comfort and technology available to modern day explorers.

Leadership is of all ages and knows no boundaries. It is a vital component of any human endeavor. You will have difficulty identifying any highly successful business enterprise, where the leadership component was missing.

THOUGHT LEADERSHIP

“When you come to the fork in the road, take it.” (Yogi Berra)

“If you don’t know where you’re going, then any road will lead you there.” (Lewis Carroll, Alice in Wonderland)

High on the “To Do” list of business leaders figures the need and indeed the obligation to spend a good portion of their waking/working hours on figuring out what the world in which they operate will look like 3-10 years down the road and make some decisions on how to position their businesses to operate profitably in that changed environment.

This planning for the future may very well be the hardest job a business owner/leader has to do. Most of us are simply not trained or wired to force ourselves to think in a disciplined way about what may or may not happen down the road and then consider the impact on the business you’re running. It is risky business, even if you get yourself to build a vision of the future. What if you’re totally off base? Can you bet the farm on something that may - or may not - happen?

But the hard reality is that unless you’re just along for the ride and accepting that it will come to an end, you have no choice as business owner/leader to know, if not where you’re going, at least where you want to go so that, when you come to the proverbial fork in the road, you have already figured out which direction to take.

Fortunately, there is a structured way of dealing with this issue of decision making for the future. It is called “Thought Leadership”.

Glenn Llopis, the founder of the Center for Hispanic Leadership, wrote an excellent article for Forbes in August of 2011 in which he defined a “Thought Leader” as “a person who identifies trends, common themes and patterns within a particular industry or functional area of expertise to help others identify new opportunities or solutions for growth”.

Thought Leaders can teach your organization how to generate better ideas on its own. A big name in this field is Vijay Govindarajan, co-author of “The Other Side of Innovation” and a professor at Dartmouth Tuck School of Business. Vijay Govindarajan takes a facilitator approach: “What I want is for companies to self-diagnose their problems and self-discover their own solutions through my thought leadership”.

This is very much the type of support Aileron* offers – at very little cost compared to the astronomical fees top consultants charge – to small business owners.

It is lonely at the top!  Small business typically does not have much bench strength and who does a business owner turn to when he/she sorts through the options for the future? Best Practices Sharing is somewhat helpful but, by definition, only addressing something that is already in place, something that is already happening somewhere. The harder part of Thought Leadership is the thinking about circumstances that may or may not play out but, if they do, will materially affect your business. It is thinking about “how to stay ahead of the curve”.

If you are a business owner/leader you have no choice but to spend a good part of your time in scenario planning. In thinking about where you want to drive your business and what direction you will take at every fork in the road that presents itself on your journey into the future. You are also well advised to invite all of your key employees – the ones that you would not want to lose – to participate in the Thought Leadership process.

The final thing that matters is that, while charting the course may your job as the business owner/leader, you are better off if you have a few professional pilots along the road to keep you off the cliffs and the shallows that could sink your ship at any time.

Thought Leadership matters. It is one of the top responsibilities of the leaders of any organization. But in today’s complex world it should not stay in their hands. It needs to become part of the organizational culture and be driven down into the ranks and embraced there. From time to time it needs to be checked, refreshed and kept on target by external professionals.

*Aileron is a training and support institute for small business owners in Dayton, Ohio (www.aileron.org). Readers who are business owners in a range of up to $50 million in sales and want to bring their operation “to the next level” should check out this incredible resource with its own entrepreneurial origin!

SAFETY NET FAILS ALL AMERICANS

In the ongoing debate about reducing the deficit and bending the curve on the national debt, attention will have to be paid to the effectiveness of the safety net that a series of social programs have knitted underneath our social structure to prevent our poorest and weakest from getting lost in the shuffle.

Nobody can argue in good conscience that the richest country in the world cannot afford to take care of those who are incapable of taking care of themselves. If only we can find out without ambiguity who is deserving of being saved by the safety net.

We have a Rubik’s cube of complexity. On one side of the cube we have a plethora of programs, like Social Security, Medicare, Medicaid, food-stamps, welfare, disability, unemployment, you name it. On the other side of the cube you have the authority in charge, the Federal Government with several services like the Social Security Administration, the Veterans Administration, HUD, the Labor Department, the Department of Agriculture; the State, the County, the town, the church. At the bottom you have the conditions requiring the application of the safety net, old age, young age, disability, veteran, unemployment, poverty, homelessness or disaster. Finally at the top of the cube you have the parameters within which the law offers assistance, which can be limited in time, by financial resources available to the applicant or by the degree of seriousness of the conditions requiring the application of the safety net.

To add to the complexity, virtually every aspect of this Rubik’s cube is subject to constant change.

In addition, the money involved in the payout of the safety-net programs is so huge (hundreds of billions per year) that it attracts fraud of all kinds, including fraud perpetrated by highly sophisticated criminal syndicates.

Where is the bureaucracy with the capability and the motivation to manage this complexity for tens of millions of citizens and residents with the result that only the deserving get the benefits and only for as long as they need them?

In a very different time, now forever gone, we had communities. In most instances the churches were the focal points of these communities and they provided the only safety net available. It was a time where we were aware of how our neighbors were faring and who needed help. The problem at the time was that resources were scarce and the distribution of assistance subject to biases and prejudices.

Today these social controls have entirely evaporated. We have to take people at their word and there is no bureaucracy in the world that can consistently apply the appropriate standards to tidal waves of applications and verify. This would be difficult under static circumstances, it is virtually impossible under fast changing conditions for the applicants and beneficiaries.

Case in point is the shift from welfare payments to disability payments. Since the Clinton Welfare Reform the number of families on welfare has declined from 5 million to less than 2 million. But at the same time, the number of low income people on disability has risen from 5 million to 7 million.

Have you ever dealt with the government? Whether it is with the Motor vehicle Department, the IRS, the INS, the Post Office or the Social Security service, the bell curve is in full force and effect: the government employs a small percentage of conscientious, competent and motivated workers; a large percentage of fair to average workers; and a significant percentage of incompetent, de-motivated workers. That is the force that has to solve the Rubik’s cube!

The safety net is failing. It is failing the people it is supposed to protect and it is failing the tax payer.

Good governance requires that public funds are spent wisely and only on legitimate public causes.

Is there any chance that this reasonable requirement can be met?

No sure thing, but it will have to be tried. It will be a test of our constitutional democracy to see if it can forge fundamental changes in the way it operates.

Steps to consider to reconstruct the safety net and make sure it serves only the truly needy:

•          Centralization of all programs other than Social Security, Veterans Administration and Disaster Relief at the State level
•          Create a cadre of highly trained and equipped force to manage all aspects of the safety net
•          Use technology to eliminate identity based fraud
•          Compel recipients of any type of government assistance to file a semi-annual census of their need for assistance including their financial condition
•          Diligent law enforcement and heavy penalties (including forfeiture of all future benefits) for fraud and abuse

America has the financial wherewithal to protect its truly needed from the vagaries of life. But it cannot afford, for moral and fiscal reasons, to not administer the assistance with targeted precision.

SUBOPTIMAL

SUBOPTIMAL

Rhetorical questions are not helpful tools in advancing any discussions but at the eve of the Supreme Court taking up the question of same sex marriage, I have to ask this one:

Why does the Beltway always settle for suboptimal solutions?

The answer -of course – is that decision making in Washington is so much influenced by money, ideology and pressure groups that straight thinking (no pun intended) is hard to come by.

In the case of same sex marriage, I simply cannot imagine why we have not embarked on a course of creating parallel and equally entitled institutions at the Federal level. That is the approach that States have taken by creating the institution of civil unions (although others have gone the marriage route and some have done both).

The institution of a civil union was first created in Denmark in 1989 and is now practiced in many countries and in ten States in the USA.

Would the valid question of discrimination and constitutionality even have come up if same sex couples in every jurisdiction of the United States had been offered the path of a civil union that guarantees – from a public perspective – full legal equality with marriage? This path would have avoided a lot of unnecessary angst and debate and it would have respected the age old sanctity of union of a man and a woman in marriage.

Opinion polls on this subject are notoriously unreliable. Mostly because they ask the wrong question. There is very little doubt that there is a solid majority in the US for affording same sex couples equal rights before the law with conventional couples. And if this equality can only be obtained through marriage, then ultimately, the equal rights argument will prevail.

No one that I know of has tested the public opinion on offering same sex couples the equal rights through the parallel path of a federally recognized civil union; it has not come up, because that solution is not on the table.

Our tendency to settle for suboptimal solutions in the Beltway is not limited to the matter of equal rights for same sex couples.

The legislative handling of the gun violence in America is going exactly the same way.

The reason for not reaching for the stars but settling for suboptimal solutions is not only found in the money influence and the pressure groups. It is the direct result of our political polarization and the fact that if legislative compromises are found at all, they are based on the lowest common denominator, the politically feasible rather than the strategically desirable. A legislative compromise is only good when it combines the best elements of what one party wants with the best elements of what the other party wants.

Finally, legislation in America is more often than not done reactively, rather than proactively. We don’t jump into action until we have stared disaster in the face. That was true after 9/11, it was true after the bank crisis in 2008 and now after the massacre at Newtown. And in our hurry to be seen doing something we address symptoms of the problem rather than the causes for the problem.

Congress has a lot of work to do. It owes the constituency a rational and effective approach to the reduction of gun violence (although –as David Brooks points out in his NYT column “The killing chain” of March 26 – we may be looking in the wrong places for effective solutions). It will once and for all have to come up with an intelligent approach to immigration. And it will have to find a way to put its fiscal house in order.

With all these vitally important issues to be addressed “suboptimal” does not cut it, but it may be all we will be getting.

REFORMATION

REFORMATION

There is a lot of talk in Washington about a “grand bargain”. There is a lot of talk in Washington, period. In fact, there is a lot more talk than action. And it has been that way for too long.

But if there is serious inclination towards a grand bargain, then the question becomes: “what is truly grand”? Grandeur is – like beauty – in the eye of the beholder. The fear is not misplaced that in the eyes of most members of Congress even a little tinkering in the margin will be considered a great leap forward.

Let’s help them out. The grand bargain required to liberate our economy from the shackles of a burdensome government and –conversely – to liberate government from the tired ideological meddling by election driven politicians - will have to bring a veritable reformation. It will have to bring reform in three critical areas:

1. Entitlement Reform
2. Tax Reform
3. Tort Reform

1. Entitlement reform is required because our demographics have changed to the point that all previous assumptions about the financing of these programs are now obsolete. In fact Congress should not create or revise any entitlement programs – Social Security, Medicare and Medicaid - without building in the requirement that the premises behind the program are reviewed and reset by Congress at set intervals.

The private sector thrives on creative destruction. It throws out the way we have always done it and starts all over again. In the public sector that does not happen nearly enough. The world is changing fast but we assume that we can live with the same decades old programs in perpetuity.

Congress’ prerequisite in any effort to reset entitlements should be to safeguard the programs for the next generation by funding them within the parameters Congress is setting for long term budgets and for the control of the national debt.

Since there is little good news in the demographic direction of our population from a program perspective, it is time to make means-testing a standard feature of our entitlement programs. In fact we should give up on the notion of entitlements. These programs were designed - and should continue to serve - as a safety net. To keep the less fortunate members of our society from falling through the cracks. Not as an unalienable right for every member of society.

2. Tax reform should aim for simplification, transparency and fairness. It should look at personal and corporate taxes. And it should address the question if the time is not right to shift part of the revenue generation from taxing income to taxing consumption. To the extent that income remains to be taxed it should be done in only a few rate steps (looking at payroll taxes and other income taxes combined) and with the fewest possible exemptions while preserving the stimulus of important societal objectives like charitable giving, education, infra-structure investments and research and development.

3. Tort reform speaks for itself. The threat of litigation and the lack of reasonable limitations on awards given by juries in tort cases are holding back growth and innovation in multiple ways. In the first place by the cost and availability of liability insurance for most any kind of productive human endeavor. The fear of being sued is holding otherwise responsible professionals back from experimentation and innovation. And the cost of liability insurance –if available at all – adds significantly to the cost of doing business, which is getting past on to the consumer.

Tort reform is complete if we rid ourselves from the ambulance chasers that interrupt out TV watching pleasure and are a blemish on the legal profession. The money spent in litigation and much of the money spent on liability insurance premium should be redirected to productive use.

But the most compelling reason for tort reform is that we need to rid ourselves from anything that keeps us from reaching for new frontiers in science and productivity.

These three reforms are required to address the deficiencies in the current modus operandi. But more than that, they are required to keep the US economy competitive in the global environment.

A grand bargain is required for the good of the nation. And it will only truly be “grand” if it addresses each of the three reforms advocated herein.

The common thread connecting the three reforms should be the objective to: A) Create optimal conditions for economic growth; and B) Assure that implementation is within the financial means of the nation for all current generations

If this can be accomplished we can speak of the second reformation.

HITTING HOME

We learn to live in denial of so many things even if we do not realize it all the time. Until some of it hits home, like it did with me just recently.

Living in denial of death must be one of the most common errors in human life. And it is unfortunately not reserved for the young.

The father-in-law of one of my children was killed in an accident by a drunk driver at the age of seventy. He was a small business owner of a sizeable number of Laundromats in the town where we live, a business that kept him fully engaged. Maybe too fully engaged. The tragedy of his premature death is getting compounded for his children by the fact that he had neglected to prepare for the inevitable day that he would no longer be there. With that day coming unexpectedly soon the emotional and physical damage is great.

In addition to the emotional trauma of his demise, his children (his wife had preceded him in death) now have to deal with sorting through decades worth of files just to find out what is there and what isn’t there. It is certain to be a very frustrating, time consuming, depressing and expensive process to get his estate sorted out and probated.

If you read this and realize that you too are delinquent in making your end-of life arrangements, I implore you to drag your feet no longer and do what you have to do now, without further delay.

What is it that you have to do?

•  If you are a business owner, it is your responsibility to have an unambiguous plan for the continuity of the business, even though that might ultimately result in a sale or a liquidation of it. The plan must be documented (in writing) and shared with all important insiders like other shareholders, the Board of Directors, the corporate attorney and accountant.
• You have to have selected an attorney specializing in family law; and you have to have followed counsel on creating a will and testament, a living will, a durable power of attorney and other similar documents your attorney will prescribe for your wishes and circumstances.
• You have to create a file with any and all access information pertaining to your electronic files (usernames, passwords etc), your accounts, your insurance policies and the title documents of real estate, cars, boats and other titled property.
• You have to share the existence and location of the files and the name and contact information of your attorney and accountant with some of your closest confidants, preferably those persons who will most likely be first informed of your death.

Is all of this obvious to you? You’re still not o.k. until have acted upon this advice and you have put everything mentioned in here in place.

Have you been dragging your heels? You have known all along that you needed to do this –all of this – but you have been pushing it off? Don’t wait until it hits home and spare your loved ones the double agony of having to deal with your passing and with your failure to put your house in order!

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