R. Eriks Goodwin » Business Management

Pessimists and Optimists in Business

Eriks Goodwin — Sun, 26 Oct 2008 17:58:15 +0000

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. “

–Winston Churchill

Which way do you approach your business or career? Are you always telling people why something cannot be done? Why every idea is “impossible because…”? Ideas are only impossible if they violate the laws of physics– otherwise its only a question of the challenge level of the idea.

What most people mean when they shoot down an idea is either: a) they do not feel like making the effort, or b) they are too cynical to be of any productive use.

Most often in my work as a business consultant, I hear, “but I can’t afford to do that!” and my reply is almost always, “you can’t afford not to!” Then there’s this deer-in-the-headlights look on my client’s face… If something needs to be done and you want to do it– find a way! One of the qualities that separates entrepreneurs from general businessmen is the ability to “find a way” to solve challenges and maximize positive results.

So which is it for you…. glass half empty or glass half full?

The Road to Fascism

Eriks Goodwin — Fri, 17 Oct 2008 11:21:21 +0000

October 16, 2008

Washington, D.C.–The government has announced that it plans to use $250 billion to buy ownership stakes in various U.S. financial institutions. According to the New York Times, nine major U.S. banks have already been forced into the program. “The chief executives of the nine largest banks in the United States . . . were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left. . . . ‘It was a take it or take it offer,’ said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. ‘Everyone knew there was only one answer’”–even though at least one institution, the relatively healthy Wells Fargo, wanted to say no.

According to Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “In herding banking executives into a room and making them an offer they couldn’t refuse, the Paulson regime took its latest and most disturbing step yet on the path to state control of the economy.

“If fascism means coercive state control over nominally private property, then there is no more chilling sign of creeping fascism in America than government’s encroachment on the lifeblood of the U.S. economy–its financial institutions. While the government assures us it will be a ‘passive investor,’ merely funneling cash into the banking system rather than dictating how banks function, this is a lie. Not only does the money come with strings attached–such as restrictions on executive compensation, dividend payments, and the types of investments banks can make–but politicians are already promising a web of further controls. As John McCain recently noted, ‘We will not merely inject billions of dollars into companies and walk away hoping for the best. We will require that those companies be reformed and restructured until they are sound assets again, and can be sold at no loss–or perhaps even a profit–to the taxpayers of America.’

“The Paulson shakedown is the latest in a rapid-fire series of government bailouts and interventions over the last several months. Our leaders claim that this virtual takeover of markets is economically necessary. But it was government control of financial markets that spawned the financial meltdown in the first place: an inflationary boom brought on by the Fed’s easy-money policies, a campaign to promote home ownership that encouraged risky loans, regulations that pushed banks to become dangerously over-leveraged, etc., etc. The response to the crisis should be to restore freedom and to disentangle government from the economy. Instead, the same mentality and the same central planners that created the financial crisis are being given far wider reign to manipulate and distort markets. We must tell our government to reverse this fascist course–now.

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Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared on the new Fox Business Network, FOX News Channel, CNN, CNBC, and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.

To interview Dr. Brook or book him for your show, please contact Larry Benson:
949-222-6550, ext. 213
media@aynrandcenter.org

For more information on Objectivism’s unique point of view, go to ARC’s Web site. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”

The Trader Principle in HR Management

Eriks Goodwin — Wed, 08 Oct 2008 02:48:41 +0000

There are two primary “styles” of HR management: Paternalistic and Mechanistic. Mind you, this is a great deal of my own wording, although Rand certainly wrote on the subject at length. The Paternalistic approach is the “old fashioned” idea of going to work for a company out of school or college and working there until you retire with the proverbial gold watch. In this environment, loyalty is the currency of the day. The newer approach is one I call Mechanistic in that people are treated as office machines– to be bought and thrown away at will. In this environment, croneyism is the rule of the day (because only through “Machiavellian friendships” can you keep a job).

The alternative is application of the Trader Principle. This means that the traditional “employer/employee” relationship is not so relevant as the benefits each derives from working together… i.e., To complete this client project, I need skills X, Y, and Z–so I’ll hire you to provide me with them for this project. The Trader Principle is based on ongoing competency and credibility. The more consistently you produce effective results, the more valuable you become and the more appreciated. In this case, “loyalty” is earned by both parties– not just demanded by one of the other. The relationship continues as long as it is mutually beneficial–each party being free to determine their own definition of what they find to be acceptable benefit.

In a Trader Principle environment, work becomes more “project focused” because employment is more of an ongoing series of projects– with each one being evaluated objectively. And with either party able to decide whether to continue the relationship or not. The highly competent can be confident in their career path because either their current employer or another one will gladly work with them. The incompetent or lazy person can be confident that their employment will come to an abrupt end. The competent employee can be confident that when the unexpected happens, their job will still be theirs when they return because the employer places value on their work and wants to continue working with a known/credible producer.

Key Points on “Rescue” Plan From A Healthy Bank’s Perspective

Eriks Goodwin — Sat, 27 Sep 2008 12:45:56 +0000

This one came across the desk this morning. It’s a portion of letter going out today from John Allison, President & CEO of BB&T, to every member of the US Congress.

Key Points on “Rescue” Plan From A Healthy Bank’s Perspective

Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.
There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.
While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.
Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post “rescue” punish the poorly run institutions and not punish the well run companies.
A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed “rescue” plan.
This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.
The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, “out of the blue” guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.
Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bailout insurance companies, investment banks, hedge funds and foreign companies.
It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?
The proposed bankruptcy “cram down” will severely negatively impact mortgage markets and will damage well run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.
Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990’s the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.
The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.
The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.
Arbitrary limits on executive compensation will be self defeating. With these limits, only the failing financial institutions will participate in the “rescue,” effectively making this plan a massive subsidy for incompetence. Also, how will companies attract the leadership talent to manage their business effectively with irrational compensation limits?

Ready! Aim! Aim! Aim! Aim!

Eriks Goodwin — Wed, 17 Sep 2008 18:23:07 +0000

Almost daily, I am confronted with folks who have great ideas or just know what needs to be done–yet they procrastinate, evade, or sucumb to laziness. To put it in terms I use with my clients, “Ready? Aim! Aim! Aim! Aim! Aim! Aim!…”

If you know what needs to be done and how to do it, why not finally pull the trigger and “Fire!”? A book I read recently refers to this as “analysis paralysis.” Cute phrase, but perhaps a little soft on those who are masterful practitioners. Mind you, I’m as guilty of it as some of those to whom I’m referring.

Imagine what would happen if everyone we knew simply did ONE more than usual of the things they “should” be doing… Don’t worry about becoming perfect as a first step. Simply focus on getting one more thing done than usual. I’m reminded of another phrase… “A bird in the hand is better than two in the bush.”

There are those who are advocates of the idea that entrepreneurs should be of a mindset to “Ready! Fire! Aim!” While I see their point and I can see–pragmatically–how this would work “enough” to keep things moving, but I also think this is the reason people accept inappropriate work/contracts all in the name of “moving forward”.

The solution lies in knowing what you want and actually ACTING to obtain it. For example, when someone claims to want to lose weight, if they are not ACTIVELY doing something about it, they’re LYING about it. This becomes applicable to those who are “acting” on their desire to lose weight… some would simply “eat less” in some hopes of losing weight– all without any plan of action or specific lifestyle goals. I am an advocate of deciding on a path to take, learn it, then do it well.

In my own weight control efforts, I decided a while back that The Atkins Nutritional Approach was the way I wanted to go. My first action was to READ THE ENTIRE BOOK written by Dr. Atkins so as to confirm that this was something I liked and believed do-able. After reading the book, I implemented the plan. Period. Result? I lost 54 pounds in the first 60 days. As I went along, countless folks would tell me how “unhealthy” my plan was or that I should do “something else” instead. Blah. Ignore them. Choose a path and stick to it–until you have evidence that it is not working as desired.

In Buddhism, there is a saying, “There are many paths to the top of a tall mountain,” and this is extremely accurate and applicable to ANY action plan. The key is not so much which path you choose, but that you pick ONE path and stick to it. People who switch paths often do a lot of moving, but never get any closer to the summit and may even go backwards. There will always be “another path” you can take, and many may “look greener” than your current path, but it only makes sense to switch paths when the alternative is clearly and genuinely, significantly better or when your current path dead ends.

Ok, so my point is this… CHOOSE a path, ACT on it, KEEP GOING regardless of naysayers. And stop putting things off because they’re imperfect. Make them perfect later–but keep moving in the meantime.