Is Good Character Important?

The great debate among ethicists is between Kantians – Deontology – and Utilitarians – interest.

Pure morality as an abstract form of thought true at all times and all places is juxtaposed against materialism and self-seeking in this world so fallen from a religious and idealistic perspective.

Business ethics and corporate social responsibility have been stuck in the quagmire of irresolvable irreconcilability between ethics and profit-seeking. How could they ever be integrated?

If one backs away from this confrontation of the intangible and the tangible, there is the approach of praxis – what works? Can a case be made that ethics “works” which does not slide all the way down into self-delusion and expedient rationalization of why what I want is the “right” thing to do?

Looking at what will work raises a perspective of science – say, laws of motion or chemistry which lead from here to there on a predictable basis.

Individual character – the ethos which drives our preferences and decision-making – might work as such a natural law. If I know your character, I can reasonably accurately predict your behaviors.

If you work for me and I know your character, I will have a sound basis for trusting or not trusting you to do what the firm wants and needs and not to get us all in trouble through your indiscretions and malfeasance.

Heraclitus said that character is fate or destiny. In the Greek, his point is more active: character is our daimon – our driving spirit, setting our course in life.

If we focus on character and if all people are helped to have good character, then the output of our social endeavors will be constructive.

The way to moral capitalism, therefore, might be through character education.

Oh, that’s just what Mencius, Aristotle, Cicero, Marcus Aurelius and Adam Smith recommended for living the good life.

Public Office as a Public Trust Workshop — Thursday, March 28th

We have just held an election in which the American people put what we are more and more calling “tribalism” on the front burner of our politics. While it is important to understand the passions and fears of our fellow citizens, our constitutional republic was not established to foster tribalism of any kind.

The Preamble to our Constitution holds that: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Beating at the heart of our constitutional democracy is the ethical proposition that “Public Office is a Public Trust.” But what does this mean? Where did the idea come from? Is it still true? How can we tell a good public servant from an unworthy one?

Those who were elected to office on November 6th were chosen to hold public office. Before assuming such offices, they will be asked to take an oath to be faithful in the execution of that trust responsibility, faithful not just to those who voted for them but to all of us, our state and our country.

How can they more fully understand the law and the tradition setting forth the duties of office that will soon be theirs in service of our citizens? Through study and discussion as always since our founding as a nation.

I’m delighted to invite you to participate in the Caux Round Table for Moral Capitalism’s (CRT) workshop on Public Office as a Public Trust scheduled for 8:30 am on Thursday, March 28th at the Humphrey School of Public Affairs.

The workshop is a new initiative to encourage and professionalize elected and appointed public officials at all levels, as well as those who aspire to elective or appointive office, to live up to the highest standards of stewardship responsibility.

The mission of the workshop is to promote good stewardship in office, thoughtful trusteeship and enlightened fiduciary practices using the CRT’s Principles for Government as best practices. The commitment of the workshop is taken from George Washington’s remarks to the delegates at the 1787 Constitutional Convention that “Let us raise a standard to which the wise and the honest may repair.”

For some time now and to the great detriment of our state and country, a narrowness in serving the common good has dominated our politics, resulting in a system of government that is polarized, fractured and unable to effectively address even its most basic challenges. The workshop will train you in the tried and tested ideals of public service.

The workshop will present historic, intellectual and moral foundations for the ethics of public stewardship, including the Bible, John Locke, Adam Smith, Max Weber and the Federalist Papers, among others.

The agenda will include:

1. Pew Research Center findings on political polarization

2. Movie High Noon: public trust and personal courage

3. The Moral Sense: human nature and natural justice

4. CRT Principles for Government

5. History of trust responsibilities

The two main presenters will be myself and Doran Hunter, Emeritus Professor of political science at Minnesota State University, Mankato.

Tuition is $50 per person (does not include cost of lunch). Space is limited.

For more information or to register, please click here.

The session will adjourn at 4:30 pm.

The CRT is an international network of senior leaders from business, government, academia and non-profit institutions who work together to improve private enterprise and public governance around the world.

CRT to Publish Several Books on Amazon in 2019

Amazon’s emergence as a leading book publisher, as well as bookseller, is viewed as a threat to traditional publishing. At the same time, it presents an unprecedented opportunity, not just for budding writers of romance and mystery novels. It also offers non-profit organizations like the Caux Round Table for Moral Capitalism (CRT) a chance not only to publish books affordably but to promote ideas and reports to millions of Amazon customers.

Amazon is now the biggest seller of books in the world, bringing enormous pressure on traditional brick-and-mortar bookstores that face the challenge of finding ways to increase margins in order to survive. Some haven’t. And those that have are doing so by offering a host of products and services that go beyond book sales.

More recently, the online giant has mushroomed into the role of one of the leading book publishers. Since 2009, when it started publishing print, audio and e-books that can be read online or downloaded, Amazon’s list of publications has risen from 373 to more than 1200; each is produced by one of the company’s 15 imprints and promoted through Amazon apps like Kindle and First Read with monthly notification to a number of potential buyers that the traditional industry can only dream of – ten million customers in all.

Book publishing has traditionally been a low margin, high-risk enterprise in which publishing houses have accepted only a fraction of the manuscripts they receive from authors and agents. Despite this, many accepted books still fail to find an appreciable audience and publishing houses must often rely upon one or two best sellers each year to stay afloat.

But with Amazon, the margins are low and the cost of producing a book minimal when compared to traditional print costs with a high percentage – some 80 percent — of books in categories like romance self-published, meaning the company does not pay the author. The author finances the publishing of his or her manuscript.

This online revolution has created a backlash of criticism among traditional publishing houses. At the same time, Amazon’s low publishing cost, widespread promotion and ease of reader access has provided us the chance to reach a wider audience through self-publishing. Where once the only outlet for such organizations might be an academic press with limited runs and little money for promotion, now organizations like ours can potentially reach a much larger market with little cost. What’s more, once an e-book is published, it stays on Amazon’s list of books indefinitely, giving much greater weight to the ideas and opinions the organization wishes to promulgate.

And we are set to take advantage of this opening. At the moment, we have three e-books in the works, with more on the way.

“Amazon’s entry into publishing repeats the process of creative evolution improving humanity’s well-being which started with the first years of the industrial revolution and the birth of capitalism: enterprise takes a risk to introduce a new technology pioneered by science to change the ways in which we can live,” says Steve Young, Global Executive Director of the CRT.

“But as some Buddhists say, every gain comes with a loss,” he continues. “Those tied to old technologies lose out; their business models are no longer viable; their customers move on to new products and services.”

“For our non-profit enterprise, we see Amazon as an avenue to produce and distribute books at a cost we can afford,” Young says. “We have decided to join in the process of disruption to get good ideas and inspiration to more people all over the world.”

PG&E Says Its Equipment Was Probable ‘Ignition Point’ of Camp Fire (Wall Street Journal)

PG&E Says Its Equipment Was Probable ‘Ignition Point’ of Camp Fire (Wall Street Journal)

Culture costs company big money. Pacific Gas and Electric (PG&E) says probably its equipment sparked the deadliest wildfire in California history.

The company is taking a $11.5 billion charge against earnings as a result. The company has warned it may not survive as a going concern. Credit agencies have stripped the company of its investment-grade rating.

But for five years the PG&E delayed a safety overhaul of the century-old high voltage line that is a prime suspect in the huge Camp fire which killed 85 people and destroyed the town of Paradise last November.

The delay reflected decisions consistent with company leadership priorities. In other words, delay flowed from core company values. Those values, part of the company’s social capital, were financially speaking a source of risk and so a detriment to, and so a reduction of, its comprehensive asset valuation. The company’s culture was a balance sheet liability (an equity loss) for its owners.

Such a loss to its present value should have been measured and recorded somewhere to provoke remedial management response.

The PG&E case reminds us of the BP accident at the Macondo well in the Gulf of Mexico, a failure of company culture which cost the company and its owners billions.

EBay Breakup Inches Closer to Realm of Possibility (Wall Street Journal)

EBay Breakup Inches Closer to Realm of Possibility (Wall Street Journal)

Is a company worth more than the sum of its parts? A classic part of financialism is buying a company to break it up and sell the parts for a total sum more than what the company is valued at. This was the raider tactic in the 1970’s and 1980’s and a private equity play ever since.

Now it is being proposed for eBay by Elliot Management and Starboard Value LP.

How should the value of the company as a whole and its various parts be determined?

Blank-Check Companies, a Hot IPO Fad, Contain Pitfalls for Investors (Wall Street Journal)

Blank-Check Companies, a Hot IPO Fad, Contain Pitfalls for Investors (Wall Street Journal)

Some people are seeking to raise cash from investors with which to buy companies and profit from their success – venture capitalism.

But what is the worth of a company that just has cash and no other assets? What can investors look to for assurance that the cash they provide will not be lost or wasted?

Again, giving a present valuation, a market price, to a future intangible is central to the creative dynamic of capitalism and to its repeated failures. An overly-optimistic price or valuation (sub-prime mortgages? CDOs, dot-coms? tulip bulbs?) draws forth wealth and wastes it, leaving investors the poorer.

These special purpose companies have little more than the intangible asset of the smarts of their managers.

Hire for Character, Train for Competence Round Table – Tuesday, March 12th

Pope Francis yesterday closed the Vatican meeting of Catholic Bishops and Cardinals especially called to stop sexual abuse of minors by priests, an insidious failure of good character on the part of those chosen to be God’s ministers on earth.

On the one hand, the failures were ones of individual responsibility – by the priests who did wrong. But on the other hand, they were failures of the institution, in hiring, in supervising, in investigating and in punishing. Those institutional failures arose out of the long-established organizational culture of the priesthood.

The root cause of the malfeasance was in values, values not held by perpetrators and values held – which either provoked or aided and abetted the wrongdoing.

The Catholic Church is not alone in fostering malfeasance. I would argue that all corporate scandals, from the explosion of BP’s Macondo well in the Gulf of Mexico, through ENRON and Wall Street’s 2008 destruction of global credit markets, to today’s misuse of private data by Facebook or UBS’s helping wealthy French dodge their country’s tax laws, arise first from a failure of organizational culture. What is the remedy?

Our colleague, Matt Bostrom, former Sheriff of Ramsey County, has a good answer. He is working now on a Ph.D. at Oxford University gathering data to support his solution. Matt believes that every organization, in his case police departments, should hire for character and then train for competence.

In our modern, professionalized, elite culture of expertise, we do the reverse: we hire for credentials and hope for good character.

Matt has been organizing community focus groups to gather information on the criteria people want to see in their police officers. It turns out hiring for character is easy.

Please join us for a round table discussion at 9:00 am on Tuesday, March 12th, at the University Club of St. Paul to learn about Matt’s research and how we can reduce organizational failures across the board by hiring for character.

Registration and a light breakfast will begin at 8:30 am and the event at 9:00 am.

Cost to attend is $15 for Business and Public Policy Round Table members and $35 for non-members. Payment will be accepted at the door.

Space is limited.

To register, please contact Jed at jed@cauxroundtable.net or (651) 223-2863 (email preferred).

The University Club is located at 420 Summit Ave in St. Paul.

Parking will be available along Summit Ave.

The event will conclude at 11:00 am.

 

Vindication of a Moral Capitalist

Two years ago, Warren Buffet teamed up with Kraft Heinz to takeover Unilever with an offer to purchase its shares from owners. Kraft Heinz was a merger of two companies, each owned by 3G Capital in Brazil. 3G’s business model is to strip costs down, leaving only sinews and so boost short-term profits. The Buffet/3G alliance proposed to do the same to Unilever and so to maximize its profitability – survival of the fittest and no remorse for those deemed expendable in the drive to spend less and less.

My friend and our supporter Paul Polman, CEO of Unilever, stood up to them, saying the Unilever strategy for sustainability would be better for shareholders in the long run than selling out to Buffeet/3G for a premium of 20% over the market price of shares (depressed due to a lower British Pound as a result of Brexit anxieties).

Well, on Saturday, it was revealed that Kraft Heinz has been forced by market prospects to write down the value of two of its brands by $15.4 billion, a hefty loss for its owners, 3G and Warren Buffet. Turns out a focus on cutting costs while ignoring shifting customer preferences has cut down the equity value of Kraft Heinz.

Buffet’s Berkshire Hathaway investment company then had to book a loss as well – a $3 billion write down last year arising almost entirely from their equity interest in Kraft Heinz.

Polman’s moral capitalism business model has been vindicated. Unilever is better off – and its owners, employees and customers – under his stewardship than it would have been if Kraft Heinz were running it. Paul worried about all stakeholders first and foremost and how to make the company sustainable for the long haul.

Intense to the point of viciousness, cost-cutting does not invest in keeping up with the times, with responding to competition, new customer tastes or fading allure of old brand names. This is what I described as “brute” capitalism in my 2004 book, Moral Capitalism. Failure to invest properly compromises future ability to earn profits reliably, thereby lowering present discounted cash flow and company value.

The failure of the 3G Capital business model points to the need to re-think how we calculate the financials of business success over the long run.

A Very Early American Rejection of Intolerance

The intransigence of American political leaders leading to the recent partial shutdown of our federal government shows intolerance of the views of others.

Stalemate in the United Kingdom between those who want their nation to remain in the European Union and those who don’t also shows narrowness of spirit in reaching out to others.

Thirdly, the rise of populist resentment and prideful visions of our own tribe as better than yours also reflects this constriction of empathy and care.

The Caux Round Table for Moral Capitalism’s Principles for Government call for government to be a trust for beneficiaries. This presumes a moral sense open to the needs, concerns and views of those reliant upon public power to do them justice.

In 1657 in the young American colony of New Amsterdam, Governor Peter Stuyvesant issued an edict proscribing Quakerism. In the small community of Flushing, now a part of Queens in New York City, citizens refused to obey the Governor. Their letter of remonstrance (PDF) makes the case for openness to those of good heart and goodwill.