How To Make Capitalism Rock And Roll.

How To Make Capitalism Rock And Roll.

This post includes a previous post that was incorrectly formatted and posted. The introductory paragraphs are intended to make the total message clearer. We can only hope.

The heart and soul of the piece is that there is a self-evident best mindset paradigm for capitalism as a catalyst for long term value creation. It has remained mostly (and tragically) under-used over the decades.

There are many reasons. One fundamental and longstanding reason, though, is a misconstruction or misunderstanding of Adam Smith’s teaching. In more recent years the dogmatic teaching and assertions of Professor Milton Friedman, the main themes taught in business schools and, sadly, Wall Street’s short-termism affliction have had a pervasive and subtle negative effect on mindset choice. Negative in that even though much economic value has been created over time, we have sub-optimized economically, with the associated opportunity costs, precisely because the ultimate commercial, economic and societal value that this alternative paradigm can create has been largely missed.

Some work has been done to move toward this paradigm, including by academicians and practitioners, but virtually all that work has been either incremental or organization-specific and, in any event, has not embraced the ultimate fullness of the essential mindset change that is at the core of this new paradigm.

Choice of mindset precedes all other matters for corporations (all organizations), nations and the global, interactive societies and economies. The multi-year plans of organizations (strategic plans – with their goals and strategies), as well as the current year budgets (with their objectives and tactics) are all established in accordance with the dominant mindset of an organization. So, it is clear that we must get this mindset matter right. It is explained in the post below. However, much goes unsaid in the post, for the sake of brevity, and is only fully discussed in a longer explanation. For example, the idea of fiduciary obligation is commonly focused on owner-investors in an organization. This is an entirely too narrow construction of fiduciary. The robust, essential construction of the fiduciary obligation of every organization is that it exists for each one of the organization’s primary stakeholder groups. One fortuitous and natural by-product of this construction is, in fact, that the long term value for owner-investors will be maximized.

 Local and global value creation (use GDP or any other measure of value creation) would have been much greater over the last 100 + years, all other things equal, if our mindset presented here had been dominant, rather than the Wall Street, university business school-taught (implicitly or explicitly) old dominant mindset - short term, inward-focused and win-lose. And, this old dominant mindset was heavily influenced by that tragic misapplication and misunderstanding of Adam Smith’s teaching.

The piece below addresses this new paradigm, this new and essential 21^st century learnable dominant mindset. This post uses a recent event to present this ultimate value-creating mindset.

One important note first: Michael Porter and Mark Kramer of Harvard have articulated the concept of creating shared value (CSV). They consider it the next big transformational idea for business (and perhaps economies and societies by inference). Professors Andrew Crane and Dirk Matten, business ethics, corporate citizenship and corporate social responsibility (CSR) professors take issue with the Porter-Kramer CSV concept. This post below, together with the notes here introducing it, acknowledge the good incremental value of both Porter-Kramer and Crane-Matten, but make it clear to the attentive reader that both sets of professors fall short of articulating a truly transformational big idea. Our idea is the big idea. Adam Smith, the Dalai Lama, Pope Francis and other thinking leaders and practitioners would sign up for our idea below in a New York minute.

The Dalai Lama, Adam Smith, AEI and Capitalism.

The 21^st Century Essential, Dominant Mindset.

This post is prompted by a reminder for which we are grateful. The reminder is that we must stay with our nose to the grindstone on this matter of mindset, achieving excellence and living the full life. Again, serendipity plays a role, this time in the form of a channel-surfing bonanza.

The American Enterprise Institute (AEI) sponsored a panel discussion on Thursday, February 20, 2014. CSPAN televised it. I surfed right into it.

Here is the punch line, from my take on the panel’s discussion when connected to the essential mindset for ultimate excellence assertion I make, all in one brief paragraph – you will not need to read the entire post, unless you really want to :-):

Adam Smith, the free enterprise capitalist's capitalist, taught that a person's self-interest could best be served if he/she was allowed to do their thing without interference and if then a willing buyer wanted to buy it and he wanted to sell it, the transaction happened – fancier words have been used, but that's the deal. The other thing he insisted on, though, was that a person was not a good citizen if he was not also promoting the welfare of the whole society – he called it fellow feeling. Well, it turns out the Dalai Lama, the self-described Marxist, advocates the same thing – he reduces it to being “wise-selfish.” At Jack Haffey & Associates we call this very same thing the essential 21^st century dominant mindset – our self-value is maximized only if we focus on and create optimal value for each of our primary stakeholder groups (those whose lives we significantly affect over time) over the long run.

My friends, this paragraph describes how to make capitalism rock and roll. The Dalai Lama will join right in if we all get it right. And, Adam Smith's teaching will finally be correctly applied. Read on for color commentary. Otherwise, just give me a note or a call and we will schedule our first meeting.

In addition, the essential 21st century dominant mindset, as we present it here, has related concepts which flesh it out, and they must be robustly understood and lived. Here they are, simply listed:

Mindset, excellence, happiness, fiduciary, stakeholders, optimization, blocking and tackling, universal and unalienable rights, ubiquitous virtues, traits and valued things, self-interest and other-interest, gold standard leadership characteristics, gold standard cultural characteristics, profit (npv of future cash flows, etc.), purpose, vision, mission, multi-year plans (playbooks), long term, ethics, full potential – seen and actualized, and opportunity costs, local and global.

 

 

Back To The AEI Panel.

The panel included, among others, Arthur Brooks, President of AEI, and the Dalai Lama. It was an unprecedented discussion. So much was said. This brief note zooms in on what we consider the heart of the matter.

Arthur Brooks, president of AEI describes himself as purpose-driven, not product-driven. He appears to be the one most responsible for bringing this panel together, and he also appears to be leading AEI in an enlightened 21^st century way. He summarized his purpose in a few ways, and this quote captures it for me:

"I don't care about the Republican Party because here's what I really, really want. I mean, I care about the Republican Party -- I care about the Democratic Party -- because I care about America," he said. "To bring back the Republican Party? No, that's not the objective at all. I want, 15 years from now, to have the free enterprise movement be as apolitically accepted as the civil rights movement is today."

To do so, Brooks said, conservatism needs an attitude adjustment." To be a part of the conservative movement, you should be expected to love people," he said. "This is a movement that must answer anger with love."

I believe Arthur Brooks has done a truly great service to the global discussion on and the global vision of capitalism and society by bringing the Dalai Lama to engage in dialogue with AEI.

The AEI panel's moment in time is in harmony with other voices in recent years, including that of Joseph Stiglitz, Nobel Prize-winning economist from Columbia University.

The Dalai Lama's comments at the panel discussion, for me, are summarized as follows:

        I. The Dalai Lama said that people should be wise-selfish rather than foolish-selfish.

       II. He said that ultimately it’s in one's own self-interest to help the rest of humanity.

       III. “Today, I developed more respect about capitalism,” the great Buddhist monk said with a smile. “Otherwise, in my impression, capitalism only takes money, then exploitation.”

Here are a few thoughts from and about Adam Smith, and see whether and how they connect with the Dalai Lama and Arthur Brooks (AEI):

I. “The property which every man has is his own labour; as it is the original foundation of all other property, so it is the most sacred and inviolable…To hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbor is a plain violation of this most sacred property.”

II. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”

 

III. Adam Smith also said that “Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favourable to the happiness of all.”

 

IV. Smith always believed that man's self-interest was not in conflict with his urge to help others and that this sympathy between fellows was a fundamental part of human nature.

V. Moreover, when he moved from a singular focus on transactions (butcher, baker, candlestick maker), Smith issued strong strictures: ‘He is certainly not a good citizen who does not wish to promote, by every means of his power, the welfare of the whole society of his fellow citizens.’

 

Our thoughts on these subjects have been presented in our website and our blog site. Here they are in brief:

One of our fundamental beliefs, that we call the essential, dominant 21^st century mindset, is: The real breakthrough big idea is that self-interest value maximization is a direct function of optimization of the value provided by an organization (and a person) to each of that organization's (and person's) major stakeholder groups – each relative to the others.” That is, when a business devotes its time, talent and treasure to doing its best to optimize the value it provides to its major stakeholder groups (customers, employees, [and investors as a stakeholder group], suppliers, communities in which it has a presence and society [the general public interest]), it will maximize its own long-term value as an outcome (a by-product) - measured in appropriate financial terms as well as the other value measures it holds dear. This is not a belief; it is a self-evident axiom.

It can be expressed in equation form:

IVM= f (S₁VO, S₂VO,..… S_NVO), where “I” is “institution” (any organization), “f” is “function of,” “S” is “stakeholder,” “V” is “value,” “M” is “maximization” and “O” is “optimization.”

Unleashing the local and global potential of organizations (for profit companies, non-profits, governments, etc.) will create value. Fully unleashing this potential will create ultimate long term value – for each organization and the global population. There is a functional relationship between self-interest value and other (stakeholder)-interest value. This relationship is grounded in the highest characteristics of human nature. And properly understood and acted on, it will unleash this ultimate potential. It is philosophically sound, practically actionable and economically (commercially) optimal. Importantly, capitalism’s highest catalytic effects on value are also unleashed through this concept.

We call this idea the essential and dominant 21^st century mindset. What do we mean? Companies have mindsets – ways of looking at the best way to conduct themselves as entities, in pursuit of their purposes. The primary mindsets are: a. the short-term, inward-focused and win-lose mindset; and b. the long-term, outward-focused and optimizing mindset.

Unfortunately, businesses and other organizations usually choose the former. It is sometimes called “short-termism.” They choose it or they are forced into it. This has been the norm over the years. It has been guided by the idea that the organization exists because of its owners and, therefore, primary focus should be on rewarding the owners. One example is the SEC quarterly report requirement for publicly held companies in the United States. Wall Street has used these reports , much of the time, as a hammer to pressure companies to behave in short term ways, and solely to reward the owners.

In stark contrast, our big idea is unambiguously dogmatic that the dominant organizational (and individual) mindset must be the long-term, outward-focused and optimizing mindset. One outcome, in fact the fortuitous and yet necessary and natural outcome of behaving in accordance with this mindset will be that the owners’ long term value will indeed be maximized.

How do these perspectives (Adam Smith’s, the Dalai Lama’s and ours) connect with each other, if at all?

It seems clear and without need for explanation, that:

1.      What the Dalai Lama calls “wise-selfish,” and what Adam Smith taught, using a few different ways to explain it including “Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favourable to the happiness of all,” and what we call “the essential and dominant 21^st century mindset - “the long-term, outward-focused and optimizing value for each stakeholder group” mindset are the same concept, and

2. What the Dalai Lama calls “foolish-selfish,” and what Adam Smith discusses as, ‘He is certainly not a good citizen who does not wish to promote, by every means of his power, the welfare of the whole society of his fellow citizens, and what we describe as short termism, the dominant mindset that has organizations behave in a short-term, inward-focused and win-lose manner are the same concept.

Happiness.

This concept, happiness, of course was part of the whole panel discussion that was primarily centered on capitalism. The Dalai Lama's focus is on happiness. Arthur Brooks recognizes and shares that focus, it appears.

And, our focus is there as well. Mortimer Adler, a 20^th century philosopher, was well known for teaching that the happy life can only be known as it approaches its end, and that the full life well lived is the way to determine if the life has been happy – has been good. The panel discussion includes some indication about achieving this state of happiness, as described here.

However, all people must share in this happiness. All people must have the opportunity to actualize their potential. A prescription for how to enable us to successfully pursue and achieve this goal is set forth in this paper.

A vivid and incentivizing reminder of the job ahead is the recent information published by Oxfam that the 87 wealthiest persons in the world have the same total wealth as the poorest 3.5 billion people. This inequality is criminal. It is absolutely unacceptable anytime and especially now, in the 21^st century global economic village.

A Final Thought.

Congratulations to Arthur Brooks and his leadership at AEI. The Dalai Lama's message for the world really is harmonized with capitalism as long as the dominant capitalist mindset is long term, outward-focused (other-focused) and committed to optimizing value for stakeholders.

And, Adam Smith's message, properly understood and acted on, is also in harmony. For more than 200 years his teaching has been largely misapplied. Now is the time to robustly apply his guidance. Capitalism should and will rock if this paradigm is embraced.

And, Democracy, properly acted out, goes hand in glove with this understanding of capitalism. Life, liberty and the pursuit of happiness are unalienable rights of all people in the world. Democracy will rock, along with capitalism, if people continue to demand it – as is happening in the Ukraine now, in 2014, for example.

The Practical Connection Between This Article And Organizational Pursuit Of Excellence.

There is a clear connection, a nexus, between a. the essential 21^st century dominant mindset, the Dalai Lama's wise-selfish and Adam Smith's sympathy between fellows that is a fundamental part of human nature and b. The guiding and ongoing foundation documents of every organization – purpose, vision, mission, multi-year plans (goals and strategies), budgets, gold standard leadership characteristics and gold standard cultural characteristics. In fact, these latter organizational elements will not lead to ultimate excellence unless they are based on the former concepts.

At Jack Haffey & Associates, LLC we teach and advise organizations about how to make this connection – how to make this ultimate excellence achievable – in practical, actionable ways. The Dalai Lama's happiness state is also achieved when all are behaving in this way. To be sure, it is not a walk down Main Street. It is, though, the fun and full-life-well-lived way to achieve global, inclusive excellence – with capitalism rocking and democracy rocking.

Jack Haffey & Associates, LLC. Contacts: jackhaffey@bresnan.net, jackhaffey@gmail.com and 406-560-2128.

A Truly Transformational Idea For Business (Organizations) and Capitalism

Much has been written and discussed the last several years about disruptive technology and disruptive ideas. Of course the astounding information and communication changes brought on in great part by the internet qualify as disruptive. The discussion and writing about transformational changes (disruptive changes) in the leadership, management and pursuit of excellence in and by companies and all organizations, though, has been greatly overstated. This paper presents our idea about this subject. We believe there is an absolute need for organizations to move toward and adopt the paradigm we present.

We admit at the start, though, that the ideas in this post qualify as letting the excellent be the enemy of the good!

Preface.

 Unleashing the local and global potential of organizations (for profit companies, non profits, governments, etc.) will create value. Fully unleashing this potential will create ultimate long term value – for each organization and the global population.  There is a functional relationship between self-interest value and other (stakeholder)-interest value.  This relationship is grounded in the highest characteristics of human nature. And properly understood and acted on, it will unleash this ultimate potential. It is philosophically sound, practically actionable and economically (commercially) optimal. Importantly, capitalism’s highest catalytic effects on value are also unleashed through this concept as capitalism’s own grounding.

Such globally respected authorities as Professor Jeffrey Sachs of Columbia University have addressed the relationship. Professors John Kotter and James Heskett of Harvard have addressed part of it. Adam Smith, in fact, clearly identified it and connected the functional relationship to the best of our human nature. So, this paper explains an idea that is the ultimate way to create value in society, locally and globally.  Others have generally touched on this idea and perhaps would agree with it, but no one has  completed the concept and put it into action.

First, A Few Brief  Comments About Some Understandable But Only Partial Efforts.

In a Harvard Business Review (HBR) article in the Jan.-Feb. 2011 issue, Professors Mark Kramer and Michael Porter of Harvard claimed that their concept of creating shared value (CSV) for business and society is or could be the next transformational idea for business in society. The concept simply says that there is much that business can do that will raise the value of the business itself by engaging in activity that also raises societal value – that many values are indeed shared.

Their idea and others mentioned below is good as far as it goes, but:

1.        It does not go far enough,

2.       It is instrumental, meaning its purpose is to expand the value pie and raise the economic      value of the business while also adding specific value to society,

3.       It is not new. Harvard colleagues, like Rosabeth Moss Kanter, have articulated similar concepts in different words, as have others:  Jim Collins in Colorado, Jerry Porras at Stanford and John Mackey and Rajendra Sisodia,  the authors of Conscious Capitalism.

4.       When the Porter/Kramer idea is presented to business leaders and others at conferences and in other forums, it creates the possibility that some will embrace and adopt their idea – allowing them to raise their firms’ value by some amount, and to participate in creating a specific value for society. But, by falling short of the truly “transformational and big idea,” there will be remaining opportunity costs that should not remain. Why? Because Professors Porter and Kramer, like so many others through the years, do a great job suggesting ways to raise the level of value from business performance in and with society - but only incrementally. And, their focus remains inward. These world class professors could embrace our concept, which would increase its likelihood of acceptance.

5.       The Conscious Capitalism and Vanguard Company concepts also go quite far in the direction of the complete idea we will present here. Our belief is that even the commendably enlightened thinking of Professor Kanter (Vanguard Companies) and of John Mackey and Professor Raj Sisodia (Conscious Capitalism) do not complete the big idea. They do not present the complete, stand-alone transformational paradigm idea. We do.

6.       Two grounding observations are important here: a. Capitalism, as we describe it here, is indeed the economic engagement model necessary for the future, and it has been widely and chronically under-utilized and misapplied; and b. Contrary to standard thinking and observation when organizational culture change is being discussed - that it is extremely difficult and takes a long time to achieve - cultures are relatively easy to change with our idea because the culture we present with our big idea is in fact an integral part of the best of human nature (seek the good, happiness, shared virtues, etc.). The cultural dimension of the idea we present includes these ubiquitous elements of our human DNA – similar to unalienable rights.

       

Ironically, Adam Smith seemed to understand and briefly explained, in his terminology, our truly big idea more than 200 years ago. Even Milton Friedman appears to have understood it a bit. However, self-focus on profit, the more the better, and focus on nothing else as long as one stays within the law (the rules), sometimes even being ethically correct if necessary, has been widely seen as not only enough over the years but more has been viewed as inappropriate. Capitalism can do so much better.

So, Professors Porter and Kramer stop short, even if they each might think they have discovered the new transformational idea. From their HBR article:

“The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.”

They do have company. Such ideas as conscious capitalism and vanguard companies also stop short. Like CSV, each of these ideas has some merit and is directionally correct, but neither makes the natural jump to the breakthrough big idea. Other ideas stop short by design. They are aimed at improving processes, productivity, efficiency and effectiveness, and for achieving measurable and quantifiable results. For example, the balanced scorecard (BSC) was conceived in 1992 by Harvard professors Robert Kaplan and David Norton. It is basically an excellent measuring, motivating and unifying system. Total quality management (TQM), lean management and six sigma are other examples. These ideas each would take much more explanation to describe. They each are intended to help companies create incremental value.

      Professor Robert Kaplan, for example, summarized the balanced scorecard’s evolved purpose this way in 2010:

“After publication of the 1992 HBR article, several companies quickly adopted the

Balanced Scorecard giving us deeper and broader insights into its power and potential. During the next 15 years, as it was adopted by thousands of private, public, and nonprofit enterprises around the world, we extended and broadened the concept into a management tool for describing, communicating and implementing strategy.”

 

Another example of research and comment on the subject of businesses (organizations) pursuing excellence is the work of Professor Michael Jensen of Harvard University and the Monitor Group (a consulting firm). He addresses, in a thorough manner, the idea of “stakeholder theory” and concludes that it is flawed. He then goes on to offer his “enlightened stakeholder theory” and “enlightened value maximization” concept. Without addressing his work in detail, he simply seems not to recognize the both simple and complex functional relationship between self-interest and other-interest.

Nevertheless, let’s assume that Professor Jensen was correct about the necessity for a single value objective function. We do in fact recognize his single value objective function principle. The explanation below explicitly presents it. The decision(s) about maximum value for owners, though, is made by the owners. It might, for example, be broader for some owners than the value Jensen presents. Our idea, in addition though, recognizes the critical responsibility to know, understand and fully serve the primary valued things of each major stakeholder group. This is wonderfully doable and essential. It can be thought of, using business terminology, as breathing full life into marketing, innovation, productivity, etc. That is, the fundamentals of businesses – high quality, low prices, productivity, efficiency and yes, innovation will all be raised to their highest levels through full living of our idea in organizations.

What about family life, leisure and all other aspects of life outside the organization? That is an excellent question. With individual and organizational focus on optimizing value for primary stakeholder groups, all aspects of an individual’s life and of an organization’s life in will be at their highest levels.

 For organizational long term value maximization (net present value of future cash flows for example), the “what” question is best answered through the optimization functional relationship we present here.  This obvious answer requires the synthesizing and creative mind to be fully engaged. This paper will explain the human nature “dna” reasons that underly the axiomatically correct self-interest, other-interest transformational paradigm change that is now ready to bring us into the future.

So, there are many competent perspectives that are brought to bear on the question of maximizing organizational value, and certainly a tremendous amount of value has been created – particularly over the last 250 years. However, we still fall short of shooting our individual and collective moons.  J.

What, then, is the idea that actually does unveil the transformational paradigm change for business, all organizations and societies - local and global?

The truly transformational, paradigm-changing “big idea.”

It is presented here in brief and with dogmatic confidence. Upon reading and reflecting on it, though, one might consider it either; 1. Simply naïve, pollyanna-ish and dismissible, or 2. Too hard to attempt – even if one understood it.

In fact, it is just the opposite. Our big idea is elegantly straight-forward, easily understood and simple to put into practice, especially with the 21^st century electronic (Internet, etc.) information and relationship models catalytically in place locally and globally. And it is morally imperative that we get on with it. Of course, the passion and aptitudes for each organization’s purpose must be in place, a need right from the start.

Here it is:

 The real breakthrough "big idea" is that self-interest value maximization is a direct function of optimization of the value provided by an organization to each of that organization's major stakeholder groups – each relative to the others. That is, when a business devotes its time, talent and treasure to doing its  best to optimize the value it provides to its major stakeholder groups (customers, employees, [and investors as a stakeholder group], suppliers, communities in which it has a presence and society [the general public interest]), it will maximize its own long-term value as an outcome (a by-product) - measured in appropriate financial terms as well as the other value measures it holds dear. This is not a belief; it is a self-evident axiom.

It can be expressed as an equation:

IVM= f (S₁VO, S₂VO,..… S_NVO), where “I” is “institution” (any organization), “f” is “function of,” “S” is “stakeholder,” “V” is “value” and “O” is “optimization.”

This idea is the foundation axiom that can guide every organization that truly wants to maximize its value in and for society. It is philosophically precise, uniting self interest and other interest, and commercially excellent, ensuring that, with the corollaries below, it earns its opportunity to delight its stakeholders over the long run.

Note: This big (transformational) idea can, for ultimate organizational excellence purposes, be thought of as analogous to the physical “theory of everything” sought by Professor Stephen Hawking and others over the last several decades.

The corollaries for our big idea are:

1.       Universal unalienable rights (including life, liberty and the pursuit of happiness) are possessed (or yearned for) by all people everywhere.

2.       Ubiquitous global virtues, traits leading to these virtues and valued matters exist and are held dear by virtually all people around the globe. The virtues and traits (aptitudes leading to these virtues) are: Wisdom and Knowledge – curiosity, love of learning, judgment, ingenuity, social intelligence and perspective; Courage – valor, perseverance and integrity; Humanity and Love – kindness and loving, Justice; – citizenship, fairness and leadership, Temperance; – self-control, prudence and humility, Transcendence; – appreciation of beauty, gratitude, hope, spirituality, forgiveness, humor, and zest.

3.       Happiness, “the good” and the “full life well lived” are all treasured by individuals and societies – local and global.

a.       These corollaries mean that people, in their roles as markets and as stakeholders in general will be attracted to and embrace every organization that provides them with what they value as they pursue happiness. Of course, the organizations in each space that do it best will rise to the top (market share, etc.), again as a by-product.

b.      When an organization’s stakeholders see that the organization is focused on providing them the things that matter to them (their valued things), they will tend to be attracted to that organization – buy from it, sell to it, have it as a member of their community, work for it, invest in it and treasure it as in their own interest and the public interest.

4.       Fiduciary obligations exist for organizations for each of their primary stakeholder groups. That is, the fiduciary obligation is not limited to the financial dimension of an organization. To optimize the value provided to each stakeholder group relative to the others is to be fiduciarily responsible – to be an excellent steward.

5.       This functional relationship between self interest and other interest is the ultimate commercial or economic value creation axiom. It is not just a philosophical, societally nice axiom. It can result in a. the maximization of local and global economic value over the long run; and b. the basis for the good life well lived for individuals and organizations and c. the movement toward zero of local and global opportunity costs.

 

Opportunity Costs.

 

It is important here to discuss the opportunity cost concept in the context of our message.

The entire globe is virtually one marketplace now. The way a company does business certainly affects its local community and market. Now, though, it increasingly affects people and places beyond the local community and market.

The notion of opportunity costs is underappreciated in economies and societies. Simply put, if one  organization or more (or most) organizations do good or even very good at providing products or services but do not fully actualize their potential for excellence, then some value is lost to society – and to the organization itself. This part that is lost can be called an opportunity cost – a value not created and received.

NOTE: Of course, there are larger opportunity costs being incurred globally and locally. Without expanding on the matter, it is enough to mention here that national sovereignty can be retained even as our model for excellence is embraced by all organizations, including nations. Think of famine, wars, widespread disease, etc. that exist because our idea is not yet the paradigm of choice for organizations of all kinds. That is, this idea enables actualization of the potential of virtually all 7 billion people (and rising) on the planet. It can and must be pursued and achieved in order to: a. maximize local and global value; b. minimize local and global opportunity costs: and c. create the opportunity for all people to live the happy life – the full life well lived.

 

Moral Imperative.

 

If we believe there is a model for excellence in organizational behavior, as we do in this paper, then we have a moral imperative, an obligation, facing us. It is to communicate and explain the model, and help all raise their games to their highest level. By definition, the model we explain here, when fully acted out, brings us to that full actualization. So, with the “what” question being answered, the “why” question follows.

 

 Why focus on stakeholder group value optimization? The answer is, succinctly put, when we know, without question, what to do to maximize our organization’s long term value, we have a broad fiduciary obligation, a moral imperative, to get on with it. And, the delightful reality is that our organization and each of its members fully actualize our own potential as an outcome, a proper and necessary outcome.

The other main characteristics of our big idea are:

1.       The connection of self interest and other interest: Just to reinforce this part of the axiom, while it might be obvious when discussed as we do here, this functional connection is nothing more or less than putting the golden rule into robust action and following Adam Smith’s two part idea on capitalism. I am maximizing my value by optimizing the value I provide to those main persons and groups whose lives I most affect. Happiness and self-actualization are integrally related here. Note: Even if Adam Smith did not intend this connection, he should have – and I think he did.

2.       Happiness: Briefly, Aristotle’s four kinds or levels of happiness, H1 through H4 are so obviously explaining that a dominant H3 life, the happiness that flows from contributing to the happiness of and creating value for others, is ultimately the best way for one to fully actualize one’s own potential in life. It is servant existence and servant leadership in action. Our big idea is grounded in this reality – we just breathe commercial and economic meaningfulness into the idea. It fits.

 

3.       Mindset: Companies have mindsets – ways of looking at the best way to conduct themselves as  entities, in pursuit of their purposes. The primary mindsets are: a. the short-term, inward-focused and win-lose mindset; and b. the long-term, outward-focused and optimizing mindset.

Unfortunately, businesses and other organizations usually choose the former.  Or, they are forced into it. Unfortunately, this choice has been the norm over the years. It has been guided by the idea that the organization exists because of its owners and, therefore, primary focus should be on rewarding the owners. One example is the SEC quarterly report requirement for publicly held companies in the United States. Wall Street uses these reports , much of the time, as a hammer to pressure companies to behave in short term ways, and solely to reward the owners.

Our big idea is unambiguously dogmatic that the mindset must be long term, the focus must be outward and that optimizing value for stakeholders is the purpose of the organization. One outcome, in fact the fortuitous and yet necessary and natural outcome will be that the owners’ long term value will be maximized.

The Nexus between This Truly Big Value Creation Idea and Strategic Playbooks (Multi-year or Strategic Planning).

            Our big idea is the prescription for how to pursue ultimate business or organizational excellence at the philosophical and long term level. It is in perfect harmony, though, with the best practical, specific and near-term leadership, management and cultural characteristics of organizations. In fact, it creates the basis for excellence in these aspects of organizational excellence. It is in these aspects that such well known and widely adopted performance frameworks like the balanced scorecard are most helpful – they complement our value creation idea.

Here are the 21^st century characteristics we mean when we discuss pursuit of organizational excellence:

1.       Threading from the organization’s charter purpose through its annual budgets exists - core ideology (purpose & beliefs), vision, mission multi-year adaptive goals, organizational goals and goals for serving each stakeholder group, strategies for achievement of each goal, annual budgets (objectives, tactics and financials), gold  standard leadership characteristics and gold standard cultural characteristics.

a.       Gold Standard Leadership Characteristics – establish direction, (vision, personal humility and professional will), modest and fearless, inclusive, enabling, inspirational, a listener, stakeholder focused – in a maniacally profound way, heart of a servant, ethical, courageous and just, and fun.

 

b.      Gold Standard Cultural Characteristics - adaptive, with a core ideology (purpose and values), risk taking, trusting, proactive, one in which all are heard and the truth is heard, reflective, humble, anticipatory and  involved, rational and respectful, a conscientious mindset, quietly confident, unassuming while maniacally pursuing the organization’s vision and mission with prudence, perseverance, humor and zest, disciplined people, thoughts and actions in a fun and dynamic environment, open, supportive and enthusiastic, happy, in a stakeholder-centered (H3) way, and fun.

 

These all fit with and are integrally related to the organizational excellence elements described above. Organizations must: a. have a core ideology (purpose and values/beliefs); b. have the correct dominant mindset (long term, outward-focused and optimizing); c. appreciate that “fiduciary”  means an obligation to excellently care for that which each of its main stakeholder groups entrust to it; d. embrace the ubiquitous human characteristics people around the globe share (unalienable rights, virtues and traits, and valued things); and e. know that the ultimate achievement of maximum value for every institution (organization) reflects the fact that virtually all people also seek the good and happiness.

Where Do We Go From Here?

We cannot help but notice that the CSV concept is being presented at conferences and related forums around the world, at a substantial fee for participants. That is fine. The Conscious Capitalism concept is available in books for interested leaders, managers and others to purchase, consider and go from there. The other concepts we mentioned are being made available as well, and it is all good and fine.

However, because we contend that, as meritorious and well intended as they each might be, they are only partial loaves, they stop short, or at best are narrowly focused. They do not pierce the membrane that leads to ultimate organizational excellence and highest value creation.

We believe we do, with our idea.  Through the 21^st century transformational, paradigm-changing actionable big idea we present here, organizations of all kinds can embrace the full-life-well-lived, fully actualized potential they each and all really should want to pursue and achieve. To strive for less is to fail – no matter how well they might believe they have done.

The gigantic but tragic irony is that by not embracing and acting out our big idea, each organization, local and global economies, nations and the entire globe will fail to maximize the likelihood that the stakeholders they each serve will receive optimal value and that the organizations themselves will maximize their own long term value as well.

So, this big idea must be embraced and acted out. It is a societal and economic moral imperative for the new millennium.

The USA, President Obama, Pope Francis, Syria and the International Community

It has once again been a month of Sundays since our last post. Life keeps taking priority over the posts. Our last post about the Roman Catholic Church, and the subsequent election of Cardinal Bergoglio to become the new pope, gives us a starting point for this post. The Cardinal, now Pope Francis, has already shown by his actions and words that he has the potential to be a once-in-a-blue-moon leader as pope. That is, he shows early indications that he embraces characteristics we have presented here at our blog site – regarding leadership, mindset, vision, the stuff that we believe makes for true leadership and that is most likely to lead to organizational excellence, even global excellence.

Now, the Syria situation and President Obama’s decision to ask Congress to consider and support his decision to conduct a military action against the Syrian regime adds a second starting point for this post. Both of these leaders follow the principles we present throughout our posts. We hear so often about what the folks back home are telling our senators and representatives, we thought we would give our opinion as a blog site post.

As we look at it, these two world leaders are each embracing the spirit and letter of these words from the Declaration of Independence of the United States of America (USA):

 “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of  Happiness.”

We believe the USA has an affirmative obligation (as do other leading nations, like Russia) to be available to all nations as they consider the universal applicability of these “unalienable rights.” In fact, all five of the United Nation (UN) Security Council member nations (the permanent members) recognize these rights in their charter documents – each in their own words.

The United Nations (UN) has a declaration of universal human rights. Those rights include the unalienable rights set forth in the USA Declaration of Independence. Importantly, the UN and the members of its Security Council have an affirmative obligation to address instances where a nation is denying these rights to its citizens. Syria is doing just that – and more. While there have been and perhaps even now are other nations that are trampling on their peoples’ unalienable rights, Syria is the nation needing immediate attention.

It just seems to be basic kitchen table wisdom and street corner logic that the UN, particularly through its Security Council, should join the USA in bringing the Syrian troubles to an end. As Pope Francis is urging, the preferred way of course is to bring the Assad regime to the negotiating table (which in this case might need to be a very tough love pull to the table).

China, France, The UK, Russia and the USA, each and all in their respective more lucid moments, must understand that their own long term interests, those of the Syrian people and of the world in general will be best served by a negotiated resolution that brings the fighting and killing of innocents to an end, and that sets the template for a proper Syrian future – one that is in keeping with the self-evident unalienable rights premise we all seem to embrace.

President Obama has looked at the heinous chemical weapons use as the straw that breaks the camel’s back.  Indeed on its own it is a bright line, as at least implicitly reflected in UN proclamations, among other places. To be sure, though, the Syrian situation with more than 100,000 deaths so far calls for international attention and resolution.

The leadership words and actions of both President Obama and Pope Francis ought to be heeded and followed. A negotiated resolution , it appears, will only be possible if the other Security Council member nations “adult up,” and join President Obama – including avoiding the need for military intervention. The chemical weapon use in Syria is of course a “never again’ matter. The entire complicated set of circumstances there, and elsewhere in the region, though, cry out for a wise and long lasting resolution, one that could conceivably even lead to subsequent attention and resolution of other extremely serious issues in the Middle East.

Some 3rd Millennium Thoughts For The Roman Catholic Church.

 

With the announcement by Pope Benedict XVI on February 11, 2013 that he will resign as pope on February 28, 2013, virtually all 1.2 billion Catholics around the world have or will have thoughts about why, what it means for the Church in the future and related questions. This Catholic does, and I share some in this post.

First, though, I must explain that the thoughts presented here are grounded in the same philosophy and mindset that we discuss throughout our blogs and at www.jackhaffey.com, our home page. The mindset that we believe enables organizations to achieve their highest long term potential is a. outward-focused (focused on their stakeholder groups), b. long term and c. committed to optimizing the value they provide to each of their primary stakeholder groups, relative to all the other groups. This mindset applies to the Roman Catholic Church, and is in perfect harmony with its mission and its purpose.

So, we share our own first thoughts here. They are about some of the most pressing and central questions the Church has been facing. We share them humbly but firmly.

One of our grandchildren recently asked whether girls can be priests, because he has not ever seen one. I answered that the Church does not allow girls to become priests. He quickly responded, “That’s not fair. Lots of girls might want to be priests and they might be good ones. That isn’t right.” I think the Holy Spirit smiled at that, approvingly.

These thoughts below of course address only part of the larger mosaic that constitutes the mission of the Church here on earth. Yet these few subjects seem to us to be among the most pivotal on the question of how the Church best creates its future for all people affected by it.  The 1.2 billion current Catholics really are The Church now of course.

This looks and feels like a millennial fork in the road for the Roman Catholic Church. So, we offer these first thoughts, knowing blog sites like this one reach only a few people.

                                Pope Benedict XVI’s Gift to the Church and the World:

A.      The opportunity for the Church to choose a new pope who will center and re-center the Church on the life and teachings of Jesus Christ and on the continuing guidance of the Holy Spirit.

1.      Conservative and liberal in the Church must and will become, at best, of secondary importance in Church decision-making.

2.      Of primary importance must be the clear centerpiece purpose, belief and value system upon which the Church was founded – and is universally known. That is:

a.      Love God above all things.

b.      Love your neighbor as yourself.

c.       “…and the greatest of these is love….”

3.      So, it is Love and all that goes with it, not fear and all that goes with it that is the original and forever purpose of the Church.     

B.      Jesus Christ and the Holy Spirit are, I believe, therefore saying and requiring, among other Love-grounded matters, that:

1.      Priests should be able to marry.

2.       Women should be co-equally able to become and be ordained priests.

3.      Divorced and remarried Catholics should and must be declared and considered “fully in communion” (FIC) with the Church.

4.      Gay and Lesbian Catholics should and must be declared and considered FIC with the Church (whether civilly married or not – no matter).

5.      Prohibition of the use of birth control and all contraceptives should end.   

6.      If it is possible that life begins at conception, and if it is wise to do no harm on existence of life issues, then this most intimate and important life issue of prohibiting abortion should and must be retained, except for (1) When indirectly necessary to save the life of the Mother and (2) Upon full and competent study, perhaps in cases of rape and incest. These two categories demand full study and recommendations. Like all the thoughts, this thought is grounded in Love.

7.      In general, the Church should be open to and fully inclusive (not excluding any individual or group) of all who want to be engaged, participating members of the Church, with love as the single criterion for Church decision-making on these matters.

8.      The role of the Laity in the church has been reduced over the last 30 years. This non-inclusive, non-participative message is at odds with the fullness of meaning that accompanies Church pronouncements that the people are the Church. This trend should be reversed. A welcoming, inviting, fully engaged culture of Church should increasingly exist.

There are so many who can speak more knowledgeably about these and related matters. Surely that robust and respectful dialogue will be held. The Roman Catholic Church, in its human institutional, organizational, hierarchical culture and authority, accountability and responsibility existence is, like other institutions and organizations, subject to the pulls and tugs of liberal and conservative, orthodox and other political power behavior. This political power institutional behavior must be set aside in the process of choosing and electing a new pope. Love is the singular Holy Spirit-guided decision criterion each voting cardinal must use.

I believe this millennial moment is a singularly special one happening now as a gift to the church flowing from Pope Benedict XVI’s resignation.  It needs to be one that is Holy Spirit-guided and therefore rises far above these understandable but counter-productive power struggle tendencies that burden so many institutions over time – including the Roman Catholic Church.

Solve The "Fiscal Cliff" drama Before Christmas

The “Fiscal Cliff” Drama.

This post offers a few thoughts to the leaders of Congress, and to President Obama and his team. They come from a card-carrying member of the “American People.”

As we have mentioned in our previous posts, the foundation principles that underlie the organizational excellence theory of everything apply to national governments and local government units every bit as much as they do to for profit corporations, non profits, educational institutions, etc. An organization is an organization when it comes to the question of how best to pursue excellence. Specifically, Value is maximized when the guiding mindset is outward-focused, long term and dedicated to optimizing value for each and all stakeholder groups. This last element, “optimizing” apparently can be a bit difficult to understand.

So, what in the world is going on with Congressional leaders and President Obama on this “fiscal cliff” matter? Even if one gives all the participants the benefit of the doubt in their public statements about what must be done in the near and long term to best serve the public interest, it still looks like they think the American people are an unthinking, nearly brain-dead lot! However, this writer truly believes that even Congressional leaders and the President and his staff can understand what the American people understand, across the board. The “optimizing” element of the guiding mindset, in fact, must be understood. The Congressional behavior during these last 12 years has not been guided by this mindset-based actionable wisdom.

Let’s be blunt and clear.President Obama has been re-elected. Therefore he has a mandate, period. Of course he can read too much into the mandate. He can abuse it. At the same time Congress should engage in discussions with the President, predisposed to find a mutually acceptable near and long term fiscal plan for the nation, through its government, a predisposition that recognizes the mandate really extends to Congress as well. Specifically:

1.      Quit purposely being cute with the words revenue and tax.  The Bush era tax cut on taxable income above $250 thousand should expire on 1/1/’13.  That tax rate should return to the Clinton era tax rate. All other Bush era tax rates should be extended – no increase. And, the tax code should be cleaned up to eliminate the loopholes and other taxable income-reducing language for which there is no compelling public interest.

 

2.      Entitlements should be on the table and addressed, not with a meat axe nor with disingenuous revisions whose purpose is to embarrass the “other side.” Rather, revisions to the huge entitlement programs that affect the near and especially long term should be made. The main criteria should be that a. the revisions be phased in, b. the revisions should not affect those who are already beneficiaries, but rather should be applicable to new beneficiaries as of a date certain. The concept here is, “keep the bargains,” and c. the annual budget deficits and accumulating long term debt must be reduced as a result of these changes.

 

 

3.      Both defense and non-defense programs should be addressed and reductions made using criteria that include a. no harm but rather improvement to our national defense (and our ability and obligation to lead around the globe where military presence is truly called for), b. reduction or elimination of programs whose public interest time has passed or has been reduced and c. the requirement that members of Congress act as trustees more than delegates in this decision process.

The Congressional leaders should rise to the courage and wisdom level voters expect from them. The President and his administration should as well. Trickery and cat and mouse games, often guided by un-elected and somewhat self-appointed opinion leaders in the form of talk show hosts and carefully selected guests must end.

The American people expect a long term, broadly embraced and actionable agreement before Christmas. It should pass societal muster, commercial muster, financial market muster and global well-being muster. If it is not done, then it might be time to start throwing the rascals out. 

So, adult up, wisdom up and reach agreement, Administration and Congress.

Obama ... by at least 10 lengths

It has been more than a month of Sundays since our last post. Been busy? Yes, but that is no excuse. Rather, like most Americans, I have been listening day in and day out to the advocacy for (and against) the incumbent, President Barack Obama, and the challenger, former Massachusetts Governor Romney.

I put “and against” in parentheses above and quotation marks here because the dominant tone of the race has been to tear the other person down. How goofed up is that?

Let’s be brief and clear: The state of the nation and the world when President Obama took office was terrible, lousy, awful.

President Obama did some things wrong and some things right. On balance, he did great.

Domestically, he has us climbing out of a bad economy into a sustainably good economy in a mere four years. Mere? Yes. The economic problems he inherited by definition had lagging economic consequences. The annual deficits and therefore the increasing national debt all was predictable, given the private sector behavior and the Bush era actions from the early 2000s through 2008. To be this far up the economic recovery curve in just four years is a small miracle. Far from being harshly criticized, his leadership should be applauded. And we must include the role of the psychologically dysfunctional House of Representatives in 2011 and 2012 as being the anchor that has prevented us from being further up the recovery curve. To be sure, this president focused strongly on health care in 2009 and 2010, while the Democrats had the majority in the House. He could and should have done more in other areas, and done it by reaching out adult to adult to both sides of the aisle in Congress. But even if he had, the underlying ideologue-induced 2011-12 gridlock would have happened.

In foreign affairs and policy, the president got it right (1) in managing the wars in Iraq and Afghanistan as well as the war on terror, and (2) in developing increasingly strong, mutually respectful relationships with nations around the world. Far from the often used “apology tour” and apology behavior some label him with, he has set the globe on a course of a mutually respectful nation-to-nation and collective future and has done it without the self-serving bravado some would like to see.

In general, his tendency to be a bit aloof and a bit intellectually arrogant is softening, and his appreciation of the long-term national and global benefits that flow from a win-win-win mindset is just what we need.

Governor Romney successfully emerged from a rough Republican primary as the nominee of that party. He now presents himself as: (1) a person who knows how the business world works and, (2) a person who knows how to be successfully tough in foreign affairs, including tough in global commerce.

The Governor, though, now also clearly presents himself as he is – an imperious, self-absorbed autocratic CEO type. This condition is, in fact, not atypical in persons who have had professional experiences like his, but it is archaic, transparent, and behaviorally dna-imbedded. He can’t change it and wouldn’t if he could. Mitt Romney has unveiled himself, his true self, increasingly through the Republican primary debates and now the debates with the president. The “I’ll let you know when you can speak,” behavior and his condescending treatment toward the moderators, not to mention toward the president is not a surprise. He is reverting to form, to the autocratic, imperious CEO mindset he has. This mindset is fatal, though, for one who seeks the presidency of the United States. This office’s job description is ultimately grounded in serving at the will of the people, not the will of the Board of Directors and not in the predispositions of a Donald Trump-type self-made person.

There is a second behavior that Mitt Romney exhibits that is equally problematic. He ran to the right in the primary and now to the center in the general. Republicans do that. Democrats run to the left in primaries and to the center in generals. Governor Romney, though, has taken this to the next level. He appears to believe he can do as he wants if elected, ignoring the zealotry of the tea party ideology and Members of Congress. This would find favor with mainstream Republicans and some Democrats. But he can’t do it. He would ignore them at his peril. Further, if he acquiesces and is guided by their agenda, he almost certainly alienates mainstream Rebublicans, all Democrats, and finds himself powerless on an ideological island. Either way, his chameleonic conduct leads him to dead ends.

The upshot is that Mitt Romney has exposed himself as unfit to be president. He is the wrong person at the wrong time. AND, all this does not even take into account his misguided, myopic and clueless mistreatment of several groups of citizens, voters, people: Women, Hispanics, those going through a time of dependency in their lives, educators, and union and non-union workers. The list goes on.

President Obama, on the other hand, is positioned to break through, working with a co-equal and pro-active Congress, on the domestic front, in international trade and global commerce (indeed, he recognizes that the 21st century coincides with the transformational characteristics of technology and communication, such that while national sovereignty will remain integrally part of the world, globalization is on us – for the good of all), and in foreign policy. The United States will remain and even grow as the world’s leading power in times of peace and war. War is going to become less and less of a role player in the future, though, and the president knows what policies and philosophical grounding embraces that reality.

The choice is clear. In fact, the re-election of President Obama to a second four-year term should be by acclamation.