As a born again fan of the SciFi series, Battlestar Galactica the word "frack" has a special meaning as a universal expletive used with considerable creativity throughout the show's multiple seasons. A few years back, when technology, domestic policies and global energy markets began to focus on the extractive process know as "hydraulic fracturing" (its nickname "fracking") my inner teenager couldn't help giggle a bit. In spite of myself, I found this new use of the word a fascinating foreshadowing of concerns that were emerging regarding the consequences of unrestrained fracking.
In our quest for cheaper, cleaner, more local, less carbon intensive energy sources: are we all destined to get "fracked?"
Concerns and conversations about the industry, with its history of wildcatting and an overeagerness to externalize the negative consequences of its operations, came to light in a number of widely-viewed reports including the film "Gasland" and a 2010 piece on CBS's 60 Minutes "$halegasonaires." Most environmentalists and industry skeptics came out soundly against the practice. The industry is lobbying hard to clean up its reputation and ensure regulations stay loose and that processes remain proprietary. To that end America's Natural Gas Alliance and others have spent nearly a billion dollars in the fight to clean up fracking's image, deploying over 800 lobbyists by some estimates.
In today's New York Times, there is a wonderfully balanced editorial, "Natural Gas by the Book," which challenges companies and citizens alike to explore the costs and benefits---not just to corporate profits but to the quest for a more rational approach to meet our 21st century energy needs. It references the recently released IEA Reports on Shale Gas. New York State sits atop a large reserve of shale gas and their Legislature's measured approach to regulation has been closely watched policy makers across North America.
This report comes in the wake of an earlier publication, Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations put out by longtime shareholder activists, the Investor Environmental Health Network and the Interfaith Center on Corporate Responsibility. The investor-driven approach is grounded in the principles of sustainicity---incorporating natural and social capital into the notion of real investment returns.
As the Times editorial posits, shale gas may provide a bridge to a new energy future. That bridge cannot be justified without an honest, thoughtful dialogue within the communities where operations are taking place. Many of these communities are economically vulnerable and have residents who are willing to accept deals that make light of unexamined risks and are unspecific regarding authentic long term benefits. Barring a national framework of strong regulations or at least an industry standard of voluntary disclosure by energy companies---it is clear that hydraulic fracturing may continue to be an opportunity to "frack" the vulnerable communities who live a top the vast reserves.
Sunday, June 10, 2012
Monday, May 28, 2012
Sustainable Productivity: Does speed destroy value?
As summer's unofficial opening Memorial Day Weekend comes to a close, longer days and a real pull toward "unproductive" activities has me thinking about the consequences of faster and ostensibly more productive work. With so many "slow" movements rising up these days, Slow Money and Slow Food are just two examples, I am wondering whether the "slow down" movement may have something to teach us about how value is created.
Can a case be made for slowing down?
Sunday's New York Times seems focused on this notion in every section, most directly in the Op-Ed piece by the U.K.'s Tim Jackson Let's Be Less Productive. But sprinkled throughout the paper one finds articles on stay-cations and even a piece by David Byrne on the joys of urban cycling, This Is How We Ride. Each in its own way accentuating the pleasures of slowing down, focusing on the quality of each experience rather than the quantity of its output.
With apologies to readers without NYT access, the article that hit closest to home was the one describing the "other side" of JP Morgan Chase's three billion dollar failed bet. We find ourselves asking once again, "How is it that such smart people made such a series of breathtakingly dumb, nearly catastrophic mistakes?" Transaction speeds have clearly exceeded traders' abilities to think about them strategically.
When pattern recognition is coupled with instinct the most successful traders can see clearly both risk and opportunity.With machine processing time far exceeding their ability to follow trades as they unwind, perhaps even the most gifted traders are unable to recognize patterns as they emerge.
By way of contrast, I offer a brief history lesson.
30 years ago, folks who worked at the retail end of these transactions were called "stockbrokers." Their roster of clients was called their "book" because it was in fact a ledger, an actual book. At the end of each trading day, the broker was expected to record each transaction by hand in two different ways:
For anyone who worked on Wall Street back then, it's easy to imagine new disasters looming. Regardless of the popular perception that JP Morgan Chase's CEO Jamie Dimon breezed through Shareholder Meeting, his firm lost revenue and talent and its impeccable perception as The Street's best-managed bank. Dimon was clearly uncomfortable as he spoke with his shareholders; his rushed, staccato delivery was so uncharacteristic of his usual, affable "Master of the Universe" presentation style. From where I sat, the speed of his delivery matched the speed and volume of the transactions that unwound his firm's profoundly unsuccessful bet.
Like Barry Schwartz shared during his Ted Talks-The Paradox of Choice, making the case that bountiful choice adds no value to our lives; I wonder if we've reached productivity's natural limit.
Could the value created by slowing down make productivity more sustainable?
Can a case be made for slowing down?
Sunday's New York Times seems focused on this notion in every section, most directly in the Op-Ed piece by the U.K.'s Tim Jackson Let's Be Less Productive. But sprinkled throughout the paper one finds articles on stay-cations and even a piece by David Byrne on the joys of urban cycling, This Is How We Ride. Each in its own way accentuating the pleasures of slowing down, focusing on the quality of each experience rather than the quantity of its output.
With apologies to readers without NYT access, the article that hit closest to home was the one describing the "other side" of JP Morgan Chase's three billion dollar failed bet. We find ourselves asking once again, "How is it that such smart people made such a series of breathtakingly dumb, nearly catastrophic mistakes?" Transaction speeds have clearly exceeded traders' abilities to think about them strategically.
When pattern recognition is coupled with instinct the most successful traders can see clearly both risk and opportunity.With machine processing time far exceeding their ability to follow trades as they unwind, perhaps even the most gifted traders are unable to recognize patterns as they emerge.
By way of contrast, I offer a brief history lesson.
30 years ago, folks who worked at the retail end of these transactions were called "stockbrokers." Their roster of clients was called their "book" because it was in fact a ledger, an actual book. At the end of each trading day, the broker was expected to record each transaction by hand in two different ways:
- The first was to record each transaction that built or liquidated a position in shares of a particular company. With each manual entry the broker had time to look for patterns in price movement or in his or her decision making process. While reflecting on the transactions questions like, "Why am I buying/selling this company?" "How is the price changing day-to-day?" would invariably come up.
- The second requirement was to record each transaction in a particular client's account. Again, with each entry the broker would have a moment to consider the role of each transaction on behalf of the client and its role in the overall portfolio. Small moments that slowed the process down, allowing for reflection.
For anyone who worked on Wall Street back then, it's easy to imagine new disasters looming. Regardless of the popular perception that JP Morgan Chase's CEO Jamie Dimon breezed through Shareholder Meeting, his firm lost revenue and talent and its impeccable perception as The Street's best-managed bank. Dimon was clearly uncomfortable as he spoke with his shareholders; his rushed, staccato delivery was so uncharacteristic of his usual, affable "Master of the Universe" presentation style. From where I sat, the speed of his delivery matched the speed and volume of the transactions that unwound his firm's profoundly unsuccessful bet.
Like Barry Schwartz shared during his Ted Talks-The Paradox of Choice, making the case that bountiful choice adds no value to our lives; I wonder if we've reached productivity's natural limit.
Could the value created by slowing down make productivity more sustainable?
Sunday, April 15, 2012
"Mr. Public Health" dies at 97: Thank you Lester Breslow.
If your interest in public health is tangential and you are mostly concerned with your own longevity or in figuring out a way to make money from emerging trends, you may not have heard the news that Lester Breslow died this week, see the UCLA Obituary. At 97, Breslow had earned the moniker "Mr. Public Health" through a groundbreaking idea: Breslow believed that people could live longer and healthier lives by changing their day-to-day habits. By paying attention to things like diet and smoking and exercise, they would improve the quality and length of their lives. His death at 97 may well be the best anecdotal evidence that he practiced what he preached.
One link between Breslow's 70 years of research and sustainicity---the idea that social capital and financial capital are inextricably linked---is his belief that small changes in individual behavior would make a huge differences in social (public health) outcomes. Healthier individuals would be more productive in the long run, living longer lives and contributing more to the common good while costing society less. Although this seems like common sense to us today---exercise, eat a healthy diet, don't smoke---Breslow's ideas were scoffed at when first presented. In fact his UCLA obituary notes:
"While these conclusions are taken for granted today, the idea of such a strong connection between lifestyle and health was seen as "bizarre" at the time, Breslow noted decades later. He would smile when recalling the response of the National Institutes of Health panel of scientists that reviewed the initial study proposal: "Unanimous rejection." When the study was completed, however, even Breslow was shocked at the magnitude of the results, which helped usher in current thinking about health and fitness."
Another, more interesting link was Breslow's conviction that these behavior changes could be measured. As the vintage photo of Breslow shows---with trend lines plotted in a 1960's version of PowerPoint---this data could be used to create models that could contribute to predicting outcomes such as improvements in life expectancy in the United States which, according to the World Bank, has moved from about 69 years in 1960 to 78 today.
Clearly populations who have longer, healthier and more productive lives benefit the common good. Economists might even argue that a "behavior induced positive externality" can and should be nudged by public policy and marketing practices. Breslow's work also presages the impact of today's growing obesity crisis and by extrapolation, its predictable costs to society.
Since the 1960s when the influence of Breslow's work was beginning to be recognized, corporations have developed sophisticated approaches to creating demand for their products through sophisticated and targeted marketing programs. I wonder what might happen if the products they pitched were canted toward those which helped us develop the habits that lead to better health and longer lives?
Interestingly enough and with support from the Robert Wood Johnson Foundation, researchers at The Hudson Institute have begun to provide an answer based in real economic terms. In releasing the fascinating report Better-For-You-Foods: It's Just Good Business, research fellow and former marketing executive, Hank Cardello shares some interesting data regarding the financial performance of food sector companies who shift their portfolios toward healthier products.
Today, thanks to Lester Breslow and many others, we know that small changes in individual behavior can make a lifetime of difference in public health. In today's marketplace, with the U.S. Supreme Court bestowing the rights of personhood on public companies, I do wonder what would happen if they all made small changes in their corporate behavior? Would shareholder value grow faster? Would our communities live better? Longer?
Small changes. Big Impact. Just askin'.
"While these conclusions are taken for granted today, the idea of such a strong connection between lifestyle and health was seen as "bizarre" at the time, Breslow noted decades later. He would smile when recalling the response of the National Institutes of Health panel of scientists that reviewed the initial study proposal: "Unanimous rejection." When the study was completed, however, even Breslow was shocked at the magnitude of the results, which helped usher in current thinking about health and fitness."
Another, more interesting link was Breslow's conviction that these behavior changes could be measured. As the vintage photo of Breslow shows---with trend lines plotted in a 1960's version of PowerPoint---this data could be used to create models that could contribute to predicting outcomes such as improvements in life expectancy in the United States which, according to the World Bank, has moved from about 69 years in 1960 to 78 today.
Clearly populations who have longer, healthier and more productive lives benefit the common good. Economists might even argue that a "behavior induced positive externality" can and should be nudged by public policy and marketing practices. Breslow's work also presages the impact of today's growing obesity crisis and by extrapolation, its predictable costs to society.
Since the 1960s when the influence of Breslow's work was beginning to be recognized, corporations have developed sophisticated approaches to creating demand for their products through sophisticated and targeted marketing programs. I wonder what might happen if the products they pitched were canted toward those which helped us develop the habits that lead to better health and longer lives?
Interestingly enough and with support from the Robert Wood Johnson Foundation, researchers at The Hudson Institute have begun to provide an answer based in real economic terms. In releasing the fascinating report Better-For-You-Foods: It's Just Good Business, research fellow and former marketing executive, Hank Cardello shares some interesting data regarding the financial performance of food sector companies who shift their portfolios toward healthier products.
Today, thanks to Lester Breslow and many others, we know that small changes in individual behavior can make a lifetime of difference in public health. In today's marketplace, with the U.S. Supreme Court bestowing the rights of personhood on public companies, I do wonder what would happen if they all made small changes in their corporate behavior? Would shareholder value grow faster? Would our communities live better? Longer?
Small changes. Big Impact. Just askin'.
Saturday, March 31, 2012
Broccoli for the Free Lunch Society.
According to Wikipedia, the expression "there ain't no such thing as a free lunch", is now often reduced to TANSTAAFL. As I consider the three days of hearings this week at the Supreme Court (now often reduced to SCOTUS), this "free lunch" phrase keeps coming back to me.
The tradition of free lunches dates back about 130 years. Saloon keepers would offer "free lunch" along with the purchase of at least one drink. Although the lunch was often more valuable than the first drink, savvy business owners could rely on the likelihood that the customer would buy more than one drink. This tradition lives on around the globe from the opulent "aperitivo" in Milan to "happy hours" convened throughout the USA. Allowing potential customers to believe they are getting something for nothing is a profitable enterprise and is most popular in casinos. Naturally, the "house" always wins or the practice would not continue.
Business works like that.
I wonder though, is that the way society works best? And if society works best if citizens live in economically and socially sustainable communities; shouldn't everyone share the costs and benefits of access to good health?
In the Affordable Care Act (ACA) debate it's time to recognize what saloon keepers have known for over a century---TANSTAAFL. In a brilliant paper by MIT professor Jonathan Gruber (available to subscribers at National Bureau of Economic Research), the impossibility of continuing to allow healthy citizens to opt-out of medical insurance is presented.
Even now, when folks argue that individuals have a right to avoid paying into a system that could begin address the long-acknowledged health care distribution problem, I wonder who is "the house" in our current system. Who are the individuals or businesses who, like the casinos, find the free lunch model so profitable? Who are the winners who continue to cling to a system that is clearly broken?
There is no question incentives can alter behavior patterns. For example, the modern health insurance sector blossomed in 1943 when the IRS recognized that employer-sponsored health insurance was a business expense and therefore deductible from taxes. It doesn't take long to see the connection between good business practice---pay a small premium to keep your workforce healthy---and the creation of a tax policy incentive that reduced the tax bill of companies who chose to provide health insurance. This is both good public policy and good business, the balance at the very heart of "sustainicity."
As Paul Krugman noted in his recent column Broccoli and Bad Faith, "Here’s what Charles Fried — who was Ronald Reagan’s solicitor general — said in a recent interview with The Washington Post: “I’ve never understood why regulating by making people go buy something is somehow more intrusive than regulating by making them pay taxes and then giving it to them.”"
Thinking about Justice Scalia's broccoli-based musings, I find the daisy chain that links the individual health insurance mandate to the individual produce mandate to be nearly impossible to imagine. In making the connection, I fear that this Justice disrespects the notion that access to health care is among the most basic rights for everyone in modern society.
When I think about sustainicity and the idea that the best economic systems build both social and economic capital---there is never a free lunch for our local, national or global communities. Whether or not broccoli is served it's pretty clear to me that---TANSTAAFL.
The tradition of free lunches dates back about 130 years. Saloon keepers would offer "free lunch" along with the purchase of at least one drink. Although the lunch was often more valuable than the first drink, savvy business owners could rely on the likelihood that the customer would buy more than one drink. This tradition lives on around the globe from the opulent "aperitivo" in Milan to "happy hours" convened throughout the USA. Allowing potential customers to believe they are getting something for nothing is a profitable enterprise and is most popular in casinos. Naturally, the "house" always wins or the practice would not continue.
Business works like that.
I wonder though, is that the way society works best? And if society works best if citizens live in economically and socially sustainable communities; shouldn't everyone share the costs and benefits of access to good health?
In the Affordable Care Act (ACA) debate it's time to recognize what saloon keepers have known for over a century---TANSTAAFL. In a brilliant paper by MIT professor Jonathan Gruber (available to subscribers at National Bureau of Economic Research), the impossibility of continuing to allow healthy citizens to opt-out of medical insurance is presented.
Even now, when folks argue that individuals have a right to avoid paying into a system that could begin address the long-acknowledged health care distribution problem, I wonder who is "the house" in our current system. Who are the individuals or businesses who, like the casinos, find the free lunch model so profitable? Who are the winners who continue to cling to a system that is clearly broken?
There is no question incentives can alter behavior patterns. For example, the modern health insurance sector blossomed in 1943 when the IRS recognized that employer-sponsored health insurance was a business expense and therefore deductible from taxes. It doesn't take long to see the connection between good business practice---pay a small premium to keep your workforce healthy---and the creation of a tax policy incentive that reduced the tax bill of companies who chose to provide health insurance. This is both good public policy and good business, the balance at the very heart of "sustainicity."
As Paul Krugman noted in his recent column Broccoli and Bad Faith, "Here’s what Charles Fried — who was Ronald Reagan’s solicitor general — said in a recent interview with The Washington Post: “I’ve never understood why regulating by making people go buy something is somehow more intrusive than regulating by making them pay taxes and then giving it to them.”"
Thinking about Justice Scalia's broccoli-based musings, I find the daisy chain that links the individual health insurance mandate to the individual produce mandate to be nearly impossible to imagine. In making the connection, I fear that this Justice disrespects the notion that access to health care is among the most basic rights for everyone in modern society.
When I think about sustainicity and the idea that the best economic systems build both social and economic capital---there is never a free lunch for our local, national or global communities. Whether or not broccoli is served it's pretty clear to me that---TANSTAAFL.
Saturday, March 24, 2012
Sustainable Retirement: Who's going to be a millionaire?
Like so many of my fellow baby boomers, I grew up hearing the word "pension" and had a vague notion that is was money my dad would get when he stopped working. The generation that fought in World War II came home to industrial jobs that involved hard work and good wages. The word "retirement" evoked a wistful sigh of anticipation and all Americans agreed that these hard working men and women had earned the right to hang out the "gone fishin'" sign. My parents didn't worry about their retirement income. They hoped and prayed for enough good health to enjoy a long, comfortable retirement.
When did the idea that "retirement with dignity" change? When did retirement become a privilege, not a right? When did we stop hoping for good health and long life when our working years were over and start wondering if we could ever stop working?
And why do we now think that privatizing risk makes sense? Sadly, my dad never collected his pension, succumbing to cancer in his early 50s; but he was part of an enormous pool of workers and his early death contributed to the actuarial calculations that provided balance and security for others who were more fortunate. Shared risk works.
These days defined benefit plans, the "pensions" from my dad's generation, have become an anachronism at best. A powerful business case is presented in Truthout's The Case for Defined Benefits and Retirement Security. After decades of companies shifting their long term pension plans to defined contribution plans, all 76 million of us Boomers are in trouble. According to a National Conference of Public Employee Retirement Systems (NCPERS), 75% of voters are worried about retirement with 42% very worried. And we should be. According to the Employee Benefits Research Institute (EBRI), the average American has a retirement savings deficit of $48,000, with an aggregate national savings shortfall of nearly $4.6 trillion.
As taxpayers look for ways to shore up state coffers; public employee retirement plans are now under attack in what seems like a race to the bottom. Rather than working together to re-imagine a society where average working people, like my dad, could count on a comfortable retirement, as long as they were blessed with good health; private sector employees who have lost their retirement are rallying against the last stronghold of real retirement security, public pension plans.
A few random facts:
As someone who has never worked in the public sector, I just don't get it.
As a person with training and experience in finance, I still don't get it.
Apparently Professor Theresa Ghilarducci from the New School for Social Research doesn't get it either, as she explains in her recent Op-Ed piece Pension Funds for the Public.
The three-legged stool of retirement security; social security, pensions and personal savings is broken. One alternative being proposed is a Secure Choice Pension that would spread risks and costs for private employees and bring back the real pensions that our parents' generation counted on.
Rather than encouraging further erosion of public pension funds and engaging in this "race to the bottom" that is sure to create future problems for all those who hope to retire; perhaps we should take a closer look at the few remaining examples of plans that uphold the rights of all people to retire with dignity.
Do we really want to live in a society where no one can afford to retire?
When did the idea that "retirement with dignity" change? When did retirement become a privilege, not a right? When did we stop hoping for good health and long life when our working years were over and start wondering if we could ever stop working?
And why do we now think that privatizing risk makes sense? Sadly, my dad never collected his pension, succumbing to cancer in his early 50s; but he was part of an enormous pool of workers and his early death contributed to the actuarial calculations that provided balance and security for others who were more fortunate. Shared risk works.
These days defined benefit plans, the "pensions" from my dad's generation, have become an anachronism at best. A powerful business case is presented in Truthout's The Case for Defined Benefits and Retirement Security. After decades of companies shifting their long term pension plans to defined contribution plans, all 76 million of us Boomers are in trouble. According to a National Conference of Public Employee Retirement Systems (NCPERS), 75% of voters are worried about retirement with 42% very worried. And we should be. According to the Employee Benefits Research Institute (EBRI), the average American has a retirement savings deficit of $48,000, with an aggregate national savings shortfall of nearly $4.6 trillion.
As taxpayers look for ways to shore up state coffers; public employee retirement plans are now under attack in what seems like a race to the bottom. Rather than working together to re-imagine a society where average working people, like my dad, could count on a comfortable retirement, as long as they were blessed with good health; private sector employees who have lost their retirement are rallying against the last stronghold of real retirement security, public pension plans.
A few random facts:
- Every $1 spent on public pension funds returns about $2.50 to its local community
- The average American age 55-64 has $98,000 set aside for retirement; even though it will take $1.25 million in savings to provide $50,000 in lifetime retirement income
- About $4 trillion in retirement plan equity assets were wiped between 2007 and 2008
- There are 80 million Millennials, with an even larger savings gap
As someone who has never worked in the public sector, I just don't get it.
As a person with training and experience in finance, I still don't get it.
Apparently Professor Theresa Ghilarducci from the New School for Social Research doesn't get it either, as she explains in her recent Op-Ed piece Pension Funds for the Public.
The three-legged stool of retirement security; social security, pensions and personal savings is broken. One alternative being proposed is a Secure Choice Pension that would spread risks and costs for private employees and bring back the real pensions that our parents' generation counted on.
Rather than encouraging further erosion of public pension funds and engaging in this "race to the bottom" that is sure to create future problems for all those who hope to retire; perhaps we should take a closer look at the few remaining examples of plans that uphold the rights of all people to retire with dignity.
Do we really want to live in a society where no one can afford to retire?
Saturday, March 17, 2012
Smart Money v. Smart Kids: The Goldman Sachs Kerfuffle.
Since the publication of Greg Smith's now infamous Op-Ed, Why I am Leaving Goldman Sachs, I've been deluged with messages from many friends and former
colleagues wanting to process this very public resignation in light of my
much-quieter Wall Street departure nearly 11 years ago. They recognized my privately
expressed concerns, "Wall Street is changing and I don't want to work
here anymore," as similar to Mr. Smith's departure from a finance career that
began about the time mine ended.
These have been fascinating conversations, rippling around the airwaves and cyberspace. Conversations that reminded me of the recent St. Paul's Institute Study Value and Values: Perception of Ethics in The City Today which investigates the attitudes of London's elite financial service workers about their work. Like Mr. Smith, they perceive a type of "soulessness" when they view their work in light of their values. Unfortunately for most of us--- folks who do not participate in the annual compensation bonanza known as Wall Street bonuses---our experience as market participants has not been very profitable since my career change back in 2001.
Whether savers, investors or simply future pension beneficiaries hoping to someday retire with dignity, the phrase "Financial Innovation" has become synonomous with Warren Buffet's oft-repeated definition of derivitives as "financial weapons of mass destruction."
Through the lens of sustainicity, the most troubling aspect of Mr. Smith's provocative resignation tactic is summed up in the Kevin Roose's column in yesterday's Times, Wall Street Loses Luster On Campus. I was encouraged to read that our nation's best-and-brightest are reconsidering the arc of their careers and are looking outside "The Street" to deploy their considerable intellectual capital. They seem to be considering enterprises that are stimulating and well paid but which align more closely with their values---working on innovations that build social capital and help solve our world's most intractable problems. Although some are motivated by altruism, most are simply trying to avoid risking their own reputations with an industry that still does not seem to get it.
If Goldman Sachs and other firms fail to recruit these young minds, how will they continue to innovate and build value for their investors? How long can the firm retain its leadership position?
When I left Wall Street the decision was highly personal, the "service" part of financial services seemed to be on the decline in favor of dispersion analysis and modeling that had little to do with value creation or customer service. Back then the derivitives floodgates were really just cracking open. Like Mr. Smith, I was one of thousands of Vice Presidents. Unlike Mr. Smith, I was neither a disgruntled employee nor particularly visionary. I just found myself increasingly uncomfortable with my firm's priorities and had a chance to exit.
Goldman surely won't miss Mr. Smith and yet in all their smug rebuttals to his inelegant departure, they may want to consider its impact as they recruit his replacements. Through the scrim of breathtaking institution hubris I am compelled to ask---Goldman, are you listening?
These have been fascinating conversations, rippling around the airwaves and cyberspace. Conversations that reminded me of the recent St. Paul's Institute Study Value and Values: Perception of Ethics in The City Today which investigates the attitudes of London's elite financial service workers about their work. Like Mr. Smith, they perceive a type of "soulessness" when they view their work in light of their values. Unfortunately for most of us--- folks who do not participate in the annual compensation bonanza known as Wall Street bonuses---our experience as market participants has not been very profitable since my career change back in 2001.
Whether savers, investors or simply future pension beneficiaries hoping to someday retire with dignity, the phrase "Financial Innovation" has become synonomous with Warren Buffet's oft-repeated definition of derivitives as "financial weapons of mass destruction."
Through the lens of sustainicity, the most troubling aspect of Mr. Smith's provocative resignation tactic is summed up in the Kevin Roose's column in yesterday's Times, Wall Street Loses Luster On Campus. I was encouraged to read that our nation's best-and-brightest are reconsidering the arc of their careers and are looking outside "The Street" to deploy their considerable intellectual capital. They seem to be considering enterprises that are stimulating and well paid but which align more closely with their values---working on innovations that build social capital and help solve our world's most intractable problems. Although some are motivated by altruism, most are simply trying to avoid risking their own reputations with an industry that still does not seem to get it.
If Goldman Sachs and other firms fail to recruit these young minds, how will they continue to innovate and build value for their investors? How long can the firm retain its leadership position?
When I left Wall Street the decision was highly personal, the "service" part of financial services seemed to be on the decline in favor of dispersion analysis and modeling that had little to do with value creation or customer service. Back then the derivitives floodgates were really just cracking open. Like Mr. Smith, I was one of thousands of Vice Presidents. Unlike Mr. Smith, I was neither a disgruntled employee nor particularly visionary. I just found myself increasingly uncomfortable with my firm's priorities and had a chance to exit.
Goldman surely won't miss Mr. Smith and yet in all their smug rebuttals to his inelegant departure, they may want to consider its impact as they recruit his replacements. Through the scrim of breathtaking institution hubris I am compelled to ask---Goldman, are you listening?
Saturday, March 10, 2012
Brutal Contrast: What sustainicity isn't.
Having just returned from a few tours of duty at some of our nation's finest universities, I was struck by the contrast between two pieces that have both inspired and haunted me this week. In one, The New Yorker's Adam Gopnik offers a breathtaking assessment of incarceration rates in these United States. http://www.newyorker.com/arts/critics/atlarge/2012/01/30/120130crat_atlarge_gopnik
The other was in yesterday's New York Times, where Andrew Delbanco offers an opinion piece that considers candidate Rick Santorum's recent claims that America's colleges and universities were nothing more than "indoctrination mills." http://www.nytimes.com/2012/03/09/opinion/colleges-and-elitism.html
Through the lens of sustainicity, this armchair economist found a striking contrast between these two enterprises that have astonishingly similar average costs, about $26,000 per year. Many folks involved in social change movements, both grassroots activists in neighborhoods all over our country and the "grass tops" folks as well, have noted the contrast. Policymakers frequently suggest that by front-loading investments in early childhood education and other investments, we give vulnerable children a fighting chance at educational success; at the same time significantly reducing our communities' future prison expenditures. Similar arguments are frequently made in the public health arena, another area rife with inequality and a continuing need systemic reform.
I recognize that this is not a novel concept but the approach has always made sense to me. What struck me about these particular articles is how they highlight the shortsightedness of current trends. By privatizing public institutions, we seem to be losing our ability to demand they produce public good.
If you want proof of the marketplace at its most dehumanizing and unsustainable, simply review the current "Letter to Shareholders" from Corrections Corporation of America (CXW). http://ir.correctionscorp.com/phoenix.zhtml?c=117983&p=irol-reportsannual. The self-congratulatory tone and predictions of ever-expanding prison populations represents everything that "sustainicity" rails against.
If however, you'd like to ponder the role of the institutions at the leading edge of elite education, I offer Delbanco's contemporary interpretation of the Protestant values that were in play when Harvard, Yale and Princeton were founded, "In secular terms, this means recognizing that people with good prospects owe much to their good fortune---and to fellow citizens less fortunate then themselves." Perhaps a recognition of the responsibility that under girds privilege is the most potent response to Santorum's charge of elitism. Perhaps we should see it as a call for stewards of capital to commit to rebuilding our eroding public capital?
When taxes go to zero, do we swap higher education for bigger prisons?
Suffice to say, I hope not.
The other was in yesterday's New York Times, where Andrew Delbanco offers an opinion piece that considers candidate Rick Santorum's recent claims that America's colleges and universities were nothing more than "indoctrination mills." http://www.nytimes.com/2012/03/09/opinion/colleges-and-elitism.html
Through the lens of sustainicity, this armchair economist found a striking contrast between these two enterprises that have astonishingly similar average costs, about $26,000 per year. Many folks involved in social change movements, both grassroots activists in neighborhoods all over our country and the "grass tops" folks as well, have noted the contrast. Policymakers frequently suggest that by front-loading investments in early childhood education and other investments, we give vulnerable children a fighting chance at educational success; at the same time significantly reducing our communities' future prison expenditures. Similar arguments are frequently made in the public health arena, another area rife with inequality and a continuing need systemic reform.
I recognize that this is not a novel concept but the approach has always made sense to me. What struck me about these particular articles is how they highlight the shortsightedness of current trends. By privatizing public institutions, we seem to be losing our ability to demand they produce public good.
If you want proof of the marketplace at its most dehumanizing and unsustainable, simply review the current "Letter to Shareholders" from Corrections Corporation of America (CXW). http://ir.correctionscorp.com/phoenix.zhtml?c=117983&p=irol-reportsannual. The self-congratulatory tone and predictions of ever-expanding prison populations represents everything that "sustainicity" rails against.
If however, you'd like to ponder the role of the institutions at the leading edge of elite education, I offer Delbanco's contemporary interpretation of the Protestant values that were in play when Harvard, Yale and Princeton were founded, "In secular terms, this means recognizing that people with good prospects owe much to their good fortune---and to fellow citizens less fortunate then themselves." Perhaps a recognition of the responsibility that under girds privilege is the most potent response to Santorum's charge of elitism. Perhaps we should see it as a call for stewards of capital to commit to rebuilding our eroding public capital?
When taxes go to zero, do we swap higher education for bigger prisons?
Suffice to say, I hope not.
Monday, February 20, 2012
Frictionless Economy: Too Much of a Good Thing?
Barry Schwartz was onto something when he wrote The Paradox of Choice: Why More is Less. Reading his insightful book before the near collapse of the global capital markets, I was struck by the ideas that resonated with my own interest in the Buddhist concept of attachment. In fact Schwartz seemed to be saying that by letting go of the "more" in our modern consumerist society, we'd reduce the noise that short circuits our brains and make better choices.
Well, Schwartz is at it again.
This time with the concept of the defects inherent in a hyper-liquid, frictionless economy.
http://www.nytimes.com/2012/02/19/opinion/sunday/the-danger-of-too-much-efficiency.html?pagewanted=all.
In this recent Op-Ed column, he makes the case that the economy may well need a little friction, to prevent what he calls "frictionless" transactions from exceeding the speed of human judgment. In the first piece, the volume of choices makes us miserable by short circuiting our capacity to use good judgment. In the second, it's the speed at which decisions come at us that gets in the way.
An unrelated piece of interesting work, "Price is a Social Thing: Towards a Material Sociology of Arbitrage" seems to portend this outcome. In it London School of Economics Professor Daniel Beunza explores the relationship between faster transaction technology and shrinking price differentials.
www.sps.ed.ac.uk/__data/assets/pdf_file/0013/3415/arbitrage.pdf
Whenever perfectly rational people ask, "What good are derivatives anyway? Why not just restrict or even prohibit them now that we've seen what these complex financial innovations can do?" experts answer that they serve to increase market liquidity. In other words, they reduce friction, keeping money flowing as swiftly as possible.
We might have learned from the debacle of 2008-9 that no amount of transparency or disaggregation can make up for good old friction. Perhaps to get back to more sustainable markets it's simply time to step on the brakes and slow down.
Well, Schwartz is at it again.
This time with the concept of the defects inherent in a hyper-liquid, frictionless economy.
http://www.nytimes.com/2012/02/19/opinion/sunday/the-danger-of-too-much-efficiency.html?pagewanted=all.
In this recent Op-Ed column, he makes the case that the economy may well need a little friction, to prevent what he calls "frictionless" transactions from exceeding the speed of human judgment. In the first piece, the volume of choices makes us miserable by short circuiting our capacity to use good judgment. In the second, it's the speed at which decisions come at us that gets in the way.
An unrelated piece of interesting work, "Price is a Social Thing: Towards a Material Sociology of Arbitrage" seems to portend this outcome. In it London School of Economics Professor Daniel Beunza explores the relationship between faster transaction technology and shrinking price differentials.
www.sps.ed.ac.uk/__data/assets/pdf_file/0013/3415/arbitrage.pdf
Whenever perfectly rational people ask, "What good are derivatives anyway? Why not just restrict or even prohibit them now that we've seen what these complex financial innovations can do?" experts answer that they serve to increase market liquidity. In other words, they reduce friction, keeping money flowing as swiftly as possible.
We might have learned from the debacle of 2008-9 that no amount of transparency or disaggregation can make up for good old friction. Perhaps to get back to more sustainable markets it's simply time to step on the brakes and slow down.
Saturday, February 4, 2012
Happy Anniversary to Creating Shared Value---a Harvard Business Review "Big Idea."
Last month marked the first anniversary of the publication of Michael E. Porter and Mark R. Kramer's big idea "Creating Shared Value: How to reinvent capitalism---and unleash a wave of innovation and growth."
http://hbr.org/2011/01/the-big-idea-creating-shared-value
A year after its publication, I continue to marvel at the "shared value" frame. The authors make a case for replacing the outmoded and ideologically-charged concept of corporate social responsibility (CSR) by encouraging companies to commit to creating shared value (CSV). In summarizing the differences, the article explores the business drivers that move beyond doing good and challenges companies to make decisions based on assessing the economic and societal benefits of their operations relative to broadly defined costs.
Porter and Kramer do not disparage goodness made manifest in corporate citizenship and philanthropic efforts; rather they challenge companies to rethink the relationship between innovation and societal benefit. In one example, they contrast the good intentions of the fair trade movement, with companies who view their entire value chain as an opportunity to create value for society---beyond simply redistributing income. I was reminded of the role that economic power plays in ensuring a just and sustainable world and Martin Luther King, Jr.'s reflection on power and love came to mind.
“Power without love is reckless and abusive, and love without power is sentimental and anemic. Power at its best is love implementing the demands of justice, and justice at its best is power correcting everything that stands against love.” Rev. Dr. Martin Luther King, Jr.
Given the noble goals of the fair trade movement, I wonder if companies could accelerate societal benefit, and therefore justice, if transformational corporate practices made it possible for even the most vulnerable farmers to participate in innovation, augmenting good intentions? Could the practice of fair trade be "sentimental and anemic" without a commitment to CSV?
Creating Shared Value. Corporate Social Responsibility.
Either/Or or Both/And?
http://hbr.org/2011/01/the-big-idea-creating-shared-value
A year after its publication, I continue to marvel at the "shared value" frame. The authors make a case for replacing the outmoded and ideologically-charged concept of corporate social responsibility (CSR) by encouraging companies to commit to creating shared value (CSV). In summarizing the differences, the article explores the business drivers that move beyond doing good and challenges companies to make decisions based on assessing the economic and societal benefits of their operations relative to broadly defined costs.
Porter and Kramer do not disparage goodness made manifest in corporate citizenship and philanthropic efforts; rather they challenge companies to rethink the relationship between innovation and societal benefit. In one example, they contrast the good intentions of the fair trade movement, with companies who view their entire value chain as an opportunity to create value for society---beyond simply redistributing income. I was reminded of the role that economic power plays in ensuring a just and sustainable world and Martin Luther King, Jr.'s reflection on power and love came to mind.
“Power without love is reckless and abusive, and love without power is sentimental and anemic. Power at its best is love implementing the demands of justice, and justice at its best is power correcting everything that stands against love.” Rev. Dr. Martin Luther King, Jr.
Given the noble goals of the fair trade movement, I wonder if companies could accelerate societal benefit, and therefore justice, if transformational corporate practices made it possible for even the most vulnerable farmers to participate in innovation, augmenting good intentions? Could the practice of fair trade be "sentimental and anemic" without a commitment to CSV?
Creating Shared Value. Corporate Social Responsibility.
Either/Or or Both/And?
Saturday, January 28, 2012
Sustainicity: we sure hope you're listening, Apple.
It's tax time.
Perhaps like columnist James B. Stewart in today's New York Times, http://www.nytimes.com/2012/01/28/business/a-personal-and-painful-tax-reality-common-sense.html?_r=1&ref=business you are curious about your effective tax rate in the wake of Republican primary squabbles? Or rather like me, you are simply rooting around, pulling together the bits and pieces of paper that describe your income for the year recently ended. I suspect for many of us, this is the one time each year that you really look at those financial account statements that arrive regularly in real and virtual mailboxes.
I couldn't help notice that my little shares of Apple, Inc closed yesterday at just under $450 a share, retaking their position, according to the Wall Street Journal, as the "most valuable company." http://online.wsj.com/article/BT-CO-20120125-710558.html.
Nearly a dozen years ago, those of us who were big fans of Apple products were thought of as simple-minded or simply incurably romantic, with an impractical attachment to products that were beautifully designed and had user interfaces that were, well, simple-to-use. I remember vividly the conversation I had with my stockbroker at the time, calling from my car and suggesting he purchase some shares on my behalf. He disagreed, Apple was too pricey. The recently introduced iPod http://www.youtube.com/watch?v=kN0SVBCJqLs was a fad.
I countered, "indulge me. I just want some."
The small investment turned out "pretty good." And in the wake of recent news coverage of Apple's supply chain challenges, I wrestle more-and-more with my continued longing for all things Apple. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?src=mv&ref=general.
How might this relate to sustainicity, the notion that social capital and economic capital are linked? How might it affect an innovative company like Apple and its ability to create long term value for investors like me?
I offer a subtle-yet-powerful example.
As the global media lit up with the story of Chinese factory workers and Apple's supply chain, accompanying a link to January 25th article, I saw this email from a savvy sophomore at one of the nation's elite innovation institutes, "Maybe you've seen this or (sic) might be in the paper tomorrow... but yeah. Do you still want an iPad?"
If companies like Apple do not appreciate the economics of reputational risk, they may want to ask their future workforce. Great products are built on equally great supply chains. They merit nothing less. Manufacturing costs saved in developing nations may offset the cost of brilliant design and savvy innovation, for a time. But when a 19-year-old techno-wiz asks, "Do you still want an iPad?" Apple investors around the globe may feel a little chill.
U.S investors may even want to take their gains and enjoy the 15% tax rate while it lasts.
Are you listening, Apple?
Perhaps like columnist James B. Stewart in today's New York Times, http://www.nytimes.com/2012/01/28/business/a-personal-and-painful-tax-reality-common-sense.html?_r=1&ref=business you are curious about your effective tax rate in the wake of Republican primary squabbles? Or rather like me, you are simply rooting around, pulling together the bits and pieces of paper that describe your income for the year recently ended. I suspect for many of us, this is the one time each year that you really look at those financial account statements that arrive regularly in real and virtual mailboxes.
I couldn't help notice that my little shares of Apple, Inc closed yesterday at just under $450 a share, retaking their position, according to the Wall Street Journal, as the "most valuable company." http://online.wsj.com/article/BT-CO-20120125-710558.html.
Nearly a dozen years ago, those of us who were big fans of Apple products were thought of as simple-minded or simply incurably romantic, with an impractical attachment to products that were beautifully designed and had user interfaces that were, well, simple-to-use. I remember vividly the conversation I had with my stockbroker at the time, calling from my car and suggesting he purchase some shares on my behalf. He disagreed, Apple was too pricey. The recently introduced iPod http://www.youtube.com/watch?v=kN0SVBCJqLs was a fad.
I countered, "indulge me. I just want some."
The small investment turned out "pretty good." And in the wake of recent news coverage of Apple's supply chain challenges, I wrestle more-and-more with my continued longing for all things Apple. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?src=mv&ref=general.
How might this relate to sustainicity, the notion that social capital and economic capital are linked? How might it affect an innovative company like Apple and its ability to create long term value for investors like me?
I offer a subtle-yet-powerful example.
As the global media lit up with the story of Chinese factory workers and Apple's supply chain, accompanying a link to January 25th article, I saw this email from a savvy sophomore at one of the nation's elite innovation institutes, "Maybe you've seen this or (sic) might be in the paper tomorrow... but yeah. Do you still want an iPad?"
If companies like Apple do not appreciate the economics of reputational risk, they may want to ask their future workforce. Great products are built on equally great supply chains. They merit nothing less. Manufacturing costs saved in developing nations may offset the cost of brilliant design and savvy innovation, for a time. But when a 19-year-old techno-wiz asks, "Do you still want an iPad?" Apple investors around the globe may feel a little chill.
U.S investors may even want to take their gains and enjoy the 15% tax rate while it lasts.
Are you listening, Apple?
Sunday, January 22, 2012
Sustainicity: a recent example
I am sometimes puzzled by the challenge of explaining the idea of "social capital" to the very smart people I know who earning their livings by thinking about clever ways to redeploy financial capital. When complex mathematical models are used to explain how investments have performed in the past, there does not seem to be any limit to the ability to synthesize complex variables and predictive statistics. Tinkering with models to limit such recent nastiness as "tail risk" continues to be a legitimate way forward, with "past performance no guarantee of future results."
Mercifully noted.
Truth-be-told, many sophisticated investment consultants; the folks who, for substantial fees, advise investment committees for pension funds, college endowments, foundations and the like, are puzzled by the ideas that link financial performance with social outcomes. The idea that an investment's impact on society could be predictive of its ultimate return is met with indulgent sighs. A nice idea perhaps, even desirable in a Panglossian "best of all possible worlds..."
We do live and invest in this world, as I am frequently reminded by savvy investors. The societal impact of business activity and capital allocation belongs to the realm of social scientists, policy makers and preachers. To spend time modeling social outcomes and relate them to financial outcomes is often viewed as politically naive or impossibly complex. Or as a cynical attempt to monetize morality.
I disagree.
And apparently so does the American Academy of Pediatrics, which recently published policy guidance on the long term impact of childhood stress---the kind that arises in communities weakened by poverty and other "negative externalities," as the economists like to call them. The guidance begins with Frederick Douglass' sage observation, "It is easier to build strong children than to repair broken men."
http://pediatrics.aappublications.org/content/129/1/e224.full
A spot on synopsis of the report was provided in a recent column by Nicholas D. Kristof,
http://www.nytimes.com/2012/01/08/opinion/sunday/kristof-a-poverty-solution-that-starts-with-a-hug.html?_r=1&ref=nicholasdkristof
This sort of thinking explains nicely why Adam Smith wrote The Theory of Moral Sentiments (1759) before his more frequently cited (An Inquiry into the Nature and Causes of) the Wealth of Nations (1776).
Adam Smith may well have appreciated sustainicity.
Mercifully noted.
Truth-be-told, many sophisticated investment consultants; the folks who, for substantial fees, advise investment committees for pension funds, college endowments, foundations and the like, are puzzled by the ideas that link financial performance with social outcomes. The idea that an investment's impact on society could be predictive of its ultimate return is met with indulgent sighs. A nice idea perhaps, even desirable in a Panglossian "best of all possible worlds..."
We do live and invest in this world, as I am frequently reminded by savvy investors. The societal impact of business activity and capital allocation belongs to the realm of social scientists, policy makers and preachers. To spend time modeling social outcomes and relate them to financial outcomes is often viewed as politically naive or impossibly complex. Or as a cynical attempt to monetize morality.
I disagree.
And apparently so does the American Academy of Pediatrics, which recently published policy guidance on the long term impact of childhood stress---the kind that arises in communities weakened by poverty and other "negative externalities," as the economists like to call them. The guidance begins with Frederick Douglass' sage observation, "It is easier to build strong children than to repair broken men."
http://pediatrics.aappublications.org/content/129/1/e224.full
A spot on synopsis of the report was provided in a recent column by Nicholas D. Kristof,
http://www.nytimes.com/2012/01/08/opinion/sunday/kristof-a-poverty-solution-that-starts-with-a-hug.html?_r=1&ref=nicholasdkristof
This sort of thinking explains nicely why Adam Smith wrote The Theory of Moral Sentiments (1759) before his more frequently cited (An Inquiry into the Nature and Causes of) the Wealth of Nations (1776).
Adam Smith may well have appreciated sustainicity.
Sunday, January 8, 2012
Sustainicity: a working definition
Something has happened to the perfectly good word "sustainability"
lately. It seems to still mean "property of being sustainable" and
yet it is being applied across so many areas that I feel a groan rising
up each time I see this perfectly serviceable word used in increasingly
meaningless ways. I thought a new word might be needed. A new word
that would apply whenever someone recognized the that financial
sustainability and social sustainability were interdependent and
interlinked. What does it mean to build financial capital, without
building social capital? Sustainicity is a word that doesn't exist yet.
It's not in Wikipedia. Yet. It's not in the dictionary. Yet.
So I claimed it.
As the 2012 election season heats up here in the United States, I am eager to see how the candidates include my notion of "sustainicity" in their campaign rhetoric and platforms. I am especially gladdened when I read something that truly surprises me. David Brooks' reflection on Rick Santorum's performance in the Iowa caucuses delighted me by challenging me to consider this candidate from a different perspective. Brooks piece is here:
http://www.nytimes.com/2012/01/06/opinion/brooks-a-new-social-agenda.html
And just yesterday, Gail Collins counterpoint as she reviews Santorum's 2005 book:
http://www.nytimes.com/2012/01/07/opinion/collins-it-takes-a-santorum.html
I hope to reflect on this challenging tension between economic and societal health from the perspective of an individual who has worked at the juncture of those two poles for years. By challenging my own thinking as a person of deep faith in both God and rational thought, I hope to define a sustainicity movement...perhaps a movement of one, or one plus my Facebook and Google+ pals. Or just my family as they monitor my posts for signs of decrepitude.
Sustainicity. It starts here.
So I claimed it.
As the 2012 election season heats up here in the United States, I am eager to see how the candidates include my notion of "sustainicity" in their campaign rhetoric and platforms. I am especially gladdened when I read something that truly surprises me. David Brooks' reflection on Rick Santorum's performance in the Iowa caucuses delighted me by challenging me to consider this candidate from a different perspective. Brooks piece is here:
http://www.nytimes.com/2012/01/06/opinion/brooks-a-new-social-agenda.html
And just yesterday, Gail Collins counterpoint as she reviews Santorum's 2005 book:
http://www.nytimes.com/2012/01/07/opinion/collins-it-takes-a-santorum.html
I hope to reflect on this challenging tension between economic and societal health from the perspective of an individual who has worked at the juncture of those two poles for years. By challenging my own thinking as a person of deep faith in both God and rational thought, I hope to define a sustainicity movement...perhaps a movement of one, or one plus my Facebook and Google+ pals. Or just my family as they monitor my posts for signs of decrepitude.
Sustainicity. It starts here.
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