Today I'm going to share a 5-step exercise program. You won't need workout gear or cross-trainers. And forget about engaging in Richard Simmons-like activity while listening to Swingin' with the Oldies. This exercise program stretches the mind and works a different set of muscles. Think of it as calisthenics in conflict resolution.
The recent spat between Google (Nasdaq: GOOG) and
Facebook (Nasdaq: FB) got me thinking about how companies make decisions and the effect they have on stakeholders and shareholders. (In case you missed the news, Facebook hired PR firm Burson-Marsteller to engineer a campaign about Google's privacy policies.)
When hit with a crisis, many public companies try to take the easy way out to save face and protect shareholder value. One company involved in a tizzy may blame another. Other times, a firm will blame "the system" or a business practice, as Sony (NYSE: SNE) CEO Howard Stringer did when questioned about the company's security breach.
These kinds of responses are often the handiwork of corporate communications and investor relations departments, which work with corporate attorneys in the hope of handling a crisis without triggering litigation.
Corporate social responsibility (CSR) programs give companies a way to demonstrate to investors and stakeholders that they have a commitment to the communities where they do business. But relying on CSR work to elevate your corporate profile is often a band-aid solution. Crises within the investment community could be avoided if the companies and their executives resolve to follow a different model of decision making -- one not created by management or consultants, but rooted simply in the ethics of the leadership team. I've come up with 5 exercises to help bring out ethical behavior in the way you make investment decisions and conduct business. I've found them useful for influencing my decisions in PR, and I think they're equally applicable in the financial world. Here's your five-part workout.
Exercise 1: Is it moral? We all follow societal norms and values because, well, they're just accepted. So where did former Enron CEO Ken Lay's morals lie? Enron's hyper-inflated earnings were a result of the way a large accounting firms valued the company's knowledge or technology assets. Granted, it's hard to put a price tag on intangible assets. But it's an accepted practice to approximate value, even if it's not always accurate. (In five years, ask me if the market was truly moral in the way it priced the LinkedIn (NYSE: LNKD) IPO, which, at the time of writing, is selling at more than twice its initial offering price.)
Exercise 2: Is it legal? Perhaps executives at WorldCom, Tyco, Adelphia, and countless other companies believed they could hide their actions by failing to share particular information. Apparently, they skipped their collegiate business law courses on what is and isn't fraud. (Former WorldCom CEO has a legitimate excuse for not knowing as much as he should about the law -- he was a physical education major.)
Exercise 3: What are the economics? As investors, we want to make money and seek any sort of ROI possible. But at what cost? The C-suite often draws lines in the sand, much in part to reflect their organizations' bottom lines. We hear of decisions that are made "in the best interests of the company." But what does that really mean? The likely translation: "We need money. This deal will pay bills."
Exercise 4: What's the social value? Have you ever thought about a company's social policies before making an investment? Pharmaceutical companies have come under fire for getting doctors to use certain drugs in exchange for lavish gifts. As an investor, can you feel good about practices like that? At what cost should someone broker a relationship? I know a lot of PR practitioners who schmooze journalists, but most reporters are too smart to fall for it. In reality, the only thing most reporters want is information to build good stories. Is the same principle true when it comes to investing our money? Do investors only want clear and complete information so they can make informed decisions?
Exercise 5: Who's responsible? In this final part of the workout, I want you to think about who is responsible for making ethics a factor in your investment decisions. If ethics are important to you, then share your values -- and your ethics workout -- with anyone who is part of your decision tree. Then connect with the companies in which you invest to learn more about their ethics, especially the ethics of those occupying the C-suites. "Ethicizing" is meaningless unless leadership is committed to it.
Unfortunately, the ethics workout never ends. Ethical decision-making takes soul searching and honest introspection. You have to have a clear understanding of your values and goals. It's hard work, and you will get a little sore. But once you get the hang of them, you'll find these exercises much easier than sweating with Richard Simmons.
Here's an interesting link from Mashable on how social media is being used to move ethical mountains.
The blog post, by Patrick Kerley is called "How Activist Investors Use Social Media to Influence Companies," and contains not only several interesting cases involving Twitter and Facebook, but a video as well.
The power of one can be GREATLY magnified, especially in the Twitterverse!
The rapture came and went; interestingly, did anyone happen to recognize the timing of LinkedIn's IPO? SOMEBODY there was looking at the Mayan calendar.
Seriously, be prepared for more on the ethics tip; it's a big part about who I am in PR and (full disclosure) it is one of the reasons why PR NEWSWIRE came to me about writing for this blog.
If y'all have ideas about what to write about, the door is open!
This is such a rich area for commentary that we could go on forever, but you are certainly right, Michael about the sparks flying when individual ethics start to do battle with those of the group. I think that not only is individual psychology involved but outside perception as shaped by expectation and the media as well.
In a case like Buffett where the message has been sent so consistently for so long from the top, it seems to have "taken" to a pretty encouraging extent. Moreover, the message of value investing just seems more logically compatible with ethics somehow, although we all know intellectually that Berkshire Hathaway certainly has a trading desk and treasures its eighths and quarters as much as the next guy.
At some of the hedge funds making news at the moment the message seems to have been murkier because the message was more about massive gains, computer strategies and fast money all along.
I've had some personal, non-business dealings with one of the biggest of the hedge fund bigwigs, and from where I sit, I think he's an honest guy. It would really surprise me to discover that he was guilty of insider trading but that is NOT stopping the world from trying to turn over every rock to find something, anything to pin on his firm. Much of it is due to the fact that he has made a bigger public deal out of his work ethic than his ethics ethics.
These days, the individual can be innocent and the group guilty--or the group innocent and the individual guilty. WHERE is that Rapture when we need it?
Thanks for "Street Smart" and "Value Hiker" for sharing their insights in this arena; I took a proverbial weekend off from work and anything related to my laptop and am just seeing your posts from this weekend.
I wish I were a fly on the wall with anything related to Warren Buffett--not just at the shareholder meetings like was talked about here, but when he sits down for his bacon and eggs in the morning to see how he REALLY feels when he is not at work. The Sokol/Buffett/Berkshire debate is great in that we are seeing different definitions of what ethics really are to each person.
Based on the position I put forth here, Buffett has done a good job hitting on all four of the major filters--moral, legal, economic and social--but the thing which strikes me here is how to discern Buffett's feeling as an individual and one who oversees such an organization as BW. In many cases, ethics are practiced differently within a group environment compared to those practiced individually.
You think ethical conflicts are hard to handle individually? Compare ethics to others within your organizations and watch the sparks fly!
Value Hiker, one of the highlights of my LIFE was meeting Warren Buffett when I was in business school. The good (great...fantastic...AWESOME) news was that it was in a second year finance class with maybe 15 people and we had him all to ourselves for two hours to ask him anything in a roll-up-your-sleeves, trade tips, chalk talk kind of setting--just extraordinary access.
The bad news (and I use the term in a tongue-in-cheek way) was that I was too young and wet behind the ears to have really appreciated it. Youth is wasted on the young as the expression goes! If I could re-live those two hours NOW...Oh, man oh man!!!
But, that is the wellspring from which my unswerving belief in him flows--that and the fact that one of my dearest friends lives in Omaha and knows his daughter quite well.
My dismay at the Sokol troubles was never that I thought Buffett had done anything wrong. It was that I felt so bothered that the world had come to the point where "fundamentals" just literally and figuratively didn't seem to count anymore.
You're right. I should treat myself to a pilgrimage. I'm dating myself (as if I haven't already with the biz school story) with this but...I used to go to every single Frank Sinatra concert and justify it by saying, "He won't be around forever!"
Same thing: The Woodstock of Capitalism!!! Thanks for the prod!
If you have never to Bershire Annual Meeting before, go to the meeting at least once. Even most shareholders hope Mr Buffett and Mr Munger living forever, we all know the time is not on our side.
I plan to attend Mr. Munger's Wesco shareholder meeting, but fail to do so because his meeting is scheduled so close to Bershire's annual meeting. I always think I will do it next year. Unfortunately, Mr. Munger sold the rest of his Wesco shares to Bershire this year, and there will be no more Wesco shareholder meeting in the future, what a pity!
There is a joke that you don't need to see the hen just because you like her eggs. But if you want to learn how to lay eggs, maybe it is not a bad idea to see the hen couple of times.
The best part of meeting, there are lots of presentation and trainings before and after the meeting, most of them are free and well prepared. You can meet lots of value investors from all over the country and around the world. I greatly expand my social networks with value investors during the weekend meeting.
Value Hiker, I am SO glad to hear your response regarding the Sokol mess based on having personally attended the BH meeting! I've been having these dark clouds of cynicism descending over me lately and I was really, really trying to resist because Buffet is such a hero of mine.
I had heard the whole thing reported, of course, but hard to really get a feel for the emotion in the room without being there.
The fact that Buffett and the shareholders would be on the same page in saying, "This is NOT what we stand for! We're going to continue to make money the old fashioned way--EARN it!" really sends a powerful message.
I just returned from Berkshare 2011 annual meeting and want to add some comments about David Sokol Scandal:
Most Berkshire shareholders DO care the Scandal about Mr.Sokol , so does Mr. Buffett.
Mr. Buffett opened the meeting with half an hour explanation. He said the whole accident is unexplainable and unexcusable. He misjudged Mr.Sokol who gave away 12M bonus to his coworkers voluntarily 10 years ago, and then made a stupid move for 3M dollars now.
There were half dozen shareholders continuing to push hard on the issue. Mr. Buffett patiently gave his explanation for each question, I can tell he did not try to cover up anything.
Nobody can deny the damage caused by Mr.Sokol's scandal, at least, I noticed there were many brokerage firms and hedge fund companies tried to take advange of this scandal , they tried to entice Berkshire shareholders to switch. As far as I can see, not very successful.
Like Apple, neither Berkshire nor Mr. Buffett are perfect, but the company as a whole, still holds an ethnic standard far above average American Coroporation.
I thought that this was an exceptional post and I really agreed with the follow-up comments about how shareholders could begin their personal moral due diligence by asking for a company's written policy concerning ethics.
However, as Carrie Bradshaw would say, "I couldn't help but wonder..." about exactly how far that approach took the shareholders of Berkshire Hathaway recently in processing their personal ethical responses to the David Sokol Lubrizol trading revelations.
Warren Buffett has staked his reputation on...REPUTATION. I guess he's the first to admit he didn't have really elaborate written policies at Berkshire but only because his expectations were so pithy that he thought he didn't need them.
So, if Buffett and his shareholders really cared about ethics, then that written policy and a dollar got them on the bus. If as Buffett is now saying, he called the SEC right away and reported the whole thing, then his written policy actually didn't do much either. And worst of all, if his shareholders actually DIDN'T CARE if he didn't care...well, I cynically suspect that's the honest, unvarnished truth.
Some corporate cultures just seem slimy from the outside (and in Facebook's case those perceptions make great movies) and some, like Berkshire Hathaway don't. But across the board, I think individual investors need to rely on their own moral compasses and creative due diligence rather than corporate ethics statements.
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