What The NBA All-Star Game Venue Change Teaches Us About Decision-Making

Leaders like to be deciders. Most leaders think of themselves as decision makers. In 2006 President George Bush, defending Donald Rumsfeld as his Defense Secretary said “I am the Decider.  I decide what’s best.” It earned him the nickname “Decider-in-Chief.” Most CEOs echo this sentiment. Most leaders like to define themselves by their decisions.

But whether a decision is good or not is open to interpretation. Often immediately after a decision things may look great. It might appear as if that decision was obvious. And often decisions quickly make a lot of people happy.

As we enter the most intense part of the U.S. presidential election, both candidates are eager to tell potential voters what decisions they have made – and what decisions they will make if elected. And most people will look no further than the immediate expected impact of those decisions.

AP Photo/Chuck Burton, File

It takes time to determine the quality of any decision.

However, the quality of most decisions is not based on the immediate, or obvious, first implications. Rather, the quality of a decision is discovered over time, as the consequences are revealed – intended and unintended. Because quite often, what looked good at first can turn out to be very, very bad.

The people of North Carolina passed a law to control the use of public bathrooms. Most people of the state thought this was a good idea, including the governor. But some didn’t like the law, and many spoke up. Last week the NBA decided that it would cancel its All-Star game scheduled in Charlotte due to discrimination issues caused by this law. This change will cost Charlotte about $100 million.

 That action by the NBA is what’s called unintended consequences. Lawmakers didn’t really consider that the NBA might decide to take its business elsewhere due to this state legislation. It’s what some people call, “Oops. I didn’t think about that when I made my decision.”

Often unintended consequences are more important than first reactions to decisions.

Robert Reich, Secretary of Labor for President Clinton, was a staunch supporter of unions. In his book Locked in the Cabinet, he tells the story of visiting an auto plant in Oklahoma supporting the local union. He thought his support would incent the company’s leaders to negotiate more favorably. Instead, the company closed the plant. Laid-off everyone. Oops. The unintended consequences of what he thought was obvious support led to the worst possible worker outcome.

President Obama worked Congress hard to create the Affordable Care Act, or Obamacare, for everyone in America. One intention was to make sure employers covered all their workers, so the law required that if an employer had health care for any workers he had to offer that health care to all employees who worked over 30 hours per week. So almost all employers of part time workers suddenly said that none could work more than 30 hours. Those that worked 32 (four days per week) or 36 suddenly had their hours cut. Now those lower-income people not only had no health care, but less money in their pay envelopes. Oops. Unintended consequence.

President Reagan and his First Lady launched the “War on Drugs.” How could that be a bad thing? Illegal drugs are dangerous, as is the supply chain. But now, some 30 years later, the Federal Bureau of Prisons reports that almost half (46.3% or over 85,000) of inmates are there on drug charges. The U.S. now spends $51 billion annually on this drug war, which is about 20% more than is spent on the real war being waged with Afghanistan, Iraq and ISIS.  There are now over 1.5 million arrests each year, with 83% of those merely for possession. Oops. Unintended consequences. It seemed like such a good idea at the time.

This is why it is so important leaders take their time to make thoughtful decisions, often with the input of many other people. Because the quality of a decision is not measured by how one views it immediately. Rather, the value is decided over time as the opportunity arises to observe the unintended consequences, and their impact. The best decisions are those in which the future consequences are identified, discussed and made part of the planning – so they aren’t unintended and the “decider” isn’t running around saying “oops.”

Think hard about the long-term complications of any decision.

As you listen to the politicians this cycle, keep in mind what could be the unintended consequences of implementing what they say:

  • What would be the social impact, and transfer of wealth, from suddenly forgiving all student loans?
  • What would be the consequences on trade, and jobs, of not supporting historical government trade agreements?
  • What would be the consequences on national security of not supporting historically allied governments?
  • What would be the long-term consequence of not allowing visitors based on race, religion or sexual orientation?
  • What would be the consequence of not repaying the government’s bonds?
  • What would be the long-term impact on economic growth of higher regulations on banks – that already have seen dramatic increases in regulation slowing the recovery?
  • What would be the long-term consequences on food production, housing and lifestyles of failing to address global warming?

Business leaders should be very aware of the long-term consequences of their decisions. Every time a decision is necessary, is the best effort made to obtain all the information available on the topic? Are inputs and expectations obtained from detractors, as well as admirers? Is there a balance between not only what is popular, but what will happen months into the future? Did you consider the potential reaction by customers? Employees? Suppliers? Competitors?

There are very few “perfect decisions.” All decisions have consequences. Often, there is a trade-off between the good outcomes, and the bad outcomes. But the key is to know them all, and balance the interests and outcomes. Consider the consequences, good and bad, and plan for them. Only by doing that can you avoid later saying “oops.”

Starbucks and JPMorganChase Pay Raises – Just Following Trends

Starbucks and JPMorganChase Pay Raises – Just Following Trends

This week Starbucks and JPMorganChase announced they were raising the minimum pay of many hourly employees.  For about 168,000 lowly paid employees, this is really good news.  And both companies played up the planned pay increases as benefitting not only the employees, but society at large.  The JPMC CEO, Jamie Dimon, went so far as to say this was a response to a national tragedy of low pay and insufficient skills training now being addressed by the enormous bank.

Dimon and SchultzHowever, both actions look a lot more like reacting to undeniable trends in an effort to simply keep their organizations functioning than any sort of corporate altruism.

Since 2014 there has been an undeniable trend toward raising the minimum wage, now set nationally at $7.25.  Fourteen states actually raised their minimum wage starting in 2016 (Massachusetts, California, New York, Nebraska, Connecticut, Michigan, Hawaii, Colorado, Nebraska, Vermont, West Virginia, South Dakota, Rhode Island and Alaska.)  Two other states have ongoing increases making them among the states with fastest growing minimum wages (Maryland and Minnesota.)  And there are 4 additional states that promoters of a $15 minimum wage think will likely pass within months (Illinois, New Jersey, Oregon and Washington.)  That makes 20 states raising the minimum wage, with 46.4% of the U.S. population.  And they include 5 of the largest cities in the USA that have already mandated a $15 minimum wage (New York, Washington D.C., Seattle, San Francisco and Los Angeles.)

In other words, the minimum wage is going up.  And decisively so in heavily populated states with big cities where Starbucks and JPMC have lots of employees.  And the jigsaw puzzle of different state requirements is actually a threat to any sort of corporate compensation plan that would attempt to treat employees equally for common work. Simultaneously the unemployment rate keeps dropping – now below 5% – causing it to take longer to fill open positions than at any time in the last 15+ years.  Simply put, to meet local laws, find and retain decent employees, and have any sort of equitable compensation across regions both companies had no choice but to take action to raise the pay for these bottom-level jobs.

Starbucks pointed out that this will increase pay by 5-15% for its 150,000 employees.  But at least 8.5% of those employees had already signed a petition demanding higher pay.  Time will tell if this raise is enough to keep the stores open and the coffee hot.  However, the price increases announced the very next day will probably be more meaningful for the long term revenues and profits at Starbucks than this pay raise.

At JPMC the average pay increase is about $4.10/hour – from $10.15 to $12-$16.50/hour.  Across all 18,000 affected employees, this comes to about $153.5million of incremental cost.  Heck, the total payroll of these 18,000 employees is only $533.5M (after raises.) Let’s compare that to a few other costs at JPMC:

Wow, compared to these one-off instances, the recent pay raises seem almost immaterial.  While there is probably great sincerity on the part of these CEOs for improving the well being of their employees, and society, the money here really isn’t going to make any difference to larger issues.  For example, the JPMC CEO’s 2015 pay of $27M is about the same as 900 of these lowly paid employees.  Thus the impact on the bank’s financials, and the impact on income inequality, is — well — let’s say we have at least added one drop to the bucket.

The good news is that both companies realize they cannot fight trends.  So they are taking actions to help shore up employment.  That will serve them well competitively.  And some folks are getting a long-desired pay raise.  But neither action is going to address the real problems of income inequality.