by Adam Hartung | Jan 23, 2016 | Current Affairs, Ethics, Food and Drink, Web/Tech
Cheating in sports is now officially prevalent. The World Anti-Doping Agency (WADA) last week issued its report, and confirmed that across the International Association of Athletics Federation (IAAF) athletes were cheating. And very frequently doing so under the supervision of those leading major sports operations at a national, and international level.
Quite simply, those responsible for the future of various sports were responsible for organizing and enabling the illegal doping of athletes. This behavior is now so commonplace that corruption is embedded in the IAAF, making cheating by far the norm rather than the exception.
Wow, we all thought that after Lance Armstrong was found guilty of doping this had all passed. Sounds like, to the contrary, Lance was just the poor guy who got caught. Perhaps he was pilloried because he was an early doping innovator, at a time when few others lacked access. As a result of his very visible take-down for doping, today’s competitors, their coaches and sponsors have become a lot more sophisticated about implementation and cover-ups.
Accusations of steroid use for superior performance have been around a long time. Major league baseball held hearings, and accused several players of doping. The long list of MLB players accused of cheating includes several thought destined for the Hall of Fame including Barry Bonds, Jose Conseco, Roger Clemens, Mark McGwire, Manny Ramirez, Alex Rodriguez, and Sammy Sosa. Even golf has had its doping accusations, with at least one top player, Vijay Sing, locked in a multi-year legal battle due to admitting using deer antler spray to improve his performance.
The reason is, of course, obvious. The stakes are, absolutely, so incredibly high. If you are at the top the rewards are in the hundreds of millions of dollars (or euros.) Due to not only enormously high salaries, but also the incredible sums paid by manufacturers for product endorsements, being at the top of all sports is worth 10 to 100 times as much as being second.
For example – name any other modern golfer besides Tiger Woods. Bet you even know his primary sponsor – Nike. Yet, he didn’t even play much in 2015. Name any other Tour de France rider other than Lance Armstrong. And he made the U.S. Postal Service recognizable as a brand. I travel the world and people ask me, often in their native language or broken English, where I live. When I say “Chicago” the #1 response – by a HUGE margin is “Michael Jordan.” And everyone knows Air Nike.
We know today that some competitors are blessed with enormous genetic gifts. Regardless of what you may have heard about practicing, in reality it is chromosomes that separate the natural athletes from those who are merely extremely good. Practicing does not hurt, but as the good doctor described to Lance Armstrong, if he wanted to be great he had to overcome mother nature. And that’s where drugs come in. Regardless of the sport in which an athlete competes, greatness simply requires very good genes.
If the payoff is so huge why wouldn’t you cheat? If mother nature didn’t give you the perfect genes, why not alter them? It is not hard to imagine anyone realizing that they are very, very, very good – after years of competing from childhood through their early 20s – but not quite as good as the other guy. The lifetime payoff between the other guy and you could be $1Billion. A billion dollars! If someone told you that they could help, and it might take a few years off your life some time in the distant future, would you really hesitate? Would the daily pain of drugs be worse than the pain of constant training?
The real question is, should we call it cheating? If lots and lots of people are doing it, as the WADA report and multiple investigations tell us, is it really cheating?
After all, isn’t this a personal decision? Where should regulators draw the line?
We allow athletes to drink sports drinks. Once there was only Gatorade, and it was only available to Florida athletes. Because they didn’t dehydrate as quickly as other teams these athletes performed better. But obviously sports drinks were considered OK. How many cups of coffee should be allowed? How about taking vitamins?
Exactly who should make these decisions? And why? Why “outlaw” some products, and not others? How do you draw the line?
After watching “The Program” about Lance Armstrong’s doping routine it was clear to me I would never do it, and I would hope those I love would never do it. But I also hope they don’t smoke cigarettes, drink too much liquor or make a porno movie. Yet, those are all personal decisions we allow. And the first two can certainly lead to an early grave. As painful as doping was to biker Armstrong and his team, it was their decision to do it. As bad as it was, why isn’t it their decision? Why is someone put in a position to say it is cheating?
After all, we love winners. When Lance was winning the Tour de France he was very, very popular. Even as allegations swirled around him fans, and sponsors, pretty much ignored them. Even the reporter who chased the story was shunned by his colleagues, and degraded by his publisher, as he systematically built the undeniable case that Armstrong was cheating. Nobody wanted to hear that Lance was cheating – even if he was.
Fans and sponsors really don’t care how athletes win, just that they win. If athletes do something wrong fans pretty much just hope they don’t get caught. Just look at how fans overwhelming supported Armstrong for years. Or how football fans have overwhelming supported Patriots quarterback Tom Brady, and ridiculed the NFL’s commissioner Roger Goodall, over the Deflategate cheating charges and investigation. Fans support a winner, regardless how they win.
So, now we know performance enhancing drugs are endemic in professional sports. Why do we still make them against the rules? If they are common, should we be trying to change behavior, or change the rules?
Go back 150 years in sports and frequently the best were those born to upper middle class families. They had the luck to receive good, healthy food. They had time to actually practice. So when these athletes were able to be paid for their play, we called them professionals. As professionals we would not allow them to compete with the local amateurs. Nor could they compete in international competitions, such as the Olympics.
Jim Thorpe won 2 Olympic gold medals in 1912, received a ticker-tape Broadway parade for his performance and was considered “the greatest athlete of all time.” He was also stripped years later of his medals because it was determined he had been paid to play in a couple of professional baseball games. He was considered a cheater because he had the luxury of practicing, as a professional, while other Olympic athletes did not. Today we consider this preposterous, as professional athletes compete freely in the Olympics. But what really changed? Primarily the rules.
It is impossible to think that we will ever roll back the great rewards given to modern athletes. Too many people love their top athletes, and relish in seeing them earn superstar incomes. Too many people love to buy products these athletes endorse, and too many companies obtain brand advantage with those highly paid endorsements. In other words, the huge prize will never go away.
What is next? Genetic engineering, of course. The good geneticists will continue to figure out how to build stronger bodies, and their results will be out there for athletes to use. Splice a gorilla gene into a wrestler, or a gazelle gene into a long-distance runner. It’s not pure fantasy. This will likely be illegal. But, over time, won’t those gene-altering programs become as common to professional athletes as steroids and human growth hormone are today? Exactly when does anyone think performance enhancement will stop?
And if the drugs keep becoming better, and athletes have such a huge incentive to use them, how are we ever to think a line can be drawn — or ever enforced?
Thus, the effort to stop doping would appear, at best, Quixotic.
Instead, why not simply say that at the professional level, anything goes? No more testing. If you are a pro, you can do whatever you want to win. “It’s your life brother and sister,” the decision is up to you.
If you are an amateur then you will be subjected to intense testing, and you will be caught. Testing will go up dramatically, and you will be caught if you cross any line we draw. And banned from competition for life. If you want to go that extra mile, just go pro.
Of course, one could imagine that there could be 2 pro circuits. One that allows all performance enhancing drugs, and one that does not. But we all know that will fail. Like minor league competition, nobody really cares about the second stringers. Fans want to see real amateurs, often competing locally and reinforcing pride. And they like to see pros — the very best of the very best. And in this latter category, the fans consistently tell us via their support and dollars, they don’t really care how those folks made it to the top.
So a difficult ethical dilemma now confronts sports fans – and those who monitor athletics:
1 – Do we pretend doping doesn’t exist and keep lying about it, but realize what we’re doing is a sham and waste of time?
2 – Do we spend millions of dollars in an upgraded “war on drugs” that is surely going to fail (and who will pay for this increased vigilance, by the way?)
3 – Do we realize that with the incentives that exist today, we need to change the rules on doping? Allow it, educate about its use, but give up trying to stop it. Just like pros now compete in the Olympics, enhancement drugs would no longer be banned.
This one’s above my pay grade. What do you readers think?
by Adam Hartung | Sep 29, 2015 | Current Affairs, Leadership, Quotes
The stock market is incredibly fickle. In the short term, stock prices can swing significantly on such short-term news as:
- What are reviewers saying about the newest, yet-to-be released iPhone?
- Will Amazon use drones for shipping?
- How many people in Latin America signed up for Netflix?
You get the drift. But for long-term investors there is quite a bit more to creating long-term, sustainable shareholder value than short-term news. If you’re not a short-term trader, standing back and taking the long-term view is important for deciding where to invest your hard-earned savings.
The National Association of Corporate Directors (NACD) has over 17,000 members that serve on Boards of publicly traded, for-profit private and non-profit organizations. It is the world’s leading association studying regulations and how they are applied, and recommending best practices for Boards of Directors to apply corporate governance.
At their annual meeting this week NACD released its newest report The Board and Long-Term Value Creation created by its Blue Ribbon Commission of leading Directors. Succinctly, the report calls on all Boards to help management overcome myopia around short-term results, and increase attention on creating long-term value.
Most metrics used in business are very short-term, including sales, volume, costs and margin. The report points out that at most companies long-term compensation is defined as 3 years or less — shorter than most new product development programs or even new branding or image creation programs. Unfortunately, this can lead to spending too much time on tactics and machinations to drive short-term reporting, hoping that the long-term will simply take care of itself.
“Instead of viewing short-term results and long-term strategy as mutually exclusive, boards and executives should view them in terms of degrees of alignment,” said Karen Horn, co-chair of the NACD Blue Ribbon Commission; vice chair of the NACD board; and director of Eli Lilly & Co., Norfolk Southern Corp., Simon Property Group, and T. Rowe Price Mutual Funds. “It should be possible to draw a clear line from the company’s day-to-day activities to its long-term objectives.”
“Board agendas need to accommodate sufficient time for substantive discussions about long-term opportunities and risks, rather than being dominated by backward-looking reviews of past performance,” said Bill McCracken, co-chair of the NACD Blue Ribbon Commission, former CEO of CA Technologies, and director of MDU Resources and NACD.
The report notes that short-term pressures on management are greater than ever. But Boards can take measures to bring the focus back on long-term value creation by actively engaging in various activities, such as:
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developing long-term strategy,
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reviewing capital allocation process and where money is invested,
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careful consideration of management incentives including compensation,
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applying oversight to corporate culture,
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participating in communications with analysts, investors, and other constituencies.
“The Commission believes that directors need to be active students of the business, seeking out information from multiple sources in preparation for boardroom discussions rather than being passive recipients of data from management. And rather than being dominated by retrospective analysis of past performance, board agendas should provide adequate time for substantive discussion of long-term strategic choices, risks, and opportunities.”
From great minds come great reads. NACD membership is growing at double digit rates, at a time when many associations struggle to maintain membership. As regulations on officers and directors grow, NACD’s active development of programs and reports providing guidance to Directors on how they can meet ever increasing demands to provide effective, active governance is providing great value to those leading America’s organizations. This Blue Ribbon Commission report is another example of forward-thinking guidance that all corporate directors and officers (and investors) should read.
by Adam Hartung | Jan 6, 2015 | Current Affairs, In the Rapids, Innovation, Leadership
Crude oil has dropped 50% in just 6 months. At under $50/barrel, gasoline is now selling for under $2/gallon in many places. This is a price rollback to 2008 prices – something almost no one expected in early 2014.
It is easy to jump to conclusions about what this will mean for sales of some products. And many analysts have been saying this is a terrible scenario for Tesla, which sells all electric cars. The theory is pretty simple, and goes something like this: People buy electric cars to save on petrol costs, so when petrol prices fall their interest in electric cars decline. With gasoline cheap again, nobody will want an electric car, so Tesla will do poorly.
But this is just an example of where common wisdom is completely wrong. And now that Tesla has lost about 1/3 of its value, due to this popular belief, it is offering investors a tremendous buying opportunity.
There are three big reasons we can expect Tesla to continue to do well, even if gasoline prices are low in the USA.
First, Teslas are great cars. Not simply great electric cars. So quickly we forget that Consumer Reports gave the Model S 99 out of a possible 100 points – the highest rating for an automobile ever. In 2013 Motor Trend had its first ever unanimous selection of the Best Car of the Year when all the judges selected the Model S. The Model S, and the Roadster before it, have won over customers not just because they use less petroleum – but rather because the speed, handling, acceleration, fit and detail, design and ride are considered extremely good – even when comparing with the likes of Mercedes and BMW – and when you don’t even consider it is an electric car.
It is a gross mis-assumption to say people buy Teslas because they are electric powered. People are buying Teslas because they are great cars which are fun to drive, perform well, look stylish, have low maintenance costs and very low operating costs. And they are more ecological in a world where people increasingly care about “going green.” In 2015 consumers will be able to choose not only the Roadster, and the fairly pricey Model S, but soon enough the smaller, and less expensive, Model 3 which is targeted squarely at BMW Series 3 customers. Teslas are designed to compete with all cars for consumer dollars, not just electric cars and not just on the basis of using less fuel.
Second, the market for autos is global and gasoline isn’t cheap everywhere. Take for example Hong Kong, where gasoline still retails for $8.50/gallon (as of 31Dec. 2014.) Or in Paris or Munich where gasoline costs $5/gallon – even though the Euro’s value has shrunk to only $1.20. Outside the USA most developed countries have a lot more demand for oil than they have production (if they have any at all.)
Almost all of these countries offer incentives for buying electric cars. For example, in Hong Kong and Singapore the import tax on an auto can be 100-200% of the car’s price (literally double or triple the price due to import taxes.) But in these same countries the tax is greatly reduced, or eliminated entirely, for buying an electric car for policy reasons to promote lower oil consumption and cleaner city air. So a $100,000 Mercedes E class in Hong Kong will cost $200,000+, while a $100,000 Model S costs $100,000.
Further, outside the USA most countries heavily tax gasoline and diesel in order to discourage consumption and yield infrastructure funds. So even as oil prices go down, gasoline prices do not decline in lock-step with oil price declines. Consumers in these countries have a much greater demand than U.S. consumers for high mileage (and electric) cars almost regardless of crude oil prices. So thinking that low USA gasoline prices reduces demand for electric cars is actually quite myopic.
Third, do you really think oil prices will stay low forever? Oil is a commodity with incredible political impact. Pricing is based on much more than “supply and demand.” At any given time Aramco, or its lead partners such as Saudi Arabia and the UAE, can decide to simply pump more, or less fuel. Today they are happy to pump a lot of oil because it hurts countries with which they have a bone to pick – such as Russia (now almost out of bank reserves due to low oil prices) and Iran. And it helps USA consumers, reducing domestic interest in things like the Keystone Pipeline which could lessen long-term reliance on Aramco oil. And investing in risky development projects like the arctic ocean. Tomorrow these countries could decide to pump less, as they did in the mid-1970s, driving up prices and almost killing the U.S. economy.
Oil prices have a long history of instability. Like most commodities. That’s why a state economy like Texas, where they produce a lot of oil, could boom the last 4 years, while manufacturing states (like Wisconsin and Illinois) suffered. With oil back under $50/barrel drilling rigs will go into mothballs, oil leases will go undeveloped, fracking projects will be stalled and the economy of oil producing states will suffer. Like happened in the mid-1980s when Saudi Arabia once again began flooding the market with oil and exploration and production companies across Texas went out of business.
Most people are smart enough to realize you look at all aspects of owning a new car. There are a lot of reasons to buy Tesla automobiles. Not only are they good cars, but they are changing the sales model by eliminating those undesirable auto dealers most consumers hate. And they are offering charging stations in many locations to make refills painless. And you don’t have to change the oil, or do quite a bit of other maintenance. And you do less damage to the environment. It’s not simply a matter of the price of fuel.
It is always risky to oversimplify consumer behavior. Decisions are rarely based entirely on price. And, as Apple has shown with sales if iOS devices and Macs, people often buy more expensive products when they offer a better experience and brand. Long term investors know that when a stock is beaten down by a short-term reaction to a short-term phenomenon (such as this fast decline in oil prices) it often creates an opportunity to buy into a company with a great future potential for growth.
by Adam Hartung | Jan 24, 2014 | Current Affairs, In the Swamp, Leadership
JPMorganChase Board of Directors this week voted to double CEO Jamie Dimon’s pay to something north of $20million. That he received such a big raise after the bank was forced to pay out more than $20B in fines for illegal activity has raised a number of eyebrows among analysts and shareholders. That he is receiving this raise after the bank laid off some 7,5000 employees in 2013, and recently announced it would not give employees raises due to the large fines, shows a distinct callousness toward employees, while raising questions about company leadership.
The Wall Street Journal reported that there was a lot of Board discourse about CEO Dimon’s pay package. But in the byzantine world of large company governance, apparently the Board felt compelled to pay Mr. Dimon tremendously well in order to send a message to Washington that the Board thought the regulators were wrong in pursuing malfeasance at JPMC. A show of support for the CEO who claimed this week he felt the bank had been treated unfairly.
Did that last paragraph leave you a bit confused? Because the logic, to be honest, is far from straightforward. The Board of a troubled bank with long-term leadership issues creating billions in trading losses and billions in fines for illegal behavior decided to withhold employee pay raises but double the CEO compensation in order to snub the nose of the regulators who have been pointing out years of unethical, if not illegal, behavior? The same regulators who might well see this very action as a good reason to heighten their investigations?
I’m not trying to oversimply the complexities of corporate governance, but this is some pretty tortured logic. When so many things have gone wrong, and it can be traced to leadership, rewarding that leader handsomely has the clear appearance of supporting his behavior, while punishing employees for the results of that leader’s actions.
Mr. Dimon is a media darling, and has been most of his career. He has also been outspoken on many issues during his career, drawing the attention of friends and foes. He is unabashed in his opinions, and even when he’s dead wrong – as when he referred to massive London trading losses as “a tempest in a teapot” he always speaks with total confidence. Mr. Dimon shows complete faith in his ability to be smarter than everyone else, and complete faith in his decisions, and he has no problem making sure everyone is fully aware of his absolute trust in himself.
But people are able to see trends. Although his defenders would like to say that the fines were related to issues which predated Mr. Dimon’s leadership, there are clear markers that differ. For example, it was the desperate search for higher profits under Mr. Dimon which led to the creation of the London trading desk, and giving it lattitude for big bets, that created some $7B in losses. Mr. Dimon’s final reaction was akin to “we make mistakes. Sorry. Time to move on.”
Oh yeah, and he fired the employees while claiming no personal responsibility.
And in January we learned that the bank was paying a $2.6B fine for aiding and abetting the ponzi scheme operated by Mr. Bernie Madoff. This behavior was something which had gone on for decades, without any oversight or reporting at the bank. This had continued while Mr. Dimon was CEO.
Why did these things happen? Because there was a huge desire to make more money.
Mr. Dimon is known for being as blunt with executives and employees as he is with the media. His “take no prisoners” style has been seen as crippling by many. Mr. Dimon focuses on results, and he is known for being brutal when he doesn’t receive the results he wants. For executives and employees that created a culture where delivering results to Mr. Dimon was paramount. And if that required taking big risks, or looking the other way about troubling behavior, well, people did what they had to do to make things happen at JPMC. If you had to bend the rules, or look the other way, to get results that was better than having to deal with the wrath of Mr. Dimon.
“The person at the top” sets the tone by which the organization behaves. And the more we learn about JPMC the more we see a company where the CEO loves to flash his POTUS cufflinks at the Congress and press, claim he’s taking the high road, and blame employees or predecessors when things go wrong. And that’s not a healthy environment.
Across the river from Wall Street Chris Christie, Governor of New Jersey, has become embroiled in controversy. His staff created an enormous traffic debacle in Fort Lee as retaliation against a mayor who did not support the Governor’s re-election bid. Mr. Christie fired the staffer, and claimed he knew nothing about it. But the majority of people in New Jersey aren’t buying the Governer’s ignorance.
Instead most Americans see a negative pattern in the governor’s behavior. His “take no prisoners” attitude has created accomplishments, but simultaneously he’s shown he thinks its OK to take off the gloves and fight bare knuckle – and not stop before taking some pretty sketchy shots at people in his quest to come out on top. Now regulators are digging even deeper to see if his bullying behavior set the stage for problems, even if he didn’t do the dastardly deed himself. And, as for governance, it will be up to voters to decide if Mr. Christie’s leadership is what they want, or not.
But at JPMC the governance is up to the Board. And this Board is, unfortunately, controlled by Mr. Dimon. He is not just CEO, but also Chairman of the Board. He holds the “bully gavel” when it comes to Board matters. He is able to set the agenda, and control the data the Board receives. He is able to call the Board members, and strong arm them to see things his way. Although it is clear the bank would benefit from a seperation of the roles of CEO and Chairman, Mr. Dimon has stopped this from happening. And the big winner has been – Mr. Dimon.
The signal this sends for JPMC employees, customers and investors is not good. While the stock is up some 22% the last year, governance and the CEO should have a long-term vision and not be influenced by short-term price changes. In the case of JPMC the culture appears to be one where seeking results is primary. Even if it leads to taking inordinate risks (which can create huge losses,) or taking and supporting questionable clients (Bernie Madoff,) or operating on the edge of financial industry legality. And if things go wrong – look for a scapegoat. Primarily someone below you who you can blame, while you claim you either didn’t know about it or didn’t support their behavior.
At JPMC the important question now is less about CEO pay and more about governance. The Board clearly has lost its ability to control a CEO + Chairman able to push his will, even when the logic of some actions appears hard to follow. The Board should be addressing who should be the Chairman, what should be the strategy, is the bank doing the right things, are the right compliance tools in place, and then – after all of that – is compensation being set correctly. That Mr. Dimon received such an undeserved raise simply points to much bigger problems in governance – and raises questions about the future of JPMC.
by Adam Hartung | Jan 27, 2011 | Current Affairs, Innovation, Leadership, Lock-in, Science, Web/Tech
Summary:
- The President has called for more innovation in America
- But American business management doesn’t know how to be innovative
- Business leaders focus on efficiency, not innovation
- America has no inherent advantage in innovation
- To increase innovation we need a change in incentives, to favor innovation over efficiency and traditional brick-and-mortar investments
- We need to highlight leaders that have demonstrated the ability to create jobs in the information economy, not the “old guard” just because they run big, but floundering, companies
It was good to hear the U.S. President call for more innovation in his State of the Union address this week. And it sounded like he wants most of that to come from business, rather than government. But I’m reminded the President is a lawyer and politician. As a businessman, well, let’s say he’s a bit naive. Most businesses don’t have a clue how to be innovative, as Forbes pointed out in November, 2009 in “Why the Pursuit of Innovation Usually Fails.”
Businesses by and large are not designed to be innovative. Modern management theory, going back to the days of Frederick Taylor, has been dominated by efficiency. For the last decade businesses have reacted to global competitive forces by seeking additional efficiency. Thus the offshoring movement for information technology and manufacturing eliminated millions of American jobs driving unemployment to double digits, and undermines new job creation keeping unemployment stubbornly high.
It is not surprising business leaders avoid innovation, when the august Wall Street Journal headlines on January 20 “In Race to Market, It Pays to Be Latecomer.” Citing a number of innovator failures, including automobiles, browsers and small computers, the journal concludes that it is smarter business to not innovate. Rather leaders should wait, let someone else innovate and then hope they can take the idea and make something of it down the road. Not a ringing pledge for how good management supports the innovation agenda!
The professors cited in the Journal article take a fairly common point of view. Because innovators fail, don’t be one. Lower your risk, come in later, hope you can catch the market at a future time. It’s easy to see in hindsight how innovators fail, so why take the risk? Keep your eyes on being efficient – and innovation is anything but efficient! Because most businesspeople don’t understand how to manage innovation, don’t try.
As discussed in my last blog, about Sara Lee, executives, managers and investors have come to believe that cost cutting, and striving for more efficiency, is the solution for most business problems. According to the Washington Post, “Immelt To Head New Advisory Board on Job Creation.” The President appointed the GE Chairman to this highly visible position, yet Mr. Immelt has spent most of the last decade shrinking GE, and pushing jobs offshore, rather than growing the company – especially domestically. Gone are several GE businesses created in the 1990s – including the recent spin out of NBC to Comcast. It’s ironic that the President would appoint someone who has overseen downsizings and offshoring to this position, instead of someone who has demonstrated the ability to create jobs over the last decade.
As one can easily imagine, efficiency is not the handmaiden of innovation. To the contrary, as we build organizations the desire for efficiency and “professional management” impedes innovation. According to Portfolio.com in “Can Google Be Entrepreneurial” even Google, a leading technology company with such exciting new products as Android and Chrome, has replaced its CEO Eric Schmidt with founder Larry Page in order to more effectively manage innovation. The contention is that the 55 year old professional manager Schmidt created innovation barriers. If a company as young and successful as Google struggles to innovate, one can only imagine the difficulties at traditional, aged American businesses!
While many will trumpet America’s leadership in all business categories, Forbes‘ Fred Allen is correct to challenge our thinking in “The Myth of American Superiority at Innovation.” For decades America’s “Myth of Efficiency” has pushed organizations to streamline, cutting anything that is not totally necessary to do what it historically did better, faster or cheaper. Innovation inside businesses was designed to improve existing processes, usually cutting cost and jobs, not create new markets with high growth that creates jobs and economic growth. Most executives would 10x rather see a plan to cut costs saving “hard dollars” in the supply chain, or sales and marketing, than something involving new product introduction into new markets where they have to deal with “unknowns.” Where our superiority in innovation originates, if at all, is unclear.
Lawyers are not historically known for their creativity. Hours spent studying precedent doesn’t often free the mind to “think outside the box.” Business folks have their own “precedent managers” – internal experts who set themselves up intentionally to block experimentation and innovation in the name of lowering risk, being conservative and carefully managing the core business. To innovate most organizations will be forced to “Fire the Status Quo Police” as I called for last September here in Forbes. But that isn’t easy.
America can be very innovative. Just look at the leadership America exerts in all things “social media” – from Facebook to Groupon! And look at how adroitly Apple has turned around by moving beyond its roots in personal computing to success in music (iPod and iTunes), mobile telephony and data (iPhone) and mobile computing (iPad). Netflix has used a couple of rounds of innovation to unseat old leader Blockbuster! But Apple and Netflix are still the rarities – innovators amongst the hoards of myopic organizations still focused on optimization. Look no further than the problems Microsoft – a tech company – has had balancing its desire to maintain PC domination while ineffectively attempting to market innovation.
What America needs is less bully pulpit, and more action if you really want innovation Mr. President:
- Increase tax credits for R&D
- Increase tax deductions and credits for new product launches by expanding the definition of what constitutes R&D in the tax code
- Implement penalties on offshore outsourcing to discourage the efficiency focus and the chronic push to low-cost global resources
- Lower capital gains taxes to encourage wealth creation through new business creation
- Manage the deficit by implementing VAT (value added taxes) which add cost to supply chain transactions, thus lowering the value of “efficiency” moves
- Make it much easier for foreign graduate students in America to receive their green cards so we can keep them here and quit exporting some of the brightest innovators we develop to foreign countries
- Create more tax incentives for investing in high tech – from nanotech to biotech to infotech – and quit wasting money trying to favor investments in manufacturing. Provide accelerated or double deductions for buying lab equipment, and stretch out deductions for brick-and-mortar spending. Better yet, quit spending so much on road construction and simply give credits to people who buy lab equipment and other innovation tools.
- Propose regulations on executive compensation so leaders aren’t encouraged to undertake short-term cost cutting measures merely to prop up short-term profits at the expense of long-term viability
- Quit putting “old guard” leaders who have seen their companies do poorly in highly placed positions. Reach out to those who really understand the information economy to fill such positions – like Eric Schmidt from Google, or John Chambers at Cisco Systems.
- Reform the FDA so new bio-engineered solutions do not follow regulations based on 50 year old pharma technology and instead streamline go-to-market processes for new innovations
- Quit spending so much money on border fences, DEA crack-downs on marijuana users and giant defense projects. Put the money into grants for universities and entrepreneurs to create and implement innovation.
Mr. President,, don’t expect traditional business to do what it has not done for over a decade. If you want innovation, take actions that will create innovation. American business can do it, but it will take more than asking for it. it will take a change in incentives and management.
