by Adam Hartung | Mar 6, 2016 | Defend & Extend, Leadership
We all like to think the world is a meritocracy, where hard work is important and results matter.
As we watched Mitt Romney, and others, frontally assault Donald Trump this week it was clear they were saying Mr. Trump is not the right person to be President. They are pointing out his use of bankruptcies to protect his personal wealth, while leaving investors holding the empty bag. And his flip-flopping on various issues, including how he would deploy military forces. And his use of misogynistic language against women, while simultaneously referring to most Mexicans and lawbreakers and all Muslims as terrorists, are gross generalities they say are not supported by facts.
Yet, while many sober-minded leaders are denouncing Mr. Trump, it is not clear that it matters. His followers seem to remain passionately loyal, and completely unmoved by any factual representation of their candidate as anything other than a savior for America. The “Super Saturday” delegate selection resulted in Mr. Trump winning 2 more contests (Louisiana and Kentucky) while coming in second in 2 others (Kansas and Maine.) And it demonstrated the ongoing pattern of Mr. Trump winning the popular vote in primaries.
Everyone remembers a situation where a very hard working, smart, industrious person did things well for years. But they weren’t promoted, or even given large pay increases. Or, worse, they made one mistake and lost their position, or job.
Simultaneously, we all also can think of at least one, or more, person who simply wasn’t that good, and often didn’t work that hard, but was promoted (often beyond their competency) and given large pay increases. And every time this person made a mistake it was explained away as a “learning experience” that would make them a better future performer. They were blessed with continuous upward mobility, and could seemingly do no wrong.
For each of us these experiences seemed unique, and we often tied them to the specific individuals involved – including not only the person at the center of these experiences but their superiors, subordinates and peers. And many people are saying the political rise of Donald Trump is unique to him and the current state of his political party.
But rather than each being unique, these experiences all have something in common. The actual frequency of these experiences belies the notion that they are all unique. Rather, what all of these demonstrate is the implementation of selective bias. They demonstrate that very often we prefer people because they reinforce our bias, and their past results do not matter.
Bosses who promote incompetency don’t really care about the competency as much as they care that the individual reinforces their inherent Beliefs, Interpretations, Assumptions and Strategies about the world. There is often a familial, geographic, academic, business relationship, religious or gender trait (or often multiple traits) which reinforces in these bosses that their view of the world is right, and should be promoted.
This may be due to the person being very much similar to the boss. But, not always. It just requires that the target be a visible, walking, talking implementation of how they think the world works. Whether or not the person is successful really does not matter. If they are different from the boss’s viewpoint, no success will be great enough to have the boss support them. If they fulfill the boss’s bias then they often can do no wrong.
Donald Trump has been leading his candidate competitors not because he was wildly successful. Rather, he is attracting a larger group of people who identify with him; who share his basic Beliefs, Interpretations of the world, Assumptions about how people behave, and Strategies for how to succeed. They share his bias, and thus they select him. As Mr. Trump said himself “I could stand in the middle of 5th Avenue and shoot somebody and I wouldn’t lose voters.”
Regardless of the robustness of the American economy and the ongoing growth in jobs creation, they Believe America is in terrible shape, and that almost all media participants are liars. No matter what the truth is about the value of immigrants on the economy, they Interpret all immigrants as job-stealing bad people that have made their lives worse. No matter the truth about the spirit of Islam and the goodness of Muslims, they Assume all of them terrorists out to blow up the world. And they agree with Strategies like stopping immigrants with walls, killing civilian Muslims as collateral damage in a religious war, torturing prisoners of war (possibly to death,) eliminating international trade, and depriving poor people of health care and other services.
Thus, selective bias ties these voters to Mr. Trump with a bind that is not breakable by discussing his performance, or pointing out his failings. Facts are not relevant. Their judgement is not based on historical facts, but rather a clear alignment with their bias. No matter who says Mr. Trump may have lied, or exaggerated, or misinterpreted history that messenger will not be believed. Because the real results don’t matter. What matters is reinforcing their bias.
Unfortunately we see this selective bias all too often in business. Leaders that favor some over others simply because of bias, rather than results. It has long been a problem which has restricted diversity in the workforce, and inhibited equal pay. It has long created a caste system for admission to top schools and places of employment. And because selective bias is so rampant in American business, it is second nature to Mr. Trump. It is easy for him to say what is on his mind, and expect that lots of people will agree with him. It’s how he sees the world, it is his bias, and he’s used to having it reinforced by those who wish to work with him.
Whatever happens in this Presidential campaign, as business leaders we can learn from this situation that if we allow selective bias to sway us then we are no longer really paying attention to results. As leaders which of the following should be important – promoting those who reinforce our beliefs, interpretations, assumptions and strategies, or finding the best people to do the job and rewarding those who really have worked hard for good results?
by Adam Hartung | Oct 10, 2012 | Books, Current Affairs, Leadership, Lock-in
There was a time, before primaries, when each party's platform was really important. Voters didn't pick a candidate, the party did. Then voters read what policies the party planned to implement should it control the executive branch, and possibly a legislative majority. It was the policies that drew the most attention – not the candidates.
Digging deeper than shortened debate-level headlines, there is a considerable difference in the recommended economic policies of the two dominant parties. The common viewpoint is that Republicans are good for business, which is good for the economy. Republican policies – and the more Adam Smith, invisible hand, limited regulation, lassaiz faire the better – are expected to create a robust, healthy, growing economy. Meanwhile, the common view of Democrat policies is that they too heavily favor regulation and higher taxes which are economy killers.
Right?
Well, for those who feel this way it may be time to review the last 80 years of economic history, as Bob Deitrick and Lew Godlfarb have done in a great, easy to read book titled "Bulls, Bears and the Ballot Box" (available at Amazon.com) Their heavily researched, and footnoted, text brings forth some serious inconsistency between the common viewpoint of America's dominant parties, and the reality of how America has performed since the start of the Great Depression.
Gary Hart recently wrote in The Huffington Post,
"Reason and facts are sacrificed to opinion and myth. Demonstrable
falsehoods are circulated and recycled as fact. Narrow minded opinion
refuses to be subjected to thought and analysis. Too many now subject
events to a prefabricated set of interpretations, usually provided by a
biased media source. The myth is more comfortable than the often
difficult search for truth."
Senator Daniel Patrick Moynihan is attributed with saying "everyone is
entitled to his own opinion, but not his own facts." So even though we
may hold very strong opinions about parties and politics, it is
worthwhile to look at facts. This book's authors are to be commended for spending several years, and many thousands of student research assistant man-days, sorting out economic performance from the common viewpoint – and the broad theories upon which much policy has been based. Their compendium of economic facts is the most illuminating document on economic performance during different administrations, and policies, than anything previously published.
Startling Results
Chart reproduced by permission of authors
The authors looked at a range of economic metrics including inflation, unemployment, growth in corporate profits, performance of the stock market, change in household income, growth in the economy, months in recession and others. To their surprise (I had the opportunity to interview Mr. Goldfarb) they discovered that laissez faire policies had far less benefits than expected, and in fact produced almost universal negative economic outcomes for the nation!
From this book loaded with statistical fact tidbits and comparative charts, here are just a few that caused me to realize that my long-term love affair with Milton Friedman's theories and recommended policies in "Free to Choose" were grounded in a theory I long admired, but that simply have proven to be myths when applied!
- Personal disposable income has grown nearly 6 times more under Democratic presidents
- Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
- Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
- Average annual compound return on the stock market has been 18 times greater under Democratic presidents (If you invested $100k for 40 years of Republican administrations you had $126k at the end, if you invested $100k for 40 years of Democrat administrations you had $3.9M at the end)
- Republican presidents added 2.5 times more to the national debt than Democratic presidents
- The two times the economy steered into the ditch (Great Depression and Great Recession) were during Republican, laissez faire administrations
The "how and why" of these results is explained in the book. Not the least of which revolves around the velocity of money and how that changes as wealth moves between different economic classes.
The book is great at looking at today's economic myths, and using long forgotten facts to set the record straight. For example, in explaining President Reagan's great economic recovery of the 1980s it is often attributed to the stimulative impact of major tax cuts. But in reality the 1981 tax cuts backfired, leading to massive deficits and a weaker economy with a double dip recession as unemployment soared. So in 1982 Reagan signed (TEFRA) the largest peacetime tax increase in our nation's history. In his tenure Reagan signed 9 tax bills – 7 of which raised taxes!
The authors do not come down on the side of any specific economic policies. Rather, they make a strong case that a prosperous economy occurs when a president is adaptable to the needs of the country at that time. Adjusting to the results, rather than staunchly sticking to economic theory. And that economic policy does not stand alone, but must be integrated into the needs of society. As Dwight Eisenhower said in a New Yorker interview
"I despise people who go to the gutter on either the right or the left and hurl rocks at those in the center."
The book covers only Presidents Hoover through W. Bush. But as we near this election I asked Mr. Goldfarb his view on the incumbent Democrat's first 4 years. His response:
- "Obama at this time would rank on par with Reagan
- Corporate profits have risen under Obama more than any other president
- The stock market has soared 14.72%/year under Obama, second only to Clinton — which should be a big deal since 2/3 of people (not just the upper class) have a 401K or similar investment vehicle dependent upon corporate profits and stock market performance"
As to the challenging Republican party's platform, Mr. Goldfarb commented:
- "The platform is the inverse of what has actually worked to stimulate economic growth
- The recommended platform tax policy is bad for velocity, and will stagnate the economy
- Repealing the Affordable Care Act (Obamacare) will have a negative economic impact because it will force non-wealthy individuals to spend a higher percentage of income on health care rather than expansionary products and services
- Economic disaster happens in America when wealth is concentrated at the top, and we are at an all time high for wealth concentration. There is nothing in the platform which addresses this issue."
There are a lot of reasons to select the party for which you wish to vote. There is more to America than the economy. But, if you think like the Democrats did in 1992 and "it's about the economy" then you owe it to yourself to read this book. It may challenge your conventional wisdom as it presents – like Joe Friday said – "just the facts."
by Adam Hartung | Jan 14, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership
A lot of excitement was generated this week when Mitt Romney said the words "I like to fire people." I'm sure he wishes he could rephrase his comment, as he easily could have made his point about changing service providers without those words. Nonetheless, the aftermath turned to a discussion of job losses, and why Bain Capital has eliminated jobs while simultaneously creating some.
Surprisingly, a number of economists suddenly started saying that firms like Bain Capital are justified in their job eliminations because they are merely implementing "creative destruction." Although the leap is not obvious, the argument goes that some businesses are made inefficient and unprofitable by new technologies or business processes – so buyers (like Bain Capital) of hurting businesses often cannot "fix" the situation and have no choice but to close them. Bain Capital inevitably will be stuck with losers it has no choice but to shutter – eliminating the jobs with the company.
Unfortunately, that argument is simply not true. The only thing that allows "creative destruction" to kill a company is a lack of good leadership. Any company can find a growth path if its leaders are willing to learn from trends and steer in the growing direction.
Start by looking at recent events surrounding Kodak and Hostess, both quickly heading for Chapter 11. Neither needed to fail. Management made the decisions which steered them into the whirlpool of failure.
Kodak watched the market for amateur photography shrink for 30 years – drying up profits for film and paper. Yet, management consistently – quarter after quarter and year after year – made the decision to try defending and extending the historical market rather than move the company into faster growing, more profitable opportunities. Kodak even invented much of the technology for digital photography, but chose to license it to others rather than develop the market because Kodak feared cannibalizing existing sales – as they became increasingly at risk!
Hostess is making a return trip to Chapter 11 this decade. But it's not like the trend away from highly processed, shelf stable white bread and sugary pastry snacks is anything new. While 1960s parents and youth might have enjoyed the vitamin enriched Wonder Bread "helping grow bodies 12 ways" the trend toward fresher, and healthier, staples has been happening for 40 years. In the 1980s when the company was known as Continental Baking profits were problematic, and it was clear that to keep what was then the nation's largest truck fleet profitable required new products as consumers were shifting to fresher "bake off" goods in the grocery store as well as brands promising more fiber and taste. But despite these obvious trends, leadership continued trying to defend and extend the business rather than shift it.
These stories weren't "creative destruction." They were simply bad leadership. Decisions were made to do more of the same, when clearly something desperately different was needed! At the Harvard Business School Working Knowledge web site famed strategiest Michael Porter states "the granddaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results." Failure happened because the leaders were so internally focused they chose to ignore external inputs, trends, which would have driven better decisions!
In the 1980s Singer realized that the sewing machine market was destined to decline as women left homemaking for paying jobs, and as textile industry advances made purchased clothing cheaper than self-made. Over a few years the company transitioned out of the traditional, but dying, business and became a very successful defense industry contractor! Rather than letting itself be "creatively destroyed" Singer identified the market trends and moved from decline to growth!
Similarly, IBM almost failed as the computer market shifted from mainframes to PCs, but before all was lost (including jobs as well as investor value) leaders changed company focus from hardware to services and vertical market solutions allowing IBM to grow and thrive.
The failure of Digital Equipment (DEC) at the same time was not "creative destruction" but company leadership unwillingness to shift from declining mini-computer and high priced workstation sales into new businesses.
More recently, over the last decade a nearly dead Apple resurrected itself by tying into the large trend for mobility, rather than focusing on its niche Mac product sales. Company leaders took the company into consumer electronics (ipod, ipod touch,) tablet computing and cloud-based solutions (iPad) and mobile telephony with digital apps (iPhone.) Apple had no legacy in any of these markets, but by linking to trends rather than fixating on past businesses "creative destruction" was avoided.
There are many businesses today that are in trouble because leaders simply won't pay attention to trends. Avon, Sears and Barnes & Noble are three companies with limited futures simply because leaders seem unable to pull their heads out of the internal strategic planning sand and look at environmental trends in order to shift.
My favorite target is, of course, Microsoft. Nobody thinks we will be carrying laptop PCs around in 5 years. Yet, Microsoft has been unable to recognize the trend away from PCs and do anything effective. Its efforts in music (Zune) and mobile handsets have been indifferent, insufficiently supported and mostly dropped. Mr. Ballmer continues to speak about a long future for PC sales even as Q4 volume dropped 1.4% according to IDC and Gartner. Even though everyone knows this trend is due to limited PC innovation and rapidly accelerating mobile-based solutions, Microsoft blamed the problem on, of all things, floods in Thailand that restricted manufacturing output. Really.
We'll learn soon enough just how many jobs Bain Capital created, and killed. But those lost were not due to "creative destruction." They were due to leadership decisions to discontinue the business rather than invest in trends and transitioning to new markets. Creative destruction is an easy excuse to avoid blaming leaders for failures caused by their unwillingness to recognize trends and take actions to invest in them which will create winning businesses.
