Each week brings new challenges and, occasionally, provides illumination into a world where you wonder where a business model actually comes from and on what ethical platform it is based.
This week has got off to a great start – on return to the office yesterday, I was greeted by a chorus from the team telling me how they had been approached by a “Professional Services Recruitment Consultant” wanting a “confidential discussion” about “…some opportunities that are available”. Based on the subsequent discussions with the crew and our GM, there is nothing professional or ethically “good” about him.
Given the apparent carpet-bombing approach to people within my business, a phone call to the “consultant” was called for. His argument went along the lines of “that’s business”. Fair enough. I pointed out to him that his business model was based on trying to market and place the people he destabilises to, well, people like me.
The ironic and sad issue (for him and his employer) in all this is that he is currently wanting to speak with our GM about placing a “candidate” from another local firm into our organisation! Great tactics Einstein! Try and poach our crew whilst trying to “market” someone else’s staff to us.
Spectacular business model – until you get found out.
According to the firm’s representatives (spoke to the body-pusher and his Manager), their electronic communication and website, they are an “elite” brand. It all comes down to how you define “elite”. I note on review of the various dictionary definitions, there is no reference to ethical. There is also no mention of the word “ethics” on their website.
Later that afternoon, I had cause to have a discussion about ethics with one of my crew. It was interesting, engaging and high-value. Ethics is something that is inherently about doing what is “right”. I like the following definition from the British Dictionary:
If you believe it is ethical to try and destablise a person from their job to place them into another one where you are trying then to create a “gap” that needs filling by taking someone from that business, are you really any different from a slave trader? Is there really any inherent value in this process or is it just about levying fees and costs, disruption and bad feelings? As Ron Baker, an Ethics Teacher and Founder of the Verasage Institute put it to me:
I’ve always thought “headhunters” were a notch below used car salesman
If you have staff who are unhappy, they need to let you know and you need to address their concerns or they will leave. The culture you create in your business is critical and will serve to keep your people engaged and developing. My view is that you should speak with each of your team regularly, one-on-one, to give them the opportunity to bring up issues they are unhappy with early rather than when it’s too late. As I say to them “If I don’t know, I can’t do anything about it”.
In all of this, returning to the question “is this good?” is imperative, Thinking about the afternoon and events that unfolded, my further education into ethics has been good – I have further clarified what conduct is right, good and ethically supported and what is not.
I will be informing all of my colleagues in Ballarat as to the approach of this particular organisation to let them determine how they will ethically deal with this “elite business”.
If anyone would like to know the name of the firm, please contact me – happy to share.
Every so often in a meeting, you find out information that makes you shake your head in wonder. I had one such meeting this morning.
Our customers have been requested to provide a price for some work to a large Australian, publicly listed company. Great.
The issue is that the price they put in was some 55% over the price the company had received from another business.
OK, but, when you receive two prices that are aboutthe same from different providers and another price that is significantly lower than them (over $500,000 less), you would more than likely pause to consider whether the significantly lower price was, well, realistic. Or whether the price was submitted to get the job in the hope that other work will crop up once the contractor is entrenched on site..
The trouble is, the managers of this publicly listed company are incentivised to under-spend their capital budgets each year – the more money they save against their budget, the bigger bonus they get.
As our customer said this morning – “they will end up with a pile of crap that won’t do the job but the manager doesn’t care as he got his bonus”.
The incentive program any business uses needs to align itself to the needs of the business and the staff but also, fundamentally, to the long term goals and strategies of the business. Where there is no alignment, you run in to significant problems on a number of fronts.
Firstly, you want the incentive to encourage the type of behaviour you want to see. If short term profit is the focus on the business, build your incentives around that. However, the focus on short term profit is, to my way of thinking, myopic. Getting a longer term strategy is far better for everyone concerned. There are some notable people who like longer term strategies. People like Warren Buffett.
Secondly, the incentive needs to match the motivators of the person being incentivised. Using cash bonuses is fantastic however, the bonus can take other forms which might not cost as much but which may be far more highly valued than cash. By aligning the bonus to what actually matters to your people you are also showing that you care for them as people rather than using a blunt force (cash) for everyone. For example, a cash bonus is terrific but if you were to pay for a family holiday for your staff member, or give them some extra time off as a bonus (especially when they have a young family), this can have far higher value to them than anything else.
Finally, think about how you might face your shareholders/financiers where you had to explain how your business was so focused on short term thinking and behaviour that the investment decision made in plant and equipment spend was solely based on price and not quality or longevity.
They might, on hearing this information (however it is packaged) cause to question your thinking and ability to act as a custodian for their interests. I seem to recall a similar approach was adopted by some banking institutions during the 2000’s. That really didn’t end well.
The current business environment is very challenging for a lot of businesses. There is a lot of competitive pressure due to a lack of consistent activity – especially in commercial construction. This causes many businesses to try and “buy” work – price it with little or no (or, occasionally, negative) margin. All they succeed in doing is making their exit from the market more rapid and they tend to deliver incomplete jobs as they go broke before the job is finished.
If your incentive program gives your team tacit or explicit approval to seek lower and lower prices – at any price, the quality of what you purchase will decline and will end up costing you more.
A friend put it beautifully many years ago “I am not rich enough to buy second best”. When you are designing and implementing your incentive program, make sure it delivers what you really want – not a facsimile of what you think you might like.
During a discussion with one of our customers yesterday, they broached the subject of the Terms & Conditions one of their suppliers imposed and of which they had not been aware.
The issue arose because they had approached another supplier in the same industry with a view to appointing them. The potential new supplier advised them that there is a “secret clause” in the agreement between our customer and their current supplier and that no-one knew about it.
We then proceeded to review the Agreement and Terms & Conditions attached to it. You know the Terms and Conditions that are in miniscule type on the back of the various documents from the suppliers that you generally get?
On review of these we found the following clauses (and I have not detailed the company – yet):
Term – subject to [where the supplier terminates on 30 days notice], the Agreement is for a term from Commencement until Expiry, or, if unspecified [which it always is], for a term of 5 years from execution. [Supplier] will renew the term for a further 60 months on the same conditions (including automatic renewal) (at [supplier’s] option), unless by written notice: (i) Customer advises [supplier] not more than 120 days but not less than 60 days before the end of the Term, that it does not intend to renew the Agreement…
Services – During the term, [supplier] will provide Services in accordance with this Agreement…and Customer agrees to obtain all [services] exclusively from [supplier] except to the extent that a pre existing service agreement is in place. The Customer agrees that on the expiry of the pre existing agreement it will use [supplier] exclusively.
Now, I don’t know about you, but I would have thought that a supply agreement that effectively signs you up to rolling five year engagements with termination only possible in a three month window in a very specified time frame should be discussed with the supplier. In this instance, our customer assures us it wasn’t.
Does this constitute unconscionable conduct? Would an ethical and moral business seek to engage and lock in customers without disclosing this requirement and obligation?
I know our customer is furious. They are going to fight this as they were never made aware of it on commencement and would not have engaged with the supplier on these terms.
My question above however remains: Would an ethical business operate under processes like this?
If you would like to know who the supplier is, send me an email…
Great post from one of my colleagues in Verasage – Greg Kyte. He is incredibly unusual – an accountant who also works in comedy (there are some lines there that I won’t use!) – have a read and see how silly both people and tax officers can be. Note that this is from the US of A.
Have a read of the post here.
Received the following from Remo Greco at Canbrea & Co this morning. Worth a read:
The Origins of Money, and Saving the Euro
It is really hard to see where the euro is going. Spanish yields are at record high levels, meaning Madrid’s debt looks less and less sustainable. Yet there is still no clear plan for the euro, new ideas seem to have run out, and there is a lack of progress on old ideas. What is going to happen?
One way to think about the euro’s future is to look at its past, and to go back to the origins of money. There are two leading schools of thought about this. The first was set out 120 years ago in a paper by Austrian economist Karl Menger. In Menger’s theory buyers and sellers agree on a common commodity to use as the medium of exchange. Something small, valuable and divisible is best. It helps if it doesn’t rot. Gold and spices are all good examples. This money is highly “saleable” so everyone accepts it, and this means that traders don’t face the costs associated with barter. There is no role for government here.
The second theory places great emphasis on the role of government, as Charles Goodhart explains in a 1998 paper. This group—the Cartalists, who Mr Goodhart refers to as the “C team”—argue that currencies become money due to the active involvement of the state. Examples include setting up a mint to produce coins, demanding taxes are paid in state money, and stamping notes with the head of state’s image. This C-theory has much stronger evidence based in anthropology and history.
Why is this relevant for the euro? Here is Mr Goodhart writing in 1998, on the eve of the euro project.
The key relationship in the C team model is the centrality of the link between political sovereignty and fiscal authority on the one hand and money creation, the mint and the central bank on the other. A key fact in the proposed Euro system is that the link is to be weakened to a degree rarely, if ever, known before. … There is to be an unprecedented divorce between the main monetary and fiscal authorities … the C team analysts worry whether the divorce may not have some unforeseen side effects.
The logical conclusion from this is not a new idea: the euro area needs greater fiscal integration. But the reason is different. It is not because Greece and Spain spoiled a perfect plan with their profligacy. It is because the euro enshrines the divorce of fiscal and monetary power. If you are a member of Mr Goodhart’s C team this never made sense in the first place.
[Source: R.D., The Economist, July 25 2012]
I recently had an article posted on the Verasage Institute website which tries to draw an analogy between the consultants to the accounting/legal professions and the “50 Shades” trilogy of books which has been taking the world by storm.
If you’re interested in having a read, the post can be found here.
There is a fair bit of “doom and gloom” out there in the economy at the moment – and I can understand why.
Every day you read the paper or listen to/watch the news and there are stories about businesses closing and the stress that family budgets are under. There is very little good news out there (that gets reported anyway!) for us to reset our focus onto when things look this grim.
I must admit, the ecconomy is not looking that great at the moment and the new imposts that will be introduced later this year will only serve to increase the financial burden on a lot of businesses and households. The carbon tax in particular is going to have a significant impact on a wide range of businesses and the level of this impact is yet to be fully understood.
However, I must admit that, being the eternal optimist, it is times like these that create massive opportunities for those businesses and people that look to take advantage of the situation. Many businesses will be looking at ways to cut costs and reduce their expenses – they won’t replace staff that leave, they’ll reduce their advertising, they’ll look to find cheaper suppliers for the things they do need and they will generally contract to try and protect themselves.
Whilst this may initially seem an attractive option, let’s think it through a bit further (not an exhaustive list):
- where everyone else is contracting, a business that maintains its service levels will actually improve in comparison to their competition;
- by being positive about the opportunities, you will attract other people and businesses that are like you and will help you achieve your goals/plans;
- supporting your existing suppliers through times like this will build incredible loyalty (especially when you let them know that you’re doing it – don’t assume they know) that will be of great value to both of you down the track; and
- the possibility for opening up new market opportunities created by the contraction/exit of other suppliers can be very profitable to leverage in to areas that were previously a bit difficult to get in to.
Having been through a few economic cycles now, it is really amazing to reflect on those businesses that took the opportunity created by adverse economic conditions to grow their operations. I’ve seen it so often and the approach (with proper planning and implementation) can yield substantially improved business performance along with increased wealth and satisfaction for the owners of the business.
It all depends on your viewpoint – is the glass half full or half empty? Is it a time of adversity or is it a time of great opportunity (in camouflage?)….
A couple of weeks ago I was at a function and heard some interesting feedback from a great friend of mine regarding the behaviour of a couple of people there (admitedly – after I had left!)
The people concerned were “socially excited” and proceeded to belittle and laugh at my friend who was trying to be gracious and friendly to them. They hung it on them about where they went to school, about where their kids went to school, about the house they lived in and even had a go at their “hotshot” father – who was dying of cancer!
I find this type of behaviour obnoxious and offensive and it serves as a very unflattering measure of the people “dishing it out”. The people concerned are well known in the Ballarat community – given the fact that people tend to behave as they really are when they’ve had a few drinks, the insight obtained into their conceit and arrogance was illuminating!
The fact that some people think they’re better than others and then proceed to belittle them is just objectionable.
By their rudeness, they show their ignorance.
Terrific article in McKinsey Quarterly in January this year. It discusses how senior management can destroy the engagement of their people by not paying attention to their “inner work life” which revolves in no small part around job satisfaction, alignment with strategy and corporate vision, understanding of autonomy etc.
In many respects, it has some resonance with Patrick Lenceoni’s “Five Dysfunctions of a Team”:
- Absence of Trust (dealing with vulnerablity);
- Fear of Conflict (dealing with artificial versus real harmony):
- Lack of Commitment (dealing with ambiguity);
- Avoidance of Accountability (focus on standards); and
- Inattention to results (around status and ego).
For a diagrammatic representation of this model, look here.
The level of freedom that can be provided by senior managers to staff is critical in enabling them to not only get engaged but stay passionate about what they are doing – this then evolves in to a healthy “inner work life” that ensures that the business is working at its optimum level. Part of this is “Leader as Servant” and part is a focus on the issues from the Five Dysfunctions of a Team.
I recommend you have a read of the McKinsey Article which can be found here.
This month’s edition of “Charter” magazine includes an article written by yours truly on the issue of getting rid of timesheets. I expect a number of my colleagues around Australia will be tightening the bows and sharpening the arrows!
If you are interested, you can have a read here.