Is this the future we want for Greenland?

I'm on some ridiculous mailing lists. I frequently get flyers for round-the-world trips at obscene prices, in your own private jet, etc.

Recently I've been getting more and more, starting at $50k per couple, to go up to the Arctic on an icebreaker and see global warming for yourself! Okay, ignoring the carbon footprint of the trip... Apparently, in the past few years Greenland has become a fantastically popular destination for the same reason. Because the effects of warming can be seen clearly in the Arctic, where temperatures have been rising twice as fast as in the rest of the world, Greenland is now a hot spot (ouch!).

But there's also a different kind of capitalism going on. Oil and mining prospectors have hit the country hard, as new areas are available for digging for the first time, after being buried beneath a sheet of ice forever. No one's sure that there's anything there, but hey! Let's find out! The Independent noted that the entire flying capacity of Air Greenland has been booked by prospectors.

Diplomats from the United States, Russia, Canada, Denmark and Norway get together not to talk about how to prevent this issue, but to work out competing oil and gas rights in the polar seabed.

Alcoa, the U.S. aluminum giant, is on track to build an enormous aluminum smelter in southwest Greenland. The Greenland plant is being touted as "green" because it will be hydroelectric — powered by glacial meltwater — though Alcoa's smelters emit 6.1 million pounds of air pollution annually. Alcoa is reaping the benefits of the warmer climate its own emissions helped to create.

Hudson Resources recently had a mining find -- a 2.4-carat diamond. In Rolling Stone, Mark Binelli talks to Hudson president James Tuer. "I think the marketing of a diamond coming out of Greenland would be fantastic," he told me excitedly. "Would you rather have a diamond coming from Greenland — with its connotation of ice and cold and pristine environment — or, say, Angola, an area of war and strife?"

Putting aside for a moment whether global warming diamonds are better or worse than conflict diamonds, the reality is much darker -- Greenland may be a short time away from having both!

I've been reading Thomas Friedman's new book, Flat, Hot and Crowded. Yes, I know he's practically rewritten How to Lie with Statistics but he does tell a good story.

Friedman gives a name to something I've been noticing for a while: Dutch disease. This term describes how when a country has a windfall in natural resources, the entire country de-industrifies. Let me explain.

1. The value of currency rises, due to the sudden influx of cash from oil, mineral deposits, etc.
2. The strong currency raises the price of the country's goods to foreign buyers, making all (non-oil) exports noncompetitive and imports very cheap.
3. Citizens buy cheap imports with abandon!
4. The domestic manufacturing sector gets wiped out

So you don't just have an economy helped by natural gas reserves -- you have an economy that's now 100% dependent on those reserves. The country has no need to invest in a good education, rule of law, innovation or entrepreneurship. UCLA political scientist Michael Ross goes beyond the definition of Dutch disease to observe that oil and mineral-backed regimes do not have to tax their people, as they only need to dig a new well, or open a new mine, to get the funds they need. When they don't need the money of their citizens, they also don't have to listen to their citizens. No taxation AND no representation!

Finally, of course, wealth leads to more patronage spending, which continues to dampen calls for industrialization and democracy. Money also allows governments to spend inordinate amounts on suppressing the will of the people. So you buy them off, or you keep them down. Either way, it leads to corrupt regimes.

Is that the future we want for Greenland?

creative capitalism, old school philanthropy, and the new reality of climate change

One of the things I find amusing about Kinsley's Creative Capitalism, and its drive for social responsibility, is that it was driven by the Gates Foundation, an organization which came about via old-school philanthropy. You know -- make money any way you can, and then when you have enough money, go give it away. Andrew Carnegie did this in the 1870's when he built communities for his workers and established 8 hour workdays, long before it became law. The Rockefeller Foundation functioned as the world's public health agency in the 1930's, fighting disease worldwide.

But the world has shifted away from old-school philanthropy, and more toward corporate social responsibility, or offsetting the negative impacts of business, while you're still in business. Dealing with climate change is a great example. As HBR noted, "The effects of climate on companies’ operations are now so tangible and certain that the issue is best addressed with the tools of the strategist, not the philanthropist."

Climate is a new business risk, but with cap and trade soon to be a reality, corporations need to get out in front of it, in order to figure out some of the hard problems of fixing negative impacts of their value chain, as well as to benefit from possible credits for past efforts once the inevitable legislation strikes. Business leaders need to start treating carbon emissions as costly, because they are or soon will be, and companies need to assess and reduce their vulnerability to climate-related environmental and economic shocks.

Reducing negative externalities represents a chance in operational effectiveness, but true strategic advantage comes from larger, more fundamental changes.

Perhaps one of the best consequences of this is finally getting beyond the focus on this quarter, and actually monetizing long term thinking. In theory, forestry companies would replace cut timber, with the goal of future harvesting, but that rarely happened in reality. Now those same companies may find that removing carbon dioxide from the air by planting trees may be as profitable as cutting them down and producing paper or plywood. Companies never paid attention to the long term good, if it meant compromising today's returns. Now, perhaps, with financial incentives, companies will begin to act in their own best interest....

starting with the end in mind: lessons from the streets...

From my local police blotter....

Tuesday 8/12/08 5:39AM 10th/Harrison:

Officers Dobrowolski and Ramos were dispatched to meet with a carjacking victim.

The victim told the officers that she went to Polk and O’farrell to purchase some crack. She contacted the suspect who was standing on the street corner. The suspect told the victim that he knew where to purchase some crack. The suspect got into the victims car and helped her purchase some crack. They then drove to 10th and Harrison where the suspect smoked all of the crack himself.

When the victim objected he grabbed her cell phone and exited the car. The victim got out of the car to get her cell phone back but the suspect jumped back inside the car and took off with it.

When the suspect drove away the victim was knocked to the ground breaking her wrist.

The suspect used the stolen cell phone to contact the victim’s boyfriend who met the suspect and bought the car back for $160.00.

During the investigation the victim also told the officers that she had a warrant for her arrest. The officers checked on the warrant and discovered that the victim was wanted for stealing a vehicle.

The investigation is still on-going.

are ethics the same internationally?

If you want to be bored at a conference, walk into a session on cultural differences on international teams. God knows why these are uniformly dull as toast, when the reality of working across boundaries is an intellectual minefield.

Take ethics. My friend James Balassone of the Markkula Center for Applied Ethics at Santa Clara University tells me that ethics are the same internationally -- what differs from country to country is culture. So when you're talking about whether you should turn your friend into the police for running over a pedestrian, you know, regardless of what country you live in, what's right and wrong. The difference in how the question is addressed is only your relationship with police, and how they were seen in your country, as you grew up.

I posed this argument to my friend SoonKheng Khor of Malaysia, and he called bullshit. SK says it doesn't matter whether the differences are ethical or cultural -- what matters is how we behave, and that culture is the excuse for a lot of bad behavior.  It's said that there is only one reason why you bribe a police officer in Nigeria, and you don't bribe a police officer in Canada.  In Nigeria, it costs a lot less to bribe a police officer -- it's affordable.  In Canada, it not only would be very expensive to bribe a police officer, as they make a good income, but the costs of getting it wrong would be very high, as there is a high likelihood that you will get in trouble for trying to bribe a police officer.  In Nigeria, perhaps you might get into more trouble if you DON'T try to bribe the police officer.

I often wonder what I would do in that situation.  I heard today an interview today with Jeffrey Swartz, the President of Timberland, a US shoemaker.  He said he has an absolute rule when it comes to the amount of time a worker can work a week.  Even in less developed countries, even in their busy season, no worker is allowed to work more than 60 hours. Workers in poor countries complain, because they want to work more, in order to get more overtime.  Hopefully, he uses that as an excuse to bump up the pay for those workers.  

But it made me wonder. Timberland's 60-hour rule reminded me of this posting from a cook I came across a couple weeks ago.  In France, no one can work more than 39 hours.  But restaurants require much longer hours of work.  So he works 50 hours of work every week, but he is only paid for 39, and only 39 are reported to the government.  The difference is "supplemental." How does Swartz certain that in none of Timberland's factories, people are being told they need to work many more hours, but can only report 60? The answer is auditing, and it sounds like they try to do a lot there. While compliance is certainly a challenge, Timberland's declaration and commitment reflects an intent and a culture which can cross boundaries. Now that's progress.

what i'd do with a million dollars

Back when I lived in Indiana, we young wage slaves used to pool our money a couple times a year to buy a bunch of state lottery tickets. This always led to the inevitable daydreaming: "What would you do with a million dollars?" First, of course, everyone would quit their jobs. Then they'd travel the world, buy a boat and live on it, live the life they've always dreamed, but was always just out of grasp.

I guess that's why I'm always stunned by embezzlers, senators and other bandits caught stealing money that doesn't belong to them.

EVERYONE spends their ill-gotten gains on granite countertops, a new deck, new cabinets.

Really? You've just made a very bold move and there's no turning back -- you've committed a crime and your life is on the line -- and the reason you did it is to redecorate your kitchen?

When I lived in Dayton in the late 80's, we used to all joke about "the house that NCR built." The story was, this couple both worked for NCR, and one of them (the man, if I recall correctly) began to embezzle money from the company. Over the years, the couple stopped getting along, so they built a wall down the center of their property, each building out their side to an elaborate mansion, but with separate entrances and exits. None of this was apparent from the street -- it looked like a normal home. The woman wouldn't divorce him, as she wanted the ill-gotten gains, and he had to keep supporting her or she'd turn him in. Eventually, they both went to prison, and that's when the world discovered the segregated house.

Wow. People really lose their imagination as they get older.

Explaining Milton Friedman on Corporate Social Responsibility

Brad DeLong had a recent post on how he thinks Milton Friedman's take on Corporate Social Responsibility is bunk.

He says, among other things, that "If customers don't want to pay higher prices and so buy from corporations that pursue social responsibility, they are (as long as product markets are competitive) free to do so at their option." The unfortunate reality of CSR is that for the most part, if given the choice, most people want CSR, but only if there is no cost to themselves.

In Supercapitalism, Robert Reich points out, even for such a simple and clearly beneficial issue as dolphin-safe tuna, customers vote only with their pocketbooks. J. W. Connolly, former president of Heinz U.S.A., which was the parent company of StarKist, explains that “consumers wanted a dolphin-safe product,” but “if there was a dolphin-safe can of tuna next to a regular can, people chose the cheaper product. Even if the difference was a penny.”

Where Brad missed the issue was not due to consumer choice, but rather a misunderstanding of Friedman's core argument. Friedman posed that an employee has direct responsibility to his employers, to make as much money as possible while conforming to the basic rules of society. If a company spends money on reducing pollution, for example, below the level required by law, it’s not his money he’s spending. He’s spending the shareholder’s money. The employee is no longer acting as an agent of the stockholders or customers, if he spends the money in a different way than they would have spent it.

One of the commenters noted that Friedman's argument meant that if a company is dumping waste into the stream, polluting it and killing the fish, it has a moral obligation to keep doing so. He's right, within certain parameters. If there was no chance that the company would be fined, would receive bad PR, or otherwise have negative financial consequences, then yes, they should continue dumping in the river, according to Friedman. There are still some countries where this is the case, but that number shrinks every year.

If a company was not created on the basis of maximizing return to investors, but had instead a different commitment, such as Smith and Hawken or REI, where investors know at the outset that social and environmental concerns will be built into company operations, then that company has a different contract with its shareholders, and there's no chance of social efforts causing a breach of contract with the investing community.

But times are changing. Investors are expecting less in the way of "bad behavior" by corporations, and most no longer want to see negative articles about sweatshop labor, bribery and extortion in the companies they love. As the requirements of the shareholders change, then the company must change to stay in line with investor expectations. Some companies, such as GE with their "Ecomagination" initiative, have used CSR as a way of staying ahead of changing shareholder requirements, but they end up having to sell their efforts to shareholders by describing long term capital returns on CSR.

you almost feel sorry for Henry Paulson....

In one speech yesterday, Hank Paulson talks about how Americans have come to expect the Federal Reserve to step in to avert a crisis, but then complains that the Fed does not have the clear statutory authority to do this. To resolve this gap, he's requesting that we give Federal Reserve the authority to access necessary information from complex financial institutions - whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution - and the tools to intervene to mitigate systemic risk in advance of a crisis. Why is this only coming to light now? Why was he not demanding such reform months ago, if it's really the right way forward?

Okay, so Henry thinks we need to be able to bail out financial institutions, and the Fed needs more transparency in order to do that right. Now that financial risk is hitting panic level, he wants the Fed to be able to access data in financial institutions, so the Fed can step in to avert a crisis. But in the next breath, he says that financial institutions must be allowed to fail. Is it any wonder the market's having trouble reading his signals?

However, when financial institutions are protected from the negative impacts of risk, that will only encourage further risky behavior. Charles Schumer, chair of the Senate banking committee, said: "Fannie Mae and Freddie Mac are too important to go under. If they need additional support, Congress will act quickly."

The Bush administration needs to show some leadership in this issue, as there is a need for swift action, and that requires everyone at least pointing in the same direction....

Strategic adaptive planning in the US military, or "a study in banging one's head against the wall"

When I was a child, I received a piano as a gift from an elderly neighbor. I was excited to begin playing, but my mother told me she wouldn't pay for lessons until I demonstrated a commitment to the piano by playing it regularly. But every time I sat down to try to play, she would tell me to stop pointlessly plinking on the piano.

This comes to mind when I reflect on the state of our military today. Many critical business processes, from strategic planning to project management, have come from the Department of Defense. However, when business adopts a military practice, it gets changed and morphed to meet business objectives, and before long becomes an iterative, adaptive process. Meanwhile, the military languishes with processes that don't adapt to new realities.

Paul Masson gave a great illustration of this issue with Col. Ed Hatch of the USAF.

A few decades ago, the US' only enemy, for the most part, was the Soviet Union. In much the same way that corporations could make twenty year strategic plans, because their markets weren't expected to change much, the military historically takes 18-24 months to develop contingency plans, which then sit on a shelf and don't change when conditions change. This made sense before the proliferation of nuclear weapons in the hands of tiny despots all over the world. After spending so much time developing contingency plans, if there was a crisis, the contingency plan wasn't implemented, but a whole new crisis plan was planned and executed, as the contingency plan was too far out of date to be useful. Not only is the process too long, but the strategic plans across governmental and military units were never coordinated, causing tremendous confusion, inefficiency and conflict. How do you manage strategic planning across 4 armed forces and a NATO alliance?

The military is addressing this problem by transitioning to what they term an Adaptive Planning and Execution System (APEX). This system would create continuous, living plans, rather than fixed contingency plans, augmented with crisis plans.

So today, a national security strategy is developed with each new administration. (This replaces the simpler defense plans of decades past.) From that is developed a national military strategy. The national military strategy needs to be translated down to 69 individual strategic plans for different sectors of the military. Sectors can be geographical, such as Europe or South America, or functional, such as transportation and joint forces, and of course, four are the Army, Navy, Air Force and Marines -- who have all the money and power and ability to get things done.

It's funny, having worked exclusively in the private sector, some things that seem obvious to me are brand new concepts to the military. In talking to Paul, he was concerned about the fact that they hadn't developed risk management and disaster recovery into their strategic planning. When I told him that those aren't strategic issues, per se, but operational control issues, he said that such delineation never takes place in the military, and if it's not in the plan it's not going to get addressed. Wow. They have a long way to go. It's great that portions of the military are reaching out to the private sector, trying to figure out what they can learn, and how they can perform adaptive planning better.

But they have barriers I could never imagine. When they start to implement a new idea, and begin working through the initial plan, a defense contractor will try to get the partially developed plan, take it up the chain of command, have it decreed ineffective and incomplete, and get it shut down. Defense contractors look at outreach to the private sector as a threat to their livelihood, and will do whatever they can to either control it or kill it. Col. Hatch spoke of situations where he's had to bury a contract, so that defense contractors wouldn't find out about it. One defense contractor found out about it, and secretly bought up all the IP, so the project couldn't move forward without the defense contractor. This happens ALL the time. Whenever they identify a solution in the private sector, a defense contractor tries to shut down the innovation. While Col. Hatch likes working with private industry, who don't have skin in the game, or a vested interest in a particular solution, defense contractors are not impartial. Defense contractors think anyone in private industry DOES have skin in the game, because private industry doesn't guarantee that money is going to the defense contractor.

Efforts to modernize the military's strategic planning are continuing, but the barriers are almost unfathomably huge.

I never did get piano lessons, and my folks eventually sold the instrument -- no one had ever learned to play it. I hope things work out better for our military.

fear and loathing in business ethics

When I presented at the PMI Global Congress in Malta about Corporate Social Responsibility, an American from a large insurance firm posed a question.

"I like your ideas about integrating CSR into corporate strategy, and evaluating projects not just for risks to schedule and costs, but also looking at ethical and social risks. I want to take these ideas back to my company and implement them. But what happens if I talk to my boss, and he doesn't like the idea? What then?"

"Well," I said, "Ultimately you need to determine where your priorities are. If you think this is a good idea for your firm, and will ultimately change how your company does business for the better, as well as preserve its reputation, it may be in your best interest to talk to others within the company, to circulate the ideas and see if they can get traction."

He laughed. "I need your business card! If I do that and lose my job, I'M CALLING YOU!"

It's sad when people are afraid to speak up, especially when what they have to share isn't bad news about their project or budget, but rather a good idea on how they can make their company better. But more than sad, it represents a risk to the company's ethical culture.

Marianne Jennings of the Makkula Center of Applied Ethics believes that to front-line employees, the line between right and wrong is very bright. Something happens to people as they climb up through management. The bright line seems to fade. The challenge is getting information about ethical breeches from the front line up to the right people who will take action. Too often, fear and silence thwart those efforts.

Are these fears unfounded?

According to the journal Strategic Finance ,

Based on the total failure of whistleblowers to obtain protection from discrimination under the provisions of SOX Section 806, perhaps employees still have good reason to fear retaliation. Of the nearly 1,000 complaints filed under SOX 806 in the five years since its enactment, not one person has survived the appeal process and won his/her case.

I guess not.