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Saturday, April 2, 2011

Transocean Executive Compensation Bonuses for "Best Safety Year in 2010" in spite of the Deep Water Horizon Explosion

Transocean, the world’s largest off-shore oil rig company, owned the Deep Water Horizon rig that exploded in the Gulf of Mexico in April of 2010. Astonishingly, the company awarded its managers healthy bonuses. Even more astonishing, safety was a major component. Even without intending to, the compensation sets up managers in a conflict of interest—their compensation motivating them to keep up the good work rather than to correct for what went wrong in the management of the Horizon rig. In other words, the bonuses give all the wrong incentives, and there has been no principled leadership to point in the other direction.

The full essay is in Cases of Unethical Business, which is available at Amazon.

Friday, April 1, 2011

Government Employees and Manufacturing Jobs: Takers and Makers?

In 2011, according to Stephen Moore, “there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. . . . More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers.”

“Collecting a paycheck from the government” implies that people who work in government are somehow receiving an entitlement rather than compensation for their labor. Treating government employees, and, moreover, the receivers of government services, as “takers” reduces all the functions of government to welfare programs. Are the corporations in the private sector that receive defense contracts “takers” akin to the lazy “takers” that Stephen Moore has in mind in his opinion piece?  Is G.E. a “taker” in not having any tax due on 2010 earnings in the billions?  Presumably, the defense contractors and tax-minimizing companies benefitted from government-sponsored infrastructure, such as police protection and roads?  Furthermore, are citizens who benefit from security and transportation to be regarded as “takers”?  Are flyers “takers” when they rely on the FAA to keep flight control agents in control towers on the up and up?

Furthermore, Moore is ignoring non-governmental reasons for the reduction in factory jobs in the U.S. “Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods. . . . Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital, have more government bureaucrats than people making things.” However, even though government payrolls have expanded as we have asked for more from our governments, such as in regulating banks too big to fail, the proliferation of capitalism in the world, such as via more foreign direct investment in developing countries (with the notable exception of Africa), has brought with it a spreading-out of manufacturing around the world.

Even so, the U.S. still has the most manufacturing jobs of any economy, but this does not mean we need not expand our skilled labor force in new fields such as computer technology. In focusing on manufacturing, Moore seems to reduce “making” to manufacturing.  Does not a CPA “make” something of value when investors and creditors rely on the certified financial statements of a company?  Without doubt, we need to expand our notion of “making” in the twenty-first century global economy. We also need to reduce our conception of “taking” when it comes to what government employees do and even in what the government does. Otherwise, even Moore might be left with the unavoidable conclusion that the American corporations, even more so than the “welfare mothers,” are the “takers.”

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Wednesday, March 30, 2011

On the Exaggerated Value of Executive Compensation in American Society: The Case of Bill Gates and Paul Allen at Microsoft

Paul Allen claims in his book that Bill Gates tried on more than one occasion to reduce Allen’s relative ownership interest in Microsoft. Of course, the veracity of Allen’s explanation can be questioned even if the factual changes in percentage terms are a matter of public record. In focusing on whether Allen’s explanation is credible, The Wall Street Journal overlooks more fundamental category mistake in reckoning ownership as a species of compensation. Such an error may reflect a hypertrophy involving the value of money in American society—an exaggeration to which the journal may be susceptible as the foremost mouthpiece of American business.

The Wall Street Journal reports that Paul Allen has some critical things to say about his co-founder of Microsoft, Bill Gates. In general, Allen asserts that Gates tried more than once to reduce Allen’s relative financial ownership in the company. Whereas the journal focuses on the veracity of Allen’s claims—ultimately questioning the man’s credibility—I find in the story a case study on the difference between ownership and compensation for labor and on corporate leadership. I contend that the difference may often be minimized in business as well as by society, while particular CEOs are unduly projected onto the societal stage essentially as societal leaders.

Allen also claims in his book that in the mid-1970s, when he and Bill Gates were two college dropouts were based in New Mexico, Gates asked for 60% of their partnership because of his greater contributions to the creation of software for running the BASIC programming language on an early PC, the MITS Altair 8800. Allen says he had assumed that their partnership was evenly split, but he agreed Gates' request anyway. Several years later when Gates and Allen established Microsoft as a formal partnership, Gates asked to change their respective shares in the business to a 64-36 split, a demand to which Allen again agreed. Furthermore, in the early 1980s, Gates rebuffed Allen after the latter asked for an increase in his own Microsoft shares after his work on a successful Microsoft product called SoftCard, Allen writes that he was deeply disappointed in Gates’ response; he had known Gates since they were students at a prestigious private school in Seattle. "In that moment, something died for me," Allen writes. "I'd thought that our partnership was based on fairness, but now I saw that Bill's self-interest overrode all other considerations. My partner was out to grab as much of the pie as possible and hold on to it, and that was something I could not accept." Allen recounts that he sucked it up and thought, "OK…but one day I'm out of here." 
                                       
                                    Bill Gates and Paul Allen, co-founders of Microsoft
                                       By Doug Wilson/Corbis, printed in The Wall Street Journal 

Furthermore, Allen asserts that in 1982 he eavesdropped on a discussion in the Microsoft offices in Bellevue, Wash., between Bill Gates and Steve Ballmer, who went on to become the company's CEO. Allen claims that he heard the two men talking about his recent lack of productivity and how they might dilute his equity in the company by issuing options to themselves and other shareholders. Allen said he burst into the room and confronted the two men, both of whom later apologized to him and backed down from their plan. "I had helped start the company and was still an active member of management, though limited by my illness, and now my partner and my colleague were scheming to rip me off. . . . It was mercenary opportunism, plain and simple." If so, then the vaunted veneer of societal leadership that Bill Gates has attained by virtue of his achievements in software, sheer wealth, and philanthropy may be a projection of something more than the man, and thus a reflection of societal values.

Of course, there are two sides to squabbles, and this case is no exception. Gates's attempts to lower Mr. Allen's stake in the company reflected concerns that Allen wasn't working hard enough and wasn't commitment to the company, say people familiar with the relationship according to the journal. That was one reason, these people say, why Gates put a provision in their first partnership agreement that would allow him to buy out Allen if he thought there were "irreconcilable differences" between the two men. Allen refers to the provision but does not include a reason for it, which is telling. Furthermore, third parties with knowledge of meeting to which Allen refers claim that Allen puts himself in meetings that he did not in fact attend. If true, Allen’s claims regarding Gates could also be doubted, though there is factual support for the changes in ownership percentages even if not for the reasons.

If Gates was putting more effort into the business, an argument based on that could be made that he should receive a higher percentage of the ownership so he would receive more dividends. However, it could also be argued that ownership, unlike compensation, is based on having founded a business (or having purchased the rights to such a basis by buying stock-ownership). Gates may have conflated compensation with ownership in demanding a greater percentage of stock, essentially regarding the latter as compensation in treating dividends as a form of salary. Such a conflation may distort property ownership in a way that minimizes the fundamental difference between an owner and an employee. Of course, an owner can work as an employee of his own business, but the two roles are distinct. Gates’ mistaken notion of ownership may have been formed out of a society that over-values executive compensation, and more generally money. Consider, for example, the much higher compensation packages that American managers receive relative to their European colleagues. Relatedly, the ratio of executive to “lower level” employee compensation in the U.S. is much higher than in the E.U.  Such differences point to differences in societal values, and such values can, if exaggerated, lead to category mistakes. So Allen’s complaint against his boyhood friend and business partner may actually be a critique of a much larger problem in American society.

Click to add a Comment or Question (and View Posted Comments) on Bill Gates and Paul Allen at Microsoft and the wider implications for business and society



Monday, March 28, 2011

President Obama's Justification for Limited Military Intervention in Libya: Driving a Wedge between the Bushes

In the early evening of March 28, 2011, President Barak Obama addressed the American people and the world to explain his administration’s involvement in the international coalition that had been implementing a no fly zone over Libya while protecting Libyan civilians from their own ruler. He sounded much more like the first President Bush than the second in terms of foreign policy.  Similar to how the elder Bush had restrained himself from going all the way to Baghdad after he had joined an international coalition in removing the Iraqis from Kuwait, Obama said that directing American troops to forcibly remove Colonel Qaddafi from power would be a step too far, and would “splinter” the international coalition that had imposed the no fly zone and protected civilians in rebel areas of Libya. Interestingly, in taking the elder Bush’s route, Obama came out strongly against that of Bush II. Referring to the alternative of extending the U.S. mission to include regime change, Obama stated, “To be blunt, we went down that road in Iraq . . . regime change there took eight years, thousands of American and Iraqi lives, and nearly a trillion dollars. That is not something we can afford to repeat in Libya.” In effect, Obama was exposing a fundamental difference between George H.W. Bush and his son by saying essentially the same thing as the elder Bush had done while excoriating the foreign invasion of his son. Yet Obama did not stop there. He added a theoretical framework that the elder Bush could well have used.
The New York Times puts the theory quite well. “The president said he was willing to act unilaterally to defend the nation and its core interests. But in other cases, he said, when the safety of Americans is not directly threatened but where action can be justified — in the case of genocide, humanitarian relief, regional security or economic interests — the United States should not act alone. His statements amounted both to a rationale for multilateralism and another critique of what he has all along characterized as the excessively unilateral tendencies of the George W. Bush administration.” In other words, even in providing a basic framework, Obama was able to distance Bush the father from Bush the son.  Interestingly, Obama had awarded the senior Bush with the Metal of Freedom over a month earlier. I would be very surprised if Obama would award Bush the Son such a prize. In terms of foreign policy, the philosophical line in the sand clearly distinguishes the second Bush from both his own father and Barak Obama.
Of course, the President’s speech left his audience hanging in other respects. For instance, averting a large-scale massacre in Libya is in the U.S. strategic or national interest because of our humanitarian values as well as the proximity of Libya to the nascent upheavals in Tunisia in Egypt. So would not protecting a mass protest in Yemen, which is next to Saudi Arabia, or in Syria, which has particular strategic interest to the U.S. on account of Syria’s connection with Lebanon (and thus relevant for Israel) and Iran, also be in the American national interest?  The President could argue that neither Yemen (or Bahrain) nor Syria had come to the point where the civilians in a major city were at risk—but it could still be asked, what if?  Must there be a baleful hint of genocide in a city commensurate to the Libyan city of Benghazi for protesters to warrant invoking principled leadership with or without allies when a ruler has effectively lost his right to rule by having turned on his own people?
I contend that the President treated the U.S. strategic interest quite broadly by including the protection of large numbers of civilians against their own ruler, particularly when even the portent of carnage could destabilize emergent republics next door. Such interest is broader than questions such as, “how the civilians would view the U.S. were they to gain power?” and “what effect would a new government have on Iran and Israel?” Such questions pertain to a narrower conception of national interest—one that is much less of value to a country. Viewing the good will of protesters as an opportunity—essentially taking on the wider, humanitarian-inclusive, notion of national interest—Syria, Bahrain and Yemen become like Libya as soon as their respective protests and prospect of government brutality reach a certain threshold that Libya had surpassed. What that threshold is—meaning in terms of scale as well as brutality—is something the American Congress and President need to decide. For once that is set, attention can turn to the mechanism involved in forming an international coalition should a country cross the line. Differing from Obama, I submit that the establishment of a threshold can be relied up such that principled leadership could be invoked by the U.S. even in the absence of partners at the outset. Such unilateralism would differ appreciably from that of Bush the Younger, whose invasion of Iraq was based on a criterion used for that one case alone (WMD).  In other words, unilateralism need not mean capriciousness or impulsiveness. A humanitarian threshold undergirded by a strategic interest in there being a world wherein rulers serve rather than violently turn on their own people can justify not only international coalitions, but also instances of principled leadership.
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Social Media Companies: Is Blocking Protester Content a Political Decision?

The question of the role of social media internet companies as protesters have used social-media platforms to communicate before and during protests exploded on the world stage in "Arab Spring" going in the Middle East in early 2011. Lest it be presumed that the companies' respective policies were relevant only in terms of what content (or users) was allowed and how that content could impact events on the ground, the policies themselves reflect the claim made by the West of what liberty means. In other words, if social media companies were (allowed to be) oppressive or otherwise not respectful of their customers, the overall message to the oppressed in the Middle East could not have been that greater freedom is indeed possible because it exists in the West. Lest our own private sector unwittingly undercut the words and efforts of the protesters, we might want to use this case to ask if we couldn’t be freer too.
According to Ebele Okobi-Harris, the director of the business and human rights program at Yahoo, which owned Flickr at the time, the case of el-Hamalwy, an Egyptian activist whose uploaded pictures of security agents were abruptly taken down by Flickr staff, prompted internal discussions at the company about whether Flickr should reconsider its approach. What if the photos had been his own and he had not yet backed them up? Flickr’s abrupt and unannounced action suddenly seems quite oppressive. Fortunately, managers at Flickr were at least thinking about the issue. “As the uses of these social networks evolve,” Harris said, “we have to start thinking about how to create rules on how to apply rules that also facilitate human rights activists using these tools.”
According to The New York Times, Harris “pointed to the challenges of balancing the existing rules and terms of service for users with the new ways that activists are using these tools. One challenge is whether a company should maintain its commitment to remain neutral about content, even when politicized content could offend users or even put people in danger. ‘Does a company take responsibility for the content?’” For instance, what, el-Hamalawy asked, would Flickr do if a group that opposes abortion wanted to post photographs of doctors who perform abortions? In his own case, el-Hamalawy “said Flickr’s decision to take down the photos left him not only frustrated and angry but also terrified. ‘Everyone knew that I had released those photos,’ he said. ‘Then the photos were gone. I couldn’t sleep. I was thinking that at any minute, they were going to come for me.’” Would Flickr managers have been responsible for el-Hamalawy’s death had it been occasioned by Flickr’s action?  Or was it his own act in uploading the photos in the first place that put his life at risk? To be sure, Flickr should at least have notified him before taking down his pictures; the company was certainly responsible for causing him fear. 
However, this incident seems more like bad business to me than unethical conduct on Flickr’s part. Whether a customer is a protester oppressed by a dictatorship or simply a novice photographer who has uploaded her own pictures, there does appear to have been reason to withhold one’s trust from Flickr.
Beyond the matter of bad customer relations—which seems to be getting worse in American business--the question of whether social media, which has included Facebook, Flickr, Instagram, Twitter and YouTube among others, has been unwittingly biased toward oppressive governments even if only from a desire to maintain control over its site must be addressed. 
In early 2011, it became clear that social-media companies were increasingly being used by activists and pro-democracy forces, especially in the Middle East and North Africa, to the chagrin of the respective governments. As Harris asked of Flickr, does a social media company have responsibility for the content?  Furthermore, should such a company be susceptible to the influence of angered governments, whether in identifying users or barring their content?
According to The New York Times at the time, the “new role for social media has put these companies in a difficult position: how to accommodate the growing use for political purposes while appearing neutral and maintaining the practices and policies that made these services popular in the first place." In November 2007, YouTube had removed videos flagged as “inappropriate” by a community member because they showed a person in Egypt being tortured by the police. They were uploaded by Wael Abbas, another Egyptian blogger involved in opposing torture in Egypt. After a public outcry, YouTube managers reviewed the videos and restored them.” Had the managers been influenced by Egypt in taking down the video, the company would have effectively taken sides in the Egyptian dispute between its government and people. 
Prime facie, removing videos or photos of the police torturing one or several of their own citizens is pro-authoritarianism and anti-liberty. In other words, the very act enables aggression by states against their own people, whose liberty is treated as a wanton step-child. YouTube's initial decision to pull the videos back in 2011 was in this sense a political decision. Accordingly, it should not have been labeled as simply a business decision. Seen in this light, YouTube's employees enjoyed power beyond what working on business entails and thus entitles. 
Alternatively, the issue could simply be whether a warning notice is appropriate given the graphic nature of anti-government material. I made the horrible mistake, for example, of watching the slow beheading of a Western hostage by a terrorist group in the Middle East. Even a year or two later, I could still hear the man’s raspy voice shouting for dear life as his throat was being gradually deprived of air. Because I ignored the “graphic content” warning,  perhaps the issue facing YouTube in 2011 does indeed go beyond whether such a warning should apply. In my case, my curiosity got the better of me. Should YouTube have been responsible for protecting me from myself? That could be good business, as I stayed away from the platform for a while because I realized what emotional power "real" videos could have. Yet this would open YouTube employees and their managers up to grasping what is actually political power, at the very least if the subject matter itself is political. A blurry line exists between business and political power in the business realm. Power-aggrandizement can take advantage of the discretion. 
Perhaps social media managements could limit their intervention only to extremely graphic content, with review taking place in the company in the particularly harsh cases.  Still, in a free society, citizens ultimately must take responsibility for ignoring warnings.
Regarding Facebook, The New York Times reported on March 26, 2011 that the company “has remained mostly quiet about its increasing role among activists in the Middle East who use the site to connect dissident groups, spread information about government activities and mobilize protests. But Facebook is now finding itself drawn into the Israeli-Palestinian conflict and has been pushed to defend its neutral approach and terms of service to some supporters of Israel, including an Israeli government official. Yuli Edelstein, an Israeli minister of diplomacy and diaspora affairs, sent a letter [in March, 2011] to Facebook’s chief executive, Mark Zuckerberg, asking him to remove a Facebook page created that March named the Third Palestinian Intifada." The page, which called for an uprising in the occupied Palestinian territory that May, had more than 240,000 members at the time. "As Facebook’s C.E.O. and founder, you are obviously aware of the site’s great potential to rally the masses around good causes, and we are all thankful for that," Mr. Edelstein wrote. "However, such potential comes hand in hand with the ability to cause great harm, such as in the case of the wild incitement displayed on the above-mentioned page." Facebook had, so far, not removed the page. The administrators of the page were not advocating violence so the page fell within the company’s definition of acceptable speech, company officials said. "We want Facebook to be a place where people can openly discuss issues and express their views, while respecting the rights and feelings of others," said Andrew Noyes, a spokesman for public policy at the company. Facebook was trying to maintain its neutrality without getting political. 
The problem is, “wild incitement” could pertain to the pro-democracy rallies that had been taking place throughout the Middle East at the time. Even if violence were being called for in the Intifada, would Facebook (or Instigram) remove such content if it had been put up by an Egyptian or Libyan protester?  More pointedly, what if a page or photo referred to “wild incitement” in the midst of being attacked by government troops or police? How far removed is an occupied people to such intimidation on a daily basis? Should they be barred from tweeting, “Come help me at X intersection b/c police are beating my elderly parents”? The staff at Facebook were smart not to intervene in disputes between a government and its people. If anything, an America-based company should have a bias in favor of liberty in taking the side of the oppressed, for the United States came into existence from British oppression. Relatedly, the U.S. Government itself acts in concert with its own beginning whenever it takes the side of a people protesting against governmental oppression. Of course, American companies acting in favor of American values make de facto political judgments and decisions whose application in other cultures may be ill-fitting or even inappropriate. 
Yet it is possible that particular company policies are inherently to the advantage of vengeful governments and thus a threat to Facebook’s customers under those governments. For example, The New York Times reported at the time that “Human rights advocates have also criticized Facebook for not being more flexible with some of its policies, specifically its rule requiring users to create accounts with their real names. Danny O’Brien, the Internet advocacy coordinator for the Committee to Protect Journalists, cited the case of Michael Anti, an independent journalist and blogger from China whose Facebook account was deactivated in January because he had not used his state-given name to create it. In addition to losing the ability to publish and communicate on Facebook, and not wanting to use his real name because of China’s strict rules governing freedom of speech and harsh response to those activists who violate them, he . . . lost the contact information for thousands of people in his Facebook community. ‘One can’t expect all of these services to provide everything to everyone,’ said Mr. O’Brien. ‘I think that part of the solution is to provide people with a dignified way of leaving the service.’”
O’Brien was giving too much credit to Facebook. It is insufficient to expect Facebook to have merely provided its customers with a dignified way to leave (or be deprived of service). In addition, Facebook ought to have respected the preference of some of its customers to anonymity, especially if their respective real names could bring them into harm's way. Facebook would have still had those customers’ contact info (more of which could be demanded and verified in such cases), so anonymity would not have been an excuse to get away with unethical or illegal conduct, such as publicly defaming someone by making false claims. At the very least, I contend that a person’s anonymity being refused is a basis for that person to lie ethically about being on Facebook. 
Moreover, Facebook’s insistence at the time that real names must be used adds to the argument that the U.S. Constitution should be amended to include an explicit right to privacy. Much of the criticism of Roe v. Wade is actually that the justices “found” such a right being implicit in that constitution. Even people in favor of making abortion legal could (and have) raise the objection. Another entails whether the decision should be federal or have remained with the States. 
While the problem regarding Facebook's insistence that customers use their real names may have had implications for U.S. constitutional law, bad business (i.e., bad customer service) may have been Facebook's underlying problem. In fact, Facebook having had respect for its potential and actual customers who preferred anonymity could have sent a message stronger than any from the protesters or human rights advocates in the Middle East, namely: “Look over here! Real freedom is indeed possible!”

Source:
Jennifer Preston, “Ethical Quandary for Social Sites,” The New York Times, March 27, 2011.

Flickering Ethics at Flickr: On the Ethics of Enforcement

The New York Times has an interesting piece on the ethics involved in providing a social media service for the public.  The article describes how “(t)wo days after using Flickr to display photos of police officers from Egypt’s feared state security force, Hossam el-Hamalawy watched in disbelief as they vanished, one by one, from the popular social networking site, which he had been using since 2008. ‘I thought I was being hacked,’ said Mr. el-Hamalawy, a prominent Egyptian blogger and human rights activist who had uploaded the headshots of the police from CDs found by activists early this month at the State Security Police headquarters in Nasr City. He later learned . . .  that the photos had been removed because he did not take the images himself, a violation of the site’s . . . rules. ‘That is totally ludicrous,’ he said. ‘Flickr is full of accounts with photos that people did not take themselves.’” 

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

Sunday, March 27, 2011

The Consolidation of Power in the American and Roman Empires: On the Rise and Fall of Empires

The American federal government was for at least a century, and perhaps even longer, primarily involved in defending the new empire and regulating commerce between the republics (or states more generically). By the dawning of the twenty-first century, the U.S. Government had grown both in scope and in the number of employees on its payroll while the governments of the republics had been reduced to functioning as little more than local governments. In other words, Congress had come to act like a state legislature, while the states had accepted their status as mere localities. This fundamental shift with respect to American federalism, as well as the empire-“kingdom”-city arrangement, bears a striking resemblance to the Roman empire. By implication, this similarity might lead us to some conclusions regarding the future the United States within the larger story of the rise and fall of empires.


The complete essay is at Essays on Two Federal Empires.