American Airlines: Caring for People

What is the purpose of a business? According to Aristotle, there are different kinds of purposes. The final cause of a tree seed, for example, is a tree; the material cause is whatever biochemistry went into the seed. The final cause of a human sperm entering a human egg is an adult human being—hence the question of the ethics of abortion. A human embryo is potentially an adult human being. The material cause of an embryo lies in the biochemistry of the seed and the egg. But I digress. As regards a company, we can distinguish different kinds of purposes. Somewhat crudely, the real purpose can be distinguished from the ostensible purpose. The former has to do with what can be thought of as the bottom-line purpose: maximizing revenue or profit. Any ostensible purpose, such as feeding people or transporting them, is functional in nature, and can be viewed as a means of achieving the real purpose. A third kind of purpose can be labeled as a marketing purpose, the promotion of which is merely to serve the real purpose. In terms of Shankara’s Hindu metaphysical framework, the real purpose is in the real, the ostensible purpose is in the realm of appearance, and a marketing purpose is in that of illusion. I contend that business managers, especially in marketing, are accustomed to conflating these three types of purposes in being oriented to the real purpose. Not being transparent about the differences between these three purposes is, I submit, unethical in nature. I have an incident involving American Airlines in mind.

The full essay is at "American Airlines."

Leadership Vision at Facebook

On Charlie Rose, a television show, in early 2012, a former CEO of Coke told Charlie that companies view corporate social responsibility as lying within the domain of strategy. Specifically, it is in a company’s strategic interest that its sources of raw materials do not “dry up.” A corporation’s societal responsibility dovetails with its interest that the corporation’s own “footprint” (a.k.a. “Big Foot”) not put the company’s own survival at risk. One could say a company is “responsible” (as if it were felt as a duty rather than simply self-interest) for safeguarding those things on which it depends. In other words, it goes out from its immediate interest in securing supplies to assume a “societal” role in protecting the sources themselves, as if acting as a good citizen. The motive is more like stewardship—the objective being maintaining an ability to extract the material in the long term. Profit, in other words, is foremost, and any word of duty is mere marketing. This does not mean that leadership vision beyond profits as an end is a façade.

The full essay is at "Taking the Face Off Facebook."

Long Term Capital Management

By 1997, “after three years of strong profits for LTCM, the opportunities were drying up. There was too much money chasing the same investments. . . . In early 1998, LTMC decided to give a large portion of its capital back to its original investors because profitable opportunities were so hard to find. At the end of 1997, LTCM had nearly $7.5 billion under management, compared to $1 billion when it started, and it now returned $2.7 billion of that to investors. The partners also figured that they could, if necessary, simply leverage their portfolio further to compensate for the loss of capital, which would compound their personal gains. Greed was at the heart of what turned out to be a disastrous decision. . . . Unable to reproduce the returns of the first three years, LTCM took increasingly more risk, abandoning its purer arbitrage for the kinds of ‘directional’ investments Soros made and LTCM had so long disdained—such as trying to forecast interest rate and currency movements. More and more of these trades were unhedged.”[1] Furthermore, “LTCM’s risk models—VAR and related statistical tools . . . –were misleading.”[2] For example, diversification was little protection if there was a run on the banks. When Russia defaulted on August 17, 1997, LTCM’s hedges against its Russian investments were worthless. Furthermore, because all fixed income assets fell sharply in value, “diversification, it turned out, did not matter. The finely calculated relationships on which LTCM was built and which the firm always believed would hold started to come apart. VAR could  not account for such an unlikely but sweeping event—an event in which everyone wanted out at the same time and almost all investments fell significantly in price. The use of VAR itself precipitated much of the selling. Commercial banks under the jurisdiction of the Basel Agreements, which . . . set capital requirements based on the level of VAR (the lower the VAR, the lower the capital required), were forced to sell assets to raise capital.”[3] LTCM lost $1.9 billion that August. Eventually, fourteen banks, organized by the Fed, put together loans of more than $3.5 billion to purchase 90 percent of the firm.” LTCM “did manage to sell down assets in an orderly fashion and by early 2000 it was essentially out of business”[4] 


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011), 277-81.

2. Ibid.

3. Ibid.

4. Ibid.