The Blog

Tom Doctoroff: Brand Management in China: Three Golden Rules

2009-11-11T00:03:44Z

The Chinese worldview, not to mention its brandscape, is profoundly different from Western - indeed, all - markets. In my eleven years on the mainland, I have not encountered a single instance where significant modifications to positioning and marketing mix are not necessary. This, of course, does not preclude the feasibility - yes, desirability - of consistent with a global Brand Idea. Nike should breathe a "Just Do It" spirit, everywhere. Apple should celebrate "Think Different," everywhere. But, to maximize relevance and trigger loyalty that results in a sustainable price premium, global brands need to be brought into alignment with Middle Kingdom cultural imperatives and operational realities. This begs the question of what these differences are. At the risk of dramatic oversimplification and indulging in sweeping generalizations, here are a few "golden rules" marketers must be sensitive to before landing in the mainland:

1. Maximize public consumption to justify price premiums;
2. Simplify communications/benefits to enhance comprehension;
3. Extend brands downwards to generate both scale/affordability and margin -

Maximize Public Consumption.

In China, a Confucian society torn between stifling regimentation and trenchant ambition, consumers regards brands as tools for success. "Face," the primary currency of upward mobility, is rooted in status projection, generating societal acknowledgement for one's ability to scale the socio-economic hierarchy. This is why brands that, directly or indirectly, are publicly consumed are able to command huge price premiums relative to goods used in private or within the house. All leading mobile phone brands, for example, are international. Even in Tier 5 cities and the rural fringe, Nokia commands a 40% market share, despite significantly higher retail prices relative to local competitors. Sony's Handycam, a product brandished outside the home, is a brand leader. However, its televisions, albeit highly aspirational, struggle to transcend niche penetration levels. The leading household appliance brands are, without exception, cheaply-priced domestic brands such as Haier, TCL and Changhong.

Internal vs. External Benefits. The "public display" imperative leads to fundamental positioning differences versus what works in Western markets. As a general rule, benefits should be "externalized," not "internalized." Even for luxury goods, unadulterated individualism - reinforcing "what I want, how I feel" irrespective of societal consequences - does not work. Bath gels should not promote "sensorial indulgence" in the shower. They should "stimulate" the user to begin the day with a kick, ready to conquer the world. Beauty products must help a woman "move forward" - with quintessential Chinese feminine understatement, of course -- and enhance her ability to "open doors" professionally or "control" her man. In a radically different social context, mass market beauty brands should still help lower-income women be "admired" as a great mom or adored wife. Even beer must deliver something. In Western countries, "letting the goods times role," or "making weekends great" is enough. Fun is fun. In China, pilsner must: 1) bring people together, 2) reinforce trust, and 3) optimize opportunity for mutual (financial) gain.

Automobiles, now a "must buy" for those who aspire to join the hallowed ranks of the new middle class, should make a statement about a man on the way up. Sport cars - i.e., visceral thrill vehicles -- are not big sellers. BMW, a Middle Kingdom winner, elegantly fuses its global "Ultimate Driving Machine" with a Chinese declaration of ambition. Passat, Honda, Toyota, Ford and Buick have all been positioned, clumsily or shrewdly, as status vessels.

DeBeers achieved 80% penetration of engagement rings by morphing universal passion inherent in "A Diamond is Forever" into Confucian "proof" that "commitment will last a lifetime."

Display and Business Models. The importance of public display is also a critical consideration in shaping business models. Starbucks in China is not a comfortable environment - i.e., an urban retreat - in which coffee is sipped. To conform to Chinese tastes, the company: (a) broadened the sandwich menu, (b) identified prime site-to-be-seen real estate, and (c) expanded average store size. From Day One, it successfully established itself as a public place in which professional tribes gather to linger, snack, and, most importantly, proclaim affiliation with the New Generation Elite. Likewise, both Pizza Hut and Haagen Dazs have build mega-franchises rooted in out-of-home consumption. (No Chinese is willing to pay $4.50 to eat a pint of ice cream watching an illegal DVD.)

Simplify, Simplify, Simplify

Chinese, irrespective of income or geography, are overwhelmed - yet excited - by the explosion of brands, both local and international, all of which are vessels of Han aspiration. Twenty years ago, the public phone was the only way to make a telephone call; today, there are over 300 brands of mobile devices, ranging from $30 basic models to state-of-the-art smart phones. Making matters worse, China's media landscape is extremely cluttered. According to one MindShare study, the average Shanghainese is exposed to three times as many ads in one day as UK consumers. (Any first time visitor to Beijing will be stunned by the eye-popping glitter of the city's media landscape. Television screens, most owned by Focus Media, are ubiquitous - in taxis, elevators, restaurants, building tops, locker rooms and bathroom stalls.)

Direct is Best. Complicated messages, therefore, are not easily digested, even amongst the most brand-literate subsets of the population (i.e., youth, middle class, and residents of primary coastal cities). Consistent messages must be conveyed directly, with as little cognitive processing as possible. Advertising must take pains to be ruthlessly single minded via: visualization of the key benefit, leveraging demos as creative ideas, slice of life formats revolving around torture tests and so on. Celebrities must be carefully selected so that their star attributes reinforce a core brand proposition. (By the way, in 9 cases out of 10, celebrities should be Chinese. Unlike Japanese, mainlanders are profoundly nationalistic and relatively unfamiliar with Caucasian personalities, with the exception of superstars.)

To conform to the simplicity mandate, heavy mass media - yes, passively consumed -- is essential. China's untamed landscape requires forming brands from scratch; television fits this bill by being flexible enough to forge broad-stroke equity and brand character. (In addition, it still boasts unrivalled reach, despite high CPM rates.) Digital, actively digested, is increasingly critical to deepening engagement and loyalty but, even for high-involvement/heavy search categories such as autos and financial services, mass media will remain center-of-the-plate for years to come.

Margin and Scale

To succeed in China's primordial landscape, multinational brands must boast both profit and mass-market scale. Regarding the former, most MNCs have little problem charging a price premium because, with few exceptions, Chinese consumers maintain an active preference for the reliability, not to mention "cool," of foreign brands. The tough nut, however, is establishing a pricing stategy that kills two birds with one stone: sustaining a premium image while creating broad sales reach. Scale, the most potent signal of performance reliability, is critical in a reassurance-driven market such as China. It also forges operational order from chaos, exerting gravitational pull throughout distribution channels and the sale force.

Lower Price Tiers. The only way to target a broad swathe of price-sensitive consumers is to extend premium-priced brands downwards across lower price tiers, always by reducing costs and simplifying benefit structures. At the same time, great care must be taken to avoid degraded quality perceptions, usually by advertising the most premium variants. Colgate toothpaste was an early innovator on the mass-market front. Colgate "Total Oral Care," premium toothpaste composed largely of imported ingredients, cost approximately 200 percent more than local brands and maintained a 3 percent share. Colgate "Herbal" and Colgate "Strong," however, used local ingredients, had a lower cost of goods and were priced slightly higher than or at parity with local brands. The combined Colgate franchise controls a phenomenal 20 percent+ of the toothpaste market, one with hundreds of regional and national competitors. In recent years, Nestle chocolate, Crest as well as other P&G brands - the latter with varying degrees of success - have adopted a similar strategy. So, too, have higher involvement categories such as mobile phones.

In Conclusion

This article, of course, is not comprehensive. The Chinese business battlefield is treacherous, rife with kamikaze commoditization. We have not covered issues such as censorship avoidance, in-store activation (rule of thumb: lower market tiers require "high touch" sampling), the supremacy of the "single child" and safety/protection reassurance. However, we believe the aforementioned "golden rules" are essentials that must be considered before any China strategy is finalized.

This article appeared first in Advertising Age.

Jarvis Coffin: Rupert Murdoch's Serious Internet Strategy

2009-11-10T19:01:14Z

It's not all sour grapes that has Rupert Murdoch suggesting News Corp will eventually pull its content out of Google once it converts users to a paying basis. Listening to the interview with Sky News political editor, David Speers, in which Murdoch laid out his plan to withdraw News Corp content to within paying boundaries, Murdoch makes clear that it's all about getting serious online.

Murdoch observes that very few (actually, he says, "no web sites anywhere in the world") make serious money. Likewise, he observes that "search people" - i.e., visitors to News Corp content that arrive by search engine - are not loyal readers of content. Ergo, they are not serious.

Therein may lay the calculation Murdoch and News Corp are doing in connection with their strategy to get consumers to pay for content and, then, deny access to all the non-paying transient onlookers who come courtesy of Google. The strategy advocates a retreat to defensible, higher value positions. As everyone has freely (no pun) pointed out it means much smaller audiences. But Murdoch's comments suggest that News Corp has taken this into account and it doesn't care. What have big audiences and an over-abundance of inventory given to the world but ad networks and lower prices? It's time to get serious. It's time to get back to business.

The issue of "serious money" is an important one. It has confounded traditional media companies online since the beginning. Plenty of money flows through plenty of big web sites, but the end results in terms of profitability have been underwhelming, certainly in Murdoch's view. For many of the Internet's largest players it has been equally disheartening to ponder a future full of exertions to grow traffic by relying on competitive third-parties, while struggling to raise advertising prices in an ocean of inventory. As Murdoch asserts, there is not enough advertising to go around for any web site to make serious money.

There are two ways to chase after serious money as a publisher, however, and one of them is to be small. Having tried big, Murdoch may be coming to terms with the alternative.

The media world has been addicted to "big" for years. Big has meant serious money thanks to advertising. But, that hasn't translated online where smaller, independent publishers capable of generating $1 million per year in revenue out of a spare office thrive, while large publishers huffing and puffing to do 50x - 75x that amount feel unfulfilled.

Online there is, in fact, plenty of advertising to go around allowing many, many publishers to feel like they are making serious money. The Internet landscape is dominated by those publishers, and collectively they are changing the rules, agreeing to work for lower prices and agreeing to be positively delighted with sales results that wouldn't keep News Corp in corporate jet fuel for a week.

At the same time the advertising community is slowly, but surely, shedding its own dependence on big. Ad networks have left one positive impression, which is that it is possible to aggregate many sites online for less and see results that are equal to or better than what $30 CPMs on big sites may have delivered. The taste left by some ad network experiences was bitter, but the implications of a freer, more open, and more targeted market have broken-through.

Most publishers couldn't survive without Google and other search engines to direct people to their web sites; nor could most Internet users, which should assure the market of free and open access to search engines of one sort or another for many years to come. News Corp, however, has considerable resources of its own to drive traffic to it web properties. It may not be the sort of traffic that earns it a top 10 or even top 20 position among its peers, but perhaps they've stopped caring. Perhaps big isn't quite so important in their calculations anymore. Having experienced the tiresome affects of being big online perhaps Murdoch is getting serious about Internet strategy.

And he may be right. Seriously.

Jon Younger: What Are You Doing for the "High Pros" in Your Organization?

2009-11-10T18:38:06Z

We see an interesting and gratifying trend in our work with leading global companies and their HR departments. Attention to high performers -- as opposed to high potentials -- is returning, and with it is a focus on career development. Who would have thought the global recession would turn this way?

Some context might be helpful. For the last several years, the "war for talent" has been fought on the "high potential" battlefield -- how do we attract, develop, engage and retain high potential future leaders? On the sidelines were technical staff - the "high pros" who were viewed as important contributors, but either had limited interest or aptitude in a managerial role.

That's starting to change. CA Corporation, the IT outsourcer, is investing in the development of a global dual ladder system and the training support that goes along with helping career professionals take informed responsibility for their careers and continuing development. Energy companies like Marathon in the U.S. and Statoil internationally are taking another look at their career development activities to ensure they're as attractive to the new P.Eng or Ph.D. Geology as to the new M.B.A. interested in general management. Maersk, the global shipping giant, is architecting a system of technical career progression. Intel, the computer company, is working hard to build a more strategic approach to talent management, including development and retention of top scientific and engineering talent, but also professionalism in other areas, from HR to procurement and finance.

The common message of this work is profound. More and more companies are evolving in their thinking about workforce strategy, adopting a more sophisticated level of planning in their approach to workforce composition, and recognizing both the importance of investment in technical professional development and reward, and the importance of tying it to workforce plans.

For example, the growth of a well known global beverage company is far less constrained by its marketing or managerial resources than it is by the availability of expert brewmasters.
What can you do as an HR or line executive to attract, develop and retain technical high performers? Here are five sets of questions to ask of yourself and the workforce you manage and support:

1. Given the trends in your industry, what are the critical technical skills needed for the organization to perform, grow and serve customers?

2. For these technical competencies, what is the changing shape and size of need? For example, in what areas do we need to increase the number of resources, or skill levels, or both?

3. How do we best obtain these resources, both the numbers we need and the specific skill levels? What do we "buy" versus "build" or contract for ("borrow") from external partners? What is the project plan to meet the need within the budget and time required?

4. For the resources we need to buy or build, how do the best companies attract, develop, engage and retain these skills?

5. Where are we strong and weak in these areas, and what actions do we need to take to make required improvements?

Download file to view a simple matrix for answering the last question. The point of this last question, and the accompanying chart, is simple but often forgotten: Building the kind of organization that gets the best performance from its technical professionals requires that HR and line executives think strategically and integratively. The magic is in the mix so to speak -- the combination of what the organization does to build and deliver its developmental brand through the actions it takes to attract, develop, engage and retain its technical experts.

What is your organization doing to find and retain the technical talent needed? Share your experiences and reflections.

Jon Younger is a Partner of The RBL Group, a firm providing consulting and executive education in strategic HR and leadership. Jon leads the Strategic HR practice area and is also a Director of the RBL Institute. He is co-author, with Dave Ulrich and three other principals at The RBL Group, of "HR Competencies" (SHRM, 2007), "HR Transformation" (McGraw-Hill, July 2009) and many articles, and last year logged client work in 35 countries.

T. Boone Pickens: Natural Gas Autos Can Help

2009-11-10T17:22:07Z

It is refreshing to see in Washington, D.C., legislation boasting broad, bipartisan support. One such bill is the New Alternative Transportation to Give Americans Solutions Act -- H.R. 1835 in the House and S. 1408 in the Senate.

There is a finite amount of oil available in the world. It is about 85 million barrels a day. Americans use about a quarter of that oil every day. Oil dropped to about $35 per barrel when the world spun into the recession, but now it is back at about $80 per barrel. And as the economies of the European Union, China, India, Brazil, Russia, South Korea and the other industrialized nations emerge from the recession, the competition for that oil will intensify.

As the Chinese understand, the way supply balances with demand is through price.The Chinese have locked up more than 5.2 billion barrels of oil for delivery over the next decade or so. They are buying that oil through their state-owned oil company, which is financed by their state-owned bank.

In September 2009, we imported 357 million barrels of oil at a cost of $25 billion. That represented about 63 percent of the oil we consumed in September. At current prices, we will spend about a third of a trillion dollars on imported oil over a 12-month period. That is money circulating through the economies of Saudi Arabia, Nigeria and Venezuela instead of South Carolina, North Dakota and Virginia.

About 70 percent of the oil we import is used as transportation fuel, refined into gasoline or diesel. We have about 250 million cars and light trucks in the national fleet. There are 6.5 million heavy-duty trucks and 18-wheelers moving goods around and across America.

Batteries may be ready for major deployment within the next decade, hydrogen fuel cells perhaps a bit further out. A battery won't push an 18-wheeler, and while we wait for fuel cells, we rely on oil from countries in unstable regions, which do not have our best interests at heart.

The one resource that can substitute for diesel in heavy-duty trucks is natural gas, of which we have more than a 100-year supply.

Recent advances in drilling techniques have made available the vast amounts of natural gas contained in the major shale deposits under Texas, Louisiana, Arkansas and Appalachia. The Potential Gas Committee study, in conjunction with the Colorado School of Mines, has estimated as much as 2,000 trillion cubic feet of technically recoverable natural gas available for commercial recovery. By my analysis, that represents more than twice the energy that there is in the oil reserves in Saudi Arabia.

Natural gas vehicles are proven technology. There are 10 million NGVs in the world, but only 130,000 in the United States. The NAT GAS Act will help jump-start the NGV industry in America. It will grant tax credits to fleet owners to begin replacing their fleets with NGVs.

Taxis and government vehicles, school and municipal buses, express delivery and utility trucks -- in fact, any fleet that generally goes home to the "barn" each night -- are candidates for moving away from burning imported gasoline or diesel to running on domestic natural gas.

Natural gas is one of the most widely distributed natural resources in the country. Gas lines run up and down nearly every street in every community in America. Heavy-duty and fleet vehicles tend to run the same routes on a regular schedule. Drivers stop at the same places to eat, rest and refuel, so the infrastructure to service those vehicles is a relatively simple issue to solve.

Natural gas produces about half the greenhouse gases as gasoline and emits almost no particulate matter in combustion. Anyone who has waited for the school bus with their child at the curb on a cold winter morning knows how diesel burns.

Finally, depending upon foreign sources for so much of the oil we need is a security issue. Anyone old enough to remember the Arab oil embargo of the 1970s still shudders at the thought of even-odd license plates deciding which day you could buy gasoline.

And in 1974, we imported less than a quarter of the oil we needed. Today it is nearly two-thirds. The shock to our economy, much less our culture, with a similar embargo would be, to put it mildly, dramatic.

Strengthen national security. New jobs. Cleaner air. Better economy.

That's a lot from one bipartisan piece of legislation. H.R. 1835 and S. 1408 should come to a vote this fall so we can reduce our dependence on foreign oil.

Richard Laermer: That "Thing" You Don't

2009-11-10T17:02:47Z

Thing thing thing thing. Things. Thingamabobber. Thingamajig. Thingery. Thingy thing.

Possessing sophisticated skills of communicating is elementary when you want people to notice you. Your spoken words have to convey a level of "wordmanship" that inspires confidence in your abilities. Real use of language means ridding yourself of all the flotsam and jetsam in your vocabulary when you are communicating seriously.

If fried chicken is comfort food, then let's call thing the ultimate comfort word. It is readily available, always dependable, but often not very good or appropriate. In English, overusing "thing" is common, however, and also a bit lazy. You owe it to yourself to search your brain for a few seconds to find a non-placeholder! When you think about it, "thing" doesn't have any real meaning. It is the ultimate linguistic crap.

Some examples:

"Hand me that thing over there." My house has a lot of things. Small things, large things, medium things. If you need me to hand you something, you should try to be a bit more descriptive. Remember, any sense of your own personal fame is about being always on-message. When there is no message, you can imagine it's extremely difficult to do this.

"The thingy is loose." Right, I understand that the name of the gasket cover is on the tip of your tongue, but it just isn't coming to you. In a few seconds, though, when someone asks what you meant, you are going to have to find a way to describe it anyway. Just go for the gold on the first try. Can't come up with the specific noun? Try describing it. I'll bet that the listener will be able to figure out what you are trying to say!

You don't need to completely eradicate "thing" from your vocabulary. Our language in 2010 America isn't set up for it. One day, though, consciously make the decision to not say THING once in a single week. You'll be quite surprised about how often you settle for it.

Try it. Billions of underused nouns will thank you. You will sound a teeny bit more sophisticated to your newly-educated peers.

Find me online at badpitchblog.

Judith Ellis: The Proselytizers: Wall Street Executives and Televangelists

2009-11-10T15:14:40Z

Goldman Sachs executives are sounding more and more like televangelists who say things like "We are doing the work of the ministry. 'Give and it shall be given unto you.' By giving to this telecast you will receive a blessing in due season."

Isn't it funny that giving to televangelists is immediate while receiving for givers is delayed? Often times those who receive rarely give to the givers. Televangelists have done well in this regard, investing in their personal wealth. Many churches have become businesses and use Wall Street as a model. Wall Street executives are now taking their lead from televangelists.

A few weeks ago Brian Griffiths, a Goldman Sachs international adviser, said "We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all...'To whom much is given much is required.'" Now, Times Online reports that Goldman Sachs' Chairman and CEO, Lloyd C. Blankfein, said that he was doing "God's work." Oh, really? Methinks they're all proselytizing Pharisees.

Here are the words of Jesus Christ:

"Woe to you, teachers of the law and Pharisees, you hypocrites! You travel over land and sea to win a single convert, and when he becomes one, you make him twice as much a son of hell as you are."

--Matthew 23:15

Many televangelists proselytize all over the world converting people to Christianity but have made them by far worse off then they were. (When people convert they are usually looking for a better way of existing.) The new converts follow the bad practices of the clergy under the guise of Christianity, perverting the message of Jesus.

Goldman Sachs invests all over the world using the beauty of a free market democratic system. But the market needs ethics. Through their practices they have indebted the world, perhaps making some by far worse than they were in the long run. The same kind of practices are then perpetuated by the debtors under the guise of a free market system, even if democracy isn't embraced. Inextricably bound to the highest form of democracy are justice and fairness.

All progression is not necessarily progress and all deliverance is not necessarily salvation.

Ruth Stonesifer: Veterans Day: Not for Sale

2009-11-10T13:42:00Z

This Veteran's Day, Nov. 11, many of us will gather in town squares, main streets, and school gymnasiums across the country to observe a great American tradition of paying homage to all those who have served our country as members of our Armed Forces.

The rest -- unfortunately, the majority -- will go shopping.

If you're like many people, this should make you blush with guilty recognition.

I'm hoping it also jolts some to act and help transform Veterans Day back to its original mission.

In the beginning, Veterans Day was not for sale. Fifty-five years ago, inspired by a group of storekeepers in Emporia, Kansas, Congress upgraded Armistice Day to Veterans Day and made it a national holiday. The local Chamber of Commerce got 90 percent of Emporia's merchants to agree to close their doors on Nov. 11, and the idea caught on across the country. On the day set aside to remember those who served and those who died, business-as-usual felt disrespectful.

Those merchants were honoring a profound truth expressed by George Washington more than two centuries ago when he wrote, "The willingness with which our young people are likely to serve in any war, no matter how justified, shall be directly proportional as to how they perceive the veterans of earlier wars were treated and appreciated by their nation."

Veterans Day was always important in my family because a number of relatives served in uniform, including my two sons who both joined the Army, one in military police criminal investigations and the other jumping out of airplanes. But it became intensely personal eight years ago last month when my youngest son, Kristofor, was killed in a helicopter crash in Pakistan. He was one of the first American soldiers to die in the war on terror, just 38 days after the 9/11 attacks.

My grief channeled itself into action and all these years later I was chosen to serve as president of the American Gold Star Mothers, an 81-year-old organization of women who have lost children in uniform. Our mission is to provide services and support to injured or ill veterans.

My journey has been an eye-opener and one of the things I see clearly is how a ritual that was once held sacred in every corner of America has lost its meaning just about everywhere. Even as our best and brightest are patrolling and dying in the deserts of Iraq and the far-off mountains of Afghanistan, at home Veterans Day means an extra sleep-in, traffic-disrupting parades, and the launch of the Christmas retail season with noisy, patriotic sales pitches, which really do nothing for those who have served our country but go a long way to increasing the retailers' bottom lines.

Societies and cultures evolve and we no longer have with us most of the 16 million veterans of World War II. And somewhere along the way, America's retailers, not to mention the majority of our country's citizenry, lost their bearings and Veterans Day became just another promotional opportunity.

We may not be able to go back to the way things were. But we shouldn't be throwing out the baby with the bathwater. So I'd like to offer a challenge to my fellow citizens and to America's retailers, especially those national chains that wrap themselves up in the flag and run all those red-white-and-blue Veterans Day ads, to stop saying they support our troops and actually do something tangible to demonstrate that support.

At the individual level, I recently heard ABC News journalist Bob Woodruff, who suffered traumatic brain injuries covering the war in Iraq, speak about helping veterans this year by urging all Americans to each donate $1 in honor of the 1.6 million men and women who have served in Iraq and Afghanistan.

I want to raise the stakes. Let's make it $11. Just imagine the profound impact we could have on the lives of the courageous men and woman who have volunteered to serve in Iraq and Afghanistan if 11 million of us also volunteered, in this case to each donate $11 to support them on Veterans' Day. The incredible nature of such a collective act on Veterans' Day, the 11th day of the 11th month, would be unprecedented in terms of raising awareness of the plight of returning veterans, particularly those who continue to suffer the invisible wounds of war, all while raising millions of dollars to ensure that these veterans get the help they need and deserve. To ensure the efficiency and effectiveness of such an "11-11 campaign," there is already in place a grassroots coalition called Beyond Tribute that comprises eleven organizations dedicated to assisting veterans of all generations deal with the challenges of civilian life.

As it pertains to retailers, they need to select a legitimate veterans-related charity and allocate a percentage of every sale on Veterans' Day to that organization. Customers will appreciate it because it'll make them feel they're contributing, and it'll be good for business.

Retailers need also to spread the word of the plight of veterans. In every shopping bag, they should place some educational literature about the national and local organizations that serve our troops. Millions of consumers will be reminded what Veterans Day is about, why it matters, and how they themselves can demonstrate their appreciation or become volunteers.

America's retailers also should fly the flag. They can follow the example of Wal-Mart and hang a banner in a visible place in every store showing how many employees are currently serving in the military. The more visible our service people are, the more Americans will become aware that while they are enjoying the freedoms of modern life, not to mention an extra sleep-in day, thousands of their neighbors are giving their best to keep it that way.

Ruth Stonesifer is the National President of American Gold Star Mothers, Inc. Her son, SPC Ranger Kris Stonesifer, was killed in action on October 19, 2001.

Ellen Brown: Goldman's Profits Come from Our Pockets: Why We Need a Tobin Tax

2009-11-09T22:25:23Z

"The homeless in America have Goldman Sachs to thank for their homelessness and starvation right now. They took the money from their pockets, they put it in their bonuses for this year. . . . That's a financial terrorist crime."

-- Former stock trader Max Keiser in a France 24 interview

In the midst of the worst recession since the Great Depression, Goldman Sachs is having a banner year. According to an October 16 article by colin Barr on CNNMoney.com:

While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record. More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute.

Barr writes that Goldman's "eye-popping profit" resulted "as revenue from trading rose fourfold from a year ago." Really. Revenue from trading? Didn't we bail out Goldman and the other Wall Street banks so they could make loans, take deposits, and keep our money safe?

That is what banks used to do, but today the big Wall Street money comes from short-term speculation in currency transactions, commodities, stocks, and derivatives for the banks' own accounts. And here's the beauty of it: the Wall Street speculators have managed to trade in practically the only products left on the planet that are not subject to a sales tax. While parents in California are now paying 9% sales tax on their children's school bags and shoes, Goldman is paying zero tax to sustain its gambling habit. Race track winnings and other forms of gambling are taxed at up to 25%. But stock market trades get off scot free.

That helps explain Goldman's equally eye-popping tax bracket. What would you guess - 50%? 30%? Not even close. In 2008, Goldman Sachs paid a paltry 1% in taxes - less than clerks at WalMart.

Speeding Tickets to Slow Day Traders?

Wall Street bankers have been called today's "welfare queens," feeding at the public trough to the tune of trillions of dollars. The fact that their speculative trades remain untaxed suggests a tidy way that taxpayers could recover some of their bailout money. The idea of taxing speculative trades was first proposed by Nobel Prize winning economist James Tobin in the 1970s. But he acknowledged that the tax was unlikely to be implemented because of the massive accounting problems involved. Today, however, modern technology has caught up to the challenge, and proposals for a "Tobin tax" are gaining traction. The proposals are very modest, ranging from .005% to 1% per trade, far less than you would pay in sales tax on a pair of shoes. For ordinary investors, who buy and sell stock only occasionally, the tax would hardly be felt. But high-speed speculative trades could be slowed up considerably. Wall Street traders compete to design trading programs that can move many shares in microseconds, allowing them to beat ordinary investors to the "buy" button and to manipulate markets for private gain.

Goldman Sachs admitted to this sort of market manipulation in a notorious incident last summer, in which the bank sued an ex-Goldman computer programmer for stealing its proprietary trading software. Assistant U.S. Attorney Joseph Facciponti was quoted by Bloomberg as saying of the case:

The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.

The obvious implication was that Goldman has a program that allows it to manipulate markets in unfair ways. Bloomberg went on:

The proprietary code lets the firm do 'sophisticated, high-speed and high-volume trades on various stock and commodities markets,' prosecutors said in court papers. The trades generate 'many millions of dollars' each year.

Those many millions of dollars are coming from ordinary investors, who are being beaten to the punch by sophisticated computer programs. As one blogger mused:

Why do we have a financial system? I mean, much of its activity looks an awful lot like gambling, and gambling is not exactly a constructive endeavor. In fact, many people would call gambling destructive, which is why it is generally illegal....
What makes Goldman Sachs et. al. so evil is that they offer vast wealth to our society's best and brightest in exchange for spending their lives being non-productive. I want our geniuses to be proving theorems and curing cancer and developing fusion reactors, not designing algorithms to flip billions of shares in microseconds.

Gambling is an addiction, and the addicted need help. A tax on these microsecond trades could sober up Wall Street addicts and return them to productive labor. It could transform Wall Street from an out-of-control casino back into a place where investors pledge their capital for the development of useful products.

The Tobin Tax Gains Momentum

Various proposals for a Tobin tax have received renewed media attention in recent months. President Obama gave indirect support for the tax in a Press briefing on July 22, when he recommended that the government consider new fees on financial companies pursuing "far out transactions". Leaders from France, Germany, and the European Commission endorsed putting a speculation tax on the agenda at the G20 meeting in Pittsburgh in September. Brazil has now imposed what may be the first Tobin Tax on foreign investment inflows. A U.S. bill proposing to tax short-term speculation in certain securities, called "Let Wall Street Pay for Wall Street's Bailout Act of 2009", was introduced by Rep. Peter DeFazio (D-OR) last February. A different bill to regulate derivative trades was approved by the Financial Services Committee in October.

Derivatives are essentially bets on whether the value of currencies, commodities, stocks, government bonds or virtually any other product will go up or down. Derivative bets can cause shifts in overall market size reaching $40 trillion in a single day. Just how destabilizing short-term speculation can be - and just how lucrative a tax on it could be - is evident from the mind-boggling size of the market: $743 trillion globally in 2008. Another arresting fact is that just five super-rich commercial banks control 97% of the U.S. derivatives market: JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

Pros and Cons

Promoters of international development have suggested that a mere .005% tax could raise between $30 billion and $60 billion per year, enough for the G7 countries to double international aid. But more than raising money, the tax could be an effective tool for slowing harmful speculative practices. According to a number of Nobel Prize economists, a downsized speculative market would go far towards creating a more sturdy financial system, helping to avoid the need for future bailouts. But if the tax is too small, it might not have the desired effect on speculation. The larger 1% tax originally proposed by James Tobin is therefore favored by some proponents. The much-needed income from a U.S. tax could be split between federal and state governments.

Opponents of the Tobin tax, led by the financial sector, argue that it would kill bank jobs, reduce liquidity, and drive business offshore. Supporters respond that Tobin tax profits could be used to create new jobs, and that the small size of the tax would hardly affect cash flows - although certainly the speculative market would shrink. Players in dice-rolling speculative operations have long claimed that their trades "stabilized" the system by enabling investors to hedge risk, but the recent financial crash has exposed that defense as being without clothes. Inflows of "hot money" are not good for a country. They create quick speculative bubbles that can collapse equally quickly when the money flows out again. Better for the country and its economy are the funds of prudent investors who intend to stick around for a while. A modest tax could even encourage these preferred investors, who will be more confident if their investments are not liable to collapse suddenly from hot money outflows.

Besides technical questions about how to implement the tax internationally, the offshore argument probably presents the most serious challenge. Should a Tobin tax pass in the U.S., investors would be likely to move to other markets beyond the reach of taxation. The U.S. could penalize traders for doing business abroad, but governments in major markets like Germany and London would no doubt need to endorse the tax for any meaningful shift to be seen. Some experts have argued that the Tobin tax would be best implemented by an international institution such as the United Nations, which would gain a large source of funding independent of donations from participating states.

That proposition sets off alarm bells for other observers, who see any international tax as a move toward further strengthening the power of the global financial oligarchs. However, the very fact that the United Nations, the G20, and the Bank for International Settlements are discussing this option suggests that we the people need to jump in and stake out our claim for national purposes, before we lose the tax money to international bodies controlled by the global bankers. We need to design the tax the way we want, before they design it the way they want. It needs to be collected by the U.S. Treasury and to go into the Treasury's coffers. It needs to bypass Wall Street and reach Main Street, where it can be used to stimulate local business and investment.

Officials from the International Monetary Fund insist that implementing a Tobin tax would be logistically impossible. But Joseph Stiglitz, a Nobel Prize winning economist and former World Bank leader, disagrees. In Istanbul in early October, he said that a Tobin tax was not only necessary but, thanks to modern technology, would be easier to implement than ever before. "The financial sector polluted the global economy with toxic assets," he said, "and now they ought to clean it out."

While Wall Street's welfare queens have been busy collecting generous government handouts, the 50 states have been left to fend for themselves. Some 48 states have faced budget crises in the past year, forcing them to cut libraries, schools, and police forces, and to raise taxes on income and sales. A sales tax on the exotic financial products responsible for precipitating the economic crisis is long overdue.

Dean Baker: The Job Loss from Reducing Greenhouse Gas Emissions and the Job Loss from Defense Spending

2009-11-09T21:41:21Z

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. This ad campaign warns of slower growth and the loss of hundreds of thousands of jobs, possibly even millions of jobs, if some variation of the current proposals being debated by Congress get passed into law.

In fact, standard economic models do show that measures designed to reduce GHG by raising energy prices will lead to some cost in terms of slower economic growth. And slower economic growth implies fewer jobs, although the impact will almost certainly be less than indicated in these scare stories.

However, the oil industry's scare stories about job loss never put it in any context. In these models, any government measure that interferes with market outcomes almost by definition reduces efficiency, leading to less economic growth and fewer jobs. Efforts to slow global warming fall in this category, but so does almost everything else, and many items in the everything else category have a much larger impact.

For example, defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq war.

Global Insight's model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the 9/11 attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-9/11 build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low.

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by three, we would get that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country.

The projected job loss from this increase in defense spending would be close to two million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to two million jobs in the long run.

For some reason, no one has chosen to highlight the job loss associated with higher defense spending. In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in the New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission.

If we want to have a serious discussion of the economic impact of efforts to reduce GHG then the economic impact must be put in context. We know that the oil industry is interested in preserving its profits, not informing voters. However, if the media discuss projections of job loss from efforts to contain global warming without putting them in any context, then the public would be right to question their motives as well.

Eric O'Keefe: American Thoroughbred Racing Needs a Lifeline, and the Answer Can Be Found in Australia

2009-11-09T21:30:54Z

It's the sort of headline that demands a second look:

"Zenyatta Joins the Immortals with Sensational Breeders' Cup Win"

At more than 1,500 words, the accompanying article not only singled out the gallant charge of the 5-year-old mare down the stretch to beat her male rivals in North America's richest race yesterday -- "arguably the finest racemare in American racing history" -- but it highlighted other key contests on the second day of most important event in U.S. Thoroughbred racing, the Breeders' Cup World Championships.

Too bad it ran in Britain's Guardian. What's wrong with that? Because it sure would be nice if the American press gave a damn about horseracing.

Friday morning I stepped off a 14-hour flight from Melbourne to Los Angeles and got ready to make my way to Santa Anita for the Breeders' Cup. Naturally I picked up a copy of the Los Angeles Times. As I leafed through it, it was clear that jet lag had already set in. The only article I could find in sports about the races was about synthetic surfaces. It was one of those absurd moments when you know you just put your keys in your pocket only you can't find them anymore. There had to be something somewhere, only I was too frazzled from my flight to pick it out. It didn't take long for me to come to my senses. There was no article.

Think about that. If Tiger Woods and Phil Mickelson were about to tee off in the U.S. Open and you had a look at the local paper where the tournament was taking place, wouldn't you expect the event to be all over the place? Now what would you do if the Open were about to begin and the only story you could find was one about a group of groundskeepers arguing over the merits of one type of seeded Bermuda fairway green over another? You'd probably join the rest of America and stop reading newspapers.

With press like that is it any surprise that the racing industry in the U.S. is on life support? At Seabiscuit's final race in 1940, 78,000 watched him win the Santa Anita Handicap. On Friday, 37,651 showed up at the same California landmark for the biggest, richest race meet in North America. No wonder Santa Anita's parent company is in bankruptcy court.

The New York Times? I opened that paper this morning to find a whopping 200+ words devoted to the most memorable Thoroughbred race of the last decade. That's half the coverage the Times gave the Harvard-Columbia game and a fraction of what it devoted to an 18-year-old NBA hopeful dribbling his life away in obscurity in Israel.

Sure, the Daily Racing Form and the Thoroughbred Times went the distance on Zenyatta's epic performance, but those are industry rags. Racing is their beat. America's great dailies? They just don't get it. Zenyatta was anything but a narrow niche story. Minutes prior to the Classic, her sassy moves were critiqued by Len Goodman from Dancing With the Stars. How did the Brit score the long-legged mare? "10!" During the post parade, it was impossible to overlook the thousands of pink signs with "Girl Power" and "Maneater" dedicated to their heroine. You can imagine the endless ovation after she returned unbeaten.

I bring all this up because I just flew back from Australia, a country with one-tenth the population of the U.S. Yet the Australian racing industry is the envy of every racetrack operator in the States. There are not only more racetracks in Australia, there are more racetracks in Australia than in the U.S., Canada, Ireland, and Great Britain combined. The country's greatest racing event is a four-day meet called the Melbourne Cup Carnival, and like the Breeders' Cup it too ended on Saturday. Attendance on the first day of the Melbourne Cup Carnival was a tad over 107,000. That's right. More people packed into Flemington Racecourse for the first day of the Melbourne Cup Carnival than showed up at Santa Anita Park for two days of Breeders' Cup. And things were just getting going. Over the remaining three race days, the Victoria Racing Club hosted an additional 250,000, which is why it is Australia's largest single event.

The reason I'm so familiar with Australian racing is because I just wrote a book called The Cup. It's about one of the most emotion charged episodes in the history of the Australia's greatest race. I won't give away the storyline, but it goes without saying that Damien Oliver's journey to the winner's circle in the 2002 Melbourne Cup has been chosen as one of the greatest moments in the history of Australian sport. Over the past six years, I've been to Australia four times, researching the book and writing the script for the companion movie with the Australian director Simon Wincer (Lonesome Dove, Free Willy).

So why is Thoroughbred racing alive and kicking Down Under? The obstacles they face are no different -- casino gambling, online competitors, and of course rising costs for everything under the sun. But I'll tell you what they do have going for them: the sort of press that champions a great story. (Not that synthetic surfaces isn't gripping material.)

Go to Google and punch in the words "Jake Stephens Alcopop." I just did this and links to 666 stories popped up. Was the 5-year-old gelding hailed as the next Secretariat? No. Was his owner a Whitney or a Mellon or, to use an Australian version of more money than God, a Murdoch? No. You know what Alcopop was? A story people wanted to read. For the last two weeks, Melbournians read about him in their three daily papers, and they watched his South Australian trainer on TV brushing off questions about the fact that he had taken out his license just a year ago. And Alcopop wasn't even this year's big news. Center stage belonged to 81-year-old Bart Cummings, a 12-time winner of the Melbourne Cup who had three runners in the race.

Guess what? Neither Alcopop nor any of Bart's runners won the Cup. So did the Australian media get this year's Melbourne Cup wrong? Not at all. The moment the Race That Stops the Nation concluded, the tabloids and the newspapers had a brand new story about a hard-luck trainer and a never-say-die jockey who believed in a great horse.

That's a lesson their American counterparts should take to heart ... before another track goes bankrupt.

Follow Eric on Twitter.

Chip Conley: When an Entrepreneur Becomes a CEO

2009-11-09T21:20:47Z

Why are entrepreneurs loved and CEO's hated? It's a bit of irony that has not been lost on me this past week as a bunch of cyber-strangers weighed in on their perception of me based upon a photo. Is this a crazy entrepreneur or a CEO who has lost his mind and proper bearings?

Back in June, the Rasmussen Reports released a survey of Americans' favorable vs unfavorable ratings of various professions. At the top of the list with almost no negativity were small business owners and entrepreneurs. Religious leaders were a fair percentage back, but still near the top. Bankers were evenly loved and hated, while journalists, lawyers, and stockbrokers started to make up the bottom of the list. But, in the valley of the despised were CEO's and Members of Congress. Three times as many people give these two professions negative ratings as compared to the positives.

So, what happens when you start out as an entrepreneur but grow into being a CEO due to the success of your company? Is Steve Jobs an entrepreneur or a CEO? How about Richard Branson? So much of it has to do with how you show up - are you still yourself or have you become the empty, shifty "suit"? Well, I started my company almost two dozen years ago as sort of an artist entrepreneur and I've been getting "atta boys" along the way. Yet, when I showed up in the Nevada desert to enjoy a few days of artistic utopia at Burning Man, had a few pics taken of me, and then posted them on my Facebook account, the question of whether I was a wacky entrepreneur or a father figure CEO made me a cause celeb the past few days. Take a look at the blog I wrote for BNET and the nearly 150 comments that arose from this topical question of how much of a CEO's personal life should we be exposed to?

What's most fascinating is to read that those who championed my right to be myself saw me as a grown-up entrepreneur, but those who thought I'd crossed the line by posting my Burning Man photos to my private Facebook account saw me as the CEO who had a certain decorum of professionalism that I needed to maintain (even though, frankly, that sterile decorum may be one of the reasons why Americans score CEO's so low). One of those who counseled me on being a little more professional writes as if he were a self-hating CEO, "As much as you may not enjoy it, being a CEO brings with it the serious responsibilities of being a parental role model." Clearly, this parental thing ain't working based upon the Rasmussen results. More encouraging were the comments like "I am glad to see someone can be successful and not turn into a soulless robot" or "how refreshing it is to see a CEO who is also a human."

One common comment was that I should separate my friends from my business associates on my Facebook page and only let my friends into that part of my site that might have photos like this. I don't know what century they're living in, but many of us - especially those who work long hours in business - find that some of our closest friends are those we connect with during our business day. This work/life frappe has created a blended experience in which it's harder than ever to compartmentalize. Thank God....we may put a few shrinks out of business, but we're likely to be a whole lot happier. Public image should equal private reality.

Ironically, my first book's subtitle was "Daring to be Yourself in Business," and I'm seeing how vital that is in the age of transparency. With the internet and social networks taking a more prominent place in our lives, being true to yourself (and everyone else) is almost a requirement. In fact, I'd suggest that the Rasmussen poll is really a litmus test for authenticity. The more people see the participants in the profession as authentic, the more heroic they become in the eyes of the public. Authenticity is where the culture is headed. It's an evolutionary process (coincidentally, the theme of this last year's Burning Man was "Evolution"). And, I'm still just figuring out my evolutionary process of gravitating from being an entrepreneur to being a CEO. Yet, this experience has just reinforced a powerful lesson. Maybe the role model CEO I'm supposed to be isn't the traditional icon that people don't like and don't trust, but it's the CHO: the Chief Human Officer. That's really the conundrum a modern age role model CEO must solve: how can we be human and be a CEO at the same time?

Chip Conley is the Founder and CEO of Joie de Vivre Hospitality and the author of PEAK: How Great Companies Get Their Mojo From Maslow.

Shifra Bronznick: Add Women and Prosper

2009-11-09T20:50:44Z

News last week of the establishment of The Women's Leadership Fund, created by Switzerland's Naissance Capital, Ltd made the financial world prick up their ears. Naissance has committed that the fund will only invest in companies with women in management and on their boards. The Fund will also take an "activist stance" against companies that have not yet committed to women in leadership positions.

The creation of The Women's Fund echoes recent findings by several respected research groups here in the U.S.: there is a simple way to improve business performance significantly that requires neither a government bailout nor vast corporate investment. Appoint more women to company boards and top management teams.

For both reasons of justice and economics, making women's leadership in corporate America a priority is a step long overdue. 66 of our top Fortune 500 companies have no women on their boards and only 3% have women CEOs. Catalyst, the leading organization for advancing women in business has published a series of research studies that demonstrate a link between gender diversity in leadership and corporate performance. Its 2004 report of 350 Fortune 500 companies found that those with the highest representation of women on top management teams performed better financially than companies with lowest women's representation, as measured by return on equity and total return to shareholder.

The positive impact of women on the bottom line is confirmed and amplified in a 2009 study, "Women in Fund Management" from the National Council for Research on Women. A forthcoming report, "Benchmarking Women's Leadership," from the White House Project reflects the findings of the Catalyst and NCRW research not only in the corporate sector, but across 10 sectors of American culture.

Given the consistency of the research findings, logic would seem to dictate that CEOs would jump on this method of improving financial performance by adding women to top leadership posts.

Yet, as we have learned from watching corporations blind themselves to the consequences of their actions -- from the subprime mortgage crisis to the collapse of the auto industry -we cannot rely on those who created the problem to see it and solve it.

The US government is intervening in business right now, because the well-being of the nation is at stake. Now may be the time to replace good intentions about diversifying leadership with government action. We should consider the full range of options from legislation mandating a reasonable representation of women on corporate boards to attractive financial incentives such as tax credits and other deductions.

Take Norway for example, which is just about the only western nation thriving amidst the current economic crisis. Not only did this country enjoy 3% economic growth in the last year, but it actually has an 11% budget surplus.

As of 2008, Norway has a large number of women on its corporate boards, a stark contrast with the paltry 15% representation of women on the United State's Fortune 500 corporate boards.

How did Norway institutionalize this priority?

In 2002, Asnager Gabrielsen Trade and Industry Minister scanned corporate boards and saw that the percentage had stalled at 6%. A former businessman, Gabrielsen knew that very often male board members were drawn from a small social circle, of men who went "hunting and fishing together." He led the effort to bring women onto Norway's boards, not for the noble cause of helping women, but because he believed that diversity creates wealth.

By 2003 , Norway passed a law requiring all companies to fill 40% of board seats with women by 2008. The law was called "completely ridiculous" by the business community, and, they predicted, impossible to enforce. In 2006, as companies continued to resist, Karita Bekkemellem, Minister of Equality, threatened to close down companies that did not comply.

The result: As of the 2008 deadline, all 500 companies on the Oslo stock exchange now have 40% women on their boards.

Diversity does not just improve financial results. It also enhances the quality of a group's capacity to think about complex issues. Researchers from the University of Michigan and Loyola University Chicago proved that random groups of intelligent problem solvers outperformed carefully selected group of people considered to be the "best," when asked to solve complex problems. Why? Because the random group is more diverse, and this heterogeneity offers a distinct strategic advantage.

Our country certainly is facing a torrent of problems. We can equip ourselves to meet these challenges, by creating more diverse teams and adding more women to the leadership mix. US corporate leaders have not responded to the years of data that prove that women improve the bottom line. So, we need to ask our government to move them to action - and the good news is that this particular government intervention need not cost our beleaguered taxpayers another cent.

Shifra Bronznick is a leadership strategist and the co-author of Leveling the Playing Field. Marie Wilson is the President and Founder of The White House Project.

Andy Borowitz: Goldman Sachs Not Doing "God's Work," Says Satan

2009-11-09T20:12:18Z

NEW YORK (The Borowitz Report) - Goldman Sachs' Chief Executive Lloyd Blankfein's comment that bankers are doing "God's work" came under fire today from one of the longest-standing allies of the firm, Satan, the Prince of Darkness.

In a rare press conference, the usually reclusive Beelzebub blasted Mr. Blankfein for his remark, telling reporters, "Lloyd Blankfein needs to remember who he works for."

Wearing his trademark red cape and carrying a smoking pitchfork, Satan refused to say exactly what if any punishment he had in mind for the Goldman Sachs chief, saying only, "Maybe it's time for Lloyd Blankfein to have a little 'come to Satan' meeting."

While Satan said he was "delighted" by the record bonuses being paid out to Wall Street executives this year, he was clearly miffed that his role in the financial firms' successes had been largely ignored.

"Lloyd Blankfein seems to have forgotten who came up with the idea of credit default swaps, derivatives, and mortgage-backed securities," he said. "I don't want to sound like a diva, but how about a little respect for the guy who signs your paycheck?" More here.

Dov Seidman: Why Values Trump Rules and Regulation

2009-11-09T19:42:41Z

Everywhere I travel, I hear the same refrains: "We need more regulation," or on the flip side, "If we hadn't deregulated, we wouldn't be in this financial mess."

It looks like the White House is of this mind-set. Citing Wall Street for helping to create a "culture of irresponsibility," President Obama wants to impose more rules on the financial industry by, among other things, creating a Consumer Financial Protection Agency.

More regulation, and in particular a Consumer Financial Protection Agency, could be a very good thing, but I would suggest we don't rush to regulation without careful consideration of two key questions:

What is the source of the regulation? Is regulation being imposed on people from the outside or is it coming from within?

Is the mechanism another list of "dos and don'ts" or is it something deeper, something that inspires consistent and right behavior?

We all know that Thomas Jefferson once said, "That government is best which governs the least," and this quote is often used to support the argument for less regulation. But what many don't know is that Jefferson went on to say: "... because its people discipline themselves."

In this way, Jefferson isn't making an argument against regulation but rather putting forth an argument for the most effective source of regulation: self-regulation.

Theodore Roosevelt echoed Jefferson's sentiments when he said: "Men can't escape from being governed. They either must govern themselves or they must submit to being governed by others. If from lawlessness or fickleness, from folly or self-indulgence, they refuse to govern themselves, then most assuredly in the end they will have to be governed by the outside."

So as we, in 2009, work to overcome our "culture of irresponsibility," we need to embrace self-regulation and discipline and understand and embrace the most effective mechanism for it, which is values.

Don't get me wrong; I'm all for regulation. People need limits and boundaries. Thoughtful regulation can make financial transactions more transparent so consumers better understand the risks they're taking. But the more important questions we need to ask are:

Will regulation fix our culture of irresponsibility?

Can external rules prevent another financial Katrina?

Or does the culture itself — how we behave — need to change?

I would argue that our culture needs to change. And it can change only if it is driven by something more compelling than rules.

While I understand why we need rules, I also know that we need to understand what rules can do and what they can't. For example, I live in Los Angeles, and I am grateful that rules, based on solid science, have been implemented to govern the construction of buildings to make them earthquake-resistant. We need rules that prohibit sales of new drugs before they are approved by the U.S. Food & Drug Administration. Regulations can also promote transparency, as do laws that require publicly held companies to disclose their earnings, governance structure and executive pay.

But rules are less successful when they seek to govern human conduct and behavior. Rules ultimately fail because you cannot write a rule to control every possible behavior or cover every possible circumstance. It is very difficult to regulate deception, for instance. A rules-based law will do little to deter someone who wishes to be deceptive in their mortgage application. By setting floors for behavior, rules unintentionally also set ceilings.

This is a problem inside business as well as government. Let's agree that companies want to do the right thing. But they need and want to do more. They want to engage their people. They want to innovate. They want to encourage creativity and prudent risk-taking. To accomplish those goals, employees must be inspired. Rules and regulations do not inspire. To the contrary, too many rules and regulations limit behavior. They diminish autonomy and risk-taking. They suggest that people can't be trusted. Rules can be dangerous because they dictate what you can and cannot do and not what you should or should not do.

Rules are fundamentally coercive. If you misbehave, you'll be in trouble. Traditionally, business leaders have used a mix of motivation and coercion — carrots and sticks, if you will — to induce people to perform and to get them to abide by rules. Today, we are discovering the limits of carrots and sticks. We're learning that we can't write enough rules to get the behaviors we want. Nor can we deliver enough motivation.

All Rules Have Loopholes
If my carrot is a paycheck, I will leave the company for a bigger salary. If I chose to buy from a company based on price, my loyalty ends at the bottom line. Motivation turns out to be an expensive way to compel behavior, particularly in a recession when there are fewer carrots to go around.

Let's take the example of an Alaskan postal clerk who chose to express his individuality by wearing ties to work decorated with The Three Stooges and cartoon characters. His bosses were not amused and told the clerk to follow the rules regarding permissible neckwear. Now he wears suspenders that feature the caricature Taz, the Tasmanian Devil. Is this the outcome the bosses wanted? Of course not. But in focusing on the specific language of the dress code rather than the intent behind it, management has boxed itself into a situation where it really can't complain about the postal clerk's cartoon-character suspenders. Technically, the postal clerk is following the rules.

Or how about the Wisconsin law that uses taxpayer money to support a child-care-assistance program? The program pays for in-home child care, so the parents can work. But four sisters in Racine figured out they could stay home, watch each other's kids and be paid for it. They netted over $500,000 in taxpayer funds in less than three years. Legal? Yes. What the Wisconsin lawmakers had in mind? Of course not.

Rules create loopholes — values do not. If those in leadership roles want to shape behavior, they must pay more attention to instilling values. They are the underpinning of belief, and that's what inspires people and gives them a sense of mission and purpose. Only beliefs and the values that underpin them can be shared. Values perform a kind of double duty by acting as both a source and a mechanism for regulation.

If we go bowling, we can put a guard rail on the lane so that you don't throw gutter balls. But there is no mechanism to help you bowl a strike — either in life or in business. How do you throw strikes? By inviting people to buy into shared beliefs and values so that they are inspired — not coerced or motivated — to act responsibly. That's the way to avoid engendering a culture of irresponsibility.

Regulation can only go so far. Let's not try to regulate our way out of a financial meltdown. We must find the values and behaviors that will sustain innovation and ethical action. How you do things can never be based solely on rules.

Inspiration is the most sustainable and effective method of engendering principled performance. In response to those who say values are too "soft" to be reliable sources of inspiration, we need to make them "hard" by turning values into practices and behaviors.

Let's walk away from the mind-set that dictates "too big to fail" as a reason to act. Let's find a way to demonstrate that size doesn't matter, values do. Let's create a culture of responsibility by inspiring responsible behavior.

If we don't, we may find ourselves in trouble again.

*This column appeared in, and was written for, BusinessWeek.com.

Charles Gasparino: Goldman Sachs Doing "God's Work"?

2009-11-09T19:32:34Z

The only thing worse than Goldman Sachs amassing close to $20 billion in bonus money for its executives based on various government subsidies and bailout measures is listening to senior executives there trying to explain it all away. The spin job has been coming from an unlikely source: The normally media shy Goldman CEO Lloyd Blankfein has been making the rounds lately, talking to selective reporters, including William Cohan, who recently wrote a book about the fall of Bear Stearns and now has the firm's complete cooperation as to write something on Goldman Sachs, the most prestigious of the Wall Street firms, even if it needed a bailout to survive last year's financial crisis..

Cohan's Bear book, the first of many financial crisis tomes (including my own) wasn't exactly a puff piece, but trading access for information is a time honored journalistic practice, and it's human nature to be nicer to someone who gives you information. So presumably we'll all find out from Cohan how, in the throes of the financial crisis, Goldman really didn't need the $10 billion in bailout money it received from the federal government as its stock cratered; that it was forced to take the cash from then-Treasury Secretary (and former Goldman CEO) Hank Paulson, or how despite its exposure to troubled insurance giant AIG, Goldman was miraculously "hedged," against losses, meaning that the fed's AIG's bailout last year didn't really help Goldman survive last year's panic. No, Goldman survived because it was built for survival.

Forget the absurdity of such claims, Blankfein has been on a roll of late, repeating them time and again, not just presumably to Cohan, but to a growing number of credulous journalists who will stomach just about anything to get a few minutes with the CEO of the Great Goldman Sachs, even if its greatness was put to the test last year.

Blankfein's spinning is reaching epic proportions. Several recent stories about Goldman have cast the firm as the Great Satan of the securities markets, or as Rolling Stone's Matt Taibbi put it, the "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." No longer is Blankfein simply trying tell the world Goldman isn't the root of all evil; rather, old Lloyd is informing us all that Goldman is a source of goodness in the world. The exact quote, from the Times of London has Blankfein professing that as CEO of the vampire squid he's actually "doing God's work," simply by doing what banks get paid to do: Raising money for clients and investing in businesses.

Oh really, Lloyd? My brother is a doctor who works in the intensive care unit of an inner city hospital; he could have a cushy lucrative practice here in New York, but he likes helping people, and yet he has never once told me he's doing God's work even after he explained one afternoon how he had just saved a homeless man's life by massaging his heart.

Believe it or not, I happen not to fall into the camp of Goldman haters, where people believe the firm is behind every scandal and conspiracy and may have even created the swine flu virus so it could corner the market for drug stocks. (Though Goldman and several other firms did seem to have no problem obtaining for their employees the swine-flu vaccine, which is in short supply.) Indeed, as I show in my new book The Sellout, when it came to risk-taking over the last 30 years on Wall Street, Goldman did it better than any other firm on the Street. The folly that was found at a firm like Bear Stearns, with its CEO caring more about playing bridge and golf (and allegedly smoking marijuana) than tending to the firm's balance sheet, would never happen at Goldman Sachs.

But there is something truly unsettling about the new message coming from the firm, honed I hear from a phalanx of image consultants who are literally trying to re-write history as the firm gets ready to dole out its enormous bonus pool. And that's what all this spinning is about. For the record Goldman Sachs didn't take down the financial system last year -- Citigroup, Merrill, Lehman or Bear are much more responsible for that. And for the record every firm spins -- its called public relations, and Goldman will need all the PR it can muster as it decides in the coming weeks how much of the $20 billion it will hand out to its executives. My sources at Goldman say Blankfein won't be stingy because he needs to prevent top producers from bolting to hedge funds and private equity.

What makes Goldman so contemptible is that its level of spin has almost no basis in reality. We are supposed to believe Goldman wasn't bailed out; it didn't need the government's money when big investors where yanking funds from the firm and its stock was plummeting and now the firm is doing "God's work," even as government bureaucrats continue to subsidize how the firm makes most of its money -- through risk taking and bond trading, all on the backs of the US taxpayer.

Goldman, in case you haven't heard, has been classified as a commercial bank, meaning it can borrow cheaply to finance its risk taking, and can borrow from the Federal Reserve in a pinch. That's why it's amassing such massive profits. And yet not a penny of its massive bonus pool will be lent out to funding-starved small businesses. Think about that: The Federal Government run by the most Liberal Administration in years, is subsidizing big business at the expense to small business.

How did this bizarre scenario develop? Who knows, but it should come as no surprise that Wall Street -- Goldman in particular -- funneled far more money to president Obama than it did to his Republican challenger, John McCain. Maybe that's why the president has been eerily silent on the Goldman Sachs subsidy, even as Lloyd Blankfein tells the world he's doing "God's work."