Tuesday, September 29, 2015

Risk Management with Known Risks: Volkswagen

One thing about the Volkswagen issue is that the executives seem to have been caught flat-footed on the whole thing. It is as if they never expected to get caught. I mean, even if you're not engaging in widespread corporate malfeasance, don't you have some sort of risk management plan in place?

You're not going to call it "Plan for when we get caught cheating on emissions tests" but that could be one of the conditionals that are planned for. It's just bad practice. Gaming possibilities is a policy decision that needs made. I was reading where even as of 1945 America and its allies were planning on contingencies for a possible German victory. And that was America, who can never lose. Man, these Germans never learn.

Wednesday, September 23, 2015

Market Skeptics: Akerlof and Shiller's "Phishing for Phools"

Akerlof and Shiller between them have as many Nobel-Branded Prizes as Marie Curie did, so each of them are half a Curie.

Basically, this book tries to take the biases that are built into humans and look at economics from the top-down with behavioral factors, instead of from the bottom up. It made me make a joke about behavioral economics without microfoundations.

The examples the authors use show how people take advantage of people’s not being poerfect economic actors and instead work against their best interests. They like using Cinnobon as an example of how this market works, in that someone would be out there with a similar product. You choose a fatty roll not because you have thought through the transaction, you have been Phished.

If you haven’t read much behavioral econ, it is a good start in spite of the goofy title. My only real complaint is that the chapters aren’t fleshed out. The content of the book is only like 175 pages and that covers like 13 sections. I should have checked out the almost 100 pages of notes plus index which makes the book feel more hefty - I was at the end when I realized i should have been reading the book like “Infinite Jest”.

Boards: Separate and Unequal

Should Board members be held to the same or higher ethical standards as employees and administrators?

Of course, everyone involved in your organization should be spotless from the most senior board member to the newest frontline hire.

Ultimately though, aren’t the board members of an organization secondary to staff? Unless they have acts of malfeasance and / or negligence in enacting their duties to your organization, then a misdeed of the member is more reflective on themselves as people, or their primary organization.

A recent example of this might be Bill Cosby. As the allegations against him rose in number, companies cut ties with him. What was really damaged was some hypothetical “Bill Cosby, INC.” as well as his ongoing legacy. He did have ties to various other organizations. The one I am most familiar with is that he has been a long time donor to Temple University.

Personally, I don’t feel like Temple University is at fault for Cosby’s transgressions (unless it comes out that someone aided or silenced accusers). It may be hypocritical, but board member’s oversight means that they are in charge of the organization, but not necessarily of it. On our letterhead, we list the board running down the side, but we also list their primary affiliations - “Joe Bloe, Board President: Peirce and Peirce Investments”.

Conversely, the exemplar and personification of the organization is the CEO. We saw this just today in the corporate world. Volkswagen has been gaming the emissions tests through deliberate programming of the car’s computers. I haven’t read too deeply into this situation, but there has been one immediate and undeniable result -- the CEO is resigning because in the public’s eye the CEO is the company, and this happened under his watch.  I haven’t heard anything about his board.

Tuesday, September 8, 2015

Diversity: Real and Imagined

I think that there are two senses of diversity.

The first is when you have some idealized group of people who visually can reflect all sorts of different visible easily identifiable ethnic groups. I’m thinking of the advertisements where the group of friends with one Asian, one Caucasian, one African-American, etc all sit down for the football game drinking all of their favorite domestic beer. This is also reflected in the children’s shows I grew up with in the 80s and 90s where each friend group has someone in a wheelchair.

I think that is a superficial diversity that might be hard to attain unless you’re casting a bunch of actors. Realistically, the diversity you have will be more a function of your mission, your location, and the community that you serve. I think that on some level the people who will look to work for your organization may be self-selecting as a group depending on these variables. I think the diversity you would want on your board is a diversity of skills in terms of finance and operations and program management and development potential.

For me, any diversity brought on by having a group of people with different cultural backgrounds would be secondary, but not unimportant. Maybe I say that because I am part of the leading edge of the millennial generation, maybe we take diversity for granted. This is not board related, but looking around the room when our organization meets is a rainbow of colors and ages, with a nice gender mix. Again, I think part of this may be self-selecting

The problem though is if you say that you are selecting for some “skill” is that you have the possibility of falling into a discriminatory practice known as disparate impact, though I am uncertain of how the civil rights act of 1964 applies to volunteer board members. With disparate impact, if you set bars that discriminatory even unintentionally, you could be in trouble. Even outside legal considerations, I have a feeling that you want to make sure that you don’t create the situation where your board is just a bunch of old white guys, no matter what your mission.
I’m a little touchy-feely. so I want to have all stakeholders have a voice in the organization. I think that it could help the running of the organization for all the stakeholders, but also help create buy-in from the people who depend on your services and make them potential advocates instead of just passive recipients of your service. That might lead to the place where you have a board where there are stakeholders involved. Again, there are legal issues that might disallow that exact set-up, so I am thinking that something like a parent’s committee might be useful. Something similar was brought up where I work recently, but it was shot down using the justification of past experience where the people who ended up joining the committees were the kind of people who were busy-bodies and thought that they controlled the organization. So ideally you want stakeholder input, but you also need balance.