Wednesday, May 03, 2006

What is Affirmative Action Achieving?

My best friend through undergraduate school grew up in a stable, upper middle class family. His parents could afford to send him to private schools as a child and to pay his out of state tuition to undergraduate school. Though his parents did not have extensive education themselves, they fostered its value in their children. My friend did not have difficulty in school and was accepted into the undergraduate institution of his choice.

My situation was quite similar. Like my friend, my family was upper middle class, I was accepted into the undergraduate institution of my choice, education was important while growing up, etc. We came to know each other while living on the same hall during freshman year.

However, there was a distinct difference between me and my friend- although both of our fathers were white, his mother was Colombian, while mine was white. As a result, my friend received a wealth of benefits as an undergraduate. These included early registration, special study rooms with free tutors, and organizations with career connections for after college. I received none of these benefits. Outside of the racial background of our mothers, there was little discernable difference in our backgrounds.

This is but one reason why affirmative action has failed. Schools like the University of Michigan claim that “diversity” helps the student body. Yet, they have to admit underqualified individuals in order to maintain acceptable levels of diversity. To counteract the lower qualifications, programs such as the ones my friend was allowed to use are instituted to help the underqualified students along. I believe these programs achieve little. The underqualified students struggle through a program that wasn’t designed for them, while qualified "minorities" like my friend free-load on the benefits. Schools would argue that the diversity outweighs the cost of implementation, but how can I agree when my friend gets every class he wants through early registration and I’m stuck taking the crap that no one else wanted but was still open once the registration times for me came around?

Big Brother at Work

Is workplace email and computer usage monitoring taking away our privacy? For the sake of argument, I’ll just consider office workers. Now imagine the typical office worker 40 or 50 years ago. There were no computers. Instead of emails, people sent “memos”. There was no web to surf.

Did people have more privacy? First of all, 50 years ago there were no cubicles. Those didn’t come into vogue until the 1960’s. People worked in “bullpens” which were open rooms of desks- essentially cubicles without the walls. Imagine trying to sneak a read of the comics or a conversation with the wife when the person behind you sees and hears everything that you do. Unlike the computer, holding the newspaper up in front of you makes it pretty obvious that you aren’t working.

By the 1960’s, people actually got more privacy with their cubicles. Office workers could, in fact, read the paper on company time without anyone knowing – as long as no one stopped by. In this situation, it seems privacy comes to those whose cubicles are furthest away from the boss. Phone calls are a little more difficult, as anyone who has worked in a cubicle will tell you – the sound can be heard just as well as if there were no walls.

As for “memos”, there probably was a bit more privacy. No company was going to take the time to hire a person to read all the memos that went through interoffice mail. You could type out a letter to a friend using the typewriter on your desk and still look busy. You could also probably say whatever you wanted in the memos, since most likely no one else but the recipient would read it.

It’s sad that organizations like the Recording Industry of America have to draw such a hard line that forces companies to install email and internet monitoring to avoid legal liability. Back in the 1950’s, this would be akin to hiring a person to examine every letter and package that came into the office. I seem to recall that prisons do this sort of thing. Yet, how can we argue that a company shouldn’t be allowed to do this? They need to protect themselves from the liabilities of their workforce. It’s a pretty hard argument to say that employees should be able to surf the web all they want without monitoring. Why would the employees care about monitoring if they worked completely on company business like they were supposed to?

I Spy Sony

(Commentary on “The Rootkit of All Evil”, Wired, February, 2006)

In a recent announcement, Sony BMG finally admitted to the fact that it had placed “rootkit” software on over 50 music CDs released this year. This software was designed to secretly install itself on PCs and then monitor to see whether or not people were copying the Sony CDs. If the software determined that the CDs were copied more than 3 times, the software would disable the person’s CD-ROM drive.

To me, this is absolutely appalling. How can Sony have the right to monitor what you do with your PC in your own home? This goes against every right to privacy that we value in America. Imagine they had gotten away with this. What’s to stop them from installing other software to monitor the websites I visit and the emails I send? After all, these could contain illegal software or music that I have downloaded. If people allow this type of disorderly corporate behavior to continue, precedents will be set that other companies will be more than happy to exploit. If people and lawmakers deem it acceptable to monitor CD copying behavior, what’s to stop shady marketing firms from installing software that monitors all of the things we do with our PCs.

What is worse is that the software was installed without the user’s knowledge. All the person thought they were doing when they put the CD in their machine was playing music. These practices are invasive and destructive. Just like the RIAA has greedily sought to tear the tuition money from the hands of unsuspecting college students accused of file sharing, Sony BMG is playing its role as the bully who can control people’s behavior through whatever means possible. What is my incentive do I have to side with the recording industry when they are suing my friend for all he has or destroying his PC just because he copied a CD? Sony BMG and the RIAA need to step back from their gluttonous practices and examine the costs of their actions. If they want to stop file sharing, they need to offer alternatives that add value to the customer rather than run roughshod over them with brute force.

Search Privacy

(Commentary on the “Other people are searching for” block on, April 22, 2006)

For anyone going to BBC’s news website, they are greeted with a box in the upper left corner that says “other people are searching for:”. The box has some of the things that people have recently type into the search box. Right now, this is what came up:

terrible triplets
harry potter

To me this brings up a curious mix of emotions. On one side, this appeals to a voyeuristic sense of knowing what people are doing behind closed doors. It’s the same feeling you might get upon overhearing a conversation that you weren’t supposed to hear. On another side, I am alarmed to know that others are seeing what I’m searching for. What if I want to know some information about a sensitive subject like AIDS? Is there no way to search for this information without millions of other people knowing that I am searching for it?

Should we expect to have the privacy to search for whatever we want without anyone else knowing? I think people feel like they have anonymity of search simply because there are millions of people who visit a search engine everyday. No one is going to single out one search. But, what if you type in “Afghanistan nuclear smuggling”? The US government might be pretty interested in who you are and could easily order Google or another site to disclose your IP address (which allows them to determine your current location). For the rest of us who type in something more benign like “Harry Potter”, we have to be comfortable with knowing that someone, somewhere is seeing what we typed, even if they don’t know who we are. I don’t think any search company is going to guarantee complete anonymity of data.

What global warming?

What does it take to convince people that global warming exists? You might think that all we have to do is measure the average temperature in certain areas for several years and look for a trend. Or maybe you could measure the temperature of the ocean in a similar manner. There are definitely some scientific clues like rising levels of carbon dioxide in the atmosphere, although it might be hard to convince a non-scientific person what the results of such a trend could be. Although people have been measuring temperatures across the globe for decades and have observed a noticeable trend in recent years, it hasn’t convinced a lot of people that there’s a problem. Perhaps these people haven’t heard that ice caps in the north and south poles are melting, causing a rise in sea level. Whatever the reason, I think some people just don’t want to believe in global warming.

Part of the reason that people might resist the belief in global warming could be that they just don’t care. If I lived in Minnesota where the winters can be brutal, I wouldn’t mind some news that said the next 100 years will be warmer. That means less snow for me to shovel every year. People in warmer climates either have air conditioning or are used to the heat and probably wouldn’t notice another few degrees. In contrast, if the problem were global cooling, I think more people would care. A drop in temperature of 5 degrees would have bigger economic effects. People who live in areas that don’t get snow would have to buy snow shovels. In the extreme north, more cars that don’t have engine-block heaters (as they do currently in Canada) wouldn’t be drivable in the winter.

Another reason might be resistance to media hype. People are bombarded every day with false claims to be able to lose weight, live longer, etc. Why should we believe these freak scientists who say the earth is changing? It looks the same as it did yesterday.

In my opinion, the evidence is pretty clear. We’re in for a long hot summer. Better find a good pair of shades and a big bottle of sunscreen.

Monday, April 17, 2006

Nobody's Fault But Mine

(commentary on ”As the Price of Gasoline Takes Off, Oil and Auto Firms Trade Barbs”, The Wall Street Journal, April 12, 2006)

Who is to blame for America’s dependence on oil? According to recent comments by DaimlerChrysler, that fault lies squarely in the hands of American oil companies. After all, Exxon Mobil is the world’s most profitable company. Why should they be keeping all the cash when it’s costing people $50 or more to fill up their tanks? And, what are these companies doing with all that cash? Though they might claim to be investing in alternative energy sources, what is their incentive when the oil business is more profitable than printing $100 bills?

Nevertheless, big oil has fought back with its own accusations that car manufacturers are producing too many gas guzzlers. According to big oil, the SUVs keep getting bigger and car companies push all their marketing and advertising on these vehicles to keep them rolling out the doors. Why build fuel-efficient cars when the profit margin on trucks is so much better? It’s not the car companies that have to buy the fuel- all they have to do is get the trucks off the lot at the dealership.

Sadly, I believe the true dependence on oil comes from the American market. We’re not willing to pay the extra cost for alternative energy sources. We’re not willing to sacrifice the power of the V8 for the efficient, but slower V6. Our culture has associated trucks with “cool” while more efficient station wagons and hatchbacks are relegated to “soccer mom” status. We tend to forget about the corrupt governments that cash in every time we stop at the gas station.

The good news is that there’s not much more oil to go around. Why is this good news? It means that market forces will drive up the price of gasoline and make alternative energy sources more attractive. What America couldn’t do for itself happened anyway. Thank you, Friedman.

American Sweatshops

Are there sweatshops in America? We’d all like to cling to the ideal that our beautiful economy couldn’t possibly allow for the exploitation of labor. Yet I think there are plenty of “sweatshops” in America and their existence is willingly created by the workers themselves. We may not have shirt factories that require 7-day workweeks with 12-hour shifts. We may not force children to sew clothes at the age of 10. But I would argue that both of these happen regularly without any intention to stop it. How many people do you know with 2 or 3 jobs? Maybe the person is a single mother. Maybe they are trying to support a large family and don’t have the education to get a high-paying job. These people will often work 80 or more hours per week across 2 or more jobs just to get by. The work these people take is often menial, repetitive and involves less than ideal conditions. Migrant workers pick fruit and vegetables on farms, with their pay based only on the amount that they pick. What incentive do they have to keep their children from working along side them in the hot sun? The longer you work, the more money you make. Restaurant waiters often work 2 jobs just to get “enough hours”.

How is this different from a sweatshop? Don’t forget that people in developing countries choose to work there- it’s not slavery. The number of hours per week is the same. The conditions aren’t different. Customer complaints to a waiter can be just as bad as sweatshop verbal abuse. Probably the only difference is access to bathrooms and basic needs like water and food.
The work that these people do, whether it is in America or Vietnam, isn’t glamorous, but it does play an important role in the world’s economy and these employees choose their jobs willingly. I do believe the employers should provide a basic level of respect to their employees, including access to restrooms, time for meals and no abuse. In addition to the inhumanity, these conditions probably do more to hurt productivity than they do to help it. However, with these needs in place, I believe the hard labor employers in developing countries don’t significantly differ from the conditions that many people currently experience in America.

Sterilizing MySpace

(commentary on “From MySpace to Safer Space?”, BusinessWeek, April 11, 2006)

A lot of eyebrows have been raised about MySpace’s online social networking site lately, and rightly so, as sexual predators have used the site to target minors. The company has responded by hiring “chief security officer” Hemanshu Nigam in an attempt to add protection for minors using MySpace. Nigam’s first responses have added manpower to police the site, allowed children to hide their information from strangers and added funding for educational programs.
But, what is MySpace really doing? Are they just buying good PR? I find it hard to believe that simply giving children the ability to hide their profiles will significantly curtail unwanted visitors. Sure, having more employees on staff to see what kids are posting might catch a few wayward members, but when there are 10 million members, you aren’t going to be able to police everyone.

The educational programs, in my opinion, are the only good thing MySpace has done. Children need to be told about the dangers that exist in the real world. Keeping them locked up inside a sheltered existence isn’t going to prepare them for what they are going to have to deal with when they get older. I believe parents should be alerting their children to the potential threats on MySpace, but I understand that many low-tech parents such as my own may not fully understand the potential problems themselves. Here’s where the education part comes in. MySpace should offer it free online to all members and its existence should be prominently displayed.

MySpace should not, under any circumstances start putting the brakes on the site’s capabilities and features. If the company starts limiting what kids can do, the kids will just lie about their age when they register (as kids under 14 do already). If the limitations are extended to everyone, it could hurt the site’s appeal to other groups and to advertisers as well. Hemanshu Nigam clearly has his work cut out for him, but cutting back on the features of MySpace shouldn’t be part of it.

Selling Bad Products to Good People

Have you ever been a victim of a seller who knowingly dumped a bad product on you? I imagine you went through the classic stages of grief, including denial, anger, etc. I remember a true story from my economics professor (we’ll call him Joe). Several years ago, Joe was in need of a new car but had only a limited amount of time to buy it. After looking around, he found what appeared to be a good deal and he purchased the car. Joe drove the car for a few days, but things started going wrong almost immediately. Within a week, the car was undriveable. Joe took it in to the shop and the resulting repair bills cost him nearly as much as the price of the car. Naturally angry, Joe paid a surprise visit to the seller to “get even”. Luckily the seller wasn’t home at the time, but his girlfriend laughingly informed Joe that he had been duped- the seller knew the car was a lemon and had patched it together just enough to sell it.

We’ve probably all heard stories like Joe’s. Of course, what the car seller did is ethically wrong, but should Joe have had some legal recourse? In the real estate market, such disclosures are commonplace. If there’s something wrong with the house you are selling, you are required to disclose the problem on the closing documents. Laws require a lot of documentation of the work done on a house. A valid inspection (by a qualified individual) and appraisal are required for any sales transactions. This makes it a lot harder for individuals to sell a “lemon” house to an unsuspecting buyer.

The most disclosure I’ve ever seen when buying a used car has been for odometer mileage and warranty status. As long as the odometer hasn’t been rolled back, you buy the car at your own risk if there is no warranty. Inspections and appraisals aren’t required. Even though some cars sell for as much as a small house, I guess lawmakers just don’t want to require all the hassle that would be necessary to require detailed inspections of every car before a sale-you have to draw the line somewhere. Unfortunately, Joe experienced this reality all too well.

Maybe this has happened to you at work. The boss comes in and says the company needs to dump some old inventory or some old cars. In the book Liar’s Poker, the author Michael Lewis is tricked into selling some poor-performing bonds. This can have dire consequences for a company if their corporate image becomes associated with dishonest practices. We all have images of sleazy used car salesmen. But are you going to risk losing your job by refusing to follow orders on ethical grounds? The good news is that there seems to be a growing trend toward accountability. Stores like Carmax offer 5-day money back guarantees on all used cars. Carfax offers a buyback guarantee if their information is incorrect. Yet there are still plenty of shady deals out there- as a consumer it pays to think about the seller’s motivations before you put down your money.

Job Dignity

I heard a story once about an assembly line that made small, colored candy. For whatever reason, sometimes a piece of candy would come off of the line improperly colored. At the time, the technology didn’t exist to have the machines detect if the color was correct or not. A novel solution was implemented where birds were trained to spot the discolored candy and push them off of the conveyor belt. This strategy worked well for a few years until animal rights activists started raising a fit about the company’s practices. Apparently, the activists thought that having birds work a long shift pushing candy off of a conveyor belt was cruel. What was the solution? Hire a person to do the same work.

Inhumane though I may be, I side with Friedman on many issues of workplace dignity. If they could find a person willing to take the job of pecking candy off a conveyor belt, so be it. There are plenty of jobs that aren’t dignified but someone has to do them. Nobody wants to clean toilets or dig ditches or collect trash, but we sure are happy when the job is done.

There is one issue where job monotony can be a problem. Airport screeners who examine thousands of bags a day can get tired and bored rather quickly. While this is fine for a trash collector (who cares if they miss some trash once in a while), missing a knife or something else in a carryon bag can have serious consequences for lots of people. I think the US needs to work harder on implementing automatic computer analysis of luggage x-rays. By letting the computer do the repetitive work, the screeners are freed to more closely examine bags that are “suspect”. Even if the computer flags 50% of the bags as “suspect”, that doubles the amount of time the screeners have to examine luggage. Furthermore, since the bags that are screened by a person have a higher chance of carrying prohibited items, the screeners should get a higher level of satisfaction from performing their jobs and would be less likely to miss prohibited items.

The Harm of Workplace Bureaucracy

I used to work for a startup company that had about 40 employees. If you needed something for your job, you asked your boss and, for the most part, you got it that day. After being in business for several years, the company was acquired by a large established firm with long-standing policies. One such policy required that any purchase of over $100 had to be approved by the CEO! How can this possibly be an effective use of the CEO’s time? This company had over 1000 employees, with several levels of management. Not only does this process demoralize managers, it also slows down production. What if the CEO is traveling? Business grinds to a halt until he returns to sign a pile of purchase orders. This company (which will not be named) has not made a profit since 2000 and many of the key employees that came on when the startup was acquired have left.

Labor unions can be a tremendous source of bureaucracy. (I am not writing this to debate the overall effectiveness of unions, I am only highlighting some of their characteristics) In some companies, labor unions require that every “job” has a person to do it. If your computer breaks, you call the IT person and wait for them to come out and fix it. If you need to move some equipment around, there is a mover who will take care of it. This is fine for large-scale efforts (like moving a whole assembly line) but can really slow things down when simple tasks (like installing software) require an “official” person to do it.

How many times have you been told that something can’t be done simply because of “the policy”? Maybe you need to purchase something in order to do your job (and you control the budget), but the purchasing department requires a complicated series of forms that take days to process. Maybe you need permission to take a class or to get access to some information, but the approval process requires a myriad of signatures from “yes men” who don’t really even care who you are, but have to sign your form before you can proceed. Bureaucracy sucks (and it’s hard to spell). It often artificially imposes power upon people who don’t deserve it. With less people to get in the way, smaller companies may have a distinct advantage simply because they are less susceptible to bureaucracy.

Employer-sponsored Dating

With all the talk of sexual harassment in the workplace today, why haven’t companies found other ways of dealing with the problem? Obviously, employee education is important- employees should be aware of the problems with sexual harassment and the consequences that can result. Companies should also provide services to employees who are victims of sexual harassment or to those who wish to report an incident anonymously. However, these methods are largely reactionary and don’t adequately address underlying problems: “sexual harassment is bad- don’t do it or you’ll be punished”.

Besides education, I think socially responsible companies could take active steps to encourage and help their employees to date others outside of the company. In today’s society it can be difficult to meet new people outside of a work environment. As we work longer and longer hours (80 or more for investment bankers), where are single people supposed to meet others? It is no surprise that people within a company date each other. One possibility would be to provide funding for online dating or local “speed dating” events. Companies already offer money to employees for health clubs and gyms. Adding a small budget for dating shouldn’t be a huge expense and could drastically reduce incidents of sexual harassment or sticky interoffice relationships.

Another option would be company-sponsored singles mixers with other organizations in the community. This would be especially effective in industries that are strongly dominated by one sex. Male-heavy engineering companies could have mixers with female-heavy advertising agencies.

Of course, this doesn’t address the problem of sexual harassment by non-singles. Married people aren’t going to attend a singles mixer. However, with people waiting longer to get married, an active approach to helping employees find partners outside of work could have a major impact on employee morale, while reducing incidents of sexual harassment.

Hazard Pay

In hazardous industries, companies often face dilemmas on how employees should be compensated for their contributions. Should a coal miner get paid more than a foreman who never enters the mine? Should women be paid more than men in a chemical industry where a woman’s fertility is a risk but a man’s fertility is not? I think everyone would agree that a full disclosure of the hazards involved should be made and the company should put forth a determined effort to maintain worker safety. With this level playing field, does a company have the right to pay women more than men, or to pay a manager less than someone with little or no experience?

In my opinion, I side with Friedman on this issue- let the market decide. In the case of the coal miner, the foreman may have had to spend many years working in the mines before being given a chance to be foreman. If the miner knew that he would get a pay cut in exchange for not having to dig coal all day, his acceptance of the job signifies his acceptance of the pay scale.

When hiring employees into the hazardous chemical industry, I don’t believe the market would treat women any differently than men. If the company adequately made potential employees aware of the risks, it may find that it ends up with more male than female applicants. However, the company should not have any more responsibility beyond informing its applicants of the potential risks and hiring whoever is most qualified to perform the job, male or female. Let each female applicant decide for herself how badly she wants the job. If, for some reason, the company found a lack of employees willing to work in the hazardous chemical industry, it could simply increase the base pay until the job becomes more attractive. At some point, the increase in pay will attract more women as it will overcome the perceived cost of the risk of working in the hazardous industry.

The $25 Pen

(commentary on “The High Cost of High-Tech Replacements”,, 3/28/06,

As more and more technology gadgets infiltrate our society, companies are finding new ways to extract profits from consumers through high accessory costs. Cell phones are a good example of this. Older phones used standard headsets that could be purchased at a gas station. Now, phones come with proprietary connectors that are supported only by the manufacturer. These connectors don’t provide any additional value to the consumer over the traditional ones. Power adapter connectors for cell phones provide a similar dilemma. It seems each new model of mobile phone that comes out requires a different adapter- even from the same manufacturer. PDAs also come with a stylus that fits neatly into the back of the device. However, if you lose the stylus, you may be forced to buy a package of 3 for $25 in order to replace it.

Manufacturers of such devices stand a lot to gain from making their accessories proprietary and unique. If I am on the road and I lose my cell phone power adapter, I have no choice but to pay a high price to buy a replacement from the manufacturer. Forget borrowing one from a friend unless he or she has the exact same cell phone. Since such replacements are only available at stores officially supported by the manufacturer, buying the new accessory gets me into the store where all the new phones are displayed.

Another particularly iffy technique some manufacturers use is the intentional obsolescence of compatible accessories. What choice do you have if the power adapter for your cell phone is no longer manufactured or sold? I can imagine a healthy resale market emerging from this on Ebay.

Is this the behavior that one would expect from an ethical, socially responsible company? Is it fair to extort a premium from customers in their times of need? There are examples of companies that don’t follow such practices. Nokia has used a common power adapter for all its cell phones for a long time. Most laptop computer manufacturers maintain backward compatibility for power adapters as well. On the other hand, an internet search will likely find numerous sources of unofficial “knockoff” products that can replace the high-cost accessories from a manufacturer.

In my opinion, companies should focus more on serving their customers and keep the cost of replacement accessories down to a more reasonable level. If I knew it wasn’t going to cost $25 for a new plastic pen, I would be much more likely to visit the local store versus purchasing a knockoff. Unfortunately, convenience is king, and the high cost of replacements doesn’t seem to be letting up anytime soon.

Employee Drug Testing

Ever since Ronal Regan introduced the Drug Free Workplace Act of 1988 we have seen an increase in the number of companies performing mandatory drug screenings as a condition of employment. Companies cite statistics correlating increases in employee performance and safety as a result of their drug screening efforts. Is this a good thing? I think so in many cases where the influence of drugs on workers can affect the safety of others. These include airline pilots, police officers, public transit workers and the military. I think we all can agree that no one wants someone flying a plane or carrying a gun while they are high.

However, in other non-safety jobs, is mandatory drug testing a violation of employee privacy? The 4th amendment to the Constitution places limits on an “unreasonable search and seizure” without probable cause. Is the fact that I am applying for a job probable enough cause to warrant a drug test? Apparently so, as determined by a variety of court cases throughout the 1990’s. Despite the fact that employers essentially assume applicants are guilty of doing drugs until proven innocent by a drug test, the courts have upheld the practice of pre-employment drug testing for all employers.

Another issue with employee drug testing is the infringement of the company into employee’s free time. If I want to go home and smoke a joint after work, why should the company care? Sure, marijuana smoking is illegal in America. But if I don’t come to work high, it shouldn’t matter to my employer. Unfortunately, most of the drug screening tests used today cover a long period of time from several days up to several weeks. The joint that I smoked Friday night is going to show up on my drug screening Monday morning and I could be fired as a result of something that had nothing to do with my job.

The 5th amendment to the Constitution allows for “due process” of law in case of a conviction. In the case of drug testing, this would provide for the ability to contest the validity of the test and the knowledge of the consequences from failing a test. Yet, given these rights, how easy is it for someone to get a re-test if an employment screening produces a false positive? At-will employers face few restrictions on their methods of testing, or the consequences within the company to employees that test positive.

Milton Friedman would be perfectly happy with such a situation as it stands today- let the market decide what the best course of action is. Companies should have free reign on their policies of drug testing. Employees, if unhappy with their company’s policies, can leave and find work elsewhere. As long as there is a plethora of available jobs for everyone, I would agree. Unfortunately, this is not the case. Low-wage workers are one example of people who face a great difficulty in moving between jobs. These people often live paycheck-to-paycheck and cannot afford to take time off of work to search for another job with better drug testing requirements. They also likely cannot afford to move to a new location for a job, and therefore are limited to the job markets in their local geographic areas.

In my opinion, both pre-employment drug testing and random drug screenings are a violation of privacy unless a proven safety risk to others is involved. Using a drug test is an improper means to measure performance as an employee. At-will employers should use their “at will” freedoms to hire and fire people based on their individual job performance and not what they decide to do in their spare time.

Monday, February 27, 2006

Liar Liar

(commentary on “Under Fire, RadioShack Offers a Plan To Revamp”, The New York Times, 18 February, 2006)

Radio Shack has come across troubling times recently, not only from its recent financial performance, but also from news that its CEO, David Edmondson, falsified information on his application. This could be a tricky issue for board members, who don’t want to tarnish the company’s image, but may not want to bear the cost of finding a new CEO. Such a discovery could be poor timing for Edmondson, coming on the eve of a bad quarter for the company. The question remains: under what grounds should a CEO (or any employee) be fired if it has been discovered that the person falsified his or her application?

As a Georgia Tech student, I remember back in 2001 when George O’Leary, the former head football coach left for Notre Dame. Days after accepting the position, it was discovered that O’Leary had lied about his academic background. O’Leary officially resigned from his position at Notre Dame. But what would have happened if Georgia Tech found out about his background while he was still a coach? Few would deny that O’Leary was an excellent coach for Georgia Tech, despite his falsifications.

It might be easy to say “keep O’Leary, ditch Edmondson”. I wouldn’t disagree with the statement, but my reasons may be different than someone else’s. In my opinion, adequate background checks should be performed as a condition of hire. Once the employee has been hired, any subsequent discoveries should not be used as reasons for dismissal. If a company didn’t care to look into my background and I perform well in my job, does it really matter what was on my resume? The company’s goal in hiring me was to find a hard working, productive employee and they found one. That’s why hypothetically, Georgia Tech should have kept O’Leary, even if they found out about his falsification. For whatever reason, they either didn’t know his real background or didn’t care. Edmondson, is a different story- Radio Shack’s performance is in the gutter and a new CEO might get the business going again. Edmondson might have trouble finding another job, but at least Radio Shack did it for the right reasons.

Don’t ignore gender differences

(commentary on “Mind Over Muscle”, The New York Times, 16 October, 2005)

With all of the talk about gender inequalities in the workplace today, one might be led to believe that in our society women live in a repressed social class expected to live at home and take care of the kids. It is true that male CEOs outnumber female CEOs and there is evidence in some companies of women unfairly being passed over for promotion in favor of male counterparts. Many of the male members in the workplace today grew up in a society with drastically different values regarding women’s gender roles.

However, I’d like to turn the attention toward schooling. As stated by the Department of Education:
  • Girls are more likely than boys to be straight-A students
  • Girls perform better than boys on standardized assessment tests
  • Girls are more likely to be elected to student government positions
  • For every 100 men who graduate from college, 133 women will graduate

Why are girls performing better than boys in school? I believe the answer lies in innate differences between boys and girls. By this, I don’t mean that one sex is smarter than the other, or that one sex is more capable. I think it comes from the types of activities that girls and boys prefer. Just as there are physical differences between boys and girls, so are there social and cognitive differences as well. The problem is that these differences are just more difficult to measure.

I think girls perform better in school today because school caters to things that girls like to do more than the things that boys like to do. As states face budget cuts and stringent testing requirements, the first activities to get cut are physical education. Sports in the sun get replaced with hours of reading and studying. In my experience, it seems girls have longer attention spans and tend to prefer reading and indoor activities, while boys tend to prefer shorter assignments and more playing and rough-housing. With only limited resources and not enough emphasis placed on gender differences, schools are trying to push boys and girls through a one-size-fits all system that will no doubt have lasting effects to our society in the years to come.

Friday, February 24, 2006

Who gets the Tamiflu?

(commentary on “Companies Face Ethical Issues Over Tamiflu”, The Wall Street Journal, 16 January, 2006)

As reported in a recent Wall Street Journal article, Proctor & Gamble is wrestling with the issue to stockpile some of the drug Tamiflu for its employees in Asia. Tamiflu is an anti-influenza drug that is used to treat patients infected with the bird-flu that has been spreading across Asia. Although the disease hasn’t made the jump to humans, supplies of Tamiflu are limited. Should a human outbreak occur in the near term, many people would have to fight the disease without the help of the drug.

Many companies and governmental bodies are wrestling with issue of who would be the first recipients of Tamiflu in the event of an outbreak of avian flu. Certainly, individuals in the health care systems and those involved with the manufacture and distribution of Tamiflu are obvious candidates. But what about public safety workers and government officials? Then there is the possibility that there isn’t enough of the drug for a given group of health care workers. Who should get the drug first?

Sadly, in cases such as these, the odds of getting the drug aren’t always fair. In many instances, wealthy people likely have more ability to acquire the drug than those less fortunate. Large companies like P&G with deep pockets have the resources to secure a larger supply than smaller or less financially stable organizations. The issue of how much of the drug to distribute to private industry versus public governments is also important. Why should an executive at a computer company get access to the drug when police and firefighters may not? Though such decisions are important, no one wants to have to make choices about who will live and who may die. Yet, without adequate rules in place, access to the drug may be left completely to chance in the case of an outbreak.

Where would the internet be without pornography?

With $12 billion spent every year on internet pornography, it’s easy to see why some people are concerned. Shouldn’t that money be spent on something more productive? What kind of society have we become? It doesn’t help to hear that the largest consumer of internet pornography falls into the 12-17 age group. Yet, despite the negative implications, I believe that without pornography, the internet would not have developed nearly as fast and as fully as it has.

Take search engine statistics for example. The number one request contains the word “sex”. If you subtracted all the pornographic searches from Google, where would the company be today? Certainly not at $378 per share. Much of Google’s revenue comes from “pay-per-click” advertising, of which pornography makes up a significant share. Without this revenue, Google wouldn’t have the financial ability to offer as many unique free services like Google Earth, Gmail and Froogle.

Pornography also helps to stimulate the development of internet infrastructure. As the demand for pornography increases the demand for high-speed internet access, service providers have the incentive to expand the reach of cable modem and DSL services. As these services grow, many people stand to benefit from them, regardless of their interest in pornography.

I do believe that service providers and software makers should provide free, effective tools for controlling access to internet pornography. No one wants a 6-year-old kid to stumble across pornography. Likewise, service providers should actively enforce restrictions on child pornography and any other type of material deemed illegal. Pornographic spam is also a hot issue right now, and I think there isn’t enough work being done to limit its spread. However, with effective access restrictions in place and active, ongoing measures in place to limit illegal activity, pornography can indeed be a useful economic driver of internet technology that benefits everyone, regardless of their interest in the subject.

Monday, February 20, 2006

Marketing alcohol through television advertising

Where should society draw the line for marketing alcohol through television advertising? I think there would be a lot of upset parents if Nickelodeon started showing ads for wine coolers in the middle of Rugrats. But how is that different from beer commercials during football or baseball games? I know plenty of kids who watch Nickelodeon that also like to watch baseball.

In my opinion, each network should have the freedom to show alcoholic beverage advertisements whenever they choose. Let the market decide when and where the advertisements should be placed. What incentive would the networks and advertising agencies have to advertise whiskey in the middle of a kid-show? None whatsoever. A 10:30am spot in the middle of Kim Possible would be much more effective promoting diapers than tequila. Networks such as Disney and Nickelodeon could use the lack of “adult” advertising to distinguish their channels from the dozens of others on television. At the same time, networks that cater to older audiences would have the freedom to allow whatever advertising they deemed appropriate. Bloody Mary ads during the morning news? Fine. Beer ads during an 11am football game? No problem.

There are plenty of people who think that freeing up the airwaves to broadcast images of rum and vodka would cause more harm than good by encouraging underage drinking. On the contrary, I believe that letting the issue out in the open will be beneficial. Any kid can open a magazine or even just the refrigerator at home and have plenty of access to alcoholic advertising. Letting the issue out in the open will encourage minors to talk to their parents, even if they’re just asking to try a sip of wine. By raising awareness at an early age of the risks associated with alcohol consumption, minors will be better prepared for the time when they will be legally allowed to drink.

The ethics enforcers

(commentary on “The New Ethics Enforcers”, Businessweek, 13 February, 2006)

As reported in a recent Businessweek article, more and more companies are placing emphasis on “corporate compliance”, often hiring high-profile lawyers and judges from industry to serve as chief officers in this regard. But how much power should these compliance officers and their respective departments have in a company? One can imagine a scene where every email, every document and every presentation must pass through a designated company filter (either electronic or human) before being sent outside the corporate wall. How long will it be before telephone conversations are monitored and offices are wired with microphones to record employee conversations?

Though I doubt any company would get away with such a Big Brother scenario, it is clear that something needs to change if compliance officers expect to have much effect on corporate ethical behavior. Most corporations seem to have “code of ethics” handbooks, but who really sits down to read 50 or more pages of righteous ramblings? Maybe they should leave a copy in each of the restroom stalls at the office. Clearly, this new breed of compliance executives will need to take a more active approach in instilling ethics into the company culture. Empowering compliance officers by giving them executive-level authority should be a good start.

Aside from reactionary measures to ethical complaints, the active approach to corporate compliance should extend to prevention and education. Engaging employees in discussions and presentations would raise awareness of ethics within the organization. Tailoring such materials toward an employee’s specific job function would also help to enforce the issue. Finally, ethical rules and regulations should be clearly and concisely stated, so that each employee is aware of the potential repercussions from his or her actions.

CEOs are overcompensated

Judging from the reactions from my fellow classmates, I’m probably in the minority when I say that corporate CEOs are overcompensated. After all, we didn’t take 2 years out of our careers to go back to school so that we could peddle insurance for $30k a year. MBA schools publish salary statistics to distinguish them from other programs. And, who wouldn’t want to make $200 million for a year’s worth of work?

But is enough enough? What would Terry Semel of Yahoo do if he made $130 million instead of $230 million a year? Have you ever thought what you would do with $100 million? You could buy 100 $1 million houses, but how could you ever live in them all? I think it would be better to visit exclusive resort hotels. Or you could buy 300 Aston Martins, but how is that any better than having 2 or 3 of them? The admirable thing to do would be to give the majority of the money to charity, but why not just give it back to the shareholders and let them decide what to do with it? (see earlier entry on Friedman)

Unfortunately, I think a lot of the over-inflated CEO compensation is the result of a winner-take-all market for executive talent. As a CEO builds up a reputation for performing well, he or she becomes the expert in a certain industry or function and more and more companies make offers to move the CEO over to their company as a sign of improvement. We see this with football coaches, actors and plenty of other people as well. The sad fact is that many of these companies pay low wages and limit access to healthcare benefits for a lot of their regular employees.

B-school 'whistleblowers'

A few months back I head some stories about people in the business school who were complaining to the dean about every little thing they didn’t like. Too much homework in accounting? Tell the dean. Study group not working out? Blame it on the selection process. Can’t get all the reading done for a class? It’s not my fault. When does it end? Some people think an MBA should be an excuse to play golf and go to happy hours for 2 years. Class? I’ll try to fit it in if I have time.

I’ll start by saying that I am very happy that MBA programs are open to student feedback on policies and classes. In any school there are going to be areas that need improvement or classes or programs that would be useful. But how many of these comments are legitimate versus lazy? It might be hard for an administrator to know if a problem really does exist, or if a student “whistleblower” has other motives. Obviously, the more students who voice their opinion, the more likely a change will be made. Therefore, it is good for more students to express their ideas about the MBA. However, administrators are busy people like the rest of us. If they have 10 students coming to their office every day to complain about something, most of it will get lost in the shuffle. It would be much more beneficial for concerned students to talk to each other first to determine what issues are the most important. Not only will this be more effective, it will also give more of us the opportunity to voice our opinions when something is important.

Monday, February 13, 2006

Sarbanes-Oxley is so Boring (or, Why I Want my Company to Stay Private)

In one of my entrepreneurship classes, we learned that venture capitalists don’t like to invest in “lifestyle companies” because there isn’t enough growth potential. The VCs are hoping for 75% ownership and a 10x return so they can offset losses from the 7 or 8 “dogs” in their portfolio. However, the more I look at lifestyle companies the more I wonder why anyone would want to do anything else.

By definition, a lifestyle company provides a steady, predictable cash flow to its owners. Such companies are typically franchises, small consulting firms or niche players in a fragmented market. A lifestyle company probably won’t make you the next Bill Gates, but it will buy you a new car every year and a million-dollar house in the best part of town. Cash flow is the name of the game. There are fringe benefits as well. Want to take a trip to Hawaii? Deduct it as a business expense. Don’t like the guy working for you in the mail room? Fire him.

Not too long ago, an IPO was the Holy Grail for a venture-backed high-growth company. Get hired early, toil away in cubicle for 2 or 3 years and with a little luck, your options will be worth enough to buy an island in the Pacific. The trouble is, Sarbanes-Oxley epitomizes everything that is un-sexy about an IPO these days. Ensuring compliance with every little accounting rule can cost big bucks. Factor in underwriting fees and a private merger or acquisition looks a lot more promising for a startup.

For me, the lifestyle company has the same appeal as the M&A deal for a VC. Why should I give up 75% of the equity in my company so some board members can tell me what rules to follow? Some people might argue that even 25% is a lot if it’s 25% of $200 million. Sure, but what are the chances of that? And what fun is it if it isn’t your company anymore? There’s nothing wrong with a little IT-consulting business that pays its CEO $500,000 every year and has a brand new Mercedes on its books.

Monday, February 06, 2006

Cognitive Dissonance in the MBA Job Search

"Cognitive Dissonance" Now there's a couple of words that are sure to land you an interview if you have them on your resume. Here's a tutorial on what it means:

It is my second semester of the MBA program, and for those of us who have made the choice not to pursue investment banking or consulting, the search for an internship is fully underway. You know the drill: search for jobs, drop a resume or two, go to some info sessions and hope for an interview. Though we might consider this to be time well spent if the position is our “dream job”, what about the companies that we aren’t so excited about? Maybe you dropped your resume for a brand management position, but the location is in Cleveland and you were hoping to move to Miami for the summer. Or, perhaps after researching the company, you find the internship requires 80-hour work weeks and you were hoping for a leisurely summer. Whatever the circumstances, I suspect we all feel a bit of cognitive dissonance when the interview rolls around.

The idea of Cognitive Dissonance was defined by Leon Festinger in the 1950’s as a disagreement between two ideas. Perhaps you know smoking is bad for you, but you do it anyway. Sometimes we say we are “fine” even if we don’t feel very fine. Have you ever told a story in an interview about why you’ve always wanted to move to North Dakota, when in fact all of your family lives in Texas and you would consider a job flipping burgers if it meant that you wouldn’t have to shovel snow on the way to work? That’s cognitive dissonance in your mind. The devil on your left shoulder is saying "this is my backup job in case I get nothing else” and the angel on your right says “I should have left this interview slot open for a polar bear”.

Chances are, there are a few polar bears in your class (they’re the ones who wear shorts and flip-flops to class regardless of the temperature). So, where do you draw the line on selecting your interviews?