JustinIdea

Minorities Holding-Back Minorities

The fact that an African-American firefighter would punch a Latino firefighter, because the Latino firefighter stood up for equality under the law, is ridiculous.  It's sad that some minorities want their employers to promote them based-on the color of their skin instead of the content of their character, and these are the ones who have been holding back minorities for the last 45 years.  Did they not listen to Martin Luther King, Jr - a man that is held up as a martyr among men and in the same esteem as George Washington and Abraham Lincoln?

"I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character."

The content of one's character is judged based-on merit and how they deal with others.  Holding minorities to a lesser standard than whites is reverse discrimination and does not hold true to the words that King spoke on August 28th, 1963.  If minorities aren't up to par competing based-on merit, they need to shape-up and start working harder and smarter, instead of complaining about discrimination.  Focusing on championing educational achievement in minority communities by the minorities themselves, like Booker T. Washington had done, would be a great start.

But too many minorities feel entitled today because of injustices that occurred in the past.  But do you know what?  This is America.  We aren't limited by a caste society where you must stay in the same social bracket that your parents were born in and perform the same job as them.  We have the freedom to be our own people.  If your workplace is discriminating against you, then quit and start your own company whose policies of non-discrimination will make you out-compete the competition and put them out-of-business.  

Yes, there is still racism in America, but it isn't nearly as bad as it was 50 or 150 years ago.  Today's racism is peanuts compared to then.  So stop complaining and start working, doing otherwise is a disservice to those that were enslaved and faced heavy discrimination in the past.  And if American-born minorities don't start working, then the immigrating minorities will leave them in the dust (and hopefully change the culture of laziness among some of the American-born ones at the same time).  Just look at President Obama.  He's the son of a Kenyan immigrant (no American slave roots).  It's the work ethic that counts.  

p.s. Apparently Supreme Court nominee Sonia Sotomayor doesn't agree that merit should be held above color.

Translating the 10 Principles of Economics for Non-Economists

In case you were wondering what is guiding all of those economists out their making decisions right now that will decide the future state of our economy (or if we'll have one), Yoram Bauman does a brilliant job of translating the 10 principles, so that non-economists can understand what is going on in the minds of economists.

From his blog: Random Observations for Students of Economics

Break-up Big Banks to Increase Shareholder Value and Reduce Systemic Risk

Since before the Federal Government decided to get in the game of bailing-out the banks last fall, I've been of the opinion that it would be better for the Federal Government to not let banks get too big to fail and to break them up into smaller pieces when they get too big, so they don't become a systemic risk, instead of bailing them out.  After Microsoft was being threatened with being broken-up, I saw the fallacy in trying to break-it-up into two or three monopolies instead of 5-10 competing companies, like when Standard Oil was broken-up.  While pondering this possibility for banks, I realized that breaking-up big banks into smaller banks might also have additional huge benefits to both the bank shareholders, the financial system, and taxpayers.

Rules of the System
Here are some general rules that would guide the benefits of this system:

1. Banks too big to fail, maybe $500billion+ in assets, will be broken into  banks with $100-200 billion in assets
2. The "Child" banks are not allowed to merge with nor acquire other child banks for 5-10 years (unless they are being liquidated), but they may merge with and acquire non-child banks (non-child banks do not include the children of other big banks that were broken-up, those are still child banks).
3. All child banks of a given parent bank, will each get the same systems, procedures, and technologies that their parent had, just like if the parent was a bacteria and duplicated itself into a bunch of children.  This way they all face a level playing field, with their siblings.
4. The shareholders in the parent bank, get equal shares in each of the child banks.

Benefits to Bank Shareholders
First to the bank shareholders, because any move should make sure the shareholders can see their return increased.  Big banks like any big company will come against the law of large numbers and have their growth stall once they become huge, since as they grow larger, the amount of revenue growth they need in order to increase their returns grows along with their new revenue levels.  Small banks don't face this limitation.  Therefore, the children of the best run big banks will be able to grow faster than their parent by acquiring, absorbing, and instituting their best practices into other banks.  Giving shareholders a stake in each will allow the shareholders to see their returns potentially increase at a much faster clip, while at the same time spreading their risk.  For example, JP Morgan and Wells Fargo shareholders could see huge gains in shareholder value by having this system adopted, because both banks are incredibly well-run. (Full disclosure, I've had family members work at Wells Fargo and I own stock in it through a family, stock partnership.  Also I have a good friend at JP Morgan. :)

Benefits to the Financial System
Second to the financial system, because we don't want the system to come crashing down around us.  The big banks that are not run well, when broken into smaller pieces, will have their bad pieces go under, because the smaller, bad banks won't be able to spread their risk over a larger bank and hide their troubles.  This will provide more room for the well-run banks to grow.  What then happens is the bad practices are destroyed faster and the good practices are able to grow faster, which leads to greater productivity growth and a more stable system overall, especially since the bad banks are reduced to banks that won't damage the overall system after they eventually fail.

Benefits to Taxpayers
Finally to the taxpayers, since the banks that are too big to fail will be broken-up, there will no longer be a need for bailouts, ever, which will save us hundreds of billions if not trillions of dollars in the future.  No more Citi's, Bank of America's, and AIG's will be sinkholes for our money. 

Turning-up the dial on creative destruction can be a great thing.

Is There a Constitutional Problem with Corporate Personhood?

I remember from my business, government, and society class (MGMT 320) at UW that we discussed how laws in the United States had evolved to count corporations as People, which also gave them the Rights that the Citizens of the United States have.  A thought just crossed my mind that made me wonder if the way corporate personhood is currently structured might violate The Constitution.

Amendment XIII

Section 1.

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2.

Congress shall have power to enforce this article by appropriate legislation.

Now corporations have "owners" that are its "shareholders", which is where the problem potentially exists.  If

1. corporations are People and have the same Rights as other People that are outlined in The Constitution,
2. "slavery" means that a person is owned by one or more other persons or entities, and
3. slavery is illegal in the United States, then...

isn't it illegal for corporations to have "owners" since most corporations haven't committed a crime to warrant being enslaved or put into involuntary servitude?

It would seem from this predicament that either corporations cannot have owners or that corporations should not be granted full personhood, because of this constitutional problem.  Here's the Wikipedia article for more history on corporate personhood and how it has specifically developed in the United States.

The Best Sub-Prime Fixing Stimulus Idea I've Seen

From the NYTimes by Thomas Friedman - "The Open-Door Bailout"

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

Cost to the United States - Maybe $1-3 billion to go through all the paperwork, which sure beats wasting $800 billion on a stimulus package and $2.5 trillion to shore-up our financial system.  

Friedman continues by elaborating on how we became the wealthiest country in the world, which I think many Americans sometimes forget:

“Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

The Next Four Years

It's great to see a barrier fall in America by Barack Obama being elected the first black President in our nation's history.  Although, many people have what will turn-out to be unrealistically high expectations of what will happen over the next four years, no matter how good their reasons are - the Law of Unintended Consequences still lives.  While Obama is great in some areas he falters in others, and just because an issue wasn't across every news screen during the election season doesn't mean that it isn't important.  I wish him the best as President of the United States and making the best decisions possible considering the circumstances our country is in.  The issues:

Very Excited About

• Obama's energy policy.  I'm hoping he picks Al Gore as Energy Secretary and has T. Boone Pickens head a panel of industry advisors.  Energy determines our foreign policy, so making a smart pick here will be his most important decision.
• A cap-and-trade carbon market where all carbon credits must be bought by private industry.  Allocating them among participants for free would create loads of corruption.  Also, if Democrats want to make sure our company's aren't at a competitive disadvantage to those in nation's with more lax environmental standards, they can make any company that produces or sells products in the United States buy carbon credits.
• The closing of Guantanamo Bay prison and hopefully all the other secret prisons the U.S. has.  We should not deny any person on earth their right against cruel and unusual punishment and to a fair and speedy trial by jury of the peers, not to mention access to a lawyer.
• The ending of the war in Iraq.  We shouldn't have been there in the first place.
• Hopefully the end of most rhetoric from the White House being about terrorism.
• America's world image being repaired as we stop Bush's use of "Cowboy Diplomacy"
• Stem Cell research using federal funds being legalized.  It's about time we started taking the lead further in this very important field of research.
• Federal investment in basic research increasing, so that the pace of innovation in our country picks up again.
• Intelligent Design not being given the same standing as Evolution in schools, because it is not a sound scientific theory.

Excited About

• The ability for Obama to make the R&D tax credit permanent.
• Greater potential investment in education.

Lukewarm About

• Obama's ability to hold government programs accountable.  With rock-solid majorities in the House and Senate, he won't be under as much pressure to find what should be given more money and what should be cut.  This was the one good thing Bush started, while he was in office: The President's Management Agenda.
• Ability of the Supreme Court to contain the Democrats with their majorities to overextending the government's role in the economy as long as Obama doesn't turn into a tyrant like FDR, when he tried to pack the Supreme Court.  Currently the Supreme Court is leaning slightly conservative with a 4-1-4 break-down, so any attempt at overstepping their bounds should hopefully be struck down.
• The Democrats being able to re-privatize the banking system in short order.  The government has no place running the banking system and further destroying the balance between risk-and-reward in the financial marketplace.

Concerned About

• Corporate taxes.  If Obama closes the tax loop holes and does not lower the corporate income tax rate, businesses will be forced to lay-off workers or raise prices in order to stay profitable, especially given the current circumstances.
• Health care.  Moving towards a single payer system will not make our health care better.  If you think government-run health care will work well, how well does government-run infrastructure work?  Oh yeah, that's why our government has underfunded our infrastructure by $2 trillion, which is why our infrastructure is degrading to the point of being a developing nation.  The only way to cut costs dramatically is to cut access.  If you want to check out the future of health care, check out Qliance 
• Personal income taxes.  Raising taxes never helps the country as government is less-efficient than the private sector at using the money it has, which is also why government workers are paid less.  Not only that, but Obama wants to raise taxes on those citizens that make more than $250,000.  At a time when the United States desperately needs investment in the country in order to create jobs and get out of the financial crisis, Obama wants to tax the group of people that invest most of their money back into the economy.  If you want to pay more taxes, you should voluntarily mail the extra amount of tax burden you would like to take to the Department of Treasury as a gift.  Here's the mailing address, so it is easier for you to increase your own tax burden. 

  Gifts to the United States

  U.S. Department of the Treasury  

  Credit Accounting Branch

  3700 East-West Highway, Room 622D

  Hyattsville, MD 20782

• Fannie Mae and Freddie Mac.  The Democrats will want to keep these institutions alive, but no company in America should be given an unfair, government-endowed advantage in the marketplace.  They helped to create the problem we're in today by creating excess liquidity in the financial markets due to their implicit government-guarantee, and now we're paying for it.
• Excessive Regulation.  Regulation in its current form is unnecessary.  We have already bestowed police powers on the Federal government, so it can prosecute companies and their officers for fraud and other crimes.  The Democrats will be tempted to over- regulate the markets, especially the financial ones, but hopefully they can't add too much regulation, or innovation will slow.
• The Government bailing out the auto industry.  The Democrats will be tempted to help the voters in Detroit that helped put them in power, but government intervention in industry only delays the inevitable.  If the companies are not able to quickly adapt to the market, they should be allowed to die, so that they stop draining resources from the economy.  If they want to invest in job re-training for these voters, then they should invest in job re-training instead of bailouts.

Very Concerned About

• America's future trade policy.  It doesn't matter if the economists voted Democrat or Republic, 95% support free trade.  Why?  Because, free trade brings prosperity to all parties involved and has created more jobs than it has destroyed.  Yes, we should hold other countries to our environmental standards, but the best way to bring about this would be to make companies that produce or sell products in the United States to join our future cap-and-trade system and by permits.
• The deficit.  Government spending needs to be kept in check, and it should stop mortgaging the future for the present.  No amount of stimulus will help revive the economy, because consumers and the federal government are over-leveraged and need to cut back on spending.  Democrats being able to control spending?  I don't think this has ever happened, and the Republicans haven't done much better.  They need to get Keynes's influence out of there.
• Monetary policy.  The government has put $5 trillion into the monetary system in the last two months, which is completely unsustainable and will most likely over time as it has time to sit create massive amounts of inflation.  Again, they need to get Keynes's influence out of there.
• Entitlement Programs.  The Democrats will want to raise taxes to cover these, but no matter what they try, they are sitting on a demographic time-bomb.  Entitlements will eat-up our economy if the system isn't reformed.

Making Executive Compensation Reward Long-Term Performance

Now, I'd just like to say I don't know the intricate details of most executive compensation packages, but I'd like to pose this as an idea on how to align pay and the long-term performance of the company. One thing I think people get too hung up on is what the change is in 12 months of pay and stock prices. Why should chief executives have their pay based-on just 12 months of information? If you want a firm to last for the long-term, wouldn't you want to compensate them based-on long-term performance, such as improvement over the last 2, 3, 5, or 10 years? Then there's also the question of how much impact did the chief executive actually have on a firm. If an oil companies profits go up 4x because the price of oil went up 4x, there is no reason a chief executive should receive higher pay. But if profits go up 6x while oil prices go up 4x, then it would make sense for the chief executive to receive higher pay, so long as their competitors and peers saw lower profit growth.

So if you're on a compensation committee and want to create a compensation package that is good for both the chief executive and the shareholders, you should make sure to do a couple things:

1) Benchmark the performance of the firm
2) Reward the executive for long-term performance by staggering their stock options.

Point 1: Benchmarking
With benchmarking, it would be good to benchmark the firm against its competitors. If the company competes against many businesses across multiple products, it might get a little difficult, but would still be a good idea to ensure the benchmarks are done well. Other benchmarks that could be used would be new product offerings and how much growth they have generated, the productivity of the firm, the inputs or outputs of the firm (such as oil prices), and other performance measures that align with the firm's mission.

Point 2: Rewarding for long-term performance
You could also stagger the reward of the chief executive's stock options. For example:
In year 1: The chief executive receives 2 million stock options for performance. 20% of those begin on a vesting schedule starting with the day of compensation, the other options begin vesting after years 2, 3, 4, and 5, if their future performance targets are hit. For the options that begin vesting in the future years, the compensation committee will review the performance target again in each of those years over the entire time period of 2-5 years and will decide then on whether the stock options should begin to vest. If the performance targets are not achieved, the stock options will be destroyed.

In each additional year, the chief executive would also receive additional options that would follow under the same schedule and adjusted for their date of issue. This way the firm's incentives for the chief executive are aligned to create long-term value, instead of just short-term gains.

Inspiration: A Brighter Spotlight, Yet the Pay Rises (NYTimes.com)

ALPFA National Convention

I got back to Seattle from a trip to the ALPFA National Convention last night and must say the convention was awesome!  Having 2400+ Latinos from the business world at Disney World in Orlando made for awesome networking, friends, dancing, and after parties! :)

The convention started off Friday night with a Salsa Competition that I took part in with my friend Nerelys.  The first time we had danced together was last Wednesday, and it showed a bit on the dance floor by the judges comments, haha.  Saturday was pretty slow until the reception that night with salsa dancing following immediately afterwards. 

Sunday was a lot of fun.  I was on the University of Washington KPMG Case Competition team, and we gave our presentation on a fictitious company called InfoMemo that needed to raise $15 million from investors to do the marketing and sales for a hybrid pda/laptop it had developed.  I worked on applying what I've learned from reading Logic+Emotion and Presentation Zen.  The part I presented was the Financial Analysis section, and I received a lot of compliments for the two, colorful tables I had (the case competition was mostly for accounting students, so lots of text and big quotations tended to be the norm). [link to  slideshow]

One thing I learned during the presentation was that you can use your nervousness right before you present to your advantage.  People will tell you that if you sense your heart rate increasing that you should take a couple of deep breaths to settle down, although I've noticed this tends to decrease your energy level during the presentation and make you less animated.  I've given quite a few presentations, but right before it was handed-off to me, my heart rate doubled and I became pretty nervous.  I took one deep breath, noticed it didn't do anything, said "screw it", and gave my presentation.  By not trying to calm myself down, I believe my presentation was much more animated than it would have been, due to the combination of adrenaline and extra oxygen in my body. 

Sadly, we didn't end up making the finals for competition, but this did allow us to go out and dance the night away, without worrying about waking-up at 6am (3am Seattle time, my usual bedtime).  Monday night, we went to Epcot for the case reception, mingled with the other college students, and were able to watch the fireworks display outside on a private boardwalk.  The one thing I wish they would've added was a dance after the reception, because it was a perfect time for all the students to get to know each other, and good quarter or half of them were under 21 and not able to take advantage of the club scene at Pleasure Island.

Tuesday was the grand finale with a career fair in the morning and a gala at Epcot at night.  I was surprised at how quickly many of the recruiters asked you what kind of position you wanted with them, instead of getting to learn about you more.  About half of them asked me within the first two sentences they spoke to me.  Not being interested in getting a job, I instead told them about how I'm working on Mavenry.  For a couple of the companies, I was genuinely interested in learning more about their products and services, and I was further surprised that none of them pitched me about their services after I told them I was working at a start-up.  You would think they'd like the idea of someone paying them, instead of them paying someone else, *shrug*.

The gala that night was a blast!  The program went a little longer but it was a lot of fun being able to meet a table of people from E+Y and Silicon Valley.  Towards the end, we were able to go out and watch the fireworks display again on a private deck.  This time it seemed we were much closer and the fireworks aimed more directly at us.  I get excited when I see well orchestrated fireworks displays and felt a bit giddy inside at the sight of it.  Once inside, we saw a couple more awards handed out, some prizes given away, and then it was time to dance the night away (for my fourth time, haha). 

I can't wait until I'm able to travel more and attend conventions and conferences like this more frequently.  It's awesome when you're able to meet so many smart, determined, fun loving people in one place.

Stanford Prison Experiment and Swarm Intelligence

Guy Kawaski recently conducted an interview with Dr. Philip Zimbardo, the person who created the Stanford Prison Experiment.  I've been fascinated with this experiment, because of how the situational factors of it could turn good college students into sadistic guardsmen.  Dr. Zimbardo recounts it in the interview and also in his recently published book, The Lucifer Effect: Understanding How Good People Turn Evil.

Although the interview talks a lot about Abu Ghraib, I thought it would be interesting to apply the experiment to corporate cultures.  In the experiment, the night watchmen were given nearly complete authority over what they did, with little oversight and a management team that does not care about the lapses.  Each little lapse will compound over time, until the entire system is enveloped in unethical behavior.  In corporate America, how do you get rid of ethical lapses when people are given much more autonomy?  Some argue you need rigorous internal controls and a great degree of oversight over the employees.  By creating the controls, you can get rid of the behavior quickly.

There is just one problem with having lots of controls...they inhibit system performance.  Swarm Intelligence deals with this area, describing systems of behavior where there a couple of general rules followed by everyone involved.  Researchers found that when you run a simulation with dumb robots and they have a plethora of rules, the dumb robots will collectively act in a simple, dumb manner.  Although if you keep the number of rules to no more than four or five simple ones, the dumb robots as a collective will exhibit complex, intelligent behavior.  Given human beings are an intelligent complex species by nature, giving us a lot of rules to live by will probably make us take simple, dumb actions for fear of breaking one of the rules.

There was on example in the pdf linked to, but what other ways could you implement this to make sure that everyone acted in an ethical and efficient manner?

HBR - Globalization and Summit Syndrome

I've been trying to catch up on the stack of magazines I've accumulated recently.  Here are summaries for two of the articles I enjoyed from March's Harvard Business Review. 

The first was on "Managing Difference: The Central Challenge of Global Strategy".  Ghemawat proposed the AAA Triangle framework to tackle global challenges: adaptation, aggregation, and arbitrage.  With adaptation, companies seek to boost revenues and market share by maximizing local relevance.  With aggregation, they focus on building economies of scale by creating regional/global operations.  And with arbitrage, they exploit differences in national or regional markets by locating different parts of their supply chain in different places.  Although all companies use all three A's to some extent, the A's can be used to create further global differentiation and to exploit competitor weaknesses. 

The second was on the crises gifted performers have at each peak of their success.  This article resonated with me, because I thrive on encountering new challenges and get bored when I no longer seemed to be challenged as much.  Summit syndrome, when gifted performers become dissatisfied at the peak of their success, has three phases.  In the approach phase, the person puts in a lot more effort with marginal gains in improvement, trying to recreate the adrenaline rush of the climb.  Plateauing then occurs when virtually all of the challenges have been conquered.  These individuals continue to produce stellar results but become much more dissatisfied with the work they're doing.  The final phase is descent.  In this phase, performance will slip noticeably and sometimes wrecks havoc on relationships and personal morale. 

To be able to keep this syndrome at bay, it needs to be recognized early on, which can be difficult to do for both an on-looker and the individual.  When it is recognized though, these four steps can be taken to dispel the confusion and set the stage for the next stage of productive growth:

1. Understand your "winning formula" and the vital part it plays in feeling stale or losing your edge.
2. Reconnect with your core purpose in life.
3. Recast your current, or future, job to better align your internal aspirations with external requirements.
4. Create a developmental path by honing a handful of core leadership competencies.

I'm going to keep this in mind the next time I start to feel bored over an extended period of time. :)