Firm Leadership

Rants, Raves, Rebuttals, Reflections, Revelations & Ruminations

Sometimes it's okay to color outside the lines . . . A new Consulting firm is tapping animal behavior, psychology, and biology to help companies make better business decisions. At first blush Oxford Risk Research and Analysis (ORRA) Ltd. seems ill equipped to offer business advice to corporations. Its founders are zoologists, and psychology, evolutionary biology and animal behavior are among the areas of expertise it brings to the table.

However, it is that very mix of expertise, the firm says, that allows it to provide important insights to decision-makers on matters related to risk. That's because, says ORRA, people do not simply make rational, reasoned business decisions based on sound economic and statistical measures -- a primary principle of classic economics. Instead their choices are influenced by emotion, evolution and psychology, all of which may lead them unwittingly to make poor choices. [And I called all that Herding Cats].

Evolution plays a role, notes ORRA founding member Alex Kacelnik, professor of behavioral ecology at Oxford, by molding behaviors that may have helped human existence to continue but that don't work well in making optimal business decisions. For example, he says, people have evolved to be less fearful of situations with which they are familiar. In turn they "have a tendency to consider 'less risky' things they are familiar with." Applied in a business setting, when faced with several opportunities, decision-makers may choose what they see as the more familiar, less risky choice, even when presented with statistical, analytical evidence that an alternate option offers greater probability for success and greater rewards.

ORRA's assistance to business lies in helping make those in the decision-making role more aware of how they reach decisions and by offering advice on how to improve their judgment. "We do not intend to make decisions for clients," Kacelnik says. "We tackle the decision-making process rather than the decision itself." ORRA was spun off from Oxford through the university's technology transfer company.

I received the following sound advise this week from my good friend Bruce Marcus, who obtained this from a corporate attorney - Everett Harrington. Thanks Everett.

* The next time you order checks have only your initials (instead of first name) and last name put on them. If someone takes your checkbook, they will not know if you sign your checks with just your initials or your first name, but your bank will know how you sign your checks. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the "For" line. Instead, just put the last four numbers. The credit card company knows the rest of the number and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

* Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home one. Never have your SS# printed on your checks (DUH!) you can add it if it is necessary. But, if you have it printed, anyone can get it.

* Place the contents of your wallet on a photocopy machine, do both sides of each license, credit card, etc., You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place. I also carry a photocopy of my passport when I travel either here or abroad.

Finally, and perhaps most important: If your credit cards are stolen, call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security number. The alert means any company that checks your credit knows your information was stolen and they have to contact you by phone to authorize new credit. The numbers are: Equifax: 1-800-525-6285 / Experian (formerly TRW): 1-888-397-3742 / Trans Union: 1-800-680-7289

Pass this information along. It could really help someone you care about.

Remember how computers and the information revolution were going to make geography irrelevant? How the ability to do business from anywhere, with clients from everywhere, would render the distances between you and them meaningless? How the old real estate maxim location, location, location would soon seem as archaic as chromed fins on a car or a full-service gas station?

Well, a funny thing happened on the way to the future. Proximity, geography, and location matter now more than ever and especially because of the information technologies that were supposed to eliminate them. This puzzling truth has significant implications for those managing for client value.

E-commerce was supposed to make face-to-face client interaction obsolete. Yet business travel rose to unprecedented levels even as the Internet connected more than 300 million people worldwide. Why? Because scarcity always drives up the price of a service, and personal contact with clients is service like any other. As more and more firms automate their phone systems or push client service online, the perceived value of personalized attention grows.

Proximity Paradox: As computers increasingly allow you to serve clients without personal contact, personal contact becomes more important than ever. Smart professionals will leverage that value by focusing this scarce resource on their best customers, using information technology to enhance, rather than replace, personal contact.

Half a million jobs have been lost so far this year. More than two million since the slump began two years ago. There are now five times as many people out of work as there are in jail. And yesterday's news brought word that another 424,000 people filed unemployment claims last week.

Meanwhile, Baltimore is full of strange and curious things. On the corner of Charles and Lombard sits a huge billboard proclaiming a provocative headline and an intriguing sign of the times:

BANKRUPTCY!

Chapter 7 -- $50

Chapter 11 -- $100

In the springtime of the third year of George Bush's term, we must conclude, that bankruptcy has become as popular as weight-loss. The sign is not merely an invitation, but a reproach. Bankruptcy rates are hitting records despite the best efforts of those who manage the economy.

In addition to bankruptcies and unemployment, business profits as a percentage of GDP have fallen to their lowest level in about 40 years. A question worth asking: How is it possible for an economy to be 'strong' with people going broke at a record rate . . . and businesses unable to make any money?

Most larger companies have "Statements of Value", pieces of paper that get trotted out in annual reports and at some meetings. One company's statement of value was listed as 'Respect, integrity, communication, excellence.' Did you immediately recognize the company behind those lofty words? Probably not. This could be any company's statement of values . . . this particular statement belonged to Enron.

Basic values need to be more than put down on paper . . . they have to be lived, discussed, reflected upon, and honored. And part of that discussion has to be 'What happens when we violate our values?' It will happen. People aren't perfect and organizations are collections of people; therefore, values will always be violated and, if the values have any real meaning, those violations will be opportunities to stop, admit o ur shortcomings, hold ourselves accountable and recommit.

I'm told that Roy Spence, President of the Austin advertising agency GSD&M is serious about values; so serious he had them cast in concrete in the rotunda of the company's new building. Every day, people are reminded of these values as they come into the office . . . and they know the values won't change with every passing fad since they're in stone.

Here a Scavenger Hunt for you: What are the basic values of your firm? Ask at least three people these questions and then see what you might glean:

-- How are values communicated?

-- How do people treat each other?

-- What values are reinforced by formal or informal taboos?

A professional acquaintance recently asked my advice about a program he was thinking of attending. He wanted to go, but felt somewhat unprepared, and was concerned about the cost of taking time away from his practice. I told him that I have a really simple way of determining whether something is good for me: It'll be good if it's inconvenient, uncomfortable and expensive." He laughed because he knew it was true. Most anything that is going to make you more successful will by definition cause you to stretch and grow; and therefore is likely to be inconvenient, uncomfortable and expensive - otherwise it wouldn't have much impact.

(Top performers don't just attend a variety of workshops, seminars and programs: They implement what they learn, which is where the results truly come from. Attending a seminar is easy, inexpensive and comfortable compared with actually implementing what you learn!)

There's a great scene in the movie A League of Their Own in which one of the baseball players cries, "This is hard!" The coach, played by Tom Hanks, tells her to pull herself together: "It's supposed to be hard. If it was easy, everyone would be doing it." The distinction between those who produce significant results and those who don't is simple: It's supposed to be hard. It's supposed to be inconvenient, uncomfortable and expensive, or else everyone would be doing it.

Are you willing to do something different, something others aren't willing to do, to get where you really want to be and deserve to be?

A note from one of my partners the other day is an obituary for business-as-usual! He reports on a visit with the General Legal Counsel at a Fortune 50 Company's office in the UK.

"This General Counsel has a small legal department, and finds that the particular law firms she uses do not understand that. They assume because the company is huge, then so too must be the in-house legal department. For a lot of legal work she uses a local brand-name law firm and recently went to a forum hosted by them for in-house lawyers on Alternative Dispute Resolution (ADR). Two things struck her. One, the assumption was that she was heading up a massive department; and two, that this was very much a Litigation Department affair and no attempt was made to intro duce non-contentious or transactional partners.

Furthermore, knowledge about her company and herself is seldom shared across the law firm. She contrasted this with her recent experience with recruitment firms. If she phones one to speak to Mandy, and Mandy is not available, she quickly gets passed to Mary who has all her pertinent details on screen and the latest position recorded in the database. She questioned why law firms do not do the same.

She claims that she has NEVER taken a phone call either from the lead partner or any external survey firm asking about the adequacy of a law firm's service to her. (Surprise . . . surprise!) She finds it frustrating that the advice she gets is often extremely narrow. For instance, she gets a lot of advice on compliance issues and in particular competition law. What she finds is that the same advice is frequently and repeatedly trotted out, without being in any way tailored to the needs of her corporation (pure law, and not a commercial solution) -- and secondly that no innovative thinking is employed to see if anyone in another department of the law firm has any slant on the problem.

This first problem should be addressed by a law firm engaging in some relationship building to understand her specific needs, and even perhaps offering her a 'maintenance contract' in relation to competition issues. The second problem also presents an interesting insight. She clearly does not see herself as being cross-sold to if she has a problem that needs the help of more than one partner or department."

Maybe these law firms should get a clue . . . And quick.

Interesting little tid-bit earlier this week in The Wall Street Journal. An analysis of fees paid by most of the 30 companies in the Dow Jones Industrial Average showed that 62% of the $811.8 million in fees for 2002 was for services other than auditing.

Among those companies with the biggest dollar spread between audit and non-audit fees was Johnson & Johnson, which paid PricewaterhouseCoopers $10.2 million for audit work and $82.7 million for all other services. Meanwhile Caterpillar Inc. paid the same auditors $8.2 million for their audit and another $13.9 million "for services performed as a subcontractor for outside legal services. Bingo!

Apparently despite the Securities and Exchange Commission's crackdown on the services that accounting firms can provide their auditing clients, firms continue to earn more for consulting and other non-audit services than they do for their audit work.

One wonders whether this audity . . . or . . . oddity, is simply because the new rules on auditor independence don't really take effect until next month or the result of some rather creative accounting that expanded the definition of what can be considered part of the "audit" engagement and fee.

Many are wondering what will happen to the economy when this Iraqi conflict finally ends? Milton Friedman says that the economy will take off. The Nobel Prize winner believes the end of the war will bring prosperity. How he can know these things is a mystery . . . but who am I to argue with him?

On the other hand, what does anyone really know for sure? Things like this have never happened before. . . so it's impossible to know what comes next. When was the last time stocks fell three years in a row? When was the last time manufacturing payrolls dropped for 32 months without a break? When was the last time business profits, as a percentage of GDP, declined for 4 decades? When was the last time The U.S. Labor Department reported initial jobless claims above 400,000 for eight straight weeks?

When was the last time the Fed cut rates 12 times consecutively . . . without producing a serious recovery? When was the last time the world's second (and perhaps third) largest economies were in deflation? And when did the U.S. last run a $500 billion budget deficit . . . and another $500 billion trade deficit? And when was the last time the U.S. consumer was so completely tapped out by debt - with debt at 200% of GDP - that he could no longer carry the world economy forward?

We have never been HERE before. Where we will be tomorrow is anyone's guess. Friedman's guess is as good as any. But probably no better.

Following on my last ranting of 11/17/02, do you ever wonder;

. . . about people who spend $2.00 apiece on those little bottles of Evian water? Try spelling Evian backwards: NAIVE

. . . if 4 out of 5 people suffer from diarrhea... does that mean that one enjoys it?

. . . when someone asks you, "A penny for your thoughts" and you put your two cents in . . . what happens to the other penny?

. . . about how people seem to read the Bible a whole lot more as they get older; then it dawned on me . . they're cramming for their final exam.

. . . if it's true that we are here to help others, then what exactly are the others here for?

AND NOW, BACK TO OUR REGULARLY SCHEDULED PROGRAMMING . . .