Financial Health of Asian Economies In Times of European Trouble

Obviously, as CEOs and C-Suite Executives, as well as senior mangers, investment strategies, strategic plans, budgets and forecasts in Asia can be greatly affected by the ongoing circumstances in Europe, and this is the reason why they are posted here for your scrutiny.

In yesterday's Wall Street Journal, this data was displayed about the Financial Health of Asian Economies in case of a Euro Emergency. Obviously, the concern is the possible contagion from Greece, and even more so from Spain and Italy's major financial problems rippling through the Asian economies. Some countries will fare better and others will be more exposed.  The overviews provided were interesting. Since it was a bit hard to piece it all together from the online WSJ version, the entire section is posted below. The individual country summaries are posted below the Table for your review, however immediately below here are some additional comments or thoughts.

The surprising countries of strength based on the data seem to be:
1) Philippines - with low European exposure both in trade and Bank lending, which one would expect, but a reasonably good financial score card in Foreign Exchange Reserves (FX) to Gross Government Debt (GGD).
2) Indonesia - however their FX is quite low.
3) China - recent announcements in the past couple of months indicates a great slowing of their economy overall, but they have a good FX to GGD ratio.
4) South Korea
5) Thailand
6) Taiwan, Malaysia

The highest exposures appear to be in:
1) Hong Kong
2) Singapore

Do you agree? Feel free to comment. The full article is below for your analysis.

In Case of Euro Emergency

The financial health of Asian economies in the event of a euro-zone meltdown can be gauged by several indicators:
1. Percentage of an economy's GDP that comes from exports to the EU (a large number signals heavy trade reliance on Europe)
2. European bank lending as a percentage of an economy's GDP (a high percentage indicates significant exposure to European banks)
3. Foreign-exchange reserves as a percentage of GDP (large reserves give a country/region more of a buffer against financial shocks)
4. Government debt as a percentage of GDP (low debt levels give governments more room for stimulus spending)

Country/Region	1. Exports to the EU, 2011	2. European bank loans, 4Q of 2011	3. Foreign-exchange reserves*	4. Gross government debt, 2011**
Australia	1.4%	18.0%	2.6%	22.9%
China	4.9%	3.5%	45.3%	25.8%
Hong Kong	19.0%	150.9%	117.9%	33.9%
India	3.1%	7.3%	15.6%	68.1%
Indonesia	2.4%	4.9%	12.9%	25.0%
Japan	1.6%	6.9%	20.5%	229.8%
Malaysia	8.7%	20.3%	43.8%	52.6%
Philippines	2.9%	7.1%	29.7%	40.5%
Singapore	15.2%	70.6%	93.6%	100.8%
South Korea	5.0%	12.8%	27.7%	34.1%
Taiwan	6.7%	16.2%	83.4%	40.8%
Thailand	6.9%	6.5%	48.6%	41.7%
Vietnam	13.1%	9.1%	13.9%	38.0%

* Numbers of Japan and Taiwan are from May, China and Malaysia from March and the rest from April. Vietnam's number is an estimate.
** Numbers of Hong Kong, India, Indonesia, Japan, South Korea, Malaysia and Taiwan are estimates; numbers of Singapore and Hong Kong are offset by substantial fiscal reserves.
Sources: CEIC (exports); Bank for International Settlements, HSBC (bank loans); Asian Development Bank, International Monetary Fund, People's Bank of China, Central Bank of Republic of China (Taiwan) (foreign-exchange reserves); IMF (government debt); WSJ calculations

Australia
Australia is well positioned to withstand a euro meltdown. It has responded to slower growth with interest rate cuts and has room to cut more. Government debt is low and inflation tame, so fiscal stimulus would be possible. It can also rely on China’s stimulus to pass through to its booming mining sector, though falling commodity prices are always a risk. A drop in lofty housing prices could exacerbate a slowdown.

China
China is in decent shape to respond to a euro crisis. It is less trade dependant than in 2008 thanks to increased domestic demand and investment. The U.S. displaced Europe as China’s largest export market this year. Government debt is low and foreign reserves are massive. China has started to boost its economy with an interest rate cut and other moves, though some question the viability of a big 2008 style stimulus package given the overhang of questionable loans in the banking system. With a closed capital account, there’s minimal exposure to European lending.

Hong Kong
International trade and finance hub Hong Kong will be on the front lines of a European meltdown. But it has the weapons to fight back, with massive rainy-day funds equal to more than three years' worth of government spending. Its banking system has weathered crisis after crisis with little harm thanks to a deep deposit base and strong government oversight. The frothy property market is a wild card. A drop in prices would sap confidence among Hong Kong consumers.

India
India is weaker than most countries heading into a euro mess. Its worst growth trajectory in a decade combined with persistent inflation and falling reserves have prevented the central bank from acting aggressively. Swelling government deficits make a big stimulus program difficult to pull off. On the plus side, weaker commodity prices would help alleviate its current-account deficit by lowering imports and reduce government debt problems by lowering the bill for fuel subsidies. Another plus: exports play a small role in the economy.

Indonesia
Indonesia's outlook is mixed when it comes to euro trauma. It has relatively limited ties to Europe and its banks. Its economy is driven by domestic demand and consumers who are largely insulated from global markets. Government coffers are flush. But high foreign ownership of government bonds and modest currency reserves mean its financial system is vulnerable to bouts of global financial panic, as seen with the recent slide the rupiah. Indonesia's central bank has been proactive to spur growth, cutting rates three times since September, citing the uncertainty from Europe.

Japan
A global panic would be another blow to beleaguered Japan. The yen would likely rise higher, making a slowdown in demand from European customers even worse for Japan's exporters, as a stronger yen makes Japanese goods more expensive. With interest rates already near zero and government debt the highest in the world, Japan has limited room to react to a crisis with a big stimulus or monetary easing.

Malaysia
Malaysia’s reliance on trade and European bank funding make it more exposed than most countries. Foreign ownership of government bonds has risen to 39% of the total, a record high. Some fear a spike in borrowing costs if investors leave in a global panic. Malaysia does have large currency reserves to fight such a capital flight. And while government debt is higher than some, it has the firepower to continue sizeable government spending projects.

Philippines
The Philippines is better positioned than in the past to withstand a downturn, with a stronger government balance sheet and a robust domestic economy. Foreign reserves are high enough to fight capital flight. A weakness is exports, which are heavily concentrated in the electronics sector with a heavy reliance on Europe as an end customer. Critical remittances from overseas workers showed resilience in the last crisis. As an energy importer, a fall in commodity prices would aid growth.

Singapore
Singapore will bear the brunt of a euro meltdown as this trade- and finance-dependent economy has more exposure to European banks and European trade than most nations. As a regional banking hub, financial services alone constitutes 12% of its GDP. The recent sharp increase in tourism could reverse, causing further pain. But Singapore is also used to wild swings in demand and has deep pockets to keep workers employed and businesses alive.

South Korea
As a prolific global exporter, South Korea is exposed more than most countries to a meltdown in European demand. Half of its GDP in 2011 was from trade. But Korea has shored up its exposure to foreign financial markets, a weakness that caused its currency to plunge in 2008. Korea has boosted its reserves and banks have lowered dependance on short-term foreign loans. Ties to China could help if Beijing pushes a big stimulus, boosting demand for Korean-made construction machinery, engines and steel.

Taiwan
A euro collapse and global recession would hit Taiwan’s technology-export-oriented economy hard. Close to 7% of its GDP is made up from European exports and that doesn’t count the chips and processors Taiwan sends to China and elsewhere that get re-exported to Europe. Taiwan’s foreign-currency reserves are a fortress--like 83% of GDP--providing protection from a global capital shortage. 

Thailand
Thailand will feel a chill with nearly 7% of its GDP derived directly from European demand and a high ratio of exports to GDP. Yet Thailand has made a conscious push to lessen that dependency on trade by boosting domestic demand. The government hiked minimum wages as much as 40% to put money in consumers' pockets. Banks are strong and ample currency reserves will alleviate financial market gyrations.

Vietnam
Vietnam is in a weak position to withstand a euro meltdown, relying heavily on Europe for exports and for foreign direct investment. Growth slowed substantially in the past year, leaving the banking system weak and unable to deliver a big lending boost like it did in 2009. While foreign reserves have risen lately, they are still relatively low. Vietnam’s persistent shortage of capital has led to several currency devaluations, a situation that could repeat. Inflation has eased significantly over the past year, which at least gives policy makers some room to cut interest rates.

Improper vetting of Data on a Resume leads to Resignations at Yahoo!

As mentioned in a couple of earlier blog posts, making sure that the references check out and information on Resumes/c.v.'s is accurate before hiring someone, is critical and essential. This impacts the corporation on multiple levels:

1) Making sure that there is good "Job Fit" by contacting people who have worked with the individual before and how they have performed, and in "assessing" behavioral traits that fit with the position's benchmark, based on top performers.

2) Ensuring that the Ethics and Moral values of the person are consistent with the company's values, as this person's interaction with all levels of the company's personnel will have some effect, regardless of position within the company, from sanitary engineer on up.

3) Finding a replacement can take time and interrupts strategies or activities being handled by the individual in question and can set back the initiatives, by months to even years.

4) It affects the morale of of the company and personnel. The higher the position of the person or people in question, the broader the impact and negative affect on the company. In this most recent case at Yahoo!, which has been struggling to compete against Google, it casts ongoing credibility issues for the company, both internally and with shareholders. Morale and Credibility Issues follow Yahoo!

And:
5) In this case, it has affected not only the career of the individual who embellished his credentials, but also, regrettably another Board member.

Have all the shoes fallen yet? Only time will tell! There should be policy changes put into place to prevent a occurrence, that is clear.

Scott Thompson CEO of Yahoo! Resigns

Patti Hart of Yahoo! Resigns Over CEO's botched Academic Records

Customer Service and The Wait-Time Misery Index

Recently there was an interesting article in the WSJ about new innovative ways companies are using by improving customer service and raise customer satisfaction for their products and company. Nothing is worse than non-performance or having to wait around for hours.

Not only does waiting increase stress, but creates a bad impression with clients. Many companies do not even provide 4 hour windows, but 8 hour windows, which kills the whole day. The longer in the day that service is finally provided, the less satisfaction a customer generally has.

Maybe some people of have heard of the Wait-Time Misery Index, but if not, it is a useful definition for measuring potential customer satisfaction. The greater the misery, the less customer satisfaction there will be.

The best adage is under promise and over deliver!

What new ways can you create to help reduce this index for your company? What change management techniques can be employed? How much do you communicate the need for great customer service and what metrics do you have in place to manage it and improve it? How can technology and IT, social media, visioning exercises, and strategic planning help to improve performance around this index? 

Have you, your C-Suite and Marketing personnel given thought to this? If so, how effective have you been? If not, why not?

(Link to the article is at the end.)

The Wait-Time Misery Index

Why Do Deliveries Trap You at Home For Hours; Strategies to Speed Things Up

By RAY A. SMITH

Would you wait around if your friend was four hours late for dinner? No, but your cable company thinks this is a reasonable window of time to wait for service.
Now some companies are whittling down the wait window to two hours and trying to improve communication with customers. Some send texts with arrival updates while others reveal online where people rank in the day's delivery queue. The thinking: people, trapped in the house waiting for something to be delivered or installed or repaired, will feel less powerless if they know what to expect.

Everyone hates waiting for the phone company to come connect service or for a mattress to be delivered. Ray Smith on Lunch Break looks at which companies are innovating in this area and what effect waiting has on our sanity.

More than 50% of adults used a sick day or vacation day to wait at home for a service or delivery, according to a 2011 survey of more than 1,000 people by TOA Technologies, a Beachwood, Ohio-based firm that works with companies to reduce customer wait times. More than 25% of people surveyed lost wages while waiting.

People often become more stressed by the uncertainty, says Richard Wurtman, a neuropharmacologist and distinguished professor emeritus at the Massachusetts Institute of Technology. "The underlying personality will determine the extent to which you are vulnerable to stress induced from waiting."
Shaving two hours is a big leap, companies say, because so many factors affect delivery from traffic to calculating the time a repair or installation will actually take.

General Electric began experimenting with moving from four-hour windows to two-hour windows last year for its appliance deliveries in the Midwest. UPS late last year launched a program called My Choice which, for a $40 fee, offers customers a two-hour window delivery option. Use of the service has been strong, UPS says.

FreshDirect, a grocery-delivery service based in New York, offers two-hour wait windows. Less than a year ago, it began giving people $2 discounts on its usual $5.95 delivery fee to choose a "green" time slot—a window in which the company knows it has trucks in the customer's neighborhood. It is marketed as an eco-friendly innovation, but it also has the effect of grouping deliveries for more efficiency.

Linda Peterson, an interior designer from Atlanta, says she has resorted to paying more for an appliance-repair company called Appliance Doctor that guarantees two-hour windows, even though it costs at least 25% more, she says, than if she called the manufacturers of the appliances or other repair services.

"I didn't want to pay the premium, but I became so frustrated and being asked to wait for more than two hours was exasperating," she says. She finds even two hours hard to bear. In August, while waiting for a repairman, she began ironing linens to take her mind off the time. He arrived close to the end of the window and the work took awhile. "It was probably 50 napkins, four or five tablecloths easily," she says.

Calling during the wait window to inquire about the status of a shipment or delivery generally is not worth your time, companies say. That's because a customer will likely be calling the retailer, but usually the delivery is handled by a separate delivery company.

Service visits can be a different story. Bill Kula, a spokesman for Verizon, says usually that kind of inquiry wouldn't make a difference. That said, if a customer calls near the end of a promised window, perhaps 30 minutes before the time is up, it could be helpful. Verizon could see if there is a technician nearby who could reach the customer ahead of the scheduled technician, Mr. Kula says.

To make deliveries within a two-hour time slot, more companies are investing in software that helps determine the most efficient route The technology can shave time off trips by taking into account speed limits, for example, and estimating how long a stop will take based on service type.

"In the not too distant future, companies will be able to tighten that window to one hour," says Satish Jindel, president of SJ Consulting Group, a Sewickley, Pa., transportation and logistics consulting firm.

Enlarge Image

"I see companies using the two-hour window as a significant marketing thing," says Bruce Champeau, Room & Board chief operating officer. The furniture retailer has had a two-hour window in effect since the mid-1990s. "It's a matter of respecting the customer's time," says Mr. Champeau.

Room & Board uses scheduling software that factors in variables from traffic routes, including roadwork detours, to how long furniture assembly might take. Employees make additional updates and adjustments accordingly.

A small delivery window can give a company a leg up on rivals. With the far and fervent reach of social media, a very good or very bad delivery experience can go viral. Increasingly shoppers are broadcasting their anger—and naming company names—on customer review sites like Yelp, and on Facebook and Twitter. In the TOA Technologies survey, 16% of respondents said they post complaints online.

When it comes to waiting, a maddening factor is often the lack of information. Is the company on its way? More companies are trying to give customers status reports during the appointment window. Some businesses believe this reduces customer stress.

This is what New York's Metropolitan Transportation Authority found after it began installing digital clocks to display the number of minutes before the next subway train would arrive on the platform. So far, 209 of its 468 stations have the clocks.

"It's the 21st century," says MTA spokesman Kevin Ortiz. "There are expectations that real-time information be available to customers."

3PD Inc., of Marietta, Ga., which hires local carriers on behalf of large national retailers to handle the final leg—or what the industry calls "the last mile"—of a delivery, plans to add a similar style of communication for customers later this year. Using an app, 3PD's customers will be able to look up how far away a delivery is from arriving, says Will O'Shea, chief sales and marketing officer.

Some enterprising small concierge companies have emerged in recent years to do the waiting for you in your home for a fee. Some charge around $35 an hour.


When Victoria Kingscott's cable went on the fritz, the 25-year-old senior analyst at a financial services firm in New York says Time Warner Cable told her she couldn't get a Saturday appointment for three weeks. She couldn't take off work during the week, so she booked a 9 a.m. to 1 p.m. appointment for a Saturday last August and waited. When the big day came, she waited some more.

At noon, she became antsy. She called and was assured a technician would arrive within the hour. At 1 p.m. she called again. Apologies were offered. "I said 'this is unacceptable. It's a Saturday. I have things to do.'" She was given a second four-hour appointment window and told she was "next."

More hours of waiting, more calls. At one point Ms. Kingscott was erroneously told the technician was at her home. He was not. Finally, the technician showed up around 4 p.m. "He didn't really say he was sorry or offer any kind of explanation," she says.

"Clearly that is not an optimal customer service experience," says Alex Dudley, a Time Warner Cable spokesman. "The overwhelming majority of our installations go well."

The Wait-Time Misery Index 

Recent article in the WSJ about Fixing Executive Compensation

There is nothing earth shattering in this article but is it good for identifying concise issues. The essentials of including debt in the calculations is an excellent concept, long term growth, and flexible compensation packages (adapting to market changes) are important for CEO and Senior Executive Packages.

However, even beyond these issues, it might have mentioned the need for a pro-active Board that demands financial transparency and accountability, and good external financial audits to highlight problem areas. Human capital growth is also needed for sustainability and should be included in some form. Last, it is essential to identify organic growth from acquisition growth, as acquisitions can hide a number of sins and problems, not to mention, many times adding debt to the corporation.

Here is the article with a hot link to the original article at the end:

• FEBRUARY 27, 2012

How to Fix Executive Compensation

For starters, don't link pay packages just to stock. Tie them to debt as well.

By ALEX EDMANS

The secret to reforming compensation isn't so much looking at how much bosses get paid—but how they get paid.

More in Leadership in Corporate Finance

• The Art of the IPO
• The Case for Offering Guidance on Earnings
• The Pros and Cons of Buybacks
• Why Tech Spending Is Often Exempt From Cutbacks
• Read the complete report .

It's easy to understand why critics focus on the gaudy awards of cash and stock that executives take home. And, yes, it's hard to deny that some bosses get paid a lot more than they deserve. But the structure of compensation is ultimately a lot more important than its level, because it gets to the heart of how managers run companies and create value for shareholders.
Pay packages should give managers strong incentives to run companies correctly, to make them think in the long term and avoid taking excessive and potentially destructive risks. In many cases, they are well-designed and provide CEOs with the correct motivation. But in others, pay packages not only fail to achieve that goal but push executives in the other direction.
There are creative ways—yet simple and easy to implement—to tie executives' fortunes to the long-term health of their companies. Tying bosses' pay to the levels of debt at the business, for instance, will dissuade them from taking risks that might alienate creditors. Preventing executives from selling company stock until several years after it's granted will give them a powerful incentive to think long term. And updating the compensation package to reflect changing conditions in the market and the company will ensure that managers' interests are always aligned with those of the company and its shareholders.
Here's a closer look at those proposals.

Pay Them in Debt

An effective way to deter executives from taking excessive risk is to compensate them with debt-based pay as well as equity. However, many compensation packages feature only cash and equity.

Consider what happens when a boss who gets paid only in stock is facing a big choice that affects debtholders.
Let's say the company has $1 billion in debt but assets of just $900 million. If the CEO liquidates the business, debtholders get 90 cents on the dollar, but equity holders (like the CEO) are wiped out. Obviously, that's not an attractive prospect for the boss.
Now imagine that the CEO has before him a proposal that has an equal chance of gaining $200 million and losing $400 million. Clearly, the project is undesirable from a company-value perspective. However, since the manager holds only equity, he has little to lose by taking it. Stockholders are going to get wiped out anyway, so they're not going to lose more if the move fails. But if it succeeds, the company is worth $1.1 billion—and equity holders have $100 million to share, after the debtholders get paid off.
Looking at things from the debtholders' point of view, though, the move is clearly undesirable. If the boss doesn't take on the plan, they recover 90% of their money. If the boss goes through with it and succeeds, they get an additional 10% back. But if the strategy fails, they collect just 50% total.
Boards of directors, who design pay packages, are elected by shareholders. So, why should they care about debtholders at all? Because if potential lenders expect the CEO to take such gambles, they will demand a high interest rate and restrictive covenants, ultimately costing shareholders. A high interest rate cuts into profits, and restrictive covenants may prevent managers from undertaking desirable investment.

Qi Liu of Wharton and I have shown that the optimal pay package involves giving managers debt-based compensation as well as equity. Contrary to intuition, the CEO's optimal equity/debt ratio typically differs from the company's. If the business is financed with, say, 60% equity and 40% debt, it may be best to give the CEO 80% equity and 20% debt-based pay. The optimal debt ratio for the CEO is usually lower than the company's, because equity is typically more effective at inducing effort. However, the optimal debt ratio is still nonzero—the CEO should be given some debt compensation.
As for what kind of debt to give as compensation, it can take any number of forms. First, defined-benefit pensions and deferred compensation are already frequently used in practice. These instruments have equal priority with other unsecured creditors in bankruptcy, giving the CEO a strong incentive to look after their interests. And they seem to work: The research of Raghu Sundaram and David Yermack of New York University finds that CEOs with large defined-benefit pensions manage their companies more conservatively. Similarly, a paper by Divya Anantharaman and Vivian Fang of Rutgers University and Guojin Gong of Pennsylvania State University finds that debt compensation leads to fewer loan covenants and a lower cost of debt.
Second, compensation can be explicitly tied to debt values. American International Group Inc. used that kind of system in 2010, before its recapitalization, for certain elements of compensation for highly paid employees. In that plan, 80% of the pay was tied to the price of some of the company's bonds, and 20% was tied to the price of its stock. Third, the CEO can be granted actual debt securities such as corporate bonds, just as CEOs typically hold stock and options.

Make Them Wait to Cash In

Another critical change companies should implement is to lengthen the time that executives must wait before they can cash in their shares and options. All too often, stock and options have short vesting periods, sometimes as little as two to three years. This encourages managers to pump up the short-term stock price at the expense of long-run value, since they can sell their holdings before a decline occurs. A CEO can, for instance, write subprime loans to boost short-term revenue and leave before the loans become delinquent, or scrap investment in R&D. This is possible since, in many cases, stock and options immediately vest when the CEO leaves the company.
In a paper with Xavier Gabaix and Tomasz Sadzik of New York University and Yuliy Sannikov of Princeton, we show that optimal compensation packages involve long vesting periods. In particular, the pay packages don't vest more quickly when a CEO leaves a company—the executive must still wait several years before cashing in.
Just how long should a CEO wait? It depends on the kind of company. The waiting period should be longer in businesses where the CEO can take actions with very long-term consequences. It might be seven years or more at a drug company with a lengthy product pipeline. But the wait might be shorter at, say, a commodity chemical company, where CEO decisions usually don't have an impact more than a few years ahead.
Of course, there is a trade-off. If companies make CEOs wait too long to collect, the former bosses might be exposed to risks outside their control, such as regulatory changes that eat into profits. Companies need to find a balance that works best for their situation.

Change to Fit the Times

Even a compensation plan that's well-designed at the outset can fail to keep pace with the market and the company's fortunes. Take the case of a corporation that pays its boss in stock options. If the company hits a rough patch and its shares plummet, an executive's stock options become close to worthless and lose much of their incentive effect. This problem may still exist even if the executive has all stock and no options.

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Let's say the CEO is paid $4 million in deferred cash and $6 million in restricted stock. At the outset, boosting the value of the company by, say, 1% is worth $60,000 to him—a good inducement to put in more effort or drop a costly pet project. But if the share price halves, his restricted stock is now $3 million. So, this incentive is slashed to $30,000.

To maintain the power of the incentives, the CEO must be required to hold more stock after a stock-price decline. How much more? In the paper with Profs. Gabaix, Sadzik and Sannikov, we show that the CEO's stock should remain a roughly constant percentage of compensation.
In the example above, this target was 60%. At the start of the CEO's contract, that meant $6 million out of $10 million total compensation. We call this the CEO's "incentive account." Now that the stock has halved, the incentive account is worth only $7 million—$4 million in cash and $3 million in stock. To keep the equity level at 60%, the CEO must have $4.2 million of stock. This is achieved by rebalancing the CEO's incentive account: exchanging $1.2 million of cash for stock, so that the executive now has $2.8 million of deferred cash.
Since the additional stock is accompanied by a reduction in cash, it isn't given free. This addresses a major concern with the repricing of stock options after company value falls: Repricing rewards the CEO for failure by giving him a lower stock-price target to reach. Note that, even if the board is reluctant to amend the terms of previously awarded compensation by exchanging existing stock for cash, the desired rebalancing can still be easily implemented; next year, the board simply pays the CEO more equity and less cash.
If companies employ the three above principles—debt-based compensation to reduce risk, long vesting periods to dissuade short-termism and rebalancing to ensure incentives at all times—executives will be aligned with the long-term health of their companies. And that will not only help keep individual companies safe, it will reduce the risk of another financial crisis.
Dr. Edmans is a finance professor at the University of Pennsylvania's Wharton School, a faculty research fellow of the National Bureau of Economic Research and a research associate of the European Corporate Governance Institute. He can be reached at reports@wsj.com.

Fixing Executive Compensation 

ETHICS, Drugs and Morality: How they affect Communication, Productivity and Everyday Life- Part IV

The recent study about Ethics (Higher social class predicts increased unethical behavior-from the Proceedings of the National Academy of Science of the United States) was mentioned in yesterday's posting, but it merits greater attention, as it is as recent as January 2012. Also, many times, higher social class people tend to be in higher positions, for a variety of reasons, some warranted and some not. This study was mentioned in a recent Canadian TV newscast also.

The importance of this study is of interest because it states that the higher the social class, the greater the increase in unethical behavior. So, this supports why both pre-hire assessments should be used to help screen and identify these behaviors before hiring certain individuals, or at the vary least, the need to validate the results. Establishing benchmarks can be easily done around these issues. For non-profits these behaviors may be even more critical.

Even if these people are hired, then the company should use this information as Training Needs Analysis and possibly implement more frequent reinforcement in the beginning years of employment for these individuals. Or during the onboarding process, highlighting sections in the employee manuals, and if ethics is part of core values, then highlighting this also.

The significance of the study is important as it may also be a partial explanation as to why recently there have been so many abuses of fraud, stealing and and deception in high profile news stories. Only through Board oversight can the C-Suite and senior level employees be supervised. The rest of the organization should be supervised by watch-dog employees and HR scrutiny.

Below is the abstract from the above mentioned study. The link is in the first sentence above.

Higher social class predicts increased unethical behavior

1      Paul K. Piffa,1,

2      Daniel M. Stancatoa,

3      Stéphane Côtéb,

4      Rodolfo Mendoza-Dentona, and

5      Dacher Keltnera

+ Author Affiliations

1      aDepartment of Psychology, University of California, Berkeley, CA 94720; and

2      bRotman School of Management, University of Toronto, Toronto, ON, Canada M5S 3E6

3      Edited* by Richard E. Nisbett, University of Michigan, Ann Arbor, MI, and approved January 26, 2012 (received for review November 8, 2011)

Abstract

Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals. In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals. In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals. Mediator and moderator data demonstrated that upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.

ETHICS, Drugs and Morality: How they affect Communication, Productivity and Everyday Life- Part III

When asked WHY, after conducting pre-hire assessments of candidates, and drug screening prior to hire,  the client still has issues with employees who have been long term employees in the areas of ethics, drugs and morality...

The reason is relatively simple…

These are issues that need to be re-enforced over the years regardless of how we have been raised, taught and/or shown. Our personal situations change over time, and there are temptations and challenges that we are confronted with that test our resolve in these areas. Personally, I have observed that mid-life crisis years (male and female) increase the pressures on individuals and a number of people have changed or relinquished their values to regain where they had envisioned themselves to be at this stage in their career or life. Many times, this is because they possibly have felt that they have not attained the success they had expected to achieve at this stage of their life, or financial challenges have arisen at a stressful period of time, and many other reasons.

This is why it is essential that companies have reinforcement programs to remind existing employees of policies and standards that need to be followed. In a fortune 100 where I worked, after a several hour session of re-enforcement each year, we had to sign anti-trust and ethics standards each year.

These kinds of programs need to be implemented yearly as they can then communicate changes in existing  programs, or address questions that employees might have encountered through the course of the year.

In January of this year, at the National Academy of Sciences of the United States, a paper was included with the title of:  Higher social class predicts increased unethical behavior . Maybe this is ONE reason why so many recent instances of CEO and Senior Executives violating laws or absconding with money, in one way or another.

Ethics in particular is a major problem. Obviously, the well publicized cases in the past of Bendix’s

Agee, Enron, and what you can find in this article: The Corporate Scandal Sheet

And a recent Wall Street Journal article: Behind a CEO's Departure: An Ouster or Resignation?

Best Buy: Best Buy Probes CEO Relationship

MF Global : Fast, Furious at MF Global

Allan Stanford: Prosecutor Sums Up: Stanford Lied for Decades

AIJ Investment Advisors (Japan): Japan launches probe of all advisory firms in wake of AIJ case

Russell Wasendorf of Peregrine said in a statement that he forged documents and lied to regulators.

Hong Kong Billionaires Charged With Bribery

If you are not addressing these regularly, then do not be surprised when employees "fall off the wagon"….so to speak. These examples above, are the high profile ones, imagine the lower level employees and the numbers that exist there. The retail industry is well aware of the theft and losses involved. Does your Employee Manual address these issues? Are they not part of your core values? Is this not a key element to building human asset value and sustainability? So if you are not doing assessments during pre-hire, don't you think you should? Once people are on-board, re-enforcement programs are required. 

So the question is: What are you and your company doing to address these issues on a regular basis?

Ethics, DRUGS and Morality: How they affect Communication, Productivity and Everyday Life- Part II

Drugs in their many varied forms (alcohol, hard drugs, amphetamines and even tobacco) have a myriad of effects on our employees and companies. As mentioned in Part I of this series, 31% admit using drugs or alcohol, and these are for people who admit it. The percentage is most likely much higher.

At a business conference several years ago, a breakout session about the 12 Steps of AA (Alcoholics Anonymous) was held. Originally, I had envisioned this to be how to use the process in other ways within a company. No, it was about actual AA, and it was attended by those who either had been on drugs of some form, or had direct family members who were on drugs. The statistic presented there was 40%. This was a major revelation at the time, because I had never seen this statistic before and it impacted me as to the ramifications that this holds for, CEOs, senior managers and C-Suite professionals and HR departments, which should be staggering if viewed from the proper perspective.

We always are wondering why our people may not be as engaged as we would like, or why our communication messages held with auditoriums of employees, or even chats at the water cooler, seem not to be as impactful as we would expect, and like them to be.

Possibly this statistic and topic may be part of the reason. Of course, some of the problem can be our delivery of the topics or making them relevant to those we are speaking to and/or with. However, if we take this drug statistic and also look at other distractions at work, such as illnesses of parents, children, relatives or even the general health of our employees, not to mention the medication being taken by employees at work, can we begin to see why people may not be as engaged as we like, or as productive as we expect? Might this figure of distracted, low engaged people be as high as 70%?

How much are the various drug forms affecting organizations and corporations? Significantly more than we probably care to know, if we acknowledge this statistic and the implications on productivity! Everything from absences, distractions, worry, stress, and general illness, impacts corporate sustainability, profitability and productivity. Government regulations in many countries now required companies to provide benefits for medical care, in various forms, for existing employees, including mental and support-group coverage for “illnesses.”

So this affects a company financially, from the FIRST day a new employee joins the company!

How do we address this issue from corporate communications, to employee manuals and benefits, and even more importantly assessing this in the pre-hire phase, before even bringing a person into our organization? Is this being done in your company? Is it being regularly communicated into the organization? Is it being reinforced with Mandatory Training Programs?

What do we discuss during the onboarding process? What procedures do we have in place to monitor compliance to existing drug policies and excessive absences? Are these in place within your company? If not why not? Can you afford NOT to address this issue on a regular basis?

Ethics, Drugs and Morality: How they affect Communication, Productivity and everyday life Part I.

This is a broad but critical and essential topic(s) for the C-Suite, Board of Directors, and HR Heads. Why? Because, these impact almost every corporation at some point in time and on multiple levels. This costs trillions, not just billions of dollars/local currency on a global basis. The retail sector probably recognizes and deals with these issues the most often, however we are all confronted with them, and it is on a large scale.

In my many years in business, there has been some discussion about this topic but normally in general terms, and not with the URGENCY it deserves. It has been dealt with in a spotty manner at best, and non-existent during many others. This is not to say that the “sky is falling” but we need to address this and hear the drum beat.

You don’t hear the drums and cadence? Well let’s just mention a few instances: Bernie Maddoff and multiple ponzi schemes recently in the news running into the billions of dollars, WaMu, the Catholic Church’s issues with sexual abuse, Enron, Fannie Mae, Freddie Mac, Solyndra,…the list is endless, unfortunately.

A recent replay of an interview with David Millar, a professional cyclist who was found to be doping and now openly admits it, brought this topic into sharp focus at this time and provides an excellent reference point. This interview provides the essence of what we are confronted with, not only in professional and amateur sports, but in our day-to-day business and management lives as leaders. To ignore it, or down play it, is at our company’s risk.

Recently, a couple of companies have asked in our discussions, why, after conducting assessment screening around these topics during the pre-hire, they have still found a few people stealing? The answer to the question is because at different points in our lives, we are challenged by circumstances that may dislodge us from our values, depending on how deeply they are ingrained within us and this is so frankly discussed by David Millar.

It is David Millar’s interview which so clearly addresses this issue. He had rejected doping for 7 years of his career and had no intention to ever dope. However, when he fell on a tough period, when he was no longer performing at the level of before, he decided he would and he did Dope!

He says that he didn’t do it so much for the money, but for his ego and to regain his reputation in the sport (the irony was lost on him at the time: that by doping and getting caught it had an even a greater negative effect on his reputation, than if he had just retired from the sport when he was no longer competing at the level of before).

Each of us is confronted with similar issues at various times in our lives and career. However, it is our ethics, view of drugs (and this takes many forms) and morality, and the depth we are inculcated with these values that provides the guidance for us to avoid these issues….. or, we surrender to the issue at hand.

A way to help provide the foundation for a company and it’s employees, is through reinforcement with written policies that need to be signed by each employee each year, regular training, and corporate communication around these values on an ongoing basis.

Some statistics that may be eye opening (from SHRM and other sources):

31 % admit to abusing drugs or alcohol

41 % say they falsified records

56 % of working people admit they lied to their supervisors

64 % use the Internet for personal use while at work

80% of computer crime is committed by company insiders

A majority of applicants stretch the truth on resumes!

  More than half, 55%, lied about the length of past employment.

  Past salaries, 52%

Criminal records, 45%

  Former job titles, 44%

Former employers, 34%

 Driving records, 33%

Degrees, 28%

Schools attended, 22%.

 Some 15% percent even falsify their social security numbers!

So, if you are not convinced by these statistics, then look around you at work. How many people do not show up to work on time? How many feel that if they work 7-8 hours a day, that is all that they need to do because that is what they are getting paid for? How many really understand where their salaries, commissions and bonuses come from? How many have a basic understanding of profit and loss?  Just because it is clear to you, is it really clear to others?

It is every employee’s responsibility to help articulate and support these issues. Only through vigilance can the theft of time, property, and erosion of values be prevented!

The challenges are for the C-Suite and Human Resources:

1)      Are pre-hire techniques being used to help avoid bringing in future employees with the wrong values?

2)      Once onboard, how much corporate communication and time is spent around core values, and especially these particular issues? Are policies in place in Employee Manuals?

3)      Are they reinforced and training provided, regularly? Are the investments being made? This affects all shareholders in one form or another.

Values come from the top down, but can be supported by all employees! These can clearly be shown to impact sustainability, survivability and profitability, as well as personal success, individual health and life issues and values.


Link to the interview:

David Millar, Cyclist, Drugs, BBC Interview