Business Ethics – Page 10 – education and deconstruction.com

Antifragile

The Book of the Week is “Antifragile, Things That Gain From Disorder” by Nassim Nicholas Taleb, published in 2012. In this repetitive ebook, Taleb reiterates a few of the concepts from his earlier book “The Black Swan” and again appears to derive pleasure from pointing out human fallibility. He writes that “Uncertainty, incomplete understanding, disorder, and volatility are members of the same close family.” He shows how people generate inaccurate predictions and draw the wrong conclusions through spurious causality, or “epiphenomena.”

Taleb discusses a state of being he calls “antifragility” (or more often, a lack thereof) in the realms of politics, economics, science, academia and medicine, taking swipes at all of them as he goes along. He gives tips on how systems and individuals can make themselves more antifragile (the opposite of fragile), a good thing. The author also provides real-life and theoretical scenarios that perpetuate fragility. Humans appear not to be learning from past scenarios, as they continue to make the same mistakes over and over. One example of a real-life scenario includes the economic bailout of certain big companies, by the United States government (and by extension, American taxpayers) in 2008.

Fragility is vulnerability to negative occurrences. Antifragility is the ability to withstand negative occurrences due to various measures taken to reduce risks; this state of being actually benefits from volatility and randomness.

Humans tend to overestimate their ability to predict shocks and rare events (like revolutions, crises or budget deficits), and when the worst happens, it is worse than the previous occasion. Taleb writes that after havoc strikes, blame incorrectly gets assigned to one factor of the big picture. “The focus is wrong even if the logic is comforting.” People need to study the system and its fragility, not events.

One general example Taleb provides of spurious causality includes the questionable, widely-held assumption that academic research is the generator of wealth because so much research comes out of countries that are wealthy. Taleb thinks it is actually the other way around. “We have no evidence that academia helps science and technology, which in turn help practice.” One narrow instance of this was the building of the atomic bomb, in which there was directed research. But in that, there was selection bias and confirmation bias.

Another example that Taleb provides– a theoretical one– is when an Ivy League university scientist lectures a bird on how to fly. The bird takes flight. The scientist hastily writes books, articles and reports stating that the bird listened to him. The university is now an authority on aerial transportation by the avian species. It will implement further studies with funding by the government. Unfortunately, birds do not write books and papers, so we cannot get their side of the story.

The author advocates interventionism in particular areas and not others. He thinks the government should impose restrictions on the size, concentration and speed of entities including itself (obviously idealistic of him) because bigness increases fragility and the probability of disasters. He thinks less is more (do nothing or implement minimal intervention unless a medical condition is life-threatening) when it comes to medicine.

Taleb says education is useful in that it helps a family retain wealth insofar as its descendants use their educations to enter professions that were more lucrative than those of their ancestors. Almost all projects take longer and cost more when an element of uncertainty is added. “We have never had more data than we have now, yet have less predictability than ever.”

Read the book to learn more about: a) errors in human reasoning that aggravate adverse situations; b) why fragility is increased with fiscal deficits and awarding of prizes in the fields of literature, finance, and economics; c) which actions are helpful in promoting antifragility and d) an inopportune event caused by Taleb’s own fallibility and his reasoning in dealing with it.

In sum, “The problem with people who do not incur harm [suffer no punishment for their influential opinion-making that causes economic collapse or a war] is that they can cherry-pick from statements they’ve made in the past, many of them contradictory, and end up convincing themselves of their intellectual lucidity on the way to the World Economic Forum at Davos.”

The Waxman Report

The Book of the Week is “The Waxman Report” by Henry Waxman with Joshua Green, published in 2009. This is a political memoir that discusses the major issues the U.S. Congress faced during the four decades of Waxman’s career.

The author, a liberal Democrat, was first elected a Representative in the fall of 1974. He talks about the steps required for making laws with regard to containing an epidemic, such as AIDS in the 1980’s: generate publicity, raise funds for studies on the subject, and, further along the learning curve– implement measures on prevention and treatment. Waxman remarks that involvement of celebrities generated publicity for not just AIDS issues, but also for getting the big pharmaceutical companies to research and manufacture drugs to treat ailments whose sufferers are too few in number for profitability. Waxman participated in helping pass a Congressional bill that contained a creative compromise for both the medical business and patients.

The author dealt with a slew of other political issues to which the aforementioned steps can be applied, too. However, he wrote that the government must be careful not to grant too many allowances to the entities it is regulating in order to pass legislation, because once a bill becomes law, those allowances will not be lessened.

Another point Waxman makes is that politicians sometimes need to partner with their ideological enemies if they want to pass a law. This is where “pork barrel” legislation can be advantageous for both sides. If the opponent’s district is horribly polluted and in danger of being fined, for instance, he might want to help draft an amendment to an anti-pollution law, as was the case with the 1977 Clean Air Act in the early 1980’s.

Read the book to learn the details of how Waxman paints Republicans as evil– their deregulation of various industries has harmed Americans’ health and financial well-being. Nevertheless, the author is optimistic because American politics, although a dirty business, is cyclical. Government and the people work together to adapt to the changing times.

Brooklyn Zoo

The Book of the Week is “Brooklyn Zoo” by Darcy Lockman, published in 2012. This is a personal account of an internship of a PhD candidate in psychotherapy.

Lockman started her internship in summer 2007 at Kings County Hospital in Brooklyn, New York State, the final leg of training before she got licensed to practice. Throughout the book, she reveals the lingo, issues and people encountered by clinical psychologists.

A few aspects of the personalities of humans include developmental level (psychotic, borderline or neurotic), and character applicable to it (“masochistic or obsessive or narcissistic or depressive, etc.”). Patients might be diagnosed with a thought disorder, mood disorder or personality disorder, or a combination thereof. These were documented in a reference guide for psychiatry, the “DSM IV.”

During her training, the author saw what she perceived to be a disturbing trend– of treating all ailments, even ones suspected to be psychological in whole or in part, by prescribing drugs with little or no accompanying psychotherapy. The psychiatric professionals at the hospital perceived part of their jobs to be to instill “medication compliance” in patients. Lockman was taught that treatment should include “the talking cure.”

However, it is controversial how effective psychotherapy is in treating addicts, because drugs and alcohol can permanently change the brain chemistry that controls learning. Lockman describes one alcoholic patient’s case: “angry young man plus bad neighborhood plus psychosis equals short life expectancy.”

Since psychotherapists themselves are human, they sometimes cannot help but become emotionally affected by their patients. One time, Lockman realized she was biased by the socio-economic level of a patient she saw: “…upper-middle-class and white… familiar to me.” Lockman later momentarily broke down in front of her supervisor, who told her, “Never apologize for having an emotion. Just make sure you give it some thought.”

Some patients, such as a narcissistic-borderline (personality disorders) married couple, recounted stories of extreme past behaviors, some of which were laughable. The two consisted of a male narcissistic ex-convict and borderline, pregnant female who had four kids total; the oldest two had a different father. The husband had been a pimp, and had committed adultery with one of his employees. The couple ended up at the hospital because they had become physically violent with one another. They had shamelessly revealed this information to Lockman. The husband said, “I’m a shooter, not a hitter.” The wife said she had committed a bank robbery to save her kids from starvation.

Another issue the author had to deal with was the hierarchical nature of the career field. ‘We all needed somebody to buttress our professional worth.” People in different specialties put other ones down. The medical doctors feel superior to psychiatrists; psychiatrists to psychologists; psychologists to social workers.

Read the book to learn the slew of other issues Lockman had to face in her quest for experience in clinical psychology.

Writing Places – Bonus Post

This blogger skimmed the book, “Writing Places” by William K. Zinsser, published in 2009. It is a career memoir. Zinsser details the twists and turns of his writing and teaching, starting with his adventures in journalism in the New York City of the mid- to late 1940’s through the late 1950’s.

The author says that the New York Herald Tribune served as a role model for his writing, instilling lifelong values in him. Two older editors in the newsroom “…went out of their way to help me [gain experience.]” Unfortunately, by the late 1950’s, for various reasons, the newspaper was unable to uphold the values it originally held as part of its corporate culture.

Zinsser fell into freelance writing for magazines such as Life and the Saturday Evening Post. His generation saw lots of human-interest stories in a slew of weekly publications. “It was also,” he writes of the early 1960’s, “the last historic moment when it was possible for a magazine writer in America to be a generalist.”

For, television gobbled up a large chunk of consumer advertising at the expense of publications. It also competed for readers’ leisure time. Excuse the cliche, “The more things change, the more they stay the same.” Television showed consumer products in live-action scenarios against which magazines could not compete. Zinsser’s work slowed to a trickle because there arose topical specialization in periodicals; contributors were required to be experts on, say, hunting or cats or wine or brides, etc.

Another trend of the 1960’s was the lax teaching of writing by American high schools. Teachers allowed students freedom of expression with little regard for grammar or syntax. Excuse the cliche, “There’s nothing new under the sun.”

Read the book to learn how Zinsser adapted to the changing times. One hint is that it involved the “…American National United Allied General Corporation.” So as not to have biased the reader, this blogger is providing the following info at the end of this post:

Zinsser admittedly is a WASP-y Northeastern elitist, whose father was a Yale graduate. He himself is a Princeton graduate. He also confesses that memoir writers tend to be “…masters of retroactive blame. The hard job is to get beyond the ancient grievances and arrive at a larger point– some moment of acceptance and healing.”

The Good Girls Revolt

The Book of the Week is “The Good Girls Revolt” by Lynn Povich, published in 2012. This short ebook discusses what happened when a group of female employees sued Newsweek magazine’s parent company in March 1970, for gender discrimination.

Shortly thereafter, similar litigation followed at other publications– at Time, Inc., Reader’s Digest and various newspapers across the United States. The author briefly describes the historical backdrop before, during and after. One of many cultural phenomena she relates is that the year 1973(!) saw the elimination of classified ads divided into “Help Wanted– Female” and “Help Wanted– Male,” the former of which were mostly for menial and/or low-paying jobs. “Saying you worked at Newsweek was glamorous compared to most jobs available to college-educated women.”

The author says that from the early 1920’s up until the aforementioned lawsuits, periodicals publishers relegated women to dead-end positions. At Newsweek, the vast majority of female employees held the title “researcher”– a fact-checker, who could never become a reporter or editor like, or get paid as much as, the male employees. Besides, many of the men were hired “…as reporters and writers with no prior professional journalistic experience” and most of the female researchers had the same qualifications as they did.

One reason many women did not protest or were not even consciously angry about their situation, is that they were conditioned by the workplace and society in general to comply with gender stereotypes. Four decades ago, women were limited in their opportunities and criticized if they chose a male-dominated career field. They were given to believe they should not aim too high, but stay where they were, because otherwise, they would encounter difficulty. It became a self-fulfilling prophecy for most of them. Even many women’s colleges at that time had the goal of providing an education with the assumption that a graduate might get a job, but she would quit the workforce when she had children.

Even today, in the American workplace, there is an environment in which women are jockeying for position and power. According to the book, they are less well-liked, the higher up the corporate ladder they climb. The opposite goes for men. In certain aspects of their lives, such as weight-loss groups and fitness, women band together and cheer each other on. But not usually in the workplace.

Read the book to learn about the consequences of the initial legal action, and whether Newsweek’s workplace policies changed when, in 2006(!), three female employees recognized the recurrence of gender discrimination.

Double or Nothing

The Book of the Week is “Double or Nothing” by Tom Breitling with Cal Fussman, published in 2008. This short ebook describes the business partnerships between the author and Tim Poster.

Poster had a passion for gambling. In high school he and a friend acted as a bookie and made bets on professional sports, from which they won a lot of money, except for one particular boxing match. In the late 1980’s, while still in college, Poster started a hotel telephone reservation service called Travelscape. Breitling joined the business, and it kept growing in leaps and bounds. Travelscape was an early adopter of internet technology, launching an online reservation system in 1998, during which it made $20 million in sales. In 1997, it had made $12 million in sales.

Their partnership was based on trust symbolized by a handshake, rather than on legal documents. Their synergistic personalities made the business successful. Nevertheless, in 1999 when a competitor offered to buy their business, they were at a grave disadvantage due to their inexperience in multi-million dollar deal-making. The situation was extremely stressful for them.

The author describes what eventually happened, the mistakes they made and what they learned from the experience, and goes on to discuss their successes and failures in connection with another business venture– a casino.

About a year later, the partners were negotiating sale of the casino. The potential buyers consisted of two different suitors– a pair of humble, trustworthy brothers who were their close friends, and a narcissistic, petty owner of a collection of properties then worth $700 million (not Donald Trump).

The author relates that at that time, Fortune magazine had ranked the brothers’ company in the top twenty of its list of “Best Companies to Work For in America.” Job satisfaction among employees at the casino owned by the brothers was apparently so high, the employees saw no reason to unionize. That would actually be a problem if the casino was to merge with Poster’s and Breitling’s casino, as the latter was unionized.

Read the book to learn how Poster and Breitling fared with a reality TV show in their casino; how relaxing betting limits, and cheating or lucky gamblers can put a casino out of business; and the details of what transpired when they allowed their businesses to be bought.

King of Capital

The Book of the Week is “King of Capital” by David Carey and John E. Morris, published in 2012. This ebook recounts the history of leveraged buyout (“LBO” or “private equity”) firms, mostly Blackstone Group, from the 1980’s through the first decade of the 21st century. This ebook attempts to debunk the stereotype of greedy Wall Streeters.

Back in the 1980’s, one kind of transaction or “deal” the LBO firm did, was buy out companies that were publicly traded, taking them private. It risked only a tiny amount of its own money to take ownership and take over the management, usually 5-15% of the total price. The role of the firm was to arrange financing. The management of the company (client) being bought out, was the party risking the most, and doing the buying out– borrowing a large percentage of the purchase price (leveraging) — in essence, “robbing Peter to pay Paul” with the monies raised by the LBO firm from various financial institutions.

This was where “junk bonds” came in– very risky debt instruments that carried extremely high interest rates, as much as 19%. The reason for the risk and high return, was that, in the event that the client went bankrupt, bank loans were repaid to creditors first, and if there was any money left, then much later, the junk bonds would be repaid.

According to Carey and Morris, the goal of LBO firms that were “corporate raiders” was to capitalize on the hidden value of a target’s assets that was not being reflected in its stock price. The value was there but the directors and officers of the target were too busy looting their company by throwing lavish parties at their mansions and on their yachts, and zipping around in their corporate jets.

The raiders had no interest in owning the target, but wanted to make it leaner and meaner by firing the greedy CEO’s. Then they would cash out at a profit of several times their initial investment. Over time, the targets developed strategies, such as the “poison pill” to counter the raiders. Unfortunately, “For all their talk of overhauling badly run companies, the raiders seldom demonstrated much aptitude for improving companies.” Pox on both the houses of the raiders and targets.

Buyout firms that were not corporate raiders truly wanted to own the target. “…buyout investors look for companies that produce enough cash to cover the interest on the debt needed to buy them and which also are likely to increase in value.” A major part of the job of LBO firms is to identify possible deals through extensive financial research, and then decide whether to invest in the ones predicted to succeed.

The year 1981 was a great year for LBO’s because interest rates peaked, there was an economic downturn, and stocks were down. In the autumn of 1985, two partners, Steve Schwarzman and Pete Peterson started Blackstone Group. Schwarzman said that his partnership would not be able to compete with the older, more experienced LBO firms, unless it “…brought efficiencies to a company by way of cost improvements or revenue synergies.”

The early 2000’s became a rerun of the 1980’s as financial institutions took on excessive debt loads. Fall of 2008 saw the U.S. Treasury Department and the Federal Reserve Bank raise funds to try to bail out Lehman Brothers, Merrill Lynch and AIG by calling on private equity firms like Blackstone Group to help.

Read the book to learn more about the redistribution of wealth among the wealthy over the course of three decades, and the turnover, and victories and defeats of the partners at Blackstone Group.

Deals on the Green

The Book of the Week is “Deals on the Green” by David Rynecki, published in 2007. This ebook discusses how golf fuels business deals among the super-rich.

The author contends that the personality traits golfers need for success in golf and business include: friendliness, “imagination, tenacity, multitasking, guts, passion, and compassion…” The very act of playing golf is a major ingredient for success at many big-name companies, including GE, McGraw-Hill, J.M. Smucker, Tyson Foods, McDonald’s, Goodrich, Estee Lauder, Morgan Stanley and Johnson & Johnson. Businesspeople observe how others play the game– an indication of their character– to determine whether to do business with them.

The people who build a golf course include architects, landscapers and marketers. Many country clubs are exclusive, invitation-only kinds of places. The way “nobodies” can play on the golf courses at such clubs is to participate in fundraising events or volunteer to do menial work at them (and write big donation checks). Most of the major manufacturers of American golf equipment are located in Carlsbad, CA.

Etiquette dictates that any talk of business on the golf course should take place between the fifth and the fifteenth holes. There should be casual conversation, not an aggressive pitch.

Read the book to learn the names of people, places and equipment related to golf, and “…what really goes on when the titans of industry and finance get together” on the golf course.

The Cure

The Book of the Week is “The Cure” by Geeta Anand, published in 2008. This ebook tells the emotional, suspenseful story of how a family coped with three disabled children, two of whom were suffering from a genetic disease for which a cure is yet to be found.

In the late 1990’s, John Crowley’s daughter and son were both diagnosed with Pompe disease, a muscle disorder. Patients, with varying severity, “have imperfectly produced acid alpha-glucosidase enzyme” which results in paralysis, obstructed breathing, and, if left untreated, death before the age of five.

Even though Crowley possessed the personality, talents, skills, education and privileged background that one would think would allow him access to a life-saving enzyme to save his children, he had to face numerous obstacles. The father naturally fell into the role of entrepreneur to do so. His wife provided invaluable emotional support and around-the-clock care of the children with the help of nurses; not to mention the running of the household.

Nevertheless, lots of genetic and environmental luck determines whether patients become fully cured and/or whether the quality of their lives improves significantly, or whether they die– even when they are sufficiently fortunate to take part in a trial of a new life-saving medicine. Death would be inevitable without the medicine.

Every patient is different. There are many different criteria the U.S. Food and Drug Administration considers when deciding whether to approve particular medical products for sale. Money plays a major part in whether a new product ever sees the light of day. A young medical research company raises funds through venture capitalists, and because the whole operation carries extremely high risks, if the company achieves success– the rewards, fittingly, are also extremely high.

Scientists must do years of preclinical testing on animals to make sure a new medicine works sufficiently well before even considering administering it to humans. In the United States, possible deadly consequences and possible future litigation motivate the scientists to act with integrity by performing tightly controlled experiments, so as not to have to fudge research results.

Another aspect of drug development, is avoiding a conflict of interest such as that in Crowley’s situation. He played a pivotal role in the race to bring a medicine to market; it appeared he was doing it to get the medicine for his own children.

The estimated annual expense of the enzyme for each child was $200,000, and $1 million for all future annual medical expenses, including the enzyme, plus wheelchairs, nurses, ventilators, catheters, etc.

Read the book to learn of the Crowley family’s experiences with American biotechnology.