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Peggy Noonan: The Risk of Catastrophic Victory – WSJ.com.

This is a very interesting article that explores the convergence of industry forces that control and define the public image that is disseminated in the media about two influential contemporary figures, Tiger Woods and Barack Obama. Very insightful, I think.

American Thinker: Tiger, Barack, and the Law of Transitivity.

June 18th! Has it really been two whole weeks since my last post? Er, well, one year and two weeks to be exact. That’s a serious case of writer’s block… We can blame that on ramping up at the new job, some time consuming responsibilities with my church group, some new responsibilities with the UVU Alumni Association, and me just liking to spend the little free time that is left over with my family. However, the kids are in bed, my wife is in the other room painting, and I decided that there was no time like the present to try and make an effort to jump back in the saddle.

I have read/am reading some very interesting books over the last year. I finished Atlas Shrugged, which just blows your mind these days if you chase each reading session of the book with a session of the national news. Scary in its accuracy. I’ll try to put together a post on the book later like I have done for my other reviews, but it is a pretty long and complicated book, so I’m not sure how it’s going to come out. I’ve also been reading The E-Myth and the 5000 Year Leap. I’ll do separate posts on each of them when I’ve finished. I also think I’m going to dare to delve just a little into the political realm here as a means of exploring to refine my own philosophy and viewpoints, hopefully through a little interaction and discussion with readers.

I think I’ll close out today’s post with a little nugget on lawyering as a corporate attorney. Educate your business people on the ins and outs of contracts. Challenge them on their understanding and take time to explain the impact of specific language, provisions, and terms. Most importantly, find a way to do this in a way that is very relevant and clearly valuable to them. Even though you are in-house, you still have a client and you’ll get less resistance from them if they are confident that you fully understand their pressures and objectives, and if they fully understand the value of what you are protecting with your changes. Often the value you are preserving is only visible in the medium to long term, so it takes a kind of constant dialogue to help keep that notion in the forefront of the business mind. If you are a small business owner dealing with attorneys, take the time to really own your agreements by going over them until you understand the anatomy of an agreement and the effect of each part. Don’t be afraid to ask your attorney questions. As much as you can, try to compile and/or use use standard agreements from your attorney. That will not only decrease review time for your agreements, it will also help ensure that you are bound by terms you feel comfortanble with.

I will be changing employers starting Monday, June 9th. I have accepted a position to work with Nature’s Sunshine in Provo, Utah as Corporate Counsel and am really looking forward to many interesting challenges as I work on their legal issues. The company has a larger set of international operations than my current employer and I will also be more involved on domestic issues as well, so I should not have a problem keeping busy there. As an added bonus, my commute will also be cut in half, which my family is very happy about…

The World’s 50 Most Innovative Companies Interactive Scoreboard

And here is an article about the scorecard and its findings. 

 I was a little surprised at first by a few of the names on here, for example AmEx and CostCo. It just shows goes to show how some companies can do such a good job of innovating processes behind the scenes while providing customers with the comfort and familiarity of the front end that they know and trust.

I went to a seminar by the World Trade Association of Utah today. The Speaker was Lee Boam. Lee spent his career with the US foreign service working in Europe and Asia, and spent the latter part of his career as the Minister Counselor for Commercial Affairs at the American Embassy in the People’s Republic of China. His faculty page at the University of Utah is here.

Below are some notes I took from his presentation on the present and future of China:

1. Misconception: China has huge demand because of its huge population. The problem is that population does not translate directly into market demand. Demand equals desire plus disposable income, and the bulk of the Chinese population does not have the kind of disposable income that westerners have.
2. China needs to stimulate domestic demand – they get no residual benefit from exported goods. For example, industrial machinery made in China and exported is not used to create more products in the Chinese economy, but is used to create products in a foreign economy, which increases GDP and employment in that country.  
3. China is making other people’s brands – When the brand has strong value, the company is thus able to produce more inexpensively and sell at the same price, pocketing the difference as extra profit. China ends up with a smaller piece of the pie and needs to create strong brands for itself to increase the take-home value of its work.
4. China needs to stop piracy – Two  US firms have different strategies to combat piracy: a) Coke Method – be able to produce your product cheaper than the pirates, leaving no incentive for them to compete; b) Budweiser method – Budweiser puts hard-to-counterfeit milling around the edge of their cans, making it harder and more expensive for pirates to counterfeit, and thereby creating a deterrent.
5. De-link the RMB (Chinese Renminbi) from the USD (US Dollar) – they are building up too large of a reserve of dollars and the linked currency is hurting them.

So, what does this all mean for US businesses who have been hearing that you have to be in China to compete? I think there are a few lessons to be gleaned. The first is common sense – there is no magic bullet for industry success, so don’t be misled into believing that that’s what China is. If you are looking for a big foreign market to enter, don’t go for China because you think you just have to sell one product to each person and you’ll be wildly successful. Do the research first and find out how big the actual population is that has an interest in your product and the disposable income to buy it. You may well be better off hitting the European market first. The same is true of purchasing goods. Yes, compared to the US, goods and labor are relatively cheap in China. However, Lee advised that a few places, including Vietnam, are even cheaper. In addition there are factors to consider besides cost in determining suppliers, including the ease of obtaining satisfactory import documentation, consistency of product, ease of communication, and so forth. Another lesson may be that there may be solid business opportunities within China for those adventurous spirits willing to go the extra mile.

Part II

My last post set the stage for some discussion on the utility of bulky agreements when papering up deals. There are lots of reasons to do this. Attorneys wouldn’t be able to charge what they do if there wasn’t some real value in their work. Let’s first recognize that attorneys set themselves to the task of identifying potential risks and preparing a defense against that risk. That preparation takes the form of a written agreement between the parties to a transaction. Agreements also have the salutary effect of defining key terms that each party can refer to in future discussions as they clarify how the deal is evolving. One might think of agreements as being in some ways similar to body armor. Experts have studied the body’s form and function and identified which areas of human physiognomy are most critical to the body’s functioning and are most vulnerable to attack. They looked at the different forms of attack that are most likely. Then these experts then set about devising a product that would protect the most vital areas of the body from the most likely forms of attack. The more risk you perceive, the more you will want body armor that is strong and comprehensive. So why would you ever want anything less than maximum protection? If you know a police officer, ask him to let you try on his riot gear. In addition to being expensive, it’s heavy, hot and uncomfortable. Its bulk, required to protect you, also impedes your movement, slowing you down and making you less nimble. In some situations, having too much body armor could actually work against you and become a disadvantage.

Papering up collaborations and transactions reflects many of the same dynamics. Preparing a “bulletproof” agreement requires a lot of time familiarizing the attorney with the transaction and then a lot of attorney time thinking through the specific risks that could arise in this particular transaction. The language used to describe precautions for certain risks may be complex, bulky and difficult to understand. Agreements themselves may grow to include hundreds of pages, including often confusing cross references to other sections and definitions of terms. Presenting such an agreement to a potential business partner may cause quite a reaction. First, it makes the deal more expensive – it will communicate to the other side that they will have to incur some substantial legal expense to have their own attorneys review the document to look for areas that they find to be unfavorable to their interests. If the partner is not accustomed to dealing with attorneys or complicated agreements, he or she may decide not to proceed with the deal. I have seen this a number of times with international parties whose local business customs are based more on codified laws than on agreements between the parties. Second, it may introduce something of an adversarial spirit to the deal and detract from the collegial enthusiasm that accompanied the deal up to that point. I would say that this development, in proper bounds, is somewhat healthy, as it helps business partners remember that each actually does have many opposing interests and that deals can go bad. Finally, you may end up making the relationship so rigid and guarded that it becomes difficult to function.

The good thing is, it does not have to be all or nothing. As military and law enforcement personnel select body armor that is appropriate for their particular activity and situation, small business owners can develop a strategy for papering up deals that matches the needs and dynamics of their industry, management style and legal environment. You do not have to provide for every conceivable misfortune in each agreement. Over time you will develop a feel for the protection you want and the flexibility your deals demand. And hey, if you really want absolute protection, you can still wear your full body armor to Church on Sunday, but don’t be surprised if you have the whole row to yourself more often than you like.

The Scene: A small town saloon in the wild west, in the late 1800s. A rancher and a farmer sit around a table discussing their businesses – the rancher’s herd is growing and he needs more grazing land. The farmer has been unhappy with some spots of his acreage that haven’t performed well and agrees to let the rancher’s herd graze there for a fee. The matter discussed, the partners stand, look each other in the eye and shake hands. Agreement.

Fast forward about a hundred years to the same location to now find a bar in the place of that saloon. Once again, we find a couple of potential business partners discussing matters around a table. One has a brilliant idea and a lot of enthusiasm, the other has money and connections. They get along well and each see merit in what the other can bring to the venture. The matter discussed, the partners stand and look each other in the eye. Then the investor turns, delves into a bag, and produces a small library’s worth of documents. “These are the standard forms and agreements I require when I invest. My attorney has already filled in the basic details of this deal. Have your people look over them and let’s try to get this settled as soon as possible.” The partners shake hands on leaving, but it’s not the same.

I probably didn’t really have to hark back to a simpler time to find a deal done on a handshake – to find an agreement based on honor, trust and mutual reliance between partners. One of the points of friction in many companies, large and small, is that “legal” or “accounting” are holding the deal up. Randy Komisar, in his book The Monk and the Riddle, describes how it felt to be the attorney in a side room going over papers, verifying all technicalities, while the management players were in the board room after an acquisition, shaking hands and celebrating. Many yearn for a simpler time, when deals could be done on a handshake, but the evolution of experience and a complex legal liability landscape have changed the rules of the game. That said, for the intents and purposes of many entrepreneurs and small business owners, agreements often may not need to be as long or incomprehensible as our attorneys may advise in order to be effective.

Nearly everyone who has ever needed to review a business contract has become familiar with the term “boilerplate“. It refers to language which is considered to be more or less universal in its application and non-negotiable. Although in many applications, it is universally applicable, much of the boilerplate is drafted to favor one party’s position. As I mentioned in a previous post, lawyers are paid to be pessimists, and to plan for when the deal goes bad, not if it goes bad. And where Sales and Marketing think through where they want to drive a deal, lawyers are asked to think of all the places a deal could go off into uncharted territory and provide for a safety net. That safety net takes the form of an agreement with a whole host of “What ifs,” including the ever-popular what happens in the event of an Act of God, an unforeseeable and unpreventable natural disaster? In the event that particular crisis does hit, you’ll be glad that language is there, but it does make agreements bulky, imposing and harder to understand. Luckily, it can be minimized as you develop a legal strategy for your company. I want to break this up in an effort to make my posts less long and more readable, so I’ll continue to explore this over my next post or two, which should also help me post more often.

As you can tell if you are a return visitor, I changed up the look of the site – primarily adding a third column and changing the color scheme –  and would love to have comments. Does the third column make it seem too busy? Overall impressions? And what’s more, a site logo is somewhere in the works, thanks to my great friend and resident creative genius, Curtis J. Morley. Stay tuned on that one.

If I told you that offering someone money to do something would actually demotivate that person to do the action, would you believe me? Probably not now, since it seems counter-intuitive, but you might after reading Edward L. Deci’s and Richard Flaste’s book, Why We Do What We Do. Deci argues that the prevalent systems for motivation in our society actually work to squelch genuine inherent curiosity. In other words, the systems put in place to get us to do things actually end up keeping us from wanting to do them naturally.

Think of little children. Infants need no prodding to pick up things, put them in their mouths, push them over, imitate words and actions, or do any of the other myriad things that are evidence of their drive to learn and discover. However, just a few years later, we start to see in more children a reluctance to engage, more of a willingness to sit back and be bored. Simple things such as playing piano and going to school pass from being exciting to being dreaded. It is all too easy to say, “Well, that happens to most kids, so it’s normal, isn’t it?” instead of stepping back and asking why it happens. Just because something is normal doesn’t necessarily make it healthy or desirable. What happens to our intrinsic motivation to learn and discover? Furthermore, in a society where we, in addition to our inborn natural motivation, have created all kinds of different motivational systems, both positive and negative, to provide a push in the direction of productivity, why do so many people in a free society (where any occupation is theoretically available to them) still hate their jobs and feel dissatisfied?

Deci began to study this question with some experiements involving students at Carnegie Mellon University. Subjects were asked to see how many configurations they could make from a block puzzle in a fixed period of time – half were paid, and half were volunteers. After finishing the session, both groups were left alone with the puzzle, magazines and other forms of distraction for 8 minutes while “the results were processed.” Deci found that, during this “processing” time where the subjects did not know they were being observed, the subjects who had been paid for playing with the block puzzles had a significiantly lower likelihood of continuing to play with the puzzle than those who had been doing it without being paid. This study and others conducted by Deci and colleagues show that once people receive a “carrot” to motivate them to do something, even something they may have a natural affinity for or interest in, the removal of that carrot will likely result in a diminished desire to engage in that activity. In the puzzles example, students who normally had an intrinsic interest in putting together puzzles as an enjoyable and challenging pastime lost interest, or at least refused to engage in the behavior, once the carrot was no longer offered. 

So what are the implications for a manager or small business owner? Since our economy runs on money and everyone needs it to live, pay rent, eat and so forth, can we really change the way we use it to motivate our employees? The book explores the impact of this concept on people, society and even the workplace in an effort to ask questions that will lead us to devising the proper role for external motivators. Obviously, we need to have a way of balancing supply and demand of products, so everyone is not fully free to choose their own occupation without regard to the future. We can expect to continue having to pay our employees for the foreseeable future. However, we can also take a look at our employees roles and total “compensation” packages a little differently, with money only being one factor. By giving people more autonomy in their position, and some economic, or at least strategic, “ownership” in the company, you might find that your return on investment, in terms of loyalty and productivity for the company, is higher than when money is the only real carrot. You might also take more care in selecting your employees and consider whether hiring someone with slightly less impressive credentials, but an evident affinity for your industry or the position, might not be a better choice as employee, especially if you are looking to fill a position long term.

You might also look at what negative motivators you are using with your employees. As Deci wrote, “[A]ny occurrence that undermines people’s feeling of autonomy–that leaves them feeling controlled–should decrease their intrinsic motivation … [so it is] necessary to determine what other events … beyond rewards, are likely to be percieved by people as controlling–as limiting their autonomy.” Threats and coercion act like money, providing short term motivation in the desired direction, but overall damaging the natural motivation of your employees. The degree of impact may be directly related to the level of control you wield through external means.

Deci later states that “People’s need for autonomy, their need to be a causal agent in managing themselves, provides the energy for integrating … a regulation.” There is a difference between achieving compliance and achieving buy-in with your corporate standards, strategy and rules. If the external motivator is strong enough (monetary incentives, threats, etc.) a manager can get employees to submit to the corporate ideals, even though they may be sincerely opposed to the plan or the manner in which it is being carried out. To be sure, some amount of social directing is necessary to help markets run more efficiently, as the supply of goods and services would undoubtedly be chaotic if everyone was paying attention only to what they wanted to do, instead of what the market was asking for. However, we can still learn lessons as managers.

When hiring, ask more questions about the potential hire’s interests in your industry, not just their qualificiations for the position. Hiring someone who genuinely cares about and is interested in what your company is doing will increase the likelihood that that employee will think about your business “off the clock” and be aware of industry developments that could be early signs of threats or opportunities for your company. You may also need to spend less time policing their efficiency and/or get a slight break on payroll, since you will essentially be paying someone to do many things that they are interested in doing anyway. In your ongoing relationship with that employee, you may find it easier to give them true stewardship in their job function based on their passion and competence in that area, which will lighten the load on yoru shoulders to deal with heavier matters in the administration of your venture.  

I would even dare agree with (and paraphrase) Deci when he wrote, “For a [company] to function effectively, its individual [employees] must, to some extent, adopt the [company]’s values and mores.” This is a delicate process. First, the motivation and the individual’s personal values have to merge together. This is a difficult prospect when positive reinforcements are forcing unnatural behavior (going all day to a job one hates), and a disaster with negative motivation (keeping employees present and productive primarily through threats and coercion). Second, the more the values of the management philosophy and subject matter of the industry are dissimilar to those of the employee, the more difficult this values integration process will be.

Well, this review is already quite a bit longer than I intended it to be and yet doesn’t even begin to touch on the depth of this book. Reading it was an extraordinarily thought-provoking experience. Though some readers will still find that this book has a relatively academic feel, I thought the authors did a great job of striking the balance between giving a sampling of the deep academic, and at times philosophic, thought supporting their work and making it accessible to the every-day practitioner (small-business owner, manager, etc.). It is definitely worth reading for anyone interested in trying to gain true efficiency from themselves and their employees.