Category Archives: Business

Communication: Do They Hear What You Say?

Earlier this morning, I spent some time trying to unclog the toilet (note: if you live in an old building, be sure to get a high-quality plunger!) and I was reminded of my time living in a residence hall. At first, I did a double-take because that was almost 10 years ago. In thinking about my time as a resident of a residence hall, I remembered my roommate and his accidental slip up.

This story’s not about anything scandalous — in fact, it could happen to anyone. We were coming up on the winter checkouts and I was planning on leaving the residence hall after he was. As a result, my roommate had taken care of his share of the cleaning duties and was about to leave. Simultaneously, our RA (Resident Assistant) was knocking on the door — he was about to tell us about the events coming up that week and probably remind us to sign-up for a time to checkout.

The RA noticed that my roommate was about to leave and asked him why he didn’t sign-up for a time to checkout. My roommate explained that I was leaving in a couple of days and that I’d “checkout” our room. The RA then explained that we each checkout — individually.

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The RA thought that his communication materials (flyers, bulletin boards, etc.) had clearly stated that each resident needed to check-out, but my roommate (and to some extent, me) thought that just the room needed to be checked out.

So, what’s the lesson here?

No matter how clear you think your marketing materials are, always, always, always have multiple sets of eyes look them over. If it’s possible, it’s even better to have someone outside of your area of expertise look it over. Meaning, if our RA had asked one (or more) of his colleague(s) to look over the materials, there’s a better chance than not that none of them would have interpreted it like my roommate and I did. It would have been better for the RA to ask one of the residents (or someone maybe even someone outside of the residence hall) to look over the materials to make sure that the message the RA wanted to convey… was being conveyed.

Consider the last important bit of communication you were involved in sending. Are you certain that your recipient understood what you were trying to communicate?

How Does a 25-Hour Workweek Sound to You?

Vocation is a very important part of our lives in today’s society. Vocation, usually, gives our lives a sense of purpose. At times, however, our vocation can get in the way of our lives. How? Overwork. This past summer, I linked to a couple of articles at The Atlantic that illustrate this point quite perfectly. The first: No-Vacation Nation: Why Don’t Americans Know How to Take a Break?. And the second: The Case for Vacation: Why Science Says Breaks Are Good for Productivity.

There’s a really important graphic from the first link. I’ve included it below, (but if it’s too hard to read, click on it and it will take you to a bigger version of it).

If you’ll notice, the US is absolute last on this list of OECD countries. Certainly not something that the US should be proud of.

Earlier this fall, I posted a TEDTalk of someone from the New Economics Foundation arguing for a 21-hour workweek. A couple of weeks ago, I came across a news release that the head of the Max Planck research centre was arguing for a 25-hour workweek. There are some key points:

When you’re 20, you would rather spend more time with your friends. When you’re 35, you want time with your kids. But then when you reach 70, you have far too much time on your hands.

This scenario probably sounds familiar to many people today. But there are good arguments for changing this. We should aim for more leisure time in our youth and instead work a bit more when we get older.

…

”There is strong evidence that elderly people who work part-time are healthier than those who don’t work at all and just sit at home. This is simply because working improves people’s health,” he says.

“The benefits are not just psychological because being an active part of society makes you people feel good about themselves, but also physically, since you use both your brain and your body when you’re working.”

There are also some good interpersonal arguments in support of spreading our working hours over a longer period in our lives.

”The main argument is that this would give young people aged 20-30 more time to care for their children, do sports and other important activities that improve their lives,” says the professor.

”The way it is today, young people are slaving their way through work, looking forward to a long retirement. But why not move that retirement period around a bit so that young people get more valuable time off work?”

How does all of that sound?

The thing is, there’s a culture of overworking. Working 60+ hours a week should not be a badge of honor — it should be a badge of ludicrousness (save for some extreme examples). Vocation is important, yes, but so are other things in life. And, if productivity is what you’re after, it’s important to understand that overworking one’s self is the perfect way to limit productivity. Remember that second link I share above:

It’s typical for families to celebrate the month of August by shutting down the computer and skipping town. From a raw numbers perspective, this counts as lost work. But that’s a short-sighted view, psychologists now say. In fact, by serving as the least productive month for millions of workers, August unexpectedly serves as a productivity-booster.

Just as small breaks improve concentration, long breaks replenish job performance. Vacation deprivation increases mistakes and resentment at co-workers, Businessweek reported in 2007. “The impact that taking a vacation has on one’s mental health is profound,” said Francine Lederer, a clinical psychologist in Los Angeles specializing told ABC News. “Most people have better life perspective and are more motivated to achieve their goals after a vacation, even if it is a 24-hour time-out.”

As with most things in business and in life, understanding the different between long-term gains and short-term profits is of the utmost importance with regard to the issue of the workweek.

The Endowment Effect – Yours Isn’t Always Better: List of Biases in Judgment and Decision-Making, Part 3

Two weeks ago, I wrote about the pitfalls of the sunk cost fallacy. Last week I alerted you to the bias of loss aversion. Since I mentioned the endowment effect last week, I thought it’d be good to cover it sooner rather than later, so this week, we’ll look at the endowment effect.

The endowment effect can be tricky in that if it’s not described in the right way, it’s likely to be misinterpreted. In short, it means that people want more money for something than they’d be willing to pay for it. Put differently: we overvalue that which we own. You could think of a simple example of this through the course of a negotiation. When negotiation with someone, we’ll probably overvalue what we bring to the table. Someone may offer you $50 for your 25-year old keyboard (piano), but you think it’s worth at least $75. Barring any outside appraisal, the endowment effect is likely at play here.

Now here’s where it might get a little confusing, so bear with me: one of the possible explanations for the endowment effect is that humans are loss-averse. Remember loss aversion from last week? The idea that we’d rather avoid losses than reap rewards. If we apply this knowledge to our example above, let’s say that the piano is actually worth $35, but you want $75, and you’re being offered $50. Because humans are loss-averse, it’s causing you to suffer from the endowment effect, which is causing you to overestimate the value of the piano. As a result, you’re forgoing a $15 gain, given the current value of the piano and the price you’re being offered.

Let’s look at another example, this time, from sports. Often times, general managers have their eye on certain players. They believe this player is going to fill the void that their team has and if they could only sign that one player, all of their troubles would be solved. Throughout the courtship of said player, the general manager is already imagining that the player is part of their team. In so doing, this general manager is likely to end up overpaying for the player. Why? Because of the endowment effect. The general manager feels that the player they’re about to acquire is already theirs and so not acquiring the player would be like losing the player. And because they already imagine the player to be on their team, they’re going to overvalue the player as a result of the endowment effect.

Though this example comes from sports, we can see the skeleton of it and apply it to just about any situation where someone “wants” something and has already imagined it as their own.

Before we get into some ways of avoiding the endowment effect, I want to make sure that I convey the point that the endowment effect applies to more than just things. Another way of looking at it is your customers (if you own a business). It’s never easy to fire a customer, but we’ve learned — sometimes — it must be done. As you might imagine, it can be quite hard to fire a customer because — among other reasons — we tend to overvalue that customer.

Ways for Avoiding the Endowment Effect

1) Am I emotional?

A seemingly obvious way to avoid the endowment effect is assessing whether our emotions are involved. Don’t get me wrong, emotions are a good thing, but they are a surefire way to overvaluing things that you own. That is, if you find yourself overly connected to something, your emotions might be getting in the way.

2) Independent Evaluation

This dovetails nicely with the idea of being unemotional. To guard against succumbing to the endowment effect, be sure to have an independent appraisal of whatever it is that you’re looking to sell of yours. While you’ll still have the final say on what you sell and how much you sell it for, having a second pair of eyes look at your side of the “deal” might help you determine if you’re judgment’s clouded.

3) Empathy

I wasn’t going to include this initially, but after reading the research, it certainly fits. Before I go on, I should say that folks might be confused in that I just suggested asking whether one is emotional and now I’m saying to practice empathy? For those wondering, being emotional is not the same thing as being empathetic. Back to empathy and the endowment effect. In situations where we’re selling something, researchers found there to be an empathy deficit when the endowment effect was present. So, to counter this, you should try to empathize with whom you’re negotiating.

 

Quick Thoughts on “The Continuous Reinventing of the Machinery of Government”

I’m into the last semester of an MBA. For my last two electives, I chose courses that could serve me if I chose to be public servant or if I chose to get into the foreign service (I realize those aren’t mutually exclusive areas). My two electives are International Relations and Administration in Public and Nonprofit Organizations. The IR class is certainly challenging as I never had a political science class during my time as an undergraduate. The Public Admin. class has been really fun so far — I’m learning a lot about how the government functions (and doesn’t). I just finished reading one of the chapters for class tomorrow and I wanted to share a few excerpts and some thoughts. All excerpts come from Shafritz’s/Russel’s/Borick’s Introducing Public Administration, 8th edition, Chapter 3, “The Continuous Reinventing of the Machinery of Government.”

“More than 7 million Americans already live in such closed-off communities, and that number is expected to double over the next decade.” (p. 75)

“These new-fashioned feudalists, who are decidedly libertarian concerning the outside world, are surprisingly socialistic concerning the private, inside world of their gated min-cities.” (p.75)

This reminds of something I saw earlier this year. Glenn Beck wants to create his own city. I remember Jon Stewart doing a bit on Beck contrasting his anti-socialistic views for the outside world, but his downright socialistic tendencies when it came to being inside the walls of his city. This has a, “history repeats itself,” kind of feeling to it, doesn’t it? Not the Stewart bit on Beck, but that there’s a push (is there really?) to return to walled-off cities.

“Government entities, once established, tend to last a long time and not change easily.” (p. 79)

While understandable, it seems that there should be more innovation in the government, shouldn’t there? How can we get more innovation in the government, while carefully preserving those agencies that might quickly be lopped off before they’ve had the time to adequately effect the changes mandated of them?

“There is no federal Department of the Environment…” (p. 84)

Doesn’t this seem a bit unfortunate? Pres. Clinton tried to create this department under his administration, but — naturally — was met with opposition. I understand the fear of Big Government, but some things should transcend partisanship. The really twisted part — folks are calling for the Secretary of State to make climate change (!) his top priority! If there were a Department of the Environment, the Secretary of State could focus on other matters concerning the State. This issue seems misplaced. (Note: I should say that I still think it’s important for the Secretary of State to be concerned with climate change, but with a Department of the Environment, the issue would be more appropriately addressed.)

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There are almost 90,000 (!) governments in the United States when you include county, municipal, towns, school districts, and special districts. (p. 86)

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“Because few citizens ride horses to government offices today, it would seem to make a lot of sense to combine many counties and thus realize substantial savings from having fewer county clerks, county sheriffs, county courts, and so on. But which clerk, sheriff, or judge is going to quietly resign?” (p. 88)

This seems like a really important point. It seems to parallel a problem that is often faced in business — short-term profits vs. long-term gains. In this case, it would be taking short-term losses for long-term gains. If the government bought out those employees in areas where it were merging governments, there would likely be a substantial price tag. Although, in doing so, many (theoretically) efficiencies would be realized. Similarly, there would be a great deal of potential entrepreneurs (in those people who were just bought out). Of course, this is hastily laid out here, but it’d be an interesting proposal to have fleshed out.

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I find it odd that special districts have quadrupled since 1942 (now over 37,000), but school districts have shrunk by 90% (from 108,000 in 1942 to approximately 13,000 today). (p. 90-91)

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“Congress has never drawn — as the Brownlow Committee would have liked — a dichotomy between politics and administration.” (p. 105)

“Members thrive on bureaucratic red tape and the opportunities it creates for constituent service. This is why the ombudsman/ombudswoman movement has never gone very far in the US. This function is happily, even joyously, performed by the elected representatives. It is quite literally what their staffs spend most of their time on — because it is the key to reelection.” (p. 105)

Something’s wrong with this picture — assuming that the authors are correct in their assessment (in that this is what most members spend their time on). It reminds me of an idea I’ve heard before where those elected to Congress were only allowed 1 term (2 years) or something like it.

“To reinvent government, you must also reinvent Congress.” (p. 105)

Great idea! How do we do it?

“Privatization is almost always predicated on assumptions about public sector versus private sector efficiency and productivity rates. The burden of proof is often on public sector managers to explain why they are not inferior to private enterprise managers and why they should retain their functions in the face of private sector alternatives. Perhaps no responsibility is greater for public managers today than developing the evaluation and management assessment tools needed to assure critics that public sector programs and enterprises are being managed efficiently and effectively.” (p. 106)

This reminds me of the Project Management class I had this past Fall. The professor would often take us to the dashboards of the federal government showing us those projects that were on-time, behind schedule, under budget, over budget, etc. I wonder if this elaborate check/balance came as a result of those folks who were trying to prove that the public sector was efficient.

Maybe the burden of proof shouldn’t lie with the public sector. Maybe it should be more a of a philosophical debate. Do we think that these services should be provided by the private sector or by the public sector? And then take action from there.

Put Down the Non-Fiction and Walk Away Slowly

I read a lot of non-fiction. I’ve written about some of the books I’ve read on here (Good to Great, The Art of War, The Art of War (again), etc.), but that’s just the tip of the iceberg. Most of the articles I share on Facebook (about 5 per day) comes from something I’d read in the past month. I believe it’s important to continually refresh ourselves (through learning). I do that by reading as much as I can — non-fiction.

About 2 years ago, when I decided to go to business school, I read everything about business that I could get my hands on. I read the Heaths, Collins, Christensen, Pink, Godin, and many others. In amongst that reading, I continually came across a piece of wisdom — read fiction. At first, I was a little shocked by it. Read fiction!? And then, I started to understand a little bit more about what the reasons for reading fiction.

Empathy.

Empathy is at the heart of the beginning of the solution to many of the world’s problems. When we empathize, we are able to recognize the emotions that another is feeling. At the root of compassion is empathy. [Note: sympathy is quite different from empathy. Sympathy is simply a concern for another’s well-being, where empathy usually refers to one sharing the same emotional state.] So, now that I’ve explained empathy, I need to tie it back into reading fiction.

Reading fiction ‘improves empathy’, study finds — Sept. 2011 — The Guardian

Reading boosts empathy — May 2012 — The Globe and Mail

Fiction is an exercise in empathy — June 2012 — New York Times

Dots connected?

Don’t get me wrong, I’m still going to continue to read non-fiction — and lots of it. Though, I may start to whittle down the number of non-fiction books I read. I’ve just finished Dan Pink’s most recent To Sell Is Human, and I still want to get through Chrystia Freeland’s Plutocrats. Once I do that, I plan to make the switch and start reading more fiction. Will you join me?

Loss Aversion and the Big Picture: List of Biases in Judgment and Decision-Making, Part 2

I think I’m going to make a habit of posting something new to my series on biases in judgment and decision-making every Monday. Last Monday, we looked at sunk costs. Today, we’re going to look at loss aversion.

As much as I can, I’m trying to write about the different biases by themselves. Sunk costs are closely associated with loss aversion, so I could have included it in the first post. Similarly, the endowment effect is closely associated with loss aversion, so I could have wrote about it here. Learning about the biases one at a time may make it easier to focus on that bias for that week. So, without further adieu: loss aversion.

Loss aversion is the idea that we’d rather avoid losses than reap rewards. Put more simply: we’d prefer to not lose something than acquire something. Like we did with the sunk cost fallacy, let’s look at some examples of loss aversion to give us a better understanding of this bias. The implication of loss aversion is that someone who loses $100 or $1000 will lose more satisfaction (or be unhappier) than someone who gains $100 or $1000 will gain satisfaction (or be happier). If we think about a continuum where both of the people in the above example start at 0, the person who loses money will have an higher absolute number (with regard to their satisfaction) than the other person. This is a rather basic example, so let’s look at something a little juicier: golf.

In golf, the difference between winning and losing is sometimes one stroke (or one putt). A short excerpt from Kahneman’s book, Thinking Fast and Slow:

Every stroke counts in golf, and in professional golf every stroke counts a lot. Failing to make par is a loss, but missing a birdies putt is a foregone gain, not a loss. Pope and Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analyzed more than 2.5 million putts in exquisite detail to test that prediction.

They were right. Whether the putt was easy or hard, at every distance from the hole, the players were more successful when putting for par than for a birdie. The difference in their rate of success when going for par (to avoid a bogey) or for a birdie was 3.6%. This difference is not trivial. Tiger Woods was one of the “participants” in their study. If in his best years Tiger Woods had managed to putt as well for birdies as he did for par, his average tournament score would have improved by one stroke and his earnings by almost $1 million per season. [Emphasis added]

That’s an incredible statistic. With the only difference between putting for par and putting for birdie the fact that one would “lose” a stroke and professional golfers are 3.6% better at putting for par? Wow! As the excerpt said, that accounted for $1 million per season for Tiger Woods in his best years.

Ways for Avoiding Loss Aversion

As with the sunk cost fallacy, one of the most important ways to avoid loss aversion is to recognize it. That is, to know that humans have a tendency for loss aversion is an important first step in not falling into the trap of loss aversion.

1) What’s the big picture?

In our example of golf, that might mean knowing where you are in relation to the other players your competing with in the tournament (rather than where your ball is relation to the hole and what specific stroke you’re about to hit). In business, one might examine a decision about one business unit in relation to the entire company (rather than looking myopically at the one business unit).

2) Am I afraid of losing something?

This may seem like an obvious solution, but it’s pretty important. If before making a decision you can think to yourself (or have your team ask itself), “am I afraid to lose something here?” You might find that you are and it could serve to help you or your company avoid falling into the trap of loss aversion.

3) Do you really expect to never lose anything — ever?

Loss is inevitable. Sometimes, you won’t make that par putt (or that birdie putt). Sometimes, when you negotiate a deal, you won’t get the best deal. Sometimes, the decision to sell that business unit might result in losses somewhere else. If you can come to grips with the fact that every decision you make won’t be perfect and that sometimes you will lose, you may begin to shift your expectations about loss.

What is “the Economy,” Anyway?

Earlier this morning, the Bureau of Labor Statistics published a bunch of figures, which collectively is known as the jobs report. The consensus around the numbers seems to be that the news is ‘positive’ for the economy. Hooray! Within the last hour, the Dow Jones Industrial Average broke 14,000 for the first time in almost 6 years. Hooray again! After hearing about these two bits of news, I went on a bit of a rant on Twitter about “the economy.”

At times, this can be a bit bothering — listening to someone opine about the economy when they’re not really specifically pointing to the part of the economy that’s disturbing to them. Part of me wonders if this is because the person doesn’t know what they’re talking about and they’re just repeating the headlines they’ve read in the paper that day or something they heard the newsman say on TV).

The economy is vast — really vast. Let’s just look at the definition on Wikipedia for a moment:

An economy consists of the economic system of a country or other area; the labor, capital, and land resources; and the manufacturing, production, trade, distribution, and consumption ofgoods and services of that area.

Labor, capital, land resources, manufacturing, production, trade, distribution, and consumption — that’s a lot of areas rolled into one! My guess is that when most people talk about the economy, they’re usually referring to that first part: labor. Their perspective on the economy is viewed through the lens of “do I have a job, do my friends have jobs, do other people have jobs, etc.” In this way, when unemployment is high, the economy is “down” or not doing so well.

The ironic part here is that today, with unemployment at 7.9%, the economy could be seen as doing quite well. I mentioned in the tweets above (and earlier in the post) that the Dow broke the 14,000 barrier for the first time in nearly 6 years. That’s pretty substantial as many other folks use the Dow as a proxy for how the economy is doing. “Is the stock market up, then the economy must be doing well…”

Just like unemployment is one facet of the “labor” area of the economy, the stock market could be seen as one facet of the “capital” area of the economy. Another important facet of the “capital” area of the economy: liquidity (cash).

A couple of days ago, Ezra Klein at the Washington Post had an important graph showing the rise in liquid assets over the last 20 years or so. The chart shows a steady (and quick!) rise in liquidity. In fact, liquidity has nearly tripled in the last 20 years! Why does this matter? Well, all that cash on the balance sheet of corporation’s doesn’t do any good for “the economy” nor does it do any good for the unemployment number of 7.9%. If it were up to me, I think that Congress needs to do something to incentivize the corporations for spending all that cash, which represents 11.3% of GDP! While I understand the Keynesian argument for stimulus spending, to me, it appears that coaxing all of that money back into the economy would be the most effective form of stimulus.

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While it may seem that I’ve gone off on a bit of a tangent, I just wanted to illustrate that “the economy” can represent a number of things to a number of people. The next time you hear someone talking to you about the economy, double-check with them the part of the economy they’re referencing.

The Obesity Crisis: How Come No One’s Talking About Neuromarketing?

The Economist did a fantastic special report on obesity a few issues back. I highly recommend reading it. You may see the obesity debate in a whole new light. However, I was a bit disappointed in the closing paragraph of one of their opening articles in that issue:

There is a limit, however, to what the state can or should do. In the end, the responsibility and power to change lie primarily with individuals. Whether people go on eating till they pop, or whether they opt for the healthier, slimmer life, will have a bigger effect on the future of the species than most of the weighty decisions that governments make.

I can totally understand where this perspective is coming from, but I don’t think that this perspective accounts for neuromarketing.

The technical definition:

In recent times, ‘neuromarketing’ has come to mean the application of neuroimaging techniques to sell products.

Meaning, marketers hook you up to a machine while you watch images/video of  product and then notice when certain areas of your brain light up. With this information, they’re able to tell when your brain is active and — theoretically — determine that it’s because of what you’re watching. [Is that frightening to anyone?] So, as the title of this post asks, with regard to the obesity crisis, why isn’t anyone talking about neuromarketing? Let me make the connection a little clearer.

We know that through neuromarketing, it’s possible to determine how our brains react to certain advertisements and products. With this information, companies can then use the advertisements that are most successful in getting consumers to buy their products. If we apply what we know from this abstract scenario to the food industry (is it weird to anyone else that it’s called the food industry?) we can posit that there are probably companies out there who use neuromarketing techniques to convince consumers to buy their product. Isn’t it possible (probable?) that companies who are in the business of selling us over-the-top sugary drinks or unnecessarily sweet-tooth-inducing treats also in the business of using neuromarketing techniques to convince us that we need to be drinking these drinks or eating these treats?

Getting back to the opening quote from The Economist, my response would have to be — in part — no. While I agree that personal responsibility is important, sometimes, the environment is too compelling. In this case, the environment is neuromarketing. How can a consumer make an informed choice if her/his brain is being manipulated?

I’m not sure of the solution to the obesity epidemic (though I have an idea that I’ll talk about in the coming days!), but I know that we most certainly need to include neuromarketing in that discussion.

If You’re a Senior Executive and You’re Not on Twitter, You’re Doing It Wrong

I’ve seen a number of articles in the past 12 months (here’s one, and another, and another still) that discuss CEO’s and social media. Of the three I pointed to in the previous sentence, two are for and one is against. On the whole, I think the majority of what I’ve read in the popular press is that CEOs should be on social media. There are a number of good reasons (know your market, humanizing your brand, appearance of accessibility, etc.), but I learned of an externality last week.

When I was at the Appreciative Inquiry (AI) event, I was with a number of staff at George Mason University. Our aim at this event was to share positive things about Mason, which is one of the purposes of AI. During this sharing, it was possible to overhear conversations of other groups around the room (especially when there was a pause/lull in my group’s discussion). In a couple of these silences, I overheard groups talking about the President of George Mason University — Angel Cabrera — who is known for, among other things, being on Twitter.

In fact, a couple of these people who were talking about it, mentioned that this was the reason that they joined Twitter — just so that they could follow the President! And this isn’t the only time that I’ve heard of faculty/staff joining Twitter just to see what the President was saying. While these pockets of people saying this may not be a representative sample, it certainly seems like it might be the beginning of a trend, or at least something that’s worth noticing.

In a couple of the articles I mentioned in the opening paragraph, the authors specifically point to social media being a way for CEOs to connect with their employees. After hearing about these folks at Mason who joined Twitter just for President Cabrera, I can see other benefits, too. Once these folks are on Twitter, they may be more likely to follow other conversations and continue their learning/development. But more than that — for the company/brand/organization/school, these employees will be showing potential customers/employees another window into the workings of the company/organization. That may have been a confusing sentence. By being on Twitter, these employees could offer a window of what it’s like on the inside.

So, while there are obvious benefits of CEOs partaking in social media, I think it’s important to point out some of the externalities that result from CEOs being on Twitter  — namely — their employees joining Twitter. As you’ll notice in the title of this post, I would argue that senior executives should join Twitter, so not just the CEO (or President, in the case of George Mason University). In fact, at George Mason University, you’ll find that President Cabrera isn’t the only senior executive on Twitter. Mason’s Provost (Peter Stearns) is on Twitter, the Dean of the College of Humanities and Social Sciences (Jack Senser) is on Twitter, the Dean of the College of Education and Human Development is on Twitter (Mark Ginsberg), etc.

So — if you’re a senior executive, make your way to social media — now! And for all the employees out there, head on over to social media to check and see if your company’s/organization’s senior executives are on Twitter… you never know.

Arbitrage: Another Reason Why Mergers & Acquisitions Fail?

I’ve seen a couple of good movies in the last few weeks (look for some posts on them in the upcoming days). In this post, I wanted to talk a bit about one of those movies: Arbitrage. It came out this past year and stars Richard Gere (and Susan Sarandon). In fact, Gere is up for a Golden Globe for his performance.

And Wikipedia says that, “Many critics pointed out Gere’s ‘conflicted performance’ as a ‘career-best’, and cited the screenplay, ensemble acting, and direction as high quality.” Although there isn’t a reference, I did find this article in Rolling Stone from a few months ago that says, “Gere’s performance in Arbitrage is too good to ignore. At 62, he is at the peak of his powers.” And another from a CBS affiliate that says this could be Gere’s, “best performance ever.”

The movie really reminds me of a movie I saw around this time last year: Margin Call. It’s not hard to see why — they’re both about Wall Street and some of the transgression that may lead to turmoil. In Arbitrage, Gere is a financial wizard who is in the process of selling his firm (that he built from the ground up to a $600 million business). In amongst this, there are affairs, murder, lies, cheating, scandal — just about everything you’d expect in a good movie. While clearly a movie, some of these plots don’t seem out of the realm of possibility for actually happening (in real life).

The one thing that I found the most telling was something towards the end of the movie. Now, it’s going to spoil the movie, so this is where I’m supposed to say “SPOILER ALERT.” If you don’t want the plot ruined, you should definitely bookmark this post and come back to it after having watched the movie. You can watch it on Amazon right now!

Okay — so this is what it was: as the acquiring CEO is on the way to the gala, his right-hand man hands him a piece of paper that points out that Gere’s character’s firm has a $400 million shortfall. The CEO says something to the effect of, “what do you think?” And right-hand man says, “It’s all right there.” And then the CEO says, “I don’t see anything.” And then the CEO smiles at the right-hand man.

It’s often written that mergers & acquisitions fail and there are plenty of reasons why this is the case. Managerial hubris being a key culprit. However, after watching Arbitrage, I wonder how often it happens that the acquiring firm learns about a firm’s “cooked books” after acquiring it and then has to “sit on it,” or else the stock price would take a major hit.