Managers Going too Far: Targeting Linguistic Over-Reaches

The practice of using words beyond their contexts such that the words’ meanings are tortured and yet are pretended not to be was a trend in modern America during the 2010’s. The business manager instigated the trend in order to “gild the lily,” which means to claim more than is warranted or merited. Astonishingly, people dismissed or perhaps even didn’t recognize such over-reaches. Perhaps as long as people have used language, egos gripped in the pursuit of gain have presumed that keeping to a word’s extant meanings in a language is somehow optional.

To be sure, the malleability of words is one way in which a language changes in order to incorporate societal changes.  “I’ll text you tomorrow,” for instance, uses the noun text as a verb. Similarly, “I’ll email you later today.” These two verbifications did a lot to bring the English language up to date in the twenty-first century. Such adaptations are natural rather than pushed from an agenda.

A motive from an agenda pushes through, insisting that a word can be used all of a sudden in another context in which the meaning does not apply. In other words, the agenda reverberates from the sheer over-intensity of the insistence, or declaration, even above objections that are correct. Once a manager of a Target retail store insisted to me that the shoppers are guests rather than mere customers. Her tone was so forceful I could hear aggression in it. That manager was like arrogance on stilts during a flood; her claim should have been underwater.

Gilding the lily even more, some of those guests are members. It was strange indeed to be asked by a cashier, “Are you a member?” “Of what,” I would naturally wonder, as clubs had members and Target was not a club because it had customers who were not members (and even the members didn’t have to pay dues!). In short, the company was going too far in insisting that its customers be called guests and members, as if the company were a house or club, respectively. When I have guests over and I give them gifts, I don’t charge them for it. In no sense is a customer a guest, especially considering how bad customer service can be. To find an employee referring to a customer as a guest and yet treating the person very badly demonstrates a real disconnect within the employee’s mind, and yet this has been common even since customers “became” (as if naturally) guests and members. Nothing had changed on the store end in terms of customer service, so insisting that customers are to be called guests and members was to pretend that the commercial relationship was something more than it really is. It is this something more that points to the underlying motive: trying to get something more by pretending something that really is not the case. Wanting to pretend that the customer is something better, rather than that word somehow had been sullied and thus naturally to be jettisoned, was the motive. Telling customers that they are guests rather than customers would reflect instead on the company’s arrogance and being in a state of denial.
As another example of going too far in order to claim more than is warranted, Target also designated its retail-area heads as area owners. So, one employee is the owner of the home furnishings, for instance. In a corporation, the stockholders own the corporate wealth collectively. To bestow the title of owner onto an employee simply because he or she is in charge of a given area of the store implies that the employee’s authority is more than it really is. In the process, the meaning of the word owner is violated without even an acknowledgement. Again, a state of denial plays the mental function of protecting the over-reach such that even the over-reach is not recognized as such. It is almost like the managers were living in fantasy lands governed by the simple rule: if changing a word’s meaning helps the business, then make the change and pretend that no such change was made. .

General Electric: Tax Avoidance with Former IRS Employees In-House

The name of the game in all too many corporate tax departments is to minimize the tax due as much as possible. No countervailing notion of “corporate citizenship” or even “fair share” exists in that economic world of single-minded minimization of what is to be paid out. Put another way, responsibility does not compute in the business calculus. Advocates of corporate social responsibility got this wrong for decades by naively assuming that people who work in management roles cannot compartmentalize. Whether due to the strictures of a job description or financial pressures on a company, managers themselves may regret having to compartmentalize in order to keep their respective jobs. Sadly, all too often, a manager faces internal and external pressure to sign off on something that is admittedly unfair or too greedy. That the playing field itself may be slanted in the financial interests of large businesses goes beyond a manager's pay-grade, and even that of a corporation itself. For one to speak out in order to make the tilt explicit in society would deny the operative role of compartmentalization. Managers, even CEO's, may personally want a level playing field wherein corporations cannot yield an undue amount of wealth at the expense of other entities or persons, such a desire is outside of the business calculus. 

One manifestation of the tilted field is the ability of companies to bring IRS agents in-house as employees. In the debate on whether to end the George W. Bush Tax Cuts, the nominal (or statue) tax rates were salient. Much less was said of the effective rates, which are calculated by dividing the actual tax paid by total income (individuals) or net income (corporations). The New York Times reported in 2011: Although “the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.”[1] Although perfectly legal, the undue advantage means that the U.S. Government has had to look for other sources of revenue to make up for the lost revenue or do without the revenue, using debt to compensate. The "perfectly legal" aspect points back to the tax laws, and, more particularly, at the undue or even improper influence of the business sector in Congress. In fact, lest it be concluded that the business calculus is the reason for the tax avoidance (which is legal, unlike tax evasion), the financial power of business tilts the field not only by having too much influence in the crafting of tax legislation, but also in being able to hire ex-IRS employees to get "the inside scoop" on avoidance tactics. I now turn to the case of General Electric (GE) in 2010. 

General Electric reported global profits that year of $14.2 billion, $5.1 billion of which came from operations in the United States. Rather than owing any federal income tax on the $5.1 billion, however, the company claimed a tax benefit of $3.2 billion. Behind the “fierce lobbying for tax breaks and innovative accounting that enable[d] [the company] to concentrate its profits offshore,” the company’s tax department was led at the time by a former U.S. Treasury official, John Samuels.[2] Moreover, the department included “formal officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.”[3] G.E. had essentially brought the tax-writing and enforcement skill of the U.S. Government “in house.” As paid employees of G.E., the former government expertise was put under the aims of the private company, an organizational machine solely oriented to maximizing profit, whether short term or long.

Generally speaking, companies of such enormous financial wherewithal that annual profits are in billions of dollars can appropriate and harness governmental machinery for the sake of private gain. The issue here is not simply the existence of too much tax avoidance, hence at the expense of fairness; rather, the underlying problem is whether the existence of such large and powerful private enterprises is compatible with a democratic form of government. It is certainly not in the interest of the business sector that this question be interjected into public discourse. So the vested powerful interests, working through political stand-ins and the media, which itself is largely corporate, preoccupied with secondary issues, such as nominal individual tax rates, off-shore factories, and NAFTA. NBC, for instance, was owned by G.E. before being bought by Comcast. 

To be sure, the mantra well-known to many Americans in the 1950s, What is good for GM (or GE) is good for America, was supported by the notion that economic prosperity benefits everyone and a profitable company hires more employees than does an unprofitable company. What if the societal absorption of the value of this ideology made it possible for the business sector to have so much influence in Congress that the corporate taxpayers have practically been able to write their own tax laws? What if a pro-business society is too vulnerable to the rule by wealth (i.e., a plutocracy) that this underbelly can even keep itself hidden from view? Flaws exist in the assumption that what is good for GM or GE is good for America. Abstractly speaking, the good of a part is not necessarily the good of the whole. Private gain is more limited than is public gain. So if some of the parts come to dominate the whole and even define it in their own terms or image, the other parts and even the whole can be taken advantage of on the tilted board.

1. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether,” The New York Times, March 24, 2011.
2. Bonnie Kavoussi, “General Electric Avoids Taxes By Keeping $108 Billion Overseas,” The Huffington Post, March 11, 2013.
3. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether.”

McDonald’s Over-Reach: Blending a Restaurant and a Coffee Shop

In spite of essentially flat sales in the U.S. in February 2013 from the same month in 2012, McDonald’s CEO, Don Thompson, said he was confident that the people at the company had sufficient experience to “grow the business for the long term.” Even assuming that a business can be grown as if it were a geranium plant, the claim can be critiqued both in regard to the underlying assumption regarding “growth” and that of long-term viability. Fusing a restaurant with a coffee shop can be said to be an over-reach that had blended the company too much, at least at the store level.
In regard to the company’s long-term viability, changes in the business environment were important. The fast-food industry had obviously changed from 1970 to 2010, as did American society. As restaurant chains like McDonald's gained substantial economies of scale with the proliferation of restaurants, the increasing popularity of healthy meals gradually undercut the prospects for continued growth.

From "Americana" to "Enjoy Getting Fat": A change in the business environment in the last quarter of the twentieth century in the U.S. that impacted McDonalds at its core.    source: McDonalds.com

The management at McDonald's did relatively well in introducing healthy alternatives to its menu by 2010. The strategy also included blending the restaurant with a coffee shop experience, the enjoyment of which had also expanded due to Starbucks. To cut into that market, McDonald's introduced new drinks, such as smoothies, mochas and lattes, and added wireless internet service. As a result of having adjusted to the health-conscious and coffee shop mini-cultures in the business environment, McDonald’s U.S. sales rose 11.1% in February 2012 from the year before.[1] By 2013, Burger King was renovating its restaurants and adding "coffee shop" drinks too. Even so, the flat McDonald's sales figure in February 2013 was a bit of a surprise. Although the problem could have been the newly introduced fish product, I suspect that the market may have been questioning McDonald’s expansion into the coffee shop business as being an over-reach even it did enjoy certain synergies.
McDonald's was admittedly poised to give Starbucks a "run for its money" concerning that the giant coffeeshop chain had gotten away with mass-producing drinks to sell as premium prices. That coffee chain was essentially charging a premium price for non-premium products, given the manner of production. Even though McDonald's could undercut Starbucks on price and thus potentially gain market share, a McDonald's facility looked and functioned more like a restaurant than a coffeeshop where people would feel comfortable hanging out and getting work done or socializing. 
Adding to the discordance was the decision of McDonald's management to continue to stress the “dollar menu” for the “budget conscious” customer. Put somewhat delicately, the business strategy assumed that two very different market segments would co-exist in the same room. Starbucks had the same problem because of its "third place" policy, wherein people could hang out without purchasing anything. I know of at least one Starbucks' store in which the number of homeless "customers" has driven out otherwise paying customers. McDonald's management, through at least the 2010's, was essentially blurring the company's identity by seeking continued sales growth by trying to combine a restaurant with a coffee shop.
In general terms, a company’s senior management (or board of directors) should not get so caught up with important changes in the business environment that the resulting strategic change involves trying to remake the company into something the company is not. A fast-food restaurant is not a coffee shop. Although some people in the fast-food crowd would relish mocha, blending the social distance between the two cultures could result in a bitter drink that satisfies nobody. Had McDonald's management concentrated simply on adding new healthy fast-food (i.e., restaurant) products, sales would probably have improved without risking an identity crisis at the restaurant level. Alternatively, McDonald's could have built real coffee shops, with suitable furniture and decor, and synergies could still have existed. Perhaps fusing different lines of business, in cases in which each has a distinct culture and customer base, is not wise. To keep up with societal shifts and profit from them while not blurring the business’s identity is the sort of balance that a corporate management should attempt to reach and sustain in formulating strategy over the long-term.

For a critique of Starbucks, see Bucking Starbucks' Star, available at Amazon. 

1. Candice Choi, “McDonald’s Sales Drop Despite New Fish McBites,” The Huffington Post, March 8, 2013.

A Lack of Good Will at Goodwill

Redefining words to suit a business’s financial interest is misleading, even if the herd animals who serve as customers look the other way, or, even worse, do not notice the fact that the words have been redefined! At a Goodwill store in Phoenix, Arizona,  I bought a black suit for singing in a choir. Before I paid, I asked a manager whether I could return the suit as long as I do so within a week. “Yes, you can get a refund,” he replied. Three days later, I returned to the store to return the suit. I approached an available cashier, but she told me that I had to go to the other cashier if I had a return. That cashier was not even at his register, and even when he returned I had to wait at least five minutes for one customer. Only the head cashier can process refunds, whereas any cashier can accept money—an interesting, meaning convenient, asymmetry. Money comes in easier than it goes out.

When the head cashier processed my refund, he handed me an in-store credit card. I asked the assistant store manager why a return was instead being treated as an exchange. “In the Goodwill network,” he replied, “returns are exchanges.” I was stunned. “But the two are not the same thing; returns result in refunds, which are not store credits,” I retorted. “Not at Goodwill,” the manager said in a definitive tone.

Having essentially redefined a return for a refund contrary to the word’s meaning and common usage, the ploy can be said to be misleading. Given customers’ legitimate assumption that a return results in a refund, which is not a store credit, the redefinition effectively involves false pretenses. No good will comes with such a nefarious, deliberate misuse of language. Indeed, the very name of the organization, Goodwill, connotes a lie if the good will under the roofs is lacking. 

See "It's Only Fair."

“No Loans” on Gun Sales: G.E. as Socially Responsible or Financially Savvy?

In the wake of the Sandy Hook school shooting in Newton, Connecticut in late 2012, General Electric announced that the company would no longer finance consumers’ gun purchases. Russell Wilkerson, a G.E. spokesman, wrote in an email that the new policy was being adopted “in light of industry changes, new legislation and tragic events that have caused widespread re-examination of policies on fire-arms.” In other words, the policy shift was not simply a reaction to Sandy Hook. Rather, the company’s executives were adapting to changes in the organization’s environment, including the industry itself. This opens up the question of whether the new policy can be classified under the rubric of corporate social responsibility (CSR). Perhaps the adaptation was simply good business, with the appearance of “CSR” adding some reputational capital through a good public-relations campaign.

Do business principles mandate treating this product like any other?  Source: NBC News

Well-meaning moralists in particular may have a tendency to project their own strident sense of obligation onto other people, and even organizations as if they too could be moral agents. Yet an organization, like a biological organism, must adapt to its changing environment, or risk being replaced by a competitor that has achieved a better fit to the new environment. Does such adaptation, which renders a company more fit by means of a sort of competitive natural-selection process, involve obligation manifested as responsibility to that environment, or is the adapting simply a matter of survival and even accruing surplus? To do one’s duty is not typically said of what a person wants to do anyway in line with self-interest. A person would quickly see through my claim that it is my duty to eat the remaining chocolate sundae so not to waste food. People do not typically fall over themselves to do something out of a feeling of duty or felt responsibility. For the sense of obligation or responsibility to be the primary motivator, the person (or persons, in the case of a company) must not otherwise be inclined, as from the anticipation of a benefit, to act. When stimulated, self-interest tends to eclipse the feeling of duty of responsibility. This thesis can be applied to GE’s policy on financing firearm purchases. 
First, though, can the policy be said to fall under the rubric of corporate social responsibility? What if marketing the policy was simply good business? The societal benefit in making it more difficult for people to buy guns may simply have been intended as a byproduct. Surely the societal good of a byproduct has worth even without having been motivated when the policy was chosen. Even so, the primacy of self-interest--the profit motive--irrationally taints the resulting societal good. Such a company's societal reputation would be enhanced by the good of the byproduct and decreased by the primary motivation of self-interest.  
How salient was the profit-motive in GE's decision to stop lending on gun sales, and how great was the impact in terms of the benefit to society, beyond the company? GE Capital Finance had already stopped providing consumer financing for new gun-shop customers in 2008. The policy change in 2013 merely extended the ban to existing customers. So it is not as though potentially new customers would be discouraged from buying a gun on impulse for nefarious purposes. The impact on the bottom line from lost sales could not have been assumed to be great; even if new and existing gun customers had been eligible for financing before the policy change in 2013, we would still be talking about a small fraction of GE’s revenue. Additionally, according to USA Today in 2013, GE’s “decision affects fewer than 75 retailers, which GE says is about 0.001% of all gun retailers.” This is because the policy “affects only retailers that sell firearms exclusively.” General merchandise stores, such as Walmart, were excluded from the company’s lending ban. 
However, Wells Fargo had stopped financing gun purchases in 2004 “for business reasons,” according to company spokeswoman Lisa Westermann. Perhaps it was good business at GE too, but not directly. 
Indeed, the "corporate social responsibility" policy as promotion could have been expected to boost sales companywide without much cost in foregone gun sales on credit to new customers in gun stores only. In fact, the policy as promoted could even be misleading, as in the article's title in USA Today, “GE Won’t Make Loans to Buy Guns” even though GE would still be financing guns—just not through stores that sell only guns. The gap itself between the publicized and actual policy could mean that the managers' intent had been to use “marketed CSR” to boost the company's reputational capital with as little cost as possible. In other words, the profit-motive was likely the motive. If most of GE’s lending on gun purchases was through multi-merchandise retail stores, GE could capitalize financially on sympathy from the school shooting without having to give up much financially. Interestingly, the shooter’s father, Peter Lanza, was a GE executive at the time—the company being based in Fairfield, Connecticut. Had other GE executives felt obligated, also being at such close range to the tragedy, to protect the kids, we would not have seen the sort of motivation that led to the exceptions and allowing the misleading storyline to go uncorrected. Were the primary intent that of protecting kids at schools from getting shot, the loopholes would not have been allowed to exist even if GE had to wait for contract renewals with general-purpose retailers such as Walmart.  
Often corporate social responsibility and business ethics are conflated. The distinction in this case is clear. The fitness of a policy to societal norms is a descriptive matter of whether organizational values are in sync with societal ones, whereas the misleading claim to have have ended loans on gun sales is a normative matter. Whether the norm in GE is consistent with the societal norm on the role of guns in the tragedies does not require justification by ethical reasoning and principles or theories. In contrast, whether a company should be misleading or even fail to stop it in the press necessarily includes resort to ethical principles, for only they can justify the claim that the motive or consequence is unethical. 
Still another lesson to take from this case involves the choice to wade into a controversial societal issue. As in the case of gun control, which is really about access to guns, entering a controversial debate puts a company at risk for being negatively viewed by the “other side.” This could significantly reduce the good  to the company obtained from the use of corporate social responsibility. 
A USA Today poll taken at the time of the policy change in 2013 found public support for new gun-control legislation “slipping below” 50 percent. GE risked many people agreeing with John Meek, the owner of a gun store in Illinois, who called GE’s policy “an injustice” because the instrument rather than the user is being blamed. Howard Schultz of Starbucks, in contrast, correctly judged the changing American attitude toward gay marriage in using the company to promote the cause, even if a CEO using a company for a personal political agenda is unethical. A dramatically changing shift in societal mores, norms, or attitudes is like a wave that managers strategizing corporate social responsibility programs and policies can ride, whether the motive is financial gain only or includes improving the social good. What might seem like an easy way to enhance a company's societal reputation can easily backfire if not done with attention to a changing business environment. 

Source:

Paul Davidson, “GE Won’t Make Loans to Buy Guns,” USA Today, April 25, 2013.

Karl Lagerfeld: An Artistic (and Marketing) Genius

Weeks after Karl Lagerfeld’s death at 85 in February, 2019, I poured over interviews that the eternally-modern yet classic Renaissance man had given. “I only answer questions,” he had said an interview in at a WWD conference in 2013. His answers provide as inside as possible a look at l’homme extradinaire.  He considered himself a fashion designer, a book publisher (regular and picture books), and a photographer, though he did much more. I’m not sure whether his books, interior designs, architecture, and photography can be considered marks of genius, but that he extended his method of fashion-design and did so well is a testament to the man’s inner-workings. His answers remind me of Frank Lloyd Wright, the famous architect from Wisconsin whose work so revolutionized homes from the Victorian era. Essentially, he ushered in open homes from the closed roomed Victorian houses. Lagerfeld was also innovative, taking the classic Chanel look and adding bits of modernity, such as in combining a black dress with sneakers. Both men produced homes/dresses that were inexpensive and expensive. Neither was beyond reach, yet as visionaries so far above most other people. Lagerfeld, like Wright, saw things differently than most of their respective contemporaries did. This is perhaps their shared mark of genius: not be so tied to yesterday, combined with being inspired to use creative freedom then expanding its application. This is all based in the inner constitution of the two men, which I suspect was similar. As Lagerfeld said, “I am down to earth—just not this Earth.” This is actually quite telling of genius, for such minds typically think "outside the box" and so can easily see through even societal sacred cows and thus proffer very different perspectives. The thinking, intuition and/or artistic perspective, in other words, innately go beyond the societal and individual assumptions that most people do not even realize they live by or hold. I contend that Karl Lagerfeld's artistic, or visual genius went far beyond fashion-designing.  

Regarding his creativity, Lagerfeld said that perfect work conditions permit creative freedom such that fits of inspiration can run their course like a stream unimpeded by obstacles. Working for a label need not detract. “I do the job because I enjoy it,” he said. “I love to photograph architecture,” for example. He eschewed analyzing his work. “To analyze is very unhealthy,” he said. “The worst thing in fashion . . . is the ivory tower.” So Lagerfeld’s genius did not manifest chiefly through the commonly presumed realm of reason. “I don’t listen to my voice,” he said, “I listen to my inspiration. . . . When I like something, I don’t ask myself why,” he said. “I am like a building that has an antenna; I look at everything.” His genius may have been in both how he looked at everything (i.e., from a distinct vantage-point transcending his own day) and how his inspiration was related to the raw empirical sensory data. “I’m a story teller. From a little detail a story can be made.” The underlying mechanism is difficult to describe “Most of the time, there are strange accidents.” These are innately unprogramable and therefore beyond turning into a programmed series of steps (i.e., mechanization). “I’m not an office person, you know.” Both his unique way of looking at modernity and his inspiration were clearly not easily translated by reason. Yet curiously he viewed his sketching and writing as “the same thing,” which may imply that genius is genius underneath regardless of how it manifests.

Lagerfeld also had a unique approach to work. Believing that “there is always room to improve,” he stated, “I don’t want to rest on what I’ve done; I’m only interested in what I’m doing and what I will do.” He relished being stimulated, which is undoubtedly why he was so interested in looking at what is new at the time. “I lose interest very quickly. A lack of excitement can quickly result in a change in course, “or if people think they know better than I do” or cause complications because they think they think they are professionals. People who work to justify their salary is the worst.”

Although his father was a businessman (who made his fortune from introducing dry milk to Europe), Karl felt no need to assume a business function; he left that to others. He left business to others, though he could be accused of having had an eye for marketing his collections through elaborate shows. Even so, he was not a “business type.” For instance, he said, “People are supposed to work together. If they do, “you don’t need a contract.” A business practitioner would view this, and his dictum that he only works on things he wants to work on, as highly naïve. His lack of humility might have rubbed business practitioners the wrong way. On himself as a fashion designer, he said, “Somebody might do better, but I don’t know who.” Yet interestingly, he included himself in his observation, “Things are step by step; sometimes you go back two steps, but that is a healthy thing too.” He also valued competition, which is cherished in the business world even as its practitioners seek monopolization. “Do you know something heathier than competition?” he said, “I don’t want to rest on my success.” Friends thought he got only a few hours of sleep a night. “I’m not really a party freak, ” he remarked, “I have so little time.” As he kept working so, being open to learning more about the craft and to following through on his fits of inspiration, he may have felt he had earned the right to brag. At around 80 years of age, he still said, “My problem is to show collections that are right for the moment and right for the label.” He was corporate enough to subordinate himself under Chanel even though the company had given him free artistic license, which he regarded as necessary as part of good working conditions. Ironically, in ceding some control, the company’s CEO got more loyalty and financial success from the man. How many business practitioners past their first few promotions stay so eager to push themselves to learn more and improve rather than settle in?

Finally, the unique nature of his perspective looking out at the world as it was is in the moment, rather than looking back retrospectively, shows us how utterly distinct the vantage-point of genius is. As Fredrich Nietzsche had written in the last half of the nineteenth century in Europe, a philosopher is not a man of his time. Genius, whether analytically or artistically, can easily go beyond the status quo and its underlying operative paradigm (e.g., assumptions), and yet Lagerfeld relished the excitement from looking at modernity, which he defined as that which “is right for the moment and the next moment.” Avant guard, he noted, is an antiquated, overused word. Overused, no doubt, by minds that are not able (or willing) to transcend what they take for modernity.

Even Lagerfeld’s reason for not going back over his own story is different, and thus telling. “No memoirs,” he said, “I have nothing to say, and what I could say I don’t want to say. . . . There were important people in my life but I don’t want to give them the pleasure of mentioning them again.” Bravo! Lagerfeld was interested in history, though not of his own, which he said he already knew it so why waste time going over it? Not being moored to a particular culture, present or past, he could critique it particularly well and yet go beyond it and critique a novel trend. For instance, He said of the eighties in France: “I prefer to forget about that.” The seventies, in contrast, “were not about money.” That decade had been one of freedom. “Today if you go to a party, you bring your body-guard; there are body-guards all around.” This is an astoundingly accurate observation and indictment of the increasing security consciousness gripping the urban West. Even just the increasing intimidation in the amassed security forces by businesses and police forces by universities and cities can snuff out the atmosphere of freedom that characterized European and American culture in the 1970s. Genius is out of place, yet so vital to a people ensconced in the status quo (or what has subtly entered the status quo unexamined and perhaps even uninvited).

Sadly, I was too young to partake of the hippie culture of freedom from the late 1960s to mid 1970s; my first political memory is of the Watergate congressional hearings in which then President Nixon was dropped even by his fellow Republicans on account of his law-breaking in office. That memory, plus that of OPEC-induced gasoline shortages and President Carter’s failure to return the Americans held hostage in Iran, gave a pessimistic hue to the decade to me and many other Americans. Fortunately, Europe had a different hue, as Lagerfeld would point out: Greater freedom rather than more corruption. I share his view of the 1980s as being more about money. In Reagan’s America, prosperity was the Gospel and the rich (and business schools) thrived. I’m not surprised to learn that that spread to Europe. Lagerfeld could look back at all the wealth created back in the 1980s and still say in 2013, “Many rich people of the past are poor today (relative to today’s rich).” In spite of the financial crisis of 2008 and the ensuing European debt crisis, the 2010s can be said to be about the super-rich and the related widening disparity in income and wealth approaching that of the Gilded Age. As for Lagerfeld on politics, he was interested in the news (and it was relevant to fashion), but he could proudly proclaim, “I never voted in any country; I am a free European.” The man who had wanted as a child to be an illustrator when he grew up had in fact grown up to pour his genius perspective into images and cultural critiques.

Source: “Interview with Bridget Foley,” The WWD Apparel and Retail CEO Summit, January 7-8, 2013.

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Bankers or the Bank: Which Is Responsible?

Along with paying $2.6 billion to settle criminal and civil charges for having “failed, and failed miserably” to notify the SEC of warning signs that could have short-circuited Bernie Madoff’s $17 billion Ponzi operation, J.P. Morgan Chase only had to acknowledge that its actions were improper.[1] No criminal prosecution ensued. The electronic evidence against Madoff's operation was too damning for JP Morgan Chase to have missed it. Indeed, according to USA Today, “JPMorgan had suspicions about Madoff’s operation as early as December 1998, when a bank fund manager warned the investment returns were ‘possibly too good to be true.’”[2] Without submitting any “suspicious activity reports” to the U.S. Government as required by law, the bank had pulled $275 million of its own “feeder funds” from Madoff’s fund two months before Madoff’s financial services firm collapsed.[3] In other words, the bankers connected the dots well enough for the bank's financial interest and perhaps even their own, yet strangely  enough no one at the bank could manage to let the outside world  know, even though federal law mandated reporting the suspicions to the SEC.  and responsibility urged it.

Does being strenuously pressured into making a public acknowledgement of impropriety accomplishes any internal improvement in a bank's corporate culture, including the pervasive attitude toward responsibility relative to profits? JPMorgan Chase had to acknowledge the impropriety of the bank's failure to keep the SEC informed, but this admission does not, in itself, mean that the bankers came to realize a sense of responsibility to the other investors (and potential ones) so they would not continue in Madoff's scheme. A formal acknowledgement is external, and all to amenable to business, whereas a sense of responsibility is internal; it is either there or its not. It is not something that a person can get by attending a training class. I'm always amazed, by the way, when a supervisor tells a customer that an employee's attitude can be "retrained," as if all the values and beliefs that a person has acquired even from upbringing can suddenly be changed by attending a workshop on proper employee attitude. 

In fact, it is not clear to me whether a corporate acknowledgement of guilt or failure even makes sense. Stated in terms of organizational theory, I want to challenge the popular presupposition that an organization itself can admit to criminal or improper actions. If so, must we assume that a firm is more than the sum of its parts and that this more has human attributes? Just because human beings are members of organizations does not mean the organizations are themselves human in some respect, such as in having a sense of responsibility.

Anthropomorphism, the projection of human characteristics or attributes onto non-human animals or things including collectives such as a company, government, or religious organization, is the underlying problem behind the justice in this case being insufficient. Did JPMorgan acknowledge that its actions were improper? Can it even be said that a bank has actions, since only people can act. You might retort that a bank has people who act for the bank, but this is not the same as the bank having acted. Did JPMorgan have suspicions? Human minds have suspicions. An organization does not have a mind (and thus not a memory). In spite of the legal fiction of “personhood,” a company made up of people and things such as money and buildings has neither a consciousness nor mind. 

J.P. Morgan hitting a man. Was he demonstrating that criminal law applies to human beings in organizations?  Image Source: Wikimedia Commons

Dennis Kelleher (of Better Markets) answered the JPMorgan settlement by observing, “Banks do not commit crimes; bankers do.”[4] Kelleher made the dogmatic statement in support of his criticism of the lack of charges against the bank managers who decided to, and went along with, keeping their suspicions from the SEC and thus the outside world. Who decided to pull the money in the bank’s feeder funds from Madoff’s fund two months before Madoff himself informed government officials? Were those JPMorgan employees aware of the refusal to inform the SEC? If so, they, not "the bank," had some explaining to do, and from that perhaps some external accountability was needed. Ironically, five former Madoff employees charged with aiding that fraud were on trial at the time. 

To be sure, it could also be asked whether the SEC should have needed to depend on reports from suspicious institutional investors such as JPMorgan to discover Madoff's scheme? It was so big that the SEC came off looking rather badly. If that regulatory agency has suffered from inadequate staffing (or experience, do to the higher compensation on Wall Street), part of the larger problem is that political contributions and lobbying from financial institutions convince elected and appointed officials of the federal government to keep the SEC too lean to do any damage to those particular institutions. Of course, damage to the financial system itself, or even the wider economy, as occurred in the financial crisis of 2008, is apparently not within the purview of responsibility. Again, the outsiders be damned, or, insiders at the expense of others. The lack of sense of responsibility in the bank thus mirrored that of the politicians and their paymasters. It is an inner circle of power and money that forsakes the public good.  

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1. This was according to Manhattan U.S. Attorney Preet Bharara.Tim Mullaney and Kevin McCoy, “JPMorgan to Pay $2.6 billion in Madoff Case Settlements,” USA Today, January 8, 2014.

2. Ibid.

3. Ibid.