Limited Shelf Life

In business, one of the hardest things is knowing in advance which new products or services are going to maintain strong sales over time. A lot of people lost a lot of money in the late 1990s and early 2000s on the assumption that Beanie Babies would continue to appreciate in value forever, and a lot of people have lost a lot of money over the past three decades by assuming that home computers, the Internet itself, or social media were all passing fads that would soon go away again. It gets even harder when we move into the arts and pop culture, where even a certified platinum hit does not guarantee that a given band will ever have another song on the charts (the world teems with “one-hit wonders”), and a recording act that has been producing under-appreciated albums for twenty years might suddenly leap to prominence. I have to question if it is that hard to imagine that products with no reason for existing except to tap into (and cash in on) a prefabricated teen idol’s popularity might lack staying power, though…

A New York Post article from last week reveals the not particularly surprising news that cosmetics giant Elizabeth Arden is losing money on fragrances linked to both Justin Bieber and Taylor Swift. The reporters suggest that the effect is attributable to both lower-income customers cutting back on luxury items because of the economic situation and also to people getting tired of unpopular behavior on the part of the two celebrities in question (e.g. Bieber’s “bratty antics” and Swift’s “diva routine”). I have to agree that these factors probably do figure into the drop-off in sales of these products, but at the same time I have to note that the majority of pop acts over the past four decades have followed a similar career trajectory, and the percentage is even higher for those individuals specifically developed and groomed by a record company for the purpose (as opposed to naturally-occurring groups of musicians). And the increasing saturation of both the entertainment and cosmetic industries is making this type of failure increasingly common…

Go into any large retail establishment that carries the so-called “celebrity fragrance” products, especially around the holidays, and you will find yourself confronting dozens or hundreds of possible choices, none of which have any particular virtues apart from being endorsed by the particular celebrity whose picture appears on the package. In fact, other than “smell like this celebrity,” most of these products do not even attempt to provide any other selling points. By the same token, in the YouTube era it is possible for dozens (or hundreds) of new performers to appear at any given time, and even if a specific recording artist is able to sell a large number of albums and attract a large following, there is no way of telling how long that success will last – even assuming that the celebrity in question doesn’t do anything objectionable enough to drive his or her fans away…

Now, I don’t mean to suggest that there aren’t recording artists with staying power – the Rolling Stones are well into their sixth decade and showing no signs of stopping, to take the obvious example – or cosmetic products with even longer life spans, like some of the famous Chanel fragrances. But performers and products with that kind of longevity will generally have more to offer than just instant fame from a television show or a sleazy record producer, such as talent or actually smelling nice. In other words, they offer value for the customer’s money. And while there have been occasional exceptions over the years, I don’t think I would want to base my company’s strategy (and ultimately survival) on someone’s ability to catch lightning in a jar repeatedly over time…

Would You Believe…?

We’ve been talking in this space for some time now about the ongoing debate surrounding for-profit colleges, and specifically if the service they provide is worth the tuition they charge. There are some people who will insist that the entire industry is a scam; a carnival game that promises riches but will never give you any real value for your money – and in particularly egregious cases, like the “Trump University” scam, they are undoubtedly correct. There are also people who will insist that for most general education subjects the relative rigor of the school is less important than the fact that you took those classes in the first place, and there appears to be some support for that position as well. However, there is a new study out that adds an interesting spin on the debate…

You can pick up the original story from the Inside Higher Ed website if you want to, but what they’re talking about is a research project done by the National Center for Analysis of Longitudinal Data in Education Research (CALDER), where the researchers sent out a little under 9,000 simulated applications for entry-level jobs, half of which depicted community college graduates and certificate holders, and half of which represented people with equivalent credentials obtained from for-profit schools. In all cases, the fake applicants were presented as young people, with 2010 high school graduation dates and with a consistent level of work experience, training, skills and abilities. And what the researchers discovered was that the response to the two different applicant pools was virtually identical – roughly the same percentage of people in each group received positive replies from employers and requests for interviews…

Now, there’s definitely a temptation to see this study as deflating the claims of the for-profit industry, and in fairness it’s hard to blame anyone for wanting to do that. Even leaving the outright charlatans out of it, we have all seen a lot of advertising over the past decade claiming that the for-profit schools can get you a better education on your own schedule, without having to deal with any of the aggravation associated with traditional institutions of higher education (like qualifying for admission, one imagines). But Academia in general has been rising to the bait in recent years, lumping for-profit schools that actually do provide value with programs that are really just multi-day advertising programs for someone’s personal writings (I’m looking at you again, Trump University) and claiming that the whole industry is fraudulent. And this study would appear to debunk those claims right along with the ones made by the for-profit schools…

Granted that paying hundreds or thousands of dollars for a class that you can get at a local community college for under fifty is not necessarily a good value for the money, saying that such a program has no value would seem both unkind and inaccurate. If a given student can get the same results from either school, then the for-profits may be over-priced, but that doesn’t make them useless. And in cases where a local community college does not offer on-line classes, or sections that meet on weekends and evenings, the private sector could be the only practical option available for some students. We should probably also note that there is more to getting an education (at any level) than just how much it is going to help you find work. If students who are already employed are able to gain knowledge and skills – or even just self-confidence – that will assist them in their careers through any form of education, then it becomes increasingly difficult to conclude that their chosen program is not giving them good value…

As an educator, and a taxpayer, I can honestly say that I really don’t care how people go about learning more things, so long as they do. As a business analyst and a management consultant, I can very definitely say that if people are willing to pay extra for convenience (e.g. for classes held where and when they can easily attend) there’s nothing wrong with someone providing such a service. Of rather greater concern to me was the fact that both groups combined received responses from barely 20% of all of the companies to which they “applied”, and interview requests from just over 10%. If something like 90% of job applicants with two-year degrees or equivalent certificates can’t get as far as a job interview, we may have a bigger problem than where to spend our education money…

How Stuff Works: The Triple Bottom Line

The Triple Bottom Line is another one of those concepts that everybody has encountered at least once, in some management text or business news article, all about better ways to run your business and save the world in the process. Many, if not most, of these screeds tend to get ignored because, let’s face it, most businesspeople are more concerned about selling product, paying expenses and turning a profit than they are about warm and fuzzy concepts that people make up to fill management textbooks. What they’re ignoring the Triple Bottom Line is more than just an academic buzzword; it’s a way to accomplish multiple worthwhile things while potentially making more money than you would with a conventional approach…

Most people are already familiar with the First bottom line; it’s the one that appears at the bottom of your financial statements for the month; the amount you made or lost as the result of business operations. This is occasionally derided by the sort of idiots who believe that a world with a barter economy or a socialist utopia are actually achievable in our time, or for some reason believe that success in a commercial enterprise is somehow wrong. I have often pointed out in this space that there really isn’t anything wrong with turning a profit, providing jobs for your employees, business for your suppliers, a good return on investment for your stockholders, and offering a useful product or service for sale – all of these things help worthwhile people to have better lives and potentially better futures…

I’ve also spoken in this space about the Second bottom line, although I haven’t usually called it that. Consider for example that if our company makes money it will contribute to the local economy, both from taxes paid on income and sales, but also through the amounts it spends on goods and services and the amounts all of its employees and suppliers (and their employees) spend on goods and services. This increases the funds available to the local government, and allows for better police protection, fire service, public healthcare and education, libraries, parks, and social services, just to name a few. Some people may dismiss this as nothing more than a side effect, or complain that the business doesn’t really care about these effects, but I have to ask: if your community is gaining all of these benefits, do you really care why the people who own the company are providing them?

The Third bottom line is all about the environment, and doing business in a way that is environmentally sensitive – or, even better, has a positive effect on the environment. The best example I’ve ever seen – the one I teach in my management classes – is a garbage-collection company that started composting the organic waste it was being paid to collect. Not only did this keep millions of tons of trash out of the landfills, it also created the world’s best organic fertilizer (that’s what compost is), which enabled local farmers to achieve better crop yields while at the same time avoiding harmful runoff from chemical fertilizer. The farmers made more money, the local water and air were cleaner, the landfills didn’t fill up as fast, and the company eventually realized they were making more money selling compost than they were being paid to collect the garbage in the first place…

Now, I realize that I’m not going to change anyone’s business philosophy, let alone strategy, with a 600-word blog post. But I have to ask you to consider a situation where people are paying you to come and haul away the raw ingredients for your most lucrative product: is that not beautiful? If you could benefit your employees, your stockholders, your community, and the whole world while making more money doing so, why would you not want to do that? The key point of the Triple Bottom Line isn’t that there is more to life than making money (although there certainly is). The point is that sometimes doing the right thing and doing the smart thing involve doing the same things, and it would be a shame to pass up a chance like that – especially since it’s probably already there, waiting for you to find it…

Repurposing

Here’s another interesting case for you: Suppose you are the general manager of an airport that no one is using, and nobody particularly wants to move into. It’s not a far-fetched situation, either; a lot of the smaller and less well-traveled US airports are falling on difficult times following the consolidation of the industry. Thirty years ago there were over 70 major airlines in the United States, and at least four dozen of them that flew coast-to-coast, all competing for passengers and guarding air routes to which only they had access. Getting permission to use a gate in an airport outside your normal system wasn’t possible, at least not at anything like an affordable price, and customers in a given city were limited to whoever was already entrenched there. Then Congress deregulated the airline industry and everything changed…

Today there are fewer than a dozen carriers with nation-wide operations left in the US, and most of the survivors have been moving away from direct, non-stop flights in favor of a hub-and-spoke system. There was a time when if you wanted to fly from Los Angeles nonstop to Des Moines or Pittsburgh you could just get on a flight and go, but this is no longer the case. Today you’d probably have to fly to Dallas or Chicago (on American) or Denver (on United) or possibly Phoenix (Southwest) and catch a connecting flight – and some of the minor airports aren’t even that lucky. Increasingly in the US you will need to get on a regional carrier that can connect you to a major airport and change airlines there…

The difficulty here is that an airport is (usually) a large, sprawling installation, and it requires a lot of expensive maintenance to remain operational, regardless of how many flights are landing there. And while it might be possible to use some of the airport grounds to launch other businesses, both the EPA and the FAA will probably take a dim view of that, not to mention what Homeland Security and the TSA are going to think. Unless you can find some form of revenue stream that can be generated using the existing facilities, or whatever resources are located in, around, or under those installations, a lot of the lesser airports are going to have to close…

Fortunately for the folks in Pittsburgh, they’ve just discovered one such resource: natural gas. It turns out that the runways at the Pittsburgh airport are sitting over a large, and previously undiscovered, natural gas field – and that modern horizontal drilling techniques can get at the gas without disrupting operations at the airport or weakening the integrity of the structures. Dallas and Denver both have working oil fields on their grounds, and have operated them for years without any ill effects. This is especially important in Pittsburgh, where the Economist is reporting around half of the airport’s current revenue is being taken up just paying the interest on various debts. Hopefully, this will be enough to keep the airport out of the sort of death spiral where it can’t afford to keep up its facilities, so fewer airlines want to go there, which lowers revenue still further and the cycle repeats…

It isn’t being reported at this time just how long the natural gas deposits might last. We can only hope that the people running the airport will use the time during which the gas is flowing to figure out their next move – because eventually the gas field is going to run out, and when it does they’re going to be right back to where they are now, trying to find some other financially viable use for a dying airport…

Bet on the Man

I’m not usually considered an early adopter of new technology; it’s the skeptic in me that keeps making me question whether the “next big thing” really is the next big thing (like the iPod or Face Book) or just looks like it could be (remember the Newton? how about the Lisa computer?). In recent years I’ve been skeptical about hybrid and fully electric vehicles, not so much because I don’t believe in the technology as because the inertia built into the automotive industry and its allies in the petroleum industry. Put simply, there are too many rich and powerful people who are too invested (often literally) in keeping things the way they are now for us to imagine any large-scale change happening in this sector. To even challenge the status quo you’d need not only cutting edge technology, but also visionary leadership, superior product design, exceptional marketing, impeccable public relations, and a truly brilliant strategy to tie everything together…

I was therefore very interested to read about the new gambit from Tesla Motors last week. According to the statement issued by Elon Musk on his personal blog, the company is now offering an 8-year, unlimited-mileage warranty on the battery pack and power train on all of its vehicles. That would be amazing enough, but according to the note they will also be extending the new warranty retroactively to cover all of the units in each of these designs that have already been sold. Warranty agreements that offer as much as ten years are common, as are offers of 100,000 miles or more, but as far as I can tell this is the first such offer to include unlimited miles as part of the deal. But when you consider the implications of the offer, it rapidly becomes apparent that this is more than just a selling point for the product…

One of the biggest problems for any new technology is that people are going to see it as unproven – even if, as in this case, the technology in question is actually very old. It turns out that electric cars have existed for over a century and actually predate most of the current internal combustion technology that everyone thinks of as being proven and reliable. It seems obvious that by offering unlimited mileage on its warranty, the company is effectively saying that they have no concerns about the durability of their products; they are effective both challenging people to try driving one of their cars a spectacular number of miles over eight years of ownership, and calling their entrenched competitors on the fact that none of their supposedly “proven” and “mature” gasoline-powered cars has anything approaching this level of coverage…

Then there’s the specific perception of electric-only and even hybrid cars as needing new battery packs every few years, and that the manufacturers are unable to handle disposing of the old batteries. If Tesla is offering a complete warranty on their drive systems and battery packs for eight years they clearly aren’t expecting to have to replace any in three or five years – and they can’t be that worried about having to dispose of bad units when that becomes necessary. You would also expect excessive use to shorten the service life of both the power pack and the associated drive systems, but Tesla is clearly not concerned with that, either. Some consumers may still view the purchase of these cars as something of a gamble, but it is apparent that if that’s the case, the company and its ownership (including at least one entrepreneurial legend) are going to take that risk right along with you…

And if that wasn’t enough, there’s also the matter of getting more vehicles onto the road. The only way for Tesla to become a mainstream brand – not some new, exotic, possibly ephemeral technology toy – is for the sight of its products to become commonplace; for the sight of a Tesla roadster in the next parking space to become no more remarkable than the sight of a Ford on the other side. If this can boost acceptance and purchase of the vehicles – and the company is already operating at full manufacturing capacity and building a new factory to increase that output – then they just might make it out of the Introduction phase of the life cycle and into the Growth phase. Once they can convince more than just the Early Adopters to purchase their product they’re off to the races…

Stay tuned, folks. This is starting to get interesting…

The Ethics of Overtime

This past week I mentioned the concept of stealing time from the employees, which I should hasten to note does not have any ethical issues; it’s a crime in most of the United States and an outrage anywhere. Hourly personnel must be compensated for each unit of time they work, and if you ask them to exceed the legally mandated standards for a shift they must be paid overtime. Where this question gets murky is when we consider the employees who are not paid on the basis of hours worked; the so-called “exempt” personnel. It has become so common for employers to consider the exempt classification as a blank check that there’s actually a common joke about this: Exempt personnel are called that because they are exempted from having a personal life. But while this is (usually) legal, and almost always stupid, I have to ask if it is also unethical…

First of all, we should probably acknowledge that forcing your employees to continue working beyond the 40 hours of the standard work-week isn’t just offensive to slacker sensibilities, it’s also counter-productive. Years of research on this have shown that individual performance drops off somewhere between 48 and 52 hours per week depending on the individual; if you exceed that point you will actually start getting less work done the more hours you require. Or, to put in another way, forcing your employees to work 60 hours each will generally result in less quality work getting done than if you had just let them leave after 40 hours, while also generating resentment, fatigue, absenteeism, stress-related medical conditions, and resistance/obstruction to management directives. Keep up this policy and you can confidently expect all of your employees with initiative and determination to leave for better jobs, driving the company into an eventual death spiral…

This runs counter to the best interest of the company, the stockholders, and anyone else who has a stake in its success, which may be considered both unethical and a gross violation of fiduciary responsibilities. It also has the effect of lowering the quality of life, working lifespan, and ultimately productivity of your best personnel, which would make this policy appear unethical in its own right. Yet, at the same time, there are numerous examples of industries where a 40-hour week isn’t possible, because tasks in that context take more than 40 hours per week to complete and can’t reasonably be split into multiple shifts – familiar examples being healthcare, childcare, law firms and entertainment. Even worse, at least from the ethical perspective, is the case where work could be completed by a second shift, but the company can’t afford to hire one…

It would be easy to dismiss these cases by saying that if the company can’t afford to meet expenses (payroll or otherwise) it is effectively bankrupt, and should just surrender and end operations – ignoring the fact that this will throw the employees out of work, ruin the stockholders, and possibly destroy the entire community. It would also be easy to dismiss the whole problem by saying that people are not being forced to work in these jobs or go into those careers, and should just quit if the hours are too long- ignoring the fact that sometimes there is no other suitable job available. And perhaps even worse yet is the fact that once we allow one company to squeeze unpaid overtime out of its employees because it faces bankruptcy we are stepping out onto some treacherous ground: how are we to determine who is close enough to the edge to be allowed such an exception, and who is doing this just to save money and fatten the bottom line?

Which brings me to the inevitable question: Under what conditions is it ethically acceptable for a company to demand extra hours of work from its employees just because they are of exempt status and (presumably) want to keep their jobs? If this is excused by the needs of the company, the community or even the nation, how dire must the situation become before this is acceptable, and who gets to decide? Most people would probably prefer working 45 hours a week to being fired outright, just as most firms would prefer hardship to insolvency, but at what point does this stop being a necessity of hard times or difficult industry conditions and become exploitation of people caught on the wrong end of a power imbalance?

It’s worth thinking about…

How Stuff Works: Stakeholders

I’ve mentioned the Stakeholder concept a few times before in this space, but it’s one of those evergreen topics that always seems to come up in the news – and occasionally in movies, novels, or real life – and I thought it might be a good idea to review the concept. Everyone knows that a corporation is governed by three groups – the shareholders, who actually own the company, the Board of Directors, who are elected by the shareholders and hire the senior management team, and the senior managers themselves, who in turn hire and manage everyone else who works for the company. But have you ever considered who else might have an interest (or stake) in how well the company performs, and whether or not it prospers?

Clearly, the employees who work for the company do. Although most of them probably don’t fall into any of those three groups (unless the company has an employee stock-purchase scheme as part of its compensation package), in many cases the employees will literally live and die right along with the company. But what about the other businesses from which our company purchases goods, services, or raw materials? If our company is their major customer, purchasing the bulk of their products, their survival may be just as dependent on the success of our company as our employees or shareholders are. And since those other companies have their own employees, stockholders and suppliers, they also have an interest in our success. But it doesn’t stop there…

Suppose there is a company whose business depends on some product that we make in order to stay in operation. Unless they can find another source for that product, the failure of our company will take them down, too, and throw all of their employees out of work (and potentially bankrupt their shareholders). Even if there isn’t, all of the companies that sell things to our employees will be negatively impacted by the loss of our revenue, and this could set up another chain reaction of companies failing and jobs being lost. But just within our own community, the local government depends on the tax revenue paid by our company and all of its employees to fund community services like police and fire protection, education, health, social services, and a host of other financial needs. If we go under, we could easily drag the entire community down with us, as well…

Now, it’s probably worth pointing out that even if our company is a publicly-held corporation, we have no fiduciary responsibility to any of these groups except our shareholders. In theory, the owners of our company could decide to take any number of actions that would benefit their financial interests in the short term at the expense of everyone else; one of the primary reasons the Board of Directors exists is to prevent that from happening (because no one would be willing to work for the company if that was going to be a regular event). But just because we aren’t financially responsible for the community in which we operate or the larger political unit (state or country) in which it is located, that doesn’t mean that our actions will not have consequences far beyond the scope of our annual report…

The truth is that even before the Industrial Revolution, the success or failure of one citizen would have a wider effect on his or her community than just that one person’s fortunes. As time has gone on, all of us have become increasingly interconnected, until today, when the failure of a company on the other side of the world (and of which you have never heard) could cost you your job, or even destroy your entire community. I’ve often said that it doesn’t really matter if you believe in the global economy; the global economy believes in you. The stakeholder effect is one of the more concrete examples of how that works…

Stealing Time

Readers of this blog (assuming I have readers) who live in the Western US or other parts of the world may not be familiar with the Jimmy John’s chain of sandwich shops. The company is a Subway competitor, with two major differences: the quality of their food is much higher and their business model is based almost entirely on take-out and delivery service. In fact, many of the locations in Central Michigan don’t even have seating; if you purchase food there you will have to find somewhere else to eat it. I’ve been a regular customer ever since we first encountered the chain, during the first week we were here in Lansing. It really annoyed me to find out that some of the franchises are being sued for stealing time from their employees – especially considering the wider implications of that crime…

You can pick up the story here if you’d like, but the basic concept is simple enough – and much more common in the US than I wish it was. Two of the Jimmy John’s franchises are being sued by former employers who claim that the franchise owners routinely required them to work “off the clock” without pay or other compensation. In practice, this has the effect of lowering the minimum wage, and therefore the payroll expenses experienced by the business. Employees are given the choice of working for less money or being fired, and during bad economic times they may need the job badly enough to put up with such demands…

It’s unusual to encounter this kind of chicanery in franchised businesses, since most franchisors have strict rules against the practice and in some cases can fine the franchise holder or even revoke their franchise agreement for doing so. People are likely to assume that the company is complicit in such exploitive practices even if they do realize that the locations in question are independently owned and operated; if they don’t realize the locations are franchised they will just assume that the corporation is screwing its own employees out of their minimum wages. Given that both the pay and the working conditions offered to fast food employees is already legendarily bad, no company wants to be associated with making things worse…

What may be getting lost in the shouting here, and is certainly being ignored in the highly politicized debates over a higher minimum wage, is the public impact of these wages and working conditions – and specifically, the fact that an increasing number of minimum wage workers are having to rely on public assistance just to stay alive. Fast-food companies – or quick-serve restaurants, to give them their industry title – have some of the highest operating margins of any major enterprise, and certainly have one of the highest ratios of how much the CEO makes relative to the average employee. Unfortunately, they are doing so by paying their employees starvation wages (sometimes literally) and dumping the cost onto the taxpayers; effectively a massive public subsidy for fast-food makers at your expense…

Now, I’m not going to suggest that every employee working far too hard for minimum wage is the head of a household trying to support multiple dependants on effectively no pay. Many of these positions are held by students, part-time workers, secondary wage earners in their households, and other who are not being driven to the edge just to provide a corporate executive with a larger bonus. My point here is that the fact that this is happening to anyone is an outrage, and the fact that these companies are effectively stealing your tax dollars as much as they are from the employees makes it a public disgrace. Requiring highly-paid employees working under exempt status to work more than 40 hours a week may be unethical and counter-productive, but at least it’s legal. Stealing time from your employees is Grand Larceny, plain and simple, and the people doing it should be charged as common thieves and prosecuted accordingly…

Dumping these expenses onto the public is effectively stealing the money that would otherwise be used for fire departments, police protection, public health, education and other vital services – and I don’t even have a name for that crime. But anyone who can accept a $20 million or $30 million salary while making his or her employees live on public assistance (or starve to death) needs to re-evaluate his or her personal values, assuming they still have any. And all of the people who are dead-set against raising the minimum wage should probably consider exactly who is paying for that public assistance, because it certainly isn’t the companies doing the exploiting – or shall we just call it stealing and have done with it? A crime by any other name…

Getting Paid

For some time now I’ve been speculating about the long-term viability of a business model based entirely on user-generated content. We’ve seen small-scale experiments with the concept, such as the Frito Lay Super Bowl ads that were made entirely by fans of the products and offered to the company for free, or the “Comments” sections now prevalent on almost all news and entertainment websites. It’s certainly an appealing idea: if the company can convince its customers to create advertising copy or just offer content that other users will want, free of charge, there will be no need to spend company funds on these activities. But there are a number of corresponding issues with this business model, not least of which is that you are asking members of the general public – and your actual customers – to work for no compensation except (possible) gratification…

I’ve said all along that it was only a matter of time before these unpaid content providers either stopped providing content or started demanding payment for it. Not the commenters so much – leaving smart-ass remarks or even outright trolling is still considered to be its own reward – and not the people for whom posting their writing is the entire point of the exercise, like the people writing fan fiction. But sooner or later the people who go out of their way to review things, writing lengthy analyses or even testing specific products or services for the express purpose of reviewing them, are going to figure out that they are effectively providing the content that would otherwise have to be done by employees for free. I learned this week of a test case on this exact topic being brought against everyone’s favorite review cite, Yelp...

This isn’t the first time that Yelp has come to the negative attention of the reading public, of course; there have been repeated complaints about the company extorting money from its customers in return for positive reviews, and just recently three executives of the company have been accused of $20 million in insider training by their own stockholders. As you can see in the linked story from Courthouse News Service, however, Yelp is now being sued by a group of former contributors who are claiming that since they do the exact same work that Yelp’s paid personnel do, they should be entitled to the same wages – retroactive to when they began posting reviews…

Now, I’m not going to pretend that I ever liked the Yelp model, or the company itself; my opinion of them started to plummet when I learned about the extortion cases and has been dropping every since. And I’m not claiming to know anything about employment law (or any other kind, really), so I can’t comment on whether the case has any merit or if the protesting contributors are wasting their money and some attorney’s time. But one does have to wonder if either the company or the reviewers who are suing them have really considered all of the implications of this situation…

On the company side, it seems obvious that since they are making all of their money by displaying content effectively given to them for free, sooner or later someone was going to ask to be paid for doing all of the work. It should also be obvious that Yelp can’t just ignore cases like this one. Unlike a regular e-commerce site like Amazon, Yelp can’t support itself by moving merchandise; their income is dependent on a steady supply of new reviews to drive their products and services. Without that stream of information the company has nothing to sell; thus, they can’t risk losing that entire population of reviewers. But if they start paying the reviewers, then anyone who goes onto their site and scribbles down a few notes can demand payment for his or her work – and probably will – regardless of whether the company ever makes a cent on those reviews.  

As for the users, if they do start getting paid by Yelp, they will completely lose their anonymity (the company has to have their information in order to pay them – and that information can be subpoenaed), and will thus be subject to legal action for any outright lies or even inaccuracies in their reviews. There will probably be other complications involved, as well, such as conflicts of interest, rules their primary employer might have about working additional (paying) jobs, loss of disabled or protected status, or even paying taxes on the income…

Personally, I think the lawsuit is a colossally bad idea for all parties involved, and I don’t believe that Yelp is going to be able to get this genie back in the bottle; even if this particular lawsuit is defeated I think they can probably expect a number of others just like it. They’re going to have to find some way to deal with the issue, before things get any further out of hand…

Supply and Demand

Quick, name the most basic remedy you can think of for there not being enough of something available in the market. Did you say, offer more money for it? Well, if so, that would indicate that you have a good understanding of how a free-market economy actually works, with the laws of supply and demand stating that anything for which demand exceeds supply with experience a price increase, and anything for which supply exceeds demand you should expect to see prices drop. It would also indicate that you know more about economics, or perhaps business in general, than the American trucking industry, which apparently can’t figure out why there aren’t enough truck drivers available despite lowering wages repeatedly over the last decade…

I got the story from the New York Times online, but apparently this issue has been kicking around for a while now. Adjusting for inflation, the average trucker’s salary is apparently 6% lower than it was a decade ago, despite an increasing demand for people to haul various goods and resources around the country. It seems obvious that this might be having a negative impact on the size of the labor pool – or, as reporter Neil Irwin puts it in the original article, “It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job.” But what I found shocking, and truly appalling, about the facts of this case is the response from the industry, which is apparently complaining about a lack of skilled workers rather than instituting higher pay scales…

Now, I should come out and admit that while I have some experience with both shipping and logistics issues, I have no formal credentials in either of these areas, and I have certainly never run a trucking company. However, this has nothing to do with the issue at hand, because as Mr. Irwin correctly points out, saying that there is a shortage of skilled workers is effectively the same thing as saying we aren’t paying our workers enough. A significant number of drivers who are already qualified to handle these jobs have left the industry over the last decade due to declining wages, and the same factor makes training to be a truck driver increasingly less attractive. It is no exaggeration to say that this whole “crisis” is entirely within the ability of senior management to fix…

Without a great deal of additional research I can’t tell you if this situation is an outgrowth of runaway executive compensation (as Mr. Irwin implies), a decrease in the importance being placed on the role of labor, effects of an global recession, effects of an international economy, or some more subtle cause; I called the situation shocking because whatever the cause the solution is relatively simple. I called it appalling because this mentality – treating the workers like an unfortunate nuisance or an annoying inconvenience – runs counter to everything we have learned about management over the last hundred years, not to mention psychology, sociology and economics. The belief that you can ignore the workers, mistreat the workers, or act against the best interest of your workers and hope to achieve any long-term economic success has been debunked over and over again, and any first-year business student could explain the fallacy to you in detail – but apparently the people being paid multi-million-dollar salaries to run these companies can’t…

I can accept that even highly educated people might have trouble with subtle ideas – like the concept that outsourcing work to another country will throw people here out of work, eliminating the customers who would otherwise have purchased your product. But the idea that if your wages are too low, no one will be willing to take those jobs is another matter. I don’t know how this crisis is going to turn out, or if the Trucking Industry will be able to pull out of this tailspin while there is still time. But I really hope we can nip this kind of thinking in the bud before it destroys anything else…

The Ethics of Standards

Here’s another hypothetical for you: Let’s suppose that you have gained a national or international reputation because of your success with whatever it is you do (doesn’t matter what) and you decide to cash in on that public image by creating something (doesn’t matter what) and putting your name on it. Let’s also suppose that after a while you get bored with the venture and sell it to some investors, but as part of the purchase price you agree to let them keep your name on the property, because without that brand identity it will be much harder to sell. Now let’s suppose that after a few years go by the new owners have let the venture (whatever it is) run down to the point where you are no longer willing to have your name on it; the property is now so low quality that you feel it will hurt your reputation to be associated with it. Do you have the right to demand that they take your name off of the property?

If you didn’t catch it on the news I should probably just tell you that this is more or less what happened to Donald Trump this past week. Although Mr. Trump no longer owns two of the Atlantic City casinos that bear his name (he sold 90% interest in each to an investment group), they are still called the Trump Plaza and the Trump Taj Mahal, and at least part of their brand identity is a holdover from the days when Trump was building the biggest, gaudiest and most expensive everything in the world and slapping his name on the front. Unfortunately, Mr. Trump and his advisors now believe that these two properties are not being properly maintained, and have now decayed to the point where he is no longer willing to have his name on them. He is therefore filing a lawsuit to force the current owner to change the names of these facilities…

Now, I would be the first to admit that it isn’t easy to feel sorry for Donald Trump, or for anyone who has enough money to buy a hotel/casino from him in the first place. But the story does raise a serious point, even for those of us who aren’t billionaire reality-television star real estate developers. Assuming that you have licensed someone to make use of your name, and by extension your reputation or public image, at what point do you have the right to demand that they either conform to a standard that you would find acceptable (at least) or else stop using it? Or, to look at it from the other side of the desk, if you have purchased the right to use someone’s name, likeness or reputation in order to help sell your product, how much responsibility do you have to maintain quality at a level that won’t damage the reputation to which you have purchased the rights?

We should probably also acknowledge that if someone had purchased a license to use a celebrity’s name or likeness and that celebrity began acting in an embarrassing or repugnant way, no one would question the business owner’s wanting to drop the celebrity association, and a lawsuit to recover whatever fees were paid would not be considered inappropriate (although it might or might not succeed). But does the business have a corresponding responsibility to the celebrity? Does our answer change if the celebrity is a more sympathetic figure than Donald Trump, or if it is clear that the shoddy product or service really is threatening his or her livelihood?

No one is going to argue that any business should not comply with the terms of the contract it signed, or that a celebrity who is being paid for the use of his or her good name shouldn’t insist on a clause in the contract guaranteeing them the right to rescind use of that name in the event the business is damaging it. But assuming that no material breach has occurred, and that the celebrity has no such escape clause, does the business have any ethical responsibility to comply with such a demand? For that matter, does the celebrity have an ethical responsibility to let the business get whatever benefit they can from the use of his or her endorsement, assuming they were paid for it in the first place?

It’s worth thinking about…

Something New?

I saw Guardians of the Galaxy last night – generally a good movie, and certainly no more difficult to accept than any other superhero film. If you’re going to have issues with tropes like everyone in the universe speaking American English, unmodified humans remaining unhurt after impacts that should have been instantly fatal, ships that can change directions in outer space the way aircraft do inside the atmosphere, weapons that randomly violate the laws of physics, or talking raccoons, I don’t know why you’d be going to see a movie like this in the first place. But when we consider the film as part of a larger business strategy, and in particular with the development of a new and remarkably powerful brand identity, I’m forced to conclude that all of the people heaping scorn on this production either don’t know or don’t care about business - or are missing the point…

If you aren’t familiar with what is generally known as the “Marvel Cinematic Universe,” the basic concept is that over the last decade or so Marvel Studios have been making superhero movies that all take place within the same reality, much the way their comic books traditionally do. Previously this approach had been extremely rare, possibly to help build dramatic tension – it’s hard to convince the audience that a given hero is the only one who can possibly defeat the bad guy and save the world if they know that Superman or Wolverine (depending on which universe we are in) could potentially show up and sort everything out. However, this convention prevented the use of one of the genre’s most interesting plot devices, and what is turning out to be a very successful marketing strategy…

Anyone with any significant exposure to the medium already knows that one of the most interesting features in any comic book series is what are generally called “crossover” episodes – when characters from one title show up in another, either as allies or antagonists. Like guest stars in a television series, or stunt casting in a movie, these appearances allow the writers to introduce plot elements and narrative possibilities beyond those present in the story’s base scenario, as well as connecting the story into a larger narrative picture. In the case of the Marvel imprint, this has allowed several of their recent movies and the Agents of S.H.I.E.L.D. television series to contribute to the development of a single over-arching story, to which Guardians of the Galaxy is apparently connected (the film features antagonists featured in both the Avengers and Thor series). It has not yet been revealed how the characters in this new offering will fit into the larger picture, but it seems apparent that they will…

From a business standpoint, this same effect allows the Studio to draw on the fan base from multiple series of movies when they make a new feature – e.g. fans who don’t care about the other five main characters watched the Avengers movie because their favorite character was in it; the most recent Hulk movie gained support because it featured Tony Stark/Iron Man, and so on. Even better, it will draw viewers to offerings they care nothing about, because any given movie in the shared setting may have implications for the next sequel in a series they do follow. And meanwhile, every Marvel release gives the company an additional opportunity to display its logo and theme music at the start of the feature, and drive home the fact that their products are the ones you want to see…

I don’t think it’s a coincidence that we’re about to see the first major crossover movie from DC Comics, Marvel’s main competitor, only now that Marvel has demonstrated how well the concept works – especially when you consider that DC was actually the first to bring their superhero stories to the big screen, decades ago. I don’t know if the company’s rumored Justice League movie (their equivalent of the Avengers concept) will be successful, assuming it is more than a rumor, or if we will ever see the ultimate in crossover projects, featuring characters from both companies. For the moment, however, I think we can say that the concept appears to be working, even for movies featuring obscure superheroes no one (except for hardcore fans) has ever heard of before. Whether it will be enough to save a genuinely bad movie remains to be seen – but I’m not going to place any bets either way. As a true innovation in both A/V narrative and brand development, this concept has the potential to change everything…

Imagine My Surprise

Last week I was talking about the development of Google Fiber, and the rather amusingly lame response to this new threat from Frontier Communications. It isn’t surprising that any company that finds itself confronted by a new challenger for its market share might attempt to respond through the media, although one might expect something better than the CEO saying that her customers are too backward in their technological requirements to need a service like Google Fiber and too stupid to know the difference. But if a company I was in charge of faced this sort of challenge, my first move would be to improve my company’s service until we reach parity with the new competitor – or at least until we were able to say something about “Almost as good, and a LOT cheaper,” which will usually work. It’s nice to see that somebody else also thought of that… 

An article in the Kansas City Star online site this week tells of how two of the main Internet providers in the KC area are improving their access speeds in direct response to the arrival of Google Fiber in that market. Comcast is doubling the speed of its lower-tier customers; improving their 25 mbs service to 50, and their 50 mbs customers to 105, while the 105 mbs customers will be moving up to 150, all at no additional charge. It isn’t clear how fast the upgraded Time Warner Cable service will be, since it won’t be ready until next year, but I would expect them to at least match the Comcast offer if they want to stay in the game. It’s already bad enough that Comcast will have the upgraded service online within a few days, or a week at the outside…

It is worth noting that even with these upgrades the existing providers will be at a considerable disadvantage relative to Google Fiber, which is offering a 1,000 mbs service for roughly the same rates that Comcast will be charging for 150 mbs. But doubling the access speeds should help, especially if the company can delight users with how much faster its service has become while maintaining price parity with both Time Warner and Google. Even more importantly, this could give the company the time it will need to upgrade its own systems and create even faster services, much cheaper service tiers, or hopefully both. A much more immediate question from where I’m sitting is what has taken them so long?

Even assuming that Google Fiber didn’t exist, or that it wasn’t coming to the Kansas City area yet, Comcast has been competing directly with Time Warner for some years now, and they have clearly had both the technology and the funds to upgrade their systems in the Kansas City area. It’s hard to imagine why they wouldn’t have wanted to gain the massive competitive edge that having service that was twice as fast as the competition (for a comparable price) would have given them. It’s possible that the company’s attention was elsewhere, or that they didn’t want to get into a price war with their competition, but the most likely explanation is that they were satisfied with the revenue being generated by their facilities in this market, and did not consider the increase in sales that the upgrade would provide to be worth the cost of doing so…

That is, until a new competitor turned up in the market offering a better service than either existing provider, and threatened to take away all of their market share. I can definitely see the arguments in favor of their strategy – if this was, in fact, a deliberate strategy. Maintaining market share by maintaining parity would have made sense, whereas entering into a war over either price or features (access speed) probably didn’t. But I’d still have expected them to keep an eye on potential competitors crashing into their market, and plan accordingly. Unless, of course, they have had this capability all along, and have only started offering the new service for sale because of the appearance of a more powerful competitor…

I’d like to tell you that would surprise me – but I’d be lying…

It Finally Happened

For some years now I’ve been trying to deal with a reputation for not liking children, which I feel is completely undeserved. Part of it stems from the fact that I was single for all of those years, while the majority of my friends married, had children, and succumbed (to one extent or another) into the obsession the late George Carlin called “The Cult of the Child” – the belief that the world revolves around children in general, and their particular child most of all. I can understand why parents feel that way – and I imagine that doing so is probably an evolutionary survival trait. But like anything else, it causes problems if taken to extremes, as in the case of parents who can’t understand why the rest of us don’t enjoy listening to their child shrieking as much as they do. So, for the record, and hopefully for the last time, I have no issue whatsoever with children; I just don’t like badly behaved ones. It makes me want to slap their parents…

In the case of one young boy from New York, it would appear that law enforcement has already done some of that for me. You can pick up the story from the local CBS affiliate station if you’d like, but what they are reporting is that a woman in East Garden City, New York, has been arrested for leaving her seven-year-old son unattended at the Lego store in their local mall while she went shopping. After 90 minutes or so the child became frightened, and the store manager called security, who in turn called the police. Persons familiar with the case are quoted as saying that the mother thought there were store employees who looked after children playing in the store, despite the fact that Lego stores do not offer that service, there is no designated play area, no release forms to sign, no one to take responsibility for the children, or indeed, any reason to believe that anyone would be watching out for a child left alone…

Now, I’m fairly sure that some people reading this blog (assuming anyone reads this blog) are going to have trouble with my comparing a parent abandoning a child in order to go shopping at the mall to parents who follow their children around constantly but refuse to discipline them for any reason. After all, one of these behaviors is considered neglect, while the other is considered over-protective or obsessive, depending on your point of view. But in addition to spending decades as a childless bachelor, I’ve also spent a number of years now as a college instructor, and I am telling you that neither of these parental behaviors are doing the children any favors. Although, to be fair, anybody who has had to deal with teenagers, college students, or entry-level employees in the last decade or so could tell you the same thing…

As usual, I’m going to leave the moralizing about this topic to people who are better qualified, and just point out that both ends of the spectrum are problematic from a business standpoint. Nobody wants to deal with entitled employees who believe that they should be given lavish rewards for doing exactly what they please – because that’s what their parents always did. At the same time, no one wants to deal with parents using our place of business as a free daycare center because they can’t be bothered to take care of their own children. And since we can’t influence how people raise their children, we will have to work on this from the other end – by establishing clear and explicit performance standards, writing company policies that require accountability as well as performance, teaching business classes that encourage discipline and teamwork, and rewarding employees who live up to those standards…

And when absolutely necessary, calling the police and having the courage to risk legal action, criticism from Monday-morning quarterbacks, and reprimand from higher management ranks when we report some idiot for leaving innocent children in dangerous situations…

What Can I Say?

I’m not sure how much I can add to the stories you’ve already seen going around the Internet about the hotel in Upstate New York that is supposedly charging wedding parties a $500 fee for each negative review posted about their establishment on Yelp. If this story is true – and it has been repeated on a number of legitimate news channels, as well as being mocked on the Tonight Show (among others) and no one is suing yet – then it’s an incredibly bad move in terms of both customer service and public relations. The hotel is claiming that it was merely a joke, made in reference to a guest complaint from years ago, but anyone who has ever spent a day working in any customer contact position could have told them that you don’t even joke about such things. Especially now, when any stupid prank you make could end up being shared with literally everyone in the world who has access to a computer. But from where I’m sitting the real questions are what to do about a public relations crisis of this magnitude – and will any of it matter?

First of all, it seems clear that whoever is running the hotel needs help with his or her advertising and website design, and should probably consider investing in assistance from one of the small firms that consult on such matters. People are always reluctant to do this, and I’ve never been sure of why. What is wrong with seeking help from someone whose professional knowledge of a critical aspect of your business is greater than your own? In this case it does seem a bit like closing the barn after the horse has run off, but it’s still better than standing in the open doorway looking like an imbecile. At the very least, the hotel management could check over their files to see if any former guest has ever been hit with a “negative Yelp reviews” fee – or even threatened with one for real – and then provide an apology and a refund of the $500. They should probably also have some competent third party go over their website and make sure there’s nothing else on it that could set people off…

The bigger issue is that once a story like this goes viral it can be incredibly difficult to kill off. There has never been any truth to the Neiman-Marcus cookie story, for example; at the time this canard began making its way around the Internet the company didn’t even sell cookies. Yet this remains one of the more common urban legends online over a decade after Snopes.com (among others) completely debunked it. The hotel probably doesn’t have the funds to take out full-page ads in a major newspaper denying the story, and so far denials online and in social media don’t seem to be helping. Reaching out directly to every past customer they can find and apologizing to anyone they actually charged for the negative reviews might help; explaining it was a joke and promising that they would never really do any such thing might help if they didn’t actually charge anyone. But their best bet is probably a mixture of competence and time…

The other side effect of the Internet age is a very low attention span – and a very short news cycle. By this time next week some other outrageous thing will probably have happened, and everyone in cyberspace will be off mocking someone else. If the hotel takes down anything online that could be considered rude, weird, or unfriendly, refunds any charges they have to, and makes a point of taking care of all future guests – whether they gave good reviews on Yelp or not – they might be able to live through the firestorm and rebuild their brand and their client base the old-fashioned way: one relationship at a time…

Unless they really are trying to cover up for substandard service by trying to suppress any bad reviews…

Tell Me It Isn’t

In yesterday’s post I told you about the upcoming Disney movie based on the “It’s A Small World” ride; a project which has the potential to be either the best or the very worst thing ever to come out of Hollywood depending on your tolerance for cutesy and your need to keep small children entertained without resorting to cable television. As potentially horrifying as this might be, there was a note contained within the same Los Angeles Times article cited below that contains something far more disturbing, at least in its potential. The Times author notes that Six Flags Magic Mountain is going to dismantle the Colossus rollercoaster – and that this one-time monument to adrenaline is no longer in the top ten rides in any major category…

For those unfamiliar with the installation, the amusement park originally called simply “Magic Mountain” is located just north of Los Angeles along Interstate 5. It’s on the other side of Los Angeles from the various parks in Anaheim and the surrounding areas, and is thus two or three hours closer by car to a large percentage of the city’s residents. The park began with only a few rollercoasters, and relatively modest ones at that, but gradually added various other rides and attractions. When Colossus was introduced in 1978 it was the tallest and fastest wooden rollercoaster in the world, and the first to have drops of 100 feet or more. The park was purchased by Six Flags in 1979, and has since been expanded to include newer rides incorporating increasingly exotic technological elements. Meanwhile, larger and faster rides of various types have appeared in various facilities around the world…

Now, I don’t mean to suggest that Six Flags has any ethical, moral or historical responsibility to keep Colossus operating. It occupies an enormous amount of highly valuable real estate – over ten acres – and if the company can find a more productive and/or lucrative use for that space, one could argue that they have a fiduciary responsibility to the stockholders to do just that. What I find troubling about these events is the ongoing drive for faster, scarier and more extreme rides, and the corresponding increase in the number of adrenaline junkies demanding that manufacturers and park owners continue pushing the limits on ride performance. I have to ask, where does it end?

Once something becomes commonplace it loses whatever appeal it may have had by virtue of being unfamiliar, unexpected, or just extraordinary, and therefore is no longer a selling point. In management theory this phenomenon is the basis for the Resource-Based View of the firm (RBV), which states that in order to offer the company a competitive advantage a given asset must be valuable, rare, difficult to imitate, and difficult to substitute for. In the case of the rollercoaster market, once there are higher, faster and/or scarier rides than Colossus, it is no longer a draw for the park and should probably be replaced with something that does give Magic Mountain an edge over the competition. But while this makes perfect sense from a business standpoint, I can’t help worrying about the human costs involved…

Once you’ve traveled down a 100-foot drop at 62 miles per hour it’s harder to get excited by a ride traveling half that distance at two-thirds of that speed. So the competition might respond with something that drops 120 feet at 70 miles per hour, forcing Magic Mountain to create something that drops 140 feet while traveling at 75 miles per hour while upside-down – and the cycle continues until we reach the state of the art in terms of what can be built or what the riders can survive. I have no scientific evidence to suggest that this process makes the people who ride such installations edgy, impatient, or hard to keep focused, but it seems possible that the decrease in attention spans that everyone keeps bemoaning might have something to do with a culture that places ever greater importance on high levels of excitement at all times. Speaking as an educator, this worries me…

I’m not saying there’s a direct causal relationship between these stimuli and a fall-off in attention spans, patience and good behavior among the members of the key demographic groups to whom rollercoasters are marketed. But I would very much like it if somebody could tell me there isn’t…

Don’t Even Try

Quick, think of the most preposterous choice for a new movie project that could ever come out of Hollywood or anywhere else. This may be harder than you think, considering some of the recent choices. It’s not just that we’ve had movies based on board games (Battleship) and Disneyland rides (Haunted Mansion), it’s that some of those have actually been good (Clue) or at least commercially successful (Pirates of the Caribbean I, II and III). We can assume that anything that ever made money will be remade, but that’s hardly surprising after remakes like the Total Recall remake and the upcoming remake of Top Gun, not to mention the inevitable Godzilla and Dawn of the Dead remakes. Given the appearance of the “Brony” community (look it up) I can’t even say that a rumored My Little Pony live-action blockbuster is all that amazing. But until it is given to me to see an actual press release for a Candyland live-action adventure, I have to go with the upcoming It’s a Small World movie as taking the prize…

You can check out the original story on the Los Angeles Times site if you’d like, but unless someone is pranking the Times (and us, one assumes) there is a project in development to make a live-action movie about a Disney ride in which you travel through an air-conditioned building while dolls in “traditional” costume from around the world sing an endlessly recursive tune. It isn’t clear if there’s a script yet, but a director has been hired to helm the project – it’s Jon Turteltaub, the man responsible for the National Treasure movies. How exactly you go from action/adventure movies featuring Nicholas Cage and lots of explosions to hanging a story around something Walt Disney specifically designed for little girls is not explained – and may be inexplicable – but that’s what appears to be happening…

Now, I will be the first to admit that I’ve never written or directed a successful screenplay of any kind. The people I know who have done so will tell you that it’s even harder than it looks, and the quality of the production, the acting and the story actually have nothing to do with either the critical or the commercial success of the film. Sadly, it’s not only possible for an artist to spend the best years of his or her life crafting a cinematic masterpiece only to see it ignored by the public and criticized by various hack reviewers, this happens more than it doesn’t. After a while, the urge to go directly after projects that already have a popular following – either because they are sequels to an already successful movie or because their about something else that already has fans has to become overpowering. And given that the original version of Small World in Anaheim has had roughly 290,000,000 visitors (that’s 111,000 a week for over 50 years) it seems probable that there are people who already love the concept…

If you’ve been to the movies in recent years, or watched anything reported about motion pictures, or even spent time around people who care about the state of modern cinema, you’ve probably heard the rant about how Hollywood needs to start making better movies if they want people to start going to movie theaters again. And to some extent this is absolutely true – but it is also true that the studios keep making the same repackaged crap over and over again because that is what people will pay to see. If you personally want to do something about the state of motion picture entertainment, then go see an art film, a smart biopic, a period piece or a clever original thriller, while you still can! You can always catch the Candyland movie later, if you need something to complain about…

The Ethics of Co-Signers

Let’s try this one as a hypothetical: Let’s suppose that somebody wants to borrow money from you. It’s not a large sum by your standards – losing it won’t bankrupt you – but if you just gave that amount away to anyone who asked for it you’d be broke in short order. Let’s also suppose that the person who is asking is a decent human being and you have no particular reason believe that they won’t pay you back, but they’re not currently working and won’t be for the foreseeable future. You might be reluctant to make the loan under those conditions, but let’s further suppose that the person asking for money finds a responsible third party (a parent, for example) who agrees to pay you back if the borrower can’t for some reason. Suppose you made that loan…

Now let’s suppose that a few months later your borrower dies in a tragic accident that is in no way his or her fault. What are you going to do? We will assume that you are neither heartless nor insensitive, but at the same time you can’t afford to just give money away at will – and your borrower’s parents co-signed on the loan, promising to pay you back if something like this happened. Would you go to the co-signer and ask them to honor the commitment they gave you and repay the loan? Does our answer change if the borrower’s parents are devastated by the loss? Does it change if they are approaching retirement age? How about if they have taken in the borrower’s (now orphaned) children and are working hard just to get by?

This sort of thing happens a lot more often that you would hope; there was a story about a case just like this that appeared this past week on CNN online. It’s not exactly a case of biased reporting, but it’s clear that both the reporter and most of the people who have written in the Comments think that it is terrible of the finance companies involved to be attempting to recover their money from these excellent grandparents who are already expending their savings and giving up any real chance of retirement in order to raise their grandchildren. The fact that the loans in question were student loans, and therefore can’t be discharged in bankruptcy or otherwise legally evaded undoubtedly make this even worse, but the basic issue remains: what are the loan companies’ ethical responsibilities in this case?

It’s easy to say that the lenders should just forgive all of the debt – reduce the loan amounts to zero, take a credit on this year’s taxes, and move on. And if this was the only such case that would ever happen I’m sure that all of the companies would just write this off. Unfortunately, there are thousands of such cases every year, and if the companies forgive all of them they will go out of business, throwing all of their employees out of work and doing potentially catastrophic damage to their stockholders – none of whom have done anything wrong either, we should probably note. It might actually be heartless to collect on debts like these, but it’s hard to imagine how it would be fair to destroy one group of innocent people in order to help another group of innocent people – especially when the group that will benefit really did bring the crisis on themselves…

Which brings me to the inevitable question: does a financial institution have an ethical responsibility to forgive loans – effectively throwing away money – because either the original borrower or their co-signer have suffered a personal or family tragedy? Does our answer change if the original borrower could easily have obtained life insurance (at a reasonable price) to cover the loan – which a healthy 27-year-old probably could have – that would have prevented the whole situation? Does our responsibility to be kindly and good people override our fiduciary responsibility to our stockholders or our professional responsibility to our employees and other stakeholders? Or should we just offer our loans and financial products at fair rates with clearly-written contracts and assume that our customers are grown adults who can make their own choices and accept the consequences of their actions?

It’s worth thinking about…