The Ethics of Benefits

In all of the recent controversy over whether companies in general should be excused from having to pay for employee benefits that violate the company’s religious beliefs – or those of the people who control the common stock, anyway – one of the things that doesn’t seem clear is what a company’s obligations to its employees actually are. These days even arch conservatives seem to be okay with the idea that everyone deserves adequate medical care, assuming that no one asks them to pay for it. And I have already written in this space about how benefits are really part of a company’s compensation package, and how offering better ones is really no different from paying higher salaries than a competing firm. But the question of what constitutes a critical quality of life issue and what is just something that people would enjoy getting someone else to pay for isn’t always clear. I thought we should take a closer look…

First off, let’s consider the various health-related benefits. It may seem fantastical at this point in history that some companies don’t offer even the most basic healthcare coverage, but if all jobs came with health benefits there wouldn’t have been any need for the Affordable Care Act in the first place. Even here, however, it isn’t always clear what the critical factors are. For someone who as trouble getting around, the ability to select your own physician (so you get to choose a provider nearby your house) may be vitally important; for those with greater mobility it may not be. People with chronic conditions may need access to specialists, or want to see a doctor who is already familiar with the progress of their disease, while somebody whose primary health issue is limited to patching up their parasailing injuries may not care who is applying the bandages and painkillers…

As difficult as that is, it gets worse when we move into things like dental and vision benefits. If you need new glasses every year, then vision coverage is very important; if your eyes are 20/20 you may not care about this. Life insurance can be of relatively little use to someone who is single and childless; death and dismemberment coverage is critical for anyone who works with any kind of heavy machinery, but not so much for someone who never uses anything more dangerous than a copier. By the same token, someone who is relatively healthy may regard a time bank of sick days to be a nuisance, while somebody with a chronic health problem may need those days to avoid losing their job, and management may not want to offer them at all…

Things become even more extreme when we move into other kinds of employee benefit. For someone without children subsidized day care and personal days to deal with school/PTA meetings, soccer games, taking children to the doctor and what have you may seem like the company is punishing (and in some cases, fining) them for not having families, by making them do the family peoples’ work and lowering the pool of funds available for benefits they could use. But to a single parent trying to care for multiple small children on a relatively low income such benefits may be the difference between survival and succumbing to poverty – and rescinding them (or just not offering such benefits in the first place) seems cruel. The same could be said for tuition benefits for someone trying to escape from dead-end jobs, or even about the free turkey and pie giveaways we used to see at Thanksgiving and/or Christmas in some companies, in the case of a disadvantaged family that will otherwise be feasting on macaroni and cheese with puffed cereal on the side…

The more we consider this issue, the more it seems as though one person’s critically-needed benefit is another person’s wasteful boondoggle or inappropriate entitlement. Which leads me to ask the question: What do we, as employers, have an obligation to supply to our employees? Do we owe them more than the agreed-upon wages that we feel are fair compensation for the work that we are requiring them to do? If we have an ethical responsibility to provide the necessities of life, who gets to decide what things are really necessary and which are merely desirable? Happy and healthy employees are more productive, and ultimately lead to a more profitable company – provided that the costs involved in making them that way don’t exceed the increase in the firm’s income. But at what point does something stop being a basic necessity of life and become an inappropriate use of company funds?

It’s worth thinking about…

Going to the Dogs

It was one of those headlines that you just know aren’t going to pan out, but you have to look anyway: “Canadian students invent ice cream that is stored at room temperature.” Anyone who has ever suffered through the freeze-dried abomination that is marketed as “Astronaut Ice Cream” already knows that the idea of storing a frozen dessert at room temperature is something of a dodgy idea to anyone whose idea of sweets does not include Styrofoam packing kernels. And if you follow the link, you will find that, as expected, the story it leads to isn’t entirely the one the headline would lead you to expect; it’s just closer than usual…

The product in question, which really was developed by students at McGill University, is less hype than a self-churning sorbet that can be stored indefinitely at room temperature before you activate its nitrogen canister and throw it in the freezer. It isn’t really ice cream in the sense that it isn’t actually frozen until you leave it in the freezer for a few hours, and also in the sense that it’s a vegan product containing no dairy products of any kind – hence, neither iced nor cream. I’m personally a little dubious about flavors like “hibiscus and ginger or almond and pistachio” – if it doesn’t contain chocolate, caramel, or vanilla it’s not really ice cream, as far as I’m concerned. But a much larger issue, at least as I see it, is that the people who shop for ice cream and the people who shop for “vegan sorbet” aren’t really the same people. Or, to put it another way, I don’t believe that there is currently any defined market for this product…

Now, in fairness, there is some precedent for a non-dairy/vegan frozen dessert product, including at least one brand that has been around for the last 25 years; it’s just that this category of product does not appear to have ever achieved mainstream acceptance. Sold under the name brand of “Tofutti,” these products make use of frozen tofu (and various flavoring, texturing and coloring additives) to produce non-dairy products that look – and, to some extent, taste – like real ice cream products, but which contain no animal products of any kind. It’s a great idea, in its own way; the product in question is cheaper to make and more ecologically responsible than conventional dairy products, and is generally considered healthier to eat, as well. The problem is, no matter how adept you become at freezing and flavoring bean curd, it still doesn’t taste that much like ice cream…

In management terms, a product or company that has a relatively weak position in a relatively unattractive industry (or part of a larger industry) is classified as a Dog – not to be cruel; it’s just a technical term. But from a management or financial standpoint, a company whose primary product is neither growing explosively in market share or revenue (like a Ben and Jerry’s or a Coldstone Creamery) or maintaining a consistent and profitable control over a large market share (like a Baskin-Robins or a Carvell) or even taking a strong position in an unstable part of the industry (such as any good frozen yogurt company) is not an attractive prospect for investment and further development, and should probably be removed from your portfolio. At least, that has been the case until now…

It remains to be seen, of course, whether or not the new stabilizing agent developed at McGill will work on tofu products, or whether the ability to store them for months/years without refrigeration and then churn up a batch whenever you want it will be a sufficiently large change in the product to make it more widely popular. Unless the inventors can also come up with some way of making the product chill itself as well – just open the box and hit the activator, and the product will do the rest – I can’t see this effectively competing with any of the existing types of frozen dessert. But, I must admit, I’ve been wrong before…

Flying: Then and Now

Ask anyone who has had to travel by air in the last dozen years what they thought of the experience, and you’re probably going to hear language that you can’t use on television. Between the annoying and insulting security measures (that are mostly futile), passenger discomfort (which gets worse every year) and flight delays most people already hate the entire process before you even get to issues like endless new fees or the time you waste getting to the airport two hours early. But if you ask anybody who has been traveling by air for a while, they’ll probably tell you that things didn’t used to be like this; that air travel used to be a more formal, dignified and enjoyable experience. They usually won’t mention that it was also far more expensive, or that you were more than five times more likely to die in a plane crash…

An article that ran this week on the Huffington Post UK site compares a number of factors between the 1950s – when the advent of jet airliners and international carriers began making the airlines over – to the current state of the industry. And while I wouldn’t say there were a lot of surprises in the article, it was a bit odd to realize just how much cheaper and safer air travel has become just in my lifetime. For example, in 1952 the industry average was listed as 5.2 deaths per 100,000 hours of flying – about five times the current average. This isn’t really that surprising, when you consider advancements in navigation, automation, radar, electronics, and power systems (especially engine reliability), but even for an admitted airplane wonk like me a 500% difference is kind of amazing. Then there’s price – everyone knows that airfare had dropped since the U.S. deregulated our airline industry in 1978, but according to the Huffington people we’re talking about an 83% drop in fares on the New York to London run. And while it is true that the food, drink and service were all better, there really wasn’t much to do – in-flight movies did not appear until the late 1960s, and even into the 1970s the picture and sound were nothing to write home about…

This week also brought with it news about a potentially brighter future for all of us who get stuck in the Economy section of the aircraft; at least in terms of on-board comfort. An article off the Daily Mail website details several new changes in cabin and seating design that have the potential to create a more comfortable passenger environment without adding weight or taking up extra space (both of which would lower the profitability of the flight). None of this is exactly surprising either; the inclusion of cup holders that are separate from the meal tray, footrests usable in the Economy cabin, or seats that can recline without getting any closer to the passenger sitting behind you are all common-sense upgrades that people have been asking for almost from the beginning of modern air travel. The amazing part, at least to me, is that no one has made any particular effort to upgrade this aspect of the experience before now…

Airline seats are theoretically safer now – thanks to advanced construction materials and the like – but they haven’t really changed in design over the past two generations. And while air travel is essentially a commodity product these day (in that competition is mainly based on price) on a route with heavy traffic and significant competition any material advantage that makes one company’s service more attractive than the alternatives could major implications for the success of that firm. It’s early days as yet, but it might just be possible that we could start seeing change for the better in the airline industry…

Unless the new developments in rail transportation render the whole question moot, of course…

Still Not Sure

I have written in this space before about those occasions when it seems impossible to tell whether a given company is actually taking the actions you’ve just read about, or if they are only doing something outrageous in the hopes of attracting media attention. A lot of new product promotions work that way, partly because it is difficult to create a truly ingenious advertisement for even the most superlative product, but also because it is becoming increasingly difficult to cut though the massive amounts of clutter clogging up any potential medium. In addition, there are a far greater number of both media and channels within them appearing every year – reaching all American television viewers was relatively easy when there were only three or four channels being broadcast, for example, but doing so is much harder when many areas have 900 or more possible viewing choices. And that does not even consider the increasing number of people who get all of their news and entertainment online, and don’t ever watch television…

It’s probably also worth pointing out that not all demographics will consider the same things outrageous or shocking, for that matter. Business failures resulting from efforts to market a new product or service to the wrong audience are legion, and it’s impossible to say how many additional ventures have failed because whoever was making the strategic policy decided to pass on a world-beating product simply because he or she didn’t like the idea – there’s no wreckage lying around from ventures somebody didn’t try, you see. Failures of this type are referred to collectively as the “I am the world” fallacy by Scott Adams in one of his non-fiction books about management, and can occur any time a senior manager applies his or her own preferences to a business decision instead of consulting actual marketing data. It is imperative that all managers and business analysts question their assumptions, not just regularly but constantly, before taking action. This is why I held back my first impression of the new Doritos product and took another look…

If you haven’t heard about them yet, the story goes that PepsiCo Canada has just released a new product that they are calling Doritos “Roulette”flavor. Hype aside, these are bags of ordinary nacho cheese corn chips, only every seventh or eighth chip is as spicy as the company has been able to make it, turning each bite into something of an adventure. The idea appears to be that if two (or more) customers take turns pulling a single chip out at random and eating it, sooner or later one of them is going to draw (and eat) one that will be painfully spicy. None of the materials I have seen about this product to date address what the players are supposed to do with the rest of the bag at that point – or why anyone would purchase these chips if they were not intending to play the implied game…

Now, we should acknowledge that this is hardly the first product to play on the apocryphal game of “Russian Roulette” in a food product, let alone the only food product with potential inedible portions hidden in each package. A familiar example in recent years might be the “Every-flavor Beans” created as a tie-in to the Harry Potter books and movies (their fictional counterparts appear in the story), which included such unappetizing flavors as grass, dirt, earthworm and vomit and oddball flavors like toast, popcorn, black pepper and sausage with more conventional candy flavors. Fans of the series would challenge each other to select a bean at random and eat it despite the possibly revolting taste, much as Doritos is suggesting their customers do with the corn chips. Whether or not you could just spit the losing beans out again was a matter of individual preference…

My personal reaction to the Doritos Roulette flavor was to question why the company is bothering to produce them – the Doritos “Flaming Hot” flavor has never been that successful, and the “losing” chips in this product are much hotter and even less appealing. But it important to note that I have now passed out of the key demographic for corn chips (males, 18-36 years old), and I’ve been out of the food wholesale business for over a decade; the fact that this product does not appeal to me is based on behavior patterns and consumer preferences that may well be irrelevant to the target market, rather than any hard data. I’m not sure whether this product has any real potential, or if it will have a brief flare of notoriety and then vanish onto the compost heap of history. I’m just calling it to your attention because that personal gut reaction should not be used to make decisions for a multinational corporation, but reactions just like it often are – and sometimes they destroy entire companies, not just unusual product ideas…

The Trouble with Humans

From time to time I will run across a story about a business that has instituted a basic safety measure – like passwords to keep non-customers off a business’ free Wi-Fi system, for example – that is being excoriated for doing so by people who insist that such a measure is unnecessary, insulting, discriminatory, or all of the above. As a consumer and potential customer I can understand these points – no one wants to be inconvenienced or even blamed for the bad conduct of other people. As a management consultant and a manager with experience in the retail and food service sections, however, I can tell you that there is no behavior so uncivilized, antisocial or disgusting that somebody somewhere won’t feel compelled to do it at their first opportunity. As evidence, let me offer the case of public libraries across the United States who have offered 3-D printing services to their patrons only to find themselves having to forbid the printing of guns, drug paraphernalia, or sex toys…

If you missed it the first time you can access the ChicagoTribune story about this here, but the basic concept is fairly simple. Over the past few years 3-D printers – devices capable of creating three-dimensional objects by cutting sectional views (or “slices”) from digital templates out of some suitable medium and then fusing or laminating them together – have gone from massive, expensive industrial equipment to machines small enough and cheap enough for home use. They’re still a bit too expensive for a lot of people to buy just for the fun of making random objects, but they’re well within the reach of a well-funded public library, and some such institutions have started buying them and letting patrons use them for a modest fee. In theory, this is a wonderful idea – it allows families to teach their children about the possibilities of 3-D rendering on the computer, and then print out an actual object using the printer. Unfortunately, this ignores the basic nature of human beings, and our ability to ruin just about anything…

Many of my readers (assuming I have readers) will remember the flap that appeared last year when the plans for an all-plastic handgun that could be fabricated by most home-use 3-D printers were released onto the Internet. Much of this died down when it became clear that such a gun would be far more dangerous to the person trying to fire it than it would to the target, but the plans are still out there, and it isn’t hard to imagine a variety of illegal purposes to which such an artifact could be put. Even more problematic, perhaps, are objects that can be used for non-violent but still inappropriate purposes, all of which are also available in many places online. Even if we accept that the development and dissemination of such files qualifies as protected speech under the First Amendment (there seems to be some debate on this topic) it’s still not the sort of thing one wants to have to explain to small children while working on a family craft project at the public library…

Now, it could definitely be argued that people using the public library’s 3-D printer to make inappropriate objects isn’t really any different from the other inappropriate ways people use the library’s computers, but that doesn’t address the underlying issue. I personally believe in free access to information for all users, including those too poor to afford their own computer or Internet connection; I also believe that censorship in general is wrong. But at the same time I have issues with not being able to use the library because a collection of homeless people is using it as an emergency shelter, and I don’t believe that families should be unable to use the library (or its special new printers) because other members of the community insist on looking up – and in this case, printing – images that are inappropriate in a public setting…

A common catch-phrase around my household is “Another beautiful idea – ruined by people.” I could probably write an entire blog just about these situations, and I certainly have no concrete suggestions for how to solve this one. I’m just pointing out that sometimes safety regulations are there for a reason – and that no matter how innocent something appears to be in the abstract, we as managers have to be prepared to deal with trouble when the idea is implemented in the real world…

The Other Shoe

In yesterday’s post, I was talking about the fallout from this week’s Hobby Lobby decision, and why the whole policy that resulted in the lawsuit was a bad idea from a Management standpoint. For many years now I have maintained that any decision or policy that is ultimately against the best interests of the employees is not in the best interests of the company, at least in the long term. In a larger sense, I’m generally against policy decisions that negatively impact any of the corporation’s stakeholders unless there is some overwhelmingly important reason for doing so. Actions which are bad for the community, state or country in which the company operates in general are rarely good for the firm itself in the long run, if only in the sense of having customers who can buy your products and of not being constantly besieged by regulatory bodies, law enforcement agencies, consumer advocates, environmental groups, community leaders, civil rights lawyers, or angry mobs with torches and pitchforks. But as bad as all of that it, the Hobby Lobby decision may actually have created something even worse…

Traditionally, one of the reasons people form corporations is to protect themselves from certain types of legal liability. Incorporating the company creates the legal fiction that the company is an entity separate from the people who own it or manage it. The corporation can own property, conduct business transactions, borrow money and pay taxes; it can also be fined or sued – but the people who own it can’t be. As one of the stockholders, you can’t be personally held responsible for the actions of the corporation – which seems only reasonable, since you are only one of the hundreds or thousands of people who own it, and you didn’t personally make any of its questionable decisions. If a company in which you own shares declares bankruptcy and is sued by its creditors, the court may be able to seize the company’s assets, but they can’t take your personal funds. You can see how important this could be in the case of major product liability suits or matters of criminal malfeasance, to take only the two most obvious examples…

This legal fiction is generally called the Corporate Veil, and it is often considered one of the most important kinds of protection offered by incorporation. The problem is that the Veil is only a legal fiction; if the owners of the company do anything that even implies that the corporation is not a completely independent entity it is possible for the courts to ignore that fiction, or “pierce the Corporate Veil,” and hold the owners directly responsible for anything the company does. Common violations would include not keeping accurate records, not paying dividends to the shareholders, or intermingling the company’s assets – using corporate funds to pay for personal expenses, for example. It isn’t usually possible to pierce the Veil because the owners are clearly just using the company to further their own interests or agenda, because it is usually very difficult for hundreds or thousands of owners to agree on a personal agenda in the first place but it can happen – when a single individual or family owns the entire company, for example…

In the case of Hobby Lobby, it’s much too easy to argue that the owners of the company – who happen to be members of a single family – are using the company and its compensation packages to further their own political and/or religious agenda (to the extent that there is any difference, these days). As noted in yesterday’s post, their anti-birth control policy is not in the long-term best interests of the employees, the company or the owners themselves, but the opportunity to challenge the Affordable Care Act under a religious exemption does further both the political and religious agenda of the owners. If the court – any particular court hearing a case against the company – decides that they have broken the rules and may therefore not have the protection of the Veil, damages assessed by that court may be directed against the owners of the company. That would include any of the gender-discrimination or religious-discrimination cases starting up over this situation, by the way…

Now, I’m not going to pretend that this was the first thing that came to my mind when I heard about the Supreme Court decision last week. It wasn’t until I read the news story here and the “Friend of the Court” brief it references here that I realized that just how badly this could end for the company’s owners – and that nearly four dozen law professors from top universities thought so, too. So however much we may want to mock the owners of Hobby Lobby for the financial and public relations consequences of their actions, it would appear that the legal aspects of the situation are even worse – and that any first-year Law student could have told them how utterly stupid and ultimately self-destructive their policies were…

From the Top

I’ve been watching the fallout from the recent Hobby Lobby decision along with the rest of the country, and I have truly been amazed at the amount of scorn and derision being heaped upon the company, its ownership, its management team, and anyone who supports it by essentially everyone on the left side of the political landscape – and a fair amount of the center, as well. So far we’ve heard about how this is indicative of a war against half of our population, how it’s the emergence of a plutocracy that will destroy the very fabric of our country; how it’s the start of a theocratic state in North America, how it is discriminatory, racist, sexist, classist, and generally horrible for anybody who isn’t an ultra-right-wing white male religious fanatic. And I have no difficulty accepting any of these claims; but what strikes me about the situation is that the management policy that started the whole this sorry mess was a bad idea in the first place…

Consider, for a moment, the purpose of offering benefits to your employees. All pious mouthing aside, benefits are part of the compensation package which the company uses to attract the best available workers – or, at least, employees of sufficient quality to suit its requirements. If a given company offers better compensation than others in the same industry, whether that means higher pay, better health insurance, dental and vision insurance, retirement plans or other benefits, then jobs offered by that company will be more desirable, creating greater competition for those positions and giving the company access to a greater selection of possible employees. It is important to note that while access to adequate health care may be considered a basic civil right, having somebody else pay for it generally isn’t, which is why there are so many jobs that do not offer acceptable medical insurance – and why the Affordable Care Act was required in the first place…

Given that this is the primary function of all compensation elements from the company’s standpoint, intentionally degrading any part of the compensation package is counterproductive to the point of idiocy. Any measure which makes the package less attractive – which eliminating coverage for desired services most assuredly does – lowers the company’s ability to attract or retain the best personnel. This lowers productivity, lowers profitability, and generally decreases the overall value of the firm. In this specific case, negative feelings generated by the policy (and the lawsuit to protect it) also represent an excellent chance of angering or alienating employees who already work for the company and do not have the option of quitting – including member of the workforce connected to the issue by politics or ideology as well as by biology. This will lower productivity still further, and that doesn’t even consider the impact the company’s position is having on public relations and customer retention…

Now, as already noted, there are companies that do not offer health benefits of any kind, and from a purely strategic standpoint we can understand why. If employee relations are not a priority – if the labor situation in their industry is effectively a buyer’s market – then a company may not need any advantage to obtain the best employees, and if workers in that industry are considered easily interchangeable there may not be any great pressure to retain them, either. Alternately, a given company or industry may have an operating margin so thin that offering any additional compensation would make their business model untenable; the choice might be between higher wages and other benefits, for example. This is the first case of which I’m aware in which a company has decided to intentionally hamstring itself because of the religious convictions of the ownership, though – even assuming that’s actually what is happening…

Personally, I find the religious argument difficult to accept – especially since nothing the company does can prevent its employees from using the disputed birth control methods if they can find another way to pay the resulting medical bills. If the owners of a business actually support any religious belief, it seems obvious that it would be preferable to run the business effectively and use the resulting higher profits to support whatever ministry or other activities those beliefs require, rather than destroy the business and galvanize the opposition into the kind of action that could actually set back the owners’ religious goals. Or, to put it another way, in addition to the various legal, ethical, political, civil, social, customer relations, community relations, public image, employee relations and financial arguments against this policy, the whole concept is also stupid to the point where I can’t even think of a bad metaphor for how stupid it is. And the worst of the legal implications may be yet to come…