Tuesday, 24 April 2018

The Ten Step Program for Vetting a Government or Corporate System

by Jefferson Pinto

Jan. 2009, VIEW Issue 10: Last month I addressed the need to define the problem, prioritize, and formulate a solution. This month, I’ll introduce a framework for evaluating solutions.

One of the biggest challenges with developing solutions is to ensure the proposed solution actually addresses the core problem and underlying causes. This sort of assumes the problem or objective is accurately and clearly defined as well as agreed upon.

Automaker Bailout... 1. Solution/Evaluation Matrix

2) Realize government intervention has its limitations. The sad reality is public policy (legislative or judicial) is not the right tool for all problems. Some problems are outside the realistic capability of our government to handle effectively or efficiently. Things in this category include:

Raising children or anything else that involves a huge commitment is best handled by a loving competent family member. The epitome of this was manifest in the movie The Truman Show (1998) when a corporation owned a child and exploited him for the ultimate reality TV show.

Preventing people from injuring themselves. The other day my son asked me, “Dad, is it illegal to kill yourself.” I replied, “Yes, only if you do it all at once.” It’s difficult to care more for someone’s health than they do. Smoking is the single most common behavior that leads to more preventable deaths in this country than any other. Let’s face, it obesity is a huge problem in this country (Sorry for the pun, I couldn’t resist). While it’s convenient to blame the convenient drive through restaurant with the happy clown and the cigarette touting camel or cowboy, personal accountability of one’s own health is something outside the reach of legislation.

Bestowing “common sense” on those who lack it. Public policy doesn’t work well if you design it for the lowest common denominator of society. You can’t talk (without a headset) or text while driving. If someone lacks the judgment to get off the phone or pull over, maybe Darwinism isn’t such a bad thing. Besides, why do the rest of us who can walk and chew gum need to be inconvenienced? The cruel irony: the very same people that are too narcissistic to act responsibly won’t change their behavior as a result of a new law.

"...the cause wasn’t a lack of rules or procedures; it was caused by circumventing the existing rules (high level management fraud and collusion with the auditors)."

3) Make sure the cure isn’t worse than the original ailment. In my prior life, there was a problem with “missing” inventory. Understandably, management got kind of agitated and wanted it to stop. One of the suggested solutions was to add an additional form for verification. Because of the intense pressure to stem the losses, this suggestion floated around the room for about 15 minutes. I took all I could take and I could take it no mo’. Finally said, “Folks that solution is the worst of both worlds: it creates additional administrative burden for the honest folks and it won’t stop the dishonest folks. A real fix is to control the exits of the warehouse, and have all orders checked by another qualified and trained employee against the documentation upon exiting.” (Sort of like when they check your receipt when you leave the big club warehouse stores.)

The poster child for “way too much too late” is the Sarbanes-Oxley Act of 2002. It was passed after huge fraud failures: Enron Debacle (The largest corporate malfeasance in history whereby the magnitude of the fraud exceeded the entire annual dollar value of blue collar crime in the country.) Tyco International, Adelphia, Peregrine Systems and WorldCom, etc. In each of these cases, the cause wasn’t a lack of rules or procedures; it was caused by circumventing the existing rules (high level management fraud and collusion with the auditors). See why it’s important to define the problem and causes before you formulate a solution?

Sarbanes-Oxley (SOX) not completely meritless; however, it comes closer to zero merit than to some reasonable merit. In its simplest form, SOX imposed a lot of redundant oversight committees, forms, and approvals/signatures on publicly traded companies.

4) Retrospect Analysis: One of the best tools to analyze the effectiveness of a policy is to go back in time and evaluate whether it would have worked on the past problems it is purporting to solve.

"It’s no wonder goods can be manufactured in China and shipped half way across the world at a lower cost. Governmental cholesterol is one of the leading killers of jobs, productivity and global competitiveness (Another failure of our “economic health system”)."

The above corporate irregularities (a polite word for fraud) were perpetrated by high level executives and or the now defunct auditors of Arthur Anderson. Making a crook sign a piece of paper stating they are telling the truth is like leaving fresh meat on the counter and telling the dog not to eat just before you step out of the room. The additional piece of paper doesn’t prevent anything it only helps in the prosecution after all the money is already “out of the barn”. Instead of calling the Sarbanes-Oxley the “Public Company Accounting Reform and Investor Protection Act of 2002” a more appropriate name is the Accountancy Full Employment Act of 2002.”

5) Size up the cost. In concept, most people can all agree there is some cost associated with a solution; but, do we understand how the costs manifest themselves? It’s no wonder goods can be manufactured in China and shipped half way across the world at a lower cost. Governmental cholesterol is one of the leading killers of jobs, productivity and global competitiveness (Another failure of our “economic health system”).

I advocate gaining an understating of cost prior to executing the solution. Do we really understand what something costs? In its simplest form there are three costs in life: The cost to get it, the cost to keep it, and the cost to get rid of it.

Quantitatively, dollar costs are one thing. Qualitative personal “costs” are another. When you got married or decided to have children, did you understand the cost ? (That’s OK, I didn’t either.) Sometimes you’re committed, and that’s life. My point, quantify the problem with known costs or reasonably estimatable costs.

In an earlier article, I advocated to stipulate the CPC or Cost Per Citizen. It’s easier for most folks to comprehend if they see how much it costs them personally. I stand behind this recommendation.

6) Don’t go grocery shopping when you’re hungry. Stated in the positive, go grocery shopping on a full stomach. The pictures on the outside of the boxes start looking very good when you’re hungry. It’s easy to act irrationally and buy too much food. (I learned this the hard way in college.) The Enron/Sarbanes-Oxley was done when the embers were still hot and the wounds were still raw. Let the ashes cool and call in an expert fire investigator before buying more hoses and installing more hydrants.

7) Determine if government intervention is always necessary. Sometimes doing nothing is the best solution. This reminds me of an old joke my father used to tell: This guy goes to the doctor and is told he needs to have one of his prized appendages amputated. He objects and seeks out other medical opinions. He finally finds a physician that says, “Amputation is not necessary.” The man was relived and said, Thanks Doc I was really worried.” Then the doctor replies, “Give it a few months and it will fall off by itself.”

8) Beware of half-baked rationalizations.

We helped industry X; we have to help industry Y: How many U.S. call center employees lost their jobs to replacement low wage English-language-challenged people overseas? (“Mya name issa John, how meya I probide yew wis excerrent serbice.”) Should the government have interceded? The job loss was much quieter, slower, and without a whole lot of whining. Does the squeaky wheel get the grease? If there are four wheels and they are made in Detroit, apparently the answer is yes?

“Well if you can bail out the financial institutions, surely you could spare a mere 20 billion for the auto companies, an American institution."

Automobile manufacturing is an American tradition. We aren’t preserving some sort of art form. These boys are a real business. At one time General Motors was the largest corporation on the face of the planet. If they want to preserve an art form, perhaps they ought to contact the Smithsonian Institution.

9) Will the solution set a bad precedent. Since the Financial (AIG) Bailout, a new standard has been set. “Well if you can bail out the financial institutions, surely you could spare a mere 20 billion for the auto companies, an American institution." Helpful hint: Just because we made one poor decision doesn’t mean we need to make another one.

10) Determine if the solution enforceable?

Is it objective? (doesn’t require too much interpretation by 95 percent of the citizens)

"...do the 10 step program before proposing the solution."

Is it manipulatible? Can the program be expanded far beyond its original size by creative manipulators (also know as: entitlement entrepreneurs). Oh my back hurts, I can’t work, but I can go golfing 5 days a week. Please direct my disability check directly into my checking account so I don’t have to endure the pain of driving to the bank to make the deposit.

In the case of the Automakersituation”, the core problem and cause of the auto maker insolvency is the failure to make cars that enough people will buy and failure to trim fixed costs when market share eroded.

In summary, do the 10 step program before proposing the solution.

- Jefferson Pinto

Jefferson Pinto is a retired CPA, holds an MBA from one of the finer accredited universities, and is the VP of corporate operations for his day job.

This Story: http://bit.ly/2j2MSYK

SOURCE: Jan. 2009, VIEW Issue 10

Related Article: Nov. 2008, Issue 8: Auto Industry Family Speaks Out

Related Article: Nov. 2008, Issue 8: The Obama Bail-out Won’t Stop the Leaks...

Outside VIEW Article Link (WikiLink Sourced) 2016: Citibank Improperly Selected Prime Obama Administrative Secretary Appointments, Pushed Bank Bailout For Themselves.

RELATED ARTICLE: Economy: 'Heads I Win, Tails You Lose,' Apr 2010, #25
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