I was happy to be interviewed by Tony Powell, my old editor from CCH.
He’s writing a three-part series on ethics, and interviewed me for the first installment on “The Origin of Ethics.”
The interview was published in the November 2011 issue of CPA Practice Management Forum.
You can read the entire article here.
I had an interesting exchange this morning with Bill Kizer, founder of the Sage Partners, Employees and Alumni Networking LinkedIn Group.
He posted, “Want to know what’s wrong with business today? The prioritization of profit over principle is built into American corporate culture.”
I disagree, at least partially.
Pursuit and prioritization of profit is not a bad thing per se. The problem occurs when the pursuit of profit is driven by an over focus on efficiency and cost reduction rather than innovation and satisfaction of customer needs and wants.
The problem comes when the question, “How are we to be profitable?” is answered primarily by saying, “We will need to cut and recover costs.” Yes, short term thinking as Bill points out is part of it, but it is the loss of the entrepreneurial spirit (or as some would say - purpose) that is the real problem.
I believe all companies begin to die when more energy is spent on creation of profit through cost reduction (efficiency) than on the creation of profit through innovation for customers (effectiveness).
Yes, this is a derivative of the Eff’ing debate.
OK, not exactly, but if there were such a designation, today would be the day.
This is the Gospel read in all Roman Catholic Churches throughout the world.
Matthew 20
The Parable of the Workers in the Vineyard
1 “For the kingdom of heaven is like a landowner who went out early in the morning to hire workers for his vineyard. 2 He agreed to pay them a denarius for the day and sent them into his vineyard.
3 “About nine in the morning he went out and saw others standing in the marketplace doing nothing. 4 He told them, ‘You also go and work in my vineyard, and I will pay you whatever is right.’ 5 So they went.
“He went out again about noon and about three in the afternoon and did the same thing.6 About five in the afternoon he went out and found still others standing around. He asked them, ‘Why have you been standing here all day long doing nothing?’
7 “‘Because no one has hired us,’ they answered. “He said to them, ‘You also go and work in my vineyard.’
8 “When evening came, the owner of the vineyard said to his foreman, ‘Call the workers and pay them their wages, beginning with the last ones hired and going on to the first.’
9 “The workers who were hired about five in the afternoon came and each received a denarius. 10 So when those came who were hired first, they expected to receive more. But each one of them also received a denarius. 11 When they received it, they began to grumble against the landowner. 12 ‘These who were hired last worked only one hour,’ they said, ‘and you have made them equal to us who have borne the burden of the work and the heat of the day.’
13 “But he answered one of them, ‘I am not being unfair to you, friend. Didn’t you agree to work for a denarius? 14 Take your pay and go. I want to give the one who was hired last the same as I gave you. 15 Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?’
16 “So the last will be first, and the first will be last.”
Most interpret this as demonstrating the generous nature of God (which it certainly is), but adding an assumption (which is clearly NOT in the text) offers a more economic exegesis.
Perhaps the owner of the vineyard believed there to be a frost coming that evening which would destroy the unharvested grapes. This would make the grapes gathered later in the day of much greater value to him. Value is subjective!
What I find fascinating is that it is one of the few economics lessons in the Christian Bible - only appearing in the Gospel of Matthew. It is clearly a refutation of Marx’ Labor Theory of Value written 18 centuries early. Lastly, it is certainly classically liberal in that the owner is free to do with his money as he sees fit.
Because George Gilder believed (and wrote) the following, Ayn Rand denounced him.
The moral code of capitalism is the essential altruism of enterprise. The most successful gifts are the most profitable—that is, gifts that are worth much more to the recipient than to the donor. The most successful givers, therefore, are the most altruistic—the most responsive to the desires of others.
The circle of giving (the profits of the economy) will grow as long as the gifts are consistently valued more by the receivers than by the givers. A gift is defined not by the absence of ANY return, but by the absence of a PREDETERMINED return. Unlike socialist investments, investments under capitalism are analogous to gifts, in that the returns are not preordained and depend for success entirely on understanding the needs of others. Profit thus emerges as an index of the altruism of a product.
Rand despised altruism, but I believe Gilder is right.
The most profound thing I have ever read on the morality of capitalism is Gilder’s ”Soul of Silicon” speech delivered to the Vatican in May 1997. It’s not a light read, but well worth the investment.
For those of you that missed John Stossel’s fine show last week on Licensing Madness, I submit the following excerpt.
How do you think that the regulation of the professions in the market effect you, your businesses and even your customers?
Yesterday, I was forwarded a post from Dwayne Wright who could not be more wrong about project management and value pricing. Please read his post before continuing.
I posted wrote a comment, he rejected it saying, “Well, just rejected the first comment for a blog that wasn’t clearly SPAM. It came from a value billing advocate and was equally harsh, combative and lacking of substance.”
“Harsh, combative," HELL yes. “Lacking in substance,” I’ll let you be the judge.
My comment:
I am probably the original source of the comment about billing by the hour as being unethical. (It is clearly suboptimal and I believe immoral as well, but that is a whole other story.)
First, let me be clear, I do not accuse anyone personally of being unethical; it is the practice that is unethical because it promotes some very bad habits.
- It puts the consultant and the customer is an adversarial role. It is in the consultant’s financial interest to maximize hours; in the customer’ interest to minimize hours.
- You state, "It also says this (hourly billing) is often used when a precise statement of work cannot be quickly prescribed. Does that sound familiar to you and your consulting business?" Yes, it sure does and that is just plain wrong. Prescription before diagnosis is malpractice in any profession.
- While the PMBOK (and PMI, in general) have some good things to say about project management, they are overly obsessed with costs. After all most of this stuff comes from government (think defense contractors and NASA). In business, customers do not care about your costs, nor should they. They care about the results. They pay for results not efforts. This again is a misalignment.
- You are arguing that the risks should be borne by both the customer and the consultant. That is just wrong. You are the one with the knowledge not the customer. It is your job to spread diversify your risks across all your customers not put it back on each of them. Your customers hire you because of risk. If what you did was easy, you would not be hired in the first place. To put it back on them is ludicrous.
Lastly, it is not "vale billing" is it "value pricing" or better yet "pricing on purpose." A price is set ahead of time a bill comes after the fact. You bill now, we at the VeraSage Institute, encourage you to set a price beforehand.
Ed Kless
Senior Fellow, VeraSage Institute
By the way, Dwayne Wright, you are free to post any comments here they will not be rejected. You can thank me later for giving you are larger audience then you ever thought possible.
A few Sage business partners have inquired as to what sessions I am doing at the upcoming Sage Summit customer conference in Atlanta next week.
Without further ado, here they are:
| Time | Session |
| 8:30 AM - 9:30 AM | GEN02 - Altruism, Profit, and the Basics of the 7S Model |
| 11:00 AM - 12:00 PM | GEN03 - Creating Shared Vision |
| 2:15 PM - 3:15 PM | GEN04 Creating Strategy in a Small Business |
| Time | Session |
| 8:30 AM - 9:30 AM | GEN05 - Initiating Projects in a Small Business or Small Team |
| 11:00 AM - 12:00 PM | GEN06 - Building Community: A New Paradigm |
| 2:15 PM - 3:15 PM | GEN07 - Fundamentals of Strategic Pricing |
It would be my honor to meet your customers, so bring them by if you can.
On May 12, 2009, I presented a session at Sage’s annual partner conference, Insights. The session was entitled Issue List Management (or how to replace your time sheets with something that actually matters to your customers).
First up are the slides from the session.
Next, here are the video highlights.
And finally, the big finale! This is only for those of you who are radicals (like me) - a song which I believe demonstrates the immorality of tracking your time.
I genuinely believe that most people in the world desire only good thing for their fellow man and are trying to do good. What is disturbing is that we all tend to dismiss any facts that are contrary to our own belief system, rather than investigate them further and resolve the contradiction. To quote Ayn Rand, “Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.”
As a consultant one of the first things I learn about a prospective customer is if the are open to the possibility that they are wrong. Not that they necessarily are wrong, but just if they are open to the possibility. I will not work with anyone who does not respond positively to this idea. Of course, I reciprocate and state that I am open to this possibility myself.
One of my all time favorite quotes is from a little know business/psychology author named Edwin Friedman. He opens his book A Failure of Nerve: Leadership in the age of the quick fix, with this gem, "The colossal misunderstanding of our time is the assumption that insight will work with people who are unmotivated to change."
He demonstrates how this applies to all levels of human relationships: parent/child, spouse/spouse, neighbor/neighbor, employee/boss, company/company, citizen/government official, country leader/country leader. It is only through lowering our own level of anxiety, thereby increasing our own ability to think creatively and remaining connected to those we hope to change, can any transformation occur.
Advancing the dialogue requires the ability to self regulate your own anxiety level.
Go-to-market Strategies posted an article entitled The truth about selling value: you must ADD Value.
While there is much in the article with which I agree (Value is subjective; It is hard to get to value, etc), there is one key point to which I object strongly. The writer’s definition of value is "the amount of money or relative worth that is considered to be the fair equivalent for what is to be received in return." (Emphasis mine.)
This continues the thinking of business-as-zero-sum-game. The value the customer is getting should outweigh, in some cases significantly, the price that they are paying. This is the beauty and morality of the free market. Wealth is created on both sides of every transaction because they are a) mutually beneficial and b) entered into with the freedom to choose. The buyer benefits more than the price they pay and the seller benefits because they provide the good/service/knowledge for less cost than their price. Of course, this is called profit.
Yesterday, the United States government agreed in principle to provide almost $8 trillion on behalf of American taxpayers. The complete story is available on Bloomberg and various other sources. The amount is more than one-half of the value of everything produced in United States last year alone.
The question of who is going to pay is settled. The citizens of the US are. This agreement is tantamount to repealing the Thirteenth Amendment to the United States Constitution which reads in part, “Neither slavery, nor involuntary servitude, except as a punishment for a crime...shall exist within the United States.”
If you think this is extreme consider this question, can I opt out of contributing without being put in prison? The answer of course is, no!
As a reminder the $8 trillion mentioned above does not include the unfunded liability for Medicare, Medicaid and Social Security. Our lives and our fortunes have been pledged to the government. We, in the United States, are all slaves.
Every so often you read something and say to yourself, “Wow, I wish I wrote that!”
It happen to me just a few minutes ago when a friend of mine sent me this link from a blog post written more than two years ago. It is certainly an echo of the famous “This is John Galt speaking…” in Atlas Shrugged.
I am not sure how I ended up at this site today, but I did.
It is pathetic. If there was ever any doubt that a professional knowledge firm is based purely on intellectual capital, this proves it.
This is what remains of Andersen.
Ron has been blogging a lot about ROWE (Results Only Work Environment) lately and with good reason. It is an idea whose time has come. In fairness, I thought I would present the anti-ROWE or, at least, one element of it.
If you need this product, creepily named Spector 360, let me give you some advice — save your money ($2k) and just go out of business! If anyone can make a rational case for using this kind of software in a professional knowledge worker (or really any) environment, please attempt to educate me in the comments below.
A lot has been written on whether or not hourly billing is unethical. My colleague and friend, Ric Payne, recently weighed in with his thoughts, mostly in response to something Rob Nixon out of Australia wrote in his newsletter. Obviously, Ric thinks hourly billing can be ethical.
Our friend and colleague Mark Bailey also weighed in on his Blog, arguing that hourly billing is unethical. (This post also prompted Mark to apologize to Ric, but I’m going to avoid that debate).
But I think all the posts missed the main reason why hourly billing is not ethical. To explain, we have to discuss what, exactly, is ethics, as well as a bit of philosophy.
Ethics—originating from the Greek word ethos, meaning habit—is the study of morality. Morality is concerned with social practices defining right and wrong. It exists prior to the acceptance by any one individual. In other words, morality is not a personal choice but a social construct. I’m sure Hitler thought he was ethical. So what?
Ethical theory is a reflection on right actions. Aristotle wrote that ethics was a branch of politics, and since morality and politics are inseparable the political question is, “How ought we to order our life together?” After all, you would not need to study morality or ethics if you were stranded on an island, since there would be no one to be “just” or “unjust” to.
The Josephson Institute of Ethics, one of our favorite resources for ethics education, defines ethics this way:
Ethics is about how we meet the challenge of doing the right thing when that will cost more than we want to pay. There are two aspects to ethics: The first involves the ability to discern right from wrong, good from evil, and propriety from impropriety. The second involves the commitment to do what is right, good and proper. Ethics entails action; it is not just a topic to mull or debate.
Rather than merely analyzing the consequences of actions, there exists a philosophical theory that holds that one should do what is right. This is known as deontology, a Greek term meaning duty.
Deontologists believe in universal principles (thou shall not steal, murder, etc.) and that consequences should not be the only criteria used to judge moral behavior. The leading deontologist is the German Philosopher Immanuel Kant (1724-1804). Kant proposed two questions, “What may we hope for?” and “What ought we to do?”
Kant’s theory places motives for actions as higher importance than the consequences of those actions. In other words, one should do what is right, for the right reasons. If one is honest only because they believe honesty pays, it’s not as moral as those who are honest because it is the right thing to do, according to Kant.
Kant proposed broad principles in order to provide a framework for making moral decisions, described as categorical imperatives:
If you apply this test to hourly billing, you find it fails miserably on all the questions, especially the first and third.
Would you want hourly billing to become universal? Would you want all businesses to utilize it?
If the Golden Rule is true—treat others as you yourself would want to be treated—how can one defend the morality of hourly billing?
Now Ric countered that he believes it’s ethical as long as the customer knows in advance what the price is, and agrees to it. That’s true.
But the reality is, most firms that bill by the hour do not quote fixed prices up-front, they quote hourly rates, or at best, a range of prices. Again, would you accept that from a hotel, an airline, a grocery store?
My earthquake insurance companies quotes me a fixed premium, even though it really doesn’t know the costs of a future earthquake. It’s called taking a risk, the source of all profits.
Hourly billing also misaligns the incentives between professionals and customers, and there exists much empirical evidence for this. Just look at any ABA survey, or advertising survey. For a detailed explanation of the ethics of hourly billing, the best book is The Honest Hour, by William G. Ross. This book documents all of the ethical challenges caused by the billable hour in the legal industry.
Ross actually concludes, like Ric, it can be ethical policy; again missing the point completely.
As Aristotle wrote, “It’s not easy to be a good citizen in a bad society.”
Hourly billing creates a bad culture, focused almost exclusively on the convenience of the seller, not the customer.
It’s not how you purchase anything else in your life. You wouldn’t tolerate it for one minute if any other business tried to price this way.
Hence, it’s unethical.
I think Kant would agree.
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