GM and 21st Century Managment ...

The following is an article written by Dr. Gipsie Ranney. Dr. Ranney is a consultant in Nashville Tennessee and was a close associate of Dr. W. Edwards Deming with whom she collaborated for over a decade. The article is entitled 'Remembering Nummi'. Nummi was a joint venture between GM and Toyota back in the early 1990's. With all today's talk about whether and how taxpayers should be bailing out the American auto industry, I believe you will find Dr. Ranney's thoughts and perspective well worth your time and consideration.

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Heretics and Climate Change

In today's New York Times Magazine (Sunday, March 29, 2009) readers will find an article on Freeman Dyson entitled “Civil Heretic” . Clearly the world needs heretics - especially when they are geniuses and even if they are sometimes flat-out wrong. Dyson is a world renowned scholar and physicist, and has worked at Princeton's prestigious Institute for Advanced Study (the type of place that has hired people like Albert Einstein)for over 50 years. Dyson has recently come out saying that he believes the dangers of human-induced climate change have been greatly exaggerated.

The article is worth reading, but take note of a quote at the end. Dyson is quoted saying “But I knew Roger Revelle. He was definitely a skeptic. He’s not alive to defend himself.” Dr. Roger Revelle was Al Gore’s professor at Harvard and Gore often refers to him as the person who first introduced him to the idea that a build-up in the Earth's atmosphere of human-induced greenhouse gases might have long-term catastrophic consequences. By saying that Revelle was a skeptic is Dyson's way of saying Gore is wrong, or worse a liar.

I point my readers to an article published by the New York Times on July 25, 1977 entitled “Scientists Fear Heavy Coal Use May Produce Adverse Shift in Climate.” The article discusses a 281 page report written by Dr. Roger Revelle and other members of the National Academy of Sciences warning of “Highly adverse consequences” for the planet’s climate system were the world to continue to burn coal through the 21st century. The Times went on to report that Revelle, who authored the summary of findings, advocated early action “which was needed because it would take decades to narrow the uncertainties and then a full generation to move to new sources of energy, if that, as expected proves necessary.”

I can not know for sure that Dyson is wrong about the danger of climate change. What do know for sure is that he was very wrong about Roger Revelle.

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Business As Usual

President Obama has stated that part of addressing this financial crisis is making all parties realize that "business as usual" is finished. This message was largely directed to Wall Street bankers who scooped up billions of $$$ in the "good" times that brought about this crisis, and then expected the gravy train to continue even now in the depths of the abyss.

But the term business as usual is not new to those concerned about climate change. As a matter of fact it has been used by the IPCC (Intergovernmental Panel on Climate Change) for the last 20 years. They even coined the acronym BAU to indicate what can not be sustained by the planet's climate system to insure long-term stability.

Unfortunately we are still following business as usual here in the U.S. Not only have we not committed to capping CO2, we are ignoring great warnings that change is happening even faster than was previously believed possible. A recent conference in Copenhagen saw the esteemed economist Lord Nicholas Stern revise his 2006 "Stern Review" projections on the cost of not addressing climate change. Guess what? They're up by 50%! This made huge headlines in Europe and around the world.

In the U.S., however there was hardly a mention of it.

Sounds like BAU to me.

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The Best and the Brightest ...

I know this is supposed to be a blog about addressing climate change, so why do I continue to harp on executive compensation patterns? Because it is at the heart of how we structure our economy and reflects what we value as a society. One of the reasons we stand at the edge of the abyss of economic ruin today is because of compensation patterns, and one reason our economy has thus far failed to regulate greenhouse gases and deferred addressing the urgent threat of climate change is also directly related to how we compensate executive leadership.

Corporate management is never going to be able to address long-term issues like climate change and sustainable development without an appreciation for systems thinking. What happened to AIG was the result of the creation of a culture that abandoned any such appreciation for systems thinking and replaced it with a myopic focus on maximizing short-term results. In a toothless regulatory environment greed took over, more was better than less, so AIG kept doing more - and the final results speak for themselves.

Today's headline in the Wall Street Journal "AIG to Pay $450 Million in Bonuses" points to the absurdity if not obscenity of what is still going on. Mr. Liddy, AIG's CEO wrote to Treasury Secretary Tim Geithner that AIG "cannot attract and retain the best and brightest talent … if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury." Where have I heard that term before - the best and the brightest? Oh yeah, that was the title of David Halberstam's insightful and excellent book on how America was dragged into the abyss of Vietnam by really smart people. Was it not AIG's best and brightest - people like Joe Cassano - who created this catastrophe? TPM Muckraker referred to this ilk as the Axis of Weasels financial engineers who risked all their firm's money, engineered personal fortunes for themselves and then left Joan and John Q. Taxpayer to absorb all the risk?

Now we're supposed make sure some of these very same guys get bonus and retention pay of over $1 Billion? Absurd! No, OBSCENE! And God help the planet if this is the way corporate America is run in the 21st century.

Late breaking news from the NY Times: President Obama seeks to block AIG bonuses.

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Paying the Weatherman for a Nice Day

Climate change is at its core a systems problem and requires management to adopt systems-based solutions. Executive compensation is interconnected to climate change to the extent that it helps or hinders management in cultivating an organizational culture with an appreciation for business as a system.

In discussing the executive pay on Wall Street over the last few years, a recent article in the New York Times points out how bonuses were all too real even though profits proved a sham. Which reminds me of something a great teacher of mine once said. “Pay for performance is meaningless.” W. Edwards Deming was 90 years old when he taught a course at Columbia’s Graduate School of Business. Deming felt American management lacked the understanding to build sustainable profitability. He taught that for profitability to be sustainable it must be the consequence of a corporate strategy rather than the aim of one. Short-term executive “performance” and long-term shareholder value were very likely inversely correlated.

The results on Wall Street over the last year seem to bear Deming out. John Thain, the current bad boy of executive compensation was awarded over $50 million in 2007 from Merrill Lynch – the highest in the firm’s history – only to see the firm near collapse in 2008. Clearly, whatever Mr. Thain’s “performance” was in 2007, it did little to insure long-term shareholder value. More likely it drove the risky bets that resulted in Merrill’s demise. Billions of dollars in performance-based pay was doled out to Wall Street executives and traders who thrived while taking big risks and putting the global financial system at risk. If pay for performance were a reality, that pay would be callable.

Deming saw each business as a grouping of interrelated and interdependent processes in the service of an aim. In breaking apart the business and measuring the performance of each component in isolation, Deming feared the loss of appreciation for the "system-ness" of the business - the ability to attribute appropriate value to things that are not easily measured, such as the effect of a great boss or an involved employee, the flow of information or degree of cooperation within an organization, or the extent to which management decisions are aligned with the overall aim of the business.

An appreciation for the “system-ness” of business is going to be a necessary characteristic of 21st century management if humanity is to address one of the greatest systems problems of our time or any time – human-induced climate change. From a systems perspective, the global economic system has become such a powerful force within the overall system of the earth’s biosphere that unless we align the aim of the global economy with the aim of the biosphere – and fast – we will live with the consequences of that misalignment: sub optimization, decay and the ultimate destruction of the system.

If good management is about an appreciation for a system, we are going to need a lot more of it in the 21st Century. “Management is prediction …”, Deming said, continuing “… rewarding an executive for an increase in stock price is a lot like paying the weatherman for a nice day.”

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Climate Change - Still A Big Secret

I read with great interest over the past couple of weeks articles in the New York Times about innovative and unusual ways people are heating their homes these days. Two of the articles “Wall-to-Wall Warmth – Dec 18” and “No Furnaces But Heat Aplenty – Dec 26” gave examples of increased energy efficiency in home heating, while the third article “Burning Coal at Home is Making a Comeback – Dec 27” discussed how a very old fuel is finding new markets with homeowners because of reliability of price and supply. I recommend all three – but “No Furnaces” was my favorite. I love hearing about how a comfortably temperate home can be achieved with a 95% reduction in energy usage compared to the typical design. Such stories give me hope.

Yet nowhere in any of these three articles was the subject of climate change in general, or the build-up of greenhouse gases in the atmosphere in particular discussed. Home heating has significant implications for addressing climate change. The New York Times is doing a very good job covering climate change explicity through its Green Inc. and Dot Earth blogs and with great reporting by writers like Andrew Revkin. However, what is needed further is to have articles outside the explicit climate and energy reporting to provide points of departure for introducing readers to the urgent problem of climate change.

One such example of a missed opportunity was a recent article on wireless chargers for electronics. In this article, Intel Moves to Free Gadgets of Their Recharging Cords, the author points to an MIT study that shows wireless charging to have “demonstrated efficiencies of 50 percent at ranges of several meters.” That means one must use twice the energy for the convenience of wireless charging. The article does not calculate the increased energy cost of such inefficiency or the increase in greenhouse gases as a result. To give you a rough idea of the magnitude of our use of digital electronics, we dispose of 426,000 cell phones every day. Making the ones we keep twice as energy hungry does not seem a step in the right direction, and certainly deserves to be called out as antithetical to the general aim and urgent need for increased efficiency.

Those with the biggest megaphones need to find every opportunity to discuss this issue of climate change, to help the public learn the urgency of the problem, how humanity is impacting climate change and how climate change will affect our lives. I wished these otherwise interesting and well written articles in the Times could have done more to frame their discussions around the climate change issue.

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America’s Oil Dependency – Addiction or Policy

Today many Americans discuss our nation’s energy problems in the frame of “oil addiction”. Such talk is found at the corner bar, in the news media, and even in a President’s State of the Union address. While the term addiction conveys a seriousness and gravity, it also conveys a sense of helplessness, a lack of control and ultimately a lack of responsibility.

In truth America’s dependency on oil is more complex than addiction. It is in part a function of decisions and policy made by us the people through our elected representatives. Further, it is the consequence of interrelationships and interdependencies within our economic system and between government and the private sector that have made cheap oil the energy policy of the land for over half a century. The nation deserves a deeper understanding of the subject of national energy policy than the term addiction allows:

1. Addiction implies uncontrolled or compulsive use of something. Addicts see their fate as beyond their control and often feel powerless to change their circumstances. Addiction frequently follows the path from helplessness to hopelessness and ultimately to victimhood. So the message of oil addiction may imply, directly or indirectly, that America is not in control of its oil consumption but is instead a powerless victim of it.
2. Most addicts see no alternative to their habit. They will do whatever it takes, including act compulsively and irresponsibly, to get the next dose or fix. The message of oil addiction can subtly convey the idea that oil is irreplaceable and that America must adopt whatever national policy is required to feed the habit, even accepting compulsive or irresponsible actions by government.
3. With addiction there is a sense that complete recovery is unlikely if not impossible – it is said that once an alcoholic, always an alcoholic. And while controlling the addiction may be possible, this usually implies a very long and very difficult period of withdrawal with many steps along the way. Therefore oil addiction may imply an inevitable and perhaps even a perpetual tie to oil, that can never be ended, but only perhaps reduced, and then only through a very prolonged and measured transition.

The more America thinks of oil and energy in terms of addiction, the more likely our citizens will accept dysfunctional economic, political and environmental policy as an inevitable consequence.

We need to be thinking instead about what we want from our national energy policy and what it is capable of providing. Can we adjust the policy to reduce dependency on a politically and economically volatile commodity like oil? Can a sound policy help provide cleaner, renewable forms of energy to our economy? Can it stimulate job growth and wealth creation in the U.S. instead of sending billions of dollars overseas?

Policy that enables a transition away from oil and other fossil fuels may represent one of the greatest opportunities for insuring both America’s prosperity and the stability of the earth's climate system in the 21st Century. Hopefully the new government in Washington will begin making informed decisions about energy policy very soon. This will be a change in itself, since addicts are incapable of making informed decisions.

Andrew J McKeon

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