Day 297 – Confessions of a Former Voldemort Republican

          I put a tweet up yesterday in which I referred to myself as a Voldemort Republican. I’m really not anymore—probably I never was—but I still think the concept is incredibly funny. I got it from a t-shirt/bumper sticker ad I saw during the last presidential election, but it seems that the concept actually originated with an online comic strip called Goats, which is written and drawn by Jonathan Rosenberg.

          That the humor has been embraced, one would think mostly by Democrats, speaks volumes about the low esteem in which Republicans were generally held leading up to the election of Barack Obama as president. Voldemort is of course the principal antagonist from the Harry Potter franchise. Voldemort is the embodiment of overarching patrician conservatism suffused with an unrelentingly callous evil. This is pretty much the way a lot of people still talk about George W. Bush.

          I always liked George Bush. I thought he was naïve at times, maybe even a little stupid, but I never regarded him as evil. He’s an affable, down-home kind of goof-ball born with a silver spoon in his mouth. He’s a contradiction and an occasional buffoon, but he is not evil. By the same token I do not think that Barack Obama is a Nigerian Islamic communist. I do not think he has an agenda to take my money and redistribute it to the poor and disadvantaged. I do no think he is pursuing a reverse racist agenda.

I think each of these presidents did or is doing the best they can, given their particular ideological proclivities and extremely difficult circumstances. I’m giving them a break. This doesn’t mean I agree with the policies of either of them. In fact, just the opposite. I think they’ve both made a lot of mistakes. I’m just not about to presuppose that I, or anyone I know or know of for that matter, could do any better.

          I’m tired of the slash and burn rhetoric from both sides of the political equation. I’m tired of congressional votes that divide along party lines. I’m tired of the no-quarter-taken-and-none-given lack of compromise on all sides. Republicans were only too happy to give $1.5 trillion to GM, Chrysler, AIG and 13 banks when they thought the world as we knew it would come to an end if chips fell where they may. Now they don’t want to part with a few paltry billion in unemployment benefits because they’re afraid the world as we know it might come to an end unless the chips fall where they may. If they are truly interested in making the country a better place for its citizens, they have chosen an odd place to draw the line on stimulus.

          Just as bad, the Democrats were determined to pass health care reform just to prove that they could, but they couldn’t be bothered to listen to anyone else’s ideas, so we got reform that isn’t and cost savings that don’t. Is there anyone out there who is interested in actually fixing some of our formidable problems? All our politicians and all our pundits act like fundamentalist evangelists who would rather prove that their own personal interpretation of scripture is correct than to actually lead a soul to salvation.

          A few days ago (August 12) there was an article posted at the Fox Forum by John Lott blaming the Democrats for a recent, and nearly insignificant, spike in unemployment claims. Lott believes, along with a lot of other people apparently, that unemployment benefits create unemployment claims. This theory has been debunked nearly as many times as the flat earth, but still it persists. It persists because people are afraid that someone undeserving is going to end up with some of their money. They are afraid some lay-about like me is going to use extended unemployment benefits to fuel my yacht and stock my liquor cabinet with high dollar single-malt scotch. They are afraid that the Democrats are orchestrating a massive shift of wealth into the hands of the poor who are, after all, poor for a reason.

          A person calling himself ‘webedun’ who commented on Lott’s post put it most succinctly: “It's the ‘CLOWARD & PIVEN STRATEGY’ they've had in the works since the '60's. Google it. Glenn Beck saw this coming something like a year ago. Just look it up and learn. You'll see the Progressive's plan to take down the Government.” Well I did Google it, and I have to say that I don’t think that ‘webedun’ looked it up himself. He just took Glen Beck’s word for what Cloward and Piven were all about, and then he tried to apply it to a case where it doesn’t really fit.

          The Cloward and Piven Strategy was a proposal by two sociologists back in 1966 for a massive registration of qualifying poor people in order to create a welfare crisis and thereby force the Democrat controlled Houses of Congress to pass something like a guaranteed national income. It was folly then, and it remains folly today. Anyone who would posit it as a viable political agenda, a strategy to be either feared or embraced, would necessarily have an IQ hovering around their hat size. It is ridiculous, and yet there it is on the Internet, touted rather seriously as something I need to look up and guard against.

          The irony is that while Glenn Beck and his minions are worried about a massive shift of middle class income to poor, unemployed, illegal Mexican immigrants, shiftless African American welfare cheats, and secret cells of Muslim terrorists, there has in fact been a massive shift of middle class income. It went the other direction. Instead of going to the poor it went to the rich. We watched it happen and we were too dumbstruck to say anything about it.

          It didn’t have anything to do with Democrats or Republicans either…or liberals or conservatives…or George Bush or Barrack Obama. We were fleeced by our banks. Not only that. They’re still at it. Our banks robbed us of our prosperity. They stole our future. They bet our farm, lost, and got reimbursed for the loss…by us. We paid twice. They lost our stuff and then they got us to pay them for losing it. It’s not over either. They’re going to get us to pay for it a third time. All that lost value, all those toxic assets we heard so much about, they’re still there—still secreted on and off the banks’ balance sheets at inflated values. They haven’t taken the losses we already paid them for yet. They are waiting until they have enough profits to offset the unrealized losses on their books.

Where are they going to get these profits? From us. They are going to charge us fees for doing things they ought to do for free. Citibank is talking about charging a fee if you want to talk to a teller. They are going to charge exorbitant interest rates to loan us money that they get for free. The more trouble they get us into, the more they are going to charge us. They will justify this because we are bad credit risks, and we will be getting worse. We will be overextended.

Sadly, I think, if we don't stop them, we will deserve it.

Day 290 – Adirondack Chairs

Aderondack chairs...the spectacular view is absolutely essential. Cocktails preferred.

          I got interested in matters of finance and economics because I was curious to know what is going on that is making it so difficult for me to find another job. Admittedly I’ve got a few strikes against me in terms of employability—advanced middle age, narrow industry experience, health issues, increasingly inadequate credentials. Still I have a broad base of practical skills, a passable personality (for an accountant), and a modicum of native intelligence. It ought not to be so difficult to find someone who wants to hire me.

The answer to this conundrum, of course, is that no one wants to hire anyone. In spite of a return to earnings and an accumulation of cash reserves among the nation’s businesses, unemployment remains at near record levels. Jobs are not being created. It is a buyers’ market for labor. With too many candidates chasing a relative handful of available positions, any bit of tarnish on a résumé is sufficient to get it tossed out into the darkness where there is weeping and gnashing of teeth.

In other words, even though I have worked myself into irrelevance, and even though, in spite of the irrelevance, I still have some value in a competitive workplace that requires intelligence and creativity, I am at the mercy of externalities. I’m not going to find a job until jobs come back to the American marketplace. I’m beginning to believe that this is not going to happen anytime soon, if at all.

The reasons for this are myriad. As with almost anything problematic, the situation is more complicated than it first appears. It doesn’t make it any easier that so many well-meaning people think they know what’s wrong and how to fix it—all of them with different ideas—while so many others think the problem will fix itself…given enough time. It’s time, I think, to add my own two cents worth.

Big companies, while they may have returned to profitability and while they may be sitting on near record cash reserves, are not adding jobs. The New York Times reported August 8th that revenues increased only 6.9 percent on average for 175 S&P 500 companies reporting 2nd quarter earnings, but profits rocketed up by an astonishing 42.3 percent. The Fed has reported that American companies have stashed an estimated $1.8 trillion in cash reserves, the highest level in nearly 50 years. Harold Meyerson of the Washington Post suggests that none of this will translate into jobs because the American business model is fundamentally changed. They are not adding jobs because they are not seeing growth. Their profits are based on draconian cost cutting measures they took when times were not just bad, but scary. They trimmed jobs, outsourced overseas, cut overhead. Now they are making respectable profits on reduced revenues. They are not going to add jobs until they see growth. Even then they are going to add jobs overseas rather than stateside. It may be un-American, but it will be smart business.

Meanwhile, of course, the remaining employees are doing more work, picking up the slack for their fired compatriots. Anecdotal evidence would suggest they’re not that happy about it, but they have to suck it up because, well, they still have jobs, don’t they? The downside is that morale is sinking, and the incidence of job related health issues is likely on the rise. To me these things are given. I know they will happen sooner or later.

When they do, quality will suffer. Products will come apart at the seams, catch fire unexpectedly, fail. Customer service, becoming more important as product quality declines, will suffer as well. Before you know it another company is on the skids. This can play out in many different ways. Here’s a recent one.

An airline passenger, fed up with being shunted about like a heifer on the way to market and forced to share her personal space with unwashed strangers, decides she needs something out of her bag in the overhead compartment before the plane lands. She decides this even though the captain has turned on the seat belt sign and ordered the crew to prepare for landing. The flight attendant—overworked, underpaid, and tasked with the nearly impossible job of placating passengers who have been getting less and less value for their travel dollar from the airlines for years—attempts to intervene. It's his job to enforce safety standards he didn’t set upon passengers who do not understand or care very much about their importance. Tension brews. Words are exchanged. The passenger slams the overhead compartment door into the flight attendant’s head, leaving a mark.

Eventually the compartment door is closed. The passenger takes her seat. The cabin is prepped for landing. The seat-backs and tray tables are locked in their full upright position. Everyone is strapped in. It’s just another uncomfortable day in the annals of commercial air travel. No one is very happy about it, but what are they going to do…drive? Take the bus? No, passengers and crew alike, they’re all locked into unattractive choices, and they muddle through as best they can because that’s what we humans do...more often than not. I don’t know why. I just know that we put up with an inordinate amount of crap, because we think we have to, right up to the point where we don’t anymore.

Back in the ill-fated commercial airliner, the flight attendant is buckled into his little jump seat contemplating a decades long work history that includes tolerating every kind of rude and abusive behavior that indignant travelers are capable of lavishing upon the primary customer interface of airlines competing on price by cutting costs. He does not paint himself a picture of job satisfaction. He is tired of fading the heat for policies he did not implement, services he did not cut, and seats he did not shrink so he could fit ever-more-ever-less-comfortable passengers into the cabin for which he is responsible.

We all know what happened next. It was just a couple of days ago. The flight attendant, Stephen Slater, got on the plane’s PA system, cursed the abusive passenger, wished everyone else safe travels, deployed the emergency inflatable slide, grabbed a beer from the beverage cart, and slid to freedom. He got arrested later for criminal mischief and reckless endangerment, but his gesture will be forever remembered as one of the single most poignant resignations in the history of disgruntled employees. I wouldn’t be surprised if they make a movie of it. Slater is a hero to millions of overworked, underappreciated, and well abused employees all over the world. Jet Blue, on the other hand, has a PR problem they are not going to be able to shrug off. Jet Blue is on the skids. They just don’t know it yet.

I was talking about jobs, and why I don’t think the economic recovery, such as it is, is going to generate much in the way of new employment opportunities. The other part of the problem, as I see it, lies with small companies—the start-ups, the innovators, the mom and pops with a better mousetrap. Conventional wisdom is that this is the sector where jobs are created. The problem here is that these companies have not returned to profitability. If they existed before the storm, they didn’t have the resources to survive. After the storm, they can’t get the financing to either start or re-start. The banks won’t loan them any money, even though the banks can borrow money from the Fed for free, even though the banks are making record profits, even thought the banks have been bailed out by the federal government, even though the banks have been able to pay hefty bonuses and dividends.

This is because the banks are still loaded up with toxic assets. They still have untold billions of dollars of unrealized losses tucked away in the creases of their balance sheets that they are loathe to disclose. The government that bailed them out is loathe to disclose them as well, as are the audit firms that have for years been blessing the inflated valuations that the banks have put on these assets. Knowing this cancer exists, the banks are afraid to take a flyer on innovation. They are not about to loan money to a start-up and risk another default in their portfolio when they can generate just as much, probably more, profit from fees and usurious interest rates on debit and credit cards. Meanwhile employment lags for lack of start-up capital and funding for product innovation.

We all suffer for this. It’s not a new thing either. It was just hidden before—covered up by the huge bubble in housing prices and real estate speculation. In an excellent article in The Atlantic, titled “How a New Jobless Era Will Transform America,” Don Peck cites economists Edmund Phelps and Leo Tilman, who argue in The Harvard Business Review that “…dynamism in the U.S. has actually been in decline for a decade…[due, among other reasons] not least, [to] a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering.”

Regulatory arbitrage and arcane financial engineering are nice generic terms. In their more specific and perhaps better known form they refer to Repo105 transactions and derivatives like credit default swaps. The latter crashed our financial system. The former helped hide the mess. The banking industry has been fleecing America for years, and now they are unable to help us crawl out of the smoking ruins they created because they bought their own swill.

They were so successful for so long at the fleecing that they began to believe their own lies, and that’s when they started fleecing each other. It wasn’t gambling really. All the time they knew that the government would bail them out. How did they know that? They kept cycling their best and brightest into Washington to make policy and emasculate regulation. Bob Rubin and Hank Paulson are the most egregious examples of the lot.

So as a nation we are at least 10 years behind in value-adding innovation. To me this represents 10 years of lost job creation potential. We’ve got a hell of a lot of catching up to do, but we apparently don’t have the money to do it. Republicans are trying to stymie any progress in the name of fiscal responsibility. Democrats are trying to stimulate votes with good money after bad. Meanwhile the same bad actors who got us into this mess—the thieving bankers—are still driving the bus, still hiding their problems, still avoiding any meaningful financial regulation, and still too big to fail. This is why the recovery, such as it is, will not create any jobs.

We all face trade-offs every day. This is especially true, I think, in our work. We expect to have to do things we don’t care for in order to get things we do care for. It might be just money, but for most of us, if you would believe the surveys occasionally by the media, there is more to job satisfaction than just a competitive salary. Most of us want to feel that we are making some kind of contribution, that our efforts are appreciated, that we count for something, that we have added value to the equation.

To me work is kind of like an adirondack chair. Adirondack chairs are almost always positioned to take advantage of a spectacular view. Personally I have never seen one that wasn’t facing water. Without the view I would never sit in one. They are difficult to get into and out of, and they are not very comfortable when you are seated. But, if the view is sufficiently interesting, if you are seated next to someone companionable, if someone is bringing you another cocktail when your glass gets empty, then a little discomfort is a reasonable trade-off, and an adirondack chair makes perfect sense.

Jobs are like that too. Being an airline flight attendant can’t be a very attractive proposition if you only consider the work. The day-to-day activities of flight attendants are in large measure identical to those of wait staff. Worse than that because they don’t get tips, and they have to bus their own tables. The only reason anyone would ever want to be a flight attendant is for the travel opportunities. You can put up with a certain amount of abuse and bad attitude if you occasionally get to visit Paris or Rome or the Carribbean for example. But, if you find yourself with a gash on your head on a flight full of schmucks from Pittsburgh to Kennedy International, you have to consider that the plus side of your tolerance equation has shriveled up to ‘just not worth it.’ That’s the point where you have to get out of the chair and find something else to do. No one is bringing you a cocktail, so just grab a beer on your way out.

Day 276 – Hood Ornaments

Lehman earnings before the collapse. Takes brass balls to make a hood ornament like this.

          There is nothing like a history of success as a basis upon which to build further success. By the same token, relying solely on past success to provide a clear path into a prosperous future is folly itself. Nothing persuades us quite so well as success that our instincts and abilities are sound, and nothing else is so quick to pull the rug out from under our feet.

          I have said repeatedly here that success is largely a matter of luck. There is no doubt that we can do things to capitalize on luck when it presents itself, but if luck does not present itself there is very little we can do to overcome the adversity that swallows our hopes in its absence. You can be ready for good fortune, but you cannot make it. You can even mitigate bad fortune, but you cannot unmake it.

          Still, we look to past success as an indicator of the probability of future success. We do this as investors. We do this as employers. We do this as humans. We are naturally drawn to what worked before. We are drawn to it, foremost I think, because it is familiar. We know that conditions change, and that, because of the mercurial nature of circumstances, the familiar may not serve us so well in unfamiliar territory. Yet the familiar attracts us because we do not have to think about it so much. This is a danger, but a natural inclination. We want to take the path of least resistance.

Successful executives, being for the most part human, are not much different from the rest of us in this regard. They just have a better recorded history of past successes on which to rely. This history may give them an occasional pass when they err, but it will not make them any more likely to perform up to their reputation when circumstances change. When their bubble bursts they will act and protest in the same ways and with the same results as the fools and charlatans in my past like Henry and Ivan. We have only to look at the events surrounding the collapse of our financial system to see that this is true.

          Dick Fuld, head of the ill fated Lehman Brothers, spent his time before the fall trying to get everyone to believe that Lehman’s problems had to do with irresponsible and predatory short sellers trying to profit off of lies and innuendo. He didn’t do anything to shore up Lehman’s cancerous balance sheet. He couldn’t. He’d been resting on his laurels until it was too late.

Lehman’s earnings were illusory. They were window dressing. They were like the hood ornament on a fancy car with bad valves and clogged injectors. They didn’t mean anything, and they didn’t have any substance. Still, Fuld kept touting earnings as if that should be enough to get the wolves off his back. The wolves did not desist. The scavengers among them were busy shorting his stock. The alpha dogs were demanding more and more collateral. Lehman was getting squeezed in the middle, and all the public hand wringing was just making it worse.

          The reason the wolves did not desist is that the wolves were mostly in the same boat as Fuld. They were all, and indeed they all remain almost two years later, deeply leveraged on overstated assets. An accurate valuation of their worth, individually and collectively, was problematic at best, impossible at worst. Certainly no one wanted to do it. A collective valuation that even approached accuracy would collapse the system. Everyone knew this...the bankers, the auditors, the regulators, Treasury. They just neglected to tell the rest of us. To forestall the collapse, Treasury and the Fed kept proposing ever more ridiculous mergers and absorptions to hide the mess. The NY Fed under Tim Geithner was determined to offload Lehman before it sank. Everyone Geithner approached, and indeed everyone who approached Lehman, wanted the same kind of sweetheart deal that JP Morgan got to absorb Morgan Stanley. Everyone wanted a dirt cheap price and a guarantee from the US taxpayers that they wouldn’t have to swallow any losses. All the potential buyers had enough losses of their own to worry about without buying billions more in a government sponsored fire sale.

          Eventually Lehman was hung out to dry. Treasury wouldn’t back anybody’s play. People are still arguing today about why this happened. Treasury was happy to sweeten the Morgan Stanley deal, and happy to bail everyone else out after the Lehman collapse. Why let Lehman go down the sewer?

I think it was to send a message to the rest of us, especially Congress, just how high the stakes were. In the ugly aftermath of a Lehman collapse no one was likely to question Treasury and the Fed colluding to prop up their buds and compadres at Morgan, Goldman and the rest. Certainly Paulson at Treasury used the prospect of financial chaos to shove TARP down everyone’s throat with little oversight and no accountability. There was even enough residual fear going into the first six months of the new Obama administration to have them looking like Republicans when it came to their treatment of the banks and markets. Of course when you think about it Democrats and Republicans alike use the same currency to get themselves elected.

          What we’re left with today is the same financial system that cleaned us all out two years ago, the same broken down heap with a spectacularly buffed and polished hood ornament. Admire it all you want, but don’t expect it to get you very far down the road.

Day 269 – Lean Chops and Blind Faith (continued)

          When my last company decided to go lean, they were determined to do it right. The lean project came down as a mandate from the private equity group that bought our company. This group had a heavy engineering background. Their strategy was to buy companies that were doing well in their markets—operating profitably and enjoying a respectable share of the total market—but that also had considerable opportunities for improvement. The equity guys would then begin to tweak these opportunity areas to add value to their acquisitions. They had so far done quite well with this approach.

          In my company they thought they had found an ideal combination of niche products that were well received in their respective markets, but which could be produced much more efficiently. This represented to them a very real opportunity to increase production, lower costs, increase profitability, and bump up their market share in the bargain. It all made perfect sense on paper. The execution blew them up. Why? They started in the wrong place and their timing sucked.

          If their timing hadn’t sucked, it probably wouldn’t have mattered where they started. They still would have gotten significant gains in all the areas that interested them. They started with the production end. They wanted to increase manufacturing efficiencies and boost production.

If they had started at the other end of the production line, they would have looked at their sales estimates and come to the realization that they were entering into a period when boosting production was folly. Sales were going to be flat. We already knew this from the cyclical nature of our business. Realizing this might not have stopped them, but they would at least have tried to tweak the demand before they tried to tweak production to satisfy it.

The Field of Dreams approach to marketing only works if you are building something really, really cool.

Instead they took what I like to call the “field of dreams” approach to increasing sales. That is “if you build it, they will come.” I guess you have already figured out that this only works in the movies. They did not come. In fact sales actually declined, and by a significant amount, due to unforeseen externalities at work in the marketplace. This just made matters worse.

          Selling a lean project downstream is almost always a difficult undertaking. The reason for this is that the people in the Gemba, the people who make stuff, believe in their hearts that a lean organization is going to have fewer employees. They know that some people are going to lose their jobs. It would be nice in the Gemba, where value is added, to think that the people who were going to lose their jobs would all work in the offices, where value is often subtracted. Gemba goons know better though.

They have all been through the implementation of countless examples of managerial ideas. They know that some otherwise useless director with too much time on his hands or some prima donna executive is going to want to measure product cost before and after the implementation of the brilliance du jour, and they are going to want the unit costs to go down. That they will measure product costs in an antiquated accounting model that does not understand or accommodate lean results will matter very little. When they have done their comparison, and realize that unit costs have not declined, they are going to want to trim production staff.

This may in fact save money, but it is not a very good way to get production staff to buy into a lean project. No one wants to work overtime implementing a system that eliminates their job. To do so runs counter to the very powerful instinct for self preservation. To do so would be unnatural.

          The lean believers will tell you that this is not how it is supposed to work, and, indeed, they are right. Lean is not about trimming head-count; it is about eliminating waste. When you use lean principles to figure out how to do something in less time with less material, you are supposed to redirect the saved effort into something else that adds value. There are two reasons for this. First and foremost, the objective of lean methodology is not to save money. It is to grow and prosper the company. You don’t want to just be doing the same thing with less effort. You want to be doing more with the same effort. The second reason I’ve already stated. Once you start losing heads as the result of an initiative, the poor slobs in the Gemba, who are way smarter than you give them credit for, are going to balk. Your efforts will be for naught.

What you usually want to happen is for deliveries to increase so that you are producing more with the same effort that used to produce less. This presupposes that your sales are going to increase. If your sales are not going to increase, due say to a cyclical downturn or unforeseen externalities, then your efficiency gains haven’t actually gained you anything. Your costs are exactly the same. The only difference is that the now more efficient production staff is finishing their work early and standing around waiting for the end-of-shift whistle to blow. At this point there is only one way out of the dilemma your lean project has created. I think you know what that is.

          When you do a lean project, it doesn’t matter what the gurus and consultants say about lean not meaning you are going to trim head count. They have to say this stuff to get everyone on board. They may want to mean it, but they also know how it really works. They know it only really works like they say it does when there is plenty of pent up demand to absorb the extra production. The production people know this too. That’s why they are a hard sell. The reality is, always, when sales are flat and management wants to get lean, the first thing they ask when you come to them with an idea for a gain in efficiency is, “How many people can we lose?”…the first thing…every time.

This is why you need to start at the end. Everything needs to start with a sales forecast that you can trust. I’ve never actually seen one of those—not a published one at any rate. A real, trustworthy sales forecast would be the most useful document any business could develop. It would make all the other decisions a business has to make so much easier. Virtually everything goes back to sales—everything important anyway. Decisions about inventory levels, materials and supplies purchases, staffing levels, capital investments, borrowing needs—all these depend on sales forecasts. The more accurate the forecast, the better the decisions are going to be.

The trouble is that no one in management ever wants to see a realistic sales forecast. If you give them one, they will ask you what it would look like if you pumped it up by, say 10%, or if you skewed the mix in favor of higher margin products, or if you added a new and as yet undeveloped foreign market. A sales forecast is never as good as management wants it to be, and no matter what you take them they will try to improve on it by making you quantify their wishful thinking. Then, when they finally get it where they like the way it looks, they publish it and proceed to base all their bone headed decisions on it because, well, it’s in writing, isn’t it?

          So this is what our new private equity group did. They started tweaking production to support a bogus sales forecast. They invested millions of dollars and thousands of man hours into upgrading and revamping our production lines. They had budgets for everything, and everything was coming in under budget. The various work groups were reporting quantum gains in time and through-put. We were all waiting for the money to start pouring in. It didn’t though because sales fell off. They fell off a lot.

          The production staff started looking at the finished inventory stacking up all over the place. They are not stupid. They know when inventory starts stacking up that money is not flowing in. They know that their wages are paid in money, not inventory. They know when heads are going to have to roll to keep the directors in Porsches and Jaguars. They know when the company is about to be forced into an old-fashioned kind of lean exercise—the kind where Gemba guys do not pass go and do not collect $200. So they did what production people everywhere do when confronted by the prospect of no more work. They slowed down. All the touted efficiency gains evaporated almost overnight.

The vice-president of operations and corporate lean champion had to step down. He’s the guy that my boss, Bill, threatened if he ever saw him at a stop light he would yank him out of his truck and beat the shit out of him. When he left he said, “Production is broken. I thought I could get a handle on it, but I couldn’t. It’s broke, and I don’t know how to fix it. I’m out of ideas.”

Well production wasn’t broken. It was working exactly as you would expect it to work based on the compensation model in place. Shop floor workers got paid for producing products up to the point they were producing the amount the company could actually sell. After that there were no real incentives for them to produce any more because the company didn't want or need any more. When it had all the products it could sell the company would start cutting people loose. The production staff was perfectly capable of monitoring the finished goods inventories and adjusting their output accordingly. Production wasn’t broken. Management was broken. In my experience this is almost always the case.

There is an old saw in the army that is instructive about their philosophy of training: “If the student has failed to learn, the teacher has failed to teach.” This was probably truer back in the day when grunts were grunts and soldiers were cannon fodder. A military instructor only had so much material to work with, and he had to teach them or else. ‘Or else’ meant unacceptable casualty rates. In today’s army it’s probably different—especially when you’ve got a bunch of teenage fighters sitting in a big room in Kansas operating lethal drones in Iraq and Afghanistan via remote control. I could be wrong, but I like the old saw.

I think it’s a good philosophy. The burden is on the teacher to train the student. It works better in the military where you can depend on really big and abusive drill sergeants to provide the proper motivation. I think it also should translate well into business practice. If the employee has failed to perform, the manager has failed to manage. There is the problem of proper motivation, but sound compensation plans go a long way to providing the necessary incentives.

Management needs to shoulder the performance burden. When the company falls on its face, management needs to suffer the consequences—not the production staff. When management makes bone-headed decisions, management needs to be thrown out on its ass. Everyone knows this, or seems to. You will often see a manager or two dismissed when things go wrong. BP CEO, Tony Hayward, is just the most recent of newsworthy examples.

These are just sacrificial lambs though. They are scapegoats offered up to appease the marketplace. They do not represent the real carnage of their failures. The first casualties, the most numerous and long-suffering victims of management induced downturns, are always from the Gemba—the place where shit happens.

No Accountants Were Harmed in the Making of this Blog

          While I was traveling last week to visit, and ultimately to bury, my 90 year old mother who had suffered a devastating stroke, I got an e-mail telling me that someone had posted a reply to a comment I made at Going Concern. Going Concern is a blog that deals primarily with accountants and accounting issues. I started reading it early this year when it was full of news of the alleged accounting irregularities and possible audit failures surrounding the bankruptcy and collapse of Lehman Brothers in September of 2008.
          I like to post comments at Going Concern because I get a lot of readers for my blog from there—not enough to get me recognized anywhere and certainly not enough to add any cash to my coffers, but still a significant addition to my total traffic.
          This particular reader, the one who replied to my comment giving rise to the e-mail, took exception to some of my confessions of regrettable fiscal decisions that led to my filing bankruptcy. Here is the text of the e-mail, which includes the whole of the reply:


Jigaboo (unregistered) wrote, in response to jonahgibson:


I read your little blog ... you sound like an idiot. 20 years of credit card date [sic] at 23% +. Why, for the love of God, why would you not refinance???? This is an accounting website. You are hurting us here with your nonsense.


Link to comment: http://disq.us/fjz8d

          Notwithstanding that he is of course correct—I do sound like an idiot—I find it ironic that Jigaboo, who, hopefully at least, does not realize that his screen name is a racial slur and who apparently does not bother to check his text before he posts, thinks that my paltry bankruptcy and my few foolish decisions, all of which I have documented here, are actually injurious to accountants. I wonder whom, exactly, he thinks has been injured, and how.
          I would have hoped that Jigaboo understood that the point of my little blog—at least in the entry about my bankruptcy, which is the one to which he alludes—was precisely that I had made bad choices, that where I had managed other people's money as if it were my own, I had managed my own as if I were the federal government. I don't think that Jigaboo has read much of my blog. Otherwise he might not have called it 'little' and he might have had a better grasp on the often self-deprecating timbre of my posts. In fact, according to my reader stats, Jigaboo, who logs in from Brooklyn, has only read two or three pages of my blog and only spent a few minutes doing that. This is perhaps long enough to form a New York opinion, but one should consider that it was largely New York opinions that held Repo 105 transactions to be appropriate accounting.
          I think Jigaboo is wrong in his assessment of any damage I might have done to the accounting profession. I may have made some bad choices, and I may have undertaken to get myself out of the mess I'd got into in a manner entirely too late and unsatisfactory to him, but I have not committed 'nonsense' enough to do any injury to accountants in general or even to the concentration of Big 4 denizens and alumni who frequent Going Concern. They may have been hurt, but not by me.
          Accountants have been hurt by the kind of people who would never make the mistakes I've made. They've been hurt by the same arrogant, self-righteous bastards I've been talking about for nearly 100 entries now. They've been hurt by guys who are the opposite of me, the kind of guys who get their own finances right but play fast and loose with the money that belongs to the rest of us, the kind of guys who believe that it's their right to be 'too-big-to-fail' and who are more than happy to take taxpayer money to bail them out of the mess they created but don't want to accord the same benefits to anyone else.
          The damning evidence that they must have known they were doing wrong is that they used accounting legerdemain to hide their actions. Yet now they are content to take fat bonuses and to congratulate one another for getting away with it. These are the folks, their collective sense of entitlement pumped up on steroids and their collective conscience atrophied by lack of use, who remain unapologetic as they lobby for a regulatory status quo. Meanwhile the world is still trying climb out of the smoking wreckage that their mostly unregulated excesses brought us.
          Accountants have been hurt by these guys in the same ways that the rest of us have. They've seen their investment portfolios shrink to a fraction of their former worth. They've watched the value of their homes decline. They've seen their credit sources dry up. They've seen their livelihood put at risk by business declines everywhere.
          Accountants, though, have also suffered a blow to their credibility. Not very many people seem to trust accountants anymore—at least not to the extent they once did. Accounting has slid down in the rankings on the list of honored professions—and not just because it's so hard for accountants to get girls. Their integrity and their acumen have been splintered by broadside after broadside. It's not the investment bankers they have to thank for this either. It is the partners and managers at the top of the accounting profession, in the largest firms, with ostensibly the most to lose, who are to blame. These are the auditors who saw firsthand the accounting sleights and subterfuge being used to cover up the cancer in our financial institutions, and elected—elected mind you—to call it Kosher. They passed on fraud. They aided and abetted the crime. They took their fees and helped to hide the truth and now they want a pass themselves.
          My friend, Jigaboo, doesn't have much to say about these guys. My guess is that one day he'd like to be counted among their number. I think he aspires to be one of them. Why else would he be so adamant about protecting their precious reputations from nonsense such as mine? Why else would he be so keen to banish us idiots from discussing our failures in the same place where we profess to be accountants? Jigaboo wants to maintain the veneer of intelligence and acumen that will allow the next generation of accountants and auditors to abet the next generation of scalawags, and none of them will ever be jobless like me.
          So thank you very much, Jig. I appreciate your concern. I feel good that you are out there making the world safe for defenseless accountants who might otherwise be caught unawares by idiots and nonsense. I just think that you have missed the forest for concentrating on trees like me who have already been felled by the truly dangerous idiots among us.

Day 241 – Bankruptcy

           My wife has convinced me that we need to file bankruptcy. I’ve been resisting that route for some time. I want to avoid the associated stigma, although I have to admit that it’s already a little late for pride. The fact is, although we have disposed of a lot of stuff—including our good car—and cut or eliminated a lot of our expenses, we still have $65,000 in credit card debt and our monthly payments to service that debt are over $2,000. The highest interest rate we pay is over 30%. The lowest is 23%. These rates are in spite of the fact that in 20 years we have never missed or been late with a payment.

          While that much credit card debt is astronomical and suggests a profligate lifestyle, unfettered by temperance or good sense, such is not the case. I’ve been overextended on my credit cards for over 20 years. I got that way when a business that I got into failed back in the late eighties. I elected at the time to pay all my business creditors off by using the generous facilities offered by a handful of bank cards. I should have filed bankruptcy back then, but I didn’t.

Since that time, I’ve been at the mercy of the credit card companies. Most of the cards I had back then were subsequently bought up by either Bank of America or Citibank. In 20 years time I’ve used the cards, but I would not characterize my usage as extravagant.

My wife and I lead fairly staid lives. We don’t drive fancy automobiles. We don’t take vacations. We don’t throw lavish parties. Neither one of us wears jewelry. We don’t own a boat or a timeshare or expensive clothes. We have however, by my estimate, paid the credit card companies about $240,000 in interest in that time.

That’s money I’d like to have back. That’s a burden I’ve been trying to get out from under for approximately forever. I couldn’t make it happen, though. I was in too deep, and the banks knew it. They were more than happy to have me paying all that interest. They thought up ways to get me to pay more.

More than once they offered me credit card consolidation loans. Sweep everything under one debt umbrella at a reasonable rate, make one payment, and watch my principal balance fade away. That was the pitch in the mailer they sent me. When I actually called them to take them up on their offer, however, it was a completely different story. Then it was more like, gee you’ve got an awful lot of debt, what kind of collateral can you offer us? This was Bank of America. Most of what I owed was to them. Didn’t they already know I had too much debt? Wasn’t that why they were offering me a consolidation loan? Apparently it was not.

They ended up telling me I was a high risk candidate and offering me a loan at a significantly higher interest rate than I was paying on average at the time. I declined their kind offer. I’ve continued to make timely payments on all the cards. I always make more than the minimum payment when possible.

Sometimes it’s not possible. When I was facing high out-of-pocket medical costs because of the cancer surgery I had in 2007 for instance and when I was getting multiple lithotripsies for my kidney stones in 2008, making more than the minimum payments due was not a viable option. Now I’m jobless for an extended period of time. Things don’t look like they’re going to improve anytime soon. Continuing to make the minimum payments isn’t just a burden under my current circumstances. It’s nearly impossible. It will be absolutely impossible when my unemployment benefits run out or when my COBRA insurance subsidy runs out.

Better to file bankruptcy now than to wait until I’m in arrears and truly underwater. I still don’t want to do it, but I’m warming up to the idea. The more I think about it, the more attractive it becomes. The more I learn about the current economic crisis and how it came about, the less concerned I am about the poor banks to which I owe money. They may be my good faith creditors, but they are also the proximal cause of my inability to pay as well as my considerable misery.

The banks have not been doing their job. According to economist specializing in monetary policy, Warren Mosler, in a January 2010 article on banking reform in Huffington Post, “the public purpose of banking is to provide for a payments system and to fund loans based on credit analysis.” What we have instead, for the last 10 to 15 years, is a banking system increasingly involved in the creation and trading of arcane financial instruments such as securitized mortgages and derivatives.

Even while they have been reaping huge profits and paying huge bonuses, the banks have fallen down on their basic public utility, which is providing financing for business innovation. So while the bankers have been buying big houses on Long Island, vacation homes and boats in the Caribbean, and filling their wives’ closets with Jimmy Choo and Christian Louboutin shoes, American business innovation has been left to decay to the point where it is unlikely to recover anytime soon. Until it does, we will not see a return to full employment.

I’m not very sympathetic to the losses that Bank of America and Citibank are going to suffer when I file bankruptcy. They’ve got hundreds of thousands of dollars of my money already, and they used it to tank the economy and my future along with it. You won’t see me weeping if Ken Lewis’ wife has to settle for 600 thread count sheets because I get discharged in bankruptcy and effectively default on the credit card loans I owe to Bank of America.

I’ve imagined what it would be like for a representative from Bank of America to show up at my bankruptcy hearing to give me a lecture on not borrowing beyond my means to repay, or honoring my good faith obligations, or some such drivel, when it is clear from the news that the banks themselves have been guilty of a ridiculous overextension of their own ability to make good on their obligations. In fact, if it weren’t for the errant risk taking and unmitigated greed of the banks, it would currently be much easier for me to find a job and to continue to remit their usurious loan payments. Up to now the banks have left me holding the bag for their greed and excess. Now it occurs to me that it may be my moral responsibility to hand the bag back to them.

Day 220 - Big Karma

Everything I’ve written so far happened to me pretty much as I’ve described it. I’ve had to change the order of a few things, and of course the names of some of the people involved, but in terms of the events and circumstances it’s all too true. When I tell this to people that I’ve had the occasion to discuss some of these things with, they are usually incredulous in one way or another. Some of them can’t believe that people in business, people who make a lot of money and are for the most part respected and looked up to in their communities are capable of behaving in the ways I’ve described. People don’t want to believe that anyone who has, or appears to have, a lot of money could possibly be as stupid as I have portrayed.


Others are perfectly capable of believing the bad behavior of the people I’ve worked for, but they can’t accept that I would stand for it very long. They think that I should have walked away to find a better place to labor. These people are harder for me to dismiss, because I think they’re right. I can scarcely believe it myself.


What highly compensated executive in his right mind would stand for being denigrated and cursed by a boss like Henry or Ivan or Richard? What honest professional trying to make a business succeed would tolerate the philandering and self-serving machinations of an Alicia or a Fische? What sensible manager, witness to one bone-headed decision after another eroding all hope of profitability in a company where thousands of workers depend on sound practice and good decision making, could not cry out in alarm, and try at least slow down the madness?


In each case the answer would be me. I would do just that because like most everyone I know I will avoid confrontation at all costs and constantly strive to take the easy way out. It is almost always easier to put up with the devil you know than to learn, the hard way, the tricks and deceits of the devil you’ve yet to meet.


If I weren’t unemployed and despairing of ever finding another job I wouldn’t be writing this and hoping that I can turn it into a book. I would be working late, and getting home too exhausted to wax very creative.


That in itself is a sad state of affairs. I should have written a book a long time ago. If I had, I would be a lot happier, have a lot fewer regrets (saved and realized), and have put up with a lot less crap at this point in my life. Had I struck out to do what I enjoy early on rather than waiting to be forced into it by circumstances, both I and (I like to think) the world would be better off for it.


I should be writing this and making a book of it now because it is time for a lot of this stuff to be said. Fifteen million people are out of work, most of them through no fault of their own. Most of them have no idea what happened to them. They were blindsided by economic events way beyond their control. Many, many of them have been without work for a long time—eighteen months is not unheard of. They have lost their health insurance, their homes, their cars, their self respect, and their dignity. They suffer from depression, feelings of inadequacy and hopelessness.


They suffer from a host of other maladies that are the radioactive fallout of poverty, stress and depression. They’ve stopped taking or cut down on their medications because they can’t afford to buy both prescriptions and food. They don’t go to the doctor when they need to because they must use what little money they have to eat, shelter their families, and fund their search for another job. Priorities are shuffled and re-shuffled based on the exigency of the day. They are suffering mightily, and for the most part they do not understand that this is something that was done to them and for which they ought to be indignant.


Even the folks who realize that this economic turmoil we find ourselves in was avoidable are blaming the wrong causes. George W. Busch is a favorite target. Everyone loves to hate George. His stupid grin invites blame and ridicule. George borrowed us into a hole to finance his military adventuring in Iraq and Afghanistan. George is the very embodiment of goofy evil.


Big oil is another culprit, squeezing us dry of money while they pollute our planet and exhaust our resources for their own profit. Who else to blame: welfare recipients, the unemployed slackers who won’t get off their backsides and get a job so long as unemployment benefits are available for the effort of not working, deadbeats who got mortgages they couldn’t afford by lying through their teeth and now refuse to pay what they owe, middle-aged, white, Republican men because, let’s face it, they are to blame for nearly everything else, Namby-pamby liberal socialists determined to spend us into oblivion with a host of ridiculous social entitlement programs calculated to take money away from hard-working Americans and transfer it wholesale to lazy, shiftless scam artists whose only skill is gaming the system, and illegal aliens of every stripe and color who are stealing a living from natural born American citizens by working at jobs no one else wants for wages no one else will take.


You only need to spend five minutes reading the comments on any blog or website article that discusses economic issues to see that somebody somewhere thinks you personally are responsible for their misery, and would like nothing better than to see you tarred, feathered, and ridden out of town on a rail. Chances are pretty good that you feel the same way about them.


Assessing blame is counterproductive at best. Any rudimentary lesson in management will tell you not to do it. When something goes wrong, as it always will, you take corrective action, you modify your processes to prevent whatever went wrong from happening again, and you get on with business. I’m not an organization though, and I’m not in business. I’m just me, and while I’ve taken steps to ensure that all the bad stuff that’s happened to me in the past doesn’t happen to me again, I can hardly resist the temptation to blame someone for every bad thing that’s happened as a result of losing my job. As a self-employed writer it’s doubtful I’ll ever have to tick and foot for fools and charlatans again. That’s an excellent outcome as far as I’m concerned, and since I was forced into this course in the main by losing my job, there’s some force to the argument that I owe Bill and Fritz a big thank you for heaving me out onto the street.


My mind doesn’t work that way though. I’m not nearly so gracious and mature. Deep in the vilest recesses of my heart I hold those bastards accountable for every hardship I’ve had to endure over the past year because none of it would have happened had they not decided to fire me. They assessed blame in the worst possible way. They undertook to do me injury to save their own sorry hides. Being ignorant and venal they were incapable of looking into the foreseeable future to see the kind of damage they were doing to me personally, and, if they did, they chose to do what they did anyway and without remorse or shame. This is the conduct of men who have never had to suffer fools in the workplace because they are the fools that everyone else suffers. They are insensitive to the realities of the predicaments they create for the people who work for them and the people who no longer work for them because they have never been thrown into those predicaments themselves.


So it’s left to me to wish them the karma they deserve, the fate they’ve asked for. It shouldn’t be any worse than the fate that befell me; nor should it be any better. Here’s the list:

• Lost job
• Lost home in excellent, sociable neighborhood
• Lost car
• Lost self-respect
• Lost good credit standing—filed bankruptcy
• Lost access to doctors and medical service providers that I knew and trusted
• Have passed on or delayed essential medical services because I can’t afford the deductibles
• Have suspended or cut back on essential medications because I can’t afford the co-pays
• Lost almost half my stuff in two garage sales from hell
• Had to drive all over Florida spending three and a half days behind the wheel of a U-Haul rental truck
• Had to move into cramped quarters in a fire ant preserve
• Suffered innumerable ant bites because of where I am forced to live—this would be my personal favorite misfortune to wish upon those I know in need of some bad karma
• Have to listen to a constant barrage of helpful and well-meant advice from a variety of friends and family
• Lost any semblance of privacy, autonomy, and self-sufficiency
• Have worn the same pair of shorts every day for the last 5 months

Day 123 - Mourning Bud, Changing Plans

          We had Bud put down on Saturday. He was game to the end. It’s a hard thing to do—having a pet euthanized—even when it’s been an inevitable outcome for a long time. Bud is the second dog we lost to cancer this year. The first one, Ani, was also a fawn greyhound. Both dogs were fosters that we ended up adopting because they were so personable and engaging.

Well-meaning friends keep pointing out to us what a difference we made in the lives of these two hounds. Maybe so, but what they don’t fully realize I think is how much difference the dogs made in ours. Difficult as it is to have to palliate gentle and needful creatures like Bud and Ani through a terminal illness, I would not trade away one minute of time with them for anything I can imagine. I miss Bud’s crooked grin and his rank breath.

          My wife’s dad, Nelson, had a cardiac event over the holidays. It had to do with his congestive heart failure. He spent a week in the hospital, and now he’s in the middle of several weeks in a rehab facility where they are teaching him to walk again. The Parkinson’s got ahead of him while he was laid up. His muscles lost their memory. He’s no longer able to care for himself. This is making him crazy.

He’s a proud man. He’s always been the one to take care of everyone else. Having to be done for is an affront to the essence of the man. He hates the rehab facility. When he gets out he’s going to have to live with someone. He won’t be able to go back to his house by himself.

          We’ve decided, my wife and I, over the past couple of weeks that we will go live with her dad rather than with our son. That way at least Nelson will be able to go back to the house he is familiar with and in which he would be comfortable. He will have a caregiver during the day and a series of therapists and nurses throughout each week. My wife and I will run his errands, cook and serve his meals, and see to his needs the rest of the time.

*****

          The last, and the most disastrous, of the new regime’s initiatives at Albatross was a project to rationalize our pricing. What management hoped to accomplish was a simplification of pricing models by bundling options together into packages, much like the automakers do, and making a lot of commonly ordered options standard equipment. The result would be higher average unit prices as customers were forced by the bundling to purchase options they didn’t care about in order to get options that they did care about. The higher volumes of heretofore lackluster options would result in lower unit costs and increased assembly efficiencies. This is the way it works in the auto industry. Why shouldn’t it work the same way in ours?

          Here’s a possible reason why that might not work. The customers are different. Most automobiles are purchased by individual retail consumers. Most school fixtures are bought by school boards. School boards are elected. They answer to constituencies, and they also have legislative mandates and imposed budgets to deal with. School boards are vastly different from retail consumers.

Mark Twain once wrote, “In the first place God made idiots. This was for practice. Then he made School Boards.” Twain had equally disparaging things to say about legislators. School boards occupy a kind of middle ground. They answer to the voters on one side—a collection of individuals many of whom are the very idiots that God made for practice. On the other side school boards answer to legislators—fools, charlatans, and liars if Twain is to be believed. There is certainly plenty of evidence to support that view. So we have idiots answering to and at the mercy of idiots and nefarious idiots on all sides. What possible chance do they have of behaving in a logical and predictable manner?

          This was management’s problem. They had a model in mind for pricing options that depended on not only the logical and predictable behavior of our customers, but a logical and predictable behavior that mirrored that of individual consumers. Right out of the gate this model didn’t have a prayer.

Many of the Albatross natives knew this, but Boome and his imported lackeys had already instilled a healthy fear of reprisal in those same natives to the point that they were understandably reluctant to share this bit of knowledge. Once again arrogance and a management style that depended largely on threats and abuse would trump the tribal sensibilities of an old and well established organization.

          The results were spectacular, but they took a long time to play out. Because management’s attention was by then focused elsewhere, corrective action was slow in coming. The symptoms were disguised as cost overruns—something we were already experiencing and thought we knew how to address. What appeared to be high costs however were actually discounted sales prices, because what actually happened is that the idiots on the school boards didn’t think that they should have to pay higher prices to get optional features on their orders that they hadn’t specified and that they didn’t want.

Because we had made this stuff standard equipment we couldn’t easily take it off the things we were building. The sales people were put in the position where they either had to give the extra equipment away by discounting the base price of the buses or walk away from the sale. Discounts and concessions were the order of the day, but because they were written into negotiated contracts, they didn’t get reported as discounts and concessions. They were just lower than normal contract prices.

What showed up instead were lower margins that quickly translated into operating losses. The person who finally figured all this out was my genius cost accounting manager—by then so universally loathed that no one wanted to give him credit. Total cost of this fiasco--$35 million. Did Jed Boome get fired over this? Nope. A lot of people lost their jobs in the reorganization that followed, but Boome wasn’t one of them. I was, but not Jed.

Day 98 - The Fractious Path of Righteousness

          My wife and I took a van load of stuff over to our son’s place today. He’s got a shed where we can store some of our outdoor stuff like the pool toys, the barbecue grill, garden tools and so forth. Also we have never seen his place, something we really need to do in order to get an idea how much space we have to work with. It turned out to be a lot less than we had imagined, and a lot more rustic. We can make it work if we have to, but it’s going to be really uncomfortable. I can’t tell you how much I hate being in this situation.

*****

Naturally there ended up being a problem with the cracker brothers as our hose and fitting supplier, although in the final analysis it had more to do with us than it had to do with them—even though Ringcomme and Bloome went out of their way to make it the brothers’ fault. The whole incident to me was a case study in just how screwed up a business relationship can get when stubborn and egotistical managers insist on doing it by the book.

I had hired a new cost accounting manager. Let’s call him Eddie Sharpe. He came with good experience and good credentials. He was high energy and very knowledgeable in cost accounting issues. He was also ambitious. He got a handle on the cost accounting routines early on, and started looking for other things in which to get involved.

I was feeling overwhelmed by the strategic sourcing project so I let him take over the accounts payable department. It was supposed to be a temporary assignment. The plan was that the cost accounting responsibilities would expand as volume grew, and at some point we would be adding an accounts payable manager position. Letting Eddie run the payables section was an interim solution, but once he got the bit in his teeth there was no stopping him.

In a very short time Eddie became almost universally reviled. All the women in finance hated him, especially the payables clerks he was now managing. Most of the men hated him as well. Everyone thought he was arrogant, abrasive, and difficult. That much was probably true, but Eddie’s genius for accounting process issues was hard to overlook. As a cost accountant he had a genuine flair for tracing and isolating the pesky and sometimes devious drivers of specific costs. As an accounts payable manager he understood the intricacies of information flow. As a manager he had no finesse whatsoever. His principal people-handling skills were the peremptory demand, followed quickly by sarcasm and derision. He was a fantastic accountant with the people skills of Freddy Krueger.

Now enter the hose and fitting brothers. I had just negotiated our new agreement with them and we had signed a memorandum of understanding. Among the things they had agreed to was a 5 percent discount on any invoice we paid within 30 days, provided we paid all their invoices within 45 days. These were fantastic terms for us. Having 45 days to pay was nice. Getting a 5 percent discount for early payment was huge. We were all as happy as we could be.

Then Eddie started reviewing their invoices and decided that they didn’t meet our standards. He didn’t say anything to me about it. He just held payment. When we went beyond our 45 day payment terms, the brothers called up to find out what the hell was going on. I had given them my personal word that we could make those terms work. I hadn’t considered Eddie’s imperiousness.

Eddie was right, of course. The invoices were a mess, and that was a problem that needed to be addressed. The problem is that the brothers would have been happy to address it if we had approached them like the partners we purported to be in the negotiations rather than talking down to them and giving them ultimatums.

I figure a guy who pulls a knife on you, even in jest, is probably not a guy who is going to respond well to an ultimatum. What Eddie told them, in so many words, was that he wasn’t going to pay them at all until they got their invoicing act together. They reacted like any red-blooded American knife-wielding, 4x4 driving, bass boat towing, cracker-ass cowboys would do. They stopped shipping us product. They shut our production lines down—all of them—in the space of 8 hours. This is the point where I got a call from Ringcomme wanting to know what the hell was going on.

That phone call from Ringcomme was the first I knew that we even had a problem. You would think that, somewhere along the road to shutting down our production lines, somewhere in the midst of escalating tensions and deteriorating relations, someone would have had the good sense to tell me what was going on. You would think that, but you would be mistaken. All along this road to ruin Eddie was convinced that he had things firmly under control, and that before it was over he would have taught the red-neck hose and fitting brothers a valuable lesson in how to conduct business with a real company. All along that same road the red-neck brothers knew that they had Eddie, and Albatross, firmly by the short hairs, and if we weren’t going to honor our word, they were going to give those short hairs a good yank to teach us some manners.

Because our lines were shut down for a time, this became a much bigger deal than it had to be. It ended up requiring the attention of executive management. The problem and the fix were removed from my control. Apparently, even though I had got favorable terms from them and still enjoyed a good rapport with the cowboys, no one thought I was capable of getting them back under control. A way out was negotiated by the guy who eventually fired me from Albatross in the last desperate reorganization in bankruptcy. He had to give up the discount and promise payment in thirty days. We had to fix their invoices for them. In other words, he got significantly worse terms than I had in the original negotiation, a nice ironic twist to the whole sordid affair.

I would like to say that I learned from this that sometimes it is best to swallow one’s pride and even to ignore what you know to be the best textbook procedure in a given situation, and look at the common ground between fractious parties to find a way forward. I can’t say that because I didn’t learn that at all. I didn’t learn it for the simple reason that I already knew it. Anyone with the slightest little bit of sense at all would have known to look for ways to help the red-neck brothers fix their invoicing. They would have been happy to do it. We would have been happy to pay our invoices early to get the lovely discount they were offering.

We all wanted the same thing, but sometimes the righteous among us would rather be correct than actually fix a problem. They’d rather have the right answer than the right result. I know religious zealots who act the same way. They’d rather be theologically correct than to reach out gently to lead another soul to salvation. Being correct is a necessary and laudable thing, but it should not get in the way of the goals of the enterprise. What I learned from this little story is that, more often than not, these righteous bastards are the guys in charge, and they just ruin everything for the rest of us.