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Archive for June, 2009

Barrett’s Briefing: The Cost of Unintended Consequences

Tuesday, June 30th, 2009

Actions have consequences—mostly unintended.

One of my clients in Texas acquires houses out of foreclosure, rehabs and rents the properties, then sells the properties to investors.

Yep, they “flip” houses—one of the emerging business models in this new economy. The secret sauce in this business is in acquisition and resale, not in the rehab.

This company acquires houses through county foreclosure auctions, which are an amazing example of the unintended consequences of government regulation.

At every step in the foreclosure and auction process, the government regulations are clearly designed to protect an abstract concept of fairness. As a result, the process inflicts the maximum financial damage possible on the unfortunate homeowner, who is already losing a house.

Foreclosure processes are controlled at the state and county level, so we’ll use Texas as the example, although many other states are even more peculiar.

Big problems often start small, then grow.

To give some perspective, each month Harris County (Houston), Texas has around 4,500 bank foreclosures and 500 county tax foreclosures. This is about ten times more than 18 months ago. That’s growth on the scale of the internet—or health care.

After a hundred years, things may change…

Texas foreclosure laws, mostly written in the past 50-100 years, require that all foreclosure auctions must be conducted on the first Tuesday of every month, on the county courthouse steps, in an “open outcry” auction. Rain, shine, or holidays, eager bidders convene on the courthouse steps every first Tuesday to search for bargains.

But this is not just one auction. Harris County has eight precincts, each with several constables, and each constable conducts his own tax auction. To add to the confusion, trustees, who hold the property title for the foreclosing banks, also must conduct their auctions, at the same time, and on the same courthouse steps.

So, on the first Tuesday a property investor will find ten to fifteen constables and thirty to fifty trustees all auctioning off foreclosed property in open outcry, at the same time. It’s more like a flea market than an auction.

Texas law specifies the method of notification. Foreclosure notices must be posted on the courthouse wall by the 18th of the month preceeding the auction. An investor has only two weeks to review 5,000 properties, estimated a market price, and make a personal inspection.

Texas law also specifies the method of payment – cash or cashier’s check – and the bidder qualifications. A bidder can bid only for himself. Stand-ins are not allowed. So an investor may find 10-20 properties of interest, only to discover that they are being auctioned by different people, in different places around the courthouse, at the same time.

Constables and trustees do not identify the property by its street address, but use a tax ID number – a string of 14 digits, with no alpha characters or other breaks, so there’s yet another challenge for the potential investor in identifying his selected property, attempting to listen to a soft-spoken constable amidst many other auctions.

Government regulations tilt the playing fields.

Finally, Texas law specifies the remedies for a buyer at the auction who may make a mistake. There are none. Once the bidding is done, the county cashes the cashier’s checks and the investor owns the property.

No possibility to recover from any mistake. It’s a huge opportunity for investors with lots of cash, lots of time to do the homework, and with nerves of steel. As a result, bid prices are very, very low.

It looks almost as if the state of Texas designed a process to minimize the bids on foreclosed properties at auction. While each of these regulations made some sense at the time, they look very dated now and one significant unintended consequence is to destroy any homeowner equity remaining in the foreclosed property. Another major unintended consequence is to shift the advantage heavily to full-time investors with lots of cash—the “fat cats” who have the time and knowledge to game the system.

It’s easy to poke fun at the process; but that’s not to the point. If we investigated government-run insurance, government-run construction projects, or any other government operation, we would find exactly the same situation.

Regulations create exceptions and processes that experts can exploit.

More regulations create more exceptions, more experts, and more gains.

Is there any solution for the unintended, unfair consequences of government regulation?

Next week we will explore goals, judgment, and transparency. Can these play a role in reducing unintended consequences? What are their unintended consequences?

Ducks In A Row: Risk The Right Way

Tuesday, June 30th, 2009

I came across an old article I’d saved and thought it would be of great value during these trying times.

Thinking about and understanding risk is important whether you consider yourself a risk-taker or not.

Last year, Bill Buxton, researcher, professor, and author wrote a great column on risk in Business Week.

“Entrepreneurs, like ice climbers, are often said to risk their necks. But there are ways to cut danger to sane levels—and some very good reasons to try.”

People often comment that both groups are, politely speaking, nuts.

After offering up a detailed explanation of ice climbing Buxton says, “…the four considerations employed by the ice climber are exactly the same as those used by the serial entrepreneur or the effective business person…”

They are training, tools, fitness and partners.

But to me, the most important thought is found in the final four sentences.

“The most dangerous way of all to play it is so-called safe. Safe leads to atrophy and certain death—of spirit, culture, and enterprise. There is not a single institution of merit or worthy of respect in our society that was not created out of risk. Risk is not only not to be avoided, it is to be embraced—for survival.”

It is risk without evaluation that helped get us where we are today.

Evaluating risk requires not the best case analysis of which Wall Street is so fond, but also worst case analysis wherein you think about the absolute worst results if the risk is taken.

Then think through whether and how you would deal with the results. If they can be handled go forward; if not revise the action.

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Image credit: ZedBee|Zoë Power on flickr

To Hell With Morals, Let's Talk Hypocrisy

Monday, June 29th, 2009

(Today continues a conversation initiated last Thursday and added to yesterday.)

Everybody lies about sex. Those who aren’t getting any say they are and those who are getting it where they shouldn’t deny it.

Governor Mark Sanford followed the same path of Newt Gingrich, Bob Livingston, Rudy Giuliani, John Ensign, David Vitter, Larry Craig, Mark Foley, Helen Chenoweth (the first woman) and many more.

But you know what?

I don’t care. At least, not about the sex—or even the lies. Even the lies under oath, because I don’t believe that an oath is going to change someone’s attitude about admitting something they don’t want to admit, it just adds another layer to the lie.

As Becky Robinson pointed out in her comment I could have just as easily used the Evangelical community—Jimmy Swaggart, Marvin Gorman, Jim Bakker, Lonnie Latham, Earl Paulk, Paul Crouch, Douglas Goodman, Frank Houston, etc., etc., etc. and, of course, the Catholic Church.

Dan Erwin made two very salient points.

In his first comment he said, “If you reframe the context from leader to bureaucrat, then the ethical expectations change.”

Amen, Dan. To assume that an elected official or any person-out-front automatically possesses all the sterling qualities of a “leader” as defined by the media, pundits and leadership industry has no basis in fact.

The second point that hit me was, “The notion of “standards” etc. is often a set-up for failure.”

This is getting closer to what angers me so much.

Not the sex, not the lies, but the standards.

Standards that they defined, preached and worked so hard to shove down everyone’s throat—standards that not one of them has even come close to practicing.

Mark Sanford voted for President Bill Clinton’s impeachment citing a need for “moral legitimacy” as his reason. Now he cites the Bible and the story of David and Bathsheba as his reason for not resigning.

As to the apologies, are they for the action or for getting caught? Americans are so focused on the sex and accept the apologies so readily that the hypocrisy becomes mere background noise.

It’s the Richard Nixon mentality all over again. As Nixon said in 1977, “When the president does it, that means it is not illegal,”

The reigning slogan these days for too many “leaders” seems to be “do as I say, not as I do,” which both angers and confuses their followers.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Dan also said, “No question but what they’re hypocrites…of the worst kind. They made claims they didn’t follow through on. However, the issue parents (and grandparents, too) have to deal with is the education of your children.”

We’ll explore Dan’s thoughts and personal example of this in the next Leadership’s Future on Thursday. Please join us.

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Image credit: Poldavo (Alex) on flickr

What Are Values?

Monday, June 29th, 2009

What would your reaction be to an executive who, when asked about company values, replied, “What do you mean by ‘values’? Do you mean ‘value’? I don’t understand what you mean by ‘values’.”

That was Sir Alan Sugar’s response at a recent conference when asked if he’d ever sacked someone because their values conflicted with the company values. (In case you’re wondering, Sir Alan is the counterpart to Donald Trump on the British version of The Apprentice.)

Based on what we’ve seen lately, Sir Alan has a lot of company.

So I have some questions for you.

  • How do you establish values in your company or in your life?
  • Do you depend on a set ideology or do you determine them yourself?
  • Are your values absolute or are they flexible? Why?
  • Are they sustainable?

I hope that many of you will take the time to respond and add your own thoughts.

Hat tip to the Leadership Hub for this quote.

Image credit: Arenamontanus on flickr

mY generation: Tweeting Like A Bunch Of Chicks

Sunday, June 28th, 2009

See all mY generation posts here.

Quotable Quotes: The Hypocrisy Of Mark Sanford

Sunday, June 28th, 2009

Thursday I wrote about today’s excessive hypocrisy using, among other examples, Senator John Ensign.

Like most bloggers, I post ahead, so that I wasn’t able to include South Carolina Governor Mark Sanford.

Today I want to offer up some quotes from him and tomorrow I’m going to address the subjects brought up by Dan Erwin and Becky Robinson in the comments on Thursday’s post.

“The bottom line, though, is I am sure there will be a lot of legalistic explanations pointing out that the president lied under oath. His [Livingston] situation was not under oath. The bottom line, though, is he still lied. He lied under a different oath, and that is the oath to his wife. So it’s got to be taken very, very seriously.”

“I think it would be much better for the country and for him [Livingston] personally (to resign). I come from the business side. If you had a chairman or president in the business world facing these allegations, he’d be gone.”

“What I find interesting is the story of David, and the way in which he fell mightily—fell in very, very significant ways, but then picked up the pieces and built from there.” (King David, who slept with Bathsheba, another man’s wife, had the husband killed, married the widow, but continued to ‘lead’.)

“Too many people in government seem to think they are above regular folks, and I said I would expect humility in the way each member of my team served—that they would recognize that the taxpayer is boss.”

“We as a party want to hold ourselves to high standards, period,”

I hope you’ll come back tomorrow as this conversation continues.

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Image credit: moonstarsilverwolf on flickr

Saturday Odd Bits Roundup: Three On Culture

Saturday, June 27th, 2009

As you all know, I’m a corporate culture addict; I follow stories on culture the way most people follow celebrities. I have three to share today.

As anyone who follows business news knows Alan G. Lafley, CEO pf P&G for the last nine years is stepping down. Read this McKinsey interview with Lafley from 2005 and compare it to what he did. This is a guy who walks his talk. Then take a look at this short comparison by Bruce Nussbaum of Lafley and Bob Nardelli and decide which one you’d rather channel.

Want to read a short short story about changing corporate culture? Good, because here is one.

Last is a fascinating story on how to innovate from the outside in. Which leads you to Innocentive and the opportunity to innovate on your own and get paid for it. Don’t laugh, real creativity doesn’t have a job title, nor do colleges offer degrees in ingenuity.

Image credit: MykReeve on flickr

Seize Your Leadership Day: Focus On Learning

Saturday, June 27th, 2009

Today is about an author, by an author and ideas for you to tweak and author for your company.

Do you know who Ray Bradbury is? An icon in the science fiction world, writer of screenplays, and hater of the internet and lover of libraries. “When I graduated from high school, it was during the Depression and we had no money. I couldn’t go to college, so I went to the library three days a week for 10 years.”

Jim Collins, author of Good to Great and Built to Last offers a new look at why companies with everything going for them blow it. Check out this review; if you’re looking for some good summer reading you could do a lot worse than How the Mighty Fall … and Why Some Companies Never Give In.

Last, but certainly not least, is a white paper from McKinsey on creating a performance culture. It’s good reading and you’ll come away with ideas even if you aren’t ‘the boss’.

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Image credit: nono farahshila on flickr

What’s Your Management Attitude?

Friday, June 26th, 2009

Years ago when I was a headhunter I recruited “John,” an inarticulate hardware engineer who wore his hair like Willie Nelson, had a beard streaked with gray, no-fashion clothes and was a bit vague about the world.

But John was brilliant and a genius in his work. He could look at a circuit design and know that it wouldn’t work, although he couldn’t always explain why.

The vp he worked for at the time ignored him, dismissed his opinion, built the circuits anyway and was shocked when they wouldn’t work.

All that changed when I stole him for a client whose focus was content, not looks or delivery.

“Jim” had no belief in intuition, but a deep belief in what he called ‘unconscious pattern recognition’, which, he said, was why John knew a bad design when he saw it.

John told me years later that Jim was the only person in his whole career who seemed to appreciate and value his skills.

According to Jim, in many ways John was a pain to manage, but his value to the product development effort more than off-set the irritation factor. He said that if managing people was easy managers wouldn’t be paid a premium.

And that brings us to the point I want to make.

I’m really tired of hearing managers constantly complaining about

  • needing to hire ‘self-starters’ so they can focus on building their leadership skills;
  • the amount of time they spend settling team member disputes;
  • how childish their people can be; and
  • how the time spent hiring take them away from their ‘real’ work.

If you choose to become a manager you need to understand that

  • no matter your level your people will always take precedence over everything else, because without people there is no company;
  • people do become childish when thwarted or upset and that one reason that you make more money is that it costs more to hire a trained, adult baby-sitter than a teenager;
  • few stars are born, rather they are the result of how they are managed; and
  • if you don’t like the above three points you shouldn’t be a manager.

Management isn’t everybody’s cup of tea, so how do you know if you are/will be good at it?

Look in the mirror and answer this question:

Would you be happy and engaged if you reported to yourself?

Image credit: arte ram on sxc.hu

The Secret Of Perfect Planning

Friday, June 26th, 2009

When I wrote The Swamp And The Alligators: a (slightly irreverent) guide to career planning and the search process I had a chapter on career planning. Here is the first paragraph

“The world we live in is not conducive to planning in general, let alone long-term, i.e., strategic planning. There are very few good, visible role models who practice strategic planning. Elected officials don’t plan beyond the next election, while the government doesn’t seem to plan at all. Wall Street’s de facto definition of long-term is one quarter and companies are forced to accept and act on that definition or have havoc wreaked upon their stock. Even short-term planning is more reactive (fire fighting) than pro­active. When planning is done, it’s frequently approached as a project comparable to climbing Mt. Everest with the end product required to outlast the Tablets.”

That was more than 15 years ago and nothing’s changed—people still aren’t comfortable planning.

There’s a simple trick to planning, whether for your career, family or company and I’m going to share it with you. In order for it to work, you have to stay conscious of the idea behind the action all the time.

Are you ready?

PLAN IN PENCIL

It doesn’t matter if you’re using a computer, plan in pencil.

Planning in pencil means accepting at the outset that plans change as life changes and that’s OK.

No person living or dead could have predicted the current economy. Even those who saw the looming problems in derivatives and sub-prime mortgages couldn’t forecast what is happening.

Plans need to be flexible, to bend and sway with the winds of fortune and the life changes that can’t be predicted.

PLANNING IN PENCIL is a state of mind, the part of your MAP that allows you to move forward at warp speed, yet still turn on a dime.

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