Can a CEO run a company morally?

"You do not allow for the possibility that a CEO could run a company morally and disagree with your position."

Ted Rodgers wrote those words fifteen years ago. It is tiresome that we just have the same conversations and protests, just different people. Do our schools not teach history?

The Wall Street protesters or "We are the 99%" do display a lack of understanding about basic business and economics. They paint all corporations with a very broad and tainted brush. Their own insecurities and difficulties in life make them frustrated and lash out at the very institutions that give them a decent standard of living. Even the poorest American has more than 38% of the world. (The way Greece is going, that 38% could be rising). 

History does repeat itself and the same political conversations keep raising their ugly heads - communism, Marxism, socialism, equal outcomes put above equal opportunities. It is 2011, and in Canada, we have the NDP saying they do not want profits, business is for the people. 

When I read the response by Ted Rogers, while head of Cypress, to a group of investors upset that he was not supporting the ideology and political correctness of equal outcomes, I thought this letter should be redistributed to the protesters of businesses.

Finally, you ought to get down from your moral high horse. Your form letter signed with a stamped signature does not allow for the possibility that a CEO could run a company morally and disagree with your position. You have voted against me and the other directors of the company, which is your right as a shareholder. But here is a synopsis of what you voted against:

• Employee ownership. Every employee of Cypress is a shareholder and every employee of Cypress -- including the lowest-paid -- receives new Cypress stock options every year, a policy that sets us apart even from other Silicon Valley companies.
• Excellent pay. Our employees in San Jose averaged $78,741 in salary and benefits in 1995. (That figure excludes my salary and that of Cypress's vice presidents; it's what "the workers" really get.)
• A significant boost to our economy. In 1995, our company paid out $150 million to its employees. That money did a lot of good: it bought a lot of houses, cars, movie tickets, eyeglasses, and college educations.
• A flexible health-care program. A Cypress-paid health-care budget is granted to all employees to secure the health-care options they want, including medical, dental, and eye care, as well as different life insurance policies.
• Personal computers. Cypress pays for half of home computers (up to $1,200) for all employees.
• Employee education. We pay for our employees to go back to school, and we offer dozens of internal courses.
• Paid time off. In addition to vacation and holidays, each Cypress employee can schedule paid time off for personal reasons.
• Profit sharing. Cypress shares its profits with its employees. In 1995, profit sharing added up to $5,000 per employee, given in equal shares, regardless of rank or salary. That was a 22% bonus for an employee earning $22,932 per year, the taxable salary of our lowest-paid San Jose employee.
• Charitable Work. Cypress supports Silicon Valley. We support the Second Harvest Food Bank (food for the poor), the largest food bank in the United States. I was chairman of the 1993 food drive, and Cypress has won the food-giving title three years running. (Last year, we were credited with 354,131 pounds of food, or 454 pounds per employee, a record.) We also give to the Valley Medical Center, our Santa Clara-based public hospital, which accepts all patients without a "VISA check."

Those are some of the policies of the Board of Directors you voted against. I believe you should support management teams that hold our values and have the courage to put them into practice.

Ted Rogers: Quotas create institutionalized insult

While we are on the topic of female quotas for Boards, here is an amusing response from Ted Rogers, Head of Cypress, to a group of nuns asking for female representation on the board. I agree with Ted and wish I could have said it as eloquently:


09/03/2009Ted J. Rodgers' response follows.

A recent letter from Cypress's president and CEO Ted J. Rodgers to The Sisters of St. Francis of Philadelphia's Doris Gormley, OSF -- sent also to all Cypress shareholders -- has set the business community abuzz...so much so that, in its edition of July 15, 1996 The Wall St. Journal carried a long story on the "CEO who took on a nun in a crusade against 'political correctness'."

Dear Sister Gormley: Thank you for your letter criticizing the lack of racial and gender diversity of Cypress's Board of Directors. I received the same letter from you last year. I will reiterate the management arguments opposing your position. Then I will provide the philosophical basis behind our rejection of the operating principles espoused in your letter, which we believe to be not only unsound, but even immoral, by a definition of that term I will present. The semiconductor business is a tough one with significant competition from the Japanese, Taiwanese, and Koreans. There have been more corporate casualties than survivors. For that reason, our Board of Directors is not a ceremonial watchdog, but a critical management function. The essential criteria for Cypress board membership are as follows:

Experience as a CEO of an important technology company. Direct expertise in the semiconductor business based on education and management experience. Direct experience in the management of a company that buys from the semiconductor industry. A search based on these criteria usually yields a male who is 50-plus years old, has a Masters degree in an engineering science, and has moved up the managerial ladder to the top spot in one or more corporations. Unfortunately, there are currently few minorities and almost no women who chose to be engineering graduate students 30 years ago. (That picture will be dramatically different in 10 years, due to the greater diversification of graduate students in the '80s.) Bluntly stated, a "woman's view" on how to run our semiconductor company does not help us, unless that woman has an advanced technical degree and experience as a CEO. I do realize there are other industries in which the last statement does not hold true. We would quickly embrace the opportunity to include any woman or minority person who could help us as a director, because we pursue talent -- and we don't care in what package that talent comes. I believe that placing arbitrary racial or gender quotas on corporate boards is fundamentally wrong. Therefore, not only does Cypress not meet your requirements for boardroom diversification, but we are unlikely to, because it is very difficult to find qualified directors, let alone directors that also meet investors' racial and gender preferences. I infer that your concept of corporate "morality" contains in it the requirement to appoint a Board of Directors with, in your words, "equality of sexes, races, and ethnic groups." I am unaware of any Christian requirements for corporate boards; your views seem more accurately described as "politically correct," than "Christian." My views aside, your requirements are -- in effect -- immoral. By "immoral," I mean "causing harm to people," a fundamental wrong. Here's why: I presume you believe your organization does good work and that the people who spend their careers in its service deserve to retire with the necessities of life assured. If your investment in Cypress is intended for that purpose, I can tell you that each of the retired Sisters of St. Francis would suffer if I were forced to run Cypress on anything but a profit-making basis. The retirement plans of thousands of other people also depend on Cypress stock -- $1.2 billion worth of stock -- owned directly by investors or through mutual funds, pension funds, 401k programs, and insurance companies. Recently, a fellow 1970 Dartmouth classmate wrote to say that his son's college fund ("Dartmouth, Class of 2014," he writes) owns Cypress stock. Any choice I would make to jeopardize retirees and other investors from achieving their lifetime goals would be fundamentally wrong. Consider charitable donations. When the U.S. economy shrinks, the dollars available to charity shrink faster, including those dollars earmarked for the Sisters of St. Francis. If all companies in the U.S. were forced to operate according to some arbitrary social agenda, rather than for profit, all American companies would operate at a disadvantage to their foreign competitors, all Americans would become less well off (some laid off), and charitable giving would decline precipitously. Making Americans poorer and reducing charitable giving in order to force companies to follow an arbitrary social agenda is fundamentally wrong. A final point with which you will undoubtedly disagree: Electing people to corporate boards based on racial preferences is demeaning to the very board members placed under such conditions, and unfair to people who are qualified. A prominent friend of mine hired a partner who is a brilliant, black Ph.D. from Berkeley. The woman is constantly insulted by being asked if she got her job because of preferences; the system that creates that institutionalized insult is fundamentally wrong.

Should Canada have Quotas for Females on Boards?

Should there be quotas for the number of women on Boards? I was asked this question by The Globe and Mail - read the full article here.

Having been at a Women Directors dinner with Diane Francis where this question was raised, I was surprised by how many women liked the idea of quotas. All of the women at that prestigious dinner held at Canoe would certainly be at the front of the line to benefit from a quota. Diane Francis said she was against quotas but the other women Directors argued against her points. 

After the dinner, I read about Quebec and Norway's foray with quotas. Norway has had companies de-list from their stock exchange to avoid the quota. 

Canada is a terrific place to be a working woman. Men have been my mentors and my sponsors. Very few women have held out a helping hand to me. As a consequence of those negative experiences, I try and pull up every woman behind me.

When Rebecca Eichler posed the question about boards being forced to have females on their Boards for the Globe article, I hesitated but spoke my true mind. Women are making incredible inroads by being great at business and knowing how to make the bottom line. How do I describe the powerful women in private business who are my clients?

Here is my response:

Jacoline Loewen, director of Loewen & Partners in Toronto, which sources capital for growing companies, has served on a range of boards and believes a quota would dilute the competitive, aggressive behaviour required to drive strong business results.

“I got to my position through hard work and would hate to be seen as a token appointee,” she said. “Men have to pay a price to get on a board, and the women I know on boards have worked hard to get there too.”

The article was posted and quickly attracted over 200 comments. As I read them, there really was an anger about affirmative action. With more women at university and entering the medical and legal professions, the playing fields seem to be open for all. 

Here are some of the comments. 

What do you think?

Where do you stop this quota foolishness? Government is to provice service, not employ minorities to fulfill quotas to look good on someones anual review. Private industry has an obligation to it's shareholders, if the shareholders are willing to risk finacial loss due to some silly poltically correct machination, it is their money. Under no circumstance whould quotas of any kind be legislated into law.

In Argentina they passed a law some 15 years ago that 30% of the MPs have to be women. What did that achieve? Most MP's wives are now MPs.

As a shareholder, I only want folks who make me money. I hold Corby's stock, a decade ago we had a lady as chairman, she made me a ton of money and her salary requests had my total approval. Now she has gone and corby's is a mess. I cant fire the male aholio who runs the place and special dividends have disappeared. Why quota up employment equity deadheads? If you cant make money for the shareholders, I dont care how big your breasts are or how small your penis is. It is all about return on investment.

How Mary Meeker Earned Back Her Reputation

Mary Meaker was the darling of tech investors back in the 1990's and with the dreadful crash, her reputation also took a hammering.
I do admire her as she got back up and has worked fearlessly to gain back trust. In the finance industry, this is very difficult to do once you have advised the fund investors and cost them a great deal of money and business.
Mary's detailed analysis was what built her status. Fund managers clamoured to see her latest presentations.
Twelve years late, Mary is back as an authority. Check out her overview of the Web today and in the next few years.
See the latest Mary Meecker PowerPoint Presentation on Web 0.2

After the show - BNN The Pitch with Jacoline Loewen and Derek Smith, Bridgescale

Brave entrepreneurs face the panel of private equity experts on The Pitch, brought to you by BNN. I am on the panel of experts. Andrew Bell hosts the panel and after the show, we often chat with the entrepreneurs to give them feedback. Then the private equity panel tends to review the presentations and have a quick gossip about business and what is on the radar screen.
This week, Robert Gold and Andrew Brown did an "after the show" podcast and I must say, they asked great questions. Hear what Derek Smith of Bridgescale had to say about RIM - oddly prophetic.

Listen to the Podcast 
If you have problems use Robert Gold's directions below:

This week on the BusinessCast we go behind the scenes of BNN's 'The Pitch' and debrief three of their top investors - right after they've turned down the entrepreneurs.  Hear what the investors really think, with this unique opportunity to be inside their heads - and pitch better yourself.


Listen or Subscribe to the BusinessCast for free in iTunes.


Follow @robertintoronto on Twitter!

Canadian Government R&D Benefits the US

This month, we are looking at how to move Canada beyond its weak financial support for early stage and technology firms.We will be discussing ideas about how to get beyond this problem of being the little market for American Private Equity to cherry pick our winners.
Canada is among the most generous countries in the world in its financial support of R and D for its emerging technology companies. Canadian government support for business R and D as a percentage of GDP is the second highest of any OECD country and ahead of that of the US.
But Canada is facing a dire shortage of the highly-specialized financing source, venture capital, that is dedicated to commercializing that R&D. In 2010, the Canadian venture capital industry experienced its worst fundraising in 16 years and is virtually moribund.
In the absence of venture capital, the R&D of emerging technology companies cannot be commercialized into products and services to be sold in the global market to create jobs, revenues and exports. Much of that R&D is going to waste. The Canadian government’s billions of dollars in annual support for R&D of its emerging technology companies is effectively a vast program for creating advanced aircraft when there is no fuel to fly them.
When Canadian emerging technology companies do obtain VC financing, it is often insufficient, and many find themselves at a serious competitive disadvantage. Canadian VC backed emerging technology companies currently receive on average only 36% of the funding of their VC-backed direct US competitors.
This underfunding of Canada’s emerging technology companies is a recipe for decline, as these undercapitalized companies must compete in the same fast-moving global market with their far-better financed US competitors (not to mention those from other countries). Hobbled by having only a fraction of the capital of their competitors, these Canadian companies also have little prospect of achieving VC follow-on financing when needed, which is in especially short supply in Canada. As a result, many promising Canadian emerging technology companies fail, or are sold early in their lifecycles long before they obtain industry leadership. These sales are frequently to large US companies, and often at low prices.
The Canadian government’s support for R and D of its emerging technology companies has become, in effect, a subsidy to US businesses which acquire the most promising of these capital-starved but R&D-rich Canadian companies cheaply, then reap the financial rewards by commercializing that R&D and bringing those companies to industry leadership. Worse still, these companies are often moved to the US, resulting in the loss of Canadian jobs, revenues and exports. The bottom line: Canada is losing much of the benefit of its billions of dollars in R&D funding for its emerging technology companies.

Running Your Own Business in 2011

Need inspiring for next week's business challenge?

Impressive mashup of music to get you inspired to work hard and smart next week.

Don't hold back, just push things forward from Ithaca Audio on Vimeo.

So Why Are We In A Recession, Business Owners?

A behavioral psychologist won the Nobel Prize in Economics. This is a first person not trained as an economist to scoop the award. Daniel Kahneman invented a new field in economics examining how rational the markets truly can be with human creatures and our emotions messing around. Kahneman explores the consumers' irrational decision making and, even more fascinating, studies Governments and discusses how their political agendas will interfere with rational, thought through decisions. 
When I did my MBA, the case studies and the theory are seductive because they make you believe you have power and control. Time and outside forces then put everything you learned on the MBA on hyper speed. It is never simple in the real world.
Kahneman does tackle why business owners are sitting on the sidelines:

Why are we in a recession? Taxes are too high, say conservatives and free-marketers; thus, entrepreneurs have no incentive to invest or create new jobs. Demand is too low, say liberals: if wages were higher—whether paid by private employers or subsidized by government—consumers would buy more, and entrepreneurs would then produce more and recruit new employees.

Well, as a business owner myself, I hire people and I do not want to fire them, ever. Over the past three years, my business bank balance has been swinging between having to close down and then being at over-capacity. Yes, it is that psycho right now and my bank manager is no longer caught up in the spirit of the 1990s. Every two weeks, I am responsible for my employees' pay checks, their families and homes. I had better have a full pipeline of great private equity projects for the next year. 
Why would I take on the awesome responsibility to ensure long term exciting employment for new people with the chaos going on with the governments in Europe and the US? (Thank goodness for our baking system and for our bland government.) When we talk about strategy planning, at first we think big which has driven our success in the past, but there are too many "what if's" to make growth a top objective. We are going down the rapids right now - not the time for anything fancy, just keep paddling through the rollers.
The uncertainty of government policy in the US is also having a huge impact on many company's business plans, not just my business strategy. The EPA changes has just removed $20M from one of my client's 1914 projections. The EPA change might happen, or not. Meanwhile, we plan for the worst. 
This is an interesting article because we are witnessing governments playing huge stakes with economic theory. If you need a brush up on the big themes, here you go:

 Kahneman does not contradict Smith’s self-love or Keynes’s animal spirits, but he elevates them from intuitions into something like hard scientific evidence. As his important new book Thinking, Fast and Slowdemonstrates, economic behavior can be better understood through scientific and psychological experiments. Most of the book describes the psychological experiments that Kahneman and his colleagues conducted to understand how people judge and decide. Kahneman concludes that our minds are divided into two very different operational systems: System One is fast, intuitive, and emotional, while System Two is slower, more deliberative, and more logical. The former can result in erratic decision-making and even in compulsive behavior, like buying what we don’t need; the latter leads to slow, deliberate choices. In daily life, we constantly and intuitively shift from one system to the other, depending on circumstances; but external incentives—well understood by marketing experts—can activate one system against the other.

Kahneman’s theory is in tension with another influential economic and psychological doctrine: rational-action theory, or RAT, whose leading proponent is University of Chicago economist Gary Becker. According to RAT proponents, people behave “as if” they were rational, whether in their personal lives or as economic actors. On this view, markets are generally rational and efficient, while government interference means less rationality, less well-being, and less happiness in society. Yet if RAT is true, behaviorists ask, how can we explain manias, bubble speculation, and self-defeating choices—none of which, moreover, depends on government? Becker and other RAT theorists accept that the market may not be fully rational, but they don’t believe that the government is any more so. 

Read More here

Read about Jacoline Loewen's opinion on quotas for females on Boards.

Name the top country to do business?

Can you believe it - Canada is #1 on the Forbes list for Best Countries to do Business. The way we talk about ourselves, you would not know it though. 
Kudos to the Conservatives for working so hard to make Canada far more competitive. They have been meeting with entrepreneurs and listening to their issues.

Canada moves up from No. 4 in last year’s ranking thanks to its improved tax standing. It ranks ninth overall for tax burden compared to No. 23 in 2010. Credit a reformed tax structure with a Harmonized Sales Tax introduced in Ontario and British Columbia in 2010. The goal is to make Canadian businesses more competitive. Canada’s tax status also improved thanks to reduced corporate and employee tax rates.

Contrary to the US government's speeches on raising taxes on their corporations, it does impact on their competitive standing.

The U.S. ranked No. 10, down from No. 9 in 2010. The world’s largest economy at $14.7 trillion continues to be one of the most innovative, ranking sixth in patents per capita among all countries (No.7 overall Sweden ranks tops for innovation).

What hurts the U.S. is its heavy tax burden. This year it surpassed Japan to have the highest corporate tax rate among developed countries. The U.S. also gets dinged for a poor showing on monetary freedom as measured by the Heritage Foundation. Heritage gauges price stability and price controls and the U.S. ranks No. 50 out of 134 countries.

Now would someone call Huffington Post and inform their blogging community as most of them do not have a clue about their taxes and economy.
Read more