Wealth Shift: The Decline of Ethics in America
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Lesson #8 – Find A Fool

In this unethical, Wealth Shifty world, it is very easy to identify Big Boy practices that are largely based in the Greater Fool theory. In the investment arena, it is sometimes very difficult to tell when you are making a good investment and when you are simply being a greater fool. There have been numerous companies out there with compelling “stories” that have never panned out. The structure of companies has gotten so sophisticated, and the ways to invest in a company so diverse, that it is hard to tell when you are being smart and when you are being railroaded.

The reputation of a company and its management is so very precious and intrinsic to its survival that I am surprised by how loosy-goosy some companies are both in terms of building, and also protecting, their reputations. There are whole industries in this country with reputations and business practices that stink so badly that only a very great fool would risk making an investment in a company that operates in that industry.

The American automotive industry is a prime example of one of these stinky industries. If perception is everything, then American automakers, car dealers, and peripheral service companies are in need of a serious ethical overhaul. Frankly, no matter what they do, it may already be too late.

To demonstrate what I’m talking about, let’s compare S. C. Johnson and Son and Ford Motor Company. Both are family companies that have been in business for many, many generations. They both qualify for distinction as long-lived companies. However, while

S. C. Johnson and Son seems to both understand and also be implementing the four criteria for long-lived companies that we discussed previously, Ford Motor Company is foundering on all fronts.

Go to the Ford web site. Under “Our Values”, there is an entire 40 page report on “Sustainability” – how Ford is “connecting with society for a more sustainable future”.

Introduction to Ford Motor Company’s Sustainability Report

“Welcome to our 2006/7 Sustainability Report. These are challenging times, not only for our Company, but for our planet and its inhabitants. The markets for our products are changing rapidly, and there is fierce competition everywhere we operate. Collectively we face daunting global sustainability challenges, including climate change, depletion of natural resources, poverty, population growth, urbanization and congestion.” Alan Mulally, President and CEO Bill Ford, Executive Chairman

Clearly Ford, either intuitively or otherwise, understands that the first criteria for a long-lived company is to operate your company in harmony with the rest of the world. However, unlike S.C. Johnson and Company, whose message is short and sweet: we’re a family company, and we’re going to do all we can to protect the environment for all families everywhere, Ford’s Sustainability Report is an entire laundry list of every major problem currently facing mankind. Reading the report, you almost forget that Ford is a car company. You get such a warm, fuzzy feeling from reading about the hundreds of ways that Ford is sticking its fingers into everyone else’s problem pies that it makes you want to rush out and invest a bunch of money in Ford stock. That is, until you remember that Ford is a car company, and not a charitable organization. And Ford isn’t just any well-run, hugely profitable car company – it’s a big, huge, giant mess of a car company. One that needs to stay home and tend to its own problem pie.

Obviously clueless about who makes up their target market, Bill Ford and Alan Mulally have missed the “harmony” point by a mile. Yes, companies need a mantra that shows they care about something besides themselves. But the mantra has to be something that is relevant to what you do. Beyond that, it has to be something people can get their arms around in something less that 40 pages. Or even 40 words. 40 letters is even pushing it a bit.

When “the man on the street” is asked what S. C. Johnson cares about, he knows. S.C. Johnson and Son cares about family. It cares about minimizing its impact on the environment. What does Ford care about? “Connecting with society for a more sustainable future?” Huh? It’s going to take a whole lot more pictures and a whole lot more words to get that idea across to a target market comprised exclusively of Average Joes.

When I was a kid, my dad used to mentor me when we’d go out sailing together. One day, in response to some huge plan I had for something I was into in the fourth grade, he looked me straight in the eye and said “KISS!” So I stopped talking, reached over and smacked him on the cheek. He laughed. “Thanks,” he said, “but I’m not talking about that kind of kiss.” And then he went on to tell me that KISS means ‘Keep It Simple, Stupid’.

Hey, Ford. KISS!

The second criteria for a long-lived company is a strong sense of identity and a stewardship of company resources. To me this means two things: make a quality product or products, and don’t waste your assets. Again S. C. Johnson is all over this point. My sister sells Amway and she tried to get me to give up my Windex for that company’s See Spray. Not now, not ever. Not in a million years. Someday, if I die cleaning smudges off my glass-top kitchen table, someone is going to have to pry a bottle of Windex out of my cold, lifeless hand. Because that’s the only way they’re going to get my Windex away from me.

My Volvo is another story entirely.

Clicking on the section entitled “Products and Customers”, Ford details its principle of providing excellent mobility products and services. It talks about focusing on customer satisfaction and loyalty. It also talks about keeping promises. This is, after all, the thing that really counts – the rock bottom threshold for true “sustainability”. If you are a car manufacturer and don’t make good cars and keep your word, you won’t stay in business. Period.

In the report, Ford states: “In the first quarter of 2007, initial quality, which measures our customers’ impressions of their vehicles at three month in service, were equal to or better that our primary competitors.” It goes on to say, ““Things gone wrong” improved by 33% between 2001 and 2006, and by 15% in 2006 alone.” And that “warranty spending per vehicle decreased by 27% compared to vehicles produced in 2005.”

I hate to break it to Ford, but, as much as you may want to ignore the not so “distant” past and focus only on the relative quality of your latest models (the ones still under warranty), what you really need to be doing is proactively dealing with the reputation of your older models. You have a hundred-year history of making cars. Unless you plan to close you doors and change your name, you are going to have to deal with the problem pie of your reputation. And your reputation is no longer what it used to be.

Although I have not owned every Ford currently in operation today, I can speak fairly authoritatively on the subject of the quality of Ford’s Volvo S80, because I do own one of those. It’s my second Volvo S80, actually, since the first one fell apart after 4 years and less than 50,000 miles underneath my husband’s feet on his way to a cancer treatment at MD Anderson Hospital in Houston. The second Volvo (which I admit was acquired with a nice discount for the extreme hardship and inconvenience caused by the first Volvo), I was assured would be a vast improvement over the first. The first year models had some “bugs”, which had been “worked out”, I was told at the time.

Well, they hadn’t. As soon as the initial warranty on my second Volvo expired, everything started going wrong. In 2007 alone, I spent over $4,000 on that car. When asked if this was just a fluke, the service manager was at least honest with me. He told me that European cars were all high maintenance and I could expect an average of $2,500 annually in repairs from that point on. Ask me if I know what Ford cares about and I’ll tell you. Ford cares about what happens to their cars on their dime, not mine.

The insult to injury part of this whole story is that Ford sent me a satisfaction survey at the end of 2007. The letter spoke grandly of their commitment to customer satisfaction and loyalty. The satisfaction survey was -as most satisfaction surveys are -not worth the paper it was printed on. Knowing percentages of “satisfied”, “somewhat satisfied”, etc. isn’t going to help you find out how angry your customers are or help to soothe their ruffled feathers. Needless to say, I sent the computer survey back with a “see letter attached” and actually took the time to write Ford a letter telling them how their Volvo stacked up compared with my previous car (Japanese) and the next car I plan to drive (Japanese). I would like for Alan Mulally to know that I have never received a response. And that, more than anything else, is why I will never buy another Ford car again. Because written beside the words “customer satisfaction and loyalty” in my copy of Ford’s sustainability report are the words “lip service”.

Ford may think I’m just talking smack because I’m angry at them. But anyone who knows anything about psychology knows that the real cause of anger is disappointment. And that is what I really am – disappointed. Disappointed, disillusioned, and sad. Why? Because I have incredibly fond memories of Ford. My grandfather was a “Ford man”. He loved his Fords – all 10 or more of them. I kid you not, my Grandfather lived for his Fords. I have an old picture of my grandfather standing beside the first Ford he ever bought in 1924. The smile on his face is incredible. His face is glowing. He drove that Ford until it died sometime after the Great Depression. Times were tough, he needed a car he could count on, and his Ford was there for him all the way. Because Ford had gotten him through the thin of the Great Depression, my grandfather drove nothing but Fords until the day he died. He loved his Fords so much that he never let anybody wash them but himself, two times a week, rubbing them down with a diaper until they gleamed. He rubbed them lovingly until the paint rubbed off – I kid you not -that’s how much my grandfather loved his Fords.

Ford – you want a mission? I’ll give you one. These are tough times. People out there need Ford-tough, light-weight, fuel efficient, lasting cars. We don’t need any more cars destined for the junk yard the moment we pay off the loan. Talk about an unsustainable idea!

Whoever dreamed up the concept of planned obsolescence seriously needs to be shot. And Alan Mulally should personally shoot anyone who tries to convince him of the profits that can be had by building cars that begin falling apart the day the initial warranty expires. If Ford really cares about sustainability, it will find a way to build a car that lasts and lasts and lasts and let advancements in technology, rather than poor quality, be what makes future Fords obsolete.

If Ford would build it we would come. But in the meantime Ford can’t afford to just ignore all the people out there who are pissed off about the Ford cars they either own or have owned in the past 20 -30 years. You can’t just write off the experiences of a whole generation of Americans and pretend they don’t matter. We are not our grandparents.

I can see Ford cringing. I can see Ford thinking I expect them to make restitution for failing to live up to their family name for the past 20 year. Ford may be thinking how easy S. C. Johnson and Son has it on this issue. Sure, it’s easy to offer a complete satisfaction guaranteed on an air freshener. But a car? Who can afford to replace an entire generation’s worth of cars?

Nobody. And the truth, Mr. Mulally, is that nobody’s asking you to. But if you even want a shot at survival, you are going to have to be willing to listen. You are going to have to give all of us deeply unsatisfied customers a forum to vent, and, by giving us a forum and letting us know you care enough to listen and to apologize, you are going to also give us hope. If you will listen to us and respond to our letters, we may still need plenty of convincing to buy your cars, but, if you don’t, you have to know we never will.

Alan Mulally has only been the CEO of Ford Motor Company for a year. This gives him a golden opportunity to set the stage for a “different” kind of Ford – a return to the Ford of yester-year. None of what has been going on at Ford is his responsibility, so he can apologize freely and without caveats. He can make sure those letters are answered (no form letters, please, please). He can prominently display a giant complaint 1-800 number on his website (instead of the tiny little contact information number that now resides at the bottom of the page). He can man the phones with people – live, human, non-accented English-speaking people. In other words, he can show that he cares and is committed – fervently committed – to re-establishing the quality that used to be Job #1 at Ford.

If Ford is going to “survive and thrive”, it must do a better job than it has done in the past on long-lived criteria number three – innovation. While it is a really good idea to sell off the parts of your company that don’t really “fit” with what you are all about, you also need to proactively anticipate needed innovations in your industry. Ford is -and it knows it -behind the eight ball on innovation. It ran around for years building huge gas guzzling vehicles and turning a blind eye to the obvious future. And so now it has virtually no cars it its fleet that can meet the needs of people who want to hunker down and save.

But how do you allocate money to innovation and still survive when you have a debt/equity ratio of 23/1 (which is, not surprisingly, a violation of the fourth criteria for maintaining a long-lived business – fiscal conservatism). Personally? If I were Edsel and Bill Ford? I’d have footed that bill long ago, and I’d still be footing it now. I’d be paying out of my own pocket for a “dream team” to come up with a couple of really great cars and trucks that would exceed my grandfather’s expectations. I’d be using Mulally’s expertise from the aircraft industry to build lightweight, titanium-tough, lasting vehicles. Fuel efficency? Smichency. That’s not Ford’s biggest problem.

Ford – Built to Get You Through – now that’s a value statement.

Our companies are hiding so much that people should know about. Take bank reporting of commercial loan and credit card debt, for example. Watching the banking executives lined up before Congress assuring them that everything was going to be hunky-dory, you’d think their companies hadn’t a care in the world. But these bankers know from internally generated reports how many people are only making minimum payments. They know that people who can only make minimum payments are at greater risk of default, and they know the total dollar amount of default risk inherent in those minimum-payment loans. But the financial reporting requirements say that they only have to create a reserve for the possibility of default when no payments at all are being made. Then, depending upon how long it’s been since the borrower made his last payment, the debt will begin to be offset by an increasingly higher reserve against the possibility of default. It’s like magic. While you are busy looking at what they do want you to see, they either hide or gloss over what they don’t.

Every day you see another press release from a bank that talks about how the debt crisis in this country is almost over. I only wish that were true. Every day money floods into insolvent bank stocks hoping to get back in at the “bottom” of the decline. The cure according to Wall Street? Suspend mark-to-market so nobody will know how bad things really are. Sheesh.

Why should it take more, increasingly complicated rules, to make people do what they know they should do? Why can’t they just do the right thing at first and not the right thing at last? They think they can’t do the right thing at first because too much of their own money is at stake. Because only by hiding, can companies and their executive skewer the greater fool -the fool who will loan the company money or buy the company’s stock when no one else is interested and when they, themselves, are still pulling down stratospherical salaries in preparation for jumping ship.

Thanks to the Big Boys, Average Joe has learned to speak Latin. If you get screwed, that’s not my fault. It isn’t personal, it’s just business. You want ethical dealing? Become a Buddhist and move to Tibet. Cuz, in America, it’s Caveat Emptor, baby.

Executive Summary: We need to stop worrying about keeping everyone fooled and start running our businesses (and our lives) with an eye toward our reputation, our mission, and our future. If doing so means we can’t run our business profitably, the ethical thing to do is to stop the bleeding and close down the shop forever.

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