"You can either sit with a hood over your head and pretend things won't change or you can get ready for it." —Jeffrey Immelt, GE Chairman, CEO

BANKERS: ETHICALLY CHALLENGED

Joseph Stiglitz, world renowned economist and Columbia University professor, is one of the most outspoken advocates for genuine financial reform. He is also a fierce critic of banking excesses and the glaring lack of integrity of politicians, lobbyists, financial executives and government regulators that led to the economic crisis. As a Nobel Laureate with no political affiliation or agenda other than preserving democracy, Stiglitz is an important voice for our time.

Don't Trust the Regulators

By Joseph E. Stiglitz
(Author of Freefall: Free Markets and the Sinking of the Global Economy)

It has taken almost two years since the collapse of Lehman Bros., and more than three years since the beginning of the global recession brought on by the financial sector's misdeeds for the United States and Europe to reform financial regulation.

Perhaps we should celebrate the regulatory victories. After all, there is almost universal agreement that the crisis the world is facing - and is likely to continue to face for years - is a result of the excesses of the deregulation movement begun under Margaret Thatcher and Ronald Reagan 30 years ago. Unfettered markets are neither efficient nor stable.

But the battle - and even the victory - has left a bitter taste. Most of those responsible for the mistakes - whether at the U.S. Federal Reserve and Treasury, Britain's Bank of England and Financial Services Authority, the European Commission and European Central Bank, or in individual banks, have not owned up to their failures.

Banks that wreaked havoc on the global economy have resisted doing what needs to be done. Worse still, they have received support from the Fed, which one might have expected to adopt a more cautious stance, given the extent to which it is evident that it reflects the interests of the banks that it was supposed to regulate.

Thus much is being left up to regulators. And that leaves open the question: Can we trust them? To me, the answer is an unambiguous no, which is why we need to "hard-wire" more of the regulatory framework. The usual approach - letting regulators work out the details - will not suffice.

And that raises another question: Whom can we trust? On complex economic matters, trust had been vested in bankers and in regulators, who often came from the markets. But recent events have shown that bankers can make megabucks, even as they undermine the economy and impose massive losses on their own firms.

Bankers have also shown themselves to be "ethically challenged." A court of law will decide whether Goldman Sachs' behavior - betting against products that it created - was illegal. But the court of public opinion has already rendered its verdict on the ethics of that behavior.

As always, the "devil is in the details," and financial-sector lobbyists have labored hard to make sure that the new regulations' details work to their employers' benefit. As a result, it will likely be a long time before we can assess the success of any law Congress ultimately enacts.

But the criteria for judgment are clear: The new law must curb the practices that jeopardized the global economy, and reorient the financial system toward its proper tasks - managing risk, allocating capital, providing credit (especially to small- and medium-size enterprises), and operating an efficient payments system.

We should toast the likely successes: Some form of financial-product safety commission will be established; more derivative trading will move from the shadows to exchanges and clearinghouses; and some of the worst mortgage practices will be restricted. Moreover, it looks likely that the outrageous fees charged for every debit transaction - a kind of tax that goes not for any public purpose but to fill the banks' coffers - will be curtailed.

But the likely failures are equally noteworthy: The problem of too-big-to-fail banks is now worse than it was before the crisis. Increased resolution authority will help, but only a little: In the last crisis, the U.S. government "blinked," failed to use the powers that it had, and needlessly bailed out shareholders and bondholders - all because it feared that doing otherwise would lead to economic trauma. As long as there are banks that are too big to fail, government will most likely "blink" again.

It is no surprise that the big banks succeeded in stopping some essential reforms; what was a surprise was a provision in the U.S. Senate's bill that banned government-insured entities from underwriting risky derivatives. Such government-insured underwriting distorts the market, giving big banks a competitive advantage, not necessarily because they are more efficient, but because they are "too big to fail."

The Fed's defense of the big banks - that it is important for borrowers to be able to hedge their risks - reveals the extent to which it has been captured. The legislation was not intended to ban derivatives, but only to bar implicit government guarantees, subsidized by taxpayers (remember the $180 billion AIG bailout?), which are not a natural or inevitable byproduct of lending.

There are ways to curb big banks' excesses. A strong version of the so-called Volcker rule (designed to force government-insured banks to return to their core mission of lending) might work.

The provision on derivatives is a good litmus test: the Obama administration and the Fed, in opposing the restrictions, have clearly lined up on the side of big banks. If effective restrictions survive, the general interest might indeed prevail over special interests, and democratic forces over moneyed lobbyists.

But if, as most pundits predict, these restrictions are deleted, it will be a sad day for democracy - and a sadder day for prospects for meaningful financial reform.

Distributed from Project Syndicate
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Princeton University: A New Era in Social Economics
 

Last Friday, April 9, 2010, something wonderful happened at Princeton University.

David W. Miller, Director of Princeton’s Faith & Work Initiative, attempted to tackle the monumental job of “civilizing” the economy. No small task for anyone let alone the unusually courageous and innovative Miller. Formerly the Executive Director of the Yale Center for Faith & Culture, Miller also taught a popular course in the Management School, “Business Ethics: Succeeding without Selling Your Soul.”

The ebullient Miller holds a M.Div. and Ph.D in ethics from Princeton Theological Seminary and combines that with prior experience as a senior partner in a London Private Equity firm. Among his many achievements (he looks much too young to have done all these things), Miller also held a top executive position in the securities services and global custody division at HSBC. His combination of banking, academic, and theological expertise made him the perfect host for the one day business and spirituality conference dubbed, “Civilizing the Economy: A New Way of Understanding Business Enterprise?”

Miller gathered inspirational leaders from academic, civic, religious, and business fields to discuss Pope Benedict XVI’s social justice encyclical, Charity in Truth - Caritas in Veritate and how it can be applied to the practical material world of business and economics. The conference was presented from the differing perspectives of economics, theology, employees & shareholders, and CEOs. The only downside was that there was not time to attend every panel and breakout session.

The “Economist’s Perspective” was moderated by George Enderle, Professor of International Business Ethics at the University of Notre Dame, and presented by Leonardo Becchetti, Faculty of Economics, University of Rome II, Charles Wilbur, Emeritus Professor of Economics from Notre Dame, and Paul Oslington, Professor of Economics from Australian Catholic University.

The charismatic Becchetti spoke of the important roles of trust and charity in daily business and referred to the solidarity principle of banking in his native Rome—one of the reasons he cited for the Italian banking industry’s relative stability throughout the economic crisis. His personal roles as economics professor, banking industry board member, and head of an active NGO allow him to develop a deeper understanding of how all three disciplines interconnect.

Moderator George Enderle, a world-renowned business ethics expert, conducts research on the ethical challenges of international business and corporate decision making. When this journalist asked the panel how to bridge the gap between economic theory and every economic reality, Enderle replied that one of the first approaches begins with teaching enlightened business practices in business school. “Everything emanates from social thought,” he said.

The panelists were full of innovative and practical insights in economic and spiritual dilemmas. One of the highlights of the economics breakout session was the wise words of the impressive Charles Wilbur, Enderle colleague and Notre Dame professor. Wilbur is currently researching moral values and the economy and has written several books and articles on ethics and economics. Wilbur gave a brief, but fascinating talk on how economics is often predicated upon “patching it up when things go bad” or “cleaning up the mess” left behind by economic failure. Wilbur stated that “economic decisions are moral decisions.” He urged economists to become more proactive in preventing crises, because “economic institutions and policies impact personal lives.” Wilbur referred to an article he wrote in September 2009 for America Magazine on how industry economists fell in love with the elegant math of their formulas and neglected the human application of its original purpose. In his powerful and brilliant article, Misleading Indicators: How U.S. Economists Missed the Great Recession, he wrote of the need to apply theory to human reality. 
 

His words were so sincere and compelling they inspired me to do some research on the professor. To my delight I discovered that Charles Wilbur is one of the prime thought leaders on “social economics”- the humanizing of economic theory with real life. Wilbur wrote that mainstream economics is based on “soulless consumerism.” Social economics places the individual human experience at the center of economic theory - not simply as “economic actors,” but as “persons that live in community.”

The premise of social economics according to Wilbur’s paper is:

“The person is the basic unit of the economy…who acts freely but within certain limits, self-interestedly but often with regard for others, and calculatedly but at times impulsively, whimsically, or altruistically, in a self-regulating economy which from time to time must be constrained deliberately in order to serve the common good and to protect the weak and the needy…

Social Economics “is not reducible to economic calculus because it rests squarely on the conviction that humans have a worth and dignity beyond measure.” (Ed O'Boyle, pp. 1-2 )

Okay I love this guy - the retired professor that is! Here I thought that the concept of intersecting economic theory with the economic reality of everyday people was new and cutting edge and apparently (according to Wilbur’s website) it was first developed in 1941 (The Association of Social Economics). The panel led to a wonderful discovery of the like-minded scholarly field of research similar to the “better world business” work we are currently focused on at GoodB.

The discussion and exchange of ideas on the moral and material fusion of business and society rocked the Ivy League Halls of the old patrician bastion. This was not your daddy’s or granddaddy’s Princeton get-together, this conference set the tone for 21st century “New Economics” and the socially responsible quest for moral money. Something Harvard, U Penn, Cornell, and Stanford have been doing for a few years already has finally caught hold of Old Nassau thanks to David Miller.

Other highlights of the conference included Christine Firer Hinze, Professor of Theology at Fordham and Geoffrey T. Boisi, Chairman and CEO of Roundtable Investment Partners, and senior partner from the old partnership days of Goldman Sachs pre-1999 when they traded and risked their own money. Ahh, the good old days…

David Miller remarked in the morning that while the conference was attended and presented by top CEOs and market makers from global corporations, we should never forget the small business people who make up much of the world’s markets and the innovative entrepreneurs who create new and cutting edge businesses every day. Here, here.

One last note on the conference … if I could improve anything, I would do one thing - make it longer. My only regret there just was not enough time to hear all of the presentations and speakers. Yet, the passionate focus on the common good left participants with renewed hope for a more civilized economy. We can only hope that this conference is the beginning of a fine new Princeton tradition.

Reported by Monika Mitchell
 

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 Patricia Aburdene is one of the world’s leaders on the 21st century transformation of socially conscious business. In her book, Megatrends 2010: The Rise of Conscious Capitalism published in 2005 by Hampton Roads, Patricia predicts the rise of spirituality in the world of profit. In post financial crisis 2010, her book is more important than ever. In the following months, GoodB will be excerpting portions of it to inspire readers.
 

Success and Consciousness: The Missing Link

“Spirituality” in business sounds lofty. How practical is it?

The answer is “very.” There’s a fundamental way in which Spirit and consciousness contribute to worldly success—and it has long been ignored.

As experts, authors and gurus often note, the game of business is to influence the external world. But here’s the point: How can you control your environment if you can’t even manage your own thoughts and emotions? In other words, how do you rule the world without first mastering yourself?

The cornerstone of effective leadership is self-mastery.

But that’s exactly what’s missing in business today. Lack of self-mastery is why so many business heroes wind up in court—if not the jailhouse.

The fallen heroes of free enterprise who parade across our TV screens illustrate the irrational, self-destructive choices we make without the grounding, illuminating power of self-mastery.

And the surest route to self-mastery is spiritual practice. Time spent in peaceful reflection or mindful meditation clarifies thought, sharpens intuition and curbs unhealthy instincts. Spirituality, it turns out, is a lot more practical than most of us ever thought.

Am I saying a dedicated meditation practice would have helped people like former Tyco CEO Dennis Koslowski, former AIG chairman Hank Greenburg and many others?

Yes. I certainly am.

Worldly power without self-mastery is the downfall of leadership.

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“The Era is Over”

Several months ago, the G-20 Nations promised that the, “Era of banking secrecy is over.” Also pledged in the G20 Summits and in economic discussions throughout the world economies this year is that the era of US “cowboy” economic supremacy is over as well. The world’s nations are adopting a more cautious approach to finance using the painful lessons learned over the past decade.

New Initiatives in the Global Top 20 Economies in 2009

Policy Changes at the International Monetary Fund

G20 New Initiatives: Pittsburgh Summit

G-20 London Summit – Spring of 2009

An angry and determined G20 met this Spring in London to discuss the ending of an era of American-style "anything goes" capitalism. The death-knell came for US financial as the follow-the-leader crowd of G20 countries followed the American bulls right off the cliff to insolvency. To resolve the crisis, huge banking bailouts were drafted by Germany, France, the UK, and the US as well as emergency measures throughout the European Union and G-20 nations. The crisis has ushered in a new era of global fiscal responsibility. The G20 has created a template for global regulatory change.

“President Obama, feeling the mood of the Spring G-20 Summit earlier this year, “signed on to a communiqué that Nobel Laureate Joseph Stiglitz said repudiated the previous U.S.-led push to free capitalism from the constraints of governments.

“This is a major step forward and a reversal of the ideology of the 1990s, and at a very official level, a rejection of the ideas pushed by the U.S. and others,” said Stiglitz, an economics professor at Columbia University. “It’s a historic moment when the world came together and said we were wrong to push deregulation.”

In bowing to that view, the leaders conceded in a statement that “major failures” in regulation had been “fundamental causes” of the market turmoil they are trying to tackle. To make amends and to try to avoid a repeat of the crisis, they pledged to impose stronger restraints on hedge funds, credit rating companies, risk-taking and executive pay.

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Policy Changes at the International Monetary Fund (IMF)

The IMF, one of the top strategists of the G20 Summit in London, agreed to increase resources for troubled economies to $750bn. The G20 will also contribute $250bn to boost trade.  UK Prime Minister Gordon Brown said the G20 will “crackdown on tax havens” and draft “stricter controls of bankers’ pay and bonuses.”

The following are the G20 goals for the coming months:
1) To create a new Financial Stability Board to work with the IMF to ensure co-operation across borders and provide early warnings for global economic instability.

2) Greater regulation of hedge funds and credit ratings agencies

3) A common approach to cleaning up banks' toxic assets.

4) The world's poorest countries will receive $100bn extra aid.

G20 countries are already implementing the biggest economic stimulus "the world has ever seen" - an injection of $5tn by the end of next year.

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G20 New Initiatives: Pittsburgh Summit

The major outcome of the Pittsburgh Summit (September 2009) is that the G-20 will permanently replace the G8. The financial crisis has revealed how interconnected the 20 nations are in the 21st century global economy. The new G20 policy will include developing countries like China, India, Brazil, and Indonesia. The G20 now encompasses 90% of the worlds “economic output.”

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                    Europe Leads The Way  

Thanks to a surprising upswing in economic growth for France and Germany, Europe is reportedly on its way out of recession. All reports this week indicate stronger employment, consumer spending, and banking stabilization. Previous economic turnarounds were normally led by the U.S. However, the current European and Asian recovery, according to the Wall Street Journal, “appears to hinge more on spending by governments and the region's households and businesses.” This could benefit the U.S. economy in the long run “by lifting American companies' exports while U.S. consumers rebuild their battered finances.”

Only two months ago in June 2009, economic indicators forecast the U.S. emerging from recession quickly while Germany and France struggled to keep afloat. What happened between then and now that turned things around?

Firstly, the German and French governments created strong banking initiatives that replaced risky practices with more conservative money management. (See Germany Lays Down Banking Laws). Secondly, unlike the U.S., both countries made supporting workers and saving jobs a priority with pro-active stimulus programs and strings-attached bailouts (see Vive La France). In the U.S., while President Obama is supportive of worker and job initiatives, it is hard to get anything done to that end.

The European leaders France’s Sarkozy and Germany’s Merkel made job preservation conditional when bailing out car makers, banks, and large employers. Europe’s pro-worker sensibilities support these initiatives. In the U.S., however, workers are unprotected in the wake of high finance destruction. For example, TARP taking banks like Bank of America laid off tens of thousands of workers as they absorbed billions in unconditional taxpayer support.

Germany and France have important job saving programs that the U.S. government does not have public support for or authority to enforce. Congress talks loudly and frequently about “saving jobs” yet has done little to support that. Ironically, President Obama’s controversial plan to remake General Motors and Chrysler and in the process save as many jobs and retirement pensions as possible has been called “unAmerican” and “unDemocratic” by opponents in the banking and credit sectors. This would never “fly” in Europe as jobs and public welfare come before private banking interests. Consequently, the U.S. economy lags behind Europe’s rebound as the American worker and small business struggle for life-support.

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A Catholic Call for the Common Good

Pope Benedict XVI calls for Ethics in Business    

Bet you didn’t think the Pope would be interested in the ways and means of the world of money.  Nor would you think the Pope was a concerned business man. Well, think again. The Vatican has issued a Papal proclamation on ethical capitalism called, “Charity In Truth.”

According to the UK Guardian, “The pope today called for a ‘profoundly new way’ of organizing global finance and business, calling for a new social and ethical dimension to capitalism and arguing the case for a new world political authority to help champion the common good.”

The Catholic Leader encouraged the financial industry to "rediscover the genuinely ethical foundation of their activity.”

Catholic tradition with its long history of moral social examination calls upon its congregants to reflect on profit practices.  Many of the “guilty” in the current crisis may not be Catholic and may indeed turn the other cheek as well as the other ear to the words of the Pope.  Yet the Papal Leader’s call for business ethics is hopeful cry for moral transformation for practicing Catholics at least.

Whether or not you are Catholic, the call for thoughtful and just adherence to “the Common Good” is a welcome policy from an important Global Spiritual Leader.  The Holy Father joins the Dalai Lama in his quest to inspire the world to “moral money.”
 

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Consciously Conscious Capitalist: John Mackey

Whole Foods magnate, John Mackey started his healthy foods supermarket chain in his Austin garage.

His business success and passionate views on “free market capitalism” have inspired Mackey to create a movement for Conscious Capitalism, a phrase coined by “Megatrends 2010: The Rise of Conscious Capitalism” author and business philosopher, Patricia Aburdene.

Mackey doesn’t like unions:"The union is like having herpes. It doesn't kill you, but it's unpleasant and inconvenient, and it stops a lot of people from becoming your lover.”

Mackey believed that unions are unnecessary if employers create positive working environments and partner with employees for fair wages and benefits.  "Unions as they evolved in the United States became very adversarial, untrusting, and opposed to the success and prosperity of the business. This is my major objection to unions today — they harm the flourishing of the business for all the stakeholders.”

 Instead Mackey encourages cooperation between employees and employers for a less adversarial more mutually beneficial “win-win” partnership. Whole Foods workers are deemed “team members.”

From WholeFoods.com:

Empowering Work Environments: Our success is dependent upon the collective energy and intelligence of all of our Team Members. We strive to create a work environment where motivated Team Members can flourish and succeed to their highest potential. We appreciate effort and reward results.

So what exactly is Conscious Capitalism as Mackey sees it? 1) Creating profit while providing the highest quality products for your customers. 2) Caring for the environment with a commitment to sustainable business practices. 3) Common initiatives that give back to the community. 4) Empowering workers through a team oriented work environment. 5) Business finding solutions to world social problems.

Given that Whole Foods solved the problem of making healthy non-processed foods easily available in non-agriculturally developed areas in the U.S., he seems to have fulfilled his own prophecy.

Seems to us at GoodB, Mackey’s view of Socially Responsible “Free Market” Economics might be a good template for the financial industry and the business community in general. Sounds like a win-win for all.

From Freakonomics: Is There a Market for “Conscious Capitalists”?

The iconic libertarian Milton Friedman once said “The great advances of civilization, whether in architecture or painting, in science or literature, in industry or agriculture, have never come from centralized government.”

Michael Strong, founder of innovative charter schools, and John Mackey, C.E.O. of Whole Foods, agree with Friedman, and have their own libertarian vision. They believe that entrepreneurs and “conscious capitalists,” not government, can solve the world’s problems, and they’ve founded an organization called Flow, Inc., to advance that vision.

In his new book Be the Solution, Strong describes the Flow vision and explains how liberated entrepreneurs in a free-market society can tackle such colossal problems as protecting the environment, eradicating poverty, and fixing the U.S. education system.  By Dwyer Gunn

Read more:
http://freakonomics.blogs.nytimes.com/2009/05/07/is-there-a-market-for-conscious-capitalists/
 

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A Leader of a Different Kind:

Moral Money

 “What the world needs now is love sweet love. It’s the only thing there is too little of” –at least in the savage world of money and business that is. Enter, His High Holiness Himself – The Dalai Lama.

For many followers of Tibetan Buddhism and admirers around the globe, the Dalai Lama is a universal living example of compassion and selflessness. A feat worthy of Buddha Himself.

*Interviewed by Steve Hamm for Business Week, here are a few pearls of Buddhist wisdom that could change the world in a heartbeat.  Perhaps in our current state of economic challenge, we are finally listening...

On How to incorporate RIGHT ACTION:

Dalai Lama: “This global economic crisis was caused by too much greed, speculation, and hypocrisy--not being transparent. These are the moral and ethical issues. So be transparent and honest right from the beginning.”

Putting money in perspective:

DL: “Money is important. Without money you can’t survive. However, it is not the only measure of value…This global economic crisis reminds us you should find some other values. Money value alone is not very certain. It’s a limitation.”

Understanding the Big Picture:

DL: “These things happen due to their own causes and conditions…All the causes and conditions were fully ripe. No force could stop it. It’s the natural law. So you accept it.”

How to Cope Going Forward:

DL: “Instead of more frustration and anger, now think about other alternatives. Make an effort. That’s better. There’s a Tibetan saying: Nine times failure, nine times effort, without discouraging oneself.”

GoodB: What the World needs now is Hope, sweet Hope. It’s one of the things like love there is too little of. Thank you Dalai Lama for putting things in perspective and offering us Hope for a better future.

(*From May 5, 2009, Business Week: The Dalai Lama on the Global Economic Meltdown by Steve Hamm.)

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Compassionate Capitalism

Warren Buffet, Bill Gates Source:tatianamasis.wordpress.com

WHEN THE WORLD'S most successful entrepreneur gives up control of the Fortune 100 company he founded to devote his prodigious skills for innovation to resolving global poverty, the world takes notice. When the world’s most successful capitalist joins forces with him, the business community stands at attention. Bill Gates and Warren Buffett shocked the Adam Smith world as they earmarked billions for world-wide social entrepreneurship. Making money and making a difference wasn’t just for "fringe zealots" anymore, their actions brought a Good Business mandate to mainstream capitalism. Gates called for “capitalism for the 21st century.” At the World Economic Forum in Davos, Switzerland, Bill Gates challenged modern business leaders to pursue his brand of “creative” capitalism by using “the power of the marketplace” to help the poor.

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He's the Boss

GE CEO Jeffrey Immelt

PERHAPS REMARKABLY, Jeffrey Immelt ranks his number one priority as General Electric’s Chief Executive Officer as “personal responsibility” according to Fast Company magazine. Immelt stated, "Enron and 9/11 marked the end of an era of individual freedom and the beginning of personal responsibility. You lead today by building teams and placing others first. It's not about you." That view is a refreshing about-face from predecessor, Jack Welch and his 1980’s style "profit first, people last" capitalism. Immelt's perspective represents the remarkable change that has occured in business in the new millenium. His  clear mandate of personal responsibility is evident in GE's environmentally concerned efforts such as the innovative ecofriendly product initiative: Ecomagination. (see Profits and Purpose)

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