No Conflict No Interest
The title of this post comes from a saying I've always attributed to John Doerr, one of the top VCs of the past 25 years and the lead partner at Kleiner Perkins.
In this day and age, having a financial interest in something means you've got a conflict and your opinion is somehow "tainted."
But that wasn't always the case. I'm reading a book called 722 Miles, about the history of the NYC Subway System. It was recommended to me in the comments to the blog post I did about the subway system a few weeks ago.
The original plan for the NYC subway system was drawn up by The Steinway Commission in 1891. It featured the main downtown line from south ferry, up Broadway, to Union Square, then forking off in two branches, one headed up the west side and the other headed up the east side. That plan had to be changed later in order to keep the construction costs below the mandated $50mm (a huge sum in those days) but it was in many ways the blueprint for what got built.
The Steinway Commission was the name attached to the Rapid Transit Commission called for in the Rapid Transit Act of 1891. The commission was charged with laying out the basic plan and assigning a franchise for construction and operation of the subway.
It was called The Steinway Commission because it was chaired by William Steinway, founder and CEO of The Steinway Piano Company, a major manufacturer and real estate developer in Astoria Queens. In addition to Steinway, the commission included John Starin, owner of tugboats and other waterway transit businesses, Samuel Spencer, a railroad executive, Frederick Olcott, a banking executive, and Eugene Bush, a railroad lawyer. All of these men had business interests that would be enhanced or possibly damaged by the development of a subway system.
And yet they largely did the right thing, got the plan approved, and eventually funded and built. None of them ended up with the franchise (that went to August Belmont, who also built Belmont Park, one of the three legs of the Triple Crown in horse racing).
At the turn of the last century in NYC, there was an alignment of business and political interests that got things done that seems lacking in today's political environment. We have a taste of that in NYC with our current Mayor Mike Bloomberg who has brought a business mind to job of governing NYC. But on the national level, we see much less of this kind of thing.
It's really too bad because interest implies knowledge and understanding and leads to good decisions if the people involved have integrity and the ability to put the interests of the community first and their financial interests second. The business leaders of NYC were able to do that in the late 19th century and early 20th century and we have them to thank for our wonderful subway system.
I can’t sleep. I don’t normally post on Shabbos when I am at home…but ehh.Conflict implies emotional ties- if you are not conflicted, you often don’t care.Also, if you have a strong opinion, particularly with those you disagree with, you have to work hard to find grains of thought where you do agree, if you can pull past some of the emotional heaviness. It is one of the toughest lessons I’m in the middle of learning- sometimes the conflict isn’t about you at all.It is about what you are trying to make from the conflict.
Stuff like this reminds me of the book “Made to Stick: Why Some Ideas Survive and Others Die.” Similar to the pitch of getting a man on the moon, these guys had something great to achieve. The idea of a subway system here was simple and concrete. I bet it was something unexpected at the time; yet, also something people could believe which can in turn evoke a lot of emotion. Best of all, the idea of a subway system makes for a really good story.
Most Americans are pretty sure there are people pulling strings of their friends in government like you who say things like “i am calling them and they will take my call because i have given them money. that’s how the system works. it is corrupt and awful and i abhor it. but i know how it works.” That’s just disturbing.It doesn’t help when they see Goldman Sachs people running the Treasury Dept, Monsanto people running the FDA, Halliburton people running the Defense dept, etc. taking actions that directly benefit the financial interests of wherever they came from rather than the national community.Maybe he in the Treasury/FDA/Defense/… dept really wasn’t thinking about GS/Monsanto/Halliburton/… when making xyz decision. But since people intuitively know that the causes of decision making cannot be easily factorized, the default expectation that people’s judgments are colored from their past is completely natural, and the cynicism and mistrust that goes along with it seems completely justified.
Very good examples of where the ‘Integrity Police’ have failed to enforce….My worry about social media… society who is the integrity police in reality… is that even if you have 1,000,000 people who want say the Monsanto people out of FDA, that’s not enough… even though those 1,000,000 could be 80% of people who are educated enough about it.Open API voting system that keeps track of people’s LinkedIn profiles, etc. and their current positions and lets people vote for if they think people should be in a certain position, etc? But then again even if all the people that will care are using that system, is that enough voting power in society to cause a change?
“if the people involved have integrity and the ability to put the interests of the community first and their financial interests second”That sentence jumped out at me. Between the Wall Street greed and the partisan BS on the hill those type of individuals are in incredibly short supply, if they exist at all. One example: Every time I ride my bike by Ground Zero I’m reminded how inefficient, bureaucratic, and corrupt the intersection of personal industry and politics has become. As New Yorkers we should be embarrassed that 10 years later we’re still staring at pretty much a giant hole still. (Sorry, steps off soap box now).
Of course, you are also perfectly correct.
Some would prefer the giant hole to what has been proposed to replace it.
I don’t follow? Would love to know why you would say something likethat?
You were unaware that there has been a controversy about what’s been proposed to replace the WTC?
Yes of course, that’s precisely what I’m complaining about.Kirk(sent from my iPhone)
You’re complaining that there’s a controversy?
No, sorry. I’m just bothered that all parties can’t work together forthe best of the city. It saddens me that ground zero has been mired incontroversy and greed. We’re better than that is what I’m saying.
I’m getting sick of that argument too….
it worked in the late 19th century and early 20th century in NYC, why wouldn’t it work now?the problem is we have career politicians and crooks largely making up our governing bodies. established business people with integrity aren’t even in the game anymore
I do not think conflict of interest is the real issue much of the time. However, a shift from building+growing to redistribution mentality is the real killer.The best explanation I have found so far was in this book by Mancur Olson – The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (http://bit.ly/9xWEc)In other words, when asking why, “if things could get done by people used to building and getting things done a 100 years ago – without labor unions, OSHA, EPA, community organizers, commissions, landmark preservation, etc – they could not get done today?” The question carries with it the answer, I think.I am not saying, at all, that these organizations are spawn of evil (or signs of salvation), just that their sheer weight will slow down and compromise any non-trivial decision making to a point where it is just too slow and too expensive for anything to get done in its proper time.And yes – my bus routes are getting cut despite fares rising for a few years now.
Great post. I love New York City lore and legends. If you haven’t already, should check out Herbert Asbury’s Gangs of New York, (on which the movie was very loosely based, sort of), and Luc Sante’s Low Life. Both of these relate to the same general period in the city, although the range is probably wider by about 50 years or so, and these also touch on the political, social, economic, and other aspects of New York.It is true, business and political interests got things done, but it is also true that corruption would make us blush by today’s standards. Poverty and misery among the working classes was extreme, and some of the lower east side tenements we see now, and uptown brownstones, that seem so quaint and full of character, would commonly house entire families in single rooms. What I am saying is, this is another aspect of how the subway system was built.What’s most interesting about all this, it took place maybe 100 years ago. Nothing, a couple of generations came and went. And it’s a completely different world. The political and business alignment to which you refer is also different. I don’t see, in our current environment, how something as beautiful and efficient as New York City could possibly be created from nothing.
i’ve read gangs, i’ll pick up Low Life. i love NYC history.
Would that it were thus today.I would vote for Bloomberg as president in a heartbeat, because he does seem above most of the fray and tends to do what he believes is right at any given time.It is unfortunate that we have gotten to a place where you are either far right or far left – those are the only people we are left to choose from.Is it even possible to be really fiscally responsible and have a social conscious at the same time?
yet another far center party member!
<factiousness>But, but, but, Fred, you are missing the really big, big points of civilization of the past 100 years!!!!!!There are some axioms (aka statements in a catechism):(1) Humans are evil!(1.1) Humans are sinful, greedy, deceptive, duplicitous, manipulative, selfish.(1.2) Business is dirty, sleazy, vulgar, base, rot in our society.(1.3) Men are especially evil! Men in business, worse! With education, double the evil! Technical education, double that! With money, triple that!(2) Only a genuine Everyman that is untainted, uncorrupted, uneducated, uninvolved can hope to have any authenticity, sincerity, honesty, empathy, objectivity!The items go on from there.So, just from these, there is zero chance that anyone in business could ever do anything productive or helpful for society!Thankfully, the solution has been found! Workers of the world unite! From each according to his abilities. To each according to his needs. A worker state for workers! No bosses, businessmen, ownership! Just any day now the world will see the magnificent social perfection being built in the Soviet Union!”Don’t use your eyes. They can deceive you. Reach out with your feelings. Use the Force.”</factiousness>Ah, need thick rain gear against this precipitation!We’ll get it right, some time after we’ve tried everything else. Then we’ll forget and do it all over again!Another solution: There actually is some good material from the past 100 years! Thank you Lebesgue, Hilbert, Kolmogorov, von Neumann! Make money. Move to a low tax area. Buy a farm and rent the land to local farmers. Write a book on how made the money. With the book, teach a course in a B-school; on a Web site put the book in PDF and the course in video. Leave the B-school. Maybe do real AI so that no one will have to work again. Else write music and do mathematical physics.
i don’t agree with any of your axioms that begin with a 1
Of COURSE not. NEITHER do I! That’s why all those axioms, and more, were marked <factiousness> or “facetious”! Could also have said “parody” or “ridicule”.Or those “axioms” are intended to be a stark, blunt, maybe ‘slightly’ exaggerated, representation of the assumptions and beliefs of people who WOULD argue with your point.Yes, checking, my word usage has two problems! First, I misspelled ‘facetiousness’! Uh, apparently my spell checker didn’t parse the less than and greater delimiters and, thus, did not check the spelling! Second, not everyone agrees that the word means parody!So, I was agreeing with and supporting your position in your start of the thread and then ridiculing opposing ideas.My statements marked <factiousness> were so extreme, especially the axioms, that I assumed that parody would be assumed! I mean, who could actually agree with that hopeless, lost, confused, wacko stuff!Ah, it’s usually good to be careful with parody! Unless do it well, a bit much for me (yup, my Math SATs were significantly higher than my Verbal SATs!) will offend the people are ridiculing and maybe even mislead, as I did, people are supporting! More chuckholes on the road of life!Actually, the first axiom, the flat assumption that people are evil, is a real sore point for me: The point goes back to at least the morality plays, has been heavily exploited in various parts of religion, thus, is deep into Western Civilization, is one of the worst and most destructive sources of irrationality, and remains, along with a presumption of sin and corruption, as in the movie ‘The Music Man’, a leading way to manipulate people with great harm. Uh, stimulate false alarms in peoples’ intuitive danger detectors.If there is solid evidence that some particular action is evil, okay, but a blanket assumption, guilty until proven innocent, that people are evil has remained for centuries and remains destructive. One use of the ‘evil’ assumption is to say, as in the axioms, that people in business are evil. In this thread, that assumption is part of what you were in effect arguing against. That is, we shouldn’t assume that everything someone in business does is evil, or greedy, etc.; sometimes, as I believe you were illustrating, people in business, with real competence and a lot of personal financial interest, use their competence, even against their financial interest, to help society.In particular, having someone in business be evil, or even just incompetent, can be especially ugly: E.g., can have 400,000 very well selected employees and, via just outrageous, persistent, determined incompetence, lose $16 billion in three years and fire 200,000 employees. A lot of families, children, lives were damaged; some lives were ended. E.g., you mentioned Doerr: Sure, likely he’s been financially secure beyond belief for a long time now. Still, if he invests $1 million, $10 million, or much more now in his favorite ‘clean, green’ projects, and the projects lose the money, then the LPs losing will likely be mostly university endowments and employee pension funds. Even if assume that Doerr personally can afford the loss, the LPs CAN’T. Failure in business is an ugly thing; evil in business can be much worse. We need to try to keep evil out of business.With some irony, Doerr has been concerned about his daughter’s concerns that adults now are ‘destroying the planet’ from ‘filthy CO2’ from ‘evil’ in humans. That claim is right out of the pattern in ‘The Music Man’ going back to the morality plays; the evidence totally sucks, essentially only anecdotal just as in ‘buckle their knickerbockers BELOW the knee’ from ‘The Music Man’. Instead of meaningful evidence, the main wings are just a presumption of evil. So, that presumption of evil is a real SORE point with me. Long ago I wrote Doerr and told him to tell his daughter to relax, and I did not write the note in a way to increase the chances of his writing me a Series A check.Just how Doerr applied such good judgment in some areas but still worried about CO2 needs more information than I have. But I would not want him on my Board, once we were profitable with rapidly growing revenue, as I outlined how we were going to do a project in original applied math, with advanced prerequisites, to do especially effective ad targeting. Or, as in The Little Red Hen, he’d like the loaf as it came out of the oven but no way could the Hen, or me, keep him happy with the work starting at the beginning two quarters before. If he can’t handle something really simple like CO2, then he’d come totally unglued over some original applied math. This is one of my main concerns, for anyone writing a Series A check, not just Doerr, for my Board and my business. Uh, I’m concerned that too few people with such checks can get past the Mother Goose level of project evaluation. Before the Series A, no problem: They will see a nice loaf although have NO idea how it was made. The problem will be the next project, for the ad targeting and, likely, other such progress.The Al Guru stuff does look to me like plain evil: Scare people using just nonsense. As in ‘The Music Man’ claim that there is a big danger. Say that sacrifices are needed. Thus get into the “boodle bags” of the people and get them to spend money for little or no good reason. As in the 2008 Winter Governor’s conference on C-SPAN, from Doerr, Immelt, and Friedman, “None of the alternatives can work without a carbon tax.”, and a carbon tax can’t work without scaring people over CO2. It’s a flim-flam, fraud, scam, “evil” business. There is a person — I did NOT try Doerr — at KPCB with some interest in my work, but no way do I want to pass Al Guru or Doerr in a hall in a building on Sand Hill Road.For my mistake in spelling of facetiousness, I was typing too quickly, interrupting my work downloading about 300 MB of .NET Framework 3.5 SP1, plus three fixes to that to be applied in a certain order plus an ISO image of SQL Server Management Studio plus PowerShell 2.0 and it’s ‘Owner’s Manual’, all claimed to be needed, to check an ‘attach’ of my existing relational data base to a newly installed instance of SQL Server! Ah, system management mud wrestling! Apparently in the end all I need to do is append “FOR ATTACH” to my original CREATE DATABASE Transact SQL statement, but I want some confirmation. Mud wrestling.That downloading was a chuckhole in the road, a time wasting detour. Also, I already have a beautifully designed and documented scripting language and so far don’t like PowerShell: Right away the documentation is AWFUL, and the design looks little better — not NEARLY Microsoft’s best work. It appears that the Microsoft designers were not thinking very well. Or, ontogeny recapitulates phylogeny also in computing, and those Microsoft designers seem still to have their gill slits showing. I need to make up the time lost on the detour ….
That GGlue on-screen widget is cool. I’m not sure why I didn’t notice it before.
Is reputation really that important to the majority of people these days? It saddens me to think it isn’t, but for many, earning $1 million through some small City contract, or even earning $100 million through some larger contract.Are there enough big companies who have enough interestRight now too, it seems anyway, that projects go to the lowest bidder, not necessarily the most qualified…. And maybe the people who are selecting don’t have the qualifications to properly select?From what I publicly know from the Kingston City Counsel it’s horrible run, this City is horribly run, and a lot of BS goes on. And the people who benefit the most from a lot of the BS are about 5 old money families who live here and own a lot of property. Those people will still own properties, and the majority of citizens pissed off about it really can just be pissed off about it.Will it hurt those families’ businesses down the road? Sure maybe if they have certain very specific plans they need full support for (or just enough support from people in power).Also, there’s nothing stopping them from just sending the money elsewhere, to cities and populations they haven’t tainted yet, to continue to earn money from.
Post made me think of the film clips of the building of the NYC Subway in the PBS History of NYC http://bit.ly/9WiHr7. Amazing stuff actually.
i’ll check those outi’ve never been to the NYC subway museum and i am going to do that sometime this monthi’m totally into this stuff nowfinished the book on the flight back from europe
Been years since I viewed them but the post brought back the image of huge holes being dug my hand in early NY.Bought the book yesterday. Reading in en route to SF this morning.
i hope you like iti found the history parts fantasticthe policy parts were a bit repetitive and could have been cut
Could it be that the people who planned & built a subway system in New York had some fascinating dream-like vision of what New York can become and how a subway could shape that future? Could if be that they had a sense of purpose (http://www.iamronen.com/200… that came before and went deeper then their sense of business?Could it be that much of today’s business is not associated with vision or purpose?Could it be that being devoid of purpose leaves business with a narrow money-centered vision?Could it be that is a source of a conflict between society and business?If there is a conflict – how can it be resolved?Fred – I would love to hear more of your personal voice and experience on this: – do you feel business is largely driven by purpose? – Are your investments community first and finance second? – Do you feel they should be? – Are there other roots & causes you can idenfity to shed light on the current relationship between business and community/society?
i think much of what is happening in web business, particularly startups, is driven by purpose
I agree … ultimately everything is driven by purpose… but human nature is littered with misperception – especially when it comes to purpose…but how far reaching is it?do they have enough depth to accommodate a future on a scale of a century – as it seems the people you mentioned founded the subway had?does it put community first?does it relate to “the rest of the world” http://www.avc.com/a_vc/201… ?Please… would you be willing to ask the leaders of your portfolio companies to share their sense of purpose here on AVC?… and how then do you explain the current conflict? do you experience it in your involvement with business?
Those were truly different men in a different time. We live in the age of self interest and I figure that most would rather avoid having to defend against the “conflict charge”. It comes down personal integrity I guess. Thanks for the bit of history
it would be easier to take you seriously on this topic or any other political topic if you lived in awareness of the truth, instead of ignoring it like everyone else. to help with this issue below are two links that everyone is currently ignoring. next time you want to ask for a hand out that benefits your business, please consider these links — the more money you want from government, the more responsible you will need to be for government functioning properly.1. since you mentioned how great mike bloomberg is, here is mike bloomberg again covering up 9/11, this from february 2010: http://www.youtube.com/watc… that is just one example, i have documented many others before.2. my personal favorite at the moment: Exclusive: Highly Decorated Army Surgeon Lt. Col. Terry Lakin Refuses All Military Orders Until Obama Proves He Is a Natural Born Citizeni’m feeling unfairly kind today so i’ll skip the carbon tax issue, even though you are practically baiting me with this blog post. besides, you’re afraid to talk about it, that says it all right there anyway.and to call the nyc subway system “wonderful” is a bit misleading. not the cleanest of places, as you may have noticed. and do you remember what an MTA strike is like? also, what about innovation? the only “innovation” i see is that when i moved to new york in 1998 a subway ride was $1.50. now it is what, $2.25? that’s a 50% increase in price in less than 12 years. have wages matched that? maybe for those who can profit from bubbles, but for those of us who can’t….no. i understand this is largely due to dollar devaluation (which is the result of monetary policy, an issue not sufficiently “exciting” to generate your political interest), but if there were real innovation that could push operating costs lower to help counter rising costs due to currency devaluation. and the MTA has started doing that scam where the metro cards are unevenly priced so half the people end up throwing away cards that have $0.50 on them or something like that. of course, these are all classic “innovations” of government run services (i should note that in general i am a fan of the nyc subway system, i am simply noting its deficiencies, to remind us what we get when government gets involved [which is sometimes necessary but still often sucks — especially when the population is willfully ignorant])
they continue to invest in and improve the subway. it’s the greatest mass transit system in the US and possibly the world.
Very interesting topic, as always. Thank you. I have read the book and it is a great read.I suspect it is substantially easier to build great coalitions regionally rather than nationally because of the common cultural lens and ease of social and business contact amongst the natives.Conflicts of interest in business today have become a lucrative arena in which to mine for money. It is easy to blame this on the legal profession — class action lawsuits. In many ways, business has itself to blame for the excesses of a very few. However these excesses have been monumental in scale and seemingly justify a magnifying glass and microscope being employed.Worse still is the ability of investors (and many others) to blame bad outcomes not on their own decisions but on the actions of Boards and management.There are fewer and fewer business leaders who are also thought leaders in their own communities. This is particularly true amongst the young studs who are driving the VC funded business arena.Lastly, politicians have made some truly horrendous decisions through the years which have contributed to a nihilistic and pessimistic view of the world which is exacerbated by the partisan winner take all nature of politics today.
Newer question- how do you raise up a generation of business leaders who are thought leaders.
i agree with you JLM. when one is young, public service isn’t that interesting. making money is. when you get older, like bloomberg and the guys who manned the Steinway Commission, things change. so the “young studs” may yet get their chance.
I’m curious how big the conflict of interest was in the case you’re describing. It’s easy to have integrity when the personal stakes are low. When you look lobbying on high stakes issues in the US (example health or financial services reform ) it doesn’t feel like special interest groups advocate the public good first and their self interest second.
huge, and i mean huge, real estate fortunes were made as a result of the subways. they allowed upper manhattan, bronx, queens, and much of brooklyn to be settled.
In that case, it’s something to be admired. I’m curious, how do you feel about Meg Whitman and Mayor Bloomberg spending insane amounts of their own money to win an election? I admire their accomplishments but it doesn’t feel quite right.
in the case of bloomberg, i’m ok with it because he earned his money bystarting and building a huge companymeg earned hers by taking a great company and making it a mediocre one
So is there a “Fred” test for which business people can run for office? Only those that built great companies? Huge ones? You could say Meg took a great company and turned it into a huge, albeit mediocre one.
I think there’s interest and then there’s interest. From the short bios I’ve read, these were all businesspeople who were active in civic affairs for large parts of their lives. This was also during a time of incredible expansion: Manhattan’s population was growing by ~25% a decade then. It’s easier to share during times of strong growth, because people don’t see things as zero-sum games.It also seems meaningful to me that all of them were deeply involved in their businesses, and not just as managers. Steinway and Sons was a family business; William Steinway was only 18 when the firm started. Spencer was a civil engineer who rose through the ranks of the railroads. Starin, trained in medicine, founded and ran a number of different businesses. I think there’s a real difference between entrepreneurs who stick with their companies and the professional managers who hop around.And at the time, businesses were much more tied to place. 20 years before this commission, Steinway built Steinway Village (now Ditmars, Queens) as a company town, because operating in Manhattan was a pain. Cars and highways mean that employers don’t really have to care about the surrounding community as much, because their workers are scattered far and wide.
you know your stuff william. i like that. and i think the points you are making are spot on.
The key word in your post is “integrity”.
The key word in life is “integrity”!
Fred, I had to smile when going to Amazon searching for the 722 miles book, Amazon also recommended “Conquering Gotham” 🙂
This is a bit of a response to two people’s comments so I’m posting it on its own. It’s another long read.To bring this back around to why the US is so successful:Fred being listened to because he has money is apart of the system that’s been successful, economically, and thus far anyway. It’s giving people who are better at amassing resources more power, and they’ll want to continue to maintain whatever policies and rules that will allow them continued economic success – keeping the system on its economically-positive path. Hopefully the people with money are good people, but even so, integrity is affected when there’s a financial gain / business interest involved (as all of commenters have said).In some major cases society is hurt the most; Easy examples are big oil vs. our environment and our health (pollution), and big pharma and our health (hurting us, lies / manipulated data / a gamed system really).This setup spurs faster innovation, but with faster innovation comes increased suffering and prolonged suffering.I hope social media changes this dynamic, but these big companies with big profits to protect have the budgets to successfully deal with all the little uses: They only get in noticeable trouble when say the water they’re using in their products has pesticides in it and affects a huge amount of people all at once; The companies and organizations that systemically hurt people slowly are the worst though, and they more easily get away with it, and nevertheless still do get away with it.It makes me think of traditional Chinese doctors. They wouldn’t get paid unless the person got better so you either were a good doctor who knew what you were doing, or you couldn’t make a living. I suppose the legal system attempts to deal with this but people still clearly get hurt and killed by mistakes.Figuring out a way to keep track of these systematic problems/failures that hurt people and create a proper and fair system to deal with them, and which prevents these organizations (whether government or corporate) from continuously doing slight harm whether by paying off enough people to silence them in the most severe (or provable cases), etc. is something I’d be very interested in. Even a system to just become aware of them and then follow the same process for all no matter how severe or numbers affected or frequency is a good start.Maybe I should talk to GoodCompanyVentures; Not sure if that’s something they’d be interested in though. If anyone has a connection to them feel free to get them in touch with me, or any other company who’d be interested in such a ‘watchdog’ of sorts.Society has always pushed back. Social media hopefully will provide enough facilitation to build the strength needed. Now, whether government systems are in place to be efficient to deal with the speed at which things will start to happen, well, that’s not likely.. so someone should be focusing on that at the same time.When push comes to shove … I was hurt by the healthcare system in Canada, and my father was as well for something a bit more simple but still ridiculous and preventable (which has caused him to be on sick-leave for the past 18 years of my life). My conclusion as to who or what was genuinely at fault only lead me back to the systems that are in place – which are of course is intertwined with / affected by big business (currently).My natural reaction to fight back against what hurt me is in full momentum, and I am lucky enough to be intelligent enough to make a path to change the way things currently are or at least help lead those changes.Matt
There is no shortage of bad guys in the world but we have a tendency to be very jaded and not see the reality of the goodness. Let me give you a couple of real world examples.I worked for the Chairman of a major Fortune 3 oil company right out of business school and the Army. The guy was the biggest environmentalist you ever met. He (actually me) used to water his divots when he played golf. He carried a jug of water to ensure his divots had a chance to survive.In the oil business, he was a steward of every square inch of the earth that the company ever touched.I run a little public company which is the largest owner of charitable bingo halls in the US (bad investment that I took over, ran off the Board and management).We run the real estate and teach charities how to conduct bingo to raise money for funding their noble causes. We own only 2% of the bingo halls in the markets in which we operate but our charities make 11% of all the charity funds realized in the same markets.Why? Because we know what we are doing — McDonald’s franchise manual approach to a multi-state multi-unit operating business.We are the only honest operators in a historically vastly corrupt business. We have only had a single $200 violation in 15 years of operations.Our charities make millions every year and we are always identified as “the greedy bingo guys”. Just recently the regulators have begun to realize we are not the enemy.No good deed goes unpunished!
guilty by association. it’s unfortunate but happens all the time
With apologies to Fred and Union Square. This is a very Silicon Valley post. 😀
i’m a VC
I think it was Rousseau who we created our democracy around the idea of people pursuing their best interests will be the peoples best interest as well? Even when it comes to money. Wouldn’t one make more money building a long term company than a quick cash out. I know for certain the folks who started Google and invested in Google did much better than the folks who started and invested in Pets.com and quickly cashed out.I know you discuss some of your VC investments here but it is never shameless promotion or ridiculous hyping. I have admired you greatly for that.As for campaign finance maybe we need to bar businesses from giving to candidates and only allow individuals and cap it at something small. Maybe just have the people pay collectively for a fixed amount of airtime and that is it. People hate politicians more because they see non-stop commercials hating each other than what they actually do in office. I was in Ohio and Florida on Business during the Bush-Kerry TV war. I couldn’t watch TV. I just don’t think it is fair money influences vs votes. The poorest person should have as much pull as the richest when it comes to elections. If you don’t agree then lets get rid of the Senate because it isn’t fair a small state can hold up business when big states have more of a population aggregate.
we are going the other way on campaign finance right now howie
722 Miles is a great book. You’d love The Power Broker if you haven’t read that, as well.No Conflict, No Interest is one of my favorite sayings of yours over the years. I think it can be taken to extremes in a bad way, but in general, the more interested you are about something, the more you can add to it as long as conflicts are clearly disclosed and even referenced in related conversations, as in “now I am going to put on my xyz hat.” But I will note that this only works well when there is a high degree of trust in the room for conflicted conversations.
exactly. i learned from milton pappas that if you are a director, you have to put your fiduciary duties first and your shareholder interests second. that’s hard to do, but you have to do it. at starmedia, i remember the board meeting when we were faced with an accounting scandal. we knew we had to disclose it, hire a law firm to investigate, and bring in the SEC. i also knew that i was going to lose a boatload of money by doing that. it was an easy decision actually.
open data + open access = evolution of democracyOpen Data. Maximum transparency is the best way to keep everyone ‘honest’. When information is public, everyone is free to make up their own minds about what is ethical and acceptable. I love to see the current initiatives around open government data.Open Access. The internet must remain a truly open platform. Major parties (from the Comcasts to the Newscorps to the Googles) are trying to (re)create control points that would (re)concentrate influence in the hands of a few. Open data will mean nothing if a few players have the ability to overwhelmingly influence opinion and limit diversity.Evolution of Democracy. More distributed systems always win over more centralized ones. I believe we are on the path to much more democratic system than currently exist. History….from monarchy (hereditary kings and queens) to representative democracy (elected reps with a 4-year blank check) to direct democracy (everyone able to influence issues important to them, real-time). Inefficient middle-men who don’t deliver on promises to their customers in order to extract maximum self-benefit, eventually get pushed out of the value chain by something more efficient.I’m very optimitic about the future and the direction all these trends are heading. I think people are becoming more honest and ethical and that transparency will leave no choice. I’m skeptical that people were more ethical or honest in the past (ex. the roc-a-fellas and others attained massive wealth not much differently than russian oligarchs). The difference then was it was easier to bury the dirt, and the man-on-the-street was more naive in eating the pulp being served. I mean, the open internet has enabled people like KidMercury to speak his opinions and potentially reach a global audience…..that wasn’t possible even 10 years ago….you don’t have to agree with what he says…..but its a great example that democracy is alive, kicking and open to ideas 😉
i like your attitude Marko. i share it.
But this is such a shill. Open source = closed society. Giant companies like Google decide the shape and monetarization paths of the Internet. It’s like the robber barons of the 19th century only on a different highway — same idea as railroads. They insist on “open standards” that serve their interests, not necessarily those of small business or the general public.More distributed systems? Bunkem. A long tail of people put in cul-de-sacs and side routes to nowhere and a crippling of federal function for good (like against racism) in the name of “no centralization”.Representative democracy is accountable. Fred on his Blackberry calling whomever and putting the fix in, even if he blogs about it, sorry, that’s not accountable.Such romanticism that there’s going to be this, um, flash mob? Committee of humming geeks? Google wave group? That will, uh, completely overcome human nature and never be like those evil middle men and those evil politicians. Truly, technoutopian clap trap.Fortunately, net neutrality was defeated today, so there’s hope!People aren’t becoming more honest and ethical, they are learning to be more anonymous, more destructive and geeks hack more and spread viruses more and they even destroy the financial systems.The current initiatives around open government data are incredibly fake. I’ve reviewed these sites extensively and I’ve been appalled. Classic to me is the “transparent list of salaries” that leaves out the salaries of Beth Noveck and other chiefs at the White House Office of Technology *chuckles*.Kid Mercury reaching a wider audience with his conspiracy truther gold views isn’t a boon, but a kind of pathological phase. That is, he should be free to spout it, just as I should be free to spout what I spout, but there’s troubling fracturing and lack of any civic standards when mislead others and harm them so easily by shilling them into gold investments. I’m going to be cringing when all that collapses.
I respect your right to spout as I don’t find fracturing troubling at all.”Be the change you want to see in the world” – Gandhi
One of my favorite things about your blog is how you integrate disparate parts of data to support your points. Since you seem to be on a NYC history kick, may I suggest: The Epic of New York City: A Narrative HistoryWhen I lived there (for 4 years), this was the 1st book I read on the city and it did wonders to give a huge context to the city. I think you’ll like it.
i’ll get it via the kindle app on my new iPadonly issue is fedex delivered it when i wasn’t home yesterday and requires asignature (for good reason)
Here’s an exercise for anyone who has been through a decent MBA program in the last 10 years.1. Go back and reread the Mankiw’s Ten Principles of Economics in your econ textbook. Review in particular the one that says “People respond to incentives.”2. Pick up that copy of Max Bazerman’s Judgment in Managerial Decision Making and read the chapter on ethical decision making — you know, the chapter that wasn’t covered in class. Check out the research on Bounded Ethicality. Here’s the summary in case your school didn’t use Bazerman’s book: Even good people regularly engage in unethical behavior without their own awareness due to conflicts of interest.3. Recall the discussion you’ve had either in class or with friends about free markets and Ayn Rand. Remember all the times that someone (perhaps even yourself) has consciously rationalized wholly self-interested behavior by saying such decision making is good, right, and proper.Put 1, 2, and 3 together.Humans are wired to respond in self-interested ways. We have bounded ability to recognize when our self interests conflict with our ethical standards and so regularly act in unethical ways without conscious awareness of it. We live in a time in which total self interest, even to the detriment of the public good, is lauded as a primary moral good by many people in business.You can wax romantically about a time in which people behaved better. But that time did not exist. Anecdotes in which people have done the right things despite conflicts of interest are valuable. They give us examples of behavior up to which we should aspire to live should we find ourselves in similar situations. However, it is wise to remember, these anecdotes are exceptions, not the norm.Personally I don’t like it. I would like to protest and believe that at least I am better than that. Unfortunately, arguments based on exceptionalism are usually fallacious. It is better to heed the facts and apply them towards better behavior instead of being pig-headedly self righteous while continuing to do wrong in blissful ignorance.Ethical integrity therefore demands one recuse oneself when a conflict of interest arises. Moreover, we must be vigilant to recuse others when they have a conflict of interest since they cannot be trusted to do so themselves, either because of bounded awareness or because they have no ethical qualms about acting to the detriment of society.
i think disclosure and a commitment to putting your personal interests asideis a better approachno conflict, no interest, bad decisions
Your statement is pithy, but science shows the following is also true:conflict, personal interest, bad decisions.The research into Bounded Ethicality proves that people cannot put personal interests aside. Moreover, it shows that people will violate their ethics and not consciously realize it to the point that they may not be able to see their compromise even after it is pointed out. The human mind is a powerful rationalizer, able to fool itself.A better system for public policy is to have those with conflicts disclose them and then only contribute information and arguments. Leave the decisions to people with no personal interests at stake. This doesn’t eliminate people with interest and competence in the topic from making decisions.
people with no interests are not people i want deciding anything
Interest and conflicting personal interests are two different things. Conflicting personal interests implies interest, but not vice versa. It is possible to find interested parties without financial interests at stake.
Let me add one more point here…We have a long standing practice in the law in which a jurist is recused if there is a conflict of interest. Why do you suppose that is? If your saying “no conflict, no interest, bad decisions” were the case, we would see this played out in our legal system. But we see the opposite.The next time you or a portfolio company is sued, will you put your money where mouth is and insist on a judge who has a personal interest in your opponent’s success? Of course you will not. And you couldn’t get your way if you did. Once the conflict were disclosed, the judge would have to recuse himself or risk having any decision overturned.Jurists figured out through historical introspection what science has now proven and businessmen still want to ignore.
judges are a different animal. i’m talking about getting business peopleinvolved in the political process
So, judges should not have conflicts of interest when they decide points of law, but political appointees should have conflicts of interest when they make law? That sounds like special pleading to me.
Oops, put in wrong place!
i’m sorry. i misunderstood
The NYC Subway (a poem) http://technbiz.blogspot.co…
you really are a fan!
Big time. The subway is where the city I love comes together for me more than any place else.
I’m late to the party on this thread, but have you seen the latest shots of the 2nd Ave subway construction? So cool: http://bit.ly/95uHIk
that’s a lot different than the way they built tunnels a century ago!
Not sure if this is an example of “put[ting] the interests of the community first and their financial interests second” (because I’m not sure if the founders have financial interests they’re putting second), but Carbon War Room, founded by Richard Branson (and two others), is an interesting example of business leaders coming together to deal with the climate issue. Under “Objectives,” we read: “The Carbon War Room harnesses the power of entrepreneurs to implement market-driven solutions to climate change. The War Room aims to bring together successful entrepreneurs in collaboration with the most respected institutions, scientists, national security experts, and business leaders to implement the change required to avoid catastrophic climate change.”
I wish when you tell this story you would analyze how the subway went from private to public hands, and why that had to happen (scaling, concurrency, sign-ups, subscriptions — sound familiar?).I could read the book, of course.I’m not sure if the public interest would be served by having little cabals of businessmen decide stuff and build stuff in the public commons whenever they got a yen to enhance their businesses. That’s what Google does, without accountability. I’m actually more of a socialist than you are, Fred.I wonder if this mantra would extend to Arrington’s “journalism”. I’d say “no”.
The problem now is less politicians’ direct financial interests, e.g., their personal portfolios and assets, but the financial interests of their lords and masters, i.e., the powerful interests who finance ever-more-expensive campaigns. Even if the politicians were to possess rock-solid integrity (a debate for another day), their masters make no pretense of statesmanship; they only play the contribution/lobbying game to advance their business interests, so the politicians are being directed, firmly and unequivocally, to compromise the greater good in favor of the parochial.
great points, charlie.
I have to ask — doesn’t the NJ conflict of interest law REQUIRE a bribe in addition to the fancy dinner? LOLWhatever they are doing in NJ is not working so good?I suggest that your second instance is a conflict of interest which can be overcome by full disclosure. Disclosure is often the remedy when there is a perceived but perhaps not a real conflict.If you do not charge your district for the system and if you acknowledge the history of how you got into it, I see no conflict of interest at all.If your conscience is still not assuaged, then you can contribute part of the profits to something else to apply a bit of balm.I think you are being a bit hard on yourself.
“And yes, sadly, money talks.”It talks so loudly because there is a disconnect between the power politicians wield and the money they are paid, and anytime you have a big disconnect like that, you invite corruption. I made that point about federal legislators recently, but the same is true at the local level, in places such as Bergen County, NJ, where a lot of dollars are at stake.
Love your comment (beyond the fact that I vehemently disagree with public campaign financing), but there are some issues with your point.First, on the dinner, the way you laid it out makes perfect sense. Yet you could have a business associate take you out to lunch on an entirely different topic, and then turn up four weeks later proposing services for the school district. In my board service as a community college trustee, I have dealt with this a handful of times in six years. Fortunately, our board members almost never have any input into selecting vendors — district staff makes a recommendation — and we can always recuse ourselves or abstain from a vote if need be. I’ve done so several times.Second, I agree with JLM to a point on your last hypothetical. My thought is, rather than using the school district as a reference, why not be up front in your disclosure. I’d write on the about page “as a trustee for X district, I saw the need for Y and built this solution.” Obviously, you wouldn’t talk about your business at a board meeting, or utilize a penny of taxpayer resources in its promotion. But mentioning that your public service has given you the experience to serve your customers? I have zero ethical problems with that.
I may have to try your new Focus product to keep me from arguing about campaign finance reform with you.
I have to say, these entire threads about business ethics are really educational about what one should be doing….even when it is tough
i disagree Charlie, particularly on that last point. your public service allows you to build a killer app and you should be free to sell it.
While I don’t think one can overdose on ethics, I do think you are being a bit hard on yourself. What I think is really unimportant and what you think is the most important thing. So this is just an observation and not a discussion.The District’s information is a public record and you are entitled to access it. You came to the position with a body of professional knowledge. Because of your professional knowledge you see an opportunity to be of service to your District.As long as you do not use the power of your position to further your business interests, I see no real conflict that cannot be sanitized by a dose of disclosure.Perhaps the remedy is to wait until you are off the Board to capitalize upon the opportunity.Again, one cannot overdose on ethics, so I leave it to you and I commend your sterling ethics.
“Whatever they are doing in NJ is not working so good?”Right. NJ is a far more corrupt state than PA. Though our current governor cleaned up a lot of corruption here when he was a U.S. Attorney here.
Disagree. “Publicly financed”, in practice, means “government financed”. You don’t see any potential for corruption there, with the current elected officials deciding who should get financed in the elections to replace them?
I think a better way would be the one the WSJ editors proposed years ago: let anyone donate as much as they want to a political campaign, as long as it is fully and immediately disclosed on the Internet. No matter where you stand on the political spectrum, there are almost certainly moneyed folks in America who share your views. It’s easier to find one of them than it is to find thousands of $5k donors.That is a more democratic solution (and probably a more Constitutional one) than having “non-elected” community leaders, business leaders, and university professors decide who gets to run for office (which is, essentially, what your system would be doing, as private campaign financing would be illegal, right?).
1. Could not agree more. I’ve never had to deal with that issue myself, but I was given one piece of advice one time that I’ve never forgotten. Before you say yes to anything, imagine your decision on the front page of the newspaper. If you think that would help your reputation or good name, you’re free to go for it. Otherwise, you should be seeing red flags everywhere. Hotel rooms and expensive dinners are just reasons for people to question your integrity. They’re not worth it to me.2. I’d have to agree if you’d have to use district resources in any way. Perhaps after you leave public office, you use your relationships with staff and say “if you’ll give me this data, I’ll give you the system I develop for free.” But that would definitely be a case of using your position to help your business, and I agree — I wouldn’t do it.I thought your objection was using them as a reference, and while I would avoid that directly, I think an elected official should be free to describe what their public service has equipped them to do in other areas of their career or life. Some work that I’m doing for orphan care and adoption in Africa has been greatly influenced by what I’ve learned in the area of education — and I always feel free to say so.
I am very, very high on the NJ Governor. NJ finally got corrupt enough that the people have thrown off their own yoke. There is hope.
I know next to nothing about public schools in Texas though I am quite up on FOIA stuff. I am sure student info must be protected.
My wife and I have adopted two kids (our latest from Ethiopia) and really left a piece of our hearts in Africa. It’s still early, but I think I’m headed back there this fall on a vision development trip for two organizations, and looking to create opportunities for people to engage in the issue. (If you’re interested in more, I’ll be blogging as it develops… http://aaronklein.com)
I have been impressed with him so far too. There’s a long way to go though.
Money alone doesn’t “buy” a political office. Money certainly helps, but even Corzine couldn’t buy himself a second term in NJ. Under current law, he could spend as much as he wanted on his own campaign. I have no problem with that. The WSJ proposal would level the playing field though, by letting wealthy folks on the other side of the political spectrum fund a wealthy candidate’s opponent.”Independent commission–they wouldn’t decide who gets funding. They would decide what the campaign rules are.”And the rules would decide who gets the public funding, right? Having a bunch of college professors and unelected “community leaders” decide who gets their campaigns funded isn’t my idea of democracy.
I’ll take a look at the link.
“but that then becomes a fight between the wealthy for power. kind oflike now.”It would allow non-wealthy candidates with good ideas to run without having to build a fund-raising infrastructure or get blessed by party bosses. And the public would see clearly where the money was coming from. I think it would be a big improvement over the status quo.
Charlie, the way to stop wealthy having to fight for power… is to limit the power of government. If the spoils aren’t that great, there’s not many folks who want to be the victors.And its simple. Money = speech. I spent thousands of hours on this exact topic, my last start up was a technological end run around McCain-Feingold. There’s no way to draw the line. If it sickens you, then the only answer is to reduce the spoils. But frankly, the US spends more on gum, than we do on politics, so it is going to get worse, unless…The way to solve almost all of this stuff, is THE INTERNET. Transparency is easy. Private bidding to manage government services is the future. Automating government functions is the future.It stuns me that we are listening to “Progressives” moan about how productivity gains over the past 15 years might have caused “structural unemployment,” in the private sector. HA! We just need to to make the same changes to government, and that will free up the private resources…. we’ll balance out again.Couple quick examples: Shut down the postal service. Let FedEx and UPS have it. Turn Social Security and Unemployment into a completely online process – no checks mailed, no local offices, just direct deposit the money into recipients’ bank accounts. Sell off those government buildings. There are hundreds more like this large and small.The bloated government must be modernized before there be any discussion of it being involved with sleek and efficient private business.Fred, until that time, we’re just pissing in the wind. They don’t know how to move fast enough. No venture you’d ever fund would survive the unnecessary years of runway. I just wish you brought real passion to actually forcing changes in the government.
That’s really cool, Charlie! There is a lot of abuse in the system, so you have to be careful. If you get a reputable agency here in the US, things will go much smoother.That being said, it will constrain your options – most of South and Central America is off the table right now, as is Haiti. But the hope is that those governments will come back and start implementing the Hague treaty on adoption to protect all stakeholders.
Charlie, none of my business, what about someone stuck in foster care in the US….
no question, i’m with dave pinsen in this beef. (though i commend some of charlie’s other comments and the fact that he seems to be a very ethical person. perhaps in some magical fairytale universe where everyone is as ethical as charlie, always and forever, public financing can work).
charliei edited this and the prior comment to remove your phone number and email. because they are in your signature, they got into the comment. disqus usually is good about removing those things but they didn’t on these two. so i did
Charlie, I think you’ll admit this is a good simple snapshot of things: http://nyti.ms/8YcVCtIt encompasses both your issue of foreign production and my thoughts as well.Now let me explain what I mean about gov. productivity. Our government is by and large a paper pushing behemoth that consumes larges amounts of private capital (taxes and debt interest) that could be used to grow new sectors of the private economy. There can and will be no more new taxes to solve for either. Instead government employees who are the least productive in our economy, need to have their salaries frozen (at minimum) and their pensions replaced by 401K’s. They need to be told that their salaries will only increase when private GDP grows. They rise and fall with us.1. Sloth: Imagine taking your focus software and putting it on every government employee’s computer, and then comparing comparable workers to one another, and firing the worst performing every six months. How many less government employees do we need?2. Process productivity like mentioned in the article. I’m not kidding about Social Security, etc. We need less public employees to do the same jobs.3. Privatized competitive productivity. If we think we need infrastructure fine… then we have to do it like the Los Angeles freeways were redone after the North Ridge earthquake.The upshot of all of this, is that we can have the government services we want, the safety net, protection, etc…. a large part of government is simple wealth redistribution, and that’s just a fancy way of saying funds transfer.One last note, we need to throw out the minimum wage. 31% of those workers are unemployed. We can still provide them housing assistance, food stamps, etc… but we shouldn’t make it illegal for someone who wants to work to sell their labor for what it is worth.