Thursday, July 17, 2014

On Wealth

Success compounds as does failure. In folksy speech you have an example being 'the rich get richer'.

This week I was given a moment to reflect upon my own understanding of this.

I think one thing I am good at is contingency planning. When confronted with any task, I almost reflexively create a checklist of what to do when things go wrong. I tend to always problem trouble shoot before I problem solve.

There is a tendency that I share with almost everyone though which is to look to what other people could do to make your life easier. I tend to then get critical of others in the situation.

As an exception to the 'two wrongs don't make a right rule' for reasons I won't disclose I was put in mind of two things, that have to do with wealth and how the rich get richer.

The first regarded a recruiting practice. I saw it on some talk video on line, a guy was talking about how call centers typically use people like light bulbs, they have high turnover rates employing people who need the money until they basically can't take the working conditions or work anymore. Then when they quit you just replace them. In the anglosphere at least, that describes most call centers - you generally have somewhere between a constant stream or trickle of people (depending on scale of operations) leaving the company and being recruited.

My mind is really excitable around business and I'm tempted to go into all the nuances of call center operation, but I'll skip to the speaker's sighted counterpoint to 'usual practice' or treating employees like light bulbs.

He found a call center that recruited people, trained them up and at the end of training said 'okay you have the job, OR you can take $2000 from us and never come back.' - literally paying people to leave. Because they had actually calculated that any employee that didn't actually want the job would cost them more in the long run than $2000 up front.

They did other stuff which was good, but here you have a company that is going to turn a profit. And it is a short hop step and jump from this seemingly out there practice to another - severance packages.

It effectively is a severance package, but for a casual job, which I think makes it brilliant.

But for a few days I actually thought about severance packages as distinct without making the connection with the above example.

But basically, one advantage large profitable companies have is that they can fire any employee at any time they deem necessary. Because they can afford to pay that employee out.

Basically if you are a small, poor, company struggling to turn a profit - say a small and young NGO. You have only 3 staff on salary. Then it turns out the crucial manager is incompetent, a real peanut, who is making bad decisions that are sending the organisation backward and inspiring your good staff and volunteers to give up and leave.

Seems like you should be able to pull the trigger on the situation pretty quickly. Except there are laws in place to protect employees from employers. In Australia, generally you need to provide three formal warnings before you move to dismissal and even then can get tied up in legal proceedings to prove the employee was fairly dismissed.

So our small, young, poor company faces a choice between a slow death by incompetence and hoping they can actually find rock solid grounds to fire the manager, or instant destruction by firing them on the spot and then having to face the financial consequences.

By comparison, wealthy companies can effectively settle. They enter a new contract with the incompetent manager, basically paying them to leave the company and not cause trouble. They don't need to go through months of formal warnings and documentation to prepare for a smooth firing. They just pull the trigger and pay them off, saving the cost of the legal battle. They don't have to worry about whether the dismissal was fair or not - that is the luxury they have.

Why this makes the rich richer is testimony to why recruiting is the single most important strategic decision a company makes.

The wrong candidate getting the job can do so much damage to a business I literally don't have time to extrapolate. They are so costly, that the quicker you can correct the mistake the better your bottom line.


So it was while I was thinking about these two, that I first managed to connect the two - these are the decisions wealthy people make. But secondly, I gained an appreciation for what wealth is.

Look at both circumstances, and consider the concept of 'fairness', you will find many sympathetic ears if you want to talk about the injustice of companies paying $13,000,000 to a CEO for being bad at their job. Why can't they just fire his pompous ass? Why pay him more than he would earn in a year? two years? five years? ten years?

It's an intuitive emotional response grounded in our value of fairness and justice. It looks like people getting rewarded for being bad at their jobs.

Same same to that call center, why should they fork out $2000 to people who have eaten up time and resources in training but don't actually want the job, and haven't done a single piece of productive work for the company yet?

It's like paying a bonus to the lowest performers in front of the high performers faces.

But they are both solid and sound business decisions. Beautiful in fact.

And this is wealth. Being able to afford to make problems go away.

Without which, there is really no point to having wealth. And I am wealthy, though my bank balances would probably not impress anybody as to that effect.

But basically, I have a problem right now, that I can simply pay to go away. And that's as bad as it gets. What was a helpful revelation to me, was that I thought that I didn't want to do that, because I was having an emotional response to the unfairness of it. Why should I have to spend money I earned to compensate for somebody else's incompetence?

The answer is: to make a problem I don't like dealing with, don't want to deal with, and have to deal with at the expense of shit I would much rather spend my time doing - go away.

It's one of those counter intuitive decisions I have the opportunity to leap.

So that's the emotion of fairness dealt with and the silver lining of a bad situation. Next I will talk about the revelations I've had regarding anger.

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