Who is going to bell the cat?

Someone asked me to elaborate on my comment "who is going to bell the cat" on the previous post, and this post is in response to that request.

To start with one example, we've all heard about people getting rewards based on closing mortgages, without regard to the ability of the mortgage recipient to actually pay back. Anyone willing to spend a few minutes on the web can find a lot of material that supports this statement. The question we've to ask ourselves honestly is this: if I was a mortgage broker, would I stay with the company that will reward me only for high quality loans that are closed, which means I'll need to work a lot more, and turn down many loan applicants, or would I go work for a company where I can make a lot of money closing loans without worrying about which borrowers can really pay back? It is easy to get on a high horse and say everyone should do the right thing. Very few people would have the courage, character, and fortitude to turn down personal gains in the interest of something larger than themselves. In some ways, everyone of us is the cat. Are we willing to put the bell around ourselves?

For the sake of argument, let's say that company X in a certain industry, feels that the current compensation structure is not fair. Either the rewards emphasize too much of short term thinking sacrificing the long term benefits, or the efforts/benefits of someone's work is not clearly tied with the rewards they receive. So this company lays out the "right" policies and rewards people based on long term value of the employees, tying the rewards to the value created by each employee, assuming there is an easy way to do this. At that point, would a "superstar" employee be willing to stay on long enough to be judged fairly and paid accordingly, when other employers may be willing to pay rewards sooner rather than later? Every company may feel the need to do things a certain way, but may be afraid to be the first one to take the step. Every company may be waiting for someone else to take the lead.

I'm sure you can think of examples where status quo prevails regardless of intentions, because of the same basic question. Who is going to bell the cat?

Given the amount of tax payer money shelled out to pull the economy from the danger of a free fall, the logical  thing may be for the Government to set up the rules. In fact, that's what any honest Government should do. Whether it is the Federal Reserve, Treasury Department or Congress that needs to act here, is there enough political will/courage to do this? I hope so.

Captains of the Industry

Business Week magazine and 92nd Street Y conduct these sessions called "Captains of the Industry", where Editor-in-Chief of Business Week, Stephen Adler,  interviews leaders in the business world in front of a live audience, that can also send in written questions to ask. Past "Captains of the Industry" interviewed in this series include Jeff Bezos, Michael Dell , Michael Bloomberg, Meg Whitman, etc. Jeffrey Immelt of GE will speak in the next few months.

Scott Carpenter, from Noon Day Ventures, kindly invited me to listen to Vikram Pandit (CEO of Citigroup) earlier this week. Here are some of my impressions:

The country was going through the most difficult times faced since WWII, with large banks being at the epicenter, and Vikram Pandit was put in charge of one of the largest and the most troubled financial institution. The amount of pressure on this individual over the last year or so was unimaginable. Yet here he was, conveying a lot of confidence in the future of his company. Stephen and Vikram were joking about 300% appreciation in stock price of Citi over the last few months.

There were some pointed questions about compensation, consumer protection, etc. He agreed with basic principles and the fairness in all these areas, but said very little about what he is going to do at Citi, or how the financial services industry is going to deal with it. Executive compensation is a big topic of conversation these days, both in terms of the staggering amounts of money involved and the kind of behavior that seems to be encouraged these days. I was initially disappointed to see the CEO of a very large company, part owned by taxpayers, not saying much about the $100 Million compensation paid to a single energy trader. After a couple of days, something occurred to me. To what extent greed is a factor in all this is anybody's guess. They can also be another, possibly bigger, factor at play here: who is going to bell the cat?

One of the comments Vikram made was that Citi used to be a balance sheet heavy company, and now the focus is shifting to being a client oriented company. To some extent, I understood what this meant - Citi had a history of growing by acquisition, and may have acquired all sorts of companies, without too much attention on which ones are critical to their primary mission, and which ones are not. What I didn't hear too much about is what he meant by being client oriented strategy. This to me was a let down - here I was, hoping to hear something more concrete than what was offered. What type of clients will be the focus of Citi's strategy is still a question in my mind.

Vikram also referred to shadow banks that are not regulated vs banks that are regulated. With Citi being the gigantic financial institution it is, I wonder about the parts of Citi that can be considered shadow financial institutions.

In summary, it was worth attending this event, as it got me thinking about a number of things, some of them listed above. I miss the company of one of my best friends from college days, Narasimham Batlanki - we used to spend hours figuring things out for ourselves, and discussing various topics ranging from politics to movies, sports to economics and everything in between. Our lives are too busy now to have those discussions. May be some day...


You can find the whole interview here:

US Open Tennis

Watched some tennis live in high def over the past week. It was AWESOME.

Women’s final: Felt very happy to see Kim getting over her nerves to win the championship. Hopefully Caroline won’t be a one final wonder – seems to have a lot of poise in addition to the high quality of her tennis. Even commentators were good – it was nice to see that even a runner up was allowed to speak in Danish and Polish, in addition to English.

Men's semi final:
Watched “the shot” live – Federer hitting the ball between the legs, with his back to the net, and winning that point. It was quite an entertaining match, with Djokovich providing some light hearted moments, particularly when he turned around and did a "tail (racket) between the legs" to protect himself from Federer's smash..

Men’s final: Only watched it from the end of second set. There are so many occasions when the match could have swung either way, but it was so impressive to see del Potro hold on to win the final. Some of his forehand shots were just incredible – one that sticks in my mind is a forehand cross court that flew like a bullet. It was very impressive to see 20 year old guy with the smarts to slow his serve down to 100mph or less (compared to 130+ he was serving earlier), and then use his forehands for winners. This is one smart kid. Wish he stays on with long rallies (15+ shots) to win the points, rather than give up so many points there.

Either Del Potro wasn't hitting the lobs deep enough, or Federer was too good - it was impressive to watch Federer reach them close to the net.
When Del Potro started hitting some passing shots late in the fourth set, I knew the match was his.

Only thing that bugged me was that the TV commentator wouldn’t allow the winner to speak in Spanish, and Del Potro had to ask several times. Dick can take some lessons from Mary Joe Fernandez before he shows up on TV again.