Dear Colleagues
Afghanistan is in the news again ... but really for the wrong reasons. The media jumps on "human interest" stories, but ignores important material most of the time, if not all of the time!
Of course media is not metrics ... though media has become more important in communications than the underlying facts and the metrics.
Socio-economic development is complex ... and not easy to get right. In Afghanistan, the process is complicated also by the history of the country, the structure of the society and international interventions over the past four decades. My own involvement with Afghanistan was soon after the Soviet withdrawal and a UN initiative to help with reconstruction and rebuilding war damage. Sadly, the international community were unprepared to make any commitment to funding this initiative and absolutely nothing was done beyond the preliminary planning stage ... a very expensive mistake as it has turned out.
My impression of Afghanistan was not much different from my impression of other places in the world. Most people live their lives struggling with the problems of the day and their immediate surroundings. Most people wish for little things to be a little better ... little things that ought to be pretty easy to do.
But most people do not make the decisions ... a few decision makers make the decisions ... and people are not usually beneficiaries and more often pawns in the process.
It was apparent from the start that an offensive in Afghanistan against Bin Laden in response to the 9/11 World Trade Center bombings had some justification ... but any broader offensive against civilians did not. It is good that in the past year, the international military in Afghanistan has moved from an offensive posture to one where the protection of civilians and society is a priority. With this there are also initiatives to help communities progress ... a very important component for success.
But this is not very much what the media is talking about ... nor the posturing politicians. In part this is because there are few useful metrics to show what is being accomplished in communities ... what progress is being made ... how the various activities are working ... how the various organizations are performing.
When there are metrics at a community level, it becomes very clear what issues need to be addressed ... what works ... and what does not!
When I was working in Afghanistan almost 20 years ago, one of the big questions was related to economic performance in rural communities and the profit potential of poppy versus any other economic activity! Simple value chain analysis ... a very powerful and useful analysis technique ... shows that drug profits are completely fueled by consumers who are mainly in rich and powerful countries, in countries with totally impotent policies to manage and control the demand. This is not easy stuff ... but it is drug addiction rather than poppy in Afghanistan that is the core problem that has to be addressed.
When more money can be made growing food than poppy ... Afghan farmers will grow food. This is the invisible hand ... the market mechanism ... that works very well when it is allowed to!
But there are other problems ... greed is one of them. As a former corporate CFO I am well aware of how people are attracted to money ... and good accounting is needed to make sure that money goes to the right places and gets used for the right purposes. But modern big organizations ... political, corporate, military, governmental, developmental ... all seem incapable of doing the sort of accounting control to make sure that money is used correctly and is accounted for. Recent articles in the press about plane-loads of money being shipped out of Afghanistan suggests that something is terribly wrong ... and with even basic accounting it should be clear who is stealing the money and ripping off the system.
But the problem has another layer ... when it is clear who is ripping off the system ... then it is virtually impossible to get justice. The rule of law is very powerful ... complex ... full of loopholes ... and serves very well to make it possible for totally unethical behavior to go unpunished. This is an aberration ... and ought to have been fixed a very long time ago. The fact it is has not been fixed suggests that a lot more people in positions of power are tainted by these behaviors than the general population would ever imagine!
Which brings us back to meaningful metrics ... metrics that are clear and unambiguous ... ubiquitous. Media and story telling are not enough! Community level metrics for Afghanistan would be very useful ... and probably show how good a job the international military are doing ... and also how well some Afghan communities are doing. Maybe these metrics would also show how some of the participants in the process are ripping off the system ... and with this transparency, maybe behavior will be modified to everyone's benefit!
Peter Burgess
Wednesday, June 30, 2010
Perceptions ... not a good basis for metrics of progress and performance
Dear Colleagues
I have said for a long time that using the stockmarket as a metric to assess economic performance is wrong ... so it is pleasing to find a stockmarket newsletters saying something along the same lines. http://seekingalpha.com/article/212414-general-electric-what-s-the-story?source=email. I just read this:
I like old-fashioned accountancy ... a simple system that aims to reflect facts about economics and finance in a simple consistent way. Good accountancy is simple, clear and boring ... with rather little intellectual content. But modern accountancy is rarely good accountancy ... neither simple nor clear ... but worse, not much reflecting hard facts of economics and finance, but too frequently merely "constructs" that are derived from some remote set of facts!
If we look at the modern financial and economic landscape starting with facts and then moving to measures that are meaningful representations of these facts, there is considerable cause for both alarm and optimism. The alarm is that the prevailing measures are sending all the wrong signals to decision makers, and decision makers are moving into panic mode and doing more and more the wrong things. The optimism is that some of information technology and other fields of science are very good ... very powerful ... and could be mobilized to do important things for global good.
This is not the first time in history that there has been this sort of dual track situation ... and as in the past the world will probably get things half right and half wrong ... better than totally wrong, but way worse that what would be possible in a more well-informed world with better metrics about socio-economic performance.
I am more optimistic than pessimistic ... but wary that the powerful decision makers in politics, business and the broader establishment are not getting helped by the terrible system of business and economic media and metrics!
There is work to be done to improve media and metrics!
Peter Burgess
I have said for a long time that using the stockmarket as a metric to assess economic performance is wrong ... so it is pleasing to find a stockmarket newsletters saying something along the same lines. http://seekingalpha.com/article/212414-general-electric-what-s-the-story?source=email. I just read this:
If there is such a thing as one stock as a "tell" for the world economy, I'd nominate General Electric (GE). Not only does it have its hands in multiple industrial and consumer oriented markets, it has a large financial arm to boot.The phrase "perceptions of reality" is good ... it describes what seems to be going on in the capital markets ... but perceptions of reality are not a good basis for measuring performance.
With that said, I am wondering what, if anything, the chart is telling us nowadays. It is at lows for the year and is fast approaching its November 2009 lows. Excluding the flash crash and the day after, it's been a near continuous drop since April. Then again, what the heck was GE telling us in April as it had not a care in the world?
I'm not a big fan of the club that says the stock market is a great predictor of the future. For that group I'd like to ask what the market was predicting in early 2000 and the fall of 2007. I do think the market is a great indicator of PERCEPTIONS of reality. Seems like big money is turning our way in terms of evaluating about what is coming down the pike.
I like old-fashioned accountancy ... a simple system that aims to reflect facts about economics and finance in a simple consistent way. Good accountancy is simple, clear and boring ... with rather little intellectual content. But modern accountancy is rarely good accountancy ... neither simple nor clear ... but worse, not much reflecting hard facts of economics and finance, but too frequently merely "constructs" that are derived from some remote set of facts!
If we look at the modern financial and economic landscape starting with facts and then moving to measures that are meaningful representations of these facts, there is considerable cause for both alarm and optimism. The alarm is that the prevailing measures are sending all the wrong signals to decision makers, and decision makers are moving into panic mode and doing more and more the wrong things. The optimism is that some of information technology and other fields of science are very good ... very powerful ... and could be mobilized to do important things for global good.
This is not the first time in history that there has been this sort of dual track situation ... and as in the past the world will probably get things half right and half wrong ... better than totally wrong, but way worse that what would be possible in a more well-informed world with better metrics about socio-economic performance.
I am more optimistic than pessimistic ... but wary that the powerful decision makers in politics, business and the broader establishment are not getting helped by the terrible system of business and economic media and metrics!
There is work to be done to improve media and metrics!
Peter Burgess
Saturday, June 26, 2010
Global health ... ARV supply interruption at Bristol-Myers Squibb
Dear Colleagues
On the face of it a supply interruption of antiretroviral (ARV) drugs is obscene. According to a writer with IRIN PlusNews a Bristol-Myers Squibb (BMS)factory supplying essential life-prolonging ARV drugs for infants will close in France this month and a new factory to continue production or the drug will be approved for manufacturing in the USA in February next year. Available stocks will run out probably in December, the article reports. Activists think it will be April before production of the drug goes back on stream.
This is the URL ... the text of the IRIN article is at the end of the post. http://www.plusnews.org/report.aspx?ReportID=89424
The story raises a number of questions about the nature of the global health sector. There are periodic observations that the major drug companies put profit before people and are in the business of making money more than they are committed to global good health. There are all sorts of pieces of evidence that this is the case, including the constraints on allowing low cost manufacturing of life saving drugs.
Over the years, there have been many initiatives to make drug supplies available to help poor people in developing countries. An initiative of the ExIm Bank of the US during the Clinton Administration was rejected by developing countries as being nothing more than a way of funding the transfer of wealth from poor countries to big pharmaceutical companies ... and the more recent initiative of the Clinton Foundation related to drug procurement that is referred to in the IRIN article has some of the same characteristics.
Big pharmaceutical companies have become very profitable because of high prices and high margins ... which are not obviously related to high investment in research and development, but more, I would argue to the restraint of competition through the patent regime and regulation. In the meantime, the science and the products are available technically for the treatment of disease in poor economies, but not affordable at prevailing big pharma prices. The ongoing fights against generics are understandable ... but the cost in terms of human health is unacceptable. There is a better way, but no political will to address business model of big pharma as important suppliers to global health.
A system of metrics that includes not only the profit but also the value of what companies do would change the nature of the corporate playing field. Much great work is done by researchers ... but only work that creates corporate profit gets corporate support while anything that has merely value through saving lives in poor countries is getting left on the shelf ... the so-called orphan drugs! Appalling state of affairs ... but what one should expect with a system of metrics that only takes profit into account!
Here is the text of the original post:
On the face of it a supply interruption of antiretroviral (ARV) drugs is obscene. According to a writer with IRIN PlusNews a Bristol-Myers Squibb (BMS)factory supplying essential life-prolonging ARV drugs for infants will close in France this month and a new factory to continue production or the drug will be approved for manufacturing in the USA in February next year. Available stocks will run out probably in December, the article reports. Activists think it will be April before production of the drug goes back on stream.
This is the URL ... the text of the IRIN article is at the end of the post. http://www.plusnews.org/report.aspx?ReportID=89424
The story raises a number of questions about the nature of the global health sector. There are periodic observations that the major drug companies put profit before people and are in the business of making money more than they are committed to global good health. There are all sorts of pieces of evidence that this is the case, including the constraints on allowing low cost manufacturing of life saving drugs.
Over the years, there have been many initiatives to make drug supplies available to help poor people in developing countries. An initiative of the ExIm Bank of the US during the Clinton Administration was rejected by developing countries as being nothing more than a way of funding the transfer of wealth from poor countries to big pharmaceutical companies ... and the more recent initiative of the Clinton Foundation related to drug procurement that is referred to in the IRIN article has some of the same characteristics.
Big pharmaceutical companies have become very profitable because of high prices and high margins ... which are not obviously related to high investment in research and development, but more, I would argue to the restraint of competition through the patent regime and regulation. In the meantime, the science and the products are available technically for the treatment of disease in poor economies, but not affordable at prevailing big pharma prices. The ongoing fights against generics are understandable ... but the cost in terms of human health is unacceptable. There is a better way, but no political will to address business model of big pharma as important suppliers to global health.
A system of metrics that includes not only the profit but also the value of what companies do would change the nature of the corporate playing field. Much great work is done by researchers ... but only work that creates corporate profit gets corporate support while anything that has merely value through saving lives in poor countries is getting left on the shelf ... the so-called orphan drugs! Appalling state of affairs ... but what one should expect with a system of metrics that only takes profit into account!
Here is the text of the original post:
/////////////////////////////////////
Factory closure could leave 7,000 babies without ARVs. Activists say the drug could be out of production until April 2011
NAIROBI, 9 June 2010 (PlusNews)
Civil society activists are protesting the closure of a factory that produces the only UN World Health Organization-pre-qualified version of a life-prolonging antiretroviral (ARV) drug for infants.
Pharmaceutical giant Bristol-Myers Squibb (BMS), which owns the French factory that produces didanosine, a second-line ARV for babies weighing less than 10kg, will shut down the plant in June 2010, stopping production of the drug until at least February 2011, when regulatory approval of a new United States-based manufacturing site is expected.
"Closing this factory means that 4,000–7,000 babies currently enrolled in treatment plans in developing countries through UNITAID [a funding mechanism for HIV treatment] could be left without the medicines they need," said the authors of a letter to BMS chief executive officer Lamberto Andreotti.
Didanosine is the last therapeutic option for these babies, and without it they could die ... there is likely to be a shortage of about 15,000 packs of didanosine 25mg across all UNITAID beneficiary countries between now and when production is expected to resume in April 2011," the letter, published in The Lancet, read.
UNITAID, the main buyer of didanosine for distribution to developing nations, issued a statement urging BMS to take all measures to ensure the continued supply of didanosine 25mg and 50mg during the transition of its manufacturing site, so as to avoid interrupting treatment of the children whose lives depend on it.
BMS said unforeseen demand had put a strain on the supply of didanosine, but they had taken steps to ensure uninterrupted supply of the drug until the US factory opened. The product would become available immediately upon regulatory approval of the US site.
"We preventively built up inventory to twice the level of 2009 demand," BMS spokeswoman Sonia Choi told IRIN/PlusNews. "We are actively working with procurement agencies to provide didanosine to patients in need, and to ensure minimal disruption."
Didanosine is the last therapeutic option for these babies, and without it they could die
However, UNITAID spokeswoman Daniela Bagozzi told IRIN/PlusNews that the Clinton Health Access Initiative, through which UNITAID distributes the medication, reported that existing stocks would last only until December 2010, and that regulatory approval of the new BMS site was unlikely to be received before April 2011, extending the period of likely shortages.
"At the moment we are still in talks with BMS but we are also looking at other solutions. We are asking manufacturers of generic versions of didanosine to seek WHO [World Health Organization] pre-qualification, and are in talks with WHO to expedite the pre-qualification of alternatives," Bagozzi said.
"By having alternatives we bridge the current gap, but we also ensure that should the same thing happen in the future, the lives of young children are not jeopardized."
International development assistance ... very little of performance metrics!
Dear Colleagues
The Center for Global Development (CGD) publishes studies about different aspects of development. A recent blog post about the need for performance based evaluation and the CGD report "Are Funding Decisions Based on Performance?" have attracted my attention. The blog post is to be found at http://blogs.cgdev.org/globalhealth/2010/04/do-pepfar-the-global-fund-and-the-world-bank-map-make-funding-decisions-against-performance-and-why-this-matters-now.php?utm_source=GHPRN&utm_medium=email&utm_campaign=nl_GHPRN_06252010.
The paper may be downloaded from http://www.cgdev.org/content/publications/detail/1424030/
The issues being talked about in the CGD report and the blog are important ... but I am disappointed at what emerges as a result. It is years and years and years that the main official relief and development assistance (ORDA) organizations have talked about improvement in the performance metrics systems ... going back 30 years and more ... and the outcome, the change in process that will get change in performance ... is miniscule.
This is the comment I have posted to the CGD blog:
The Center for Global Development (CGD) publishes studies about different aspects of development. A recent blog post about the need for performance based evaluation and the CGD report "Are Funding Decisions Based on Performance?" have attracted my attention. The blog post is to be found at http://blogs.cgdev.org/globalhealth/2010/04/do-pepfar-the-global-fund-and-the-world-bank-map-make-funding-decisions-against-performance-and-why-this-matters-now.php?utm_source=GHPRN&utm_medium=email&utm_campaign=nl_GHPRN_06252010.
The paper may be downloaded from http://www.cgdev.org/content/publications/detail/1424030/
The issues being talked about in the CGD report and the blog are important ... but I am disappointed at what emerges as a result. It is years and years and years that the main official relief and development assistance (ORDA) organizations have talked about improvement in the performance metrics systems ... going back 30 years and more ... and the outcome, the change in process that will get change in performance ... is miniscule.
This is the comment I have posted to the CGD blog:
Dear Colleagues
My work with the official relief and development assistance (ORDA) industry goes back to 1978 ... my prior background was engineering, economics and corporate management accounting.
In some parts of the health industry there is great attention to cause and effect and science has moved ahead in an amazing way ... but in the operational activities of the ORDA community and global public health, the acquisition and use of data is dismal, and I would add ... perhaps fraudulent ... certainly not transparent.
When one "follows the money" all sorts of issues arise ... and this should be of great concern. It seems that there is a widespread mindset that the big job is to get the donors to deliver the money ... and after that getting results is not very important. It is an appalling state of affairs that this has become widespread ... almost universal!
I argue that we ought to know what things cost and be able to compare costs between times, between places and between organizations. This should show us something about cost efficiency. Only things that are cost efficient should get funded. One strike and you are out!
I argue that we ought to know a lot more about impact and cost effectiveness. How much was the expenditure and how much progress was achieved as a result of the expenditure. ORDA activities have been going on for 60 years, and yet there is relatively little data about cost effectiveness. In malaria there are many different interventions that in combination produce impact ... but what mix has worked best? ... at what cost? ... with what impact (improvement in the malaria situation)? ... and specifically in what communities?
With some knowledge not only about time but also place it becomes possible to get some validation of data and the stories being told. This can be invaluable ... many stories do not hold up when there is even simple validation!
When the Global Fund was proposed, I thought it a good idea. When it started out I changed my mind because it rapidly adopted the many bad practices of the ORDA world including a singular focus on analysis of proposals and data collection, analysis and reporting about actual performance that is meaningless. As a consequence, the world knows very little of how impactful the Global Fund has been.
I am not optimistic than any of the leaders in the ORDA community are going to take any significant initiatives to improve data acquisition and reporting about performance. In this situation, at some point society as a whole will have to do this. It will not be easy, but it can be done. Hopefully the major institutions will realize ahead of time the impact that this will have and reform themselves ahead of time.
It could get interesting!
Peter Burgess
BP ... poster child for failed corporate social responsibility (CSR)?
Dear Colleagues
I am interested and increasingly active in connection with corporate social responsibility (CSR) and concerned about what impact it is having on corporate behavior and on society as a whole. The recent post on the Ethical Corporation website is interesting. The URL is: http://www.ethicalcorp.com/content.asp?ContentID=6944 The text of this post is set out at the end of my remarks. I made a short comment on their post as follows:
There is nothing wrong with supplementing profit ... but there is something wrong with having CSR that is totally superficial. There is also something wrong with the corporate analysis of risk.
In my view, risk is not a financial construct ... it is an engineering construct and in good engineering the practice of risk management is what makes it possible for complex systems like aircraft and modern bridges and buildings to be built and to be safe. My own work in risk management was about doing operational things to reduce the probability that an accident would happen, and there would be casualties and costs. At the time my title was CFO ... chief financial officer ... but the cost of risk was not going to get managed by the insurance company but by the way our operations performed.
So what happened at BP ... costs were reduced, profits were increased, risks were increased ... and then the incident and everything now is about the cost of the incident, and costs soar, profits are diminished and the very future of the company is at risk. The impact on BP and on society ... the socio-economic society of the US Gulf Coast states .... of this incident is not yet determined but I would argue that the societal damage is larger than the stock market capitalization of BP! The fact that BP has agreed to set aside some $20 billion is indicative of a large projected cost!
But whatever happened to CSR ... arguably it was very "Lite" and not much more than a fancy paint job.
My hope is that the CSR movement can be persuaded to engage with value metrics so that profit and value are both part of the way organizations engage in economic activity and resources are allocated. Without metrics it is difficult to get traction and to get meaningful things done.
The BP story has a long way to go ... and the full costs are not going to be understood for a long time to come.
Peter Burgess
//////////////////////////////
BP and the Gulf of Mexico oil spill: Exposing the limits of CSR-lite
http://www.ethicalcorp.com/content.asp?ContentID=6944
BP's recent environment and safety record calls into question whether CR as currently practiced is fit for purpose, suggests Simon Propper
The corporate responsibility (CR) and sustainability community has been pretty quiet about the terrible incident continuing in the Gulf of Mexico. Nobody wants to rush to judge a situation that is complex and highly specific to the oil exploration sector.
This is patently sensible. But the ongoing disaster should make everyone involved in the corporate responsibility field reflect on the effectiveness of CR as currently practiced.
Many commentators attributed the global credit crunch and subsequent banking collapse to a failure of corporate responsibility. And indeed a number of institutions obviously did behave irresponsibly.
But the banking crisis was not a failure of CR in the sense that ethics systems and governance were in place and failed to ensure responsible behaviour. The banks were essentially non-participants in corporate responsibility.
Yes they greened their offices and invested generously in communities, but their core business, particularly investment banking were - and still are - outside the scope of their responsible business programmes. So the banks failed but CR was untested.
BP is entirely different. There is much creative speculation about what the initials ‘BP’ stand for. Greenpeace is running a ‘competition’ to design the company a new logo. This must be one of the best supported design competitions ever held: see the many entries on flickr.
Some suggestions such as ‘Big Pickle’ exhibit dark humour and others like ‘Blatant Polluter’ and ‘Bought Politicians’ express rage. But in the CR world BP stood for Best Practice.
'CSR compliant'
Rarely has a company so quickly and enthusiastically adopted all the tools and techniques recommended to it by experts, business organisations and assorted vocal stakeholders.
After John Browne took BP out of the machiavellian Global Climate Coalition in 1997 and began his address to the Greenpeace Business conference with the words, ‘It makes a change for me to be occupying one of your platforms…’ the company became increasingly confident of its relationship with NGOs and its place in society.
While the current CEO Tony Hayward has diluted the company’s bigger vision for combating climate change and moving ‘beyond petroleum’, his focus on operational integrity was supposed to be even stronger.
This is a company with all the CR scouting badges: ISO14001 at major operating sites, an advanced Operating Management System, thorough materiality and risk assessment procedures, comprehensive stakeholder engagement processes, reporting to GRI A+ standard and assurance by Ernst & Young to AA100AS principles of inclusivity, materiality and responsiveness.
Best practice?
How then is it possible that a much admired company fully implementing best practice can suffer a series of major, even catastrophic incidents? Not in areas outside the main thrust of CR management, like the banks, but in the core objectives of protecting people and the planet.
Three major incidents appear to be more than coincidence or bad luck. In 2005 an explosion at the Texas City Refinery killed 15 people and injured 180.
In 2006 leaks of oil were discovered at the Prudhoe Bay operations in the environmentally sensitive Alaska North Slope. And now of course they have the big one.
This calls into question whether CR as currently practiced is fit for purpose.
A possible explanation for the apparent failure of CR, is that the bar is set too low in most of the approved processes and standards.
In other words it’s too easy to have an A+ report and a certified environmental management system.
This may well be part of the problem and one does hear stories of a box-ticking mentality among some of the systems certifiers.
One corporate executive told me recently that his company does not certify to ISO14001 because the independent certifiers are less rigorous than their own auditors.
Of course not all companies have the potential to cause destruction on the same scale as BP, but all large companies can have a significant impact if they make mistakes and they risk their own reputations when they do so.
Lip service...
Is appears entirely likely that we have developed quite a good understanding of how to identify sustainability risks, but still do not really give that information the weight it deserves when it comes up against commercial pressures – like the need to do things quickly, to cut costs and to minimise regulatory hurdles.
Have we been too accommodating in our effort to ingratiate CR to business, seeing lip-service as preferable to rejection? By ‘we’, I mean the CR industry itself. Consultants, auditors and in house professionals are not in the best position to stand up to really serious pressure from senior executives.
Also the marginalisation of CR in company decision making mostly takes place in private. The really difficult decisions that take a risk over a cautious approach are rarely debated in public or even discussed with corporate responsibility and sustainability teams.
Investors, for all their genuine engagement in CR, continue to be part of the problem.
When viewing a successful company with a good reputation they should be probing how this is being protected not pushing to shave another percent off operating costs.
Perhaps the BP accident in the Gulf of Mexico marks the end of CR-lite and the beginning of a new era where CR risks are fully reflected in company strategy.
Simon Propper is Managing Director of sustainability strategy consultancy, Context.
//////////////////////////////
I am interested and increasingly active in connection with corporate social responsibility (CSR) and concerned about what impact it is having on corporate behavior and on society as a whole. The recent post on the Ethical Corporation website is interesting. The URL is: http://www.ethicalcorp.com/content.asp?ContentID=6944 The text of this post is set out at the end of my remarks. I made a short comment on their post as follows:
Dear ColleaguesThe Ethical Corporation posting identifies an issue that has been increasingly apparent for a number of years ... namely that the use of CSR has been convenient as a supplement to the corporate marketing initiatives and as a supplement to internal operational imperatives ... in other words CSR has been practiced to supplement profit.
CSR is more important than profit ... though you would never know it from listening to the Business News TV channels or the MBA trained professionals. Sadly there are no effective metrics in use to give CSR the leverage it needs. We are doing this with a metrics methodology currently called Community Analytics (CA) that is as rigorous as corporate accounting but looks at economic activity from impact on community rather than impact on stockholders. Without metrics CSR is merely a marketing and advocacy tool ... nothing more!
Peter Burgess
There is nothing wrong with supplementing profit ... but there is something wrong with having CSR that is totally superficial. There is also something wrong with the corporate analysis of risk.
In my view, risk is not a financial construct ... it is an engineering construct and in good engineering the practice of risk management is what makes it possible for complex systems like aircraft and modern bridges and buildings to be built and to be safe. My own work in risk management was about doing operational things to reduce the probability that an accident would happen, and there would be casualties and costs. At the time my title was CFO ... chief financial officer ... but the cost of risk was not going to get managed by the insurance company but by the way our operations performed.
So what happened at BP ... costs were reduced, profits were increased, risks were increased ... and then the incident and everything now is about the cost of the incident, and costs soar, profits are diminished and the very future of the company is at risk. The impact on BP and on society ... the socio-economic society of the US Gulf Coast states .... of this incident is not yet determined but I would argue that the societal damage is larger than the stock market capitalization of BP! The fact that BP has agreed to set aside some $20 billion is indicative of a large projected cost!
But whatever happened to CSR ... arguably it was very "Lite" and not much more than a fancy paint job.
My hope is that the CSR movement can be persuaded to engage with value metrics so that profit and value are both part of the way organizations engage in economic activity and resources are allocated. Without metrics it is difficult to get traction and to get meaningful things done.
The BP story has a long way to go ... and the full costs are not going to be understood for a long time to come.
Peter Burgess
//////////////////////////////
BP and the Gulf of Mexico oil spill: Exposing the limits of CSR-lite
http://www.ethicalcorp.com/content.asp?ContentID=6944
BP's recent environment and safety record calls into question whether CR as currently practiced is fit for purpose, suggests Simon Propper
The corporate responsibility (CR) and sustainability community has been pretty quiet about the terrible incident continuing in the Gulf of Mexico. Nobody wants to rush to judge a situation that is complex and highly specific to the oil exploration sector.
This is patently sensible. But the ongoing disaster should make everyone involved in the corporate responsibility field reflect on the effectiveness of CR as currently practiced.
Many commentators attributed the global credit crunch and subsequent banking collapse to a failure of corporate responsibility. And indeed a number of institutions obviously did behave irresponsibly.
But the banking crisis was not a failure of CR in the sense that ethics systems and governance were in place and failed to ensure responsible behaviour. The banks were essentially non-participants in corporate responsibility.
Yes they greened their offices and invested generously in communities, but their core business, particularly investment banking were - and still are - outside the scope of their responsible business programmes. So the banks failed but CR was untested.
BP is entirely different. There is much creative speculation about what the initials ‘BP’ stand for. Greenpeace is running a ‘competition’ to design the company a new logo. This must be one of the best supported design competitions ever held: see the many entries on flickr.
Some suggestions such as ‘Big Pickle’ exhibit dark humour and others like ‘Blatant Polluter’ and ‘Bought Politicians’ express rage. But in the CR world BP stood for Best Practice.
'CSR compliant'
Rarely has a company so quickly and enthusiastically adopted all the tools and techniques recommended to it by experts, business organisations and assorted vocal stakeholders.
After John Browne took BP out of the machiavellian Global Climate Coalition in 1997 and began his address to the Greenpeace Business conference with the words, ‘It makes a change for me to be occupying one of your platforms…’ the company became increasingly confident of its relationship with NGOs and its place in society.
While the current CEO Tony Hayward has diluted the company’s bigger vision for combating climate change and moving ‘beyond petroleum’, his focus on operational integrity was supposed to be even stronger.
This is a company with all the CR scouting badges: ISO14001 at major operating sites, an advanced Operating Management System, thorough materiality and risk assessment procedures, comprehensive stakeholder engagement processes, reporting to GRI A+ standard and assurance by Ernst & Young to AA100AS principles of inclusivity, materiality and responsiveness.
Best practice?
How then is it possible that a much admired company fully implementing best practice can suffer a series of major, even catastrophic incidents? Not in areas outside the main thrust of CR management, like the banks, but in the core objectives of protecting people and the planet.
Three major incidents appear to be more than coincidence or bad luck. In 2005 an explosion at the Texas City Refinery killed 15 people and injured 180.
In 2006 leaks of oil were discovered at the Prudhoe Bay operations in the environmentally sensitive Alaska North Slope. And now of course they have the big one.
This calls into question whether CR as currently practiced is fit for purpose.
A possible explanation for the apparent failure of CR, is that the bar is set too low in most of the approved processes and standards.
In other words it’s too easy to have an A+ report and a certified environmental management system.
This may well be part of the problem and one does hear stories of a box-ticking mentality among some of the systems certifiers.
One corporate executive told me recently that his company does not certify to ISO14001 because the independent certifiers are less rigorous than their own auditors.
Of course not all companies have the potential to cause destruction on the same scale as BP, but all large companies can have a significant impact if they make mistakes and they risk their own reputations when they do so.
Lip service...
Is appears entirely likely that we have developed quite a good understanding of how to identify sustainability risks, but still do not really give that information the weight it deserves when it comes up against commercial pressures – like the need to do things quickly, to cut costs and to minimise regulatory hurdles.
Have we been too accommodating in our effort to ingratiate CR to business, seeing lip-service as preferable to rejection? By ‘we’, I mean the CR industry itself. Consultants, auditors and in house professionals are not in the best position to stand up to really serious pressure from senior executives.
Also the marginalisation of CR in company decision making mostly takes place in private. The really difficult decisions that take a risk over a cautious approach are rarely debated in public or even discussed with corporate responsibility and sustainability teams.
Investors, for all their genuine engagement in CR, continue to be part of the problem.
When viewing a successful company with a good reputation they should be probing how this is being protected not pushing to shave another percent off operating costs.
Perhaps the BP accident in the Gulf of Mexico marks the end of CR-lite and the beginning of a new era where CR risks are fully reflected in company strategy.
Simon Propper is Managing Director of sustainability strategy consultancy, Context.
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Child labor ... the canary in the mine!
Dear Colleagues
I responded to a recent Internet posting about child labor in Uzbekistan, and a lot of other places around the world. My response should be the beginning of something ... but the way data flows in our modern society it will have no impact. This is a system issue that needs to get changed in many fundamental ways.
Abuse is ignored ... anything like this can be ignored because the way we keep score does not have these types of stats as part of the system that goes to responsible decision makers. In this situation, the abuse can be ignored ... in fact the abuse is better ignored, because to address it will cost and the cost will affect the metrics being used in the mainstream systems of performance metrics and allocation of resources.
How many children are being abused? How many children do not have a chance to achieve anything like their full potential? Is the planet's population of children is 3 billion is it 50% that will not have opportunity to achieve their full potential ... that is 1.5 billion children. Or is it perhaps 80% that not have opportunity to achieve their full potential ... that is 2.4 billion children. Stories about abused children are symptomatic of a way bigger problem ... the canary in the coal mine! The sad fact is that the system of metrics we have makes us look at the process of education and training of children as a cost without taking into consideration the value creation that is associated with doing right by the children.
The world needs to rethink what is being done to ensure that children have the education, the skills ... and yes, the ethical values ... so that they have value for themselves and for society in the future. Bluntly put, I do not know a single politician or accountant that is speaking out clearly on the cost and value proposition of doing right by children!
Peter Burgess
I responded to a recent Internet posting about child labor in Uzbekistan, and a lot of other places around the world. My response should be the beginning of something ... but the way data flows in our modern society it will have no impact. This is a system issue that needs to get changed in many fundamental ways.
Dear ColleaguesThe sad reality is that children are being abused in the globalized modern economy and while the reality is known, it is also ignored.
When profit is the main measure of performance, then outcomes like the child labor in Uzbekistan are a natural result. A better system of metrics is needed where good money profit can be separated from bad money profit.
We can do this as a global society by embracing value and using amazing modern technology. Stay tuned ... the possibilities for a better system of metrics are huge!
Peter Burgess
Abuse is ignored ... anything like this can be ignored because the way we keep score does not have these types of stats as part of the system that goes to responsible decision makers. In this situation, the abuse can be ignored ... in fact the abuse is better ignored, because to address it will cost and the cost will affect the metrics being used in the mainstream systems of performance metrics and allocation of resources.
How many children are being abused? How many children do not have a chance to achieve anything like their full potential? Is the planet's population of children is 3 billion is it 50% that will not have opportunity to achieve their full potential ... that is 1.5 billion children. Or is it perhaps 80% that not have opportunity to achieve their full potential ... that is 2.4 billion children. Stories about abused children are symptomatic of a way bigger problem ... the canary in the coal mine! The sad fact is that the system of metrics we have makes us look at the process of education and training of children as a cost without taking into consideration the value creation that is associated with doing right by the children.
The world needs to rethink what is being done to ensure that children have the education, the skills ... and yes, the ethical values ... so that they have value for themselves and for society in the future. Bluntly put, I do not know a single politician or accountant that is speaking out clearly on the cost and value proposition of doing right by children!
Peter Burgess
Microfinance ... what is the "right" interest rate?
Dear Colleagues
I am interested in the area of microfinance. This question has been asked:
I responded to the writer as follows:
I am interested in the area of microfinance. This question has been asked:
Dear Group members,The financial analysis of microfinance institutions (MFIs) is something I follow with some interest ... but mainly because I do not want financial analysis to be the only way the performance of the MFI is measured.
We are going to start a new MFI and very keen to understand about setting interest rate for borrowers. We are going to fund it from personal sources through friends and relatives. We want to give some returns to our lenders also. Our main objective is to give loans to women entrepreneurs and don't want to charge them on high interest rate. Please suggest optimum level of interest rate to charge to borrowers. In future we are looking for commercial funding, please suggest how to approach them and at what rate they lend normally.
Look forward to your responses, thank you.
I responded to the writer as follows:
Dear Colleagues
Personally, I would argue that there are many questions that need answering before addressing the rate of interest question.
Why is the MFI being created?
Is it to help people progress in some way ... maybe to progress in a very small step towards something just a little bit better ... maybe ... and there are hundreds of little things that can be helpful? Or is it to be more than anything else to become a financially viable institution that will eventually be able to do an IPO and make the founders of the MFI wealthy?
What is the source of financing?
In this case the financing is from family and friends ... who are expecting some rate of return. This is likely to be confusing because the scale of operations you are likely to be having is going to make your unit cost of loan operations high ... and to cover costs interest rates are likely to need to be 100% per annum and more. At the outset smaller operations almost all get some sort of financial break ... grant financing, for example ... and only move to sustainable and eventually profitable operations when scale has been achieved.
What is the value of the financing?
I am not totally opposed to high interest rates. The question that is important is how do the costs of borrowing compare to the value of borrowing. If access to money is going to save the lives of family members, then even if the access has a high cost, it is still worth doing. If high interest rates are merely to help extract as much profit from the lending process as possible ... then there are big questions and I would argue for something better. The key here is to understand the value adding dimension of the various transactions in play.
Personally, I am more interested in the cost and value interaction in the microfinance space than I am in comparing different APR interest rate calculations. In my view, the worst thing that can happen to an MFI is for it to start to look like and behave like a small commercial bank ... or worse, a big commercial bank.
The money from an MFI is of value to the client ... but it is the combination of money and mentoring where the MFI becomes truly valuable for the clients. Mainstream commercial banks forgot this years ago and the world has paid a high price for their "money only" focus behavior ... and in all likelihood it will be a very long time before all of the mess gets cleaned up.
Up to now, there are no mainstream banks that embrace the idea of value accounting ... it might happen one day ... but I am not holding my breath!
Peter Burgess
The question of the iPad being "green"!
Dear Colleagues
There are many questions getting asked around the Internet space. The question: "Can the iPad be "green" if it is manufactured in a sweatshop?" is a good question and there is some interesting discussion on this posting: http://ecolibris.blogspot.com/2010/06/can-ipad-be-green-if-it-is-manufactured.html
However, in my view, the question is only part of a bigger system question ... and the answer to important system questions are sometimes not quite so simple. I commented as follows:
This can be done with a better system of scoring ... where more and more and more is not shorthand for being wealthier and better off and therefore happy. The current metrics where GDP growth is the sacred goal ... even when this goal has terrible global ecological implications were everyone to be participating in high GDP economies.
Be happy ... eat less, spend less ... and GDP goes down! Who cares ... I am happy, and so are all my friends. Meanwhile someone else who used to be hungry is eating better ... and happier ... and getting ready to do some good in the world! Their GDP is going up! Simple ideas ... really!
Peter Burgess
There are many questions getting asked around the Internet space. The question: "Can the iPad be "green" if it is manufactured in a sweatshop?" is a good question and there is some interesting discussion on this posting: http://ecolibris.blogspot.com/2010/06/can-ipad-be-green-if-it-is-manufactured.html
However, in my view, the question is only part of a bigger system question ... and the answer to important system questions are sometimes not quite so simple. I commented as follows:
Dear ColleaguesReform of the global economic system is needed ... and it is going to happen whether the bankers and politicians like it or not ... whether corporate stockholders or union members like it or not! The challenge is for this reform to end up with communities everywhere that are happier than they have been and are ... or unhappier.
Good question ... but not enough! The global economy is now very interconnected and driven on the corporate side by profit and stockholder value and on the customer side by product and what it does for "me". The "green" question is academic and "feel good" but not really part of anything.
We believe you have to start measuring the value impact on society to get traction for corporate change around profit, and behavior change around me. What would actually happen if Apple manufactured its products at factories in North America or Europe ... what price would customers have to pay? ... what reduction in profits would Apple stockholders have to accept.
When you expand this type of rethink to everything the US corporate decision makers have done for the last 20 years, then you lose most of the profit gains reported by the corporate world, and you have soaring cost push inflation in almost every product category.
Would people in North America be better off without the low cost sweatshop strategy of outsourcing? Not an easy question to answer! Would sweatshop employees have been better off without massive outsourcing? Almost certainly outsourcing has been beneficial to workers in China! These are big questions deserving robust debate.
I like the question ... I think there is positive progress ... and that is an OK direction to be going!
Peter Burgess
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This can be done with a better system of scoring ... where more and more and more is not shorthand for being wealthier and better off and therefore happy. The current metrics where GDP growth is the sacred goal ... even when this goal has terrible global ecological implications were everyone to be participating in high GDP economies.
Be happy ... eat less, spend less ... and GDP goes down! Who cares ... I am happy, and so are all my friends. Meanwhile someone else who used to be hungry is eating better ... and happier ... and getting ready to do some good in the world! Their GDP is going up! Simple ideas ... really!
Peter Burgess
Wednesday, June 23, 2010
Corporate communications ... only for marketing!
Dear Colleagues
I am not the only one that is mad as hell about corporate disinterest in social responsibility. Elaine Cohen has some of the same views. This blog post talks about Deutsche Telekom. http://csr-reporting.blogspot.com/2010/06/thumbs-down-deutsche-telekom.html Similar posts are possible for almost all the corporate community. I commented as follows:
Peter Burgess
I am not the only one that is mad as hell about corporate disinterest in social responsibility. Elaine Cohen has some of the same views. This blog post talks about Deutsche Telekom. http://csr-reporting.blogspot.com/2010/06/thumbs-down-deutsche-telekom.html Similar posts are possible for almost all the corporate community. I commented as follows:
Dear ColleaguesIn times past the corporate community was subject to market competition but the ultra-large modern organizations now operate in an oligopolistic mode ... not quite cartels, but not much different ... and have way more economic power and are larger than many of the jurisdictions where they operate. This is not a good situation ... and something needs to change. One of these things is the metrics that are used to report to the public about their performance ... money profit is not enough ... there also has to be a value metric.
The corporate response you have from Deutsche Telekom is typical of the corporate response from almost ALL corporate organizations ... and indeed many of the big and well known NGOs (non-governmental organizations).
For corporate "communicators" the Internet is merely used as a means of marketing ... and is totally ignored ... no blocked ... as a means of communicating with the customer and the wider society.
I am engaged with initiatives to change this ... if the corporate community will not do adequate communications about their corporate responsibilities, then we, as a society, will start to do it for them!
Peter Burgess
Peter Burgess
Tuesday, June 22, 2010
Monitoring and Evaluation ... does not work well!
Dear Colleagues
Tomorrow I will attend a meeting at UNDP about Monitoring and Evaluation in Fragile and Conflict Situations. I am curious to see whether anything of significance is going to emerge!
I trained a long time ago as an engineer before adding economics and accountancy to my management tools ... which I used professionally and in corporate management for many years. From engineering I learned something of control theory, and the idea that measurement and feedback were very important in having control and getting the performance one wanted. This works very well in the corporate world with management information guiding decision making ... and follow up data to show decisions are leading to the desired performance.
However, when I started working with international official relief and development assistance (ORDA) organizations ... the World Bank, the UN agencies, the bilateral donors and NGOs ... one of my first lessons was that something called Monitoring and Evaluation (M&E) was at the core of the ORDA management process ... and did not work. From the very beginning it seemed to me that the effectiveness of M&E with respect to project performance was minimal. The approach was "too little and too late".
To my horror M&E has remained a big part of ORDA sector project oversight now for some 40 years. From my perspective it is no wonder that progress and performance in the ORDA world has been so weak. The integration of process and metrics is dysfunctional ... there has to be much more timely measurement and feedback ... much more attention to progress and impact rather than merely activity ... being in motion!
I therefore argue that a management information focus in the ORDA sector would change performance significantly ... and that there are no valid technical reasons why such a change cannot be made quickly.
It seems that the main reason that a change to better performance metrics is not getting made is simply that the decision makers either do not know how to have better metrics, or they do not want to have better metrics. Improving M&E is on the agenda in the ORDA sector ... but replacing M&E with something that is really timely and more powerful does not seem to be part of this agenda.
Vive the "status quo"!
Peter Burgess
Tomorrow I will attend a meeting at UNDP about Monitoring and Evaluation in Fragile and Conflict Situations. I am curious to see whether anything of significance is going to emerge!
I trained a long time ago as an engineer before adding economics and accountancy to my management tools ... which I used professionally and in corporate management for many years. From engineering I learned something of control theory, and the idea that measurement and feedback were very important in having control and getting the performance one wanted. This works very well in the corporate world with management information guiding decision making ... and follow up data to show decisions are leading to the desired performance.
However, when I started working with international official relief and development assistance (ORDA) organizations ... the World Bank, the UN agencies, the bilateral donors and NGOs ... one of my first lessons was that something called Monitoring and Evaluation (M&E) was at the core of the ORDA management process ... and did not work. From the very beginning it seemed to me that the effectiveness of M&E with respect to project performance was minimal. The approach was "too little and too late".
To my horror M&E has remained a big part of ORDA sector project oversight now for some 40 years. From my perspective it is no wonder that progress and performance in the ORDA world has been so weak. The integration of process and metrics is dysfunctional ... there has to be much more timely measurement and feedback ... much more attention to progress and impact rather than merely activity ... being in motion!
I therefore argue that a management information focus in the ORDA sector would change performance significantly ... and that there are no valid technical reasons why such a change cannot be made quickly.
It seems that the main reason that a change to better performance metrics is not getting made is simply that the decision makers either do not know how to have better metrics, or they do not want to have better metrics. Improving M&E is on the agenda in the ORDA sector ... but replacing M&E with something that is really timely and more powerful does not seem to be part of this agenda.
Vive the "status quo"!
Peter Burgess
Sunday, June 20, 2010
Equal area projections
Dear Colleagues
One of the central ideas of Community Analytics (CA) is that it is the "place" that is a core element of life and the associated metrics. In turn this means that the metrics of area are central ... and in turn how area is mapped.
For a small area, it does not matter what projection is used. It does not make much difference within the community itself ... but it matters a lot in the depiction of the world as a whole. I believe that the most widely used projection is the Mercator Projection which converts a globe into a cylindrical surface ... but I would argue that the projection developed by cartographer Dr. Arno Peters in 1974 giving more accurate area depiction would be best to use in conjunction with Community Analytics (CA). http://www.petersmap.com/
Any thoughts?
Peter Burgess
One of the central ideas of Community Analytics (CA) is that it is the "place" that is a core element of life and the associated metrics. In turn this means that the metrics of area are central ... and in turn how area is mapped.
For a small area, it does not matter what projection is used. It does not make much difference within the community itself ... but it matters a lot in the depiction of the world as a whole. I believe that the most widely used projection is the Mercator Projection which converts a globe into a cylindrical surface ... but I would argue that the projection developed by cartographer Dr. Arno Peters in 1974 giving more accurate area depiction would be best to use in conjunction with Community Analytics (CA). http://www.petersmap.com/
Any thoughts?
Peter Burgess
Sunday, June 13, 2010
Mandela's personal loss on the eve of the World Cup
Dear Colleagues
Nelson Mandela is now in his 90s ... and it was hoped he would attend the opening games of the Soccer World Cup in South Africa ... but it was not to be. The Kabissa story below explains. http://kabissa.org/blog/mandelas-personal-loss-eve-world-cup#comment-4738
Nelson Mandela is now in his 90s ... and it was hoped he would attend the opening games of the Soccer World Cup in South Africa ... but it was not to be. The Kabissa story below explains. http://kabissa.org/blog/mandelas-personal-loss-eve-world-cup#comment-4738
Mandela's personal loss on the eve of the World CupI have commented on the Kabissa site as follows:
The news of the death of a great grand daughter of the African hero, former President Nelson Mandela came as a rude shock. The timing and circumstance of the young ,13 year old girl, Zenaniwa, made the loss a deep one. It occured through a car crash while the girl was returning home from a concert to herald the World Soccer festival holding in that country, South Africa.
Image source: Guardian.co.uk: Nelson Mandela great-granddaughter killed in crash caused by drunk-driver
The circumstance - and particularly, the timing - of the death brings to the fore one seeming mystery that often characterise major turning-point or break in the affairs of human beings. This is often glossed over or not easily admitted to in public. But careful examination of major breaks in personal and collective lives reveal this as common. What is the mystery: the occurence of something for which people will say 'Oh why me' 'Or why now?' jsut when something phenomenal was about happening.
The picture of the young girl and her great grand father, Mandiba as he is affectionattely called, released by the family shows how intimate the two were while the girl was alive. It may be arguable, but the general feeling is that the world soccer ruling body, FIFA brought the Championship to South Africa mainly to honour the legend, Mandela and in part because the country has infrastructure that can sustain the fiesta. Many have looked forward to seeing Mandela in person in the course of the championship. And then the death of the girl .... which automatically prevented the old man - and his equally popular former wife, Winnie, from being present.
It can be recalled that in 1986, just when Nigerians (and lovers of Nigeria and Africa) were about celebrating the winning by any African of Nobel Prize for Literature (won then by Nigeria's Wole Soyinka), a renowned Nigerian journalist and Wole's young friend, Dele Giwa, was killed through a gruesome parcel bomb. It was the first of its kind. And, as someone quipped then, the incident put ashes in the celebrants' mouths.
Examples could be cited from various areas across the world, but this blog will be too long. Each of us can take a look at our surroundings to see evidences that can validate or disprove the issue raised above.
I suppose our challenge is that whenever something 'big' is about to take place, that is when we should be watchful and exercise the greatest care possible. In the days of yore our fathers used to perform some rites to prevent such whenever they were about embarking on an important mission. I leave the rest to you all. Except to say that rites can be in any form, prayer, and more importantly, care. These too are forms of rites. Isn't it?
Mandela's dynasty - take heart and accept our sympathy, please.
Jare Ajayi
Mandela's personal loss on the eve of the World Cup
Submitted by Peter Burgess on 13 June, 2010
Dear Colleagues
Nelson Mandela has been an important icon for a long time now ... ending apartheid in South Africa was an epic achievement, and his visionary leadership that helped to steer the country away from violent retribution gave the country a new beginning was a miracle ... and is now enabling the hosting of the World Cup in South Africa.
The untimely death of a beloved great grand-daughter in a car accident is a sad reminder of ordinary humanity that is also an important part of Mandela's legacy.
Sincerely
Peter Burgess
Saturday, June 12, 2010
Relief and development ... why nothing is learned from experience?
Dear Colleagues
Someone needs to hold the international relief and development community to their commitments ... because the international community has made a lot of very good commitments over the years.
For example the international community led by WHO and UNICEF made the pledge of “Health for All by the Year 2000” at a major UN conference in AlmaAta in Kazakhstan in the former Soviet Union in 1978. Bluntly put, nothing very much came of this ... and there was very little effort towards the 20 year mark to make an issue of the failure to achieve the commitment.
Instead the UN spent its energy to put together another set of targets ... the Millennium Development Goals (MDGs) that were another ambitious set of targets for future performance in development.
By the year 2000, I had more than 25 years of experience in the international arena, and in that time had seen some examples of great success in development ... but in the main the process of development was expensive and was not working. My work with "management information" in the development arena showed that a big part of the resource flow was producing minimal impact for reasons that included completely failed project design to serious misappropriation of the moneys. From my perspective the key "institutions" in the relief and development sector were determined to avoid seeing the reality of failed performance and what needed to be fixed ... rather they merely wanted to stay funded and essentially maintain the status quo.
As Dambisa Moyo, the author of the book "Dead Aid" has observed about development in Africa: "A trillion dollars, sixty years and not very much to show for it ... there has to be a better way". I could not agree more!
Nobody seems to have been very interested in learning from experience ... neither from the failure to achieve the AlaMata commitments of 1978 ... nor the broader failure of development in Africa over 60 years. Rather the aim seems to be to make sure that the potential lessons are hidden from view. Certainly there are problems to be addressed in development ... but as a global community, the leadership has not been very much interested in getting to grips with what is wrong and fixing the problems.
This needs to change ... and part of the process of change is going to be better metrics. These metrics need to come from a community centric perspective that has an interest in success rather than the organization perspective where the vested interest is in maintaining the organizational status quo!
Peter Burgess
Someone needs to hold the international relief and development community to their commitments ... because the international community has made a lot of very good commitments over the years.
For example the international community led by WHO and UNICEF made the pledge of “Health for All by the Year 2000” at a major UN conference in AlmaAta in Kazakhstan in the former Soviet Union in 1978. Bluntly put, nothing very much came of this ... and there was very little effort towards the 20 year mark to make an issue of the failure to achieve the commitment.
Instead the UN spent its energy to put together another set of targets ... the Millennium Development Goals (MDGs) that were another ambitious set of targets for future performance in development.
By the year 2000, I had more than 25 years of experience in the international arena, and in that time had seen some examples of great success in development ... but in the main the process of development was expensive and was not working. My work with "management information" in the development arena showed that a big part of the resource flow was producing minimal impact for reasons that included completely failed project design to serious misappropriation of the moneys. From my perspective the key "institutions" in the relief and development sector were determined to avoid seeing the reality of failed performance and what needed to be fixed ... rather they merely wanted to stay funded and essentially maintain the status quo.
As Dambisa Moyo, the author of the book "Dead Aid" has observed about development in Africa: "A trillion dollars, sixty years and not very much to show for it ... there has to be a better way". I could not agree more!
Nobody seems to have been very interested in learning from experience ... neither from the failure to achieve the AlaMata commitments of 1978 ... nor the broader failure of development in Africa over 60 years. Rather the aim seems to be to make sure that the potential lessons are hidden from view. Certainly there are problems to be addressed in development ... but as a global community, the leadership has not been very much interested in getting to grips with what is wrong and fixing the problems.
This needs to change ... and part of the process of change is going to be better metrics. These metrics need to come from a community centric perspective that has an interest in success rather than the organization perspective where the vested interest is in maintaining the organizational status quo!
Peter Burgess
Arlington Cemetery ... an apology for screwed up record keeping
Dear Colleagues
It is really unbelievable ... a place like Arlington National Cemetery does not have a fast moving inventory ... in fact it is the ultimate on slow moving inventory. It should be possible to have excellence in inventory record keeping ... so it comes as a terrible surprise to find that the record keeping is not very good and they have the records screwed up.
The idea that it is the old fashioned card system that is to blame is total baloney. Observers have been saying that it is terrible that they do not have a good computer system and this is the problem. This is absolute tripe. Good accurate records are able to be kept in ledgers ... and the good thing about a ledger entry is that it does not easily get deleted by some unfathomable program glitch or spike in electric voltage. My guess is that the accuracy of the civil war era records are about 100% even though these records predate computers by more than one hundred years.
There was a time when keeping records ... being an accounting clerk ... had some cache and people paid attention to their work and did it well. For a very long time now there have been a lot of entitled people who have done their work in a sloppy manner and been well paid for it anyhow. This has been aggravated by supervisors who were also doing their work in a sloppy manner and getting even more money for their sloppy work ... and on up the chain of command. This is an appalling state of affairs ... but it is also the norm in too many parts of modern society.
In my days as the CFO of an international company some years ago I learned something about the management of accounting offices and the clerical staff. Sad to say the most difficult oversight job was with offices in the USA ... the clerical staff in developing countries did excellent work as soon as they realized that there would be oversight and only good work would be tolerated. Not quite the same in the USA where there was push-back to strong oversight and the staff could leave and go down the street to work for some organization that was easier work!
Computers are a good thing ... but the reason for this screw up at the Arlington National Cemetery is much more likely to be a people problem than a technology problem.
Sincerely
Peter Burgess
It is really unbelievable ... a place like Arlington National Cemetery does not have a fast moving inventory ... in fact it is the ultimate on slow moving inventory. It should be possible to have excellence in inventory record keeping ... so it comes as a terrible surprise to find that the record keeping is not very good and they have the records screwed up.
The idea that it is the old fashioned card system that is to blame is total baloney. Observers have been saying that it is terrible that they do not have a good computer system and this is the problem. This is absolute tripe. Good accurate records are able to be kept in ledgers ... and the good thing about a ledger entry is that it does not easily get deleted by some unfathomable program glitch or spike in electric voltage. My guess is that the accuracy of the civil war era records are about 100% even though these records predate computers by more than one hundred years.
There was a time when keeping records ... being an accounting clerk ... had some cache and people paid attention to their work and did it well. For a very long time now there have been a lot of entitled people who have done their work in a sloppy manner and been well paid for it anyhow. This has been aggravated by supervisors who were also doing their work in a sloppy manner and getting even more money for their sloppy work ... and on up the chain of command. This is an appalling state of affairs ... but it is also the norm in too many parts of modern society.
In my days as the CFO of an international company some years ago I learned something about the management of accounting offices and the clerical staff. Sad to say the most difficult oversight job was with offices in the USA ... the clerical staff in developing countries did excellent work as soon as they realized that there would be oversight and only good work would be tolerated. Not quite the same in the USA where there was push-back to strong oversight and the staff could leave and go down the street to work for some organization that was easier work!
Computers are a good thing ... but the reason for this screw up at the Arlington National Cemetery is much more likely to be a people problem than a technology problem.
Sincerely
Peter Burgess
Thursday, June 10, 2010
British leadership getting on the wrong side of BP's oil spill mess!
Dear Colleagues
Why do the British see criticism of BP the company as being anti-British?
It turns out that the BP Gulf Oil spill is a way bigger problem than it was projected to be at the onset of the disaster. In fact it has one aspect of the global systemic problem in the financial meltdown ... too big to fail. The decline in BP's stock price is turning out to be a big issue in the UK.
It is fairly clear that BP has put stockholders before safety as a core business policy for years, and in so doing has attracted all sorts of British pension funds to invest in it. But not paying attention to safety has a price ... and the price is that when the accident happens, the stock price plummets and stockholders lose some of their investment. What is it that the British don't get?
I am British ... living in New York ... and appalled that the UK leadership is starting to cry over the criticism being made of BP, and the high price that UK stockholders (shareholders) are having to pay because stockmarkets have downed the price of the stock. Pension fund managers are meant to be competent investors ... but in this, as in the financial melt-down, the managers pay themselves a lot without adding very much value to the process of investing.
BP appears to have a safety track record that is substantially worse than the other major oil companies from the US, Canada and Europe ... but very good profit track record, before taking into account the risk inherent in operating with poor safety. The risk is now translating into reality, and the stock is taking a hit ... as it should!
But all of this is ignoring the issue of "making whole" the human and environmental mess that the BP oil spill is causing. I used to be the CFO of a company that engaged in shrimp fishing in some 26 countries around the world, and I know something of the importance of the wetlands to the fishing industry ... and I know something about the damage the oil industry has done to the environment wherever it is able to get away with it. I have also spent many years with humanitarian disaster planning and oversight in developing countries. BP has set the stage for both environmental and humanitarian disaster along the Gulf Coast of the USA. My order of magnitude estimate for the value impact of the BP oil spill disaster on the US Gulf Coast is $4 trillion ... yes trillion.
In other words ... the value loss to the society along the US Gulf Coast is perhaps three orders of magnitude bigger than the sorts of costs and compensation that are being talked about currently in the media. Everyone is talking about the loss of a "way of life" and other phrases with similar meaning ... but the quantification and valuation of this is not getting done. My first estimate is $4 trillion expressed in US dollars.
AP energy writers noted June 9th that:
They also wrote that:
Of course this is not going to happen. Over the years society has been systematically excluded from the economic system ... and the legal system will ensure that the corporate outcome is favorable and the minimum gets paid back to society. This might have been OK in the 19th century ... but it should not be the modus operandi at this point in the 21st century.
As time goes by it appears more and more that from day one of this disaster that BP went into "cover up" mode ... and I have to admit that my sympathy for BP at this point is zero. This disgust goes also to the British leadership that are crying about the impact that BP's behavior is having on pension funds in the UK because of the decline in the stock value of BP. Pension managers who put pensioners at risk by investing in an unsafe company deserve what they are getting ... and if the UK government or others want to bail out the pension fund managers and the pensioners, that is fine ... but the whole of BP's resources should first be applied to making whole all of those who are being impacted by the BP oil spill in the US Gulf that has now reached into four of the US Gulf states.
I cannot for the life of me see much anti British rhetoric in the words spoken about the oil spill ... I only see a tremendous anger at corporate BP, not dissimilar to the anger at Exxon with the Exxon Valdiz spill about 20 years ago. BP has an unimpressive safety record ... on top of a great profit performance.
I have noted a few years ago that BP had a rather modest annual financial report that talked about many billions of dollars that were distributed to stockholders ... and a very big and impressive annual sustainability report, about 10 times as big ... that reported on about $150 million over five years that was being committed to sustainability issues! My reaction was this was "laughable" except that the issue of sustainability and corporate responsibility are important!
BP is not a good corporate citizen ... and should be held to account. As President Obama has noted ... this is not just a matter of legality, but also a matter of morality.
This story is not over by a long shot. I plan on helping all I can to ensure that the valuation of society's disruption is done rigorously.
Peter Burgess
///////////////////////////
This is the URL for a recent FT article that refers to all of this: http://www.ft.com/cms/s/0/ba57585e-74d2-11df-aed7-00144feabdc0,dwp_uuid=4068ae36-5447-11df-b75d-00144feab49a.html
This is the text of the article:
Why do the British see criticism of BP the company as being anti-British?
It turns out that the BP Gulf Oil spill is a way bigger problem than it was projected to be at the onset of the disaster. In fact it has one aspect of the global systemic problem in the financial meltdown ... too big to fail. The decline in BP's stock price is turning out to be a big issue in the UK.
It is fairly clear that BP has put stockholders before safety as a core business policy for years, and in so doing has attracted all sorts of British pension funds to invest in it. But not paying attention to safety has a price ... and the price is that when the accident happens, the stock price plummets and stockholders lose some of their investment. What is it that the British don't get?
I am British ... living in New York ... and appalled that the UK leadership is starting to cry over the criticism being made of BP, and the high price that UK stockholders (shareholders) are having to pay because stockmarkets have downed the price of the stock. Pension fund managers are meant to be competent investors ... but in this, as in the financial melt-down, the managers pay themselves a lot without adding very much value to the process of investing.
BP appears to have a safety track record that is substantially worse than the other major oil companies from the US, Canada and Europe ... but very good profit track record, before taking into account the risk inherent in operating with poor safety. The risk is now translating into reality, and the stock is taking a hit ... as it should!
But all of this is ignoring the issue of "making whole" the human and environmental mess that the BP oil spill is causing. I used to be the CFO of a company that engaged in shrimp fishing in some 26 countries around the world, and I know something of the importance of the wetlands to the fishing industry ... and I know something about the damage the oil industry has done to the environment wherever it is able to get away with it. I have also spent many years with humanitarian disaster planning and oversight in developing countries. BP has set the stage for both environmental and humanitarian disaster along the Gulf Coast of the USA. My order of magnitude estimate for the value impact of the BP oil spill disaster on the US Gulf Coast is $4 trillion ... yes trillion.
In other words ... the value loss to the society along the US Gulf Coast is perhaps three orders of magnitude bigger than the sorts of costs and compensation that are being talked about currently in the media. Everyone is talking about the loss of a "way of life" and other phrases with similar meaning ... but the quantification and valuation of this is not getting done. My first estimate is $4 trillion expressed in US dollars.
AP energy writers noted June 9th that:
The stock dropped $5.45, or 16 percent — easily its worst day since the Deepwater Horizon rig exploded seven weeks ago. The company has lost half its market value, a stunning $95 billion, in that time.This means that the full market value of BP is $190 billion ... rather puny compared to the social impact of their oil spill mess which I suggest is more like $4 trillion!
They also wrote that:
BP, which earned more than $16 billion last year, has already spent more than $1 billion dealing with the disaster. CEO Tony Hayward last week wouldn't estimate the total bill, though he told analysts that minority partners like Anadarko will be expected to pay as well.I would argue that BP ... the whole company ... should be put in escrow so that society's claims against the company can be met ... paid over time from the healthy flow of profit that the company reports to its stockholders and the dividends that can be remitted to society!
Of course this is not going to happen. Over the years society has been systematically excluded from the economic system ... and the legal system will ensure that the corporate outcome is favorable and the minimum gets paid back to society. This might have been OK in the 19th century ... but it should not be the modus operandi at this point in the 21st century.
As time goes by it appears more and more that from day one of this disaster that BP went into "cover up" mode ... and I have to admit that my sympathy for BP at this point is zero. This disgust goes also to the British leadership that are crying about the impact that BP's behavior is having on pension funds in the UK because of the decline in the stock value of BP. Pension managers who put pensioners at risk by investing in an unsafe company deserve what they are getting ... and if the UK government or others want to bail out the pension fund managers and the pensioners, that is fine ... but the whole of BP's resources should first be applied to making whole all of those who are being impacted by the BP oil spill in the US Gulf that has now reached into four of the US Gulf states.
I cannot for the life of me see much anti British rhetoric in the words spoken about the oil spill ... I only see a tremendous anger at corporate BP, not dissimilar to the anger at Exxon with the Exxon Valdiz spill about 20 years ago. BP has an unimpressive safety record ... on top of a great profit performance.
I have noted a few years ago that BP had a rather modest annual financial report that talked about many billions of dollars that were distributed to stockholders ... and a very big and impressive annual sustainability report, about 10 times as big ... that reported on about $150 million over five years that was being committed to sustainability issues! My reaction was this was "laughable" except that the issue of sustainability and corporate responsibility are important!
BP is not a good corporate citizen ... and should be held to account. As President Obama has noted ... this is not just a matter of legality, but also a matter of morality.
This story is not over by a long shot. I plan on helping all I can to ensure that the valuation of society's disruption is done rigorously.
Peter Burgess
///////////////////////////
This is the URL for a recent FT article that refers to all of this: http://www.ft.com/cms/s/0/ba57585e-74d2-11df-aed7-00144feabdc0,dwp_uuid=4068ae36-5447-11df-b75d-00144feab49a.html
This is the text of the article:
Backlash grows to ‘anti-British rhetoric’
By Jean Eaglesham in London
Published: June 10 2010 23:25 | Last updated: June 10 2010 23:25
Boris Johnson, the Conservative mayor of London, launched an attack on Thursday on what he called the “anti-British rhetoric that seems to be permeating from America”. His statement typified the growing British backlash against the perceived scapegoating of BP by Barack Obama.
The tone of British resentment against the US president’s outspoken criticism of BP and Tony Hayward, the oil company’s chief executive, was set by the headline in Thursday’s Daily Telegraph. “Obama’s boot on the throat of British pensioners”, the rightwing paper declared, as it highlighted the impact of the fall in BP’s share price on the wider London stock market.
Mr Johnson was among a host of politicians taking up the same theme, albeit in a more nuanced manner.
The London mayor called for an end to the “buck passing and name calling”, saying the anti-British rhetoric from the US might damage UK interests. “It starts to become a matter of national concern if a great British company is being continually beaten up on the international airwaves,” Mr Johnson told the BBC.
Andrew Rosindell, a Conservative MP, criticised Mr Obama directly for allowing the oil spill to become an “anti-British” issue. “It’s an inappropriate and not very clever approach by the US president,” he said.
The British government began on Thursday seemingly determined to fend off such criticisms. David Cameron, the prime minister, was accused by some right-of-centre bloggers of “siding with the White House” after he said he understood US concerns over the environmental impact. “We need to be clear that BP needs to do everything it can to deal with the situation and the UK government stands ready to help,” he said on a trip to Afghanistan.
William Hague, Britain’s foreign secretary, sought to ease concerns that the US attacks on “British Petroleum” – which has not been the company’s name since 1998 – might trigger a transatlantic backlash against British industry. ]
“No one has used an anti-British term in anything I have detected,” Mr Hague said. “The key thing here is absolutely dealing with the problem . . . and that is more important than any rhetoric.”
Mr Cameron’s reluctance to criticise the president reflects concern that the issues might sour transatlantic relations, barely a month after the Conservative-Liberal Democrat coalition government was formed, according to Whitehall insiders.
But the government faced criticism over its apparent lack of urgency in responding after it emerged that Mr Cameron had not spoken since his election more than four weeks ago to the president. The prime minister stressed on Thursday that he would be raising the issue with Mr Obama in a phone call this weekend.
Britain has stepped up its ministerial involvement with BP. Charles Hendry, the relatively junior energy minister, had until on Thursday been the only elected representative to deal directly with the company.
Tuesday, June 8, 2010
Bill and Melinda Gates Foundation pledging $2.5 billion. Good ... what return?
Dear Colleagues
I am sure a lot of people feel good when they hear that a wealthy foundation is giving a big amount of money to a good cause. I am sure that is what the Bill and Melinda Gates Foundation (BMGF) hoped when they recently announced a pledge of $1.5 billion over five years to "Women and Children". This is the article where I learned of this ... the text is at the end of this post: http://philanthropy.com/article/Melinda-Gates-Announces/65801/?sid=&utm_source=&utm_medium=en
Microsoft has been a pretty impressive company ... over the past 30 years it has earned good profits, and many would argue that the PC revolution that was the foundation for Microsoft's business was a pretty good thing. But it was never a philanthropy ... it was a hard-nosed business that thrived and took no prisoners!
I come from the corporate world myself and as a corporate CFO worked very hard for my employer to earn good profits ... and for our company to do the right thing for all the stakeholders ... and I think we did quite well at getting the balance right. We operated in a lot of very poor countries ... and I was able to contrast our impact on communities with the impact of the local government and the international official relief and development assistance (ORDA) community. Bottom line ... our business approach had more impact on the betterment of local life that the welfare based assistance coming from the ORDA community.
It is good to see a big number ... $1.5 billion is a big number ... but the really big question is what is there going to be to show for this in five years time. When this amount of money is spent in the corporate world there is an expectation that there will be profit benefits that are in the range of $2.5 to $5.0 billion over this time period. So the question is what sort of return the BMGF will be getting by putting this money into a philanthropic effort to help women and children ... what is going to be the value increment to society from this expenditure?
Though there has been talk about metrics around the ORDA community for a very long time ... the practical reality is that most of the talk is about disbursement and very little is about accomplishment. The metrics of the ORDA community is dysfunctional at many levels ... and there is neither performance metrics nor a basis for accountability. One thing is for sure ... the money will get disbursed and get consumed ... but we will never know whether or not there will be a reasonable return on the resources consumed.
This particular announcement is about money that will be disbursed in the future ... so clearly it is not yet possible to get performance metrics and accountability for something that is yet to happen. But what about the moneys that have been disbursed last year, and the year before last ... going back years, perhaps. Mostly, there are little or no datasets that show the cost efficiency and the cost effectiveness of relief and development expenditures. How convenient!
In time I expect that BMGF will get some reliable metrics about performance ... but the fact that this is happening slowly is a big concern. I expect "government" and the big established ORDA institutions to be slow in this regard ... but not an organization that should be very up-to-speed about metrics and performance like BMGF / Microsoft! I have tried to find some rational explanation, and have concluded that BMFG has been advised a lot by economists and scientists with experience in the ORDA community ... and rather little by hard nosed accountant types who like to follow the money and see resources converted into tangible value in the communities where there are needy beneficiaries.
I am optimistic that there will be progress in the improvement of metrics in due course ... but I am disappointed at the speed improvement in metrics is being achieved.
Peter Burgess
////////////////////
Bill & Melinda Gates Foundation ... June 7, 2010
Melinda Gates Announces $1.5-Billion Foundation Pledge for Women and Children
By Caroline Preston
The Bill & Melinda Gates Foundation will spend $1.5-billion over the next five years to improve maternal and child health, family planning, and nutrition programs in poor countries, Ms. Gates announced at a conference in Washington on Monday.
Challenging the notion that high maternal and child death tolls are unavoidable, she urged leaders of governments and other institutions around the world to make women’s and children’s health a higher priority.
“The death toll is so huge and has persisted for so long, it’s easy to think we’re powerless to do much about it,” said Ms. Gates. “The truth is, we can prevent most of these deaths—and at a stunningly low cost—if we take action now.”
She emphasized the importance of fashioning health programs for women and children that tackle multiple needs, including family planning, prenatal care, safe childbirth, and nutrition.
“The Gates Foundation is joining many others in the global health community in working toward a more integrated approach to women’s and children’s health,” said Ms. Gates. “Women and children have a continuum of needs, and we must design health programs accordingly.”
To oversee its more-integrated approach, the Seattle fund recently formed a family-health division, bringing together employees who work on mother's and children's health with those who work on family planning and nutrition.
Gary L. Darmstadt, who directs the division, said the new pledge will complement the foundation's investments in developing and delivering vaccines.
"The foundation's approach has traditionally been more disease oriented," he said. "We're looking at women's and children's issues in a more holistic way and trying to really look at it from the ground up."
Also new will be the program's intensive focus on a few countries, he said.
Much of the money will support programs in India, Ethiopia, and other nations that have relatively high maternal and child mortality rates as well as lawmakers and community leaders committed to reducing them, he said.
An initial $94-million will go to efforts in India and $60-million to Ethiopia. Additional grants will be announced over the next year.
The new investments will support efforts to train health workers to provide multiple services, identify effective methods for expanding access to family-planning services, and develop treatments such as simplified antibiotics for infections in newborns.
Child and maternal health programs that already receive Gates money include Save the Children's Saving Newborn Lives effort and an initiative at Columbia University called Averting Maternal Death and Disability.
Charles Lyons, a former Gates official who now leads the Elizabeth Glaser Pediatric Aids Foundation, called integrating child and maternal health services "the smart thing to do."
"The international community, the health community, and the rest of the world just increasingly understands what we have to accomplish and the need to focus on strengthening health systems," he said. "The Bill and Melinda Gates Foundation is a very important leader and voice in relation to global health and this is a further example of their commitment to drive toward impact."
I am sure a lot of people feel good when they hear that a wealthy foundation is giving a big amount of money to a good cause. I am sure that is what the Bill and Melinda Gates Foundation (BMGF) hoped when they recently announced a pledge of $1.5 billion over five years to "Women and Children". This is the article where I learned of this ... the text is at the end of this post: http://philanthropy.com/article/Melinda-Gates-Announces/65801/?sid=&utm_source=&utm_medium=en
Microsoft has been a pretty impressive company ... over the past 30 years it has earned good profits, and many would argue that the PC revolution that was the foundation for Microsoft's business was a pretty good thing. But it was never a philanthropy ... it was a hard-nosed business that thrived and took no prisoners!
I come from the corporate world myself and as a corporate CFO worked very hard for my employer to earn good profits ... and for our company to do the right thing for all the stakeholders ... and I think we did quite well at getting the balance right. We operated in a lot of very poor countries ... and I was able to contrast our impact on communities with the impact of the local government and the international official relief and development assistance (ORDA) community. Bottom line ... our business approach had more impact on the betterment of local life that the welfare based assistance coming from the ORDA community.
It is good to see a big number ... $1.5 billion is a big number ... but the really big question is what is there going to be to show for this in five years time. When this amount of money is spent in the corporate world there is an expectation that there will be profit benefits that are in the range of $2.5 to $5.0 billion over this time period. So the question is what sort of return the BMGF will be getting by putting this money into a philanthropic effort to help women and children ... what is going to be the value increment to society from this expenditure?
Though there has been talk about metrics around the ORDA community for a very long time ... the practical reality is that most of the talk is about disbursement and very little is about accomplishment. The metrics of the ORDA community is dysfunctional at many levels ... and there is neither performance metrics nor a basis for accountability. One thing is for sure ... the money will get disbursed and get consumed ... but we will never know whether or not there will be a reasonable return on the resources consumed.
This particular announcement is about money that will be disbursed in the future ... so clearly it is not yet possible to get performance metrics and accountability for something that is yet to happen. But what about the moneys that have been disbursed last year, and the year before last ... going back years, perhaps. Mostly, there are little or no datasets that show the cost efficiency and the cost effectiveness of relief and development expenditures. How convenient!
In time I expect that BMGF will get some reliable metrics about performance ... but the fact that this is happening slowly is a big concern. I expect "government" and the big established ORDA institutions to be slow in this regard ... but not an organization that should be very up-to-speed about metrics and performance like BMGF / Microsoft! I have tried to find some rational explanation, and have concluded that BMFG has been advised a lot by economists and scientists with experience in the ORDA community ... and rather little by hard nosed accountant types who like to follow the money and see resources converted into tangible value in the communities where there are needy beneficiaries.
I am optimistic that there will be progress in the improvement of metrics in due course ... but I am disappointed at the speed improvement in metrics is being achieved.
Peter Burgess
////////////////////
Bill & Melinda Gates Foundation ... June 7, 2010
Melinda Gates Announces $1.5-Billion Foundation Pledge for Women and Children
By Caroline Preston
The Bill & Melinda Gates Foundation will spend $1.5-billion over the next five years to improve maternal and child health, family planning, and nutrition programs in poor countries, Ms. Gates announced at a conference in Washington on Monday.
Challenging the notion that high maternal and child death tolls are unavoidable, she urged leaders of governments and other institutions around the world to make women’s and children’s health a higher priority.
“The death toll is so huge and has persisted for so long, it’s easy to think we’re powerless to do much about it,” said Ms. Gates. “The truth is, we can prevent most of these deaths—and at a stunningly low cost—if we take action now.”
She emphasized the importance of fashioning health programs for women and children that tackle multiple needs, including family planning, prenatal care, safe childbirth, and nutrition.
“The Gates Foundation is joining many others in the global health community in working toward a more integrated approach to women’s and children’s health,” said Ms. Gates. “Women and children have a continuum of needs, and we must design health programs accordingly.”
To oversee its more-integrated approach, the Seattle fund recently formed a family-health division, bringing together employees who work on mother's and children's health with those who work on family planning and nutrition.
Gary L. Darmstadt, who directs the division, said the new pledge will complement the foundation's investments in developing and delivering vaccines.
"The foundation's approach has traditionally been more disease oriented," he said. "We're looking at women's and children's issues in a more holistic way and trying to really look at it from the ground up."
Also new will be the program's intensive focus on a few countries, he said.
Much of the money will support programs in India, Ethiopia, and other nations that have relatively high maternal and child mortality rates as well as lawmakers and community leaders committed to reducing them, he said.
An initial $94-million will go to efforts in India and $60-million to Ethiopia. Additional grants will be announced over the next year.
The new investments will support efforts to train health workers to provide multiple services, identify effective methods for expanding access to family-planning services, and develop treatments such as simplified antibiotics for infections in newborns.
Child and maternal health programs that already receive Gates money include Save the Children's Saving Newborn Lives effort and an initiative at Columbia University called Averting Maternal Death and Disability.
Charles Lyons, a former Gates official who now leads the Elizabeth Glaser Pediatric Aids Foundation, called integrating child and maternal health services "the smart thing to do."
"The international community, the health community, and the rest of the world just increasingly understands what we have to accomplish and the need to focus on strengthening health systems," he said. "The Bill and Melinda Gates Foundation is a very important leader and voice in relation to global health and this is a further example of their commitment to drive toward impact."
Progressive, Centrist or Conservative ... ALL the decision makers have it wrong!
Dear Colleagues
E-mail marketing is ubiquitous ... and more and more worrisome. Based on some sort of analysis the marketing community has decided that I am "progressive" and in some things they are correct. But in some things I am not ... very NOT. The problem with this pre-judgement of my interests means that I will tend to get offers about things that the marketers' algorithms think I might be interested in ... and they will get it very wrong.
Bottom line ... my view is that both the politicians of both the "progressive" wing and the "conservative" wing of the body politic are mostly wrong ... and the center is not much better. There is a terrible problem with leadership in politics ... but the leadership of the corporate community might well be worse. The ideas of ethics and the moral compass are, it seems, about as extinct as the hairy mastodon. This is an e-mail I just received!
There is huge disconnect! Communities all across the old industrial world are experiencing serious levels of unemployment ... governments are in financial trouble ... yet the big corporate entities are earning high profits ... and the capital markets have boomed! These facts do not add up to a sustainable future ... and the big question is rapidly becoming how bad is the future going to be?
As long as the prevailing system of metrics is the one that the capital markets has used for decades ... essentially for ever ... then the future is going to be a mess. If profit is the only metric that is considered important, and social values and quality of life in the economy are ignored, then the allocation of resources by the capital markets is going to end up starving the economy of what it needs to have a future. There was a time when the US invested heavily in educational activities which were the envy of the world ... whatever happened? Some US education is world class, but most is way below world class ... but expensive non-the-less. US infrastructure used to be very impressive, but the investment in important infrastructure has been neglected for decades ... not enough profit in infrastructure investment. Deployment of cutting edge technology has been shortchanged in developed countries ... better to do the investment in low wage developing countries.
What is the future going to be? Will it be possible to get decision makers to make decisions that will give us all a future? My conclusions is that if profit is the only metric, then the future will be awful ... but if quality of life and building human capital and creating opportunity for everyone is a part of the metric and on the decision makers' agenda, then the future can be better than ever.
Peter Burgess
E-mail marketing is ubiquitous ... and more and more worrisome. Based on some sort of analysis the marketing community has decided that I am "progressive" and in some things they are correct. But in some things I am not ... very NOT. The problem with this pre-judgement of my interests means that I will tend to get offers about things that the marketers' algorithms think I might be interested in ... and they will get it very wrong.
Bottom line ... my view is that both the politicians of both the "progressive" wing and the "conservative" wing of the body politic are mostly wrong ... and the center is not much better. There is a terrible problem with leadership in politics ... but the leadership of the corporate community might well be worse. The ideas of ethics and the moral compass are, it seems, about as extinct as the hairy mastodon. This is an e-mail I just received!
CREDO's not just an activist organization — we're America's only progressive mobile phone company.The big challenge for ordinary people is to sort out what is good information and what is misinformation. The ubiquitous nature of modern advertising and the tiny sound bytes that masquerade as investigative journalism is very dangerous ... and nobody is paying attention. The financial melt-down was something of a wake-up call, but the profit flows of the corporate world has rebounded quite well with cost cutting that impressed the capital markets but set the stage for a much more difficult longer term recovery. For the wealthier classes, the stockmarket rebound has rebuilt wealth, and the world is therefore fine. For the poorer classes ... foreclosure is still happening, and unemployment and financial ruin is staring them in the face!
Did you know that your current mobile phone provider may be supporting politicians who are working directly against your progressive values?
Fortunately, there's an alternative to supporting companies like that: CREDO Mobile. We're an independent, progressive company that fights for the causes you believe in.
- If you're with Verizon Wireless, you should know they donated to Senator David Vitter (R-La.), who later urged President Obama to expand offshore oil drilling even after the devastating spill in the Gulf
- If you're with AT&T, you should know that since 1998, they've donated more than $16,000 to Senator Jim Inhofe (R-Okla.), who called the threat of global warming the “greatest hoax ever perpetrated on the American people”. They've also given more than $300,000 to the election campaigns of Texas Gov. Rick Perry, who downplayed BP's heinously negligent oil spill as an "act of God."
We're the only mobile company that's calling for a complete moratorium on offshore oil drilling, and for the EPA to disbar BP from all future federal contracts. And since 1985, we've donated more than $65 million to progressive nonprofits like Rainforest Action Network, Planned Parenthood, Doctors Without Borders, Earthjustice and the ACLU.
Plus, with CREDO Mobile, you won't sacrifice a thing when it comes to your service. Join us today and get:
**10% off your monthly fee for 24 months
**Contract buyout credit up to $200
**No contract for 30 days
**Number portability; keep your current number
**Free car charger with your order
**Nationwide coverage on the all-digital Sprint® network, reaching more than 280 million people.†
So have a look at your last mobile bill and ask yourself: is your phone company working for your values, or against them? Think about it. Then think about CREDO Mobile.
There is huge disconnect! Communities all across the old industrial world are experiencing serious levels of unemployment ... governments are in financial trouble ... yet the big corporate entities are earning high profits ... and the capital markets have boomed! These facts do not add up to a sustainable future ... and the big question is rapidly becoming how bad is the future going to be?
As long as the prevailing system of metrics is the one that the capital markets has used for decades ... essentially for ever ... then the future is going to be a mess. If profit is the only metric that is considered important, and social values and quality of life in the economy are ignored, then the allocation of resources by the capital markets is going to end up starving the economy of what it needs to have a future. There was a time when the US invested heavily in educational activities which were the envy of the world ... whatever happened? Some US education is world class, but most is way below world class ... but expensive non-the-less. US infrastructure used to be very impressive, but the investment in important infrastructure has been neglected for decades ... not enough profit in infrastructure investment. Deployment of cutting edge technology has been shortchanged in developed countries ... better to do the investment in low wage developing countries.
What is the future going to be? Will it be possible to get decision makers to make decisions that will give us all a future? My conclusions is that if profit is the only metric, then the future will be awful ... but if quality of life and building human capital and creating opportunity for everyone is a part of the metric and on the decision makers' agenda, then the future can be better than ever.
Peter Burgess
Monday, June 7, 2010
More money for Haiti ... but will it help very much?
Dear Colleagues
It is difficult to take the international relief and development community seriously. They are very active in informing potential donors about how bad things are and how much more money is needed to help in the ongoing disaster ... but they tell very little about what it is that has caused the humanitarian crisis in the first place.
Peter O'Driscoll is right to be trying to mobilize resources so that the Haitian people are able to live in a society where the economy works ... but when the resources are mobilized, how much of the resources will actually get used in ways that help to make the local economy work. How much of what is promised by the authorities actually gets done in practice? How much deep accountability is practiced by the institutions that are handling the funds?
The basic model used for humanitarian relief and development is a "welfare model". This is a simple way to describe a process where resources are imported and distributed in the country to people in need with priorities determined by level of need. The more need ... the more assistance. This is the dominant humanitarian aid process that has been used for decades ... and doing untold damage to the local economy wherever it has been used.
It is more than thirty years ago that I first started to see the negative impact of large food aid programs supported by food surplus countries/areas through the World Food Program and through other bilateral and multilateral mechanisms ... Canadian Food Aid, European Food Aid, US Food Aid (PL 480) and so on.
A struggling farmer in a developing country is not helped when his/her product has to compete in the market with "free food" from some food aid program. No farmer any in developed country would tolerate such a behavior in the markets they serve ... in fact they have the political clout to demand and get price support so that they get high prices even when market demand will not support high prices.
Development experts probably know well that most hunger and famine is not caused by the lack of food ... it is caused by dysfunction in the way food gets to where it is needed. A market system is used throughout the world to get food to where it is needed ... and a market system works on the basis of supply and demand, where demand is created by people that need the product and have the means to pay for it. And this is the problem ... needy hungry people are poor and do not have the means to pay for what they need. Development experts have totally failed to get to grips with this problem ... even though it has been identified for several decades to my knowledge.
Microfinance has been a modest tool to change the economic dynamic of the poor at the bottom of the pyramid ... but the scale of microfinance is small compared to the global market in agricultural products and the global distortions in agricultural marketing caused by subsidy and misguided humanitarian food assistance.
The great problem that has to be faced in the efforts to help people make progress out of poverty is the lack of capital at the bottom of the pyramid ... not so much the ownership of capital which would not be expected ... but the allocation of capital by capital markets to this huge segment of humanity (which I usually suggest is made up of some 4 billion people!). For the purpose of this discussion capital is not only money capital, but it is the lack also of eduction, health care, useful knowledge and know how, useful skills, access to equipment and infrastructure and organizations. Money helps ... but understanding and helping with all these other things is of immense value as well.
In the specific case of Haiti, there is going to be a need to mobilize resources so that the economy can be made productive ... and there is a need for "help" in a relief mode that is now 5 months old and needed for perhaps another 12 months ... but the bigger need is for the Haitian economy to be made functional and productive. This is not the same as rebuilding the old Haitian economic model ... with the same old same old winners and the same old same old losers.
On a broader global scale, I suppose the good news is that some of the old experts are retiring, and will not be doing much more damage. The bad news may be that the younger experts are not much better. My hope it that with the use of modern technology, some of the younger experts will think "outside the box" and might get it right in ways that the older experts could never imagine.
Watching the Haiti emergency progress from rescue to relief to rebuilding has been interesting ... but essentially very disappointing. The one area where I have tried to become engaged ... the matter of accountability ... the practice of accountability is as bad as ever, with no light at the end of the tunnel!
Peter Burgess
It is difficult to take the international relief and development community seriously. They are very active in informing potential donors about how bad things are and how much more money is needed to help in the ongoing disaster ... but they tell very little about what it is that has caused the humanitarian crisis in the first place.
This from Action Aid today.and the following email text:
Sending food aid packages to Haiti is not enough.
Supporting local farmers and food markets is the answer to Haiti's hunger problem.
Tell Congress to pass the Haiti Supplemental package, and help Haiti feed itself.
Dear Peter,If you follow the money trail in any humanitarian disaster ... especially ones that get a lot of press coverage like the South Asia tsunami and the Haiti earthquake ... you get very worried very quickly. The problem is not the amount of money ... the problem is where the money goes and how it gets used.
The rainy season is now upon Haiti, and flooding has turned camps for displaced people into dangerous breeding grounds for disease. Hunger also threatens a huge sector of the population whose lives were turned upside down by the earthquake nearly five months ago.
The House of Representatives now sits poised to pass a crucial Haiti Supplemental Appropriations bill that can help increase food and health resources – but they need to act quickly, before it is too late.
Your emails to Congress earlier this year helped legislators spring into action. Now we need your help again to mobilize this crucial $1.8 billion and to make sure that Haitian farmers play their rightful role in meeting their countries food needs.
Take action today and send a message to your representative, asking him or her to pass the Haiti Supplemental package as soon as possible – Haiti can't wait!
Food aid in the form of shipped rice and grain is not enough. Haitian President Preval explains that "if food and water continues to be sent from abroad, that will undermine Haitian national production and Haitian trade... Now we have to move more and more towards creating jobs so people are paid, and so they themselves step in to help Haiti."
Haiti needs the flexibility to buy food from its own local and regional markets, to help boost the economy and provide much needed jobs while creating a more sustainable solution to current nutrition needs.
Will you help us make sure that the Haiti supplemental is passed and that Haiti receives the aid that it needs most?
Now's your chance. Click here and tell Congress to approve the maximum amount of funding for Haiti in its upcoming appropriations work, including cash for food – so Haitians can buy locally grown food and support Haitian farmers.
"Together We Are Strong," is a common Haitian expression that explains the great need for interdependence in building the country up again.
We have a great opportunity to join our voices with Haitian farmers, women's groups and local businesses, and to ask Congress to pass much needed Haiti funding that will allow the country to buy food from its own markets. Support from within creates more jobs, more sustainable agriculture, and improved food security going into the future.
Now is our chance to make a difference. Send your message to Congress today and help Haiti feed itself for many years to come.
Thank you for taking action at this critical moment.
Sincerely,
Peter O'Driscoll
Executive Director,
ActionAid USA
Peter O'Driscoll is right to be trying to mobilize resources so that the Haitian people are able to live in a society where the economy works ... but when the resources are mobilized, how much of the resources will actually get used in ways that help to make the local economy work. How much of what is promised by the authorities actually gets done in practice? How much deep accountability is practiced by the institutions that are handling the funds?
The basic model used for humanitarian relief and development is a "welfare model". This is a simple way to describe a process where resources are imported and distributed in the country to people in need with priorities determined by level of need. The more need ... the more assistance. This is the dominant humanitarian aid process that has been used for decades ... and doing untold damage to the local economy wherever it has been used.
It is more than thirty years ago that I first started to see the negative impact of large food aid programs supported by food surplus countries/areas through the World Food Program and through other bilateral and multilateral mechanisms ... Canadian Food Aid, European Food Aid, US Food Aid (PL 480) and so on.
A struggling farmer in a developing country is not helped when his/her product has to compete in the market with "free food" from some food aid program. No farmer any in developed country would tolerate such a behavior in the markets they serve ... in fact they have the political clout to demand and get price support so that they get high prices even when market demand will not support high prices.
Development experts probably know well that most hunger and famine is not caused by the lack of food ... it is caused by dysfunction in the way food gets to where it is needed. A market system is used throughout the world to get food to where it is needed ... and a market system works on the basis of supply and demand, where demand is created by people that need the product and have the means to pay for it. And this is the problem ... needy hungry people are poor and do not have the means to pay for what they need. Development experts have totally failed to get to grips with this problem ... even though it has been identified for several decades to my knowledge.
Microfinance has been a modest tool to change the economic dynamic of the poor at the bottom of the pyramid ... but the scale of microfinance is small compared to the global market in agricultural products and the global distortions in agricultural marketing caused by subsidy and misguided humanitarian food assistance.
The great problem that has to be faced in the efforts to help people make progress out of poverty is the lack of capital at the bottom of the pyramid ... not so much the ownership of capital which would not be expected ... but the allocation of capital by capital markets to this huge segment of humanity (which I usually suggest is made up of some 4 billion people!). For the purpose of this discussion capital is not only money capital, but it is the lack also of eduction, health care, useful knowledge and know how, useful skills, access to equipment and infrastructure and organizations. Money helps ... but understanding and helping with all these other things is of immense value as well.
In the specific case of Haiti, there is going to be a need to mobilize resources so that the economy can be made productive ... and there is a need for "help" in a relief mode that is now 5 months old and needed for perhaps another 12 months ... but the bigger need is for the Haitian economy to be made functional and productive. This is not the same as rebuilding the old Haitian economic model ... with the same old same old winners and the same old same old losers.
On a broader global scale, I suppose the good news is that some of the old experts are retiring, and will not be doing much more damage. The bad news may be that the younger experts are not much better. My hope it that with the use of modern technology, some of the younger experts will think "outside the box" and might get it right in ways that the older experts could never imagine.
Watching the Haiti emergency progress from rescue to relief to rebuilding has been interesting ... but essentially very disappointing. The one area where I have tried to become engaged ... the matter of accountability ... the practice of accountability is as bad as ever, with no light at the end of the tunnel!
Peter Burgess
Sunday, June 6, 2010
Private profit ... public squalor
Dear Colleagues
The phrase "private profit ... public squalor" has been used in writings about economics over the years and continues to be a matter deserving attention.
The boom of the Internet bubble and the boom of the sub-prime housing bubble produced a lot of private profit. The booms produced record tax revenues even while tax rates were being reduced ... and those with the power of the purse were not shy about spending the available revenues, and making related long term commitments.
How well public moneys have been spent is an open question ... with most of the public of the view that government is inefficient and rarely gets good value for its money. This converts rapidly into a crisis when the economy declines and tax revenues decline. There is not enough money available in many many jurisdictions to pay for essential services ... to pay to build and maintain needed infrastructure and so forth.
Advocates for a market oriented solution to fiscal problems ... less government ... less taxes are faced with a dilemma. Many of the expenditures of government are difficult to cut without considerable disruption. The timing of cut-backs in government spending have to come at a time in the economic cycle when it would be detrimental to economic recovery.
But it is really worse than this ... because of sloppiness in financial decision making over a long time, there are many important things that need investment, and government needs to be able to do this investment exactly at the time when it is being constrained from spending. There is a terrible disconnect between what is the right thing to do from the economic standpoint ... and what is going to be allowed based on law in some cases and the ideology of the IMF and similar bodies in other cases.
I do not know the details of the models that are used by the rating agencies for national debt and for the debt of other government entities ... but my intuition is that they underplay the role of unemployment and underemployment in the calculation of creditworthiness ... and do not differentiate sufficiently the value of investment in infrastructure and the recurrent expenditures of the entity. It can be argued that the metrics available about national economic performance are not particularly good!
All of this ends up with the private sector doing OK ... and the public sector getting into more and more financial difficulty ... and eventually more and more disruption in the services of government and the infrastructure needed by the society.
My bad case scenario about the public financing situation ... Greece, California, New York State, et al ... is that the outcome will be severe cut-backs in public expenditure exactly at the wrong time, and the vicious cycle of increased unemployment, reduced demand, lower profits, lower confidence, lower capital markets ... and so on. While I know government needs to do a better job in terms of its efficiency ... this needs to be addressed when the economy is healthy and not when it needs intensive care and life support!
I wish more people understood the importance of value accounting ... and could use it to help make important decisions.
Peter Burgess
The phrase "private profit ... public squalor" has been used in writings about economics over the years and continues to be a matter deserving attention.
The boom of the Internet bubble and the boom of the sub-prime housing bubble produced a lot of private profit. The booms produced record tax revenues even while tax rates were being reduced ... and those with the power of the purse were not shy about spending the available revenues, and making related long term commitments.
How well public moneys have been spent is an open question ... with most of the public of the view that government is inefficient and rarely gets good value for its money. This converts rapidly into a crisis when the economy declines and tax revenues decline. There is not enough money available in many many jurisdictions to pay for essential services ... to pay to build and maintain needed infrastructure and so forth.
Advocates for a market oriented solution to fiscal problems ... less government ... less taxes are faced with a dilemma. Many of the expenditures of government are difficult to cut without considerable disruption. The timing of cut-backs in government spending have to come at a time in the economic cycle when it would be detrimental to economic recovery.
But it is really worse than this ... because of sloppiness in financial decision making over a long time, there are many important things that need investment, and government needs to be able to do this investment exactly at the time when it is being constrained from spending. There is a terrible disconnect between what is the right thing to do from the economic standpoint ... and what is going to be allowed based on law in some cases and the ideology of the IMF and similar bodies in other cases.
I do not know the details of the models that are used by the rating agencies for national debt and for the debt of other government entities ... but my intuition is that they underplay the role of unemployment and underemployment in the calculation of creditworthiness ... and do not differentiate sufficiently the value of investment in infrastructure and the recurrent expenditures of the entity. It can be argued that the metrics available about national economic performance are not particularly good!
All of this ends up with the private sector doing OK ... and the public sector getting into more and more financial difficulty ... and eventually more and more disruption in the services of government and the infrastructure needed by the society.
My bad case scenario about the public financing situation ... Greece, California, New York State, et al ... is that the outcome will be severe cut-backs in public expenditure exactly at the wrong time, and the vicious cycle of increased unemployment, reduced demand, lower profits, lower confidence, lower capital markets ... and so on. While I know government needs to do a better job in terms of its efficiency ... this needs to be addressed when the economy is healthy and not when it needs intensive care and life support!
I wish more people understood the importance of value accounting ... and could use it to help make important decisions.
Peter Burgess
The BP oil spill ... A priority should be to get a valuation of impact
Dear Colleagues
A professional listserve asked the question "How to Help with Oil Spill Aftermath". I anticipate that most of the responses will relate to operational matters like handling the wildlife who get ensnared in the oil, and so on ... but I thought it made sense to start to talk about the need for community data so that the payment of compensations gets to be done in a manner that is appropriate and equitable. This is my comment:
In most disaster management guides the data starts after the disaster happens ... and this is already too late. The data that are most useful are those that "start" before the disaster. In order to get back to the pre-disaster situation, it helps to have data about the pre-disaster situation. As the disaster progresses ... the baseline remains what the situation was pre-disaster.
In the case of the BP oil spill the complex nature of the damage being done to the socio-economic system and the underlying ecosystem that drives much of the local economy needs to be incorporated into the data. This is exactly what the Community Analytics (CA) methodology aims to do ... not as a academic exercise, but as a pragmatic basis for decision making and the improvement in quality of life. The CA methodology applies in a disaster situation in just the same way it does in ordinary times.
Peter Burgess
A professional listserve asked the question "How to Help with Oil Spill Aftermath". I anticipate that most of the responses will relate to operational matters like handling the wildlife who get ensnared in the oil, and so on ... but I thought it made sense to start to talk about the need for community data so that the payment of compensations gets to be done in a manner that is appropriate and equitable. This is my comment:
The socio-economic impact of the BP oil spill is big ... but how big, nobody knows. The ways things usually work is that a lot of funding will be committed to making things whole ... but almost none of the money will end up actually achieving this. Some of the reasons are legitimate, many are not.Adbhas Jha and his colleagues at the World Bank have recently published a handbook for reconstructing after natural disasters called Safer Homes, Stronger Communities. In this work the importance of good data is very clear. I would argue that relevant socio-economic data are needed in the case of the current BP oil spill ... and the sooner this is put in place the better.
A good start in any disaster mitigation and management program is to mobilize data ... and to use data everywhere to get the best possible outcomes. Somehow, the data needs to stay easily accessible to the interested public so that there is transparency and so that there is accountability ... profiteering in disaster is commonplace ... and it merely serves to remove funding from the payment of legitimate claims.
I would like to see a value accounting database put together ... and I would like to be involved with it to the extent that I can be helpful. My guess is that the total socio-economic damage to the US Gulf Coast is way bigger than the market capitalization of BP ... which shows, I believe, the importance of having very credible data. Combining modern technology and old fashioned accounting may be a way to handle this.
In most disaster management guides the data starts after the disaster happens ... and this is already too late. The data that are most useful are those that "start" before the disaster. In order to get back to the pre-disaster situation, it helps to have data about the pre-disaster situation. As the disaster progresses ... the baseline remains what the situation was pre-disaster.
In the case of the BP oil spill the complex nature of the damage being done to the socio-economic system and the underlying ecosystem that drives much of the local economy needs to be incorporated into the data. This is exactly what the Community Analytics (CA) methodology aims to do ... not as a academic exercise, but as a pragmatic basis for decision making and the improvement in quality of life. The CA methodology applies in a disaster situation in just the same way it does in ordinary times.
Peter Burgess
Risk ... insurance and the management of risk
Dear Colleagues
Recently there have been two huge events ... the near collapse of the global financial industry and the BP oil spill in the Gulf of Mexico. Both these events raise question about risk and how risk should be managed ... and how the cost of calamity should be funded.
In the case of the financial industry, various key decision makers decided that, because of systemic risk and too big to fail, government should be the funder of last resort. This is a little surprising since the people who made the initial decisions that government should step in were also the same people that had advocated for a very long time that the banking sector and capital markets work best when there is no government engagement.
In terms of risk management ... the private sector banking and finance sector essentially left the whole of the risk with the government ... making no provision whatsoever to be in a position to pull funds from some risk insurance pool in the event of some unanticipated event ... like the sub-prime mortgage melt-down!
In the case of the BP oil spill the assumption was that something like this was not going to happen ... and as far as one can discern there is nothing in either BP or in the oil industry that positions the industry to handle an accident of this sort. The accident should not have come as much of a surprise ... it happens quite frequently around the world, but usually where pollution does not matter (to the companies) very much because there is little publicity and local damage is, in practice, quite routine!
BP and others in the oil industry try to operate safely ... but at the same time they try to operate profitably. The oil industry has a very strong cash flow in normal times ... but they do not have a funded provision for catastrophe set aside. My guess is that there will not be enough BP liquidity to pay claims on a timely basis and in amounts that will make victims whole ... whatever that might be. My guess is that BP will turn out to have a legal structure that makes it very difficult for victims to be compensated. I expect that BP will pay its stockholders a dividend in the near future ... even while the Gulf disaster continues to escalate. They will do this to try to mitigate the stock price losses investors have suffered ... but it is the wrong thing to do. BP may be able to argue it has quite limited legal obligations ... but it has huge responsibilities to the public and especially to those who live in the Gulf coast states.
If risk was being managed comprehensively, BP would have provisions funded that would make it possible for all claims to be paid with little impact on the profit performance of ongoing operations ... but that is not how modern financial managers operate. BP has no special reserves set up and funded to handle the risks that are inherent in its operations ... and because of this the costs are going to come out of its ongoing operations. This is wrong ... but it is the practice of the oil industry ... and all modern industry, that does little to manage risk in a manner that safeguards society.
Transocean ... the owner of the rig has apparently been paid by its insurance carriers for the loss of the rig, and it is reported that they will have a gain in their financial performance as a result of the disaster. To the extent that they had nothing to do with the disaster that would be fine ... but it is not clear yet that this is the case.
Where Halliburton will come out in terms of responsibility is not clear either.
And then there is the question of what responsibility Government at Federal, State and Local level has in all of this. Most oil industry spokesmen seem to be of the view that the least amount of Government is the best ... but at the same time, the private sector industry is not able to organize the pollution mitigation activities that have been needed after the accident without heavy collaboration with government entities. Government entities in the main are inadequately funded ... and are therefore, not surprisingly, ill prepared to handle a serious catastrophe.
The financial services industry prides itself on being innovative. It would be nice to see innovation that makes it possible for the huge systemic and "too big to fail" risks being managed in a responsible way ... but I am not holding my breath. The way really big risk is reduced is having really big provisions and fully funded. Nobody in the capital markets really wants to see this, because the biggest tool in financial engineering is leverage ... and fully funding a risk provision reduces leverage!
At the moment I am not at all optimistic that either the oil industry or the various government entities will be able to deliver meaningful compensation to those who have lost livelihoods as a result of the BP oil spill ... not to compensate for the loss of the productive commons ... the wetlands and natural resources of the region.
I am sure that if the lost value to the economy of the region was quantified it would turn out to be many times the market capitalization of BP! I would like to see this exercise carried out sooner rather than later ... and if this turns out to be so, I would like to hear a robust dialog about how BP and the oil industry as a whole should be held to account.
Maybe I have some facts wrong ... but I don't think so!
Peter Burgess
Recently there have been two huge events ... the near collapse of the global financial industry and the BP oil spill in the Gulf of Mexico. Both these events raise question about risk and how risk should be managed ... and how the cost of calamity should be funded.
In the case of the financial industry, various key decision makers decided that, because of systemic risk and too big to fail, government should be the funder of last resort. This is a little surprising since the people who made the initial decisions that government should step in were also the same people that had advocated for a very long time that the banking sector and capital markets work best when there is no government engagement.
In terms of risk management ... the private sector banking and finance sector essentially left the whole of the risk with the government ... making no provision whatsoever to be in a position to pull funds from some risk insurance pool in the event of some unanticipated event ... like the sub-prime mortgage melt-down!
In the case of the BP oil spill the assumption was that something like this was not going to happen ... and as far as one can discern there is nothing in either BP or in the oil industry that positions the industry to handle an accident of this sort. The accident should not have come as much of a surprise ... it happens quite frequently around the world, but usually where pollution does not matter (to the companies) very much because there is little publicity and local damage is, in practice, quite routine!
BP and others in the oil industry try to operate safely ... but at the same time they try to operate profitably. The oil industry has a very strong cash flow in normal times ... but they do not have a funded provision for catastrophe set aside. My guess is that there will not be enough BP liquidity to pay claims on a timely basis and in amounts that will make victims whole ... whatever that might be. My guess is that BP will turn out to have a legal structure that makes it very difficult for victims to be compensated. I expect that BP will pay its stockholders a dividend in the near future ... even while the Gulf disaster continues to escalate. They will do this to try to mitigate the stock price losses investors have suffered ... but it is the wrong thing to do. BP may be able to argue it has quite limited legal obligations ... but it has huge responsibilities to the public and especially to those who live in the Gulf coast states.
If risk was being managed comprehensively, BP would have provisions funded that would make it possible for all claims to be paid with little impact on the profit performance of ongoing operations ... but that is not how modern financial managers operate. BP has no special reserves set up and funded to handle the risks that are inherent in its operations ... and because of this the costs are going to come out of its ongoing operations. This is wrong ... but it is the practice of the oil industry ... and all modern industry, that does little to manage risk in a manner that safeguards society.
Transocean ... the owner of the rig has apparently been paid by its insurance carriers for the loss of the rig, and it is reported that they will have a gain in their financial performance as a result of the disaster. To the extent that they had nothing to do with the disaster that would be fine ... but it is not clear yet that this is the case.
Where Halliburton will come out in terms of responsibility is not clear either.
And then there is the question of what responsibility Government at Federal, State and Local level has in all of this. Most oil industry spokesmen seem to be of the view that the least amount of Government is the best ... but at the same time, the private sector industry is not able to organize the pollution mitigation activities that have been needed after the accident without heavy collaboration with government entities. Government entities in the main are inadequately funded ... and are therefore, not surprisingly, ill prepared to handle a serious catastrophe.
The financial services industry prides itself on being innovative. It would be nice to see innovation that makes it possible for the huge systemic and "too big to fail" risks being managed in a responsible way ... but I am not holding my breath. The way really big risk is reduced is having really big provisions and fully funded. Nobody in the capital markets really wants to see this, because the biggest tool in financial engineering is leverage ... and fully funding a risk provision reduces leverage!
At the moment I am not at all optimistic that either the oil industry or the various government entities will be able to deliver meaningful compensation to those who have lost livelihoods as a result of the BP oil spill ... not to compensate for the loss of the productive commons ... the wetlands and natural resources of the region.
I am sure that if the lost value to the economy of the region was quantified it would turn out to be many times the market capitalization of BP! I would like to see this exercise carried out sooner rather than later ... and if this turns out to be so, I would like to hear a robust dialog about how BP and the oil industry as a whole should be held to account.
Maybe I have some facts wrong ... but I don't think so!
Peter Burgess
Friday, June 4, 2010
Wealth ... How is it created? Not by the banking and finance sector!
Dear Colleagues
Throughout history there has been interesting accumulations of wealth ... look at the buildings that have been built throughout history ... or the last few thousand years at least. If the buildings are a proxy for wealth ... then a lot of wealth has been created, and the question then becomes how did this wealth come about.
The quick answer for most of history is that powerful people concentrated economic power and gained wealth ... and people with no power toiled to live and to contribute further to powerful people's wealth.
In the industrial revolution ... or was it the various political revolutions a little before ... the efforts of ordinary people resulted in ordinary people getting a little wealthier and eventually a thriving middle class. The improvements in the housing stock accessible to ordinary people during the industrial revolution was a big thing ... and still important.
All of this wealth was created by people doing things of value and ... post slavery ... being paid for it. When land, labor, technology and knowhow come together there can be great outcomes. Money helps bring these things together. Wealth can get created. This is real wealth creation.
Labor becoming more productive helped to create wealth for most of the industrial era. In the last three decades technology has become more productive and is a power for the creation of wealth. In all of history those with power and control have tried to concentrate power and concentrate wealth ... with more or less success.
Excessive concentration of economic power is, however, counterproductive. In the end poor people cannot support a rich economy ... and this is going to be a challenge for the USA unless less people are in the poor category and more are in a solid middle class.
What goes on in the banking and finance sector does nothing to create wealth ... except help to bring land, labor, technology and knowhow together. The banking and finance sector is really nothing more than "overhead" that is useful to help make it possible to make wealth doing real things.
But worse, the capital markets encourage corporate profit no matter what it is doing to society. In the typical business profit model ... poor workers are better than middle class workers ... exactly the opposite of what a prosperous society really needs!
This seems to me to be a fairly straightforward proposition. What am I missing?
Peter Burgess
Throughout history there has been interesting accumulations of wealth ... look at the buildings that have been built throughout history ... or the last few thousand years at least. If the buildings are a proxy for wealth ... then a lot of wealth has been created, and the question then becomes how did this wealth come about.
The quick answer for most of history is that powerful people concentrated economic power and gained wealth ... and people with no power toiled to live and to contribute further to powerful people's wealth.
In the industrial revolution ... or was it the various political revolutions a little before ... the efforts of ordinary people resulted in ordinary people getting a little wealthier and eventually a thriving middle class. The improvements in the housing stock accessible to ordinary people during the industrial revolution was a big thing ... and still important.
All of this wealth was created by people doing things of value and ... post slavery ... being paid for it. When land, labor, technology and knowhow come together there can be great outcomes. Money helps bring these things together. Wealth can get created. This is real wealth creation.
Labor becoming more productive helped to create wealth for most of the industrial era. In the last three decades technology has become more productive and is a power for the creation of wealth. In all of history those with power and control have tried to concentrate power and concentrate wealth ... with more or less success.
Excessive concentration of economic power is, however, counterproductive. In the end poor people cannot support a rich economy ... and this is going to be a challenge for the USA unless less people are in the poor category and more are in a solid middle class.
What goes on in the banking and finance sector does nothing to create wealth ... except help to bring land, labor, technology and knowhow together. The banking and finance sector is really nothing more than "overhead" that is useful to help make it possible to make wealth doing real things.
But worse, the capital markets encourage corporate profit no matter what it is doing to society. In the typical business profit model ... poor workers are better than middle class workers ... exactly the opposite of what a prosperous society really needs!
This seems to me to be a fairly straightforward proposition. What am I missing?
Peter Burgess
Wednesday, June 2, 2010
Does private equity help microfinance?
Dear Colleagues
Rachel Hamilton, Senior Industry Consultant at American Conference Institute posed the following question to the MicroFinance Club of New York: "Does private equity help microfinance?" My quick response was as follows:
/////////////////////
As long as the only metrics in play are those related to money and profit, the chance that private equity will help microfinance is minimal. More likely is that the private equity aims will remove most of the "value" from the microfinance model that has been successful.
Money and profits are a very dangerous motivating force in poor fragile economic situations. In money accountancy it is possible to balance the books using a temporary suspense account ... but in real world poor economies the balancing factor is how fast the children die.
The argument that the market economy works well is ridiculous ... though it works a lot better than the communist Gosplan economic model. I find the idea that there are over 4 billion people poor and hungry at this point in history quite unacceptable ... and I would like to see the capital markets figuring out how to solve this problem in a sustainable way. In my view it can be done ... but the key missing element is a system of metrics that recognizes the value of progress out of poverty.
What am I missing?
///////////////
Peter Burgess
Rachel Hamilton, Senior Industry Consultant at American Conference Institute posed the following question to the MicroFinance Club of New York: "Does private equity help microfinance?" My quick response was as follows:
/////////////////////
As long as the only metrics in play are those related to money and profit, the chance that private equity will help microfinance is minimal. More likely is that the private equity aims will remove most of the "value" from the microfinance model that has been successful.
Money and profits are a very dangerous motivating force in poor fragile economic situations. In money accountancy it is possible to balance the books using a temporary suspense account ... but in real world poor economies the balancing factor is how fast the children die.
The argument that the market economy works well is ridiculous ... though it works a lot better than the communist Gosplan economic model. I find the idea that there are over 4 billion people poor and hungry at this point in history quite unacceptable ... and I would like to see the capital markets figuring out how to solve this problem in a sustainable way. In my view it can be done ... but the key missing element is a system of metrics that recognizes the value of progress out of poverty.
What am I missing?
///////////////
Peter Burgess
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