Kinds of businesses and kinds of business(wo)men

Paul Kedrosky discusses some of the consequences coming down the pipe for the VC industry.  Paul draws much of his inspiration from his friend, Bill Stensrud, who's a VC investor himself.  Thinking about the current state of the VC industry, Bill observes that an overweening interest in getting to an exit (read: finding a buyer) has come to replace an interest in cash flow (read: making money).

What [all VC] firms have in common is that they exist to buy and sell equities.  They both buy from entrepreneurs and they both sell to acquirers or (very infrequently these days) to public shareholders.  They are, at their very core, traders.  Their job is to buy low and sell high.  This fundamental truth about the venture business informs every action they take whether mainstream of super-angel.  It also informs the culture of the businesses they create.  Everyone is looking for a pot of gold at the end of the rainbow - the life changing - all consuming - EXIT!!  The nature of their business model demands it.  These are close-end funds.  They have to return money - cash - to their investors.

In this blog over the next several months I am going to explore another - even more ancient - model for company creation.  This is art and practice of building and running a business for POSITIVE CASH FLOW.  Before there was venture capital and before there were EXITS, people built businesses to make money so they could pay their bills.  I will argue that re-discovering this model drives a corporate culture which is much healthier, more robust and more survivable than the EXIT-focused culture created by the venture capital model.  I will also argue that the cash flow model can engage the employees, the critical human capital asset of every business, to significantly greater efficacy than equity models.  Lastly, I will argue that we can modestly scale this model to the point that it can become a significant factor in new business creation.

One of the consequences of thinking about business environments as ecologies is that it makes it relatively easy to think the relationship between the people who run businesses and the generic conditions in which those businesses operate.  It becomes easy to see how VCs, in actively selecting with an eye toward the exit, might over time change the population of entrepreneurs they partner with.  It might be obvious that business ideas that make money, but have no clear exit strategies, do not fare well securing VC in today's market.  But business ideas are developed by and instantiated by businesspeople.

Today's VC climate actively selects against entrepreneurs who want to "build and hold" profitable businesses.  "Build and hold" doesn't just describe a business model--it describes a temperament:

• Thoughtful - concerned with long-term secular trends rather than high-velocity volatile fads
• Prudent - husbands scarce resources for the long haul--including and especially managerial stamina (contemporary VC expects managerial burnout, though it hopes to exit before it happens)
• Patient - satisfied to build a strong foundation for big success by stringing together a long series of small, cumulative successes

If we want businesses that are conceived and constructed as long-term money-making ventures, we need entrepreneurs with the right temperament.  If modern VC's intensive focus on the exit has changed the character of our pool of important and interesting business ideas, well, so what?  New ideas are easy to come by.  But I fear there may have been a more subtle and more fundamental change in the character of our entrepreneurs (as a group, not as individuals).  We now have one, maybe two generations of top-tier entrepreneurs (with the right experience and connections) who think of starting a business as aiming for an exit.

In order to make best use of our limited resources, we have created a streamlined system whereby everyone must exit at Easy Street.

Our current business culture of get-what-you-can-while-you-can follows directly from the preferences of the VC investors who hire people with that kind of temperament to build and run their businesses.  As go new businesses, so goes all business.  It's hard to see how we get sensible businesspeople to run our businesses until investors stop thinking like traders.

Social attitudes usually reflect social conditions (not moral preferences)

It turns out that personal finance isn't so "personal."  Much of it has to do with prevailing attitudes toward financial conditions.  Bank of America CEO Kenneth Lewis recently worried in public [WSJ; behind firewall] about people who might walk away from their mortgages now their homes are worth less than their loan balance.

Calculated Risk puts up some scary numbers, which indicate the potentially seismic consequences of large-scale shifts in social attitudes. How scary?  How does TWO TRILLION strike you?

If every upside down homeowner resorted to "jingle mail" (mailing the keys to the lender), the losses for the lenders could be staggering. Assuming a 15% total price decline, and a 50% average loss per mortgage, the losses for lenders and investors would be about $1 trillion. Assuming a 30% price decline, the losses would be over $2 trillion.

Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).

There's a huge social component to personal ethics--much larger than we usually suppose.  Is walking away from your mortgage bad behavior?  Well, what if not only makes financial sense, but many people are doing it?  What if it were recommended?  Shame depends on the visibility of certain personal behavior in the eyes of a public, and there seems to be much less shame associated with cutting one's mortgage losses.  The big lesson (apart from the shame I hope the banks are feeling) is that personal character is developed in symbiosis with social conditions, not in spite of them.

The value of inconvenience

By almost any meaningful performance measurement, the U.S. economy in the 20th century performed better under Democratic administrations than under Republican ones. Reflecting on this seeming paradox, Christopher Carroll suggests that

perhaps the best explanation has to do with attitudes, not doctrines: Maybe capitalism works better when its excesses are restrained by skeptics than when true-believers are writing, interpreting, judging, and executing the rules of the game. (The Democrats are surely the more skeptical of our two parties).

Most would agree that restraining the excesses of almost anything counts as good sense, but this is only a preliminary step toward a bigger and more interesting idea:

Capitalism works better when it is being held accountable to some external standard than when left to its own devices.

The whole system works better when "held accountable to some external standard," when it is, in a word, constrained. Optimal performance, in other words, is the fruit of struggle. Make things too easy and performance declines.

Relaxed external standards? Check. Highlight reel material? Not so much.

Consider how effective coaches pull outstanding athletic performance from their players. Good coaches don't let their players do whatever they want, without accountability or oversight; they create rules and systems of accountability. A good soccer coach makes you use your weak foot in order to develop it. A good swimming coach pushes you to hold your breath longer. Optimal athletic performance depends upon the measured application of psychological and physiological pressure. (Go watch Gavin O'Connor's Miracle to see a dramatization of great coaching.) Good coaches don't remove limitations--they use them.

Or consider architectural and industrial design. The famous designer Charles Eames (yet another famous St. Louisan) once remarked:

Design depends largely on constraints.

We tend to believe that creativity is best served by removing constraints. If we could just somehow make the process of invention easier for the inventor, we imagine that she would be more inventive. But the opposite is usually true. People get creative--truly creative--when challenged to negotiate constraints. Budgets (within reason) push architects to develop new strategies to solve old problems. (The story of how the design of Seattle's new public library building developed is a great example.) The particularities of manufacturing processes push industrial designers to find solutions which challenge convention. (The story of the how the first commercially viable computer mouse was designed is a textbook example.) Constraints drive creativity.

Artist Andy Goldsworthy creates astonishing ephemeral works using only the materials he finds on site during his wilderness hikes: creativity driven by constraint.

The same is true in business. Real innovation happens where someone discovers a new way to scratch an old itch, where someone thinks through a problem in a new way (even if it's simply a new application of an old technology). When we talk about innovation happening "at the edges" of a market or industry, what we mean is that innovation happens where business rubs up against constraints. (The "mainstream" of anything is where things flow smoothly, right?) We can't have innovation--and capitalism's greatest strength as an economic system is its powerful incentives for innovation--unless we have the right kind of rules and restrictions. (The question of "more" regulation versus "less" regulation is puerile. The kind of regulation matters more than the amount.) The free market, to put it pointedly, is only as free as its constraints force it to be.

Of course, constraints are damned inconvenient. And that's precisely the point. It's often--if not always--in response to inconveniences that people are most creative, most inventive, most innovative. And so we're led inevitably to the conclusion that inconveniences can be useful.

"Traffic lights are just the Man keeping us down! We will not be constrained!"

Some inconveniences, naturally, are more useful than others, but that hardly obviates the necessity of inconvenience for optimal performance. It's easy enough to see how inconveniencing others might be worthwhile, but it's one of the marks of emotional maturity to see the value of inconvenience for oneself. Politics--in the largest possible sense of the word--is only possible because we deliberately accept to be inconvenienced in certain ways (e.g., we don't simply use whichever car is closest, use guns to force our crushes to go out with us, or lynch elected officials from opposing parties). We recognize that our condition is collectively better when we all accept to be inconvenienced in certain ways. (Again, the kind of self-regulation matters more than the amount.)

Finding--and enforcing--the right kind of constraints is key to getting the most out of people, as innovators, as politicians, as artists, as designers, and even as citizens. We would all of us do well to remember that inconvenience--yes, even our own--often serves us much, much better than convenience.

The meaning of business

Lately, I've been mulling over a comment made by my uncle--who has the reputation in the family of being a super savvy investor--to the effect that it doesn't matter what a business does per se, so long as it turns a profit. I've argued before on this blog that my uncle's position unfairly impoverishes the concept of value. I've even gestured (crudely) in a few directions which might help us to enrich our concept of value.

Over at The Bastiat Society Blog, however, Ben Rast has a post entitled Business as Creative Act, which takes the first few steps down what I think is the brightest path toward a full and mature understanding of what business is (and why my uncle is mistaken). Simply put:

Business, as a creative act, draws on the very same strengths and suffers the same weaknesses as the creative act in art. They are more alike than dissimilar.

By "creative act," Rast means to emphasize entrepreneurship particularly:

We can illustrate just how much artistic creativity and business creativity have in common with the following paragraph of advice to writers, taken from an interview of William Faulkner published in the Paris Review in 1956:

"Let the writer take up surgery or bricklaying if he is interested in technique. There is no mechanical way to get the writing done, no shortcut. The young writer would be a fool to follow a theory. Teach yourself by your own mistakes; people learn only by error. The good artist believes that nobody is good enough to give him advice. He has supreme vanity. No matter how much he admires the old writer, he wants to beat him."

Now, notice how well it works as advice to entrepreneurs -- those troublesome dreamers and innovators in business -- with a few strategic substitutions.

"Let the entrepreneur take up surgery or bricklaying if he is interested in technique. There is no mechanical way to get business done, no shortcut. The young entrepreneur would be a fool to follow a theory. Teach yourself by your own mistakes; people learn only by error. The good entrepreneur believes that nobody is good enough to give him advice. He has supreme vanity. No matter how much he admires the old business, he wants to beat it."

Rast is astute to catch this similarity. People who launch new enterprises resemble artists in their drive to make something new, to add an original trope to the poem of humanity. But it's obvious, in a sense, that entrepreneurs are creators. What's not so obvious is that all productive activity (in the economic sense)--that is, all business activity--is creative as well.

To put it succinctly, human creativity is coextensive with human endeavor. Wherever people get stuff done, there people come up with new ways to think, do, and make. It doesn't matter what you call the end product--good, service, artwork--productive human activity demands creativity for the very simply reason that every object humans make with intention and every action humans do with intention bears the stamp, as it were, of the intention that brought it into being.

Aristotle identified four causes which obtain in the world: the material, the formal, the efficient, and the so-called final cause. It's the last one which concerns us here. The

final cause explains the cause of something in terms of its conceived end, or the purpose why it is made. According to Aristotle, [the] final cause is “the end (telos), that for the sake of which a thing is done.”

Every good is made and every service performed for the sake of something else--specifically, they're made and performed for the sake of the customer's good. That's why we call them "goods," right? Yes, yes, the producer produces goods in order to get paid, and the service provider serves in order to get paid, but they only get paid if someone recognizes the value of their goods and services. (And this objection is weak, since money is only and always a means to an end. "To get paid" can never be a final cause for making or doing something for the simple reason that money always points beyond itself to another end--one always exchanges the money on something else. It is not, simply put, final.)

Because goods and services are self-evidently intended to do someone some good (otherwise who would buy them?), we can say that economically productive activity is not only a functional activity, but is additionally an expressive activity--that is, it means something. In particular, it speaks to a vision of the good in general and the customer's good in particular. Even further, each good produced and each service provided changes the world; each good and each service brings into being a new state of affairs which must be presumed to be better than had the good been left unmade, the service undone (again, otherwise who would buy them?).

From this line of thinking two absurdly important conclusions follow:

1. Businesses really do change the world--so they'd better get it right. The presumption of "providing value," of making or doing something "good," is built into the very possibility of business. If a business doesn't add value--that is, if it doesn't make the world a better place--then it has no business being in business. It seems almost too obvious to need saying, but... businesses may be judged by the same standard as every other human endeavor, and that standard is whether or not the business's making and/or doing makes the world a better place.
2. Investors are to companies what patrons are to artists--so they'd better get it right. Warren Buffet famously advises investors to buy shares of a company only if they'd be willing to buy the whole company. I'll take Mr. Buffet one step further. You should buy shares of a company only if you'd be willing to be that company's sole customer--like an artist's patron, buying, owning, and enjoying responsibility for that company's entire output. Just as being a shareholder means being wholly and individually responsible for (and dependent upon) a company's entire financial performance, so being a shareholder means being wholly and individually responsible for (and dependent upon) a company's entire, world-changing making and doing. Just like a patron, you've put money down so that the companies you own can make what they make, do what they do. You enjoy the financial fruit of the shares you own for the single, simple reason that the companies you own get paid for changing the world, and the world they're making and enacting is the world we all live in--the world our children are growing up in.

Disorganize the schools!

The NYT covers the--gasp!--new trend of tutoring students (mostly boys) who seem to be having trouble in school. OK, OK, it's not the tutoring itself which is interesting. We've known for some time that tutoring is among the most successful of teaching methods. It's the fact that the tutors aren't teaching subjects, they're teaching habits. In other words, ethical tutoring.

If you want to get 'em educated, you first gotta' get 'em organized.
(Photo by Jim Wilson for the New York Times)

As per their standard operating procedure, the NYT adds zero content to and only a confused, watery viewpoint on the conversation. (When will they stop "reporting" and start giving us the story?) We've known for some time that girls outperform boys in almost every subject until puberty hits, at which point boys edge ahead in math and science. But why? And what to do about it?

The NYT frames the problem as one of organizational habits--which is curious because it focuses not on the problem, but on the (stopgap) solution. Providing boys with better organizational skills will undoubtedly help them do better in school. But doesn't this beg the question of why schools demand that children be "well-organized" in order to receive an education? Why should high-school boys need to develop bureaucratic skills and habits in order to learn? After all, the world itself wasn't color-coded the last time I checked.

A classic case of mistaking your map of the world for the world itself.

Too, the culture's perception of schooling has changed. I believe that parents used to be more focused on the education itself--what the child was learning, how s/he was doing in class, etc. There was a sense that the learning itself was the primary propellant provided by schools to children aimed at moving up in the world. Nowadays there's a great deal more focus on getting the certification at the end. It's the paper that matters--not the process. Especially with No Child Left Behind [free registration required], our focus become fixed on making the grade, and the means seem to matter little.

On top of our intense focus on the finish line, we still teach using methods which we know (and have known for years) don't work all that well. Is it any surprise that energetic, independent students should rapidly come to the conclusion that school isn't worth their time? Why not simply cheat, or cram for the test? And why worry at all, since that silly certificate isn't worth much any more unless you've got the right parents in any case?

Ultimately, it isn't boys who are less organized, it's our pedagogy (and indeed every institutional activity in our culture) which has become more rigidly organized. Turning in your not-very-interesting and not-at-all-important homework on time isn't equivalent to responsibility. It's just punching in. People who focus intensely on thing they themselves find trivial and meaningless are usually pretty unhappy. And no surprise there either.

The only way to stress less is to let it go

The NYT covers an emerging trend in affluent US high schools, where a culture of "super-achievement" has taken over.

Relaxation, like stress, is a habitual behavior based on learned techniques.
(Photo by Jodi Hilton for NYT)

I have a feeling that many people will view requiring stressed out high school seniors to take yoga (and the like) as a kind of fad aimed at making kids even more well rounded. But I would suggest that such efforts may really reflect the first wave of a shift in consciousness which sees clearly that the habits kids acquire in school become the backbones of their respective characters. And being stressed by work is one of those habits. (And remember, this is all high school level coursework--i.e., almost completely insignificant.)

Letters to a Young Teacher

Salon's Mathew Fishbane interviews Jonathan Kozol, author of the recently published Letters to a Young Teacher, in which Mr. Kozol advises school teachers to adopt an "attitude of irreverence." Thank goodness at least one person who testifies before the U.S. Congress is saying it.

Learning in time

Over at FutureLab, Jack Kenny has an article discussing the importance of time in learning environments and experiences. Kenny details the experiences a number of schools in the UK have had in changing the way that time and learning interact. Faithful readers of this blog will recall the post on thought/days, in which I suggested a supplementary time measurement for learning (in addition to the now-standard credit/hour).

I think the most important point raised by Kenny's article is that "a [rigid] timetable is restrictive when teachers are working creatively." Clock time and learning time are related, but they're not necessarily isometric. To illustrate this difference, you need only reflect on what happened to clock time during one of those magic moments when you became completely immersed in an enjoyable learning experience...

The MBA: new, improved, or simply on steroids?

In Austin, Texas, a bunch of teachers at the Acton MBA program have uncovered the secret of American greatness (such as it is):

We believe that thoughtful, principled entrepreneurs are the secret to America's success, and her scarcest resource.

Anyone who doubts whether or not Acton's founders are correct in this surmise should stop and think about the meaning of the word entrepreneur. I hardly think it unfair to qualify Jefferson, Madison, Lincoln, and King as entrepreneurs. It's just that their domain was politics rather than commerce. The US owes all of its greatness (again, such as it is) to its most entrepreneurial members. Better US entrepreneurs can only mean a brighter future for the US.

But setting aside for the moment the whole question of social entrepreneurship, Acton claims as its goal

to educate a new kind of MBA: one who is equipped to add value from day one, build successful businesses, raise a healthy family, and give back to his or her community.

Having considered business school in the past, and having cheered from the sidelines as a spouse paid her two years of dues, this sounds great. Your average garden-variety MBA program makes it a rule to thwart whatever entrepreneurial impulses its students may bring to its doors. So maybe Acton really does offer something different. At the very least, it has proven itself capable of convincing already successful entrepreneurs that it offers something worthwhile:

Acton is the only MBA program in the country that offers every student a $35,000 Acton Fellowship to cover the full cost of tuition, fees, and materials.

Seems like a hell of deal, if the curriculum is any good. And the curriculum looks pretty damn good to me. They use the the case method, but with a focus on entrepreneurial issues rather than managerial ones. They include hands-on experience in sales, complex simulations, and site visits as part of the package. And one of their core curricular segments is entitled "Life of Meaning," suggesting that they're not merely about enabling corporate greed. And to top it all off, it's all taught by seasoned entrepreneurs, not by researchers. It looks like a fantastic curriculum, and I'd endorse it wholeheartedly except for a few little details which set my nose to twitching.

(A) First off, the workload is 80-90+ hours per week. Now, it's only a one-year program, and traditional MBA programs seem to work their little serfs 50-70 hours per week for two years, so perhaps it's not so bad by comparison. It's just that that kind of workload sends several important messages:

1. it suggests, by sealing people hermetically into their program so that they barely even see their spouses, that success in business depends upon sacrificing everything else (from the FAQ: "We offer several sessions throughout the year in which students and their significant others get together with the Life of Meaning teacher to discuss the contributions and sacrifices each has to make throughout the year-long program");
2. it teaches the phony lesson that working harder is more important than working smarter;
   
3. and because it lasts an entire year, it creates habits of dissociation (an addiction to work really is a spiritual disease) which can reappear at any time.

(B) Second, it looks like the school is staffed by only (or almost only) white males. Lord knows that a lot of diversity can exist beneath identical skin colors and genders, but it's nevertheless hard to believe that this kind of homogeneity doesn't reflect a certain homogeneity of outlook. Driving forward relentlessly has been a very successful strategy for white males, but I can't help but wonder whether or not there may be other strategies.

(C) Third, and most importantly, it's still a curriculum taught by faculty at a school where students come and sit in classrooms to "learn at the feet of the master." Acton notes that "traditional MBA faculty see themselves, not their students, as the customers," thereby suggesting that at Acton, students are the customers. That is to say, the students are the boss. But while "clear contracts and a competitive grading system" probably do provide for quite a bit of the pressure experienced by students, I fail to see how they "encourage... perspective, discipline and accountability." Perspective comes from broad understanding--not from narrow focus; discipline arises as a result of self-knowledge--not from external standards; and accountability arises from a sense of connectedness to other persons and things--not from abstract contracts, however clear.

From its website, Acton appears to be a smarter, leaner, and perhaps meaner MBA, but it's still an MBA. In many ways it returns to original intent of the MBA, which was to provide to rising managers (who already had some real-world experience) a suite of tools to help them manage more effectively. And in several ways it has outgrown its roots: its focus on entrepreneurship is welcome; its penchant for hands-on teaching is laudable; and its ability to support its students financially is breathtaking.

Without visiting the campus and conversing, face-to-face, with its students and teachers, I don't think it would be possible to render a more complete judgment. (I despair of the possibility of any student giving me any time for conversation.) It's an extremely exciting project, but I think it's still mostly a large step in the direction of faster and more, and only a small step in the direction of better.

Thought/days (a new measure for slow learning)

Our culture is all too quick to prejudge in favor of high speed, and nowhere is our prejudice so evident as in education. The idea of "slow learning" would probably seem to most people to be something to be avoided. Children who learn slowly, after all, are called disadvantaged.

I've been doing some reading and thinking about learning, though, and I have a bone to pick with our speed prejudice, particularly as it relates to environmental issues. To begin, I'd like to cite David Orr's lecture on "Environmental Literacy," in which he distinguishes between cleverness and intelligence, giving the nod to intelligence in part because it is slower:

From an ecological perspective it is clear that we have often confused cleverness and intelligence. Cleverness, as I understand it, tends to fragment things and to focus on the short term. The epitome of cleverness is the specialist whose intellect and person have been shaped by the demands of a single function. Ecological intelligence, on the other hand, requires a broader view of the world and a long-term perspective. Cleverness can be adequately measured by SAT and GRE tests, but intelligence is not so easily computed. In time, I think we will come to see that true intelligence tends to be integrative and often works slowly while mulling things over. Further, intelligence can be inferred, according to Wendell Berry in Standing By Words, from the “good order or harmoniousness of [one’s] surroundings.” In other words, the consequences of our actions are a measure of our intelligence, and the plea of ignorance is no good defense. Because some consequences cannot be predicted, the exercise of intelligence requires forbearance and a sense of limits. Ecological intelligence, in contrast to mere cleverness, does not presume to act beyond a certain scale at which effects can be known and unpredictable consequences would not be catastrophic.

While I don't care for Orr's diction (cleverness and intelligence seem too close in terms of connotation and valence in my view), his more general point that there exists a kind of quick intelligence and a kind of slow intelligence is well taken. I would suggest further that his distinction be extrapolated a bit: there's also a kind of quick learning and a kind of slow learning, both of which are good. Children who suffer from learning disabilities are simply "slower" (than average) when it comes to the quick kind of learning. The slow kind of learning can't really be measured in the same way. In fact, I believe it requires an entirely different conception of time.

Clive Holtham, et al. n their article Slow Knowledge: The Importance of Tempo in Debriefing and in Individual Learning [.pdf], discuss some of the key qualitative differences between "fast time" and "slow time." Without getting too deep into their work (which is worth at least skimming), they specifically advance the notion of tempo (fast tempo vs. slow tempo) as a conceptual overlay for understanding time as it relates to learning. Tempo means rhythm, and it is precisely the notion of rhythm as it relates to learning which I want to refine.

We currently measure quantity of learning (quite apart from quality, which has its own issues) in terms of credit/hours, instruction/hours, or something similar. We measure, in other words, learning time from the instructor's point of view. Or, to put it slightly differently, we measure time from the subject matter's point of view. As if the sheer number of hours a subject matter and a mind were in contact were meaningful. And it is, under certain conditions and within limits.

Student learning + instructor timetable = VERY slow learning.

I'd like to propose a new measure for quantity of learning. (Not a substitute for credit/hours, but a complement.)

The thought/day: a day in which specific, conscious mental attention is brought to bear on a particular idea-cluster. Thought/days are typically measured within a larger context, just as credit/hours are. One generally doesn't simply assign 50 thought/days to a project; one assigns 5 thought/days per week for 10 weeks.

The thought/day attempts to guide and quantify reflection rather than the co-presence of "learner" and "subject matter." Naturally, thought/days have no significance unless the learner is committed to reflection. Since, however, the student is the independent actor and the instructor the dependent actor in a teaching system, thought/days don't offer the temptation of education-as-body-processing which is all too common under credit/hour regimes.

Again, though, thought/days cannot replace credit/hours, but they can supplement them. They are especially helpful in disciplines such as philosophy, theology, and creative writing, in which reflection (spiritual digestion) is more important than the absorption of information.

How to confuse ethical issues

Thomas Shanks, S.J., Executive Director of The Markkula Center for Applied Ethics at Santa Clara University runs through a sample case concerning due diligence on MCAE’s website. The webmaster introduces the case as follows:

Ethical principles and values are, of course, key to ethical decision making, but how should they be applied to actual business situations?

The clear implication is that ethics and business are two separate silos of human experience, one of which is highly abstract, and the other a collection of “actual situations.” Further, the webmaster’s statement suggests that achieving a clear understansing of ethics represents a intellectual challenge of the highest order. Oh my God! How should ethics be applied in bussines situations? Please, great and mighty consultant--enlighten us benighted souls! This clearly serves only to bolster the Center’s assumed position that you need a consultant to understand ethics. While leading an ethical life is surely a great challenge, understanding what ethics means and how ethics works could hardly be simpler.

The English word “ethics” derives from the Classical Greek word ethos, which means “habit.” (Ethos derives the Ancient Greek ethea, which means “where wild animals live,” closing the link between “habit” and “habitat.”) Ethics therefore means the habits of character we have acquired, and which shape our typical behavior. Good ethics means good habits of character; bad ethics means bad habits of character. Ethics do not specifically concern how we relate with other people, but rather how our characters--that is, our general disposition toward our experience--improve or worsen over time.

Habits are patterns of behavior—predispositions to act in a certain way—which we acquire through repetition. We become brave precisely by practising bravery; we become greedy by practising greed. These days, when we say that an action is “unethical,” we seem to mean that it’s a “cruel” or “insensitive” action. In point of fact, an unethical action is one which leads down the slippery slope to bad character. Several intemperate actions tend to incline one to still greater shows of intemperance. The guys at Enron didn’t start robbing old ladies in California as their first malfeasance; they had to build up to it.

Mr. Fastow: "I wasn't born a cheat and a crook; I had to practice diligently for many years.”

All of which makes speaking of ethics as if they were something to be applied seem pretty weird. You don’t apply your habits or your character; you just live them. (With determination and grace, you improve them.) Business situations, like all human situations, are saturated with ethical significance. The question isn’t whether or not to apply ethical values and principles. The question is whether your next move is going to make you worse or better off in terms of your habits of character. Does the choice you're making now make the next good move easier or harder? As to the question of why one ought to prefer a better character, another post to follow.