Sunday, March 15, 2009

A Tale of Two Philosophies: A Case study between AIG and Beth Israel

Our country is experiencing one of the deepest recessions in its history. We should understand that but we should also not let it rule us. After all, we are not growing "victory" gardens and making soup with ketchup packets . . . yet. Still, we should be learning lessons and applying them quickly during this time.

One lesson that should be abundantly clear is that we cannot continue to do business as usual. We are in this mess largely on account of poor and unethical business practices. Further, government handouts do not force businesses to change or accomodate their customers better. Maintaining the status quo via monetary hemmorage merely prolongs the inevitable bottoming-out of the economy.

Instead, we should change our expectations. These are not good times. Businesses should not expect the same high profits. Investors should not expect the same nice returns. Workers should not expect the same high wages. That being said, businesses should change how they do business, thinking outside the box to maximize working and earning potential and trimming fat. That does not necessarily translate to laying large numbers of people off (which appears to be the knee-jerk reaction). Instead, refocusing and retooling products and services can save jobs and increase revenue.

Here are a couple of examples. One of a business that has done almost everything wrong, and one of a business that has done something right. The former is AIG. AIG has been all about the flashy side of high finance and insurance. They have portrayed the perfect nineties bubble corporation - a slick and recognizeable three-letter acronym, high profile senior management, fingers in every pie, and lots of perks - cars, private jets, executive trips, etc. When things went wrong and they were failing, they continued to maintain this playboy image. Instead of making necessary cutbacks in their spending and tightening budgets, they took more trips and flew to government hearings in the private jets. Even with this continued ostentation, they received an incredible $170 Billion of government money in order to remain solvent. Predictably, they have not learned their lesson.

AIG was in the news again today. After a fourth-quarter reported loss of $61.7 Billion, many are irate that AIG is proceeding to pay $450 million in bonuses to its top-level executives. These bonuses do not make sense in this economy and especially not while the tax-payer is part-owner (controlling share-holder, actually) of the company.

The latter example is Beth Israel Deaconess Medical Center in Boston, MA. Of course, Hospitals are businesses as well. Paul Levy, president and CEO of Beth Israel, recently made headlines for his compassionate appeal to his labor force and their ethical response. Rather than doing business like many other corporations, Levy realized that he needed his workers to keep the hospital functioning (novel idea). Here is what he said (reported by the Boston Globe),

'I want to run an idea by you that I think is important, and I'd like to get your reaction to it, I'd like to do what we can to protect the lower-wage earners - the transporters, the housekeepers, the food service people. A lot of these people work really hard, and I don't want to put an additional burden on them. Now, if we protect these workers, it means the rest of us will have to make a bigger sacrifice. It means that others will have to give up more of their salary or benefits.'

He had barely gotten the words out of his mouth when Sherman Auditorium erupted in applause. Thunderous, heartfelt, sustained applause


Paul Levy didn't require a pay cut for some to pay others (socialism), nor did he just lay-off his lower-wage people (a poor form of capitalism). Instead, he asked his people to sacrifice for one another and they responded dramatically well. This is a man who, while willing to do what it takes to keep the business intact, made the better decision to allow his workers to take care of one another. In the process, he has kept the hospital operating efficiently and kept more families afloat at the same time. This was an example of capitalism informed by morality. Well done Mr. Levy! May more of our businesses learn from your example.

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