Kitten on a Mission - How Things Change

 Notice how a kitten will jump on anything and everything and is easily distracted. This applies to governmental officials, financial professionals and financial news organizations.

The National Bureau of Economic Research is a private organization responsible for calling the official timing of a recession. It states a recession “is a marked declined across the economy in a range of indicators, including the labor market, investment and spending.” Usually people tend to look for 2 quarters of downturn in several indicators including GDP growth (negative), employment (negative), consumption and spending and other financial measures such as an inverted yield curve. Many of these measures can be analyzed by month, which is 5 months shorter than the classical 2 quarter+ measurement of the official bureau. That is why we get the range of dates or even no date on recession estimations. The only one officially recognized to call a recession tends to use at least 2 quarters of historical data before they make a pronouncement.

                With that in mind let’s turn to some news stories. From June 6^th, BNN Bloomberg (Canada), the headline reads “Powell says soft landing ‘very challenging,’ recession possible.” The article suggests that “Powell has given his most explicit acknowledgment to date that steep rates could tip the US economy into recession, saying one is possible and calling a soft landing ‘very challenging” ‘. Notice that the language is still couched and nuanced and leaves much room to wiggle. He still leaves a way for the Fed to claim that they are not forecasting a recession, yet. In spite of the hikes in the Fed Funds Rate and the reduction of the Fed balance sheet. The article discusses Powell’s reactions and actions to inflation reports. Republican have recently been blasting Powell for not jumping on inflation sooner by raising rates faster. Again we have the current bandwagon of thought. Watch as comments shifts back and forth. Powell didn’t do enough, Powell did too much. Remember, the Fed has a sledge hammer to deliver adjustments and the talking heads including Congress are reacting as if there is a precise tool. There isn’t and they (Fed) can’t use it that way (with precision). The Fed has fostered this thinking which is bringing the problem back to roost (as the saying goes) by their own past statements and actions. They act as if they can precisely control inflation and growth. They can’t. So when they get called out for not being able to steer the economy they have in large measure brought it on themselves by implying they can control. Again, they can’t. Expect to see more and harsher statements especially from Congress and talking heads.

                Moving to the 2^nd article, from Politico of 7/04/2022. Tag line is “President Joe Biden says ‘there’s nothing inevitable’ about a recession in the U.S. Right…., and where is the rest of the statement the country asks? Many are saying the president is a lone voice in the noise of recession and he probably is at this point. This is pure politics. Since the president can’t (or shouldn’t) try to influence the Fed which is supposed to be independent by definition, the president can make calming public statements and call Powell privately in desperation. Several Democrats are on record as suggesting this recession thing is not a big problem, we just need to spend more.

                The 3^rd article is from BNN Bloomberg of 7/07/2022. The tag line reads, “US recession is already here, according to Wells Fargo Investment Group”. Think back to our previous blog on economic / financial forecasts and notice that here we have the first news grabbers with a new story or new twist and trying to get out front of the news competition. We can see the progression of news stories as we went from no recession to possible recession to more likely recession to predicting recession in the future (from middle to end of 2023) to now we are in a recession. Pure news grabbing. Watch to see of others will jump on this bandwagon or if they suggest something else. Regardless they (the newsies) have a new and exciting twist to write about which generates copy (not necessarily good copy but copy).

                What to do. Slow and steady wins the race or in this situation slow and thoughtful keeps their sanity. You know the news articles and newsies are going to jump on everything just like our kitten does. Their attention is divided so many different direction (very much on purpose) because it generates pages to read. Again, there are few if any consequences in reporting so you have to be selective in what you read. Watch for things to settle out a bit and see. A good example is the recession. Since the first of the year the talking heads started as recession was not likely but a possibility to now a recession is likely and may be as early as next year. I don’t give much weight to the Wells Fargo comments about the recession has started because it is the first mention (a kitten pounced on something let’s all look). That makes it a new idea and someone was trying to get the jump on everyone else. If they are wrong it doesn’t matter to them. It’s news. Remember, slow and thoughtful helps you keep your financial sanity. You don’t have to react to every new thing. Paraphrasing what President Brigham Young was supposed to have said to the woman who came in for counseling, “Well sister, if your husband tells you to go to hell, well just don’t go.” If the newsies, financial pundits and governmental officials tell you we have to jump, well, just don’t jump (wait and see). Regardless of their screaming we will figure it out. Earplugs help. Enjoy family, friends and your favorite sport or book, take a walk, do something fun and relaxing. The screaming, finger pointing and loud noises will still be there when we get back and maybe, just maybe, there might be some calmer voices with some real, helpful information. We can always hope.

 

https://www.bnnbloomberg.ca/powell-says-soft-landing-very-challenging-recession-possible-1.1782346

https://www.politico.com/news/2022/07/04/recession-talk-surges-in-washington-00043818

https://www.bnnbloomberg.ca/us-recession-is-already-here-according-to-wells-fargo-investment-group-1.1789170

 

The Bear Trap that Looks Like a Cookie: The Seduction of Goal Setting Part 4 – Practical Experiences or How Not to Succeed in Goal Setting

             Many of you have likely been exposed to goals and goal setting at one time or another. Some experiences may be pretty good but I am willing to bet that many have been either pretty poor or down right dangerous. For a variety of reasons, most people required to set goals either have no training or no knowledge of good goal setting techniques. They may be driven by upper management or team leaders who are themselves ill-prepared to help or even harbor dangerous ideas when it comes to the overall organization mission. Below I have shared a few of the situations I have encountered in my working career regarding goals, goal setting and the results of goal setting. We can see the results of poor goal setting in the Wells Fargo Bank illegal practice of opening unauthorized accounts. The news broke around the first part of September, 2016 and caused significant problems for the bank and is still on-going at this time. Investigations by federal agencies, penalties and fines of $185 million (which some think is small potatoes for Wells Fargo), the CEO, John Strumpf, stepping down and significant headaches for the bank’s legal, ethics, and customer service groups are all causing problems for the bank. All because of bad goals. (Google Wells Fargo unauthorized accounts, for a list of several news organizations and articles on this.)

In my early career days I worked for a utility company in their finance group. We were different from the accounting department but still under the company treasurer. One of our main functions was to estimate future  weather (temperatures) and the effect it would have on revenues. We were very interested in average temperatures. Since our product, natural gas, was used by retail customers mainly for heating we tried to gauge the impact of varying weather scenarios. This was especially true for how cold we thought things would get. We would start with general cold weather estimates and based on historical data, which we had quite a bit of, we would estimate average per customer usage in various areas throughout our service territory. Then during the year I would compare actual sales to our projected sales and see how we did. It was especially helpful when the differences in average temperature vs. actual temperatures supported the difference in usage and revenue generated. Sometimes the differences were opposite the expected impact and we had to look for other things that might affect usage and revenue.

             One year the treasurer asked me to prepare the forecast usage (weather impact) and the corresponding revenue generated for the annual budget. I spent several days going over the historical data and making adjustments I thought were reasonable and justifiable. When done I took the forecast and revenue generated to be reviewed. The treasurer didn’t look at my model or assumptions or discussion but at the bottom line, the revenue. He said “Bruce, this total revenue number needs to be $1.0 million higher” and handed it back to me. I started to explain how the average temperatures and regional adjustments had been developed and that I felt very confident that there wasn’t an error. The treasurer gently stopped me before I got very far and commented that he wasn’t concerned about the model or assumptions but that the model needed to generate $1.0 million more revenue. It took me a little while and a couple of trips back to him but I finally caught on and added an “other revenue” line to the budget that contained $1.0 million. It was then signed off. During the year I would compare the actual weather vs. the average weather forecast to see where revenue differences could be explained and I used the “other revenue” line to absorb changes I couldn’t explain.

             That was one of the first experiences I had with goal setting and reaching the goal. The treasurer either had set a goal or had been given a goal to generate so much revenue. It was not as important that the forecast model was right or wrong as it was to have the correct revenue generated. This illustrates how goals can impact in ways and places we might not normally expect. Who would have suspected that weather manipulation was so important. It wasn’t of course but it was a means to an end. No one knew what the weather was going to be but we had established, over many years, a process that had been well vetted and well received. That particular year the process was changed because of a goal.

             Some time later I was a manager in the public finance group of a large financial services company. I managed a group of very highly trained professionals with unique skill sets and knowledge. In an organization of over 100,000 employees my group of 4 to 6 people were the only employees that did what we did. They were not clerical people but like most professionals knew and could perform some clerical functions. At one point I was approached by a new HR representative asking about the performance reviews I had prepared for my people. She had reviewed my performance reports and had prepared new performance review reports she wanted me to use. The new forms were a series of statements with check boxes I was to use to show if my people were under, at or above performance levels as contained in the statements. The HR person was concerned that I had not set enough goals  for my people. Her main concern was that I did not have sufficient concrete goals to see if my people had “performed” fully. The performance reports I had been using were ones used for several years and I had thought, adequate. HR decided to “update” the process. I was not involved in writing or helping create the new reports that would be used for my people who were the only people in the company that did what we did. I was not given the chance to review or comment on the new reports. I was told to fill out the new reports by a date specific and return them to her. It was a mess. The reports were essentially a modified clerical position performance review report. Since some of my most junior people were on a similar pay level as some of the most senior clerical people, it appeared the HR person had just modified  clerical performance forms. As you would suspect it didn’t work, at all. It took me about 4 months to get things straightened out. In the end I was able to get goals that allowed my people enough flexibility to do their varied jobs and some freedom to try new things and ideas.  But I still had to include some goals with check boxes. I have trouble understanding the need for checkboxes.

             Sometimes a company wants to make drastic changes to its business model. New goals can be an effective way to implement changes quickly. During the great recession of 2007 – 2009 the organization I was working for bought out a competitor. In my business area the purchased firm was given control of the operations not the buying firm. The people who had been bought out by our company convinced executive management that extreme changes needed to be make which would make division look more like the bought out company. There was a lot of difference between the two division (old division and purchased division) philosophies. The bought out division was able to quickly make changes through establishing new goals. Many people who didn’t fit the new look or mold were fired, several quit because they didn’t agree with the new direction and goals and the change was completed fairly quickly but with a fair amount of disruption to the new combined division.

             This concludes the series of blogs on goal and goal setting. Don’t give up hope on goals but don’t be snowed under by them either. As the authors of the Harvard Business study on goal setting I referenced in part 1 of this series, goal setting should be used judiciously and with much thought and regular, consistent review. It is not something to take lightly.

The Bear Trap That Looks Like a Cookie: The Seduction of Goal Setting - Introduction (Part 1)

At the beginning of this new year I want to review the idea of goal setting. I am familiar with personal goals and the need to establish things to do and ways to try and improve. However, I will sound the call to watch and be mindful of goal setting. This is particularly true in business and employment settings.

            One of the problems of any business is how to motivate employees. The possible solutions can be land mines or cornucopias. Over the next few weeks I will briefly explore the nature of goal setting, one of the main methods of inspiring or damaging employees and the business itself. This blog will explore the problems of goal setting that I believe are not properly considered when goals are established to motivate and direct employee efforts. I am using as the basis for and drawing heavily on in this and subsequent blogs personal experiences, current news articles, and the article, Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting by Lisa D. Ordonez, Maurice E. Schweitzer, Adam D. Galinsky and Max H. Baxerman. Originally available from the Harvard Business School as Working Paper 09-083. (HBS paper) I recommend that anyone interested in beginning to understand the problems of goal setting read the entire article, it is not particularly long.

           Goal setting is used extensively in business to motivate and inspire employees to increase their contributions to a business or business unit. The idea is to give employees something to work toward, shoot for, strive to reach or expand their ability to generate some predetermined results for the company. The manager or HR group setting the goals may expect the goals to create better or improved results for the company or improve the individual but that is not a guaranteed outcome of the goals or may not even be a reasonable outcome depending on the type of goals. The authors of the above listed paper make a very strong case that one can not assume positive results from goal setting. In fact, they suggest it may be quite difficult to get really positive results without significant effort and considerable monitoring of the goal setting process and constant review. I wish to suggest it may be easier to get negative results than good solid returns. The authors suggestion is goal setting be used sparingly.

           The authors suggest that goals can negatively impact the company in one or more of five areas. Goal setting can create a narrow focus that harmfully impacts non-goal areas. Goal setting can create an environment that fosters unethical behavior; involving the individual, the company and the goals themselves. Depending on how goals are structured, they can lead to distorted risk preferences. Goals can create situations that cause employees to take harmful risks to the company. Goals can also undermine an organization’s culture by causing employees to ignore or circumvent company mission statements and underlying values. And finally, poorly thought out (or even well thought out and poorly executed) goals can reduce natural motivation. Goals do not need to be poorly constructed, ambiguous or incomplete to cause problems. Well structured and well thought out goals can cause unintended consequences. The interaction of individual initiative, team objectives or personal goals can impact company goals and create unexpected situations. Goals and goal setting is a complicated process that is fraught with pits and traps for the unwary manager and should not be treated lightly or without considerable thought. Adding to the problem is many managers or team leaders who are required to create or set goals for individuals, teams, divisions or even company wide have not received any type of training that would help them create good goals or avoid the pitfalls inherent in goal setting. Managers or upper management that require others to create and set goals without training, instruction and guidelines are creating a serious problem. The manager who says you or your team needs to increase revenue by 50% without additional guidance, direction, instruction and assistance is setting you up to fail, trying to protect themselves with vague or unrealistic expectations, dislikes you and wants to get rid of you, doesn’t understand his job (or yours) is just plain not very bright, is creating a cop-out for himself or all of the above. It shows poorly on the manager and the organization.

           There are some organizations and subsets of organizations that are very successful with goal setting. Yet we see many team leaders, managers and companies set goals that create significant problems and who knows how may goals are just ineffective or wasteful and some are very destructive. I am referring to Wells Fargo and their recent debacle involving fraudulently opened banking accounts and signing customers up for unrequested services. (See The New York Times news article; Wells Fargo Fined $185 Million for Fraudulently Opening Accounts, September 8, 2016 by Michael Corkery). Wells Fargo Bank’s problems can be traced back to goals and goal setting problems. I don’t believe the problems are yet over for the bank. It has cost John Stumpf his job and many feel that there should be additional and stronger penalties against not only Stumpf but the bank and other management members too. Wells Fargo disclosed in its standard regulatory filings that the SEC was investigating its sales practices. It also stated that there were “formal and informal inquires, investigations and examinations” being conducted by U.S. Department of Justice, congressional committees, the SEC (as stated above), California state prosecutors and attorneys general. Banks do not want attention from regulatory agencies and like very quiet, low profiles. Wells Fargo is anything but quiet or low key at this time.

           Subsequent posts will go into some specific aspects of goal setting and the problems that can be generated. I will also give some personal experiences and examples.