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January 2017

Episode #127 - Free-rider Friday - January 2017

Ed’s Topics

Calexit - A group started collecting signatures to hold a referendum on California's seceding from the United States. Ed's take is if Hillary Clinton had won, we would be talking Texit instead. 

Self-Deception - Ed recently attended a leadership workshop on self-deception held by John Engels of Leadership Coaching Inc. A primary source of self-deception is when we equate what is "true for me" with "the truth."  

Hitendra Patil article on AccountingWeb, Why Anxiety Around Automation is Absurd caught Ed's attention. It is an excellent piece but is missing the impact of the billable hour model on stalling the needed changes in the industry. 

Ed thinks his iPhone and Facebook were listening to a conversation we was having resulting in a ad for Five Guys Burgers showing up in his stream. He did some digging and found an article: which addresses this "phenomenon." - If you’re not paranoid, you’re crazy. 

According to a recent paper by Srikant Devaraj and Erik Nessen, "for $0.10 increase in real minimum wage, total hygiene violation score increases between 3.35 and 8.99 percent.” Is the minimum wage actually sickening?

In what is both an amazing scientific achievement and a source of ethical consideration, scientists announced that they can create human-pig embryos. 

Ron’s Topics

Hamilton—raise your price!

“Battling bots,” The Economist, January 7, 2017

“When I was 25, having studied economics for 6 years, I grasped suddenly that prices are for allocation, not fairness. When I was 28, an assistant professor with Steve Cheung as an office mate, I grasped that prices are only one possible system of allocation (violence and queuing are others) but socially the cheapest." -Deirdre N. McCloskey, How to Be Human *Though an Economist

Deloitte Invests in Blockchain

Accounting Today, January 14, 2017, “Deloitte opens blockchain lab in New York”

Google’s Business Model Threatened?

“Still searching,” The Economist, December 17, 2016

Border Adjustability Tax

Trump wants to reduce the corporate tax rate from 35% to 15%; Paul Ryan wants 20%. Both want full expensing, and a  territorial system, where companies are taxed where they make the product, not on world-wide income as we do now.

But Republicans have proposed a border adjusted tax, whereby you are taxed at the consumption point, not the production point.

It’s very similar to a Value Added Tax, a sort of border-adjusted sales tax, or a cash flow consumption tax.

Corporations could not deduct the cost of imported goods, or interest expense.

Say Rolls-Royce exports a jet engine made in Britain to France: It pays a French VAT on the sale, and British tax on profit.

America currently imposes no VAT on imported goods.

So the border adjusted tax penalizes imports while subsidizing exports.

Boeing and GE love it! Wal-Mart and Target hate it! (the tax could exceed their profits, the cost being passed on to consumers).

Economists say, in theory, this wouldn’t affect trade since it would push up the dollar’s value. To offset a 20% border-adjusted tax, the dollar would need to rise by 25%.

This tax may violate WTO rules.

Steve Forbes writes it could cost consumers $1.2 trillion over 10 years, or more (since future Congresses could raise the rate easily).

“Gain and pain,” The Economist, December 17, 2016

Steve Forbes, “OMG! House Republicans Are Preparing To Hit Consumers With A Horrible New Tax That Will Harm Trump And Hurt The Economy,” January 11, 2017.

“Border Adjustability Is Already Fueling Tax Reform Controversy,” Forbes, December 8, 2016

Driverless Cars and Lidar

“Eyes on the road,” The Economist, December 24, 2016

Trump’s Inauguration Speech

George Will wrote it was the worst inaugural speech in history.

It was short: 1433 words.

Fundamentally optimistic: “We must think big, and dream even bigger.”

He slammed the political class.

Jean-Claude Juncker, primer minister of Luxembourg: “We all know what to do; we just don’t know how to get re-elected after we’ve done it.”

Episode #126: Reappraising the Performance Appraisal

On this episode, we explored the recent developments in companies that have moved away from the annual performance appraisal.

We originally explored this issue, including our suggested three replacements to the performance appraisal: Key Predictive Indicators, Drucker’s Manager’s Letter, and the After Action Review.

You can listen to our Episode #5: Replacing the Annual Performance Agony, from August, 2014. Also, the show notes contain the books we recommend and other resources.

In 2013, Ron wrote a two-part LinkedIn series on the annual performance appraisal, which was read over 382,000 times, garnering some 650 comments. Here are Part 1, and Part 2.

Some six percent of Fortune 500 companies have eliminated their rankings. Here is a list of companies that have also eliminated the annual performance appraisal:

  • Accenture (as of 9/1/15)

  • Adobe

  • The Gap

  • Deloitte

  • Medtronic

  • Ernst & Young

  • Buffer

  • Procter & Gamble (which hasn’t done annual appraisals in decades)

Accenture

In big move, Accenture will get rid of annual performance reviews and rankings, published in The Washington Post, Lillian Cunningham, July 21, 2015 detailed that Accenture had 330,000 team members around world and 95% managers were dissatisfied with the annual performance appraisal process, even though each manager was spending approximately 200 hours per year doing them.

The CEB (Mgmt Research Firm) found: 90% HR managers doubt accuracy of the information contained in appraisals.

Also, the CEB estimates: companies with 10,000 employees, on average, spend $35 million on annual performance appraisals.

Accenture is not eliminating them for cost savings, but rather to improve the future performance of its workers.

Buffer

We Don’t Have Performance Reviews at Our Startup: Here’s What We Do Instead, January 19, 2016, by Courtney Seiter, published on Buffer Open (company blog).

Rather than annual appraisals, Buffer does ongoing, weekly feedback: one-on-one between team leader and member, lasting approximately one hour.

The team member sets the agenda. It’s a mentor-mentee relationship.

Also, there are optional Masterminds, lasting 1-2 hours, which are peer-to-peer conversations.

Deloitte

Harvard Business Review, April 2015, Cover Story:

Reinventing Performance Management, Marcus Buckingham and Ashley Goodall, Director of leader development.

Deloitte employs 65,000 people.

It was spending 2 million hours per year on annual performance appraisals, and 58% of its executives didn’t believe they drove engagement or high performance.

It eliminated cascading objectives, annual reviews, and 360-feedback.

The article cites research that assessing skills produces inconsistent data, and 62% of that variance are due to the rater’s peculiarities. Only 21% was related to actual performance.

3 Objectives of Deloitte’s New System

  • Recognize performance

  • See performance

  • Fuel future performance

The Team leader is in the best position to makes the assessment.

It asks the Team leader not about the skills of the team member, but rather their own future actions with respect to the team member.

Here are the four questions the team leader answers:

  1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus [1-5 scale, from “strongly agree” to “strongly disagree”].

  2. Given what I know of this person’s performance, I would always want him or her on my team [same five-point scale].

  3. This person is at risk for low performance [yes-or-no basis].

  4. This person is ready for promotion today [yes-no-basis].

One problem we discussed with this approach is the economist’s notion of revealed preference: watch what people do, not what they say. This can seriously distort surveys such as this.

In any event, this data is the starting point, not the end point, for compensation at Deloitte.

Of course, it still mentions performance metrics: hours and sales.

It does at least quarterly, or per-project, snapshots, and a weekly check-in with team leader.

Sports teams have a plethora of data on each player, while doctors have pages of blood work numbers.

But Deloitte found that having only one number was the problem.

Better understanding comes from conversations, not data.

McKinsey & Company Article

“Ahead of the curve: the future of performance management,” May 2016, Boris Ewenstein, Bryan Hancock, and Asmus Komm.

An excellent article exploring the disadvantages of the annual performance appraisal process.

Other Resources

The Knowledge Matrix

Episode #125: Memorable Mentors — Frédéric Bastiat

This week, Ron and Ed profiled Frédéric Bastiat, a French economist and author who was a prominent member of the French Liberal School. He introduced the Parable of the Broken Window. He was also a Freemason, and member of the French National Assembly.

As a strong advocate of classical liberalism and the economics of Adam Smith, his views favoring free trade and opposing protectionism provided a basis for libertarian capitalism and the Austrian School.

The focus of our conversation will be around the works published in the free eBook entitled, The Essential Bastiat, published by the Foundation for Economic Education. Click on the link to get your copy. 

“Frédéric Bastiat was the most brilliant economic journalist who ever lived.” –Joseph Schumpeter (1954)

Bastiat was an indefatigable advocate free trade, laissez-faire policies, unrelenting debater and statesman. He’s often compared to Voltaire and Benjamin Franklin, integrity, purity, and elegance.

He was unrivaled in exposing fallacies, using reductio ad absurdum.

He attacked statism of all kinds—socialism, communism, utopianism, and mercantilism, labor theory of value, exploitation theories.

Biography

Born June 29, 1801 in Bayonne, the south of France and tragically died young on December 24, 1850. He had poor health and weak lungs his whole life.

Son of a landowner and merchant in Spanish trade. His mother died when he was seven, father when he was nine, raised by his aunt and grandfather. Strong believer in the Catholic faith.

Heavily influenced by Jean-Baptise Say and Adam Smith.

In 1846, he moved to Paris, writing on free trade and in 1848 the peasants in France rebelled against the French monarchy, and their rallying cry was socialism.

Bastiat wrote of the rebellion: “We have tried so many things; when shall we try the simplest of all: freedom?”

He elected to the National Assembly in 1848, and was vice president of the finance committee. He sat on the left side, where the liberals and radicals sat.

Henry Hazlitt (1894-1993), author of Economics in One Lesson, 1946, has often been called a modern-day Bastiat. We will profile Hazlitt in a future Memorable Mentors show.

In 1843 Karl Marx moved to Paris to become editor of a monthly German magazine. He met Friedrich Engels in Paris, who became his life long collaborator.

Marx labeled Bastiat: the most “superficial apologist of the vulgar economy.”

We discussed the five essays included in the free FEE book, mentioned in the introduction above. Here are some excerpts.

The Youth of France

  • Are men’s interests, when left to themselves, harmonious or antagonistic?

  • Socialists love for society they dreamed up; actual society cannot be destroyed soon enough.

  • Socialism, like astrology and alchemy, proceeds by way of imagination.

  • Political economy, like astronomy and chemistry, proceeds by way of observation.

  • Deny evil! Deny pain! Who could? We are talking about mankind.

  • For the laws of Providence to be harmonious, it’s not necessary they exclude evil.

  • Since man is free, he can choose; since he can choose, he can err;   since he can err, he can suffer.

  • What are the things men have right to impose upon another by force? I know of only one, and that’s justice.

What Is Seen and What Is Not Seen

  • The difference between good and bad economist, whole difference: the bad one takes account of the visible effect; the good takes account both of the effects which are seen, and also those which are necessary to foresee.

  • It almost always happens when immediate consequence is favorable, the ultimate consequences are fatal, and the converse.

  • We learn this lesson from two masters: experience and foresight. Experience teaches effectually, but brutally.

The Parable of the Broken Window

  • Society loses the value of things which are uselessly destroyed.

  • How much trade would gain by the burning of Paris?

  • If the nation profits from the Army, then we should enroll the entire male population.

If we disapprove of State support, we are supposed to disapprove of the thing itself, like the arts, education, health, environment, public works, etc.

Section VIII. Machinery

  • A curse on machines, is to curse the spirit of humanity!

  • If true, there is no activity, prosperity, wealth, or happiness possible for any people, except those who are stupid and inert, and to whom God has not granted the fatal gift of knowing how to think, to combine, invent.

  • All men seek to obtain the greatest amount of gratification with the smallest possible amount of labor.

  • If a machine discharges a workman: the seen is there’s an unemployed worker but there’s also a capitalist with an unemployed franc.

  • What is saved by one, profits all.

A Petition

Probably Bastiat’s most famous writing: “A Petition: From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.”

We are suffering from unfair competition at a fantastically low price: the sun.

Please pass a law ordering the closing of all windows, skylights, shutters, curtains, and blinds.

A Negative Railroad

Should there be a break in the tracks at Bordeaux on hte railroad from Paris to Spain? It would be profitable for boatmen, porters, hotels, taverns, etc.

Then we shall end by having a railroad composed of a whole series of breaks in the tracks, i.e., a negative railroad.

The Law

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.

Law has been perverted by the influence of two different causes: stupid greed and false philanthropy.

Labor is pain, so history shows man will resort to plunder.

Look at the USA [1850]. There’s no country in the world where the law is kept more within its proper domain: the protection of every person’s liberty and property.

But, there are two issues that have always endangered the public peace.

Slavery is a violation, by law, of liberty. Tariff, by law, of property.

Socialists rely on the law; they practice legal plunder, not illegal plunder.

Other Bastiat Wit

If exports are good, and imports are bad, then we should sink the ships at sea.

The Right Hand and the Left (a Report to the King). This is one of Ron’s favorite of Bastiat, and we believe it applies to hourly billing (see Ron’s article from a Harcourt Brace Newsletter, from October 1997, posted on the VeraSage site). Here is the crux of the argument.

Deep study of the protectionist system has revealed to us this syllogism:

  • The more one works, the richer one is.

  • The more difficulties one has to overcome, the more one works.

  • Ergo, the more difficulties one has to overcome, the richer one is.

  • We propose that you forbid your loyal subjects to use their right hands.

No longer permissible to work except with the foot. As a last resort, we should take recourse to the limitless possibilities of amputation.

George Orwell wrote, “Each joke is a tiny revolution.”

Bastiat killed protectionism and socialism with ridicule.

Consumption is the end of all economic activity, production merely the means.

To sacrifice the consumer’s interest to that of the producer is the sacrifice of the end to the means. The interest of the consumer is identical to mankind.

People insist, it’s not enough to tear down; you must offer something constructive. I, for my part, think that to tear down an error is to build up the truth that stands opposed to it.

No solitary man would break his own tools to occupy his labor.

To maintain that the time will every come when human labor will lack employment, it would be necessary to prove that mankind will cease to encounter obstacles.

Only two ways to preserve life: production or plunder.

Other resources

  • Bastiat published two major works: Economic Harmonies and The Law, a pamphlet June 1850.

  • Also, Economic Sophisms, is an excellent compilation of some of Bastiat’s writings, with an Introduction by Henry Hazlitt.

  • Southwest Ad that ran after Wright Amendment repealed

Libertas book, The Tuttle Twins Learn About the Law

Episode #124: Interview with Gary and Jim Boomer

We were thrilled to interview Gary and Jim Boomer, the father/son team at the head of Boomer Consulting. Both are recognized as among the most influential people in the accounting profession.

Biographies

L. Gary Boomer is the Visionary & Strategist of Boomer Consulting, Inc., an organization that provides consulting services and peer communities to leading accounting firms. BCI's vision is to make you more successful and future ready. The areas of focus are: Planning, People and Processes with technology as the accelerator.

Jim Boomer is the CEO at Boomer Consulting, Inc.  He is a;so the director of the Boomer Technology Circles, The Producer Circle, The CIO Advantage and an expert on managing technology within an accounting firm.  He also serves as a strategic planning and technology consultant and firm adviser to CPA firms across the country.

Segment One Questions

Gary, how many years in a row have you made the Top 100 Most Influential People in Accounting list? (Gary: “It’s based on frequent flyer miles.”).

Tell us about your backgrounds?

Jim, you worked at Arthur Andersen. What was it like, during the Enron scandal, to think you were part of a firm with ethical lapses, especially from a leadership perspective?

Gary, you say the difference between the good and great firms is leadership. What does that mean to you?

Why aren’t CPA firms as focused as, say, Apple?

Segment Two Questions

Joe Woodard refers to Gary as the “pied piper of the top 100 firms.” What do you both think are the major trends, along with biggest challenges and opportunities facing the accounting profession?

Do you see a bold enough vision coming from CPA firm leaders? They love to talk about increasing realization by 4%, but is the vision inspiring?

We’ve been hearing for decades about how important it is for the CPA profession to move from compliance to advisory services. Do you see a lot of movement in advisory services within the larger firms?

If it’s about skill-set, tool-set and mind-set, will firms have to expand the labor pool from which they draw, and not just hire people with technical accounting education?

When you look at Top 100 firms’ revenue that comes from consulting, it’s usually higher than for the firms below the Top 100. Would you agree with that?

Segment Three Questions

What are the implications of Blockchain, triple entry accounting, and Bitcoin for the accounting profession?

With Amazon’s Echo (“Alexa”), can you see a day where someone could ask, “Hey, Alexa, what’s the name of the nearest CPA firm that can handle X?” Or even, Alexa answering a question that normally would be asked of the CPA?

Segment Four Questions

In specific firms, there are a lot of initiatives—from reforming annual performance appraisals, adopting knowledge management, cloud accounting, value pricing, etc.—that require change management. Do you see much innovation in management philosophy among the large firms?

What’s going on with Value Pricing within the Top 100 firms? Is the leadership really ready to embrace it?

Episode #123: 2016: Year in Review

Segment One

Ron and Ed discussed memorable guests and show topics they had on during 2016.

It’s nearly impossible to choose favorite guests, since they are all good! But we asked each other, so here are our choices for 2016, which encompass shows #74 through #122, including the link to the archived show:

Ron’s Choices

Ed’s Choices

  • Daniel Susskind, (#74)— because of the chain reaction his book kicked off, The Future of the Professions.

  • Mark Koziel, (#75), VP of Firm Services & Global Alliances at the AICPA, with his reaction to the Susskind’s book, and the state of the accounting profession.

  • Paul Kennedy, VeraSage Institute colleague, told his compelling OBK story (#84).

  • Rabbi Lapin (#86), our first two-time guest returned in 2016.

  • Doug Sleeter, (#96) + (#99), for being Bitcoin and Blockchain obsessed.

  • Gregory LaFollette, (#104), for his views on technology and the future of the accounting profession.

  • We also did our #100th show.

Favorite Show Topics

Ron: Trashing the Timesheet, #109

Ed: A Check for Everyone? The Basic Income Idea, (#95)

Thank You to Our Audience!

Thank you, thank you, thank you, to our Audience! You are the reason we are here, and we will strive to continue to add value by bringing you leading edge guests and ideas.

Our Latest iTunes Review

LizCPAWriter on December 19, 2016 writes: “Always Though Provoking - I Always learn something new on this podcast. Ron and Ed bring in fascinating guests with interesting points of view. Yes, they are opinionated, but they are firmly committed to the survival of accounting and business advisory work as viable careers. The world is changing and so must we if we are to continue providing value.”

Thank you, Liz.

Click here to leave your own review.

Segment Two: Favorite Books from 2016

Ed’s selections

Ron’s selections

Ron’s Best Book of 2016

The Kingdom of Speech, Tom Wolfe. Here’s some thought-provoking excerpts:

  • “The most fundamental questions about the origins and evolution of our linguistic capacity remain as mysterious as ever”

  • “Speech is not one of man’s several unique attributes—speech is the attribute of all attributes!”

  • “One hundred and fifty years since the Theory of Evolution was announced, and they had learned…nothing…in that same century and a half, Einstein discovered the speed of light and the relativity of speed, time, and distance…Pasteur discovered that microorganisms, DNA, 150 years’ worth of linguists, biologists, anthropologists, discovered…nothing…about language.”

  • “Darwin had an even bigger problem: a huge gap in evidence when it came to language, which set humans far apart from any animal ancestors.”

  • “He couldn’t find one shred of solid evidence that human speech had evolved from animals…seemed to have just popped up into the mouths of human beings from out of nowhere.”

  • “Darwin had fallen into the trap of cosmogonism—the             compulsion to find the ever-elusive Theory of Everything…”

Ed mentioned research being done on evolution and consciousness, video interview with Donald Hoffman

Insert video interview with Donald Hoffman

Also, a speech by George Gilder at the 25th anniversary of the founding of the Discovery Institute: “Leap Before You Look: Reflections on the Mission and “Evolution” of Discovery Institute,” from December 2, 2016.

Segment Three: R.I.P.

  • First Lady Nancy Reagan

  • John Glenn

  • Harper Lee, author of To Kill a Mockingbird, from Monroeville, Alabama

  • Supreme Court Justice Antonin Scalia

  • Thomas Hayden, 60s radical and former husband of Jane Fonda

  • Janet Reno

  • Arnold Palmer

  • Boxing champ Muhammad Ali

  • Florence Henderson

  • Robert Vaughn

  • Doris Roberts

  • Gene Wilder

  • Patty Duke

  • Abe Vigoda

  • Carrie Fisher

  • Debbie Reynolds

  • Garry Shandling , he was 66 (not in his 50s as Ron said)

  • George Michaels

  • David Bowie

  • Prince

  • Merle Haggard

  • Songwriters Leonard Cohen and Leon Russell

Article by economist Steven Horwitz predicting that we will see an acceleration of death of famous people, as the Baby Boom generation starts to age.

Special Mentions

Ed’s mentor’s mentor: Steven Geske is “Walking on.” We had Howard Hansen (Ed’s mentor) and Steven Geske on show (#11). They are the authors of a great book, Healing Leadership.

Fidel Castro, whose funeral car had to be pushed. There were some great Tweets about this, such as, “Even Hell is rejecting him,” and “Who says the embargo didn’t work.”

Ron mentioned a quote from the Talmud, but got it backwards. It is actually a celebration of those who have passed. Here it is:

In a harbor, two ships sailed: one setting forth on a voyage, the other coming home to port. Everyone cheered the ship going out, but the ship sailing in was scarcely noticed. To this, a wise man said: “Do not rejoice over a ship setting out to sea, for you cannot know what terrible storms it may encounter and what fearful dangers it may have to endure. Rejoice rather over the ship that has safely reached port and brings its passengers home in peace.

And this is the way of the world: When a child is born, all rejoice; when someone dies, all weep. We should do the opposite. For no one can tell what trials and travails await a newborn child, but when a mortal dies in peace, we should rejoice, for he has completed a long journey, and there is no greater boon than to leave this world with the imperishable crown of a good name.

–The Talmud

Segment Four: Miscellaneous

Ron’s topic

Hat tip to John Chisholm (our VeraSage colleague) and listener Bryce for passing along this excellent article from December 21, 2016, in The Guardian: “Why time management is ruining our lives,” by Oliver Burkeman.

Here are some interesting tidbits from the article, which we highly recommend:

  • Merlin Mann of “Inbox Zero” fame, which the New Yorker said was “halfway between Scientology and Zen,’ while the NY Post called it “Bullshit,” is discussed.

  • The better you get at time management, the less time you feel you have.

  • The article lays waste to Frederick Taylor, the founder of “Scientific Management,” which was also the theme of our very first show on The Soul of Enterprise.

  • Creativity requires more slack, says Tom DeMarco.

  • Time management and efficiency is really nothing more than the fear of death: to die with the sense of nothing left undone: it’s nothing less than the promise of immortality by other means.

  • But a gift of being alive is never to be done.

Ed’s topic

The new Star Wars movie, Rogue One, has a controversy. Peter Cushing has been dead since 1994, but another actor plays him, with Cushing’s face CGI’d on him, so who gets the royalty?