Tag Archives: Quantitative Easing

What’s Your End-Game

We will begin today’s offering with a paraphrase of Shakespeare’s famous quote on greatness:

Some are born to the future;

Some achieve the future;

Some have the future thrust upon them.

End-game.  A fascinating and often overlooked concept in personal life strategy and organizational strategy, and an extension or, more appropriately an immersion, into a specific facet of last week’s more general exploration of anticipating and planning for one’s future.

At the end of a personal or business venture, including life itself, how do we expect to conclude affairs before we turn the lights out for the last time? This question has presented itself to me in a number of scenarios recently, but an opinion piece of fracking motivated me to pull all the disparate snippets together.

Defining one’s end-game is somewhat like drafting a prenup for a strategy; before you become wedded to it, consider under what circumstances you may choose to divorce from it.

End-game does not necessarily define ‘The End of it All’. It could define the end of a job, a career, a relationship or commitment on a personal level.  It can define the end of a product line, a facility, a research program, or conditions for liquidating the entire entity.  It can be defined by parameters of choice, parameters of historical experience (life cycle for similar technology) or parameters of necessity (contractual covenants, declines in market share, loss of stakeholder support).

End-games are best contemplated and defined at or near the start of a venture, and preferably while there are still options.  Zero based budgeting and sun-setting provisions in contracts and legislation are examples of tactics to stimulate end-game strategic thinking.

All of this sounds obvious, and yet it is often ignored on both the personal and professional level.

Let’s take Obamacare and the notorious ‘death panels’.  We’ll ignore for the moment that the insurance industry has already been running those on a non-elective basis, and that the fear-mongers who ranted about Obamacare’s so-called ‘death panels’ were among the most aggressive in seeking to cut benefits of any kind and thus hasten the inevitable.  The premise in Obamacare was to give people the information and opportunity to make informed decisions about how to approach an event none of us will avoid (Ray Kurzweil’s fondest hopes for the Singularity notwithstanding), and many of us have not adequately prepared for.

The future financial plight of many Boomers is also an example of individual end=games not considered, but with considerable collective consequences for society.  Even those who diligently planned an end-game for their retirement years have found their assumptions savaged by an economy built on treachery and deception.  Even the best end-games must be revisited and revised, but they are better than no end-game at all.

The end-game of quantitative easing is on many minds, but with little clarity. At least it’s on the radar. Even when Bernanke tried to clarify the criteria, the audience managed to muddle them with some degree of concerted ignorance.  Denial is not among the ten best tactics for end-game strategy development.

What are Microsoft’s and Apple’s end games? Does Microsoft have one for its Office line?  Does Apple have one for a pincer movement between Samsung in hardware, and Amazon in content and distribution?  Did Polaroid or Kodak have end-games? Should Exxon-Mobil?  What is Obama’s?

What is Williston and North Dakota’s end game for the decline of frack?  A long way off, perhaps, but inevitable? Are they studying those who have gone before them? Are they conserving today’s budget surpluses for tomorrow’s infrastructure repairs and retrenchment and social fallout from the economic frenzy?  Or do we just let the good times roll?

What are the electric utilities’ end game for a grid that is physically decaying and a distribution model that is being disrupted by renewables?  Will they dig in their heels, or adapt?

What is Detroit’s end game from bankruptcy? Is it unmitigated disintegration, or are there seeds of rebirth to be nurtured, and by whom?

As I monitor the evolution of climate change, with specific focus on vulnerable coastlines and their populations, I observe the end-games that are playing out in New York and New Jersey, as some people struggle to cope with a reality that has been thrust upon them, and others struggle to deny the same reality.  In Connecticut, which was comparatively brushed, but not battered, we remain largely in denial, especially in the halls of government.  We are going through the motions, but we are not really coming to grip with the future.

Stephen Covey famously advised: “Begin with the end in mind”.  Once you have defined your destination, filling in the blanks between where you are and where you hope to be (or may have to be) becomes much easier.

Not easy, but easier.




Employee Benefits – The Illusion and Betrayal – Part 1

Economists have acknowledged in various ways that employee compensation has been flat or in effective decline in real terms over the past thirty years.  In the asymmetric warfare between employers and employees, employers have had, and exercised, the upper hand to the detriment of their employees.  ERISA, the Employee Retirement Income Security Act of 1974, has had limited long-term benefit. And now, here we are at the edge of the demographic cliff, waiting to witness the splat below as a generation of the trusting and indifferent slowly goes over the cliff over the next twenty years.

In this post, I will address retirement plans; in the next, health care.  My comments come from my vantage point on the periphery of the issue, beginning in the mid seventies when I worked for a multi-line insurer which was a major force in group life, health and pension benefits.

The mid seventies were an inflection point in the evolution of big business, its relationship with its employees, and the fate of employee benefits. I came to realize this quite by accident.  But hindsight solidified the understanding and as years passed, I connected the dots and a clear trajectory evolved.

My understanding  began quite unexpectedly in the corporate library of a major insurer.  I was an internal auditor at the time. I had just completed a survey of the Group Pension Department; a reconnaissance, if you will, to understand the business terrain and scope out future audits.  During that endeavor, I became aware of the shift in pension plans from defined benefit to defined contribution basis.  In defined benefit, the employer assures a future benefit of some measure, and is on the hook for funding over time to generate it based on the demographic profile of its retired workforce.  If the asset base modulates in value , or life expectancy extends appreciably beyond actuarial expectations, the employer faces future cost increases of a current commitment.  By contrast, a defined contribution plan insulates the employer from future variables, and transfers that risk to the beneficiary who may not fully comprehend this dynamic quite as well.

By chance, I came across an article in an arcane actuarial journal. Regrettably, I did not copy the article or remember the name of the journal.  But the article’s point was quite direct.  The authors opined that if the nation’s Fortune 500 companies retained their current retiree health plans, they would all be bankrupt by 2000.   Now, the life actuaries I have known are for the most part a humorless bunch, and not given to hyperbole. Indeed, by comparison, they make us accountants look gregarious.  So the assertion of the article struck me as being rather sober, if beyond easy comprehension, and worth filing away in core memory for future reference.  And the journal was not one to catch the attention of the mainstream public, mainstream media or mainstream business press.  To my knowledge, it didn’t. So the authors were not intent on seeking attention of the masses.

Within two years strange things began to happen on the way to the millennium.  Corporate ‘restructurings’ became a fad. More financial restructurings than organizational or functional restructurings. I never fully grasped what this apparently cosmetic process was all about, but it seemed to have the feel of shuffling the deck chairs on the Titanic.

Next, I noticed that the term ‘associate’ began to supplant the term ’employee’ in many companies’ reference to employee related issues.  It struck me as a bit odd.  ‘Associate’ connotes a relationship somewhat more detached and ’empowered’ than ’employee’; as if the associate is more equal, though we all know better. I might not have noticed this subtle change, had it not seemed to blossom in multiple corporate venues almost simultaneously.

Next, we begin to see ‘downsizing’ and ‘right-sizing’ throughout the early eighties, in which companies seek to shed ‘overheads’ and strip down to their ‘core competencies’.  In some instances, the corporations attempt to do this humanely for some of their middle managers and professionals by granting them ‘consultant’ relationships in place of their current employment relationships.  This temporarily reduces headcount on paper, but not necessarily cost.  It does, however, cut the benefits bond. And within a year or three, it cuts the consultancy bond. In other cases, there was merely churning of staff in order to get rid of ‘dead wood’, but really to drive down the unit cost of labor.

Another stratagem of this time was to cut loose an internal function and its related staff to an outsourced service bureau on the pretense that the function is now more closely aligned with the core competencies of the outsourcing firm than with the client firm, and that economies and efficiencies will evolve.  IT and facilities maintenance functions were prime opportunities for this. The chief economy achieved in the mid eighties was that the salaries and benefits of the outsourcing firm were not as generous as the prior client firm relationship.  Over time, competencies and economies of scale did evolve for these service oriented entities as advances in information technology supported true specialization. But the primary initial motivations appeared to be reduction of headcount and associated benefit costs.

By the mid ’90s an age of business irrational exuberance topped Francis Fukuyama’s ‘End of History and the Last Man Standing’ with the notion that the business cycle had also been vanquished along with Communism. Corporate boards across the business spectrum gathered around the punch bowl to celebrate the growth of stocks, and with that, the growth of pension fund surpluses that could now be ‘redeployed’ back into the enterprise, on the assumption that the good times would continue to roll unabated,  Was this corporate herd mentality or a conspiracy of the elite? The question is largely irrelevant, though there is ample precedent to support corporate herd mentality. The end result is the same: the looting of many pension plans of critical value on an unsustainable pretext.

And then  came the ’00s.  Who could have ever imagined in their wildest nightmares that the good times wouldn’t role on forever, and the dreaded Business Cycle would swing back with a vengeance.  Downsizing proceeded with new vigor through outsourcing, off-shoring and technological displacement wherever possible. Defined benefit programs were frozen, and in some cases defaulted into insolvency and the tender hands of the Pension Benefit Guarantee Corp, in the case of the private sector plans.  In the course of this turbulent period, we discover the utter sham that is the financial services sector, fleecing not only the little guys, but the supposedly smart set that populate corporate C suites and boards of major entities outside the investment community.

And then comes the Great Repression of 2008, and its multiple aftershocks and tsunamis, most significant of which was the stripping of all pretense of viability of public pension plans. Since then, much has been made by corporations and the Republican party of the excess of unions in negotiating unsustainable pension benefits.  It doesn’t wash.  There were two parties at the negotiating table. Managements, both public and private, were in the position to know the truth about their pension obligations. Union leaderships, of varying degrees of competence, should nonetheless have been equally competent in understanding the evolving economics and trend lines of benefits. But over the thirty years, all vigorously sustained fictions bordering on fraud that were no longer sustainable.

And here we are now in the ‘teens, waiting for the Boomer retirement shoes to drop as if from the feet of a centipede over the next twenty years.  As we begin the run-up to this transition, it is fitting that the phase ends as it began.  Just as the phase began in the seventies with financial ‘restructurings’ of dubious benefit, we are now in QE3 (Quantitative Easing).  I have not understood the mechanics of this stratagem any better than restructuring.  Critics worry that it is creating a market bubble that will eventually burst.  Could be. But that doesn’t speak to why it was created.  I suspect that one reason, perhaps the main reason, is to prevent private and public pension plans from falling into technical default and triggering major shock waves, particularly in the public sector.  It serves the same function for pensions that the bail-outs did for the banks in 2008; to engineer if possible a smooth transition at best and a softer crash landing at worst.

I have no favorites in this tale.  Managements kicked the can down the road, rather than bargaining smartly with their employees through their unions.  Unions slit their own throats by piling on demands that were winnable in the moment, but not sustainable in the long run. Advisers to both remained mute as to the realities of the gradually evolving trends. But not all advisers.

Employees remained oblivious or indifferent to warnings in the press regarding the inadequacy of social security alone as a retirement income source.  They appear to have remained equally oblivious to what was happening around them in the corporate jungle as the rain forest of retirement benefits was steadily being mowed down, laying bare the land to the scorching heat of an evolving and predatory economy.

No, there are no favorites, and no innocents.  Just plenty of victims.

And the question – which way forward, and to what destination?

Next stop: health care.