Archive for the ‘Entrepreneurship’ Category

Interview with Tom Tropp on Business Ethics and Corporate Culture

Thursday, September 28th, 2017

[This is the full interview with Tom Tropp which was published in our Kaizen newsletter.]

Tom Tropp on Business Ethics and Corporate Culture

Tom Tropp is the Vice President for Ethics and Corporate Culture at the AJ Gallagher Corporation based in Chicago, an international insurance firm with over $5 billion in revenue annually.

Kaizen: Thanks for being here to talk about how you do ethics and corporate culture at Gallagher.

Tropp: You’re welcome.

Kaizen: Insurance provides a valuable service to people, but is an industry that sometimes has a shady public reputation. What steps do you take at Gallagher to counteract that notion?

Tropp: The insurance industry has that image. There’s a joke about how solitary confinement for a month is punishment, but worse than that is to be locked in the cell with a life insurance salesman for a month.

Kaizen: It would feel like eternal punishment?

Tropp: Right. The business does have that impression because people don’t like to buy insurance, but they know they have to. And a huge percentage of people that buy insurance never claim, so they look at that money as going out the door and of no value.

The actual fact is no business in existence can operate without insurance. It’s not a matter of if you’ll have a claim, it’s when you’ll have a claim. Businesses simply always have claims of various types, whether it’s worker’s compensation or fire damage or liability suits.

One thing you assume in our business is that you will have some negative feelings toward what you do, but then it’s offset when the claim happens. If you have good coverage, and the broker has done a good job, and you’re brought back to whole again, then you appreciate it.

Kaizen: Absolutely. You work for AJ Gallagher, the third largest insurance brokerage firm in the world. Tell me about the company.

Tropp: The company is publicly traded, New York Stock Exchange. 25,000 employees in 34 countries. We have four divisions in the company. One division does property casualty insurance. One does employee benefits insurance, health insurance, life insurance. One does surplus lines insurance, which is a term that means secondary market, so insuring a dynamite factory. Normal insurance companies don’t do that. Surplus lines carriers do. Then, that group moves into things like Lloyd’s Coverage, Lloyd’s Brokers in London. We have about a thousand people in our London office doing nothing but Lloyd’s Brokerage throughout the world.

Then, the fourth division is a claim handling division called Gallagher Basset. Gallagher Bassett handles claims for captive insurance programs, for self-insured programs, very large companies that actually form their own insurance company and then hire Gallagher Bassett to do the claims. Structured in that fashion, 90 years old. Started in 1927 and still going strong.

Kaizen: About $5.6 billion in revenue?

Tropp: We’ll be five billion in revenue this year.

Kaizen: You threw out a market capitalization number.

Tropp: $9.9 billion market cap as of 3:00 this afternoon.

Kaizen: Moving into 10 billion.

Tropp: It’s going to need a couple more points and we’ll be there.

Kaizen: A couple of interesting things about Gallagher. One is Gallagher is unique in how it handles ethics within the corporate context. Another is that you are a unique individual. You came to Gallagher through the insurance business but you also have the formal ethics background. Tell me your insurance story. How did you get your start in the business?

Tropp: After college I taught school for four years and then went to work for an insurance brokerage firm for seven years.

Kaizen: In Illinois?

Tropp: Yes, Chicago.

Kaizen: You went to Loras?

Tropp: I went to Loras College in Dubuque, Iowa, as an undergraduate.

Kaizen: What was your major?

Tropp: Speech and Drama.

Kaizen: Ah, a natural fit.

Tropp: Yes. Works perfectly for the insurance business.

Kaizen: You can be a sales guy.

Tropp: Right. After teaching, I went to work for an insurance brokerage firm in Evanston, Illinois. I worked there for about seven years and then left in 1981 to start my own company from zero.

Kaizen: You were in your 30s?

Tropp: Thirty-five, I guess. I was at that company for 26 years and built it up. In 2007, I sold the company to  Gallagher, but five years before that, in 2002, I went back to school at the University of Chicago.

Kaizen: This is the ethics side.

Tropp: Yeah. I worked on a Masters of Religious Ethics from the Divinity School. I think it’s important studying ethics that you study theologians as well as philosophers because for so many years, in the Middle Ages, there were no philosophers. There were only theologians writing about thinking and values. I spent five years, part-time, at Chicago. I finished that degree in June of 2007 and, at that same time, sold the company to Gallagher. Pat Gallagher, our CEO and Chairman of the Board, and I had been friends for many years. We grew up in the business together. He knew the work I was doing, the writing and the speaking I was doing on corporate ethics, the work I was doing at the university.

He did not have an ethics officer. He had a legal officer and that’s where ethics was handled. He and I really experimented with this. We created the job that I have, but we didn’t know what it was going to do. I started out by just going around visiting some offices and talking to people about ethics and listening.

Kaizen: This is around 2007?

Tropp: Yes. By 2008 we were pretty much in full swing. What happened was when I would sit people in a room and ask them about ethics and are we an ethical company and then talk a little bit about what that means. All kinds of other issues were coming up. Things that don’t fall into the area of ethics.

Problems about our computer system: “You know what? The computer system, they didn’t give us good training on it so we don’t know how to use it,” or, “We don’t have good vacation,” or, “Our vacation packages are confusing. They’re difficult to deal with,” or, “My supervisor is incredibly rude to the other employees and that shouldn’t be.” These things were surfacing in these meetings in the offices. I would go back and sit down with Pat and say, “Here’s what’s going on out there.” It was intriguing because communication in a big company—vertical communication—is not good. There are roadblocks.

Here was an opportunity for someone representing the CEO to come and sit in the office and have people talk to me. The thing that tipped it over more than anything else was, at about that same time, we began a small backroom service operation in India to do backroom processing for various different parts of the company. That had just gotten started, and I began hearing in probably 50 to 70% of the offices people say to me, “I think it’s unethical that you’re sending jobs to India.” That’s not what we were doing. We weren’t sending jobs to India. We were enhancing the work that folks could do to raise the level of what they were doing, taking that processing stuff off their hands. As I would come back and share that with Pat, he would say, “Really? Unethical?” Yeah. What that told us was that it wasn’t being communicated properly.

Kaizen: It’s an optics issue.

Tropp: Yeah. All of a sudden, the things I was hearing in the field went way beyond what we originally thought they would.

Kaizen: May I interrupt you? In 2007 and 2008, you’re feeling your way around what the position might be, and what you’re doing is a lot of listening.  You don’t have a top-down agenda for how you’re going to do ethics. You’re exploring the territory, seeing what kinds of issues there are.

Tropp: Yeah.

Kaizen: That’s interesting.

Tropp: The job began to form itself. The first thing we realized was that people would talk to me when I went out. There are several reasons why they would. Number one, I’m not a hired person to talk to. Number two, I was coming from the Chairman’s office, so people figured this is a guy you better talk to because it’s getting straight to the top of the company. We determined this is valuable to have someone out there, and not just some person buried in the HR Department. Someone from the Chairman’s Office coming in and saying to people, “I want to hear what we’re doing well but I also want to hear what we’re doing poorly.” An interesting thing began to happen. The company was half the size of what it is now.

Word spreads quickly in companies no matter how big they are. I would go to an office in the early years and people would say, “Well, this is a real problem for us. Is there any way we can get this fixed?” I would say, “Let me look into it.” Two weeks later, it was fixed.

Kaizen: You’re an expediter.

Tropp: That’s right. Now, I’m scheduled to go to an office in Oklahoma City. Someone in Oklahoma City talks to someone in Boston who will say, “He’s coming out? Hey, when he was here, he fixed that problem for us in two weeks.” “Really?” Now, all of a sudden, credibility begins to build. Then you get a little bit of a backlash from certain managers who say, “Wait a minute. He’s coming in here and stirring up dust.”

Kaizen: A turf issue.

Tropp: Yes. As a matter of fact, I am coming in to disturb dust. If you don’t like it, call Pat. It began to build on its own.

The next thing we did was to try to see what other companies were doing. I started looking out to see what’s out there, resources that are out there, and began to find different organizations that were studying and publishing in the subject of corporate ethics. Your own Kaizen here, good example—Boston College for Corporate Citizenship, big resource—the Ethisphere Institute.

As I found these other outside organizations and began listening to them and reading their material, it did became obvious that we could do more in the business community than we were doing to reinforce what we were doing in-house.

Kaizen: The position was evolving. Initially you said that a lot of the stuff wasn’t necessarily ethics-related. It was computer system training, the vacation package, and so forth. The position you ended up creating was partly business ethics but also sounds a bit like cultural builder or troubleshooter.

Tropp: It’s an ombudsman. One of the questions on the Ethisphere survey that we complete every year, asks is: Do you have a corporate ombudsman? They always answer that “No, but yes” because we don’t use that title but it’s basically what I do.

I’ll give an example of this still moving forward from 10 years ago. We have an 800 number that employees can call and make anonymous ethics reports. We got about half-a-dozen calls a year in the beginning. After 10 years of doing this, I get somewhere between 20 to 30 contacts from people around the world every week.

Kaizen: Email?

Tropp: Emails from somebody. Emails that say, “Tom, you were here six months ago. You said if we have an issue, we could contact you. Here’s something I’m dealing with and I don’t think it’s fair the way I’m being treated.” When I’m in offices, I always tell people, “Anybody can contact me at anytime on any subject, and there’d be no political fallout. If you want it to be confidential, it will remain confidential.”

Maybe half of the contacts I am asked to please keep this confidential. Don’t tell anybody I talked to you but this particular manager is being rude to his employees. That’s something that then we need to look into. Someone says, “I have a very specific complaint about this, and it’s me and I don’t think I’m being treated fairly.” That’s something that I will go back to the person and say, “May I carry this further for you with your name on it?” They’ll typically say yeah, and then we get involved. If there’s something illegal going on, I bring in the compliance people. If it’s not an illegal thing, I may talk to the HR people in that area and try to orchestrate a solution to the thing.

Kaizen: Maybe a natural question here would be to say why is it not then just already handled through, say, the legal department if it’s a compliance issue or through the HR department if it’s a culture issue and so forth? They also get stuff directly?

Tropp: Very often it comes to me because the people don’t know who else to go to, and they know me because they’ve met me in their office and I’ve invited them to contact me. They will contact me and say, “This is a problem we’re having.” I’ll go back to them and say, “Look that particular issue, we need to talk to HR about this. May I have permission to bring this to them?” I will then bring it to the HR people and then step out.

If it’s a legal issue, we’ve had several examples just recently of something going on in the field that an employee or an outside third party will contact me. I had a contact from a competitive broker not long ago who said to me, “You’re the Chief Ethics Officer for Gallagher and your sales people here are selling a product that I invented, and they’re infringing on my rights there. They shouldn’t be doing that because it’s my product.” That’s clearly a legal issue so, in that particular case, I brought in our general council or head council, but I also then brought in the legal counsel from the country where that was taking place and monitored it as they dealt with it. When it was resolved, I stepped out of it obviously. It’s almost like being an air traffic controller in many ways, bringing concerns and sending them to the right department.

Kaizen: Routing and re-routing and so forth. It sounds like after a couple of years of exploring and lots of conversations and travel and meeting with people, you then formalized what is your current position. Explain to me the organizational structure at Gallagher and why you decided to have your position be positioned where it is.

Tropp: Well, one of the problems that I perceived in dealing with these outside organizations and how they handle ethics is the confusion between thinking that ethics and compliance are the same thing, and they’re not. They’re different. Compliance tells us what we must to. Ethics tells us what we should do. Very often, every complaint that would come in would go to the legal department in companies. It’s not that way in our company now, but I’m sure at some point in time it was because they assume that’s how it should be. If there is nothing illegal going on, the legal department should step back and say, “That’s okay. There’s nothing illegal about that.”

Kaizen: Discretion.

Tropp: Yes, or refer it over to the HR Department. The most popular thing and most consistent thing that becomes the crossover is a difficult manager—a manager who’s being difficult with people, rude to employees, insulting to employees, or those types of things. Is that a sexual harassment claim, in which case goes to legal department? Or is this someone who just needs some counseling as to how to be a better manager? That’s HR.

All those things in these other companies were going to the legal department and maybe to HR. No one exclusively looked at the concept of culture and values and the atmosphere at our company. What is our reputation in the market place? What do our competitors think about us? Do they respect us? That’s ethics. That’s a cultural thing. It’s a different layer.

Kaizen: We distinguish ethics from compliance. Compliance is just the law. It’s the things that you have to do. Ethics is broader and you are forming it into culture. Is there a distinction between ethics and culture?

Tropp: I think your culture demonstrates your ethics.

Kaizen: Culture is the embodiment of your ethics and your values?

Tropp: I think so. The type of company you are comes from your ethical stance. It’s demonstrated to people when they see your culture. What’s the feel when you walk into an office? What’s the feel when you work there? Is it a place that has a positive feel or a negative feel?

Kaizen: Companies make a commitment or not to follow the law, but you also want to create your own particular company with your goals, your values, and your kind of corporate culture. You mentioned, I think, a 25-point list for the Gallagher Way that identifies the key values of Gallagher. What is unique about that?

Tropp: You know, a lot of companies have these statements of values. If you look on their website, they all have statements of value. The thing that’s unique about the Gallagher Way, first of all, is that it’s specific. There are 25 items or tenets in the Gallagher Way, and it’s not all based on what we would call ethical issues. Number one in the Gallagher Way is we are a sales and marketing company. That’s what we do for a living. Number two is respect for each other.

Kaizen: Purpose or mission statement.

Tropp: Yeah. One of the tenets talks about giving absolute, great value to our customer. The customer is important, the person we must serve with excellence. They’re business goals and cultural goals. Empathy for the other person is not a weakness. That’s a cultural thing. That’s got nothing to do with the correct way to do business but certainly enhances business. The unique thing about the Gallagher Way is, first of all, it’s been around since 1984. Not one word has changed in the document since it was written … I take that back. One word was changed.

It was written in 1984. Somewhere in 1989 or ’90, Bob Gallagher, who was the son of one of the founders of the company, had a very smart executive assistant who walked into his office one day and said, “Bob, number seven in the Gallagher Way says ‘Empathy for the other guy is not a weakness.’ It’s better to say person.” That word changed. That was the only one, but it’s been around in its exact form since 1984.

The second thing is that it’s so broad. It covers many different things, not just what we would call basic values. Then, another other thing is it so successfully permeates the company. It hangs around every office everywhere in the world and, literally, every one of our 25,000 employees knows about it and could probably quote four or five of them. We use it all the time. We actually use it to run the company so that makes it a little different.

Kaizen: Of the 25, if you set aside the ones that are about business purpose and general mission statement. In your judgment, what would be, say, the top three ethical values?

Tropp: I think, number two, which talks about respecting each other and respecting each other’s capability is critically important.

Kaizen: “Each other” means what?

Tropp: Internally.

Kaizen: Internal organization.

Tropp: Yeah. Then, the one that I just mentioned, empathy for the other person is not a weakness, is critically important. Our people know that they can worry about each other. They know that we will reinforce that. If an employee has an issue, personal issue, other people will worry about that person and will care for that person, and we will reinforce that and support it. There’s another one that says ‘Never ask someone to do something you wouldn’t do yourself.’ I think it’s a simple statement but it says a great deal.

Kaizen: An integrity point.

Tropp: Yeah. If you read it, first of all, the grammar isn’t perfect. It was written by a guy who was a relatively simple man, who was pouring out his heart about the company that he and his brother created taking over from their father. When you read it, it reads that way. It’s just real. You know a journalist didn’t write it. There are grammar errors. The spelling is all correct, although my understanding is that initially there were a lot of misspelled words that they fixed.

Kaizen: Sure. An issue that sometimes comes up is corporate ethics statements can be ineffective. Even if they are not just meant to be pretty words on a web page but taken seriously, there’s a challenge of actually making a working donkey but making it a part of the culture. How, at Gallagher, do you take the words on a page and make it heart of the fabric of the culture?

Tropp: Well, it’s interesting. I like to say we use it to run the company, and we do. People chuckle at that. Sometimes they’ll say, “Well, it’s a cute document to hang on the wall, but you can’t run a five-billion dollar, publicly-traded, global corporation on that basis.” They’re wrong. We do. Actually, there’s not a decision that’s made by our executive team in that company unless that document is lying on the table. When people are told to execute a project, they are told to not violate that document.

I will get emails from employees who say, “Listen, number such and such in the Gallagher Way says this. I’m here to tell you we’re not doing that in this office.” Whoa! That’s a big deal. We jump about that. When people are arguing their position on something, if there’s a disagreement on whether to go this way or that way, you will hear them quoting the Gallagher Way.

They’ll say, “You can’t do that because number 17 says … ”

Kaizen: Also, when you have the arguments, the respect principle will then say we will argue respectfully.

Tropp: Yeah.

Kaizen: That will solve some problems. The empathy issue, that’s hard. Do you have examples of how you would, from a top-down document, get out to thousands of people around the world that empathy is a value and this is what it means?

Tropp: You have to work at that. You can’t just assume people are going to understand. First of all, top management has to buy into it, and there’s a selection process for top management. Most of the people that are running the company we promote from within the company. We generally don’t go outside to bring someone in unless it’s a very unique skill that we need, an attorney or IT people, that type of thing. But general management is usually promoted from within, so we know these people.

They get promoted because they buy into the culture and that field, but it’s very difficult. Empathy is a classic example of that. Just because we are all in the senior management and just because we all are conscious of being empathetic, doesn’t mean other people will understand it so you must reinforce it and demonstrate it. For example, we’re not always able to find this out but when we know that an employee’s spouse has passed away, the way we find out typically is they will make a claim under the Life Insurance with the Human Resource Department. HR Department is instructed whenever you hear of an employee who loses an immediate family member, a child or a spouse or whatever, to notify me that that has happened. Typically, I’ll send a letter or an email to the employee saying, “So sorry to hear about this. What can we do for you?” Pat Gallagher, our Chairman and CEO, sends a letter to the person, and in some cases, will call. We don’t always hear about this until sometimes three or four weeks later or a month later. If it’s later we’ll call. You don’t want to call the day after the lady’s husband died but a month later, we’ll call and say, “Hey, this is Tom Tropp calling from the headquarters. I know your husband passed away last month. How are you doing? Is there anything we can do for you? Is everything processing through okay?” The word spreads quickly when that happens. Now people get the idea. These people really care about me. It takes work to find this stuff out, but when an employee has a serious illness, same thing.

Kaizen: You mentioned to me one special case.

Tropp: Yeah. We had an employee, a 35-year old single mom with two children who was diagnosed with breast cancer. The treatment was going to be every other Monday. She would have to go in for chemotherapy and radiation. She would recover on Tuesday and then be back at work Wednesday, Thursday, and Friday. She could not afford to go on disability and had to get her full salary, so she sat down with our branch manager and said, “Is there anything we can do here?”

The branch manager didn’t know what to do so he made another appointment with her. In the meanwhile, he called up to the home office and talked to the HR people. The response he got was, “Why are you calling me with this? Can’t you work this out yourself there to help her?” He said, “Well, I don’t know how to do that.” The answer was, “Treat her whatever way you would treat her if she were your sister.” They worked it out. He sat down with her and worked out an arrangement.

Kaizen: Like she’s your sister.

Tropp: Yes. Assume she’s like your sister. They worked out an arrangement. She was going to work Saturdays to keep herself on schedule and a little shorter lunch hour and catch up. They agreed.

Kaizen: She was very proactive.

Tropp: Yeah, she was looking for solution. It turned out, during first week she was out she was out on Monday, and on Tuesday she stayed home recovered. Wednesday morning she came in, sat down at her desk, and all of her work was done. Her inbox was empty. All of her suspense list was finished. There was just one pink rose lying across her desk. Her fellow employees had come in early, stayed late, skipped lunch, and gotten all of her work done. That went on for six months. Every other week when she did that there was a pink rose, and no one would tell her who did it. It was obviously the whole office who’ was pitching in and helping her. That’s empathy, and it was supported and celebrated by us.

Kaizen: That story spreads around the culture.

Tropp: Absolutely.

Kaizen: That’s how you build a culture.

Tropp: Yes. When I tell that story in a branch office, almost without exception, the people will say, “Oh, that happened here. So and so had this happen to him. Yeah, we all just pitched in and helped.” When a top executive says, “That’s good. I’m glad you did that.” That means it’s okay to do it and you can keep doing it. If someday, someone wants to do that and a branch manager says, “Well, you can’t do that.” “Wait a minute! They did it here. They did it there. Besides, Tom Tropp said you could do that.” It just reinforces it.

Kaizen: Gallagher has grown significantly in the last ten years. You mentioned a lot of mergers and acquisitions. When you’re doing your due diligence ahead of time, you said you only acquire firms that you think you can change or make fit your sense of ethics and culture? How does that go?

Tropp: We’re very, very cautious. We very cautiously guard our culture. We walk away from five or six deals every month and not because the numbers aren’t good. We don’t even look at them if the numbers are good but the culture doesn’t fit. When our folks in the due diligence teams go in there, they pick up anything at all that they feel would be a problem.

Kaizen: What would be a problem?

Tropp: Well, the attitude in the office, a surly manager, employees who are obviously unhappy and complaining about things, certainly any sort of favoritism being shown to certain people and others. You don’t always see this in the due diligence, but if it’s prevalent you will pick it up in the due diligence. When that happens they put a hold on things, and they will ask a senior person in the region or beyond to come in and spend time in the office. They’ll go to dinner with the manager or with the owners, and spend a little time in the office, and, if they feel like this is not working, they’ll walk away.

Now, the other thing that happens is reputation in the field. The merger people, they bring us a new merger, say this is the one that we’re interested in and they are interested in talking to us. One of the first things we do is research that firm. It’s not hard to do. You call a few of the insurance companies and ask questions about that particular brokerage firm. You start to hear things about their reputation. If their reputation is negative, we’ll say no, we’re not interested.

If we do walk away from one after we’ve gotten into due diligence, which we’ve done, we tell them why we’re walking away. We say, “Look, we’re looking at your employee absentee. Your employee turnover is huge. You got 35% turnover in your staff. We see that as a potential problem.” There may be three or four things like that, say, “Because of these things, we really are not interested in proceeding at this point. However, if you can fix those, come on back to us and then we’ll see if we can talk about it.” From time to time, we get people to come back to us. They’ll say, “Hey, we talked to you guys three years ago. We had this, this, and this problem. We think we fixed them.”

Kaizen: It’s cultural consulting for them.

Tropp: Exactly, or you see things like their sales expense is way high off the charts. Well, what’s that mean? That means they’re probably taking people to the beach or to play golf, and they’re spending money on things that we don’t value. If we see those signals, we’re going to walk away or at least going to question them.

Kaizen: The way you do ethics at Gallagher, with your position reporting directly to CEO and the Chairman of the Board and no one reports to you and the autonomy that you have, to what extent is that unique to you as an individual, Tom Tropp, and to Pat Gallagher, who’s the Chairman? If, for example, you were to try to convince other organizations that they should do things this way, what things would you say? It’s not just your personal values that works for you, that this really is a valuable way to do ethics in any business.

Tropp: We’re in business to make a profit, and all companies, unless you’re a 501(c)(3), are in business to make a profit. That’s critically important. We believe that our margin has to be at a very specific point. If our margin gets too low our stock price goes down, and we could be gobbled up by somebody. If our margin gets too high, if we’re making too much profit, it means we’re squeezing somewhere in area that we shouldn’t be squeezing. The right margin for us to be at is somewhere between 25 to 28 points. That’s about where we should be. If, all of a sudden, we see ourselves at 35 to 40 points, something’s going on that isn’t right.

We’re in business to make a profit within that range. We believe that part of the reason that our stock price is as high as it is relative to earnings is the fact that we have a unique culture. Our culture didn’t start because of the arrangement we have with ethics but it is certainly reinforced, and it’s recognized outside the company as being a company of high integrity. The system we have clearly enhances that.

The fact that we’ve got someone who is completely independent of all departments and all divisions and yet reports to the highest authority of the company and has the ability to draw resources from any of those sources, puts us in a whole different position for transparency, for looking for issues and solving issues. It’s just a very effective way to do it. As I speak and interact with other companies on this, more and more companies are starting to say, “Well, that seems to make sense.” We know that because in many cases they’ve called and said, “Hey, Tom. I know you’re doing this. We’d like to, at least, look into setting up this way. Could you give us some time for that?”

Kaizen: Nice. I’ve got two more questions, one for you personally. Out of that long, successful business career, you mentioned you sold your business 10 years ago. Presumably you could have retired and done whatever it is that you like to do, but you are now, 10 years later, still working hard and circumnavigating the globe a couple of times a year. I know you enjoy the travel right up to a certain point and you enjoy the insurance business, but what’s motivating you to work so hard on this?

Tropp: I don’t look at it as work in the sense that I’m not building a career. I’m not building a business. I’m doing something that I enjoy doing, and I love doing it, and I believe I’m making a contribution. When I sold the company to Gallagher 10 years ago, it I hadn’t moved into the role that I’m doing working for Pat, I probably would have stayed a couple of years and then would have retired and done something else. My thinking initially was that, after I finished the Masters in ’07, I was going to then finish the couple of years with Gallagher and then go back to Chicago and do my Ph.D. and teach. That would’ve been fine; I would’ve enjoyed that. I would’ve loved it, but this is so rewarding and so satisfying.

I just came back from Australia as I mentioned to you, and I received an email. I get a lot of emails after I’ve been at offices, but this was one was just so sweet. This is from a manager in an office. “Hi, Tom. Again, it was great to spend quality time with you last week. I would like to thank you for leaving such a positive vibe in the office. Post your meeting, I sat down with each section of the business to seek feedback on your visit and to encourage any concerns to be raised. I got 100% amazing feedback on how normal and approachable and natural you are in the way you interacted and spoke with the team, et cetera.” I get these all the time.

Once in a while, I forward it to Pat Gallagher and say, “Hey, man, look at this. It was fun.” He actually saves them in a file and, every once in a while at a board meeting, he’ll bring a couple of these in. He’ll say, “Alright, let me just read you a few … ” Because the board says, “You spend a lot of money on this project. Are you really getting results?” He says, “Let me read you a few of these emails.” They’re just very, very sweet emails. That was a manager of an office. Someone sitting in a work station talking to insurance companies all day will say, “I’ve never felt as good about our company as I do now after you were here.” When you get that type of feedback on a regular basis, that’s a nice stroke. It makes it worthwhile.

Kaizen: Last question. We focus a lot here on students, undergraduate and graduate as well. Soon they’ll be starting out in their business career. You’ve just spoken about what has made your work in the last 10 years meaningful or worthwhile to you. To younger people who are just starting out, who don’t have a sense for what’s going to happen over the next 30, 40, 50 years for them but they want their business career to be significant, what advice would you give to them on how to approach that?

Tropp: My advice is completely out of date with what people are doing now, but I’m still absolutely convinced that it’s the right way to approach a career. I believe you should find a company that you … First of all, you should do something that you love if you possibly can. Then, people say, “Well, I don’t know. I love to play golf, but I’m not going to make it in the PGA.” That’s fine.

I give young people a couple pieces of advice because we have big intern program, and these kids ask me these questions. I say, “The first thing I want you to do is I want you to take a little notebook and a pen, and I want you to put it on the nightstand next to your bed. Every morning for ten days when you wake up think, if I could have any job at all today, what would it be—any job at all? I don’t care what the education requirement is. It could be a brain surgeon or a space pilot or whatever it is. If you could have any job at all what would it be? When you’ve made that decision, get up and write it down in the notebook. Close the notebook. Forget about it. Do that for ten days in a row. Then, go back and read the notebook and think about every day. Was there any consistency? Find something that, even if you don’t have a passion for it, you can develop a passion for it.”

When I was in that position, I had Vietnam to worry about. I didn’t have any option but to go get a job. Then, pick a company whose values you can trust. And how do you find that out? Well, two ways. The first thing you do is research the company before you go to the interview. If you’ve gotten an interview with a company, get on the internet and research that company. Look at Glassdoor. Find out what the employees are saying. Now, that’s going to be all be negative, so you got to be careful with that, but find out what the things are.

Look on their website. Read their corporate governance page. Do they talk about ethics? Do they talk about values? Do they say people are important to us? Then, in the interview, ask more questions than they do. Ask them about those things say, “I read on your website that people are your most important asset. What does that mean?” Listen to their answer and then when you pick a good company, and you will know this quickly after you go to work for them, and you have confidence in them, work for them for the rest of your life. Don’t move. Stay there. Grow in the company.

This moving from company to company, it changes your approach to your job. It makes you more important than the job because what you’re saying is it doesn’t matter what I built up here. I could go over there and I could move a step up. I’m there for a couple of years, and then I can move over to this company. Be consistent. Stay with a good company and work for it. We are retiring people today from our company. We retired not long ago a woman who had worked for us for 40 years as a receptionist.

Now, receptionists don’t make a lot of money, right? She worked for us for over 40 years as a receptionist. I won’t tell you the city she was in, but it was in the Midwest. She retired with well over a million dollars in savings between her 401(k) and company stock. She got into our stock-buying program through the years, she retired with over a million dollars, and she had never made more than $40,000 a year. She was long-term and consistent. She’s the sweetest lady. About twice a year I get a postcard from this lady. Nobody sends postcards anymore. She does.

She’s 70-some years old. I used to get postcards from her. She’s a widow, her sister’s also a widow, and they’re traveling the world. I get a postcard saying, “Dear Mr. Tropp,” she won’t call me Tom. “Dear Mr. Tropp, I’m having a wonderful time in Paris.” Then, the second sentence is always the same. “Still have a whole bunch of money left.” She signs it.

Kaizen: Charming.

Tropp: Yeah. Have long-term loyalty to a company if it’s good company. That’s the way to go.

Kaizen: That fits your values.

Tropp: Yeah. I really believe that.

Kaizen: Alright, thanks.

Tropp: Thank you. This was fun.

This interview was conducted for Kaizen by Stephen Hicks.

Interview with Roberto Salinas-León on Entrepreneurship in Mexico

Thursday, September 28th, 2017

[This is the full interview with Roberto Salinas-León which was published in our Kaizen newsletter.]

Roberto Salinas-León on Entrepreneurship in Mexico

Kaizen: To start, tell us about your schooling, please. Did you grow up in Mexico City?

Roberto Salinas-León: Yes, in Mexico City. I went to high school here and studied under a British system at a school called Green Gates, which still exists. It’s a very fine school.

Kaizen: What do you mean by the British system?

Salinas-León: Very challenging from an academic standpoint, with great teachers. O-levels and A-levels. When I graduated I was uncertain as to what I wanted to do. In my junior year my father interested me in the philosophy of freedom. The first book he gave me was The Epistemological Problems of Economics by Ludwig von Mises, and to this day I have yet to understand most of it.

Kaizen: Is there a business background in your family?

Salinas-León: Strong business background. We’re from Monterrey originally. My grandfather became a very important figure in Mexican business. He was basically the man who introduced popular retail here in Mexico through a chain store called Salinas y Rocha, with the Salinas and Rocha families.

He also happened to be interested in Austrian economics and philosophy, and he financed a center that was copied straight from Leonard Read’s Foundation for Economic Education. My father also became involved, as did my uncle, and they were able to discover an intellectual called Agustin Navarro Vasquez who was the equivalent of Manuel Ayau from Guatemala. He was close friends with Manuel Ayau and had the dream of establishing a university of freedom here in Mexico.

He was a very brave man—he ran a series of almost-secret seminars, because it was very unpopular in the late 70s and early 80s to be talking about these ideas when the banks were nationalized.

Kaizen: How repressed was the political environment then?

Salinas-León: It was the perfect dictatorship, because it was repression without seeming to be so—an indirect and sophisticated form of repression. If you said anything against the president or something they didn’t like, it could be anything from a tax audit—to being kidnapped for three days without knowing why—to outright violence.

Kaizen: So the political “Keep quiet” message would be sent.

You said your family was originally in Monterrey but you’re now located in Mexico City.

Salinas-León: My grandfather came to close one of the stores that was not doing well in Mexico City. Instead of closing it, he started opening a bunch more. He had  an out-of-the-box entrepreneurial spirit. Like I said, the idea of selling household goods to the popular levels of society seemed counterintuitive, but he was able to discover an important niche.

Kaizen: Let’s return to you. As a teenager, you had come from a family that was very intellectual and had a business background as well. Was your idea to go into the business?

Salinas-León: I had no idea. Originally I wanted to study Geography or History. My education was then geared toward the liberal arts. I didn’t want to leave Mexico, but I also wanted to enjoy the opportunities the USA afforded, or perhaps stay one more year and apply to a university in Britain. I didn’t do badly in my advanced level examinations.

I ended up applying only to two places, one of them because of my father’s  insistence. One was Hillsdale College in Michigan and the other was Colorado College in Boulder, and I got accepted to both. I wanted to go to Colorado, which was an outstanding school. My father wanted me to go to Hillsdale. He said to give Hillsdale one year, and if you don’t like it you can go to Colorado or come back to Mexico.

So I went to Hillsdale in 1979, wanting to study Austrian economics and political economy. Actually at that time Hillsdale was going through a slump in the economics department. A lot of turnaround but the lecture series was unbelievable. The only time I ever heard Tom Sowell speak was at Hillsdale. I was two weeks into my freshman year when I heard Bill Buckley debate Jesse Jackson on the Palestinian issue.

Kaizen: Wow, so it was a happening place in many respects.

Salinas-León: Oh my goodness. I got to see and meet Leonard Read. I stayed at Hillsdale not because of the Economics program but because their liberal arts program back then was spectacular. Their History program and Political Science program was taught by former students of Leo Strauss, so we learned politics through literature. Instead of James Q. Wilson’s American Government it was reading Shakespeare and Plato at the freshman level. Very challenging. And of course the teacher-to-student ratio was terrific. I was very much into studying and academic performance.

By my sophomore year the cultural shock had waned, and I became very fond of the institution. In my junior year I applied to the Washington Hillsdale Internship program. So in the winter of 1982 I went to work in Washington for six months as a part of my college credit with none other than Ron Paul, who back then was a freshman congressman. I met Rand Paul when he was just a teenager. It was a small office so it was terrific. I met Roger Ream, who was my actual boss. And I remember listening to Ron Paul having conversation with Friedrich Hayek and Henry Hazlitt and with the people at FEE. And for me this was a tremendous eye-opener.

This was the time of the Gold Commission in Washington, so I got to meet people involved in monetary policy when the Cato Institute first started its monetary policy seminars. It was an unbelievable experience to become involved with all of these institutions and the networking. This was during the Reagan years, which was a very exciting time to be in Washington. And I graduated in 1983.

Kaizen: So you had a solid liberal arts background, but you kept up your interest in monetary economics and broader economic policy?

Salinas-León: It was a degree in Political Economy and History. In my senior year I became very involved in Philosophy. I had the benefit of having a very good teacher.

Kaizen: You got your Ph.D. in Philosophy from Purdue University, Indiana.

Salinas-León: That was also an unusual episode. I wanted to go to law school, but I was never good at standardized testing. And despite having an excellent academic record, some of my targets did not accept me or put me on a waiting list. I thought I would give myself a chance since I was already involved in Philosophy. I got a scholarship at Vanderbilt and a scholarship at Purdue, which had a very unusual faculty. Purdue also had the benefit of being close to Hillsdale. I thought I would be able to still come back and forth during the weekends, but I later found out that was impossible with the academic load that they gave me.

Purdue then, and I believe still now, was a very unusual place because they had a young and upcoming faculty and they had outstanding Analytical philosophers and outstanding Continental philosophers. And the best part was that they actually got together. There was a camaraderie and a spirit of exchange. I ended up writing papers on Quine and Gadamer on the indeterminacy of translation. So it was a lovely place to be in. I had a professor that was a professed Sartraen Marxist, who gave a seminar on Rawls, Nozick, and Rorty. Rawls was accused of being a horrendous, ultra-right, capitalist pig, so I couldn’t imagine what I would do if I defended Mill  again. I just kept quiet. But people knew about my classical liberal background and my strong libertarian leanings back then, and I guess they were tolerated.

Purdue also had the great benefit that part of your training was not just to be a teaching assistant. After the first year, they assigned you an outright class. You were an instructor and part of the faculty, and you got paid as a part of the faculty as a graduate instructor. And my supervisors could walk into my class unannounced, so they kept us in check and I couldn’t just drivel my way out of a class.

Kaizen: So you were working hard on your teaching skills and getting a first-rate philosophy education?

Salinas-León: Yes. I had some phenomenal teachers.

Kaizen: Was your motivation just an interest in philosophy?

Salinas-León: I wanted to get a Masters and go back to law school. I was pursuing an interest. This was the time that Kripke had just shocked the world with Naming and Necessity, and there were these new theories and breakthroughs in semantics and philosophy of language. I became immersed and obsessed with these topics. And then later when I had to take Continental philosophy, my biases were quickly stripped away because I had such remarkable teachers who taught Heidegger and Sartre and Gadamer. And so it was a tremendous eye-opener. And I became obsessed with the topics. I wasn’t specializing though. I would go from one topic to another and sort of dance around. One semester it was the ontological arguments, another semester is was Rorty and Philosophy and the Mirror of Nature, and another semester it was postmodernism and its impact.

Kaizen: So you wound up getting a comprehensive education?

Salinas-León: It was like a liberal arts education. I applied to law school. I was accepted to Georgetown and George Mason, but I wanted to go to Texas because my family and my buddies were in Texas. After my Masters I was burned out. This was 1985.

Kaizen: So you had a Masters from Purdue at this point?

Salinas-León: Yes. At Purdue they were not happy that I had left. I went to law school in Texas. I was going to do one year at St. Mary’s Law School and then transfer to the University of Texas Law School, but my heart was not in it.

By a very unfortunate coincidence, this was the year of the Mexican earthquake in 1985. I went back home. I missed two weeks of law school, and I thought I might as well get my tuition back because there’s no way I was going to recover from missing two weeks. And so I took a year off and worked for my father. Purdue found out and called and said to come back. You’ll be 27 by the time you finish your Ph.D. You can still go to law school after that. I didn’t want to go back, and my parents actually sat me down and told me to go back and finish. And so I did, and again I did the same thing. I got involved in liberalism versus communitarianism, and I ended up staying only two years. I was offered an extra year, but by this time I was already published in journals.

Kaizen: What happens after the Ph.D.? Did you return to Mexico?

Salinas-León: When I finished I had not written my thesis, and I was offered another year to stay 1988-89 at Purdue and continue teaching. I would get help polishing some of my papers to try and get them published. I was given the red-carpet treatment.

At that time I was teaching critical thinking—basically logic—and the one class I had tremendous difficulty with was advanced symbolic logic. It’s curious that I had troubles taking the LSAT, and I wound up giving classes on how to take the LSAT because of the background in critical thinking. At that point I used to talk to my father about this idea that everyone would say there is nothing you can do with a Philosophy degree. Well, first of all, I would do what I wanted with it. I wanted to write papers on Kant and Hume and Rorty and naturalized epistemology or whatever. And I bet you that I could find a job in Mexico as a teacher in a Philosophy department.

And at that time Luis Pazos, probably the most important classical liberal in Mexico, had become a superstar because of his predictions about what would happen if you nationalized the banks and controlled the exchange rate and printed money. All of those catastrophes came true, and he became a source of wisdom. And he was an absolutely incredible communicator. He was the envy of many professional economists. The called him a supermarket economist because he is. That’s a title that I’m very honored to be known as. His retailing skills were amazing and still are. He had a think tank in Mexico, the Center for Free Enterprise Research, and he desperately needed someone to take the academic program and revamp and renew it and begin to do new things. So my grandfather and my father called me and asked me to come home. I hadn’t finished my thesis yet, but they said I should finish it in here in Mexico. So I went back just at the time that the Salinas de Gortari administration is coming into power, and instead of talking about nationalizing industries they were talking about privatizing industries. And instead of talking about regulating industries, they were talking about deregulation. And instead of protectionism, they were talking about NAFTA and free trade. I wasn’t prepared in economics at the time. I was a quick study, and I had to reread some of the stuff I read before and read all of the ideas on liberty and Friedman and all of the literature that was out there. But because the tide in Mexico turned, I quickly became very involved with the global think tank community—with the Universidad Francisco Marroquín, the Heritage Foundation in the United States, the Cato Institute, the American Enterprise Institute, and the Council for the Americas in New York.

But you won’t believe that what marked my difference was that I grew up bilingual. I was the only one at the institute with command of the English language. So NAFTA comes along and CNN and Time wanted interviews, and I was the guy. So my name started getting quoted in all these places, and I started getting all these interesting invitations to lecture in Dallas and Washington. It was a steep learning curve. With Cato I developed a phenomenal relationship with my dear friend Ed Crane, who has been an unbelievable supporter throughout the years. When Ian Vasquez came to work at the Cato Institute his very first job was to coordinate a massive conference that Cato and our center was putting together in Mexico City, and this was the last time Milton Friedman spoke in Mexico City. It was Friedman and fifty-three other outstanding scholars. The conference was called Liberty in the Americas.

Kaizen: What year was that?

Salinas-León: It was 1992. People still remember that conference.

Kaizen: So let’s pause at this moment. You had a number of strains in your upbringing and choices that you made that came together beautifully to position you for what you wound up doing after your Ph.D. What would you advise young people when they’re thinking about their education experience?

Salinas-León: I would strongly advise them not to predefine interests and to let the course of trial and error take place and learn what you like.

Kaizen: You gave us sort of a combination of advice from your parents, knowing people, following your own interests.

Salinas-León: It was very paternalistic advice. I didn’t have much choice. It was good advice, but if they were going to pay for it they wanted me to try what they wanted me to do for at least one year. And they were right. It was very good advice. But the reason for me going to Hillsdale was to learn Austrian Economics and the whole movement and the literature and what not. And actually what happened was that to me the great benefit of Hillsdale was that it had a very strong classical liberal arts program. At least two history professors were outstanding teachers. My English teacher, James King, is the best teacher I ever had.

Kaizen: The one who you learned Shakespeare from?

Salinas-León: Yes. That was the hardest class I ever took—and also the most fun class I ever took. An absolutely amazing intellectual experience. My philosophy professor was fabulous, an expert on the Parmenides of Plato. But the whole atmosphere was great. Even our accounting teacher was not mechanical. It was fun. I was very lucky to have these phenomenal teachers, and I was a very devoted student.

So my recommendation would be to try to broaden your horizons. If you want to be a doctor or a lawyer or be a professional economist, schools are going to take notice more of your broad-based background than they are of pre-law or pre-med. Broaden your horizons as much as possible. And enjoy the college experience. That’s something that perhaps I didn’t do.

I very much believe in the ancient lore that sports is an important part of your education. I told my kids that they need to engage in a sport. That’s part of their formation and their discipline.

Kaizen: Our center’s emphasis is on entrepreneurship. Is it fair to say that your advice is to have students think of their education as entrepreneurs?

Salinas-León: I would say that to be a successful entrepreneur today, you do have to have a broad scope. I have a son studying entrepreneurial science at Babson, and his focus is on managerial accounting and operations management and financial accounting and foundations of entrepreneurial sciences.

But I’ve got to say that a course on Shakespeare’s political plays can also teach you a great deal. A course on the philosophy of Lao Tzu can also teach you a great deal. Learning how to read Hume, whether or not you are a sympathizer, can also teach you a great deal because it broadens your mind.

Today’s entrepreneurial spirit has to be very out of the box and innovative. Think of the impossible. Think of the heroes of today, whether it’s Steve Jobs and the magic he created, or Elon Musk wanting to travel to Mars and everyone laughing at him. Those are the people who today are changing the world. And that requires not just an open mind but also an understanding, in my opinion, of the nature of an open society.

For instance, when studying Karl Popper at first I was adamantly opposed to his approach of scientific methodology and whatnot, but his whole idea of falsifiability that he talks about in The Logic of Scientific Discovery fits with, let’s say, Google’s fail forward philosophy. Many people think of philosophy as something that’s abstract and that you’re in another world.

Kaizen: For Popper’s abstract theory of scientific methodology, how would you summarize the falsifiability point for students who haven’t read it and connect it to the fail-forward philosophy?

Salinas-León: Well, you have an idea and the first thing you have to do is to refute it. It’s not confirm, confirm, confirm. It’s refute, refute, refute. The more I refute it, the more I learn that there was something that was flawed in my original idea, and I begin to polish it. And I refute it again, and how does it resist refutation? A business model is very much based on that philosophy.

Kaizen: Going out of your way to find a problem or flaw or weakness.

Salinas-León: It’s a problem-finding spirit. It will enhance your credibility.

Kaizen: Is this just a heuristic issue? Because we tend to come up with an idea and tend to follow up with our own ideas and then put the blinders on.

Salinas-León: I don’t think it’s just a heuristic issue. It’s both heuristic and substantive.

Kaizen: Is it about the limitations of knowledge, the fact that we don’t know very much?

Salinas-León: You have to be very humble. One speech I greatly admire was given by J.K. Rowling as a commencement address at Harvard in 2008, just before the financial crisis. It was called The Fringe Benefits of Failure. It was about failure and imagination. I think that’s what defines not just the entrepreneurial spirit, but a good part of the core of classical liberal philosophy: learning how to listen, keeping an open mind despite the idiocies and fallacies that surround us and day by day having to refute them and repeat the same old things over again—things that household mothers know better than any Ph.D. from MIT about the benefits of fiscal discipline and stability.

Kaizen: In formal education you unlearn some very good lessons.

Salinas-León: Yes, unfortunately, sometimes that happens. It’s the Keynesian pretense or the pretense of knowledge. I think Hayek’s Nobel lecture is one of the most magnificent pieces of classical liberal thought. Despite the zealotry of his other writings, I think he really caught onto something important that many classical liberals have underappreciated—the importance of a spontaneous order, little bits of knowledge lying all over the place and how they coordinate themselves. Sure you need the institutions and sure you may need the occasional helping hand and it’s good to have those debates, but the fact that there is no single mind that can amass all those bits of knowledge. I think the fatal conceit perhaps comes as too generous a characterization of that phenomenon that is so common in our politicians, whether it be Obamacare or our finance minister here in Mexico or Hugo Chavez who thinks he can erase history and start anew.

Kaizen: This highlights a difference between the way business leaders and political leaders run their organizations. Do you think it’s primarily a pretense of knowledge or a desire to control? Because if you want to control people you might pretend you know more than you do, or it might be that you actually think you do know and reluctantly think that you need to be in control.

Salinas-León: The character of a very successful businessman or businesswoman is difficult to appreciate. I think it’s a curious sociological phenomenon. Clearly you cannot contest their success. Despite the fact here in Mexico that Carlos Slim has been accused of running a monopoly, you have to appreciate his entrepreneurial genius. And he responded beautifully to incentives. The incentives of a fragile institutional framework were there, and he took advantage of them. So yeah it’s his fault, but it’s also the fault of our institutions. There’s a vicious circle here. But that doesn’t mean that being successful as a businessman or businesswoman entitles you to be the source of all wisdom and truth.

I’ve noticed this other sociological phenomenon in business leaders, and Donald Trump is the perfect example of this. All of a sudden they can talk about trade or the balance of payments or fiscal policy or even how to interpret Heidegger. There is a very strong element of hubris. You see this in Davos every year. It’s so pretentious.

Kaizen: The fatal conceit.

Salinas-León: That is the fatal conceit. You see these programs and they’re so pretentious. “We’re also experts in music and in the philosophy of life and how to take a yoga class.” Come on. The original was a semi-off-the-record exchange between leaders to contemplate what happens with the world and how we move forward.

Kaizen: What kind of conceit is it? Do you think it’s a pretense or genuinely held?

Salinas-León: Maybe a combination of the two. I think some people really believe it. Curiously enough, and you won’t believe this, but one person who denounced this was Paul Krugman. He wrote a book called Pop Internationalism before he became famous, a rock star, and was given a Nobel laureate for something he preaches against today. But in that book he even tells us that the end of trade is to import, not to export. So this whole nonsense with competitiveness he calls a dangerous obsession. And I completely agree with that. He even cited Frédéric Bastiat. If you really want to export the hell out of your nation, the easiest thing to do would be to generate a huge depression, and he has an article where he says that it’s a sorry state of affairs that businessmen think that because they can read a balance sheet, that means that entitles them to read a balance of payments or national income.

So many, like Trump today, tell us that America has a trade deficit and that’s automatically bad. Krugman himself plays with a nice idea. New York city imports everything and exports what? Entertainment, tourism, and financial services, for the sake of argument. That’s what New York does. Because of its special circumstances as a global city, if we take it out of the calculation of the balance of payments, our macroeconomics would look beautiful. People would feel a lot better even though nothing changes in the real economy. People would continue to trade the way they do every single day. I thought that was a very insightful example of how to demonstrate the miserable understanding that some business leaders show in terms of economics.

Kaizen: Even more so the politicians.

Salinas-León: Yes. And that’s not pretense. That can be genuine hubris. Even some free-market economists, Chicago trained or MIT trained. And I’m not an economist, but I do a lot of economic policy. Most people think I’m an economist here in Mexico. But in exchanges or debates I’ve been told that you can’t speak of this because you’re not an economist. My response is that I was a logic professor, and if you took a 101 logic class with me you’d get a zero for such a blatant ad hominem fallacy. Credentialism is the cheapest way to win an argument. And there’s a lot of credentialism among economists.

Kaizen: Let’s go back to the pretense of knowledge and motivation. In many cases people who express an interest in politics, and they recognize that they don’t necessarily know much about science or economics and so forth, but what attracts them is the idea of being a politician, which for them means being in control of things that are important. Do you find this also in the business sector?

Salinas-León: Yes, it happens. It’s what you may can an imperial design, wanting to micromanage every part. My grandfather was a little bit like that.

Kaizen: But he had the entrepreneurial chops to back it up to a large extent it sounds like.

Salinas-León: He did. And you didn’t have the right to question him because of his success. But there are also many others, especially younger generations of entrepreneurs in Mexico, where some of the people in the states at local levels, you would marvel at what they were able to achieve.

I almost think that Leonard Read was wrong in describing I, Pencil as a miracle because of the spontaneous order. I, Pencil continues to survive in spite of the worst institutional settings. I wrote an article about this saying that I, Pencil continues to thrive despite our labor and tax laws and our regulations that were made to extort.

You practically cannot survive in the business world today without falling prey to some form of corruption. Corruption becomes the price you pay to simply get ahead. It’s a tax.

Kaizen: Let me use that to transition to the Mexico Business Forum. You were president of that organization. What’s its function?

Salinas-León: The Mexico Business Forum was part of the Economist corporate network.

Kaizen: This is affiliated with the magazine?

Salinas-León: Yes, and the Economist Intelligence Union. I worked very closely with the Economist Intelligence Union. For thirteen years I ran their conference program here in Mexico. And the vehicle through which I ran it was the Mexico Business Forum. The corporate network before had the Estonia Business Forum, the Argentina Business Forum, and the Brazil Business Forum. In Latin America they all started dying down for different reasons. The business model was outdated. It was sort of like a corporate club. I was in television at the time doing a lot of media journalism. What I tried to do was use, let’s say, a powerful brand to open doors and plant the seed of classical liberal ideas all over the place. With the conferences we held, the president always came and the finance minister and central bank governor and all the business leaders. We got a tremendous amount of exposure. I had a chance to develop a session on simple rules for a complex world and a session on the benefits of free exchange.

Kaizen: So a certain amount of a healthy business culture has to do with political economy. It sounds like a large part of what you were doing was political economy.

Salinas-León: Back then it was political economy. Later I left the Economist. I got tired, basically.

Kaizen: So part of it is working toward a healthy political and economic environment.

Salinas-León: That was the idea, to basically use this as a vehicle to transmit ideas that would consolidate or fortify messages and themes that we wanted to permeate policy action, whether it was a flat tax being a good idea or a sound currency or central bank independence or a flexible or fixed exchange rates. We had these healthy debates and a tremendous amount of exposure.

Now, a lot of people mistakenly think that if you’re an economist that you’re a financial analyst. That’s one of the great fallacies. Many economists should learn a lot more about what traders actually do, and traders should learn more about economics. But I quietly started getting into being an investment advisor, and I found that I had a certain knack for it, especially in putting together the right team and dealing with the deal breakers. And you know what, that comes from philosophical training.  And today eight percent of my time is devoted to that. My policy and my engagement in the Association of Private Enterprise and Education and Liberty Fund and so on are very good public relations vehicles to be able to expand business opportunities. I’ve had to be a quick study and learn about finance and corporate law and tax law.

Kaizen: So you’re a Renaissance man.

Salinas-León: I don’t pretend to be, but it’s been fun. Some operations have been very successful, and some have been a disaster. There is a very steep learning curve. I can’t think that because the first three or four things I did were successful that everything I would do would turn into gold. The lesson in humility was strong, and it was not intellectual. It was financial. Ouch. You have to be a quick study.

Kaizen: So you go from high philosophical and political and economic theory to dealing with political and economic infrastructure in Mexico and abroad and then down to particular high-level financial investments, and so on.

What about grassroots entrepreneurship? Does the Business Forum talk about developing the entrepreneurial culture?

Salinas-León: Very much so. We talked about this much more in the past, especially the small-sized entrepreneur. One project I have for the future is to develop a whole series of cases and show anecdotally, not with a big theorem or whatever, why Mexico does not grow at the rate that it has the capacity to do so. We are a country that should be growing at seven or eight or nine percent a year on a sustained basis. We have that potential.

So part of the vitriol that we get from Trump and his supporters today is probably a little deserved because we haven’t done the full homework and we haven’t gone full circle. We started a program of structural reforms, but we didn’t do the second wave of reforms. You need to go back to the local property registry and make sure those titles are clear and easily available, because that’s what makes the difference between trading your property and not being able to trade it or it being caught in legal limbo.

So a deep capital market very much depends on the transparency and the reliability of your institutional framework that is governing. With banks today that is happening. Why? Because we’ve imported our laws. It’s an international banking system. We have HSBC, and this beautiful new building we’re in right now is a Spanish bank. It’s not a Mexican bank.

Kaizen: So you’re importing everything, but what about the homegrown?

Salinas-León: The homegrown still needs a lot of work. It’s gotten better, but in some places its gotten worse. I believe that Hernando de Soto with his work touched the tip of the iceberg of a much deeper and pervasive phenomenon in Mexico and in Latin America. I worked with him on the project that he launched here in Mexico ten years ago. Many of the young men and women here that go out into the streets and sell you entertainment, or if it’s raining sell you an umbrella, or if it’s September, the month that we celebrate our independence, they’ll sell you flags. Right now it’s Halloween so they’ll sell you masks of Donald Trump or Dracula or Batman or whatever. They’re extremely innovative and inventive, and they do it at the margin of the law. Even cars that park here and sell taquitos and cerveza, and in instead of going to the Four Seasons restaurant you want to come here and have a beer and a paper plate of taquitos.

But those people need light and water and police protection. The police protect them. The agent from the federal electricity commission will come and illegally make sure they have the electricity that they need. And, of course, everything is based on bribing those people. What are you doing? You’re taxing. And it’s an efficient form of taxing because you are getting the service that you’re expecting.

Now, the tragedy of an informal economy is that it’s incredibly innovative and has a tremendous entrepreneurial spirit, but it’s necessarily local. It will never expand from that immediate universe. You can’t capture economies of scale. And if you get into a dispute, you can’t have access to contracts or to the legal system. You’re always going to remain in that circle. There’s a real need, as Hume would say, for a system of justice.

Kaizen: So you say the entrepreneurial spirit and the ingenuity and the energy is there at the grassroots level, but what you need is reforms at the local political level—access to the legal system, accesses to the utilities.

Salinas-León: Something as simple as, for instance, why are the 3,800 local municipalities in Mexico the ones that have the right to issue construction permits? That’s become a medium of extortion. All of the stories that you’ve heard about Wal-Mart engaging in bribes here in Mexico are absolutely true. And it wasn’t just one, it was every single one of them. Otherwise you cannot get ahead. It’s pervasive.

Kaizen: It’s systemic corruption at the local level.

Salinas-León: It’s systemic. Construction permits should be issued by an independent and credible decentralized or non-profit organization with very specific tracking mechanisms. I know in the United States there are cities in Georgia today where you can go online and track permits like you can track a package being shipped. We need that technology in Mexico. And that’s just one example of countless examples.

There’s this program in the United States called American Horror Story. One day I’d like to publish Mexican Horror Story. And I can tell you from a real life point of view that I’ve been a victim of this in my business engagements. Time and time again the number one problem is the regulatory exchange with the powers that be.

Today I’m trying to broker deals with people wanting to come into the energy sector in Mexico because of the very ambitious, market-oriented transformation opening of the energy sector at long last. It will take many years, but the number one problem whether it’s a fund or a company or group of investors is the regulatory environment. They’re sick of it. They’re absolutely sick of it. You need to hire a first-class lawyer or somebody who is respected as a godfather-like figure that you won’t want to mess with. And, of course, he or she will charge you a large amount. That transaction cost inhibits Mexican growth.

Kaizen: It’s a lot higher than in places that have cleaned up the corruption.

Salinas-León: Like Chile, for instance.

KaizenOr Uruguay.

Salinas-León: Or Uruguay.

Argentina is another sad case in point. A friend of mine used to be the representative of a company that sells billboard advertisement. He would say that it’s amazing that there’s nothing that can get done here without a kickback or a bribe.

Kaizen: This is in Argentina?

Salinas-León: No, here in Mexico. And then he goes and lives in Argentina and he says that it’s worse here. It’s almost like it’s permeated in the system. So one policy challenge is: How do you get rid of that corruption? It’s not by pointing the finger.

Kaizen: You need case studies about how other countries have dealt with this.

Salinas-León: Not case studies but anecdotal examples. It’s happened to me, and I’d like to describe it.

Kaizen: So corruption certainly is an issue, and the regulatory environment goes hand in hand.

About Mexico’s ties to the United States: From our perspective we get a lot of entrepreneurial Mexicans who are ambitious and work hard and have good ideas. From the Mexican perspective, is that a brain drain problem?

Salinas-León: No question about it. A former partner of mine and former candidate to the presidency, Josefina Vásquez Mota, recently published twenty-four interviews with Mexicans who have crossed the border. It’s something similar to what I’d like to do with my Mexican horror stories, but hers are more positive.

Despite the odds and the hostilities and having to cross the border illegally and swim across the river and having to go through the coyote industry, which is extremely dangerous like the mafia that cross you over the border. You have the danger of suffocating in the 120-degree heat in the Arizona desert because you’re left alone inside of a truck when the coyote escapes to save his own skin. Despite all of this, there are these case studies of twenty-four Mexicans, and what would you want? You would want those people back home.

One of them took himself and the lore of his mother and grandmother’s recipes into the United States and he ended up in Chicago. I forget the details of the story, but he started off as a dishwasher. Chicago has a huge Mexican population.  Mexico City and then L.A. and then Guadalajara, and then the fourth largest Mexican populated city is Chicago. So he started off as a dishwasher and later on became a cook and discovered he has a flare for it. Years later he gets a group of investors and starts his own restaurant called Mexique, and it’s the only Mexican restaurant in the world with a one-star Michelin.

Kaizen: Wow. Nice.

Salinas-León: We have restaurants here that have one or two stars in Mexico City, but they’re not necessarily Mexican. This is the only Mexican restaurant with a Michelin star.

Another example is a man they call Dr. Q. He was basically a tomato picker who went from Mexico where he picked tomatoes to California where he picked tomatoes. Turns out that this man had an enormous knowledge of neuroscience and medicine, and today he is a globally famous expert at a hospital in San Diego where those same hands that used to pick tomatoes are now going into brains to operate and take out cancer.

Tell me, do I want that human capital in my country? We don’t need a wall. We need incentives to bring them back.

Kaizen: So the incentives go the other way. We get many of the best Mexicans.

Salinas-León: You go to New York on lower Park Avenue where a lot of the big banks are and a lot of the up and coming bankers there are Mexicans—extremely well trained, extremely hard working.

Kaizen: So they need the incentives to come back to Mexico or to not leave in the first place. That’s going to mean less crime, less corruption, and a healthier regulatory environment.

Salinas-León: Yes. I would emphasize a healthier regulatory environment. What we call derecho facilitador, derecho as in law. We need a more facilitating environment.

I love Richard Epstein’s Simple Rules for a Complex World. I think he hit it right on the mark. We tend to think of very complicated rules to try and make our lives more simple. That’s the hubris of a politician or an economist who wants to mold you and determine the future in accordance with the law. All you do is you end up making our lives miserable.

Now, crime is a different phenomenon. It definitely affects business decisions. A dear friend of mine has been very successful exploiting trade between Mexico and Canada, which by the way has gone up exponentially in the past twenty years. Canadians don’t know it, but the mangos and the flowers they buy come from ranches in Mexico. My friend has gone to all theses states that have basically been abandoned by the federal government and are fragile and have been taken over by either the cartels or by paramilitary groups that devote their lives to extorting you. Of course, all the municipal president does is steal the money from the coffers or use the permits to extort you, so their popularity is not great. So these people think of themselves as Robin Hoods.

Now, they come and they tax my friend. That’s money that could have been used for other things, but you know what, he’s still prosperous. That’s what’s so amazing about these stories. These people are still able to find a way to get ahead. At the end of the day it’s real cost reduction. You need entrepreneurial inventiveness and new technology for real cost reduction, but you also need the help of the government for real cost reduction. These people are able to do real cost reduction and remain competitive despite the setbacks of a very fragile and sometimes nonexistent institutional framework.

Kaizen: You talked about Mexicans going to the United States and Canada for business opportunities. What about business opportunities for young American and Canadian entrepreneurs coming to Mexico looking for opportunities? Do you recommend finding a local partner?

Salinas-León: Most definitely. I would say two things. Don’t listen to what you hear, and study the facts. Mexico is the second largest trading partner of the United States. Mexico is the number one supplier of auto parts to the United States in the world. Mexico trades more with the United States than Germany, Britain, and Japan put together. You can’t treat your second largest trading partner the way that Donald Trump wants to treat us. That’s just bad business. Probably the NFL would have to be abolished because NFL helmets are produced here in Mexico.

And instead of thinking of North America as three different countries, think of it as one integrated zone. That’s what NAFTA was supposed to be like. We could have an integrated energy corridor that today could supply the rest of the world energy for the next 150 years. Mexico is not just in oil. We have vast potential in shale gas. We don’t have the technology and we don’t have the resources and investment, but at least now we have the open regime that can invite that type of investment. Ford has this remarkable establishment in Mexico, one of the best Ford plants in the world. They depend on the intellectual knowledge that they get from Detroit and even from Windsor, Canada, so it’s going to affect the entire supply chain. You’re going to kill the entire supply chain.

So that mentality of integration eventually has to expand to all factors of production. It would be much more intelligent than calling us rapists and wanting to build a wall to think of a legal framework and forge cultural partnerships. We need leadership for that.

Now, you need to understand that there is this very close tie between the United States and Mexico vis-à-vis trade. It’s a vast amount of trade. Mexico exports one billion dollars of manufactured goods to the United States per day.  That’s more than China. And that involves a lot of transportation. So instead of having all of these bottlenecks at the border we should be thinking of bridges and technologies that could supervise and track the trucks and whether they are misbehaving or not.

Kaizen: So, in addition to all the market entrepreneurs, we need some healthy political entrepreneurs.

Salinas-León: Leadership and political entrepreneurs, but it’s difficult in this political environment.

If you want to come to Mexico, there are wonderful opportunities. There are opportunities in the service sectors, in technology, and tremendous opportunities in retail. The purchasing power here because of the stabilization of the currency is far better than it used to be. There’s been a decoupling of the exchange rate and the inflation rate, so despite volatility to the exchange rate people here still command very much of a dollar mentality.

But in some of the business ventures that I’ve done, I’ve known some very smart people who have come into Mexico without a local partner. That is a potential for suicide. I know of some of these horror stories where someone comes in and buys a lot of land and wants to develop it. It turns out that the same notary public that notarized that land in your name also notarized it in the name of his compadre. And his compadre is the compadre of the local state judge. So unless you have a local partner that can strong arm and get you out of messes like that, you’re going to lose.

Kaizen: So don’t be an idiot.

Salinas-León: It’s very unfortunate that in Mexico you have to do that, but you do need a strong advisor and especially a strong local partner.

Kaizen: So the transaction costs are going to be higher than you think.

Salinas-León: They could. You’re running an unnecessary risk. So why not share the wealth with your local partner? You can still retain a majority but you have someone here with the skills and the PR network. We call it the tropicalization of your business model because it really is a jungle. You need to know the ins and outs.

Kaizen: So you need the local knowledge.

Salinas-León: The local knowledge.

Kaizen: To bring things to a close, you’ve been working in the intellectual world, business world, and political world for many years now. Is there anything that has really stuck with you from your education time? Is there a lesson that you learned that has been useful to you over the course of the years?

Salinas-León: I guess I would come back to first principles. The mental clarity about economic principles, for instance, has been incredibly useful. Excuse my French, but it really sharpens your nose for bullshit, and you can detect immediately if this is wrong or right. Sticking to first principles, but not because I know more than everyone else. On the contrary.

Kaizen: It keeps you reality oriented.

Salinas-León: I like to say that taxi drivers, housemothers, and people from the informal economy know more about economics than the most highbrow, enlightened bureaucrat.

Kaizen:  In most cases it’s tacit for them.

Salinas-León: In most cases it is tacit but it is very responsive. It’s almost automatic. So that’s one. And then the value of trial and error and with it learning the limits of knowledge. And humility doesn’t mean silence. You can be very active and very engaged, but learning how to listen is key.

And I would say this to some of my dear classical liberal friends as well that sometimes do not want to listen to other points of view because it’s not 100% Austrian or 100% Chicago. Learn to listen to other disciplines, and recognize the fact that we don’t have a monopoly on truth. My father and I used to talk about this day in and day out. It was a common theme and not just a theme in academia or the policy world, but a theme in the real world as well.

This interview was conducted for Kaizen by Stephen Hicks.

Coffee entrepreneur Phyllis Johnson — video interview transcript

Friday, May 19th, 2017

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Part I

Hicks: I’m Stephen Hicks. My guest today is Phyllis Johnson, who spoke in the Business and Economics Ethics class today on the theme of Coffee, Entrepreneurship, and Women in Africa. Ms. Johnson is the founder and president coffee-women-2of BD Imports, a Rockford-based entrepreneurial firm. They do wholesaling and retailing coffee all over the world.

I like your story about how you came to entrepreneurship. You got a university degree and a very nice-sounding job, but it wasn’t enough for you. Why did you become an entrepreneur?

Johnson: It’s funny because you always want to leave where you come from and what I realized after getting an university degree in microbiology, I realized that it was my family upbringing, working together on a farm in Arkansas as a family doing odd jobs, you know, throughout different seasons, that really made me want to start my own business. It created something inside me that said, you know, it’s okay to work for someone else, you can do that, but it’s also an opportunity to do something on your own, you can be a bit more creative.

Hicks: At the same time, you mentioned it was quite scary, the first steps. What was scary about it, and how did you handle that?

Johnson: Oh, gosh. It was scary for a lot of reasons. It took a long time, it was a process. I remember looking for a message, either in church or in conversations with friends that would help to persuade me to take the steps that I really wanted to take but I was afraid to take. I was afraid that my livelihood would be threatened. I was afraid of failure. I think I was afraid that what if I failed? What if it didn’t work? What if I lost financial income? And some people say we are afraid of success and I think that there could be some truth in that that we don’t quite understand. What if I could work beyond what I think is possible for me? And it’s safe to stay in a space where other people are and you don’t fit in quite so much anymore because you step outside of that realm of where you think you fit in. You spent your whole life developing friendships, relationships with people who have things in common with you, so your family know you to be who you are, so stepping into entrepreneurship really creates a different person that you might be afraid of.

Hicks: You could’ve gone on to a lot of things, but you ended putting yourself into the coffee business. There might be a connection to the family farm, something in agriculture. Why coffee in particular?

Johnson: It’s interesting because, as soon as I thought about coffee, I knew that was where I was supposed to be.

Hicks: Even though you hadn’t been a big coffee drinker up to that point.

Johnson: Even though I hadn’t been a big coffee drinker. You know, I rely a lot on intuition. I know for some business people it can sound really strange, but a lot of it is gut feeling. What feels right is what I like to go with. And, for me, I am very comfortable being on a farm. I can really appreciate the open air, the hard work, the attitude of people who work on a farm. The attitude of people who work on a farm is pretty simple. It’s not very complex a lot of times. It gives joy to see a woman carrying materials on her head, straw, whatever, to go build her house. She is not bound with ‘I do this to make a living’. She is physically making a home for herself. And so, there is a true connection sometimes with people who work on farms that keep them grounded and why they do what they do, and I think that’s very attractive for me.

Hicks: Now, when you’re getting into the coffee business as an importer-exporter, this is a worldwide business, very complicated, many major players. So you are embarking in a process of self-education to learn the business. You also mentioned you got some literature from one of the coffee organizations, in effect, warning you off: ‘Don’t try to do this.’

Johnson: Right, exactly.

Hicks: What were the obstacles they were pointing out to you and that you did have to grapple with?

Johnson: Yeah, you know, there were very realistic obstacles. I am the eighth CoffeeVillagechild of eight children, and I chose to study microbiology in college, which you don’t find women traditionally studying science and math courses. For some strange reason, I always saw myself as doing the hard stuff. Not because it was easy, but because I wanted to do the hard stuff. Why do I have to do the mamsy-pamsy stuff just because I am a girl? That has been my attitude through life. I love coffee shops. I love coffee shop owners. I just thought that I want to go a bit deeper; I want to get a bit closer to where all this comes together and be able to make impact. And, of course, you can make some sort of impact locally or nationally, but I wanted to get close to the place where it all began because I felt the intuition that I could make a difference on large scale.

But the organization that made this wonderful article when I asked about information on becoming an importer, and they sent me an article on why you should never become an importer. I became a member of the organization, I sat in the board of directors for the organization, and I still volunteer my time with the organization. I think the information was valuable, but it was also a motivator. So, it’s up to me to determine how I took that information and what it has taken to survive 12 years in this business, living through probably one of the most economic downturns in our history, for certain. It took having that sort of information about what I was embarking on to get through it.

Hicks: You mentioned that part of your drive is that you wanted to be closer to the action and you like the agricultural rootedness of coffee, so that took you to Africa. And there you found that the majority of the work in raising the coffee is done by women. But, to put it mildly, that is very challenging in a number of fronts. What were the major problems or things that bothered you when you got close to how the coffee was actually produced in Africa?

Johnson: Yeah, years ago, probably on my first trip, it was bothersome to watch a group of women sorting coffee cherries, which is what you do with part of the processing. And then, to take them to be weighed. And I remember I asked the person who was recording the weights, how, just to see this one lady’s tally sheet of what the coffee cherries she had been bringing in for weight. And so he showed it to me and he showed me about a 1,000 pounds of coffee that she had brought over a period of three, four, five months and I asked, What is her pay going to be? And he said “20 dollars” or something equivalent to 20 dollars. And I just thought about the amount of physically backbreaking labor involved in picking 1,000 pounds of coffee cherries for 20 dollars. I literally walked away in tears thinking, “I’ve got 20 dollars in my purse right now, why don’t I just give it to her?” But that would not have been the thing to do. And that was back in 2003. Luckily, today, I work with the United Nations International Trade Center to do things in a global level, in several African countries, to work with national leaders and organizations and women of all levels to make a difference. And that was the way to do it.

Part II

Hicks: One of the problems is that women are doing enormous amounts of backbreaking work, but also they are getting very little pay for it. You also mentioned that typically it is women who are doing this kind of work and men don’t do that work. Why is that?

Johnson: Well, for a couple of reasons. Women are more meticulous and they are very good at doing things that are more, you know, hand sort of work: picking stuff. But, again, a lot of time, culturally, it is the women who will go out and do a lot of the labor. So, it can be, culturally, just the way things are. But they are not in decision-making roles. And they are not comfortable in decision-making roles. They don’t feel qualified, they don’t have a history, they don’t have role models that had been in that position in the past. So, working with the International Women’s Coffee Alliance provides the network of women globally, so that women in Africa will get a chance to work with women in El Salvador and Costa Rica and Guatemala to see how these women have reason throughout the supply chain and be encouraged by that and be able to create roadmaps within their own country as how they can move up to higher levels.

Hicks: Part of the solution, then, is business education for the women. They are forming co-ops or learning how to put business structures together so that they feel comfortable in assuming the leadership roles.

Johnson: Part of the solution in the women in coffee program that I am working on with the International Trade Center we see as leadership training. We have a leadership training program that we will be working with the woman leaders, the women who had been a part of this program from the start. And they are women who are concerned about helping other women; they are community-builders. So we are having a leadership training program that will expand throughout a year for these women. We are also investigating this idea of “branding” and putting a mark on a product potentially that signifies women’s empowerment in coffee. For some corporations, having a brand or a mark isn’t so important, but it is important that women are being compensated fairly in the supply chain. So finding ways to figure out how we may approach the market with such a product is interesting, but, you know, Walmart.com just announced mid-September that they will be introducing coffee that shows empowerment for women for one of the groups of women that we work with in Costa Rica, so we are excited to see how that relationship might work.

Hicks: So, one element is the compensation level for the work that is done. The coffee-women-3other is the decision-making and the empowering so that they have the knowledge and confidence to take on leadership roles. I believe you also mentioned the issue of landownership, that, in many cases, women don’t own the land that they are working. They are not in a position to share in the profits or to grow or to mortgage the property to do various things. Why are women traditionally not owning any of land or why is that difficult for them?

Johnson: Well, you know, there has always been gender discrimination. And, in a lot of cultures, it’s better to have a male child than a female child. If you are going to educate a child, you educate the son not the daughter. So, women have just not been held in high regard. Few opportunities are given to women, but I feel that with several initiatives, global initiatives, things are changing. Women are being pushed more into the forefront. And it’s not just because women need to be women, but it’s for economic reasons. The UN global compact recently signed on to the Women Empowered principles and this is the first piece of information that allows women to be considered from an economic standpoint. We always talk about women when it comes to health and education, but, economically, how in business are women fairing? How in ownership? I don’t know the numbers off of the top of my head, but less than one percent of land ownership globally belongs to women. So we, as women, are way behind economically. As I said, of the world’s 1 billion poor, 78 percent are women. So, until the world considers women as being a part of this economic engine, we won’t get ahead. Women are working hard for less pay. They are putting up long hours, and they really need to be compensated because what they are doing with the dollars will make a difference globally. They are taking care of their children, they are educating their children, and that’s a benefit globally. So there is great value.

Hicks: So, the additional business knowledge and the changing attitude so women can own land, that will help them get a leg up the economic ladder. There are also traditional, cultural reasons, family reasons, praising boys more than praising girls. Are there also religious obstacles to be overcome or legal obstacles that just say “Women are not allowed to own property”? Do those also have to be dealt with?

Johnson: Yeah, it’s funny. When I was in Uganda, one lady — she was a Muslim lady from far region where her family worked in coffee. And she said, for religious reasons, you know, that we don’t own land from where I am from. And the laws are very confusing, you know. And we had some great discussions around that. But, what was interesting was her perspective on all of that and the lack of land-ownership, which is what is perceived to be the number 1 problem for women if you talk to them when it comes to agriculture. They don’t own land, they don’t own what’s produced in the lands, and they are just, you know, peasant workers on the land. She said, “My attitude is, while I am here,” and I kept asking what does that mean, and she said, “while I am here, I am not going to fight the things that I can’t change, but I am going to work as hard as I can to make a difference in what I do have control over.” So, you know, women are creative and they know that if change is going to happen they have to lead it. I can say that leaders of countries, leaders of industries start to pay attention when issues have been raised by different organizations, people in power. So bringing recognition and light to organizations is critical. The East African fine coffee organization, a trade support organization in East Africa that makes up several different countries that work in coffee, they have never had an indigenous women on their board in their 10-year history. They now have a gender program that they’ve developed in the last year since this program has started to bring women on board, to give them a seat at the table in all the countries where they operate. Up until now, they never considered it.

Hicks: So they are now part of the decision-making issues.

Johnson: So things are changing.

Hicks: You mentioned various organizations that you volunteer for and work for, and the United Nation’s initiative in at least five countries in Africa. Where can people go for more information about this, to follow the progress of these initiatives?

Johnson: You can go to the International Trade Center website, which is www.intracen.org or you can visit the International Women’s Coffee Alliance, just womenincoffe.org, or our website, bdimports.com, which talks about the work we do.

Hicks: Thanks for being with us today.

Johnson: Thank you, my pleasure.

[The video interview with Phyllis Johnson follows.]

CEE Review: Entrepreneurial education conference | Schools of the future, and more

Thursday, March 16th, 2017

News and Opinion

Apple-Lightbulb-cutoutTeaching Character Virtues to Prevent Bullying. Michael Strong at KoSchool.

Entrepreneurship and youth services: Quality is a way of showing respect. YouTube.

If Schools Don’t Change, Robots Will Bring On a ‘Permanent Underclass’. Vice.

Study links traits of undergraduate education to success in life. Inside Higher Ed.

Teens enter vocational school, come out with jobs, no debt. Today.

Study examines achievement gap between Asian American, white students. The Los Angeles Times.

Seven Ways School Has Imprisoned Your Mind. Foundation for Economic Education.

Could Urban Farms Be the Preschools of the Future? Citylab.

Video: Knives and fire in kindergarten? Facebook.

Why School Sucks. YouTube.

Announcements

EE 2017 Poster 2The Center for Ethics and Entrepreneurship will be hosting a conference at Rockford University, Illinois, on March 31 and April 1, 2017, on Entrepreneurial Education. Invited speakers include: T.K. Coleman (Praxis), María Marty (Fundación para la Responsabilidad Intelectual), Nicholas Capaldi (Loyola University New Orleans), Kevin Currie-Knight (East Carolina University), Marsha Familaro Enright (The Great Connections Seminars), Terry Noel (Illinois State University), Jed Hopkins (Edgewood College), Amy Willis (Liberty Fund), and Peggy O’Neil (University of Western Ontario). Everyone is welcome to attend free of charge! Register for the conference here. For more information, visit our website or contact Jennifer Harrolle at jharrolle@rockford.edu.

Idea:  “There are only three ways to teach a child. The first is by example, the second is by example, the third is by example.” — Albert Schweitzer

See you next time with our digest of new and interesting items in entrepreneurship, ethics, and political economy. Here are the previous editions of CEE Review.

Entrepreneurial Education Conference at Rockford University, March 31-April 1

Thursday, March 16th, 2017

EE 2017 Poster 1The Center for Ethics and Entrepreneurship will be hosting a conference at Rockford University, March 31-April 1, 2017, on Entrepreneurial Education.

Invited speakers include: T.K. Coleman (Praxis), María Marty (Fundación para la Responsabilidad Intelectual), Nicholas Capaldi (Loyola University New Orleans), Kevin Currie-Knight (East Carolina University), Marsha Familaro Enright (The Great Connections Seminars), Terry Noel (Illinois State University), Jed Hopkins (Edgewood College), Amy Willis (Liberty Fund), and Peggy O’Neil (University of Western Ontario).

Free Registration here. (Refreshments included.)

Theme:

On the Entrepreneurial side of the phrase: We live in entrepreneurial times. From the work demand side, there is increasing proportion of employment within entrepreneurial firms and a slow upward trend in the number of startups. From the work-supply side, younger people of this generation express higher levels of aspiration to start their own businesses or to work within entrepreneurial firms. Increasing globalization and liberalization also mean that the entrepreneurial trends are not only regional or national.

On the Education side: How can we best help younger people become entrepreneurial—either to prepare them for creating their own businesses, or to be entrepreneurial within existing firms, or as freelancing artists, writers, and musicians? If the traditional model of education—students sitting in straight rows of desks and all doing the same work at the same time following the directions of an authority figure—does not prepare students for entrepreneurism, then what should we replace it with?

We also live in a time of dissatisfaction with the dominant forms of education, with many complaints about stagnant or declining outcomes, bureaucratization, demoralization and worse, especially in poorer neighborhoods.

And we live in times of disruptive education technologies—from simple email and online chat to pre-packaged podcasts and video series to robust online MOOCs and more.

Putting all of the above together, how do we answer this question: What should entrepreneurial education look like?Apple-Lightbulb-cutout

Free Registration here. (Refreshments included.)

Here is a PDF of the conference poster containing the conference schedule.

This conference is made possible in part by support from the John Templeton Foundation and the Institute for Humane Studies.

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Interview with Lall Singh on Entrepreneurial Finance in England

Wednesday, November 30th, 2016

[This is the full interview with Lall Singh which was published in our Kaizen newsletter.]

Lall Singh on Entrepreneurial Finance in England

Introduction 

Lall Singh is CEO of Capital Instruments based in London, England. Capital Instruments is an investment consulting firm that provides finance, management, and marketing expertise in several European companies as well as projects in Canada and Dubai.  

Education and early career

Kaizen: Where were you born?Singh-Lall-8

Singh: I was born in England in a little town called Solihull back in 1969. That makes me 44 this year.

Kaizen: Where is Solihull?

Singh: It’s near Birmingham, which is the second largest city after London. It’s between there and Manchester  —  there is always a competition Birmingham and Manchester about which is the second largest city. But both are growing cities. Solihull is just on the outskirts of Birmingham, which is located in the west midlands. We aren’t too far from Meriden, which marks the center of England.

Kaizen: Your parents came from India?

Singh: That’s right. They emigrated back in 1960 from Punjab, which is north India, from a little town called Jalandhar.

Kaizen: What brought them here?

Singh: Partly it was the farming communities and partly the attraction of increased income, the ability to work and make a living. And with the prospect of returning to India after retiring, which was the case. My parents did indeed decide to retire early and head back to India. You know, you always heard the old record that once you come here, you’re stuck here. This isn’t the case, of course. There’s nothing stopping them from going back. We suggested that they take an early retirement and go back to India. The funny thing is that they stayed there for about nine months and decided that “home” is where the heart is. They decided that they would spend most of their time here in England and perhaps two or three months a year in India.

Kaizen: What was your schooling like?

Singh: My schooling was predominantly here in England — in and around Birmingham, the major city. You start with nursery here, equivalent to your kindergarten; then junior school, and then secondary education.

Kaizen: By the time you were into secondary education,, did you have some career ideas? Or were your parents nudging you in a direction?

Singh: At that stage, I would say about the age of 11, I wasn’t probably thinking about any career or definite decisions about them. But business in general or some money-making aspect were attracting me. We came from a very poor family here in England — general working class. And, obviously, with my parents being immigrants and starting off on the first rung of the ladder, so to speak. My father worked as a dress welder, as it’s called, for one of the aerospace companies here in England. It was really economizing and watching the pennies. So in those days, I suppose, I was attracted more toward business as a means of making good money and living a lifestyle most people cherish.

Kaizen: Were particular types of businesses attractive?

Singh: Originally I was interested in economics. It was essentially looking at current affairs and looking at the micro and macro perspectives.

Kaizen: This would have been when you were a little older?

Singh: A little older, from age 12 and into my teenage years  —  when you are really trying to decide what it is you really want to do. I suppose the people around me were more interested in the sciences. I was a bit different. I remember that of most of the options that you have when you are about 14, the ones I leaned toward were more of the mathematical type, probably at that stage heading more toward a career in accounting.

Kaizen: You were good at math from a young age?

Singh: That’s right. Yes.

Kaizen: You went to King Edward VI grammar school in Birmingham. What kind of school was that?

Singh: It’s referred to as a select education. So it is endowed with quite generous funds. However, they tend to restrict the number of entrants, and they have an entrance test. In those days, it attracted about 2,000 people, but they could only offer 200 places. So if you were in the top 200, you would get in.

Kaizen: Did you get a good, basic education?

Singh: I was very privileged to have made the place. It was rated something like fourth-top in the U.K. It is still, I believe, one of the top schools in the country.

Kaizen: You went through A-levels, which the equivalent of high school in the U.S.?

Singh: It’s actually the continuation of secondary education, which is referred to here as sixth form college.

Kaizen: College prep years.

Singh: That’s right.

Kaizen: Then you went to Birmingham University. How old were you when you started university?

Singh: About 18.

Kaizen: You mentioned an interest in business and economics in your teens. Did you go in with a firm major in mind?

Singh: I had done economics and accounting at A-level, so at that stage I opted for a broad major in accounting and finance. With the view to perhaps combining with economics at a later stage. But my major was essentially in finance.

Kaizen: Accounting and finance?

Singh: That’s correct.

birmingham university campusKaizen: What was the attraction of accounting?

Singh: At that stage, it was one way to get into looking at businesses from an accounting perspective. It gives you an appreciation for how businesses function. My attraction was more toward management accounting as opposed to accounting in practice. The difference being that accountants in practice tend to compile numbers in order to fulfill statutory obligations of compliance; whereas management accounting has more to do with management decisions, where you are looking at investments, ways to reduce costs, and it is essentially looking at a business and how better it can function in terms of productivity, operations, how it can utilize its own funds better.

Kaizen: So using the accounting as a set of tools for management decisions?

Singh: Accounting as a feedback tool as well as looking at what options are available given to you given the financial restrictions.

Kaizen: The other side was finance. What was the attraction of finance as a major?

Singh: I was interested in capital markets, looking at ways of leveraging different types of gearing ratios, and how businesses can function and grow through the use of finance.

Kaizen: Is “gearing ratio” a technical term?

Singh: It’s the debt-to-equity ratio. You look at your own capital you are putting into the business, or shareholders are putting in, in proportion to what sort of debts the businesses are taking on. And over the years, you find different gearing ratios tend to be better given high interest rates — you want to have high debt with low equity; given low economic times, such as now, you tend to have a high gearing ratio, which is easily at one or two percent.

Kaizen: At university, did you take courses in the science, arts, or humanities? Or was it a more narrow education?

Singh: When you are in England, up until the age of about 14, you take a very broad range of subjects, which tend to cover what is called O-levels, which is the precursor to A-levels. Across those, in fact, I took a lot of the sciences: chemistry, physics, math, English, of course, and geography. After that, with the A-levels you can start specializing. So at A-level I went for more of a math, accounting, economics route. But we also do a general studies course as well at that stage. So that was my combination. I suppose it gave me the platform to look towards specializing further in accounting and finance. At that stage, I chose accounting and finance, but later on I decided to undertake an MBA where I got more interested on the marketing side. And that’s once you actually work for companies, you get an appreciation for it.

Kaizen: What was your first job after graduating from Birmingham?

Singh: My first job was actually for a publishing company. In fact, before then, I did work for an accountancy practice, Coopers and Lybrand, which is now part of PwC (PricewaterhouseCoopers). I had shied away from that, knowing that practice accounting would meant laborious three-year contract, looking at mainly statute reporting. Instead, I looked to publishing as a training accountant, and I specialized in management accounting as opposed to practice accounting.

Kaizen: Then you decided to go for an MBA?

Singh: That’s correct. I worked for a few years and then I opted to go for an MBA at Aston Business School. Given that I had already experienced accounting and finance, I decided — I was self-funding at this stage — I was going to make the most of the whole course and decided to specialize in marketing, which was something I didn’t have that much exposure to. I became particularly interested in market segmentation.

Kaizen: What was interesting about marketing to you?

Singh: I have always felt that accountants are shielded from looking at ways to moving business forward in terms of how to innovate and how to generate more business. Yet they’re more in-tune with costs and how to reduce costs. And I think accountants sometimes get blinkered, but combine it with a marketing approach, where you know it is essential for a company to breathe and grow by looking at different markets, how to nurture them, how to grow them, how to invest money in order to get returns on your capital. I think that’s a skill where you find that any company with corporate governors you have a board, you find that the accountants and the marketers are always at loggerheads given that accountants want to reduce costs and keep everything contained and marketers want to spend more and have a marketing campaign in order to generate business. I think what that gave me was a unique insight into both areas where you could actually have a cross between knowing the accounting function as well as the marketing function.

Kaizen: At this point, still in your twenties, were you thinking that you would be working independently or within existing firms?

Singh: I couldn’t imagine myself, at least at that stage, working independently. I was really trying to build a career and to align myself with better qualifications so I could offer that little bit more in general management for some of the larger corporations.

After my MBA, I ended up working for a conglomerate, which was looking to create companies from the old East European block where, for instance, in Romania they were privatizing a lot of the state-owned assets. Some of them were quite large: pharmaceutical companies, aviation companies, engineering companies, etc. We looked to acquire these companies and put Western-style management in there. For instance, we looked to bring a pharmaceuticals company we bought up to Good Manufacturing Practice (GMP) status. That allowed us to subcontract to some of the majors like SmithKline Beecham, producing some drugs in a very cost-effective way.

Kaizen: What years were you working in Romania?

Singh: That was from about 1998 onward. I worked for a company called Litchfield Continental. Eventually it was reversed into a shell company on NASDAQ, and we floated the whole structure. That gave us access to capital markets and a shareholder structure with institutional investors, which allowed us to expand and continue to the next stage.

Kaizen: At the poSingh-Lall-20int that you were working for the conglomerate, what was your function, in particular in the Romanian operation?

Singh: I originally was the head of finance, but then it became more of a strategic role as the Chief Financial Officer. I oversaw all of the subsidiaries and I was responsible for raising the financing in order to continue to acquire other companies. Also, we were restructuring a lot of those companies in terms of making them more efficient and making sure that we could produce goods, such as aircraft, at a price that was quite competitive.

Kaizen: That requires a number of skills, including finance and management. How did you acquire the management skills?

Singh: With Energy Publishing, once I qualified, I moved as an accountant to general management. That’s when I felt that I needed to sort of prop up my skills with an MBA to get more broad experience in operations. It was after the exposure to a lot of the conglomerates and looking at turning around some of those companies that I actually learned some general management. In fact, I also studied a qualification we have here in England, which is an economic chartered director, which is mainly corporate governance. It was quite a new qualification in those days, but now it is quite popular here in the U.K. as a means of showing that you have the corporate governance skills that is required to govern from a private to a public company. I was one of the first handful of chartered directors in the U.K.

Kaizen: What is a chartered director?

Singh: It’s a qualification. Anyone can start their own company as director of the company; but to standardize the qualification, they put together the program. We have a well-established institution here in the U.K. called the Institute of Directors. They decided to produce a qualification very much like being a chartered accountant or chartered engineer. To be chartered means you have your own set of by-laws.

Kaizen: This would be like a managing director’s position — acquiring the skills and knowledge to do that?

Singh: Yes. It gives you the whole breadth of skills. There is also a panel interview where they assess whether you have the skills.

Kaizen: How does that compare to being a company president in the United States? Or a CEO?

Singh: A company president or CEO would give you the basic skills in corporate governance required for people management, managing a board, finance, operations, and marketing. This would bring them together in coordinating activities.

Kaizen: To go back to the Romanian operation — in addition to the management and finance skills, there were also cultural issues.

Singh: Yes. Also language barriers.

Kaizen: Also political issues: dealing with people who have been trained under a communist regime and trying to change their culture to be more market-friendly. How did you handle that?

Singh: In fact, we had nuclear scientists who were working on the shop floor because hard currency was hard to get in those days in Romania. We had a surplus of skilled labor. To manage that, we had our own operations people. Most were from London and some of our own people in Bucharest. We had translators to assist with the cultural differences.

In terms of dealing with the politicians, at that stage, Romania wanted to become part of the EU, so it was obligated to privatize a number of their industries. In fact, that is one time where the state was actually trying to help us. [Laughs] They helped us with introducing Western-style management and practices, making the companies competitive, and embracing Europe as an open-market. It was really introducing a capitalistic extension into Romania, which helped the economic circumstances by employing a lot of people.

One of the engineering companies we took over had something like 4,000 employees. It was almost a town in itself with its own little railway station. They made clutch parts for Mercedes-Benz and, obviously, Mercedes-Benz controlled the quality. They rubber-stamped them as Mercedes parts, but they were actually manufactured in Romania. So we were quite impressed with the quality they were bringing out.

It was essentially turning that from a communist regime to where they have the normal more profit-oriented objectives: generating profits, keeping business goals in sight, having a vision of the company in terms of quality, where they position themselves in the market, and looking at values that they deliver and how they are going to deliver that. The people are a huge aspect, and for them it was quite a privilege working for a Western company — and one of the forefront companies, especially in the pharmaceutical buyer’s market. It was one of the more prestigious pharmaceuticals that had been long-established. We also bought Romero, which is part of the aerospace company and that was part of Bucharest Airport at that time. That brought in a lot of joint-ventures. For instance, we had an Israeli company that was interested in importing MiGs from the Russians, putting in an electronic platform, and then selling them off to the Romanian Air Force.

Kaizen: Did you say Russian MiG airplanes?

Singh: Yes. Obviously, putting in a lot more technology. And they sort of bought in to Bucharest Airport and some of the hangars there in order to process the orders.

Kaizen: So the British conglomerate that you are working for is running a number of operations in Romania: pharmaceuticals, some biological enterprises, Mercedes parts, and so forth.

Singh: That’s correct. It was also a U.K. operation that was mainly insurance-oriented. Lloyd’s of London, a subsidiary we bought called McCall’s, and also biotechnology, which was more in Manchester and included looking at different ways to use innovative biotechnology.

Kaizen: And the overall company was Litchfield?

Singh: It was originally Litchfield that bought the assets; but once it was floated, we used a NASDAQ shell, which essentially is a company that was called — in those days — Global. You can buy a shell on NASDAQ where you can actually clean up and then you can get that to take over your company, which was Litchfield. And what Litchfield would do in exchange is to have a convertible debentures over the stock of the company and eventually it buys out. The debenture is converted into stock. So we had a controlling stake in the shell company, which is a little easier to list on NASDAQ than having to go to the traditional IPO structure, which means you have extensive up-front costs in terms of producing the prospectives and complying with all of that.

Kaizen: How many years were you with this organization?

Singh: A good four years.

Kaizen: In the late 1990s?

Singh: That’s correct. Into 2000.

Kaizen: At some point you left there. Is that because the Romanian operations were finished? Did other opportunities come along?

Entrepreneurship  

Singh: There were a lot of opportunities that I was faced with, and a lot of them were smaller projects that got me really interested. Many of my colleagues left to look at financing different projects, and I saw their success mushroom. I thought that I should try a hand at it. So I left that company to move on to Capital Instruments.

Kaizen: In 2001?

Singh: That’s correct.

Kaizen: Is this an entrepreneurial firm?

Singh: Yes. We specialized in raising funds for small-to-medium size companies looking to grow. We have a number of investors that we have who are looking for investing into small-to-medium size enterprises with the prospect of growth. We essentially marry the two.

Kaizen: Who is the “we” early on?

Singh: A network of financiers I work with. They all have their specific expertises. If there is a project, for instance, a biofuel plant or a harbor project or an aviation project, we can assemble a team and relative expertise and look to champion either raising finance or find certain investments.

For example, one of my earlier projects when I started off as a financier was to look at insurance assessors. This was a small-size English company, which had insurance assessors up and down the country who would go out and value your vehicle after you’ve had an accident. This was very early on when we had in England the third party loss-recovery market beginning to take hold. What we did was develop that company and combine it with in-house assessors that the insurance company was wanting to off-load to reduce their costs. So we created a national, insurance assessing business, which in itself was quite innovative in those days.

We could quite easily use IT and technology. Our team had a certain number of people who were more IT-literate. The way we grew the company was the insurance assessors had in those days what would probably be equivalent to an iPad. A gadget with its own cradle in his car. They would do off their report when they would see a vehicle. It was similar to the internet in that the cradle sent a signal through the phone back to the mainframe; it would turn around the reports quite quickly. We combined that for what we called the litigation departments and with the insurance companies as well; so we could actually cover both markets. Before it was bought out, it became a key player in the British insurance market.

Kaizen: At Capital Instruments, you came in as CEO in 2001 and put together financing for small-to-medium size companies. Your value-added is your network of people who have the financing available and how to structure finance for these organizations. In some cases, you implemented the management practices — putting together a team of people to make the company better-financed and better-operated.

Singh: That’s correct.

Kaizen: So it’s actually a combination of financial and management consulting.

Singh-Lall-22Singh: Yes. And the marketing aspect as well because in order to attract investment, investors are really looking to companies that are in the growth phase; they are looking to grow. So it is essentially marrying the two. You have a very good project; you have management in place; you’re overseeing their investment; they are looking to grow their investment. So it was quite a mutually-beneficial relationship that we were brokering.

Kaizen: How would the compensation work? Would it be a percentage of the overall financing deal? Or are you taking investment positions yourself?

Singh: Sometimes a combination. Sometimes we could negotiate a private placement ourselves and sometimes we would get paid in equity as well as cash compensation. And sometimes it was a case that we would see two or three companies in the same field and see ways that we could create synergy by combining the companies. So we would look to approach venture capitalists and banking relationships ourselves to put together a financing package to buy two or three companies. Then we would be the nominees to the board to oversee the company. Once it was where we wanted it, we would spin it off for sale or continue having some sort of a stake in it.

Kaizen: A small-to-medium size company — can you put some numbers to that?

Singh: Anything from a £2 million turnover to £10-15 million.

Those were the initial-sized companies; later on the numbers got a lot bigger. We had hotel developments, such as the Brussels Sheraton. That was getting the investors to finance a purpose-built structure for the likes of Sheraton or the CORE Group, which do InterContinental Hotels, and then lease it back.

Kaizen: How do deals come along? You did insurance-adjusting in Britain and then a hotel in Belgium. How do you find projects as diverse as that?

Singh: Essentially, we built up good relationships with lawyers, bankers, venture capitalists, and private equity. And there were a lot of opportunities — like one of the key developments in Brussels in the Prince Royal area, which was essentially a strategic plot of land; it was a sale on a bankruptcy where we identified the site. It was in the right location where we thought this could actually be built. It was a case of us putting together the deal. This came to us by way of one of the bankers looking to refinance the site because they were struggling. We took the problem away from the bank and made it profitable ourselves.

Kaizen: So through the grapevine?

Singh: Yes. Through the bankers who made the referral to us. In early 2000 a lot of companies had over-expanded and the banks were looking to foreclose; so it gave us opportunities to go in with our management and successful track record. That was quite unusual because while the banks were willing to foreclose on existing proprietors, they were willing to lend to you to make that a success operation. It was really quite interesting in that a lot of deals could be picked up like that.

Kaizen: So the banks are making a judgment about your management and business skills. They don’t think that the existing people can pull it off. Fresh ideas and so on.

Singh: That’s right.

Kaizen: So even though you have no hotel experience per se, it’s the general business experience that is important.

Singh: Yes. Absolutely. Also, certain expertise can be brought in. Like in this case with the hotel experience.

Kaizen: That can be a commodity that you bring in.

Singh: There was a colleague I worked for who was part of a property development company that had already done small-size hotels, so he had the mechanics already in place as an expertise. Once we brought him onto the property, he was looking to create a purpose-built hotel, but the problem was financing. In fact, we got Kuwaiti funds. They were willing to finance the structure of the hotels, then this leads obviously to an operator, in which case he would share in some of that.

Since then we’ve acquired, as well, hotels back in Nottingham, leased to CORE Group, which again has very successful operations. We have other recent developments that are revolving structures — 55-story skyscrapers in Dubai. We also have an Indian company interested in doing something similar in India; that is an exciting type of project.

Kaizen: So the first decade of this century, what other projects were you involved in?

Singh: Some of the larger ones included a biofuels plant in Canada that was producing ethanol from biomass, which is very innovative.

Kaizen: In northern Ontario?

Singh: That’s correct.

Kaizen: How did that one come across your horizon from all the way across the Atlantic?

Singh: We built a lot of relationships in New York, having had a listed company on the NASDAQ exchange. We knew a lot of the banks and consultants there. I also had to be familiar with the federal security laws and the SEC practices. So we came across the project in Canada by way of a referral. At that stage, you in the U.S. had started feeling the pinch in 2006 and 2007. Capital was drying up. So they were looking towards European banks and they saw me as someone they already had a relationship with who had an established relationship with European banks. They signed me on a retainer to say that if I was able to finance this project in Europe, then they would be willing to compensate us. However, we actually felt that the engineering company that had actually designed it wasn’t actually capable of seeing the plans come to fruition.

Kaizen: So Americans were financing this project in Ontario, but American funds were drying up in the lead-up to the financial crisis. So they came to you in Europe.

You mentioned the engineering expertise. You need to get other consultants who have the engineering expertise because you don’t know biofuels personally, right? Although, you can read up on it.

Singh: Absolutely. I was quite fortunate that one of my colleagues had a Ph.D. She was an expert in sustainability. She went on tour for one of the major fuel companies. They were very interested in the project. I have another colleague of mine from a capital fund, who were interested in the project itself given that it was a sustainable project.

We had U.S. and European banks because they saw this as a way of  legislation, because at one stage 10 percent of ethanol formed a part of the fuel pumps — most Americans don’t know that, but they actually pump 10 percent ethanol and they were looking to increase that to 20 percent. So they knew that there was a huge market for it. Corn prices — ethanol being from corn — were going through the roof in the Corn Belt. So that was very unpopular. But here we had innovation and technology, and we had Foster Wheeler at the forefront of developing commercial processes in order to convert biomass into ethanol, which is a tricky process.

Kaizen: What do you mean by “biomass”? Tree bark and whatever is left over from lumbering operations?

Singh: That’s right. Whatever is left from lumbering operations or from natural waste in the forest that needs to be cleaned up. Also some woodchip derivative parts. In Canada there are huge sites accumulated over years and years. We inspected one site that was something like 100 hectares. They were seen as dump sites and they didn’t understand why we were interested in them. [Laughs]

Kaizen: Free raw materials.

Singh: Yes. Free raw materials. That’s one of the reasons the pension funds were interested: we were getting our raw materials free and producing a product.

Kaizen: Were these U.S. or British pension funds?

Singh: Canadian. And we had one of the Netherlands banks.

Kaizen: What dollar value is this operation?

Singh: That was about $320 million (USD).

Kaizen: Much larger. What years were you working on this one?

Singh: 2006.

Kaizen: Was it an R&D project primarily, or was the R&D done and it was more an engineering issue to make it happen?

Singh: The R&D was completed. However, upscaling to mass production was a problem that needed specific expertise. That came from a British company, in fact, Foster Wheeler. Wheeler is known more in the petroleum industry for resolving problems using mass furnaces.

Kaizen: When did this project come to completion?

Singh: It’s still partly financed because we had a project that was taken over by a drawback of Scotland. Things pretty much came to a halt at that stage. Now with financing again becoming more available, we are hoping to move again.

Kaizen: You are working on a project in Ireland involving a port?

Singh: Yes. That’s correct.

Kaizen: How did you hear about this one?

Singh: This came from one of my clients who looked to finance this development and thought that it was far too large for them in Ireland — he’s based in Dublin himself. He asked whether this would interest me; it was a marine project at that stage. While I was in London, I floated the idea to the banks, one of the banks being the European Bank of Reconstruction and Development. It was quite fascinating because it qualified in the European Union grants for an infrastructure project since we were developing a port. But the scale of it didn’t actually allow it to qualify for some of the larger grants; I was told at that stage that it was probably easier to procure larger numbers from European investment as opposed to going for something smaller.

Kaizen: Is this Euros? Sterling?

Singh: Sterling. So instead of trying to finance something for about £25 million, they were asking us to look to upscale the project.

Kaizen: So they can loan you more money. [Laughs]

Singh-Lall-15Singh: That’s right. And here in Europe it qualifies as a sort of private-public partnership, where private money is being matched by public grants and loan financing. This was essentially driven by EU legislation: mandated fishing vessels — mainly Spanish fishing vessels — shipping in the Irish waters have to dock for a certain number of hours after each fishing trip, which meant that they would have to travel all the way back to Spain; but here they could put a facility that was localized. On top of that, we had a wind farm and rigs off-shore, near the facility, without having to go to Dublin or Cork. This would justify having a base there. Also, on the West Coast there is a lot of tourism, which attracts cruise liners and so on. So it mushroomed into a much larger project.

Kaizen: The projects you’ve worked on are quite geographically diverse: Romania, Belgium, Britain, Ireland, and even Canada.

Singh: [Laughs] There are a few developments in France as well.

Kaizen: Fair enough. [Laughs] There doesn’t seem to be a pattern there. It seems it is more of the matter of when and where a deal comes up.

Singh: That’s right.

Kaizen: The projects are also in all sorts of different areas: insurance, hotels, biomass, and so on. Of all of the deals that are possible, what makes one attractive to you? It doesn’t seem to be geography or industry specific. What are the features that interest you?

Singh: I’m quite privileged to receive more projects than I could possibly allocate my time to. The projects that attract my interest … it really is about the people I’m working with. I have a great admiration for our management; it’s really the people who make the projects happen. I tend to pick and choose projects with people I can really work with and see their passion. Also, I even find that even though it’s across different industries, the mechanics of making a project work are quite fundamental. The mechanics distill down to good marketing, good numbers, an eye on the numbers, good productivity, a business plan that is realistic, and so on.

Kaizen: That is more abstract than the particular product or place.

Singh: Yes. I’ve developed those fundamentals having come from a management background, combined with marketing and corporate governance. It’s about how to oversee a project and how to take that “pilot” or strategic view. You can make it happen from start to finish and you have the people and elements in place.

Kaizen: The first thing you mentioned was the people that you get to work with. You deal with a wide range of people in many different countries. It’s not always the same financiers from private equity and venture capitalists. Is it people that you know and you’ve worked with before?

Singh: Actually, you look at the merits of the project and you know your own resources of people. Also, with some projects you look at the existing management already in place. What’s their passion? Where are things going wrong? Where do they lack the skills to do it themselves? And where can we make it a mutually-beneficial relationship? So I’m very interested in who actually spearheads the project itself.

For instance, we were quite fortunate in the Ireland project. We have someone who has 25 years of experience in the industry. He’s built up a family business, which has gone pretty much as far as it can go, because you can’t break the threshold of a family business into a more corporate structure, which takes structured financing and attracting the likes of what we would call “merging capital.” It would be highly capital-intensive and then dealing with a lot of the blue chips to get relationships to make a support development work. It’s beyond their agreement. But you have the people on the ground at the local level who are there and willing to see it through with you at the end of the day.

Kaizen: How much of this can you do from your home office? How much of it requires you to travel — boots on the ground?

Singh: In the early days, I used to travel a lot. But now I try to manage remotely, being a family man. [Laughs] But it is difficult; I’m still traveling.

Kaizen: Do you have more junior people whom you can farm the travel out to in order to do the leg work?

Singh: Yes, we do. We have a lot of junior people who’ve come through the ranks who have worked with us on several projects. Also, technologies such as Skype and so on make it so much easier.

Kaizen: The company is still Capital Instruments?

Singh: It certainly is, yes.

Kaizen: How many people work at Capital Instruments?

Singh: About 25 people.

Kaizen: You’re CEO of the organization?

Singh: Yes.

Kaizen: With 25 people, how many projects in an average year?

Singh: We take on a variety of projects. Some years it may be like 12 projects, which might be fairly small. And some years we may take as little as two or three projects in a year because they take a lot of time and are a lot more involved. It really depends. Some of the companies may be in high-growth fields, like biotechnology, which doesn’t really need too much key-input, but they do want the ability to raise financing. We’re pretty much putting together their business plan and pitching for them to banks and helping them in an almost hand-holding approach that isn’t so resource intensive. Whereas if you are developing a completely new project, like with the port development, for instance, we have to sort of scrap the original plan to look at something far bigger that involves some key players that we have to resource or to incentivize to work with us in order to bring to fruition.

Kaizen: So the 25 people who are part of your staff, how many of those people would be finance? How many would be marketing? How many would be management? Or does that breakdown even make sense?

Singh: Most of us are all-rounders. Either we have a financial background or a marketing background, and sometimes an operations background. We come from a particular industry where we’ve managed either to grow a company or projects within a larger company where we’ve had hands-on experience. We’ve been through the “mill,” as we say, having experienced capital-rationing problems, problems with not having enough resources — human resources and so on. So most of the people are quite experienced.

Kaizen: You mostly hire people who’ve been through the fire.

Singh: Yes.

Kaizen: Do you recruit out of universities for junior people?

Singh: We do recruit from universities. A lot of the younger chaps are post-graduates. Some of the research, especially the desk-based research, we do resort to Ph.D.-level students who we can contract.

Kaizen: Speaking of a Ph.D., you spent some time at Warwick Business School pursuing a Ph.D. while you were also doing your full-time career. What was your motivation for pursuing the Ph.D.?

Singh: I had a professor who was very interested in my MBA dissertation who convinced me that I should develop it more and make a dissertation that would be worthy of a Ph.D.

Kaizen: What was your thesis?

Singh: I was looking at specific market segmentation in the leisure industry. In order to motivate myself, the subject had to be marketing, some aspect of segmentation, and it would also have to involve an area that I really haven’t looked at, but interested me. It ended up being the leisure segment. I went through the academic side of it, but I was still very much working and I was pulled away by certain projects. Unfortunately, that has been shelved for the time being. I would love to go back to that.

Later Career and Advice

Singh-Lall-17Kaizen: So when you have some leisure, you can finish up your Ph.D.

Singh: Yes. That’s right.

Kaizen: You are in a good situation now. You are in your middle 40s; you have a prosperous company; you have more deals in front of you than you can handle, so you can be choosy. What do you see yourself working on for the next few years?

Singh: I think the mix of projects at the moment with the port development, the new, revolving skyscraper …

Kaizen: Yes, we do need to come back to the revolving skyscraper. [Laughs]

Singh: [Laughs] That’s kind of interesting, yes.

Kaizen: So the port project in Ireland, a revolving skyscraper in Dubai, and a project in India, is that right?

Singh: Yes.

Kaizen: Those will keep you busy for a couple of years.

Singh: Yes. Those are the immediate projects. The biofuel project is also coming back on-stream. So those will keep me busy for a while. I’ll have to light a candle to try to fit my Ph.D. in between.

Kaizen: Let’s talk about Dubai, where all kinds of engineering marvels are happening. How did you get involved in this project?

Singh: This was from an old business associate who went out to Dubai. He had been there for a number of years and sold something to the tune of $200-$300 million in property there; so he became quite a significant property dealer there in Dubai. He was involved in Jumeirah Beach Resorts, which is one of the prime lands in Dubai. We had a very good relationship there. He based himself in Dubai and is looking at a way of presenting something at the height of the highest structure in Dubai at the moment, Burj Khalifa.

Dubai was priming itself to be one of the major hubs that you can actually stopover when you are flying from, for example, Birmingham to the East. So when I take a trip to India, I have a chance to stop off in Dubai and have a chance to enjoy a lot of the 5-star and even 6-star and 7-star hotels they have there. As well as some of the water parks — they even have a ski resort there. It is a very exciting place. Obviously, they took a battering during the financial crisis and everything almost came to a halt. My business colleague there is struggling, having had a lot of boom years in property sales.

However, there is still a niche market of those interested in innovative property ideas. He’s working with Atkins Engineering to develop a revolving structure. What became popular is what is called “villas in the sky,” where people buy whole floors of a building in order to have an apartment that stretched across a whole floor.

Kaizen: So the idea for this one is that the entire building rotates?

Singh: It rotates, yes. He got the technology and wants to build on prime land as its first prototype. He approached me for the financing aspect because we have the hotel experience and the type of investors who may be interested being that it is at the forefront of innovation — that’s always a risky venture. He was having a difficult time financing, which is why he approached me.

Kaizen: How much is it to finance this project?

Singh: About $200 million. It’s a 55-story skyscraper.

Kaizen: Part hotel and part villas in the sky?

Singh: His idea initially was to have all residential. We changed to thinking that you are perhaps better off selling the first 15 or 20 floors to a hotel. At the moment we are working with the Core Group, who are quite interested in the first 15 floors.

Kaizen: This project is still relatively early and you are still working on the financing?

Singh: Yes. We have a Swiss group and an Indian group interested. We’ve acquired the land where it is going to be built, so we can put those stages together to satisfy both of the criteria and maybe bridge debt to finance the difference.

Kaizen: The engineering is a “go?”

Singh: Yes. Apparently the technology has been patented as a joint patent between Atkins and my business colleague.

Kaizen: Does the property have a name so we can keep our ears open for it?

Singh: Yes. You can look at the website; it’s Time 55. It’s very exciting. I can very easily imagine somewhere like Las Vegas having a revolving structure like that. It would be quite unique. Perhaps New York as well. In fact, the company itself, Time 55, wants to put a building on each timeline. I think that’s quite ambitious; at this stage we are focusing on getting the initial one off of the ground.

Kaizen: It could serve as a prototype for lots of others.

Singh: That’s right. So we are trying to get the prototype off of the ground, and once we know that’s done, to replicate it will be easier. Right now it’s about getting the prototype financed and workable and to make it a worthwhile hotel — to make it successful by having full sale on the residential as well.

Kaizen: So your major projects currently are a revolving skyscraper in Dubai, the biomass case in Canada, and a large port structure in Ireland. Your plate is quite full.

Singh: Yes. [Laughs] Of course, I’m not the only one working on these. We have a number of people involved.

Kaizen: Yes, a whole team of people. Of your 25 permanent people, are they divided among these three projects? Or is everybody doing a little bit on each?

Singh: They are pretty much divided. Each of them has their expertise.

Kaizen: And there would be a smaller group of you who are in a general oversight position — or perhaps just you?

Singh: The oversight I’m heading on each of those major projects; so I need to coordinate and orchestrate who’s working on those to make sure that we are still on target and things get done.

Kaizen: Over the twenty years or so since you finished schooling, what’s the thing you’ve enjoyed the most about all of the projects you’ve worked on? Is there one element you’ve liked the most?

Singh: The fact of the achievement. You see a very small company that grows. Like Biofarm Conglomerate has grown into something that has become very exciting because we started from a pharmaceutical company and then acquired a whole sequence of opportunistic acquisitions and ended up the life of the group at that stage. It was very fast, in a couple of years. And I enjoyed the bounce in our stock price — we went from $0.20 to $8.00.

Kaizen: Wow. That’s forty times the original price.

Singh: Yes. So the shareholders benefited — it made a lot of money for a lot of people and they were very happy. It was a very exciting time; reflecting back on it is very pleasant. But also seeing some of the smaller projects come to fruition are very good. The insurance assessors — when we became a major player in the market on a very small concern. A $2 million turnover went up to about $40 million. It was quite good. The growth is what I tend to reflect on.

Kaizen: It’s a happy measure.

Singh: That’s right.

Kaizen: Have you had any projects that ended in failure, projects that just didn’t work out?

Singh: Oh yes. I’ve had my fair share of deals that didn’t work out. Sometimes you do reflect on them and think, “Maybe if I had done it differently.” But that is part of the learning process.

Kaizen: Are there any common threads, things you’ve learned from those deals that fall through that inform your decision-making the next time around?

Singh: Sometimes it comes down to negotiations. Sometimes it’s best to try to find a common platform in order to make projects work. I’ve lost out on a fair share of projects where you try to get your shareholders the best deal, but it wasn’t quite right for everyone.

Kaizen: Over-extended? Too pushy?

Singh-Lall-10Singh: Maybe “over-extensive” is more appropriate. [Laughs]

Kaizen: So it has to be win-win. Though, going into negotiations, you’re both in a separate ballpark.

Singh: It’s usually very complicated and difficult to keep all of the connections.

I’ll give you an example. We owned an aviation subsidiary in the Isle of Wight and that was one of three manufacturers of aircraft here in the U.K. What we wanted to do was to take over a small concern in Yorkshire, where they produced single-pilot, two-seater aircraft. So you get these ex-military pilots to buy the fuselage first … this is a very nice plane where you can detach the wings, put them on the back of a trailer and reverse it into your garage. That really interested me.

Given that we had the production line in Romania and the Isle of Wight, we could actually put those into full production. And we had the usual federal licenses and CAA licenses for production. But in negotiations, it meant buying the company outright; we had some very tough negotiations there. Obviously, you are concerned about the risks you are taking. But upon reflection, I often think perhaps that would have come around. And those aircraft are still around, but not manufactured and not as popular if they were in full production, which would have lowered the price quite drastically. At that time we were looking at something like $10 million for the company, which was a lot of money at that time. But I wish we had acquired it at that time. That would have been a different story. So there are always difficult negotiations because you have lawyers there to represent your interests and you are almost negotiating with a whole team across the board. It’s very difficult. You wonder sometimes if maybe you could orchestrate a board that would do a little better. But it depends on timing and a lot of other issues as well.

Kaizen: Juggling a lot of balls.

Singh: And blades at that time, yes. [Laughs]

Kaizen: Thinking about younger people still in school. How important was your formal education was in enabling you to do what you have done? If someone has smarts and ambition but not the formal schooling, can he do what you did? Or is the formal schooling important?

Singh: You know, I think I ride the learning curve a lot faster. Formal education is the way to go. You have to load yourself with the key thinking. I found that originally — and this was having qualified as an accountant — you’ll still find yourself blinkered in the market because you don’t understand the marketing aspects; you don’t understand the operations; you’ll also get pigeon-holed in a specialization that is self-restricted. I broadened my horizons and tried to get better perspectives by looking at other areas and I became interested by accident in marketing; it wasn’t a subject that really appealed to me.

Kaizen: And that wasn’t until your MBA level.

Singh: Right. Nowadays in business to get ahead of the game, you need to be more of a generalist, but see the woods from the trees by having enough knowledge in the various aspects: numbers, accounting, managing operations, managing people, as well as being able to see a vision for the company in terms of goal setting and where you are positioning your company relative to the competition.

Kaizen: Two other things come to mind here. You consistently mentioned knowing people — having people bring things to you and having your own network of people you can call on. What goes into being the kind of person who can be a part of a network like that? Are personality and character important? And can they be taught?

Singh: I think in business your reputation is extremely important as well as your ability to deliver. And more importantly, as we say in England, an old phrase that is, unfortunately, being emptied of meaning: “Your word is your bond.” Integrity. Loyalty to your principles.

Kaizen: Developing a reputation as being someone who can deliver but also being a person who delivers what he says he’s going to deliver.

Singh: That’s correct.

Kaizen: Part of that is the skill- and knowledge-set, and part of that is being smart enough to have the formal schooling.

Singh: Yes.

Kaizen: You mentioned that most of the deals you’ve put together have had common elements — you are able to see certain, abstract patterns. But in each case, since the industries you are so different, you have to plunge into the particulars of that industry. It strikes me that you’d have to be a pretty quick self-starter to learn about biomass, ports, pharmaceuticals, airplanes, and so forth.

Singh: Yes. That’s correct. That’s the interesting aspect. In terms of brokering a deal in order to make something grow, to make it appealing to shareholders, to make it appealing to the people who are going to buy the products, and to any stakeholders who are in the business — putting those elements together. The only term I can think of is cross-functional integration. You have to see the woods from the trees. You make everyone strategically coordinate in the same way. And sometimes it’s like marketing to move the company forward, but then you know the numbers fed back to you to see how you perform. I think I have a good mix of the two.

Kaizen: Some questions about Britain’s business climate and the European climate, more broadly speaking. From your perspective, there are opportunities all over the place.

Singh: There are always opportunities, yes.

Kaizen: Do you get the sense that Britain now has an entrepreneurial culture? In one sense, Britain is the birthplace of modern economics and has a strong entrepreneurial history. Is the climate healthy? In decline?

Singh: I think the entrepreneurial spirit in Britain has always been quite strong. It’s weathered the recessions and the booms that we experience here. We have a very good entrepreneurial structure here where people are given the freedom to look at developing and incubating new businesses. We are probably more risk-averse than the Americans are. When you are in New York and pitching a road show and people are buying your stock — the Americans are more risk-seekers. Obviously, you have to speculate to accumulate, but the British tend to be more conservative. We see that through venture capitalists.

The recessions and so on tend to polarize people. You get those who are looking for opportunities and are more risk-seeking, and you have some people looking at the austerity measures going on at the moment and are risk-averse. They draw their funds in more and securitize them in gold and silver and not be willing to invest at this stage. But there is still an entrepreneurial culture that has weathered the differences in available financing.

Kaizen: Britain traditionally has strong ties with North America and more broadly the Commonwealth. But also, due to geography, close connections with Europe. Are the American connections more important now, or the European?

Singh: The American relationship has always been great. For Britain, I think, that is a huge market that is readily available. The European market is a little more fragmented; it’s always been a little more difficult because it has essential differences all across Europe. But, again, it’s an open market, which will continue despite differences in the currencies or whether the Euro dies or whatever.

Kaizen: Europe’s temporary troubles. Britain is in some ways part of the European Union, but it does have its independent currency and it guards its sovereignty. To what extent do current troubles with the Euro affect business in Britain?

Singh: The Euro is a fluctuating market at the moment with the economic climate. But the British Pound is still really relatively strong. Although, for exports, it makes your price a bit more expensive across the continent.

Kaizen: Zeroing in on the so-called “PIGS countries” [Portugal, Italy, Greece, Spain], there is a current instability. Does that impact your decision-making about whether you take on investments there?

Singh: We certainly do because of the political instability. I would certainly be an advocate, but if all the debt was actually liquidated, it would be a lot easier to get the next generation to have it fall on their shoulders the burden to liquidate this debt bubble. Inflating each time isn’t the solution. 

Kaizen: So solve the problem now?

Singh: I certainly would. In some ways it will come to the crunch because Greece is a recurring problem. You saw the problem with Cyprus, which is the first time 30 percent was just wiped off of accounts. It may well be that at this stage that Germany is not willing to further inflate and dilute their own currency, the Euro. This would create a domino effect where Portugal, Italy, Ireland, Spain, and Greece are all impacted, which might be the best thing that’s ever happened to Europe. But I think the most likely scenario is that they will hop-along. The austerity measures will be quite drawn out. I mean, we are having riots and so on in the various countries about this, including the U.K. We are, obviously, not sheltered from it here. It’s quite unfair. A lot of assets are being depreciated due to this bubble. And business perceptions are impacted. It’s a shame that it has to come to this. But this is the result if you want these cycles — and quantitative easing is actually adding to the problem and deferring the solution as opposed to offering a long-term solution.

Kaizen: Younger people. What advice would you give to those starting out in business? Do they need to work on personality issues? Character? Or acquiring formal knowledge? You also mentioned being able to see the forest through the trees, so cultivating a big-picture, abstract ability? Understanding markets? Politics?

Singh: I think people in college now have a lot more opportunities these days, especially with the information age where we have the internet.

Kaizen: Research costs are way down.

Singh: Absolutely. And we have readily available information through the internet. Researching opportunities and social networks are developing and have changed marketing in of itself. And communication can happen almost instantly across the globe. And we can almost travel anywhere in the world. I think it is a very exciting time for someone in college.

Kaizen: What from your college experience has stood the test of time?

Singh: I would certainly invest in knowledge-development by gearing yourself up through formal education. Also by looking at the common denominators of what make businesses work.

Kaizen: So lots of case studies.

Singh: A lot of case studies, which are, again, readily available. It’s almost gaining experience through someone else’s eyes without actually doing it. Because the best experience, I always say, is experience.

Kaizen: Also learning from failure cases?

Singh: Absolutely. Failure cases as well as successful cases. One of the big things I enjoyed in my MBA looking at was real companies that either got it right or wrong. And even some live cases. Or even simulations where you are designing a product  —  I think that is a very good way of learning. In those days we competed against each other in a marketing simulation and we had a product that was the equivalent of, let’s say, a 3D gadget like a navigation device. It gives you a good taste of business given that you can never have perfect information; you’ve got to make guesses sometimes. The other thing that you do learn is to follow reason through  —  everything has a cause and effect. To understand that and to build your character in terms of experiencing all the virtues we derive from reason.

Kaizen: So lots of experience whether through case studies or simulations, and getting internships and actual jobs as you can. Then combining that with high-level knowledge and judgment skills as well.

Singh: Yes.

Kaizen: The internet is a boon in making tons of information available, but one still must sort through that information and say what counts and what doesn’t and then exercise good judgment.

Singh: Yes. You have to be able to make that meaningful to your own goals. The other aspect, which is very essential in the earlier part, is combining your personal goals with the goals of your organization. And self-development is something that you really have to invest in from the outset. Putting time aside to look at your weaknesses and how you can improve them. There is  a lot of talk about positive thinking, but I always promote what I call “negative thinking.”

Kaizen: Objective self-evaluation is part of the process.

Singh: Yes. In terms of constructive negative thinking. With negatives, sometimes we have to overcome them. The positive things look after themselves.

Kaizen: When you were younger and your family was poor and working class, a big part of your motivation for going into business was to earn money. Now you are comfortable financially and wouldn’t have to work anymore if you didn’t want to. So the money is part of your motivation, but what also is motivating you to continue to work hard?

Singh: I think it gives you the emotional fuel in terms of knowing that you are valuable, that you can contribute and make a difference. I’m happy to grow businesses  —  to see our starting position and where we could make a contribution towards that business and make it grow. And if anything is attractive, it is probably the achievement from having done it — moving companies and making a difference. That excites me.

Sometimes you have a project that gets me thinking about how we could do it. I always find that if there are complicated financial project, many people don’t want to get into the messy details of finding a solution. But I’m wired in the way that it gets me excited to find a solution to it. From an early age, I tend to think about how I can make things work. Perhaps I can get certain investors or banks interested and maybe partly venture-capital financed. If I can break that project down to phases, then …

Kaizen: So you enjoy the process of problem-solving, seeing the problem solved and watching as the business grows.

Singh: Well, not always is it growing! [Laughs] Sometimes it is something you didn’t envisage and I think, “Why didn’t I think of that at the time!” But it is all part of the learning curve. You get better as you experience more.

This interview was conducted for Kaizen by Stephen Hicks.

 

O que podemos aprender do empreendedorismo [PDF]

Saturday, August 20th, 2016

Stephen Hicks’s article “What Entrepreneurship Can Teach Us About Life” was published in English by The Wall Street Journal. The article has since been translated into Portuguese and can be found at Libertarianismo.org.

A PDF of the article is available here as well.

Stephen Hicks’s article published in The Wall Street Journal

Monday, May 2nd, 2016

wsj logoStephen Hicks’s article “What Entrepreneurs Can Teach Us All About Life” has been published by The Wall Street Journal. Here is a snippet:

“We often think of entrepreneurs as larger-than-life characters. They take big risks. They make their own rules. They innovate and experiment, questioning things everybody else takes for granted.

“It can almost seem like entrepreneurs are a breed apart. But they’re not. All of us are born with the ability to take risks, think creatively and challenge the everyday way of doing things. And as hokey as this can sound, we would all do well to tap into those traits in both our lives and our careers, whether we work for ourselves or not …”

Read the article at their site here.

 

Stephen Hicks’s article to be published in The Wall Street Journal

Wednesday, April 27th, 2016

wsj logoOn May 2, The Wall Street Journal will publish Stephen Hicks’s article “What Entrepreneurs Can Teach Us All About Life.” Here is the opening snippet:

“We often think of entrepreneurs as larger-than-life characters. They take big risks. They make their own rules. They innovate and experiment, questioning things everybody else takes for granted.

“It can almost seem like entrepreneurs are a breed apart. But they’re not. All of us are born with the ability to take risks, think creatively and challenge the everyday way of doing things. And as hokey as this can sound, we would all do well to tap into those traits in both our lives and our careers, whether we work for ourselves or not …”

We will post more when the article is published on Monday, May 2.

Terry Noel on The Virtuous Entrepreneur — transcript

Saturday, April 16th, 2016

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks:  I am Stephen Hicks. Our guest today is Professor Terry Noel, who teaches Entrepreneurship and Management at Illinois State. Here today at Rockford College speaking on the theme of the virtuous entrepreneur. Interesting title, but your broader context is the newer entrepreneurial economy that we live in and that you think is accelerating, particularly for younger people. What do you mean by this, new and accelerating entrepreneurial economy?noelterry

Noel: Well, I think we’ve seen a change in the last 30 years certainly, in about 1980, we started to see a big shift in the economy from one which was driven largely by Fortune 500 companies. In 1980, we had about one in five people were employed by a Fortune 500 company. Now, a little less than 20 years later, in about 1998, that had dropped to one in fourteen.

Hicks: I have seen that number, yes.

Noel: And so we really became more of a small business and entrepreneurship economy than a large-company economy. Now, since 1998, we’ve had many more changes. The pace of change ha really accelerated, because, if you recall, the Internet was really established as a commercially viable entity only in 1994, in January. When we take that shift that was already happening and then add a radical transformation of how information is handled, and who has access to it, and we start to see a great deal of turmoil in the economy. So, in my view, I think that we will continue, in some cases, to see large companies, but by and large, I think we are going to see an economy where we have more startups dealing with new technological issues, and we are going to see such rapid change that the idea of a large organization staying in place for decades, I think, it’s going to become more rare.

Hicks: And this is going to impact younger people. Fewer of them will be working in organizations that are traditional large corporations. They will be working in smaller organizations, or more entrepreneurial organizations, and many more of them themselves will become entrepreneurs. And so that means a different kind of set of character traits are going to be more important, right, for younger people and this takes us to the virtue part of your talk. Now, before you plunge into entrepreneurial virtues per se, you made a distinction between positive ethics and negative ethics. Say something about that.

Noel: Well, usually when we talk about ethics in the context of business, we are largely talking about refraining from certain types of behaviors. Don’t cook the books, don’t misrepresent your product. Don’t sell things under false pretenses or things that are dangerous.

Hicks: OK, so they’re all don’ts.

And there is nothing wrong with that, it’s just that that’s really only one half of the view of business ethics. I think it’s important also to recognize that there are positive virtues. I would put on the list things like, say, courage, the ability to try something new. If we are going to live in an economy where new ideas and innovation are kind of the mainstay of growth, then it requires people who are willing to take a chance and to do something brave. Ethics is not simply about refraining from doing damage to other people or lying to them in various ways, but actually doing positive and creating value in the world. Then, we need to shift ethics away from simply not doing to a focus on the positive.

Noel: Oh, I think so, absolutely.

Hicks: Right, and then you connected that to the entrepreneurship discussion, because, if we are to be more entrepreneurial, or outright entrepreneurs, then what are the character traits that go into being an entrepreneur or being entrepreneurial? Now, you have mentioned being courageous, being creative, right, and so forth. What other key virtues do you think are critical to success?

Noel: I think the top one I would put at the very top of the list, independence of mind. I think that, in order for someone to succeed as an entrepreneur, he or she has to be willing to trust that his or her convictions are sound. That doesn’t mean you get it right every time, and doesn’t mean being mule-headed about things. It just means having the confidence to think that I am in the minority on this idea, and I am OK with that. And I can survive in that kind of climate. And that is not a virtue that we talk about a lot. Much of virtue it seems to me is founded in a sense on conformity. So, I think independence of mind hits the top of the list.

Hicks: OK, closely related would creativity of mind be, you mentioned that a little earlier.

Noel: I think creativity is with some qualifications. I think creativity is often emphasized in entrepreneurial ventures, and that is good. And because almost, by definition, an entrepreneurial venture is creative in the sense that it kind of disrupts normal routines. But, creativity can be overrated. Very often, successful businesses we know are not those that are necessarily radically creative, but they often put an interesting tweak or twist on an existing idea. So, I think creativity makes a difference, but not for its own sake.

Hicks: This distinction between incremental innovation or incremental creation vs. disruptive innovation and so on.

Noel: And both can be valuable.

Hicks: Fair enough. And then you mentioned courage. So, what else would be high in your list of traits?

Noel: I think resilience, absolutely, has to be near the top of the list. Because, the simple fact of the matter is most entrepreneurs fail, they just fail marvelously. Failure is a virtue, but not if we fail for reasons of being careless, or not doing our homework, not paying attention to reality. But, sometimes we can do our homework, do all the “quote” right things and still fail. I think probably the biggest factor that separates successful entrepreneurs from those that die on the vine is that they just decide they will do it, no matter what. Now, they may have to change their approach to an idea, but they have to be resilient enough to get up, dust themselves off and go at it again.

Hicks: All right, so that’s four so far. Five is a nice rounded number. So, one more.

Noel: You know, I am going to put on the list that I’ve just being thinking about recently. And so, I think compassion. One has to remember what the real root of entrepreneurial activity is. And that is, I want to achieve something for myself, and that is noble motive. It may be to satisfy a drive to create something beautiful or useful, and we can do that, say, as an artist or as a performer, and not really think in a business context. When we are entrepreneurs, though, we are creating a value that can be enjoyed by other people, for which we receive an honest trade in exchange. Value for value exchange. Without some type of compassion, that is, the sense of understanding what other people need and how to make their lives better, it’s very hard to be a successful entrepreneur. So, compassion not in the sense that we usually think of it in just charitable causes and things like that. But being able to understand and empathize with people and how to make their lives better.

Hicks: So, it’s not necessarily understanding what people themselves think they want, or being just doing your market research and being tuned, but being able to understand and feel for how people could live.

Noel: Yeah, I think Steve Jobs is a great example. Because, at the time, if you had asked, me and most other people, do you need a computer in your home?Steve_Jobs_Headshot_2010-CROP

Hicks: This being in the 70s or earlier, actually?

Noel: We’d have looked at you, like what? But Steve Jobs recognized what we needed and what the world needed before any of us did. Now, interestingly, and this is why I think there is no contradiction between self-interest and the service of others entrepreneurially, Steve Jobs says a marvelous quote in which he says: “We didn’t create this to everybody else. We created this for us. We wanted to create the neatest computer that had ever been invented.”  Now, you think about that. He is saying outright we didn’t do it for everybody else, yet millions benefited. So, I think sometimes we have a convoluted view of what is good for us and what is good for others.

Hicks: The win, win is natural and normal, if you are an entrepreneurial value creator.

Noel: Absolutely.

Hicks: Not to put words in your mouth.

Noel: No, no. That’s a very good way of putting it, in fact.

Hicks: Now, this list of traits, this takes us to the issue of why some people, and it seems to be a minority, are successful as entrepreneurs, other people fail as entrepreneurs, but a lot of people also just aren’t interested in it or frightened by entrepreneurship. Are entrepreneurs made or are they born? From your talk, I got the impression that you think that they are made, or that at least we can train ourselves to become more entrepreneurial. So, how does one do that?

Noel: Well, I think the first thing we need to remember is we view holding a job for our adult working lives as the norm. When, in reality, that about 100 years ago and before, that was not the norm at all. More than half of people were employed in their own businesses. We had shopkeepers and artisans and so forth. And then, as we learned of the value of large organizations, efficiencies of scale and things like that, we came to have lots of people that found it a better life for themselves to have the predictability and security of a job. There is nothing wrong with that. I think we are probably seeing the end of that era for reasons we talked about a moment ago. And that means that, as we have less of our working lives dictated by an organization, and the goals of management and owners, we have to make up our own minds of what we want to do and the value that we want to create. And that’s a bit different. That’s not a set of virtues about fitting in to the corporate climate, but it’s developing virtues like independence of thought and courage.

Hicks: Does it mean a shift in parenting styles, a shift in education, lower education, higher education?

Noel: Heaven love them, our parents, what do our parents want for us? So we have kids, right, and what we want? We don’t want them to experience all the pain that we experienced. Now, we may say we want you to go out, be adventurous and do these things and be true to yourself. But, in reality, we remember all the lumps and bruises we took, and we think for heaven’s sake, I hope they don’t have to go through that. And I think sometimes, unconsciously, we encourage our kids to be too safe. We encourage them to get a good job with benefits, and then we don’t have to worry that they won’t be able to pay the bills. Instead of teaching them to go out and try micro-businesses, to encourage them to go out and take fifty dollars, invest in something, go resell something, see if you can make some money. Or instead of getting that part-time job while you are going to school and getting paid minimum wage, why don’t you start a micro-business that will support you through college? I think we don’t tend to do that quite enough. So I think parenting does have a lot to do with it.

Hicks: For people who are older adults, and who want to cultivate entrepreneurism in themselves, what kind of advice do you have for them?

Noel: Well, a couple of things. One, as you’ve probably already without realizing it, developed a lot of the virtues that are necessary for being an entrepreneur. Because most people, in their adult working lives, have faced situations where they’ve had to be courageous and maybe even to a certain extent in certain companies innovative. I think the biggest thing, if I were to encourage adult entrepreneurs, say, people that are near retirement age, but they are worried they won’t be able to live well through retirement, is to develop just some fundamental business skills, things that, you know, basic accounting skills, basic marketing skills. I am not talking about going back and getting a college business degree, but just developing those skills. As far as the virtues, I think you just have to take assessment of what your experiences have been like. If you have been in a company that encouraged innovation and risk-taking, it’s probably pretty natural.

Hicks: So, just build on those consciously.

Noel: Build on those. If you’ve been in an environment that has been very staid and very predictable, you set to be honest about that and ask yourself. Are there areas in my life where I have been innovative and being a risk-taker and how can I parlay that into an entrepreneurial venture.

Hicks: All right, so ongoing character training for oneself.

Noel: Exactly, a little step at a time.

Hicks: Whatever age level.

Noel: Exactly.

Hicks: Thanks for being with us today.

Noel: Thank you for having me.

[The original interview with Professor Noel follows.]