Tuesday, September 25, 2012

Welcome Congressman Fortenberry

Congressman Jeff Fortenberry
Republican - Nebraska

We are pleased to welcome Congressman Jeff Fortenberry (R-NE) back to the classroom for his third year as an adjunct faculty member teaching in the Master of Science in Business Analysis program.  Congressman Fortenberry co-teaches with Professor Phil Brach in our Leadership and Entrepreneurship as Service course.

The Congressman addressing the class in his
relaxed and commanding style
Congressman Fortenberry's first lecture was a historical review of how Economics, Politics, Morality and Culture must combine to form and inform society.  And what role leadership plays in each of these functions as a people come together.  Congressman Fortenberry's lectures are always enlightening, provocative, and challenging. 

And we are reminded of the important work he is doing in Congress as he excuses himself after each class to return to the house for the traditional Monday night voting session.

MSBA student Tia Bent is serving as an intern in the Congressman's office this year.  Tia is particularly interested in the work the Congressman does on Veteran's affairs, having been raised by a father in the Special Forces and married to a former Army Ranger. 

Stewart McHie
Director, Master of Science in Business Analysis
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Thursday, September 20, 2012

Why it's easy to teach ethics in Washington

MSBA Program Director
Stewart McHie
The Master of Science in Business Analysis degree at Catholic University is founded on the principle that commerce, when practiced properly, provides a meaningful and dignified service to society.  To integrate the principles of solidarity, subsidiarity and human dignity into all of our subject areas, we use case studies, scholarly writings, and the real world experiences of our professors combined 130+ years of experience working for Fortune 100 companies.

By virtue of our location in Washington DC, just minutes from the US Capitol and downtown Washington and the business rich environs of Maryland and Northern Virginia, we are fortunate to be able to attract outstanding guest lecturers like Congressman Jeff Fortenberry (R-Neb),  Wall Street Journal columnist Bill McGurn, and international author and scholar Alexandre Havard.

And to add even more relevance to our discussions on business ethics, we have our own backyard of the Washington government and political scene.

Consider the Metropolitan Washington Airports Authority board:

Recent news stories making the rounds about this oft criticized, politically appointed board provide plenty of material for class discussions.  The Inspector General's office issued a blistering report of the lavish spending and travel practices, followed by a rebuke from Transportation Secretary LaHood.  Other elected officials have described the board as "dysfunctional".  

A new ethics policy, meant to address out of control travel spending, nepotism, recusal and other rules, seemingly in line with good corporate governance, was adopted - over the objection of some members. Here are some of my favorite quotes from the board:

"Draconian and a straightjacket" (transparency can indeed be embarrassing.  Welcome to the real world)

"In all candor, every person on this board would be in violation of this policy.  This is a federal town, c'mon.  What the hell?  - H.R. Crawford  (maybe this is why the public is fed up with the federal town Mr. Crawford)

"There are many things in here that have been violated by directors in the past." - Gregory Wolfe  (banks have been robbed in the past but that doesn't mean we should keep doing it, Mr. Wolfe)

Regarding the the new prohibition against recommending relatives for jobs, Warner Session said, "You effectively eliminated our summer intern program."    (Really Mr. Session?  I'm sure I could find you many deserving and capable interns that aren't related to a board member.  Give me a call.)

Can you eat on $71 a day?  Apparently Shirley Robinson Hall cannot.  She notes, " our lifestyle is not based on a government employee lifestyle".  (Given the $4,800 dollars spent on three meals in Hawaii, let's hope not!)

And how does this happen?  Board member Mame Reiley, resigned from the board and the next day was given a five year contract with a one year severance package. Her employment has since been terminated, but not her severance package of $180,000.

While I personally find these attitudes representative of what's wrong with our government and the entitlement mentality of public officials, I do appreciate the opportunity to have so many real life examples to help educate our students in the right way to use commerce to serve society.

What do you think, am I being too sensitive with my tax dollars?

Stewart McHie
Director, Master of Science in Business Analysis
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Tuesday, September 18, 2012

Is Your Company Paying “Just” Wages?

By Brian T. Engelland
Professor of Marketing
The Catholic University of America

Last year Tim Cook was paid approximately $238 million as Apple’s CEO, Alex Rodriguez was paid $32 million as the New York Yankee’s third baseman, Ann Snyder was paid $47,500 as a market researcher for a restaurant supply house, and Jason Alexander was paid $13,220 as a cashier at a Burger Palace restaurant.  Are any of these wages just? 

Yankee third baseman Alex Rodriquez
was paid $32 million last year, the
highest paid athlete in the world.
Over 120 years ago, Pope Leo XIII introduced the idea of a “just” wage in his encyclical, Rerum Novarum.  He defined the just wage as an amount needed to support a thrifty and upright worker plus his family, and prescribed that it must be sufficient enough to allow the worker to save and acquire property of his own.  Pope Leo considered this to be a moral argument, and left it to the economists to work out the details.  Economists have been arguing ever since. 

In classic economics, the cost of labor is based upon the equilibrium between supply and demand. If the pay isn’t high enough, the worker withholds his work until the pay is raised to a level that makes it worth his while. But along came Pope Leo saying that this approach is not moral or just. Why?
Pope Leo understood an important aspect of human nature.  Mankind was created in the image of God.  God engages in creative action to bring planets, oceans, trees, animals and humans to life, and mankind emulates this action by doing work to help create useful products and services. Most of us don’t like to be idle; rather, we like to accomplish something. If necessary, most people will readily volunteer to work for low wages or occasionally even no wages (charitable works) just so we have the opportunity to exercise our God-given creative talents.
Pope Leo also knew that a labor rate negotiation, like all negotiations, tends to be about power.  The stronger party always gets the better deal, and the large employer tends to have the power in a negotiation with an individual worker.  If the individual worker is offered a low wage, he has very little bargaining power because there always seems to be another who will take the job.  Free bargaining between management and worker often does not result in a fair wage. 

Accordingly, the Church recognizes three principles that are necessary for implementation of the just wage: the principle of need, the principle of equity, and the principle of economic order.
Tim cook was paid $238
million last year as
Apple's CEO.
Need relates to the wage rate required to sustain the individual worker and his family.  Workers who live in more expensive cities need a higher wage.  Equity defines what is due to a person because of the value of the particular skills, effort and talent that person is able to bring to the job. Thus, someone with the skills necessary to invent new products or hit a 97 mile per hour fastball should earn more than the person who flips burgers.  Economic order refers to the fact that the individual’s work and the firm itself must generate sufficient values to pay the wages.  In other words, fair wages must be sustainable. This means that for the same work, it is just that a successful enterprise like Apple might pay a higher wage than a struggling start-up business or not-for-profit organization.  
Applying the Principles
Let’s apply these principles to the opening example.  Regarding the cashier, if this young man lives in a high cost of living city like New York, his wages are likely insufficient to pass the needs test, and are unjust.  Businesses have a responsibility to calculate how much employees need in order to handle their responsibilities, and pay wages accordingly. 
The market researcher’s wages look pretty good in comparison, until you realize that they are $20,000 less than what a competitor pays for the same work.  Still, the first firm is justified in paying less than the competitor if the company can demonstrate that the payment of a competitive wage is unsustainable due to the precarious financial health of the firm.  However, if this pay inequity continues after the firm has attained good financial health, it would strain credibility to say that financial difficulties are the primary reason for the pay inequity.  
Tim Cook’s salary ranks as one of the highest CEO salaries in the world and Alex Rodriguez’s salary is the highest for an athlete, but the Church does not begrudge them for their good fortune.  Although neither wage is justifiable based upon need, and it’s a stretch to say that either are based upon equity (since most CEO’s or baseball stars are paid far less), a case can be made that these extreme wages are justifiable based upon economic order.  After all, Apple is now the world’s largest company and the New York Yankees are the world’s most successful baseball team.  It is a matter of prudential judgment whether Tim’s or Alex’s performances are integral to the organization’s success.  However, these extreme pay levels would be a violation of economic order should they cause the organization to struggle financially; and it certainly would be morally wrong if the high pay level of one employee requires cutting back the just pay of another employee.

Most of the time, however, the just pay problem occurs at the lower end of the pay scale. In the book, Leading Wisely in Difficult Times, authors Michael Naughton and David Specht tell the story of Rheel Manufacturing Company, a Silicon Valley manufacturer of injection-molded computer parts.  The management team wanted to make sure that the competitive pay scales they were using to hire employees did in fact meet the standards of need, equity and economic order so that they could be considered as “just” wages. 
After evaluating the cost of living in the area, typical employee family sizes, and other economic factors, the management team was disappointed to find out that the pay rate for one class of workers was insufficient.  Further, it was deemed that if the team raised the rate of pay to a just level, it would place the company in a non-competitive position.  Often times, a solution can be found by redesigning the job, and that’s what happened in this situation. By delegating more authority to the individual worker, less supervision and less support functions were needed.  This upgrade reduced overhead costs and made it economically possible to pay a just wage for these employees.
Companies have a moral responsibility to pay just wages, and accordingly, more firms should follow the example of Rheel Manufacturing and evaluate need, equity, and economic order in determining their wage rates.

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Wednesday, September 5, 2012

What are Your Faculty Up To?

One of the most motivating and impressive features of studying Business and Economics at The Catholic University of America is the access to extraordinary faculty. As Dr. Abela mentioned in his orientation presentation for new students, our faculty put the phrase, “those who can’t do, teach” to shame. Our faculty members have held top executive positions with Fortune 500 companies, they’ve been presidential appointees, they’ve been Fulbright Scholars, they’ve been named “DC Professor of the Year” and they’ve traveled the globe for business and research—needless to say, our professors teach and they do.

For this reason, over the course of the fall semester, our department will host a “Faculty Research Series” which will highlight the recent work of several remarkable professors.

These lectures will take place in the Edward J. Pryzbyla Center, Room 327 at 1 PM on the days indicated below. They are open to all who wish to attend. Please see the schedule below for more detailed information.

Monday, September 17th
Dr. Jamshed Uppal, associate professor of finance: “Extreme Loss Risk in Financial Turbulence - Evidence from Global Financial Crisis.”

Monday October 1st
Dr. Rick Cummings, associate professor of accounting at University of Wisconsin-Whitewater: “Accounting Education Pedagogy for the 21st Century.”

Monday, November 5th
Dr. Frederic Sautet, visiting associate professor of economics: “What is Austrian Economics?”

Monday, November 19th
Dr. Martha Cruz-Zuniga, clinical assistant professor of economics: "Achieving Sustainable Development: An Integral Economic Approach."

Monday, December 3rd
Dr. Brian T. Engelland, professor of marketing: “Virtue Ethics and Pre-Employment Testing of Sales Professionals.”

Come join us for these informative and important lectures.

Stewart McHie
Director, Master of Science in Business Analysis

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