Running Business Like a Government

There's a lot that government does right. The private sector ought to take a few notes.
by | April 9, 2009

If there is a bright side to this economic meltdown, hopefully it's that people gain a new appreciation of what it's like to manage government. I couldn't help but chuckle when one of the failing bank CEO's was brought before Congress and asked what he did with the multi-billions of taxpayers dollars his company had received. He seemed genuinely outraged that anyone would dare ask how the money was used.

The CEO's outrage turned to indignation when one of the congressmen had the nerve to ask the dreaded "but-for" question. The congressman simply asked, "Could you please tell us how many more loans you have made since you got this money?" To which the CEO exclaimed that it was impossible to keep track of funds separately and that no one could possibly separate these dollars and show the direct impact those specific dollars achieved.

Really? Because that's what we do in government every day. I remember a colleague of mine who had to fill out four different time sheets every month because his time was split across four separate programs and grants, each of which demanded full accountability for time, money and results. What the bank CEO said was impossible is actually business as usual in government. So rather than giving you advice on how you can help improve government, I thought we would take some time to gloat and perhaps reflect on what we do really well.

Here's what government can teach businesses about their operations:

1. How to have a true appreciation for -- and be good stewards of -- investors' money. One of the most offensive perceptions about government employees is that somehow we are all out there living it up on taxpayers' money. People are quick to lambast government for "wasteful spending." Whether it's a local news crew trailing a government-issued car to the mall, or an elected official chastised for attending a conference in Las Vegas, or a ban on providing coffee at meetings, government workers operate in a fishbowl.

Taxpayer money is rightfully watched with careful eyes. While there are certainly some horrific anecdotes of wasteful spending, my experience with government workers actually reveals a strong commitment to conserving these precious resources. The vast majority of government workers recognize that this is not "their" money. Every dollar we spend on logo pens or employee-of-the-month plaques comes directly from a taxpayer and could either be better used somewhere else to meet a need or given back to taxpayers.

Now imagine for a second if the corporations featured in today's headlines had just a fraction of the regard for their investors' money that we do for ours. Remember the reactions of the bailout CEO's who couldn't understand why we were questioning their purchases? Whether it was a new private jet, a corporate retreat in the islands or the multimillion dollar renovation of a single CEO's office, the corporate reaction was the same: How dare you criticize how I spent my own company's money? Except this time, that money wasn't theirs. It was ours. And these companies are starting to see what it's like to live on taxpayer funds. The problem is not that they shouldn't be blowing taxpayers money like this, it's that they shouldn't be blowing anybody's money like this.

One of the points I make in We Don't Make Widgets , as well as in a previous column, is that all organizations are structurally the same. Every organization has investors who own the organization. In the private sector, these investors are called shareholders. In non-profits they are the benefactors or contributors. In government, our investors are called taxpayers (and yes, I know they are investing against their will).

No matter the sector, the investors demand one thing from their investment: a large return. Simply, they want the maximum return for the minimum investment. For a company, this return is measured in profit dollars. In government, our return is not measured in dollars but in far more important things like a healthy environment, safe neighborhoods, a thriving economy, peace and so on. While we may struggle to accuratly measure our return on investment, we do a heck of a job ensuring we aren't wasting our investors' money. We know that the money we spend frivolously in one area amounts to less money to achieve these important results. Counter that with our corporate friends in the news. When they pay themselves $40 million salaries or blow a million dollars on "teambuilding" exercises, they are taking money directly out of the pockets of their taxpayers/investors. We understand this in government. And so does our board of directors (the city council, county board or the legislature). And so do the media and our investors. All of these eyes are watching.

But, you say, who cares about these fat cat investors? So the rich shareholders don't get as rich because of this spending. Big deal. Well, unfortunately, as you may have learned during this meltdown, these investors are each one of us. Forty-eight percent of U.S. households are also shareholders of companies. These companies are owned by our pension funds and retirement plans. They are owned by your grandmother, your neighbor and your child's teacher. We "invest" over 30 percent of our incomes in government. We should be investing at least another 10 percent in these companies. So my question is, why do we scrutinize every dollar of the 30 percent but only express outrage at the 10 percent when their spending gets so opulent that Michael Jackson blushes? We should expect the same stewardship of our money whether we are investing in public or private enterprises.

2. True accountability. Another thing government is chastised for quite often is lack of accountability. Yet I would put government accountability up against almost anyone else's. Imagine if a large company had to have every unit of every division go to the board of directors every year and justify their existence, show where every dollar went, and beg for the same level of funding (or underfunding) they had last year. This is precisely the level of accountability and transparency in place in city councils, county boards and state legislatures across the country.

And this is precisely why disasters like AIG don't show up in elected officials laps. Sure, we get the occasional runaway budget or cost overrun, but nothing like the epic proportions we are seeing in corporate America today. As company after company is trotted before Congress, I keep asking myself, "Where was the board of directors?" It is the role of the board of directors to protect the investors -- to ensure their money is put to good use and that it maximizes return. Say what you want about elected officials, but on this measure, they are exceeding expectations. Corporate boards could learn a lot about accountability by attending a city council budget hearing. (Of course, they could also learn more than they ever cared to about wastewater treatment, but I digress.)

3. It's not about the money. At the risk of enflaming my debate with the pay-for-performance crowd, I hope one of the lessons we are all learning from this meltdown is that bigger paychecks don't equal better performance. Many are quick to say that the root cause of the meltdown is greed. That everybody was out for a buck. While that is partially true, can you really blame people for playing the game to win?

I'm reminded of the classic quote from Casablanca when Captain Renault exclaims, while pocketing his cash, "I am shocked, shocked to find that gambling is going on in here!" In a culture where everything is driven by money, where each individual is incentivized by money, we are shocked and outraged that people would make risky decisions to make more money. Sure, there have been some amazing acts of avarice, but systemically everybody was acting rationally given the incentives around them. That's what we humans do.

And that is precisely why I rail against importing the "bonus culture" in government. First, the efficacy is questionable (evidence: look how many pay-for-performance agencies have suspended their bonus programs in these rough budget times, yet the performance hasn't decreased). Beyond that, though, the unintended consequences of government bonuses can be downright poisonous. People don't go to work in government to get rich. Most work in government because they felt a tug, a calling. They want to make a difference. This is what truly motivates them.

Yet every time we try to motivate employees in government we do it with money. If we were truly motivated by money we wouldn't be working in government! I don't want to replace public-sector altruism with greed. I don't want to intentionally reward individuals who are actually working in systems, teams and groups. I don't want people's creativity wasted on how best to game the bonus system. Simply put, I don't want the cultures we've just been exposed to in this meltdown.

Contrary to what AIG proclaims, it doesn't take multi-million dollar bonuses to attract and retain top talent (and really, can we call running an entire company, industry and a world economy into the ground a talent?). Brilliant, hard-working individuals leave high paying corporate jobs all the time to join our cause in government. Not for the income, but the impact.

There are still a lot of things we in government can learn from business: how to improve our processes, how to focus on customers, how to use data to drive improvements. But there are also a lot of things business could learn from us. And hopefully what we've all learned from this crisis is that we are all in it together. Business and government, taxpayers and shareholders, CEOs and caseworkers, we all have to work together to restore the systems that make America work.

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