Bottom Line Ethics

It’s May, and another semester is over. It’s time to turn my attention to the important things of life, like sports. Unfortunately, my two favorite baseball teams, the Orioles and the Astros, are each firmly ensconced in last place, and likely will be for the duration of the season. The NBA just had its powerball lottery to find out who gets to draft John Wall, the Kentucky point guard who is leaving after one year and may have to race to beat his coach out the door. The winner of the lottery was the Washington Wizards, who used to be the Bullets, before that unfortunate moniker became symbolic of the plight of our nation’s capital. The NBA playoffs drone on to the inevitable Lakers-Celtics final.

But the real attention is being paid to two NFL players, Houston wide receiver Andre Johnson and Tennessee running back Chris Johnson, who want to have their contracts renegotiated. Both are arguably among the best players at their positions, and it is understandable that they are interested in being paid more. They are not actually holding out, since this is the season of voluntary workouts. But these types of posturings often end up with players being late reporting to training camp, and generally violating explicit parts of their contracts. Theoretically, fines result, but often negotiations will end up minimizing or eliminating those fines, perhaps in the context of a restructured contract.

So is it ethical for players to do this? It is legal, as long as they are willing to live with the terms of the contract, or retire, and they do not play for another team. It is certainly self-interested behavior, and it is rational for people to act in their self-interest. It is really the only leverage these athletes have. But is it ethical?

Well, technically, yes—this is what we call ethical egoism. In other words, what is ethical is what is best for me. But in the sense of what most people think of as ethical, the answer is no. Yet these players will have many apologists in the press who will excuse the behavior because NFL players have a short window of opportunity, and their careers can end at any time, and NFL owners will ruthlessly cut them if they are hurt. All of these claims are true. But it is still unethical for NFL players to hold out when they are under contract.

Andre Johnson is burdened by an eight-year, already renegotiated contract under which he received a guaranteed $15 million. I am not mocking the amount that he has received, and my opinion does not depend on the details of the numbers. Assuming it was an arm’s length transaction, whether or not he used an agent, he signed the deal weighing his risk and return. This risk included his potentially short career and the aforementioned heartlessness of management if he is hurt. If he was deliberately misinformed by the Texans, then my opinion would change.

Ethical egoism, of course, does not value the keeping of promises. Ethical egoists will ignore promises unless they believe the cost of violating the promise will exceed the benefits. For a football player, there are at least two costs to consider—the legal costs of violating the promise and the reputation costs of being a proven liar. Any rational person who is negotiating with a known liar will demand a bigger return, which means that future football teams’ negotiations with the player will not yield the player top dollar. But if a football player sees his career as limited to a few years, he calculates the reputation costs as being near zero. He may never get to negotiate another contract. So all he has to calculate is the legal costs, and that’s why he has an attorney. And if he feels no duty to keep promises, then what he does is hold out.

Team management does cost-benefit analyses as well, and their calculations may cause them to choose to renegotiate or, in the case of Denver’s Brandon Marshall, trade the player to get value. I may personally prefer not to negotiate with liars, but they are looking to maximize their self-interest as well. But once you renegotiate one player’s contract, watch out for his teammates to come calling, particularly those the team can least afford to lose. I think those costs are routinely underestimated by NFL teams when they deal with the Johnsons of the world.

Andre Johnson could have insured that he would get full market value by signing one-year contracts, or at least short-term contracts. But he would have had to live with the risk that the full market value for his services in a given year (and forever), likely because of injury, was zero. Professors complain for similar reasons, particularly when people are hired in at higher salaries. We want to receive market value, but the market is determined for those who are willing to leave their universities, not for those who want to stay where they are. You have to be willing to assume the risks that go with moving to a new place, with all its uncertainty, if you want to make top dollar. And, in some cases, you have to be willing to give up tenure. The return is linked to the risk.

What professors want is what Andre Johnson wants—return without risk. It’s great if you can get it, but it takes a fool being on the other side of the transaction. Andre Johnson is not holding out, and he has the right to posture all he wants during voluntary workouts. He is just being selfish. But if he holds out this summer, he is violating a promise, and he is being unethical.

As a freshman accounting major I was required to take two science courses. Since I placed out of chemistry, I was able to choose whatever I wanted for my second course. I chose Astronomy, one of the two smart course choices I made during my undergraduate career. (The other was Sports in American Life.) I loved that Astronomy course. It had just enough physics that I could still follow what the professor meant, but not enough to make it evident that my high school physics teacher was more interested in the girls P.E. coach than in teaching physics. In fact, I enjoyed it so much that I signed up for a second astronomy course simply because I had room for an elective.

The second course bore no resemblance to Astronomy as I had come to know it in the first course. The enticing title of the course, “Black Holes and Stellar Masses,” quickly devolved into the droning of an incredibly boring professor on topics indecipherable to man (or at least to accountants). For some unknown reason, if you look at my undergraduate transcript, the course is listed as “Astronomy Bizarre.” How apropos. What began as a wondrous exploration of the mysteries of deep space became an obsession about how much mass could collapse upon itself.

I used to teach at a university that had a live lion in a habitat on campus. Please note that I said “a lion”, as in only one, meaning that this lion was unhappy most of the time. (The current lion is much happier, because they expanded the habitat and gave him a female companion.) It is interesting and unique to have a lion on campus, the kind of thing that you like to tell friends about who live on less savage campuses (no offense, Reveille). I actually stayed in the President’s Home on campus during one visit before I started teaching there. I awoke at 6 a.m. to a jungle roar.

I did not understand lions, because it was not really my job. But it was possible that this creature that I did not understand could significantly affect my life. I can remember thinking to myself, what exactly is the plan if the lion gets out? If I am going to lunch, and I look up to find myself face-to-face with a lion, what is my next step? There may well be a documented plan, but I guarantee you that no faculty member on that campus knew what it was. And those who did were unlikely to carry it out in the heat of the moment.

This brings me, logically, to the 1000 point intraday drop in the Dow last week. As I write, people are still speculating as to what triggered the selling spree that caused Procter and Gamble to plunge 36% and consulting firm Accenture to temporarily trade at a penny. Watching the market the other day and listening to people describe their emotions and decisions reminded me of a bunch of professors trying to decide what to do now that Leo is out of the cage. The popular term for unexpected events in the market is “Black Swans”, after Nassim Taleb’s book, Black Swan: The Impact of the Highly Improbable, which claims that these devastating “unlikely events are far more likely than most investors believe,” according to Tuesday’s Wall Street Journal. In fact, a hedge fund advised by Taleb made a $7.5 million options bet that the market would fall, and this transaction may have started a string of transactions that caused the Dow’s dramatic drop.

Things eventually turned, with some people taking advantage of the situation and some transactions being unwound after the fact. But this black swan was a “loose lion” moment for many people in the market, something they had not experienced before. The markets have chosen efficiency over accuracy, and with electronic high-frequency trading firms providing the bulk of the trades and much of the market liquidity, rapid adjustments of this sort are likely to happen again. Of course, safeguards will be put into place. Leo’s habitat will be redesigned to make escape much more difficult.

But today people are wondering—can one influential trade linked to a bunch of trading robots cause a market disaster? How do I hedge the risk of this type of event happening? The black swans of today are the black holes of my yesterday, collapsing all mass within reach on top of themselves. And as happy as Leo is on a normal day in his habitat, what do we do if he gets out?

The oil slick from the Deepwater Horizon oil rig continues to grow to unimaginable dimensions in the Gulf of Mexico, as the giant multinational BP desperately tries to drill a relief well and install giant metal boxes to divert and control the oil flow. It seems almost unfair, as the Wall Street Journal noted Monday, in light of CEO Tony Hayward’s yeoman efforts to change the BP culture after the Texas City refinery explosion. In a way, the situation is a metaphor for the many and varied ethical situations that people and companies encounter.

It remains to be seen whether there is anything involved in Deepwater Horizon beyond the technical failure of equipment. But regardless of how blame is eventually apportioned, BP wants only one thing at this point, literally and figuratively. Whether it is in a valve that is a mile below the surface of the Gulf or in the media and courts, the company is desperately seeking closure.

We have seen this cyclically this spring. Last week it was Goldman Sachs testifying before Congress. It would be hard to say that they were actually testifying to Congress, because neither group seemed to actually connect with what the other one was saying. But it was clear, as it is in virtually all Congressional testimony of this nature, that the only thing Goldman Sachs wanted was to get out of there. Even though it is quite likely that they would win a civil case, and there seems little chance, barring significant revelations, that they would lose a criminal case, I would not be surprised to see a significant financial settlement to provide closure.

Tiger Woods has appeared to put things behind him faster than most, almost through sheer force of personality. But you can be confident that there are personal matters regarding his family for which he is still seeking closure. I am sure he is disappointed to lose the endorsements he has, but there is relief in having sponsors choose one way or another. At least it provides closure.

Of course, closure is not always what it is cracked up to be. Jeff Skilling, Dennis Kozlowski, and Bernie Ebbers all got closure, and sentences exceeding 20 years for their parts in Enron, Tyco, and WorldCom, respectively. Skilling is desperately seeking to undo closure in his case, and the Supreme Court has agreed to review his case on several points, including the failure to be given a change of venue.

For me, May is always a time of closure. There are two groups of students who are important to me, one of which I will never teach again, the other of which I may never see again. It is time to say goodbye, and thanks for changing me. They turn away, tack the sail into the breeze, and go away on adventures far and wide. My moment of influence is done.

I once left a school too early, something I quickly realized after arriving at my new university. It was a place where I taught students as many as six different courses, a place where, at graduation, I handed each one a letter telling them how I had seen them change during my years around them. A plaque still sits on my desk today from the juniors at that school thanking me for touching their lives. A year later I drove back 600 miles to their graduation, seeking closure that remains elusive even today.

And this year my daughter, Katie, leaves home for college. There is so much to say in these last few weeks, so much to appreciate, and remember, and embrace. It is time to come to grips with the fact that my job is largely complete. I want a checklist—did I cover everything? Is she ready? I want closure.

All our kids and grandkids will come home for her graduation, and we will spend five days at the beach in Galveston and celebrate a wonderful young woman, and the joy of being a family that is geographically spread, but with hearts knit together by love.

As I sit and look out at the Gulf and reflect on the blessing it has been to be her father, I will have something in common with BP. Good luck to them. I know a little bit of what it is to need closure.

This week’s theater of the absurd features Goldman Sachs appearing before the Senate Permanent Subcommittee on Investigations. When it comes to watching these two groups face each other, the moral high ground is an anthill.

The reason CEO Lloyd Blankfein and other Goldman employees, including the silver-tongued vice-president Fabrice Tourre, will be at the witness table is because the SEC has filed civil fraud charges over the Abacus 2007-AC1 deal. Goldman marketed the Abacus synthetic collateralized debt obligations to a bond-insurance company and a German bank, and allegedly told the bank that the bond-insurance company had selected the bonds that would be tracked. Instead, Goldman allegedly allowed John Paulson’s hedge fund to have significant input regarding what bonds were included. And Paulson’s bonds were allegedly designed to be lemons that Paulson could strategically bet against, on the other side of the transaction from the bond-insurance company and the German bank. Paulson’s hedge fund made over a billion dollars on the deal; guess who lost the billion? Oops.

I used the word “allegedly” three times in the last paragraph. This is never a good sign. It means that people who seem to have trouble telling the truth are on the loose again. One person who apparently cannot get enough of telling the truth is the above mentioned Tourre, who made a series of unfortunate comments in girlfriend e-mails, including referring to himself as “Fabulous Fab” who was “… standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” In another note he indicated that he had “…managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians love synthetic ABS CDO2!!!” He also indicated that he was “[n]ot feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job. … amazing how good I am in convincing myself!!!” I think this is why the word “ironic” made it into the dictionary.

But Goldman has managed to hit the headlines twice, thanks to allegations that a member of their board of directors, Rajat Gupta, provided inside information about Warren Buffett’s intention to invest in Goldman in September 2008. Unfortunately, the alleged beneficiary of the information was Raj Rajaratnam, Gupta’s close friend and former business partner, and head of the very successful Galleon Group hedge fund. Or at least it was successful until Rajaratnam and others were charged in the biggest insider trading probe in decades and the fund collapsed. Mr. Gupta, the former head of consultants McKinsey & Co., has not been indicted, but he will not stand for re-election as a Goldman director. Federal prosecutors in the Galleon case apparently have phone recordings of everything but Mr. Rajaratnam brushing his teeth, including conversations with Mr. Gupta.

So CEO Blankfein gets to appear before Congress and try to explain his e-mail statement that , “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” Uh huh. There are many internal e-mails discussing being on both sides of these deals. These cases are never as cut and dried as Congress wants to make it appear, and bankers are easy to demonize. And it will be helpful for Blankfein and Goldman to have Tourre to point to as a rogue employee, though this may work to Goldman’s disadvantage in the courtroom one day soon.

Apparently, Goldman Sachs is willing to provide full information. The question is whether they are providing it to people who are actually the ones who ought to get it.

My fifteen-year-old son, Nathan, has taken up golf recently. This seems like a relatively healthy balance as a spring sport to complement basketball, which is his primary sport. I also know that it is a great skill to have in the business world, as most rounds of golf involve four or five hours of talking, and 20 minutes of actually hitting the ball. Many deals have been done and relationships forged on the golf course. Unfortunately, every sports headline since he took up golf has been about Tiger Woods. And then, last Sunday, things changed.

Brian Davis is not a household name. He is an outstanding golfer, which is why he plays on the PGA tour. But it would be hard to say that he has been burning it up this year out on the links. Until last week, Davis had played in nine tournaments and finished in the top 40 only once, missing four cuts. The Englishman has never won a PGA event.

On Sunday he made an 18-foot birdie putt on the final hole of the Verizon Heritage Classic to force a playoff with Jim Furyk, a veteran with 14 tour victories. On the first playoff hole, Davis’s approach shot hit the green and then caromed into a hazard. In hitting out of the hazard, he thought he saw a reed move in his backswing, a violation of the “loose impediment” rule that results in a two-stroke penalty. He was not certain, however, and called an official over to review the situation. Slow motion replays indicated movement, and the tournament was over.

I have already seen cynical blog posts saying that he had to call it on himself because there were cameras all around. I have also seen comments that the rule is stupid, and they got the rule wrong, and he won $615,000 anyway. But a golfer who respects the game makes that decision to self-report in the moment, without consulting with anybody else, and with almost no time to calculate the consequences. Unfortunately, hindsight provides steroid-level growth for cynicism.

What the world observed on Sunday was the beauty of self-regulation, something largely forgotten in business today. The accounting profession was “self-regulated” for most of my career. The SEC was there to punish egregious behavior, but for the most part CPAs punished each other and tried to root out those who were involved in unethical behavior. There were periodic scandals that led to calls for reform. But CPAs generally were seen as a restraining force reining in the worst impulses of the marketplace.

This is no longer the case. Too often, CPAs have colluded with clients or at least been fraud enablers. At the center of almost every financial scandal is the CFO, almost always a CPA—Andy Fastow of Enron, Mark Swartz of Tyco International, and Scott Sullivan of WorldCom, to name a few. They were the best and the brightest, and they did their very best to bring the profession crashing down.

But they were not real CPAs. They could not have cared less about the public interest, or people’s pension plans, or the hopes and dreams that parents had for their children. They only cared about themselves. And, as I have written elsewhere, we would have been better off without them. Because they could not control themselves, because they were not self-regulated, Congress gave the accounting profession the gift of full outside regulation in the form of Sarbanes-Oxley and the PCAOB.

What we saw in Brian Davis Sunday were the habits and the conscience of a self-regulated man. It was not an accident that he did what he did, and I am confident it was not the first time he had ever told the truth when it was difficult, and expensive, to do so. Brian Davis is a real golfer.

Not everyone is a real golfer, as my son has discovered in his first year playing tournaments. He has been a witness to rampant cheating, tournament after tournament. We are raising up new Andy Fastows on today’s high school golf courses. Kill the conscience, and you kill the habits that go with it.

And not everyone is a real CPA. Some people would rather get rich than tell the truth. There is evidence that this is true on the PGA tour, and I know that it is true in my profession. We used to be a self-regulated profession. But, then, we used to deserve it.

Note: I actually wrote this several years ago, but the interactions on the blog, some comments in class, and a personal encounter prompted me to share it here.

I strained to hear his voice over the din of traffic a few feet behind him. But, in reality, I already knew what he was saying, because I have heard ministers of various denominations say it before. We were down to the things that have to be said when there is nothing else left to be said. While a small group looked on, we buried Michael Saturday in the last row of the cemetery.

In a high school class that included an Olympic gold medallist and number one NBA draft choice, a Miss USA, and two long-time NFL players, Michael was the only “sure thing” I knew. Admired by every girl under five-foot-five, a polished communicator at seventeen, a scholar-athlete with a ready laugh, the world unfolded before him thirty years ago. He was headed to Notre Dame to make his mark and to follow his destiny. All of us who knew him were aware that great success was inevitable.

Because this was so clear to us, we spent that last year of high school consumed with jealousy. My buddy and I made it our mission to make sure that Michael remained humble, so we began referring to him as “Marvelous Mike,” a moniker that remained in people’s memories even as we said goodbye this weekend. We devised a series of glamorous dates that could be had with Michael and advertised ourselves as “Marvelous Mike’s Dating Service.” We set as our goal to embarrass Michael in ways that would keep him within reach of our mortality.

I moved on with my life, but my buddy turned out to be Michael’s most trusted friend through the years. Each was best man in the other’s wedding, and Ed made sure to keep close ties with Michael wherever he went.

Michael had many successes and some failures as well. The scorebook is perhaps not all that important to the story. He was about to start a great opportunity when they found him in his L. A. apartment, the victim of a heart attack. I do not know the whole story of his life, and I have no need to. I sensed a trace of sadness about it that pervaded the conversations of those more intimately acquainted with the details.

In fact, I felt welcome in the conversations because the days we spent together were actually days in his life pervaded with laughter. I could remember triple dating with Michael and his twin brother in a Volkswagen beetle (what were we thinking?). I recall flying across the grounds of an elementary school in that same Bug, and winning the city soccer championship. I was a co-conspirator in a boondoggle that allowed him to go on a French club trip, even though the required “two years of French” he had taken were in first and second grade. The hardest I ever saw Michael laugh was when I accidentally won a competition on that trip, despite the fact that I had answered the multiple choice test randomly before I ever heard the questions.

In some sense that accidental success characterizes my life. Who knew that I would find Christ and my wife within a year of each other, and that both would shape the track of my entire life? I have had heartache, but the blessings I have experienced have been so overwhelming as to defy logic.

As I listened this weekend, I sensed that the same could not be said about Michael. He had surely had blessings, but his search for peace was ongoing. It turned out that success and happiness in this life are never guaranteed.

Before I left the cemetery, I made sure that I had said “I love you” to two people who should have heard it long ago. And I said an “I’m sorry” that was almost thirty years overdue.

But there was nothing left to say to Michael. I could not tell him that the only “sure things” are on the other side of death, of a hope both sure and secure. I could not tell him that trials come with a purpose, to draw us toward the only One who guarantees real success. I could not even tell him that I loved him.

As I walked away into a gray November afternoon, the only thing I could say was goodbye to a sure thing.

I have been reading a very interesting book by philosopher Daryl Koehn on thinking and acting ethically in a world of unintended consequences. She refers to unintended consequences as a “live dragon” based on J. R. R. Tolkien’s warning, “It does not do to leave a live dragon out of your calculations, if you live near him.”

And yet unintended consequences are left out of our moral calculations all the time. As an auditor, I find it humorous to watch the Congressional Budget Office trying to predict the impact of Congressional bills, most recently the health care bill. Since the CBO is constrained to use a certain set of assumptions, and since those assumptions are largely known to Congressional staff, key provisions of bills are structured so that they will pass muster under CBO provisions. But these estimates almost never represent reality, largely because they do not take into account the changes in behavior that will rationally take place once a law is implemented.

Koehn divides unintended consequences into those that are foreseeable and those that are unforeseeable. Many states that are going bankrupt are magically discovering that public employee pensions are having a huge impact on their deficits. It is not just that these pensions are generous, but that the provisions are set up so that the annuity received in retirement is based on the last few years’ average salary. Predictably, public servants are working almost impossibly high levels of overtime in their last few years, pumping their retirement payments sometimes above what their actual annual salaries were. This is a perfectly predictable unintended consequence of structuring pension plans this way.

Other consequences are not so easy to predict. Koehn gives the example of mosquito nets that were donated to Zambia to reduce the spread of malaria. Instead, villagers sowed the nets together to make large fishing nets, resulting in overfishing that will likely lead to longer-term hunger for Zambians.

When we make ethical decisions, it is tempting to think short-term, and to constrain our minds in terms of potential unintended consequences. There are several reasons for this. First, short-term consequences are the most available to us mentally; they are the easiest to picture. Second, we may actually be able to picture some short-term unintended consequences that we could include in our calculation; this is less likely to be true for long-term unintended consequences. Third, short-term calculations are the easiest to do, and they are the most likely part of the total calculation to be accurate.

I have experienced unintended consequences of my own decisions. I have sometimes made decisions for noble reasons and had a string of bad outcomes as a result. Of course, I can learn and benefit from these outcomes, but it does not necessarily follow that a well intended decision will result in good outcomes. And, in my life, that has led to disappointment.

Someone I know recently decided to leave his wife and change the course of his life dramatically. Besides the expected outcomes of a decision like that, that family’s life is raining unintended consequences, and likely will for many years to come.

I would be interested to know what you think on this issue. Have you experienced unintended consequences that have dramatically impacted your life? Is my friend responsible for all the unintended consequences resulting from his decision?

A couple of weeks ago, optimistic Aggies were brimming with confidence about our basketball teams. And then it happened: the men lost 63-61 in overtime. Then the women lost 72-71. Bummer.

It was probably good for me to wait a week to write this column, because the emotions of disappointment tend to warp my perspective of what has happened in an entire process by focusing on the final outcome. I would be lying to say that I was angry after either loss; there was just a nagging sense of an opportunity missed, particularly by the women. I stepped off a plane from Nashville to see the Gonzaga score staring at me from the TV screen. It was late at night, and I still had close to two hours to drive home.

But perhaps the drive allowed me to begin processing what was going on inside. Disappointment arises because we have expectations, and we generally have expectations because we are experiencing success at some level. So disappointment is not just for the perennially downtrodden. It is a fact of life for those doing best among us. It occurs to me that there are three basic steps that I ought to take when I am disappointed.

The first is to listen. My tendency when I am disappointed is to ignore others’ explanations for what happened and to meditate on my grievances against those who disappointed me. I also have no desire to hear from those on the other side. But sometimes there is something to be learned. If you are going to read opposing fans’ blogs, you might want to skip the comments from “aggiehater” or some other aptly named participant. But as hard as it is, read the column recapping the game. Listen to at least a little critical analysis of why your candidate or cause lost an election. Ask your professor what might have gone wrong in your preparation, and then think about what you hear in response.

The second step for me is to be quiet. I sometimes listen to what people have to say, but I am quick to correct their mistaken assumptions about why I fell short of my goal. The tough thing to do is to sit still without squirming and to be willing not to respond. Being right and making clear why others are wrong seems like a fundamental right; just listen to talk radio. But if I am going to speak, it ought to be just to make sure that I understand what the other person is saying. There will be plenty of time to get things fixed if they are wrong.

Finally, I need to lower the temperature, and the best way I have found to do that is to laugh. It is so important for me to laugh on a regular basis, and the most critical time of all to do it is when the bottom is falling out. I have a friend or two with whom I can be almost completely honest. They know me well. They empathize, but they will not lie to me and tell me that I am better than I am. When I explain a disappointing situation to them, it almost always results in self-deprecating humor, with me being able to see my fallibility clearly enough to mock it. And the healing begins when I am able to laugh at myself.

So listen, be quiet, and lower the temperature. A week later you will feel perfectly comfortable saying, “Congratulations, men’s and women’s teams—we are really proud of you!”

I received a letter a while back from a not-for-profit that notified me that they were looking at borrowing against, or leveraging, the fundamental set of assets that allowed them to exist.  In other words, if they lost those assets because they could not make the payments, they would simply no longer be around.  They were doing so because of significant operating cash flow shortfalls that were systematic in nature.  In fact, they had invested in capital assets that they hoped would increase operating cash flows, and had since seen a dramatic downturn in their fortunes.

No matter what the plan given for rectifying this situation, donors are likely throwing their money down a rat hole.  From a business perspective, this not-for-profit is leveraging the assets they cannot afford to lose under any circumstances, a sign of desperation.  Of course, this happens frequently in business, because the large majority of business start-ups are bankrupt within a few years.  Sometimes it can actually save the business.  But there is the smell of death to it, and the vultures are usually circling within a short period of time.  This not-for-profit probably has few other assets to borrow against, so their behavior is understandable.  But when you have a choice, be careful what assets you leverage.

Though I largely try to avoid debt, there are some assets that it makes sense to leverage.  For example, as loyal Sienna owners, Toyota is willing to sell us a new Camry at 0% interest.  Since our cars have a combined 6,000,000 miles (approximately) on them, this is an attractive offer, especially if you are not bothered by the prospects of sudden acceleration.  Of course, this affects the price of the car, but assuming I can negotiate the price I want, it makes sense to leverage this asset.  If I can’t pay it back, they will come and take the car.  On the other hand, as my readers can readily attest, it would be financial suicide to take out a second mortgage on my house to syndicate this column.

The most important asset any of us have is reputation.  A reputation for truth-telling or dependability enables us to enjoy opportunities that would otherwise be unavailable to us.  There are times I leverage my reputation in order to recommend a student to an employer.  In most cases that is a low-risk decision, but there are a few students that require me to put some conditions in the recommendation so that I protect my reputation.  It is an asset I cannot afford to lose.

We read almost every day about people who have leveraged their reputation for short-term returns—in money, in romance, in success, or in fame.  They leverage their most precious asset, the asset that is their reason for existence, in order to acquire other assets that are not central to who they are, and that are likely to be fleeting.  And when they wake up on the due date for the debt, they have lost forever what allowed them to be who they are.

They are much like that not-for-profit who sent me the letter.  I wish only the best for that organization, and I am hopeful that they will be able to retain those core assets that define them.  But I have heard this song before, and they will not be getting a check from me.

Yesterday we took our daughter on her final, final college visit, the one that cements the decision to attend the college that had your heart all along, and that seems the right fit for you. As I sat on the bench in the sunshine with my wife, waiting for Katie to emerge from a dormitory, I recognized what a crossroads these moments are. My daughter is making decisions that will affect her for the rest of her life. The stakes are higher than they used to be for her and, for the most part, the stakes will remain relatively high for the rest of her life.

Katie is a unique and wonderful girl, and I am confident that hers will be a life that greatly impacts people for good. We have been blessed to raise her for the past eighteen years, but being on campus with her reminded me how much she will need wisdom in the years ahead to make good choices. As a dad, my tendency is to protect my children and to minimize risk in their lives. As a business professor, looking around on that campus, I thought to myself, “Higher risk, higher return.”

But the truth is that every day we are making decisions that require significant wisdom and that will affect future decisions and opportunities. The decision to write this column has helped me more effectively wrestle with some of these issues rather than avoiding them. Teaching ethics helps as well. But there is nothing in life like raising children that makes me truly want to understand what it is to be wise. And it makes me want to help my daughter live wisely as well.

This search for wisdom will likely be a regular theme of this column in the months ahead. Though people disagree over what wisdom means, most people seem to recognize it when they see it. It involves, at a minimum, being teachable and listening to those with more insight than you have. It also involves developing a long-term perspective, rather than just looking at short-term pleasure or returns. In other words, there is not much wisdom in the business world nowadays.

We are susceptible to certain fallacies in thinking that short-circuit wisdom, and I will talk about some of these in the weeks ahead. One of the most common ones among college students is a sense of invulnerability that makes them believe that the crushing consequences of others’ decisions could never happen to them. Practically every day we read about middle-aged men like me or star athletes who have fallen prey to that same fallacy.

But today, as a dad, I sit here quietly praying for my daughter to be wise, and to choose well. A great adventure lies ahead of her. May she ignore the siren song that calls her to the rocks. May she have courage to live by the values she has learned and embraced. And may God’s grace blow full in the sails that call her to her destiny.