When I was a consultant I traveled throughout the US and worked in many different states and regions. I grew up in the Midwest, where my core values were shaped. A general description of these values in business would be a variant of the “golden rule” – from wikipedia:
The Golden Rule or ethic of reciprocity is a maxim, ethical code, or morality that essentially states either of the following:
(Positive form): One should treat others as one would like others to treat oneself.
(Negative/prohibitive form, also called the Silver Rule): One should not treat others in ways that one would not like to be treated.
This concept describes a “reciprocal” or “two-way” relationship between one’s self and others that involves both sides equally and in a mutual fashion.
This sort of approach wasn’t out of the “goodness of your heart”, it was a fair and reasonable way to approach your customer or supplier. An example – you are working on a job at a price that you both agreed upon, and then you find that things are significantly different than planned and you will come up far short of your original profitability or even lose money on the job – what do you do?
You approach the customer, subtly, and describe some of the new or unseen events that have changed the scope of the project since inception. The customer has a few options – they can 1) give you nothing and tell you to “eat the difference” 2) split the difference on some of the unforeseen items which may not make you whole but softens the blow 3) not change the current deal at all but implicitly or explicitly tell you that there are future opportunities to make yourself whole.
More often than not, we eventually came to a #2 type resolution, although it was often linked with a #3 type opportunity. Rarely were we just told to “pound sand” and take the #1 option.
Why is it this way? On the surface it would seem that, as a customer, #1 would always be preferable. You have a binding contract, why not stick it to your vendor? A few reasons – a bitter vendor is unlikely to do good work, and will look at the contract in detail to find a way to stick it back to you by living to the “letter” not “spirit” of the agreement. An additional component is that if you behave as if life was a series of single transactions with no consequences to others (i.e. a series of #1 events), you eventually end up with a reputation as a “bad customer” and this will come to damage you in various ways; often it will get raised from the vendors boss to the customers’ boss at the golf course or some other type of less formal venue; and most companies don’t want a reputation for being difficult and vindictive. An additional element is that this type of behavior is generally not how people in the Midwest live their lives – it will probably be correlated with other types of behaviors (selfishness, not looking out for co-workers, extreme ambition) that will lead to at least a mild ostracism or at least career damage.
The second part of a series of #1 issues is that the SUPPLIER can just walk away from the job in the first place if they aren’t going to earn a sufficient profit. Sure, you can sue them, but the courts take forever and meanwhile, whatever project you hired the supplier for in the first place is languishing (i.e. a product launch, or a cost reduction project, etc…). This is a variant of the golden rule on the part of the supplier, which means that they have an obligation to do the best work possible under the spirit of the agreement to make the purchaser look good.
In my limited experience the apex of #1 experiences on all side was New York. Even the simplest item became a desperate bargaining scrum, with both sides scouring the other for weaknesses and gleefully “sticking it to them” whenever possible. If you approached a NY transaction with the attitude of a midwesterner, you were going to get screwed, because they were going to walk all over you and push for favorable terms and lord over you their advantages while you would be loathe to use the same tactics in return. Soon even the dimmest types have to take on #1 attitudes, and then regular update meetings are just taking turns throwing the other guy “under the bus” and scheming to leverage the fine print. A real joy.
The difficulty with #1 behavior is that it “negates” itself when confronted by both parties using this set of tactics. Now you get back to equilibrium, but the entire transaction and work effort is bitter and poisoned. As far as future work, you just “roll forward” your grievances into the NEXT transaction and find ever more creative ways to win with #1 tactics in the future, as both sides escalate.
The total of #1 behavior on both sides over time isn’t better than “golden rule” or Midwest behavior – you get back to the same equilibrium either way – and in the Midwest model of reasonable assumptions and giving the other guy a break and not living by the “letter” of the law, the entire process isn’t poisoned and miserable all along.
The “Dick” Economy:
Recently I read that lenders were paying homeowners not to “trash” their houses during short sales; the lenders would give an amount of money sometimes in the tens of thousands to current residents (don’t want to call them “homeowners”, because they obviously own nothing it is a short sale) to keep the homes tidy and work with prospective buyers as they tour the home. In this instance the current resident isn’t even paying their mortgage, and yet the bank is paying them MORE to not trash the home, to boot. This is an example of “the Dick economy” where we have to assume negative, single-transaction behavior on the type of actors.
A similar example is a horror story of someone in Chicago I know who rented to a prosperous engineer who promptly failed to pay any rent at all and then due to the slow process of eviction was able to live rent free for six months. The time would have been far longer except that the home owner had a contact with the sheriffs department that allowed the process to get expedited. It is interesting to speculate that the type of moral indifference that lets people strategically default on loans wouldn’t come up in more forums; after all, if you don’t pay your mortgage and live free in your house for years, why wouldn’t you play that same trick on the stupid landlord who lets you come into the building?
New York, on the other hand, has this figured out. Want to rent in New York City? You need to have your income verified and have a co-signer. If you can’t pay, they go after whomever co-signed. And you can believe that they are going to do this. New York expects #1 behavior among all players, and the game is played that way.
It will be interesting to see if “walk away” behavior infects more of the Midwest and we all end up like NYC. If people start to walk away from mortgages and then push the rental situation to the same place, you can bet that soon a co-signer or many months of pre-payment will become the norm here.
Cross posted at LITGM